FirstRand Limited (FirstRand), the integrated financial services group, today announced results for the six months to 31 December 2007.
In November 2007 FirstRand unbundled its 57% shareholding in Discovery and therefore these results are presented on a pro forma basis, excluding any contribution from Discovery.
FINANCIAL HIGHLIGHTS
Ø Normalised earnings |
+12% |
Ø Diluted normalised earnings per share |
+12% |
Ø Dividend per share |
+12% |
Ø Normalised return on equity |
26% |
Commenting on the results, Paul Harris, CEO of FirstRand Limited said:
“The local and international financial services environment was particularly challenging in this period. Locally, inflation and interest rates increased more than anticipated which resulted higher bad debt charges particularly in WesBank and FNB Card and internationally the severe dislocation in equity markets resulted in losses in the RMB equity trading division. This meant that the group did not achieve its earnings growth targets of 10% over CPI, in spite of the Banking Group and Momentum having excellent operational performances, although the Group did achieve its ROE target of 10% above the cost of capital.”
Overall FirstRand Limited grew normalised earnings 12% and achieved a normalised return on equity of 26%. The banking activities contributed 10% growth in normalized earnings from R4.7 billion to R5.2 billion and an ROE of 27% with Momentum increasing normalized earnings 19% from R768 million to R 913 million and an ROE of 31%.
With respect to the banking group's performance which contributes 85% of the Group's profits FirstRand Bank CEO Sizwe Nxasana said:
“FNB produced an excellent operating performance, with strong growth generated from its corporate and commercial segments. WesBank continued to experience slower asset growth and higher bad debts in its local lending business, however the losses in its international businesses declined.
Despite the losses in RMB’s Equity Trading Division the investment bank produced a creditable 8% growth in earnings off a large base in the previous period, this was due to the quality and diversity of RMB’s portfolio of businesses.”
The commercial bank, FNB grew earnings 25%. This was achieved on the back of robust growth in deposits (+20%) and advances (23%), and strong performances from its commercial and corporate banking franchises which now contribute approximately half of FNB’s total earnings. Bad debts increased in most of the retail portfolios and these were mainly in line with expectations, except in the Credit Card book which were higher than anticipated.
WesBank, the instalment finance business, continued to experience slowing retail asset growth and a significant increase in bad debts. However corporate sales increased, representing 30% of total new business. The addition of continued, albeit lower, operating losses in WesBank’s international operations, resulted in normalised earnings decreasing 14% to R462 million.
RMB, the investment bank, grew earnings 8% despite R760 million of losses in the Equity Trading Division. The remaining divisions in RMB’s portfolio, Private Equity, Fixed Income Currency and Commodities and Investment Banking, all grew very strongly.
Momentum’s insurance operations showed continued strong new business volumes with margins holding up and collaboration with FNB in the mass and middle markets also delivering excellent growth. This performance resulted in earnings growth for the Momentum Group of 19% and a return on equity of 31%.
Looking forward Harris said that the Group anticipates a tougher second half.
“Continuing volatility in global and local equity markets, combined with rising inflation and interest rates are expected to continue to negatively impact profitability,” he said.
“The Group is therefore cautious regarding earnings prospects for the year to June 2008. Whilst the diversity of FirstRand’s portfolio positions the Group positively for anticipated growth in the corporate segments, the retail segments will continue to face significant headwinds.
Given these pressures and the significant earnings base created in the comparative period to December 2006, FirstRand is unlikely to meet its targeted growth in earnings of 10% above inflation in the current year.
FirstRand’s strategy remains focused on building a diverse portfolio of leading financial services franchises in South Africa. An increased focus on selected niche international opportunities, particularly in Africa, India and Brazil, will contribute to growth over the longer term.
We anticipate that the operational strength of our franchises and the diversified nature of our portfolio, over the medium term earnings will trend back to our stated target”.