Solid first half

Angelo Coppola reports from the FirstRand interim results presentation in Sandton. These are the numbers for the six months to December 2004.

Highlights

* Headline earnings - up 23 %

* Fully diluted headline earnings per share – up 21% as the share incentive scheme included

* Dividend – up 38% - due to reduced cover announced last year

* Return on equity - 27%

* Net Asset value - + 16%

* Banking group RoE up 28%

* Momentum ev growth – 21%

* Headline earning growth: Banking group up 23%; Momentum group up 18%; and Discovery up 43%

Laurie Dippenaar CEO of the FirstRand Group, discussing the last six months results’, says that the Ansbacher deal was finally closed and it was sold to QNB, with the money banked at last and the tax dramas notwithstanding showed a 12% compounded return over a 12 year period.

They seem to be focussed on their five pillars – specifically organic growth and collaboration, while it is relatively quiet on the acquisition front, except for the Barloworld book purchase.

There story this half year is one of organic growth – they are happy to be in a fast stream and ‘paddling well’. The innovation front is pumping, and new cards produced by Discovery are surpassing the FNB card distribution – it seems to be these are generally new clients signing up.

More than half of the cars on South Africa’s roads are uninsured, claims Dippenaar, when mentioning that essential OUTsurance will be launching soon to deal with insuring older cars.

Credit scoring challenges in terms of the provision of Discovery cards, for those that don’t traditionally use credit was interesting, and there were some delivery issues, so the marketing campaign was slowed down. They are almost ready to open the taps again, and Dippenaar says that they haven’t even begun their outbound sales programme yet.

There are some start-ups – which cost the group R167m – most of which was spent on the Discovery international operations – these are the seedlings of the future, says Dippenaar.

Businesses included here are Destiny, Pru Health, Pulz, WesBank Australia, and the Discovery card.

Focus areas for the next period include commercial property loans, with some focus on the level above micro finance, that of personal loans. On the credit front the default experience is much lower than what was built into the business model, and this is being evaluated.

Onto matters health - the merger between Pulz and momentum to give birth to Momentum Health with 108 500 beneficiaries are in the net.

On the asset management front within Momentum International Multi managers – the merger has been signed off by the Competition Commission, and they are earmarked to start trading with R38bn of assets under management, as soon as they get their approval from the FSB.

On the African front they are close to finalising two deals which will give them unconventional access to foreign – African – business. Dippenaar will make an announcement shortly.

Costs have increased by 15% at FNB, which added about 2% to the group expenditure line, although the growth in business volumes more than matched the increase.

There seems to be strong performance on the embedded value front at Momentum group, with a marked increase in the in-force business.

On the retail front new business increased by 18%, while recurring premiums increased by 26%. Recurring risk product sales were up 26% and recurring investment sales were up 14%.

On the lump sum front, inflows increased by 17%. Linked product inflows were up 36%; living annuities were up 78% while immediate annuities were down 35%.

In terms of performance in the asset management business of Momentum, they have decided to bring the back-office back to South Africa. A lot was spent on building capacity and this didn’t occur. This is essentially an administration shop of 45 people based in London.

The challenges include limited bank charge increases due to increased consumerism, while on the insurance front, lower and more flexible fees are a reality. Improving efficiencies and generating higher volumes is the approach that Dippenaar will follow, who also says that growth prospects look good, baring any external shocks, in a volatile world.