FirstRand, the financial services group comprising FNB, Rand Merchant Bank (RMB), WesBank and Aldermore, declared the highest annual dividend in its history as its earnings recovered in the 2022 financial year, surpassing pre-pandemic levels.
The group declared an annual ordinary dividend of 342c as well as a special dividend of 125c for the year to end-June 2022, which when combined amounted to a 78% increase over the 263c paid previously. The combined dividend meant the total distribution to shareholders for the 2022 financial year amounted to R26.2bn.
“We fundamentally believe in paying shareholders first,” FirstRand CFO Hetash Kellan said in the group’s annual results presentation on Thursday.
FirstRand's normalised earnings increased 23% in the period to R32.7bn, the bulk of which came from FNB (60.1%) and RMB (25%) followed by smaller contributions from WesBank (5%) and the group’s UK operations (9%). The normalised earnings of FNB grew 22% year on year to R19.6bn and RMB 17% to R8.2bn.
FNB added 480,000 new customers in the financial year taking its total client base to 10.96-million active customers. While the retail bank continues to pursue a strong digitally-focused growth strategy it actually grew the number of branches in SA to 604, from 599, in the period though those in the rest of Africa dropped from 140 to 131.
RMB core lending advances book grew 18% in the year thanks to what outgoing CEO James Formby, who steps down at the end of September, put down to more positive signs from corporate SA.
“We’re certainly more constructive on the outlook for corporate SA and the critical role they will play in trying to oil the wheels of SA’s growth,” said Formby. “People tend to see the load-shedding and all the negatives but we see opportunity at the moment.”
While RMB’s investment banking operations in Nigeria face some headwinds due to below-par oil output and weak economic growth, FirstRand group CEO Alan Pullinger told Business Day that that would probably be countered by possible asset sales from its on-balance sheet private equity operations in 2023, which would provide “an earnings kicker” for the unit.
On a group-wide basis though Pullinger said SA would continue to be the main growth driver as it provided the highest returns and profit margins for FirstRand. While he expects FirstRand’s UK operations — retail and SME bank Aldermore and vehicle financier MotoNovo — to be subdued for the year ahead due to surging inflation, he expects a solid rebound thereafter.
“SA will remain the engine for growth, certainly over the next three years," said Pullinger. "I think the UK … needs to get over this massive spike in inflation ... settle in the new prime minister. I would say in 2024 we will start to see more fireworks coming out of the UK.”
Pullinger was notably bullish on SA's macro-economic prospects and told Business Day he did not believe the country would fall into a stagflation quagmire characterised by a combination of slow GDP growth and sustained price rises.
“There might be some other markets where stagflation is a risk but we don't think it’s a risk for SA,” he said.
Pullinger says FirstRand expects the Reserve Bank to hike rates until a peak level of 6.75%, which will be reached in the first quarter of 2023. Thereafter he expects policymakers to hold rates steady until the second half of 2023 before commencing a cutting cycle again, which should support household incomes while boosting consumer and business confidence.
“We’ve got inflation coming back into the range certainly by mid-2023,” he said.
Pullinger said he was “encouraged by the green shoots of progress” on structural economic reforms such as liberalisation of energy regulations, private-sector involvement in Transnet and SA’s ports, and the successful completion of the 5G spectrum auction in March 2022. Nevertheless, he said this momentum needed to be sustained to further enhance SA’s long-term economic growth prospects.
“Structural reforms are really the key piece that has to pick up the slack as the commodity run starts to peter out,” he said. “We need something to fill the gap and it’s got to be structural reforms.”
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