FirstRand has grown full-year normalised earnings 4% despite absorbing an accounting provision raised for the UK motor commission review, as the group’s portfolio performed strongly in the second half.
The group reported normalised earnings of R37.99bn for the year ended June from R36.63bn the previous year.
Basic and diluted headline earnings per share were 4% higher at 679c, FirstRand said in a statement on Thursday. A final cash dividend of 215c was declared.
“Despite a tough macro environment, a standout feature of these results is the operational outperformance delivered by FirstRand's portfolio in the second half of the year,” FirstRand CEO Mary Vilakazi said.
“This allowed the group to absorb an accounting provision raised for the UK motor commission review, and still produce robust growth in normalised earnings of 4% and a return on equity (ROE) of 20.1%, which is well within its target range.”
Excluding this provision, normalised earnings grew 10% and the ROE of 21.3% moved to the top of the stated range, she said.
“This is testament to the quality of the group's operating franchises, FNB, RMB, WesBank and Aldermore, and its disciplined approach to allocating financial resources to deliver superior shareholder value. Pleasingly the group's high ROE and ongoing capital generation provided the capacity to grow its dividend 8%, which is significantly higher than earnings growth.” Vilakazi said.
The material completion of the UK notice of sums in arrears (Nosia) remediation process made a meaningful contribution. This performance enabled the group to absorb the effect of a R3bn (£127.4m) pretax accounting provision relating to the previously disclosed ongoing investigation by the UK’s Financial Conduct Authority with regards to dealer commissions in the motor finance sector.
About R300m of legal and professional fees were incurred in relation to the investigation. The total pretax impact of these two items relating to the UK motor commission matter is R3.3bn, it said.
Net interest income (NII) was up 10% to R86.1bn driven by core lending advances growth (+6%), continued deposit gathering (+8%) and the capital endowment benefit (+13%). NII also benefited from the weakening rand.
Total group noninterest revenue (NIR) grew 6% to R55.3bn and includes the base effect of the partial unwind of the UK operations’ interest rate risk hedge, which resulted in a loss of £20.7m in the current year, compared with a profit of £25.8m in the comparative year.
FirstRand produced R12.6bn of economic profit, which is its key performance measure, compared with R11.9bn a year ago.
“The group’s segment and geographic diversification played its part in delivering the operational outperformance relative to expectations,” FirstRand said.
The corporate and commercial franchises mitigated some of the strain emanating from the retail portfolios due to the prevailing high interest rate cycle and inflation pressures facing SA households, the group noted.
The broader Africa portfolio delivered a strong performance, with FNB’s broader Africa franchise increasing profit before tax (PBT) 20% and RMB's broader Africa PBT growing 16%. The UK operations produced 18% growth in PBT in pound terms.
FNB expects the SA economy to benefit from an increase in business and household confidence and the new government of national unity is expected to push ahead with the structural reform programme.
In the UK, the anticipated ongoing easing of rates will reduce cost-of-living pressures and should increase demand for credit. The economies of Nigeria, Ghana and Zambia continue to navigate significant economic adjustments, but implementation of structural reforms should allow inflation and interest rates to fall and economic activity to lift.
While absolute advances growth from the SA franchises is expected to exceed the year under review, this growth will continue to be tilted to commercial and corporate, written at lower margins than retail unsecured.
Retail advances growth will remain muted until households begin to feel the benefits of lower inflation and lower rates. The UK is expected to deliver advances growth slightly higher than the second half of the year under review, FirstRand said.
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