Assisted by buoyant market conditions and the group’s diversified income streams, financial-services group FirstRand boosted headline earnings by 32% to R7,6-billion for the year to the end of June.
This translated into headline earnings per share of 146,2 cents, which were 32% higher than last year’s earnings of 111 cents per share and exceeded an I-Net consensus forecast of 137,2 cents per share.
Excluding the impact of foreign-currency translations, the growth in headline earnings was 20%.
The group declared a total dividend for the year of 55,1 cents per share, compared with 46 cents last year. This was slightly lower than the 58,5 cents per share that most analysts polled by I-Net Bridge had expected.
“These results were achieved in a favourable economic environment, which provided strong organic growth opportunities, particularly for the banking group. This was evident in the high levels of new business growth at Rand Merchant Bank, WesBank and First National Bank and resulted in the banking group producing headline earnings growth of 35% to R6,5-billion,” FirstRand said on Tuesday.
It added that the sustained lower interest-rate environment continued to result in a margin squeeze, the impact of which was partly offset by improved credit quality and a lower bad-debt charge, as well as an absolute increase in advances and deposits.
Momentum produced excellent results by growing headline earnings by 19% to R1,287-billion, with earnings attributable to ordinary shareholders increasing by 28%.
“These results were driven by strong new business inflows, significant growth in assets under management and a focus on expense efficiencies.”
The group’s health and life insurance subsidiary, Discovery, delivered a strong performance for the year under review with headline earnings increasing by 32% to R350-million.
“This performance reflects strong growth in all Discovery’s businesses, with new-business annual premium income increasing by 35% to R4,342-billion,” the group stated.
Commenting on the results, FirstRand CEO Laurie Dippenaar said: “FirstRand group produced an excellent performance, continuing a seven-year history of strong growth in headline earnings, ROE and dividends.
“Whilst this performance was assisted by buoyant market conditions, our diversified income streams, relentless focus on innovation and our ability to leverage many different businesses to create ‘greenfields’ or new sources of growth meant that in many areas of the group we materially outperformed the market.
“These results show that the group continues to be in a good position to deliver sustainable top-line growth.”
Group ‘well positioned’ for 2006
Looking ahead, Dippenaar said the increased economic activity experienced in the past financial year is expected to continue. It is likely that the South African economy will remain in a structurally lower inflationary environment for some time to come, he said.
Interest rates are expected to remain at current levels for the next financial year and while the lower interest-rate environment will continue to place the banking group’s margins under pressure, it is also expected to affect both credit demand and consumer spending positively, albeit at a slower rate than during the past financial year.
“The challenge going into 2006 will be to maintain growth and efficiencies at current levels. The banking group is confident that it is well positioned to continue to achieve real growth in earnings for shareholders in the 2006 financial year.
“The rising level of consumerism in the insurance industry has resulted in an increased focus on product profit margins and the need to achieve scale benefits through consolidation.
“Momentum has taken steps to address these issues firstly by reducing the charges on its latest-generation savings products, and secondly through the acquisitions of Advantage, Sovereign, ALH and Sage. These acquisitions should provide a positive basis for future earnings growth.
“Momentum is currently embarking on a number of strategic initiatives to drive organic growth, including a joint venture with FNB to penetrate the middle market, and the growth of the agency force through the Sage acquisition,” Dippenaar said.
“Barring any unforeseen external shocks and in the context of the current strong economic growth in South Africa, FirstRand believes the existing strategies of the group and the diversified income streams generated from the underlying business units will ensure that the group is well positioned to achieve its stated objective of 10% real growth,” he added. — I-Net Bridge