FirstRand delivers 13% earnings growth as dividend payout hits record

0:00First round group reporting its earnings were down 5% for the year to the end of June, mainly because regulators in the UK have ruled the group must increase its payouts for car loans, taken through its British arm eldermore. First round is now selling that group. They made that care a little while ago. Without that though, their normalized earnings were up 13%. Mary Velocasi is the CEO at first round. Mary, good evening and thanks so much for your time. You must be disappointed at how the situation in the UK has turned out there. Still some processes to go through there, but it does look like it's going to cost you a lot more money than you are originally hoping for. Yeah, no, Steven. Interestingly enough, when I look at the situation that we've had to navigate in the UK and I reflect on where I was this time last year. For us, actually, the worst is almost behind us. As opposed to these are numbers that we've

1:00internalized some time back around how much this redress scheme is going to cost. We put our best foot forward in some of the legal challenges. So it is what it is and I guess our conclusion was that we can't operate in that market and sometimes there is peace that comes with getting to the end. I don't know how long that's going to take for the actual payments and the redress scheme to be finalized. It's being challenged, but I believe we've put in key provided for it. I think the risk of a top-up will be a small amount. Most importantly, the business that we are selling all the more. We are also hoping that by the end of the year, we would have gotten to a place whereby we've selected a buyer, which is basically non-binding offers. But I've been encouraged with the quality of the people who've shown interest. So I am hopeful that that one will be able to say we are. I think the business will probably be in better hands if

2:04it can actually be bought by a business that's got a deposit and a funding base and I think it would in the fullness of time. As you can see, our return profile does improve without the usual operations and also think that business and somebody else's hands will be more valuable. I guess encouragingly our performances from F&B, R&B and West Bank are local operations and broader African operations have made up. I'm going to come to that because they absolutely have. It can't really get any worse from here. You'd provided for a worst case. You've had to raise provision, but this is kind of it. You say a small top up, but it can't get significantly more damaging from here. I'm not going to talk on behalf of the UK regulations. All the assumptions of how a reasonable person was dealing with the situations, I think those have been blown out. So let's see. But I do believe that we've provided for, we've provided

3:07for, we've provided it prudently. And interestingly, there are discussions now about what happens if the redress scheme is set aside. And if it's set aside, actually then our actual cost goes down. So that's the tale that's going to live with that situation. But I've come to accept that the jurisdiction operates differently. Okay. As you say, your operations across South Africa and Africa are very strongly normalized and continuing earnings up 13%. F&B was up 12%. What's working for you there? Have you been able to make more money through F&B? So, yeah, F&B South Africa and Pateela was 13% up. I think when the broader Africa subsidiaries, they also did well, except in Botswana. So, yeah, so strong performances in retail in particular. And you know, in retail, I guess we've got large customer bases. And the focus has been on making sure that we are growing

4:13customer base, we are growing our customer numbers in the seriously competitive environment. And then, you know, making sure that our customers are deeply entrenched, they deposit with us, we do their lending and provide insurance and invest. And I think what's starting to happen is that you know, we're gaining a lot more traction in those activities that we've always done. I think there's also good energy in F&B, I think that the brand is starting to show up in a lot of places where maybe there had been some gaps. So, yeah, so I think there's a F&B come back story in retail. Okay, and that's in the lower end of retail and also in the private segment. And the credit experience in Pateela was positive. So, that's been pleasing to see. The oil price might be something that derails us for quite some time, but what we did see for most of this year was just improved affordability. Because remember, we rates were two years ago to where we now sit. So, overall, the group has raised provisions of about a billion rent for the for the for potential

5:18oil price disruptions to inflation and rates. But that's the F&B story. I think one of continuing on executing on strategy, looking after customers, making sure that we've got relevant propositions, and that we are competitive because the environment is sitting in the competitive. And then F&B commercial has also been, you know, I think a steady solid contributor over a long period of time. And so, they continue to grow customers. And you know, what we always located and think that's such a big franchise. But yeah, they manage to hustle for growth and find sectors in which, you know, there are certain industries where there's where there's growth. Because in South Africa, I guess you have to look at some industries are doing better than others and you know, you need to follow, try and follow where the action is. So, I was intrigued by what's happening at West Bank. I mean, if you see headlines saying we're buying a lot more new cars as South Africans, you'll think, oh, maybe there's an opportunity for West Bank there. But in fact, their earnings were down 4% and their payments were up 28%. Something not going hundreds.

6:23No, so if you look at the results for the last two years, actually, I'm for West Bank, they've had very strong, they've had very strong advances growth. So, they certainly have financed a lot of the cars that where there's been strong demand in the market. So, that's the first thing. So, now, after two years of very strong origination, I mean, even this year, their advances were up 14%, after those kind of periods, you would expect that your, that your front bookstrain would increase your impairments and then that you would have increased areas because especially since the last the last cohort we opened up to, I think we opened up by a risk class and which we went back to. So, yeah, so I think if we sit back and we look at the book growth, we think that that higher level of implements or credit provisions is warranted. And then there are two most specific things we provided for. So, one of them is for the Middle East conflict, as I've just said, that increased

7:24the provisions further, I think it was about 12% of the 28. And then we specifically raised a provision, or we call it an overlay, for the fact that second-hand prices, we think structurally, the prices are going to come down or for vehicles. So, if we had financed your car five years ago and you want to sell it, and you want to sell it at the moment, there are a lot more options for people who would have been your potential buyers. And so, we just, we're just flagging that for ourselves, not that we've seen the experience, but because car prices in South Africa have come down, we just thought to be prudently provided. So, if we sit back and I look at the results for West Bank, I think they reflect where we are in the cycle. But yeah, I think from a, so the franchise is healthy, we're not worried that we lend to the wrong people. Mary Velocasi, really appreciate the time tonight. Thank you. The CEO of the First Round Group.