Why S.Africa’s Absa plans to pay higher dividend despite FY earnings drop

PUBLISHED: Mon, 11 Mar 2019 12:09:57 GMT

JOHANNESBURG (Reuters) – South African bank Absa said on Monday its full-year headline earnings dipped by 1 percent in 2018, when taking into account 3.2 billion rand ($221.77 million) in costs related to its separation from British lender Barclays.

Absa, which has re-branded and renewed its strategy as a standalone African bank after separating from Barclays in 2017, announced a final dividend of 11.10 rand per share, up 4 percent from the previous year.

However, when taking into account the divorce from its parent, headline earnings per share (HEPS) decreased and costs rose by 8 percent and its return on equity fell to 13.4 percent.

HEPS – the key profit measure in South Africa – stood at 1,703.7 cents in the year ended Dec. 31, compared with 1,724.5 cents in 2017.

The bank was pleased with its improved momentum in 2018, a year which saw “almost unprecedented” activity for the bank and a “challenging backdrop”, said Rene van Wyk, interim CEO, Absa.

“With major changes bedded down in 2018, the framework for the business has been reset,” he said, adding it can now deepen efforts to deliver against its ambitions.

Absa – one of South Africa’s biggest lenders and a prominent brand across southern and eastern Africa – is hoping a new CEO, an aggressive strategy overhaul and restructuring can reset its performance, which has lagged behind competitors and left investors sceptical.

Once South Africa’s largest consumer lender, Absa’s retail offering, which contributes more than half of overall revenue, has lost market share in recent years.

While the South African retail division grew lending and deposits, higher impairments in some units, including auto loans, resulted in earnings growth of 2 percent.

A 76 percent surge in impairments – the result of exposure to one large single name – also dragged earnings lower by 1 percent in its corporate and investment bank, where costs exceeded revenue growth.

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Absa also wants to double its share of revenue elsewhere in Africa from 6 percent to 12 percent in the medium-term, joining peers such as Standard Bank in turning towards fast-growing economies elsewhere in Africa in the face of economic stagnation at home.

The lender’s operations outside of South Africa grew earnings by 9 percent.

($1 = 14.4296 rand)