FirstRand Group founders GT Ferreira, Laurie Dippenaar and Paul Harris, keep most their shares in separately listed companies RM Holdings and RM Insurance. RMH has the larger market cap (R82bn) primarily through its ownership of shares in FirstRand itself. RMI has a market value of R53bn and owns big stakes in MMI, Discovery and Outsurance. Newly appointed CEO of the two companies, Herman Bosman, came to the CNBC Africa Power Lunch studio today to provide an update on the progress towards creating a promised fifth leg. – AH
ALEC HOGG: Welcome back to Power Lunch. It is an inauspicious day. Thirteen years ago today, was the infamous 9/11, but we move on and it is certainly an auspicious day for our next guest because Rand Merchants Insurance Holdings has reported a rise of 28 percent in full year headline earnings per share. Why it’s auspicious is because this is the first set of results that Herman Bosman will be in the hot seat for. He’s the Chief Executive of RMB Holdings and RMI Holdings – R135bn market cap that you’re responsible for, Herman. The numbers today do reflect lights being shot out again, so we’ve had very good results coming from Momentum, even better results from Discovery, and Outsurance is doing pretty well. They’re three of your four legs, the other leg being FirstRand itself. The question has to be, at some point in time, the outperformance surely has to come back.
HERMAN BOSMAN: Thank you for being here, Alec.
ALEC HOGG: No, thank you for being here.
HERMAN BOSMAN: Firstly, credit must go to Peter Cooper. He is retiring from his executive position, so I think whereas my name is at the bottom of the results; it’s really the teams and Peter’s results. However, your point and your question around ‘where to from here with the portfolio’: we set ourselves a task to be value-adding and active investors in leadership positions in terms of financial services. If you look at the results of FirstRand in the RMH stable and you look at MMI, Outsurance, and Discovery our sense is that we have achieved some sort of leadership position in terms of those industries: banking, short-term, health, and life insurance. That position and the results, which have come through from all those companies both in an absolute sense as well as relative to the market, will stand us in good stead in terms of the difficult times ahead.
All companies reported and commented on the fact that there’s going to be maybe macroeconomic, global, and consumer confidence in the consumer’s own financial position.
ALEC HOGG: So they are nervous in the boardroom.
HERMAN BOSMAN: I think they are nervous. Maybe not nervous, but there’s certainly a realisation that it may be more difficult going forward.
ALEC HOGG: Herman, when we last spoke, you were talking about your fifth leg. Now, you’ve given us the four I guess, with the exception of MMI, which is not quite the market leader in its field. The other three certainly are today. How is your fifth leg shaping up?
HERMAN BOSMAN: We’ve seen fantastic results. If you look at their…27 percent up last year.
ALEC HOGG: Yes, so they’re moving in the right direction. Where is this new player, though?
HERMAN BOSMAN: What we’ve done to date is we’ve appointed a new investment team. They’ve started in July this year, so they’re all in situ and working hard, and I think that’s the first point. Secondly, we will look across the financial services landscape in South Africa for the traditional acquisition opportunities while not neglecting the fact that in a very small way, we would want to enhance the leadership positions that we have in our existing businesses. The addition or refinement to that, which is important, is that we are as a company and as RMI, we really want to focus on some of the disruptive technologies coming into the financial services space, but not ignore some of the dynamic entrepreneurs that we’ve seen coming through either. It may be small…
ALEC HOGG: How do you pick, though? How do you choose another Adrian Gore?
HERMAN BOSMAN: I think there’s no science to that. It’s through the understanding of the concepts of the marketplace. We learn many lessons from our vantage point in terms of those market segments that we see. Our initial sense is that we are very well positioned in the high LSM market in those spaces. One of the things that we are considering as a team is in the emerging market spaces – LSM4 to LSM7. How do you distribute to them? What are the products that you have to do? We have to balance that against regulatory and compliance costs, so that’s one of the themes are really starting to understand (or hopefully, starting to understand).
ALEC HOGG: So the scanning continues. You have the team in place. We had some interesting discussions here with the FirstRand results about Wesbank, in that it is now starting to spread its wings into areas where it will begin competing with other members of the FirstRand Group.
HERMAN BOSMAN: Yes.
ALEC HOGG: Would that be a possibility to be spun off and in fact, to be housed with you?
HERMAN BOSMAN: I read your interview with Patrice Rassou.
ALEC HOGG: Patrice is a smart guy.
HERMAN BOSMAN: Very smart. The point is that firstly, we do tolerate and we encourage competition within the Group. If you do the economics and the numbers around this, it may be better to have more than one horse in the race. Not only does it improve your chances of winning, but it also feels as if you are competing against the rest of the market – maybe in a uniform way. As far as Wesbank is concerned, we always go through our portfolio in terms of ‘what’s the best fit’, but I think it’s fair to say – and this is really a question to Sizwe at FirstRand – my sense from our vantage point would be that banking has become a scale play. It’s a scale in terms of compliance platform systems. Therefore, if you don’t have those benefits of scale you may be in a far worse competitive position. The FirstRand model lends itself to business units feeling autonomous and feeling independent, and yet having the benefits of the bigger group behind them.
ALEC HOGG: Well, you’ve just squashed our speculation on that one. Thank you. Herman Bosman is the Chief Executive of RMH and RMI.
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