Johannesburg - Expansion remains on the cards for FirstRand vehicle financing unit Wesbank as it eyes the Brazilian market, but tough local conditions and problems in its Australian and UK operations have hurt the business in the last year.
"Six months ago, I described the operating environment as challenging; I think we can now change that to tough," said Wesbank CEO Brian Riley, who was speaking at the presentation of FirstRand's full-year results to end-June 2008 on Tuesday morning.
Wesbank is subsidiary of JSE-listed financial services group FirstRand and contributed R734m in operating profit to the group for the 2008 financial year. This equated to a 46% decline in earnings from the previous year.
Credit impairment charge at the business rose by 78% as bad debts increased and Wesbank had to allocate additional funds to make provision for these losses.
Riley believes that Wesbank needs to look at international markets to grow its revenue base as it already has a large portion of the South African market and earnings growth will come from international markets.
Riley said: "We're very excited about the prospects in the Brazilian market."
FirstRand CEO Paul Harris also confirmed at the presentation that Wesbank had been in discussions with Banco do Brasil, a leading Brazilian banking operation.
"Over the last six months, Banco do Brasil has seen significant growth in interest in its vehicle financing operation," said Harris. He believed that Wesbank and Banco do Brasil could become involved in a partnership of some description.
'Tougher than expected'
Wesbank's forays into international markets have yet to deliver.
The company has been under pressure as the Carlyle vehicle financing operation in the UK is struggling and its Australian operations are in the process of being wound up.
International operations had a negative impact on the company's contribution to group profitability: their loss widened to R184m, bigger than the R149m loss reported in 2007.
In 2006, Wesbank entered the UK market following the acquisitions of independent motor vehicle financier Carlyle Finance and Julian Hodge Business Finance.
Julian Hodge Business Finance is a niche player in the asset finance market serving medium-sized enterprises.
Riley said that the UK was about to enter a recession and that the economic climate had been tough, but did point out that Carlyle had recently achieved a monthly operating profit and the business appeared to be turning around.
Wesbank was less fortunate in Australia and in February 2008, the company announced they would be exiting the region.
The company owned the MotorOne Finance and WorldMark businesses which it acquired in 2004.
"The market was tougher than we expected," said Riley.
He confirmed that progress had been made on the disposal of the MotorOne Finance auto loan book, and the business would be sold for around 17 million Australian dollars.
The sale of the WorldMark and personal loan books was also progressing well and Wesbank expected to exit for a profit.