Rand Merchant Bank Holdings (RMH) will see a significant windfall from the Discovery deal, in which it acquired its card customers from FirstRand for R2.3 billion.
However, the group said that this won’t be reflected in its headline or normalised earnings for the year, with the group choosing to only include in its International Financial Reports Standards (IFRS) reporting.
RMH released a guiding statement on SENS on Tuesday (26 February) around the deal, noting that as a 34.1% owner of FirstRand, the impact of the Discovery Card transaction will flow through to the interim financial results of RMH for the six months ended December 2018.
In terms of IFRS, RMH’s portion of FirstRand’s realised profit on the Discovery Card transaction will be included in ‘earnings from associates’ for the six months ended December 2018.
FirstRand however excludes this profit from headline earnings due to its capital and non-operational nature – treatment of which is in line with the South African Institute of Chartered Accountant guidelines.
RMH said it will follow this treatment, and accordingly the realised profit will only impact RMH’s IFRS earnings and not its headline nor its normalised earnings.
“As previously communicated to shareholders, RMH believes normalised earnings are a more accurate reflection of underlying operational performance,” it said.
The windfall from the sale will have a significant impact on the group’s IFRS earnings, however, which it sees being between 28% and 32% higher than the prior period.
This translates to a guidance of between R1.147 billion and R1.311 billion higher from the R4.097 billion reported for the six months ended December 2017.
Rand Merchant Bank will publish its financial results on 13 March 2019.