| Tue 18 Sep 2007, 8:30 | | FSR - FirstRand - Audited Results For The Year End |
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FSR
FSR
FSR - FirstRand - Audited Results For The Year Ended 30 June 2007 and
dividend declaration
FirstRand Limited
Registration No: 1966/010753/06
JSE code FSR
ISIN: ZAE000066304
NSX share code: FST
("FSR")
Certain companies within the FirstRand Group are Authorised Financial
Services Providers
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2007
Highlights
+29% Diluted headline earnings per share
+32% Diluted normalised earnings per share
(unaudited)
+25% Ordinary dividend per share
+13% Total assets under management or administration
Introduction
This report covers the financial results of FirstRand Limited (`FirstRand` or
`the Group`), its wholly owned subsidiaries FirstRand Bank Holdings Limited
(`the Banking Group`), Momentum Group Limited (`Momentum Group`) and its
57.1% (2006: 57.1%) subsidiary Discovery Holdings Limited (`Discovery`).
Given the accounting anomalies that impact headline earnings, this report
discloses normalised earnings, which the Group believes more accurately
reflects operational performance.
Operating environment
The South African financial services environment remained robust despite
interest rates increasing 250 basis points between June 2006 and June 2007,
CPIX increasing steadily on the back of higher oil and food prices and a
higher current account deficit. Consumer demand for credit showed some
resilience to the rising interest rates. Higher levels of capital
expenditure, the start of the government`s extensive infrastructure
development programme and increased corporate activity resulted in good
growth in the corporate sector.
Locally, the equity markets remained strong with the JSE ALSI 40 Index
increasing 31% during the year and there was continued volatility in interest
rates and currency markets. Internationally, there were good gains across
most developed and emerging markets, while global credit spreads hit historic
lows. Commodity markets remained strong.
FirstRand`s diverse portfolio of businesses continued to benefit from these
market conditions, particularly in the retail, corporate and investment
banking segments, although the life assurance markets remained challenging.
Financial performance
For the year to 30 June 2007 the FirstRand Group of companies ("FirstRand" or
"the Group") grew normalised earnings 32% and achieved a normalised return on
equity of 28%.
Year ended 30 June
R million 2007 2006 % change
Headline earnings 10 457 8 115 29
Adjustments 1 388 843
Private equity realisations 397 219
Settlement with National - 30
Treasury
Discovery BEE transaction 19 102
IFRS 2 share based expense 401 168
Treasury shares 543 352
Adjustment of listed property 28 (28)
associates to net asset value
Normalised earnings (unaudited) 11 845 8 958 32
Group earnings, headline earnings and normalised earnings per share
Year ended 30 June
R million 2007 2006 % change
Earnings per share
- Basic 222.9 171.6 30
- Diluted 216.6 166.0 30
Headline earnings per share
- Basic 202.5 157.8 28
- Diluted 196.8 152.6 29
Normalised earnings per share
(unaudited)
- Basic 210.2 159.4 32
- Diluted 210.1 159.2 32
FirstRand Banking Group contributed 35% growth in normalised earnings from
R7.5 billion to R10.0 billion and ROE of 31%; Momentum Group increased
normalised earnings 13% from R1.5 billion to R1.7 billion and ROE of 25%.
Discovery Group increased normalised earnings from R424 million to R536
million, representing a 26% increase year on year.
The table below represents the relative contribution to normalised earnings
from the banking and insurance groups.
Year ended 30 % contri-
June
2007 2006 % change Bution
Banking Group 10 041 7 463 35 85
Momentum* Note 1 1 716 1 514 13 14
Discovery 536 424 26 5
FirstRand (100) (169) (41) (1)
Preference dividends (348) (274) 27 (3)
TOTAL 11 845 8 958 32 100
Note 1 - Momentum`s earnings were impacted by the payment of
R2.4 billion (including R500 million paid on 30 June 2006) of special
dividends to FirstRand. After adjusting for this, normalised earnings would
have increased 19%.
All of these performances (after adjusting for the Momentum special dividend)
exceeded the Group`s two main performance targets of real earnings growth of
10% and ROE of 10% above the weighted average cost of capital.
The commercial and retail bank, FNB, achieved a significant increase in
customer numbers, robust growth in deposits and advances, and strong volume
growth, which all contributed to normalised earnings growth of 27% to R 4.1
billion. This was achieved despite a 63% deterioration in the bad debts to
advances ratio (predominantly in the retail portfolio).
FNB Year ended 30 June
R million 2007 2006 % change
Normalised earnings (unaudited) 4 140 3 255 27
Assets 183 257 156 986 17
Liabilities 176 069 153 317 15
Bad debt ratio 0.91 0.56
ROE (unaudited) (%) 33 32
The performance of the Group`s banking operations was underpinned by a
particularly strong performance from the investment bank, RMB, which grew
normalised earnings 82% to R3.9 billion. This was driven by good performances
across the entire portfolio with particularly significant earnings growth
from the Investment Banking, Equity Trading and Private Equity divisions.
RMB Year ended 30 June
R million 2007 2006 % change
Normalised earnings (unaudited) 3 910 2 148 82
Total assets 198 929 164 651 21
ROE (unaudited)% 43 32
WesBank, the instalment finance business, continued to experience "negative
gearing" in its local franchise with retail asset growth slowing and a
significant increase in bad debts, although corporate sales increased,
representing 28% of total new business compared to 25% in the previous year.
These issues, which are to be expected at this point in the cycle, combined
with increased start up costs and operating losses in the international
operations, resulted in normalised earnings decreasing 13% to
R918 million.
WesBank Year ended 30 June
R million 2007 2006 % change
Normalised earnings (unaudited) 918 1 059 (13)
Total Assets 100 479 78 445 28
Bad debt ratio 1.39 0.90
ROE (unaudtied) (%) 18 27
The insurance businesses performed well. Momentum`s insurance operations
showed continued strong new business growth with margins improving compared
to the first half of the year due to increased sales of higher margin
products. Collaboration with FNB in the mass and middle market segments also
continued to produce good growth. Momentum continued with its strategy to
diversify its business with further investments in new distribution channels,
products and markets.
Momentum Year ended 30 June
R million 2007 2006 % change
Normalised earnings(unaudited) 1 716 1 514 13
Embedded value (EV) 15 927 14 438 10
Return on (EV) (%) 28 31
ROE (unaudited) (%) 25 24
Discovery`s performance was underpinned by a solid operational performance
across its business. Discovery Health performed particularly well with a
focus on efficiencies, and grew operating profits 12%. Discovery Life
delivered a strong 29% increase in operating profit reflecting its strong
market position in risk with the value of in force business increasing 35% to
R5.8 billion.
Discovery`s PruHealth initiative in the UK performed as expected with new
business growing strongly, however, the performance of Destiny Health in the
USA was disappointing. Whilst operational initiatives were successful,
financial returns remained below expectations and the Board continues to
monitor and evaluate the strategy going forward.
Discovery Year ended 30 June
R million 2007 2006 % change
Normalised earnings 536 424 26
(unaudtied)
EV 12 826 10 587 21
Return on EV (%) 23 15
ROE(unaudited)(%) 22 22
The relative contribution to the Group`s earnings mix and growth rates from
types of income (retail, investment and corporate banking and insurance) by
business unit is shown in the table below:
R million 2007 % contri- 2006 % contri- %
bution bution change
Retail banking
FNB Retail 2 106 1 741
WesBank 641 867
FNB Africa 456 377
3 203 27 2 985 33 7
Corporate banking
FNB Corporate 365 280
FNB Commercial 1 669 1 234
WesBank 277 192
2 311 20 1 706 19 35
Investment banking
RMB 3 910 33 2 148 24 82
Insurance
Momentum 1 716 1 514
Discovery 536 424
2 252 19 1 938 22 16
Other
FirstRand and preference (448) (443)
dividends
Banking Group Support 617 624
169 1 181 2 (7)
11 845 100 8 958 100 32
Changes in legislation
The National Credit Act ("NCA"), which replaces the Usury Act and seeks to
protect consumers from over indebtedness, was enacted during March 2006 and
the pricing provisions became effective 1 June 2007. Whilst the cost of
implementation was mainly experienced in the current year, the NCA is
expected to impact certain retail banking revenues going forward with FNB and
WesBank the most affected.
Since implementation of the NCA, there has been a slight slow down in
mortgage, credit card and vehicle finance new business. It is, however, too
early to establish a trend, particularly as the implementation coincided with
an interest rate increase.
Competition Commission
The Competition Commission Enquiry into Banking recently completed the final
round of public hearings and will make recommendations in a detailed report
to be released towards the end of 2007. The implementation of any of the
Commission`s recommendations will be over a period and as such it is unlikely
that any financial impact will be felt in the following financial year.
Capital position
From 2000 to 2004 FirstRand generated very high ROEs whilst the demand for
capital from the lending businesses was low, resulting in the Group
generating significant surplus capital. In the first half of 2005 the Group
considered various mechanisms to return this excess to shareholders. Part of
the solution was to reduce the Group`s dividend cover from 3x to 2.5x.
However, from 2005 to date, the lower interest rate, and lower inflation
environment translated into extremely favourable consumer credit markets. The
Group subsequently invested capital into the high growth retail lending
operations of the Banking Group, which has grown advances at a compound rate
of 43% since June 2005.
Over time, as a result of this advances growth, core equity has reduced to
8.1%. Whilst this ratio is above the minimum target of 8%, the Group is
actively seeking to increase this ratio, through actions such as
securitisations and first loss risk transfers, as well as further evaluating
its strategy to move from "originate and hold", to "originate and
distribute".
Capital management strategy and actions
The Group aims to fulfill the requirements of shareholders and maintain an
efficient capital structure with limited excesses, but which supports its
short term growth requirements. It does not hold surplus capital for
acquisitions and the need for raising additional capital is assessed on a
transaction by transaction basis.
The Group`s targeted return on invested shareholders capital is 10% above the
weighted average cost of capital. The Group constantly monitors whether this
target is met by the business units, and if not, businesses are restructured
or terminated.
The year under review was characterised by strong growth, particularly from
the Banking Group, which was largely funded by strong capital generation. It
is expected that both domestic growth and international expansion will
continue in the next financial year, which will increase the demand for
capital and the Group has taken certain actions to ensure this growth is
funded in the most efficient manner. Post year end the Group concluded Fresco
II, which was a partially funded synthetic securitisation of a portfolio of
South African and international corporate credit exposures held on the
balance sheet. This transaction relieved R1.4 billion of current regulatory
capital under Basel I and R700 million under Basel II. The Group will also
hold a buffer for international expansion initiatives but will only allocate
capital to these if they meet or exceed the current hurdle rates.
Basel II, which is applicable from 1 January 2008, will have a neutral impact
on the capital requirements of the Banking Group with the potential for a
slight increase due to the current cycle. In addition, the new regulations
will allow for more innovative Tier 1 and Tier 2 capital instruments, which
the Group is planning to issue to further strengthen the capital base and to
fund growth.
Given the increase in interest rates over the past 12 months, the Group
expects retail lending to slow to more sustainable levels and this will
reduce pressure on capital requirements. Whilst it is expected that corporate
lending will increase, the use of the Group`s balance sheet will be limited
to those asset classes that provide an appropriate return, and will consider
the strategies of "originate and distribute" against "originate and hold" in
light of recent market developments.
In addition, Momentum continues to generate surplus capital. One of the
benefits of being an integrated group is the flexibility to move capital
between the businesses. During the year, the excess capital in Momentum of
R1.9 billion was used to fund growth in the Banking Group and the Group
anticipates that a further R700 million of capital will be available from
Momentum in the next year.
Funding strategy and actions
The objective of the Group`s funding strategy is to secure funding at an
optimal cost from diversified and sustainable funding sources.
The low savings rate and the ongoing demand for credit in South Africa
continue to force the Group to rely on the professional markets for funding,
with the resultant impact on liquidity and margin. This is likely to be
further exacerbated by funding requirements for international expansion.
During the year the Group focused on two strategic funding imperatives:
- Diversify funding sources; and
- Lengthen the duration of the funding book.
Diversification of funding sources (by market, product and currency),
provides a well balanced portfolio of liabilities, which generates a stable
flow of financing and provides protection in the event of market disruptions.
In order to diversify the funding base and to lengthen the funding profile,
the Group embarked upon a Euro Medium Term Note Program of US$1.5 billion.
During the period under review, the Group issued Euro 500 million Floating
Rate Notes, with a five year duration at an effective coupon of 50 bps over
Euribor. In addition, the Group securitised R15 billion of Homeloans and
Autoloans, which also relieved capital.
Overall, the Group approved the following actions to diversify funding
sources and fund organic growth;
- R50 billion securitisation programme (R25 billion synthetic
securitisations, R25 billion physical securitisations);
- bi-lateral funding lines; and
- three corporate conduits (iNdwa, iNkotha, iVuzi) and a warehouse
facility.
The changing credit market dynamics which have taken place since the year end
have caused investors to re-evaluate risk appetite which in turn has led to a
broad re-pricing of risk. Against this background, going forward, the Group
will monitor the demand and supply of structured credit products in the
international markets and monitor its liquidity and funding on a regular
basis.
Dividend policy
The introduction of IFRS, which requires increased fair value accounting,
will lead to greater earnings volatility going forward, particularly in the
investment bank. The Group does not wish to expose the dividend to this
volatility and therefore will focus on a sustainable growth rate in dividend.
This means that the dividend cover may vary from year to year. In the current
year the Group has increased the dividend 25%.
Basis of presentation
The information presented has been prepared in accordance with International
Financial Reporting Standards ("IFRS") applicable at 30 June 2007.
Prospects
The Group anticipates that the next financial year will be a more challenging
operating environment. Since the year end, the macro environment both
domestically and globally has become more uncertain. Globally credit risk was
underpriced and there was too much leverage, resulting in a correction in the
credit markets and generally there is now more risk in the system. Concerns
regarding the quality of sub prime lending and leveraged asset backed
securities has led to refinancing and liquidity risk. With interest rates and
inflation increasing, consumer spending is expected to slow, and growth in
retail credit will moderate. As levels of consumer indebtedness rise, bad
debts could also increase further. The corporate sector, however, is expected
to continue to show robust growth due to public sector investment combined
with private fixed investment.
Against this background, the Group expects its banking businesses to show
continued growth although the mix will change with stronger levels of
activity from the corporate and commercial businesses. Investment banking
will continue to benefit from increased infrastructure spend, corporate
capacity building and BEE activity. Exceeding the exceptional performance in
the current year from certain of the trading businesses will be a challenge,
however, the Group believes that its skills, experience and risk management
will provide a strong underpin to investment banking earnings.
Momentum should continue to grow new business volumes, particularly as
collaboration with FNB gains further traction and new distribution channels
come on line. Certain of the initiatives aimed at diversification of products
and distribution should start making a positive contribution to earnings
growth from next year.
The Group`s strategy remains focused on building a diverse portfolio of
leading financial services franchises in South Africa, but with an increasing
focus on selected niche international opportunities, particularly in Africa,
India and Brazil. In line with this strategy, RMB is currently building
investment banking and private equity capacity in India, and WesBank has
identified specific vehicle financing opportunities in Brazil. FNB is
accelerating its strategy to become a significant player within the SADC
region and is actively seeking opportunities to establish greenfields
operations or acquire platforms from which it can leverage its products and
services into the region.
The Group believes that the anticipated organic growth in its diversified
portfolio of local franchises, combined with growing returns from the
international initiatives over the medium term, will underpin the Group`s
ability to continue bar unforeseen events to achieve a 10% real return to
shareholders.
Subsequent events
Since the year end, FirstRand announced that it had reached agreement with
Discovery to seek shareholder approval for the unbundling of the Group`s 57%
shareholding in Discovery. The proposed unbundling will provide FirstRand
shareholders with a direct shareholding in Discovery and is expected to
improve the liquidity of trading in Discovery shares on the JSE.
Following the decision in 2000 to allow Discovery to enter the risk market,
shareholders increasingly questioned the merits of FirstRand having two
insurance businesses competing in the same markets. The Group`s strategy was
that "two horses in the race" was producing significant growth, as both
companies were growing at the expense of the competition and therefore not
destroying shareholder value. This strategy was monitored on a regular basis
by the Boards of FirstRand, Discovery and Momentum.
With Discovery now entering the investment market and Momentum`s growing
presence in the health sector, both will increasingly be competing head on in
all product areas, and the Group has, therefore, agreed that it is
appropriate to fully unbundle Discovery.
The table below illustrates the effect of excluding the results of Discovery
for 2007 and 2006:
Year ended 30 June
R million (unaudited) 2007 2006
Normalised earnings as reported 11 845 8 958
Less: Discovery (536) (424)
11 309 8 534
Diluted normalised earnings per share 210.1 159.2
(cents) as reported
Pro forma diluted normalised earnings per 200.6 151.7
share (cents)
Board changes
Mr GT Ferreira has advised the Board of FirstRand Limited of his decision to
step down as Chairman after the announcement of the Group`s results in
September 2008. A special nomination committee, comprised of certain non
executive directors, was established to recommend a successor. The committee
has recommended, and the Board has approved, that Mr Laurie Dippenaar should
succeed Mr Ferreira as Chairman of FirstRand.
Mr Ferreira has also advised the Board of FirstRand Bank that he will resign
as Chairman and a director in September 2008. A separate nomination committee
was established to assess the succession process at the Bank and has also
recommended that Mr Dippenaar be appointed as Chairman.
Both Boards believe that Mr Dippenaar is the most appropriate successor to Mr
Ferreira given his long and successful track record with the Group and his
deep understanding of the financial services industry.
GT Ferreira PK Harris
Chairman Chief executive
17 September 2007
Annual report
Comprehensive financial information relating to all Group entities will be
distributed to shareholders in due course. The financial information denoted
as "audited" in this document has been extracted in a summarised format from
the annual financial statements for the year ended 30 June 2007.
Dividend declarations
Ordinary shares
The following ordinary cash dividends were declared in respect of the 2007
and 2006 financial years:
Year ended 30 June
Cents per share 2007 2006
Interim (declared 28 February 2007) 39.5 32.00
Final (declared 17 September 2007)* 43.0 34.00
82.5 66.00
*The last day to trade in FirstRand shares on a cum-dividend basis in respect
of the final dividend will be Friday, 12 October 2007 and the first day to
trade ex-dividend will be Monday, 15 October 2007. The record date will be
Friday, 19 October 2007 and the payment date Monday, 22 October 2007. No
dematerialisation or re-materialisation of shares may be done during the
period Monday, 15 October 2007 and Friday, 19 October 2007, both days
inclusive.
Preference shares
Dividends on the "B" preference shares are calculated at a rate of 68% of the
prime lending rate of banks. The following dividends have been declared for
payment:
"B" "B1"
preference preference
Cents per share 2007 2007
Period 29 August 2006 - 26 February 2007 409.7 409.7
Period 27 February 2007 - 27 August 2007 431.1 431.1
AH Arnott
Company secretary
17 September 2007
Consolidated Income Statement
for the year ended 30 June
R million 2007 2006 % change
Interest and similar income 45 463 30 395 50
Interest expense and similar (25 844) (15 383) 68
charges
Net interest income before 19 619 15 012 31
impairment of advances
Impairment losses on loans (2 857) (1 411) >100
and advances
Net interest income after 16 762 13 601 23
impairments of advances
Non interest income 51 040 39 930 28
- fees and commissions 16 797 14 088 19
- fair value income 6 086 4 349 40
- gains less losses from 25 537 21 005 22
investment activities
- other non interest income 2 620 488 >100
Net insurance premium income 7 946 6 822 16
Insurance premium income 9 002 7 758 16
Premium ceded to reinsurers (1 056) (936) 13
Net claims and benefits paid (6 844) (6 174) 11
Gross claims and benefits (7 837) (6 875) 14
paid on insurance contracts
Reinsurance recoveries 993 701 42
Increase in value of (25 064) (17 430) 44
policyholder liabilities
Fair value adjustment to (54) (530) (90)
financial liabilities
Income from operations 43 786 36 219 21
Operating expenses (27 088) (22 481) 20
Net income from operations 16 698 13 738 22
Share of profit from 2 101 1 290 63
associates and joint ventures
Profit before tax 18 799 15 028 25
Tax (5 721) (5 040) 14
Profit for the year 13 078 9 988 31
Attributable to minorities 1 219 889 37
Attributable to preference 348 274 27
shareholders
Attributable to ordinary 11 511 8 825 30
shareholders
Consolidated Balance Sheet
as at 30 June
R million 2007 2006
ASSETS
Cash and short term funds 46 952 46 684
Derivative financial instruments 33 244 37 934
- qualifying for hedge accounting 144 428
- held for trading 33 100 37 506
Advances 378 945 313 885
- loans and receivables 305 282 259 179
- held-to-maturity 535 698
- available-for-sale 728 538
- fair value through profit and loss 72 400 53 470
Investment securities and other investments 221 950 173 848
Financial securities held for trading 45 276 28 348
Investment securities 176 674 145 500
- held-to-maturity 1 041 998
- available-for-sale 17 647 22 947
- fair value through profit and loss 142 036 112 761
- fair value through profit and loss non recourse 15 950 8 794
investments
Commodities 1 118 676
Accounts receivable 9 257 6 046
Investments in associates and joint ventures 11 809 5 069
Property and equipment 6 411 5 011
Deferred tax asset 1 306 1 043
Intangible assets and deferred acquisition costs 4 302 4 076
Investment properties 2 356 6 141
Policy loans on insurance contracts 166 118
Reinsurance assets 595 292
Tax asset 34 7
Assets arising from insurance contracts 3 114 1 766
Total assets 721 559 602 596
EQUITY AND LIABILITIES
Liabilities
Deposits 416 507 340 649
- deposits and current accounts 400 557 332 113
- fair value through profit and loss non recourse 15 950 8 536
deposits
Short trading positions 36 870 25 967
Derivative financial instruments 24 505 22 370
- qualifying for hedge accounting 146 257
- held for trading 24 359 22 113
Creditors and accruals 13 887 16 645
Provisions 3 598 2 407
Tax liability 1 368 1 024
Post retirement benefit fund liability 1 882 1 635
Deferred tax liability 6 279 5 159
Long term liabilities 9 250 10 576
Reinsurance liabilities 20 24
Policyholder liabilities under insurance contracts 46 979 40 740
Policyholder liabilities under investment 111 239 93 720
contracts
Liabilities arising to third parties 1 568 1 725
Deferred revenue liability 387 451
Total liabilities 674 339 563 092
Equity
Capital and reserves attributable to ordinary
shareholders
Ordinary shares 51 51
Share premium 2 338 3 584
Non distributable reserves 5 028 3 522
Distributable reserves 31 612 24 854
39 029 32 011
Non cumulative non redeemable preference shares 4 519 4 519
Capital and reserves attributable to ordinary 43 548 36 530
equity holders
Minority interest 3 672 2 974
Total equity 47 220 39 504
Total equity and liabilities 721 559 602 596
Assets Under Management Or Administrationas at 30 June
R million 2007 2006 %
change
Banking Group1 547 467 465 197 18
Momentum Group1 184 088 161 632 14
Discovery Group1 8 500 6 777 25
FirstRand company and (18 496) (31 010) (40)
consolidation2
Total on balance sheet assets 721 559 602 596 20
Off balance sheet assets managed 178 589 192 097 (7)
or administered on behalf of
clients
Total assets under management or 900 148 794 693 13
administration
1 Assets are disclosed before elimination of intergroup balances. Refer note
2.
2 All consolidation entries include elimination entries.
Consolidated Cash Flow Statement for the year ended 30 June
R million 2007 2006
Cash flows from operating activities
Cash receipts from customers 67 979 53 303
Cash paid to customers, suppliers and (48 214) (27 670)
employees
Dividends received 1 952 1 327
Dividends paid (3 795) (3 651)
Net cash flows from operating activities 17 922 23 309
Increase in income earning assets (86 700) (98 204)
Increase in deposits and other liabilities 82 063 81 030
Net cash flows from operating funds (4 637) (17 174)
Tax paid (3 912) (3 257)
Net cash inflow from operating activities 9 373 2 878
Cash flows from investment activities
Purchase of property and equipment (2 193) (1 329)
Proceeds from sale of equipment 59 105
Purchase of investment properties (175) (46)
Disposal of investment properties 988 319
Proceeds on disposal of subsidiary - 67
Acquisition of subsidiary (5 143) -
(Acquisition)/disposal of associates (3 274) 638
Purchase of intangible assets (149) (36)
Net cash outflow from investment activities (9 887) (282)
Cash flows from financing activities
(Repayment of)/proceeds from long term (102) 5 469
borrowings
Proceeds of share issue - 1 526
Net cash (outflow)/inflow from financing (102) 6 995
activities
Net (decrease)/increase in cash and cash (616) 9 591
equivalents
Cash and cash equivalents at the beginning of 46 684 36 317
the year
Cash and cash equivalents at the end of the 46 068 45 908
year
Cash and cash equivalents sold - (52)
Cash and cash equivalents bought 884 828
Cash and cash equivalents at the end of the 46 952 46 684
year
Statement Of Changes In Equity
for the year ended 30 June
Share Total
capital Non Ordinary
and Distri- distri- share-
share butable butable holders`
R million premium reserves reserves Funds
Balance at 1 July 2005 4 100 19 427 2 064 25 591
Issue of share capital - - - -
Conversion of convertible
redeemable preference shares 165 (165) - -
Share issue expense - - - -
Currency translation differences - - 225 225
Movement in revaluation reserves - - 225 225
Movement in other non
distributable reserves - - 19 19
Earnings attributable to
ordinary shareholders - 8 825 - 8 825
Ordinary dividends - (3 114) - (3 114)
Preference dividends - - - -
Transfer (to)/from reserves - (184) 184 -
Effective change in shareholding
of subsidiary - 69 10 79
Movement in share based
payment reserve - (4) 274 270
Consolidation of treasury shares (630) - 521 (109)
Balance at 30 June 2006 3 635 24 854 3 522 32 011
Balance at 1 July 2006 as
previously stated 3 635 24 854 3 522 32 011
BEE share based payment reserve* - (1 655) 1 655 -
Balance at 1 July 2006 as restated 3 635 23 199 5 177 32 011
Issue of share capital - - - -
Conversion of convertible
redeemable preference shares (164) 164 - -
Share issue expense - - - -
Currency translation differences - - 10 10
Movement in revaluation reserves - - 137 137
Movement in other non
distributable reserves - 3 (23) (20)
Earnings attributable to
ordinary shareholders - 11 511 - 11 511
Ordinary dividends - (3 795) - (3 795)
Preference dividends - - - -
Transfer (to)/from reserves - (255) 255 -
Effective change in shareholding
of subsidiary - 355 (340) 15
Movement in share based
payment reserve - - 237 237
Consolidation of treasury shares (1 082) 430 (425) (1 077)
Balance at 30 June 2007 2 389 31 612 5 028 39 029
Non
cumulative
non
redeemable
preference
share Total
capital share-
and Minority holders`
R million premium interest Funds
Balance at 1 July 2005 2 992 2 306 30 889
Issue of share capital 1 531 19 1 550
Conversion of convertible
redeemable preference shares - - -
Share issue expense (4) (4) (8)
Currency translation - 27 252
differences
Movement in revaluation - 41 266
reserves
Movement in other non
distributable reserves - - 19
Earnings attributable to
ordinary shareholders 274 889 9 988
Ordinary dividends - (263) (3 377)
Preference dividends (274) - (274)
Transfer (to)/from reserves - 7 7
Effective change in
shareholding
of subsidiary - 17 96
Movement in share based
payment reserve - (65) 205
Consolidation of treasury - - (109)
shares
Balance at 30 June 2006 4 519 2 974 39 504
Balance at 1 July 2006 as
previously stated 4 519 2 974 39 504
BEE share based payment - - -
reserve*
Balance at 1 July 2006 as 4 519 2 974 39 504
restated
Issue of share capital - 45 45
Conversion of convertible
redeemable preference shares - - -
Share issue expense - (1) (1)
Currency translation - (7) 3
differences
Movement in revaluation - 83 220
reserves
Movement in other non
distributable reserves - 10 (10)
Earnings attributable to
ordinary shareholders 348 1 219 13 078
Ordinary dividends - (747) (4 542)
Preference dividends (348) - (348)
Transfer (to)/from reserves - 51 51
Effective change in
shareholding
of subsidiary - 26 41
Movement in share based
payment reserve - 19 256
Consolidation of treasury - - (1 077)
shares
Balance at 30 June 2007 4 519 3 672 47 220
*FirstRand has accounted for the non staff component of the Group`s BEE
transaction, with effect from the financial year commencing 1 July 2006, in
accordance with the requirements of IFRIC 8.
As a result, the full financial impact in terms of IFRS 2 of the non staff
component of the BEE transaction, amounting to R1.655 billion, has been
accounted for as an opening reserve transfer on 1 July 2006, and will have no
further income statement effect.
Sources Of Profit
for the year ended 30 June.
% % %
R million 2007 composition 2006 composition change
FNB 4 140 35 3 255 36 27
RMB 3 910 33 2 148 24 82
WesBank 918 8 1 059 12 (13)
FNB Africa 456 4 377 4 21
Momentum 1 485 12 1 226 14 21
Discovery 536 5 424 5 26
Group Support 848 7 912 10 (7)
Banking Group 617 624
Momentum Group 231 288
FirstRand (100) (1) (169) (2) (41)
Dividend paid to
non cumulative
non
redeemable (348) (3) (274) (3) 27
preference
shareholders
Normalised 11 100 8 958 100 32
earnings 845
(unaudited)
Statement Of Headline Earnings And Dividends
for the year ended 30 June
R million 2007 2006 % change
Attributable earnings to ordinary 11 511 8 825 30
shareholders
Adjusted for: (1 054) (710) 48
Profit on sale of equity accounted (397) (219)
private equity associates
Profit on sale of available-for-sale (684) (360)
financial assets
Impairment of property and equipment - 1
Profit on sale of shares in (68) (129)
subsidiary and associate
Net asset value in excess of - (22)
purchase price of subsidiaries
(Profit)/loss on sale of assets (6) 19
Impairment of intangible assets 48 -
Impairment of goodwill 53 -
Headline earnings 10 457 8 115 29
Earnings per share (cents)
- Basic 222.9 171.6 30
- Diluted 216.6 166.0 30
Headline earnings per share (cents)
- Basic 202.5 157.8 28
- Diluted 196.8 152.6 29
Ordinary dividend per share (cents)
- Interim 39.5 32.0 23
- Final 43.0 34.0 26
Total 82.5 66.0 25
Dividend information (declared)
Non cumulative non redeemable
preference
dividend per share (cents)
"B" preference share
- 27 February 2007/28 February 410 356
2006
- 28 August 2007/29 August 2006 431 363
Total 841 719
"B1" preference share
- 27 February 2007/28 February 410 356
2006
- 28 August 2007/29 August 2006 431 363
Total 841 719
Ordinary dividends declared 3 718 3 093 20
Non cumulative non redeemable
preference share
dividends declared 324 177 83
Segmental headline earnings for
ordinary shareholders
Banking Group 9 355 7 049 33
Momentum Group 1 610 1 534 5
Discovery Group 556 350 59
FirstRand Limited (company) (123) (164) (25)
Consolidation of share trusts (372) (383) (3)
Dividend paid to non cumulative non
redeemable
preference shareholders (348) (274) 27
Consolidation of treasury shares: (221) 3 >(100)
policyholders
Headline earnings 10 457 8 115 29
Description of normalised earnings
The Group believes normalised earnings more accurately reflects operational
performance. Headline earnings are adjusted to take into account non
operational and accounting anomalies.
These unaudited adjustments are consistent with those reported at 30 June
2006, except for share based payments and listed property associates.
Private equity realizations
In terms of IFRS, and specifically IAS 28 - "Investment in Associates",
investors in private equity or venture capital associate companies may elect
to either equity account or fair value associate investments. As part of its
conversion to IFRS, FirstRand elected to continue to equity account for its
private equity associate investments.
On 4 May 2006, the Accounting Practices Committee, ("APC"), of the South
African Institute of Chartered Accountants ("SAICA") published Issue 8 of
Circular 7/2002 - "Headline Earnings". In terms of the Circular, profits or
losses on the realisation of all equity accounted private equity or venture
capital investments are to be excluded from the calculation of headline
earnings. FirstRand will continue to disclose normalised headline earnings
and normalised headline earnings per share information, which includes the
profits or losses on disposal of private equity investments. FirstRand will
continue with its policy of using normalised headline earnings as the basis
for determination of dividend payments. FirstRand regards private equity to
be a core component of its investment banking business.
Agreement with National Treasury
The total impact on Momentum and Sage of the agreement with National Treasury
that was reached on 12 December 2005 amounts to R196 million after tax. The
impact on Momentum is R108 million. The balance of R88 million is a charge
against pre acquisition earnings of Sage. As a provision of R78 million after
tax already existed at 30 June 2005, the full balance of the Momentum charge
of R30 million after tax has been taken against prior year earnings.
Discovery BEE transaction
In December 2005, Discovery issued 38.7 million shares in terms of its BEE
transaction. The special purpose vehicles and trusts to which these shares
have been issued have been consolidated by Discovery, eliminating the shares
issued as treasury shares.
The normalised adjustment:
- adds back the IFRS 2 charge; and
- adds back the treasury shares to equity.
Treasury shares: Effective shareholding in Discovery Holdings Limited
Discovery consolidates in its results treasury shares relating to its BEE
transaction, which effectively increases FirstRand`s share in Discovery from
57.1% to 62.3%. This adjustment is to reflect the actual shareholding in
Discovery at 57.1%.
Share based payments and treasury shares: Consolidation of staff share
schemes
IFRS 2 - Share based payments - requires that all share based payments
transactions for goods or services received must be expensed with effect from
financial periods commencing on or after 1 January 2005. FirstRand hedges
itself against the price risk of the FirstRand share price in the various
staff shares schemes. The staff schemes purchase FirstRand shares in the open
market to ensure the company is not exposed to the increase in the FirstRand
share price. Consequently, the cost to FirstRand is the funding cost of the
purchases of FirstRand`s shares by the staff share trust. These trusts are
consolidated and FirstRand shares held by the staff share scheme are treated
as treasury shares. For purposes of calculating the normalised earnings, the
consolidation entries are reversed and the Group shares held by the staff
share scheme are treated as issued to parties external to the Group.
The normalised adjustments:
- adds back the IFRS 2 charge; and
- adds back the treasury shares to equity.
Treasury shares: FirstRand shares held by policyholders
FirstRand shares held by Momentum Group and Discovery Life are invested for
the risk and reward of its policyholders, not its shareholders, and
consequently the Group`s shareholders are not exposed to the fair value
changes on these shares. In terms of IAS 32, FirstRand Limited and Discovery
Holdings Limited shares held by Momentum Group and Discovery Life on behalf
of policyholders are deemed to be treasury shares for accounting purposes.
The corresponding movement in the policyholder liabilities is, however, not
eliminated, resulting in a mismatch in the overall equity and income
statement of the Group.
Increases in the fair value of Group shares and dividends declared on these
shares increases the liability to policyholders. The increase in the
liability to policyholders is accounted for in the income statement. The
increase in assets held to match the liability position is eliminated. For
purposes of calculating the normalised earnings, the adjustments described
above are reversed and the Group shares held on behalf of policyholders are
treated as issued to parties external to the Group.
Adjustment of listed property associates
Momentum`s investments in its listed property associates (Emira and
Freestone) are adjusted from fair value to net asset value in the Group
consolidated financial statements. The policyholder liability is mainly based
on the fair value of the units held, resulting in a mismatch between
policyholder assets and liabilities that is reflected as a non operational
item outside of normalised earnings.
Directors: GT Ferreira (Chairman), PK Harris (CEO), VW Bartlett, DJA Craig
(British), LL Dippenaar, DM Falck, PM Goss,
Dr NN Gwagwa, YI Mahomed, G Moloi, AP Nkuna, SE Nxasana,
SEN Sebotsa, KC Shubane, RK Store, BJ van der Ross,
Dr F van Zyl Slabbert, RA Williams.
Registered office: 4th Floor, 4 Merchant Place, 1 Fredman Drive, Sandton,
2196
Secretary and registered office: AH Arnott
4th Floor, 4 Merchant Place, 1 Fredman Drive, Sandton, 2196
Postal Address: PO Box 786273, Sandton, 2146,
Telephone: +27 11 282 1808, Telefax: +27 11 282 8088
Web address: www.firstrand.co.za
Sponsor: Rand Merchant Bank (a division of FirstRand Bank)
FNB
First National Bank
A division of FirstRand Bank Limited
Rand Merchant Bank
A division of FirstRand Bank Limited
WesBank
A division of FirstRand Bank Limited
Momentum
Discovery
OUTsurance
RMB Private Bank
A division of FirstRand Bank Limited
RMB Properties
First Link Insurance Brokers
Lekana
Employee Benefit Solutions
Advantage
eBucks
Life just got more rewarding
additional information is available at
www.firstrand.co.za
Date: 18/09/2007 08:30:02 Produced by the JSE SENS Department.
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