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FSR
FSR
FSR - FirstRand - Unaudited Interim Results For The Six Months Ended
31 December 2007 And Cash Dividend Declaration
FirstRand Limited
(Registration No: 1966/010753/06)
JSE code FSR
ISIN: ZAE000066304
Certain companies within the FirstRand Group are Authorised Financial Services
Providers
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007 AND CASH
DIVIDEND DECLARATION
FINANCIAL HIGHLIGHTS
+12 % Pro forma diluted normalised earnings per share
+12 % Ordinary dividend per share
+15 % Pro forma total assets under management or administration
26% Pro forma normalised return
Introduction
This report covers the unaudited financial results of FirstRand Limited
("FirstRand" or "the Group") for the six months ended 31 December 2007, and
deals with the financial and operating performance of its main business units.
The Group consists of a portfolio of leading financial services franchises;
these are First National Bank ("FNB"), the retail and commercial bank, Rand
Merchant Bank ("RMB"), the investment bank, WesBank, the instalment finance
business, Momentum, the life insurance business and Discovery, the health and
life business.
Actual
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 change 2007
Headline earnings 5 702 4 877 17 10 854
Normalised earnings 6 138 5 539 11 11 845
Diluted headline earnings 107.4 91.4 18 204.2
per share (cents)
Diluted normalised earnings 108.9 98.2 11 210.1
per share (cents)
Ordinary dividend per share 44.25 39.5 12 82.5
(cents)
Normalised return on equity 26 28 28
(%)
Assets under management or 993 178 868 604 14 900 148
administration
In November 2007, FirstRand unbundled its 57% shareholding in Discovery and
therefore the results to 31 December 2007 outlined in the table above include
only four months of contribution from Discovery. The pro forma results for the
Group excluding Discovery are detailed below:
Pro forma
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 Change 2007
Headline earnings 5 517 4 647 19 10 298
Normalised earnings 5 953 5 319 12 11 309
Diluted headline earnings 103.9 87.1 19 193.7
per share (cents)
Diluted normalised earnings 105.6 94.3 12 200.6
per share (cents)
Normalised return on 26 29 29
equity (%)
Assets under management or 993 178 861 054 15 891 648
administration
statement of headline earnings and dividends
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 change 2007
Attributable earnings to 6 283 5 381 17 11 511
shareholders
Adjusted for: (581) (504) 15 (657)
Profit on disposal of (96) (631) (863)
available-for-sale assets
Profit on sale of shares (570) - (78)
in subsidiary and
associate
Profit/(loss) on disposal - 1 (8)
of property and equipment
Impairment of intangible - - 55
assets
Impairment of goodwill - - 61
Total tax effects of 85 101 106
adjustments
Total minority interest of - 25 70
adjustments
Headline earnings 5 702 4 877 17 10 854
Adjusted for: 436 662 (34) 991
Discovery BEE transaction 5 11 19
IFRS 2 Share based 189 180 401
expenses
Treasury shares 242 342 543
- adjustment for effective (17) (21) (50)
shareholding in Discovery
- consolidation of share 221 268 372
trust
- FirstRand shares held by 38 95 221
policyholders
Adjustment of listed - 129 28
property associates to net
asset value
Normalised earnings1 6 138 5 539 11 11 845
Segmental normalised
earnings
Banking Group2 5 283 4 783 10 10 089
Momentum Group2 913 768 19 1 668
Discovery Group 185 220 (16) 536
FirstRand Limited (49) (69) (29) (100)
(company)
Dividend paid to non (194) (163) 19 (348)
cumulative non redeemable
preference shareholders
Normalised earnings1 6 138 5 539 11 11 845
Segmental headline
earnings
Banking Group3 5 140 4 629 11 9 752
Momentum Group 881 652 35 1 610
Discovery Group 185 230 (20) 556
FirstRand Limited (51) (108) (53) (123)
(company)
Consolidation of share (221) (268) (18) (372)
trusts
Dividend paid to non (194) (163) 19 (348)
cumulative non redeemable
preference shareholders
Consolidation of treasury (38) (95) 60 (221)
shares: policyholders
Headline earnings 5 702 4 877 17 10 854
1. The definition of normalised earnings is provided at the end of this
announcement.
2. Prior year numbers have been restated to reflect the transfer of Ashburton
("FRIAM") from Momentum Group to Banking Group.
3. Prior year numbers have been restated for Circular 8/2007, "Headline
Earnings".
Group earnings, headline earnings and normalised earnings per share (cents)
Six months Year
ended ended
31 December % 30 June
2007 2006 change 2007
Normalised earnings per
share
- Basic 108.9 98.3 11 210.2
- Diluted 108.9 98.2 11 210.1
Pro forma normalised
earnings per share
- Basic 105.6 94.4 12 200.7
- Diluted 105.6 94.3 12 200.6
Earnings per share
- Basic 121.3 103.8 17 222.9
- Diluted 118.4 100.8 17 216.6
Headline earnings per share
- Basic 110.1 94.1 17 210.2
- Diluted 107.4 91.4 18 204.2
Ordinary dividend per share 44.25 39.5 12 82.5
Dividend in specie per 62.6 - 100 -
share
Operating environment
Both the international and South African financial services environments were
particularly challenging during the six months to December 2007.
Inflation and interest rates continued to rise, which resulted in slower asset
growth in the retail banking sector. This was compounded by sharp increases in
bad debts in the retail portfolios due to higher levels of customer
indebtedness, although retail transaction volumes remained robust.
Corporate demand for credit continued to show resilience to the rising interest
rates, although some pressure is being experienced in the small and medium
enterprise segments. Continued capital expenditure, infrastructure development
and corporate action resulted in good growth in the corporate and investment
banking sectors. The insurance operating environment was characterised by a
recovery in industry new business volumes.
The local equity, currency and interest rate markets were volatile on the back
of the turmoil experienced in the international capital markets. Whilst this was
positive for local trading activities, severe dislocations in the international
equity markets negatively impacted trading activities.
FirstRand`s diverse portfolio of banking businesses allowed the Group to deliver
growth in earnings, despite the significantly tougher conditions in both the
retail segments and international markets. The Group`s insurance activities also
showed good earnings growth.
Financial performance
For the six months to 31 December 2007 the FirstRand Group grew pro forma
normalised earnings 12% and achieved
a pro forma normalised return on equity of 26%.
Pro forma headline earnings
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 change 2007
Headline earnings 5 517 4 647 19 10 298
Adjusted for: 436 672 (35) 1 011
IFRS 2 Share based expenses 177 180 390
Treasury shares 259 363 593
- consolidation of share 221 268 372
trust
- FirstRand shares held by 38 95 221
policyholders
Adjustment of listed - 129 28
property associates to net
asset value
Normalised earnings 5 953 5 319 12 11 309
FirstRand Banking Group contributed 10% growth in earnings from R4.8 billion to
R5.3 billion and an ROE of 27% with the Momentum Group increasing earnings 19%
from R768 million to R913 million and an ROE of 31%.
A detailed financial and operating review of the separate business units
follows.
The table below represents the relative contribution to the pro forma normalised
earnings from the banking and insurance groups:
Six months % Year
ended ended
31 December Contri- 30 June
R million 2007 2006 bution 2007
Banking Group 5 283 4 783 89 10 089
Momentum 913 768 15 1 668
FirstRand and preference (243) (232) (4) (448)
dividends
Total 5 953 5 319 100 11 309
For the first time since its formation the Banking Group`s performance did not
exceed the Group`s targeted earnings
growth of 10% above inflation, although the ROE at 27% continued to exceed its
targeted ROE of 10% above the weighted average cost of capital. Momentum
delivered ahead of both targets.
The performance of the Group`s banking operations was impacted by:
* increased levels of consumer indebtedness which pushed bad debts to much
higher levels than previously experienced (particularly in WesBank, HomeLoans
and Card); and
* losses in the investment bank`s Equity Trading Division, as well as the high
base achieved by RMB in the previous period.
RMB
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 change 2007
Normalised earnings 1 927 1 690 14 3 910
Total assets 258 721 194 427 33 198 929
ROE (%) 33 38 43
RMB`s normalised earnings growth slowed to 14%. The Private Equity, Investment
Banking and Fixed Income Currency and Commodity Trading ("FICC") divisions
showed strong growth for the period. The Equity Trading Division incurred net
losses of R760 million. The diversified nature of RMB`s portfolio enabled it to
still give a creditable performance despite the losses.
FNB
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 change 2007
Normalised earnings 2 741 2 187 25 4 140
Total assets 204 734 166 297 23 183 257
Total liabilities 199 997 162 414 23 176 069
Bad debt ratio 1.2 0.8 0.91
ROE (%) 34 35 33
Despite difficult market conditions caused by increased interest rates and
inflation pressures, FNB, the commercial bank, delivered 25% growth in
normalised earnings, achieved on the back of robust growth in advances (+23%)
and deposits (+20%). This performance can be attributed to FNB`s strong
franchise in the corporate and commercial segments, which now comprise
approximately half of FNB`s earnings. In addition, its diversified portfolio of
retail segments meant that whilst the consumer segment experienced a slow down,
the mass and wealth segments continued to show good growth.
WesBank
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 change 2007
Normalised earnings 462 538 (14) 918
Total assets 109 643 90 399 21 100 479
Bad debt ratio 1.5 1.0 1.39
ROE (%) 17 21 18
As already mentioned, WesBank`s overall profitability was impacted by
significant increases in credit defaults in its local lending business. In
addition, although losses continued to be incurred in the international
operations these were at lower levels than the prior period. This resulted in
normalised earnings declining 14% to R462 million which is disappointing.
Momentum
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 change 2007
Normalised earnings 913 768 19 1 668
Insurance new business 15 459 11 073 40 23 464
Return on EV (%) 15 30 28
ROE (%) 31 24 25
Despite subdued investment markets the Momentum Group delivered 19% growth in
normalised earnings to R913 million and an excellent return on equity of 31%.
This performance exceeded all of FirstRand`s targets and can be attributed to
good new business flows with margins holding up and new initiatives that are
beginning to contribute to growth; in particular, the collaboration with FNB in
the mass and middle market segments and the continuing diversification of
Momentum`s distribution infrastructure.
The relative contribution to the Group`s earnings mix and growth rates from
types of income (retail, investment and corporate banking and insurance) and
business unit is shown in the table below:
Six months Year
ended ended
31 December 30 June
2007 % 2006 1 % % 2007 1
contri- contri- change
bution bution
Retail banking
FNB Retail 1 404 1 189 2 154
FNB Africa 249 209 456
WesBank 292 400 641
1 945 33 1 798 34 8 3 251
Corporate banking
FNB Corporate 251 224 365
FNB Commercial 1 086 774 1 669
WesBank 170 138 277
1 507 25 1 136 21 33 2 311
Investment
banking
RMB 1 927 32 1 690 32 14 3 910
Insurance
Momentum 913 15 768 14 19 1 668
Other
FirstRand and (243) (232) (448)
preference
dividends
Banking Group (96) 159 617
Support
(339) (5) (73) (1) >100 169
Pro forma 5 953 100 5 319 100 12 11 309
normalised
earnings
1. Prior year numbers have been restated to reflect the move of Ashburton
("FRIAM") from Momentum Group to Banking Group.
Strategic issues
Regulatory changes
FirstRand Bank received in principle approval from the South African Reserve
Bank ("SARB") to use the advanced internal ratings based approach for credit
risk under Basel II. The Bank also received approval to use an internal model
for market risk. The operational risk application for the advanced measurement
approach was submitted early in 2008, with targeted implementation during 2009.
The capital impact of Basel II is expected to be largely neutral with a bias to
a potential increase due to the changes in the credit cycle. The capital levels
of the Banking Group are adequate in terms of the regulatory capital
requirements, as well as the capital requirement determined through the Banking
Group`s internal capital adequacy assessment process.
The Competition Commission Enquiry into Banking is expected to release a
detailed report shortly containing recommendations for improvements in the
payments industry. The implementation of any of the Commission`s recommendations
will be over a period of time.
Funding the growth
FirstRand adopts a holistic and integrated approach to capital, funding and
liquidity. This allows it to ensure the protection of the intrinsic value of the
Group, meet prudential regulatory requirements and protect credit ratings while
continuing to add sustainable shareholder value.
Capital management strategy and actions
The Group aims to fulfil the requirements of shareholders and maintain an
efficient capital structure with limited excesses, while supporting its medium
term growth requirements. It does not hold surplus capital for acquisitions and
the need for 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 changed or
terminated.
The period under review was characterised by continued balance sheet growth,
particularly from the Banking Group, which was funded by internal 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. The Group is considering a number of capital management actions to
ensure this growth is funded in the most efficient manner. Given that
FirstRand`s international growth strategy is incremental in nature, the Group
does not need to raise core equity to fund that strategy.
The turmoil in the international markets led to a decrease in the appetite for
Asset Backed Securities ("ABS"). It was the Group`s intention to issue R25
billion ABS and Residential Backed Securities in the international market during
the period under review, but, conditions were not favourable. It is unlikely
that the markets will improve sufficiently within the next 12 to 18 months to
issue these instruments.
In August 2007 FirstRand Bank 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. In November 2007 the Bank raised R1 billion of subordinated debt. This
was followed with a further R500 million during December 2007.
Basel II, which is applicable from 1 January 2008, will have an immaterial
impact on the capital requirements of the Banking Group. 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.
The proposed issue of hybrid instruments will not only improve the Bank`s Total
and Tier I capital adequacy ratios, but also bolster the Bank`s capital buffers
against the backdrop of pro-cyclicality introduced by Basel II. This will reduce
the weighted average cost of capital. These instruments are more expensive since
the turmoil in the international markets, and, given their capital nature, cost
more than subordinated debt.
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.
One of the benefits of being an integrated group is the flexibility to move
capital between the businesses. During the period excess capital in Momentum of
R557 million was used to fund growth in the Bank. Given the changes in the
equity markets Momentum is not expected to generate further excess capital in
the immediate future.
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 impact of the recent turmoil in international credit markets is likely to
continue in the medium term. Investors` risk appetite and liquidity has reduced
significantly which in turn has led to a fundamental repricing across the full
spectrum of risk. Against this background, the Group continues to monitor demand
and supply of structured credit products in the international markets. This
change in dynamics means that entry by the Group into certain international
markets, without a deposit franchise in those markets, will be more difficult as
the resultant increased cost of funding will make the requisite returns more
difficult to achieve.
The low savings rate and the ongoing demand for credit in South Africa continues
to force the Group to rely on the professional markets for funding, with the
resultant impact on liquidity and margin. Diversification of funding sources (by
market, product and currency), provides a well balanced portfolio of
liabilities, generates a stable flow of financing and provides protection in the
event of market disruptions.
During the period the Group focused on four strategic funding imperatives:
* build a credit curve;
* diversify funding sources;
* lengthen the duration of the funding book; and
* ensure limited impact for the international businesses following turmoil in
international capital markets.
Overall the Group approved the following actions to diversify funding sources
and fund organic growth:
* bi-lateral funding lines;
* three corporate conduits (iNdwa, iNkotha, iVuzi) and a warehouse facility;
* scheduled capital market issuance programme; and
* inflation linked bonds.
Dividend policy
As previously stated the Group aligns its dividend policy with sustainable
normalised earnings. It does not wish to expose its dividend to the volatility
in earnings from the investment banking businesses which are expected to grow
over time. At the year end 2007, the dividend growth was lower than the growth
in normalised earnings and capital was retained, as the Group was cognisant of
the exceptional performances of certain of its trading businesses. Therefore,in
line with its policy to maintain the dividend at a consistent level over the
medium to longer term, the Group has decided to pay a dividend for the six
months to December 2007, in line with normalised earnings. The Group believes
earnings growth will remain under pressure going forward.
Presentation
Basis of presentation
FirstRand prepares its consolidated financial statements in accordance with
International Financial Reporting Standards("IFRS"), including IAS 34: Interim
Financial Reporting and on a going concern basis using the historical cost
basis, except for certain financial assets and liabilities where it adopts the
fair value basis of accounting.
Normalised earnings
The Group believes that normalised earnings more accurately reflect actual
operational performance. Headline earnings are adjusted to take into account non
operational and accounting anomalies. Details of the nature of these adjustments
and reasons therefore can be found at the end of this announcement.
Prospects
The Group anticipates that, given the continuing volatility in global and local
capital markets, combined with rising inflation and interest rates, the second
half of the financial year will continue to represent a challenging operating
environment. Consumer spending and credit extension is expected to slow further,
and bad debts could also continue to increase. The corporate sector is expected
to remain resilient due to anticipated public sector investment combined with
private fixed investment, however, trading activities may continue to be
impacted by market turmoil and uncertainty.
Against this background, the Group remains cautious regarding earnings prospects
for the year to June 2008. The diversity of the Group`s portfolio, the banking
businesses, particularly RMB and FNB, will benefit from their strong franchises
within the corporate and commercial segments. Given the current levels of
consumer indebtedness, the retail segments will face significant headwinds.
The increased volatility in equity markets together with some economic slowdown
could impact Momentum in the second half of the financial year. The new business
prospects combined with the new growth initiatives should continue to positively
impact earnings.
The Group believes that with the pressures facing its businesses in the second
six months, combined with the significant earnings base created in the year to
30 June 2007 (32% growth), FirstRand is unlikely to meet its long term targeted
growth in earnings of 10% above inflation in the current financial year.
The Group anticipates that, with the quality of its franchises and the
diversified nature of its portfolio, over the medium term earnings will trend
back to the stated target.
Subsequent events
Since 31 December 2007 WesBank has announced that, following a strategic review
of its Australian businesses, it is considering exit options for its vehicle
finance and car care operations. MotorOne Finance, the vehicle finance
operation, will cease new business origination, and WesBank will explore options
with respect to exiting the portfolio. Offers will be sought for Worldmark, the
car care business.
WesBank has evaluated MotorOne Finance and concluded the business model will not
deliver WesBank`s required returns in the medium to long term. As a result of
the decision to exit the MotorOne Finance business, Worldmark, which was
complementary to the finance company, becomes a non core operation.
In total, these transactions are not expected to have a material impact on the
profitability of WesBank.
Board changes
Ms Sonja Sebotsa resigned from the FirstRand Limited board on 31 December 2007,
following her resignation as an executive of WDB Investment Holdings. Ms Sebotsa
was appointed to the board in May 2005 as a representative of the WDB Trust. Ms
Sebotsa has been replaced on the FirstRand board by Ms Tandi Nzimande, a
chartered accountant and WDB Investment Holdings executive.
It is with great sadness that the Group records the death of Mr Yunus Mahomed on
6 January 2008. Mr Mahomed who was appointed to the board in May 2005 was the
representative of the Kagiso Charitable Trust. During his time with us he made
an invaluable contribution to our debate. He was a great South African who made
a huge contribution to our democracy. His wisdom and insight will be sorely
missed. A replacement for Mr Mahomed will be announced in due course.
GT Ferreira PK Harris
Chairman Chief Executive Officer
Interim dividend declarations
Ordinary shares
The following ordinary cash dividend was declared in respect of the six months
ended 31 December 2007:
Year ended 30 June
Cents per share 2007 2006
Interim (declared 3 March 2008) 44.25 39.5
* The last day to trade in FirstRand shares on a cum-dividend basis in respect
of the interim dividend will be Wednesday 19 March 2008 and the first day to
trade ex-dividend will be Thursday 20 March 2008. The record date will be Friday
28 March 2008 and the payment date Monday 31 March 2008. Please note that no
FirstRand share certificates may be dematerialised or rematerialised between
Thursday 20 March 2008 and Friday 28 March 2008, 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 28 August 2007 - 25 February 477.77 477.77
2008
AH Arnott
Company Secretary
3 March 2008
consolidated income statement
Six months Year
ended ended
31 December % 30 June
R million 2007 2006 1 change 2007 1
Interest and similar 27 677 21 696 28 45 324
income
Interest expense and (15 246) (11 866) 28 (25 821)
similar charges
Net interest income before 12 431 9 830 26 19 503
impairment of advances
Impairment losses on loans (1 625) (1 151) 41 (2 857)
and advances
Net interest income after 10 806 8 679 25 16 646
impairment of advances
Non interest income 12 035 25 274 (52) 47 763
- fees and commissions 8 098 6 939 17 14 545
- fair value income 1 364 2 151 (37) 5 987
- gains less losses from 1 402 15 375 (91) 25 258
investment activities
- other non interest 1 171 809 45 1 973
income
Net insurance premium 2 429 2 307 5 5 081
income
Insurance premium income 2 765 2 413 15 5 570
Premium ceded to (336) (106) >100 (489)
reinsurers
Net claims and benefits (2 715) (2 421) 12 (5 590)
paid
Gross claims and benefits (2 973) (2 703) 10 (6 125)
paid on insurance
contracts
Reinsurance recoveries 258 282 (9) 535
Increase in value of (2 942) (15 124) (81) (25 535)
policyholder liabilities
Fair value adjustment to (43) (7) >100 (54)
financial liabilities
Income from operations 19 570 18 708 5 38 311
Operating expenses (12 431) (11 160) 11 (23 288)
Net income from operations 7 139 7 548 (5) 15 023
Share of profit of 964 766 26 2 198
associates and joint
ventures
Profit before tax 8 103 8 314 (3) 17 221
Tax (1 876) (2 610) (28) (5 216)
Net profit from continuing 6 227 5 704 9 12 005
operations
Profit after tax from 374 404 (7) 1 073
discontinued operation
Profit after tax on 494 - 100 -
disposal/unbundling of
discontinued operation
Profit for the period 7 095 6 108 16 13 078
Attributable to minorities 618 564 10 1 219
Attributable to preference 194 163 19 348
shareholders
Attributable to ordinary 6 283 5 381 17 11 511
shareholders
1. These numbers have been restated refer to www.firstrand.co.za
consolidated balance sheet
At At
31 December 30 June
R million 2007 2006 2007
ASSETS
Cash and short term funds 53 567 51 058 46 952
Derivative financial 39 592 45 358 33 244
instruments
Advances 412 364 340 078 378 945
Investment securities and other 236 114 205 150 221 950
investments
Commodities 239 873 1 118
Accounts receivable 8 795 7 821 9 257
Reinsurance assets 570 532 595
Property and equipment 6 761 4 948 6 411
Investment properties 3 155 2 458 2 356
Policy loans on insurance 188 139 166
contracts
Assets arising from insurance - 2 812 3 114
contracts
Investments in associates and 13 829 9 936 11 809
joint ventures
Intangible assets and deferred 4 409 4 261 4 302
acquisition costs
Tax asset 21 24 34
Deferred tax asset 1 632 1 059 1 306
Total assets 781 236 676 507 721 559
EQUITY AND LIABILITIES
Liabilities
Deposits 478 854 369 857 416 507
Short trading positions 34 194 37 716 36 870
Derivative financial 31 146 34 574 24 505
instruments
Creditors and accruals 11 779 19 340 13 887
Provisions 2 285 2 634 3 598
Tax liability 853 910 1 368
Post retirement benefit fund 1 946 1 986 1 882
liability
Deferred revenue liability 265 398 387
Deferred tax liability 5 814 5 540 6 279
Long term liabilities 11 249 10 290 9 250
Reinsurance liabilities - 22 20
Policyholder liabilities under 46 175 45 337 46 979
insurance contracts
Policyholder liabilities under 109 240 105 605 111 239
investment contracts
Liabilities arising to third 1 374 563 1 568
parties
Total liabilities 735 174 634 772 674 339
Equity
Capital and reserves
attributable to equity holders
Ordinary share capital and 1 094 2 239 2 389
share premium
Non distributable reserves 4 777 4 512 5 028
Distributable reserves 33 756 27 096 31 612
39 627 33 847 39 029
Non cumulative non redeemable 4 519 4 519 4 519
preference shares
Capital and reserves 44 146 38 366 43 548
attributable to equity holders
Minority interest 1 916 3 369 3 672
Total equity 46 062 41 735 47 220
Total equity and liabilities 781 236 676 507 721 559
consolidated cash flow statement
Six months Year
ended ended
31 December 30 June
R million 2007 2006 2007
Cash flows from operating
activities
Net cash flows from operating 7 955 9 957 21 717
activities
Net cash flows from operating 7 582 5 388 (4 637)
funds
Tax paid (2 228) (3 497) (3 912)
Dividends paid (2 418) (2 200) (3 795)
Net cash inflow from operating 10 891 9 648 9 373
activities
Net cash outflow from investment (5 673) (4 989) (9 887)
activities
Net cash inflow/(outflow) from 1 712 (285) (102)
financing activities
Net increase/(decrease) in cash 6 930 4 374 (616)
and cash equivalents
Cash and cash equivalents at the 46 952 46 684 46 684
beginning of the period
Cash and cash equivalents at the 53 882 46 068
end of the period 51 058
Cash and cash equivalents sold* (450) - -
Cash and cash equivalents bought* 135 - 884
Cash and cash equivalents at the 53 567 51 058 46 952
end of the period
* Cash and cash equivalents sold and bought relate to subsidiaries acquired and
sold during the year.
statement of changes in equity
Share Non Distri- Total
capital distri- butable ordinary
and butable reserves share-
share reserves holders`
premium funds
Balance at 1 July 2007 2 389 5 028 31 612 39 029
Movement in other - 57 - 57
associates
Currency translation - (164) - (164)
differences
Movement in revaluation - (17) - (17)
reserves
Movement in other - 15 - 15
reserves
Earnings attributable - - 6 283 6 283
to shareholders
Ordinary dividends - - (2 224) (2 224)
Preference dividends - - - (194)
Transfer (to)/from - (41) 41 -
reserves
Effective change of - - - -
shareholding of
subsidiary
Subsidiary
sold/unbundled -
Discovery (1 201) (192) (2 051) (3 444)
Share based payment - 101 - 101
reserve
Consolidation of (94) (10) 95 (9)
treasury shares
Balance at 31 December 1 094 4 777 33 756 39 627
2007
Balance at 1 July 2006 3 635 3 522 24 854 32 011
as previously stated
BEE share based payment - 1 655 (1 655) -
reserve
Balance at 1 July 2006 3 635 5 177 23 199 32 011
as restated
Issue of share capital - - - -
Conversion of (165) - 165 -
convertible redeemable
preference shares
Currency translation - (64) - (64)
differences
Movement in revaluation - (153) - (153)
reserves
Movement in other - (1) 2 1
reserves
Earnings attributable - - 5 381 5 381
to shareholders
Ordinary dividends - - (1 753) (1 753)
Preference dividends - - - -
Transfer (to)/from - (2) 2 -
reserves
Effective change of - - (1) (1)
shareholding of
subsidiary
Share based payment - 116 - 116
reserve
Consolidation of (1 231) (561) 101 (1 691)
treasury shares
Balance at 31 December 2 239 4 512 27 096 33 847
2006
Non cumulative Minority Total share-
non redeemable interest holders`
preference share funds
capital and
premium
Balance at 1 July 2007 4 519 3 672 47 220
Movement in other associates - - 57
Currency translation - (22) (186)
differences
Movement in revaluation - 7 (10)
reserves
Movement in other reserves - 4 19
Earnings attributable to 194 618 7 095
shareholders
Ordinary dividends - (413) (2 637)
Preference dividends (194) - (194)
Transfer (to)/from reserves - - -
Effective change of - 146 146
shareholding of subsidiary
Subsidiary sold/unbundled -
Discovery - (2 100) (5 544)
Share based payment reserve - 4 105
Consolidation of treasury - - (9)
shares
Balance at 31 December 2007 4 519 1 916 46 062
Balance at 1 July 2006 as 4 519 2 974 39 504
previously stated
BEE share based payment - - -
reserve
Balance at 1 July 2006 as 4 519 2 974 39 504
restated
Issue of share capital - (1) (1)
Conversion of convertible - - -
redeemable preference shares
Currency translation - 1 (63)
differences
Movement in revaluation - 69 (84)
reserves
Movement in other reserves - (1) -
Earnings attributable to 163 564 6 108
shareholders
Ordinary dividends - (284) (2 037)
Preference dividends (163) - (163)
Transfer (to)/from reserves - - -
Effective change of shareholding of - - (1)
subsidiary
Share based payment reserve - 10 126
Consolidation of treasury shares - 37 (1 654)
Balance at 31 December 2006 4 519 3 369 41 735
assets under management or administration
At At
31 December % 30 June
R million 2007 2006 3 Change 2007 1
Banking Group1 618 526 502 634 23 547 467
Momentum Group1 182 532 179 008 2 184 088
Discovery Group1 - 7 550 (100) 8 500
FirstRand company and (19 822) (12 685) 56 (18 496)
consolidation2
Total on balance sheet 781 236 676 507 15 721 559
assets
Off balance sheet assets 211 942 192 097 10 178 589
managed or administered on
behalf of clients
Total assets under 993 178 868 604 14 900 148
management or
administration
Pro forma total assets 993 178 861 054 15 891 648
under management or
administration
1. Assets are disclosed before elimination of intergroup balances. Refer note 2.
2. All consolidation entries have been included.
3. December 2006 numbers have been restated. Refer to www.firstrand.co.za.
sources of normalised earnings
R million 2007 % 2006 % compo-%
compo- sition change
sition
FNB 2 741 45 2 187 39 25
FNB Africa 249 4 209 4 19
RMB 1 927 31 1 690 30 14
WesBank 462 7 538 10 (14)
Momentum 783 13 652 12 20
- Insurance operations 643 513
- Asset management 140 139
operations
Discovery 185 3 220 4 (16)
Group Support 34 1 275 5 (88)
Banking Group (96) 159
Momentum Group 130 116
FirstRand (49) (1) (69) (1) (29)
Dividend payment to non (194) (3) (163) (3) 19
cumulative non
redeemable preference
shareholders
Normalised earnings 6 138 100 5 539 100 11
1. The definition of normalised earnings is provided at the end of this
announcement.
description of normalised earnings
The Group believes normalised earnings more accurately reflect actual
operational performance. Headline earnings are adjusted to take into account non
operational and accounting anomalies.
These adjustments are consistent with those reported at 30 June 2007, except for
private equity realisations.
Private equity realisations
In August 2007 a new headline earnings circular, Circular 8/2007, was issued by
the South African Institute of Chartered Accountants ("SAICA").
The Group has applied this circular in preparation of this document. Private
equity realisations are included in headline earnings per the new circular under
an industry specific rule, and consequently no normalised adjustment is
necessary.
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 accounted for as share options of 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 which
existed pre the unbundling in Discovery at 57.1%.
Share based payments and treasury shares: Consolidation of share trusts
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 costs 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 increase 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)
were adjusted from fair value to net asset value in the Group consolidated
financial statements until 31 December 2006. The policyholder liabilities are
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. Since 1 January 2007, these
investments in associates were reflected at fair value, as these assets back
linked policyholder liabilities in terms of IAS28.
restatement of prior year numbers
Line items on the face of the statement of headline earnings, income statement
and balance sheet have been restated.
For details on restatement of prior year numbers please refer to
www.firstrand.co.za
Directors:
GT Ferreira (Chairman), PK Harris (CEO), VW Bartlett, DJA Craig (British), LL
Dippenaar, DM Falck, PM Goss, Dr NN Gwagwa, G Moloi, AP Nkuna, SE Nxasana, TN
Nzimande, KC Shubane, RK Store,
BJ van der Ross, Dr F van Zyl Slabbert, RA Williams.
Secretary: AH Arnott
Registered office:
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)
Date: 04/03/2008 08:30:03 Produced by the JSE SENS Department.
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