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FSR
FSR
FST - Firstrand - Audited Results For The Year Ended 30 June 2008 And
Cash Dividend Declaration
FIRSTRAND LIMITED
Registration No: 1966/010753/06
JSE code: FSR
ISIN: ZAE000066304
NSX share code: FST
Certain companies within the FirstRand Group are Authorised Financial
Services Providers
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2008 AND CASH DIVIDEND
DECLARATION
KEY FINANCIALS
Net asset value up 11%
Attributable earnings R11 309 million
Normalised ROE 22%
Dividend maintained
INTRODUCTION
This announcement covers the audited financial results of FirstRand Limited
("FirstRand" or "the Group") for the year ended 30 June 2008 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. Discovery was unbundled in November 2007.
OPERATING ENVIRONMENT
The international and South African operating environments were particularly
challenging for the year to 30 June 2008. Globally there was higher
inflation, resulting in slowing economic growth and recession concerns. The
ongoing stress in the international credit markets created weakness and
volatility in global financial markets.
In South Africa, inflation continued to rise, mainly driven by an increase
in energy and food prices and this, combined with a cumulative 250 basis
point increase in interest rates and resultant falling asset prices, put
severe strain on the consumer. This led to slower retail asset growth and
much higher bad debt levels which, as expected, negatively impacted retail
lending portfolios.
Corporate demand for credit continued to show resilience with capital
expenditure, infrastructure development and corporate action providing good
growth opportunities for the Group`s corporate and investment banking
divisions. Certain segments within the Small Medium Enterprise ("SME")
environment are feeling the impact of the credit cycle, however, large
corporate balance sheets generally remain strong and relatively under
leveraged.
The local equity, currency and interest rate markets were characterised by
increased volatility which assisted the fixed income and proprietary trading
areas of the Group, as well as greater trading volumes and structuring
opportunities. Whilst this volatility was positive for local trading
activities, severe dislocations in the international equity markets resulted
in significant losses in the Group`s international trading portfolios.
The insurance businesses showed good earnings growth despite tough
conditions characterised by lower equity markets and increased interest
rates.
FINANCIAL AND OPERATING PERFORMANCE
FirstRand`s diverse portfolio of banking businesses provided some protection
from the difficulties in the trading portfolios, but the size of the trading
losses combined with the significant increases in retail bad debts resulted
in the Group`s continuing operations (pro forma) earnings declining 8% to
R10.4 billion, with a normalised return on equity ("ROE") of 22%.
The Banking Group reported a 13% reduction in normalised earnings from R10.1
billion to R8.8 billion and a ROE of 20%.
The Momentum Group increased normalised earnings 20% from R1.7 billion to R2
billion and delivered an excellent ROE of 30%. The performance of the
Momentum Group reflects the remarkable resilience of the business given the
difficult trading environment. This is a result of Momentum`s strong market
position with the high end customer. In addition, its conservative capital
management strategy immunises Momentum against volatility in equity markets.
Sales via the FNB channels were strong, highlighting the success of its
channel diversification strategy.
The table below represents the relative contribution from continuing
operations to normalised earnings from the Banking and Insurance Groups:
YEAR ENDED 30 JUNE
% contri-
R MILLION (unaudited) 2008 2007 % change bution
Banking Group 8 814 10 089 (13) 85
Momentum Group 2 004 1 668 20 19
FirstRand and dividend (420) (448) 6 (4)
paid to non cumulative non
redeemable preference
shareholders
Total FirstRand Group 10 398 11 309 (8) 100
The Banking Group was impacted by two significant issues:
* impairments in the retail lending operations of R4.7 billion (2007: R2.6
billion); and
* losses in the Equity Trading division of R1.4 billion (2007: Profit of
R1.4 billion).
Impairments
The retail lending operations of the Banking Group were severely impacted by
the dramatic increase in bad debts from R2.6 billion to R4.7 billion. This
was a direct result of the deteriorating consumer credit cycle with the
significant increase in interest rates combined with higher inflation
placing serious strain on disposable income and eroding household
affordability levels. The absolute level of bad debts in the year under
review highlights the severity of the current cycle. It is not a reflection
of structural asset quality issues such as those experienced in other
markets (eg sub prime exposure), however, the Banking Group under-estimated
the overall extent of interest rate increases.
Given the current cycle, FirstRand`s bad debt levels are in line with
expectations, are correctly priced for and are not out of line with the
South African industry, taking into account the different asset mixes of the
local banks` portfolios. With the introduction of International Financial
Reporting Standards ("IFRS"), banks earnings with reference to bad debts are
now more reflective of the economic cycle, and can therefore be more
volatile.
FirstRand`s diverse corporate portfolio is well represented across the
strongest sectors of the economy. The Group is comfortable with its
corporate asset mix and current levels of impairments.
Losses in equity trading
Losses in the Equity Trading division of RMB amounted to R1.4 billion (2007:
Profit R1.4 billion). This included a loss of R1.9 billion in the
international portfolio that was partially offset by a profit of R0.5
billion in the local businesses.
The losses in the international portfolio occurred at the time of extreme
disruption and dislocation in international equity markets. There was a
dramatic increase in volatility which necessitated additional capital to
underpin the portfolios. There was a severe divergence in the correlation
between the portfolio of small and mid cap stocks and the large cap indices
that were used to hedge the portfolio. This resulted in losses being
incurred on both the portfolio and the hedges. In addition, the almost
complete drying up of liquidity meant that realisation and mark-to-market
prices were substantially below the valuations the division placed on the
stocks in their portfolio. However, a decision was finally made to undertake
a managed sell down of the portfolio in order to reduce earnings volatility
and at year end the portfolio was 15% of its original size. Subsequent to
year end it has been reduced to less than 5%.
The Group is satisfied that the losses were as a result of misreading the
severity of the equity market dislocation and not due to a failure of risk
management. However, the Group recognises that the absolute level of risk
taken in this portfolio was too high and that the consequent volatility in
earnings should be avoided in future by reducing the risk appetite in this
type of activity.
OVERVIEW OF OPERATING FRANCHISES
Below is a brief overview of each operating franchise:
RMB YEAR ENDED 30 JUNE
R MILLION 2008 2007 % change
Normalised earnings (unaudited) 3 008 3 868 (22)
Total assets 296 433 198 929 49
Total liabilities 292 091 153 886 90
ROE (%) 25 40
RMB reported normalised earnings of R3 billion for the year to June 2008,
22% lower than the previous year, but a satisfactory performance given the
high base created in the previous year when earnings increased 80%. The
resilience of RMB`s diversified portfolio of businesses mitigated to an
extent the impact of the under performance of the Equity Trading division as
Investment Banking, Fixed Income Currencies and Commodities ("FICC") and
Private Equity significantly exceeded their prior year results, showing
growth of 64%, 76% and 37% respectively.
FNB YEAR ENDED 30 JUNE
R MILLION 2008 2007 % change
Normalised earnings (unaudited) 4 654 4 245 10
Total assets 211 412 185 803 14
Total liabilities 197 828 172 424 15
Bad debt ratio (%) 1.55 0.91
ROE (%) 33 35
FNB`s operating environment was characterised by continued increases in
interest rates and higher inflation placing pressure on consumer
affordability levels and resulting in higher level of defaults. The credit
markets were particularly challenging in the second half of the financial
year, but FNB`s solid performance can be ascribed to a number of operational
factors. Its strong franchise in the commercial and corporate segments,
which now comprise more than half of FNB`s earnings, provided some
mitigation to the significant increase in retail bad debts.
Its diversified retail portfolio also meant that whilst the consumer segment
experienced a slow down in growth, the mass and wealth segments continued to
perform well. The transactional and deposit businesses continued to grow,
albeit at a slower rate than the prior year and a continued focus on
efficiencies resulted in FNB`s cost to income ratio reducing by a further
2.9 percentage points.
FNB Africa YEAR ENDED 30 JUNE
R MILLION 2008 2007 % change
Normalised earnings (unaudited) 499 437 14
Total assets 29 413 21 615 36
Total liabilities 26 160 19 483 34
Bad debt ratio (%) 0.72 0.75
ROE (%) 34 33
The FNB Africa subsidiaries performed well in the year under review, growing
normalised earnings 14% on the back of good advances growth and excellent
growth in deposits. Transaction volumes also grew strongly across all the
subsidiaries. Unlike South Africa, the bad debt levels experienced during
the year remained stable.
WesBank YEAR ENDED 30 JUNE
R MILLION 2008 2007 % change
Normalised earnings (unaudited) 573 918 (38)
Total assets 108 331 100 479 8
Bad debt ratio (%) 2.09 1.39
ROE (%) 12 23
WesBank`s overall profitability was impacted by significant increases in bad
debts in its local retail lending businesses. The compound effect of
negative gearing has also resulted in asset growth slowing. Overall
normalised earnings declined 38% to R573 million.
As previously reported, WesBank took the decision in the year under review
to exit its Australian operations. The process to sell the auto loan book
has been finalised and the sale of WorldMark is on track and the Group is
optimistic that the net result of disposing of the lending operations should
be largely offset by the eventual disposal of WorldMark. However, due to
delays in the finalisation of the disposals, the Group is reporting only the
costs, write downs and write offs associated with the operating assets and
these have had a material negative impact on WesBank`s earnings in the year
under review.
Momentum YEAR ENDED 30 JUNE
R MILLION 2008 2007 % change
Normalised earnings (unaudited) 2 004 1 668 20
Embedded value ("EV") 16 008 15 453 4
Return on EV (%) 15 28
ROE (%) 30 25
The Momentum Group delivered an excellent performance in tough economic
conditions, with normalised earnings up 20% to R2 billion. In the insurance
operations there was excellent growth in lump sum inflows and new business
margins were maintained at 2.1%, whilst maintaining positive net cash flows.
The business saw continued extension of its distribution channels and a
pleasing turnaround from growth initiatives, especially in the middle market
initiative with FNB. Capital efficiency and a strong operating performance
led to a return on equity of 30%. The value of new business and a strong
contribution from existing business once again delivered a robust return on
embedded value of 15%.
The relative contribution to the Group`s continuing operations earnings mix
and growth rates from types of income (retail, corporate, investment banking
and insurance) by business unit is shown in the table below:
Year ended 30 June
% contri- % contri- %
R MILLION 2008 bution 2007 bution change
Retail banking
FNB (retail) 2 040 2 213
WesBank 218 641
FNB Africa 499 437
Total 2 757 26 3 291 29 (16)
Corporate banking
FNB (corporate) 477 424
FNB (commercial) 2 137 1 608
WesBank 355 277
Total 2 969 29 2 309 20 29
Investment
banking
RMB 3 008 29 3 868 34 (22)
Insurance
Momentum 2 004 19 1 668 15 20
Other
FirstRand and (420) (448)
dividend paid to
non cumulative
non redeemable
preference
shareholders
Banking Group 80 621
Support
Total (340) (3) 173 2 >(100)
Normalised 10 398 100 11 309 100
earnings
(unaudited)
CAPITAL POSITION
Despite the difficult market conditions in the last 12 months, the capital
adequacy ratios are well within the targeted range for both Tier 1 and Total
capital adequacy. Credit growth has slowed offering some respite after a
sustained period of intensive capital consumption; while the de-risking of
the international businesses resulted in a lower capital requirement. Given
the deterioration in the credit environment over the past 12 months, the
Group remains vigilant to the effects of pro-cyclicality introduced by Basel
II.
Momentum`s decision to back its regulatory Capital Adequacy Requirement
("CAR") with cash assets, while the balance of the shareholders` assets is
invested in a combination of strategic investment and interest bearing
assets, has shielded the capital base in declining investment markets.
Momentum`s CAR was covered 2.2 times by the excess of assets over
liabilities at 30 June 2008.
Capital adequacy
At 30 June
2008 2007
Capital adequacy ratio: Banking Group 13.8 13.6
Basel II Basel I
CAR cover: Momentum Group (Regulatory 2.2 2.3
requirement: 1.0x)
PROSPECTS
As anticipated six months ago, the Group has had to weather further
tightening in its operating environments across its franchises. Global and
local capital markets will continue to see unusually high fluctuations, and
conditions for the South African consumer will remain difficult.
Looking forward, it is expected that credit market conditions will continue
to be challenging. Factors such as the impact of the recent electricity
price changes and the new municipal rate structures currently being
introduced will add to consumers` cash flow pressures. Further increases in
arrears, non performing loans and impairment charges for bad debts are
forecast for the aggregate credit portfolio.
On a product line basis, the main factors will be the slowdown in the growth
of house prices and the continued pressure on second hand car prices, which
respectively impact the defaults and recoveries of the residential mortgage
and asset finance credit businesses. Unsecured credit is expected to
continue to be negatively affected by consumers` cash flow pressures,
however there will be less new business strain due to the slowdown in asset
growth.
Investments in recovery processes and technology have already shown benefits
in areas such as credit card in the past six months. Repricing initiatives
for new business, which are well underway in asset finance and home loans,
are expected to provide some mitigation against the ongoing bad debt
pressures.
The corporate environment is still showing resilience in the current market
conditions but there is increased pressure on smaller businesses in the SME
market due to the economic environment. The business environment in the
large corporate lending areas is expected to remain resilient over the next
year, but with increasing levels of risk in those segments exposed to the
consumer.
The Banking Group will continue to actively manage its credit portfolio in
the light of deteriorating macro economic conditions. The focus is on the
appropriate level of risk appetite that is set in origination strategies and
the implementation of credit portfolio hedges where appropriate. Stable or
possibly declining interest rates are expected to provide some support to
improvements in credit conditions in the second half of the next financial
year.
The strong new business growth experienced over the past few years, together
with the ongoing product, channel and geographic diversification and recent
improvements in the relative investment performance, should benefit
Momentum`s future earnings growth.
The current investment market volatility is expected to continue, which will
impact on asset based fees, whilst more subdued growth is expected from the
capital portfolio. New business volumes and the retention of existing
clients will remain under pressure as the levels of disposable income
continue to decline.
In terms of its growth prospects, the Group still believes that, despite its
high market share in sections of the South African market, there are still
opportunities to grow organically, particularly in the corporate and
investment banking segments and certain retail segments such as mass and
wealth. The Group believes that the interest rate cycle has peaked but it is
difficult to predict or time the end of the current credit cycle. FirstRand
is actively managing its businesses to ensure that they are well positioned
to benefit quickly as the cycle improves. The Group recognises that as
absolute growth in the topline slows down, an increased focus on
efficiencies is a critical business imperative.
FirstRand continues to pursue its strategy of seeking growth opportunities
in markets outside South Africa. It is actively looking at Africa, India and
Brazil and believes that in the medium term, it can capitalise on a number
of niche opportunities in those markets.
The Group believes that given the current uncertain market conditions it
would not be appropriate to provide short and medium term earnings growth
targets until stability returns to the macro environment and financial
markets. The board, however, remains committed to delivering superior real
returns to shareholders over the longer term.
SUBSEQUENT EVENTS
Subsequent to balance sheet date WesBank reached agreement to dispose of the
MotorOne Autoloan book in Australia. In terms of the agreement, the Group
will realise a loss of approximately R114 million, which is in line with
expectations. The loss will be reported in the Group`s interim results for
the six months ended 31 December 2008.
BOARD CHANGES
Messrs Denis Falck and Robbie Williams have retired from the board with
effect from 11 September 2008.
DIVIDEND POLICY
Fair value accounting continues to impact earnings volatility, 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.
BASIS OF PRESENTATION
FirstRand prepares its consolidated financial statements in accordance with
IFRS, including IAS 34 Interim Financial reporting. The accounting policies
are consistent with those used in the prior year.
The Group believes that normalised earnings more accurately reflect
operational performance. Headline earnings are adjusted to take into account
non operational and accounting anomalies.
GT Ferreira PK Harris
Chairman Chief executive officer
ANNUAL REPORT
Comprehensive financial information relating to all Group entities will be
distributed to shareholders in due course. The financial information in this
announcement has been extracted in a summarised format from the audited
annual financial statements for the year ended 30 June 2008. The audit
opinion signed by PricewaterhouseCoopers Inc is available for inspection at
the company secretary`s office.
CASH DIVIDEND DECLARATION
Ordinary shares
The following ordinary cash dividends were declared in respect of the 2008
and 2007 financial years:
Year ended 30 June
Cents per share 2008 2007
Interim (declared 3 March 2008) 44.25 39.50
Final (declared 15 September 2008)* 38.25 43.00
82.50 82.50
* The last day to trade in FirstRand shares on a cum-dividend basis in
respect of the final dividend will be Friday,17 October 2008 and the first
day to trade ex-dividend will be Monday, 20 October 2008. The record date
will be Friday, 24 October 2008 and the payment date will be Monday, 27
October 2008. No dematerialisation or rematerialisation of shares may be
done during the period Monday, 20 October 2008 to Friday, 24 October 2008,
both days inclusive.
Preference shares
Dividends on the "B" preference shares are calculated at a rate of 68% of
the FNB prime lending rate. The following dividends have been declared for
payment:
"B" "B1"
Preference Preference
Cents per share 2008 2008
Period 28 August 2007 - 25 February 477.77 477.77
2008
Period 26 February 2008 - 25 August 511.30 511.30
2008
AH Arnott
Company secretary
15 September 2008
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE
R million 2008 2007 % change
Continuing operations
Interest and similar income 55 009 45 324 21
Interest expense and similar charges (31 830) (25 821) 23
Net interest income before impairment 23 179 19 503 19
of advances
Impairment of advances (5 064) (2 857) 77
Net interest income after impairment 18 115 16 646 9
of advances
Non interest income 22 471 47 709 (53)
Net insurance premium income 5 374 5 081 6
Net claims and benefits paid (5 530) (5 590) (1)
Increase in value of policyholder (701) (25 535) (97)
liabilities
Income from operations 39 729 38 311 4
Operating expenses (26 189) (23 288) 12
Net income from operations 13 540 15 023 (10)
Share of profit of associates and 1 662 2 198 (24)
joint ventures
Profit before tax 15 202 17 221 (12)
Tax (3 037) (5 216) (42)
Profit from continuing operations 12 165 12 005 1
Discontinued operations
Profit after tax from discontinued 868 1 073 (19)
operation
Profit for the year 13 033 13 078 <(1)
Attributable to:
Non cumulative non redeemable 409 348 18
preference shareholders
Ordinary shareholders 11 309 11 511 (2)
Equity holders of the Group 11 718 11 859 (1)
Minority interest 1 315 1 219 8
Profit for the year 13 033 13 078 <(1)
STATEMENT OF HEADLINE EARNINGS FROM CONTINUING AND DISCONTINUED OPERATIONS
FOR THE YEAR ENDED 30 JUNE
R million 2008 2007 % change
Attributable earnings to ordinary 11 309 11 511 (2)
shareholders
Adjusted for: (1 387) (657) >(100)
Profit on disposal of available-for- (98) (863)
sale assets
Profit on sale of shares in (678) (78)
subsidiary and associate
Net asset value in excess of purchase (24) -
price of subsidiaries
Profit on disposal of property and (4) (8)
equipment
Impairment of intangible assets 104 55
Impairment of goodwill 33 61
VISA listing (1 052) -
Other 29 -
Total tax effects of adjustments 257 106
Total minority interest of 46 70
adjustments
Headline earnings 9 922 10 854 (9)
Adjusted for: 661 991 (33)
Discovery BEE transaction 5 19
IFRS 2 Share based expenses 153 401
Treasury shares 503 543
- adjustment for effective (17) (50)
shareholding in Discovery
- consolidation of staff share 517 372
schemes
- FirstRand shares held by 3 221
policyholders
Adjustment of listed property - 28
associates to net asset value
Normalised earnings (unaudited) 10 583 11 845 (11)
Segmental normalised earnings
Banking Group 8 814 10 089 (13)
Momentum Group 2 004 1 668 20
Discovery Group 185 536 (65)
FirstRand Limited (company) (11) (100) (89)
Dividend paid to non cumulative non (409) (348) 18
redeemable preference shareholders
Normalised earnings (unaudited) 10 583 11 845 (11)
Segmental headline earnings
Banking Group 8 701 9 752 (11)
Momentum Group 1 979 1 610 23
Discovery Group 185 556 (67)
FirstRand Limited (company) (14) (123) (89)
Consolidation of staff share schemes (517) (372) 39
Dividend paid to non cumulative non (409) (348) 18
redeemable preference shareholders
Consolidation of treasury shares held (3) (221) >(100)
by policyholders
Headline earnings 9 922 10 854 (9)
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE
Share
capital General Cash Share
and flow based
Share Share share risk hedge payment
R million capital premium premium reserve reserve reserve
Balance as at 51 3 584 3 635 1 136 176 2 128
30 June 2006
Issue of share - - - - - -
capital
Conversion of
convertible
redeemable - (164) (164) - - -
preference
shares
Share issue - - - - - -
expenses
Currency - - - - - -
translation
differences
Movement in - - - - - -
revaluation
reserves
Movement in - - - - 6 237
other reserves
Profit for the - - - - - -
year
Ordinary - - - - - -
dividends
Preference - - - - - -
dividends
Transfer - - - 215 (51) -
(to)/from
reserves
Effect of
change in
shareholding
in subsidiary - - - - - -
Contribution - - - - - -
from parent
company
Reserve
movements
transferred to
the income - - - - - -
statement
Consolidation - (1 082) (1 082) - - -
of share trusts
Balance as at 51 2 338 2 389 1 351 131 2 365
30 June 2007
Conversion of
convertible
redeemable 1 - 1 - - -
preference
shares
Currency - - - - - -
translation
differences
Movement in - - - - 132 -
revaluation
reserves
Movement in - - - - - 111
other reserves
Profit for the - - - - - -
year
Ordinary - - - - - -
dividends
Preference - - - - - -
dividends
Transfer - - - (1 343) - (77)
(to)/from
reserves
Effect of
change in
shareholding
in subsidiary - (1) (1) - - -
Subsidiary
sold/unbundled
-
Discovery - (1 201) (1 201) - - (151)
Contribution - - - - - -
from parent
company
Non
distributable
reserves
of associates - - - - - -
Reserve
movements
transferred
to the income - - - - 339 -
statement
Consolidation - (100) (100) - - -
of share trusts
Balance as at 52 1 036 1 088 8 602 2 248
30 June 2008
Available- Currency Other non
for-sale translation distributable Retained
R million reserve reserve reserves earnings
Balance as at 30 1 003 575 159 23 199
June 2006
Issue of share - - - -
capital
Conversion of
convertible
redeemable - - - 164
preference
shares
Share issue - - - -
expenses
Currency - 10 - -
translation
differences
Movement in 869 - - -
revaluation
reserves
Movement in - - (32) 3
other reserves
Profit for the - - - 11 511
year
Ordinary - - - (3 795)
dividends
Preference - - - -
dividends
Transfer 44 - 47 (255)
(to)/from
reserves
Effect of change
in shareholding
in subsidiary - - (337) 355
Contribution - - - -
from parent
company
Reserve
movements
transferred to
the income (732) - - -
statement
Consolidation of - - (425) 430
share trusts
Balance as at 30 1 184 585 (588) 31 612
June 2007
Conversion of
convertible
redeemable - - - -
preference
shares
Currency - 780 - -
translation
differences
Movement in 737 - (15) -
revaluation
reserves
Movement in - - 62
other reserves
Profit for the - - - 11 309
year
Ordinary - - - (4 523)
dividends
Preference - - - -
dividends
Transfer - - - 1 420
(to)/from
reserves
Effect of change
in shareholding
in subsidiary - - (48) (57)
Subsidiary
sold/unbundled -
Discovery (426) - 385 (2 051)
Contribution - - - -
from parent
company
Non
distributable
reserves
of associates - - 19 -
Reserve
movements
transferred
to the income (388) - - -
statement
Consolidation of - - - 227
share trusts
Balance as at 30 1 107 1 365 (185) 37 937
June 2008
Capital and
reserves
attributable Preference
to ordinary share-
equity holders` Minority Total
R million holders funds interest equity
Balance as at 30 June 32 011 4 519 2 974 39 504
2006
Issue of share - - 45 45
capital
Conversion of
convertible
redeemable preference - - - -
shares
Share issue expenses - - (1) (1)
Currency translation 10 - (7) 3
differences
Movement in 869 - 83 952
revaluation reserves
Movement in other 214 - 10 224
reserves
Profit for the year 11 511 348 1 219 13 078
Ordinary dividends (3 795) - (747) (4 542)
Preference dividends - (348) - (348)
Transfer (to)/from - - 51 51
reserves
Effect of change in
shareholding
in subsidiary 18 - 26 44
Contribution from - - 19 19
parent company
Reserve movements
transferred to
the income statement (732) - - (732)
Consolidation of (1 077) - - (1 077)
share trusts
Balance as at 30 June 39 029 4 519 3 672 47 220
2007
Conversion of
convertible
redeemable preference 1 - - 1
shares
Currency translation 780 - 56 836
differences
Movement in 854 - (60) 794
revaluation reserves
Movement in other 173 - 32 205
reserves
Profit for the year 11 309 409 1 315 13 033
Ordinary dividends (4 523) - (692) (5 215)
Preference dividends - (409) - (409)
Transfer (to)/from - - - -
reserves
Effect of change in
shareholding
in subsidiary (106) - 141 35
Subsidiary
sold/unbundled -
Discovery (3 444) - (2 100) (5 544)
Contribution from - - 12 12
parent company
Non distributable
reserves
of associates 19 - 1 20
Reserve movements
transferred
to the income (49) - - (49)
statement
Consolidation of 127 - - 127
share trusts
Balance as at 30 June 44 170 4 519 2 377 51 066
2008
CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE
R million 2008 2007
ASSETS
Cash and short term funds 48 486 46 952
Derivative financial instruments 64 314 33 244
Advances 446 286 387 020
Investment securities and other investments 214 353 213 875
Commodities 1 916 1 118
Accounts receivable 8 093 9 257
Investments in associates and joint ventures 13 303 11 809
Property and equipment 8 859 6 411
Deferred tax asset 1 456 1 306
Intangible assets and deferred acquisition 4 497 4 302
costs
Investment properties 3 808 2 356
Policy loans on insurance contracts 212 166
Reinsurance assets 550 595
Tax asset 833 34
Assets arising from insurance contracts - 3 114
Non current assets held for sale 3 092 -
Total assets 820 058 721 559
EQUITY AND LIABILITIES
Liabilities
Deposits 488 423 421 568
Short trading positions 33 450 32 175
Derivative financial instruments 51 595 24 139
Creditors and accruals 13 051 13 887
Provisions 3 275 3 598
Tax liability 666 1 368
Post retirement benefit fund liability 1 980 1 882
Deferred tax liability 5 372 6 279
Long term liabilities 13 941 9 250
Reinsurance liabilities - 20
Policyholder liabilities under insurance 43 417 46 979
contracts
Policyholder liabilities under investment 110 784 111 239
contracts
Liabilities arising to third parties as a 2 742 1 568
result of consolidating unit trusts
Deferred revenue liability 296 387
Total liabilities 768 992 674 339
Equity
Capital and reserves attributable to equity
holders
Ordinary shares 52 51
Share premium 1 036 2 338
Reserves 43 082 36 640
Capital and reserves attributable to ordinary 44 170 39 029
equity holders
Non cumulative non redeemable preference shares 4 519 4 519
Capital and reserves attributable to equity 48 689 43 548
holders
Minority interest 2 377 3 672
Total equity 51 066 47 220
Total equity and liabilities 820 058 721 559
SOURCES OF NORMALISED EARNINGS FROM CONTINUING AND DISCONTINUED OPERATIONS
(unaudited) FOR THE YEAR ENDED 30 JUNE
% compo- % compo-
R million 2008 sition 2007 sition % change
FNB 4 654 44 4 245 36 10
RMB 3 008 28 3 868 33 (22)
WesBank 573 5 918 8 (38)
FNB Africa 499 5 437 3 14
Momentum 1 741 17 1 471 12 18
Insurance 1 459 1 145
operations
Asset management 282 326
operations
Group Support 343 3 818 7 (58)
Banking Group 80 621
Momentum Group 263 197
FirstRand Limited (11) - (100) (1) (89)
(company)
Dividend payment (409) (4) (348) (3) 18
to non cumulative
non redeemable
preference
shareholders
Normalised 10 398 98 11 309 95 (8)
earnings from
continuing
operations
Discovery 185 2 536 5 (65)
Normalised 10 583 100 11 845 100 (11)
earnings from
continuing and
discontinued
operations
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE
R million 2008 2007
Cash flows from operating activities
Cash receipts from customers 75 755 67 979
Cash paid to customers, suppliers and employees (56 279) (48 214)
Dividends received 4 461 1 952
Dividends paid (4 523) (3 795)
Net cash flows from operating activities 19 414 17 922
Increase in income earning assets (63 226) (86 700)
Increase in deposits and other liabilities 55 647 82 063
Net cash generated from operations (7 579) (4 637)
Tax paid (4 715) (3 912)
Net cash inflow from operating activities 7 120 9 373
Cash flows from investment activities
Purchase of property and equipment (4 056) (2 193)
Proceeds on disposal of property and equipment 320 59
Purchase of investment properties (1 706) (175)
Proceeds on disposal of investment properties 375 988
Proceeds on disposal of investments 182 -
Proceeds on disposal of subsidiary 697 -
Acquisition of subsidiaries (1 526) (5 143)
Purchase of associates and joint ventures (3 623) (3 274)
Proceeds on disposal of associates and joint 1 439 -
ventures
Purchase of intangible assets (678) (149)
Net cash outflow from investment activities (8 576) (9 887)
Cash flows from financing activities
Proceeds from/(repayment of) long term 3 129 (102)
liabilities
Net cash inflow/(outflow) from financing 3 129 (102)
activities
Net increase/(decrease) in cash and cash 1 673 (616)
equivalents
Cash and cash equivalents at the beginning of 46 952 46 684
the year
Cash and cash equivalents at the end of the 48 625 46 068
year
Cash and cash equivalents sold (695) -
Cash and cash equivalents purchased 139 884
Effect of exchange rate changes on cash and 417 -
cash equivalents
Cash and cash equivalents at the end of the 48 486 46 952
year
STATEMENT OF HEADLINE EARNINGS FROM CONTINUING OPERATIONS (PRO FORMA)
(UNAUDITED)
for the year ended 30 June
R million 2008 2007 % change
Attributable earnings to 10 581 10 838 (2)
shareholders
Adjusted for: (844) (540) 56
Profit on disposal of available- (7) (649)
for-sale assets
Profit on sale of shares in (108) (78)
subsidiary and associate
Net asset value in excess of (24) -
purchase price of subsidiaries
Profit on disposal of property (4) (8)
and equipment
Impairment of intangible assets 104 55
Impairment of goodwill 33 61
VISA listing (1 052) -
Other 29 -
Total tax effects of adjustments 169 79
Total minority interest of 16 -
adjustments
Headline earnings 9 737 10 298 (5)
Adjusted for: 661 1 011 (35)
IFRS 2 share based expenses 141 390
Treasury shares 520 593
- consolidation of staff share 517 372
schemes
- FirstRand shares held by 3 221
policyholders
Adjustment of listed property - 28
subsidiary and associate to net
asset value
Normalised earnings 10 398 11 309 (8)
Normalised earnings per share
(cents)
- Basic 184.5 200.7 (8)
- Diluted 184.4 200.6 (8)
Earnings per share (cents)
- Basic 204.2 209.8 (3)
- Diluted 200.3 203.9 (2)
Headline earnings per share
(cents)
- Basic 187.9 199.4 (6)
- Diluted 184.3 193.7 (5)
Return on equity (%) 21.9 28.9
Average normalised net asset 47 449 39 199 21
value excluding Discovery
Normalised earnings 10 398 11 309 (8)
DESCRIPTION OF NORMALISED EARNINGS
The Group believes normalised earnings more accurately reflect 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
2007.
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 effect.
Treasury shares: Effective shareholding in Discovery Holdings Limited
Discovery consolidates in its results treasury shares relating to their 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 share 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 schemes 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 effect.
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 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 IAS
28.
additional information is available at
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, AT?Nzimande, KB?Schoeman, 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 Limited)
Date: 16/09/2008 08:00:01 Produced by the JSE SENS Department.
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