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FSR - FirstRand Limited - Audited Results And Cash Dividend Declaration For The
Year Ended 30 June 2009
FirstRand Limited
Registration No: 1966/010753/06
JSE code: FSR
ISIN: ZAE000066304 ("FSR")
NSX share code: FST
Certain companies within the FirstRand Group are Authorised Financial Services
Providers
AUDITED RESULTS AND CASH DIVIDEND DECLARATION FOR THE YEAR ENDED 30 JUNE 2009
KEY FINANCIALS
Attributable earnings R6 501 million
Normalised earnings R7 151 million
Normalised ROE 14%
INTRODUCTION
This report covers the audited financial results of FirstRand Limited
("FirstRand" or "the Group") for the year ended 30 June 2009 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,
Outsurance, the short term insurer and Momentum, the life insurance business.
FirstRand operates these franchises through various legal entities.
Comprehensive reports on the Banking and Momentum Groups, both of which are
wholly owned, are available on www.firstrand.co.za.
OPERATING ENVIRONMENT
The operating environment during the year ended 30 June 2009 was characterised
by negative economic growth, continued market illiquidity and further declines
in asset values.
Whilst the global economy has begun to stabilise the outlook remains
challenging. The Anglo Saxon banks and respective economies are under severe
stress and the US consumer is not spending but saving. The unwinding of the
massive fiscal and monetary stimulus packages, coupled with the rebuilding of
balance sheets, will weigh on global demand for a protracted period. It is
expected that the eastern economies will emerge earlier and stronger than the
western economies.
The South African economy is still suffering the effects of the cyclically high
interest rates of 2006 to 2008, combined with falling commodity prices, a marked
slowdown in exports, as well as declining domestic demand. This has resulted in
a significant slowdown in GDP. Job losses are increasing and the manufacturing
sector is still contracting.
The South African Reserve Bank reduced interest rates by a cumulative 450bps
(starting in December 2008). This is positive in the medium to long term as it
eventually results in the reduction of bad debts and non performing loans, and
improved customer affordability levels. However, given the still high levels of
customer indebtedness in the system, in the short term the impact is negative on
the margins of the banks` deposits and income on the capital endowment. The
benefit of reducing interest rates is therefore only expected to positively
impact earnings in late 2009 or early 2010.
House prices are still expected to continue to fall, resulting in lower recovery
rates on mortgage security. Wholesale lending portfolios, which have been
resilient for a large part of the economic downturn, are now showing signs of
stress.
Despite these difficulties the South African Banking Sector has remained stable
throughout the period, benefitting from a sound regulatory environment, robust
risk and capital management practices and strong operating franchises.
OVERVIEW OF RESULTS
Against this difficult macro background, exacerbated by losses from certain
international strategies which have now been terminated, FirstRand`s diverse
portfolio of banking and insurance businesses produced a disappointing
performance. Pro forma normalised earnings decreased 31% to R7.2 billion with a
normalised return on equity ("ROE") of 14% compared to 22% in the previous
period.
The table below represents the contribution to normalised earnings from the
banking and insurance groups.
Unaudited Year ended 30 June %
R million 2009 2008 change
Banking Group 6 056 8 814 (31)
Momentum 1 649 2 004 (18)
FirstRand* (554) (420) (32)
Pro forma normalised earnings 7 151 10 398
*Including dividend paid to non cumulative non redeemable preference
shareholders.
The Group`s corporate and commercial banking franchises which operate in the
primary and secondary markets, produced acceptable performances, as did the
retail franchises, despite the difficult consumer credit cycle. However the
absolute size of retail bad debts, particularly in the residential mortgages
portfolio, combined with the losses emanating from the legacy portfolios in the
investment bank, significantly impacted overall profitability. The total banking
portfolio produced R6.1 billion of normalised earnings, representing a 31%
decline on the previous comparative period. Its normalised ROE also declined to
13% (20% in 2008).
The Group had previously indicated that it expected further market price
volatility in the legacy offshore portfolios of RMB`s SPJ International division
("SPJi"). For the year under review these portfolios incurred mark to market
losses and valuation declines of R775 million. The SPJi business has now been
closed down completely and dedicated specialist skills have been allocated to
work out the portfolios. The remaining illiquid positions, which are
predominantly in developed market investment grade credits, international
property and an Indian special situations fund, total around USD224 million at
current valuations.
RMB`s Equity Trading division reported losses of R782 million for the year,
largely attributable to the continued de-risking of its international portfolios
and the default of Dealstream. The international equities legacy portfolio has
been written down to approximately USD18 million.
Declining asset growth and further increases in bad debts, combined with the
negative impact of faster than anticipated reducing interest rates on capital
and endowment balances, also continued to place pressure on the earnings of the
Banking Group.
Wholesale impairments include R219 million relating to the unexpected default of
Dealstream, a futures clearing client. In addition the wholesale lending
portfolios are now showing signs of stress in certain sectors.
The earnings of the insurance subsidiary Momentum were negatively affected by
the significant decline and volatility of the equity markets. However, the
operational performance remained robust due to the inherent resilience of
Momentum`s business model, with continued new business growth in the retail and
employee benefits businesses. Solid growth in investment income was generated on
shareholders` funds resulting from the capital preservation strategy. Overall
normalised earnings declined 18% to R1 649 million, with the return on equity at
23%.
OVERVIEW OF THE OPERATING FRANCHISES
Below is a brief overview of each operating franchise:
FNB Year ended 30 June %
R million 2009 2008 change
Normalised earnings 3 756 4 654 (19)
Total assets 206 799 211 412 (2)
Total liabilities 197 230 197 828 (<1)
Bad debt ratio 2.39 1.55
ROE (%) 26 33
FNB`s performance was satisfactory, producing a return on equity of 26% despite
normalised earnings decreasing 19%.This was achieved against a backdrop of
elevated levels of consumer indebtedness, a recessionary operating environment
and high levels of local and global economic uncertainty.
FNB`s diversified retail portfolio continued to show good growth in non interest
revenue and deposits. The Mass segment performed well on the back of increases
in revenue generated from transactions and strong growth from loan products.
This segment also benefitted from the ongoing success of its cellphone banking
products and services.
The large retail lending portfolios, particularly in the Consumer segment,
continued to experience increases in arrears and non performing loans and a
slowdown in new business. This negative gearing had a substantial impact on
revenue growth and profitability, although the arrears in the residential
mortgages book (which is the most significant) appear to have reached a plateau
and post the year end started to show signs of improvement. Stringent credit
origination strategies resulted in better quality of new business written in
retail lending books, particularly credit cards and mortgages.
FNB`s strong franchises in the Commercial and Corporate segments continued to
perform well, although the Commercial segment`s deposit margins were negatively
impacted by the endowment effect of reducing interest rates in the second half
of the financial year.
A focus on cost management resulted in an increase of only 6% in operating
expenses.
FNB Africa Year ended 30 June %
R million 2009 2008 change
Normalised earnings 514 499 3
Total assets 31 640 29 413 8
Total liabilities 28 180 26 160 8
Bad debt ratio 0.58 0.72
ROE (%) 27 34
The global economic crisis, particularly the impact of falling commodity prices,
had a strong influence on the economies of Botswana and Namibia. Growth in these
markets slowed, resulting in increased unemployment and a reduction of foreign
currency flows and trade activity. Monetary policies resulted in declining
inflation and interest rates, placing pressure on margins particularly in the
second half of the financial year. However, the FNB African subsidiaries
continued to produce robust profitability, firstly by focusing on maintaining
credit quality through the pro-active management of the credit books, and
secondly by growing volumes and non interest revenue.
Normalised earnings increased 3% due to strong results from FNB Botswana and FNB
Swaziland with moderate growth in FNB Namibia. Continued investment in FNB
Mocambique together with the costs associated with the opening of FNB Zambia, as
expected moderated the overall portfolio performance. This investment in growing
FNB`s African infrastructure will continue over the next few years.
RMB Year ended 30 June %
R million 2009 2008 change
Normalised earnings 1 536 3 008 (49)
Total assets 275 097 296 433 (7)
Total liabilities 272 646 292 091 (7)
ROE (%) 12 25
RMB`s performance for the year was disappointing, reporting normalised earnings
49% lower than the previous year. Whilst RMB`s primary market activities, ie
client focused advisory, financing and execution, showed good growth, its
secondary market activities, ie proprietary trading, and the losses in the
international legacy portfolios delivered poor performances.
The Investment Banking division ("IBD") produced good results growing profits
before tax 7% despite the challenging base created in the previous year.
Corporate activity and lending remained strong and a number of significant deals
were concluded. These included three large BEE transactions, advising on the
sale of assets by BHP Billiton and the Remgro unbundling.
The Private Equity division reported profits before tax 44% down on its prior
year performance. Three large realisations were executed in the first half of
the year however, as expected in what is now an investment cycle, no
realisations were reported in the second half of the financial year.
The Fixed Income, Currency and Commodities division ("FICC") had a disappointing
year reporting profits before tax 46% down on the prior financial year. FICC`s
performance in the second half of the financial year was adversely impacted by
losses in the local fixed income markets. Impairments were also raised and costs
incurred on the closure of the Brazilian structured trade business. The client
sales, structuring and execution businesses all benefitted from good flows and
higher margins.
As outlined previously the SPJi legacy portfolios suffered significant losses
and the Equity Trading division also reported further losses incurred on its
offshore exposures as the positions continued to be sold down. In addition a
loss was incurred on the default of Dealstream. This loss consisted of
impairments of R219 million raised against the defaulting broker, as well as
mark to market losses of R116 million on the portfolios which were subsequently
acquired.
RMB Resources reported a small profit for the year under review.
WesBank Year ended 30 June %
R million 2009 2008 change
Normalised earnings 324 573 (43)
Total assets 94 472 108 331 (13)
Total liabilities 94 363 108 323 (13)
Bad debt ratio 2.86 2.09
ROE (%) 7 12
WesBank`s normalised earnings declined 43%, impacted by significant increases in
credit defaults in the local lending business and continued contraction of the
advances book. New business was negatively impacted by lower demand in both the
retail and corporate sectors. Total new business written was 19% down compared
to the prior year with both retail and corporate advances declining.
The worse than anticipated current cycle has been exacerbated by higher security
realisation losses, an increasing number of customer abscondences and provisions
arising out of insurance cancellations. There has also been a steep increase in
provisions in certain asset classes in the commercial and wholesale portfolios,
which is indicative of the shift in stress from the consumer to the corporate
environment. On a rolling six monthly basis, there has been an improvement in
bad debts in WesBank`s retail book reflecting improving trends in arrears and
better quality recent new business, which is performing well.
WesBank`s UK operation, Carlyle Finance, produced a good operational performance
but its results continued to be impacted by the current economic downturn in the
UK and funding pressures. Carlyle produced a loss before tax of R31 million,
representing a small improvement over the prior year.
During the current year, the MotorOne Finance advances book in Australia was
disposed of, resulting in a loss of R203 million. There remains a small residual
loan portfolio (approximately R110 million), which is being administered and run
down on an outsourced basis.
Momentum Year ended 30 June %
R million 2009 2008 change
Normalised earnings 1 649 2 004 (18)
Embedded value 16 086 16 039 <1
Return on embedded value ("EV") 3.3 15.2
(%)
ROE (%) 23 30
Momentum`s normalised earnings declined 18%, mainly due to the impact of the
significant decline and volatility in equity markets, particularly in the first
half of the financial year. Approximately two-thirds of Momentum`s earnings base
is exposed to investment market returns, where the most significant exposure is
to equity markets. Despite the decline in earnings the business produced a
return on equity of 23% and Momentum`s capitalisation level strengthened to a
satisfactory 1.8 times the Capital Adequacy Requirement ("CAR").
Momentum`s diversified product and distribution model provided significant
resilience and ensured a satisfactory operational performance.
The year was characterised by excellent results from FNB Insurance and solid
growth in investment income on share-holders` funds resulting from the capital
preservation strategy. New business volumes held up reasonably well in the
retail and employee benefits businesses, however, inflows into the asset
management operations have reduced.
The satisfactory operational performance in the embedded value exceeded the
negative impact of lower equity markets, resulting in a 3.3% return on embedded
value.
STRATEGIC ISSUES
Group strategy
Given the earnings volatility that the Group has experienced between 2007 and
2009, FirstRand has refined its overall strategy.
The Group believes that in the "new world" of financial services there is value
to be extracted for shareholders from increased integration between the asset
origination capabilities of banks and the gathering of funds by life companies
and asset managers. The Group`s operating model will provide a platform to
participate in all the profit pools associated with lending, transactional and
savings activities.
Going forward there will be an increased focus on client driven activities
rather than proprietary trading or investment activities in both the South
African and international operations. In addition the Group`s secondary market
activities will link to client activities or leverage the existing primary
market position. The Group has already exited the offshore activities of the
Equity Trading and SPJi divisions. However, it will continue with the offshore
investment activities represented by the private equity operation in Australia
and RMB Resources, as in both of these businesses there is a long track record
of successful asset origination and a demonstrated competitive advantage.
With specific reference to international expansion, emphasis will be on
establishing client franchises in markets where the Group believes it has a
competitive advantage as opposed to principal trading activities that are
outside the Group`s core business and markets. This approach will improve
quality and sustainability of earnings and create more shareholder value over
the long term.
In line with this objective, going forward Africa will be a primary focus of the
Group`s growth strategy outside of South Africa. In addition, FirstRand will
leverage off its position in other markets to provide support to its strategy in
Africa. For example, India will in the medium term support the African expansion
activities by focusing on the trade corridor between India and Africa. The
Group`s ability to offer Indian companies expertise in African markets will be
its key competitive advantage.
In addition, FirstRand has identified the China-Africa trade corridor as a
growth opportunity and post the year end announced a strategic co-operation
agreement with China Construction Bank Corporation ("CCB"), the second largest
bank globally by market capitalisation. The Group believes that this co-
operation represents a meaningful step in FirstRand`s strategy to grow more
aggressively in the African continent. CCB provides a significant balance sheet
to support FirstRand`s investment banking franchise, RMB, which has already
completed transactions in 39 countries throughout Africa. RMB and CCB are well
positioned to participate in the large transactions and investment opportunities
expected to emerge in the continent.
From an operational perspective the Group will focus on leveraging off existing
operating platforms in Africa such as client bases, balance sheet,
infrastructure, systems and products and services. FNB will be the primary
platform for banking in Africa, with WesBank and RMB utilising the platform when
appropriate. However, there may be jurisdictions where a different operating
platform will provide better opportunities, therefore the Group will remain
flexible in its approach.
Momentum has built a presence in 11 African countries and will also look for
opportunities to collaborate with FNB. There has been some early progress in
Namibia where the life insurance subsidiary of FNB`s Namibian operation, which
is the current market leader in the entry-level segment, has now added
Momentum`s Myriad life-cover offering to its suite of products.
"Greenfields" remains FirstRand`s primary entry approach. However the Group will
consider corporate action and the acquisition of appropriate operating platforms
in order to accelerate the international expansion strategy.
The Group is currently awaiting regulatory approval for a representative office
in Angola, has received conditional approval for a representative office in
Nigeria and also plans to commence full banking services in Tanzania in the near
future. It is also actively looking at opportunities in other selected East and
West African markets.
NEW MANAGEMENT STRUCTURE
The Group recently announced that Paul Harris, current CEO of FirstRand Limited
will retire on 31 December 2009. He will be succeeded by Sizwe Nxasana, the
current CEO of the Group`s banking operations. The Group also appointed Johan
Burger as Chief Operating Officer ("COO") of the Group, a portfolio he takes on
in addition to his role as Group CFO.
Paul Harris will continue to serve on the Group`s main statutory Boards as a non
executive director after his retirement.
Many of the changes the Group plans to implement at both a strategic and
operational level include redefining the role of the "centre" of the Group.
Whilst the Group believes in the benefits of a federal model as it is
particularly important to an entrepreneurial and innovative culture, the centre
must ensure alignment of the independent franchises with group strategy and
within appropriate risk and performance frameworks.
In addition, the centre will also play a key co-ordination role in terms of
leveraging off opportunities between the existing franchises and improve the co-
ordination of the Group`s international strategy. The need for additional
capacity to support the international strategy is currently being assessed and
will be appropriately created in key functional areas.
Risk appetite
The Group has refined its risk appetite to align with its operating strategy.
In setting the risk appetite, the Group Executive Committee and the Board have
balanced the organisation`s overall risk capacity with a bottom up view on the
planned risk profile for each business. It is in this process that the Group
ultimately seeks to achieve an optimal trade-off between its ability to take on
risk and the sustainability of the returns it delivers to its shareholders.
In practice, the Group has increased its targeted capitalisation levels in
response to the recent financial crisis and remains comfortably within these
higher target ranges. Furthermore, earnings volatility thresholds, under
different market conditions, have been refined for the Group`s major risk types
and a number of changes to business practices were made to ensure that
activities remain within the Group`s risk appetite. These include:
- the credit origination strategy will ensure that portfolios do not migrate
outside the target risk profile;
- proprietary trading activities have been reduced in line with new earnings
volatility targets;
- additional liquidity buffers have been accumulated and are managed
conservatively in response to the financial crisis; and
- improved risk appetite measures are included in all management reports
across the businesses as well as at Board level and significant efforts are
aimed at refining risk thresholds and extending management information. The
results of ongoing stress testing are reported, compared and discussed in light
of the Group`s risk appetite targets and limits.
Capital management
Capital management has been aligned to the Group`s strategy to target a
particular earnings profile that will allow it to generate shareholder returns
within appropriate levels of volatility.
The Group`s capacity to withstand periods of severe stress characterised by very
high levels of unexpected financial and economic volatility, which cannot be
mitigated by earnings alone, is key to its management of capital. The Group`s
objective is to maintain capitalisation ratios appropriate to safeguard its
operations and the interests of its stakeholders.
Capital planning efforts ensure that the total capital adequacy and Tier 1
ratios remain within the approved ranges or above target levels across the
economic and business cycle. During the global financial crisis the Banking
Group met its goal of operating at the upper end of its targeted capitalisation
range.
Recent events in the international financial markets have increased the focus of
stakeholders on both the level and quality of capital in banks. The Banking
Group aims to back all economic risks with Tier 1 capital as it offers the
greatest capacity to absorb losses. Currently at least 90% of the Tier 1 ratio
is equity capital.
The Banking Group is appropriately capitalised under a range of normal and
severe scenarios as well as under a range of stress events. It aims to operate
within its risk appetite and the associated limits in terms of earnings
volatility and the variability of returns on capital in excess of the weighted
average cost of capital.
Momentum`s reformulated targeted capital range satisfies the same risk appetite
as the previous targeted range and reflects a conservative investment strategy
for capital.
The targeted capital levels as well as the current ratios for the Group are
summarised in the table below:
FRBH
Regulatory
Unaudited Actual Target minimum
Capital adequacy ratio (%) 14.57 12.0 - 13.5 9.50*
Tiere 1 ratio (%) 12.33 10.00 7.00
Momentum
Capital adequacy ratio (%) 1.8 1.4 - 1.6
*The regulatory minimum excludes the bank specific (Pillar 2b) add on.
Liquidity and funding management
Liquidity in international markets remained challenging throughout 2008, as the
financial and credit market crisis, which had its origins in the US residential
mortgage market in the second half of 2008, spread and gained in intensity.
In anticipation of further market turbulence in the international markets, the
Banking Group reduced its international balance sheet asset position, increased
liquidity buffers and matched funded the profile to underlying assets. The
international balance sheet was surplus funded.
The international market turbulence and ambitious fund raising by state owned
enterprises and the South Africa Government, led to an increase in the liquidity
premium for term funding. The Banking Group proactively undertook several
measures, starting in 2008 and continuing in 2009, to further strengthen and
safeguard its liquidity position, increasing liquidity buffers, including
adjustment of short term funding targets and increased focus on balance sheet
asset reduction. The broad diversity of its funding sources and its contingency
planning processes provides the Banking Group with a robust asset/-liability
profile.
Prospects
The Group believes that the tough operating environment will continue for the
remainder of 2009 with a slow improvement from 2010 as lower interest rates and
fiscal stimulus begin to have a positive impact.
The South African economy is still facing difficulties. The consumer will remain
under pressure in the medium term, despite the recent easing of interest rates,
as the excesses created in the previous upward cycle unwind. Further job losses
also remain a risk.
These issues mean that transaction volumes and asset growth in the retail
segments will stay subdued although bad debts should start to unwind as
affordability levels improve. Corporate lending portfolios are still showing
signs of stress. Against this background it is expected that FNB and WesBank`s
earnings will remain under pressure but should gradually recover from current
levels.
Further mark to market losses or profits on the legacy portfolios in RMB are
dependent on market movements. In addition the level of private equity
realisations that took place in the first half of the year to June 2009, is not
expected to be repeated in the current financial year.
Whilst Momentum`s earnings are geared towards equity markets it has, over time,
built an inherently defensive business model. Its diversified product range and
distribution model, upper-income market focus, capital efficient liability mix
and conservative investment mandate, will continue to provide protection to
earnings.
Given the degree of economic recovery envisaged over the next 12 months,
FirstRand believes that overall top line growth will remain under pressure.
However the Group believes it has responded quickly to the changes in the macro
environment and implemented the appropriate adjustments to strategy and new
business origination. Cost management is a key focus without compromising on
investment for the future.
The balance sheet from both a capital and funding perspective, remains robust
and this will allow the Group`s operating franchises to take advantage of an
improving cycle. FirstRand remains committed to providing real growth and
returns to its shareholders.
Dividend Policy
The Group`s dividend policy is set to ensure a sustainable dividend cover based
on normalised earnings, after taking into account volatile earnings brought on
by fair value accounting. This means that the dividend cover may vary from year
to year.
Basis of Presentation
FirstRand prepares its consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS") including IAS 34: Interim
Financial Reporting. The accounting policies applied are consistent with those
applied in preparation of previous annual financial statements.
The results have been audited by PricewaterhouseCoopers Inc and a copy of their
unqualified audit opinion is available at the company`s registered office.
The Group believes that normalised earnings more accurately reflect operational
performance. Headline earnings are adjusted to take into account non operational
and accounting anomalies.
A table reflecting the restatements is available on www.firstrand.co.za.
Restatements had no impact on profit or net asset value for the prior year.
DIVIDEND DECLARATION
Ordinary shares
The following ordinary cash dividend was declared in respect of the 2009 and
2008 financial years:
Year ended
30 June
Cents per share 2009 2008
Interim (declared 9 March 2009) 34.00 44.25
Final (declared 14 September 2009) 22.00 38.25
Total dividend 56.00 82.50
The last day to trade in FirstRand shares on a cum-dividend basis in respect of
the final dividend will be Friday 9 October 2009. The first day to trade ex-
dividend will be Monday 12 October 2009. The record date will be Friday 16
October 2009 and the payment date Monday 19 October 2009. No dematerialisation
or rematerialisation of shares may be done during the period Monday 12 October
2009 and Friday 16 October 2009, both days inclusive.
Preference shares
Dividends on the "B" and "B1" 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 2009 2009
Period 28 August 2008 - 23 February 2009 518.94 518.94
Period 24 February 2009 - 31 August 2009 423.09 423.09
AH Arnott
Company secretary
14 September 2009
CONSOLIDATED INCOME STATEMENT
Year ended 30 June
2009 2008 %
R million (restated) change
Continuing operations
Interest and similar income 60 516 54 993 10
Interest expense and similar charges (34 526) (31 830) 8
Net interest income before impairment of 25 990 23 163 12
advances
Impairment of advances (8 024) (5 064) 58
Net interest income after impairment of 17 966 18 099 (1)
advances
Non interest income 10 649 22 490 (53)
Net insurance premium income 6 464 5 374 20
Net claims and benefits paid (5 939) (5 530) 7
Decrease/(increase) in value of 6 525 (701) >100
policyholder liabilities
Income from operations 35 665 39 732 (10)
Operating expenses (27 933) (26 192) 7
Net income from operations 7 732 13 540 (43)
Share of profit from associates and joint 1 590 1 662 (4)
ventures
Profit before tax 9 322 15 202 (39)
Tax (1 484) (3 037) (51)
Profit from continuing operations 7 838 12 165 (36)
Discontinued operations
Profit attributable to discontinued - 868 (100)
operations
Profit for the year 7 838 13 033 (40)
Attributable to:
Non cumulative non redeemable preference 464 409 13
shareholders
Ordinary shareholders 6 501 11 309 (43)
Equity holders of the Group 6 965 11 718 (41)
Minority interest 873 1 315 (34)
Profit for the year 7 838 13 033 (40)
STATEMENT OF HEADLINE EARNINGS FROM CONTINUING AND DISCONTINUED OPERATIONS
Year ended 30 June
R million 2009 2008 % change
Attributable earnings to ordinary 6 501 11 309 (43)
shareholders
Adjusted for: 438 (1 387) >100
Profit on disposal of available-for-sale (2) (98)
assets
Loss/(profit) on sale of shares in 27 (678)
subsidiary and associate
Net asset value in excess of purchase price - (24)
of subsidiary
Profit/(loss) on disposal of property and 4 (4)
equipment
Loss on sale of MotorOne Finance advances 203 -
book
Loss on sale of Private Label book 39 -
Impairment of intangible assets 61 104
Impairment of goodwill 120 33
VISA listing - (1 052)
Other 10 29
Total tax effects of adjustments (11) 257
Total minority interest of adjustments (13) 46
Headline earnings 6 939 9 922 (30)
Adjusted for: 212 661 (68)
Discovery BEE transaction - 5
IFRS 2 share based payment expense (120) 153
Treasury shares 332 503
- adjustment for effective shareholding in - (17)
Discovery
- consolidation of staff share schemes 437 517
- FirstRand shares held by policyholders (105) 3
Normalised earnings (unaudited) 7 151 10 583 (32)
Segmental normalised earnings
Banking Group 6 056 8 814 (31)
Momentum Group 1 649 2 004 (18)
Discovery Group (four months) - 185 (100)
FirstRand Limited (company) (90) (11) >100
Dividend paid to non cumulative non (464) (409) 13
redeemable preference shareholders
Normalised earnings (unaudited) 7 151 10 583 (32)
Segmental headline earnings
Banking Group 6 076 8 701 (30)
Momentum Group 1 658 1 979 (16)
Discovery Group - 185 (100)
FirstRand Limited (company) 1 (14) >100
Consolidation of share trusts (437) (517) (15)
Dividend paid to non cumulative non (464) (409) 13
redeemable preference shareholders
FirstRand shares held by policyholders 105 (3) >100
Headline earnings 6 939 9 922 (30)
CONSOLIDATED BALANCE SHEET
Year ended 30 June
2009 2008
R million (restated)
ASSETS
Cash and short term funds 57 266 53 555
Derivative financial instruments 68 608 57 106
Advances 416 488 446 286
Investment securities and other investments 209 249 220 105
Commodities 1 323 1 916
Accounts receivable 11 355 7 806
Investments in associates and joint 15 294 13 303
ventures
Property and equipment 10 220 8 859
Deferred tax asset 2 034 1 456
Intangible assets and deferred acquisition 5 698 4 497
costs
Investment properties 2 156 3 808
Policy loans 626 772
Reinsurance assets 8 143 550
Tax asset 883 833
Non current assets held for sale 508 3 092
Total assets 809 851 823 944
EQUITY AND LIABILITIES
Liabilities
Deposits 478 083 488 423
Short trading positions 25 002 33 450
Derivative financial instruments 55 556 46 595
Creditors and accruals 18 217 16 836
Provisions 2 961 3 275
Tax liability 331 666
Post retirement benefit fund liability 2 089 1 980
Deferred tax liability 3 977 5 372
Long term liabilities 12 928 13 941
Policyholder liabilities under insurance 40 725 43 417
contracts
Policyholder liabilities under investment 109 196 111 344
contracts
Liabilities arising from collective 8 114 7 283
investment schemes
Deferred revenue liability 322 296
Liabilities directly associated with non 253 -
current assets classified as held for sale
Total liabilities 757 754 772 878
Equity
Capital and reserves attributable to equity
holders
Ordinary shares 52 52
Share premium 1 300 1 036
Reserves attributable to ordinary equity 44 133 43 082
holders
Capital and reserves attributable to 45 485 44 170
ordinary equity holders
Non cumulative non redeemable preference 4 519 4 519
shares
Capital and reserves attributable to equity 50 004 48 689
holders
Minority interest 2 093 2 377
Total equity 52 097 51 066
Total equity and liabilities 809 851 823 944
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 2008.
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 costs of the purchases of
FirstRand`s shares by the staff share trusts. These trusts are consolidated and
FirstRand shares held by the staff share schemes 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 to equity.
TREASURY SHARES: FIRSTRAND SHARES HELD BY POLICYHOLDERS
FirstRand shares held by Momentum Group 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 shares held by Momentum Group on behalf of policy
holders 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.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June
2009 2008
R million (restated)
Cash flows from operating activities
Cash receipts from customers 86 572 74 049
Cash paid to customers, suppliers and (58 029) (56 282)
employees
Dividends received 6 743 4 461
Dividends paid (4 228) (4 932)
Dividends paid to minority shareholders (804) (692)
Net cash flows from operating activities 30 254 16 604
Increase/(decrease) in income earning 12 721 (68 569)
assets
(Decrease)/increase in deposits and other (29 537) 66 860
liabilities
Net cash flows from operating funds (16 816) (1 709)
Tax paid (3 677) (4 715)
Net cash inflow from operating activities 9 761 10 180
Cash flows from investment activities
Acquisition of property and equipment (3 038) (4 056)
Proceeds from the disposal of property and 293 2 329
equipment
Acquisition of investment properties (457) (1 706)
Proceeds on disposal of investment - 375
properties
Proceeds on disposal of investments 552 182
Acquisition of subsidiaries (18) (1 526)
Proceeds on disposal of subsidiary - 697
Acquisition of associates and joint (2 799) (3 623)
ventures
Proceeds on disposal of associates and 508 1 439
joint ventures
Proceeds on sale of advances books 1 768 -
Acquisition of intangible assets (1 923) (678)
Net cash outflow from investment activities (5 114) (6 567)
Cash flows from financing activities
(Repayment of)/proceeds from long term (906) 3 129
liabilities
Net cash (outflow)/inflow from financing (906) 3 129
activities
Net increase in cash and cash equivalents 3 741 6 742
Cash and cash equivalents at the beginning 53 555 46 952
of the year
Cash and cash equivalents at the end of the 57 296 53 694
year
Cash and cash equivalents acquired* 35 139
Cash and cash equivalents disposed of* - (695)
Effect of exchange rate changes on cash and (65) 417
cash equivalents
Cash and cash equivalents at the end of the 57 266 53 555
year
*Cash and cash equivalents sold and bought
relate to subsidiaries acquired and sold
during the year
Mandatory reserve balances included above: 11 661 11 177
Banks are required to deposit a minimum average balance, calculated monthly,
with the Central Bank, which is not available for use in the Group`s day to day
operations. This deposit bears no or low interest. Money at short notice
constitutes amounts withdrawable in 32 days or less.
CONTINUING AND DISCONTINUED OPERATIONS
Year ended 30 June
R million 2009 2008 % change
Attributable earnings to ordinary 6 501 11 309 (43)
shareholders
Headline earnings 6 939 9 922 (30)
Normalised earnings (unaudited) 7 151 10 583 (32)
Diluted headline earnings per 133.1 187.8 (29)
share (cents)
Diluted normalised earnings per 126.8 187.7 (32)
share (cents) (unaudited)
Ordinary dividend per share 56.0 82.5 (32)
(cents)
Normalised return on equity (%) 14 22
(unaudited)
Assets under management or 965 484 1 022 088 (6)
administration
Normalised net asset value per 938.4 915.9 2
share (cents) (unaudited)
CONTINUING OPERATIONS (PRO FORMA)
Year ended 30 June
R million 2009 2008 % change
Headline earnings 6 939 9 737 (29)
Normalised earnings (unaudited) 7 151 10 398 (31)
Diluted headline earnings per share 133.1 184.3 (28)
(cents)
Diluted normalised earnings per 126.8 184.4 (31)
share (cents) (unaudited)
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June
Ordinary share capital and ordinary shareholders` funds
Share Share Share capital
capital premium and share
premium
Balance as at 30 June 2007 51 2 338 2 389
Conversion of convertible redeemable 1 - 1
preference shares
Currency translation differences - - -
Movement in revaluation reserves - - -
Movement in other reserves - - -
Profit for the year - - -
Ordinary dividends - - -
Preference dividends - - -
Transfer (to)/from reserves - - -
Effective change of shareholding in - (1) (1)
subsidiary
Subsidiary sold/unbundled - Discovery - (1 201) (1 201)
Contribution from parent company - - -
Non distributable reserves of - - -
associates
Reserves movements transferred to the - - -
income statement
Consolidation of treasury shares - (100) (100)
Balance as at 30 June 2008 52 1 036 1 088
Issue of share capital - - -
Currency translation differences - - -
Movement in revaluation reserves - - -
Movement in other reserves - - -
Profit for the year - - -
Ordinary dividends - - -
Preference dividends - - -
Effective change of shareholding in - - -
subsidiary
Contribution from parent company - - -
Non distributable reserves of - - -
associates
Reserves movements transferred to the - - -
income statement
Consolidation of treasury shares - 264 264
Balance as at 30 June 2009 52 1 300 1 352
General risk Cash flow Share
reserve hedge reserve based
payment
reserve
Balance as at 30 June 2007 1 351 131 2 365
Conversion of convertible - - -
redeemable preference shares
Currency translation differences - - -
Movement in revaluation reserves - 132 -
Movement in other reserves - - 111
Profit for the year - - -
Ordinary dividends - - -
Preference dividends - - -
Transfer (to)/from reserves (1 343) - (77)
Effective change of shareholding in - - -
subsidiary
Subsidiary sold/unbundled - - - (151)
Discovery
Contribution from parent company - - -
Non distributable reserves of - - -
associates
Reserves movements transferred to - 339 -
the income statement
Consolidation of treasury shares - - -
Balance as at 30 June 2008 8 602 2 248
Issue of share capital - - -
Currency translation differences - - -
Movement in revaluation reserves - (607) -
Movement in other reserves - - (61)
Profit for the year - - -
Ordinary dividends - - -
Preference dividends - - -
Effective change of shareholding in - - -
subsidiary
Contribution from parent company - - -
Non distributable reserves of - - -
associates
Reserves movements transferred to 1 (287) 119
the income statement
Consolidation of treasury shares - - -
Balance as at 30 June 2009 9 (292) 2 306
Available- Currency Other Retained
for-sale translation reserves earnings
reserve reserve
Balance as at 30 June 1 184 585 (588) 31 612
2007
Conversion of - - - -
convertible redeemable
preference shares
Currency translation - 780 - -
differences
Movement in revaluation 737 - (15) -
reserves
Movement in other - - 62 -
reserves
Profit for the year - - - 11 309
Ordinary dividends - - - (4 523)
Preference dividends - - - -
Transfer (to)/from - - - 1 420
reserves
Effective change of - - (48) (57)
shareholding in
subsidiary
Subsidiary (426) - 385 (2 051)
sold/unbundled -
Discovery
Contribution from parent - - - -
company
Non distributable - - 19 -
reserves of associates
Reserves movements (388) - - -
transferred to the
income statement
Consolidation of - - - 227
treasury shares
Balance as at 30 June 1 107 1 365 (185) 37 937
2008
Issue of share capital - - - -
Currency translation - (615) - -
differences
Movement in revaluation (66) - 6 -
reserves
Movement in other - - 52 -
reserves
Profit for the year - - - 6 501
Ordinary dividends - - - (3 764)
Preference dividends - - - -
Effective change of - - (34) -
shareholding in
subsidiary
Contribution from parent - - - -
company
Non distributable - - 72 -
reserves of associates
Reserves movements (43) - - -
transferred to the
income statement
Consolidation of 109 - (109) (223)
treasury shares
Balance as at 30 June 1 107 750 (198) 40 451
2009
Reserves Non cumulative Minority Total
attributable to non re-deemable interest equity
equity holders preference
shares
Balance as at 30 June 36 640 4 519 3 672 47 220
2007
Conversion of - - - 1
convertible redeemable
preference 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
Effective change of (105) - 141 35
shareholding in
subsidiary
Subsidiary (2 243) - (2 100) (5 544)
sold/unbundled -
Discovery
Contribution from - - 12 12
parent company
Non distributable 19 - 1 20
reserves of
associates
Reserves movements (49) - - (49)
transferred to the
income statement
Consolidation of 227 - - 127
treasury shares
Balance as at 30 June 43 082 4 519 2 377 51 066
2008
Issue of share - - 13 13
capital
Currency translation (615) - (26) (641)
differences
Movement in (667) - 29 (638)
revaluation reserves
Movement in other (9) - (163) (172)
reserves
Profit for the year 6 501 464 873 7 838
Ordinary dividends (3 764) - (804) (4 568)
Preference dividends - (464) - (464)
Effective change of (34) - (207) (241)
shareholding in
subsidiary
Contribution from - - 1 1
parent company
Non distributable reserves 72 - 1 73
of associates
Reserves movements (210) - (1) (211)
transferred to the income
statement
Consolidation of treasury (223) - - 41
shares
Balance as at 30 June 2009 44 133 4 519 2 093 52 097
Directors: LL Dippenaar (Chairman), PK Harris (Chief executive officer), SE
Nxasana (Chief executive officer designate), VW Bartlett, JP Burger (Chief
operating officer/Chief financial officer), DJA Craig (British), L Crouse, PM
Goss, Dr NN Gwagwa, G Moloi, AP Nkuna, AT Nzimande, D Premnarayen (Indian), KB
Schoeman, KC Shubane, RK Store, BJ van der Ross, Dr JH van Greuning, Dr F van
Zyl Slabbert, MH Visser.
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
Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)
additional information is available at
www.firstrand.co.za
Date: 15/09/2009 08:00:02 Produced by the JSE SENS Department.
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