| Mon 7 Mar 2011, 16:10 | | FSR - FirstRand Limited - Unaudited interim results and cash dividend |
|
FSR
FSR
FSR - FirstRand Limited - Unaudited interim results and cash dividend
declaration for the six months ended 31 December 2010
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
UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION
FOR THE SIX MONTHS ENDED 31 DECEMBER 2010
financial highlights
- Normalised earnings +20%
- Normalised ROE 19%
- Dividend from continuing operations +25%
FirstRand shareholders are referred to the publication made by Reuters today
regarding FirstRand`s results for the six months to 31 December 2010.
Shareholders are advised that this information was not accessed from a source
that could be considered in the public domain and it is unclear where this
information was obtained or derived from. However, given that the results are
now in the public domain the Group feels it is appropriate to publish.
Introduction
This report covers the unaudited financial results of FirstRand Limited
("FirstRand" or "the Group") for the six months ended 31 December 2010 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, and WesBank, the instalment finance business.
Effective 30 November 2010 FirstRand unbundled its 100% shareholding in the
Momentum Group. The results for the period under review therefore include five
months of contribution from Momentum (treated as a discontinued operation). The
unbundling resulted in a dividend-in-specie of R15 billion.
The results have been prepared on a normalised basis as the Group believes this
most accurately reflects the economic performance. A detailed description of the
normalised adjustments has been provided on www.firstrand.co.za. Commentary is
on a normalised basis, unless indicated otherwise and is focused on the
continuing operations of the Group.
Continuing operations - financial highlights
Headline earnings
- IFRS R4 625 million +19%
- Diluted headline earnings per share of 85.0 cents
(2009: 73.3 cents) +16%
Normalised earnings
- Normalised R4 752 million +20%
- Diluted normalised earnings per share of 84.3 cents
(2009: 70.0 cents)+20%
Return on equity %
- IFRS 19.8 (2009: 19.4)
- Normalised 18.7 (2009: 17.3)
Cost to income ratio %
- IFRS 57.7 (2009: 55.5)
- Normalised 56.8 (2009: 55.3)
Net asset value per share
- Normalised 924.4 cents (2009: 838.7 cents)
per share +10%
Dividend per ordinary share
- 35 cents (2009: 28 cents)+25%
Capital adequacy ratio (Tier I) %
- 13.6
Impairment charge %
- IFRS and normalised 0.92 (2009: 1.52)
Key financial results and ratios
Six months ended Year
31 December ended
30 June
R million 2010 2009 % 2010
change
From continuing and
discontinued operations
Attributable earnings to 12 070 4 520 >100 9 444
ordinary shareholders
Headline earnings 5 043 4 492 12 9 453
Normalised earnings 5 260 4 605 14 9 963
Normalised net asset value 52 115 55 189 (6) 57 509
Normalised net asset value 924.4 978.9 (6) 1 020.0
per share (cents)
Normalised return on equity 19.2 17.3 18.3
(%)
Normalised earnings per share
(cents)
- Basic 93.3 81.7 14 176.7
- Diluted 93.3 81.7 14 176.7
Earnings per share (cents)
- Basic 227.0 86.1 >100 179.9
- Diluted 223.2 85.8 >100 178.1
Headline earnings per share
(cents)
- Basic 94.8 85.5 11 180.1
- Diluted 93.3 85.3 9 178.3
Ordinary dividend per share 35.0 34.0 3 77.0
(cents)
Non-cumulative non-redeemable
("NCNR") preference dividend
per share (cents) (paid)
- B Class (68% of FNB prime 355.0 423.1 (16) 765.4
lending rate)
- B1 Class (68% of FNB prime - 423.1 (100) 423.1
lending rate)*
From continuing operations
Attributable earnings to 4 784 3 915 22 8 249
ordinary shareholders
Headline earnings 4 625 3 882 19 8 075
Normalised earnings 4 752 3 946 20 8 569
Normalised net asset value 52 115 47 283 10 49 282
Normalised net asset value 924.4 838.7 10 874.1
per share (cents)
Normalised return on equity 18.7 17.3 18.3
(%)
Normalised earnings per share
(cents)
- Basic 84.3 70.0 20 152.0
- Diluted 84.3 70.0 20 152.0
Earnings per share
- Basic 89.4 74.1 21 156.1
- Diluted 87.9 73.9 19 154.5
Headline earnings per share
- Basic 86.4 73.5 18 152.8
- Diluted 85.0 73.3 16 151.3
Ordinary dividend per share 35.0 28.0 25 64.6
(cents)
Capital adequacy
FirstRand**
- Capital adequacy ratio 15.3 14.3 15.6
- Tier 1 ratio 13.6 12.2 13.5
* The `B1` preference shares were incorporated with the "B"
preference shares effective 4 January 2010.
* FirstRand became a Bank controlling company effective 1 July
* 2010. The comparatives are those of FirstRand Bank Holdings
Limited which was previously the Bank controlling company.
Overview of results
OPERATING ENVIRONMENT
The global economic environment reflected a mixed picture during the six month
period ended 31 December 2010.
After the strong recovery in the first half of the 2010 calendar year as a
result of radical fiscal and monetary policy actions, positive sentiment
tempered towards June 2010. It became evident that global activity would face
severe headwinds over the next few years and the ongoing risks associated with
the developed world`s high government debt levels and over-indebted consumers
became clear. These risks were highlighted when the IMF and EU were forced to
announce bailout and support packages of _110 billion in May 2010 to prevent a
sovereign debt default in Greece, followed by the Irish bank debt crisis which
resulted in a stimulus package of _85 billion in November 2010. These
developments forced a number of developed economies to recognise the need for
fiscal consolidation to reduce budget deficits and stabilise government debt to
GDP ratios. Developed markets economic growth will remain subdued during 2011.
While emerging market economies were not isolated from the impact of events in
the developed world, balance sheets in these economies are generally healthier
and seem to be in a better position to sustain growth at or above their long-
term growth trends.
Against this backdrop, the South African economy reflected a stable performance
after emerging from the recession during the third quarter of 2009, achieving
GDP growth during the third and fourth quarters of 2010 of 2.6% and 4.4%
respectively (both annualised seasonally adjusted).
As was the case for the rest of the world, growth was supported by further
policy stimulus, growth in the mining, manufacturing and retail trade volumes,
and improved external trade. Further easing in the inflation rate to 3.5% at 31
December 2010 allowed the South African Reserve Bank ("SARB") to cut interest
rates by a further 100 bps during the period under review to 36 year lows. Real
disposable income reflected strong growth during the latter part of 2010 and job
losses showed a modest reversal with 17 000 non-agricultural jobs created during
the third quarter of 2010.
While the lower average interest rates weighed on the Bank`s endowment income,
the cumulative benefit of the interest rate cuts, a modest recovery in house
prices year-on-year, higher equity prices and real growth in disposable income
eased pressure on consumers. This impacted positively on retail bad debt levels
although there was an increase in commercial and corporate impairment levels in
certain areas of the economy.
Across the industry, balance sheets experienced low growth due to the limited
recovery in economic activity and the ongoing process of consumers deleveraging
their balance sheets.
OVERVIEW OF RESULTS
Against this economic backdrop FirstRand produced strong results for the period
under review, building on the significant recovery in profitability during the
2010 financial year.
The Group achieved normalised earnings from continuing operations of R4
752 million and produced a normalised return on equity ("ROE") of 18.7%. The
Group`s dividend, on continuing operations, increased 25% from 28 cents to 35
cents.
Sources of normalised earnings from continuing and discontinued operations
The table below depicts the breakdown of normalised earnings from each operating
franchise.
Six months ended 31 December Year
ended
30
June
R million 2010 % 2009 % % 2010
compo- compo- change
sition sition
Total FNB 2 779 53 2 430 53 14 4 773
FNB South Africa 2 463 47 2 142 47 15 4 303
FNB Africa 316 6 288 6 10 470
FNB Life 174 3 191 4 (9) 416
Total RMB 1 584 30 1 063 23 49 3 315
RMB 1 555 30 1 039 23 50 3 261
RMB Africa1 29 - 24 - 21 54
WesBank 750 14 337 7 >100 953
Corporate Centre (385) (7) 208 5 >100 (506)
FirstRand Limited 10 - (93) (2) >(100) (38)
(company)
NCNR preference (160) (3) (190) (4) (16) (344)
dividend
Normalised 4 752 90 3 946 86 20 8 569
earnings from
continuing
operations
Momentum 508 10 659 14 (23) 1 394
Normalised 5 260 100 4 605 100 14 9 963
earnings from
continuing and
discontinued
operations
1 RMB Africa - FICC client activity within African subsidiaries.
Earnings continued to be driven by significant decreases in retail bad debts
(impairment charge 35% down on the previous comparative period and 15% down on
the six months to June 2010). This positively impacted both WesBank and FNB`s
performance. However, absolute levels of non-performing loans ("NPLs") remained
high and a significant proportion have been in NPLs for longer than six months.
This is due to the impact of National Credit Act`s debt review process and the
lengthening recovery periods. Major components of the bad debt charge and NPLs
are indicated in the table below:
Six months ended Year
31 December ended 30
June
2010 2009 2010
Impairment charge % % %
Residential mortgages 0.84 1.17 0.94
Credit card 2.49 8.14 6.92
Vehicle and asset finance 1.54 2.26 1.94
- Retail 1.72 2.12 1.77
- Corporate 1.17 2.37 2.21
Other retail (includes Africa) 2.29 4.25 3.75
Wholesale 0.29 0.34 0.44
FirstRand impairment charge 0.92 1.52 1.31
ratio*
NPLs (R million) 21 117 23 121 22 205
* Total includes Corporate Centre and other.
All three of the Group`s franchises showed strong operational performances.
Overall non-interest revenue ("NIR") grew 11%, reflecting good growth in
customers and transactional volumes at FNB and robust growth of 28% in fair
value income, driven by good performances across RMB`s fair value businesses.
The Group also benefited from a significant increase 67% in profits from
investment activities.
An increase of 30% was also generated from associates and joint ventures,
assisted by the non-recurrence of equity accounted losses from RMB`s private
equity associates, strong growth from the WesBank JV associates and a good
performance from OUTsurance.
Asset margins improved slightly benefiting from the repricing strategies across
all of the large lending books, although the low levels of new business mean
that the full benefits are still to materialise. In addition, margins continued
to be impacted by the negative endowment effect on capital and deposits due to
lower average interest rates.
The cost to income ratio has increased, but should be seen against sluggish
topline growth and the impact of endowment and investment in growth initiatives.
The increase of 10% in operating costs, when adjusted for expansion investments,
share-based payments and JV profit shares, was actually limited to 6%, which
reflects the Group`s ongoing focus on managing costs.
Overview of the operating franchises
FNB South Africa Six months ended Year
31 December ended
30 June
R million 2010 2009 % 2010
change
Normalised earnings 2 463 2 142 15 4 303
Profit before tax 3 362 2 895 16 5 833
Total assets 210 569 200 848 5 204 309
Total liabilities 209 847 194 877 8 199 115
Bad debt ratio 1.29 1.91 1.70
ROE (%) 35.4 31.5 31.8
FNB South Africa performed well during the six month period, growing pre-tax
profits 16%, which were underpinned by a 32% decline in bad debts emanating
largely from HomeLoans and Card and a good increase in NIR. Operating expenses
grew 11%, due primarily to the EasyPlan expansion, Cellphone Banking development
and other investment costs.
Transactional volumes grew well overall but continued to show the effect of
FNB`s strategy to migrate customers to less expensive electronic channels. This
is expected to continue and as a result NIR will remain under pressure until the
change in channel mix is fully offset by market share gains and a reduction in
the cost of physical infrastructure.
Advances growth was muted due to continued deleveraging by over-indebted
consumers. The large lending books of FNB HomeLoans and FNB Card showed declines
of 2% and 5% respectively, indicating that the credit market is still
experiencing a slow recovery specifically in the middle market. However, in
FNB`s Mass segment, in line with its strategy to grow in the lower end of the
market, advances increased 25% driven mainly by growth in Housing Finance where
sales increased 10%.
FNB`s other initiatives in the Mass segment also proved successful in the period
under review with excellent ongoing growth in prepaid airtime turnover and
revenue from bancassurance strategies also contributing positively. FNB Life
continued to perform well. The EasyPlan strategy continues to progress well with
branch representation increasing to 65 (June 2010: 15) across Gauteng, KwaZulu-
Natal, Eastern Cape, Western Cape and Mpumalanga.
FNB Africa Six months ended % Year
31 December change ended
30 June
R million 2010 2009 2010
Normalised earnings 316 288 10 470
Profit before tax 740 597 24 1 146
Total assets 33 705 32 401 4 33 279
Total liabilities 29 448 28 628 3 29 308
Bad debt ratio 0.18 0.48 0.37
ROE (%) 25.4 26.8 21.1
Overall the African subsidiaries performed well, with Namibia, Swaziland and
Botswana all showing strong growth in earnings year-on-year. This was achieved
despite significant investment activity across the portfolio resulting in
increased operating expenses. As part of its strategy to further grow the
existing franchise and operating footprint, FNB invested significantly in Zambia
and Mo?ambique in the period under review. This investment phase is expected to
continue in the medium term with a parallel focus on service and electronic
delivery channels to increase the customer base and drive up volumes and
resultant NIR.
RMB Six months ended % Year
31 December change ended
30 June
R million 2010 2009 2010
Normalised earnings 1 584 1 063 49 3 315
Profit before tax 2 142 1 449 48 4 728
Total assets 288 932 255 615 13 269 133
Total liabilities 285 660 251 978 13 263 371
ROE (%) 25.2 17.8 24.8
Despite the slow recovery in corporate activity and weak Fixed Income, Currency
and Commodities division ("FICC") client flows, RMB reported profits before tax
of R2 142 million for the six months to 31 December 2010, 48% higher than the
prior year comparative period. The strong performance can be attributed to an
increase in client financing activities, strong advisory and structuring fees,
an improved trading performance and the substantially reduced impact from legacy
portfolios.
All divisions, with the exception of Private Equity, exceeded prior year
comparative period performances.
Despite the high base created in previous periods, the Investment Banking
division ("IBD") continued to perform extremely well delivering profits up 32%
on the prior comparative period. This was driven mainly by advisory, debt and
equity capital markets, resources, infrastructure, property and leveraged
finance activities and balance sheet growth. RMB`s deal pipeline remained
healthy, benefiting from the increased focus on Africa and the Asian corridors
which have yielded a number of transactions predominantly in the resources and
infrastructure sectors.
FICC reported profits of R557 million, 8% up on the prior comparative period.
This was achieved despite low volatility in fixed income and currency markets
and depressed trade flows for most of the period, which led to lower levels of
client activity.
Private Equity reported profit before tax significantly lower than the prior
period. This was primarily due to impairments raised against the portfolio in
the current period, although strong operational earnings continued to be
generated from the bulk of the portfolio`s material investments. Unrealised
profits increased to R1.7 billion from R1.4 billion at year end and the
prospects for the second half are expected to improve.
Equity Trading continued its turnaround and reported profits 96% up on the
comparative period with strong contributions from longer-term positions held,
albeit from a lower base.
WESBANK Six months ended % Year
31 December change ended
30 June
R million 2010 2009 2010
Normalised earnings 750 337 >100 953
Profit before tax 1 069 405 >100 1 300
Total assets 99 265 96 443 3 97 357
Total liabilities 97 461 95 459 2 95 452
Bad debt ratio 1.63 2.57 2.21
ROE (%) 21.5 13.6 15.4
WesBank`s profits increased significantly from R405 million in the previous
period to R1 069 million for the six months to December 2010. This was driven by
an ongoing reduction in bad debts and better interest margins, in addition
corporate impairments have similarly started to show an improvement.
New business within the lending operations increased 27% over the comparative
six months to December 2009 (and grew 19% compared to the six months to June
2010). The year-on-year increase comprised a 32% increase in retail new business
and an 8% increase in corporate new business. Interest margins showed an
improving trend as a result of the focus on written rates as well as the
improvement in mix of fixed rate corporate and personal loans portfolios.
WesBank`s UK operation, Carlyle, produced profits of R97 million compared with
R38 million in the comparative period. This was achieved through a continued
improvement in bad debts, significant widening of interest margins, excellent
new business growth and ongoing cost management.
Momentum Six months ended Year
31 December ended
30 June
R million 2010 2009 % 2010
change
Normalised earnings 682* 850 (20) 1 810
- FNB Life 174 191 416
- Discontinued operations 508 659 1 394
* Represents five months of earnings from Momentum.
The Group`s results incorporate Momentum for the five months ended 30 November
2010 and normalised earnings for that period totalled R682 million. This
performance was driven mainly by the positive impact of equity market gains,
offset by a net outflow of funds in the asset management business and increased
share-based payment costs and costs incurred related to the merger with
Metropolitan. In addition, investment income on shareholders` assets was
negatively impacted by a fair value loss on the interest rate swap related to
Momentum`s subordinated debt. However, good growth was delivered by employee
benefits and retail lump sum investments.
STRATEGIC ISSUES
Progress on Group strategy
FirstRand continues to make good progress on its strategy to be the African
financial services group of choice, creating long-term franchise value and
delivering superior and sustainable economic returns to shareholders within
acceptable levels of volatility.
This is being driven through two clear growth strategies:
- Become a predominant South African player focusing on both
existing markets and those markets where the Group is currently
under-represented.
- Further grow the existing African franchises, targeting those
markets that are expected to produce above average domestic
growth and are strongly positioned to benefit from the trade
and investment flows between Africa and Asia, particularly
China and India.
In line with the domestic growth strategy, FNB continued to invest in its
domestic footprint, particularly electronic channels and cellphone banking. This
was successful in the Mass segment where FNB built a strong franchise. This
expansion is being driven through new strategies such as the roll-out of the
EasyPlan branches and products.
As part of the Group`s objective to increase its exposure to the corporate
sector, RMB adjusted its wholesale credit portfolio strategy and increased
prudential limits in key investment grade and defensive counters. Through a
combination of an increased focus on client activities, product innovation and
highly proactive origination teams, the corporate and investment banking lending
book showed growth of 10% in the period under review compared to low overall
growth in the SA corporate market.
The integration of RMB and FNB`s corporate and investment banking client
interfaces to form the Corporate and Investment Banking ("CIB") Coverage team
has substantially improved cooperation between the corporate and investment
banking arms of FirstRand, and the increased range and breadth of solutions for
clients has generated new opportunities in line with expectations.
With regards to the Group`s strategy to grow outside South Africa, international
expansion is gaining traction. A representative office was established in Angola
and FNB received South African regulatory approval for a licence in Tanzania.
FNB also continues to invest in its franchises in Zambia and Mo?ambique.
WesBank continued to support the asset finance offering in those African
jurisdictions where FNB is represented and is working with FNB to create asset
finance capabilities in the new territories where FNB is currently building a
presence.
Initiatives aimed at growing RMB`s franchise in those African jurisdictions
where FNB currently operates, as well as other key African markets, have also
begun to gain traction. Resources have been deployed into the existing key
African franchises to build out FICC and Investment Banking activities. The
India branch and the China/Africa corridor strategy are both resulting in a
number of transactions completed in the broader Africa region, particularly in
resources and infrastructure, with a very healthy deal pipeline going into the
future.
The disposal of OUTsurance
During the period under review FirstRand agreed to sell its 45% stake in
OUTsurance, South Africa`s leading direct short-term insurer, to RMB Holdings
("RMBH") for R3.75 billion.
OUTsurance was a joint creation between FirstRand and management in 1998 and is
a good example of FirstRand`s long-term strategy to create shareholder value
through the start-up of completely new businesses. However, given the structure
of the shareholding FirstRand had limited liquidity options, therefore the
approach by RMBH, (which already held 45% of OUTsurance), represented the ideal
opportunity to realise the significant value that has been created over the past
12 years for FirstRand shareholders.
OUTsurance was a non-strategic asset in that it did not sell directly to
FirstRand`s banking clients, but did provide homeowners insurance referred
through FNB. As part of the sale transaction, FirstRand will earn a
significantly higher percentage of the profit from the homeowner insurance
business in the future. Previously OUTsurance and FNB shared profits 50/50. In
terms of the new arrangement FNB will receive a 90% profit share.
The unbundling of Momentum Group
The unbundling of Momentum following its merger with Metropolitan was completed
during the period under review. FNB will continue to pursue opportunities to
sell Momentum products to its customer base. However, this will now be
structured on a preferred strategic arrangement, on a fully commercial basis.
Capital management strategy
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 targeted capital levels as well as
the current ratios at 31 December 2010 are summarised in the table below.
FirstRand FirstRand Bank Regulatory
("FRB")* minimum
Actual Target Actual Target
#
Tier 1 ratio (%) 13.6 10.00 12.3 9.50 7.00
Core Tier 1 ratio 12.4 8.25 11.3 7.75 5.25
(%)
* Reflects solo supervision, i.e. FRB excluding branches,
subsidiaries and associates.
# Includes unappropriated profits.
The Group is currently operating above its targeted Tier 1 ratio as a result of
the following:
- in response to the global financial crisis, FirstRand took the
decision to operate at the higher end of its targeted capital
levels to ensure balance sheet resilience;
- given the macro environment in South Africa, credit appetite
has been very subdued, resulting in low growth in risk weighted
assets ("RWA");
- The Group`s ROE is returning to its targeted band; and
- the anticipated disposal of OUTsurance.
However, when assessing capital, the Group does not believe it is practical to
consider point in time capital ratios. Its view is that the ratios need to be
considered in the context of growth strategy, expansion plans, uncertainty
regarding implementation of Basel III regulatory changes and the Group`s ability
to generate future capital through earnings.
Taking cognisance of the above, should the Group believe it has surplus capital,
it will look at the most optimal mechanism to return that capital to its
shareholders.
Liquidity management strategy
The Basel III guidelines, published in December, propose two new liquidity
metrics: The Liquidity Coverage Ratio ("LCR"), effective 1 January 2015, which
measures short-term liquidity stress and the Net Stable Funding Ratio ("NSFR"),
effective 1 January 2018, which measures the stability of long-term structural
funding.
The Bank of International Settlements ("BIS") Committee has put processes in
place to ensure the rigorous and consistent global implementation of the Basel
III Framework. The standards will be phased in gradually so that the banking
sector can move to the higher liquidity standards while supporting lending to
the economy.
Both the LCR and the NSFR will be subject to an observation period and will
include a review clause to address any unintended consequences.
When applying the metrics to the Group`s balance sheet at 31 December, both
FirstRand Limited and most of the South African banking industry do not meet the
minimum quantitative requirements. This is due to the specific structure of
funding in the domestic financial services industry, particularly the issue of
low discretionary savings, the closed rand domestic market and the fact that
South Africa is an emerging economy.
These structural issues have been recognised by the South African Regulators,
banking industry and National Treasury. In response, and under the guidance of
National Treasury, a Structural Funding and Liquidity task team has been
established and mandated to assess the impact and subsequently make
recommendations to the Finance Ministry on how the banking industry effectively
deals with the proposed regulations.
Remuneration strategy
The Group believes that its remuneration structures have always been designed to
align employee reward with shareholder returns. However, to ensure that its
remuneration structures continue to be appropriate, in 2010 it benchmarked its
strategy against international best practice.
In response to the results of the benchmarking exercise, the Group refined its
remuneration strategy and introduced the deferral of a component of variable pay
for a period longer than 12 months. In addition, this deferral component was
converted into equity. The Group believes this ensures senior and executive
management focus on creating medium- to long-term value for stakeholders.
The Group`s remuneration strategy and policy is discussed comprehensively in its
annual report for the year ended 30 June 2010 on pages 79 to 83.
PROSPECTS
Given that the current South African economic environment is recovering at a
very subdued rate, achieving material revenue growth in the medium term will
remain challenging. However, although some potential regulatory risk exists with
regards to the debt counselling process, the retail credit markets are expected
to continue to improve and in the second half of the year this will provide
support to the earnings of FNB and WesBank.
Growth in retail advances will remain low as levels of consumer indebtedness are
still at historic highs. Corporate balance sheets remain strong and have
weathered the cycle well. However, given current levels of corporate capacity,
investment opportunities will be limited and growth in corporate advances is
expected to remain subdued.
In line with its strategy the Group will continue to invest in its
infrastructure in South Africa and grow its footprint and client franchise in
other selected African markets. Given these investment strategies and the
expected ongoing pressures on revenue growth, the Group`s operating franchises
continue to focus on efficiencies.
The Group believes its franchises are well positioned to benefit from the
improving cycle and deliver on the overall growth strategy.
DIVIDEND STRATEGY
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 line with
normalised earnings. This means that dividend cover may vary from year to year.
BASIS OF PRESENTATION
FirstRand prepares its consolidated financial statements in accordance with
International Financial Accounting Standards ("IFRS") including IAS 34: Interim
Financial Reporting. The accounting policies applied are consistent with those
applied in preparation of previous financial statements.
The Group believes normalised earnings more accurately reflect 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 on www.firstrand.co.za.
Due to the unbundling of Momentum Group Limited, results for the current and
comparative periods have been prepared to account for Momentum as a discontinued
operation in terms of IFRS 5: Non-current Assets Held for Sale and Discontinued
Operations.
The dividend in specie was accounted for in terms of IFRIC 17: Distributions of
Non-cash Assets to Owners
The determination of the dividend in specie resulting from the unbundling of
Momentum which was outlined in the SENS announcement of 2 March 2010 has been
subsequently revised.
The amount and its impact on basic earnings per share have been updated and
included in this announcement.
INTERIM DIVIDEND DECLARATIONS
Ordinary shares
The following ordinary cash dividend was declared in respect of the period ended
31 December 2010:
Six months ended
31 December
Cents per share 2010 2009
Interim (declared 7 March 2011)* 35.00 34.00
* The last day to trade in FirstRand shares on a cum-dividend
basis in respect of the interim dividend will be Friday 25
March 2011 and the first day to trade ex-dividend will be
Monday 28 March 2011. The record date will be Friday 1 April
2011 and the payment date Monday 4 April 2011. No
dematerialisation or rematerialisation of shares may be done
during the period Monday 28 March 2011 and Friday 1 April 2011,
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" Preference
Cents per share 2010 2009
Period 1 September 2009 - 22 February 2010 - 342.3
Period 31 August 2010 - 28 February 2011 313.6 -
BW Unser
Company secretary
7 March 2011
Consolidated income statement - IFRS
Six months ended Year
31 December ended
30 June
R million 2010 2009 % 2010
change
Continuing operations
Interest and similar income 19 133 19 198 <1 38 817
Interest expense and (10 (10 (1) (22
similar charges 754) 873) 467)
Net interest income before 8 379 8 325 1 16 350
impairment of advances
Impairment of advances (2 084) (3 225) (35) (5 686)
Net interest income after 6 295 5 100 23 10 664
impairment of advances
Non-interest income 14 396 12 771 13 26 954
Income from operations 20 691 17 871 16 37 618
Operating expenses (13 (11 13 (24
424) 929) 865)
Net income from operations 7 267 5 942 22 12 753
Share of profit from 506 390 30 700
associates and joint
ventures
Profit before tax 7 773 6 332 23 13 453
Indirect tax (385) (236) 63 (446)
Profit before direct tax 7 388 6 096 21 13 007
Tax (2 080) (1 681) 24 (3 527)
Profit for the period from 5 308 4 415 20 9 480
continuing operations
Discontinued operations
Profit attributable to 415 603 (31) 1 194
discontinued operations
Profit after tax on 6 868 - 100 -
unbundling of discontinued
operations
Profit for the period 12 591 5 018 >100 10 674
Attributable to:
Ordinary shareholders 12 070 4 520 >100 9 444
Non-cumulative non- 160 190 (16) 344
redeemable preference
shareholders
Equity holders of the Group 12 230 4 710 >100 9 788
Non-controlling interest 361 308 17 886
Profit for the period 12 591 5 018 >100 10 674
Earnings per share (cents)
Basic 227.0 86.1 179.9
Diluted 223.2 85.8 178.1
Consolidated statement of comprehensive income - IFRS
Six months ended Year
31 December ended
30 June
R million 2010 2009 2010
Profit for the period 12 591 5 018 10 674
Other comprehensive income
Cash flow hedges (132) 65 (226)
Available-for-sale financial 387 255 (69)
assets
Exchange differences on (419) (84) (74)
translating foreign operations
Share of other comprehensive (5) 28 39
income of associates after tax
and non-controlling interest
Other comprehensive income for (169) 264 (330)
the period before tax
Income tax relating to (43) (28) (17)
components of other
comprehensive income
Other comprehensive income for (212) 236 (347)
the period
Total comprehensive income for 12 379 5 254 10 327
the period
Total comprehensive income
attributable to:
Ordinary shareholders 11 950 4 763 9 097
Non-cumulative non-redeemable 160 190 344
preference shares
Equity holders of the Group 12 110 4 953 9 441
Non-controlling interest 269 301 886
Total comprehensive income for 12 379 5 254 10 327
the period
Consolidated statement of financial position - IFRS
Six months ended Year
31 December ended
30 June
R million 2010 2009 2010
ASSETS
Cash and short-term funds 31 511 57 663 27 067
Derivative financial instruments 51 052 45 057 39 764
Advances 453 290 412 561 434 793
Investment securities and other 127 884 239 193 117 171
investments
Commodities 4 164 1 825 2 365
Accounts receivable 5 598 7 680 5 743
Investments in associates and 5 819 16 053 6 901
joint ventures
Property and equipment 10 409 10 370 10 018
Deferred tax asset 451 1 459 443
Intangible assets and deferred 1 510 5 632 2 104
acquisition costs
Investment properties 161 2 274 138
Policy loans on insurance 26 642 27
contracts
Reinsurance assets 527 997 524
Tax asset 798 922 935
Non-current assets and disposal 2 609 61 197 247
groups held for sale
Total assets 695 809 802 389 845 240
EQUITY AND LIABILITIES
Liabilities
Deposits and current accounts 543 713 487 929 512 469
Short trading positions 15 801 21 813 16 735
Derivative financial instruments 50 027 33 779 36 035
Creditors and accruals 10 193 19 610 12 115
Provisions 3 254 3 045 3 359
Tax liability 319 240 157
Post retirement liabilities 2 202 2 138 2 162
Deferred tax liability 2 474 3 975 2 132
Long-term liabilities 7 489 10 295 9 183
Policyholder liabilities under 2 007 42 748 1 868
insurance contracts
Policyholder liabilities under 163 112 249 101
investment contracts
Liabilities arising to third - 7 601 -
parties
Deferred revenue liability - 345 -
Liabilities directly associated 419 - 189 961
with non-current assets
classified as held for sale
Total liabilities 638 061 745 767 786 277
Equity
Capital and reserves
attributable to equity holders
Ordinary shares 54 53 52
Share premium 5 194 2 204 1 491
Reserves 45 112 47 653 49 889
Capital and reserves 50 360 49 910 51 432
attributable to ordinary equity
holders
Non-cumulative non-redeemable 4 519 4 519 4 519
preference shares
Capital and reserves 54 879 54 429 55 951
attributable to equity holders
Non-controlling interest 2 869 2 193 3 012
Total equity 57 748 56 622 58 963
Total equity and liabilities 695 809 802 389 845 240
Consolidated statement of cash flows - IFRS
Six months ended Year
31 December ended
30 June
R million 2010 2009 2010
Net cash inflow from operating 3 476 2 055 9 652
activities from continuing
operations
Net cash inflow/(outflow) from - 389 (9 709)
operating activities from
discontinued operations
Net cash (outflow)/inflow from (341) (744) 162
investing activities from
continuing operations
Net cash (outflow)/inflow from - (597) 33
investing activities from
discontinued operations
Net cash inflow/(outflow) from 1 390 (965) 1 085
financing activities from
continuing operations
Net cash inflow from financing - 273 2 117
activities from discontinued
operations
Net increase in cash and cash 4 525 411 3 340
equivalents from continuing and
discontinued operations
Cash and cash equivalents at the 27 067 53 252 57 266
beginning of the period
Cash and cash equivalents at the 31 592 53 663 60 606
end of the period
Cash and cash equivalents - - (36)
disposed of*
Effect of exchange rate changes (81) (14) (95)
on cash and cash equivalents
Transfer to non-current assets - 4 014 (33
held for sale 408)
Cash and cash equivalents at the 31 511 57 663 27 067
end of the period
*Cash and cash equivalents sold
and bought relate to cash
balances held by subsidiaries
acquired and sold during the
year.
Mandatory reserve balances 10 981 12 238 11 370
included above
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. These deposits bear little or no interest. Money at short notice
constitutes amounts withdrawable in 32 days or less.
Consolidated statement of changes in equity - IFRS
for the six months ended 31 December
Ordinary share capital and ordinary equity
holders` funds
R million Share Share Share Genera Cash Share-
capita premiu capita l risk flow based
l m l and reserv hedge paymen
share e reserv t
premiu e reserv
m e
Balance as at 52 1 300 1 352 9 (292) 2 306
1 July 2009
Issue of share - - - - - -
capital
Movement in - - - - - 88
other reserves
Ordinary - - - - - -
dividends
Preference - - - - - -
dividends
Transfer - - - - - (72)
(to)/from
reserves
Changes in - - - - - -
ownership
interest in
subsidiaries
Consolidation 1 904 905 - - -
of treasury
shares
Total - - - - 46 -
comprehensive
income for the
period
Balance as at 53 2 204 2 257 9 (246) 2 322
31 December
2009
Balance as at 52 1 491 1 543 12 (466) 2 487
1 July 2010
Movement in - - - - - 352
other reserves
Ordinary - - - - - -
dividends
Preference - - - - - -
dividends
Transfer - - - - - (47)
(to)/from
reserves
Changes in - - - - - -
ownership
interest in
subsidiaries
Consolidation 2 3 703 3 705 - - -
of treasury
shares*
Total - - - - (95) -
comprehensive
income for the
period
Dividend in - - - - - (89)
specie:
unbundling of
Momentum
Balance as at 54 5 194 5 248 12 (561) 2 703
31 December
2010
* The large movement in the consolidation of treasury shares is
due to a sell-off of FirstRand shares in the various staff
trusts and FirstRand shares held on behalf of Momentum`s
policyholders no longer qualifying as treasury shares as a
result of the unbundling of Momentum.
Consolidated statement of changes in equity - IFRS
for the six months ended 31 December
Ordinary share capital and ordinary equity holders` funds
R million Avail- Curr- Other Re- Reserve Non- Non- Total
able- ency re- tained s attri-cumu- con- equity
for- trans- serves earn- butable lative trol-
sale latio ings to non- ling
reserv n re- ordin- re- inter-
e serve ary deem- est
equity able
holders pref-
erence
shares
Balance as 1 107 750 (198) 40 451 44 133 4 519 2 093 52 097
at 1 July
2009
Issue of - - - - - - (186) (186)
share
capital
Movement in - - (15) - 73 - 212 285
other
reserves
Ordinary - - - (1 155) (1 155) - (164) (1 319)
dividends
Preference - - - - - (190) - (190)
dividends
Transfer - - - 72 - - - -
(to)/from
reserves
Changes in - - - - - - (63) (63)
ownership
interest in
subsidiaries
Consolidatio - - - (161) (161) - - 744
n of
treasury
shares
Total 244 (58) 11 4 520 4 763 190 301 5 254
comprehensiv
e income for
the period
Balance as 1 351 692 (202) 43 727 47 653 4 519 2 193 56 622
at 31
December
2009
Balance as 969 698 (617) 46 806 49 889 4 519 3 012 58 963
at 1 July
2010
Movement in - - (12) 79 419 - (101) 318
other
reserves
Ordinary - - - (2 287) (2 287) - (339) (2 626)
dividends
Preference - - - - - (160) - (160)
dividends
Transfer - - - 47 - - - -
(to)/from
reserves
Changes in - - 7 (32) (25) - 31 6
ownership
interest in
subsidiaries
Consolidatio - - - 513 513 - - 4 218
n of
treasury
shares*
Total 307 (332) - 12 070 11 950 160 269 12 379
comprehensiv
e income for
the period
Dividend in (664) (18) 583 (15 (15 - (3) (15
specie: 159) 347) 350)
unbundling
of Momentum
Balance as 612 348 (39) 42 037 45 112 4 519 2 869 57 748
at 31
December
2010
*The large movement in the consolidation of treasury shares is due to a
sell-off of FirstRand shares in the various staff trusts and FirstRand
shares held on behalf of Momentum`s policyholders no longer qualifying
as treasury shares as a result of the unbundling of Momentum.
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 07/03/2011 16:10:23 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
