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RMB Holdings Limited - Audited results for the year ended 30 June 2002
RMB Holdings Limited
Audited results for the year ended 30 June 2002
Core operational headline earnings per share up 20%
Core operational headline earnings up 35%
Dividend per share up 23%
"We believe that these results demonstrate the inherent resilience of our
group`s diversified, but complementary, businesses", GT Ferreira - Chairman
The RMBH group at a glance
RMBH is the holding company of some of South Africa`s leading financial services
companies. It acts as a seedbed for the establishment of entrepreneurial
financial services businesses with high growth potential which are at the
forefront of technological and product innovation in financial services. Many of
the products, and the companies that distribute them, did not even exist five
years ago.
RMBH`s interests include:
- FirstRand Limited (the "FirstRand group") (effective interest: 32,8%)
The FirstRand group is a uniquely structured financial services group with
critical mass in both banking and insurance. Its operations are a consolidation
of:
- FirstRand Bank Holdings Limited (the "FirstRand Banking group"), where
FirstRand is involved in retail, corporate and merchant banking, as well as
instalment sale and property finance (principally under the First National Bank,
Rand Merchant Bank, Wesbank, Ansbacher, eBucks.com and Origin brand names); and
- Momentum Group Limited (the "Momentum group"), which includes life
assurance, asset management and health insurance activities (principally under
the Momentum Life, Momentum Wealth, RMB Asset Management, Futuregrowth and
Discovery brand names).
- RMB Structured Insurance Limited ("RMBSI") (effective interest: 100%)
RMBSI is a registered short-term insurance group providing structured
insurance products and programmes for large corporate clients. It has
operations in South Africa, Namibia, Mauritius and Ireland.
- OUTsurance Limited (" OUTsurance") (effective interest 61,2%)
OUTsurance is a direct personal lines short-term insurer. Pioneers of the
OUTbonus concept, it has grown rapidly by applying a scientific approach to risk
selection, product design and claims management.
- Glenrand M.I.B Limited ("Glenrand M.I.B") (effective interest 17,3%)
Glenrand M.I.B is a leading financial services group focused on providing
risk advisory services and solutions, employee benefits and investment advisory
services and solutions and selected finance products and health-care
administration services.
- Global Resorts (SA) (Pty) Limited ("Global Resorts") (effective interest
48,0%)
Global Resorts is a leading player in the gaming industry in South Africa.
It designs, develops and operates multi-faceted casino, hotel and entertainment
facilities and has an interest in three casinos, the principal of which is
Caesars Gauteng.
OVERVIEW OF RESULTS
The financial year to 30 June 2002 must rank as one of the most challenging in
the RMBH group`s history.
This period was dominated by the events of 11 September 2001, the subsequent
uncertainty regarding the world economy (as evidenced by the South American
crisis and US corporate failures) and the precipitous fall of the Rand against
the US Dollar, which brought about a sharp rise in domestic interest rates.
These factors resulted in an uncertain and volatile business environment.
Against this background it is gratifying to report:
- a 42% increase in attributable headline earnings to R1,7bn (2001: R1,2bn);
- a 35% increase in RMBH`s core operational headline earnings to R1,5bn
(2001: R1,1bn); and
- a 20% increase in core operational headline earnings per share to 126,5
cents (2001: 105,8 cents).
We believe that these results demonstrate the inherent resilience of our group`s
diversified, but complementary, businesses.
In evaluating the year`s results, two factors are of relevance:
- The decline of the Rand against the US Dollar during the last quarter of
2001 potentially distorts the reported underlying trend of the group`s core
business units.
FirstRand, as an integral part of its activities, owns significant foreign
currency assets and liabilities. In accordance with South African Generally
Accepted Accounting Practice, it is required to include R548m (2001: R239m) of
unrealised currency translation gains (from such integral operations of certain
subsidiaries) in its income for the year. In addition, FirstRand also
transferred unrealised currency gains of R604m (2001: R141m), which is not
regarded as integral to such foreign operations, directly to a non-distributable
reserve. Given the abnormal impact of such currency translation gain on its core
operating performance, FirstRand discloses the amount thereof, and its impact on
headline earnings, separately. This is a more conservative approach than that
followed at the interim reporting date, when the interest rate differential
between the currencies was regarded as part of ongoing earnings and not
highlighted as abnormal.
We believe that by highlighting the unrealised currency gains in this
manner, a clearer view of the underlying operational and business trend emerges.
We have thus applied such analysis consistently to RMBH`s results, with the
following trend arising:
2002 2001 %
Year ended 30 Rm Rm Change
June
RMBH headline 1 683 1 184 42
earnings as
reported
Less:
Attributable
portion of
currency
translation (180) (73)
gain
Core 1 503 1 111 35
operational
headline
earnings
On an earnings per share basis, the following result is derived:
2002 2001 %
Year ended 30 Cents Cents Change
June
RMBH headline 141,7 112,8 26
earnings per
share as
reported
Less:
Attributable
portion of
currency
translation (15,2) (7,0)
gain
RMBH core
operational
headline
earnings
per share 126,5 105,8 20
- The share exchange transaction, in terms of which RMBH acquired an
additional 7,8% interest in FirstRand, in exchange for issuing new RMBH ordinary
shares to the Remgro group, took effect on 1 January 2001.
The results for the prior year (ended 30 June 2001) thus include an
effective 25% of the FirstRand group for the first six months, while that of the
second six months and the current financial year incorporates 32,8% of
FirstRand. As such increased interest in FirstRand was financed through the
issue of new RMBH shares, it has been brought to account in reporting earnings
on a per share basis.
The 20% year-on-year growth in RMBH`s core operational headline earnings
per share is thus a more appropriate reflection of the underlying growth
achieved.
Based on such underlying core operational trend, RMBH has declared a final
dividend of 30,2 cents per share, which, together with the interim dividend,
amounts to 44,4 cents per share in total. This represents a 23% increase over
the previous year.
In the four years since 1998, when RMBH merged substantially all of its
financial services interests into FirstRand, it has:
- achieved a compound growth rate in core headline earnings per share of 26%
per annum; and
- increased its dividend paid per share at a compound growth rate of 22% per
annum.
Notwithstanding the extremely volatile and uncertain business environment
encountered during the period, we believe that the core operational trend
highlighted above is inherently sound and sustainable.
Sources of income
RMBH has a well-diversified earnings base, drawn from the full spectrum of South
African financial services:
FirstRand reports that some 15% of its earnings is derived from international
sources (including its African banking operations). Effectively, RMBH thus
derives 14% (2001: 16%) of its earnings from outside South Africa.
REVIEW OF OPERATIONS
FirstRand group
Summary of FirstRand financial results
2002 2001 %
Year ended 30 Rm Rm Change
June
Headline
earnings
comprise:
- FirstRand 3 744 2 787 34
Banking group
Core 3 196 2 580 24
operations
Currency 548 207 >100
translation
gain
- Momentum 1 038 943 10
group
Core 1 038 911 14
operations
Currency - 32 -
translation
gain
- FirstRand (61) (41) 49
Limited
Total 4 721 3 689 28
headline
earnings
Less: (548) (239) >100
Currency
translation
gain
Core 4 173 3 450 21
operational
headline
earnings
Attributable 1 362 1 003 36
to RMBH*
*After consolidation eliminations
Operating environment and financial results
Against a background of unprecedented volatility and change in almost all of the
markets in which the FirstRand group operate, a 28% year-on-year increase in
headline earnings (21%, if currency translation gains are removed) bears
testimony to the inherent resilience of the group`s diversified, core
businesses.
FirstRand Banking group
FirstRand Banking group was able to increase headline earnings by 34% to R 3
744m.
Excellent growth was achieved in Retail, Corporate and Investment banking as
well as by the African subsidiaries. The banking group`s international loan
portfolios suffered losses as a result of the events in South America and US
corporate failures. However, the market volatility arising from these events
created trading opportunities that the group exploited successfully, with the
profits generated substantially mitigating the loan losses.
The upheavals in the financial markets placed severe liquidity pressure on
second tier banks in South Africa. In the ensuing period of consolidation in the
banking industry the FirstRand Banking Group was able to conclude two strategic
acquisitions in the form of the NBS HomeLoan mortgage book (valued at R11,5bn)
and the Saambou group`s deposit liabilities (valued at R12,8bn).
Sound growth in advances and deposits, coupled with improved efficiencies
enabled the FirstRand Banking group to further improve its cost-to-income ratio
to 57,6% (2001: 60,9% - in calculating such ratios, the favourable impact of the
currency translation gains have been disregarded).
Momentum group
The Momentum group`s headline earnings exceeded R1 billion for the first time,
representing a 10% increase on the prior year. This represents an increase of
9,8% in group operating profit after tax (R848m) and an increase of 11,1% in the
investment income on shareholders` assets (R190m).
The highlight of Momentum`s operating performance was its Individual Business
unit, which achieved a 24% increase in operating profits, notwithstanding
negative consumer confidence levels and further restrictions on international
investments. The Employee Benefits unit reported a decline in earnings as a
result of the negative impact of AIDS on its claims experience. To counter this,
corrective measures, including more regular re-pricing of risk, have been put in
place.
Discovery increased headline earnings by 14% per share, notwithstanding the
restrictive impact (on growth and embedded value) of the agreement reached with
the Registrar of Medical Schemes.
Directly held insurance interests
RMB Structured Insurance
RMBSI reported a 29% increase in headline earnings, which amounted to R32,2m
(2001: R24,3m). This also represents RMBH`s share of headline earnings for 2002
(In 2001 RMBH reported its share of headline earnings as being R19,4m, due to
its effective interest in RMBSI, prior to 1 March 2001, having been 70%).
Such increase in headline earnings arose primarily as a result of fee income,
investment income derived from the larger capital base maintained to support
statutory solvency requirements, as well as a lower effective tax rate arising
from movements in insurance related provisions.
This group expended considerable effort on research and development during the
year under review and is well positioned to exploit its refined and expanded
suite of products during the coming year.
A re-assessment of the level of capital required to support RMBSI`s ongoing
insurance activities has allowed it to declare a maiden dividend of R20m.
OUTsurance
OUTsurance, having completed its fourth full year of operation, continues to
reap the benefits of its direct sales business model.
In the year to 30 June 2002, record sales volumes (with gross premiums up 40% to
R590m), a reduction in management expense ratios and good client retention
contributed to a profitable underwriting result. Coupled with higher than
anticipated investment income, such result enabled OUTsurance to report headline
earnings of R58,9m for the year. This represents an improvement of some 85% over
the prior year (R31,9m).
During June 2002 OUTsurance acquired the homeowners insurance business of the
BoE Insurance group. While such acquisition did not have a material impact on
the results in 2002, it will have a favourable impact in future years.
RMBH`s attributable share of OUTsurance`s headline earnings for the year
amounted to R36,1m (2001: R19,1m).
Other financial services interests
Glenrand M.I.B
Glenrand M.I.B reported a satisfying performance for the year under review with
headline earnings increasing by 25% to R73,7m (2001: R58,9m).
Robust revenue growth in the group`s Risk Advisory Services business, coupled
with the inclusion for the first time of results from the Protector group
(engaged in the provision, management and administration of employee health
benefits), contributed to this result.
RMBH`s share of attributable earnings from Glenrand M.I.B amounted to R13,3m
(2001: R11,0m).
Gaming interests
Global Resorts
Global Resorts reported headline earnings of R164,6m - a 5,4% increase over
2001(R156, 2m). RMBH`s share of headline earnings amounted to R 79,0m (2001:
R75,0m)
The upheavals experienced during the first half of the year had a negative
impact on operations at Caesars Gauteng. This was further exacerbated by
capacity constraints caused by the anti-smoking legislation (in force from July
2001) in the gaming areas. Corrective steps taken by management (including a
R40m reconfiguration of the smoking areas) had the desired effect and by year-
end the facility had reverted to earlier profit levels.
The other two casino complexes performed in line with expectation.
The launch of the Internet gaming initiative has proven to be more complex than
anticipated and the project has been shelved. All development and start up costs
(R7,5m) have been expensed.
Global Resorts has provided all of the funding required by its Economic
Empowerment partners at Caesars Gauteng. As a result, it earned an additional
equity linked return on the risks assumed. The project has now matured
sufficiently to allow such risk funding to be replaced with more appropriate
loan funding, effective 1 July 2002. Consequently, each partner will, in future,
derive a return that reflects its changed economic interest in the property. Had
such restructuring been in effect during the current reporting period, the
earnings reported by Global Resorts would have been approximately a third lower.
Capital position and funding
Both FirstRand Banking group and Momentum are adequately capitalised at present.
The following factors are impacting on the FirstRand group`s capital position:
- The SA Reserve Bank has implemented significant changes to regulatory
requirements of banks, including an increase of the minimum capital adequacy
requirement to 10% (previously 8%);
- The Financial Services Board has given notice that it intends revising the
manner in which strategic investments are valued when computing the capital
adequacy reserves of life assurers;
- During the year the FirstRand Banking group`s capital position was impacted
by acquisition growth while Momentum had to take cognisance of the funding
requirements of Discovery`s international operations as well as its settlement
with the Medical Schemes regulator.
The FirstRand group`s unique corporate structure will facilitate the
anticipatory steps needed to ensure that the group can maintain its historic
organic growth pattern. Capital optimisation steps being considered in this
regard include further asset securitisations, both locally and in the
international markets.
Given its strong organic growth and the recent acquisition of a significant
short-term insurance book, it was agreed that OUTsurance should retain the
capital that it currently holds in excess of its solvency requirements to fund
future growth.
A re-assessment of the level of capital required to support RMBSI`s ongoing
insurance activities has allowed it to declare a maiden dividend of R20m to
RMBH.
Net finance cost substantially represents funding costs incurred in financing
RMBH`s commitment at Global Resorts. Since the opening of the permanent
facilities at Caesars Gauteng during December 2000, Global Resorts have returned
40% of the development capital advanced to it by shareholders. It is anticipated
that it will be able to return the balance of such funding during the next two
calendar years.
CORPORATE GOVERNANCE
RMBH and all of the companies in which we invest have embraced the
recommendations of the King II report on Corporate Governance. A comprehensive
review of governance practices has been undertaken in the group. We remain
committed to the highest standard of Corporate Governance and in this regard
strive to provide reports to shareholders which are timeous, accurate,
consistent and informative.
STRATE
The dematerialisation of RMBH shares under STRATE has been successfully
implemented without material occurrences being reported. On 29 September 2002
the insurance cover provided by Lloyds of London to the Dispossessed Members
Fund (the "DMF") terminates. The DMF was established to cover losses or claims
arising from any tainted share certificates that may exist in the market place.
To avoid the risk of tainted certificates, shareholders are advised to
dematerialise their shares and surrender all share certificates to their Central
Securities Depositary Participants or broker prior to 29 September 2002.
DIVIDEND PAYMENT
The Board has resolved to declare a final dividend of 30,2 cents per share
(2001: 24,2 cents). Such final dividend, together with the interim dividend of
14,2 cents brings the total dividend for the year ended 30 June 2002 to 44,4
cents (2001: 36,0 cents). This represents a year-on-year increase of 23% and a
dividend cover ratio of 2,8 times.
OUTLOOK FOR THE GROUP
When FirstRand was created in April 1998, we projected that it would take
between three and five years for the full benefits of the merger to be
crystallised. At the start of the financial year under review we believed that
the merger had been successfully completed and that it would be appropriate to
pursue an outward focus. This strategy has proven particularly successful in the
FirstRand Banking Group.
The upheavals of the past year have vividly tested the foundations laid in the
merger processes. We are gratified that the outcome has demonstrated the
inherent resilience of all of FirstRand`s businesses.
RMBH`s other interests, while overshadowed by the absolute size of FirstRand,
are each unique in their own abilities and also stand poised to extract further
value from their identified niches.
Consequently, RMBH remains confident of delivering real growth in earnings per
share in the coming year.
For and on behalf of the board
GT Ferreira P Cooper
Chairman Chief Operating Officer
Sandton
16 September 2002
DIVIDEND DECLARATION
Notice is hereby given that a final dividend of 30,2 cents per share was
declared on 16 September 2002 in respect of the financial year ended 30 June
2002.
Shareholders` attention are drawn to the following important dates:
- Last day to trade in order to participate in this dividend Friday, 25
October 2002
- Shares commence trading "ex dividend" on Monday, 28 October 2002
- The record date for the dividend payment will be Friday, 1 November 2002
- Dividend payment date Monday, 4 November 2002
No dematerialisation or rematerialisation of share certificates may be done
between Monday, 28 October 2002 and Friday, 1 November 2002 (both days
inclusive). Where shares have been dematerialised in terms of STRATE or
electronic transfer instructions are in place, dividends will be credited to the
shareholders` bank accounts on Monday, 4 November 2002. In the absence of such
mandates, dividend cheques will be posted to shareholders on that date.
By order of the board
PF de Beer FCIS
Company Secretary
16 September 2002
These results are a consolidation of the operations of RMBH, OUTsurance and RMB
Structured Insurance. RMBH`s proportionate interest in its associates,
FirstRand, GlenRand M.I.B and Global Resorts have been equity accounted.
SUMMARISED GROUP INCOME STATEMENT
for the year ended 30 June
2002 2001
Audited Audited %
Rm Rm Change
Operating 130 88 48
profit
Net finance (18) (20) 10
costs
Profit before 112 68 65
tax
Taxation (36) (27) 33
Operating 76 41 85
profit after
tax
Share of 1 565 1 125 39
after tax
results in
associate
companies
Net goodwill (136) (167) 19
amortised
Attributable 1 505 999 51
earnings
Earnings (23) (18) 28
attributable
to outside
shareholders
Earnings 1 482 981 51
attributable
to ordinary
shareholders
Computation
of headline
earnings:
Earnings 1 482 981 51
attributable
to ordinary
shareholders
Adjustment
for:
Net 136 167 (19)
goodwill
amortised
Profit on (4) - -
dilution of
shareholding
Adjustment
made by
associates:
Goodwill 88 13 >100
amortised and
impaired
Profit on (10) - -
sale of
subsidiary
Other (9) 23 >100
Headline
earnings
attributable
to
ordinary 1 683 1 184 42
shareholders
Adjustment
for:
Associate`s (180) (73) >100
currency
translation
gain
Core
operational
headline
earnings
attributable
to ordinary 1 503 1 111 35
shareholders
Computation
of earnings
per share:
Number of 1 188 1 188
shares in
issue
(millions)
Weighted
average
number of
shares in
issue 1 188 1 050
(millions)
Earnings per 124,7 93,5 33
share (cents)
Headline 141,7 112,8 26
earnings per
share (cents)
Core
operational
headline
earnings per
share (cents) 126,5 105,8 20
Dividend per
share (cents)
- Interim 14,2 11,8 20
- Final 30,2 24,2 25
Total 44,4 36,0 23
Dividend
cover
(relative to
core
operational
headline 2,8 2,9
earnings)
Sources of core operational headline earnings
for the year ended 30 June
2002 2001
Audited Audited %
Rm Rm Change
Core
operational
headline
earnings
from:
FirstRand 1 362 1 003 36
Glenrand 13 11 18
M.I.B
OUTsurance 36 19 89
RMB 32 19 68
Structured
Insurance
Global 79 75 5
Resorts
1 522 1 127 35
RMBH and (19) (16) (19)
other
Core 1 503 1 111 35
operational
headline
earnings
SUMMARISED GROUP CASH FLOW STATEMENT
for the year ended 30 June
2002 2001
Audited Audited
Rm Rm
Cash available from 549 1 325
operating
activities
Cash flows for (456) (329)
servicing of
finance from
shareholders
Cash flows on (350) (73)
investment
activities
Cash flows from - (9)
financing
activities
Net (257) 914
(decrease)/increase
in cash and cash
equivalents
Cash and cash 1 376 462
equivalents at the
beginning of the
year
Cash and cash 1 119 1 376
equivalents at the
end of the year
Cash available from operating activities includes net premium receipts by short-
term insurance operations. Given the fluctuations inherent in non-recurring
structured insurance transactions, such cashflows are not directly comparable
between years.
SUMMARISED GROUP BALANCE SHEET
as at 30 June
2002 2001
Audited Audited
Rm Rm
ASSETS
Cash and cash 1 119 1 376
equivalents
Investments 1 235 710
Accounts receivable 234 291
2 588 2 377
Investment in 6 696 5 432
associate companies
Property and 22 15
equipment
Goodwill 3 584 3 798
Total assets 12 890 11 622
LIABILITIES AND
SHAREHOLDERS` FUNDS
Funding instruments 472 637
Accounts payable 306 212
and accruals
Short-term 1 418 1 362
insurance
provisions
Liabilities to 101 -
policyholders
Total liabilities 2 297 2 211
Outside 121 97
shareholders`
interest
Shareholders` funds
Share capital and 5 793 5 793
premium
Reserves 4 579 3 421
Convertible 100 100
debentures
Total shareholders` 10 472 9 314
funds
Total liabilities 12 890 11 622
and shareholders`
funds
SUMMARISED STATEMENT OF CHANGES IN EQUITY
Non-
Share Share distributable Retained Total
capital premium reserve earnings equity
Rm Rm Rm Rm Rm
Balance at
30 June 2001
(audited)
as 12 5 781 2 567 977 9 337
previously
reported
Restatements
by
associates:
- Pension - - 51 - 51
fund surplus
- Leave pay - - (102) - (102)
provision
- Post - - (81) - (81)
retirement
medical aid
- Other - - 9 - 9
Restated
balance at
30 June 2001 12 5 781 2 444 977 9 214
(audited)
Earnings
attributable
to ordinary
shareholders - - - 1 482 1 482
Dividend - - - (456) (456)
paid
Income of
associated
companies
retained - - 1 092 (1 092) -
Transfer to
contingency
reserve by
short-term - - 11 (11) -
insurance
operations
Investment
reserve
relating to
short-term - - 1 - 1
insurance
operations
Negative - - (77) - (77)
goodwill
taken to
income
Transfers
relating to
associates:
- Movement
on foreign
currency
translation - - 197 - 197
reserves
- - - 20 - 20
Revaluation
of
investment
assets
- Other - - (9) - (9)
Balance at 12 5 781 3 679
30 June 2002
(audited)
900 10 372
PREPARATION OF RESULTS
RMBH`s external auditors, PricewaterhouseCoopers Inc., have expressed their
unqualified audit opinion on these results. A copy of their report is available
for inspection at the company`s registered office.
This report has been prepared using accounting policies which are in accordance
with South African Generally Accepted Accounting Practice. Such policies are in
all material respects consistent with those applied in the preparation of the
unqualified audited financial statements for the year ended 30 June 2001, except
that all liabilities and expenses in terms of AC116: "Employee Benefits" have
been provided for.
Certain prior year comparatives have been restated and/or reclassified to
facilitate a more meaningful comparison.
RMB Holdings Limited ("RMBH") Registration number 1987/005115/06
Share code: RMH
ISIN code: ZAE000024501
Directors: GT Ferreira (Chairman), P Cooper (COO), LL Dippenaar , JW Dreyer, DM
Falck, PM Goss, PK Harris, KC Shubane
Secretary and registered office:
PF de Beer FCIS, 17th Floor, 1 Merchant Place, Corner Fredman Drive and Rivonia
Road, Sandton, 2196
Postal address:
PO Box 786273, Sandton, 2146
Telephone +27 11 282 8000
Fax +27 11 282 8008
Web address: www.rmbh.co.za
Sponsor (In terms of JSE listings requirements): RMB Corporate Finance:
1 Merchant Place, Corner Fredman Drive and Rivonia Road, Sandton, 2196
Auditors:
PricewaterhouseCoopers Inc., 2 Eglin Road, Sunninghill, 2157
Transfer secretaries:
Computershare Investor Services Limited
2nd Floor, Edura House, 41 Fox Street, Johannesburg, 2001
Postal address
PO Box 61051, Marshalltown, 2001
Telephone +27 11 836 7700
Fax +27 11 836 0792
Date: 16/09/2002 04:30:00 PM Produced by the JSE SENS Department
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