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RMB Holdings Limited - Unaudited results for the six months ended 31 December
2002
RMB Holdings Limited
(Registration number 1987/005115/06)
Share code: RMH ISIN code: ZAE000024501
("RMBH")
Unaudited results
for the six months ended 31 December 2002
Core operational headline earnings per share +23% +25%
Headline earnings per share -21 % -18%
Dividend per share +25% +25%
"An excellent set of results, reflecting both the benefits of a diverse and
resilient earnings base and the benefits of sustained focus on core business"
The RMBH group at a glance
RMBH is the holding company of some of South Africa's leading financial services
companies. Its 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. For regulatory oversight purposes,
its operations are housed in two wholly-owned subsidiary groups under FirstRand
Bank Holdings Limited and Momentum Group Limited.
In order to provide customers with a comprehensive range of products and
services the group's business units are clustered according to specific target
markets. These are:
- The Retail Cluster - targeting individual customers (principally under the
FNB/First National Bank, WesBank and eBucks.com brand names);
- The Corporate Cluster - directed at large corporate and commercial enterprises
(under the FNB Corporate, Rand Merchant Bank, RMB Asset Management, Futuregrowth
and Momentum Employee Benefits brand names);
- The Wealth Cluster - targeting individuals in the middle and upper income
markets (principally under the Momentum Life, Momentum Multi Managers, and RMB
Unit Trust brand names); and
- The Health Cluster - serving the health insurance market (via the 62% held
Discovery group).
- RMB Structured Insurance Limited ("RMBSI") (effective interest: 100%)
RMBSI holds both short-term and life assurance licenses. It creates individual
financial risk solutions for South Africa's top companies by using sophisticated
risk techniques and innovative financial structures.
- 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: 17,2%)
Glenrand M.I.B is a leading financial services group focused on providing risk
advisory services and solutions, employee benefits, investment advisory
services, selected financial products and full healthcare maintenance
organisation services and products.
- 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. RMBH has agreed to sell its interest in Global Resorts.
Overview of results for the six month period
The six months to 31 December 2002 were characterised by continuing high
interest rates in South Africa, a strengthening rand and poor local and global
investment markets. Notwithstanding this, the group - and in particular FNB
Retail Bank, RMB Structured Insurance and OUTsurance - performed above
expectation.
For a proper appreciation of the interim results presented in this report, two
matters are highlighted separately in the analysis of the results:
- The impact of exceptional currency fluctuations on the underlying core
earnings; and
- The reporting consequences arising from the implementation of a new statement
of Generally Accepted Accounting Practice "AC133 - Financial Instruments:
Recognition and Measurement".
In this context, earnings for the six months to 31 December 2002 may be analysed
as follows:
- Growth in headline earnings per share
- Pro forma, before implementing AC133 21% to 61,0 cents
(2001: 77,5 cents)
- Actual, incorporating AC133 18% to 66,6 cents
(2001: 81,2 cents)
These results include the impact of the rand volatility.
- Growth in core operational headline earnings per share
- Pro forma, before implementing AC133 +23% to 71,0 cents
(2001: 57,8 cents)
- Actual, incorporating AC133 +25% to 76,6 cents
(2001: 61,5 cents)
In these results the impact of the rand volatility has been excluded.
The trend in core operational headline earnings is gratifying and it reflects
the progress that FirstRand has made in crystallising benefits from strong
organic growth flowing from a renewed outward focus and also from its successful
integration of strategic acquisitions made during the previous financial year.
Currency fluctuations
The extreme directional volatility of the rand/US dollar exchange rate over the
last eighteen months clouds the underlying core operational performance achieved
by the group.
- During the six months to 31 December 2001, the rand weakened by some 33%
against the US dollar ending on a closing US dollar exchange rate of R11,98.
- By contrast, in the current reporting period ending on 31 December 2002, the
rand strengthened by some 19% against the US dollar, ending the period on an
exchange rate of R9,68.
Given such volatility, FirstRand (which owns, as an integral part of its
operations, significant foreign currency assets and liabilities) isolates the
impact of abnormal unrealised foreign currency gains or losses from its core
operating performance and discloses the amount and impact thereof on its
headline earnings separately.
RMBH concurs that by highlighting such unrealised currency gains and losses 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 %
Six months to 31 December cents cents change
Pro forma RMBH headline earnings 61,0 77,5 -21
per share*
Attributable portion of
exceptional
translation loss/(gain) 10,0 (19,7)
Pro forma RMBH core operational
headline
earnings per share* 71,0 57,8 +23
* Pro forma, before accounting for the impact of AC133.
AC133 - Financial Instruments: Recognition and Measurement
These interim results have been prepared in accordance with the requirements of
"AC133 - Financial Instruments: Recognition and Measurement", a new standard of
South African Generally Accepted Accounting Practice ("GAAP"). AC133 introduces
the concept of "fair value" accounting for financial instruments, which forms
the core of many of our businesses. While the standard is based on international
GAAP standards, certain of the concepts employed can still be said to be in a
process of evolution and may over time be subject to further refinement.
The standard is applicable for financial reporting periods commencing on or
after 1 July 2002. In the case of FirstRand, the first major South African
financial institution to report in compliance with the new standard, it has
found that the standard has a material impact on its financial results and has
highlighted such impact separately. Such separate disclosure has also been drawn
through to the RMBH group results. The impact of the new standard on RMBH
itself, its subsidiaries and associates, other than FirstRand, has not been
significant.
AC133 is a prospective accounting standard in that it is not applied
retrospectively. Instead, it sets out comprehensive transitional provisions,
which affect the opening equity balances at the beginning of the reporting
period. However, as indicated in the FirstRand commentary below, the adoption of
certain new valuation methodologies does have a retrospective impact. We believe
that the impact of the introduction of AC133 is thus best illustrated by way of
pro forma accounts for the current period reflecting the position before
implementation of AC133. The summarised financial statements accompanying this
report sets out such pro forma accounts. The impact of AC133 on core operational
headline earnings per share may be highlighted as follows:
2002 2001 %
Six months to 31 December cents cents change
RMBH core operational headline earnings
per share incorporating AC133 76,6 61,5 +25
Attributable portion of FirstRand AC133 (5,6) (3,7)
adjustment
Pro forma RMBH core operational headline
earnings per share 71,0 57,8 +23
In our view:
- Core operational headline earnings-incorporating the effect of AC133 - should
be seen as the basis against which future performance can be measured. Such
results are likely to be significantly more volatile than the historical trends;
while
- The pro forma core operational headline earnings (excluding AC133) are a more
appropriate basis to evaluate RMBH's current period performance against the
comparative prior period. Consequently, the commentary that follows uses this
basis as starting point.
We believe these to be an excellent set of results that reflects both the
benefits of a diverse and resilient earnings base and the benefits of sustained
focus on our core businesses.
Based on the underlying operational trend reflected by the pro forma core
operational headline earnings, RMBH has declared an interim dividend of 17,8
cents per share, representing a 25% increase over the previous year.
Sources of income
RMBH has a well diversified earnings base drawn from the full spectrum of South
African financial services:
Review of operations
FirstRand group
Summary of FirstRand financial results
Unaudited six months
ended
31 December
Pro Pro %
forma1 forma1
R million 2002 2001 change
FirstRand Bank Holdings 1 498 2 134 (30)
Core operations 1 860 1 420 31
Foreign currency
translation (loss)/gain (362) 714 (>100)
Momentum Group 523 501 4
FirstRand Limited (18) (7) (>100)
Headline Earnings 2 003 2 628 (24)
Add/(less): Foreign
currency
translation 362 (714) >100
Core operational
headline earnings 2 365 1 914 24
Attributable to RMBH3 767 625 23
Audited
Unaudited six months ended
31 December
Year
ended
Actual2 Actual2 % 30 June
2002 2001 change 2002
1 731 2260 (23) 4 040
2 093 1 546 35 3 492
(362) 714 (>100) 548
510 501 2 1 038
(18) (7) (>100) (61)
2 223 2 754 (19) 5 017
362 (714) >100 (548)
2 585 2 040 27 4 469
840 668 26 1 459
Notes
1. The pro forma columns exclude the effect of AC133.
2. The actual columns includes the effect of AC133 and consequential
adjustments.
3. After consolidation eliminations.
FirstRand Bank Holdings produced excellent results, benefiting from strong
organic growth as well as good contributions from the acquisitions made in the
previous year. Given the poor performance of global equity markets the results
of Momentum group are pleasing, with a 21% increase in the after tax operating
profit of Momentum's individual business being particularly noteworthy.
Impact of AC133 on FirstRand financial results
In the FirstRand Banking group the implementation of AC133 has a material impact
on both headline earnings and net asset value per share and has resulted in
significant changes in the manner in which certain financial figures are
presented.
One of the most significant of these has been the treatment of its general
provision for bad debts. Historically such provision (some 1,1% of advances) was
based on expected default frequencies. Under AC133 such provision is calculated
using a cash flow valuation methodology that is applied to all expected future
cash flows, including interest income. Included in the Banking Group's
calculation of future interest income is a credit risk premium. Baring incorrect
pricing, such risk premium offsets future losses, causing the general provision
to trend towards zero. The impact of such adjustment is to decrease general
provisions by R2,1 billion (2001: R1,6 billion). On an after tax basis, current
period income increases by R128 million (2001: R126 million) while retained
income increases by R1,6 billion (2001: R1,2 billion).
Momentum group has for a number of years used the financial soundness valuation
methodology to determine its profits. Such methodology and the requirements of
AC133 produce similar results and consequently the manner in which Momentum
implemented AC133 does not have a material impact on the Momentum group's
disclosed earnings.
Cluster performance
The Retail Cluster reflected growth of 26% in earnings over the corresponding
period. This impressive increase is due to excellent organic growth as well as
scale benefits arising from the acquisition of the NBS and Saambou books. The
African subsidiaries continued to perform well.
In the Corporate Cluster good gains by RMB's Investment Banking division were
muted by lower earnings in RMB Asset Management and an increase in bad debt
provisions at FNB Corporate.
Momentum Life produced excellent results in the Wealth Cluster and produced good
gains in respect of new recurring premium business. Ansbacher's international
operations were negatively affected by once-off losses in its treasury activity
and by reduced volumes from the Caribbean region.
Earnings from the Health Cluster were marginally positive, after taking into
account the expensing of costs incurred in the development of its American
operations. The South African operations showed strong new business growth and
reported an excellent increase in earnings.
Directly held insurance interests
RMB Structured Insurance
Wholly-owned RMBSI reported a 35% increase in headline earnings, which amounted
to R20,5 million (2001: R15,2 million).
The increase arose primarily as a result of strong investment income derived
from the larger capital base, the endowment effect of higher interest rates and
the restitution of a large structured insurance transaction.
OUTsurance
OUTsurance had an exceptional six months to December 2002 with record sales
volumes and profitability being achieved. Strong organic growth in the personal
lines business generated new annualised premium income of R240,9 million (+86%).
The acquisition of a home owner's insurance portfolio from the BoE group
contributed significantly to the growth in that business category. Overall,
gross premium income for the six months increased by 63% to R418,6 million
(2001: R256,3 million). Profit attributable to shareholders increased by 92% to
R48,7 million (2001: R25,4 million).
RMBH's attributable share of OUTsurance's headline earnings (pre-AC133) for the
six month period amounted to R32,1 million (2001: R 15,6 million).
Other financial services interests
Glenrand M.I.B
Good growth in revenues from Glenrand M.I.B's South African risk advisory
services business and its healthcare and medical services business were largely
overshadowed by the increased cost and the timing of its professional indemnity
insurance renewals. As a result, headline earnings per share declined by 12,5%
to 9,8 cents per share (2001: 11,2 cents).
RMBH's share of attributable headline earnings from Glenrand M.I.B for the six
months to December 2002 amounted to R4,1 million (2001: R4,5 million).
Gaming interests
Global Resorts
Global Resorts had a satisfactory six months, exceeding budget at both the
revenue and ebitda levels. Its flagship resort, Caesars Gauteng, did
particularly well, growing its market share from 25% in the first half of the
2002 calendar year to 29% at the year-end.
As previously reported, the restructuring of the empowerment funding at Caesars
Gauteng had a dilutory effect on the other shareholders in Global Resorts. As a
result, RMBH's share of headline earnings for the six-month period amounted to
R29,0 million (2001: R36,0 million).
Shareholders were informed during December 2002 that RMBH had agreed to sell its
interest in Global Resorts to a consortium comprising Metallon Corporation
Limited and the Global Resorts executive management team. The sale transaction
is subject to a number of conditions precedent. We continue to work with the
purchasers to ensure the fulfilment of the conditions and anticipate that they
should be fulfilled by the end of June 2003.
Capital position and net funding cost
Net funding cost substantially represents funding costs incurred in financing
RMBH's commitment at its gaming interests. The sale proceeds anticipated from
the disposal of Global Resorts will extinguish the funding liability and leave
RMBH in a cash surplus position.
FirstRand reports that its capital adequacy ratios are satisfactory and are
capable of meeting the anticipated volatility in earnings resulting from the
introduction of AC133 as well as the proposed changes to the basis of
calculating capital adequacy reserves for life companies. The capital demands of
its Health Cluster (driven by new business in Discovery Life and start-up costs
in the United States) are currently being evaluated.
RMBH's other subsidiaries and associates are adequately capitalised at present.
Dividend payment
The board has resolved to declare a 4,0 times covered interim dividend of 17,8
cents per share (2001: 14,7 cents). This is an increase of 25% over the previous
period.
Outlook for the group
FirstRand will continue to benefit from its diverse earnings base, a strong
external focus and the sound foundations established in the last three years.
The group is also well positioned to benefit from any upturn in stock markets.
Provided that there are no major shocks or instability caused by factors such as
the Middle East political situation, the group is confident that the pleasing
growth trend established in the first half of the year will be maintained.
RMBH's other investments continue to perform satisfactorily. Consequently, we
remain confident of delivering above average real growth in core operational
headline earnings per share in the second half of the financial year.
For and on behalf of the board
GT Ferreira P Cooper
Chairman Chief Operating Officer
Sandton
3 March 2003
Interim dividend declaration
Notice is hereby given that an interim dividend of 17,8 cents per share has been
declared on 3 March 2003 in respect of the half-year ended 31 December 2002.
Shareholders' attention are drawn to the following important
dates:
- Last day to trade in order to Thursday, 20 March 2003
participate in this dividend
- Shares commence trading "ex Monday, 24 March 2003
dividend" on
- The record date for the dividend Friday, 28 March 2003
payment will be
- Dividend payment date Monday, 31 March 2003
No dematerialisation or rematerialisation of share certificates may be done
between Monday, 24 March 2003 and Friday, 28 March 2003 (both days inclusive).
The dividend payment will be effected on Monday, 31 March 2003.
By order of the board
A H Arnott
Company Secretary
3 March 2003
Basis of preparation
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.
This interim report has been prepared in accordance with AC127 - Interim
Financial Reporting and 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 2002, except
for the adoption of AC133 - Financial Instruments: Recognition and Measurement.
The impact of adopting AC133 is highlighted in the accompanying commentary.
Certain prior year comparatives have been restated and/or reclassified to
facilitate a more meaningful comparison.
Summarised group income statement
Unaudited six months
ended 31 December
Pro Pro
forma1 forma1
2002 2001 %
Rm Rm change
Operating profit 107 54 98
Net finance costs (10) (9) (11)
Profit before tax 97 45 >100
Taxation (35) (14) (>100)
Operating profit after tax 62 31 100
Share of after tax results of
associate companies 621 894 (31)
Earnings attributable to
shareholders
before goodwill amortisation 683 925 (26)
Net goodwill amortised (109) (105) (4)
Earnings attributable to
outside shareholders (19) (10) (90)
Earnings attributable to
ordinary shareholders 555 810 (31)
Computation of headline
earnings
Earnings attributable to
ordinary shareholders 555 810 (31)
Adjustment for:
Net goodwill amortised 109 105 4
Realised gains on - - -
investments
Profit on dilution of - - -
shareholding
Adjustment made by associates:
Goodwill amortised 60 6 >100
Profit on sale of subsidiary - - -
Other - - -
Headline earnings attributable
to ordinary shareholders 724 921 (21)
Adjustment for:
Associate's currency
translation
loss/(gain) 119 (234) >100
Core operational headline
earnings attributable to
ordinary shareholders 843 687 23
Computation of earnings per
share:
Number of shares in issue 1 188 1 188
(millions)
Weighted average number of
shares in issue (millions) 1 188 1 188
Earnings per share (cents) 46,8 68,2 (31)
Headline earnings per share 61,0 77,5 (21)
(cents)
Core operational headline
earnings per share (cents) 71,0 57,8 23
Dividend per share (cents)
- Interim 17,8 14,2 25
- Final - - -
Total 17,8 14,2 25
Dividend cover (relative to
core
operational headline earnings) 4,0 4,1
Unaudited six months Audited
ended 31 December
Year
ended
Actual2 Actual2 30 June
2002 2001 % 2002
Rm Rm change Rm
107 54 98 130
(10) (9) (11) (18)
97 45 >100 112
(35) (14) (>100) (36)
62 31 100 76
694 937 (26) 1 662
756 968 (22) 1 738
(109) (105) (4) (136)
(19) (10) (90) (23)
628 853 (26) 1 579
628 853 (26) 1 579
109 105 4 136
(5) - - -
- - - (4)
60 6 >100 88
- - - (10)
- - - (9)
792 964 (18) 1 780
119 (234) >100 (180)
911 730 25 1 600
1 188 1 188 1 188
1 188 1 188 1 188
52,9 71,9 (26) 132,9
66,6 81,2 (18) 149,8
76,6 61,5 25 134,7
17,8 14,2 25 14,2
- - - 30,2
17,8 14,2 25 44,4
4,3 4,3 3,0
Sources of core operational headline earnings
Unaudited six months
ended 31 December
Pro Pro
forma1 forma
2002 2001 %
Rm Rm change
Core operational headline
earnings from:
FirstRand 767 625 23
Glenrand M.I.B 4 5 (20)
OUTsurance 32 16 100
RMB Structured Insurance 20 15 33
Global Resorts 29 36 (19)
852 697 22
RMBH and other (9) (10) 10
Core operational headline 843 687 23
earnings
Audited
Unaudited six months Year
ended 31 December
ended
Actual2 Actual 30 June
2002 2001 % 2002
Rm Rm change Rm
840 668 26 1 459
4 5 (20) 13
27 16 69 36
20 15 33 32
29 36 (19) 79
920 740 24 1 619
(9) (10) 10 (19)
911 730 25 1 600
SUMMARISED GROUP BALANCE SHEET
Audited
Unaudited at 31 December at
Pro Actual2 Actual2 30 June
forma1
2002 2002 2001 2002
Rm Rm Rm Rm
ASSETS
Cash and cash equivalents 1 693 1 693 1 091 1 119
Investments 780 780 1 085 1 235
Accounts receivable 265 265 122 234
2 738 2 738 2 298 2 588
Investment in associate 6 941 7 202 6 348 7 084
companies
Property and equipment 23 23 17 22
Goodwill 3 478 3 478 3 691 3 584
Total assets 13 180 13 441 12 354 13 278
LIABILITIES AND SHAREHOLDERS'
FUNDS
Funding instruments 388 388 666 472
Accounts payable and accruals 485 485 128 306
Short-term insurance 1 491 1 491 1 231 1 418
provisions
Liabilities to policyholders 132 132 126 101
Total liabilities 2 496 2 496 2 151 2 297
Outside shareholders' 130 130 112 121
interest
Shareholders' funds
Share capital and premium 5 793 5 793 5 793 5 793
Reserves 4 661 4 922 4 198 4 967
Convertible debentures 100 100 100 100
Total shareholders' funds 10 554 10 815 10 091 10 860
Total liabilities and 13 180 13 441 12 354 13 278
shareholders' funds
Summarised group cash flow statement
Audited
Unaudited six months Year
ended 31 December ended
30 June
R million 2002 2001 2002
Cash available from operating 555 341 729
activities
Cash flows for servicing of (359) (287) (456)
finance from shareholders
Cash flows on investment 462 (368) (365)
activities
Cash flows from financing (84) 29 (165)
activities
Net increase/(decrease) in 574 (285) (257)
cash and cash equivalents
Cash and cash equivalents at 1 119 1 376 1 376
the beginning of the period
Cash and cash equivalents at 1 693 1 091 1 119
the end of the period
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 cash flows are not necessarily directly
comparable between years.
Summarised statement of changes in equity
Equity
Share Share accounted
capital premium reserves
Rm Rm Rm
Balance at 30 June 2002
(audited)
as previously reported 12 5 781 3 321
Restatements by associates:
- Adoption of AC133 - - (108)
- Release of general provision - - 388
Restated balance at
30 June 2002 (unaudited) 12 5 781 3 601
Earnings attributable to
ordinary shareholders - - -
Dividend paid - - -
Income of associated
companies retained - - 421
Transfers relating to subsidiaries:
- Transfer to contingency reserve
by short-term insurance operations - - -
- Investment reserve relating to
short-term insurance operations - - -
- Movement on foreign currency
translation reserves - - -
Transfers relating to associates:
- Movement on foreign currency
translation reserves - - (140)
- Revaluation of investment assets - - (2)
- AC133 adjustments - - -
- Movement in other reserves - - 1
Balance at 31 December 2002
(unaudited) 12 5 781 3 881
Pro forma balance at
31 December 2002 (unaudited) 12 5 781 3 572
Balance at 31 December 2001
(unaudited) 12 5 781 2936
Associates' Non-distri-
AC133 butable Retained Total
reserves reserve earnings equity
Rm Rm Rm Rm
- 360 898 10 372
(140) - - (248)
- - - 388
(140) 360 898 10 512
- - 628 628
- - (359) (359)
- - (421) -
- 11 (11) -
- (16) - (16)
- (1) - (1)
- - - (140)
- - - (2)
92 - - 92
- - - 1
(48) 354 735 10 715
- 354 735 10 454
- 433 829 9 991
Notes
1. The pro forma columns exclude the effect of AC133.
2. The actual columns includes the effect of AC133 and consequential
adjustments.
Directors: GT Ferreira (Chairman), P Cooper (COO), LL Dippenaar, JW Dreyer, DM
Falck, PM Goss,
PK Harris, KC Shubane
Secretary and registered office:
AH Arnott, 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
Transfer secretaries:
Computershare Investor Services Limited
70 Marshall Street, Johannesburg, 2001
Postal address
PO Box 61051, Marshalltown, 2107 Telephone +27 11 836 7700 Fax +27 11 836 0792
Date: 03/03/2003 05:00:12 PM Produced by the JSE SENS Department
