| Wed 2 Mar 2005, 14:02 | | Results for the six months ended 31 December 2004 |
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RMBH - Unaudited results announcement for the six months ended 31 December 2004
RMB Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/005115/06)
Share code: RMH
ISIN: ZAE000024501
Unaudited results announcement For the six months ended 31 December 2004
`We believe that our portfolio of premium financial sector businesses have
entered a phase where they should be able to deliver superior growth in
dividends.`
GT Ferreira - Chairman
- Headline earnings +20%
- Interim dividend +65%
- Six-month growth in intrinsic value +31%
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: 34,4%*)
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 three subsidiary groups under
FirstRand Bank Holdings Limited, Momentum Group Limited and Discovery
Holdings Limited.
The Banking group provides customers with a comprehensive range of products
and services according to specific target market segments. First National
Bank services the retail, business and medium corporate segments. In
addition it provides transactional services to the group`s large corporate
clients. Rand Merchant Bank is responsible for the large corporate segment,
to which it provides loans, value added advisory and structuring services,
while WesBank is South Africa`s dominant movable asset financier. The
balance of the Banking group includes its African banking subsidiaries and
Banking Group Treasury.
- Momentum targets individuals in the middle and upper income markets,
principally under the Momentum Life, Momentum Wealth, Momentum Health and
RMB Unit Trust brand names.
- Discovery (65,7% held) services the health insurance and life assurance
markets.
- OUTsurance Limited (`OUTsurance`) (effective interest: 64,5%*)
OUTsurance is a direct personal lines and small business 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.
- RMB Structured Insurance Limited (`RMBSI`) (effective interest: 98%*)
RMBSI holds both short-term and life assurance licences. It creates custom
insurance and financial risk solutions for South Africa`s large
corporations by using sophisticated risk techniques and innovative
financial structures.
- Glenrand M.I.B Limited (`Glenrand M.I.B`) (effective interest: 17,0%*)
Glenrand M.I.B is a financial services group focused on providing risk
advisory services and solutions, employee benefits and investment advisory
services.
The effective interest held by RMBH in these businesses shows slight variations
between periods as a result of the consolidation, by such entities, of their
staff share incentive schemes.
OVERVIEW OF RESULTS FOR THE SIX-MONTH PERIOD
Key characteristics of the six-month period ended 31 December 2004 were:
- a further strengthening of the South African Rand by some 9,1% to a level
of R5,62: US$1 at 31 December 2004, primarily driven by external factors
such as continued US$ weakness and strong demand for commodities,
especially from China and Japan;
- a continued reduction in inflation, with CPIX inflation declining from 5,0%
to 4,3% over the period;
- a slight decline in domestic interest rates, with a 0,5% reduction in the
prime overdraft rate during August 2004; as well as
- a significant improvement in the local equity markets.
The South African economy continued to gain momentum, achieving an annualised
growth rate of 4,2% during the 3rd quarter of 2004. This was to a large extent
as a result of strong growth in domestic household expenditure, especially in
the retail, motor and building sectors of the economy.
All of these positive factors provided strong organic growth opportunities for
the FirstRand Banking group which increased headline earnings by 22,6%
particularly through increased credit demand. Improved credit quality and bad
debts partially offset the impact of margin squeeze flowing from the sustained
lower interest rate environment.
Buoyant local equity markets, with the JSE ALSI 40 index increasing by 24% over
the six months had a positive impact on equity related businesses. As a
consequence, the Group`s assurance interests benefited, with satisfying sales of
discretionary linked investment products, unit trusts and living annuities. The
long-term insurance industry continued to experience strong demand for
individual risk products during the period.
In this positive environment, RMBH produced excellent results. Key financial
highlights for the six months to 31 December 2004 were:
* Headline earnings per share +20% to 103,7 cents (2003: 86,7 cents)
* Dividend per share +65% to 42,0 cents (2003: 25,5 cents)
During the six months the underlying intrinsic value of RMBH`s investments
increased by 31% and at 31 December 2004 amounted to R26,3 billion (2 217 cents
per share).
SOURCES OF INCOME
RMBH has a well diversified earnings base drawn from the full spectrum of South
African financial services:
- Retail banking 28%
- Corporate banking 11%
- Investment banking 16%
- Instalment sales 12%
- African banking activities 4%
- Life assurance, health insurance and asset management 19%
- Short-term insurance 10%
REVIEW OF OPERATIONS
FirstRand Group
Summary of FirstRand financial results
Unaudited Audited
Six months ended Year
ended
31 December % 30 June
R million 2004 2003 change 2004
Attributable headline
earnings derived from:
FirstRand Banking Group 2 831 2 308 23 4 760
Momentum Group 592 502 18 1 081
Discovery Group 126 88 43 265
FirstRand Limited (116) (108) 7 (274)
3 433 2 790 23 5 832
Consolidation of share (78) (54) 44 (105)
trusts
Headline earnings 3 355 2 736 23 5 727
attributable to
shareholders
Attributable to (31) - - -
preference shareholders
Headline earnings 3 324 2 736 21 5 727
attributable to ordinary
shareholders
Attributable to RMBH* 1 110 928 20 1 933
* After consolidation eliminations
FirstRand Banking Group
Headline earnings +23%
The Banking Group produced excellent results during the six-month period under
review, benefiting from strong performances from RMB, FNB and WesBank.
Non-interest revenue grew by 37%, benefiting from strong growth in transactional
income from FNB, WesBank and from all RMB business units. Bad debts and non-
performing loans have remained at historically low levels.
The lower interest rate environment reduced endowment income and continues to
place pressure on interest margins, especially on the liability side of the
book. The negative effect of lower rates was to some extent offset by the volume
impact of absolute year-on-year growth in advances and deposits together with
endowment hedges previously put in place by the Banking Group.
Growth in operating expenditure was 14,9%. This must be viewed in the context of
costs incurred for new business growth at RMB and WesBank both of which have
shown improved efficiencies. During the six-month period the overall cost-to-
income ratio improved to 54,5% from 55,8% for the year to June 2004.
Rand Merchant Bank +40%
RMB`s portfolio of businesses all performed well, particularly the businesses
leveraged to and operating in the improved equity markets. The trading, asset
management and broking businesses benefited directly from greater trading
volumes and increased values. BEE activity provided good deal flow. The low
inflation, low interest rate environment and related strong credit markets
benefited RMB`s debt origination, securitisation and structuring activities.
WesBank +32%
New business production reflected a year-on-year increase of 29%. Continued
buoyancy in the retail vehicle market, coupled with the existing and forecast
low interest rate environment, contributed to this high production growth.
First National Bank +23%
FNB produced satisfying results with profits amounting to R2,2 billion. FNB`s
consumer banking activities performed particularly well, with strong asset
growth from card and mortgages. Non-interest revenue showed strong growth of
18%, due to growth in new clients and increased economic activity. Retail
deposits continued to show satisfactory growth, in line with overall market
growth.
Momentum Group
Headline earnings +18%
Operating profit generated by the local insurance operations increased by an
excellent 26%. These results were driven by strong new business inflows, asset
growth and a focus on expense efficiencies. The international operations showed
a loss of R38 million due to costs incurred in starting up a new initiative and
segregation costs arising from the sale of the Ansbacher group. As a result, the
combined insurance operations increased operating profit by 15%.
The embedded value of the Momentum Group increased by 16% and the embedded
profit for the period represents an annualised return of 42% on opening embedded
value.
The asset management operations generated an increase in headline earnings of
19%. This performance resulted from a positive inflow of funds and improved
local equity markets. RMB Asset Management continued to produce excellent
investment performance.
Discovery Group
Attributable headline earnings +43%
Discovery produced an excellent performance reflecting a combination of strong
organic growth and increased efficiencies across all its businesses. Discovery
Health produced a good performance as a result of improved efficiencies and new
business growth. Discovery Health`s strong performance is reflected in a 9%
growth in membership to 1,640 million lives. The international health
initiatives are making satisfactory progress. Discovery Life exceeded
expectations, further consolidating its leadership position within the pure risk
assurance market and increasing operating profits by 82% to R191 million. This
exceptional performance resulted from significant new business growth, with the
number of policyholders increasing by 53% to 207 000.
Disposal of Ansbacher
During the six-month period under review, FirstRand concluded the sale of its
interest in London based Ansbacher Holdings Limited at a premium to net asset
value. The transaction became effective on 1 November 2004 and the net proceeds
received were GBP91,1 million.
The sale increased FirstRand`s attributable earnings by R396 million as a result
of a transfer (net of transaction costs) from its currency translation reserves.
Such transfer is excluded from the calculation of FirstRand`s headline earnings
as the transfer is not part of its operational performance. A corresponding
proportional exclusion of R135 million has also been made in computing RMBH`s
headline earnings.
FirstRand black economic empowerment
ownership transaction
FirstRand is in the process of finalising the acquisition by four broad-based
empowerment groups, black South African FirstRand staff and non-executive
directors of an effective 10% interest in it. RMBH supports this initiative.
To implement the BEE transaction 7,6% of FirstRand`s issued ordinary shares will
be procured equally from all existing shareholders by way of a scheme of
arrangement at a price of R12,28 per FirstRand share. Upon implementation of the
transaction (expected to be not later than May 2005) RMBH will receive a net
cash consideration (after capital gains tax) of R1,6 billion for the 136 million
shares procured from it.
DIRECTLY HELD INSURANCE INTERESTS
OUTsurance
OUTsurance posted strong results for the six months to 31 December 2004. Gross
premium income equalled R881 million, reflecting a 32% increase. This was driven
by strong organic growth in both the personal and business lines. Headline
earnings increased by 44% to R132 million. Expenses as a percentage of net
premium income decreased from 18,1% to 16,6%, which is excellent, given an
industry average of 26%.
OUTsurance continues to reap significant benefits from group collaboration, with
27% of its premium income now generated from businesses within the FirstRand
Group.
RMBH`s attributable share of OUTsurance`s headline earnings for the six-month
period increased by 42% and amounted to R85 million (2003: R60 million).
RMB Structured Insurance
RMBSI`s net premiums written reflected the vibrant retail sector in which
certain of its clients operate and increased by 25% to R1,08 billion during the
six months. This, coupled with buoyant investment markets, resulted in a 28%
increase in its total assets, which exceeded R3,0 billion for the first time.
Negotiations to introduce a BEE partner holding a 15% interest in RMBSI is
progressing satisfactorily. If consummated, this should assist RMBSI in gaining
new business in the growing structured insurance market with parastatal and
public corporations.
RMBH`s attributable share of RMBSI`s headline earnings for the six-month period
increased by 11% and amounted to R20 million (2003: R18 million).
OTHER FINANCIAL SERVICES INTERESTS
Glenrand M.I.B
Glenrand M.I.B`s Risk Advisory business suffered as a result of a softer market
environment and lower investment income. Its Benefit Consulting business has
reported a turnaround after an internal restructuring and a renewed focus on new
business. The Group reported a decline in headline earnings for the six months
from R28 million in 2003 to R24 million in the current period.
RMBH`s share of attributable headline earnings from Glenrand M.I.B for the six
months to 31 December 2004 amounted to R4 million (2003: R5 million).
GROUP CAPITAL POSITION
All of the RMBH group`s investments are adequately capitalised at present.
Specifically:
FirstRand anticipates that it will have excess capital and that it will be able
to maintain a lower dividend cover ratio in future. For the current period it
has retained its dividend cover at the level set at 30 June 2004, but records
that it will review the position on an annual basis; while
Both OUTsurance and RMB Structured Insurance generate surplus capital and should
be able to continue to make dividend payments on an annual basis.
RMBH itself has no material funding obligations and at 31 December 2004 had net
cash resources of some R444 million. As recorded above, upon completion of the
FirstRand BEE transaction, RMBH will have received a further R1,6 billion in
exchange for 7,6% of its holding in FirstRand.
Group management is evaluating the appropriate basis of dealing with the Group`s
surplus capital, including further investment in group companies and/or
returning elements thereof to shareholders.
UNDERLYING INTRINSIC VALUE
The intrinsic value of RMBH`s underlying investments has shown a significant
increase over the six months and may be summarised as follows:
As at 31 December 30 June %
R million 2004 2004 change
Market value of listed
interests
(FirstRand, Glenrand M.I.B) 24 586 18 353 34
Value of unlisted interests
(OUTsurance, RMBSI) 1 318 1 233 7
Net cash resources 444 478 (7)
Total Intrinsic Value 26 348 20 064 31
Per RMBH share (cents) 2 217c 1 689c 31
At 31 December 2004 RMBH`s market capitalisation amounted to R26 255 million (30
June 2004: R19 183 million), representing a 0,4% discount (30 June 2004: 4%) to
the group`s intrinsic value.
CORPORATE GOVERNANCE
RMBH and all of the companies in which it is invested have embraced the
recommendations of the King II report on Corporate Governance. We remain
committed to the highest standards of Corporate Governance and reporting.
RMBH supports broad-based and genuine empowerment in the sectors in which we
operate. All companies in the greater group are proactively working towards the
targets envisaged in the Financial Sector Charter.
INTERIM DIVIDEND
The Board has resolved to declare an interim dividend of 42,0 cents per share
(2003: 25,5 cents), representing a 65% increase. The interim dividend is covered
2,5 times by headline earnings per share.
OUTLOOK FOR THE GROUP
The increased economic activity experienced in the period under review is
expected to continue during the remainder of the financial year.
We are confident that, barring any unforeseen external shocks and in the context
of the current strong economic growth, the existing strategies of our businesses
and the diversified income streams generated from a premium portfolio of
financial sector businesses will allow the Group to achieve its stated objective
of not less than 10% real growth.
For and on behalf of the Board
GT Ferreira P Cooper
Chairman Chief Operating Officer
Sandton
2 March 2005
BASIS OF PREPARATION OF RESULTS
The accompanying results are:
- a consolidation of the operations of RMBH and its two subsidiaries,
OUTsurance and RMB Structured Insurance; and
- RMBH`s proportionate interest in its associates, FirstRand and Glenrand
M.I.B has been equity accounted; while
- RMBH ceased equity accounting its interest in Global Resorts from 1 January
2004, the effective date of its disposal.
This interim report has been prepared in accordance with `AC 127: Interim
Financial Reporting` and using accounting policies which are in accordance with
South African Statements of 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 2004, except for the adoption of `IFRS 3: Business Combinations`. This
international accounting standard requires that goodwill acquired in a business
combination be measured, after initial recognition, at cost less any accumulated
impairment losses. Consequently goodwill is not amortised but instead must be
tested for impairment annually, or more frequently if events or changes in
circumstances indicate that it might be impaired.
At 31 December 2004 there was no evidence of any impairment of goodwill
acquired. Earnings for the comparative period ended 31 December 2003 and the
year ended 30 June 2004 includes amortisation of goodwill. Shareholders are
referred to the summarised income statement where the impact of this change in
accounting policy is highlighted.
SUMMARISED GROUP INCOME STATEMENT
Unaudited Audited
Six months Year
ended ended
31 December 30 June
2004 2003 % 2004
Rm Rm change Rm
Operating profit 237 168 41 543
Net finance 14 1 >100 (1)
income/(costs)
Profit before tax 251 169 49 542
Taxation (86) (44) 95 (120)
Operating profit after 165 125 32 422
tax
Share of after tax 1 242 945 31 1 939
results of associate
companies
Earnings attributable to 1 407 1 070 31 2 361
shareholders before
goodwill amortisation
Net goodwill amortised - (108) - (225)
Earnings attributable to (47) (32) 47 (77)
outside shareholders
Earnings attributable to 1 360 930 46 2 059
ordinary shareholders
Computation of headline
earnings:
Earnings attributable to 1 360 930 46 2 059
ordinary shareholders
Adjustment for:
Net goodwill amortised - 107 - 225
Profit on sale of
interest in
Global Resorts - - - (161)
Other - (15) - (11)
Adjustment made by
associates:
Goodwill amortised or 2 7 (71) 57
impaired
Realised profit on sale 4 - - (34)
of available-for-sale
assets
Profit on sale of (135) - - -
subsidiary
Other 1 1 - 5
Headline earnings 1 232 1 030 20 2 140
attributable to ordinary
shareholders
COMPUTATION OF EARNINGS PER SHARE
Unaudited Audited
Six months Year
ended ended
31 December 30 June
2004 2003 % 2004
Rm Rm change Rm
Number of shares in 1 188 1 188 1 188
issue (millions)
Weighted average number 1 188 1 188 1 188
of shares in issue
(millions)
Earnings per share
before goodwill
amortisation (cents) 114,5 87,3 31 193,9
Earnings per share 114,5 78,3 46 173,3
(cents)
Headline earnings per 103,7 86,7 20 180,1
share (cents)
Diluted headline 101,7 85,2 19 176,3
earnings per share
(cents)
Dividend per share
(cents)
Interim 42,0 25,5 65 25,5
Final - - - 52,0
Total 42,0 25,5 65 77,5
Dividend cover (relative 2,5 3,4 2,3
to headline earnings)
SUMMARISED GROUP BALANCE SHEET
December December June
2004 2003 2004
Unaudited Unaudited Audited
Rm Rm Rm
ASSETS
Cash and cash equivalents 2 221 1 227 2 163
Investments 2 268 1 807 2 228
Accounts receivable 479 485 339
4 968 3 519 4 730
Investment in associate 8 935 8 104 8 142
companies
Property and equipment 105 30 109
Goodwill 3 466 3 426 3 359
Total assets 17 474 15 079 16 340
LIABILITIES AND
SHAREHOLDERS` FUNDS
Funding instruments 244 268 230
Accounts payable and 887 534 940
accruals
Short-term insurance 2 116 1 951 1 905
provisions
Liabilities to policyholders 642 229 536
3 889 2 982 3 611
Outside shareholders` 215 171 209
interest
Shareholders` funds
Share capital and premium 5 793 5 793 5 793
Reserves 7 577 6 133 6 727
Total shareholders` funds 13 370 11 926 12 520
Total liabilities and 17 474 15 079 16 340
shareholders` funds
SOURCES OF HEADLINE EARNINGS
Unaudited Audited
Six months ended Year
ended
31 December 30 June
2004 2003 % 2004
Rm Rm change Rm
Headline earnings from:
FirstRand 1 110 928 20 1 933
Glenrand M.I.B 4 5 (20) 13
OUTsurance 85 60 42 136
RMB Structured Insurance 20 18 11 41
1 219 1 011 21 2 123
RMBH, Global Resorts and 13 19 (32) 17
other
Headline earnings 1 232 1 030 20 2 140
SUMMARISED GROUP CASH FLOW STATEMENT
Unaudited Audited
Six months Year
ended ended
31 December 30 June
2004 2003 2004
Rm Rm Rm
Cash available from operating 646 378 1 559
activities
Cash flows for servicing of (618) (442) (745)
finance from shareholders
Cash flows from investment 66 (162) 49
activities
Cash flows from financing (36) (1) (128)
activities
Net increase/(decrease) in cash 58 (227) 735
and cash equivalents
Unrealised foreign currency - - (26)
translation adjustments included
in cash and cash equivalents
Cash and cash equivalents at the 2 163 1 454 1 454
beginning of the period
Cash and cash equivalents at the 2 221 1 227 2 163
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 cashflows are not necessarily directly
comparable between periods.
SUMMARISED STATEMENT OF CHANGES IN EQUITY
Equity
Share Share accounted
capital premium reserves
Rm Rm Rm
Balance at 30 June 2004
(audited)
as previously reported 12 5 781 5 197
Earnings attributable to - - -
ordinary shareholders
Dividend paid - - -
Income of associated - - 758
companies retained
Transfers relating to
subsidiaries:
- Transfer to contingency - - -
reserve by short-term
operations
- Decrease in reserves due - - -
to dilution in holding
Transfers relating to
associates:
- Movement on foreign - - (134)
currency translation
reserves
- Movement in revaluation - - 238
reserves
- Reserves arising from - - 6
acquisition of subsidiary
- Movement in other - - 2
reserves
Balance at
31 December 2004 12 5 781 6 067
(unaudited)
Balance at 31 December
2003 (unaudited)
as previously reported 12 5 781 5 041
Restatement due to - - 52
consolidation of share
trusts
Restated balance at
31 December 2003 12 5 781 5 093
(unaudited)
SUMMARISED STATEMENT OF CHANGES IN EQUITY
Non-
distri-
butable Retained Total
reserves earnings equity
Rm Rm Rm
Balance at 30 June 2004
(audited)
as previously reported 414 1 116 12 520
Earnings attributable to - 1 360 1 360
ordinary shareholders
Dividend paid - (618) (618)
Income of associated - (758) -
companies retained
Transfers relating to
subsidiaries:
- Transfer to contingency 10 (10) -
reserve by short-term
operations
- Decrease in reserves due (4) - (4)
to dilution in holding
Transfers relating to
associates:
- Movement on foreign - - (134)
currency translation
reserves
- Movement in revaluation - - 238
reserves
- Reserves arising from - - 6
acquisition of subsidiary
- Movement in other - - 2
reserves
Balance at
31 December 2004 420 1 090 13 370
(unaudited)
Balance at 31 December
2003 (unaudited)
as previously reported 397 650 11 881
Restatement due to - (7) 45
consolidation of share
trusts
Restated balance at
31 December 2003 397 643 11 926
(unaudited)
Interim dividend declaration
Notice is hereby given that an interim dividend of 42,0 cents per share has been
declared on 2 March 2005 in respect of the half-year ended 31 December 2004.
Shareholders` attention is drawn to the following important dates:
Last day to trade in order to Wednesday, 16 March 2005
participate in this dividend
Shares commence trading `ex Thursday, 17 March 2005
dividend` on
The record date for the dividend Thursday, 24 March 2005
payment will be
Dividend payment date Tuesday, 29 March 2005
No dematerialisation or rematerialisation of share certificates may be done
between Thursday, 17 March 2005 and Thursday, 24 March 2005 (both days
inclusive).
By order of the Board
AH Arnott
Company secretary
2 March 2005
Directors
GT Ferreira (Chairman), P Cooper (COO), LL Dippenaar, JW Dreyer, DM Falck, PM
Goss, PK Harris and KC Shubane.
Secretary and registered office
AH Arnott
B Com CA(SA)
4th Floor, 4 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton,
2196
Postal address
PO Box 786273, Sandton, 2146
Telephone: +27 11 282 8000
Telefax: +27 11 282 8088
Sponsor
(in terms of JSE Listing Requirements)
Rand Merchant Bank (a division of FirstRand Bank Limited)
Corporate Finance
1 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
Postal address: PO Box 61051, Marshalltown, 2107
Telephone: +27 11 370 5000
Telefax: +27 11 688 5221
Web address: www.rmbh.co.za
Date: 02/03/2005 01:49:22 PM
Produced by the JSE SENS Department
