| Thu 4 May 2006, 16:10 | | FirstRand - Application of new interpretation of a |
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FSR
FSR
FirstRand - Application of new interpretation of accounting standards
FIRSTRAND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1966/010753/06)
ISIN: ZAE000066304
Share Code (JSE): FSR
Share Code (NSX): FST
("FirstRand" or "the Company")
IMPACT OF SOUTH AFRICAN INSTITITUTE OF CHARTERED ACCOUNTANTS ISSUE 8 OF CIRCULAR
7/2002 ("HEADLINE EARNINGS") IN RESPECT OF THE FINANCIAL YEAR ENDING 30 JUNE
2005 AND THE SIX MONTHS ENDING 31 DECEMBER 2005
In terms of International Financial Reporting Standards ("IFRS"), and
specifically IAS 28 - "Investment in Associates", investors in private equity or
venture capital associate companies may elect to either equity account or fair
value associate investments. As part of its conversion to IFRS, FirstRand
Limited ("FirstRand") elected to equity account for its private equity associate
investments.
On 4 May 2006, the Accounting Practices Committee, ("APC") of the South African
Institute of Chartered Accountants ("SAICA") published Issue 8 of Circular
7/2002 - "Headline Earnings". In terms of the change to this Circular, profits
or losses on the realisation of all equity accounted private equity or venture
capital investments are to be excluded from the calculation of headline
earnings.
FirstRand regards private equity to be a core component of its investment
banking business.
Accordingly, FirstRand does not agree with the interpretation by the APC with
respect to equity accounted private equity investments. FirstRand believes that
the interpretation contradicts the intention in calculating headline earnings,
which exclude profits and losses on disposal of businesses, in the context of a
private equity business.
It should also be noted the APC and SAICA are currently researching the
usefulness of headline earnings as a measure of a company"s performance and its
relevance in the light of the increased emphasis which accounting standards
place on fair value.
The new interpretation will impact headline earnings and headline earnings per
share going forward. It does not impact on the Group"s normalised headline
earnings or normalised headline earnings per share. In addition to the
disclosure of headline earnings as required by SAICA, FirstRand will continue to
disclose normalised headline earnings and normalised headline earnings per share
information, which includes the profits or losses on disposal of private equity
investments. FirstRand will continue with its policy of using normalised
headline earnings as the basis for dividend payments.
The impact of the new interpretation on the audited headline earnings and fully
diluted headline earnings per share for the year ended 30 June 2005, and on the
unaudited headline earnings and fully diluted headline earnings per share for
the six-month periods ended 31 December 2004 and 31 December 2005, as previously
reported in terms of IFRS, is set out below:
Audited Unaudited Unaudited
Year ended Six months Six months
30 June 2005 ended ended
31 December 31 December
2005 2004
Headline earnings 7,129 3,930 3,351
attributable to ordinary
shareholders (R million)
Reversal of private equity (406) (294) (173)
realisations (R million)
Adjusted headline earnings 6,723 3,636 3,178
attributable to ordinary
shareholders (R million)
Weighted number of shares in 5,199,864,205 5,110,500,465 5,248,299,168
issue
Diluted weighted number of 5,268,867,564 5,250,590,002 5,320,482,215
shares in issue
Headline earnings per share - 137.1 76.9 63.8
as previously reported
(cents)
Headline earnings per share - 129.3 71.2 60.5
adjusted (cents)
Fully diluted headline 135.3 74.8 62.9
earnings per share - as
previously reported (cents)
Fully diluted headline 127.6 69.2 59.6
earnings per share - adjusted
(cents)
The financial information above has not been reviewed and reported on by the
Company"s auditors.
Sandton
4 May 2006
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited
Date: 04/05/2006 04:10:32 PM Produced by the JSE SENS Department
