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FirstRand Limited - Audited results for the year ended 30 June 2004
FirstRand Limited
(Registration No: 1966/010753/06)
JSE code FSR
ISIN: ZAE000014973
("FSR")
NSX share code: FST
Audited results for the year ended 30 June 2004
highlights
- Headline earnings per share up 19%
- Headline earnings up 18%
- Dividends per share up 31%
- Total assets under management or administration up 8%
Introduction
This report covers the consolidated financial results of FirstRand Limited
(FirstRand), its wholly owned subsidiaries FirstRand Bank Holdings Limited (the
Banking Group) and Momentum Group Limited (Momentum) and its 66%-owned held
subsidiary Discovery Holdings Limited (Discovery).
A comprehensive report on the operations of the Group will be circulated to
shareholders and is available on the company website - www.firstrand.co.za.
Financial performance
The group"s results reflect how well the group is positioned to take advantage
of the current economic environment. The Banking Group was the dominant driver
of the group"s overall results, with exceptional organic growth aided by a
buoyant retail market and outstanding performances by the investment and
corporate banking operations.
The Momentum Group"s results benefited from new business growth in risk, linked
investment products and the unit trust businesses. The asset management
businesses showed good growth aided by improved investment markets. Momentum
also benefited from the restructuring of its shareholders" assets.
Discovery Group delivered an excellent performance across all its businesses
with both the Life and Health divisions benefiting from strong new business
growth and improved efficiencies respectively. The US Illinois operations have
turned profitable and the new joint ventures are on track.
The group"s performance in summary is:
2004 2003 % change
Earnings per share (cps) 109.3 86.2 27
Headline earnings per share (cps) 110.3 92.5 19
Diluted earnings per share (cps) 106.8 84.5 26
Dividend per share (cps) 46.0 35.0 31
Basis of presentation
These are the first set of year-end results presented which show the current and
comparative results on a post-AC133 basis.
As previously discussed and extensively documented, AC133 introduces a certain
amount of additional volatility into the reporting of companies" results. Not
all the hedging transactions undertaken met the strict criteria of AC133"s hedge
accounting principles, which resulted in the hedges being reflected at fair
value. The underlying advances are carried at historic cost.
Furthermore, the translation gains and losses on currency movements are,
consistent with the prior year, reflected in the income statement to the extent
that the underlying operations are defined as integral to the South African
based businesses.
The table below discloses the effect of the above on the headline earnings of
FirstRand.
R million 2004 2003 % change
Headline earnings 5 727 4 847 18
Foreign currency
translation losses
- Banking Group 370 532 (30)
Headline earnings
excluding currency
translation losses 6 097 5 379 13
AC133 mismatch
losses/(profits) 233 (237) >100
Headline earnings
excluding AC133
volatility and
currency movements 6 330 5 142 23
The above analysis represents a sound basis for assessing the sustainable future
performance of the group. The AC133 mismatched profits and losses and foreign
currency translation losses could be volatile and cannot be forecast with any
certainty.
Corporate governance
FirstRand has embraced the recommendations of King II on Corporate Governance
and strives to provide reports to shareholders that are timely, accurate,
consistent and informative.
Accounting policies
FirstRand prepares its consolidated financial statements on a going concern
basis using the historical cost basis, except for certain financial assets and
liabilities where it adopts the fair value basis of accounting.
These financial assets and liabilities include:
* financial assets held for trading;
* financial assets classified as available for sale;
* derivative assets and liabilities;
* financial assets and liabilities at elected fair value; and
* short trading positions.
The consolidated financial statements conform to Statements and Interpretations
of Generally Accepted Accounting Practice in South Africa. These financial
statements have been audited by PricewaterhouseCoopers Inc. and their
unqualified audit opinion is available for inspection at the company"s
registered office.
The principal accounting policies are consistent in all material respects with
those adopted in the previous year, except as set out below.
Operating environment
The group"s results for the year ended 30 June 2004 were achieved against a
background of a sound domestic economy, a stronger Rand, lower inflation, a
significant reduction in interest rates and a stronger than anticipated
international economy.
The Rand strengthened by 18.3% to a level of R6.18: US$1 at 30 June 2004
contributing to the significant decrease in CPIX inflation from 6.4% at 30 June
2003, to 5.0% at 30 June 2004. The downward inflation trend resulted in interest
rate cuts during the last 6 months of 2003, with the prime rate reducing by 4%
during this period to 11.5% at 31 December 2003. Rates remained at this level
for the remainder of the financial year.
The South African economy achieved an annualised growth rate in excess of 3%
during the first quarter of 2004, increasing to 3.9% in the second quarter
largely due to increased consumer optimism which resulted in a strong pick-up in
domestic spending assisted by the lower interest rate environment. This was felt
particularly in the retail, motor and building sectors of the economy. The
strong Rand hampered the export and mining sectors and employment growth
remained flat.
The sustained lower interest rate environment also resulted in improved credit
quality with non-performing loans ("NPLs") and bad debts at historic lows.
During the first half of the current financial year the local equity markets
staged a strong recovery, with the JSE ALSI 40 Index increasing by 24%. However,
during the second six months of the financial year, local equity markets have
remained static, mainly due to the negative impact of the strong Rand on
resource stocks.
According to the statistics released by the Life Offices Association, individual
life new business in the life insurance industry has remained relatively flat
for the past two years. Investors appear cautious to commit their savings to
longer-term equity-based products, and have preferred to either repay debt or
place the largest portion of discretionary savings in property, money market and
fixed interest products. Sales of discretionary linked investment products,
where there is no contractual investment term, have however increased
significantly due to improved equity markets.
Strategic issues
During the year the following strategic issues were addressed:
Ansbacher disposal
FirstRand signed an agreement on 1 July 2004 to dispose of its interest in
Ansbacher to Qatar National Bank at an immediate premium to NAV of GBP7.5
million and a possible future premium of GBP7.5 million depending on the
performance of certain business units. The NAV of Ansbacher is estimated to be
approximately GBP90 million at completion date. The transaction is awaiting
regulatory approval and completion is expected to be achieved in October 2004.
The group"s intentions regarding the capital to be released following the
disposal are dealt with in the capital management section of this report.
Ownership transaction
FirstRand has reaffirmed its commitment to meeting or exceeding its
responsibilities under the Financial Sector Charter. The group has made
significant progress towards the finalisation of an empowerment transaction
using third-party funding. At present, together with its four broad-based
partners, the group is negotiating the funding agreements with a view to
implementing the empowerment transaction envisaged in the Memorandum of
Understanding. FirstRand is hopeful of announcing the detailed terms of the
transaction during the fourth quarter of this calendar year with its
implementation following shortly thereafter.
Operating performance
A summary of the operating performance of major subsidiaries, FirstRand Banking
Group, Momentum and Discovery is set out below.
FirstRand Banking Group
The Banking Group produced excellent results for the year, benefiting from
exceptional performances from all divisions. Attributable earnings increased by
24.9% and headline earnings by 24.3%. On a basis consistent with the prior year,
headline earnings excluding currency translation losses increased by 17.6% and
the Banking Group achieved a return on average book capital of 24.2%.
This increase was driven by a 25.9% growth in non-interest revenue, resulting
from strong growth in transactional income (with banking fees and commissions
increasing by 13.0% and knowledge-based fees and commissions by an exceptional
42.2%, 33.2% growth in trading income and in excess of 100% growth in investment
income).
Bad debts have shown a significant reduction of 43.6% and growth of 18.4% in
earnings from associates, largely OUTsurance and Private Equity Investments,
positively impacted on the results.
The lower interest rate environment reduced endowment income as well as placing
pressure on interest margins. The impact was to some extent offset by strong
organic growth in assets and liabilities combined with the endowment hedges put
in place by the Banking Group to mitigate against the expected effects of the
lower interest rates.
Growth in operating expenses was contained at 10.1%.
The credit quality of the core advances book continued to improve, with NPLs as
a percentage of gross advances down by 18% to 1.4% (1.7% in the prior year), and
the impairment charge as a percentage of average gross advances down by 48% from
0.79% to 0.41%.
Retail Businesses
FNB Retail
FNB Retail produced excellent results. The margin squeeze in the low interest
rate environment was more than compensated for by strong growth in non-interest
income, deposit growth of 10.3% and advances growth of 11.0% with card loans
being the major contributor. NPLs decreased from 7.8% to 5.9% of gross advances.
The continuous improvement of credit processes, combined with the lower interest
rates, resulted in an improvement in the credit quality of the retail book. The
bad debt charge as a percentage of advances fell from 4.1% to 1.5%.
The 19% growth in non-interest income was a result of organic growth, increased
transaction volumes as well as increases in certain bank charges designed to
influence unprofitable client behaviour.
Non-interest expenses have increased by 18% year on year. Some of this expense
growth was the result of investments made to ensure future revenue growth
including processes to increase efficiencies, access to banking initiatives,
customer retention and acquisition strategies and staff training.
HomeLoans
HomeLoans increased new business production by 67%, however due to the run-off
of the acquired Saambou and NBS books, which have shorter durations, total
advances only increased by 11.3%. HomeLoans suffered margin squeeze due to
competitive pressures and the lower interest rate environment. Non-interest
income was up 29.4% year on year due to increased cross selling of both short-
term and life insurance products.
Whilst non-interest expenditure increased by 17.2%, it was driven by the
increased level of new business volumes as new business costs are written off at
origination.
WesBank
WesBank had an outstanding year achieving a profit before taxation of R1.05
billion, exceeding the R1 billion mark for the first time and representing a
year on year increase of 52%.
WesBank increased new business production by 25.8% which resulted in a growth in
assets of 22.2%, driven by a buoyant motor vehicle market.
The charge for bad debts as a percentage of advances decreased to 0.6%
attributable to the increased disposable income levels of consumers.
Non-interest revenue increased by 39.4% due to underwriting profits as well as
increased processing fees resulting from higher new business levels.
Non-interest expenditure grew in line with new business acquisition costs as
well as the increased book size and associated administration costs.
African Subsidiaries
In Pula terms FNB Botswana increased pre tax profits by 7.5% but showed a 9.1%
decrease in Rand terms due to the approximately 16% devaluation of the Pula
against the Rand.
FNB Botswana experienced increased competition and achieved lower asset growth
than in previous years.
The Banking Group"s interest in FNB Namibia has been diluted from 78% to 60% as
a result of the FNB Namibia/SWABOU merger which was effected 1 July 2003. The
Namibian economy has been relatively flat, which restricted organic asset
creation. This, combined with low interest rates put interest income under
pressure, however bad debts have decreased.
Growth in non-interest income of 17.1% was assisted by the SWABOU merger,
however the lack of new business volumes resulted in lower than expected fee and
transaction income.
FNB Swaziland experienced a slightly depressed economy and interest margins came
under pressure due to a combination of low interest rates and decreased balance
sheet volumes.
Insurance
First Link
Strong revenue growth in both commercial and retail lines was behind First
Link"s operating profit growth of 34%. Operating income increased 30.4% as a
result of a strong and effective new business drive and customer retention.
OUTsurance
The Banking Group"s share of OUTsurance"s headline earnings for the year was
R161 million compared to R85 million in the previous year, an increase of 89.4%.
The extremely favourable loss ratio was the main contributor to the results.
New business volumes were down 5% on the prior year, mainly due to dramatically
increased competition as many of the industry players have copied the OUTsurance
product offering and are becoming more aggressive on price.
Corporate businesses
FNB Corporate
FNB Corporate"s 2004 financial year was characterised by a number of positive
factors. The market found itself in a cash rich cycle that resulted in good
deposit growth, however demand for credit in the large corporate segment
remained subdued. The continued focus on the medium corporate market resulted in
strong asset and liability growth from this segment. This benefited net interest
income.
FNB Corporate benefited from client acquisition and higher transactional volume
flows in respect of cash deposits and credit card transactions being acquired
through retail merchants.
Property Finance was a particular area of focus for asset creation during the
year and the division recorded a 39% growth in earnings.
The continued focus on debt restructuring and debt management resulted in the
disposal of certain investments acquired in previous years. The entire equity
investments in McCarthy and JD Group were sold at a profit. These disposals will
result in significant savings on funding costs going forward.
Provisions and bad debt write-offs declined by 31.3% due to the improved quality
of the credit book.
Rand Merchant Bank
Rand Merchant Bank produced exceptional results with net income before taxation
up 29.9% to R1.4 billion. This was the result of strong performances from all
divisions and in particular corporate finance and private equity.
Corporate Finance benefited from a more value-add and risk taking approach, and
increased advisory deal flow from BEE related transactions.
The Private Equity division continued to perform well as a result of earnings
from realisations and a steady stream of equity income from associates. The
unrealised profits in the portfolio now amount to R984 million. The Equity and
Treasury Trading activities showed good results and are starting to benefit from
an increase in structured and annuity income as opposed to risk income.
Special Projects International Division benefited from the improved
international credit markets which led to an overall improvement in the value of
the portfolio. Structured Finance continued to benefit from its strategy over
the past few years to reposition its business as a credit specialist, with
structuring an "add-on".
Wealth businesses
RMB Private Bank
The performance of the Private Bank was driven by strong asset growth across all
products and an increase in total assets under management to R6.7 billion. Non
interest income grew 27.7% as a result of the increase in transactional banking
revenue arising from the growth in client numbers.
Ansbacher
Although Ansbacher"s position improved relative to the prior year, it did not
achieve a profit in the current period and the results were negatively affected
by shortfalls in new business levels across most of its activities. Ansbacher"s
results include once-off costs relating to the sale of the company and various
restructuring activities.
Momentum
Momentum"s results benefited from good new business growth in risk products,
linked investment products and improved results from the asset management
operations. This resulted in group headline earnings increasing by 14% to R1 081
million.
The embedded value of Momentum increased by 10% from R8 784 million at 30 June
2003 (restated to take account of the transfer of Discovery to FirstRand), to R9
666 million at 30 June 2004. The embedded value profit for the year 30 June 2004
totalled R1 455 million which represents a return of 16.6%.
Total marketing and administration expenses for the group amounted to R1 482
million, an increase of only 4% over the 2003 expenses.
Insurance operations
New annualised individual life recurring premium business increased by a
pleasing 6% compared to the prior year. The main contributor to this growth was
a 51% increase in recurring risk product sales as the Myriad product achieved
further market acceptance. The strong growth in linked product sales, both
locally and internationally, resulted in retail lump sum inflows increasing by
18% to R7.1 billion.
Momentum"s new health offering, Pulz, is starting to show good market
penetration, with the initial target of 6 000 principal members achieved. The
amalgamation of Pulz with the National Medical Plan, an open scheme with 145 000
members, is on track and will provide Pulz with the critical mass required to
compete with larger open schemes.
Momentum Collective Benefits, which provide risk products to the employee
benefits market, achieved strong growth in new business premiums.
Asset management operations
The local and international asset management operations contributed a strong
performance during the year generating a 40% increase in operating profit after
tax to R175 million. Locally this was driven by the improved equity market
returns, especially during the first half of the financial year, sound growth in
the operating profit of the underlying businesses, the positive impact of
reduced interest rates and the benefits of a stronger rand on the servicing
costs of the loan raised to acquire the shareholding in Ashburton.
The R5.3 billion institutional off-balance sheet net outflows of funds
experienced during the first six months of the financial year, has been turned
around to a net inflow of R1.8 billion for the last six months of the financial
year. Local unit trust inflows increased by an excellent 35% during the year.
Investment income on shareholders" assets
The investment income earned on shareholders" assets increased by 19% to R311
million, which is explained in more detail in the capital centre section.
Discovery
Discovery produced an excellent performance reflecting a combination of strong
organic growth and increased efficiencies across all its businesses. This
performance translated into a 102% increase in operating profits. Headline
earnings attributable to FirstRand increased by 49%.
Discovery is evolving into four key insurance businesses:
Discovery Life exceeded expectations, further consolidating its leadership
position within the pure risk assurance market and increasing operating profits
by 138%.
Discovery Health produced a strong performance with operating profits increasing
40% as a result of improved efficiencies and new business growth.
In the US, Destiny Health"s core Illinois business turned profitable during the
second half of the year and significant progress was made in rolling out its
joint ventures with the Guardian Life Insurance Company of America and the Tufts
Health Plan of Boston, Massachusetts.
In the UK, Discovery entered into a joint venture with Prudential plc and a new
company PruHealth will be launched in the next few months.
Discovery continues to invest in new businesses which will fuel future growth.
Two exciting new initiatives announced are PruHealth and the DiscoveryCard.
The embedded value of Discovery increased by 19%, after taking into account the
issue of new shares, from R5 775 million to R6 876 at 30 June 2004.
FirstRand capital strategy
The group actively manages its capital base, in order to enhance shareholder
value through its capital management framework. Capital was allocated to
business units on an economic risk assumed basis, founded on Basel II
principles, as from 1 June 2003.
In order to further optimise the level and structure of the group"s capital
base, it has been decided to issue R2.5 billion non redeemable, non cumulative
preference shares in FirstRand Limited. This will result in a reduction of the
weighted average cost of capital. It is anticipated that these instruments will
be listed on the Johannesburg Securities Exchange by the end of October 2004.
As a result of the above issue of shares and the release of capital following
the sale of Ansbacher UK, the group will have excess capital.
Subject to the completion of the disposal and the share issue, the Board will
evaluate the following options to deal with excess capital:
- reduce the existing gearing in FirstRand;
- commence a share buy-in programme.
- BEE funding; and
- growth opportunities.
Decisions in this regard will be communicated to shareholders.
Capital centre"s financial performance
The table below reflects the headline earnings of the group"s capital centres as
well as costs incurred by FirstRand Limited.
2004 2003 % change
FirstRand Banking Group 112 221 (49.3)
Momentum 311 261 19.2
FirstRand Limited (274) (39) (100.0)
Total 149 443 (66.4)
FirstRand Banking Group
The Banking Group invests its capital in interest bearing instruments to achieve
a desired interest return and risk profile. During the year the interest rates
declined significantly with the overnight call rate declining by an average
3.84%, resulting in reduced interest income on the capital portfolios. The group
partially offset the effect of the endowment by entering into Interest Rate
Hedges during 2001 to protect the Bank against the impact of lower interest
rates.
However, in terms of AC133, the major part of the benefit of this protection had
to be brought to account in the 2003 results, which inflated the prior year
earnings by approximately R279 million after tax.
Momentum shareholder funds
The investment income earned on shareholders" assets increased by 19% to R311
million. The main reason for the increase is the higher cash balance in the
shareholders" portfolio arising from the restructuring of the portfolio as
detailed in last year"s results announcement. The most significant aspect of
this restructuring was the disposal of Momentum"s investment in Discovery to
FirstRand Limited for R740 million which was the net asset value at that time.
The after-tax earnings on the proceeds totalled R59 million for the year.
FirstRand Limited
FirstRand issued R1.4 billion cumulative preference shares in 2003 to fund the
restructuring of Momentum"s shareholders" portfolio and the rights issue of
Discovery.
The funding costs of these preference shares and the Secondary Tax on Companies
charge on the ordinary and preference dividends contributed to a loss of R274
million in FirstRand Limited.
Changes in accounting policies
Business combinations
This standard will affect the way in which entities account for goodwill,
requiring that an annual impairment test replace the existing amortisation
process. Although the transitional provisions make this standard immediately
applicable, there is no effect on the group"s results for the year to 30 June
2004.
Consolidation of Share Trusts
In line with the evolving acceptable industry practice regarding the
interpretation of AC 132 - Consolidated financial statements and accounting for
investments in associates, together with AC 412 - Consolidation - special
purpose vehicles, FirstRand has changed its accounting policy to consolidate its
share incentive schemes with effect from the current financial year.
The primary impact of the consolidation of the various share incentive schemes
within the FirstRand Group is that the loans between entities in the group and
the respective share trusts have to be eliminated on consolidation. Together
with the accompanying interest flows on the loans, any FirstRand shares held by
the trusts are treated as treasury shares and are disregarded for purposes of
determining earnings per share. Dividends received in respect of the FirstRand
shares held by the trusts are reversed on consolidation.
Acquired trademarks, patents and similar intangible assets
The FirstRand Group generally expenses the costs incurred on trademarks,
concessions, patents and similar rights and assets, whether purchased or created
by it, to the income statement in the period in which costs were incurred.
However, during the financial year, the FirstRand Group changed its accounting
policy in respect of material acquired trademarks, patents and similar rights,
to capitalise the acquisition costs where it will receive a benefit from these
intangible assets in more than one accounting period.
Amortisation and impairments of intangible assets are reflected under operating
expenditure in the income statement.
Impact of the changes in accounting policy on opening equity
The table below sets out the effect of the changes in accounting policy on
opening retained income:
R million
Closing balance at 1 July 2002 as previously stated 8 983
Retained income adjusted for:
Impact of consolidation of share trusts 125
Restated opening balance at 1 July 2002 9 108
Impact of changes in accounting policy on current period income
The table below sets out the effect of the changes in accounting policy on
current period income:
Net interest Other Operating
R million income income expenses Total
Amortisation of trade marks - - (17) (17)
Consolidation of share
incentive schemes (96) (9) - (105)
Gross adjustment before
taxation (96) (9) (17) (122)
Taxation - - 6 6
Net adjustment (96) (9) (11) (116)
Share-based expenses
During February 2004 the International Accounting Standards Board issued a new
accounting standard, IFRS 2, which requires the cost of share options to be
expensed. The statement is effective for financial years commencing on or after
1 January 2005.
The FirstRand Group conducted an exercise to establish the expenditure that
would have been recognised had it applied the standard in the year ended 30 June
2004. Although the transitional provisions of the standard require that only
share options granted after 7 November 2002 be expensed, the exercise included
all share option grants since 1 July 1998.
The table below sets out the effect which IFRS 2 would have had on the income
statement of the group had it been early adopted:
Share incentive scheme
30 June 30 June
R million 2004 2003
FirstRand 103.2 92.6
OutPerformance 87.4 122.6
Discovery 41.8 40.7
OUTsurance 5.5 3.9
Total 237.9 259.8
The table below sets out the effect on the reserves of the group:
Closing Closing Opening
Balance balance balance
30 June 30 June 1 July
2004 2003 2002
Retained earnings (237.9) (259.8) (538.1)
Non - distributable
Reserves 237.9 259.8 538.1
Effect on net asset value - - -
* A table providing details of restatement of comparatives due to changes in
accounting policies is available on FirstRand"s website at www.firstrand.co.za
Prospects
The South African economy is expected to record accelerated growth during the
2005 financial year.
Following the 50 basis point reduction in rates during August 2004, interest
rates are expected to remain stable during the coming financial year. Although
the lower rate environment is expected to negatively impact on the Banking
Group"s margins, the higher levels of disposable income of retail consumers and
a buoyant residential property and vehicle market is expected to generate growth
in volumes, which will partially counteract this impact.
A renewed focus on the Banking Group"s existing African operations is expected
to provide an improvement in the results of these businesses. Various new
opportunities in Africa are being evaluated which, if successful, are expected
to enhance growth from this region in the medium to long term.
The disposal of Ansbacher should be completed during the first half of the
current financial year. As previously indicated, this should free up significant
capital for redeployment.
The insurance operations will continue to look for growth opportunities, both
organically and through efficiency gains. Momentum International and Pulz are
expected to contribute positively to next year"s earnings, with acceptable
growth prospects for the foreseeable future.
Discovery"s strong operating performance, combined with increased efficiencies
achieved across all its businesses, has laid the foundations for future growth.
FirstRand is confident that the underlying strength of all its businesses, and
its relentless focus on both innovation and operating efficiencies, will
continue to deliver good organic growth. This, combined with a favourable
operating environment, opportunities generated through further collaboration
across business units, and the development of new markets, suggests that in the
absence of any unforeseen shocks, the group will maintain its long-term historic
real return to shareholders.
For and on behalf of the board
GT Ferreira LL Dippenaar
Chairman Chief Executive
Sandton
14 September 2004
Dividend
The dividend cover has been reduced from 2.85 to 2.5 times, which the group
believes is a sustainable dividend cover given the internal earnings generation
capacity and capital requirements of the businesses. The proposed final dividend
amounts to 26.75 cents, with the total dividend for the year increasing by 31%
from 35 cents to 46 cents.
The dividend policy is based on sustainable earnings growth. The group"s
headline earnings includes certain volatile items such as translation gains and
AC133 adjustments. These are excluded from the dividend calculation.
Final dividend declaration
Notice is hereby given that a final dividend of 26.75 cents per ordinary share
has been declared on Tuesday, 14 September 2004 in respect of the year ended 30
June 2004. The last day to trade in these shares on a cum dividend basis will be
Friday, 15 October 2004 and the first day to trade ex-dividend will be Monday,
18 October 2004. The record date will be Friday, 22 October 2004 and the payment
date Monday, 25 October 2004.
Please note that no dematerialisation or rematerialisation of share certificates
may take place for the period Monday, 18 October 2004 to Friday, 22 October
2004, both dates inclusive.
By order of the Board
AH Arnott / Company Secretary
14 September 2004
Directors GT Ferreira (Chairman), LL Dippenaar (CEO), VW Bartlett, DJA Craig
(British), DM Falck, PM Goss, NN Gwagwa, PK Harris, MW King, G Moloi, KC
Shubane, BJ van der Ross, Dr F van Zyl Slabbert, RA Williams.
Secretary and registered office AH Arnott, BCom, CA (SA), 17th floor, 1
Merchant Place,
Corner of Fredman Drive and Rivonia Rd, Sandton, 2196.
Postal address PO Box 786273, Sandton, 2146. Telephone: +27 11 282 1808
Telefax: +27 11 282 8088
Web address: www.firstrand.co.za
Sponsor (in terms of JSE requirements) Rand Merchant Bank (a division of
FirstRand Bank) Corporate Finance, 1 Merchant Place, Corner of Fredman Drive and
Rivonia Rd, Sandton, 2196.
Transfer secretaries - South Africa Computershare Investor Services 2004 (Pty)
Limited, 70 Marshall Street, Johannesburg, 2001.
Postal address PO Box 61051, Marshalltown, 2107. Telephone: +27 11 370 5000
Telefax: +27 11 688 5221
Transfer secretaries - Namibia Transfer Secretaries (Pty) Limited, Shop No 12,
Kaiserkrone Centre,
Post Street Mall, Windhoek,
Postal address PO Box 2401, Windhoek, Namibia Telephone: +264 612 2647 Telefax:
+264 612 48531
Income Statement / for the year ended 30 June 2004
R million Note 2004 2003
FirstRand Banking Group
Interest income 22 412 26 293
Interest expenditure (13 505) (17 189)
Net interest income before impairment
of advances 8 907 9 104
Impairment of advances (833) (1 478)
Net interest income after impairment
of advances 8 074 7 626
Non-interest income 8 970 7 123
Transactional income 6 583 5 735
Trading income 2 121 1 592
Investment income 430 109
Other non-interest income 206 219
Translation losses (370) (532)
Net income from operations 17 044 14 749
Operating expenditure (10 503) (9 537)
Income from operations 6 541 5 212
Share of earnings of associate companies 585 494
Income before indirect taxation 7 126 5 706
Indirect taxation (436) (346)
Income before direct taxation 6 690 5 360
Direct taxation (1 701) (1 308)
Income after taxation 4 989 4 052
Earnings attributable to outside shareholders (277) (278)
Earnings from banking operations 4 712 3 774
Momentum and Discovery
Group operating profit after taxation 1 013 594
Revenue 11 306 11 593
Net premium income 10 026 10 529
Fees for asset manager services rendered 1 280 1 064
Investment income attributable to policyholders 5 122 5 002
Policyholder benefits (7 498) (7 346)
Operating and administration expenses (3 291) (3 083)
Impairment of goodwill - (242)
Commissions (1 452) (1 219)
Fair value adjustment to policyholder
liabilities from investment contracts (3 208) (1 419)
Realised and unrealised investment surpluses 3 377 (1 553)
Direct taxation (661) (566)
Indirect taxation (134) (139)
Abnormal item - 120
Transfer to policyholder liabilities under
insurance contracts (2 328) (427)
Earnings attributable to outside shareholders (220) (127)
Investment income on the shareholders" portfolio 326 250
Investment income attributable to shareholders 346 288
Profit on sale of available for sale assets 15 -
Taxation on investment income (35) (38)
Earnings from Momentum and Discovery 1 339 844
Earnings from Momentum 1 065 616
Earnings from Discovery 274 228
FirstRand Limited (275) (39)
Management expenses (50) (27)
Capital raising expenses (110) -
Secondary tax on companies (115) (12)
Goodwill amortised - intergroup 5 5
Consolidation of share trusts (105) (68)
Earnings attributable to ordinary shareholders 5 676 4 516
Statement of headline earnings
and dividends / for the year ended 30 June
R million 2004 2003 % change
Headline earnings reconciliation
Earnings attributable to ordinary
shareholders 5 676 4 516 26
Add: Amortisation of goodwill 58 104
Add: Impairment of goodwill - 242
Add: Loss on disposal of assets 92 35
(Less)/Add: Realised (profit)/loss
on sale of available for sale financial
instruments (99) 5
Less: Abnormal profit on release of
reserves - Discovery - (55)
Headline earnings for the group 5 727 4 847 18
Add: Currency translation losses on
integrated foreign operations -
Banking Group 370 532 (30)
Headline earnings excluding currency
translation losses 6 097 5 379 13
Dividends declared (Rm) 2 516 1 909 32
Return on average equity
(based on headline earnings) (%) 25.6 25.0
Number of shares in issue
(before elimination of
treasury shares) (million) 5 476.4 5 460.3
Weighted average number of shares
in issue (million) 5 192.1 5 241.3
Diluted weighted average
number of shares in issue (million) 5 317.1 5 343.7
Headline earnings per share (cents) 110.3 92.5 19
Earnings per share (cents) 109.3 86.2 27
Diluted earnings per share (cents) 106.8 84.5 26
Diluted headline earnings per
share (cents) 107.7 90.7 19
Headline earnings excluding
currency translation
losses per share (cents) 117.4 102.6 14
Diluted headline earnings per
share excluding currency translation
losses (cents) 114.7 100.7 14
Dividend per share (cents)
Interim 19.25 16.50 17
Final 26.75 18.50 45
Total 46.00 35.00 31
Balance sheet / as at 30 June
R million 2004 2003
Assets
FirstRand Banking Group 277 326 256 655
Cash and short-term funds 25 104 29 252
Advances 208 874 188 112
- originated 141 627 130 436
- held to maturity 8 971 9 562
- available for sale 4 499 7 406
- elected fair value 53 777 40 708
Investment securities and other investments 36 131 36 379
Financial instruments held for trading 9 660 10 870
Investment securities 26 471 25 509
- held to maturity 957 1 220
- available for sale 16 867 21 451
- elected fair value 8 647 2 838
Commodities 702 509
Non-recourse investments 6 515 2 403
Momentum and Discovery 82 654 75 697
Cash and cash equivalents 15 149 15 836
Government and public authority stocks 13 123 12 574
- available for sale 627 98
- elected fair value 12 496 12 476
Debentures and other loans 8 110 10 166
- available for sale 75 119
- elected fair value 8 035 10 047
Equity investments 42 070 33 787
- held to maturity 749 681
- available for sale 1 665 1 337
- elected fair value 39 656 31 769
Investment properties 3 648 2 753
Policy loans originated 554 581
Loans and receivables 8 865 8 694
Investments in associated companies 2 815 2 455
Derivative financial instruments 45 485 43 879
- qualifying for hedging 4 798 12 632
- trading 40 687 31 247
Taxation 174 -
Deferred taxation 983 982
Assets arising from insurance contracts 1 403 772
Intangible assets 660 472
Property and equipment 4 456 4 068
Total assets 424 821 393 674
Shareholders" equity and liabilities
Deposits and current accounts 219 061 215 637
Non-recourse deposits 6 515 2 403
Current liabilities 14 052 17 150
Provisions 1 345 908
Taxation 1 414 1 430
Derivative financial instruments 40 783 46 657
- qualifying for hedging 4 606 12 632
- trading 36 177 34 025
Short trading positions 23 286 4 219
Deferred taxation 2 155 1 945
Retirement funding liabilities 1 402 1 293
Debentures and long-term liabilities 7 104 3 943
Policyholder liabilities 81 969 76 286
Policyholder liabilities under insurance contracts 42 337 39 710
Policyholder liabilities under investment contracts 39 632 36 576
Total liabilities 399 086 371 871
Outside shareholders" interests 1 823 1 010
Shareholders" equity 23 912 20 793
Share capital and share premium 6 767 7 055
Reserves 17 145 13 738
Total shareholders" equity and liabilities 424 821 393 674
Statement of changes in equity / for the year ended 30 June
Non- Total
distri- share-
Share Share Retained butable holders"
R million capital premium earnings reserves funds
Balance since 1 July 2002
As previously stated 55 8 432 8 983 1 687 19 157
Consolidation of
share trusts (2) (1 163) 125 (198) (1 238)
Adjusted opening balance 53 7 269 9 108 1 489 17 919
Movement in revaluation
reserves - - - 823 823
Currency translation
differences - - - (535) (535)
Movement in other reserves - - - 2 2
Earnings attributable to
shareholders - - 4 584* - 4 584
Dividends - - (1 647) - (1 647)
Transfer (to)/from reserves - - (96) 96 -
Consolidation of share trusts -+ (267) (68)* (18) (353)
Balance at 30 June 2003 53 7 002 11 881 1 857 20 793
Balance at 1 July 2003 53 7 002 11 881 1 857 20 793
Movement in revaluationreserves - - -
(201) (201)
Currency translation differences - - -
(254) (254)
Movement in other reserves - - - 70 70
Earnings attributable to shareholders - - 5 781*
- 5 781
Realised loss on minority share buy-back (3)
- (3)
Dividends - - (1 956) - (1 956)
Transfer (to)/from reserves - - (493) 493 -
Consolidation of share trusts (1) (287) (105)*
75 (318)
Balance at 30 June 2004 52 6 715 15 105 2 040 23 912
* On the face of the income statement dividends received on treasury shares have
been offset against earnings attributable to shareholders.
+ Less than R500 000
Summarised cash flow
statement / for the year ended 30 June
R million 2004 2003
Cash flows from operating activities
Cash generated by operations 16 312 13 981
Working capital changes (11 844) 4 520
Cash inflow from operations 4 468 18 501
Taxation paid (2 482) (1 332)
Dividends paid (1 956) (1 647)
Net cash inflow from operating activities 30 15 522
Net cash outflow from investment activities (7 966) (8 608)
Net cash inflow/(outflow) from financing activities 3 101 (65)
Net (decrease)/increase in cash and cash equivalents (4 835) 6 849
Cash and cash equivalents at beginning of year 45 088 38 239
Cash and cash equivalents at end of year 40 253 45 088
Assets under management / at 30 June
R million 2004 2003
Holding company 56 63
FirstRand Banking Group 321 955 302 651
Momentum 98 852 87 611
Discovery 3 958 3 349
Total on balance sheet assets 424 821 393 674
Off-balance sheet assets managed or
administered on behalf of clients 104 218 94 568
Total assets under management or administration 529 039 488 242
Sources of profit / for the year ended 30 June
2004 2003
R million % R million %
FirstRand Banking Group1 4 760 78.1 3 829 71.1
Retail banking - FNB 1 261 20.7 904 16.8
FNB HomeLoans 394 6.5 413 7.7
Instalment finance - WesBank 759 12.4 506 9.4
African operations - FNB Africa 291 4.7 329 6.1
Short-term insurance -
OUTsurance/First Link 168 2.8 114 2.1
Corporate banking - FNB Corporate 766 12.6 582 10.8
Investment banking - RMB 1 014 16.6 799 14.8
Private banking - RMB Private Bank 41 0.7 30 0.6
Ansbacher (67) (1.0) (89) (1.7)
Fiduciary Services - FNB Trust Services 21 0.3 20 0.4
Capital centre - Banking Group 112 1.8 221 4.1
Momentum 1 081 17.7 947 17.5
Insurance operations - Momentum 595 9.7 561 10.4
Asset management - RMBAM/Ashburton 175 2.9 125 2.3
Investment income on
shareholders" assets 311 5.1 261 4.8
Discovery 265 4.3 178 3.3
FirstRand Limited (274) (4.5) (39) (0.7)
Consolidation of share trusts (105) 1.7) (68) (1.3)
Add: Currency translation losses 370 6.1 532 10.1
Headline earnings excluding currency
translation losses 6 097 100.0 5 379 100.0
Notes:
1. Taxation relating to the FirstRand Banking group has been allocated across
the Bank"s operating divisions on a pro-rata basis.
Date: 14/09/2004 07:01:03 AM Supplied by www.sharenet.co.za
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