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announcement for the six months ended 31 December 2001
FirstRand Limited
1966/010753/06
Share code: FSR
ISIN code: ZAE 000014973 ("FSR")
Unaudited interim results announcement for the six months ended 31 December
2001
Introduction
This announcement relates to the consolidated results of FirstRand Limited
("FirstRand") and its wholly-owned subsidiaries, FirstRand Bank Holdings
Limited and Momentum Group Limited. Separate reports relating to these
subsidiaries are included in this circular and should be read in conjunction
with this report.
Financial highlights
- Core operational headline earnings up 20%
- Headline earnings including
exceptional translation gain up 59%
- Interim dividend per share up 20%
- Total assets R463 billion
summarised income statement for the six months ended
31 December 31 December Year ended
2001 2000 % 30 June 2001
R million (Unaudited) (Unaudited) change ( Audited)
Banking Group 2 185 1 279 71 2 795
Core operations 1 535 1 279 20 2 795
Exceptional foreign
currency
translation gain 650 - - -
Insurance Group 501 423 18 943
FirstRand Limited (7) (17) 59 (41)
Headline earnings 2 679 1 685 59 3 697
Less: Exceptional
foreign currency
translation gain (650) - - -
Core operational
headline earnings 2 029 1 685 20 3 697
Headline earnings
reconciliation
Attributable
earnings
Banking Group 2 182 1 275 71 2 787
Insurance Group 480 413 16 831
Goodwill amortised
- intergroup 3 3 - 5
2 665 1 691 58 3 623
FirstRand Limited (7) (26) 73 (41)
Earnings attributable
to ordinary
shareholders 2 658 1 665 60 3 582
Add: Goodwill
amortised 19 20 (5) 37
Add: Loss on disposal
of fixed assets 2 - - -
Add: Effect of
Insurance Group
transitional
tax on prior years - - - 31
Add: Exceptional items
- Insurance Group
associated company - - - 47
Headline earnings 2 679 1 685 59 3 697
Dividends (R million) 735 613 20 1 293
Return on average equity
(including exceptional
translation gain) 30,7 24,1 25,4
Return on average equity
(excluding exceptional
translation gain) 24,5 24,1 25,4
Number of shares
in issue (million) 5 445 5 445 - 5 445
Core operational
headline earnings
per share (cents) 37,2 30,9 20 67,9
Headline earnings
per share (cents) 49,2 30,9 59 67,9
Earnings per
share (cents) 48,8 30,5 60 65,8
Dividend per
share (cents)
Interim 13,50 11,25 20 11,25
Final n/a n/a - 12,50
Total 13,50 11,25 20 23,75
Balance sheet as at
31 December 31 December 30 June
2001 2000 2001
R million (Unaudited) (Unaudited) (Audited)
Assets
Banking operations 195 286 154 303 164 678
Cash and short-
term funds 14 371 7 771 9 788
Short-term negotiable
securities 5 926 16 560 6 105
Liquid assets and
trading securities 31 566 11 552 26 399
Securities purchased
under agreements to
resell - 38 -
Advances 141 232 115 900 119 674
Other investments 2 191 2 482 2 712
Insurance operations 79 355 64 249 70 519
Funds on deposit 8 031 7 009 6 169
Government and public
authority stocks 9 095 6 465 8 739
Debentures and other
loans 8 384 6 622 8 724
Policy loans 746 655 517
Equity investments 50 106 40 350 43 331
Property investments 2 993 3 148 3 039
Current assets 9 123 6 398 5 650
Loans 1 108 1 108 1 108
Investments in
associated companies 1 150 722 945
Derivative assets 53 235 12 230 17 682
Deferred taxation 265 370 254
Intangible assets 1 350 536 544
Property and equipment 3 992 3 588 3 497
Total assets 344 864 243 504 264 877
Liabilities and
shareholders' equity
Deposits and current
accounts 162 831 129 375 137 584
Current liabilities 19 333 13 818 11 299
Taxation 284 174 376
Derivative liabilities 59 398 15 358 23 920
Deferred taxation 1 657 1 671 1 698
Debentures and long-
term liabilities 4 247 3 679 4 133
Life insurance funds 75 679 62 615 67 943
Total liabilities 323 429 226 690 246 953
Outside shareholders'
interests 1 276 1 015 950
Shareholders' funds
Share capital and
share premium 9 595 9 595 9 595
Reserves 10 564 6 204 7 379
Total liabilities
and shareholders' equity 344 864 243 504 264 877
Contingencies and
commitments 24 417 12 270 17 928
Summarised cash flow statement
for the six months ended
Year ended
31 December 31 December 30 June
2001 2000 2001
R million (Unaudited) (Unaudited) (Audited)
Cash flows from
operating activities
Cash generated
by operations 8 235 5 658 13 641
Working capital changes 4 561 3 233 4 610
Cash inflow from operations 12 796 8 891 18 251
Normal tax paid (974) (607) (955)
Dividends paid (681) (545) (1 157)
Net cash inflow from
operating activities 11 141 7 739 16 139
Net cash outflow from
investment activities (4 939) (8 899) (15 666)
Net cash inflow/(outflow)
from financing activities 243 (299) (827)
Net increase/(decrease) in
cash and cash equivalents 6 445 (1 459) (354)
Cash and cash equivalents
at beginning of period 15 957 16 239 16 239
Cash and cash
equivalents acquired - - 72
Cash and cash equivalents
at end of period 22 402 14 780 15 957
statement of changes in equity
Share
capital Total
Non- and share-
Retained distributable Convertible Preference capital holders'
R million earnings reserves debentures shares premium funds
Balance
as at
1 July 2001 6 942 437 - 1 109 8 486 16 974
Net gains
or losses,
including
translation
gains, not
recognised
in the income
statement - 1 208 - - - 1 208
Earnings
attributable
to share-
holders 2 658 - - - - 2 658
Dividends
paid (681) - - - - (681)
Balance as at
31 December
2001 8 919 1 645 - 1 109 8 486 20 159
Balance as at
31 December 2000
- As previously
stated 5 622 582 350 1 109 8 486 16 149
- Reclassification
of convertible
debentures - - (350) - - (350)
Restated balance
as at
31 December
2000 5 622 582 - 1 109 8 486 15 799
Assets under management
as at
31 December 31 December 30 June
2001 2000 2001
R million (Unaudited) (Unaudited) (Audited)
Holding company 1 112 1 111 1 112
Banking Group 253 221 172 275 184 944
Insurance Group 209 151 159 474 180 842
On-balance sheet 90 531 70 118 78 821
Off-balance sheet
assets managed
and administered
on behalf of clients 118 620 89 356 102 021
Total assets 463 484 332 860 366 898
Sources of profit
for the six months ended
31 December 31 December
2001 2000
R million Rm % Rm %
Retail banking 457 22,5 354 21,1
Instalment finance 234 11,5 245 14,5
Merchant banking 219 10,8 211 12,5
Corporate banking 196 9,7 157 9,3
Capital centre
- Banking Group 172 8,5 77 4,6
Individual
insurance business 161 7,9 140 8,3
Asset management 134 6,6 111 6,6
African subsidiaries 112 5,5 62 3,7
Investment income on
Insurance Group
shareholders' portfolio 97 4,8 79 4,7
Mortgage lending 77 3,8 123 7,3
Employee benefits 59 2,9 61 3,6
Health insurance 55 2,7 32 1,9
Private banking
- offshore 35 1,7 31 1,8
Short-term insurance 35 1,7 34 2,0
Private banking
- domestic 14 0,7 10 0,6
FirstRand Limited (7) (0,3) (17) (1,0)
Internet banking
(eBucks.com) (21) (1,0) (25) (1,5)
Core operational
headline earnings 2 029 100,0 1 685 100,0
Exceptional foreign
currency translation
gain 650 - - -
Headline earnings 2 679 - 1 685 -
Commentary
FINANCIAL RESULTS
During the period under review we witnessed two unprecedented events. The
first was the attack on the World Trade Centre on 11 September 2001. This
attack and its subsequent repercussions have substantially increased the
risks inherent in the environment in which both local and international
financial services groups operate. The second was the precipitous fall in
the Rand against the world's major currencies, which is likely to have
ongoing consequences for the South African economy for some time to come.
The result of these two events was volatility in markets, increased
uncertainty and a decrease in investor confidence. In spite of this, our
diversified earnings base enables us to announce pleasing results for the
six-month period to 31 December 2001.
Operating environment
Demand for credit extension during the six months was modest. Market
volatility offered good opportunities for trading profits, but these were
partially offset by the underperformance of the bank's international lending
portfolios.
Interest rates were reasonably steady, but have been increased by 100 basis
points since 31 December in response to the weakening currency. The JSE
Securities Exchange All Share Index rallied towards the end of the year, but
the positive impact on earnings will only be reflected in the second half of
the financial year.
Momentum's life insurance activities provide opportunities for customers to
invest in offshore funds. The Reserve Bank's limitations on these activities
have resulted in a lack of capacity to meet the demand for these products.
This is reflected in lower than anticipated individual life new business
sales.
The group's health operations continued in its efforts to reach consensus
with the Registrar of Medical Schemes regarding the funding of the statutory
capital requirements of the Discovery Health Medical Scheme. Notwithstanding
this, there was an increase in the volumes of new business written. The
uncertainty regarding funding methods introduced an element of uncertainty
into the Discovery Holdings share price.
Translation gains
In accordance with Generally Accepted Accounting Practice (GAAP), the group
recognises in the income statement translation gains and losses on currency
movements to the extent that the underlying operations are defined as
integral to those of the South African-based businesses. Translation gains
and losses relating to independent foreign entities are transferred directly
to non-distributable reserves. Total translation gains amounted to R1 977
million (December 2000: R120 million) of which R714 million (December 2000:
R71 million) is included in the income statement. Of the translation gains
included in the income statement, R64 million is attributable to the
interest rate differential between the South African Rand and the Group's
main foreign operating currencies. The balance of R650 million is regarded
as exceptional, and is reflected separately in headline earnings.
Earnings and dividends
Core operational headline earnings, excluding the exceptional translation
gain of R650 million referred to above, increased by a solid 20,4% to R2 029
million (37,2 cps) compared with R1 685 million (30,9 cps) in the
corresponding period of the previous year.
Total headline earnings of R2 679 million (49,2 cps), including the
exceptional translation gain of R650 million, represents an increase of 59%
over the prior period.
An interim dividend of R735 million (13,5 cps) has been declared
representing a 20% increase on the interim dividend of the previous year.
Dividend cover has been retained at 2,8 times and is calculated excluding
the exceptional translation gain referred to above. The dividend will be
sourced 45% from the Insurance Group (2000: 33%) and 55% (2000: 67%) from
the Banking Group.
Return on equity has been affected by the translation gains. Excluding the
exceptional translation gain, the annualised return on average equity was
24,5% (2000: 24,1%). If the gain is included the return is 30,7%. For the
purpose of calculating the return on equity, the preference shares relating
to the OutPerformance Scheme are ignored as there is no dilutory effect at
31 December 2001.
Total assets under management at 31 December 2001 totalled R463 billion and
were up 39% over the calendar year. The increase was largely due to the
impact of the depreciation of the Rand on the translation of foreign assets
and derivatives into local currency.
REVIEW OF OPERATIONS
All divisions of the group's diverse operating base performed well during
the six months under review.
Progress in the Banking and Insurance groups is dealt with in some detail in
the reports of these two subsidiaries.
At a group level we are pleased with the progress being made on all fronts
in building our business. Research shows that service being experienced by
our customers in the Retail Bank is reaching new highs. Client acquisition
figures are encouraging. We are also pleased with the modest but steady
progress being made to ensure that, through the development of joint
strategies between business units, customers are being exposed to all the
group's products and services.
The Banking Group's capital adequacy ratios have benefited from the decline
in the value of the Rand because of the quantum of group capital held in
hard currencies. The rand weakness has, however, impacted negatively on the
domestic capital adequacy ratio of the bank. We continue to seek ways of
optimising the use of our capital.
During the year, we concluded another black empowerment deal. With effect
from 1 January 2002, 40% of Futuregrowth, our specialist asset management
company, was sold to Wipcapital. A further 16,5% can be acquired by
Wipcapital subject to certain conditions.
The Group has adopted a cautious approach to micro-lending. As a result of
this approach the total micro-lending book is a modest R206 million. The
majority of the exposure is administered by way of corporate payroll
deductions.
We were particularly pleased when three of the group companies namely RMB,
Discovery and Momentum, were included in the top five of the Financial Mail
and Deloitte & Touche Human Capital Corporation survey of "Best Companies to
Work for" in South Africa.
BOARD APPOINTMENTS
At the Annual General Meeting held on 26 November 2001, Messrs Cyril
Ramaphosa and Frederik van Zyl Slabbert were appointed to the board of
FirstRand Limited. The experience and expertise of the new appointees will
enable them to play an active role in guiding group strategy.
CORPORATE GOVERNANCE
The group has always prided itself in promoting the highest standards of
Corporate Governance. The developments of King II are being reviewed with
interest to ensure that all group companies comply with the recommendations
and that we are seen to be leaders in this field.
ACCOUNTING POLICIES
The accounting policies of the group comply in all material respects with
South African GAAP and the Companies Act of 1973. These accounting policies
are consistent with those applied during the year to 30 June 2001.
PROSPECTS
All of the group's operations are functioning well. The necessary building
blocks are in place and our strategies are bearing fruit. We have excellent
people dedicated to providing customers with world-class products and
services across the full spectrum of their financial needs. We are confident
that the improvement in our key operati
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