Wrap Text
FIRSTRAND LIMITED
RESULTS AND DIVIDEND ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 1998
HEADLINE EARNINGS PER SHARE +88%
DIVIDEND PER SHARE +44%
SUMMARISED GROUP INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE
1998 1997
(AUDITED) (AUDITED) %
RM RM CHANGE
EARNINGS FROM EXISTING
OPERATIONS (TWELVE MONTHS) 314 207 +52
RESULTS FROM DISCONTINUED OPERATION (17) 10 -270
NET TAXED EARNINGS BEFORE ACQUISITIONS 297 217 +37
EARNINGS FROM ACQUIRED
OPERATIONS (THREE MONTHS) 308 - -
NET INCOME FROM RIGHTS ISSUE PROCEEDS 83 - -
NET TAXED EARNINGS ATTRIBUTABLE
TO SHAREHOLDERS 688 217 +217
NUMBER OF SHARES IN ISSUE (MILLION)
AT YEAR-END 5 445 1 534
WEIGHTED AVERAGE DURING THE YEAR 2 510 1 472
EARNINGS PER SHARE (CENTS) 27,4 14,8 +85
HEADLINE EARNINGS PER SHARE (CENTS)* 27,6 14,7 +88
DIVIDEND PER SHARE (CENTS)
FIRST INTERIM (DECLARED 18 FEBRUARY 1998) 3,22 2,30 +40
7,17 4,90 +46
SECOND INTERIM (DECLARED 24 APRIL 1998) 2,67 -
FINAL (DECLARED 23 SEPTEMBER 1998) 4,50 4,90
TOTAL 10,39 7,20 +44
*HEADLINE EARNINGS RECONCILIATION
(R MILLION)
NET TAXED EARNINGS ATTRIBUTABLE
TO SHAREHOLDERS 688 217
LESS: PROFIT ON SALE OF
STRATEGIC INVESTMENTS - (1)
ADD: LOSS ON DISPOSAL OF
JOINT VENTURE 5 -
HEADLINE EARNINGS ATTRIBUTABLE
TO SHAREHOLDERS 693 216
THE HEADLINE EARNINGS PER
SHARE HAVE BEEN BASED
ON THE WEIGHTED AVERAGE
NUMBER OF SHARES IN ISSUE.
SUMMARISED GROUP BALANCE SHEET
AS AT 30 JUNE
1998 1997
(AUDITED) (AUDITED)
RM RM
SHAREHOLDERS' EQUITY AND LIABILITIES
CAPITAL AND RESERVES 9 344 1 198
OUTSIDE SHAREHOLDERS' INTEREST 429 140
DEFERRED TAXATION 1 104 72
DEBENTURES 120 160
DEPOSITS AND CURRENT ACCOUNTS 118 122 8 149
LONG-TERM LIABILITIES 339 95
CURRENT LIABILITIES 13 816 1 768
LIABILITIES TO CLIENTS UNDER ACCEPTANCES 1 068 80
INSURANCE FUNDS 50 350 18 047
TOTAL SHAREHOLDERS' EQUITY
AND LIABILITIES 194 692 29 709
ASSETS
BANKING OPERATIONS 125 265 8 636
INSURANCE OPERATIONS 54 487 18 466
PROPERTY AND EQUIPMENT 3 557 299
CURRENT ASSETS 11 383 2 308
TOTAL ASSETS 194 692 29 709
TOTAL ASSETS AND FUNDS UNDER MANAGEMENT
AND ADMINISTRATION 236 790 55 074
INTRODUCTION
WITH EFFECT FROM 1 APRIL 1998, THE ANGLO AMERICAN CORPORATION OF SOUTH AFRICA
LIMITED ("AAC") AND RMB HOLDINGS LIMITED ("RMBH") MERGED THEIR RESPECTIVE
FINANCIAL SERVICES INTERESTS. THE PRINCIPAL COMPANIES INVOLVED WERE FIRST
NATIONAL BANK HOLDINGS LIMITED ("FNB") AND SOUTHERN LIFE ASSOCIATION LIMITED
("SOUTHERN LIFE"), IN WHICH AAC HAD A SUBSTANTIAL INTEREST, AND THE INTERESTS
OF RMBH IN MOMENTUM LIFE ASSURERS LIMITED ("MOMENTUM LIFE"), INCLUDING RAND
MERCHANT BANK LIMITED ("RMB"), AND MOMENTUM HEALTH LIMITED ("MOMENTUM HEALTH").
IN ORDER TO EFFECT THE MERGER, MOMENTUM LIFE WAS USED AS THE VEHICLE TO ACQUIRE
FNB AND SOUTHERN LIFE AND SIMULTANEOUSLY RAISED AN AMOUNT OF R5,1 BILLION
THROUGH A RIGHTS ISSUE. MOMENTUM LIFE CHANGED ITS NAME TO FIRSTRAND LIMITED ON
25 MAY 1998.
THE NEW FIRSTRAND GROUP NOW CONSISTS OF TWO DISTINCT FINANCIAL SERVICES
GROUPINGS, NAMELY BANKING AND INSURANCE. THE BANKING OPERATIONS CONSIST OF RMB
(THE CORPORATE, INVESTMENT AND MERCHANT BANKING SUBSIDIARY), AS WELL AS FNB,
THE RETAIL BANKING SUBSIDIARY. THE INSURANCE OPERATIONS COMPRISE THE LIFE
INSURERS MOMENTUM LIFE AND SOUTHERN LIFE AND THE HEALTH INSURER MOMENTUM
HEALTH, AS WELL AS THE ASSET MANAGEMENT AND OTHER SUBSIDIARIES OF THE TWO LIFE
INSURANCE COMPANIES.
PROGRESS WITH THE MERGER
THE GROUP HAS MOVED QUICKLY TO IMPLEMENT THE MERGER, THE SALIENT FEATURES
FEATURE OF WHICH ARE LISTED BELOW:
AT GROUP LEVEL
- AN EFFECTIVE STRUCTURE FOR THE NEW GROUP IS IN THE PROCESS OF BEING CREATED
BY THE ESTABLISHMENT OF AUTONOMOUS AND FOCUSED PROFIT CENTRES.
- A COMMON, GROUP-WIDE BUSINESS PHILOSOPHY AND VALUE SYSTEM HAS BEEN AGREED
UPON.
IN THE BANKING GROUP
IN THE MERCHANT BANKING DIVISION, FNB'S STRUCTURED FINANCE, TREASURY AND
MERGERS AND ACQUISITIONS DIVISIONS HAVE BEEN INTEGRATED INTO RMB.
- IN THE INVESTMENT BANKING DIVISION:
- FIRSTCORP CAPITAL INVESTORS HAS BEEN ESTABLISHED AS AN INDEPENDENT
MANAGER OF THIRD PARTY FUNDS.
- RMB VENTURES IS CONCENTRATING ON MEDIUM-SIZED TRANSACTIONS.
- RMB CORVEST WILL SPECIALISE IN THE SMALLER END OF THE PRIVATE EQUITY
MARKET.
- THE ECONOMIC EMPOWERMENT UNIT OF RMB HAS BEEN ESTABLISHED SPECIFICALLY TO
ADDRESS THE NEEDS OF BLACK-OWNED COMPANIES.
- ON THE INTERNATIONAL FRONT, FIRSTRAND INTERNATIONAL HAS BEEN ESTABLISHED
WITH TWO DISTINCT OPERATIONS, NAMELY RMB INTERNATIONAL, WHICH WILL MARKET THE
SERVICES OF RMB INTERNATIONALLY, AND FNB'S HENRY ANSBACHER WHICH WILL FOCUS ON
PRIVATE BANKING.
IN THE INSURANCE GROUP
- THE IMPLEMENTATION OF SOUTHERN LIFE'S TRANSFORMATION PROGRAMME HAS BEEN
ACCELERATED AND FURTHER RATIONALISATION OPPORTUNITIES FROM THE MERGER
IDENTIFIED. OVER TIME, THIS IS EXPECTED TO RESULT IN SIGNIFICANT COST SAVINGS
AT SOUTHERN LIFE.
- TWO BRANDS, MOMENTUM AND SOUTHERN, ARE TO BE RETAINED AND THE BACK OFFICE
AND CORPORATE SERVICES FUNCTIONS ARE BEING MERGED AND ACTIVITIES STREAMLINED.
- ALL INDEPENDENT FINANCIAL INTERMEDIARIES ARE NOW SERVICED THROUGH MOMENTUM
LIFE'S SPECIALISED CONSULTANTS, SOUTHERN LIFE'S FIELD FORCE HAS BEEN
RESTRUCTURED AND UPGRADED.
- A CONVERSION PROJECT TO MOVE BOTH LIFE OFFICES TO ONE INFORMATION SYSTEMS
PLATFORM HAS COMMENCED.
- THE EMPLOYEE BENEFITS DIVISIONS OF THE TWO COMPANIES HAVE BEEN MERGED.
- SOUTHERN LIFE'S ACTUARIAL RESERVING BASIS HAS BEEN ALIGNED TO THE MORE
CONSERVATIVE APPROACH OF MOMENTUM LIFE.
- SOUTHERN LIFE'S UNIT TRUST PACKAGER, INVESTMENT MANAGEMENT COMPANY, HAS BEEN
MERGED WITH MOMENTUM ADMINISTRATION SERVICES ("MAS").
ASSET MANAGEMENT
- SOUTHERN ASSET MANAGEMENT AND RMB ASSET MANAGEMENT ("RMBAM") WILL MARKET
THEIR DISTINCTLY DIFFERENT INVESTMENT PHILOSOPHIES INDEPENDENTLY.
- THE ASSET MANAGEMENT BACK OFFICES WILL BE MERGED.
- FNB BRANDED UNIT TRUSTS WILL BE MANAGED BY RMB FUND MANAGERS;
- SOUTHERN LIFE PROPERTIES AND RMB PROPERTIES HAVE MERGED THEIR OPERATIONS.
GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 1998
THE CONSOLIDATED RESULTS OF THE GROUP INCLUDE
- THE EARNINGS OF THE MOMENTUM GROUP, AS IT EXISTED PRIOR TO THE MERGER, FOR
THE TWELVE MONTHS TO 30 JUNE 1998.
- THE EARNINGS FROM ACQUIRED OPERATIONS, INCLUDING FNB FOR THE THREE MONTHS TO
30 JUNE 1998 AND THE EARNINGS ATTRIBUTABLE TO THE 40% INTEREST IN RMB ACQUIRED
FROM MOMENTUM POLICYHOLDERS AT 1 APRIL 1998.
- AS NO ACTUARIAL VALUATION WAS PERFORMED FOR SOUTHERN LIFE AT 30 JUNE 1998
AND DUE TO THE STEEP DECLINE IN INVESTMENT MARKETS SINCE 31 MARCH 1998, THE
DATE OF THE LAST ACTUARIAL VALUATION, IT WAS DEEMED PRUDENT NOT TO RECOGNISE
ANY EARNINGS FOR SOUTHERN LIFE IN RESPECT OF THE THREE MONTHS ENDED 30 JUNE
1998; AND
- NET INCOME FROM THE PROCEEDS OF THE RIGHTS ISSUE WHICH WERE RECEIVED ON 30
APRIL 1998.
THE RESULTS ARE THEREFORE NOT STRICTLY COMPARABLE WITH THOSE OF THE PREVIOUS
TWELVE MONTHS, WHICH ONLY INCLUDE THE EARNINGS OF THE MOMENTUM GROUP.
THE NEWLY ESTABLISHED GROUP HAS PERFORMED WELL WITH TOTAL GROUP EARNINGS
INCREASING TO R688 MILLION. HEADLINE EARNINGS PER SHARE INCREASED BY 88% FROM
14,7 CENTS PER SHARE TO 27,6 CENTS PER SHARE.
THE DIRECTLY COMPARABLE RESULTS FOR THE FULL YEAR REFLECTED AN INCREASE IN
EARNINGS OF 52% TO R314 MILLION. THIS OUTSTANDING PERFORMANCE REFLECTS THE
SUCCESSFUL YEAR EXPERIENCED BY MOMENTUM LIFE, MAS, RMBAM, RMB AND MOMENTUM
HEALTH.
STATEMENT OF ACTUARIAL VALUE OF ASSETS AND LIABILITIES
FIRSTRAND'S (PREVIOUSLY MOMENTUM LIFE) EXCESS OF ASSETS OVER LIABILITIES
TOTALLED R13 944 MILLION (1997: R2 441 MILLION RESTATED). A MAJOR REASON FOR
THE LARGE INCREASE IN THE EXCESS DURING THE YEAR IS THE STRENGTHENING OF
FIRSTRAND'S CAPITAL BASE AS A RESULT OF THE RIGHTS ISSUE AND THE ISSUE OF
SHARES AS CONSIDERATION FOR THE FNB AND SOUTHERN LIFE ACQUISITIONS. IF THE NEW
CAPITAL HAD BEEN EXCLUDED, THE EXCESS OF ASSETS OVER LIABILITIES WOULD HAVE
INCREASED BY 82% FROM R2 441 MILLION TO R4 443 MILLION.
AT 31 MARCH 1998, THE LAST REPORTING DATE OF SOUTHERN LIFE, THE EXCESS OF
ASSETS OVER LIABILITIES AMOUNTED TO R4 682 MILLION. AN ACTUARIAL VALUATION WAS
NOT PERFORMED FOR SOUTHERN LIFE AT 30 JUNE 1998.
THE FIRST RAND INSURANCE GROUP'S PRUDENT ACTUARIAL RESERVING BASIS, CAREFULLY
CONSIDERED APPROACH TO POLICYHOLDER BONUSES AND SOUND STRATEGY OF
ASSET/LIABILITY MATCHING, PLACES IT IN A POSITION TO SUCCESSFULLY MANAGE
VOLATILE INVESTMENT MARKETS. THE SHARP DECLINE IN INVESTMENT MARKETS SUBSEQUENT
TO THE FINANCIAL YEAR-END HAS SIGNIFICANTLY REDUCED THE HEALTHY BONUS
STABILISATION RESERVES INCLUDED IN THE ACTUARIAL LIABILITIES OF THE TWO
COMPANIES AT THEIR RESPECTIVE FINANCIAL YEAR-ENDS. IN LINE WITH THE ACTIONS OF
OTHER INDUSTRY PLAYERS, ANY FURTHER MATERIAL DECLINE IN MARKET CONDITIONS MAY
REQUIRE SPECIAL MEASURES DESIGNED FOR THESE EXCEPTIONAL CIRCUMSTANCES. THIS
COULD INCLUDE TEMPORARY ADJUSTMENTS TO NON-VESTING POLICYHOLDER BONUSES.
RESULTS BEFORE ACQUISITIONS
THE CONTRIBUTION FROM THE OPERATIONS OF THE GROUP AS IT EXISTED PRIOR TO THE
MERGER WAS AS FOLLOWS:
12 MONTHS ENDED 30 JUNE
1998 1997 %
RM RM CHANGE
OPERATIONS INCLUDED FOR THE FULL
TWELVE MONTHS
- LIFE INSURANCE AND ASSET MANAGEMENT 168 110 +53
- HEALTH INSURANCE 36 19 +89
- BANKING 110 78 +41
314 207 +52
RESULTS FROM DISCONTINUED OPERATION (17) 10 -270
NET TAXED EARNINGS BEFORE ACQUISITIONS 297 217 +37
LIFE INSURANCE AND ASSET MANAGEMENT
THE LIFE INSURANCE AND ASSET MANAGEMENT OPERATIONS PERFORMED EXTREMELY WELL.
TOTAL EARNINGS INCREASED BY 53% FROM R110 MILLION TO R168 MILLION.
MOMENTUM LIFE'S TOTAL PREMIUM INCOME INCREASED BY 30,5% FROM R3 752 MILLION TO
R4 898 MILLION. INDIVIDUAL LIFE PREMIUM INCOME INCREASED BY 25,5% AND EMPLOYEE
BENEFITS PREMIUM INCOME BY 43,0%. THE STRONG PREMIUM GROWTH RESULTED FROM SOLID
INCREASES IN THE UNIT-LINKED ANNUITY PREMIUMS, CORPORATE INVESTMENT FUNDS AND
EMPLOYEE BENEFIT LUMP SUMS. INDIVIDUAL LIFE RECURRING PREMIUMS INCREASED BY
18,5%, WHICH IS PLEASING IN VIEW OF THE STRONG COMPETITIVE PRESSURES IN THIS
MARKET.
MANAGEMENT EXPENSES FOR MOMENTUM LIFE'S INSURANCE ACTIVITIES WERE RESTRICTED TO
AN INCREASE OF 2,8%. OVER THE LAST FIVE YEARS MANAGEMENT EXPENSES HAVE
INCREASED AT A COMPOUND RATE OF ONLY 5% PER ANNUM, WHILST TOTAL PREMIUM INCOME
HAS INCREASED BY A COMPOUND GROWTH RATE OF 35%. THIS DEMONSTRATES THAT MOMENTUM
LIFE HAS CONSISTENTLY BEEN ABLE TO IMPROVE EFFICIENCIES AND FIND COST-EFFECTIVE
WAYS IN WHICH TO DO ITS BUSINESS.
MAS HAD AN EXCELLENT YEAR. NEW INVESTMENT FUNDS OF R3,1 BILLION WERE ATTRACTED
DURING THE YEAR, WHICH WAS MORE THAN DOUBLE THE COMPARABLE FIGURE FOR THE
PREVIOUS YEAR. MAS MADE A HEALTHY PROFIT IN LINE WITH MANAGEMENT'S
EXPECTATIONS. THE TOTAL ASSETS UNDER ADMINISTRATION AS AT 30 JUNE 1998 TOTALLED
R6,5 BILLION. IN LESS THAN THREE YEARS, MAS HAS BECOME A DOMINANT PLAYER IN THE
UNIT-LINKED PRODUCT MARKET.
RMBAM HAD ANOTHER SUCCESSFUL YEAR IN TERMS OF PROFIT GROWTH, WITH LONGER-TERM
INVESTMENT PERFORMANCE REMAINING COMPETITIVE. ASSETS MANAGED ON BEHALF OF THIRD
PARTIES INCREASED BY 18% TO R28,4 BILLION, IN A YEAR CHARACTERISED BY SUBDUED
INVESTMENT MARKETS.
THE UNIT TRUSTS OFFERED BY RMB FUND MANAGERS CONTINUED TO ATTRACT SUPPORT FROM
INVESTORS, RESULTING IN AN INCREASE IN ASSETS UNDER MANAGEMENT OVER THE YEAR OF
89% TO R3,5 BILLION. FURTHER EXPANSION OF THE PRODUCT RANGE SAW AN ADDITIONAL
FIVE UNIT TRUSTS LAUNCHED AT THE END OF THE FINANCIAL YEAR.
HEALTH INSURANCE
MOMENTUM HEALTH CONTINUED ITS OUTSTANDING PERFORMANCE IN THE YEAR ENDED 30 JUNE
1998 AND STRENGTHENED ITS LEADERSHIP POSITION IN THE HEALTH INSURANCE INDUSTRY.
THE COMPANY EARNED A PROFIT AFTER TAX OF R54 MILLION WHICH IS DOUBLE THE PROFIT
OF R27 MILLION REFLECTED IN 1997. FIRSTRAND'S ATTRIBUTABLE PORTION (67%)
AMOUNTED TO R36 MILLION.
MOMENTUM HEALTH CHANGED ITS ACCOUNTING POLICY FOR THE TREATMENT OF NEW BUSINESS
ACQUISITION COSTS TO ACHIEVE CONSISTENCY WITHIN THE FIRSTRAND GROUP AND
COMPARABILITY WITH SIMILAR HEALTH INSURERS WORLDWIDE. THE PRIOR YEAR FIGURES
HAVE BEEN RESTATED TO REFLECT THIS CHANGE.
ANNUALISED NEW BUSINESS PREMIUMS TOTALLED R596 MILLION COMPARED WITH R298
MILLION FOR THE PREVIOUS FINANCIAL YEAR. TOTAL PREMIUM INCOME GREW BY 97% TO R1
271 MILLION FROM R646 MILLION.
DURING SEPTEMBER 1998 MOMENTUM HEALTH CHANGED ITS NAME TO DISCOVERY HEALTH.
THIS CHANGE REFLECTS THE DISTINCTIVE AND SPECIALISED NATURE OF HEALTH INSURANCE
AND MANAGED CARE, AND ALIGNS ITS CORPORATE IDENTITY WITH ITS WELL-KNOWN
DISCOVERY PRODUCT RANGE.
BANKING
RMB REPORTED AN IMPRESSIVE 40% INCREASE IN HEADLINE EARNINGS FROM R131 MILLION
IN 1997 TO R183 MILLION IN 1998. WITH EFFECT FROM 1 APRIL 1998, THE
SHAREHOLDERS OF FIRSTRAND ACQUIRED THE 40% INVESTMENT IN RMB PREVIOUSLY HELD BY
MOMENTUM POLICYHOLDERS FOR A CASH CONSIDERATION OF R1,7 BILLION.
IN RESPECT OF THE RESULTS OF RMB, R110 MILLION IS INCLUDED UNDER GROUP EARNINGS
FOR THE FULL YEAR, WHILE R18 MILLION, WHICH REPRESENTS THE EARNINGS FOR THREE
MONTHS ON THE 40% OBTAINED FROM MOMENTUM POLICYHOLDERS, IS INCLUDED UNDER
ACQUIRED OPERATIONS.
DURING A PERIOD OF VOLATILE MARKETS, PROFITABILITY AND EFFICIENCY RATIOS
REMAINED SOUND. EXCEPTIONAL PERFORMANCES WERE RECORDED BY THE SPECIAL PROJECTS,
INVESTMENT BANKING, CORPORATE FINANCE AND TREASURY DIVISIONS. RMB INTERNATIONAL
LIMITED, THE HOLDING COMPANY OF THE BANK'S INTERNATIONAL ACTIVITIES,
SIGNIFICANTLY INCREASED ITS CONTRIBUTION TO RMB PROFITS.
RISK MANAGEMENT HAS ALWAYS BEEN A KEY FOCUS OF RMB AND ITS CONSERVATIVE RISK
MANAGEMENT APPROACH, TOGETHER WITH STRINGENT CREDIT CRITERIA AND A HIGH QUALITY
ADVANCES BOOK, CONTINUES TO PLACE RMB IN AN ADVANTAGEOUS POSITION TO WEATHER
THE CURRENT VOLATILITY IN INVESTMENT MARKETS.
RESULTS FROM DISCONTINUED OPERATION
THE RESULTS FROM THE DISCONTINUED OPERATION AROSE FROM THE DISPOSAL OF AEGIS
INSURANCE COMPANY LIMITED, EFFECTIVE 1 JANUARY 1998.
RESULTS FROM ACQUIRED OPERATIONS
RESULTS FROM ACQUIRED OPERATIONS AMOUNTED TO R308 MILLION FOR THE THREE MONTHS
TO 30 JUNE 1998, WHICH INCLUDES THE EARNINGS OF FNB AS WELL AS THE
EARNINGS ATTRIBUTABLE TO THE 40% OF RMB ACQUIRED FROM MOMENTUM POLICYHOLDERS.
FIRST NATIONAL BANK
FNB'S EARNINGS FOR THE THREE MONTHS TO 30 JUNE 1998 AMOUNTED TO R290 MILLION.
THESE RESULTS WERE ADVERSELY AFFECTED BY TIGHT INTEREST MARGINS IN MAY AND
JUNE. IN RECOGNITION OF DETERIORATING CONDITIONS IN THE PROPERTY MARKETS,
ADDITIONAL PROVISIONS WERE MADE AGAINST THE PROPERTY PORTFOLIO. A FURTHER
PROVISION FOR LEAVE PAY WAS CREATED. AS A RESULT OF THESE ADJUSTMENTS, EARNINGS
AFTER TAX WERE REDUCED BY R59 MILLION.
AT THE DATE OF THE ACQUISITION OF FNB, THE BOARD OF FNB AGREED TO CREATE AN
ADDITIONAL GENERAL DOUBTFUL DEBT PROVISION OF R600 MILLION. THIS ENSURED A
GREATER ALIGNMENT OF THESE PROVISIONS WITHIN THE FIRSTRAND GROUP. THE PROVISION
HAS BEEN FUNDED BY THE REALISATION OF FNB'S INVESTMENT IN SOUTHERN LIFE.
FNB'S TRANSFORMATION PROGRAMME IS A YEAR AHEAD OF SCHEDULE. THREE DISTINCT
BUSINESS UNITS, NAMELY RETAIL BANKING, INSTALMENT CREDIT AND PROPERTY FINANCE,
HAVE BEEN ESTABLISHED. WITHIN RETAIL BANKING, THE FOLLOWING BUSINESSES HAVE
BEEN FORMED: BOB BANK, FIRST NATIONAL, PERSONAL BANK, FIRST COMMERCE, CARD AND
ELECTRONIC BANKING AND INSURANCE. FNB CORPORATE BANK IS BEING RESTRUCTURED INTO
A NUMBER OF PRODUCT-FOCUSED AREAS.
TOTAL ASSETS AT 30 JUNE 1998 AMOUNTED TO R123 568 MILLION WHILST ADVANCES WERE
R89 177 MILLION. ON AN ANNUALISED BASIS ADVANCES ROSE BY 18%.
SOUTHERN LIFE
A FULL ACTUARIAL VALUATION WAS PERFORMED FOR SOUTHERN LIFE AT 31 MARCH 1998,
WHICH REFLECTED AN ACTUARIAL SURPLUS OF R4 682 MILLION, AFTER ALIGNING THE
ACTUARIAL RESERVING BASIS OF SOUTHERN LIFE WITH THE MORE CONSERVATIVE BASIS OF
MOMENTUM LIFE. AN ACTUARIAL VALUATION WAS NOT PERFORMED FOR SOUTHERN LIFE AT 30
JUNE 1998. IT IS STANDARD PRACTICE TO BASE INTERIM EARNINGS FOR LIFE INSURERS
ON THE PREVIOUS YEAR'S EARNINGS. IT WAS, HOWEVER, CONSIDERED IMPRUDENT TO
FOLLOW THIS STANDARD PRACTICE GIVEN THE STEEP DECLINE IN INVESTMENT MARKETS
SUBSEQUENT TO THE LAST SOUTHERN LIFE ACTUARIAL VALUATION. THE BOARD, UPON
RECOMMENDATION OF THE VALUATOR, HAS THEREFORE DECIDED NOT TO RECOGNISE ANY
SOUTHERN LIFE EARNINGS FOR THE QUARTER ENDED 30 JUNE 1998.
YEAR 2000 COMPLIANCE
THE GROUP RELIES EXTENSIVELY ON INFORMATION TECHNOLOGY AS A MISSION-CRITICAL
COMPONENT OF BUSINESS SOLUTIONS AND IS HIGHLY DEPENDENT ON THE CAPABILITY OF
SOFTWARE AND HARDWARE APPLICATIONS TO FUNCTION PROPERLY.
YEAR 2000 WORK GROUPS HAVE BEEN ESTABLISHED TO ENSURE THAT ALL ACCOUNTING AND
OPERATIONAL SYSTEMS SITUATED IN EACH MAJOR BUSINESS UNIT IN THE GROUP ARE YEAR
2000 COMPLIANT BY A TARGET DATE.
ALL COSTS ASSOCIATED WITH YEAR 2000 COMPLIANCE ARE BEING FUNDED FROM CASH FLOW
GENERATED FROM OPERATIONS AND ARE BEING EXPENSED AS THEY ARE INCURRED.
MANAGEMENT IS OF THE OPINION THAT THE TOTAL EXPENSE FOR THE GROUP TO BECOME
YEAR 2000 COMPLIANT WILL NOT EXCEED R150 MILLION. OF THIS AMOUNT, 90% HAS
EITHER BEEN PROVIDED FOR IN FULL OR EXPENSED. THE TARGET DATE FOR GROUP
COMPLIANCE IS 30 JUNE 1999.
THE GROUP DOES NOT EXPECT TO ENCOUNTER MATERIAL OPERATIONAL DIFFICULTIES, AND
BASED ON A REASONABLE EXAMINATION, CONSIDERS THE RISK TO THE GROUP OF LEGAL
LIABILITY NOT TO BE MATERIAL.
PRO FORMA HEADLINE EARNINGS
HAD THE CURRENT GROUP STRUCTURE BEEN IN EXISTENCE FOR THE FULL TWELVE MONTHS TO
30 JUNE 1998, THE PRO FORMA HEADLINE EARNINGS PER SHARE FOR THIS PERIOD WOULD
HAVE AMOUNTED TO 42,2 CENTS. THIS CALCULATION ASSUMES THAT THE RIGHTS ISSUE
PROCEEDS WERE RECEIVED ON 1 JULY 1997, AND YIELDED A RETURN OF 10% AFTER TAX.
THE SOUTHERN LIFE PRO FORMA EARNINGS FOR THE 12 MONTHS REFLECT THE BOARD'S
DECISION NOT TO RECOGNISE ANY SURPLUS FOR SOUTHERN LIFE FOR THE THREE MONTHS
ENDED 30 JUNE 1998.
OUTLOOK FOR THE YEAR
EVENTS IN THE FINANCIAL MARKETS SINCE 30 JUNE 1998 HAVE IMPACTED SIGNIFICANTLY
ON COMPANIES IN THE FINANCIAL SERVICES INDUSTRY. THE RECENT PRECIPITOUS DECLINE
IN INVESTMENT MARKETS WILL IMPACT ON FEE INCOME FROM FUND MANAGEMENT AND
BUSINESS UNITS WHICH HAVE FEE INCOME STREAMS BASED ON ASSETS UNDER MANAGEMENT.
THE CURRENT HIGH INTEREST RATES ARE EXPECTED TO REDUCE BANKING MARGINS AND ALSO
PLACE SEVERE PRESSURE ON COMPANIES AND INDIVIDUALS LEADING TO AN INCREASE IN
BAD DEBTS IN THE BANKING INDUSTRY. ACCORDINGLY, IT IS NOT POSSIBLE TO MAKE AN
ACCURATE FORECAST OF GROUP EARNINGS.
HOWEVER, THE GROUP IS ADEQUATELY CAPITALISED AND UNIQUELY STRUCTURED TO
INNOVATIVELY MANAGE THE CHALLENGES PRESENTED BY THE CHANGED ECONOMIC OUTLOOK.
INCREASED PROVISIONS ESTABLISHED AT THE TIME OF THE MERGER AND AIMED AT
ALIGNING GROUP RISK MANAGEMENT PRACTICES HAVE PROVED TO BE APPROPRIATE AND
COMFORTING IN THE PREVAILING INVESTMENT CLIMATE.
DIVIDEND DECLARATION
NOTICE IS HEREBY GIVEN THAT A FINAL DIVIDEND OF 4,5 CENTS PER SHARE HAS BEEN
DECLARED ON 23 SEPTEMBER 1998 IN RESPECT OF THE YEAR ENDED 30 JUNE 1998 PAYABLE
TO ORDINARY SHAREHOLDERS REGISTERED IN THE BOOKS OF THE COMPANY AT THE CLOSE OF
BUSINESS ON 16 OCTOBER 1998. DIVIDENDS WILL, WHERE APPLICABLE, BE TRANSFERRED
ELECTRONICALLY, ON 30 OCTOBER 1998 TO BANK ACCOUNTS OF SHAREHOLDERS. DIVIDEND
CHEQUES WILL, IN THE ABSENCE OF APPROPRIATE MANDATES BE POSTED ON THIS DATE.
THIS FINAL DIVIDEND, TOGETHER WITH THE FIRST AND SECOND INTERIM DIVIDENDS OF
3,22 CENTS PER SHARE AND 2,67 CENTS PER SHARE RESPECTIVELY, BRINGS THE TOTAL
DIVIDEND FOR THE YEAR TO 10,39 CENTS PER SHARE (1997: 7,20 CENTS PER SHARE)
WHICH REPRESENTS AN INCREASE OF 44%. DUE TO THE SPECIAL CAPITALISATION AWARD OF
R343 MILLION DURING THE YEAR, ALL DIVIDEND PER SHARE FIGURES HAVE BEEN
CALCULATED BASED ON THE INCREASED WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE
FOLLOWING THE SPECIAL CAPITALISATION AWARD.
FOR AND ON BEHALF OF THE BOARD
G T FERREIRA LL DIPPENAAR
CHAIRMAN CHIEF EXECUTIVE OFFICER
29 SEPTEMBER 1998
TRANSFER SECRETARIES REGISTERED OFFICE
OPTIMUM REGISTRARS (PTY) LIMITED MOMENTUM PARK
4TH FLOOR, EDURA HOUSE 267B WEST AVENUE
41 FOX STREET, JOHANNESBURG, 2001 CENTURION, 0157
FIRSTRAND LIMITED
(REGISTRATION NUMBER 66/10753/06)
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