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FIRSTRAND BANKING GROUP
RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 1999
("THE BANKING GROUP")
- INCREASE IN HEADLINE EARNINGS AFTER
ADJUSTMENT FOR ADDITIONAL CAPITAL +30%
- INCREASE IN EARNINGS ATTRIBUTABLE
TO SHAREHOLDERS +46%
- INCREASE IN NET INTEREST INCOME +21%
- INCREASE IN OTHER INCOME +19%
INTRODUCTION
THESE FINANCIAL STATEMENTS RELATE TO THE BANKING INTERESTS OF THE FIRSTRAND
LIMITED GROUP (THE FIRSTRAND GROUP) OF COMPANIES AND SHOULD BE READ IN
CONJUNCTION WITH THE REPORT ON FIRSTRAND LIMITED.
DURING THE YEAR, THE MINISTER OF FINANCE APPROVED THE ESTABLISHMENT OF A
BANKING ENTITY NOW KNOWN AS FIRSTRAND BANK LIMITED. THE PRIMARY OPERATIONS OF
FIRST NATIONAL BANK OF SOUTHERN AFRICA (FNB) AND RAND MERCHANT BANK (RMB) WERE
COMBINED AS DIVISIONS OF THIS ENTITY WITH EFFECT FROM 30 JUNE 1999. FIRST
NATIONAL BANK HOLDINGS LIMITED (FNBH), THE HOLDING COMPANY OF FIRSTRAND BANK
LIMITED, CHANGED ITS NAME TO FIRSTRAND BANK HOLDINGS LIMITED.
THE CONSOLIDATED FIGURES IN THIS REPORT INCLUDE THE OPERATIONS OF FNB, RMB,
FNB'S BANKING OPERATIONS IN NAMIBIA, BOTSWANA AND SWAZILAND AND THE BANKING
GROUP'S INVESTMENT BANKING OPERATIONS. IN ADDITION, THEY INCLUDE THE EARNINGS
OF RMB'S INTERNATIONAL OPERATIONS AND THOSE RELATING TO THE HENRY ANSBACHER
GROUP OF COMPANIES.
GROUP INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE
ACTUAL ACTUAL PRO FORMA INCREASE
1999 1998 1998(1) OVER
(AUDITED) (AUDITED) (UNAUDITED) PRO FORMA
R MILLION R MILLION R MILLION %
INTEREST INCOME 20 288 4 171 16 104 26
INTEREST EXPENDITURE (15 479) (3 147) (12 123) 28
NET INTEREST INCOME 4 809 1 024 3 981 21
CHARGE FOR BAD AND
DOUBTFUL DEBTS (1 363) (321) (1 170) 16
3 446 703 2 811 23
OTHER OPERATING INCOME 5 156 1 575 4 339 19
NET INTEREST AND OTHER
OPERATING INCOME 8 602 2 278 7 150 20
OTHER OPERATING EXPENDITURE (6 087) (1 627) (5 233) 16
NET OPERATING INCOME
BEFORE TAXATION 2 515 651 1 917 31
TAXATION (573) (177) (593) (3)
INCOME AFTER TAXATION 1 942 474 1 324 47
EQUITY ACCOUNTED EARNINGS 13 11 16 (19)
1 955 485 1 340 46
EARNINGS ATTRIBUTABLE TO OUTSIDE
SHAREHOLDERS (57) (12) (37) 54
EARNINGS ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS 1 898 473 1 303 46
1 PRO FORMA RESULTS BASED ON PERFORMANCE WERE FNB AND RMB PREVIOUSLY
CONSOLIDATED
SUMMARISED GROUP BALANCE SHEET AT 30 JUNE
1999 1998
R MILLION R MILLION INCREASE
(AUDITED) (AUDITED) %
ASSETS
LIQUID ASSETS
- CASH AND SHORT-TERM FUNDS 11 684 10 187 15
- SHORT-TERM NEGOTIABLE SECURITIES 10 651 10 583 1
22 335 20 770 8
INVESTMENT AND TRADING SECURITIES 13 469 7 898 71
ADVANCES 93 884 95 207 (1)
DEBTORS 6 567 9 736 (33)
ASSOCIATED COMPANIES 149 130 15
OTHER INVESTMENTS 1 013 372 172
FIXED ASSETS 3 431 3 432 0
CLIENT LIABILITIES UNDER ACCEPTANCES 3 062 1 067 187
TOTAL ASSETS 143 910 138 612 4
LIABILITIES AND SHAREHOLDERS' FUNDS
LIABILITIES
DEPOSITS AND CURRENT ACCOUNTS 116 306 115 939 0
CREDITORS AND ACCRUALS 11 725 10 962 7
DEFERRED TAXATION 1 158 1 102 5
LIABILITIES TO CLIENTS UNDER
ACCEPTANCES 3 062 1 067 187
TOTAL LIABILITIES 132 251 129 070 2
OUTSIDE SHAREHOLDERS' INTEREST 394 251 57
CAPITAL AND RESERVES
SHAREHOLDERS' FUNDS 8 040 8 811 (9)
SECONDARY CAPITAL 3 225 480 572
TOTAL CAPITAL AND RESERVES 11 265 9 291 21
TOTAL LIABILITIES AND
SHAREHOLDERS' FUNDS 143 910 138 612 4
OPERATING ENVIRONMENT
TURMOIL IN INTERNATIONAL AND EMERGING MARKETS IMPACTED SIGNIFICANTLY ON THE
SOUTH AFRICAN ECONOMY AND FINANCIAL MARKETS DURING THE YEAR UNDER REVIEW. THE
PRIME LENDING RATE DURING THE FIRST HALF OF THE YEAR INCREASED TO A RECORD
25,5%, SEVERELY SQUEEZING INTEREST MARGINS. THESE HIGH INTEREST RATES ALSO
PLACED INDIVIDUALS, CORPORATE AND BUSINESSES UNDER CONSIDERABLE PRESSURE. THIS
IN TURN IMPACTED ON GROWTH IN ADVANCES IN THE CONSUMER MARKET AND THE BAD DEBT
EXPERIENCE, AND THE BOARD THEREFORE DEEMED IT PRUDENT TO INCREASE THE LEVEL OF
SPECIFIC PROVISIONS AND MAINTAIN THE CONSERVATIVE LEVEL OF OVERALL BAD DEBT
PROVISION.
THE INCREASED VOLATILITY IN THE FINANCIAL MARKETS PRESENTED OPPORTUNITIES TO
THE BANKING GROUP'S TRADING OPERATIONS. RMB'S ROBUST AND REAL TIME RISK
MANAGEMENT SYSTEMS ALLOWED THE TREASURY DIVISION TO SUCCESSFULLY WEATHER THE
VOLATILE MARKETS, WHILE FULLY EXPLOITING THE TRADING OPPORTUNITIES THAT WERE
OFFERED.
NOTWITHSTANDING THIS PERIOD OF EXTERNAL UNCERTAINTY, THE BANKING GROUP WAS ABLE
TO MAKE CONSIDERABLE PROGRESS IN RESTRUCTURING. THE MERCHANT BANKING OPERATIONS
OF FNB'S CORPORATE AND INVESTMENT BANKING GROUP WERE SUCCESSFULLY MERGED WITH
THOSE OF RMB. THE PROCESS OF RE-ALIGNING THOSE PARTS OF THE BANKING GROUP THAT
FOCUS ON THE CONSUMER MARKET WITH APPROPRIATE MARKET SEGMENTS CONTINUES.
IT IS PLEASING TO REPORT EXCELLENT RESULTS GIVEN THE BACKGROUND OF VOLATILE
FINANCIAL MARKETS AMID THE MERGER OF THE OPERATIONS OF RMB AND FNB.
CAPITAL STRUCTURE
THE FORMATION OF FIRSTRAND BANK LIMITED ENABLED MANAGEMENT TO REVIEW THE
GREATER FIRSTRAND GROUP'S OPTIMAL CAPITAL STRUCTURE AND THEREBY ENSURE MAXIMUM
RETURNS TO SHAREHOLDERS. IN JUNE 1998, RMB RECEIVED A CAPITAL INJECTION OF R215
MILLION AND, IN SEPTEMBER 1998, FNB RECEIVED R2 183 MILLION, BEING THE PROCEEDS
ON THE SALE OF ITS INVESTMENT IN THE SOUTHERN LIFE ASSOCIATION LIMITED. THIS
RESULTED IN THE CAPITAL STRUCTURE OF THE BANKING GROUP BEING SKEWED IN FAVOUR
OF TIER 1 CAPITAL WHICH, FROM THE VIEWPOINT OF BOTH THE FIRSTRAND GROUP AND THE
BANKING GROUP, WAS NOT OPTIMAL. IT WAS, HOWEVER, AGREED THAT THE ADDITIONAL
TIER 1 CAPITAL WOULD BE RETAINED IN THE BANKING GROUP PENDING A COMPREHENSIVE
REVIEW OF THE CAPITAL STRUCTURE, AND THE REGULATORY APPROVAL OF THE PROPOSED
ALTERNATIVE STRUCTURE.
IN JUNE 1999, THE BANKING GROUP RECEIVED REGULATORY APPROVAL FOR THE PROPOSED
CAPITAL RESTRUCTURE AND RETURNED R2 000 MILLION IN CAPITAL TO FIRSTRAND VIA A
SPECIAL DIVIDEND. ON 30 JUNE 1999, SECONDARY CAPITAL IN THE FORM OF A
CONVERTIBLE LOAN OF R2 000 MILLION WAS RAISED. THE LOAN BEARS INTEREST AT A
VARIABLE RATE LINKED TO THE PRIME LENDING RATE, AND IS CONVERTIBLE AT THE
OPTION OF THE ISSUER AFTER SEVEN YEARS.
THE BANKING GROUP'S CAPITAL ADEQUACY RATIO IS 10,5% COMPARED WITH 10,2% AT 30
JUNE 1998. CAPITAL EFFICIENCY HAS ALWAYS BEEN A PRIMARY OBJECTIVE OF THE
FIRSTRAND GROUP. IT IS POLICY TO LEVERAGE CAPITAL SUBJECT TO THE CAPITAL
ADEQUACY RATIO REMAINING IN EXCESS OF 10%. IN TERMS OF THE NEW CAPITAL
STRUCTURE, PRIMARY AND SECONDARY CAPITAL WILL BE SPLIT ON A 60:40 RATIO.
ON THE ASSUMPTION THAT THE CAPITAL RESTRUCTURE WAS IMPLEMENTED ON 1 JULY 1997,
THE PRO FORMA INCREASE IN EARNINGS ATTRIBUTABLE TO SHAREHOLDERS AMOUNTED TO 30%
ACTUAL PRO FORMA
1999 1998(1) INCREASE
R MILLION R MILLION %
EARNINGS ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS
(PER INCOME STATEMENT) 1 898 1 303 46
PRO FORMA INTEREST ON NET
CAPITAL ALLOCATED TO THE
BANKING GROUP (150)(2) 40(3) -
HEADLINE EARNINGS ATTRIBUTABLE
TO SHAREHOLDERS 1 748 1 343 30
THE HEADLINE EARNINGS OF R1 748 MILLION SERVE AS THE BASIS FOR COMPARATIVE
FIGURES GOING FORWARD.
1 PRO FORMA RESULTS BASED ON PERFORMANCE WERE FNB AND RMB PREVIOUSLY
CONSOLIDATED
2 THE BANKING GROUP HAD EFFECTIVE USE OF AN ADDITIONAL CAPITAL AMOUNT OF R2 000
MILLION FOR A PERIOD OF NINE MONTHS. THE ASSUMED RETURN ON THE CAPITAL IS 10%
AFTER TAX
3 THE BANKING GROUP RETAINS ADDITIONAL CAPITAL OF R398 MILLION AFTER THE
CAPITAL RESTRUCTURING. FOR COMPARATIVE PURPOSES, THE BANKING GROUP IS ASSUMED
TO HAVE HAD THIS CAPITAL FROM 1 JULY 1997, WITH THE ASSUMED RETURN ON CAPITAL
BEING 10% AFTER TAX. THIS RESULTS IN AN ADJUSTMENT TO COMPARATIVE OF R40
MILLION. THE CAPITAL WAS INCLUDED IN THE BANKING GROUP RESULTS FOR THE 1999
FINANCIAL YEAR.
THE TABLE BELOW SETS OUT THE EFFECT ON INCOME HAD THE REVISED CAPITAL STRUCTURE
BEEN IN PLACE FOR THE FULL PERIOD.
AFTER CAPITAL
ACTUAL RESTRUCTURE
JUNE JUNE
1999 1999
R MILLION R MILLION
ATTRIBUTABLE EARNINGS 1 898 1 748
AVERAGE SHAREHOLDERS' EQUITY 9 426 7 426
RETURN ON AVERAGE SHAREHOLDERS'
EQUITY (%) 20,1 23,5
THE ADJUSTED ATTRIBUTABLE EARNINGS IS CALCULATED BY DEDUCTING INTEREST EARNED
ON THE CAPITAL HELD FOR THE PERIOD AND AVERAGE SHAREHOLDERS EQUITY IS
CALCULATED EXCLUDING THE R2 000 MILLION CAPITAL FROM SHAREHOLDERS FUNDS.
FINANCIAL OVERVIEW
THE BANKING GROUP, NOTWITHSTANDING, THE OPERATING ENVIRONMENT REFERRED TO
ABOVE, ACHIEVED EXCELLENT RESULTS WITH EARNINGS FOR THE YEAR TOTALLING R1 898
MILLION. THE ACTUAL RESULTS OF THE PREVIOUS YEAR, REPRESENT RMB FOR A 12-MONTH
PERIOD AND FNBH FOR A THREE-MONTH PERIOD. PRO FORMA COMPARATIVE FIGURES,
REPRESENTING AN AGGREGATION OF THE ACCOUNTS OF THE FNB GROUP AND RMB, REFLECT
EARNINGS FOR THE YEAR TO 30 JUNE 1998 OF R1 303 MILLION. AFTER ADJUSTING FOR
THE CAPITAL RESTRUCTURING, THE BANKING GROUP REFLECTED AN INCREASE OF 30% IN
ATTRIBUTABLE HEADLINE EARNINGS FOR THE YEAR.
THE KEY FINANCIAL RATIOS FOR THE BANKING GROUP ARE SET OUT BELOW:
JUNE JUNE
1999 1998
% %
RETURN ON AVERAGE EQUITY 20,1 19,8
INTEREST MARGIN (ON AVERAGE TOTAL ASSETS) 3,3 3,1
INTEREST MARGIN (ON AVERAGE ADVANCES) 5,0 4,4
EFFICIENCY RATIO 61,1 62,9
BAD DEBT CHARGE AS A % OF AVERAGE
ADVANCES 1,4 1,3
GENERAL AND SPECIFIC BAD DEBT PROVISION
AS A % OF ADVANCES 3,5 3,1
OTHER OPERATING INCOME AS A %
OF TOTAL INCOME 51,7 52,2
NOTWITHSTANDING THE INITIAL SQUEEZE ON INTEREST MARGINS WHICH FOLLOWED THE
INTEREST RATE INCREASE, THE BANKING GROUP WAS ABLE TO INCREASE ITS INTEREST
MARGIN FROM 3,1% TO 3,3% ON AVERAGE TOTAL ASSETS AND ON AVERAGE ADVANCES FROM
4,4% TO 5,0%.
INCREASED TRADING INCOME FROM TREASURY AND MERCHANT BANKING ACTIVITIES ENSURED
THAT THE BANKING GROUP'S RATIO OF OTHER OPERATING INCOME TO TOTAL INCOME
DECREASED FROM 52,2% TO 51,7%.
THE BANKING GROUP'S EFFICIENCY RATIO HAS CONTINUED TO IMPROVE DURING THE YEAR
UNDER REVIEW. HOWEVER, THE CURRENT YEAR'S EXPENDITURE FIGURES INCLUDE
NON-RECURRING EXPENDITURE RELATING TO THE MERGER AND THE RESTRUCTURING OF THE
BUSINESS AS WELL AS START UP COSTS RELATING TO NEW OPERATIONS WHICH ARE
EXPENSED IN LINE WITH THE FIRSTRAND GROUP'S ACCOUNTING POLICIES.
THE FOCUS IN THE YEAR WAS ESSENTIALLY ON STRATEGIC PLANNING, RESTRUCTURING, AND
THE APPROPRIATE ALLOCATION OF REVENUE AND COSTS INTO PROFIT CENTRES. THESE
PROCESSES ARE NOW ALMOST COMPLETE WHICH WILL ENABLE THE DIVISIONS TO
CONCENTRATE ON REVENUE ENHANCEMENT AND COST CONTROL. THE RESULT OF FOCUS IN
THIS AREA AT DIVISIONAL LEVEL WILL ENABLE THE BANKING GROUP TO SIGNIFICANTLY
IMPROVE ON ITS EFFICIENCY RATIO.
AN ANALYSIS OF THE BANKING GROUP'S PROVISIONS ARE DETAILED BELOW. THE BOARD IS
OF THE OPINION THAT THE BANKING GROUP PROVISIONS ARE CONSERVATIVE.
JUNE JUNE
1999 1998 INCREASE
R MILLION R MILLION %
CHARGE TO THE INCOME
STATEMENT 1 363 1 170 16
BALANCE SHEET 3 250 2 894 12
- GENERAL PROVISION 1 113 1 171 (5)
- SPECIFIC PROVISION 2 137 1 723 24
AS A % OF ADVANCES
% %
BALANCE SHEET 3,5 3,1
- GENERAL PROVISION 1,2 1,2
- SPECIFIC PROVISION 2,3 1,9
AT THE TIME OF THE MERGER, THE BANKING GROUP DEEMED IT PRUDENT TO CREATE A
GENERAL PROVISION FOR BAD DEBTS OF R600 MILLION. THE PROVISION WAS CREATED TO
ADDRESS THE CONTAGION EFFECT OF TURMOIL IN THE FINANCIAL MARKETS AND THE
CONSEQUENT PRESSURE ON BORROWERS. AS AT 30 JUNE 1999, THE PROVISION HAD BEEN
UTILISED AS FOLLOWS:
JUNE JUNE
1999 1998
R MILLION R MILLION
OPENING BALANCE 600 -
INCREASE IN PROVISION - 600
UTILISATION - SPECIFIC
EMERGING MARKET PROVISIONS (144) -
CLOSING BALANCE 456 600
THE EMERGING MARKET PROVISIONS OF R144 MILLION HAVE BEEN CREATED AGAINST TRADE
RELATED EXPOSURES TO SOUTH AMERICAN AND ASIAN BANKS, WHICH HAVE ARISEN AS A
DIRECT CONSEQUENCE OF THE UNCERTAINTY THAT PREVAILED IN EMERGING MARKETS. IT
WAS DECIDED TO FULLY PROVIDE AGAINST THESE EXPOSURES, WHERE DEFAULTS HAVE
OCCURRED SUBSEQUENT TO OUR PREVIOUS REPORTING PERIOD. IT IS NEVERTHELESS
ANTICIPATED THAT CERTAIN OF THESE PROVISIONS WILL BE RECOVERED. THE BALANCE
REMAINING HAS BEEN ALLOCATED TO GENERAL PROVISION FOR BAD DEBTS TO MAINTAIN
THESE AT A PRUDENT LEVEL.
THE DIVISIONAL PERFORMANCE ANALYSIS OF BANKING GROUP PROFITS ON AN AFTER-TAX
BASIS IS ANALYSED BELOW:
* THE CONSUMER BANKING NUMBERS INCLUDE FNB PROPERTIES, WHICH ON A FIRST TIME
STAND ALONE BASIS INCURRED A LOSS FOR THE YEAR
RMB ONCE AGAIN PERFORMED SUPERBLY, WITH ALL BUSINESS UNITS EXCEEDING TARGETS
WITH RECORD CONTRIBUTIONS FROM TREASURY AND SPECIAL PROJECTS. THIS PERFORMANCE
WAS ACHIEVED DURING A PERIOD OF VOLATILE MARKETS AND THE MERGER OF THE MERCHANT
BANKING ACTIVITIES OF RMB AND FNB.
IN SPITE OF THE DEPRESSED VEHICLE MARKET AND THE SHORT RECESSION, WESBANK HAS
ALSO HAD A RECORD YEAR. MARKET SHARE OF NEW BUSINESS WRITTEN CONSISTENTLY
EXCEEDED 35% OF BUSINESS WRITTEN BY THE FOUR MAJOR COMMERCIAL BANKS AND MONTHLY
NEW BUSINESS HAS EXCEEDED R1 BILLION TWICE THIS YEAR. THE EFFICIENCY RATIO
STANDS AT 49,0% AND A REDUCTION IN BAD DEBTS HAS BEEN ACHIEVED FROM 1,4% OF
ADVANCES TO 1,2%.
FNB PROPERTIES, THE BANKING GROUP'S MORTGAGE FINANCE DIVISION, ESTABLISHED
DURING 1998 FOLLOWING A STRATEGIC DECISION TO CENTRALISE THE HOME LOAN
ACTIVITIES OF FNB'S METROPOLITAN BRANCHES, REPORTED AN AFTER TAX LOSS OF R190
MILLION FOR THE FINANCIAL YEAR. THE HIGH INTEREST RATE ENVIRONMENT RESULTED IN
HIGHER BAD DEBTS AND SLOWED SALES GROWTH. FNB PROPERTIES HAS GONE THROUGH A
MAJOR STRATEGIC RE-FOCUS AND THE DECLINE IN INTEREST RATES AND THE RESULTANT
DECREASE IN BAD DEBTS SHOULD SIGNIFICANTLY IMPROVE PROFITABILITY.
THE CONSUMER BANKING DIVISIONS ARE ENGAGED IN A TRANSFORMATION AND STRATEGIC
REVIEW PROCESS. THE STRATEGIC REVIEW PROCESS INCLUDES THE INVESTIGATION OF
FURTHER 'CHUNKING' OF THE PERSONAL BANK, SPECIFIC RESEARCH INTO THE MARKET
DYNAMICS OF THE TARGET MARKET AND THE POSSIBLE ALIGNMENT OF THE UPPER END OF
THE PERSONAL BANKING MARKET WITH ORIGIN. ORIGIN ESTABLISHED A STRONG BRAND
PRESENCE IN ITS CHOSEN MARKET DURING AN EXTREMELY DIFFICULT PERIOD WITH THE
SLOWDOWN IN CREDIT DEMAND DUE TO THE HIGH INTEREST RATES.
FNB CORPORATE, WHICH FOCUSES ON LARGE CORPORATES, HAS UNDERGONE A YEAR OF
CONSIDERABLE TRANSITION DURING WHICH IT HAS ESTABLISHED A NUMBER OF MARKET
SEGMENTS AND PRODUCT AREAS ON WHICH IT WILL FOCUS IN THE COMING YEAR. ALTHOUGH
PERFORMANCE FOR THE YEAR WAS DISAPPOINTING, THE DIVISION IS WELL POSITIONED FOR
THE FUTURE.
FNB FIRST COMMERCE FOCUSES ON OTHER CORPORATES AND BUSINESSES AND HAS ACHIEVED
EXCELLENT RESULTS FOR THE PERIOD UNDER REVIEW.
FIRST NATIONAL INSURANCE HAS REPORTED BOTH AN UNDERWRITING PROFIT AND AN
INVESTMENT PROFIT. THE JOINT VENTURE BETWEEN MARSH USA AND FIRST BOWRING HAS
BEEN SIGNED AND IT IS EXPECTED THAT SIGNIFICANT BENEFITS WILL BE GAINED FROM
THIS VENTURE.
FNB FIRST NATIONAL, THE BUSINESS UNIT FOCUSING ON THE NON-METROPOLITAN AREAS,
POSTED EXCELLENT PROFITS FOR THE FINANCIAL YEAR. THIS WAS IN THE MAIN DUE TO A
CONTAINMENT OF COSTS, GROWTH IN NON-INTEREST REVENUE AND AN IMPROVED
ASSET/LIABILITY MIX.
FNB NAMIBIA AND FNB SWAZILAND DID NOT PERFORM TO EXPECTATIONS AND REMEDIAL
STEPS HAVE BEEN IMPLEMENTED. FNB BOTSWANA HAS, NOTWITHSTANDING HIGHER THAN
EXPECTED BAD DEBT PROVISIONS, ACHIEVED GOOD RESULTS.
FIRSTRAND INTERNATIONAL, WHICH NOW INCLUDES THE ANSBACHER GROUP, DELIVERED
DISAPPOINTING RESULTS DUE TO WRITE-OFFS FROM LENDING ACTIVITIES, WHICH HAVE
SUBSEQUENTLY BEEN DISCONTINUED.
DIVIDEND
IT IS THE INTENTION OF THE BANKING GROUP TO GROW DIVIDENDS IN LINE WITH
EARNINGS GROWTH. A TOTAL DIVIDEND OF R611 MILLION WAS DECLARED FOR THE YEAR,
REPRESENTING A DIVIDEND COVER OF 3,2 TIMES, WHICH IS IN LINE WITH THE COVER FOR
PREVIOUS PERIODS.
YEAR 2000 COMPLIANCE
THE YEAR 2000 PROJECT TEAMS THROUGHOUT THE BANKING GROUP ARE ON TARGET IN
ENSURING THAT ALL MISSION CRITICAL ACCOUNTING AND OPERATIONAL SYSTEMS SITUATED
IN THE MAJOR BUSINESS UNITS IN THE GROUP ARE YEAR 2000 COMPLIANT. ALL MISSION
CRITICAL SYSTEMS ARE IN A LIVE ENVIRONMENT OR HAVE BEEN THROUGH SEVERAL TESTING
CYCLES IN LINE WITH THE YEAR 2000 PROJECT PLANS.
ALL COSTS ASSOCIATED WITH YEAR 2000 COMPLIANCE ARE BEING FUNDED FROM CASH FLOW
GENERATED FROM OPERATIONS AND ARE BEING CHARGED EITHER AGAINST A PROVISION
CREATED IN PRIOR YEARS, OR ARE EXPENSED AS INCURRED.
PROSPECTS
MOST OF THE CHALLENGES RELATING TO THE MERGER HAVE BEEN MET. THE RESTRUCTURED
CAPITAL IS APPROPRIATE TO THE BANKING GROUP'S NEEDS AND WHERE NECESSARY
MANAGEMENT TEAMS HAVE BEEN STRENGTHENED. THE CONVERGENCE OF FINANCIAL SERVICES
WORLDWIDE HAS BROUGHT WITH IT THE POTENTIAL CONFLICT BETWEEN HISTORICAL
DISTRIBUTION AND SALES CHANNELS, AND RAPIDLY EVOLVING ALTERNATIVE METHODS FOR
CUSTOMER INTERACTION. THE FIRSTRAND BUSINESS PHILOSOPHY ADDRESSES THIS BY
CREATING STAND ALONE PROFIT CENTRES WHICH ALLOW CUSTOMER CHOICE TO DICTATE
FOCUS. THE CONSEQUENT OWNER/MANAGER CULTURE IS ALREADY SHOWING POSITIVE RESULTS
MUCH SPECULATION SURROUNDS THE OPPORTUNITIES FOR FINANCIAL SERVICES WITHIN THE
AMBIT OF "E-COMMERCE". MOST OF SOUTH AFRICA'S BANKING GROUPS PRESENT
COMPETITIVE OFFERINGS IN THIS ARENA. THE BANKING GROUP RECENTLY COMMISSIONED A
STRATEGIC REVIEW AND PLANNING PROCESS THAT IS AIMED AT POSITIONING IT AT THE
FOREFRONT IN THIS RAPIDLY EVOLVING BUSINESS ENVIRONMENT.
WHILE INTERNATIONAL FINANCIAL MARKETS HAVE STABILISED, GLOBAL EVENTS AND THE
ADVENT OF THE NEW MILLENNIUM CONTINUE TO FOSTER A CLIMATE OF UNCERTAINTY. ON
THE LOCAL FRONT, THE ANTICIPATED MORE STABLE AND LOWER INTEREST RATE
ENVIRONMENT IN THE FORTHCOMING YEAR SHOULD PROVIDE OPPORTUNITIES FOR QUALITY
ASSET CREATION IN BOTH THE RETAIL AND CORPORATE MARKETS. MANAGEMENT IS
CONFIDENT THAT, GIVEN THE ACHIEVEMENTS OF THE LAST YEAR AND THE VESTING OF A
MORE ENTREPRENEURIAL CULTURE IN THE BANKING GROUP, SIGNIFICANT VALUE WILL BE
GENERATED.
THE DIRECTORS WOULD LIKE TO EXPRESS THEIR APPRECIATION TO THE MANAGEMENT AND
STAFF OF THE BANKING GROUP, WHO, DURING A YEAR OF CONSIDERABLE CHANGE AND
UNCERTAINTY, HAVE GRASPED THE OPPORTUNITIES THAT ITS RESTRUCTURING HAS
PRESENTED AND HAVE DELIVERED THE EXCELLENT RESULTS PRESENTED.
GT FERREIRA PK HARRIS
CHAIRMAN CHIEF EXECUTIVE OFFICER
POSTAL ADDRESS REGISTERED OFFICE
PO BOX 1153 6TH FLOOR, 1 FIRST PLACE, BANK CITY
JOHANNESBURG, 2000 JOHANNESBURG, 2001
22 SEPTEMBER 1999
MAJOR MERGER MILESTONES
OPERATIONS OF THE TWO BANKING GROUPS OVERLAPPED ONLY IN THE AREA OF MERCHANT
BANKING, AND THE MERGER OF THESE OPERATIONS IS NOW COMPLETE. SUBSTANTIAL
PROGRESS HAS BEEN MADE IN ALIGNING THE CULTURES OF THE BANKS, THROUGH THE
INCULCATION OF AN ENTREPRENEURIAL OWNER/MANAGER CULTURE.
SUCCESSFUL MERGING OF THE MERCHANT AND INVESTMENT BANKING ACTIVITIES OF RMB AND
FNB COMPLETED
CREATION OF A SINGLE LEGAL ENTITY, WHICH OPTIMISES THE UTILISATION OF A LARGER
BALANCE SHEET
INTRODUCTION OF THE FIRSTRAND BUSINESS PHILOSOPHY
IDENTIFICATION AND LIBERATION OF CLUSTERS AND PROFIT CENTRES
OPTIMISATION OF THE CAPITAL STRUCTURE OF THE BANKING GROUP
IDENTIFICATION OF UNDERPERFORMING PROFIT CENTRES, AND COMPLETION OF REMEDIAL
ACTION TO ADDRESS THESE, INCLUDING THE INTRODUCTION OF NEW MANAGEMENT AND THE
DISCONTINUANCE OF SOME ACTIVITIES
PRODUCING EXCELLENT RESULTS AGAINST THE BACKDROP OF EMERGING MARKET TURMOIL AND
THE ONGOING MERGER ACTIVITY
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