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FIRSTRAND LIMITED
INTERIM PROFIT ANNOUNCEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 1999
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FIRSTRAND LIMITED
GROUP INTERIM RESULTS
HIGHLIGHTS
RETURN ON EQUITY 24%
GROUP HEADLINE EARNINGS +20%
DIVIDENDS +20%
ASSETS UNDER MANAGEMENT R282 BILLION
INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER
YEAR
ENDED
30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) AUDITED
RM RM CHANGE RM
HEADLINE EARNINGS
BANKING OPERATIONS 1 008 866 16% 1 898
INSURANCE OPERATIONS 372 276 35% 631
HOLDING COMPANY * (5) - (47)
1 375 1 142 20% 2 482
DIVIDENDS (RM) 490 408 844
RETURN ON AVERAGE EQUITY (%) 23,9 23,6 24,5
NUMBER OF SHARES IN ISSUE
(MILLION) 5 445 5 445 5 445
EARNINGS PER SHARE (CENTS) 27,4 21,0 30% 45,7
HEADLINE EARNINGS PER SHARE
(CENTS) 25,3 21,0 20% 45,6
DIVIDEND PER SHARE (CENTS)
INTERIM 9,0 7,5 20% 7,5
FINAL N/A N/A 8,0
TOTAL 9,0 7,5 15,5
HEADLINE EARNINGS RECONCILIATION
ATTRIBUTABLE EARNINGS
BANKING OPERATIONS 1 008 866 1 898
INSURANCE OPERATIONS 593 276 638
HOLDING COMPANY (5) (47)
TOTAL ATTRIBUTABLE EARNINGS 1 596 1 142 2 489
ADJUSTMENTS
INSURANCE GROUP
SALE OF MC2 SOLUTIONS -
INTERCOMPANY (104) - -
CONSOLIDATED ATTRIBUTABLE EARNINGS 1 492 1 142 30% 2 489
INSURANCE GROUP
SALE OF SHARES IN DISCOVERY
HOLDINGS (117)
PORTION OF GOODWILL WRITTEN OFF 2
LOSS ON SALE OF SUBSIDIARY AND
JOINT VENTURE 6
RELEASE OF PROVISIONS MADE ON
DISPOSAL OF JOINT VENTURE (15)
HEADLINE EARNINGS 1 375 1 142 20% 2 482
*JUNE 1999: INCLUDES TAXATION OF R41 MILLION OF WHICH R34 MILLION RELATES TO
STC.
BALANCE SHEET AT 31 DECEMBER
30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
RM RM RM
ASSETS
BANKING OPERATIONS 135 788 126 050 133 796
CASH AND SHORT-TERM FUNDS 10 389 9 259 11 684
SHORT-TERM NEGOTIABLE SECURITIES 9 229 10 489 10 701
INVESTMENT IN TRADING SECURITIES 8 765 10 515 13 469
ADVANCES 100 992 93 688 93 718
OTHER INVESTMENTS 1 225 327 1 013
ASSOCIATED COMPANIES 109 65 149
LIABILITIES TO CLIENTS UNDER ACCEPTANCES 5 079 1 707 3 062
INSURANCE OPERATIONS 58 841 46 968 53 186
GOVERNMENT AND PUBLIC AUTHORITY STOCKS 4 838 8 369 5 234
MORTGAGES, DEBENTURES AND OTHER LOANS 5 175 3 854 4 488
EQUITY INVESTMENTS 37 534 25 740 31 409
PROPERTY INVESTMENTS 3 434 3 688 3 388
POLICY LOANS 616 565 507
FUNDS ON DEPOSIT 7 244 4 752 8 160
PROPERTY AND EQUIPMENT 3 460 3 651 3 583
CURRENT ASSETS 12 934 7 863 8 695
TOTAL ASSETS 211 023 184 532 199 260
SHAREHOLDERS' EQUITY AND LIABILITIES
DEPOSITS AND CURRENT ACCOUNTS 117 670 114 873 115 392
CREDITORS AND ACCRUALS 14 094 9 861 14 085
DEFERRED TAXATION 1 373 1 172 1 157
DEBENTURES AND LONG-TERM LIABILITIES 2 496 622 2 313
LIABILITIES TO CLIENTS UNDER ACCEPTANCES 5 079 1 707 3 062
TOTAL LIABILITIES 140 712 128 235 136 009
LIABILITIES TO POLICYHOLDERS 57 695 45 836 51 719
OUTSIDE SHAREHOLDERS' INTERESTS 635 427 518
CAPITAL AND RESERVES 11 981 10 034 11 014
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES 211 023 184 532 199 260
SUMMARISED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER
YEAR ENDED
30 JUNE
1999 1999
(UNAUDITED) (AUDITED)
RM RM
CASH FLOWS FROM OPERATING ACTIVITIES
CASH GENERATED BY OPERATIONS 6 182 13 149
WORKING CAPITAL CHANGES (4 311) 2 958
CASH INFLOW FROM OPERATIONS 1 871 16 107
NORMAL TAX PAID (494) (1 031)
DIVIDENDS PAID (436) (654)
NET CASH INFLOW FROM OPERATING ACTIVITIES 941 14 422
NET CASH OUTFLOW FROM INVESTMENT ACTIVITIES (3 335) (15 851)
NET CASH INFLOW FROM FINANCING ACTIVITIES 183 1 657
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2 211) 228
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19 844 19 616
CASH AND CASH EQUIVALENTS AT END OF PERIOD 17 633 19 844
ASSETS UNDER MANAGEMENT AT 31 DECEMBER
31 DEC 30 JUNE
(UNAUDITED) (AUDITED)
1999 1999
RM RM
BANKING GROUP 148 457 143 714
INSURANCE GROUP 134 069 111 698
ON-BALANCE SHEET 62 566 55 546
OFF-BALANCE SHEET ASSETS MANAGED AND ADMINISTERED
ON BEHALF OF CLIENTS 71 503 56 152
TOTAL 282 526 255 412
STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 DECEMBER 1999
NON- SHARE TOTAL
DISTRIB- COVERTIBLE CAPITAL SHARE-
RETAINED UTABLE DEBENTURES AND SHARE HOLDERS'
EARNINGS RESERVES PREMIUM FUNDS
RM RM RM RM RM
BALANCE AT BEGINNING
OF THE PERIOD 1 906 272 350 8 486 11 014
NET GAINS OR LOSSES
NOT RECOGNISED IN
THE INCOME STATEMENT - (35) - - (35)
EARNINGS ATTRIBUTABLE
TO SHAREHOLDERS 1 492 - - - 1 492
DIVIDENDS (490) - - - (490)
TRANSFER (TO)/FROM
RESERVES (176) 176 - - -
SHARE ISSUE EXPENSES - - - - -
BALANCE AT
31 DECEMBER 1999 2 732 413 350 8 486 11 981
SOURCES OF PROFIT
DECEMBER 1999 DECEMBER 1998
% %
INDIVIDUAL LIFE 8 4
EMPLOYEE BENEFITS 3 2
ASSET MANAGEMENT 7 5
HEALTH INSURANCE 2 2
INVESTMENT INCOME ON FREE RESERVES 7 11
REGIONAL BANKING INCLUDING AFRICAN
SUBSIDIARIES 20 22
MERCHANT BANK 18 28
WESBANK 13 9
FIRST COMMERCE 11 16
CORPORATE BANK 6 3
CONSUMER BANK 3 7
PROPERTY FINANCE 1 (11)
SHORT-TERM INSURANCE 1 2
HOLDING COMPANY - -
TOTAL HEADLINE EARNINGS 100 100
COMMENTARY
COMPANY STRUCTURE - SEE PRESS FOR GRAPHIC
INTRODUCTION
THIS REPORT RELATES TO THE CONSOLIDATED RESULTS OF THE FIRSTRAND GROUP OF
COMPANIES ("THE GROUP") FOR THE SIX MONTHS ENDED 31 DECEMBER 1999. SEPARATE
REPORTS RELATING TO THE GROUP'S BANKING AND INSURANCE INTERESTS FOLLOW AND
SHOULD BE READ IN CONJUNCTION WITH THIS REPORT.
EARNINGS AND DIVIDENDS
CONSOLIDATED HEADLINE EARNINGS AFTER TAX FOR THE SIX MONTHS TO
31 DECEMBER 1999 TOTALLED R1 375 MILLION (25,3 CENTS PER SHARE) COMPARED WITH
EARNINGS OF R1 142 MILLION (21,0 CENTS PER SHARE) DURING THE CORRESPONDING
PERIOD ENDED 31 DECEMBER 1998. THIS TRANSLATES TO AN INCREASE OF 20% IN
HEADLINE EARNINGS PER SHARE FOR THE PERIOD UNDER REVIEW.
EARNINGS FROM THE GROUP'S BANKING INTERESTS CONTRIBUTED 73% OF THE TOTAL, WHILE
THE INSURANCE AND ASSET MANAGEMENT ACTIVITIES CONTRIBUTED THE BALANCE OF 27%.
THE BOARD OF DIRECTORS HAVE APPROVED A DIVIDEND INCREASE OF 20% FROM 7,5 CENTS
PER SHARE TO 9,0 CENTS PER SHARE. THE DIVIDEND COVER IS APPROXIMATELY 2,8
TIMES. THIS COVER IS CONSISTENT WITH PRIOR PERIODS.
TRADING CONDITIONS
TRADING CONDITIONS DURING THE PERIOD UNDER REVIEW HAVE BEEN STABLE RELATIVE TO
THE COMPARABLE SIX MONTHS OF 1998. DURING THE 1998 PERIOD, THE COLLAPSE OF
CONFIDENCE IN EMERGING MARKETS RESULTED IN THE JOHANNESBURG STOCK EXCHANGE
("JSE") ALL SHARE INDEX FALLING BY 37% AND PRIME OVERDRAFT INTEREST RATES
INCREASING TO A RECORD 25,5% AS THE SOUTH AFRICAN RESERVE BANK MOVED TO PROTECT
THE RAND.
THESE EVENTS IMPACTED NEGATIVELY ON INSURANCE EARNINGS AND BANK MARGINS IN THAT
PERIOD. THE RAPID RISE IN INTEREST RATES DURING THAT PERIOD INCREASED BAD DEBTS
BUT THE VOLATILITY IN THE MARKETS CREATED OPPORTUNITIES FOR OUR TRADING DESKS.
BY COMPARISON THE SIX MONTHS TO DECEMBER 1999 HAVE SEEN A CONTINUING DECLINE IN
INTEREST RATES AND A CAUTIOUS RETURN OF INVESTOR CONFIDENCE IN THE JSE.
NOTWITHSTANDING THIS FAVOURABLE OUTLOOK, THE BANKING GROUP'S RESULTS WERE
NEGATIVELY IMPACTED BY THE AFTERMATH OF THE INTEREST RATE SPIKE REFERRED TO
EARLIER. A NUMBER OF WELL PUBLICISED CORPORATE FAILURES OCCURRED IN THE PERIOD
UNDER REVIEW. AT THE TIME OF THE MERGER A SPECIAL PROVISION OF R600 MILLION FOR
BAD DEBT WAS CREATED. OF THIS PROVISION R144 MILLION WAS UTILISED DURING THE
PREVIOUS FINANCIAL YEAR AND THE BALANCE OF R456 MILLION WAS TRANSFERRED TO THE
GENERAL PROVISION FOR BAD DEBTS. THIS PROVISION HAS NOT BEEN UTILISED DURING
THE PERIOD UNDER REVIEW.
ALLOCATION OF CAPITAL
A RIGOROUS REVIEW OF THE CAPITAL ALLOCATED TO AND UTILISED BY BUSINESS UNITS IS
BEING UNDERTAKEN. AS PART OF THE EXERCISE, THE GROUP IS DETERMINING CAPITAL
ALLOCATION PRINCIPLES WHICH FACILITATE THE COMPARISON OF THE RETURNS BEING
ACHIEVED BY EACH PART OF THE BUSINESS WITH THE CAPITAL THAT IS REQUIRED TO
SUPPORT THE OPERATION. THE INTENTION IS TO IMPROVE THE GROUP'S RETURN ON
CAPITAL AND ENSURE THAT ANY EXCESS CAPITAL WHICH MIGHT BECOME AVAILABLE FROM
TIME TO TIME IS OPTIMALLY UTILISED.
THE GROUP'S RETURN ON EQUITY FOR THE PERIOD UNDER REVIEW WAS 23,9% COMPARED
WITH 23,6% FOR THE SAME PERIOD LAST YEAR.
FIRSTRAND BANK'S CAPITAL ADEQUACY RATIO AT 31 DECEMBER 1999 WAS 10,1% COMPARED
WITH 10,5% AT JUNE 1999.
THE CREATION AND SUBSEQUENT LISTING OF DISCOVERY HOLDINGS HAS ALLOWED THE
INSURANCE GROUP TO VALUE ITS INVESTMENT IN THAT ENTITY AT MARKET VALUE. THIS
HAS RESULTED IN THE INSURANCE GROUP'S FREE RESERVES COVERING THE STATUTORY
CAPITAL ADEQUACY REQUIREMENTS BY A FACTOR WELL IN EXCESS OF TWO TIMES.
APPROXIMATELY 80% OF THE DIVIDEND PROPOSED BY FIRSTRAND WILL BE SOURCED FROM
THE DIVIDEND TO BE PAID BY THE INSURANCE GROUP TO THE HOLDING COMPANY IN ORDER
TO OPTIMISE THE CAPITAL UTILISATION BETWEEN THE INSURANCE AND BANKING GROUPS.
THE TRANSFER OF CAPITAL BETWEEN THE BANKING AND INSURANCE GROUPS IN PRIOR
PERIODS AND THE DIVIDEND FUNDING REFERRED TO ABOVE IMPACTS ON THE USE OF
COMPARATIVES TO MEASURE PROGRESS IN THESE SUBSIDIARIES. SHAREHOLDERS ARE
REFERRED TO NOTES IN THE REPORTS OF THE BANKING AND INSURANCE GROUPS DEALING
WITH THE ALLOCATION OF CAPITAL AND ITS USE IN PRIOR PERIODS.
REPORT ON OPERATIONS
FIRSTRAND LIMITED
THE ROLE OF THE HOLDING COMPANY IS TO ENSURE THAT IT OPTIMISES THE
OPPORTUNITIES ARISING FROM THE CONVERGENCE OF BANKING AND INSURANCE IN THE
FINANCIAL SERVICES INDUSTRY. IN ADDITION TO THE ALLOCATION OF CAPITAL, IT WILL
ALSO LEVERAGE THE GROUP'S SKILLS AND INTELLECTUAL KNOW-HOW OVER A BROAD
SPECTRUM OF FINANCIAL SERVICES AND PRODUCTS.
IN THIS REGARD, GOOD PROGRESS WAS MADE.
- THE PILOT PROJECT TESTING THE SALE OF CERTAIN INSURANCE PRODUCTS AT SELECTED
BANK BRANCHES DELIVERED ENCOURAGING RESULTS. A SYSTEMATIC ROLLOUT TO OTHER
BRANCHES, STARTING WITH THE NON-METROPOLITAN BRANCHES, HAS COMMENCED.
- TO ENHANCE THE EFFECTIVENESS OF THE GROUP'S SHORT-TERM INSURANCE OPERATIONS,
FIRST NATIONAL INSURANCE IS BEING MERGED WITH RMB HOLDINGS' OUTSURANCE.
CONSIDERABLE SYNERGIES ARE EXPECTED TO BE ACHIEVED OVER THE MEDIUM TERM.
FIRSTRAND BANKING GROUP AND RMB HOLDINGS WILL EACH INITIALLY HOLD 48% OF THE
COMBINED ENTITY WITH THE STAFF SHARE TRUST HOLDING THE BALANCE.
- CERTAIN PRODUCTS AND SERVICES DEVELOPED BY THE INSURANCE GROUP ARE BEING
MARKETED BY MAS TO ANSBACHER'S INTERNATIONAL CLIENTS.
- THE GROUP HAS A NUMBER OF STRONG BRANDS AND A LARGE NUMBER OF LOYAL
CUSTOMERS. A STUDY TO POSITION THESE BRANDS IN APPROPRIATE MARKET SEGMENTS TO
AVOID BRAND CONFUSION HAS BEEN COMPLETED. FURTHER ANNOUNCEMENTS IN THIS REGARD
WILL BE MADE BEFORE THE FINANCIAL YEAR-END.
- THE DEVELOPMENT OF THE GROUP'S E-COMMERCE STRATEGY WHICH WILL SPAN BOTH
INSURANCE AND BANKING ACTIVITIES, IS PROGRESSING WELL.
FIRSTRAND BANKING GROUP
EXCELLENT PROGRESS WAS MADE IN RESTRUCTURING THE GROUP'S BANKING OPERATIONS.
THE CLUSTERS OR PROFIT CENTRE CONCEPT IS BEING REFINED AND SYSTEMATICALLY
IMPLEMENTED. STEADY PROGRESS IS BEING MADE WITH THE IMPROVEMENT OF MANAGEMENT
INFORMATION SYSTEMS.
EARNINGS IN THE BANKING GROUP TOTALLED R1 008 MILLION FOR THE SIX MONTHS. THIS
REPRESENTS AN INCREASE OF 16% COMPARED WITH THE PREVIOUS PERIOD. AFTER
ADJUSTING FOR ADDITIONAL CAPITAL TOTALLING R2,0 BILLION HELD DURING THE 1998
PERIOD, THE PRO FORMA INCREASE IS 24%. THE RETURN ON THE BANKING GROUP'S EQUITY
DURING THE SIX MONTHS TO 31 DECEMBER 1999
WAS 24%.
THE SALIENT FEATURES OF THE BANKING GROUP'S PROFITS ARE:
- GOOD GROWTH IN PROFITS FROM CERTAIN MERCHANT BANKING DIVISIONS, ESPECIALLY
STRUCTURED FINANCE. THE GROWTH WAS OFFSET BY LOWER PROFITS FROM TRADING
ACTIVITIES.
- SIGNIFICANTLY IMPROVED PROFITS FROM THE CORPORATE BANK DIVISION.
- A MAJOR TURNAROUND IN THE PROPERTY FINANCE DIVISION.
- STRONG PERFORMANCE FROM WESBANK WHICH IMPROVED ITS MARKET SHARE IN A MARKET
CHARACTERISED BY A RECOVERY IN VEHICLE SALES.
- PROVISIONS REQUIRED FOR A NUMBER OF WELL-PUBLICISED CORPORATE FAILURES.
- THE OPERATING EFFICIENCY RATIO IMPROVED FROM 61,5% TO 60,0%.
- REDUCED LEVELS OF LOSS THROUGH FRAUD AS RESULT OF A NUMBER OF IMAGINATIVE AND
HIGHLY TARGETED CAMPAIGNS IMPLEMENTED BY THE BANKING GROUP.
FIRSTRAND INSURANCE GROUP
HEADLINE EARNINGS FROM THE OPERATIONS OF THE INSURANCE GROUP AND ITS FREE
RESERVES TOTALLED R372 MILLION REPRESENTING AN INCREASE OF 35%.
OPERATING PROFITS INCREASED BY 82% TO R271 MILLION. INVESTMENT INCOME ON THE
FREE RESERVES DECLINED FROM R127 MILLION TO R101 MILLION FOLLOWING THE
REDEPLOYMENT OF A PORTION OF THESE RESERVES FROM INTEREST-BEARING INVESTMENTS
TO GROWTH ASSETS THAT ARE EXPECTED TO PROVIDE A BETTER COMPOSITE YIELD OVER THE
LONG TERM.
THE PROPOSED CONSOLIDATION OF THE LIFE INSURANCE BUSINESSES OF MOMENTUM LIFE
AND SOUTHERN LIFE INTO A SINGLE LEGAL ENTITY IN TERMS OF THE INSURANCE ACT IS
NEARING COMPLETION, BUT IS STILL SUBJECT TO APPROVAL BY THE HIGH COURT OF SOUTH
AFRICA.
ALL THE INSURANCE GROUP'S POLICIES ARE NOW MANAGED OFF A SINGLE COMPUTER
PLATFORM. FURTHER OPERATING EFFICIENCIES AND SERVICE IMPROVEMENTS CAN BE
EXPECTED TO FLOW FROM THE COMPLETION OF THIS CONVERSION PROJECT.
THE GROUP'S ASSET MANAGEMENT ACTIVITIES HAVE BEEN CONSOLIDATED UNDER THE RMB
ASSET MANAGEMENT AND FUTUREGROWTH BRANDS AND THIS IS EXPECTED TO DELIVER COST
SAVINGS OVER THE MEDIUM TERM.
DISCOVERY HOLDINGS WAS SUCCESSFULLY LISTED ON THE JSE. THE GROUP RETAINED A 65%
HOLDING IN THE LISTED ENTITY.
THE OPERATING RESULTS OF THE INSURANCE GROUP WERE IMPACTED BY THE FOLLOWING:
- STRONG NEW BUSINESS SALES ACROSS VIRTUALLY ALL PRODUCTS.
- A SOLID INCREASE IN THE VALUE OF ASSETS UNDER MANAGEMENT IMPACTED FAVOURABLY
ON FEE INCOME.
- STRONG GROWTH IN OPERATING PROFIT WAS ACHIEVED BY ALL BUSINESS UNITS.
- A JOINT VENTURE ARRANGEMENT WITH A THIRD PARTY REDUCED LOSSES ARISING FROM
THE SOUTHERN LIFE FIELD FORCE DISTRIBUTION.
- FURTHER MERGER SAVINGS WERE ACHIEVED AND COST TO INCOME RATIOS CONTINUED TO
IMPROVE.
THE LISTING OF DISCOVERY HOLDINGS INCREASED THE INSURANCE GROUP'S FREE RESERVES
BY R1,9 BILLION, WHICH SHOULD RESULT IN AN INCREASED EMBEDDED VALUE FOR THE
IMPROVE.
PROSPECTS
STABLE OR DECLINING SHORT-TERM INTEREST RATES SHOULD HAVE A FAVOURABLE IMPACT
ON BAD DEBT EXPERIENCE. IN DUE COURSE THIS SHOULD TRANSLATE INTO AN INCREASE IN
ADVANCES ARISING FROM IMPROVED CONSUMER AND BUSINESS CONFIDENCE.
THE INSURANCE GROUP WILL BENEFIT FROM AN INCREASE IN FEES ARISING FROM THE
IMPROVEMENT IN THE PERFORMANCE OF THE JSE.
THE OUTLOOK FOR THE SECOND HALF OF THE FINANCIAL YEAR IS POSITIVE AND BARRING
UNFORESEEN CIRCUMSTANCES, MANAGEMENT IS CONFIDENT THAT EARNINGS IN THIS PERIOD
WILL EXCEED THOSE REPORTED HERE.
DIVIDEND DECLARATION
NOTICE IS HEREBY GIVEN THAT AN INTERIM DIVIDEND OF 9,0 CENTS PER SHARE HAS BEEN
DECLARED ON 29 FEBRUARY 2000 IN RESPECT OF THE SIX MONTHS ENDED 31 DECEMBER
1999 PAYABLE TO ORDINARY SHAREHOLDERS REGISTERED IN THE BOOKS OF THE COMPANY AT
THE CLOSE OF BUSINESS ON 17 MARCH 2000. DIVIDENDS WILL, WHERE APPLICABLE, BE
TRANSFERRED ELECTRONICALLY ON
31 MARCH 2000 TO BANK ACCOUNTS OF SHAREHOLDERS. DIVIDEND CHEQUES WILL, IN THE
ABSENCE OF APPROPRIATE MANDATES, BE POSTED TO SHAREHOLDERS ON OR ABOUT THIS
DATE.
G T FERREIRA L L DIPPENAAR
CHAIRMAN CHIEF EXECUTIVE
29 FEBRUARY 2000
TRANSFER SECRETARIES: COMPUTERSHARE SERVICES LIMITED, 4TH FLOOR, EDURA HOUSE,
41 FOX STREET, JOHANNESBURG, 2001.
REGISTERED OFFICE: 17TH FLOOR, 1 MERCHANT PLACE, CORNER FREDMAN DRIVE AND
RIVONIA ROAD, SANDTON, 2149.
REGISTRATION NUMBER: 66/10753/06
(PO BOX 786273, SANDTON, 2146, TELEPHONE (011) 282-1808, TELEFAX (011) 282-8065
SECRETARY: P F DE BEER (FCIS)
FIRSTRAND BANKING GROUP INTERIM RESULTS
HIGHLIGHTS
RETURN ON CAPITAL 24%
PRO FORMA EARNINGS +24%
SUMMARISED INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER
YEAR ENDED
30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
RM RM RM
INTEREST INCOME 8 911 10 416 20 287
INTEREST EXPENDITURE (6 425) (8 111) (15 479)
GROSS INTEREST INCOME 2 486 2 305 4 808
CHARGE FOR BAD AND DOUBTFUL DEBTS (646) (558) (1 363)
NET INTEREST INCOME 1 840 1 747 3 445
TOTAL OTHER OPERATING INCOME 2 798 2 456 5 156
NET INTEREST AND OTHER OPERATING INCOME 4 638 4 203 8 601
TOTAL OTHER OPERATING EXPENDITURE (3 171) (2 926) (6 086)
INCOME BEFORE TAXATION 1 467 1 277 2 515
(417) (389) (573)
INCOME AFTER TAX 1 050 888 1 942
ASSOCIATES AND OUTSIDE SHAREHOLDERS (42) (22) (44)
NET INCOME 1 008 866 1 898
SUMMARISED BALANCE SHEET AT 31 DECEMBER
30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
RM RM RM
LIABILITIES AND SHAREHOLDERS' FUNDS
DEPOSITS AND CURRENT ACCOUNTS 118 363 114 973 116 306
CREDITORS AND ACCRUALS 11 359 7 610 11 725
TOTAL DEFERRED TAX 1 374 1 147 1 159
DEBENTURES AND OTHER LONG-TERM
LIABILITIES 3 214 381 3 225
ISSUED SHARE CAPITAL 106 106 106
RESERVES 8 850 9 418 7 934
OUTSIDE SHAREHOLDERS' INTEREST IN
SUBSIDIARIES 413 163 393
LIABILITIES TO CLIENTS UNDER
ACCEPTANCES 5 079 1 707 3 062
TOTAL LIABILITIES AND SHAREHOLDERS'
FUNDS 148 758 135 505 143 910
ASSETS
CASH AND SHORT-TERM FUNDS 10 389 9 259 11 684
OTHER SHORT-TERM NEGOTIABLE SECURITIES 9 198 10 474 10 652
INVESTMENT SECURITIES 8 765 7 515 13 469
ADVANCES 101 118 96 859 93 824
DEBTORS 9 531 5 796 6 567
OTHER INVESTMENTS 1 225 327 1 013
INVESTMENT IN ASSOCIATES 109 65 149
FIXED ASSETS 3 303 3 503 3 431
CLIENT LIABILITIES UNDER ACCEPTANCES 5 079 1 707 3 062
NET SECURITIES UNDER AGREEMENT TO
RESELL 41 0 59
TOTAL ASSETS 148 758 135 505 143 910
COMMENTARY
INTRODUCTION
THESE INTERIM RESULTS REFLECT THE POSITION OF THE BANKING INTERESTS OF THE
FIRSTRAND LIMITED GROUP OF COMPANIES AND SHOULD BE READ IN CONJUNCTION WITH THE
REPORT ON FIRSTRAND LIMITED ELSEWHERE IN THIS PUBLICATION.
THE FIRSTRAND BANKING GROUP ("THE BANKING GROUP") IS 100% HELD BY FIRSTRAND
LIMITED. THE CONSOLIDATED FIGURES IN THIS REPORT INCLUDE THE OPERATIONS OF
FIRST NATIONAL BANK ("FNB"), WESBANK, RAND MERCHANT BANK ("RMB"), FNB NAMIBIA,
FNB BOTSWANA AND FNB SWAZILAND AS WELL AS RMB INTERNATIONAL AND THE HENRY
ANSBACHER GROUP.
OPERATING ENVIRONMENT
THE FIRST HALF OF THE CURRENT FINANCIAL YEAR WAS CHARACTERISED BY LOW
VOLATILITY IN THE FINANCIAL MARKETS AND A STEADY DECLINE IN INTEREST RATES.
ALTHOUGH THIS RETURN TO STABILITY AND LOWER INTEREST RATES HAS BEEN WELCOMED,
THE RETURN OF CONSUMER AND BUSINESS CONFIDENCE HAS BEEN SLOW WITH A RESULTANT
LOWER DEMAND FOR CREDIT. THE AFTERMATH OF THE HIGH INTEREST RATES IN THE
PREVIOUS FINANCIAL YEAR, ALTHOUGH SUBSTANTIALLY REVERSED BY THE END OF THE
HALF-YEAR, STILL AFFECTED THE CHARGE FOR BAD AND DOUBTFUL DEBTS AND THE
IMPROVEMENT IN NON-PERFORMING LOANS ONLY MATERIALISED TOWARDS THE END OF
DECEMBER 1999.
OVERVIEW OF RESULTS
THE BANKING GROUP ACHIEVED SOLID RESULTS WITH EARNINGS ATTRIBUTABLE TO
SHAREHOLDERS FOR THE SIX MONTHS TOTALLING R1 008 MILLION (1998: R866 MILLION).
THIS REPRESENTS AN INCREASE IN PRO FORMA HEADLINE EARNINGS ATTRIBUTABLE TO
SHAREHOLDERS OF 24%, CALCULATED AS FOLLOWS:
SIX MONTHS ENDED YEAR ENDED
DECEMBER DECEMBER JUNE
1999 1998 1999
RM RM INCREASE RM
EARNINGS ATTRIBUTABLE
TO SHAREHOLDERS 1 008 866 16% 1 898
PRO FORMA INTEREST ON
CAPITAL TRANSFERRED TO
FIRSTRAND LIMITED
ON 30 JUNE 1999 - (50) - (150)
PRO FORMA EARNINGS
ATTRIBUTABLE TO
SHAREHOLDERS 1 008 816 24% 1 748
IN THE AFTERMATH OF THE HIGH INTEREST RATES, OUR DECISION TO CREATE
CONSERVATIVE PROVISIONS AGAINST WELL-PUBLICISED EXPOSURES, WHICH AFFECTED MOST
PLAYERS IN THE FINANCIAL SERVICES INDUSTRY, IS EVIDENT IN THE INCREASE OF 16%
IN THE CHARGE FOR BAD AND DOUBTFUL DEBTS. WE DO NOT EXPECT SIMILAR WRITE-OFFS
IN THE SECOND HALF OF THE FINANCIAL YEAR BUT ANTICIPATE DECREASES IN BAD DEBTS
AS A RESULT OF THE LOWER INTEREST RATES, WHICH ARE ALREADY HAVING A POSITIVE
EFFECT ON THE NON-PERFORMING LOANS IN OUR PORTFOLIO.
THE BALANCE OF THE R600 MILLION GENERAL PROVISION, NAMELY R456 MILLION, CREATED
AT THE TIME OF THE MERGER HAS NOT BEEN UTILISED DURING THE PERIOD UNDER REVIEW
AND HAS NOW BEEN TRANSFERRED TO THE GENERAL PROVISION FOR BAD DEBTS. THE TOTAL
PROVISION REFLECTED IN THE BALANCE SHEET REPRESENTS A CONSERVATIVE 3,5% OF
ADVANCES.
NET INTEREST INCOME SHOWS AN INCREASE OF 8% WHICH IS A RESULT OF LOW ASSET
GROWTH AND THE REDUCTION IN CAPITAL AS A RESULT OF THE TRANSFER TO FIRSTRAND
LIMITED AT THE BEGINNING OF THE YEAR. DESPITE THE DECLINE IN INTEREST RATES,
MARGINS REMAINED AT 3,4% ON AVERAGE TOTAL ASSETS.
THE KEY FINANCIAL HIGHLIGHTS AND RATIOS FOR THE BANKING GROUP ARE SET OUT BELOW
DECEMBER DECEMBER JUNE
1999 1998 1999
% % %
RETURN ON AVERAGE EQUITY 23,6 21,4 20,1
INTEREST MARGIN
(ON AVERAGE TOTAL ASSETS) 3,4 3,4 3,3
EFFICIENCY RATIO 60,0 61,5 61,1
BAD DEBTS AS A PERCENTAGE
OF AVERAGE ADVANCES 1,3 1,2 1,4
GENERAL AND SPECIFIC
PROVISIONS AS A
PERCENTAGE OF AVERAGE
ADVANCES 3,5 3,7 3,5
OTHER OPERATING INCOME
AS A PERCENTAGE OF
TOTAL INCOME 53,0 51,6 51,7
NON-PERFORMING LOANS
AS A PERCENTAGE OF
TOTAL ADVANCES 5,1 5,7 5,6
CAPITAL ADEQUACY 10,1 11,1 10,5
THE EFFICIENCY RATIO HAS FURTHER IMPROVED DURING THE PERIOD UNDER REVIEW.
AGGRESSIVE MANAGEMENT OF COSTS ALONG WITH THE IMPLEMENTATION OF SMALLER, MORE
ACCOUNTABLE BUSINESS UNITS HAS CONTRIBUTED TO THE IMPROVEMENT IN THE EFFICIENCY
RATIO FROM 61,5% TO 60,0%. SIGNIFICANT SAVINGS HAVE BEEN ACHIEVED IN TECHNOLOGY
SPEND WITHOUT AFFECTING OUR STRATEGY AND FURTHER COST SAVINGS ARE EXPECTED TO
BE ACHIEVED DURING THE SECOND HALF OF THE FINANCIAL YEAR.
ADVANCES REFLECT A MODERATE GROWTH OF 7,7% WHICH MUST BE JUDGED AGAINST THE
LOWER DEMAND FOR CREDIT DURING THE FIRST SIX MONTHS AS WELL AS OUR STRATEGY TO
EXIT LENDING ACTIVITIES WHICH DO NOT PROVIDE THE APPROPRIATE RETURN FOR THE
RISK TAKEN.
DIVISIONAL PERFORMANCES
THE PREVIOUS SIX-MONTH PERIOD WAS CHARACTERISED BY HIGH VOLATILITIES AND A
SQUEEZE ON INTEREST MARGINS. THIS ENVIRONMENT CREATED OPPORTUNITIES FOR THE
MERCHANT BANK TO PRODUCE SOUND RESULTS, WHICH COMPENSATED FOR THE LOSS IN
MARGIN INCOME ON LENDING ACTIVITIES. THE CURRENT PERIOD WAS ONE OF LOWER
VOLATILITIES, INTEREST RATE MARGINS AT HISTORICAL LEVELS AND LITTLE DEMAND FOR
CREDIT. DECREASED VOLATILITY IN THE FINANCIAL MARKETS PRESENTED FEWER
OPPORTUNITIES FOR THE BANKING GROUP'S TRADING OPERATIONS, RESULTING IN A
DECLINE IN THEIR RELATIVE CONTRIBUTION TO PROFITS. THIS WAS MORE THAN
COMPENSATED FOR BY INCREASED MARGINS ON LENDING ACTIVITIES. MARKET ACTIVITY
INCREASED DRAMATICALLY TOWARDS THE END OF THE PERIOD AND HAS CONTINUED STRONGLY
INTO THE NEW YEAR WHICH WILL BENEFIT THE MERCHANT BANKING OPERATIONS. THE
PORTFOLIO OF CURRENT BUSINESSES ENSURES THAT, ON BALANCE, THE BANKING GROUP
SHOULD ALWAYS HAVE SOME DIVISIONS EXCEEDING EXPECTATIONS.
PROFIT CONTRIBUTION BY BUSINESS AREA
- REGIONAL BANK INCLUDING AFRICAN SUBSIDIARIES 28%
- MERCHANT BANK 24%
- WESBANK 18%
- FIRST COMMERCE 16%
- CORPORATE BANK 8%
- CONSUMER BANK 4%
- PROPERTY FINANCE 1%
- BANCASSURANCE 1%
OF THE ABOVE EARNINGS, 14% IS ATTRIBUTABLE TO INTERNATIONAL OPERATIONS
(EXCLUDING AFRICAN SUBSIDIARIES).
RMB ONCE AGAIN PERFORMED SUPERBLY AGAINST TARGETS, WITH MOST BUSINESS UNITS
EXCEEDING TARGETS AND ANOTHER RECORD CONTRIBUTION FROM SPECIAL PROJECTS. THIS
PERFORMANCE WAS ACHIEVED DURING A PERIOD OF QUIET MARKETS CHARACTERISED BY LOW
VOLUMES AND VOLATILITIES. SIGNIFICANT PROVISIONS FOR BAD DEBTS WERE RAISED
WHICH IMPACTED ON THE RESULTS FOR THE PERIOD.
WESBANK CONTINUED TO DOMINATE ITS MARKET SEGMENT, WITH STRONG ASSET GROWTH FOR
THE FIRST SIX MONTHS. PROVISION FOR BAD DEBTS INCREASED IN LINE WITH
EXPECTATIONS WITH ARREARS NOW AT THEIR LOWEST SINCE DECEMBER 1989. WESBANK
CONSIDERABLY OUTPERFORMED ITS PRIOR HALF-YEAR RESULT AND IS ON LINE FOR A
RECORD PERFORMANCE FOR THE FULL YEAR.
THE PROPERTY FINANCE CLUSTER, WHICH INCLUDES FNB HOMELOANS AND ORIGIN, STAGED A
SIGNIFICANT TURN-AROUND, REPORTING A SMALL PROFIT FOR THE FIRST SIX MONTHS OF
THE YEAR IN CONTRAST TO AN AFTER-TAX LOSS OF R190 MILLION FOR THE PREVIOUS
FINANCIAL YEAR. FNB HOMELOANS HAS GONE THROUGH A MAJOR STRATEGIC RE-FOCUS AND
THE DECLINE IN INTEREST RATES AND THE RESULTANT DECREASE IN BAD DEBTS HAVE
ALREADY PRODUCED A SIGNIFICANT IMPROVEMENT IN PROFITABILITY. FURTHER FOCUS ON
NON-PERFORMING LOANS, BAD DEBTS AND COST REDUCTIONS REMAIN A PRIORITY.
THE RESULTS OF THE CONSUMER BANK AND FNB FIRST COMMERCE WERE NEGATIVELY
AFFECTED BY HIGHER BAD DEBT PROVISIONS AND REDUCED EARNINGS ON DEPOSIT TAKING
ACTIVITIES GIVEN THE LOWER INTEREST RATE PATTERNS.
FNB CORPORATE REFLECTED A CONSIDERABLE IMPROVEMENT IN PERFORMANCE FOR THE FIRST
SIX MONTHS, HAVING SUCCESSFULLY RESTRUCTURED THE BUSINESS AFTER THE MERGER.
THROUGH A FOCUSED MARKET SEGMENTATION INITIATIVE, FNB CORPORATE IS NOW WELL
POSITIONED FOR GROWTH. OTHER AREAS OF FOCUS INCLUDED CREDIT RISK MANAGEMENT,
MANAGEMENT INFORMATION SYSTEMS, AND THE ELIMINATION OF LOSS MAKING ACTIVITIES.
FNB FIRST NATIONAL, THE BUSINESS UNIT FOCUSING ON THE NON-METROPOLITAN AREAS,
POSTED SATISFACTORY RESULTS AGAINST BUDGET FOR THE PERIOD. THIS WAS MAINLY THE
RESULT OF CONTAINMENT OF COSTS AND GROWTH IN NON-INTEREST REVENUE.
FNB NAMIBIA AND FNB SWAZILAND SHOWED SOME IMPROVEMENT FOLLOWING DISAPPOINTING
RESULTS TO 30 JUNE 1999. FNB BOTSWANA WAS, HOWEVER, NEGATIVELY AFFECTED BY THE
HIGHER THAN EXPECTED BAD DEBT PROVISIONS, ARISING FROM EXPOSURE TO THE HYUNDAI
GROUP.
PROSPECTS
THE FINANCIAL RESULTS FOR FIRST SIX MONTHS OF THE CURRENT FINANCIAL YEAR WERE
NEGATIVELY AFFECTED BY PROVISIONS CREATED FOR BAD DEBTS WHICH WE DO NOT EXPECT
TO BE REPEATED DURING THE SECOND HALF OF THE FINANCIAL YEAR. FURTHER DECREASES
ARE ALSO EXPECTED AS A RESULT OF THE DECREASE IN NON-PERFORMING LOANS.
INCREASED CONSUMER CONFIDENCE AND THE LOWER INTEREST RATES ARE EXPECTED TO
RESULT IN AN INCREASED DEMAND FOR CREDIT. THE BANKING GROUP WILL BENEFIT
FURTHER FROM THE INCREASED FOCUS ON COST SAVING.
THE BANKING GROUP CONTINUES TO PROGRESS ITS E-COMMERCE STRATEGY AND IS EXCITED
BY THE POTENTIAL IN THIS AREA. THE MICRO-LENDING RESEARCH AND STRATEGIC
PLANNING PROCESS IS COMPLETE. A NEW AND INNOVATIVE MARKET OFFERING IS TO BE
LAUNCHED SHORTLY TO ADDRESS THE REQUIREMENTS OF THIS MARKET SEGMENT.
GOOD PROGRESS HAS BEEN MADE WITH OUR STRATEGY OF ALLOCATING CAPITAL TO
INDIVIDUAL BUSINESS UNITS TO ENSURE THEY ACHIEVE A BENCHMARK RETURN ON CAPITAL,
WHICH IS CURRENTLY SET AT A MINIMUM REAL RETURN OF 10%.
SPECIFIC FOCUS ON NON-INTEREST REVENUE, COST REDUCTION AND IMPROVED MANAGEMENT
OF CREDIT ARE SOME OF THE STRATEGIES THAT WILL LEAD TO THE GROUP ACHIEVING ITS
BENCHMARK RETURN ON CAPITAL.
THE BANKING GROUP CONTINUES TO MAKE CONSIDERABLE PROGRESS IN ITS RESTRUCTURING.
THE INTRODUCTION OF NEW MANAGEMENT AND STRATEGIES INTO BUSINESS UNITS HAS
ALREADY HAD THE DESIRED EFFECT ON PROFITABILITY.
G T FERREIRA P K HARRIS
CHAIRMAN CHIEF EXECUTIVE
FIRSTRAND INSURANCE GROUP
INTERIM RESULTS
HIGHLIGHTS
GROUP HEADLINE EARNINGS +35%
GROUP OPERATING PROFIT +82%
NEW BUSINESS
INFLOWS +32%
SUMMARISED INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER
YEAR ENDED
30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED (AUDITED)
RM RM M
HEADLINE EARNINGS
ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS 372 276 631
HEADLINE EARNINGS
RECONCILIATION
NET INCOME AFTER TAX
ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS 593 276 638
LESS: PROFIT ON DISPOSAL
OF SHARES IN SUBSIDIARIES (221) - -
LESS: RELEASE OF
PROVISIONS MADE ON
DISPOSAL OF AEGIS - - (15)
ADD: PORTION OF GOODWILL
WRITTEN OFF - - 2
ADD: LOSS ON DISPOSAL OF
SUBSIDIARY AND
JOINT VENTURE - - 6
HEADLINE EARNINGS
ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS 372 276 631
PROFIT CONTRIBUTION BY BUSINESS AREA
- INDIVIDUAL LIFE 30%
- EMPLOYEE BENEFITS 11%
- ASSET MANAGEMENT 24%
- HEALTH INSURANCE 8%
- INVESTMENT INCOME ON FREE RESERVES 27%
BALANCE SHEET AT 31 DECEMBER
30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
RM RM RM
ASSETS
GOVERNMENT AND PUBLIC
AUTHORITY STOCKS 4 838 8 369 5 234
MORTGAGES, DEBENTURES AND
OTHER LOANS 6 073 3 854 5 574
EQUITY INVESTMENTS 37 534 27 557 31 409
PROPERTY INVESTMENTS 3 435 3 688 3 388
POLICY LOANS 616 565 507
FUNDS ON DEPOSIT 7 937 4 752 9 065
INVESTMENT ASSETS 60 433 48 785 55 177
FIXED ASSETS 170 162 165
CURRENT ASSETS 3 578 2 067 2 201
TOTAL ASSETS 64 181 51 014 57 543
LIABILITIES AND SHAREHOLDERS' FUNDS
CURRENT LIABILITIES 2 737 2 021 2 353
LONG-TERM LIABILITIES 280 341 274
LIFE INSURANCE FUND 57 685 45 789 51 708
OUTSIDE SHAREHOLDERS'
INTEREST 222 164 125
SHARE CAPITAL AND RESERVES 3 257 2 699 3 083
64 181 51 014 57 543
TOTAL ASSETS UNDER MANAGEMENT AND
ADMINISTRATION 135 684 94 766 113 695
COMMENTARY
INTRODUCTION
THIS INTERIM PROFIT ANNOUNCEMENT RELATES TO THE INSURANCE INTERESTS OF THE
FIRSTRAND LIMITED GROUP OF COMPANIES (THE FIRSTRAND GROUP) AND SHOULD BE READ
IN CONJUNCTION WITH THE REPORT ON FIRSTRAND LIMITED ELSEWHERE IN THIS
PUBLICATION.
THE FIRSTRAND INSURANCE GROUP (THE INSURANCE GROUP) IS 100% OWNED BY FIRSTRAND
LIMITED. INCLUDED IN THE ACTIVITIES OF THE INSURANCE GROUP ARE MOMENTUM LIFE,
SOUTHERN LIFE AND MOMENTUM EMPLOYEE BENEFITS, ALL OPERATING AS DIVISIONS OF
FIRSTRAND INSURANCE LIMITED, AND THE SUBSIDIARY COMPANIES MOMENTUM
ADMINISTRATION SERVICES (PTY) LIMITED (MAS), RMB ASSET MANAGEMENT (PTY) LIMITED
(RMBAM) AND DISCOVERY HOLDINGS LIMITED (DISCOVERY HEALTH).
OVERVIEW OF RESULTS
THE INSURANCE GROUP HEADLINE EARNINGS TOTALLED R372 MILLION FOR THE
SIX MONTHS ENDED 31 DECEMBER 1999. THIS REPRESENTS AN INCREASE OF
35% OVER THE COMPARABLE PERIOD IN THE PREVIOUS FINANCIAL YEAR. THIS INCREASE
COMPRISES A RISE OF 82% IN OPERATING PROFITS WHILST THE INVESTMENT INCOME ON
FREE RESERVES DECLINED BY 20%.
SIX MONTHS ENDED YEAR ENDED
31 DECEMBER 30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
EARNINGS SOURCE RM RM CHANGE RM
GROUP OPERATING PROFIT 271 149 82% 405
INVESTMENT INCOME ON
FREE RESERVES 101 127 (20%) 226
GROUP HEADLINE EARNINGS 372 276 35% 631
THE EXCELLENT INCREASE IN GROUP OPERATING PROFIT CAME FROM SOLID CONTRIBUTIONS
BY ALL THE BUSINESS UNITS IN THE INSURANCE GROUP. THE HIGH GROWTH IN NEW
BUSINESS AND ASSETS UNDER MANAGEMENT, AS WELL AS EXPENSE SAVINGS FLOWING FROM
THE MERGER BETWEEN THE MOMENTUM AND SOUTHERN GROUPS, HAVE CONTRIBUTED TO THE
SATISFACTORY RESULTS. THE OPERATING PROFIT TAKES ACCOUNT OF START-UP LOSSES
TOTALLING R14 MILLION IN RESPECT OF THE TWO NEW OVERSEAS INITIATIVES THROUGH
MAS AND DISCOVERY HEALTH RESPECTIVELY, AS WELL AS THE NEGATIVE IMPACT OF THE
CHANGES IN LIFE INSURANCE TAX LEGISLATION INTRODUCED DURING THE LATTER PART OF
1999.
THE REDUCTION IN THE INVESTMENT INCOME ON FREE RESERVES IS THE RESULT OF OUR
STRATEGY TO INVEST SHAREHOLDER FUNDS IN GROWTH ASSETS. A REDEPLOYMENT OF FREE
RESERVES FROM CASH AND FIXED-INTEREST INSTRUMENTS TO GROWTH ASSETS RESULTED IN
LOWER SHORT-TERM INVESTMENT EARNINGS, IN RETURN FOR AN EXPECTED BETTER
COMPOSITE YIELD OVER THE LONGER TERM. WHILST INVESTMENT INCOME HAS REDUCED, THE
TOTAL VALUE OF SHAREHOLDERS' FREE RESERVES HAVE INCREASED BY MORE THAN R2
BILLION (APPROXIMATELY 35%) FOR THE SIX MONTHS TO 31 DECEMBER 1999. THIS
INCREASE DOES NOT IMPACT ON EARNINGS DUE TO THE INSURANCE GROUP'S POLICY OF
EXCLUDING CAPITAL APPRECIATION FROM EARNINGS, BUT WILL IMPACT POSITIVELY ON THE
GROUP EMBEDDED VALUE. NO DETAILED EMBEDDED VALUE CALCULATION HAS BEEN PERFORMED
AT 31 DECEMBER 1999, BUT WILL BE PERFORMED FOR THE FINANCIAL YEAR-END AT 30
JUNE 2000.
EXCELLENT GROWTH IN BUSINESS FLOW REFLECTS THE INSURANCE GROUP'S RESPONSIVENESS
TO CLIENTS AND MARKETS, AS WELL AS ITS ABILITY TO OFFER ATTRACTIVE PRODUCTS IN
A COMPETITIVE ENVIRONMENT. IT IS GRATIFYING TO REPORT AN INCREASE OF 32% IN NEW
BUSINESS, AND AN INCREASE IN TOTAL FUNDS RECEIVED OF 32%, COMPARED TO THE
CORRESPONDING SIX-MONTH PERIOD IN THE PREVIOUS FINANCIAL YEAR. TOTAL ASSETS
UNDER MANAGEMENT AND ADMINISTRATION HAVE INCREASED BY 19% FROM R114 BILLION AT
30 JUNE 1999 TO R136 BILLION AT 31 DECEMBER 1999.
HEADLINE EARNINGS EXCLUDE THE PROFIT ON SALE OF SHARES IN TWO SUBSIDIARIES,
NAMELY DISCOVERY HEALTH AND MC SQUARED SOLUTIONS. SHARES IN DISCOVERY WERE SOLD
TO FACILITATE THEIR LISTING, WHILST
MC SQUARED SOLUTIONS WAS SOLD TO FIRSTRAND BANK AS IT HAD A BETTER STRATEGIC
FIT WITH THE BANKING GROUP.
OPERATIONAL REVIEW
THE FOLLOWING TABLE REFLECTS THE MAIN COMPONENTS OF THE INCREASE IN GROUP
OPERATING PROFIT FOR THE PERIOD:
SIX MONTHS ENDED YEAR ENDED
31 DECEMBER 30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
EARNINGS SOURCE RM RM CHANGE RM
LIFE INSURANCE:
INDIVIDUAL LIFE 111 44 152% 127
EMPLOYEE BENEFITS 39 27 44% 78
OPERATING PROFIT FROM
LIFE INSURANCE 150 71 111% 205
ASSET MANAGEMENT 91 56 63% 136
HEALTH INSURANCE 30 22 36% 64
GROUP OPERATING PROFIT 271 149 82% 405
THE FOLLOWING REPRESENTS A SUMMARY OF THE OPERATIONAL PERFORMANCE PER BUSINESS
AREA:
INDIVIDUAL LIFE
THE INDIVIDUAL LIFE BUSINESS PRODUCED EXCELLENT RESULTS FOR THE
SIX MONTHS TO 31 DECEMBER 1999. INDIVIDUAL LIFE EARNINGS, INCORPORATING THE
EARNINGS OF MAS, MORE THAN DOUBLED TO R111 MILLION FOR THE PERIOD UNDER REVIEW.
EXPENSE SAVINGS RESULTING FROM THE MERGER REMAIN ON TRACK, AND WE ARE CONFIDENT
THAT WE WILL COMFORTABLY ACHIEVE OUR TARGET OF R230 MILLION ANNUAL SAVINGS IN
THE INDIVIDUAL LIFE AREA. STRONG NEW BUSINESS VOLUMES AND THE RECOVERY IN
FINANCIAL MARKETS ALSO CONTRIBUTED TO THIS POSITIVE PERFORMANCE.
THE TURNAROUND OF THE LOSS-MAKING SOUTHERN LIFE FIELD FORCE WAS IDENTIFIED AS A
PRIORITY AT THE TIME OF THE 1999 PROFIT ANNOUNCEMENT. IT IS PLEASING TO REPORT
THAT A JOINT VENTURE HAS BEEN ENTERED INTO WITH CAPITAL ALLIANCE. THIS JOINT
VENTURE WILL ENHANCE THE DISTRIBUTION CAPABILITIES OF CAPITAL ALLIANCE AND
SHOULD ELIMINATE ANY NEGATIVE IMPACT ON OUR PROFITS BY THE END OF THE CURRENT
FINANCIAL YEAR-END.
THE FINAL PHASES OF THE CONVERSION OF THE SOUTHERN LIFE POLICY RECORDS TO THE
MOMENTUM LIFE SYSTEMS, HAVE RECENTLY BEEN SUCCESSFULLY COMPLETED. THIS ENORMOUS
TASK WAS COMPLETED WITHIN EIGHTEEN MONTHS, A TRIBUTE TO THE COMPETENCE AND
DEDICATION OF THE STAFF INVOLVED IN THE MANAGEMENT AND EXECUTION OF THIS
PROJECT. A SOLID PLATFORM HAS NOW BEEN CREATED FROM WHICH IMPROVED SERVICE
LEVELS CAN BE ACHIEVED.
EMPLOYEE BENEFITS
MOMENTUM EMPLOYEE BENEFITS CONTINUED THEIR GOOD PERFORMANCE, CONTRIBUTING R39
MILLION TO THE INSURANCE GROUP PROFITS, AN INCREASE OF 44% OVER THE COMPARATIVE
1998 FIGURE. ENCOURAGING PROGRESS HAS BEEN MADE DURING THE PAST SIX MONTHS IN
DEVELOPING ADDITIONAL SOURCES OF PROFIT FOR MOMENTUM EMPLOYEE BENEFITS.
ASSET MANAGEMENT
RMB ASSET MANAGEMENT COMPRISES THE OPERATIONS OF RMBAM, RMB UNIT TRUSTS,
FUTUREGROWTH (INCLUDING THE REBRANDED SOUTHERN UNIT TRUSTS) AND RMB PROPERTIES.
THE INTEGRATION OF THE OPERATIONS OF RMB ASSET MANAGEMENT AND SOUTHERN ASSET
MANAGEMENT HAS BEEN COMPLETED, WITH THE COMBINED OPERATIONS NOW TRADING UNDER
THE RMB ASSET MANAGEMENT BRAND.
THE RECOVERY IN FINANCIAL MARKETS, ESPECIALLY DURING NOVEMBER AND DECEMBER
1999, AND THE CORRESPONDING INCREASE IN ASSET-BASED FEES, BOOSTED EARNINGS FOR
THE SIX MONTHS TO R91 MILLION, AN INCREASE OF 63% OVER THE EQUIVALENT 1998
PERIOD. IT IS PLEASING TO NOTE THAT THE NET CASH FLOW INTO SEGREGATED FUNDS
MANAGED ON BEHALF OF THIRD PARTIES REMAINED STRONGLY POSITIVE FOR THE PERIOD
UNDER REVIEW, AND THAT INVESTMENT PERFORMANCE REMAINED COMPETITIVE.
HEALTH INSURANCE
DISCOVERY HEALTH CONFIRMED ITS POSITION AS A LEADER IN THE HEALTHCARE MARKET
THROUGH A SUCCESSFUL LISTING ON 21 OCTOBER 1999. THE LISTING HAS CONTRIBUTED
GREATLY TO THE CONTINUED DEVELOPMENT OF THE HIGH QUALITY DISCOVERY BRAND, AND
HAS CONTRIBUTED SIGNIFICANTLY TO IMPROVED SHAREHOLDER VALUE. NET PROFIT FROM
THE SOUTH AFRICAN OPERATIONS GREW 58% TO R52 MILLION FROM R33 MILLION. START-UP
COSTS OF R11 MILLION FOR DESTINY HEALTH IN THE UNITED STATES, WHICH ARE IN LINE
WITH THE BUSINESS PLAN, HAVE BEEN INCLUDED IN THE RESULTS. TOTAL AFTER TAX
PROFIT INCREASED BY 24% FROM R33 MILLION TO R41 MILLION, WITH THE INSURANCE
GROUP'S ATTRIBUTABLE SHARE INCREASING FROM R22 MILLION TO R30 MILLION.
DISCOVERY HEALTH EXPERIENCED SUBSTANTIAL GROWTH IN ALL ASPECTS OF ITS BUSINESS:
- TOTAL PREMIUM INCOME, NET OF REINSURANCE, NEARLY DOUBLED TO
R1,4 BILLION.
- NEW BUSINESS ANNUALISED PREMIUM INCOME INCREASED BY 19% TO R591 MILLION.
- EMBEDDED VALUE MORE THAN DOUBLED COMPARED TO 31 DECEMBER 1998 PRO FORMA.
DISCOVERY HEALTH HAS ENSURED THAT ITS PRODUCTS CONFORM TO NEW LEGISLATIVE
REQUIREMENTS, AND HAVE RECENTLY RECEIVED APPROVAL FROM THE DEPARTMENT OF HEALTH
FOR THEIR REVISED PRODUCT DESIGN.
GROUP ASSETS UNDER MANAGEMENT
AND ADMINISTRATION
AT 31 DECEMBER 1999, THE INSURANCE GROUP MANAGED OR ADMINISTERED TOTAL ASSETS
OF R135,7 BILLION COMPARED TO R113,7 BILLION AT 30 JUNE 1999, AN INCREASE OF
19%. THIS INCREASE CAN BE ATTRIBUTED TO THE RECOVERY IN FINANCIAL MARKETS, AS
WELL AS THE STRONG NEW BUSINESS INFLOWS EXPERIENCED BY THE GROUP. THE FOLLOWING
TABLE PROVIDES A MORE DETAILED BREAKDOWN OF THE ASSETS MANAGED OR ADMINISTERED
BY GROUP COMPANIES:
31 DECEMBER 30 JUNE
1999 1999
ASSETS UNDER MANAGEMENT (UNAUDITED) (AUDITED)
AND ADMINISTRATION RM RM CHANGE
ON-BALANCE SHEET ASSETS 64 181 57 543 12%
ASSETS MANAGED ON BEHALF
OF THIRD PARTIES 58 145 45 698 27%
UNIT TRUST FUNDS MANAGED 6 129 4 765 29%
ASSETS UNDER MANAGEMENT 128 455 108 006 19%
LINKED PRODUCT ASSETS UNDER
ADMINISTRATION (1) 7 229 5 689 27%
TOTAL ASSETS UNDER MANAGEMENT
AND ADMINISTRATION 135 684 113 695 19%
1. EXCLUDES BUSINESS WRITTEN BY THE INSURANCE GROUP'S LINKED PRODUCT SUPPLIER
ON THE LIFE COMPANY'S BALANCE SHEET, AS THESE ASSETS ARE REFLECTED UNDER
ON-BALANCE SHEET ASSETS ABOVE. TOTAL LINKED PRODUCT ASSETS UNDER ADMINISTRATION
AMOUNTED TO R10,3 BILLION (30 JUNE 1999: R8,0 BILLION).
THE NET FLOW OF FUNDS INCLUDED IN THE MOVEMENT IN ASSETS UNDER MANAGEMENT AND
ADMINISTRATION, IS ANALYSED IN MORE DETAIL BELOW.
FUNDS RECEIVED FROM CLIENTS
THE STRONG INFLOW OF NEW FUNDS INTO THE VARIOUS BUSINESS UNITS EXPERIENCED
DURING THE 1999 FINANCIAL YEAR CONTINUED DURING THE SIX MONTHS UNDER REVIEW,
WITH TOTAL NEW BUSINESS INFLOWS OF R16,1 BILLION, AN INCREASE OF 32% OVER THE
EQUIVALENT PRIOR PERIOD. THE STRONG GROWTH FROM ALL CLASSES OF BUSINESS IS
REFLECTIVE OF THE LOYAL SUPPORT OF THE INDEPENDENT INTERMEDIARY MARKET, LARGELY
DUE TO THE CONTINUED SUCCESS OF MOMENTUM'S MULTIPLE PRODUCT DISTRIBUTION MODEL.
IN ADDITION, RMBAM CONTINUES TO ATTRACT A LARGE AMOUNT OF OFF-BALANCE SHEET
SEGREGATED FUND BUSINESS.
A MORE DETAILED BREAKDOWN OF THE NEW BUSINESS INFLOWS, WHICH INCLUDES 100% OF
THE DISCOVERY HEALTH FIGURES, IS PROVIDED IN THE TABLE BELOW:
SIX MONTHS ENDED YEAR ENDED
31 DECEMBER 30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
NEW BUSINESS RM RM CHANGE RM
ANNUALISED RECURRING
PREMIUMS 928 820 13% 1 684
INDIVIDUAL LIFE 307 234 31% 483
EMPLOYEE BENEFITS 30 89 (66%) 125
HEALTH INSURANCE 591 497 19% 1 076
LUMP SUM INFLOWS 15 145 11 359 33% 27 469
INDIVIDUAL LIFE
PREMIUM INCOME 1 854 1 204 54% 2 709
EMPLOYEE BENEFITS
PREMIUM INCOME 734 519 41% 1 485
LINKED-PRODUCT SALES 2 949 1 744 69% 3 728
UNIT TRUST SALES 2 965 1 898 56% 3 977
NEW SEGREGATED THIRD-
PARTY FUNDS 6 643 5 994 11% 15 570
TOTAL NEW BUSINESS
INFLOWS 16 073 12 179 32% 29 153
TAKING INTO ACCOUNT THE INFLOWS FROM EXISTING BUSINESS AS WELL AS THE NEW
BUSINESS INFLOWS DETAILED ABOVE, THE TOTAL INFLOWS FROM CLIENTS FOR THE SIX
MONTHS AMOUNTED TO MORE THAN R18 BILLION, AN INCREASE OF 32% OVER THE
EQUIVALENT 1998 PERIOD. THE FOLLOWING TABLE PROVIDES A MORE DETAILED ANALYSIS
OF THESE INFLOWS:
SIX MONTHS ENDED YEAR ENDED
31 DECEMBER 30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
FUNDS RECEIVED RM RM CHANGE RM
INDIVIDUAL LIFE PREMIUM
INCOME 3 265 2 602 25% 5 497
SINGLE PREMIUMS (1) 1 854 1 204 54% 2 709
RECURRING PREMIUMS 1 411 1 398 1% 2 788
EMPLOYEE BENEFIT PREMIUM
INCOME 1 309 1 109 18% 2 807
SINGLE PREMIUMS 734 519 41% 1 485
RECURRING PREMIUMS 575 590 (3%) 1 322
HEALTH INSURANCE
PREMIUM INCOME 1 429 729 96% 1 848
LINKED-PRODUCT SALES (2) 2 949 1 744 69% 3 728
UNIT TRUST SALES 2 965 1 898 56% 3 977
NEW SEGREGATED THIRD-
PARTY FUNDS 6 643 5 994 11% 15 570
TOTAL FUNDS RECEIVED 18 560 14 076 32% 33 427
1. SINGLE PREMIUMS EXCLUDE FUNDS RETAINED THROUGH THE EXTENSION OF THE ORIGINAL
POLICY TERM AMOUNTING TO R296 MILLION (1998: R132 MILLION).
2. INCLUDES SALES OF PRODUCTS ON THE LIFE INSURANCE BALANCE SHEET AMOUNTING TO
R1,2 BILLION (1998: R0,7 BILLION).
ALL TRANSFERS BETWEEN ON AND OFF-BALANCE SHEET FUNDS HAVE BEEN EXCLUDED FROM
THE ABOVE.
PAYMENTS TO CLIENTS
THE INSURANCE GROUP PROCESSED PAYMENTS OF R12,6 BILLION TO CLIENTS DURING THE
SIX MONTHS TO 31 DECEMBER 1999. THIS REPRESENTS AN INCREASE OF 26% OVER THE SIX
MONTHS TO 31 DECEMBER 1998. THE SIGNIFICANT INCREASE IN CLIENT WITHDRAWALS IS
DUE MAINLY TO CERTAIN LARGE CORPORATE POLICY MATURITIES, AS WELL AS THE
NEGATIVE EFFECTS OF THE PROLONGED HIGH REAL INTEREST RATES ON DISCRETIONARY
SAVINGS. IN ADDITION, THE HIGHLY COMPETITIVE SEGREGATED FUND MANAGEMENT
BUSINESS RESULTS IN A LARGE NUMBER OF RETIREMENT FUND TRANSFERS BETWEEN ASSET
MANAGERS. THE FOLLOWING TABLE PROVIDES FURTHER DETAIL REGARDING THE PAYMENTS TO
CLIENTS:
SIX MONTHS ENDED YEAR ENDED
31 DECEMBER 30 JUNE
1999 1998 1999
(UNAUDITED) (UNAUDITED) (AUDITED)
PAYMENTS TO CLIENTS RM RM CHANGE RM
INDIVIDUAL LIFE 3 097 2 506 24% 5 045
EMPLOYEE BENEFITS 2 365 2 225 6% 4 791
HEALTH INSURANCE 1 167 548 113% 1 418
LINKED PRODUCTS (1) 940 1 046 (10%) 2 043
UNIT TRUSTS 1 527 1 622 (6%) 3 631
SEGREGATED THIRD-
PARTY FUNDS 3 509 2 030 73% 3 816
TOTAL PAYMENTS TO
CLIENTS 12 605 9 977 26% 20 744
1. INCLUDES OUTFLOWS RELATING TO PRODUCTS ON THE LIFE INSURANCE BALANCE SHEET
AMOUNTING TO R390 MILLION (1998: R125 MILLION).
ALL TRANSFERS BETWEEN ON AND OFF-BALANCE SHEET FUNDS HAVE BEEN EXCLUDED FROM
THE ABOVE.
TRANSFER OF INSURANCE BUSINESS
THE PROCESS OF CONSOLIDATING THE BUSINESS OF MOMENTUM LIFE AND SOUTHERN LIFE
UNDER ONE INSURANCE LICENSE IN TERMS OF SECTION 37 OF THE INSURANCE ACT, IS
NEARING COMPLETION. THE CONSOLIDATION PROCESS IS STILL SUBJECT TO APPROVAL BY
THE HIGH COURT OF SOUTH AFRICA.
PROSPECTS
AS MENTIONED IN THE 1999 YEAR-END REPORT ON THE GROUP, A CAPITAL MANAGEMENT
PROGRAMME IS BEING INTRODUCED WHEREBY CAPITAL IS ALLOCATED TO BUSINESS UNITS,
WHICH ARE THEN REQUIRED TO ACHIEVE A BENCHMARK RETURN ON CAPITAL, CURRENTLY SET
AT A MINIMUM REAL RETURN OF 10%. GOOD PROGRESS HAS BEEN MADE IN THIS REGARD,
WITH CERTAIN CAPITAL INTENSIVE PRODUCT LINES ALREADY BEING EVALUATED AND STEPS
CONSIDERED TO ENSURE THAT THESE MEET THE REQUIRED BENCHMARK RETURN.
L L DIPPENAAR H P MEYER
CHAIRMAN MANAGING DIRECTOR
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