Wrap Text
FirstRand - Unaudited Interim Results For The Six Months Ended 31 December
2005
FirstRand
Registration No: 1966/010753/06
JSE code FSR ISIN: ZAE000066304
("FSR")
NSX share code: FST
Certain companies within the FirstRand Group are Authorised Financial
Services Providers
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
HIGHLIGHTS
- Diluted headline earnings per share +20%
- Dividend per share +20%
- Net asset value growth +19%
- Return on equity 30%
Additional information is available at www.firstrand.co.za
Basis of presentation
The information presented has been prepared in accordance with
interpretations of IFRS (International Financial Reporting Standards)
applicable at 31 December 2005. It should be noted that IFRS is continuing to
evolve through the issue and/or endorsement of new Standards and
Interpretations and developments in the application of recently issued
Standards. For that reason, it is possible that the financial impact and
adjustments reflected below may change before they are presented as
comparatives to the IFRS financial information issued by the Group in respect
of the year ending 30 June 2006. A separate IFRS transitional report is
included as part of this advertisement, under the heading Financial Impact of
the Transition to IFRS.
Financial performance
The FirstRand Group of companies ("FirstRand" or "the Group") produced
excellent results, growing normalised earnings by 19%. Headline earnings grew
17%. Headline earnings were impacted by the cost of the Discovery BEE
transaction, the settlement with National Treasury, the impact of currency
translations and the movement in fair value of FirstRand shares held by
policyholders.
FirstRand believes that normalised earnings reflect the true performance of
the Group. The table below reflects the reconciliation between normalised
earnings and headline earnings.
Six months to December 2005 % change
Headline earnings +17
Currency translations (6)
Sub-total +11
FirstRand shares held by policyholders 4
Impact of BEE transaction (Discovery) 3
National Treasury Settlement Charge 1
Normalised earnings +19
These results were achieved in a positive economic environment, which
provided strong organic growth opportunities for all the Group"s businesses
and in particular for the Banking Group which produced headline earnings
growth of 20% to R3.0 billion. Sustained low interest rates continued to
result in strong advances growth which was to some extent offset by margin
pressure. The Banking Group"s capacity expansion strategies resulted in
continued high growth in expenses, notwithstanding this the overall cost to
income ratio improved, reflecting the Banking Group"s sustained positive
operational leverage. Strong equity markets and a high level of Black
Economic Empowerment ("BEE") activity positively impacted on the Group"s
investment banking operations.
Momentum increased headline earnings, excluding the National Treasury
settlement and IFRS, by 25% to R742 million, with earnings attributable to
ordinary shareholders increasing by 33%.
If the settlement and IFRS adjustments are included the headline earnings
increased by 12%. These results were characterised by strong retail new
business growth, particularly in individual risk and discretionary lump-sum
investments, the positive impact of the Sage acquisition and significant
growth in asset management earnings due to increased equity market growth and
strong retail product inflows. Investment income on shareholder assets
reduced as a result of recent acquisitions.
Discovery delivered a strong performance for the year under review with
headline earnings, excluding the impact of its BEE transaction, increasing by
64% to R296 million. If the BEE transaction is included headline earnings
reduced by R144 million.
Group earnings and headline earnings per share
Unaudited
31 December
2005 2004 % growth
restated
Earnings per share (cents)
Basic 79.8 63.3 26
Diluted 77.1 62.0 24
Headline earnings per share (cents)
Basic 76.9 63.8 20
Diluted 74.8 62.9 19
The relative contributions to operational earnings by the various operating
companies were:
Six months to
31 December
2005 2004
restated
Banking Group 79% 81%
Momentum 16% 16%
Discovery 5% 3%
Total 100% 100%
OPERATING ENVIRONMENT
Economic review
The South African economy remained strong during the six- month period ended
31 December 2005, characterised by renewed strength in the Rand, lower than
expected inflation, stable domestic interest rates and sharply higher equity
markets.
The Rand strengthened by 5%, from a level of R6.65:US$1 at 30 June 2005, to
R6.32:US$1 at 31 December 2005, mainly due to the run in precious metals
prices, with the US$ gold price increasing by almost 19% over the period.
Despite the rising oil price and resultant petrol price increases, CPIX
inflation performed better than expected, with an average CPIX for the six-
month period of 4.3%. The South African Reserve Bank"s targeted range is 3%
to 6% CPIX.
Demand for credit accelerated, with private sector credit extension
increasing by more than 20% on a year-on-year basis, reflecting households"
strong appetite for asset-backed credit.
Equity markets continued to reflect strong gains, with the FTSE-JSE Top 40
Index increasing by 28% during the six months under review.
Discretionary retail investment product providers, comprising mainly
Collective Investment Schemes ("CIS") and Linked Investment Service Providers
("LISP"), continued to benefit from increased lump-sum inflows. The
Association of Collective Investments Schemes reported that total CIS assets
increased by 19% for the six months to R415 billion at 31 December 2005.
Strategic Issues
Settlement with National Treasury
FirstRand welcomes the settlement reached with National Treasury on 12
December 2005 regarding minimum standards on early termination values on
savings and retirement annuity products. The after tax impact of the
settlement on Momentum and Sage amounted to R204 million.
As a provision of R73 million after tax was made at 30 June 2005, the
balance of the settlement has been charged against current period earnings.
As reported in the 2005 year-end results announcement, Momentum proactively
reduced profit margins on its Investo range in the interests of improved
"value for money" to clients, and will continue to improve the value
proposition to clients through innovative product design.
International strategy
FirstRand continues to drive its international expansion strategy at business
unit level, facilitated and supported by the FirstRand Africa and Emerging
Markets unit ("FRAEM").
In 2005 FirstRand committed US$30 million to AIFH, a private equity fund
which had the mandate to invest in retail bank privatisations in Sub-Saharan
Africa. The US$30 million was not drawn down and FirstRand, together with the
other shareholders, voted to dissolve the fund on 27 January 2006.
Celpay, which operates a cellphone payments enabling platform in the DRC and
Zambia, was acquired from Celtel during the period under review. A new CEO
has been appointed and the focus has been on reducing costs and refining the
business model. Cellphone banking is regarded as an alternative retail
banking strategy.
Further expansion opportunities are currently being explored in Africa and
other emerging markets.
African Life Health
During the period Momentum disposed of its 34%-shareholding in African Life
("Aflife") to Sanlam and simultaneously made an offer to acquire the entire
shareholding of African Life Health ("ALH") from Aflife for a cash
consideration of R176 million. The acquisition of ALH significantly
strengthens Momentum"s position in the health care arena with principal
members under administration now exceeding 240 000. This broadens Momentum"s
presence in market segments serving both lower income and local government
employee medical schemes.
Capital management actions
In November 2005 the Group raised R1.5 billion through the issue of non-
cumulative non-redeemable preference shares, to further enhance the level and
structure of its capital base. R500 million was deployed to Momentum for its
acquisition strategy and R1 billion was utilised to refinance the Vendor
component of the BEE transaction. The effect of this refinancing was the
elimination of capital impairment in FirstRand Bank Limited.
Overview Of Results
Banking Group
The Banking Group produced excellent results for the six months to 31
December 2005, benefiting from very strong performances from RMB, FNB and
WesBank.
This performance was achieved in a very favourable environment which
positively impacted the majority of the businesses. Exceptional growth in
consumer credit demand, particularly for asset-backed finance, combined with
increased client numbers and transaction volumes positively impacted FNB and
WesBank.
The strong equity markets were positive for RMB"s equity businesses,
particularly private equity, equities trading and corporate finance.
Non-interest revenue experienced particularly strong growth in the period,
increasing 28%. Fee and commission income increased by 18% driven by higher
customer numbers and transaction volumes.
Equity trading activities across the board proved highly profitable in
buoyant market conditions. However, difficult conditions in the foreign
exchange and interest rate markets dragged down the overall trading
performance.
The significant growth in both Investment income (up 38%) and Income from
associates (up 90%) was driven mainly by the outstanding six months
experienced by the Private Equity businesses. Profits were realised on the
disposal of both local and offshore investments.
Margin pressure continued in the period, mainly due to increased competitive
activity, funding pressure and the R207 million reduction in contribution
from the hedges. Operating costs increased by 22%, however, the cost to
income ratio continued its downward trend.
First National Bank ("FNB")
FNB produced excellent results with profit before taxation increasing by 18%
from R2 121 million to R2 503 million.
The buoyant South African economy, strong consumer demand for credit, a
significant increase in customer numbers, market share gains and excellent
volume growth, all contributed to this increased profitability, despite low
interest rates continuing to place pressure on margins.
Interest income grew by 11%, attributable to both the strong balance sheet
growth in the last quarter of the previous financial year as well as in the
current period, offset to some extent by a reduced benefit from the hedges
put in place in prior periods.
Bad debts remained low at 0.3% (2004: 0.4%) of advances, due in the main to
the continued benign interest rate environment.
Non-interest revenue grew by 22% as a result of increased customer numbers
and higher transactional volumes, particularly in the Mass, Consumer and
Commercial segments, Card Issuing and Card Acquiring. Average fee increases
were kept below inflation.
Operating expenses increased by 18%. A significant portion of this increase
was driven by investments in growth initiatives and variable costs associated
with increased volumes (such as In-Contact), and HomeLoans acquisition costs
resulting in the base cost increased by only 8%.
FNB actively pursued a strategy to attract deposits through product
innovations such as the Million-a-Month Account. Deposits grew by R20 billion
or 18%, with Commercial, Corporate and Consumer segments being the major
contributors.
Assets under Management in the Wealth segment have grown by 55% to R18
billion, benefiting from substantial equity market growth, good investment
selection and strong net new business inflows.
Advances increased by R27 billion or 29%, with HomeLoans, Card Issuing,
Wealth and Commercial being the major contributors. HomeLoans increased
advances by 41% to R69 billion as a result of the 81% growth in new business
written. In addition, the One Account continued to perform very well
increasing its loan book to R3.5 billion from R1.3 billion at June 2005.
Card Issuing grew advances by 42% to R8 billion, resulting from the growth in
customer numbers, success in selling balance transfers and the continued high
levels of customer spending. Cardholder turnover increased by 38%. The growth
in customer numbers was driven by an increased sales focus and success in
cross-selling to existing FNB customers combined with the successful launch
of the Discovery Card, all of which resulted in an increase of 34% in new
customer accounts.
Corporate advances continued to decline as a result of low credit demand and
increased pricing competition.
Rand Merchant Bank ("RMB")
RMB produced an exceptional performance increasing profit by 33% before tax
to R809 million strong performance in the first half of 2006 with the equity
related businesses dominating due to buoyant equity markets and sustained low
interest rates. The robust economic environment and strong BEE activity were
also conducive to good originated debt and advisory services performances.
The proprietary trading and arbitrage businesses enjoyed varied success in
the volatile and often unpredictable forex, debt, credit and commodity
markets. The strategic focus on equity related basis businesses in prior
years has yielded a more balanced portfolio of businesses.
Private Equity produced an exceptional performance, generating 90% growth on
the prior year comparative with the continued favourable environment
conducive to realisations both locally and abroad. The strong growth in
equity accounted earnings and a number of new investments, contributed to an
increase in the carrying value of the portfolio.
The robust market conditions and strong earnings projections also boosted
unrealised profits in the remainder of the portfolio.
Corporate Finance outperformed its prior year result. M&A fees and investment
activities were significant contributors, driven by high levels of BEE
activity and strong equity markets.
Equity Trading activities across the board proved highly profitable in
buoyant market conditions.
Foreign Exchange Treasury Trading posted lower earnings than the prior period
as the foreign exchange and interest rate markets proved inactive.
SPJ International"s performance was below that of the comparable period
having run down the remainder of the high yield corporate positions and
reduced its exposures to emerging markets in the current environment of
extremely tight credit spreads.
Structured Finance capitalised on its market leading position and robust
market conditions to post strong earnings growth over the prior period.
Project Finance"s focus on Africa contributed substantially to a strong half
year performance.
WesBank
WesBank had an exceptionally good six months with earnings increasing by 31%
due mainly to increases in new business volumes and market share. Advances
increased by R15.1 billion, up 26%, and new business written was R25 billion,
an increase of 34% over the previous period.
Car sales continue at record highs with the number of new units sold for the
six-month period increasing by 24% over the corresponding prior period. This
trend is expected to continue.
Bad debts were 0.65% and non-performing loans 1.0% of gross advances compared
to the previous comparable period of 0.6% and 0.8% respectively.
Margins declined to 3.50% from 3.65% due to competitive pressure on customer
rates, the run off of existing fixed-rate advances and the compression of
short-term funding rates.
Non-interest revenue increased by 31% as a result of the high new business
volumes, greater penetration of insurance products and an increase in the
contribution from WesBank Auto.
Expenses increased by 23% (against business growth of 34%). The main reason
behind this increase was the investment in capacity and staff required for
the current new business volumes as well as the expected future growth in the
motor industry. WesBank cost growth includes the profit sharing payments to
the joint venture partners. In spite of the increase in expenses, internal
efficiency initiatives led to improved cost ratios, with cost to income and
cost to asset ratios both showing positive trends (reducing from 47.5% to
44.5%, and from 2.56% to 2.38% respectively).
MotorOne Finance, the start-up retail finance operation in Australia, wrote
R156 million of new business in the period under review and the consolidated
Australian WesBank businesses contributed R18 million to pre-tax profit.
Associate income increased significantly, as a result of the performances of
Toyota Financial Services, DirectAxis (the personal loans business) and the
Australian operations.
African subsidiaries
The growth in profitability was driven mainly by the largest subsidiaries,
FNB Botswana and FNB Namibia.
Botswana continued to perform well with profit before tax increasing by 15%
in Pula terms, however, due to the Pula weakening against the Rand"s profit
growth in Rand terms was 2.1%.
Gross advances grew by 10% in line with the current average credit growth in
the economy. Assets increased by 15% due to growth in deposits and the
raising of fixed term funding. Non-interest revenue grew by 18% on the back
of increased product offerings and transaction volumes.
Operating costs increased by 9%, below the country"s current inflation rate
of 11%. The cost to income ratio of 36% (2004: 38%) is the lowest in the
local banking industry.
Namibia grew income before tax by 7% to N$160.0 million (9% at headline
earnings level). Net interest income, before impairment in advances, grew by
19% mainly due to the growth in advances of 15%, which was predominantly
driven by HomeLoans and WesBank. Non-interest revenue grew by 17% as a result
of higher volumes from new accounts and exchange earnings.
Operating costs increased by 17% as a result of additional infrastructure and
new business costs. Despite this large increase, the cost to income is within
industry norms at 50.5%.
Swaziland faced continued challenging conditions as a result of the depressed
state of the economy.
Lesotho performed well achieving a small maiden profit for the month of
December 2005 on the back of high volumes.
OUTsurance
OUTsurance once again produced an excellent set of results increasing
headline earnings by 34%. The increase in gross premium income was driven by
good organic growth in both Personal and Business lines. Business OUTsurance
gained real traction during the period, increasing gross premium income by
144%.
The increase in operating profit of 26% was as a result of the strong organic
growth and continued gains in efficiencies. The claims ratio of 57.4%
(including OUTbonus costs) was similar to that experienced in the previous
year. Expenses as a percentage of net premium revenue improved slightly from
16.6% to 16.5%.
Momentum Group
The Momentum Group generated a strong performance in a challenging sales
environment. Good organic growth was achieved in individual recurring risk,
savings and lump-sum retail investment inflows. The integration of Sage into
the Momentum Group was completed in under 100 days.
Headline earnings before the once-off impact of the National Treasury
settlement, pre-IFRS, increased by 25% to R742 million for the six months
ended 31 December 2005. Headline earnings, after the impact of the National
Treasury settlement and IFRS adjustments, increased by 12% to R652 million.
Earnings attributable to ordinary shareholders increased by 33% to R778
million.
Total assets under management and administration increased by 24% during the
six months to R334 billion mainly due to the growth in equity markets, strong
net inflows in the collective investments and linked product businesses, and
the acquisition of Sage which increased Momentum"s on balance sheet asset
base by 10%.
The embedded value increased from R11.8 billion at 30 June 2005 to R13.0
billion at 31 December 2005. This growth resulted mainly from the impact of
strong equity markets and a 28% increase in the value of new business
compared with the prior period. The embedded value profit represents an
annualised return of 27%.
Insurance operations
The operating profit generated by local insurance operations increased by 25%
to R420 million. The continued strong new business growth, together with good
growth in investment markets, impacted positively on the results. The value
of new business, which represents the present value of profits from new
business, increased by 28% to R246 million. Including the turnaround in the
results of the international operations, the overall insurance operations
increased operating profit by an excellent 41% to R423 million.
The acquisition of Sage reduces Momentum"s unit cost per policy and
contributes positively to the growth strategy by providing access to an
agency force that is expected to significantly enhance future new business
growth. Following the conversion of the Sage Life policies onto the Momentum
IT systems, the combined maintenance cost per policy has been reduced by 14%,
with a commensurate increase in the embedded value of in force policies. A
total of R28 million in operating profit is included for Sage from 1
September 2005, whilst an amount of R10 million is included in investment
income on shareholder assets.
Asset management operations
The asset management operations comprise the retail and institutional asset
management operations of RMB Asset Management ("RMBAM"), RMB Properties and
87% of Ashburton. Momentum"s 40%-shareholding in Futuregrowth was sold to
Wiphold, the majority shareholder, during the period under review.
The asset management operations generated an increase in net profit after tax
of 41% to R151 million. The local asset management operations, represented
mainly by RMBAM, generated an excellent 64% increase in headline earnings.
Strong market growth in the institutional business resulted in increased
asset values and consequently higher fee income, whilst a significant
increase in retail collective investment scheme net inflows has also
benefited income levels.
Discovery
Discovery"s operating profits grew strongly by 32% during the period under
review to R526 million (2004:
R399 million), despite a disappointing performance from Destiny Health.
Headline earnings and earnings per share were negatively impacted by the the
once-off expense associated with Discovery"s recent BEE transaction.
Discovery Health
Discovery Health delivered robust growth and financial performance with
operating profit increasing by 9% to
R266 million (2004: R245 million), despite a reduction in real terms of
administration fees and loss of reinsurance income over time. The combined
membership of the schemes under Discovery Health"s administration grew to
1 883 879 as at 1 January 2006 (2005: 1 704 240 members). This reflects
continued growth in new business to R1 211 million (2004: R1 175 million)
which, coming off a high base, exceeded expectations, as well as a reduction
in the lapse rate to 3.3% (2004: 3.7%).
Discovery"s KeyCare product (aimed at the R3 500 - R6 500 income market) now
exceeds 100 000 members, more than half of which are new entrants to the
private health care industry and the development of Discovery Health"s
primary care network has progressed well with over 1 500 doctors now
represented within the network.
Discovery Life
Discovery Life"s performance exceeded expectations with operating profit
growing 29% to R246 million (2004:
R190 million) and new business growing 18% to R392 million (2004: R332
million). Discovery Life"s ability to accurately price health risk and
encourage health improvements through integration with Vitality and Discovery
Health, has translated into better than expected mortality and morbidity
rates, resulting in exceptional growth in underwriting profits during the
period under review from R126 million to R216 million.
Destiny Health
Disappointingly, the period under review saw further operational losses of
R80 million (2004: R41 million) for Destiny Health despite strong new
business growth in the Mid-Atlantic, Wisconsin and Massachusetts markets. The
operating losses were the result of slower than anticipated expansion into
new markets and an over-concentration in the Illinois market, where a
significant pricing disadvantage exists relative to the dominant insurer in
that market. This placed Destiny under increasing price pressure, resulting
in increased lapses and underwriting losses during the period under review.
Consumer-driven health care is gaining increasing support in the US, creating
favourable conditions for Destiny Health, particularly in the Texas market.
Discovery"s consumer-driven health care capability combined with the joint
ventures with Guardian and Tufts Health Plan, should result in significant
opportunities for Destiny Health in the year ahead.
The immediate short-term target is to achieve a run-rate of 3 000 new members
per month and consistently improve quarter-on-quarter financial results.
Discovery remains cautiously optimistic that the achievement of these goals
will lead to a viable business and profitability in the medium term.
PruHealth
PruHealth has quickly developed a nationwide Vitality footprint, providing
clients with access to Vitality wellness benefits across the UK. To date,
PruHealth"s performance has been exceptional. The investment in PruHealth of
R68 million (2004: R80 million) and new business growth of R77 million (2004:
R5 million) over the period were in line with our forecasts.
Based on its strong foundational position, Discovery is cautiously optimistic
of the outlook for PruHealth and has set a bold short-term goal of 100 000
lives by 1 January 2007.
FirstRand Limited - central cost
The costs incurred by FirstRand decreased to R102 million as reflected below:
Six months to
31 December
R million 2005 2004
restated
Operating expenses (21) 2
Taxation (30) (67)
Dividend on cumulative
redeemable preference shares (51) (51)
Total (102) (116)
The increase in operating expenses relates to the issue of R1.5bn non-
cumulative non-redeemable preference shares. The reduction in taxation is due
to reduced Secondary Tax on Companies charged.
In addition, the Group issued R730 million Cumulative Preference shares in
December 2005. During the period under review R500 million of Cumulative
Preference shares were redeemed.
Capital Management
The Group actively manages its capital base with the objective of enhancing
shareholder value through its capital management framework. Capital is
allocated to FirstRand business units on an economic risk assumed basis,
founded on Basel II principles.
The restructure of the vendor finance component of the BEE transaction
creates capacity for further debt capital raising to fund future growth
requirements in the Banking Group. During the year under review Momentum
obtained AA+/AA/Stable counterparty credit ratings from Fitch Ratings. This
rating reflects Momentum"s financial strength and creates further
opportunities to enhance and optimise its capital structure.
In terms of FirstRand"s integral capital management framework ongoing
optimisation of capital within its subsidiaries and at holding company will
be explored to enhance shareholder value.
Dividend policy
Ordinary shareholder dividend
The Group bases its dividend policy on sustainable earnings growth. The
dividend cover will be based on normalised earnings or net asset value
growth. For the period under review the Group based the dividend cover on
normalised earnings.
The Group will retain its dividend cover of 2.5 times based on normalised
earnings. The Group believes this is a sustainable dividend cover given the
internal earnings generation capacity and organic growth potential of the
businesses.
The interim dividend of 32.0 cents reflects an increase of 20% over the
interim dividend per share for 2004.
Corporate governance
FirstRand has embraced the recommendations of King II on Corporate Governance
and strives to provide reports to shareholders that are timely, accurate,
consistent and informative.
Prospects
The economic upswing currently experienced in South Africa, does not yet show
any sign of slowing and possibly represents a sustainable structural shift to
an era of low interest rates and inflation. Therefore consumer credit demand,
particularly asset-backed, is expected to remain buoyant, and this will be
positive for the Group"s retail and wholesale banking and vehicle financing
operations.
Continued strong equity markets should drive growth in the banking and
insurance investment business.
The settlement between the insurance industry and National Treasury together
with the recently announced reduction in Retirement Funds Tax, have resulted
in a more favourable savings environment.
The challenge going into 2006 is to at least maintain growth at current
levels and improve efficiencies. Margins are likely to remain under pressure
given current low interest rates which are not expected to increase during
the next six-month period.
Against this background, the Group believes that it will continue to achieve
its stated target of 10% real growth, in the second half of the financial
year to June 2006.
For and on behalf of the board
GT Ferreira PK Harris
Chairman Chief Executive Officer
Sandton
27 February 2006
DIVIDEND DECLARATIONS
Ordinary Shares
The following ordinary cash dividend was declared on 28 February 2006 in
respect of the six months ended 31 December 2005:
Cents per share 2005 2004
Interim (declared 28 February 2006) 32.0 26.60
*The last day to trade in FirstRand shares on a cum-dividend basis in respect
of the interim dividend will be Thursday, 16 March 2006 and the first day to
trade ex-dividend will be Friday, 17 March 2006. The record date will be
Friday, 24 March 2006 and the payment date Monday, 27 March 2006. No
dematerialisation or rematerialisation of shares may be done during the
period Friday, 17 March 2006 and Friday, 24 March 2006, both days inclusive.
Preference Shares
Dividends on the "A" preference shares are calculated at a rate of 65% of the
prime lending rate of banks and the following dividends have been previously
declared for payment: (Period 1 July 2005 to 31 December 2005, "A" preference
shares, 46 cents declared and paid on 2 February 2006).
Dividends on the "B" and "B1" preference shares are calculated at a rate of
68% of the prime lending rate of banks and the following dividends have
previously been declared for payment in respect of the period 30 August 2005
to 27 February 2006.
"B" preference "B1" preference
Cents share share
Period 30 August 2005 - 27 356 356
February 2006
AH Arnott
Company Secretary
27 February 2006
Directors GT Ferreira (Chairman), PK Harris (CEO), VW Bartlett, DJA Craig
(British), LL Dippenaar, DM Falck, PM Goss, NN Gwagwa,
MW King, YI Mahomed, G Moloi, AP Nkuna, SE Nxasana, SEN Sebotsa, KC Shubane,
BJ van der Ross, Dr F van Zyl Slabbert, RA Williams
Secretary and registered office AH Arnott, BCom, CA(SA), 4th Floor, 4
Merchant Place, Corner of Fredman Drive and Rivonia Road, Sandton 2196
Postal address PO Box 786273, Sandton 2146,
Telephone: +27 11 282 1808, Telefax: +27 11 282 8065,
Web address: www.firstrand.co.za
Sponsor (In terms of the JSE Limited Listings Requirements), Rand Merchant
Bank, (A division of FirstRand Bank), Corporate Finance, 1 Merchant Place,
Corner of Fredman Drive and Rivonia Road, Sandton 2196
Transfer Secretaries Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg 2001,
Postal address PO Box 61051, Marshalltown 2107,
Telephone: +27 11 370 5000, Telefax: +27 11 688 5221
Transfer Secretaries - Transfer Secretaries (Pty) Limited,
Shop No. 12, Kaiserkrone Centre, Post Street Mall, Windhoek
Postal address PO Box 2401, Windhoek, Namibia,
Telephone: +264 61227647, Telefax: +264 61248531
Statement of headline earnings and dividends
Unaudited Audited
Six months ended Year ended
31 December 30 June
R million 2005 2004 % change 2005
restated restated
Banking Group 3 658 2 844 29 6 062
Momentum Group 652 583 12 1 270
Discovery Group 101 118 (14) 324
FirstRand Limited (102) (116) 12 (304)
Consolidation of Share (134) (78) (72) (155)
Trusts
Sub-total 4 175 3 351 25 7 197
Dividend payment on non-
cumulative
non-redeemable preference (114) - (100) (68)
shares
Sub-total 4 061 3 351 21 7 129
FirstRand shares held by
policyholders
(Fair value movement) (131) - 100 -
Headline earnings
attributable to
ordinary shareholders 3 930 3 351 17 7 129
Return on average equity
(based on
normalised earnings) (%) 29.9 24.0
Earnings per share
(cents)
- Basic 79.8 63.3 26 137.3
- Diluted 77.1 62.5 23 135.5
Headline earnings per
share (cents)
- Basic 76.9 63.8 20 137.1
- Diluted 74.8 62.9 19 135.3
Dividend per ordinary
share (cents)
- Interim 32.0 26.6 20 26.6
- Final - - 28.5
Total 32.0 26.6 20 55.1
Dividend information
Dividend on non-
cumulative non-redeemable
preference share (cents)
"B" preference share
- 27 February 2006/28 - - 228
February 2005
- 29 August 2005 380 - 360
Total 380 - 588
"B1" preference share
- 27 February 2006/28 - - 37
February 2005
Ordinary dividends 1 797 1 457 23 3 057
declared (R million)
Dividends on non-
cumulative non-redeemable
preference shares (R 273 - 100 182
million)
Headline earnings
reconciliation
Attributable earnings of:
Banking Group 3 654 2 806 30 5 967
Momentum Group 778 584 33 1 341
Discovery Group 129 128 1 356
Sub-total 4 561 3 518 30 7 664
FirstRand Limited (102) (116) 12 (304)
Consolidation of Share (134) (78) 72 (155)
Trusts
Sub-total 4 325 3 324 30 7 205
Less: Dividend paid to
non-cumulative
non-redeemable preference (114) - (100) (68)
shareholders
Sub-total 4 211 3 324 27 7 137
FirstRand shares held by
policyholders
(Fair value movement) (131) - (100) -
Attributable earnings to 4 080 3 324 23 7 137
ordinary shareholders
Adjusted for:
Plus: Goodwill 95 - -
Less: (Profit)/Loss on
sale of strategic
associates/subsidiaries (82) 17 100 67
Add: Loss on sale of 6 (1) >100 7
assets
Less: (Profit)/Loss on
sale of
available-for-sale (169) 11 (>100) (82)
financial instruments
Headline earnings
attributable to
ordinary shareholders 3 930 3 351 17 7 129
Income statement
Unaudited Audited
Six months ended Year ended
31 December 30 June
R million 2005 2004 % change 2005
restated restated
Net interest income 7 792 6 811 13 14 571
Interest and similar 15 642 14 237 11 28 807
income
Interest expense and (7 850) (7 426) 8 (14 236)
similar charges
Impairment losses on (576) (409) 41 (706)
loans and advances
Net fee and commission 5 036 3 675 33 8 109
income
Fee and commission income 7 452 5 509 33 11 888
Fee and commission (2 416) (1 834) 32 (3 779)
expense
Net insurance premium 4 346 3 641 19 7 377
income
Insurance premium revenue 4 575 3 786 21 7 755
Premium ceded to (229) (145) 58 (378)
reinsurers
Net claims and benefits (4 446) (4 248) 5 (8 863)
paid
Gross claims and benefits
paid on
insurance contracts (4 648) (4 347) 7 (9 125)
Reinsurance recoveries 202 99 104 262
Gains and losses from
banking and
trading activities 1 016 1 000 (12) 2 187
Gains and losses from 4 193 6 285 (32) 7 687
investment activities
Increase in fair value of
policyholder
liability and life fund (3 202) (5 142) (38) (5 650)
Other operating income 742 121 >100 754
Net operating income 14 901 11 734 26 25 466
Operating expenses (8 592) (6 894) (14
311)
Other operating expenses (8 587) (6 894) 29 (14
311)
Other impairments (5) - - -
Share of profit of
associated and joint
venture companies 716 409 109 981
Income before 7 025 5 249 27 12 136
discontinued operations
(Loss)/Profit on disposal
of
discontinued operations - (17) 100 (67)
Operating profit before 7 025 5 232 28 12 069
income tax
Taxation expense (2 486) (1 622) 31 (4 113)
Profit for the period 4 539 3 610 26 7 956
Attributable to:
Non-cumulative non-
redeemable
preference shares 114 - 100 68
Equity holders of 4 080 3 324 23 7 137
FirstRand Limited
Minority interest 345 286 43 751
Earnings per share 80 63 26 137
(cents)
Diluted earnings per 77 63 24 136
share (cents)
Reconciliation of normalised earnings to headline earnings
Unaudited Audited
Six months ended Year ended
31 December 30 June
R million 2005 2004 % change 2005
restated restated
Banking Group
headline earnings
(excluding 3 640 3 046 20 6 228
translation impact
under SA GAAP)
Momentum Group"s
headline earnings
(pre-IFRS
and National 742 592 25 1 287
Treasury Settlement
charge)
Discovery Group (pre- 209 126 66 350
IFRS and BEE)
FirstRand Limited (102) (116) 12 (304)
Consolidation of (134) (78) (72) (155)
staff share schemes
Sub-total 4 355 3 570 22 7 406
Less: Dividend
payment on non-
cumulative
non-redeemable (114) - (100) (68)
preference shares
Sub total pre-IFRS 4 241 3 570 19 7 338
IFRS adjustments (79) (64) (19) (158)
Banking Group (4) (47) 91 (115)
(excluding
translation impact)
Momentum Group (63) (9) (>100) (17)
Discovery Group (12) (8) (50) (26)
Normalised earnings 4 162 3 506 19 7 180
Banking Group 22 (155) >100 (51)
(translation
gains/(losses))
Sub-total 4 184 3 351 25 7 129
National Treasury (27) - (100) -
settlement charge
Discovery BEE (96) - (100) -
transaction
FirstRand shares
held by
policyholders
(Fair value (131) - (100) -
movement)
Headline earnings
attributable to
ordinary 3 930 3 351 17 7 129
shareholders
Summarised cash flow statement
Unaudited Audited
Six months ended Year ended
31 December 30 June
R million 2005 2004 2005
restated restated
Cash inflow/(outflow) from 5 032 (1 214) 8 479
operations
Working capital changes 675 634 2 004
Cash inflow/(outflow) from 5 707 (580) 10 483
operations
Taxation paid (3 282) (1 527) (5 292)
Dividends paid (1 714) (1 387) (2 835)
Net cash inflow from/(to) 711 (3 494) 2 356
operating activities
Net cash outflow from investment (20 973) (7 659) (12 567)
activities
Net cash inflow/(outflow) from 4 253 9 450 6 386
financing activities
Net (decrease)/increase in cash (16 009) (1 703) (3 825)
and cash equivalents
Cash and cash equivalents at 38 550 40 253 40 097
beginning of year
Cash and cash equivalents at end 22 541 38 550 36 272
of year
Assets under management
Unaudited Audited
At 31 December At 30 June
R million 2005 2004 % change 2005
restated restated
FirstRand Limited (4 711) (2 178) >100 114
Banking Group 372 378 337 107 10 344 101
Momentum 130 700 112 168 16 113 735
Discovery 5 928 4 086 45 4 820
Total on balance 504 295 451 183 11 462 770
sheet assets
Off-balance sheet
assets managed or
administered on 193 000 127 142 43 153 609
behalf of clients
Total assets under
management
or administration 685 491 578 325 19 616 379
Balance sheet
Unaudited Audited
At At
31 December 30 June
R million 2005 2004 2005
restated restated
ASSETS
Cash and short-term funds 22 541 38 550 36 272
Advances 246 326 206 018 222 379
- at amortised cost 203 802 155 667 176 003
- held-to-maturity 662 9 174 7 449
- available-for-sale 1 857 1 733 1 648
- fair value 40 005 39 444 37 279
Derivative financial instruments 40 652 56 349 39 727
- qualifying for hedging 861 884 811
- trading 39 791 55 465 38 916
Investment securities and other 147 516 126 509 130 731
investments
Financial instruments held for 16 603 22 438 20 728
trading
Investment securities and other 121 281 97 072 101 383
investments
- held-to-maturity 1 284 1 205 1 822
- available-for-sale 18 949 18 382 15 413
- elected fair value 101 048 77 485 84 148
Commodities 1 135 1 110 439
Non-recourse investments 8 497 5 889 8 181
Investment properties 5 068 3 500 4 159
Policy loans originated - 577 530
Retirement benefit asset 38 - -
Reinsurance assets 299 224 217
Insurance assets including unit- 14 742 1 780 2 169
linked assets
Loans and receivables 14 467 8 560 4 066
Investments in associated 3 582 3 164 16 009
companies
Taxation 6 - 118
Intangible assets 3 018 804 1 177
Property and equipment 4 720 4 298 4 623
Deferred taxation 1 000 849 593
Total assets 503 975 451 182 462 770
SHAREHOLDERS" EQUITY AND
LIABILITIES
LIABILITIES
Deposits 264 437 235 966 245 793
- deposits and current accounts 255 940 230 077 237 612
- non-recourse deposits 8 497 5 889 8 181
Trading liabilities 20 417 16 786 19 919
Derivative financial instruments 27 307 46 505 30 264
- qualifying for hedging 366 523 249
- trading 26 941 45 982 30 015
Creditors and accruals 21 301 14 475 23 186
Insurance contract liabilities,
including
unit-linked liabilities - 785 1 027
Liabilities under investment 78 394 47 932 48 725
contracts
Liability under insurance 43 998 44 900 48 844
contracts and life fund
Post-retirement fund liabilities 1 660 1 690 1 771
Debentures and long-term 6 505 6 491 5 380
liabilities
Provisions 2 038 1 290 1 565
Taxation 173 962 185
Deferred taxation liabilities 4 338 2 228 3 877
Total liabilities 470 568 420 010 430 536
Shareholders" equity
Ordinary share capital and share 2 694 6 268 4 396
premium
Non-cumulative non-redeemable 4 518 2 975 2 992
preference shares
Distributable reserves 21 849 17 544 20 284
Non-distributable reserves 1 978 2 310 2 238
Shareholders funds 31 039 29 097 29 910
Minority shareholders" interest 2 368 2 075 2 324
Total shareholders" equity 33 407 31 172 32 234
Total shareholders" equity and 503 975 451 182 462 770
liabilities
Sources of profit
for the six months ended 31 December 2005
% restated % %
R million 2005 composition 2004 composition change
Banking Group 3 636 92 2 999 89 21
FNB 1 794 46 1 558 47 15
RMB 809 20 610 18 33
WesBank 603 15 474 14 27
FNB Africa 159 4 166 5 (4)
Outsurance 96 2 72 2 34
Support 179 5 199 6 (10)
Ansbacher - - (33) (1) -
Impact of IFRS (4) - (47) (1) -
Momentum Group 679 17 583 17 16
Insurance 423 11 299 9 41
operations
Asset management 151 4 107 3 41
operations
Investment income
on
shareholders" 168 4 186 6 (10)
assets
Impact of IFRS (63) (2) (9) (1) -
Discovery Group 197 5 118 4 67
FirstRand Limited (102) (3) (116) (3) (12)
Consolidation of (134) (3) (78) (2) 72
Share Trusts
Operating 4 276 108 3 506 105 22
performance
Dividend payment on
non-cumulative
non-redeemable (114) (3) - - >100
preference shares
Normalised earnings 4 162 103 3 506 105 19
Settlement with (27) (1) - - -
National Treasury
Operational
performance
(Normalised 4 135 104 3 506 105 18
earnings)
Discovery BEE (96) (2) - - -
transaction
FirstRand shares (131) (3) - - -
held by
policyholders
Currency 22 1 (155) (5) (113)
translation
profits/(losses)
Headline earnings
attributable to
ordinary 3 930 100 3 351 100 17
shareholders
Notes:
Taxation relating to the FirstRand Banking Group has been allocated across
the Bank"s operating divisions on a pro-rata basis.
Statement of changes in equity for the six months ended 31 December
Attributable to equity holders of the Group
Share Total
capital
and Non- Distributable ordinary
share distributable shareholders"
R million premium reserves reserves funds
As reported 4 396 1 893 20 575 26 864
under SA GAAP
at 30 June
2005
IFRS - 345 (281) 54
adjustments
at 30 June
2005
Restated IFRS 4 396 2 238 20 284 26 918
at 30 June
2005
IFRS (296) (174) (857) (1 327)
adjustments
Restated 4 100 2 064 19 427 25 591
balance at 1
July 2005
Issue of -
share capital
Share issue -
expense
Currency (269) (269)
translation
differences
Revaluation (217) (217)
of cash flow
hedges
Revaluation 292 292
of AFS assets
Movement in 9 9
other
reserves
Treasury (429) (429)
shares in
insurance
subsidiary
Consolidation (977) (2) (979)
of Share
Trust
Transfer 101 (101) -
(to)/from
reserves
Share options 43 43
(IFRS 2)
Earnings 4 080 4 080
attributable
to
shareholders
Ordinary (1 600) (1 600)
dividends
Preference -
dividends
As reported 2 694 1 978 21 849 26 521
under IFRS at
31 December
2005
Perpetual preference shareholders" funds
Non-
Non- cumulative Total
cumulative preference preference
preference share shareholders"
R million share capital premium funds
As reported under - 2 992 2 992
SA GAAP at 30
June 2005
IFRS adjustments - - -
at 30 June 2005
Restated IFRS at - 2 992 2992
30 June 2005
IFRS adjustments - - -
Restated balance - 2 992 2 992
at 1 July 2005
Issue of share 1 530 1 530
capital
Share issue (4) (4)
expense
Currency
translation
differences
Revaluation of
cash flow hedges
Revaluation of
AFS assets
Movement in other
reserves
Treasury shares
in insurance
subsidiary
Consolidation of
Share Trust
Transfer
(to)/from
reserves
Share options
(IFRS 2)
Earnings 114 114
attributable to
shareholders
Ordinary
dividends
Preference (114) (114)
dividends
As reported under - 4 518 4 518
IFRS at 31
December 2005
Total
Minority shareholders"
R million interest funds
As reported under SA GAAP at 30 June 2005 2 290 32 146
IFRS adjustments at 30 June 2005 34 88
Restated IFRS at 30 June 2005 2 324 32 234
IFRS adjustments 18 (1 345)
Restated balance at 1 July 2005 2 306 30 889
Issue of share capital 1 530
Share issue expense (4)
Currency translation differences (269)
Revaluation of cash flow hedges (217)
Revaluation of AFS assets 292
Movement in other reserves 9
Treasury shares in insurance subsidiary (429)
Consolidation of Share Trust (979)
Transfer (to)/from reserves -
Share options (IFRS 2) 43
Earnings attributable to shareholders 345 4 539
Ordinary dividends (283) (1 883)
Preference dividends (114)
As reported under IFRS at 31 December 2005 2 368 33 407
IFRS
Financial impact of the transition to International Financial Reporting
Standards ("IFRS")
Additional information is available at www.firstrand.co.za
Introduction
FirstRand Limited ("FirstRand") and its subsidiaries ("the Group"), has
prepared its consolidated financial statements under South African Statements
of Generally Accepted Accounting Practice ("SA GAAP") for the financial year
ended 30 June 2005.
In accordance with the Listing Requirements of the JSE Limited ("JSE"), the
Group adopted International Financial Reporting Standards, International
Accounting Standards and interpretations issued by the International
Financial Reporting Interpretation Committee and its predecessor body
(collectively referred to as "IFRS") with effect from1 July 2005.
The change to IFRS applies to all financial years beginning on or after 1
January 2005. Consequently, FirstRand"s first IFRS results will be for the
six-month period ended 31 December 2005. As FirstRand publishes comparative
information for the previous financial year in its Annual Report, the date of
transition to IFRS is 1 July 2004 ("the transition date"), the start of the
earliest period for which comparative information is presented. The interim
results for the six-month period ended 31 December 2005, as well as the
financial statements for the year ended 30 June 2006 will, therefore, include
comparative information restated in compliance with IFRS, subject to certain
exemptions to full retrospective adoption as set out in this document.
SUMMARY RECONCILIATION OF ATTRIBUTABLE EARNINGS
Audited Unaudited
year six months
ended ended
30 June 31 December
R million Notes 2005 2004
Attributable earnings as per SA 8 091 3 735
GAAP
Reclassify (729) (354)
Foreign exchange (a) (728) (353)
Other IFRS adjustments (l) (1) (1)
Remeasure (157) (57)
Property, plant and equipment (b) (32) (14)
Share-based payments (c) (153) (33)
Other IFRS adjustments (l) 28 (10)
Attributable earnings as per IFRS 7 205 3 324
SUMMARY RECONCiLIATION OF HEADLINE EARNINGS
Audited Unaudited
year six months
ended ended
30 June 31 December
R million Notes 2005 2004
Headline earnings as per SA GAAP 7 602 3 355
Reclassify (316) 59
Foreign exchange (a) (315) 60
Other IFRS adjustments (l) (1) (1)
Remeasure (157) (63)
Property, plant and equipment (b) (32) (14)
Share-based payments (c) (153) (34)
Other IFRS adjustments (l) 28 (15)
Headline earnings as per IFRS 7 129 3 351
Basis of preparation
The information presented below has been prepared in accordance with
interpretations of IFRS applicable at
31 December 2005, and expected to be applicable at 30 June 2006.
It should be noted that IFRS is continuing to evolve through the issue and/or
endorsement of new Standards and Interpretations and developments in the
application of recently issued Standards. For that reason, it is possible
that the financial impact and adjustments reflected below may change before
they are presented as comparatives to the IFRS financial information issued
by the Group in respect of the year ending 30 June 2006.
The Group"s board of directors acknowledges its responsibility for the
preparation of the preliminary IFRS financial statements and the selection of
transitional options under IFRS 1.
Transitional arrangements
IFRS 1 - First-time Adoption of International Financial Reporting Standards
("IFRS 1") sets out the requirements for the initial adoption of IFRS. IFRS 1
requires that accounting policies be adopted that are compliant with IFRS and
that these policies be applied retrospectively to all periods presented.
However, due to cost and practical considerations, certain exemptions are
permitted to full retrospective application in preparing the balance sheet on
the transition date ("the transition balance sheet") and the financial
information for the year ended 30 June 2005.
The Group has made the following elections in terms of IFRS 1:
Applicable on 1 July 2004 (Retrospectively)
Property, plant and equipment ("PPE"): Fair value or revaluation as deemed
cost: The Group has elected to use the IFRS 1 election to use the fair value
of certain property and equipment on the transition date as the deemed cost
where sufficiently detailed historical data relating to the components was
not available to enable the restatement under IFRS. However, where detailed
historical information was available, the carrying values in terms of SA GAAP
on the transition date of components of property and equipment have been used
(refer note (b) below);
- Foreign currency translation reserve: The Group has elected to use the IFRS
1 exemption to restate the cumulative foreign currency translation reserve
for all foreign operations to zero on the transition date (refer note (a)
below);
- Business combinations: The Group has elected that business combinations
prior to 1 July 2004 (transition date) should not be restated to comply with
IFRS 3 - Business Combinations. As a result, the amortised carrying value of
goodwill at 30 June 2004 is regarded as the IFRS compliant carrying value on
1 July 2004; and
- Employee benefits: The Group has elected to recognise all cumulative
unrecognised actuarial gains and losses on defined benefit plans against
opening retained income on 1 July 2004 and to continue to apply the corridor
approach to recognising actuarial gains and losses going forward (see note
(g) below).
Applicable on 1 July 2005 (Retrospectively)
- Share-based payment transactions: The Group has elected to apply the
provisions of IFRS 2 - Share-based payments, to all share-based instruments
or payments, such as share options, granted on or after 7 November 2002,
which have not vested on 1 January 2005 (refer note (c) below) except for the
provisions relating to BEE transactions in IFRIC 8 - Scope of IFRS 2.
Applicable on 1 July 2005 (Prospectively)
- Financial instruments - Implementation of IAS 32 and IAS 39: Both IAS 32
and IAS 39 will be adopted from 1 July 2005 with no restatement of
comparative figures (comparative figures regarding financial instruments are
presented based on current SA GAAP principles in terms of AC 125 and AC 133)
(refer notes (d), (e) and (f) below) and;
- IFRS 4 - Insurance contracts - the standard will be adopted from 1 July
2005 with no restatement of comparative figures.
Impact of the adoption of IFRS
A description of the IFRS adjustments, the quantification thereof and the
detailed reconciliations from SA GAAP to IFRS in accordance with IFRS 1 are
set out on pages 8 to 57.
Explanatory notes on significant adjustments resulting from the conversion to
IFRS
Adjustments implemented with effect from 1 July 2004
Note (a) - IAS 21 - Foreign Currency Translation Reserve
Financial impact:
The Group has elected to use the IFRS 1 election to restate the Foreign
Currency Translation Reserve of R465 million credit in equity to zero on 1
July 2004, with a corresponding increase in opening retained income.
As a result, the profit on disposal of a discontinued operation of R346
million, has reduced by R413 million to a loss on sale of R67 million for the
financial year ended 30 June 2005.
Gross translation gains of R315 million previously reflected in the income
statement for the financial year ended
30 June 2005 (31 December 2004: R60 million loss), have been credited
directly to the Foreign Currency Translation Reserve under IFRS.
Consequently, the financial impact of the change in accounting treatment is
equity neutral.
Local interpretation of AC 112 permitted integral foreign operations to have
a different functional currency to that of its parent. With the explicit
statement in the revised IAS 21 stating the opposite, all integral foreign
operations with a functional currency other than Rands were re-evaluated and
determined to be foreign entities at 1 July 2004.
As the previously classified integral operations contained primarily monetary
items, this change has no impact on equity.
Note (b) - IAS 16 - Property, Plant and Equipment ("PPE") - The component
approach to depreciation
Financial impact:
The adoption of IAS 16 had the following financial impact:
- An increase of R280 million in the carrying value of property, plant and
equipment on 1 July 2004, with a corresponding increase in opening retained
income of R246 million after reclassifications and deferred tax; and
- An increase of R32 million in the depreciation charge for the financial
year ended 30 June 2005 (31 December 2004: R14 million increase).
Adjustments implemented with effect from 1 July 2005
Note (c) - IFRS 2 - Share-based Payments
Financial impact:
The adoption of IFRS 2 had the following financial impact:
- The cumulative impact of the Group"s equity settled schemes on opening
retained earnings at 1 July 2004 is a decrease of R26 million. There is a
credit of R25 million to a share-based payment reserve and a R1 million
credit to liabilities. The effect on profit for 30 June 2005 is a decrease of
R153 million. An amount of R33 million was charged to the income statement
for the six months ended 31 December 2004.
Note (d) - IAS 32/39 - Financial Instrument Classification
Financial impact:
The adoption of IAS 32 and IAS 39 has resulted in the following material
reclassifications on 1 July 2005:
- The reclassification of R5.8 billion of purchased advances from held-to-
maturity loans to loans and advances at amortised cost;
- The reclassification of a net R510 million of advances from elected fair
value loans to loans and advances at amortised cost; and
- Reclassification of R93 million in margin deposits from Cash to Accounts
receivable.
Note (e) - IAS 18/39 - Effective Interest Rate
Financial impact:
The change in interpretation resulted in the Group capitalising R846 million
of fees and R660 million of expenses to loans and advances on 1 July 2005,
with a decrease of R46 million in retained income after deferred tax on 1
July 2005.
Note (f) - IAS 39 - Credit impairment
Financial impact:
The change in credit methodology in terms of IAS 39 results in an increase of
R312 million in credit impairments
on 1 July 2005.
Note (g) - Employee Benefits
Financial impact:
The cumulative unrecognised actuarial gains on defined benefit plans at 30
June 2004 amounted to R141 million
(net of deferred taxation). Opening retained earnings on 1 July 2004 have
therefore been increased by this amount with a corresponding increase in
assets.
Note (h) - Policy Loans
Financial impact:
As at 1 July 2005, policy loans amounting to R530 million have been set off
against the policyholder liabilities under investment contracts.
Note (i) - Reinsurance
Financial impact:
As at 30 June 2005 an amount of R217 million has been disclosed separately as
a reinsurance asset with
a corresponding increase in policyholder liabilities under insurance
contracts. As at 31 December 2004 and
30 June 2005, the reinsurance asset amounted to R224 million and R177 million
respectively.
Note (j) - IFRS 4 - Insurance Contracts
Financial impact:
The adjustment to opening retained earnings as at 1 July 2005 was a net debit
of R343 million. This comprised the following:
- The recognition of a deferred revenue liability of R227 million;
- Reversal of capitalised fees and other fair value adjustments resulting in
an increase in policyholder liabilities under investment contracts of R1 330
million;
- A deferred tax asset of R452 million raised for the above; and
- The recognition of a DAC asset of R1 073 million and the related deferred
tax liability of R311 million.
Note (k) - Consolidation of Collective Investment Schemes/Consolidated
separate financial statements
Financial impact:
The consolidation of unit trusts has resulted in an increase in assets and
liabilities of R128 million as at 1 July 2005. There has been no change to
the NAV of the Group.
In addition, as a reclassification, the income statement of Discovery was
consolidated on a line-by-line basis for the year ended 30 June 2005.
Note (l) - Other Adjustments
- Adjustments on commodity inventory of a joint venture that will in future
be fair valued under the broker-trader exemption in IAS 2 - Inventories
(included in the adjustment for joint ventures in the note below);
- A change in the accounting policy for joint ventures that will in future be
equity accounted as opposed to being proportionately consolidated, resulting
in a net reclassification of R74 million from the various balance sheet line
items to Investments in associates on 1 July 2004 (30 June 2005: R156
million; 31 December 2004: R96 million)
and an increase in equity accounted income of R110 million for the year ended
30 June 2005 (31 December 2004:
R22 million increase);
- Cash equivalents which are held in investment portfolios have been
reclassified to investments. In line with IAS 7, cash equivalents only
include items held for the purpose of meeting short term cash commitments
rather than for investing or other purposes; and
- Other reclassifications required by the respective standards of IFRS.
Note (m) - IAS 32/IFRS 4 - Elimination of Treasury Shares and Other Inter
Company Balances in Policyholder Funds
Financial impact:
The application of IAS 32 to these shares on 1 July 2005 reduced share
capital and share premium by R296 million, distributable reserves by R360
million and investments by R656 million.
In addition, other policyholder assets of R15 523 million and liabilities of
R3 828 million were eliminated on 1 July 2005.
FURTHER DEVELOPMENTS IN IFRS REPORTING
The IFRS conversion adjustments presented in this document have been prepared
based on accounting standards and interpretations applicable at 31 December
2005, and on the Group"s assumption that these standards and interpretations
will be applicable at 30 June 2006.
The IFRS Information presented for the year ending 30 June 2006 may differ
from the information contained herein, due to additional interpretations on
the implementation of certain standards being issued prior to 30 June 2006.
Consolidated income statement
Prepared in accordance with IFRS
Audited Unaudited
30 June 31 December
R million 2005 2004
restated restated
Net interest income 14 571 6 811
Interest and similar income 28 807 14 237
Interest expense and similar charges (14 236) (7 426)
Impairment losses on loans and advances (706) (409)
Net fee and commission income 8 109 3 675
Fee and commission income 11 888 5 509
Fee and commission expenses (3 779) (1 834)
Net insurance premium income 7 377 3 641
Insurance premium revenue 7 755 3 786
Premium ceded to reinsurers (378) (145)
Net claims and benefits paid (8 863) (4 248)
Gross claims and benefits paid on (9 125) (4 347)
insurance contracts
Reinsurance recoveries 262 99
Gains and losses from banking and 2 187 1 000
trading activities
Gains and losses from investment 7 687 6 285
activities
Increase in fair value of policyholder (5 650) (5 142)
liability and life fund
Other operating income 754 121
Net operating income 25 466 11 734
Operating expense (14 311) (6 894)
Share of profit of associated and joint 981 409
venture companies
Income before discontinued operations 12 136 5 249
Loss on discontinued operations (67) (17)
Operating profit before income tax 12 069 5 232
Taxation expense (4 113) (1 622)
Profit for the year 7 956 3 610
Attributable to:
Equity holders of FirstRand Limited 7 205 3 324
Minority interest 751 286
Earnings per share (cents) 137 63
Diluted earnings per share (cents) 136 63
Restatement of consolidated balance sheet/Opening IFRS balance sheet Prepared
in accordance with IFRS
Audited Audited Unaudited Audited
1 July 30 June 31 December 1 July
R million 2005 2005 2004 2004
restated restated restated restated
ASSETS
Cash and short-term funds 36 179 36 272 38 550 40 097
Advances 222 912 222 379 206 018 208 715
- originated 181 892 176 003 155 667 141 611
- held-to-maturity 1 603 7 449 9 174 8 971
- available-for-sale 1 648 1 648 1 733 4 499
- fair value 36 769 37 279 39 444 53 634
Derivative financial 32 092 39 727 56 349 45 485
instruments
- qualifying for hedging 811 811 884 4 798
- trading 31 281 38 916 55 465 40 687
Investment securities and 122 882 130 731 126 509 106 690
other investments
Financial instruments 19 078 20 728 22 438 9 660
held for trading
Investment securities and 95 184 101 383 97 072 89 931
other investments
- held-to-maturity 1 822 1 822 1 205 1 706
- available-for-sale 15 296 15 413 18 382 19 294
- elected fair value 78 066 84 148 77 485 68 931
Commodities 439 439 1 110 584
Non-recourse investments 8 181 8 181 5 889 6 515
Investment properties 4 159 4 159 3 500 3 648
Policy loans originated - 530 577 554
Reinsurance assets 217 217 224 177
Insurance assets 1 505 2 169 1 780 1 403
including unit-linked
assets
Loans and receivables 16 183 16 009 8 560 8 900
Investments in associated 4 054 4 066 3 164 2 889
companies and joint
ventures
Taxation 118 118 175
Intangible assets 2 250 1 177 804 661
Property and equipment 4 623 4 623 4 298 4 904
Deferred taxation 1 045 593 849 1 048
Total assets 447 219 462 770 451 182 425 346
SHAREHOLDERS" EQUITY AND
LIABILITIES
LIABILITIES
Deposits 244 910 245 793 235 966 225 576
- deposits and current 236 729 237 612 230 077 219 061
accounts
- non-recourse deposits 8 181 8 181 5 889 6 515
Trading liabilities 17 849 19 919 16 786 23 286
Derivative financial 17 932 30 264 46 505 40 783
instruments
- qualifying for hedging 249 249 523 4 606
- trading 17 683 30 015 45 982 36 177
Creditors and accruals 23 201 23 186 14 475 14 073
Debentures and long-term 5 280 5 380 6 491 6 382
liabilities
Reinsurance liabilities - - - -
Insurance contract 1 151 1 027 785 696
liabilities, including
unit-linked liabilities
Liabilities under 48 725 48 725 47 932 42 514
investment contracts
Liabilities under 49 644 48 844 44 900 39 632
insurance contracts
Provisions 1 603 1 565 1 290 1 344
Taxation 185 185 962 1 421
Post-retirement fund 1 771 1 771 1 690 1 657
liabilities
Deferred taxation 4 079 3 877 2 228 2 057
liabilities
Total liabilities 416 330 430 536 420 010 399 421
Shareholders" equity
Ordinary share capital 4 100 4 396 6 268 6 767
and share premium
Reserves
- Distributable reserves 19 427 20 284 17 544 15 822
- Non-distributable 2 064 2 238 2 310 1 486
reserves
Non-cumulative non- 2 992 2 992 2 975 -
redeemable preference
shares
Minority interest 2 306 2 324 2 075 1 850
Total shareholders" 30 889 32 234 31 172 25 925
equity
Total shareholders" 447 219 462 770 451 182 425 346
equity and liabilities
Reconciliation of consolidated statement of changes in equity
Prepared in accordance with IFRS
Attributable to equity holders of the Group
Perpetual preference shareholders" funds
Share Non- Total
capital Distri- Distri- ordinary
and share butable butable Minority shareholders"
R million premium reserves reserves interest equity
Previously 6 767 2 040 15 208 1 823 25 838
reported
balance at
1 July
2004
Adjusted
for:
- 246 (1) 245
property,
plant and
equipment
(b)
- post- (141) (141)
retirement
liability
(g)
- share- 25 (26) (1) (2)
based
payments
(c)
- foreign (579) 579 -
exchange
(a)
- Other (44) 29 (15)
IFRS
adjustment
s (l)
As 6 767 1 486 15 822 1 850 25 925
reported
under IFRS
Previously 6 268 2 467 17 352 2 044 28 131
reported
balance at
31 December
2004
Adjusted -
for income
statement
movements:
- property, 232 (1) 231
plant and
equipment
(b)
- post- (141) - (141)
retirement
liability
(g)
- share- 58 (58)
based
payments
(c)
- foreign (220) 220 -
exchange
(a)
- Other 5 (61) 32 (24)
IFRS
adjustments
(l)
As reported 6 268 2 310 17 544 2 075 28 197
under IFRS
Previously 4 396 1 893 20 575 2 290 29 154
reported
balance at
30 June
2005
Adjusted
for income
statement
movements:
- property, 216 (1) 215
plant and
equipment (b)
- post- (141) (141)
retirement
liability (g)
- share-based 181 (181) -
payments (c)
- foreign 149 (149) -
exchange (a)
- Other IFRS 15 (36) 35 14
adjustments
(l)
As reported 4 396 2 238 20 284 2 324 29 242
under IFRS at
30 June 2005
1 July 2005 4 396 2 238 20 284 2 324 29 242
adjustments:
- debt/equity (30) (30)
classificatio
n (d)
- effective - (46) (46)
interest rate
(e)
- credit (174) (78) (18) (270)
impairment
provisioning
(f)
- IFRS 4 (j) (343) (343)
- Other IFRS (296) (360) (656)
adjustments
(l)
As reported 4 100 2 064 19 427 2 306 27 897
under IFRS at
1 July 2005
Non- Non-
cumulative cumulative Total
preference preference preference Total
R million share share shareholders" shareholders"
capital premium funds equity
Previously - - - 25 838
reported balance
at 1 July 2004
Adjusted for: -
- property, plant - 245
and equipment (b)
- post-retirement (141)
liability (g)
- share-based (2)
payments (c)
- foreign -
exchange (a)
- Other IFRS (15)
adjustments (l)
As reported under - - - 25 925
IFRS
Previously 30 2 945 2 975 31 106
reported balance
at 31 December
2004
Adjusted for -
income statement
movements:
- property, plant - 231
and equipment (b)
- post-retirement - (141)
liability (g)
- share-based -
payments (c)
- foreign -
exchange (a)
- Other IFRS - (24)
adjustments (l)
As reported under 30 2 945 2 975 31 172
IFRS
Previously - 2 992 2 992 32 146
reported balance
at 30 June 2005
Adjusted for
income statement
movements:
- property, plant - 215
and equipment (b)
- post-retirement - (141)
liability (g)
- share-based - -
payments (c)
- foreign - -
exchange (a)
- Other IFRS - 14
adjustments (l)
As reported under - 2 992 2 992 32 234
IFRS at 30 June
2005
1 July 2005 - 2 992 2 992 32 234
adjustments:
- debt/equity (30)
classification
(d)
- effective - (46)
interest rate (e)
- credit - (270)
impairment
provisioning (f)
- IFRS 4 (j) - (343)
- Other IFRS - (656)
adjustments (l)
As reported under - 2 992 2 992 30 889
IFRS at 1 July
2005
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