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RMH - RMB Holdings Limited - Summarised, unaudited interim results

Release Date: 29/02/2012 09:00
Code(s): RMH
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RMH - RMB Holdings Limited - Summarised, unaudited interim results announcement and cash dividend declaration for the six months ended 31 December 2011 RMB HOLDINGS LIMITED (Incorporated in the Republic of South Africa) Registration number: 1987/005115/06 JSE Ordinary share code: RMH ISIN code: ZAE000024501 SUMMARISED, UNAUDITED INTERIM RESULTS ANNOUNCEMENT AND CASH DIVIDEND DECLARATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2011 NORMALISED earnings (from continuing operations) (cents) +22% to 134,0 cents INTERIM dividend (cents) +22% to 52,0 cents INTRINSIC value (cents) 2 709 cents THE RMBH GROUP AT A GLANCE Shareholders are referred to the restructure that RMB Holdings Limited ("RMBH" or "the Group") implemented during March 2011. This included, inter alia, the following key steps: acquisition by RMBH of additional FirstRand Limited ("FirstRand") ordinary shares in exchange for the issue of new RMBH ordinary shares, thereby increasing RMBH`s holding in FirstRand to 33,9% (previously 30,1%); and separation and subsequent unbundling of RMBH`s insurance interests into separately listed Rand Merchant Insurance Holdings Limited ("RMI Holdings") on a one-for-one basis. After the restructure, RMBH`s sole interest is its 33,9% investment in FirstRand, generally regarded as Southern Africa`s pre-eminent financial services group. The FirstRand Group comprises a portfolio of leading financial services franchises, including: First National Bank ("FNB"), the retail and commercial bank; Rand Merchant Bank ("RMB"), the investment bank; and WesBank, the instalment finance business. RMBH`s results: for the previous six month period ended 31 December 2010 thus represents a combination of RMBH`s then attributable share of FirstRand`s income as well as its attributable share of the income from its insurance interests (now owned by RMI Holdings); while that of the current six month period ended 31 December 2011 reflects only the earnings attributable to its 33,9% interest in FirstRand. This, together with accounting for the restructure itself, gives rise to a number of counter-intuitive outcomes in the reported results. To overcome the impact of these, the commentary below focuses on "Normalised Earnings" from continuing operations as its main measurement. A reconciliation of the adjustments made to derive normalised earnings is presented in the accompanying schedules. The computation of normalised earnings has not been audited. OPERATING ENVIRONMENT In the six months to December 2011, an already fragile global economic recovery was negatively affected by a number of unprecedented events, including the downgrade of the USA`s credit rating and the Eurozone crisis. Sentiment was further depressed by heightened concern that China would experience a significant slowdown in growth. Developed markets continued to experience muted growth but generally have limited policy space to support further expansion. While lower inflation and the easing of monetary policy should support growth in emerging economies, some of these countries continue to face structural risks associated with their growth models. Africa`s economic recovery continued and sub-Saharan Africa (excluding South Africa) is expected to grow GDP by between 6% and 7% in the current financial year, making it one of the developing regions with the highest growth prospects. Growth rates in South Africa moderated. The global slowdown was further amplified by local factors such as significant industrial action in the third quarter which depressed manufacturing and mining output. Supported by real income growth, households continued to drive the expansion, while capital investment and overall corporate activity remained subdued (albeit with pockets of moderate growth). Single digit growth in credit extension was below the increase in nominal GDP. The SARB maintained a monetary policy stance designed to stimulate economic activity. OVERVIEW OF RESULTS The Group continued to build on the strong base of the previous year and produced excellent results for the six months to 31 December 2011, achieving normalised earnings per share from continuing operations of 134,0 cents, an increase of 22% on the comparative period. This outcome was driven by excellent results from FirstRand which continued to benefit from strong performances in its retail franchises. The interim dividend of 52,0 cents per share increased by 22%. Headline earnings per share and earnings per share declined by 16% and 50% respectively. As highlighted in the analysis presented in the accompanying schedules, this anomalous outcome can in the main be ascribed to the fact that the comparative period included the income from the Group`s insurance interests that was unbundled to shareholders in the intervening period. SOURCES OF INCOME FirstRand`s well-diversified income stream is drawn from the full spectrum of banking services and is predominantly sourced from Southern Africa. RMBH`s proportional interest therein may be extrapolated as follows: INTRINSIC VALUE The Group`s intrinsic value reflected the recovery in financial sector equity values experienced over the period: as at 31 December 30 June Unaudited Unaudited
R million 2011 2011 % change Market value of listed interest 39 622 37 922 5 in FirstRand Net funding (1 372) (1 368) Intrinsic value 38 250 36 544 5 Per RMBH share (cents) 2 709c 2 589c 5 Over the six months to 31 December 2011 RMBH`s market capitalisation increased by 2% and at that date amounted to R38,5 billion or 2 730 cents per share (June 2011: R37,7 billion). This represented a 0,8% premium (June 2011: 2,9% premium) to the Group`s underlying intrinsic value. The net borrowings carried at the centre amounted to R1,372 billion at 31 December 2011 while the funding cost incurred during the half year amounted to R51 million, giving rise to an extrapolated annualised funding cost of 7,5% p.a. INTERIM DIVIDEND PAYMENT RMBH follows a stated practice of returning net dividends (after providing for funding and operational costs incurred at the centre) received by it in the ordinary course of business, to shareholders. The Board is of the opinion that RMBH is adequately capitalised at this stage and that the Company will be able to meet its obligations in the foreseeable future after payment of the interim dividend. Having due regard to the interim dividend receivable from FirstRand and applying the dividend practice outlined above, the Board of RMBH has resolved to declare an interim dividend of 52,0 cents per share (2010: 42,7 cents). Such dividend is covered 2,6 times by normalised earnings per share from continuing operations. This interim dividend accrues to shareholders before the advent of Dividend Withholding Tax on 1 April 2012. The liability for Secondary Tax on Companies resides with RMBH. OUTLOOK We expect that domestic economic conditions will remain subdued for the remainder of the current financial year. From a financial services perspective, growth in retail advances is likely to remain at current levels with mortgage lending expected to lag nominal GDP growth as levels of consumer indebtedness remain high and house prices are expected to reflect negative real growth in the short term. In mitigation, the stabilisation of the economy at modest growth rates and an ongoing low interest environment will result in reasonable growth in unsecured, short- term advances. Given excess capacity in the corporate sector, limited expansionary opportunities and strong balance sheets across the segment, corporate lending is expected to remain slow. FirstRand expects its domestic franchises to continue to grow organically, driven by specific strategies in those markets and/or segments that are showing above average growth, where FirstRand is under-represented or the return on equity is attractive. However, achieving revenue growth is likely to remain a challenge and FirstRand continues to drive cost efficiencies. GDP growth in sub-Saharan Africa is expected to strengthen in 2012 and all of FirstRand`s franchises will continue to capitalise on growth opportunities in those countries identified as priorities for expansion. FNB will expand the African operating footprint supported by its South African platform and RMB will mine the trade and investment flows between Asia and Africa, leveraging off the existing FNB platforms and its own operation in India. The quality of FirstRand`s operating franchises and their respective strategies domestically and in the rest of Africa should underpin that FirstRand`s ability to provide us, as shareholders, with sustainable superior returns. The restructuring of the RMBH Group has been well received by both shareholders and market participants. We are extremely pleased that Royal Bafokeng Holdings saw fit to increase their shareholding in RMBH to 15%. We trust that their vote of confidence will in due course be amply rewarded. For and on behalf of the Board GT Ferreira P Cooper Chairman Chief Executive Officer Sandton 29 February 2012 FIRSTRAND GROUP Financial outcome FirstRand produced excellent results for the six months to 31 December 2011, achieving normalised earnings of R5,8 billion, an increase of 26% on the prior period, and producing a normalised return on equity ("ROE") of 19,5% (2010: 18,0%). Six months ended 31 December R million Unaudite Unaudite % change d2011 d 2010
Normalised earnings from continuing operations derived from: - FNB South Africa 3 072 2 342 31 - FNB Africa 292 316 (8) - RMB and GTS 1 457 1 679 (13) - WesBank 1 193 750 59 - FirstRand Corporate Centre (243) (515) 53 (including non-cumulative, non- redeemable preference dividend) Normalised earnings from 5 771 4 572# 26 continuing operations Attributable to RMBH* 1 956 1 377 42 #' For the six months ended 31 December 2010, FirstRand also reported earnings from discontinued operations of R688 million, being its attributable share of income from Momentum and OUTsurance, then still owned by it. * After consolidation adjustments and increase in effective interest to 33,9% (previously 30,1%). Operational overview The increase in FirstRand`s earnings was delivered through very strong operational performances from FNB and WesBank, driven by loan and customer deposit growth, new customer acquisition, expanding lending margins and robust transactional volumes. From an overall perspective, the unwinding of bad debts continued to impact positively on the results of the retail franchises of FNB and WesBank. However, on a rolling six-month basis, the impairment charge benefit was flat. While RMB experienced a 13% decline in earnings, this is considered a very creditable performance, given the tough trading environment and the high base created in recent years. RMB`s Fixed Income Currency and Commodity division delivered particularly strong growth. FirstRand`s income statement benefited from an excellent 22% increase in net interest income ("NII"). This was driven by good growth in advances at FNB, WesBank and RMB. In addition, asset margins expanded due to the change in mix with larger contributions from vehicle and asset finance and unsecured lending. Margins also continued to be positively impacted by ongoing re- pricing strategies in the large retail lending books such as vehicle and asset finance and residential mortgages. NII growth also benefitted from a mark-to-market loss on funding instruments incurred in the comparative period that did not re-occur in the current period. Total non-interest revenue was marginally down on the comparative period as a result of RMB`s subdued performance. However, fee and commission income at FNB and WesBank was stronger than expected, increasing 17% on the comparative period and driven by ongoing new customer acquisitions and strong transactional volumes (particularly through the electronic channels) at FNB and fees generated on higher new business volumes at WesBank. As a result of the continued focus on cost containment, FirstRand`s total operating expenses increased by only 9%, which is in line with targets, while core operational costs increased by only 6%. The cost-to-income ratio improved marginally to 54,7%. Capital FirstRand`s capital management strategy is aligned to the Group`s overall objective to deliver sustainable returns to shareholders within appropriate levels of volatility. Its current philosophy, given the uncertain macro environment, is to operate at the higher end of its targeted capital levels to ensure balance sheet resilience, with an actual capital adequacy ratio of 15,4% (against a target range of 12,0% to 13,5% and a regulatory minimum level of 9,5%). While FirstRand does not seek to hold excess capital for acquisitions, it has previously indicated to shareholders that it is holding a "buffer" for investments in certain growth opportunities already identified in both the domestic market and in certain African jurisdictions. However, given the current economic conditions in South Africa and the subdued credit appetite amongst consumers and corporates, FirstRand`s operating franchises continue to generate good returns at a time when there is limited opportunity to grow risk-weighted assets. It therefore continues to review the appropriate level of pay out to shareholders on a sustainable basis. For a comprehensive, in-depth review of FirstRand`s performance, RMBH shareholders are referred to www.firstrand.co.za. summarised consolidated INCOME STATEMENT Six months ended Year 31 December ended
30 June R million 2011 2010 % 2011 Unaudite Unaudite change Audited d d
Continuing operations Share of after tax 2 124 1 473 44 4 255 results from associate company Investment income 12 17 (29) 13 Income 2 136 1 490 43 4 268 Acquisition, marketing (16) (15) 7 (50) and administration expenses Operating profit 2 120 1 475 44 4 218 Net finance costs (51) (47) 9 (98) Profit before tax 2 069 1 428 45 4 120 Taxation (10) (1) >100 1 Profit from continuing 2 059 1 427 44 4 121 operations Discontinued operations (unbundled) Profit attributable to - 911 (100) 1 206 operations unbundled Negative goodwill on - 1 370 (100) 1 370 acquisition of associate Profit on unbundling of - - - 4 983 discontinued operations Profit for the period 2 059 3 708 (44) 11 680 Attributable to: Equity holders of RMBH 2 059 3 551 (42) 11 468 Non-controlling - 157 (100) 212 interests 2 059 3 708 (44) 11 680 summarised statement of COMPREHENSIVE INCOME Six months ended Year
31 December ended 30 June R million 2011 2010 % 2011 Unaudite Unaudite change Audited
d d Profit for the period 2 059 3 708 (44) 11 680 Other comprehensive income, net of tax Currency translation - (3) 10 differences Available-for-sale - 25 13 financial assets Share of other 203 (152) (127) comprehensive income of associates Other comprehensive 203 (130) >100 (104) income for the period Total comprehensive 2 262 3 578 (37) 11 576 income for the period Total comprehensive income attributable to: Equity holders of RMBH 2 262 3 412 (34) 11 355 Non-controlling - 166 (100) 221 interests 2 262 3 578 (37) 11 576 summarised consolidated STATEMENT OF FINANCIAL POSITION As at 31 December 30 June R million 2011 2010 2011 Unaudite Unaudite Audited d d ASSETS Property and equipment 2 3 2 Goodwill and other intangible - 3 - assets Investment in associate companies 25 410 18 410 25 061 Financial assets 18 113 19 Receivables and prepayments 27 14 25 Receiver of revenue 4 - - Cash and cash equivalents 15 14 15 Non-current asset held for sale - 17 545 - Total assets 25 476 36 102 25 122 EQUITY Share capital and premium 8 775 5 104 8 750 Reserves 15 263 21 361 14 951 Capital and reserves attributable 24 038 26 465 23 701 to equity holders of the company Non-controlling interests - 1 253 - Total equity 24 038 27 718 23 701 LIABILITIES Financial liabilities 1 379 1 301 1 367 Payables and provisions 59 48 54 Liabilities directly associated - 7 035 - with non-current asset held for sale Total liabilities 1 438 8 384 1 421 Total equity and liabilities 25 476 36 102 25 122 summarised consolidated STATEMENT OF CASH FLOWS Six months ended Year
31 December ended 30 June R million 2011 2010 2011 Unaudite Unaudite Audited
d d Cash available from operating 2 204 683 1 458 activities from continuing operations Cash available from operating - 1 054 593 activities from discontinued operations Dividends paid (2 162) (845) (1 447) Investment activities from - (130) (47) continuing operations Investment activities from - (1 202) (843) discontinued operations Financing activities from (42) 20 2 494 continuing operations Financing activities from - 74 79 discontinued operations Net increase/(decrease) in cash - (346) 2 287 and cash equivalents from continuing and discontinued operations Unrealised foreign currency - (4) 26 translation adjustments Transfer to non-current assets - (2 385) (5 047) held for sale Cash and cash equivalents at the 15 2 749 2 749 beginning of the period Cash and cash equivalents at the 15 14 15 end of the period computation of HEADLINE and NORMALISED EARNINGS Six months ended Year 31 December ended
30 June R million Note 2011 2010 % 2011 Unaudite Unaudite change Audited d d
Earnings 2 059 3 551 (42) 11 468 attributable to equity holders Adjustment for: Negative goodwill - (1 370) (1 370) on acquisition of associate Profit on - - (4 983) unbundling of discontinued operations Other - 11 12 Share of adjustment made by associates: Profit on sale of (168) (1) (1 211) shares in subsidiary and associate Profit on sale of - (178) (178) joint venture Profit on sale of (13) (101) (159) available-for- sale financial assets Impairment of 5 2 5 assets in terms of IAS 36 Loss on disposal 1 - 18 of investment securities Impairment of 6 10 29 goodwill Other 8 15 22 Total tax effect 8 (4) 6 of adjustments Total non- 2 - 87 controlling interest adjustments Headline earnings 1 908 1 935 (1) 3 746 attributable to equity holders RMBH`s share of adjustments made by associates: Treasury shares 1 36 79 162 Reversal of - - 156 private equity realisation Net realised and - - (26) fair value gains on shareholders` funds Basis changes and - - 6 investment variances Amortisation of - - 35 intangible assets relating to business combinations Recapture of - - 78 reinsurance Other - 28 13 IFRS 2 share 10 - (5) based expenses
Adjustment for: RMBH shares held 2 - 54 55 by policyholders Group treasury 3 (63) (111) (201) shares Normalised earnings 1 891 1 985 (5) 4 019 attributable to equity holders (unaudited) Notes: 1. Deconsolidation of treasury shares and "deemed" treasury shares by FirstRand and Discovery, in comparative periods, to account for: - the Discovery BEE transaction in comparative periods; - FirstRand shares acquired to hedge liabilities under staff share schemes; and - FirstRand shares held as policyholders assets by group insurers. 2. Deconsolidation of "deemed" RMBH`s treasury shares held for policyholders by group insurers. 3. Adjustment to reflect earnings impact based on actual RMBH shareholding in group companies, i.e. reflecting treasury shares as if they are non-controlling interests. computation of EARNINGS PER SHARE Six months ended Year
31 December ended 30 June R million 2011 2010 % 2011 Unaudite Unaudite change Audited
d d From continuing and unbundled operations Earnings attributable to 2 059 3 551 (42) 11 468 equity holders Headline earnings 1 908 1 935 (1) 3 746 attributable to equity holders Normalised earnings for 1 891 1 985 (5) 4 019 the period** Number of shares in issue 1 412 1 209 17 1 412 (millions) Weighted average number 1 407 1 201 17 1 272 of shares in issue (millions) Number of shares applied 1 411 1 209 17 1 281 in calculation of normalised earnings per share (millions) Earnings per share 146,3 295,5 (50) 901,3 (cents) Diluted earnings per 143,7 292,6 (51) 895,4 share (cents)* Headline earnings per 135,6 161,0 (16) 294,4 share (cents) Diluted headline earnings 133,3 158,2 (16) 290,2 per share (cents)* Normalised earnings per 134,0 164,2 (18) 313,8 share (cents)** Diluted normalised 134,0 163,8 (18) 313,8 earnings per share (cents)** Dividend per share (cents) Interim 52,0 42,7 22 42,7 Final - - - 58,3 Total 52,0 42,7 22 101,0 Dividend cover (relative 2,6 3,8 (32) 2,9 to headline earnings) Dividend cover (relative 2,6 3,8 (32) 3,1 to normalised earnings)** From continuing operations Earnings attributable to 2 059 1 427 44 4 121 equity holders Headline earnings 1 908 1 376 39 2 966 attributable to equity holders Normalised earnings for 1 891 1 331 42 3 091 the period** Number of shares in issue 1 412 1 209 17 1 412 (millions) Weighted average number 1 407 1 209 16 1 280 of shares in issue (millions) Number of shares applied 1 411 1 209 17 1 281 in calculation of normalised earnings per share (millions) Earnings per share 146,3 118,0 24 321,9 (cents) Diluted earnings per 143,7 115,9 24 316,1 share (cents)* Headline earnings per 135,6 113,8 19 231,7 share (cents) Diluted headline earnings 133,3 111,7 19 227,5 per share (cents)* Normalised earnings per 134,0 110,1 22 241,3 share (cents)** Diluted normalised 134,0 110,1 22 241,3 earnings per share (cents)** * The diluted calculations give cognisance to the impact of the similar calculation of FirstRand. This has no impact on RMBH`s weighted average number of shares. ** Unaudited. summarised statement of changes in equity R million Share Total Total Non- Total capital reserves equity con- equity and trolling
premium holders` interest funds Balance at 5 328 17 520 22 848 1 036 23 884 30 June 2010 (audited) Total - 3 412 3 412 166 3 578 comprehensive income for the period Dividend paid - (846) (846) (98) (944) Capital invested - - - 130 130 by minorities Reserve - 6 6 19 25 movements relating to subsidiaries Change in - (636) (636) - (636) carrying value of associate due to elimination of treasury shares Movement in - 38 38 - 38 treasury shares Reserve - 1 643 1 643 - 1 643 movements relating to associates Balance at 5 328 21 137 26 465 1 253 27 718 31 December 2010 (unaudited) Balance at 8 825 14 876 23 701 - 23 701 30 June 2011 (audited) Total - 2 262 2 262 - 2 262 comprehensive income for the year Dividend paid - (2 164) (2 164) - (2 164) Share based - 1 1 - 1 payment Change in - 15 15 - 15 carrying value of associate due to elimination of treasury shares Movement in - 25 25 - 25 treasury shares Reserve - 198 198 - 198 movements relating to associates Balance at 8 825 15 213 24 038 - 24 038 31 December 2011 (unaudited) BASIS OF PREPARATION OF RESULTS The accompanying summarised results for the six months ended 31 December 2011 reflects: - the operations of RMBH and its proportionate interest in its associate, FirstRand, which has been equity accounted; - the prior period includes the results of its previously held subsidiaries OUTsurance and RMB Structured Insurance for the six months ended 31 December 2010 as well as RMBH`s proportionate interest in its previously held associates, Discovery and MMI Holdings; and - the results of these subsidiaries and associates are referred to as the discontinued/ unbundled operations and were treated as a non-current asset held for sale as per IFRS 5 in the comparative periods. The interim report is prepared in accordance with: - International Financial Reporting Standards ("IFRS"), including IAS 34: Interim Financial Reporting; - The requirements of the South African Companies Act, Act 71 of 2008, as amended; and - The Listings Requirements of the JSE Limited (the "JSE"). These summarised results incorporate accounting policies that are consistent with those used in preparing the financial results for the six months ended 31 December 2010 and year ended 30 June 2011. The results are unaudited and have been prepared under the supervision of Peter Cooper CA(SA). INTERIM CASH DIVIDEND DECLARATION Notice is hereby given that an interim dividend of 52,0 cents per share was declared on 29 February 2012 in respect of the six months ended 31 December 2011. Shareholders` attention is drawn to the following important dates: Last day to trade in order to Thursday,15 March 2012 participate in this dividend Shares commence trading "ex dividend" Friday, 16 March 2012 on The record date for the dividend Friday, 23 March 2012 payment will be Dividend payment date Monday, 26 March 2012 No de-materialisation or re-materialisation of share certificates may be done between Friday, 16 March 2012 and Friday, 23 March 2012 (both days inclusive). By order of the Board (Ms) EJ Marais Company Secretary 29 February 2012 Directors GT Ferreira (Chairman), P Cooper (CEO), L Crouse, NDJ Carroll, LL Dippenaar, JW Dreyer, PM Goss, PK Harris, KC Shubane, (Ms) SEN Sebotsa and MH Visser. Alternate directors JJ Durand (Appointed 18 October 2011), TV Mokgatlha (Appointed 18 October 2011). Secretary and registered office (Ms) EJ Marais CA(SA) (Appointed 19 October 2011) Physical address 3rd Floor, 2 Merchant Place, Corner of Fredman Drive and Rivonia Road, Sandton, 2196 Postal address PO Box 786273, Sandton, 2146'Telephone +27 11 282 8000 Telefax +27 11 282 4210 Web address www.rmbh.co.za Sponsor (in terms of JSE Limited Listings Requirements) Rand Merchant Bank (a division of FirstRand Bank Limited) Physical address 1 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196 Transfer secretaries Computershare Investor Services (Pty) Limited'Physical address Ground Floor, 70 Marshall Street, Johannesburg, 2001 Postal address PO Box 61051, Marshalltown, 2107 Telephone +27 11 370 5000 Telefax +27 11 688 5221 Date: 29/02/2012 09:00:02 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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