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Audited results and cash dividend declaration for the year ended 30 June 2012
FirstRand Limited
Registration number: 1966/010753/06
Income tax reference number: 9150/201/71/4
JSE code: FSR ISIN: ZAE0000066304 (FSR)
NSX share code: FST
Audited results and cash dividend declaration for the year ended 30 June 2012
Introduction
This report covers the audited financial results of FirstRand Limited (FirstRand or the Group) from continuing and discontinued operations based on
International Financial Reporting Standards (IFRS) for the year ended 30 June 2012, as well as the continuing normalised operations of the Group.
The Group consists of a portfolio of leading financial services franchises; these are First National Bank (FNB), the retail and commercial bank, Rand
Merchant Bank (RMB), the investment bank, and WesBank, the instalment finance business.
The primary results and accompanying commentary are presented on a continuing normalised basis as the Group believes this most accurately reflects its
economic performance. The continuing normalised operations specifically exclude the profit on unbundling of Momentum, the earnings contribution of
Momentum, the profit on disposal of OUTsurance, as well as the earnings contribution of OUTsurance for the comparative periods. The normalised earnings
have been derived from the audited IFRS financial results, which have been audited in compliance with Section 29(1) of the Companies Act.
A detailed description of the difference between normalised and IFRS results is provided on www.firstrand.co.za. Commentary is based on the continuing
normalised results, unless indicated otherwise.
Alan Hedding, CA(SA), supervised the preparation of the consolidated financial results.
The annual integrated report for FirstRand Limited, which is summarised by this report, will be published on the Groups website, www.firstrand.co.za, on or
about 1 November 212.
Year ended 30 June
2012 2011 % change
Normalised earnings (R million) 12 730 10 117 26
Diluted normalised earnings per share (cents) 225.8 179.4 26
Normalised net asset value per share (cents) 1 142.4 1 044.0 9
Dividend per ordinary share (cents) 102.0 81.0 26
Normalised return on equity (%) 20.7 18.7
Statement of headline earnings from continuing and discontinued operations - IFRS
for the year ended 30 June
R million 2012 2011 % change
Continuing operations
Profit from continuing operations 14 369 14 244 1
Non-controlling interests (898) (1 164) (23)
NCNR preference shares (275) (301) (9)
Earnings attributable to ordinary equityholders 13 196 12 779 3
Adjusted for: (554) (3 341) (83)
Loss/(gain) on disposal of investment securities and other
investments of a capital nature 20 (12)
Gain on disposal of available-for-sale assets (154) (341)
Gain on disposal of associates (473) (2 792)
Gain on disposal of subsidiaries (266) (571)
Loss/(gain) on the disposal of property and equipment 49 (9)
Fair value of investment properties (12) -
Impairment of goodwill 115 96
Impairment of assets in terms of IAS 36 7 37
Gain from a bargain purchase - (9)
Other 41 -
Tax effects of adjustments 43 16
Non-controlling interest adjustments 76 244
Headline earnings from continuing operations 12 642 9 438 34
Discontinued operations
Profit from discontinued operations - 7 283 (100)
Non-controlling interests - 3 (100)
Earnings attributable to ordinary equityholders - 7 286 (100)
Adjusted for: - (6 868) (100)
Profit on dividend in specie - (6 868)
Headline earnings from discontinued operations - 418 (100)
Headline earnings from continuing and discontinued operations 12 642 9 856 28
Reconciliation from headline earnings to normalised earnings from continuing and discontinued operations
for the year ended 30 June
R million 2012 2011* % change
Headline earnings from IFRS continuing operations 12 642 9 438 34
Adjusted for: 88 859 (90)
IFRS 2 Share-based payment expense 77 (20) (>100)
Treasury shares 251 418 (40)
- Consolidation of share trust 242 210
- FirstRand shares held by policyholders 9 208
Total return swap (TRS) adjustment (240) -
Private equity subsidiary realisations - 461 (100)
Normalised earnings from IFRS continuing operations 12 730 10 297 24
Headline earnings from discontinued operations - 418 (100)
Adjusted for: - 90 (100)
- FirstRand shares held by policyholders - 90
Normalised earnings from IFRS continuing and discontinued
operations 12 730 10 805 18
* June 2011 figures include six months of OUTsurance income amounting to R180 million in earnings from continuing
operations, which are excluded from normalised earnings - refer below for reconciliation.
Reconciliation of IFRS continuing operations to continuing normalised operations for the year ended 30 June
R million 2012 2011 % change
Earnings attributable to ordinary equityholders from IFRS continuing
operations 13 196 12 779 3
OUTsurance equity-accounted income for the period - (180) (100)
Profit on sale of OUTsurance - (2 710) (100)
Profit on disposal of investments* (610) - -
Attributable earnings from continuing normalised operations 12 586 9 889 27
Headline earnings from IFRS continuing operations (per above) 12 642 9 438 34
OUTsurance equity-accounted income - (180) (100)
Headline earnings from continuing normalised operations 12 642 9 258 37
Normalised earnings from IFRS continuing operations (per above) 12 730 10 297 24
OUTsurance equity-accounted income - (180) (100)
Normalised earnings from continuing normalised operations 12 730 10 117 26
* This includes the disposal of MMI Namibia, Tracker and Ronald Sewells.
Overview of results
Introduction
The legacy of the 2008 financial crisis remains one of significant macroeconomic uncertainty. During the current financial year the global policy makers were
faced with a number of crises, including the European sovereign debt and banking sector crisis which, at times, threatened to break up the euro zone.
Faced with its own fiscal challenges, the US sovereign rating was downgraded, preceded by heightened volatility in financial markets over the possibility
that the US government might default on some of its debt obligations.
This uncertainty combined with high levels of government indebtedness, ongoing stress in the European banking system and households continuing to
rebuild balance sheets weighed on economic activity in the major developed economies. This weakness spilled over into the major emerging economies
and growth in countries such as China, India and Brazil slowed markedly during the latter part of the financial year.
The South African economy was not immune to the global developments and, although growth picked up in the latter part of 2011, it moderated again at the
start of 2012. Slowing export growth and falling business confidence reflected muted global economic activity and supply-side constraints, such as labour
action in the mining sector and limited electricity supply, also weighed on macroeconomic performance. This contributed to subdued private sector
investment spending.
Consumer demand remained quite resilient throughout the financial year with household spending on durable goods particularly strong. This demand was
underpinned by growth in real disposable income and a gradual increase in the uptake of credit by households, particularly unsecured credit. Continued low
interest rates provided further support.
The fact that the sub-Saharan Africa region is less exposed to the global financial sector provided some buffer against the negative global economic
developments. The region showed strong growth of 5.2% in 2011 and the trend continued in the first half of 2012, largely supported by high commodity
prices, new resource exploration, increased export diversification and improved domestic macroeconomic conditions.
Overview of results
Despite these ongoing challenges FirstRand produced excellent results for the 12 months to 30 June 2012, achieving normalised earnings from continuing
operations of R12 730 million, an increase of 26% on the previous period and producing a normalised return on equity (ROE) of 20.7% (2011: 18.7%). This
reflects the strength and resilience of the Groups operating franchises which have demonstrated outperformance in many segments of the market.
The most significant driver of earnings was the very strong operational performances from FNB and WesBank, both of which showed excellent topline
growth. In the case of FNB this was the result of specific strategies to acquire customers, grow loans and deposits, and drive transactional volumes across
all of its platforms, particularly electronic. WesBank delivered excellent new business growth.
The RMB franchise performed well especially given the tough trading environment for corporate and investment banking and the high base created in
recent years, particularly the significant private equity realisations in the comparative period to June 2011.
The table below shows a breakdown of sources of normalised earnings:
Sources of normalised earnings
for the year ended 30 June
R million 2012 % composition 2011 % composition % change
Total FNB 6 673 53 5 327 53 25
- FNB South Africa 6 157 49 4 787 47 29
- FNB Africa 516 4 540 6 (4)
RMB and GTS 3 646 29 3 842 38 (5)
WesBank 2 599 20 1 862 18 40
Corporate Centre and consolidation
adjustments (702) (6) (711) (7) (1)
FirstRand Limited (company)* 789 6 98 1 >100
NCNR preference dividend (275) (2) (301) (3) (9)
Normalised earnings from continuing
normalised operations 12 730 100 10 117 100 26
* Included in this amount is the consolidation adjustment of R818 million to bring the IFRS 2 costs from cash settled in the
underlying subsidiaries to equity settled at the Group level. The significant increase in this amount from previous years is due to
the 33% increase in the FirstRand share price year-on-year.
The Groups income statement benefited from an increase of 21% in net interest income before impairments (NII). This was driven by good growth in
deposits at FNB and in advances at FNB and WesBank. Asset margins materially benefited from strong growth in unsecured lending products which offer
better risk-adjusted pricing. Margins also continued to be positively impacted by ongoing repricing strategies in the large retail lending books such as vehicle
and asset finance, and residential mortgages.
The 5% increase in non-interest revenue (NIR) was underpinned by strong growth of 14% at FNB and 27% at WesBank. RMBs client activities, particularly
advisory and structuring and currency and commodity trading, also contributed. However, investment income was significantly down given the high base in
the previous year. This base was created by both large private equity realisations and strong results from its international RMB Resources portfolio.
Whilst the Groups core operating costs grew 10% for the year, certain once-off items have resulted in total expenses increasing 14%. The first relates to
accelerated depreciation on small value assets, which impacts both GTS and FNB (primarily SpeedPoint devices). In addition, operating expenses were
impacted by higher costs associated with cooperation agreements, investment in expansion initiatives and incremental increases in IFRS 2 Share-based
payment expenses directly linked to the Groups increased share price.
A reconciliation of operating expenses is provided in the table below.
Year ended 30 June %
R million 2012 2011 change
Operating expenses 27 212 23 840 14
Adjusted for:
Share-based payments (469) (79) >100
New subsidiaries (82) (85) (4)
Expansion costs (497) (212) >100
Cooperation agreements and joint ventures (564) (450) 25
Accelerated depreciation and Full Maintenance Rental (409) (118) >100
Core costs 25 191 22 896 10
The increase in the bad debt charge from 93 bps to 108 bps was driven mainly by:
- the creation of certain portfolio provisions at the centre, reflecting the Groups view that the benign credit cycle has now bottomed; and
- a specific impairment for unrecovered amounts in FNBs merchant acquiring business.
Excluding the impact of the specific impairment for the merchant acquiring business, overall credit impairments increased from 93 bps to 94 bps. However,
the impairments relating to the non-performing book decreased 25%, which is in line with expectations and reflects further improvement in NPLs in most of
the large retail books, particularly FNB HomeLoans and FNB Card.
The Groups balance sheet continued to show good overall growth in advances. This was driven by robust new business volumes, particularly in the
portfolios indicated below. This reflects the Groups strategy to grow its lending books in certain targeted segments.
- Unsecured lending in FNBs mass and consumer segments (excluding Card): R11.4 billion
- Unsecured lending at WesBank: R4.3 billion
- Vehicle and asset finance at WesBank: R54.3 billion
- RMBs structured lending book: R51.8 billion
Overview of operating franchises
FirstRands vision is to be the African financial services group of choice, creating long-term franchise value and delivering superior and sustainable
economic returns to shareholders within acceptable levels of volatility. The Group seeks to achieve this through two parallel growth strategies:
- become a predominant player in all of the financial services profit pools in South Africa, growing in existing markets and those where it is under-
represented; and
- grow its franchise in the broader African continent, targeting those countries expected to show above average domestic growth and which are well
positioned to benefit from the trade and investment flows between Africa, China and India.
These strategies are executed through its portfolio of operating franchises, within a framework set by the Group. Below is a brief overview of progress on
these strategic objectives and the financial and operational performance of each franchise.
FNB
FNB represents FirstRands activities in the retail and commercial segments in both South Africa and the broader African continent. It is growing its franchise
strongly in both existing and new markets on the back of innovative products and delivery platforms, particularly focusing on electronic and digital channels.
FNB produced an excellent performance for the year, increasing pre-tax profits 23% and producing an ROE of 35.0%.
FNB South Africa
Year ended 30 June
R million 2012 2011* % change
Normalised earnings 6 157 4 787 29
Profit before tax 8 293 6 529 27
Total assets 229 329 220 527 4
Total liabilities 220 931 213 852 3
Credit loss ratio (%) 1.28 1.21
ROE (%) 38.7 34.9
* Prior year restated to exclude GTS.
FNB South Africa has benefited from a very deliberate strategy to grow and retain core transactional accounts. It has driven this through offering customers
a compelling value proposition - innovative products and channels at an acceptable cost to the customer. This proposition has been supported by various
reward programmes, such as eBucks, SLOW lounges and fuel, data and airtime rewards. Innovations such as the Banking App, cellphone banking and
eWallet have also attracted new customers. This has resulted in a net increase of 1.3 million active accounts in the year under review. In addition, FNBs
success in cross-selling to its customers also increased the average products per customer from 2.03 to 2.10. A positive outcome from this growth in
customers is the commensurate increase in transactional volumes, particularly on the back of FNBs deliberate objective to drive customers onto its
electronic platforms. This resulted in non-interest revenue growth for the year of 14%.
Robust net interest income growth of 19% was underpinned by solid advances growth of 7%, driven mainly by the Consumer, Commercial and Mass
segments, margin expansion due to the growth in unsecured lending and the substantial decrease in non-performing loans in FNB HomeLoans.
Card advances grew 11% on the back of proactive customer acquisition. HomeLoans advances increased only 1% reflecting FNBs strategy to grow
residential mortgages in the low risk categories. However, new business margins remained healthy. Affordable housing, particularly Smart Bonds, continued
to show good growth.
Deposits also grew well (up 19%) driven mainly by the Commercial, Consumer and Wealth segments, in particular notice deposit products.
Excluding the specific impairment mentioned previously in the merchant acquiring business, bad debts showed a marginal decrease of 4%. Bad debts in the
unsecured lending books increased, however, this is in line with expectations and is appropriately provided for.
Core cost growth was maintained at 9%, reflecting FNBs focus on ongoing efficiencies and streamlining platforms.
FNB Africa
Year ended 30 June
R million 2012 2011 % change
Normalised earnings 516 540 (4)
Profit before tax* 1 385 1 350 3
Total assets 39 267 35 439 11
Total liabilities 34 399 31 493 9
Credit loss ratio (%) 0.50 0.30
ROE (%) 16.2 19.6
* Excluding profit on disposal of MMI Namibia.
The results of FNB Africa comprise the established subsidiaries in Namibia, Botswana, Swaziland and Lesotho and the start-up operations in Mozambique,
Zambia and Tanzania. Overall the business performed well, despite ongoing investment in the start-up operations.
The portfolio benefited from increased lending and good NIR growth. The ongoing investment in building the African footprint and expanding the branch
network, particularly in the new territories, resulted in customer acquisition and growth in transactional volumes. During the year FNB introduced a number
of products into the subsidiaries, such as cellphone banking and eWallet.
RMB
RMB represents the activities of the Group in the corporate and investment banking segments, in both South Africa and the broader African continent.
During the year under review the RMB business model was further adjusted in anticipation of impending regulatory changes and the expected macro
environment. These changes included:
- the formation of a Global Markets division, merging components of the Fixed Income, Currency and Commodities (FICC) and Equities businesses;
- the termination of outright proprietary trading activities; and
- more capital to be allocated to client and investing activities to enable growth in the corporate and investment banking (CIB) activities.
These changes will ensure that RMB is well positioned for growth and sustainable returns in what continues to be a difficult environment. RMB has become
a more client-centric business with a very clear strategy anchored around a defined risk appetite.
RMB and GTS
Year ended 30 June
R million 2012 2011 % change
Normalised earnings 3 646 3 842 (5)
Profit before tax 4 926 5 370 (8)
Total assets 331 912 267 127 24
Total liabilities 324 177 260 853 24
ROE (%) 23.2 28.5
Despite the high base created in the previous year and challenging investment and corporate banking markets in the year to June 2012, RMB and Global
Transactional Services (GTS) combined pre-tax profits were only down 8% year-on-year to R4.9 billion, delivering an ROE of 23.2%.
In terms of client activities, despite muted M&A activity in the domestic market, large cross-border mandates contributed to growth in fee income. Financing
margins remained under pressure, but despite this, revenues grew on the back of a 21% increase in the core loan book. Good growth in hedging and
structuring revenues was driven by the currency, interest rate and credit structuring areas. The 91% growth in earnings from RMBs businesses deployed in
the FNB African subsidiaries was driven by strong performances from Botswana, Namibia, Zambia and Mozambique. The structured trade business also
profited from the renewed focus on Africa. This strong momentum in client activity underpinned the good growth in profits of the Investment Banking Division
(up 5%) and FICC (up 31%). GTSs operating performance grew pre-tax profits 11% to R523 million, driven by growth in client transactional activities on the
back of higher volumes.
Within the trading environment results were mixed, but benefited from good client-centric activity from the RMB Morgan Stanley joint venture. Investment
activities also showed a mixed performance with Private Equity producing profits only 6% down despite the absence of a material realisation. However, the
RMB Resources portfolio experienced a poor year.
WesBank
WesBank represents the Groups activities in instalment finance in the retail, commercial and corporate segments. WesBanks point-of-sale dominance
through long-standing alliances with leading motor manufacturers and large dealer groups, has allowed it to fully capitalise on the strong replace-ment cycle
that has played out for the past two years in the retail motor segment. In addition, WesBank has undertaken a number of specific strategies to create more
diversification and reduce volatility.
WesBank
Year ended 30 June
R million 2012 2011 % change
Normalised earnings 2 599 1 862 40
Profit before tax* 3 650 2 548 43
Total assets 121 610 104 117 17
Total liabilities 117 110 101 171 16
Credit loss ratio (%) 0.99 1.33
ROE (%) 33.9 26.3
* Excluding profit on disposal of investments.
WesBank grew its normalised pre-tax profits 43% to R3 650 million and delivered an ROE of 33.9%. This strong performance was underpinned by
appropriate origination strategies and rigid cost management in its core business combined with increasing penetration of new markets.
Net interest income was driven by excellent new business growth of 19%, particularly in motor (up 20%) and unsecured (up 17%). The improving interest
margins resulted from long term repricing efforts, in addition to a shift in the mix of underlying advances to a greater proportion of retail secured and
unsecured lending, which have better margins than the corporate book. Overall non-performing loans (NPLs) continued to decrease driven mainly by
corporate.
Corporate new business grew 15% to R11.8 billion and Full Maintenance Rental (FMR) remains a strategic priority as it represents a complementary activity
to the corporate and commercial product suite. Early indications are promising, with the total asset book currently approaching R800 million. The very strong
growth of 27% in non-interest revenue was on the back of new business growth with some contribution from FMR revenues.
Core operating cost growth was maintained at 3%, reflecting static headcount and the non-recurrence of certain restructuring costs in the prior year. Overall
growth reflects the variable costs attached to increased profit shares and the rising depreciation cost associated with FMR assets.
Strategic issues
Progress on growth strategies outside South Africa
The Group seeks to generate incremental growth outside of its domestic market. It executes on the ground through its operating franchises and enters each
market differently depending on the opportunities presented.
FNBs current African footprint generates good profits and sustainable returns. Some of the larger franchises, such as Namibia and Botswana, are mature
businesses with significant market shares. The priority countries where the Group sees opportunities for further growth in its operating footprint are
Mozambique, Tanzania, Zambia, Nigeria and Ghana.
FirstRand continues to focus on its entry strategy in Nigeria. RMB has an active representative office and has received agreement in principle to its
application for a merchant banking licence. The Group continues to look for opportunities to acquire a platform for retail and commercial activities in Nigeria.
Ghana also offers good opportunities and since the year end FirstRand has made an offer for Merchant Bank Ghana (MBG), whereby FirstRand will invest
R746.2 million (GHS176.4 million) in exchange for a 75% shareholding in the bank. MBG is a medium-sized retail and commercial bank with 22 branches,
and a well established client base and deposit franchise. It is ranked amongst the top ten banks in Ghana and the Group believes it will provide an excellent
platform for FNB and RMB to roll out products and services in Ghana.
A Kenyan presence is important for building an east African corporate and investment banking hub, particularly given the strong trade flows with India.
During the year FirstRand officially opened a representative office in Kenya from where RMB will market corporate products and services. As the only
African bank with a licence to operate in India, it is ideally placed to act as a conduit for transactions between the east African region and India. RMB is
already a significant participant in the region and has a strong pipeline of potential transactions in infrastructure and project finance, resource finance, debt
financing, structured trade and commodity finance, and fixed income, currency and commodity activities.
With regard to its Indian operations, FirstRands original strategy was to mine the trade and investment flows between India and the African continent. Since
commencing operations in 2009 it has established a track record in corporate and investment banking activities from a branch in Mumbai that is staffed by a
team sourced from RMB combined with local expertise.
FirstRand believes that the strength of this investment and corporate banking franchise now provides an appropriate platform to launch a more
comprehensive range of banking products and services to both retail and institutional customers in India. As a result, during the year under review, FNB
entered the Indian market through the opening of its first branch in Mumbai.
In line with the way the Group prefers to enter new markets, FNBs entry into the Indian market is a greenfields strategy. This will allow for incremental
investment, with reliance to be placed on established, home-grown systems and processes.
The operations of FNB in India are branded FRB and will focus on introducing and growing the innovative products and channels that have underpinned
FNBs strong growth in its domestic franchise over the past few years.
During the year FirstRand took the decision to retain its investment in MotoNovo Finance in the UK for the longer term as it is an existing investment,
closely aligned to the core business of WesBank and expected to produce above average returns going forward, particularly given the value created through
WesBanks ownership. The benefits from the investment made in people, systems, credit scoring and the creation of a much stronger market positioning are
expected to be reaped in the future. In addition, as the operations are in a market outside the Groups overall geographic representation, there will be some
countercyclical benefits, which could reduce earnings volatility.
Capital management
FirstRands capital management strategy is aligned to the Groups overall objective to deliver sustainable returns to shareholders within appropriate levels of
volatility. The Groups current philosophy, given the uncertain macro-economic and regulatory environment, is to operate at the higher end of its targeted
capital levels to ensure balance sheet resilience. Current targeted levels and ratios are summarised in the table below.
FirstRand Regulatory
% Actual Target minimum
Capital adequacy ratio 14.7 12.0 - 13.5 9.5*
Tier 1 ratio 13.2 11.0 7.0
Core Tier 1 ratio 12.3 9.5 - 11.0 5.25
* The regulatory minimum excludes the bank-specific (Pillar 2b) add-on and capital floor.
FirstRand Bank (FRB)* Regulatory
% Actual Target minimum
Capital adequacy ratio 14.6 11.5 - 13.0 9.5**
Tier 1 ratio 12.6 10.5 7.0
Core Tier 1 ratio 11.8 9.0 - 10.5 5.25
* Reflects solo supervision, i.e. FirstRand Bank excluding foreign branches.
** The regulatory minimum excludes the bank-specific (Pillar 2b) add-on and capital floor.
The Group does not seek to hold excess capital for large acquisitions, however, as previously indicated to shareholders, it is holding a buffer for investments
in selected growth opportunities in certain African jurisdictions. Given the current economic conditions in South Africa and the subdued credit appetite
amongst consumers and corporates, the Groups operating franchises continue to generate good returns at a time when there is limited opportunity to grow
risk weighted assets (RWA). The Group, therefore, continues to review the appropriate level of payout to shareholders on a sustainable basis.
With regard to the impact of Basel 2.5 and Basel III, the Groups level of Core Tier 1 capital is sufficient as it held buffers in anticipation of these changes.
These buffers have now been allocated to the operating franchises as part of the capital allocation and performance management processes. Each
franchise has been through a process of assessing if any action is required to optimise returns given these new allocations. The most significant impact,
particularly associated with Basel 2.5, is at RMB, which has already made the necessary adjustments to its business model as outlined previously. Following
Basel III, including business model adjustments, the Group believes it can maintain ROEs between 18% and 22% through the cycle.
Basel III seeks to enhance the quality of loss absorbing capital. To this end, emphasis is placed on Common Equity Tier 1 as the predominant form of
capital, whilst Additional Tier 1 and Tier 2 will receive more limited recognition.
Types of capital and proposed Basel III requirements
Common Equity Tier 1* 7.0% Minimum; can be higher
Additional Tier 1 1.5% Limit; higher level not
recognised for total capital
requirements
Tier 2 2.0% Limit; higher level not
recognised for total capital
requirements
* Does not include additional buffers required (e.g. countercyclical, D-SIB or bank-specific add-ons).
It is the Groups intention to make use of these regulatory limits to optimise its capital structure. Future capital issuance will be balanced against the
utilisation of these regulatory limits and the expected rundown profile of the existing capital instruments. Banks will need to consider how to optimise this mix
against the backdrop of more costly instruments and uncertain investor appetite given potential regulatory intervention at different trigger levels and capital
market conditions. Should banks be unable to issue these capital instruments they may have to rely on more expensive Core Tier 1, which would negatively
impact ROEs.
Prospects
The macro environment will remain challenging during the 2013 financial year. The global economy is likely to register sub-trend growth and will continue to
face significant downside risk. This means economic activity in South Africa will remain under pressure.
GDP growth is currently expected to be 2.5% for the 2012/2013 financial year, and, although interest rates are expected to remain flat for the rest of the
year, there is downside risk if economic growth slows further.
Lower levels of real wage increases will negatively impact consumer spending and growth in retail advances is likely to remain subdued, with mortgage
lending expected to continue to lag nominal GDP growth. In addition, given the high levels of recent growth in unsecured and short-term advances in the
system, this is also likely to moderate. Corporate lending is expected to remain muted as business confidence has not fully recovered. If, however, the
proposed government and public sector infrastructure plans are implemented, this may provide some underpin to growth in advances.
Within the context of these challenges, FirstRand expects to continue to produce good organic growth. Achieving revenue growth remains a challenge, but
the Groups franchises have compelling strategies to grow the topline. FNBs focus on acquiring core transactional accounts will continue to drive NIR
growth, as will RMBs increasing client activities. Achieving a sustainable ROE and cost-to-income ratio will remain a balancing act between investment and
cost management.
GDP growth in sub-Saharan Africa is expected to further strengthen and the Group will continue to build on its progress in developing the appropriate entry
strategies and operating platforms in those countries identified as priorities for expansion.
Dividend strategy
The Group targets growth in dividend in line with growth in sustainable earnings, which can vary from year to year.
Basis of presentation
FirstRand prepares its consolidated financial results in accordance with:
- IFRS, including IAS 34 Interim Financial Reporting;
- the AC 500 standards issued by the Accounting Practices Board;
- JSE Listing Requirements; and
- the information as required by the Companies Act of South Africa.
The accounting policies applied are consistent with those applied in preparation of previous financial statements.
The Group believes normalised earnings more accurately reflect operational performance. Headline earnings are adjusted to take into account non-
operational and accounting anomalies.
The IFRS financial statements have been audited by PricewaterhouseCoopers Inc and Deloitte & Touche from which the normalised earnings have been
derived, on which an unmodified opinion has been expressed. This is available at the companys registered office. The audit was conducted in accordance
with International Standards on Auditing. These summarised abridged financial statements have been derived from the Group financial statements and are
consistent in all material respects with the Group financial statements. Any reference to future financial performance included in this announcement has not
been reported on by the companys auditors.
Board changes
Mrs Mary Sina Bomela was appointed to the Board as a non-executive director with effect from 24 September 2011. Mrs Bomela joined the Board as a
shareholder representative of Mineworkers Investment Company, replacing Mr Paul Nkuna who resigned from the Board on 31 July 2011, following his
decision to retire in 2012.
On 26 April 2012 it was with great regret that the Board was advised of the passing of Mr MH (Thys) Visser following a motor car accident. Thys joined the
FirstRand Limited Board in 2009. His widely acknowledged integrity, support and wise contribution to Board and committee deliberations will be greatly
missed.
For and on behalf of the Board
LL Dippenaar
Chairman
SE Nxasana
Chief executive officer
Cash dividend declarations
Ordinary shares
The directors have declared annual gross cash dividends totalling 102.0 cents per ordinary share, out of income reserves for the year ended 30 June 2012
as follows:
Ordinary dividends
Year ended 30 June
Cents per share 2012 2011
Interim (declared 28 February 2012) 44.0 35.0
Final (declared 10 September 2012) 58.0 46.0
102.0 81.0
The salient dates for the final dividend are as follows:
Last day of trade to receive a dividend: Friday, 5 October 2012
Shares commence trading ex-dividend: Monday, 8 October 2012
Record date: Friday, 12 October 2012
Payment date: Monday, 15 October 2012
Share certificates may not be dematerialised or rematerialised between 8 October 2012 and 12 October 2012, both days inclusive.
The final dividend of 58.0 cents per share carries an STC credit of 7.15566 cents per share. Shareholders that are exempt from Dividend Withholding Tax
(DWT) will receive the full 58.0 cents per share. For shareholders that are subject to DWT, tax will be calculated at 15% (or such lower rate if a double
taxation agreement applies for foreign shareholders), after taking account of the STC credit.
For South African resident shareholders that are subject to the DWT, the net final dividend after deducting the 15% tax will be 50.37335 cents per share.
The issued share capital at the declaration date is 5 637 941 689 ordinary shares and 45 000 000 variable rate, non-cumulative non-redeemable (NCNR)
B preference shares.
FirstRands income tax reference number is 9150/201/71/4.
Special dividend (this information is provided for comparative purposes only)
Year ended 30 June
Cents per share 2012 2011
Special (declared 12 September 2011) - 70.00
- 70.00
B preference shares
Dividends on the B preference shares were calculated at a rate of 68% of the prime lending rate as published by FirstRand Bank Limited to 27 February
2012 and thereafter at 75.56% of prime.
The following dividends were declared and paid:
B preference shares
Cents per share 2012 2011
Period
31 August 2010 - 28 February 2011 313.6
1 March 2011 - 29 August 2011 305.2
30 August 2011 - 27 February 2012 305.2
28 February 2012 - 27 August 2012 333.1
638.3 618.8
BW Unser
Company secretary
10 September 2012
Consolidated income statement - IFRS
for the year ended 30 June
R million 2012 2011 % change
Continuing operations
Interest and similar income 41 335 38 187 8
Interest expense and similar charges (19 453) (20 818) (7)
Net interest income before impairment of advances 21 882 17 369 26
Impairment of advances (5 065) (3 778) 34
Net interest income after impairment of advances 16 817 13 591 24
Non-interest income 29 494 29 565 -
Income from operations 46 311 43 156 7
Operating expenses (28 422) (24 584) 16
Net income from operations 17 889 18 572 (4)
Share of profit of associates and joint ventures after tax 1 120 531 >100
Income before tax 19 009 19 103 -
Indirect tax (551) (614) (10)
Profit before direct tax 18 458 18 489 -
Direct tax (4 089) (4 245) (4)
Profit from continuing operations 14 369 14 244 1
Discontinued operations
Profit attributable to discontinued operations - 415 (100)
Profit after tax on disposal/unbundling of discontinued operations - 6 868 (100)
Profit for the year 14 369 21 527 (33)
Attributable to:
NCNR preference shareholders 275 301 (9)
Ordinary equityholders 13 196 20 065 (34)
Equityholders of the Group 13 471 20 366 (34)
Non-controlling interests 898 1 161 (23)
Profit for the year 14 369 21 527 (33)
Earnings per share (cents)
- Basic 241.7 372.7 (35)
- Diluted 236.8 365.3 (35)
Headline earnings per share (cents)
- Basic 231.5 183.1 26
- Diluted 226.9 179.4 26
Earnings per share (cents) - IFRS continuing
- Basic 241.7 236.6 2
- Diluted 236.8 231.9 2
Headline earnings per share (cents) - IFRS continuing
- Basic 231.5 174.7 33
- Diluted 226.9 171.3 32
Earnings per share (cents) - discontinued
- Basic - 136.1 (100)
- Diluted - 133.4 (100)
Headline earnings per share (cents) - discontinued
- Basic - 8.4 (100)
- Diluted - 8.1 (100)
Consolidated statement of comprehensive income - IFRS
for the year ended 30 June
R million 2012 2011 % change
Profit for the year 14 369 21 527 (33)
Other comprehensive income
Cash flow hedges (420) 21
Available-for-sale financial assets 560 (41)
Exchange differences on translating foreign operations 599 (266)
Share of other comprehensive income of associates after tax and non-controlling interests (167) 35
Other comprehensive income for the year before tax 572 (251) (>100)
Income tax relating to components of other comprehensive income (41) (44) (7)
Other comprehensive income for the year 531 (295)
Total comprehensive income for the year 14 900 21 232 (30)
Total comprehensive income attributable to:
Ordinary equityholders 13 706 19 837 (31)
NCNR preference shareholders 275 301 (9)
Equityholders of the Group 13 981 20 138 (31)
Non-controlling interests 919 1 094 (16)
Total comprehensive income for the year 14 900 21 232 (30)
Consolidated statement of financial position - IFRS
as at 30 June
R million 2012 2011* 2010*
ASSETS
Cash and cash equivalents 38 363 34 240 27 067
Derivative financial instruments 52 913 37 206 39 764
Commodities 5 108 4 388 2 365
Accounts receivable 6 007 7 289 5 743
Policy loans - - 27
Tax asset 331 139 935
Advances 524 507 464 593 434 793
Investment securities and other investments 119 708 124 756 117 171
Investments in associates and joint ventures 6 869 6 029 6 901
Property and equipment 12 026 10 542 10 018
Intangible assets 1 743 1 691 2 104
Reinsurance assets 898 484 524
Post-employment benefit asset 7 2 -
Investment properties 215 203 138
Deferred tax asset 471 560 443
Non-current assets held for sale 599 5 805 197 247
Total assets 769 765 697 927 845 240
EQUITY AND LIABILITIES
Liabilities
Short trading positions 5 343 9 094 13 927
Derivative financial instruments 53 760 36 361 36 035
Creditors and accruals 9 086 9 497 7 518
Tax liability 386 288 157
Deposits 606 281 552 879 507 522
Provisions 592 517 759
Employee liabilities 6 933 5 937 5 088
Other liabilities 6 383 4 107 10 552
Policyholder liabilities under insurance contracts 1 517 1 047 1 868
Deferred income tax liability 1 679 2 223 2 132
Tier 2 liabilities 7 885 6 666 10 758
Liabilities directly associated with disposal groups held for sale 113 5 092 189 961
Total liabilities 699 958 633 708 786 277
Equity
Ordinary shares 55 53 52
Share premium 5 216 4 945 1 491
Reserves 57 250 51 633 49 889
Capital and reserves attributable to ordinary equityholders 62 521 56 631 51 432
NCNR preference shares 4 519 4 519 4 519
Capital and reserves attributable to equityholders of the Group 67 040 61 150 55 951
Non-controlling interests 2 767 3 069 3 012
Total equity 69 807 64 219 58 963
Total equity and liabilities 769 765 697 927 845 240
* Refer to Reclassification of prior year numbers.
Consolidated statement of cash flows - IFRS
for the year ended 30 June
R million 2012 2011
Net cash flows from operating activities 16 635 16 923
Net cash (utilised)/generated from operations (7 064) 2 524
Tax paid (5 331) (3 965)
Net cash inflow from operating activities 4 240 15 482
Net cash (outflow)/inflow from investing activities (3 763) 1 777
Net cash inflow/(outflow) from financing activities 3 464 (10 052)
Net increase in cash and cash equivalents 3 941 7 207
Cash and cash equivalents at the beginning of the year 34 240 27 067
Cash and cash equivalents at the end of the year 38 181 34 274
Cash and cash equivalents acquired* 1 200
Cash and cash equivalents disposed of* (31) (83)
Effect of exchange rate changes on cash and cash equivalents 212 (151)
Cash and cash equivalents at the end of the year 38 363 34 240
Mandatory reserve balances included above** 13 677 12 173
* Cash and cash equivalents acquired and disposed of relate to cash balances held by subsidiaries acquired and disposed of during the year.
** Banks are required to deposit a minimum average balance, calculated monthly with the central bank, which is not available for use in the Groups
day-to-day operations. The deposit bears no or low interest. Money at short notice constitutes amounts withdrawable in 32 days or less.
Consolidated statement of changes in equity - IFRS
for the year ended 30 June
Ordinary share capital and ordinary equityholders funds Ordinary share capital and ordinary equityholders funds
Non-
Reserves cumulative
Share Foreign attributable non-
capital and General Cash flow Share-based Available- currency to ordinary redeemable Non-
Share Share share risk hedge payment for-sale translation Other Retained equity- preference controlling Total
R million capital premium premium reserve reserve reserve reserve reserve reserves earnings holders shares interests equity
Balance as at 1 July 2010 52 1 491 1 543 12 (466) 2 487 969 698 (617) 46 806 49 889 4 519 3 012 58 963
Issue of share capital - - - - - - - - - - - - 7 7
Movement in other reserves - - - - - 341 - - (8) 48 381 - (342) 39
Ordinary dividends - - - - - - - - - (4 179) (4 179) - (583) (4 762)
Preference dividends - - - - - - - - - - - (301) - (301)
Transfer from/(to) reserves - - - 1 - - - - - (1) - - - -
Changes in ownership interest in
subsidiaries - - - - - - - - 12 (34) (22) - 46 24
Consolidation of treasury shares 1 3 454 3 455 - - - - - - 1 074 1 074 - - 4 529
Total comprehensive income for
the year - - - - 15 - (80) (206) 43 20 065 19 837 301 1 094 21 232
Dividend in specie: unbundling of
Momentum - - - - - (89) (664) (18) 583 (15 159) (15 347) - (165) (15 512)
Balance as at 30 June 2011 53 4 945 4 998 13 (451) 2 739 225 474 13 48 620 51 633 4 519 3 069 64 219
Movement in other reserves - - - - - 709 - - 36 173 918 - (438) 480
Ordinary dividends - - - - - - - - - (8 742) (8 742) - (652) (9 394)
Preference dividends - - - - - - - - - - - (275) - (275)
Transfer from/(to) reserves - - - 44 - - - - - (44) - - - -
Changes in ownership interest in
subsidiaries - - - - - - - - - (37) (37) - (131) (168)
Consolidation of treasury shares 2 271 273 - - - - - - 102 102 - - 375
Total comprehensive income for
the year - - - - (302) - 401 578 (167) 13 196 13 706 275 919 14 900
Vesting of share-based payment
reserve - - - - - (201) - - - (129) (330) - - (330)
Balance as at 30 June 2012 55 5 216 5 271 57 (753) 3 247 626 1 052 (118) 53 139 57 250 4 519 2 767 69 807
Reclassification of prior year numbers
During the financial year the following reclassifications were made to the income statement and statement of financial position:
Amount
30 June 2011 as previously Amount as
R million reported restated Difference Explanation
Income statement Fee and commission expenses that are incremental or directly attributable
Non-interest income 31 882 29 565 2 317 to the generation of fee and commission income have been reclassified
out of various operating expense lines into the fee and commission
expense line. In addition, the presentation of fee and commission
expenses has been updated by presenting it as part of non-interest
income and not as part of operating expenses. This was to align with
banking industry practice.
Operating expenses (26 901) (24 584) (2 317) As per above.
Share of profit from associates 868 531 337 The Groups share of profits from associates and joint ventures has been
and joint ventures stated net of the related tax expense. The comparative information was
restated in order to be comparable with the new presentation.
Direct tax (4 582) (4 245) (337) As per above.
Profit for the year 21 527 21 527 - No effect on profit for the year.
Statement of financial position During the current year a comprehensive review of liabilities disclosure
Creditors and accruals 9 930 9 497 433 was undertaken by the Group in order to ensure that the presentation is
consistent with industry practice and to provide more detailed and useful
Deposits 553 657 552 879 778
information in the financial statements. A reclassification was required to
Short trading positions 12 413 9 094 3 319 bring the comparative numbers in line with the updated presentation.
Provisions 3 621 517 3 104
Post-retirement liabilities 2 292 - 2 292
Employee liabilities - 5 937 (5 937)
Other liabilities - 4 107 (4 107)
Tier 2 liabilities - 6 666 (6 666)
Long-term liabilities 6 690 - 6 690
Policyholder liabilities under
investment contracts 94 - 94
Amount
30 June 2010 as previously Amount as
R million reported restated Difference Explanation
Statement of financial position During the current year a comprehensive review of liabilities disclosure
Creditors and accruals 12 115 7 518 4 597 was undertaken by the Group in order to ensure that the presentation is
consistent with industry practice and to provide more detailed and useful
Deposits 512 469 507 522 4 947
information in the financial statements. A reclassification was required to
Short trading positions 16 735 13 927 2 808 bring the comparative numbers in line with the updated presentation.
Provisions 3 359 759 2 600
Post-retirement liabilities 2 162 - 2 162
Employee liabilities - 5 088 (5 088)
Other liabilities - 10 552 (10 552)
Tier 2 liabilities - 10 758 (10 758)
Long-term liabilities 9 183 - 9 183
Policyholder liabilities under
investment contracts 101 - 101
Administrative information
Directors: LL Dippenaar (Chairman), SE Nxasana (Chief executive officer), VW Bartlett, JJH Bester, MS Bomela, JP Burger (Financial director and chief
operating officer), L Crouse, PM Goss, Dr NN Gwagwa, PK Harris, WR Jardine, EG Matenge-Sebesho, AT Nzimande, D Premnarayen (Indian), KB
Schoeman, RK Store, BJ van der Ross, Dr JH van Greuning
Company secretary: BW Unser
Registered office: 4 Merchant Place, Corner Fredman Drive and Rivonia Road, Sandton 2196
Postal address: PO Box 650149, Benmore 2010, Telephone: +27 11 282 1808, Telefax: +27 11 282 8088
Transfer secretaries - South Africa: Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107,
Telephone: +27 11 370 5000, Telefax: +27 11 688 5221.
Transfer secretaries - Namibia: Transfer Secretaries (Pty) Ltd, 4 Robert Mugabe Avenue, Windhoek, PO Box 2401, Windhoek, Namibia, Telephone: +264
612 27647, Telefax: +264 612 48531.
JSE sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)
JSE independent sponsor: PricewaterhouseCoopers Corporate Finance (Pty) Ltd
Namibian sponsor: Simonis Storm Securities (Pty) Ltd
Date: 11/09/2012 08:00:00 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,
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