Wrap Text
Provisional audited results and cash dividend declaration for the year ended 30 June 2017
FirstRand Limited
(Incorporated in the Republic of South Africa)
Registration number: 1966/010753/06
JSE ordinary share code: FSR
JSE ordinary share ISIN: ZAE000066304
JSE B preference share code: FSRP
JSE B preference share ISIN: ZAE000060141
NSX ordinary share code: FST
(FirstRand or the group or the company)
PROVISIONAL AUDITED RESULTS AND CASH DIVIDEND DECLARATION
for the year ended 30 June 2017
FirstRand's portfolio of franchises comprises FNB, RMB, WesBank and Ashburton Investments and provides a universal set of transactional, lending, investment and
insurance products and services. The FCC franchise represents group-wide functions.
This announcement covers the provisional audited summary financial results of FirstRand Limited based on International Financial Reporting Standards (IFRS) for the year
ended 30 June 2017. The primary results and accompanying commentary are presented on a normalised basis as the group believes this most accurately reflects its
economic performance. The normalised results have been derived from the IFRS financial results. A detailed description of the difference between normalised and IFRS
results is provided on pages 95 and 96 of the Analysis of financial results booklet on www.firstrand.co.za.
FINANCIAL HIGHLIGHTS
2017 2016 % change
Basic and diluted normalised earnings per share (cents) 436.2 407.4 7
Normalised earnings (R million) 24 471 22 855 7
Normalised net asset value per share (cents) 1 941.7 1 779.0 9
Ordinary dividend per share (cents) 255.0 226.0 13
ROE (%) 23.4 24.0
Basic and diluted headline earnings per share (cents) 423.7 399.2 6
Basic and diluted earnings per share (cents) - IFRS 438.2 402.4 9
Net asset value per share (cents) - IFRS 1 941.2 1 778.8 9
OVERVIEW OF RESULTS
It's very pleasing that the group can continue to produce real growth in earnings and a high return to our shareholders, despite a very challenging operating environment.
These results are testament to the quality of the operational performances of FirstRand's franchises which were characterised by solid topline growth.
The group's high ROE, strong capital position and conservatively positioned balance sheet has allowed the board to increase the dividend payout above earnings growth.
Johan Burger
CEO
INTRODUCTION
FirstRand's portfolio of leading financial services franchises provides a universal set of transactional, lending, investment and insurance products and services. The
franchises operate in markets and segments where they can deliver competitive and differentiated client-centric value propositions, leveraging the relevant distribution
channels, product skills, licences and operating platforms of the wider group. Strategy is executed on the back of disruptive and innovative thinking, underpinned by an
owner-manager culture combined with the disciplined allocation of financial resources.
GROUP STRATEGY
FirstRand's strategy accommodates a broad set of growth opportunities across the entire financial services universe from a product, market, segment and geographic
perspective. The group believes this will create long-term franchise value, ensure sustainable and superior returns for shareholders, within acceptable levels of volatility
and maintain balance sheet strength.
Currently group earnings are tilted to its domestic market where the lending and transactional franchises have delivered sustained growth since 2010 resulting from the
acquisition of a deep and loyal customer base. The group recognises the imperative to continue to protect and grow these very valuable banking franchises, but it also
believes that through the utilisation of the origination capabilities and distribution networks of those franchises, it can diversify and capture a larger share of profits from
savings, insurance and investment products within its existing customer base.
The growth opportunity is significant given the annual flows to other providers from FNB's customer base alone. Through the manufacture and sale of its own insurance,
savings and investment products, the group will, over time, offer differentiated value propositions for customers and generate new and potentially meaningful revenue
streams for the group. To date, progress looks promising and FirstRand is incrementally increasing its share of the insurance, savings and investment profit pools that
exist within its own customer base. The group also continues to protect and grow its large transactional and lending franchises.
The group's strategy outside of its domestic market centres on growing its presence and offerings in nine markets in the rest of Africa where it believes it can organically
build competitive advantage and scale over time. In addition, it is focusing on leveraging its current operations in the UK to create new revenue streams.
OPERATING ENVIRONMENT
Globally the economic environment improved and this allowed the US Federal Reserve to continue with gradual monetary policy normalisation. Economic activity in
emerging economies held up better than was widely anticipated, with fears of a hard landing in China abating, and Brazil and Russia recovering from deep recessions.
Unfortunately, South Africa could not benefit materially from these improved conditions given the prevailing environment of macroeconomic weakness, political and policy
uncertainty, and low economic growth. These uncertainties were further exacerbated by allegations of state capture, the sudden replacement of the finance minister in
early 2017, and concerns about corporate governance and financial stress at some large state owned enterprises (SOEs).
In the year under review, the South African economy suffered its first recession since the 2008 financial crisis and the government's sovereign debt ratings were lowered
again. The private sector remained cautious with both business and consumer confidence falling to multi-year lows.
The combination of improved global risk appetite, increased foreign capital flows to emerging markets and the relatively high yield offered by South Africa's fixed income
market attracted foreign investors to domestic capital markets, and this provided support to the rand. Inflation also started to fall earlier this year and was back within the
target band by the second quarter of 2017. This allowed the South African Reserve Bank to end the policy tightening cycle, which provided some relief to consumers.
Macroeconomic conditions in the rest of the sub-Saharan region improved slightly but remained subdued. Economic activity in Namibia and Botswana was impacted by
South African macroeconomic weakness and some local economic challenges.
OVERVIEW OF RESULTS
Despite these significant macro pressures, FirstRand's portfolio of businesses produced a resilient performance, characterised by quality topline growth, improved cost
management and ongoing conservatism in both origination and provisioning strategies. The group continued to strengthen its balance sheet and protect its return profile.
Normalised earnings for the year to June 2017 increased 7% with a normalised ROE of 23.4%. The table below shows a breakdown of sources of normalised earnings
from the portfolio per operating franchise.
SOURCES OF NORMALISED EARNINGS
R million 2017 % composition 2016 % composition % change
FNB 12 947 53 12 294 53 5
RMB 6 955 28 6 287 28 11
WesBank 3 996 16 3 927 17 2
FCC (including Group Treasury) and other*,** 929 4 689 3 35
NCNR preference dividend (356) (1) (342) (1) 4
Normalised earnings 24 471 100 22 855 100 7
* Includes FirstRand Limited (company).
** Includes capital endowment, the impact of accounting mismatches, interest rate management and foreign currency liquidity management.
FNB's results were driven by a strong performance from its domestic franchise underpinned by solid non-interest revenue (NIR) growth on the back of ongoing customer
gains and growth in transactional volumes, and high quality net interest income (NII) growth, particularly from deposit generation. FNB's rest of Africa portfolio's
year-on-year performance, however, remained negative.
RMB also produced a strong performance, with private equity realisations contributing more than R1.9 billion in pre-tax and minorities profit for the year. Good cost
management was maintained, origination strategies continued to be anchored to protecting the return profile and credit provisions remained conservative.
WesBank delivered a solid performance off a high base. The local operations remained resilient given the credit cycle and the prudent origination strategies. However,
overall results in rand were negatively impacted by the currency appreciation impacting the results of the UK business (MotoNovo).
At a group level, total NII increased 7%, underpinned by good growth in deposits (+7%) and positive endowment on the back of higher average interest rates. Advances
growth was subdued (+5%) given the group's appropriate risk appetite. Margins in many of the asset-generating businesses continued to come under pressure from
higher term funding and liquidity costs. Term lending in RMB and WesBank's corporate business remained muted due to ongoing discipline in origination to preserve
returns given the prevailing competitive pressures.
Group NIR (+8%) reflects strong fee and commission income growth of 7% at FNB, which continued to benefit from volumes in digital and electronic channels, and solid
growth in customer numbers. Fee and commission income represents 78% (2016: 79%) of group operational NIR. Group NIR also benefited from realisations in RMB's
private equity portfolio at marginally higher levels compared to the prior year.
Insurance revenues grew 26%, driven by volume growth in funeral and credit products from FNB and strong growth in WesBank's insurance income of 11%.
Total cost growth of 7% was significantly down on the 11% increase in the prior year, but continues to trend above inflation due to ongoing investment in the new
insurance and asset management franchises, platforms to extract further efficiencies and building the footprint in the rest of Africa.
Operating jaws were positive for the year reflecting the solid topline growth generated and improved management of core operating expenses. The cost-to-income ratio
improved marginally to 51.0%.
The group's impairment ratio of 91 bps remains below the group's through-the-cycle threshold and well within expectations. The 13% increase in the impairment charge
results from the following:
- some normalisation of WesBank's charge, which was anticipated given the cycle and the fact that the charge had been below the long run average since 2010;
- a sharp rise in FNB's rest of Africa charge on the back of tough macros in the smaller sub-scale subsidiaries;
- new business strain, on the back of strong book growth across FNB's premium and commercial customer segments resulting from new customer acquisition and its
cross-sell and up-sell strategies. These books remain below through-the-cycle thresholds and have been appropriately priced for risk; and
- the increasing number of FNB and WesBank customers entering debt-review. The group does not reclassify these customers and discloses them in NPLs until they
fully rehabilitate.
Retail portfolio provisions were increased at a franchise level. The group believes this is prudent given its current view on the domestic macroeconomic environment.
Corporate provisions decreased as certain large corporate exposures were rehabilitated or written off, thereby impacting their and the group's overall portfolio provisions.
Overall portfolio provisions at 95 bps remain conservative and above the overall annual charge.
OPERATING FRANCHISE REVIEWS
FNB
FNB represents FirstRand's activities in the retail and commercial segments in South Africa and the broader African continent. It is growing its franchise on the back of a
compelling customer offering that provides a broad range of innovative financial services products.
FNB South Africa produced a strong performance given the tough domestic operating environment, growing pre-tax profits 8%. Total FNB pre-tax profits were, however,
impacted by the poor performance from FNB's rest of Africa portfolio where profits declined 32% year-on-year. Despite these pressures, FNB produced overall growth in
profits of 5% and an ROE of 37.4%.
FNB FINANCIAL HIGHLIGHTS
R million 2017 2016 % change
Normalised earnings 12 947 12 294 5
Normalised profit before tax 18 828 17 883 5
- South Africa 17 948 16 586 8
- Rest of Africa 880 1 297 (32)
Total assets 398 521 383 416 4
Total liabilities 380 283 366 942 4
NPLs (%) 3.24 3.03
Credit loss ratio (%) 1.20 1.08
ROE (%) 37.4 38.4
ROA (%) 3.34 3.36
Cost-to-income ratio (%) 54.0 54.1
Advances margin (%) 3.58 3.65
SEGMENT RESULTS
R million 2017 2016 % change
Normalised PBT
Retail 11 010 10 551 4
Commercial 6 938 6 035 15
FNB Africa 880 1 297 (32)
Total FNB 18 828 17 883 5
FNB South Africa constitutes R17.9 billion (95%) of total FNB profits and its performance reflects the success of its strategy to:
- grow and retain core transactional accounts;
- provide digital platforms to deliver cost effective and innovative transactional propositions to its customers;
- use its deep customer relationships and sophisticated data analytics to effectively cross-sell and up-sell a broad range of financial services products;
- apply disciplined origination strategies;
- provide innovative savings products to grow its retail deposit franchise; and
- right-size its physical infrastructure to achieve efficiencies.
FNB continued to see good growth in customers:
Year-on-year
growth
Customer
numbers
Segment %
Consumer 3
Premium 7
Commercial 11
FNB's rest of Africa portfolio represents a mix of mature businesses with significant scale and market share, such as Namibia and Botswana, combined with newly
established and start-up businesses, such as Mozambique, Zambia, Tanzania and Ghana. Across the board in the year under review, these businesses operated in
markets facing economic headwinds and emerging regulatory challenges, and the portfolio delivered a mixed performance. The new businesses particularly suffered due
to lack of scale and book diversification coupled with poor macros, significantly impacting credit losses. The continued investment drag on the back of organic build
further depressed the performance.
A breakdown of key performance measures from the domestic and rest of Africa franchises is shown below.
% FNB SA Rest of Africa
PBT growth +8 (32)
Cost increase +6 +13
Credit loss ratio 1.12 1.78
Advances growth +5 +3
NPLs 2.96 5.30
Deposit growth +13 -
Cost-to-income ratio 51.5 71.7
Operating jaws 1.6 (7.0)
Total FNB NII increased 9% driven by moderate growth in advances (+4%) and excellent growth in deposits (+12%) with some positive endowment effect from higher
average interest rates during the year under review.
The table below demonstrates the growth in advances and deposits on a segment basis and reflects FNB's ongoing success in growing its deposit franchise.
SEGMENT ANALYSIS OF ADVANCES AND DEPOSIT GROWTH
Deposit growth Advances growth
Segment % R billion % R billion
Retail 14 24.6 4 8.9
- Consumer 10 7.8 3 1.3
- Premium 16 16.8 4 7.6
Commercial 12 20.9 7 5.6
FNB Africa - - 3 1.3
Total FNB 12 45.5 4 15.8
The subdued overall growth in advances reflects, to a degree, a high level of prudency in FNB's origination strategies, particularly in the consumer segment where
households have experienced significant pressure on disposable income. FNB's focus on cross-selling into its core transactional retail and commercial customer bases
has, however, resulted in good growth in both advances and deposits in the premium and commercial segments.
The tables below unpack advances, at both a segment and product level, and reflect the segment specific nature of FNB's risk appetite and origination strategies.
The consumer segment saw good growth in its affordable housing books but unsecured lending contracted on the back of conservative risk appetite. In the premium
segment, mortgages showed muted growth as FNB continues to focus on low risk origination, however unsecured grew strongly on the back of cross-sell and up-sell.
Consumer
Advances
R million 2017 2016 %
Residential mortgages 22 480 20 224 11
Card 9 211 9 366 (2)
Personal loans 7 416 8 142 (9)
Retail other 3 198 3 270 (2)
Premium
Advances
R million 2017 2016 %
Residential mortgages 173 018 169 229 2
Card 14 589 12 602 16
Personal loans 6 956 6 301 10
Retail other 12 231 11 074 10
Commercial
R million 2017 2016 %
Advances 83 580 77 957 7
NIR growth of 6% was achieved despite actions FNB took in its consumer segment to simplify its product offering. This resulted in some customers moving into lower
revenue-generating product lines with the resultant negative impact on NIR for the full year of approximately R540 million. This impact will not be repeated and indications
are that this improved customer value proposition will ensure sustainable growth in NIR for the consumer segment going forward.
NIR growth in the retail and commercial segments continued to be robust, increasing 6% and 9%, respectively.
Overall fee and commission income benefited from strong volume growth of 10% with excellent momentum across FNB's digital and electronic channels, as can be seen
from the table below. There was some negative impact from a reduction in cash-related NIR and the cost of rewards linked to the e-migration and cross-sell strategy.
CHANNEL VOLUMES
Thousands 2017 2016 % change
ATM/ADT 232 310 225 045 3
Internet 214 701 201 019 7
Banking app 99 410 59 075 68
Mobile 43 818 36 469 20
Point-of-sale 1 166 844 1 051 480 11
Cost growth in the South African business was well contained at 6% with total costs growing 7% mainly on the back of continued investment in diversification strategies
and rest of Africa expansion. The domestic cost-to-income ratio decreased marginally to 51.5%.
As expected, FNB's overall bad debts and NPLs increased year-on-year (NPLs +11%), however, the rolling six months reflect a flattening trajectory in retail. NPL formation
in the commercial book is ticking up, but this is not unexpected given previous book growth and some residual pressure in the agric sector. NPL formation in the rest of
Africa business increased sharply (+35%).
NPLs in FNB's domestic unsecured books, which have shown strong advances growth particularly in the premium segment, are trending in line with expectations. This
reflects the quality of new business written, appropriate pricing strategies and the positive effect of cutbacks in higher risk origination buckets.
Overall provisioning levels have increased with overlays maintained.
PROGRESS ON INSURANCE INITIATIVE
FNB's insurance initiatives gained traction with more than four million lives now covered. FNB activated further life products, with the investment in system infrastructure
significantly reducing time-to-market for new products.
RMB
RMB represents the group's activities in the corporate and investment banking segments in South Africa, the broader African continent and India. The business strategy
leverages a market-leading origination franchise to deliver an integrated corporate and investment banking value proposition to corporate and institutional clients. This,
combined with an expanding market-making and distribution product offering and an excellent track record in private equity investments, contributes to a well-diversified
and sustainable earnings base. The strategy is underpinned by sound risk management, designed to effectively balance the relationship between profit growth, returns
and earnings volatility.
RMB FINANCIAL HIGHLIGHTS
R million 2017 2016 % change
Normalised earnings 6 955 6 287 11
Normalised profit before tax 9 832 8 918 10
- South Africa and other 8 517 7 899 8
- Rest of Africa* 1 315 1 019 29
Total assets 447 029 435 133 3
Total liabilities 436 046 423 322 3
NPLs (%) 0.62 1.35
Credit loss ratio (%) 0.20 0.27
ROE (%) 26.2 25.2
ROA (%) 1.56 1.45
Cost-to-income ratio (%) 43.4 45.1
* Includes in-country and cross-border activities.
RMB delivered a strong operational performance, with pre-tax profits increasing 10% to R9.8 billion. The ROE improved to 26.2%, demonstrating the strength and
diversification of the portfolio. RMB's balance sheet remains robust, with high quality earnings and solid operational leverage. Cost growth was well below inflation due to
the benefits of platform investment and ongoing automation. The business continues to spend on regulatory and compliance initiatives.
The rest of Africa portfolio remains key to RMB's strategy and delivered pre-tax profits of R1.3 billion, up 29% on the prior year. This performance was anchored on solid
corporate and transactional banking earnings, and robust structuring and flow trading income. Results were further bolstered by solid advances growth and lower credit
impairments given conservative provisioning in prior periods.
BREAKDOWN OF PROFIT CONTRIBUTION BY ACTIVITY
R million 2017 2016 % change
Investment banking and advisory 3 626 3 258 11
Corporate and transactional banking 1 731 1 466 18
Markets and structuring 1 612 1 389 16
Investing 2 841 2 643 7
Investment management 88 177 (50)
Other (66) (15) >100
Total RMB 9 832 8 918 10
In an environment characterised by difficult credit markets and lower economic growth, the investment banking and advisory activities delivered a resilient performance.
Advisory, lending and capital market mandates were secured particularly off the back of client activity in offshore markets. Disciplined financial resource allocation and
good advances growth continued to preserve returns, and cost containment further benefited the results. Given the prevailing weak credit cycle and macroeconomic
environment, credit provisioning levels remained conservative.
Corporate and transactional banking's focus on leveraging platforms, managing costs and expanding product offerings locally and in the rest of Africa, contributed to
strong profit growth. The business benefited from increased demand for structured and traditional trade products and its focus on liability strategies resulted in increased
transactional volumes and average deposit balances, particularly in the rest of Africa. The global foreign exchange business was adversely impacted by regulatory changes
in certain rest of Africa jurisdictions.
Markets and structuring activities delivered a strong performance with improved quality of earnings driven by good client flows and the execution of large structuring
deals. A solid commodities performance and sustained equity flows also contributed to profitability in the current year.
Investing activities produced solid results off a high base, supported by a significant realisation in the Private Equity portfolio. The business is now entering an investment
cycle and, during the year, several acquisitions were made. The quality and diversity of the Ventures and Corvest portfolios contributed to good annuity earnings despite
economic headwinds and continue to underpin the unrealised value of the portfolio at R3.7 billion (June 2016: R4.2 billion).
Other activities reported a marginal loss in the current year, driven mainly by costs associated with the group's market infrastructure programme which is aimed at driving
efficiencies, ensuring regulatory and legislative compliance and improving risk mitigation. This was offset by the curtailment of losses in the RMB Resources portfolio and
higher endowment earned on capital invested.
WESBANK
WesBank represents the group's activities in instalment credit and related services in the retail, commercial and corporate segments of South Africa and the rest of Africa
(where represented), and through MotoNovo Finance in the UK. Through the Direct Axis brand, WesBank also operates in the unsecured lending market in South Africa.
WesBank's leading position in its chosen markets is due to its long-standing alliances with leading motor manufacturers, suppliers and dealer groups, strong point-of-sale
presence and innovative channel origination strategies.
WESBANK FINANCIAL HIGHLIGHTS
R million 2017 2016 % change
Normalised earnings 3 996 3 927 2
Normalised profit before tax 5 612 5 518 2
Total assets 214 222 205 016 4
Total liabilities 207 809 199 686 4
NPLs (%) 3.80 3.38
Credit loss ratio (%) 1.68 1.59
ROE (%) 20.0 21.9
ROA (%) 1.87 1.99
Cost-to-income ratio (%) 40.2 39.1
Net interest margin (%) 4.93 4.90
WesBank grew total profits 2%, and delivered an ROE of 20% and an ROA of 1.87%. This was a solid operational performance and reflects the tough operating
environment for its domestic lending businesses and increased conservatism in origination and provisioning. The rand profit contribution from WesBank's UK business,
MotoNovo, was significantly impacted by the 20% average appreciation of the rand against the GBP during the year.
The table below shows the relative performance year-on-year of WesBank's various activities.
Breakdown of profit contribution by activity
R million 2017 2016 % change
Normalised profit before tax
VAF 4 192 4 100 2
- Retail SA* 2 658 2 358 13
- MotoNovo** 1 190 1 360 (13)
- Corporate and commercial 344 382 (10)
Personal loans 1 352 1 327 2
Rest of Africa 68 91 (25)
Total WesBank 5 612 5 518 2
* Includes MotoVantage.
** Normalised PBT for MotoNovo up 9% to GBP69 million.
Retail SA VAF delivered 6% pre-tax profit growth, driven by resilient margins and a significant improvement in the equity-accounted profits generated from the investment
in associates. When the contribution from MotoVantage, the insurance business, is included, PBT increased 13%. New business origination remained resilient, with
production up 10% on the back of an increased focus on the used car market.
MotoNovo grew profits 9% in GBP terms as the business continues to invest in capacity, particularly in its collections and sales areas and in building out the personal
loans offering. MotoNovo's new business volumes continued to track up in GBP (+11.7%) although risk appetite has tightened.
Personal loans delivered a modest increase in profits of 2% despite healthy book growth. This was mainly due to ongoing investment spend in new channels and the
impact of the National Credit Amendment Act (NCAA) rate caps which impacted margins.
Profits from the corporate business were down 10% year-on-year, mainly because of competitive pricing pressures, lengthening of replenishment cycles and reduced
market demand as corporates delay investment.
Interest margins continue to be resilient despite higher funding and liquidity costs, and the shift in mix from fixed to floating-rate business within the retail SA VAF
portfolio. From a new business perspective, however, this shift in mix has started to reverse.
As expected, retail SA VAF and personal loans NPLs both increased (+19%) on the back of a higher proportion of restructured debt-review accounts as well as the
worsening credit cycle. The retail SA VAF charge of 1.54% includes adjustments in the LGD models, which is considered appropriate given the cycle.
NPLs in MotoNovo increased 19%, moderating from the first half, reflecting the positive impact of increased prudency in origination strategies implemented at the end of
2016 and operational right-sizing in the collections area.
WesBank produced strong growth in operational NIR of 15%. This was mainly driven by increased insurance and VAPS-related income from MotoVantage, and increases
in full maintenance lease (FML) rental income on the back of good new business growth. Advances-related NIR growth was in line with book growth.
Growth in operating expenses was 11%, mainly driven by the investments in new business initiatives and volume-related expenditure in MotoNovo, Direct Axis and FML.
Core operational costs were well contained.
ROE has declined year-on-year, primarily a function of increased capital held as a result of certain additional investments, and a deterioration in credit risk weighted
assets as a result of the credit cycle. The ROA has, however, remained resilient year-on-year, due to ongoing topline growth and containment of core operating costs.
SEGMENT ANALYSIS OF NORMALISED EARNINGS
R million 2017 % composition 2016 % composition % change
Retail 11 674 47 11 596 50 1
- FNB* 7 952 7 949
- WesBank* 3 722 3 647
Commercial 5 269 22 4 625 20 14
- FNB 4 995 4 345
- WesBank 274 280
Corporate and investment banking 6 955 28 6 287 28 11
- RMB* 6 955 6 287
Other 573 3 347 2 65
- FCC (including Group Treasury) and consolidation adjustments 929 689
- FirstRand and dividends paid on NCNR preference shares (356) (342)
Normalised earnings 24 471 100 22 855 100 7
* Includes rest of Africa.
UPDATE ON INVESTMENT MANAGEMENT STRATEGY
The group has an organic strategy to grow its asset management, and wealth and investment management (WIM) activities. Following a review of this strategy during the
year, the decision was taken to restructure the WIM business which from 1 July 2017, will move from Ashburton Investments (AI) into FNB and be fully integrated into
FNB's customer ecosystem of products, channels and rewards. The group believes this step will significantly increase the penetration of investment products into the
existing client base in order to grow the save and invest revenue streams.
AI retains the pure asset management activities of the group and will, going forward, include a wide range of funds including single manager, multi-manager, index
tracking, multi-asset, listed equity, specialist equity, fixed income, specialist credit, private equity, renewable energy, infrastructure and hedge funds.
AI grew AUM 31% year-on-year to R81 billion and the structured or guaranteed product solutions delivered through RMB Global Market Fund Solutions increased to
R22.5 billion. From 1 July 2017 this business will move from RMB to Ashburton. Of the growth of AUM, R9 billion was due to the purchase of the Pointbreak Namibia
business and a further R2 billion from taking over the FNB Namibia funds in the current financial year. Flows into traditional funds were flat year-on-year. The institutional
fixed income solutions business delivered strong flows of R7 billion in new mandates won. Despite a tough year for global financial markets, investment performance
continues to show resilience with the majority of funds delivering solid performances relative to peer groups.
With regards progress on the WIM activities:
- asset management solutions/funds originated by AI were launched to the FNB customer base branded FNB Horizon in July 2016 and delivered R1 billion in new flows
since the launch with assets under management in excess of R1 billion at year end; and
- total WIM AUM, AUA and AUE was R124 billion at year end.
Share trading, share investing and stockbroking assets under execution (AUE) were down 4% to R65.5 billion and brokerage revenues were also lower largely due to
lower market volatility and flat to sideways markets.
Traction in the platform administration capabilities has been satisfactory in the year under review. Some highlights include:
- growth in assets under administration (AUA) on the LISP platform from R14 billion to R16 billion, an increase of 15%; and
- customers on the platform increased to 25 870.
MANAGEMENT OF FINANCIAL RESOURCES
The management of the group's financial resources, which it defines as capital, funding and liquidity, and risk capacity, is critical and supportive to the achievement of
FirstRand's stated growth and return targets, and is driven by the group's overall risk appetite.
Forecast growth in earnings and balance sheet risk weighted assets is based on the group's macroeconomic outlook and evaluated against available financial resources,
considering the requirements of capital providers and regulators. The expected outcomes and constraints are then stress tested and the group sets financial and
prudential targets through different business cycles and scenarios to enable FirstRand to deliver on its commitments to stakeholders at a defined confidence level. These
stress scenarios include further sovereign downgrades below investment grade on a local currency basis.
The management of the group's financial resources is executed through Group Treasury and is independent of the operating franchises. This ensures the required level of
discipline is applied in the allocation of financial resources and pricing of these resources. This also ensures that Group Treasury's mandate is aligned with the operating
franchises' growth, return and volatility targets, to deliver shareholder value.
The group continues to monitor and proactively manage a fast-changing regulatory environment and ongoing macroeconomic challenges. Prior to the downgrade of the
South African sovereign to sub-investment grade on a foreign currency basis, through the establishment of FirstRand Securities Limited, the group became a member of
the interest rate derivatives clearing service, SwapClear, one of the clearing platforms provided by multi-national clearing house LCH.
This was an important step to protect and enhance FirstRand's counterparty status in international funding markets. Participation in clearing interest rate derivatives
through SwapClear will mitigate risk and reduce trading costs for both the group and its clients and provides the group with enhanced international access to financial
market infrastructure as well as to greater liquidity pools.
BALANCE SHEET STRENGTH
Capital position
Current targeted ranges and actual ratios are summarised below.
% CET1 Tier 1 Total Leverage#
Regulatory minimum* 7.3 8.5 10.8 4.0
Targets 10.0 - 11.0 >12.0 >14.0 >5.0
Actual** 14.3 14.9 17.1 8.6
* Excluding the bank-specific individual capital requirement and add-on for domestic systemically important banks.
** Includes unappropriated profits.
# Based on Basel III regulations.
The group has maintained its strong capital position. Capital planning is undertaken on a three-year forward-looking basis, and the level and composition of capital is
determined taking into account business units' organic growth plans and stress-testing scenario outcomes. In addition, the group considers external issues that could
impact capital levels, which include regulatory and accounting changes, macroeconomic conditions and outlook.
The group continues to actively manage its capital composition and, to this end, issued approximately R2.3 billion Basel III-compliant Tier 2 instruments in the domestic
market during the year. This resulted in a more efficient capital structure which is closely aligned with the group's internal targets. It remains the group's intention to
continue optimising its capital stack by frequently issuing Tier 2 instruments in domestic and/or international markets. This ensures sustainable support for ongoing
growth initiatives and compensates for the haircut applied to Tier 2 instruments which are not compliant with Basel III.
LIQUIDITY POSITION
Given the liquidity risk introduced by its business activities across various currencies, the group's objective is to optimise its funding profile within structural and regulatory
constraints to enable its franchises to operate in an efficient and sustainable manner. Liquidity buffers are actively managed via high quality liquid assets (HQLA) that are
available as protection against unexpected events or market disruptions. The quantum and composition of the available sources of liquidity are defined by the behavioural
funding liquidity at risk and the market liquidity depth of these resources. In addition, adaptive overlays to liquidity requirements are derived from stress testing and
scenario analysis of the cash inflows and outflows related to business activity.
The group exceeds the 80% (2016: 70%) minimum liquidity coverage ratio (LCR) requirement as set out by the Basel Committee for Banking Supervision (BCBS) with the
group LCR at 97% (2016: 96%). FirstRand Bank's LCR was 105% (2016: 102%). At 30 June 2017, the group's available HQLA sources of liquidity per the LCR was
R167 billion, with an additional R18 billion of management liquidity available.
FirstRand expects to be fully compliant with the net stable funding ratio (NSFR) requirements once implemented on 1 January 2018.
REGULATORY CHANGES
During May 2017, the SARB's Financial Stability Department released a discussion document on designing a deposit insurance scheme (DIS) for South Africa. As a
member of the G20, South Africa has agreed to adopt the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions, one of which requires
jurisdictions to have a privately-funded depositor protection and/or a resolution fund in place.
The paper motivates the need for an explicit, privately-funded DIS for South Africa, the main objective being the protection of less financially sophisticated depositors in
the event of a bank failure. It presents proposals on the key design features of such a DIS and aims to solicit views on these proposals. The paper also refers to the
discussion paper titled Strengthening South Africa's Resolution Framework for Financial Institutions, published by National Treasury on 13 August 2015. Together, the
proposed resolution framework and the DIS are expected to form the comprehensive regulatory architecture for reducing the social and economic cost of failing financial
institutions and will be captured by the Resolution Bill.
No timelines around the Resolution Bill have been formally communicated. It will contain high level principles of the DIS, with the actual mechanics captured in
supplemental regulations or directives once designed and agreed. Only once finalised will banks be in a better position to fully assess the potential impact of a DIS in
South Africa.
DIVIDEND STRATEGY
Given the group's sustained high return profile and solid operational performance, combined with its strong capital position and the low growth in risk weighted assets
over the past twelve months, the board is comfortable to grow the dividend above normalised earnings. The board decided not to adjust the group's stated long-run cover
range which remains 1.8x to 2.2x, however, it believes that the current higher payout ratio is sustainable over the short to medium term.
PROSPECTS
South Africa's growth prospects remain weak and uncertain. Persistent political and policy uncertainty, ongoing governance issues at SOEs and further erosion of
confidence in institutional strength and independence all continue to weigh on confidence, which in turn constrains private sector investment, places pressure on
employment and ultimately undermines GDP growth. Such a macroeconomic environment will be characterised by low domestic demand growth (consumption, investment
and government spending), downward pressure on personal incomes and further rating agency downgrades. Many of these pressures will create headwinds for topline
growth in the group's domestic franchises. Sub-Saharan growth rates are, however, expected to show a recovery over the next twelve months, which should be supportive
of the rest of Africa portfolio.
FirstRand remains committed to its current investment cycle despite pressures on growth, as it believes its strategies to diversify its financial services offering and build
the rest of Africa and UK franchises will deliver outperformance over the medium to long term. In addition, the group remains focused on driving efficiencies and
managing core costs.
The group aims to deliver real growth in earnings and an ROE near the upper end of its stated target range of 18% to 22%.
EVENTS AFTER REPORTING PERIOD (AUDITED)
The directors are not aware of any material events that have occurred between the date of the statement of financial position and the date of this report.
BOARD CHANGES
Movements in the directorate during the year under review:
Effective date
Appointments
TS Mashego Non-executive director 1 January 2017
HL Bosman Non-executive director 3 April 2017
Resignations/retirements
VW Bartlett Independent non-executive director (retired) 29 November 2016
D Premnarayen Independent non-executive director (retired) 29 November 2016
P Cooper Alternate non-executive director (resigned) 30 April 2017
Change of designation
AT Nzimande Non-executive director 31 December 2016
AT Nzimande Independent non-executive director 1 January 2017
CASH DIVIDEND DECLARATIONS
Dividends
Ordinary shares
The directors declared a gross cash dividend totalling 255.0 cents per ordinary share out of income reserves for the year ended 30 June 2017.
Year ended 30 June
Cents per share 2017 2016
Interim (declared 8 March 2017) 119.0 108.0
Final (declared 6 September 2017) 136.0 118.0
255.0 226.0
The salient dates for the final dividend are as follows:
Last day to trade cum-dividend Tuesday 3 October 2017
Shares commence trading ex-dividend Wednesday 4 October 2017
Record date Friday 6 October 2017
Payment date Monday 9 October 2017
Share certificates may not be dematerialised or rematerialised between Wednesday 4 October 2017 and Friday 6 October 2017, both days inclusive.
For shareholders who are subject to dividend withholding tax (DWT), tax will be calculated at 20% (or such lower rate if a double taxation agreement applies for foreign
shareholders).
For South African shareholders who are subject to DWT, the net final dividend after deducting 20% tax will be 108.80000 cents per share.
The issued share capital on the declaration date was 5 609 488 001 ordinary shares and 45 000 000 variable rate NCNR B preference shares.
FirstRand's income tax reference number is 9150/201/71/4.
B PREFERENCE SHARES
Dividends on the B preference shares are calculated at a rate of 75.56% of the prime lending rate of FNB, a division of FirstRand Bank Limited.
Dividends declared and paid
Preference dividends
Cents per share 2017 2016
Period:
1 September 2015 - 29 February 2016 366.5
1 March 2016 - 29 August 2016 394.7
30 August 2016 - 27 February 2017 395.6
28 February 2017 - 28 August 2017 393.6
LL Dippenaar JP Burger C Low
Chairman CEO Company secretary
6 September 2017
STATEMENT OF HEADLINE EARNINGS - IFRS (AUDITED)
for the year ended 30 June
R million 2017 2016 % change
Profit for the year 26 139 24 075 9
NCNR preference shareholders (356) (342) 4
Non-controlling interests (1 211) (1 170) 4
Earnings attributable to ordinary equityholders 24 572 22 563 9
Adjusted for (810) (176) >100
Gain on disposal of investment securities of a capital nature (3) (5)
Gain on disposal of available-for-sale assets (52) (6)
Losses on disposal of non-private equity associates 5 -
Impairment of non-private equity associates 4 -
Gain on disposal of investments in subsidiaries (1 817) (82)
Loss on reclassification of non-current assets and disposal groups held for sale which were not sold 95 -
Loss/(gain) on disposal of property and equipment 14 (148)
Fair value movement on investment properties - 22
Impairment of goodwill 119 8
Impairment of assets in terms of IAS 36 370 47
Tax effects of adjustments 26 (20)
Non-controlling interests adjustments 429 8
Headline earnings 23 762 22 387 6
RECONCILIATION FROM HEADLINE TO NORMALISED EARNINGS
for the year ended 30 June
R million 2017 2016 % change
Headline earnings 23 762 22 387 6
Adjusted for 709 468 51
TRS and IFRS 2 liability remeasurement* (63) 494 (>100)
Treasury shares** (12) (6) 100
IAS 19 adjustment (117) (102) 15
Private equity-related# 901 82 >100
Normalised earnings 24 471 22 855 7
* The group uses a TRS with external parties to economically hedge itself against the exposure to changes in the FirstRand share price associated with the group's long-
term incentive schemes.
The TRS is accounted for as a derivative in terms of IFRS, with the full fair value change recognised in NIR.
In the current year, FirstRand's share price increased by R2.31 and during the prior year decreased by R8.48.
This resulted in a mark-to-market fair value gain in the current year (compared to a loss in the prior year) being included in the group's IFRS attributable earnings. The
normalised results reflect the adjustment to normalise this year-on-year IFRS fair value volatility from the TRS.
** Includes FirstRand shares held for client trading activities.
# Realisation of private equity subsidiaries net of private equity-related goodwill and other asset impairments.
BASIS OF PRESENTATION
The summary consolidated financial statements contained in this announcement are prepared in accordance with the JSE Listings Requirements for provisional reports
and are derived from a complete set of the consolidated financial statements.
FirstRand prepares its summary consolidated financial results in accordance with:
- the framework concepts and the recognition and measurement requirements of International Financial Reporting Standards (IFRS);
- Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council;
- SAICA Financial Reporting Guide as issued by the Accounting Practices Committee;
- as a minimum, the information required by IAS 34 Interim Financial Reporting; and
- requirements of the Companies Act, no 71 of 2008, applicable to summary financial statements.
This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34 as allowed by the JSE Listings Requirements. The provisional report,
which includes these disclosures, is available on www.firstrand.co.za or from the company's registered office and upon request.
The directors take full responsibility and confirm that this information has been correctly extracted from the consolidated financial statements from which the summary
consolidated financial statements were derived.
Jaco van Wyk, CA(SA), supervised the preparation of the summary consolidated financial results. FirstRand's annual integrated report will be published on the group's
website, www.firstrand.co.za on or about 4 October 2017.
ACCOUNTING POLICIES
The accounting policies applied in the preparation of the consolidated financial statements, from which the summary consolidated financial statements were derived, are
in terms of IFRS and are prepared in accordance with the going concern principle under the historical cost basis as modified by the fair value accounting of certain assets
and liabilities where required or permitted by IFRS.
The group has voluntarily changed the way it presents certain items of NII and NIR, the classification of certain credit investments and the presentation of accrued interest
on certain deposits. The change in presentation has had no impact on the profit or loss or net asset value of the group and only affects the classification of items on the
income statement and statement of financial position. In addition, the group has changed the presentation of gross cash paid or received on acquisition or disposal of
subsidiaries in cash flow from investing activities to reflect the net cash outflow or inflow from the acquisition or disposal of subsidiaries.
The accounting policies are consistent with those applied for the year ended 30 June 2016. No other new or amended IFRS standards became effective for the year
ended 30 June 2017 that impacted the group's reported earnings, financial position or reserves, or the accounting policies.
NORMALISED RESULTS
The group believes normalised earnings more accurately reflect operational performance. Consequently, headline earnings have been adjusted to take into account
non-operational and accounting anomalies, which, in terms of the JSE Listings Requirements, constitute pro forma financial information.
This pro forma financial information, which is the responsibility of the group's directors, has been prepared for illustrative purposes to more accurately reflect operational
performance and because of its nature may not fairly present in terms of IFRS, the group's financial position, changes in equity and results of operations or cash flows.
Details of the nature of these adjustments and reasons thereof can be found on pages 95 to 96 of the Analysis of financial results booklet on www.firstrand.co.za. The pro
forma financial information should be read in conjunction with the unmodified Deloitte & Touche and PricewaterhouseCoopers Inc. independent reporting accountants'
report, which is available for inspection at the group's registered office.
AUDITORS' REPORT
This announcement is itself not reviewed or audited but is extracted from the underlying audited information.
The summary consolidated financial statements for the year ended 30 June 2017 contained in this announcement have been audited by Deloitte & Touche and
PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon, in terms of ISA 810 (Revised).
The auditors also expressed an unmodified opinion on the consolidated financial statements from which the summary consolidated financial statements were derived.
Unless the financial information is specifically stated as audited, it should be assumed it is unaudited.
A copy of the auditors' report on the summary consolidated financial statements on the full provisional report and of the auditors' report on the consolidated financial
statements are available for inspection at FirstRand's registered office, 4 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, together with the
consolidated financial statements identified in the auditors' report.
The auditors' report does not necessarily report on all of the information contained in the summary consolidated financial statements. Shareholders are, therefore, advised
that in order to obtain a full understanding of the nature of the auditors' engagement they should review the auditors' report together with the accompanying financial
information from the issuer's registered office.
The forward-looking information has not been commented or reported on by the group's external auditors. FirstRand's board of directors take full responsibility for the
preparation of this announcement.
SUMMARY CONSOLIDATED INCOME STATEMENT - IFRS (AUDITED)
for the year ended 30 June
R million 2017 2016* % change
Net interest income before impairment of advances 44 917 42 041 7
Impairment and fair value of credit of advances (8 054) (7 159) 13
Net interest income after impairment of advances 36 863 34 882 6
Non-interest revenue 40 922 36 934 11
Income from operations 77 785 71 816 8
Operating expenses (44 585) (41 657) 7
Net income from operations 33 200 30 159 10
Share of profit of associates after tax 757 930 (19)
Share of profit of joint ventures after tax 281 526 (47)
Income before tax 34 238 31 615 8
Indirect tax (1 081) (928) 16
Profit before tax 33 157 30 687 8
Income tax expense (7 018) (6 612) 6
Profit for the year 26 139 24 075 9
Attributable to
Ordinary equityholders 24 572 22 563 9
NCNR preference shareholders 356 342 4
Equityholders of the group 24 928 22 905 9
Non-controlling interests 1 211 1 170 4
Profit for the year 26 139 24 075 9
Earnings per share (cents)
- Basic 438.2 402.4 9
- Diluted 438.2 402.4 9
Headline earnings per share (cents)
- Basic 423.7 399.2 6
- Diluted 423.7 399.2 6
* Restated.
SUMMARY CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME - IFRS (AUDITED)
for the year ended 30 June
R million 2017 2016 % change
Profit for the year 26 139 24 075 9
Items that may subsequently be reclassified to profit or loss
Cash flow hedges (150) 118 (>100)
(Losses)/gains arising during the year (141) 144 (>100)
Reclassification adjustments for amounts included in profit or loss (67) 20 (>100)
Deferred income tax 58 (46) (>100)
Available-for-sale financial assets (282) (504) (44)
Losses arising during the year (397) (671) (41)
Reclassification adjustments for amounts included in profit or loss (52) (6) >100
Deferred income tax 167 173 (3)
Exchange differences on translating foreign operations (1 633) 567 (>100)
(Losses)/gains arising during the year (1 633) 567 (>100)
Share of other comprehensive income of associates and joint ventures
after tax and non-controlling interests (157) 87 (>100)
Items that may not subsequently be reclassified to profit or loss
Remeasurements on defined benefit post-employment plans 169 (139) (>100)
Gains/(losses) arising during the year 241 (194) (>100)
Deferred income tax (72) 55 (>100)
Other comprehensive (loss)/income for the year (2 053) 129 (>100)
Total comprehensive income for the year 24 086 24 204 -
Attributable to
Ordinary equityholders 22 574 22 665 -
NCNR preference shareholders 356 342 4
Equityholders of the group 22 930 23 007 -
Non-controlling interests 1 156 1 197 (3)
Total comprehensive income for the year 24 086 24 204 -
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION - IFRS (AUDITED)
as at 30 June
R million 2017 2016* 2015*
ASSETS
Cash and cash equivalents 68 483 64 303 65 567
Derivative financial instruments 35 459 40 551 34 500
Commodities 14 380 12 514 7 354
Investment securities 167 427 142 648 137 366
Advances 893 106 851 405 779 171
- Advances to customers 848 649 808 699 751 366
- Marketable advances 44 457 42 706 27 805
Accounts receivable 8 878 10 152 8 009
Current tax asset 147 428 115
Non-current assets and disposal groups held for sale 580 193 373
Reinsurance assets 89 36 388
Investments in associates 5 924 4 964 5 781
Investments in joint ventures 1 430 1 344 1 282
Property and equipment 17 512 16 909 16 288
Intangible assets 1 686 1 569 1 068
Investment properties 399 386 460
Defined benefit post-employment asset 5 9 4
Deferred income tax asset 2 202 1 866 1 540
Total assets 1 217 707 1 149 277 1 059 266
EQUITY AND LIABILITIES
Liabilities
Short trading positions 15 276 14 263 5 685
Derivative financial instruments 44 403 50 782 40 917
Creditors, accruals and provisions 17 014 17 141 17 529
Current tax liability 277 270 353
Liabilities directly associated with disposal groups held for sale 195 141 -
Deposits 983 529 920 074 865 616
- Deposits from customers 715 101 668 010 617 371
- Debt securities 179 115 153 727 158 171
- Asset-backed securities 35 445 29 305 28 574
- Other 53 868 69 032 61 500
Employee liabilities 9 884 9 771 9 734
Other liabilities 6 385 8 311 6 876
Policyholder liabilities 3 795 1 402 542
Tier 2 liabilities 18 933 18 004 12 497
Deferred income tax liability 832 1 053 913
Total liabilities 1 100 523 1 041 212 960 662
Equity
Ordinary shares 56 56 56
Share premium 7 960 7 952 7 997
Reserves 100 868 91 737 82 725
Capital and reserves attributable to ordinary equityholders 108 884 99 745 90 778
NCNR preference shares 4 519 4 519 4 519
Capital and reserves attributable to equityholders of the group 113 403 104 264 95 297
Non-controlling interests 3 781 3 801 3 307
Total equity 117 184 108 065 98 604
Total equities and liabilities 1 217 707 1 149 277 1 059 266
* Restated.
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS - IFRS (AUDITED)
for the year ended 30 June
R million 2017 2016**
Cash generated from operating activities
Interest and fee commission receipts 108 306 95 004
Trading and other income 2 857 4 167
Interest payments (35 285) (28 933)
Other operating expenses (35 106) (33 417)
Dividends received 5 971 6 544
Dividends paid (13 650) (12 950)
Dividends paid to non-controlling interests (1 099) (761)
Cash generated from operating activities 31 994 29 654
Movement in operating assets and liabilities
Liquid assets and trading securities (24 588) (4 009)
Advances (59 143) (69 673)
Deposits 71 085 44 788
Creditors (net of debtors) 3 262 (3 495)
Employee liabilities (5 337) (5 350)
Other liabilities (319) 8 245
Taxation paid (8 237) (7 793)
Net cash generated from/(utilised by) operating activities 8 717 (7 633)
Cash flows from investing activities
Acquisition of investments in associates (98) (187)
Proceeds on disposal of investments in associates 38 1 932
Acquisition of investments in joint ventures (44) -
Proceeds on disposal of investments in joint ventures 17 -
Acquisition of investments in subsidiaries (257) (181)
Proceeds on disposal of investments in subsidiaries 1 815 588
Acquisition of property and equipment (4 581) (4 135)
Proceeds on disposal of property and equipment 514 1 170
Acquisition of intangible assets and investment properties (434) (294)
Proceeds on disposal of intangible assets and investment properties - 45
Proceeds on disposal of non-current assets held for sale 170 1 017
Net cash outflow from investing activities (2 860) (45)
Cash flows from financing activities
(Redemption)/issue of other liabilities (1 675) 1 587
Proceeds from the issue of Tier 2 liabilities 941 5 486
Acquisition of additional interest in subsidiaries from non-controlling interests (162) (1 357)
Issue of share of additional interest in subsidiaries from non-controlling interests - 39
Net cash (outflow)/inflow from financing activities (896) 5 755
Net increase/(decrease) in cash and cash equivalents 4 961 (1 923)
Cash and cash equivalents at the beginning of the year 64 303 65 567
Effect of exchange rate changes on cash and cash equivalents (763) 663
Transfer to non-current assets held for sale (18) (4)
Cash and cash equivalents at the end of the year 68 483 64 303
Mandatory reserve balances included above* 24 749 22 959
* Banks are required to deposit a minimum average balance, calculated monthly with the central bank, which is not available for use in the group's day-to-day
operations. The deposit bears no or low interest. Money at short notice constitutes amounts withdrawable in 32 days or less.
** Cash in subsidiaries acquired or disposed of, previously disclosed in the cash reconciliation and not any specific activity, has been included under cash flows from
investing activities (acquisition of investment in subsidiaries and proceeds on disposal of investments in subsidiaries). The net impact on the prior year is a decrease in
net cash outflow from investing activities of R857 million.
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - IFRS (AUDITED)
for the year ended 30 June
Ordinary share capital and ordinary equityholders' funds
Defined Reserves
Share benefit Share- Foreign attributable
capital post- Cash flow based Available- currency to ordinary NCNR Non-
Share Share and share employment 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 2015 56 7 997 8 053 (791) 190 21 64 2 757 261 80 223 82 725 4 519 3 307 98 604
Net proceeds of issue of share capital and premium - - - - - - - - - - - - 39 39
Proceeds from the issue of share capital - - - - - - - - - - - - 24 24
Share issue expenses - - - - - - - - - - - - 15 15
Acquisition of subsidiaries - - - - - - - - - - - - 19 19
Movement in other reserves - - - - - 5 - - 20 (16) 9 - 10 19
Ordinary dividends - - - - - - - - - (12 608) (12 608) - (761) (13 369)
Preference dividends - - - - - - - - - - - (342) - (342)
Transfer from/(to) general risk reserves - - - - - - - - 18 (18) - - - -
Changes in ownership interest of subsidiaries - - - - - - - - - (1 077) (1 077) - (10) (1 087)
Consolidation of treasury shares - (45) (45) - - - - - - 10 10 - - (35)
Total comprehensive income for the year - - - (139) 118 - (505) 553 75 22 563 22 665 342 1 197 24 204
Vesting of share-based payments - - - - - (17) - - - 30 13 - - 13
Balance as at 30 June 2016 56 7 952 8 008 (930) 308 9 (441) 3 310 374 89 107 91 737 4 519 3 801 108 065
Net proceeds of issue of share capital and premium - - - - - - - - - - - - - -
Proceeds from the issue of share capital - - - - - - - - - - - - - -
Share issue expenses - - - - - - - - - - - - - -
Acquisition of subsidiaries - - - - - - - - - - - - 8 8
Movement in other reserves - - - - - 3 - - 195 (167) 31 - 81 112
Ordinary dividends - - - - - - - - - (13 294) (13 294) - (1 099) (14 393)
Preference dividends - - - - - - - - - - - (356) - (356)
Transfer from/(to) general risk reserves - - - - - - - - 16 (16) - - - -
Changes in ownership interest of subsidiaries - - - - - - - - - (175) (175) - (166) (341)
Consolidation of treasury shares - 8 8 - - - - - - (8) (8) - - -
Total comprehensive income for the year - - - 169 (150) - (274) (1 620) (123) 24 572 22 574 356 1 156 24 086
Vesting of share-based payments - - - - - (3) - - - 6 3 - - 3
Balance as at 30 June 2017 56 7 960 8 016 (761) 158 9 (715) 1 690 462 100 025 100 868 4 519 3 781 117 184
RESTATEMENT OF PRIOR YEAR NUMBERS
DESCRIPTION OF RESTATEMENTS
The group has made the following changes to the presentation of NII, NIR, advances and deposits.
FAIR VALUE CREDIT ADJUSTMENTS
The group has historically included all fair value gains and losses on advances measured at fair value through profit or loss (including interest and fair value credit
adjustments) in NIR. The group's presentation has been changed to include the credit valuation adjustment on fair value advances in the impairment line in the income
statement rather than as part of NIR.
CREDIT-BASED INVESTMENTS INCLUDED IN ADVANCES
The group's presentation and classification of debt investment securities qualifying as HQLA that are under the control of the Group Treasurer and corporate bonds held
by RMB investment bank was changed to advances rather than investment securities. These instruments, given their specific nature, are included as a separate category
of advances, namely marketable advances, in a sub-total on the face of the statement of financial position.
ACCRUED INTEREST ON DEPOSITS
The group previously recognised accrued interest on certain deposits as part of creditors, accruals and provisions in the statement of financial position. During the current
financial year, accrued interest was reclassified to deposits. This is more in line with the group's current practice for advances where the accrued interest is recognised as
part of the carrying value of the underlying financial instrument.
These changes in presentation had no impact on the profit or loss or net asset value of the group and only affected the classification of items on the income statement
and statement of financial position. The changes in presentation have reduced the number of adjustments between IFRS and normalised results and aligns presentation.
RESTATED SUMMARY CONSOLIDATED INCOME STATEMENT - IFRS (AUDITED)
for the year ended 30 June 2016
As previously Fair value credit
R million reported adjustment Restated
Net interest income before impairment of advances 42 041 - 42 041
Impairment and fair value of credit of advances (6 902) (257) (7 159)
Net interest income after impairment of advances 35 139 (257) 34 882
Non-interest revenue 36 677 257 36 934
Income from operations 71 816 - 71 816
Operating expenses (41 657) - (41 657)
Net income from operations 30 159 - 30 159
Share of profit of associates after tax 930 - 930
Share of profit of joint ventures after tax 526 - 526
Income before tax 31 615 - 31 615
Indirect tax (928) - (928)
Profit before tax 30 687 - 30 687
Income tax expense (6 612) - (6 612)
Profit for the year 24 075 - 24 075
Attributable to
Ordinary equityholders 22 563 - 22 563
NCNR preference shareholders 342 - 342
Equityholders of the group 22 905 - 22 905
Non-controlling interests 1 170 - 1 170
Profit for the year 24 075 - 24 075
RESTATED SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION - IFRS (AUDITED)
as at 30 June 2016
As Reclassification Accrued
previously of credit interest
R million reported investments on deposits Restated
ASSETS
Cash and cash equivalents 64 303 - - 64 303
Derivative financial instruments 40 551 - - 40 551
Commodities 12 514 - - 12 514
Investment securities 185 354 (42 706) - 142 648
Advances 808 699 42 706 - 851 405
- Advances to customers 808 699 - - 808 699
- Marketable advances - 42 706 - 42 706
Accounts receivable 10 152 - - 10 152
Current tax asset 428 - - 428
Non-current assets and disposal groups held for sale 193 - - 193
Reinsurance assets 36 - - 36
Investments in associates 4 964 - - 4 964
Investments in joint ventures 1 344 - - 1 344
Property and equipment 16 909 - - 16 909
Intangible assets 1 569 - - 1 569
Investment properties 386 - - 386
Defined benefit post-employment asset 9 - - 9
Deferred income tax asset 1 866 - - 1 866
Total assets 1 149 277 - - 1 149 277
EQUITY AND LIABILITIES
Liabilities
Short trading positions 14 263 - - 14 263
Derivative financial instruments 50 782 - - 50 782
Creditors, accruals and provisions 17 285 - (144) 17 141
Current tax liability 270 - - 270
Liabilities directly associated with disposal groups held for sale 141 - - 141
Deposits 919 930 - 144 920 074
- Deposits from customers 667 995 - 15 668 010
- Debt securities 153 727 - - 153 727
- Asset-backed securities 29 305 - - 29 305
- Other 68 903 - 129 69 032
Employee liabilities 9 771 - - 9 771
Other liabilities 8 311 - - 8 311
Policyholder liabilities 1 402 - - 1 402
Tier 2 liabilities 18 004 - - 18 004
Deferred income tax liability 1 053 - - 1 053
Total liabilities 1 041 212 - - 1 041 212
Equity
Ordinary shares 56 - - 56
Share premium 7 952 - - 7 952
Reserves 91 737 - - 91 737
Capital and reserves attributable to ordinary equityholders 99 745 - - 99 745
NCNR preference shares 4 519 - - 4 519
Capital and reserves attributable to equityholders of the group 104 264 - - 104 264
Non-controlling interests 3 801 - - 3 801
Total equity 108 065 - - 108 065
Total equities and liabilities 1 149 277 - - 1 149 277
RESTATED SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION - IFRS (AUDITED)
as at 30 June 2015
As Reclassification Accrued
previously of credit interest
R million reported investments on deposits Restated
ASSETS
Cash and cash equivalents 65 567 - - 65 567
Derivative financial instruments 34 500 - - 34 500
Commodities 7 354 - - 7 354
Investment securities 165 171 (27 805) - 137 366
Advances 751 366 27 805 - 779 171
- Advances to customers 751 366 - - 751 366
- Marketable advances - 27 805 - 27 805
Accounts receivable 8 009 - - 8 009
Current tax asset 115 - - 115
Non-current assets and disposal groups held for sale 373 - - 373
Reinsurance assets 388 - - 388
Investments in associates 5 781 - - 5 781
Investments in joint ventures 1 282 - - 1 282
Property and equipment 16 288 - - 16 288
Intangible assets 1 068 - - 1 068
Investment properties 460 - - 460
Defined benefit post-employment asset 4 - - 4
Deferred income tax asset 1 540 - - 1 540
Total assets 1 059 266 - - 1 059 266
EQUITY AND LIABILITIES
Liabilities
Short trading positions 5 685 - - 5 685
Derivative financial instruments 40 917 - - 40 917
Creditors, accruals and provisions 17 624 - (95) 17 529
Current tax liability 353 - - 353
Liabilities directly associated with disposal groups held for sale - - - -
Deposits 865 521 - 95 865 616
- Deposits from customers 617 371 - - 617 371
- Debt securities 158 171 - - 158 171
- Asset-backed securities 28 574 - - 28 574
- Other 61 405 - 95 61 500
Employee liabilities 9 734 - - 9 734
Other liabilities 6 876 - - 6 876
Policyholder liabilities 542 - - 542
Tier 2 liabilities 12 497 - - 12 497
Deferred income tax liability 913 - - 913
Total liabilities 960 662 - - 960 662
Equity
Ordinary shares 56 - - 56
Share premium 7 997 - - 7 997
Reserves 82 725 - - 82 725
Capital and reserves attributable to ordinary equityholders 90 778 - - 90 778
NCNR preference shares 4 519 - - 4 519
Capital and reserves attributable to equityholders of the group 95 297 - - 95 297
Non-controlling interests 3 307 - - 3 307
Total equity 98 604 - - 98 604
Total equities and liabilities 1 059 266 - - 1 059 266
FAIR VALUE HIERARCHY AND MEASUREMENTS (AUDITED)
Transfers between fair value hierarchy levels
The following represents the significant transfers into levels 1, 2 and 3 and the reasons for these transfers. Transfers between levels of the fair value hierarchy are
deemed to occur at the beginning of the reporting period.
2017
Transfers Transfers
R million in out Reasons for significant transfers in
Level 1 - - There were no transfers into level 1.
Level 2 - (38) There were no transfers into level 2.
Level 3 38 - The JSE publishes volatilities of strike prices of options between 70% and 130%.
Any volatility above or below this range results in inputs becoming unobservable.
During the current year the observability of volatilities used in determining the
fair value of certain over the counter options became unobservable and resulted
in the transfer of R38 million out of level 2 into level 3 of the fair value hierarchy.
Total transfers 38 (38)
2016
Transfers Transfers
R million in out Reasons for significant transfers in
Level 1 - (2 821) There were no transfers into level 1.
Level 2 - (522) There were no transfers into level 2.
Level 3 3 343 - The market for certain bonds listed in South Africa became inactive because
of stresses in the macro environment. The market price is, therefore, not
representative of fair value and a valuation technique was applied. Because of
credit valuation being unobservable the bonds were classified from level 1 into
level 3 of the hierarchy.
An evaluation of the observability of volatilities used in determining the fair value
of certain over-the-counter options resulted in a transfer of R107 million out of
level 2 of the fair value hierarchy and into level 3.
An evaluation of the significant inputs utilised in determining the fair value of
investment property, considering current market factors, resulted in a transfer of
R415 million out of level 2 of the fair value hierarchy and into level 3.
Total transfers 3 343 (3 343)
SUMMARY SEGMENT REPORT - IFRS (AUDITED)
for the year ended 30 June
2017
FNB RMB FCC
(including
Group FirstRand
FNB Investment Corporate Treasury) group Normalised
R million FNB Africa* banking banking WesBank and other normalised adjustments Total
Profit before tax 17 948 880 8 101 1 731 5 612 (1 286) 32 986 171 33 157
Total assets 348 562 49 959 401 157 45 872 214 222 157 973 1 217 745 (38) 1 217 707
Total liabilities 330 301 49 982 392 412 43 634 207 809 76 385 1 100 523 - 1 100 523
2016
FNB RMB FCC
(including
Group FirstRand
FNB Investment Corporate Treasury) group Normalised
R million FNB Africa* banking banking WesBank and other normalised adjustments Total
Profit before tax 16 586 1 297 7 452 1 466 5 518 (1 176) 31 143 (456) 30 687
Total assets 334 199 49 217 395 822 39 311 205 016 125 761 1 149 326 (49) 1 149 277
Total liabilities 317 633 49 309 385 887 37 435 199 686 51 262 1 041 212 - 1 041 212
* Includes FNB's activities in India.
CONTINGENCIES AND COMMITMENTS (AUDITED)
as at 30 June
R million 2017 2016
Contingencies and commitments
Guarantees (endorsements and performance guarantees) 34 006 34 733
Letters of credit 6 731 7 339
Total contingencies 40 737 42 072
Irrevocable commitments 119 325 101 418
Committed capital expenditure 3 936 4 264
Operating lease commitments 3 779 3 599
Other 306 379
Contingencies and commitments 168 083 151 732
Legal proceedings
There are a number of legal or potential claims against the group, the outcome of which cannot at present be foreseen. These
claims are not regarded as material either on an individual or a total basis.
Provision made for liabilities that are expected to materialise 129 93
Commitments
Commitments in respect of capital expenditure and long-term investments approved by the directors 3 936 4 264
NUMBER OF ORDINARY SHARES IN ISSUE
for the year ended 30 June
2017 2016
IFRS IFRS
(audited) Normalised (audited) Normalised
Shares in issue
Opening balance as at 1 July 5 609 488 001 5 609 488 001 5 609 488 001 5 609 488 001
Less: treasury shares (311 919) - (2 201 270) -
- Shares for client trading* (311 919) - (2 201 270) -
Number of shares in issue (after treasury shares) 5 609 176 082 5 609 488 001 5 607 286 731 5 609 488 001
Weighted average number of shares
Weighted average number of shares before treasury shares 5 609 488 001 5 609 488 001 5 609 488 001 5 609 488 001
Less: treasury shares (1 480 934) - (1 800 471) -
- Shares for client trading* (1 480 934) - (1 800 471) -
Basic and diluted weighted average number of shares in issue 5 608 007 067 5 609 488 001 5 607 687 530 5 609 488 001
* For normalised reporting, shares held for client trading activities are treated as externally issued.
COMPANY INFORMATION
DIRECTORS
LL Dippenaar (chairman), JP Burger (chief executive officer), AP Pullinger (deputy chief executive officer), HS Kellan (financial director), MS Bomela, HL Bosman, JJ
Durand, GG Gelink, PM Goss, NN Gwagwa, PK Harris, WR Jardine, F Knoetze, RM Loubser, PJ Makosholo, TS Mashego, EG Matenge-Sebesho, AT Nzimande, BJ van der
Ross, JH van Greuning
COMPANY SECRETARY AND REGISTERED OFFICE
C Low
4 Merchant Place, Corner Fredman Drive and Rivonia Road
Sandton 2196
PO Box 650149, Benmore 2010
Tel: +27 11 282 1808
Fax: +27 11 282 8088 Website: www.firstrand.co.za
JSE SPONSOR
Rand Merchant Bank (a division of FirstRand Bank Limited)
Corporate Finance
1 Merchant Place, Corner Fredman Drive and Rivonia Road
Sandton 2196
Tel: +27 11 282 8000
Fax: +27 11 282 4184
NAMIBIAN SPONSOR
Simonis Storm Securities (Pty) Ltd
4 Koch Street
Klein Windhoek
Namibia
TRANSFER SECRETARIES - SOUTH AFRICA
Computershare Investor Services (Pty) Ltd
1st Floor, Rosebank Towers
15 Biermann Avenue
Rosebank, Johannesburg 2196
PO Box 61051, Marshalltown 2107
Tel: +27 11 370 5000
Fax: +27 11 688 5248
TRANSFER SECRETARIES - NAMIBIA
Transfer Secretaries (Pty) Ltd
4 Robert Mugabe Avenue, Windhoek
PO Box 2401, Windhoek, Namibia
Tel: +264 612 27647
Fax: +264 612 48531
AUDITORS
PricewaterhouseCoopers Inc.
2 Eglin Road, Sunninghill
Sandton 2196
Deloitte & Touche
Building 8, Deloitte Place
The Woodlands, Woodlands Drive
Woodmead, Sandton
6 September 2017
Date: 07/09/2017 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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