RMH - RMB Holdings Limited - Summarised Unaudited Results Announcement and
RMH
RMH
RMH - RMB Holdings Limited - Summarised, Unaudited Results Announcement and
Cash Dividend Declaration for the Six Months Ended 31 December 2009
RMB Holdings Limited
(Incorporated in South Africa)
(Registration number 1987/005115/06)
(Share code: RMH)
(ISIN: ZAE000024501)
("RMBH")
SUMMARISED, UNAUDITED RESULTS ANNOUNCEMENT AND CASH DIVIDEND DECLARATION
FOR THE SIX MONTHS ENDED 31 DECEMBER 2009
Normalised earnings
+22% to 136,8 cents or
R1,65 billion
Interim dividend
unchanged at 54,0 cents or R653 million
Intrinsic value
+15% to 3 194 cents or R38,62 billion
A pleasing outcome in a complex and volatile business environment
Operating environment
The six month period to 31 December 2009 showed early signs of an improving
global and local economic environment. GDP in most of the world`s developed
markets is beginning to slowly recover and some emerging markets, notably
China, are showing robust growth.
In South Africa, the operating environment remained recessionary and only
posted positive growth of 0,9% during the third
quarter of 2009, followed
by 3,2% in the final quarter of the year. This brought the full year change
in GDP to -1,8% (vs. +3,7% in 2008). The growth appeared to be mainly
driven by the manufacturing sector and government spending programmes.
Otherwise, economic conditions remained challenging with real disposable
income and jobs declining by 1,1% and 870 000 respectively. Inflation
remained above the South African Reserve Bank`s targeted range at 6,3% on
31 December 2009.
The decline in economic activity and domestic demand prompted a further
50bps repo rate decrease in August 2009 following on the cumulative 450bps
decrease during the period from December 2008 to 30 June 2009. The impact
of these interest rate reductions, together with a stabilisation in house
prices and a recovery in equity prices, provided some relief to consumers.
However, levels of consumer indebtedness remain high and in addition some
signs of stress remain evident in certain commercial and corporate
segments. Whilst the reduction in interest rates has had an initial
positive impact on retail bad debts, it continues to negatively impact on
banking deposit margins and income earned on the capital endowments held by
the groups in which we are invested.
Overview of results
Against this background, our portfolio of financial services businesses
produced a satisfactory outcome. RMBH`s results were driven by the
following outcomes in normalised earnings for the six months to 31 December
2009:
- FirstRand +1% to R4 605 million (2008: R4 576 million)
- Discovery +54% to
R755 million (2008: R489 million)
- OUTsurance -14% to R284 million (2008: R331 million)
While the FirstRand results reflect a muted outcome between the two
comparative six month periods to December, it does not reflect the major
improvement that was won in the six months to December 2009 over the
immediately preceding half year to June 2009.
The outcome at Discovery is particularly pleasing, with the major part of
the growth attributed to new business gained as well as the reduction of
start up losses where those businesses are beginning to gain traction.
OUTsurance achieved satisfying growth in its Southern African operations
before the impact of its start up costs in Australia.
In addition RMBH was able to exit the emerging market portfolio, in which
it was invested directly, without further loss
(2008: loss of R249
million).
As a result, RMBH reported the following growth in normalised earnings for
the six month period to 31 December 2009:
- Normalised earnings +22% to R1 654 million (2008: R1 353 million)
- per ordinary share +22% to 136,8 cents (2008: 111,9 cents)
Sources of income
RMBH`s income is largely drawn from the full spectrum of Southern African
financial services.
Over the last eighteen months the relative contributions were as follows:
Intrinsic value
The Group`s intrinsic value reflected the recovery in financial sector
equity values experienced over the period:
As at 31 December %
change
R million 2009 2008
Market value of listed interests (FirstRand, 35 813 31 127 15
Discovery)
Director`s valuation of unlisted interests 3 562 3 240 10
(OUTsurance, RMBSI)
Net funding (752) (860)
Total intrinsic value 38 623 33 507 15
Per RMBH share (cents) 3 194c 2 771c 15
At 31 December 2009 RMBH`s market capitalisation amounted to R35,79 billion
or 2 960 cents per share, (2008: R31,07 billion) representing a 7% discount
(2008: 7%) to the
Group`s underlying intrinsic value.
Interim dividend payment
FirstRand constitutes the main source of both RMBH`s earnings and
dividends. It seeks not to expose its dividend to the volatility inherent
in fair value accounting and therefore focuses on a sustainable growth
rate, in line with normalised earnings. This means that the dividend cover
may vary from year to year. In the period under review, it has declared an
unchanged interim dividend.
Consequently, the RMBH Board has resolved to declare an unchanged interim
dividend of 54 cents per share. The interim dividend is covered 2,5 times
by normalised earnings per share.
Outlook for the Group
The Group anticipates a modest return to
growth in the South African
economy, driven mainly by further investment by government and some
improvement in consumption levels.
At the FirstRand Banking Group, the modest return to growth in the South
African economy will not drive significant growth in advances, as levels of
consumer indebtedness are still at historic highs. However, the banking
franchises are expected to benefit from the increased economic activity.
Some risks remain in the corporate sector, however the balance sheets have
proved to be extremely resilient in this cycle and whilst significant
defaults are unlikely, business volumes overall will remain subdued.
The recovery in equity markets is expected to continue to benefit Momentum.
However, given that the recovery appears to be gradual, pressure on
disposable income will remain.
Discovery is well positioned for future growth and opportunities.
The OUTsurance Group`s South African business is well positioned,
profitable and adequately capitalised. Its Australian initiative is
performing better than initially projected.
The greater RMBH Group continues to focus on protecting its origination
franchises and balance sheets to ensure it is optimally positioned to take
advantage of growth opportunities as they arise, particularly as the
negative credit cycle reverses.
For and on behalf of the Board
GT Ferreira P Cooper
Chairman Chief Operating Officer
Sandton, 10 March 2010
FirstRand Group
Summary of FirstRand Financial Results
Against a difficult macro economic background, the FirstRand Group`s
diverse portfolio of banking and insurance businesses produced a
satisfactory performance for the six months, resulting in normalised
earnings improving by 1% to R4,61 billion.
Six months ended Year
31 December ended
30 June
2009 2008 % 2009
Unaudited Unaudited change Audited
Normalised earnings for ordinary
shareholders derived from:
FirstRand Banking Group
4 038 4 149 (3) 6 056
Momentum Group 850 740 15 1 649
FirstRand Ltd (including preference (283) (313) 10 (554)
dividend payments)
Group normalised earnings 4 605 4 576 1 7 151
Attributable to RMBH* 1 344 1 329 1 2 057
* After consolidation eliminations
FirstRand Banking Group
The Banking Group`s results for the period under review, although slightly
below the level of December 2008, reflect a significant recovery in
profitability in comparison to the six month period ended 30 June 2009. The
total banking portfolio produced normalised earnings of R4,04 billion,
representing a 3% decrease on the previous comparative
period but more than
double that of the six months to June 2009.
The improving earnings trend from the banking operations reflects the
reversal of the two most significant negative issues from the previous
comparative period and the year to June 2009, namely:
- Bad debts emanating from the retail lending books at FNB and WesBank; and
- Losses from certain offshore trading portfolios within the investment
bank, RMB.
This performance was also achieved despite a major reduction in private
equity realisations and overall reflects good organic growth from
operations, despite the tough operating environment.
Overall impairments decreased 13% from R3,7 billion to R3,2 billion,
primarily in the retail franchises of FNB and WesBank, reflecting early
positive benefits of the lower interest rate environment. In addition non-
interest income increased 31% from R9,4 billion to R12,3 billion
representing a strong rebound in fair value income, mainly driven by a
recovery in RMB`s trading activities.
Despite these improvements, pressure remained on the net interest income
component of the earnings base, mainly due to declining asset growth and
the negative impact of rapidly reducing interest rates on capital and
endowment balances.
Impairments remained in line with expectations, with the bad debt ratio at
1,51% of advances (retail 2,12% and wholesale 0,34%).
Momentum Group
The earnings of Momentum Group were positively impacted by a recovery in
equity markets and reduced
market volatility combined with a continued
strong operational performance. Overall normalised earnings increased by
15% to R850 million with the return on equity remaining ahead of Momentum`s
target at 22% (2008: 23%).
Momentum`s investment businesses benefited from the equity market recovery
with retail lump sum investment flows improving with market sentiment.
However, volumes of new recurring premium savings business remain muted,
reflecting the level of strain consumers are still feeling. The on-going
robust operational performance was evidenced in new business embedded value
holding up well despite volume pressure. FNB Insurance continued to perform
well as did individual risk new business volumes.
FirstRand`s International Strategy
FirstRand is continuing to make good progress in terms
of its international
strategy. As the African economic environment becomes increasingly investor
friendly, opportunities for financial services are expected to increase and
FirstRand is positioning itself to benefit from these. It is focusing on
building its franchises in Africa, and has identified countries that it
believes are strategically important. Key markets that offer good prospects
are Nigeria, Zambia, Mozambique, Tanzania and Angola. FirstRand is
currently staffing up its representative office in Nigeria and is
investigating opportunities in the Nigerian financial services industry
emanating from the banking industry reform.
Given that China is South Africa`s largest trading partner, positioning the
FirstRand Group`s franchises to capture the flows of trade and investment
with China is an important element for its African strategy. In this
regard, the China Construction Bank relationship is beginning to bear fruit
for FirstRand. Transactional flows with Chinese counterparts have increased
and several significant deals have been concluded.
Directly held insurance interests
Discovery Group
Discovery is active in the insurance and health care funding markets in
South Africa and the United Kingdom. It is in negotiations to acquire a
minority stake in Ping An Health, the health insurance subsidiary of
China`s second largest insurer.
During the period under review the Discovery Group performed exceptionally
well, with headline earnings increasing by 54% to R755 million (2008: R489
million). This was achieved on the back of strong financial performance,
healthy new business flows
and important structural progress at all of
Discovery`s businesses.
At the group`s established South African businesses, Discovery Health,
Discovery Life and Vitality, performance exceeded expectation and they
continued to build on their dominant market positions. Start-up Discovery
Invest`s performance continues to be exceptional in all respects, despite
the difficulties introduced to the long-terms savings market by the current
economic climate.
While PruProtect, the Group`s UK based life assurance joint-venture,
exceeded expectation, PruHealth, the health joint-venture, reflected the
negative effects of the UK economy as well as a deteriorating business mix.
During the period the businesses were restructured to achieve a more
integrated business model, similar to that of the
South African operations.
The combined loss of the UK operations decreased from R135 million in 2008
to R67 million in the current period. The wind down of USA based Destiny
Health has been completed within the original budget and timeline.
RMBH included R189 million of Discovery Group`s earnings in its normalised
earnings for the six months to December 2009 (2008: R124 million).
OUTsurance
The OUTsurance group is active in the short-term insurance market and
continues to grow and perform above expectation. It has become an
established and trusted brand in a relatively short space of time. During
the last quarter of 2008 it launched "Youi", an Australian based direct
insurer.
The Southern African operations of OUTsurance posted excellent results for
the six months to 31 December 2009, with operating profit increasing by
15%, while it continued to gain profitable market share.
After its first year of business, Youi is performing better than its
original business plan, which has now been set higher. Its contribution to
the group`s total premiums is approaching 20%.
After allowing for Youi`s start up losses (R118 million), group operating
profits declined by 4%. This and lower investment income (on the back of
declining interest rates) caused OUTsurance to report a decrease in
headline earnings of 14% to R284 million (2008: R331 million). Excluding
Youi and its attendant funding costs, would have resulted in headline
earnings for the period growing by 10%.
RMBH`s attributable share of OUTsurance`s normalised earnings for the six
months amounted to R167
million (2008: R194 million).
RMB Structured Insurance
RMBSI creates individual insurance and financial risk solutions for large
corporates by using innovative financial structures.
It has proven to be more difficult than anticipated for RMBSI to rebuild
its revenue streams after a major retail client decided to conduct its
credit protection insurance business on an in house basis. RMBSI`s efforts
to gain other clients in the sector are taking longer than anticipated.
While the portfolio of underwriting management agencies that it has
assembled are already profitable, these are all start-up businesses that
will take time to make a meaningful contribution to RMBSI`s income.
These factors combined to produce a disappointing outcome, which was
further impacted upon by the STC liability arising
from the extra-ordinary
dividend of R100 million that RMBSI paid during the period. Consequently,
RMBSI reported a normalised loss of
R3 million (2008: earnings of R33 million).
RMBH`s attributable share of RMBSI`s normalised loss for the six months
amounted to R2 million (2008: earnings of R25 million).
Interim dividend declaration
Notice is hereby given that an interim dividend of 54 cents per share was
declared on 10 March 2010 in respect of the six months ended 31 December
2009.
Shareholders` attention is drawn to the
following important dates:
- Last day to trade in order to participate in Thursday, 25 March 2010
this dividend
- Shares commence trading "ex dividend" on Friday, 26 March 2010
- The record date for the dividend payment will Thursday, 1 April 2010
be
- Dividend payment date Tuesday, 6 April 2010
No de-materialisation or re-materialisation of share certificates may be
done between Friday, 26 March 2010 and Thursday, 1 April 2010 (both days
inclusive).
By order of the Board
AL Maher
Company Secretary
10 March 2010
Summarised consolidated
income statement
Six months ended Year ended
31 December 30 June
R million 2009 2008 % 2009
Unaudited Unaudited change Audited
Share of after tax results in associate 1 564 1 541 1 2 387
companies
Profit on sale of associate - 7 4
Earned premiums net of reinsurance 2 401 2 583 4 886
Commission and fee income 72 50 107
Investment income 488 (666) (264)
Income 4 525 3 515 7 120
Net claims paid (1 435)
(739)
(1 930)
Investment contract benefits and (300) (217) (381)
insurance provisions
Acquisition, marketing and (716) (1 019) (1
administration expenses 697)
Operating profit 2 074 1 540 35 3 112
Net finance costs (81) (92) (179)
Profit before tax 1 993 1 448 38 2 933
Taxation (190) (109) (301)
Profit for the period 1 803 1 339 35 2 632
Attributable to:
Equity holders of RMBH 1 690 1 378 23 2 485
Non-controlling interests 113 (39) >100 147
1 803 1 339 35 2 632
Summarised statement of comprehensive income
Six months ended Year ended
31 December 30 June
R million 2009 2008 % 2009
Unaudited Unaudited change Audited
Profit for the period 1 803 1 339 35 2 632
Other comprehensive income, net of
tax
Currency translation differences 1 (21) (27)
Available-for-sale financial assets 25 5 38
Share of other comprehensive income 119 (152)
(542)
of associates
Other comprehensive income for the 145 (168) >100 (531)
period
Total comprehensive income for the 1 948 1 171 66 2 101
period
Total comprehensive income
attributable to:
Equity holders of RMBH 1 825 1 216 50 1 950
Non-controlling interests 123 (45) >100 151
1 948 1 171 66 2 101
Computation of headline earnings
Six months ended Year ended
31 December
30 June
R million 2009 2008 % 2009
Unaudited Unaudited change Audited
Earnings attributable to equity 1 690 1 378 23 2 485
holders
Adjustment for:
Profit on sale of associate - (7) (4)
Impairment of available-for-sale - - 14
assets
Other (1) (2) (5)
Share of adjustment made by
associates:
Loss on sale of shares in - 9 9
subsidiary and associate
Profit on sale of available-for- (26) (15) (16)
sale financial assets
Impairment of available-for-sale - 15 22
financial assets
Loss on sale of advances books 6 67 79
Impairment of goodwill and 26 - 39
intangible assets
Other (3) 4 21
Total tax effect of adjustments - - (4)
Total non-controlling interests in - - (4)
adjustments
Headline earnings
attributable to 1 692 1 449 17 2 636
equity holders
Sources of headline earnings
Six months ended Year ended
31 December 30 June
R million 2009 2008 % 2009
Unaudited Unaudited change Audited
Headline earnings from:
FirstRand 1 363 1 406 (3) 2 138
Discovery 201 131 53 332
OUTsurance 176 205 (14) 405
RMB Structured Insurance (4) 25 (>100) 62
1 736 1 767 (2) 2 937
Other net income/(funding costs)
(44) (318) 86 (301)
Headline earnings 1 692 1 449 17 2 636
Computation of earnings per share
Six months ended Year ended
31 December 30 June
R million 2009 2008 % 2009
Unaudited Unaudited change Audited
Earnings attributable to equity 1 690 1 378 23 2 485
holders
Headline earnings attributable to 1 692 1 449 17 2 636
equity holders
Number of shares in issue (millions) 1 209 1 209 1 209
Weighted average number of shares in 1 199 1 199 1 200
issue (millions)
Earnings per share (cents) 140,9 114,9 23 207,1
Diluted earnings per share (cents)* 140,5 114,5 23 206,7
Headline earnings per share (cents) 141,2 120,8 17 219,7
Diluted headline earnings per 140,8 120,4 17 219,3
share (cents)*
Dividend per share (cents)
Interim 54,0 54,0 - 54,0
Final - - - 45,0
Total 54,0 54,0 - 99,0
Dividend cover (relative to headline 2,6 2,2 2,2
earnings)
* The diluted calculations give cognisance to
the impact of the similar
calcu
