RMBH's diversified portfolio of banking and insurance businesses produced a strong outcome against a volatile and difficult macro background that is only now starting to show signs of improving, with normalised earnings increasing by 42% to R3,6 billion.

It is, however, increasingly evident that global economic activity is likely to experience severe "growth headwinds" over the next few years – notwithstanding radical fiscal and monetary interventions on the part of many developed economies.

Significant monetary and fiscal stimulus, as well as external trade allowed the South African economy to emerge from recession during the 3rd quarter of 2009. Falling inflation and interest rates (now at a 30 year low) eased pressure on real disposable income. However, rising unemployment and uncertainty over the sustainability of the recovery caused credit growth to remain subdued.

The Group's earnings recovery was driven mainly by a modest increase in the FirstRand Banking group's top-line revenues and a reversal of the negative factors that bedevilled the prior year's outcome (namely retail lending bad debts and losses in the international trading portfolios). The resultant outcome reported at the RMBH level was:

Year ended 30 June 2010 R million   Cents per share   % change  
• Attributable earnings 3 607   300,8c   +45  
• Headline earnings 3 594   299,8c   +36  
Normalised earnings 3 567   295,0c   +42  

Total ordinary dividends payable to RMBH shareholders for the year ended 30 June 2010 amounts to 124,0 cents (2009: 99,0 cents), representing a year-on-year increase of 25%, in line with our net underlying dividend receipts.

The precipitous decline in equity markets during the prior year reversed itself in the current financial year (JSE All share index +19%) and market volatility reduced somewhat. The impact of the positive earnings outcome for the year has flowed through to the valuation of the Group's investment portfolio, with intrinsic value increasing by 28% to R38,7 billion.


At the centre, RMBH continues to carry relatively little borrowings. At the end of June 2010 our net borrowings amounted to some R0,75 billion (2009: R0,78 billion), directed largely at the funding raised for the Discovery acquisition in 2008 and the funding of our commitment to Youi (OUTsurance's Australian initiative). At present the only material funding requirement indicated for the current year is some R230 million to support OUTsurance's continued international expansion.

The intrinsic value of the Group's investment portfolio reflected the strong recovery in South African financial sector equities during the year. The values at year end may be summarised as follows:

As at 30 June     %  
R million 2010   2009   change  
Market value of listed interests (FirstRand, Discovery) 35 798   27 655   +29  
Director’s valuation of unlisted interests (OUTsurance, RMBSI) 3 671   3 457   +6  
Net cash resources/investments (754)  (781)   
Total intrinsic value 38 715   30 331   +28  
Per RMBH share (cents) 3 202c 2 509c +28  

At 30 June 2010 RMBH's market capitalisation amounted to R37,7 billion or 3 120 cents per share (2009: R28,4 billion), representing a 2,6% discount (2009: 6,5%) to the Group's underlying intrinsic value.

Dividend payment

We have continued with our stated practice of paying out to shareholders any dividend received from FirstRand as well as the net dividends received from RMBH's other investments, after servicing any funding commitments that we may have at the centre. Consequently, the Board resolved to declare a final dividend of 70,0 cents per share (2009: 45,0 cents). Such final dividend, together with the interim dividend of 54,0 cents brings the total dividends for the year ended 30 June 2010 to 124,0 cents (2009: 99,0 cents). This represents a year-onyear increase of 25% and a dividend cover ratio (on normalised earnings) of 2,4 times (2009: 2,1 times). The apparent divergence from the underlying growth in earnings is due to the fact that the 2009 dividend included RMBH's share of the R100 million extra ordinary dividend paid by RMBSI.


Predominantly sourced from Southern Africa, RMBH's well-diversified income stream is drawn from the full spectrum of financial services. The significant shifts in relative contributions between years can be ascribed to a reversal of the negative factors that suppressed the Banking group's performance in the prior year result, namely retail lending bad debts which started to unwind during the current year and losses in the international trading portfolios of the Investment bank that did not re-occur in the current year.

sources of income


We remain hopeful that the South African economic environment has stabilised.

Whilst top line revenue growth in the financial services sector will remain challenging over the medium term, the retail credit environment is expected to continue to improve. Bad debts will continue to unwind, which will continue to provide support to the current earnings recovery in the Group's retail banking franchises. However, growth in retail advances will remain low as levels of consumer indebtedness are still at historic highs. Corporate balance sheets remain strong and have weathered the cycle well. However, in the current environment investment opportunities remain limited and therefore corporate advances will remain subdued.

All the companies in which RMBH holds an interest continue to invest in their infrastructure in South Africa, particularly where significant growth opportunities have been identified.

FirstRand continues to focus on growing its footprint and building its client franchise in selected African markets. In addition to such investment strategies, given the anticipated pressures on top-line growth, FirstRand's operating franchises continue to focus on cost efficiency.

Both Discovery and OUTsurance are well positioned in their respective market segments and should continue to extract superior growth. Their respective international initiatives should also begin to gain traction during the current year.

We believe the combination of their current growth strategies and the quality of their underlying client franchises will allow the groups in which RMBH is invested to take full advantage of any major improvements in the cycle.


FirstRand, Momentum and Metropolitan Holdings Limited ("Metropolitan") have informed their shareholders that they have reached agreement to merge Momentum and Metropolitan to create the third largest life assurer in South Africa. To facilitate the transaction, FirstRand will unbundle to shareholders its resultant 59,3% interest in the new entity, MMI Holdings Limited ("MMI"). Upon implementation, the unbundling will result in RMBH becoming the most significant shareholder in the MMI group.

RMBH concurs with FirstRand's belief that this transaction is positive for shareholders as it brings two businesses together that have created very successful franchises in different, but complementary, markets and facilitates a significant expansion of the growth prospects for both Momentum and Metropolitan.

In light of the proposed MMI transaction, RMBH has informed shareholders that RMBH is exploring a number of consequential restructuring steps to realign its investment portfolio and to enhance value for RMBH shareholders. The steps being explored as part of this restructuring include:

• the appropriateness of a separation of RMBH`s insurance and banking interests into separately listed entities; and
• possibly increasing RMBH's interest in MMI.

While we have made significant progress in our discussions regarding the proposed restructuring of RMBH, it is not yet appropriate to make a more detailed announcement in this regard. RMBH shareholders should therefore exercise caution when dealing in RMBH shares until further announcements in this regard are made.

For and on behalf of the Board

GT Ferreira P Cooper
Chairman Chief Operating Officer
15 September 2010