Group restructuring

Having obtained the requisite shareholder and regulatory approval, RMBH implemented a far reaching restructuring on 7 March 2011. This included, inter alia, the following steps:

After the restructuring, RMBH's sole interest is its 33,9% investment in FirstRand, one of South Africa's pre-eminent banking groups.

RMBH's results for the financial year ended 30 June 2011 thus represents an amalgam of its attributable share of FirstRand's income (after recognising the change in interest during the year) and its attributable share of the income of its insurance interests up to the unbundling thereof. This, together with accounting for the restructuring itself, gives rise to a number of counter-intuitive outcomes in the reported results.

To overcome the impact of this, the commentary focuses on normalised earnings from continuing operations as its main measurement. A reconciliation of the adjustments made to derive normalised earnings is presented in the accompanying schedules. The computation of normalised earnings has not been audited.

Overview of results

Global economic growth started to moderate in the first half of 2011, particularly in highlyindebted, developed economies and sentiment was further dampened by increased concern over the fiscal health of certain peripheral Eurozone nations.

Factors that weighed on global economic activity included the devastating Japanese earthquake (resulting in the disruption of global supply chains); political unrest in North Africa and the Middle East; adverse weather conditions; and growing demand from emerging market economies (pushing oil and grain prices upwards).

Against this uncertain global economic backdrop, the South African economy held up well, registering quarterly growth rates above 2,5% during the financial year. South African consumers, who benefited from low debt service costs and robust real income growth, were the main drivers behind this expansion. In addition, increased global commodity prices provided support to the South African export sector. However, employment growth, demand for credit and investment spending by the private sector stayed sluggish. Inflation remained within the South African Reserve Bank's ("SARB") target band.

RMBH continued to build on its strong first half performance to produce excellent results for the financial year to 30 June 2011, achieving normalised earnings from continuing operations of R3,09 billion, an increase of 28% on the previous year.

After taking cognisance of the ordinary shares issued during the year, the following outcome was achieved:

  Cents per   % change  
Year ended 30 June 2011 share   on prior year  
• Attributable earnings 321,9c   +60  
• Headline earnings 231,7c   +15  
• Normalised earnings 241,3c   +21  


Sources of income

FirstRand's well-diversified income stream is drawn from the full spectrum of banking services and is predominantly sourced from Southern Africa. RMBH's proportional interest therein may be extrapolated as follows:



At the end of June 2011, RMBH's net borrowings at holding company level amounted to some R1,37 billion (2010: R0,75 billion). We anticipate that borrowings can be maintained at this level.

The intrinsic value of RMBH's investment portfolio reflects the effect of the unbundling that took place during the year, with the values at year end being as follows:

As at 30 June    
R million 2011   2010  
Market value of interest in FirstRand 37 922   30 609  
Net borrowings (1 368)  (754) 
Market value of interest in FirstRand after borrowings 36 554   29 855  
Assets unbundled –   8 860  
Total Intrinsic Value 36 554   38 715  
Per RMBH share (cents) 2 589c   3 202c  

At 30 June 2011 RMBH's market capitalisation amounted to R37,7 billion or 2 665c per share, representing a 2,9% premium to the group's underlying intrinsic value.

Dividend payment

RMBH has traditionally followed the practice of returning substantially all net dividends (after providing for funding and other costs incurred at the centre) received by it in the ordinary course of business to shareholders. It is envisaged that this practice will continue after the group restructuring.

For the year ended 30 June 2011, RMBH's normalised earnings from continuing operations (that is after recognizing the impact of the unbundling of RMI Holdings) amounted to 241,3 cents per share (2010: 199,2 cents).

The Board is of the opinion that RMBH is adequately capitalised at this stage and that the company will be able to meet its obligations in the foreseeable future after payment of the final dividend declared below.

Having due regard to the final dividend receivable from FirstRand and applying the dividend practice outlined above, the Board of RMBH has declared a final dividend of 58,3 cents per share. Such final dividend, together with the interim dividend of 42,7 cents brings the total dividends for the year ended 30 June 2011 to 101,0 cents (2010: 124,0 cents). Such dividend is covered 2,4 times by normalised earnings per share.

In total, an RMBH shareholder who has retained his RMI Holdings shares from the unbundling would have received the following ordinary dividends per share for the year ended 30 June 2011:

         2011   2010   %  
Cents per share Interim   Final   Total   Total   change  
RMBH 42,7   58,3   101,0   124,0    
RMI Holdings 22,8   33,7   56,5   –    
  65,5   92,0   157,5   124,0   +27  

The Board of RMBH is of the view that the level of borrowings that the group currently carries at the centre is appropriate. Consistent with its policy of not retaining surplus resources at the centre, the Board has decided to return the proceeds of the special dividend declared by FirstRand to shareholders. Accordingly, the Board of RMBH has declared a special dividend of 95,0 cents per share.

Outlook for the coming year

Significant disquiet in global markets results in a highly uncertain outlook. We expect that domestic economic conditions will remain subdued in the current financial year. Growth in retail advances will remain low and given current levels of corporate capacity, investment opportunities will be limited and growth in corporate advances is therefore expected to remain subdued.

Given the revenue pressures resulting from such a low growth macro environment, FirstRand continues to drive cost efficiencies.

In addition, FirstRand's operating franchises will continue to focus on opportunities in those market segments that display growth trends, and where they remain under-represented. With the exception of WesBank which anticipates a healthy lending landscape in both corporate and retail portfolios, overall balance sheet growth will be tough to generate. However, non-interest revenue should remain healthy, particularly given FNB's focus on innovation and customer service delivery and the strength of RMB's investing, trading and advisory franchises.

GDP growth in Sub-Saharan Africa is expected to further strengthen in 2011 and 2012 and all of FirstRand's franchises will continue to capitalise on growth opportunities in those countries identified as priorities for expansion. FNB will continue to expand its operating footprint supported by its South African platform and RMB will mine the trade and investment flows between Asia and Africa, leveraging off the existing FNB platforms and its own platform in India.

The restructuring of the RMBH group into focused, separately listed banking (via RMBH) and insurance (via RMI Holdings) groups has given shareholders greater flexibility and transparency in managing their investment in the group.

The quality of FirstRand's operating franchises and their respective strategies domestically and in the rest of Africa should underpin that group's ability to provide us, as shareholders, with sustainable superior returns.

For and on behalf of the Board

GT Ferreira P Cooper
Chairman Chief Operating Officer
14 September 2011