Shareholders are reminded that during the last quarter of the financial year ended 30 June 2011 RMBH completed a far-reaching restructuring, culminating in the distribution to shareholders of RMBH’s insurance interests, now held by separately listed Rand Merchant Insurance Holdings Limited (“Rand Merchant Insurance” or “RMI”).

After the restructuring, RMBH’s sole interest is its 33.9% investment in FirstRand Limited (“FirstRand”), one of South Africa’s pre-eminent banking groups.

As a result of the restructuring:

This, together with accounting for the restructuring itself, gives rise to a number of counter-intuitive outcomes in the reported prior year results.

To overcome the impact of these, the commentary below 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 ongoing legacy of the 2008 financial crisis is one of significant macroeconomic uncertainty. Such uncertainty in major developed economies combined with high levels of government indebtedness, ongoing stress in the European banking system and households continuing to rebuild balance sheets weighed on economic activity. This weakness spilled over into the major emerging economies and growth in countries such as China, India and Brazil which slowed markedly during the latter part of the financial year.

The South African economy was not immune to the global developments and, although growth picked up in the latter part of 2011, it moderated again at the start of 2012. Slowing export growth and falling business confidence reflected muted global economic activity. Supply-side constraints, such as labour action in the mining sector and limited electricity supply, also weighed on macroeconomic performance. This contributed to subdued private sector investment spending.

Consumer demand remained quite resilient throughout the financial year with household spending on durable goods particularly strong. This demand was underpinned by growth in real disposable income and a gradual increase in the uptake of credit by households, particularly unsecured credit. Continued low interest rates provided further support.


In the face of such a challenging background, RMBH continued to build on last year’s strong performance to produce excellent results for the financial year to 30 June 2012, achieving normalised earnings from continuing operations of R4.2 billion, an increase of 35% on the previous year.

On a per share basis, the following outcome from continuing operations was achieved:

  per share   % change  
• Attributable earnings 318.7   (1) 
• Headline earnings 304.9   32  
• Normalised earnings 296.5   23  

Sources of income


At the end of June 2012, RMBH’s net borrowings at holding company level amounted to some R1.3 billion (2011: R1.4 billion). This funding facility matures at end November 2012. Negotiations to extend the facility for a further 5 years are well advanced and we anticipate that future funding costs will be maintained at current levels.

The intrinsic value of RMBH’s investment portfolio reflects the effect of FirstRand’s strong share price performance during the year, with the values at year end as follows:

  As at 30 June  
R million   2012   2011   % change  
Market value of interest in FirstRand   50 416   37 922   33  
Net borrowings   (1 327)  (1 368)    
Total intrinsic value   49 089   36 544   34  
Per RMBH share (cents)   3 477   2 589     

At 30 June 2012 RMBH’s market capitalisation amounted to R49.2 billion or 3 488c per share (2011: 2 665c), representing a 0.3% premium (2011: 2.9%) to RMBH’s underlying intrinsic value.

Dividend payment

RMBH has traditionally followed the practice of returning net dividends (after providing for funding costs incurred at the centre) received by it in the ordinary course of business to shareholders.

For the year ended 30 June 2012, RMBH’s normalised earnings from continuing operations amounted to 296.5 cents per share (2011: 241.3 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 resolved to declare a final dividend of 73.5 cents per share. Such final dividend, together with the interim dividend of 52 cents brings the total dividends for the year ended 30 June 2012 to 125.5 cents (2011: 101.0 cents). Such dividend is covered 2.4 times by normalised earnings per share.

From 1 April 2012 Dividend Withholding Tax (“DWT”) at a rate of 15% is levied on dividends paid to shareholders who are not exempt from DWT. RMBH has accumulated prior year secondary tax (“STC”) credits that have been used to reduce such DWT liability. The position of a non-exempt shareholder may be illustrated as follows:

  Cents   Cents  
Gross dividend declared   73.5  
DWT at 15% (11.0)    
STC credit utilised 3.3     
Net liability for DWT (7.7)  (7.7) 
Net dividend receivable    65.8  

Outlook for the coming year

The macro environment will remain challenging during the 2013 financial year. The global economy is likely to register below average growth and will continue to face significant downside risk.

This will mean that economic activity in South Africa will remain under pressure. GDP growth is currently expected to be 2.5% for the 2013 financial year, and although interest rates are expected to remain flat for the rest of the year, there is downside risk if economic growth slows further.

Growth in retail advances is likely to remain subdued, with mortgage lending expected to continue to lag nominal GDP growth. In addition, given the high levels of recent growth in unsecured and short-term advances in the system, this is also likely to moderate. Corporate lending is expected to remain muted as business confidence has not fully recovered. If, however, the proposed government and public sector infrastructure plans are implemented, this may provide some underpin to growth in advances.

Within the context of these challenges, FirstRand expects to continue to produce good organic growth. Achieving revenue growth remains a challenge, but the FirstRand franchises have compelling strategies to grow top line revenues. Achieving a sustainable ROE and cost-to-income ratio will remain a balancing act between investment and cost management.

During April 2012, our fellow director MH Visser passed away after a tragic car accident. Our friendship and business relationship predated Thys’ joining the RMBH board in 2009. His wise counsel and valued input on strategic matters will be sorely missed at board level.

For and on behalf of the board

GT Ferreira P Cooper
Chairman Chief Executive Officer
12 September 2012