Wrap Text
Unaudited interim results and cash dividend declaration for the six months ended 31 December 2018
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)
UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2018
FirstRand's portfolio of integrated financial services businesses comprises FNB, RMB, WesBank, Aldermore and Ashburton Investments. The group operates in South
Africa, certain markets in sub-Saharan Africa and the UK, and offers a universal set of transactional, lending, investment and insurance products and services.
This announcement covers the unaudited condensed consolidated financial results of FirstRand Limited based on International Financial Reporting Standards (IFRS) for the
six months ended 31 December 2018. The primary results and accompanying commentary are based 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 145 and 146 of the Analysis of financial results booklet on www.firstrand.co.za. Commentary is based on normalised results,
unless otherwise indicated.
FINANCIAL HIGHLIGHTS
IFRS 9 and IFRS 15 were adopted effective 1 July 2018 and the statement of financial position at 1 July 2018 was restated. Other comparatives were not restated, as
allowed by IFRS 9 and IFRS 15. The income statement and statement of comprehensive income for the six months to December 2017 and the year ended 30 June 2018
and earnings-related ratios were not restated. The column headings indicate the basis of presentation.
Group (including Aldermore)
Six months ended Year ended As at
31 December 30 June 1 July
2018 2017 2018 2018
R million IFRS 9 IAS 39 % change IAS 39 IFRS 9
Earnings performance
Basic and diluted normalised earnings per share (cents) 237.8 222.1 7 470.8
Normalised earnings 13 342 12 461 7 26 411
Normalised net asset value per share (cents) 2 202.2 2 014.2 9 2 157.9 2 060.1
Ordinary dividend per share (cents) 139.0 130.0 7 275.0 275.0
ROE (%) 22.3 22.5 23.0
Basic and diluted headline earnings per share (cents) 237.9 224.2 6 472.7
Basic and diluted earnings per share (cents) - IFRS 280.5 227.3 23 473.3
Net asset value per share (cents) - IFRS 2 202.8 2 014.1 9 2 157.9 2 060.1
The effective date of the Aldermore acquisition was 1 April 2018. Any reference to financial information "excluding Aldermore" represents the subtraction of the
Aldermore-specific information from the group's income statement and statement of financial position. No other adjustments relating to the Aldermore acquisition, e.g.
costs associated with the amortisation of intangible asset identified on acquisition, have been made.
Group (excluding Aldermore)
Six months ended Year ended As at
31 December 30 June 1 July
2018 2017 2018 2018
R million IFRS 9 IAS 39 % change IAS 39 IFRS 9
Advances (net of credit impairment) 1 000 505 927 732 8 957 810 950 159
Deposits 1 154 181 1 040 042 11 1 094 270 1 095 066
"FirstRand produced quality topline growth and a superior ROE despite a very challenging operating environment.
FNB's results were impressive - earnings increased 13% on the back of strong growth in customers, transactional volumes, advances and deposits.
RMB's portfolio delivered high quality earnings from both its domestic and rest of Africa activities.
WesBank remained resilient despite competitive pressures and low vehicle sales.
As expected, Aldermore continued to enhance group earnings and ROE.
These results demonstrate the effectiveness of FirstRand's strategy and consistent focus on delivering sustainable returns for shareholders."
Alan Pullinger
CEO
INTRODUCTION
FirstRand Limited is a portfolio of integrated financial services businesses operating in South Africa, certain markets in sub-Saharan Africa and in the UK. Many of these
businesses are leaders in their respective segments and markets, and offer a universal set of transactional, lending, investment and insurance products and services.
The macroeconomic environments in most of the jurisdictions in which the group operates remained challenging in the period to December 2018. Globally it was a mixed
picture with growth slowing in the euro zone, Japan, China and a few emerging economies. Although economic activity in the US remained relatively robust, US financial
markets came under pressure and global financial conditions tightened. The US Federal Reserve has subsequently been more measured in statements relating to rate
increases.
Although global growth remained fairly supportive of commodity prices, tightening financial conditions and increased geopolitical uncertainty resulted in increased risk
aversion and reduced capital flows to emerging economies. The South African Reserve Bank (SARB) increased interest rates, which attracted capital inflows or, at least,
reduced the pace of outflows, as domestic policy uncertainty and political instability continued to weigh on GDP growth, and investor and consumer sentiment.
South African economic activity slowed in the second half of 2018, with rising CPI inflation, moderating wage inflation and elevated personal income taxes constraining
real income (and, by implication, consumer spending) growth. Further pressure was added by rising inflation and slightly higher debt servicing costs after the SARB
increased the repo rate to 6.75% in November 2018.
Low business confidence continues to impact the corporate investment cycle, whilst the government's growing debt burden means the fiscus remains unable to increase
spending in order to boost investment activity.
Similar themes played out in the rest of the sub-Saharan region. Regional economic activity was extremely subdued due to South African macroeconomic weakness,
although the outlook for Botswana was assisted by high diamond prices and the implementation of further structural reforms. The Nigerian economy continues to recover
from its recession and the macroeconomic outlook is improving on the strength of supportive oil prices.
In the UK, the macros continued to be impacted by the uncertain political outcomes relating to its exit from the European Union (which is likely to formally take effect at
the end of March 2019). Notwithstanding this uncertainty, consumer demand and house prices held up reasonably well and the Bank of England is expected to join the
US Federal Reserve and other developed markets in gradually tightening monetary policy.
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. Its approach is to build an integrated financial services value proposition, underpinned by leading digital and data platforms and capabilities.
Group earnings are significantly tilted towards South Africa and are mainly generated by FirstRand's large lending and transactional franchises, which have resulted in
deep and loyal customer bases. Many of the expected competitive and regulatory pressures will, however, target these traditional banking operations, particularly the
transactional activities, and the group remains focused on protecting that large and profitable revenue stream.
At the same time, FirstRand is working hard to find other sources of capital-light revenues and its strategy to deliver integrated financial services to the group's 8.2
million customers in South Africa is gaining traction. This approach, which is underpinned by the disciplined allocation of financial resources and enabled by disruptive
digital and data platforms, allows FirstRand to better optimise the franchise value of its broader portfolio.
The group's strategy outside of its domestic market includes growing its presence and offerings in certain key markets in the rest of Africa, where it believes it can
organically build competitive advantage and scale over time.
In the UK, FirstRand recently acquired Aldermore Group plc (Aldermore), a UK specialist lender. It is still in the process of integrating MotoNovo, a leading second-hand
vehicle finance business the group has operated in the UK for the past nine years, into Aldermore. Once the integration is complete, additional value for shareholders will
be extracted over the medium to longer term through introducing FirstRand's successful financial resource management methodology and unlocking synergies between
MotoNovo and Aldermore.
OVERVIEW OF RESULTS
Despite the challenging macroeconomic backdrop, FirstRand's portfolio of businesses produced quality topline growth. The group continued to strengthen its balance
sheet and protect its return profile. Normalised earnings for the six months ended 31 December 2018 increased 7% with a normalised ROE of 22.3%.
Certain strategic actions taken to expedite the execution of group strategy in the last six to 12 months have resulted in some changes to the composition of earnings at
an operating business level. Although these do not impact like-for-like comparisons at a group level, they are material when assessing the breakdown of sources of
normalised earnings from the portfolio and include the following:
- DirectAxis, previously reported as part of WesBank's earnings, has been moved into a personal loans cluster within FNB, alongside the FNB loans business. This will
allow faster execution of collaboration between FNB and DirectAxis across products and channels, including core transactional accounts where penetration is currently
low.
- MotoNovo, the UK-based vehicle finance business, was also previously reported under WesBank's results, however, until the integration with Aldermore is completed,
the total operational performance of MotoNovo will reside in the London branch. This performance is therefore currently reflected, for the first time, in the results of
FCC/Group Treasury (GTSY) and is completely stripped out of WesBank's performance.
- Following the finalisation of the transaction with Discovery, the Discovery card business has been moved out of FNB into GTSY.
A further component of the performance of GTSY was the approximately R730 million of interest not earned on the capital deployed to purchase Aldermore. In the prior
year, this capital provided a return to GTSY which was not repeated in the current reporting period.
In addition, FCC's performance was negatively affected by the central credit overlay releases in the prior period of >R110 million, the first-time inclusion of the
amortisation of intangible assets associated with the acquisition of Aldermore of R218 million, and an increase in operational expenses.
The table below reflects these structural changes in the breakdown of sources of normalised earnings.
SOURCES OF NORMALISED EARNINGS
Six months ended 31 December Year ended 30 June
2018 % 2017 % 2018 %
R million IFRS 9 composition IAS 39 composition % change IAS 39 composition
FNB 8 665 65 7 668 61 13 15 865 60
- FNB SA* 8 354 7 506 15 592
- FNB Africa* 311 162 273
RMB* 3 321 25 3 154 25 5 7 353 28
WesBank* 957 7 952 8 1 1 854 7
Aldermore 1 037 8 - - - 276 1
FCC (468) (4) 864 7 (>100) 1 414 5
- MotoNovo 271 432 734
- FCC (includes Group Treasury) and other*,**,# (739) 432 680
NCNR preference dividend (170) (1) (177) (1) (4) (351) (1)
Normalised earnings 13 342 100 12 461 100 7 26 411 100
* 31 December 2017 and 30 June 2018 figures have been restated to reflect the changes in the composition of earnings at an operating business level, as described
above, as well as for Group Treasury reallocations.
** Includes FirstRand Limited (company).
# Includes capital endowment, the impact of accounting mismatches and interest rate, foreign currency liquidity and management.
FNB's results reflect another strong operating performance from its domestic franchise, driven by healthy non-interest revenue (NIR) growth on the back of ongoing
customer gains and increased transactional volumes, and high-quality net interest income (NII) growth, particularly from deposit generation. The performance of FNB's
rest of Africa portfolio continued to improve.
RMB's portfolio also delivered a resilient performance driven by good growth in high-quality earnings and solid operational leverage. WesBank delivered a subdued
performance.
The group's performance to December 2018 includes a full six-month post-tax earnings contribution of R1 037 million from Aldermore. There was, however, no
contribution from Aldermore in the comparative period, therefore the commentary below excludes the consolidated Aldermore operational results, except where explicitly
stated otherwise.
Total group NII increased 8% (20% including Aldermore), underpinned by strong growth in deposits of 11% (+29% including Aldermore) and solid advances growth of
9% (+28% including Aldermore), offset by negative capital and deposit endowment impact given the lower average interest rates in the reporting period. Lending margins
at FNB benefited from lower funding costs, although FNB's deposit margins decreased due to the negative endowment impact, competitive pressures and strong growth
in lower-margin deposit products. Lending margins at RMB were supported by higher-yielding transactions and core advances growth of 10% was achieved despite
ongoing competition and the continued discipline in origination to preserve returns. WesBank's retail VAF margins were also impacted by competitive pressures and mix
change in new business. Aldermore's margins remained resilient despite increased competition.
Group NIR increased 7% (8% including Aldermore) and reflects strong fee and commission income growth of 12% supported by higher volumes across FNB's digital and
electronic channels and increased customer numbers. Insurance revenue increased 7%, benefiting from strong volume growth of 5% and 11%, respectively, in funeral
and credit life policies at FNB, resulting in the in-force annual premium equivalent (APE) increasing 37% period-on-period. Fee, commission and insurance income
represents 84% of group operational NIR. As expected, RMB's private equity realisations were slightly lower than the comparative period.
Total cost growth of 10% (16% including Aldermore) continues to trend above inflation due to ongoing investment in insurance and asset management activities,
platforms to extract further efficiencies and the build-out of the group's footprint in the rest of Africa. Overall operating cost growth was negatively impacted by 1% due to
the amortisation of the intangible assets following the Aldermore acquisition. The group's cost-to-income ratio increased from 51.7% to 52.4%.
FirstRand adopted IFRS 9* on 1 July 2018 and (as permitted under the accounting standard) did not restate prior period financial information. As a result, the credit
performance commentary below covers the period from 1 July 2018 to 31 December 2018, for comparability purposes (as December 2017 results were prepared on an
IAS 39 basis).
IFRS 9 had a material impact on the increase in non-performing loans (NPLs) due to:
- the inclusion of interest in suspense (ISP) in NPLs;
- the lengthening of the write-off period from six months to 12 months for retail unsecured loans; and
- a more stringent definition of customer rehabilitation which results in customers staying in NPLs for longer (technical cures).
* For detailed information, refer to the IFRS 9 financial instruments transition report on the group's website, www.firstrand.co.za/InvestorCentre/Pages/ifrs9transition.aspx
In addition, IFRS 9 required FirstRand to move to a forward-looking impairment model from a point-in-time model under IAS 39. This results in earlier recognition of credit
impairments and a significant increase in total balance sheet impairments.
NPLs increased 15% (16% including Aldermore) or R5.0 billion (R5.1 billion including Aldermore) since 1 July 2018 as shown in the table below.
Percentage
point
contribution
to overall
NPL
R million % change increase
Operational NPLs 2 752 11 8
Restructured debt review (D7) 121 3 -
Definition of rehabilitation (technical cures) 258 7 1
Lengthening of write-off period 1 943 - 6
Total 5 074 15 15
Operational NPLs reflect strong book growth, especially in certain unsecured portfolios. IFRS 9-related changes accounted for approximately 7% growth in NPLs, driven
mainly by the lengthening of the write-off period. This performance is within expectations and trend rate, given growth in underlying advances.
The adoption of IFRS 9 did not result in a material increase in the income statement credit impairment charge during the period under review.
The group's credit loss ratio of 96 bps (86 bps including Aldermore) increased 19% (excluding Aldermore) on the back of strong advances growth, but remains below the
group's through-the-cycle range of 100 - 110 bps. Most of the group's lending books are trending in line with expectations.
The credit impairment charge was driven by the following factors:
- an increase in FNB card, reflecting new business strain, particularly on the back of cross-sell and up-sell strategies;
- higher operational NPLs in personal loans, but in line with expectations, given the strong book growth in the prior year and in the six-month period to December 2018.
The charge benefited from active collection strategies;
- a lower charge in residential mortgages, reflecting muted NPL formation on the back of conservative credit extension, and the benefit of a strong collections
performance;
- an improvement in WesBank's SA VAF charge, benefiting from tightening appetite in higher-risk origination, specifically in the self-employed and small business
segments;
- a moderate improvement in MotoNovo's impairment charge, reflecting the benefit of risk cuts over the last 24 months;
- FNB commercial NPLs increased 17% driven by higher collateralised agricultural and commercial property finance portfolios;
- an increase in corporate NPLs due to the migration of certain secured counterparties, with a normalisation of the credit charge in the current period; and
- some improvement in the credit performance in the rest of Africa portfolio, reflecting the benefit of proactive provisioning in the prior financial year, although ongoing
tough macros in some jurisdictions the group operates in resulted in a 9% increase in NPLs since 1 July 2018.
Overall portfolio provisions were flat, with an increase in retail portfolio impairments reflective of ongoing book growth offset by a migration of certain wholesale exposures
into NPL status.
OPERATING 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's pre-tax profits increased 12% to R12.5 billion, driven by another strong performance from its South African business, which grew pre-tax profits 12%. The
turnaround in the rest of Africa portfolio continued. PBT for FNB's rest of Africa businesses improved 21%. FNB produced an ROE of 42.2%.
FNB FINANCIAL HIGHLIGHTS
Six months ended Year ended As at
31 December 30 June 1 July
2018 2017 2018 2018
R million IFRS 9 IAS 39 % change IAS 39 IFRS 9
Normalised earnings 8 665 7 668 13 15 865
Normalised profit before tax 12 512 11 137 12 22 814
- South Africa 11 650 10 425 12 21 669
- Rest of Africa 862 712 21 1 145
Total assets 461 389 431 409 7 447 946 442 646
Total liabilities 454 868 419 359 8 426 472 426 484
Stage 3/NPLs as a % of advances (%) 5.59 3.50 3.80 4.85
Credit loss ratio (%) 1.50 1.38 1.36
ROE (%) 42.2 38.6 38.8
ROA (%) 3.78 3.61 3.62
Cost-to-income ratio (%) 51.0 52.1 52.0
Advances margin (%) 4.26 4.12 4.20
FNB South Africa's performance reflects the success of its strategy to:
- grow and retain core transactional accounts;
- provide market-leading 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's rest of Africa portfolio represents a mix of mature businesses with significant scale and market share (Namibia, Botswana and Swaziland), combined with recently
established (subscale) and start-up businesses, such as Mozambique, Zambia, Tanzania and Ghana.
Whilst the portfolio has shown some recovery in the period under review, with losses reducing in the start-up subsidiaries, its performance continues to be impacted by
tough macros and ongoing investment in the organic build-out strategies.
SEGMENT RESULTS
Year
Six months ended ended
31 December 30 June
2018 2017 % 2018
R million IFRS 9 IAS 39 change IAS 39
Normalised PBT
Retail 7 272 6 561 11 13 739
Commercial 4 378 3 864 13 7 930
Rest of Africa 862 712 21 1 145
Total FNB 12 512 11 137 12 22 814
A breakdown of key performance measures from the South African and rest of Africa businesses is shown below.
% FNB SA Rest of Africa
PBT growth 12 21
Cost increase 10 4
Advances growth 10 6
Deposit growth 11 8
Stage 3/NPLs as a % of advances 5.27 7.88
Credit loss ratio 1.49 1.60
Cost-to-income ratio 48.9 66.0
Operating jaws 2.2 2.5
Despite the negative endowment impact due to lower average interest rates in the period, FNB's total NII increased 11%, driven by strong volume growth in both
advances (+9%) and deposits (+11%).
FNB's focus on customer acquisition and cross-selling into its core transactional retail and commercial customer bases continues to be the main driver of both advances
and deposits growth in the premium and commercial segments.
The table below unpacks the growth in advances and deposits on a segment basis. FNB's success in growing its deposit franchise, particularly in retail, continues to be
driven by cross-sell and product innovation.
SEGMENT ANALYSIS OF ADVANCES AND DEPOSIT GROWTH
Deposit growth Advances growth
Segments % R billion % R billion
Retail 10 21.6 9 24.8
- Consumer 5 4.4 5 2.1
- Premium 13 17.2 10 21.2
- DirectAxis - - 11 1.5
Commercial 12 25.8 11 9.6
FNB Africa 8 3.0 6 3.0
Total FNB 11 50.4 9 37.4
FNB continued to see strong growth in deposits in both retail and commercial, driven by historic customer growth together with specific strategies to gather cash
investment balances.
The mix of FNB's advances growth reflects its targeted, segment-specific origination strategies. The focus has been to lend to main-banked clients, creating a strong
reinforcement to the transactional relationship. Growth in both the premium and consumer segments was driven by unsecured lending origination. In consumer, this was
on the back of writing back to credit appetite after severe risk cuts in previous periods. The very strong growth in premium personal loans was driven by:
- FNB's strategy to displace other providers of credit to its main-banked client base;
- upward migration of customers from consumer to premium; and
- leveraging digital platforms for origination based on customer behaviour.
DirextAxis, which has been transferred from WesBank to FNB, has performed well on the back of strong advances growth of 11%.
Commercial continued to benefit from strong cross-sell momentum and focused asset growth.
The tables below unpack advances at a product level per segment.
Consumer advances
As at As at
31 December 1 July
2018 2017 % 2018
R million IFRS 9 IAS 39 change IFRS 9
Residential mortgages 25 448 23 811 7 24 677
Card 4 707 4 803 (2) 4 712
Personal loans 7 732 6 965 11 7 045
Retail other 2 816 3 076 (8) 2 801
Premium advances
As at As at
31 December 1 July
2018 2017 % 2018
R million IFRS 9 IAS 39 change IFRS 9
Residential mortgages 185 036 174 893 6 180 953
Card 20 092 16 002 26 18 093
Personal loans 12 340 7 597 62 10 153
Retail other 14 166 12 025 18 13 103
Commercial advances
As at As at
31 December 1 July
2018 2017 % 2018
R million IFRS 9 IAS 39 change IFRS 9
Advances 97 546 87 900 11 94 558
The strength and quality of FNB's transactional franchise is clearly demonstrated in the strong NIR growth of 11%, resulting from good growth in customers (total up 4%
to 8.2 million) and transaction volumes. Customer growth per segment is shown in the table below. Approximately half of the growth in premium resulted from upward
migration from consumer.
CUSTOMERS
Growth in
customer
numbers
Customer segment %
Consumer 1
Premium 20
Commercial 5
NIR growth was driven by strong growth in transactional volumes across all segments. Premium saw strong growth in card transactional volumes, lending NIR and digital
volumes, as can be seen in the table below.
CHANNEL VOLUMES
Year
Six months ended ended
31 December 30 June
%
Thousands of transactions 2018 2017 change 2018
ATM/ADT 130 558 121 389 8 243 023
Internet banking 102 756 104 024 (1) 205 200
Banking app 111 687 73 590 52 164 018
Mobile (excluding prepaid) 21 845 22 776 (4) 43 716
Point-of-sale merchants 291 172 246 532* 18 496 673
Card swipes 441 154 391 426* 13 785 405
* The December 2017 numbers for point of sale have been split out into point-of-sale merchants and card swipes. The numbers have been restated due to a refinement
in methodology.
Cost growth continues to trend above inflation at 9%, but is in line with expectations given the level of ongoing investment in platform technology, the insurance, WIM and
rest of Africa growth strategies, and above-inflation wage settlements. Despite these pressures, given the strong topline growth, FNB achieved positive jaws and the
cost-to-income ratio improved to 51.0% (December 2017: 52.1%).
FNB recorded an increase of 19% in NPLs since 1 July 2018, in part reflecting the impact of the adoption of IFRS 9 (extension of write-off periods) for unsecured
advances and more stringent rehabilitation rules).
Operational NPLs in the retail books have increased 10% since 1 July 2018, in line with expectations given strong book growth in unsecured lending, whilst residential
mortgage NPLs reflect a muted increase of 2% since 1 July 2018, given ongoing disciplined origination and a strong collections performance.
NPLs in the commercial book have increased 17% since 1 July 2018, reflecting the expected residual pressure in the agricultural sector given the drought in certain
parts of the country over the last three years, with an improved credit impairment charge from the rest of Africa portfolio given proactive provisioning in the prior financial
year.
Overall provisioning levels have remained robust with the performing book coverage ratio constant at 1.83% (1 July 2018: 1.85%) and the total impairment coverage
ratio remaining stable at 83.2% (1 July 2018: 84.2%).
Insurance revenue increased 12%, benefiting from good volume growth of 5% and 11% in funeral and credit life policies, respectively. New business APE increased 49%
compared to December 2017 and was achieved across all portfolios.
NEW BUSINESS APE
Six months ended
31 December
%
R million 2018 2017 change
Core life products 466 326 43
Underwritten products 142 93 53
Credit life 396 253 57
Total new business APE 1 004 672 49
This resulted in the life insurance in-force policy book growing 14% and in-force APE growing 37% compared to the prior period. Claims paid over the period increased
35%, in line with the growth in the in-force book, impacted by higher sums assured and changes in lapse rules that were implemented in October 2017. The change in
lapse rules was implemented to provide customers with an improved insurance experience in line with FNB's vision to better protect them.
During the current investment cycle, customers opted for lower-risk, fixed income funds, which resulted in FNB Horizon AUM declining 9% to R3.3 billion, whilst the
Ashburton Stable Income fund grew from R4.3 billion to R8.1 billion over the same period. Share trading and stockbroking assets under execution reduced 25% to R57.4
billion, driven by market movement and internal portfolio integration.
Assets under administration on the linked investment service provided (LISP) platform increased from R14.9 billion to R16.3 billion, and customers on the platform
increased to 31 924 with sales through banker and digital channels now enabled via phase one of robo-advice. Trust assets under administration also showed good
growth from R36.9 billion to R37.9 billion, particularly in the philanthropy trust offering. Private client-managed share portfolio AUM remained stable at R44 billion. Assets
under advice amounted to R64.1 billion, including net inflows of R2 billion for the year.
WIM ASSETS
As at As at
31 December 1 July
2018 2017 % 2018
R million IFRS 9 IAS 39 change IFRS 9
FNB Horizon Series AUM 3 307 3 646 (9) 3 588
Assets under advice 64 077 61 131 5 66 812
Assets under administration 16 317 14 915* 9 16 408*
Trust assets under administration 37 893 36 945 3 37 906
Assets under management 43 765 43 650 - 46 775
Assets under execution 57 367 76 098 (25) 70 693
* Restated due to a portion of the business moving to Ashburton Investments.
RMB
RMB represents the group's activities in the corporate and investment banking segments in South Africa, the broader African continent and India. The strategy leverages
an entrenched origination franchise, a growing market-making and distribution product offering, a competitive transactional banking platform and a strong private equity
track record to ensure delivery of an integrated corporate and investment banking (CIB) value proposition to corporate and institutional clients. This diversified business
portfolio, coupled with a disciplined approach to balancing risk, return and growth, is designed to deliver sustainable earnings, balance sheet resilience and market-
leading returns.
RMB FINANCIAL HIGHLIGHTS
Six months ended Year ended As at
31 December 30 June 1 July
2018 2017 2018 2018
R million IFRS 9 IAS 39 % change IAS 39 IFRS 9
Normalised earnings 3 321 3 154 5 7 353
Normalised profit before tax 4 725 4 471 6 10 387
- South Africa 3 762 3 604 4 8 613
- Rest of Africa* 963 867 11 1 774
Total assets 505 557 460 844 10 453 084 453 141
Total liabilities 497 492 451 128 10 442 516 442 855
Stage 3/NPLs as a % of advances (%) 0.98 0.35 0.85 0.92
Credit loss ratio (%) 0.15 - 0.08
ROE (%) 20.5 22.9 25.3
ROA (%) 1.36 1.40 1.64
Cost-to-income ratio (%) 45.7 46.5 43.8
* Includes in-country and cross-border activities.
RMB's diversified portfolio delivered a solid performance, with pre-tax profits increasing 6% to R4.7 billion. The ROE of 20.5% reflects RMB's high-quality earnings and
solid operational leverage and was lower than in the comparative period, due to higher capital levels supporting current strong growth in advances and the impact of the
sovereign downgrade in November 2017. RMB remains disciplined in its financial resource allocation to ensure preservation of returns and has maintained strong credit
provisioning levels.
RMB continues to focus on growing its corporate and institutional client base and revenue pools, which resulted in strong contributions from investment banking and
advisory activities, and solid corporate and transactional banking earnings. In addition, ongoing cost discipline supported continued investment into the enhancement and
transformation of core platforms. The period-on-period performance was impacted by lower private equity realisations.
The rest of Africa portfolio remains key to RMB's growth strategy. The portfolio produced pre-tax profits of R963 million, up 11% on the prior period, which contributed
20% of RMB's overall pre-tax profits. This performance was supported by investment banking, corporate and transactional banking and flow trading activities.
RMB continues to execute on its client-led strategy on the continent by leveraging platforms, expertise and diversified product offerings.
BREAKDOWN OF PROFIT CONTRIBUTION BY ACTIVITY*
Year
Six months ended ended
31 December 30 June
2018 2017 % 2018
R million IFRS 9 IAS 39 change IAS 39
Investment banking and advisory 2 250 1 992 13 4 762
Corporate and transactional banking 1 113 1 012 10 1 977
Markets and structuring 853 787 8 1 616
Investing 471 595 (21) 2 516
Investment management 36 26 38 57
Other 2 59 (97) (541)
Total RMB 4 725 4 471 6 10 387
* To improve peer group comparability, core activities now include the associated endowment earned on capital invested net of group cost allocations. Comparatives
have been restated accordingly.
The investment banking and advisory activities delivered strong growth in an environment characterised by low corporate confidence, subdued economic activity and
a constrained credit cycle, which resulted in some normalisation of the credit charge. However, the franchise continued to deliver solid lending income from prior-year
advances growth and resilient fee income from structuring and arranging mandates both locally and in the rest of Africa. This performance was also underpinned by
higher-margin balance sheet growth, both domestically and cross-border.
RMB's corporate and transactional franchise continued to focus on leveraging its platforms to grow product offerings locally and in the rest of Africa. The results were
underpinned by higher transactional volumes, average deposit balances and good demand for working capital solutions. The global foreign exchange business benefited
from increased client volumes and margins in certain jurisdictions in the rest of Africa.
Markets and structuring delivered an improved performance, driven by a solid performance in soft commodities and the non-repeat of an isolated operational event in the
hard commodities portfolio. The credit trading portfolio produced solid growth, although this was somewhat offset by a softer performance in fixed income. Foreign
exchange activities in SA and the rest of Africa were resilient.
Investing activities produced satisfactory results off a high base, with the level of realisations in the private equity portfolio down marginally period-on-period. This trend is
expected to continue in the second half of the year. Given the macroeconomic environment and the significant realisations in prior periods, annuity earnings have also
come under pressure. The quality and diversity of the Ventures and Corvest portfolios are, however, still reflected in the strong unrealised value which has been
maintained at R3.7 billion. The business remains in an investment cycle and additional investments, which will contribute to earnings growth in future periods, were made
during the period.
Other activities primarily benefited from the reduction of losses in the legacy portfolios, which was offset by increased costs associated with continued investment in the
markets infrastructure platform.
WESBANK
Following the structural changes outlined earlier, WesBank now represents the group's activities in instalment credit, fleet management and related services in the retail,
commercial and corporate segments of South Africa.
The restructuring allows WesBank to focus on protecting and growing its unique and long-standing model of partnering with leading motor manufacturers, suppliers and
dealer groups. This gives WesBank a market-leading point-of-sale presence.
WESBANK FINANCIAL HIGHLIGHTS
Six months ended Year ended As at
31 December 30 June 1 July
2018 2017 2018 2018
R million IFRS 9 IAS 39 % change IAS 39 IFRS 9
Normalised earnings 957 952 1 1 854
Normalised profit before tax 1 361 1 353 1 2 643
Total assets 139 567 138 935 - 142 104 140 734
Total liabilities 137 854 138 035 - 139 643 139 713
Stage 3/NPLs as a % of advances (%) 5.57 4.75 5.15 5.31
Credit loss ratio (%) 1.25 1.41 1.47
ROE (%) 19.6 18.3 17.4
ROA (%) 1.33 1.34 1.27
Cost-to-income ratio (%) 48.0 46.2 46.6
Net interest margin (%) 3.30 3.41 3.31
On a like-for-like basis, with DirectAxis and MotoNovo excluded, normalised earnings increased marginally to R957 million (2017: R952 million) and the business
delivered an ROE of 19.6% and an ROA of 1.33%. Both the retail and corporate VAF businesses had a challenging six months and, in the face of increasing competition,
focused on protecting the origination franchise and return profile through disciplined risk appetite. WesBank's operating model and relationships strengthened with new
partnerships with KTM, Harley Davidson, Triumph and Vespa.
The table below shows the performance of WesBank's various activities period-on-period.
BREAKDOWN OF PROFIT CONTRIBUTION BY ACTIVITY
Year
Six months ended ended
31 December 30 June
2018 2017 % 2018
R million IFRS 9 IAS 39 change IAS 39
Normalised PBT
VAF 1 361 1 353 1 2 643
- Retail SA* 1 171 1 155 1 2 235
- Corporate and commercial 190 198 (4) 408
Total WesBank 1 361 1 353 1 2 643
* Includes MotoVantage.
The performance of the SA retail VAF business benefited from improved impairment levels, down from 1.80% in the prior period to 1.48%. The corporate VAF business,
however, saw a deterioration in credit quality emanating from stress in the transport, mining and construction sectors.
NPLs increased 4% since 1 July 2018, impacted by protracted collection timelines and more customers opting for debt review. In addition, as previously disclosed,
higher-than-expected NPLs in the self-employed and small business segments resulting from operational issues with some scorecards, including third-party data quality,
continued to play out in the reporting period.
Advances in retail VAF grew period-on-period, but margin pressure continued, partly due to increased competitive activity and WesBank's current focus on originating
lower-risk business, which is generally written at lower margins, and a new business origination mix change from fixed to floating-rate business. The full maintenance
leasing (FML) book continued to perform well on the back of meaningful deals signed during the reporting period partly offset by ongoing cost drag.
Total WesBank NIR growth - mainly insurance and fleet revenues - continues, based on new deals written, however, rental revenues benefited from growth of >11% in
the full maintenance leasing book.
WesBank continues to control operational expenditure and invest in process improvements, and whilst the cost-to-income ratio has decreased due to topline pressure,
cost growth is tracking at less than inflation.
ALDERMORE
Aldermore is a UK specialist lender and savings bank, which has grown significantly on the back of a clear strategy to offer simple financial products and solutions to
meet the needs of underserved small and medium-sized enterprises (SMEs), as well as homeowners, professional landlords and savers. At 31 December 2018,
Aldermore had 243 000 customers with advances of £9.4 billion and £8 billion of customer deposits.
Aldermore focuses on specialist lending across five areas: asset finance, invoice finance, SME commercial mortgages, residential mortgages and buy-to-let mortgages. It
is funded primarily by deposits from UK savers. With no branch network, it serves customers and intermediary partners online, by phone and face to face through a
network of eight regional offices located around the UK.
Aldermore's commitment to exceptional service, total transparency and its vision to deliver "banking as it should be" has resulted in a differentiated customer proposition.
ALDERMORE FINANCIAL HIGHLIGHTS
Six months Year
ended ended As at
31 December 30 June 1 July
2018 2018 2018
R million IFRS 9 IAS 39 % change IFRS 9
Normalised earnings 1 037 276 -
Normalised profit before tax 1 369 549 -
Total assets 204 084 189 867 7 189 734
Total liabilities 189 338 176 089 8 176 100
Stage 3/NPLs as a % of advances (%) 1.02 0.38 1.05
Credit loss ratio (%) 0.23 0.12
ROE (%)* 16.0 12.1
ROA (%)* 1.05 0.80
Cost-to-income ratio (%) 47.3 52.5
Net interest margin (%) 3.43 3.15
* In rand terms.
BREAKDOWN OF PROFIT CONTRIBUTION BY ACTIVITY
Six months Year
ended ended
31 December 30 June*
2018 2018
R million IFRS 9 IAS 39
Normalised PBT
Asset finance 461 220
Invoice finance 119 54
SME commercial mortgages 378 160
Buy-to-let mortgages 1 075 433
Residential mortgages 337 154
Central functions (1 001) (472)
Total Aldermore 1 369 549
* Reflects three months' contribution from 1 April 2018.
In the six-month period, Aldermore delivered a strong operational performance, characterised by:
- advances growth of 5% to £9.4 billion;
- customer deposits of £8 billion, up 3%;
- statutory PBT of £74.7 million;
- ROE of 15.8% and an ROA of 1.04% in pound terms; and
- NII of £159 million.
MOTONOVO
MotoNovo profits declined 40% in pound terms to £20.6 million period-on-period. MotoNovo's performance was negatively impacted by:
- lower net interest margins due to funding cost pressures;
- lower new business origination (-18%) in pound terms due to risk cutbacks and competitors benefiting from relatively lower funding costs; and
- ongoing investment drag of findandfundmycar.com, and the costs associated with the terminated diversification strategies.
The MotoNovo VAF impairment charge increased 6% in pound terms as new business focused on lower-risk segments, and legacy business already written matures.
ASHBURTON INVESTMENTS
The asset management activities of the group are represented by Ashburton Investments (Ashburton), which was launched in 2013 as part of FirstRand's strategy to
access broader financial services profit pools.
Ashburton's strategy is to disrupt in alternative investments as regulatory changes have allowed institutions to invest in private market and alternative assets. The group's
track record in origination and structuring presents investors with opportunities to participate in private equity, renewable energy and credit investments (including
investment grade, non-investment grade and mezzanine credit).
Ashburton's portfolio also consists of a traditional range of equity, fixed income and multi-asset funds. Its long-standing international offshore multi-asset range has
recently been strengthened through an investment partnership with Fidelity International. This range is well positioned for South African investors looking to diversify into
international markets.
Ashburton's AUM decreased 2.6% period-on-period from R101 billion to R98 billion. Whilst there were good flows into the fixed income range due to the market cycle
and the strong performance in this range, this was offset by outflows in the offshore multi-asset range as well as structured products. These products are in the process
of being restructured to further align to client needs in current markets. The private markets business continues to deliver inflows on the back of winning new mandates.
Despite a tough year for local financial markets, investment performance continues to show resilience, with the majority of funds delivering solid performances relative to
peer groups.
SEGMENT ANALYSIS OF NORMALISED EARNINGS
Six months ended 31 December Year ended 30 June
2018 % 2017 % 2018 %
R million IFRS 9 composition IAS 39 composition % change IAS 39 composition
Retail 6 604 49 6 127 49 8 12 449 47
- FNB* 5 513 4 886 10 155
- WesBank 820 809 1 560
- MotoNovo 271 432 734
Commercial 3 289 25 2 925 24 12 6 004 23
- FNB 3 152 2 782 5 710
- WesBank 137 143 294
Corporate and investment banking 3 321 25 3 154 25 5 7 353 28
- RMB* 3 321 3 154 7 353
Aldermore** 1 037 8 - - - 276 1
Other (909) (7) 255 2 (>100) 329 1
- FCC (including Group Treasury) and consolidation adjustments (739) 432 680
- NCNR preference dividend (170) (177) (351)
Normalised earnings 13 342 100 12 461 100 7 26 411 100
* Includes rest of Africa.
** After the dividend on the contingent convertible securities of R115 million at 30 June 2018.
MANAGEMENT OF FINANCIAL RESOURCES
The management of the group's financial resources, which it defines as capital, funding and liquidity, and risk capacity, is a critical enabler of 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 (RWA)
is based on the group's macroeconomic outlook and evaluated against available financial resources, considering the requirements of capital providers, regulators and
rating agencies. 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.
The management of the group's financial resources is executed through Group Treasury and is independent of the operating businesses. This ensures the required level
of discipline is applied in the allocation and pricing of financial resources. This also ensures that Group Treasury's mandate is aligned with the portfolio's 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.
The group adopts a disciplined approach to the management of its foreign currency balance sheet. The framework for the management of external debt takes into
account sources of sovereign risk and foreign currency funding capacity, as well as the macroeconomic vulnerabilities of South Africa. The group employs a self-imposed
structural borrowing limit and a liquidity risk limit more onerous than required in terms of regulations.
BALANCE SHEET STRENGTH
Capital and leverage position
Capital and leverage ratios as at 31 December 2018 are summarised below.
Capital Leverage
% CET1 Tier 1 Total Total
Regulatory minimum* 7.5 9.0 11.3 4.0
Internal target 10.0 - 11.0 >12.0 >14.0 >5.0
FirstRand group actual** 12.0 12.6 14.8 7.4
FirstRand Bank actual** 13.1 13.6 16.9 7.2
* Excluding the bank-specific capital requirements, but including the countercyclical buffer requirement for the group.
** Includes the transitional Day 1 impact of IFRS 9. Ratios include unappropriated profits. FirstRand Bank includes foreign branches.
The group's Common Equity Tier 1 (CET1) ratio was 12.0% at 31 December 2018 (June 2018: 11.5%; December 2017: 14.0%). The period-on-period movement in the
CET1 position is unpacked as follows:
- June 2018 vs December 2017: 240 bps decrease due to the acquisition of Aldermore.
- December 2018 vs June 2018: 50 bps increase as a result of:
- ongoing net internal capital generation;
- once-off Discovery card transaction;
- inclusion of minority capital previously excluded; and
- successful optimisation strategies, e.g. securitisation structures.
This was partly offset by the Day 1 transitional impact of IFRS 9 (c.12 bps) on 1 July 2018 and RWA growth tracking asset growth.
Capital planning is undertaken on a three-year forward-looking basis, and the level and composition of capital is determined taking into account businesses' organic
growth plans, corporate transactions and stress-testing scenario outcomes. In addition, the group considers external issues that could impact capital levels, which include
regulatory, accounting and tax changes, as well as macroeconomic conditions and outlook.
The group continues to actively manage its capital composition and, to this end, issued its first Basel III-compliant Additional Tier 1 (AT1) instrument (R2.3 billion) in the
domestic market. It follows the successful issuance of FirstRand Bank's inaugural $500 million Tier 2 bond in the international markets. 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 issuing AT1 and
Tier 2 capital instruments in the domestic and/or international markets. This will ensure sustainable support for ongoing growth initiatives and redemption of existing capital
instruments.
LIQUIDITY POSITION
Given the liquidity risk introduced by its business activities across various currencies and geographies, the group's objective is to optimise its funding profile within
structural and regulatory constraints to enable its businesses to operate in an efficient and sustainable manner. Liquidity buffers are actively managed via the group's pool
of high-quality liquid assets (HQLA) that is available as protection against unexpected stress events or market disruptions, as well as to facilitate the variable liquidity
needs of the operating businesses. The composition and quantum of 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 activities.
The liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) as at 31 December 2018 are summarised below.
LCR NSFR
% Group Bank* Group Bank*
Regulatory minimum 90 90 100 100
Actual 122 130 112 110
Average available HQLA (billion) 216 200 n/a n/a
* Excludes foreign branches.
REGULATORY UPDATE
The Draft Financial Sector Laws Amendment Bill was published for comment by National Treasury in October 2018. In order to support the pending resolution framework,
the bill proposes the necessary amendments to various acts, including the Insolvency Act, South African Reserve Bank Act, Banks Act, Mutual Banks Act, Competition
Act, Financial Markets Act and Insurance Act, with a view to strengthening the ability of the SARB to manage the orderly resolution or winding down of a failing financial
institution with minimum disruption to the broader economy. One of the key amendments included in the bill is the establishment of the Corporation of Deposit Insurance
(CoDI) designed to protect depositors' funds and enhance financial stability.
The bill is awaiting promulgation by parliament before it is enacted, but in the interim, the relevant regulators are continuously engaging with industry to continue working
on the design and finalisation of the outstanding elements of the resolution framework.
DIVIDEND STRATEGY
Given the group's high return profile and strong capital generation, the board has maintained the dividend cover at 1.7x which continues to track below its stated
long-term cover range of 1.8x to 2.2x.
As previously communicated, however, should capital demand increase to support sustainable balance sheet growth, the board will revisit whether it should migrate back
into the stated long-term cover range.
PROSPECTS
Given the structural nature of many of South Africa's challenges, the group believes that domestic fundamentals will not change quickly.
Global financial conditions will prevent the SARB from easing monetary policy despite the low-growth outlook. This, combined with low commodity prices and a further
slowdown in global growth, means that domestic economic activity will remain under pressure for the rest of 2019. Against this backdrop, private sector activities, such
as corporate investment and household consumption, will remain subdued.
In the medium to longer term, given the market-leading positions of its businesses in South Africa and the growth strategies it is executing on, FirstRand considers itself
strategically well positioned to benefit from renewed system growth. FNB's momentum is expected to continue on the back of customer and volume growth, and
cross-sell and up-sell strategies will deliver higher insurance revenues and good deposit and advances growth. RMB's performance will be impacted in the second half of
the year, given the very high level of private equity realisations in the base of the six months to June 2018.
With regard to the rest of Africa, there are signs that economic activity is improving in some of the other sub-Saharan African countries in which FirstRand operates, and
the group expects its portfolio to continue to show an incrementally improved performance.
Given the macro uncertainty in the UK and ongoing investment costs into systems and processes, including MotoNovo's integration, Aldermore's growth trajectory is
expected to slow marginally.
The group continues to target real growth in earnings (defined as real GDP plus CPI) and superior returns. Given the base effect created by the high level of private equity
realisations in the second half of last year, delivering real growth in earnings in the short term will be challenging, however, the current return profile of the group is
expected to remain resilient.
DISCOVERY CARD
FirstRand received the final consideration for the Discovery card transaction on 21 November 2018, with a resultant after-tax profit for the group of approximately R2.3 billion,
which was included in attributable earnings for the period under review. However, given the non-operational nature of the profit, it was excluded from headline and normalised earnings.
At 31 December 2018, FCC included Discovery card advances with a gross value of R4.3 billion, which will be transferred at carrying value.
FNB SWAZILAND
A minority interest in FNB Swaziland will be offered to local investors through a listing on the Swaziland Stock Exchange in the second half of the 2019 financial year.
EVENTS AFTER REPORTING PERIOD
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
Changes to the directorate are outlined below.
Effective date
Appointments
M Vilakazi COO and executive director 1 July 2018
LL von Zeuner Independent non-executive director 1 February 2019
Change in designation
JP Burger Non-executive director 1 September 2018
JJ Durand Alternate non-executive director 3 September 2018
CASH DIVIDEND DECLARATIONS
Ordinary shares
The directors declared a gross cash dividend totalling 139.0 cents per ordinary share out of income reserves for the six months ended 31 December 2018.
DIVIDENDS
Ordinary shares
Six months ended
31 December
Cents per share 2018 2017
Interim (declared 11 March 2019) 139.0 130.0
The salient dates for the interim ordinary dividend are as follows:
Last day to trade cum-dividend Tuesday 2 April 2019
Shares commence trading ex-dividend Wednesday 3 April 2019
Record date Friday 5 April 2019
Payment date Monday 8 April 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 3 April 2019, and Friday, 5 April 2019, both days inclusive.
For shareholders who are subject to dividend withholding tax (DWT), tax will be calculated at 20% (or such lower rate as is applicable if a double taxation agreement
applies for foreign shareholders).
For South African shareholders who are subject to DWT, the net interim dividend after deducting 20% tax will be 111.20000 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
Cents per share dividends
Period:
28 February 2017 - 28 August 2017 393.6
29 August 2017 - 26 February 2018 386.2
27 February 2018 - 27 August 2018 378.3
28 August 2018 - 25 February 2019 381.7
WR JARDINE AP PULLINGER C LOW
Chairman CEO Company secretary
11 March 2019
STATEMENT OF HEADLINE EARNINGS - IFRS
Six months ended Year ended
31 December 30 June
2018 2017 2018
R million IFRS 9 IAS 39 % change IAS 39
Profit for the period 16 337 13 396 22 28 144
NCNR preference shareholders and contingent convertible securities (168) (177) (5) (466)
Non-controlling interests (437) (470) (7) (1 132)
Earnings attributable to ordinary equityholders 15 732 12 749 23 26 546
Adjusted for (2 388) (176) >100 (37)
Gain on investment activities of a capital nature (1 928)* (31) (29)
(Gain)/loss on disposal of available-for-sale assets - (22) 91
Gain on disposal of non-private equity associates (1 082)* - -
Gain on disposal of investments in subsidiaries - (97) (97)
Gain on disposal of property and equipment (70) (27) (63)
Fair value movement on investment properties - (4) (29)
Transfer from foreign currency translation reserve - - 108
Impairment of goodwill - - 12
Impairment of assets in terms of IAS 36 - - 41
Gain from a bargain purchase - - (42)
Other - (30) (31)
Tax effects of adjustments 692* 13 -
Non-controlling interests adjustments - 22 2
Headline earnings 13 344 12 573 6 26 509
* Includes the impact of the gain on the Discovery transaction of c.R3 billion (c.R2.3 billion after tax).
RECONCILIATION FROM HEADLINE TO NORMALISED EARNINGS
Six months ended Year ended
31 December 30 June
2018 2017 2018
IFRS 9 IAS 39 % change IAS 39
R million
Headline earnings 13 344 12 573 6 26 509
Adjusted for (2) (112) (98) (98)
TRS and IFRS 2 liability remeasurement* 64 (137) (54)
Treasury shares** (14) 8 18
IAS 19 adjustment (52) (56) (109)
Private equity-related# - 73 47
Normalised earnings 13 342 12 461 7 26 411
* 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 period, FirstRand's share price increased R1.67 and during the prior period increased by R20.10.
This results in mark-to-market volatility period-on-period being included in the group's IFRS attributable earnings. The normalised results reflect the adjustment to
normalise this period-on-period 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
FirstRand prepared its unaudited condensed consolidated interim financial report in accordance with:
- International Financial Reporting Standard, IAS 34 Interim Financial Reporting;
- framework concepts and the recognition and measurement requirements of IFRS;
- interpretations issued by the IFRS Interpretation Committee (IFRS-IC);
- Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council;
- SAICA Financial Reporting Guides as issued by the Accounting Practices Committee;
- the JSE Listings Requirements; and
- requirements of the Companies Act no. 71 of 2008.
The condensed consolidated interim report for the six months ended 31 December 2018 have not been audited or independently reviewed by the group's external
auditors.
This announcement does not include information pursuant to paragraph 16 A (j) of IAS 34 as allowed by the JSE Listings Requirements. The full interim report, which
include 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 underlying report.
Jaco van Wyk (CA) SA, supervised the preparation of the condensed consolidated financial results.
ACCOUNTING POLICIES
The accounting policies applied in the preparation of the condensed consolidated interim financial report are in terms of IFRS and are consistent with those applied for the
year ended 30 June 2018, except for the adoption of certain IFRS that became effective in the current year.
The condensed consolidated interim financial report is 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.
IFRS 9 - Financial Instruments (IFRS 9) and IFRS 15 - Revenue from Contracts with Customers (IFRS 15) became effective in the current year. IFRS 9, which replaces IAS 39
- Financial Instruments: Recognition and Measurement (IAS 39), had the most significant impact on the group. IFRS 9 introduced a principle-based approach for classifying
financial assets based on the entity's business model and changed the way impairments are calculated on financial assets at amortised cost from the incurred loss model
to the expected loss model.
IFRS 15, which contains a single model that is applied when accounting for contracts with customers, replaced revenue recognition guidance previously included IAS 18
- Revenue (IAS 18) and IFRIC 13 - Customer Loyalty Programmes (IFRIC 13).
The adoption of IFRS 9 and IFRS 15 impacted the group's results on the date of initial adoption, being 1 July 2018. FirstRand prepared an IFRS 9 Transitional Report, on
which a reasonable assurance audit report was provided by the external auditors. The IFRS 9 Transitional Report is available on www.firstrand.co.za/InvestorCentre/IFRS 9.
No other new or amended IFRS become effective for the six months ended 31 December 2018 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.
All normalised entries, as included for the year ended 30 June 2018, remain unchanged following the adoption of IFRS 9, except for the reclassification of an impairment
on a restructured advance. Before the adoption of IFRS 9, gross advances and impairment of advances included an amount in respect of a wholesale advance that was
restructured to an equity investment. The restructure resulted in the group obtaining significant influence over the counterparty and an investment in associate was
recognised. However, for normalised reporting, the amount was classified as an advance rather than an investment in an associate. Given that sufficient time has elapsed
since the restructure, credit risk is now considered insignificant. The exposure is therefore deemed an equity investment rather than an advance and therefore, on
adoption of IFRS 9, the amount is no longer adjusted for normalised reporting.
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.
CONDENSED CONSOLIDATED INCOME STATEMENT - IFRS
Six months ended Year ended
31 December 30 June
2018 2017 2018
R million IFRS 9 IAS 39 % change IAS 39
Net interest income before impairment of advances 30 126 23 734 27 49 098
Impairment and fair value of credit of advances (5 021) (4 052) 24 (8 567)
Net interest income after impairment of advances 25 105 19 682 28 40 531
Non-interest revenue 23 513 21 389 10 44 193
Income from operations 48 618 41 071 18 84 724
Operating expenses (26 811) (23 708) 13 (48 462)
Net income from operations 21 807 17 363 26 36 262
Share of profit of associates after tax 401 283 42 519
Share of profit of joint ventures after tax 86 210 (59) 390
Income before tax 22 294 17 856 25 37 171
Indirect tax (795) (478) 66 (1 077)
Profit before tax 21 499 17 378 24 36 094
Income tax expense (5 162) (3 982) 30 (7 950)
Profit for the period 16 337 13 396 22 28 144
Attributable to
Ordinary equityholders 15 732 12 749 23 26 546
NCNR preference shareholders and contingent convertible securities 168 177 (5) 466
Equityholders of the group 15 900 12 926 23 27 012
Non-controlling interests 437 470 (7) 1 132
Profit for the period 16 337 13 396 22 28 144
Earnings per share (cents)
- Basic 280.5 227.3 23 473.3
- Diluted 280.5 227.3 23 473.3
Headline earnings per share (cents)
- Basic 237.9 224.2 6 472.7
- Diluted 237.9 224.2 6 472.7
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME - IFRS
Six months ended Year ended
31 December 30 June
2018 2017 2018
R million IFRS 9 IAS 39 % change IAS 39
Profit for the period 16 337 13 396 22 28 144
Items that may subsequently be reclassified to profit or loss
Cash flow hedges 77 (99) (>100) 185
Gains arising during the period 500 139 >100 283
Reclassification adjustments for amounts included in profit or loss (393) (7) >100 (26)
Deferred income tax (30) (231) (87) (72)
FVOCI reserve/available-for-sale financial assets (13) (86) (85) (650)
Losses arising during the period (21) (85) (75) (1 009)
Reclassification adjustments for amounts included in profit or loss (1) (22) (95) 91
Deferred income tax 9 21 (57) 268
Exchange differences on translating foreign operations 353 (856) (>100) 1 175
Gain/(losses) arising during the period 353 (856) (>100) 1 175
Share of other comprehensive income/(loss) of associates and joint ventures after tax and
non-controlling interests 29 54 (46) (72)
Items that may not subsequently be reclassified to profit or loss
Remeasurements on defined benefit post-employment plans (33) (43) (23) 38
(Losses)/gains arising during the period (47) (60) (22) 43
Deferred income tax 14 17 (18) (5)
Other comprehensive gain/(loss) for the period 413 (1 030) (>100) 676
Total comprehensive income for the period 16 750 12 366 35 28 820
Attributable to
Ordinary equityholders 16 139 11 729 38 27 217
NCNR preference shareholders and contingent convertible securities 168 177 (5) 466
Equityholders of the group 16 307 11 906 37 27 683
Non-controlling interests 443 460 (4) 1 137
Total comprehensive income for the period 16 750 12 366 35 28 820
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION - IFRS
As at 31 December As at 30 June As at 1 July
2018 2017 2018 2018
R million IFRS 9 IAS 39 IAS 39 IFRS 9
ASSETS
Cash and cash equivalents 87 450 65 805 96 024 96 024
Derivative financial instruments 35 725 53 586 42 499 42 499
Commodities 17 815 15 489 13 424 13 424
Investment securities 224 126 188 840 208 937 211 674
Advances 1 172 544 927 732 1 121 227 1 113 398
- Advances to customers 1 111 824 874 476 1 065 997 1 058 168
- Marketable advances 60 720 53 256 55 230 55 230
Accounts receivable 10 346 9 443 9 884 8 847
Current tax asset 1 096 356 378 850
Non-current assets and disposal groups held for sale - 498 112 112
Reinsurance assets 130 133 84 84
Investments in associates 5 626 5 726 5 537 5 343
Investments in joint ventures 1 818 1 946 1 726 1 726
Property and equipment 17 815 17 859 17 936 17 936
Intangible assets 10 744 1 663 10 847 10 847
Investment properties 814 675 754 754
Defined benefit post-employment asset 36 5 36 36
Deferred income tax asset 3 408 1 936 2 884 4 017
Total assets 1 589 493 1 291 692 1 532 289 1 527 571
EQUITY AND LIABILITIES
Liabilities
Short trading positions 6 056 15 266 9 999 9 999
Derivative financial instruments 41 949 58 102 50 954 50 954
Creditors, accruals and provisions 19 832 16 449 19 620 19 700
Current tax liability 773 415 438 438
Deposits 1 338 621 1 040 042 1 267 448 1 268 244
Employee liabilities 9 034 8 270 11 534 11 534
Other liabilities 5 758 6 511 6 989 6 989
Policyholder liabilities 4 764 4 315 4 593 4 593
Additional Tier 1 and Tier 2 liabilities 28 053 20 048 28 439 28 439
Deferred income tax liability 1 318 958 1 477 1 466
Total liabilities 1 456 158 1 170 376 1 401 491 1 402 356
Equity
Ordinary shares 56 56 56 56
Share premium 8 017 7 985 7 994 7 994
Reserves 115 488 104 912 112 975 107 490
Capital and reserves attributable to ordinary equityholders 123 561 112 953 121 025 115 540
Contingent convertible securities 1 250 - 1 250 1 250
NCNR preference shares 4 519 4 519 4 519 4 519
Capital and reserves attributable to equityholders of the group 129 330 117 472 126 794 121 309
Non-controlling interests 4 005 3 844 4 004 3 906
Total equity 133 335 121 316 130 798 125 215
Total equities and liabilities 1 589 493 1 291 692 1 532 289 1 527 571
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - IFRS
for the six months ended 31 December
Ordinary share capital and ordinary equityholders' funds
NCNR
Defined Reserves preference
Share benefit Share- Foreign attributable shares and
capital post- Cash flow based Available- currency to ordinary contingent Non-
Share Share and share employment hedge payment for-sale translation Other Retained equity- convertible controlling Total
R million capital premium premium reserve reserve reserve reserve reserve reserves* earnings holders securities** interests equity
Balance as at 1 July 2017 56 7 960 8 016 (761) 158 9 (715) 1 690 462 100 025 100 868 4 519 3 781 117 184
Net proceeds of issue of share capital and premium - - - - - - - - - - - - 23 23
Disposal of subsidiaries - - - - - - - - - - - - (27) (27)
Movement in other reserves - - - - - - - - 238 (180) 58 - (79) (21)
Ordinary dividends - - - - - - - - - (7 629) (7 629) - (289) (7 918)
Preference dividends - - - - - - - - - - - (177) - (177)
Transfer (to)/from general risk reserves - - - - - - - - (8) 8 - - - -
Changes in ownership interest of subsidiaries - - - - - - - - - (103) (103) - (25) (128)
Movement in treasury shares - 25 25 - - - - - - (11) (11) - - 14
Total comprehensive income for the period - - - (43) (99) - (86) (841) 49 12 749 11 729 177 460 12 366
Balance as at 31 December 2017 56 7 985 8 041 (804) 59 9 (801) 849 741 104 859 104 912 4 519 3 844 121 316
Balance as at 1 July 2018 56 7 994 8 050 (723) 343 4 (1 361) 2 832 599 111 281 112 975 5 769 4 004 130 798
Restatements for IFRS 9 and IFRS 15 - - - - - - 1 361 - 87 (6 933) (5 485) - (98) (5 583)
Balance as at 1 July 2018 restated 56 7 994 8 050 (723) 343 4 - 2 832 686 104 348 107 490 5 769 3 906 125 215
Net proceeds of issue of share capital and premium - - - - - - - - - - - - (15) (15)
Disposal of subsidiaries - - - - - - - - - - - - - -
Movement in other reserves - - - - - 1 - - (42) 33 (8) - 17 9
Ordinary dividends - - - - - - - - - (8 134) (8 134) - (346) (8 480)
Preference dividends - - - - - - - - - - - (168) - (168)
Transfer to/(from) general risk reserves - - - - - - - - (125) 125 - - - -
Changes in ownership interest of subsidiaries - - - - - - - - - (14) (14) - - (14)
Movement in treasury shares - 23 23 - - - - - - 15 15 - - 38
Total comprehensive income for the period - - - (33) 77 - - 346 17 15 732 16 139 168 443 16 750
Balance as at 31 December 2018 56 8 017 8 073 (756) 420 5 - 3 178 536 112 105 115 488 5 769 4 005 133 335
* Other reserves include FVOCI.
** The current amount for NCNR preference shares is R4 519 million and R1 250 million for the contingent convertible securities.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - IFRS
Six months ended Year ended
31 December 30 June
2018 2017 2018
R million IFRS 9 IAS 39 IAS 39
Cash generated from operating activities
Interest and fee commission receipts 70 366 58 490 124 420
Trading and other income 1 250 1 410 4 693
Interest payments (28 994) (19 724) (40 941)
Other operating expenses (22 326) (19 182) (37 177)
Dividends received 2 151 2 889 5 649
Dividends paid (8 302) (7 806) (15 387)
Dividends paid to non-controlling interests (346) (289) (923)
Taxation paid (5 209) (4 113) (9 414)
Cash generated from operating activities 8 590 11 675 30 920
Movement in operating assets and liabilities
Liquid assets and trading securities (15 291) (21 231) (27 540)
Advances (43 186) (42 808) (90 785)
Deposits 60 667 61 484 126 565
Movement in accounts receivable and creditors (869) (1 150) (990)
Employee liabilities (5 663) (4 902) (5 220)
Other operating liabilities (9 832) (4 947) (3 774)
Net cash generated from operating activities (5 584) (1 879) 29 176
Cash flows from investing activities
Acquisition of investments in associates (73) (176) (308)
Proceeds on disposal of investments in associates 1 164 11 2 276
Acquisition of investments in joint ventures (44) (354) (361)
Acquisition of investments in subsidiaries - - (9 634)
Proceeds on disposal of investments in subsidiaries - 212 212
Acquisition of property and equipment (1 730) (1 934) (3 577)
Proceeds on disposal of property and equipment 500 218 519
Acquisition of intangible assets and investment properties (271) (101) (586)
Proceeds on disposal of intangible assets and investment properties - - 8
Proceeds on disposal of non-current assets held for sale 326 219 219
Net cash outflow from investing activities (128) (1 905) (11 232)
Cash flows from financing activities
Proceeds from the issue of other liabilities 1 126 656 1 673
Redemption of other liabilities (3 970) - (862)
Proceeds from the issue of additional Tier 1 and Tier 2 liabilities 2 265 2 750 9 823
Repayment of additional Tier 1 and Tier 2 liabilities (2 701) (1 629) (1 272)
Acquisition of additional interest in subsidiaries from non-controlling interests (14) (23) (45)
Issue of share of additional interest in subsidiaries from non-controlling interests (15) 23 14
Net cash inflow/(outflow) from financing activities (3 309) 1 777 9 331
Net increase in cash and cash equivalents (9 021) (2 007) 27 275
Cash and cash equivalents at the beginning of the year 96 024 68 483 68 483
Effect of exchange rate changes on cash and cash equivalents 447 (671) 266
Cash and cash equivalents at the end of the period 87 450 65 805 96 024
Mandatory reserve balances included above* 27 521 25 919 26 303
* 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.
RECONCILIATION OF NORMALISED TO IFRS CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 31 December 2018 IFRS 9
Margin related
Private items included Private equity Other headline TRS and IFRS 2
equity Treasury in fair value IAS 19 subsidiary earnings liability
R million Normalised expenses shares* income adjustment realisations adjustments remeasurement IFRS
Net interest income before impairment of advances 29 406 - - 682 - - - 38 30 126
Impairment charge (5 021) - - - - - - - (5 021)
Net interest income after impairment of advances 24 385 - - 682 - - - 38 25 105
Total non-interest revenue 21 561 17 14 (682) - - 3 080 10 24 000
- Operational non-interest revenue 21 080 17 8 (682) - - 3 080 10 23 513
- Share of profit of associates and joint ventures after tax 481 - 6 - - - - - 487
Income from operations 45 946 17 14 - - - 3 080 48 49 105
Operating expenses (26 729) (17) - - 72 - - (137) (26 811)
Income before tax 19 217 - 14 - 72 - 3 080 (89) 22 294
Indirect tax (795) - - - - - - - (795)
Profit before tax 18 422 - 14 - 72 - 3 080 (89) 21 499
Income tax expense (4 475) - - - (20) - (692) 25 (5 162)
Profit for the period 13 947 - 14 - 52 - 2 388 (64) 16 337
Attributable to
NCNR preference shareholders and contingent convertible
securities (168) - - - - - - - (168)
Non-controlling interests (437) - - - - - - - (437)
Ordinary equityholders of the group 13 342 - 14 - 52 - 2 388 (64) 15 732
Headline and normalised earnings adjustments - - (14) (52) - (2 388) 64 (2 390)
Normalised earnings attributable to ordinary equityholders of the
group 13 342 - - - - - - - 13 342
* FirstRand shares held for client trading activities.
RECONCILIATION OF NORMALISED TO IFRS CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 31 December 2017 IAS 39
Margin related
Private items included Private equity Other headline TRS and IFRS 2
equity Treasury in fair value IAS 19 subsidiary earnings liability
R million Normalised expenses shares* income adjustment realisations adjustments remeasurement IFRS
Net interest income before impairment of advances 24 565 - - (878) - - - 47 23 734
Impairment charge (4 052) - - - - - - - (4 052)
Net interest income after impairment of advances 20 513 - - (878) - - - 47 19 682
Total non-interest revenue 20 002 201 (8) 878 - (97) 211 695 21 882
- Operational non-interest revenue 19 514 201 (13) 878 - (97) 211 695 21 389
- Share of profit of associates and joint ventures after tax 488 - 5 - - - - - 493
Income from operations 40 515 201 (8) - - (97) 211 742 41 564
Operating expenses (23 033) (201) - - 78 - - (552) (23 708)
Income before tax 17 482 - (8) - 78 (97) 211 190 17 856
Indirect tax (478) - - - - - - - (478)
Profit before tax 17 004 - (8) - 78 (97) 211 190 17 378
Income tax expense (3 894) - - - (22) - (13) (53) (3 982)
Profit for the period 13 110 - (8) - 56 (97) 198 137 13 396
Attributable to
NCNR preference shareholders and contingent convertible
securities (177) - - - - - - - (177)
Non-controlling interests (472) - - - - 24 (22) - (470)
Ordinary equityholders of the group 12 461 - (8) - 56 (73) 176 137 12 749
Headline and normalised earnings adjustments - - 8 - (56) 73 (176) (137) (288)
Normalised earnings attributable to ordinary equityholders of the
group 12 461 - - - - - - - 12 461
* FirstRand shares held for client trading activities.
RECONCILIATION OF NORMALISED TO IFRS CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2018 IAS 39
Margin related
Private items included Private equity Other headline TRS and IFRS 2
equity Treasury in fair value IAS 19 subsidiary earnings liability
R million Normalised expenses shares* income adjustment realisations adjustments remeasurement IFRS
Net interest income before impairment of advances 51 254 - - (2 252) - - - 96 49 098
Impairment charge (8 567) - - - - - - - (8 567)
Net interest income after impairment of advances 42 687 - - (2 252) - - - 96 40 531
Total non-interest revenue 41 926 320 (18) 2 252 - (27) 92 557 45 102
- Operational non-interest revenue 41 012 320 (13) 2 252 - (27) 92 557 44 193
- Share of profit of associates and joint ventures after tax 914 - (5) - - - - - 909
Income from operations 84 613 320 (18) - - (27) 92 653 85 633
Operating expenses (47 664) (320) - - 151 - (53) (576) (48 462)
Income before tax 36 949 - (18) - 151 (27) 39 77 37 171
Indirect tax (1 077) - - - - - - - (1 077)
Profit before tax 35 872 - (18) - 151 (27) 39 77 36 094
Income tax expense (7 865) - - - (42) (20) - (23) (7 950)
Profit for the year 28 007 - (18) - 109 (47) 39 54 28 144
Attributable to
NCNR preference shareholders and contingent convertible
securities (466) - - - - - - - (466)
Non-controlling interests (1 130) - - - - - (2) - (1 132)
Ordinary equityholders of the group 26 411 - (18) - 109 (47) 37 54 26 546
Headline and normalised earnings adjustments - - 18 - (109) 47 (37) (54) (135)
Normalised earnings attributable to ordinary equityholders of the
group 26 411 - - - - - - - 26 411
* FirstRand shares held for client trading activities.
RECONCILIATION OF NORMALISED TO IFRS CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2018
IFRS 9
Treasury
R million Normalised shares* IFRS
ASSETS
Cash and cash equivalents 87 450 - 87 450
Derivative financial instruments 35 725 - 35 725
Commodities 17 815 - 17 815
Investment securities 224 147 (21) 224 126
Advances 1 172 544 - 1 172 544
- Advances to customers 1 111 824 - 1 111 824
- Marketable advances 60 720 - 60 720
Accounts receivable 10 346 - 10 346
Current tax asset 1 096 - 1 096
Non-current assets and disposal groups held for sale - - -
Reinsurance assets 130 - 130
Investments in associates 5 626 - 5 626
Investments in joint ventures 1 766 52 1 818
Property and equipment 17 815 - 17 815
Intangible assets 10 744 - 10 744
Investment properties 814 - 814
Defined benefit post-employment asset 36 - 36
Deferred income tax asset 3 408 - 3 408
Total assets 1 589 462 31 1 589 493
EQUITY AND LIABILITIES
Liabilities
Short trading positions 6 056 - 6 056
Derivative financial instruments 41 949 - 41 949
Creditors, accruals and provisions 19 832 - 19 832
Current tax liability 773 - 773
Deposits 1 338 621 - 1 338 621
Employee liabilities 9 034 - 9 034
Other liabilities 5 758 - 5 758
Policyholder liabilities 4 764 - 4 764
Additional Tier 1 and Tier 2 liabilities 28 053 - 28 053
Deferred income tax liability 1 318 - 1 318
Total liabilities 1 456 158 - 1 456 158
Equity
Ordinary shares 56 - 56
Share premium 8 056 (39) 8 017
Reserves 115 418 70 115 488
Capital and reserves attributable to ordinary equityholders 123 530 31 123 561
Contingent convertible securities 1 250 1 250
NCNR preference shares 4 519 - 4 519
Capital and reserves attributable to equityholders of the group 129 299 31 129 330
Non-controlling interests 4 005 - 4 005
Total equity 133 304 31 133 335
Total equities and liabilities 1 589 462 31 1 589 493
* FirstRand shares held for client trading activities.
RECONCILIATION OF NORMALISED TO IFRS CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2017
IAS 39
Treasury
R million Normalised shares* IFRS
ASSETS
Cash and cash equivalents 65 805 - 65 805
Derivative financial instruments 53 586 - 53 586
Commodities 15 489 - 15 489
Investment securities 188 928 (88) 188 840
Advances 927 732 - 927 732
- Advances to customers 874 476 - 874 476
- Marketable advances 53 256 53 256
Accounts receivable 9 443 - 9 443
Current tax asset 356 - 356
Non-current assets and disposal groups held for sale 498 - 498
Reinsurance assets 133 - 133
Investments in associates 5 726 - 5 726
Investments in joint ventures 1 890 56 1 946
Property and equipment 17 859 - 17 859
Intangible assets 1 663 - 1 663
Investment properties 675 - 675
Defined benefit post-employment asset 5 - 5
Deferred income tax asset 1 936 - 1 936
Total assets 1 291 724 (32) 1 291 692
EQUITY AND LIABILITIES
Liabilities
Short trading positions 15 266 - 15 266
Derivative financial instruments 58 102 - 58 102
Creditors, accruals and provisions 16 449 - 16 449
Current tax liability 415 - 415
Deposits 1 040 042 - 1 040 042
Employee liabilities 8 270 - 8 270
Other liabilities 6 511 - 6 511
Policyholder liabilities 4 315 - 4 315
Additional Tier 1 and Tier 2 liabilities 20 048 - 20 048
Deferred income tax liability 958 - 958
Total liabilities 1 170 376 - 1 170 376
Equity
Ordinary shares 56 - 56
Share premium 8 056 (71) 7 985
Reserves 104 873 39 104 912
Capital and reserves attributable to ordinary equityholders 112 985 (32) 112 953
Contingent convertible securities - - -
NCNR preference shares 4 519 - 4 519
Capital and reserves attributable to equityholders of the group 117 504 (32) 117 472
Non-controlling interests 3 844 - 3 844
Total equity 121 348 (32) 121 316
Total equities and liabilities 1 291 724 (32) 1 291 692
* FirstRand shares held for client trading activities.
RECONCILIATION OF NORMALISED TO IFRS CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2018
IAS 39
Treasury
R million Normalised shares* IFRS
ASSETS
Cash and cash equivalents 96 024 - 96 024
Derivative financial instruments 42 499 - 42 499
Commodities 13 424 - 13 424
Investment securities 209 004 (67) 208 937
Advances 1 121 227 - 1 121 227
- Advances to customers 1 065 997 - 1 065 997
- Marketable advances 55 230 - 55 230
Accounts receivable 9 884 - 9 884
Current tax asset 378 - 378
Non-current assets and disposal groups held for sale 112 - 112
Reinsurance assets 84 - 84
Investments in associates 5 537 - 5 537
Investments in joint ventures 1 680 46 1 726
Property and equipment 17 936 - 17 936
Intangible assets 10 847 - 10 847
Investment properties 754 - 754
Defined benefit post-employment asset 36 - 36
Deferred income tax asset 2 884 - 2 884
Total assets 1 532 310 (21) 1 532 289
EQUITY AND LIABILITIES
Liabilities
Short trading positions 9 999 - 9 999
Derivative financial instruments 50 954 - 50 954
Creditors, accruals and provisions 19 620 - 19 620
Current tax liability 438 - 438
Deposits 1 267 448 - 1 267 448
Employee liabilities 11 534 - 11 534
Other liabilities 6 989 - 6 989
Policyholder liabilities 4 593 - 4 593
Additional Tier 1 and Tier 2 liabilities 28 439 - 28 439
Deferred income tax liability 1 477 - 1 477
Total liabilities 1 401 491 - 1 401 491
Equity
Ordinary shares 56 - 56
Share premium 8 056 (62) 7 994
Reserves 112 934 41 112 975
Capital and reserves attributable to ordinary equityholders 121 046 (21) 121 025
Contingent convertible securities 1 250 - 1 250
NCNR preference shares 4 519 - 4 519
Capital and reserves attributable to equityholders of the group 126 815 (21) 126 794
Non-controlling interests 4 004 - 4 004
Total equity 130 819 (21) 130 798
Total equities and liabilities 1 532 310 (21) 1 532 289
* FirstRand shares held for client trading activities.
RECONCILIATION OF NORMALISED TO IFRS CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 1 July 2018
IFRS 9
Treasury
R million Normalised shares* IFRS
ASSETS
Cash and cash equivalents 96 024 - 96 024
Derivative financial instruments 42 499 - 42 499
Commodities 13 424 - 13 424
Investment securities 211 741 (67) 211 674
Advances 1 113 398 - 1 113 398
- Advances to customers 1 058 168 - 1 058 168
- Marketable advances 55 230 - 55 230
Accounts receivable 8 847 - 8 847
Current tax asset 850 - 850
Non-current assets and disposal groups held for sale 112 - 112
Reinsurance assets 84 - 84
Investments in associates 5 343 - 5 343
Investments in joint ventures 1 680 46 1 726
Property and equipment 17 936 - 17 936
Intangible assets 10 847 - 10 847
Investment properties 754 - 754
Defined benefit post-employment asset 36 - 36
Deferred income tax asset 4 017 - 4 017
Total assets 1 527 592 (21) 1 527 571
EQUITY AND LIABILITIES
Liabilities
Short trading positions 9 999 - 9 999
Derivative financial instruments 50 954 - 50 954
Creditors, accruals and provisions 19 700 - 19 700
Current tax liability 438 - 438
Deposits 1 268 244 - 1 268 244
Employee liabilities 11 534 - 11 534
Other liabilities 6 989 - 6 989
Policyholder liabilities 4 593 - 4 593
Additional Tier 1 and Tier 2 liabilities 28 439 - 28 439
Deferred income tax liability 1 466 - 1 466
Total liabilities 1 402 356 - 1 402 356
Equity
Ordinary shares 56 - 56
Share premium 8 056 (62) 7 994
Reserves 107 449 41 107 490
Capital and reserves attributable to ordinary equityholders 115 561 (21) 115 540
Contingent convertible securities 1 250 - 1 250
NCNR preference shares 4 519 - 4 519
Capital and reserves attributable to equityholders of the group 121 330 (21) 121 309
Non-controlling interests 3 906 - 3 906
Total equity 125 236 (21) 125 215
Total equities and liabilities 1 527 592 (21) 1 527 571
* FirstRand shares held for client trading activities.
Transition impact on IFRS consolidated financial position
as at 1 July 2018
IFRS 9 adjustments
As reported Restated Total restated
30 June 2018 Total IFRS 9 1 July 2018 as at
R million IAS 39 Reclassification Remeasurement ECL impairment ISP adjustments for IFRS 9 IFRS 15 1 July 2018
ASSETS
Investment securities 208 937 1 010 1 844 (117) - 2 737 211 674 - 211 674
Advances 1 121 227 (65) 238 (8 598)* 596 (7 829) 1 113 398 - 1 113 398
Accounts receivable 9 884 (1 010) - (27) - (1 037) 8 847 - 8 847
Current tax asset 378 2 (8) 478 - 472 850 - 850
Investments in associates and joint ventures 7 263 65 - (259) - (194) 7 069 - 7 069
Deferred income tax asset 2 884 (2) (382) 1 683 (166) 1 133 4 017 - 4 017
Other financial assets 138 523 - - - - - 138 523 - 138 523
Non-financial assets 43 193 - - - - - 43 193 - 43 193
Total assets 1 532 289 - 1 692 (6 840) 430 (4 718) 1 527 571 - 1 527 571
EQUITY AND LIABILITIES
Liabilities
Creditors, accruals and provisions 19 620 - - 6 - 6 19 626 74 19 700
Current tax liability 438 - - - - - 438 - 438
Deposits 1 267 448 - 796 - - 796 1 268 244 - 1 268 244
Other liabilities 6 989 - - - - - 6 989 - 6 989
Deferred income tax liability 1 477 - - (11) - (11) 1 466 - 1 466
Other financial liabilities 79 393 - - - - - 79 393 - 79 393
Non-financial liabilities 26 126 - - - - - 26 126 - 26 126
Total liabilities 1 401 491 - 796 (5) - 791 1 402 282 74 1 402 356
Equity
Ordinary shares 56 - - - - - 56 - 56
Share premium 7 994 - - - - - 7 994 - 7 994
Reserves 112 975 9 887 (6 737) 430 (5 411) 107 564 (74) 107 490
Capital and reserves attributable to ordinary equityholders 121 025 9 887 (6 737) 430 (5 411) 115 614 (74) 115 540
Contingent convertible securities 1 250 - - - - - 1 250 - 1 250
NCNR preference shares 4 519 - - - - - 4 519 - 4 519
Capital and reserves attributable to equityholders of the
group 126 794 9 887 (6 737) 430 (5 411) 121 383 (74) 121 309
Non-controlling interests 4 004 (9) 9 (98) - (98) 3 906 - 3 906
Total equity 130 798 - 896 (6 835) 430 (5 509) 125 289 (74) 125 215
Total equities and liabilities 1 532 289 - 1 692 (6 840) 430 (4 718) 1 527 571 - 1 527 571
* Net of ISP of R2 241 million.
RECONCILIATION OF IFRS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
as at 1 July 2018
Ordinary share capital and ordinary equityholders' funds
NCNR
Defined preference
Share benefit Foreign Reserves shares and
capital post- Share-based Available- currency attributable to contingent
and share employment Cash flow payment for-sale translation Other Retained ordinary convertible Non-controlling
R million premium reserve hedge reserve reserve reserve reserve reserves* earnings equityholders securities interests Total equity
Balance as at 30 June 2018
IAS 39 8 050 (723) 343 4 (1 361) 2 832 599 111 281 112 975 5 769 4 004 130 798
Opening retained earnings
adjustment for IFRS 9 - - - - 1 361 - 87 (6 859) (5 411) - (98) (5 509)
Reclassification - - - - 1 361 - 84 (1 436) 9 - (9) -
Remeasurement - - - - - - - 887 887 - 9 896
ECL impairment - - - - - - 3 (6 740) (6 737) - (98) (6 835)
ISP - - - - - - - 430 430 - - 430
Opening retained earnings
adjustment for IFRS 15 - - - - - - - (74) (74) - - (74)
Balance as at 1 July 2018 8 050 (723) 343 4 - 2 832 686 104 348 107 490 5 769 3 906 125 215
* Other reserves include the FVOCI reserve.
FAIR VALUE MEASUREMENTS
Additional disclosures for level 3 financial instruments
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.
As at 31 December 2018 IFRS 9
R million Transfers in Transfers out Reasons for significant transfer in
Level 1 1 102 - It is the group's policy to classify debt investment securities qualifying as
HQLA, that are under the control of the Group Treasurer, as marketable
advances. The underlying debt securities held in this specific portfolio of
marketable advances are listed and actively traded. It is therefore more
appropriate to reflect these advances in level 1 of the fair value hierarchy.
Level 2 37 - Investment securities, derivatives and other liabilities were transferred into
level 2 as the inputs used in determining their fair value became observable
during the period.
Level 3 - (1 139) There were no transfers into level 3.
Total transfers 1 139 (1 139)
As at 30 June 2018 IAS 39
R million Transfers in Transfers out Reasons for significant transfer in
Level 1 - - There were no transfers into level 1.
Level 2 34 (1 101) Certain over-the-counter equity options have been transferred to level
2 in the current year, because the inputs used in the valuation of these
positions have become observable as the maturity of these trades are
less than 12 months.
Level 3 1 101 (34) Market volatilities are only available for a limited range of strike prices.
The further away over-the-counter equity options are from their trade
date, the more likely it becomes that their strike prices are outside the
prevailing range of strike prices for which volatilities are available.
During the year end the observability of volatilities used in determining
the fair value of certain over-the-counter options became unobservable
and resulted in the transfer into level 3 of the fair value hierarchy.
Total transfers 1 135 (1 135)
There were no transfers in or out of the various levels for the financial period ended 31 December 2017.
CONTINGENCIES AND COMMITMENTS
As at As at
31 December 30 June
2018 2017 2018
R million IFRS 9 IAS 39 % change IAS 39
Contingencies and commitments
Guarantees (endorsements and performance guarantees) 38 000 35 028 8 36 977
Letters of credit 9 891 8 329 19 10 681
Total contingencies 47 891 43 357 10 47 658
Irrevocable commitments 128 629 114 604 12 126 631
Committed capital expenditure 1 981 2 659 (25) 2 915
Operating lease commitments 3 495 3 742 (7) 3 588
Other 141 222 (36) 166
Contingencies and commitments 182 137 164 584 11 180 958
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 raised for liabilities that are expected to materialise. 211 183 15 181
Commitments
Commitments in respect of capital expenditure and long-term investments approved
by the directors. 1 981 2 659 (25) 2 915
NUMBER OF ORDINARY SHARES IN ISSUE
Six months ended 31 December Year ended 30 June
2018 2017 2018
IFRS 9 Normalised IAS 39 Normalised IAS 39 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 5 609 488 001 5 609 488 001
Less: treasury shares (325 902) - (1 314 888) - (1 045 515) -
- Shares for client trading* (325 902) - (1 314 888) - (1 045 515) -
Number of shares in issue (after treasury shares) 5 609 162 099 5 609 488 001 5 608 173 113 5 609 488 001 5 608 442 486 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 5 609 488 001 5 609 488 001
Less: treasury shares (439 558) - (1 656 596) - (1 363 218) -
- Shares for client trading* (439 558) - (1 656 596) - (1 363 218) -
Basic and diluted weighted average number of
shares in issue 5 609 048 443 5 609 488 001 5 607 831 405 5 609 488 001 5 608 124 783 5 609 488 001
* For normalised reporting, shares held for client trading activities are treated as externally issued.
COMPANY INFORMATION
DIRECTORS
WR Jardine (chairman), AP Pullinger (chief executive officer), HS Kellan (financial director), M Vilakazi (chief operating officer), MS Bomela, HL Bosman, JP Burger,
JJ Durand (alternate), GG Gelink, NN Gwagwa, F Knoetze, RM Loubser, PJ Makosholo, TS Mashego, EG Matenge-Sebesho, AT Nzimande, LL von Zeuner, T Winterboer
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 1820
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.
4 Lisbon Lane
Waterfall City
Jukskei View
2090
Deloitte & Touche
Deloitte Place
The Woodlands
20 Woodlands Drive
Woodmead, Sandton
2052
12 March 2019
Date: 12/03/2019 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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