Wrap Text
Unaudited Interim Results and Cash Dividend Declaration for the six months ended 31 December 2013
FirstRand Limited
Registration No: 1966/010753/06
JSE code: FSR ISIN: ZAE000066304
NSX share code: FST
Certain entities within the FirstRand Group are Authorised Financial Services and Credit Providers
UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2013
Introduction
This announcement covers the unaudited financial results of FirstRand Limited (FirstRand or the Group) based on International Financial Reporting
Standards (IFRS) for the six months ended 31 December 2013.
The primary results and accompanying commentary are presented 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. The prior year numbers have been restated as a
result of the adoption of new and revised IFRS requirements.
Normalised results include a condensed consolidated income statement, statement of comprehensive income, statement of financial position,
statement of cash flows and a statement of changes in equity. A detailed description of the difference between normalised and IFRS results is
provided on www.firstrand.co.za. Commentary is based on normalised results, unless indicated otherwise.
Jaco van Wyk, CA(SA), supervised the preparation of the condensed consolidated financial results.
Financial highlights
Six months ended Year ended
31 December 30 June
2013 2012* % change 2013*
Normalised earnings (R million) 8 691 7 243 20 15 420
Diluted normalised earnings per share (cents) 154.2 128.5 20 273.5
Normalised net asset value per share (cents) 1 342.9 1 182.9 14 1 289.4
Dividend per ordinary share (cents)** 77.0 55.0 40 136.0
Normalised return on equity (%) 23.4 22.3 22.7
* Refer to restatement of prior year numbers later in this announcement.
** For further information on the increase in dividend refer to dividend strategy.
The Group consists of a portfolio of leading financial services franchises; these are First National Bank (FNB), the retail and commercial bank, Rand
Merchant Bank (RMB), the corporate and investment bank, WesBank, the instalment finance business and Ashburton Investments, the Group's
newly-established investment management business.
STATEMENT OF HEADLINE EARNINGS - IFRS
Six months ended Year ended
31 December 30 June
R million 2013 2012* % change 2013*
Profit for the period 9 430 7 618 24 15 954
Non-controlling interests (447) (363) 23 (872)
NCNR preference shareholders (144) (150) (4) (297)
Earnings attributable to ordinary equityholders 8 839 7 105 24 14 785
Adjusted for: (32) 176 (>100) 542
Loss/(gain) on disposal of investment securities and other investments of a
capital nature 1 (1) 13
Gain on disposal of available-for-sale assets (66) (1) (33)
Loss on disposal of investments in associates or joint ventures - - 1
Gain on disposal of investments in subsidiaries (12) (10) (63)
Loss/(gain) on the disposal of property and equipment 12 (1) 77
Fair value of investment properties - - (7)
Impairment of goodwill - 2 438
Impairment of assets in terms of IAS 36 11 254 283
Gain from a bargain purchase - - (14)
Other (1) - (138)
Tax effects of adjustments 20 (69) (35)
Non-controlling interests adjustments 3 2 20
Headline earnings 8 807 7 281 21 15 327
* Refer to restatement of prior year numbers later in this announcement.
RECONCILIATION FROM HEADLINE TO NORMALISED EARNINGS
Six months ended Year ended
31 December 30 June
R million 2013 2012* % change 2013*
Headline earnings 8 807 7 281 21 15 327
Adjusted for: (116) (38) >100 93
IFRS 2 Share-based payment expense 12 22 (45) 43
Treasury shares** 63 42 50 33
Total return swap adjustment (share hedge) (146) (53) >100 85
IAS 19 adjustment (53) (56) (5) (110)
Private equity subsidiary realisations 8 7 14 42
Normalised earnings 8 691 7 243 20 15 420
* Refer to restatement of prior year numbers on later in this announcement.
** Includes FirstRand shares held for client trading activities.
OVERVIEW OF RESULTS
Introduction
The macroeconomic environment for the first six months of the financial year continued to be challenging.
The local economy had to contend with a far less favourable global financial environment. Countries such as South Africa, with current account deficits
and large financing requirements, were particularly vulnerable to slowing capital flows and the rand continued to weaken. This placed upward
pressure on inflation and, in the first quarter of 2014, interest rates started to rise.
These external headwinds, combined with a slowdown in real income growth, resulted in continued pressure on South African households.
GDP growth in South Africa remained subdued as capacity constraints and labour market unrest negatively impacted the supply side of the
economy.
In the rest of the sub-Saharan region, growth has generally continued on a robust trend, led by strong domestic demand and commodity
exports. While US tapering, a slowdown in China and dual fiscal deficits pose some downside risk, long-term growth rates in the region should
continue to be underpinned by improved macroeconomic management, stronger institutions, increased investment and positive demographics.
Overview of results
FirstRand produced good results for the six months to 31 December 2013, achieving normalised earnings of R8 691 million, an increase of 20%
year-on-year and a normalised ROE of 23.4%.
All three operating franchises continued to achieve good operational performances, despite the deteriorating macroeconomic environment. FNB
experienced ongoing strong topline growth and profitability due to its consistent strategy to acquire core transactional accounts, grow loans and
deposits and drive transactional volumes across all of its platforms, particularly electronic. WesBank grew new business volumes across
all portfolios and RMB's diversified corporate and investment banking portfolios delivered strong growth in profits, particularly from the client-
centric and investment activities.
The table below shows a breakdown of sources of normalised earnings.
Sources of normalised earnings
Six months ended 31 December Year ended 30 June
% % %
compo- compo- % compo-
R million 2013 sition 2012 sition change 2013 sition
FNB 4 769 56 4 016 55 19 8 124 53
RMB 2 268 26 1 943* 27 17 4 471* 29
WesBank 1 406 16 1 389 19 1 2 834 18
Treasury and Corporate Centre** 18 - (285) (4) (>100) (70) -
FirstRand Limited (company) 374 4 330 5 13 358 2
NCNR preference dividend (144) (2) (150) (2) (4) (297) (2)
Normalised earnings 8 691 100 7 243 100 20 15 420 100
* Includes R155 million of IT enablement impairments relating to financial years prior to and including June 2012.
** The year-on-year benefit is primarily due to the unwind of certain accounting timing anomalies recorded by Group Treasury during the financial year ended 30
June 2013 e.g. mark-to-market losses on economic hedges, partially unwinding or not recurring during the six months to December 2013.
The Group's income statement benefited from an increase of 20% in net interest income (NII), driven by good growth in new business at FNB,
WesBank and RMB. Asset margins continued to be positively impacted by repricing and growth in advances in higher-yielding asset classes, such
as vehicle asset finance (VAF) and unsecured lending. This trend, however, is reducing on a rolling six-month basis.
Total non-interest revenue (NIR) increased 8% year-on-year, with strong contributions from all franchises. FNB's NIR growth continued to be
driven by increases in fee and commission income, particularly on the back of the acquisition of core transactional accounts. The strategy to
drive customers onto electronic platforms continued to produce strong growth in volumes across cellphone (+27%) and internet (+16%) banking
channels. WesBank's NIR benefited from robust levels of new business origination. Knowledge-based fees at RMB were resilient despite muted
levels of activity from the local corporate sector, however, client execution revenues remained strong particularly from RMB's activities in the rest
of Africa.
Overall operating cost growth was 14% for the period, reflecting the continued investment in FNB's electronic platforms and the Group's African
operating footprint. In addition, costs associated with the strong underlying growth from alliance partnerships (particularly at WesBank) also
increased.
Bad debts are currently trending below expectations at 77 bps, but, excluding portfolio overlays, the rand value of portfolio impairments are higher
in the core advances book due to the Group's view that the previously benign credit cycle has bottomed. This is considered prudent given the
strong book growth year-on-year. All of the Group's portfolios are tracking as anticipated, reflecting decisions taken as early as 2011 to exit
origination in high-risk segments, particularly in the unsecured lending market.
Overall non-performing loans (NPLs) have continued to trend down, with retail NPLs declining 8% mainly as a result of the continuing significant
reductions in residential mortgage NPLs. Unsecured lending NPLs have increased as expected, although all of these loan books are still performing
better than expected at this point in the cycle. Corporate NPLs declined 14% as a result of decreases in the WesBank corporate and RMB
portfolios.
The Group's overall balance sheet showed a robust increase in advances year-on-year, with particularly good growth from card, secured affordable
housing and overdrafts at FNB, and excellent growth generated from the FNB Africa portfolio. RMB's core advances book posted strong
growth, which also benefited from activities in the rest of Africa. On a rolling six-month basis, growth in certain retail portfolios, such as
unsecured lending and VAF, has moderated.
OVERVIEW OF OPERATING FRANCHISES
The Group's vision is to be the African financial services group of choice, create long-term franchise value, deliver superior and sustainable
economic returns to shareholders within acceptable levels of volatility and maintain balance sheet strength. FirstRand seeks to achieve this with
two parallel growth strategies which are executed through its portfolio of operating franchises within a framework set by the Group. The growth
strategies are:
- become a predominant player in all of the financial services profit pools in South Africa, growing in existing markets and those where it is under-
represented; and
- grow its franchise in the broader African continent, targeting those countries expected to show above average domestic growth and which are well
positioned to benefit from the trade and investment flows between Africa, India and China.
With regard to expansion into the rest of Africa, there are three pillars to its execution:
- utilise the capabilities of the South African franchise, particularly the domestic balance sheet, intellectual capital, international platforms and the
- existing operating footprint in the rest of Africa;
- start an in-country franchise and grow organically; and
- small-to medium-sized acquisitions where it makes commercial sense.
Below is a brief overview of the financial and operational performance of each franchise.
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 strongly in both existing and new markets on the back of innovative products and delivery channels, particularly focusing on electronic and
digital platforms.
FNB financial highlights
Year
Six months ended ended
31 December % 30 June
R million 2013 2012 change 2013
Normalised earnings 4 769 4 016 19 8 124
Normalised profit before tax 7 059 5 769 22 11 622
Total assets 312 340 283 755 10 296 338
Total liabilities 300 516 272 946 10 281 686
NPLs (%) 3.55 4.45 3.95
Credit loss ratio* (%) 0.95 1.19 1.18
ROE (%) 36.8 36.1 35.4
ROA (%) 3.26 2.94 2.92
Cost-to-income ratio (%) 53.7 54.0 54.8
Advances margin (%) 3.68 3.24 3.39
* 2013 figure includes special impairment relating to merchant acquiring event of R215 million.
Segment results
Year
Six months ended ended
Normalised PBT 31 December % 30 June
R million 2013 2012 change 2013
Retail 3 992 3 193 25 6 564
FNB Africa 975 769 27 1 549
Commercial 2 092 1 807 16 3 509
Total FNB 7 059 5 769 22 11 622
FNB produced an excellent performance for the period, increasing pre-tax profits 22%, driven by increased NII and NIR and a decrease in bad debts,
particularly in residential mortgages. This performance can continue to be attributed to FNB's primary strategy to grow and retain core transactional
accounts through offering a compelling value proposition to the customer (innovative products and channels at an acceptable cost) supported by
rewards programmes, such as eBucks, SLOW lounges and fuel, data and airtime rewards. Innovations such as the banking app, cellphone banking
and eWallet also continue to attract and retain customers.
FNB's NII increased 17% driven by growth in both advances (+10%) and deposits (+14%). The 46 bps improvement in asset margins was driven by
good risk pricing across FNB's portfolios, the decrease in interest in suspense (ISP) and growth year-on-year in higher-margin products, although this
latter trend is reducing on a rolling six-month basis. Deposit margins held up well, decreasing only 4 bps. Deposit and advances growth came from
across all segments as indicated below.
Segment analysis of advances and deposit growth
Six months ended 31 December 2013
Deposit growth Advances growth
Segments % R billion % R billion
Retail 12 13.9 7 12.4
FNB Africa 22 8.2 27 7.7
Commercial 13 14.8 14 5.6
Residential mortgages grew 5% as FNB continued to originate only in lower risk categories. Card increased 13% on the back of new customer
acquisition. Personal loans declined 2% year-on-year and 5% on a rolling six-month basis, reflecting the ongoing adjustments in credit appetite in
that segment.
Overall NPLs decreased 12% due to FNB's ongoing proactive workout strategy (particularly in residential mortgages). NPLs in the personal loans
portfolio remained flat at R919 million. The year-on-year decrease is mainly attributable to residential mortgages (-22%) and Commercial (-10%).
FNB's NIR increased 12% year-on-year reflecting growth in core transactional banking accounts. There was continued strong growth of 11% in overall
transactional volumes with electronic transactional volumes up 15%. An example of how customers are adapting to electronic channels is that
year-on-year ATM and ADT deposits increased 27%, whilst branch-based deposits decreased 13%. The adoption of FNB's innovative customer
proposition in the commercial and business segments resulted in strong NIR growth of 11% and 19% respectively.
FNB's overall operating expenditure increased 14%, reflecting on-going investment in its operating footprint, particularly in Africa (costs up 21%).
However, the business continues to deliver positive operating jaws.
The African subsidiaries performed well, growing pre-tax profits 27%. The established subsidiaries continued to show good growth, with Namibia
performing particularly strongly driven by increased NIR and NII. The newer subsidiaries, Zambia, Mozambique and Tanzania, continued to invest in
footprint and product roll-out.
FNB produced an ROE of 36.8%, which remains well above hurdle rates, despite ongoing investment in platforms and new territories.
RMB
RMB represents the Group's activities in the corporate and investment banking segments in South Africa, the broader African continent and India.
The business continues to benefit from its strategy to generate more income from client-driven activities, which is anchored around a risk appetite
designed to effectively manage the trade offs between earnings volatility, profit growth and returns. This strategy, coupled with steady investment
returns and a growing focus on originating asset management products, is delivering a high quality and sustainable earnings profile.
RMB financial highlights
Year
Six months ended ended
31 December % 30 June
R million 2013 2012 change 2013
Normalised earnings 2 268 1 943* 17 4 471*
Normalised profit before tax 3 195 2 677 19 6 150
Total assets 374 929 355 380 6 354 758
Total liabilities 367 491 348 746 5 346 133
ROE (%) 25.0 21.9 25.0
ROA (%) 1.33 1.13 1.31
Credit loss ratio (%) 0.30 0.36 0.55
Cost-to-income ratio (%) 44.7 46.1 42.4
* Includes R155 million of IT enablement impairments relating to financial years prior to and including
June 2012.
Divisional performance
Year
Six months ended 31 ended
Normalised PBT December % 30 June
R million 2013 2012 change 2013
Investment banking 2 953 2 381 24 5 613
- Global Markets 1 012 892 13 1 935
- IBD 1 701 1 499 13 3 423
- Private Equity 444 229 94 690
- Other RMB (204) (239) (15) (435)
Corporate banking 242 296** (18) 537**
Operational performance* 242 203 19 444
Normalisation adj (IT enablement for Dec 2012 period) - 93 (100) 93
Total RMB 3 195 2 677 19 6 150
* Dec 2013 operational performance includes IT enablement spend of R73 million (Dec 2012:
R93 million; June 2013: R164 million).
** Includes a normalisation adjustment of R248 million for December 2012 which carries through to
June 2013 for IT enablement spend of which R155 million relates to years prior to and including June
2012.
RMB Corporate and Investment Banking (CIB) produced strong results for the six months to December 2013. Pre-tax profits increased 19% to
R3.2 billion and the ROE improved to 25.0%. This performance reflects the strength of the domestic franchise and momentum from the African
expansion strategy.
RMB's revenue mix is diverse and remains extremely solid; it has continued to focus on building scale in the Corporate Banking franchise,
generating growth from the rest of Africa, strengthening the balance sheet and consolidating market share in the more established business lines.
The Global Markets division delivered a robust performance for the first half of the year across all business lines, notwithstanding challenging market
conditions and macroeconomic pressures. Profits grew 13% to R1 billion, reflecting the strength of the domestic client franchise, a growing African
footprint and enhanced fee-generating capacity.
The Investment Banking Division (IBD) delivered strong results, increasing pre-tax profits 13% to R1.7 billion. The growth was, to an extent, balance
sheet led with core advances up approximately 18% as IBD benefited from continued infrastructure spend (particularly in the renewable energy
sector) and strong growth in African cross-border lending. Advances in the rest of Africa increased more than 100% to R25 billion (2012:
R12 billion). Good growth was also generated from structuring fees.
Private Equity's profits also increased year-on-year and benefited from the diversity of its portfolio, reporting good equity-accounted earnings and
income from investment subsidiaries. While earnings from associates were strong, no material realisations were seen in the period. Unrealised profits
grew 78% from R1.66 billion to R2.96 billion. Corvest and Ventures continue to invest and the Capital Partners business experienced improved
earnings from associates.
RMB Resources' (included in other RMB) improved performance was driven by a modest recovery in equity prices during the first half of the year and
an increase in interest margin from the debt portfolio. Junior mining counters remain under pressure and new investing limits remain in place until
performance improves.
The operational performance of the Corporate Banking division was up 19% year-on-year, with total revenue increasing due to good growth in
advances and deposits. Investment in platforms remains a key focus.
WesBank
WesBank represents the Group's activities in asset-based finance in the retail, commercial and corporate segments of South Africa and asset-based
motor finance sector through MotoNovo Finance in the UK. Through the Direct Axis brand, WesBank also operates in the unsecured lending market in
South Africa. WesBank's leading position in its chosen markets is due to its long-standing alliances with leading motor manufacturers, suppliers and
dealer groups, and strong point-of-sale presence.
WesBank financial highlights
Year
Six months ended ended
31 December % 30 June
R million 2013 2012 change 2013
Normalised earnings 1 406 1 389 1 2 834
Normalised profit before tax 2 022 1 968 3 3 983
Total assets 157 273 132 574 19 145 179
Total liabilities 155 079 129 026 20 140 814
NPLs (%) 2.67 3.14 2.76
Credit loss ratio (%) 1.25 1.12 1.26
ROE (%) 27.5 31.7 32.6
ROA (%) 1.92 2.18 2.13
Cost-to-income ratio (%) 43.1 40.7 41.2
Net interest margin (%) 5.10 5.27 5.30
WesBank's performance was resilient given its sensitivity to the credit cycle. Despite higher credit and operating costs, strong new business
volumes continued and for the six months ended 31 December 2013, WesBank grew pre-tax profits 3% to R2 billion and delivered an ROE of
27.5% and ROA of 1.92%. This performance was underpinned by strict credit discipline and effective and efficient origination channels.
The table below shows the relative performance year-on-year of WesBank's activities.
Breakdown of profit contribution by activity
Year
Six months ended ended
Normalised PBT 31 December % 30 June
R million 2013 2012 change 2013
VAF
- Local retail 932 972 (4) 1 889
- International (MotoNovo) 293 211 39 444
- Corporate and commercial 221 189 17 528
Personal loans 576 596 (3) 1 122
Total WesBank 2 022 1 968 3 3 983
Profit growth continued in the corporate and MotoNovo businesses, while the personal loans business was marginally down on the prior year.
New business continued to reflect a good risk profile across all portfolios, with systemic tightening in credit appetite for higher risk segments.
Production was up 14% year-on-year, although trends in new business growth in the local retail portfolios are slowing. From a divisional perspective,
motor, corporate, personal loans and MotoNovo origination volumes were up 7%, 24%, 19% and 31% (GBP), respectively. WesBank's rest of Africa
business grew 20% year-on-year; these figures are reported under FNB Africa.
Total advances increased 19% to R154.2 billion driven by all of the underlying portfolios, with the retail motor, personal loans, corporate and
commercial and MotoNovo businesses reflecting advances growth of 17%, 25%, 9% and 57%, respectively. In addition, the corporate division
increased the value of the full maintenance rental asset book to R1.6 billion.
Interest margins were maintained despite increased competition across all portfolios with origination well within agreed risk thresholds. As key
macro inputs indicate upside risk to impairment ratios, credit appetite continues to be critically and regularly assessed and performance closely
monitored.
NPLs continued to reduce (2.67% at December 2013 compared to 2.76% at June 2013 and 3.14% at December 2012) despite the high proportion of
restructured debt review accounts, which are still disclosed as non-performing regardless of repayment behaviour. These accounts are increasing as
a proportion of NPLs and in the period under review, represented 22% of NPLs, compared to 18% at June 2013.
NIR, including income from associates, increased 19% year-on-year, reflective of the growth in the advances book and in rental assets, offset by
continued pricing pressure on the auto card business.
Core operating costs increased 13%, however, total expenses grew 22% when including the impact of the increase in profit share payments to alliance
partners (which now total R247 million and are up 20% year-on-year), investment in platforms and strategic initiatives, and the increase in depreciation
of full maintenance rental assets.
Ashburton Investments
The Group's investment management franchise, Ashburton Investments, continues to execute on its organic strategy.
Since the launch in June 2013, assets under management have grown 10% to R111 billion. This was mainly driven by good growth in retail structured
products and both traditional single- managed and multi-manager funds. Profitability is tracking in line with expectations given the current level of
investment in people and platforms.
Ashburton Investments has launched the first phase of the roll-out of its investor platform. Branded FNB, and initially only for internal distribution
channels, this first phase includes retirement and investment products, RMB structured products and Ashburton and third-party funds.
As expected Ashburton Investments is benefiting from both the product generation capabilities of RMB and the distribution platforms of FNB and
RMB Private Bank.
Both traditional and alternative fund performance exceeded benchmarks during the period.
Financial resource management
The Group believes a strong balance sheet is key to growth, particularly when entering periods of uncertainty.
Asset quality
When assessing the underlying risk in the balance sheet from an economic perspective, the Group's asset profile is dominated by a balanced
advances portfolio, which constitutes 78% of total assets. In terms of credit quality, 90% of advances are rated B upper or better. Cash, cash
equivalents and liquid assets represent 15% of total assets, with only a small portion related to the investment and trading businesses.
Funding
FirstRand's funding profile continues to reflect the structural funding issues associated with the South African banking sector, however, the Group
has continued to reduce its reliance on institutional funding and has further improved the term profile of institutional funding from a weighted average
remaining term of 12 months in 2009 to 23 months at 31 December 2013.
Capital
FirstRand's capital management strategy is aligned to the Group's overall objective to deliver sustainable returns to shareholders within appropriate
levels of volatility. The Group's philosophy, given the uncertain macro environment, is to operate at the higher end of its targeted capital levels to
ensure balance sheet resilience. Current targeted ranges and ratios are summarised in the table below.
Capital ratios and targets
CET1 Tier 1 Total
Regulatory minimum (%)* 4.5 6.0 9.5
Target (%) 9.5 - 11.0 11.0 12.0 - 13.5
FirstRand actual (%) 13.7 14.8 16.2
FirstRand Bank** actual (%) 13.4 14.1 15.7
* The regulatory minimum excludes the bank-specific individual capital requirement.
** Reflects solo supervision, i.e. FRB excluding foreign branches.
Dividend strategy
When assessing the appropriate level of payout to shareholders, the Group considers the following:
- To ensure that the ROE remains within the long-term target range of 18% to 22%, FirstRand assesses the robustness of the ongoing capital
generation of its business. The Group is currently of the view that its ROE is at a cyclical high and, therefore, the dividend cover needs to be
sustainable on a risk view as well as a core view.
- The anticipated growth in risk weighted assets (RWA) given the operating environment and the overall organic growth plans of the operating
franchises.
- The Group's objective to protect the R10 billion of capital currently allocated to its expansion strategy.
Following a comprehensive analysis of the above factors at the June 2013 year end, the Group reduced its full year dividend cover to 2.0x (2012:
2.2x). This cover has been maintained for the six months to 31 December 2013, which means that compared to the dividend declared at 31
December 2012 (when cover was 2.3x), the interim dividend for the current period increased 40%. This is significantly higher than growth in
normalised earnings.
Shareholders should note that the rate of growth in the dividend payout for the full financial year will be off the higher base recorded for the final
dividend of June 2013. The Group, therefore, expects growth in dividend for the full year to more closely track normalised earnings.
The appropriateness of the level of payout is re-evaluated on an annual basis.
Prospects
South Africa's dependence on foreign capital flows to fund the wide current account deficit continues to introduce uncertainty and vulnerability to the
macroeconomic outlook. This was illustrated by the recent rapid exchange rate depreciation and the South African Reserve Bank's (SARB) decision to
hike the repo rate by 50 bps in January 2014.
GDP growth has to date been supported by wage inflation, consumption and government spending and these trends are all slowing down.
Manufacturing, exports and investments will provide some underpin to growth, however, South Africa has now entered an interest rate hiking
cycle which will place further pressure on the South African consumer.
The Group believes that its strategy to grow customers, drive NIR and exercise discipline in its credit origination strategies in the retail market,
particularly over the past 18 months will place it in a strong position to weather what is expected to be a difficult domestic credit cycle.
The franchises are expected to continue to show good operational performances and expectations remain unchanged for the second half of the year.
Basis of presentation
FirstRand prepares its condensed consolidated interim financial results in accordance with:
- recognition and measurement requirements of IFRS;
- presentation and disclosure requirements of IAS 34;
- SAICA Financial Reporting Guide as issued by the Accounting Practices Committee;
- Financial Reporting Pronouncements as issued by Financial Reporting Standards Council; and
- the requirements of the Companies Act 71 of 2008 applicable to summary financial statements.
The results are 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.
The accounting policies applied in the preparation of the condensed interim consolidated financial statements are in terms of IFRS and are consistent
with those accounting policies applied in the preparation of the previous consolidated annual financial statements, except for the adoption of new
and revised IFRS requirements and a voluntary change in the Group's presentation of loans to associates. The details of these are set out below.
New and revised IFRS requirements
The following new and revised IFRS requirements were adopted by the Group for the first time for the six months ended 31 December 2013.
Unless stated otherwise, these requirements are applied retrospectively and the previously reported financial results have been restated.
- IFRS 10, IFRS 11, IFRS 12, IAS 27R and IAS 28R. These standards prescribe new and amended requirements for assessing whether control
or joint control exists. The disclosure requirements for all interests in other entities, including unconsolidated structured entities, are now
contained in a single standard. The impact of these new standards on the Group's previously reported financial position and performance is presented
later in this announcement.
- IFRS 13 establishes a single framework for measuring and disclosing fair value. The standard requires prospective implementation and does not
require comparative information to be presented for disclosures in the year of adoption. The standard, therefore, has had no impact on amounts
previously reported. The additional disclosures are provided later in this announcement.
- Amendments to IFRS 7 require disclosures about the effect or potential effects of netting arrangements on the Group's financial position. The
amendment does not impact recognition or measurement of amounts but requires additional disclosure in respect of financial instruments that are
subject to an enforceable master netting arrangement or similar agreement. These additional disclosures, along with the comparative
information, are presented later in this announcement.
- Amendments to IAS 19 have resulted in changes to the recognition, measurement and presentation of amounts in respect of defined benefit
plans. The impact of these amendments on the Group's previously reported financial position and performance is presented later in this
announcement.
All comparative information impacted by the new accounting policies has been restated.
Voluntary change in presentation
The Group has changed the manner in which it presents certain loans to associates and joint ventures. The change in presentation has had no impact
on the net asset value of the Group and only affects the classification of items on the statement of financial position. The impact on previously reported
results is set out further on in this announcement.
The condensed consolidated interim results for the six months ended 31 December 2013 have not been audited or independently reviewed by the
Group's external auditors.
The Group believes normalised earnings more accurately reflect operational performance. Headline earnings are adjusted to take into account
non-operational items and accounting anomalies. Details of the nature of these adjustments and the reasons therefore can be found on
www.firstrand.co.za.
FirstRand's board of directors take full responsibility for the preparation of this anouncement.
Events after the reporting period
The directors are not aware of any material events, as defined in IAS 10 Events After the Reporting Period, occurring between 31 December
2013 and the date of authorisation of the results announcement.
Board changes
Mr Johan Petrus Burger was appointed deputy chief executive officer on 1 October 2013. He relinquished his position as financial director on
1 January 2014.
Mr Hetash Surendrakumar (Harry) Kellan was appointed to the board as executive financial director on 1 January 2014.
Mr Bruce William Unser, having reached retirement age, retired as company secretary on 5 January 2014.
Mrs Carnita Low was appointed as company secretary on 6 January 2014.
Cash dividend declarations
Ordinary shares
The directors have declared a gross cash dividend totalling 77.0 cents per ordinary share out of income reserves for the six months ended
31 December 2013.
Ordinary dividends
Six months ended
31 December
Cents per share 2013 2012
Interim (declared 3 March 2014) 77.0 55.0
The salient dates for the interim dividend are as follows:
Last day to trade cum-dividend Thursday 20 March 2014
Shares commence trading ex-dividend Monday 24 March 2014
Record date Friday 28 March 2014
Payment date Monday 31 March 2014
Share certificates may not be dematerialised or rematerialised between Monday 24 March 2014 and Friday 28 March 2014, both days
inclusive.
The interim dividend of 77.0 cents per share carries no STC credits. Shareholders who are exempt from Dividend Withholding Tax (DWT) will receive
the full 77.0 cents per share. For shareholders who are subject to DWT, tax will be calculated at 15% (or such lower rate if a double taxation agreement
applies for foreign shareholders).
For South African shareholders who are subject to DWT, the net interim dividend after deducting 15% tax will be 65.45000 cents per share.
The issued share capital on the declaration date was 5 637 941 689 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
B preference shares
Cents per share 2013 2012
Period:
28 February 2012 - 27 August 2012 333.1
28 August 2012 - 25 February 2013 320.3
26 February 2013 - 26 August 2013 320.3
27 August 2013 - 24 February 2014 320.3
LL Dippenaar SE Nxasana C Low
Chairman CEO Company secretary
3 March 2014
CONDENSED CONSOLIDATED INCOME STATEMENT - IFRS
Six months ended Year ended
31 December 30 June
R million 2013 2012* % change 2013*
Net interest income before impairment of advances 14 673 12 408 18 24 769
Impairment of advances (2 294) (2 250) 2 (4 807)
Net interest income after impairment of advances 12 379 10 158 22 19 962
Non-interest income 17 192 15 237 13 30 734
Income from operations 29 571 25 395 16 50 696
Operating expenses (17 047) (15 353) 11 (30 804)
Net income from operations 12 524 10 042 25 19 892
Share of profit of associates and joint ventures after tax 360 293 23 824
Income before tax 12 884 10 335 25 20 716
Indirect tax (465) (462) 1 (645)
Profit before tax 12 419 9 873 26 20 071
Income tax expense (2 989) (2 255) 33 (4 117)
Profit for the period 9 430 7 618 24 15 954
Attributable to:
Ordinary equityholders 8 839 7 105 24 14 785
NCNR preference shareholders 144 150 (4) 297
Equityholders of the Group 8 983 7 255 24 15 082
Non-controlling interests 447 363 23 872
Profit for the period 9 430 7 618 24 15 954
Earnings per share (cents)
- Basic 161.1 129.6 24 269.7
- Diluted 159.6 128.1 25 266.4
Headline earnings per share (cents)
- Basic 160.5 132.8 21 279.6
- Diluted 159.1 131.2 21 276.2
* Refer to restatement of prior year numbers later in this announcement.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - IFRS
Six months ended Year ended
31 December 30 June
R million 2013 2012* % change 2013*
Profit for the period 9 430 7 618 24 15 954
Items that may subsequently be reclassified to profit or loss
Cash flow hedges 70 (89) (>100) 853
Gains/(losses) arising during the period (265) (453) (42) 417
Reclassification adjustments for amounts included in profit or loss 364 329 11 768
Deferred income tax (29) 35 (>100) (332)
Available-for-sale financial assets (40) 431 (>100) (104)
(Losses)/gains arising during the period (19) 565 (>100) (117)
Reclassification adjustments for amounts included in profit or loss (66) (1) >100 (33)
Deferred income tax 45 (133) (>100) 46
Exchange differences on translating foreign operations 396 315 26 998
Gains arising during the period 396 315 26 998
Share of other comprehensive income of associates after tax and non-controlling
interests 3 24 (88) 129
Items that may not subsequently be reclassified to profit or loss
Actuarial losses on defined benefit post-employment plans (20) (22) (9) 22
(Losses)/gains arising during the period (25) (32) (22) 30
Deferred income tax 5 10 (50) (8)
Other comprehensive income for the period 409 659 (38) 1 898
Total comprehensive income for the period 9 839 8 277 19 17 852
Attributable to:
Ordinary equityholders 9 225 7 748 19 16 625
NCNR preference shareholders 144 150 (4) 297
Equityholders of the Group 9 369 7 898 19 16 922
Non-controlling interests 470 379 24 930
Total comprehensive income for the period 9 839 8 277 19 17 852
* Refer to restatement of prior year numbers later in this announcement.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION - IFRS
As at 31 December As at 30 June
R million 2013 2012* 2013*
ASSETS
Cash and cash equivalents 49 546 51 570 48 565
Derivative financial instruments 44 221 56 251 52 277
Commodities 6 894 8 003 6 016
Accounts receivable 7 349 6 755 7 804
Current tax asset 618 602 266
Advances 635 443 565 449 601 065
Investment securities and other investments 127 281 110 873 128 388
Investments in associates and joint ventures 6 293 5 252 5 396
Property and equipment 14 300 12 520 13 453
Intangible assets 1 181 1 557 1 169
Reinsurance assets 396 846 394
Post-employment benefit asset 3 - -
Investment properties 458 452 459
Deferred income tax asset 432 355 460
Non-current assets and disposal groups held for sale 16 505 20
Total assets 894 431 820 990 865 732
EQUITY AND LIABILITIES
Liabilities
Short trading positions 5 532 9 219 2 991
Derivative financial instruments 48 836 58 284 53 008
Creditors and accruals 10 256 8 733 11 079
Current tax liability 438 235 513
Deposits 727 032 651 375 697 035
Provisions 655 584 600
Employee liabilities 4 998 4 637 5 857
Other liabilities 4 591 4 822 6 101
Policyholder liabilities under insurance contracts 662 1 107 646
Deferred income tax liability 1 185 1 180 753
Tier 2 liabilities 8 127 8 120 8 116
Liabilities directly associated with disposal groups held for sale - 83 -
Total liabilities 812 312 748 379 786 699
Equity
Ordinary shares 55 55 55
Share premium 5 571 5 601 5 609
Reserves 69 115 59 840 65 954
Capital and reserves attributable to ordinary equityholders 74 741 65 496 71 618
NCNR preference shareholders 4 519 4 519 4 519
Capital and reserves attributable to equityholders of the Group 79 260 70 015 76 137
Non-controlling interests 2 859 2 596 2 896
Total equity 82 119 72 611 79 033
Total equity and liabilities 894 431 820 990 865 732
* Refer to restatement of prior year numbers later in this announcement.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - IFRS
Six months ended Year ended
31 December 30 June
R million 2013 2012 2013
Net cash flows from operating activities 11 334 11 421 24 298
Net cash utilised from operations (2 888) 8014 (4 241)
Taxation paid (3 273) (3391) (5 642)
Net cash inflow from operating activities 5 173 16 044 14 415
Net cash outflow from investing activities (3 335) (1347) (3 803)
Net cash inflow from financing activities (1 626) (474) 325
Net increase in cash and cash equivalents from operations 212 14 223 10 937
Cash and cash equivalents at the beginning of the year 48 565 37 317 37 317
Cash and cash equivalents at the end of the period 48 777 51 540 48 254
Cash and cash equivalents acquired* - - 2
Cash and cash equivalents disposed of* 326 (2) -
Effect of exchange rate changes on cash and cash equivalents 443 32 309
Cash and cash equivalents at the end of the period 49 546 51 570 48 565
Mandatory reserve balances included above** 17 005 14 991 16 160
* Cash and cash equivalents acquired and disposed of relate to cash balances held by subsidiaries acquired and disposed of during the period.
** 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.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - IFRS
for the six months ended 31 December
Ordinary share capital and ordinary equityholders' funds
Non-
Defined Reserves cumulative
Share benefit Foreign attributable non-
capital post- Cash flow Share-based Available- currency to ordinary redeemable Non-
Share Share and share employment hedge payment for-sale translation Other Retained equity- preference controlling Total
R million capital premium premium reserve reserve reserve reserve reserve reserves earnings holders shares interests equity
Balance as reported at 30 June 2012 55 5 216 5 271 - (753) 3 247 626 1 052 (61) 53 139 57 250 4 519 2 767 69 807
Prior period restatements - 216 216 (591) - - (6) (10) (20) (411) (1 038) - (66) (888)
Restated balance as at 1 July 2012 55 5 432 5 487 (591) (753) 3 247 620 1 042 (81) 52 728 56 212 4 519 2 701 68 919
Issue of share capital - - - - - - - - - - - - (4) (4)
Movement in other reserves - - - - - (262) - - (40) 5 (297) - (7) (304)
Ordinary dividends - - - - - - - - - (3 193) (3 193) - (412) (3 605)
Preference dividends - - - - - - - - - - - (150) - (150)
Transfer from/(to) reserves - - - - - - - - 15 (15) - - - -
Changes in ownership interest of
subsidiaries - - - - - - - - - 22 22 - (61) (39)
Consolidation of treasury shares - 169 169 - - - - - - 50 50 - - 219
Total comprehensive income for the
period - - - (22) (89) - 428 306 20 7 105 7 748 150 379 8 277
Vesting of share-based payment
reserve - - - - - (26) - - - (676) (702) - - (702)
Balance as at 31 December 2012 55 5 601 5 656 (613) (842) 2 959 1 048 1 348 (86) 56 026 59 840 4 519 2 596 72 611
Balance as reported at 30 June 2013 55 5 397 5 452 - 100 3 173 539 1 995 140 60 786 66 733 4 519 2 924 79 628
Prior period restatements - 212 212 (569) - - (21) 4 (14) (179) (779) - (28) (595)
Balance as at 1 July 2013 55 5 609 5 664 (569) 100 3 173 518 1 999 126 60 607 65 954 4 519 2 896 79 033
Issue of share capital - - - - - - - - - - - - - -
Movement in other reserves - - - - - (499) - - (9) (27) (535) - (28) (563)
Ordinary dividends - - - - - - - - - (4 444) (4 444) - (360) (4 804)
Preference dividends - - - - - - - - - - - (144) - (144)
Transfer from/(to) reserves - - - - - - - - 11 (11) - - - -
Changes in ownership interest of
subsidiaries - - - - - - - - - (234) (234) - (119) (353)
Consolidation of treasury shares - (38) (38) - - - - - - 5 5 - - (33)
Total comprehensive income for the
period - - - (20) 70 - (40) 372 4 8 839 9 225 144 470 9 839
Vesting of share-based payment
reserve - - - - - (15) - - - (841) (856) - - (856)
Balance as at 31 December 2013 55 5 571 5 626 (589) 170 2 659 478 2 371 132 63 894 69 115 4 519 2 859 82 119
FAIR VALUE MEASUREMENTS
Valuation methodology
In terms of IFRS, the Group is required to or elects to measure certain assets and liabilities at fair value. The Group has established control
frameworks and processes at a franchise level to independently validate its valuation techniques and inputs used to determine its fair value
measurements. At a franchise level, technical teams are responsible for the selection, implementation and any changes to the valuation techniques
used to determine fair value measurements. Valuation committees comprising representatives from key management have been established in
each franchise and at an overall Group level, and are responsible for overseeing the valuation control process and considering the appropriateness of
the valuation techniques applied in fair value measurement. The valuation models and methodologies are subject to independent review and
approval at a franchise level by the required technical teams, valuation committees, relevant risk committees and external auditors annually or more
frequently if considered appropriate.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date i.e. an exit price. Fair value is therefore a market-based measurement and when measuring fair value the Group
uses the assumptions that market participants would use when pricing an asset or liability under current market conditions, including assumptions
about risk. When determining fair value it is presumed that the entity is a going concern and the fair value is therefore not an amount that represents a
forced transaction, involuntary liquidation or a distressed sale.
Financial instruments
When determining the fair value of a financial instrument, where the financial instrument has a bid or ask price (for example in a dealer market), the
Group uses the price within the bid-ask spread that is most representative of fair value in the circumstances. Although not a requirement, the Group
uses the bid price for financial assets or the ask/offer price for financial liabilities where this best represents fair value.
When determining the fair value of a financial liability or the Group's own equity instruments the quoted price for the transfer of an identical or
similar liability or own equity instrument is used. Where this is not available and an identical item is held by another party as an asset, the fair value of
the liability or own equity instrument is measured using the quoted price in an active market of the identical item if that price is available, or using
observable inputs (such as the quoted price in an inactive market for the identical item) or using another valuation technique.
Where the Group has any financial liability with a demand feature, such as demand deposits, the fair value is not less than the amount payable on
demand, discounted from the first date that the amount could be required to be paid where the time value of money is significant.
Fair value hierarchy and measurements
The Group classifies assets and liabilities measured at fair value using a fair value hierarchy that reflects whether observable or unobservable inputs are
used in determining the fair value of the item. The valuation techniques employed by the Group include, inter alia, quoted prices for similar assets or
liabilities in an active market, quoted prices for the same asset or liability in an inactive market, adjusted prices from recent arm's length
transactions, option-pricing models and discounted cash flow techniques.
Where a valuation model is applied and the Group cannot mark-to-market, it applies a mark-to-model approach, subject to prudent valuation
adjustments. Mark-to-model is defined as any valuation which has to be benchmarked, extrapolated or otherwise calculated from a market input.
When applying mark-to-model, an extra degree of conservatism is applied. The Group will consider the following in assessing whether a mark-to-
model valuation is appropriate:
- as far as possible, market inputs are sourced in line with market prices;
- generally accepted valuation methodologies are consistently used for particular products unless deemed inappropriate by the relevant governance
forums;
- where a model has been developed in-house, it is based on appropriate assumptions, which have been assessed and challenged by suitably
qualified parties independent of the development process;
- formal change control procedures are in place;
- awareness of the weaknesses of the models used and appropriate reflection thereof in the valuation output;
- the model is subject to periodic review to determine the accuracy of its performance; and
- valuation adjustments are only made when appropriate, for example, to cover the uncertainty of the model valuation.
Level 1
Fair value is determined using unadjusted quoted prices in active markets for identical assets or liabilities where this is readily available and the price
represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and
frequency to provide pricing information on an on-going basis. This category includes listed bonds and equity, exchange-traded derivatives,
exchange-traded commodities and short trading positions.
Level 2
Fair value is determined using inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly such as quoted
prices for similar items in an active market or for an identical item in an inactive market, or valuation models using observable inputs or inputs derived
from observable market data. This category includes loans and advances to customers, equities listed in an inactive market, certain debt instruments,
private equity investments, non-recourse investments and deposits, over the counter derivatives, deposits, other liabilities and Tier 2 liabilities.
Level 3
Fair value is determined using a valuation technique and significant inputs that are not based on observable market data (i.e. unobservable inputs) such
as an entity's own assumptions about what market participants would assume in pricing assets and liabilities. This category includes certain loans and
advances to customers, certain over the counter derivatives such as equity options, investments in certain debt instruments, private equity investments
and certain deposits such as credit linked notes.
Fair value hierarchy and measurements
The table below sets out the valuation techniques applied by the Group for fair value measurements of financial assets and liabilities categorised as
level 2 and level 3 in the fair value hierarchy:
Significant
Fair value unobservable
hierarchy Valuation Description of valuation technique and main inputs of level 3
Instrument level technique assumptions Observable inputs items
Derivative financial instruments
Option contracts Level 2 and Option pricing The Black Scholes model is used. Strike price of the option, market Volatilities
level 3 model related discount rate, forward
rate, and cap and floor volatility
Futures contracts Level 2 Discounted The future cash flows are discounted using a Market interest rates and curves Not applicable
cash flows market-related interest rate. Projected cash flows
are obtained by subtracting the strike price of the
forward contract from the market projected
forward value.
Swaps Level 2 Discounted The future cash flows are projected using a Market interest rates and curves Not applicable
cash flows forward curve and then discounted using a
market-related discount curve over the contractual
period. The reset date of each swaplet is
determined in terms of legal documents pertaining
to the swap.
Forward rate Level 2 Discounted The future cash flows are projected using a Market interest rates and curves Not applicable
agreements cash flows forward curve and then discounted using a
market related discount curve over the contractual
period. The reset date is determined in terms of
legal documents.
Forward contracts Level 2 Discounted The future cash flows are projected using a Market interest rates and curves Not applicable
cash flows forward curve and then discounted using a
market-related discount curve over the contractual
period. Projected cash flows are obtained by
subtracting the strike price of the forward contract
from the market projected forward value.
Credit derivatives Level 2 and Discounted The future cash flows are discounted using a Market interest rates and curves Credit inputs
level 3 cash flows market-related interest rate. Where prices are
obtainable from the market, individual credit
spreads are used.
Commodity Level 2 Discounted Commodity linked instruments are measured by Futures prices Not applicable
derivatives cash flows taking into account the price, the location
differential, grade differential, silo differential and
the discount factor of the most liquidly traded
futures linked to the commodity.
Derivative financial instruments
Significant
Fair value unobservable
hierarchy Valuation Description of valuation technique and main inputs of level 3
Instrument level technique assumptions Observable inputs items
Equity derivatives Level 2 and Industry The models calculate fair value based on input Market interest rates and curves Volatilities
level 3 standard parameters such as stock prices, dividends,
models volatilities, interest rates, equity repo curves and,
for multi-asset products, correlations.
Unobservable model inputs are determined by
reference to liquid market instruments and
applying extrapolation techniques to match the
appropriate risk profile.
Loans and advances to customers
Investment Level 3 Discounted The future cash flows are discounted using a Market interest rates and curves Credit inputs
banking book* cash flows market related interest rate. To calculate the fair
value of credit the Group uses a valuation
methodology based on the credit spread matrix,
which considers loss given default, tenor and the
internal credit committee rating criteria. The fair
value measurement includes the original credit
spread and is repriced when there is a change in
rating of the counterparty. A decline in credit
rating would result in an increase in the spread
above the base rate for discounting purposes and
consequently a reduction of the fair value of the
advance.
Other loans and Level 2 and Discounted The future cash flows are discounted using a Market interest rates and curves Credit inputs
advances level 3 cash flows market related interest rate adjusted for credit
inputs, over the contractual period.
Investment securities and other investments
Equities/bonds Level 2 Discounted For listed equities and bonds, the listed price is Market interest rates and curves Not applicable
listed in an cash flows used where the market is active (i.e. level 1).
inactive market However if the market is not active and the listed
price is not representative of fair value, these are
classified as level 2 and a valuation technique is
used, for example the discounted cash flow is
used for listed bonds. This will be based on risk
parameters of comparable securities and the
potential pricing difference in spread and/or price
terms with the traded comparable is considered.
The future cash flows are discounted using a
market-related interest rate.
Unlisted bonds Level 2 and Discounted Unlisted bonds are valued similarly to advances Market interest rates and curves Credit inputs
level 3 cash flows measured at fair value. The future cash flows are
discounted using a market related interest rate
adjusted for credit inputs, over the contractual
period.
* The Group has elected to designate the investment banking book of advances at fair value through profit or loss. Credit risk is not observable and has a
significant impact on the fair value measurement of these advances and as such, these advances are classified as level 3 on the fair value hierarchy.
Investment securities and other investments
Unlisted equities Level 2 and Price earnings For unlisted equities, the earnings included in the Market transactions Growth rates and
level 3 (P/E) model model are derived from a combination of historical P/E ratios
and budgeted earnings depending on the specific
circumstances of the entity whose equity is being
valued. The P/E multiple is derived from current
market observations taking into account an
appropriate discount for unlisted companies. The
valuation of these instruments may be
corroborated by a discounted cash flow valuation
or by the observation of other market transactions
that have taken place.
Negotiable Level 2 Discounted Future cash flows are discounted using a Market interest rates and curves Not applicable
certificates of cash flows market-related interest rate. Inputs to these
deposit models include information that is consistent with
similar market quoted instruments, where
available.
Treasury bills Level 2 BESA bond The BESA bond pricing model uses the BESA Market interest rates and curves Not applicable
pricing model mark-to-market bond yield.
Significant
Fair value unobservable
hierarchy Valuation Description of valuation technique and main inputs of level 3
Instrument level technique assumptions Observable inputs items
Non-recourse Level 2 Discounted Future cash flows are discounted using a discount Market interest rates and curves Not applicable
investments cash flows rate which is determined as a base rate plus a
spread. The base rate is determined by the legal
agreements as either a bond or swap curve. The
spread approximates the level of risk attached to
the cash flows. When there is a change in the
base rate in the market, the valuation is adjusted
accordingly. The valuation model is calibrated to
reflect transaction price at initial recognition.
Deposits
Call and non-term Level 2 None - the The undiscounted amount of the deposit is the None - the undiscounted amount Not applicable
deposits undiscounted fair value due to the short term nature of the approximates fair value and no
amount is used instruments. These deposits are financial liabilities valuation is performed
with a demand feature and the fair value is not
less than the amount payable on demand i.e. the
undiscounted amount of the deposit.
Non-recourse Level 2 Discounted Fair value for interest rate and foreign exchange Market interest rates and foreign Not applicable
deposits cash flows risk with no valuation adjustment for own credit exchange rates, and credit inputs
risk. Valuation adjustments are affected for
changes in the applicable credit ratings of the
assets.
Deposits
Deposits that Level 3 Discounted These deposits represent the collateral leg of Market interest rates and curves Credit inputs on
represent cash flows credit linked notes. The forward curve adjusted for related advance
collateral on credit liquidity premiums and business unit margins. The
linked notes valuation methodology does not take early
withdrawals and other behavioural aspects into
account.
Other deposits Level 2 and Discounted The forward curve adjusted for liquidity premiums Market interest rates and curves Credit inputs
level 3 cash flows and business unit margins. The valuation
methodology does not take early withdrawals and
other behavioural aspects into account.
Other liabilities Level 2 Discounted Future cash flows are discounted using a Market interest rates and curves Not applicable
and Tier 2 cash flows market-related interest rate.
liabilities
Financial assets Level 2 and Discounted Future cash flows are discounted using a Market interest rates and curves Credit inputs
and liabilities not level 3 cash flows market-related interest rate and curves adjusted
measured at fair for credit inputs.
value but for
which fair value is
disclosed
During the current reporting period there were no changes in the valuation techniques used by the Group.
The following table presents the fair value measurements and fair value hierarchy of financial assets and liabilities of the Group recognised at fair value:
As at 31 December 2013
Total
R million Level 1 Level 2 Level 3 fair value
Assets
Derivative financial instruments 8 44 079 134 44 221
Advances* - 34 649 129 686 164 335
Investment securities and other investments 60 162 41 555 5 020 106 737
Non-recourse investments - 19 696 - 19 696
Total financial assets measured at fair value 60 170 139 979 134 840 334 989
Liabilities
Short trading positions 5 532 - - 5 532
Derivative financial instruments 24 48 801 11 48 836
Deposits 6 85 342 1 017 86 365
Non-recourse deposits - 19 696 - 19 696
Other liabilities - 171 - 171
Tier 2 liabilities - 1 041 - 1 041
Total financial liabilities measured at fair value 5 562 155 051 1 028 161 641
* Although the fair value of credit is not significant year-on-year it may become significant in future. For this reason, together with the fact that the majority of
South African counterparties do not have actively traded or observable credit spreads, the Group has classified loans and advances to customers in level 3 of the
fair value hierarchy. In the event that credit spreads are observable for a counterparty, loans and advances to customers are classified as level 2 of the fair value
hierarchy.
There were no transfers of financial instruments between level 1 and level 2 during the current reporting period.
Additional disclosures for Level 3 financial instruments
Changes in level 3 financial instruments
The following tables show a reconciliation of the opening and closing balances for financial assets and liabilities classified as level 3 in terms of the fair
value hierarchy.
As at 31 December 2013
Gains/
losses Pur-
Gains/ recog- chases,
losses nised in sales, Acqui-
Fair value recog- other issues sitions/ Exchange Fair value
on nised compre- and disposals Transfers Transfer rate on
30 June in profit hensive settle- of sub- into out of differ- 31 Dec
R million 2013 or loss income ments sidiaries level 3 level 3 ences 2013
Assets
Derivative financial instruments 110 20 - (4) - 8 - - 134
Advances 116 749 1 818 - 10 708 - - - 411 129 686
Investment securities and other
investments 5 330 70 54 (433) 3 - (14) 10 5 020
Total financial assets measured at fair
value in level 3 122 189 1 908 54 10 271 3 8 (14) 421 134 840
Liabilities
Derivative financial instruments - 1 - - - 10 - - 11
Deposits 1 517 196 - (727) - 19 - 12 1 017
Total financial liabilities measured at fair
value in level 3 1 517 197 - (727) - 29 - 12 1 028
Note: Decreases in the value of level 3 assets and liabilities are indicated with brackets. Decreases in the value of assets may be as a result of losses, sales and
settlements or the disposal of subsidiaries. Decreases in the value of liabilities may be as a result of gains, settlements or the disposal of subsidiaries.
During the current reporting period derivative financial instruments and deposits to the value of R37 million were transferred out of level 2 into level 3.
This transfer was as a result of certain unobservable inputs becoming significant to the calculation of fair value in current reporting periods. Investment
securities to the value of R14 million were transferred out of level 3 and into level 1. The transfer into level 1 was as a result of these investment
securities becoming listed on an exchange in an active market during the current period.
Unrealised gains or losses on level 3 financial instruments
The Group classifies financial assets or liabilities in level 3 of the fair value hierarchy when the significant inputs into the valuation model are not
observable. In addition the valuation model for level 3 financial assets or liabilities typically also relies on a number of inputs that are readily observable
either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable
inputs.
The table below presents the total gains/losses relating to fair value remeasurement of financial assets and liabilities classified in level 3 that are still held
at reporting date. With the exception of interest on funding instruments and available-for-sale financial assets, all of the gains or losses are recognised
in non-interest income.
As at 31 December 2013
Gains/losses
Gains/losses recognised in
recognised in other compre-
the income hensive Total
R million statement income gains/losses
Assets
Derivative financial instruments 25 - 25
Advances* 1 320 - 1 320
Investment securities and other investments 131 16 147
Total 1 476 16 1 492
Liabilities
Derivative financial instruments 10 - 10
Deposits 157 - 157
Total 167 - 167
* Amount mainly comprises of accrued interest on the fair value loans and advances and movements in interest rates that have been hedged.
Note: Decreases in the value of level 3 assets and liabilities are indicated with brackets. Decreases in the value of assets may be as a result of losses
recognised in profit or loss and other comprehensive income. Decreases in the value of liabilities may be as a result of gains recognised in profit or loss.
Effect of changes in significant unobservable assumptions of level 3 financial instruments to reasonably possible alternatives
As described, the fair value of financial assets and liabilities that are classified in level 3 of the fair value hierarchy is determined using valuation
techniques that make use of significant inputs that are not based on observable market data. These fair values could be sensitive to changes in the
assumptions used to derive the inputs. The table below illustrates the sensitivity of the significant inputs when they are changed to reasonably possible
alternative inputs:
As at 31 December 2013
Reasonably possible
alternative fair value
Using Using
more more
Reasonably positive negative
Significant possible changes Fair assump- assump-
R million unobservable inputs to significant unobservable inputs value tions tions
Assets
Derivative financial instruments Volatilities Volatilities are increased and 134 190 113
decreased by 10%
Advances Credit Credit migration matrix* 129 686 131 127 127 820
Investment securities and other investments Growth rates and P/E ratios of Unobservable inputs are 5 020 5 572 4 394
unlisted investments increased and decreased by 10%
Total financial assets measured at fair value in 134 840 136 889 132 327
level 3
Liabilities
Derivative financial instruments Volatilities Volatilities are increased and 11 11 11
decreased by 10%
Deposits Credit risk of the cash collateral Credit migration matrix** 1 017 916 1 117
leg of credit linked notes
Total financial liabilities measured at fair value 1 028 927 1 128
in level 3
* The credit migration matrix is used as part of the Group's credit risk management process for advances measured at fair value through profit or loss. The
matrix is a simulation model that contains a matrix of probabilities for downgrading or upgrading to another rating bucket. The migration matrix is based on
actual observed rating migrations from S&P over the long term and is based on the fair value in the 75th percentile.
** The deposits included in level 3 of the hierarchy represent the collateral leg of credit linked notes. The most significant unobservable input in determining fair
value of the credit linked notes is the credit risk component. The sensitivity to credit risk has been assessed in the same way as for advances using the credit
migration matrix with the deposit representing the cash collateral component thereof.
Other fair value measurements
The following represents the fair values of financial instruments not carried at fair value on the statement of financial position, for which fair value is
required to be disclosed:
As at 31 December 2013
Carrying
R million amount Fair value
Assets
Advances 471 108 467 257
Investment securities and other investments 848 848
Total financial assets at amortised cost 471 956 468 105
Liabilities
Deposits 620 970 622 027
Other liabilities 4 412 4 260
Tier 2 liabilities 7 086 7 162
Total financial liabilities at amortised cost 632 468 633 449
For all other financial instruments the carrying value is equal to or a reasonable approximation of the fair value.
Day 1 profit or loss
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the entry or exit price) unless the fair value
of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or
repackaging) or based on a valuation technique whose variables include only data from observable markets. Day 1 profit or loss arises on the initial
recognition of a financial instrument when the fair value of the instrument is determined using a valuation technique that makes use of inputs that are
not observable in an active market. In terms of IAS 39 if the fair value determined in accordance with such a valuation technique differs from the
transaction price the initial recognition should take place at the transaction price. The day 1 profits or losses arising as a result of the difference
between the two values should only be recognised over the life of the instrument as a result of changes that would also be considered by market
participants.
The following table represents the aggregate difference between transaction price and fair value based on a valuation technique yet to be recognised in
profit or loss:
R million 2013
Balance at 1 July 28
Day 1 profits or losses not recognised on financial instruments initially recognised in the current reporting period -
Amount recognised in profit or loss as a result of changes which would be observable by market participants (4)
Balance at 31 December 24
FINANCIAL INSTRUMENTS SUBJECT TO OFFSETTING, MASTER NETTING ARRANGEMENTS AND SIMILAR AGREEMENTS
In accordance with IAS 32, the Group offsets financial assets and financial liabilities and presents the net amount in the statement of financial position
only if there is both a legally enforceable right to offset and there is an intention to settle the amounts on a net basis or to realise the asset and settle
the liability simultaneously. Financial assets and financial liabilities subject to master netting arrangements (MNA) or similar agreements are not offset if
the right to offset under these agreements is only enforceable in the event of default, insolvency or bankruptcy.
The tables below include information about financial assets and financial liabilities that are offset and the net amount presented in the Group's statement of financial position in accordance with the requirements of IAS 32;
and subject to enforceable MNA or similar agreements where the amounts have not been offset because one or both of the requirements of IAS 32 are not met or the amounts relate to financial collateral (cash or non-cash)
that mitigates credit risk.
As at 31 December 2013 As at 31 December 2013
Financial instruments subject to offsetting agreements, Financial instruments subject to offsetting agreements,
master netting agreement and similar agreements master netting agreement and similar agreements
Amounts where offsetting is applied Amounts where offsetting is not applied
Financial
Net amount instruments Financial
reported in subject to instruments Total
the statement MNA not subject statement
Gross Amounts of financial and similar Financial to set off of financial
R million amount set off position* agreements collateral** Net amount or MNA position#
Assets
Derivatives 46 943 6 819 40 124 33 522 2 398 4 204 4 097 44 221
Reverse repurchase, securities borrowing and similar arrangements 31 606 7 627 23 979 1 351 22 628 - 12 620 36 599
Other advances 3 045 3 045 - - - - 598 844 598 844
Total 81 594 17 491 64 103 34 873 25 026 4 204 615 561 679 644
Liabilities
Derivatives 51 005 6 819 44 186 33 522 934 9 730 4 650 48 836
Repurchase, securities lending and similar arrangements 35 731 7 627 28 103 1 351 26 752 - 10 446 38 549
Other deposits 3 423 3 045 379 - - 379 688 104 688 483
Total 90 159 17 491 72 668 34 873 27 686 10 109 703 200 775 868
* The net amount reported on the statement of financial position represents the net amount of financial assets and financial liabilities
where offsetting has been applied in terms of IAS 32 and financial instruments that are subject to MNA and similar agreements but no
offsetting has been applied.
** The financial collateral is limited to the net statement of financial position exposure in line with the requirements of IFRS 7 and
excludes the effect of any over-collateralisation. The amount of collateral included in the table for IFRS 7 disclosure purposes has been
determined at a business unit level. If these limits were determined on a Group-wide level, the amount of collateral included in this table
could increase.
# The total amount reported on the statement of financial position is the sum of the net amount and the amount of financial instruments
not subject to set off or MNA.
As at 31 December 2012 As at 31 December 2012
Financial instruments subject to offsetting agreements, Financial instruments subject to offsetting agreements,
master netting agreement and similar agreements master netting agreement and similar agreements
Amounts where offsetting is applied Amounts where offsetting is not applied
Financial
Net amount instruments Financial
reported in subject to instruments Total
the statement MNA not subject statement
Gross Amounts of financial and similar Financial to set off of financial
R million amount set off position* agreements collateral** Net amount or MNA position#
Assets
Derivatives 62 756 11 040 51 716 45 349 1 240 5 127 4 535 56 251
Reverse repurchase, securities borrowing and similar arrangements 46 121 12 335 33 786 1 955 31 831 - 10 419 44 205
Other advances 3 427 3 427 - - - - 521 244 521 244
Total 112 304 26 802 85 502 47 304 33 071 5 127 536 198 621 700
Liabilities
Derivatives 66 992 11 040 55 952 45 349 2 891 7 712 2 332 58 284
Repurchase, securities lending and similar arrangements 38 717 12 335 26 382 1 955 24 427 - 6 583 32 965
Other deposits 3 980 3 427 553 - - 553 617 857 618 410
Total 109 689 26 802 82 887 47 304 27 318 8 265 626 772 709 659
* The net amount reported on the statement of financial position represents the net amount of financial assets and financial liabilities where offsetting has been applied in terms of IAS 32 and financial instruments that are subject to MNA
and similar agreements but no offsetting has been applied.
** The financial collateral is limited to the net statement of financial position exposure in line with the requirements of IFRS 7 and excludes the effect of any over-collateralisation. The amount of collateral included in the table for IFRS 7
disclosure purposes has been determined at a business unit level. If these limits were determined on a Group-wide level, the amount of collateral included in this table could increase.
# The total amount reported on the statement of financial position is the sum of the net amount and the amount of financial instruments not subject to set off or MNA.
As at 30 June 2013 As at 30 June 2013
Financial instruments subject to offsetting agreements, Financial instruments subject to offsetting agreements,
master netting agreement and similar agreements master netting agreement and similar agreements
Amounts where offsetting is applied Amounts where offsetting is not applied
Financial
Net amount instruments Financial
reported in subject to instruments Total
the statement MNA not subject statement
Gross Amounts of financial and similar Financial to set off of financial
R million amount set off position* agreements collateral** Net amount or MNA position#
Assets
Derivatives 56 216 8 179 48 037 39 543 3 029 5 465 4 240 52 277
Reverse repurchase, securities borrowing and similar arrangements 46 379 10 098 36 281 1 179 35 102 - 4 281 40 562
Other advances 2 861 2 861 - - - - 560 503 560 503
Total 105 456 21 138 84 318 40 722 38 131 5 465 569 024 653 342
Liabilities
Derivatives 57 689 8 179 49 510 39 543 726 9 241 3 498 53 008
Repurchase, securities lending and similar arrangements 40 311 10 098 30 213 1 179 29 034 - 7 560 37 773
Other deposits 3 294 2 861 433 - - 433 658 829 659 262
Total 101 294 21 138 80 156 40 722 29 760 9 674 669 887 750 043
* The net amount reported on the statement of financial position represents the net amount of financial assets and financial liabilities where offsetting has been applied in terms of IAS 32 and financial instruments that are subject to MNA
and similar agreements but no offsetting has been applied.
** The financial collateral included in the table above is limited to the net statement of financial position exposure in line with the requirements of IFRS 7 and excludes the effect of any over-collateralisation. The amount of collateral
included in the table for IFRS 7 disclosure purposes has been determined at a business unit level. If these limits were determined on a Group-wide level, the amount of collateral included in this table could increase.
# The total amount reported on the statement of financial position is the sum of the net amount and the amount of financial instruments not subject to set off or MNA.
Details of the offsetting and collateral arrangements
Derivative assets and liabilities
The Group's derivative transactions that are not transacted on an exchange are entered into under International Derivatives Swaps and Dealers Association (ISDA) master netting agreements. Generally, under such
agreements the amounts owed by each counterparty that are due on a single day in respect of all transactions outstanding in the same currency under the agreement are aggregated into a single net amount being payable
by one party to the other. In certain circumstances, for example, when a credit event such as default occurs, all outstanding transactions under the agreement are terminated, the termination value is assessed and only a
single net amount is due or payable in settlement of all transactions (close-out netting).
The Group only offsets derivative financial assets and financial liabilities with a counterparty under ISDA agreements where the amounts are due on a single day and in the same currency. The Group's intention to settle
these transactions on a net basis is evidenced by a past practice of settling similar transactions on a net basis. The remaining financial assets and financial liabilities (where amounts are not due on a single day and in the
same currency) transacted under an ISDA agreement do not meet the IAS 32 requirements for offsetting. This is because a right of set off is created that is only enforceable in the event of default, insolvency or bankruptcy
of the Group or the counterparties. These amounts are, however, included in the table above under the financial instruments subject to MNA and similar agreements column.
To mitigate credit risk financial collateral (mostly cash) is also obtained, often daily, for the net exposure between counterparties.
Repurchase, reverse repurchase and securities borrowing and lending transactions
The Group's repurchase, reverse repurchase and securities borrowing and lending transactions are covered by master agreements with netting terms
similar to those of the ISDA master netting agreements. These financial assets and financial liabilities with the same counterparty are only set off in the
statement of financial position if they are due on a single day, denominated in the same currency and the Group has the intention to settle these
amounts on a net basis.
The Group receives and accepts collateral for these transactions in the form of cash and other investments and investment securities.
Other advances and deposits
The advances and deposits that are offset relate to transactions where the Group has a legally enforceable right to offset the amounts and the Group
has the intention to settle the net amount.
RESTATEMENT OF PRIOR YEAR NUMBERS
Description of restatements
IFRS 10, IFRS 11, IFRS 12, IAS 27R and IAS 28R
Under IFRS 10 there is one approach for determining consolidation of all entities based on concepts of power, variability of returns and linkage. The
application of control will be applied irrespective of the nature of the investee. The Group has control over an investee when the Group is exposed,
or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
IFRS 11 places more focus on the investors' rights and obligations than on the structure of the arrangement when determining whether a joint
arrangement exists.
IFRS 12 is a comprehensive standard on disclosure requirements for all forms of interests in other entities, including unconsolidated structured entities.
The standard impacts disclosure only and has no impact on recognition and measurement.
The adoption of IFRS 10 and 11 resulted in the following:
- Reclassification of a number of entities between associates and joint ventures. As it has always been the Group's policy to account for joint ventures
in accordance with the equity accounting method, reclassification did not result in a change in measurement.
- A number of structured entities no longer meet the control criteria in terms of IFRS 10 and consequently are no longer consolidated.
- An investment previously classified as an associate was considered to be controlled under IFRS 10.
- Insurance cell captives do not meet the definition of asset silos in terms of IFRS 10 and do not qualify for consolidation. The cell captives are now
treated as profit share arrangements and the income arising from the arrangements is included in other non-interest revenue and the unsettled income
in accounts receivable. Certain insurance contracts of the cells are now considered to be plan assets in terms of IAS 19.
IAS 19
Amendments to IAS 19 require that all actuarial gains and losses in respect of defined benefit post-employment plans are recognised in other
comprehensive income. In addition, the standard no longer requires the expected return on plan assets to be recognised in profit or loss, rather a
net interest income/expense be recognised on the net asset or liability. All other remeasurements relating to plan assets are also recognised in other
comprehensive income.
Loans to associates
In accordance with IAS 28, the Group's net investment in associates and joint ventures includes loans for which settlement is neither planned
nor likely in the foreseeable future. The Group historically included these loans as part of investment in associates and joint ventures and reflected these
on the statement of financial position.
Given the underlying debt nature of these loans and developing industry practice, the Group has decided to present these as advances. The loans
will continue to form part of the Group's net investment in associates or joint ventures for purposes of determining the share of losses of the
investee attributable to the Group and for impairment.
The change in presentation had no impact on the net asset value of the Group, only on the classification of items on the statement of financial position.
RESTATED CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 2012 - IFRS
Reclass-
As ification
previously IFRS 10 of loans to
R million reported and 11 IAS 19 associates Restated
Net interest income before impairment of advances 12 376 30 - 2 12 408
Impairment of advances (2259) - - 9 (2 250)
Net interest income after impairment of advances 10 117 30 - 11 10 158
Non-interest income 15 735 (498) - - 15 237
Income from operations 25 852 (468) - 11 25 395
Operating expenses (15 652) 303 7 (11) (15 353)
Net income from operations 10 200 (165) 7 - 10 042
Share of profit of associates and joint ventures after tax 298 (5) - - 293
Income before tax 10 498 (170) 7 - 10 335
Indirect tax (462) - - - (462)
Profit before tax 10 036 (170) 7 - 9 873
Income tax expense (2 462) 207 - - (2 255)
Profit for the period 7 574 37 7 - 7 618
Attributable to:
Ordinary equityholders 7 019 79 7 - 7 105
NCNR preference shareholders 150 - - - 150
Equityholders of the Group 7 169 79 7 - 7 255
Non-controlling interests 405 (42) - - 363
Profit for the period 7 574 37 7 - 7 618
RESTATED CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 DECEMBER 2012 - IFRS
Reclass-
As ification
previously IFRS 10 of loans to
R million reported and 11 IAS 19 associates Restated
Profit for the period 7 574 37 7 - 7 618
Items that may subsequently be reclassified to profit or loss
Cash flow hedges (89) - - - (89)
Losses arising during the period (453) - - - (453)
Reclassification adjustments for amounts included in profit or loss 329 - - - 329
Deferred income tax 35 - - - 35
Available-for-sale financial assets 445 (14) - - 431
Gains arising during the period 579 (14) - - 565
Reclassification adjustments for amounts included in profit or loss (1) - - - (1)
Deferred income tax (133) - - (133)
Exchange differences on translating foreign operations 323 (8) - - 315
Gains arising during the period 323 (8) - - 315
Share of other comprehensive income of associates and joint ventures
after tax and non-controlling interests 24 - - - 24
Items that may not be reclassified to profit or loss
Actuarial losses on defined benefit pension plans - - (22) - (22)
Losses arising during the period - - (32) - (32)
Deferred income tax relating to items that will not be reclassified - - 10 - 10
Other comprehensive income for the period 703 (22) (22) - 659
Total comprehensive income for the period 8 277 15 (15) - 8 277
Attributable to:
Ordinary equityholders 7 703 60 (15) - 7 748
NCNR preference shareholders 150 - - - 150
Equityholders of the Group 7 853 60 (15) - 7 898
Non-controlling interests 424 (45) - - 379
Total comprehensive income for the period 8 277 15 (15) - 8 277
RESTATED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2012 - IFRS
Reclass-
As ification
previously IFRS 10 of loans to
R million reported and 11 IAS 19 associates Restated
ASSETS
Cash and cash equivalents 52 695 (1 125) - - 51 570
Derivative financial instruments 56 502 (251) - - 56 251
Commodities 8 003 - - - 8 003
Accounts receivable 6 400 385 - (30) 6 755
Current tax asset 606 (4) - - 602
Advances 563 038 592 - 1 819 565 449
Investment securities and other investments 113 944 (3 071) - - 110 873
Investments in associates and joint ventures 7 040 1 - (1 789) 5 252
Property and equipment 13 207 (687) - - 12 520
Intangible assets 1 557 - - - 1 557
Reinsurance assets 846 - - - 846
Post-employment benefit asset 8 - (8) - -
Investment properties 452 - - - 452
Deferred income tax asset 524 (169) - - 355
Non-current assets and disposal groups held for sale 505 - - - 505
Total assets 825 327 (4 329) (8) - 820 990
EQUITY AND LIABILITIES
Liabilities
Short trading positions 9 219 - - - 9 219
Derivative financial instruments 58 284 - - - 58 284
Creditors and accruals 8 788 (55) - - 8 733
Current tax liability 289 (54) - - 235
Deposits 651 349 26 - - 651 375
Provisions 584 - - - 584
Employee liabilities 6 671 (2 591) 557 - 4 637
Other liabilities 5 401 (579) - - 4 822
Policyholder liabilities under insurance contracts 1 543 (436) - - 1 107
Deferred income tax liability 1 498 (318) - - 1 180
Tier 2 liabilities 8 120 - - - 8 120
Liabilities directly associated with disposal groups held for sale 83 - - - 83
Total liabilities 751 829 (4 007) 557 - 748 379
Equity
Ordinary shares 55 - - - 55
Share premium 5 387 214 - - 5 601
Reserves 60 832 (427) (565) - 59 840
Capital and reserves attributable to ordinary equityholders 66 274 (213) (565) - 65 496
NCNR preference shareholders 4 519 - - - 4 519
Capital and reserves attributable to equityholders of the Group 70 793 (213) (565) - 70 015
Non-controlling interests 2 705 (109) - - 2 596
Total equity 73 498 (322) (565) - 72 611
Total equity and liabilities 825 327 (4 329) (8) - 820 990
RESTATED CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2013 - IFRS
Reclass-
As ification
previously IFRS 10 of loans to
R million reported and 11 IAS 19 associates Restated
Net interest income before impairment of advances 24 715 54 - - 24 769
Impairment of advances (4812) 20 - (15) (4807)
Net interest income after impairment of advances 19 903 74 - (15) 19 962
Non-interest income 31 614 (880) - - 30 734
Income from operations 51 517 (806) - (15) 50 696
Operating expenses (31 486) 667 15 - (30 804)
Net income from operations 20 031 (139) 15 (15) 19 892
Share of profit of associates and joint ventures after tax 824 (15) - 15 824
Income before tax 20 855 (154) 15 - 20 716
Indirect tax (645) - - - (645)
Profit before tax 20 210 (154) 15 - 20 071
Income tax expense (4 532) 415 - - (4 117)
Profit for the year 15 678 261 15 - 15 954
Attributable to:
Ordinary equityholders 14 539 231 15 - 14 785
NCNR preference shareholders 297 - - - 297
Equityholders of the Group 14 836 231 15 - 15 082
Non-controlling interests 842 30 - - 872
Profit for the year 15 678 261 15 - 15 954
RESTATED CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013 - IFRS
Reclass-
As ification
previously IFRS 10 of loans to
R million reported and 11 IAS 19 associates Restated
Profit for the year 15 678 261 15 - 15 954
Items that may subsequently be reclassified to profit or loss
Cash flow hedges 853 - - - 853
Gains arising during the year 417 - - - 417
Reclassification adjustments for amounts included in profit or loss 768 - - - 768
Deferred income tax (332) - - - (332)
Available-for-sale financial assets (89) (15) - - (104)
Losses arising during the year (102) (15) - - (117)
Reclassification adjustments for amounts included in profit or loss (33) - - - (33)
Deferred income tax 46 - - - 46
Exchange differences on translating foreign operations 990 8 - - 998
Gains arising during the year 990 8 - - 998
Share of other comprehensive income of associates and joint ventures
after tax and non-controlling interests 129 - - - 129
Items that may not be reclassified to profit or loss
Actuarial gains on defined benefit pension plans - - 22 22
Gains arising during the year - - 30 30
Deferred income tax relating to items that will not be reclassified - - (8) (8)
Other comprehensive income for the year 1 883 (7) 22 - 1 898
Total comprehensive income for the year 17 561 254 37 - 17 852
Attributable to:
Ordinary equityholders 16 358 230 37 - 16 625
NCNR preference shareholders 297 - - - 297
Equityholders of the Group 16 655 230 37 - 16 922
Non-controlling interests 906 24 - - 930
Total comprehensive income for the year 17 561 254 37 - 17 852
RESTATED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2013 - IFRS
Reclass-
As ification
previously IFRS 10 of loans to
R million reported and 11 IAS 19 associates Restated
ASSETS
Cash and cash equivalents 49 620 (1 055) - - 48 565
Derivative financial instruments 52 316 (39) - - 52 277
Commodities 6 016 - - - 6 016
Accounts receivable 7 471 333 - - 7 804
Current tax asset 275 (9) - - 266
Advances 598 975 488 - 1 602 601 065
Investment securities and other investments 131 293 (2 905) - - 128 388
Investments in associates and joint ventures 6 992 6 - (1 602) 5 396
Property and equipment 14 058 (605) - - 13 453
Intangible assets 1 169 - - - 1 169
Reinsurance assets 394 - - - 394
Post-employment benefit asset 13 - (13) - -
Investment properties 459 - - - 459
Deferred income tax asset 598 (138) - - 460
Non-current assets and disposal groups held for sale 20 - - - 20
Total assets 869 669 (3 924) (13) - 865 732
EQUITY AND LIABILITIES
Liabilities
Short trading positions 2 991 - - - 2 991
Derivative financial instruments 53 013 (5) - - 53 008
Creditors and accruals 11 155 (76) - - 11 079
Current tax liability 553 (40) - - 513
Deposits 697 005 30 - - 697 035
Provisions 600 - - - 600
Employee liabilities 8 092 (2 546) 311 - 5 857
Other liabilities 6 669 (568) - - 6 101
Policyholder liabilities under insurance contracts 1 112 (466) - - 646
Deferred income tax liability 735 18 - - 753
Tier 2 liabilities 8 116 - - - 8 116
Total liabilities 790 041 (3 653) 311 - 786 699
Equity
Ordinary shares 55 - - - 55
Share premium 5 397 212 - - 5 609
Reserves 66 733 (455) (324) - 65 954
Capital and reserves attributable to ordinary equityholders 72 185 (243) (324) - 71 618
NCNR preference shareholders 4 519 - - - 4 519
Capital and reserves attributable to equityholders of the Group 76 704 (243) (324) - 76 137
Non-controlling interests 2 924 (28) - - 2 896
Total equity 79 628 (271) (324) - 79 033
Total equity and liabilities 869 669 (3 924) (13) - 865 732
RESTATED RECONCILIATION OF IFRS CONDENSED CONSOLIDATED INCOME STATEMENT TO NORMALISED FOR THE SIX MONTHS ENDED 31
DECEMBER 2012
Normalised adjustments
Private
equity
IFRS IAS 19 subsidiary HEPS
As adjust- Treasury adjust- Impair- reali- adjust- As
R million reported ments shares ments ment sations ments restated
Net interest income before impairment of advances 13 606 32 (9) - - - - 13 629
Impairment of advances (2 518) 9 - - - - - (2 509)
Net interest income after impairment of advances 11 088 41 (9) - - - - 11 120
Non-interest income 14 237 (498) 4 - - 7 (13) 13 737
Income from operations 25 325 (457) (5) - - 7 (13) 24 857
Operating expenses (15 120) 299 - (78) 248 - 8 (14 643)
Net income from operations 10 205 (158) (5) (78) 248 7 (5) 10 214
Share of profit of associates and joint ventures after tax 289 (5) - - - - - 284
Income before tax 10 494 (163) (5) (78) 248 7 (5) 10 498
Indirect tax (462) - - - - - - (462)
Profit before tax 10 032 (163) (5) (78) 248 7 (5) 10 036
Income tax expense (2 442) 207 - 22 (69) - - (2 282)
Profit for the period 7 590 44 (5) (56) 179 7 (5) 7 754
Attributable to:
Non-controlling interests (405) 42 - - - - 2 (361)
NCNR preference shareholders (150) - - - - - - (150)
Ordinary equityholders of the Group 7 035 86 (5) (56) 179 7 (3) 7 243
Headline and normalised earnings adjustments 183 - - - (179) (7) 3 -
Normalised earnings 7 218 86 (5) (56) - - - 7 243
RESTATED RECONCILIATION OF IFRS CONDENSED CONSOLIDATED INCOME STATEMENT TO NORMALISED FOR THE YEAR ENDED 30 JUNE 2013
Normalised adjustments
Private
equity
IFRS IAS 19 subsidiary HEPS
As adjust- Treasury adjust- reali- adjust- As
R million reported ments shares ments sations ments restated
Net interest income before impairment of advances 28 064 54 (18) - - - 28 100
Impairment of advances (5 705) 5 - - - - (5 700)
Net interest income after impairment of advances 22 359 59 (18) - - - 22 400
Non-interest income 28 244 (880) 12 - 42 (153) 27 265
Income from operations 50 603 (821) (6) - 42 (153) 49 665
Operating expenses (29 645) 682 - (153) - 52 (29 064)
Net income from operations 20 958 (139) (6) (153) 42 (101) 20 601
Share of profit of associates and joint ventures after tax 817 - - - - (14) 803
Income before tax 21 775 (139) (6) (153) 42 (115) 21 404
Indirect tax (645) - - - - - (645)
Profit before tax 21 130 (139) (6) (153) 42 (115) 20 759
Income tax expense (4 682) 415 - 43 - 34 (4 190)
Profit for the year 16 448 276 (6) (110) 42 (81) 16 569
Attributable to:
Non-controlling interests (842) (30) - - - 20 (852)
NCNR preference shareholders (297) - - - - - (297)
Ordinary equityholders of the Group 15 309 246 (6) (110) 42 (61) 15 420
Headline and normalised earnings adjustment 14 (33) - - (42) 61 -
Normalised earnings 15 323 213 (6) (110) - - 15 420
CONTINGENCIES AND COMMITMENTS
As at
As at 31 December 30 June
R million 2013 2012 % change 2013
Contingencies
Guarantees 33 463 22 363 50 30 137
Acceptances 278 285 (2) 270
Letters of credit 7 703 8 688 (11) 8 925
Total contingencies 41 444 31 336 32 39 332
Capital commitments
Contracted capital commitments 1 653 1 496 10 1 585
Capital expenditure authorised not yet contracted 988 1 390 (29) 1 902
Total capital commitments 2 641 2 886 (8) 3 487
Other commitments
Irrevocable commitments 81 411 73 059 11 78 783
Operating lease and other commitments 3 099 3 225 (4) 3 113
Total other commitments 84 510 76 284 11 81 896
Total contingencies and commitments 128 595 110 506 16 124 715
Company information
Directors
LL Dippenaar (Chairman), SE Nxasana (Chief executive officer), VW Bartlett, JJH Bester, MS Bomela, JP Burger (Deputy chief executive officer), P
Cooper (alternate), L Crouse, JJ Durand, GG Gelink, PM Goss, NN Gwagwa, PK Harris, WR Jardine, HS Kellan (Financial director), EG Matenge-
Sebesho, AT Nzimande, D Premnarayen (India), KB Schoeman, BJ van der Ross, JH van Greuning
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 1808
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
JSE independent sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Ltd
2 Eglin Road
Sunninghill
Sandton 2196
Namibian sponsor
Simonis Storm Securities (Pty) Ltd
4 Koch Street
Klein Windhoek
Namibia
Transfer secretaries - South Africa
Computershare Investor Services (Pty) Ltd
70 Marshall Street
Johannesburg 2001
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
Sandton
4 March 2014
Sponsor
Rand Merchant Bank
(a division of FirstRand Bank Limited)
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