ANNOUNCEMENT OF RMH CONDENSED UNAUDITED INTERIM RESULTS, CASH DIVIDEND DECLARATION AND BOARD CHANGES

Transcription

1 RMB HOLDINGS LIMITED (Incorporated in the Republic of South Africa) Registration number: 1987/005115/06 JSE Ordinary share code: RMH ISIN code: ZAE ANNOUNCEMENT OF RMH CONDENSED UNAUDITED INTERIM RESULTS, CASH DIVIDEND DECLARATION AND BOARD CHANGES Basis of preparation This report covers the unaudited interim financial results of RMB Holdings Limited (RMH), based on International Financial Reporting Standards (IFRS), for the six months. The primary results and accompanying commentary are presented on a normalised basis as we believe this most accurately reflects the group s underlying economic performance. The normalised earnings have been derived from the unaudited, IFRS financial results. A reconciliation of the adjustments made to derive normalised earnings is presented in the accompanying schedules. Refer below. Ellen Marais CA(SA) prepared these financial results under the supervision of Herman Bosman LLM CFA. Value created for the six months (comparatives at 2016) Net asset value up 8 to R42.7 billion (2016: R39.5 billion) Intrinsic value of portfolio up 27 to R127.5 billion (2016: R100.5 billion) Market capitalisation up 19 to R111.8 billion (2016: R93.7 billion) Net income up 3 to R4.2 billion (2016: R4.0 billion) Headline earnings up 6 to R4.2 billion (2016: R4.0 billion) Normalised earnings up 7 to R4.2 billion (2016: R3.9 billion) Dividend per share up 10 to 168 cents (2016: 153 cents) ABOUT RMH RMH is a top 40 JSE-listed investment holding company with a 34 share in FirstRand and 100 of RMH property Leading South African businessmen, GT Ferreira, Laurie Dippenaar and Paul Harris, founded RMH s forerunner 41 years ago. Since its listing in 1992, RMH has provided shareholders with a vehicle to co-invest with the founders of FirstRand. In 2011, the insurance interests were separately listed as Rand Merchant Investment Holdings Limited (RMI). In 2016, RMH expanded its investment strategy to include a property investment business, comprising scalable entrepreneur-led businesses with proven track records in managing and building out property portfolios. Investment portfolio RMH s main interest is its 34 investment in separately-listed FirstRand Limited (FirstRand), generally regarded as southern Africa s pre-eminent financial services group, with a market capitalisation of R377.2 billion at (2016: R298.3 billion). The extension of the investment strategy into property involved the acquisition of a 27.5 interest in Atterbury Property Holdings Proprietary Limited (Atterbury), a 34.1 interest in Propertuity Development Proprietary Limited (Propertuity), an urban renewal business and 40 of Genesis Properties Three Proprietary Limited (Genesis Properties), a mezzanine debt and equity funding business, to form RMH Property. A management ownership participation scheme with maximum participation of 10 in RMH Property has been put in place. Investment policy RMH invests in businesses that can deliver superior earnings, dividend growth and sustained long-term capital growth. We specifically target the wider financial services industry and industries complementary to our current portfolio. Dividend policy RMH has a stated policy of returning net dividends (after providing for funding and operational costs incurred at the centre) received in the ordinary course of business to shareholders. Funding costs are expected to increase during the build phase of RMH Property. End of an era GT Ferreira has been RMH s chairman since inception and a driving force behind the group s value creation and relentless pursuit of high values. He has been involved in the financial services sector since graduating with commerce degrees from the University of Stellenbosch. In a stellar career, he was a driving force in building significant businesses and wealth. In April he will turn 70 and, with that, reach the point of compulsory retirement. Joining him are Pat Goss, Jan Dreyer and Khehla Shubane. These directors have a combined service of more than 130 years. RMH would like to thank these directors for their wisdom, innovation and commitment to RMH. Their leadership has created a legacy of leading financial services businesses such as FirstRand, Discovery, MMI Holdings and OUTsurance. The combined value of these businesses is R566 billion. RMH achieved shareholder returns of more than 25 per annum since Whilst GT will be sorely missed by his peers, his legacy shall remain. A set of unique values has been instilled in RMH with the most noticeable the ethos of an owner-manager culture. These values will ensure that the set strategy will be implemented with integrity and discipline to create further value for stakeholders.

2 PERFORMANCE AND OUTLOOK External environment The South African economy has already experienced a positive impact as a result of the improved domestic political environment, most notably in the strengthening in the local currency and improved business confidence. That, together with the broad-based upturn in the global economy, has improved the prospects for GDP growth. However, a number of major hurdles still remain. Whilst the economy is expected to recover moderately in 2018 and 2019 on the back of higher prices for commodities, growth will remain constrained if structural imbalances in the economy are not addressed. This is further hampered by high profile corporate failures and critical water shortages in various parts of the country. FNB SA Economic Forecasts F 2018F 2019F Real GDP growth Unemployment CPI average Rand/Dollar average Despite the challenges associated with the political uncertainty and other pressures during the last half of, RMH, on the back of a resilient performance by FirstRand, produced satisfactory results, in keeping with its commitment to long-term value creation. Value created RMH produced satisfactory results for the six months : - Normalised earnings increased 7 to R4.2 billion (2016: R3.9 billion). Normalised earnings per share amounted to cents per share (2016: cents per share). RMH s core investment, FirstRand, produced a resilient performance despite the challenging economic climate, increasing normalised earnings by 7 (2016:7) and delivering a return on equity (ROE) of 22.5 (2016:22.9). FirstRand franchises, FNB and RMB, produced strong operating results as WesBank came under pressure. The results of RMH Property were negatively impacted as the property sector faced strong headwinds. - Market capitalisation increased by 19 to R111.8 billion (2016: R93.7 billion). - Dividends for the period distributed to shareholders increased by 10 to cents per share (2016: cents per share). Sources of income FirstRand s well-diversified income stream provides a universal set of transactional, lending, investment and insurance products and services. RMH s normalised earnings, predominantly sourced from South Africa, are made up as follows: six months FNB RMB WesBank (1) Other* (48) 772 FirstRand normalised earnings Attributable to RMH RMH Property (15) 7 >(100) 8 Centre costs (60) (84) (30) (176) RMH normalised earnings * Other is the total of FCC including group treasury and preference dividend paid on perpetual preference shares issued by FirstRand. It further includes capital endowment, the impact of accounting mismatches, interest rate management and foreign currency liquidity management. Underlying intrinsic value At, RMH s market capitalisation had increased by 19 year-on-year. At that date, it amounted to R111.8 billion (2016: R93.7 billion) or cents (2016: cents) per share. This represented a 14.1 discount (2016: 7.2 discount) to RMH s underlying intrinsic value. Net asset value per share increased 8 to cents (2016: cents) per share. six months Market value of listed interest (FirstRand) Book value of RMH Property* (19) 899 Net funding* (1 876) (1 990) (6) (1 546) Total intrinsic value Intrinsic value per share (cents) Net asset value per share (cents) * Recalculated on a consistent basis. Stated after impairment of associates totalling R174 million.

3 Discount to underlying intrinsic value Since the unbundling of RMI in 2011, RMH has traded at an average 1.1 discount compared to the underlying intrinsic value of its investments. Over the last three and five years respectively, RMH has traded at an average discount of 3.6 and 5.9. It is widely accepted and empirically observed that holding companies typically trade at a discount due to frictional costs such as central head-office costs and tax. Notwithstanding the 70 increase in RMH s share price since 1 August (up to 5 March 2018), RMH has traded at an average 11.6 discount to its intrinsic value since 1 August, peaking at 17.4 on 15 February The board believes that the recent widening of the discount is not a structural deviation from historical performance and can be attributed to s in liquidity and volatility patterns on the JSE. Shareholders are referred to the document entitled, "Reflections on RMH's recent trading in relation to underlying intrinsic value" on the RMH website, for a more detailed assessment. Interim dividend payment The board of RMH has resolved to declare a gross interim dividend of cents per share (2016: cents). The dividend is covered 1.8 times (2016: 1.8 times) by normalised earnings per share and represents a year-on-year increase of 10 (2016: 8). Update on RMH S strategy RMH s aim is to be a value-adding active enabler of leadership and innovation in banking and property. Our objective is to create a portfolio of businesses which are market-leaders and can deliver sustainable earnings, an attractive dividend yield and capital growth. We pursue opportunities in the changing financial services landscape which meet our stringent criteria and strong values. - Diversification We are constantly evaluating opportunities to expand the services of our existing investees or add new investments, thereby creating more value. - Optimisation We focus on continuously improving the value our investees provide in order to create better value for our shareholders. - Modernisation We are well aware of renewal in our industries and will acquire proven businesses or invest in start-ups with special opportunities and drivers, which can create new value. RMH has consistently measured its performance in terms of normalised earnings, which adjusts headline earnings to take into account non-operational items and accounting anomalies. detailed calculation of normalised earnings in respect of the current and prior period, refer below. The true value created is measured in terms of capital growth, which reflects the growth in the underlying value of our investments. For a detailed analysis of RMH s intrinsic and net asset value, refer to the underlying intrinsic value table above. RMH measures the success of its active, value-adding portfolio management strategy to its stakeholders in the form of investments that can deliver superior earnings, dividend growth and sustained long-term capital growth. The above does not preclude RMH from considering opportunities to sell and achieve a premium for FirstRand or parts thereof or an unbundling, as the case may be, at the appropriate time. Outlook and future value creation Management will focus on the following in the period ahead: - Diversify Diversification of income stream and distribution of assets Management will focus on the newly-created property business in identifying opportunities for both the core portfolio and specialist portfolio. It will evaluate expanding RMH s geographic footprint further, either independently and/or through the existing portfolio. - Optimise Optimisation of our established investments Management will continue its strategic dialogue and activity across the portfolio. It will assist with creating leadership stability and succession planning. - Modernise Modernisation RMH will continue to identify new businesses, technologies and industry trends to complement RMH and its investee companies. RMH was instrumental in FirstRand s acquisition of Aldermore plc (see below). This demonstrates the value of RMH as a strategic shareholder and delivers on the strategy of diversification, optimisation and modernisation. We remain confident that both our clear strategy, in conjunction with the solid investment portfolio and underpinned by unwavering values, will allow RMH to continue delivering on its primary objective of creating sustainable, long-term value for shareholders. For and on behalf of the board GT Ferreira JJ Durand HL Bosman Chairman Deputy chairman Chief executive Sandton 7 March 2018

4 INTERIM DIVIDEND DECLARATION Notice is hereby given that a gross interim dividend of cents per share, payable out of income reserves, was declared on 7 March 2018 in respect of the six months. The dividend will be subject to Dividend Withholding Tax at a rate of 20, which will result in a net dividend of cents per share for those shareholders who are not exempt. The company s tax reference number is 9950/098/71/6. Its issued share capital at the declaration date comprises ordinary shares and redeemable preference shares. Shareholders attention is drawn to the following important dates: - Last day to trade in order to participate in this dividend Monday, 26 March Shares commence trading ex-dividend on Tuesday, 27 March The record date for the dividend payment will be Thursday, 29 March Dividend payment date Tuesday, 3 April 2018 No dematerialisation or rematerialisation of share certificates may be done between Tuesday, 27 March 2018 and Thursday, 29 March 2018 (both days inclusive). By order of the board (Ms) EJ Marais Company secretary 7 March 2018 BOARD CHANGES In addition to GT Ferreira (chairman), Jan Dreyer and Khehla Shubane also retire effective 31 March Pat Goss (lead independent) will retire on 10 April A new lead independent will be announced in due course. In their stead, RMH welcomes the following new independent non-executive directors and alternate on 31 March 2018: - Mamongae Mahlare MBA (Harvard) BSc (Chemical Engineering), managing director of Illovo Sugar S.A, who was previously employed by Coca Cola Beverages South Africa, SABMiller and Bain & Company; - Ralph Mupita MBA BSc (Engineering), chief financial officer of MTN and past chief executive officer of Old Mutual Emerging Markets; - James Teeger BCom CA(SA), leads the investment activities of the Oppenheimer family. He was previously a director of De Beers and spent 12 years at RMB, first as the head of property finance and then as co-head of structured finance; and - David Frankel BSc (Electrical Engineer) MBA (Harvard), alternate to James Teeger, managing partner and co-founder of Founder Collective. He was co-founder and chief executive officer of Internet Solutions on the board of Dimension Data plc. He has served on the board of RMB since Jannie Durand will become chairman of the board. He is a long-serving non-executive director on RMH s board and was previously appointed deputy chairman in anticipation of GT Ferreira s retirement. EVENTS SUBSEQUENT TO REPORTING PERIOD During January 2018, RMH Property acquired a further 43.8 interest in Atterbury Europe, in addition to its indirect interest through Atterbury. This transaction was concluded in a phased approach and completed by the middle of February The transaction was financed by the issue of a combination of cumulative, redeemable preference shares and notes under RMH s recently established debt programme. FINANCIAL REVIEW The dominant part of RMH s income is its share in the after-tax profits of FirstRand, amounting to R4 342 million (2016: R4 049 million). Condensed consolidated income statement six months Revenue Share of after-tax profit of associates Fee income 3-3 Net fair value gain on financial assets and liabilities Net income Administration expenses (25) (35) (29) (40) Income from operations Finance costs (80) (73) 10 (152) Profit before tax Income tax expense (12) (8) 50 (5) PROFIT FOR THE PERIOD Attributable to: Equity holders of the company PROFIT FOR THE PERIOD

5 Condensed consolidated statement of comprehensive income six months Profit for the period Other comprehensive income, after tax: Items that may be reclassified to profit or loss Share of other comprehensive income of associates after tax and non-controlling interests (332) (543) (742) Available-for-sale financial assets 23 (13) (14) Profit/(loss) arising during the period 29 (16) (18) Deferred income tax (6) 3 4 Items that may not subsequently be reclassified to profit or loss Share of other comprehensive income of associates after tax and non-controlling interests (15) (28) 58 Other comprehensive income for the period (324) (584) (45) (698) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Total comprehensive income attributable to: Equity holders of the company TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Computation of headline earnings six months Earnings attributable to equity holders Adjusted for: RMH's share of adjustments made by FirstRand: Gain on disposal of investment securities and other investments of capital nature (11) - (1) Loss due to the fair value adjustment of a non-current asset held for sale Gain on disposal of available-for-sale assets (7) (22) (18) Loss on disposal of investments in non-private equity associates Impairment of non-private equity associates (Gain)/loss on disposal of investments in subsidiaries (33) 2 (619) (Gain)/loss on disposal of property and equipment (9) 3 5 Fair value movement on investment properties (1) - - Impairment of goodwill Impairment of assets in terms of IAS Other (10) - - Tax effects of adjustments Non-controlling interests adjustments RMH's own adjustments (Profit)/loss on deemed sale of associate due to in effective shareholding (4) (18) 1 Impairment of assets in terms of IAS Impairment of associates HEADLINE EARNINGS ATTRIBUTABLE TO EQUITY HOLDERS

6 Computation of normalised earnings RMH regards normalised earnings as the appropriate basis to evaluate business performance as it eliminates the impact of non-recurring items six months Headline earnings attributable to equity holders RMH's share of adjustments made by FirstRand: TRS and IFRS 2 liability remeasurement (47) (57) (21) Treasury shares 3 2 (4) IAS 19 adjustment (19) (18) (40) Private equity subsidiary realisations Adjusted for: Group treasury shares 1 (1) - (3) NORMALISED EARNINGS FOR THE PERIOD Adjustment to reflect earnings impact based on actual RMH shareholding in FirstRand i.e. reflecting treasury shares as if they are non-controlling interests. Computation of per share information six months Earnings attributable to equity holders Headline earnings attributable to equity holders Normalised earnings attributable to equity holders Net asset value Number of shares in issue (millions) Weighted average number of shares in issue (millions) Diluted weighted average number of shares in issue (millions) Weighted average number of shares in issue (millions) for normalised earnings Earnings per share (cents) Diluted earnings per share (cents) Headline earnings per share (cents) Diluted headline earnings per share (cents) Normalised earnings per share (cents) Diluted normalised earnings per share (cents) Net asset value per share (cents) Dividend per share cents six months Dividend per share Interim Final TOTAL Dividend cover (relative to headline earnings) Dividend cover (relative to normalised earnings)

7 Condensed consolidated statement of financial position The investment in associates increased with RMH s share of after-tax profits of R4 183 million (2016: R million) and RMH s share of associates other reserves of negative R22 million (2016: R5 million). This was offset by dividends received of R2 598 million (2016: R2 254 million). As at As at ASSETS Cash and cash equivalents Loans and receivables Investment securities Taxation receivable Derivative financial instruments Deferred tax asset Investment in associates TOTAL ASSETS EQUITY Share capital and premium Reserves TOTAL EQUITY LIABILITIES Trade and other payables Provisions Financial liabilities Derivative financial instruments Long-term liabilities Deferred tax liability TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Condensed consolidated statement of cash flows six months Net cash generated from operating activities Dividends paid (2 456) (2 160) (4 320) Net cash outflow in investment activities (11) (929) (840) Net cash (out)/inflow in financing activities (16) Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD Condensed consolidated statement of s in equity Share capital and premium Total reserves Total equity holders' funds Noncontrolling interest Total equity Balance as at 1 July Total comprehensive income for the tear Dividends paid - (2 160) (2 160) - (2 160) Reserve movements relating to associates - (5) (5) - (5) BALANCE AS AT 31 DECEMBER Balance as at 1 July Total comprehensive income for the year Dividends paid - (4 320) (4 320) - (4 320) Reserve movements relating to associates - (47) (47) - (47) BALANCE AS AT 30 JUNE Balance as at 1 July Total comprehensive income for the period Dividends paid - (2 456) (2 456) - (2 456) Reserve movements relating to associates - (22) (22) - (22) BALANCE AS AT 31 DECEMBER

8 BASIS OF PRESENTATION OF RESULTS The report is prepared in accordance with: - the framework concepts and the recognition and measurement requirements of International Reporting Standards (IFRS), including interpretations issued by the IFRS Interpretations Committee; - Financial Reporting Pronouncements as issued by Financial Reporting Standards Council; - SAICA Financial Reporting Guide as issued by the Accounting Practices Committee; as a minimum, the information required by IAS 34 Interim Financial Reporting; and - the requirements of the South African Companies Act, 71 of 2008, applicable to summary financial statements. The condensed consolidated interim results for the six months have not been audited or independently reviewed by the external auditor. Accounting policies These condensed results incorporate accounting policies that are consistent with those used in preparing the financial results for the. These 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. Amendments to IAS 7 Statement of Cash Flows (IAS 7) and IAS 12 Income Taxes (IAS 12) became effective in the current year. These amendments have not had an impact on the group s reported earnings, financial position or reserves, or a material impact on the accounting policies. The amendments to IAS 7 introduce additional disclosures in the statement of cash flows that will enable the users of the financial statements to evaluate s in liabilities arising from financing activities. This amendment has been applied retrospectively and comparative information has been presented in line with the am disclosure requirements. The amendment to IAS 12 relates to the recognition of a deferred tax asset for unrealised losses on debt instruments that are measured at fair value for accounting purposes but considered at cost for tax purposes. The group is accounting for deferred tax on these assets in line with the amendments. The adoption of these amendments has no impact on the group. No other new or am IFRS became effective for the six months that impacted the group s reported earnings, financial position or reserves, or the accounting policies. Normalised results RMH believes normalised earnings more accurately reflect operational performance. Headline earnings are adjusted to take into account the following non-operational and accounting anomalies: 1. RMH s portion of normalised adjustment made by its associate, FirstRand Limited, which have a financial impact: - the Total Return Swap, which is an economic hedge against the cash-settled share-based payment; - IFRS 2 share-based payment expense in terms of the broad-based black economic empowerment transaction; - FirstRand shares held for client trading activities; - IAS 19 measurement of plan asset; and - the consolidation of private equity subsidiaries, which is excluded from the Rule 1 exemption of Circular 2/2015, Headline Earnings per Share. 2. RMH shares held for client trading activities by FirstRand s addition, in terms of IAS 28 Investments in Associates, upstream and downstream profits are eliminated when equity accounting is applied, and, in terms of IAS 32, profits or losses cannot be recognised on an entity s own equity instruments. For the income statement, the RMH s portion of the fair value in RMH shares by FirstRand is, therefore, deducted from equity-accounted earnings and the investment recognised using the equity-accounted method. 3. Adjustment to reflect earnings impact based on actual RMH shareholding in FirstRand based on actual number of shares issued by FirstRand. Contingencies and commitments six months Contingencies and commitments Guarantees BALANCE AT THE END OF THE PERIOD

9 SEGMENTAL REPORT FNB RMB WesBank FCC and other FirstRand RMH Property Other RMH six months Revenue Share of after-tax profit of associates (164) Fee income Net fair value gain on financial assets (24) Net income (183) Administration expenses (3) (22) (25) Income from operations (186) Finance costs (3) (77) (80) Profit before tax (189) (44) Income tax expense (12) (12) PROFIT FOR THE PERIOD (189) (56) Headline earnings (15) (60) Normalised earnings (15) (60) Assets Investment in associates TOTAL ASSETS TOTAL LIABILITIES FNB RMB WesBank FCC and other FirstRand RMH Property Other RMH six months 2016 Revenue Share of after-tax profit of associates Net fair value gain on financial assets/liabilities Net income Administration expenses (35) (35) Income from operations Finance costs (1) (72) (73) Profit before tax (59) Income tax expense (8) (8) PROFIT FOR THE PERIOD (67) Headline earnings (86) Normalised earnings (86) Assets Investment in associates TOTAL ASSETS TOTAL LIABILITIES FNB RMB WesBank FCC and other FirstRand RMH Property Other RMH Revenue Share of after-tax profit of associates (1) Fee income Net fair value gain on financial assets Net income Administration expenses (40) (40) Income from operations (22) Finance costs (2) (150) (152) Profit before tax (172) Income tax expense (5) (5) PROFIT FOR THE YEAR (177) Headline earnings (176) Normalised earnings (176) Assets Investment in associates TOTAL ASSETS TOTAL LIABILITIES Geographical segments RMH does not have any geographic segments as both FirstRand and RMH Property are viewed as South African entities. This is expected to in the forthcoming financial year.

10 Directors GT Ferreira (chairman), JJ Durand (deputy chairman) HL Bosman (chief executive), JP Burger, P Cooper, (Ms) SEN De Bruyn, LL Dippenaar, JW Dreyer, PM Goss, PK Harris, (Ms) A Kekana, O Phetwe, P Lagerstrom, MM Morobe and KC Shubane Alternate directors: F Knoetze and DR Wilson Secretary and registered office (Ms) EJ Marais Physical address: 3rd Floor, 2 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196 Postal address: PO Box , Sandton, 2146 Telephone: Telefax: Web address: Sponsor (in terms of JSE Listings Requirements) Rand Merchant Bank (a division of FirstRand Bank Limited) Physical address: 1 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196 Transfer secretaries Computershare Investor Services Proprietary Limited Physical address: First floor, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196 Postal address: PO Box 61051, Marshalltown, 2107 Telephone: Telefax: