This report represents a high level overview of FirstRand Limited’s financial performance, its Balance Sheet Management (“BSM”) strategies and how these underpin the overall strategies of the Group and the operating franchises, and the scope and mandate of the newly formed COO portfolio.

Both the BSM strategies and the objectives and deliverables of the COO’s portfolio must be seen in the context of the Group’s refined strategy, which is covered in detail in both the Chairman’s Report on page 6 and the Report of the CEO Designate on page 13.

Financial performance

The Group has experienced its most difficult year, which is reflected in the disappointing financial performance.

Operating in a very difficult macro background, exacerbated by losses from certain international strategies which have now been terminated, FirstRand’s diverse portfolio of banking and insurance businesses produced pro forma normalised earnings down 31% to R7.2 billion with a normalised return on equity (“ROE”) of 14% compared to 22% in the prior year.

The Group has experienced its most difficult year, which is reflected in the disappointing financial performance.

Operating in a very difficult macro background, exacerbated by losses from certain international strategies which have now been terminated, FirstRand’s diverse portfolio of banking and insurance businesses produced pro forma normalised earnings down 31% to R7.2 billion with a normalised return on equity (“ROE”) of 14% compared to 22% in the prior year.

GROUP KEY RATIOS

       
  Year ended   30 June   %  
Unaudited 2009   2008   change  
Pro forma normalised earnings (R million) 7 151   10 398   (31) 
Normalised return on equity (%) 14   22    


The Group’s corporate and commercial banking franchises which operate in the primary and secondary markets, produced acceptable performances, as did the retail franchises, despite the difficult consumer credit cycle. However, the absolute size of retail bad debts, particularly in the residential mortgages portfolio, combined with the losses emanating from the legacy portfolios in the investment bank, significantly impacted overall profitability. The total banking portfolio produced R6.1 billion of normalised earnings, representing a 31% decline on the previous comparative period. Its normalised ROE also declined to 13% (2008: 20%).

BANKING GROUP KEY RATIOS

     
  Year ended 30 June   %  
Unaudited   2009   2008   change  
Normalised earnings1 (R million)  6 056   8 814   (31) 
Normalised return on equity2 13   21    
Return on assets (%)  0.80   1.50    
Credit loss ratio3  1.81   1.28    
Cost to income ratio (%)  58.1   52.6    
1 Before deducting preference share dividends.
2 After deducting preference share dividends and capital.
3 2008 impairment charge after deducting credit insurance amounted to 1.19%.
   

The earnings of the insurance subsidiary Momentum were negatively affected by the significant decline and volatility of the equity markets. However, the operational performance remained robust due to the inherent resilience of Momentum’s business model, with continued new business growth in the retail and employee benefits businesses. Solid growth in investment income was generated on shareholders’ funds resulting from the capital preservation strategy. Overall normalised earnings declined 18% to R1 649 million, with the return on equity at 23%.

MOMENTUM KEY RATIOS

     
  Year ended 30 June   %  
Unaudited   2009   2008   change  
Normalised earnings (R million)  1 649   2 004   (18) 
Normalised return on equity (%)  23   30    
Return on embedded value (%)  3.3   15    
CAR cover (times) (before dividend)1   1.8   1.6    
1 The comparative is pro forma in line with the revised CAR formula that became effective during the current year.
   

A breakdown on earnings from the operating franchises is shown below.

  Year ended 30 June   %  
Unaudited   2009   2008   change  
FNB   3 756   4 654   (19) 
FNB Africa   514   499   3  
RMB   1 536   3 008   (49) 
WesBank   324   573   (43) 
Group Support   (74)  80   >100  
Banking Group   6 056   8 814   (31) 
Momentum Group   1 649   2 004   (18) 
FirstRand Limited   (90)  (11)  >100  
Dividends paid on non cumulative non redeemable preferenceshareholders   (464)  (409)  13  
  7 151   10 398   (31) 

Detailed reviews of the financial and operating performances of the Group’s franchises can be found on pages 28 to 48.

FIRSTRAND HAS REFINED ITS OVERALL STRATEGY WITH THE KEY OBJECTIVE OF IMPROVING BOTH THE QUALITY AND SUSTAINABILITY OF ITS EARNINGS AND THEREFORE CREATE MORE SHAREHOLDER VALUE OVER THE LONG TERM.