FINANCIAL SERVICES

 

CONTRIBUTION TO HEADLINE EARNINGS 30 June 2020
R million
30 June 2019
R million
RMI 599 1 161
FirstRand 657 1 093
1 256 2 254

PROFILE: RMI is an investment holding company with an investment team of experienced, alternative-thinking financial services specialists. RMI actively partners smart and industry-changing management teams by being a shareholder of influence.

Corporate information
Market cap at 30 June 2020
R44 729 million
Listed on the JSE Limited
Chief Executive Officer
H L Bosman
Remgro nominated directors
J J Durand, F Knoetze (alternate)
Website
www.rmih.co.za
Financial Highlights
Year ended
30 June 2020
R million %
Income 16 486 3.8
Headline earnings 1 956 (48.5)
Normalised headline earnings 3 086 (24.4)
Sustainability measureS
RMI is an investment holding company. Refer to the websites of major underlying investments.
www.discovery.co.za
www.momentummetropolitan.com
www.outsurance.co.za

Rand Merchant Investment HOLDINGS LIMITED (RMI)

RMI’s contribution to Remgro’s headline earnings decreased by 48.4% to R599 million (2019: R1 161 million).

The underlying investments of RMI (with percentage interest in brackets) include Discovery (25.0%), Momentum Metropolitan (27.3%), OUTsurance (89.1%), Hastings (29.7%), RMI Investment Managers (100%) and AlphaCode (100%).

Discovery is a pioneering market leader with uniquely positioned businesses in the healthcare, long- and short-term insurance, wellness and banking industries in South Africa, the United Kingdom (UK) and China, amongst others. Hastings is a UK-listed, fast-growing, agile, digitally-focused general short-term insurance provider to the UK car, van, bike and home insurance market. Momentum Metropolitan is an insurance-based financial services group whose core businesses offer long- and short-term insurance, asset management, savings, investment, healthcare administration and employee benefits. OUTsurance provides short- and long-term insurance products in South Africa and short-term insurance products in Australia and Namibia. RMI Investment Managers’ affiliate model enables the company to access a differentiated part of the investment management industry by investing in and partnering with independent investment managers, as well as specialist investment teams.

RMI believes that normalised earnings more accurately reflect operational performance, and therefore headline earnings are adjusted to take into account non-recurring items and accounting anomalies. RMI’s normalised earnings for the year under review decreased by 24.4% to R3 086 million (2019: R4 081 million) mainly due to lower earnings by Discovery (down by 25.6%) and Momentum Metropolitan (down by 50.5%).

Discovery’s normalised earnings decreased by 26% for the year ended 30 June 2020. A provision of R3.4 billion (R2.3 billion net of discretionary margin offset) was made for future claims and lapses as a result of the Covid-19 pandemic.

RMI included normalised earnings of R486 million from Hastings for the year ended 30 June 2020, representing a decrease of 12%. Hastings’ gross written premiums for its six months ended 30 June 2020 increased by 3% to £514.9 million (2019: £499.2 million), while adjusted operating profit after tax increased by 31% to £78.3 million (2019: £59.7 million). This was predominantly driven by policy growth and the improvement in the loss ratio, offset to an extent by customer actions in light of Covid-19, including the waiving of fees, reduced policy adjustments and increased operating expenditure for IT enhancements to support employees working from home.

Momentum Metropolitan recorded a 51% decrease in diluted normalised earnings to R1.5 billion for the year under review. This was largely attributable to additional provisions raised, with a net negative impact of R983 million for potential adverse Covid-19 related claims experience and policyholder lapses and withdrawals. Furthermore, the partial recovery of investment markets during the last quarter of the financial year did not fully offset the impact of severe market-related losses reported in the third quarter of the financial year.

OUTsurance’s normalised earnings, including its stake in Hastings, decreased by 8% to R2.4 billion. Excluding its share in Hastings, OUTsurance’s normalised earnings decreased by 7% to R2.2 billion, mainly attributable to the unrealised investment losses on the group’s equity portfolio, the impact of the bushfires and natural catastrophes in Australia and business interruption claims of R198 million paid and provided for in OUTsurance Business. OUTsurance’s operating profit increased by 2% for the year under review, driven by improved operational profitability in the South African short-term insurance operation on account of premium growth over the last year.

PROFILE: FirstRand’s portfolio of integrated financial services businesses comprises FNB, RMB, WesBank, Aldermore and Ashburton Investments. The group operates in South Africa, certain markets in sub-Saharan Africa and the United Kingdom, and offers a universal set of transactional, lending, investment and insurance products and services. FirstRand can provide its customers with differentiated and competitive value propositions due to its unique and highly flexible model of leveraging the most appropriate brand, distribution channel, licence and operating platform available within the portfolio. This approach, which is underpinned by the disciplined allocation of financial resources and enabled by disruptive digital and data platforms, allows the group to fully optimise the franchise value of its portfolio.

Corporate information
Market cap at 30 June 2020
R213 497 million
Listed on the JSE Limited
Chief Executive Officer
A P Pullinger
Remgro nominated directors
F Knoetze, J P Burger
Website
www.firstrand.co.za
Financial Highlights
Year ended
30 June 2020
R million 
Operating income 105 305 0.9
Operating profit 25 266 (36.8)
Headline earnings 17 326 (37.9)
Normalised earnings 17 265 (38.1)
Sustainability measureS
Refer to www.firstrand.co.za
for details.

FIRSTRAND LIMITED (FIRSTRAND)

FirstRand’s contribution to Remgro’s headline earnings represents Remgro’s 3.9% direct interest (as at the beginning of the financial year) in FirstRand and excludes the indirect contribution from FirstRand through the investment Remgro previously held in RMH. The contribution of FirstRand to Remgro’s headline earnings for the year under review decreased to R657 million (2019: R1 093 million).

FirstRand’s headline earnings for its year ended 30 June 2020 decreased by 37.9% to R17 326 million (2019: R27 887 million).

FirstRand believes that normalised earnings more accurately reflect operational performance and therefore headline earnings are adjusted to take into account non-operational items and accounting anomalies. FirstRand’s results for the year to 30 June 2020 reflect the extremely difficult operating environment, with normalised earnings decreasing 38% to R17.3 billion compared to 30 June 2019. Return on equity (ROE) declined to 12.9%. (June 2019: 22.8%). Most of these declines were due to the much higher than expected credit impairment charge, driven by forward-looking economic assumptions required under IFRS 9. FirstRand reported a significant increase in credit provisioning levels of R15 billion for the year ended 30 June 2020 (2019: R5 billion increase). Whilst the credit impairment charge of R24 billion (2019: R11 billion) represents the most significant driver of the decline in earnings, further pressures include the negative endowment impact as a result of interest rate cuts and margin pressure, subdued non-interest revenue growth due to lower absolute volumes during the lockdown period and depressed new business origination.

In addition, FirstRand has conservatively provided for a sharp increase in retrenchment claims, as well as elevated death claims in its insurance business, taking account of the latest epidemiological and economic outlooks.