| Fri 22 Feb 2008, 12:34 | | MTL - Mercantile Bank Holdings - Audited results for the year ended |
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MTL
MTL
MTL - Mercantile Bank Holdings - Audited results for the year ended
31 December 2007
Mercantile Bank Holdings Limited
Member of the CGD Group
Registration number 1989/000164/06
Share code: MTL & ISIN: ZAE000064721
("Mercantile" or "the Group")
Audited results for the year ended 31 December 2007
Highlights
- Growth in profit of 64.2%
- Growth in HEPS of 59.0%
- Lending growth of 36.2%
- ROE 21.9%
- Improvement in cost to income from 71.7% to 59.4%
Financial overview
The Group has again recorded a strong growth in profit after taxation, which
increased by 64.2% for the 2007 financial year compared to the 2006 financial
year. Headline earnings per share increased by 59.0%. These increases are
largely attributable to:
an increase in net interest income (after credit losses) of 24.9% as a
result of higher capital due to profit retention, the higher interest rate
environment and growth in lending of 36.2%;
growth in recurring non-interest income of 19.2% from core business
activities with strong contributions from card and treasury; and
non-recurring income of R15 million pertaining to legacy business.
Costs increased year on year by 8.8% of which 5.0% relates directly to costs
incurred in generating increased fee income. Efficiency continues to improve
with the overall cost to income ratio reducing from 71.7% in December 2006 to
the current ratio of 59.4%.
Return on average equity ("ROE") improved to 21.9% (December 2006: 16.5%)
whilst return on average assets ("ROA") was at 3.6% (December 2006: 2.6%).
These performance ratios benefited from the non-recurring income mentioned
above - adjusting for this non-recurring income, the ratios would be cost to
income 61.7%, ROE 19.9% and ROA 3.3%, all of which still reflect significant
improvements since December 2006.
Total balance sheet growth was constrained due to fluctuations in wholesale
treasury activities, which reflected a decrease in wholesale deposits as at
December 2007 of approximately R300 million compared to the end of December
2006.
CREDIT RATINGS
Caixa Geral Depositors S.A. ("CGD"), which is wholly owned by the
Portuguese State, remains the Group`s holding company with a shareholding of
91.75%.
CGD is ranked as the world`s 114th largest banking institution by assets in a
current issue of "The Banker`s Almanac". Its short and long-term financial
liability ratings were confirmed by the three leading international rating
agencies - Fitch Ratings, Moody`s and Standard & Poor`s, as follows:
Short term Long term Date
Fitch Ratings F1+ AA- September 2007
Moody`s P-1 Aa1 October 2007
Standard & Poors A-1 A+ September 2007
Moody`s Investors Service, in their first time rating of Mercantile Bank
Limited ("the Bank"), assigned the following national scale issuer ratings to
the Bank in February 2008:
Short term P-1.za
Long term A2.za
ACCOUNTING POLICIES
Basis of preparation
The Group financial results from which these condensed financial statements
were derived have been prepared on the historical cost basis excluding
financial instruments and properties which are fair valued and conform to
International Financial Reporting Standards.
The accounting policies are consistent with those applied in the annual
financial statements for the financial year ended 31 December 2006. These
condensed financial statements have been prepared in terms of IAS 34 - Interim
Financial Reporting.
Audit opinion
The auditors, Deloitte & Touche, have issued their opinion on the Group`s
financial statements for the year ended 31 December 2007. The audit was
conducted in accordance with International Standards on Auditing. They have
issued an unmodified audit opinion. A copy of their audit report is available
for inspection at Mercantile`s registered office. These summarised financial
statements have been derived from the Group financial statements and are
consistent in all material respects, with the Group financial statements.
GOING CONCERN
The financial statements have been prepared on the going concern basis.
DIRECTORATE
As advised in our SENS announcements on 10 January 2007 and 5 December 2007,
Manuel Figueira resigned from the Board effective 28 February 2007 and Magid
Osman on 21 November 2007, respectively.
NEW BANKING SYSTEM
The Board has approved a project involving both the replacement of our core
retail banking systems and the enhancement/upgrade of our current systems
architecture at an estimated cost of circa R130 million, which includes
expenditure on hardware at an estimated level of approximately R19 million.
The balance of the expenditure will largely consist of software, development
and implementation costs. Costs incurred to date on this project amount to R19
million. The increase in estimated cost since December 2006 is mainly due to
an expanded scope in terms of upgrading/enhancing the current systems
architecture of the Bank. The cost estimates remain preliminary calculations
and could change once the implementation planning together with the various
contract negotiations have been finalised. These negotiations will include
payment terms but it is anticipated that the project will be funded from cash
resources over the period of the project against agreed deliverables.
The pro forma effect of the transaction on the tangible net asset value per
share of the Group, based on the above cost estimates, is expected to be a
decrease of approximately three cents. The pro forma effect of the transaction
has not been reviewed or reported on by the Group`s auditors.
The rationale for this project is based on creating a new systems platform to
support the growth of the Group in line with our strategic objectives - the
project will result in a more flexible and integrated systems environment
enhancing our risk management and controls whilst providing us with greater
capacity to compete in the market in the areas of product and service. No
profits can be directly attributed to this project but the project drivers
outlined above are expected to provide a positive benefit to the Group over
time. The project is expected to be completed by the third quarter of 2009.
OUTLOOK
Whilst the prevailing tighter monetary conditions are impacting on the rate of
credit growth in the market, the improvement in the Group`s core performance
is expected to continue.
J A S de Andrade Campos D J Brown
Chairman Chief Executive Officer
Sandton
22 February 2008
Group Balance Sheet
31 December 31 December
2007 2006
R`000 R`000
Audited Audited
ASSETS
Intangible assets 23 569 11 551
Property and equipment 96 969 94 956
Taxation - 29
Other accounts receivable 23 639 145 291
Interest in associated company 4 251 3 626
Other investments 228 7 209
Loans and advances 2 814 743 2 066 432
Derivative financial instruments 43 814 31 134
Negotiable securities 275 577 405 016
Cash and cash equivalents 1 422 994 1 683 974
Total assets 4 705 784 4 449 218
EQUITY AND LIABILITIES
Shareholders` equity 839 914 667 418
Share capital and share premium 1 207 422 1 207 046
Capital redemption reserve fund 3 788 3 788
Share-based payments reserve 7 019 3 025
General reserve 7 478 7 478
Property revaluation reserve 53 705 45 588
Available-for-sale reserve (48) 5 216
General credit-risk reserve 19 403 13 954
Accumulated loss (458 853) (618 677)
Liabilities 3 865 870 3 781 800
Deposits 3 768 183 3 539 147
Derivative financial instruments 15 356 29 189
Provisions 42 435 38 994
Other accounts payable 39 780 174 435
Taxation 116 35
Total equity and liabilities 4 705 784 4 449 218
Group Income Statement
2007 2006
R`000 R`000
Audited Audited
Interest income 467 247 357 163
Interest expense (250 012) (189 044)
Net interest income 217 235 168 119
Net (charge for)/recovery of credit losses (5 358) 1 520
Net interest income after credit losses/
recoveries 211 877 169 639
Net gain/(loss) on disposal and revaluation
of available-for-sale investments 5 602 (347)
Non-interest income 190 871 147 520
Recurring 175 796 147 520
Non-recurring 15 075 -
Net interest and non-interest income 408 350 316 812
Operating expenditure (245 819) (226 040)
Operating profit before exceptional item 162 531 90 772
Recovery of amounts previously written-off in
respect of the release of the CGD guarantee - 8 602
Operating profit 162 531 99 374
Share of income from associated company 2 771 1 269
Profit before taxation 165 302 100 643
Taxation (29) -
Profit after taxation 165 273 100 643
Earnings per ordinary share (cents) 4.21 2.56
Diluted earnings per ordinary share (cents) 4.21 2.56
Dividend per share (cents) - -
Reconciliation between profit after
taxation and headline earnings
Profit after taxation 165 273 100 643
Adjustment for:
Realisation of available-for-sale reserve on
disposal of investments (5 602) (2)
Loss on disposal of property and equipment 13 2
Headline earnings 159 684 100 643
Headline earnings per ordinary share (cents) 4.07 2.56
Diluted headline earnings per ordinary
share (cents) 4.07 2.56
Financial Statistics
2007 2006
Audited Audited
Number of ordinary shares in issue:
- end of year (`000) 3 926 538 3 925 208
- weighted average (`000) 3 925 485 3 925 145
- weighted average - diluted (`000) 3 925 485 3 925 145
Return on average equity (%) 21.9 16.5
Return on average assets (%) 3.6 2.6
Cost to income (%) 59.4 71.7
Net asset value per ordinary share (cents) 21.4 17.0
Capital adequacy ratio (%)
- Mercantile Bank Limited 26.8 30.1
Group Contingent Liabilities and Commitments
2007 2006
R`000 R`000
Audited Audited
Guarantees, letters of credit and committed
undrawn facilities 634 861 550 542
Operating lease commitments 7 593 10 288
Summarised Group Statement of Changes in Equity
2007 2006
R`000 R`000
Audited Audited
Balance at beginning of the year 667 418 550 179
Movements in reserves 12 296 19 701
Revaluation of owner-occupied property 8 117 9 112
Net transfer to general credit-risk reserve 5 449 3 119
Share-based payments expense 3 994 2 178
Net transfer (from)/to available-for-sale reserve (5 264) 5 292
Movements in accumulated loss 159 824 97 524
Profit after taxation 165 273 100 643
Net transfer to general credit-risk reserve (5 449) (3 119)
Movement in share capital and share premium
Reduction of treasury shares held within
the Group 376 14
Balance at end of year 839 914 667 418
Summarised Group Cash Flow Statement
2007 2006
R`000 R`000
Audited Audited
Net cash (outflow)/inflow from operating
activities (250 498) 287 135
Net cash (outflow) from investing activities (10 482) (12 133)
Net cash (outflow)/inflow for the year (260 980) 275 002
Cash and cash equivalents at beginning
of the year 1 683 974 1 408 972
Cash and cash equivalents at end of the year 1 422 994 1 683 974
Summarised Group Segmental Information
2007 2006
R`000 R`000
Audited Audited
Segment revenue
Retail banking 236 656 180 975
Treasury 58 415 43 093
Alliance banking, MBL credit card, electronic
banking and structured loans 68 730 44 098
Other services (1) 49 907 47 126
413 708 315 292
Profit after taxation
Retail banking (2) 175 631 103 687
Treasury (2) 23 686 14 400
Alliance banking, MBL credit card, electronic
banking and structured loans (2) 27 340 31 693
Other services (3) (61 384) (49 137)
165 273 100 643
The lower attributable profit from Alliance banking is mainly due to certain
allocated costs in 2006 now treated as direct costs. In addition this segment
benefited from a provision release in 2006 against provisions raised in the
current year.
Notes:
(1) "Other services" includes support divisions, insurance brokers and inter-
group eliminations.
(2) Excludes the allocation of attributable support costs.
(3) "Other services" includes support divisions, insurance brokers, inter-group
eliminations, associate income and exceptional item.
Material Related Party Balances and Transactions
Balances with CGD at year end are R898 million (2006: R1 456 million) and
interest received amounts to R73 million (2006: R80 million).
Directors: J A S de Andrade Campos* (Chairman), D J Brown (Chief Executive
Officer), J P M Lopes* (Executive), G P de Kock, L Hyne, A T Ikalafeng,
S Rapeti * Portuguese
Group Secretary: R van Rensburg
Registered Office: Mercantile Bank, 142 West Street, Sandown, 2196
Share code: MTL & ISIN: ZAE000064721
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg, 2001
Sponsor: Bridge Capital Advisors (Pty) Limited, 2nd Floor, 27 Fricker Road,
Illovo, 2196
Sponsor
Bridge Capital
Mercantile Bank
Holdings Limited
Member of the CGD Group
Registration number 1989/000164/06
www.mercantile.co.za
Date: 22/02/2008 12:34:43 Produced by the JSE SENS Department.
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