| Thu 24 Jul 2008, 10:29 | | MTL - Mercantile - Unaudited interim results for the six months ended 30 June |
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MTL
MTL
MTL - Mercantile - Unaudited interim results for the six months ended 30 June
2008
MERCANTILE BANK HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1989/000164/06)
Share code: MTL & ISIN: ZAE000064721
("Mercantile" or "the Group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008
HIGHLIGHTS
* Growth in profit after taxation of 67%
* Growth in HEPS of 61%
* Lending growth of 33%
* ROE of 27%
* Improvement in cost to income from 59% to 49%
Financial overview
The Group has continued to record strong growth in profit after taxation which
increased by 67% for the first six months of 2008 compared to the six months
ended 30 June 2007.
Headline earnings per share ("HEPS"), in turn increased by 61%. These results
are largely attributable to:
- an increase in net interest income of 49% as a result of the positive
endowment effect of higher interest rates, higher capital due to profit
retention together with a growth in lending of 33%;
- growth in recurring net fee and commission income of 24% due to increased
business activities in retail and commercial banking and treasury;
- a low level of new credit impairments due to the ongoing good performance of
the loans and advances book offset by ongoing recoveries from non-performing
loans.
Non-performing loans and advances as a percentage of total lending has
reduced to 2.1% at 30 June 2008 from a level of 3.8% in June 2007;
- costs for the period under review being contained to an increase of 8% versus
the comparable six months of 2007. Efficiency continues to improve with the
overall cost to income ratio reducing from 59% in June 2007 to the current
ratio of 49%. Expenses (e.g. interchange fees; broker fees) incurred directly
in the generation of fee and commission income, previously included in
operating expenditure, are now deducted from fee and commission income in
determining the cost to income ratio and presented accordingly in the income
statement. Comparatives have been adjusted; and
- non-recurring gains of R9.8 million on the disposal of VISA shares as part of
that entity`s public listing versus non-recurring income of R12.8 million
realised in the period ended 30 June 2007 pertaining to legacy business.
Return on average equity ("ROE") improved to 27.3% (June 2007: 21.1%) whilst
return on average assets ("ROA") was at 5.1% (June 2007: 3.4%). These
performance ratios benefited from the non-recurring income mentioned above -
adjusting for this non-recurring revenue, the ratios would be cost to income
51% (June 2007: 63%), ROE 25.1% (June 2007: 17.5%) and ROA 4.6% (June 2007:
2.8%), all of which still reflect significant improvements since June 2007.
Accounting policies
The Group financial results 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 2007. These condensed financial
statements have been prepared in terms of IAS 34 - Interim Financial Reporting.
The interim results have not been reviewed or audited by the Group`s auditors.
Going concern
The financial statements have been prepared on the going concern basis.
New banking system
The implementation of the replacement of the core retail banking systems and
enhancement/upgrade of current systems architecture has commenced. As
previously reported the overall cost of this project was estimated at circa
R130 million (excludes analysis costs previously incurred in assessment of the
project of R19 million) and is expected to be completed by the third quarter of
2009. Contract terms for the project have now been settled on a fixed price
basis. However the overall cost of the project is expected to increase based on
additional work that may be incurred in changes to processes (currently being
mapped), increased scope and/or functionality sought, a consequential increase
in resources required and any additional unforeseen impact of integration of
systems as well as currency fluctuations.
Since the year ended 31 December 2007 expenditure on this project that has been
capitalised amounts to:
- property and equipment: R18.4 million; and
- intangible assets: R30.1 million.
Directorate
There were no changes to the Board of Directors during the period under review.
Outlook
Lower economic growth rates and tighter monetary conditions are impacting on
the level of business activity. These conditions are also expected to increase
the levels of credit stress experienced by borrowers. The improvement in the
Group`s core performance is however expected to continue.
J A S de Andrade Campos D J Brown
Chairman Chief Executive Officer
Sandton
24 July 2008
Group Balance Sheet
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
ASSETS
Intangible assets 53 454 11 939 23 569
Property and equipment 116 047 92 494 96 969
Other accounts receivable 47 122 33 894 23 639
Interest in associated company 4 251 3 626 4 251
Other investments 15 150 2 331 228
Loans and advances 3 074 152 2 309 437 2 814 743
Derivative financial instruments 32 869 34 411 43 814
Negotiable securities 244 299 341 902 275 577
Bank term deposits (1) 172 372 327 118 170 618
Cash and cash equivalents (1) 1 374 970 1 221 425 1 252 376
Total assets 5 134 686 4 378 577 4 705 784
EQUITY AND LIABILITIES
Shareholders` equity 981 553 740 228 839 914
Share capital and share premium 1 207 518 1 207 074 1 207 422
Capital redemption reserve fund 3 788 3 788 3 788
Share-based payments reserve (2) 1 654 4 536 7 019
General reserve 7 478 7 478 7 478
Property revaluation reserve 53 705 45 588 53 705
Available-for-sale reserve 13 672 2 059 (48)
General credit-risk reserve (3) - 16 551 19 403
Accumulated loss (306 262) (546 846) (458 853)
Liabilities 4 153 133 3 638 349 3 865 870
Deposits 4 022 427 3 531 320 3 768 183
Derivative financial instruments 14 273 14 998 15 356
Provisions 36 269 34 677 42 435
Deposits 4 022 427 3 531 320 3 768 183
Derivative financial instruments 14 273 14 998 15 356
Provisions 36 269 34 677 42 435
Other accounts payable 80 048 57 233 39 780
Taxation 116 121 116
Total equity and liabilities 5 134 686 4 378 577 4 705 784
Group Income Statement
Six months Six months 12 months
ended ended ended
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
Interest income 297 667 213 885 467 247
Interest expense (154 219) (117 346) (250 012)
Net interest income 143 448 96 539 217 235
Net recovery of/(charge for)
credit losses 763 (339) (5 358)
Net interest income after credit
recoveries/losses 144 211 96 200 211 877
Net gain on disposal and
revaluation of available-for-sale
investments 9 838 3 493 5 602
Fee and commission income 117 033 92 958 190 871
Recurring 117 033 80 168 175 796
Non-recurring - 12 790 15 075
Fee and commission expenditure (4) (32 610) (12 234) (28 841)
Net interest and non-interest
income 238 472 180 417 379 509
Operating expenditure (4) (115 305) (106 496) (216 978)
Operating profit 123 167 73 921 162 531
Share of income from associated
company 1 073 536 2 771
Profit before taxation 124 240 74 457 165 302
Taxation - (29) (29)
Profit after taxation 124 240 74 428 165 273
Earnings per ordinary share
(cents) 3.16 1.90 4.21
Diluted earnings per ordinary
share (cents) 3.16 1.90 4.21
Dividend per share (cents) - - -
Reconciliation between profit
after taxation and headline
earnings:
Profit after taxation 124 240 74 428 165 273
Adjustment for:
Realisation of available-for-sale
reserve on disposal of investments (9 838) (3 500) (5 602)
(Profit)/Loss on disposal of
property and equipment (29) (11) 13
Headline earnings 114 373 70 917 159 684
Headline earnings per ordinary
share (cents) 2.91 1.81 4.07
Diluted headline earnings per
ordinary share (cents) 2.91 1.81 4.07
Financial Statistics
30 June 30 June 31 December
2008 2007 2007
Unaudited Unaudited Audited
Number of ordinary shares in issue:
- end of period (`000) 3 927 165 3 925 373 3 926 538
- weighted average (`000) 3 926 792 3 925 366 3 925 485
- weighted average diluted (`000) 3 926 792 3 925 366 3 925 485
Return on average equity (%) 27.3 21.1 21.9
Return on average assets (%) 5.1 3.4 3.6
Cost to income (%) (4) 48.5 58.9 56.4
Net asset value per ordinary share
(cents) 25.0 18.9 21.4
Group Contingent Liabilities and Commitments
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
Guarantees, letters of credit and
committed undrawn facilities 596 538 408 646 634 861
Operating lease commitments 13 487 8 741 7 593
Summarised Group Statement of Changes in Equity
Six months Six months 12 months
ended ended ended
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
Balance at beginning of period 839 914 667 418 667 418
Movements in reserves (11 048) 951 12 296
Revaluation of owner-occupied
properties - - 8 117
Transfer from share-based
payments reserve (2) (7 019) - -
Share-based payments expense (2) 1 654 1 511 3 994
Transfer (from)/to general
credit-risk reserve (3) (19 403) 2 597 5 449
Net transfer to/(from)
available-for-sale reserve on
revaluation and/or realisation 13 720 (3 157) (5 264)
Movements in accumulated loss 152 591 71 831 159 824
Profit after taxation 124 240 74 428 165 273
Transfer from share-based
payments reserve (2) 7 019 - -
Share-based payments expense (2) 1 929 - -
Transfer from/(to) general
credit-risk reserve (3) 19 403 (2 597) (5 449)
Movement in share capital and
share premium
Reduction of treasury shares held
within the Group 96 28 376
Balance at end of period 981 553 740 228 839 914
Summarised Group Cash Flow Statement
Six months Six months 12 months
ended ended ended
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
Net cash inflow/(outflow) from
operating activities 168 173 (47 922) (7 861)
Net cash (outflow) from investing
activities (45 579) (1 372) (10 482)
Net cash inflow/(outflow) for
period 122 594 (49 294) (18 343)
Cash and cash equivalents at
beginning of period (1) 1 252 376 1 270 719 1 270 719
Cash and cash equivalents at end
of period (1) 1 374 970 1 221 425 1 252 376
Summarised Group Segmental Information
Six months Six months 12 months
ended ended ended
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
Segment revenue net of fee and
commission expenditure (4)
Retail and Commercial banking (5) 159 793 111 373 241 602
Treasury 22 008 18 051 40 046
Alliance banking, MBL credit card
and electronic banking (5) 22 412 24 423 53 316
Other services (6) 33 496 26 909 49 903
237 709 180 756 384 867
Profit after taxation
Retail and Commercial banking (5)(7) 129 709 81 253 183 740
Treasury (7) 13 452 9 724 23 686
Alliance banking, MBL credit card
and electronic banking (5)(7) 11 245 8 182 19 231
Other services (8) (30 166) (24 731) (61 384)
124 240 74 428 165 273
Material Related Party Balances and Transactions
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
Net balances with Caixa Geral de
Depositos S.A. 1 067 673 1 344 638 897 792
Interest received from Caixa Geral
de Depositos S.A. 20 833 38 953 73 105
Explanatory notes:
(1) Bank term deposits with a residual maturity greater than three months
from the reporting date to maturity date are now presented separately in the
balance sheet.
Comparatives for the six months ended 30 June 2007 and for the year ended 31
December 2007 have been adjusted accordingly.
(2) With the adoption of IFRIC 11 - IFRS 2: Group and Treasury Transactions, a
share-based payments reserve in respect of the Mercantile share option scheme
is not required. This reserve has therefore been transferred to accumulated
losses and share-based payments expense for this scheme will be processed to
accumulated losses with effect from 1 January 2008.
In the case of the Mercantile conditional share plan introduced in 2008, a
share-based payments reserve will be created to separate the effects of this
plan from other classes of reserves for management purposes.
(3) The new Bank Regulations which were effective 1 January 2008 no longer
require general credit-risk reserves which resulted in the balance of this
reserve at 31 December 2007 being transferred to accumulated losses in 2008.
(4) Expenditure directly attributable to fee and commission income, previously
included under operating expenditure is now presented separately in the income
statement.
Comparatives for the six months ended 30 June 2007 and for the year ended
31 December 2007 have been adjusted accordingly.
(5) Structured loans previously included with Alliance Banking, MBL credit card
and electronic banking are now presented as part of Retail and Commercial
banking.
Comparatives for the six months ended 30 June 2007 and for the year ended
31 December 2007 have been adjusted accordingly.
(6) "Other services" includes support divisions, surplus capital, insurance
brokers and inter-Group eliminations.
(7) Excludes the allocation of attributable support costs.
(8) "Other services" includes support divisions, surplus capital, insurance
brokers, inter-Group eliminations and associate income.
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 (Pty) Limited,
70 Marshall Street, Johannesburg, 2001
Sponsor: Bridge Capital Advisors (Pty) Limited, 2nd Floor, 27 Fricker Road,
Illovo, 2196
Date: 24/07/2008 10:29:02 Produced by the JSE SENS Department.
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