| Thu 7 Aug 2008, 8:00 | | ASA - Absa Group - Absa Group: Profit And Dividend Announcement Unaudited |
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ASA
AMAGB
ASA - Absa Group - Absa Group: Profit And Dividend Announcement Unaudited
Interim Financial Results For The Six Months Ended 30 June 2008
ABSA GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1986/003934/06)
ISIN: ZAE000067237
JSE share code: ASA
Issuer code: AMAGB
(Absa, Absa Group or the Group)
ABSA GROUP: PROFIT AND DIVIDEND ANNOUNCEMENT
UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008
GROUP SALIENT FEATURES
Six months ended Year ended
30 June 31
December
2008 2007 Change 2007
(Unaudited (Unaudited % (Audited)
) )
Income statement (Rm)
Headline earnings** 4 731 4 365 8,4 9 413
Profit attributable to 5 335 4 363 22,3 9 595
ordinary equity holders of the
Group
Balance sheet (Rm)
Total assets 737 577 553 893 33,2 640 909
Loans and advances to 489 319 414 906 17,9 455 958
customers
Deposits due to customers 347 207 291 306 19,2 310 512
Financial performance (%)
Return on average equity 24,6 26,8 27,2
Return on average assets 1,39 1,69 1,68
Operating performance (%)
Net interest margin on 3,05 3,32 3,37
average
assets
Net interest margin on 3,66 3,75 3,83
average
interest-bearing assets
Impairment losses on loans 0,93 0,49 0,58
and
advances as % of average
loans and
advances to customers
Non-performing advances as % 2,0 1,5 1,6
of
loans and advances to
customers
Non-interest income as % of
total 49,5 48,6 47,0
operating income
Cost-to-income ratio 49,3 52,8 51,8
Effective tax rate, excluding 26,2 29,6 28,7
indirect taxation
Share statistics (million)
Number of shares in issue 680,1 675,0 678,6
Weighted average number of 675,6 670,2 671,5
shares
Weighted average diluted 711,4 716,5 716,4
number of
shares
Share statistics (cents)
Earnings per share 789,7 651,0 21,3 1 428,9
Diluted earnings per share 751,1 610,0 23,1 1 341,4
Headline earnings per share 700,3 651,3 7,5 1 401,9
Diluted headline earnings per 666,2 610,2 9,2 1 316,1
share
Dividends per ordinary share 265,0 240,0 10,4 560,0
relating to income for the
period/year
Dividend cover (times) 2,6 2,7 2,5
Net asset value per share 5 849 5 020 16,5 5 537
Tangible net asset value per 5 800 4 971 16,7 5 493
share
Capital adequacy (%)***
Absa Bank 13,5 12,9 12,5
Absa Group 13,9 13,9 13,1
*The comparatives for the six months ended 30 June 2007 have been reclassified
for certain assets
and liabilities, interest as well as IFRS 7 reclassifications. The
comparative figures have been
reclassified throughout. See section on "Reclassifications" below.
**After allowing for R220 million (June 2007: R114 million) profit attributable
to preference equity
holders of the Group.
***June 2007 and December 2007 reflect Basel I numbers as previously published.
GROUP INCOME STATEMENT
Six months ended Year
ended
30 June 31
December
2008 2007 2007
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Net interest income 10 220 8 574 19,2 18 890
Interest and similar 34 832 24 126 44,4 55 123
income
Interest expense and
similar charges (24 612) (15 552) (58,3) (36 233)
Impairment losses on loans and
advances (2 178) (985) >(100,0) (2 433)
Net interest income after
impairment losses on loans and 8 042 7 589 6,0 16 457
advances
Net fee and commission income 6 007 5 535 8,5 11 600
Fee and commission income 6 707 6 183 8,5 12 873
1.1
Fee and commission (700) (648) (8,0) (1 273)
expense
Net insurance premium income 1 710 1 653 3,4 3 192
Net insurance claims and
benefits paid (914) (778) (17,5) (1 603)
Changes in insurance and
investment liabilities 244 (573) >100,0 (489)
Gains and losses from banking
and trading activities 1 573 908 73,2 1 622
1.2
Gains and losses from
investment activities 269 1 084 (75,2) 1 561
1.3
Other operating income 1 141 291 >100,0 845
Operating income before
operating expenditure 18 072 15 709 15,0 33 185
Operating expenditure (10 498) (9 296) (12,9) (19 209)
Operating expenses (9 985) (8 821) (13,2) (18 442)
2.1
Non-credit related (0) (28) 99,9 (58)
impairments 2.2
Indirect taxation (513) (447) (14,8) (709)
Share of retained earnings
from associated undertakings
and joint venture companies 42 16 >100,0 91
Operating profit before income 7 616 6 429 18,5 14 067
tax
Taxation expense (1 994) (1 900) (4,9) (4 042)
Profit for the period/year 5 622 4 529 24,1 10 025
Attributable to:
Ordinary equity holders of 5 335 4 363 22,3 9 595
the Group
Minority interest - ordinary 67 52 (28,8) 117
shares
Minority interest -
preference shares 220 114 (93,0) 313
5 622 4 529 24,1 10 025
Headline earnings 3 4 731 4 365 8,4 9 413
NOTES TO THE INTERIM FINANCIAL RESULTS
1. NON-INTEREST INCOME
Six months ended Year ended
30 June 31
December
2008 2007 2007
(Unaudited (Unaudited Change (Audited)
) )
Rm Rm % Rm
1.1 Fee and commission income
Credit-related fees and 5 020 4 492 11,8 9 590
commissions
Cheque accounts 1 451 1 230 18,0 2 575
Credit cards accounts 752 792 (5,1) 1 551
Early redemption penalty 95 123 (22,8) 196
income
Electronic banking 1 380 1 226 12,6 2 657
Foreign exchange fees and
commissions 147 124 18,5 285
Savings accounts 1 009 849 18,8 1 801
Other 186 148 25,7 525
Project finance fees 167 212 (21,2) 513
External administration fees 168 190 (11,6) 217
Commission received 590 563 4,8 1 020
Pension fund payment services 233 216 7,9 455
Portfolio and other management 116 113 2,7 255
fees
Trust and estate income 120 111 8,1 228
Unit and property trust income 132 178 (25,8) 310
Consulting and actuarial fees 101 79 27,8 162
Other 60 29 >100,0 123
6 707 6 183 8,5 12 873
1.2 Gains and losses from
banking and trading activities
Net gains on investments 437 417 4,8 858
Fair value through profit 431 415 3,9 856
and loss
Available-for-sale - 2 (100,0) -
Loss on disposal of and
dividend income from
associated undertakings and 6 - 100,0 2
joint venture companies
Net trading income 886 537 65,0 1 097
Economic hedges 259 (139) >100,0 (385)
Other(including ineffective (9) 93 >(100,0 52
hedges) )
1 573 908 73,2 1 622
1.3 Gains and losses from
investment activities
Fair value through profit and 267 1 057 (74,7) 1 474
loss
Net investment gains from
insurance activities 200 1 026 (80,5) 1 393
Policyholder - insurance
contracts 7 166 (95,8) 243
Policyholder - investment
contracts 18 464 (96,1) 579
Shareholder funds 175 396 (55,8) 571
Other investment gains 67 31 >100,0 81
Profit on disposal of and
dividend income from
associated undertakings and 2 3 (33,3) 42
joint venture companies
Available-for-sale - 10 (100,0) 9
Profit realised on disposal of
subsidiary - 14 (100,0) 36
269 1 084 (75,2) 1 561
2. OPERATING EXPENDITURE
Six months ended Year ended
30 June 31
December
2008 2007 2007
(Unaudited (Unaudited Change (Audited)
) )
Rm Rm % Rm
2.1 Operating expenses
Property and equipment-related
Accommodation costs 796 656 (21,3) 1 416
Amortisation 55 20 >(100,0 85
)
Depreciation 418 386 (8,3) 780
Equipment rentals and 132 123 (7,3) 221
maintenance
Insurance premiums 117 110 (6,4) 239
Professional fees
Auditors` remuneration 54 49 (10,2) 77
Other professional fees 488 290 (68,3) 850
Staff-related
Staff costs 4 834 3 949 (22,4) 8 362
Incentive schemes 628 884 29,0 1 422
Other
Cash transportation costs 196 162 (21,0) 347
Clearing and bank charges 59 56 (5,4) 152
Communication and printing 512 452 (13,3) 965
Frauds and losses 170 63 >(100,0 224
)
Information technology costs 666 598 (11,4) 1 140
Marketing and advertising 485 428 (13,3) 898
costs
Travelling and entertainment 176 136 (29,4) 333
Other operating expenses 199 159 (25,2) 256
Barclays synergy costs - 300 100,0 675
9 985 8 821 (13,2) 18 442
2.2 Non-credit related
impairments
Computer software development - 28 100,0 21
costs
Repossessed Properties 0 - (100,0) 37
0 28 99,9 58
3. DETERMINATION OF HEADLINE EARNINGS
Six months ended Year ended
30 June 31
December
2008 2007 2007
(Unaudited (Unaudited Change (Audited)
) )
Rm Rm % Rm
Headline earnings* is
determined
as follows:
Profit attributable to
ordinary equity holders of the 5 335 4 363 22,3 9 595
Group
Adjustments for:
IAS 16 net profit on
disposal of property and (25) (11) >(100,0 (57)
equipment )
IAS 21 recycled foreign
currency translation reserve,
disposal of investment in - - - (29)
foreign operations
IAS 27 net profit on
disposal of subsidiaries - (10) 100,0 (26)
IAS 28 and 31 net profit
on disposal of associated
undertakings and joint venture - - - (31)
companies
IAS 28 underlying
associated undertakings and
joint venture companies` (11) (8) (37,5) (45)
earnings
IAS 38 profit on disposal
and impairment of intangible (636) 20 >(100,0 (43)
assets )
IAS 39 release of
available-for-sale reserves 68 11 >100,0 49
Headline earnings 4 731 4 365 8,4 9 413
*The net amount is reflected after taxation and minority interest.
GROUP BALANCE SHEET
30 June 31
December
2008 2007 2007
(Unaudited (Unaudited Change (Audited)
)
Rm Rm % Rm
Assets
Cash, cash balances and 22 446 17 191 30,6 20 629
balances
with central banks
Statutory liquid asset 27 978 20 848 34,2 22 957
portfolio
Loans and advances to banks 61 859 18 737 >100,0 54 025
Trading assets 62 191 17 902 >100,0 25 824
Hedging assets 2 032 796 >100,0 725
Other assets 37 066 30 377 22,0 24 303
Current tax assets 543 34 >100,0 185
Non-current assets classified
as held-for-sale 2 254 - 100,0 -
Loans and advances to 489 319 414 906 17,9 455 958
customers
Reinsurance assets 714 399 78,9 485
Deferred tax assets 137 121 13,2 111
Investments 23 742 27 336 (13,1) 29 327
Investments in associated
undertakings and joint
venture 1 695 849 99,6 1 469
companies
Intangible assets 331 328 0,9 301
Property and equipment 5 270 4 069 29,5 4 610
Total assets 737 577 553 893 33,2 640 909
Liabilities
Deposits from banks 64 259 24 107 >100,0 58 033
Trading liabilities 64 256 24 112 >100,0 34 919
Hedging liabilities 4 815 2 994 60,8 2 226
Other liabilities and sundry
provisions 26 220 19 614 33,7 12 301
Current tax liabilities 85 366 (76,8) 183
Deposits due to customers 347 207 291 306 19,2 310 512
Debt securities in issue 160 718 130 575 23,1 156 424
Deferred tax liabilities 1 864 2 229 (16,4) 2 576
Liabilities under investment
contracts 9 183 6 712 36,8 7 908
Policyholder liabilities
under 3 070 3 271 (6,1) 3 318
insurance contracts
Borrowed funds 11 087 9 946 11,5 9 949
1
Total liabilities 692 764 515 232 34,5 598 349
Equity
Capital and reserves
Attributable to ordinary
equity
holders of the Group:
Share capital 1 353 1 342 0,8 1 350
Share premium 2 356 2 058 14,5 2 292
Other reserves (951) 462 >(100,0 406
)
Retained earnings 37 022 30 020 23,3 33 527
39 780 33 882 17,4 37 575
Minority interest - ordinary 389 274 42,0 341
shares
Minority interest - preference 4 644 4 505 3,1 4 644
shares
Total equity 44 813 38 661 15,9 42 560
Total equity and liabilities 737 577 553 893 33,2 640 909
Contingent liabilities -
banking related 53 215 54 320 (2,0) 53 197
NOTES TO THE INTERIM FINANCIAL RESULTS
BORROWED FUNDS
30 June 31
December
2008 2007 2007
(Unaudited (Unaudited Change (Audited)
) )
Rm Rm % Rm
Subordinated callable notes
14,25% (AB02) 3 100 3 100 - 3 100
10,75% (AB03) 1 100 1 100 - 1 100
3-month JIBAR + 0,75% (AB04) 400 400 - 400
8,75% (AB05) 1 500 1 500 - 1 500
8,10%(AB06) 2 000 2 000 - 2 000
8,80% (AB07) 1 725 1 725 - 1 725
3-month JIBAR + 0,97% (6.25% 890 - 100,0
Nacs)
3-month JIBAR + 0,97% (6.25% 104 - 100,0
Nacs)
3-month JIBAR + 0,97% (3.97% 86 - 100,0
Nacs)
3-month JIBAR + 1.20% (6.25% 266 - 100,0
Nacs)
3-month JIBAR + 1,00% (6.25% 179 - 100,0
Nacs)
Accrued interest 328 299 9,7 297
Fair value adjustment (743) (328) >(100,0 (326)
)
Redeemable cumulative option-
holding preference shares 152 150 1,3 153
Shares issued 158 158 - 158
Elimination of Absa Group
Limited Employee Share
Ownership Administrative (4) (12) 66,7 (5)
(ESOP)Trust
Redemption of preference
shares by Absa Group Limited
Employee Share Ownership (8) - (100,0) (7)
Administrative (ESOP) Trust
Accrued dividend 6 4 50,0 7
11 087 9 946 11,5 9 949
The fair value adjustment relates to subordinated callable loans designated as
hedged items in a hedging relationship.
GROUP STATEMENT OF CHANGES IN EQUITY
30 June 31
December
2008 2007 2007
(Unaudited (Unaudited Change (Audited)
) )
Rm Rm % Rm
Share capital 1 353 1 342 0,8 1 350
Opening balance 1 350 1 338 0,9 1 338
Shares issued 3 6 (50,0) 13
Transfer from share-based
payment reserve 0 0 - 0
Share buy-back in respect of
Absa Group Limited Share (0) (0) - (0)
Incentive Trust
Elimination of treasury
shares held by Absa Group
Limited Share Incentive Trust (1) (2) 50,0 (0)
Elimination of treasury
shares held by Absa Life
Limited and Absa Fund Managers 1 (0) >100,0 (1)
Limited
Elimination of treasury
shares held by Absa Group
Limited Employee Share
Ownership Administrative 0 - 100,0 (0)
(ESOP) Trust
Share premium 2 356 2 058 14,5 2 292
Opening balance 2 292 2 067 10,9 2 067
Shares issued 63 103 (38,8) 345
Transfer from share-based
payment reserve 14 21 (33,3) 93
Share buy-back in respect of
Absa Group Limited Share (21) (82) 74,4 (130)
Incentive Trust
Elimination of treasury
shares held by Absa Group
Limited Share Incentive Trust (26) (34) 23,5 (5)
Elimination of treasury
shares held by Absa Life
Limited and Absa Fund Managers 29 (17) >100,0 (73)
Limited
Elimination of treasury
shares held by Absa Group
Limited Employee Share
Ownership Administrative 5 - 100,0 (5)
(ESOP) Trust
Other reserves (951) 462 >(100,0 406
)
Opening balance 406 412 (1,5) 412
Movement in foreign currency
translation reserve 353 (4) >100,0 (59)
Movement in regulatory general >(100,0
credit risk reserve (370) 402 ) 435
Movement in available-for-
sale (8) 16 >(100,0 60
reserve )
Movement in cash flow hedges (1 409) (436) >(100,0 (540)
reserve )
Movement in insurance
contingency reserve 14 21 (33,3) 20
Movement in associated
undertakings and joint venture
companies` retained earnings 42 16 >100,0 91
reserve
Disposal of associated
undertakings and joint venture
companies - release of (16) - (100,0) -
reserves
Share-based payments for the
period/year 52 57 (8,8) 81
Transfer from share-based
payment reserve (15) (22) 31,8 (94)
Retained earnings 37 022 30 020 23,3 33 527
Opening balance 33 527 27 876 20,3 27 876
Subsidiary step-up - - - 2
acquisitions
Transfer to regulatory
general credit risk reserve 370 (402) >100,0 (435)
Transfer to insurance
contingency reserve (14) (21) 33,3 (20)
Transfer to associated
undertakings and joint venture
companies` retained earnings (42) (16) >(100,0 (91)
reserve )
Disposal of associated
undertakings and joint venture
companies- release of reserves 16 - 100,0 -
Transfer from share-based
payment reserve 1 1 - 1
Profit attributable to
ordinary equity holders 5 335 4 363 22,3 9 595
Dividends paid during the
period/year (2 171) (1 781) (21,9) (3 401)
39 780 33 882 17,4 37 575
Minority interest - ordinary 389 274 42,0 341
shares
Opening balance 341 236 44,5 236
Acquisition of subsidiary 30 - 100,0 -
Other reserve movements (49) (14) >(100,0 (12)
)
Minority share of profit 67 52 28,8 117
Minority interest - preference 4 644 4 505 3,1 4 644
shares
Opening balance 4 644 2 992 55,2 2 992
Shares issued - 1 518 (100,0) 1 658
Costs incurred - (5) 100,0 (6)
Profit attributable to
preference equity holders 220 114 93,0 313
Preference dividends paid
during the period/year (220) (114) (93,0) (313)
Total equity 44 813 38 661 15,9 42 560
GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 June 31
December
2008 2007 2007
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Net cash (utilised)/generated (3 033) (1 422) 6 995
from operating activities >(100,0)
Net cash generated/(utilised)
from investing activities 1 964 (772) >100,0 (4 995)
Net cash (utilised)/generated
from financing activities (813) 1 317 >(100,0) (193)
Net (decrease)/increase in
cash and cash equivalents (1 882) (877) >(100,0) 1 807
Cash and cash equivalents at
the 6 596 4 787 37,8 4 787
beginning of the period/year
1
Effect of exchange rate
movements on cash and cash (4) 1 >(100,0) 2
equivalents
Cash and cash equivalents at
the end of the period/year 4 710 3 911 20,4 6 596
2
NOTES TO THE CASH FLOW
STATEMENT
1. Cash and cash equivalents
at the beginning of the
period/year
Cash, cash balances and
balances 5 091 3 936 29,3 3 936
with central banks
Loans and advances to banks 1 505 851 76,9 851
6 596 4 787 37,8 4 787
2. Cash and cash equivalents
at the end of the period/year
Cash, cash balances and
balances 3 251 2 688 20,9 5 091
with central banks
Loans and advances to banks 1 459 1 223 19,3 1 505
4 710 3 911 20,4 6 596
PROFIT CONTRIBUTION BY BUSINESS AREA
Six months ended Year ended
30 June 31
December
2008 2007 2007*
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Banking operations
Retail banking 1 2 012 2 164 (7,0) 5 035
Absa Wealth 15 22 (31,8) 46
Retail Bank 1 183 916 29,1 2 298
Absa Home Loans 307 581 (47,2) 1 296
Absa Card 258 330 (21,8) 706
Absa Vehicle and Asset 249 315 (21,0) 689
Finance
Absa Corporate and Business 1 039 907 14,6 2 075
Bank 1
Absa Capital 1 001 757 32,2 1 733
Corporate centre 2 764 21 >100,0 (17)
Capital and funding centre (13) 90 >(100,0) 59
Total banking 4 803 3 939 21,9 8 885
Bancassurance 752 750 0,3 1 502
Total earnings from business 5 555 4 689 18,5 10 387
areas
Synergy costs (after tax) - (212) 100,0 (479)
3
Minority interest - (220) (114) (93,0) (313)
preference shares
Profit attributable to
ordinary equity holders 5 335 4 363 22,3 9 595
Headline earnings adjustments (604) 2 >(100,0) (182)
Total headline earnings 4 731 4 365 8,4 9 413
REVENUE CONTRIBUTION BY BUSINESS AREA
Six months ended Year ended
30 June 31
December
2008 2007* 2007*
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Banking operations
Retail banking 1 11 788 10 013 17,7 21 765
Absa Wealth 143 118 21,2 251
Retail Bank 7 119 5 782 23,1 12 602
Absa Home Loans 1 979 1 713 15,5 3 894
Absa Card 1 296 1 181 9,7 2 466
Absa Vehicle and Asset 1 251 1 219 2,5 2 552
Finance
Absa Corporate and Business 3 735 3 343 11,7 7 059
Bank 1
Absa Capital 2 308 1 654 39,5 3 810
Corporate centre 948 (32) >100,0 (321)
2
Capital and funding centre (235) 40 >(100,0) 103
Total banking 18 544 15 018 23,5 32 416
Bancassurance 1 706 1 676 1,8 3 202
Total revenue 20 250 16 694 21,3 35 618
NOTES
African operations have been split between Retail banking and Absa Corporate and
Business Bank during the period under review.
In the current year Corporate centre includes the profit on VISA IPO shares.
Synergies relate to the integration of Absa and Barclays following the
acquisition by Barclays of a majority share in Absa. Synergy costs are one-off
costs incurred in achieving synergy benefits.
The comparative periods have been restated for:
AllPay Consolidated Investment Holdings (Proprietary) Limited was moved from
Corporate centre to Retail banking in August 2007. The June 2007 position has
been restated to reflect this.
Absa Development Company Holdings (Proprietary) Limited was moved from Corporate
centre to Absa Corporate and Business Bank in August 2007. The June 2007
position has been restated to reflect this.
Commercial Asset Finance was moved from Retail banking to Absa Corporate and
Business Bank during the period under review.
Properties in Possession was moved from Retail banking to Corporate centre
during the period under review.
Group Payment Systems was moved from Corporate centre to Retail banking during
the period under review. The December 2007 position has been restated to reflect
this.
RECLASSIFICATIONS
GROUP BALANCE SHEET
Reclassification of certain assets and liabilities
30 June 30 June
2007 2007
(Unaudited) (Unaudited)
(As
previously Reclassi-
Rm Commentary reported) fications (Restated)
Assets
Cash, cash balances 17 191 17 191
and balances -
with central banks
Statutory liquid 20 848 - 20 848
asset portfolio
Loans and advances 18 737 - 18 737
to banks
Trading assets 17 902 - 17 902
Hedging assets 796 - 796
Other assets 30 377 - 30 377
Current tax assets 34 - 34
Loans and advances 1 415 964 (1 058) 414 906
to customers
Reinsurance assets 399 - 399
Deferred tax assets 121 - 121
Investments 1 26 278 1 058 27 336
Investments in
associated
undertakings and 849 - 849
joint venture
companies
Intangible assets 328 - 328
Property and 4 069 - 4 069
equipment
Total assets 553 893 - 553 893
Liabilities
Deposits from banks 24 107 - 24 107
Trading liabilities 24 112 - 24 112
Hedging liabilities 2 994 - 2 994
Other liabilities
and sundry 2 20 218 (604) 19 614
provisions
Current tax 366 - 366
liabilities
Deposits due to 291 306 - 291 306
customers
Debt securities in 130 575 - 130 575
issue
Deferred tax 2 229 - 2 229
liabilities
Liabilities under
investment 2 6 108 604 6 712
contracts
Policyholder
liabilities under 3 271 - 3 271
insurance contracts
Borrowed funds 9 946 - 9 946
Total liabilities 515 232 - 515 232
Equity
Capital and reserves
Attributable to
ordinary equity
holders of the
Group:
Share capital 1 342 - 1 342
Share premium 2 058 - 2 058
Other reserves 462 - 462
Retained earnings 30 020 - 30 020
33 882 - 33 882
Minority interest - 274 - 274
ordinary shares
Minority interest -
preference shares 4 505 - 4 505
Total equity 38 661 - 38 661
Total equity and 553 893 - 553 893
liabilities
GROUP INCOME STATEMENT
Reclassification of interest as well as IFRS 7 reclassifications.
Six months ended Six months
ended
30 June 30 June
2007 2007
(Unaudited) (Unaudited)
(As previously
Reclassi-
Rm Commentary reported) fication (Restated)
s
Net interest income 3 & 4 8 577 (3) 8 574
Interest and 24 185 (59) 24 126
similar income
Interest expense
and similar charges (15 608) 56 (15 552)
Impairment losses on
loans and advances (985) - (985)
Net interest income
after impairment
losses on loans and 7 592 (3) 7 589
advances
Net fee and commission 5 626 (91) 5 535
income
Fee and 4 & 5 5 996 187 6 183
commission income
Fee and 4 (370) (278) (648)
commission expense
Net insurance premium 1 653 - 1 653
income
Net insurance claims
and benefits paid (778) - (778)
Changes in insurance
and investment (573) - (573)
liabilities
Gains and losses from
banking and trading 4 930 (22) 908
activities
Gains and losses from
investment activities 1 084 - 1 084
Other operating income 5 469 (178) 291
Operating income
before operating 16 003 (294) 15 709
expenses
Operating expenditure (9 590) 294 (9 296)
Operating 4 (9 113) 292 (8 821)
expenses
Non-credit (28) - (28)
related impairments
Indirect taxation (449) 2 (447)
Share of retained
earnings from
associated 16 - 16
undertakings and joint
venture companies
Operating profit 6 429 - 6 429
before income tax
Taxation expense (1 900) - (1 900)
Profit for the period 4 529 - 4 529
Attributable to:
Ordinary equity
holders of the Group 4 363 - 4 363
Minority interest -
ordinary 52 - 52
shares
Minority interest -
preference shares 114 - 114
4 529 - 4 529
Headline earnings 4 365 - 4 365
COMMENTARY ON THE CHANGE IN ACCOUNTING POLICY AND RECLASSIFICATIONS
Reclassifications
1. Equity and shareholder loans
Shareholder loans granted to Private Equity, Commercial Property Finance and
Incubator Fund clients have been reclassified as part of the net investment in
that entity. Previously these were shown as "Loans and advances to customers".
2. Liabilities under investment contracts
The "General Fund", a fund which Absa Life is required to consolidate under
IFRS, has been reclassified as an investment contract. The impact of this is the
liabilities to policyholders have been moved from "Other liabilities and sundry
provisions" to "Liabilities under investment contracts".
3. Reclassification of interest
Hedging income and expenses have been reclassified to better eliminate
mismatches.
4. Fee expenses and similar items
While implementing IFRS 7, the Group adopted a policy where all fees paid
relating to either a financial instrument or fee income, should be classified as
a fee expense. Similarly any fees related to trading should be moved to "Gains
and losses from banking and trading activities".
5. Fees from trust and other fiduciary activities
Unit and property trust income has been reclassified from "Other operating
income" to "Fee and commission income".
PROFIT AND DIVIDEND ANNOUNCEMENT
Overview
The Group`s headline earnings for the six months to 30 June 2008 increased by
8,4% from R4 365 million to R4 731 million. Headline earnings per share
increased by 7,5% to 700,3 cents per share and fully diluted headline earnings
per share grew by 9,2% to 666,2 cents per share. The dilution of headline
earnings stems from the option rights to acquire shares issued to Batho Bonke
Capital (Proprietary) Limited (Batho Bonke) (Absa`s black empowerment partner)
and to the Group`s share incentive schemes.
The Group posted attributable earnings of R5 335 million, up 22,3% from the
corresponding prior period. Earnings were enhanced by a once-off profit from the
Visa Inc public offering that consisted of a cash and share distribution. This
resulted in an initial after-tax profit of R636 million.
Absa Capital, the investment banking business, delivered another robust
performance, lifting earnings by 32,2%. Absa Corporate and Business Bank (ACBB)
and the Bancassurance business also posted strong operational performances but
their earnings growth, at 14,6% and 0,3% respectively, were adversely impacted
by lower returns on their investment portfolios. The challenging market
conditions for consumers affected the retail business, which recorded lower
earnings for the period following a decline in business volumes and rising
accounts in arrears. Progress with the strategy of diversifying the Group`s
earnings resulted in growth within the wholesale businesses largely offsetting
the downturn experienced in the retail cluster.
The Group recorded an annualised return on average assets of 1,39% for the six
months to 30 June 2008 (30 June 2007: 1,69%) and an average return on equity
(RoE) of 24,6% (30 June 2007: 26,8%). An interim dividend of 265 cents per share
has been declared for the period, representing a growth of 10,4%.
The key features of the Group`s performance include:
a 21,3% increase in revenue;
a decline of 7,0% in earnings from the retail banking operations;
strong growth in customer deposits of 19,2%;
the robust growth of Absa Capital and ACBB earnings; and
improved operational efficiency with the cost-to-income ratio declining from
52,8% to 49,3% (51,2% excluding the once-off Visa profit).
Operating environment
The South African macroeconomic environment deteriorated markedly during the
period under review. Economic growth slowed to an annualised 2,1% in the first
quarter of 2008 compared with growth rates that averaged 5,0% over the past four
years. The slower GDP growth is attributed inter alia to power outages that
restricted production capacity in both the mining and manufacturing sectors.
South Africans also had to cope with increases in the cost of living and weaker
growth in disposable income. CPIX inflation, which first broke through the South
African Reserve Bank`s (SARB`s) 6,0% target ceiling in April 2007, rose to 11,6%
in June 2008 and is expected to rise further in the short term. The
deterioration in the inflation outlook, driven largely by rising food and fuel
costs that constitute as much as 20% of average household expenses, resulted in
the SARB increasing interest rates by 500 basis points since June 2006.
In addition, households had accumulated record levels of indebtedness during the
economic boom experienced between 2002 and 2006, as a result of strong growth in
disposable income, higher property prices and relatively low inflation and
interest rates over that period. During the first quarter of 2008, however, the
ratio of household debt to disposable income rose to a record high of 78,2%,
while debt servicing costs exceeded 11,0% of disposable income.
With interest rates and inflation at their highest levels in five years and real
disposable income declining, household budgets experienced considerable
financial strain. This has resulted in a decline in consumer credit quality as
reflected in rising accounts in arrears.
Competition Commission enquiry
On 25 June 2008, the Competition Commission (the Commission) published a summary
of the findings and recommendations of its enquiry into the South African retail
banking sector. The Commission undertook a broad fact-finding review of the
banking industry to determine whether customers are being treated fairly. The
executive summary highlighted a number of issues regarding the SA retail banking
sector in general, but did not comment on the practices of individual banks.
The proposals of the Commission are receiving the Group`s full attention, but
are not expected to impact the Group`s financial results for the current
financial year. Future consequences will become clearer as the full report is
published and the implementation of the recommendations take effect.
Group performance
Balance sheet
The Group`s asset base as at 30 June 2008 increased by 33,2% to R737,6 billion.
This increase is attributed largely to loans and advances to banks and
customers, and the growth in trading and derivative assets. Interest-bearing
assets increased by 19,7% and comprise 74,3% of total assets.
Loans and advances to customers
The Group increased loans and advances to customers by 17,9% to R489,3 billion,
compared with R414,9 billion in June 2007. Growth of retail advances slowed to
14,4% (June 2007: 23,7%) as higher inflation and interest rates negatively
impacted consumer demand.
Retail mortgages, including commercial property finance (CPF) in Small Business,
increased by 17,5%, retail instalment finance by 5,3% and credit card advances
by 10,4% year-on-year. ACBB increased advances by 34,0%, mainly as a result of
the strong growth in both the Large and the Medium Business segments.
Net asset value
Net asset value increased by 16,5% to 5 849 cents per share year-on-year.
Capital to risk-weighted assets
The objective of the Group is to maintain a AAA long-term national credit
rating. This was achieved over the period with Fitch Rating Agency and Moody`s
affirming their respective AAA (zaf) and Aaa.za ratings.
The Group and Absa Bank are capitalised above the board target ratios for Tier 1
capital of 8,75% and total capital of 12,0%. At 30 June 2008, the capital levels
of the Group were 11,4% (Basel II 31 December 2007: 10,4%) at Tier 1 level and
total capital of 13,9% (Basel II 31 December 2007: 12,7%). At the same time,
Absa Bank`s Tier 1 ratio stood at 10,6% and its total capital level at 13,5%.
While the Group is well capitalised, the market demand for capital instruments
issued by banks has been limited due to the deteriorating macroeconomic
environment and the effects of the international sub-prime crisis. The cost of
raising capital has also increased substantially.
The organic growth of the Group will not be constrained by prevailing market
conditions as the Group currently generates sufficient capital from its
operations to fund its growth. In addition, a substantial inflow of capital is
expected to follow the conversion by Batho Bonke of its option-holding
preference shares into ordinary shares. The period during which this conversion
may be executed expires in July 2009. It is unlikely that this conversion will
occur during the remainder of the current financial year.
During the period under review, Absa Bank issued inflation-linked bonds valued
at R1,5 billion (an additional R0,4 billion was issued in July 2008) at spreads
of between 97 and 120 basis points above the three-month JIBAR rate. These bonds
qualify as Tier II capital.
Income statement
Net interest income
Net interest income increased by 19,2% to R10 220 million, mainly due to growth
in total advances. The net interest margin on average interest-bearing assets
declined by nine basis points year-on-year to 3,66% as a result of:
the higher cost of attracting long-term deposits as interest rate uncertainty
reduced depositor/investor appetite for longer term instruments;
the narrowing of the interest rate spread between the prime rate (from which
assets are generally priced) and funding rates, due to the uncertainty in the
market regarding prime rate increases; and
increased reliance being placed on wholesale funding.
This impact was partially offset by the benefit received from the endowment
effect on capital in a rising interest rate cycle. Pressure on wholesale
funding costs will persist as long as uncertainty prevails regarding the timing
and extent of future rate increases.
Non-interest income
Non-interest income increased by 23,5% to R10 030 million. Net fee and
commission income, which constitutes approximately 60% of non-interest income,
grew by 8,5% to R6 007 million. The growth rate was affected by slowing retail
activity and a modest growth in volumes, which was assisted by enhanced cross-
selling and an expanded local customer base of 9,4 million customers. Net
trading income increased by 65,0% to R886 million following increased client
deal flow, broader product offering and more effective risk management.
Short-term insurance gross premium income grew by 17,3% and net related claims
increased by 22,1%. Long-term insurance gross premium income decreased by 19,7%,
due to the switch from single premium to monthly premium credit life business
following the introduction of the National Credit Act (NCA). Excluding the NCA-
impacted businesses, long-term gross premium income grew by 21,3%.
Investment markets remained under pressure during the period under review with
related earnings, excluding the Visa once-off profit, decreasing by 20,1%. The
value of the ACBB listed commercial property portfolio declined sharply by R259
million and the Bancassurance business was also unable to match the investment
performance of the corresponding period.
Credit impairments
Credit impairments, as a percentage of average advances, increased to 0,93% from
the 0,49% recorded for the six months to 30 June 2007 and 0,58% as at 31
December 2007. The impairment charge to the income statement increased by 121,1%
to R2 178 million.
Retail credit impairments, as a percentage of average advances, increased to
1,21% from 0,65% in June 2007. Consumer arrears rose sharply due to the
increased cost of living and higher interest rates. The credit quality of the
corporate sector remained sound. However, indications are emerging that consumer
pressure is impacting some commercial sectors and small and medium businesses.
Impairment charges relating to investment banking were negligible.
Operating expenses
Operating expenses increased by 13,2% to R9 985 million during the period. This
is attributed principally to the growth in staff costs, cost of premises,
professional fees and transportation costs. Staff numbers increased largely as a
result of increasing the capacity of the collections department.
The Group achieved revenue growth of 21,3%, which exceeded growth in operating
expenses and resulted in the cost-to-income ratio improving from 52,8% to 49,3%
(51,2% excluding Visa).
Retail trading conditions deteriorated to a greater extent than previously
anticipated and a number of actions to improve efficiency were taken in the
first six months of the current year. These measures include a reduction in the
roll-out of new branches, deferring certain internal projects and a reduction of
discretionary spend, particularly within the retail business and head office
support services. These measures will continue in the second half of 2008, but
will not impact on any of the Group`s long-term strategic initiatives and will
support the objective of improving operational efficiency.
Cluster performance
Retail banking
Attributable earnings for retail banking declined by 7,0% to R2 012 million
(2007: R2 164 million) as the slowdown in consumer spending reduced demand for
lending products and transaction volumes.
Advances growth of 14,4% was achieved following growth across all categories.
The overall composition of advances remained unchanged with secured lending
comprising more than 87,5% of the total advances book.
The ongoing focus on reducing the Group`s dependency on wholesale funding
contributed to a robust 30,3% growth in retail customer deposits. Innovative
product offerings, including initiatives such as the online opening of savings
accounts, coupled with competitive pricing, resulted in strong gains in market
share. Market share statistics as at 31 May 2008 indicate that Absa has the
largest share of the individual deposit and advances market in South Africa. The
Group will continue to grow retail savings and investments as it strives to
become `the savings bank of the nation`.
The net interest margin on loans and advances showed a slight contraction year-
on-year, primarily due to higher funding costs. The application of risk-based
pricing, to the extent that the competitive market allows, has improved asset
margins in the microloan, personal loan and credit card products.
Changing consumer behaviour resulted in healthy transaction growth across the
Group`s electronic channels. Internet banking and cellphone banking transaction
volumes grew 19,8% and 85,6% respectively, while debit card usage at point of
sale increased by 17,9%. ATM transaction volumes increased by 9,2% and the use
of Absa`s ATMs by non-Absa customers grew 36,0%, driven by the expanded Absa
network.
During the period under review, the South African banking industry experienced a
rising incidence of fraud and ATM bombings. The bombings in particular have
serious implications as they threaten the physical safety of customers and
employees, disrupt customer services and increase the cost of making banking
accessible to all South Africans. The Group remains fully committed to
supporting the authorities in combating this threat.
The retail banking impairment charge increased by 129,4% to R2 016 million. This
resulted mainly from higher impairments from Absa Home Loans, which increased to
R852 million, and Absa Vehicle and Asset Finance which increased to R405
million. A reduction in the value of collateral, resulting from the softening
housing market and lower residual values of vehicles, further contributed to the
overall impairment increases in mortgages and instalment finance.
The Group continues to focus on the collection process and the regular revision
of credit criteria. This includes stricter scorecard criteria, close attention
to affordability and quality of bureau information, and stricter loan-to-value
criteria on home loans and vehicle finance. The Group`s collections capability
has also been enhanced and positioned for optimum effect under current market
conditions. This investment in the collections capability, together with the
expansion in the delivery footprint since June 2007, contributed to a rise in
operating expenses of 15,3%, in the retail banking cluster.
Absa Corporate and Business Bank (ACBB)
ACBB increased its attributable earnings for the first half of 2008 by 14,6% to
R1 039 million (2007: R907 million). The Large and Medium Business lines grew
advances strongly, asset and deposit margins widened while impairments remained
low. As a result, the cluster recorded robust underlying growth which was
diluted by a sharp decline in the value of the listed commercial equity
investments.
Total advances and deposits increased by 34,0% and 11,6% respectively. The
impairment loss ratio for the advances book increased marginally from 0,28% in
June 2007 to 0,35% as higher interest rates have started to impact small and
medium businesses.
Transaction income on cheque and corporate overdraft accounts grew moderately by
5,0%, representing the major portion of fee and commission income (38,5%), while
electronic banking fees grew by 15,1%, representing 23,4% of fee and commission
income.
ACBB continues to leverage Absa Capital`s expertise in providing innovative
solutions and service to its customer base. This is especially evident within
the derivative markets. ACBB also leverages off Absa Capital in terms of its
expertise in structuring complex transactions and its capability for
international syndication and distribution.
Absa Capital
Absa Capital increased attributable earnings by 32,2% to R1 001 million from
R757 million in 2007, due to a strong performance across both the Secondary and
Primary Markets` business units. Key drivers of this growth have been Absa
Capital`s further refinement of its operating model and continued improvement in
technology, products and distribution.
The revenue of Secondary Markets grew by 84,8% and contributed 47,3% of Absa
Capital`s revenue. Secondary Markets is an area of strength for Absa Capital and
the business continues to improve, leveraging off a strong working relationship
with Barclays Capital. The growth in revenue is attributable to increased deal
flow from new and existing clients, the broadening of the product offering, the
increased sale of derivative products to the client base and more effective risk
management.
The revenue of Primary Markets grew by 45,1% during the period and contributed
39,5% of Absa Capital`s revenue as Primary Markets continued to grow earnings
without an undue accumulation of credit risk. Due to the uncertainties in the
South African and global credit markets, Primary Markets has restricted the size
of its underwriting positions, preferring to distribute the risk through upfront
syndication in the present environment. While uncertainties in the global
credit markets have negatively impacted local deal flow, Primary Markets
continued to perform well due to the client-centric business model which
delivers comprehensive international and local solutions by leveraging off
Barclays Capital global expertise and capabilities.
The revenue of the Private Equity and Investor Services business unit declined
by 10,3% in the first half of 2008 and contributed 13,2% of Absa Capital`s
revenue. Although revenue in the Private Equity portfolio was positive, the
cyclical nature of disposals (lower realisations compared to the corresponding
period in 2007), combined with higher funding costs, led to lower revenue in
Private Equity. The portfolio is well diversified and the business has a solid
transaction pipeline. Investor Services delivered a sound performance in the
first half of 2008 and continues to win new mandates.
Bancassurance
The Bancassurance operation posted flat attributable earnings of R752 million
for the period under review. The results are underpinned by a strong operational
performance which grew by 21,5%, but was adversely affected by investment income
on shareholders` funds, which declined by 55,8% as a result of volatile equity
and bond market performance. This cluster achieved an RoE of 40,4% (June 2007:
38,4%).
Absa Life grew operating earnings by 4,9% to R342 million. Gross premium income
declined by 19,7% in line with the premium payment structure changes on credit
life policies brought about by the introduction of the National Credit Act
(NCA). Excluding NCA-impacted businesses, gross premium income grew by 21,3%
driven by mass market products and the performance of `@ Ease`, a new stand
alone risk product range that was launched early in 2008. The embedded value of
new business amounted to R135 million (June 2007: R142 million). Embedded value
earnings of R219 million represents a return of 22,1% (June 2007: 30,3%).
Absa Insurance increased operating earnings by 13,7% and achieved a 17,3%
increase in gross written premiums. This rise was driven by strong growth in the
personal and commercial books, as well as the introduction of `Absa idirect` (a
direct insurance offering). Claims levels continued to be a challenge, rising by
22,1% and the claims ratio increased to 62,4% from 61,3% as at 30 June 2007. The
higher claims arose from adverse weather conditions, rolling power outages,
increases in the incidence of motor accidents and the continuing escalation in
repair costs. Despite these factors, Absa Insurance achieved an underwriting
margin of 11,5% (June 2007: 12,2%).
Absa Investments operating earnings declined by 6,0% to R140 million. The
strategic focus of the business is to grow non-money market assets under
management. Non-money market net inflows amounted to R3,2 billion in the period.
Assets under management declined by 2,4% to R117 billion. Unit trusts continue
to deliver an encouraging performance with five funds being top-quartile
performers over a one-year period.
Fiduciary operating earnings grew by 21,7% to R73 million. The acquisition of
the Glenrand MIB employee benefits business was finalised during the first half
of 2008 and provides critical mass to this cluster`s employee benefits business.
Earnings from other African countries
The Group has banking operations in Angola, Mozambique and Tanzania and, in
addition, explores profitable opportunities on the African continent through
initiatives by each of its business clusters and by leveraging the Barclays
brand. This will be enhanced significantly by the agreement with Barclays that
Absa Capital will lead the investment banking initiatives in sub-Saharan Africa.
Absa Capital will work closely with Barclays Capital to bring Barclays Capital
global product expertise and distribution capabilities to sub-Saharan clients. A
number of Bancassurance initiatives have commenced and are yielding promising
results. Earnings from other African countries increased by 37,5% to R110
million.
Basis of presentation and changes in accounting policy
The Absa Group interim results have been prepared in accordance with
International Financial Reporting Standards (IFRS) and the disclosures comply
with International Accounting Standard (IAS) 34.
The Group has elected to early adopt IFRS 8 - Operating Segments, during the
period commencing 1 January 2008. The statement requires that an entity disclose
information to enable users of its financial statements to evaluate the nature
and financial effects of the types of business activities in which it engages
and the economic environment within which it operates. This information should
be disclosed in the same manner as presented to the entity`s chief operating
decision-maker(s). The adoption of the standard had no impact on the reported
profits or financial position of the Group.
The Group adopted IFRS 7 - Financial Instruments: Disclosures and IAS 1 -
Presentation of Financial Statements: Capital Disclosures (amendment) during the
year ended 31 December 2007. The adoption of IFRS 7 and the amendment to IAS 1
impacted disclosures made in the financial statements. The Group also made some
reclassifications to the June 2007 income statement and balance sheet as a
result of the implementation of IFRS 7. The adoption of the standard had no
impact on the reported profits or financial position of the Group.
Strategic focus
The Group remains focused on its long-term strategic goal of being the best
financial services provider in South Africa and selected African markets. The
diversification of revenue streams by offering a full suite of products to the
market and maximising cross-selling opportunities between business clusters is
fundamental to the achievement of this objective. Successful diversification
will enhance earnings performance through economic cycles, hence the Group`s
objective to grow the wholesale businesses to 50% of the total Group earnings by
2012. The Group is focusing on four key strategic deliverables:
strengthening market leadership in retail financial services;
accelerating growth in the commercial business;
building the leading investment bank; and
growing the wealth management capability and reputation.
In pursuing these strategies, the Group will:
attract and retain the best people;
enhance competitiveness through transformation;
strengthen brand leadership;
leverage its global capability and network;
enhance operational excellence; and
lead in risk and capital management.
Prospects
The Group expects growth of the South African economy in the short-term to be
constrained by inflationary pressures, tighter credit conditions and declining
levels of consumer and business confidence which, together with an uncertain
global macroeconomic environment, are likely to delay an early recovery from the
current economic downturn.
Consumers are expected to remain under pressure as higher debt servicing costs
and increases in the general cost of living continue to erode disposable income
into 2009. Against this backdrop, the Group is likely to experience higher
impairments within the retail portfolio. Comprehensive measures have been
implemented to protect future earnings of the Group. These include the
tightening of credit criteria, increasing the collection capability, providing
preventative and curative support for distressed customers and implementing
further Group-wide cost efficiency initiatives.
The promotion of product offerings such as deposits, transactional banking and
advisory services to protect and enhance the underlying value of the Group
remain priorities in the current environment. Moreover, the strong investment-
led growth in South Africa should assist Absa Capital and ACBB in maintaining
the positive earnings momentum of recent years.
Given the uncertain outlook for the global banking environment, volatile
markets, and a higher than anticipated inflation and interest rate environment
in South Africa, the headline earnings growth of the Group for the full year is
expected to be close to the growth percentage achieved in the six months to June
2008.
Declaration of interim ordinary dividend number 44
Shareholders are advised that an interim dividend of 265 cents per ordinary
share was declared on Thursday, 7 August 2008, and is payable to shareholders
recorded in the register of members of the Group at the close of business on
Friday, 29 August 2008.
In compliance with the requirements of Strate, the electronic settlement and
custody system used by the JSE Limited, the following salient dates for the
payment of the dividend are applicable:
Last day to trade cum dividend Friday, 22 August 2008
Shares commence trading ex dividend Monday, 25 August 2008
Record date Friday, 29 August 2008
Payment date Monday, 1 September 2008
Share certificates may not be dematerialised or rematerialised between Monday,
25 August 2008, and Friday, 29 August 2008, both dates inclusive.
On Monday, 1 September 2008, the dividend will be electronically transferred to
the bank accounts of certificated shareholders who use this facility. In respect
of those who do not, cheques dated 1 September 2008 will be posted on or about
that date. The accounts of those shareholders that have dematerialised their
shares (which are held at their participant or broker) will be credited on
Monday, 1 September 2008.
On behalf of the board
S Martin
Group Secretary
Johannesburg
7 August 2008
Enquiries
Jacques Schindehutte
Group Executive Director
Absa Group Limited
5th floor, Absa Towers East, 170 Main Street, Johannesburg, 2001
Tel: (+2711) 350-4850, Fax: (+2711) 350-8433
e-mail: jacquessc@absa.co.za
Eric Wasserman
Group Executive: Group Finance
Absa Group Limited
4th floor, Absa Towers East, 170 Main Street, Johannesburg
Tel: (+2711) 350-5887, Fax: (+2711) 350-6487
e-mail: ericwas@absa.co.za
Sponsor
Merrill Lynch South Africa (Proprietary) Limited
Date: 07/08/2008 08:00:06 Produced by the JSE SENS Department.
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