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ASA
AMAGB
ASA - Absa Group Limited: Profit And Dividend Announcement Audited Financial
Results For The Year Ended 31 December 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 LIMITED: PROFIT AND DIVIDEND ANNOUNCEMENT
AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
GROUP SALIENT FEATURES
Year ended
31 December
2008 20071 Change
(Audited) (Audited) %
Income statement (Rm)
Headline earnings2 9 908 5,3
9 413
Profit attributable to 10 592 9 595 10,4
ordinary equity holders of the
Group
Balance sheet (Rm)
Total assets 773 758 640 909 20,7
Loans and advances to 532 171 455 958 16,7
customers
Deposits due to customers 382 281 310 512 23,1
Financial performance (%)
Return on average equity 23.4 27,2
Return on average assets 1,37 1,68
Operating performance (%)
Net interest margin on 3,02 3,37
average
assets
Net interest margin on 3,63 3,83
average
interest-bearing assets
Impairment losses on loans
and
advances as % of average
loans and
advances to customers
Group 1,19 0,58
Retail banking 1,68 0,74
Non-performing advances as % 3,5 1,7
of
loans and advances to
customers
Year ended
31 December
2008 20071 Change
(Audited) (Audited) %
Non-interest income as % of 49,2 47,0
total
operating income
Cost-to-income ratio 49,4 51,7
Effective tax rate, excluding 26,1 28,8
indirect taxation
Share statistics (million)
Number of shares in issue 680,3 678,6
Weighted average number of 675,7 671,5
shares
Weighted average diluted 702,8 716,4
number of
shares
Share statistics (cents)
Earnings per share 1 567,5 1 428,9 9,7
Diluted earnings per share 1 509,5 1 341,4 12,5
Headline earnings per share 1 466,2 1 401,9 4,6
Diluted headline earnings per 1 412,1 1 316,1 7,3
share
Dividends per ordinary share 595,0 560,0 6,3
relating to income for the year
Dividend cover (times) 2,5 2,5
Net asset value per share 6 950 5 537 25,5
Tangible net asset value per 6 809 5 493 24,0
share
(Unaudited) (Unaudited)
Capital adequacy (%)3
Absa Bank 14,0 12,5
Absa Group 14,1 13,1
Notes
1 Refer to the "reclassifications" section for the restatement of prior year
figures.
2 After allowing for R457 million (December 2007: R313 million) profit
attributable to preference equity holders of the Group.
3 December 2007 reflect Basel I numbers as previously published.
GROUP INCOME STATEMENT
Year ended
31 December
2008 2007
(Audited) (Audited) Change
Rm Rm %
Net interest income 21 795 18 890 15,4
Interest and similar income 75 949 55 123 37,8
Interest expense and similar
charges (54 154) (36 233) (49,5)
Impairment losses on loans and
advances (5 839) (2 433) >(100,0)
Net interest income after
impairment losses on loans and 15 956 16 457 (3,0)
advances
Net fee and commission income 13 343 11 600 15,0
Fee and commission income 14 804 12 873 15,0
1.1
Fee and commission expense (1 461) (1 273) (14,8)
Net insurance premium income 3 511 3 192 10,0
Net insurance claims and
benefits paid (1 890) (1 603) (17,9)
Changes in investment and
insurance liabilities (70) (489) 85,7
Gains and losses from banking
and trading activities 3 642 1 650 >100,0
1.2
Gains and losses from
investment activities 1 064 1 561 (31,8)
1.3
Other operating income 1 515 845 79,3
Operating income before
operating expenses 37 071 33 213 11,6
Operating expenditure (21 935) (19 209) (14,2)
Operating expenses (21 193) (18 442) (14,9)
2.1
Other impairments (18) (58) 69,0
2.2
Indirect taxation (724) (709) (2,1)
Share of retained earnings
from associates and joint 73 73 -
ventures
Operating profit before income 15 209 14 077 8,0
tax
Taxation expense (3 966) (4 052) 2,1
Profit for the year 11 243 10 025 12,1
Attributable to:
Ordinary equity holders of the 10 592 9 595 10,4
Group
Minority interest - ordinary 194 117 65.8
shares
Minority interest - preference
shares 457 313 46.0
11 243 10 025 12,1
Headline earnings 3 9 908 9 413 5,3
NOTES TO THE FINANCIAL RESULTS
1. NON-INTEREST INCOME
Year ended
31 December
2008 2007
(Audited) (Audited) Change
Rm Rm %
1.1 Fee and commission income
Credit-related fees and 11 099 9 611 15,5
commissions
Cheque accounts 3 027 2 575 17,6
Credit card accounts 1 624 1 551 4,7
Early redemption penalty 174 196 (11,2)
income
Electronic banking 3 021 2 657 13,7
Foreign exchange fees and
commissions 316 285 10,9
Savings accounts 2 111 1 801 17,2
Sundry commissions 826 546 51,3
Asset management and other
related fees 124 123 0,8
Consulting and actuarial fees 206 162 27,2
External administration fees 326 217 50,2
Insurance commission received 962 877 9,7
Pension fund payment services 526 489 7,6
Portfolio and other management 238 255 (6,7)
fees1
Project finance fees 686 513 33,7
Trust and estate income1 259 228 13,6
Unit and property trust income1 281 310 (9,4)
Other 97 88 10.2
14 804 12 873 15.0
Note
1 Disclosed as part of trust
and fiduciary activities.
1.2 Gains and losses from
banking and trading activities
Net gains on investments 1 244 875 42,2
Designated at fair value
through profit or loss 1 244 873 42,5
Profit on disposal of and
dividend income from
associates and joint ventures - 2 (100,0)
Net trading income 2 111 1 097 92,4
Economic hedges 304 (393) >100,0
Other (including ineffective
portions) (17) 71 >(100,0)
3 642 1 650 >100,0
1.3 Gains and losses from
investment activities
Designated at fair value
through profit or loss 1 045 1 484 (29,6)
Net investment gains from
insurance activities 1 010 1 393 (27,5)
Policyholder - investment 492 579 (15,0)
contracts
Policyholder - insurance 113 243 (53,5)
contracts
Shareholder funds 405 571 (29,1)
Other investment gains 35 91 (61,5)
Profit on disposal of and
dividend income from
associates and joint ventures 31 41 (24,4)
(Loss)/profit on disposal of
subsidiaries (12) 36 >(100,0)
1 064 1 561 (31,8)
2. OPERATING EXPENDITURE
Year ended
31 December
2008 2007
(Audited) (Audited) Change
Rm Rm %
2.1 Operating expenses
Property and equipment-related
Accommodation costs 1 777 1 416 (25,5)
Amortisation 150 85 (76,5)
Depreciation 856 780 (9,7)
Equipment rental and 278 295 5,8
maintenance
Insurance premiums 131 239 45,2
Professional fees
Auditors` remuneration 89 73 (21,9)
Other professional fees 1 136 1 254 9,4
Staff-related
Staff costs 9 907 8 277 (19,7)
Incentive schemes and share-
based payments 1 697 1 667 (1,8)
Other
Cash transportation costs 413 347 (19,0)
Clearing and bank charges 137 152 9,9
Communication and printing 1 100 970 (13,4)
Frauds and losses 290 224 (29,5)
Information technology costs 1 489 1 185 (25,7)
Investment property charges 7 - (100,0)
Marketing and advertising 961 931 (3,2)
costs
Travelling and entertainment 383 333 (15,0)
Other operating expenses 392 214 (83,2)
21 193 18 442 (14,9)
2.2 Other impairments
Financial instruments 30 - (100,0)
Available-for-sale instruments 1 - (100,0)
Other assets 29 - (100,0)
Other (12) 58 >100,0
Computer software development 1 21 95,2
costs
Repossessed Properties (13) 37 >100,0
18 58 69,0
3. DETERMINATION OF HEADLINE EARNINGS
Year ended
31 December
2008 2007
(Audited) (Audited) Change
Rm Rm %
Headline earnings1 is
determined
as follows:
Profit attributable to
ordinary equity holders of the 10 592 9 595 10,4
Group
Adjustments for:
IAS 16 net profit on disposal
of property and equipment (37) (57) 35,1
IAS 21 recycled foreign
currency translation reserve,
disposal of investment in (38) (29) (31,0)
foreign operations
IAS 27 net loss/(profit) on
disposal of subsidiaries 17 (26) >100,0
IAS 28 and 31 net profit on
disposal of associates and
joint ventures (29) (31) 6,5
IAS 28 headline earnings
component of associates` and
joint ventures` earnings (53) (45) (17,8)
IAS 38 net profit on disposal
of and impairment of
intangible assets (636) (43) >(100.0)
IAS 39 release of available-
for-sale reserves 91 49 85,7
IAS 39 impairment of available-
for-sale assets 1 - 100,0
Headline earnings 9 908 9 413 5,3
Note
1 The net amount is reflected after taxation and minority interest.
GROUP BALANCE SHEET
31 December
2008 2007
(Audited) (Audited) Change
Rm Rm %
Assets
Cash, cash balances and 24 847 20 629 20,4
balances
with central banks
Statutory liquid asset 33 043 22 957 43,9
portfolio
Loans and advances to banks 44 662 54 025 (17,3)
Trading portfolio assets 78 879 25 824 >100,0
Hedging portfolio assets 3 139 725 >100,0
Other assets 16 397 24 303 (32,5)
Current tax assets 23 185 (87,6)
Loans and advances to 532 171 455 958 16,7
customers
Reinsurance assets 903 485 86,2
Investments 26 980 29 792 (9,4)
Investments in associates and
joint 2 144 1 004 >100,0
ventures
Intangible assets 957 301 >100,0
Investment property 667 - 100,0
Property and equipment 6 208 4 610 34,7
Deferred tax assets 243 111 >100,0
Non-current assets held-for- 2 495 - 100,0
sale
Total assets 773 758 640 909 20,7
Liabilities
Deposits from banks 54 633 58 033 (5,9)
Trading portfolio liabilities 72 737 34 919 >100,0
Hedging portfolio liabilities 1 080 2 226 (51,5)
Other liabilities and sundry
provisions 14 785 12 301 20,2
Current tax liabilities 385 183 >100,0
Deposits due to customers 382 281 310 512 23,1
Debt securities in issue 165 900 156 424 6,1
Liabilities under investment
contracts 10 377 7 908 31,2
Policyholder liabilities
under 3 076 3 318 (7,3)
insurance contracts
Borrowed funds 12 296 9 949 23,6
1
Deferred tax liabilities 2 834 2 576 10,0
Non-current liabilities held-
for-sale 408 - 100,0
Total liabilities 720 792 598 349 20,5
Equity
Capital and reserves
Attributable to ordinary
equity holders of the Group:
Share capital 1 354 1 350 0,3
Share premium 2 251 2 292 (1,8)
Other reserves 3 010 384 >100,0
Retained earnings 40 665 33 549 21,2
47 280 37 575 25,8
Minority interest - ordinary 1 042 341 >100,0
shares
Minority interest - preference 4 644 4 644 -
shares
Total equity 52 966 42 560 24,5
Total equity and liabilities 773 758 640 909 20,7
Contingent liabilities -
banking related 59 727 53 197 12,3
NOTES TO THE FINANCIAL RESULTS
1. BORROWED FUNDS
Year ended
31 December
2008 2007
(Audited) (Audited) Change
Rm Rm %
Subordinated callable notes
14,25% (AB02) 3 100 3 100 -
10,75% (AB03) 1 100 1 100 -
3-month JIBAR + 0,75% (AB04) 400 400 -
8,75% (AB05) 1 500 1 500 -
8,10%(AB06) 2 000 2 000 -
8,80% (AB07) 1 725 1 725 -
3-month JIBAR + 0,97% (3.97% 86 - 100,0
Nacs)
3-month JIBAR + 0,97% (6.25% 994 - 100,0
Nacs)
3-month JIBAR + 1,00% (6.25% 179 - 100,0
Nacs)
3-month JIBAR + 1,09% (6.25% 361 - 100,0
Nacs)
3-month JIBAR + 1.20% (6.25% 266 - 100,0
Nacs)
Accrued interest 379 297 27,6
Fair value adjustment1 54 (326) >100,0
Redeemable cumulative option-
holding preference shares
152 153 (0,7)
Shares issued 158 158 -
Elimination of Absa Group
Limited Employee Share
Ownership Administrative (4) (5) 20,0
(ESOP)Trust
Redemption of preference
shares by Absa Group Limited
Employee Share Ownership (8) (7) (14,3)
Administrative (ESOP) Trust
Accrued dividend 6 7 (14,3)
12 296 9 949 23,6
Note
1The fair value adjustment relates to subordinated callable loans designated
as hedged item in a hedging relationship.
GROUP STATEMENT OF CHANGES IN EQUITY
Year ended 31 December
2008 2007
(Audited) (Audited) Change
Rm Rm %
Share capital 1 354 1 350 0.3
Opening balance 1 350 1 338 0.9
Shares issued 3 13 (76,9)
Transfer from share-based
payment reserve - 0 (100.0)
Share buy-back in respect of
Absa Group Limited Share (0) (0) -
Incentive Trust
Elimination of treasury shares
held by Absa Group Limited
Share Incentive Trust 1 (0) >100.0
Elimination of treasury shares
held by Absa Life Limited and
Absa Fund Managers Limited 0 (1) >100.0
Elimination of treasury shares
held by Absa Group Limited
Employee Share Ownership
Administrative (ESOP) Trust (0) (0) -
Share premium 2 251 2 292 (1.8)
Opening balance 2 292 2 067 10.9
Shares issued 72 345 (79.1)
Transfer from share-based
payment reserve 41 93 (55.9)
Share buy-back in respect of
Absa Group Limited Share (63) (130) 51.5
Incentive Trust
Elimination of treasury shares
held by Absa Group Limited
Share Incentive Trust 7 (5) >100,0
Elimination of treasury shares
held by Absa Life Limited and
Absa Fund Managers Limited (6) (73) 91,8
Elimination of treasury shares
held by Absa Group Limited
Employee Share Ownership
Administrative (ESOP) Trust 5 (5) >100,0
Elimination of gains and
losses from derivative
instruments on own shares (97) - (100,0)
Other reserves 3 010 384 >100,0
Opening balance 384 412 (6,8)
Reclassification of
investments in associates and
joint ventures to investments - (22) 100,0
Movement in foreign currency
translation reserve 248 (60) >100,0
Movement in regulatory general
credit risk reserve (434) 435 >(100,0)
Movement in available-for-
sale (89) 60 >(100,0)
reserve
Movement in cash flow hedges 2 660 (540) >100.0
reserve
Movement in insurance
contingency reserve 22 20 10,0
Movement in associates and
joint ventures` retained 73 91 (19,8)
earnings reserve
Disposal of associates and
joint ventures - release of (3) - (100,0)
reserves
Share-based payments for the 193 82 >100,0
year
Transfer from share-based
payment reserve (44) (94) 53,2
Retained earnings 40 665 33 549 21,2
Opening balance 33 549 27 876 20,4
Reclassification of
investments in associates and
joint ventures to investments - 22 (100,0)
Subsidiary step-up acquisition - 2 (100,0)
Movement in regulatory general
credit risk reserve 434 (435) >100.0
Transfer to insurance
contingency reserve (22) (20) (10,0)
Transfer to associates and
joint ventures` retained (73) (91) 19,8
earnings reserve
Disposal of associates and
joint ventures - release of 3 - 100,0
reserves
Transfer from share-based
payment reserve 3 1 >100,0
Share buy-back in respect of
Absa Group Limited Share 153 - 100,0
Incentive Trust
Profit attributable to
ordinary equity holders 10 592 9 595 10,4
Ordinary dividends paid during
the year (3 974) (3 401) (16,8)
47 280 37 575 25,8
Minority interest - ordinary 1 042 341 >100,0
shares
Opening balance 341 236 44,5
Acquisition/disposal) of
subsidiaries 548 - 100,0
Other reserve movements (41) (12) >(100,0)
Minority share of profit 194 117 65,8
Minority interest - preference 4 644 4 644 -
shares
Opening balance 4 644 2 992 55,2
Shares issued - 1 658 (100,0)
Costs incurred - (6) 100,0
Profit attributable to
preference equity holders 457 313 46,0
Preference dividends paid
during the year (457) (313) (46,0)
Total equity 52 966 42 560 24,5
GROUP CASH FLOW STATEMENT
Year ended
31 December
2008 2007
(Audited) (Audited) Change
Rm Rm %
Net cash generated from 3 236 6 995
operating activities (53,7)
Net cash utilised from
investing activities (1 737) (4 995) 65,2
Net cash utilised from
financing activities (2 497) (193) >(100,0)
Net (decrease)/increase in
cash and cash equivalents (998) 1 807 >(100,0)
Cash and cash equivalents at
the 6 596 4 787 37,8
beginning of the year
1
Effect of exchange rate
movements on cash and cash 2 2 -
equivalents
Cash and cash equivalents at
the end of the year 5 600 6 596 (15,1)
2
NOTES TO THE CASH FLOW
STATEMENT
1. Cash and cash equivalents
at the beginning of the year
Cash, cash balances and
balances 5 091 3 936 29,3
with central banks
Loans and advances to banks 1 505 851 76,9
6 596 4 787 37,8
2. Cash and cash equivalents
at the end of the year
Cash, cash balances and
balances 4 726 5 091 (7,2)
with central banks
Loans and advances to banks 874 1 505 (41,9)
5 600 6 596 (15,1)
PROFIT CONTRIBUTION BY BUSINESS AREA
Year ended
31 December
2008 20074
(Audited) (Audited) Change
Rm Rm %
Banking operations
Retail banking 1 3 706 4 943 (25,0)
Absa Wealth 27 46 (41,3)
Retail Bank 2 635 2 350 12,1
Absa Home Loans 191 1 296 (85,3)
Absa Card 554 706 (21,5)
Absa Vehicle and Asset Finance 299 545 (45,1)
Absa Corporate and Business 2 806 2 167 29,5
Bank 1
Absa Capital 1 2 249 1 733 29,8
Corporate centre 2 687 (17) >100,0
Capital and funding centre 4 59 (93,2)
Total banking 9 452 8 885 6,4
Bancassurance 1 597 1 502 6,3
Total earnings from business 11 049 10 387 6,4
areas
Synergy costs (after tax) - (479) 100,0
3
Minority interest - preference
shares (457) (313) (46,0)
Profit attributable to
ordinary equity holders 10 592 9 595 10,4
Headline earnings adjustments (684) (182) >(100,0)
Total headline earnings 9 908 9 413 5,3
REVENUE CONTRIBUTION BY BUSINESS AREA
Year ended
31 December
2008 20074
(Audited) (Audited) Change
Rm Rm %
Banking operations
Retail banking 1 24 909 21 570 15,5
Absa Wealth 309 246 25,6
Retail Bank 14 786 12 607 17,3
Absa Home Loans 4 179 3 891 7,4
Absa Card 3 057 2 476 23,5
Absa Vehicle and Asset Finance 2 578 2 350 9,7
Absa Corporate and Business 8 700 7 225 20,4
Bank 1
Absa Capital 1 5 348 3 869 38,2
Corporate centre 2 393 (323) >100,0
Capital and funding centre (16) 103 >(100,0)
3
Total banking 39 334 32 444 21,2
Bancassurance 3 576 3 202 11,7
Total revenue 42 910 35 646 20,4
Notes
1. African operations have been split between Retail banking, Absa Corporate
and Business Bank and Absa Capital during the year under review.
2. In the current year Corporate centre includes the profit on VISA IPO
shares and movement in provisions.
3. Synergies relate to the integration of Absa and Barclays following the
acquisition by Barclays of a majority share in Absa. Synergy costs are once-
off costs incurred in achieving synergy benefits.
4. The comparative period has been restated for:
- Commercial Asset Finance was moved from Retail banking to Absa
Corporate and Business Bank during the year under review.
- Repossessed Properties was moved from Retail banking to Corporate
centre during the year under review.
- The African operations` split is in line with the current business
model.
RECLASSIFICATIONS
GROUP BALANCE SHEET - 31 DECEMBER 2007
Reclassification of investments in associates and joint ventures to
investments
(Audited) (Audited)
(As Reclassi-
previously
Rm reported) fications (Restated)
Assets
Cash, cash balances and 20 629 20 629
balances -
with central banks
Statutory liquid asset 22 957 - 22 957
portfolio
Loans and advances to banks 54 025 - 54 025
Trading portfolio assets 25 824 - 25 824
Hedging portfolio assets 725 - 725
Other assets 24 303 - 24 303
Current tax assets 185 - 185
Loans and advances to 455 958 - 455 958
customers
Reinsurance assets 485 - 485
Investments 29 327 465 29 792
Investments in associates
and joint ventures 1 469 (465) 1 004
Intangible assets 301 - 301
Investment property - - -
Property and equipment 4 610 - 4 610
Deferred tax assets 111 - 111
Non-current assets held-for- - - -
sale
Total assets 640 909 - 640 909
-
Liabilities
Deposits from banks 58 033 - 58 033
Trading portfolio liabilities 34 919 - 34 919
Hedging portfolio liabilities 2 226 - 2 226
Other liabilities and sundry
provisions 12 301 - 12 301
Current tax liabilities 183 - 183
Deposits due to customers 310 512 - 310 512
Debt securities in issue 156 424 - 156 424
Liabilities under investment
contracts 7 908 - 7 908
Policyholder liabilities under
insurance contracts 3 318 - 3 318
Borrowed funds 9 949 - 9 949
Deferred tax liabilities 2 576 - 2 576
Non-current liabilities held-for- - - -
sale
Total liabilities 598 349 - 598 349
Equity
Capital and reserves
Attributable to ordinary equity
holders of the Group:
Share capital 1 350 - 1 350
Share premium 2 292 - 2 292
Other reserves 406 (22) 384
Retained earnings 33 527 22 33 549
37 575 - 37 575
Minority interest - ordinary 341 - 341
shares
Minority interest - preference 4 644 - 4 644
shares
Total equity 42 560 - 42 560
Total equity and liabilities 640 909 - 640 909
GROUP INCOME STATEMENT - YEAR ENDED 31 DECEMBER 2007
Reclassification of investments in associates and joint ventures to
investments
(Audited) (Audited)
(As Reclassi-
previously
Rm reported) fications (Restated)
Net interest income 18 890 - 18 890
Interest and similar income 55 123 - 55 123
Interest expense and similar
charges (36 233) - (36 233)
Impairment losses on loans and
advances (2 433) (2 433)
Net interest income after
impairment losses on loans and 16 457 - 16 457
advances
Net fee and commission income 11 600 - 11 600
Fee and commission income 12 873 - 12 873
Fee and commission expense (1 273) - (1 273)
Net insurance premium income 3 192 3 192
Net insurance claims and (1 603) - (1 603)
benefits paid
Changes in investment and
insurance liabilities (489) - (489)
Gains and losses from banking
and trading activities 1 622 28 1 650
Gains and losses from
investment activities 1 561 - 1 561
Other operating income 845 - 845
Operating income before
operating expenses 33 185 28 33 213
Operating expenditure (19 209) - (19 209)
Operating expenses (18 442) - (18 442)
Other impairments (58) - (58)
Indirect taxation (709) - (709)
Share of retained earnings from .
associates and joint ventures 91 (18) 73
Operating profit before income 14 067 10 14 077
tax
Taxation expense (4 042) (10) (4 052)
Profit for the year -
10 025 10 025
Attributable to:
Ordinary equity holders of the 9 595 - 9 595
Group
Minority interest - ordinary 117 - 117
shares
Minority interest - preference -
shares 313 313
10 025 - 10 025
-
Headline earnings 9 413 - 9 413
COMMENTARY ON THE CHANGE IN ACCOUNTING POLICY AND RECLASSIFICATIONS
Reclassifications
1. Commercial Property Fund investment in associates and joint ventures
During the 2007 financial year Absa Corporate and Business Bank launched the
Commercial Property Finance (CPF) division. The CPF division`s aim is to
identify and invest in property developments by obtaining an equity investment
in the identified company and/or provide financing. The investment portfolio
was previously classified as investment in associates as the equity investment
generally ranges between 20% and 50% of the company`s issued equity.
During 2008 these investments were reclassified from investments in associates
to unlisted investments being measured at fair value through profit or loss
according to the scope exclusion for venture capital organisations in IAS 28,
Investments in Associates.
The value of the investments reclassified from the investment in associates
category to the unlisted investments category was R465 million.
PROFIT AND DIVIDEND ANNOUNCEMENT
Overview
Absa Group Limited recorded an increase of 10,4% in attributable earnings for
the year ended 31 December 2008 from R9 595 million to R10 592 million.
Headline earnings increased by 5,3% from R9 413 million to R9 908 million.
Headline earnings per share (HEPS) increased by 4,6% to 1 466,2 cents per
share and fully diluted HEPS1 increased by 7,3% to 1 412,1 cents per share.
Key financial features include
- Revenue growth of 20,4% to R42 910 million.
- An 8,0% increase in profit before tax.
- An improvement in the cost-to-income ratio to 49,4%.
- A 6,3% increase in the full-year dividend to 595 cents per share.
- A return on average equity (RoE) of 23,4%.
- A 140,0% rise in the impairment charge to R5 839 million.
"Absa delivered a sound financial performance in a year characterised by
significant global financial market turbulence and challenging macroeconomic
conditions in South Africa. Proactive credit management, effective cost
discipline and growth within the investment and commercial banking businesses
underpinned the Group`s performance. These results bear testimony to the
successful implementation of our strategy to diversify earnings, maintain
asset quality and to manage costs."
Group Chief Executive, Steve Booysen
The Group experienced difficult trading conditions during the year which
adversely impacted the performance of the Retail Bank. Consumers in South
Africa remained under pressure as the effect of higher inflation and interest
rates resulted in slower business volume growth and an increasing number of
accounts in arrears. As a result, the Retail Bank experienced an earnings
decline of 25,0%.
The wholesale banking businesses, however, continued to produce robust
operating performances with a contribution of 48,8% (2007: 37,7%) to the
Group`s overall earnings for the year, offsetting, to an extent, some of the
decline in the retail business. Earnings growth of 29,5% was achieved in Absa
Corporate and Business Bank (ACBB) and 29,8% in Absa Capital. The
Bancassurance business recorded a 6,3% growth in earnings as the solid
underlying operating performance of the cluster was adversely impacted by the
significant market volatility on investment portfolios.
The focus on deposit growth resulted in retail and commercial deposits growing
32,4% and 29,0% respectively. Absa retains its number one market share
position for individual deposits.2
The Group`s capital position remained sound with a Tier 1 capital ratio of
11,6% and total capital ratio of 14,1% as at 31 December 2008.
A final dividend of 330 cents per share has been declared, taking the dividend
growth for the full year to 6,3% with a dividend cover of 2,5 times.
The global operating environment
The year under review was marked by considerable turmoil in global financial
markets. The international economy and banking sectors worldwide continue to
suffer immense losses. Liquidity constraints, widening credit spreads and the
ominous global recession constitute growing concerns for market participants
worldwide as the economic and financial environment continues to deteriorate.
Co-ordinated action is being taken by governments and regulators to address
these matters.
The domestic operating environment
Prudent fiscal policies, a firm monetary policy and a strong regulatory
framework has meant that the ramifications of the global financial crisis have
been limited in South Africa to date. Nevertheless the country has not been
immune to the global fallout. The domestic equity market suffered losses in
line with international markets and the currency experienced heightened
volatility arising from the risk aversion associated with emerging markets.
Net portfolio outflows of about R70 billion3 in 2008, heightened concerns
around the financing of South Africa`s current account deficit which stood at
7,9% of gross domestic product (GDP) in the third quarter of 2008. This trend
has continued into early 2009, with further net portfolio outflows of around
R7,4 billion recorded in January. Global recessionary fears also led to a
sharp drop in demand for commodities such as oil and a consequent fall in
prices.
The global financial crisis, along with a slowdown in domestic demand,
resulted in economic activity slowing as GDP growth decelerated sharply to
0,2% in the third quarter of 2008 from an annualised 5,1% in the second
quarter, thereby recoding the slowest quarterly growth since 1998.
A persistent rise in inflation for most of 2008, underpinned by rising food
and fuel prices, prompted the South African Reserve Bank (SARB) to increase
interest rates by a total of 100 basis points (bps) in 2008, representing a
cumulative increase of 500 bps from June 2006 to June 2008. Consumer spending
power was eroded by the high interest rates and rising prices, while household
indebtedness rose to record levels during the year. The considerable pressure
on household budgets is reflected in the decline in consumer credit quality
and moderation in credit extension, as the appetite to take on additional debt
eased. Private sector credit extension moderated to 14,0% year-on-year in
December 2008 from 23,0% at the beginning of the year.
While most of 2008 was characterised by rising interest rates and inflation,
rates were cut by 50 bps in December and a further 100 bps in February 2009
following a moderation in the fuel price and food price inflation. This trend
is expected to continue, assisted by changes in the Consumer Price Index (CPI)
calculation methodology. Moreover, the widening domestic output gap and
decline in commodity prices are expected to exert further downward pressure on
inflation.
Notwithstanding indications of declining inflation and a further easing of
interest rates, the domestic economy remains at risk. The possibility of a
global recession, emerging market risk aversion, rand volatility and further
job losses constitute a growing threat to economic recovery.
The Group, therefore, expects the economy to remain under pressure during
2009.
Group performance
Balance sheet
The Group`s asset base as at 31 December 2008 increased by 20,7% to R773,8
billion, largely attributed to growth in loans and advances to customers
(which constitute 68,8% of total assets), trading and derivative assets and
statutory liquid assets.
During the year under review, the Group focused on reducing its reliance on
wholesale funding by growing deposits. An improvement in the liability gearing
ratio was achieved as a result of a 23,1% year-on-year growth of total
deposits.
Loans and advances to customers
Loans and advances to customers increased by 16,7% to R532,2 billion compared
with R455,9 billion in December 2007, as a result of increasing retail and
commercial business.
While the Group recorded an 11,3% increase in retail advances, there was a
slowdown in the growth rate in line with the challenging macroeconomic
environment and the tightening of credit criteria. Retail mortgages increased
by 12,2%, while cheque account and retail instalment finance rose by 8,7% and
1,4% respectively. Credit card advances recorded a strong increase of 41,1%,
due to the acquisition of the Woolworths Financial Services (Proprietary)
Limited (WFS) book on 1 October 2008. However, credit card advances, excluding
the WFS book, grew 8,6% year-on-year.
ACBB increased advances by 33,1%, following an improved performance within the
Large and Medium Business lines. Strong growth in these segments was driven by
sustained commercial credit demand and cross-selling to the existing customer
base.
Net asset value
The Group`s net asset value increased by 25,5% to 6 950 cents per share year-
on-year. The cash flow hedge reserve, which reflects interest rate hedging
activity, increased from negative R893 million to positive R1 775 million,
following the decline in the swap rates across the curve. This, together with
the higher capital level of the Group, culminated in a lower RoE of 23,4% at
31 December 2008 compared to 27,2% in December 2007.
Capital to risk-weighted assets
Despite the difficult market conditions experienced during the period under
review, the Group and Absa Bank Limited (Absa Bank) maintained sound capital
adequacy levels throughout the year. At 31 December 2008, the capital levels
of the Group were 11,6% (Basel I 31 December 2007: 10,1%) at Tier 1 level and
total capital of 14,1% (Basel I 31 December 2007: 13,1%). At 31 December 2008,
Absa Bank`s Tier 1 ratio stood at 11,0% and its total capital level at 14,0%.
While the Group remains well capitalised, the market demand for bank-issued
capital instruments was limited by the deteriorating macroeconomic environment
and the continuing effects of the international credit crisis. The cost of
raising capital also increased substantially. The Group, therefore, focused on
risk-weighted asset (RWA) demand management, free capital generation and the
development of innovative capital instruments. In this regard:
- RWA growth was curtailed due to the slowdown in credit growth during the
year, growing only 12,1% year-on-year. The Group placed a strong focus on RWA
relief by tightening risk parameters and methodologies, and taking cognisance
of the risk and reward profile associated with assets;
- the Group generated free capital of R1,8 billion, after provision for a
dividend cover of 2,5 times headline earnings; and
- Absa Bank issued inflation-linked bonds valued at R1,9 billion during the
period under review, at spreads of between 97 and 120 bps above the three-
month JIBAR rate. These bonds qualify as Tier II capital.
Organic growth for the Group is not expected to be constrained by prevailing
market conditions, as it currently generates sufficient capital from its
operations to fund growth. In addition, the period during which the
empowerment partners of the Group, the Batho Bonke consortium, may exercise
their right to acquire 73 million ordinary shares expires in July 2009 and
this may lead to a further inflow of capital.
Given the deterioration in the credit environment, the Group is cognisant of
the effect of pro-cyclicality introduced by Basel II and will continue to
focus on maintaining appropriate levels of capital. The Group has, therefore,
increased the target capital adequacy ratios for 2009 to 10% (from 8,8%) for
Tier I capital and 13% (from 12%) for the total capital adequacy ratio. These
ratios have already been achieved.
Income statement
Net interest income
Net interest income increased by 15,4% to R21 795 million, mainly as a result
of growth in total advances. The benefit received from the endowment effect on
capital as a result of increasing rates was offset by the higher cost of
wholesale funding and continued reliance on wholesale funding sources. As a
result, the net interest margin on average interest-bearing assets declined by
20 bps year-on-year to 3,63%.
Pressure on margins is likely to continue in line with the expected higher
cost of funding. The Group will also no longer benefit from the positive
endowment effect on capital due to the expected declining interest rate cycle.
Non-interest income
Non-interest income increased by 26,0% to R21 115 million. Net fee and
commission income, which constitutes approximately 63,2% of non-interest
income, grew by 15,0% to R13 343 million. This resulted largely from increased
transaction fees and volumes in the Retail Bank.
The Group`s trading income increased by 92,4% to R2 111 million, following
strong growth in Secondary Markets activity within Absa Capital. Fee and other
income declined as a result of a lower year-on-year contribution from Primary
Markets as the proactive reduction of underwriting risk, widening of credit
spreads, and reduced credit demand impacted the volume of corporate activity
deal flow.
Gross premium volumes remained strong and short-term insurance premiums grew
by 19,9%. Long-term insurance premiums remained flat year-on-year.
Investment markets remained under pressure during the year under review,
adversely impacting the value of the listed commercial property portfolio
within ACBB which declined by R166 million. This decline was offset by an
increase in the valuation of the unlisted Commercial Property Fund (CPF)
investments of R172 million.
Investment income on shareholders` funds of the Bancassurance business also
decreased by 28,2% to R410 million (2007: R571 million).
Credit impairments
Credit impairments, as a percentage of average advances, increased to 1,19%
from 0,58% in December 2007. The impairment charge to the income statement
increased by 140,0% to R5 839 million.
Retail impairments increased sharply by 158,9% to R5 551 million, attributable
to continued financial pressure on the consumer and declining asset values,
particularly in the second half of the year.
While the credit quality of the corporate sector remained sound, with
impairments decreasing marginally by 0,3% to R287 million, challenging global
and local macroeconomic conditions began impacting some corporate and
commercial sectors, particularly in the fourth quarter of the year. Currently,
this risk is being addressed through strict credit risk criteria and a focus
on debt recovery. The Group will remain vigilant and maintain its strong focus
on the robust management of the credit risk processes in the year ahead.
Impairment charges relating to Absa Capital were negligible.
Operating expenses
The cost-to-income ratio improved to 49,4% as income growth exceeded cost
growth.
Operating expenses increased by 14,9% to R21 193 million. This is attributed
principally to the growth in staff costs in the credit and collection
operations, investment in the growth of the non-retail clusters such as Absa
Capital and ACBB as well as the acquisition of the WFS book.
During the course of the year, the Group implemented a range of efficiency
initiatives and cost management measures. Considerable emphasis was placed on
bringing staff costs in line with business volumes across the Group, which
included the restructuring of the retail operations. Focus has also been
placed on discretionary expenditure. These measures will continue into 2009.
Cluster performance
Retail Bank
Attributable earnings for the Retail Bank declined by 25,0% to R3 706 million
(2007: R4 943 million). This decline resulted from the slowdown in consumer
spending, reduced demand for lending products and rising impairments. The
Retail Bank increased its top-line income by 15,5% and contained cost growth
to 14,7%. The South African customer base continued to grow, increasing by
12,3% to over 10 million customers.
Advances growth of 11,3% was achieved across all categories, with unsecured
lending products increasing by 26,2%. The growth in unsecured lending, along
with the inclusion of the WFS book, resulted in a 1,5% change in the overall
composition of advances with secured lending now comprising 85,8% (2007:
87,3%) of the total advances book.
Customer deposits grew a robust 32,4% during the year. Innovative product
offerings, including initiatives such as the online opening of investment
product accounts, coupled with competitive pricing, resulted in strong gains
in market share. The Group currently has the largest share of the individual
deposit and advances market in South Africa4.
The overall interest margin on net assets showed a slight increase year-on-
year, primarily due to the strong growth in retail deposits, resulting in a
reduced dependence on wholesale funding.
Transaction volume growth across core products moderated during the year with
volumes expanding by 5,2%. The Retail Bank`s digital channels, however,
recorded healthy transaction and customer growth. Internet and Cellphone
Banking transaction volumes grew 25% and 74% respectively. The number of
Internet Banking users increased by 14%, and Absa became the first South
African bank to achieve one million Internet Banking users.
Consumer distress intensified during the year, following the prolonged higher
interest rate cycle. In addition, collateral values in respect of vehicle and
home loans were subjected to a considerable downward adjustment in the second
half of the year as economic conditions deteriorated. The impairment charge
consequently increased by 158,9% to R5 551 million. Accordingly, the
impairment ratio rose from 0,74% in December 2007 to 1,68% for the full year
2008. This rise was largely due to higher impairments from Absa Home Loans and
Absa Vehicle and Asset Finance, which increased 417,0% to R2 549 million and
109,8% to R1 177 million respectively.
During the year under review, the collections process and credit criteria were
regularly reviewed. Stricter scorecard criteria, closer attention to
affordability and the quality of bureau information, as well as stricter loan-
to-value criteria on home loans and vehicle finance, constituted some of the
actions taken to manage credit risk. The collections capacity was also
enhanced by increasing the number of collectors during the year.
Rising impairments will remain a key risk to the Retail Bank in 2009. The
focus will remain on cost control, the further tightening of credit criteria
and maintaining strong credit quality at the right price.
Absa Corporate and Business Bank (ACBB)
ACBB increased its attributable earnings for the year by 29,5 % to R2 806
million. Total advances increased by 33,1% as a result of continued credit
demand in the Large and Medium Business lines. A strong sales focus aimed at
growing deposits during the year resulted in a 29,0% increase in deposits.
While impairments remained low, advance and deposit margins decreased due to
the higher cost of funding experienced during the second half of the year.
Equity market volatility, however, resulted in a decline of R166 million in
the value of the listed commercial equity investments, thereby diluting, to an
extent, the robust underlying performance of the cluster.
The impairment loss ratio decreased from 0,37% in December 2007 to 0,28% as a
result of the material recovery of a bad debt in the second half of the year
as well as the implementation of strict credit risk management processes.
Non-interest income increased by 10,5% as a result of a 10,0% growth in
transaction volumes. Cash and electronic banking transactions increased 24,7%
and 11,9% respectively. Customer numbers grew 2,70% during the year and
transaction income on cheque and corporate overdraft accounts increased by
11,3%, representing 30,1% of fee income. Electronic banking fees grew by
15,4%, representing 18,6% of fee income.
ACBB will continue to provide innovative solutions and service to its customer
base. The business is also positioned to leverage off Absa Capital`s expertise
in structuring complex transactions, and its international syndication and
distribution capabilities.
Absa Capital
Absa Capital increased attributable earnings by 29,8% to R2 249 million, from
R1 733 million in 2007. This performance was driven by exceptional growth in
the Secondary Markets and good growth in the Primary Markets business units.
The key factors driving growth have been Absa Capital`s operating model and
continuous improvement in the technology platform, products and distribution.
The Secondary Markets business continues to improve, leveraging off a strong
working relationship with Barclays Capital. Revenue for this business unit
grew by 109,9% and contributed 55,0% of Absa Capital`s revenue. The growth in
revenue is attributable to more effective risk management as well as increased
trading volumes from new and existing clients, broadening the product
offering, market volatility and the increased demand from clients for risk
management products.
The revenue of Primary Markets grew by 14,1% during the period and contributed
33,1% of Absa Capital`s revenue. Given the current market conditions the
business unit proactively restricted the size of its underwriting positions,
distributing more risk upfront. The global credit crisis and the equity market
declines have negatively impacted local financing product deal flow. Primary
Markets, however, continued to perform well due to the client-centric business
model that delivers comprehensive international and local solutions by
leveraging off Barclays Capital`s global expertise and capabilities.
The revenue of the Equity Investments and Investor Services business unit
increased by 1,3% and contributed 11,9% of Absa Capital`s revenue. Revenue in
the Private Equity portfolio was positive in absolute terms, but declined
relative to the corresponding period for 2007. This performance was driven by
a combination of lower realisations, poor equity market conditions and higher
funding costs.
Bancassurance
The Bancassurance cluster grew attributable earnings by 6,3% to R1 597 million
for the year under review, despite a challenging operating environment. This
growth was underpinned by 16,4% growth in operating earnings. Investment
income on shareholders` funds however declined by 28,2% to R410 million.
Capital to the value of R1,6 billion was returned to the Absa Group in 2008.
This resulted from a focus on capital efficiency and a reduced risk profile on
investments backing policyholders` liabilities and shareholder capital.
The Bancassurance cluster achieved an RoE of 39,5% (December 2007: 37,8%)
Distribution - The distribution capacity increased by 269 additional sales
staff, comprising insurance and financial advisers, tied agents and call
centre agents. The diversification and expansion of the distribution channels
is intended to increase customer access to products and services.
Life assurance - Absa Life increased its operating earnings by 22,3% to R746
million. Gross premium income remained flat year-on-year despite lower credit-
related business volumes. The embedded value of new business amounted to R331
million (December 2007: R213 million) driven by strong performances of mass
market products and the introduction of `@ Ease`, a standalone risk product
range that was launched early in 2008. Embedded value earnings of R747 million
(December 2007: R543 million,) represent a return of 35,7% (December 2007:
21,8%).
Short-term insurance -The short-term insurance industry was characterised by
the hardening underwriting cycle. However, Absa Insurance increased
underwriting profit to R263 million on the back of strong growth in gross
written premiums which grew by 19,3%. Premium growth was driven by good growth
in both the personal and commercial books, particularly in the agriculture
business as well as the introduction of `Absa idirect`. Claim levels remained
challenging, rising by 23,0%. The higher claims arose from adverse weather
conditions, increases in the incidence of motor accidents and the continuing
escalation of repair costs.
Despite these factors, Absa short-term insurance achieved a sound underwriting
margin of 10,2% (December 2007: 11,5%).
Investments - Absa Investments operating earnings declined by 3,7% to R289
million. Net inflows to mandates other than money market amounted to R9,4
billion for the period, while money market funds experienced net outflows of
R2,4 billion. Assets under management declined marginally from R118 billion at
the end of December 2007 to R117 billion. The strategic focus of the business
is to grow the non-money market assets under management. Absa Investments
continued to deliver an encouraging investment performance with a number of
its unit trusts achieving top quartile performance over one-year and three-
year periods.
Fiduciary services - Fiduciary operating earnings grew by 20,5% to R153
million. The acquisition of the Glenrand MIB employee benefits and healthcare
businesses was finalised during the period under review, adding critical mass
to the cluster`s businesses. The acquired businesses were turned around to
profitability.
The focus for the Bancassurance cluster in 2009 will be on the diversification
of income streams and improvement of cross-sell ratios, customer retention,
and growth in assets under management.
Basis of presentation and changes in accounting policy
The Absa Group`s annual financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS).
The Group has elected to early adopt IFRS 8 - Operating Segments, for the year
ended 31 December 2008. The statement requires that an entity discloses
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.
During the 2007 financial year, ACBB commenced with investments in unlisted
CPF-related entities. The investment portfolio was classified as investment in
associates as the equity investments generally ranged between 20% and 50% of
the company`s issued equity.
During 2008, these investment were reclassified from investments in associates
to unlisted investments being measured at fair value through profit and loss
according to the scope exclusion for venture capital organisations in IAS 28 -
Investments in Associates.
The carrying value of the investments reclassified from the `investment in
associates` category to the `unlisted investments` category was R465 million.
The Group`s results for the year ended 31 December 2008 have been audited by
the Group`s auditors, PricewaterhouseCoopers Inc. and Ernst & Young Inc. Their
audit report is available for inspection at the Group`s registered address,
3rd floor, Absa Towers East, 170 Main Street, Johannesburg, 2001.
Prospects and strategic focus
Global recessionary conditions are expected to persist in the near term and
heightened risk aversion and reduced capital flows to emerging markets are
likely to continue in 2009.
Conditions facing the South African consumer are expected to remain difficult
despite the potential further easing of interest rates. Household spending is
likely to remain under pressure should the employment market and consumer
confidence levels remain depressed.
Therefore, the Group expects business volumes, particularly in the Retail
Bank, to decline and arrears and non-performing loans to increase. Margins are
expected to remain under pressure due to the continued higher cost of funding.
In addition, the Group will no longer benefit from the positive endowment
effect on capital as the interest rate cycle eases.
In view of the challenging macroeconomic conditions anticipated during the
year ahead, the strategic focus of the Group will remain on:
- protecting its position in the retail and commercial businesses through
the disciplined management of book quality, maintenance of strict credit
criteria, strengthening the collections capability and ensuring strong
customer service and support;
- selectively growing market share by focusing on growth in deposits and
customer numbers, maximising cross-selling opportunities as well as
enhancing transaction volumes and asset pricing;
- maintaining an ongoing focus on cost reduction; and
- efficient management and allocation of capital.
Given the challenging conditions that lie ahead, Absa will continue to
implement comprehensive measures to protect future earnings. The Group remains
well capitalised and has a strong balance sheet enabling it to take advantage
of growth opportunities as and when they arise. The continuing efforts to
diversify the Group`s earnings base should underpin future financial
performance. In particular, growth in the investment and commercial banking
businesses should remain positive, thereby mitigating some of the slowdown in
the retail business.
The Group remains committed to managing risk, preserving capital and
maintaining current levels of profitability for the year ahead.
Declaration of final ordinary dividend number 45
Shareholders are advised that the final ordinary dividend of 330 cents per
ordinary share was declared today, Monday, 9 February 2009, bringing the total
dividend to the year to 595 cents per ordinary share. The final ordinary
dividend is payable to shareholders recorded in the register of members of the
Group at the close of business on Friday, 6 March 2009.
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, 27 February 2009
Shares commence trading ex dividend Monday, 2 March 2009
Record date Friday, 6 March 2009
Payment date Monday, 9 March 2009
Share certificates may not be dematerialised or rematerialised between Monday,
2 March 2009, and Friday, 6 March 2009, both dates inclusive.
On Monday, 9 March 2009, 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 9 March 2009 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, 9 March 2009.
On behalf of the board
S Martin
Group Secretary
Johannesburg
9 February 2009
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
Jason Quinn
Group Financial Controller
Absa Group Limited
4th Floor, Absa Towers East, 170 Main Street, Johannesburg
Tel: +2711 350-7565, Fax: +2711 350-6487
E-mail: jason.quinn@absa.co.za
Sponsor
Merrill Lynch South Africa (Proprietary) Limited
_______________________________
1 The dilution of headline earnings stems from the option rights to acquire
shares issued to Absa`s black economic empowerment partner Batho Bonke Capital
(Proprietary) Limited (Batho Bonke) and to the Group`s share incentive
schemes.
2 As per SA market share statistics BA 900 (November 2008)
3 The Bond Exchange of South Africa and the JSE Limited data
4 SA market share statistics BA 900 (November 2008)
Date: 09/02/2009 08:18:23 Produced by the JSE SENS Department.
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