| Wed 1 Apr 2009, 7:30 | | CPI / CPIP - Capitec Bank Holdings - Summarised Audited Financial Statements |
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CPI CPIP
CPI
CPI / CPIP - Capitec Bank Holdings - Summarised Audited Financial Statements
For The Year Ended 28 February 2009
Capitec Bank Holdings Limited
Registration number: 1999/025903/06
Registered bank controlling company
Incorporated in the Republic of South Africa
JSE ordinary share code: CPI & ISIN code: ZAE000035861
JSE preference share code: CPIP ISIN code: ZAE000083838
SUMMARISED AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED
28 FEBRUARY 2009
* Headline earnings up 42%
* Headline earnings per share 366 cents
* Final dividend per share - 110 cents
* Return on equity - 27%
* Clients - 1.8 million
* Shareholders funds - R1.4 billion
Change %
2009 2008 09/08 2007
PROFITABILITY
Income from banking
operations Rm 1 983 1 315 51 1 010
Net loan impairment
expense Rm (468) (231) 103 (161)
Banking operating
expenses Rm (1 065) (763) 40 (607)
Non banking operations Rm 6 3 100 1
Tax Rm (137) (95) 44 (76)
Preference dividend Rm (19) (17) 12 (8)
Earnings attributable to
ordinary shareholders
* Basic Rm 300 212 42 159
* Headline Rm 302 212 42 160
Cost to income ratio
* banking activities % 54 58 60
Return on ordinary
shareholders equity % 27 22 26
Earnings per share
* Attributable cents 364 259 40 221
* Headline cents 366 259 41 222
* Diluted attributable cents 357 250 43 209
* Diluted headline cents 359 251 43 211
Dividends per share
* Interim cents 30 25 20 20
* Final cents 110 75 47 60
Dividend cover x 2.6 2.6 2.8
ASSETS
Total assets Rm 4 969 2 936 69 2 191
Net loans and advances Rm 2 982 2 019 48 803
Cash and cash
equivalents Rm 1 514 618 145 1 044
Investments Rm 150 14 971 112
Other Rm 323 285 13 232
LIABILITIES
Total liabilities Rm 3 563 1 719 107 1 074
Deposits Rm 3 317 1 528 117 897
Other Rm 246 191 29 177
EQUITY
Shareholders` funds Rm 1 406 1 217 16 1 117
Capital adequacy ratio % 43 36 79
Net asset value per
ordinary share cents 1 512 1 297 17 1 175
Share price cents 3 001 3 900 (23) 3 700
Market capitalisation Rm 2 485 3 195 (22) 3 031
Number of shares in
issue `000 82 798 81 928 1 81 928
Share options
* Number outstanding `000 5 713 5 159 11 6 191
* Average strike price cents 2 487 1 815 37 1 151
* Average time to
maturity months 25 24 4 24
* Charge on settlement Rm 34 48 (29) 22
OPERATIONS
Branches 363 331 10 280
Employees 3 414 2 800 22 2 129
Active clients `000 1 835 1 371 34 1 010
ATMs
* Own 368 328 12 264
* Partnership 571 437 31 143
Capital expenditure Rm 133 117 14 86
SALES
Loans
Value of loans advanced Rm 6 273 5 162 22 3 449
Number of loans
advanced `000 3 536 3 155 12 2 924
Average loan amount R 1 774 1 636 8 1 180
Gross loans and
advances Rm 3 223 2 192 47 914
Loans past due (arrears) Rm 326 247 32 106
Loans past due to gross
loans and advances % 10.1 11.2 11.6
Provision for doubtful
debts Rm 241 173 39 111
Provision for
doubtful debts to
gross loans & advances % 7.5 7.9 12.1
Arrears coverage ratio % 74 70 105
Loan revenue Rm 2 054 1 284 60 1 001
Loan revenue to gross
loans and advances % 63.7 58.6 109.5
Gross loan impairment
expense Rm 514 266 94 183
Recoveries Rm 46 35 34 22
Net impairment expense
to loan revenue % 22.8 18.0 16.1
Net impairment to
gross loan book % 14.5 10.6 17.6
Net impairment expense
to repayments % 7.2 5.1 4.1
Deposits
Retail savings deposits Rm 1 306 842 55 554
Retail fixed deposits Rm 265 - -
Number of savings
clients `000 1 129 783 44 583
Net transaction fee
income Rm 138 79 75 35
1. SIMPLICITY IS THE ULTIMATE SOPHISTICATION
The banking systems of the most sophisticated financial nations on earth
remain in intensive care, but Capitec Bank has hardly been affected at all.
How is this possible?
The answer is surprisingly simple: Although we use plenty of sophisticated
technology, the Capitec Bank model is a very old-fashioned one. We borrow
long and lend short. We avoid complex products. We have plenty of capital. We
manage arrears zealously. These are the main reasons for our stability in
turbulent times.
In the equity markets, stability and success are often seen as opposites. We
are immodest enough to believe that Capitec Bank is now a growing success and
this success combines with stability. There are more reasons for our success
than just for our stability. We define our market narrowly and concentrate
exclusively on this market. Our management knows our market well. We have few
products, but they are all the best available to our clients and offered at
the lowest prices in the market.
2. PROFITS OF R302 MILLION
Increasing profits by 42% to R302 million in current circumstances is very
satisfactory, even if only to illustrate the difference between our banking
model and traditional banking.
* We gained 464 000 new clients during the year and now have 1.8 million
active clients, 34% up on last year.
* Our sales during the year - the total value of loans granted -
increased by 22% to R6.3 billion. The number of loans granted
increased by 12% to 3.5 million. The average loan amount increased to R1
774.
* Sales of the three-year loan, launched in October 2007, grew by 128%.
This made a significant contribution to the growth of our total book by
48% to R3.0 billion.
* Net transaction income grew by 75% and represents 9% of our revenue,
the other 91% deriving from loans.
* We concentrate exclusively on personal banking. We have no business
clients and do no treasury trading.
* Operating expenditure grew by 40%. We opened 32 new branches and plan
to open another 40 in the next twelve months.
* We employ 3 414 employees (22% more than in 2008) and we have 368 ATMs.
* The cost-to-income ratio for the year was 54%, compared to 58% in 2008.
* We remain extremely cost conscious. At Capitec Bank, nobody flies
business class.
* Included in headline earnings is an adjustment of R11.3 million
representing the present value of future recoveries (see arrears and bad
debts below). Without this adjustment the headline earnings growth would
have been 37%.
3. ARREARS AND BAD DEBTS
Capitec Bank adjusted the loan criteria for clients during the year in
anticipation of the market changes.
The gross loan impairment expense (before recoveries) for the year increased
by R248 million compared to last year. The increase comprised R206 million
due to loan book growth and R76 million due to increased default rates. This
was offset by R18 million due to improved data history and R16 million due to
the valuation placed on handed-over loans. All loan impairments are
calculated using actual experience.
This is higher than we would like it to be and the major impact of
recessionary times on our business. Another way of comparing bad debt
performance in a changing business is to look at arrears as a percentage of
gross loans extended. This figure has deteriorated from 8.3% last year to
9.1% this year.
* Our bad debt ratio is very sensitive to retrenchments and strikes. We
are prepared for further bad news on this front.
* We write off all arrears after three months, and in the case of a
term loan the full outstanding balance is written off after three
months. This is a conservative but realistic approach. That is why we
use the terms "bad debts" and "arrears" pretty much as meaning the
same thing.
* We have tightened our lending criteria. We channel more risky clients
to the shorter-term products.
* Our longer-term products are more profitable on a risk-weighted basis
than the short-term loans. At the same time we provide more for doubtful
debts on term loans in the initial months of the loan term than in the
later months. The bad debt ratio will therefore increase rapidly as a
new product is launched and the new book starts growing.
* One of the reasons for the international credit crunch was a false
complacency within banks that they fully understood the risks inherent
in their products. At Capitec Bank we know we can never relax.
* The growth in the book resulted in a substantial growth in recoveries of
the handed-over book and we therefore had to start taking the future
value of recoveries into consideration. We determined the increase in
the present value of the expected cash flow of loans which have been
written off, which resulted in an increase of R11.3 million after tax in
our headline earnings.
4. LIQUIDITY
In a year of tight market liquidity, the bank has improved its liquidity
position whilst growing the asset book. Our liquidity philosophy remains
extremely conservative. We will continue to manage our liquidity position
conservatively and balance book growth and arrears appetite against available
funding. At year-end we would have been able to repay all our saving deposits
immediately and on average throughout the year, within two weeks.
Internationally, retail savings deposits are considered to be least likely to
be withdrawn in a crisis.
* We launched an innovative fixed-term savings plan (6 months to 24
months) in November 2008 and raised R265 million in four months. This is
an ideal form of funding due to the distributed funding base, rolling
maturities and the fact that we can manage the uptake on the product.
* We have been successful in increasing our wholesale contractual
deposits by a total of R1.1 billion over the year. A domestic medium
term note programme was launched in May 2008 and raised R490 million
with a maturity of three years.
Why has Capitec Bank been so prudent? We obtained our banking license in
2001. At the time a small-banks crisis was occurring in a small country at
the southern tip of Africa. Hardly anybody else remembers it, but we do. We
saw how small banks went under overnight when markets lost confidence and the
banks were caught in a liquidity trap. Even before that, in 1997, we saw how
a financial crisis in Asia could rock banks in Africa. When we started our
own bank, we decided that Capitec Bank should never put itself in a position
where a bad day in the markets can destroy a bank built up over a life-time.
5. CAPITAL
The amount of capital that a bank has is the measure of its ability to
withstand shocks. Banks are highly geared. The bank`s own capital absorbs any
unexpected losses.
At year-end Capitec had R1.4 billion of equity and R3.5 billion in assets,
excluding cash. Our risk-weighted capital adequacy ratio was 43% at year-
end. We have plenty of capital and this is a source of comfort to our
depositors.
Such security does not come cheap. Our return on capital would double should
we halve our capital. This is not a thought to entertain under current
circumstances, yet shareholders should appreciate that, like all good things
in life, enhanced bank security comes at a price.
The return on ordinary shareholders` equity for 2009 was 27%, compared to 22%
last year.
6. MANAGEMENT REMUNERATION
In the popular press bankers` bonuses have been identified as a culprit in
the international bank crisis. We agree that the structure of management
remuneration is important and that bonuses to achieve short-term goals can
distort behaviour. In the past we used modest short-term bonuses to reward
management for achieving specific goals. Such bonuses tend to be open-ended,
and exceptional performance by management meant that a modest scheme suddenly
produced not so modest bonuses. We now focus on an incentive scheme that is
driven by share options which rewards longer-term sustained profit growth.
This is the way we intend to go forward: with a substantial salary,
reflecting the importance of the challenge and the size of the achievements,
but no, or a modest, short-term bonus.
7. CREDIT RATING
In May 2008, Moody`s Investors Service upgraded the short-term national scale
credit rating for Capitec Bank Limited, Capitec`s banking subsidiary, to P-
1.za (from P-2.za).The bank`s long-term national scale rating of A2.za
remains unchanged and has a stable outlook. According to Moody`s, the upgrade
reflects Capitec Bank`s demonstrated ability to cautiously manage its
liquidity and funding over the past few years.
The long-term rating reflects a good long-term credit quality and the short-
term rating a superior ability to repay short-term debt obligations.
Internationally, many banks have seen their ratings slashed and it is an
unusual tribute to our stability to see our rating upgraded.
8. INNOVATION AND GROWTH
Innovation is the foundation on which Capitec Bank was built. For this reason
we appreciated the recent review provided by the asset management company
RE:CM. They concluded that over the past 15 to 20 years there have been only
five "true" entrepreneurs listed on the JSE: Aspen, Capitec, Discovery, MTN
and City Lodge Hotels. We thank them for this recognition. We always aim to
be truly entrepreneurial.
9. THANKS
Regulators have a thankless task. We want to thank the registrar of banks, Mr
Errol Kruger, for creating a stable environment in South Africa when
stability has evaporated elsewhere.
We have a relatively small group of committed shareholders and wish to thank
them for their loyal support during the past difficult year. PSG Group is our
major shareholder and we want to thank them for guidance and support in
difficult times.
Our success is due to our people: all our employees, but particularly our far-
sighted executive management team. As shareholders, we appreciate their
dedication.
10. PROSPECTS
Caution and prudence are necessary under the present conditions. However,
plenty of opportunities exist in the market and we are well placed to
capitalise on the difficult economic conditions. We will continue to invest
in expansion. We plan to open a further 40 branches in the next year and
expect to obtain much better retail locations due to the market downturn. Our
credit policy will be adjusted as conditions change to ensure the ideal
balance between growth through new client acquisition and bad debts. The
cloud on the horizon could be the ability of our clients to keep on servicing
their loans. Wholesale and retail funding growth has been very gratifying and
we do not anticipate changes in our ability to access loan capital.
We expect that the 2010 financial year will be another one of growth and
success.
11. DIVIDENDS
We declared a final dividend of 110 cents per share. Together with the
interim dividend this gives a total dividend for the year of 140 cents per
share.
We believe the interim dividend is too small a portion of the total dividend
and will increase the size of the interim dividend in relation to the final
dividend in future years.
Last day to trade cum-dividend Friday, 5 June 2009
Trading ex-dividend commences Monday, 8 June 2009
Record date Friday, 12 June 2009
Payment date Monday, 15 June 2009
Share certificates may not be dematerialised or rematerialised, both days
inclusive, between Monday, 8 June 2009 and Friday, 12 June 2009.
On behalf of the board
Michiel le Roux
Chairman
Riaan Stassen
Chief executive officer
Stellenbosch
1 April 2009
GROUP BALANCE SHEET
Audited Audited
February February
2009 2008
R`000 R`000
ASSETS
Cash and cash equivalents 1 513 989 617 901
Investments at fair value 150 044 14 424
Loans and advances 2 981 685 2 019 200
Inventory 22 120 17 741
Other receivables 20 114 19 347
Property and equipment 240 134 196 173
Intangible assets
- banking system 27 669 37 619
Deferred income tax assets 13 667 13 967
Total assets 4 969 422 2 936 372
LIABILITIES
Loans and deposits at amortised cost 3 298 897 1 475 696
Loans and deposits held at fair value 17 916 52 425
Trade and other payables 229 910 143 368
Current income tax liabilities 16 498 47 456
Total liabilities 3 563 221 1 718 945
EQUITY
Ordinary share capital and premium 674 369 647 363
Non distributable reserves (23 873) -
Retained earnings 601 099 415 458
Ordinary shareholders` funds 1 251 595 1 062 821
Non-redeemable, non-cumulative,
non-participating preference
shares 154 606 154 606
Total equity 1 406 201 1 217 427
Total equity and liabilities 4 969 422 2 936 372
GROUP INCOME STATEMENT
Audited Audited
Year Year
ended ended
February February
2009 2008
R`000 R`000
Interest on loans advanced 1 156 514 709 166
Interest on cash and
cash equivalents 56 382 30 897
Interest expense (269 621) (101 449)
Net interest income 943 275 638 614
Net fee income 1 035 709 653 400
Loan fee income 897 502 574 584
Transaction fee income 281 548 168 361
Transaction fee expense (143 341) (89 545)
Dividend income 1 099 15 392
Net impairment charge on loans and
advances (467 727) (230 879)
Net movement in financial instruments
held at fair value 2 197 7 818
Other income 280 8
Non-banking gross profit 18 218 10 938
Non-banking sales 208 915 159 122
Non-banking cost of sales (190 697) (148 184)
Income from operations 1 533 051 1 095 291
Banking operating expenses (1 063 672) (762 540)
Non-banking operating expenses (12 696) (8 405)
Operating profit before tax 456 683 324 346
Income tax expense (137 351) (95 281)
Net profit attributable to
equity holders 319 332 229 065
Earnings per share (cents)
* Attributable 364 259
* Diluted attributable 357 250
RECONCILIATION OF ATTRIBUTABLE EARNINGS TO HEADLINE EARNINGS
Audited Audited
Year Year
ended ended
February February
2009 2008
R`000 R`000
Net profit attributable to
equity holders 319 332 229 065
Less preference dividend (19 127) (17 011)
Net profit attributable to
ordinary shareholders 300 205 212 054
Items excluded from headline
earnings after tax:
* Loss on disposal of fixed assets 1 666 145
Headline earnings 301 871 212 199
GROUP CASH FLOW STATEMENT
Audited Audited
Year Year
Ended Ended
February February
2009 2008
R`000 R`000
Cash flow from operating activities 1 285 812 (260 872)
Cash flow from operations 624 711 445 732
Increase in loans and advances (1 030 384) (1 277 943)
Increase in other liabilities,
provisions and deposits 1 841 720 680 986
Tax paid (150 235) (109 647)
Cash flow from investment activities (266 176) (12 709)
Net investment in equipment and (132 491) (116 071)
software
(Increase) decrease in other investing
activities (133 685) 103 362
Cash flow from financing activities (123 548) (152 264)
Dividends paid (105 446) (85 378)
Shares acquired and options settled (18 102) (66 886)
Increase (decrease) in cash and cash
equivalents 896 088 (425 845)
Cash and cash equivalents at beginning
of year 617 901 1 043 746
Cash and cash equivalents at end of
year 1 513 989 617 901
GROUP STATEMENT OF CHANGES IN EQUITY
Audited Audited
Year Year
Ended Ended
February February
2009 2008
R`000 R`000
Equity at beginning of year 1 217 427 1 117 457
Net profit attributable to
equity holders 319 332 229 065
Loss on settlement of share options
net of share based staff costs and
shares issued (9 110) (59 877)
Tax on settlement of share options 8 490 17 432
Cash flow hedge net of taxation (23 873) -
Dividends declared (106 065) (86 650)
Equity at end of year 1 406 201 1 217 427
SEGMENTAL RESULTS
Wholesale
Banking distribution Total
R`000 R`000 R`000
Year ended February 2009
Revenues 2 393 325 208 915 2 602 240
Headline earnings 297 403 4 468 301 871
Assets 4 940 602 28 820 4 969 422
Year ended February 2008
Revenues 1 498 408 159 122 1 657 530
Headline earnings 210 513 1 686 212 199
Assets 2 913 528 22 844 2 936 372
COMMITMENTS
Audited Audited
February February
2009 2008
R`000 R`000
Guarantees
- Non-banking institutions - 7 500
Capital commitments approved by
the
board
- Contracted for 22 810 43 030
- Not contracted for 163 031 132 852
Operating lease commitments
< 1 year 80 858 69 472
1 to 5 years 176 269 158 489
> 5 years 3 213 6 665
NOTES
1. ACCOUNTING POLICIES
The summarised audited consolidated financial statements have been prepared
in accordance with IAS34 (Interim Financial Reports). The accounting policies
applied in the preparation of the summarised audited consolidated financial
statements conform to that of the previous year.
The unmodified audit reports of PricewaterhouseCoopers Inc. on the annual
financial statements for the year ended 28 February 2009 and the summarised
financial statements contained herein are available for inspection at the
registered office of the company.
REGISTERED OFFICE
10 Quantum Road, Techno Park, Stellenbosch 7600, PO Box 12451, Die Boord,
7613
TRANSFER SECRETARIES
Computershare Investor Services (Pty) Limited (Registration number:
2004/003647/07)
Ground Floor, 70 Marshall Street, Johannesburg 2001,
PO Box 61051, Marshalltown 2107
COMPANY SECRETARY
Christian George van Schalkwyk: BComm, LLB, CA(SA)
DIRECTORS
M S du P le Roux (Chairman), R Stassen (CEO)*, A P du Plessis (FD)*,
T D Mahloele, Prof M C Mehl, Ms N S Mjoli-Mncube, P J Mouton, C A Otto,
J G Solms, J P van der Merwe
*Executive
SPONSOR
PSG Capital (Pty) Limited (Registration number: 2006/01587/07)
ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of the shareholders of
Capitec Bank Holdings Limited will be held at "The Venue at Webersburg",
Webersburg Wines, Annandale Road, Stellenbosch, on Friday, 29 May 2009 at
12:00
www.capitecbank.co.za
Date: 01/04/2009 07:30:00 Produced by the JSE SENS Department.
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