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ASA
AMAGB
ASA - ABSA Group Limited - ABSA Group: Profit And Dividend Announcement /
Unaudited Interim Financial Results For The Six Months Ended 30 June 2009
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 2009
GROUP SALIENT FEATURES
Six months ended Year ended
30 June 31
December
2009 20081 Change 20081
(Unaudited) (Unaudited) % (Audited)
Statement of comprehensive
income(Rm)
Headline earnings(2) 3 826 4 731 (19,1) 9 908
Profit attributable to 3 272 5 335 (38,7) 10 592
ordinary
equity holders of the Group
Statement of financial
position(Rm)
Total assets 754 312 737 577 2,3 773 758
Loans and advances to 521 427 489 319 6,6 532 171
customers
Deposits due to customers 370 096 347 207 6,6 382 281
Off-balance sheet (Rm)
Managed funds 149 523 121 704 22,9 125 100
Financial performance (%)
Return on average equity 16,4 24,6 23,4
Return on average assets 1,02 1,39 1,37
Operating performance (%)
Net interest margin on 2,86 3,15 3,06
average
Assets(3)
Net interest margin on 3,51 3,78 3,68
average
interest-bearing assets(3)
Impairment losses on loans 1,86 0,93 1,19
and
advances as % of average
loans and advances to
customers
Non-performing advances as % 6,6 2,9 4,1
of
loans and advances to
customers (1&3)
Non-interest income as % of
total 48,7 47,8 48,5
operating income (3)
Cost-to-income ratio 46,6 49,3 49,4
Effective tax rate, excluding 23,9 26,2 26,1
indirect taxation
Share statistics (million)
Number of shares in issue 718,2 680,1 680,3
Weighted average number of 677,9 675,6 675,7
shares
Weighted average diluted 696,1 711,4 702,8
number of
shares
Share statistics (cents)
Earnings per share 482,7 789,7 (38,9) 1 567,5
Diluted earnings per share 470,9 751,1 (37,3) 1 509,5
Headline earnings per share 564,4 700,3 (19,4) 1 466,2
Diluted headline earnings per 550,5 666,2 (17,4) 1 412,1
share
Dividends per ordinary share 225,0 265,0 (15,1) 595,0
relating to income for the
period/year
Dividend cover (times) 2,5 2,6 2,5
Net asset value per share 6 762 5 849 15,6 6 950
Tangible net asset value per 6 623 5 800 14,2 6 809
share
Capital adequacy (%)(3)
Absa Bank 13,7 13,5 14,0
Absa Group 13,9 13,9 14,1
Notes
1. The comparatives of the non-performing advances ratio have been
restated. Refer to the "Reclassifications" section for the restatement
of prior year figures.
2. After allowing for R234 million (June 2008: R220 million) profit
attributable to preference equity holders of the Group.
3. These ratios are unaudited.
GROUP STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) Change (Unaudited)
Rm Rm % Rm
Net interest income 10 772 10 565 2,0 22 106
Interest and similar 35 493 35 177 0,9 76 260
income
Interest expense and
similar charges (24 721) (24 612) (0,4) (54 154)
Impairment losses on loans and
advances (4 834) (2 178) (121,9) (5 839)
Net interest income after
impairment losses on loans and 5 938 8 387 (29,2) 16 267
advances
Net fee and commission income 6 903 6 007 14,9 13 343
Fee and commission income 7 629 6 707 13,7 14 804
1.1
Fee and commission (726) (700) (3,7) (1 461)
expense
Net insurance premium income 1 844 1 710 7,8 3 511
Net insurance claims and
benefits paid (1 010) (914) (10,5) (1 890)
Changes in investment and
insurance liabilities 10 244 (95,9) (70)
Gains and losses from banking
and trading activities 1 281 1 226 4,5 3 331
1.2
Gains and losses from
investment activities 454 269 68,8 1 064
1.3
Other operating income 727 1 141 (36,3) 1 515
Operating income before
operating expenditure 16 147 18 070 (10,6) 37 071
Operating expenditure (11 389) (10 498) (8,5) (21 935)
Operating expenses (9 782) (9 985) 2,0 (21 193)
2.1
Other impairments (1 179) (0) >(999,9) (18)
2.2
Indirect taxation (428) (513) 16,6 (724)
Share of retained earnings
from associates and joint (1) 45 (102,2) 73
ventures
Operating profit before income 4 757 7 617 (37,5) 15 209
tax
Taxation expense (1 138) (1 995) (43,0) (3 966)
Profit for the period/year 3 619 5 622 (35,0) 11 243
Attributable to:
Ordinary equity holders of 3 272 5 335 (38,7) 10 592
the Group
Minority interest - ordinary 113 67 68,7 194
shares
Minority interest -
preference shares 234 220 6,4 457
3 619 5 622 (35,6) 11 243
GROUP STATEMENT OF COMPREHENSIVE INCOME (CONTINUED)
Six months ended Year ended
30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) Change (Unaudited)
Rm Rm % Rm
Profit for the period/year 3 619 5 622 (35,6) 11 243
Other comprehensive income
Exchange differences on
translation of foreign (280) 340 (182,4) 241
operations
Movement in cash flow hedging
reserve: (507) (1 409) 64,0 2 660
Fair value (losses)/gains
arising during the (817) (2 745) 70,2 2 054
period/year
Amount removed from
equity and recognised in the 113 778 (85,5) 1 636
income statement
Deferred tax 197 558 (64,7) (1 030)
Movement in available-for-sale
reserve: (319) (8) >(999,9) (89)
Fair value losses arising
during the period/year (234) (89) (162,9) (240)
Amount removed from
equity and recognised in the (205) - (100,0) -
income statement
Amortisation of
government bonds -release to 41 22 86,4 85
the income statement
Deferred tax 79 59 33,9 66
Total comprehensive income for
the period/year 2 513 4 545 (44,7) 14 055
Total comprehensive income
attributable to:
Ordinary equity holders of the 2 160 4 271 (49,4) 13 411
Group
Minority interest - ordinary 119 54 120,4 187
shares
Minority interest - preference 234 220 6,4 457
shares
2 513 4 545 (44,7) 14 055
NOTES TO THE INTERIM FINANCIAL RESULTS
1. NON-INTEREST INCOME
Six months ended Year ended
30 June 31
December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
1.1 Fee and commission income
Credit-related fees and 6 035 5 189 16,3 11 197
commissions
Cheque accounts 1 606 1 456 10,3 3 027
Credit card accounts 889 752 18,2 1 624
Early redemption penalty 56 95 (41,1) 174
income
Electronic banking 1 633 1 380 18,3 3 021
Foreign exchange fees and
commissions 148 147 0,7 316
Savings accounts 1 098 1 009 8,8 2 111
Sundry 605 350 72,9 924
Asset management and other
related 65 61 6,6 124
fees
Consulting and actuarial fees 109 101 7,9 206
External administration fees 86 127 (32,3) 228
Insurance commission received 408 452 (9,7) 962
Pension fund payment services 273 233 17,2 526
Portfolio and other management 137 116 18,1 238
fees (1)
Project finance fees (1) 180 167 7,8 686
Trust and estate income (1) 112 120 (6,7) 259
Unit and property trust income 172 132 30,3 281
(1)
Other 52 9 477,8 97
7 629 6 707 13,7 14 804
Note
1. Disclosed as part of trust and fiduciary services.
1.2 Gains and losses from
banking and trading activities
(2)
Net gains on investments 112 323 (65,3) 1 203
Available-for-sale 175 (22) 895,5 (85)
Designated at fair value
through profit or loss (9) 339 (102,7) 1 288
(Loss)/profit on disposal
of and dividend income from
associates and joint ventures (54) 6 >(999,9) -
Net trading income (1) 1 115 869 28,3 2 111
Other 54 34 58,8 17
1 281 1 226 4,5 3 331
Note
1. Net trading income includes the profits and losses on Absa Capital`s desks
classified as "trading desks" arising from both the purchase and sale of
trading instruments and the revaluation to market value as well as Absa
Capital`s hedge ineffectiveness. This includes the interest income and
interest expense from these instruments and the related funding cost. This
also includes similar activities from African operations.
2. Gains and losses from banking and trading activities has not been audited,
refer to "Reclassifications" section for the restatement of prior year
figures.
1.3 Gains and losses from
investment activities
Designated at fair value
through profit or loss 449 267 68,2 1 045
Net investment gains from
insurance activities 352 183 92,3 958
Policyholder - investment
contracts 173 18 861,1 492
Policyholder - insurance
contracts 73 7 942,9 113
Shareholder funds 106 158 (32,9) 353
Other investment gains 97 84 15,5 87
Profit on disposal of and
dividend income from
associates and joint ventures 15 2 650,0 31
Loss on disposal of (10) - (100,0) (12)
subsidiaries
454 269 68,8 1 064
2. OPERATING EXPENDITURE
Six months ended Year ended
30 June 31
December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
2.1 Operating expenses
Property and equipment-related
Accommodation costs 974 869 (12,1) 1 948
Amortisation 71 55 (29,1) 150
Depreciation 537 418 (28,5) 856
Equipment rental and 133 132 (0,8) 278
maintenance
Insurance premiums 88 117 (24,8) 131
Professional fees
Auditors` remuneration 75 54 (38,9) 89
Other professional fees 406 415 2,2 965
Staff-related
Staff costs 4 839 4 813 (0,5) 9 907
Incentive schemes and share-
based payments 104 649 84,0 1 697
Other
Cash transportation costs 230 196 (17,3) 413
Clearing and bank charges 94 59 (59,3) 137
Communication and printing 538 512 (5,1) 1 100
Frauds and losses 173 170 (1,8) 290
Information technology costs 847 666 (27,2) 1 489
Investment property charges - - - 7
Marketing and advertising 362 485 25,4 961
costs
Travelling and entertainment 116 176 34,1 383
Other operating expenses 195 199 2,0 392
9 782 9 985 2,0 21 193
Six months ended Year ended
30 June 31
December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
2.2 Other impairments
Financial instruments 32 - (100,0) 30
Amortised cost 4 - (100,0) 29
instruments
Available-for-sale 28 - (100,0) 1
instruments
Other 1 147 0 >(999,9) (12)
Computer software
development costs - - - 1
Goodwill 38 - (100,0) -
Investment is associates
and joint ventures 1 067 - (100,0) -
Repossessed Properties 42 0 >(999,9) (13)
1 179 0 >(999,9) 18
3. DETERMINATION OF HEADLINE EARNINGS
Six months ended Year ended
30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Headline earnings (1) is
determined
as follows:
Profit attributable to
ordinary equity holders 3 272 5 335 (38,7) 10 592
Adjustments for:
IAS 16 net profit on
disposal of property and (23) (25) 8,0 (37)
equipment
IAS 21 recycled foreign
currency translation
reserve, disposal of - - - (38)
investments in foreign
operations
IAS 27 net loss on
disposal of subsidiaries 7 - 100,0 17
IAS 28 and 31 net
loss/(profit) on disposal of
associates and joint 24 - 100,0 (29)
ventures
IAS 28 impairment of
investments in associates 768 - 100,0 -
and joint ventures
IAS 28 headline
earnings component of
associates and joint (4) (11) 63,6 (54)
ventures` earnings
IAS 38 net profit on
disposal of and impairment (47) (636) 92,6 (635)
of intangible assets
IAS 39 release of
available-for-sale reserves (158) 16 >(999,9) 61
IAS 39 disposal of and
impairment of available-for- 10 52 (80,8) 31
sale assets
IAS 40 change in fair value
of (50) - (100,0) -
investment properties
IFRS 3 impairment of 27 - 100,0 -
goodwill
Headline earnings 3 826 4 731 (19,1) 9 908
Note
1. The net amount is reflected after taxation and minority interest.
GROUP STATEMENT OF FINANCIAL POSITION
30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Assets
Cash, cash balances and 22 411 22 446 (0,2) 24 847
balances
with central banks
Statutory liquid asset 32 213 27 978 15,1 33 043
portfolio
Loans and advances to banks 48 386 61 859 (21,8) 44 662
Trading portfolio assets 68 123 62 191 9,5 78 879
Hedging portfolio assets 2 824 2 032 39,0 3 139
Other assets 20 779 37 066 (43,9) 16 397
Current tax assets 620 543 14,2 23
Non-current assets held-for- 2 017 2 254 (10,5) 2 495
sale
Loans and advances to 521 427 489 319 6,6 532 171
customers
Reinsurance assets 847 714 18,6 903
Investments 24 346 24 390 (0,2) 26 980
Investments in associates and
joint 789 1 047 (24,6) 2 144
ventures
Intangible assets 965 331 191,5 957
Investment property 2 087 - 100,0 667
Property and equipment 6 121 5 270 16,1 6 208
Deferred tax assets 357 137 160,6 243
Total assets 754 312 737 577 2,3 773 758
Liabilities
Deposits from banks 41 885 64 259 (34,8) 54 633
Trading portfolio liabilities 64 341 64 256 0,1 72 737
Hedging portfolio liabilities 1 188 4 815 (75,3) 1 080
Other liabilities and sundry
provisions 20 055 26 220 (23,5) 15 193
Current tax liabilities 237 85 178,8 385
Deposits due to customers 370 096 347 207 6,6 382 281
Debt securities in issue 175 686 160 718 9,3 165 900
Liabilities under investment
contracts 11 053 9 183 20,4 10 377
Policyholder liabilities
under 2 740 3 070 (10,7) 3 076
insurance contracts
Borrowed funds 11 823 11 087 6,6 12 296
1
Deferred tax liabilities 2 496 1 864 33,9 2 834
Total liabilities 701 600 692 764 1,3 720 792
Equity
Capital and reserves
Attributable to ordinary
equity
holders of the Group:
Share capital 1 379 1 353 1,9 1 354
Share premium 3 071 2 356 30,3 2 251
Other reserves 1 738 (970) 279,2 3 010
Retained earnings 40 711 37 041 9,9 40 665
46 899 39 780 17,9 47 280
Minority interest - ordinary 1 169 389 200,5 1 042
shares
Minority interest - preference 4 644 4 644 - 4 644
shares
Total equity 52 712 44 813 17,6 52 966
Total equity and liabilities 754 312 737 577 2,3 773 758
CONDENDSED NOTES TO THE INTERIM FINANCIAL RESULTS
BORROWED FUNDS
30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Subordinated callable notes
14,25% (AB02) - 3 100 (100,0) 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% (3.97% 86 86 - 86
Nacs)
3-month JIBAR + 0,97% (6.25% 994 994 - 994
Nacs)
3-month JIBAR + 1,00% (6.25% 179 179 - 179
Nacs)
3-month JIBAR + 1,09% (6.25% 361 - 100,0 361
Nacs)
3-month JIBAR + 1.20% (6.25% 266 266 - 266
Nacs)
Subordinated callable note (3
- month JIBAR + 3,20%) 3 000 - 100,0 -
Accrued interest 403 328 22,9 379
Fair value adjustment (191) (743) 74,3 54
Redeemable cumulative option-
holding preference shares - 152 (100,0) 152
Shares issued 158 158 - 158
Elimination of shares held by
Absa Group Limited Employee
Share Ownership Administrative (3) (8) 62,5 (4)
(ESOP)Trust
Redemption of preference
shares by Absa Group Limited
Employee Share Ownership (9) (4) (125,0) (8)
Administrative (ESOP) Trust
Redemption of preference
shares by Batho Bonke
Capital(Proprieatry) Limited (146) - (100,0) -
shares
Accrued dividend - 6 (100,0) 6
11 823 11 087 6,6 12 296
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Share capital 1 379 1 353 1,9 1 354
Opening balance 1 354 1 350 0,3 1 350
Shares issued 26 3 766,7 3
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 (0) (1) 99,0 1
Trust
Elimination of treasury
shares held by Absa Life
Limited and Absa Fund (1) 1 (200,0) 0
Managers Limited
Elimination of treasury
shares held by Absa Group
Limited Employee Share
Ownership Administrative - 0 - (0)
(ESOP) Trust
Share premium 3 071 2 356 30,3 2 251
Opening balance 2 251 2 292 (1,8) 2 292
Shares issued 859 63 >999,9 72
Costs incurred (0) - (100,0) -
Transfer from share-based
payment reserve 26 14 85,7 41
Share buy-back in respect
of Absa Group Limited Share (25) (21) (19,0) (63)
Incentive Trust
Elimination of treasury
shares held by Absa Group
Limited Share Incentive (12) (26) 53,8 7
Trust
Elimination of treasury
shares held by Absa Life
Limited, Absa Fund Managers (28) 29 (196,6) (6)
Limited and Absa Capital
Elimination of treasury
shares held by Absa Group
Limited Employee Share
Ownership Administrative 0 5 (97,5) 5
(ESOP) Trust
Elimination of gains and
losses from derivative
instruments on own shares - - - (97)
Other reserves 1 738 (970) 279,2 3 010
Opening balance 3 010 406 641,4 384
Reclassification of
investments in
associates and joint - (22) 100,0 -
ventures to
investments
Other comprehensive income (1 112) (1 064) (4,5) 2 819
Movement in foreign currency
translation reserve (286) 353 (181,0) 248
Movement in cash flow hedges
reserve (507) (1 409) 64,0 2 660
Movement in available-for-
sale (319) (8) >(999,9) (89)
reserve
Movement in regulatory 96,8
general credit risk reserve (12) (370) (434)
Movement in insurance
contingency reserve 9 14 (35,7) 22
Movement in associates and
joint ventures` retained (1) 45 (102,2) 73
earnings reserve
Disposal of associates and
joint ventures - release of (101) (16) (531,3) (3)
reserves
Share-based payments for
the period/year (29) 52 (155,8) 193
Transfer from share-based
payment reserve (26) (15) (73,3) (44)
Retained earnings 40 711 37 041 9,9 40 665
Opening balance 40 665 33 527 21,3 33 549
Reclassification of
investments in
associates and joint - 22 (100,0) -
ventures to
investments
Movement in regulatory
general credit risk reserve 12 370 (96,8) 434
Transfer to insurance
contingency reserve (9) (14) 35,7 (22)
Transfer to associates and
joint ventures` retained 1 (45) 102,2 (73)
earnings reserve
Disposal of associates and
joint ventures - release of 101 16 531,3 3
reserves
Share buy back in respect
of Absa Group Limited Share - - - 153
Incentive Trust
Transfer from share-based
payment reserve (0) 1 (101,0) 3
Profit attributable to
ordinary equity holders 3 272 5 335 (38,7) 10 592
Ordinary dividends paid
during the (2 242) (2 171) (3,3) (3 974)
period/year
Repurchase of preference
shares held
by Batho Bonke Capital (1 089) - (100,0) -
(Proprietary)
Limited
46 899 39 780 17,9 47 280
Minority interest - ordinary 1 169 389 200,5 1 042
shares
Opening balance 1 042 341 205,6 341
Acquisition and disposal of
subsidiaries 44 30 46,7 548
Dividends declared during
the (36) (36) - (34)
period/year
Minority share of profit 113 67 68,7 194
Other comprehensive income
- 6 (13) 146,2 (7)
foreign currency
translation effects
Minority interest - 4 644 4 644 - 4 644
preference shares
Opening balance 4 644 4 644 - 4 644
Profit attributable to
preference equity holders 234 220 6,4 457
Preference dividends paid
during the period/year (234) (220) (6,4) (457)
Total equity 52 712 44 813 17,6 52 966
CONDENSED GROUP STATEMENT OF CASH FLOWS
Six months ended Year ended
30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Net cash generated/(utilised) 1 086 (3 033) 3 236
from operating activities 135,8
Net cash
generated/(utilised)in 1 372 1 964 (30,1) (1 737)
investing activities
Net cash utilised in
financing activities (3 004) (813) (269,5) (2 497)
Net decrease in cash and cash
equivalents (546) (1 882) 71,0 (998)
Cash and cash equivalents at
the 5 600 6 596 (15,1) 6 596
beginning of the period/year
1
Effect of exchange rate
movements on cash and cash 2 (4) 150,0 2
equivalents
Cash and cash equivalents at
the end of the period/year 5 056 4 710 7,3 5 600
2
NOTES TO STATEMENT OF CASH
FLOWS
1. Cash and cash equivalents
at the beginning of the
period/year
Cash, cash balances and
balances 4 726 5 091 (7,2) 5 091
with central banks
Loans and advances to banks 874 1 505 (41,9) 1 505
5 600 6 596 (15,1) 6 596
2. Cash and cash equivalents
at the end of the period/year
Cash, cash balances and
balances 3 630 3 251 11,7 4 726
with central banks
Loans and advances to banks 1 426 1 459 (2,3) 874
5 056 4 710 7,3 5 600
GROUP PROFIT CONTRIBUTION BY BUSINESS AREA
Six months ended Year ended
30 June 31 December
2009 20081 20081
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Banking operations
Retail banking 1 336 1 934 (30,9) 3 627
Retail Bank 1 740 1 146 51,8 2 635
Absa Home Loans (721) 281 (356,6) 139
Absa Card 304 258 17,8 554
Absa Vehicle and Asset 13 249 (94,8) 299
Finance
Absa Corporate and Business 1 098 1 070 2,6 2 806
Bank
Absa Capital and Absa Wealth 129 1 016 (87,3) 2 276
Absa Capital 120 1 001 (88,0) 2 249
Underlying performance 908 1 001 (9,3) 2 249
Single Stock Futures -
impairments of equity (788) - (100,0) -
investments
Absa Wealth 9 15 (40,0) 27
Corporate centre (2) 368 842 (56,3) 821
Capital and funding centre (97) (13) (646,2) 4
Minority interest - (234) (220) (6,4) (457)
preference shares
Total banking 2 600 4 629 (43,8) 9 077
Bancassurance 672 706 (4,8) 1 515
Profit attributable to
ordinary equity holders 3 272 5 335 (38,7) 10 592
Headline earnings adjustments 554 (604) 191,7 (684)
Total headline earnings 3 826 4 731 (19,1) 9 908
GROUP REVENUE (3) CONTRIBUTION BY BUSINESS AREA
Six months ended Year ended
30 June 31
December
2009 20081 20081
(Unaudited) (Unaudited) Change (Audited)
Rm Rm % Rm
Banking operations
Retail banking 12 873 11 572 11,2 24 572
Retail Bank 8 014 7 057 13,6 14 787
Absa Home Loans 1 598 1 969 (18,8) 4 150
Absa Card 2 097 1 296 61,8 3 057
Absa Vehicle and
Asset Finance 1 164 1 250 (6,9) 2 578
Absa Corporate and
Business Bank 4 215 3 761 12,1 8 700
Absa Capital and Absa 2 316 2 482 (6,7) 5 654
Wealth
Absa Capital 2 146 2 339 (8,3) 5 347
Absa Wealth 170 143 18,9 307
Corporate centre (2) (84) 675 (112,4) 572
Capital and funding (55) 117 (147,0) (50)
centre
Total banking 19 265 18 607 3,5 39 448
Bancassurance 1 715 1 643 4,4 3 461
Total revenue 20 980 20 251 3,6 42 910
NOTES
1. The comparative periods have been restated for:
- African operations have been split between Retail banking, Absa
Corporate and Business Bank and Absa Capital during 2008. This
split is in line with the current business model. Comparatives
for June 2008 have been restated accordingly.
- Absa Wealth was moved from Retail banking to Absa Capital and
Absa Wealth during the period under review.
- Repossessed Properties was moved from Corporate centre to Retail
banking during the period under review.
- Absa Manx Insurance Company Limited was moved from Bancassurance
to Corporate centre during the period under review.
2. The comparative periods include the profit on the VISA IPO shares.
3. Revenue includes net interest income and non interest income.
RECLASSIFICATIONS
GROUP STATEMENT OF FINANCIAL POSITION - 30 JUNE 2008
Reclassification of investments in associates and joint ventures to investments.
30 June 30 June
2008 2008
(Unaudited) (Unaudited)
(As Reclassi-
previously
reported) fications (Restated)
Commentary Rm Rm Rm
Assets
Cash, cash balances and 22 446 22 446
balances -
with central banks
Statutory liquid asset 27 978 - 27 978
portfolio
Loans and advances to banks 61 859 - 61 859
Trading portfolio assets 62 191 - 62 191
Hedging portfolio assets 2 032 - 2 032
Other assets 37 066 - 37 066
Current tax assets 543 - 543
Non-current assets held-
for- 2 254 - 2 254
sale
Loans and advances to 489 319 - 489 319
customers
Reinsurance assets 714 - 714
Investments 1 23 742 648 24 390
Investments in associates
and 1 1 695 (648) 1 047
joint ventures
Intangible assets 331 - 331
Property and equipment 5 270 - 5 270
Deferred tax assets 137 - 137
Total assets 737 577 - 737 577
Liabilities
Deposits from banks 64 259 - 64 259
Trading portfolio 64 256 - 64 256
liabilities
Hedging portfolio 4 815 - 4 815
liabilities
Other liabilities and
sundry provisions 26 220 - 26 220
Current tax liabilities 85 - 85
Deposits due to customers 347 207 - 347 207
Debt securities in issue 160 718 - 160 718
Liabilities under
investment 9 183 - 9 183
contracts
Policyholder liabilities
under 3 070 - 3 070
insurance contracts
Borrowed funds 11 087 - 11 087
Deferred tax liabilities 1 864 - 1 864
Total liabilities 692 764 - 692 764
Equity
Capital and reserves
Attributable to ordinary
equity
holders of the Group:
Share capital 1 353 - 1 353
Share premium 2 356 - 2 356
Other reserves 1 (951) (19) (970)
Retained earnings 1 37 022 19 37 041
39 780 - 39 780
Minority interest - ordinary
shares 389 - 389
Minority interest -
preference shares 4 644 - 4 644
Total equity 44 813 - 44 813
Total equity and liabilities 737 577 - 737 577
GROUP INCOME STATEMENT - 30 JUNE 2008
Reclassification of investments in associates and joint ventures to investments
as well as of profits and losses from financial instruments to interest and
similar income.
Six months Six months
ended ended
30 June 30 June
2008 2008
(Unaudited) (Unaudited)
(As Reclassi-
previously
Reported) fications (Restated)
Commentary Rm Rm Rm
Net interest income 10 220 345 10 565
Interest and similar 2 34 832 345 35 177
income
Interest expense and
similar charges (24 612) - (24 612)
Impairment losses on loans
and advances (2 178) - (2 178)
Net interest income after
impairment losses on loans
and advances 8 042 345 8 387
Net fee and commission 6 007 - 6 007
income
Fee and commission 6 707 - 6 707
income
Fee and commission (700) - (700)
expense
Net insurance premium income 1 710 - 1 710
Net insurance claims and
benefits paid (914) - (914)
Changes in investment and
insurance liabilities 244 - 244
Gains and losses from
banking and trading 1 & 2 1 573 (347) 1 226
activities
Gains and losses from
investment activities 269 - 269
Other operating income 1 141 - 1 141
Operating income before
operating expenditure 18 072 (2) 18 070
Operating expenditure (10 498) - (10 498)
Operating expenses (9 985) - (9 985)
Other impairments (0) - (0)
Indirect taxation (513) - (513)
Share of retained earnings
from associates and joint 1 42 3 45
ventures
Operating profit before
income tax 7 616 1 7 617
Taxation expense 1 (1 994) (1) (1 995)
Profit for the period 5 622 - 5 622
Attributable to:
Ordinary equity holders of
the Group 5 335 - 5 335
Minority interest -
ordinary 67 - 67
shares
Minority interest -
preference shares 220 - 220
5 622 - 5 622
GROUP INCOME STATEMENT - 31 DECEMBER 2008
Reclassification of profits and losses from financial instruments to interest
and similar income.
Year ended Year ended
31 December 31 December
2008 2008
(Audited) (Unaudited)
(As Reclassi-
previously
Reported) fications (Restated)
Commentary Rm Rm Rm
Net interest income 21 795 311 22 106
Interest and similar 2 75 949 311 76 260
income
Interest expense and
similar charges (54 154) - (54 154)
Impairment losses on loans
and advances (5 839) - (5 839)
Net interest income after
impairment losses on loans
and advances 15 956 311 16 267
Net fee and commission 13 343 - 13 343
income
Fee and commission 14 804 - 14 804
income
Fee and commission (1 461) - (1 461)
expense
Net insurance premium income 3 511 - 3 511
Net insurance claims and
benefits paid (1 890) - (1 890)
Changes in investment and
insurance liabilities (70) - (70)
Gains and losses from
banking and trading 2 3 642 (311) 3 331
activities
Gains and losses from
investment activities 1 064 - 1 064
Other operating income 1 515 - 1 515
Operating income before
operating expenditure 37 071 - 37 071
Operating expenditure (21 935) - (21 935)
Operating expenses (21 193) - (21 193)
Other impairments (18) - (18)
Indirect taxation (724) - (724)
Share of retained earnings
from associates and joint 73 - 73
ventures
Operating profit before
income tax 15 209 - 15 209
Taxation expense (3 966) - (3 966)
Profit for the year 11 243 - 11 243
Attributable to: -
Ordinary equity holders of
the Group 10 592 - 10 592
Minority interest - 194 194
ordinary -
shares
Minority interest -
preference shares 457 - 457
11 243 - 11 243
COMMENTARY ON THE 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 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 30% 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 and loss according to
the scope exclusion in IAS 28 Investments in Associates. The following factors
were considered in reclassifying the investments:
- The investments are in start-up ventures with an expectation of capital growth
rather than income return.
- The aim is to generate growth in the medium term in the investments and an
exit strategy is usually defined when the investment is made.
- The investments are typically in businesses unrelated to Absa Bank`s business.
- The investments are managed on a fair value basis.
- The value of the investments reclassified from the investment in associates
category to the unlisted investments category was R648 million.
2. Profits and losses from financial instruments
During 2009 all profits and losses from financial instruments used as part of
the Group`s interest rate risk management strategy have been reclassified to
interest and similar income in line with the Group`s accounting policy in order
to eliminate mismatches experienced on this line. Interest income and expense
for all interest-bearing financial instruments, except for those classified as
held for trading, designated at fair value through profit and loss, or available
for sale (other than financial instruments used to economically hedge the
Group`s interest rate risk), are recognised in "Net interest income" in the
income statement using the effective interest rates of the financial assets or
financial liabilities to which they relate. The value of the profits and losses
reclassified for June 2008 was R345 million (December 2008:R311 million).
PROFIT AND DIVIDEND ANNOUNCEMENT
Salient features
- Revenue increased by 3,6% to R20 981 million
- Cost-to-income ratio improved from 49,3% to 46,6%
- Headline earnings per share declined by 19,4% to 564,4 cents per share
- Earnings per share declined by 38,9% to 482,7 cents per share
- Impairment charge increased by 121,9% to R4 834 million
- Return on average equity (RoE) of 16,4%
- Net asset value per share increased by 15,6% to 6 762 cents per share
- Interim dividend of 225,0 cents per share declared
"The Group`s results reflect the challenging macroeconomic environment. Rising
impairments, margin contraction and a reduction in the value of investment
portfolios have impacted the Group`s performance. Absa, however, remains
profitable and well capitalised. Our customer deposits are growing, costs are
well controlled and fee income continues to grow at a steady pace. In this
environment it is important that we manage our businesses to protect and enhance
our financial performance. Our priorities are therefore to support our
customers, maintain asset quality and improve cost efficiencies."
Group Chief Executive, Maria Ramos
Overview
The Absa Group recorded a decline of 19,1% in headline earnings to R3 826
million for the six months ended 30 June 2009. Headline earnings per share
(HEPS) decreased by 19,4% to 564,4 cents per share and fully diluted HEPS
decreased by 17,4% to 550,5 cents per share.
Attributable earnings declined by 38,7% to R3 272 million. The pronounced
decline in attributable earnings is largely as a result of a once-off gain of
R636 million arising from the Visa Inc initial public offering share allocation,
recorded in the prior period and a R788 million (R1 095 million before tax)
impairment in the value of certain associate investments.
The retail bank recorded a 30,9% decline in earnings as a result of rising
impairments and slowing advances growth. The decline in earnings reflects the
considerable pressure on consumers despite the relief brought about by the 450
basis point reduction in interest rates since December 2008.
The commercial bank experienced a sharp rise in impairments. This was offset by
increased revenues arising from growth in advances, deposits and non-interest
income, which resulted in a 2,6% rise in earnings for the period.
The bancassurance cluster recorded a 4,8% decrease in attributable earnings and
achieved an RoE of 38,3%. Operating income grew by 8,5% as a result of strong
growth in institutional business and short-term insurance. Investment income on
shareholder funds of the bancassurance subsidiaries was, however, adversely
impacted by declining interest rates and volatile equity markets.
Absa Capital and Absa Wealth (1) recorded a significant decline in earnings to
R129 million as a result of the impairment raised against the carrying value of
associate investments. The earnings, excluding this impairment, declined by 9,7%
to R917 million. The Markets(2) business unit continued to show growth while the
Investment Banking(3) business slowed due to reduced client deal flow in debt
markets and advisory services. The value of the private equity portfolio
declined due to the deteriorating macroeconomic environment.
Costs were well contained across the Group, decreasing by 2,0% as operating
efficiency initiatives and cost management measures yielded positive results.
The Group continued to grow its customer deposits, recording a 6,6% increase in
total deposits.
The Group maintained its strong capital position with a Tier 1 capital ratio of
11,5% and total capital ratio of 13,9% as at 30 June 2009; well above the
targets set by the Group board and regulatory requirements.
An interim dividend of 225,0 cents per share was declared, representing a
dividend cover of 2,5 times.
Notes:
1. Absa Wealth is now reported with Absa Capital (previously reported with Absa
Retail). Prior year comparative results have been restated to take account of
this.
2. The Markets business unit - is a combination of the old Secondary Markets
business unit as well as the old Investor Services business unit.
3. Investment Banking refers to the old Primary Markets business unit.
Operating environment
Global economic conditions in the first half of 2009 remained challenging,
despite the significant intervention by policy-makers around the world.
Recessionary conditions and rising levels of unemployment prevailed across many
of the developed markets, while some emerging markets experienced a marked
slowdown in economic activity.
South Africa started to show signs of significant macroeconomic strain. GDP
growth declined by 6,4% (annualised) in the first quarter of 2009, with the
mining and the manufacturing sectors posting particularly sharp falls of 33% and
23%, respectively. The Business Confidence Index, one of the leading indicators
of investment trends for the private sector, reached ten-year lows in the first
half of 2009. Real household disposable income declined 4,5% (annualised) in the
first quarter of the year despite lower inflation. Equity markets and house
prices also fell, lowering household wealth further. In addition, unemployment
continued to rise with data from Statistics South Africa indicating that the
formal non-agricultural economy shed 179 000 jobs in the first quarter of the
year. This contributed to a fall in consumer spending of 4,9% (annualised) in
the first quarter of 2009.
Given the strain experienced by both businesses and households, support for
economic growth during the current year will be largely dependent on the public
sector-led infrastructure programmes. The South African Reserve Bank has reduced
policy rates by 450 basis points since December 2008, contributing to a
reduction in debt-service payments for both households and corporates. This,
together with lower inflation, should provide some relief to consumer budgets.
Household consumption, however, is not expected to rise in the near-term. Rising
unemployment levels, the underutilisation of labour and more prudent credit
lending criteria are likely to result in the continuing deleveraging of the
consumer.
The Group, therefore, expects economic conditions to remain challenging for the
remainder of the year with a slow recovery in the medium term.
Group performance
Balance sheet
The Group`s asset base as at 30 June 2009 increased by 2,3% to R754,3 billion,
largely due to growth in loans and advances to customers and in trading
portfolio assets.
Loans and advances to customers
Loans and advances to customers increased by 6,6% to R521,4 billion. The retail
bank, which constitutes 63,6% of total advances, recorded moderate growth of
3,1%, resulting mainly from reduced demand for credit and prudent lending
criteria.
The commercial bank grew advances by 9,0% to R118,7 billion by increasing the
specialised finance and cheque account portfolios. Prudent risk management
implemented over the six-month period and reduced appetite for credit, however,
resulted in an overall decline in commercial bank advances since December 2008.
Net asset value
The Group`s net asset value per share increased by 15,6% to 6 762 cents per
share from June 2008. The net asset value was positively impacted by surplus
capital generated from net profits after the payment of dividends amounting to
R2 476 million. The increase in the net asset value per share was further
enhanced by an increase in reserves, notably an increase in the cash flow hedge
reserve of R3 562 million since June 2008. Cash flow hedges are implemented by
the Group as part of the interest rate risk management strategy. This, together
with the higher capital level of the Group and lower attributable earnings,
resulted in a lower RoE of 16,4% at 30 June 2009, compared to 24,6% at 30 June
2008.
Capital to risk-weighted assets
During the period under review, the Group preserved its strong capital adequacy
position. As at 30 June 2009, the capital levels of the Group were 10,3% (31
December 2008: 10,3%) at a Core Tier 1 level, 11,5% (31 December 2008: 11,6%) at
Tier 1 level, and total capital of 13,9% (31 December 2008: 14,1%). At 30 June
2009, Absa Bank`s Core Tier 1 ratio and Tier 1 ratio stood at 9,5% and 10,8%
respectively, while its total capital level was at 13,7%.
Additional capital requirements resulting from the deteriorating credit
environment were largely offset by the curtailment in balance sheet growth
during the period under review. Emphasis was, therefore, placed on additional
capital generation and the replacement of maturing capital instruments. In this
regard:
- Absa Bank Limited issued inflation-linked bonds amounting to R3,0 billion,
at an equivalent spread of between 300 - 325 basis points above the three-
month JIBAR rate. These bonds qualify as Tier II capital and were issued to
replace the AB02 bond of R3,1 billion that matured in March 2009; and
- the Group generated additional capital of R0,1 billion, after provision for
a dividend cover of 2,5 times headline earnings per share.
Shareholders approved the realisation and execution of the Batho Bonke Capital
(Proprietary) Limited (Batho Bonke) transaction at its annual general meeting
held on the 21 April 2009.
This was achieved on 1 June 2009 by:
- a specific repurchase and cancellation by Absa of 49,9% of the Group`s
redeemable option-holding preference shares held by Batho Bonke for an
amount of R1 062 million;
- an issue by Absa of approximately 36,6 million ordinary shares arising from
the exercise by Batho Bonke of 50,1% of the options attaching to the
Group`s redeemable option-holding preference shares held by Batho Bonke;
and
- A provision by Absa of a three-month bridging facility (until 1 September
2009) amounting to R1 686 million, thus enabling Batho Bonke to fully
exercise 50,1% of the options.
Batho Bonke is currently in the process of raising third-party funding from a
consortium of institutions to settle the Absa bridging facility. Should Batho
Bonke raise the funding, the bridging facility will be repaid, resulting in a
capital accretion of R1 686 million to the Group. If, however, the funding is
not achieved, the capital position of the Group will remain unchanged.
Income statement
Net interest income
Net interest income increased by 2,0% to R10 772 million, resulting from growth
in total advances and deposits.
The net interest margin on average interest-bearing assets contracted 27 basis
points year-on-year to 3,51%. The contraction in the margin was primarily due
to:
- the extent and speed of interest rate declines, resulting in a repricing
mismatch between prime-linked assets and term-linked liabilities
(predominantly three-month);
- an increase in interest suspended on non-performing loans due to the weaker
economic environment; and
- the increasing cost of wholesale funding as a result of the volatility in
global financial markets.
Non-interest income
Non-interest income increased by 5,4% to R10 209 million. Net fee and commission
income, which constituted approximately 67,6% of non-interest income, grew by
14,9% to R6 903 million as a result of increased fees and transaction volumes in
the retail operations.
The bancassurance gross premium and fee income remained resilient. The
investment business fee income grew by 25,4% supported by higher assets under
management and administration, which grew 23,1% to R144 billion. Short-term and
long-term insurance premiums increased by 8,0% and 10,1% respectively.
Net trading income grew by 28,3% to R1 115 million, reflecting the strong growth
in the Markets business of Absa Capital. This growth was mainly due to the
broadening of the client offering, market volatility and an increase in the
number of significant risk management transactions facilitated for clients. Fee
and other income declined as a result of a lower year-on-year contribution from
the Investment Banking business due to reduced deal flow in debt markets and
advisory services. The slowdown in the macroeconomic environment impacted
valuations of the private equity and infrastructure investments portfolio,
resulting in a R223 million reduction in the value of the portfolio.
Volatile investment markets continued to impact investment income, resulting in
a loss of R67 million related to the listed equity investment portfolio in the
commercial bank and a R106 million gain in investment income on shareholders`
funds for the bancassurance business.
Credit impairments
Credit impairments, as a percentage of average advances, increased to 1,86% from
0,93% in June 2008. The impairment charge to the income statement increased by
121,9% to R4 834 million.
Retail bank and commercial bank impairments increased by 110,0% to R4 204
million and by 197,7% to R524 million respectively. The rise in impairments is
attributed to continued financial distress, experienced by both consumers and
corporates, and declining asset values. The retail and commercial bank continued
to focus on maintaining credit criteria so that acceptable levels of
profitability and asset quality could be retained across all clusters.
Absa Capital and Absa Wealth`s impairments increased to R120 million as a result
of the increase in the probability of default for some corporate clients.
Other impairments
The Group acquired substantial shareholdings in four companies in December 2008
following the failure of a broker client to honour its commitments in respect of
single stock futures transactions. The companies are listed on the JSE
Securities Exchange and the traded price of the shares has declined
significantly in the first half of 2009. Accounting standards require that in
such circumstances consideration should be given to whether the assets should be
impaired.
Management performed a comprehensive review and valuation of each of these
investments. While the valuation took into consideration the challenges faced by
these companies in the current macroeconomic environment, it is not regarded as
an indication of the intrinsic value that may ultimately be delivered to their
shareholders.
An impairment of R1 095 million (pre-tax) has therefore been raised against the
carrying value of these investments.
In the case of the Pinnacle Point Group (PPG), in particular, the carrying value
has been fully impaired. The decision to impair the full carrying value follows
a prudent and considered assessment by the Absa board in light of the capital
raising program that PPG is yet to complete to enable it to continue operations
without undue liquidity constraints. In this regard, the board agreed on 31 July
2009 to increase the Group`s equity investment in PPG by up to a further R220
million, through a new investment of up to R150 million and the conversion of an
existing R70 million debt facility to equity, subject to certain conditions
precedent, including a requirement that PPG is successful in raising at least a
further R100 million of equity from third-party funders.
The provision raised reduces the overall equity exposure relating to these
investments from R1 540 million to R445 million and accordingly reduces the risk
to the future earnings of the Group.
In line with the Group`s approach to extract value from all its asset
portfolios, these investments will be reviewed and managed in the most
appropriate manner in order to realise value for shareholders.
Operating expenses
The cost-to-income ratio improved to 46,6% as income growth exceeded cost
growth.
The continued focus on cost management throughout the Group has resulted in a
marginal 2,0% decrease in operating expenses to R9 782 million. This was
attributed principally to the reduction in staff costs, financial incentives and
limited discretionary spending.
The Group will continue to implement efficiency initiatives and strong cost
management measures during the remainder of the year.
Cluster performance
Retail bank
Attributable earnings for the retail bank declined by 30,9% to R1 336 million as
a result of reduced demand for lending products, rising impairments and prudent
lending criteria. Despite the deteriorating economic environment the retail bank
increased its top-line income by 11,2% and contained cost growth to 1,2%.
Advances grew by a moderate 3,1% due to a decline in both application volumes
and lending approval rates. The acquisition of the Woolworths Financial Services
(Proprietary) Limited (WFS) book in October 2008 contributed to a 38,0% increase
in credit card advances. Secured lending products now comprise 86,5% (June 2008:
87,9%) of the total advances book.
Customer deposits grew 13,6% due to increased investment products and savings
and transmission accounts. The Group retains the largest share of the individual
deposit and advances market in South Africa (4).
The overall interest margin on net assets showed a slight (0,14%) decrease year-
on-year, due primarily to growth in low-margin retail deposits.
Transaction volumes across core products remained moderate during the period
with volumes expanding by 3,01%. The retail bank`s digital channels continued to
record healthy transaction and customer growth. Internet and cellphone banking
transaction volumes increased 16,5% and 9,3% respectively. The number of
Internet banking users increased by 14,6%.
The impairment ratio rose from 1,27% in June 2008 to 2,52% leading to the
impairment charge increasing by 110,0% to R4 204 million. This was mainly due to
higher impairments from Absa Home Loans and Absa Vehicle and Asset Finance which
increased by 143,3% to R2 073 million, and by 67,4% to R678 million,
respectively.
The key risks to the impairment forecasts remain the potential rise in
unemployment and declining house prices. The cluster remains focused on
maintaining acceptable levels of profitability and asset quality. The business
aims to continually monitor and track indications of a sustained improvement to
the health of the consumer balance sheet and will adapt its operating model
accordingly.
Commercial banking
The commercial bank increased its attributable earnings by 2,6% to R1 098
million. Equity market volatility during the period resulted in a decline of R67
million in the value of the listed commercial equity investments, thereby
reducing some of the positive operating performance of the cluster.
Total advances increased by 9,0% year-on-year. However lower demand for credit
and declining approval rates resulted in lower advances growth since December
2008.
The cluster remains focused on growing deposits, which is reflected in the year-
on-year growth of 17,1%. Competition for liquidity in the market remained high,
resulting in downward pressure on deposit margins.
Note:
4. SA market share statistics BA 900 (May 2009)
Customer distress increased during the period particularly in the medium and
large business segments. The impairment charge consequently increased by 197,7%
to R524 million with the impairment ratio increasing to 0,90% from 0,35% in June
2008. During the period under review, further steps were taken to enhance the
monitoring of credit quality, controls and collections.
Non-interest income grew strongly and was underpinned by transaction volume
growth, which increased by 12,0% following a 2,5% increase in customer numbers
and the implementation of improved cash and electronic banking solutions for
customers. Transaction income on cheque and corporate overdraft accounts,
representing 66,0% of fee income, increased by 10,0% and electronic banking
income increased by 22,0%. This was partly offset by a 37,0% and 36,0% decrease
in Commercial Property Finance and Specialised Finance fees due to lower
business volumes.
The commercial bank remains focused on managing rising impairments, increasing
non-interest revenue, and cost control, while maintaining strong credit quality
at adequate returns for the remainder of the year. The cluster will also
continue to enhance the range of corporate and commercial banking products and
specialised services available to customers.
Absa Capital and Absa Wealth
Attributable earnings for Absa Capital and Absa Wealth declined by 87,3% to R129
million. Headline earnings declined by 9,7% to R917 million, from R1 016 million
in June 2008. The difference between the decline in headline and attributable
earnings relates to the R788 million (after tax) impairment raised against the
carrying value of certain associate investments.
The Markets business continued to show strong growth with revenue increasing by
30,4% to R1 651 million. This is attributable to the broadening of the product
offering, market volatility and an increase in the number of significant risk
management transactions facilitated for clients.
The current economic environment has negatively impacted financing product deal
flow. As a result, the revenue of the Investment Banking business during the
period declined by 7,5% to R831 million.
The Private Equity and Infrastructure Investments business unit recorded
negative net revenue of R540 million mainly due to increased funding costs of
R347 million and a decline of R223 million in the value of the portfolio.
Absa Wealth, a business unit aimed at providing a full range of onshore and
offshore wealth management services to the high and ultra-high net-worth market,
was previously reported under the retail cluster and is now included under Absa
Capital. Revenue (net of credit impairments) in Absa Wealth, grew by 8,5%
following strong growth in client balances and improved margins. The value of
client funds under advice increased despite falling equity markets, reflecting
the growth in client numbers and in product improvements. The business continues
to invest in staff, product and infrastructure platforms to drive future growth.
Bancassurance
The bancassurance cluster operating income increased by 8,5% to R845 million for
the period under review. This growth was underpinned by a further rise in
premium and fee income. Investment income on shareholders` funds was adversely
impacted by lower interest rates and continued volatility in the local and
international markets, resulting in a reduction of 32,9% to R106 million.
Attributable earnings declined by 4,8% to R672 million (June 2008: R706
million). The cluster retained its capital efficient and cash generative profile
and achieved an RoE of 38,3% (June 2008: 43,5%).
Assets under management and administration in the investment business increased
by 23,1% to R144 billion. Total net inflows amounted to R25,0 billion, supported
by the acquisition of significant institutional mandates during the period under
review. This contributed to the increase of 25,4% in fee income. New retail
business volumes into non-money market funds remained under pressure. The
cluster`s investment process continues to yield positive results and a number of
Absa unit trusts are rated in the first quartile over one and three-year
periods.
Absa Life`s gross premium income increased by 10,1% to R619 million (June 2008:
R562 million), despite a slowdown in new credit granted by the retail bank. The
embedded value of new business increased by 21,5% to R164 million (June
2008:R135 million) as a result of the continued diversification to stand-alone
risk products for the affluent customer segment as well as protection solutions
for the entry-level market. Embedded value earnings of R149 million to June 2009
represents a return on embedded value of 14,7% (June 2008: 22,1%).
Short-term Insurance gross premium income increased by 8,0% to R1 358 million
(June 2008: R1 257 million). The impact of adverse weather conditions and
increases in fire-related claims on the commercial property portfolio
contributed to the deterioration of the loss ratio from 62,4% to 64,2%.
Stringent risk selection methodology and cost efficiency, assisted by good
underwriting performance in the crop insurance book, resulted in an overall
underwriting margin of 11,6% (June 2008: 11,5%).
The employee benefits business operating earnings grew by 23,5%, supported by
the six-month contribution of the acquisitions completed in the prior year. The
trust business operating income experienced negative growth of 17,8% due to
declining asset values of estates and trusts under administration.
The distribution business experienced difficult operating conditions and
deteriorating lapse ratios were experienced specifically in the recurring
premium-saving business.
The bancassurance business continues to focus on further leveraging the Group`s
infrastructure and customer base to improve cross-selling ratios, while also
ensuring capacity to diversify income streams and to improve customer and asset
retention.
Prospects and strategic focus
The economy is unlikely to record positive growth for the current financial
year. Interest rate declines should bring about relief to households and
corporates. Consumption, however, is likely to remain constrained as a result of
the continued effects of consumer deleveraging. Global recessionary conditions,
deteriorating household wealth and weak employment prospects remain significant
risks to an economic recovery in the near-term whilst market sentiment is likely
to remain fragile.
Business volumes are, therefore, likely to show limited growth. Arrears and non-
performing loans are expected to continue rising. Margins are expected to remain
under pressure due to the continued higher cost of funding.
The Group has implemented comprehensive measures to protect future earnings. A
disciplined approach to risk and cost management will remain a priority. The
Group also remains focussed on maintaining asset quality while, at the same
time, being actively alert and seeking opportunities to lend where signs of
recovery are evident. The Group is committed to supporting its customers by
strengthening relationships during these challenging times.
In the light of the challenging macroeconomic environment, the Group`s
performance for the year ending December 2009 is expected to remain under
pressure.
Basis of presentation and changes in accounting policy
The Absa Group interim results have been prepared in accordance with
International Financial Reporting Standards (IFRS). The disclosures comply with
International Accounting Standard (IAS) 34.
The accounting policies applied in preparing the financial results for the six
months ended 30 June 2009 are the same as the accounting policies in place for
the year ended 31 December 2008, with the exceptions mentioned below.
The following amendments to published standards affected the Group during the
period:
Revised IAS 1 Presentation of Financial Statements (2007) introduces the term
`total comprehensive income`, which represents changes in equity during a period
other than those changes resulting from transactions with owners in their
capacity as owners. Total comprehensive income may be presented in either a
single statement of comprehensive income (effectively combining both the income
statement and all non-owner changes in equity in a single statement), or in an
income statement and a separate statement of comprehensive income. The amendment
also requires two sets of comparative numbers to be provided for the financial
position in any year where there has been a restatement or reclassification of
balances. Revised IAS 1, which became mandatory for the Group`s 2009
consolidated financial statements, will not affect the financial position or
results of the Group but has introduced some changes to the presentation of the
consolidated financial statements.
Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and
requires that an entity capitalise the borrowing costs directly attributable to
the acquisition, construction or production of a qualifying asset as part of the
cost of that asset. The revised IAS 23 became mandatory for the Group`s 2009
consolidated financial statements and will constitute a change in accounting
policy for the Group. In accordance with the transitional provisions, the Group
has applied the revised IAS 23 to qualifying assets for which capitalisation of
borrowing costs commenced on or after the effective date 1 January 2009. There
will, therefore, be no impact on prior periods in the Group`s 2009 consolidated
financial statements. The standard did not have a material impact on the current
period`s results.
The following reclassifications have been effected to the Group`s prior year
disclosures:
Gains and losses from financial instruments, used as part of the Group`s
interest rate management, have been reclassified to net interest income from
gains and losses from banking and trading activities, in line with the Group`s
accounting policy. This reclassification eliminates mismatches previously
experienced between these two income statement lines.
During the 2007 financial year, the commercial bank commenced with investments
in unlisted Commercial Property Finance related entities. The investment
portfolio was classified as `investments in associates` as the equity
investments generally ranged 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 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 `investments in
associates` category to the `unlisted investments` category as at 30 June 2008
was R648 million.
Declaration of interim ordinary dividend number 46
Shareholders are advised that an interim ordinary dividend of 225,0 cents per
ordinary share was declared today, Monday, 3 August 2009. The interim ordinary
dividend is payable to shareholders recorded in the register of members of the
Group at the close of business on Friday, 28 August 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, 21 August 2009
Shares commence trading ex dividend Monday, 24 August 2009
Record date Friday, 28 August 2009
Payment date Monday, 31 August 2009
Share certificates may not be dematerialised or rematerialised between Monday,
24 August 2009, and Friday, 28 August 2009, both dates inclusive.
On Monday, 31 August 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 31 August 2009 will be posted on or about
that date. The accounts of those shareholders who have dematerialised their
shares (which are held at their participant or broker) will be credited on
Monday, 31 August 2009.
On behalf of the board
S Martin
Group Secretary
Johannesburg
3 August 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
Nerina Bodasing
Head: Investor Relations
Absa Group Limited
3rd Floor, Absa Towers East, 170 Main Street, Johannesburg
Tel: +2711 350-2598, Fax: +2711 350-5924
E-mail: Nerina.Bodasing@absa.co.za
Sponsor
JP Morgan Equities Limited
Date: 03/08/2009 07:30:08 Produced by the JSE SENS Department.
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