| Mon 23 Nov 2009, 7:05 | | ABL/ABLP - ABIL - Reviewed results for the twelve months ended 30 September 2009 |
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ABL ABLP
ABL
ABL/ABLP - ABIL - Reviewed results for the twelve months ended 30 September 2009
and cash dividend declarations
African Bank Investments Limited
(Registration Number 1946/021193/06)
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
Ordinary Share Code: ABL ISIN: ZAE000030060
Preference Share Code: ABLP ISIN: ZAE000065215
("ABIL" or "the Company" or "the group")
REVIEWED RESULTS FOR THE TWELVE MONTHS ENDED 30 SEPTEMBER 2009 AND CASH DIVIDEND
DECLARATIONS
FEATURES
* Headline earnings of R1,8 billion, flat compared to 2008
* Headline earnings per share declined by 11% to 225,2 cents per share
(2008: 252,1 cents per share)
* Dividends per share declined by 12% to 185 cents per share
(2008: 210 cents per share)
* Full year sales and advances growth moderated by tighter underwriting
criteria
* Ellerines impacted by lower sales
* Tight cost control and steady credit quality provide stability across *
African Bank Limited ("African Bank") and Ellerines
* Substantially expanded funding base and cash reserves provide platform for
growth
* African Bank credit model rolled out to more than 600 Ellerines stores
*Comparatives for 2008 are based on the adjusted earnings pre the one off BEE
charge
OVERVIEW
The 2009 financial year represents an important milestone for ABIL. Faced with
a deteriorating local economy and volatile capital markets, the group`s risk
mitigation strategies were tested to the full. In particular, the `realtime`
view of the key operating metrics of the business enabled a rapid response to
negative external developments, and in this context the financial results,
whilst below expectations, reflect the underlying stability of the business as a
whole.
The year commenced against the backdrop of an emerging global financial crisis.
Within the domestic economy, while the unsecured credit market remained
initially stable, demand for durable and semi-durable goods had already begun to
weaken. African Bank`s sales in the first quarter increased by 17%, whilst
Ellerines sales declined by 24%, the latter exacerbated by significant store
closures, stricter underwriting disciplines and the high base of the previous
year.
By the start of the second quarter it became apparent that the domestic economy
was weakening rapidly and that longer term liquidity was becoming scarcer. As a
result, African Bank tightened underwriting criteria, particularly in the
vulnerable customer and market segments, which resulted in a slowdown of sales
for the remainder of the year. At the same time, Ellerines sales volumes
continued to remain relatively depressed.
African Bank`s credit quality was affected by the weakening economy and its
increased sales towards the end of 2008 into sectors of the economy that
subsequently became most affected by the downturn, notably retail, manufacturing
and mining. Credit vintages began to rise above the upper end of the historic
range (particularly from the high sales recorded during the period from June
2008 to December 2008). This led to a higher than expected emergence of non-
performing loans on which provisions were raised. Increasing retrenchment
claims resulted in net assurance income being negatively affected during the
year.
The impact of the weakening trading environment on Ellerines` credit quality was
less marked, given that Ellerines had already implemented a substantial
tightening of its credit criteria in early 2008. In the second half of the
financial year in particular, Ellerines benefitted from sharply lower
provisioning requirements.
The implementation of enhanced collection scorecards and strategies during the
year resulted in improved collections across both African Bank and Ellerines,
particularly within the previously written off book, and this to some extent
mitigated the bad debt charge. As business volumes slowed, renewed focus was
placed on cost control, and this resulted in costs for the year being lower than
the internal targets set at the start of the year.
Liquidity management received particular attention during the current year. At
the beginning of 2009 there was a marked reduction in available liquidity in the
market as investors became risk averse and favoured short-term instruments.
During this period African Bank benefited from longstanding relationships with
existing funders and a broadening of its sources of funding, which together with
a stable credit rating resulted in a number of significant funding transactions
being concluded. As a result, cash reserves in African Bank improved to R4.6
billion by the year end and reliance on short term funding was reduced
substantially. However, as a consequence of these strategies, average funding
costs within African Bank rose by 80 basis points during the current year.
As the year drew to a close, a general improvement in economic outlook together
with further refinement of underwriting and collection methodologies implemented
during the year and a stronger liquidity position, prompted a renewed focus on
growing the group`s active customer base.
Ellerines made substantial progress with its initiatives to restructure the
retail business. Its brand consolidation, footprint optimisation and improved
merchandising strategies reduced the cost base by 9% for the year and
significantly improved the customer proposition in terms of affordable pricing,
attractiveness of its stores and quality of merchandise, amongst others.
Strategically, the integration of Ellerines` financial services activities into
African Bank gained significant momentum during the year. Following the pilot
phase of this initiative, a decision was taken in the third quarter to implement
the African Bank front end credit origination platform across 613 Ellerines`
branded stores, a process which was completed in October 2009. The conversion
of the balance of the stores is due to be completed by September 2010, at which
point Ellerines in the domestic market, will be constituted as a cash retailer,
with credit and related financial services products provided to its customers by
African Bank on an arm`s length basis. It is the intention that African Bank
will then be in a position to provide a broader range of products to a much
wider segment of the domestic market, with positive implications for the group`s
medium term growth objectives.
CONSOLIDATED GROUP RESULTS FOR THE TWELVE MONTHS ENDED 30 SEPTEMBER 2009
The African Bank business unit was able to grow its customer franchise and build
further on its financial performance of recent years. African Bank increased
headline earnings by 6% to R1 525 million (2008: R1 442 million). It generated a
RoA of 7.7% which together with increased gearing of 7 times contributed to a
strong RoE of 53.6%.
Ellerines reported headline earnings of R285 million, a decline of 23% from the
R368 million reported for the nine month period ended September 2008. The
business generated a RoE of 6.6% for the period.
At the ABIL group level, the consolidation of these two businesses resulted in
headline earnings in 2009 of R1.8bn, flat relative to the earnings in 2008.
Headline earnings per share declined by 11% to 225.2 cents, as a result of the
full year weighting of shares issued to acquire Ellerines, and the RoE declined
to 15.2% (2008: 19.5%).
Net asset value per share increased by 2% to 1 515 cents (2008: 1 484c), while
tangible NAV per share increased by 6% to 721 cents.
African Bank`s economic profit was flat at R1 070 million while Ellerines
incurred a R410 million economic loss, based on its internal capital, and an
additional charge of R755 million was incurred on the goodwill component of the
Ellerines purchase consideration. This resulted in the ABIL group generating a
net economic loss of R95 million, relative to an economic profit of R323 million
for the twelve months to September 2008.
DIVIDENDS AND DIVIDEND COVER
ABIL has declared a final dividend of 100 cents per ordinary share, (H2 2008:
105 cents per share), bringing the total dividend for the year to 185 cents, a
decline of 12% over the previous year. The ordinary dividend cover remained
steady at 1.2 times, representing a payout ratio of 82% of headline earnings per
share. As previously communicated, it is anticipated that the dividend cover
will rise to approximately 1.5 times by 2011, in order to support the growth at
African Bank and Ellerines.
The group has also declared a final preference share dividend of 367 cents per
share, bringing the total preference share dividend for the year to 842 cents
per share.
MANAGEMENT RESTRUCTURE
Dave Woollam, the existing MD of the African Bank business unit, has made a
personal decision to step aside from this position and has asked to be allowed
to revert to focussing on a portfolio of specialist group functions.
Accordingly, Leon Kirkinis will reassume his previous position as CEO of both
ABIL and African Bank. Dave Woollam, who remains an executive director of ABIL
and African Bank, will focus his efforts on strategic finance issues, capital
and liability management as well as working closely with Gordon Schachat
(Executive Deputy Chairman) on new growth opportunities.
The remaining executive directors, Toni Fourie (CEO Ellerines), Tami Sokutu
(Group Risk Officer) and Nithia Nalliah (Chief Financial Officer) retain their
existing responsibilities.
CHANGES TO THE BOARD OF DIRECTORS AND COMPANY SECRETARY DURING THE PERIOD
ABIL has an approved term limit policy in respect of its board of directors,
whereby the chairman`s service tenure is limited to a maximum of ten years and
other non-executive directors to a maximum of six years with an optional two
year extension. In terms of this policy, Ashley Mabogoane, non-executive
chairman, reached his term limit and therefore resigned from the boards of both
ABIL and African Bank with effect from 1 April 2009.
The board appointed Mutle Mogase as Non-Executive Chairman of ABIL and African
Bank Limited. Mutle was appointed to both boards during March 2007, and his
appointment as non-executive chairman took effect from 1 April 2009.
The group chief financial officer, Nithia Nalliah, was appointed on 5 May 2009
as ABIL`s group finance director, and executive director of African Bank.
Bahle Goba and Brian Steele also reached their term limits and therefore
resigned their positions as non-executive directors from the boards of both ABIL
and African Bank ("the boards") with effect from 21 May 2009. Two new
independent non-executive directors, Robert Symmonds and Samuel Sithole, joined
the boards with effect from 21 May 2009.
Craig Brighten resigned as Company Secretary of ABIL and African Bank Limited
with effect from 29th May 2009. Yashmita Mistry has been appointed as company
secretary to African Bank Investments Limited, African Bank Limited and Ellerine
Holdings Limited with effect from 5 August 2009.
LOOKING AHEAD
ABIL begins the new financial year with a renewed emphasis on growth, given
increasing stability in the external trading environment and far more settled
management and operational structures in Ellerines.
Within African Bank, the group expects a steady financial performance over the
next year, driven by a further growth in customers, relatively stable income
yields, improving asset quality, further gains in operating cost absorption and
a decline in funding rates.
Ellerines similarly is expected to benefit from these factors, and in addition
should start to see a gradual recovery in consumer demand and the positive
impact of the repositioning of its retail activities and its new pricing
proposition.
At its core, our vision is to enable customers to improve their lives through
access to unsecured credit. Growing to critical mass, with the scale benefits
that this brings, is central to this vision and the acquisition of Ellerines has
opened up several significant opportunities in this regard. We fully intend to
exploit these opportunities in the years ahead, for the benefit of our loyal and
growing customer base.
REVIEW REPORT
These results which cover the condensed consolidated balance sheet, income
statement, statement of changes in equity, cash flow statement, segmental
balance sheet and explanatory notes have been reviewed by the group`s auditor`s,
Deloitte & Touche, and their unmodified review report is available for
inspection at the Company`s registered office.
GROUP ACCOUNTING POLICIES AND BASIS OF PREPARATION
These condensed group consolidated financial statements have been prepared in
compliance ce with International Accounting Standards (IAS) 34 Interim Financial
Reporting; the South African Companies Act (Act 61 of 1973), and Listing
Requirements of the JSE Limited.
The accounting policies are consistent with those applied in the previous year
and are in accordance with the requirements of International Financial Reporting
Standards (IFRS) and interpretations issued by the International Financial
Reporting Interpretations Committee (IFRIC) of the International Accounting
Standards Board. No new or amended standards and interpretations have been
adopted during the financial year.
IFRS 3 BUSINESS COMBINATIONS AND RESTATEMENT OF COMPARATIVES
As a result of the adjustment to the fair value of Ellerines advances, in terms
of IFRS 3 Business Combinations, affected at interim reporting period, the
comparatives for September 2008 have been restated to reflect the effects of the
adjustment, specifically the net advances, gross advances, deferred tax asset
and goodwill.
The final fair value adjustment has been necessitated as a result of there not
being sufficient data available at date of acquisition and 30 September 2008
upon which ABIL could have more accurately projected the expected performance of
the advances book, in particular, the loans written during June to December
2007.
In addition, the comparatives in the cash flow statement have been restated, at
the interim reporting period, as a result of reclassifying the short-term
funding in Ellerines to more accurately reflect the nature of the funding which
was previously reported as "bank overdrafts" of R844 million at 30 September
2008.
Finally, the group previously showed the net fair value of written off loans as
a reduction in the impairment provision rather than as part of gross advances.
We have revised this practice during the current year by disclosing this value
within gross advances and accordingly have restated the comparatives by
increasing gross advances and provisions by R280 million respectively.
GOODWILL AND INTANGIBLE ASSETS ON ACQUISITION OF ELLERINE HOLDINGS LIMITED
The carrying value of goodwill at 30 September 2009 has been tested for possible
impairment based on projected earnings prepared in terms of a five year plan.
The goodwill allocated to each cash generating unit has been re allocated within
the brands in terms of IAS 36 Impairment of Assets, which provides for a re
allocation by no later than 30 September 2009 in circumstances where the initial
allocation was made provisionally. There is no impairment of the goodwill
allocated to any brand/market position and this will be tested annually.
Similarly, the valuation of the brands has been tested on a value in use method
and all brands are still in use with their original useful lives remaining
unaltered.
CASH DIVIDEND DECLARATIONS
Ordinary shares Preference shares
Share code ABL ABLP
ISIN ZAE000030060 ZAE000065215
Dividend number 18 10
Dividends per 100 cents 367 cents
share (cash
dividends)
Declaration date Monday, 23 November Monday, 23 November
2009 2009
Last date to trade Thursday,10 December Thursday, 10 December
cum-dividend 2009 2009
Shares commence Friday, 11 December Friday, 11 December
trading ex- 2009 2009
dividend
Record date Friday, 18 December Friday, 18 December
2009 2009
Dividend payment Monday, 21 December Monday, 21 December
date 2009 2009
Share certificates may not be dematerialised or rematerialised between Friday,
11 December 2009 and Friday, 18 December 2009, both days inclusive.
On behalf of the board
Mutle Mogase, Chairman
Gordon Schachat, Executive deputy chairman
Leon Kirkinis, Chief executive officer
Midrand
23 November 2009
Board of directors
MC Mogase (Chairman), G Schachat (Deputy Chairman)*, L Kirkinis (CEO)*, N
Adams, A Fourie*, DB Gibbon, N Nalliah*, MEK Nkeli, S Sithole, TM
Sokutu*, RJ Symmonds, A Tugendhaft, DF Woollam*
*Executive
Group Secretary
Y Mistry
SEGMENTAL ANALYSIS
The ABIL business is currently being managed in terms of two segments, the
African Bank and Ellerines business units. The revenue, operating profit/(loss)
and net operting assets are disclosed below.
Segmental summary
R million
Revenue Operating Net operating
profit/(loss) assets
Year ended 30 Year ended 30 Year ended 30
Sep Sep Sep
2009 2008 2009 2008 2009 2008
Banking business 7 407 6 019 2 314 2 259 3 802 3 129
unit
Ellerines 6 964 5 511 476 524 3 959 4 626
Sub total 14 371 11 530 2 790 2 783 7 761 7 755
Inter segmental (39) (3)
Taxation (935) (932)
Broad based black 0 (291)
economic
empowerment charge
Goodwill 4 717 4 717
Total group 14 332 11 527 1 855 1 560 12 478 12 472
ABIL group condensed consolidated income statement
for the 12 months ended 30 September 2009
ABIL ABIL *
consolidated consolidated
reviewed 12 audited 12
months to months to
R million % 30 Sept 30 Sep 2008
change 2009
Revenue 24% 14,332 11,527
Gross margin on 36% 1,791 1,313
retail business
Interest income on 27% 5,437 4,285
advances
Net assurance income 2% 2,081 2,045
Non-interest income 27% 2,251 1,768
Income from 23% 11,560 9,411
operations
Charge for bad and 35% (2,511) (1,856)
doubtful advances
Risk-adjusted income 20% 9,049 7,555
from operations
Other interest and 7% 367 342
investment income
Interest expense 54% (2,025) (1,313)
Operating costs 23% (4,576) (3,734)
BEE charge (100%) 0 (291)
Indirect taxation: (68%) (18) (56)
VAT
Profit from 12% 2,797 2,503
operations
Capital items (36%) (7) (11)
Profit before 12% 2,790 2,492
taxation
Direct taxation: STC 7% (159) (149)
Direct taxation: (1%) (776) (783)
Normal
Profit for the 19% 1,855 1,560
period
Reconciliation of
headline earnings
Profit for the 19% 1,855 1,560
period
Less preference 6% (52) (49)
shareholders`
dividend
Basic earnings 19% 1,803 1,511
attributable to
ordinary
shareholders
Adjustments for non-
headline items:
Capital items (36%) 7 11
Tax thereon (100%) 0 (3)
Headline earnings 19% 1,810 1,519
Adjustment for BEE (100%) - 291
charge
Headline earnings (0%) 1,810 1,810
before BEE charge
Basic, fully diluted Reviewed 30 Audited 30
and headline Sep 2009 Sep 2008
earnings per share
Number of shares in million 803.7 803.7
issue (net of
treasury)
Weighted number of million 803.7 717.9
shares in issue
Fully diluted number million 803.8 718.0
of shares in issue
Basic earnings per cents 7% 224.3 210.5
share
Fully diluted basic cents 7% 224.3 210.4
earnings per share
Headline earnings cents 6% 225.2 211.6
per share
Fully diluted cents 6% 225.1 211.6
headline earnings
per share
* ABIL Consolidated consists of 12 months African Bank business unit and 9
months Ellerines Group
ABIL group condensed consolidated balance sheet
as at 30 September 2009
ABIL ABIL *
consolidated consolidated
reviewed audited
R million % 30 Sept 2009 30 Sep 2008
change
Assets
Short-term deposits and cash 19% 3 553 2 984
Statutory assets - bank and (5%) 1 323 1 396
insurance
Inventories 12% 859 767
Other assets 151% 357 142
Taxation 150% 20 8
Net advances 25% 20 486 16 452
Deferred tax asset 8% 501 464
Assets held for sale (16%) 181 215
Policyholders` investments (21%) 15 19
Property and equipment 18% 586 496
Intangible assets (7%) 906 978
Goodwill 0% 5 472 5 472
Total assets 17% 34 259 29 393
Liabilities and equity
Short-term funding (26%) 3 108 4 219
Other liabilities 2% 1 363 1 332
Taxation (68%) 77 238
Deferred tax liability (10%) 265 294
Liabilities held for sale (32%) 25 37
Life fund reserve (17%) 15 18
Bonds and other long-term funding 42% 14 705 10 332
Subordinated bonds 300% 2 044 511
Total liabilities 27% 21 602 16 981
Ordinary shareholders` equity 2% 12 174 11 929
Preference shareholders` equity 0% 483 483
Total equity (capital and 2% 12 657 12 412
reserves)
Total liabilities and equity 17% 34 259 29 393
* ABIL Consolidated comparatives for advances, deferred tax and
goodwill have been adjusted for the changes in Ellerines fair
valuation of advances at acquisition
ABIL group condensed consolidated statement of changes in equity
for the 12 months ended 30 September 2009
Ordinary shares
R million Share Distri- Share-based
capital butable payment
and reserves reserve
premium
Balance at 30 September 2007 12 2,173 316
Issue of ordinary shares 9139
Dividends paid 0 (1,479) 0
Shares purchased into the 0 0 0
ABIL Employee Share Trust
less shares issued to
employees (cost)
Loss incurred on group 0 (3) 0
employees acquiring ABIL
Employee Share Trust shares
less dividends received
IFRS 2 reserve transactions 0 0 (21)
(employee share options)
IFRS 2 reserve transactions 0 0 291
(BEE transaction)
Movement in cash flow hedge 0 0 0
reserve
Transfer to insurance 0 (1) 0
contingency reserve
Exchange differences on 0 0 0
translating foreign
operations
Profit for the period 0 1,511 0
Balance at 30 September 2008 9,151 2,201 586
(audited)
Dividends paid 0 (1,528) 0
Loss incurred on group 0 2 0
employees acquiring ABIL
Share Trust shares less
dividends received
IFRS 2 reserve transactions 0 0 11
Movement in cash flow hedge 0 0 0
reserve
Transfer to insurance 0 (42) 0
contingency reserve
Exchange differences in 0 0 0
translating foreign
operations
Profit for the period 0 1,803 0
Balance at 30 September 2009 9,151 2,436 597
(reviewed)
R million Preference
share
capital and
Other premium Total
Balance at 30 September 2007 (19) 483 2,965
Issue of ordinary shares 9,139
Dividends paid 0 (49) (1,528)
Shares purchased into the 6 0 6
ABIL Employee Share Trust
less shares issued to
employees (cost)
Loss incurred on group 0 0 (3)
employees acquiring ABIL
Employee Share Trust shares
less dividends received
IFRS 2 reserve transactions 0 0 (21)
(employee share options)
IFRS 2 reserve transactions 0 0 291
(BEE transaction)
Movement in cash flow hedge (14) 0 (14)
reserve
Transfer to insurance 1 0 0
contingency reserve
Exchange differences on 17 0 17
translating foreign
operations
Profit for the period 0 49 1,560
Balance at 30 September 2008 (9) 483 12,412
(audited)
Dividends paid 0 (52) (1,580)
Loss incurred on group 0 0 2
employees acquiring ABIL
Share Trust shares less
dividends received
IFRS 2 reserve transactions 0 0 11
Movement in cash flow hedge (18) 0 (18)
reserve
Transfer to insurance 42 0 0
contingency reserve
Exchange differences in (25) 0 (25)
translating foreign
operations
Profit for the period 0 52 1,855
Balance at 30 September 2009 (10) 483 12,657
(reviewed)
Notes
1. Treasury shares 30 Sept 2009 30 Sept 2008
Treasury shares at cost R million 13 13
Number of shares held million 0.5 0.5
Average cost per share Rand 26.96 26.73
2. Number of ordinary shares at 30 September 2009
Total Weighted Diluted
Number of shares in issue 804,175,200 804,175,200
at the beginning of the 804,175,200
year
Treasury shares on hand (482,254) (484,873) (484,873)
Dilution as a result of 0 0 76,865
outstanding options
803,692,946 803,767,192
803,690,327
ABIL group condensed consolidated cash flow statement
for the 12 months ended 30 September 2009
ABIL ABIL
consolidated consolidated
reviewed 12 audited 12
months to months to
R million 30 Sept 2009 30 Sep 2008
Cash generated from operations 6,026 5,320
Cash received from lending and 14,756 11,593
insurance activities and cash
reserves
Recoveries on advances previously 172 241
written off
Cash paid to funders, staff, (8,902) (6,514)
suppliers and insurance beneficiaries
(Increase) \ decrease in gross (6,918) (6,116)
advances
Increase \ (decrease) in working (62) (546)
capital
(Increase)/ decrease in inventories (89) 35
Increase in other assets (40) 52
Increase/ (decrease) in other 67 (633)
liabilities
Indirect and direct taxation paid (1,192) (970)
Cash inflow \ (outflow) from equity 1 2
accounted incentive transactions
Cash (outflow) \ inflow from (2,145) (2,310)
operating activities
Cash (outflow) \ inflow from (399) (444)
investing activities
Acquisition of property and equipment (289) (197)
(to maintain operations)
Disposal of property and equipment 18 20
Direct costs relating to the 0 (26)
acquisition of Ellerine Holdings
Limited
Other investing activities (128) (241)
Cash (outflow) \ inflow from 3,068 3,621
financing activities
Cash inflow from funding activities 4,648 5,149
Preference shareholders` payments and (52) (49)
transactions
Ordinary shareholders` payments and (1,528) (1,479)
transactions
Increase \ (decrease) in cash and 524 867
cash equivalents
Cash and cash equivalents at the 3,472 2,094
beginning of the period
Cash and cash equivalents acquired on 0 511
acquisition of EHL
Cash and cash equivalents at the end 3,996 3,472
of the period
Made up as follows:
Short-term deposits and cash 3,553 2,984
Statutory cash reserves - insurance 443 488
3,996 3,472
For more detailed information on ABIL`s results, please refer to the investor
zone on our website, at www.abil.co.za
Sponsor
RAND MERCHANT BANK (A division of Firstrand Bank Limited)
Date: 23/11/2009 07:05:03 Produced by the JSE SENS Department.
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