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ASA
AMAGB
ASA - Absa Group - Profit and Dividend Announcement Audited Financial Results
for the Year Ended 31 December 2009
ABSA GROUP LIMITED
Authorised financial services and credit provider (NCRCP7)
Incorporated in the Republic of South Africa
Registration number: 1986/003934/06
ISIN: ZAE000067237
JSE share code: ASA
Issuer code: AMAGB
(Absa, Absa Group or the Group)
Absa Group Limited: Profit and Dividend Announcement Audited Financial Results
for the Year Ended 31 December 2009
GROUP SALIENT FEATURES
Year ended
31 December
2009 20081 Change
(Audited) (Audited) %
Statement of comprehensive
income(Rm)
Headline earnings(2) 7 621 9 965 (23,5)
Profit attributable to (35,9)
ordinary 6 840 10 666
equity holders of the Group
Statement of financial
position(Rm)
Total assets 717 740 774 157 (7,3)
Loans and advances to 503 630 532 144 (5,4)
customers
Deposits due to customers 350 757 382 281 (8,2)
Off-balance sheet(Rm)
Managed funds 155 114 125 100 24,0
Financial performance(%)
Return on average equity 15,5 23,4
Return on average assets 1,02 1,38
Operating performance(%)
Net interest margin on 2,92 3,06
average
assets
Net interest margin on 3,74 3,81
average
interest-bearing assets
Impairment losses on loans 1,74 1,19
and
advances as % of average
loans and
advances to customers
Non-performing advances as % 7,0 4,1
of
loans and advances to
customers3
Non-interest income as % of
total 48,1 48,5
operating income
Cost-to-income ratio 49,6 49,2
Effective tax rate, excluding 23,8 26,1
indirect taxation
Share statistics(million)
Number of shares in issue 718,2 680,3
Weighted average number of 693,2 675,7
shares
Weighted average diluted 711,5 702,8
number of
shares
Share statistics(cents)
Earnings per share 986,7 1 578,5 (37,5)
Diluted earnings per share 962,2 1 519,9 (36,7)
Headline earnings per share 1 099,4 1 474,8 (25,5)
Diluted headline earnings per 1 072,0 1 420,2 (24,5)
share
Dividends per ordinary share 445,0 595,0 (25,2)
relating to income for the
year
Dividend cover(times) 2,5 2,5
Net asset value per share 7 038 6 998 0,6
Tangible net asset value per 6 865 6 857 0,1
share
(Unaudited) (Unaudited)
Capital adequacy(%)
Absa Bank 14,7 14,0
Absa Group 15,6 14,1
Notes
(1) Refer to the "Reclassifications and Restatements" section for the
restated and reclassified prior year figures.
(2) After allowing for R 421 million (December 2008: R457 million) profit
attributable to
preference equity holders of the Group.
(3) The comparative has been restated for the change in the NPL definition
from 4+payments down and legal to 3+payments down and legal.
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Net interest income 21 854 22 106 (1,1)
Interest and similar income 65 247 76 260 (14,4)
Interest expense and similar
charges (43 (54 154) 19,9
393)
Impairment losses on loans and
advances (8 (5 839) (53,6)
967)
Net interest income after
impairment losses on loans and 12 16 267 (20,8)
advances 887
Net fee and commission income 14 13 343 7,1
289
Fee and commission income 16 15 064 8,2
1.1 301
Fee and commission expense (2 (1 721) (16,9)
012)
Net insurance premium income 3 3 511 7,9
787
Net insurance claims and
benefits paid (2 (1 890) (17,2)
215)
Changes in investment and
insurance liabilities (70) >(100,0)
(560)
Gains and losses from banking
and trading activities 2 575 3 331 (22,7)
1.2
Gains and losses from
investment activities 1 464 1 064 37,6
1.3
Other operating income 892 1 532 (41,8)
Operating profit before
operating expenditure 33 119 37 088 (10,7)
Operating expenditure (23 227) (21 856) (6,3)
Operating expenses 2.1 (20 857) (21 114) 1,2
Other impairments 2.2 (1 457) (18) >(100,0)
Indirect taxation (913) (724) (26,1)
Share of retained
(losses)/earnings from (50) 73 >(100,0)
associates and joint ventures
Operating profit before income 9 842 15 305 (35,7)
tax
Taxation expense (2 340) (3 988) 41,3
Profit for the year 7 502 11 317 (33,7)
GROUP STATEMENT OF COMPREHENSIVE INCOME (CONTINUED)
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Other comprehensive income
Exchange differences on translation
of foreign operations (668) 241 >(100,0)
Movement in cash flow hedging reserve (665) 2 660 >(100,0)
Fair value (losses)/gains arising
during the year (148) 2 054 >(100,0)
Amount removed from other
comprehensive income and recognised
in the profit and loss component of
the statement of comprehensive income
(776) 1 636 >(100,0)
Deferred tax 259 (1 030) >100,0
Movement in available-for-sale
reserve (326) (89) >(100,0)
Fair value losses arising during the
year (306) (240) (27,5)
Amount removed from other
comprehensive income and recognised
in the profit and loss component of
the statement of comprehensive income
(205) - (100,0)
Amortisation of government bonds -
release to the profit and loss
component of the statement of
comprehensive income 104 85 22,4
Deferred tax 81 66 22,7
Movement in retirement benefit assets
and liabilities 52 190 (72,6)
Increase in retirement benefit
surplus 104 252 (58,7)
(Increase)/decrease in retirement
benefit obligations (33) 14 >(100,0)
Deferred tax (19) (76) 75,0
Total comprehensive income for the
year 5 895 14 319 (58,8)
Profit attributable to:
Ordinary equity holders of the Group 6 840 10 666 (35,9)
Minority interest - ordinary shares 241 194 24,2
Minority interest - preference shares 421 457 (7,9)
7 502 11 317 (33,7)
Total comprehensive income
attributable to:
Ordinary equity holders of the Group 5 238 13 675 (61,7)
Minority interest - ordinary shares 236 187 26,2
Minority interest - preference shares 421 457 (7,9)
5 895 14 319 (58,8)
CONDENSED NOTES TO THE GROUP STATEMENT OF COMPREHENSIVE INCOME
1. NON-INTEREST INCOME
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
1.1 Fee and commission income
Asset management and other
related fees 103 76 35,5
Consulting and administration 428 410 4,4
fees
Credit-related fees and 12 494 11 359 10,0
commissions
Credit cards(1) 1 860 1 624 14,5
Cheque accounts 3 231 3 027 6,7
Electronic banking 3 501 3 021 15,9
Other 1 601 1 576 1,6
Savings accounts 2 301 2 111 9,0
Insurance commission received 1 088 1 013 7,4
Other fees and commissions 199 219 (9,1)
Pension fund payment services 545 526 3,6
Project finance fees 262 473 (44,6)
Trust and other fiduciary 1 182 988 19,6
services(2)
Portfolio and other management 947 735 28,8
fees
Trust and estate income 235 253 (7,1)
16 301 15 064 8,2
Notes
(1) Includes merchant and issuing fees.
(2) The Group provides custody, trustee, corporate administration, investment
management and advisory services to third parties, which involves the Group
making allocation and purchase and sale decisions in relation to a wide
range of financial instruments. Some of these arrangements involve the
Group accepting targets for benchmark levels of returns for the assets
under the Group`s care.
Included above is fee and commission linked to financial instruments not at
fair value
Fee and commission income
Credit cards 831 732 13,5
Cheque accounts 3 231 3 027 6,7
Electronic banking 3 501 3 021 15,9
Other 1 293 757 70,8
Savings accounts 2 301 2 111 9,0
11 157 9 648 15,6
1.2 Gains and losses from banking and
trading activities
Associates and joint ventures (13) - (100,0)
Dividends received 45 - 100,0
Loss realised on disposal (58) - (100,0)
Available-for-sale unwind from
reserve 115 (85) >100,0
Equity instruments 219 - 100,0
Statutory liquid asset portfolio (104) (85) (22,4)
Financial instruments designated at
fair value through profit or loss (63) (925) 93,2
Debt instruments (31) 65 >(100,0)
Debt securities in issue (125) (765) 83,7
Deposits from banks and due to
customers (434) (3 400) 87,2
Equity instruments (99) 1 244 >(100,0)
Loans and advances to banks and
customers 614 1 937 (68,3)
Statutory liquid asset portfolio 12 (6) >100,0
Financial instruments held-for-
trading
Derivatives and trading instruments 2 555 4 252 (39,9)
Ineffective hedges (19) 89 >(100,0)
Cash flow hedges (3) (18) 83,3
Fair value hedges (16) 107 >(100,0)
2 575 3 331 (22,7)
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
1.3 Gains and losses from
investment activities
Associates and joint ventures 15 31 (51,6)
Dividends received - 2 (100,0)
Profit realised on disposal 15 29 (48,3)
Available-for-sale unwind from
reserves
Equity instruments 1 - 100,0
Financial instruments
designated at fair value 830 398 >100,0
through profit or loss
Cash, cash balance and
balances with central banks 312 91 >100,0
Debt instruments 78 232 (66,4)
Equity instruments 440 75 >100,0
Financial instruments held-for-
trading
Derivatives and trading (41) 160 >(100,0)
instruments
Investments linked to
investment contracts 669 492 36,0
Cash, cash balances and
balances with central banks (50) (20) >(100,0)
Debt instruments (5) - (100,0)
Equity instruments 724 512 41,4
Subsidiaries
Loss realised on disposal (10) (17) 41,2
1 464 1 064 37,6
CONDENSED NOTES TO THE GROUP STATEMENT OF COMPREHENSIVE INCOME
2. OPERATING EXPENDITURE
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
2.1 Operating expenses
Amortisation of intangible 116 150 22,7
assets
Auditors` remuneration 134 110 (21,8)
Audit fees 90 78 (15,4)
Audit fees - under provision
from prior periods 9 6 (50,0)
Other fees 35 26 (34,6)
Cash transportation 467 413 (13,1)
Depreciation 1 129 856 (31,9)
Equipment costs 278 278 -
Information technology 1 701 1 468 (15,9)
Investment property charges 4 7 42,9
Change in fair value of
investment property - 1 100,0
Operating expenses 4 6 33,3
Marketing costs 875 961 8,9
Operating lease expenses on 910 1 066 14,6
property
Other operating costs(1) 2 381 2 215 (7,5)
Printing and stationery 283 268 (5,6)
Professional fees 790 851 7,2
Research and development cost 146 114 (28,1)
Staff costs 10 806 11 525 6,2
Bonuses 644 1 554 58,6
Current service cost on post -
retirement benefits 551 534 (3,2)
Other staff costs(2) 321 512 37,3
Salaries 8 872 8 571 (3,5)
Share-based payments 223 143 (55,9)
Training costs 195 211 7,6
Telephone and postage 837 832 (0,6)
20 857 21 114 1,2
31 December
2009 2008
(Audited) (Audited) Change
Average number of employees
employed by the Group 36 989 37 361 (1,0)
Number of employees employed by
the 36 150 37 828 (4,4)
Group at year-end
Notes
(1) Other operating costs include accommodation costs, travel and
entertainment costs.
(2) Other staff costs include recruitment costs, membership fees to
professional bodies, staff parking, redundancy fees, study assistance,
staff relocation and refreshment costs.
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
2.2 Other impairments
Financial instruments 38 30 (26,7)
Amortised cost instruments 2 29 93,1
Available-for-sale instruments 36 1 >(100,0)
Other 1 419 (12) >(100,0)
Computer software development
costs 19 1 >(100,0)
Equipment 9 - (100,0)
Goodwill 37 - (100,0)
Investments in associates and
joint ventures 1 328 - (100,0)
Repossessed Properties 26 (13) >(100,0)
1 457 18 >(100,0)
Notes
During the year, the Group sold contractual rights it had generated in Ambit
Management Services (Proprietary) Limited to a third party. The company is now
dormant and consequently the goodwill previously recognised on this investment
has been written off.
During the year under review, indications existed that the carrying amount of
the investments in associates, that arose as a result of client defaults on
Single Stock Futures within Absa Capital, would not be recoverable. The
recoverable amount is the
fair value less cost to sell and was based on the Group`s best estimate of the
price the Group would achieve in a sale transaction of these investments. These
investments have consequently been impaired.
CONDENSED NOTES TO THE GROUP STATEMENT OF COMPREHENSIVE INCOME
3. HEADLINE EARNINGS
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Headline earnings1 is
determined
as follows:
Profit attributable to ordinary
equity holders of the Group 6 840 10 666 (35,9)
Adjustments for:
IFRS 3 business combinations -
goodwill 37 (17) >100,0
IAS 16 net profit on disposal of
property and equipment (58) (37) (56,8)
IAS 21 recycled foreign currency
translation reserve, disposal of
investments in foreign (23) (38) 39,5
operations
IAS 27 net loss on disposal of
subsidiaries 10 17 (41,2)
IAS 28 net loss/(profit) on
disposal of associates 35 (29) >100,0
IAS 28 impairment of investments
in associates 956 - 100,0
IAS 28 headline earnings
component of associates` 11 (54) >100,0
earnings
IAS 36 impairment of assets 6 - 100,0
IAS 38 net profit on disposal of
and impairment of intangible (42) (636) 93,4
assets
IAS 39 release of available-for-
sale reserves (115) 61 >(100,0)
IAS 39 impairment of and net
profit on disposal of available- 16 32 (50,0)
for-sale assets
IAS 40 change in fair value of
investment properties (52) - (100,0)
Headline earnings 7 621 9 965 (23,5)
Note
(1) The net amount is reflected after taxation and minority interest.
GROUP STATEMENT OF FINANCIAL POSITION
31 December 31
December
2009 2008 2007
(Audited) (Audited) Change (Audited)
Rm Rm % Rm
Assets
Cash, cash balances and
balances with central banks 20 597 24 828 (17,0) 20 629
Statutory liquid asset
portfolio 33 943 33 043 2,7 22 957
Loans and advances to banks 36 032 44 662 (19,3) 54 025
Trading portfolio assets 61 779 78 879 (21,7) 25 824
Hedging portfolio assets 2 558 3 139 (18,5) 725
Other assets 17 777 16 925 5,0 24 408
Current tax assets 234 23 >100,0 185
Non-current assets held-for-
sale - 2 495 (100,0) -
Loans and advances to
customers 503 630 532 144 (5,4) 455 958
Reinsurance assets 719 903 (20,4) 485
Investments 29 564 26 980 9,6 29 792
Investments in associates
and joint ventures 487 2 144 (77,3) 1 004
Goodwill and intangible 1 245 963 29,3 301
assets
Investment property 2 195 661 >100,0 -
Property and equipment 6 606 6 127 7,8 4 610
Deferred tax assets 374 241 55,2 111
Total assets 717 740 774 157 (7,3) 641 014
Liabilities
Deposits from banks 39 616 54 633 (27,5) 58 033
Trading portfolio 53 722 72 737 (26,1) 34 919
liabilities
Hedging portfolio 565 1 080 (47,7) 2 226
liabilities
Other liabilities 12 212 12 618 (3,2) 9 953
Provisions 1 684 2 113 (20,3) 2 366
Current tax liabilities 59 385 (84,7) 183
Non-current liabilities held-
for-sale - 408 (100,0) -
Deposits due to customers 350 757 382 281 (8,2) 310 512
Debt securities in issue 171 376 165 900 3,3 156 424
Liabilities under
investment 12 446 10 377 19,9 7 908
contracts
Policyholder liabilities
under 3 136 3 076 2,0 3 318
insurance contracts
Borrowed funds 13 530 12 296 10,0 9 949
1
Deferred tax liabilities 2 147 2 960 (27,5) 2 600
Total liabilities 661 250 720 864 (8,3) 598 391
Equity
Capital and reserves
Attributable to ordinary
equity
holders of the Group:
Share capital 1 432 1 354 5,8 1 350
Share premium 4 784 2 251 >100,0 2 292
Other reserves 1 178 3 010 (60,9) 384
Retained earnings 43 153 40 992 5,3 33 612
50 547 47 607 6,2 37 638
Minority interest - ordinary
shares 1 299 1 042 24,7 341
Minority interest -
preference shares 4 644 4 644 - 4 644
Total equity 56 490 53 293 6,0 42 623
Total equity and liabilities 717 740 774 157 (7,3) 641 014
CONDENSED NOTES TO THE GROUP STATEMENT OF FINANCIAL POSITION
1. BORROWED FUNDS
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Subordinated callable notes 13 530 12 144 11,4
The subordinated debt instruments listed below qualify as secondary capital in
terms of
the Banks Act, No 94 of 1990 (as amended)
Interest rate Final maturity date
14,25% 22 March 2014 - 3 100 (100,0)
10,75% 26 March 2015 1 100 1 100 -
8,75% 1 September 2017 1 500 1 500 -
8,10% 27 March 2020 2 000 2 000 -
8,80% 7 March 2019 1 725 1 725 -
Three-month 26 March 2015 -
JIBAR + 0,75% 400 400
Three-month 31 March 2018 -
JIBAR + 0,97% 1 080 1 080
Three-month 31 March 2018 -
JIBAR + 1,00% 179 179
Three-month 31 March 2018 -
JIBAR + 1,09% 361 361
Three-month 31 March 2018 -
JIBAR + 1,20% 266 266
Three month 20 September 2019 100,0
JIBAR + 3,20% 3 000 -
Three-month 7 December 2028 100,0
JIBAR + 2,60% 1 500 -
Accrued interest 575 379 51,7
Fair value adjustment (156) 54 >(100,0)
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Redeemable cumulative option-
holding preference shares - 152 (100,0)
Preference dividend
rate Number
72% of the prime
overdraft rate1 79 237 500 158 158 -
Redemption of preference
shares for the Absa Group
Limited Employee Share
Ownership Administrative
Trust (4 516 (9) (8) (12,5)
700)
Shares held by the Absa
Group Limited Employee
Share Ownership
Administrative Trust - (4) 100,0
Cancellation of preference
shares for the Absa Group
Limited Employee Share Ownership
Administrative Trust(2) (3) - (100,0)
(1 568
500)
Redemption of preference shares
held by Batho Bonke Capital
(Proprietary) Limited (146) - (100,0)
(73 152 300)
Accrued dividend - 6 (100,0)
13 530 12 296 10,0
Portfolio analysis
Subordinated callable notes
designated at fair value through 718 672 6,8
profit or loss
Financial liabilities at 7 221 5 069 42,5
amortised cost
Redeemable cumulative option-
holding preference shares - 152 (100,0)
Subordinated callable notes 7 221 4 917 46,9
Amortised cost subordinated
callable notes in a fair value 5 591 6 555 (14,7)
hedging relationship
13 530 12 296 10,0
Notes
(1) Option exercise dates of 1 July 2007 to 1 July 2009, 1 March, 1 June, 1
September or 1 December each year.
(2) The cancellation of the preference shares for the Absa Group Limited
Employee Share Ownership Administrative Trust relates to employees that had
left the employ of the Group and therefore their shares were not redeemed.
CONDENSED NOTES TO THE GROUP STATEMENT OF FINANCIAL POSITION
2. CONTINGENT LIABILITIES
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Financial guarantee contracts
Financial guarantee contracts 1 007 1 001 0,6
Contingencies
Guarantees(1) 10 484 9 484 10,5
Irrevocable facilities2 54 517 29 753 83,2
Letters of credit 5 007 6 429 (22,1)
Other contingencies 5 25 (80,0)
70 013 45 691 53,2
Total contingent liabilities 71 020 46 692 52,1
Notes
(1) Guarantees include performance guarantee contracts and payment
guarantee contracts.
(2) Irrevocable facilities are commitments to extend credit where the
Group does not have the right to terminate the facilities by written
notice. Commitments generally have fixed expiry dates. Since
commitments may expire without being drawn upon, the total contract
amounts do not necessarily represent future cash requirements.
CONDENSED NOTES TO THE GROUP STATEMENT OF FINANCIAL POSITION
3. COMMITMENTS
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Authorised capital expenditure
Contracted but not provided 928 703 32,0
for(1)
Note
(1) The Group has capital commitments in respect of computer equipment
and property development. Management is confident that future net
revenues and funding will be sufficient to cover these commitments.
Operating lease payments
due(1)
No later than one year 1 157 1 110 4,2
Later than one year and no
later than five years 2 135 2 251 (5,2)
Later than five years 307 473 35,1
3 599 3 834 (6,1)
Note
(1) The operating lease commitments comprise a number of separate
operating leases in relation to properties and equipment, none of
which is individually significant to the Group. Leases are negotiated for
an average term of three to five years and rentals are renegotiated
annually.
CONDENSED NOTES TO THE GROUP STATEMENT OF FINANCIAL POSITION
4. ACQUISITIONS AND DISPOSALS OF ASSOCIATES AND SUBSIDIARIES
4.1 Disposal of investment in Banco Comercial Angolano S.A.R.L. (BCA)
The Group disposed of its 50% equity investment in BCA during June 2009. The
profit on sale amounted to R15 million.
4.2 Disposal of investment in associate - Ambit Properties Limited and
subsidiary`s management rights - Ambit Management Services (Proprietary) Limited
Absa Corporate and Business Bank held 34,5% of Ambit Properties Limited`s
equity; these shares were exchanged for ApexHi shares1. This resulted in a loss
of R58 million on disposal of the investment in Ambit Properties Limited
(previously recognised as an investment in associate). In addition, ApexHi
acquired the management rights to Ambit Properties Limited from Absa.
4.3 Acquisition of a listed associate
The Group acquired additional shares in Blue Financial Services Limited during
the year, increasing the total shareholding in Blue Financial Services Limited
to over 20% in May 2009 at a cost of R62 million.
4.4 Acquisition of additional shares in CPF venture capital organisations
- The Group acquired an additional 50% in the development company Ngwenya
River Estate (Proprietary) Limited, increasing its shareholding to 100% on 1
October 2008 (subject to South African Reserve Bank approval). As at December
2008, the investment was fully consolidated and minority interest of 50% was
provided for. The acquisition became effective from April 2009 after receiving
Reserve Bank and Competition Commission approval. The impact on the
Group`s results were minimal.
- On 31 January 2009, the Group acquired an additional 35,2% interest in
Abseq Properties (Proprietary) Limited (Abseq)at a cost of R166 million,
increasing its shareholding to 85,0%. Abseq was previously recognised as an
associate designated as fair value through profit or loss. On consolidation of
Abseq, the two joint ventures of Abseq, namely Kilkishen Investments
(Proprietary) Limited and Stand 1135 (Proprietary) Limited, became joint
ventures of the Group.
- On 1 January 2009 the Group acquired a 50% interest in Meadowood
Investments 8 (Proprietary) Limited for R1.
- On 1 June 2009 the Group acquired a 100% interest in Blue Age Properties 60
(Proprietary) Limited for R100.
- On 1 November 2009 the Group acquired a 50% interest in Tembisa Mall
(Proprietary) Limited at a cost of R29,1 million (investment designated at fair
value).
Note
(1) In terms of a scheme proposed by ApexHi whereby ApexHi would acquire the
entire shareholding of Ambit Properties Limited.
CONDENSED NOTES TO THE GROUP STATEMENT OF FINANCIAL POSITION
5. RELATED PARTIES
The Group`s ultimate parent company is Barclays PLC (incorporated in the
United Kingdom), which owns 55,5%(2008: 58,6%) of the ordinary shares. The
remaining 44,5% (2008: 41,4%) of the shares are widely held on the JSE.
The following are defined as related parties of the Group:
1. Key management personnel.
2. The parent, Barclays Bank PLC.
3. Subsidiaries.
4. Associates, joint ventures and retirement benefit funds.
5. An entity controlled/jointly controlled or significantly influenced by
any individual referred to above.
6. Post-employment benefit plans for the benefit of employees or any entity
that is a related party of the Group.
7. Children or dependants of the individual referred to above or the
spouses of the individuals referred to above.
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
1. Transactions with key
management personnel and
entities controlled by key
management(1)
Loans outstanding at the end
of the 21 77 (72,7)
Year
Interest income earned 4 3 33,3
Deposits at the end of the 24 17 41,2
year
Interest expense on deposits 2 2 -
Guarantees issued by the Group 57 40 42,5
Other investments at the end
of the year 126 185 (31,9)
Note
(1) The above transactions are entered into in the normal course of
business, under terms that are no more favourable than those arranged
with third parties.
2. Key management personnel
compensation
Directors 99 69 43,5
Other key management personnel 59 54 9,3
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
3. Transactions with parent
company(1)
The following are balances
with, and transactions entered
into with the parent company:
Balances
Assets 18 094 30 231 (40,1)
Liabilities 16 983 31 529 46,1
Transactions
Income 252 1 229 (79,5)
Expenses 54 259 79,2
Dividends paid 2 213 2 333 (5,1)
Note
(1) All transactions entered into are on the same commercial terms and
conditions as in the normal course of business.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Share capital 1 432 1 354 5,8
Opening balance 1 354 1 350 0,3
Shares issued 76 3 >100,0
Transfer from share-based
payment reserve 0 0 0,0
Share buy-back in respect of
Absa Group Limited Share (0) (0) (0,0)
Incentive Trust
Elimination of treasury shares
held by Absa Group Limited
Share Incentive Trust 1 1 0,0
Elimination of treasury shares
held by Absa Life Limited 1 (0) >100,0
Elimination of treasury shares
held by Absa Group Limited
Employee Share Ownership 0 0 (0,0)
Administrative Trust
Share premium 4 784 2 251 >100,0
Opening balance 2 251 2 292 (1,8)
Shares issued 2 495 72 >100,0
Repurchase of preference
shares held by Batho Bonke
Capital (Proprietary) Limited 3 - 100,0
Costs incurred - (100,0)
(0)
Transfer from share-based
payment reserve 67 41 63,4
Share buy-back in respect of
Absa Group Limited Share (86) (63) (36,5)
Incentive Trust
Elimination of treasury shares
held by Absa Group Limited
Share Incentive Trust 15 7 >100,0
Elimination of treasury shares
held by Absa Life Limited 37 (6) >100,0
Elimination of treasury shares
held by Absa Group Limited
Employee Share Ownership 0 5 (99,9)
Administrative Trust
Elimination of gains/(losses)
from derivative instruments on 2 (97) >100,0
own shares
Other reserves 1 178 3 010 (60,9)
Opening balance 3 010 384 >100,0
Other comprehensive income (1 2 819 >(100,0)
654)
Movement in foreign currency
translation reserve (663) 248 >(100,0)
Movement in cash flow hedging
reserve (665) 2 660 >(100,0)
Movement in available-for-
sale (326) (89) >(100,0)
reserve
Movement in general credit
risk reserve (23) (434) 94,7
Movement in insurance
contingency reserve 25 22 13,6
Movement in associates and
joint ventures` retained (50) 73 >(100,0)
earnings reserve
Disposal of associates and
joint ventures - release of (109) (3) >(100,0)
reserves
Share-based payments for the 193 (75,6)
year 47
Transfer from share-based
payment reserve (68) (44) (54,5)
Retained earnings 43 153 40 992 5,3
Opening balance as previously
reported 40 665 33 549 21,2
Restatement of opening 327 63 >100,0
balance(1)
Restated opening balance 40 33 612 22,0
992
Movement in general credit
risk reserve 23 434 (94,7)
Transfer to insurance
contingency reserve (25) (22) (13,6)
Transfer to associates and
joint ventures` retained 50 (73) >100,0
earnings reserve
Disposal of associates and
joint ventures - release of 109 3 >100,0
reserves
Share buy-back in respect of
Absa Group Limited Share - 153 (100,0)
Incentive Trust
Repurchase of preference
shares held by Batho Bonke
Capital (Proprietary) Limited (1 089) - (100,0)
Transfer from share-based
payment reserve 1 3 (66,7)
Profit attributable to
ordinary equity holders of the 6 840 10 666 (35,9)
Group
Other comprehensive income -
movement in retirement benefit
assets and liabilities 52 190 (72,6)
Ordinary dividends paid during
the year (3 800) (3 974) 4,4
1
50 547 47 607 6,2
Minority interest - ordinary 1 1 042 24,7
shares 299
Opening balance 1 341 >100,0
042
Acquisition of subsidiaries 548 (86,9)
72
Dividends declared during the (51) (34) (50,0)
year
Profit attributable to
minority equity holders the 241 194 24,2
Group
Other comprehensive income -
foreign currency translation (5) (7) 28,6
effects
Minority interest - preference 4 4 644 -
shares 644
Opening balance 4 4 644 -
644
Profit attributable to
preference equity holders of 421 457 (7,9)
the Group
Preference dividends paid
during the year (421) (457) 7,9
1
Total equity 53 293 6,0
56,490
Note
(1) Refer to the "Reclassifications and Restatements" section for the
restated and reclassified prior year figures.
CONDENSED NOTES TO THE GROUP STATEMENT OF CHANGES IN EQUITY
1. DIVIDENDS PER SHARE
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Dividends paid to ordinary
equity holders during the year
9 February 2009 final dividend
number 45 of 330,0 cents per
ordinary share (19 February
2008: 320,0 cents) 2 245 2 171 3,4
3 August 2009 interim dividend
number 46 of 225,0 cents per
ordinary share (7 August 2008:
265,0 cents) 1 616 1 803 (10,4)
Dividends paid on treasury
shares held by Absa Life (5) (0) >(100,0)
Limited
Dividends paid on shares held
by Batho Bonke
Capital(Proprietary) Limited
in terms of the bridging (56) - (100,0)
finance arrangement
3 800 3 974 (4,4)
Dividends paid to ordinary
equity holders relating to
income for the year
3 August 2009 interim dividend
number 46 of 225,0 cents per
ordinary share (7 August 2008:
265,0 cents) 1 616 1 803 (10,4)
Dividends paid on treasury
shares held by Absa Life (2) (0) >(100,0)
Limited
Dividends paid on shares held
by Batho Bonke
Capital(Proprietary) Limited
in terms of the bridging (56) - (100,0)
finance arrangement
16 February 2010 final
dividend number 47 of 220,0
cents per ordinary share (9
February 2009: 330,0 cents) 1 580 2 245 (29,6)
3 138 4 048 (22,5)
Note
The STC payable by the Group in respect of the dividend approved and
declared subsequent to the statement of financial position date, amounts to
R158 million(2008: R225 million).
No provision has been made for this dividend and the related STC in the
financial statements at the statement of financial position date.
Dividends paid to minority
preference equity holders
during the year
9 February 2009 final dividend
number 6 of 4 734,5 cents per
preference share (19 February
2008: 4 436,0 cents) 234 219 6,8
3 August 2009 interim dividend
number 7 of 3 799,0 cents per
preference share (7 August
2008: 4 797,5 cents) 187 (21,4)
238
421 457 (7,9)
Dividends paid to minority
preference equity holders
relating to income
for the year
3 August 2009 interim dividend
number 7 of 3 799,0 cents per
preference share (7 August
2008: 4 797,5 cents) 187 238 (21,4)
16 February 2010 final
dividend number 8 of 3 280,3
cents per preference share (9
February 2009: 4 734,5 cents) 162 234 (30,8)
349 472 (26,1)
Note
The STC payable by the Group in respect of the dividend approved and
declared subsequent to the statement of financial position date amounts to
R16 million (2008:R24 million).
No provision has been made for this dividend and the related STC in the
financial statements at the statement of financial position date.
CONDENSED GROUP STATEMENT OF CASH FLOWS
Year ended
31 December
2009 2008
(Audited) (Audited) Change
Rm Rm %
Net cash generated from 5 011 3 234
operating activities 54,9
Net cash utilised in investing
activities (2 218) (1 768) (25,5)
Net cash utilised in financing
activities (1 419) (2 464) 42,4
Net increase/(decrease)in cash
and cash equivalents 1 374 (998) >100,0
Cash and cash equivalents at
the 5 600 6 596 (15,1)
beginning of the year
1
Effect of exchange rate
movements on cash and cash 2 2 -
equivalents
Cash and cash equivalents at
the end of the year 6 976 5 600 24,6
2
NOTES TO THE CONDENSED GROUP
STATEMENT OF CASH FLOWS
1. Cash and cash equivalents
at the beginning of the year
Cash, cash balances and
balances 4 726 5 091 (7,2)
with central banks
Loans and advances to banks 1 505 (41,9)
874
5 600 6 596 (15,1)
2. Cash and cash equivalents
at the end of the year
Cash, cash balances and
balances 5 176 4 726 9,5
with central banks
Loans and advances to banks 1 800 874 >100,0
6 976 5 600 24,6
GROUP PROFIT CONTRIBUTION BY BUSINESS AREA
Year ended
31 December
2009 20081
(Audited) (Audited) Change
Rm Rm %
Banking operations
Retail banking 2 3 628 (21,1)
863
Retail Bank 3 2 635 17,1
086
Absa Home Loans (1 140 >(100,0)
299)
Absa Card 554 46,4
811
Absa Vehicle and Asset Finance 299 (11,4)
265
Absa Corporate and Business 2 2 823 (17,9)
Bank 317
Absa Capital 2 276 (87,3)
288
Underlying performance 1 2 276 (44,0)
275
Single Stock Futures - (100,0)
impairment (987)
Corporate centre(2) 877 (38,0)
544
Capital and funding centre 4 >(100,0)
(35)
Minority interest - preference
shares (421) (457) 7,9
Total banking 5 9 151 (39,3)
556
Bancassurance 1 1 515 (15,2)
284
Profit attributable to
ordinary equity holders of the 6 840 10 666 (35,9)
Group
Headline earnings adjustments (701) >100,0
781
Total headline earnings 7 9 965 (23,5)
621
GROUP REVENUE3 CONTRIBUTION BY BUSINESS AREA
Year ended
31 December
2009 20081
(Audited) (Audited) Change
Rm Rm %
Banking operations
Retail banking 25 765 24 571 4,9
Retail Bank 16 092 14 786 8,8
Absa Home Loans 3 133 4 150 (24,5)
Absa Card 4 261 3 057 39,4
Absa Vehicle and Asset Finance 2 279 2 578 (11,6)
Absa Corporate and Business
Bank (ACBB) 8 709 8 717 (0,1)
Absa Capital 4 446 5 657 (21,4)
Corporate centre2 (527) 536 >(100,0)
Capital and funding centre 300 (16) >100,0
Total banking 38 693 39 465 (2,4)
Bancassurance 3 393 3 462 (2,0)
Total revenue 42 086 42 927 (2,0)
Notes
(1) The comparatives have been restated for:
- Repossessed Properties was moved from Corporate centre to Retail banking
during the year under review.
- ACBB, to account for the fair value adjustments on acquisition of
additional shares of two CPF subsidiaries in 2008.
- Absa Wealth was moved from Retail banking to Absa Capital during the year
under review.
- Absa Manx Insurance Company was moved from Bancassurance to Corporate
centre during the year under review.
- The change in accounting policy relating to the retirement benefit assets
and liabilities.
(2) Corporate centre`s comparatives include the profit on the VISA Initial
Public Offering (IPO) shares.
(3) Revenue includes net interest income and non-interest income.
RECLASSIFICATIONS AND RESTATEMENTS
Some items within the statement of the comprehensive income and statement of
financial
position for the years ended 31 December 2008 and 31 December 2007 were
reclassified and restated in the current year:
GROUP STATEMENT OF FINANCIAL POSITION - 31 DECEMBER 2008
(Audited) (Audited)
As Reclassificati Reclassified
previously ons
reported and and restated
restatements
Rm Rm Rm
Assets
Cash, cash balances and 24 847 24 828
balances (19)
with central banks
1
Statutory liquid asset 33 043 - 33 043
portfolio
Loans and advances to banks 44 662 - 44 662
Trading portfolio assets 78 879 - 78 879
Hedging portfolio assets 3 139 - 3 139
Other assets 16 397 528 16 925
1+2
Current tax assets 23 - 23
Non-current assets held-for-sale 2 495 - 2 495
Loans and advances to 532 171 (27) 532 144
customers 1
Reinsurance assets 903 - 903
Investments 26 980 - 26 980
Investments in associates and
joint ventures 2 144 - 2 144
Goodwill and intangible assets 957 6 963
1
Investment property 667 (6) 661
1
Property and equipment 6 208 (81) 6 127
1
Deferred tax assets 243 (2) 241
1
Total assets 773 758 399 774 157
Liabilities
Deposits from banks 54 633 - 54 633
Trading portfolio liabilities 72 737 - 72 737
Hedging portfolio liabilities 1 080 - 1 080
Other liabilities and sundry
provisions 14 785 (14 785) -
4
Other liabilities - 12 618 12 618
1+2+4
Provisions - 2 113 2 113
4
Current tax liabilities 385 - 385
Non-current liabilities held- 408 - 408
for-sale
Deposits due to customers 382 281 - 382 281
Debt securities in issue 165 900 - 165 900
Liabilities under investment
contracts 10 377 - 10 377
Policyholder liabilities under
insurance contracts 3 076 - 3 076
Borrowed funds 12 296 - 12 296
Deferred tax liabilities 2 834 126 2 960
1+2
Total liabilities 720 792 72 720 864
Equity
Capital and reserves
Attributable to ordinary equity
holders of the Group:
Share capital 1 354 - 1 354
Share premium 2 251 - 2 251
Other reserves 3 010 - 3 010
Retained earnings 40 665 327 40 992
1+2
47 280 327 47 607
Minority interest - ordinary 1 042 - 1 042
shares
Minority interest - preference 4 644 - 4 644
shares
Total equity 52 966 327 53 293
Total equity and liabilities 773 758 399 774 157
GROUP STATEMENT OF COMPREHENSIVE INCOME - YEAR ENDED 31 DECEMBER 2008
(Audited) (Audited)
As Reclassificati Reclassified
previously ons
reported and and restated
restatements
Rm Rm Rm
Net interest income 21 795 311 22 106
Interest and similar income 75 949 311 76 260
3
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 15 956 311 16 267
advances
Net fee and commission income 13 343 - 13 343
Fee and commission income 14 804 260 15 064
5
Fee and commission expense (1 461) (260) (1 721)
5
Net insurance premium income 3 511 - 3 511
Net insurance claims and (1 890) - (1 890)
benefits paid
Changes in investment and
insurance liabilities (70) - (70)
Gains and losses from banking
and trading activities 3 642 (311) 3 331
3
Gains and losses from
investment activities 1 064 - 1 064
Other operating income 1 515 17 1 532
1
Operating profit before
operating expenditure 37 071 17 37 088
Operating expenditure (21 935) 79 (21 856)
Operating expenses (21 193) 79 (21 114)
2
Other impairments (18) - (18)
Indirect taxation (724) - (724)
Share of retained earnings from
associates and joint ventures 73 - 73
Operating profit before income 15 209 96 15 305
tax
Taxation expense (3 966) (22) (3 988)
2
Profit for the year 11 243 74 11 317
Profit attributable to:
Ordinary equity holders of the 10 592 74 10 666
Group
Minority interest - ordinary 194 - 194
shares
Minority interest - preference 457 - 457
shares
11 243 74 11 317
GROUP STATEMENT OF FINANCIAL POSITION - 31 DECEMBER 2007
(Audited) (Audited)
As
previously
reported Restatements Restated
Rm Rm Rm
Assets
Cash, cash balances and 20 629 20 629
balances -
with central banks
Statutory liquid asset 22 957 - 22 957
portfolio
Loans and advances to banks 54 025 - 54 025
Trading portfolio assets 25 824 - 25 824
Hedging portfolio assets 725 - 725
Other assets 24 303 105 24 408
2
Current tax assets 185 - 185
Loans and advances to 455 958 - 455 958
customers
Reinsurance assets 485 - 485
Investments 29 792 - 29 792
Investments in associates and
joint ventures 1 004 - 1 004
Goodwill and intangible assets 301 - 301
Property and equipment 4 610 - 4 610
Deferred tax assets 111 - 111
Total assets 640 909 105 641 014
Liabilities
Deposits from banks 58 033 - 58 033
Trading portfolio liabilities 34 919 - 34 919
Hedging portfolio liabilities 2 226 - 2 226
Other liabilities and sundry
provisions 12 301 (12 301) -
4
Other liabilities - 9 953 9 953
2
Provisions - 2 366 2 366
4
Current tax liabilities 183 - 183
Deposits due to customers 310 512 - 310 512
Debt securities in issue 156 424 - 156 424
Liabilities under investment
contracts 7 908 - 7 908
Policyholder liabilities under
insurance contracts 3 318 - 3 318
Borrowed funds 9 949 - 9 949
Deferred tax liabilities 2 576 24 2 600
2
Total liabilities 598 349 42 598 391
Equity
Capital and reserves
Attributable to ordinary equity
holders of the Group:
Share capital 1 350 - 1 350
Share premium 2 292 - 2 292
Other reserves 384 - 384
Retained earnings 33 549 63 33 612
2
37 575 63 37 638
Minority interest - ordinary 341 - 341
shares
Minority interest - preference 4 644 - 4 644
shares
Total equity 42 560 63 42 623
Total equity and liabilities 640 909 105 641 014
COMMENTARY ON THE RECLASSIFICATIONS AND RESTATEMENTS
1. IFRS 3 - Business Combinations fair value adjustments
The acquisition of the majority interest in Balito Junction Development
(Proprietary) Limited and Ngwenya River Estate (Proprietary) Limited was
accounted for provisionally in the 2008 financial year in accordance with IFRS 3
- Business Combinations. The Group finalised the fair values of the assets and
liabilities on acquisition within the 12-month window period as allowed by
IFRS3. This resulted in a decrease in total assets of R36 million, which
includes additional goodwill of R6 million being recognised, a decrease in total
liabilities of R53 million as well as R17 million negative goodwill recognised
in the statement of comprehensive
income.
2. Retirement benefit fund
The Group early adopted AC 504 The Limit On A Defined Benefit Asset, Minimum
Funding Requirements and their interaction in the South African Pension Fund
Environment. This early adoption resulted in the Group recognising its defined
benefit surplus as an asset, retrospectively. AC 504 required the Group to
assess whether it had an unconditional right to the surplus. This right
specifically relates to the surplus once the scheme has run off in the normal
course of business. The effective date for AC 504 is financial periods starting
on or after 1 April 2009, however the Group elected the early adoption as this
guidance was published before the Group`s year-end and seeks to clarify an
existing accounting pronouncement.
In addition the Group changed its accounting policy in accordance with the
allowed alternative in IAS 19 Employee Benefits to recognise actuarial gains and
losses on the Group`s defined benefit pension plan. As a result of this change
in accounting policy, any adjustments to the surplus or deficit by applying the
limit to the asset in accordance with IAS 19 Employee Benefits will also be
recognised in other comprehensive income. This new policy results in more
relevant information on the Group`s performance by removing the volatility from
changes in actuarial assumptions and reserves.
3. Profits and losses from derivatives
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 statements of comprehensive income lines.
4. Provisions
Provisions were previously disclosed as part of other liabilities and sundry
provisions and are now disclosed separately on the statement of financial
position.
5. Net fee and commission income
The disclosure of net fee and commission income changed from nature to function
during 2009, and certain fees and commissions received, previously disclosed net
of fees and commissions paid, have been restated to indicate the gross amounts
received and paid. Comparatives have been restated.
PROFIT AND DIVIDEND ANNOUNCEMENT
Performance Highlights
- Headline earnings per share (HEPS) declined by 25,5% to 1 099,4 cents
per share
- Earnings per share (EPS) declined by 37,5% to 986,7 cents per share
- Impairment charge increased by 53,6% to R8 967 million
- Return on average equity (RoE) of 15,5%
- Net asset value (NAV) per share increased by 0,6% to 7 038 cents per
share
- Cost-to-income ratio at 49,6%
- Final dividend of 220 cents per share declared
- Capital adequacy ratio improved to 15,6%
Overview
The Absa Group recorded a decline of 23,5% in headline earnings to R7 621
million for the year ended 31 December 2009. HEPS decreased by 25,5% to 1 099,4
cents per share and fully diluted HEPS decreased by 24,5% to 1 072,0 cents per
share. Attributable earnings declined by 35,9% to R6 840 million.
Rising credit impairments and the effect of adverse market conditions were the
primary reasons for the decline in headline earnings across the Group. In
addition, the Group recorded significant impairments against the carrying value
of investments acquired after a single stock futures trading default by a
broker. Within the context of a demanding economic environment, total revenues
reflected a resilient performance, declining only marginally, while sound cost
control enabled the Group to cushion the effect of increased impairments.
Customer numbers and transaction volumes continued to grow; and interest margins
improved during the second half of 2009.
The Retail bank recorded a 21,1% decline in earnings with credit impairments
rising by 40,8% to R7 778 million. Revenue increased by 4,9% following strong
growth in net fee and commission income. Operating expenditure was limited to
the level of the previous year, showing a 0,8 % year-on-year increase.
The earnings of the Commercial bank declined by 17,9% following a large rise in
credit impairments from the low base in 2008. Revenues were stable and operating
expenditure increased by only 1,1% compared to the previous year.
The earnings of Absa Capital declined sharply to R288 million as a result of the
impairment of the carrying value of investments acquired after the Single Stock
Futures trading default by a broker; as well as the decline in the value of the
private equity portfolio. Operating earnings were marginally down following a
1,9% growth in Markets revenue offset by subdued activity in the capital and
debt markets.
Bancassurance posted a 15,2% decrease in earnings impacted by a deteriorating
short-term insurance claims experience and additional investment in the
distribution capacity. Revenue demonstrated robust growth following increases of
10,7% and 15,3% in net insurance premiums and net fee and commission income
respectively. Absa Investments achieved strong growth in assets under
management, supported by the acquisition of significant institutional mandates
during 2009.
Notwithstanding the difficult environment and trading conditions, the Group
maintained its healthy capital position with a Tier 1 capital ratio of 12,7% and
total capital ratio of 15,6% as at 31 December 2009; both were well above the
targets set by the Group board and minimum regulatory requirements.
A final dividend of 220 cents per share was declared, representing a dividend
cover of 2,5 times.
Operating environment
The beginning of the year was characterised by a sharp fall in economic activity
in South Africa with growth declining by 6,4% (annualised) in the first quarter.
Domestic economic activity, however, showed signs of renewed growth in the third
quarter with gross domestic product (GDP) rising 0,9% (annualised). Early signs
of a global recovery helped to boost South Africa`s net export position during
2009, even as domestic consumption, which fell by 1,7% (annualised) during the
third quarter, continued to show signs of stress. Despite continued public
sector support for the economy through direct spending and infrastructure
investment, lower levels of business confidence and a higher degree of
uncertainty over the economic environment led to continued contraction of
private sector capital formation.
Recent economic data shows that household consumption spending reduced
throughout 2009, as household finances felt the impact of significant employment
losses through declining household incomes. The reduction of the prime rate by
500 basis points from December 2008 to August 2009 resulted in a reduction in
debt-service payments for households and corporates alike. The deleveraging of
consumer and corporate balance sheets is evidenced in the significant decline in
the demand for credit.
Group performance
Statement of financial position
The Group`s asset base as at 31 December 2009 decreased by 7,3% over the year to
R717,7 billion, largely due to a decline in loans and advances to customers and
in trading portfolio assets.
Loans and advances to customers
Loans and advances to customers decreased by 5,4% to R503,6 billion. The Retail
bank, with 64,9% of total advances, recorded a decline of 3,1% in advances,
resulting mainly from reduced demand for credit and proactive credit risk
management.
The commercial bank maintained advances at the previous year`s level. Risk
management and reduced appetite for credit were the underlying factors affecting
commercial banking advances growth during the year.
Net asset value
The Group`s net asset value per share increased by 0,6% to 7 038 cents per
share during the year. The net asset value was positively impacted by the
successful conclusion of the Batho Bonke transaction which resulted in a net
increase of R1 417 million after a reduction of R1 089 million in retained
earnings due to the repurchase of the preference shares held by Batho Bonke.
Net asset value was further positively impacted by the surplus capital generated
from net profits after the payment of ordinary dividends amounting to R3 800
million. The higher capital level of the Group and lower attributable earnings
resulted in a lower RoE of 15,5% at 31 December 2009 compared with 23,4% in the
previous year.
Capital to risk-weighted assets
During the year under review, the Group improved its healthy capital adequacy
position. As at 31 December 2009, the capital adequacy ratios of the Group were
11,5% (31 December 2008: 10,4%) at a Core Tier 1 level, 12,7% (31 December
2008: 11,6%) at Tier 1 level, and the total capital adequacy ratio was 15,6% (31
December 2008: 14,1%). Absa Bank`s Core Tier 1 ratio, as at 31 December 2009,
was 10,3% (31 December 2008: 9,7%), the Tier 1 ratio was 11,6% (31 December
2008: 11,0%) and the total capital adequacy ratio was 14,7 % (31 December 2008:
14,0%).
Statement of comprehensive income
Net interest income
Net interest income decreased by 1,1% to R21 854 million, resulting from a
decline in advances as well as margin pressure.
Whilst the Group was able to largely withstand the pressure on interest margins
due to better pricing for liquidity and credit risk and the management of
interest rate risk, the net interest margin on average interest-bearing assets
contracted 7 basis points year-on-year to 3,74%. The contraction in the margin
was primarily due to:
- the extent and speed of interest rate declines during the first half of
the year which resulted in a repricing mismatch between prime-linked
assets and term-linked liabilities;
- the increased cost of wholesale funding as a result of the volatility in
global financial markets; and
- the endowment impact on capital and selected retail and commercial
deposits arising from the lower interest rate environment.
Non-interest income
Whilst non-interest income decreased by 2,8% to R20,2 billion, fee and
commission income increased 7,1% to R 14,3 billion. The Retail bank grew fee and
commission income by 10,9% due to higher customer numbers and improved
utilisation of the various distribution channels.
Business activity levels in the Bancassurance operations continued to grow.
During the year, net premium income increased by 10,7%, fees and commissions by
15,3% and assets under management by 19,8%. However, claims and benefits paid to
customers rose by 16,0% contributing to the decline of 2,0% in Bancassurance net
revenue.
Trading income posted growth due to strong revenue generation by the Fixed
Income desk. Foreign currency-related transactions by customers tapered off in
the second half of 2009. The fair value of private equity investments held by
Absa Capital declined by R623 million compared to an increase in value of R715
million during the previous year. The total return on other investments held in
the Group was positive, but lower than the previous comparative year.
Credit impairments
Credit impairments, as a percentage of average advances increased to 1,74% from
1,19% in December 2008. The impairment charge to the statement of comprehensive
income rose by 53,6% to R8 967 million.
Retail bank impairments increased by 40,8% to R7 778 million. This charge peaked
during the third quarter and the credit impairment ratio improved from 2,52% for
the first half of the year to 2,13% for the second half of the year. Non-
performing advances remained high mainly due to the continued increase of legal
balances as well as balances subject to debt counselling, but the level of new
delinquencies were on the decline.
Credit impairments in the commercial bank trebled to R872 million during the
year under review but losses as a percentage of average advances, at 0,75%, were
in line with expectations, given the economic environment.
Other impairments
The Group acquired substantial shareholdings in four companies late 2008 and
early 2009 following the failure of a broker client to honour its commitments in
respect of Single Stock Futures transactions. An impairment of R1 364 million
was raised against these investments following a significant decline in the
traded price of these companies. The carrying value of these investments at 31
December 2009 was R147 million.
Operating expenses
With revenue under pressure, a number of tactical cost reduction measures were
implemented during the year resulting in cost decreasing by 1,2%. As a result,
the cost-to-income ratio was contained at 49,6%.
Lower incentive payments and a reduction in staff numbers resulted in a drop in
staff costs of 6,2% to R10 806 million. In addition, several projects were
delayed and discretionary expenditure such as marketing, advertising, travelling
and entertainment were substantially reduced.
Business unit performance
Retail banking
Attributable earnings for retail banking declined by 21,1% to R2 863 million in
a challenging year for the retail sector. This decline in earnings was largely
the result of an increase in impairments of 40,8% to R7 778 million. The retail
bank was able to increase revenue by 4,9% and maintain costs at 2008 levels,
thereby improving the cost-to-income ratio from 54,4% to 52,3%.
Advances declined by 3,1% following lower customer demand and lower approval
rates. Secured lending products remained at 86,2% of the total advances book.
Customer deposits grew by 3,9% to R133,0 billion with growth in both the low and
higher margin categories. Deposit margins declined following the lower interest
rate environment coupled with the higher yielding products offered. The retail
bank was able to reduce the advances-to-deposits ratio from 2,64 at December
2008 to 2,46 in December 2009, resulting in a lower wholesale funding
requirement.
The overall interest margin on net loans and advances to customers remained flat
compared to the previous year. This is attributed to a focus on higher margins
on new business, the reduction in the dependency on wholesale funding and a
focus on balance sheet management.
Transaction revenue increased by 10,9% during the year and the trend for
customers to move from traditional banking to electronic banking channels
continued. The retail bank`s digital channels registered a 112,0% growth in
cellphone banking customers from December 2008. NotifyMe customers grew by 36,0%
and electronic statement delivery by 76,0%. Internet banking customers increased
by 11,0% during the year.
The impairments ratio increased from 1,72% in December 2008 to 2,34% in December
2009. The overall impairment charge rose by 40,8% from R5 523 million in
December 2008 to R7 778 million in December 2009. This was due mainly to higher
impairments from Absa Home Loans that increased by R1 396 million, while Absa
Card increased by R513 million and other loan products increased by R579
million.
Absa Corporate and Business Bank
The commercial bank`s attributable earnings decreased by 17,9% to R2 317
million. Rising impairments in all sectors had a significant impact on profits.
Net interest income decreased by 3,6% to R5 609 million, resulting from higher
funding costs, lower advances growth and downward pressure on deposit margins.
The commercial bank remained committed to growing deposits and achieved year-on-
year growth of 4,6%, despite the lack of market liquidity. Competition remained
high and margins consequently decreased during the year.
Transaction volume growth was underpinned by a 1,6% increase in customer numbers
as well as the implementation of improved cash and electronic banking solutions
for customers, which increased by 19,0% and 17,4% respectively. Transaction
income on cheque and corporate overdraft accounts increased by 7,4% and
electronic banking fees by 19,2% representing, in total, 65,9% of net fee and
commission income. This was partly offset by a decrease in Commercial Property
Finance (CPF) fees linked to lower CPF payouts, lower derivative product income,
and decreased sales of development land resulting from the slowdown in the
property market. The equity portfolios within this business returned to stable
levels of performance compared to 2008.
Absa Capital
Attributable earnings for Absa Capital declined by 87,3% to R288 million.
Headline earnings declined by 44,1% to R1 272 million, from R2 276 million in
the previous year. The difference between the decline in headline and
attributable earnings relates to the R987 million (after tax) impairments
against the value of equity positions acquired resulting from Single Stock
Future defaults in 2008.
The Markets business continued to grow, with revenue increasing by 1,9% to R3
264 million. Increased customer flows in derivative products, together with
proactive risk management, generated exceptional growth in Fixed Income and
Equities revenues. Foreign Exchange revenue, however, was negatively impacted by
subdued client activity and lower market volatility, resulting in fewer trading
opportunities. The sub-Saharan Africa franchise continued to develop, generating
increased trading and client revenues.
The revenue of the Investment Banking business during the year declined by 6,2%
to R1 794 million despite a strong increase in fee revenue. This was as a result
of reduced margin income due to improved asset quality and higher funding costs.
The Private Equity and Infrastructure Investments business unit recorded
negative revenue of R1 191 million due principally to a decline of R623 million
in the value of the portfolio and funding costs of R607 million.
Absa Wealth, a business unit 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 bank and is included under Absa Capital.
Gross revenue showed good growth of 8,4% year-on-year. The value of client funds
under advice increased, reflecting the strengthening client franchise. The
business continued to invest in talent, product and infrastructure platforms to
drive future growth.
Bancassurance
Bancassurance recorded a 15,2% decline in attributable earnings to R1 284
million (2008: R1 515 million), but achieved a RoE of 37,9%. The decline in
attributable earnings was driven by lower operating income, which declined by
11,4% to R1 426 million for the year under review. The operating performance was
particularly impacted by increases in short-term insurance claims in the second
half of the year. Investment income on shareholders` funds declined by 11,5% to
R317 million, reflecting a lower interest rate environment in the year under
review.
Absa Life`s gross premium income increased by 14,8% to R1 386 million. Continued
diversification of the product range to stand-alone risk products for the
Affluent segment, an improvement in penetration rates on most product lines, as
well as the establishment of new distribution channels for protection solutions
in the entry level market contributed to this growth. Embedded value of new
business declined by 11,2% to R294 million whilst embedded value earnings of
R543 million to December 2009 represented a return on embedded value (ROEV) of
26,0%.
Absa Investments continued to develop its core competencies, and leveraged the
strength of the Absa brand to grow its market share. A number of Absa unit
trusts were rated in the first quartile performance over one-year and three-year
periods. Absa Investments grew assets under management and administration (AUM)
by 31% to R153 billion. Total net inflows amounted to R24,9 billion, supported
by the acquisition of significant institutional mandates during the period under
review. Operational efficiencies in Absa Investments resulted in an improvement
in the profit margin from 26,0 basis points to 31,4 basis points.
Absa Insurance and Absa iDirect produced a robust performance with growth in the
personal lines and commercial businesses contributing to growth in gross premium
income of 10,1% to R3 042 million. The impact of adverse weather conditions, as
well as increases in fire-related claims in the commercial property portfolio in
the second half of the year, contributed to the deterioration of the loss ratio
to 69,9% from 66,0% in 2008. Whilst the underwriting performance declined, the
business remains profitable and an underwriting margin of 3,8% was achieved.
Prospects
The economic outlook remains challenging both globally and on the domestic
front. Whereas we expect to see a return to growth in the domestic economy
supported by a modest upturn in consumption and continued investment in
infrastructure spending by government, a number of risks remain. The weak
employment market, high levels of existing debt and concern about the
sustainability of the global recovery continue to weigh on sentiment. Business
volumes are, therefore, likely to show muted growth.
Basis of presentation and changes in accounting policies
The Absa Group`s annual financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS).
The following amendments to published standards affected the Group during the
year:
Revised IAS 1 - Presentation of Financial Statements separates owner and non-
owner changes in equity. The statement of changes in equity includes only
details of transactions with owners, with non-owner changes in equity presented
as a single line. In addition, the Standard introduces the statement of
comprehensive income: it presents all items of recognised income and expense,
either in one single statement, or in two linked statements. The Group has
elected to present one statement.
Amended IFRS 7 - Financial instruments: Disclosure requires additional
disclosure about fair value measurement and liquidity risk. Fair value
measurements are to be disclosed by observability and significance of inputs
using a three-level hierarchy for each class of financial instrument. The
amendments also clarify the requirements for liquidity risk disclosures. The
fair value measurement disclosures are presented in the notes to the financial
statements. The liquidity risk disclosures are not significantly impacted by the
amendments.
In May 2008 the International Accounting Standards Board issued its first
omnibus of amendments to its standards, primarily with a view to removing
inconsistencies and clarify wording. There are separate transitional provisions
for each amendment. The adoption of the following amendment resulted in a change
to accounting policy but did not have any impact on the financial position or
performance of the Group.
IAS 23 - Borrowing costs has been revised to require capitalisation of borrowing
costs on qualifying assets and the Group has amended its accounting policy
accordingly. In accordance with the transitional requirements of the Standard,
this has been adopted as a prospective change. Borrowing costs have been
capitalised on qualifying assets from 1 January 2009. No changes have been made
for borrowing costs incurred prior to this date that have been expensed.
The Group early adopted AC 504 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their interaction in the South African Pension Fund
Environment (AC 504). This early adoption resulted in the Group recognising its
defined benefit surplus as an asset retrospectively. AC 504 required the Group
to assess whether it had an unconditional right to the surplus. This right
specifically relates to the surplus once the scheme has run off in the normal
course of business. The effective date for AC 504 is financial periods starting
on or after 1 April 2009, however the Group elected early adoption as this
guidance was published before the Group`s year end and seeks to clarify an
existing accounting pronouncement.
Changes in accounting policies
The Group changed its accounting policy in accordance with the allowed
alternative in IAS 19 - Employee Benefits (IAS 19) to recognise actuarial gains
and losses on the Group`s defined benefit pension plan. As a result of this
change in accounting policy, any adjustments to the surplus or deficit by
applying the limit to the asset in accordance with IAS 19 will also be
recognised in other comprehensive income. This new policy results in more
relevant information on the Group`s performance by removing the volatility from
changes in actuarial assumptions and reserves.
Restatements
The fair values of certain assets acquired as part of business combinations were
determined provisionally in the prior year. The fair value of these assets was
finalised and adjusted in the current year in terms of the Group`s election to
utilise a 12-month window period as allowed by IFRS 3 - Business Combinations.
Reclassifications
The following reclassification has 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 statements of comprehensive income lines.
The Group`s results for the year ended 31 December 2009 have been audited by the
Group`s auditors, PricewaterhouseCoopers Inc. and Ernst & Young Inc. Their audit
report is available for inspection at the Group`s registered address, 3rd floor,
Absa Towers East, 170 Main Street, Johannesburg, 2001.
Events subsequent to statement of financial position date
As at 31 December 2009, Absa Group held 1,26 billion shares (23%) in an
associate, Pinnacle Point Group (PPG). On 8 February 2010 Absa Group concluded a
transaction in terms of which it would subscribe for a further 1,47 billion
shares in PPG and then sell the entire investment of 2,73 billion shares (39%)
for R150 million of which R55 million is deferred.
Declaration of final ordinary dividend number 47
Shareholders are advised that a final ordinary dividend of 220 cents per
ordinary share was announced today, Tuesday, 16 February 2010, bringing the
total dividend for the year to 445 cents per ordinary share. The final ordinary
dividend is payable to shareholders recorded in the register of members of the
Group at the close of business on Friday, 12 March 2010.
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, 5 March 2010
Shares commence trading ex dividend Monday, 8 March 2010
Record date Friday, 12 March 2010
Payment date Monday, 15 March 2010
Share certificates may not be dematerialised or rematerialised between Monday, 8
March 2010, and Friday, 12 March 2010, both dates inclusive.
On Monday, 15 March 2010, 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 15 March 2010 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, 15
March 2010.
On behalf of the Board
S Martin
Group Secretary
Johannesburg
16 February 2010
Enquiries
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
Nwabisa Piki
Manager: Investor Relations
Absa Group Limited
3rd Floor, Absa Towers East, 170 Main Street, Johannesburg
Tel: +2711 350-5926, Fax: +2711 350-5924
E-mail: Nwabisa.piki@absa.co.za
Sponsor
JP Morgan Equities Limited
Date: 16/02/2010 08:00:02 Produced by the JSE SENS Department.
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