| Thu 25 Feb 2010, 11:30 | | MTL - Mercantile Bank Holdings Limited - Condensed audited results for the year |
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MTL
MTL
MTL - Mercantile Bank Holdings Limited - Condensed audited results for the year
ended 31 December 2009
MERCANTILE BANK HOLDINGS LIMITED
("Mercantile" or "the Group")
Member of CGD Group
Registration Number 1989/000164/06
Share code: MTL
ISIN: ZAE000064721
CONDENSED AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009
SALIENT FEATURES
Growth in NAV per share of 13.3%
Growth in lending of 6.6%
Impairments as a % of gross lending at 0.3%
Growth in net non-interest income of 9.3%
Reduction in costs of 2.2%
HEPS before tax down by 12.7%
FINANCIAL OVERVIEW
Before tax performance
Industry conditions for the banking sector during 2009 were particularly
difficult being characterised by a significant drop in economic activity with
GDP declining, substantial increases in bad debts and sharp reductions in
interest rates with the prime rate reducing from 15.5% in early December 2008 to
10.5% in August 2009. This has resulted in most domestic banks posting
significant declines in 2009 profits.
Against this background the Group recorded a decrease in HEPS of 12.7% for the
2009 financial year which is largely attributable to:
a decrease in net interest income (before credit losses) of 17.2% as a result
of the negative endowment effect of lower interest rates, a squeeze in margins
due to higher cost of deposits and little change in the balance sheet with
lending up 6.6% and deposits down 3.3%; and
an increase in impairments for credit losses of R2.7 million in line with
tougher market conditions. Notwithstanding this increase, impairments were still
at an acceptable level of 0.3% of gross lending. Non-performing loans and
advances as a percentage of gross lending was 5.4% at December 2009 (December
2008: 3.8%).
The above negative impact on earnings was partially offset by:
growth in non-interest income (net of costs) of 9.3% from core business
activities; and
cost containment with costs declining 2.2%. Cost savings were largely achieved
due to lower bonus and share plan costs in line with the decline of the Group`s
results partly offset by higher consulting fees in Information Technology
associated with services related to the new systems infrastructure being
implemented for the Group.
Cost to income increased from 49.0% in December 2008 to 52.7% in December 2009
whilst both ROE at 17.5% (December 2008: 26.2%) and ROA at 3.8% (December 2008:
4.9%) declined reflecting the weaker market conditions and lower earnings of the
Group.
After tax performance: recognition of deferred tax
In accordance with IFRS the Group deemed it appropriate to recognise deferred
tax at the end of 2008 mainly in respect of tax losses incurred in the financial
years prior to 2005. This recognition resulted in a once-off deferred tax credit
of R162.2 million for the year ended 31 December 2008. Consequently, for the
year ended 31 December 2009 there was no such deferred tax credit and the Group
recognised a tax charge, making after tax performance for the two reporting
periods ended 31 December 2008 and 2009 not comparable.
CREDIT RATINGS
Moody`s Investors Service confirmed the following RSA national scale issuer
ratings to the Bank in September 2009:
Short term P-1.za
Long term A2.za
Outlook Stable
ACCOUNTING POLICIES
These condensed consolidated financial statements have been prepared under the
historical cost conventions excluding financial instruments and properties which
are fair valued and the accounting policies are in accordance with International
Financial Reporting Standards. These condensed financial statements have been
prepared in accordance with IAS 34 - Interim Financial Reporting. The same
accounting policies, presentation and methods of computation have been followed
in these condensed financial statements as were applied in the preparation of
the Group`s financial statements for the financial year ended 31 December 2008,
except for the impact of the adoption of Standards and Interpretations described
below:
IAS 1 (revised 2007) Presentation of Financial Statements (effective for annual
periods beginning on or after 1 January 2009) has introduced a number of
terminology changes and has resulted in a number of changes in presentation and
disclosure. However, the revised Standard has had no impact on the reported
results or financial position of the Group.
IFRS 7 Financial Instruments: Disclosures (effective for annual periods
beginning on or after 1 January 2009) which is a disclosure standard, was
amended with enhancements to disclosures about fair value and liquidity risk.
These amendments have had no material impact on the disclosure of fair value and
liquidity risk.
IFRS 8 Operating Segments (effective for annual periods beginning on or after 1
January 2009) which is a disclosure Standard, requires operating segments within
the Group to be identified on the basis of internal reports that are regularly
reviewed by the chief operating decision maker in order to allocate resources to
the segment and to assess its performance. The adoption of IFRS 8 has had no
impact on the identification of the Group`s reportable segments, reported
results or financial position.
Improvements to IFRS (issued in May 2008) include 35 amendments across 20
different Standards that largely clarify the required accounting treatment where
previous practice had varied, and have resulted in a number of changes in the
detail of the Group`s accounting policies. These amendments have had no material
impact on the Group`s accounting policies.
AUDIT OPINION
The independent auditors, Deloitte & Touche, have issued their unmodified
opinion on the Group`s financial statements for the year ended 31 December 2009.
The audit was conducted in accordance with International Standards on Auditing.
A copy of their audit report is available for inspection at Mercantile`s
registered office. These condensed financial statements have been derived from
the Group financial statements and are consistent in all material respects, with
the Group financial statements.
GOING CONCERN
The financial statements have been prepared on the going concern basis.
SUBSEQUENT EVENTS
No material events have occurred between the accounting date and the date of
this report that require adjustment to or disclosure in the annual financial
statements.
BLACK ECONOMIC EMPOWERMENT
Discussions are at an advanced stage with two short listed candidates for
empowerment at shareholder level and it is anticipated that a transaction could
be concluded for the sale of 10% of the Group`s equity over the ensuing months.
NEW BANKING SYSTEM
The implementation of the new core retail banking systems and
enhancement/upgrade of current systems architecture is well underway with a go-
live date planned for April 2010. Expenditure capitalised on this project as at
31 December 2009 is as follows:
property and equipment: R20.8 million; and
intangible assets: R164.4 million
The overall project cost has increased since the interim results report at June
2009 from an estimated R210 million to an estimated R245 million. The main
reasons for the increased costs are:
significant increase in time and resources spent on testing the system;
higher spend on creating and implementing the infrastructure required; and
higher costs incurred in training of users.
The project is funded from cash resources against agreed deliverables.
The pro forma effect of the transaction on the tangible net asset value per
share of the Group at 31 December 2009, based on the above revised cost
estimates, is expected to be a decrease of approximately 1.6 cents versus the
estimated decrease previously reported for December 2008 of 2.6 cents. The pro
forma effect of the transaction has not been reviewed or reported on by the
Group`s auditors.
The rationale for this project remains the creation of a new systems platform to
support the growth of the Group in line with our strategic objectives. The
project will result in a more flexible and integrated systems environment
enhancing our risk management and controls whilst providing us with greater
capacity to compete in the market in the areas of product and service. No
profits can be directly attributed to this project but the project drivers
outlined above are expected to provide a positive benefit to the Group over
time.
DIRECTORATE
Ms R van Rensburg resigned as company secretary with effect 31 July 2009. An
acting secretary was appointed on contract for the period 1 September 2009 to 31
December 2009. Ms A de Villiers was appointed with effect 1 January 2010.
There were no changes to the Board of Directors during the period under review.
OUTLOOK
The slow rate of recovery in the South African economy following the global
financial crisis in 2008/2009 will make 2010 a challenging year.In addition, the
termination by Woolworths Financial Services of its card processing agreement in
October 2009, following the sale of a controlling stake in the business to a
competitor bank, will put pressure on the rate of growth in fee income during
the coming year. Cost pressures will also be experienced in the short term due
to the implementation and consequent depreciation charge for the new banking
system. Over the medium to longer term the costs associated with this investment
are expected to be offset by increased growth in volume of business.
JAS de Andrade Campos
Chairman
DJ Brown
Chief Executive Officer
Sandton
25 February 2010
Directors:
JAS de Andrade Campos* (Chairman), DJ Brown (Chief Executive Officer),
JPM Lopes* (Executive), GP de Kock, L Hyne, AT Ikalafeng,
TH Njikizana, S Rapeti
Group Secretary:
A de Villiers
*Portuguese
Zimbabwean
Registered Office:
Mercantile Bank, 142 West Street, Sandown, 2196
Share code: MTL
ISIN: ZAE000064721
Transfer Secretaries:
Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg,
2001
Sponsor:
Bridge Capital Advisors (Pty) Limited, 2nd Floor, 27 Fricker Road, Illovo, 2196
Condensed consolidated statement of financial position
2009 2008
R`000 R`000
Audited Audited
ASSETS
Intangible assets 170 325 76 894
Property and equipment 131 483 128 672
Tax 256 -
Other accounts receivable 29 539 39 273
Other investments 23 590 12 315
Deferred tax assets 102 936 157 275
Non-current assets held for sale 5 510 5 289
Loans and advances 3 629 574 3 403 789
Derivative financial instruments 21 406 56 873
Negotiable securities 267 902 247 141
Bank term deposits 35 276 324 295
Cash and cash equivalents 1 400 937 1 464 959
Total assets 5 818 734 5 916 775
EQUITY AND LIABILITIES
Shareholders` equity 1 437 671 1 269 030
Share capital and share premium 1 202 571 1 202 571
Share-based payments reserve 1 894 4 650
Property revaluation reserve 52 708 46 364
Available-for-sale reserve 13 883 13 036
Capital redemption reserve fund 3 788 3 788
General reserve 7 478 7 478
Retained income/(Accumulated loss) 155 349 (8 857)
Non-current liability
Deferred tax liabilities 18 870 15 259
Liabilities 4 362 193 4 632 486
Deposits 4 246 598 4 389 347
Derivative financial instruments 16 230 95 091
Provisions 38 142 48 596
Other accounts payable 61 153 98 958
Tax 70 494
Total equity and liabilities 5 818 734 5 916 775
Condensed consolidated statement of comprehensive income
2009 2008
R`000 R`000
Audited Audited
Interest income 529 584 661 776
Interest expense (261 315) (337 813)
Net interest income 268 269 323 963
Net charge for credit losses (9 323) (6 618)
Net interest income after credit losses 258 946 317 345
Net gain on disposal of available-for-
saleinvestments 1 583 9 837
Net non-interest income 200 059 183 035
Non-interest income 287 909 260 003
Fee and commission expenditure (87 850) (76 968)
Net interest and non-interest income 460 588 510 217
Operating expenditure (247 578) (253 154)
Operating profit 213 010 257 063
Share of income from associated company 4 059 735
Profit before tax 217 069 257 798
Tax (54 867) 162 175
Profit after tax 162 202 419 973
Other comprehensive income
Revaluation of owner-occupied properties 8 812 10 689
Gains on remeasurement to fair value 2 576 25 121
Release to income on disposal ofavailable-for-
sale financial assets (1 583) (9 837)
Tax relating to other comprehensive income (2 614) (20 230)
Other comprehensive income net of tax 7 191 5 743
Total comprehensive income 169 393 425 716
Profit after tax attributable to:
Equity holders of the parent 162 202 419 973
Total comprehensive income attributable to:
Equity holders of the parent 169 393 425 716
Earnings per ordinary share after tax (cents) 4.1 10.7
Earnings per ordinary share before tax (cents) 5.6 6.6
Diluted earnings per ordinary shareafter tax
(cents) 4.1 10.7
Diluted earnings per ordinary sharebefore tax
(cents) 5.5 6.6
Dividend per share (cents) - -
Restated reconciliation between profit before tax and headline earnings(1)
Profit before tax 217 069 257 798
Adjustment for non-headline items:
Realisation of available-for-sale reserve
ondisposal of investments (1 583) (9 837)
Loss/(Profit) on disposal of property
andequipment 14 (29)
Headline earnings before tax 215 500 247 932
Tax (54 867) 162 175
Tax on non-headline items(1) 218 1 385
Restated headline earnings after tax(1) 160 851 411 492
Headline earnings per ordinary shareafter tax
(cents) 4.1 10.5
Headline earnings per ordinary sharebefore tax
(cents) 5.5 6.3
Diluted headline earnings per ordinaryshare after
tax (cents) 4.1 10.5
Diluted headline earnings per ordinaryshare
before tax (cents) 5.5 6.3
Financial statistics
2009 2008
Audited Audited
Number of ordinary shares in issue:
- end of the year (`000) 3 911 114 3 911 114
- weighted average (`000) 3 911 114 3 924 414
- weighted average - diluted (`000) 3 928 895 3 924 414
Return on average equity after tax (%) 12.0 39.8
Return on average equity before tax (%) 17.5 26.2
Return on average assets after tax (%) 2.8 7.9
Return on average assets before tax (%) 3.8 4.9
Cost to income (%) 52.7 49.0
Net asset value per ordinary share (cents) 36.8 32.4
Tangible net asset value per ordinaryshare
(cents) 32.4 30.5
Condensed Group contingent liabilities and commitments
2009 2008
R`000 R`000
Audited Audited
Guarantees, letters of credit and
committedundrawn facilities 506 678 670 100
Operating lease commitments 24 355 12 302
Capital commitments 51 628 93 018
Condensed consolidated statement of changes in equity
2009 2008
R`000 R`000
Audited Audited
Share capital and share premium
Balance at beginning of the year 1 202 571 1 207 422
Increase of treasury shares - (4 851)
Balance at end of the year 1 202 571 1 202 571
Share-based payments reserve
Balance at beginning of the year 4 650 7 019
Share-based payments expense (2 756) 4 650
Transfer to retained income/accumulated loss - (7 019)
Balance at end of the year 1 894 4 650
Property revaluation reserve
Balance at beginning of the year 46 364 53 705
Other comprehensive income 8 812 10 689
Tax relating to other comprehensive income (2 468) (18 030)
Balance at end of the year 52 708 46 364
Available-for-sale reserve
Balance at beginning of the year 13 036 (48)
Other comprehensive income 993 15 284
Tax relating to other comprehensive income (146) (2 200)
Balance at end of the year 13 883 13 036
Capital redemption reserve fund andgeneral
reserve
Balance at beginning and end of the year 11 266 11 266
General credit-risk reserve
Balance at beginning of the year - 19 403
Transfer to retained income/accumulated loss - (19 403)
Balance at end of the year - -
Retained income/(Accumulated loss)
Balance at beginning of the year (8 857) (458 853)
Profit after tax 162 202 419 973
Share-based payments expense (752) 8 251
Transfer from share-based payments and - 26 422
generalcredit-risk reserve
Balance at end of the year 155 349 (8 857)
Total equity
Balance at beginning of the year 1 269 030 839 914
Increase of treasury shares - (4 851)
Share-based payments expense (752) 8 251
Profit after tax 162 202 419 973
Other comprehensive income net of tax 7 191 5 743
Balance at end of the year 1 437 671 1 269 030
Condensed consolidated statement of cash flows
2009 2008
R`000 R`000
Audited Audited
Net cash inflow from operating activities 41 241 291 296
Net cash (outflow) from investing activities (105 263) (78 713)
Net cash (outflow)/inflow for the year (64 022) 212 583
Cash and cash equivalents at beginningof the year
1 464 959 1 252 376
Cash and cash equivalents at end of the year 1 400 937 1 464 959
Condensed Group segmental information
2009 2008
R`000 R`000
Audited Audited
Segment revenue net of fee andcommission
expenditure
Revenue from external customers
Retail and Commercial banking 291 779 347 155
Treasury 45 224 59 612
Alliance banking, MBL credit card andelectronic
banking 63 055 53 799
Other services (2) 69 853 56 269
469 911 516 835
Segment result - operating profit (3)
Retail and Commercial banking 197 583 268 249
Treasury 25 888 41 638
Alliance banking, MBL credit card andelectronic
banking 39 583 30 801
Other services (2) (50 044) (83 625)
Operating profit 213 010 257 063
Share of income from associated company 4 059 735
Profit before tax 217 069 257 798
Tax (54 867) 162 175
Profit after tax 162 202 419 973
Material related party balances and transactions
2009 2008
R`000 R`000
Audited Audited
Net balances with Caixa Geral de Depositos S.A. 614 222 1 345 707
Interest received from Caixa Geral deDepositos
S.A. 10 518 41 063
Explanatory notes
(1) The tax effect on non-headline items was omitted for 2008 but reported HEPS
after tax remained unchanged.
(2) "Other services" includes support divisions, surplus capital, insurance
brokers and inter-group eliminations.
(3) Segment results represent the operating profit earned by each segment
without the allocation of tax or attributable support costs. This is the measure
reported to the chief operating decision maker for the purposes of resource
allocation and assessment of segment performance.
Date: 25/02/2010 11:30:01 Produced by the JSE SENS Department.
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