| Thu 3 Mar 2011, 8:00 | | SBK - Standard Bank Group Limited - Audited results and dividend |
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SBK SBKP SBPP
SBK
SBK - Standard Bank Group Limited - Audited results and dividend
announcement for the year ended 31 December 2010
Registration No. 1969/017128/06
Incorporated in the Republic of South Africa
JSE share code: SBK
NSX share code: SNB
ISIN: ZAE000109815
NSX share code: SNB ZAE000109815
SBKP ZAE000038881 (First preference shares)
SBPP ZAE000056339 (Second preference shares)
Headline earnings
- normalised R11 283 million, down 4% on 2009
- IFRS R10 969 million, down 3% on 2009
Dividend per ordinary share 386 cents(2009: 386 cents)
Tier I capital adequacy ratio of 12,9% (2009: 11,9%)
Headline earnings per ordinary share (HEPS)
- normalised 715,9 cents, down 5% on 2009
- IFRS 735,2 cents, down 5% on 2009
Return on equity (ROE)
- normalised 12,5% (2009: 13,6%)
- IFRS 12,7% (2009: 13,7%)
Net asset value (NAV) per share
- normalised 5 726 cents (2009: 5 612 cents)
- IFRS 5 785 cents (2009: 5 699 cents)
Credit loss ratio
- normalised 1,04% (2009: 1,60%)
- IFRS 1,05% (2009: 1,60%)
The results discussed in the following commentary are presented on a
normalised basis. Results are normalised to reflect the legal and economic
substance of the group`s black ownership initiative; and for deemed treasury
shares held for the benefit of Liberty policyholders and within the group to
facilitate client trading activities.
"Strategically we are well positioned and our capital adequacy is strong.
After two extremely difficult years we are focusing on improving our ROE
through revenue generation and cost containment."
- Jacko Maree, group chief executive
Overview
Standard Bank Group normalised HEPS were 715,9 cents for the 2010 year, down
5% on 2009. Within banking activities, lower revenues coupled with continued
investment in people, premises and systems, as well as once-off
restructuring expenses, more than offset the benefits of reduced credit
impairments and resulted in a decline in banking activities headline
earnings of 15%. Significant operational improvements in the insurance
business and positive investment markets resulted in Liberty recording good
growth in earnings and consequently group headline earnings were down 4%. An
ROE of 12,5% (2009: 13,6%) was recorded.
Global operating environment
The pace of the global economic recovery remained slow throughout 2010. Many
advanced economies faced low consumer confidence, reduced household income
and rising unemployment. This placed pressure on global growth, estimated to
amount to 2,7% for the year. Uncertainty remained a feature of financial
markets, further undermining economic recovery.
Most emerging economies are estimated to have grown at above 6% for 2010,
given their stronger footing going into the global economic crisis. Emerging
economies are however heavily reliant on demand from advanced economies,
which is running below pre-crisis levels.
Africa`s economic growth slowed to about 2% in 2009 but then accelerated to
5% last year, fractionally lower than the performance in the pre-crisis era.
The relatively mild downturn and swift recovery demonstrates markedly
improved macroeconomic conditions from previous decades. The confluence of
low inflation, strong fiscal frameworks, falling public debt and increased
foreign exchange reserves was instrumental in the continent`s resilience.
Furthermore, diverse sources of growth have helped ensure generally firmer
and sturdier output growth. These include vibrant expansion in personal
incomes and investment, and stronger and better prioritised public spending.
Strengthened diplomatic and trade relationships with Asia have also been
beneficial.
Domestic operating environment
The South African economy was slow to recover from its first recession in 17
years and grew by 2,8% in 2010. Low inflation and interest rates and a
modest recovery in house prices eased the pressure on consumers, leaving
them in a better position to repay debt. Despite this, customers remained
reluctant to take on new debt given high household debt to income ratios.
South African corporates, while in generally good shape, also remained
cautious and limited their activity both in terms of direct investment and
corporate activity.
Headline earnings by business unit
% change 2010 2009
Rm Rm
Personal & Business Banking 23 4 750 3 874
Corporate & Investment Banking (30) 5 248 7 467
Central and other (108) 305
Banking activities (15) 9 890 11 646
Liberty >100 1 393 72
Total (4) 11 283 11 718
The measures in place in Personal & Business Banking in South Africa to grow
non-interest revenue for the last five years paid off in 2010. With the
impact on margins of low interest rates and the rising cost of funding, the
6% improvement in non-interest revenue together with the improved credit
experience were a welcome relief for the division. Corporate & Investment
Banking, which has grown revenues from R10,7 billion to R22,7 billion in the
last five years, struggled to grow off a relatively high base compounded by
the continuing investments in operating infrastructure. The rationalisation
and retrenchment costs incurred in 2010 are accounted for separately as a
restructuring charge and reflected post tax in Central and other. Liberty`s
turnaround delivered a strong set of results in 2010.
Headline earnings by geography
% change 2010 2009
Rm Rm
South Africa banking (1) 9 271 9 327
Liberty >100 1 393 72
South Africa 13 10 664 9 399
Rest of Africa (38) 746 1 202
Outside Africa (87) 186 1 479
Outside Africa - ongoing (11) 1 284 1 446
Outside Africa - curtailed (>100) (1 098) 33
Central funding (313) (362)
Total (4) 11 283 11 718
South African banking headline earnings ended the year down slightly with
mixed fortunes within the two major business units: Personal & Business
Banking SA up 35% and Corporate & Investment Banking SA down 15%. Revenues
from banking operations in the rest of Africa grew by 2% in a difficult
operating environment, with headwinds including low levels of client
activity, low interest rates and the translation impact of a stronger rand.
This revenue pressure occurred in a year of continued investment in IT,
infrastructure and people in anticipation of future business growth,
together with write offs and provisions of R290 million after tax following
an extensive review of financial controls across all countries. Headline
earnings in the rest of Africa were 38% lower than the prior year. Overall,
headline earnings from our businesses outside Africa were 87% down on the
prior year. Corporate & Investment Banking outside Africa saw a 34% decrease
in revenues. Although restrained significantly in the second half, cost
growth in these operations and write downs and provisions of R1 098 million
after tax in discontinued and curtailed operations, led to headline earnings
for Corporate & Investment Banking outside Africa being down 95%. Personal &
Business Banking outside Africa (comprising the Personal & Business Banking
division of our operations in Argentina and our offshore banking and wealth
businesses in the Channel Islands previously reported within Corporate &
Investment Banking) grew earnings during the period and Personal & Business
Banking in Argentina ended the year profitably.
Performance review
Standard Bank Group generated headline earnings of R11,3 billion, down 4% on
2009. This result was very different from what we had planned at the
beginning of the year. We did not anticipate how gradual the recovery in our
markets would be nor did we see interest rates going as low as they did in
South Africa and elsewhere in Africa. For the first time in many years we
had to contend with declining revenues. It became clear in the second half
of the year that much tougher cost management was necessary.
After a detailed analysis of our cost base we cut costs in a range of areas.
As staff costs are our largest expense item, we halted recruitment in
virtually all parts of the business and implemented a retrenchment process
aimed at removing inefficiencies, mainly impacting head office managers and
executives in Johannesburg and London. Customer-facing staff and those in
high-growth geographies were largely unaffected. In total, 953 employees in
Johannesburg and London (2% of the group`s total permanent workforce) were
retrenched. This process resulted in once-off pre tax costs of R610 million.
Including a restructuring process undertaken in Argentina earlier in 2010,
the group incurred total non-recurring restructuring costs of R781 million
in 2010, reported centrally in the group`s segmental analysis.
Other cost-saving measures included downsizing or delaying IT projects,
reducing consulting services and cutting back travel and conference costs.
Certain sponsorship agreements will not be renewed in May 2011.
Cost management will remain a key focus in 2011. Where feasible, we will
relocate roles to less expensive jurisdictions and will continue to improve
the efficiency of our operational structures. The restructuring process has
proved effective in breaking the group`s recent trend of relatively high
cost growth. We anticipate that the banking group`s total operating expenses
for 2011 will be at the same level as the 2010 cost base including
restructuring costs.
Standard Bank Group, overall, is in good health. We are well capitalised,
profitable and have a clear growth path, despite an uncomfortable cost-to-
income ratio of 61,7% and an ROE of 12,5%. We have therefore, over and above
the necessary action taken on costs, looked very carefully at our business
strategy and refined our strategy to align it to changes in the group`s
operating environments.
Strategy review
Standard Bank Group has been in operation for 150 years providing banking
services to individuals, companies and governments. We have withstood
challenges in the past and have emerged stronger and more resilient. We
remain the largest bank in Africa by earnings and assets, with a recognised
and trusted brand, a well capitalised strong balance sheet, and our South
African base remains an ideal springboard for our expansion in Africa. Our
strategy is sound. After extensive debate, we believe that a fundamental
revision of the strategy is unwarranted, but that some refinement and
tightening of strategic focus is required.
Africa is at our core. We will continue to build first-class, on-the-ground
banking franchises in chosen markets in Africa, investing in people, branch
networks and systems. Our rapid pace of investment in those countries has
not been vindicated by recent revenue trends. Nevertheless, we are confident
that future revenue flows will justify these investments in infrastructure.
As we create stronger annuity revenue streams and customer relationships in
our domestic operations, these will provide greater opportunity to leverage
our cross-border investment banking and global markets capabilities.
We no longer have ambitions to buy or build additional domestic businesses
in markets outside of Africa. However, we will connect other selected
emerging markets to Africa and to each other, applying our sector expertise,
particularly in natural resources, globally.
Our long standing global natural resources franchise will retain its
importance and remains a key focus area. We will continue to improve our
sector coverage, expand our activities across the entire commodity value
chain and put more of our people closer to our clients in the countries in
which they operate.
China continues to be critical to our strategy. We will continue building
robust banking systems for Chinese clients in Africa and positioning the
group to service the growing trade and investment flows between China and
other emerging markets.
In the context of our refocused strategic ambitions, tight capital
management is fundamental. Now that we have more clarity on the proposed
Basel III requirements, we have a clearer framework for optimising the
deployment of capital across the group. This will be addressed from 2011 and
over time will result in lower amounts of capital being allocated outside
Africa.
Financial review
Balance sheet analysis
Total banking assets increased by 3% including derivative assets and surplus
liquidity, while loans and advances decreased by 1%. A 3% growth rate in
Personal & Business Banking was more than offset by a 7% decline of the loan
book in Corporate & Investment Banking. In Personal & Business Banking,
mortgage loans were up 5%, instalment sale and finance leases were down 7%
and card debtors were 2% lower. In Corporate & Investment Banking, lending
assets reduced as loans matured and clients were reluctant to take on new
debt in the face of uncertainty in financial markets. In Nigeria and Kenya,
lending improved as we strengthened our relationships with local corporates.
Deposits and current accounts rose 4%. The 2% growth in Personal & Business
Banking was due largely to an increase in the number of current accounts and
higher average balances. Growth in longer term indexed and notice deposits
was the main contributor to deposit growth in Corporate & Investment
Banking. The ratio of loans-to-deposits remained conservative at 89,5%
(2009: 94,1%).
Net asset value grew 4% for the year. The group conserved capital by
declaring a final dividend in respect of the 2009 financial year as a scrip
distribution with a cash alternative. 57% of shareholders accepted the scrip
offer. Shareholders` funds deployed outside South Africa are exposed to
foreign currency translation movements resulting from the translation of
these funds into rand. The closing rand exchange rate strengthened 10%
against the dollar, resulting in a debit to the foreign currency translation
reserve of R3,6 billion.
Income statement analysis
Net interest income fell by 8%. A lower net interest margin, 3,01% for 2010
versus 3,21% for 2009, and a flat loan book were the main reasons for the
decline. The low interest rate environment in most of our markets and
stiffer competition for transaction and saving balances constrained deposit
spreads. The negative endowment impact of lower average interest rates on
capital and transactional balances reduced margins by 38 basis points. The
benefit of ongoing repricing of lending margins on new business was dampened
by muted growth in the loan book.
Non-interest revenue declined by 4%, dragged down by a 21% drop in trading
revenue, although net fee and commission revenue rose 3% and other revenue
was up 15%.
Growth in the personal and business customer base in South Africa, combined
with annual price increases, delivered income growth of 5% from account
transaction fees. The expanded branch network in the rest of Africa
underpinned higher transaction volumes, although fee income was dampened by
the translation effect of the strong rand. Knowledge-based fees in Corporate
& Investment Banking declined by 3% due to subdued corporate activity in
South Africa. This was partly offset by an increase in advisory mandates won
in the rest of Africa.
Trading revenue declined 21% and was impacted by the translation effect of
the stronger rand. On a constant currency measure, trading revenue would
have been down 11%. Uncertainty in financial markets, especially in the wake
of the European sovereign debt crisis, led to lower levels of client
activity and all trading desks were down on the prior year. No trading desks
recorded losses for the year, testament to our client-focused franchise.
Other revenue growth was supported by positive valuation adjustments on
unlisted equities, improved short-term insurance income and solid
contribution from the sale of insurance-related products to bank customers
in partnership with Liberty. Property-related income declined as a result of
write downs on unlisted property investments in South Africa.
Credit impairment charges were 38% lower at R7 524 million (credit loss
ratio of 1,04%) from R12 097 million (credit loss ratio of 1,60%) in 2009,
reflecting the improving credit environment. Non-performing loans (NPLs)
reduced to 5,8% of the book at year end (2009: 6,5%), as customers serviced
their debt and we improved our recovery capability. This allowed the charge
for NPLs to reduce by 31%, despite impairments of R715 million relating to
curtailed operations. Corporate restructuring and the lower probability of
client defaults in Corporate & Investment Banking resulted in a net reversal
of portfolio provisions. Provision coverage ratios remain largely unchanged.
Banking staff costs were 9% higher than in 2009. Other operating expenses
were also up 9% and together with the once-off restructuring costs of R781
million pushed up overall cost growth to 12%. On a constant currency
measure, cost growth was 18%. Due to high cost growth evident in the first
half of the year, a restructuring process was implemented, as discussed
previously. The reduction in heads as a result of the restructuring
exercises will only be evident in 2011 once notice periods have expired.
Banking staff costs were impacted by a 5% increase in headcount for the year
and higher than inflation wage increases. After adjusting for the reduction
in headcount as a result of the restructuring process, the staff complement
is up 3%, or approximately 1 200 people higher than in 2009. This increase
comes almost exclusively from our growing operations on the ground in the
rest of Africa.
The 9% growth in other operating expenses included higher depreciation costs
and continued investment in IT systems and infrastructure.
Once-off restructuring costs comprise the staff and other costs of the
restructuring exercises undertaken in the group during 2010: earlier in the
year in Argentina and later in the year in Johannesburg and London head
offices.
In banking activities, income from associates and joint ventures grew to
R584 million, largely due to the inclusion of equity accounted earnings from
our investment in Troika Dialog in Russia for the first time, and the non-
recurrence of impairments against carrying values of associates raised in
2009.
Business unit performance
Personal & Business Banking
Headline earnings were up 23% to R4 750 million, in spite of flat revenues
and supported by improved credit experience. Revenues were impacted by the
negative endowment impact on transactional account balances due to low
interest rates, and further increases in the cost of term funding needed to
support mortgage lending growth. The division achieved an ROE of 17,9%
(2009: 15,1%).
Mortgage lending returned to profitability during the year, generating
headline earnings of R310 million. New mortgage loan applications rose
steadily and new loans of R28 billion were registered. Coupled with the
purchase of a further R3 billion of mortgages from SA Home Loans, this
pushed growth in the book up to 5% year-on-year notwithstanding a higher pre-
payment rate by customers. Margins were again impacted by the higher cost of
term funding but this was somewhat offset by further improvements in
customer pricing. Weighted average new business concessions in South Africa
improved to 0,20% in 2010 compared with 0,79% in 2009. The Standard Bank of
South Africa`s market share of new business in mortgage lending is currently
around 21% compared with 16% in 2009.
As anticipated, the absolute value of mortgage NPLs started to come down
towards the end of 2010, albeit marginally. At the end of the year NPLs made
up 9,4% of the book compared with 10,1% a year earlier. The slower growth in
NPLs and better outlook for debt repayment allowed the division to reduce
credit impairment charges in home loans by 25%. This resulted in a credit
loss ratio of 1,15% (2009: 1,59%). The proportion of debt review customers
in the mortgage NPL portfolio was reduced from R6,8 billion to R3,9 billion.
NPLs arising from the debt review process remain a concern and are being
carefully and proactively managed.
The instalment finance business increased new loan payouts due to relatively
strong domestic vehicle sales off a low base in the prior year. New business
in the South African motor business grew 34% while non-motor business
managed only 2% growth as businesses struggled in the sluggish economy and
major corporates used cash to purchase equipment. Despite the new business
growth, increasing instalment repayments on this ageing book resulted in
year end balances dropping by 7%. Credit impairments halved during the
period and the credit loss ratio was 1,93% compared to 3,49% in 2009.
Credit cards showed healthy earnings growth for the year despite lower
revenues. Pressures on revenues continued with lower cardholder activity and
lower outstanding average balances as consumers reduced debt obligations
through most of the year. New account growth has recently gained momentum,
which bodes well for the coming year. The credit loss ratio came down to
3,78% from 5,61%, and lower fraud losses as chip and pin cards are rolled
out contributed to headline earnings growing 7%.
Transactional and lending product deposit margins remained under pressure
due to the negative endowment impact of lower interest rates on
transactional accounts in most of the countries in which we operate. Current
account balances in both the personal and business markets in South Africa
showed positive growth of 12% and 19% respectively. Transactional banking
accounts in the rest of Africa grew by almost 100 000 accounts. Most of this
account growth came from personal banking customers, with Nigeria being the
single biggest contributor. Fee and commission income benefitted from
account growth and modest price increases. Credit losses in the business
banking book improved although trading conditions remained difficult.
Bancassurance and wealth includes the bank`s insurance-related businesses as
well as the wealth management businesses in the Channel Islands, previously
reported as part of Corporate & Investment Banking. We continued to forge
closer operational ties with Liberty to grow bancassurance volumes and, in
the domestic market, there was a marginal increase in the penetration rate
for all products. The bancassurance businesses also recorded higher sales of
complex products and improved claims loss ratios. The offshore wealth
management businesses felt the impact of lower deposit margins due to
international interest rates remaining structurally low for most of the
financial year.
Corporate & Investment Banking
Headline earnings fell 30% to R5 248 million. The difficult market
conditions in the first half of the year persisted into the second half,
with market uncertainty continuing to have a detrimental impact on revenues,
which were down 16%. A significant improvement in credit experience helped
offset revenue pressures although costs escalated as we continued to build
our franchise in the rest of Africa. The decline in profitability resulted
in an ROE of 12,7% (2009: 18,8%).
Global markets operated in a challenging environment characterised by lower
levels of client activity. Stable low interest rates across most currencies
provided limited hedging opportunities for clients. Revenues were down 23%
from the high base set in 2009, affected by income previously earned through
a subsidiary in Russia now being accounted for on a net basis as earnings
from associates, following the investment in Troika Dialog, and not as
trading income. Costs incurred in building trading platforms in physical
commodities and equities resulted in headline earnings falling by 49%.
Investment banking saw some signs of recovery with client activity
increasing in the second half. Advisory fees from cross-border activities
benefited from a number of important landmark transactions. There was an
improvement in term lending, particularly in South Africa and Nigeria. The
turnaround in credit impairments as client positions improved and prior year
provisions were reversed resulted in a 75% climb in headline earnings.
Transactional products and services income was down 11%. Margins were
squeezed by the negative endowment effect on transactional balances and
intensifying competition across Africa. We continued to make significant
investments in IT platforms to maintain market leadership in South Africa
and build transactional capabilities across our African franchise.
Principal investment management, previously included in investment banking,
comprises investments in private equity, real estate and debt funds. Lower
fair value gains during 2010 impacted this business. Certain activities
which are non-core in relation to our refocused strategy have been curtailed
and are in the process of being wound down. These activities incurred a loss
of R1 098 million in 2010 and include credit impairments arising from a
portfolio of structured loans to high net worth individuals outside of
Africa and fair value write downs of investments in distressed debt in Asia.
These businesses were also previously reported in investment banking.
The underlying performance in Troika was satisfactory during 2010. We equity
accounted USD51 million of earnings of which USD16 million represented our
share of the operating profit of Troika and USD35 million related to the
recovery of underlying asset values post acquisition.
Wealth - Liberty
The financial results of Liberty arise from the group`s 53,7% investment in
Liberty Holdings Limited (Liberty). Bancassurance results are included under
Personal & Business Banking. Normalised headline earnings were R2 597
million for the year compared to R135 million reported in the prior year, a
significant improvement indicating a return to more normal levels of
earnings from core insurance operations. Of these headline earnings, R1 393
million was attributable to Standard Bank Group (2009: R72 million). The
significant recovery in earnings resulted from substantially improved
persistency and from the impact of investment markets on Liberty`s book.
Positive returns on bonds, equity and preference shares assisted in strong
growth in investment income and gains. Net cash flows into asset management
operations improved significantly and assets under management grew by 16%.
Growth in net insurance premiums remained low at 1% and indexed new business
was down 2%. Earnings were negatively impacted by higher death claims on
core risk products, lower new business margins and higher member attrition
and risk claims in health operations. Normalised total embedded value
increased by 8% and Liberty achieved a 13,4% return on embedded value.
Shareholders are referred to the full Liberty results announcement dated 24
February 2011.
Capital and liquidity management
The group remains well capitalised with a tier I capital adequacy ratio of
12,9% and a total capital adequacy ratio of 15,3%, well above the group`s
internal targets. Liberty`s capital adequacy level at December 2010 was
strong at 2,67 times the required cover.
The group executed a number of key term loan funding transactions, taking
advantage of pockets of well-priced liquidity. Compared to the height of the
global financial crisis, global interbank funding conditions were stable,
tenors have lengthened and spreads have compressed. In the South African
market, weaker credit demand and surplus liquidity have started to lower the
cost of term liquidity. Investor appetite for capital markets issuance
remained robust and The Standard Bank of South Africa successfully placed
R4,35 billion of senior debt in the domestic bond market.
The group increased its long-term funding ratio to 26,6% and retained a very
conservative liquidity buffer with surplus liquidity totalling R106,8
billion at 31 December 2010.
Standard Bank participated in the quantitative impact study that the Basel
Committee conducted during 2010 and preliminary results showed that our tier
I ratio would decrease slightly under the proposed Basel III framework. We
are confident, however, that we are adequately capitalised to meet the new
requirements. We continue to assess the impact of the liquidity standards as
proposed by the Basel Committee. These may prove to be onerous, depending on
the extent of national discretion applied by domestic banking regulators.
Dividends
Given the strong capital position of the group and the improving outlook
described below, a final cash dividend of 245 cents has been declared,
bringing the full dividend for the year to 386 cents, the same level as the
prior three years. This declaration results in dividend cover for the year
of 1,85 times, compared to the group`s medium term dividend cover objective
of 2,5 times.
Prospects
Signs are that the global economy will continue to recover slowly, but the
combined threats of increasing inflation in developing economies and budget
deficits in Europe pose risks to economic growth.
In Sub-Saharan Africa, we expect domestic demand to remain strong given
rising real incomes and sustained private and public investment. In
addition, exports are expected to benefit from the reorientation of trade
toward the faster-growing markets in Asia. Africa is firmly in the company
of the emerging markets outperforming the global economy in the medium term.
However, growth will remain contingent on the improving health of the global
economy and while there is certainly appetite for investment-led growth,
there are a number of African countries facing significant political risk in
the coming year.
Strategically we are well positioned and our capital adequacy is strong.
After two extremely difficult years we are focusing on improving our ROE
through revenue generation and cost containment.
We have taken decisive action to address our cost base, improve operational
efficiency and close poorly performing business lines. We believe these
initiatives, combined with an ongoing decline in credit impairments, will
have a positive impact on our financial performance and that we are well
positioned to resume growth in earnings.
Any forward looking information contained in this announcement has not been
reviewed or audited by the group`s auditors.
Jacko Maree Fred Phaswana
Chief executive Chairman
2 March 2011
Normalised results (unaudited)
With effect from 2004, we have adjusted the group`s results reported under
IFRS for required accounting conventions that do not reflect the underlying
economic substance of transactions. To arrive at the normalised results the
IFRS results have been adjusted for the following items:
- preference share funding for the group`s Black Economic Empowerment
Ownership initiative (Tutuwa) transaction that is deducted from equity and
reduces the shares in issue in terms of IFRS; and
- group companies shares held for the benefit of Liberty policyholders that
result in a reduction of the number of shares in issue and the exclusion of
fair value adjustments and dividends on these shares. The IFRS requirement
causes an accounting mismatch between income from investments and changes in
policyholders` liabilities.
During the year the group entered into transactions on its own shares to
facilitate client trading activities. As part of the normal trading
operations, a group subsidiary offers to its clients trading positions of
listed shares, including its own shares. In order to hedge the risk on these
shares the subsidiary buys or sells short group shares in the market.
Although the share exposure on the group`s own shares is deducted from
equity and the related fair value movements are reversed in the income
statement on consolidation, the client trading position and fair value
movements are not eliminated, resulting in an accounting mismatch. In
addition to the two anomalies described above, the group has corrected this
accounting mismatch resulting from the application of IFRS in preparing the
normalised results.
The result of these adjustments is shown in the table below:
Normalised headline earnings
Weighted average Headline Growth on
number of shares earnings 2009
`000 Rm %
Disclosed on an IFRS basis 1 491 956 10 969 (3)
Tutuwa initiative 63 479 236
Group shares held for the 23 843 135
benefit of Liberty
policyholders
Share exposures held to (3 186) (57)
facilitate client trading
activities
Normalised 1 576 092 11 283 (4)
Abridged audited results in accordance with IFRS
Consolidated income statement
for the year ended 31 December
% 2010 2009(1)
change Rm Rm
Income from banking activities (6) 58 746 62 828
Net interest income (8) 28 742 31 316
Non-interest revenue (5) 30 004 31 512
Income from investment management and 18 51 149 43 458
life insurance activities
Total income 3 109 895 106 286
Credit impairment charges (38) 7 524 12 097
Benefits due to policyholders 10 37 335 33 935
Income after credit impairment charges 8 65 036 60 254
and policyholders` benefits
Operating expenses in banking 12 36 656 32 827
activities
Operating expenses in investment 4 9 388 9 052
management and life insurance
activities
Net income before goodwill 3 18 992 18 375
Goodwill impairment >100 144 42
Net income before associates and joint 3 18 848 18 333
ventures
Share of profit from associates and >100 633 33
joint ventures
Net income before indirect taxation 6 19 481 18 366
Indirect taxation (14) 1 475 1 710
Profit before direct taxation 8 18 006 16 656
Direct taxation 7 4 999 4 660
Profit for the year 8 13 007 11 996
Attributable to non-controlling >100 1 846 411
interests
Attributable to preference (27) 387 531
shareholders
Attributable to ordinary shareholders (3) 10 774 11 054
Basic earnings per share (cents) (5) 722,1 757,5
Diluted earnings per share (cents) (5) 696,0 731,6
(1) Restated.
Headline earnings
for the year ended 31 December
% 2010 2009
change Rm Rm
Group profit attributable to ordinary (3) 10 774 11 054
shareholders
Headline earnings adjustable items added 296 205
back
Goodwill impairments - IFRS 3 144 42
Loss on deemed disposal of associate 10
- IFRS 3
Profit on sale of property and equipment (23) (38)
- IAS 16
Impairment of property and equipment 46
- IAS 16
Realised foreign currency translation 21 (18)
reserve on foreign operations - IAS 21
Losses on the disposal of businesses and 30 7
divisions - IAS 27
Impairment of associates - IAS 28 29 379
Reversal of impairment of associates (19)
- IAS 28
Impairment of intangible assets - IAS 38 179 96
Realised gains on available-for-sale (75) (309)
assets - IAS 39
Taxation on headline earnings adjustable (28) 16
items
Non-controlling interests` share of (73) (22)
headline earnings adjustable items
Headline earnings (3) 10 969 11 253
Consolidated statement of financial position
as at 31 December
% 2010 2009(1)
change Rm Rm
Assets
Cash and balances with central banks 15 28 675 24 983
Financial investments, trading and 4 370 364 355 287
pledged assets
Loans and advances (1) 710 722 721 389
Loans and advances to banks (4) 107 090 111 068
Loans and advances to customers (1) 603 632 610 321
Investment property 13 21 521 19 058
Derivative and other assets 20 169 203 140 601
Interest in associates and joint 11 10 533 9 529
ventures
Goodwill and other intangible assets 10 10 383 9 409
Property and equipment 22 14 907 12 250
Total assets 3 1 336 308 1 292 506
Equity and liabilities
Equity 4 103 198 99 369
Equity attributable to ordinary 4 87 073 84 022
shareholders
Ordinary share capital 2 159 156
Ordinary share premium 2 17 363 17 041
Reserves 4 69 551 66 825
Preference share capital and premium 5 503 5 503
Non-controlling interest 8 10 622 9 844
Liabilities 3 1 233 110 1 193 137
Deposit and current accounts 3 789 500 768 548
Deposits from banks (13) 91 729 106 018
Deposits from customers 5 697 771 662 530
Derivative, trading and other 4 222 594 213 633
liabilities
Policyholders` liabilities 7 197 878 184 300
Subordinated debt (13) 23 138 26 656
Total equity and liabilities 3 1 336 308 1 292 506
(1) Restated.
Contingent liabilities and capital commitments
as at 31 December
2010 2009
Rm Rm
Letters of credit and bankers` acceptances 10 407 10 784
Guarantees 29 327 29 078
Contingent liabilities 39 734 39 862
Contracted capital expenditure 2 662 1 689
Capital expenditure authorised but not yet 8 415 10 075
contracted
Capital commitments 11 077 11 764
Consolidated cash flow information
for the year ended 31 December
2010 2009
Rm Rm
Net cash flows from operating activities 27 164 6 295
Net cash flows used in investing activities (13 912) (7 372)
Net cash flows (used in)/from financing (7 810) 2 887
activities
Effects of exchange rate changes on cash and (1 750) (2 524)
cash equivalents
Net increase/(decrease) in cash and cash 3 692 (714)
equivalents
Cash and cash equivalents at beginning of the 24 983 25 697
year
Cash and cash equivalents at end of the year 28 675 24 983
Consolidated statement of comprehensive income
for the year ended 31 December
2010
Ordinary Non- Total 2009
shareholders` controlling Rm Total
equity interests and Rm
Rm preference
shareholders
Rm
Profit for the year 10 774 2 233 13 007 11 996
Other comprehensive (4 509) (844) (5 353) (9 464)
income after tax for
the year
Exchange rate (3 561) (845) (4 406) (9 567)
differences on
translating equity
investment in foreign
operations
Foreign currency hedge (768) (768) (106)
of net investment
Cash flow hedges (214) (214) 85
Available-for-sale 71 45 116 40
financial assets
Revaluation and other (37) (44) (81) 84
(losses)/gains
Total comprehensive 6 265 1 389 7 654 2 532
income for the year
Attributable to non- 1 002 1 002 (1 658)
controlling interests
Attributable to equity 6 265 387 6 652 4 190
holders of the parent
Attributable to 387 387 531
preference shareholders
Attributable to 6 265 6 265 3 659
ordinary shareholders
Consolidated statement of changes in equity
for the year ended 31 December
Ordinary Preference Non- Total
shareholders` share controlling Rm
equity capital interest
Rm and premium Rm
Rm
Balance at 1 January 81 953 5 503 12 045 99 501
2009
Total comprehensive 3 659 531 (1 658) 2 532
income for the year
Transactions with (1 590) (531) (543) (2 664)
owners, recorded
directly in equity
Equity-settled share- 307 37 344
based payment
transactions
Tax on share-based 58 58
payments
Issue of share capital 200 (10) 190
and share premium
Net decrease in 691 316 1 007
treasury shares
Dividends paid (2 846) (531) (886) (4 263)
Balance at 31 December 84 022 5 503 9 844 99 369
2009
Balance at 1 January 84 022 5 503 9 844 99 369
2010
Total comprehensive 6 265 387 1 002 7 654
income for the year
Transactions with (3 214) (387) (224) (3 825)
owners, recorded
directly in equity
Equity-settled share- 412 32 444
based payment
transactions
Tax on share-based 2 2
payments
Change in shareholding (37) 36 (1)
of subsidiary
Issue of share capital 205 30 235
and share premium and
capitalisation of
reserves
Net increase in (23) 449 426
treasury shares
Dividends paid (3 773) (387) (771) (4 931)
Balance at 31 December 87 073 5 503 10 622 103 198
2010
Financial statistics
for the year ended 31 December
% 2010 2009
change
Number of ordinary shares in issue
(000`s)
-?end of year 2 1 505 093 1 474 344
-?weighted average 2 1 491 956 1 459 337
-?diluted weighted average 2 1 548 001 1 511 038
Cents per ordinary share
Headline earnings (5) 735,2 771,1
Diluted headline earnings (5) 708,6 744,7
Dividend 386,0 386,0
Basic earnings (5) 722,1 757,5
Diluted earnings (5) 696,0 731,6
Net asset value 2 5 785 5 699
Financial performance (%)
ROE 12,7 13,7
Net interest margin 3,00 3,19
Credit loss ratio 1,05 1,60
Cost-to-income ratio 61,8 52,3
Capital adequacy (%)
Capital ratios (unaudited)
-?tier I capital 12,9 11,9
-?total capital 15,3 15,1
Segment report
for the year ended 31 December
% 2010 2009(1)
change Rm Rm
Revenue contribution by business unit
Personal & Business Banking 34 975 34 855
Corporate & Investment Banking (16) 22 663 27 020
Central and other 45 1 212 835
Banking activities (6) 58 850 62 710
Liberty 16 51 466 44 338
Standard Bank Group - Normalised 3 110 316 107 048
Adjustment for IFRS (421) (762)
Standard Bank Group - IFRS 3 109 895 106 286
Profit and loss attributable to
ordinary shareholders
Personal & Business Banking 34 4 674 3 477
Corporate & Investment Banking (31) 5 227 7 615
Central and other (>100) (136) 355
Banking activities (15) 9 765 11 447
Liberty >100 1 323 72
Standard Bank Group - Normalised (4) 11 088 11 519
Adjustment for IFRS (314) (465)
Standard Bank Group - IFRS (3) 10 774 11 054
(1) Reclassified.
Private equity associates and joint ventures
for the year ended 31 December
2010 2009
Rm Rm
Cost 382 409
Carrying value 641 658
Fair value 651 818
Loans (from)/to associates and joint (37) 432
ventures
Equity accounted income 43 128
Accounting policies
Basis of preparation
These audited results are a summary of the consolidated financial statements
and are prepared in accordance with the recognition and measurement criteria
of International Financial Reporting Standards (IFRS), its interpretations
adopted by the International Accounting Standards Board (IASB), the
presentation and the disclosure requirements of IAS 34 Interim Financial
Reporting, the AC 500 standards as issued by the Accounting Practices Board
or its successor, the Listings Requirements of the JSE Limited and the
requirements of the South African Companies Act 61 of 1973, as amended. The
consolidated financial results are prepared in accordance with the going
concern principle under the historical cost basis as modified by the fair
value accounting of certain assets and liabilities where required or
permitted by IFRS.
The consolidated financial statements are presented in South African rand.
All amounts are stated in millions of rand (Rm), unless indicated otherwise.
Changes in accounting policies
The accounting policies are consistent with those adopted in the previous
year except for the standards and interpretations noted below and are in
terms of IFRS.
Adoption of new standards and interpretations effective for the current
financial year
The group has adopted the following revised IFRS prospectively as of 1
January 2010:
- IFRS 3 Business Combinations (revised 2008); and
- IAS 27 Consolidated and Separate Financial Statements (revised 2008).
Whilst the revised IFRS have resulted in changes to the group`s accounting
policies, the adoption of these revised standards has had no material effect
on the results, nor has it required any restatements of the results.
The group has also adopted all other effective new and amended IFRS (not
previously early adopted) as of 1 January 2010, with no material impact on
the group`s accounting policies or results, and no restatement of prior year
results.
Early adoption of new standards and interpretations
The group has early adopted the following new and amended IFRS as of 1
January 2010 with no material impact on the group`s accounting policies or
results, and no restatement of the prior year results:
- IFRS 1 First-time Adoption of International Financial Reporting Standards
(IFRS 1) (2010 Improvements to IFRS);
- IFRS 1 (Severe Hyperinflation and Removal of Fixed Dates for First-time
Adopters);
- IFRS 3 Business Combinations (revised 2008) (2010 Improvements to IFRS);
- IAS 1 Presentation of Financial Statements (2010 Improvements to IFRS);
- IAS 27 Consolidated and Separate Financial Statements (2010 Improvements
to IFRS); and
- IFRIC 13 Customer Loyalty Programmes (2010 Improvements to IFRS).
The group has also early adopted the amendments to IAS 12 Income Taxes
(Deferred Tax: Recovery of Underlying Assets). Comparative information has
been restated to conform to the revised standard. This has resulted in the
deferred tax liability in respect of investment property surpluses being
restated to the sale rate and has correspondingly increased policyholder
liabilities. The adoption of this amendment has had no impact on headline
earnings or earnings per share.
Reclassifications and restatements
A review of the group`s derivative positions was undertaken during the
course of the year to determine whether the presentation applied was in
accordance with international best practice. The group`s cross currency
interest rate swap contracts incorporate, as standard market practice, reset
dates on which cash flows are exchanged to manage the credit risk on the
contract`s notional amounts. These cash flows have historically been
presented as derivative assets and liabilities separately from the
underlying derivative contract. Following the review it was decided to
present the cash flows, together with the underlying derivative contract, as
a single contractual relationship with the group`s counterparty. The group
believes that this treatment better reflects the nature of the underlying
transactions and the credit risk of its relationship with its counterparty.
The group routinely enters into soft (for example, maize) and hard (for
example, precious metals) commodity based financing transactions. Hard
commodity based financing transactions within the trading book have
historically been accounted for as either outright purchases, by recognising
a commodity and related derivative forward sales agreement, or sales,
through derecognition of the commodity and recognition of a related
derivative forward purchase agreement. The group has revised the accounting
treatment for these transactions based on market practice and analogy to
IFRS requirements for similar financing transactions with a financial
instrument underlying. The group`s revised policy treats certain of the
group`s hard commodity based financing transactions as either buy to sell
backs (collateralised lending), where a reverse repurchase agreement within
trading assets is recognised, or sell to buy backs (collateralised
borrowing), where the commodity continues to be recognised together with a
repurchase agreement within trading liabilities. These financing
transactions are accounted for in accordance with the group`s existing
accounting policy for `Sale and repurchase agreements and lending of
securities`.
For the classification of loans and advances to banks, banks are defined as
entities that are regulated deposit taking institutions. In previous
reporting periods, overnight placements with certain banking groups, which
are not regulated deposit taking institutions, were included under loans to
banks. These placements have now been classified to customers.
The comparative statements of financial position have been adjusted to
reflect the presentation consequences of the reclassifications.
Reports of the independent auditors
The unmodified audit reports of KPMG Inc. and PwC Inc., the independent
auditors, on the annual financial statements and the abridged financial
statements contained herein for the year ended 31 December 2010, dated 2
March 2011, are available for inspection at the registered office of the
company.
Declaration of dividends
Notice is hereby given that the following final dividends have been
declared:
- ordinary dividend No. 83 of 245 cents per ordinary share (share codes: SBK
and SNB, ISIN: ZAE000109815), payable on Monday, 11 April 2011, to ordinary
shareholders recorded in the books of the company at the close of business
on the record date, Friday, 8 April 2011. The last day to trade to
participate in the dividend is Friday, 1 April 2011. Ordinary shares will
commence trading ex-dividend from Monday, 4 April 2011;
- 6,5% first cumulative preference shares (first preference shares) dividend
No. 83 of 3,25 cents per first preference share (share code: SBKP, ISIN:
ZAE000038881), payable on Monday, 4 April 2011, to holders of first
preference shares recorded in the books of the company at the close of
business on the record date, Friday, 1 April 2011. The last day to trade to
participate in the dividend is Friday, 25 March 2011. First preference
shares will commence trading ex-dividend from Monday, 28 March 2011; and
- non-redeemable, non-cumulative, non-participating preference shares
(second preference shares) dividend No. 13 of 337,90 cents per second
preference share (share code: SBPP, ISIN: ZAE000056339), payable on Monday,
4 April 2011, to holders of second preference shares recorded in the books
of the company at the close of business on the record date, Friday, 1 April
2011. The last day to trade to participate in the dividend is Friday, 25
March 2011. Second preference shares will commence trading ex-dividend from
Monday, 28 March 2011.
The relevant dates for the payment of dividends are as follows:
Ordinary shares 6,5% Non-redeemable,
cumulative non-cumulative,
preference shares non-participating
(First preference preference shares
shares) (Second preference
shares)
JSE Limited
(JSE)
Share code SBK SBKP SBPP
ISIN ZAE000109815 ZAE000038881 ZAE000056339
Namibian Stock
Exchange (NSX)
Share code SNB
ISIN ZAE000109815
Dividend per 245 3,25 337,90
share (cents)
Last day to Friday, Friday, Friday,
trade "CUM" 1 April 2011 25 March 2011 25 March 2011
dividend
Shares trade Monday, Monday, Monday,
"EX" dividend 4 April 2011 28 March 2011 28 March 2011
Record date Friday, Friday, Friday,
8 April 2011 1 April 2011 1 April 2011
Payment date Monday, Monday, Monday,
11 April 2011 4 April 2011 4 April 2011
Ordinary share certificates may not be dematerialised or rematerialised
between Monday, 4 April 2011 and Friday, 8 April 2011, both days inclusive.
Preference share certificates (first and second) may not be dematerialised
or rematerialised between Monday, 28 March 2011 and Friday, 1 April 2011,
both days inclusive.
Where applicable, dividends in respect of certificated shares will be
transferred electronically to shareholders` bank accounts on the payment
date. In the absence of specific mandates, dividend cheques will be posted
to shareholders. Preference shareholders (first and second) who hold
dematerialised shares will have their accounts at their CSDP or broker
credited on Monday, 4 April 2011. Ordinary shareholders who hold
dematerialised shares will have their accounts at their CSDP or broker
credited on Monday, 11 April 2011.
On behalf of the board
Loren Wulfsohn
Group secretary
Directors
TMF Phaswana (Chairman), Hongli Zhang** (Deputy chairman), SJ Macozoma
(Deputy chairman), JH Maree* (Chief executive), DDB Band, RMW Dunne#, TS
Gcabashe, SE Jonah KBE##, Sir Paul Judge#, KP Kalyan, Yagan Liu**, Adv KD
Moroka, AC Nissen, MC Ramaphosa, SP Ridley*,
MJD Ruck, Lord Smith of Kelvin, Kt#, EM Woods
*Executive director?**Chinese?#British?##Ghanaian
Group secretary
L Wulfsohn
Registered office
9th Floor, Standard Bank Centre
5 Simmonds Street, Johannesburg 2001.
PO Box 7725, Johannesburg 2000.
Share transfer secretaries in South Africa
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Namibia
Transfer Secretaries (Proprietary) Limited
Shop 8, Kaiserkrone Centre,
Post Street Mall, Windhoek
PO Box 2401, Windhoek
Independent sponsor
Deutsche Securities (Proprietary) Limited
Joint sponsor
Standard Bank
Investors are referred to www.standardbank.com where a detailed analysis of
the group financial results, including an income statement and a statement
of financial position for The Standard Bank of South Africa Limited (SBSA),
can be found.
www.standardbank.com
Johannesburg
03 March 2011
Date: 03/03/2011 08:00:04 Produced by the JSE SENS Department.
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