| Mon 21 Nov 2011, 7:32 | | ABL/ABLP - African Bank Investments Limited - Reviewed results for the year |
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ABL ABLP
ABL
ABL/ABLP - African Bank Investments Limited - Reviewed results for the year
ended 30 September 2011 and cash dividend declarations
African Bank Investments Limited
(Registration Number 1946/021193/06)
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
Ordinary Share Code: ABL ISIN: ZAE000030060
Preference Share Code: ABLP ISIN: ZAE000065215
("ABIL" or "the Company" or "the group")
REVIEWED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2011 AND CASH DIVIDEND
DECLARATIONS
Features
- ABIL achieved a return on equity of 18,4% for the year to 30 September
2011 (2010: 15,6%) and an economic profit, after charging for its cost of
equity, of R494 million (2010: R78 million).
- Headline earnings increased by 24% to R2 339 million (2010: R1 890
million), as did headline earnings per share to 291,0 cents (2010: 235,1
cents).
- A final ordinary dividend per share of 100 cents (2010: 100 cents) was
declared, bringing the total dividend for the year to 185 cents per share
(2010: 185 cents). A final preference dividend per share of 310 cents were
declared (2010: 336 cents), resulting in a full year preference dividend of
620 cents per share (2010: 691 cents).
- The Banking business unit grew headline earnings by 24% to R2 302 million
(Pro forma* 2010: R1 863 million), benefiting from substantial sales and
advances growth, a slower reduction in yield than in recent years, and
steady asset quality. Return on equity improved from 19,7% in 2010 to
22,9%.
- The Retail business unit`s headline earnings were R190 million (Pro
forma* 2010: R130 million), supported by modest increase in sales, firm
margins and operating leverage from more efficient operations. EHL
generated a return on equity of 6,9% (2010: 4,8%).
Financial results
The group`s financial performance in the year ended 30 September 2011 was
driven by a variety of new credit and retail product offerings and
increased access through a range of new channels. High levels of
commitment, energy and innovation from our staff culminated in robust
growth despite a modest trading environment. The performance was augmented
by the value creation between African Bank and EHL, specifically through
the substantial increase in African Bank`s footprint.
Strategic initiatives
ABIL`s strategic vision is premised on strong growth over the medium term
that ultimately translates into better value for customers. That vision
will only become a reality through the continued commitment, energy and
passion of our people, and their engagement and development is therefore
central to the execution of this vision.
The group has over the past year identified a host of aspects to focus on
as the foundation for our growth aspirations. These include our people
strategies, more refined customer segmentation, the role of technology into
the future, a more scalable operating model; the key financial drivers and
their interrelationships; capital and funding; and a redefined customer
value proposition. Each of these aspects have been evaluated for
scalability and potential for innovation and a variety of initiatives are
in the process of being implemented across the organisation to realise
these opportunities.
With an eye on retaining the group`s predominant credit focus, building on
the current scope of the business, and recognising the evolution of our
customers` needs and expectations, a revised, more competitive customer
value proposition was introduced in the business during 2011. The revised
proposition not only extended both the target market and the product scope
of the business, but also included a deepening of the credit relationship
with our customers over the long term. A new customer interface that
encapsulates many of the aspects of the revised proposition has recently
been rolled out in pilot mode and will be fully implemented post the peak
trading period.
African Bank`s people journey built on the momentum gained in the previous
year, with the rollout of a values programme, intensive engagement through
a multitude a different channels and a strong focus on people issues. The
implementation of the revised customer value proposition culminated in the
launch of several new products, extended trading hours, improved access
through its physical infrastructure as well as web and mobile channels.
Loan sizes were also increased to accommodate larger purchases.
The acceleration of value creation from the African Bank/EHL relationship
has been a key strategic focus area. This imperative involves the
maximization of credit volumes and revenues from the EHL network. The key
components of the drive are products, such as Ezi*Cash (cash top-up) and
Ezi*Loan (credit only) and access, through African Bank kiosks and carve-
out branches within EHL stores. In the current year, the group generated
R1,7 billion in loan sales (excluding furniture credit) through
distribution that did not exist for the Bank twelve months ago. The current
performance suggests further opportunity of a substantial size over the
next two years.
New customer acquisition has also been a key focus for the group. ABIL
added 612 000 new clients during the year, a 26% increase on 2010. The
Interest Buster, credit card and consolidation loan products were
particularly effective in attracting new customers to the group. The
rollout of kiosks and carve-outs in the EHL footprint also increased the
Bank`s presence in new geographic areas.
EHL continued its efforts of upgrading and re-engineering processes across
the organisation to ultimately offer better quality product ranges and
service to customers. The rollout of the first distribution centre has
already manifested in improved availability of product ranges and quicker
turnaround times for customers. The division also did substantial work on
the development of new and exclusive products and ranges and the
formulation of key strategic relationships that will provide EHL with more
differentiated product offerings and guaranteed supply going forward.
Competition in the unsecured lending arena has intensified over the past
two years. Industry data suggests that the substantial growth in the market
over the past year did not stem predominantly from more credit being
extended to the same group of (potentially over extended) customers. Loans
in the middle to higher income bands and debt consolidation have been
significant areas of growth, while the expansion in the number of new
customers in the transactional banking environment has led to an influx of
newly banked customers who now also have access to credit as a result of
becoming `banked`. The recent much stricter underwriting environment for
secured credit has also meant that many more customers, who may not have
been part of this market segment before, now seek to fulfil their needs
through unsecured credit.
Experience has shown us that whenever there is a rapid acceleration of
credit supply in our market, inevitably customers will become overextended.
At present there is ample evidence that customer payment profiles appear
slightly better than they have been over the past two years, yet there are
pockets of declining payment profiles and increasing debt burdens. However,
underwriting is inherently skewed towards the history, and therefore it is
critical to apply sound judgment. Accordingly, during 2011 an additional
business rule limiting the size of total debt servicing as a percentage of
income was introduced and further enhancements to this, and other related
business rules, will be considered as trends emerge.
ABIL constantly recalibrates its score cards to take cognisance of emerging
risk. In terms of its growth segments, it adjusts its criteria for niche
opportunity in a deliberate and calculated way, rather than a through a
general relaxation of credit criteria. We will be pursuing growth in the
next year with a specific focus on quality of extended credit and a
controlled mix of sales, rather than volumes and will not hesitate to pull
back our sales should the environment necessitate it.
We believe that a passionate and motivated workforce can generate a
momentum in the business that surpasses a difficult trading environment and
intense competition. By allowing our people to understand and contribute to
our vision and step up to the new challenges, we are building an
organisation that will remain at the forefront of innovation and value
creation for all our stakeholders.
Dividends
The group sets dividend cover on a twelve month rolling basis. At the end
of the previous financial year, ABIL indicated it would be increasing its
dividend cover to a minimum of 1,5 times in the 2011 financial year.
Consistent with this guidance, ABIL has declared a final dividend of 100
cents per ordinary share, resulting in a total ordinary dividend for the
year of 185 cents per share. The payout ratio was 64% and the ordinary
dividend cover was 1,6 times.
The group has also declared a final preference dividend of 310 cents per
share, bringing the total preference dividend for the year to 620 cents per
share.
In order to support the targeted growth in advances, the group expects the
dividend cover to rise to between 1,8-2,0 times in the 2012 financial year.
However as the anticipated improvement in RoE gathers momentum over the
short to medium term, the group will re-evaluate its dividend cover, in
order to ensure an optimal balance between a competitive customer value
proposition and a sustainable business model.
Ordinary shares Preference shares
Share code ABL ABLP
ISIN ZAE000030060 ZAE000065215
Dividend number 22 14
Dividends per share 100 cents 310 cents
(cash dividends)
Declaration date Monday, Monday,
21 November 2011 21 November 2011
Last date to trade Thursday, Thursday,
cum-dividend 8 December 2011 8 December 2011
Shares commence trading Friday, Friday,
ex-dividend 9 December 2011 9 December 2011
Record date Thursday, Thursday,
15 December 2011 15 December 2011
Dividend payment date Monday, Monday,
19 December 2011 19 December 2011
Share certificates may not be dematerialised or rematerialised between
Friday, 9 December 2011 and Thursday, 15 December 2011, both dates
inclusive.
Changes to the board
ABIL continually strives to improve its corporate governance processes and
as part of this objective, implemented an approved term limit policy in
respect of its non-executive directors a few years ago. In terms of the
policy, the chairman`s service tenure is limited to a maximum of ten years
and other non-executive directors to a maximum of eight years in total.
During the period under review two of ABIL`s non-executive directors, David
Braidwood Gibbon and Ashley "Oshy" Tugendhaft reached their term limit and
retired from the boards of both ABIL and African Bank Limited with effect
from 30 September 2011. Mpho Nkeli also resigned from the boards of African
Bank Investments Limited and African Bank Limited with effect from 25
January 2011 due to other commitments.
The boards of ABIL and African Bank Limited express their sincere
appreciation to Mpho, David and Oshy for the contribution that they made to
the success of the group over the period of their tenure.
The board announced the appointment of three non-executive directors during
the reporting period. Advocate Mojankunyane Gumbi was appointed as an
independent non-executive director to the boards of African Bank
Investments Limited and African Bank Limited with effect from 1 March 2011.
Ntombi Langa-Royds and Jack Koolen were appointed as independent non-
executive directors to the same boards from 15 March 2011. Jack Koolen was
also appointed to the board of Ellerine Holdings Limited from that date.
The changes to the board have necessitated changes to the membership of the
sub-committees of the board, details of which are as follows:
Previous constitution New constitution
Group audit committee
David Gibbon (Chairman) Sam Sithole (Chairman)
Nic Adams Nic Adams
Johnny Symmonds Johnny Symmonds
Sam Sithole
Group risk and capital management committee
Nic Adams (Chairman) Nic Adams (Chairman)
Sam Sithole Johnny Symmonds
Johnny Symmonds Mojanku Gumbi
Oshy Tugendhaft Jack Koolen
Group remuneration and transformation committee
Mpho Nkeli (Chairperson) Ntombi Langa-Royds (Chairperson)
Mutle Mogase Mutle Mogase
Oshy Tugendhaft Mojanku Gumbi
Directors affairs committee
Oshy Tugendhaft (Chairman) Mutle Mogase (Chairman)
David Gibbon Sam Sithole
Nic Adams Nic Adams
Mutle Mogase Mojanku Gumbi
Mpho Nkeli Ntombi Langa-Royds
Yashmita Mistry resigned as company secretary to ABIL with effect from 31
March 2011. Mdu Luthuli was appointed as company secretary from 11 July
2011.
Looking ahead
While it is expected that the subdued economic environment will continue in
2012, the group is confident of its prospects for the next financial year.
The Bank should continue to benefit from the substantially greater
distribution base that was achieved this year and the number of new
products and initiatives in development. The EHL group similarly, has a
number of innovations and product enhancements that are expected to impact
positively on growth. Above all, we believe that our continued focus on the
development of our people will accelerate the energy and the momentum that
manifested this year.
Review report
The accompanying financial information of the group has been reviewed by
the group`s independent auditors, Deloitte & Touche. The review was
conducted in accordance with ISRE 2410 "Review of Interim Financial
Information performed by the Independent Auditor of the Entity". An
unmodified report has been issued. The full review report is available for
inspection at the Company`s registered office. Any reference to future
financial performance included in this announcement, has not been reviewed
or reported on by the group`s auditors.
Group accounting policies and basis of preparation
The preparation of these group consolidated financial statements was
supervised by the Chief Financial Officer, Nithia Nalliah CA (SA).
These condensed group consolidated financial statements have been prepared
in accordance with the framework concepts and the measurement and
recognition requirements of International Financial Reporting Standards and
AC 500 Standards as issued by the Accounting Practices Board and the
information required by International Accounting Standard (IAS) 34 `Interim
Financial Reporting`, the South African Companies Act (Act 71 of 2008) and
the Listing Requirements of the JSE Limited.
The group has adopted the following new and amended standards and
interpretations during the financial year:
- IFRIC 19 - Extinguishing of Financial Liabilities with Equity Instruments
- IFRS 2 - Group cash-settled share-based payment transactions
- IAS 32 (amended) - Financial Instruments Puttable at Fair Value and
Classification of rights issues.
The accounting policies and their application are
- In compliance with International Financial Reporting Standards and
interpretations issued by the International Financial Reporting
Interpretations Committee of the International Accounting Standards Board;
and
- Consistent with those used for the group`s 2010 annual financial
statements except for changes in disclosure of the operating segments.
Restatement of comparative balances
The following changes for reclassification of claims and composition of
operating segments have resulted in restatements of comparative balances in
compliance with IFRS:
- Claims paid on life and product insurance have been reclassified out of
net assurance income and are separately disclosed on the face of the income
statement. This is merely a reclassification with no impact on the
financial results of ABIL.
- Following the purchase of Ellerines Financial Services by African Bank
Limited, the composition of the group`s operating segments has changed from
Banking, Ellerines Retail and Ellerines Financial Services to the Banking
and Retail business units only.
* The references to pro formas relate to divisions of ABIL and do not
affect the results or financial position of ABIL and therefore do not need
to be audited or reviewed.
On behalf of the board
Mutle Mogase, Chairman
Gordon Schachat, Executive deputy chairman
Leon Kirkinis, Chief executive officer
21 November 2011
Group income statement for the year ended 30 September 2011
Reviewed Restated
R million % change 2011 2010
Gross margin on retail business 6 2 083 1 974
Interest income on advances 23 7 308 5 950
Assurance income 28 2 962 2 309
Non-interest income 18 2 930 2 491
Income from operations 20 15 283 12 724
Charge for bad and doubtful advances 34 (3 596) (2 693)
Claims paid (2) (612) (626)
Risk-adjusted income from operations 18 11 075 9 405
Product insurance claims (18) (68) (83)
Other interest and investment income (13) 339 390
Interest expense 20 (2 850) (2 383)
Operating costs 10 (4 931) (4 481)
Indirect taxation: VAT >100 (67) (20)
Profit from operations 24 3 498 2 828
Capital items (97) 1 34
Profit before taxation 22 3 499 2 862
Direct taxation: STC 3 (151) (147)
Direct taxation: Normal 26 (977) (773)
Profit for the year 22 2 371 1 942
Reconciliation of headline earnings and per share statistics
% change Reviewed Audited
2011 2010
Profit for the year (basic earnings) 22 2 371 1 942
Preference shareholders (11) (32) (36)
Basic earnings attributable to 23 2 339 1 906
ordinary shareholders
Adjustments for non-headline items:
Capital items (100) 0 (19)
Tax thereon (100) 0 3
Headline earnings 24 2 339 1 890
Number of shares in issue (net of 803,7 803,7
treasury)
Weighted number of shares in issue 803,7 803,7
Fully diluted number of shares in 803,8 803,8
issue
Basic earnings per share 23 291,0 237,2
Fully diluted basic earnings per share 23 291,0 237,1
Headline earnings per share 24 291,0 235,2
Fully diluted headline earnings per 24 291,0 235,1
share
Group statement of comprehensive income for the year ended 30 September
2011
Reviewed Audited
R million % change 2011 2010
Profit for the year 22 2 371 1 942
Other comprehensive income after tax
Exchange differences on translating >(100) 5 (11)
foreign operations
Movement in cash flow hedge reserve (99) (2) (195)
IFRS 2 reserve transactions (employee >(100) (6) 8
incentives)
Shares purchased into the ABIL (100) 0 1
Employee Share Trust less shares
issued to employees (cost)
ABIL Share Trust shares less dividends (100) 0 1
received
Other comprehensive income for the >100 (3) (196)
year
Total comprehensive income for the 36 2 368 1 746
year
SEGMENTAL ANALYSIS
The ABIL business is currently being managed in terms of two segments, the
Banking and Retail business units. The segment income from operations and
profit after taxation are disclosed below.
Group segmental analysis for the year ended 30 September 2011
Segment income Intersegment income
from operations from operations
Reviewed Restated Reviewed Restated
R million 2011 2010 2011 2010
Banking unit 12 354 9 911 0 0
Retail unit 3 051 2 896 122 83
Consolidation (122) (83) 0 0
adjustments
Group 15 283 12 724 122 83
Segment profit
after taxation
Reviewed Restated
R million 2011 2010
Banking unit 2 334 1 899
Retail unit 190 146
Consolidation (153) (103)
adjustments
Group 2 371 1 942
Condensed group statement of financial position as at 30 September 2011
% change Reviewed Audited
R million 2011 2010
Assets
Short-term deposits and cash (6) 3 198 3 410
Statutory assets - bank and 54 2 775 1 806
insurance
Inventories 4 885 851
Other assets >100 872 321
Taxation (87) 13 97
Net advances 38 35 099 25 360
Deferred tax asset 14 465 409
Assets held for sale (100) 0 5
Policyholders` investments (93) 1 15
Property and equipment 37 852 622
Intangible assets (9) 761 834
Goodwill 0 5 472 5 472
Total assets 29 50 393 39 202
Liabilities and equity
Short-term funding 61 1 666 1 038
Other liabilities 15 2 013 1 743
Taxation >100 72 33
Deferred tax liability (42) 229 392
Life fund reserve (93) 1 14
Bonds and other long-term funding 42 29 672 20 877
Subordinated bonds 25 2 775 2 226
Total liabilities 38 36 428 26 323
Ordinary shareholders` equity 7 13 246 12 396
Preference shareholders` equity 49 719 483
Total equity (capital and 8 13 965 12 879
reserves)
Total liabilities and equity 29 50 393 39 202
Condensed group statement of changes in equity for the year ended 30
September 2011
Ordinary shares
R million
Share Share-
capital based
and Retained payment
premium earnings reserve Other
Balance at 30 September 2009 9 151 2 436 597 (10)
(audited)
Dividends paid 0 (1 488) 0 0
Transfer to share-based 0 (208) 208 0
payment reserve
Transfer from insurance 0 25 0 (25)
contingency reserve
Total comprehensive income 0 1 907 8 (205)
for the year
Balance at 30 September 2010 9 151 2 672 813 (240)
(audited)
Dividends paid 0 (1 488) 0 0
Issue of preference shares 0 0 0 0
Loss incurred on group 0 1 0 0
employees acquiring ABIL
Share Trust shares less
dividends received
Shares purchased into the 0 0 0 1
ABIL Employee Share Trust
less shares issued to
employees (cost)
Transfer from share-based 0 726 (726) 0
payment reserve
Transfer from insurance 0 13 0 (13)
contingency reserve
Total comprehensive income 0 2 339 (6) 3
for the year
Balance at 30 September 2011 9 151 4 263 81 (249)
(reviewed)
R million
Preference
share
capital and
premium Total
Balance at 30 September 2009 483 12 657
(audited)
Dividends paid (36) (1 524)
Transfer to share-based 0 0
payment reserve
Transfer from insurance 0 0
contingency reserve
Total comprehensive income 36 1 746
for the year
Balance at 30 September 2010 483 12 879
(audited)
Dividends paid (32) (1 520)
Issue of preference shares 236 236
Loss incurred on group 0 1
employees acquiring ABIL
Share Trust shares less
dividends received
Shares purchased into the 0 1
ABIL Employee Share Trust
less shares issued to
employees (cost)
Transfer from share-based 0 0
payment reserve
Transfer from insurance 0 0
contingency reserve
Total comprehensive income 32 2 368
for the year
Balance at 30 September 2011 719 13 965
(reviewed)
Notes
Reviewed Audited
1. Treasury shares 30 Sept 2011 30 Sept 2010
Treasury shares at cost R million 11 12
Number of shares held million 0,5 0,5
Average cost per share Rand 23,24 25,14
2. Number of ordinary shares at 30 September 2011
Total Weighted Diluted
Number of shares in issue at 804 175 200 804 175 200 804 175 200
the beginning of the year
Treasury shares on hand (473 415) (474 686) (474 686)
Dilution as a result of 0 0 65 838
outstanding options
803 701 785 803 700 514 803 766 352
Group statement of cash flows as at 30 September 2011
Reviewed Audited
R million 2011 2010
Cash generated from operations 7 746 5 698
Cash received from lending and insurance 18 329 15 662
activities and cash reserves
Recoveries on advances previously written off 213 103
Cash paid to funders, staff, suppliers and (10 796) (10 067)
insurance beneficiaries
Increase in gross advances (13 605) (7 658)
(Increase)/decrease in working capital (398) 205
Increase in inventories (34) (103)
(Increase)/decrease in other assets (577) 8
Increase in other liabilities 213 300
Indirect and direct taxation paid (1 288) (794)
Cash inflow from equity accounted incentive 2 2
transactions
Cash outflow from operating activities (7 543) (2 547)
Cash outflow from investing activities (1 252) (493)
Acquisition of property and equipment (to (483) (277)
maintain operations)
Acquisition of joint venture advances book 0 (19)
Disposal of property and equipment 80 240
Disposal of investment 1 0
Disposal of option 0 15
Other investing activities (850) (452)
Cash inflow from financing activities 8 688 2 760
Cash inflow from funding activities 9 972 4 284
Issue of preference shares 236 0
Preference shareholders` payments and (32) (36)
transactions
Ordinary shareholders` payments and (1 488) (1 488)
transactions
Decrease in cash and cash equivalents (107) (280)
Cash and cash equivalents at the beginning of 3 716 3 996
the period
Cash and cash equivalents at the end of the 3 609 3 716
period
Made up as follows:
Short-term deposits and cash 3 198 3 410
Statutory cash reserves - insurance 411 306
3 609 3 716
Board of directors
Non-executive:
MC Mogase (Chairman)
N Adams
Advocate MF Gumbi
J Koolen
N Langa-Royds
S Sithole*
RJ Symmonds
Executive:
G Schachat (Deputy Chairman)
L Kirkinis (CEO)
A Fourie
N Nalliah
TM Sokutu
*Zimbabwean
Company Secretary:
MM Luthuli
African Bank Investments Limited
Registered office
59 16th Road
Midrand, 1685
Share transfer secretaries
Link Market Services South Africa (Pty) Ltd
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein
PO Box 4844, Johannesburg, 2000
Telephone +27 11 630 0800
Telefax:+27 86 674 4381
For a more detailed discussion of ABIL`s results and outlook for 2012,
please refer to the investor relations section on our website, at
www.abil.co.za
Midrand
21 November 2011
Sponsor
RAND MERCHANT BANK
(A division of Firstrand Bank Limited)
Date: 21/11/2011 07:32:52 Produced by the JSE SENS Department.
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