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ABL ABLP
ABL
ABL/ABLP - African Bank Investments Limited - Unaudited results and cash
dividend declarations for the six months ended 31 March 2012
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 group")
Return on equity
20,3%
UP FROM 17,5%
Economic profit
R390 million
UP FROM R155 MILLION
Headline earnings
R1,4 billion
UP 25%
Headline EPS
170,4 cents
UP 25%
Ordinary DPS
85 cents
UNCHANGED
Group income statement
for the six months ended 31 March 2012
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
R million % change 31 Mar 2012 31 Mar 2011 30 Sep 2011
Gross margin on 6 1 172 1 105 2 083
retail business
Interest income on 32 4 557 3 440 7 308
advances
Assurance income 40 1 976 1 410 2 962
Non-interest income 13 1 616 1 434 2 930
Income from 26 9 321 7 389 15 283
operations
Credit impairment 38 (2 385) (1 725) (3 596)
charge
Credit life claims 30 (395) (304) (612)
Risk-adjusted 22 6 541 5 360 11 075
income from
operations
Product insurance 11 (42) (38) (68)
claims
Other interest and (11) 144 161 339
investment income
Interest expense 33 (1 762) (1 328) (2 850)
Operating costs 14 (2 795) (2 450) (4 931)
Indirect taxation: 2 (43) (42) (67)
VAT
Profit from 23 2 043 1 663 3 498
operations
Capital items (6) 0 1
Profit before 22 2 037 1 663 3 499
taxation
Direct taxation: (2) (79) (81) (151)
STC
Direct taxation: 21 (569) (470) (977)
Normal
Profit for the 25 1 389 1 112 2 371
period
Reconciliation of headline earnings
for the six months ended 31 March 2012
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
R million % change 31 Mar 2012 31 Mar 2011 30 Sep 2011
Profit for the 25 1 389 1 112 2 371
period (basic
earnings)
Preference 35 (23) (17) (32)
shareholders
Basic earnings 25 1 366 1 095 2 339
attributable to
ordinary
shareholders
Adjustments for non-
headline items:
Capital items 6 0 0
Tax thereon (2) 0 0
Headline earnings 25 1 370 1 095 2 339
Number of shares in 804,1 803,7 803,7
issue (net of
treasury)
Weighted number of 803,9 803,7 803,7
shares in issue
Fully diluted 804,0 803,8 803,8
number of shares in
issue
Basic earnings per 25 169,9 136,3 291,0
share
Fully diluted basic 25 169,9 136,3 291,0
earnings per share
Headline earnings 25 170,4 136,3 291,0
per share
Fully diluted 25 170,4 136,3 291,0
headline earnings
per share
Group statement of comprehensive income
for the six months ended 31 March 2012
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
R million % change 31 Mar 2012 31 Mar 2011 30 Sep 2011
Profit for the 25 1 389 1 112 2 371
period
Other
comprehensive
income
Exchange >100 (4) (1) 5
differences on
translating
foreign
operations
Movement in cash (71) 44 153 (2)
flow hedge
reserve
IFRS 2 reserve >100 46 9 (6)
transactions
(employee
incentives)
Other (47) 86 161 (3)
comprehensive
income for the
period, net of
tax
Total 16 1 475 1 273 2 368
comprehensive
income for the
period
Group statement of financial position
as at 31 March 2012
Unaudited Unaudited Audited
R million % change 31 Mar 2012 31 Mar 2011 30 Sep 2011
ASSETS
Short term deposits 1 4 733 4 689 3 198
and cash
Statutory assets - 39 3 586 2 574 2 775
bank and insurance
Inventories 4 847 816 885
Other assets >100 1 006 432 872
Taxation 73 26 15 13
Net advances 36 41 014 30 262 35 099
Deferred tax asset >100 534 256 465
Policyholders` (100) 0 8 1
investments
Property and 34 962 716 852
equipment
Intangible assets (10) 718 797 761
Goodwill - 5 472 5 472 5 472
Total assets 28 58 898 46 037 50 393
LIABILITIES AND
EQUITY
Short term funding 54 4 393 2 850 1 666
Other liabilities 12 1 841 1 650 2 013
Taxation 84 105 57 72
Deferred tax (14) 219 255 229
liability
Life fund reserve (100) 0 8 1
Bonds and other long 36 34 200 25 128 29 672
term funding
Subordinated bonds 13 3 105 2 757 2 775
Total liabilities 34 43 863 32 705 36 428
Ordinary 8 13 905 12 849 13 246
shareholders` equity
Preference >100 1 130 483 719
shareholders` equity
Total equity (capital 13 15 035 13 332 13 965
and reserves)
Total liabilities and 28 58 898 46 037 50 393
equity
Statement of changes in equity
for the six months ended 31 March 2012
Ordinary shares
R million Share Distri- Share- Other
capital butable based
and reserves payment
premium reserve
Balance at 30 September 9 151 2 672 813 (240)
2010 (audited)
Dividends paid (804)
Employee Share Trust less 1
share issued to employees
(cost)
Transfer from insurance 8 (8)
contingency reserve
Total comprehensive income 1 095 9 152
for the period
Balance at 31 March 2011 9 151 2 971 822 (95)
(unaudited)
Dividends paid (684)
Issue of preference shares
(net)
Loss incurred on group 1
employees acquiring ABIL
Share Trust shares less
dividends received
Transfer from share-based 726 (726)
payment reserve
Transfer to insurance 5 (5)
contingency reserve
Total comprehensive income 1 244 (15) (149)
for the period
Balance at 30 September 9 151 4 263 81 (249)
2011 (audited)
Dividends paid (804)
Issue of preference shares
(net)
Loss incurred on group 3
employees acquiring ABIL
Share Trust shares less
dividends received
Employee Share Trust less 8
share issued to employees
(cost)
Transfer to insurance (4) 4
contingency reserve
Total comprehensive income 1 366 46 40
for the period
Balance at 31 March 2012 9 151 4 824 127 (197)
(unaudited)
Preference Total
share
capital
and
premium
R million
Balance at 30 September 2010 483 12 879
(audited)
Dividends paid (17) (821)
Employee Share Trust less share 1
issued to employees (cost)
Transfer from insurance contingency
reserve
Total comprehensive income for the 17 1 273
period
Balance at 31 March 2011 (unaudited) 483 13 332
Dividends paid (15) (699)
Issue of preference shares (net) 236 236
Loss incurred on group employees 1
acquiring ABIL Share Trust shares
less dividends received
Transfer from share-based payment
reserve
Transfer to insurance contingency
reserve
Total comprehensive income for the 15 1 095
period
Balance at 30 September 2011 719 13 965
(audited)
Dividends paid (23) (827)
Issue of preference shares (net) 411 411
Loss incurred on group employees 3
acquiring ABIL Share Trust shares
less dividends received
Employee Share Trust less share 8
issued to employees (cost)
Transfer to insurance contingency
reserve
Total comprehensive income for the 23 1 475
period
Balance at 31 March 2012 (unaudited) 1 130 15 035
Notes
1. Treasury 31 Mar 30 Sep 31 Mar
shares 2012 2011 2011
Treasury shares R 3 11 11
at cost million
Number of shares million 0,1 0,5 0,5
held
Average cost per Rand 25,00 23,24 23,24
share
2. Number of Total Weighted Diluted
ordinary shares
at 31 March 2012
Number of shares 804 175 200 804 175 200 804 175 200
in issue at the
beginning of the
year
Treasury shares (120 000) (256 433) (256 433)
on hand
Dilution as a 65 650
result of
outstanding
options
804 055 200 803 918 767 803 984 417
Group statement of cash flows
for the six months ended 31 March 2012
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
R million 31 Mar 2012 31 Mar 2011 30 Sep 2011
Cash generated from 4 860 3 968 7 746
operations
Cash received from lending 10 825 8 882 18 329
and insurance activities
and cash reserves
Recoveries on advances 98 83 213
previously written off
Cash paid to funders, (6 063) (4 997) (10 796)
staff, suppliers and
insurance beneficiaries
Increase in gross advances (8 352) (6 780) (13 605)
Decrease in working capital (321) (208) (398)
Decrease/(increase) in 38 35 (34)
inventories
Increase in other assets (115) (111) (577)
(Decrease)/increase in (244) (132) 213
other liabilities
Indirect and direct (808) (534) (1 288)
taxation paid
Cash inflow from equity 11 1 2
accounted incentive
transactions
Cash outflow from operating (4 610) (3 553) (7 543)
activities
Cash outflow from investing (618) (800) (1 252)
activities
Acquisition of property and (227) (192) (483)
equipment (to maintain
operations)
Disposal of property and 13 12 80
equipment
Disposal of investment 1
Other investing activities (404) (620) (850)
7 169 5 773 8 688
Cash inflow from financing
activities
Cash inflow from funding 7 585 6 594 9 972
activities
Issue of preference shares 411 236
Preference shareholders` (23) (17) (32)
payments and transactions
Ordinary shareholders` (804) (804) (1 488)
payments and transactions
Increase/(decrease) in cash 1 941 1 420 (107)
and cash equivalents
Cash and cash equivalents 3 609 3 716 3 716
at the beginning of the
period
Cash and cash equivalents 5 550 5 136 3 609
at the end of the period
Made up as follows:
Short term deposits and 4 733 4 689 3 198
cash
Statutory cash reserves - 817 447 411
insurance
5 550 5 136 3 609
Group segmental analysis
for the six months ended 31 March 2012
Segment income from operations
R million Unaudited Unaudited Audited
6 months 6 months 12 months
to 31 Mar to 31 Mar to 30 Sep
2012 2011 2011
Banking unit 7 723 5 811 12 354
Retail unit 1 706 1 652 3 051
Consolidation (108) (74) (122)
adjustments
Group 9 321 7 389 15 283
Intersegment revenues
R million Unaudited Unaudited Audited
6 months 6 months 12 months
to 31 Mar to 31 Mar to 30 Sep
2012 2011 2011
Banking unit
Retail unit 108 74 122
Consolidation
adjustments
Group 108 74 122
Segment profit after taxation
R million Unaudited Unaudited Audited
6 months 6 months 12 months
to 31 Mar to 31 Mar to 30 Sep
2012 2011 2011
Banking unit 1282 1 050 2 334
Retail unit 187 144 190
Consolidation (80) (82) (153)
adjustments
Group 1 389 1 112 2 371
OVERVIEW
Financial results
High levels of focus and energy from our staff, the continued positive response
from customers to the group`s credit and retail product offerings, strong
efficiency gains at EHL, as well as the increased African Bank footprint through
the EHL distribution network, all contributed to the operational performance in
the six months ended 31 March 2012.
The trading environment during this period was characterised by stable economic
conditions, but with increasing pressure due to high fuel and electricity
prices, high supply of credit, continued deflation in durable goods and intense
competition in both the credit and retail segments.
ABIL reported a return on equity of 20,3% for the six months to 31 March 2012
(H1 2011: 17,5%) and an economic profit, after charging for its cost of equity,
of R390 million (H1 2011: R155 million). Headline earnings increased by 25% to
R1 370 million (H1 2011: R1 095 million), as did headline earnings per share to
170,4 cents (H1 2011: 136,3 cents).
The Banking unit produced a return on equity of 22,9%, relative to 21,5% in the
equivalent period in 2011. The unit grew economic profit by 47% to R460 million
and headline earnings by 22% to R1 259 million (H1 2011: R1 033 million). The
Bank benefited from strong sales and advances growth, a slower reduction in
yield than in recent years and stable asset quality, while high cost growth and
an elevated bad debt charge were detractors.
The Retail unit generated a return on sales of 7,3%, a return on equity of 14,1%
and decreased its economic loss to R5 million from R75 million in the previous
period. Headline earnings increased 33% to R191 million (H1 2011: R144 million),
as more efficient operations and firmer margins provided operating leverage in
the face of modest sales growth. The turnaround in some of the EHL brands also
provided impetus to the earnings growth.
Growth in unsecured lending
There has been much debate in the market about the high growth in unsecured
lending and the possibility of a credit bubble forming. Experience has shown
that wherever there is a rapid expansion of credit markets, heightened caution
is required. These cycles normally take 18 to 24 months to play out. There are
signs of increased stress in certain sectors of the market.
What is clear is that the lending market is changing and that competition
continues to intensify. Lending has moved away from mortgages and instalment
credit to unsecured lending for a variety of reasons, not least of which is to
improve margins and ultimately, risk-adjusted profitability. Customers are
encouraged to migrate to unsecured credit for their additional financial needs.
This is particularly evident in the growing number of higher income earners in
this segment of the market who, even in a rapidly growing market, have almost
doubled as a percentage of the unsecured market between 2008 and 2011.
In the light of the surge in unsecured lending the National Credit Regulator
(NCR) is in the process of conducting a number of enquiries and investigations
relating to unsecured lending. These enquiries and investigations are market
related, product related, general information gathering and related to possible
reckless lending. The South Africa Reserve Bank (SARB) also commissioned a study
into unsecured lending to understand the current market conditions in the
banking sector, while the NCR`s exercise includes the registered credit
providers outside the banking sector.
Evidence suggests that the real growth in personal disposable income, reducing
household debt levels and stable to reducing debt service costs as term
lengthened, have protected disposable income. However there are groups of
customers who are overextending themselves financially although we have not seen
a growing trend of this amongst our customers. ABIL has also initiated
preventative action some time ago by making its underwriting criteria and
affordability tests more stringent, to ensure that we reduce our potential
exposure to customers who are displaying undue appetite for credit.
It is also essential however, not to lose sight of what the borrowings are used
for. Research shows our customers have consistently utilised more than 50% of
their borrowings for housing, home improvements and education. This steady trend
of customers who use our credit to improve their daily lives and grow their
families` futures, is what reinforces to us that our vision is worth pursuing.
STRATEGIC INITIATIVES
Progress has again been made over the past six months in the group`s strategic
initiatives. These are discussed in more detail below.
Transforming our culture
The group showed that energy and an impetus among our people could produce
robust results in a subdued economic environment. We remain convinced that the
pursuit of a healthy, people-orientated culture, where our staff feel empowered
and passionate about making a difference to society, is key to the long term
success of our organisation. Our efforts to strengthen this culture continued
into 2012, with 25 roadshows to our people and our customers in African Bank in
the first half of the financial year. At EHL, the very successful "Beyonders"
programme which was implemented in the Ellerines brand during 2011, is also
currently being rolled out to Beares and to the rest of the brands soon
thereafter. Satisfaction among our people was also measured in this period and
the results remain positive.
Enhancing our customer value proposition
The implementation of the new customer credit interface across all of African
Bank during this period strengthened our value proposition to customers through
quicker service, an easier application process and real-time disbursements of
loans.
African Bank launched a consolidation loan to assist customers to restructure
their debt obligations to improve affordability and extended its vehicle pilot
after adjustments to certain underperforming categories. Furniture product
offerings at EHL met with customer approval as evidenced by the sales at
Ellerines which were substantially higher than the rest of the market and the
improving sales trends at Wetherlys and Furniture City. New customers were
particularly attracted to the Interest Buster, credit card and vehicle finance
loans.
Rehabilitation of financially delinquent customers and supporting our customers
to get back to financial health, is high on the group`s agenda and the first
rehabilitation project was rolled out in January of this year.
Access has been improved significantly over the past year through the increase
in the distribution network and the extension of our mobile and electronic
channels. EHL also started piloting its first virtual store.
Optimising the value from the African Bank/EHL relationship
The EHL store network generated R4 billion of credit disbursements for the six
months ended 31 March 2012, 68% more than the R2,4 billion of credit
disbursements in the first half of the 2011 financial year. In addition to the
R2,2 billion disbursed in furniture credit, the store network generated R409
million in non-furniture credit through Ezi*Cash and Ezi*loan, while the 321
kiosks and carve-outs operated from EHL stores produced R1,4 billion of new
disbursements, in comparison to R328 million for the equivalent period in 2011.
The group has now operated the kiosk/carve-out model for sufficient time to have
gained insights and learnings and this has prompted some changes in how we
pursue this opportunity. The model will continue to be adjusted to accommodate
these learnings.
Focus on business optimisation
The strong growth over the past two years and the need to prepare the business
for increased scale has given rise to a substantial increase in operating
expenses at the Banking unit, due to higher sales incentives, volume-based
banking fees, the staffing of the kiosks and carve-outs, IT development and
other once-off costs. Rapid growth inevitably gives rise to embedded
inefficiencies. We have initiated a programme aimed at improving efficiencies
which are expected to yield positive results over the next 18 months. At EHL,
the group has made material efficiency gains and continues to implement
strategies to optimise the business model and further reduce costs.
The group will continue to focus on these main strategic initiatives for the
remainder of 2012 as a means to produce tangible benefits for our employees,
customers and shareholders.
CAPITAL MANAGEMENT
ABIL and African Bank remain well capitalised, supported by a combination of
internally generated capital, capital optimisation and selective capital
raising. Group capital adequacy at 31 March 2012 was 29,1%.
During March 2012 ABIL issued 5,5 million additional non-redeemable, non-
cumulative, non-participating preference shares for a net consideration of R411
million. ABIL used the proceeds to subscribe for an additional ordinary share in
African Bank. The Bank`s capital adequacy was bolstered by this equity injection
as well as the raising of a R300 million Tier 2 capital. The Bank`s capital
adequacy ratio at 31 March 2012 was 28,9%.
The group also intends to further strengthen its capital base through the
issuance of additional non-redeemable, non-cumulative, non-participating
preference shares from ABIL as well as issuances of Tier 2 capital by African
Bank during the remainder of 2012. All issues will be subject to regulatory
approvals and acceptable market conditions.
Dividends
ABIL has declared an interim cash dividend of 85 cents per ordinary share for
the six months to 31 March 2012. The ordinary dividend cover was 2,0 times,
which is at the top end of the target dividend cover range of 1,8 - 2,0 times
provided previously. We believe that the current cover will retain sufficient
capital to support growth for the current year.
The group will continue to manage its dividend policy to support ABIL through
the current growth phase as well as the anticipated Basel III impacts. It will
also continue to actively engage shareholders to understand their dividend
preferences, taking into account the business strategy and the resultant capital
requirements and explore such mechanisms as the potential appetite for a scrip
dividend option in future.
The group has declared an interim preference share dividend of 341 cents per
share. As announced previously, the preference dividend has been grossed up by
the 10% secondary tax on companies (STC) saving the company has obtained.
CHANGES TO THE BOARD
There have been no changes to the ABIL board over this reporting period.
DIVIDEND DECLARATION
The directors have declared an interim gross cash dividend of 85 cents (72,25
cents net of dividend withholding tax) per ordinary share for the six months to
31 March 2012.
The directors have also declared an interim gross cash preference share dividend
of 341 cents per share (289,85 cents net of dividend withholding tax). The
dividends have been declared from income reserves and no secondary tax on
companies credits have been used.
A dividend withholding tax of 15% will be applicable to all shareholders who are
not exempt.
Ordinary shares Preference shares
Share code ABL ABLP
ISIN ZAE000030060 ZAE000065215
Company registration 1946/021193/06 1946/021193/06
number
Company tax reference 9850164717 9850164717
number
Dividend number 23 15
Gross cash dividends per 85 cents 341 cents
share
Net dividend amount 72,25 cents 289,85 cents
represented as cents per
share
Issued shares as at 804 175 200 13 523 029
declaration date
Declaration date Monday, Monday,
21 May 2012 21 May 2012
Last date to trade to Friday, Friday,
receive a dividend 08 June 2012 08 June 2012
Shares commence trading Monday, Monday,
ex-dividend 11 June 2012 11 June 2012
Record date Friday, Friday,
15 June 2012 15 June 2012
Payment date Monday, Monday,
18 June 2012 18 June 2012
Share certificates may not be dematerialised or rematerialised between Monday,
11 June 2012 and Friday,15 June 2012, both dates inclusive.
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 interim 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 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 standards and interpretations during the
financial year, which did not have any impact on reported results:
* IFRIC 14 - Prepayment of a Minimum Funding Requirement;
* IFRS 7 - Financial Instruments Disclosure: Transfers of financial assets; and
* IAS 24 - Revised definition of Related Parties.
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 2011 annual financial statements.
LOOKING AHEAD
It is expected that the current economic environment will continue for the rest
of the financial year. The Bank should continue to benefit for the enlarged
distribution base, the growth in customers and new products. The retail
environment seems to be weakening and it is envisaged that trading conditions
will be difficult.
Innovation and energy have resulted in strong levels of activity in the first
half of the year and these are expected to continue in the second half. Given
the current impetus in the business, our financial objectives for 2012 remain on
track.
On behalf of the board
Mutle Mogase
Chairman
Gordon Schachat
Executive deputy chairman
Leon Kirkinis
Chief executive officer
21 May 2012
Board of directors
Non-executive: MC Mogase (Chairman), N Adams, Advocate MF Gumbi, JDMG Koolen#,
NB Langa-Royds, S Sithole*, RJ Symmonds
Executive: G Schachat (Deputy Chairman), L Kirkinis (CEO),
A Fourie, N Nalliah, TM Sokutu *Zimbabwean #Dutch
Company Secretary
MM Luthuli
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 11 713 0800
Telefax: +27 86 674 4381
For a more detailed discussion of ABIL`s results and outlook for the remainder
of 2012, please refer to the investor relations section on our website, at
www.abil.co.za
Sponsor
RAND MERCHANT BANK
(A division of Firstrand Bank Limited)
Date: 21/05/2012 07:05:17 Produced by the JSE SENS Department.
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