| Mon 14 May 2001, 0:00 | | African Bank Investments Limited |
|
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2001
Earnings up 15%. Maiden dividend declared.
- Headline earnings increased by 15% to
R379.5 million (March 2000: R330.8 million)
- Headline earnings per share increased by 4% to 60.9 cents (March 2000:
58.4 cents)
- Maiden dividend of 10 cents per share declared
Performance at a glance:
- Gross interest income maintained on steady average book.
- Charge for bad and doubtful advances benefits from better credit
management, leading to a gain of R15m.
- Net assurance income affected by increase in reserves and lower premiums
resulting from a reduction in size and term of average loan.
- Non-interest income up benefiting from changes to admin fee pricing
structure.
- Number of accounts up to 1.9 million.
1. Overview
The reporting period marked the first full six months trading period without
access to payroll facilities for new business in the public sector. Persal
business accounted for 50% of new business volumes at the time of the
initial announcement in June 2000 of the withdrawal of the Persal facility.
Government as employer announced in early April 2001 new payroll
arrangements, which in effect allow for the run-off of the existing Persal
book (R1.5 billion at March 2001). The risk in this book, and hence the
provisions held against it, is expected to reduce significantly during this
financial year as the new measures are fully implemented.
The business has been appropriately repositioned with retail lending now
fully compensating for the lost Persal business, on a comparative month
basis.
To aid meaningful analysis of business trends, performance in the reporting
six months is compared to the six months ending September 2000, as the
period to March 2000 does not reflect the impact of the Persal decision.
Headline earnings reduced marginally by 2% to R379.5 million against the
comparative period. The earnings reported represent strong underlying
performance as profits in the second half of the financial year are
traditionally higher than those
produced in the first half. The key features of this period's performance
are:
* Continued profit contribution of the in-force loan business, as
represented by the weighted average advances book of R4.5 billion. Gross
interest income reduced marginally by 2% to R898.6 million. Interest income
should resume growth on the back of expected growth in the loan book.
* Continuation of collection efficiencies achieved in the last six months of
financial 2000, leading to a net positive movement of R55.6 million, in the
income statement credit charges line. These efficiencies are a result of
better information systems and focused management attention.
* Net reduction of 7% in the loan book to R4.3 billion. The loan book is
expected to resume growth in the second half of the financial year 2001,
given growth in sales volumes.
* New loans written increased by 8% to R1.4 billion. Further increases are
expected as the roll-out of retail business gains momentum.
* Non-interest income, which is made up of loan administration fees,
increased by 5% to R83.5 million, in line with loan volume increases.
* Assurance underwriting income decreased by 37% to R85.4 million. The
decrease of
R50.8 million was largely driven by an increase of R28 million in reserving
and by a reduction of R20 million due to a change in the product mix to
loans with smaller average size and term.
2. Profit Performance
(Six months to September 2000 comparatives in brackets)
The interim headline earnings of the group increased by 15% to R379.5
million year on year. Headline earnings per share increased by 4% to 60.9
cents, reflecting the dilutory effect of shares issued to raise additional
cash.
The profits achieved represent an annualised return on average shareholders'
funds of 27.9% (48.8%), and a return on average assets of 13.5% (14.2%). The
high level of capital held, and the temporary slower investment of cash into
the loan book in the advent of discontinued access to the Persal system have
depressed these returns.
2.1 Segmental Analysis
African Bank as the largest profit contributor to ABIL's results continued
to deliver strong growth with operating profits increasing by 24% to R371.4
million. This increase was driven largely by better credit management.
Assurance income, which includes underwriting income and interest earned,
decreased by 25% to R96.9 million. The decrease of R31.9 million was largely
driven by an increase of R28 million in reserving.
The Theta Investments group of companies contributed R80.9 million to group
profits.
The comparative period results include R9.4 million which is attributable to
operations subsequently integrated into African Bank (i.e. Credit Direct and
UML) and Safrich. Safrich is being wound down as its business was
predominantly related to Persal. Credit Indemnity has continued to grow
profits at a high rate, while MCG has gone through a consolidation phase.
MCG is transforming from a predominantly short-term lender to a medium-term
lender in partnership with Teba Bank. Strong growth is expected in the
second half of the financial year.
2.2 Interest margins
Gross interest income was down marginally, 2%, despite the industry
challenges of the last twelve months, and amounted to R898.6 million.
Gross interest income, expressed as a percentage of average interest earning
assets, amounted to 35.7% (36.0%). Net interest income, expressed as a
percentage of average interest earning assets, amounted to 32.1% (27.6%).
This increase in margin resulted from the restructuring of the longer-term
book to a shorter term but higher yielding book, and a decrease in the
funding cost. The cost of borrowings, expressed as a percentage of average
interest bearing liabilities, amounted to 14.2% (15.8%).
2.3 Asset growth and quality
The gross loan book at period end decreased by 7% to R4.3 billion. The
weighted
average gross loan book however increased slightly to R4.5 billion.
The advances book showed strong growth in the retail portfolio and
acceptable growth in the corporate payroll portfolio. The second quarter of
the financial year is a seasonally slower period for corporate payroll
sales. The companies within Theta Investments showed strong growth. The
decreases in the other portfolios being managed down are in line with
management expectation.
The income statement charge for credit risk underwritten was a contribution
of R15.3 million, compared to a charge of R40.3 million in the comparative
period. The contribution in the current period reflects a reduction in
provisions due to better credit management, against a net credit loss of
R156.4 million.
This net credit loss represents 7.7% (6.9%) of the weighted average advances
book. After adjusting for the losses attributable to the loan book
previously warranted by BOE Bank, this net credit loss ratio amounts to 4.6%
(5.0%). The net credit loss ratio is largely driven by
increased resignations and redundancies in both the public and private
sectors.
Provisions for bad and doubtful debts, expressed as a percentage of the
closing advances book on the balance sheet, amounted to 11.6% (15.7%). This
decrease in the overall level of provisions was driven by:
* Credit management efficiencies leading to a recovery of specific
provisions previously raised; and
* A write-off of bad debts of R172 million against provisions previously
raised.
Further efficiencies in credit management are expected, boosted also by the
favourable new arrangements allowing for a Persal book run-off.
The level of specific provisions, which management regards as the best
indicator of risk in the loan book, has been decreasing steadily over the
past 12 months.
2.4 New business income
New business income comprises assurance income and non-interest income. Net
assurance income is dealt with under 1 above. Non-interest income increased
by 4.9% due to an increase in sales and the change in the pricing structure.
2.5 Operating efficiency
The group's cost to income ratio, being the ratio of operating costs to net
revenues, increased from 28.3% to 40.3% over the comparative period. This
increase reflects the impact of slower growth in income due to the lower
assurance income. The group targets a cost to income ratio of 30% in the
next twelve months.
Operating costs increased by an annualised 17.0% as a result of certain
first-time consolidation of a Theta Investments subsidiary and substantial
investments made in people and systems. These are beginning to bear fruit,
as for example evidenced by improved credit management leading to reduced
levels of specific provisions.
3. Prospects
The transformation of the business from a predominantly payroll-based lender
to a retail lender is expected to be completed in the current financial
year. The growth in loan volumes is expected to gain momentum, positively
affecting interest income, assurance income and administration fees. Year on
year, the loan book is still expected to be relatively flat, while profits
are expected to meet current market expectations.
From the current asset base and market positioning, ABIL should return to
growth rates in the advances book and profitability that significantly
outstrip the larger retail banks on a sustainable basis. This will come from
the in-force business in the loan book, increased momentum in both corporate
payroll and retail lending businesses and pursuit of growth in newer markets
offering growth at an appropriate risk-reward profile. The partnerships and
joint ventures entered into in the last financial year, in particular the
joint ventures with Standard Bank and
the Edcon group, are expected to attain critical mass in the next 12 months.
From a strategic perspective, the business is increasingly focused on
improved client experience and brand building. This is based on enhancements
in service and appropriate product delivery. Focused attention is being
applied to further upskilling of employees in the group, and attending to
employment equity imperatives. Broader empowerment initiatives are being
pursued with
the objective of positioning ABIL competitively in its market environment.
The new Persal arrangements have brought Government as employer in line with
private sector employers. This development contributes to further industry
formalisation and has established a platform for a more constructive
engagement with industry stakeholders on issues of common interest.
The group's culture of innovation and adaptability has ensured that the
business has not only weathered the difficult trading conditions of the last
12 months, but has emerged stronger and fitter to sustain its market
leadership.
Declaration of Interim Dividend
On 10 May 2001, the Board of Directors proposed and approved an interim
dividend of 10 cents per share (2000: nil).
Salient dates:
Last day to register: Friday, 1 June 2001
Distribution of dividend cheques: Friday, 29 June 2001
In terms of Generally Accepted Accounting Practice, as the approval date of
the interim dividend was after the balance sheet date ie. 31 March 2001, the
dividends are not recognised as a liability at the balance sheet date but
simply disclosed above.
By order of the board
A.S. Mabogoane (Chairman) L. Kirkinis (Chief Executive Officer)
14 May 2001
Group Income Statement
for the 6 months ended 31 March 2001
6 months 6 months Restated Audited
to to 6 months to 12 months to
31-Mar 30-Sep 31-Mar 30-Sep
R'000 2001 2000 2000 2000
Revenue (Note 1)
Interest income 898 625 921 240 953 474 1 874 714
Interest expense (174 654) (182 182) (258 332) (440 514)
Net interest 723 971 739 058) 695 142) 1 434 200
Charge for bad &
doubtful advances 15 292 (40 291) (271 132) (311 423)
Net interest income
after provisions 739 263 698 767 424 010) 1 122 777
Net underwriting income
(Note 2) 85 372 136 213 210 424 346 637
Non-interest income 83 506 79 633 172 716 252 349
Income from operations 908 141 914 613 807 150 1 721 763
Operating costs (359 829) (329 307) (305 053) (634 360)
Net income from
operations 548 312 585 306 502 097 1 087 403
Indirect taxation:
Value Added Tax (13 173) (18 497) (11 807) (30 304)
Taxation (161 380) (162 349) (151 256) (313 605)
Net income after
taxation 373 759 404 460 339 034 743 494
Share of associate companies'
retained income 14 222 2 369 13 778 16 147
Net income 387 981 406 829 352 812 759 641
Minority interest (8 502) (19 267) (17 190) (36 457)
Net income attributable to
ordinary shareholders 379 479 387 562 335 622 723 184
Headline earnings per
share 60.9 63.3 58.4 121.9
Basic earnings per
share 60.9 63.4 59.3 122.8
Fully diluted earnings
per share 60.5 63.4 59.0 122.8
Notes:
Reconciliation between earnings and
headline earnings:
Attributable earnings 379 479 387 562 335 622 723 184)
Profit on sales of
associates - -383 (4 760) (5 143)
Headline earnings 379 479 387 179 330 862 718 041
Note 1: March 2000 interims have been restated as a result of the change in
accounting policy in which the insurance capitive cells are now consolidated
and not only equity accounted.
Note 2: Commission paid by Stangen to African Bank has been eliminated on
consolidation.
Group Balance Sheet
as at 31 March 2001
Restated Audited
31-Mar % 31-Mar 30-Sep
R'000 2001 Change 2000 2000
ASSETS
Fixed assets 104 363 71% 61 181 96 660
Investments in and loans to
associates 104 125 162% 39 791 28 705
Goodwill (Note 3) 1 304 100% 0 0
Deferred tax 50 131 4% 47 987 49 998
Net advances 3 825 203 -6% 4 063 892 3 979 766
Other assets 167 212 17% 202 584 12 332
Liquid and trading assets 171 402 44% 305 268 257 872
Short term investments, deposits
& cash 1 312 978 103% 645 734 1 246 979
5 736 718 5 366 437 5 772 312
EQUITY AND LIABILITIES
Ordinary shareholders'
interests 2 927 083 87% 1 565 954 2 555 851
Outside shareholders' interests 54 458 -21% 68 958 64 651
Total shareholders' interests 2 981 541 1 634 912 2 620 502
Secondary capital - subordinated
debenture 506 474 0% 506 604 506 341
Total primary and secondary
capital 3 488 015 2 141 516 3 126 843
Structured loans and debentures 970 385 -49% 1 912 209 1 282 167
Liabilities to depositors 648 832 -8% 703 594 642 688
Deferred tax 182 547 1% 181 319 186 875
Other non-interest bearing
liabilities 388 688 73% 224 955 464 095
Life fund reserve 58 251 71% 202 844 69 644
Total liabilities 2 248 703 -30% 3 224 921 2 645 469
5 736 718 7% 5 366 437 5 772 312
Net asset value per ordinary
share (cents) 470 70% 276.59 433.91
Note 3:
In accordance with the new accounting standards, the group's accounting
policy for goodwill has been changed for the current financial year to
ammortising the goodwill over its estimated useful life. Goodwill was
previously written off against the share premium. Other than the above note,
the same accounting policies have been applied as in the most recent
financial statements.
Group Cash Flow Statement
for the 6 months ended 31 March 2001
6 months 6 months Audited
to to 12 months to
31-Mar 31-Mar 30-Sep
R'000 2000 2001 2000
Cash generated from operations 545 014 915 611 1 417 964
(Repayment)/Receipt of loan funding (305 505) 365 016) (333 587)
Cash received from/(invested in)
operating assets 117 980 (1 148 848) (850 103)
Cash applied to operations 357 489 131 779 234 274)
Normal taxation paid (157 665) (148 547) (162 541)
Cash inflow from operating
activities 199 824 (16 768) 71 733
Cash outflow from investing
activities (132 414) 113 736 (141 363)
Cash flows from equity financing
activities 0 48 863 783 448
Net increases in cash and cash
equivalents 67 410 145 831 713 818
Cash and cash equivalents at the
beginning of the year 1 213 721 499 903 499 903
Cash and cash equivalents at the
end of the period/year 1 281 131 645 734 1 213 721
Note: Cash and cash equivalents at
the end of the period/year:
Short term investments, deposits
and cash 1 312 978 645 734 1 246 979
Bank overdraft (31 847) 0 (33 258)
1 281 131 645 734 1 213 721
Statement of Changes in Equity
for the 6 months ended 31 March 2001
Audited
31-Mar 30-Sep
R'000 2001 2000
Balance at start of period 2 555 851 1 186 508
Movement in share capital and
premium 0 647 447
Shares issued 0 986 893
Write-off of goodwill 0 (339 446)
Movement in non-distributable (8 247) (7 661)
Discount on acquistion of
subsidiaries 0 4 515)
Release of re-branding NDR (8 247) (5 803)
Transfer to distributable reserves 0 (6 373)
Movement in distributable reserves 379 479 729 557
Group income attributable to
ordinary shareholders 379 479 723 184
Transfer from non-distributable
reserves 0 6 373)
Shareholders' funds at the end of
the period/year 2 927 083 2 555 851
Financial Statistics
Period Period Year
ended ended ended
March March September
R'000 2001 2000 2000
Shares in issue: (000)
at period end 622 784 566 159 622 784
weighted average 622 784 566 159 589 030
fully diluted weighted average 627 737 568 516 N1
N1: no dilutionary effect as share options
were priced out of the money
Cents per ordinary share
Headline earnings 60.9 58.4 121.9
Earnings 60.9 59.3 122.8
Fully diluted earnings 60.5 59 122.8
Net asset value 470 276.6 433.9
Financial performance: (%)
(*6 months annualised)
Return on average equity
(post goodwill write-off) 27.90% 48.80% 41.00%
Return on average equity
(adding back goodwill
write-off) 13.40% 16.30% 15.60%
Return on average total assets 13.50% 14.20% 14.90%
Cost-to-income 40.30% 28.30% 31.20%
Effective tax rate 30.20% 30.90% 29.70%
Capital adequacy - Group: (%) 60.80% 39.90% 54.20%
Capital adequacy - African Bank
Limited: (%) 43.40% 28.90% 44.00%
Operational performance:
Gross advances balance (R'000s) 4 328 488 4 822 692 4 654 715
Number of loans 1 879 782 1 600 000 1 770 381
Average loansize (R) 2 303 3 014 2 629
Gross Advances as at 31 March 2001
% growth for March December September
R'000 6 months 2001 2000 2000
AFRICAN BANK LIMITED -10% 3 612 085 3 825 223 4 023 859
Persal -33% 1 421 554 1 733 768 2 106 798
Parastatals -28% 207 027 253 929 286 111
Post Office -12% 79 832 85 922 90 384
Transitional Local Council -27% 182 970 183 993 250 724
Corporate 5% 1 314 123 1 361 691 1 248 161
Retail 830% 384 860 198 027 41 390
Standard Bank Joint Venture
(53%) 7 364% 21 719 7 893 291
SAFRICH -23% 132 329 159 264 170 917
Persal -28% 77 588 96 448 107 219
Corporate -14% 54 741 62 816 63 698
THETA INVESTMENTS 27% 584 074 524 963 459 939
Credit Indemnity 8% 159 827 139 332 148 047
Miners Credit Guarantee 20% 99 639 94 886 82 778
Gilt Edged Management
Services 12% 164 850 162 383 146 784
Contractor Finance 97 157 401 125 937 79 881
Quatro 4% 2 357 2 425 2 449
TOTAL -7% 4 328 488 4 509 450 4 654 715
Segmental Report 31-Mar-01
Net income before tax plus Return on equity associate attributable income
per segment
March September March March September March
2001 2000 2000 2001 2000 2000
R'000 6 mnths 6 mnths 6 mnths
African Bank 371 422 298 744 207 631 26.70% 23.30% 30.10%
Assurance 96 932 128 793 240 620 23.70% 33.70% 79.60%
African Bank and
Assurance 468 354 427 537 448 251 26.10% 25.50% 45.20%
Theta Investments 80 907 100 374 84 899 59.50% 77.20% 66.50%
Other and
consolidation 100 41 267 (29 082)
549 361 569 178 504 068 25.90% 28.80% 42.90%
