| Mon 22 Oct 2001, 0:00 | | Saambou Holdings Limited - Results And Declaration |
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SAAMBOU: GROUP RESULTS AND DECLARATION OF DIVIDEND
Saambou Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/004170/06)
Share code :SBO
ISIN : ZAE000006409
("Saambou" or "the Company")
Headline earnings per share of 41.7c
Sound balance sheet, adequately capitilised
Dividend maintained at 9 cents per share
GROUP RESULTS AND DECLARATION OF DIVIDEND
Results for the six months ended 30 September 2001
CONSOLIDATED INCOME STATEMENT
Six months ended Year ended
30 September 31 March
Unaudited Audited
2001 2000 2001
Rm Rm Rm
Continuing Operations
Net interest income 391.1 277.7 705.1
Non-interest income 385.0 185.4 551.7
Operating income 776.1 463.1 1,256.8
Provisions and cost of insurance cover (290.9) (109.6)
(334.6)
Operating expenditure (445.1) (255.5)
(626.9)
Net income before tax and income from
equity accounted investments 40.1 98.0 295.3
Income / (loss) from equity
accounted investments (5.0) 8.3 3.5
Net income before tax on
continuing operations 35.1 106.3 298.8
Net loss before tax on
discontinued operations (8.4) (1.3)
(7.0)
Tax 40.2 (27.0)
(63.9)
Headline net income after tax 66.9 78.0 227.9
Minority interest (0.6) -
(14.7)
Headline earnings attributable to
ordinary shares 66.3 78.0 213.2
Adjusted for:
Loss on revaluation of property - -
(3.1)
Loss on sale of property and equipment - -
(0.7)
Profit on sale of investment - 5.2 3.3
Attributable to preference shares 5.2 5.0 10.3
Goodwill written off (6.4) (1.4)
(3.7)
After tax increase in general provisions (70.1) - -
Net income / (loss) (5.0) 86.8 219.3
Basic earnings per share (cents) (6.4) 55.6 140.3
Headline earnings per share (cents) 41.7 52.9 143.2
CONSOLIDATED BALANCE SHEET
ASSETS
Property and equipment 228.2 108.4 216.3
Goodwill 129.3 - 38.5
Intangible assets 71.1 - 22.7
Investments
(including insurance company investments) 1,483.8 1,083.8 1,301.7
Other assets 428.9 211.7 369.3
Deferred tax 91.3 - 4.4
Advances 15,573.8 14,109.9 15,348.1
Liquid assets 3,680.3 1,552.6 2,988.2
Total assets 21,686.7 17,066.4 20,289.2
SHAREHOLDERS' FUNDS AND LIABILITIES
Ordinary shareholders' funds 1,071.3 783.1 1,016.4
Preference shares 141.1 141.1 141.1
Total shareholders' interest 1,212.4 924.2 1,157.5
Minority interest 18.5 -
(0.6)
Long-term loans 1,042.1 927.6 1,024.7
Insurance funds 437.4 432.9 435.6
Deferred tax - 30.9 -
Deposits and current accounts 18,244.8 14,237.6 16,379.6
Other liabilities and provisions 731.5 513.2 1,292.4
Total shareholders' funds and
liabilities 21,686.7 17,066.4 20,289.2
SALIENT FEATURES
Six months ended Year ended
30 September 31 March
Unaudited Audited
2001 2000 2001
Rm Rm Rm
Headline earnings per share (cents) + 41.7 53.0 143.1
Diluted headline earnings per share (cents) + 39.7 52.6 137.8
Basic earnings per share (cents)+ (6.4) 55.6 140.3
Diluted basic earnings per share (cents)+ (3.1) 54.9 135.4
Dividend per share (cents) * 9.0 9.0 29.0
Dividend cover (times) * # 4.6 5.9 5.0
Headline earnings to average assets (%) 0.6 1.0 1.2
Headline earnings to average equity (%) 12.7 21.0 24.7
Net asset value per share (cents) 655.3 540.4 654.1
Operating expenses to operating income (%) 57.4 55.2 49.9
Non-interest income to operating income (%) 49.6 40.0 43.9
+ Adjusted for the effects of capitalisation issues
* Capitalisation dividends.
# Calculated on headline earnings per share.
SEGMENT REPORT
Unaudited
Headline earnings 66.3 78.0 213.2
Home loans 38.0 18.3 34.2
Personal loans 50.9 96.4 243.8
Asset based finance 43.1 1.1 22.7
Retail banking (54.0) (11.2)
(21.8)
Group (11.7) (26.6)
(65.7)
CONSOLIDATED CASH FLOW STATEMENT
Audited
Cash flow from operating activities 748.8 479.2 1,943.0
Cash flow from investment activities (163.6) (19.5)
(227.6)
Cash flow from financing activities 106.9 18.2 198.1
Cash and cash equivalents
Net increase in cash and cash equivalents 692.1 477.9 1,913.5
Balance at beginning of the year 2,988.2 1,074.7 1,074.7
Balance at end of the year 3,680.3 1,552.6 2,988.2
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
Shareholders' funds at beginning
of the year 1,157.5 848.8 848.8
Shares issued for cash net of expenses 59.2 0.0 92.6
Other changes in shareholders' funds 5.9 (6.4) 7.1
Net income / (loss) (5.0) 86.8 219.3
Preference share dividend (5.2) (5.0)
(10.3)
Shareholders' funds at end of the year 1,212.4 924.2 1,157.5
NOTES TO THE FINANCIAL INFORMATION
Accounting policies
The accounting policies adopted for the purpose of this announcement are in
compliance with South African Statements of Generally Accepted Accounting
Practice and are consistent with those of the previous year except for the
change in the classification of indirect taxes.
Previously indirect taxes were included in the income statement as part
of the tax line. In the current year indirect taxes are included as part of
operating expenditure in terms of AC102. Comparative amounts have been
restated accordingly. The restatement has had no impact on prior year net
income or headline earnings.
Reclassification of comparatives
As mentioned in the accompanying commentary prior year amounts in respect
of interest suspended have been reclassified from the provisions and cost of
insurance cover line to net interest income to allow a better comparison
with amounts disclosed in respect of the current period. The
reclassification has had no impact on net income or headline earnings.
Comments
Saambou's headline earnings per share amount to 41.7c compared to the 53.0c
achieved in the comparable period in the previous year. After making
allowance for a significantly more conservative general provisioning basis
for personal loans business, basic earnings reflect a marginal loss of R5.0m
for the period.
As reflected in more detail in the operational review below healthy
earnings growth was experienced in the home loans and asset based finance
divisions. However, lower earnings contributions from personal loans and
costs associated with Saambou's strategic 20Twenty virtual banking venture
gave rise to reduced headline earnings.
Operational review
For the purpose of the operational review the following product based main
segments are relevant:
* Home loans comprises residential mortgage loan products and National
Insurers the group's short term insurer providing short term insurance cover
mainly to mortgage clients.
* Personal loans includes the Saambou Life results given that the profit
contribution of the latter is mainly the result of credit life cover in
connection with personal loans granted.
* Asset based finance comprises Planet Finance, the group's asset based
instalment finance business, and the collection activities in respect of NRB
where assets are realised on behalf of NRB depositors.
* Retail banking comprises the group's retail banking branches, the newly
established credit card division and 20Twenty.
* Charges and credits not directly attributed to any of the above main
business segments are included under group.
Home loans
Satisfactory earnings contributions were generated by home loans which
benefited from strict control over costs. Furthermore the focus of the
prior year on the aggressive management and reduction of non-performing
loans and properties in possession continued with pleasing results. The
home loans division comprises 57% of total advances compared to 56% at 31
March 2001.
Personal loans
Following the rapid growth in the personal loans business in the prior year
where advances increased by 87%, Saambou was obliged to respond to changes
in the market with a period of consolidation. It became increasingly
difficult to obtain agreement from employers to administer salary deductions
in respect of new personal loans due to the associated administrative load.
The absence of other proven collection methods gave rise to significantly
reduced new business levels and as a result personal loans advances now
comprise 23% of total advances compared to 24% at the end of the previous
financial year. Consequently new business related income such as
administration fees and credit life income declined significantly.
In the period of uncertainty about the status of the Persal agreement, a
number of Persal clients had cancelled their salary deductions unilaterally,
giving rise to significant increases in specific provisioning requirements.
Subsequent to the implementation of the Persal agreement and the allocation
of a deduction code to Saambou, these advances are again being loaded onto
the Persal system.
In addition, the increase in the average age of the advances portfolio
resulted in higher credit loss provision charges in the income statement.
The negative impact of these developments was cushioned by the high margin
income earned on personal loans as well as profit contributions on the
existing book of in-force credit life policies within Saambou Life.
The experience gained and information gathered over the period under
review allowed management and the board the opportunity to re-assess the
risks inherent in the personal loans book. This resulted in the
introduction of a significantly more conservative provisioning basis,
particularly in respect of general provisions set at 5% of advances; a level
which is significantly higher than the minimum statutory requirement in
terms of the Regulation to the Banks Act. As a consequence the total
provisioning cover on the personal loans book at the end of September
amounts to approximately 15% of advances.
Management and the board are satisfied that doubtful debts are adequately
provided for at current levels.
The reduction in new business volumes further allowed for an assessment
of the profitability of the various products within the personal loans
division and for a re-alignment of administrative processes. Based on the
improved business model this division is well positioned to generate growing
levels of quality earnings contributions.
Asset based finance
Profit contributions increased significantly in respect of both the
instalment finance business (comprising 13% of advances compared to 10% at
31 March 2001) and non-margin income earned on the realisation of assets
within NRB in terms of the collection agreement with the receivers for NRB
depositors.
The focus on earning the collection commission in respect of the NRB
assets has enabled the division to leverage its collections expertise by
acquiring selected blocks of instalment financing advances at a discount and
subsequently realising those assets.
Retail banking
In addition to the costs associated with 20Twenty and the newly established
credit card division, the net losses in respect of the retail banking
division include those costs of Saambou's retail branch infrastructure that
could not be recovered from other divisions in terms of the group's funds
transfer pricing formula.
The group's strategic focus on increasing the proportion of deposit
funding sourced from retail clients gave rise to an increase in this
division's share of depositor funding from approximately 50% at the end of
March 2001 to 58% at the end of September 2001.
Following MasterCard certification of the new credit card division's
systems in February 2001, this division, although contributing a net loss of
R7m for the period, shows promise of increased revenue flows in the future.
The launch of the group's innovative Internet banking business 20Twenty
gave rise to launch and operating costs of R35m. The growth in new
subscribers is at a rate well in excess of 200 accounts per day (the number
of accounts now exceeds 25 000).
These costs represent an investment of strategic importance to Saambou.
The systems implemented at 20Twenty also serve as the initial roll-out of a
modernised IT processing infrastructure with long term cost saving
implications for the group. This functionality will allow Saambou to offer
its clients a more competitive range of products in the future.
Management continues to monitor the costs carefully to ensure that they
are appropriately managed and controlled.
Thuthukani
As announced previously Saambou has acquired full control of Thuthukani with
the compulsory acquisition of the remaining shares from minorities at the
beginning of October 2001. Saambou is engaged in a thorough process of
consultation with Thuthukani management to ensure that the Saambou group
derives the optimal benefits from the closer association with Thuthukani.
This includes a provisioning adjustment on the R330m advances book of
Thuthukani to ensure that its provisioning practices are in line with those
applied by Saambou Bank.
Provisions and credit insurance policy
Regulatory developments have ruled out the former practice of purchasing
credit insurance cover in lieu of raising provisions for bad debts in the
balance sheet. After a thorough investigation of available alternatives,
Saambou has cancelled its credit insurance policy.
In previous years Saambou disclosed cost of insurance cover in the income
statement in lieu of provisioning costs. Given the structure of the
contract this line in the income statement also included movements on
interest suspended on non-performing loans. Following the cancellation of
the contract, suspended interest write-backs are now disclosed as part of
net interest income. Comparative amounts have been restated to afford a
proper basis for comparison.
While the insurance contract was in place the Bank benefited from risk
cover in excess of premiums paid. On cancellation of the contract this
cover fell away. Over the duration of the contract, this cover gave rise to
an additional comfort on the general credit risk inherent in the advances
portfolio, in particular in respect of personal loans.
After careful assessment of the general provisions prudently required in
respect of personal loans referred to earlier and the loss of the risk
cover, management and the board deemed it appropriate to raise additional
general provisions amounting to R70m after tax. Following careful
consideration of the facts surrounding these additional provisions,
including discussions held with the group's joint auditors, the board
considers it appropriate to disclose this additional non-recurring increase
in general provisions as a headline earnings adjustment.
The charge to income in respect of provisions excluding the additional
general provisions referred to above increased by 30% when compared to the
movement in provisions for the second six months of the prior financial
year. The most significant drivers of this increase are the factors
referred to under personal loans above.
Operating expenses
After adjusting for the impact of the additional costs included in operating
expenses in respect of 20Twenty, costs for the period under review have
increased by approximately 10% compared to those incurred during the second
half of the previous financial year. When adjusting for the impact of the
reclassification of indirect taxes referred to under accounting policies
above, operating costs have increased by 5%.
The resulting cost ratio of 57% (53% if the impact of the indirect taxes
is excluded) is considered high. The improvement of efficiencies and
containment of costs is thus an area of increased focus for the future.
Discontinued operations
Following lower than required operating results from certain initiatives
within 4D, the group's financial advice and broking business, it was decided
to discontinue and dispose of the operations concerned, in order to
reposition 4D as a focused and profitable business. Results attributable to
operations discontinued are highlighted separately in the income statement.
Taxes
As in the past the group has enjoyed the benefit of tax losses in certain
areas of the group. Further the effective tax rate in Saambou Life given
the four funds approach used has contributed to low effective tax rates.
The tax credit of R40m comprises a provision for normal taxes of R43m net of
deferred tax credits arising on temporary differences in respect of
provisions raised in the Bank's balance sheet. The resulting deferred tax
asset is considered recoverable and does not include deferred tax assets in
respect of tax losses.
Capital adequacy
Following the implementation of the revised capital adequacy requirements of
10% capital to risk weighted assets effective 1 October 2001, Saambou
advises that the Bank is adequately capitalised at 11.5% of risk-weighted
assets at the end of September, after the effect of all the additional
provisions raised has been taken into account. Following an internal
actuarial valuation of the obligations of Saambou Life to policyholders,
Saambou Life has an estimated CAR cover of 3.5 times. National Insurers has
a solvency margin of 54% as at the end of September. The level of capital
in the insurance companies allows for the capacity to increase the Bank's
capital adequacy ratio to a level of more than 12% of risk weighted assets
without affecting the operating ability of these companies detrimentally.
Prospects
Management and the board are of the view that the initiatives that have been
taken and continue to be implemented will enhance the quality of earnings of
the group. A sound base has thus been laid for the future performance of the
group.
Dividends
The directors of Saambou have resolved to award capitalisation shares to the
ordinary shareholders recorded in the share register of the Company at the
close of business on Friday, 11 January 2002 ("the record date").
The number of capitalisation shares to which a shareholder will be
entitled to in terms of the capitalisation award will be determined by
multiplying the number of ordinary shares held by the shareholder by a
ratio. This ratio will be arrived at by multiplying 9.0 cents per share by
1.05 and dividing the result by the weighted average trading price of the
ordinary shares of the Company on the JSE for the three days ending
Thursday, 10 January 2002 ("the issue price").
The last day to trade Saambou shares on the JSE "cum" the capitalisation
award to ensure a purchaser appears as owner on the record date, will be
Friday, 4 January 2002.
Shareholders will be given the opportunity to decline the award of
capitalisation shares in respect of all or part of their shareholding and
instead may elect to receive cash of 9.0 cents per share ("the cash
election").
The Company will appoint an underwriter for those shareholders who elect
to receive the cash election in respect of all or part of their
shareholding.
Documentation in respect of the capitalisation award and the cash
election will be posted to shareholders on or about Friday, 7 December 2001.
In order to be valid, completed election forms for certificated shareholders
wishing to receive the cash election will need to be received by the
Company's Transfer Secretaries by no later than 12:00 on Wednesday, 9
January 2002. In the case of uncertificated securities, Central Securities
Depository Participants ("CSDP") should be notified of beneficial owner
elections in sufficient time for the CSDP to inform the Company by 12:00 on
Wednesday, 9 January 2002, as to their election.
Application will be made to the JSE for the capitalisation shares to be
listed with effect from the commencement of business on Monday, 7 January
2002 when the price of the Company's securities will be quoted "ex" the
capitalisation award. It is expected that cheques and share certificates
(where required) in respect of new ordinary shares will be posted to
shareholders on or about Monday, 14 January 2002. Shareholders' accounts in
respect of dematerialised securities will be credited by their CSDPs or
brokers on Monday, 14 January 2002.
Share certificates may not be dematerialised or rematerialised between
Friday, 28 December and Friday, 11 January 2002, both days inclusive.
On behalf of the board
DM Lawrence JP Myburgh
Chairman Group Chief Executive
19 October 2001
Registered office
Saambou Park, Alkantrant Road, Lynnwood Manor, Pretoria, 0081
PO Box 74127, Lynnwood Ridge, 0040
Share transfer secretaries
Mercantile Registrars Limited, 11 Diagonal Street, Johannesburg, 2001
PO Box 1053, Johannesburg, 2000
Directors
DM Lawrence (Chairman)
JL van den Berg (Deputy Chairman)
JP Myburgh* (Group Chief Executive)
Dr BP Botha, DH Botha*, GR Burger, CM Edwards*, KJ Hlongwane
Prof NI Morgan, DM Nurek, SJ Rudd*, B Tapnack, JG Venter*
* Executive
Company secretary
JH Geertsema
Results are available on our website: www.saambou.co.za
