| Wed 28 Nov 2001, 0:00 | | Mercantile - Results For The Six Months Ended 30 S |
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Mercantile Lisbon Bank Holdings Limited
(Registration number 1989/000164/06)
Share code MTL ISIN ZAE000027082
("Mercantile" or "the group")
* Proposed recapitalisation and establishment of Caixa Geral De Depositos
("CGD") as controlling shareholder of Mercantile
* Ongoing major restructuring of the business
* Reconstitution of the board and executive management
* Disposal of the registrars' business and the asset finance division
* Further cautionary announcement
RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2001
Summarised Group Income Statement
Six months ended
30 September 30
September
2001 2000
Unaudited Unaudited
R'000 R'000
Interest income 201 091 217 592
Interest expense (141 103) (145 454)
Net interest income before provision for
credit losses 59 988 72 138
Provision for credit losses (266 000) (21 840)
Net interest (expense)/income (206 012) 50 298
Non-interest income 94 277 126 997
Net investment revaluation provision (13 709) (8 940)
Total (loss)/income (125 444) 168 355
Operating expenses (241 589) (175 190)
Loss before taxation (367 033) (6 835)
Taxation (5 152) (6 423)
Loss after taxation (372 185) (13 258)
Share of (loss)/income from associated companies (2 880) 125
Attributable loss (375 065) (13 133)
Headline loss (220 971) (12 457)
Determination of headline loss
Attributable loss (375 065) (13 133)
Adjustment for:
Capital loss on systems software 4 069 -
Discontinuing operations 150 025 676
Headline loss (220 971) (12 457)
Summarised Group Statement of Changes
in Shareholders' Interest
Opening balance 536 656 655 050
Movements in distributable reserves (375 065) (13 133)
Movements in shareholders' loan - (2 000)
Shareholders' interest 161 591 639 917
Financial statistics
Shares in issue
Number of ordinary shares in issue
- end of period ('000) 427 014 442 164
- weighted average ('000) 427 014 442 164
Headline loss per ordinary share (cents) 51,7 2,8
Net asset value per ordinary share (cents) 37,8 144,7
Capital ratio in terms of Banks Act (%) 5,74 17,16
Adjusted capital ratio after recapitalisation but
before disposals (%) 11,33
Summarised Group Balance Sheet
30 September 30
September
2001 2000
Unaudited Unaudited
R'000 R'000
Assets
Cash and short-term funds 124 861 152 543
Negotiable securities 282 627 337 353
Investments 59 555 69 289
Advances 2 398 350 2 903 888
Debtors and sundry debits 214 630 115 101
Interest in associated companies 15 117 1 863
Fixed assets 165 703 182 081
Client indebtedness for acceptances,
guarantees and credits 191 281 274 133
Total assets 3 452 124 4 036 251
Liabilities
Deposit and credit balances 2 939 858 3 034 790
Creditors and sundry credits 145 990 66 792
Debentures - 8 275
Deferred taxation 2 886 1 827
Long-term liabilities 10 517 10 517
Liabilities under acceptances,
guarantees and credits 191 282 274 133
Total liabilities 3 290 533 3 396 334
Shareholders' funds
Share capital 747 786 778 924
Reserves (586 195) (139 007)
Total shareholders' funds 161 591 639 917
Total liabilities and shareholders' funds 3 452 124 4 036 251
Summarised Group Cash Flow Statement
Six months ended
30 September 30
September
2001 2000
Unaudited Unaudited
R'000 R'000
Cash flow from operating activities (34 033) 19 325
Cash flow from returns on investments and
servicing of finance 10 615 21 171
Taxation paid (6 974) (7 591)
Cash flow from investing activities 35 422 (22 501)
Cash flow from financing activities - (2 000)
Cash flow from operating funds (78 191) (410 143)
Aggregate of cash inflows and outflows (73 161) (401 739)
Cash and short-term funds at beginning of period 198 022 554 282
Cash and short-term funds at end of period 124 861 152 543
INTRODUCTION
The current financial year has been marked by a number of significant,
changes, namely:
* a reconstitution of the Board of Directors ("the Board") and Executive
Management of Mercantile;
* the disposal of Mercantile's custodial, registry and share
dealing/brokering businesses ("the Registrars' businesses"); and
* the disposal of Mercantile's Asset Finance division.
As a result of the ongoing restructuring Mercantile is focusing on five
areas, namely, Banking Services, Specialised Finance, Alliance Banking,
Treasury and Securities Banking, all of which now have effective management
teams in place. In addition to the above, Mercantile has entered into an
agreement, subject to shareholder and regulatory approvals, with CGD, its
major shareholder. This will result in the recapitalisation of the group and
CGD obtaining control of Mercantile. Details of the aforementioned are
described in more detail below.
THE RECONSTITUTED BOARD
The Board of Mercantile has now been reconstituted as follows:
Executive Non-executive
R J Symmonds (Group Managing Director) B T Wood (Chairman)
Dr J H R Pereira G P de Kock
Prof A Steyn I B Skosana
W H Meyer Dr A M S A Soares
B R van Rooyen
M J Shaw
G K Chadwick
S R Bruyns
DISPOSAL OF BUSINESS UNITS
Part of the restructuring process has resulted in decisions by the Board to
dispose of certain business units, namely:
The Registrars' businesses
It was announced on 14 November 2001 that Mercantile had entered into an
agreement to dispose of the Registrars' businesses to Computershare Services
Limited and Computershare Custodial Services Limited (collectively,
"Computershare").
The disposal is subject to the fulfilment of a number of suspensive
conditions including, due diligence, approval by Mercantile shareholders in
general meeting and by the Competition Authorities. The disposal
consideration payable to Mercantile, of R110 million in cash, will be
received upon the fulfilment of the suspensive conditions, which is expected
to be in March 2002.
Due to the conversion from paper to electronic settlement in South Africa,
the registry industry is undergoing significant change. This transaction
will allow Mercantile to expand its opportunity in Securities Banking by
servicing the enlarged new business.
The Asset Finance division
The Asset Finance division has for some time been identified as non-core to
the future of Mercantile and as such, a major portion of this division was
disposed of to Citibank N.A. for R450 million in a transaction concluded on
19 November 2001. Approval for this transaction was required from the South
African Reserve Bank and given after the completion of an independent
investigation by Deloitte & Touche.
COMMENTARY ON THE INTERIM RESULTS
Mercantile Bank Limited ("the Bank") has not been immune to the issues
facing the small banking sector in South Africa. Mercantile's Board and
Executive Management has thus begun the task of restructuring the business
with a view to returning it to profitability and achieving growth in
shareholder value.
The attributable loss of R375 million for the six months ended 30 September
2001 is largely as a result of once-off provisions and write-offs totalling
R326 million.
Included in this figure is a provision of R240 million for credit losses
which has been determined after careful review by management and in
consultation with independent advisors. The provision does not reflect a
rapid deterioration in the value of the Bank's asset book but rather a
realistic re-assessment of the provision required. The provision, after the
disposal of the asset finance book, now equates to 19,5% of the Bank's gross
exposure.
The Bank's deposit base is principally retail-based and has remained stable
throughout the period. The increased liquidity resulting from the sale of
the Asset Finance division, and the resultant removal of the on-going
responsibility to fund that business, has resulted in the group presently
enjoying a highly liquid situation, which will be enhanced by the proposed
recapitalisation of Mercantile by CGD.
The results for the six months ended 30 September 2001 have been prepared in
accordance with Statements of Generally Accepted Accounting Practice and are
consistent with the accounting policies of the company.
THE RECAPITALISATION OF MERCANTILE
Background
In view of the extent of the losses incurred, it became clear to the Board
that a recapitalisation of Mercantile Bank Limited is both necessary and
prudent. Shareholders are thus advised that, subject to shareholder
approval, Mercantile has entered into an agreement with its major
shareholder, CGD, in terms whereof CGD will inject R120 million of new
capital into Mercantile by way of a specific issue of shares for cash by
subscribing for 428 571 428 new Mercantile shares at an issue price of 28
cents per share, being an approximate 10% discount to the 30-day trade
weighted average share price of Mercantile on the JSE Securities Exchange
South Africa ("the JSE") prior to 22 November 2001 (being the day when
agreement was reached on the issue of shares for cash) ("the
recapitalisation"). Pursuant to the recapitalisation, CGD will become the
controlling shareholder of Mercantile. Following the recapitalisation,
Mercantile will be capitalised at 11,3% of risk weighted assets. The other
transactions described in this announcement will further improve this ratio.
Irrevocable undertakings have been received from a number of major
shareholders to vote in favour of all the required resolutions to implement
the recapitalisation.
CGD's commitment to Mercantile
The CGD group has been doing business in South Africa since 1965 and has
thus established a committed and loyal customer base. CGD's support for the
recapitalisation and its willingness to take control of Mercantile is
evidence of its commitment to continuing business in South Africa and
support for its current and future customers. This support demonstrates
CGD's confidence that Mercantile can be restored to profitability and
shareholder value enhanced.
CGD is the largest financial services group in Portugal, with assets in
excess of EUR 62 billion (R521 billion) and with an equity base of over EUR
3 billion (R25 billion). With a range of services from commercial banking to
insurance, capital markets, specialised credit, advisory services, venture
capital and investment banking, the CGD group commands notable domestic
market shares, holding, at the end of 2000, 31,2% (35,6% for private
individuals) of deposits and 23,7% (29,6% for private individuals) of loans.
CGD's vast international presence covers Africa, Europe, America and Asia
with a network of branches in excess of one thousand. CGD also holds the
highest ratings of all Portuguese banking groups, being rated Aa3 / P-1 by
Moody's (A+ / A-1 by S&P and AA- / F1+ by Fitch IBCA).
As mentioned above, CGD has obtained irrevocable commitments from major
shareholders representing 57% (excluding the shareholding of CGD) of the
issued share capital of Mercantile. This evidences the major shareholders'
support of CGD's ability to add significant value as the controlling
shareholder of Mercantile.
Termination of the Mercantile Controlling Consortium Agreement
It has been agreed among the members of the Mercantile Controlling
Consortium, comprising CGD, Hollard Holdings (Proprietary) Limited and
certain of the founding members of Mercantile, to terminate the Controlling
Consortium Agreement. Consequently, the former members of the Controlling
Consortium will not be regarded as concert parties in respect of the
recapitalisation.
Change of control and waiver of the mandatory offer to minority
shareholders
Prior to the recapitalisation, CGD held 120 165 886 Mercantile shares, or a
28,1% interest in Mercantile. Subsequent to the recapitalisation, CGD will
hold 548 737 314 Mercantile shares, or a 64,1% interest in Mercantile,
constituting a change in control as defined by the rules of the Securities
Regulation Panel ("the SRP"). Mercantile and CGD will seek a written ruling
from the SRP to dispense with the obligation for CGD to extend a mandatory
offer to the minority shareholders of Mercantile, provided that the
potential mandatory offer is waived by a majority of independent votes in
general meeting.
Related party
CGD is a material shareholder of Mercantile and as such, the issue of
Mercantile shares to CGD in terms of the recapitalisation constitutes a
related party transaction in terms of the Listings Requirements of the JSE.
It thus requires an opinion from an independent advisor as to the fairness
and reasonableness of the price at which the shares are issued to CGD.
Bridge Capital Services (Pty) Limited has been appointed as the independent
advisor and their fair and reasonable opinion will be incorporated in the
circular to shareholders. As a related party, CGD will be precluded from
voting at the general meeting on the resolutions relating to the
recapitalisation and the waiver of a potential mandatory offer to the
Mercantile minority shareholders. CGD will also not be taken into account in
determining the quorum at the general meeting in respect of the relevant
resolutions.
Suspensive conditions
The recapitalisation is subject to the following suspensive conditions:
* the approval of the creation of additional authorised share capital by
Mercantile shareholders in general meeting;
* the approval of the issue of Mercantile shares to CGD by Mercantile
shareholders in general meeting;
* the waiver by Mercantile shareholders in general meeting of the obligation
by CGD to make a mandatory offer to the minority shareholders of Mercantile
in the event of CGD becoming the controlling shareholder of Mercantile;
* the necessary regulatory approvals being received from the Minister of
Finance, The Registrar of Banks, the JSE and the SRP; and
* the obtaining of all other regulatory approvals that may be necessary.
Pro forma financial effects of the recapitalisation and further cautionary
announcement
The pro forma financial effects of the recapitalisation on Mercantile's
earnings per share, headline earnings per share, net asset value per share
and tangible net asset value per share will be published in a separate
announcement and in the circular, to be posted to shareholders, in due
course.
Until such time as the financial effects have been determined and made
public, shareholders should continue exercising caution in dealing with
their Mercantile shares.
Circular to shareholders
A circular to shareholders setting out full details of:
* the disposal of the Registrars' businesses and the fair and reasonable
opinion relating to this disposal;
* the recapitalisation and the fair and reasonable opinion relating to the
recapitalisation; and
* incorporating a notice convening a general meeting of Mercantile
shareholders,
will be posted on or about 18 December 2001, subject to JSE and SRP
approval.
OUTLOOK
The magnitude of the losses reported for the six months ended 30 September
2001 masks the substantial progress that has been made since July 2001 in
the following areas:
* a complete restructuring of the Board and Management, who are committed to
ensuring the continued viability of Mercantile;
* the maintenance of a stable liquidity position;
* a reduction of risk in all areas;
* a profit turnaround in Treasury; and
* the disposal of certain non-core business units.
A revised business plan is in the process of being finalised in order to
structure Mercantile as a profitable and viable business. Several areas of
focus have been identified including: the provision of Banking Services,
Alliance Banking, Treasury, Securities Banking and Specialised Finance.
The Board is confident that the progress made thus far, together with the
proposals outlined in this announcement and supported by a major
international shareholder of proven abilities within this sector, bodes well
for a business focused on identified niches within the banking arena.
By order of the Board
B T Wood R J Symmonds
Chairman Group Managing Director
Johannesburg
27 November 2001
Directors: B T Wood (Chairman), R J Symmonds (Group Managing Director),
S R Bruyns, G K Chadwick, G P de Kock, W H Meyer (Executive),
Dr J H Real Pereira* (Executive), M J Shaw, I B Skosana, Dr A M S A Soares*,
Prof A Steyn (Executive), B R van Rooyen
Group Secretary: F Vicente Coelho* *Portuguese
Registered office: Mercantile Lisbon House, 142 West Street, Sandown 2196
Share Transfer Secretary:
Mercantile Registrars Limited,
11 Diagonal Street, Johannesburg, 2001
Corporate advisor and sponsor to Mercantile
Bridge Capital
Merchant bank to CGD
Rand Merchant Bank
A Division of FirstRand Bank Limited
Corporate law advisors and consultants
Edward Nathan & Friedland (Pty) Ltd
(Registration number 1999/026464/07)
Reporting accountants and auditors
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants & Auditors
(Registration no. 1998/012055/21)
