| Mon 20 May 2002, 0:00 | | Boe Limited - Interim Results |
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BoE Limited - Interim Results
BoE LIMITED
Share code : BOE
ISIN : ZAE000014890
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 MARCH 2002
FINANCIAL HIGHLIGHTS
Six Six
months to months to Year ended
Change March 2002 March 2001 September
2001
Headline earnings R`m -4% 551 573 1 192
Headline earnings
per share cents 0% 25.2 25.1 52.1
Fully diluted
headline earnings
per share cents 24.5 24.5 50.8
Attributable
earnings
per share cents 8.5 24.6 12.4
Net number of
shares in issue `m 2 133 2 293 2 257
Weighted average
number of shares `m 2 190 2 287 2 286
Net asset value
per share
(investments at
market value) cents 1% 285 281 299
Dividends proposed/
declared per
ordinary share cents n/a 7.0 19.0
Return on equity % 17.7 16.2 18.1
Interest margin % 3.6 4.2 4.3
Cost to income
ratio % 53.9 51.7 50.0
Non-interest
income
to total income % 61.1 49.5 51.5
Bad debts as
a % of advances % 1.3 1.0 1.4
Provisions as
a % of advances % 3.7 2.3 2.8
Capital adequacy
ratio of BoE
Bank Ltd % 11.3 12.6 11.2
Return on total
assets % 1.6 1.8 1.8
Life insurance
embedded value R`m 835 912 713
CONSOLIDATED INCOME STATEMENT
Six months Six months Year ended
R`m March 2002 March 2001 September
2001
Income from advances 3 303 3 416 7 012
Interest on deposits 2 427 2 470 5 056
NET MARGIN 876 946 1 956
Other income 1 377 928 2 077
INCOME FROM NORMAL
OPERATIONS 2 253 1 874 4 033
Bad and doubtful debts 318 225 671
Operating expenses 1 215 969 2 018
PROFIT FROM NORMAL
OPERATIONS 720 680 1 344
Exceptional items (364) 26 (860)
PROFIT FROM OPERATIONS 356 706 484
Financing costs 53 59 102
Share of earnings of
associate companies 1 35 61
PROFIT BEFORE TAXATION 304 682 443
Taxation 118 120 160
ATTRIBUTABLE INCOME 186 562 283
Exclusions 365 11 909
Loss on sale of NBS Home
Loan book 253 - -
Amortisation of goodwill 111 41 130
Loss on sale of ABIL shares - - 716
Loss arising from SA Eagle case
(Kempton Park) - - 30
Profit on settlement
of Norwich case - (32) (30)
Other 1 2 63
HEADLINE EARNINGS 551 573 1 192
CONSOLIDATED BALANCE SHEET
March March September
R`m 2002 2001 2001
ASSETS
Investments 12 218 11 207 10 221
Advances 38 076 45 910 47 458
Other assets 16 264 8 749 9 557
66 558 65 866 67 236
EQUITY AND LIABILITIES
Capital and reserves 6 059 7 311 6 674
Interest-bearing borrowings 715 1 045 849
Life funds liabilities 8 864 6 708 7 420
Deposits and other accounts 48 446 49 355 49 847
Other liabilities 2 474 1 447 2 446
66 558 65 866 67 236
Off balance sheet assets
under management 87 170 54 222 66 359
Total assets under management 153 728 120 088 133 595
SEGMENTAL ANALYSIS OF HEADLINE EARNINGS
Contri- Six months to Six months to Year
Bution March 2002 March 2001 September
2001 ended
R`m
DIVISIONAL ANALYSIS
BoE Merchant Bank 13% 69 44 206
BoE Treasury Trading 6% 32 36 65
BoE Corporate 28% 153 117 247
BoE Bank Business
Division 16% 89 78 175
Total Corporate
Banking Divisions 63% 343 275 693
Investment Management
Business 20% 110 86 167
Retail Banking 1% 5 56 23
Capital and Investments 16% 93 156 309
551 573 1 192
GEOGRAPHICAL ANALYSIS
South Africa 89% 491 547 1 126
International 11% 60 26 66
551 573 1 192
CONSOLIDATED CASH FLOW STATEMENT
Six months to Six months to Year ended
R`m March 2002 March 2001 Sept 2001
CASH FLOWS FROM OPERATING
ACTIVITIES 2 851 439 1 482
Cash received 8 552 7 039 14 316
Cash paid (6 488) (6 668) (12 402)
Decrease/(increase) in o
perating assets 2 479 (2 935) (3 980)
(Decrease)/increase in
operating liabilities (1 692) 3 003 3 548
CASH FLOWS FROM INVESTING
ACTIVITIES (2 197) (374) (832)
CASH FLOWS FROM FINANCING
ACTIVITIES (587) 138 (204)
CASH AND CASH EQUIVALENTS
Net increase 67 203 446
At beginning of the period 2 003 1 557 1 557
At end of the period 2 070 1 760 2 003
CONSOLIDATED CHANGES IN EQUITY STATEMENT
Six months to Six months to Year ended
R`m March 2002 March 2001 Sept 2001
CAPITAL AND RESERVES
Balance at beginning of the
period 6 674 7 051 7 051
Changes in share capital and
premium (529) (56) (231)
Shares held by group entities - - (2)
Share options exercised and
convertible debentures redeemed 62 19 43
Part payment on acquisition of
Edge - - 46
Issue expenses (1) - (1)
Share buy-backs (590) (75) (317)
Changes in reserves (86) 316 (146)
Net profit for the period 186 562 283
Dividends (272) (253) (411)
Revaluation of investments
directly to reserves - (5) (12)
Foreign currency translation
reserve directly to reserves - 12 (6)
Balance at end of the period 6 059 7 311 6 674
NOTE
The interim financial statements comply with South African Statements of
Generally Accepted Accounting Practice. Accounting policies used are
consistent with those applicable for the 30 September 2001 Annual Financial
Statements, except for the provision for dividends payable. In accordance
with Generally Accepted Accounting Practice AC107, Events After the Balance
Sheet Date, dividends are only recognised in the period in which they are
declared. The prior period comparative numbers have been restated to take
account of this change.
INDEPENDENT AUDIT REVIEW
The financial information set out in these interim results has been
reviewed, but not audited, by the Group`s auditors, Deloitte & Touche. Their
unqualified review report is available at the registered office of the
company.
Under the terms of the recommended offer by Nedcor Limited on 22 April
2002 to acquire the entire issued share capital of BoE, an interim dividend
has not been declared for the six months ended 31 March 2002. A dividend of
7 cents per ordinary share was declared for the six months ended 31 March
2001.
By order of the board
JH Acutt
Company Secretary
16 May 2002
COMMENTARY ON THE HALF YEAR RESULTS
Strategic Overview
The BoE Group has been following a strategy over the last few years to
establish BoE as a mid-sized specialist South African banking and financial
services group delivering competitive returns to its shareholders.
In implementing this strategy, the Group has:
* Disposed of or unbundled non-core businesses;
* Returned excess capital of R6 billion to shareholders through a
combination of unbundling, share buy-backs and a special dividend;
* Deployed excess capital through selective but complementary
acquisitions;
and
* Disposed of under-performing businesses.
This strategy has been pursued fully cognisant of the global trend of
consolidation in banking and financial services. A key uncertainty has been
the question whether the South African market can sustain a mid-sized
specialist banking group. To proactively manage this uncertainty, BoE has
continually reviewed its strategic alternatives, including the possibility
of a partnership with a major local or international institution.
The banking sector in South Africa has been impacted by a number of
adverse factors, including:
* A number of smaller banks being liquidated and/or placed into
curatorship;
* The dramatic collapse of the Rand in the last quarter of 2001 which,
inter alia, inflated interbank counter-party exposures; and
* Microlenders and the consumer credit industry reporting a significant
and
sudden deterioration in credit experience, resulting in a material
increase in bad debts and provisions.
The placing of Saambou Bank Ltd into curatorship on 9 February 2002 became
the catalyst that ignited major concerns regarding the stability of the
South African banking system. As South Africa`s sixth largest bank and the
smallest of the A1 banks, BoE began experiencing abnormally high levels of
depositor withdrawals. Mr TT Mboweni, Governor of the South African Reserve
Bank issued a press statement on 15 February 2002, reaffirming the Reserve
Bank`s policy as lender of last resort and provider of liquidity assistance
to well managed, sound and solvent banking institutions in times of need.
Notwithstanding this announcement, the outflow of funds from BoE persisted.
Uncertainty surrounding BoE increased further when, after six months of
reviewing the viability of its NBS residential mortgage book, discussions
were entered into with FirstRand Limited for the sale to FNB Home Loans of
R12 billion of home loans.
On Thursday, 14 March 2002, a joint statement was issued by the Minister
of Finance and the Governor of the Reserve Bank, in which it was stated that
BoE had the unequivocal support of both the Ministry of Finance and the
Reserve Bank, and that BoE deposits were explicitly guaranteed by the South
African Government.
These unprecedented statements had the effect of stemming the outflow but
has, to date, not led to the normalisation of BoE`s liquidity position,
notwithstanding the fact that R7 billion (R5 billion at 31 March 2002) of
the proceeds of the sale of the NBS Home Loan book to FirstRand has been
received.
Under these circumstances it was incumbent upon the directors of BoE to
urgently review the Group`s standalone strategy.
Half Year Results
The period under review presented one of the most challenging environments
in the history of the Group. Headline earnings per share, based on the lower
average number of shares in issue, was unchanged at 25 cents per share. No
interim dividend was declared, as this was a condition of the offer by
Nedcor to BoE shareholders.
Continuing their trend, the corporate banking divisions achieved significant
earnings growth of 25% and a return on equity of just over 25%. Profits in
the Investment Management Division improved primarily from offshore
operations, enhanced by the acquisition of Stenham Gestinor. Results in the
Retail Division were disappointing. PEP Bank, Cashbank and the NBS Savings
and Investment Divisions performed in line with expectations, but the
Credcor Division was adversely impacted by additional provisioning for bad
debts.
These provisions resulted from the re-appraisal of credit risk in the
microlending and consumer credit sectors, arising from significant job
losses in the lower end of the market in the second half of 2001, shifts in
spending patterns and over-extension of credit in that sector.
In line with best practice, new predictive bad debt scoring processes were
implemented and credit extension was materially tightened. Although it is
still too early to assess the full potential of the Group`s mass market
initiatives as a merged entity, the business model for lending to this
market is being critically evaluated, a new management team has been
appointed and credit collection processes are being improved.
Net margin was enhanced by the acquisitions of Credcor and Cashbank, which
added R44 million. However, the margin was negatively impacted by continued
pressure on overall margins, the liquidity situation and the effect of cash
utilised for the share buy-back programme and the acquisitions made during
the last financial year. As a result, net margin decreased by R70 million
against the same period last year.
Non-funded income increased by R449 million compared to March 2001, of
which R270 million is attributable to the income generated by Stenham
Gestinor, Edge, Cashbank and Credcor. A further R112 million of the increase
is attributable to foreign exchange gains from the Group`s foreign
operations.
Operating expenses were well controlled, with organic growth restricted to
4% over the same period last year. The impact of acquisitions, some of which
have relatively high cost to income ratios, added approximately R210 million
to the cost base.
The bad debt charge for the period increased by R93 million over the prior
period. Bad debts as a percentage of average advances deteriorated from 1.0%
in March 2001 to 1.3%. The increase in the bad debt charge is primarily
attributable to the additional provisioning in Credcor.
Advances decreased by R9 382 million, from R47 458 million in September
2001 to R38 076 million. The net movement was made up as follows:
Sale of NBS Home Loan book (R11 909 million)
Purchase of Cashbank R422 million
Organic growth R2 105 million
Annualised organic growth was approximately 12%.
Non-performing advances decreased from R2 543 million in September 2001 to
R2 371 million. Included in this amount are properties in possession, which
decreased from R1 115 million to R970 million. Good progress continued to be
made with the disposal of the remaining NBS residential properties in
possession. Unsold single and residential development properties decreased
from R375 million to R256 million. Properties with a book value of R145
million have been sold and are awaiting transfer.
The Bank`s depositor mix has changed significantly following the liquidity
issues affecting the Bank. An increase in the level of funding from the
interbank market, from R298 million in September 2001 to R11 593 million,
has been needed to replace the outflow of private sector institutional and
individual depositors.
This has led, in the latter part of the first half, to a higher cost of
new funding and the need to manage asset growth carefully. The remaining
inflow of R6.8 billion from the sale of the NBS Home Loan book will assist
to improve our funding profile. We also believe that within a larger group,
BoE`s ability to re-attract new deposits will increase and thus reduce the
reliance on the interbank market.
Off balance sheet assets under management increased from R66 billion in
September 2001 to R87 billion, which includes Stenham Gestinor for the first
time. Total assets under administration are R154 billion.
Included in exceptional items is an amount of R253 million for the closure
of the NBS Home Loan division.
This comprises:
* Direct deal expenses including advisory fees R16 million
* Loss on the sale of the advances book R53 million
* Staff retrenchment and write down of redundant systems R87 million
* Provisions for future expenses in respect of remaining assets R97
million
No provisions were released to income during the period and existing
provisions were offset against the closure costs.
Conclusion
Given the current banking environment and the liquidity position, there
remains significant uncertainty and risk in respect of the Group`s ability
to meet full year market profit expectations, to resolve the liquidity
position, and to pursue a standalone strategy. There is no doubt that
virtually every part of BoE can benefit from becoming part of a larger
group.
Nedcor offer and cautionary
Shareholders are reminded of the notice to shareholders on 22 April 2002,
detailing the terms of the recommended offer by Nedcor Limited to
shareholders of BoE to acquire the entire issued share capital of BoE. The
rationale for the unanimous support of the Nedcor offer by the BoE Board was
included in the announcement of 22 April 2002 which stated, inter alia, that
"In the circumstances, the BoE Board is firmly of the opinion that the
interests of stakeholders are best protected by BoE entering a transaction
with an appropriate larger financial institution. The scheme of arrangement
proposed by Nedcor provides stakeholders with certainty, security and
opportunity." On 13 May 2002, Nedcor announced the successful completion of
the due diligence and an increase in the amount of the offer by 10 cents per
share to the maximum consideration referred to in the announcement of 22
April 2002. Shareholders are advised to continue to exercise caution when
dealing in their securities.
Approval
The interim results set out adjacent were approved by the board of
directors on 16 May 2002 and are signed on its behalf by:
WJ McAdam TA Boardman
Chairman Chief Executive
Directors: WJ McAdam (Chairman), CJW Ball (Deputy Chairman),
TA Boardman (Chief Executive), MWT Brown, P Gorvalla, B Kennedy,
PS Leaf-Wright, JG Maxwell, JR McAlpine, JAC McGregor,
LA Meyerowitz, JG Modibane, E Osrin, JR Sanders (British),
CML Savage, WJ Swain, PA Wessels, DF Woollam
Registered Office: BoE, Clock Tower Precinct, V&A Waterfront, Cape Town,
8001
PO Box 86, Cape Town, 8000.
Telephone: +27 21 416 6000.
Telefax: +27 21 416 9927
Company Registration Number: 1987/003281/06.
Share Code: BOE
ISIN: ZAE000014890
Sponsors: BoE Securities(Pty)Ltd,
UBS Warburg Securities(South Africa)(Pty)Ltd
Transfer Secretaries: Computershare Services Limited, 11 Diagonal Street,
Johannesburg, 2001.
PO Box 1053, Johannesburg, 2000
Telephone: +27 11 370 5000
For more information visit our website: www.boe.co.za
Date: 20/05/2002 10:00:00 AM Produced by the SENS Department
