| Mon 27 May 2002, 0:00 | | Absa Group - Profit And Dividend Announcement |
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Absa Group - Profit And Dividend Announcement
ABSA GROUP LIMITED
Share code : ASA
ISIN Code : ZAE000013389
On request by the company this announcement replaces the announcement
released earlier today.
SALIENT FEATURES OF THE GROUP RESULTS
Year ended Year ended
31 March 31 March
2002 2001 Change 2000
%
Headline earnings (Rm) 1,888 2,446 (22.8) 2,012
Attributable income (Rm) 1,686 2,442 (31.0) 1,617
Headline earnings per share (cents) 291.1 377.2 (22.8) 314.0
Earnings per share (cents) 260.0 376.5 (30.9) 252.3
Dividends per share (cents) 116.0 116.0 - 96.5
Dividend cover (times) 2.5 3.3 3.3
Return on average shareholders` funds (%) 12.9 19.1 17.1
Return on average assets, excluding
acceptances (%) 0.86 1.32 1.18
Net interest margin on average assets(%) 3.82 4.25 4.00
Net interest margin on average interest
bearing assets (%) 4.11 4.48 4.20
Charge for bad and doubtful advances as a %
of average advances 2.38 1.09 1.21
Non-interest income as % of operating
income 47.9 45.0 43.7
Cost-to-income ratio (%) 60.3 62.3 62.9
Total assets (Rm) 247,300 196,514 25.8 177,234
Net asset value per share (cents) 2,354 2,138 10.1 1,861
Total advances (Rm) 183,860 156,396 17.6 144,824
Non-performing advances to total
advances (%) 5.2 4.4 4.9
Capital to risk-weighted assets (%)
Absa Bank Limited 10.2 10.7 10.4
Absa Group Limited 11.2 12.4 -
GROUP INCOME STATEMENT
Year ended Year ended
31 March 31 March
2002 2001 Change 2000
Rm Rm % Rm
Interest income 24,517 22,571 8.6 22,708
Interest expense (16,133)(14,708) (9.7) (15,843)
Net interest income 8,384 7,863 6.6 6,865
Charge for bad and doubtful advances (4,042) (1,643) >(100) (2,271)
Normal charge (2,262) (1,643) (37.7) (1,707)
Abnormal charge: UniFer (1,780) - - -
Regulatory increase in general provision - - - (564)
Income from lending activities 4,342 6,220 (30.2) 4,594
Non-interest income 7,694 6,421 19.8 5,331
Operating income 12,036 12,641 (4.8) 9,925
Operating expenditure (9,700) (8,900) (9.0) (7,672)
Indirect taxation (649) (534) (21.5) (384)
Impairment charge - UniFer goodwill (144) - - -
Net income from operations 1,543 3,207 (51.9) 1,869
Net income before taxation 1,643 3,260 (49.6) 1,919
Associated companies 100 53 88.7 50
Taxation (337) (717) 53.0 (302)
Net income after taxation 1,306 2,543 (48.6) 1,617
Minority interest 380 (101) >100 -
Net income attributable to shareholders 1,686 2,442 (31.0) 1,617
Headline earnings 1,888 2,446 (22.8) 2,012
DETERMINATION OF HEADLINE EARNINGS
Year ended Year ended
31 March 31 March
2002 2001 Change 2000
Rm Rm % Rm
Net income attributable to shareholders 1,686 2,442 (31,0) 1,617
Adjustments for:
Regulatory increase in general provisions - - 395
Net profit on disposal of subsidiary - (8) -
Net loss on write-off of long term
investments 26 - -
Goodwill written off 176 12 -
Headline earnings 1,888 2,446 (22,8) 2,012
Cents Cents % Cents
Earnings per share 260.0 376.5 (30.9) 252.3
Adjustments for:
Regulatory increase in general provisions - - 61.7
Net profit on disposal of subsidiary - (1.2) -
Net loss on write-off of long term
investments 4.0 - -
Goodwill written off 27.1 1.9 -
Headline earnings per share 291.1 377.2 (22.8) 314.0
Number of shares in issue (000s) 651,547 648,547 640,758
Weighted average number of shares in
issue on which headline earnings per
share are based (000s) 648,580 648,547 648,547
GROUP BALANCE SHEET Year ended Year ended
31 March 31 March
2002 2001 Change 2000
Rm Rm % Rm
Assets
Cash and short-term assets 11,688 6,402 82.6 6,557
Short-term money market assets 11,381 10,462 8.8 5,815
Liquid assets and other securities 17,624 10,642 65.6 10,267
Advances 183,860 156,396 17.6 144,824
Other assets 13,018 4,441 >100 2,484
Investments 3,399 2,671 27.3 2,835
Subsidiary companies 131 - - 364
Associated companies 442 332 33.1 281
Property and equipment 2,552 2,562 (0.4) 2,615
Goodwill 16 95 (83.2) -
Intangible assets 50 69 (27.5) 74
Deferred taxation 445 198 >100 -
Client liabilities under acceptances 2,694 2,244 20.1 1,118
Total assets 247,300 196,514 25.8 177,234
Liabilities
Deposits and current accounts 213,766 167,736 27.4 153,541
Deferred taxation 1,414 2,002 (29.4) 1,755
Taxation 740 399 85.5 84
Other liabilities 6,434 4,742 35.7 4,673
Provisions 919 907 1.3 535
Insurance funds 1,453 1,163 24.9 972
Subordinated debt 4,394 2,962 48.3 2,591
Liabilities to clients under acceptances 2,694 2,244 20.1 1,118
Total liabilities 231,814 182,155 27.3 165,269
Shareholders` funds
Share capital 1,303 1,297 0.5 1,286
Share premium 1,532 1,532 - 1,532
Reserves 12,500 11,040 13.2 9,147
Shareholders` funds 15,335 13,869 10.6 11,965
Minority Shareholders` interest 151 490 (69.2) -
Total liabilities and shareholders`
funds 247,300 196,514 25.8 177,234
Contingencies 16,579 14,198 16.8 11,471
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS` FUNDS
Year ended Year ended
31 March 31 March
2002 2001 Change 2000
Rm Rm % Rm
Share capital 1,303 1,297 1,286
Opening balance 1,297 1,286 1,286
Shares issued 6 11 -
Share premium 1,532 1,532 1,532
Opening balance 1,532 1,532 2,190
Goodwill written off on acquisition of
Subsidiary - - (658)
Non-distributable reserves 1,408 749 566
Opening balance 749 566 435
Movement in foreign currency
translation reserve 549 157 (2)
Transfer from insurance contingency reserve 2 9 4
Changes in value of investments held by
short-term insurance company 12 (18) 86
Associated company earnings 96 35 43
Distributable reserves 11,092 10,291 8,581
Opening balance 10,291 8,581 7,639
As previously stated 10,080 8,449 7,534
Changes in accounting policy 227 146 117
Change in taxation legislation on
Insurance contingency reserve (16) (14) (12)
Foreign Currency translations effect - (20) -
Transfer to insurance contingency reserve (2) (9) (4)
Attributable income 1,686 2,442 1,617
Transfer to non-distributable reserves (73) (35) (36)
Dividends (810) (668) (635)
Total shareholders` funds at end
of period 15,335 13,869 11,965
GROUP CASH FLOW STATEMENT
Year ended Year ended
31 March 31 March
2002 2001 2000
Rm Rm Rm
Cash retained from operating activities 32,143 28,702 27,361
Net cash inflow from operating activities 6,185 5,484 3,911
Net increase in operating funds 4 (6,718) (1,524)
Taxation paid (1,422) (872) (406)
Cash utilised in investing activities (1,690) 1,303 (1,835)
Cash flows from financing activities 1,606 511 750
Effect of exchange rate changes on cash
and cash equivalents 603 137 (2)
Increase/ (decrease) in cash and cash
equivalents 5,286 (155) 894
Cash and short-term assets at beginning
of period 6,402 6,557 5,663
Cash and short-term assets at end of period 11,688 6,402 6,557
PROFIT CONTRIBUTION BY BUSINESS AREA
Year ended Year ended
31 March 31 March
2002 2001 Change 2000
Rm Rm % Rm
Personal banking* 769 572 34.4 369
Commercial banking* 893 716 24.7 602
Wholesale banking 750 631 18.9 538
Total banking 2,412 1,919 25.7 1,509
Insurance and financial services 502 445 12.8 515
Other (42) (49) 14.3 (12)
Headline earnings -Absa pro-forma 2,872 2,315 24.1 2,012
UniFer (984) 131 >(100) -
Total headline earnings 1,888 2,446 (22.8) 2,012
* Prior to the implementation of the new business model no distinction was
made between the personal and commercial banking operations of the Group.
The figures for 2000 and 2001 in both these segments are estimates only.
Earnings and dividend announcement
Profit Commentary
The Absa Group`s core business continued to improve during the 2002
financial year. Core operations recorded headline earnings growth of 24,1%.
This performance was adversely affected by the Group`s microlending
subsidiary UniFer Holdings Limited ("UniFer"). The performance of this
subsidiary resulted in an adverse impact of 151,7 cents per share on the
Group`s headline earnings.
Consequently, the Group`s headline earnings declined by 22,8% to R1 888
million (291,1 cents per share) compared with the R2 446 million (377,2
cents per share) for the previous financial year.
The Group`s earnings, excluding the once-off UniFer effect, are of a high
quality and represent the Group`s sustainable earnings base for the future.
Financial performance
Top-line growth for the year amounted to 12,6%, with net interest income
increasing by 6,6%, largely owing to strong advances growth of 17,6%.
Although the depreciation of the rand distorted wholesale advances growth,
domestic personal, commercial and wholesale advances grew by 12,3%, 7,7% and
33,7% respectively. Interest margins declined as a result of increased
competition, disintermediation and de-construction of the value chain.
Non-interest income grew strongly, by 19,8%, and now represents 47,9% of
total revenue. Commissions and fees form a major portion of this income.
These increased by 26.7% (F2001: 35,9%) for the year. A number of services
were repriced, but most of the improved income resulted from higher volumes.
Income from trading grew encouragingly as a result of an investment in
quality staff and improved risk management.
The charge for bad and doubtful advances increased by 146% for the year,
primarily as a result of events at UniFer. This led to an increase in the
bad debt charge as a percentage of advances to 2,38% (F2001: 1,09%).
However, if UniFer is excluded, the bad debt charge as a percentage of
advances increased from 0,89% to 0,97%. The provisioning in international
operations, a write-down of properties in possession and a rise in general
provisions were responsible for this increase. However, it is pleasing to
note that the ratio of non-performing advances to total advances (excluding
UniFer) improved to 4,0% (F2001: 4,1%). Given that the arrears statistics in
the personal and commercial markets improved further, the bad debt ratio is
not expected to increase significantly in view of the interest rate
increases. With regard to future risks in the wholesale market, certain
sectors remain a concern. The Group`s exposure to these sectors is carefully
managed and monitored.
The Group`s focus on efficiency enhancements contained growth in operating
expenditure in the Group`s core business to 7,1%. However, this increased to
9,0% owing to costs emanating from UniFer. The Group`s cost-to-income ratio
(excluding UniFer) improved to 60,3% (F2001: 64,0%).
The Group has revised its practice of disclosing indirect taxes as part of
the tax charge in the income statement and now reports these as a separate
line item in the income statement. The charge for income tax in the income
statement is 20,5% of earnings, compared with the 22,0% of the previous
year.
A final dividend of 63,0 cents per share has been declared, resulting in
dividend cover of 2,5 times for the year (F2001: 3,3 times). This brings the
total dividend for the year to 116,0 cents per share, the same as the
previous year.
UniFer`s impact
As already stated, the losses suffered by UniFer have had a significant
impact on the performance of the Group for the year under review. These
losses were the result of excessive advances growth exacerbated by a
breakdown in corporate governance, administrative processes and internal
controls at UniFer. Although the Group held only 61,10% of UniFer`s shares,
the extent of Absa`s loss was increased by a decision to prevent the failure
of the bank and protect the interest of depositors. Consequently, provision
was made for losses that exceeded the net asset value in UniFer. This
resulted in a loss in headline earnings to the Group of R984 million or
151,7 cents per share.
An offer has been made to the minority shareholders of UniFer by means of a
Section 311 Scheme of Arrangement to acquire all their shares in the
company. The scheme was accepted by over 95% of minorities. Once the High
Court of South Africa has approved the scheme, Absa will be able to
integrate the operations of UniFer into those of the Group. If approved, the
arrangement is expected to become effective on 20 June 2002.
Part of the UniFer loss was accounted for by writing off R1 531 million of
the advance extended to UniFer in Absa Bank. This loss, as is the case with
the balance of the losses caused by UniFer, is considered to be a once-off
adjustment to the net asset value of the Absa Group. With regard to
UniFer`s future prospects, UniFer should return to normal trading, but its
earnings contribution is expected to be small.
Operating environment
The sharp depreciation of the rand against major international currencies
during the latter part of 2001 had a negative impact on inflation
expectations for 2002. This prompted the South African Reserve Bank to
increase interest rates on two occasions - by a total of 200 basis points -
in the first quarter of 2002. This sudden reversal in the downward trend of
the interest rate cycle, which prevailed for the past eighteen months and
which many believed might have continued into 2002, is likely to affect the
prospects for both corporate and household borrowing.
Real economic growth during 2001 was only 2,2%, partly as a result of export
growth, which slowed sharply in reaction to weak global demand. However, the
relatively low and declining interest rate environment in 2001 was largely
responsible for sustaining strong domestic consumer demand as well as
private sector fixed capital formation for the best part of the year.
Consequently, credit extension to the household sector in 2001 continued its
somewhat stronger growth performance.
The beginning of an upward trend in interest rates from early this year
spells the probable end to strong growth in non-government domestic demand
for the time being. However, the first signs of a global recovery already
appear to be having a positive impact on domestic export growth, whereas
government has embarked on a more expansionary fiscal stance during the
current fiscal year. It is possible that the stronger growth in exports, as
well as government expenditure, will compensate for weaker household and
private sector demand.
Review of operations
During the year under review, the Group successfully implemented its new
customer-focused business model. This model has produced enhanced customer
retention and acquisition by means of an improved management focus and
customer service. In addition, the model has also provided the Group with a
mechanism to report on a segment and product basis and to obtain information
that was not previously available.
Personal Banking
The Group`s personal banking operations recorded strong earnings growth as a
result of the sharper focus resulting from the Group`s new customer-focused
business model. Key to this success was the enhancement of service levels, a
focus on sales, and appropriate decision-making. These improvements have led
to great success in acquiring new business. Another factor contributing to
enhanced business volumes is the introduction of Absa Home Loans` multiple
origination strategy, which uses all delivery channels optimally.
Commercial Banking
Commercial banking operations performed well. The backbone of this
performance was the strong showing by Business Banking Services, which
increased earnings by 33,6%. This growth can also be attributed to customer
retention and acquisition coupled with the unit`s ability to leverage off
its dominant position in both the agriculture and public sector markets. The
instalment finance market was characterised by increased competition, ,
which resulted in pressure on margins. Against this backdrop, Bankfin
increased earnings by 13,8%.
Wholesale Banking
Absa Corporate and Merchant Bank`s increased focus on trading and advisory
activities was rewarded by strong growth in non-interest income towards the
close of the financial year.
The management teams in international operations have been strengthened and
further investment in intellectual capital will be made to increase the
Group`s hard currency earnings.
The year under review yielded modest contributions from these operations
because of increased provisions for bad debts.
The Group`s income from its African operations, mainly National Bank of
Commerce in Tanzania (NBC) and the equity-accounted stake in Bank Windhoek,
was encouraging. Both banks are well managed with favourable future
prospects.
Financial Services
Absa`s bancassurance business model is reaping rewards, with Absa Financial
Services, the Group`s bancassurance arm, continuing to produce solid
earnings.
Absa Life Limited, a life assurer, performed well, as did Absa Insurance
Company Limited, a short-term insurer. Both made progress by means of a
strategy of growing non-mortgage-related business. Although Absa Brokers
experienced difficult market conditions, its future prospects remain
favourable owing to its compliance with the Financial Advisory and
Intermediary Services (FAIS) Bill. In addition, the greater customer focus
inherent in the business model has resulted in an improvement in the quality
of leads that flow through to the financial services subsidiaries. Strike
rates have improved markedly.
Unfortunately, losses suffered by Absa Syndicate Investments, a Lloyds
corporate member, as a result of the attack on the World Trade Centre on 11
September 2001 constrained the performance of Absa Financial Services.
Strategic acquisitions
On 1 January 2002, the Group gained effective control of Banco Austral Sarl,
one of the largest commercial banks in Mozambique, by acquiring 80% of the
equity for US$10 million. The Group has management control over the bank
through the appointment of a number of key officials. The bank`s main focus
will be on retail banking and structured trade finance. The Mozambican
government holds the remainder of the equity and has guaranteed the opening
net asset value of the bank at US$10,5 million.
The Group has strengthened its asset management operations by acquiring a
reputable investment management team. These people have been incentivised
through an equity stake of 30% in the rebranded company, Abvest Associates
Limited (formally Absa Asset Managers). As of 31 March 2002, Abvest had
assets of R18,2 billion under management.
Accounting policies
The financial statements of the Group comply in all material respects with
South African Statements of Generally Accepted Accounting Practice and are
consistent with those applied in the previous financial year. The following
accounting statements have been adopted from 1 April 2001:
Events after the balance sheet date (AC 107). In terms of this statement,
dividends proposed or declared after the balance sheet date and the related
secondary tax on companies are not recognised as a liability at the balance
sheet date but only on the date of proposal or declaration. This change in
recognition of liabilities relating to dividends has been applied
retrospectively and comparative amounts have been restated; and
Investment properties (AC 135). This statement impacts on the existing
statement on Property, plant and equipment (AC123). In terms of this
statement, owner-occupied buildings must be depreciated over their expected
life span. This change has been applied retrospectively and comparative
amounts have been restated; and
Employee benefits (AC 116). In terms of this statement, leave provisions in
respect of past service of employees have been recognised. This change has
been applied retrospectively and comparatives have been restated.
As stated above, the adoption of these statements has necessitated the
restatement of the earnings of the previous year (negative R8 million) and
of retained earnings (positive R227 million). This restatement has not had a
material impact on the reported earnings and financial performance ratios of
the Group.
Prospects
Current trading conditions remain positive for the personal banking market,
although these conditions may be slightly strained if interest rates
increase by more than a further 100 basis points. In view of the higher
inflation rate, a further 100 basis point increase in interest rates is
anticipated in the short term. However, the improvement in the value of the
rand may avert further increases. Domestic credit extension is expected to
slow during the 2003 financial year.
Absa has been successful in defending its dominant position in selected
market segments after the implementation of its new customer-focused
business model. The Group is confident that the momentum of its core
operations can be maintained through the focused efforts of its skilled and
motivated staff.
On behalf of the board
D C Cronje E R Bosman
Chairman Group Chief Executive 27 May 2002
Declaration of ordinary dividend no 31
Notice is hereby given that a final dividend of 63,0 cents per ordinary
share has been declared and is payable to shareholders registered in the
books of the company at the close of business on Friday, 28 June 2002.
In compliance with the requirements of STRATE, the electronic settlement and
custody system used by the JSE Securities Exchange South Africa, the company
has determined the following salient dates for the payment of the dividend:
Last day to trade cum-dividend Friday, 21 June 2002
Shares commence trading ex-dividend Monday, 24 June 2002
Record date Friday, 28 June 2002
Payment of dividend Monday, 1 July 2002
Share certificates may not be dematerialised/rematerialised between Tuesday,
18 June 2002, and Friday, 21 July 2002, both days inclusive.
On 1 July 2002, the dividend will be electronically transferred to the bank
accounts of shareholders who utilise this facility. In respect of those who
do not, cheques dated 1 July 2002 will be posted on or about that date.
On behalf of the board
W R Somerville
Group Secretary
27 May 2002
Date: 27/05/2002 09:33:14 AM Produced by the SENS Department
