| Thu 6 Jun 2002, 0:00 | | Amb - Group Interim Results Announcement |
|
AMB - Group Interim Results Announcement
AMB HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1995/003054/06)
("AMB")
* net asset value ("NAV") increased by 7% to R11,48 per share
* benefits from focus on liquidity management and asset quality
* favourable contribution from turnaround in private equity portfolio
* credit rating reaffirmed
GROUP INTERIM RESULTS FOR THE six months ENDED 31 MARCH 2002
ABRIDGED CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 Sept
% 2002 2001 2001
change (R`000) (R`000) (R`000)
Revenue excluding net
finance income 51 739 144 218 173 583
Net finance income 38 648 47 620 117 574
Total revenue 90 387 191 838 291 157
General and specific
risk provisions (25 000) - 3 146
Insurance premiums - - (125)
Insurance
performance bonus 62 000 - -
Net operating revenue (33,6) 127 387 191 838 294 178
Operating expenses (61 217) (75 264) (124 883)
Pre-tax associate
income/(loss) 3 064 (6 755) (4 759)
Profit before tax (37,0) 69 234 109 819 164 536
Tax (5 823) 274 (4 209)
Profit after tax (42,4) 63 411 110 093 160 327
Minority interest 1 753 1 853 3 611
Net profit attributable to
ordinary shareholders (41,8) 65 164 111 946 163 938
Reconciliation of
headline earnings:
Attributable earnings 65 164 111 946 163 938
Goodwill amortised 1 755 - 1 170
Headline earnings 66 919 111 946 165 108
Ratios
Weighted average number
of shares (`000) 108 491 121 013 117 445
Earnings per share
("EPS") (cents) (35,0) 60,1 92,5 139,6
Headline EPS (cents) (33,3) 61,7 92,5 140,6
Dividend per share (cents) - - 30,0
ABRIDGED consolidated balance sheet
Unaudited Unaudited Audited
as at as at as at
31 March 31 March 30 Sept
2002 2001 2001
(R`000) (R`000) (R`000)
Assets
Cash and cash equivalents 642 612 1 319 842 689 959
Trading securities 190 715 424 525 381 420
Term advances 768 839 1 005 499 738 043
Investments 333 161 305 683 355 246
Accounts receivable 185 218 135 594 214 852
Deferred tax 14 861 10 716 8 077
Fixed assets 4 224 6 523 5 282
Intangible assets 4 797 8 335 8 447
Total assets 2 144 427 3 216 717 2 401 326
Capital and reserves
Issued capital 673 356 807 893 700 188
Reserves 1 706 11 030 2 113
Accumulated profits 534 944 439 513 468 457
Capital and reserves 1 210 006 1 258 436 1 170 758
Minority interest 433 3 947 2 190
Total capital and reserves 1 210 439 1 262 383 1 172 948
Liabilities
Accounts payable 44 375 69 845 86 566
Debentures 211 002 178 249 192 942
Deposits 678 611 1 706 240 948 870
Total liabilities 933 988 1 954 334 1 228 378
Total equity and liabilities 2 144 427 3 216 717 2 401 326
NAV per share (cents) 1 148 1 040 1 072
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 Sept
2002 2001 2001
(R`000) (R`000) (R`000)
Cash flows from
operating activities (90 627) 355 959 (134 161)
Cash flows from
investing activities 39 422 103 584 58 306
Cash flows from
financing activities (26 841) (7) (107 712)
Net (decrease)/increase in cash
and short-term advances (78 046) 459 536 (183 567)
Cash and short-term advances at the
beginning of the period 689 959 850 113 850 113
Effects of exchange rate changes
on cash and cash equivalents 30 699 10 193 23 413
Cash and short-term advances at
the end of the period 642 612 1 319 842 689 959
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 Sept
2002 2001 2001
(R`000) (R`000) (R`000)
Ordinary shareholders` funds
At the beginning of the period 1 170 758 1 146 497 1 146 497
Net increase as a result
of shares issued - - 2 215
Net decrease as a result
of shares repurchased (26 831) (7) (109 927)
Net exchange rate adjustments 915 - 791
Attributable earnings for the period 65 164 111 946 163 938
Dividend - - (32 756)
At the end of the period 1 210 006 1 258 436 1 170 758
The group interim results have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice. The accounting
policies applied in these group interim results are consistent with those
applied in the 2001 audited annual financial statements.
COMMENTARY
1. INTRODUCTION
AMB offers a broad range of merchant and investment banking services to
its domestic and international clients and invests in private equity
transactions through its associate company AMB Private Equity Partners
Limited ("AMB Partners"). AMB is the only empowerment investment bank and
one of the few remaining A2 banking groups.
2. OVERVIEW OF MARKET CONDITIONS
The global economy has faced a severe meltdown over the past six months
as a result of numerous factors including "September 11", economic slowdown
leading to widespread profit warnings, corporate fraud, negative real
interest rates, subdued markets and extensive corporate defaults. In
particular, investment banks have faced severe earnings declines worldwide,
resulting in substantial group restructurings and rationalisations. This has
been evidenced domestically by the down-sizing of many of the international
investment banks in South Africa.
Locally, the past six months have been characterised by unprecedented
turmoil in the banking sector, which has resulted in a number of banks being
placed under judicial management, some being acquired and others returning
their licences. The demise of Regal Treasury Bank Holdings Limited and Real
Africa Durolink Holdings Limited emphasised the need for AMB to maintain a
conservative approach to liquidity management. However, Government`s
decision not to support the liquidity position of Saambou Holdings Limited,
a then solvent bank, has had a widespread systemic impact on the banking
sector, which effects were ultimately felt by BoE Limited, an A1 bank. The
ensuing crisis of confidence in the banking sector meant that A2 banks have
faced a severe contraction in banking business and consequent declines in
earnings. The ability of management at A2 banks to operate in these
difficult conditions has been compounded by a dramatic increase in the
intensity of banking supervision, which has absorbed the majority of time of
the senior management resources at the A2 banks.
Due to the threat of systemic risk, A2 banks have been forced to focus on
NAV preservation and liquidity management, which has come at the expense of
earnings growth in the short-term. The requirement to maintain surplus cash
resources to meet the short-term requirements of depositors has resulted in
an erosion in earnings growth and a curtailment of expansionary activities.
The general slow down in the investment banking market, and in particular
equity markets which have remained subdued, has compounded the systemic and
regulatory pressures facing A2 banks. Furthermore, the anticipated growth in
debt origination and securitisation has been slow to materialise as a result
of interest rate volatility and uncertainty over the pricing of credit risk.
3. GROUP OVERVIEW
AMB has over the past six months focused on managing liquidity risk,
preserving NAV and meeting the requirements of regulatory authorities. This
has severely constrained the availability of senior executive resources to
focus on generating revenue by deploying capital into businesses or
opportunities demonstrating attractive return profiles.
4. DIVISIONAL REVIEW
Despite the constraints outlined above, most divisions in AMB have
performed acceptably considering the adverse macro economic environment and
sectoral considerations.
The treasury division performed well during the first six months and
generated revenue in line with budget. The treasury team has a track record
of consistent performance through applying a disciplined approach to trading
activities. The mix of skills within the treasury has ensured a conservative
and consistent approach to trading. It is AMB`s intention to continue to
expand the treasury team in the forthcoming year.
The structured products division continues to offer solutions to the
contractual savings industry. The division is focused on developing a
strong working relationship with Credit Suisse First Boston to distribute
its product in South Africa. Although this market is extremely competitive,
AMB believes that it is well placed to compete in niche areas of this
market.
The advisory services divisions faced difficult conditions largely due to
subdued equity markets and the unpredictability in the timing of closing
transactions. These divisions have mainly focused on large transactions,
empowerment deals and public sector mandates which, if successful, generate
significant profitability, but do carry a higher level of execution risk.
The private equity division focused on increasing value in the existing
portfolio of AMB Partners, as well as looking at select investment
opportunities. During the period, AMB Partners realised its investment in
Federal Protection Services (Pty) Limited, generating a 33% IRR and 2,5
times money. The division is currently evaluating a number of transactions.
However, the lead times and certainty of closing these transactions has
proved difficult to predict.
AMB recently recruited a team to establish a debt origination capacity at
AMB. The team has been marketing aggressively, and the early signs of
success reflect the potential for this division. In addition, AMB has a team
focused on municipality and parastatal debt requirements. The pending
changes in legislation together with AMB`s positioning in this market should
bode well for this division in future.
Ten50Six Holdings Limited ("Ten50Six") continues to provide
administrative services in the retirement fund market. The company has
demonstrated its superior product offering, but it currently lacks a fully
fledged distribution capability. AMB is evaluating strategies to increase
Ten50Six`s penetration of this market.
AMB has established a joint venture asset management company with Foord
Asset Management (Pty) Limited. The latter company has an enviable track
record over any period in actively managed retirement funds. It is
anticipated that AMB Foord Asset Management (Pty) Limited ("AMB Foord") will
target active fund management in the public and private sectors. Its unique
status as an active manager with empowerment credentials and a proven track
record is anticipated to position the company as a leading service provider
to the retirement fund industry.
5. RESULTS
5.1 Balance sheet
AMB`s focus over the past six months has been on liquidity management
and NAV preservation, which has been reflected in the 7% increase in NAV to
R11,48 per share. Whilst this conservative strategy has underpinned AMB
during difficult operating conditions, it has been at the expense of short-
term earnings performance. In addition, a large quantum of AMB`s equity is
invested in under performing assets which has also impacted on AMB`s return
on equity. Consequently, it is AMB`s strategy over the next six months to
continue to restructure its balance sheet, and to redeploy funds into assets
that will generate the required risk weighted returns to shareholders.
During May 2002, AMB`s credit rating was reaffirmed as short-term A2 and
long-term BBB+ by Global Credit Rating Co. Limited and as short-term zaA2
and long-term zaBBB by CA Ratings.
5.2 Income statement
The income statement for the period reflects the difficult trading
and regulatory conditions facing the financial services sector. An unstable
banking environment has resulted in inefficient utilisation of senior
management`s time, limited ability to transact, zero tolerance for liquidity
risk and limited appetite for market and credit risk. Accordingly, the
profitability of AMB over the last six months has been severely impacted.
In the comparative six-month period, AMB benefited from the disposal of
AMB-DLJ Securities (Pty) Limited, which transaction has not been replicated
in the current six-month period.
During the period, AMB unwound its cell captive insurance policy, which
had a positive impact on the net operating revenue performance. This was
possible due to a strategic decision by management to reduce its exposure to
credit risk. In addition, further benefit was realised from the foreign
exchange translation gain on the consolidation of AMB`s foreign operations.
Specific provisions have been raised against certain structures used to
finance equity investments, to take cognisance of current equity market
conditions.
Operating expenses over the period were controlled and further efforts are
being applied to reduce AMB`s expense base.
Net profit attributable to ordinary shareholders and headline earnings
per share declined for the period by 42% and 33% respectively, largely
reflecting the cost and impact of the systemic risk within the A2 banking
sector and the slow down in debt and equity markets, which severely impeded
AMB`s ability to transact.
6. FUTURE STRATEGY AND FOCUS
It is AMB`s intention over the medium-term to increase the profitability
of the group and its returns on equity and capital employed by focusing on
the following:
6.1 Restructure of balance sheet
AMB intends to reduce its exposure to its own shares and to continue
to redeploy funds from under performing assets to those which will generate
an acceptable return to shareholders over time.
6.2 Banking licence
AMB has taken notice of decisions by other A2 banks to return their
banking licences. AMB believes there is an opportunity for an A2 bank to
operate within the banking sector, filling the gap left by those banks which
have returned their licences. AMB believes that, when confidence is restored
to the banking sector, it will benefit from any future support for A2 banks.
Consequently, the status of AMB`s banking licence will be monitored over the
medium-term.
6.3 Operating costs
AMB will focus on maintaining its tight control of operating costs.
In this regard, a restructuring and right sizing of the operations has
begun, which will generate cost savings on an annualised basis.
6.4 NAV preservation
AMB will continue to pursue a conservative approach to investing
activities in order to ensure that the NAV of the group is preserved. At
this point, it is AMB`s view that the assets on its balance sheet are of a
satisfactory quality and can be reasonably realised at book value. It is
management`s strategy, therefore, to preserve the NAV of the operations of
the company, and focus on reducing the discount at which the company`s share
price trades to underlying NAV.
6.5 New businesses
AMB believes that a strategy of leveraging its capacity through
managing third party funds will enable AMB to enhance its execution
capability and its return on equity. Furthermore, these businesses will
generate annuity income which is essential to sustaining any financial
services group during volatile times. It is AMB`s strategy to formulate new
business development initiatives that fulfil these objectives.
AMB Foord was established in December 2001 and has recently received the
requisite regulatory approvals to commence the roll-out of its product
offering in the asset management market. Based on AMB`s market knowledge and
experience, AMB believes that there is demand for an empowerment asset
manager with a strong track record to actively manage funds.
AMB`s investment in Ten50Six has positioned it to take advantage of the
changes in legislation facing the retirement fund industry. AMB believes
that the product offering of Ten50Six is superior to that of its competitors
and is embarking on a process to increase its distribution capability.
AMB will focus on enhancing the returns generated on its Ireland capital.
To this end, it intends to redeploy personnel from AMB`s operations in South
Africa to its Ireland business.
6.6 Empowerment
AMB`s business model is rooted in empowerment. Consequently, it is
AMB`s intention to continue to enhance its empowerment positioning through
its equity ownership, directorship and senior management profiles and
through internal skills transfer and procurement programmes. It is only by
continuing to fulfil all these criteria that AMB believes it will fully
achieve its empowerment objectives.
AMB`s board of directors is fully representative and its executive
directors and strategic committee comprise a majority of black executives.
The strategic committee comprises individuals, most of whom have been
business colleagues for in excess of 10 years.
AMB`s staff composition is also fully representative. AMB continues to be
committed to furthering empowerment and skills transfer within the group and
is proactively looking to expand its pool of skilled black and female
professionals.
7. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
AMB has conducted extensive discussions with a number of large and
smaller financial services companies. In this regard, AMB believes that the
current discussions will either not lead to a transaction in the short-term
or not demonstrably add value to AMB shareholders. Consequently, AMB has
resolved to withdraw the cautionary announcement.
AMB does, however, believe that a significant equity holding by a large
financial services group would add value to AMB`s support rating and allow
AMB to leverage its balance sheet and take advantage of opportunities
presenting themselves. The combination of this financial support together
with AMB`s empowerment positioning, skills base and niche focus would
provide AMB and its stakeholders with a unique market position to achieve
superior returns. AMB will accordingly, continue to explore opportunities
in this area.
8. DIVIDEND POLICY
AMB has an annual dividend policy and the Board will declare a dividend
following the end of the 2002 financial year.
9. DIRECTORATE
In March 2002, Mr Rob Dow resigned as Chief Executive Officer of AMB.
AMB thanks him for his significant contribution over the past seven years
and wishes him well for the future.
10. PROSPECTS
AMB believes that the second six months of the financial year will
continue to reflect the difficult trading conditions facing financial
services companies. Over the medium-term, however, AMB believes that its
status as the only empowerment investment bank and one of the few remaining
A2 banks, and its strategy of redeploying its capital, will position it for
the future and enhance its return on equity to shareholders over the medium-
term. AMB is confident that once stability returns to the A2 financial
services sector, AMB will generate acceptable returns to shareholders in
time. Despite the difficult trading conditions anticipated for the remaining
six months, AMB is confident that its strategy of capital preservation and
liquidity management will allow it to build a sustainable business for the
future off its current base.
In the context of difficult trading conditions and the magnitude of the
issues that have faced AMB over the past six months, AMB believes it has
performed acceptably. With a strong and liquid balance sheet and a
compliment of talented and committed people, AMB believes it is well
positioned for the future.
On behalf of the board
DAVE WINCKLER PETER VUNDLA ANDREW SPRAGUE
Chairman Executive Deputy Chairman Chief Executive
Officer
6 June 2002
Registered address:
9th Floor, The Forum,
2 Maude Street,
Sandton,
South Africa
PO Box 786833,
Sandton, 2146,
South Africa
Tel: (+2711) 302-2000
Transfer secretaries:
Computershare Investor Services Limited,
8th Floor, 11 Diagonal Street,
Johannesburg, 2001,
South Africa
PO Box 1053,
Johannesburg, 2000,
South Africa
Sponsor:
African Merchant Bank Limited
Registered Bank
Registration number: 1996/016470/06
Executive directors: Zenzo Lusengo, Owen Maubane, Andrew Sprague,
Chris Vosloo, Peter Vundla
Non-executive directors: Dr Danisa Baloyi, John Chalsty*, Rob Dow,
Dr Azar Jammine, Akhter Moosa, Jim Myers*,
Robin Rumboll*, Dave Winckler
*Non-South African
Company secretary: Rian Smit
SHARE CODE: AMB
ISIN: ZAE000029682
www.amb.co.za
Date: 06/06/2002 05:53:44 PM Produced by the SENS Department
