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Absa Group Limited - Interim Profit And Dividend Announcement
Release Date: 18/11/2002 07:02:32 Code(s): ASA
ABSA GROUP LIMITED - INTERIM PROFIT AND DIVIDEND ANNOUNCEMENT
ABSA GROUP LIMITED
Registration number 1986/003934/06
JSE Code: ASA
Issuer Code: AMAGB
ISIN: ZAE000013389
SALIENT FEATURES OF THE GROUP RESULTS
Six months ended Year ended
30 September 31 March
2002 2001 Change 2002
%
(Unaudited) (Audited)
Income Statement (Rm)
Headline earnings 1,515 1,309 15.7 1,888
Attributable income 1,516 1,298 16.8 1,686
Balance Sheet (Rm)
Total assets 253,278 213,759 18.5 247,300
Total advances 192,860 170,037 13.4 183,860
Financial Performance (%)
Return on average equity 19.2 18.4 12.9
Return on average assets, excluding
acceptances 1.22 1.28 0.86
Operating Performance (%)
Net interest margin on average assets 3.44 4.13 3.82
Net interest margin on average interest
bearing assets 3.71 4.34 4.11
Charge for bad and doubtful advances 0.93 1.15 2.38
Non-performing advances to total
advances 5.1 4.5 5.2
Non-interest income as % of operating
income 50.2 45.7 47.9
Cost-to-income ratio 61.6 60.6 60.3
Share Statistics (cents per share)
Headline earnings per share 232.5 201.8 15.2 291.1
Earnings per share 232.7 200.1 16.5 260.0
Dividends per share relating to income
for the period 60.0 53.0 13.2 116.0
Dividend cover (times) 3.9 3.8 2.5
Net asset value per share 2,483 2,268 9.5 2,354
Capital adequacy (%)
Absa Bank Limited 10.8 10.1 10.2
Group 12.0 12.1 11.2
GROUP INCOME STATEMENT
Six months ended Year ended
30 September 31 March
2002 2001 Change 2002
(Unaudited) (Audited)
Rm Rm % Rm
Interest income 14,388 11,939 20.5 24,517
Interest expense (10,103) (7,730) (30.7) (16,133)
Net interest income 4,285 4,209 1.8 8,384
Charge for bad and doubtful (881) (938) 6.1 (4,042)
advances
Normal charge (881) (938) 6.1 (2,262)
Abnormal charge: UniFer - - - (1,780)
Income from lending activities 3,404 3,271 4.1 4,342
Non-interest income 4,318 3,547 21.7 7,694
Operating income 7,722 6,818 13.3 12,036
Operating expenditure (5,298) (4,697) (12.8) (9,700)
Indirect taxation (255) (299) 14.7 (649)
Impairment charge - Goodwill (31) - - (144)
Net income from operations 2,138 1,822 17.3 1,543
Share of associated companies` 44 31 41.9 100
income
Net income before taxation 2,182 1,853 17.8 1,643
Taxation (637) (484) (31.6) (337)
Net income after taxation 1,545 1,369 12.9 1,306
Minority shareholders` interest (29) (71) 59.2 380
Net income attributable to 1,516 1,298 16.8 1,686
shareholders
Headline earnings 1,515 1,309 15.7 1,888
DETERMINATION OF HEADLINE EARNINGS
Six months ended Year ended
30 September 31 March
2002 2001 Change 2002
(Unaudited) (Audited)
Rm Rm % Rm
Net income attributable to shareholders 1,516 1,298 16.8 1,686
Adjustments for :
Net profit on disposal of subsidiaries (37) - 100.0 -
Net loss on write-off of long term
investments - - - 26
Goodwill written off 36 11 227.3 176
Headling earnings 1,515 1,309 15.7 1,888
Number of shares in issue (000s) 651,547 648,547 651,547
Weighted average number of shares in
issue on which headline earnings per
share are based (000s) 651,547 648,547 648,580
GROUP BALANCE SHEET
30 September 31 March
2002 2001 Change 2002
(Unaudited) (Audited)
Rm Rm % Rm
Assets
Cash and short-term assets 11,251 6,574 71.1 11,688
Short-term money market assets 16,213 14,486 11.9 11,381
Government and other securities 16,218 11,687 38.8 17,624
Advances 192,860 170,037 13.4 183,860
Other assets 7,308 4,241 72.3 13,463
Investments 4,527 2,527 79.1 3,530
Associated companies 471 378 24.6 442
Property and equipment 2,769 2,347 18.0 2,552
Goodwill 11 106 (89.6) 16
Intangible assets 45 64 (29.7) 50
Client liabilities under acceptances 1,605 1,312 22.3 2,694
Total assets 253,278 213,759 18.5 247,300
Liabilities
Deposits and current accounts 221,551 186,529 18.8 213,766
Other liabilities 7,891 6,585 19.8 9,507
Insurance funds 1,460 1,291 13.1 1,453
Subordinated debt 4,377 2,879 52.0 4,394
Liabilities to clients under
acceptances 1,605 1,312 22.3 2,694
Total liabilities 236,884 198,596 19.3 231,814
Shareholders` funds
Share capital 1,303 1,297 0.5 1,303
Share premium 1,532 1,532 - 1,532
Reserves 13,341 11,882 12.3 12,500
Total shareholders` funds 16,176 14,711 10.0 15,335
Minority shareholders` interest 218 452 (51.8) 151
Total liabilities and shareholders`
funds 253,278 213,759 18.5 247,300
Contingencies 18,813 13,558 38.8 16,579
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS` FUNDS
30 September 31 March
2002 2001 2002
(Unaudited) (Audited)
Rm Rm Rm
Share capital 1,303 1,297 1,303
Opening balance 1,303 1,297 1,297
Shares issued - - 6
Share premium 1,532 1,532 1,532
Non-distributable reserves 1,176 886 1,408
Opening balance 1,408 749 749
Movement in foreign currency
translation reserve (170) 152 549
Insurance contingency reserve: transfer
from distributable reserves 4 (13) 2
Changes in value of investments held
by short-term insurance company (95) (33) 12
Associated companies earnings 29 31 96
Distributable reserves 12,165 10,996 11,092
Opening balance 11,092 10,183 10,291
As previously stated 11,092 10,080 10,080
Changes in accounting policy - 103 227
Change in taxation legislation on
insurance contingency reserve - - (16)
Transfer to insurance contingency reserve (4) 13 (2)
Transfer to non-distributable reserves (29) (31) (73)
Attributable income 1,516 1,298 1,686
Dividends (410) (467) (810)
Total shareholders` funds at end of
period 16,176 14,711 15,335
GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 September 31 March
2002 2001 2002
(Unaudited) (Audited)
Rm Rm Rm
Cash retained from operating activities 1,209 183 4,767
Net cash inflow from operating
activities 3,684 2,836 6,185
Net increase/(decrease) in operating
funds (996) (1,942) 4
Taxation paid (1,479) (711) (1,422)
Cash (utilised in)/generated from
investing activities (1,459) (163) (1,690)
Cash flows from financing activities (17) - 1,606
Other movements (170) 152 603
(Decrease)/increase in cash and cash (437) 172 5,286
equivalents
Cash and short-term assets
-at beginning of period 11,688 6,402 6,402
-at end of period 11,251 6,574 11,688
PROFIT CONTRIBUTION BY BUSINESS AREA
Six months ended Year ended
30 September 31 March
2002 2001 Change 2002
(Unaudited) (Audited)
Rm Rm % Rm
Personal Banking 465 384 21.1 (215)
Absa Card 151 120 25.8 281
Absa Home Loans 214 212 0.9 443
Properties in Possession (109) (141) 22.7 (246)
Absa Private Bank (2) (1) (100.0) 5
Personal Financial Services 56 55 1.8 118
Retail Banking Services 96 45 113.3 125
Flexi Banking Services 60 23 160.9 43
UniFer (1) 71 (101.4) (984)
Commercial Banking 497 430 15.6 893
Business Banking Services 340 296 14.9 601
Bankfin 131 109 20.2 239
MLS Bank 26 25 4.0 53
Wholesale Banking 355 279 27.2 750
Domestic Operations 266 217 22.6 612
Internationl Operations 57 40 42.5 79
African Operations 32 22 45.5 59
Total Banking 1,317 1,093 20.5 1,428
Insurance and Financial Services 244 240 1.7 502
Other (46) (24) (91.7) (42)
Total headline earnings 1,515 1,309 15.7 1,888
Absa Group Limited
Profit and dividend announcement
Absa Group Limited achieved solid results for the six months ending 30 September
2002 in a trading environment that became increasingly challenging as the half-
year progressed.
Headline earnings for the six months under review increased by 15,7% to R1 515
million (232,5 cents per share), compared to R1 309 million (201,8 cents per
share) for the corresponding period of the previous financial year. As a result
of the challenges at UniFer, microlending did not contribute to the Group`s
earnings for the past six months. Excluding the contribution of UniFer from the
September 2001 base, headline earnings increased by 22,4%.
Banking operations contributed substantially to the growth in earnings, with
both personal and wholesale banking recording earnings growth in excess of 20%.
The weakness in global and domestic financial markets and adverse weather
conditions impacted on the performance of the short-term insurance operations,
but the contribution from Absa Financial Services was nevertheless maintained at
the same level as that of the corresponding period of the previous year.
Return on average shareholders` funds increased from 18,4% to 19,2%. An interim
dividend of 60,0 cents per share has been declared. This represents an increase
of 13,2% on the previous year`s interim dividend of 53,0 cents per share.
Operating environment
Relatively strong economic growth characterised the first half of 2002 in spite
of rising inflation leading to higher interest rates. The resilience of the
economy in the face of continued consolidation in the financial services sector
and a continued global malaise can partly be explained by the increased
competitiveness generated by the 2001 rand depreciation. The country continued
to live within its means despite the strength in consumer demand, government
consumption expenditure and fixed capital formation growth. A current account
balance that remained in surplus during the second quarter reflects this.
Group performance
The Group`s results were achieved in an environment of relatively strong
domestic economic growth despite rising inflation and interest rates. Continued
strength in consumer spending was evident in the period under review as
household disposable income grew during the first half of 2002 and neither
businesses nor households appeared to have suffered appreciably as a result of
high credit commitments. Commercial and private sector corporate credit demand
was subdued and Absa Corporate and Merchant Bank (ACMB) and Business Banking
Services (BBS) placed emphasis on proactively managing the credit quality of
their advances books.
A satisfactory increase in advances of 13,4% enabled the Group to marginally
improve its market share in mortgages and credit cards, while market share was
maintained in instalment finance. However, pressure on margins has continued
with a further 38 basis point slide from the margin recorded at March 2002.
Strong retail deposit growth supported the margin but competition, increased
product commoditisation and investments in trading assets neutralised this
positive effect. As a result the Group experienced low growth in its net-
interest income.
Non-interest income grew strongly by 21,7% and this, together with the modest
growth in interest income, improved the Group`s ratio of non-interest income to
total revenue to above 50% for the first time. In line with a strategy to
diversify earnings the income from trading activities more than doubled from the
figure reported for the corresponding period of the previous year but was in
line with that reported for the second six-months of that year.
Commissions and fees continued their strong growth trend of recent years,
largely owing to significant increases in transaction volumes of Internet
banking and automated teller machines. (ATMs). Transaction income from cheque
accounts and cards recorded encouraging growth and during the period under
review it became evident that customers are increasingly exchanging banking
halls for alternative transaction methods.
The inclusion of the results of the Group`s latest bank acquisition in Africa -
Banco Austral in Mozambique - has resulted in an increase in the cost-to-income
ratio because of Banco Austral`s current relatively high cost base and modest
expected income contribution for the full year. Furthermore, the impact of the
weakening rand and investments made in intellectual capital in ACMB and BBS also
contributed to higher operating expenditure.
When Banco Austral and UniFer are excluded, the Group`s cost-to-income ratio
improved to 60,6% from 62,4%.
The Group`s effective tax rate was 29,2%, compared to 26,1% for the
corresponding period of the previous financial year. This resulted from lower
tax-free income.
Segmental reporting
Personal Banking
Personal banking increased headline earnings by 21,1% to R465 million. This
strong performance was supported by solid growth in advances and deposits, and
was made possible by the customer-focused business model introduced in April
2001.
The demise of some smaller banks and a subsequent flight to quality by
customers, supported by a number of successful marketing campaigns, assisted
deposit growth and attracted new customers.
The home loan is a core product because it attracts customers and facilitates
cross selling, but its profitability is under pressure because of the level of
commoditisation and the increasing role fulfilled by originators in the market.
Almost half of Absa`s new home loans business is now initiated through
originators. A strategy to counter the impact on profitability has been adopted
and will be introduced shortly.
The Group increased its interest in UniFer to 100% during the review period.
UniFer`s turnaround is progressing according to plan with integration into Absa
also well advanced. UniFer`s key focus is on the collection of the advances book
of approximately R4,2 billion, of which more than half is fully provided.
Accredited external debt collectors have been appointed to recover all overdue
debt of 90 days and longer. New business growth has been insignificant owing to
over-indebtedness of customers and the implementation of a new and more
stringent credit-scoring model.
Commercial Banking
Commercial banking performed well with both Business Banking Services and
Bankfin recording good growth in headline earnings of 14,9% and 20,2%
respectively. The solid performance of BBS can be attributed to the successful
implementation of its operating model that facilitates a separate focus on
large, medium and small businesses. In addition, BBS capitalised on its strong
market share in the public sector and agribusiness by increasing deposits. The
improvement in the quality of the advances book and appropriate fees and rate
structures were significant focus areas during the review period and this will
continue to bear fruit into the future.
Bankfin`s operating environment over the six months was characterised by
declining new vehicle sales, strong growth in the used vehicle market and the
stabilisation of margins. Bankfin`s increase in earnings resulted from enhanced
efficiencies and combining existing staff expertise with joint-venture finance
operations and other alliances.
Wholesale Banking
ACMB repeated its strong performance of the second half of the previous year
with a 27,2% improvement on its earnings contribution of the corresponding
period of the previous year. Domestic operations benefited from excellent
trading results and low bad debts.
The Group`s international operations recorded strong headline earnings growth of
42,5% but bad debt provisions, although lower than the corresponding period of
the previous year, had an impact on earnings.
Africa operations increased earnings by 45,5% with National Bank of Commerce in
Tanzania and Bank Windhoek in Namibia continuing to perform well. The
improvement of processes at Banco Austral is expected to yield positive results
in its first year of operation in the Absa stable.
Financial Services
Absa Life continued its strong earnings growth. New premiums for mortgage-
related business increased by almost 50% compared to the previous reporting
period. Credit life penetration levels are also improving from already high
levels. A higher claims ratio and lacklustre equity markets dampened the
earnings of Absa Insurance Company, but the Company`s claims ratio still
compares favourably with the market.
Acquisitions
During the period under review, Absa acquired PSG Investment Bank Holdings
Limited (PSG). In terms of the transaction, Absa acquires the major portion of
the assets and liabilities of PSG Investment Bank for an amount of approximately
R913 million, with the remaining assets and liabilities distributed to
shareholders. The transaction enables Absa to expand its asset base and because
ACMB and PSG operate in similar markets, the acquisition should result in a
number of product and cost synergies. No contribution from PSG has been
included in Absa`s results pending regulatory approval.
The Group`s home loan operations were strengthened by the acquisition of a 50%
share in Property 24, which was previously a wholly owned subsidiary of Media 24
(Naspers). This initiative will enhance the "Absa Home Loans e-Strategy" through
vertical integration, thereby securing access to property stock and the
opportunity to offer finance.
Capital Adequacy
The Group is adequately capitalised at 12,0%, of which primary capital
represents 8,4%. Absa Bank`s capital adequacy level was 10,8% of risk weighted
assets at 30 September 2002, with primary capital representing 6,2%. The Bank`s
capital adequacy was bolstered by the issue of R1.5 billion of additional Tier
II capital in October and this has improved the ratio by just over 100 basis
points.
The Group is accordingly well positioned for organic growth and acquisitions of
reasonable size.
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.
Prospects
Domestic trading conditions are expected to remain challenging until such time
as inflation and interest rates decline. This is only expected during the
second to third quarter of 2003. Lower interest rates should lay the foundation
for stronger growth in real GDP of nearly 3% in 2003 and should result in an
increase in the credit appetite of consumers and corporates.
However, continued uncertainty about the future performance of the economies of
the developed countries could impact on both the investment performance and the
international operations of the Group.
The Group will continue to focus on strengthening the relationship with its 5,6
million customers. Improved customer service levels will enable the Group to
hold its own in terms of market share in what is a very competitive market for
both deposits and advances. The centralisation of credit decision-making has
improved the quality of the advances book measured against historical levels and
the prospect of a continued high interest rate environment is not expected to
result in a significant increase in the charge for bad and doubtful advances as
a percentage of total advances.
Subject to no further substantial deterioration in the major world economies,
the Group believes that the performance for the half-year can be sustained for
the full year.
On behalf of the board
D C Cronje E R Bosman
Chairman Group Chief Executive
18 November 2002
Declaration of ordinary dividend no 32
Notice is hereby given that an interim dividend of 60,0 cents per ordinary share
has been declared and is payable to shareholders recorded in the books of the
company at the close of business on 13 December 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, 6 December 2002
Shares commence trading ex-dividend Monday, 9 December 2002
Record date Friday, 13 December 2002
Payment of dividend Tuesday, 17 December 2002
Share certificates may not be dematerialised/rematerialised between Monday, 9
December 2002 and Friday, 13 December 2002, both days inclusive.
On Tuesday, 17 December, the dividend will be electronically transferred to the
bank accounts of shareholders that utilise this facility. In respect of those
who do not, cheques dated 17 December 2002 will be posted on or about that date.
Shareholders that have dematerialised their shares will have their accounts,
held at the Central Securities Depository Participant or broker, credited on
Tuesday, 17 December 2002.
On behalf of the board
W R Somerville
Group Secretary
18 November 2002
Date: 18/11/2002 07:02:00 AM Produced by the JSE SENS Department
