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ABIL - Preliminary reviewed annual financial results for the year ended
30 September 2002
African Bank Investments Limited
African Bank Investments Limited
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Company registration number: 1946/021193/06)
Share code: ABL ISIN code: ZAE000030060
Features
* Headline earnings per share down 21% to 102.7 cents (2001: 129.9
cents)
* Total dividends up 20% to 30 cents per share (2001:25 cents)
* Total revenue up 17%
* Increased bad debt costs to R553 million
* Substantial increase in NPLs but strong provision coverage
* Extensive improvements to collections capability, with compelling
early indicators of improv!ng credit quality
FINANCIAL HIGHLIGHTS
12 months 12 months
ended ended
% 30 September 30 September
change 2002 2001
Key shareholder
ratios
Headline R 000`s (34,1) 502 069 761 638
earnings
Headline cents (20,9) 102,7 129,9
earnings per
share
Attributable R 000`s (33,5) 498 866 749 841
earnings
Attributable
earnings
per share cents (20,2) 102,0 127,9
Number of shares
in issue
(net of treasury 000`s 489 567 504 193
shares)
Weighted average
number of shares 000`s 488 939 586 473
Net asset value cents 22,1 497,1 407,0
per share
Dividends per cents 20,0 30 25
share
interim paid cents 20,0 12 10
final proposed cents 20,0 18 15
Dividend cover times 3,4 5,2
Performance
ratios
Total margin on % 49,0 48,2
advance book
Gross interest % 38,3 38,0
yield
Bad debt expense
to
average net % (10,6) (0,1)
advances
Cost to income % 36,6 38,5
(prior year
restated)
Return on assets % 8,9 13,9
Return on equity % 23,2 31,6
Effective tax
rate
(including % 34,4 32,9
indirect taxes)
Asset and credit
quality ratios
Total assets R 000`s 31,3 7 023 898 5 350 918
Gross advances R 000`s 53,5 7 166 640 4 668 631
Performing 4 176 978 3 698 636
Non-performing 2 989 662 969 995
Total provisions
(including R 000`s 311,8 2 375 905 576 978
insurance cover)
NPL`s to gross % 41,7 20,8
advances
Provisions
(including
insurance cover)
as a % of gross % 33,2 12,4
advances
NPL coverage % 79,5 59.5
(prior year
restated)
Bad debt write- % 12,2 6,1
offs to advances
Capital and
gearing
African Bank % 34,0 33,1
capital adequacy
Tier 1 % 31,3 25,0
Tier 2 % 2,7 8,1
ABIL Group % 35,4 39,5
equity to total
assets
Average cost of % 13,5 13,3
funds
Client base
Number of active 21,4 1 584 540 1 305 333
customers
Loans granted R 000`s 22,9 3 734 304 3 038 698
during period
Number of loans
granted
during period 000`s 13,5 1 364 1 201
Average loan R`s 8 301 6 585
size
GROUP INCOME STATEMENT
Restated
Reviewed audited
12 months to 12 months to
30 September % 30 September
R`000 2002 change 2001
Note 1
Revenue
Interest 2 005 388 16 1 731 875
income on
advances
Net assurance 259 811 15 225 711
income
Non interest 299 580 28 234 036
income
Total revenue 2 564 779 17 2 191 622
Charge for (553 228) >100 (6 063)
bad and
doubtful
advances
Risk adjusted 2 011 551 (8) 2 185 559
revenue
Other 82 827 (33) 123 185
interest
income
Interest (389 181) 17 (331 464)
expense
Operating (938 367) 11 (844 287)
costs
Net income 766 830 (32) 1 132 993
from
operations
Share of
associate
companies`
retained
income 6 778 88 3 614
Net income 773 608 (32) 1 136 607
before
taxation
Indirect (29 070) (7) (31 183)
taxation:
Value Added
Tax
Taxation (236 907) (31) (342 509)
Net income 507 631 (33) 762 915
after
taxation
Minority (8 765) (33) (13 074)
interest
Net income
attributable
to ordinary
shareholders 498 866 (33) 749 841
Adjustments:
Net goodwill 12 839 3 224
amortised
Other capital (1 063)
items
Retrenchment (8 573) 8 573
provisions
Headline 502 069 (34) 761 638
earnings
Weighted 488 939 586 473
number of
shares in
issue (000)
Headline 102,7 (21) 129,9
earnings per
share (cents)
Basic 102.0 (20) 127,9
earnings per
share (cents)
Fully diluted
earnings per
share (cents) 102,7 (19) 126,2
Note 2
Dividends per
share (cents)
- Interim 12,0 10,0
- Final 18,0 15,0
30,0 20 25,0
Note 1 The prior year audited figures have been adjusted as a result of
the change in accounting policy relating to depreciation of buildings
amounting to R1,227 million.
Note 2 No dilutionary effect as the share options were priced out of
the money.
Note 3 Operating costs includes depreciation charge of R58,4 million
(2001: R31,0 million).
GROUP BALANCE SHEET
Restated
Reviewed audited
30 September % 30 September
R`000 2002 change 2001
Assets
Fixed assets 189 029 7 177 222
Investments 17 605 147 7 133
in associates
Policy 65 080 20 54 309
holders
investments
Goodwill 13 007 (50) 25 846
Deferred tax 63 065 38 45 553
asset
Net advances 4 900 199 16 4 220 207
Other assets 497 377 150 199 050
(Note 1)
Taxation 21 325 (1) 21 490
Liquid assets 421 751 50 280 913
Short term 835 460 162 319 195
deposits and
cash
Total assets 7 023 898 31 5 350 918
Equity and
liabilities
Life fund 94 713 11 85 484
reserve (Note
2)
Structured 2 269 313 144 929 858
loans and
debentures
Deferred tax 13 256 8 12 282
liability
Liabilities 690 332 (47) 1 305 815
to depositors
Other 1 040 840 280 273 725
liabilities
(Note 1)
Taxation 219 411 (45) 400 022
Bank 19 846 (60) 49 267
overdraft
Total 4 347 711 42 3 056 453
liabilities
Capital and
reserves
Ordinary 2 433 522 19 2 052 224
shareholders`
funds
Outside 55 990 (5) 58 774
shareholders`
funds
Secondary 186 675 2 183 467
capital
Total capital 2 676 187 17 2 294 465
and reserves
TOTAL 7 023 898 31 5 350 918
LIABILITIES
AND EQUITY
Note 1
As at the
year end the
following
amounts
relating to
the Saambou
PLB
acquisition
were
included in
the balance
sheet:
Other
liabilities
- First 750 000
installment
of purchase
price
Other
assets
- Amounts
owing by the
Receivership
and (233 990)
insurance,
being cash
receipts to
date
516 010
Both the above were settled in cash on 18 October 2002
Note 2
Credit life reserves have been reclassified as a provision against
advances (including prior year). The remaining life reserves relate to
external 3rd party liabilities
CASH FLOW STATEMENT
Restated
Reviewed audited
12 months to 12 months to
30 September 30 September
R`000 2002 2001
Cash generated from 2 636 820 952 092
operations
Increase in income- (2 947 551) (168 478)
earning assets
Increase/(decrease) in
deposits, liabilities
and other provisions 494 552 (79 628)
Normal taxation paid (434 285) (227 611)
Cash outflow from (76 933) (183 549)
investing activities
Cash outflow from (126 917) (49 301)
financing activities
Share buy back - (1 187 318)
ABIL bond issue 1 000 000 -
Net 545 686 (943 793)
increase/(decrease) in
cash and cash
equivalents
Cash and cash 269 928 1 213 721
equivalents at the
beginning of the year
Cash and cash 815 614 269 928
equivalents at the end
of the year
Short term deposits 835 460 319 195
and cash
Bank overdraft (19 846) (49 267)
STATEMENT OF CHANGES IN EQUITY
Non-
distribu- Distribu-
Share Share table table Treasury
R`000 capital premium reserves reserves shares Total
Balance at
1 October 15 570 946 829 103 760 1 489 692 0 2 555 851
2000
Prior year
adjustment
(change in
accounting (1 060) (1 060)
policy)
Dividends (49 717) (49 717)
paid
Share buy (2 712) (946 829) (4 181) (953 722)
back
Treasury
shares:
* Acquired (232 (232 989)
989)
* Delivery (607) (607)
losses
Release of
rebranding (19 323) (19 323)
NDR
Discount:
acquisi-
tion
of subsidia-
ries and
Invest- 3 950 3 950
ments
Transfers (2 493) 2 493 0
Net income
(as 751 068 751 068
previously
stated)
Change in
accounting
policy (1 227) (1 227)
effect
Balance at
30 12 858 0 81 713 2 191 249 (233 2 052 224
September 596)
2001
Dividends (132 027) (132 027)
paid
Treasury
shares:
*Cancelled (429) (150 197) 150 626 0
*Issued to
employees
(cost) 20 532 20 532
*Delivery (6 073) (6 073)
losses
Transfer (81 713) 81 713 0
Net income 498 866 498 866
Balance at
30 12 429 0 0 2 489 604 (68 511) 2 433 522
September
2002
ADVANCES ANALYSIS
Number Average Aver
age
of active balance term
loans per loan per
loan
% 30 Sept 30 Sept at Sept at Sept at
Sept
R`000 growth 2002 2001 2002 2002 2002
AFRICAN BANK
LIMITED 66,7 6 212 131 3 726 587 1 118 288 5 555
Payroll- (11,3) 962 904 1 086 047 220 053 4 376 44
Persal
Payroll- 81,3 3 545 852 1 956 206 545 951 6 495 28
Other
Retail/debit 154,8 1 588 404 623 382 310 041 5 123 16
order
Standard
Bank joint
venture 88,6 114 971 60 952 42 243 2 722 17
(53%)
THETA
INVESTMENTS 1,3 954 509 942 044 466 252 2 047
Credit 26,0 246 711 195 811 207 277 1 190 3
Indemnity
Miners 15,8 279 360 241 341 169 011 1 653 6
Credit
Guarantee
Gilt Edged
Management (7,7) 208 560 225 882 78 344 2 662 15
Services
African
Contractor
Finance (31,9) 141 028 206 941 231 610 511 n/a
A1 Taxi 100,0 66 797 - 783 85 309 32
Safrich (84,4) 10 871 69 709 10 606 1 025 5
Quatro (49,9) 1 182 2 360 n/a
Total 53,5 7 166 640 4 668 631
General 56 237 152 575
provisions
Balance at
beginning
of period 152 575 204 557
Provisions (116 274) (56 125)
released
Acquisitions 19 936 4 143
Specific 2 122 816 273 375
provisions
Balance at
beginning
of period 273 375 448 448
Acquisitions 1 776 664 3 200
Provisions 712 846 99 878
raised
Bad debts (640 069) (278 151)
written off
Credit life
insurance
reserves 87 388 22 474
Net advances 4 900 199 4 220 207
Business segmental analysis
African The Theta Other and
Bank banking Invest- consoli-
Limited Stangen unit ments dation Total
12 months
ended 30
Sep 2002
Total 1 623 448 277 168 1 900 616 734 024 (69 861) 2 564 779
revenue
Charge for
bad and
doubtful (344 115) 0 (344 115) (209 113) 0 (553 228)
advances
Risk
adjusted
revenue 1 279 333 277 168 1 556 501 524 911 (69 861) 2 011 551
Net income
from
operations 359 673 307 268 666 941 139 407 (39 518) 766 830
Net income
attributab
le to
ordinary
shareholde 223 294 204 507 427 801 91 784 (20 719) 498 866
rs
Headline 214 721 204 507 419 228 92 070 (9 229) 502 069
earnings
Commentary
Core competency
The focus of the group is to underwrite largely unsecured credit risk
through the provision of personal loans to the formally employed
emerging market. Its profitability is dependent on its capacity and
ability to price this risk and efficiently manage the collections
process. ABIL currently manages a loan book of R7,2 billion which is
diversified over 1,6 million clients.
Overview
The group has operated in an extremely difficult market environment over
the last 12 months. The significant events were firstly, the failure of
two direct competitor banks due to excessive lending into our market and
secondly the wave of systemic risk that followed which affected the
banking system at large. In addition, the transformation of the business
from an exclusively payroll collected system to a more complex debit
order collection system, exposed weaknesses the group`s risk measurement
processes.
These issues culminated in the following key outcomes:
* A drop in its earnings for the first time in its history, primarily
as a result of a significant increase in provisioning levels in order to
maintain strong coverage over NPLs.
* A substantial increase in NPLs, due both to organic increases, and
to a change in the measurement in NPLs.
* The acquisition of the Saambou Personal Loans Book (Saambou PLB)
from the Receiver appointed by the South African Reserve Bank to dispose
of Saambou Bank Ltd`s assets.
* A decision to restructure the business of Theta Investments to
bring core lending businesses closer to African Bank.
Whilst the instability in the market and the resulting impact this has
had on the group`s earnings has been significant, the group consolidated
its position as market leader in the field of unsecured personal loans.
This factor combined with a substantial increase in focus on pro-active
collections will result in a strenghtened business going forward.
Financial results summary
Headline earnings for the year ended 30 September 2002 fell by 20,9% to
102,7 cents per share (2001: 129,9 cents).
As a result of underlying strong operating cashflow a final dividend of
18 cents has been declared, increasing the total dividend for the year
by 20% to 30 cents (2001: 25 cents).
Total revenue for the year improved by 17,0%, on the back of a 22,9%
growth in new business written. This was despite a deliberately
conservative approach to lending as the group moved though an unstable
market. In addition, the overall cost-to-income ratio has improved from
38,5% (restated) to 36,6%.
The performance of the group during the financial year was primarily
affected by:
* An increase in the charge for bad and doubtful debts from R6,0
million to R553,2 million.
* A change to the tax treatment of Stangen, which resulted in a R74,4
million reduction in the charge in the interim results and which was
reversed in the second six month`s results.
* A R63,7 million post-tax contribution from the acquisition of the
R2,8bn Saambou PLB with effect from 1 August 2002.
The increased provisioning had a negative impact on return on equity
from 31,6% to 23,2% and return on average assets reduced from 13,9% to
8,9%. Improved gearing as a result of the acquisition of the Saambou PLB
for cash had a slight positive impact on ROE, however the real benefit
of this will only be realised in the 2003 financial year.
Non-performing loans(NPLs), provisions and credit losses
The most significant aspect of this year`s results relates to the
substantial increases in NPLs and resulting provisions for bad debts.
NPLs increased from an historic low of R 343,4 million (7,4% of closing
advances) in 2001 to R2 989,7 million (41,7% of closing advances) in
2002. Included in this increase however is R1 663,8 million as a result
of the acquisition of the Saambou PLB and R626,6 million as a result of
a change in the definition of NPLs. The balance of R995,9 million
represents the organic increase in NPLs.
Overall provisions and insurance reserves increased from R576,9 million
(12,4% of gross advances) in 2001 to R2 375,9 million (33,2% of gross
advances) in 2002. More importantly however the overall coverage of
provisions to NPLs has increased from 59,5% (restated base) to 79,5%.
The table below reconciles the effect of these factors on NPLs,
provisions and coverage ratios.
Origi- Restated Closing
nal
balance balance Acqui- Amounts balance
at at at
30 Sept Change 30 Sept sition of written Increase 30 Sept
in d
R`000 2001 basis 2001 Saambou off risk 2002
Non-
perfor-
ming
Loans
African
Bank 249 733 626 567 876 300 - (265 266) 769 562 1 380 596
Saambou - - - 1 663 846 (196 000) (86 387) 1 381 459
Theta 93 695 - 93 695 - (178 803) 312 715 227 607
Group
Total 343 428 626 567 969 995 1 663 846 (640 069) 995 890 2 989 662
NPLs
Provi-
sions
and
Reserves
African 454 243 - 454 243 - (265 266) 616 629 805 606
Bank
Saambou - - - 1 781 624 (196 000) (203 1 381 873
751)
Theta 122 735 - 122 735 - (178 803) 244 494 188 426
Group
Total 576 978 - 576 978 1 781 624 (640 069) 657 372 2 375 905
NPL 59% 107% 100% 66% 79%
coverage
The focus of the group is not so much the absolute quantum of NPLs, but
more importantly, the balance at risk within the portfolio. Hence the
group widened the definition of NPLs to include the total spectrum of
the collections business. Balances-at-Risk represent the nominal value
of the portfolio that is subject to collection risk. It is ABIL`s stated
view that specific provisions are its best indicator of risk, because
they represent the risk-weighted analyses of these Balances-at-Risk. As
a result, the NPL coverage will fluctuate depending on ABIL`s view of
risk in the market it operates in.
The Saambou PLB acquisition
The Saambou PLB transaction added R1 663,8 million to NPLs and R1 781,6
million(before write-offs) to provisions. Included in those NPL balances
are a portion of balances to overlapping clients that are performing on
the African Bank portfolios and where the probability of recovery is
high. An amount of R196,0 million not performing on either portfolio has
been written off the Saambou PLB portfolios and out of the provisions.
In addition, at the year-end, R220 million of the Saambou PLB provisions
have been determined to be in excess of 100% coverage and these have
been transferred to the specific provisions of the African Bank book in
order to increase the provisions to higher levels of NPL coverage.
Restatement of NPLs and provision coverage
Traditionally, the bank evaluated provisions at the end of the month.
The bank experienced growing volatility in the day-to-day measurement of
risk in the debit order book - a book that grew by 138,2% to R2 294,8
million for the 12 months to April 2002, not only through the retail
business, but also through the growing payroll loans being deducted via
debit order, as employees resigned and moved elsewhere. The delay in
receiving notification of a failed debt order strike from the clearing
banks is the main reason for this volatility. The transformation of the
business previously mentioned, resulted in certain core risk measurement
procedures becoming outdated. The bank accordingly undertook a review of
its procedures during the second half of this financial year and decided
to change its measurement of NPLs, which resulted in a shifting of the
cut-off to a more conservative point on the spectrum. The main changes
were:
* to measure NPLs at the mid-month prior to receipt of payment at
month-end,
* to include what was previously defined as technical arrears into
NPLs and
* to stop debit orders on accounts that have had 3 failed strikes.
Balances-at-Risk now incorporate all loans that are contractually
greater than three instalments in arrears.
The change in basis does not necessarily imply an increase in risk in
the book, but improves and stabilizes the view on that part of the
portfolio that is believed to be at risk. Given the basis for the
definition of NPLs and a better understanding of its operating dynamics,
the group believes that at 79,5% coverage, the book is well provided.
Portfolio risk
There is a lag between credit quality and the level of provisions.
Current provisioning levels do not recognise the improving credit
quality evidenced by certain leading indicators. The excessive credit
extension by the failed banks, is inexorably working its way out of the
system. In addition, the group believes that the acquisition of the
Saambou PLB has significantly contributed to the reduction in systemic
risk. This transaction allows the group the normalisation of the
combined exposures and credit capacity of its clients. Accordingly, the
group believes that the market is moving into a lower risk environment.
The full impact of this will, however, only become evident over the next
18 to 24 months.
The deterioration in credit quality evident in this financial year was,
however, compounded by the issues previously discussed, such as
administration orders and Persal cancellations, both of which have been
brought under control. The number of monthly Persal cancellations has
decreased from a high of 7 502 in September 2001 to 929 in October 2002.
The number of new administration order applications has reduced from 2
114 in March 2002 to 1 605 in October 2002, as the measures implemented
to combat illegal activity have started to take effect.
Provisions also increased as the retail portfolio started maturing,
something that was both expected and priced for and the group is
satisfied with the performance of this book. The vintage analysis below
depicts the expected ratio of loans on all products in the bank that
will become Balances-at-Risk, as a percentage of the original loans
written in any given month. These ratios are well within the pricing
parameters and in addition, the graph indicates that the vintages (and
risk) for each consecutive month, are lower than that of the previous
month.
Capital cover
Given the inherent risk, and related volatility of the risk, the group
has always considered it prudent to maintain significant levels of
capital. By way of example, the Balances-at-Risk minus provisions of
20,5% amounts to R613,8 million. The bank`s capital ratio of 34,0% would
drop to 26,5% if the whole of this net exposure was allocated against
available capital. The remaining 26,5% capital ratio is considered
adequate and prudent for the remaining performing book given the yields
that are expected to be earned.
Bad debt write-offs
The group wrote off R640,1 million or 12,2% of weighted average advances
for the financial year. This is higher than the 5,5%-7,5% guidance that
was provided to the market in the first quarter of the financial year.
It does however include R196 million of write-offs on the Saambou PLB.
The write-offs on the ABIL book(excluding the Saambou PLB) were 8,5%,
made up of 6,9% on the African Bank book and a higher 18,2% write off in
Theta Investments. The latter was the culmination of an extensive clean
up process, mainly in African Contractor Finance, where the business
model has been changed.
Collections
African Bank has extensively upgraded its collections process in
reaction to the changing market conditions. The bank recognised that a
core competency in and pro-active approach to collections is a vital
ingredient to the recovery process. A specialised unit to deal with
legal collections was set up in March 2002 and has to date made
significant progress in collections efficiencies and effectiveness. As a
result, the bank believes that its collections business has become a key
differentiator in the industry.
The graph of the distribution of the legal collections book into the
various flags in the process indicates the significant progress that has
been made in less than 6 months. The graph shows that approximately 50%
of all matters entering the legal process are likely to be recovered.
Administration orders
African Bank created an administration order department earlier in 2002
to manage the different administrators and the legal process surrounding
the issue. The department has been particularly successful in stemming
the tide of new orders and bringing the management and payment of
existing orders under control. This is demonstrated in the graph:
Total administration orders have increased from R450 million to R478
million in the past four months. Administration orders typically
generate cash receipts on a quarterly basis and therefore the step up of
collections from this book is evident.
Gross advances analysis
The total value of new loans granted during the year was R3 734 million,
up 22,9% on the prior year. This does not translate into a similar
percentage growth in the total advances book because of the short-term
nature of the loan products . Advances (excluding the acquired Saambou
PLB) increased by 2,2% in the 12 months to September 2002.
The fall-out of Unifer and Saambou necessitated that African Bank move
from an advances growth focus to a credit quality focus. Numerous new
rules were included in the credit vetting process during the year, which
had the effect of dampening sales volumes, but improving credit quality
across the book.
Retail debit order advances have become a far more significant part of
the business and this transformation of the nature of advances will
continue over the next few years.
Theta Investments` advances grew by 1,3% for the year, with good growth
recorded by CI and MCG, while GEMS, ACFC and Safrich contracted their
total advances.
Advances growth in the year ahead will begin to assume a more normalised
pattern, but this is only likely to become more evident in the second
half of the financial year.
Portfolio underwriting margin
As anticipated, the overall margin on the advances book (being interest,
insurance and fees), increased in the past twelve months to 49,0%,
compared to 48,2%. The risk-adjusted yield during this period was
negatively influenced by the increase in the charge for provisions and
bad debts and accordingly decreased from 48,0% to 38,4%.
Operating efficiency
The cost-to-income ratio at ABIL is 36,6%, down from the 38,5%(restated
comparative) in September 2001 on the back of an excellent performance
by the banking unit, and was tempered by a significant increase in costs
in Theta Investments. The rationalisation plans for Theta Investments
are expected to yield further cost savings in the coming year.
Capital, cash flow and funding
The business models used by the various units within the group are based
on the common premise of strong cash flow and capital regeneration. This
has been highlighted by the Saambou PLB acquisition whereby the bank was
able to absorb a significant asset base with little dilution in cash or
capital. ABIL is satisfied that its cash on hand of R835,5 million at 30
September 2002 and the strong cash flow emerging from its books, will
comfortably provide the group with sufficient funding for growth. The
first R750,0 million for the Saambou PLB was paid in October 2002, while
the group received R234,0 million in receipts from the Saambou PLB for
the 2 months to September 2002, resulting in a net cash outflow of R516
million in October 2002.
The bank launched a R3,5 billion Domestic Medium Term Note (DMTN)
programme to fund its asset book in 2001. It raised the first tranche of
R1 billion in October 2001.
ABIL has proposed a dividend of 30 cents for 2002. On a cash flow basis,
the dividend is covered more than 4 times.
The equity-to-assets ratio for the ABIL-group after the Saambou PLB
transaction was 35,4% and the capital adequacy for African Bank 34,0%,
at 30 September 2002. The group has been able to reduce these ratios
through the purchase of the Saambou PLB, and an increase in dividends.
It remains an objective of the group to bring this ratio down to 25% for
ABIL and 20% for African Bank over the medium-term.
Stangen tax treatment
ABIL announced at the interim stage that it benefited from a change to
the tax treatment of reserves within Stangen, which resulted in a R74,4
million reduction in the tax charge. Given the wide-ranging changes to
tax law and application thereof, the group believes that it would be
more prudent to reverse the treatment and to report our results on the
most conservative interpretation of the law. This resulted in an
additional tax charge in the second half of the year, and no impact on
the full year results.
Segmental analysis
The banking unit
Attributable earnings for the banking unit were down 30% to R427,8
million (2001: R630,8 million), mainly as a result of a R344.1 million
charge for provisions and bad debts (2001: R81,2 million net release to
income).
The cost-to-income ratio reduced from 38,8% in 2001 to the current
34,7%. In absolute terms, the operating expenses increased by R25,1
million to R659,4 million (2001: R634,3 million) being an increase of
4,0%. These costs furthermore include two months of costs relating to
the Saambou PLB acquisition.
The banking unit charged arrears interest for the first time in 2002.
Saambou Personal Loans Book acquisition
The Saambou PLB acquisition was important to the ABIL group for two main
reasons. Firstly, the transaction is earnings accretive and deals with
surplus cash and capital. Secondly, it allows ABIL to continue playing a
leading role in the development and rehabilitation of this market.
324 ex-Saambou staff members were appointed in the division. No Saambou
executive managers were retained and 4 African Bank executive staff were
transferred to head the various operating divisions.
Average collection rate to contractual instalments has equated to
running at 72% for the first 3 months. If this performance can be
maintained, the book will yield significant upside over the next 2
years.
Theta Investments
Theta Investments` attributable earnings were 26,3% lower at R91,8
million (2001: R124,5 million), mainly as a result of a R209,1 million
charge for provisions and bad debts (2001: R87,3 million).
Two of the Theta group subsidiaries, Credit Indemnity (CI) and Miners
Credit Guarantee (MCG) increased attributable profits by 34,2% (to R69,9
million) and 13,8% (to R55,2 million) respectively. African Contractor
Finance (ACFC) incurred a net loss of R33,9 million, and this was the
main contributor to the decline in earnings.
Theta Investments` costs increased by 39,1% over the financial year. Its
cost-to-income ratio is 43,0%, which is higher than the 39,6% in
September 2001. It is expected that the reorganisation of the Theta
group will reverse this trend.
Theta Investments has been the private equity incubator in the ABIL
stable, experimenting with new credit models and growing the successful
models into mature businesses that would either be closer aligned to
African Bank or developed in their own right. Theta Investments has
fulfilled this role successfully with the building of two significant
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