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Standard Bank Group Limited - Audited Results And Dividend Announcement
Release Date: 05/03/2003 08:05:11 Code(s): SBK
Standard Bank Group Limited - Audited Results And Dividend Announcement
For The Year Ended 31 December 2002
Standard Bank Group Limited
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Reg No 1969/017128/06)
JSE Securities Exchange share code: SBK
Namibian Stock Exchange share code: SNB
ISIN: ZAE000038873
Overview of financial results
Against the backdrop of extended recessionary economic conditions worldwide,
Standard Bank Group completed another successful year, growing headline earnings
by 19% to R5 263 million.
The diversity of the group`s sources of income again provided a foundation for
solid results, with the strongest performance in 2002 from banking businesses on
the African continent. The group`s South African banking operations performed
well on both retail and wholesale fronts, while strong growth occurred elsewhere
in Africa assisted by good performance from recent acquisitions. Looking abroad,
international credit markets deteriorated to levels not seen for many years. The
group`s international operations are active in both credit origination and
trading and were impacted by reduced new business opportunities and the need to
substantially increase provision levels. The effect of weak equity markets,
evidenced by key indices declining for a third consecutive year, was most
noticeable in the group`s life assurance and asset management operations.
The domestic banking environment was characterised by a competitive banking
sector, rapidly increasing interest rates and a volatile rand exchange rate.
Domestic inflation peaked at 14,5% and the prime interest rate increased by four
percentage points following a significant weakening in the rand in late 2001.
The current financial year was further marked by a liquidity crisis in the
smaller domestic banks in the first half of the year, that resulted in some
systemic risk followed by consolidation within the banking sector. Amid these
uncertain market conditions, Domestic Banking performed strongly and benefited
from a slight improvement in margins and from trading opportunities created by
the volatile markets. Improved credit quality in these operations led to a
reduction in credit provisioning ratios and improved provision coverage, despite
the rising interest rate environment.
The group`s key performance highlights were:
ROE increased from 20,1% to 20,3%;
headline earnings of R5 263 million increased by 19%;
headline earnings per share grew by 18% from 335 cents to 396 cents per share;
the cost-to-income ratio improved to 57,3% from 57,4%; and
total dividends of 124 cents per share were declared, 22% higher.
Effect of currency movements on the results
The rand`s volatility in 2001 and 2002 has had a material effect on the group`s
income statement and balance sheet. For income statement purposes, foreign
earnings and expenses are included at the average exchange rate for the year
and, for 2002, this average rate against sterling was 27% lower than in 2001.
This decrease in the average exchange rate was in sharp contrast to the closing
rate for the year used in the translation of balance sheet items, that for 2002
was 21% higher than at the previous year end. The overall effect of these
differing rates on the translation of foreign amounts into rands has been to
increase income statement items and reduce balance sheet items.
The higher closing exchange rate for the year also resulted in a decrease of
R3,3 billion in the currency translation reserve. This has been charged directly
to reserves in accordance with the group`s accounting policy.
Income statement
Net interest income
Net interest income grew by 29%, whilst average assets increased by 31%. The
margin decreased by 5 basis points to 3,26% mainly due to a change in the mix of
average assets. A higher proportion of total average assets consisted of
International Operations` assets at lower margins.
Provision for credit losses
Despite a 400 basis point increase in the domestic prime rate during 2002, the
group managed to contain the charge for credit losses to 1,18% of loans and
advances, slightly higher than the 1,11% reported in 2001, with this increase
attributable to increased provisions in International Operations. The specific
provisions raised as a percentage of loans and advances reduced in Domestic
Banking and Stanbic Africa from 1,02% and 0,82% in 2001, to 0,94% and 0,44%
respectively following improvements in credit quality and collections. The net
coverage ratio improved from 174% to 184%. Gross non-performing loans reduced as
a percentage of average loans and advances from 3,5% to 2,9%, or by R277 million
in absolute terms, reflecting the improvement in credit quality.
Non-interest revenue
Non-interest revenue rose by 25% and continues to contribute more than half of
the revenues of the group.
Fees and commission income grew by 24% due to a combination of an increase in
transaction volumes, new fees introduced and repricing initiatives particularly
in electronic banking and card based products.
Trading income reflected strong growth of 42%. Improved client volumes and
increased spreads due to the volatility of the rand assisted good growth in
foreign exchange trading income. Satisfactory growth was also achieved in
domestic trading in precious metal commodities, interest rate and equity
derivatives. Internationally, trading opportunities in capital and debt markets
were successfully exploited.
Operating expenses
Operating expenses increased by 27%, reflecting the impact of a weaker average
exchange rate, acquisitions by Stanbic Africa and the expansion of International
Operations. Operating expenses were 18% higher in Domestic Banking, driven
mostly by staff cost growth that included a provision made for the resumption of
retirement funding contributions and increases in frontline staff to improve
service levels. Higher technology costs were incurred as the group continues to
upgrade both IT applications and infrastructural capability across all
businesses.
A cost-to-income ratio of 57,3% was achieved, compared with 57,4% in 2001.
Though improved, the cost-to-income ratio came under pressure due to geographic
expansion and low growth in non-interest revenue in International Operations. A
notable improvement in this ratio, from 55,9% to 53,4%, was achieved in the
domestic banking operations and resulted from strong revenue growth.
Income from associates
Income from associates grew by R47 million following an increase in the number
of equity accounted investment banking interests.
Goodwill
The goodwill charge increased by R86 million as a result of a full year`s
amortisation of acquisitions in Asia and Africa.
Taxation
The effective tax rate increased from 30,8% to 33,5% as a result of an increased
level of provisions for general tax risks, together with adjustments relating to
prior period items. Indirect taxes increased in absolute terms by 21%.
Balance sheet
Banking assets reflected a small reduction due to the impact of the stronger
rand on assets consolidated from foreign operations. Loans and advances in rand
terms in International Operations reduced by 15% and Stanbic Africa`s growth was
restricted to 7%.
Growth in quality retail lending business generating sustainable annuity income
was actively sought, particularly in the following key domestic market segments:
Home loans up 21% (market share up from 18,6% to 20,3%);
Card increased 17% (market share up from 20,9% to 24,9%); and
Instalment finance up 16% (market share up from 20,9% to 21,8%).
Given the high interest rate environment and a possible increase in corporate
defaults, a cautious approach to wholesale lending was adopted together with a
stricter application of minimum hurdle rates for acceptance of new business.
Accordingly, growth rates in SCMB and Business Banking were generally subdued,
apart from certain large project finance deals concluded in the second half of
the year.
Shareholders` funds
Ordinary shareholders` funds reported a marginal increase to R26,1 billion as a
result of strong growth in retained income, mainly offset by the decrease for
the year in the currency translation reserve.
Liberty Group
Liberty experienced a challenging year with the extended weak investment market
conditions reducing the amount of operating surplus in the life fund. This had a
significant effect on the headline earnings included in Standard Bank Group`s
results, which, at R298 million, were 31% lower than the previous year.
Operationally, Liberty Group is performing well with all key indicators, apart
from investment returns, showing positive growth.
Capital adequacy
The group capital adequacy ratio reflects a slight increase from 14,2% in the
previous year to 14,3%. The change primarily resulted from the issue of R1
billion tier 3 capital during the year. Of the group ratio of 14,3%, 13,8%
relates to banking operations and 0,5% to the group`s share of regulatory
surplus capital in Liberty.
Final dividend
As the group is well capitalised and in some areas has surplus capital, it is
planned that the dividend cover will gradually be reduced to a cover of 3,0
times, at which stage it will be reassessed. Consequently, dividend growth over
the medium term will be higher than earnings growth. The current year`s cover
has decreased to 3,2 times from 3,3 times in 2001. A final dividend of 90 cents
per share (2001: 74 cents) has been declared to shareholders, bringing the total
dividend for the year to 124 cents per share (2001: 102 cents), an increase of
21,6%.
Prospects
Sound economic fundamentals are in place in South Africa and the country is well
positioned for sustained growth. It is expected that the group will continue to
benefit from efficiencies extracted from its strong domestic base and from its
extensive African banking operations. The global political and economic
conditions are uncertain but international credit markets are showing signs of
improvement. Given the breadth and the ongoing integration of the group`s
activities, it is well placed to take advantage of any improvements in market
conditions. The group has a stated medium-term objective for rand earnings
growth of inflation (CPIX) plus 10 percentage points. Whilst the attainment of
this target is likely to be difficult in 2003, it nevertheless remains the
group`s earnings objective.
Derek Cooper, Chairman
Jacko Maree, Chief Executive
Declaration of dividend no. 67
Notice is hereby given that a final dividend no. 67 of 90 cents per ordinary
share has been declared payable on 14 April 2003 to shareholders recorded in the
books of the company at the close of business on the record date, 11 April 2003.
The last day to trade to participate in the dividend is 4 April 2003. Shares
will commence trading ex-dividend from Monday 7 April 2003.
The relevant dates for the payment of the dividend are as follows:
Last day to trade "CUM" dividend 4 April 2003
Shares trade "EX" dividend 7 April 2003
Record date 11 April 2003
Payment date 14 April 2003
Share certificates may not be dematerialised or rematerialised between Monday 7
April 2003 and Friday 11 April 2003, both days inclusive.
Where applicable, dividends in respect of certificated shares will be
transferred electronically to shareholders` bank accounts on payment date. In
the absence of specific mandates, dividend cheques will be posted to
shareholders. Shareholders who have dematerialised their share certificates will
have their accounts at their CSDP or broker credited on 14 April 2003.
By order of the board,
Loren Wulfsohn, Group Secretary
4 March 2003
Accounting policies
Basis of preparation
The accounting policies comply in all material respects with South African
Statements of Generally Accepted Accounting Practice (SA GAAP) as well as the
South African Companies Act of 1973.
Changes in accounting policies
These accounting policies are consistent with those applied in 2001 except for
the adoption of the new accounting statement on Investment Properties (AC 135).
In terms of this statement, certain defined owner-occupied properties can no
longer be treated as investment properties and are now depreciated under the
provisions of the statement dealing with property, plant and equipment (AC 123).
This change has been applied retrospectively and comparative amounts for 2001
have been restated.
Implementation of AC 133
The 2003 year sees the introduction of AC 133, a new accounting standard
impacting the recognition and measurement of financial instruments. Areas most
affected by this standard include the qualification criteria for hedge
accounting, discounting cash flows in determining credit provisions and fair
value accounting of investment securities. The group has converted its
accounting systems and is well placed to comply with the new standard. To
accommodate the changes arising from this statement, certain amendments to the
calculation of headline earnings were introduced in Circular 07/02 issued by the
South African Institute of Chartered Accountants. As the group is adopting AC
133 in the new financial year, it has accordingly excluded Liberty`s investment
surpluses/deficits, which are of a capital nature, from headline earnings in the
current year.
Auditors` report
The auditors, PricewaterhouseCoopers Inc. and KPMG Inc., have issued their
opinion on the group financial statements for the year ended 31 December 2002. A
copy of the auditors` unqualified report is available for inspection at the
company`s registered office.
CONSOLIDATED INCOME STATEMENT
2002 2001
% R million R million
change Audited Audited
Standard Bank operations
Interest income 28 31230 24368
Interest expense 28 20697 16191
Net interest income before
provision for credit losses 29 10533 8177
Provision for credit losses 22 1955 1603
Net interest income 30 8578 6574
Non-interest revenue 25 11435 9135
Total income 27 20013 15709
Operating expenses 27 12587 9940
Staff costs 30 6934 5347
Other operating expenses 23 5653 4593
Operating profit 29 7426 5769
Income from associates 96 49
Goodwill amortisation (151) (65)
Income before taxation 28 7371 5753
Taxation 39 2435 1756
Income after taxation 23 4936 3997
Attributable to outside and
preference shareholders 122 77
Standard Bank income attributable to
ordinary shareholders 23 4814 3920
Liberty Group operations
Operating profit 1369 2438
Exceptional items (14) (324)
Income before taxation 1355 2114
Taxation 359 980
Income after taxation 996 1134
Attributable to outside and preference
shareholders 702 816
Net income before investment (deficit)/surplus (8) 294 318
Net income from continuing operations (29) 298 420
Net income from unbundled operations - 14
Exceptional items (4) (116)
Investment (deficit)/surplus (111) 287
Liberty Group income attributable to
ordinary shareholders 183 605
Group income attributable to ordinary
shareholders 10 4997 4525
HEADLINE EARNINGS
2002 2001
% R million R million
change Audited Audited
Group income attributable to ordinary
shareholders 10 4997 4525
Standard Bank income adjusted for: 151 65
- Goodwill amortised on subsidiaries
acquired 105 51
- Goodwill amortised on associates
acquired 46 14
Liberty Group income adjusted for: 115 (171) -
Secondary tax on companies relating to
capital reduction - 111
- Goodwill amortised on subsidiaries
acquired 4 5
Investment deficit/(surplus) 111 (287)
Headline earnings 19 5263 4419
CONSOLIDATED BALANCE SHEET
2002 2001
R million R million
Audited Audited
ASSETS
Standard Bank operations 303937 306196
Cash and short-term funds 45356 42186
Investment and trading securities 43580 45722
Loans and advances 170377 162002
Other assets 40766 52647
Interest in associates 276 187
Goodwill 381 403
Intangible assets 290 311
Property and equipment 2911 2738
Liberty Group operations 85761 89038
Current assets 3754 2979
Investments 81491 85531
Goodwill 158 113
Intangible assets 36 62
Equipment and furniture 322 353
Total assets 389698 395234
EQUITY AND LIABILITIES
Capital and reserves 26062 25693
Share capital 141 140
Share premium 2141 2047
Reserves 23780 23506
Minority interest 5998 5973
Liabilities 357638 363568
Standard Bank operations 279959 282694
Deposit and current accounts 239715 237006
Other liabilities and provisions 33490 39789
Bonds 6754 5899
Liberty Group operations 77679 80874
Life funds 73700 75918
Long-term liabilities 1947 2874
Other liabilities 2032 2082
Total equity and liabilities 389698 395234
Ordinary shareholders` funds
Adjusted for the increase in market value over the
carrying value of Liberty Group, investments
and property 28795 28330
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS` FUNDS
2002 2001
R million R million
Audited Audited
Balance at beginning of the year 25693 18300
Change in accounting policy - (334)
Restated balance at beginning of the year 25693 17966
Group income 4997 4525
Dividends paid (1433) (1196)
Translation (reversal)/gain (3271) 4037
Issue of share capital and share premium 95 462
Other reserve movements (19) (101)
Balance at end of the year 26062 25693
CONSOLIDATED CASH FLOW INFORMATION
2002 2001
R million R million
Audited Audited
Cash flows from operating activities 15589 11947
Cash flows used in operating funds (3650) (13518)
Net cash used in investing activities (5379) (2443)
Net cash used in financing activities (1082) (858)
CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
Contingent liabilities
- letters of credit 4369 5449
- guarantees 21112 19199
25481 24648
Capital commitments
- contracted capital expenditure 467 84
- capital expenditure authorised but not yet contracted 167 38
634 122
FINANCIAL STATISTICS
% 2002 2001
change Audited Audited
Standard Bank Group
Shares in issue (millions)
Number of ordinary shares in issue
- end of period 1331 1325
- weighted average 1328 1319
Cents per ordinary share
Headline earnings 18 396,3 335,1
Dividends 22 124,0 102,0
Earnings 10 376,2 343,1
Fully diluted earnings 10 371,2 337,9
Net asset value 1 1957 1939
Adjusted net asset value 1 2163 2138
Financial performance (%)
Return on equity 20,3 20,1
Standard Bank operations
Financial performance (%)
Return on equity 21,2 19,9
Return on total assets 1,6 1,5
Cost-to-income ratio 57,3 57,4
Effective tax rate 33,5 30,8
Capital adequacy (%)
Capital ratio
- primary capital 10,9 11,1
- total capital 14,3 14,2
SEGMENTAL REPORT
2002 2001
% R million R million
change Audited Audited
Headline earnings
Domestic Banking 33 3960 2971
Retail Banking 25 1796 1441
Wholesale Banking 36 2102 1542
- SCMB 36 1301 955
- Business Banking 38 635 461
- Property Finance 32 166 126
Central services 62 (12)
International Operations (34) 429 648
Stanbic Africa 48 482 325
STANLIB (24) 62 82
Central funding 32 (41)
Standard Bank operations 25 4965 3985
Liberty Group operations (31) 298 434
Standard Bank Group 19 5263 4419
Domestic Banking continued the good performance recorded in the first half, with
year on year headline earnings growing by 33% to R3 960 million and ROE
increasing to 31,2% (2001: 27,0%). The interest margin was up by 12 basis points
from 2001.
Retail Banking increased headline earnings by 25% to R1 796 million. Market
share increased in lending products, particularly in instalment finance and home
loans, whilst customer retention improved across all products. Growth of 18% in
non-interest revenue resulted mainly from point of representation fees and card-
based commission, while bancassurance income continued to improve its
contribution. A decrease in the provision for credit loss ratio from 1,27% to
1,24% was indicative of the improved book quality.
Wholesale Banking`s continued focus on optimising operations of core businesses
and strong growth in client driven trading income in SCMB helped increase its
contribution to group earnings from 35% to 40% in 2002. Headline earnings
increased by 36% to R2 102 million. All the major business units performed well
and balanced revenue growth was achieved across net interest income, fees and
commission income and trading income.
Provisions for credit losses increased by 9% over the previous year, mainly due
to general provisions, but remained constant as a percentage of average
advances.
International Operations (changes reflected in pound sterling terms) reflected a
decline of 48% in headline earnings as a consequence of the difficult trading
conditions. Net interest income was 14% higher, with margins decreasing due to
the shift in focus away from growth towards limiting risk as market conditions
deteriorated. The results were impacted by an increase in the provision for
credit losses of 107% and although no significant defaults have occurred,
provisions have been raised against appropriate credit risk criteria. Staff
costs increased by 15% due to higher staff numbers to ensure that expansion is
properly managed. Trading income increased by 5%.
Stanbic Africa`s contributions from acquisitions, coupled with strong
performances across almost all established operations, assisted in growing
revenue lines by an average of 55%. The acquisition of Uganda Commercial Bank in
particular, contributed meaningfully to the growth in headline earnings. A focus
on collection strategies resulted in a decrease of 33% in the provision for
credit losses. The increase in the cost-to-income ratio from 58,3% to 60,8%
resulted mainly from acquisitions and the expansion of risk and finance
functions based in Johannesburg. The results for the Zimbabwean operations have
been consolidated into the group`s accounts for both the current and previous
years. The net asset value of this investment has been fully provided for.
STANLIB experienced a notably challenging year characterised by declining equity
markets worldwide, but performed to expectations in generating headline earnings
of R62 million, down 24% mainly as a result of non-recurring items relating to
the merger.
Board of Directors
DE Cooper (Chairman)
EAG Mackay (Joint Deputy Chairman)
SJ Macozoma (Joint Deputy Chairman)
JH Maree* (Chief Executive)
MJD Ruck* (Deputy Chief Executive)
RC Andersen*
DDB Band
E Bradley
DA Hawton
RP Menell
RA Plumbridge
CL Stals
CB Strauss
EP Theron
* Executive director
Group Secretary
L Wulfsohn
Registered office
9th Floor, Standard Bank Centre
5 Simmonds Street, Johannesburg, 2001
PO Box 7725, Johannesburg, 2000
Share transfer secretaries in South Africa
Computershare Investor Services Limited
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PO Box 1053, Johannesburg, 2000
In Namibia
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This announcement, together with a financial presentation, is available on the
Standard Bank website at:http://www.standardbank.co.za
Date: 05/03/2003 08:05:00 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
