| Mon 19 May 2003, 8:39 | | ABIL - Unaudited interim financial results for the |
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African Bank Investments Limited
(Incorporated in the Republic of South Africa)
(Registration number 1946/021193/06)
(ISIN: ZAE000030060)
(Share code: ABL)
("ABIL")
African Bank Investments Limited unaudited interim financial results
for the six months ended 31 March 2003
features
- Headline earnings per share of 67,6 cents
- Net asset value per share of 545,6 cents
- Interim dividend up 108% to 25 cents
- Risk-adjusted revenue up 30% to R1 231 million
- R209,5 million reduction in non-performing loans in six months
- Group capital ratio at 44% and R1 billion in cash
- ROA at 10,3%
- ROE at 25,8%
Financial highlights
% 6 months
change ended
31 March
2003
Key shareholder ratios
Headline earnings R 000"s 48,9 331 575
Headline earnings per share cents 48,3 67,6
Attributable earnings R 000"s 49,7 325 307
Attributable earnings per share cents 49,2 66,3
Number of shares in issue
(net of treasury shares) 000"s 491 307
Restated 12 months
6 months ended
ended 30 Sept
31 March 2002
2002
222 732 510 642
45,6 104,4
217 270 498 866
44,5 102,0
489 159 489 567
Weighted average number of shares 000"s 490 342
Net asset value per share cents 20,9 545,6
Dividends per share cents 108,3 25
- interim cents 108,3 25
- final cents
Dividend cover times 2,7
Performance ratios (per RoE model)
Gross income yield on advances book % 50,7
Bad debt expense to average advances % (7,7)
Risk-adjusted yield % 43,1
488 498 488 939
451,4 497,1
12 30
12 12
18
3,8 3,5
51,6 49,0
(11,9) (10,6)
39,7 38,4
Cost to income % 37,4
Return on assets % 10,3
Return on equity % 25,8
Effective tax rate
(including indirect taxes) % 36,7
Asset and credit quality ratios
Total assets R 000"s 13,3 6 383 544
Gross advances R 000"s 37,0 6 662 472
Performing 3 882 333
Non-performing 2 780 139
Total provisions
(including insurance cover) R 000"s 222,2 2 190 141
35,9 36,6
7,9 8,9
21,9 23,2
38,2 34,4
5 633 395 7 023 898
4 862 605 7 166 640
4 142 997 4 176 978
719 608 2 989 662
679 766 2 375 905
NPLs to gross advances % 41,7
Total provisions as a % of
gross advances % 32,9
NPL coverage % 78,8
Bad debt write-offs to average
gross advances % 12,2
Capital and gearing
African Bank capital adequacy % 38,7
Tier 1 % 36,4
Tier 2 % 2,3
ABIL Group capital adequacy % 43,6
Average cost of funds % 14,3
14,8 41,7
14,0 33,2
94,5 79,5
6,9 12,2
30,5 34,0
24,1 31,3
6,4 2,7
n/a 38,1
13,3 13,5
Group income statement
R 000"s Unaudited % change
6 months to
31 March
2003
Revenue
Interest income on advances 1 151 969 23
Net assurance income 117 904 0
Non-interest income 180 037 4
Total revenue 1 449 910 18
Charge for bad and doubtful (219 032) (23)
advances
Risk-adjusted revenue 1 230 878 30
Other interest income 61 923 83
Interest expense (229 232) 24
Operating costs (542 513) 23
Net income from operations 521 056 47
Share of associate companies" 476 (70)
retained income
Net income before taxation 521 532 47
Indirect taxation: Value added (37 139) 15
tax and STC
Taxation (154 514) 49
Net income after taxation 329 879 50
Minority interest (4 572) 68
Net income attributable to
ordinary shareholders 325 307 50
Headline earnings and
earnings per share
Net income attributable to
ordinary
shareholders 325 307 50
Adjustments:
Net goodwill amortised 6 557
Other capital items (289)
Headline earnings 331 575 49
Weighted number of shares in 490 342
issue (000)
Fully diluted number of shares
in issue (000) 493 296
Headline earnings per share 67,6 48,3
(cents)
Basic earnings per share (cents) 66,3 49,2
Fully diluted headline earnings
per share (cents) 67,2 47,4
Dividends per share (cents)
- Interim 25,0
- Final
25,0
Unaudited Audited
6 months to 12 months to
31 March 30 September
2002 2002
937 530 2 005 388
117 364 259 811
173 598 299 580
1 228 492 2 564 779
(283 230) (553 228)
945 262 2 011 551
33 900 82 827
(184 345) (389 181)
(440 549) (938 367)
354 268 766 830
1 581 6 778
355 849 773 608
(32 271) (29 070)
(103 584) (236 907)
219 994 507 631
(2 724) (8 765)
217 270 498 866
217 270 498 866
5 462 12 839
(1 063)
222 732 510 642
488 498 488 939
488 498 488 939
45,6 104,4
44,5 102,0
45,6 104,4
12,0 12,0
18,0
12,0 30,0
Note: Reconciliation of prior
year adjustments: Attributable Headline
income earnings
As previously stated 292 331 289 220
Change of accounting policy (661) (661)
for depreciation
Reversal of Stangen tax (74 400)N1 (74 400)N1
adjustment
New headline earnings 8 573
statement adjustment for
retrenchment costs
Restated 217 270 222 732
EPS HEPS
59,8 59,2
44,5 45,6
Note 1: The previously disclosed March 2002 interim results included a R74,4
million reduction in the tax charge due to a change in the tax treatment of the
Stangen life company. As a result of further investigation this was reversed in
the final audited results for the year ended 30 September 2002. Consequently the
prior year comparatives for the 6 month period to 31 March 2002 have been
adjusted for the effect of this reversal.
Group balance sheet
Unaudited Unaudited
31 March % 31 March
R 000"s 2003 change 2002
ASSETS
Fixed assets 194 171 11 175 363
Investments in associates 8 466 1 8 360
Policyholders" investments 47 068 (46) 87 317
Goodwill 8 448 (57) 19 552
Deferred tax asset 60 808 81 33 636
Net advances 4 560 254 7 4 267 851
Gross advances 6 662 472 4 862 605
Provisions (2 102 218) (594 754)
Other assets 196 502 (6) 209 735
Taxation 4 728 (78) 21 737
Liquid assets 254 836 (18) 311 562
Short-term deposits and cash 1 048 263 110 498 282
Total assets 6 383 544 13 5 633 395
EQUITY AND LIABILITIES
Life fund reserve 79 112 (26) 107 317
Structured loans and 2 284 842 19 1 923 623
debentures
Deferred tax liability 840 (96) 18 941
Liabilities to depositors 711 510 (4) 741 089
Other liabilities 237 432 (7) 255 472
Taxation 142 222 28 111 387
Bank overdraft 3 641 (83) 20 871
Total liabilities 3 459 599 9 3 178 700
Capital and reserves
Ordinary shareholders" funds 2 680 418 21 2 207 842
Outside shareholders" funds 55 366 (10) 61 498
Secondary capital 188 161 2 185 355
Total capital and reserves 2 923 945 19 2 454 695
TOTAL LIABILITIES AND EQUITY 6 383 544 13 5 633 395
Audited
30 September
2002
N2 189 029
17 605
N3 65 080
13 007
63 065
4 900 199
7 166 640
N4 (2 266 441)
497 377
21 325
421 751
N3 835 460
7 023 898
N4 94 713
2 269 313
13 256
690 332
1 040 840
N1 219 411
19 846
4 347 711
2 433 522
55 990
186 675
2 676 187
7 023 898
Note 2: The comparative 6 months ended March 2002 as previously published has
been restated to take into account the change in accounting policy regarding the
depreciation of buildings. The effect of the restatement is that ordinary
shareholders" funds and fixed assets both decreased by R2,9 million.
Note 3: In the prior year, policyholders" investments, represented by cash
balances, was included in short-term deposits and cash. This has been separately
stated so as to be consistent with the current treatment.
Note 4: On balance sheet credit life reserves amounting to R29,3 million have
been reclassified as a provision against advances. The remaining life reserve
relate to external third party liabilities. In addition to the above, off
balance sheet reserves were held through a reinsurance arrangement.
Note 5: As at 31 March 2003 the group had operating lease commitments
amounting to R58,9 million, contingent liabilities totalling R14,0 million and
capital expenditure commitments totalling R37,5 million, related to a new
debtors management and new collections system.
Cash flow statement
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
31 March 31 March 30 September
R 000"s 2003 2002 2002
Cash generated from 769 074 539 249 2 636 820
operations
(Increase)/decrease in 568 257 (268 286) (2 947 551)
income-earning assets
Increase/(decrease) in
deposits, liabilities and
other provisions (765 215) (587 326) 494 552
Normal taxation paid (225 265) (394 523) (434 285)
Cash outflow from (33 462) (19 979) (76 933)
investing activities
Cash outflow from (84 381) (61 652) (126 917)
financing activities
ABIL bond issue - 1 000 000 1 000 000
Net increase in cash and 229 008 207 483 545 686
cash equivalents
Cash and cash equivalents 815 614 269 928 269 928
at the beginning of the
year
Cash and cash equivalents 1 044 622 477 411 815 614
at the end of the period
Short-term deposits and 1 048 263 498 282 835 460
cash
Bank overdraft (3 641) (20 871) (19 846)
Statement of changes in equity
Non-
distribu-
Share table
R 000"s capital reserves
Balance at
30 September 2001 12 858 81 713
Prior year adjustment
(change in accounting policy)
Dividends paid
Cancellation of treasury
shares held by subsidiary (429)
Employee share trust shares
issued to employees (cost)
Loss incurred on group
employees acquiring
ABIL share trust shares
Net income for the 6 months
(as previously stated)
Restatement of net income:
Stangen tax adjustment
Change in depreciation
accounting policy
Distribu-
table Treasury
reserves shares Total
2 193 536 (233 596) 2 054 511
(2 287) (2 287)
(74 574) (74 574)
(150 197) 150 626 0
17 211 17 211
(4 289) (4 289)
292 331 292 331
(74 400) (74 400)
(661) (661)
Balance at 31 March 2002 12 429 81 713
Dividends paid
Employee share trust shares
issued to employees (cost)
Loss incurred on group
employees acquiring
ABIL share trust shares
Transfer from non-distributable
to distributable reserves (81 713)
Net income for the year
2 183 748 (70 048) 2 207 842
(57 453) (57 453)
3 321 3 321
(1 784) (1 784)
81 713 0
281 596 281 596
Balance at 30 September 2002 12 429 -
Dividends paid
Employee share trust shares
issued to employees (cost)
Loss incurred on group
employees acquiring
ABIL share trust shares
Net income for the year
Balance at 31 March 2003 12 429 -
2 489 604 (68 511) 2 433 522
(88 177) (88 177)
14 188 14 188
(4 422) (4 422)
325 307 325 307
2 726 734 (58 745) 2 680 418
ADVANCES ANALYSIS
% 31 March 30 Sept
R 000"s growth 2003 2002
AFRICAN BANK (7,6) 5 736 926 6 212 131
Core lending 3,1 3 180 622 3 084 305
books
Payroll
- Corporates and (6,5) 1 366 573 1 461 309
other
- (41,9) 200 876 345 599
Parastatals/TLCs
Retail/debit 27,6 1 483 336 1 162 426
order
Standard Bank JV 12,9 129 837 114 971
Pay down books (18,3) 2 556 304 3 127 826
Persal (20,7) 580 078 731 559
PLB (17,5) 1 976 226 2 396 267
SPECIALISED
LENDING (3,0) 925 546 954 509
Credit Indemnity 8,4 267 553 246 711
MCG 0,3 280 207 279 360
GEMS (16,7) 173 664 208 560
ACFC (16,4) 117 906 141 028
A1 Taxi 26,9 84 793 66 797
Safrich (100,0) - 10 871
Quatro 20,4 1 423 1 182
Total (7,0) 6 662 472 7 166 640
Number Average Average
of active balance term
loans per loan per loan
at March at March at March
2003 2003 2003*
1 048 598 5 471 18
665 107 4 113 18
227 898 5 996 28
47 239 4 252 30
341 938 4 338 16
48 032 2 703 17
383 491 6 666 -
108 285 5 357 -
275 206 7 181 -
442 877 2 090 -
215 663 1 241 5
178 936 1 566 10
47 077 3 689 n/a
292 403 788 n/a
909 93 282 36
- - n/a
- - n/a
1 491 475 4 467
*Average loan term in months for new business written 1 October 2002 to 31 March
2003
Business segmental analysis
African The
Bank banking
Limited Stangen unit
Total revenue 965 035 117 405 1 082 440
Charge for bad and doubtful
advances (136 316) - (136 316)
Risk adjusted revenue 828 719 117 405 946 124
Net income from operations 307 951 135 071 443 022
Net income attributable to
ordinary shareholders 207 096 92 961 300 057
Headline earnings 207 096 92 961 300 057
Other and
Specialised consoli-
Lending dation Total
376 153 (8 683) 1 449 910
(82,716) - (219 032)
293 437 (8 683) 1 230 878
87 680 (9 646) 521 056
46 517 (21 267) 325 307
46 785 (15 267) 331 575
Commentary
Overview
Against the backdrop of an extremely difficult trading period during the
previous financial year to September 2002, the interim results for the six
months to 31 March 2003 reflect a stable and steadily improving market
environment resulting in an enhanced operating performance. The key features of
the period under review were:
- A continued focus by the group on consolidating its position as the market
leader in the field of unsecured personal loans.
- Tight credit management and better financial discipline by our clients has
resulted in a marked improvement in recent default rates as evidenced by the
credit vintage charts.
- An enhanced collection capability resulting in an improved outlook for NPLs
recovery rates and an overall decrease in NPLs.
The group has emerged from the prior period stronger and better equipped to deal
with the challenges of the market sector it operates in. The legacy of the 2002
credit bubble will take some time to work out of the system and ABIL"s cautious
approach to this is reflected in the provision coverage ratios, which have been
maintained at conservative levels.
ABIL is confident that these factors together with a continued focus on its core
competencies and a tighter control over costs will result in a solid foundation
for growth in operating performance.
Financial results summary
Headline earnings for the six months to March 2003 were R331,6 million (67,6
cents per share) from R222,7 million restated for the prior period (45,6 cents
per share). The restatement of the prior period"s results was due to changes in
accounting policy for depreciation and headline earnings as well as the reversal
of the Stangen tax credit included in the original interim results for 2002 and
which was reversed in the final full year results in September 2002. The net
effect of the restatement was to reduce the prior period headline earnings by
R66,5 million or 13,6 cents per share. Excluding the effect of the restatement,
headline earnings per share increased by 14,2%, compared to the 48,3% restated.
The improved operating performance had a concomitant effect on RoA at 10,3%
(2002: 7,9%) and RoE at 25,8% (2002: 21,9%).
As a result of strong underlying cash flow and increasing capital adequacy, a
substantially increased interim dividend of 25 cents has been declared (2002: 12
cents).
Total revenue for the period improved by 18% primarily due to the contribution
from the Saambou Personal Loans Book (PLB) acquired in August 2002. The interest
yield benefited from the change in composition of the book towards higher margin
retail products and increased to 40,3% from 39,4% in March 2002, despite the
effect of the inclusion of the PLB with a lower average yield.
The bad debt charge for the period improved by 23% to R219,0 million, mainly as
a result of a lower buildup in specific provisions. Specific provisions of
R256,5 million were raised in the six months to March 2003, against R379,2
million in the comparable six months to March 2002. The net charge was an
annualised 7,7% of gross interest-bearing advances compared to the prior period
charge of 11,9%. Risk-adjusted revenue was up 30,2% to R1 230,9 million from
R945,3 million.
Operating expenses increased by 23,1%, primarily due to the costs acquired as a
result of the PLB transaction, which are running at approximately R10 million
per month, and increased costs in the Theta Investments group. The cost base for
African Bank increased by only 3,4% while the Specialised Lending division
(previously Theta) increased costs by 20,4%. This resulted in an increase in the
cost to income ratio from 35,9% to 37,4%. Taking out the effect of the PLB
costs, the organic growth in costs was limited to 9,6%. The group remains
committed to tight cost control and is confident that it will make further
efficiency improvements thereby maintaining its competitive advantage.
The overall taxation rate including indirect VAT taxes and STC increased to
36,7% due mainly to increased STC charges for the period.
Advances portfolio
Overall gross advances grew by 37,0% to R6 662 million from the 31 March 2002
level of R4 863 million but fell by 7,0% from the 30 September 2002 levels. The
increase since March 2002 is primarily due to the inclusion of the PLB, whilst
the decrease since September is due to the rapid pay down of the PLB and Persal
Book as well as improvements in collections and increased write-offs.
Loan sales have been at similar levels to the second half of the year to
September 2002 as a result of deliberately conservative credit management as the
group has been cautious to respond to demand as it moved through this period of
instability in the market. Total new loans granted during the six-month period
was R1 683,4 million, although the shorter term, higher yield nature of the
newer products sold does not translate into the same level of advances growth.
There has been a steadily increasing proportion of new business written in the
retail/debit order products as opposed to payroll products. This has been a
deliberate strategy over the past three years, and is part of the transformation
of the business to a more retail orientated credit provider and to improve the
risk-adjusted return for the group. During the current six months, 76% of sales
were retail/debit order products and 24% payroll deduction products.
The effect of the switch can be seen in the African Bank core lending books in
which the Retail book grew by 27,6%, while the payroll based books all
decreased.
*graph: Payroll vs retail sales: Please refer to website
The following table sets out a walkforward of the African Bank book from
September 2002 to March 2003.
ADVANCES WALKFORWARD ANALYSIS (African Bank)
Core
lending
R 000"s books Persal PLB Total
Gross advances as at
30 September 2002 3 084 305 731 559 2 396 267 6 212 131
New loans granted 1 005 944 0 0 1 005 944
Net receipts (721 532) (107 105) (289 889) (1 118
526)
Interest and charges 538 752 60 943 279 114 878 809
accrued
Gross cash receipts (1 260 284) (168 048) (569 003) (1 997
335)
Bad debts written off (188 095) (44 376) (130 152) (362 623)
Balance as at 31 3 180 622 580 078 1 976 226 5 736 926
March 2003
New loan sales are still subdued due to tight credit management practices. While
the vintage curves suggest that the levels of default have returned to
acceptable levels, it will take some time to accelerate new sales back to higher
levels. It is expected that sales for the second half of the year will be higher
than the first half.
Credit quality
Total provisions have been maintained at conservative levels with the coverage
ratio at 78,8% compared to 79,5% at September 2002 and this is despite very
strong write-offs of approximately 12,2% (annualised) or R421,7 million for the
period. Overall provisions including insurance reserves are 32,9% of gross
advances compared to 33,2% at September 2002.
The average value of loans on which interest and charges have been stopped
during the period was R1 192 million.
*graph: Vintage analysis: Please refer to website
As can be seen from the vintage analysis graph, the trend in recent months has
been a steady and consistent reduction in the rate of NPLs. At the twelve-month
point for example, the percentage NPLs was running at approximately 15% in the
period prior to December 2001 and is now trending down to approximately 11%. The
reasons for the improvement can be attributed to improved credit management,
better client awareness of the impact of defaulting on loans, improved economic
conditions, improved collections processes and a continual slowdown in Persal
cancellations, which have now fallen to 348 in March 2003 (March 2002: 3 464).
The vintage ratio should over the medium term converge around 12,5% to 15%. The
graph also indicates that Retail sales, which make up the bulk of new sales, are
performing well within its pricing parameters.
The call centre has increased its capacity to deal with the clients who miss a
payment, with the objective of trying to get the client back onto a payment
cycle as soon as possible. The percentage collected of contractual installment
of loans managed in the call centre has climbed from 59,4% in September 2002 to
66,7% by March 2003.
The non-performing loans graph shows that overall NPLs have declined in total
over the past three quarters, from R2 989,7 million in September 2002 to R2
904,8 in December 2002 and to R2 780,1 million by March 2003. Importantly, the
level of NPLs in African Bank at R1 372,1 million has now reduced to below the
September 2002 level of R1 380,6 million and confirms the seasonality of the
increase in NPLs over the December 2002 quarter and the inevitable downward
trajectory in NPLs in the bank. As at 31 March 2003, the PLB had R1 155,7
million in NPLs against R1 229,4 million in December 2002, and R1 381,5 million
in September 2002. The increase in NPLs for the Specialised Lending division is
primarily due to African Contractor Finance and GEMS (both businesses being
wound down). The NPLs in Credit Indemnity and Miners Credit Guarantee were 22,8%
(September 2002: 25,9%) and 20,6% (September 2002: 18,0%) of their respective
gross advances.
*graph: Non-performing loans: Please refer to website
The group has made a meaningful improvement in the levels of NPLs with a net
reduction of R209,5 million since September 2002. This reduction together with
the decrease in gross advances resulted in the NPLs to gross advances ratio
remaining steady at 41,7%.
The non-performing loans table sets out the NPL portfolio, and attendant
specific provisioning coverage, broken up into the major books within the
collections unit.
Non-performing loans
Specific Mar 2003 Sep 2002
African Bank provision R 000"s R 000"s
%
Call Centre 66 341 304 562 069
Administration orders 61 498 529 381 711
Legal book 72 1 687 965 1 818 275
Pre-legal work in progress 85 861 452 1 318 818
Legal collection order in 59 826 513 499 457
place
70 2 527 798 2 762 055
Specialised Lending 73 252 341 227 607
Total NPLs 70 2 780 139 2 989 662
Total NPLs in the legal portfolio have declined by R130,3 million over the
period. In addition, progress has been made in processing loans from the pre-
legal work in progress book to the legal collections book. The legal collections
portfolio graph indicates that as at 30 September 2002, 73% of the legal
portfolio was still being processed through the pre-legal channels, while as at
31 March 2003 this had fallen to 51%, and 49% (2002: 27%) now have a signed
legal document evidencing employment, a signed acknowledgement of debt and a
rescheduled payment plan.
*graph: Legal collections portfolio: Please refer to website
The loans within the Legal collections book (33% of NPLs) and the Administration
order book (20% of NPLs) are backed by a legally enforced collection order and
payment arrangements have been made. In most cases it is expected that these
will result in all the original amounts plus interest being recovered. It is
important to note however that while these loans are now showing signs of
recovery, they will mostly continue to be classified as NPLs and as such will
only reduce by the amount of cash received, typically between 3% and 5% per
month depending on the level of the instalment agreed. In addition, provisioning
coverage ratios will only be reduced once the cash collection process becomes
embedded.
Cash received has shown a steady improvement on the legal portfolios.
Progress continues to be made in limiting administration orders, with the number
of new monthly administration order applications currently at 1 452 for March
2003, from 2 114 in March 2002. Cash collected under administration orders has
increased from R4,2 million per month at September 2002 to R6,9 million per
month by March 2003.
In summary, the efforts of the collections process have succeeded in progressing
a large number of loans along the collection risk spectrum to lower risk
categories, even though they are still included in NPLs. The next important
stage of this process will be to ensure that the cash is collected and the legal
orders enforced. The process is being refined continuously and as the credit
bubble is worked out of the system, NPLs and provision coverage should begin to
decline steadily. Based on the vintage charts and expected recovery rates, NPLs
should level off at approximately 15% to 20% over the next eighteen months.
The leading credit indicators show a steadily improving default rate together
with lower levels of loans going under administration and Persal cancellations.
In addition, the collection division continues to make progress in
rehabilitating defaulted clients back onto a payment track record. Thus while
the absolute levels of NPLs remain high, the group is confident that with the
diminishing inflow of new NPLs and improving cash collections on existing NPLs,
there will be a continued and sustained fall from the peak levels experienced in
the financial year to September 2002.
Balance sheet and capital management
The improved operating performance together with a reduced advances book has
resulted in significant cash flow generation. The net cash position (excluding
statutory reserves and liquids) of the group increased to R1 048 million in
March 2003 from R835 million as at 30 September 2002, despite paying a R750
million instalment for the PLB in October 2002. The capital adequacy ratio of
the group increased to 43,6% (September 2002: 38,1%).
ABIL will maintain a dividend policy, which will be a function of the RoE
supported by underlying cash flow, and the medium-term prospects for asset
growth. Thus when the group is earning substantial returns and these are not
readily deployed back into the business to fund asset growth opportunities, the
group will maintain a high dividend payout. In light of this, the group will
maintain a more even spread between the interim and final dividend. The declared
interim dividend reflects both the above principles.
The current level of capital adequacy does not optimise the RoE to shareholders.
The substantial cash reserves support this view. However, in light of the
turmoil in the A2 bank sector last year it has been deemed appropriate to
continue to maintain a conservative stance. ABIL is committed to optimising
returns to shareholders in a cautious and steady manner.
The Saambou Personal loans Book (the PLB)
The group acquired, with effect from 1 August 2002, the PLB with R2,8 billion in
gross advances for a consideration of R1 billion. To date, the book continues to
perform better than originally anticipated with an average collection rate of
70,5% to March 2003, while the latest monthly collection rate was 66,8%. As
previously indicated, this collection rate has begun to drop off.
Under the restructured management team, the existing African Bank collection
division has been merged with the PLB business, to form the group Collections
division. As a result of this and the need to manage the combined exposures to
clients from both sides, the provisioning of the collections books has been
integrated into a single process and provision coverage on both books
harmonised. This will optimise the group"s efficiency from its collection
channels as well as ensuring that the rehabilitation of over-extended and
overlapped clients receives the correct priority. As a result of this, the
separate measurement of the PLB business unit"s profitability is no longer
feasible nor relevant.
Specialised Lending division (formerly Theta Investments)
The group previously announced a decision to restructure the Theta Investments
group. The result is the creation of the Specialised Lending division, which
will house the more mature and critical mass businesses of Theta. This will
ensure that while these businesses need a certain separate branding identity and
focus, they will also benefit from the economies of scale and efficiency of
being part of the bank.
Specialised Lending"s attributable earnings declined by 15,7% to R46,8 million
(2002: R55,5 million). The results were negatively affected by losses in two
businesses that are being wound down, namely GEMS and ACFC. The cost base has
also increased by 20,4% and the group is committed to stemming the cost
increases with the benefits and efficiencies derived from the divisionalisation
process.
Theta Investments sold its 80% shareholding in Theta Specialised Finance and its
65% interest in BVI to the previous Theta Investments" management. Neither
transaction is expected to have a material impact on results for the full year
and both were concluded on arm"s length terms. The process of divisionalising
the core businesses and disposing or winding down the balance is well under way
and we anticipate completion by September 2003.
Black economic empowerment and the Financial Services Charter
ABIL fully embraces the spirit and intentions of the transformation agenda in
South Africa and continues to support the ongoing debate and efforts in
constructing a Financial Services Charter in line with the direction that the
group has embarked upon some time ago.
ABIL"s approach to empowerment is predicated on its belief that empowerment
should in the main embrace the following pillars:
(a) Representativity and human resource development
PDI representativity at board, executive, senior management and middle
management levels is 40%, 17%, 32% and 57% respectively and strategies are in
place to improve overall representativity. The total management figure reflects
a substantial improvement in PDI representation at decisionmaking level in 2003
- up from 21,9% to 26,4%.
(b) Equity ownership
Sustainable equity ownership has proven to be better achieved through
active participation of management. The group commits itself to, inter alia,
follow this approach and is currently evaluating various means of achieving
this.
(c) Access to financial services
In excess of 80% of ABIL"s business is derived from the marginalised
section of the South African community. The group expects to be able to broaden
these services even more in the future.
(d) Procurement policy
As at September 2002, empowerment companies were used for approximately 60%
of discretionary procurement.
(e) Community investment
The group"s investment in social projects, via the African Bank Foundation,
is a significant form of empowering people on a more sustainable basis.
Credit legislation review
The Department of Trade and Industry (DTI) is undertaking a comprehensive review
of credit legislation including the Usury Act and the Credit Agreements Act in
order to effect legislative reform in the credit sector. ABIL anticipates the
DTI to publish a policy position for public comment in the near future.
ABIL is fully supportive of the need for such a review, as it believes that the
present legislative framework is outdated and it is confident that the outcome
will be positive for the group"s activities. Of specific importance, in ABIL"s
view, is a fundamental assessment of the distortive and detrimental impact of
the price ceiling imposed under the Usury Act beyond a loan value of R10 000 and
the provisions of the Exemption Notice under the Act, on the development of the
credit market, innovation and investment in the sector and the availability and
price of credit to the historically under-serviced market for credit - the core
market of the group.
Changes to the ABIL board
ABIL recently conducted an extensive corporate governance best practice review
and skills gaps analysis at board level. The board decided to enhance and
broaden its skills base and, simultaneously, address gender representivity.
Therefore ABIL has appointed five new non-executive directors and one executive
director:
Director Committee
Non-executive
Oshy Tugendhaft, Chairman of Member of risk committee
Moss Morris
David Gibbon, retiring Chairman - audit committee
partner at Deloitte & Touche
(effective 1 June 2003)
Ramani Naidoo, attorney and Member of nominations and
author of the book "Corporate
Governance: An essential governance and risk
guide for South African committees
Companies"
Brian Steele, previously Member of audit and risk
Chief Group Financial Manager committees
for Barloworld
Gunter Steffens, previously Chairman of risk committee
Dresdner Bank"s group
Representative for Southern
Africa and Geographic Head
Executive
Tami Sokutu, currently
managing director of the
retail banking division at
African Bank
The group is confident that it will benefit from the wealth of experience
brought in at board level through these appointments.
It is with regret that ABIL has had to accept Johnny Symmonds" resignation as
non-executive director as a result of work commitments. The group would like to
thank him for his invaluable contribution and commitment over many years.
Corporate reporting awards
ABIL was awarded third place in the annual Ernst & Young Excellence in Corporate
Reporting competition for 2002. The competition evaluates the annual reports of
the top 100 companies listed on the JSE Securities Exchange. The award
recognises ABIL"s continuous commitment to comprehensive and honest disclosure.
Accounting policies
The accounting policies adopted for purposes of this interim report comply with
South African Statements of Generally Accepted Accounting Practice as well as
with applicable legislation. ABIL has incorporated AC 133 into its interim
results for the six months ended 31 March 2003. The area of potential major
impact is the recognition, measurement and valuation of the advances portfolio
and related provisioning. The approach prescribed by AC 133 is largely
consistent with the previous methods used by ABIL and consequently there has
been no material change in the provisions as a direct result of the statement.
Any small differences have been included in the income statement charge for
movements in provisions.
Looking ahead
The prior period was one characterised by a substantial rise in the NPLs
culminating in disappointing res
