| Mon 2 Jun 2003, 9:15 | | ABSA Group Limited - Audited Profit And Dividend A |
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ABSA GROUP LIMITED
JSE Code: ASA
Issuer Code: AMAGB
ISIN: ZAE000013389
SALIENT FEATURES
Year ended 31 March
2003 2002 Change 2001
%
Income Statement (Rm)
Headline earnings 3,441 1,888 82.3 2,446
Headline earnings* 3,441 2,872* 19.8 2,315*
Attributable income 3,391 1,686 101.1 2,442
Balance Sheet (Rm)
Total assets 269,064 247,300 8.8 196,514
Total advances 199,297 183,860 8.4 156,396
Total deposits 222,056 213,766 3.9 167,736
Financial Performance (%)
Return on average equity 21.4 12.9 19.1
Return on average assets, excluding
acceptances 1.35 0.86 1.32
Operating Performance (%)
Net interest margin on average assets 3.45 3.82 4.25
Net interest margin on average interest
bearing assets 3.80 4.11 4.48
Charge for bad and doubtful advances 1.02 2.38 1.09
Non-performing advances to total
advances 5.1 5.2 4.4
Non-interest income as % of operating
income 50.8 47.9 45.0
Cost-to-income ratio 60.0 60.3 62.3
Share Statistics (cents)
Headline earnings per share 528.1 291.1 81.4 377.2
Headline earnings per share* 528.1 442.8* 19.3 357.0*
Earnings per share 520.5 260.0 100.2 376.5
Dividends per share relating to income
for the year 145.0 116.0 25.0 116.0
Dividend cover (times) 3.6 2.5 3.3
Net asset value per share 2,589 2,354 10.0 2,138
Capital adequacy (%)
Absa Bank 11.5 10.2 10.7
Absa Group 12.5 11.2 12.4
*The F2002 and F2001 figures exclude the impact of UniFer
GROUP INCOME STATEMENT
Year ended 31 March
2003 2002 Change 2001
Rm Rm % Rm
Interest income 30,299 24,517 23.6 22,571
Interest expense (21,467) (16,133) (33.1) (14,708)
Net interest income 8,832 8,384 5.3 7,863
Charge for bad and doubtful advances (1,957) (4,042) 51.6 (1,643)
Income from lending activities 6,875 4,342 58.3 6,220
Non-interest income 9,127 7,694 18.6 6,421
Operating income 16,002 12,036 33.0 12,641
Operating expenditure (10,780) (9,700) (11.1) (8,900)
Indirect taxation (695) (649) (7.1) (534)
Impairment charge - Goodwill (54) (144) 62.5 -
Net income from operations 4,473 1,543 189.9 3,207
Share of associated companies" income 92 100 (8.0) 53
Net income before taxation 4,565 1,643 177.8 3,260
Taxation (1,104) (337) (227.6) (717)
Net income after taxation 3,461 1,306 165.0 2,543
Minority shareholders" interest (70) 380 (118.4) (101)
Net income attributable to
shareholders 3,391 1,686 101.1 2,442
Headline earnings 3,441 1,888 82.3 2,446
DETERMINATION OF HEADLINE EARNINGS
Year ended 31 March
2003 2002 Change 2001
Rm Rm % Rm
Net income attributable to shareholders 3,391 1,686 101.1 2,442
Adjustments for:
Profit on disposal of property and
equipment (30) - (100.0) -
Net (profit)/loss on disposal of
strategic investments (16) 26 >100.0 (8)
Goodwill amortised and impaired 96 176 (45.5) 12
Headline earnings 3,441 1,888 82.3 2,446
Number of shares in issue (000s) 651,547 651,547 648,547
Weighted average number of shares in
issue on which headline earnings per
share are based (000s) 651,547 648,580 648,547
GROUP BALANCE SHEET
At 31 March
2003 2002 Change 2001
Rm Rm % Rm
Assets
Cash and short-term assets 12,617 11,688 7.9 6,402
Short-term money market assets 11,740 11,381 3.2 10,462
Government and other securities 16,785 17,624 (4.8) 10,642
Advances 199,297 183,860 8.4 156,396
Other assets 19,466 12,965 50.1 4,354
Investments 3,506 3,399 3.1 2,671
Subsidiary companies - 131 (100.0) -
Associated companies 450 442 1.8 332
Property and equipment 2,613 2,552 2.4 2,562
Goodwill 132 16 >100.0 95
Intangible assets 55 50 10.0 69
Deferred taxation 223 445 (49.9) 198
Taxation 15 53 (71.7) 87
Client liabilities under acceptances 2,165 2,694 (19.6) 2,244
Total assets 269,064 247,300 8.8 196,514
Liabilities
Deposits and current accounts 222,056 213,766 3.9 167,736
Deferred taxation 1,451 1,414 2.6 2,002
Taxation 327 740 (55.8) 399
Other liabilities 17,795 6,434 >100.0 4,742
Provisions 1,081 919 17.6 907
Insurance funds 1,396 1,453 (3.9) 1,163
Subordinated debt 5,686 4,394 29.4 2,962
Liabilities to clients under
acceptances 2,165 2,694 (19.6) 2,244
Total liabilities 251,957 231,814 8.7 182,155
Shareholders" funds
Share capital 1,303 1,303 - 1,297
Share premium 1,532 1,532 - 1,532
Reserves 14,031 12,500 12.2 11,040
Shareholders" funds 16,866 15,335 10.0 13,869
Minority shareholders" interest 241 151 59.6 490
Total liabilities and shareholders"
funds 269,064 247,300 8.8 196,514
Contingencies 14,275 16,579 (13.9) 14,198
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS" FUNDS
At 31 March
2003 2002 2001
Rm Rm Rm
Share capital 1,303 1,303 1,297
Opening balance 1,303 1,297 1,286
Shares issued - 6 11
Share premium 1,532 1,532 1,532
Opening balance 1,532 1,532 1,532
Non-distributable reserves 443 1,408 749
Opening balance 1,408 749 566
Movement in foreign currency
translation reserve (711) 549 157
Insurance contingency reserve: transfer
from distributable reserves (5) 2 9
Changes in value of investments held
by short-term insurance companies (300) 12 (18)
Associated companies" earnings 51 96 35
Distributable reserves 13,588 11,092 10,291
Opening balance 11,092 10,291 8,581
Foreign currency translation effect - - (20)
Transfer to insurance contingency
reserve (29) (2) (9)
Transfer to non-distributable reserves (65) (73) (35)
Attributable income 3,391 1,686 2,442
Dividends (801) (810) (668)
Total shareholders" funds at end of year 16,866 15,335 13,869
GROUP CASH FLOW STATEMENT
Year ended 31 March
2003 2002 2001
Rm Rm Rm
Cash retained from operating activities 1,177 4,767 (2,106)
Net cash inflow from operating
activities 6,908 6,185 5,484
Net (decrease)/increase in operating
funds (3,802) 4 (6,718)
Taxation paid (1,929) (1,422) (872)
Cash (utilized in)/generated from
investing activities (1,012) (1,690) 1,303
Cash flows from financing activities 1,484 1,606 511
Other movements (720) 603 137
Movement in cash and cash equivalents 929 5,286 (155)
Cash and short-term assets
-at beginning of year 11,688 6,402 6,557
-at end of year 12,617 11,688 6,402
PROFIT CONTRIBUTION BY BUSINESS AREA
Year ended 31 March
2003 2002 Change 2001
Rm Rm % Rm
Personal banking 980 (215) >100.0 703*
Absa Card 296 281 5.3
Absa Home Loans 447 443 0.9
Properties in possession (263) (246) (6.9)
Absa Private Bank - 5 (100.0)
Personal Financial Services 140 118 18.6
Retail Banking Services 231 125 84.8
Flexi Banking Services 126 43 >100.0
UniFer 3 (984) >100.0
Commercial banking 1,047 893 17.2 716
Business Banking Services 700 601 16.5 450
Bankfin 289 239 20.9 210
MLS Bank 58 53 9.4 56
Wholesale banking 903 750 20.4 631
Domestic operations 702 612 14.7 482
International operations 110 79 39.2 122
African operations 91 59 54.2 27
Total banking 2,930 1,428 >100.0 2,050
Insurance and financial services 607 502 20.9 445
Other (96) (42) (>100.0) (49)
Total headline earnings 3,441 1,888 82.3 2,446
*Performance per business unit unavailable for F2001
Absa Group Limited
Profit and dividend announcement
We are pleased to report on a successful year for Absa Group Limited.
Shareholders have been rewarded with sound earnings growth in a volatile and
tough trading environment, predominantly because of high interest rates and
fluctuations in the value of the rand.
Headline earnings for the year ended 31 March 2003 increased by 82,3% to R3 441
million (528,1 cents per share), compared with R1 888 million (291,1 cents per
share) for the previous financial year. This high growth stems from the low
earnings base of the previous year as a result of losses suffered by UniFer, a
microlending subsidiary in the Group. The Group"s complete recovery is confirmed
by the 19,8% increase in headline earnings, from the R2 872 million reported to
shareholders as the Group"s pro-forma earnings (excluding micro-lending) in the
previous year.
Return on average shareholders" funds increased from 12,9% (19,3% on pro-forma
earnings) to 21,4%.
Banking operations continued to generate substantial earnings growth for the
third successive year, with personal banking delivering particularly good growth
of 27,0%. Commercial and wholesale banking performed well and the Group has
strengthened its position in these market segments. The depressed global and
domestic financial markets affected the contribution of Absa Financial Services.
Earnings growth from bancassurance and financial services nevertheless improved
by 20,9%, illustrating the sound operational performance of the businesses in
this segment.
A final dividend of 85,0 cents per share has been declared. This brings the
total dividend for the year to 145,0 cents per share and represents an increase
of 25,0% on the dividend of the previous year.
Operating environment
Economic growth deteriorated from the fourth quarter of 2002. In this period,
inflation peaked and then declined. Lower inflation has yet to translate into
interest rate cuts, with the prime rate remaining at a relatively high 17% since
September 2002 to date. Along with high interest rates, a steadily strengthening
rand throughout most of the financial year has been a key source of pressure on
the economy. South Africa continued to live within its means for much of the
financial year. This is reflected in the current account balance showing a
surplus for most of 2002.
Consumer spending decreased during the second half of 2002 because of higher
interest rates as well as slower growth in real household disposable income.
However, neither businesses nor households seem to be overexposed to credit
commitments and national income growth is keeping pace with domestic
expenditure. This seems to have limited the negative impact of interest rates.
It also suggests that, once interest rates begin to decline, relatively strong
growth in consumer credit demand will resume. The CPIX measure of inflation is
expected to remain on a downward trend for most of 2003 owing to greater
anticipated currency stability and a stabilisation of global food price
inflation.
The weak global economic environment and the strong rand continue to pose a risk
to the domestic economy because of their potential effect on export growth in
2003. As a result, slower economic growth is anticipated for 2003 overall,
compared with the 3% real growth achieved in 2002.
Group performance
A significant portion of the Group"s earnings was generated from services
rendered to the consumer market. Although consumer spending and credit demand
declined somewhat during the second half of the financial year, these were still
strong enough to stimulate the Group"s advances and earnings growth. The credit
quality of middle and higher income households remains good and should improve
further if interest rates decline in line with market expectations. The Group
improved its market share in mortgages, instalment finance, credit cards and
overdrafts and other loans.
Commercial banking showed good advances growth of 11,9%. This performance was
primarily driven by growth in Bankfin"s advances. Corporate credit demand
remained depressed, leading to intense competition for quality customers.
Wholesale domestic advances increased by 1,7%.
The Group experienced moderate growth in its net interest income despite lower
corporate advances growth and a decline in the net interest margin. Competition
and the commoditisation of consumer lending products continued to exert pressure
on lending rates. Growth in personal and commercial deposits benefited
substantially from specific marketing campaigns, investor concerns about
alternative options and the difficulties second tier banks experienced last
year.
Non-interest income increased by 18,6% during the year, enabling the Group to
achieve its objective of increasing non-interest income as a percentage of total
income to more than 50%. It is encouraging to note that the growth in annuity-
type non-interest income held its own and constitutes two thirds of the total
non-interest income. The growth in commissions and fees was supported by an
increase in customers, transaction volumes and the annual pricing review.
The Group continues to play a leading role in the e-space. Internet banking grew
from 282 025 to a market leading 378 597 customers. Transaction income from e-
channels increased by 49,6% over the past year, demonstrating the benefit of
having 1,3 million credit cards and 5,7 million debit cards in the field.
Non-interest income growth also benefited from a strong trading performance and
a profit on the realisation of investments. Trading on behalf of customers is
expected to grow as the Group"s stature in the corporate and business markets
continues to improve.
The Group reduced its cost-to-income ratio from 60,3% to 60,0% for the year
under review. Operating expenses increased by 11,1% following a strong focus on
income growth that required investment in intellectual capital, infrastructure
development and customer service initiatives. However, if acquisitions are
excluded, the Group reduced its cost-to-income ratio from 60,3% (March 2002) to
59,6% for the year under review. These acquisitions are expected to make
positive contributions in the future.
Segmental reporting
Personal banking
The headline earnings of the Personal Banking segment increased to R977 million
(excluding UniFer) and constitutes 28,4% of the Group"s headline earnings. This
performance is particularly pleasing as it was achieved while significant
changes were being made to the delivery network. Project Galaxy, a major
undertaking during 2002/2003, migrated back-office functions out of branches
into centralised processing centres and generated meaningful savings in
infrastructure and staff. Despite these changes, customer service levels
continued to improve.
Mortgage advances increased by 14,1% and credit cards by 18,2%. However,
overdrafts and other loans declined by 14,1% even though market share increased
in this category. Intense competition and the growing importance of home loan
originators continue to pose the challenge to Absa Home Loans of striking a
balance between volume growth and pricing strategy. The home loan product
remains a vital element of the Group"s bancassurance cross-selling strategy and
the gain in mortgage market share was accompanied by improved selling rates by
insurance operations.
The decision to transfer repossessed properties from the Home Loans business
unit to the Real Estate Asset Management division has yielded positive results.
These have decreased by 16,4% in number since March 2002.
UniFer"s turnaround is progressing according to plan. Its integration into Absa
is almost complete. The Minister of Finance approved the transfer of the assets
and liabilities of Unibank to Absa in terms of Section 54 of the Banks Act on 9
March 2003. Unibank then surrendered its banking licence. New business growth
remains limited as a result of the over-indebtedness of customers in this
segment and the implementation of a more stringent credit scoring model. The
advances book has been adequately provided for and the net outstanding amount
was R1,7 billion at 31 March 2003.
Commercial banking
One of the Group"s focus areas is to improve its share of the business market.
While continuing to enjoy leadership positions in the public sector,
agribusiness, franchising and new enterprise banking, the Group believes that it
can strengthen its presence in the business market. Good progress in increasing
customer penetration was made during the year. Business banking"s management is
confident of its specialist expertise and experience in a number of industries.
Business Banking Services increased earnings by 16,5%, which is satisfactory
considering the increase in provisions raised for bad debts.
Bankfin had a particularly good year, with headline earnings growing by 20,9%.
With new vehicle sales experiencing pressure because of high vehicle prices and
interest rates, Bankfin"s strength in the used car market enabled it to maintain
its market share without sacrificing lending margins. A joint venture has been
established with MAN Financial Services to strengthen the Group"s presence in
the heavy vehicle market. Bankfin implemented its new business model during the
year under review. This led to the integration of Bankfin"s credit and risk
management function into the Group"s centralised credit risk management
division, the amalgamation of administration functions and the shrinking of 68
branches into 10 processing centres.
Wholesale banking
The wholesale segment, consisting of domestic and international banking and
African operations, improved earnings by 20,4% in the year under review.
Domestic operations performed well in the areas of trade finance, structured
commodity finance and trading income. Lower levels of bad debts were
experienced. The division"s results were negatively influenced by low activity
in project and structured finance and marginal advances growth.
International banking operations recorded strong growth from a low base. Absa
Asia was the best performer, largely because of trade finance activities. Bad
debt provisions affected the contributions of the London and Singapore offices.
These provisions should be lower in future, as both operations have reduced
their exposure to the international corporate market.
The contribution from African operations continues to grow strongly, although it
represents only 2,6% of the Group"s earnings. NBC in Tanzania and Banco Austral
in Mozambique rendered satisfactory returns on investments and have assisted the
Group in obtaining additional trade finance business in those countries.
Financial services
Absa Life reported a strong operational performance, although earnings were
understandably negatively influenced by a decline in the value of investments.
Absa Life"s earnings declined by 16,8% to R178 million. Embedded value on new
business improved from R52 million to R71 million.
Short-term insurance operations overcame a slow first six months to increase
earnings by 75,9%. Claims ratios on most business classes improved in the second
half of the year and investment surpluses were realised.
Above average growth was achieved in Absa Brokers" life and short-term business.
After contributing broking commissions of R58 million to a number of business
units in the Group, Absa Brokers produced a profit of R8 million. The recently
established data-broker division, which relies on "mining" the Absa database,
has started to show promising signs.
Capital adequacy
At 12,5% of risk-weighted assets, the Group is adequately capitalised, on the
basis of the South African Reserve Bank"s prescribed consolidated capital
requirements. Absa Bank"s capital adequacy was at 11,5% of risk-weighted assets
at 31 March 2003, with primary capital representing 6,5% and secondary capital
5,0%. R1,5 billion Tier II capital was successfully raised in October 2002.
Accounting policies and audit opinions
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.
The joint auditors, Ernst & Young and KPMG Inc., have issued unqualified audit
opinions on the 31 March 2003 annual financial statements and the summarised
financial results contained herein. Their reports are available for inspection
at the company"s registered office.
Prospects
The decline in the inflation rate and the anticipated lower interest rates are
likely to stimulate the demand for consumer credit. Given the Group"s business
mix, this should be positive for advances growth and credit quality. Although
there is still a degree of surplus capacity in the manufacturing sector, the
stronger rand should present an opportunity for investment. This could lead to
an improvement in corporate credit demand.
Through high service levels, the Group has forged strong relationships with its
5,9 million customers. Although the Group is confident that it can retain its
substantial market share in most consumer banking products, its focus will be on
leveraging its market leadership positions in targeted markets, extending its
role as a trusted advisor to its customer base and cross selling.
Both the business and corporate banking businesses show encouraging signs of
progress. Customer acquisition and innovative solutions will be catalysts for
growth. However, international economies still look weak and there is a high
degree of uncertainty about their short-term performance. Barring a further
deterioration in world economies and equity markets, the Group"s strength in the
consumer market puts it in a favourable position to continue to deliver real
growth in headline earnings.
On behalf of the board
D C Cronje E R Bosman
Chairman Group Chief Executive
30 May 2003
Declaration of ordinary dividend No 33
Notice is hereby given that a final dividend of 85,0 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 Friday, 27 June 2003.
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, 20 June 2003
Shares commence trading ex-dividend Monday, 23 June 2003
Record date Friday, 27 June 2003
Payment of dividend Monday, 30 June 2003
Share certificates may not be dematerialised/rematerialised between Monday, 23
June 2003 and Friday, 27 June 2003, both days inclusive.
On Monday, 30 June 2003, the dividend will be electronically transferred to the
bank accounts of certificated shareholders that utilise this facility. In
respect of those who do not, cheques dated 30 June 2003 will be posted on or
about that date. Shareholders who have dematerialised their shares will have
their accounts, held at their CSDP or Broker, credited on Monday, 30 June 2003.
On behalf of the board
W R Somerville
Group Secretary
30 May 2003
