| Mon 24 Nov 2003, 10:12 | | INTERIM PROFIT AND DIVIDEND ANNOUNCEMENT |
|
ABSA GROUP LIMITED - INTERIM PROFIT AND DIVIDEND ANNOUNCEMENT
ABSA GROUP LIMITED
JSE Code: ASA
Issuer Code: AMAGB
ISIN: ZAE000013389
SALIENT FEATURES OF THE GROUP RESULTS
Six months ended Year ended
30 September 31 March
2003 2002 Change 2003
%
(Unaudited) (Audited)
Income statement (Rm)
Headline earnings 2,114 1,515 39.5 3,441
Attributable income 2,087 1,516 37.7 3,391
Balance sheet (Rm)
Total assets 283,909 253,278 12.1 269,064
Total advances 206,298 192,860 7.0 199,297
Total deposits 225,467 221,551 1.8 222,056
Financial performance (%)
Return on average equity 24.3 19.2 21.4
Return on average assets, excluding
acceptances 1.53 1.22 1.35
Operating performance (%)
Net interest margin on average assets 3.50 3.44 3.45
Net interest margin on average interest
bearing assets 3.96 3.71 3.80
Charge for bad and doubtful advances 0.87 0.93 1.02
Non-performing advances to total
advances 4.6 5.1 5.1
Non-interest income as % of operating
income 50.7 50.2 50.8
Cost-to-income ratio 58.6 61.6 60.0
Share statistics (cents)
Headline earnings per share 324.5 232.5 39.6 528.1
Earnings per share 320.3 232.7 37.6 520.5
Dividends per share relating to income
for the period 72.0 60.0 20.0 145.0
Dividend cover (times) 4.5 3.9 3.6
Net asset value per share 2,749 2,483 10.7 2,589
Capital adequacy (%)
Absa Bank 11.3 10.8 11.5
Absa Group 12.7 12.0 12.5
GROUP INCOME STATEMENT
Six months ended Year ended
30 September 31 March
2003 2002 Change 2003
(Unaudited) (Audited)
Rm Rm % Rm
Interest income 16,049 14,388 11.5 30,299
Interest expense (11,216) (10,103) (11.0) (21,467)
Net interest income 4,833 4,285 12.8 8,832
Charge for bad and doubtful advances (882) (881) (0.1) (1,957)
Income from lending activities 3,951 3,404 16.1 6,875
Non-interest income 4,978 4,318 15.3 9,127
Operating income 8,929 7,722 15.6 16,002
Operating expenditure (5,750) (5,298) (8.5) (10,780)
Indirect taxation (320) (255) (25.5) (695)
Impairment charge - Goodwill - (31) 100.0 (54)
Net income from operations 2,859 2,138 33.7 4,473
Share of associated companies" income 44 44 - 92
Net income before taxation 2,903 2,182 33.0 4,565
Taxation (777) (637) (22.0) (1,104)
Net income after taxation 2,126 1,545 37.6 3,461
Minority shareholders" interest (39) (29) (34.5) (70)
Net income attributable to
shareholders 2,087 1,516 37.7 3,391
DETERMINATION OF HEADLINE EARNINGS
Six months ended Year ended
30 September 31 March
2003 2002 Change 2003
(Unaudited) (Audited)
Rm Rm % Rm
Net income attributable to shareholders 2,087 1,516 37.7 3,391
Adjustments for:
Net profit on disposal of property and
equipment (15) - (30)
Net profit on disposal of subsidiaries (9) (37) -
Net (profit)/loss on disposal/impair-
ment of strategic investments 26 - (16)
Goodwill amortised and impaired 25 36 96
Headline earnings 2,114 1,515 39.5 3,441
Number of shares in issue (000s) 651,055 651,547 651,547
Weighted average number of shares in
issue on which headline earnings per
share are based (000s) 651,477 651,547 651,547
GROUP BALANCE SHEET
30 September 31 March
2003 2002 Change 2003
(Unaudited) (Audited)
Rm Rm % Rm
Assets
Cash and short-term assets 13,397 11,251 19.1 12,617
Money market assets 6,360 10,914 (41.7) 7,736
Capital market assets 4,623 2,306 100.5 2,824
Statutory liquid asset portfolio 15,932 17,940 (11.2) 17,965
Advances 206,298 192,860 7.0 199,297
Other assets 28,065 6,748 315.9 19,466
Investments 4,861 5,798 (16.2) 3,506
Associated companies 634 471 34.6 450
Property and equipment 2,547 2,769 (8.0) 2,613
Goodwill 107 11 872.7 132
Intangible assets 57 45 26.7 55
Deferred taxation 281 560 (49.8) 223
Taxation - - - 15
Client liabilities under acceptances 747 1,605 (53.5) 2,165
Total assets 283,909 253,278 12.1 269,064
Liabilities
Deposits and current accounts 225,467 221,551 1.8 222,056
Deferred taxation 1,243 687 80.9 1,451
Taxation 311 926 (66.4) 327
Other liabilities 28,702 4,832 494.0 17,795
Provisions 1,822 1,446 26.0 1,081
Insurance funds 1,784 1,460 22.2 1,396
Subordinated debt 5,686 4,377 29.9 5,686
Liabilities to clients under
acceptances 747 1,605 (53.5) 2,165
Total liabilities 265,762 236,884 12.2 251,957
Shareholders" funds
Share capital 1,302 1,303 (0.1) 1,303
Share premium 1,513 1,532 (1.2) 1,532
Reserves 15,093 13,341 13.1 14,031
Shareholders" funds 17,908 16,176 10.7 16,866
Minority shareholders" interest 239 218 9.6 241
Total liabilities and shareholders"
funds 283,909 253,278 12.1 269,064
Contingencies 14,137 18,813 (24.9) 14,275
GROUP STATEMENT OF CHANGES IN EQUITY
30 September 31 March
2003 2002 2003
(Unaudited) (Audited)
Rm Rm Rm
Share capital 1,302 1,303 1,303
Opening balance 1,303 1,303 1,303
Shares bought back (1) - -
Share premium 1,513 1,532 1,532
Opening balance 1,532 1,532 1,532
Utilised during share buy back (19) - -
Non-distributable reserves 1,190 1,176 443
Opening balance 443 1,408 1,408
AC 133 opening adjustment in respect of:
- statutory general credit risk reserve 451 - -
- available-for-sale assets reserve (78) - -
- value of investments held by short-
term insurance companies 134 - -
Movement in foreign currency
translation reserve (113) (170) (711)
Movement in statutory general
credit risk reserve 11 - -
Movement in available-for-sale assets
reserve 112 - -
Movement in cash flow hedges reserve 188 - -
Insurance contingency reserve: transfer
from distributable reserves 11 4 (5)
Changes in value of investments held
by short-term insurance companies - (95) (300)
Associated companies" earnings 31 29 51
Distributable reserves 13,903 12,165 13,588
Opening balance 13,588 11,092 11,092
AC 133 opening adjustment (1,165) - -
Transfer to insurance contingency reserve (11) (4) (29)
Transfer to non-distributable reserves (31) (29) (65)
Transfer to statutory general credit risk
reserve (11) - -
Attributable income 2,087 1,516 3,391
Dividends (554) (410) (801)
Total shareholders" funds at end of
period 17,908 16,176 16,866
GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 September 31 March
2003 2002 2003
(Unaudited) (Audited)
Rm Rm Rm
Cash retained from operating activities 2,783 1,209 1,177
Net cash inflow from operating
activities 4,566 3,684 6,908
Net decrease in operating funds (419) (996) (3,802)
Taxation paid (1,364) (1,479) (1,929)
Cash utilised in investing activities (1,839) (1,459) (1,012)
Cash flows from financing activities (20) (17) 1,484
Other movements (144) (170) (720)
Increase/(decrease) in cash and cash
equivalents 780 (437) 929
Cash and short-term assets
-at beginning of period 12,617 11,688 11,688
-at end of period 13,397 11,251 12,617
PROFIT CONTRIBUTION BY BUSINESS AREA
Six months ended Year ended
30 September 31 March
2003 2002* Change 2003
(Unaudited) (Audited)
Rm Rm % Rm
Personal banking 740 497 48.9 980
Absa Card 153 129 18.6 296
Absa Home Loans 385 254 51.6 447
Properties in possession (68) (102) 33.3 (263)
Absa Private Bank 4 (1) 500.0 -
Personal Financial Services 67 54 24.1 140
Retail Banking Services 149 118 26.3 231
Flexi Banking Services 45 46 (2.2) 126
Meeg Bank 2 - 100.0 -
UniFer 3 (1) 400.0 3
Commercial banking 540 469 15.1 1,047
Business Banking Services 350 298 17.4 700
Absa Vehicle and Asset Finance (AVAF) 169 145 16.6 289
MLS Bank 21 26 (19.2) 58
Wholesale banking 499 353 41.4 903
Domestic operations 393 264 48.9 702
Internationl operations 87 57 52.6 110
African operations 19 32 (40.6) 91
Total Banking 1,779 1,319 34.9 2,930
Absa Financial Services 372 242 53.7 607
Other (37) (46) 19.6 (96)
Total headline earnings 2,114 1,515 39.5 3,441
*2002 figures re-stated due to a refinement in the cost allocation methodology
Absa Group Limited
Profit commentary - September 2003
Profit and dividend announcement
During the period under review, Absa Group Limited for the first time adopted
the accounting statement AC 133: Financial Instruments: Recognition and
Measurement. The adoption of AC 133 and the reduction in interest rates have had
a positive impact on the results for the six months to 30 September 2003. It is
not meaningful to compare these results with those of the corresponding six
months of the previous year, which were presented on a pre-AC 133 basis.
Absa Group is pleased to announce headline earnings of R2 114 million (324,5
cents per share) for the six months ended 30 September 2003. This represents a
growth in earnings of 39,5% compared with the headline earnings of R1 515
million (232,5 cents per share) for the previous year.
Headline earnings, excluding the impact of AC 133, increased by 20,1% to R1 819
million (279,2 cents per share), compared with R1 515 million (232,5 cents per
share) for the corresponding period of the previous year.
The return on average shareholders" funds increased to 24,3% from 19,2% in
September 2002. On a pre-AC 133 basis, the return on average shareholders" funds
was 20,8%.
All the major banking operations and financial services contributed to the
excellent results for the six months. The result of the banking operations were
underpinned by strong growth in net interest income and no increase in the
charge for bad and doubtful advances. Financial services recorded excellent
underwriting results and benefited from the modest recovery of the equity
markets.
An interim dividend of 72,0 cents per share has been declared. This translates
to growth of 20,0% compared with the 60,0 cents per share of the previous year.
Accounting policies
The adoption of the accounting statement AC 133 has substantially influenced the
financial results of the Group for the six months ending 30 September 2003. The
statement requires a greater degree of fair value accounting of the assets and
liabilities of the Group than has been the case in the past.
The statement is prospective, and because of the complexity of its application,
does not require that the comparative figures of the prior year be restated.
Instead, the adjustments to equity that are required in respect of the prior
year are dealt with as opening transitional adjustments in the statement of
changes in equity.
The transitional adjustments are dealt with in greater detail under the heading
"Net asset value." Headline earnings determined on a post-AC 133 basis for the
six months ended 30 September 2003 were R295 million higher than those prepared
on a pre-AC 133 basis and resulted from increases in the following areas:
Rm
Net interest income 209
Bad and doubtful debts (36)
Non-interest income 237
Taxation (115)
---
Headline earnings 295
---
The additional net interest income of R209 million resulting from AC 133 is
largely attributable to the unwinding of the net present value impairment as the
maturity date of the collection of non-performing loans approaches.
The additional charges for bad and doubtful advances relating to the net present
value impairment of newly identified non-performing loans have been offset
largely by the commensurate reduction in the net present value impairment of non
performing loans resulting from the reduction in interest rates.
The additional non-interest income of R237 million is attributable to fair value
adjustments to equity and capital market investments.
It is evident from the above that the change in accounting practice introduced
by AC 133 is likely to lead to increased volatility in earnings in periods
characterised by substantial changes in interest rates and equity markets.
The financial statements of the Group comply in all material respects with South
African Statements of Generally Accepted Accounting Practice and are, other than
as described above, consistent with those applied in the previous year.
Operating environment
The supply side of the economy is still suffering from the effects of a much
stronger exchange rate, tight monetary policy and continuing lacklustre
conditions in certain developed economies. The manufacturing and mining sectors,
which are largely export-oriented, are experiencing pressure on income and
profits resulting from the effects of the strong rand. These developments have
impacted negatively on credit extension to the wholesale sector in particular,
despite lower interest rates in the second half of 2003.
Credit conditions for consumers have been improving throughout 2003 owing to
above-inflation wage increases, personal income tax relief for the third
successive year, lower inflation and interest rate cuts.
CPIX inflation has declined significantly from 11,3% in November 2002 to 5,4% in
October this year. With the monetary policy focus primarily on inflation, the
prime overdraft rate has dropped from 17,0% in June this year to 12,0% at
present. The willingness of consumers to resort to credit has pushed up the
household debt-to-disposable-income level to more than 53,0% in the first half
of 2003, and kept household savings depressed at only about 0,5% of disposable
income.
Group performance
The Group"s net interest income increased by 12,8% as a result of an improvement
in the net interest margin from 3,44% to 3,50%. Competition, especially in the
personal market, caused pressure on lending margins, but this has eased as
affordability improved for consumers towards the close of the period. Income
from hedging activities mitigated, to some degree, the impact of the higher
relative cost of fixed deposits.
Net advances grew moderately, by 7,0%, even though the majority of the core
personal banking products (home loans, instalment finance and credit cards)
recorded strong growth. Advances growth was negatively affected by a decline in
wholesale advances that emanated primarily from a decline in foreign currency
loans.
The decline of 350 basis points in the prime overdraft rate during the review
period has impacted positively on the bad debt charge as a result of the
commensurate reduction of the net present value impairment of non-performing
loans. The quality of the advances book, especially in the personal market, has
improved in the lower interest rate environment. As a result, the charge for bad
and doubtful advances for the six months remained virtually the same as that of
the corresponding period of the previous year. It is pleasing to note that the
ratio of bad debts to average advances declined to 0,87% (September 2002:
0,93%).
A key element of the Group"s strategy is to diversify its earnings streams,
thereby decreasing its reliance on net interest income. Non-interest income as a
percentage of total income increased from 50,2% for the corresponding period
last year to 50,7%.
Non-interest income benefited from solid growth in commissions and fees, pension
payment services and insurance-related income. The fair value adjustments to the
equity and investment portfolios of the Group boosted this growth by R237
million. Although gross trading income was slightly lower than in the
corresponding period last year, the net contribution after accounting for
interest cost from this activity was 14,4% higher than the net contribution
recorded in the previous year.
Growth in operating expenditure was contained in line with the average CPIX for
the period. Although the increase in staff costs was contained to only 4,7%,
total operating expenses increased by 8,5%, mainly as a result of an increase in
marketing and information technology costs. The cost-to-income ratio improved to
58,6%.
Segmental reporting
Personal banking
Personal banking increased its headline earnings contribution by 48,9% to R740
million. Absa Home Loans, Retail Banking Services and Personal Financial
Services all posted good results emanating from solid advances growth and lower
bad debts. The net holding cost of properties in possession has declined
encouragingly.
Commercial banking
Absa Vehicle and Asset Finance is making good progress in diversifying its
business into the financing of office automation, aviation and heavy vehicles.
Following the re-branding exercise from the old Bankfin, new business levels
have increased substantially as a result of trading under the Absa brand and
joint ventures with manufacturers. Cost synergies have been obtained by
integrating outlets, operations and credit management into the existing Absa
infrastructure. The advances book is of high quality.
Business Banking Services has recorded solid growth as a result of healthy
deposit levels, transaction volume growth and curtailing bad debts. The Group
aims to strengthen its position in this market segment by improving product
utilisation and developing specific customer strategies aimed at black-owned
businesses, consumables and tourism.
The restructuring of MLS Bank has affected its earnings contribution for the
period, but once completed, the integration will result in improved customer
service levels.
Wholesale banking
Earnings from the Group"s domestic wholesale operations increased markedly in
the six months under review. Merchant banking recorded good growth from a low
base, mainly as a result of investment banking making a profit compared with the
loss for the corresponding period last year. The back office centralisation
project has enabled Absa Corporate and Merchant Bank to contain cost growth.
International wholesale operations reported a 52,6% growth in earnings to R87
million. This improvement stems from a lower charge for bad and doubtful debts.
The Group has strengthened its structured trade and commodity finance capability
in London, Singapore and Hong Kong.
The headline earnings contribution from African operations outside South Africa
declined by 40,6% to R19 million for the six months.
Banco Austral (Mozambique) has embarked on a restructuring and retrenchment
programme and is introducing a new IT system. These costs and a decline in the
income from inflation-linked government bonds caused the bank to post a loss for
the first six months, but it is correctly structured to trade profitably in the
future.
The remaining operations in Africa continue to perform according to
expectations.
Financial services
Absa Financial Services, which houses the Group"s bancassurance arm, continued
to deliver a solid operational performance. A moderate recovery of the equity
markets also boosted earnings as a result of the fair value adjustments to the
equity portfolio. Underwriting results improved markedly owing to market
conditions. The earnings growth and sales contribution to the Group from Absa
Brokers also showed some improvement.
Absa Fund Managers has done particularly well, largely as a result of the
excellent performance of the Absa Money Market Fund, the value of which now
stands at R25,1 billion.
Net asset value
The net asset value of the Absa Group increased by 10,7% from 2 483 cents per
share to 2 749 cents per share. Certain transitional AC 133 adjustments were
made to the equity of the Group on 1 April 2003 - the net effect being a R658
million reduction in shareholders" equity. The negative adjustment emanates
primarily from fair value adjustments that had to be made in the areas of
interest rate risk management and credit provisions.
Specific bad debt provisions had to be increased to take account of the
difference between the expected recoveries from the non-performing advances
portfolio and the net present value of these recoveries. The impact of this was
reduced by a reduction in the general provision for bad and doubtful advances.
Certain assets and derivatives are purchased and designated to hedge the net
interest margin of the Group in the event of severe interest fluctuations. AC
133 contains onerous conditions before these hedges qualify as hedges for
accounting purposes. Hence the determination of the fair value for the non-
qualifying hedges portfolio of the Group resulted in a negative adjustment to
equity at the inception of AC 133.
Capital adequacy
On the basis of the prescribed consolidated capital requirements of the South
African Reserve Bank (SARB), the Group"s capital stood at 12,7% of risk-weighted
assets at 30 September 2003. Absa Bank"s capital adequacy was at 11,3% of risk-
weighted assets at 30 September 2003. The primary capital ratio was 7,2% and the
secondary capital ratio 4,1%.
The improvement in the Tier 1 ratio from 6,2% to the current 7,2% was assisted
by the profitability of the bank and the conversion of compulsorily convertible
debt to shareholder"s equity.
Corporate governance
The Group is committed to the highest standards of corporate governance. Various
board committees support the board by guiding and overseeing the process of
ensuring that the same high standards are applied consistently throughout the
Group.
The review of corporate governance practices in the South African banking
industry conducted by Advocate John Myburgh SC under direction of the SARB
reflected positively on Absa Group. In addition to this, the rating agency, CA-
Ratings, recently assigned Absa Group a rating of AA-g (extremely sound) after a
ratings review of the Group"s corporate governance practices.
Prospects
The expectations of low inflation and lower interest rates suggest that
favourable conditions will prevail for the consumer over the medium term. It is
in this environment that the Group, with its large consumer customer base, is
expected to prosper. Lower interest rates will put margins under pressure as the
interest earned on free capital reduces in the coming months. However, the Group
has short- to medium-term hedging positions to mitigate the impact of declining
rates to some degree.
In view of the expectation that capital market interest rates will not decline
to the same degree as they did in the first six months after the adoption of AC
133, the positive impact of AC 133 is expected to decline somewhat in the second
half of the year.
On behalf of the board
D C Cronje E R Bosman
Chairman Group chief executive
24 November 2003
Declaration of ordinary dividend no 34
Notice is hereby given that an interim dividend of 72,0 cents per ordinary share
has been declared and is payable to shareholders recorded in the register of
members of the company at the close of business on Friday, 19 December 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 Thursday, 11 December 2003
Shares commence trading ex-dividend Friday, 12 December 2003
Record date Friday, 19 December 2003
Payment of dividend Monday, 22 December 2003
Share certificates may not be dematerialised/rematerialised between Friday, 12
December 2003 and Friday, 19 December 2003, both days inclusive.
On Monday, 22 December 2003, the dividend will be electronically transferred to
the bank accounts of certificated shareholders who utilise this facility. In
respect of those who do not, cheques dated 22 December 2003, will be posted on
or about that date. Shareholders who have dematerialised their shares will have
their accounts, held at their central securities depository participant or
broker, credited on Monday, 22 December 2003.
On behalf of the board
W R Somerville
Group Secretary
24 November 2003
AC 133 - Financial instruments: Recognition and measurement
Introduction
The Group adopted the new accounting statement AC 133 - Financial instruments:
Recognition and Measurement on 1 April 2003. This accounting standard, together
with its international equivalent (IAS 39), is still subject to various
improvement projects and is likely to evolve further.
AC 133 is a prospective accounting statement and does not provide for the
restatement of historical figures. Instead, on adoption date, opening balances
are restated to reflect the adjustments arising from the statement. Accordingly,
the results for the six months to 30 September 2003 are not comparable to the
same period of the previous year. Detailed results excluding the impact of AC
133 are provided. These figures have been prepared on the same basis as the
previous year and are therefore comparable.
AC 133 will increase the volatility of reported results and it is important for
shareholders to evaluate the impact of the statement as part of their investment
decisions. The pre- and post-AC 133 information provided should facilitate such
evaluation and clarify to what extent such adjustments are sustainable.
AC 133"s main areas of impact
Fair value accounting - The statement introduces fair value accounting to
certain classes of assets and liabilities. Financial assets and liabilities need
to be classified in prescribed categories and measured accordingly. The asset
categories are:
- Originated loans - The majority of loans and advances of the Group are
allocated here. The only exceptions are selected structured finance loans, fixed
rate commercial property loans as well as advances acquired from third parties.
As was the case pre-AC 133, assets in this category are held at amortised cost.
- Held-to-maturity assets - Assets with a fixed maturity date and for which the
Group has the ability and intent to hold the assets to such maturity date. As
the sale of these assets before maturity date results in the tainting of the
entire portfolio, this category is generally limited to short-dated (six months
and less) securities held for statutory liquid asset purposes. Held-to-maturity
assets are held at amortised cost, which is consistent with the pre-AC 133
policy.
- Available for sale assets - This category represents assets not suited to be
classified in any of the other three categories. Such assets must be fair valued
and AC 133 allows a once-off choice between accounting for the unrealised
changes in fair value in the income statement or directly in the statement of
changes in equity. Absa elected the latter option. On realisation, such gains or
losses have to be accounted in the income statement, but must be excluded from
headline earnings. For this reason Absa has generally limited this category to
long-term strategic equity investments and longer-dated securities held for
regulatory liquid asset purposes.
- Trading assets - Assets to be traded with a short-term profit motive. These
assets are reflected at fair value with changes in fair values accounted for in
the income statement. The statement also allows any other financial asset to be
designated as "held for trading", even if the intention is not to trade such
asset for short-term gain purposes. Absa elected to make a clear distinction
between trading assets and assets designated as "held for trading", with the
latter referred to as "fair value election" assets. Trading assets are typically
utilised as part of the Treasury trading portfolio and have always been fair
valued. "Fair value election" assets include the equities held as part of the
investment banking and insurance portfolios, as well as securities utilised for
hedging purposes.
Hedge accounting - AC 133 sets out onerous requirements to be met before hedge
accounting can be applied. A significant percentage of the Group"s interest rate
hedges do not meet these requirements and in terms of the statement this results
in the derivative having to be fair valued while the underlying assets and
liabilities are held at cost. As a consequence, a mismatch in the recognition of
income arises and the original aim of the hedge is not achieved. During the
period under review, cash flow hedge accounting was applied in respect of
qualifying hedges and fair value gains of R269m (pre-tax) are reflected in the
statement of changes in equity. In addition, the statement also allows any asset
or liability to be designated as "held for trading". Absa utilised this to
improve matching and designated all fixed deposits as "held for trading",
resulting in fair value losses approximating the fair value gains arising from
non-qualifying interest rate hedges. The main aim of these hedges are to protect
the Group"s margin against the timing difference between repricing of assets and
liabilities during declining interest rate cycles and the published results
reasonably reflect this.
Initial recognition adjustments
Off market interest rate loans - The low interest rate loan of R438m to the
share incentive trust was the only significant loan affected and resulted in an
opening balance adjustment of R96m (pre-tax). This loan will be repaid over
three years and the R97m adjustment will unwind in the income statement over the
same period.
Transaction cost - AC 133 requires transaction cost, including home loan
origination expenses, to be capitalised and amortised over the period of the
loan. Absa previously expensed this cost during the year incurred. This change
in policy will result in a lower charge to the income statement over the next
five years (the benefit will decline on an annual basis).
Credit impairment provisions
Specific impairment provisions - The statement introduces the time value of
money concept in determining the level of impairment provisions. Previously
provisions were based on the difference between the carrying value of non-
performing loans and advances and the total of future expected cash flows. The
provision required by AC 133 is the difference between the carrying value and
the present value of the total future expected cash flows. The present value is
calculated using the effective interest rate of the loan which, in the case of
variable rate loans, will be adjusted on each reporting date in line with
changes in interest rates. The impact of the present value calculation is
significant in respect of the home loan and property in possession portfolios
due to the relatively long time period required to take possession of the asset
(security) and resell. The present value discount adjustment then unwinds in the
income statement (on the net interest line) over the period of cash collection.
During the period under review, the lower interest rates at 30 September 2003
resulted in the present value discount on non-performing loans being lower than
the opening balance adjustment on 1 April 2003. This adjustment, which decreased
the charge for bad debts by R115m, is dependant on interest rates and is
therefore not sustainable in future years.
Portfolio impairment provisions (General provisions) - Prior to AC 133, the
general provision was based on the percentages prescribed by the South African
Reserve Bank. AC 133 requires a cash flow valuation technique and only allows
portfolio impairment if the present value of future cash flows on the performing
book is lower than the expectation at time of loan origination. In accordance to
this technique, approximately R644m of the general provision held at 31 March
2003 has been reversed. A statutory credit risk reserve has been created to meet
any regulatory requirement in excess of the accounting provision. The Group
utilised sophisticated modelling and forecasting techniques in determining the
required portfolio impairment. These will be refined as additional historical
information becomes available and any future movement in this provision will be
separately disclosed.
SALIENT FEATURES EXCLUDING THE IMPACT OF AC 133
Six months ended Year ended
30 September 31 March
2003 2002 Change 2003
Pre-AC 133 Actual %
(Unaudited) (Audited)
Income statement (Rm)
Headline earnings 1,819 1,515 20.1 3,441
Attributable income 1,792 1,516 18.2 3,391
Balance sheet (Rm)
Total assets 283,338 253,278 11.9 269,064
Total advances 206,387 192,860 7.0 199,297
Total deposits 225,103 221,551 1.6 222,056
Financial performance (%)
Return on average equity 20.8 19.2 21.4
Return on average assets, excluding
acceptances 1.32 1.22 1.35
Operating performance (%)
Net interest margin on average
assets 3.36 3.44 3.45
Net interest margin on average
interest-bearing assets 3.79 3.71 3.80
Charge for bad and doubtful advances 0.83 0.93 1.02
Non-performing advances to total
advances 4.5 5.1 5.1
Non-interest income as % of
operating income 50.6 50.2 50.8
Cost-to-income ratio 61.4 61.6 60.0
Share statistics (cents per share)
Headline earnings per share 279.2 232.5 20.1 528.1
Earnings per share 275.1 232.7 18.2 520.5
Dividends per share relating to
income for the period 72.0 60.0 20.0 145.0
Dividend cover (times) 3.9 3.9 3.6
GROUP INCOME STATEMENT EXCLUDING THE IMPACT OF AC 133
Six months ended Year ended
30 September 31 March
2003 2002 Change 2003
Pre-AC 133 Actual
(Unaudited) (Audited)
Rm Rm % Rm
Net interest income 4,624 4,285 7.9 8,832
Charge for bad and doubtful advances (846) (881) 4.0 (1,957)
Non-interest income 4,741 4,318 9.8 9,127
Operating income 8,519 7,722 10.3 16,002
Operating expenditure (5,750) (5,298) (8.5) (10,780)
Indirect taxation (320) (255) (25.5) (695)
Impairment charge - Goodwill - (31) 100.0 (54)
Net income from operations 2,449 2,138 14.5 4,473
Share of associated companies"
income 44 44 - 92
Net income before taxation 2,493 2,182 14.3 4,565
Taxation (662) (637) (3.9) (1,104)
Net income after taxation 1,831 1,545 18.5 3,461
Minority shareholders" interest (39) (29) (34.5) (70)
Net income attributable to
shareholders 1,792 1,516 18.2 3,391
Headline earnings 1,819 1,515 20.1 3,441
GROUP BALANCE SHEET EXCLUDING THE IMPACT OF AC 133
30 September
2003 2002
Pre-AC 133 Actual
(Unaudited) Change
Rm Rm %
Assets
Cash and short-term assets 13,397 11,251 19.1
Money market assets 6,394 10,914 (41.4)
Capital market assets 4,640 2,306 101.2
Statutory liquid asset portfolio 15,776 17,940 (12.1)
Advances 206,387 192,860 7.0
Other assets and taxation 27,885 7,308 281.6
Investments 4,767 5,798 (17.8)
Associated companies 634 471 34.6
Property and equipment 2,547 2,769 (8.0)
Intangible assets 164 56 192.9
Client liabilities under acceptances 747 1,605 (53.5)
Total assets 283,338 253,278 11.9
Liabilities
Deposits and current accounts 225,103 221,551 1.6
Other liabilities and provisions 31,808 7,891 303.1
Insurance funds 1,784 1,460 22.2
Subordinated debt 5,686 4,377 29.9
Liabilities to clients under acceptances 747 1,605 (53.5)
Total liabilities 265,128 236,884 11.9
Minority shareholders" interest 239 218 9.6
Shareholders" funds 17,971 16,176 11.1
Total liabilities and shareholders" funds 283,338 253,278 11.9
Contingencies 14,137 18,813 (24.9)
AC 133 IMPACT ON THE GROUP INCOME STATEMENT
Six months ended
30 September
2003 2003
Post- Pre- AC 133
AC 133 AC 133 Impact
(Unaudited)
Notes Rm Rm Rm
Net interest income 1 4,833 4,624 209
Charge for bad and doubtful advances 2 (882) (846) (36)
Non-interest income 3 4,978 4,741 237
Operating income 8,929 8,519 410
Operating expenditure (5,750) (5,750) -
Indirect taxation (320) (320) -
Impairment charge - Goodwill - - -
Net income from operations 2,859 2,449 410
Share of associated companies" income 44 44 -
Net income before taxation 2,903 2,493 410
Taxation (777) (662) (115)
Net income after taxation 2,126 1,831 295
Minority shareholders" interest (39) (39) -
Net income attributable to
shareholders 2,087 1,792 295
Headline earnings 2,114 1,819 295
Notes
1. Net interest income 209
Non qualifying interest rate hedges 342
Fair value adjustments on deposits designated as
"held-for-trading" (364)
Unwinding of present value adjustment iro NPL"s 176
Origination cost - net deferral 34
Interest accrual on off-market interest rate loans 21
2. Charge for bad and doubtful advances (36)
Specific impairment (NPV impact) (172)
Lower interest rate impact on NPV calculation 115
Portfolio impairment (42)
General provision 63
3. Non-interest income 237
Fair value adjustments to equity portfolio 185
Fair value adjustments to other investments 52
Date: 24/11/2003 07:01:23 AM Produced by the JSE SENS Department
