| Wed 31 Mar 2004, 17:53 | | Consolidated results for the year |
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Mercantile Lisbon Bank Holdings Limited - Consolidated results for the year
ended 31 December 2003
Mercantile Lisbon Bank Holdings Limited
("MLBH" or "the Group")
Registation number 1989/000164/06
Consolidated results for the year ended 31 December 2003
Summarised Group Income Statement
12 months 9 months
ended ended
2003 2002
R"000 R"000
Reviewed Audited
Interest income 226 970 188 072
Interest expense (161 152) (128 175)
Net interest income before credit losses 65 818 59 897
Net recoveries of credit losses (1) 19 840 247 764
Net interest income after credit losses 85 658 307 661
Net profit/(loss) on sale of investments 8 (10 013)
Non-interest income 91 025 72 532
Net interest and non-interest income 176 691 370 180
Operating expenditure (237 521) (206 515)
(Loss)/profit before associated companies (60 830) 163 665
Share of income from associated companies 1 942 1 394
(Loss)/profit before taxation (58 888) 165 059
Taxation - 2 709
Attributable (loss)/profit after taxation (58 888) 167 768
Reconciliation between attributable
(loss)/profit after taxation and headline
(loss)/earnings
Attributable (loss)/profit after taxation (58 888) 167 768
Adjustment for:
Realisation of available-for-sale reserve 2 125
Impairments and loss on sale of property
and equipment 292 16 582
Headline (loss)/earnings (56 471) 184 350
(Loss)/earnings per share* (cents) (6,9) 19,6
Headline (loss)/earnings per ordinary
share (cents) (6,6) 21,6
Summarised Group Balance Sheet
2003 2002
R"000 R"000
Reviewed Audited
Assets
Intangible assets 12 711 14 696
Property and equipment 84 651 88 723
Investment properties 800 800
Taxation 3 567 3 396
Other accounts receivables 82 430 127 534
Interest in associated companies 2 951 1 879
Other investments 3 965 7 302
Loans and advances 1 178 788 1 313 292
Derivative financial instruments 7 610 8 124
Negotiable securities 273 090 155 588
Cash and cash equivalents 574 930 454 778
Total assets 2 225 493 2 176 112
Equity and liabilities
Shareholders" equity 163 899 183 500
Share capital and share premium 866 865 866 865
Capital redemption reserve fund 3 788 3 788
General reserve 7 478 7 478
Property revaluation reserve 28 376 20 997
Available-for-sale reserve (742)
General risk reserve 31 212
Accumulated loss (773 078) (715 628)
Liabilities 2 061 594 1 992 612
Long term liabilities 5 287 8 335
Deposits 1 946 752 1 912 979
Derivative financial instruments 32 115 4 001
Provisions 36 066 27 404
Other accounts payables 40 437 38 387
Taxation 937 1 506
Total equity and liabilities 2 225 493 2 176 112
Contingent Liabilities and Commitments
2003 2002
R"000 R"000
Reviewed Audited
Guarantees and letters of credit 119 126 133 075
Irrevocable unutilised facilities 215 311 350 574
Conditional buy-back obligations 116 050 236 956
Operating lease commitments: 13 253 13 419
Due within one year 5 643 3 744
Due between one and five years 7 610 9 552
Due after five years - 123
Total contingent liabilities and
commitments 463 740 734 024
Summarised Group Cash Flow Statement
12 months 9 months
ended ended
2003 2002
R"000 R"000
Reviewed Audited
Net cash inflow/(outflow) from
operating activities 6 993 (41 915)
Net cash inflow from operating funds 117 790 286 088
Net cash outflow from investing activities (1 583) (9 777)
Net cash (outflow)/inflow from financing
activities (3 048) 8 335
Net cash inflow for the year/period 120 152 242 731
Cash and cash equivalents at beginning
of year/period 454 778 212 047
Cash and cash equivalents at end
of year/period 574 930 454 778
Summarised Group Statement of Changes in Equity
12 months 9 months
ended ended
2003 2002
R"000 R"000
Reviewed Audited
Balance at beginning of year/period 183 500 15 917
Transitional adjustments on adoption of
AC 133 28 246
Creation of general risk reserve 28 811
Revaluation of held-for-trading financial
instruments (565)
Movements in reserves 11 041 (185)
Net transfer to available-for-sale reserve 3 662 -
Revaluation of property 7 379 (185)
(Loss)/profit after taxation (58 888) 167 768
Balance at end of year/period 163 899 183 500
Effect of AC 133 on 2003 Group Results
R"000
Non-interest income (1 456)
Net transfer to available-for-sale reserve (3 662)
Revaluation of held-for-trading financial
instruments 2 206
Provision for bad debts 2 401
Adjustment for specific loan impairments 6 012
Movement in portfolio impairment 7 636
Reversal of general loan provisions (11 247)
Favourable impact on 2003 results 945
Summarised Group Segmental Information
12 months 9 months
ended ended
2003 2002
R"000 R"000
Reviewed Audited
Segment revenue:
Retail banking 93 896 103 036
Treasury 8 843 11 690
Alliance banking, MBL credit card
and structured loans 33 829 7 050
Other services (2) 42 065 249 798
178 633 371 574
Contribution/(loss) after tax:
Retail banking (3) 38 705 38 729
Treasury (3) (3 441) (7 366)
Alliance banking, MBL credit card
and structured loans (3) 7 409 (12 111)
Other services (2) (101 561) 148 516
(58 888) 167 768
Financial Statistics
2003 2002
Reviewed Audited
Number of ordinary shares in issue:
*- end of year/period (`000) 855 585 855 585
*- weighted average (`000) 855 585 855 585
Net asset value per ordinary share (cents) 19,2 21,4
Capital adequacy ratio (%)
*- Consolidated MLBH Group 9,8 10,7
*- Mercantile Bank Limited 11,8 12,4
*Basic and fully diluted
(1)MLBH has reversed, in 2002, gross impairments for credit losses in the
amount of R265 million related to the CGD guarantee as referred to in the text
of this Announcement.
(2) "Other services" includes support divisions, collections, specialised
asset finance, insurance brokers, inter-group eliminations and AC 133
adjustments. Included in "Other services" is the reversal, in 2002, of gross
impairments for credit losses as referred to in note 1.
(3) Excludes the allocation of attributable support costs.
(4) Certain comparative figures have been restated to allow for a more
meaningful comparison. Details thereof will be disclosed in the annual
financial statements.
Directors: Dr J A S de Andrade Campos * ChairmanÙ, Dr R M L de F N Ribas *
Acting
Chief Executive OfficerÙ, G P de Kock,
D J Brown ExecutiveÙ, L Hyne, Dr A M Osman **
Group Secretary: F Vicente Coelho * * Portuguese ** Mozambican
Registered office: Mercantile Lisbon House, 142 West Street, Sandown, 2196
Share code: MTL. ISIN: ZAE000027082
Transfer Secretaries: Computershare Limited, 8th Floor, 70 Marshall Street,
Johannesburg, 2001.
Corporate Advisor and Sponsor: Bridge Capital Services (Pty) Ltd, 1st Floor,
Building 22A, The Woodlands, Woodlands Drive,
Woodmead, Sandton, 2196.
Corporate advisor and sponsor to Mercantile
BRIDGE CAPITAL
Announcement of consolidated results for the year ended 31 December 2003 and
proposed recapitalisation
* Proposed rights issue in an aggregate amount of R550 million to R600 million
which will include release of certain Caixa Geral de Depositos S.A. ("CGD")
guarantees
* Issue to be priced at 18 cents per share
* Fully underwritten by CGD
* Appointment of new CEO
* Improved collection of non-performing loans
* Rehabilitation programme well advanced and ongoing *- improved efficiencies
* Headline loss per share of 6,6 cent per share (2002 (nine months): loss of
9,4 cent per share excluding the benefit of the CGD guarantee of R265 million)
* Attributable loss of R59 million *- improvement of 39% from the loss of R97
million for the nine-month period ended 31 December 2002, excluding the
benefit of the CGD guarantee of R265 million
Joaquim de Andrade Campos, Chairman said:
"Good progress has been made in rehabilitating the Group over the past 18
months. CGD is committed to supporting Mercantile through its continued
turnaround as evidenced by the proposed rights issue."
Dave Brown, newly appointed CEO, said:
"I am delighted with my appointment and look forward to taking Mercantile to
the next stage of its development."
31 March 2004
Enquiries:
Mercantile Tel: +27 (11) 302 0300
Dave Brown, CEO
College Hill Tel: +27 (11) 447 3030
Nicholas Williams Tel: +27 (83) 607 0761
Sam Denoon-Stevens Tel: +27 (83) 450 7654
Financial overview
Management"s primary focus during the year under review has centred on the
rehabilitation of the Group. Good progress has been made across all areas
identified for action with significant success achieved in:
* Reducing the recurring cost base through headcount and process
rationalisation
* Collections under the non-performing book
*£Attracting new talent to Mercantile Bank Limited ("Bank"), where almost the
entire senior management team has been replaced
Although the Group remains in a loss making position, attributable losses net
of the effect of the CGD guarantees have decreased to R59 million from R97
million for the nine-month period to 31 December 2002. The improved results
are mainly due to a reduction in costs (on an annualised basis), recoveries of
non-performing loans and growth in Alliance Banking fee income. These results
need to be considered in the context of the turnaround, with the associated
costs incurred to rationalise the operations and the systems, the
inefficiencies inherent in the significant retrenchment of staff and the major
changes in managerial staff and the reduction in margin resulting from the
slow down in lending activities.
Whilst the Rehabilitation has been underway, a deliberate strategy of not
actively seeking new clients within Retail Banking has been employed,
accounting for the lack of growth in assets in this business. Higher levels of
liquidity are evident due to the reduction in the lending book and retention
of deposits during this period.
Completion of the Rehabilitation is expected to be achieved during 2004 when
the focus will be shifted to developing the Bank in its chosen target markets.
Accounting policies
The results comply with South African Statements of Generally Accepted
Accounting Practice applicable to Interim Financial Reporting and the
accounting policies are consistent with those applied in the previous annual
financial statements, except for the adoption of AC 133, the effect of which
has been shown in the results.
AC 133
The adoption of the new Accounting Statement AC 133 has resulted in the
following impact on the financial results:
*£Increase in the opening balance of shareholders" equity of R28,2 million of
which R28,8 million corresponds to a reduction in provisions accounted for as
a non-distributable general risk reserve and the remaining (R0,6) million is
attributable to the revaluation of held-for-trading financial assets and
related derivative instruments.
*£In respect of the current financial year a further increase in shareholders"
equity of R4,6 million of which R2,4 million corresponds to an increase in the
general risk reserve and R2,2 million to the revaluation of held-for-trading
financial assets and related derivative instruments.
*£The R4,6 million referred to above is partly offset by the transfer of the
revaluation of available-for-sale financial assets from the income statement
to the available-for-sale reserve, in equity, of R3,7 million. This resulted
in a decrease in the attributable loss of R0,9 million.
Ongoing support by CGD
After assuming control of the Company in March 2002, through the injection of
R120 million of new capital by way of a specific issue of shares for cash, CGD
gave an undertaking to the South African Reserve Bank and the Directors of the
Company that they would safeguard the financial soundness and the stability of
the Company, including the maintenance of the capital adequacy ratio of the
Bank at the statutory level prescribed by the Registrar of Banks.
In performance of that undertaking, CGD issued the following guarantees in
favour of the Bank:
*£A guarantee of R265 million in July 2002, to cover the repayment of certain
non-performing loans, which allowed the Bank to release provisions for credit
losses of the same amount.
*£A guarantee of R45 million in April 2003, to cover potential losses on
certain accounts for the financial period ended December 2002.
*£Two guarantees with a face value of R22 million (and a present value of R18,2
million) in May 2003, in respect of certain single name promissory notes. As a
result of these guarantees, the Bank"s exposure ceased to be regarded as a
large exposure for regulatory purposes. These guarantees will lapse, inter
alia, as soon as the Bank"s capital adequacy ratio is above the prescribed
minimum statutory level, without taking into account CGD"s indemnity.
The status of these guarantees as at 31 December 2003 is as follows:
*£The outstanding balance of the non-performing loans covered by the R265
million guarantee was R179,5 million, which corresponds to a reduction of
R85,5 million of the original exposure. The Bank received R33,3 million in
terms of the guarantee and the remaining R52,2 million is made up of
collections and acceptable securities obtained from debtors. In terms of the
adoption of AC 133, the present value attached to this guarantee amounted to
R144,7 million.
*£Regarding the R45 million guarantee, the outstanding balance at risk on these
accounts was R44,7 million.
*£In respect of the two guarantees totalling R22 million, the nominal value of
the outstanding debt was reduced to R18,1 million (present value R16,1
million).
With the objective of maintaining the Bank"s capital adequacy ratio at the
level required by the Registrar of Banks, CGD also agreed to provide a
subordinated loan facility of R60 million to the Company, primarily to extend,
on the same terms and conditions, a subordinated loan facility to the Bank.
Implementation of the contract is subject to the approval of the Registrar of
Banks.
In addition, CGD has agreed to provide a subordinated loan facility of R8,2
million to be used by the Company for the purpose of repaying its indebtedness
to the Bank. This facility will be implemented once the approval of the
Registrar of Banks for the R60 million subordinated loan facility referred to
above has been obtained.
These subordinated loan facilities were agreed as an interim measure until the
completion of the process of increasing the primary capital, which is
essential to support the future growth of the business.
The terms and conditions for the recapitalisation of the Company and the Bank
have already been established with the Registrar of Banks and agreed to by the
controlling shareholder.
Proposed recapitalisation
An essential requirement to deliver on the growth strategies is the
recapitalisation of the Group at a level necessary to compete in these
markets. The board is accordingly pleased to report that the major
shareholder, CGD, has committed to underwriting a rights offer in an aggregate
amount of between R550 million and R600 million. This capital will play a
major part in the renewed marketing drive of the Bank to increase its loan
book and return to profitability. The capital committed by CGD to the rights
offer will include the release of certain guarantees as referred to below.
Capital increase
The recapitalisation will comprise the replacement of the guarantees of R265
million and R45 million, with an injection of primary capital in an aggregate
amount of R550 million to R600 million, through a proposed rights issue at a
price of 18 cents per share, fully underwritten by the controlling
shareholder. The release of these guarantees will result in the creation of
provisions to the extent of their present value, which at year end amounted to
R189,4 million.
In terms of the Listings Requirements of the JSE Securities Exchange South
Africa, the release of the guarantees constitutes a related party transaction
and is, accordingly, subject to the approval of a simple majority of minority
shareholders in general meeting. Furthermore, insufficient authorised shares
exist to facilitate the rights issue and shareholders will be requested to
approve a resolution to increase the authorised share capital to the extent
necessary.
The issue price in respect of the rights offer is less than the par value of
the Company"s shares and, accordingly, the Company will, with the approval of
the shareholders, seek to reduce such par value prior to the increase in share
capital referred to above.
Shareholders holding 36% of the aggregate minority shareholders" shares have
irrevocably undertaken to vote in favour of the release of the guarantees and
other resolutions necessary to implement the rights offer.
Directorate
Dave Brown has been appointed Chief Executive Officer, with immediate effect.
Dave has been an executive advisor to Mercantile for the past eight months and
has been intimately involved in refocusing the strategy of the Group and in
assisting with the implementation of the Rehabilitation programme. Dave is an
experienced banker with an indepth knowledge of the South African market.
Rui Ribas, who was the acting CEO during the Rehabilitation process, will
remain on the board as a non-executive director.
Going concern
The financial statements have been prepared on the going concern basis. The
ability of the Group to continue as a going concern is dependent on the
successful implementation of the proposed rights issue and the consequential
recapitalisation of the Group as referred to above. The results have been
reviewed by Deloitte & Touche and without qualifying their review opinion the
auditors have raised an emphasis of matter drawing attention to this. The
auditors" review report is available for inspection at the Company"s
registered office.
Outlook
The substantial increase in the capital base, as a result of the proposed
rights issue, in conjunction with improved controls, a lower recurring cost
base and a rejuvenated skills base, as well as the ongoing enhancements to IT
systems, will play a pivotal role in growing our business.
The main focus of the Bank will be on developing the Retail activities. We
will grow our enterprise banking business, by offering products and services
to small and mid-sized businesses across the spectrum, whilst retaining a key
focus on portuguese customers. We are well positioned to compete on our
product offering, functionality, service levels and relationship management
within our chosen target markets.
Treasury will remain as a key support area for our Retail Banking business.
An increased volume of transactions generated via existing joint ventures
together with prospective opportunities in the Alliance Banking area of card
and payment products is forecast to result in continued growth in fee income
earned in this business.
Regulatory timelines attached to finalising the actual injection of capital in
terms of the proposed rights issue are expected to reach completion by August
2004 and we expect the Group to be operating on a profitable footing in 2005.
We would like to thank our staff for their commitment over the past year,
which has held many challenges. Their support has been instrumental in the
success to date of our turnaround strategy.
Joaquim de Andrade Campos Rui Ribas
Chairman Acting Chief Executive
Mercantile Lisbon Bank Holdings
Limited
A Subsidiary Company of Caixa Geral de Depositos
www.mercantile.co.za
Date: 31/03/2004 05:50:13 PM Produced by the JSE SENS Department
