| Mon 15 Nov 2004, 10:30 | | AFRICAN BANK INVESTMENTS LIMITED - REVIEWED PRELIM |
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AFRICAN BANK INVESTMENTS LIMITED - REVIEWED PRELIMINARY ANNUAL FINANCIAL RESULTS
FOR THE YEAR ENDED 30 SEPTEMBER 2004
African Bank Investments Limited
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Registration number 1946/021193/06)
(Share code: ABL)
(ISIN : ZAE000030060)
(`ABIL`)
Reviewed preliminary annual financial results for the year ended 30 September
2004
Features
Headline earnings per share of 161,6 cents (2003: 140,4 cents)
Return on Assets of 11,6% (2003: 10,6%) and Return on Equity of 31,3% (2003:
25,9%)
Operating costs down R90 million, resulting in cost to advances ratio of 18,5%
(2003: 19,1%)
R684 million in dividend payments - total ordinary dividends of 92 cents (2003:
56 cents) and a special dividend of 53 cents declared for the year
Free cash reserves of R1,9 billion (2003: R1,1 billion)
Group income statement
for the 12 months ended 30 September 2004
Reviewed Audited
12 months to 12 months to
30 September % 30 September
R000 2004 change 2003
Revenue
Interest income on 2 489 582 8 2 295 519
advances
Net assurance income 291 088 18 246 804
Non-interest income 293 620 (9) 323 407
Total revenue 3 074 290 7 2 865 730
Charge for bad and (483 681) 9 (444 935)
doubtful advances
Risk adjusted revenue 2 590 609 7 2 420 795
Other interest income 117 910 (18) 143 131
Interest expense (452 647) (2) (463 685)
Operating costs (945 778) (9) (1 036 241)
Net income from 1 310 094 23 1 064 000
operations
Share of associate 673 (56) 1 529
companies` income
Net income before 1 310 767 23 1 065 529
taxation
Indirect taxation (169 271) 99 (84 947)
Taxation (386 181) 23 (314 071)
Net income after 755 315 13 666 511
taxation
Minority interest 646 (110) (6 609)
Net attributable income 755 961 15 659 902
Headline earnings and
earnings per share
Net attributable income 755 961 15 659 902
Adjustments:
Goodwill amortised 6 958 17 691
Other capital items (834) 2 466
Headline earnings 762 085 12 680 059
Weighted number of 471 601 484 398
shares (000)*
Fully diluted number of 489 393 486 816
shares (000)
Headline earnings per 161,6 15 140,4
share (cents)
Attributable earnings 160,3 18 136,2
per share (cents)
Fully diluted headline 155,7 11 139,7
earnings per share
(cents)
Fully diluted 154,4 14 135,6
attributable earnings
per share (cents)
Dividends per share
(cents)
Interim - paid 35 25
Final - declared 57 31
Total ordinary dividends 92 64 56
Special dividend 53 100
declared
Total dividends 145 156
* 20 million shares were repurchased in May 2003 and subsequently cancelled.
Group balance sheet
as at 30 September 2004
Reviewed Audited
30 % 30
September September
R000 2004 change 2003
Assets
Fixed assets 140 026 (28) 193 719
Investments in associates 9 997 7 9 324
Policyholders` investments 49 611 (8) 53 682
Goodwill 14 067 (31) 20 463
Deferred tax asset 35 739 (39) 58 812
Net advances 4 471 772 2 4 399 746
Gross advances 6 129 265 (3) 6 314 097
Provisions for impairment (1 657 493) (13) (1 914 351)
Other assets 173 689 58 109 735
Taxation 6 049 31 4 625
Statutory assets - Bank 489 929 2 479 474
and Insurance
Short-term deposits and 1 944 148 69 1 148 562
cash
Total assets 7 335 027 13 6 478 142
Liabilities and equity
Life fund reserve 78 659 (2) 80 326
Loans and debentures 3 524 135 57 2 251 180
Liabilities to depositors 543 945 (39) 884 485
Other liabilities 156 117 (10) 173 094
Deferred tax liability 11 880 12 10 576
Taxation 182 716 92 95 335
Bank overdraft 3 989 >100 150
Total liabilities 4 501 441 29 3 495 146
Ordinary shareholders` 2 640 534 (5) 2 788 751
equity
Outside shareholders` - (100) 4 541
equity
Secondary capital 193 052 2 189 704
Total equity (capital and 2 833 586 (5) 2 982 996
reserves)
Total liabilities and 7 335 027 13 6 478 142
equity
Advances analysis
R000 2004 % 2003 % 2002
growth growth
Lending books 4 685,3 13 4 131,2 12 3 677,2
Pay down books 1 443,9 (34) 2 182,9 (37) 3 489,5
Total advances 6 129,3 (3) 6 314,1 (12) 7 166,6
Less: Non- 1 029,1 (27) 1 415,3 n/a -
interest-bearing
advances
Gross interest- 5 100,2 4 4 898,8 (32) 7 166,6
bearing advances
Segmental earnings
for the 12 months ended 30 September 2004
Reviewed Audited
30 30
September September
2004 2003
% change Rm Rm
Continuing businesses 20 914,9 761,2
AB Retail 6 608,4 572,2
Credit Indemnity 51 150,9 100,1
Miners Credit 56 80,4 51,4
Standard Bank JV 87 51,8 27,7
Commercial Vehicle Finance >100 23,4 9,8
Discontinued businesses 8 (42,4) (39,2)
Group and consolidated 14 (10,3) (9,0)
STC >100 (100,2) (33,0)
Total 12 762,1 680,1
Cash flow statement
for the 12 months ended 30 September 2004
Reviewed Audited
12 months to 12 months to
30 September 30 September
R000 2004 2003
Cash generated from operations 1 972 887 1 666 944
Increase in gross advances (661 425) (22 467)
Increase in working capital (88 458) (473 769)
Normal and indirect taxation (445 118) (504 427)
paid
Shareholder payments and (904 178) (303 402)
transactions
Cash inflow/(outflow) from 15 868 (11 661)
investing activities
Cash inflow from financing 935 763 179 049
activities (net)
Increase in cash and cash 825 339 530 267
equivalents
Cash and cash equivalents at 1 345 881 815 614
the beginning of the year
Cash and cash equivalents at 2 171 220 1 345 881
the end of the year
Cash and cash equivalents
Short-term deposits and cash 1 944 148 1 148 562
Bank overdraft (3 989) (150)
Statutory cash reserves - 231 061 197 469
insurance
2 171 220 1 345 881
Statement of changes in equity
for the 12 months ended 30 September 2004
Treasury
shares
Share Distribut and
able ABIL
R000 capital reserves share Total
trust
Balance at 30 Sep 12 429 2 489 604 (68 511) 2 433 522
2002 (audited)
Dividends paid (206 066) (206 066)
ABIL share trust 37 849 37 849
transactions*
Loss incurred on (11 792) (11 792)
ABIL share trust
Treasury shares (124 664) (124 664)
acquired
Net income for the 659 902 659 902
year
Balance at 30 Sep 12 429 2 943 440 (167 118) 2 788 751
2003 (audited)
Dividends paid (788 344) 0 (788 344)
Cancellation of (500) (124 164) 124 664 0
shares
CGT on (13 860) (13 860)
cancellation of
shares
ABIL share trust (31 077) (31 077)
transactions*
Loss incurred on (70 897) (70 897)
ABIL share trust
Net income for the 755 961 755 961
year
Balance at 30 Sep 11 929 2 773 033 (144 428) 2 640 534
2004 (reviewed)
* Shares purchased into the ABIL employee share trust less shares issued to
employees.
Overview
The positive economic environment over the past twelve months has been conducive
to a consistent and steady performance of ABIL`s businesses. This, together with
tightened operating focus on the main drivers, has enabled the group to deliver
its targeted return on equity for shareholders. Headline earnings per share
increased by 15% to 161,6 cents (2003: 140,4 cents) and fully diluted headline
earnings by 11% to 155,7 cents (2003: 139,7 cents). Return on equity improved to
31,3% (2003: 25,9%). Return on assets increased to 11,6% (2003: 10,6%). The
major drivers of these results were:
Margins - The continuing change in the mix of the lending portfolio towards
retail debit order loans as well as the decline in low yielding pay down books
provided for a substantial improvement in the total yield on advances from 52,9%
to 60,3%. Margins were enhanced further by increased contributions from the
higher yielding businesses of Credit Indemnity and Miners Credit. Total revenue
grew by 7% to R3 074 million (2003: R2 866 million).
The pay down books will continue to decline to negligible levels over the next
eighteen months, and the change in mix between the payroll and retail products
will level off. This, together with the introduction of greater levels of price
segmentation in the retail portfolio, will result in the overall yield remaining
largely steady for the next twelve months.
Sales - New loans granted increased by 25% to R4,4 billion over the prior
period, growing the lending books by 13%. This growth in lending books was
largely offset by a 34% decline in the pay down books, still however resulting
in a net growth in gross interest-bearing advances of 4% to R5,1 billion,
reversing the declining trends of the past few years.
Looking forward to 2005, the group expects to grow sales between 10% and 20%,
depending on market conditions and legislative developments.
Bad debts - The charge for bad debts was 9% higher at R484 million on the back
of the changing portfolio mix, increased sales and an increased weighting of
Credit Indemnity and Miners Credit in the overall portfolio. Given that the
group focuses on risk-adjusted returns in its pricing methodology, the bad debt
charge as a percentage of interest margin has remained steady at 19,4% and is
within the targeted 19% to 20% of the underwriting models.
NPLs continued to fall steadily and decreased by R379 million to R2 246 million
(2003: R 2 625 million), due to a positive credit environment, aggressive write-
offs against provisions of R845 million and increased cash collections and
rehabilitation on the non-performing portfolios. Provision coverage of 73,8%
(2003: 74,7%) has been maintained.
Operating costs - Expenditure fell by 9% to R946 million (2003: R1 036 million)
over the period, with the majority of the savings being achieved in the second
half of the year. The cost-to-income ratio improved from 36,2% to 30,8% and the
cost-to-advances ratio from 19,1% to 18,5%. The group is committed to bringing
this ratio down towards the 17% level over the medium term.
Net financing costs - The average cost of funds fell from 14,5% to 12,7% due to
the favourable interest rate environment and the credit ratings upgrade from
Moody`s Investors Service in the second half of 2004. This was partially offset
by low returns on surplus cash invested in the interbank market.
The above drivers combined to produce a 23% increase in profit before tax to R1
311 million (2003: R1 066 million).
Taxation - The total taxation charge increased from 37,4% to 42,4% due mainly to
the additional Secondary Tax on Companies charge on the special dividend
declared at the end of 2003.
Capital and dividends
The year-end capital ratio for ABIL is 40,4% (2003: 44,5%), well above the
group`s optimal capital ratio of approximately 30%, resulting in surplus capital
of R694 million. ABIL is committed to managing the capital base to optimal
levels, and this together with the group`s outlook for growth dictates the
dividend policy.
Ordinary dividends are a function of the RoE the business is expecting to
achieve and that portion of the profits required to be retained to back future
asset growth. ABIL has a medium-term RoE objective of 30%, and believes that
growth in the lending books will continue at between 10% and 15% per annum. Thus
each year, between 50% and 67% of profits would be available for distribution,
resulting in a dividend cover of between 1,5 and 2,0 times. For the current year
the group has set its dividend cover at 1,75 times.
Special dividends comprise structural gearing changes as well as capital
released from the reduction in the pay down books over time.
Consequently the ABIL board has declared a final dividend of 57 cents and a
special dividend of 53 cents per share. This brings the total distribution for
the year to R684 million, and on a pro forma basis, after STC, reduces the
capital ratio to 31,4%.
National Credit Bill - The Department of Trade and Industry (`dti`) has recently
published a draft bill, which aims to replace all existing legislation with
regards to the provision of credit. ABIL is supportive of the principles and
objectives of the dti in this process and has been actively involved in the
consultation process, bringing ABIL`s experience in its market segment to the
various forums. ABIL is confident that there is a convergence of the issues
being addressed by the proposed bill and its own strategic focus, and
consequently believes that the group will be well prepared to meet both the
challenges and opportunities that this new bill offers.
GEMS
On 10 November 2004, ABIL announced that GEMS, a subsidiary of the group via
Theta Investments Limited, was investigated by the DSO under various charges of
corruption resulting from payments made to union officials. GEMS agreed to plead
guilty and accept full responsibility for the actions of the officials
concerned. GEMS also agreed to pay reparations to customers who may have been
prejudiced by these actions.
Whilst an unacceptable scar on the closure of the financial year for the ABIL
group, the financial effects of this court order has not affected the group`s
ability to deliver on its financial targets for this year or future years. ABIL
remains committed to upholding the highest levels of ethics and integrity, and
is confident that this was an isolated issue.
Looking ahead
The market in which ABIL operates, has and will continue to be a fast changing
one, with evolving client needs, awareness and choices, regulatory and
competitive landscape changes and generally improving economic circumstances in
its chosen market segments.
ABIL has refined its strategy over the past year to one of focus, adaptability
and simplicity, and believes that these will be the key success criteria of the
business in the medium term. At the core of this strategy, is the continuous and
dynamic trade-off between margin, volume, bad debts and cost absorption.
ABIL is committed to driving its client and price segmentation strategy, which
provides the ability to manage the elasticity of sales volumes in discrete
client risk bands, without concomitant increases in bad debts, but with the
benefit of better cost absorption and thus the ability to lower prices. This
creates further momentum, with again higher sales volumes through better
affordability and the removal of detrimental client cross subsidisation between
risk bands.
The end result should entrench the long-term competitive and sustainable
positioning of ABIL in the unsecured credit market, with the objective of both
lowering the cost of, and expanding access to credit, whilst maintaining
superior returns for shareholders.
Economic conditions are expected to remain positive over the next twelve months
and ABIL is committed and confident to again at least achieve its objectives of
a 30% return on equity and a 10% return on assets for the full year to 30
September 2005.
Accounting policies
The accounting policies adopted for purposes of this report comply with South
African Statements of Generally Accepted Accounting Practice as well as with
applicable legislation. They are consistent with the prior year.
Review opinion
These preliminary annual financial results have been reviewed by the group`s
external auditors, Deloitte & Touche, and their unqualified opinion is available
for inspection at the group`s offices.
Declaration of dividend
On 11 November 2004, the board of directors proposed and approved a final
dividend No 8 of 57 cents per ordinary share.
The board also approved a special dividend No 2 of 53 cents per share.
The two dividends will be paid out simultaneously.
Salient dates for dividend payments:
Last day to trade cum-dividend Friday, 3 December 2004
Shares commence trading ex- Monday, 6 December 2004
dividend
Record date Friday, 10 December 2004
Payment of dividend Monday, 13 December 2004
Share certificates may not be dematerialised or rematerialised between Monday 6
December 2004 and Friday 10 December 2004, both days inclusive.
On behalf of the board
Ashley Mabogoane Gordon Schachat Leon Kirkinis
Chairman Executive Deputy Chief Executive
Chairman Officer
Board of directors
AS Mabogoane (Chairman), G Schachat (Deputy Chairman)*, L Kirkinis (CEO)*, JA de
Ridder*, A Fourie*, DB Gibbon, BD Goba, AG Herselman*, JJ Kekane, SA Levitt, MLD
Marole*, R Naidoo, BJT Shongwe, TM Sokutu*, BPF Steele, GZ Steffens (German),
DFG Tembe (Mozambique), A Tugendhaft, DF Woollam*
*Executive
Group Secretary: S Martin
For a full analysis of the above results covering the following topics, refer to
http://www.africanbank.co.za
Profile and purpose
RoA/RoE model
Advances, sales and clients
Portfolio underwriting margin, costs and tax
Asset quality
Capital, cash flow and funding
National Credit Bill
Black Economic Empowerment
Registered office Share transfer secretaries
59 16th Road, Midrand, 1685 Ultra Registrars (Pty)
Limited
Private Bag X170, Midrand, 1685 11 Diagonal Street,
Johannesburg, 2001
Telephone +27 11 256 9000 PO Box 4844, Johannesburg,
2000
Fax +27 11 256 9304 Telephone +27 11 834 2266
africanbank@ultrareg.co.za
Graphs- Please refer to the press release for graphs
Dividends per share
Ordinary dividends Special dividends
2001 25
2002 30
2003 56 100
2004 92 53
Return on equity (%)
Return on equity Target
2001 31,6 30
2002 23,2 30
2003 25,9 30
2004 31,3 30
Midrand
15 November 2004
Sponsor:
Deutsche Securities (SA) (Proprietary) Limited
