| Mon 22 Nov 2004, 9:56 | | INTERIM PROFIT AND DIVIDEND ANNOUNCEMENT |
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ABSA GROUP LIMITED - INTERIM PROFIT AND DIVIDEND ANNOUNCEMENT
ABSA GROUP LIMITED
JSE Code: ASA
Issuer Code: AMAGB
ISIN: ZAE000013389
INTERIM PROFIT AND DIVIDEND ANNOUNCEMENT
SALIENT FEATURES
Six months ended Year
ended
30 September 31 March
2004 2003 Change 2004
%
(Unaudited) (Audited)
Income statement (Rm)
Headline earnings 2,453 2,114 16.0 4,447
Attributable income 2,392 2,087 14.6 4,505
Balance sheet (Rm)
Total assets 313,860 283,909 10.5 306,848
Total advances 242,626 206,298 17.6 222,395
Total deposits and current accounts 252,707 225,467 12.1 234,380
Financial performance (%)
Return on average equity 24.2 24.3 24.6
Return on average assets, excluding
acceptances 1.58 1.53 1.55
Operating performance (%)
Net interest margin on average assets 3.43 3.50 3.40
Net interest margin on average
interest-bearing assets 3.84 3.96 3.87
Charge for impairment of advances
to average advances 0.55 0.87 0.90
Non-performing advances to total
advances 3.0 4.6 3.8
Non-interest income as % of operating
income 51.2 50.7 52.5
Cost-to-income ratio 59.2 58.6 57.1
Share statistics (cents)
Number of shares in issue (million) 651.1 651.1 651.1
Weighted average number of shares
(million) 650.6 651.5 645.9
Weighted average diluted number of
shares (million) 665.5 651.5 651.3
Headline earnings per share 377.0 324.5 16.2 688.5
Diluted headline earnings per share 369.0 324.5 13.7 682.8
Earnings per share 367.7 320.3 14.8 697.5
Diluted earnings per share 359.9 320.3 12.4 691.7
Dividends per share declared relating
to income for the period 95.0 72.0 31.9 182.0
Dividend cover (times) 4.0 4.5 3.8
Net asset value per share 3,248 2,749 18.2 2,996
Capital adequacy (%)
Absa Bank 13.0 11.3 12.3
Absa Group 13.4 12.7 13.0
GROUP INCOME STATEMENT
Six months ended Year ended
30 September 31 March
2004 2003 Change 2004
(Unaudited) (Audited)
Rm Rm % Rm
Interest income 13,626 16,049 (15.1) 28,901
Interest expense (8,427) (11,216) 24.9 (19,183)
Net interest income 5,199 4,833 7.6 9,718
Impairment of advances (637) (882) 27.8 (1,900)
Income from lending activities 4,562 3,951 15.5 7,818
Non-interest income 5,465 4,978 9.8 10,753
Operating income 10,027 8,929 12.3 18,571
Operating expenditure (6,316) (5,750) (9.8) (11,679)
Indirect taxation (364) (320) (13.8) (672)
Impairment charge (84) - - (116)
Net income from operations 3,263 2,859 14.1 6,104
Share of associated companies` income 38 44 (13.6) 119
Net income before taxation 3,301 2,903 13.7 6,223
Taxation (868) (777) (11.7) (1,627)
Net income after taxation 2,433 2,126 14.4 4,596
Minority shareholders` interest (41) (39) (5.1) (91)
Net income attributable to
shareholders 2,392 2,087 14.6 4,505
DETERMINATION OF HEADLINE EARNINGS
Six months ended Year ended
30 September 31 March
2004 2003 Change 2004
(Unaudited) (Audited)
Rm Rm % Rm
Net income attributable to shareholders 2,392 2,087 14.6 4,505
Adjustments for:
Net (profit) on disposal of property
and equipment (5) (15) 66.7 (45)
(Profit) on disposal of available-for-
sale assets (18) - - (150)
Loss/(profit) on disposal of strategic
investments and subsidiaries - 17 (100.0) (16)
Impairment of strategic investments,
associates and property - - - 104
Goodwill impaired and written off 84 25 >100.0 49
Headline earnings 2,453 2,114 16.0 4,447
GROUP BALANCE SHEET
30 September 31 March
2004 2003 Change 2004
(Unaudited) (Audited)
Rm Rm % Rm
Assets
Cash and short-term assets 15,234 13,397 13.7 14,068
Money market assets 5,198 6,360 (18.3) 3,688
Capital market assets 6,924 5,875 17.9 9,161
Statutory liquid asset portfolio 12,359 14,680 (15.8) 12,598
Advances 242,626 206,298 17.6 222,395
Derivative and trading assets 14,760 24,502 (39.8) 28,267
Other assets 6,047 3,563 69.7 5,846
Investments 6,671 4,861 37.2 5,792
Associated companies 641 634 1.1 624
Property and equipment 2,543 2,547 (0.2) 2,597
Goodwill 140 107 30.8 84
Intangible assets 51 57 (10.5) 50
Deferred taxation 159 281 (43.4) 167
Taxation 47 - - 28
Client liabilities under acceptances 460 747 (38.4) 1,483
Total assets 313,860 283,909 10.5 306,848
Shareholders` equity and liabilities
Share capital 1,301 1,302 (0.1) 1,291
Share premium 1,443 1,513 (4.6) 1,309
Reserves 18,384 15,093 21.8 16,750
Shareholders` equity 21,128 17,908 18.0 19,350
Minority shareholders` equity 163 239 (31.8) 171
Total shareholders` equity and minority
shareholders` equity 21,291 18,147 17.3 19,521
Liabilities
Deposits and current accounts 252,707 225,467 12.1 234,380
Deferred taxation 1,416 1,243 13.9 1,331
Taxation 728 311 >100.0 567
Derivative liabilities 17,354 23,649 (26.6) 30,856
Other liabilities 6,609 5,053 30.8 6,256
Provisions 1,321 1,822 (27.5) 1,272
Insurance funds 4,754 1,784 >100.0 4,115
Other borrowed funds 7,220 5,686 27.0 7,067
Liabilities to clients under
acceptances 460 747 (38.4) 1,483
Total liabilities 292,569 265,762 10.1 287,327
Total shareholders` equity and liabili-
ties 313,860 283,909 10.5 306,848
Contingent liabilities 20,500 14,137 45.0 16,637
GROUP STATEMENT OF CHANGES IN EQUITY
30 September 31 March
2004 2003 2004
(Unaudited) (Audited)
Rm Rm Rm
Share capital 1,301 1,302 1,291
Opening balance 1,291 1,303 1,303
Shares bought back - (1) (1)
Consolidation of share incentive trust 10 - (11)
Share premium 1,443 1,513 1,309
Opening balance 1,309 1,532 1,532
Utilised during share buy back - (19) (19)
Consolidation of share incentive trust 134 - (204)
Non-distributable reserves 807 1,190 755
Opening balance 755 443 443
AC 133 opening adjustment in respect of:
- regulatory general credit risk reserve - 451 451
- available-for-sale assets reserve - (78) (78)
- value of investments held by short-
term insurance companies - 134 134
Movement in foreign currency
translation reserve 8 (113) (286)
Movement in regulatory general credit
risk reserve 69 11 (119)
Movement in available-for-sale assets
reserve (67) 112 (2)
Movement in cash flow hedges reserve 18 188 95
Insurance contingency reserve 21 11 34
Changes in value of investments held
by short-term insurance companies - - (5)
Associated companies` earnings reserve 3 31 88
Distributable reserves 17,577 13,903 15,995
Opening balance 15,995 13,588 13,588
AC 133 opening adjustment - (1,165) (1,165)
Consolidation of share incentive trust - - 97
Transfer to insurance contingency reserve (21) (11) (34)
Transfer to associated companies`
earnings reserve (3) (31) (92)
Transfer (to)/from regulatory general
credit risk reserve (69) (11) 119
Attributable income 2,392 2,087 4,505
Dividends paid during the period (717) (554) (1,023)
Total shareholders` equity at end of
period 21,128 17,908 19,350
GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 September 31 March
2004 2003 2004
(Unaudited) (Audited)
Rm Rm Rm
Cash retained from operating activities 1,997 2,742 3,026
Cash generated by operations 3,745 3,477 8,206
Net (decrease)/increase in operating
funds (751) 629 (3,290)
Taxation paid (997) (1,364) (1,890)
Net cash (outflow) from investing
activities (977) (1,819) (2,780)
Net cash inflow from financing activities 152 - 1,509
Other movements (6) (143) (304)
Net increase in cash and cash equivalents 1,166 780 1,451
Cash and short-term assets
-at beginning of period 14,068 12,617 12,617
-at end of period 15,234 13,397 14,068
PROFIT CONTRIBUTION BY BUSINESS AREA
Six months ended Year ended
30 September 31 March
2004 2003 Change 2004
(Unaudited) (Audited)
Rm Rm % Rm
Personal banking 945 740 27.7 1,497
Absa Private Bank 8 4 100.0 1
Personal Financial Services 71 67 6.0 129
Retail Banking Services 164 149 10.1 263
Flexi Banking Services 80 48 66.7 125
Absa Home Loans 480 385 24.7 764
Repossessed properties (60) (68) 11.8 (142)
Absa Card 200 153 30.7 355
Meeg Bank 2 2 - 2
Commercial banking 747 540 38.3 1,266
Business Banking Services 383 219 74.9 589
Small Business 142 131 8.4 232
Absa Vehicle and Asset Finance (AVAF) 222 169 31.4 403
MLS Bank - 21 (100.0) 42
Wholesale banking 308 480 (35.8) 684
Domestic operations 272 393 (30.8) 750
International operations 36 87 (58.6) (66)
African operations 42 19 >100.0 75
Total banking 2,042 1,779 14.8 3,522
Financial Services 457 372 22.8 890
Capital and funding centre (39) (59) 33.9 (60)
Corporate centre (7) 22 >(100.0) 95
Total headline earnings 2,453 2,114 16.0 4,447
Absa Group Limited
Profit commentary - September 2004
Absa continues to deliver strong earnings growth
Absa Group is pleased to announce headline earnings of R2 453 million (377,0
cents per share) for the six months to 30 September 2004. This represents a
growth of 16,0% when compared with the headline earnings of R2 114 million
(324,5 cents per share) for the comparable period of the previous financial
year. Diluted headline earnings per share increased by 13,7% to 369,0 cents per
share.
The return on average assets improved from 1,53% to 1,58% and the Group
delivered a return of 24,2% on average shareholders` equity. An interim dividend
of 95 cents per share, 31,9% higher than that of the corresponding period, has
been declared. This high dividend growth is owing to the achievement of the
regulatory capital adequacy requirements and the resultant migration to a normal
dividend cover ratio.
The six months under review were characterised by the retention of market share,
enhanced quality of the advances book and increased profitability through an
emphasis on the fundamentals.
Personal and commercial banking and the bancassurance arm of the Group
capitalised on buoyant retail market conditions to post solid results. Quality
asset growth, increased transaction volumes and a reduction in the charge for
impairment of advances underpinned the performance of these business areas.
Good underwriting results and stronger equity markets assisted the solid
contribution from Absa Financial Services.
The contribution from wholesale banking and the international operations was
lower than the corresponding period of the previous year owing to sluggish
demand for credit in the corporate sector, reduced earnings from trading and the
alignment to a lower risk appetite. However, prospects for the full year are
more positive.
Banking operations in other African countries continue to make good progress and
are performing in line with expectations.
Diluted headline earnings per share
The options issued to the staff share scheme and Batho Bonke Capital
(Proprietary) Limited, Absa`s black economic empowerment partner, has caused a
dilution in headline earnings per share of 2,1% to 369,0 cents per share.
Accordingly, the growth in fully diluted headline earnings per share was 13,7%
compared with the corresponding six-month period.
Accounting policies
AC 140 (IFRS 3) - Business Combinations - is an accounting statement that
applies to accounting for business combinations and any resultant goodwill for
which the agreement date is on or after 31 March 2004.
In accordance with the statement, the amortisation of goodwill ceased with
effect from 1 April 2004. However, goodwill needs to be tested for impairment at
least annually. Accordingly, an impairment test was conducted on the carrying
value of goodwill on the Group`s balance sheet at 1 April 2004. The result of
this assessment, which included consideration of past performance and future
prospects, is an impairment charge of R84 million for the six months.
The financial statements of the Group comply in all material respects with South
African Statements of Generally Accepted Accounting Practice and are, other than
is described above, consistent with those applied in the previous year.
Operating environment
After a year of slow economic growth in 2003, sharply lower interest rates going
into 2004 brought about a steady recovery in gross domestic product (GDP) growth
rates.
The manufacturing sector has been a major beneficiary of the lower interest
rates and strong domestic demand. After a recession during much of 2003, this
sector has recovered with recent output growth in excess of 6%.
Improved weather conditions in the early part of 2004 enabled agriculture to
record positive seasonally adjusted output growth during the first half of the
year.
Consumer demand has been a key driver of the growth recovery, and recent year-on
year growth in new vehicle sales was in excess of 22%.
The confidence of the household sector is also reflected in the residential
property market, with year-on-year growth in average house prices in the region
of 35%.
Real household disposable income growth has been boosted by lower interest rates
and recent wage increases higher than inflation.
The strong growth in both consumer demand and house prices occurred during the
first half of the financial year as a result of last year`s aggressive interest
rate cuts. The prime rate declined from 17,0% in June 2003 to 11,5% by December
2003. The pace of interest rate reductions has been far slower in 2004, with
only one further 50 basis point reduction in August 2004.
Group performance
Net interest income increased by 7,6% because of robust advances growth of 17,6%
offset by a moderate decline of seven basis points in the net interest margin.
Hedging initiatives and improved asset margins mitigated the negative endowment
effect of lower interest rates on capital and low-rate deposits. Furthermore,
competitive rates and focused marketing campaigns enabled the Group to grow its
personal and commercial deposits by a solid 9,0%.
The low interest rate environment had a positive impact on the affordability of
credit for consumers and therefore on debt servicing costs. Household debt
relative to disposable income was at 54,8% during the second quarter of 2004 and
has remained substantially below the 1998 peak. This, together with the
maintenance of strict credit approval criteria, supported the continued
improvement in the quality of the advances book, especially in the personal
market. As a result, the charge for impairment of advances to average advances
decreased to 0,55% (September 2003: 0,87%).
Non-interest income as a percentage of operating income improved marginally from
50,7% to 51,2%. Commission and fee income grew encouragingly, largely as a
result of greater electronic banking volumes, increased card transactions and
service fees and commissions. Gross trading income declined by almost half as a
result of non-directional markets and reduced volatility, especially in respect
of foreign exchange trading. Insurance-related income benefited from the greater
volumes generated by the personal banking business units and improved
underwriting loss ratios. The Group`s investment portfolios appreciated by R93
million, compared with the exceptional R237 million of the comparable period.
Operating expenditure increased by 9,8%, following investment in projects to
ensure compliance with Basel II, the Financial Advisory and Intermediary
Services (FAIS) Act and the Financial Intelligence Centre (FIC) Act as well as
investment in expanding the Group`s delivery footprint. As a result, the cost-to
income ratio increased slightly to 59,2% from 58,6% for the comparable period.
Segmental reporting
Personal banking
Personal banking increased its headline earnings contribution by 27,7% to R945
million. A strong performance was obtained from mortgage advances and credit
cards, as advances grew by 18,2% and 21,3% respectively. Growth in fees and
commissions approached the mid-teens. This growth mainly related to electronic
banking and credit card turnover volumes and savings account fees.
Flexi Banking Services grew its customer base in respect of deposits. This
mitigated the margin contraction owing to the lower interest rate environment.
The credit impairment charge in the personal market declined by 33,7% and this
charge, as a percentage of average advances, was reduced to 41 basis points.
The strong growth in residential property prices over the past few years had a
notable positive impact on the net worth of customers and home loan security
values, with an accompanying marked improvement in credit quality.
Efforts to improve customer service and investment in outlets in historically
disadvantaged communities, driven by business imperatives, increased the
operating costs of this segment, but the long-term benefits of this strategy
will have positive results in future.
Commercial banking
The commercial banking segment achieved earnings growth of 38,3%, mainly flowing
from solid advances and deposit growth and improved credit quality.
The lower interest rate environment coupled with low vehicle price inflation has
stimulated the motor industry, resulting in Absa Vehicle and Asset Finance
(AVAF) achieving record levels of new business volumes. The establishment of
strategic alliances with key suppliers and manufacturers also contributed to the
solid asset growth.
AVAF`s strategy to diversify its asset mix and to target the corporate and
business markets was successful and was instrumental in offsetting the impact of
lower demand for pre-owned vehicles.
Although improved credit quality was the major contributor to Business Banking
Services` excellent performance for the period, the customer acquisition drive
is paying dividends. A focus on cost optimisation by refining the operating
model, enhanced process efficiencies and innovative product development provides
a sound platform for the remainder of the year.
Wholesale and international banking
The Group`s wholesale and international banking activities recorded a decline in
earnings of 35,8% for the six months under review. This resulted from tough
market conditions, right sizing the balance sheet to align with a lower risk
appetite and a high prior-year earnings base.
The revision of risk appetite in respect of structured trade and commodity
finance, together with the subdued credit demand of corporates, depressed
earnings for the period. Annuity-type transactional business continues to
perform satisfactorily and the merchant banking transaction pipeline for the
remainder of the year holds promise.
The revised business model introduced into Absa Corporate and Merchant Bank
(ACMB) will assist all the respective product areas in combining their efforts
to provide customers with integrated solutions. In addition, emphasis will be
placed on obtaining a greater market share of primary customer relationships.
Proprietary trading declined in the period under review, although the net
trading result was only modestly affected - reducing by 9,0% year-on-year. The
capital and debt markets division performed well with sound earnings growth and
a strong market presence through a number of sizable and innovative
transactions.
The strategy for the international wholesale operations has been repositioned to
focus on trade-related business in selected offshore markets with a strong
emphasis on trade flows to and from Africa. This will result in refocusing these
operations and ensuring better employment of capital.
Other African operations
The headline earnings contribution from African operations outside South Africa
doubled to R42 million for the six months, with the operations in Tanzania and
Mozambique both trading profitably. In these African operations, the emphasis
remains on improving operational efficiencies and growing retail deposits and
commercial assets.
Financial services
The Group`s bancassurance activities again excelled owing to a strong
operational performance and healthy underwriting results. Cross-selling
opportunities were used well and product penetration levels continue to improve.
Favourable weather conditions, reduced instances of underinsurance and increased
property prices assisted the short-term insurance company to post record
underwriting results.
The life assurance operation has maintained its efficiency to maximise the
profitability of strong new business inflows. This, together with equity market
gains, was instrumental in achieving an earnings growth of 22,8% off the high
earnings base of the corresponding period of the previous year.
Net asset value and capital adequacy
The net asset value of the Absa Group increased by 18,2% from 2 749 cents per
share to 3 248 cents per share owing to the strong operational performance.
On the basis of the prescribed consolidated capital requirements of the South
African Reserve Bank (SARB), the Group`s capital stood at 13,4% of risk-weighted
assets at 30 September 2004 (September 2003: 12,7%). Absa Bank`s primary capital
ratio was 8,5% (September 2003: 7,2%) and the secondary capital ratio was 4,5%
(September 2003: 4,1%).
Approach by Barclays PLC
On 23 September 2004, it was announced that Barclays PLC (Barclays), a leading
international financial institution, and Absa were in discussions about a
possible partial offer by Barclays to all Absa shareholders to acquire a
majority stake in Absa. Progress has been made in this regard and discussions
with Barclays are continuing.
Prospects
Credit growth is expected to remain buoyant for the near term and the inflation
outlook and interest rate view remain stable. In view of the low interest rate
environment, interest rate margins are likely to contract marginally over the
next six months. However, the improvement in credit quality and advances growth
should counter any negative impact on the Group`s net interest margins. Barring
a material deterioration in the financial markets, the Group is well positioned
to sustain the performance of the past six months for the full year.
On behalf of the board
D C Cronje S F Booysen
Chairman Group chief executive
22 November 2004
Declaration of ordinary dividend no 36
Notice is hereby given that an interim dividend of 95,0 cents per ordinary share
has been declared and is payable to shareholders recorded in the register of the
company at the close of business on Friday, 24 December 2004.
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, 17 December 2004
Shares commence trading ex-dividend Monday, 20 December 2004
Record date Friday, 24 December 2004
Payment of dividend Tuesday, 28 December 2004
Share certificates may not be dematerialised/rematerialised between Monday, 20
December 2004, and Friday, 24 December 2004, both days inclusive.
On Tuesday, 28 December 2004, the dividend will be electronically transferred to
the bank accounts of certificated shareholders who use this facility. In respect
of those who do not, cheques dated 28 December 2004, will be posted on or about
that date. The accounts of shareholders who have dematerialised their shares
(which are held at their central securities depository participant or broker)
will be credited on Tuesday, 28 December 2004.
On behalf of the board
W R Somerville
Group secretary
22 November 2004
