| Mon 16 May 2005, 9:25 | | African Bank Investments Limited - Interim financi |
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African Bank Investments Limited - Interim financial results for the six month
ended 31 March 2005
African Bank Investments Limited
(Incorporated in the Republic of South Africa)
(Registration number 1946/021193/06)
ISIN: ZAE000030060
Share code: ABL.
Preference Share code: ABLP
Preference ISIN: ZAE000065215
Interim financial results for the six months ended 31 March 2005
Headline earnings of R424 million (H1 2004: R327 million) or 90,2 cents (H1
2004: 69,2 cents) per share
Return on equity of 34,7% (H1 2004: 27,4%) and return on assets of 11,6% (H1
2004: 10,5%)
Interim dividend of 52 cents per share (H1 2004: 35 cents)
Non-statutory cash reserves of R1 421 million including the proceeds of the R500
million preference share issue raised in March 2005
Overview
Positive economic conditions, continuously improving disposable income in the
market sectors that ABIL targets and buoyant demand for credit created
favourable conditions for the group to deliver a strong operating performance
over the last six months. Headline earnings per share increased by 30% to 90,2
cents per share (2004: 69,2 cents). Return on assets improved from 10,5% to
11,6% and this, together with increased capital gearing from 2,6 times to 3,0
times, increased the return on equity from 27,4% to 34,7%.
The groups thrust during the last year has been one of delivering on several of
its long-term strategies for growth - improving market penetration, cost
efficiency and optimal capital structures in order to lower the overall cost of
credit to our clients.
As previously stated the groups appetite for unsecured lending growth is driven
by our view of prevailing market conditions. The sustained low inflation
environment and improving economic conditions of our target client base, due in
part to the success of transformation efforts in the economy, have created a
positive climate for growth. This has allowed the group to flex its credit
criteria and increase the access to credit for our clients. It is anticipated
that these positive economic conditions will continue over the next 12 months.
On a cautious note, however, the impending implementation of the National Credit
Bill will result in some uncertainty until the effects of the regulations have
been fully understood.
Price reductions
ABIL has been steadily reducing its operating costs in order to sustain its long
term market leadership. Given the progress delivered thus far in this area, ABIL
has reduced its prices to clients by approximately 5% from May 2005, through
inter alia an initial reduction of R100 per loan on administration fees charged
to clients for loan origination. Further cost reductions will be passed on to
clients as and when they are achieved.
The full implementation of the groups risk and price differentiation models has
been slower than expected. The models will be fully implemented during the
second half of the year and this will lead to further reduced cost of credit
mainly aimed at our lowest risk customer segments.
Operational performance
The major drivers of the results for the six months to 31 March 2005 were:
Yields - The total yield on advances improved from 59,5% to 62,2%. This was due
to continued changes in the mix of the portfolio towards retail debit order
loans as well as significant write-offs and collections of low-yielding, non-
performing loans and pay-down books. Non-interest income was negatively impacted
by a change in the accounting methodology for administration fees, a portion of
which is now amortised over the life of the loan.
Sales - Turnover increased by 15% to R2,5 billion over the prior period, leading
to a 14% increase in the lending books. The various growth strategies deployed
over the last year in African Bank have resulted in a steady increase in both
the number of clients and the average loan size.
Bad debts - The charge for bad debts was R255 million compared to R238 million
for the prior period, or 9,8% of average interest-bearing advances (H1 2004:
9,3%) and 19,3% of interest income
(H1 2004: 19,3%) reflecting a stable credit environment.
NPLs declined by R440 million in six months (20%), due to the R694 million write
off of old NPLs (primarily from the pay-down books) and continued success in
collections activities.
Operating costs - Expenditure fell by 7% from R508 million to R471 million over
the period. This reduction, combined with increased sales and advances, improved
the cost-to-income ratio to 29,2% and cost-to-advances ratio to 18,2% and the
group remains on track to bring this ratio down to 17% by 2006.
Net financing costs - Other interest income benefited from the early issue of
the ABL3-bond to redeem ABL1, but this was offset by increased interest expense
as a result of the higher gearing levels. ABL1 has since been redeemed and a
R150 million loan from the IFC repaid during the period. The average cost of
funds continued to fall from 13,0% to 12,3% due to a favourable interest rate
environment and the repayment of the more expensive debt.
The above drivers combined to produce an 18% increase in profit before tax from
R607 million to R718 million.
Taxation - The total taxation charge reduced from 46,8% to 40,8%, due mainly to
less STC being paid as a result of the lower special dividend of 53 cents
declared in 2004 (2003: 100 cents).
Divisional performance
African Bank, Miners Credit, the Standard Bank JV and Commercial Vehicle Finance
all delivered strong profit growth, while Credit Indemnitys profit was steady,
primarily as a result of the integration of its business with that of African
Bank. It is expected that this integration process will yield significant
benefits in cost reductions and improvements in client service and product
offering over the next 12 months.
The discontinued businesses produced a R28 million loss, mainly as a result of
reparations provisions raised in GEMS to cater for the expected claims from
clients as well as the expensing of the fines levied against GEMS. The
reparation provisions were taken against interest income, and have to a certain
extent been offset by bad debt provisions being released in other business
units, where, in terms of the court order, the claims could be offset against
existing indebtedness elsewhere in the group. During this period the advances in
African Contractors Finance and ABCommerce have also been written off. As a
result of all of the above actions, there will be no further losses to be
incurred from the discontinued businesses.
Dividends and STC impact
The ABIL board has declared an ordinary interim dividend of 52 cents per share
and a special dividend pursuant to the BEE programme of 70 cents per share. The
combined STC on the above dividends amounts to R73 million or 15 cents per
share, which will be reflected in the tax charge for the second half of the
financial year.
National Credit Bill
As we have previously reported, the Department of Trade and Industry (the dti)
has published a draft National Credit Bill to replace the Usury Act of 1968, the
Credit Agreements Act of 1980 and the Exemption notice to the Usury Act of 1999,
for public comment.
The latest available information is that the draft bill will be introduced to
parliament in May 2005. It is expected that public hearings regarding the
proposed bill will be conducted until the end of 2005 and that the bill is
likely to be enacted into law early in 2006.
ABIL and the industry at large have been involved in an active and open dialogue
with government with regard to specific issues in the draft bill. The bill will
have far-reaching consequences for all credit providers, some of which have not
yet been fully elaborated on by government as the regulations have not yet been
disseminated for public comment. Given the groups history of adaptability and
flexibility it believes it is well poised to both benefit from the opportunities
that will flow from the removal of the current fragmented legislation and steer
itself clear of the risks that are inevitable in such a process of profound
change.
Looking ahead
ABIL is on track to 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. In order to
achieve this, the group anticipates certain trends in its key business drivers.
Growth in the lending books from increased sales are expected to be similar to
that achieved in the first half of the financial year, overall yields will
moderately increase but are expected to peak by September 2005, bad debts remain
steady, and operating costs will further benefit from efficiency strategies
being implemented.
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 have been consistently applied since the prior
period. The group adopted IFRS3 - Business combinations, during the current
reporting period. The impact of this change resulted in the cessation of the
amortisation of goodwill.
Preference dividend declaration
On 12 May 2005, the board of directors proposed and approved dividend No 1 of
169 cents per preference share.
The dividend was calculated using the following parameters:
Average prime for the period 10,76%
Coupon rate as percentage of prime 69%
Number of days 83
Salient dates for dividend payments:
Last day to trade cum dividend Friday, 3 June 2005
Shares commence trading ex dividend Monday, 6 June 2005
Record date Friday, 10 June 2005
Dividend payment date Monday, 13 June 2005
Share certificates may not be dematerialised or rematerialised between Monday, 6
June 2005 and Friday, 10 June 2005.
Interim dividend declaration
On 12 May 2005, the board of directors proposed and approved an interim dividend
No 9 of 52 cents per ordinary share.
Salient dates for dividend payments:
Last day to trade cum dividend Thursday, 9 June 2005
Shares commence trading ex dividend Friday, 10 June 2005
Record date Friday, 17 June 2005
Dividend payment date Monday, 20 June 2005
Share certificates may not be dematerialised or rematerialised between Friday,
10 June 2005 and Friday, 17 June 2005.
Special dividend declaration
On 12 May 2005, the board of directors proposed and approved a special dividend
No 3 of 70 cents per ordinary share, subject to approval of the BEE structure by
shareholders at a general meeting, details of which will be announced at a later
stage.
On behalf of the board
Ashley Mabogoane, Chairman
Gordon Schachat, Executive Deputy Chairman
Leon Kirkinis, Chief Executive Officer
For a full analysis of the results, refer to
http://www.africanbank.co.za
Group income statement
for the six months ended 31 March 2005
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
31 March % 31 March 30 September
R millions 2005 change 2004 2004
Revenue
Interest income on
advances 1 324 8 1 231 2 490
Net assurance income 173 23 141 291
Non-interest income 117 (19) 145 294
Total revenue 1 615 6 1 517 3 074
Charge for bad and
doubtful advances (255) 7 (238) (484)
Risk adjusted revenue 1 360 6 1 279 2 591
Other interest income 87 86 46 118
Interest expense (258) 22 (212) (453)
Operating costs (471) (7) (508) (946)
Net income from
operations 717 18 606 1 310
Share of associate
companies income - (83) 1 1
Net income before
taxation 718 18 607 1 311
Indirect taxation:
VAT and RSC (25) (15) (29) (69)
Direct taxation: STC (66) (16) (78) (100)
Direct taxation:
SA Normal (202) 15 (176) (386)
Net income after
taxation 424 31 323 755
Minority interest - (100) 1 1
Atttibutable earnings 424 31 324 756
Reconciliation of
headline earnings
and per share
statistics
Attributable earnings 424 31 324 756
Adjusted for:
Goodwill amortised - 4 7
Other capital items - (1) (1)
Headline earnings 424 30 327 762
Number of shares
in issue (net of
treasury shares) -
million 466,7 469,7 472,3
Weighted number of
shares in issue -
million 470,7 472,2 471,6
Fully diluted number
of shares in issue -
million 496,5 491,9 489,4
Headline earnings
per share - cents 90,2 30 69,2 161,6
Fully diluted
headline earnings
per share - cents 85,5 29 66,5 155,7
Attributable earnings
per share - cents 90,2 32 68,6 160,3
Fully diluted
attributable earnings
per share - cents 85,5 30 65,8 154,5
Ordinary dividends
per share
Interim - declared -
cents 52 35 35
Final - cents 57
Total ordinary
dividends 52 49 35 92
Special dividend -
declared - cents 70 53
Total dividends -
cents 122 49 35 145
Group balance sheet
as at 31 March 2005
Unaudited Unaudited Audited
31 March % 31 March 30 September
R millions 2005 change 2004 2004
Assets
Fixed assets 124 (24) 162 140
Investments in
associates 10 5 10 10
Policyholders
investments 60 11 54 50
Goodwill 14 (18) 17 14
Deferred tax asset 24 (64) 65 36
Net advances 4 728 5 4 507 4 472
Gross advances 6 014 (4) 6 272 6 129
Impairment provisions (1 286) (27) (1 765) (1 657)
Other assets 101 (9) 111 174
Taxation 5 (30) 7 6
Statutory assets - bank
and insurance 514 3 498 490
Short-term deposits
and cash 1 421 97 723 1 944
Total assets 7 000 14 6 153 7 335
Liabilities and equity
Life fund reserve 87 3 84 79
Subordinated loans 195 2 191 193
Long-term loans and
bonds 2 843 14 2 490 3 524
Short-term money market
funding 671 (3) 694 544
Other liabilities 242 69 143 156
Deferred tax liability - (100) 11 12
Taxation 105 (30) 149 183
Bank overdraft - (100) 2 4
Total liabilities 4 143 10 3 765 4 694
Ordinary shareholders
equity 2 374 - 2 384 2 641
Preference shareholders
equity 483 - - -
Outside shareholders
equity - (100) 4 -
Total equity
(capital and reserves) 2 858 20 2 388 2 641
Total liabilities and
equity 7 000 14 6 153 7 335
Group cash flow statement
for the six months ended 31 March 2005
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
31 March 31 March 30 September
R millions 2005 2004 2004
Cash generated from
operations 1 074 935 1 973
Increase in gross advances (579) (391) (661)
Decrease/(increase) in
working capital 159 (31) (88)
Indirect and direct taxation
paid (369) (238) (445)
Ordinary shareholders
payments and transactions (691) (729) (904)
Preference shareholders
payments and transactions 483 - -
Cash (outflow)/inflow from
investing activities (39) (52) 16
Cash (outflow)/inflow from
financing activities (552) 50 936
(Decrease)/increase in cash
and cash equivalents (514) (456) 825
Cash and cash equivalents
at the beginning of
the period 2 171 1 346 1 346
Cash and cash equivalents
at the end of the period 1 657 890 2 171
Made up as follows:
Short-term deposits
and cash 1 421 723 1 944
Bank overdraft - (2) (4)
Statutory cash reserves
- insurance 236 170 231
1 657 890 2 171
Advances analysis
%
year-on-year March % September % March
R millions growth 2005 growth 2004 growth 2004
Lending
books 14 5 104 9 4 685 5 4 467
Pay-down
books (50) 910 (37) 1 444 (20) 1 804
Gross
advances (4) 6 014 (2) 6 129 (2) 6 272
Less:
Non-interest-
bearing
advances (30) 796 (23) 1 029 (9) 1 135
Gross
interest-
bearing
advances 2 5 218 2 5 100 (1) 5 136
Statement of changes in equity
for the six months ended 31 March 2005
Preference Ordinary Distribu-
share capital share table Treasury
R millions and premium capital reserves shares Total
Balance at
31 March 2004
(unaudited) - 12 2 451 (79) 2 384
Dividends paid - - (165) - (165)
Treasury shares
purchased less
shares issued
to employees
(cost) - - - 24 24
Loss on
settlement of
ABIL share
options - - (35) - (35)
Attributable
earnings for
the six months - - 432 - 432
Balance at
30 September 2004
(audited) - 12 2 684 (55) 2 641
Issue of shares 500 - - - 500
Share issue
expenses (17) - - - (17)
Dividends paid - - (525) - (525)
Treasury shares
purchased less
shares issued
to employees
(cost) - - - (123) (123)
Loss on
settlement of
ABIL share
options - - (43) - (43)
Attributable
earnings for
the six months - - 424 - 424
Balance at
31 March 2005
(unaudited) 483 12 2 540 (178) 2 858
Earnings per business unit
for the six months ended 31 March 2005
31 March 31 March
2005 2004
%
change Rm Rm
Continuing businesses 24 525 422
AB Retail 23 361 294
Credit Indemnity - 75 75
Miners Credit 45 45 31
Standard Bank JV 101 27 13
Commercial Vehicle Finance 84 17 9
Discontinued businesses 76 (28) (16)
Group and Consol >100 (7) (1)
STC (16) (66) (78)
Total 31 424 327
Registered office:
59 16th Road, Midrand, 1685 Private Bag X170, Midrand, 1685
Telephone +27 11 256 9000 Fax +27 11 256 9304
Share transfer secretaries:
Ultra Registrars (Pty) Limited, 11 Diagonal Street, Johannesburg, 2001
Telephone: +27 11 834 2266
E-mail: africanbank@ultrareg.co.za
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
16 May 2005
Sponsor:
Deutsche Securities (SA) (Proprietary) Limited
