| Mon 30 May 2005, 8:40 | | Absa Group Limited: Profit And Dividend Announceme |
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Absa Group Limited: Profit And Dividend Announcement
ABSA GROUP LIMITED
PROFIT AND DIVIDEND ANNOUNCEMENT
JSE Code: ASA
ISIN: ZAE000013389
SALIENT FEATURES
Year ended 31 March
2005 2004 Change 2003
%
Income Statement (Rm)
Headline earnings 5,484 4,447 23.3 3,441
Attributable income 5,511 4,505 22.3 3,391
Balance Sheet (Rm)
Total assets 348,686 306,848 13.6 269,064
Total advances 268,240 222,395 20.6 199,297
Total deposits and current accounts 278,582 234,380 18.9 222,056
Financial Performance (%)
Return on average equity 25.5 24.6 21.4
Return on average assets, excluding
acceptances 1.68 1.55 1.35
Operating Performance (%)
Net interest margin on average assets 3.27 3.40 3.45
Net interest margin on average interest-
bearing assets 3.69 3.87 3.80
Charge for impairment of advances to
average advances 0.52 0.90 1.02
Non-performing advances as % of total
Advances 2.2 3.8 5.1
Non-interest income as % of operating
Income 53.0 52.5 50.8
Cost-to-income ratio 56.8 57.1 60.0
Share Statistics (cents)
Number of shares in issue (million) 655.1 651.1 651.5
Weighted average number of shares
(million) 652.1 645.9 651.5
Weighted average diluted number of
shares (million) 677.3 651.3 651.5
Headline earnings per share 841.0 688.5 22.1 528.1
Diluted headline earnings per share 811.1 682.8 18.8 528.1
Earnings per share 845.1 697.5 21.2 520.5
Diluted earnings per share 815.1 691.7 17.8 520.5
Dividends per share relating to income
for the year 295.0 182.0 62.1 145.0
Dividend cover (times) 2.9 3.8 3.6
Net asset value per share 3,640 2,996 21.5 2,589
Capital adequacy (%)
Absa Bank 11.7 12.3 11.5
Absa Group 12.2 13.0 12.5
GROUP INCOME STATEMENT
For the year ended 31 March
2005 2004 Change 2003
Rm Rm % Rm
Interest income 27,132 28,901 (6.1) 30,299
Interest expense (16,568) (19,183) 13.6 (21,467)
Net interest income 10,564 9,718 8.7 8,832
Impairment of advances (1,283) (1,900) 32.5 (1,957)
Income from lending activities 9,281 7,818 18.7 6,875
Non-interest income 11,914 10,753 10.8 9,127
Operating income 21,195 18,571 14.1 16,002
Operating expenditure (12,761) (11,679) (9.3) (10,731)
Indirect taxation (780) (672) (16.1) (695)
Impairment charge (137) (116) (18.1) (103)
Net income from operations 7,517 6,104 23.1 4,473
Share of associated companies` income 116 119 (2.5) 92
Net income before taxation 7,633 6,223 22.7 4,565
Taxation (2,048) (1,627) (25.9) (1,104)
Net income after taxation 5,585 4,596 21.5 3,461
Minority shareholders` interest (74) (91) 18.7 (70)
Net income attributable to
shareholders 5,511 4,505 22.3 3,391
Headline earnings 5,484 4,447 23.3 3,441
DETERMINATION OF HEADLINE EARNINGS
For the year ended 31 March
2005 2004 Change 2003
Rm Rm % Rm
Headline earnings is determined as
follows:
Net income attributable to shareholders 5,511 4,505 22.3 3,391
Net profit on disposal of property and
equipment (14) (45) 68.9 (30)
Net profit on disposal of available-for-
sale assets and strategic investments (150) (166) 9.6 (16)
Impairment of strategic and available-
for-sale investments, associated
companies and property 30 104 (71.2) -
Goodwill impaired and written-off 107 49 >100.0 96
Headline earnings 5,484 4,447 23.3 3,441
GROUP BALANCE SHEET
At 31 March
2005 2004 Change 2003
Rm Rm % Rm
Assets
Cash and short-term assets 15,184 14,068 7.9 12,617
Money market assets 5,002 3,688 35.6 5,084
Capital market assets 5,940 9,161 (35.2) 10,471
Statutory liquid asset portfolio 14,384 12,598 14.2 12,970
Advances 268,240 222,395 20.6 199,297
Derivative and trading assets 18,534 28,267 (34.4) 13,469
Other assets 8,157 5,846 39.5 5,997
Deferred taxation 181 167 8.4 223
Taxation 5 28 (82.1) 15
Investments 8,412 5,792 45.2 3,506
Associated companies 604 624 (3.2) 450
Property and equipment 2,683 2,597 3.3 2,613
Intangible assets 58 50 16.0 55
Goodwill 139 84 65.5 132
Client liabilities under acceptances 1,163 1,483 (21.6) 2,165
Total assets 348,686 306,848 13.6 269,064
Shareholders` equity and liabilities
Share capital 1,310 1,291 1.5 1,303
Share premium 1,611 1,309 23.1 1,532
Reserves 20,816 16,750 24.3 14,031
Shareholders` equity 23,737 19,350 22.7 16,866
Minority shareholders` equity 228 171 33.3 241
Total shareholders`and minority
shareholders` equity 23,965 19,521 22.8 17,107
Liabilities
Deposits and current accounts 278,582 234,380 18.9 222,056
Derivative and trading liabilities 21,638 30,856 (29.9) 12,050
Other liabilities 7,723 6,256 23.4 5,745
Deferred taxation 2,063 1,331 55.0 1,451
Taxation 489 567 (13.8) 327
Provisions 1,509 1,272 18.6 1,081
Insurance funds 5,964 4,115 44.9 1,396
Other borrowed funds 5,590 7,067 (20.9) 5,686
Liabilities to clients under
Acceptances 1,163 1,483 (21.6) 2,165
Total liabilities 324,721 287,327 13.0 251,957
Total shareholders` equity and
liabilities 348,686 306,848 13.6 269,064
Contingent liabilities 16,630 16,637 0.0 14,275
GROUP STATEMENT OF CHANGES IN EQUITY
At 31 March
2005 2004 2003
Rm Rm Rm
Share capital 1,310 1,291 1,303
Opening balance 1,291 1,303 1,303
Shares bought back - (1) -
Shares issued 8 - -
Consolidation of staff share incentive
trust 11 (11) -
Share premium 1,611 1,309 1,532
Opening balance 1,309 1,532 1,532
Utilised during share buy back - (19) -
Shares issued 112 - -
Consolidation of staff share incentive
trust 190 (204) -
Non-distributable reserves 331 755 443
Opening balance 755 443 1,408
AC 133 opening balance adjustments - 507 -
Movement in foreign currency
translation reserve 30 (286) (711)
Movement in regulatory general credit
risk reserve (332) (119) -
Movement in available-for-sale assets
reserve (75) (2) -
Movement in cash flow hedges reserve (56) 95 -
Movement in insurance contingency reserve 31 34 (5)
Changes in value of investments held
by short-term insurance companies - (5) (300)
Movement in associated companies`
retained earnings reserve (22) 88 51
Distributable reserves 20,485 15,995 13,588
Opening balance 15,995 13,588 11,092
AC 133 opening balance adjustments - (1,165) -
Consolidation of staff share incentive
trust and other (4) 97 -
Transfer (to) insurance contingency
Reserve (31) (34) (29)
Transfer from/(to) associated companies`
retained earnings reserve 20 (92) (65)
Transfer from regulatory general credit
risk reserve 332 119 -
Attributable income 5,511 4,505 3,391
Dividends paid during the year (1,338) (1,023) (801)
Total shareholders` equity at end of year 23,737 19,350 16,866
GROUP CASH FLOW STATEMENT
Year ended 31 March
2005 2004 2003
Rm Rm Rm
Cash flows from operating activities
Cash inflow from operating activities 11,017 9,293 7,715
Net decrease in operating funds (2,182) (3,290) (3,802)
Taxation paid (2,125) (1,890) (1,929)
Net cash inflow from operating
activities 6,710 4,113 1,984
Net cash outflow from investing
activities (3,063) (2,780) (1,012)
Net cash (outflow)/inflow from financing
Activities (2,526) 422 677
Net increase in cash and short-term
assets 1,121 1,755 1,649
Cash and short-term assets at beginning
of year 14,068 12,617 11,688
Other movements (5) (304) (720)
Cash and short-term assets at end of year 15,184 14,068 12,617
PROFIT CONTRIBUTION BY BUSINESS AREA
For the year ended 31 March
2005 2004 Change 2003
Rm Rm % Rm
Banking operations
Retail banking 2,406 1,771 35.9 1,159
Absa Private Bank 18 1 >100.0 -
Personal Financial Services 203 171 18.7 183
Retail Banking Services 404 263 53.6 231
Flexi Banking Services 203 125 62.4 96
Absa Home Loans 897 764 17.4 447
Repossessed Properties (49) (142) 65.5 (241)
Absa Card 440 355 23.9 279
Small Business 290 234 23.9 164
Commercial banking 1,403 992 41.4 714
Business Banking Services 844 589 43.3 425
Absa Vehicle and Asset Finance (AVAF) 559 403 38.7 289
Wholesale banking 843 684 23.2 807
African operations 72 75 (4.0) 91
Capital and funding centre (159) (60) >(100.0) -
Total banking 4,565 3,462 31.9 2,771
Insurance, fiduciary and investment
Operations
Financial services 1,124 890 26.3 604
Corporate centre (205) 95 >(100.0) 66
Total headline earnings 5,484 4,447 23.3 3,441
Absa Group Limited
Profit and dividend announcement
Introduction
Absa continues to deliver sustainable earnings growth
Absa Group Limited is pleased to announce headline earnings of R5 484 million
(841,0 cents per share) for the year ended 31 March 2005. This represents growth
of 23,3% when compared with the headline earnings of R4 447 million (688,5 cents
per share) for the previous financial year. Diluted headline earnings per share
increased by 18,8% to 811,1 cents per share.
Return on average assets improved from 1,55% to 1,68% and the Group delivered a
return of 25,5% on average shareholders` equity (March 2004: 24,6%). A final
dividend of 200 cents per share has been declared, bringing the total dividend
for the year to 295 cents per share, 62,1% higher than the 182 cents paid in
respect of the 2004 financial year. Absa`s dividend cover has been reduced to
2,9 times owing to the Group`s healthy capital position.
The Group`s share price appreciated by 61,7% for the year under review owing to
a significant rerating of the South African banking sector in general and Absa
in particular, coupled with the Barclays offer to acquire a majority stake in
the Group. The Barclays transaction, if approved by shareholders, will
accelerate Absa`s strategy of becoming the leading financial services business
in South Africa and the pre-eminent bank on the African continent.
Buoyant retail market conditions enabled retail and commercial banking to post
excellent results. Quality asset growth, increased transaction volumes and a
reduction in the charge for the impairment of advances underpinned the
performance of these business areas. Absa Financial Services capitalised on the
strong banking performance to cross-sell its products and, assisted by the
strong equity markets, achieved excellent operating results in all of its main
businesses.
After a slow start to the year, the contribution from wholesale banking improved
during the second six months of the financial year - despite the demand for
credit in the corporate sector remaining sluggish. Absa Corporate and Merchant
Bank`s risk appetite for certain products and exposures has been reduced. This,
together with a focus on providing customers with integrated solutions, has
ensured that this area is well positioned for future growth.
Reported headline earnings from banking in other African countries were impacted
by the strong rand, but these operations continue to make progress and are
performing in line with expectations.
Diluted headline earnings per share
The options issued to Absa`s staff share incentive trust, the employee share
ownership programme (ESOP) and Batho Bonke Capital (Proprietary) Limited, Absa`s
black economic empowerment partner, have caused a dilution in headline earnings
per share of 3,6% to 811,1 cents per share. As a consequence, the growth in
fully diluted headline earnings per share was 18,8% compared with the previous
financial year.
Accounting policies
AC 140 (IFRS 3) - Business Combinations - is an accounting statement that
applies to the accounting for business combinations and any resultant goodwill
for which the acquisition 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. The result of this assessment,
which included the consideration of past performance and future prospects,
resulted in an impairment charge of R107 million for the year under review.
The Group`s financial statements comply in all material respects with South
African Statements of Generally Accepted Accounting Practice, which are, other
than as described above, consistent with those applied in the previous year.
The Group will adopt International Financial Reporting Standards (IFRS) for the
new financial year. Although the full impact of IFRS was analysed, alignment
with the policies of Barclays will be required if Absa`s shareholders approve
the Barclays offer to acquire a majority stake in the Group. Details of these
elections made in terms of IFRS and their impact will be communicated in due
course.
KPMG Inc. and Ernst & Young have audited the results for the year ended 31 March
2005. Their unqualified audit opinion is available for inspection at the
registered office of Absa Group Limited.
Operating environment
Real economic activity improved further during the course of 2004/05, with the
gross domestic product increasing by an estimated 4,2% on the previous year.
The improvement in domestic demand was the main cause of the accelerating growth
trend during the first half of the financial year. Household consumption
expenditure continued to expand rapidly during the second half of the 2004/05
financial year.
However, the mining sector eventually started to succumb to the effects of the
strong rand and, despite the global economy experiencing one of its best growth
rates in a number of decades and high and rising commodity prices, the further
strengthening of the rand created some challenges for South African exporters.
In addition to this, agriculture had to contend with weak domestic and global
food commodity prices. Manufacturing production growth also started to lose
momentum during the early part of 2005.
Fortunately these effects were offset by relatively low inflation and interest
rates, which edged down again in August 2004. This, together with other factors
such as rising disposable incomes, facilitated a further improvement in the
borrowing capacity of households. A moderate rebound in the corporate sector`s
financing demand served to underpin the strong growth in total loans and
advances extended to the private sector during the year.
Group performance
Net interest income increased by 8,7% because of strong advances growth of
20,6%, offset by a decline of 13 basis points in the net interest margin. This
decline is primarily attributable to the reduced margin earned on the Group`s
capital and savings and cheque deposits in the lower interest rate environment,
a slight change in the funding mix in favour of wholesale deposits and the
impact of increased competition on customer lending rates.
The low interest rate environment continues to have a positive impact on the
affordability of consumer credit as well as debt servicing costs. Household debt
relative to disposable income was at approximately 57,5% during the last quarter
of the financial year, up from 52,6% a year ago, but debt cost to disposable
income is at its lowest level in 20 years.
This, together with the maintenance of prudent credit approval criteria and
further enhancements to credit management techniques, supported the continued
improvement in the quality of the advances book. As a result, the charge for the
impairment of advances to average advances decreased to 0,52% (March 2004:
0,90%). Non-performing advances as a percentage of total advances decreased from
3,8% (March 2004) to 2,2% at 31 March 2005.
Non-interest income as a percentage of operating income improved marginally from
52,5% to 53,0%. For the year under review, the growth of 16,3% in annuity-based
transaction fees, representing 65,5% of total non-interest income, was
particularly pleasing. Areas contributing to this growth included increased
transaction volumes, specifically in electronic banking and card processing.
Gross trading income improved somewhat during the second half of the financial
year, but was still lower than that earned in the 2004 financial year. A reduced
risk appetite for proprietary trading and non-directional markets resulted in
lower earnings.
Insurance-related income benefited from the increased volumes generated by the
retail banking business units, new products, product bundling and improved
underwriting loss ratios. The listed equities investment portfolio held by
Financial Services returned R303 million, compared with an appreciation of R317
million for the previous financial year.
The cost-to-income ratio, at 56,8%, edged closer to the Group`s objective of
lowering this ratio to the mid-fifties. This was achieved despite substantial
investments in the expansion of the Group`s delivery footprint and compliance
initiatives of a regulatory nature. Operating expenditure increased by 9,3%
compared with top-line income growth of 9,8%.
Segmental reporting
Retail banking
Retail banking increased its headline earnings contribution by 35.9% to R2 406
million, with strong performances from all segment and product business units.
Mortgage and credit card advances grew by 24,7% and 22,8% respectively. Growth
in fees and commissions amounted to 20,6%, primarily owing to increased
transaction volumes. The increase in customer numbers from 5,7 million to 6,9
million during the financial year was encouraging.
The strong growth in residential property values over the past few years had a
notably positive impact on the net worth of customers, with an accompanying
marked improvement in credit quality. The credit impairment charge in the retail
market declined by 40,8%. This charge, as a percentage of average advances, was
reduced to 30 basis points.
During the year under review, 14 new staffed outlets were opened, and a further
31 were upgraded. An additional 576 automated teller machines were rolled out -
in traditional business areas and historically disadvantaged communities. The
improved service levels and reach as a result of this expansion will enhance the
Group`s ability to comply with the financial sector charter and will further
enable the Group to deliver sustainable earnings growth.
Commercial banking
The commercial banking segment continued its impressive headline earnings
growth, up 41,4% on last year because of solid advances and deposit growth and
improved credit quality.
The lower interest rate environment, coupled with low vehicle price inflation,
stimulated the motor industry, resulting in Absa Vehicle and Asset Finance
(AVAF) achieving record levels of new business volumes. New business referred by
dealers increased as a consequence of the growing number of strategic alliances
and joint finance companies formed between AVAF and major dealer groups and
manufacturers. The focus on achieving diversification outside the motor vehicle
industry paid dividends and contributed to AVAF`s impressive earnings growth.
A successful customer acquisition drive and the buoyant property market further
boosted strong advances and earnings growth from commercial property finance.
This, together with the focus on cost optimisation and enhanced process
efficiencies in Business Banking Services, resulted in headline earnings growth
of 43,3%.
Business Banking Services retained its leading market position in the public
sector and has gained market share in agribusiness and the large and medium
business segments.
Wholesale and international banking
Following the relatively weak earnings performance of the first six months, the
review of the Group`s wholesale and international banking strategy began to pay
dividends during the latter months of the financial year. As a result, headline
earnings grew by 23,2% compared with the previous financial year.
Merchant banking, particularly the capital and debt markets and debt solutions,
posted strong performances, ably assisted by transactions in the project finance
area. Commodity finance in the Group`s offshore operations performed
satisfactorily because of strong commodity prices and demand, especially from
China. The balance sheets of the international operations contracted during the
year, in line with the Group`s reduced risk appetite in these markets. Their
contribution to Group earnings improved compared with the previous year.
Other African operations
Good operational performances from African operations outside South Africa were
not sufficient to offset the impact of the strong rand and the headline earnings
contribution remained in line with the previous year. Subsequent to the year-
end, regulatory approval was received for the acquisition of a controlling stake
in Banco Comercial Angolano in Angola.
Financial services
The Group`s bancassurance model again proved its worth, with improved cross-
selling and product penetration levels contributing to the strong operational
performance. Underwriting results remain healthy and equity markets grew
handsomely for the second consecutive year.
Favourable weather conditions, the correction of under-insurance levels,
increased non-mortgage-related business and efficient claims management 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, enabled the posting of earnings growth of 34,6% off the high earnings
base of the previous year.
Net asset value and capital adequacy
The net asset value of the Absa Group increased by 21,5% from 2 996 cents per
share to 3 640 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 12,2% of risk-weighted
assets at 31 March 2005 (March 2004: 13,0%). Absa Bank`s primary capital ratio
was 8,3% (March 2004: 7,7%) and the secondary capital ratio was 3,4% (March
2004: 4,6%).
Approach by Barclays Bank PLC
Barclays Bank PLC (Barclays), a leading international financial services
institution, recently announced its formal offer to Absa shareholders to acquire
a controlling stake in the Group. The transaction, still to be approved by
shareholders, will be the largest foreign direct investment in South Africa`s
history and underlines the commitment of Barclays to both Absa and South Africa.
The Barclays offer will enable Absa to enhance its South African franchise and
sends a positive signal to international capital markets about South Africa as
an investment destination.
Absa will retain its South African character and will continue to be listed on
the JSE Securities Exchange South Africa. The transaction will create value for
all Absa`s stakeholders and will improve the Group`s competitiveness.
Prospects
Demand for credit growth is expected to be buoyant for the near term. Inflation
and interest rates are expected to remain stable, although the possibility of a
further downward adjustment in interest rates cannot be ruled out. In view of
the low interest rate environment, interest rate margins are likely to contract
further over the next year, but continued good advances growth - albeit at a
slower pace - and sound credit quality should counter any negative impact on the
Group`s net interest margins.
The Group is well positioned to sustain its good performances of the past three
years. The Barclays transaction, if approved by shareholders, will add impetus
to this performance. Shareholders should note that a successful conclusion to
the Barclays transaction could result in Absa`s year-end changing from March to
December, resulting in a nine-month financial reporting period for the period
ending 31 December 2005
On behalf of the board
D C Cronje S F Booysen
Chairman Group chief executive
30 May 2005
Declaration of ordinary dividend number 37
Shareholders are advised that a final dividend of 200 cents per ordinary share
was declared on 9 May 2005 and is payable to shareholders recorded in the
register of members of the company at the close of business on Friday, 24 June
2005.
In compliance with the requirements of Strate, the electronic settlement and
custody system used by the JSE Securities Exchange South Africa, the following
salient dates for the payment of the dividend are applicable:
Last day to trade cum-dividend Friday, 17 June 2005
Shares commence trading ex-dividend Monday, 20 June 2005
Record date Friday, 24 June 2005
Payment of dividend Monday, 27 June 2005
Share certificates may not be dematerialised or rematerialised between Monday,
20 June 2005 and Friday, 24 June 2005, both days inclusive.
On Monday, 27 June 2005, 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 27 June 2005 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 Monday, 27 June 2005.
On behalf of the board
W R Somerville
Group secretary
30 May 2005
