| Wed 17 Aug 2005, 9:41 | | Standard Bank Group Limited - Interim results and |
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Standard Bank Group Limited - Interim results and dividend announcement
for the six months ended 30 June 2005
Standard Bank Group Limited
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Reg No 1969/017128/06)
JSE Limited
Share code: SBK
ISIN: ZAE000057378;
Share code SBKP
ISIN: ZAE000038881; and
Share code SBPP
ISIN: ZAE000056339
Namibian Stock Exchange
Share code: SNB
ISIN: ZAE000057378
INTERIM RESULTS AND DIVIDEND ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE
2005
Headline earnings of R4 billion, up 18% (23% normalised*)
Headline earnings per share 31% higher (22% normalised*)
ROE of 26,7% (23,7% normalised*)
Credit loss ratio of 0,46%
Dividend cover maintained at 2,5 times
Dividends per share up from 50,5 cents to 122,0 cents (based on revised
interim dividend policy)
Overview of financial results
Standard Bank Group headline earnings per share for the six months to June
2005 increased by 31% to 327,4 cents per share and a return on equity of
26,7% was achieved. These earnings reflect the consequences of applying a
number of accounting conventions which distort both the legal and economic
substance.
In order to correct these distortions, this effect has been adjusted in
arriving at normalised earnings (see details elsewhere). On this basis
normalised headline earnings per share growth was 22% and return on equity
a more realistic 23,7%.
The South African economic environment continued to be favourable for the
group`s domestic banking operations. Low nominal interest rates combined
with robust growth in property and equity markets, continued to boost
consumer credit demand. For the six months under review, inflation
(measured by CPIX) averaged 3,6% and interest rates reduced by a further
50 basis points. Domestic corporates benefited from strong household
consumption and pressure on exporters reduced as the rand weakened by 19%
against the dollar at period end. However, higher liquidity in the
corporate market kept credit demand at subdued levels.
Retail Banking increased headline earnings by 30% over the comparable
period, benefiting from continued focus on customer service and low credit
default experience. Retail loan growth of 33% was underpinned by a 26%
year-on-year increase in residential property prices and a 28% growth in
new motor vehicle sales. Buoyant consumer activity increased transaction
volumes across most products, resulting in fee and commission income
growing by 16% despite modest price increases.
Corporate and Investment Banking increased headline earnings by 10%. The
division reported satisfactory growth in trading revenue and continued
gains from listed property investments. Net interest income was negatively
impacted by tighter margins as competitive pressures increased, however
this effect was mitigated by further credit recoveries.
International`s headline earnings were 2% lower in US dollars. In common
with many competitors active in emerging markets, pricing pressures and
low client activity levels resulted in lower than expected revenues.
Trading revenue reduced by 27% in rand terms, mainly due to substantially
lower trading opportunities in fixed income and credit markets, but also
due to intentional reductions in proprietary risk. Recoveries of
previously provisioned non-performing exposures provided a boost to
results. Translated into rand at a stronger average rate, earnings from
this entity decreased by 8%.
Earnings from Africa (excluding South Africa) grew by 16%. Alignment of
Africa`s retail and corporate business activities with operations in South
Africa is gaining momentum and we continue to deploy domestic technology
and expertise. Fee income generation was a highlight across the network,
but higher credit impairment charges off a low base dampened the rate of
earnings growth.
Liberty Group Limited (Liberty Life) increased its contribution to
normalised headline earnings by 87% during a period characterised by
stronger local equity markets and good growth in new business.
Implementation of IFRS
The group has implemented International Financial Reporting Standards
(IFRS) effective 1 January 2005. Details relating to the changes resulting
from the adoption of IFRS are set out in a separate announcement published
alongside this interim results announcement. The most significant impact
on the group`s published results is that Standard Bank Group and Liberty
Holdings shares held by Liberty Group for the benefit of its policyholders
are now deemed to be treasury shares for accounting purposes.
The adoption of IFRS in general, and the treatment of deemed treasury
shares in particular, have increased the potential for greater volatility
in reported earnings. As IFRS are implemented internationally, new
accounting interpretations could be issued or existing interpretations
revised and these may impact reported results.
* Normalised headline earnings
As indicated previously, normalised headline earnings have been adjusted
for required accounting conventions that do not reflect the underlying
legal and economic substance of transactions. A common element in these
transactions relates to shares in issue deemed by accounting convention to
be treasury shares. Consequently the number of shares used for per share
calculation purposes are materially understated resulting in inflated per
share ratios. With regard to segmental reporting, normalised adjustments
have been made centrally and the business unit results are therefore not
affected.
Black Ownership Initiative
In terms of the accounting treatment of the Black Ownership Initiative
concluded in October 2004, preference share funding to the empowerment
participants by the group is not recognised as an asset but deducted from
equity. Income legally accrued on these preference shares is not
reflected in income. Perpetual preference shares raised to fund the
transaction is classified as equity and thus dividends are only accounted
for when declared. The delivery of the ordinary shares to the black
participants, although legally affected, are deemed treasury shares for
accounting purposes until eventual redemption or refinancing of the
preference share funding. The `normalised` calculation adjusts headline
earnings for preference dividends receivable but not in income and
reverses the elimination of preference shares against equity. Dividends
declared on perpetual preference shares are adjusted to an accrual basis.
In addition, in calculating normalised headline earnings per share, the
number of shares held by black participants is added back to the weighted
number of shares in issue.
Deemed treasury shares
Group companies` shares held by Liberty Life are invested for the risk and
reward of its policyholders, not its shareholders, and consequently the
group`s shareholders are exposed to an insignificant portion of the fair
value changes on these shares. In terms of IFRS, Standard Bank and
Liberty Holding shares held by Liberty Life on behalf of policy holders
are deemed treasury shares and the investment in these shares is
accordingly set off against equity in the group`s financial statements.
The cost price of these shares is eliminated against ordinary shareholders
funds and minority interests on consolidation. The elimination is
attributable to Standard Bank ordinary shareholders to the extent of the
effective holding in Liberty Life (30%). The weighted average number of
shares in issue for earnings per share is calculated by deducting the full
number of group shares held (100%), as the accounting standard IAS 33:
Earnings per share, does not contemplate minority portions of treasury
shares. For purposes of calculating the normalised numbers and ratios,
the adjustments described above are reversed and the group shares held are
treated as assets invested on behalf of policyholders. The results of the
adjustments are as follows.
Normalised headline earnings
Weighted Headline Growth on
number of earnings June 2004
shares
`000 Rm %
Disclosed in terms of IFRS 1 203 776 3 941 18
Black Ownership Initiative
Dividend receivable on 8,5% 99 190 182
preference shares
Dividend payable on 2
perpetual preference shares
adjusted to an accrual
basis
Group shares held on behalf 50 738
of policy holders
Fair value movements on (30)
group shares held on behalf
of policyholders
Dividends received on group 31
shares held on behalf of
policyholders
Normalised for Black 1 353 704 4 126 23
Ownership Initiative and
group shares held on behalf
of policyholders
Headline earnings per share 327,4 31%
as disclosed (cents)
Normalised headline 304,8 22%
earnings per share (cents)
Income statement analysis
Net interest income - up 11%
Growth in net interest income was supported by strong asset growth in all
domestic asset classes. Significant growth areas were mortgage lending,
card debtors, instalment finance and medium-term finance for corporates.
Following a further 70 basis point reduction in the domestic average prime
interest rate, interest margins in Domestic Banking reduced by 26 basis
points. The negative impact of the lower prime rate on margins was
exacerbated by increased reliance on more expensive wholesale funding to
support the retail lending growth combined with a strategy to lengthen the
term structure of the funding book in line with prudent internal liquidity
guidelines. The increased utilisation of mortgage originators further
reduced Retail Banking lending margins.
In International, high levels of liquidity and competition in emerging
markets caused significant pricing pressure but satisfactory loan growth
and increases in LIBOR rates resulted in some increase in net interest
income.
Impairment charges on loans and advances - reduced 23%
The group`s credit loss experience has benefited in recent years from a
combination of improved internal risk processes and a benign credit
environment. The credit loss ratio of 0,46% compares to a ratio of 0,72%
for the first half of 2004 and 0,43% for the 2004 year. A sequential
comparison of the six month periods may be more instructive: credit
experience improved from the first half of 2004 to an exceptionally
favourable position in the second half of 2004, and has subsequently
deteriorated in 2005. Nevertheless, the position at 30 June is better than
our expectations.
Impairment charges for non-performing loans of R496 million were 22% lower
than for the first six months of 2004. This reduction was mainly as a
result of net recoveries and rehabilitation of previously impaired
corporate loans in International and Corporate and Investment Banking.
Impairment charges for performing loans, now calculated on an incurred
loss method under IFRS, were R142 million for the period, 26% lower than
in the prior period. Lower current loss experience which is used to model
losses in the performing book was slightly offset by a larger provision
requirement due to the strong growth of the domestic lending books.
Non-performing loans increased over the period across most asset classes
but as a percentage of the book have remained constant. Non-performing
loans are well covered as the gross coverage ratio, calculated as
impairment of non-performing loans as a percentage of these loans before
deducting security, increased from 48% to 49% while the net coverage ratio
remained at 100%.
Non-interest revenue - up 11%
Fees and commission revenue increased by 15%, other sources of non-
interest income grew by 40% against a reduction in trading revenue of 5%.
Strong growth in fee revenue was experienced in all major product
categories, assisted by growth in both transaction volumes and the retail
customer base. Card-based commission grew by 22% and the number of current
accounts increased by 14% contributing to a 13% increase in revenues from
branch related transactions. Good internet transaction growth for both
retail and corporate banking resulted in a 15% growth in electronic
banking revenue. Fee revenue in Africa grew by 22%, benefiting from higher
transaction volumes and a review of fee structures across the network.
Trading income in International reduced by 22% in dollar terms. Commodity
trading income was lower due to subdued deal flow compared to a strong
performance in the previous year. Domestically, trading income grew by
21%, mainly as a result of the bank`s strong presence in local interest
rate and foreign exchange markets.
Growth in other income resulted mainly from gains in listed property
investments.
Operating expenses - up 13%
Costs increased by 16% in Domestic Banking and Africa and 7% in dollar
terms in International.
Staff costs increased by 15% and other operating expenses by 10%, domestic
staff costs being significantly impacted by additional staff required to
comply with FICA and other regulations, and by increased business volumes.
Staff costs include the amortised cost of the group`s share option scheme
in terms of IFRS and the amortisation of equity rights granted to black
managers under the group`s Black Ownership Initiative.
In an increasingly competitive environment, a high level of staff
productivity needs to be maintained. Consequently the group has initiated
a managerial productivity assessment of approximately 4 000 managerial and
executive positions in the group`s head office. Furthermore a separate
review is underway on domestic regional structures. These assessments will
take place by September and any resultant headcount reduction should be
known by the end of the year.
Growth in other operating expenses resulted mainly from increased
communication costs in call centres where FICA requirements were the main
driver of increased communication volumes. Increased IT production and
development activity resulted in increased expenses on software purchases
and hardware maintenance costs.
Taxation
Tax charges include both banking operations and total shareholder and
policyholder taxes from the life operations. The banking operations`
effective tax rate for the period ended 30 June 2005 reduced to 26,8%
(June 2004: 30,3%). The direct tax rate reduced from 26,9% to 22,0% year-
on-year primarily as a result of the decrease in the SA corporate tax rate
and a corresponding reduction in the deferred tax liability released to
the income statement offset to some extent by an increase in STC as a
result of the lower dividend cover. The indirect tax rate increased from
3,4% to 4,8%. Although the VAT recovery rate remained relatively constant,
increased taxable expenditure raised input VAT payable resulting in higher
VAT absorbed costs.
Balance sheet
The domestic loans and advances book continued its strong growth fuelled
by a buoyant property market and record sales of private new vehicles. The
key lending product categories performed as follows:
-mortgage loans were 38% higher, with an increase of 14% in the number of
new mortgage loans and a 30% increase in average loan value;
-instalment finance loans increased by 19%; and
-card debtor balances grew by 47% reflecting high consumer spending,
increased usage of revolving facilities and a 20% increase in new account
openings.
Corporate loan growth increased by 12% primarily driven by an increase in
term lending.
The substantial growth in domestic loans and advances necessitated a
concerted programme to maintain liquidity within prudent targets. This
included large increases in short-term money market instruments and liquid
government stock coupled with a lengthening of the domestic funding
profile. Accordingly, cash and short-term negotiable securities increased
significantly and treasury term deposits grew by 46%.
Despite a slow-down in the general level of domestic consumer savings in
South Africa, customer deposits and current accounts grew by 19%,
reflecting Retail Banking`s increased focus on deposit taking activities.
Ordinary shareholders` equity grew by 2% since June 2004 to R30 billion
after the impairment arising from the Black Ownership Initiative concluded
in October 2004 of R4 billion and the elimination of group shares of R1
billion that are held for the benefit of Liberty Life policyholders and
now deemed to be treasury shares for accounting purposes. The weaker
closing rand/dollar exchange rate increased the group`s foreign currency
translation reserve by R1 billion.
Liberty Life
After taking goodwill impairments into account, embedded value per share
rose by 8% since the 2004 comparative period. Liberty`s market share of
new individual life single premiums improved to 32% during the period and
market share of new individual life recurring premiums declined from 28%
at March 2004 to 25% at March 2005.
The Liberty Life interim results to 30 June 2005 include the results of
Capital Alliance (CAHL) for 3 months since the effective acquisition date
of 1 April 2005. Goodwill on the R3 billion acquisition of R312 million
has been fully impaired, as the CAHL policy portfolios are to be fully
absorbed into Liberty`s operations and consequently their future cash
flows will not be separately tracked.
Capital
The group`s primary capital adequacy reduced from 11,0% at December 2004
to 10,8% due to the combined effect of growth in risk-weighted assets, the
reduction in the group`s dividend cover and share buy-backs. The group
repurchased approximately 4,4 million shares during the period under
review in order to partially counter the dilutive effect of shares issued
on exercise of share options. The group`s total capital adequacy ratio
remained unchanged at 15,0% due to net increases in Tier II capital.
Dividends
In March 2005 the group announced a revised dividend policy using a
dividend cover ratio for both interim and year-end dividends. Due to the
increased number of shares eliminated in terms of IFRS, dividend cover
will now be applied to normalised headline earnings per share for the
purpose of arriving at dividend declarations. At December 2004 the cover
ratio was 2,5 times and this ratio has been maintained for the interim
dividend. This is in contrast to the previous interim dividend policy
which was based on one third of the prior year`s total dividend.
Accordingly, a dividend of 122,0 cents (June 2004: 50,5 cents) has been
declared, an increase of 142%.
Prospects
The group`s 2005 growth expectations remain positive notwithstanding an
anticipated marginal contraction in global economic growth. Domestically
margins are likely to remain under pressure and credit charges, still
historically low, are expected to increase. Retail lending and
transactional income streams should however continue to benefit from
buoyant consumer activity and domestic cost growth is receiving increased
focus. Internationally, high levels of global liquidity and increased
competition in emerging markets are expected to dampen interest and
trading margins but there are some recent signs of improvement in client
deal flow. The group`s operations in other African countries are expected
to continue their growth trend.
Whilst credit charges at the interim stage are substantially lower than
the comparative period, it is nevertheless expected that credit charges
for the full year will show a significant increase over the prior year.
Accordingly, growth in normalised headline earnings per share for the full
year is unlikely to be as high as in the first half and should be more in
line with our published growth objective of CPIX plus 10%.
As noted above, the introduction of IFRS is likely to result in greater
volatility in reported earnings.
Jacko Maree, Chief Executive Derek Cooper, Chairman
Declaration of dividends
Notice is hereby given that the following interim dividends have been
declared:
- ordinary dividend No. 72 of 122,0 cents per ordinary share (share
codes: SBK and SNB, ISIN: ZAE000057378), payable on Monday, 19 September
2005, to ordinary shareholders recorded in the books of the company at
the close of business on the record date, Friday 16 September 2005. The
last day to trade to participate in the dividend is Friday, 9 September
2005. Ordinary shares will commence trading ex-dividend from Monday, 12
September 2005;
-6,5% first cumulative preference shares (first preference shares)
dividend No. 72 of 3,25 cents per first preference share (share code:
SBKP, ISIN: ZAE000038881), payable on Monday, 12 September 2005, to
holders of first preference shares recorded in the books of the company
at the close of business on the record date, Friday 9 September 2005. The
last day to trade to participate in the dividend is Friday, 2 September
2005. First preference shares will commence trading ex-dividend from
Monday, 5 September 2005; and
-non-redeemable, non-cumulative, non-participating preference shares
(second preference shares) dividend No. 2 of 374,74 cents per second
preference share (share code: SBPP, ISIN: ZAE000056339), payable on
Monday, 12 September 2005, to holders of second preference shares
recorded in the books of the company at the close of business on the
record date, Friday 9 September 2005. The last day to trade to
participate in the dividend is Friday, 2 September 2005. Second
preference shares will commence trading ex-dividend from Monday, 5
September 2005.
Ordinary shares 6,5% Non-
cumulative redeemable,
preference non-
shares (First cumulative,
preference non-
shares) participating
preference
shares
(Second
preference
shares)
JSE Limited (JSE)
Share code SBK ZAE000057378 SBKP SBPP
ISIN ZAE000038881 ZAE000056339
Namibian Stock Exchange(NSX)
Share code
ISIN SNB ZAE000057378
Dividend number 72 72 2
Dividend per share (cents) 122.0 3.25 374.74
Dividend payment dates
Last day to trade `CUM` Friday Friday Friday
dividend 9 September 2005 2 September 2 September
2005 2005
Shares trade `EX` dividend Monday Monday Monday
12 September 5 September 5 September
2005 2005 2005
Record date Friday Friday Friday
16 September 9 September 9 September
2005 2005 2005
Payment date Monday Monday Monday
19 September 12 September 12 September
2005 2005 2005
Ordinary share certificates may not be dematerialised or rematerialised
between Monday, 12 September 2005 and Friday, 16 September 2005, both days
inclusive.
Preference share certificates (first and second) may not be dematerialised
or rematerialised between Monday, 5 September 2005 and Friday, 9 September
2005, both days inclusive.
Where applicable, dividends in respect of certificated shares will be
transferred electronically to shareholders` bank accounts on payment date.
In the absence of specific mandates, dividend cheques will be posted to
shareholders. Preference shareholders who have dematerialised their share
certificates will have their accounts at their CSDP or broker credited on
Monday, 12 September 2005. Ordinary shareholders who have dematerialised
their share certificates will have their accounts at their CSDP or broker
credited on Monday, 19 September 2005.
By order of the board,
Loren Wulfsohn,
Group Secretary
Financial statistics
% Six months Six months Year ended
change ended ended
June 2005 June 2004 Dec 2004
R million R million R million
Unaudited Unaudited Audited
Standard Bank Group
Shares (millions)
Number of ordinary shares
end of period 1 202 1 346 1 253
weighted average 1 204 1 342 1 322
Cents per ordinary share
Headline earnings 31 327,4 249,0 570,3
Dividends >100 122,0 50,5 231,5
Earnings 29 322,0 248,9 581,4
Fully diluted earnings 25 309,1 247,8 573,8
Net asset value 14 2 536 2 225 2 320
Financial performance (%)
Return on equity 26,7 22,7 26,0
Standard Bank operations
Financial performance (%)
Return on equity 26,6 24,0 27,2
Cost-to-income ratio 57,0 56,2 58,0
Effective tax rate (including
indirect taxes) 26,8 30,3 28,3
Capital adequacy (%)
Capital ratio
primary capital 10,8 11,3 11,0
total capital 15,0 14,9 15,0
Consolidated balance sheet
June 2005 June 2004 Dec 2004
% R million R million R million
change Unaudited Unaudited Audited
Assets
Cash and balances with banks 50 60 994 40 561 37 842
Short-term negotiable securities 71 28 060 16 362 21 040
Derivative assets 36 103 434 76 199 124 236
Trading assets 5 33 550 31 965 32 204
Investments 31 141 923 108 585 121 897
Loans and advances 26 291 879 231 447 257 151
Current and deferred tax assets >100 1 382 658 1 094
Other assets 23 31 219 25 315 18 578
Interest in associates and joint 36 330 242 296
ventures
Goodwill and other intangible >100 2 105 821 918
assets
Property and equipment (2) 4 031 4 102 4 114
Total assets 30 698 907 536 257 619 370
Equity and liabilities
Equity 3 37 642 36 521 38 533
Equity attributable to ordinary 2 30 498 29 953 29 064
shareholders
Ordinary share capital 135 135 135
Ordinary share premium (1) 2 405 2 427 2 541
Reserves 2 27 958 27 391 26 388
Preference share capital and >100 2 991 8 2 991
premium
Minority interest (37) 4 153 6 560 6 478
Liabilities 32 661 265 499 736 580 837
Derivative liabilities 46 103 322 70 672 116 212
Trading liabilities >100 28 992 12 751 14 410
Deposit and current accounts 25 366 495 294 148 316 592
Current and deferred tax 94 5 332 2 745 4 176
liabilities
Other liabilities and provisions (17) 21 892 26 450 22 454
Policyholder liabilities 47 124 177 84 595 97 500
Subordinated bonds 32 11 055 8 375 9 493
Total equity and liabilities 30 698 907 536 257 619 370
Consolidated income statement
% Six months Six months Year
change ended ended ended
June 2005 June 2004 Dec 2004
R million R million R million
Unaudited Unaudited Audited
Income from banking activities 11 13 951 12 540 26 536
Net interest income 11 6 008 5 395 11 492
Interest income 9 18 135 16 682 35 247
Interest expense 7 12 127 11 287 23 755
Non-interest revenue 11 7 943 7 145 15 044
Income from insurance activities >100 20 023 8 140 31 298
Net insurance premiums and
service fees 48 9 068 6 115 12 115
Investment returns >100 10 955 2 025 19 183
Total income 64 33 974 20 680 57 834
Impairment charges on loans and
advances (23) 638 830 1 050
Benefits due to policyholders >100 15 982 5 475 24 586
Net insurance benefits and claims
Transfer and fair value 6 350 5 006 19 365
adjustment to policyholder
liabilities
Fair value adjustment on third 8 517 137 4 077
party mutual fund liabilities
1 115 332 1 144
Net income after impairment
charges and policyholder benefits
21 17 354 14 375 32 198
Operating expenses in banking
operations 13 7 953 7 050 15 384
Staff costs 15 4 557 3 969 8 610
Other operating expenses 10 3 396 3 081 6 774
Operating expenses in insurance
operations 24 2 500 2 010 4 120
Commissions 16 1 159 997 1 920
Expenses 32 1 341 1 013 2 200
Profit from operations 30 6 901 5 315 12 694
Goodwill impairment (330) (25) (48)
Income from associates and joint
ventures 15 53 46 97
Profit before tax 24 6 624 5 336 12 743
Indirect tax expense 259 159 389
Profit before direct tax 23 6 365 5 177 12 354
Direct income tax expense 38 1 991 1 443 3 277
Profit for the period 17 4 374 3 734 9 077
Attributable to minorities 384 393 1 393
Attributable to preference
shareholders 114 - -
Attributable to ordinary
shareholders 16 3 876 3 341 7 684
Headline earnings
Six Six Year
months months ended
ended ended
June 2005 June 2004 Dec 2004
% R million R million R million
change Unaudited Unaudited Audited
Group profit for the period 17 4 374 3 734 9 077
Attributable to minorities (2) 384 393 1 393
Attributable to preference
shareholders 114 - -
Attributable to ordinary
shareholders 16 3 876 3 341 7 684
Adjustable items added back or
reversed: 284 (43) (562)
Goodwill impairment 330 25 48
Impairment of properties and
equipment - - 15
Other capital losses - - 5
Profit on sale of properties and
equipment (46) (7) (44)
Impairment of intangibles - - 12
Recycled investment gains on
available-for-sale assets - (61) (598)
Tax on headline adjustable items 1 4 7
Minority share of headline
earnings adjustable items (220) 41 409
Headline earnings 18 3 941 3 343 7 538
Unaudited
Normalised headline earnings 23 4 126 3 343 7 511
Standard Bank operations 21 3 898 3 221 7 156
Liberty Life 87 228 122 355
Segmental report
Six Six Year
% months months ended
change ended ended
June 2005 June 2004 Dec 2004
R million R million R million
Unaudited Unaudited Audited
Headline earnings
Domestic Banking 19 3 043 2 550 5 790
Retail Banking 30 1 550 1 196 2 980
Corporate and Investment Banking 10 1 398 1 271 2 796
Other domestic operations 95 83 14
International (8) 319 348 647
International (USD million) (2) 51 52 101
Africa 16 338 292 616
Stanlib >100 48 21 56
Central funding and eliminations (21) 10 78
Standard Bank operations 16 3 727 3 221 7 187
Liberty Life 75 214 122 351
Standard Bank Group 18 3 941 3 343 7 538
Consolidated statement of changes in equity
Ordinary Preference Minority Total
shareholders share interest equity
equity capital
and premium
R million R million R million R million
Audited Audited Audited Audited
Balance at 1 January 2004 28 835 8 6 421 35 264
Change in accounting
policy (91) (5) (96)
Restated balance at
1 January 2004 28 744 8 6 416 35 168
Profit for the year 7 684 1 393 9 077
Dividends paid (2 150) (797) (2 947)
Net translation reversal
and hedging (1 272) (108) (1 380)
Issue of share capital 269 3 000 138 3 407
and premium
Other reserve movements 35 (17) 250 268
Equity impact of
empowerment transactions (4 246) (814) (5 060)
Balance at 31 December
2004 29 064 2 991 6 478 38 533
Change in accounting
policies (901) (2 756) (3 657)
Restated balance at1
January 2005 28 163 2 991 3 722 34 876
Unaudited Unaudited Unaudited Unaudited
Profit for the period 3 876 114 384 4 374
Dividends paid (2 231) (114) (257) (2 602)
Net translation gain and
hedging 1 096 51 1 147
Issue of share capital
and premium 145 145
Share buy-back (281) (281)
Other reserve movements (270) 253 (17)
Balance at 30 June 2005 30 498 2 991 4 153 37 642
Consolidated cash flow information
Six Six months Year
% months ended ended
change ended
June 2005 June 2004 Dec 2004
R million R million R million
Unaudited Unaudited Audited
Net cash from operating 8 516 8 698 15 978
activities
Net cash from operating funds 21 308 3 093 918
(4 237) (3 521) 3 195
Net cash (used in)/from
investing activities
Net cash used in financing (1 548) (1 576) (3 581)
activities
Contingent liabilities and capital commitments
June 2005 June 2004 Dec 2004
R million R million R million
Unaudited Unaudited Audited
Contingent liabilities
Letters of credit 5 107 4 270 4 827
Guarantees 18 309 17 346 17 520
Unutilised facilities 23 698 14 887 18 497
47 114 36 503 40 844
Capital commitments
Capital Alliance Holdings Limited
acquisition - - 3 094
Contracted capital expenditure 384 315 664
Capital expenditure authorised 556 540 438
but not yet contracted
940 855 4 196
Accounting policies
Basis of preparation
These consolidated financial statements are prepared in accordance with,
and comply with IFRS and the South African Companies Act of 1973. The
consolidated financial statements are prepared in accordance with the
going concern principle under the historical cost basis as modified by the
revaluation of financial assets classified as available-for-sale,
financial assets and liabilities held at fair value through profit and
loss and derivative instruments.
The accounting policies comply in all material respects with IFRS as well
as with the South African Companies Act of 1973.
Changes in accounting policies
The accounting policies are consistent with those applied in 2004 except
for the adoption of IFRS. The impact of adopting IFRS is described in more
detail below.
Standard Bank Group IFRS impact
Introduction
In line with the listing requirements of the JSE Securities Exchange of
South Africa the Standard Bank Group (SBG) is adopting International
Financial Reporting Standards (IFRS) with effect from 1 January 2005. As
the group publishes comparative information for one year in its financial
statements, the date for transition to IFRS is effectively 1 January 2004,
which represents the start of the earliest period of comparative
information presented. South African accounting standards have seen a
number of significant changes over the past couple of years as they were
being aligned with IFRS. The most notable change was the adoption of the
South African version of IAS 39 (AC 133 - Financial instruments:
Recognition and Measurement) in the group`s 2003 results. The final move
to full IFRS compliance is therefore less significant than what is
currently being experienced in Europe and the United Kingdom.
The most significant IFRS changes for the group originate from the
implementation of IFRS 4 - Insurance Contracts which results in Standard
Bank Group and Liberty Holdings shares held by Liberty Life for the
benefit of policyholders being deemed treasury shares for accounting
purposes and eliminated on consolidation. It is however important to note
that although this treasury share adjustment potentially results in
greater volatility in reported earnings, there is no impact on the
underlying business fundamentals, cash flows, risks, growth strategies or
the group`s capital management policies.
In the light of the potential for increased earnings volatility, the group
will ensure that comparable underlying business performance and trends are
clearly identified on an ongoing basis. With the exception of the
abovementioned changes, the implementation of IFRS has a relatively
immaterial impact on the group`s financial position and earnings.
Basis of presentation
The financial information has been prepared in accordance with IFRS
statements that are currently effective together with expected amendments.
This may differ from IFRS finally in effect at 31 December 2005 as a
result of ongoing review and possible amendment by interpretive guidance
from the International Accounting Standards Board (IASB) and the
International Financial Reporting Interpretations Committee (IFRIC) and
may therefore be subject to change.
Apart from the reclassification of cash and cash equivalents held by
Liberty Life policyholders, there have been no material adjustments to the
cash flow statements in respect of cash utilized by operating activities
before tax, cash flows from investment activities and cash flows from
financing activities as a result of the adoption of IFRS.
Transitional arrangements
The key principle of IFRS 1 - First-time adoption of International
Financial Reporting Standards is full retrospective application of IFRS.
This statement however provides exemptions from retrospective application
in certain instances due to cost and practical considerations. The group`s
transitional elections are set out below:
Elections applicable 1 January 2004
-Business combinations: The group is electing not to retrospectively apply
the requirements of IFRS 3 for business combinations that occurred prior
to 1 January 2004. As a result, the carrying amount of goodwill is the
depreciated amount on 31 December 2003 and previously amortised goodwill
and goodwill eliminated against reserves are not re-instated.
-Property and equipment: A first time adopter may elect to use the fair
value of individual property and equipment at transition date as the
deemed cost. The group is not making use of this transitional exemption
and elects to measure individual items of property and equipment at
original cost.
-Employee benefits: The group is electing not to apply the exemption to
account for all deferred actuarial gains or losses, including a 10%
tolerance limit for differences in actuarial assumptions, in opening
equity as at 1 January 2004. This exemption is not elected as the group`s
accounting for employee benefits under previous SA GAAP was already
substantially in compliance with IAS 19 - Employee Benefits.
-Cumulative foreign currency translation adjustment: The cumulative
foreign currency translation reserve existing on transition to IFRS has
been retained and the option to reset the reserve to zero is not elected
as the group`s accounting for translation adjustments under previous SA
GAAP was already substantially in compliance with IAS 21 - The effects of
changes in foreign exchange rates.
-Share-based payments: The group is electing not to apply the provisions
of IFRS 2 - Share-based payments to equity-settled awards granted on or
before 7 November 2002, or to awards granted after that date but which had
vested prior to 1 January 2005.
Elections applicable 1 January 2005
-Comparative numbers restated for financial instruments and insurance
contracts: The group is electing the exemption not to restate its
comparatives for IAS 32 - Financial Instruments: Disclosure and
Presentation, IAS 39 - Financial instruments: Recognition and Measurement
and IFRS 4 - Insurance Contracts. SBG has therefore applied SA GAAP
applicable as at 31 December 2004 to financial instruments and insurance
contracts in its 2004 numbers disclosed as comparatives for the 2005 IFRS
results. It is considered impractical to retrospectively adjust for
changes resulting from revised impairment and insurance contract
requirements.
-Designation of financial assets and financial liabilities in terms of IAS
39: In terms of the transitional arrangements SBG is electing the option
to reclassify certain financial assets and liabilities on 1 January 2005.
The reclassifications are not material.
There are no changes to estimates made under previous SA GAAP for
transition to IFRS (for example expected default or actuarial
assumptions). Where estimates have previously been made under SA GAAP,
consistent estimates (after adjustments to reflect any difference in
accounting policies) have been made for the same date.
Adjustments as a result of the adoption of IFRS
The impact of changing from SA GAAP to IFRS is summarised below. The
quantification of the adjustments is shown in the tables for
reconciliation of assets, liabilities and equity, IFRS income statement
impact and IFRS equity impact.
Adjustments implemented with effect from 1 January 2004
Note 1: IAS 18 - Revenue recognition and deferred acquisition costs
(excluding insurance contracts accounted for in terms of IFRS 4)
The previous South African version of IAS 39 (AC 133 - Financial
instruments: Recognition and Measurement) required that fees which form an
integral part of the effective interest rate, including transaction costs,
be taken into account in calculating the original effective yield. Initial
fees that relate to the origination of loans are therefore deferred and
amortised as an adjustment to the effective interest rate. The same
accounting principle was carried forward in the revised IAS 18 with fees
relating to the future provision of services, deferred and amortised over
the anticipated period in which the services will be provided. This
adjustment effectively results in the reversal of fees and commission and
a corresponding increase in interest income during these periods. A small
adjustment was required to align the previous deferral methodologies with
the revised IAS 18, primarily for instalment finance on moveable assets.
Note 2: IAS 36/IFRS 3 - Goodwill
Previously, the group recognised acquired goodwill at cost and amortised
it on a straight-line basis over its expected useful life. Goodwill was
subject to regular review for indications of impairment and any impairment
charges were recognised in the income statement. In terms of IFRS 3 -
Business combinations goodwill is not amortised but is subject to
impairment reviews, both annually and where there are indications that the
carrying value may not be recoverable. The 2004 goodwill amortisation
previously recognised in the income statement has been reversed, resulting
in a corresponding increase in equity. All goodwill has accordingly been
tested for impairment at 1 January 2004, 30 June 2004, and 31 December
2004. One instance of goodwill impairment for 2004 arose out of the new
accounting rules and this relates to the group`s international operations.
Note 3: IFRS 2 - Share-based payments
The group grants share options to employees under employee share incentive
schemes. Other than costs incurred in administering the schemes, which
were expensed as incurred, the schemes did not result in any expense in
the income statement, but rather a dilution in earnings per share when the
shares were issued. In accordance with the requirements of IFRS 2, the
group now recognises an expense in the income statement, with a
corresponding credit to equity, representing the fair value of employee
share options granted, recognised on a straight-line basis over the
vesting period of the options.
In anticipation of a final international interpretation (D16) on IFRS 2,
the group is extending the scope of IFRS 2 to include the group`s Black
Ownership Initiative. The statement is applicable to share appreciation
rights
