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ABIL - Reviewed Annual Results For The Twelve Months Ended 30 September 2005
African Bank Investments Limited
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Registration number 1946/021193/06)
(Ordinary share code: ABL) (ISIN: ZAE000030060)
(Preference share code: ABLP) (ISIN: ZAE000065215)
("ABIL" or "the company")
Features:
- Headline earnings of R954 million or 202,7 cents per share
- Final ordinary and special dividend declared of 100 cents, taking total
dividends for the year to 222 cents (2004: 145 cents)
- Lending books grow by 22% due to increase in sales to R5,4 billion (2004:
R4,4 billion)
- Lower interest rates and reduced fees implemented for the majority of
clients
REVIEWED Annual results for the twelve months ended 30 September 2005
Overview
A buoyant consumer market, low inflation and improved real disposable income of
the clients in our market segment, coupled with the early fruits of various of
ABIL"s strategic initiatives, created the favourable conditions for the group to
deliver its operating performance over the last twelve months. Headline earnings
per share increased 25% to 202,7 cents per share (2004: 161,6 cents). Return on
assets improved from 11,6% to 13,0% and this together with increased capital
gearing from 2,7 to 3 times, increased the return on equity for the year from
31,3% to 39,4%.
ABIL has been increasing its focus on using the growth in economic profit as a
primary measure of performance, including the determination of the group"s
short-term and long-term incentive pools. Economic profit is calculated by ABIL
in a simplified formula: Headline earnings - cost of equity. The growth in
economic profit measure reflects the efficiency of earnings by combining the
growth in reported earnings, with changes in the equity of the business. ABIL
estimates that its cost of equity for the 2005 financial year was 14,5% (2004:
15,0%) and hence the economic profit for the year was R597 million, a growth of
50% against the R397 million for 2004.
Following a period of consolidation and integration, the group has during the
course of the current year moved towards a growth and innovation orientated
focus. The overall objective of this has been to entrench ABIL"s market
leadership position through the expansion of the group"s presence in the
unsecured credit market and achieving cost and capital efficiencies in order to
drive down the cost of credit to our clients. The strategic initiatives that
have followed these objectives have been:
The rollout of an entire new pricing suite in August 2005, designed to more
accurately price our products by risk segment, benefiting clients with lower
risk profiles. The cost of credit for the lower risk segments has been reduced
substantially. From August 2005 the group began charging its credit life
insurance premiums on a monthly basis, instead of upfront and split
administration fees into an upfront portion to recover origination costs, and a
monthly servicing fee. All of this has had a positive effect on affordability
for clients, leading to larger available loan sizes, without an unacceptable
increase in risk.
The expansion of the group"s footprint through the integration of African Bank
and Credit Indemnity, new branches and channels as well as additional products
aimed at attracting new clients.
Control over operating costs, through integration, improved business processes
and exiting non-core activities and businesses. Together with increased volumes,
this has resulted in reduced costs per loan.
Improved capital management has resulted in a steady lift in the gearing ratios,
as well as improved credit ratings.
Operational performance
The major drivers of the results for the twelve months to 30 September 2005
were:
SALES : Turnover increased by 22% over the prior period, leading to a 22% growth
in the lending books.
YIELDS : The total yield on advances improved from 60,3% to 63,2%. This was due
to continued changes in the mix of the portfolio towards retail debit order
loans as a result of higher sales, as well as significant write-offs and
collections of low-yielding, non-performing loans (NPLs), particularly in the
pay down books.
BAD DEBTS : The charge for bad debts was flat at R488 million (2004: R484
million). However, due to the growth in the underlying advances portfolios and
increased yields respectively, this translated into improving ratios of 9,1% of
average interest-bearing advances (2004: 9,5%) and 17,7% of interest income
(2004: 19,4%). While new non-performing loans have increased due to the group"s
increased risk appetite, improved collections from the NPL and written-off
portfolios, have countered the effect of this. The bad debt charge to interest
income is expected to revert to the normalised 19% to 20% range that the
underwriting models are based on in 2006.
OPERATING COSTS : Expenditure was R968 million for the year, an increase of 2%
on the R946 million for 2004. The 2005 expenditure, however, includes a new R51
million charge for long-term incentive plans (LTIPs) that resulted from the
conversion of existing options in August 2005, and which was previously charged
directly to equity, as well as an additional R7 million charge for the
impairment of goodwill. Excluding these items, operating costs were R910
million, a reduction of R36 million on 2004. The cost-to-advances (including
LTIPs and goodwill) ratio declined to 18,1% from 18,5% for 2004.
The above drivers combined to produce a 22% increase in net income before
taxation from R1 310 million to R1 592 million.
TAXATION : The total taxation charge as a percentage of net income before
taxation reduced from 42,4% to 40,9%. In addition to the standard corporate tax
rate of 29%, the group paid R140 million in STC on dividends and R50 million in
indirect taxes.
Asset quality
NPLs reduced by R604 million to R1 642 million over the last twelve months
(2004: R2 246 million). The decrease in NPLs was as a result of write-offs of R1
219 million (2004: R845 million) and increased cash collections on the NPL
portfolios.
Impairment coverage dropped to 68,0% as at 30 September 2005 from 73,8% a year
ago, and 71,2% as at 31 March 2005. Coverage on the lending books fell from
74,9% to 71,3%, while on the pay down books, coverage fell from 72,6% to 59,4%.
The primary reason for this decline, especially in the pay down books, is higher
than normal write-offs (together with 100% provisions), which has resulted in
the remaining portfolio of NPLs, on which there is a steady cash flow stream,
being generally of better quality.
Regulation
The National Credit Bill entered the parliamentary process during June this year
and is expected to be promulgated towards the second calendar quarter of 2006.
The final impact of the Bill will only become clear once the regulations have
been published and some of the market consequences in terms of credit provider
and consumer behaviour and the interpretations of the law by the courts, have
had time to manifest.
ABIL has already implemented a number of changes that align its practices with
the proposed new Bill. Further preparations to ensure timeous compliance with
the new law and capitalise fully on the opportunities offered by it, are on
track.
Black equity ownership programme
ABIL announced its R600 million broad-based black economic empowerment programme
with its interim results in May 2005. The objective of this programme is to
create a vehicle that facilitates the accumulation of an unencumbered equity
position in excess of 10% in ABIL by a broad base of black people over the next
ten years.
Shareholders approved the issue of 20 million ABIL shares to Eyomhlaba
Investment Holdings Limited ("Eyomhlaba"), the special purpose vehicle created
to facilitate the programme, in August 2005. Eyomhlaba acquired an additional
5,4 million ABIL shares in the open market prior to 30 September 2005. It issued
a prospectus to invite participants to subscribe for shares in the programme.
The offer opened on 24 October 2005 and will remain open until 30 November 2005.
The results of the offer will be announced and participants notified in December
2005.
Looking ahead
The group is committed to its vision of unlocking access to credit through risk
innovation and at the same time driving down the cost of credit for its clients.
This will be achieved by extracting cost benefits through the growth of its
critical mass businesses to market dominance. The 2005 financial year has been
one in which some of the strategies towards achieving this vision have been put
in place.
The 2006 financial year will see a continuation of this process with particular
emphasis on the following:
Using the risk-based pricing model to test the relationship between price,
volume and risk inherent in our business model. The group believes that it can
responsibly grow credit extension by implementing appropriate changes in pricing
and measuring the rate at which incremental volume (and therefore cost) benefits
exceed incremental risk increases. In addition, the continued reduction in price
cross-subsidisation should further entrench the group"s market leadership.
Expanding the distribution network and innovating new products, notably the
credit card initiative.
Being ready to adopt the National Credit Bill ahead of its implementation, in
order to minimise business and client disruption.
The group believes it is capable of achieving these objectives and more
importantly continue to create shareholder value by growing its economic profit
in excess of its medium-term target of CPI plus 15% for 2006.
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.
The group adopted IFRS3-Business Combinations, and aligned its treatment of
operating leases to that of SAICA circular 7/2005, in relation to the
interpretation of AC105-Leases. The impact of these changes was immaterial to
the group. Apart from the above, the accounting policies have been consistently
applied since the prior year. The group will be adopting IFRS standards with
effect from the beginning of the 2006 financial year.
These preliminary annual financial results have been reviewed by Deloitte &
Touche and their unqualified review opinion is available for inspection at the
company"s registered office.
Preference dividend declaration
On 10 November 2005, the board of directors proposed and approved dividend No 2
of 361 cents per preference share.
The dividend was calculated using the following parameters:
Average prime for the period 10,5%
Coupon rate as percentage of prime 69%
Number of days 182
Salient dates for dividend payments
Last day to trade cum-dividend Friday, 2 December 2005
Shares commence trading ex- Monday, 5 December 2005
dividend
Record date Friday, 9 December 2005
Dividend payment date Monday, 12 December 2005
Share certificates may not be dematerialised or rematerialised between Monday, 5
December 2005 and Friday, 9 December 2005.
Final and special dividend declaration
On 10 November 2005, the board of directors proposed and approved a final
dividend No 10 of 70 cents per ordinary share and a special dividend No 4 of 30
cents per ordinary share. The two dividends will be paid out simultaneously.
Salient dates for dividend payments
Last day to trade cum-dividend Thursday, 8 December 2005
Shares commence trading ex- Friday, 9 December 2005
dividend
Record date Thursday, 15 December 2005
Dividend payment date Monday, 19 December 2005
Share certificates may not be dematerialised or rematerialised between Friday, 9
December 2005 and Thursday, 15 December 2005.
On behalf of the board
Ashley Mabogoane Gordon Schachat Leon Kirkinis
Chairman Executive Deputy Chairman Chief Executive Officer
14 November 2005
Group income statement
for the 12 months ended 30 September 2005
Reviewed Audited
12 months 12 months
ended ended
30 September % 30 September
R million 2005 change 2004
Revenue
Interest income on 2 752 11 2 490
advances
Net assurance income 357 23 291
Non-interest income 274 (7) 294
Total revenue 3 383 10 3 075
Charge for bad and (488) (1) (484)
doubtful advances
Risk adjusted revenue 2 895 12 2 591
Other interest income 156 32 118
Interest expense (492) (9) (453)
Operating costs (968) (2) (946)
Net income from 1 591 21 1 310
operations
Share of associate 1 0
company"s income
Net income before 1 592 22 1 310
taxation
Indirect taxation: VAT (50) 28 (69)
and RSC
Direct taxation: STC (140) (40) (100)
SA normal (461) (19) (386)
Net income after 941 25 755
taxation
Minority interest 0 (100) 1
Attributable earnings 941 24 756
Reconciliation of
headline earnings and
per share statistics
Attributable earnings 941 24 756
Adjusted for:
Goodwill impaired 14 7
Other capital items (1) (1)
Headline earnings 954 25 762
Number of shares in 495,1 472,3
issue (net of treasury)
(million)
Weighted number of 470,6 471,6
shares in issue
(million)
Fully diluted number of 472,4 489,4
shares in issue
(million)
Headline earnings per 202,7 25 161,6
share (cents)
Attributable earnings 200,0 25 160,3
per share (cents)
Fully diluted headline 201,9 30 155,7
earnings per share
(cents)
Fully diluted 199,2 29 154,5
attributable earnings
per share (cents)
Declared dividends per
ordinary share (cents)
Interim - paid (cents) 52,0 35,0
Final - declared (cents) 70,0 57,0
Total ordinary dividends 122,0 33 92,0
(cents)
Special dividend - paid 70,0 0,0
(cents)
Special dividend - 30,0 (43) 53,0
declared (cents)
Total ordinary and 222,0 53 145,0
special dividends
(cents)
Headline earnings per business unit
Reviewed Audited
12 months to 12 months to
30 September % 30 September
R million 2005 growth 2004
Continuing businesses 1 112 22 914
AB Retail 743 22 608
Credit Indemnity 156 3 151
Miners Credit 107 34 80
Standard Bank JV 71 37 52
Commercial Vehicle 35 52 23
Finance
Discontinued businesses (25) 40 (42)
Group and Consol 7 170 (10)
STC (140) (40) (100)
Total 954 25 762
Group balance sheet
as at 30 September 2005
Reviewed Audited
30 September % 30 September
R million 2005 change 2004
Assets
Fixed assets 112 (20) 140
Investment in associate 11 10 10
Policyholders" 63 29 49
investments
Goodwill 0 (100) 14
Deferred tax asset 46 28 36
Net advances 5 282 18 4 472
Gross advances 6 399 4 6 129
Impairment provisions (1 117) (33) (1 657)
Other assets 63 (64) 174
Taxation 21 250 6
Statutory assets - bank 517 6 490
and insurance
Short-term deposits and 1 147 (41) 1 944
cash
Total assets 7 262 (1) 7 335
Liabilities and equity
Life fund reserve 95 20 79
Subordinated debentures* 197 2 193
Long-term loans and 3 245 (8) 3 524
bonds
Short-term money market 644 18 544
funding
Other liabilities 300 92 156
Deferred tax liability 0 (100) 12
Taxation 77 (58) 183
Bank overdraft 0 (100) 4
Total liabilities 4 558 (3) 4 695
Ordinary shareholders" 2 211 (16) 2 640
equity
Preference shareholders" 483 0
equity
Minority shareholders" 10 0
interest
Total equity (capital 2 704 2 2 640
and reserves)
Total liabilities and 7 262 (1) 7 335
equity
* Disclosed as secondary capital in 2004
Group statement of changes in equity
for the 12 months ended 30 September 2005
Distri-
Share butable Treasury
R million capital reserves shares
Balance at 30 September 2003 12 2 925 (149)
(audited)
Dividends paid (788)
Cancellation of treasury (1) (124) 125
shares
CGT on cancellation of (14)
treasury shares
ABIL Share Trust transactions (71) (31)
Attributable earnings 756
Balance at 30 September 2004 11 2 684 (55)
(audited)
Issue of shares 1
Share issue expenses
Dividends paid (1 107)
ABIL Share Trust transactions (248) 13
Treasury shares acquired by 2 (23)
subsidiary less dividends
received
Attributable earnings 933
Balance at 30 September 2005 12 2 264 (65)
(reviewed)
Preference
share
capital and
R million premium Total
Balance at 30 September 2003 2 788
(audited)
Dividends paid (788)
Cancellation of treasury 0
shares
CGT on cancellation of (14)
treasury shares
ABIL Share Trust transactions (102)
Attributable earnings 756
Balance at 30 September 2004 2 640
(audited)
Issue of shares 500 501
Share issue expenses (17) (17)
Dividends paid (8) (1 115)
ABIL Share Trust transactions (235)
Treasury shares acquired by (21)
subsidiary less dividends
received
Attributable earnings 8 941
Balance at 30 September 2005 483 2 694
(reviewed)
Group cash flow statement
for the 12 months ended 30 September 2005
Reviewed Audited
12 months 12 months
ended ended
30 September 30 September
R million 2005 2004
Cash generated from operations 2 327 1 973
Increase in gross advances (1 312) (662)
Decrease/(increase) in working 274 (89)
capital
Normal and indirect taxation (800) (445)
paid
Ordinary shareholders" payments (1 127) (802)
and transactions
Preference shareholders" 475 0
payments and transactions
Cash outflow from ABIL Employee
Share
Trust transactions* (235) (102)
Cash (outflow)/inflow from (208) 16
investing activities
Cash (outflow)/inflow from (175) 936
financing activities
(Decrease)/increase in cash and (781) 825
cash equivalents
Cash and cash equivalents at the 2 171 1 346
beginning of the year
Cash and cash equivalents at the 1 390 2 171
end of the year
Made up as follows:
Short-term deposits and cash 1 147 1 944
Bank overdraft 0 (4)
Statutory cash reserves - 243 231
insurance
1 390 2 171
* Cash outflow from the ABIL Employee Share Trust transactions was previously
disclosed under ordinary shareholders" payments and transactions.
Advances analysis
Reviewed Audited
as at as at
30 September % 30 September
R million 2005 growth 2004
Lending books 5 738 22 4 685
Pay down books 661 (54) 1 444
Gross advances 6 399 4 6 129
Less: Non-interest- 528 (49) 1 029
bearing advances
Gross interest-bearing 5 871 15 5 100
advances
Performing 4 757 23 3 883
Non-performing 1 642 (27) 2 246
Gross advances 6 399 4 6 129
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
PO Box 4844, Johannesburg, 2000
Telephone +27 11 834 2266
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
GRAPHS
Headline earnings per share
Cents
2001 128,4
2002 104,4
2003 140,4
2004 161,6
2005 202,7
Return on equity
%
2001 31,6
2002 23,2
2003 25,9
2004 31,3
2005 39,4
Dividends per share
Cents
Ordinary Special
2001 25
2002 30
2003 56 100
2004 92 53
2005 122 100
Date: 14/11/2005 07:00:31 AM Produced by the JSE SENS Department
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