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MTL
MTL
Mercantile Bank Holdings Limited - Audited Results For The Year Ended 31
December 2005
MERCANTILE BANK HOLDINGS LIMITED
MEMBER OF CGD GROUP
Registration number 1989/000164/06
Share code: MTL ISIN: ZAE000064721
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005
HIGHLIGHTS
* Headline earnings per share of 1.7 cents versus prior year headline (loss)
per share of (11.7) cents
* Total asset growth of 25.2%
* Lending growth of 49.5%
* Deposits growth of 24.8%
Summarised Group Balance Sheet
2005 2004
R"000 R"000
Audited Audited
(Restated)
ASSETS
Intangible assets 7 020 6 801
Property and equipment 91 305 85 028
Investment properties 350 770
Taxation 3 698 3 616
Other accounts receivable 14 887 33 148
Interest in associated companies 3 323 3 236
Other investments 2 365 3 556
Loans and advances 1 458 677 975 611
Derivative financial instruments 36 757 90 162
Negotiable securities 379 028 370 279
Cash and cash equivalents 1 408 972 1 148 861
Total assets 3 406 382 2 721 068
EQUITY AND LIABILITIES
Shareholders" equity 550 179 500 939
Share capital and share premium 1 207 032 1 208 642
Capital redemption reserve fund 3 788 3 788
Share-based payments reserve 847 123
General reserve 7 478 7 478
Property revaluation reserve 36 476 31 273
Available-for-sale reserve (76) (955)
General credit-risk reserve 10 835 31 668
Accumulated loss (716 201) (781 078)
Liabilities 2 856 203 2 220 129
Deposits 2 636 547 2 112 569
Derivative financial instruments 38 531 35 210
Provisions 31 647 39 168
Other accounts payable 149 478 33 138
Taxation - 44
Total equity and liabilities 3 406 382 2 721 068
Summarised Group Income Statement
2005 2004
R"000 R"000
Audited Audited
(Restated)
Interest income 248 290 192 138
Interest expense (113 144) (107 036)
Net interest income before credit losses 135 146 85 102
Net recovery of/(charge for) credit losses 21 287 (4 367)
Net interest income after credit losses 156 433 80 735
Net (loss)/profit on disposal and revaluation
of investments (498) 1 891
Non-interest income (1) 117 903 101 410
Net interest and non-interest income 273 838 184 036
Operating expenditure (1) (230 477) (225 041)
Profit/(Loss) before associated companies 43 361 (41 005)
Share of income from associated companies 516 768
Profit/(Loss) before taxation and exceptional
items 43 877 (40 237)
Impairments and provisions raised and write-off
on release of CGD guarantee - (172 729)
Recovery of amounts previously written-off
in respect of the release of the CGD guarantee 23 119 -
Profit/(Loss) before taxation 66 996 (212 966)
Taxation - (50)
Attributable profit/(loss) after taxation 66 996 (213 016)
Reconciliation between attributable profit/(loss)
after taxation and headline earnings/(loss):
Attributable profit/(loss) after taxation 66 996 (213 016)
Adjustment for:
Realisation of available-for-sale reserve on
disposal of investments 885 (60)
Loss/(Profit) on disposal of property and equipment 144 (680)
Headline earnings/(loss) 68 025 (213 756)
Earnings/(Loss) per ordinary share (cents) 1.7 (11.6)
Headline earnings/(loss) per ordinary
share (cents) 1.7 (11.7)
Diluted earnings/(loss) per ordinary
share (cents) 1.7 (11.6)
Diluted headline earnings/(loss) per ordinary
share (cents) 1.7 (11.7)
Dividend per share (cents) - -
Financial Statistics
2005 2004
Number of ordinary shares in issue:
- end of year ("000) 3 925 126 3 930 372
- weighted average ("000) 3 927 892 1 830 341
- weighted average - diluted ("000) 3 932 811 1 830 349
Net asset value per ordinary share (cents) 14.0 12.7
Capital adequacy ratio (%)
- Consolidated Group 31.3 37.2
- Mercantile Bank Limited 34.5 39.2
Group Contingent Liabilities and Commitments
2005 2004
R"000 R"000
Audited Audited
Guarantees and letters of credit 287 821 138 470
Conditional buy-back obligations 7 707 42 685
Operating lease commitments 13 742 10 619
Summarised Group Cash Flow Statement
2005 2004
R"000 R"000
Audited Audited
Net cash inflow/(outflow) from operating
activities 66 401 (9 134)
Net cash inflow from banking activities 209 973 46 964
Net cash outflow from investing activities (16 263) (6 774)
Net cash inflow from financing activities - 542 875
Net cash inflow for the year 260 111 573 931
Cash and cash equivalents at beginning of year 1 148 861 574 930
Cash and cash equivalents at end of year 1 408 972 1 148 861
Summarised Group Statement of Changes in Equity
2005 2004
R"000 R"000
Audited Audited
(Restated)
Balance at beginning of year 500 939 163 899
Transitional adjustments on adoption of IFRS
Creation of credit risk impairments (22 952) -
Movements in reserves 8 925 3 263
Net transfer from/(to) available-for-sale
reserve 879 (213)
Net transfer to general credit-risk reserve 2 119 456
Share-based payments expense 724 123
Revaluation of owner-occupied property 5 203 2 897
Movement in accumulated loss 64 877 (8 000)
Attributable profit/(loss) after taxation 66 996 (213 016)
Net transfer to general credit-risk reserve (2 119) (456)
Transfer on sub-division of shares - 205 340
Accumulated profit on consolidation of share
incentive trust - 132
Movements in share capital and premium (1 610) 341 777
Issue of shares - 555 000
Share issue expenses - (6 382)
Transfer to distributable reserve on
sub-division of shares - (205 340)
Treasury shares on consolidation of share
incentive trust (1 610) (1 501)
Balance at end of year 550 179 500 939
Summarised Group Segmental Information
2005 2004
R"000 R"000
Audited Audited
(Restated)
Segment revenue:
Retail banking 138 968 116 342
Treasury 31 999 28 277
Alliance banking, MBL credit card and
structured loans 39 559 41 790
Other services (2) 87 445 2 762
297 971 189 171
Contribution/(loss) after tax:
Retail banking (3) 80 544 61 941
8 451 (29 374)
Treasury (3)
Alliance banking, MBL credit card and
structured loans (3) 14 739 23 529
Other services (2) (36 738) (269 112)
66 996 (213 016)
IFRS Reconciliation
Opening Closing
balance balance
1 January 31 December
2005 2004
R"000 R"000
Audited Audited
Changes in shareholders" equity
Balance as previously reported 500 939 500 939
Effect on reported results 65 65
- depreciation on property and equipment 188 188
- share-based payments expense (123) (123)
Transitional adjustment
- creation of credit risk impairments (22 952) -
Movement in reserves
- decrease in property revaluation reserve (188) (188)
- creation of share-based payments reserve 123 123
Restated shareholders" equity 477 987 500 939
Loans and advances
Balance as previously reported 975 611 975 611
Transitional adjustment
- creation of credit risk impairments (22 952) -
Restated loans and advances 952 659 975 611
Notes:
(1) The foreign exchange and insurance broker commissions earned were
previously disclosed net of commission paid. The commissions paid are now
disclosed separately as part of operating expenditure (2004: R5,3 million).
Comparatives have been restated.
(2) "Other services" includes: support divisions, collections, specialised
asset finance, insurance brokers, inter-group eliminations and IFRS
adjustments.
(3) Excludes the allocation of attributable support costs.
FINANCIAL OVERVIEW
The Group achieved its objectives of continued growth in core profitability in
the second six months together with strong growth in loans and advances. The
headline earnings of R68,025 million are largely attributable to:
- an increase in funds profit generated by the recapitalisation which was
completed in September 2004 together with growth in lending (net of
impairments) of 49.5%. Overall asset growth amounted to 25.2%;
- non-interest income growth of 16.3% largely in the areas of transactional
banking and foreign exchange services;
- continued recoveries of impaired and written-off legacy debt;
- exceptional recoveries of R23,1 million being amounts impaired/written-off
in 2004 following the release of Caixa Geral de Depositos S.A. ("CGD")
guarantees, which was a condition attached to the recapitalisation of the Group;
and
- cost containment in operating expenses - costs for the 12 months ended 31
December 2004 benefited from a write-back in suspense account provisions of
R5,4 million. Excluding this item, costs for the 12 months ended 31 December
2005 did not increase.
Accounting policies
The results have been prepared in accordance with International Financial
Reporting Standards ("IFRS"), which were adopted with effect from 1 January
2005. The comparative results for December 2004 have been restated in terms of
the adoption of IFRS.
A copy of the audited annual financial statements is available for inspection
at the registered office of Mercantile.
Going concern
The annual financial statements have been prepared on the going concern basis.
Shareholding and ratings
CGD remains the holding company with a shareholding of 91.75%.
CGD"s ratings were confirmed by the three leading international rating agencies
as follows:
Short term Long term Date
Fitch Ratings F1+ AA- December 2004
Moody"s Prime-1/B Aa3 December 2005
Standard & Poor"s A-1 A+ April 2005
Mercantile"s rating has in turn been confirmed by CA Ratings as follows:
Short term Long term Date
CA Ratings zaA1 zaA- February 2006
Directorate
Sharoda Rapeti was appointed as an independent non-executive director on
29 July 2005 whilst Julio Lopes was appointed as an executive director on
9 November 2005.
There were no other changes to the Board during the year.
Company Secretary
Ms Ronell van Rensburg has been appointed as Company Secretary with effect from
23 March 2006. Mr Francisco Vicente Coelho will retire as Company Secretary
with effect from the same date. The directors wish to thank Mr Vicente Coelho
for his commitment, support, guidance and professionalism throughout his many
years of service.
Outlook
Whilst the overall level of recoveries on legacy debt is expected to decline
going forward, an ongoing write back of impairments is anticipated in 2006.
Evaluations are currently underway for the replacement of our core banking
system at an estimated cost of approximately R40 - R50 million.
These cost estimates are preliminary desktop calculations and a detailed
analysis has now commenced. The project (which is subject to final Board
approval) is expected to have a duration of 2 - 3 years. Furthermore,
additional systems spend to further enhance our alliance banking service
offering, in order to generate increased fee income in future years is under
discussion with certain of our alliance partners - the extent of this spend is
yet to be estimated and agreed with these partners.
Economic conditions remain favourable for the banking sector and the
improvement in the Group"s core performance is expected to continue.
J A S de Andrade Campos D J Brown
Chairman Chief Executive Officer
Sandton
21 February 2006
Directors: J A S de Andrade Campos* (Chairman),
D J Brown (Chief Executive Officer), M J M Figueira* (Executive),
J P M Lopes* (Executive), G P de Kock, L Hyne, A T Ikalafeng,
K B Motshabi, A M Osman**, S Rapeti
Group Secretary: F Vicente Coelho* *Portuguese **Mozambican
Registered Office: Mercantile Bank, 142 West Street, Sandown, 2196
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street,
Johannesburg, 2001
Sponsor: Bridge Capital Services (Pty) Limited
1st Floor, Building 22A
The Woodlands, Woodlands Drive
Woodmead, Sandton, 2196
www.mercantile.co.za
Date: 21/02/2006 03:22:00 PM Produced by the JSE SENS Department
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