| Thu 3 Aug 2006, 7:00 | | Absa Group Limited - Profit and Dividend Announcem |
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ASA
AMAGB
Absa Group Limited - Profit and Dividend Announcement
Absa Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1986/003934/06)
JSE share code: ASA
Issuer code: AMAGB
ISIN: ZAE000067237
(Absa or the Group)
ABSA GROUP LIMITED: PROFIT AND DIVIDEND ANNOUNCEMENT
UNAUDITED FINANCIAL RESULTS FOR SIX MONTHS ENDED 30 JUNE 2006
GROUP SALIENT FEATURES
Six months ended Nine months
ended
30 June 31 December
2006 2005 2005
(Unaudited) (Unaudited) Change (Audited)
(Pro forma) %
Income statement (Rm)
Headline earnings 3 460 2 827 22,4 4 902
Profit attributable to 3 445 2 934 17,4 4 776
equity
holders
Balance sheet (Rm)
Total assets 466 573 376 703 23,9 407 422
Loans and advances to 366 760 289 468 26,7 322 097
customers
Deposits due to customers 367 248 293 436 25,2 328 729
and banks
Financial performance (%)
Return on average equity 24,7 24,2 26,5
Return on average assets, 1,60 1,67
excluding acceptances 1,73
Loans to deposits ratio 99,9 98,6 98,0
Operating performance (%)
Net interest margin on 3,27 3,29 3,36
average
assets
Net interest margin on 3,65 3,66
average 3,77
interest-bearing assets
Impairment losses on loans 0,35 0,41
and 0,26
advances as % of average
loans and
advances to customers
Non-performing advances as 1,3 2,0 1,7
% of
loans and advances to
customers
Non-interest income as % of 47,9 53,4
total 51,1
operating income
Cost-to-income ratio 57,7 56,8 58,0
Effective tax rate -
excluding
indirect taxation 28,5 29,0 31,1
Share statistics (million)
Number of shares in issue 670,2 666,9 666,9
Weighted average number of 664,5 653,8 662,1
shares
Weighted average diluted 708,8 691,8
number of shares 690,8
Share statistics (cents)
Headline earnings per share 520,7 432,3 20,4 740,4
Diluted headline earnings 489,0 409,5 19,4 710,9
per share
Earnings per share 518,5 448,7 15,6 721,4
Diluted earnings per share 486,9 425,0 14,6 692,7
Dividends per share 208,0 n/a
relating to 295,0
income for the period
Dividend cover (times) 2,5 n/a 2,5
Net asset value per share 4 142 3 573 15,9 3 890
Tangible net asset value 4 114 3 545 16,1 3,861
per share
Capital adequacy (%)
Absa Bank 12,7 11,0 10,7
Absa Group 12,9 12,1 11,3
GROUP INCOME STATEMENT
Nine months
Six months ended ended
30 June 31 December
2006 2005 2005
(Unaudited) (Unaudited) (Audited)
(Pro forma) Change
Rm Rm % Rm
Net interest income 7 163 5 588 28,2 9 647
Interest and similar income 17 977 13 977 28,6 23 212
Interest expense and similar
charges (10 814) (8 389) (28,9) (13 565)
Impairment losses on loans
and advances (594) (568) (4,6) (569)
6 569 5 020 30,9 9 078
Net fee and commission 4 841 4 657 4,0 7 067
income
Fee and commission income 5 113 4 881 4,8 7 750
Fee and commission expense (272) (224) (21,4) (683)
Net insurance premium income 1 408 1 074 31,1 1 948
Insurance premium revenue 1 549 1 243 24,6 2 146
Premiums ceded to reinsurers (141) (169) 16,6 (198)
Net insurance claims and
benefits paid (607) (487) (24,6) (797)
Gross claims and benefits
paid on insurance contracts (622) (508) (22,4) (913)
Reinsurance recoveries 15 21 (28,6) 116
Changes in insurance and
investment liabilities (564) (257) >(100,0 (1,026)
)
Gains and losses from
banking and trading 461 264 74,6 781
activities
Gains and losses from
investment activities 629 663 (5,1) 1 336
Other operating income 432 503 (14,1) 759
Net operating income 13 169 11 437 15,1 19 146
Operating expenditure (8 357) (7 266) (15,0) (12 216)
Operating expenses (7 936) (6 824) (16,3) (11 438)
Impairments - (14) 100,0 (54)
Indirect taxation (421) (428) 1,6 (724)
Share of profit of
associated undertakings and
joint venture companies 69 22 >100,0 101
Operating profit before 4 881 4 193 16,4 7 031
income tax
Taxation expense (1 391) (1 216) (14,4) (2 187)
Profit for the period 3 490 2 977 17,2 4 844
Attributable to:
Equity holders of the Group 3 445 2 934 17,4 4 776
Minority interest 45 43 (4,7) 68
3 490 2 977 17,2 4 844
Headline earnings 3 460 2 827 22,4 4 902
DETERMINATION OF HEADLINE EARNINGS
Six months ended Nine months
ended
30 June 31 December
2006 2005 2005
(Unaudited) (Unaudited) (Audited)
(Pro forma) Change
Rm Rm % Rm
Headline earnings is
determined
as follows:
Profit attributable to
equity holders 3 445 2 934 17,4 4 776
Adjustments for:
Net loss/(profit) on
disposal of property and
equipment 0 (9) 100,0 (18)
Net loss/(profit) on
disposal of
available-for-sale assets
and strategic investments 15 (112) >100,0 130
Impairment costs - 14 (100,0) 14
Available-for-sale assets
and strategic investments - - - 14
Goodwill impaired - 14 (100,0) -
Headline earnings 3 460 2 827 22,4 4 902
GROUP BALANCE SHEET
30 June 31 December
2006 2005 2005
(Unaudited) (Unaudited) (Audited)
(Pro forma) Change
Rm Rm % Rm
Assets
Cash, cash balances and 10 775 (17,4) 15 043
balances
with central banks 13 043
Statutory liquid asset
portfolio 18 929 14 434 31,1 16 289
Loans and advances to banks
12 999 4 226 >100,0 4 602
Trading assets and hedging
derivative assets 26 844 33 002 (18,7) 23 846
Loans and advances to 366 760 289 468 26,7 322 097
customers
Reinsurance contracts 381 343 11,1 423
Other assets 10 708 6 730 59,1 6 762
Investments 14 199 11 103 27,9 12 759
Investments in associated
undertakings and joint
ventures 1 047 660 58,6 895
Intangible assets 188 183 2,7 191
Property and equipment 3 482 3 284 6,0 3 451
Current tax assets 18 17 5,9 17
Deferred tax assets 82 87 (5,7) 86
Clients" liabilities under
acceptances 161 123 30,9 961
Total assets 466 573 376 703 23,9 407 422
Liabilities
Trading liabilities and
hedging derivative
liabilities 28 514 32 385 (12,0) 21 401
Deposits due to customers
and banks 367 248 293 436 25,2 328 729
Current tax liabilities 573 409 40,1 438
Liabilities under
investment contracts 7 225 4 645 55,5 6 287
Policyholder liabilities
under insurance contracts 2 970 2 724 9,0 2 736
Borrowed funds 8 325 5 756 44,6 6 483
Other liabilities and
sundry provisions 18 240 11 210 62,7 11 824
Deferred tax liabilities 2 332 1 957 19,2 2 562
Liabilities to clients
under acceptances 161 123 30,9 961
Total liabilities 435 588 352 645 23,5 381 421
Equity
Capital and reserves
attributable to equity
holders:
Share capital 1 331 1 314 1,3 1 327
Share premium 1 950 1 673 16,6 1 875
Preference share capital 1 - >100,0 -
Preference share premium 2 991 - >100,0 -
Other reserves 551 692 (20,4) 622
Distributable reserves 23 927 20 147 18,8 21 931
30 751 23 826 29,1 25 755
Minority interest 234 232 0,9 246
Total equity 30 985 24 058 28,8 26 001
Total equity and liabilities
466 573 376 703 23,9 407 422
Contingent liabilities -
banking related 9 992 14 730 (32,2) 16 331
GROUP STATEMENT OF CHANGES IN EQUITY
30 June 31 December
2006 2005 2005
(Unaudited) (Unaudited) (Audited)
(Pro forma) Change
Rm Rm % Rm
Share capital 1 331 1 314 1,3 1 327
Opening balance 1 327 1 310 1,3 1 310
Prospective IFRS adjustment
- treasury shares Absa Life - (2) 100,0 (2)
Limited
Shares issued 7 24 (70,8) 24
Elimination of treasury
shares held by Absa Life 1 1 - 1
Limited
Consolidation of Absa Group
Limited Share Incentive (4) (19) 78,9 (6)
Trust
Share premium 1 950 1 673 16,6 1 875
Opening balance 1 875 1 611 16,4 1 611
Prospective IFRS adjustment
- treasury shares Absa Life - (40) 100,0 (40)
Limited
Shares issued 113 382 (70,4) 382
Elimination of treasury
shares held by Absa Life 13 10 30,0 13
Limited
Consolidation of Absa Group
Limited Share Incentive (51) (290) 82,4 (91)
Trust
Preference share capital
Shares issued 1 - >100,0 -
Preference share premium 2 991 - >100,0 -
Shares issued 2 999 - >100,0 -
Costs incurred (8) - >(100,0) -
Other reserves 551 692 (20,4) 622
Opening balance 622 543 14,5 383
Movement in foreign
currency translation reserve
234 (35) >100,0 (130)
Movement in regulatory
general credit risk reserve 250 - >100,0 -
Movement in available-for-
sale
reserve 2 60 (96,7) 90
Movement in cash flow
hedges reserve (678) 65 >(100,0) 97
Movement in insurance
statutory reserve 14 11 27,3 11
Movement in associated
undertakings and joint
ventures" retained earnings
reserve 69 22 >100,0 101
Movement in share-based
payments reserve 63 26 >100,0 70
Disposal of reserves (25) - >(100,0) -
Distributable reserves 23 927 20 147 18,8 21 931
Opening balance 21 931 18 880 16,2 19 969
IFRS adjustments applied
prospectively - (301) 100,0 (301)
Transfer to insurance
statutory reserve (14) (11) (27,3) (11)
Transfer to associated
undertakings and joint
ventures" retained earnings
reserve (69) (22) >(100,0) (101)
Transfer to regulatory
general
credit risk reserve (250) - >(100,0) -
Acquisition of reserves 10 - >100,0 -
Disposal of reserves (217) - >(100,0) -
Profit attributable to
equity holders 3 445 2 934 17,4 4 776
Dividends paid during the
period (909) (1 333) 31,8 (2 401)
30 751 23 826 29,1 25 755
Minority interest 234 232 0,9 246
Opening balance 246 206 19,4 232
Other reserve movements (57) (17) >(100,0) (54)
Minority share of profit 45 43 4,7 68
Total equity 30 985 24 058 28,8 26 001
GROUP CASH FLOW STATEMENT
Nine months
Six months ended ended
30 June 31 December
2006 2005 2005
(Unaudited) (Unaudited) (Audited)
(Pro forma) Change
Rm Rm % Rm
Net cash flow from operating 294 1 487
activities 4 057 (92,8)
Net cash flow (utilised
in)/from investing
activities (3 357) (762) >(100,0) 1 429
Net cash from/(utilised in)
financing activities 4 148 (2 596) >100,0 (1 370)
Net increase in cash and
cash equivalents 1 085 699 55,2 1 546
Cash and cash equivalents at
the
beginning of the period 8 343 5 674 47,0 6 796
Effects of exchange rate
changes on cash on cash
equivalents 3 1 >100,0 1
Cash and cash equivalents at
the end of the period 9 431 6 374 48,0 8 343
PROFIT CONTRIBUTION BY BUSINESS AREA
Nine months
Six months ended ended
30 June 31 December
2006 2005 2005
(Unaudited) (Unaudited) (Audited)
(Pro forma) Change
Rm Rm % Rm
Banking operations
Retail banking 1 783 1 434 24,3 2 666
Absa Private Bank 126 107 17,8 153
Retail Banking Services 535 404 32,4 805
Absa Home Loans and 461 399 15,5 793
Repossessed
Properties
Absa Card 287 225 27,6 385
Absa Vehicle and Asset
Finance (AVAF) 374 299 25,1 530
Absa Corporate and Business
Banking Services 457 290 57,6 764
Absa Capital 617 506 21,9 572
African operations 66 41 61,0 90
Corporate centre 104 103 1,0 (92)
Capital and funding centre 44 (32) >100,0 (29)
Total banking 3 071 2 342 31,1 3 971
Bancassurance 560 592 (5,4) 1 075
Costs relating to the
Barclays transaction - - - (120)
Synergy costs (after tax) (186) - >(100,0) (150)
Total attributable earnings 3 445 2 934 17,4 4 776
Headline earnings
adjustments 15 (107) >100,0 126
Total headline earnings 3 460 2 827 22,4 4 902
PROFIT AND DIVIDEND ANNOUNCEMENT
Introduction
The Absa Group Limited"s (Absa or the Group) interim reporting period has
changed from the six months ended 30 September to the six months ended 30 June.
This change was necessitated by the need to align Absa"s financial reporting
with that of its controlling shareholder, Barclays PLC. To facilitate evaluation
and interpretation, these results are compared with unaudited pro forma results
for the six months ended 30 June 2005.
Solid headline earnings growth
Absa delivered solid headline earnings growth for the six months ended 30 June
2006. Headline earnings for the period under review increased by 22,4% to R3 460
million compared with pro forma headline earnings of R2 827 million for the
corresponding period of the previous financial year. Attributable earnings
growth was lower at 17,4% for the period under review owing to the inclusion of
the profit from the sale of Stonehage Financial Services Holdings Limited in the
attributable earnings for the six months ended 30 June 2005.
The Group"s banking operations performed strongly and the contribution to
headline earnings was well spread across all business segments. Absa"s
bancassurance contribution was negatively affected by increased equity market
volatility.
Headline earnings per share increased by 20,4%, from 432,3 cents per share to
520,7 cents per share.
Fully diluted headline earnings per share amounted to 489,0 cents per share for
the six months under review. This is an increase of 19,4% compared with the same
period of the previous year and represents a dilution of 6,1% or 31,7 cents per
share. This dilution flows from the increase in value of the options issued to
the Absa Group Limited Share Incentive Trust, the Absa Share Ownership Trust
(the trust established to facilitate Absa"s employee share ownership programme),
and Batho Bonke Capital (Proprietary) Limited (Absa"s black economic empowerment
partner).
The Group delivered a return of 24,7% on average shareholders" equity (June
2005: 24,2%). An interim dividend of 208 cents per share has been declared. This
is 30,0% higher than the interim dividend declared for the six months ended 30
September 2005 and represents a dividend cover of 2,5 times.
Operating environment
After some slowdown in the rate of economic expansion during the second half of
2005, economic growth picked up to 4,2% annualised in the first quarter of 2006,
compared with 3,2% in the fourth quarter of 2005. The primary sectors
experienced a significant degree of weakness in the first quarter owing to the
further strengthening of the rand by 5% on a real effective basis. However,
supply-side data up to May suggest that, despite further weakness in mining
caused by lower gold output, manufacturing activity and activity in the tertiary
sectors remained firm into the second quarter.
Gross domestic expenditure grew at an exceptionally strong pace, rising by
nearly 15% annualised in the first quarter. The strong demand conditions in the
economy caused a further acceleration in credit growth. Both household net
savings and debt levels showed some deterioration.
There have nevertheless been indications of a slowdown in the rate of expansion
of expenditure in the economy in the second quarter. Motor vehicles sales growth
eased a little and the rate of increase in house prices declined further.
Although the rate of domestic private sector credit growth remained persistently
above 20% (year-on-year) in the first five months of 2006, credit growth slowed
slightly in May and can be expected to ease further given the changed interest
rate environment.
South African financial markets did not escape the impact of investor concerns
regarding higher US inflation and the rising global trade, investment and saving
imbalances. Commodity prices fell in the second quarter and many emerging market
currencies, including South Africa"s, were negatively affected by fears that
global growth would succumb to the effects of the tighter monetary policies of
numerous monetary authorities.
South Africa"s large current account deficit of 6,4% of GDP in the first quarter
contributed to rand weakness in May and June and added weight to the argument of
the South African Reserve Bank (SARB) that inflation may break through the upper
inflation target limit of 6%. Consequently, SARB"s repo rate was raised by 50
basis points in early June, with indications that more rate increases may be
imminent.
For banks, the tighter monetary policy could, over time, have an adverse effect
on volumes and bad debt provisions. However, higher interest rates are not
expected to materially affect economic growth, with the slightly weaker rand
likely to lend support to South Africa"s exports.
Group performance
Net interest income - Increased by 28,2%
The Group"s net interest income grew strongly from R5 588 million for the six
months to 30 June 2005 to R7 163 million for the six months ended 30 June 2006.
Credit demand remained strong. Loans and advances to customers increased by
27,7% (annualised) from 31 December 2005, or 26,7% from 30 June 2005. Mortgage
loans and credit card growth remained the core drivers of this growth.
The Group"s net interest margin in respect of average assets contracted
marginally, from 3,29% for the six months ended 30 June 2005 to 3,27% for the
six months ended 30 June 2006. This was caused by an increased reliance on
wholesale funding as well as an increasingly competitive marketplace.
Impairment charge - Increased by 4,6%
The impairment charge of R594 million for the period was slightly higher than
the R568 million recorded for the same period of 2005. On an annualised basis,
the Group"s impairment ratio (income statement charge as a percentage of average
advances) for the period was 0,35% compared with the 0,41% achieved for the six
months ended 30 June 2005. This ratio is higher than the ratio recorded for the
nine months ended 31 December 2005 owing to a slight increase in irregular
accounts, particularly in Absa Home Loans and Retail Banking Services. The ratio
of non-performing advances to total advances has continued its downward trend
and improved to 1,3% (June 2005: 2,0%).
The Group"s credit management policies, procedures and techniques remain sound
and will be further enhanced by continuing to apply best practice. The levels of
provisions held in the Group are prudent and adequately cover the risk of
uncollectable amounts.
Non-interest income - Increased by 2,9%
Non-interest income remained relatively steady in relation to the comparable
period of the previous year (including International Financial Reporting
Standards (IFRS) reclassifications). Net fees and commissions increased by 4,0%
compared with the same period of the previous financial year. Transaction
volumes in the retail environment continued to grow and revenue growth of 15,0%
was achieved for the period, despite price increases well below inflation. Other
areas recorded lower growth rates, in part owing to IFRS reclassifications only
applied prospectively from 1 April 2005. Revenue from secondary market trading
activities was 35,6% higher than for the same period of 2005.
The low non-interest income growth can also be attributed to the closure of the
Group"s international operations outside Africa and the lower fair value gains
in respect of its listed equity portfolio.
Operating expenditure - Increased by 16,3%
The Group"s cost-to-income ratio improved marginally to 57,7% from the 58,0%
achieved for the nine months ended 31 December 2005.
The Group"s operating expenses grew slightly more than top-line income growth
compared with the same period of the previous year. The growth in operating
expenses can primarily be attributed to the further expansion of the Group"s
branch and ATM network, regulatory and compliance related activities, as well as
higher staff costs. The increased staff costs emanate from the Group"s emphasis
on customer service in an environment where banking transactions and activities
continued to increase. Barclays integration costs, a focus on customer education
as well as performance-related incentives also resulted in increased costs. If
the costs relating to the Barclays implementation initiatives are excluded, the
Group"s operating expenses grew by 12,5%.
Barclays integration programme
The Group has made good progress with the initiatives to deliver the sustainable
future benefits envisaged as part of the transaction whereby Barclays PLC
acquired a controlling shareholding in Absa. In the first six months of 2006,
R197 million in synergies have been delivered. Integration costs for the period
were R262 million, resulting in a net charge of R65 million for the period. The
board believes that the Group is on track to achieve the targets previously
communicated to the market.
Emphasis is currently being placed on activities resulting from the Barclays
acquisition of a controlling stake in Absa. These activities are best practice
initiatives, the synergy realisation programme and the Sarbanes-Oxley
implementation.
Absa has agreed in principle to acquire the nine Barclays sub-Saharan African
businesses. The proposed acquisition will be subject to regulatory and
shareholder approval. Once the initiatives relating to the Barclays transaction
referred to above are well advanced, the proposed acquisition of the Barclays
sub-Saharan African operations will become a priority.
Business unit performance
During the period under review, a review of the Group"s financial reporting
structure was undertaken. The result of the review is that Retail Banking
Services, Flexi Banking Services as well as Small Business are now reported as a
single unit referred to as Retail Banking Services. Absa Vehicle and Asset
Finance (AVAF) has been included in the retail banking segment. Absa Corporate
and Business Banking Services is now reported separately, as is Absa Capital.
Financial services will now be referred to as bancassurance.
Retail banking - Attributable earnings up 24,3%
Retail banking operations continued to benefit from solid advances growth of
13,6% from 31 December 2005, or 27,2% on an annualised basis. This is primarily
owing to continued mortgage and credit card advances growth. On an annualised
basis, these advances grew at 31,1% and 45,4% respectively. Retail banking
achieved solid attributable earnings growth and increased its attributable
earnings contribution to R1 783 million (June 2005: R1 434 million). Retail
Banking Services, Absa Card and AVAF performed strongly, growing attributable
earnings for the six months by 32,4%, 27,6% and 25,1% respectively.
Infrastructure investment for the six months under review continued and included
the opening of 12 staffed outlets, which are predominantly situated in
previously disadvantaged areas. A further 14 outlets were upgraded during the
six months under review and an additional 421 ATMs were added to the delivery
footprint. These ATMs were further augmented with 20 internet kiosks and 10 self
service kiosks.
Transaction volumes continued to grow, especially in Absa Card and Retail
Banking Services. The growth in transaction volumes emanated from the increased
activities of existing customers, especially in terms of electronic
transactions, and growth in the retail customer base from 7,2 million in June
2005 to 8,0 million in June 2006, representing a growth of 11%. With regard to
Absa Card, the increase in transactions reflects the change in Absa Card"s
strategy, which has entailed deploying Barclays knowledge, skills and
capabilities.
Retail banking"s impairment ratio for the period was 0,39% compared with the
0,36% achieved for the six months ended 30 June 2005. This ratio is higher than
the ratio recorded for the nine months ended 31 December 2005 owing to a slight
increase in irregular accounts, particularly in Absa Home Loans and Retail
Banking Services.
Absa Corporate and Business Banking Services - Attributable earnings up 57,6%
Absa Corporate and Business Banking Services increased its attributable earnings
to R457 million from the R290 million recorded for the six months ended 30 June
2005. The core profit drivers were solid advances and deposit growth of 34,2%
and 16,6% respectively compared with 30 June 2005.
Some margin pressure was experienced on selected advance and deposit products
owing to increased market competition. Transaction income benefited from the
growth in the customer base as well as the growth in transaction volumes,
particularly from electronic transactions. The quality of the advances book
improved further, as Absa Corporate and Business Banking Services" impairment
losses as a percentage of loans and advances to customers of 0,51% for the six
months ended 30 June 2006 were lower than the 1,50% recorded for the six months
ended 30 June 2005.
Absa Capital - Attributable earnings up 21,9%
During the period under review, Absa Capital was launched. The new investment
bank is the result of the integration of Absa Corporate and Merchant Bank, with
its established track record, local network and expertise, with the
international financing and risk management capabilities of Barclays Capital.
Absa Capital has undergone a period of restructuring to configure itself to
pursue a more customer-centric business model. This initiative includes
refocusing on core investment banking business activities, which has seen a
migration of some activities into Absa Corporate and Business Banking Services.
The investment bank has demonstrated a solid 21,9% growth in profit after tax
for the six months under review compared with the same period of 2005. This
growth was underpinned by strong top-line income growth.
African operations - Attributable earnings up 61,0%
The Group"s African operations achieved an attributable earnings contribution of
R66 million for the six months under review (June 2005: R41 million).
Banco Austral, Sarl (Mozambique) benefited from higher transaction volumes for
the year to date and the National Bank of Commerce (Tanzania) from higher non-
interest income, higher advance levels and lower impairment levels. Capricorn
Investment Holdings (Namibia) continued to perform well, primarily as a result
of strong advances growth.
These results also include earnings from Banco Comercial Angolano (Angola) for
the first time.
Bancassurance - Attributable earnings down 5,4%
Absa"s bancassurance operations recorded attributable earnings of R560 million
for the six months under review compared with the R592 million recorded for the
six months ended 30 June 2005. Despite the lower attributable earnings attained,
the Group"s bancassurance activities performed well, with strong operational and
underwriting performances by both the life assurance and short-term insurance
operations. Equity markets reflected increased volatility, which resulted in
lower returns compared with the previous period.
Absa Life"s earnings were mainly driven by significant sales success,
particularly in respect of retail credit risk business. With regard to the
Group"s short-term insurance operations, increased volumes and maintained claims
management efficiencies contributed to good profitability on short-term property
insurance.
Assets under management increased by R8,0 billion to R80,7 billion. This
resulted mainly from the strong inflow into fixed interest and money market
funds and positive investor sentiment. Absa Brokers made strong inroads into the
short-term market, especially personal lines business.
Emphasis continues to be placed on further product delivery integration with
Absa branches, expanding the product range to satisfy customer needs, customer
retention and increased cross-selling.
Other
The Group"s international operations in Singapore and Asia have been closed and
the London office has been significantly scaled down and has been repositioned
as a booking office. Absa"s operation in Germany, Bankhaus Wolbern & Co., has
been sold subject to conditions to be fulfilled. The impact on attributable
earnings is not significant, amounting to a reduction of R23 million for the
period under review.
Changes in accounting policies
The Group"s financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS).
The prior year saw significant change, with the transition to IFRS. This changed
the measurement and recognition of certain items and had a significant impact on
the format of the financial statements, especially the income statement. In the
current six months, there were further changes to accounting standards. These
standards have been assessed and it is believed that they do not have any
material impact on the financial statements. Consequently, no changes in
accounting policy requiring a restatement of the Group"s financial position or
results are required.
Net asset value and capital adequacy
The net asset value of the Absa Group (excluding the Absa Bank non-cumulative,
non-redeemable preference shares) increased by 15,9% from 3 573 cents per share
at 30 June 2005 to 4 142 cents per share at 30 June 2006 as a result of the
Group"s strong operational performance.
During the period under review, Absa Bank Limited (Absa Bank) issued a tier II
bond (AB06). The principal amount of the bond was R2 billion with a final
maturity date of 27 March 2020. The issue spread for the bond was 68,5 basis
points above the R157. Absa Bank also issued R3 billion in non-cumulative, non-
redeemable preference shares during the period under review. These preference
shares were allocated at a coupon rate of 63% of the prime overdraft lending
rate and were listed on the JSE Limited on 25 April 2006.
On the basis of the prescribed consolidated regulatory capital requirements, the
Group"s capital stood at 12,9% of risk-weighted assets at 30 June 2006 (December
2005: 11,3%). The Group"s primary capital ratio was 9,6% (December 2005: 8,6%)
and its secondary capital ratio was 3,3% (December 2005: 2,7%) as at 30 June
2006.
Prospects
The domestic economic landscape is expected to remain favourable, but further
global instability remains a possibility. Monetary policy tightening is expected
to cause some moderation in credit growth numbers over the next twelve to
eighteen months. Inflation is expected to accelerate, but economic growth is
likely to remain firm at around 4% per annum.
Interest margins are expected to remain relatively stable over the next year
owing to the benefits of the expected increase in interest rates being offset by
the increasingly competitive market and increased reliance on wholesale funding.
Consumer debt affordability levels are expected to remain acceptable, with the
household debt-to-income ratio increasing at a slower pace than previously
experienced. As a result, credit quality should remain good, but the impairment
charge will move to more normalised levels than those achieved for the past two
reporting periods.
Given the current volatility of the equity markets, the Group"s bancassurance
earnings for the full year are unlikely to match the earnings of the previous
year. In addition, some deceleration in advances growth is expected over the
next six months owing to possible further increases in interest rates. This may
lead to the rate of headline earnings growth being somewhat lower for the full
year compared with the growth experienced for the six months under review.
On behalf of the board
D C Cronje S F Booysen
Chairman Group chief executive
3 August 2006
Declaration of interim ordinary dividend number 40
Shareholders are advised that an interim dividend of 208 cents per ordinary
share was declared on Thursday, 3 August 2006, and is payable to shareholders
recorded in the register of members of the company at the close of business on
Friday, 1 September 2006.
In compliance with the requirements of Strate, the electronic settlement and
custody system used by the JSE Limited, the following salient dates for the
payment of the dividend are applicable:
Last day to trade cum dividend Friday, 25 August 2006
Shares commence trading ex dividend Monday, 28 August 2006
Record date Friday, 1 September 2006
Payment of dividend Monday, 4 September 2006
Share certificates may not be dematerialised or rematerialised between Monday,
28 August 2006, and Friday, 1 September 2006, both dates inclusive.
On Monday, 4 September 2006, 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 4 September 2006 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, 4 September 2006.
Please refer to the interim financial results announcement of Absa Bank Limited
and its subsidiaries for further information pertaining to the dividend for the
non-cumulative, non-redeemable preference shares.
On behalf of the board
W R Somerville
Group secretary
3 August 2006
Enquiries
Jacques Schindehutte
Group executive director
Absa Group Limited
4th floor, Absa Towers East, 170 Main Street, Johannesburg
Tel: (+2711) 350-4850 Fax: (+2711) 350-8433
e-Mail: jacquessc@absa.co.za
Eric Wasserman
Group executive: Group Finance
Absa Group Limited
4th floor, Absa Towers East, 170 Main Street, Johannesburg
Tel: (+2711) 350-5887 Fax: (+2711) 350-6487
e-Mail: ericwas@absa.co.za
Issued by:
Jacques Badenhorst
Investor Relations
Absa Group Limited
4th floor, Absa Towers East, 170 Main Street, Johannesburg
Tel: (+2711) 350-4061 Fax: (+2711) 350-6487
e-Mail: jacques.badenhorst@absa.co.za
Lead sponsor:
Merrill Lynch South Africa (Proprietary) Limited
Co-sponsor:
Absa Capital - Corporate Finance, a division of Absa Bank Limited
Johannesburg
3 August 2006
Date: 03/08/2006 07:00:46 AM Produced by the JSE SENS Department
