| Mon 13 Nov 2006, 7:42 | | ABIL - Reviewed Results for the year ended 30 Sept |
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ABL ABLP
ABL
ABIL - Reviewed Results for the year ended 30 September 2006
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")
REVIEWED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2006
OVERVIEW
Financial results
Continued strong demand for credit and a better than anticipated response
from clients to the group"s new product and pricing models, created a
positive market environment for ABIL for the financial year to 30 September
2006.
ABIL increased headline earnings by 20% to R1 145 million (2005: R956
million), while headline earnings per share increased by a lesser 13% to
230,5 cents per share (2005: 203,2 cents), as a result of the dilution
effect of the group"s BEE programme and a reduction in the treasury shares
held.
Ordinary dividends per share of 200 cents have been declared, relative to
the 122 cents for 2005. Return on assets was 14,2% (2005:13,0%) and return
on equity 55,3% (2005: 39,7%), benefiting from increased capital gearing
from 3,1 to 3,9 times. Economic profit, an important performance measure
for the group, increased by 34% to R808 million.
Key drivers of the results for the twelve months were:
- buoyant demand for credit, together with the group"s new product and -
pricing models resulted in better than expected sales and advances
growth;
- credit vintages in line with expectations and within risk appetite;
- operating costs excluding abnormal charges under IFRS 2, maintained at
2005 levels, resulting in further improvement in efficiency ratios;
- improved ratings and refinancing of debt at lower interest rates
leading to lower funding costs;
- improved RoAs and increased gearing translating into higher RoEs.
Operational performance
- Sales for the twelve months to 30 September 2006 increased 26% to R5,5
billion (2005: R4,4 billion).
- Gross advances increased by 20% over the past year from R6,5 billion to
R7,7 billion.
- Total income yield at 53,8% has started to decline from the 54,6%
achieved in the twelve months to September 2005.
- Operating costs increased by R97 million to R1 048 million (2005: R951
million). The increase included an R119 million charge for IFRS 2 (2005:
R34 million), relating to the group"s share incentive schemes.
- The charge for bad and doubtful advances was R606 million (2005: R488
million), or 8,5% of average advances (2005: 7,9%) and 20,4% of interest
income(2005:17,7%).
- NPLs increased by R571 million to R2 213 million as at 30 September 2006.
Product and pricing strategies
The group has during the past year enjoyed the positive impact of its
strategy to drive down the cost of credit. The first step in this process
was implemented in August 2005, when product offerings and pricing were
segmented by risk groupings. This resulted in a substantial increase in
loan volumes, especially to the lower risk clients, who benefited the most
from price reductions and the resultant increased loan affordability.
During 2006, the group made a number of further adjustments to its
underwriting models. These included:
- tighter affordability criteria for higher risk clients, whom the group
felt were more vulnerable to increasing credit supply dynamics;
- recognising the new regulatory payment clearing mechanisms introduced
for debit orders;
- opening the scope for debit orders to a wider number of account types
within banks;
- simplifying the underwriting process for performing repeat clients.
In conjunction with this, the group further refined its risk segmentation
into a greater number of risk groups and introduced a major new product and
pricing rollout in October 2006. The key features of this were:
- further reductions in overall pricing yields across the board of
approximately 10% p.a.;
- the ability to make a commitment to customers that their pricing will
improve as they improve their credit behaviour both to ABIL and to
other lenders in the market;
- the introduction of a competitively priced, 3-month R1 000 standby
loan facility, available to all existing customers who are current
with their repayments;
- an extension of term and loan size on debit order loans for our lowest
risk customers up to R20 000, repayable over a maximum of 60 months;
and
- tailored scoring and products for customers new to formal lending in
South Africa and who do not have any credit bureau records, together
with directed consumer education for these customers.
As a result of these latest pricing changes, and based on sales for October
2006, the total cost of credit for over 60% of customers has fallen by at
least 11%. The cost of credit to our lowest risk groups, comprising 15% of
our customers, has now been set below the existing Usury rate of 17% for 48
and 60-month loans.
Credit environment
Signals that point to the beginning of a change in the credit cycle have
begun emerging over the past year. This has been caused by a combination of
increasingly competitive credit supply side dynamics and moderately rising
inflation and interest rates. As competitors and new entrants increase
their exposure to this market segment, average debt, particularly to higher
risk clients, has been rising.
The group has responded to this trend by tightening credit criteria to its
higher risk client segments, by raising its affordability limits and
decreasing loan sizes and terms.
Regulation
National Credit Act
The administrative provisions of the National Credit Act came into effect
on 1 June 2006 and most regulations under the Act were promulgated in May
2006. ABIL is satisfied that the Act and its regulations have found the
right balance and is appreciative of the extensive process of consultation
undertaken by the Department of Trade and Industry and the National Credit
Regulator in this regard.
The group is well underway with a number of projects to amend its
documentation, business processes, underwriting models and systems, and
expects to be fully compliant with the new Regulatory Framework well ahead
of 1 June 2007, when the substantive provisions of the Act become
effective.
National Payment System Act (NPS)
The new Section 6 of the NPS Act came into effect on 1 July 2006, outlawing
any preferential treatment of debit order instructions within the payments
system. The new provisions of the Act only affect payments collected in
respect of contracts concluded as from 1 July 2006, and the existing loans
are allowed to run down under the present bilateral arrangements with the
respective banks until 31 December 2007.
Appropriate product and pricing changes were implemented prior to 1 July
2006 in order to accommodate the anticipated impact on debit order
collections.
Eyomhlaba
In May 2005, ABIL announced a black equity ownership programme that was
designed to place ABIL ordinary shares in the hands of a broad base of
historically disadvantaged South Africans and to increase their holding in
ABIL to over 15% over ten years, of which at least 10% must be
unencumbered.
The initial capital raising and a subsequent rights offer to Eyomhlaba
shareholders was conducted during 2006. Eyomhlaba gained 6 600 shareholders
consisting of staff, clients, ABIL shareholders and general public. At 30
September 2006, Eyomhlaba held 31 million ABIL shares, being 6,2% of the
issued share capital.
Looking ahead
Significant foundations have been laid to position the group for an
increasingly regulated and competitive industry. The generation of
attractive returns and the pace of growth in this market have been fuelling
competitive entry, which is positive for clients as this presents them with
more choice.
The group"s strategic response to this has been to:
- refine the segmentation of its product terms and pricing according to
risk groups, thereby reducing the cross-subsidisation between low-risk
and high-risk clients;
- systematically drive down the cost of credit by passing on the
benefits of improved operating cost, capital and funding efficiencies
to its clients. The price-volume elasticity benefit of reducing
prices will continue to generate further economies of scale and cost
efficiencies, which in turn will facilitate further price reductions;
- expand its presence in the market by increasing the client base,
through improved distribution, client service offering and innovative
products;
- deepen its understanding of client dynamics. The group has been
researching the causes of client dormancy, amongst others, and is
amending its products and processes to address clients" concerns and
preferences;
- retain its tight focus within the area of its core competence of
unsecured personal lending, however at the same time stepping up
initiatives to innovate new products and channels within this area to
expand the market; and
- ready the business for the implementation of the National Credit Act
in order to minimise business and client disruption.
ABIL will continue to focus on these main thrusts in 2007.
The risk segmentation process not only allows the group to offer a better
value proposition to its clients, it also allows the group to calibrate its
risk appetite more finely in the face of a changing credit cycle. As the
group identifies certain risk groups that may be vulnerable to taking up
higher levels of credit and accordingly tightens its underwriting criteria,
it is also able to target new products and pricing to lower risk groups who
are not affected. This ensures that while the competitive landscape is
changing, the group"s growth strategy remains intact.
The return on equity that the group is generating is well above its
targets. While the group is responding to this by driving prices lower,
there is a lag effect of this feeding through into the results. Over the
short-term, increased volumes are translating into immediate cost
efficiencies across the business, whilst price reductions only occur on new
loans granted. As a result, the income yields will fall gradually until
the effect of the reduced pricing embeds itself into the entire portfolio.
Over the next three years the return on equity will decline as a result of
the strategies that have been implemented, augmented by the benefits of
higher levels of growth.
ABIL is confident that it will achieve its stated financial objectives for
the 2007 financial year, but more importantly, will continue to use the
high return on equity currently being achieved to strengthen the
competitive position and growth prospects of the group for subsequent
financial periods through further risk discovery and price reductions on
its products.
DIVIDEND DECLARATION
Preference dividend declaration
On 10 November 2006, the board of directors proposed and approved dividend
No 4 of 392 cents per preference share.
The dividend was calculated using the following parameters:
Average prime for the period 11,4%
Coupon rate as percentage of prime 69%
No of days 182
Salient dates for dividend payments:
Last day to trade cum-dividend Friday, 1 December 2006
Shares commence trading ex-dividend Monday, 4 December 2006
Record date Friday, 8 December 2006
Dividend payment date Monday, 11 December 2006
Share certificates may not be dematerialised or rematerialised between
Monday, 4 December 2006 and Friday, 8 December 2006, both days inclusive.
Final dividend declaration
On 10 November 2006, the board of directors proposed and approved a final
dividend No 12 of 120 cents per ordinary share.
Salient dates for dividend payments:
Last day to trade cum-dividend Friday, 8 December 2006
Shares commence trading ex-dividend Monday, 11 December 2006
Record date Friday, 15 December 2006
Dividend payment date Monday, 18 December 2006
Share certificates may not be dematerialised or rematerialised between
Monday, 11 December 2006 and Friday, 15 December 2006, both days inclusive.
REVIEW OPINION
These results have been reviewed by Deloitte & Touche and their unmodified
review opinion is available for inspection at the Company"s registered
office.
ACCOUNTING POLICIES
These condensed group annual consolidated financial statements have been
prepared in accordance with International Accounting Standard (IAS) 34 and
the requirements of the South African Companies Act, (Act 61 of 1973, as
amended).
These are the group"s first consolidated annual financial statements
prepared in accordance with International Financial Reporting Standards
(IFRS) adopted by the International Accounting Standards Board (IASB) and
interpretations issued by the International Financial Reporting
Interpretations Committee (IFRIC) of the IASB. In prior years the group
prepared its consolidated financial statements in accordance with South
African Statements of Generally Accepted Accounting Practice (SA GAAP).
The accounting policies of the group are consistent with those adopted in
the previous year, except for changes made as a result of the adoption of
IFRS. The group has restated its opening balances of 1 October 2004 except
where the group elected to apply certain IFRS with effect from 1 October
2005, as allowed under the transitional arrangements set out in IFRS 1.
On behalf of the board
Ashley Mabogoane, Chairman
Gordon Schachat, Executive Deputy Chairman
Leon Kirkinis, Chief Executive Officer
13 November 2006
Board of directors
AS Mabogoane (Chairman), G Schachat (Deputy Chairman)*, L Kirkinis (CEO)*,
A Fourie*, DB Gibbon, BD Goba, R Naidoo, TM Sokutu*, BPF Steele, GZ
Steffens (German), DFG Tembe (Mozambique), A Tugendhaft, DF Woollam*
* Executive
Group Secretary
S Martin
Share transfer secretaries
Link Market Services SA Pty Ltd
11 Diagonal Street, Johannesburg, 2001
PO Box 4844, Johannesburg, 2000.
Telephone +27 11 834 2266
africanbank@linkmarketservices.co.za
Registered office
59 16th Road
Midrand, 1685
Midrand
13 November 2006
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Group income statement
for the 12 months ended 30 September 2006
IFRS
Reviewed restated
12 months 12 months
ended ended
30 Sept 30 Sept
R million % change 2006 2005
Revenue
Interest income on advances 8 2 974 2 752
Net assurance income 19 424 357
Non-interest income 63 446 274
Total revenue 14 3 844 3 383
Charge for bad and doubtful advances (24) (606) (488)
Risk-adjusted revenue 12 3 238 2 895
Other interest income (28) 113 156
Interest expense 5 (465) (492)
Operating costs (10) (1 048) (951)
Net income from operations 14 1 838 1 608
Profit on sale of CVF and other capital
items 37 0
Share of associate company"s income (100) 0 1
Net income before taxation 17 1 875 1 609
Indirect taxation: VAT and RSC 8 (46) (50)
Direct taxation: STC 16 (118) (140)
SA normal (12) (535) (476)
Attributable earnings 25 1 176 943
Reconciliation of headline earnings and
per share statistics
Attributable earnings 25 1 176 943
Adjusted for:
Goodwill impaired 0 14
Profit on sale of CVF and other capital
items (37) (1)
Capital gains tax thereon 6 0
Headline earnings 20 1 145 956
Attributable to: Preference 36 8
shareholders
Ordinary shareholders 1 109 948
20 1 145 956
Number of shares in issue (net of 497 495
treasury) (million)
Weighted number of shares in issue 497 471
(million)
Fully diluted number of shares in issue 497 472
(million)
Headline earnings per share (cents) 13 230,5 203,2
Fully diluted headline earnings per
share (cents) 14 230,3 202,4
Attributable earnings per share (cents) 18 236,8 200,4
Fully diluted attributable earnings per
share (cents) 19 236,5 199,6
Dividends per ordinary share
Interim - paid (cents) 54 80 52
Final - declared (cents) 71 120 70
Total ordinary dividends (cents) 64 200 122
Special dividends - paid (cents) 0 100
Total ordinary and special dividends
(cents) 200 222
Group balance sheet
as at 30 September 2006
IFRS
Reviewed restated
30 Sept 30 Sept
R million % change 2006 2005
Assets
Fixed assets 4 116 112
Investment in associate (100) 0 11
Policyholders" investments 38 87 63
Deferred tax asset 65 153 93
Net advances 15 6 064 5 282
Gross advances 20 7 727 6 454
Deferred administration fees >100 (228) (55)
Impairment provisions 28 (1 435) (1 117)
Other assets (81) 12 63
Taxation (67) 7 21
Statutory assets - bank and insurance (9) 472 517
Short-term deposits and cash 9 1 252 1 147
Total assets 12 8 163 7 309
Liabilities and equity
Life fund reserve 8 103 95
Subordinated debentures 3 202 197
Bonds and other long-term funding 10 3 579 3 256
Short-term money market funding 71 1 085 633
Other liabilities (7) 395 426
Taxation 25 109 87
Total liabilities 17 5 473 4 694
Ordinary shareholders" equity 4 2 207 2 122
Preference shareholders" equity 0 483 483
Minority shareholders" interest (100) 0 10
Total equity (capital and reserves) 3 2 690 2 615
Total liabilities and equity 12 8 163 7 309
Group statement of changes in equity
for the 12 months ended 30 September 2006
Ordinary shares
Distri-
Share butable IFRS 2 Treasury
R million capital reserves reserve shares
Balance at 30 September 2004
(IFRS restated) 11 2 670 14 (55)
Issue of shares 1
Share issue expenses
Dividends paid (1 107)
Shares purchased into the
ABIL
Employee Share Trust less
shares issued to employees
(cost) 13
Loss incurred on group
employees acquiring ABIL
Share Trust shares less
dividends received (248)
Treasury shares acquired by
subsidiary less dividends
received 2 (23)
Attributable earnings 935
IFRS 2 adjustment
(employee share options) (91)
Balance at 30 September 2005
(IFRS restated) 12 2 252 (77) (65)
IFRS (IAS 18) adjustment to
current year opening
distributable reserves
(administration fees) (64)
IFRS (IAS 39) adjustment to
current year opening
distributable
reserves (impairments) (58)
Cancellation of shares as a
result of odd-lot offer (14)
Dividends paid (897)
Movement in treasury shares
and losses incurred in the
ABIL Employee Share Trust (14) 41
IFRS 2 reserve transactions
(employee share options) (49)
Attributable earnings 1 140
Balance at 30 September 2006
(reviewed) 12 2 345 (126) (24)
Pre-
ference
share
Ordinary capital
shares and
R million Total premium Total
Balance at 30 September 2004
(IFRS restated) 2 640 0 2 640
Issue of shares 1 500 501
Share issue expenses (17) (17)
Dividends paid (1 107) (8) (1 115)
Shares purchased into the ABIL
Employee Share Trust less shares
issued to employees (cost) 13 13
Loss incurred on group employees
acquiring ABIL Share Trust shares
less dividends received (248) (248)
Treasury shares acquired by
subsidiary less dividends received (21) (21)
Attributable earnings 935 8 943
IFRS 2 adjustment
(employee share options) (91) (91)
Balance at 30 September 2005
(IFRS restated) 2 122 483 2 605
IFRS (IAS 18) adjustment to
current year opening distributable
reserves (administration fees) (64) (64)
IFRS (IAS 39) adjustment to
current year opening distributable
reserves (impairments) (58) (58)
Cancellation of shares as a result
of odd-lot offer (14) (14)
Dividends paid (897) (36) (933)
Movement in treasury shares and
losses incurred in the ABIL
Employee Share Trust 27 27
IFRS 2 reserve transactions
(employee share options) (49) (49)
Attributable earnings 1 140 36 1 176
Balance at 30 September 2006
(reviewed) 2 207 483 2 690
30 Sept 30 Sept
Notes 2006 2005
1. Treasury shares
Treasury shares at cost R million 24 65
Number of shares held million 1 3
Average cost per share Rand 24,26 19,76
Total Weighted Diluted
number number number
of shares of shares of shares
in issue in issue in issue
2. Ordinary shares
Number of shares in issue million 498,4 498,4 498,4
Shares cancelled (net) as a
result of odd-lot offer million (0,5) (0,2) (0,2)
Treasury shares on hand million (1,0) (1,4) (1,4)
Dilution as a result of
outstanding options million 0,0 0,0 0,5
Total million 496,9 496,7 497,2
Group cash flow statement
for the 12 months ended 30 September 2006
Reviewed Audited
12 months 12 months
to 30 Sept to 30 Sept
R million 2006 2005
Cash generated from operations 2 733 2 382
Increase in gross advances (1 987) (1 367)
(Increase)/decrease in working capital (108) 274
Indirect and direct taxation paid (638) (738)
Ordinary shareholders" payments and (897) (1 127)
transactions
Preference shareholders" payments and
transactions (36) 475
Cash outflow from equity accounted incentive
transactions (1) (297)
Cash inflow/(outflow) from investing activities 127 (208)
Cash inflow/(outflow) from financing activities 780 (175)
Decrease in cash and cash equivalents (27) (781)
Cash and cash equivalents at the beginning of
the year 1 390 2 171
Cash and cash equivalents at the end of the 1 363 1 390
year
Made up as follows:
Short-term deposits and cash 1 252 1 147
Statutory cash reserves - insurance 111 243
1 363 1 390
Segmental analysis
Gross Headline
Advances earnings
12 months ended 30 Sept 06 R million R million
Continuing businesses 7 172 1 350
African Bank 6 041 1 125
Miners Credit 748 147
Standard Bank JV 383 59
CVF - 19
Discontinued 555 3
Group and consol (2)
IFRS 2 charge (88)
STC (118)
Total 7 727 1 145
12 months ended 30 Sep 05
Continuing businesses 5 793 1 148
African Bank 4 540 935
Miners Credit 651 107
Standard Bank JV 348 71
CVF 253 35
Discontinued 661 (25)
Group and consol 7
IFRS 2 charge (34)
STC (140)
Total 6 454 956
Advances
30 Sept % 30 Sept % 30 Sept
R million 2006 growth 2005 growth 2004
Lending books 7 172 24 5 793 24 4 685
African Bank - retail
products 5 474 39 3 926 35 2 912
- payroll products 494 (20) 614 (34) 934
- credit card 73 n/a 0 n/a 0
Miners Credit 748 15 651 72 379
Standard Bank JV 383 10 348 27 273
CVF 0 (100) 254 36 187
Pay down books 555 (16) 661 (54) 1 444
Persal 181 (8) 197 (35) 302
Saambou PLB 368 (18) 450 (52) 931
Other 6 (57) 14 (>100) 211
Gross advances 7 727 20 6 454 5 6 129
Asset quality analysis
% 30 Sept 30 Sept 30 Sept
R million change 2006 2005 2004
Gross advances
Performing 15 5 514 4 812 3 883
Non-performing 35 2 213 1 642 2 246
Gross advances 20 7 727 6 454 6 129
Gross advances net of deferred
administration fees
Gross advances 7 727 6 454 6 129
Deferred administration fees (228) (55) 0
Gross advances net of deferred
administration fees 17 7 499 6 399 6 129
Impairment provisions and insurance
reserves
Impairment provisions 46 1 425 979 1 545
Balance at the beginning of the year 979 1 545 1 823
Impairment provisions raised 825 627 568
Adjustment for the transition to IFRS
(IAS 39) 82 0 0
Bad debts written off (against
impairment provisions) (455) (1 219) (845)
(Disposals)/acquisitions of
impairment provisions (6) 26 (1)
Stangen credit life reserves (93) 10 138 112
Total impairment provisions and
insurance reserves 28 1 435 1 117 1 657
12 months 12 months 12 months
to 30 Sept to 30 Sept to 30 Sept
2006 2005 2004
Income statement charges
Charge for bad and doubtful
advances 606 488 484
Impairment provisions raised 825 627 568
Recoveries from bad debts written
off (219) (139) (84)
Ratios
NPLs as a % of gross advances 28,6 25,4 36,6
Impairment provision coverage of
NPLs
Impairment provisions 64,4 59,6 68,8
Stangen credit life reserves 0,5 8,4 5,0
Total impairment provision
coverage 64,8 68,0 73,8
Total impairment provisions and
insurance reserves
as a % of gross advances 18,6 17,3 27,0
Income statement charge for bad
debts as a % of average gross
advances 8,5 7,9 7,7
Bad debt write-offs as a % of
average gross advances 6,4 19,7 13,5
Date: 13/11/2006 07:42:28 AM Produced by the JSE SENS Department
