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MTL - Mercantile Bank Holdings Limited - Condensed audited results for the year
ended 31 December 2010
Mercantile Bank Holdings Limited
Registration number 1989/000164/06
Member of CGD Group
("Mercantile" or "the Group")
ISIN: ZAE000064721
CONDENSED AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010
SALIENT FEATURES
* Net charge for credit losses of 0.1%
* Growth in loans and advances of 2.5%
* Growth in deposits of 7.5%
* HEPS down by 37.7%
FINANCIAL OVERVIEW
Against the background of continued uncertainty in economic conditions, both
internationally and domestically, the Group experienced a tough trading
environment in 2010 with headline earnings declining for the year under review
by 37.7%, mainly due to:
* the negative endowment effect resulting from the lower interest rate
environment in South Africa and the Group`s high level of unleveraged capital.
The Group`s capital adequacy ratio as at 31 December 2010 was 23.5% (2009:
26.3%);
* the termination by Woolworths Financial Services (WFS) of its card processing
agreement in October 2009 following the sale by WFS of a controlling interest in
its financial services business;
* the increase in the Group`s cost base following the implementation of the new
core banking system in April 2010. The increased amortisation and depreciation
charge year on year amounted to R14.5 million; and
* the general lower level of business activity experienced, in line with
depressed national economic activity and broad industry trends.
Notwithstanding the difficult market conditions, the quality of the Group`s
lending portfolio remained sound with a net charge for credit losses as a
percentage of loans and advances of 0.1% (2009: 0.3%).
Cost to income increased from 52.7% for the year ended 31 December 2009 to 65.5%
for the year ended 31 December 2010, whilst both ROE at 6.8% (December 2009:
12.0%) and ROA at 1.7% (December 2009: 2.8%) declined, reflecting the weaker
market conditions and lower earnings of the Group.
CREDIT RATINGS
Moody`s Investors Service (Moody`s) confirmed the following RSA national scale
issuer ratings to the Bank on 11 June 2010:
Short term P-1.za
Long term A2.za
Outlook On 21 December 2010 Moody`s placed Mercantile on ratings review
for possible downgrade based on Moody`s review of the stand
alone rating of Caixa Geral de Depositos S.A. (the Group`s
holding company).
BLACK ECONOMIC EMPOWERMENT
The SENS announcement dated 5 October 2010 advised that discussions with the
short-listed candidates for the sale of 10% of the Group`s equity were
terminated based on the prevailing uncertain international market conditions. No
further developments have taken place since then in this regard, but the Group
remains committed to empowerment at shareholder level.
NEW BANKING SYSTEM
The Group`s new core banking system was successfully implemented in April 2010
at a cost of R242 million. The new platform is expected to enhance the Group`s
competitiveness in the market.
DIRECTORATE AND COMPANY SECRETARY
Mr K R Kumbier was appointed as Executive Director: Finance and Business with
effect from 1 June 2010 and Ms S Rapeti, a non-executive director, resigned with
effect from 29 July 2010.
Ms A de Villiers was appointed as Company Secretary with effect from 1 January
2010.
The Board has extended the employment contracts of Mr D J Brown as chief
executive officer and Mr J P M Lopes as executive director to March 2014 and
July 2014, respectively.
ACCOUNTING POLICIES
These audited condensed consolidated annual financial statements have been
prepared under the historical cost conventions excluding financial instruments
and properties which are fair valued.
The condensed financial information has been prepared in accordance with the
framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the AC 500 standards as
issued by the Accounting Practices Board and the information as required by IAS
34: Interim Financial Reporting. The report has been prepared using accounting
policies that comply with IFRS which are consistent with those applied in the
financial statements for the year ended 31 December 2009.
AUDIT OPINION
The independent auditors, Deloitte & Touche, have issued their unmodified
opinion on the Group`s annual financial statements for the year ended 31
December 2010. The audit was conducted in accordance with International
Standards on Auditing. A copy of their audit report is available for inspection
at Mercantile`s registered office. These condensed annual financial statements
have been derived from the Group`s annual financial statements and are
consistent in all material respects with the Group annual financial statements.
GOING CONCERN
The financial statements have been prepared on the going concern basis.
EVENTS AFTER THE REPORTING PERIOD
No material events have occurred between the accounting date and the date of
this report that require adjustment to or disclosure in the annual financial
statements.
DIVIDENDS
The Group will be seeking the relevant approvals for a share consolidation and
odd lot offer whereafter dividend declarations will be considered.
OUTLOOK
The policy stimulus measures implemented in international markets is supportive
of an improved economic outlook for 2011 and the Group is confident of an
improved performance going forward.
J A S de Andrade Campos
Chairman
D J Brown
Chief Executive Officer
Sandton
24 February 2011
Condensed consolidated statement of financial position
2010 2009
R`000 R`000
Audited Audited
ASSETS
Intangible assets 224 402 170 325
Property and equipment 126 887 131 483
Tax 101 256
Other accounts receivable 49 021 29 539
Other investments 10 969 23 590
Deferred tax assets 62 382 102 936
Non-current assets held for sale - 5 510
Loans and advances 3 720 907 3 629 574
Derivative financial instruments 34 717 21 406
Negotiable securities 265 028 267 902
Bank term deposits - 35 276
Cash and cash equivalents 1 759 897 1 400 937
Total assets 6 254 311 5 818 734
EQUITY AND LIABILITIES
Shareholders` equity 1 539 394 1 437 671
Share capital and share premium 1 202 760 1 202 571
Share-based payments reserve 3 190 1 894
Property revaluation reserve 54 547 52 708
Available-for-sale reserve 10 502 13 883
Capital redemption reserve fund 3 788 3 788
General reserve 7 478 7 478
Retained earnings 257 129 155 349
Liabilities 4 714 917 4 381 063
Deferred tax liabilities 21 038 18 870
Deposits 4 563 988 4 246 598
Derivative financial instruments 28 122 16 230
Provisions and other liabilities 29 920 38 142
Other accounts payable 71 849 61 153
Tax - 70
Total equity and liabilities 6 254 311 5 818 734
Condensed consolidated statement of comprehensive income
2010 2009
R`000 R`000
Audited Audited
Interest income 450 918 529 584
Interest expense (194 558) (261 315)
Net interest income 256 360 268 269
Net charge for credit losses (3 422) (9 323)
Net interest income after credit losses 252 938 258 946
Net gain on disposal of available-for-sale investments 885 1 583
Net non-interest income 168 485 200 059
Non-interest income 271 587 287 909
Fee and commission expenditure (103 102) (87 850)
Net interest and non-interest income 422 308 460 588
Operating expenditure (278 804) (247 578)
Operating profit 143 504 213 010
Share of income from associated company 567 4 059
Profit before tax 144 071 217 069
Tax (43 045) (54 867)
Profit after tax 101 026 162 202
Other comprehensive (loss)/income
Revaluation of owner-occupied properties 2 554 8 812
(Losses)/Gains on remeasurement to fair value (3 331) 2 576
Release to income on disposal of available-for-sale
financial assets (885) (1 583)
Tax relating to other comprehensive loss/income 120 (2 614)
Other comprehensive (loss)/income net of tax (1 542) 7 191
Total comprehensive income 99 484 169 393
Profit after tax attributable to:
Equity holders of the Group 101 026 162 202
Total comprehensive income attributable to:
Equity holders of the Group 99 484 169 393
Earnings per ordinary share (cents) 2.6 4.1
Diluted earnings per ordinary share (cents) 2.6 4.1
Headline earnings
2010 2009
R`000 R`000
Audited Audited
Reconciliation between profit after tax and headline
earnings
Profit after tax 101 026 162 202
Adjustment for non-headline items:
Realisation of available-for-sale reserve on disposal
of investments (885) (1 583)
Loss on disposal of property and equipment 6 14
Tax on non-headline items 122 218
Headline earnings 100 269 160 851
Headline earnings per ordinary share (cents) 2.6 4.1
Diluted headline earnings per ordinary share (cents) 2.5 4.1
Financial statistics
2010 2009
Audited Audited
Number of ordinary shares in issue:
- end of the year (`000) 3 911 959 3 911 114
- weighted average (`000) 3 911 255 3 911 114
- weighted average - diluted (`000) 3 935 365 3 928 895
Return on average equity (%) 6.8 12.0
Return on average assets (%) 1.7 2.8
Cost to income (%) 65.5 52.7
Net asset value per ordinary share (cents) 39.4 36.8
Tangible net asset value per ordinary share (cents) 33.6 32.4
Condensed consolidated statement of changes in equity
2010 2009
R`000 R`000
Audited Audited
Share capital and share premium
Balance at beginning of the year 1 202 571 1 202 571
Decrease of treasury shares held within the Group 189 -
Balance at end of the year 1 202 760 1 202 571
Share-based payments reserve
Balance at beginning of the year 1 894 4 650
Vesting of shares in the conditional share plan (104) -
Share-based payments expense/(write back) 1 400 (2 756)
Balance at end of the year 3 190 1 894
Property revaluation reserve
Balance at beginning of the year 52 708 46 364
Other comprehensive income 2 554 8 812
Tax relating to other comprehensive income (715) (2 468)
Balance at end of the year 54 547 52 708
Available-for-sale reserve
Balance at beginning of the year 13 883 13 036
Other comprehensive (loss)/income (4 216) 993
Tax relating to other comprehensive loss/income 835 (146)
Balance at end of the year 10 502 13 883
Capital redemption reserve fund and general reserve
Balance at beginning and end of the year 11 266 11 266
Retained earnings/(Accumulated loss)
Balance at beginning of the year 155 349 (8 857)
Profit after tax 101 026 162 202
Share-based payments expense 754 2 004
Balance at end of the year 257 129 155 349
Total equity
Balance at beginning of the year 1 437 671 1 269 030
Decrease of treasury shares held within the Group 189 -
Vesting of shares in the conditional share plan (104) -
Share-based payments expense/(write back) 2 154 (752)
Profit after tax 101 026 162 202
Other comprehensive (loss)/income net of tax (1 542) 7 191
Balance at end of the year 1 539 394 1 437 671
Condensed consolidated statement of cash flows
2010 2009
R`000 R`000
Audited Audited
Net cash inflow from operating activities 420 749 41 241
Net cash (outflow) from investing activities (61 789) (105 263)
Net cash inflow/(outflow) for the year 358 960 (64 022)
Cash and cash equivalents at beginning of the year 1 400 937 1 464 959
Cash and cash equivalents at end of the year 1 759 897 1 400 937
Condensed Group segmental information
2010 2009
R`000 R`000
Audited Audited
Segment revenue net of fee and commission expenditure
Revenue from external customers
Business and Commercial Banking 277 440 291 779
Treasury 60 340 45 224
Alliance banking, MBL credit card and electronic banking 35 650 63 055
Other services (1) 52 300 69 853
425 730 469 911
Segment result - operating profit (2)
Business and Commercial Banking 173 676 197 583
Treasury 34 545 25 888
Alliance banking, MBL credit card and electronic banking 9 893 39 583
Other services (1) (74 610) (50 044)
Operating profit 143 504 213 010
Share of income from associated company 567 4 059
Profit before tax 144 071 217 069
Tax (43 045) (54 867)
Profit after tax 101 026 162 202
Material related party balances and transactions
2010 2009
R`000 R`000
Audited Audited
Net balances with Caixa Geral de Depositos S.A. 1 084 434 614 222
Interest received from Caixa Geral de Depositos S.A. 1 353 10 518
Condensed Group contingent liabilities and commitments
2010 2009
R`000 R`000
Audited Audited
Guarantees 305 669 303 514
Letters of credit 10 260 12 330
Committed undrawn facilities 129 903 190 834
Operating lease commitments 16 616 11 265
Capital commitments 5 360 51 628
Explanatory notes
(1) Other services includes support divisions, surplus capital, insurance
brokers and inter-group eliminations.
(2) Segment results represent the operating profit earned by each segment
without the allocation of tax or attributable support costs.
This is the measure reported to the chief operating decision maker for the
purposes of resource allocation and assessment of segment performance.
Directors: J A S de Andrade Campos* (Chairman),
D J Brown (Chief Executive Officer), J P M Lopes* (Executive),
K R Kumbier (Executive), G P de Kock, L Hyne, A T Ikalafeng,
T H Njikizana
* Portuguese Zimbabwean
Group secretary: A de Villiers
Registered office: Mercantile Bank, 142 West Street, Sandown, 2196
Share code: MTL ISIN: ZAE000064721
Transfer secretaries: Computershare Investor Services (Pty) Limited,
70 Marshall Street, Johannesburg, 2001
Sponsor: Bridge Capital Advisors (Pty) Limited, 2nd Floor, 27 Fricker Road,
Illovo, 2196
www.mercantile.co.za
Date: 24/02/2011 11:02:03 Supplied by www.sharenet.co.za
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