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STANDARD BANK GROUP LIMITED - AUDITED RESULTS AND DIVIDEND ANNOUNCEMENT FOR THE
YEAR ENDED 31 DECEMBER 2003
Standard Bank Group Limited
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Reg No 1969/017128/06)
JSE Securities Exchange share code: SBK
Namibian Stock Exchange share code: SNB
ISIN: ZAE000038873
Audited results and dividend announcement
for the year ended 31 December 2003
Headline earnings 19% up
Headline earnings per share 18% higher
Dividend per share 22% up
ROE 22,8%
Cost-to-income ratio 56,2%
Overview of financial results
Standard Bank Group continued its long-term growth trend in 2003 with headline
earnings for the year 19% higher at R6 248 million. Results for the year were
achieved against the backdrop of a strengthening South African economy and
improvements in global markets, particularly financial markets in emerging
economies. In South Africa, economic fundamentals continued to improve, with
reductions in inflation and interest rates, and a significant strengthening in
the external value of the rand. The group"s diversity across different markets,
financial products and customers once again provided a sound base for creating
shareholder value.
The group"s domestic banking operations produced earnings growth of 16% and
returns on equity in excess of 30% in both Retail Banking and Corporate and
Investment Banking. This was supported by ongoing improvements in credit
management, substantial growth in advances in the higher-margin retail
categories, and good growth in non-interest revenue. In local currency terms,
strong profit growth was achieved in the African operations, but this was
largely offset on translation by the effect of the stronger rand. A highlight of
the 2003 performance was the exceptional growth achieved by the group"s
international operations, which more than doubled earnings in rand terms despite
the exchange rate effect.
The group"s key financial highlights for the year were as follows:
- return on equity of 22,8% compared with 20,3% in 2002;
- headline earnings of R6 248 million, 18,7% up;
- headline earnings per share of 468,3 cents, 18,2% higher;
- credit loss ratio improved to 0,91%;
- dividends of 151 cents per share, 21,8% up; and
- the cost-to-income ratio improved to 56,2% from 57,3%.
The group"s medium-term financial objectives published a year ago were:
- Return on equity of 20%;
- Headline earnings growth of inflation (CPIX) plus 10%, which equated to
a growth rate of 16,8% for 2003;
- Cost-to-income ratio of 57%; and
- A group credit loss ratio of 1%.
All of these objectives were achieved in 2003.
Effect of adopting AC 133 on the results
In accordance with South African Generally Accepted Accounting Practice (SA
GAAP), the group adopted the accounting statement AC 133 "Financial Instruments:
Recognition and Measurement" with effect from 1 January 2003. The effect of this
on earnings for the year and on the opening equity and asset and liability base
are given below. In summary, the adoption of AC 133 has not had a material
effect, with earnings for the year R76 million higher and opening equity at 1
January 2003 R234 million lower as a consequence.
Income statement
Net interest income - up 9%
The average prime rate for 2003 was approximately 0,5% lower than that of the
previous year. This differential, together with the sharp decline in rates in
the second half of the year, caused some margin contraction domestically and
restricted growth in net interest income in the latter part of the year. The
impact of the lower margins was partly offset by healthy growth in most retail
lending categories. Interest income was also positively impacted by the
requirement of AC 133 to accrue for interest on impaired loans and to account
for the mark-to-market changes of dated instruments. Given the significant
interest rate volatility experienced in the last two years, asset and liability
management continues to be an important focus in both the domestic and African
operations. Interest rate hedging strategies, predominantly on the liability
portfolio, have been implemented to reduce the adverse effects of the interest
rate cycle on the group"s domestic banking portfolios.
Provision for credit losses - reduced 5%
The 5,5% reduction in the overall charge for credit losses was the net effect of
a 22% decrease in the charge for non-performing loans and an increase of 180% in
the charge for performing loans.
The charge in respect of non-performing loans, previously termed specific
provisions, was reduced due to improved credit processes throughout the group
and favourable economic conditions in most of the markets in which the group
operates. Specific factors included more robust credit origination processes,
lower domestic interest rates, improved collections and improvements in
international credit conditions. This lower charge was achieved despite an
increase in the provision in recognition of the discounting of future recoveries
in terms of AC 133.
Provisions relating to performing loans, previously termed general provisions,
are based on impairments quantified over the estimated life of advances
portfolios, which is consistent with both AC 133 and the future requirements of
Basel II. The substantial increase in these provisions was due to several
factors, including a significant growth in retail lending portfolios of a term
nature and an associated increase in market shares. The prior year charge in
this category was based on a regulatory matrix and is not comparable.
The group"s total credit loss ratio improved from 1,08% to 0,91%, and non-
performing loans reduced from 2,6% of loans and advances to 2,1% at year end.
Non-interest revenue - up 12%
The growth in non-interest revenue was a combination of fee and commission
income up 8%, trading income 21% higher and other sources of non-interest income
up 12%.
Domestic banking fees and commissions increased by 13%, mainly due to the growth
in the customer base and higher transaction volumes. This was partly offset by
the impact of a stronger rand on fees from Africa and International.
Trading income increased by 21%, primarily as a result of International"s 44%
growth. Domestic trading income declined by 6% off the high base of the previous
year. Sustained recoveries in international fixed income and natural resource
markets, coupled with good new business flows, were the primary reasons for the
growth in International. Domestically, the performance of debt and capital
markets trading was disappointing, while foreign exchange trading produced
satisfactory results. The increase in other income of 12% originated mainly from
investment realisations, fair-value changes in equity investments and increased
rental income from group property companies.
Operating expenses - up 8% (staff costs up 9% and other costs up 7%)
Domestically, costs increased by 13% as the group continued to invest in branch
infrastructure, IT capacity, staff training and incentive programmes. The
stronger rand exchange rate had the effect of reducing costs in rand terms for
International and African operations, although expenditure in local currency was
intentionally increased to grow geographical presence and ensure more robust
systems and risk management processes. A 2% increase in headcount was recorded
across the group, mainly due to credit card processes being brought back in-
house, additional staff to cope with higher levels of retail business volumes
and new operations outside South Africa.
Income growth exceeded cost growth for the seventh consecutive year and the cost
to-income ratio improved accordingly.
Exceptional items
Exceptional items for the year amounted to an after tax gain of R162 million.
The group"s annual review of intangible assets indicated impairments of R81
million related to several IT systems which no longer fit the group"s
integration strategy and are required to be written-off. Capital profits on the
realisation of properties, net of property impairments, amounted to R188
million, and a profit of R49 million was realised on the sale of businesses to
empowerment consortiums and the sale of the bluebean book to a joint venture
with Barclaycard.
Goodwill
The charge represents the continued amortisation of goodwill that arose on
acquisitions in recent years. Goodwill on the banking operation"s balance sheet
amounted to R262 million (2002: R381 million) at the year-end.
Taxation
The effective tax rate decreased from 33,5% to 31,7%. The direct tax rate
reflected a slight decrease from 28,2% to 27,3%, while the indirect tax rate
declined from 5,3% to 4,4% due to a change in the mix of the domestic bank"s
revenues.
Balance sheet
Banking assets
Banking assets increased by 44% or R137 billion. The growth was, however,
inflated by the effect of the implementation of new accounting policies that
required the grossing-up of derivative positions, resulting in an increase of
R96 billion in assets. Loans and advances were 23% higher, with strong growth
recorded in all operations. Domestic loan growth of 20% was primarily due to a
focus on increasing term lending to individuals, particularly in the following
key product areas:
- mortgage loans, which were 32% higher, reflected growth in both volume
and value terms assisted by the buoyant property market;
- instalment finance, which was 19% up, with loans to the commercial and
retail sectors growing by 22% and 19% respectively; and
- card debtor balances and revolving credit plan balances, which were 28%
and 38% higher respectively.
An increased focus over recent years on retail service levels and customer
retention is generating results as market share was gained in mortgage lending,
23,0% (2002: 20,3%), credit card, 28,8% (2002: 24,9%), and instalment finance
22,3% (2002: 21,8%).
In line with the group"s strategy of not pursuing low-margin corporate lending
business, domestic growth in this area remained subdued, although, within this
category, Structured Finance increased its loans by 36%.
International"s lending portfolio grew by 37% in UK sterling terms, off a low
2002 base. Collateralised lending in emerging economies together with precious
and base metals financing were the main areas of growth.
In view of the majority of International"s revenues being denominated in US
dollars, International"s measurement currency for its statutory entities has
been converted from UK sterling to US dollars from 1 January 2004.
Shareholders" funds
Ordinary shareholders" funds grew by 10% to R29 billion. The net increase in
shareholders" funds for the year includes a reversal of R1 866 million in gains
previously recorded on the translation of foreign net assets. The group"s policy
of accounting for translation movements through equity has been consistently
applied.
Liberty Group
The long-term insurance industry experienced a difficult operating environment
in 2003. Although there was a late rally in the local and international equity
markets, Liberty"s headline earnings decreased by 11% (9% excluding the impact
of Stanlib), mainly due to releases from the policyholder liabilities in 2002
associated with lower projected policy renewal costs, not repeated in 2003.
Indexed new business of R3,8 billion was 4,8% up on 2003 with net inflows of
cash remaining strong at R4,5 billion. The number of in-force policies increased
by 2,8% during 2003. Liberty remains strongly capitalised with a capital
adequacy multiple of 2,6 times.
Capital
The group"s capital adequacy ratio increased to 14,8% from 14,3% at December
2002, above the weighted average regulatory requirement of 10,5% for the 25
banks across the group. Optimisation of capital within Standard Bank is a key
focus. Internal capital generation remains positive, ensuring that strategic
considerations and normal business growth are not constrained by capital
limitations.
Dividends
A final dividend of 109,5 cents per share (2002: 90 cents) has been declared,
bringing the total dividend for 2003 to 151 cents per share (2002: 124 cents),
an increase of 22% at a dividend cover of 3,1 times. In line with the previously
stated intention to reduce the group"s dividend cover, it is anticipated that
dividend cover for 2004 will be reduced to 3,0 times, at which stage the
dividend policy will be reviewed to assess the possibility of further reductions
in cover.
Financial Sector Charter
During the year, the Financial Sector developed and announced a voluntary
charter as a framework to enable broad-based black economic empowerment.
Standard Bank was intimately involved in the process and is committed to
achieving the relevant targets as set out in the Charter scorecard. We believe
that the Charter reflects an appropriate balance between mechanisms to redress
the inequities of South Africa"s past and the ongoing stability of the banking
industry. If correctly implemented, the Charter will contribute significantly to
the long-term sustainability of the South African economy.
Prospects
Sound economic fundamentals together with low inflation and lower interest rates
in South Africa are expected to support further growth in credit demand,
although at a lower rate than that experienced in 2003.
The performance of our domestic business remains particularly sensitive to net
interest margins. Should interest rates remain at current levels, domestic
margins will be narrower than in 2003, as less interest will be earned on
transactional deposit balances and capital. It is however expected that lower
credit loss rates and the current momentum of strong asset growth, will partly
compensate for this effect. Reduced cost growth in a lower inflationary
environment should also provide further assistance in maintaining domestic
financial performance.
The positive outlook for emerging markets is likely to continue into 2004 and
should assist in sustaining earnings in dollar terms from International
operations at around 2003 levels. Earnings growth in Africa will benefit from
newly acquired operations in Botswana and Mozambique.
The challenges in the year ahead will be demanding, but the group"s diverse
spread of business, quality of staff and strong brand should result in the group
producing returns to shareholders in line with our published objectives.
Standard Bank"s principal financial objectives for 2004 remain unchanged at a
return on equity of 20% and headline earnings growth of inflation (CPIX) plus 10
percentage points.
Derek Cooper, Chairman
Jacko Maree, Chief Executive
Declaration of dividend no. 69
Notice is hereby given that a final dividend no. 69 of 109,5 cents per ordinary
share has been declared payable on Tuesday, 13 April 2004 to shareholders
recorded in the books of the company at the close of business on the record
date, Thursday 8 April 2004. The last day to trade to participate in the
dividend is Thursday, 1 April 2004. Shares will commence trading ex-dividend
from Friday 2 April 2004.
The relevant dates for the payment of the dividend are as follows:
Last day to trade "CUM" dividend Thursday, 1 April 2004
Shares trade "EX" dividend Friday, 2 April 2004
Record date Thursday, 8 April 2004
Payment date Tuesday, 13 April 2004
Share certificates may not be dematerialised or rematerialised between Friday, 2
April 2004 and Thursday, 8 April 2004, both days inclusive.
Where applicable, dividends in respect of certificated shares will be
transferred electronically to shareholders" bank accounts on payment date. In
the absence of specific mandates, dividend cheques will be posted to
shareholders. Shareholders who have dematerialised their share certificates will
have their accounts at their CSDP or broker credited on Tuesday, 13 April 2004.
By order of the board,
Loren Wulfsohn, Group Secretary
% 2003 2002
Segmental report change R million R million
Headline earnings
Domestic Banking 16 4 609 3 960
Retail Banking 18 2 542 2 162
Corporate and Investment Banking 19 2 150 1 814
Central Services (83) (16)
Africa 1 489 482
International >100 866 429
Stanlib (35) 40 62
Central funding and eliminations (26) 32
Standard Bank operations 20 5 978 4 965
Liberty (9) 270 298
Standard Bank Group 19 6 248 5 263
Consolidated income statement % 2003 2002
change R million R million
Standard Bank operations
Net interest income before provision
for credit losses 9 11 437 10 520
Provision for credit losses (5) 1 848 1 955
Net interest income 12 9 589 8 565
Non-interest revenue 12 12 790 11 448
Total income 12 22 379 20 013
Operating expenses 8 13 608 12 587
Staff costs 9 7 581 6 934
Other operating expenses 7 6 027 5 653
Operating profit 18 8 771 7 426
Income from associates 6 102 96
Goodwill amortisation 15 (173) (151)
Exceptional items 144 -
Income before taxation 20 8 844 7 371
Taxation 14 2 773 2 435
Income after taxation 23 6 071 4 936
Attributable to outside and
preference shareholders (15) 104 122
Standard Bank income attributable to
ordinary shareholders 24 5 967 4 814
Liberty
Operating profit 25 1 713 1 369
Realised investment gains/(losses)
attributable to shareholders" assets 471 (363)
Goodwill amortisation (78) (14)
Income before taxation 2 106 992
Taxation 823 368
Income after taxation 1 283 624
Attributable to outside and
preference shareholders 904 441
Liberty income attributable to
ordinary shareholders 379 183
Group income attributable to ordinary
shareholders 27 6 346 4 997
Consolidated balance sheet % 2003 2002
change R million R million
Assets
Standard Bank operations 44 444 195 307 592
Cash and balances with banks 22 081 36 641
Short-term negotiable securities 90 22 018 11 577
Derivative assets 104 723 9 218
Trading assets 20 31 811 26 578
Investment securities 4 19 487 18 649
Loans and advances 23 220 375 178 925
Other assets 19 611 22 146
Interest in associates 96 541 276
Goodwill and other intangible assets 508 671
Property and equipment 4 3 040 2 911
Liberty 12 96 195 85 761
Current assets 3 687 3 754
Investments 13 91 869 81 491
Goodwill and other intangible assets 42 276 194
Equipment and furniture 13 363 322
Total assets 37 540 390 393 353
Equity and liabilities
Liabilities 40 505 302 361 293
Standard Bank operations 47 417 518 283 614
Derivative liabilities >100 98 634 4 007
Trading liabilities 35 18 162 13 482
Deposit and current accounts 14 272 677 239 715
Other liabilities and provisions 7 20 989 19 656
Subordinated bonds 4 7 056 6 754
Liberty 13 87 784 77 679
Other liabilities 14 2 444 2 136
Convertible bonds (23) 1 500 1 947
Policyholder liabilities 14 83 840 73 596
Capital and reserves 10 28 667 26 062
Share capital 1 142 141
Share premium 6 2 273 2 141
Reserves 10 26 252 23 780
Minority interest 7 6 421 5 998
Total equity and liabilities 37 540 390 393 353
Ordinary shareholders" funds
Adjusted for the increase in market
value over the carrying value of
Liberty 8 30 465 28 303
Third party funds under management
Asset management 66 576 60 027
Wealth management 199 469 171 489
266 045 231 516
Consolidated cash flow information
Cash flows from operating activities 16 986 15 613
Cash flows used in operating funds (11 374) (812)
Net cash used in investing activities (5 863) (5 379)
Net cash used in financing activities (1 759) (1 082)
Contingent liabilities and capital
commitments
Contingent liabilities
Letters of credit 4 920 4 369
Guarantees 16 562 21 112
21 482 25 481
Capital commitments
Contracted capital expenditure 215 467
Capital expenditure authorised but 505 167
not yet contracted
720 634
Headline earnings % 2003 2002
change R million R million
Group income attributable to ordinary
shareholders 27 6 346 4 997
Standard Bank income adjusted for:
Goodwill amortised 173 151
Exceptional items (162) -
Exceptional items before taxation (144) -
- Profit on sale of properties (238) -
- Impairment of properties 41 -
- Impairment of intangibles 116 -
- Profit on sale of subsidiaries and
divisions (57) -
- Other capital profits (6) -
Taxation on the above items (18) -
Liberty income adjusted for: (109) 115
Goodwill amortised 78 14
Realised investment (gains)/losses
attributable to shareholders" assets (471) 363
Capital gains tax 25 9
Attributable to outside and
preference shareholders 259 (271)
Headline earnings 19 6 248 5 263
Financial statistics % 2003 2002
change
Standard Bank Group
Shares in issue (millions)
Number of ordinary shares in issue
- end of period 1 339 1 331
- weighted average 1 334 1 328
Cents per ordinary share
Headline earnings 18 468 396
Dividends 22 151 124
Earnings 27 476 376
Fully diluted earnings 27 470 371
Net asset value 9 2 141 1 957
Financial performance (%)
Return on equity 22,8 20,3
Standard Bank operations
Financial performance (%)
Return on equity 24,0 21,2
Cost-to-income ratio 56,2 57,3
Effective tax rate 31,7 33,5
Capital adequacy (%)
Capital ratio
- primary capital 11,4 10,9
- total capital 14,8 14,3
Consolidated statement of changes in 2003 2002
shareholders" funds R million R million
Balance at beginning of the year 26 062 25 693
Change in accounting policy (234) -
Restated balance at beginning of the year 25 828 25 693
Group income 6 346 4 997
Dividends paid (1 753) (1 433)
Net translation reversal (1 866) (3 271)
Issue of share capital and share premium 133 95
Other reserve movements, net of taxation and
minorities (21) (19)
Balance at end of the year 28 667 26 062
Accounting policies
Basis of preparation
The financial statements have been prepared under the historical cost basis, as
modified by the revaluation of financial instruments classified as instruments
available-for-sale, held at fair value or derivative instruments, as well as
investment and owner-occupied properties in the group"s insurance operations.
The accounting policies comply in all material respects with Statements and
Interpretations of SA GAAP, as well as with the South African Companies Act of
1973 and the Long-term Insurance Act of 1998.
Changes in accounting policies
The accounting policies are consistent with those applied in 2002, except for
the adoption of the new accounting statement, Financial Instruments: Recognition
and Measurement (AC 133), with effect from 1 January 2003. As required by the
transitional provisions of AC 133, the change in accounting policy has been
applied prospectively and the comparative amounts for 2002 have therefore not
been restated. The income statement impact of adopting AC 133 on earnings of
2003 is analysed as follows:
2003
R million
Net interest income before provision for credit losses 343
Provision for credit losses (219)
Net interest income 124
Non-interest revenue (2)
Total income 122
Operating expenses -
Operating profit 122
Income from associates 7
Income before taxation 129
Taxation (41)
Income after taxation 88
Attributable to outside and preference shareholders (1)
Standard Bank operations 87
Liberty (11)
Group income attributable to ordinary shareholders 76
2003 2003
Impact of AC 133 on key ratios Excluding AC 133 Including AC 133
Headline earnings growth 17,3 18,7
ROE 22,6 22,8
Cost-to-income ratio 57,0 56,2
Credit loss ratio 0,80 0,91
Auditors" report
The auditors, KPMG Inc. and PricewaterhouseCoopers Inc., have issued their
opinion on the group financial statements for the year ended 31 December 2003. A
copy of the auditors" unqualified report is available for inspection at the
company"s registered office.
Board of Directors
DE Cooper (Chairman)
JH Maree* (Chief Executive)
DDB Band
E Bradley
T Evans
TS Gcabashe
DA Hawton
Sir Paul Judge#
SJ Macozoma
RP Menell
Adv KD Moroka
AC Nissen
RA Plumbridge
MJD Ruck*
Sir Robert Smith#
Dr CL Stals
Dr CB Strauss
* Executive Directors # British
Group Secretary
L Wulfsohn
Registered office
9th Floor, Standard Bank Centre, 5 Simmonds Street, Johannesburg, 2001
PO Box 7725, Johannesburg, 2000
Share transfer secretaries in South Africa
Computershare Limited
70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown,
Johannesburg, 2107
In Namibia
Transfer Secretaries (Proprietary) Limited
Shop 12, Kaiserkrone Centre, Post Street Mall, Windhoek, PO Box 2401, Windhoek
Website disclosure
The Standard Bank Group Limited results for the year ended 31 December 2003 will
be published on the Standard Bank website at 08h05 South African time.
http://www.standardbank.co.za
Live broadcast on Summit TV
A live results broadcast will be available to Southern African viewers via
Summit, DStv Channel 55 at 16h00. Questions can be submitted by dialling into
the conference call facility on 0800-200-648.
Live teleconference
Dial in numbers are:
South Africa 16h00 0800-200-648
United Kingdom 14h00, GMT 0800 917 7042
Europe 15h00, European Time +800 246 78700
North America 09h00, Eastern Time 1-800-860-2442
Live audio webcast
Please login to www.standardbank.co.za
Questions can be e-mailed during the presentation
A delayed audio webcast will be available from 20h00 South African time.
Date: 10/03/2004 07:55:19 AM Supplied by www.sharenet.co.za
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