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Standard Bank Group Limited - Unaudited results and dividend announcement for
the six months ended 30 June 2004
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
Unaudited results and dividend announcement for the six months ended 30 June
2004
* Headline earnings 15% up
* Headline earnings per share 14% higher
* Dividend per share 22% up
* ROE 23,0%
* Cost-to-income ratio 55,9%
Overview of financial results
Standard Bank Group continued its long-term earnings growth trend in the first
six months of this year. Headline earnings for the period were 14,6% higher at
R3 389 million and the group"s return on equity was 23,0%. This result was
achieved despite the adverse effect of the stronger rand on the translation of
earnings from the group"s foreign operations and the negative impact of
reduced net interest margins in the group"s domestic banking operations.
South Africa, the group"s most important market, continued the momentum
created by healthy economic fundamentals. Inflation was contained within
central bank targets and a stable and relatively low interest rate environment
was maintained for the period under review, further entrenched by the recent
interest rate cut of 50 basis points. A significant feature of the period was
a further strengthening of the rand which has had a mixed effect across the
different sectors of the South African economy. Consumers have benefited from
reduced import prices coupled with lower interest rates, while many companies,
particularly exporters have come under increasing pressure due to reduced
revenues.
Against this backdrop, the group"s domestic banking operations produced strong
overall earnings growth of 22%, with Retail Banking up 26% and Corporate and
Investment Banking up 13%. This performance was characterised by further
improvements in credit experience, substantial growth in advances in the
higher-margin retail categories and good growth in non-interest revenues.
These positive factors largely compensated for the net interest margin
compression caused by the lower interest rates. Earnings in Africa which grew
by 19% benefited from the newly acquired
operations in Botswana and Mocambique. The group"s international operations
produced earnings of USD56 million, 10% down on the exceptional performance of
the prior year and 26% lower when translated into rand.
Liberty"s headline earnings recovered from the low base in the first six
months of 2003 and increased by 29% as a result of favourable operational
performance and better investment returns.
The group"s key financial highlights were:
- return on equity of 23,0% up from 22,5%;
- headline earnings of R3 389 million improved by 15%;
- headline earnings per share of 252,5 cents, 14% higher;
- interim dividend of 50,5 cents per share, 22% up; and
- the cost-to-income ratio increased to 55,9% from 54,9%.
Income statement
Net interest income - down 8%
Domestic operational results are sensitive to the level of interest rates.
Consequently the 535 basis point reduction in the average prime interest rate
from that of the comparative period resulted in substantially lower interest
being earned on shareholders" funds, and reduced interest margins on
transactional deposits such as current account credit balances. The reduction
in net interest income was also impacted by the scaling down of
International"s bond portfolio held as a banking asset and its transfer in
late 2003 to the trading book.
Healthy asset growth in all domestic retail lending categories helped offset
margin loss. This benefit was partly reduced by greater reliance on wholesale
funding as retail deposits grew at a slower pace than retail assets. The
group"s active management of its assets and liabilities helped to counter the
adverse effects of the interest rate cycle on the domestic banking portfolio.
Nonetheless as anticipated in the prospects statement in the group"s 2003 year-
end profit announcement, given the current interest rate cycle, significant
domestic margin compression has occurred.
Provision for credit losses - reduced 26%
A highlight of the period was a greater than anticipated reduction in credit
losses across the group off an already improved base. The group"s provision
for credit losses as a percentage of average loans and advances reduced from
1,17% to 0,72%. Total provisions against non-performing loans were 31% lower
and against performing loans 2% lower. Lower domestic interest rates,
increasing property values, further improvements in retail
collections and the return to health of corporate customers previously
considered doubtful all assisted in the significant reduction in domestic
credit losses. Lower credit provisioning was also achieved in International
and Africa, mainly as a result of good recoveries.
Non-performing loans as a percentage of gross loans and advances continued to
reduce from 2,29% in June 2003 to 2,15% in December 2003 and 1,77% in June
2004. The ratio of specific provisions to non-performing loans, before
considering security, increased from 42% at December 2003 to 48% and remained
at 100% including security and anticipated recoveries.
Non-interest revenue - up 17%
Fee and commission income for the period grew by 19%, trading income increased
by 8% and other income by 49%. The ratio of non-interest revenue to total
revenue increased from 51% to 57%.
Domestic Banking"s fee income grew 17% and was the main contributor to the
group"s growth in fee and commission income. Increased transaction volumes, a
growing customer base and an increase in advisory fees from corporate clients
all contributed to this increase.
Growth in rand terms of 22% occurred in International, primarily from
increased asset management fees. Higher transaction volumes led to an increase
of 31% in Africa.
Domestic Banking increased trading income by 25% off a comparatively low base.
Although impacted on translation by the stronger rand, International benefited
from an increase in client flow in the base metals and precious metals markets
and also experienced higher foreign exchange trading volumes.
Other income benefited from an improved loss ratio in Stanbic Insurance, the
group"s short-term insurance arm, higher property related income and gains on
private equity.
Operating expenses - up 7%
Given the continued expansion in Africa and International, cost growth was
well contained with growth in staff costs at 5% and growth in other operating
expenses at 9%. An increase in Domestic Banking"s operating expenses of 10%
was mainly due to increased business volumes necessitating additional staff
costs and infrastructure expansion. Staff numbers in Africa increased due to
acquisitions, retail banking initiatives and the strengthening of central risk
management and support functions.
The group"s cost-to-income ratio increased from 54,9% in June 2003 to 55,9%,
but remained below the 2003 twelve-month ratio of 56,2%. The lower net
interest income in the current period was the main reason for the ratio
increasing.
Exceptional items and goodwill
Exceptional items represent profit realised on the sale of properties.
Goodwill consists mainly of amortisation charges arising from investments in
International and Africa.
Taxation
The effective tax rate reduced from 32,1% to 30,2%. The direct tax rate
remained virtually unchanged at 26,7% compared to 27,0%. The indirect tax rate
declined from 5,1% to 3,5% mainly due to an improvement in the recovery rate
of Value Added Tax as a result of a change in the mix of the domestic bank"s
revenues.
Balance sheet
Banking assets
Total assets in Standard Bank operations increased marginally by 1%. Domestic
Banking"s assets declined by R8 billion, or 2%, as derivative asset values
were R30 billion lower as a result of lower fair value adjustments. This was
due to more stable interest rate conditions and the effect of the stronger
rand on forward exchange contracts. Domestic asset growth excluding
derivatives was 9%.
Loans and advances were 17% higher with strong domestic loan growth of 24%,
while Africa reported a growth of 21% in rand terms mainly due to
acquisitions. The highlight of the domestic loan growth was a 35% increase in
mortgage loan balances. This is due to a combination of higher property
prices, successful business retention strategies and maintaining domestic
market share of new loans granted. Vehicle and asset finance loan balances
grew by 26%, assisted by a 20% increase in domestic motor vehicle sales. An
increase in consumer spending and further improvements in credit card
processes saw Card debtors increasing by 31%. Subdued demand for corporate
credit and Corporate and Investment Banking"s approach of avoiding low-margin
corporate lending business resulted in overall loan growth being restricted to
9%.
Standard Bank Group has gained further domestic market share in the main
lending categories since June 2003:
- mortgage loans: 24,5% (21,2%);
- instalment finance: 22,5% (21,5%); and
- credit cards: 30,9% (26,6%).
International"s loan balances in dollar terms remained in line with the prior
period.
Shareholders" funds
The group"s ordinary shareholders" funds grew by 13% to R30 billion at 30 June
2004. This includes a negative movement for the period in currency translation
reserves due to the stronger rand of R825 million.
Liberty
Liberty increased its contribution to Standard Bank"s headline earnings by
29%. Progress was made in those areas of the business which Liberty singled
out for focus, which include the improvement of service levels, cost
reduction, capital management, new market segments and people. Volatility in
local and foreign investment markets and a stronger than expected rand
negatively influenced investors" demand for investment products offered by the
life insurance industry. Risk product sales were however encouraging. Liberty
produced strong operational results for the half year to 30 June 2004.
Operating profit from life insurance operations was 33% higher due to an
improvement in the investment return of the weighted policyholder investment
portfolio. Total new business premiums increased to R6 342 million (up 17%)
and net cash inflows from insurance operations increased to R2 382 million (up
38%). The new business margin increased to 21% and embedded value remained
flat compared with 31 December 2003. Liberty is well capitalised with a cover
of 2,5 times required capital.
Capital
The group"s capital adequacy ratio increased to 15,4% from 14,9% in December
2003. This compares to a weighted regulatory requirement of 10,4%. Capital
adequacy benefited from lower trading counterparty requirements, growth in 50%
risk weighted mortgage loans, together with an increase in retained earnings.
Dividend
An interim dividend of 50,5 cents per share, 22% higher than the 2003 dividend
of 41,5 cents, has been declared in terms of the group"s policy to declare one
third of the previous year"s total dividend per share at interim. As stated
previously it is the group"s intention to reduce its dividend cover for 2004
to 3,0 times, at which stage the dividend policy will be reviewed to assess
the possibility of further reductions in cover.
Black ownership initiative
Following the introduction of the Financial Sector Charter in 2003 Standard
Bank recently announced the introduction of direct black ownership whereby an
effective 10% interest of its South African banking operations (7,47% of
Standard Bank Group) will be obtained by qualifying black partners. This will
be achieved through the proposed sale of 99,2 million shares to strategic
partners, black managers, non-executive directors and regional businesses and
communities for R4,0 billion together with a bonus allocation to black
employees of R0,1 billion.
This transaction secures strategic domestic partnerships for the group and
leadership through the empowerment of the strategic black partners, staff and
regional businesses and communities. The empowerment transaction is still
subject to shareholder approval at a special general meeting which is planned
for 13 September 2004.
Prospects
The group"s black ownership initiative, if approved by shareholders, will only
be effective from October 2004 and is therefore expected to have a minimal
impact on the group"s 2004 earnings per share.
For the balance of the year domestic economic conditions are expected to
remain favourable while no significant changes in conditions have been assumed
for Africa and the markets in which International operates. The group"s
diverse spread of business should continue to produce returns to shareholders
in line with our published objectives. Standard Bank"s principal financial
objectives for 2004 remain unchanged at a return on equity in excess of 20%
and headline earnings growth of inflation (CPIX) plus 10 percentage points.
Derek Cooper, Chairman
Jacko Maree, Chief Executive
Declaration of dividend no. 70
Notice is hereby given that an interim dividend no. 70 of 50,5 cents per
ordinary share has been declared payable on Monday, 13 September 2004 to
shareholders recorded in the books of the company at the close of business on
the record date, Friday 10 September 2004. The last day to trade to
participate in the dividend is Friday, 3 September 2004. Shares will commence
trading ex-dividend from Monday, 6 September 2004.
The relevant dates for the payment of the dividend are as follows:
Last day to trade "CUM" dividend Friday 3 September 2004
Shares trade "EX" dividend Monday 6 September 2004
Record date Friday 10 September 2004
Payment date Monday 13 September 2004
Share certificates may not be dematerialised or rematerialised between Monday,
6 September 2004 and Friday, 10 September 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 Monday, 13
September 2004.
By order of the board,
Loren Wulfsohn, Group Secretary
17 August 2004
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 for trading, 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 South African
Statements and Interpretations of SA GAAP, as well as with the South African
Companies Act of 1973.
Change in accounting policy
The accounting policies are consistent with those applied in 2003, except for
the adoption of AC 501, Accounting for Secondary Tax on Companies (STC), with
effect from 1 January 2004. As required by this new interpretation, a deferred
tax asset is recognised for unused STC credits to the extent that the group
expects that it will utilise the credits to reduce its STC liability in
future. No deferred tax asset was previously
recognised on unused STC credits. The impact of adopting AC 501 is as follows:
June 2003 Dec 2003
R million R million
Income statement
Reduction in taxation and increase in earnings 16 32
Balance sheet
Increase in retained earnings and increase in
deferred tax asset included in other assets 160 176
There was no impact on minorities" interest. Comparative amounts have been
restated accordingly. The impact of the change in accounting policy on the
current period"s earnings was insignificant.
% June 2004 June 2003 Dec 2003
Segmental report change R million R million R million
Unaudited Unaudited Audited
Headline earnings
Domestic Banking 22 2 560 2 101 4 641
Retail Banking 26 1 274 1 011 2 542
Corporate and Investment
Banking 13 1 201 1 065 2 150
Other domestic operations 85 25 (51)
Africa 19 297 249 489
International (26) 371 499 866
Stanlib (29) 22 31 40
Central funding and
eliminations 10 (22) (26)
Standard Bank operations 14 3 260 2 858 6 010
Liberty 29 129 100 270
Standard Bank Group 15 3 389 2 958 6 280
Consolidated income Six months Six months Year
statement % ended ended ended
change June 2004 June 2003 Dec 2003
R million R million R million
Unaudited Unaudited Audited
Standard Bank operations
Net interest income before
provision for credit losses
(8) 5 377 5 841 11 437
Provision for credit losses (26) 829 1 124 1 848
Net interest income (4) 4 548 4 717 9 589
Non-interest revenue 17 7 139 6 085 12 790
Total income 8 11 687 10 802 22 379
Operating expenses 7 6 996 6 543 13 608
Staff costs 5 3 924 3 724 7 581
Other operating expenses 9 3 072 2 819 6 027
Income from operations 10 4 691 4 259 8 771
Income from associates 28 46 36 102
Goodwill amortisation (61) (48) (173)
Exceptional items 17 44 144
Income before taxation 9 4 693 4 291 8 844
Taxation 3 1 418 1 377 2 741
Income after taxation 12 3 275 2 914 6 103
Attributable to minorities (2) 59 60 104
Standard Bank income
attributable to ordinary
shareholders 13 3 216 2 854 5 999
Liberty
Income from operations 19 675 565 1 713
Realised investment gains
attributable to
shareholders" assets 61 32 471
Goodwill amortisation (6) (72) (78)
Income before taxation 730 525 2 106
Taxation 237 232 823
Income after taxation 493 293 1 283
Attributable to minorities 349 205 904
Liberty income attributable
to ordinary shareholders 144 88 379
Group income attributable to
ordinary shareholders 14 3 360 2 942 6 378
Consolidated balance sheet % June 2004 June 2003 Dec 2003
change R million R million R million
Unaudited Unaudited Audited
Assets
Standard Bank operations 1 435 251 432 679 444 371
Cash and short-term
negotiable securities 15 52 326 45 637 44 099
Derivative assets (20) 76 199 95 492 104 723
Trading assets (12) 31 880 36 240 31 811
Investment securities (33) 17 251 25 859 19 487
Loans and advances 17 231 436 198 232 220 375
Other assets (17) 22 474 27 218 19 787
Interest in associates (33) 237 355 541
Goodwill and other
intangible assets (12) 506 576 508
Property and equipment (4) 2 942 3 070 3 040
Liberty 14 97 829 86 081 96 195
Current assets 2 3 705 3 631 3 687
Investments 14 93 508 81 959 91 869
Goodwill and other
intangible assets 71 249 146 276
Equipment and furniture 6 367 345 363
Total assets 3 533 080 518 760 540 566
Equity and liabilities
Liabilities 2 496 511 486 485 505 302
Standard Bank operations (0) 407 230 408 175 417 518
Derivative liabilities (26) 70 672 95 159 98 634
Trading liabilities (28) 12 751 17 752 18 162
Deposit and current accounts 14 294 063 257 125 272 677
Other liabilities and (27) 22 777 31 113 20 989
provisions
Subordinated bonds (1) 6 967 7 026 7 056
Liberty 14 89 281 78 310 87 784
Other liabilities (4) 2 676 2 792 2 444
Convertible bonds (18) 1 408 1 714 1 500
Policyholder liabilities 15 85 197 73 804 83 840
Capital and reserves 13 30 008 26 450 28 843
Share capital 1 143 141 142
Share premium 11 2 429 2 180 2 273
Reserves 14 27 436 24 129 26 428
Minority interest 13 6 561 5 825 6 421
Total equity and liabilities 3 533 080 518 760 540 566
Consolidated cash flow information
Cash flows from operating activities 8 698 9 223 16 986
Cash flows from/ (used in) operating
funds 3 093 (6 262) (11 374)
Net cash used in investing activities (2 763) (2 800) (5 863)
Net cash used in financing activities (1 576) (1 186) (1 759)
Contingent liabilities and capital
commitments
Contingent liabilities
Letters of credit 4 270 3 703 4 920
Guarantees 17 346 23 407 16 562
21 616 27 110 21 482
Capital commitments
Contracted capital expenditure 315 421 215
Capital expenditure authorised but not 540 496 505
yet contracted
855 917 720
Headline earnings % Six months Six months Year
ended ended ended
June 2004 June 2003 Dec 2003
change R million R million R million
Unaudited Unaudited Audited
Group income attributable to
ordinary shareholders 14 3 360 2 942 6 378
Standard Bank income adjusted
for:
Goodwill amortised 61 48 173
Exceptional items (17) (44) (162)
Exceptional items before (17) (44) (144)
taxation
- Profit on sale of
properties and businesses (17) (38) (238)
- Impairment of properties - - 157
and intangibles
- Other capital profits - (6) (63)
Taxation on the above items - - (18)
Liberty income adjusted for: (15) 12 (109)
Goodwill amortised 6 72 78
Realised investment gains
attributable to shareholders"
assets (61) (32) (471)
Capital gains tax 4 2 25
Attributable to minorities 36 (30) 259
Headline earnings 15 3 389 2 958 6 280
Financial statistics %
change
Standard Bank Group
Shares in issue (millions)
Number of ordinary shares in
issue
- end of period 1 346 1 334 1 339
- weighted average 1 342 1 332 1 334
Cents per ordinary share
Headline earnings 14 252.5 222.1 470.7
Dividend 22 50.5 41.5 151.0
Earnings 13 250.3 220.9 478.1
Fully diluted earnings 12 245.4 218.5 472.2
Net asset value 12 2 228 1 983 2 154
Financial performance (%)
Return on equity 23,0 22,5 22,9
Standard Bank operations
Financial performance (%)
Return on equity 24,2 23,9 24,0
Cost-to-income ratio 55,9 54,9 56,2
Effective tax rate 30,2 32,1 31,0
Capital adequacy (%)
Capital ratio
- primary capital 12,0 11,0 11,5
- total capital 15,4 14,6 14,9
Consolidated statement of
changes in shareholders" funds
Balance at beginning of the year 28 843 25 828 25 828
Change in accounting policy - 144 144
Restated balance at beginning of 28 843 25 972 25 972
the year
Group income 3 360 2 942 6 378
Dividends paid (1 470) (1 197) (1 753)
Net translation reversal (825) (1 292) (1 866)
Issue of share capital and share 157 39 133
premium
Other reserve movements, net of
taxation and minorities (57) (14) (21)
Balance at end of the year 30 008 26 450 28 843
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*
MJ Shaw
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 Investor Services 2004 (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown,
Johannesburg, 2107
In Namibia
Transfer Secretaries (Proprietary) Limited
Shop 8, Kaiserkrone Centre, Post Street Mall, Windhoek, PO Box 2401, Windhoek
Website disclosure
The Standard Bank Group Limited results for the six months ended 30 June 2004
will be published on the Standard Bank website at 8h30 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 10h00. Questions can be submitted by dialling into
the conference call facility on 0800-200-648.
Live teleconference
Dial in numbers are:
South Africa 0800-200-648
United Kingdom 0800 917 7042
Europe +800 246 78700
Bloomberg at LIVE for an audio feed and SBIR to download the
presentation.
Live audio webcast
Please login to www.standardbank.co.za
A recorded version of the webcast will be available on the website at 12h00.
Date: 18/08/2004 08:00:39 AM Supplied by www.sharenet.co.za
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