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ABL/ABLP - African Bank Investments Limited - Unaudited interim results and
cash dividend declaration for the six months ended 31 March 2011
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 group")
UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION FOR THE SIX MONTHS
ENDED 31 MARCH 2011
Features
- ABIL reported a return on equity of 17,5% for the six months to 31 March
2011 (H1 2010: 15,3%) and an economic profit, after charging for its cost of
equity, of R155 million.
- Headline earnings increased by 20% to R1 095 million (H1 2010: R914
million), as did headline earnings per share to 136,3 cents (H1 2010: 113,7
cents).
- An interim ordinary dividend per share of 85 cents (H1 2010: 85 cents) and
an interim preference share dividend per share of 310 cents were declared (H1
2010: 355 cents).
- Cash generated from operations increased by 29%.
- The Banking business unit grew headline earnings by 24% to R1 033 million
(Pro forma H1 2010: R836 million), benefiting from substantial sales and
advances growth, a slower reduction in yield than in recent years and
improving asset quality.
- The Retail business unit`s headline earnings were R144 million (Pro forma
H1 2010: R111 million), up 30%, supported by firmer sales, margins and more
efficient operations.
Overview of the results
Financial results
Strong operational performance in the six months ended 31 March 2011 was
driven by several new credit and retail product offerings, a substantial
increase in the African Bank footprint through kiosks and branches within EHL
stores, as well as high levels of commitment from our people.
The trading environment during this period was characterised by moderately
improving economic conditions, a modest growth in employment, unemployment
claims remaining high but stabilising and intense competition in both the
credit and retail segments.
Group headline earnings increased by 20% to R1 095 million, as did headline
earnings per share to 136,3 cents. Average ordinary shareholder`s equity grew
to R12,5 billion, with the group return on equity improving from 15,3% to
17,5%.
While ABIL group results are not affected, the results for the individual
business units are not directly comparable with that of the previously
reported first half of 2010, as the results of Ellerines Financial Services
were previously included in the Ellerines business unit and are now
incorporated into the Banking business unit for the first time in this set of
results.
The Banking business unit generated headline earnings of R1 033 million and
an economic profit of R312 million. The return on assets of 5,4%, combined
with gearing of 4,0 times, produced a return on equity of 21,5%. Returns in
this business have been affected by the R4 billion of goodwill acquired in
the Ellerines Financial Services transaction in September 2010.
The Retail business unit reported headline earnings of R144 million. It
generated a return on sales of 5,7%, a return on equity of 9,9% and decreased
its economic loss to R75 million.
Group consolidation adjustments amounted to R82 million, mainly STC which is
now carried at a group level and which were not allocated to the business
units.
Strategic initiatives
The group has, in recent months, refined its strategic vision and identified
certain initiatives that are central to delivering on the vision: a more
refined customer segmentation; the role of emerging technologies; the future
operating model; the targeted financial model; capital and funding structures
to support the envisaged growth; a redefined customer value proposition; and
accelerated people strategies. The vision is premised on strong growth over
the medium term, that must ultimately translate into better value for
customers.
One of the areas of strategic progress has been the acceleration of value
creation from EHL. This imperative involves the maximisation of credit
volumes and total revenues from the EHL network. The current performance
suggests an opportunity for a substantial size credit business over the next
two years from the EHL channel. The turnover from furniture and appliances is
also targeted to increase as the rollout of the centralised distribution
centres gains momentum, as this will increase stock availability and
consequently, stock turn.
We have opened 122 kiosks and 12 carve-out branches to date, which generated
R572 million of additional non furniture credit sales. The objective is to
substantially increase the number of carve-outs and kiosks over the next two
years. Significantly, the incremental costs related to this business are low
given that the infrastructure and staff are already in place in EHL.
As a result of the work done on the strategic vision, there are a multitude
of new products and channels being investigated, developed, piloted and
implemented. In addition, our people have to understand and contribute to the
vision. People development is essential in order to enable us to step up to
the new challenges. To this end, the group has again undertaken 21 roadshows
with our people and customers during this period, to share ideas and receive
feedback regarding their product and service needs. Many of the new products
and services that have recently been rolled out in the business were as a
result of feedback from our people and customers.
The Bank has also started to conduct focus groups among defaulting borrowers
to gain a better understanding of why defaults occur and the type of products
that could assist "bad luck" customers.
The outcome of the current and medium-term initiatives will be a bold and
exciting vision which will result in tangible improvements in our society.
Economic profit
The Banking business unit`s economic profit was R312 million while the Retail
business unit incurred a R75 million economic loss. These, combined with an
R82 million charge for STC and other adjustments, resulted in the ABIL group
generating a net economic profit of R155 million, relative to a loss of R41
million for the six months to March 2010.
Funding and capital management
ABIL maintained its conservative approach to capital management during this
period, which continued to ensure stable credit ratings for the Bank, a
steady flow of available funding and a further reduction in the cost of
funding.
The Banking Supervision Division of the SA Reserve Bank revised African
Bank`s (and ABIL`s) regulatory minimum capital upwards to 24,5% from 1 April
2011. The group was already comfortably above this level at the end of the
previous financial year. African Bank received a further R281 million of
capital from the Ellerines Financial Services transaction. In addition, ABIL
subscribed for another share in African Bank for a total consideration of
R350 million, and the Bank issued R515 million of subordinated debt,
qualifying as tier 2 capital. This is in addition to the transfer of R5 684
million of capital from EHL to the Bank, following the transfer of the
Ellerines Financial Services business into the Bank in September 2010. The
group also secured permission from its shareholders to issue additional
preference shares at an appropriate time.
As at 31 March 2011, African Bank had a regulatory capital adequacy ratio of
30,7% and ABIL of 33,0%, which will enable the group to maintain its growth
momentum.
Dividends and dividend cover
ABIL has declared an interim dividend of 85 cents per ordinary share. The
ordinary dividend cover was 1,6 times, which is consistent with the guidance
provided at the end of the previous financial year that the group would be
increasing its dividend cover to a minimum of 1,5 times.
The group has also declared an interim preference share dividend of 310 cents
per share.
Changes to the board
ABIL continually strives to improve its corporate governance processes and
has, as part of this objective, implemented an approved term limit policy in
respect of its non-executive directors a few years ago. In terms of the
policy, the chairman`s service tenure is limited to a maximum of ten years
and other non-executive directors to a maximum of eight years in total.
During this period two of ABIL`s non-executive directors, David Braidwood
Gibbon and Ashley "Oshy" Tugendhaft reached their term limit and retired from
the boards of both ABIL and African Bank Limited with effect from 31 March
2011. Mpho Nkeli also resigned from the boards of African Bank Investments
Limited and African Bank Limited with effect from 25 January 2011 due to
other commitments.
The boards of ABIL and African Bank Limited express their sincere
appreciation to Mpho, David and Oshy for the contribution that they have made
to the success of the group over the period of their tenure.
The board announced the appointment of three non-executive directors during
the reporting period. Advocate Mojankunyane Gumbi was appointed as an
independent non-executive director to the boards of ABIL and African Bank
Limited with effect from 1 March 2011. Ntombi Langa-Royds and Jack Koolen
were appointed as independent non-executive directors to the same boards from
15 March 2011. Jack was also appointed to the EHL board from the same date.
Yashmita Mistry resigned as company secretary to ABIL with effect from 31
March 2011.
Looking ahead
It is expected that the subdued external trading environment will continue
for the rest of the financial year. Innovation and renewed energy have
resulted in strong levels of activity in the first half of the year and these
are expected to continue into the second half. Given the current impetus in
the business, our financial objectives for 2011 therefore remain unchanged.
Basis of preparation
The preparation of these group interim consolidated financial statements was
supervised by the Chief Financial Officer, Nithia Nalliah CA(SA).
These condensed group interim consolidated financial statements have been
prepared in compliance with International Accounting Standard (IAS) 34
`Interim Financial Reporting`, the requirements of the South African
Companies Act (Act 71 of 2008) as amended and the Listing Requirements of the
JSE Limited.
The group has adopted the following standards and interpretations during the
financial year:
- IFRIC 19 - Extinguishing of Financial Liabilities with Equity Instruments
- IFRS 2 - Group Cash-settled Share-based Payment Transactions
- IAS 32 (amended) - Financial Instruments Puttable at Fair Value and
Classification of Rights Issues.
The accounting policies and their application are:
- In compliance with International Financial Reporting Standards and
interpretations issued by the International Financial Reporting
Interpretations Committee of the International Accounting Standards Board;
and
- Consistent with those used for the group`s 2010 annual financial statements
except for changes in disclosure of the operating segments.
Restatement of comparative balances
The following changes for reclassification of claims and composition of
operating segments have resulted in restatements of comparative balances in
compliance with IFRS:
- Claims paid on life and product insurance have been reclassified out of net
assurance income and are separately disclosed on the face of the income
statement. This is merely a reclassification with no impact on the financial
results of ABIL.
- Following the purchase of Ellerines Financial Services by African Bank
Limited, the composition of the group`s operating segments has changed from
Banking, Ellerines Retail and Ellerines Financial Services units to the
Banking and Retail units only.
On behalf of the board
Mutle Mogase Gordon Schachat Leon Kirkinis
Chairman Executive deputy chairman Chief executive officer
Group income statement
for the 6 months ended 31 March 2011
Unaudited Unaudited Audited
6 months 6 months 12 months to
to to
31 March 31 March 30 September
R million % 2011 2010 2010
change
Gross margin on 9 1 105 1 014 1 974
retail business
Interest income on 17 3 440 2 932 5 950
advances
Assurance income 28 1 410 1 098 2 309
Non-interest income 17 1 434 1 227 2 491
Income from 18 7 389 6 271 12 724
operations
Charge for bad and 17 (1 725) (1 473) (2 693)
doubtful advances
Claims paid 38 (304) (220) (626)
Risk-adjusted income 17 5 360 4 578 9 405
from operations
Product insurance 58 (38) (24) (83)
claims
Other interest and (14) 161 188 390
investment income
Interest expense 16 (1 328) (1 142) (2 383)
Operating costs 9 (2 450) (2 251) (4 481)
Indirect taxation: >100 (42) (12) (20)
VAT
Profit from 24 1 663 1 337 2 828
operations
Capital items (100) 0 34 34
Profit before 21 1 663 1 371 2 862
taxation
Direct taxation: STC 4 (81) (78) (147)
Direct taxation: 36 (470) (345) (773)
Normal
Profit for the 17 1 112 948 1 942
period
Reconciliation of
headline earnings
and per share
statistics
Profit for the 17 1 112 948 1 942
period (basic
earnings)
Preference (6) (17) (18) (36)
shareholders
Basic earnings 18 1 095 930 1 906
attributable to
ordinary
shareholders
Adjustments for non-
headline items:
Capital items (100) 0 (19) (19)
Tax thereon (100) 0 3 3
Headline earnings 20 1 095 914 1 890
Number of shares in 803,7 803,7 803,7
issue (net of
treasury)
Weighted number of 803,7 803,7 803,7
shares in issue
Fully diluted number 803,8 803,8 803,8
of shares in issue
Basic earnings per 18 136,3 115,7 237,2
share
Fully diluted basic 18 136,3 115,7 237,1
earnings per share
Headline earnings 20 136,3 113,7 235,2
per share
Fully diluted 20 136,3 113,7 235,1
headline earnings
per share
Group statement of comprehensive income
for the 6 months ended 31 March 2011
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
31 March 31 March 30 September
R million % change 2011 2010 2010
Profit for the period 17 1 112 948 1 942
Other comprehensive
income
Exchange differences on (83) (1) (6) (11)
translating foreign
operations
Movement in cash flow (>100) 153 (87) (195)
hedge reserve
IFRS 2 reserve (31) 9 13 8
transactions
(employee incentives)
Shares purchased into (100) 0 1 1
the ABIL Employee Share
Trust less shares
issued to employees
(cost)
ABIL Share Trust shares 0 0 1
less dividends received
Other comprehensive (>100) 161 (79) (196)
income for the period,
net of tax
Total comprehensive 47 1 273 869 1 746
income for the period
Group statement of financial position
as at 31 March 2011
Unaudited Unaudited Audited
31 March 31 March 30 September
R million % change 2011 2010 2010
Assets
Short-term deposits and (8) 4 689 5 112 3 410
cash
Statutory assets - bank 60 2 574 1 604 1 806
and insurance
Inventories 5 816 777 851
Other assets (11) 432 486 321
Taxation (6) 15 16 97
Net advances 34 30 262 22 599 25 360
Deferred tax asset (50) 256 514 409
Assets held for sale (100) 0 5 5
Policyholders` (50) 8 16 15
investments
Property and equipment 22 716 588 622
Intangible assets (8) 797 870 834
Goodwill 0 5 472 5 472 5 472
Total assets 21 46 037 38 059 39 202
Liabilities and equity
Short-term funding 5 2 850 2 716 1 038
Other liabilities 8 1 650 1 531 1 743
Taxation (41) 57 97 33
Deferred tax liability 21 255 211 392
Life fund reserve (47) 8 15 14
Bonds and other long- 35 25 128 18 575 20 877
term funding
Subordinated bonds 25 2 757 2 210 2 226
Total liabilities 29 32 705 25 355 26 323
Ordinary shareholders` 5 12 849 12 221 12 396
equity
Preference 0 483 483 483
shareholders` equity
Total equity (capital 5 13 332 12 704 12 879
and reserves)
Total liabilities and 21 46 037 38 059 39 202
equity
Group statement of cash flows
for the 6 months ended 31 March 2011
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
31 March 31 March 30 September
R million 2011 2010 2010
Cash generated from operations 3 968 3 079 5 698
Cash received from lending and 8 882 7 811 15 662
insurance activities and cash
reserves
Recoveries on advances previously 83 58 103
written off
Cash paid to funders, staff, (4 997) (4 790) (10 067)
suppliers and insurance
beneficiaries
Increase in gross advances (6 780) (3 626) (7 658)
Decrease in working capital (208) (342) 205
Decrease/(increase) in 35 82 (103)
inventories
(Increase)/decrease in other (111) (297) 8
assets
(Decrease)/increase in other (132) (127) 300
liabilities
Indirect and direct taxation paid (534) (449) (794)
Cash inflow/(outflow) from equity 1 (2) 2
accounted incentive transactions
Cash outflow from operating (3 553) (1 340) (2 547)
activities
Cash outflow from investing (800) (178) (493)
activities
Acquisition of property and (192) (106) (277)
equipment (to maintain
operations)
Acquisition of joint venture 0 0 (19)
advances book
Disposal of property and 12 196 240
equipment
Disposal of option 0 0 15
Other investing activities (620) (268) (452)
Cash inflow from financing 5 773 2 923 2 760
activities
Cash inflow from funding 6 594 3 745 4 284
activities
Preference shareholders` payments (17) (18) (36)
and transactions
Ordinary shareholders` payments (804) (804) (1 488)
and transactions
Increase/(decrease) in cash and 1 420 1 405 (280)
cash equivalents
Cash and cash equivalents at the 3 716 3 996 3 996
beginning of the period
Cash and cash equivalents at the 5 136 5 401 3 716
end of the period
Made up as follows:
Short-term deposits and cash 4 689 5 112 3 410
Statutory cash reserves - 447 289 306
insurance
5 136 5 401 3 716
Group segmental analysis
for the 6 months ended 31 March 2011
Segment income from operations
Unaudited
6 months to 6 months to 12 months to
31 March 31 March 30 September
R million 2011 2010 2010
Banking unit 5 811 4 843 9 911
Retail unit 1 652 1 471 2 861
Consolidation adjustments (74) (43) (83)
Group 7 389 6 271 12 689
Intersegment income from operations
Unaudited
6 months to 6 months to 12 months to
31 March 31 March 30 September
R million 2011 2010 2010
Banking unit 0 0 0
Retail unit 74 43 83
Consolidation adjustments 0 0 0
Group 74 43 83
Segment profit after taxation
Unaudited
6 months to 6 months to 12 months to
31 March 31 March 30 September
R million 2011 2010 2010
Banking unit 1 050 854 1 899
Retail unit 144 127 146
Consolidation adjustments (82) (33) (103)
Group 1 112 948 1 942
Group statement of changes in equity
for the 6 months ended 31 March 2011
Ordinary shares
Share Share-based
capital and Distributable payment
R million premium reserves reserve Other
Balance at 30 September 9 151 2 436 597 (10)
2009
Dividends paid 0 (804) 0 0
Total comprehensive 0 930 13 (92)
income for the period
Balance at 31 March 9 151 2 562 610 (102)
2010 (unaudited)
Dividends paid 0 (684) 0 0
Transfer to share-based 0 (208) 208 0
payment reserve
Transfer from insurance 0 25 0 (25)
contingency reserve
Shares purchased into 0 0 0 1
the ABIL Employee Share
Trust less shares
issued to employees
(cost)
Total comprehensive 0 977 (5) (114)
income for the period
Balance at 30 September 9 151 2 672 813 (240)
2010 (audited)
Dividends paid 0 (804) 0 0
Shares purchased into 0 0 0 1
the ABIL Employee Share
Trust less shares
issued to employees
(cost)
Transfer from insurance 0 8 0 (8)
contingency reserve
Total comprehensive 0 1 095 9 152
income for the period
Balance at 31 March 9 151 2 971 822 (95)
2011 (unaudited)
Preference
share
capital and
R million premium Total
Balance at 30 September 483 12 657
2009
Dividends paid (18) (822)
Total comprehensive 18 869
income for the period
Balance at 31 March 483 12 704
2010 (unaudited)
Dividends paid (18) (702)
Transfer to share-based 0 0
payment reserve
Transfer from insurance 0 0
contingency reserve
Shares purchased into 0 1
the ABIL Employee Share
Trust less shares
issued to employees
(cost)
Total comprehensive 18 876
income for the period
Balance at 30 September 483 12 879
2010 (audited)
Dividends paid (17) (821)
Shares purchased into 0 1
the ABIL Employee Share
Trust less shares
issued to employees
(cost)
Transfer from insurance 0 0
contingency reserve
Total comprehensive 17 1 273
income for the period
Balance at 31 March 483 13 332
2011 (unaudited)
Notes
31 March 31 March 30 September
1. Treasury shares 2011 2010 2010
Treasury shares at cost R million 11 13 12
Number of shares held million 0,5 0,5 0,5
Average cost per share Rand 23,24 27,23 25,14
2. Number of ordinary shares at Total Weighted Diluted
31 March 2011
Number of shares in issue at 804 175 200 804 175 200 804 175 200
the beginning of the year
Treasury shares on hand (473 415) (475 964) (475 964)
Dilution as a result of 0 0 92 725
outstanding options
803 701 785 803 699 236 803 791 961
Dividend declaration
Ordinary shares Preference shares
Share code ABL ABLP
ISIN ZAE000030060 ZAE000065215
Dividend number 21 13
Dividends per share (cash 85 cents 310 cents
dividends)
Declaration date Monday, 23 May 2011 Monday, 23 May 2011
Last date to trade cum- Thursday, 09 June Thursday, 09 June 2011
dividend 2011
Shares commence trading Friday, 10 June 2011 Friday, 10 June 2011
ex-dividend
Record date Friday, 17 June 2011 Friday, 17 June 2011
Dividend payment date Monday, 20 June 2011 Monday, 20 June 2011
Share certificates may not be dematerialised or rematerialised between
Friday, 10 June 2011 and Friday, 17 June 2011, both days inclusive.
Share transfer secretaries
Link Market Services SA (Pty) Limited
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein
PO Box 4844, Johannesburg, 2000
Telephone: +27 11 630 0800
Telefax: +27 86 674 4381
africanbank@linkmarketservices.co.za
Board of directors
Non-executive:
MC Mogase (Chairman)
N Adams
Advocate MF Gumbi
J Koolen
N Langa-Royds
S Sithole
RJ Symmonds
Executive:
G Schachat (Deputy Chairman)
L Kirkinis (CEO)
A Fourie
N Nalliah
TM Sokutu
Company Secretary
Vacant
Registered office
59 16th Road, Midrand, 1685
For a more detailed discussion of ABIL`s results, please refer to our website
at http://www.abil.co.za
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 23/05/2011 07:05:01 Supplied by www.sharenet.co.za
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