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ABSP - ABSA Bank Limited - Profit and dividend announcement; audited condensed

Release Date: 10/02/2012 07:30
Code(s): JSE ABSP
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ABSP - ABSA Bank Limited - Profit and dividend announcement; audited condensed consolidated financial results for the year ended 31 December 2011 ABSA BANK LIMITED Registration number: 1986/004794/06 Authorised financial services and registered credit provider (NCRCP7) Incorporated in the Republic of South Africa ISIN: ZAE000079810 JSE share code: ABSP (Absa, Absa Bank, the Bank or the Company) PROFIT AND DIVIDEND ANNOUNCEMENT; AUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011 CONSOLIDATED SALIENT FEATURES 31 December 2011 2010(1) Change 2009(1) (Audited) (Audited) % (Audited )
Statement of comprehensive income(Rm) Headline earnings(2) 7 957 6 412 24 5 986 Profit attributable to 7 901 6 432 23 5 315 ordinary equity holder of the Bank Statement of financial position Total assets (Rm) 742 436 690 410 8 684 619 Loans and advances to 486 910 495 733 (2) 501 050 customers (Rm) Deposits due to customers (Rm) 431 762 382 131 13 360 216 Loans-to-deposits ratio (%)(3) 87,0 91,0 94,5 Off-statement of financial position(Rm) Assets under management and 22 741 21 861 4 31 534 administration(4) Financial performance (%) Return on average equity(3) 15,8 14,2 14,4 Return on average assets(5) 1,13 0,93 0,83 Return on average risk- 2,07 1,71 1,68 weighted assets(5) Operating performance (%) Net interest margin on average 3,80 3,62 3,46 interest-bearing assets(5) Impairment losses on loans and 1,00 1,12 1,65 advances as % of average loans and advances to customers(5) Non-performing advances as % 6,9 7,5 6,8 of loans and advances to customers(5) Non-interest income as % of 42,8 41,0 44,0 total operating income(3) Cost-to-income ratio(3) 55,6 56,7 49,7 Effective tax rate, excluding 27,7 27,1 20,4 indirect taxation Share statistics (million) (including "A" ordinary shares) Number of ordinary shares in 374,1 374,1 367,7 issue Weighted average number of 374,1 369,9 362,1 ordinary shares in issue Diluted weighted average 374,1 369,9 362,1 number of ordinary shares in issue Share statistics (cents) Headline earnings per share 2 127,0 1 733,4 23 1 653,1 Diluted headline earnings per 2 127,0 1 733,4 23 1 653,1 share Basic earnings per share 2 112,0 1 738,8 21 1 467,8 Diluted earnings per share 2 112,0 1 738,8 21 1 467,8 Dividends per ordinary share 1 034,4 959,2 8 676,5 relating to income for the year Dividend cover (times)(3) 2,1 1,8 2,4 Net asset value per share(3) 14 058 12 955 9 11 606 Tangible net asset value per 13 871 12 781 9 11 464 share(3) Capital adequacy (%)(5) Absa Bank 16,2 14,8 14,7 Notes (1) Comparatives have been reclassified. Refer to note 20. (2) After allowing for R284 million (31 December 2010: R320 million) profit attributable to preference equity holders of the Bank. (3) These ratios have been calculated by management based on extracted audited information contained in the audited annual consolidated financial statements. (4) Comparatives have been restated for the inclusion of assets managed by Absa Capital on behalf of clients, alternative asset management and exchange- traded funds, in order to align assets under management and administration to current market practice. (5) These ratios are unaudited. CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2011 2010(1) 2009(1)
(Audited) (Audited) Change (Audited) Rm Rm % Rm Assets Cash, cash balances and balances 19 505 17 343 12 15 526 with central banks Statutory liquid asset portfolio 57 473 48 215 19 33 943 Loans and advances to banks 55 803 26 251 >100 35 036 Trading portfolio assets 79 603 57 647 38 47 303 Hedging portfolio assets 4 299 4 662 (8) 2 558 Other assets 12 948 9 678 34 7 219 Current tax assets 84 5 >100 107 Non-current assets held for sale 35 - 100 - 1 Loans and advances to customers 486 910 495 733 (2) 501 050 2,3,4 Loans to Group companies 7 164 8 071 (11) 16 232 Investment securities 8 331 12 906 (35) 16 849 Investments in associates and 412 406 1 473 joint ventures Goodwill and intangible assets 700 643 9 522 Investment properties 1 840 1 771 4 1 705 Property and equipment 7 268 6 987 4 6 010 Deferred tax assets 61 92 (34) 86 Total assets 742 436 690 410 8 684 619 Liabilities Deposits from banks 44 702 21 740 >100 40 160 Trading portfolio liabilities 49 232 43 530 13 36 957 Hedging portfolio liabilities 2 456 1 881 31 565 Other liabilities 10 536 7 788 35 9 089 Provisions 1 457 1 533 (5) 1 486 Current tax liabilities 255 929 (73) 31 Deposits due to customers 431 762 382 131 13 360 216 5 Debt securities in issue 128 051 162 526 (21) 169 788 6 Loans from Group companies 1 438 - 100 3 464 Borrowed funds 14 051 13 649 3 13 530 7 Deferred tax liabilities 1 104 2 073 (47) 1 915 Total liabilities 685 044 637 780 7 637 201 Equity Capital and reserves Attributable to equity holders of the Bank: Ordinary share capital 303 303 - 303 Ordinary share premium 11 465 11 465 - 10 465 Preference share capital 1 1 - 1 Preference share premium 4 643 4 643 - 4 643 Retained earnings 37 217 32 449 15 29 340 Other reserves 3 605 3 704 (3) 2 566 57 234 52 565 9 47 318 Non-controlling interest 158 65 >100 100 Total equity 57 392 52 630 9 47 418 Total liabilities and equity 742 436 690 410 8 684 619 Note Comparatives have been reclassified. Refer to note 20. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2011 2010 (Audited) (Audited) Change Rm Rm % Net interest income 22 110 21 244 4 Interest and similar income 49 210 52 264 (6) 8.1 Interest expense and similar charges (27 100) (31 020) 13 8.2 Impairment losses on loans and advances (4 876) (5 578) 13 3 Net interest income after impairment 17 234 15 666 10 losses on loans and advances Non-interest income 16 514 14 787 12 Net fee and commission income 13 393 12 416 8 Fee and commission income 14 421 13 378 8 9.1 Fee and commission expense (1 028) (962) (7) 9.1 Gains and losses from banking and trading 2 504 1 851 35 activities 9.2 Gains and losses from investment 54 24 >100 activities 9.3 Other operating income 563 496 14 Operating profit before operating 33 748 30 453 11 expenditure Operating expenditure (22 462) (21 180) (6) Operating expenses (21 485) (20 440) (5) 10.1 Other impairments (73) (109) 33 10.2 Indirect taxation (904) (631) (43) Share of post-tax results of associates 47 (8) >100 and joint ventures Operating profit before income tax 11 333 9 265 22 Taxation expense (3 140) (2 507) (25) Profit for the year 8 193 6 758 21 Other comprehensive income Foreign exchange differences on 218 (234) >100 translation of foreign operations Movement in cash flow hedging reserve (242) 1 153 >(100) Fair value gains arising during the 1 964 3 422 (43) year Amount removed from other (2 300) (1 820) (26) comprehensive income and recognised in the profit and loss component of the statement of comprehensive income Deferred tax 94 (449) >100 Movement in available-for-sale reserve (24) 170 >(100) Fair value (losses)/gains arising (65) 150 >(100) during the year Amortisation of government bonds 20 92 (78) -release to the profit and loss component of the statement of comprehensive income Deferred tax 21 (72) >100 Movement in retirement benefit asset (47) 19 >(100) (Decrease)/increase in retirement (66) 27 >(100) benefit surplus Deferred tax 19 (8) >100 Total comprehensive income for the year 8 098 7 866 3 Profit attributable to: Ordinary equity holder of the Bank 7 901 6 432 23 Preference equity holders of the Bank 284 320 (11) Non-controlling interest 8 6 33 8 193 6 758 21 Total comprehensive income attributable to: Ordinary equity holder of the Bank 7 806 7 540 4 Preference equity holders of the Bank 284 320 (11) Non-controlling interest 8 6 33 8 098 7 866 3 Earnings per share: Basic earnings per share (cents) 2 112,0 1 738,8 21 Diluted earnings per share (cents) 2 112,0 1 738,8 21 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2011 (Audited)
Total equity attributable to equity Non- holders of controllin
the Bank g interest Total equity Rm Rm Rm Balance at the beginning of the 52 565 65 52 630 year Total comprehensive income for the 8 090 8 8 098 year Profit for the year 8 185 8 8 193 Other comprehensive income (95) - (95) Dividends paid during the year (3 184) - (3 184) Contribution to the Absa Group (281) - (281) Limited Share Incentive Trust Movement in the share-based payment 44 - 44 reserve Transfer from share-based payment - - - reserve Transfer from share-based payment (155) - (155) reserve Transfer to retained earnings 155 - 155 Value of employee services 44 - 44 Share of post-tax results of - - - associates and joint ventures Transfer to associates and joint 47 - 47 ventures reserve Transfer from retained earnings (47) - (47) Disposal of associates and joint - - - ventures - release of reserves Transfer to associates and joint 13 - 13 ventures reserve Transfer from retained earnings (13) - (13) Increase in the interest of non- - 21 21 controlling equity holders Non-controlling interest arising - 64 64 from business combinations Balance at the end of the year 57 234 158 57 392 2010
(Audited) Total equity attributable to equity Non-
holders of controllin the Bank g interest Total equity Rm Rm Rm
Balance at the beginning of the 47 318 100 47 418 year Total comprehensive income for the 7 860 6 7 866 year Profit for the year 6 752 6 6 758 Other comprehensive income 1 108 - 1 108 Dividends paid during the year (3 420) - (3 420) Shares issued 1 000 - 1 000 Contribution to the Absa Group (236) - (236) Limited Share Incentive Trust Movement in the share-based payment 43 - 43 reserve Transfer from share-based payment - - - reserve Transfer from share-based payment (46) - (46) reserve Transfer to retained earnings 46 - 46 Value of employee services 43 - 43 Share of post-tax results of - - - associates and joint ventures Transfer to associates and joint (8) - (8) ventures reserve Transfer from retained earnings 8 - 8 Disposal of associates and joint - - - ventures - release of reserves Transfer to associates and joint 60 - 60 ventures reserve Transfer from retained earnings (60) - (60) Increase in the interest of non- - 37 37 controlling equity holders Non-controlling interest arising - 78 (78) from business combinations Balance at the end of the year 52 565 65 52 630 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2011 2010(1)
(Audited) (Audited) Change Rm Rm % Net cash generated from operating 3 464 1 750 98 activities Net cash generated from investing 3 026 775 >100 activities Net cash utilised in financing (3 465) (3 156) (10) activities Net increase/(decrease) in cash and 3 025 (631) >100 cash equivalents Cash and cash equivalents at the 4 773 5 403 (12) beginning of the year 1 Effect of exchange rate movements on 0 1 (100) cash and cash equivalents Cash and cash equivalents at the end of 7 798 4 773 63 the year 2 NOTES 1. Cash and cash equivalents at the beginning of the year Cash, cash balances and balances with 4 431 4 543 (2) central banks Loans and advances to banks 342 860 (60) 4 773 5 403 (12) 2. Cash and cash equivalents at the end of the year Cash, cash balances and balances with 7 226 4 431 63 central banks Loans and advances to banks 572 342 67 7 798 4 773 63
Note Comparatives have been reclassified. Refer to note 20. CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS as at 31 December 1. NON-CURRENT ASSETS HELD FOR SALE On 30 June 2011, the Bank, through its Absa Capital and Absa Business Bank segments, transferred its investment in Sekunjalo Investments Limited, with a carrying value of R43 million, to non-current assets held for sale. A portion of this investment was subsequently sold in July 2011 and the remaining portion was transferred to investment securities. The Bank, through its Absa Capital segment, also transferred certain investments designated at fair value through profit or loss with a carrying value of R326 million to non-current assets held for sale on 30 June 2011. These investments were subsequently sold in August 2011. The Bank, through its Corporate Real Estate business, concluded contracts for the sale of several properties during 2011, with transfer due to take place during 2012. 2. LOANS AND ADVANCES TO CUSTOMERS 2011 2010(1) 2009(1) (Audited) (Audited) Change (Audited)
Rm Rm % Rm Cheque accounts 31 370 30 696 2 38 360 Corporate overdrafts and 10 681 9 612 11 13 485 specialised finance loans Credit cards 16 072 15 258 5 14 774 Foreign currency loans 8 564 5 602 53 6 659 Instalment credit 57 246 56 874 1 58 181 agreements Gross advances 68 401 67 424 1 68 551 Unearned finance charges (11 155) (10 550) (6) (10 370) Reverse repurchase 1 613 3 063 (47) 1 988 agreements Loans to associates and 7 909 8 025 (1) 7 878 joint ventures Microloans 1 690 1 766 (4) 2 417 Mortgages 287 710 302 516 (5) 301 352 Other(2) 3 179 2 961 7 3 407 Overnight finance 12 320 7 647 61 12 340 Personal and term loans 26 324 25 262 4 18 705 Preference shares 6 973 6 637 5 7 967 Wholesale overdrafts 26 647 32 638 (18) 25 551 Gross loans and advances 498 298 508 557 (2) 513 064 to customers Impairment losses on loans (11 388) (12 824) 11 (12 014) and advances (refer to note 3) 486 910 495 733 (2) 501 050 Notes (1) Comparatives have been reclassified. Refer to note 20. (2) Other includes client liabilities under acceptances and working capital solutions. 3. IMPAIRMENT LOSSES ON LOANS AND ADVANCES 2011 2010 (Audited) (Audited) Change Rm Rm %
Balance at the beginning of the year 12 824 12 014 7 Amounts written off during the year (5 787) (4 574) (27) Foreign exchange differences 1 (2) >100 Interest on impaired assets refer to (1 176) (766) (54) note 8.1) 5 862 6 672 (12) Impairments raised during the year 5 526 6 152 (10) Balance at the end of the year 11 388 12 824 (11) Comprising: Identified impairments 10 618 11 936 (11) Unidentified impairments 770 888 (13) 11 388 12 824 (11) 3.1 Statement of comprehensive income charge for the year ended 31 December Impairments raised during the year 5 526 6 152 (10) Identified impairments 5 642 6 303 (10) Unidentified impairments (116) (151) 23 Recoveries of loans and advances (650) (574) (13) previously written off 4 876 5 578 (13) 4. NON-PERFORMING LOANS 2011
(Unaudited) Expected recoverie s and Total
Outstandi fair Net identified ng value of exposur impairment balance collatera e l
Rm Rm Rm Rm Cheque accounts 153 45 108 108 Credit cards 1 498 532 966 966 Instalment credit agreements 2 645 1 370 1 275 1 275 Microloans 348 76 272 272 Mortgages 23 479 19 466 4 013 4 013 Personal loans 1 116 486 630 630 Retail Banking 29 239 21 975 7 264 7 264 Cheque accounts 749 432 317 317 Commercial Asset Finance 932 395 537 537 Commercial Property Finance 1 894 1 354 540 540 Term loans 693 532 161 161 Absa Business Bank 4 268 2 713 1 555 1555 Absa Capital 844 405 439 439 Non-performing loans 34 351 25 093 9 258 9 258 Non-performing loans ratio (%) 6,9 2010(1) (Unaudited) Expected recoverie
s and Total Outstandi fair Net identified ng value of exposur impairment balance collatera e
l Rm Rm Rm Rm Cheque accounts 220 110 110 110 Credit cards 2 119 553 1 566 1 566 Instalment credit agreements 3 058 1 776 1 282 1 282 Microloans 445 84 361 361 Mortgages 25 569 20 678 4 891 4 891 Personal loans 928 321 607 607 Retail Banking 32 339 23 522 8 817 8 817 Cheque accounts 880 448 432 432 Commercial Asset Finance 1 082 429 653 653 Commercial Property Finance 2 483 2 032 451 451 Term loans 667 484 183 183 Absa Business Bank 5 112 3 393 1 719 1 719 Absa Capital 549 208 341 341 Non-performing loans 38 000 27 123 10 877 10 877 Non-performing loans ratio (%) 7,6 Note (1) Comparatives have been reclassified. Refer to note 20. 5. DEPOSITS DUE TO CUSTOMERS 2011 2010(1) 2009(1) (Audited) (Audited) Change (Audited) Rm Rm % Rm
Call deposits 55 528 54 686 2 61 980 Cheque account deposits 130 953 116 371 13 100 475 Credit card deposits 1 884 1 830 3 1 868 Fixed deposits 124 341 113 217 10 105 928 Foreign currency deposits 6 898 7 942 (13) 7 211 Notice deposits 28 500 11 365 >100 10 293 Other(2) 2 695 3 664 (26) 8 069 Repurchase agreements with non- 8 734 7 035 24 1 712 banks Savings and transmission 72 229 66 021 9 62 680 deposits 431 762 382 131 13 360 216
Notes Comparatives have been reclassified. Refer to note 20. Other includes partnership contributions received, deposits due on structured deals, preference investments on behalf of customers and unclaimed deposits. 6. DEBT SECURITIES IN ISSUE 2011 2010 (Audited) (Audited) Change
Rm Rm % Abacas - Commercial paper issued and - 1 789 (100) floating rate notes Credit linked notes 8 976 6 360 41 Floating rate notes 69 854 75 748 (8) Negotiable certificates of deposit 30 302 64 460 (53) Promissory notes 3 168 3 759 (16) Structured notes and bonds 1 451 1 220 19 Senior notes 14 300 9 190 56 128 051 162 526 (21) 7. BORROWED FUNDS Subordinated callable notes The subordinated debt instruments listed below qualify as secondary capital in terms of the Banks Act, No 94 of 1990 (as amended). Interest rate Final maturity date 8,75% 1 September 1 500 1 500 - 2017 8,80% 7 March 2019 1 725 1 725 - 8,10% 27 March 2020 2 000 2 000 - 10,28% 3 May 2022 600 600 - Three-month JIBAR + 2,10% 3 May 2022 400 400 - CPI-linked notes, fixed at the following coupon rates: 6,25% 31 March 2018 1 886 1 886 - 6,00% 20 September 3 000 3 000 - 2019 5,50% 7 December 2028 1 500 1 500 - Accrued interest 1 157 826 40 Fair value adjustment 283 212 33 14 051 13 649 3 CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December NET INTEREST INCOME 8.1 Interest and similar income 2011 2010 (Audited) (Audited) Change Rm Rm %
Interest and similar income is earned from: Cash, cash balances and balances with 2 2 0 central banks Fair value adjustments on hedging 1 063 1 023 4 instruments Investment securities 317 448 (29) Loans and advances to banks 961 1 214 (21) Other 806 934 (14) Reverse repurchase agreements 155 280 (45) Loans and advances to customers 41 543 46 067 (10) Cheque accounts 2 572 2 760 (7) Corporate overdrafts and specialised 664 1 255 (47) finance loans Credit cards 2 089 2 069 1 Foreign currency loans 110 167 (34) Instalment credit agreements 5 559 6 024 (8) Interest on impaired financial assets 1 176 766 54 (refer to note 3) Loans to associates and joint ventures 417 486 (14) Microloans 505 651 (22) Mortgages 21 672 24 847 (13) Other(1) 286 857 (67) Overnight finance 584 571 2 Personal and term loans 3 260 2 900 12 Preference shares 619 693 (11) Wholesale overdrafts 2 030 2 021 0 Other 1 042 527 98 Statutory liquid asset portfolio 4 282 2 983 44 49 210 52 264 (6) Note (1)Includes items such as interest on factored debtors` books. 8.2 Interest expense and similar charges 2011 2010 (Audited) (Audited) Change Rm Rm %
Interest expense and similar charges are paid on: Borrowed funds 1 350 1 586 (15) Debt securities in issue 9 474 12 850 (26) Deposits due to customers 15 475 16 979 (9) Call deposits 3 072 3 231 (5) Cheque account deposits 2 758 3 192 (14) Credit card deposits 10 13 (23) Fixed deposits 6 227 7 112 (12) Foreign currency deposits 82 128 (36) Notice deposits 777 456 70 Other 480 516 (7) Savings and transmission deposits 2 069 2 331 (11) Deposits from banks 1 101 534 >100 Call deposits 572 219 >100 Fixed deposits 504 281 79 Other 25 34 (26) Fair value adjustments on hedging (482) (1 102) 56 instruments Interest incurred on finance leases 85 109 (22) Other 97 64 52 27 100 31 020 (13) 9. NON-INTEREST INCOME 9.1 Fee and commission income Asset management and other related fees 78 102 (24) Consulting and administration fees 110 154 (29) Credit-related fees and commissions 12 443 11 471 8 Cheque accounts 3 292 3 156 4 Credit cards(1)(2) 1 070 866 24 Electronic banking 4 086 3 823 7 Other(3) 1 620 1 220 33 Savings accounts 2 375 2 406 (1) Insurance commission received 436 386 13 Merchant income(2) 1 035 922 12 Other 97 100 (3) Project finance fees 203 205 (1) Trust and other fiduciary services 19 38 (50) Portfolio and other management 14 26 (46) fees(3)(4) Trust and estate income 5 12 (58) 14 421 13 378 8 Fee and commission expense Cheque processing fees (171) (173) 1 Other(2) (429) (329) (30) Transaction-based legal fees (227) (189) (20) Trust and other fiduciary services(2)(4) (64) (105) 39 Valuation fees (137) (166) 17 (1 028) (962) (7)
Net fee and commission income 13 393 12 416 8 Included above are net fees and commissions linked to financial instruments not at fair value of R6 918 million (2010: R6 549 million). Notes (1) Includes acquiring and issuing fees. (2) During the year under review, merchant income, trust and other fiduciary service fees have been disclosed in order to achieve fair presentation. This resulted in a reclassification of comparative information. (3) Includes service, credit-related fees and other commission on mortgage loans and foreign exchange transactions. (4) During the year under review, debt collection fees have been included in trust and other fiduciary service fees. This resulted in a reclassification of comparative information. 9.2 Gains and losses from banking and trading activities(1) 2011 2010 (Audited) (Audited) Change Rm Rm % Associates and joint ventures - 87 (100) Dividends received - 45 (100) Profit realised on disposal - 42 (100) Net gains on investments 432 99 >100 Debt instruments 29 27 7 Equity instruments 423 164 >100 Available-for-sale unwind from (20) (92) 78 reserves Net trading result 2 491 1 705 46 Net trading income excluding the 2 435 1 605 52 impact of hedge accounting Ineffective portion of hedges 56 100 (44) Cash flow hedges 33 44 (25) Economic hedges 30 71 (58) Fair value hedges (7) (15) 53 Other (419) (40) >(100) 2 504 1 851 35
Net gains on investments comprise debt and equity instruments designated at fair value through profit or loss and available for sale unwind from reserves. Net trading result comprises gains and losses from instruments designated at fair value through profit or loss as well as gains and losses from instruments classified as held for trading. The net trading income of R2 435 million (2010: R1 605 million), consist of the following: - Losses on financial instruments designated at fair value through profit or loss of R844 million (2010: R1 061 million). - Gains on financial instruments held for trading of R3 279 million (2010: R2 666 million). Financial instruments designated at fair value through profit or loss consist of: - Net gains of R595 million (2010: R705 million) on financial assets designed at fair value through profit or loss. - Net losses of R1 439 million (2010: R1 766 million) relating to financial liabilities designated at fair value through profit or loss. Other includes gains and losses from instruments designated at fair value through profit or loss as well as gains and losses from instruments classified as held for trading. - Gains on financial instruments designated at fair value through profit or loss of R105 million (2010: R176 million). - Losses on financial instruments held for trading of R524 million (2010: R216 million). Note (1) During the year under review, the presentation of "Gains and losses from banking and trading activities" has been amended to align with market practice and improve the quality of disclosure to the market. This resulted in a reclassification of comparative information. 9.3 Gains and losses from investment activities(1) 2011 2010
(Audited) (Audited) Change Rm Rm % Available-for-sale unwind from reserves 1 0 >100 Net investment gains Other(2) 53 24 >100 54 24 >100 Notes (1) During the year under review, the presentation of "Gains and losses from investment activities" has been amended to align with market practice and improve the quality of disclosure to the market. This resulted in a reclassification of comparative information. (2) Other includes gains and losses from instruments designated at fair value through profit or loss. 10. OPERATING EXPENDITURE 10.1 Operating expenses 2011 2010
(Audited) (Audited) Change Rm Rm % Amortisation of intangible assets 148 100 48 Auditors` remuneration 149 131 14 Cash transportation 643 625 3 Depreciation 1 155 1 062 9 Equipment costs 173 206 (16) Information technology(1) 2 065 1 969 5 Investment property charges 43 4 >100 Change in fair value of investment 43 0 100 properties Other 0 4 (100) Marketing costs 928 974 (5) Operating lease expenses on properties 880 877 0 Other(2)(3) 728 956 (16) Printing and stationery 216 235 (8) Professional fees(1) 934 970 (4) Property costs(3) 1 042 814 28 Staff costs 11 722 10 836 8 Bonuses 1 098 951 15 Current service costs on post-retirement 648 525 23 benefits Other(4) 428 466 (8) Salaries 8 897 8 372 6 Share-based payments 434 280 55 Training costs 217 242 (10) Telephone and postage 659 680 (3) 21 485 20 440 5
Notes (1) Both lines include research and development costs totalling R101 million (2010: R133 million). (2) Includes accommodation, travel and entertainment costs. (3) During the year under review, property costs were moved from other and disclosed separately due to the significance thereof. This resulted in a reclassification of comparative information. (4) Includes recruitment costs, membership fees to professional bodies, staff parking, redundancy fees, study assistance, staff relocation and refreshment costs. 10.2 Other impairments 2011 2010
(Audited) (Audited) Change Rm Rm % Financial instruments 26 38 (32) Amortised cost instruments 26 13 100 Available-for-sale instruments - 25 (100) Other 47 71 (34) Computer software development costs - 4 (100) Equipment - 13 (100) Goodwill 28 - 100 Investments in associates and joint (2) 29 >(100) ventures Repossessed properties 21 25 (16) 73 109 (33) 11. HEADLINE EARNINGS 2011 2010 (Audited) (Audited) Net
Gros Net Gros Net chang s s e Rm Rm Rm Rm % Headline earnings(1) is determined as follows: Profit attributable to ordinary equity 7 901 6 432 23 holder of the Bank Total headline earnings adjustment: 56 (20) >100 IFRS 3 - Goodwill impairment /(gain on 28 28 (72) (72) >100 bargain purchase) IAS 16 - Profit on disposal of (27) (22) (26) (22) 0 property and equipment IAS 28 and 31 - Headline earnings (0) (0) (1) (1) 97 component of share of post-tax results of associates and joint ventures IAS 28 and 31 - Profit on disposal of - - (42) (42) 100 investments associates and joint ventures IAS 28 and 31 - Impairment (2) (1) 29 21 >(100 (reversal)/charge of investments in ) associates and joint ventures IAS 36 - Impairment of equipment - - 13 9 (100) IAS 38 - Impairment of intangible - - 4 3 (100) assets IAS 39 - Release of available-for- 20 14 92 66 (79) sale reserves IAS 39 - Impairment of available-for- - - 25 18 (100) sale assets IAS 40 - Change in fair value of 43 37 (0) (0) >100 investment properties Headline earnings/diluted headline 7 957 6 412 24 earnings Headline earnings per share/diluted 2 1 23 headline earnings per share (cents) 127,0 733,4 Note (1)The net amount is reflected after taxation and non-controlling interest. 12. DIVIDENDS PER SHARE 2011 2010 (Audited) (Audited) Change
Rm Rm % Dividends paid to ordinary equity holder during the year 15 February 2011 final dividend 1 350 900 50 number 49 of 360,9 cents per ordinary share (16 February 2010: 244,8 cents) 2 August 2011 interim dividend number 1 550 1 200 29 50 of 414,3 cents per ordinary share (4 August 2010: 326,4 cents) 4 August 2010 special dividend to the - 1 000 (100) ordinary and `A` ordinary equity holder 2 900 3 100 (6) Dividends paid to ordinary equity holder relating to income for the year 2 August 2011 interim dividend number 1 550 1 200 29 50 of 414,3 cents per ordinary share (4 August 2010: 326,4 cents) 4 August 2010 special dividend to the - 1 000 (100) ordinary and `A` ordinary equity holder 10 February 2012 final dividend 2 320 1 350 72 number 51 of 620,1 cents per ordinary share (15 February 2011: 390,9 cents) 3 870 3 550 9 Note The STC payable by the Bank in respect of the final dividend approved and declared subsequent to the reporting date amounts to R232 million (2010: R 135 million). No provision has been made for this dividend and the related STC in the financial statements at the reporting date, accordance with IFRS. 2011 2010 (Audited) (Audited) Change Rm Rm % Dividends paid to preference equity holders during the year 15 February 2011 final dividend number 143 162 (12) 10 of 2 887,6 cents per preference share (16 February 2010: 3 280,3 cents) 2 August 2011 interim dividend number 141 158 (11) 11 of 2 858,3 cents per preference share (4 August 2010: 3 197,5 cents) 284 320 (11)
Dividends paid to preference equity holders relating to income for the year 2 August 2011 interim dividend number 141 158 (11) 11 of 2 858,3 cents per preference share (4 August 2010: 3 197,5 cents) 10 February 2012 final dividend number 140 143 (2) 12 of 2 827,2 cents per preference share (15 February 2011: 2 887,6 cents) 281 301 (7) Notes (1) The STC payable by the Bank in respect of the dividend approved and declared subsequent to the reporting date amounts to R14 million (31 December 2010: R14 million). No provision has been made for the dividend and the related STC at the reporting date, in accordance with IFRS. (2) In 2007, the Minister of Finance announced a two-phase approach to STC reform which included the reduction of the STC tax rate to 10% and the replacement of STC with dividends tax on shareholders (dividends tax). When the dividends tax comes into effect on 1 April 2012, the tax will cease to be levied at a company level, and will instead be levied on the shareholders who received the dividend. Unutilised STC credits at the end of December 2011 will be utilised against the STC payable on the final dividend subsequent to year-end. Before the new withholding dividend tax comes into effect, any remaining deferred tax asset relating to unutilised STC credits up to 31 March 2011 will be utilised. CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS as at 31 December 13. ACQUISITIONS AND DISPOSALS OF BUSINESSES The following interests were acquired during the year under review: 13.1 Subsidiaries and business combinations The Bank acquired 76% of the units in the Absa Property Equity Fund (APEF) for R211 million during April 2011 and, as a result, has taken on a majority share of the risks and rewards of the fund. The net assets acquired amounted to R211 million. APEF operates as a special purpose entity (SPE) specifically for the investment in community upliftment projects and is consolidated in terms of SIC 12. The fund was previously consolidated under SIC 12. The APEF was disposed of and reacquired in 2011. Since acquisition, the APEF contributed a net profit before tax of R13 million and revenue of R10 million to the Bank for the period 1 April 2011 to 31 December 2011. If the acquisition occurred on 1 January 2011, the Group`s revenue would have been R17 million higher and the net profit before tax for the year would have been R18 million higher. The Bank together with two other parties has a shareholding in Barrie Island Investments Proprietary Limited (Barrie Island). During January 2011, the Bank entered into an agreement to purchase an additional 30% of the shares in Barrie Island from another shareholder who wished to exit the arrangement. Following this purchase, the Group will own 70% of the shares of Barrie Island. At the acquisition date, the investment was recognised at R nil million. A fair value loss was processed in the statement of comprehensive income when additional shares in Barrie Island were acquired. Barrie Island holds property in Alberton. The property is zoned for commercial and residential property. Net liabilities incurred in the further acquisition totalled R3 million with goodwill raised at R3 million. The goodwill in Barrie Island has been impaired because Barrie Island has been consistently making losses and is not expected to be profitable in the near future. Since the further acquisition, Barrie Island had no revenue and profit before tax impact to the Bank for the period to 31 December 2011. Goodwill raised on acquisition was subsequently impaired. The partnership in the IFU Property Fund was dissolved during the year under review. Overlook at Sugarloaf Incorporated (a new legal entity incorporated in the United States of America) was established to replace the IFU Property Fund. This did not affect the Bank`s overall statement of financial position. During the year under review, the Bank sold certain exposures to Commissioner Street No. 4 (RF) Limited (Commissioner Street 4), a special purpose entity established by the Bank. Commissioner Street 4 issued various classes of notes to investors. The following table summarises the acquisition date fair values of the assets and liabilities acquired in the above transactions: Class of asset/(liability) APEF Barrie Island Cash, cash balances and balances with 0 0 central banks Other assets 1 40 Other liabilities (0) (50) Investment securities 277 - Deferred tax asset - 1 Fair value of existing interest - 3 Non-controlling interest (67) 3 Net assets acquired/(liabilities 211 (3) incurred) Cash outflow on acquisition 211 0 Fair value of net (assets (211) 3 acquired)/liabilities incurred Goodwill - 3 Total cash and cash equivalents acquired 0 0 A full list of subsidiaries as at 31 December 2011 is available, on request, at the registered address of the Bank. 13.2 Associates and joint ventures The following interests were disposed of during the year under review: Sekunjalo Investments Limited was classified as an "equity-accounted" associate held by Absa Capital and Absa Business Bank. Absa Capital`s investment was disposed of and the remaining investment held by Absa Business Bank was transferred to investment securities. 14. RELATED PARTIES The Bank`s ultimate parent company is Barclays Bank PLC, which owns 55,5% (2010: 55,5%) of the ordinary shares in Absa Group Limited. The remaining 44,5% (2010: 44,5%) of the shares are widely held on the JSE. The following are defined as related parties of the Bank: - key management personnel; - the ultimate parent company; - the parent company; - fellow subsidiaries; - subsidiaries; - associates, joint ventures and retirement benefit funds; - an entity controlled/jointly controlled or significantly influenced by any individual referred to above; - post-employment benefit plans for the benefit of employees or any entity that is a related party of the Bank; and - children and/or dependants and spouses or partners of the individuals referred to above. IAS 24 requires the identification of key management personnel, who are individuals responsible for planning, directing and controlling the activities of the entity, including directors. Key management personnel are defined as executive and non-executive directors and members of the Executive Committee (Exco). 14.1 Transactions with key management personnel and entities controlled by key management A number of banking and insurance transactions are entered into with key management personnel in the normal course of business, under terms that are no more favourable than those arranged with third parties. These include loans, deposits and foreign currency transactions. The related party transactions, outstanding balances at year-end, and related expenses and income with related parties for the year are as follows: 2011 2010 (Audited) (Audited) Change
Rm Rm % Balances Loans 624 758 (18) Deposits 33 25 32 Guarantees issued by the Bank 79 70 13 Other investments 81 68 19 Loans include mortgages, asset finance transactions, overdraft and other credit facilities. Loans to key management personnel are provided on the same terms and conditions as loans to employees of the Bank, including interest rates and collateral requirements. There were no bad debts expenses and provision for bad debts that related to balances with key management personnel. In addition to the specific guarantees, a number of key management personnel and entities controlled by key management personnel have unlimited surety with the Bank. 2011 2010
(Audited) (Audited) Change Rm Rm % Transactions Interest income 56 2 >100 Interest expense 1 1 - Key management personnel compensation Executive directors Post-employment benefit contributions 1 1 - Salaries and other short-term benefits 20 27 (26) Share-based payments 27 17 59 Termination benefits - 10 (100) 48 55 (14)
Other key management personnel Post-employment benefit contributions 2 1 100 Salaries and other short-term benefits 42 43 (2) Share-based payments 36 33 9 Termination benefits 3 - 100 83 77 8 14.2 Balances and transactions with ultimate parent company(1)(2) The following are balances with, and transactions entered into with the ultimate parent company: Balances Loans and advances 41 065 15 174 >100 Derivative assets 10 524 9 079 16 Nominal value of derivative assets 637 611 489 895 30 Other assets 338 952 (64) Investment securities 499 434 15 Deposits from banks (5 784) (5 820) 1 Derivative liabilities (10 488) (8 999) (17) Nominal value of derivative liabilities (462 870) (375 175) (23) Other liabilities (1 167) (533) >(100) Transactions Interest and similar income (111) (80) (39) Interest expense and similar charges 67 36 86 Net fee and commission income (17) (15) (13) Gains and losses from banking and trading (136) 1 646 >(100) activities Other operating income (152) (42) >(100) Operating expenditure (115) (252) 54 Trade balances must be settled in accordance with market conventions applicable to the transaction. Non-trade balances must be settled by the close of the month immediately following the month in which the transaction occurred. Further, settlement must be made in the currency required by the parent. In exceptional cases it may be impractical or inefficient to settle balances monthly. In such circumstances the unsettled balances must be explicitly agreed monthly in writing and full settlement must be made at least quarterly. There were no bad debt expenses and provisions for bad debts that related to balances and transactions with the parent company. 14.3 Balances and transactions with fellow subsidiaries, associates and joint ventures of the ultimate parent company (1)(2) Fellow subsidiaries, associates and joint ventures are those entities of Barclays Bank PLC. Balances and transactions between the Bank and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Notes (1) The Bank`s ultimate parent company is Barclays Bank PLC, which has a majority equity interest in Absa Group Limited. (2) Debit amounts are shown as positives; credit amounts are shown as negatives 2011 2010 (Audited) (Audited) Change
Rm Rm % Balances Loans and advances to banks 188 412 (54) Derivative assets - 65 (100) Nominal value of derivative liabilities - 3 507 (100) Other assets 1 (400) >100 Deposits from banks (559) (262) >(100) Derivative liabilities (72) (7) >(100) Nominal value of derivative liabilities (1 441) (292) >(100) Other liabilities (52) 266 >(100) Transactions Interest and similar income (2) - (100) Net fee and commission income (12) - (100) Operating expenditure 152 279 (46) Trade balances must be settled in accordance with market conventions applicable to the transaction. Non-trade balances must be settled by the close of the month immediately following the month in which the transaction occurred. Further, settlement must be made in the currency required by the parent. In exceptional cases it may be impractical or inefficient to settle balances monthly. In such circumstances the unsettled balances must be explicitly agreed monthly in writing and full settlement must be made at least quarterly. There were no bad debt expenses and provisions for bad debts that related to balances and transactions with the parent company. 14.4 Balances and transactions with parent company(1)(2) The following are balances with and transactions entered into with the parent company: 2011 2010
(Audited) (Audited) Change Rm Rm % Balances Loans and advances 215 (174) >100 Other liabilities (138) 139 >(100) Transactions Dividends paid 3 184 3420 (7) Interest expense and other charges 8 10 (20) Trade balances must be settled in accordance with market conventions applicable to the transaction. Non-trade balances must be settled by the close of the month immediately following the month in which the transaction occurred. Further, settlement must be made in the currency required by the parent. In exceptional cases it may be impractical or inefficient to settle balances monthly. In such circumstances the unsettled balances must be explicitly agreed monthly in writing and full settlement must be made at least quarterly. There were no bad debt expenses and provisions for bad debts that related to balances and transactions with the parent company. 13.5 Balances and transactions with fellow subsidiaries Balances and transactions between the Bank and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. The following transactions were entered into with fellow subsidiaries: 2011 2010 Change Rm Rm %
Balances Loans and advances to Group companies (25) - (100) Transactions Interest and similar income - (18) 100 Net fee and commission income - 2 (100) Various terms and conditions were agreed upon, taking into account transfer pricing and relevant tax requirements. Notes (1) Debit amounts are shown as positive; credit amounts are shown as negative. (2) Absa Bank is a wholly owned subsidiary of Absa Group Limited. 15. ASSETS UNDER MANAGEMENT AND ADMINISTRATION(1) 2011 2010 Change Rm Rm % Alternative asset management and exchange- 16 615 16 231 2 traded funds Portfolio management 5 136 4 779 7 Private equity 728 732 (1) Unit trusts 262 119 >100 22 741 21 861 4
16. FINANCIAL GUARANTEE CONTRACTS Financial guarantee contracts(2) 356 599 (41)
17. COMMITMENTS Authorised capital expenditure Contracted but not provided for(3) 119 882 (87) Operating lease payments due(4) No later than one year 1 073 1 029 4 Later than one year and no later than 2 062 1 965 5 five years Later than five years 488 386 26 3 623 3 380 7 Sponsorship payments due(5)(6) Not later than one year 209 305 (32) Later than one year and no later than 299 508 (41) five years 508 813 (38) 18. CONTINGENCIES Guarantees(7) 12 509 11 052 13 Irrevocable debt facilities(8) 45 637 46 348 (2) Irrevocable equity facilities(8) 494 750 (34) Letters of credit 4 560 4 653 (2) Other 10 43 (77) 63 209 62 846 1 Notes (1) Comparatives have been reclassified for the inclusion of assets managed by Absa Capital on behalf of clients, exchange-traded funds and alternative asset management funds in order to align assets under management and administration to current market practice. (2) Represents the maximum exposure, which is not necessarily the measurement recognised on the statement of financial position in accordance with IFRS. (3) The Bank has capital commitments in respect of computer equipment and property development. Management is confident that future net revenue and funding will be sufficient to cover these commitments. (4) The operating lease commitments comprise a number of separate operating leases in relation to properties and equipment, none of which is individually significant to the Bank. Leases are negotiated for an average term of three to five years and rentals are renegotiated annually. (5) During the year under review, additional information has been included for sponsorships. This resulted in a reclassification of comparative information. (6) The Group has sponsorship commitments in respect of sports and arts and culture sponsorships. Certain sponsorship agreements in place, expire in 2012 and are under review by management for renewal in the foreseeable future. (7) Guarantees include performance and payment guarantee contracts. (8) Irrevocable facilities are commitments to extend credit where the Bank does not have the right to terminate the facilities by written notice. Commitments generally have fixed expiry dates. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. 19. SEGMENT PERFORMANCE 19.1 Condensed consolidated profit contribution by segment for the year ended 31 December 2011 2010(1) (Audited) (Audited) Change
Rm Rm % Banking operations Retail Banking 4 031 3 104 30 Home Loans 448 166 >100 Vehicle and Asset Finance 403 226 78 Card 1 646 1 380 19 Personal Loans 720 515 40 Retail Bank 814 817 (0) Absa Business Bank 2 878 2 815 2 Absa Capital 1 280 1 439 (11) Corporate centre (319) (414) 23 Capital and funding centres 315 (192) >100 Preference equity holders of the Bank (284) (320) 11 Profit attributable to ordinary equity 7 901 6 432 23 holder of the Bank Headline earnings adjustments 56 (20) >100 Headline earnings 7 957 6 412 24 Note (1) Comparatives have been reclassified. Refer to note 20. 19.2 Condensed consolidated total revenue(1) contribution by segment for the year ended 31 December 2011 2010(1) (Audited) (Audited) Change Rm Rm %
Banking operations Retail Banking 22 348 21 022 6 Home Loans 3 951 3 480 14 Vehicle and Asset Finance 2 219 2 015 10 Card 3 757 3 470 8 Personal Loans 2 108 1 960 9 Retail Bank 10 313 10 097 2 Absa Business Bank 11 390 11 107 3 Absa Capital 5 101 5 098 0 Corporate centre (894) (1 090) (18) Capital and funding centres 679 (106) >100 Total revenue 38 624 36 031 7 Notes Revenue includes net interest income and non-interest income. Comparatives have been reclassified. Refer to note 20. 19.3 Condensed consolidated internal total revenue(1) contribution by segment for the year ended 31 December 2011 2010(2) (Audited) (Audited) Change Rm Rm %
Banking operations Retail Banking (10 401) (12 992) 20 Home Loans (12 898) (15 157) 15 Vehicle and Asset Finance (2 442) (2 764) 12 Card (303) (384) 21 Personal Loans (569) (611) 7 Retail Bank 5 811 5 924 (2) Absa Business Bank 2 800 1 614 73 Absa Capital 7 741 12 566 (38) Corporate centre (337) (435) (23) Capital and funding centres (1 170) (820) (43) Internal revenue (1 367) (67) >(100) Notes (1) Revenue includes net interest income and non-interest income. (2) Comparatives have been reclassified. Refer to note 20. 19.4 Condensed consolidated total assets by segment as at 31 December 2011 2010(1) (Audited) (Audited) Change Rm Rm %
Banking operations Retail Banking 452 455 454 452 (0) Home Loans 234 114 242 722 (4) Vehicle and Asset Finance 46 382 50 242 (8) Card 23 352 21 098 11 Personal Loans 13 489 12 887 5 Retail Bank 135 118 127 503 6 Absa Business Bank 200 359 180 163 11 Absa Capital 359 211 344 954 4 Corporate centre (353 555) (362 014) (2) Capital and funding centres 83 966 72 855 15 Total assets 742 436 690 410 8 Note (1) Comparatives have been reclassified. Refer to note 20. 20. RECLASSIFICATIONS 20.1 Some items within the statement of financial position for the years ended 31 December 2010 and 31 December 2009 were reclassified in the current year: 2010 (Audited)
As previously Reclassific Reclassifie reported a-tion d Rm Rm Rm Loans and advances to banks(1) 23 633 2 618 26 251 Other assets(1) 12 954 (3 276) 9 678 Loans and advances to customers 485 588 10 145 495 733 Collateralised loans(1) 658 Offsetting (2) 9 487 Total assets (2) 680 923 9 487 690 410 Deposits due to customers (2) 372 644 9 487 382 131 Total liabilities (2) 628 293 9 487 637 780 Total liabilities and equity (2) 680 923 9 487 690 410 2009 (Audited) As previously Reclassific Reclassifie
reported a-tion d Rm Rm Rm Loans and advances to banks 35 036 - 35 036 Other assets 7 219 - 7 219 Loans and advances to 490 205 10 845 501 050 customers(2) Total assets(2) 673 774 10 845 684 619 Deposits due to customers(2) 349 371 10 845 360 216 Total liabilities(2) 626 356 10 845 637 201 Total liabilities and equity(2) 673 774 10 845 684 619 Notes (1) Collateralised loans During the year under review, the Bank has reclassified certain collateralised loans previously disclosed as `Other assets` to `Loans and advances to banks` and `Loans and advances to customers` in 2010 and to `Loans and advances to banks` in 2009 to reflect the true nature of these trades as collateralised loans. This has resulted in comparatives being reclassified for 31 December 2010 as reflected in the table above. (2) Offsetting Certain customers within the Bank have agreements in place whereby interest receivable or payable is calculated on the net balances of the cheque deposits and cheque advances. During the year under review, the Bank identified that the related cheque account balances owed or receivable were also being reported on a net basis. All balances within this portfolio were reassessed for appropriate presentation in terms of IAS 32 and the Bank`s stated accounting policies, taking into account contractual arrangements and current business practise applied to these accounts. As a result, certain assets and liabilities relating to these cheque accounts were reclassified so that these are presented on a gross basis. This has resulted in the comparatives being reclassified for 31 December 2010 and 31 December 2009 as reflected in the table above. 20.2 Comparatives have been reclassified for the following structure changes made during the year: - Absa Technology Finance Solutions Proprietary Limited was moved from Vehicle and Asset Finance within Retail Banking to Absa Business Bank. - Debit Card was moved within Retail Banking from Retail Bank to Card. - Personal loan centres were moved within Retail Banking from Personal Loans to Retail Bank. - Absa Development Company division was moved from Absa Business Bank to Retail Bank within Retail Banking. - The Group`s corporate client base was transferred from Absa Business Bank to Absa Capital following an initiative to optimise product delivery to its corporate clients. Profit and dividend announcement Overview The Bank`s headline earnings increased 24% to R7 957 million (2010: R6 412 million). Diluted headline earnings per share rose 23% to 2 127,0 cents (2010: 1 733,4 cents). Absa`s return on average equity (RoE) improved to 15,8%, reflecting a higher return on average assets (RoA) of 1,13% (2010: 0,93%), offset by reduced leverage. Absa delivered on its key commitments to for 2011, including growing revenue faster than operating expenses. The Bank`s pre-provision profit increased 10% to R17 139 million. Improved non-interest revenue growth, lower credit losses, better cost containment and a wider net interest margin were the primary reasons for Absa`s headline earnings growth. These drivers outweighed the impact of lower loans and advances, and a higher effective tax rate. Retail Banking`s 35% headline earnings growth was the principal driver of the Bank`s 24% increase. Absa Business Bank (ABB) increased earnings 4%. Absa Capital`s headline earnings decreased 14% after a difficult second half. Operating environment South Africa`s economic growth slowed considerably in recent quarters to an annualised 1,4% in the third quarter of 2011. Household expenditure growth has remained a bright point, rising 3,7% on an annualised basis in the third quarter. This is underpinned by evidence that the worst of the labour market weakness has passed and consumers are benefiting from low interest rates and increased real household income growth. Despite the prime rate being at the lowest level since the 1970s, private sector credit extension remains moderate. Household credit rose at an average of 5,7% from June through November 2011 and corporate credit 3,6%. This modest new borrowing and income growth has reduced household debt to disposable income from a 2008 peak of 82,7% to 75,0%, although consumers remain vulnerable to any monetary policy tightening. Inflation pressures mounted through 2011, as headline CPI (Consumer Price Index) increased from the cyclical low of 3,2% in September 2010 to 6,1% in November 2011, which is above the SARB target range. Growth in core inflation has been more moderate, increasing to 3,9% despite rising food and fuel costs. Given concerns about economic growth, the Reserve Bank has kept its policy rate at 5,5%. Bank performance Statement of financial position The Bank`s total assets rose 8% to R742 billion at 31 December 2011, reflecting strong second half growth in its trading portfolio assets and loans and advances to banks. Absa`s statutory liquid asset portfolio increased 19% to R57 billion. Loans and advances to customers Absa`s loans and advances to customers declined by 2% to R487 billion (2010: R496 billion). Retail Banking`s loans and advances declined 2%, reflecting sustained focus on risk appetite and pricing. Retail mortgages (including Commercial Property Finance), which constitute 48% of total Bank gross loans and advances to customers, decreased 4%. Given Retail Banking`s strategy to grow its proportion of unsecured loans, credit cards grew 5% and personal loans 6%. Muted client demand also dampened ABB`s loans and advances, which declined 5% to lower Commercial Property Finance, instalment credit agreements and wholesale overdrafts. Absa Capital`s loans and advances increased 6%, reflecting strong growth in foreign currency loans and overnight finance. Deposits due to customers The Bank continued to improve its liquidity, growing customer deposits 13% to R432 billion and increasing its proportion of long-term funding to 24,5%. With solid growth in most key categories, Retail Banking`s deposits increased 9%, to maintain its leading market share. Its proportion of high margin deposits improved further. ABB`s deposits increased 12%, given strong growth in cheque account and call deposits. Absa Capital`s deposits rose 18%, after solid growth in fixed deposits and notice deposits. Deposits due to customers accounted for 71% of funding compared to 64% in 2009, while the proportion from debt securities in issue dropped to 21% from 29%. The Bank`s loans-to-deposits ratio decreased to 87,0% from 91,0%. Net asset value (NAV) The Bank`s NAV increased 10% to R53 billion, as it generated retained earnings of R5,0 billion during the year. Absa`s NAV per share grew 9% to 14 058 cents (2010: 12 955 cents). Capital to risk-weighted assets The Bank`s risk-weighted assets decreased by 2% to R385 billion (2010: R392 billion). Absa maintained its strong capital levels, which remain above board targets and regulatory requirements. At 31 December 2011, Absa Bank`s Core Tier 1 and Tier 1 capital adequacy ratios were 12,1% (2010: 10,7%) and 13,3% (2010: 11,9%) respectively. The Bank`s total capital ratio improved to 16,2% (2010: 14,8%). Statement of comprehensive income Net interest income Net interest income increased 4% to R22 110 million (2010: R21 244 million), despite loans declining slightly and a 0,87% lower average prime rate during the year. The growth stems from the Bank`s improved net interest margin (3,80% from 3,62%) due to its hedging strategy, better new business pricing and lower reliance on wholesale funding. These outweighed the negative endowment effect on capital and deposits, competitive pricing pressure on deposits and the cost of lengthening funding and increasing surplus liquid assets. Credit losses Absa`s credit impairments improved 13% to R4 876 million (2010: R5 578 million). Retail Banking, where credit losses decreased 14% to R3 792 million, was responsible for most of the reduction. Early cycle delinquencies improved as lower interest rates helped consumers to recover, and the benefits of effective collections and sound credit policy became evident. ABB`s credit losses dropped 23% year on year to R843 million. The Bank`s credit loss ratio improved to 1,00% from 1,12%. This is noticeably below 2009`s high charge of 1,65%. Retail Banking`s credit loss ratio declined to 1,22% (2010: 1,41%), as every category improved, particularly Absa Card and Personal Loans. ABB`s credit loss ratio fell to 0,72% from 0,91%. Absa`s non- performing loan coverage declined to 27,0% (2010: 27,7%), in part due to 27% higher write-offs. Non-performing loans as a percentage of loans and advances improved to 6,9% (2010: 7,5%), due to reduced new NPLs (non-performing loans), greater write-offs and rehabilitating more accounts. Absa`s loans subject to debt counselling reduced to R3,4 billion from R7,0 billion the previous year, reflecting strong collection efforts. Non-interest income Despite muted trading and retail client activity levels, Absa`s non-interest income grew 12% to R16 514 million (2010: R14 787 million), owing to growth in targeted areas. Net fee and commission income, which constituted 81% of non- interest income grew 8% to R13 393 million (2010: R12 416 million), due to volume growth and price increases. Retail Banking`s net fee and commission income rose 6%, while ABB`s demonstrated improving momentum growing 8%. Absa Capital`s net trading increased 1% to R2 036 million, despite difficult second half conditions in fixed income. The Bank sold its stake in Visa Incorporated in 2011, recording a R30 million gain compared to a R128 million loss in the prior year. Private equity and commercial property finance revaluations accounted for less than 1% of total non-interest revenue. Operating expenses The Bank`s operating expenses increased 5% to R21 485 million (2010: R20 440 million), reflecting cost containment while continuing to invest in target growth areas. Staff costs constituted 55% of total, increased 8% to R11 722 million. This reflected salary increases, higher bonuses and share-based payments due to significant incentive deferrals from previous years and improved operating performance. Non-staff costs grew just 2%, as containing discretionary spend was a priority. Total IT-related spend grew 5% to R2,1 billion, which represents 10% of the Bank`s costs. Absa`s cost-to-income ratio improved to 55,6% from 56,7%. Taxation The Bank`s taxation charge grew 25% to R3 140 million, as its effective tax rate rose to 27,7% from 27,1%. The higher rate was mainly due to a lower proportion of exempt income and secondary tax on companies. Absa continued to contribute significantly to the fiscus, making cash payments of R4,8 billion. Prospects Global economic conditions remain challenging. Key structural weaknesses in the Eurozone still need to be addressed, the US economy faces the uncertainty of an election year and emerging markets look to navigate the downside risks in developed countries. However, Sub-Saharan Africa`s GDP is expected to grow 5,5% this year. For South Africa, the external environment is unlikely to support stronger growth and we expect the economy to grow just 2,8%. Slightly higher inflation will place some pressure on real household income and the labour market is expected to remain weak, which suggests consumers will remain vulnerable and corporates cautious in their business decisions. We expect the Reserve Bank increase interest rates in the fourth quarter, albeit at a slow pace. Against this fragile macro backdrop, sector asset and revenue growth is likely to remain muted. However, Absa should continue to benefit from its hedging strategy. Containing costs remains a priority and management is committed to keeping cost growth below revenue growth again this year. Together with an expected credit loss ratio of below 1%, the Bank`s returns should improve further. Absa will continue to work closely with Barclays to capture the opportunities the combined franchises offer in the rest of Africa. Absa remains well positioned for expected regulatory changes with a strong capital position and continued improvement in its liquidity. Basis of presentation and changes in accounting policies The Bank`s condensed results have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS). The disclosures comply with International Accounting Standard (IAS) 34. The preparation of financial information requires the use of estimates and assumptions about future conditions. The accounting policies that are deemed critical to the Bank`s results and financial position, in terms of the materiality of the items to which the policy is applied, and which involve a high degree of judgement including the use of assumptions and estimation, are impairment of loans and advances, goodwill impairment, valuation of financial instruments, impairment of available-for-sale financial assets, impairment of investments in associates and joint ventures, deferred tax assets, consolidation of special purpose entities (SPEs), post-retirement benefits, provisions, share- based payments, liabilities arising from claims made under short-term insurance contracts, liabilities arising from claims made under life-term insurance contracts, income taxes and offsetting of financial assets and liabilities. Changes in accounting policies The accounting policies applied in preparing the financial results for the year under review are the same as the accounting policies in place for the year ended 31 December 2010 except for the following: - The Bank adopted the predecessor accounting method as its accounting policy for common control transactions. The Bank previously accounted for common control transactions in terms of IFRS 3 Business Combinations where these transactions had economic substance. This change in accounting policy will align the Bank`s accounting policy with its ultimate parent company, Barclays PLC. The change in accounting policy does not impact the Bank`s consolidated results and will have no impact on basic and diluted earnings per share as previously reported. - Adoption of amendments and changes to IFRS mandatory for the 31 December 2011 financial year. These amendments, specified in consolidated annual financial statements, resulted in some additional disclosures being presented but otherwise had a minimal impact on the financial results for the year under review. Reclassifications - The Bank has reclassified certain collateral previously disclosed as `Other assets` to `Loans and advances to banks` and `Loans and advances to customers` in 2010to reflect the true nature of these trades as collateralised loans. This has resulted in comparatives being reclassified for 31 December 2010 (loans and advances to banks R2 618 million, other assets (R3 276 million) and loans and advances to customers R658 million). - Certain customers within the Bank have agreements in place whereby interest receivable or payable is calculated on the net balances of the cheque deposits and cheque advances. During the year under review, the Bank identified that the related cheque account balances owed or receivable were also being reported on a net basis. All balances within this portfolio were reassessed for appropriate presentation in terms of IAS 32 and the Bank`s stated accounting policies, taking into account contractual arrangements and current business practice applied to these accounts. As a result, certain assets and liabilities relating to these cheque accounts were reclassified so that these are presented on a gross basis. This has resulted in the comparatives being reclassified for 31 December 2010 (loans and advances to customers R9 487 million, deposits due to customers (R9 487 million)) and 31 December 2009 (loans and advances to customers R10 845 million, deposits due to customers (R10 845 million)). Going concern The directors assess the Group`s future performance and financial position on an ongoing basis and have no reason to believe that the Group will not be a going concern in the year ahead. For this reason these condensed annual consolidated financial statements are prepared on a going concern basis. Events after the reporting period The directors are not aware of any events after the reporting period of 31 December 2011 and the date of authorisation of these summarised annual consolidated financial statements as defined in IAS 10. Auditors` report Ernst & Young Inc. and PricewaterhouseCoopers Inc., Absa Bank Limited`s independent auditors, have audited the consolidated annual financial statements of Absa Bank Limited from which the condensed consolidated financial results have been derived. The auditors have expressed an unqualified audit opinion on the consolidated annual financial statements. The condensed consolidated financial results comprise the condensed consolidated statement of financial position at 31 December 2011, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the year then ended, and selected explanatory notes, excluding items indicated as unaudited. The audit report of the consolidated annual financial statements is available for inspection at Absa Bank Limited`s registered office. On behalf of the board G Griffin M Ramos Chairman Chief Executive Johannesburg 10 February 2012 Declaration of dividend number 12: Absa Bank non-cumulative, non-redeemable preference shares (Absa Bank preference shares) The Absa Bank preference shares have an effective coupon rate of 63% of Absa Bank`s prevailing prime overdraft lending rate (prime rate). Absa Bank`s current prime rate is 9,0%. Notice is hereby given that preference dividend number 12, equal to 63% of the average prime rate for 1 September 2011 to 29 February 2012, per Absa Bank preference share has been declared for the period 1 September 2011 to 29 February 2012. The dividend is payable on Monday, 2 April 2012, to shareholders of the Absa Bank preference shares recorded in the register of members of the Company at the close of business on Friday, 30 March 2012. The directors of Absa Bank confirm that the Bank will satisfy the solvency and liquidity test immediately after completion of the dividend distribution. Based on the current prime rate, the preference dividend payable for the period 1 September 2011 to 29 February 2012 would indicatively be 2 827,2 cents per Absa Bank preference share. In compliance with the requirements of Strate, the electronic settlement and custody system used by the JSE Limited, the following salient dates for the payment of the preference dividend are applicable: Last day to trade cum dividend Friday, 23 March 2012 Shares commence trading ex dividend Monday, 26 March 2012 Record date Friday, 30 March 2012 Payment date Monday, 2 April 2012 Share certificates may not be dematerialised or rematerialised between Monday, 26 March 2012, and Friday, 30 March 2012, both dates inclusive. On Monday, 2 April 2012, the dividend will be electronically transferred to the bank accounts of certificated shareholders who use this facility. In respect of those who do not, cheques dated 2 April 2012 will be posted on or about that date. The accounts of those shareholders who have dematerialised their shares (which are held at their participant or broker) will be credited on Monday, 2 April 2012. On behalf of the board DWP Hodnett Acting Company Secretary Johannesburg 10 February 2012 Please note that the preference dividend calculation dates are 28 (29) February and 31 August of each year and that the payment date may not be later than 45 days after the preference dividend calculation date. Administrative information These condensed annual consolidated financial statements are a summary of the audited annual consolidated financial statements of the Bank, which were prepared by Absa Group Financial Reporting under the direction and supervision of the Financial Director, DWP Hodnett CA(SA). A copy of the audited annual financial statements will be available from 30 March 2012, either on www.absa.co.za or, on request, at the registered address of the Bank. Absa Bank Limited Registration number: 1986/004794/06 Authorised financial services and registered credit provider (NCRCP7) Incorporated in the Republic of South Africa ISIN: ZAE000079810 JSE share code: ABSP Registered office 7th Floor, Absa Towers West 15 Troye Street Johannesburg, 2001 Postal address: PO Box 7735 Johannesburg, 2000 Telephone: (+27 11) 350 4000 Telefax: (+27 11) 350 4009 Email: groupsec@absa.co.za Board of directors Independent non-executive directors C Beggs, BP Connellan, YZ Cuba, SA Fakie, G Griffin (Chairman), MJ Husain, PB Matlare, TS Munday, SG Pretorius, BJ Willemse Non-executive directors AP Jenkins(1), R Le Blanc(1), EC Mondlane Jr(2), IR Ritossa(3) Executive directors DWP Hodnett (Financial Director), M Ramos (Chief Executive), LL von Zeuner (Deputy Chief Executive) (1)British (2)Mozambican (3)Australian Transfer secretary South Africa Computershare Investor Services Proprietary Limited 70 Marshall Street Johannesburg, 2001 Postal address: PO Box 61051 Marshalltown, 2107 Telephone: (+27 11) 370 5000 Telefax: (+27 11) 370 5271/2 Sponsor J.P. Morgan Equities Limited No 1 Fricker Road, Cnr. Hurlingham Road, Illovo, Johannesburg, 2196 Postal address: Private Bag X9936 Sandton, 2146 Telephone: (+27 11) 507 0300 Telefax: (+27 11) 507 0503 Auditors PricewaterhouseCoopers Inc. Ernst & Young Inc. Shareholder contact information Shareholder and investment queries about the Absa Bank should be directed to the following areas: Investor Relations AM Hartdegen (Head of Investor Relations) Telephone: (+27 11) 350 5926 Telefax: (+27 11) 350 5924 E-mail: Investorrelations@absa.co.za Acting Company Secretary DWP Hodnett Email: david.hodnett@absa.co.za Other Contacts Group Media Relations J Dludlu (Head of Group Communication) Telephone: (+27 11) 350 3221 Group Finance JP Quinn (Group Financial Controller) Telephone: (+27 11) 350 7565 For more information on our results refer to our website: Website address: www.absa.co.za Date: 10/02/2012 07:30:02 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. 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