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AFRICAN BANK INVESTMENTS LIMITED - Reviewed financial results for the eleven months ended 31 August 2013

Release Date: 01/11/2013 09:07
Wrap Text
Reviewed financial results for the eleven months ended 31 August 2013

AFRICAN BANK INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1946/021193/06)
(Ordinary share code: ABL) (ISIN: ZAE000030060)
(Preference share code: ABLP) (ISIN: ZAE000065215)
(“ABIL” or “the group”)

AFRICAN BANK LIMITED
(Incorporated in the Republic of South Africa)
(Registered bank)
(Registration number 1975/002526/06)
Company code: BIABL
(“African Bank”)

REVIEWED FINANCIAL RESULTS FOR THE ELEVEN MONTHS ENDED 31 AUGUST 2013
As noted in the Declaration Announcement in respect of ABIL’s Renounceable Rights Offer and
Cautionary announcement published on 25 October 2013 ABIL will be posting its rights offer circular,
and where applicable form of instruction, on 18 November 2013. The group has included reviewed
financial results for the eleven months ended 31 August 2013 in the circular as the timelines required
for preparation, auditing and announcement of the twelve months results to 30 September 2013,
precluded these results from being included in the circular. The results for the twelve months ended
30 September 2013 will, however, be included in a supplement to the offering circular which will be
posted together with offering circular

These published, reviewed financial results for the eleven months ended 31 August 2013 form the
basis of preparation of the pro forma financial information contained in the Finalisation
Announcement, to be released on SENS following release of this announcement. This arrangement is
to achieve compliance with the JSE Limited Listings Requirements, which prescribe that pro forma
financial information is to be based on the most recent interim period for which unadjusted financial
information has been published.

This announcement relates to the financial results for the eleven months ended 31 August 2013. It is
limited to the condensed financial statements for the eleven months and does not contain related
commentary, as ABIL will be releasing its results for the year ended 30 September 2013, on Monday
11 November 2013. Shareholders should note that ABIL released a trading update for the year ended
30 September 2013 on Friday, 25 October 2013 and that some information contained in the trading
statement may supersede the information contained in this announcement.

Headline earnings and headline earnings per share for the eleven months ended 31 August 2013
decreased by 88% to R320 million (2012: R2 763 million restated) and 39.6 cents (2012: 343.7 cents
restated) respectively. Banking unit headline earnings reduced to R551 million (2012: R2 642 million
Restated The Banking unit was negatively impacted by slower disbursement and advances growth, as
well as deteriorating asset quality with commensurate higher credit impairment charges and credit life
insurance claims. Positive features of the Banking unit’s results included interest yields that have
begun to stabilise, low operating cost growth (apart for a charge for the long term incentive scheme
due to the movements in ABIL’s share price) and cost of funds that continued to decline as a
percentage of advances.

The Retail unit generated a headline earnings loss of R226 million (2012: profit of R200 million
Restated). This result was driven by a decline in sales due to the difficult economic environment and
was exacerbated by a substantial reduction in credit granted, while carrying an approximate R100
million in once-off duplicate supply chain costs. Positive features of the results included a low
operating cost growth despite the duplicate costs, lower inventory levels and firm margins
notwithstanding the loss of volume based discounts. Both business units were impacted negatively by
restatements and changes to the provisioning methodology as announced on 25 October 2013 and
discussed below.

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

                                              for 11 months ended 31     for financial year ended
                                                              August               30 September
                                                                                         Restated
                                             (reviewed)

                                       %           2013          2012                       2012
                                   change    (R million)   (R million)                (R million)

Gross margin on retail business    (15.1%)        1 659         1 953                      2 134

Interest income on advances         23.8%        10 981         8 867                      9 919

Assurance income                    20.6%         4 413         3 660                      3 828

Non-interest income                  4.2%         3 083         2 958                      3 291

Income from operations              15.5%        20 136        17 438                     19 172

Credit impairment charge            87.0%       (8 267)       (4 420)                     (4 842)

Claims paid                        >100%        (1 654)         (680)                      (867)


Risk adjusted income from          (17.2%)       10 215        12 338                     13 463
operations

Product insurance claims             2.1%          (48)          (47)                        (60)

Other interest and investment       51.6%           323           213                        219
income

Interest expense                    22.6%       (4 122)       (3 363)                     (3 680)

Operating costs                     11.2%       (5 592)       (5 028)                     (5 467)

Indirect taxation: VAT              67.1%         (122)          (73)                        (72)

Profit from operations             (83.8%)          654         4 040                      4 403

Capital items                      >100%        ( 4 641)           (6)                        (6)

Profit/(loss) before taxation     (>100%)       (3 987)         4 034                      4 397

Direct taxation: STC              (100.0%)             -         (82)                        (82)

Direct taxation: Normal            (77.7%)        (253)       (1 132)                     (1 225)


Profit/(loss) for the period      (>100%)       (4 240)         2 820                      3 090
(basic earnings)

Basic (loss)/earnings per share   (>100%)       (534.2)         343.1                      376.7
(cents)

Headline earnings per share        (88.5%)         39.6         343.7                      378.2
Reconciliation between basic earnings and headline earnings

The following table provides a reconciliation between basic earnings and headline earnings for the periods
indicated.

                                               for 11 months ended 31 August     for financial year ended
                                                                                           30 September
                                                   (reviewed)
                                                                                               Restated

                                                       2013              2012                       2012

                                                                   (R million)                 (R million)

Reconciliation between basic earnings
and headline earnings

Profit/(loss) for the year (basic earnings)          (4 240)            2 820                       3 090


Preference shareholders                                 (88)              (61)                       (61)

Basic (loss)/earnings attributable to                (4 328)            2 759                       3 029
ordinary shareholders

Adjusted for non-headline items:

   Impairment of goodwill                             4 641                  -                           -

   Impairment of trade marks                               -                6                           6

   Loss on disposal of property and                      10                  -                         11
   equipment

   Capital profit on sale of assets held for               -                 -                           -
   sale

   Tax thereon                                           (3)               (2)                         (5)

Headline earnings                                       320             2 763                       3 041
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                   for 11 months ended 31    for the financial year
                                                                   August    ended 30 September

                                                (reviewed)                               Restated

                                          %           2013           2012                     2012
                                      change    (R million)    (R million)              (R million)

Assets

Short-term deposits and cash           34.9%         4 776          3 540                    2 845

Statutory assets - bank and            16.9%         5 454          4 666                    4 322
insurance

Inventories                           (17.7%)          734            892                      871

Other assets                          175.1%         4 107          1 493                    1 535

Taxation                              >100%            472             26                       27

                                       14.7%        50 218         43 765                   44 683
Net advances

                                      (33.9%)          789          1 193                    1 215
Deferred tax asset

Property and equipment                 18.3%         1 091            922                      965

Intangible assets                      (3.7%)          804            835                      870

Goodwill                              (84.8%)          831          5 472                    5 472

                                       10.3%        69 276         62 804                   62 806
Total assets

Liabilities and equity

Short-term funding                     86.1%         8 141          4 375                    4 587

                                       35.8%         3 194          2 352                    2 488
Other liabilities

                                      (86.9%)           80            613                       94
Taxation

Deferred tax liability                 (9.5%)          190            210                      216

Bonds and other long-term              15.6%        43 445         37 567                   37 320
funding

Subordinated bonds                     18.7%         4 388          3 696                    3 831

                                       21.8%        59 438         48 813                   48 536
Total liabilities

                                      (32.3%)        8 708         12 861                   13 139
Ordinary shareholders' equity

Preference shareholders'                0.0%         1 130          1 130                    1 130
equity

                                      (29.7%)        9 838         13 991                   14 269
Total equity (capital and reserves)

Total liabilities and equity           10.3%        69 276         62 804                   62 805
NAV per share (cents)                         (33.3%)        1 067              1599                    1634


TNAV per share (cents)                          6.4%           867               815                     845




CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

                                                               11 months ended 31          for financial year
                                                                           August       ended 30 September

                                                            (reviewed)                             Restated

                                                      %           2013          2012                    2012
                                                  change    (R million)   (R million)             (R million)

Profit/(loss) for the period                      (>100%)      (4 240)         2 820                   3 090

Other comprehensive income comprising
of items that are or may be reclassified
subsequently to profit or loss:

Exchange differences on translating foreign       (>100%)            12           (6)                     (4)
operations

Movement in cash flow hedge reserve               (>100%)          713         (223)                    (200)

IFRS 2 reserve transactions (employee             (>100%)         (29)            10                      (7)
incentives)

Total other comprehensive income for the          (>100%)          696         (219)                    (211)
period, net of tax

Total comprehensive income for the period         (>100%)      (3 544)         2 601                   2 879
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

                                                  for 11 months ended 31 August    for financial year
                                                                                           ended 30
                                                   (reviewed)                             September

                                                                                           Restated

                                                        2013              2012                 2012

                                                   (R million)       (R million)         (R million)

Cash generated from operations                         10 129             8 770                9 558

  Cash received from lending and insurance             20 270            19 993               21 917
  activities and cash reserves

  Recoveries on advances previously written off           357               342                  300

  Cash paid to funders, staff, suppliers and         (10 498)          (11 565)             (12 659)
  insurance beneficiaries

Increase in gross advances                           (13 969)          (14 989)             (16 274)

Decrease / (increase) in working capital                1 340             (423)                (327)

  Decrease / (increase) in inventories                    137                (7)                  14

  Decrease / (increase) in other assets                   692             (379)                (421)

  Increase / (decrease) in other liabilities              511               (37)                  80

Indirect and direct taxation paid                       (700)             (857)              (1 486)

Cash inflow from equity accounted incentive                  -               14                   14
transactions

Cash outflow from operating activities                (3 200)           (7 485)              (8 515)

Cash outflow from investing activities                  (963)           (1 264)              (1 304)

  Acquisition of property and equipment (to             (273)             (384)                (456)
  maintain operations)

 Acquisition of intangible assets (to maintain           (45)               (71)               (112)
 operations)

  Disposal of property and equipment                       60                27                   31

  Other investing activities                            (705)             (836)                (767)

Cash inflow from financing activities                   6 521            10 387               10 487

  Cash inflow from funding activities                   7 408            11 525               11 625

  Issue of preference shares                                 -              411                  411

 Preference shareholders' payments and                   (88)               (61)                 (61)
 transactions

 Ordinary shareholders' payments and                    (799)           (1 488)              (1 488)
 transactions



Increase in cash and cash equivalents                   2 358             1 638                  668

Cash and cash equivalents at the beginning              4 035             3 367                3 367
of the period

Cash and cash equivalents at the end of the   6 393   5 005   4 035
period

Made up as follows:

Short-term deposits and cash                  4 776   3 540   2 845

Statutory cash reserves – insurance           1 617   1 465   1 190

                                              6 393   5 005   4 035
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

                                                  Ordinary shares
                             Share capital   Distributable        Share-based        Other                Ordinary       Preference share         Total
                             and premium         reserves     payment reserve                  shareholders' equity   capital and premium

                               (R million)     (R million)         (R million)   (R million)            (R million)            (R million)   (R million)

Balance as at 30                    9 151           2 812                  81         ( 249)                11 795                    719        12 514
September 2011

Dividends paid                           -        (1 488)                    -             -                (1 488)                  (61)       (1 549)

Issue of preference shares               -               -                   -             -                      -                   411           411

Profit on disposal of and                -              3                    -             -                     3                       -            3
dividend received on ABIL
Share Trust shares

Shares purchased into the                -               -                   -           11                     11                       -           11
ABIL Employee Share Trust
less share issued to
employees (cost)

Transfer to insurance                    -             (4)                   -            4                       -                      -             -
contingency reserve

Total comprehensive                      -          2 759                  10         (229)                  2 540                     61         2 601
income for the period

Balance as at 31 August             9 151           4 082                  91         (463)                 12 861                  1 130        13 991
2012

Transfer from share- based               -             77                (77)              -                      -                      -             -
payment reserve

Total comprehensive                      -            270                (17)            25                    278                       -          278
income for the period

Balance as at 30                    9 151           4 429                  (3)        (438)                 13 139                  1 130        14 269
September 2012
                                                              Ordinary shares
                                  Share capital          Distributable        Share-based        Other                Ordinary        Preference share             Total
                                  and premium                reserves     payment reserve                  shareholders' equity    capital and premium

                                     (R million)           (R million)         (R million)   (R million)            (R million)                (R million)    (R million)

Dividends paid                                 -                ( 799)                   -             -                  (799)                      (88)          (887)

Shares issued in terms of                   289                 ( 289)                   -             -                      -                          -              -
the scrip distribution

Transfer from insurance                        -                    9                    -           (9)                      -                          -              -
contingency reserve

Total comprehensive                            -              (4 328)                (29)           725                 (3 632)                        88        (3 544)
income/(loss) for the period

Balance as at 31 August                   9 440                 (978)                (32)           278                  8 708                      1 130          9 838
2013 (reviewed)


Notes

1. Number of ordinary shares at 31 August 2013                                                                                         Total                   Weighted

Number of shares in issue at the beginning of the year                                                                        804 175 200                    804 175 200

Shares issued during the period                                                                                                   11 636 339                   5 895 775

                                                                                                                              815 811 539                    810 070 975
GROUP SEGMENTAL ANALYSIS

                                 for 11 months ended 31    for financial     for 11 months ended 31       for financial    for 11 months ended 31      for financial
                                                 August     year ended                       August        year ended                      August       year ended
                                                                     30                                             30                                           30
                            (reviewed)                      September      (reviewed)                      September      (reviewed)                    September

                                                              (audited)                                      (audited)                                    Restated

                                  2013             2012           2012           2013             2012           2012           2013          2012             2012
                            (R million)      (R million)    (R million)    (R million)      (R million)    (R million)    (R million)   (R million)      (R million)

                                Segment income from operations                    Intersegment revenues                        Segment profit after taxation

Banking unit                    17 723           14 763          16 242                 -             -               -      (3 366)         2 703             2 933

Retail unit                      2 515            2 866           3 136         (102)            (191)           (206)         (267)           196              240

Consolidation adjustments        (102)            (191)           (206)                 -             -               -        (607)           (79)             (83)

Group                           20 136           17 438          19 172         (102)            ( 191)          (206)       (4 240)         2 820             3 090
NOTES TO THE REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Basis of preparation

The preparation of these group condensed interim financial statements was supervised by the Chief
Financial Officer, Nithia Nalliah CA (SA).

These reviewed condensed consolidated interim financial statements of ABIL have been prepared in
accordance with the framework concepts and the measurement and recognition requirements of IFRS
adopted by the International Accounting Standards Board, Interpretations issued by the International
Financial Reporting Interpretations Committee (IFRIC) of the IASB, IAS 34 “Interim Financial
Reporting”, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council, the
requirements of the Companies Act as well as the JSE Listings Requirements.

The group has adopted the following standards and interpretations during the financial year, which did
not have material impact on the reported results:

*       IAS 1 - Presentation of items of other comprehensive income; and
*      IAS 12 - Measurement of deferred tax asset.

Apart from the change in accounting policy as noted below, all the other accounting policies and their
application are consistent with those used for the group’s annual financial statements for financial
year 2012.

Restatements of comparative balances

Comments are given in respect of restated amounts in for September 2012 and August 2012. No
comments are given in respect amounts for September 2013 as appropriate commentary is included
in the offering circular.

Change in the loan impairment provisioning methodology
In terms of the NCA, once a credit agreement goes into arrears, a credit provider cannot raise
interest, fees and charges in excess of the total outstanding amount of the balance determined at the
time that the first arrears occurred. ABIL has applied this requirement consistently across all its
portfolios when defaulting loans reach the “in duplum” threshold (threshold loans).

For the purposes of calculating the impairment provisions against the non-performing and written off
loans on a portfolio basis, accounting standard IAS 39 does not have an alternative treatment for
situations where no interest and fees are permitted to be charged and requires the application of the
effective interest rate of the loans at origination for purposes of the present value calculation. ABIL
historically applied a lower weighted average effective interest rate to calculate the present value of
impaired loans, taking into consideration the fact that no interest or fees are being charged on the
threshold loans. As a result of the growth in the threshold loans over time, the difference between the
two provisioning methodologies has cumulatively become material for the financial year 2013. The
group has therefore changed its provisioning methodology to discount all forecast cash flows at the
original effective interest rates.

The impact of the restatement on the statement of financial position is a decrease in net advances as
at 30 September 2012 of R1.3 billion (August 2012 R1.4 billion) with a reduction in retained earnings
of R958 million (August 2012 R978 million) after accounting for deferred tax of R372 million (August
2012 R381 million). The September 2012 income statement impact is a decrease in credit impairment
charge by R355 million (August 2012 R326 million) and additional tax of R100 million (August 2012
R92 million) resulting in an increase in profit after tax of R255 million (August 2012 R234 million).

It is important to note that forecast cash flows remain unchanged, and therefore this adjustment will
reverse to the extent that those cash flows are received. The change will continue to have an impact
in the future on new threshold loans.

Change to ABIL’s IBNR accounting policy
The insurance subsidiaries’ credit life insurance policies are taken up by African Bank customers
when an African Bank loan is sold. These policies cover the African Bank customers for various risks
such as retrenchment, death and disability. These policies are monthly policies and if a customer
defaults on their African Bank loan instalments they also default on the insurance premiums.

The accounting standards do not require the IBNR on credit life claims to be provided within
policyholder liabilities if IBNR is offset against future income in the calculation of the statutory
reserves. The calculation of the statutory reserves gives rise to a negative reserve (i.e. asset) which is
the value of future insurance premiums after allowance for unexpired insurance risk. In terms of the
ABIL accounting policy the insurance subsidiaries have not recognized this asset which amounted to
approximately R1.8 billion at 30 September 2013.

ABIL is of the view that it is a fairer presentation of the financial position of the group if the IBNR on
credit life claims is accounted for as policyholder liabilities. Thus the accounting policy has been
changed.

The impact of the restatement on the statement of financial position is an increase in other liabilities
as at 30 September 2012 of R287 million (August 2012 R289 million) with a reduction in retained
earnings of R206 million (August 2012 R208 million) after accounting for deferred tax of R81 million
(August 2012 R81 million). The September 2012 income statement impact is a decrease in claims
paid by R45 million (August 2012 R43 million) and additional tax of R13 million (August 2012 R12
million) resulting in an increase in profit after tax of R32 million (August 2012 R31 million).

Reclassification of comparative balances

The following changes for reclassification of collateral deposits and software have resulted in changes
to comparative balances.

Certain collateral deposits were previously disclosed as part of cash and cash equivalents. In
accordance with IFRS and group accounting policies, such deposits should have been classified as
part of other assets. The deposits have accordingly been reclassified in previously reported financial
periods from cash to other assets.

Software was previously disclosed as part of property and equipment. In accordance with IFRS and
group accounting policies, software should rather have been classified as intangible assets. The
software has accordingly been reclassified in previously reported financial periods from property and
equipment to intangible assets.

The reclassifications had no impact on the group’s reserves or profit and loss. The company is of the
view that these reclassifications do not materially affect the assessment of the financial position,
financial performance or cash flows of the group for financial year 2012.

Other matters

After the annual goodwill impairment assessment, the group impaired the goodwill arising on the EHL
acquisition amounting to R641 million and African Bank goodwill of R4.0 billion as the goodwill
carrying value exceeded the recoverable value.

During the reporting period the group had issued bonds amounting to R7 billion. During the reporting
period bonds amounting to R2.8 billion were redeemed by the group.

Events after the reporting period

Subsequent to the reporting date, African Bank has reached a settlement with the NCR in respect of
the proposed fine referred to the Tribunal. African Bank has agreed to pay a settlement amount of
R20 million as full and final settlement.

Apart from the above, the directors are not aware of any material events occurring between the
reporting date and the date of authorisation of these reviewed condensed consolidated financial
statements as defined in IAS 10 Events after the reporting period.
REVIEW OPINION
The accompanying financial information of the group has been reviewed by the group’s independent
auditors, Deloitte & Touche. The review was conducted in accordance with ISRE 2410 “Review of
Interim Financial Information performed by the Independent Auditor of the Entity. A review is
substantially less in scope that an audit conducted in accordance with International Standards on
Auditing and consequently does not enable Deloitte & Touche to obtain assurance that they would
become aware of all significant matters that might be identified in an audit. An unmodified report has
been issued. The full review report is available for inspection at the company’s registered office. Any
reference to future financial performance included in this announcement, has not been reviewed or
reported on by the group’s auditors.


DIRECTORATE
Sam Sithole resigned as an independent non-executive director of ABIL and African Bank with effect
from 13 September 2013. On 16 September 2013 the board appointed Morris Mthombeni as an
independent non-executive director of ABIL and African Bank. He has also been appointed to the
Group Audit Committee.

On behalf of the board

Midrand
1 November 2013

Sponsor
Rand Merchant Bank Limited (A division of FirstRand Bank Limited)



Board of directors
Non-executive: MC Mogase (Chairman), N Adams, Advocate MF Gumbi, JDMG Koolen?, NB
Langa-Royds, M Mthombeni, RJ Symmonds
Executive: L Kirkinis (CEO), A Fourie, N Nalliah, TM Sokutu
?Dutch

Company Secretary: L Goliath

African Bank Investments Limited                                 Share transfer secretaries
(Incorporated in the Republic of South Africa)                   Link Market Services South Africa
(Pty) Ltd
                                                                    th
(Registered bank controlling company)                            13 Floor, Rennie House, 19
                                                                 Ameshoff Street, Braamfontein
(Registration number 1946/021193/06)                             PO Box 4844, Johannesburg, 2000.
(Ordinary share code: ABL) (ISIN: ZAE000030060)                  Telephone +27 11 713 0800
(Preference share code: ABLP) (ISIN: ZAE000065215)               Telefax: +27 86 674 4381

Registered office
     th
59 16 Road
Midrand, South Africa, 1685
Private Bag X170, Midrand, South Africa, 1685

Date: 01/11/2013 09:07:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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