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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