Download - African Bank

Management discussion
Overview
Key features of this set of results include:
Headline earnings increased to
R680,1 million
African Bank’s credit rating upgraded
to zaA- (long-term) and zaA1
(short-term)
A R1,0 billion ABL2-bond raised by
African Bank
Group capital adequacy increased
from 38,1% to 44,5%
Costs (excluding the Saambou PLB)
lower than in 2002
Return of R863 million to
shareholders through:
– An ordinary dividend of 56 cents
declared for the year, 86,7%
higher than the 30 cents per share
paid in 2002
– A special dividend of 100 cents
per share declared
– A R124 million share buy-back at
595 cents per share (ex dividend)
in May 2003.
Financial summary
Headline earnings for the year ended
30 September 2003 increased to
140,4 cents per share (2002: 104,4 cents)
or to R680,1 million (2002: R510,6
million).
ABIL distinguishes between books on
which lending takes place (“lending
books”), and books that are merely
collected and on which no new advances
take place (“paydown books”).
The performance for the group during
the 12-month period for 2003 was mainly
influenced by:
a 14,5% increase in interest income
on advances, as a result of the
contribution from the Saambou PLB
book, the lending books that grew by
12,5% on the back of a 15,4% growth
in sales volumes and risk-adjusted
yields that improved to 44,7% (2002:
38,4%). The latter was aided by a
changing mix in the portfolio to
higher margin retail debit order
business and lower charges for bad
debts as the effects of the credit
bubble started to diminish;
a 4,5% increase in the net financing
costs, as interest-bearing liabilities
and the cost thereof increased over
the period. This was partially offset
by the building up of significant
cash balances. Average cash for
the year was R1,2 billion (2002:
R806 million);
costs that have been contained, with
year-on-year costs lower than in 2002
excluding the acquired Saambou
PLB costs; and
secondary tax on companies (STC)
increasing to R33 million as a result
of increased dividend payments.
Looking ahead
Sales on the lending books are
expected to remain robust and should
largely compensate for the decline in the
paydown books over the coming year.
Gross yields are expected to continue to
increase as lower yielding paydown
books are replaced with higher yielding
debit order business. Bad debt charges
to the income statement should remain
steady at current levels and ABIL will
continue to focus on reducing its
operating costs. The outlook for both
return on assets and return on equity
is positive.
Investors should note that the special
dividend of 100 cents per share will
attract R60,5 million of STC, which
will likely be accounted for as a
tax charge in the 2004 year. This will
reduce potential earnings per share
by 12,5 cents for the six months to
31 March 2004.
The challenges and focus areas for the
coming year will be:
continued refining of credit
underwriting with specific emphasis
on the further development of
behavioural scorecards to better
differentiate the pricing to our
clients;
enhanced collection processes and
progress on the rehabilitation of
clients in financial distress;
further cost reductions in both
African Bank Retail and Specialised
Lending;
the harmonising of governance
structures across the group;
further progress in the employment
equity objectives at executive and
senior management levels;
exploring new products and markets
under the leadership of a dedicated
innovation unit; and
the integration of sustainability
objectives and targets across the
group.
19
African Bank Investments Limited