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Management discussion continued
Impact of special dividend
Funding
CA-Ratings upgraded its domestic longterm
rating for African Bank to zaA-
(indicating a “strong” ability to meet
long-term obligations) and its short-term
rating to zaA1 (indicating a “very strong”
ability to meet short-term obligations).
African Bank’s previous ratings were
zaBBB+ (long-term) and zaA2 (shortterm).
The rerating had a positive impact
on the group’s ability to raise funds and
has reduced its cost of funding. African
Bank raised R1 billion under its domestic
medium-term note programme (DMTN)
on the back of the rerating. The
corporate bond, with a coupon of
11,75%, matures in September 2006.
The proceeds of the bond have been
used to settle some expensive debt, to
repay existing facilities which improved
flexibility and the balance will be used to
fund growth into 2004.
Cash reserves
In addition to the R479 million in
statutory and prudential cash reserves
(liquid and insurance prudential
investments), the group has R1,1 billion
in available cash reserves as at
30 September 2003. This will reduce to
R613 million after the payment of the
special dividend and STC. As at
African Bank Investments Limited 24
30 September 2002 the group had
R835 million in cash reserves, and
after paying the full proceeds of the
Saambou PLB acquisition of R1 billion,
has generated an additional net
R1,3 billion in the year to 30 September
2003, underlining the strong cash
generative capability of the group.
Advances, sales and
clients
Advances
There are a number of contrasting trends
within the ABIL advances portfolio, which
when looked at in aggregate, may distort
the outlook. Thus the gross advances
have been classified into two main
portfolios:
Lending books – These comprise
the main lending activities of African
Bank Retail (up 11,2%) and the books
within the Specialised Lending
division which are continuing
businesses (up 19,1%). African Bank
Retail debit order loans now form
the biggest portfolio on the balance
sheet and the Standard Bank JV
continues to grow strongly, albeit off
a low base. Increased sales and new
product offerings have resulted in a
27,9% increase in Credit Indemnity’s
Impact
ASSUMPTIONS
Dividend cents 100
Average number of shares 000 484 398
Average interest rate % 11,7 (56 745)
Tax rate % 30,0 17 023
Net effect on headline earnings (excluding STC) (39 721)
Net effect on net asset value (dividend, lost earnings and STC paid) (584 669)
R000
As reported Pro forma %
IMPACT ON RATIOS
Headline EPS (excluding STC) 140,4 132,2 (5,8)
Return on assets (%) 10,6 10,8
Return on equity (%) 25,9 30,4
Net asset value per share 588,1 467,4 (20,5)
ABIL Group capital adequacy (%) 44,5 35,1
book. During the period, the
performing payroll portion of the
Saambou PLB was transferred and
integrated into African Bank Retail.
The effect was to increase the
growth on the overall lending books
from 8,8% to 12,5%. Ignoring this
transfer, African Bank Retail lending
books have accelerated from 3,6%
annualised growth in the quarter
ending 30 June 2003 to 6,8% by
30 September 2003. Given the
recent vibrant sales trends, the
group believes that growth in the
lending books in 2004 will exceed
that achieved this year.
Paydown books – These comprise
the acquired Saambou PLB and
Persal portfolios on which no new
lending is taking place as well as
the businesses in Specialised
Lending which are being wound
down. These portfolios will continue
to decline during 2004 at similar
rates to this year.
The net effect of these dynamics for the
current year was that average gross
interest-bearing advances increased from
R5 238 million to R5 415 million.