South African banking group Absa on Tuesday reported an 18,3% increase in diluted headline earnings per share from a pro forma 600,7 cents to 710,9 cents a share for the nine months ended December 2005.
Basic headline earnings per share for the nine-month period were up 20% from a pro forma 617 cents to 740,4 cents.
Headline earnings for the nine months increased by 22,1% from a pro forma R4,014-billion to R4,902-billion.
The reason for providing results for a nine-month period only was to bring its year-end in line with its parent company, United Kingdom banking group Barclays plc.
A final dividend of 135 cents per share has been declared, bringing the total dividend for the nine months to 295 cents per share. This compares favourably with the 295 cents per share declared in respect of the 12 months ended March 31 2005 and represents a dividend cover of 2,5 times.
Commenting on the good performance, Absa said solid contributions had been received from all of the group’s major business units.
“Significant features of this performance included the group’s ability to grow lending and its customer base in a consumer-friendly domestic economic environment with low levels of bad debts and buoyant equity markets,” it added.
The group delivered a return, on an annualised basis, of 26,5% on average shareholders’ equity (December 2004: 25,2%).
“The group has made good progress with the initiatives to deliver sustainable future benefits envisaged as part of the transaction whereby Barclays plc acquired a controlling shareholding in Absa. As part of the second phase of this transaction, Absa acquired the Barclays South Africa operations effective 1 January 2006,” Absa CEO Steve Booysen said.
Net interest income increased by 21,7%, from R7,924-billion to R9,647-billion for the nine months. Credit demand remained strong, particularly in the retail environment. Mortgage loan and credit-card growth were the main contributors to the overall retail loan growth of 24,7% for the nine months.
Commercial and wholesale loans grew by 15,9% and 13,8% respectively. Total advances growth for the nine months was 20,1%, or 26,7% on an annualised basis.
“In spite of the continued pressure on lending margins in selected markets and an increased reliance on wholesale funding, the group’s margin in respect of average assets improved from 3,25% in March 2005 to 3,36% for the nine months to December 2005. The improved margin can be attributed primarily to the implementation of IFRS, which requires certain fee income directly related to the acquisition of loans to be treated as part of the net interest margin,” Booysen said.
The bad-debt charge of R569-million for the period was significantly lower than the R978-million charge for the same period of 2004. The ratio of non-performing advances to total advances declined to 1,7% — the lowest in the history of the group.
On an annualised basis, the group’s impairment ratio (income statement charge as a percentage of average advances) for the period was only 0,26% compared with the 0,35% and 0,52% reported in September 2005 and March 2005 respectively.
“This low charge is underpinned by the further improvement in the number and value of non-performing loans and increased success in the recovery of previously written-off amounts,” Booysen said.
He added: “The group’s credit-management policies, procedures and techniques are sound and will be further enhanced by continuing to apply best practice. The levels of provisions held in the group are prudent and adequately cover the risk of uncollectable amounts.”
Approximately 77% of non-interest income was derived from transaction- based fees and commissions. Other major sources included life and short-term insurance activities (7,7%) and treasury trading (7,4%). Fee and commission income, before and after IFRS reclassifications, grew by 16,8% and 10,8% respectively.
Transaction volume growth and the continued increase in retail customer numbers were the main growth drivers.
“The group’s cost-to-income ratio is in line with the ratio reported for March 2005 if the costs relating to the Barclays transaction and synergy initiatives are excluded. However, if the Barclays-related costs are included, the cost-to-income ratio deteriorated from 56,6% in March 2005 to 58% in December 2005 owing to top-line income growth, at 17,9%, lagging expenditure growth over the period,” Booysen noted.
He added that the earnings uplift resulting from exploiting synergies inherent to the Barclays transaction will become increasingly evident, although the net earnings impact will remain negative during 2006.
“Benefits are expected to exceed expenditure during 2007. Management believes it remains well placed to deliver R1,4-billion pre-tax per annum in sustainable benefits four years (mid-2009) after the completion of the transaction.” — I-Net Bridge