Absa Interim Results

Barclays PLC 21 November 2005 BARCLAYS PLC 21 November 2005 Shareholders are advised that Absa, in which Barclays PLC has a shareholding of over 56%, has today made the Profit and Dividend announcement as set out below. Text of Absa announcement made on Monday 21 November 2005. ABSA GROUP LIMITED - PROFIT AND DIVIDEND ANNOUNCEMENT Incorporated in the Republic of South Africa) Registration number: 1986/003934/06) ('Absa') JSE Code: ASA Issuer code: AMAGB ISIN Code: ZAE000067237 INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005 SALIENT FEATURES Six months Year ended ended 30 September 31 March 2005 2004 Change % 2005 (Unaudited) (Unaudited) (Audited) Income statement (Rm) (Restated)* (Restated)* Headline earnings 3 008 2 415 24,6 5 394 Profit attributable to equity holders 2 888 2 354 22,7 5 419 Balance sheet (Rm) Total assets 381 147 311 510 22,4 347 163 Loan and advances to 300 129 242 626 23,7 268 240 customers Deposits due to customers 278 529 231 993 20,1 251 985 Financial performance (%) Return on average equity 25,0 24,1 25,3 Return on average assets, excluding acceptances 1,65 1,56 1,65 Operating performance (%) Net interest margin on average assets 3,35 3,40 3,25 Net interest margin on average interest- bearing assets 3,80 3,81 3,70 Impairment losses on loans and advances as % of loans and advances to customers 0,35 0,55 0,52 Non-performing advances as % of loans and advances to 1,8 3,0 2,2 customers Non-interest income as % of operating income 49,7 51,8 53,8 Cost-to-income ratio 59,9 59,0 56,6 Share statistics (million) Number of shares in issue 666,9 651,1 655,1 Weighted average number of 661,4 650,6 652,1 shares Weighted average diluted 693,0 665,5 677,3 number of shares Share statistics (cents per share) Headline earnings per share 454,8 371,2 22,5 827,2 Diluted headline earnings 434,9 363,6 19,6 797,9 per share Earnings per share 436,7 361,8 20,7 831,0 Diluted earnings per share 417,6 354,5 17,8 801,6 Dividends per share declared, relating to income for 160,0 95,0 68,4 295,0 the period Dividend cover (times) 2,8 3,9 2,8 Net asset value per share 3 752 3 180 18,0 3 569 Capital adequacy (%) Absa Bank 11,2 12,6 11,4 Absa Group 11,7 13,2 12,0 *Restated for International Financial Reporting Standards (IFRS), we draw your attention to our SENS announcement on 25 October 2005. GROUP INCOME STATEMENT Six months Year ended ended 30 September Change 31 March 2005 2004 % 2005 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Rm Rm Rm Net interest income 6 249 5 162 21,1 10 431 Interest and similar income 14 946 13 668 9,4 27 160 Interest expense and similar charges (8 697) (8 506) (2,2) (16 729) Impairment losses on loans and advances (494) (637) 22,4 (1 284) 5 755 4 525 27,2 9 147 Net fee and commission income 4 370 4 049 7,9 8 816 Fee and commission income 4 846 4 441 9,1 9 599 Fee and commission expense (476) (392) (21,4) (783) Net insurance premium income 1 234 1 012 21,9 2 051 Insurance premium revenue 1 355 1 150 17,8 2 341 Premiums ceded to reinsurers (121) (138) 12,3 (290) Net claims and benefits paid (522) (436) (19,7) (929) Gross claims and benefits paid on insurance contracts (597) (463) (28,9) (1 023) Reinsurance recoveries 75 27 177,8 94 Gains and losses from banking and trading activities 344 383 (10,2) 870 Gains and losses from investment activities 880 412 113,6 1 228 Transfer to Life Fund (729) (284) (156,7) (668) Other operating income 607 407 49,1 800 Net operating income 11 939 10 068 18,6 21 315 Operating expenses (7 890) (6 778) (16,4) (13 727) Other operating expenses (7 450) (6 318) (17,9) (12 785) Other impairments - (84) 100,0 (137) Indirect taxation (440) (376) (17,0) (805) Share of profit of associates 66 39 69,2 78 Operating profit before income 4 115 3 329 23,6 7 666 tax Income tax expense (1 185) (934) (26,9) (2 172) Profit for the period after 2 930 2 395 22,3 5 494 tax Attributable to: Equity holders 2 888 2 354 22,7 5 419 Minority interest 42 41 2,4 75 2 930 2 395 22,3 5 494 DETERMINATION OF HEADLINE EARNINGS Six months Year ended ended 30 September 31 March 2005 2004 Change 2005 (Unaudited) (Unaudited) % (Audited (Restated) (Restated) Rm Rm Rm Profit attributable to equity holders 2 888 2 354 22,7 5 419 Adjustments for: Net profit on disposal of property and equipment (13) (5) >(100,0) (12) Net profit on disposal of available-for-sale assets, strategic investments, associated undertakings and joint 115 (18) >100,0 (150) ventures and subsidiaries Impairment of strategic and available-for-sale investments, associated undertakings and 8 - 100,0 30 joint ventures and property Amortisation of available-for-sale 10 - 100,0 - liquid assets Goodwill impaired and - 84 (100,0) 107 written-off Headline earnings 3 008 2 415 24,6 5 394 GROUP BALANCE SHEET Six months Year ended ended 30 September 31 March 2005 2004 Change 2005 (Unaudited) (Unaudited) % (Audited) (Restated) (Restated) Rm Rm Rm Assets Cash, cash balances and balances with central banks 12 642 11 264 12,2 13 183 Statutory liquid asset 15 219 12 359 23,1 14 384 portfolio Loans and advances to banks 3 099 3 981 (22,2) 2 847 Trading assets 22 902 17 194 33,2 21 351 Hedging derivative assets 870 351 >100,0 600 Loans and advances to 300 129 242 626 23,7 268 240 customers Reinsurance contracts 327 95 >100,0 320 Current tax assets 9 15 (40,0) 5 Deferred tax assets 174 191 (8,9) 183 Investments 13 694 13 174 3,9 13 599 Investments in associated undertakings and joint 562 643 (12,6) 607 ventures Intangible assets 181 191 (5,2) 197 Property and equipment 3 096 3 086 0,3 3 209 Other assets 8 136 6 087 33,7 8 246 Clients' liabilities under acceptances 107 253 (57,7) 192 Total assets 381 147 311 510 22,4 347 163 Liabilities Deposits from banks 24 445 17 891 36,6 24 370 Trading liabilities 21 684 16 215 33,7 20 028 Hedging derivative liabilities 1 884 1 139 65,4 1 610 Deposits due to customers 278 529 231 993 20,1 251 985 Liabilities under investment contracts 5 644 3 041 85,6 4 325 Liabilities under insurance contracts 2 167 1 800 20,4 1 939 Provisions 1 492 1 321 12,9 1 509 Other liabilities 10 639 7 836 35,8 9 757 Borrowed funds 7 039 7 220 (2,5) 5 590 Current tax liabilities 485 728 (33,4) 493 Deferred tax liabilities 2 010 1 216 65,3 1 860 Liabilities to clients under acceptances 107 253 (57,7) 192 Total liabilities 356 125 290 653 22,5 323 658 Equity Capital and reserves attributable to equity holders: Share capital 1 325 1 301 1,8 1 310 Share premium 1 857 1 443 28,7 1 611 Retained earnings 21 118 17 115 23,4 19 967 Other reserves 518 831 (37,7) 385 24 818 20 690 20,0 23 273 Minority interest 204 167 22,2 232 Total equity 25 022 20 857 20,0 23 505 Total equity and liabilites 381 147 311 510 22,4 347 163 Contingent liabilities 17 189 20 500 (16,2) 16 630 GROUP STATEMENT OF CHANGES IN EQUITY 30 September 31 March 2005 2004 2005 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Rm Rm Rm Share capital 1 325 1 301 1 310 Opening balance 1 310 1 291 1 291 IFRS adjustment - treasury shares Absa Life (2) - - Shares issued 24 - 8 Consolidation of treasury shares held by Absa Life 1 - - Consolidation of Absa Group Limited Share Incentive Trust (8) 10 11 Share premium 1 857 1 443 1 611 Opening balance 1 611 1 309 1 309 IFRS adjustment - treasury shares Absa Life (40) - - Shares issued 382 - 112 Consolidation of treasury shares held by Absa Life 10 - - Consolidation of Absa Group Limited Share Incentive Trust (106) 134 190 Other reserves 518 831 385 Opening balance as previously reported 385 755 755 IFRS adjustments applied retrospectively - 10 10 Movement in foreign currency translation reserve (5) 8 30 Movement in regulatory general credit risk reserve 17 69 (332) Movement in available-for-sale assets reserve (17) (67) (73) Movement in cash flow hedges reserve 12 19 (54) Movement in insurance contingency reserve 19 21 31 Movement in associated undertakings and joint ventures' retained earnings reserve 66 3 (22) Movement in share-based payments reserve 41 13 40 Retained earnings 21 118 17 115 19 967 Opening balance as previously reported 19 967 15 995 15 995 IFRS adjustments applied retrospectively - (424) (424) IFRS adjustments applied prospectively (302) - - Consolidation of Absa Group Limited Share Incentive Trust and other - - (6) Transfer to insurance contingency reserve (19) (21) (31) Transfer (to)/from associated undertakings and joint ventures' retained earnings reserve (66) (3) 20 Transfer (to)/from regulatory general credit risk reserve (17) (69) 332 Profit attributable to equity holders 2 888 2 354 5 419 Dividends paid during the period (1 333) (717) (1 338) Total shareholders' equity at end of period 24 818 20 690 23 273 Minority interest 204 167 232 Opening balance as previously reported 232 171 171 IFRS opening balance adjustments applied retrospectively - 4 4 Other reserve movements (70) (49) (18) Minority share of profit 42 41 75 Total equity 25 022 20 857 23 505 GROUP CASH FLOW STATEMENT Six months Year ended ended 30 September 31 March 2005 2004 2005 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Rm Rm Rm Net cash flow from operating activites 417 1 392 5 908 Net cash flow from investing activities (1 822) (1 029) (3 658) Net cash flow from financing activities 459 (558) (2 526) Net decrease in cash and cash equivalents (946) (195) (276) Cash and cash equivalents at the beginning of the period 6 796 7 077 7 077 Other movements (5) (6) (5) Cash and cash equivalents at the end of the period 5 845 6 876 6 796 PROFIT CONTRIBUTION BY BUSINESS AREA Six months Year ended ended 30 September 31 March 2005 2004 Change 2005 (Unaudited) (Unaudited) % (Audited) (Restated) (Restated) Rm Rm Rm Banking operations Retail banking 1 317 1 067 23,4 2 397 Absa Private Bank 99 78 26,9 221 Retail Banking Services 211 161 31,1 404 Flexi Banking Services 107 79 35,4 203 Absa Home Loans and Repossessed 498 410 21,5 837 Properties Absa Card 244 197 23,9 441 Small Business 158 143 10,5 290 Commercial banking 800 602 32,9 1 403 Business Banking Services 458 381 20,2 844 Absa Vehicle and Asset 342 221 54,8 559 Finance Wholesale banking and international operations 398 307 29,6 843 African operations 70 43 62,8 71 Corporate centre (103) (24) >(100,0) (288) Capital and funding centre 1 (39) >100,0 (159) Total banking 2 483 1 956 26.9 4 267 Insurance, fiduciary and investment operations 645 459 40,5 1 127 Costs relating to the Barclays (120) - >(100,0) - transaction Total headline earnings 3 008 2 415 24,6 5 394 Profit commentary Sustained earnings growth Absa Group Limited produced a solid performance for the six months under review with all the business clusters delivering strong earnings growth. These results are the first the Group is reporting under International Financial Reporting Standards (IFRS). Headline earnings increased by 24,6% to R3 008 million in comparison with headline earnings of R2 415 million for the corresponding period of the previous financial year. Headline earnings per share increased by 22,5%, from 371,2 to 454,8 cents per share. Retail banking, commercial banking and the bancassurance operations have performed particularly well in an environment characterised by buoyant retail market conditions and a strong domestic equity market. Retail banking lifted earnings by 23,4%. Commercial banking and bancassurance operations grew earnings by 32,9% and 40,5% respectively. Wholesale banking increased earnings by 29,6% in a challenging market. The Group delivered a return of 25,0% on average shareholders' equity (September 2004: 24,1%). An interim dividend of 160 cents per share has been declared, representing an increase of 68,4% over the 95 cents per share declared in November 2004. The Group's sound capital position, together with the primary capital requirement for banks, which is expected to be reduced to 6% of risk-weighted assets from 1 January 2006, facilitated a lowering of the interim dividend cover to 2,8 times. The Barclays transaction Barclays Bank PLC acquired 53,96% of the Group's shares on 27 July 2005. It has since increased its shareholding to 56,40% (30 September 2005). Management, with the assistance of expertise obtained from Barclays, is progressing well with the implementation programme aimed at delivering sustainable pre-tax synergy benefits amounting to R1,4 billion per annum four years after the completion of the transaction. Diluted headline earnings per share The appreciation in the share price and the resultant increase in value of the options issued to the Absa Group Limited Share Incentive Trust, the Absa Share Ownership Trust and Batho Bonke Capital (Proprietary) Limited, Absa's black economic empowerment partner, diluted headline earnings by 19,9 cents per share to 434,9 cents per share. Accordingly, the growth in fully diluted headline earnings per share was 19,6% compared with the same period of the previous financial year. Accounting policies Absa implemented IFRS with effect from 1 April 2005. The opening balance sheets at 1 April 2004 and 1 April 2005 have been restated accordingly. The comparative income statement for the six months to September 2004 and the balance sheet at that date have also been restated. The full impact of IFRS was set out in a separate announcement made to the market on 25 October 2005 and is also contained in the interim financial results booklet and on the Group's website (www.absa.co.za). As IFRS are implemented internationally, evolving practices with regard to the interpretation and application of standards under IFRS could impact future reported results and disclosure. Operating environment Domestic demand conditions remained buoyant during the six months ended September 2005 and the sales of motor vehicles and other durable goods showed rapid growth. Much of this was financed by credit and assisted by a further 50 basis point reduction in interest rates. Consumers continued to take on debt and debt-to-disposable income is currently at 61,8%, the highest level on record since 1990. In a low interest rate environment this could go even higher. The rand weakened slightly from the very strong levels of below R6,00 to the dollar that were recorded during the first quarter of 2005. This aided the recovery of the primary and secondary sectors. Despite a strong increase in fixed capital formation, the economy has been running at very high levels of capacity utilisation. This, together with the escalation in fuel prices, caused a pick-up in inflation. The moderately deteriorating inflation outlook, together with high levels of credit extension growth and a larger current account deficit, have prompted the authorities to warn of a potential interest rate increase. This prospect is bound to ease the rate of growth in credit demand, although any interest rate increases will most likely be too small to have a material impact on default rates. Group performance Net interest income increased by 21,1% because of strong advances growth of 23,7% and stable margins. The implementation of IFRS, which resulted in the reclassification of certain fee income as margin income, has countered the margin pressure that followed the change in the funding mix in favour of wholesale deposits and the impact of increased competition on customer lending rates. The Group's bad debt experience benefited from improved and prudent credit management techniques as well as the relatively low and stable interest rate environment. The impairment ratio, which reflects the impairment losses on loans and advances as a percentage of average loans and advances to customers, of 0,35% compares with 0,55% at 30 September 2004 and 0,52% for the full year to March 2005. Non-performing loans improved to 1,8% (September 2004: 3,0%) of loans and advances. The levels of provisions held in the Group are prudent and adequately cover the risks of uncollectable amounts. Solid transaction volume growth and the continued increase in the retail customer base resulted in fee and commission income increasing by 9,1%. The reclassification of certain fees as margin income and the moderate level of price increases impacted fee revenue growth. Insurance-related income grew strongly and treasury trading income increased by 19,5%. Investment income benefited from the strong domestic equity market. The gains for the six months amounted to R407 million, excluding gains attributable to policyholders, up 156,0% from the corresponding period. The IFRS reclassification of fees caused non-interest income as a percentage of operating income to decline to 49,7%, which is below the Group's objective of maintaining a ratio of 50% or more. The cost-to-income ratio increased to 59,9% after costs grew by 17,9% in the period under review. Investments have been made in the expansion and improvement of Absa's branch and ATM network. Regulatory compliance initiatives also drove up costs. The number of employees engaged in sales and customer service initiatives has also been increased. The costs incurred as a result of the Barclays transaction amounted to R120 million (after taxation) and the Barclays implementation programme added a further R61,1 million (after taxation). Segmental reporting Retail banking - Headline earnings up 23,4% Retail banking increased its headline earnings contribution by 23,4%, with strong performances from all business units. This strong performance resulted from a buoyant consumer and property market and the low interest rate environment. Gross advances growth was 31,1%. The main driver was mortgage loan growth of 34,7%, well-supported by credit card and personal loan growth of 29,5% and 23,5% respectively. Fees in some instances remained unchanged and where fees were increased with effect from April 2005, these were kept well below the inflation rate. Growth in non-interest income amounted to 10,8%, mainly as a result of increased transaction volumes. The growth in transaction volumes emanated from increased activities of existing customers and an increase in the number of customers from 6,9 million in March 2005 to 7,4 million in September 2005. The credit impairment charge in the retail market declined to a historical low of 0,13%. This charge reflects the quality of the advances portfolio and the improved net worth of customers partly owing to the strong growth in residential property values. During the six months under review, 20 new staffed outlets were opened, mainly in previously disadvantaged areas, and a further 76 upgraded. An additional 390 automated teller machines (ATMs) were installed. This, together with the branches and ATMs rolled out during the previous financial year, resulted in relatively high cost growth of 16,1%. This expansion of the Group's delivery reach enhances the sustainability of future revenue growth and provides access to financial services to a far greater proportion of the South African population. Commercial banking - Headline earnings up 32,9% Commercial banking now contributes approximately one quarter of the Group's headline earnings. Gross advances and deposits were up by 18,8% and 19,5% respectively and were driven by the large and medium business segments and asset and vehicle financing. Business Banking Services experienced some margin pressure on selected advance and deposit products, resulting in net interest growth of 9,4%. The credit impairment charge was lower despite the solid advances growth. The impairment ratio stands at 0,69%. Management was able to restrict operating expenditure growth to below 10% by focusing on a more streamlined operating model to optimise operational costs by sharing resources and structures. During recent years, Absa Vehicle and Asset Finance (AVAF) has extended its reach beyond the traditional markets of vehicle finance into other classes of commercial moveable assets. It has also extended its service offering in the area of fleet management. This has been achieved through organic growth and the acquisition of Union Finance (office automation finance) and Avena LeasePlan (fleet management) in recent years. The full impact of these acquisitions is starting to reflect in the results. These entities have been renamed Absa Technology Finance Solutions and Absa Vehicle Management Solutions respectively. In AVAF's traditional market, low interest rates and a lack of vehicle price increases have boosted demand for vehicle sales to record highs, with a corresponding demand for vehicle finance. AVAF has also pursued a strategy of forming strategic alliances with manufacturers and dealer groups, which is paying dividends. During the period, three new alliances were formed. AVAF is becoming a major force in the heavy and extra heavy truck finance market. This growth, combined with the focus on generating fee-based income and cost containment emanating from the new business model introduced in recent years and a low bad debt experience, contributed to the impressive headline earnings growth. Wholesale banking - Headline earnings up 29,6% Earnings from merchant banking grew strongly following good deal flow in the areas of empowerment and project finance. Corporate credit demand remains subdued but corporate banking benefited from low credit losses and a solid increase in transactional banking. Revenue from treasury trading activities was higher as a result of an increase in equity-related and customer foreign exchange trading activities, which resulted in a lower risk profile and less volatility. The winding down of the Group's international operations in Singapore and Asia is almost complete. The net contribution of these two offices has been a loss of R66 million. The business conducted in the London office has been scaled down and now focuses on the offshore needs of South African corporates and on sub-Saharan African transactions. Other African operations - Headline earnings up 62,8% The earnings from banking operations in other African countries are somewhat distorted by an initiative to align their reporting periods with that of the Absa Group. In the past, some of the earnings of these banks have been accounted for in arrears. The periods are now fully aligned, with the effect that more than six months of earnings are included in this period. If the impact of the additional months are excluded, the growth in headline earnings would have been 29,1%. The portfolio of banks has continued to perform according to expectations with strong performances from the National Bank of Commerce in Tanzania and Bank Windhoek in Namibia. Financial services - Headline earnings up 40,5% The Group's bancassurance activities performed exceptionally well, with very strong operational and underwriting performances by both the life assurance and short-term insurance operations. Buoyant equity markets also contributed handsomely. The main drivers of Absa Life's earnings were improved product sales, favourable claims and lapse experiences and operational efficiency gains. A mild winter and generally stable weather conditions contributed to good profitability on short-term property insurance. The Absa money market fund grew by R1,8 billion to R38,2 billion. Absa Brokers posted an improved performance, resulting mainly from benefits derived from short-term broking through e-delivery business as well as the operationalisation of the data brokers where strong sales growth was experienced. Net asset value and capital adequacy Absa's strong operational performance increased the net asset value of the Group by 18,0% from 3 180 cents per share to 3 752 cents per share. On the basis of the prescribed consolidated capital requirements of the South African Reserve Bank (SARB), the Group's capital stood at 11,7% of risk-weighted assets at 30 September 2005 (March 2005: 12,0%). Absa Bank's primary capital ratio was 7,5% (March 2005: 8,0%) and the secondary capital ratio was 3,7% (March 2005: 3,4%). Prospects Consumer demand for credit is expected to remain strong for the near-term, albeit not as buoyant as over the past 18 months. Inflation is expected to remain within the government's target of 3-6% and interest rates are likely to increase slightly over the next year. Interest margins are expected to contract further as a result of the competitive landscape and an increased reliance on wholesale funding. Credit quality is expected to remain sound and the charge to the income statement relatively low. The Group expects earnings growth momentum to be maintained for the remainder of the current financial reporting period ending 31 December 2005. On behalf of the board D C Cronje S F Booysen Chairman Group chief executive 21 November 2005 Declaration of ordinary dividend number 38 Shareholders are advised that an interim dividend of 160 cents per ordinary share was declared on Monday, 21 November 2005, and is payable to shareholders recorded in the register of members of the company at the close of business on Friday, 23 December 2005. In compliance with the requirements of STRATE, the electronic settlement and custody system used by the JSE, the following salient dates for the payment of the dividend are applicable: Last day to trade cum dividend Thursday, 15 December 2005 Shares commence trading ex dividend Monday, 19 December 2005 Record date Friday, 23 December 2005 Payment of dividend Tuesday, 27 December 2005 Share certificates may not be dematerialised or rematerialised between Monday, 19 December 2005, and Friday, 23 December 2005, both dates inclusive. On Tuesday, 27 December 2005 the dividend will be electronically transferred to the bank accounts of certificated shareholders who use this facility. In respect of those who do not, cheques dated 27 December 2005 will be posted on or about that date. The accounts of shareholders who have dematerialised their shares (which are held at their central securities depository participant or broker) will be credited on Tuesday, 27 December 2005. On behalf of the board W R Somerville Group secretary 21 November 2005 Inquiries: Jacques Schindehutte 2711 350-4850 Eric Wasserman 2711 350-5887 Grant Lewis 2711 350-5386 Issued by: Sue Steyn Investor Relations Absa Group Limited 4th floor, Absa Towers East, 170 Main Street, Johannesburg. Tel: 2711 350-4394. Fax: 2711 350-6487 E-mail: sues@absa.co.za Date: 21 November 2005 For further information, please contact: Barclays PLC Investor Relations Media Relations Mark Merson/James S Johnson Chris Tucker/Jo Thethi +44 (0) 20 7116 5752/2927 +44 (0) 20 7116 6223/6217 This information is provided by RNS The company news service from the London Stock Exchange

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