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Absa 2012 Annual Results

2013-02-12

Absa reports impairment-led decline in earnings; core operations remain strong

SALIENT FEATURES

Financial
  • Revenue increased by 2% to R46.9 billion
  • Non-interest income, at R22.7 billion (6% up) accounted for 48.5% of total revenue
  • Cost to income ratio of 55.2%. (2011: 55.5%), expenses growth contained to just 2%
  • Pre-provision profit increased 3% to R21.0 billion
  • Diluted HEPS were 9% down at 1224.6 cents
  • NAV up 14% compound over the past 10 years
  • Credit impairments increased 63% to R8.3 bn
Operational
  • Operational alignment between Barclays Africa and Absa almost complete
  • Transformational deal announced in 2012 will accelerate our One Africa strategy
  • Continued focus on customer needs - voted number 1 retail bank in South Africa and the Ask Afrika customer satisfaction survey
  • One Africa provides a solid platform for sustainable growth

Absa Group today announced a 9% decline in annual headline earnings to R8 807 million (2011: R9 719 million), largely on the back of higher credit impairments in retail mortgages and commercial property finance in Retail and Business Banking (RBB). We maintained a record dividend per share of 684c after considering a variety of factors including regulatory changes and a strong capital position.

Despite a difficult and challenging year, a 3% increase in pre-provision profit to R21 billion is evidence of momentum within the business and shows that our core operations remain strong. During the period we implemented a number of operating model changes and did a thorough review of our businesses. Following this review, our balance sheet is stronger after increasing provisions, writing down investments, improving our funding mix and liquidity and maintaining high capital ratios.

Maria Ramos, Group CE of Absa, said: “While headline earnings for 2012 did not meet our expectations, we made significant changes to the Group, creating a solid platform for growth. Momentum in our underlying businesses has improved, our balance sheet remains strong and we are well positioned to execute our One Africa strategy.”

In 2012 we announced two major deals – the purchase of the Edcon debtor’s book and our proposed Barclays Africa transaction – valued at a combined R27bn that will add six million customers to our Group and accelerate our One Africa strategy.

Due to the aforementioned credit impairments and commercial property equity investment write downs, RBB’s headline earnings fell 29%. Corporate, Investment Banking and Wealth’s (CIBW) headline earnings increased 26% on the back of strong Markets growth while Financial Services’ decreased 3%.

Says Ramos: “We expect mid-single digit loan growth in 2013. Improved momentum in our revenue growth and continued focus on efficiency should reduce our cost to income ratio again, while our credit loss ratio is expected to improve materially from 2012’s elevated levels. We are building momentum in our business and this should become evident in our top line growth this year, which should improve from last year’s modest levels, and should underpin a noticeable improvement in our Return on Equity.”

This is against a backdrop of an economic environment where fiscal austerity measures across most advanced economies are the main drag facing the global economy in 2013. Emerging markets are expected to perform better, supported by fiscal stimulus and monetary easing. Global growth is expected to remain subdued at 3.3% in 2013 from around 3.0% last year while it is expected that Sub-Saharan Africa will grow 5.7% this year.

South Africa’s strong links with advanced economies are a headwind to growth in 2013, even as trade with the rest of Africa and other emerging markets grow robustly. Growth in household consumption (albeit muted) and a rebound in mining production following labour unrest late last year, should boost growth. We expect 2.8% growth in 2013 from last year’s estimated 2.5%. Given the moderate growth in household consumption expenditure, we expect limited demand pressures on inflation in 2013. Our base case for the next upward move in rates is in early 2014.

“We aim to become Africa’s Go-To bank through a relentless focus on customers and clients, the very foundation of our business. We are excited by our proposed Barclays Africa transaction and the opportunity, as it increases our exposure to higher growth economies in the rest of Africa,” concludes Ramos.

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