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Absa Bank Limited Shareholder Report 2007 ABSA BANK LIMITED

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Absa Bank Limited Shareholder Report 2007 ABSA BANK LIMITED Absa Bank Limited shareholder report 2007 report Absa Bank Limited shareholder ABSA BANK LIMITED Shareholder report For the year ended 31 December 2007 Other contact information SHAREHOLDER CONTACT INFORMATION Shareholder and investment queries about Absa should be directed to either of the following departments: Group Investor Relations Group Secretariat Telephone: 011 350 6008 Telephone: 011 350 4828 Telefax: 011 350 6487 Telefax: 011 350 4009 e-mail: [email protected] e-mail: [email protected] OTHER CONTACTS Group Media Relations Telephone: 011 350 5768 General Legal Counsel Telephone: 011 350 4313 Head office switchboard Telephone: 011 350 4000 CUSTOMER SUPPORT Absa aims to maintain a high standard of customer service, but disputes may arise. Matters can be raised by contacting any one of the following: Actionline: 0800 414 141 Absa call centre: 0860 008 600 or (+27) 011 276 4000 Customer relationship e-mail: [email protected] General e-mail enquiries: [email protected] Customers are encouraged to first approach the specific branch, area or line manager if a dispute arises. REPORTING FRAUD OR CORRUPTION Absa has a dedicated telephone line to facilitate reporting possible fraud and corruption in the Bank. This line is available 24 hours a day, seven days a week and is open to the general public and Absa employees. Calls may be made anonymously. They will not be recorded and no attempt will be made to determine the telephone number of the caller. The fraud and corruption hotline is 0860 557 557. BASTION GRAPHICS Contents INTRODUCTION 45 2007 highlights 1 FINANCIAL STATEMENTS Salient features 2 Directors’ approval 47 Structure 4 Company Secretary’s certificate to the members of Absa Bank Limited 48 Independent auditors’ report to the members of 5 Absa Bank Limited 48 COMMENTARY Directors’ report 49 Letter from the Chairperson and the Absa Bank Limited and its subsidiaries 54 Chief Executive 7 Absa Bank Limited 184 Operational highlights 10 219 13 SHAREHOLDER AND ADMINISTRATIVE INFORMATION CORPORATE GOVERNANCE Shareholders’ information 221 Corporate governance statement 15 Administration 223 The Bank board 36 Other contact information ibc 2007 highlights Headline earnings Headline earnings growth of 27,6% per share up by 27,2% Return on average Cost-to-income ratio equity of 26,4% of 54,2% Accolades in 2007 • The number-one banking brand in South Africa (Sunday Times/Markinor Top Brands survey) • The coolest bank (Sunday Times Generation Next survey) • Most caring financial services company in South Africa (Corporate and Market Research, Corporate Care Check) 1 Absa Bank Limited Shareholder report for the year ended 31 December 2007 Salient features Year ended 31 December Change 2007 20061 % Income statement (Rm) Headline earnings2 7 476 5 861 27,6 Profit attributable to ordinary equity holder of the Bank 7 620 6 051 25,9 Balance sheet (Rm) Total assets 587 059 453 726 29,4 Loans and advances to customers 443 120 367 199 20,7 Deposits due to customers 304 877 275 407 10,7 Financial performance (%) Return on average equity 26,4 25,1 Return on average assets 1,48 1,42 Operating performance (%) Net interest margin on average assets 3,54 3,42 Net interest margin on average interest-bearing assets 3,82 3,71 Impairment losses on loans and advances as a percentage of average loans and advances to customers 0,54 0,44 Non-interest income as a percentage of total operating income 41,5 44,3 Cost-to-income ratio 54,2 57,2 Effective tax rate, excluding indirect taxation 29,2 28,4 Share statistics (million) (including “A” ordinary shares) Number of shares in issue 337,3 337,3 Weighted average number of shares 337,3 336,3 Weighted average diluted number of shares 337,3 336,3 1Certain comparatives have been reclassified in terms of Annexure A. 2After allowing for R313 million (December 2006: R73 million) profit attributable to preference equity holders of the Bank. RETURN ON AVERAGE EQUITY TOTAL ASSETS Year ended (%) Year ended (Rbn) 587,1 26,4 25,1 22,8 22,1 21,9 453,7 376,7 322,0 286,8 Mar Mar Dec Dec Dec Mar Mar Dec Dec Dec 2004 20051 20052 2006 2007 2004 20051 2005 2006 2007 1 The comparatives for March 2005 have been restated for International Financial Reporting Standards (IFRS) throughout the document. Only the December comparatives have been adjusted for the restatements and reclassifications mentioned in Annexure A of the financial statements. 2 Nine-month figure. 2 Absa Bank Limited Shareholder report for the year ended 31 December 2007 Change 2007 20061 % Share statistics (cents) Earnings per share 2 259,4 1 799,0 25,6 Diluted earnings per share 2 259,4 1 799,0 25,6 Headline earnings per share 2 216,4 1 742,5 27,2 Diluted headline earnings per share 2 216,4 1 742,5 27,2 Dividends per ordinary share relating to income for the year 789,8 591,9 33,4 Dividend cover (times) 2,8 2,9 Net asset value per share 9 149 7 630 19,9 Tangible net asset value per share 9 081 7 586 19,7 Capital adequacy (%) Absa Bank 12,5 12,3 1Certain comparatives have been reclassified in terms of Annexure A. 3 Absa Bank Limited Shareholder report for the year ended 31 December 2007 Structure Absa Group Limited 100% Absa Bank Limited Associated undertakings and Wholly owned subsidiaries other interests2 RETAIL BANKING BANKING Absa Private Bank FFS Finance South Africa (Proprietary) Limited (50%) Retail Bank MAN Financial Services (S.A.) Absa Islamic Banking (Proprietary) Limited (50%) Absa Home Loans1 Absa Card Absa Vehicle and Asset Finance OTHER Virgin Money South Africa CORPORATE AND COMMERCIAL (Proprietary) Limited (50%) BANKING Sanlam Home Loans Absa Corporate and Business Bank (Proprietary) Limited (50%) Maravedi Group (Proprietary) Limited (45%) Property24 (Proprietary) Limited (50%) INVESTMENT BANKING Absa Capital OTHER African operations 1Includes Repossessed Properties. 2Commercial property associated undertakings and joint venture companies are not disclosed in detail. Refer to note 13 of Absa Bank Limited and its subsidiaries’ financial statements for further information. 4 Absa Bank Limited Shareholder report for the year ended 31 December 2007 COMMENTARY CONTENTS Letter from the Chairperson and the Chief Executive 7 Operational highlights 10 5 Absa Bank Limited Shareholder report for the year ended 31 December 2007 6 Absa Bank Limited Shareholder report for the year ended 31 December 2007 Letter from the Chairperson and the Chief Executive Gill Marcus (Chairperson) Steve Booysen (Chief Executive) Dear Shareholder Absa Bank has succeeded in maintaining its earnings momentum of recent years. The Bank’s results were achieved through further diversification of earnings, improvements in operational efficiency and continued growth arising from its strong market position in retail banking. KEY FINANCIAL HIGHLIGHTS Absa Bank’s headline earnings increased by 27,6% to R7 476 million (2006: R5 861 million), with solid contributions from all of the major business units, particularly commercial and investment banking. Absa Capital and Absa Corporate and Business Bank increased attributable earnings by 65,0% and 38,9% respectively. Absa’s retail banking operations continued to perform well, increasing attributable earnings by 21,8% to R4 989 million (2006: R4 095 million) as a result of strong growth in advances and deposits as well as transaction volumes. An increase in the Bank’s customer base, which grew by 7,1% to nine million customers, further supported this. INTERNATIONAL ECONOMIC LANDSCAPE Although global economic expansion during 2007 was among the most rapid in the past three decades, the outlook has changed dramatically. As international concerns grew over the anticipated losses related to subprime asset-backed securities, financial market volatility increased and liquidity problems emerged, adding greater solvency challenges and posing significant risks to the global financial and banking systems. Although the full extent of the potential losses at banks associated with the subprime problem remains unclear, a number of large international banks have already announced material losses. Absa has no exposure to the subprime market. Uncertainty prevails with regard to global economic and financial forecasts, with indications being that the financial market turmoil has begun to spill over to the broader global economy. Past experiences suggest that downturns driven by falling asset prices and credit problems tend to be identified relatively slowly and tend to be protracted in nature. Consequently, there is a real risk that the situation could deteriorate further. 7 Absa Bank Limited Shareholder report for the year ended 31 December 2007 Letter from the Chairperson and the Chief Executive Confidence needs to be restored to the global markets. What is required is a comprehensive package of measures that will help prevent a prolonged downturn in the major economies. In the US we have already seen aggressive action by the Federal Reserve and the announcement of a significant fiscal stimulus as the authorities respond to downside economic risks. Other jurisdictions and multilateral bodies are also closely monitoring the situation and determining appropriate responses. Though these actions should help moderate the worst of downside risks, indications are that 2008 will be a challenging year for global markets. SOUTH AFRICAN ECONOMIC LANDSCAPE Not only is the global environment becoming more challenging, but local conditions have also deteriorated. The outlook for 2008 remains of concern as South Africa will not be immune to international economic developments. Although domestic growth remained resilient in 2007, the economy’s growth has been accompanied by rising inflation and increasing interest rates. Sharply higher household debt levels and debt servicing costs have caused a significant slowing of consumer spending, particularly for consumer durables. KEY INITIATIVES DRIVING GROWTH The key drivers underpinning the Bank’s strong performance comes from strategic initiatives that have been put in place over the past two years to position Absa to compete effectively, maintain its market position, reduce the cyclicality of earnings and improve efficiencies.
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