Absa Group Limited Audited summary consolidated financial results for the reporting period ended 31 December 2020 Contents 2 Profit and dividend announcement 6 IFRS summary consolidated financial results 8 Summary consolidated IFRS salient features 9 Summary consolidated statement of financial position 10 Summary consolidated statement of comprehensive income 12 Summary consolidated statement of changes in equity 16 Summary consolidated statement of cash flows 16 Notes to the summary consolidated statement of cash flows 17 Notes to the summary consolidated financial results 60 Summary consolidated normalised financial results 61 Summary consolidated normalised salient features 62 Summary consolidated reconciliation of IFRS results to normalised financial results 64 Contact information The Board of Directors (Board) oversees the Group’s activities and holds management accountable for adhering to the risk governance framework. To do so, directors review reports prepared by the businesses, risk, and others. They exercise sound independent judgement, and probe and challenge recommendations, as well as decisions made by management. Finance is responsible for establishing a strong control environment over the Group’s financial reporting processes and serves as an independent control function advising business management, escalating identified risks and establishing policies or processes to manage risk. Finance is led by the Financial Director who reports directly to the Chief Executive Officer. The Financial Director has regular and unrestricted access to the Board as well as to the Group Audit Compliance Committee (GACC). The GACC and the Board are satisfied that the details disclosed in the SENS result in the fair presentation of the summary consolidated financial results and comply, in all material respects, with the relevant provisions of the Companies Act, JSE Listings Requirements, IFRS and interpretations of IFRS, and SAICA’s Reporting Guides. Absa Group Limited Summary consolidated financial results for the reporting period ended 31 December 2020 Authorised financial services and registered credit provider (NCRCP7) Registration number: 1986/003934/06 Incorporated in the Republic of South Africa JSE share code: ABG ISIN: ZAE000255915 These summary consolidated financial results were prepared by Absa Group Financial Control under the direction and supervision of the Financial Director, J P Quinn CA(SA). The financial information (the summary consolidated financial results and the consolidated and separate financial statements for the year ended 31 December 2020) is available for inspection at the Company’s registered office on weekdays from 09:00 to 16:00. The consolidated and separate financial statement and full audit opinion, including any key audit matters, will be available at https://www.absa.africa/absaafrica/investor-relations/annual-reports/ when the Group’s consolidated and separate financial statements are released on or about 15 March 2021. Absa Group Limited Audited summary consolidated financial results for the reporting period ended 31 December 2020 1 Profit and dividend announcement for the reporting period ended 31 December The numbers in the profit commentary represent IFRS results, unless specifically indicated as normalised. Salient features Absa Group Limited (the Group) discloses International Financial Reporting Standards (IFRS) financial results and a normalised view, which adjusts for the financial consequences of separating from Barclays PLC. IFRS basis • The Covid-19 pandemic and resulting lockdowns and economic downturn across our presence countries had a material impact on the Group’s performance. • Diluted headline earnings per share (HEPS) fell 58% to 730.5 cents from 1 747.6 cents. • No ordinary dividend was declared for the period. • Retail and Business Banking (RBB) South Africa’s headline earnings declined 55% to R4 270m, Corporate and Investment Bank (CIB) South Africa declined 6% to R3 035m, and Absa Regional Operations (ARO) declined 56% to R1 589m. • Return on equity (RoE) decreased to 5.2% from 13.1%. Revenue increased 2% to R81.6bn and operating expenses declined 1% to R48.1bn, resulting in a 59.0% cost-to-income ratio. • Pre-provision profit increased 7% to R33.5bn. • Credit impairments increased 163% to R20.6bn, resulting in a 1.92% credit loss ratio from 0.80%. • Absa Group’s IFRS Common Equity Tier 1 (CET 1) ratio of 11.2% remains well above regulatory requirements and within the Board’s target range. • Net asset value (NAV) per share rose 2% to 13 957 cents. Normalised basis • Diluted normalised headline earnings per share (HEPS) fell 51% to 946.0 cents from 1 923.3 cents. • Normalised return on equity (RoE) decreased to 7.2% from 15.8%. • Normalised revenue increased 2% to R81.4bn and operating expenses declined 2% to R45.6bn, resulting in a 56.0% cost-to-income ratio. • Normalised pre-provision profit increased 7% to R35.8bn. • Normalised net asset value (NAV) per share rose 4% to 13 103 cents. Normalised reporting Since the process of separating from Barclays PLC continues to have a material financial impact, Absa Group continues to report IFRS-compliant financial results and a normalised view. The latter adjusts for the consequences of the separation and better reflects its underlying performance. Normalisation adjusts for the following items: R67m (2019: R195m) of interest earned on Barclays PLC’s separation contribution; hedging revenue linked to separation activities of R144m (2019: R36m loss); operating expenses of R2 535m (2019: R2 410m) and R270m (31 December 2019: R113m) of other expenses, plus a R450m (2019: R538m) tax impact of the aforementioned items. In total, these adjustments added R1 927m (2019: R1 739m) to the Group’s normalised headline earnings during the period. As normalisation occurs at a Group level, it does not affect divisional disclosures. Constant currency Constant currency (CCY) pro forma financial information has been presented to illustrate the impact of changes in the Group’s major foreign currencies, namely the Botswana Pula, Ghanaian Cedi, Kenyan Shilling, Mauritius Rupee, Mozambique Metical, Seychelles Rupee, Tanzanian Shilling, Uganda Shilling, United States Dollar and Zambia Kwacha. The constant currency pro forma financial information has been prepared for illustrative purposes only and, because of its nature, the CCY pro forma financial information may not fairly present the Group’s financial position, changes in equity, results of operations or cash flows. In determining the CCY pro forma financial information, amounts denoted in the above listed currencies for the current period and prior period have been converted to the presentation currency using the spot exchange rate as at 31 December 2019. The CCY pro forma financial information is the responsibility of the Directors. Overview of results Absa Group’s headline earnings declined 58% to R6 038m from R14 526 m and diluted HEPS fell 58% to 730.5 cents from 1 747.6 cents. The Group’s RoE decreased to 5.2% from 13.1% and its return on assets was 0.40% from 1.07%. Revenue grew 2% to R81 593m, with net interest income growing 5% and non-interest income declining 3%. The Group’s net interest margin decreased to 4.17% from 4.50%, largely due to significant policy rate cuts during the period and a change in balance sheet composition. With operating expenses declining 1%, the cost to-income ratio improved to 59.0% from 60.9%, and pre-provision profit grew 7% to R33.5bn. In CCY, pre-provision profit increased 5% and headline earnings fell 53%. Credit impairments grew 163% to R20.6bn, resulting in a 1.92% credit loss ratio from 0.80%. Gross loans and advances to customers grew 3% to R974bn, while deposits due to customers rose 15% to R952bn. The Group’s NAV per share increased 2% to 13 957 cents. No ordinary dividend was declared for the period. RBB South Africa’s headline earnings fell 55% to R4 270m, while CIB South Africa’s earnings declined 6% to R3 035m, both due to materially higher credit impairments. Total CIB headline earnings decreased 17% to R4 945m, given significantly higher credit impairments. ARO’s headline earnings fell 56% to R1 589m, or 66% in CCY, with RBB and CIB declining 120% and 30%, respectively. South African headline earnings declined 50% to R6 295m, while Africa Regions fell 54% to R1 670m, or 63% in CCY. 2 Absa Group Limited Audited summary consolidated financial results for the reporting period ended 31 December 2020 Profit and dividend announcement for the reporting period ended 31 December Operating environment The Covid-19 pandemic upended the global economy in 2020, producing historic declines in economic activity across most countries. The IMF expects a global recession with real GDP declining 3.5% in 2020, with developed economies among the most impacted by the pandemic. The UK is estimated to have shrunk by 10% during 2020, the Euro Area by 7.2% and the US by 3.4%. Monetary and fiscal policy across all major economies are highly accommodative. Advanced economies are willing to stabilise public finances very slowly and, at the margin, to extend further policy support should economic activity stutter further. Coming into 2020, South Africa’s economy was already under pressure and shrinking, amid low consumer and business confidence, electricity supply concerns and delayed structural reforms. The hard lockdown during the second quarter produced a historic decline in economic activity, and even as restrictions eased in subsequent months, many sectors remained under significant pressure. Real GDP shrank 7.1% during 2020, well below the 0.9% growth we expected before the pandemic. Aided by modest inflation, the Reserve Bank reduced the policy rate by 300 basis points (bps), to a record low of 3.5%. The government also provided direct support to a large number of vulnerable households and businesses, which saw the fiscal deficit increase sharply. In light of its deteriorating debt metrics, Moody’s withdrew South Africa’s last investment grade credit rating in March 2020. Growth in our main ARO countries also slowed sharply during 2020.