TIDMATMA
RNS Number : 3249X
ATLAS Mara Limited
27 August 2015
27 August 2015
Atlas Mara Limited 1(st) Half Results - Six Months Ended 30 June
2015
Atlas Mara Limited ("Atlas Mara" or the "Company" and, including
its subsidiaries, the "Group"), the sub-Saharan African financial
services group, today releases unaudited results for the six months
ended 30 June 2015.
Key financial highlights during the period
-- Reported profit after tax for the first half of 2015 was $4.1
million versus a loss of $3.2 million reported for the prior year
period on a pro forma H1 2014 basis and a loss of $63.1 million for
the full year 2014.
-- Net interest income expanded by 8.5% versus the prior period
on a constant currency basis on the back of costs of funding
improvements in all of the Southern countries.
-- Strong growth in non-interest income reported during the
period of 8.6% on a constant currency basis due to more favourable
currency trading conditions, as well as growth in fee and
commissions income.
-- Union Bank of Nigeria Plc ("UBN") has continued to
demonstrate ongoing operational improvements and contributed $10.5
million of attributable net income to Atlas Mara's results, an
increase of 6.2% versus the prior year period excluding the impact
of the weakened Naira against the US Dollar.
-- Reported loans and advances were $1.17 billion, an increase
of 8.9% from December 2014 on a constant currency basis, reflecting
the current emphasis on credit origination improvement
processes.
-- Significant asset recoveries of $9.6 million reported for the
period emanating from an intense focus on collections
activities.
-- Reported deposits were $1.46 billion, an increase of 10.8%
from December 2014, on a constant currency basis, following efforts
to mobilise deposits across the group.
-- Reported equity at period end was $639.4 million, a decline
from December 2014 of $43 million, largely due to $40.3 million of
foreign exchange translation losses driven by the strength of the
US Dollar versus African currencies, particularly with regard to
our assets in Nigeria, Botswana and Zambia. Implied book value per
share at 30 June 2015 was $9.13.
Key operational highlights during the period
-- Atlas Mara has been implementing a comprehensive program to
strengthen its subsidiaries' end-to-end credit process, which will
benefit the group meaningfully going forward in terms of profitable
loan book growth. Recent asset recoveries and reducing NPL ratios
are evidence of the early successes of this program.
-- Atlas Mara has continued its efforts to accelerate the
recovery of non-performing loans. A 40-person, Special Operations
Unit has been established. During the first half of the year,
combined collections amounted to $15.3 million.
-- The Company has continued to focus on centralizing and
standardizing processes across the Group in an effort aimed at
reducing back office resources, improving front office focus, and
reducing costs.
-- Atlas Mara's BancABC subsidiary has, during the course of the
past several months, developed and/or launched various digital
channels, including a mobile wallet, mobile banking, internet
banking, Visa services, and enhanced ATM services. A significantly
improved online banking offering is currently being tested and will
be made available to all customers across the network during Q3
2015.
-- Atlas Mara's BancABC subsidiary has signed an agreement with
the Tanzanian postal agency to set up agency banking in all of
their post offices across the country, thus potentially increasing
the BancABC Tanzania footprint from 4 branches to 199 outlets.
-- Negotiations to conclude the acquisition of a substantial
stake in Banque Populaire du Rwanda ("BPR") are ongoing. Consistent
with its strategy, the Company continues to evaluate further
acquisitions to expand and/or deepen the Company's presence.
Key events since period end
-- Atlas Mara continues to attract high calibre talent to drive
the strategy of the organization. The Company is pleased to
announce several senior hires, including Michael Christelis, who
has joined as Head of Treasury and Markets as of August 1st, having
been at Barclays Africa for the previous seven years where he
headed the Rest of Africa Trading and Markets desk, Eric Odhiambo,
who will be joining Atlas Mara in early Q4 as Chief Risk Officer,
having served in several senior risk management positions at
Citibank across Africa and other emerging markets, including, most
recently, as Chief Risk Officer for Turkey and "non-presence" CIS,
and Dr. Mabouba Diagne who has joined BancABC as Head of Corporate
and Investment Banking as of July 1st, having been Regional
Managing Director of Corporate Coverage for Southern Africa (ex SA)
for Barclays Africa, thereby further enhancing management
depth.
-- On 30 July 2015, Atlas Mara announced that it had completed
the sale of its approximately 10% stake in Brainworks, the
Zimbabwe-focused private equity and advisory firm, further
streamlining the group structure and facilitating the repurchase of
664,300 Atlas Mara shares.
-- On 6 August 2015, the Board of Directors of the Overseas
Private Investment Corporation ("OPIC"), the U.S. development
finance institution ("DFI"), approved a $200 million facility for
the following countries where Atlas Mara operates: Zambia, Botswana
and Mozambique. This facility will enable BancABC to scale up
lending to small and medium size enterprises ("SMEs"), increase
financial inclusion, launch enhanced mobile banking efforts, as
well as, importantly, support potential acquisitions. This
financing is a major milestone in the execution of our DFI
engagement strategy and efforts to reduce the cost of funding
across our operations.
-- Today, BancABC and Atlas Mara announced the launch of a brand
endorsement strategy across BancABC wherein "part of Atlas Mara"
with the Atlas Mara logo in combination with a refreshed BancABC
logo, will now appear on all BancABC communications; from billboard
signage to cheque books. Such branch endorsement is further
tangible evidence of the commitment of Atlas Mara to execute on its
strategy of becoming sub-Sahara's premier financial institution, in
building brand equity and expressly supporting the subsidiaries'
operations in the local countries of operations.
Commenting on these results, John Vitalo, Atlas Mara's Chief
Executive Officer, said: "During the first six months of 2015, the
management and employees across the group have been intensely
focused on delivering improved performance. As the results
demonstrate, our efforts are starting to pay off. There is still
significant work to do and the operating environment in several
countries of operation remains challenging, but I am very
encouraged by our progress to date.
"We are pleased with the trajectory and importantly the leverage
that we are building into the platform, particularly in terms of
the capacity and competency of our staff and the stability and
scalability of our platform. We expect to see continued
improvements in our performance during the course of the remainder
of 2015."
H1 Results Review - Investor Conference Call
Atlas Mara's senior management will today be holding a
conference call for investors at 8am EST / 1pm BST. There will be a
presentation available in the Investor Relations section of the
Company's website, http://atlasmara.com.
Dial-in details are as follows:
Conference ID: 4863081
US: +1 613 621 5256
United Kingdom: 08448 719 299
International: +44 (0)1452 560 304
Contact Details
Investors
Brad Gibbs, +971 4325 3745
Kojo Dufu, +1 212 883 4330
Media
StockWell Communications, +44 (0)20 7240 2486
Anthony Silverman
Robert Morgan
About Atlas Mara
Atlas Mara was formed by Bob Diamond, CEO and Founder of Atlas
Merchant Capital LLC and Ashish J. Thakkar, Founder of Mara Group
Holdings Limited. Atlas Mara's vision is to create sub-Saharan
Africa's premier financial services institution through a
combination of its experience, expertise and access to capital,
liquidity and funding. The goals are to combine the best of global
institutional knowledge with extensive local insights and to
support economic growth and financial inclusion in the countries in
which the Company operates.
Atlas Mara Limited Reviewed Pro-Forma Reviewed
Consolidated Summary Statement Reported H1 2014 H1 2014
of Comprehensive Income
--------------- ---------
30.06.15 30.06.14 30.06.14
$'m $'m $'m
Net interest income 49.4 47.4 -
Non-interest revenue 49.4 49.1 -
------------------------------------------ ---------- --------------- ---------
Total income 98.8 96.5 -
Impairments (6.1) (17.2) -
Net income from associates 10.5 11.8 -
------------------------------------------ ---------- --------------- ---------
Total operating income 103.2 91.1 -
Operating expenses (94.0) (89.8) (17.3)
------------------------------------------ ---------- --------------- ---------
Profit/(loss) before taxation 9.2 1.3 (17.3)
Taxation (5.8) (4.9) -
------------------------------------------ ---------- --------------- ---------
Profit/(loss) after taxation 3.4 (3.6) (17.3)
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Non-controlling interests 0.7 0.4 -
------------------------------------------ ---------- --------------- ---------
Profit/(loss) attributable
to ordinary shareholders 4.1 (3.2) (17.3)
------------------------------------------ ---------- --------------- ---------
Performance measures
Net interest margin 3.9% 3.9% n.a.
Credit loss ratio 1.0% 2.9% n.a.
Non-performing loan ratio 10.7% 13.7% n.a.
Provision coverage ratio 45.0% 33.6% n.a.
Loan to deposit ratio 80.2% 81.3% n.a.
Book value per share 9.13 9.73 n.a.
------------------------------------------ ---------- --------------- ---------
[1]Based on December 2014 reported financials, as
opposed to pro forma
Atlas Mara Limited Reviewed Audited Reviewed
Consolidated Summary Statement Reported Reported Reported
of
Financial Position
---------- ---------- ----------
30.06.15 31.12.14 30.06.14
$'m $'m $'m
--------------------------------- ---------- ---------- ----------
Assets
Cash and short term funds 374.1 409.8 305.7
Trading and other financial
assets 247.5 302.6 -
Loans and advances 1 173.9 1 218.0 -
Other Intangible assets and
goodwill 155.2 180.8 -
Investments in associates 384.5 375.1 -
Other assets 171.4 135.1 4.9
Total assets 2 506.6 2 621.4 310.6
Liabilities and Equity 2 506.6 2 621.4 310.6
---------------------------------- ---------- ---------- ----------
Deposits 1 462.9 1 531.0 -
Borrowed funds 284.7 300.0 -
Disposal groups held for sale - 1.3 -
Derivative liabilities 5.6 6.3 -
Other liabilities 114.0 100.4 12.7
Total liabilities 1 867.2 1 939.0 12.7
Founder Preference Shares 12.5 12.5 12.5
Shareholders' Equity 772.2 772.2 312.8
Reserves (138.4) (96.8) (27.4)
Non-controlling interest (6.9) (5.5) -
Total equity 639.4 682.4 297.9
Letter from the Chief Executive Officer
Overview
Atlas Mara's Board of Directors and Management remain focused on
the execution of the Company's mission to build sub-Saharan
Africa's premier financial institution. It has been an eventful
first half of the year at Atlas Mara, and, although we have more
work to do, the progress to date is encouraging.
As our CFO, Arina McDonald, will discuss in more detail below,
we reported net income of $4.1 million, a meaningful improvement on
the reported loss from 2014, which was, for us, a foundational
year. We are pleased with the trajectory, and importantly, the
leverage that we are building into our platform particularly in
terms of capacity, competency of our staff, stability of our client
base and scaleability of the platform.
Strategic Update
The Board and Management have spent considerable time codifying
the culture and values of the organization, honing our strategy
(particularly in terms of our geographic footprint and client
focus), refining our target operating model (the organizational
structure required to manage our increasingly diverse operations),
calibrating the sequencing of our main efforts, and further
refining the key performance indicators against which we will
measure our delivery and success.
These efforts have re-affirmed the thesis that has existed since
the time of Atlas Mara's founding: the prospects for the growth of
financial services in sub-Saharan Africa remain robust and there is
scope for a newly-established financial institution with access to
capital, liquidity and funding to rapidly build scale, attract
talent, earn attractive returns and make a positive impact in the
communities in which it operates.
Our detailed analysis indicates that less than 15 countries
account for approximately 90% of banking revenues in sub-Saharan
Africa. Furthermore, with increasing regional integration, a bank's
geographic footprint is less critical than its ability to offer the
right products and services to its customers. In addition to
seeking scale in our existing countries of operation, we expect to
be present in 10-15 markets, in total, in the medium-term. In terms
of client segmentation, we have identified meaningful under-banked
markets in retail and corporate banking across our identified
target geographies and the products and services roadmap required
to compete effectively in our chosen segments.
In terms of our target operating model, we believe in a "strong
country, strong center" approach whereby the center provides
significant strategic and functional leadership oversight and
country leadership is empowered to adapt and execute the agreed
strategy on the ground. The key to making this model work is having
the right people in the right places. From my perspective, we have
assembled a senior team of high calibre individuals that compares
favorably not only with the leadership of other African banks, but
the leadership of other multi-national financial institutions.
Macroeconomic Perspectives
Atlas Mara has operations and/or investments in seven
sub-Saharan African countries. As has been communicated in the
past, several of these are among the fastest growing countries in
the world. We believe in the benefits of our regional and trade
bloc diversification. In large part, this is because, while some
markets continue to thrive (such as Mozambique and Rwanda), others
will face challenges (currently the case in Zimbabwe). Furthermore,
we have experienced a period of continued US Dollar ("USD")
strength and African currency weakness leading to various negative
foreign exchange translation effects. A brief review of our markets
is provided below.
(Real GDP forecasts are sourced from the African Economic
Outlook.org (AEO), a collaboration between the African Development
Bank, the OECD Development Centre and the United Nations
Development Program.)
Southern:
The economy in Botswana is expected to grow by about 4.2% in
real terms in 2015. A low level of inflation persists, remaining in
the Central Bank's 3-6% range. Due to the low inflationary
environment, in February, the Bank of Botswana ("BoB") reduced its
policy rate by 100bps to 6.5%. The BoB is likely to pursue an
accommodative monetary policy stance to support economic growth.
The Pula has weakened by about 12.8% against the USD, and given the
environment of low interest rates, this has put pressure on
margins.
Mozambican economic performance has been robust on the back of
strong investment, particularly in the gas sector. While softening
commodity prices pose a downside risk, real GDP growth in 2015 is
expected to reach 6.5%. The Metical has depreciated significantly
against the dollar (year-to-date ("YTD") almost -23.7%) owing to
large import requirements and start-up costs for investment in the
gas sector. Foreign exchange reserves have been trending downwards,
having fallen from $3.1 billion in December 2014 to $2.7 billion in
May 2015.
Economic growth in Zambia is expected to continue at
approximately 6% in real terms. The mining sector, which accounts
for roughly 75% of the country's exports, is expecting a noticeable
increase in output as several dormant mining projects go live.
During the first half of the year, the government reversed its
decision to increase mining sector royalties, which may provide a
degree of relief to the mining firms in the wake of depressed
copper prices. The Bank of Zambia has left the policy rate
unchanged at 12.5%. It, however, increased statutory reserves from
14% to 18% in April of this year in an attempt to address Kwacha
volatility, in turn significantly increasing domestic interest
rates.
Zimbabwe's economic challenges have intensified over the past
two years and the slowdown in economic activity is expected to
continue throughout 2015. The appreciation of the USD (Zimbabwe
adopted a multi-currency regime in 2009 with the USD being the
predominant currency) against regional currencies has contributed
to the erosion of the country's export competitiveness. The
government has intensified efforts to tackle the country's economic
challenges. Among other efforts, the government has put measures in
place to address financial sector vulnerability and restore
confidence through the establishment of the Zimbabwe Asset
Management Corporation ("ZAMCO"), created to acquire non-performing
loans, the resuscitation of the interbank market, and the phasing
out of the Zimbabwean currency. While 2015 will continue to be a
challenging year, we remain hopeful with respect to Zimbabwe's
longer term prospects.
East:
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The Rwandan economy is expected to grow at a real rate of 7.4%
this year - one of the highest growth rates in sub-Saharan Africa
(and the world) - with inflation expected to fall in line with the
Central Bank's 5% target. The Rwandan Franc, like many other
emerging market currencies, has faced downward pressure against the
strengthening USD. Funding is a key area of focus as Rwanda
continues to grow and there is a significant opportunity for the
ongoing evolution of the banking sector to accelerate the growth of
domestic savings and finance development.
In Tanzania, economic growth is projected to remain strong at
around 7%, in real terms -- a level significantly higher than the
sub-Saharan average GDP growth of 4.3%. Inflation has gradually
increased, reaching 6.1% in June, which surpassed the government's
target of 5%. The rise has largely been caused by increasing food
prices. Gold - Tanzania's leading export earner, contributing close
to 30% of export earnings - has been negatively affected by low
international commodity prices. The Tanzanian Shilling has suffered
the same fate as many emerging market currencies of late, having
weakened by about 23% YTD against the USD. The Central Bank
intervened in May by increasing the statutory reserves from 8% to
10% in an attempt to support the Shilling. The exchange rate is
likely to remain under pressure as we approach the October
presidential elections.
West:
Due to exchange rate volatility and depressed oil prices,
Nigeria's real GDP growth estimates for 2015 have continued to be
revised downwards and are now at 5%. While the success of the All
Progressive's Congress in the presidential elections represented a
historic, peaceful, transition of power and enhanced confidence in
Nigeria's prospects, the insurgency in the Northeast and other
parts of the country, the decline in oil prices and the pace of
staffing of the new administration have put significant pressure on
the Naira. We continue to monitor the impact on the banking sector
of these variables closely.
Execution
In our 2014 Annual Report, we highlighted the components of our
"Buy, Protect, and Grow" business model. This provides a useful
framework for highlighting the strides that we have made so far in
2015.
Buy:
In 2014 we made four acquisitions. We have since announced that
we are in negotiations with respect to a fifth - the acquisition of
a substantial stake in Banque Populaire du Rwanda ("BPR"). BPR is
Rwanda's second largest bank, which we expect to merge with our
existing Rwandan asset, the commercial arm of the Development Bank
of Rwanda ("BRD"), in order to have an approximately 75% stake in
the combined entity.
This transaction is consistent with our strategy of being a
scale player in the markets in which we operate. While there will
be significant work to be undertaken to integrate these entities,
we remain excited by the prospects of both the Rwandan market, as
well as Rwanda's role as a financial services hub in the East
Africa Community.
Our evaluation of further acquisitions, both in our existing
markets, as well as new geographies, remains ongoing. We will keep
the market apprised of developments as appropriate.
Protect:
A core component of our business model is ensuring that, before
we seek to accelerate the growth of our banks, they are
fully-prepared - we are focused on sustainable growth, not just
growth for growth's sake.
Within the Southern and East regions, key accomplishments during
the first six months of 2015 have included:
- Implementing a series of measures aimed at strengthening the
end-to-end credit process, which will benefit the group
meaningfully going forward in terms of profitable loan book
growth;
- Continuing aggressive efforts to accelerate the recovery of
non-performing loans: a 40-person, Special Operations Unit has been
established. The team has made solid progress on both corporate and
retail collections and, during the first half of the year, combined
collections amounted to $15.3 million. In addition, we have
implemented a revised set of incentives to correctly align to the
performance of these units;
- Centralizing and standardizing processes throughout BancABC in
an effort aimed at reducing back office resources, improving front
office focus and reducing costs;
- Developing and/or launching BancABC's digital channels,
including a mobile wallet, mobile banking, internet banking, Visa
services, and enhanced ATM services;
- Enhancing the core IT infrastructure to improve the
reliability and availability of our banking operations - achieving
99.7% availability across the BancABC network;
- Commencing the installation of an "enterprise layer", which
will enable seamless integration of new and existing IT platforms
and applications across the organization and will significantly
reduce the time to market of new products and/or IT systems;
and,
- Enhancing management depth by attracting talent across the organisation.
Grow:
While our current emphasis remains on the "Protect" phase, there
are a number of growth-related initiatives that we have launched,
which provide insights into the "direction of travel" across the
organization. Selected projects include:
- Executing on a series of identified cross-selling
opportunities across the corporate bank to improve relationship
manager productivity and drive revenue through enhanced
capabilities and tools;
- Implementing governance and IT control improvements to prevent
and eliminate pricing leakage across both retail and corporate
banking;
- Training over 60 personnel in new corporate sales force
effectiveness tools and capabilities and Retail cross-sell
techniques and tools in order to increase relationship manager
productivity;
- Launching of a mobile banking platform in conjunction with the
launch of the Atlas Mara brand endorsement strategy across all of
the South and East markets. This is the first application
implemented in BancABC that will be "STP" (straight through
processing), setting the foundation for all future and existing
digital channels to be fully integrated and automated; and
- Signing an agreement with the Tanzanian postal agency to set
up agency banking in all of their post offices across the country,
thus potentially increasing the BancABC Tanzania footprint from 4
branches to 199 outlets.
We look forward to keeping you apprised of these and related
projects, especially those that we view to be "positively
disruptive" in the markets in which we operate.
Talent
In order to build sub-Saharan Africa's premier financial
institution, we need to have the right people in the right seats.
Attracting talent continues to be a priority for the company and we
have nearly completed the hiring of key functional roles at the
group level. Among the significant hires we have made recently, we
are pleased to announce that Michael Christelis has joined us as
Head of Treasury and Markets as of August 1st, having been at
Barclays Africa for the previous seven years where he headed the
Rest of Africa Trading and Markets desk, and that Eric Odhiambo
will be joining Atlas Mara in early Q4 as Chief Risk Officer,
having served in several senior risk management positions at
Citibank across Africa and other emerging markets, including, most
recently, as Chief Risk Officer for Turkey and "non-presence" CIS.
Additionally, Dr. Mabouba Diagne has joined BancABC as Head of
Corporate and Investment Banking as of July 1st having been
Regional Managing Director of Corporate Coverage for Southern
Africa (ex SA) for Barclays Africa.
We are delighted by the calibre of people that we continue to
attract to Atlas Mara. Further announcements regarding senior hires
will be announced in due course.
Financing
Unifying all three elements of our "Buy, Protect, Grow" model is
financing. The following initiative is particularly notable:
$200 million OPIC Funding:
As was announced on 6 August 2015, the Board of Directors of the
U.S. development finance institution ("DFI"), the Overseas Private
Investment Corporation ("OPIC"), has approved $200m in funding for
the following Atlas Mara countries: Zambia, Botswana and
Mozambique.
This funding will enable BancABC to scale up lending to SMEs,
increase financial inclusion, launch enhanced mobile banking
efforts, as well as, importantly, support potential acquisitions.
This financing is a major milestone in the execution of our DFI
engagement strategy and efforts to reduce the cost of funding
across our operations.
Branding
We recognize the brand equity that all of our banks possess in
the markets in which they operate. We have also noted the value of
the Atlas Mara brand in enhancing the perception of the strength
and standing of our local operations. To this end, and consistent
with our stated objective to combine the best of local and global
capabilities, we have today launched a brand endorsement strategy
across BancABC wherein "part of Atlas Mara" with the Atlas Mara
logo combined with a refreshed BancABC logo will now appear on all
BancABC communications, from billboard signage to cheque books. A
similar endorsement strategy will be considered in connection with
our Rwandan operations following the consummation of the merger of
BPR and BRD Commercial.
Outlook
We expect the latter half of the year to show improvement over
the first half of the year. Our medium-term strategic, operational
and financial targets communicated in connection with our 2014
financial results remain unchanged.
We are confident that the demonstrated execution of our strategy
will, in time, be reflected in our share price, but share the
frustration of our investors with respect to recent share price
performance. The Board and Management remain focused on addressing
investor concerns, enhancing communication and doing what we can to
encourage more liquidity in our stock.
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The progress that we have seen to-date in 2015 would not have
been possible without the commitment and dedication of our
investors, customers, the Co-Founders, Atlas Mara Board, Management
and employees and support from the regulators in the countries in
which we operate.
We are working tirelessly to deliver to our stated objectives.
We welcome your continued engagement.
John F. Vitalo
Chief Executive Officer
Chief Financial Officer's Review of Financial Performance
Overview
During the first half of 2015, we remained focused on execution
and the results are indicative of the Company's mission being made
across the Group. The consolidated reported profit after tax and
minorities for the period ending June 2015 was $4.1 million. This
compares favourably with the pro forma losses of $3.2 million and
$47.8 million for the first six months of 2014 and full year 2014,
respectively, with progress being made at both the income and
impairment lines.
(The pro forma results reflect the inclusion of the establishing
acquisitions made during 2014, the first full financial year of
Atlas Mara, as if they had been consummated on 1 January 2014.)
From an income perspective, net interest income expanded by 8.5%
versus the prior period on a constant currency basis resulting from
improvements in the costs of funding across all of our operating
markets, except for Rwanda, which saw a minimal change, as well as
the recognition of asset recoveries previously written off in full,
in line with IFRS9 principles. The net interest margin improved by
7 bps to 3.94% from June 2014 and by 60 bps from December 2014
levels, notwithstanding negative endowment impacts, particularly in
Botswana, where prime interest bank rates reduced by 100 bps in
February (and a further 50 bps in August), as well as an increase
in the prudential liquidity requirements in both Nigeria and
Zambia, increasing the balance of non-earning assets in the current
reporting period. Additionally, growth in non-interest income
reported during the period was 8.6% on a constant currency basis
due mostly to favourable currency trading conditions. With more
focus being placed on driving transactional business, fee and
commissions income is expected to increase in H2 2015 (H1 2015:
$27.5m - flat on prior year, on a constant currency basis).
Atlas Mara reported a total non-performing loan (NPLs) ratio of
10.7%, a meaningful decline from the 13.4% level reported at
December 2014. The coverage ratio increased to 45.0% at 30 June
2015 from 32.4% at 31 December 2014. Management considers this
coverage to be sufficient to address the credit risks inherent in
the asset book of $1.174 million (an increase of 8.9% from pro
forma H1 2014 on a constant currency basis). The improvement in
asset quality is indicative of the Group's emphasis on credit
origination processes.
Significant asset recoveries of $9.6 million were reported
during the period evidencing the intense focus on collections
activities, with a healthy pipeline of further recoveries expected
in the second half of 2015. The credit loss ratio of 1% booked for
H1 2015 is lower than the 2.9% for the comparative 2014 period, on
a pro forma basis, partially due to the offset of fair value
adjustments in line with IFRS3. This ratio is expected to normalize
over time, in-line with selected peers.
Total operating costs of $94.0 million in H1 2015 compares to
$89.9 million for the comparative pro forma period in 2014.
Included in the 2015 costs, however, are M&A-related
transaction expenses of $5.4 million (H1 2014: $13.6 million) and
investment spend of approximately $7.9 million supporting various
IT projects (upgrading the core banking system in the Southern
region and delivering on mobile banking initiatives (successfully
launched) and an internet banking roll-out (currently in the test
phase)), launching the Atlas Mara brand endorsement campaign at
BancABC, and investing in credit systems and portfolio credit
scoring models, as well as other revenue-focused initiatives that
will have longer-term benefits.
The Group recorded total deposits at 30 June 2015 of $1.46
billion, representing growth of 10.8% versus 30 June 2014 on a
constant currency basis. Increased deposits have led to a reduction
in the costs of funds across the Southern region. Mobilizing
deposit gathering across the Group remains a key focus.
Reported equity at period end was $639.4 million, a decline from
December 2014 of $43 million, largely due to $40.3 million of
foreign exchange translation losses driven by the strength of the
US Dollar versus African currencies. The Group's operations and/or
investments in Botswana, Nigeria and Zambia contributed 67% of the
foreign exchange losses reported while the other four African
countries' local currencies contributed 33% of the decline. Book
value per share at 30 June 2015 was $9.13.
Income Statement Review
Net Interest Income
H1 2015: $49.4 million
Pro Forma H1
2014: $47.4 million
Net interest income reflects a positive trend with a reported
net interest margin of 3.94% on total assets at 30 June 2015 versus
3.34% reported at December 2014 on a pro forma basis. Liquidity
pressures during the first half of 2015 in some of the African
countries in which the Group operates resulted in subsidiaries
sourcing the majority of their funding from interbank lines and
more expensive wholesale lenders, negatively impacting the costs of
funding, especially in Q1 2015. Some of that pressure was relieved
during Q2, particularly in Botswana, but Tanzania, Mozambique and
Rwanda continued to experience local currency liquidity pressures.
The capping of interest rates and fees by selected local regulators
also affected the competitive landscape. Key remediating actions to
address such market liquidity challenges are being taken across the
Group and include a focus on accessing cheaper sources of
liabilities, specifically retail deposits, and longer tenor, lower
cost, DFI loan facilities. Net interest income constituted 50% of
total income for the Group for both the H1 2015 reported results
and H1 2014 pro forma results.
Operating Expenses
H1 2015: $94.0 million
Pro Forma H1
2014: $89.8 million
Included in the H1 2015 total operating expenditure, is Atlas
Mara's corporate center costs totaling $16.2 million. This amount
includes $3.7 million of share-based payment awards that is
required to be fair valued through the income statement. No such
costs were reported in the pro forma H1 2014 results.
Total M&A-related transaction expenses of $5.4 million in
the current period relate to various ongoing acquisition and
funding initiatives. These expenses are consistent with Atlas
Mara's acquisition-driven growth strategy, but are expected to
decrease significantly over time. There is a further $1.8 million
of costs associated with the ADC African Development Corporation AG
("ADC") group of entities and the finalization of the buy-out of
ABC Holdings Limited ("ABCH") minorities (effective July 2015),
together with costs relating to simplifying the ADC corporate
structure.
Staff costs amounted to $34.4 million for the period and
represented 37% of total expenditures for the Group on an as
reported basis, in line with the pro forma H1 2014 ratio. Included
in the 2015 staff costs growth of 22.7% on a constant currency
basis are various one-off recruitment and award-related expenses,
as well as costs incurred in the right-sizing of ABCH.
Specific technology investment and business improvement
expenditures of $7.9 million referenced above are further cost
items expensed in H1 2015, but which will benefit the Group over
the long-term.
Excluding M&A-related transaction expenses and one-off costs
incurred during the period under review, as well as consolidation
entries, the reported H1 2015 results would reflect a
cost-to-income ratio of 79.8% versus the reported ratio of 95.2%. A
more detailed analysis of the total cost base is as follows:
USD'm 1H15 1H14 PF
---------------------------------------------- ------ --------
Staff costs 27.2 27.2
Operating expenses 40.8 43.4
Atlas Mara Corporate Center (staff costs and
operating expenses) (1) 10.8 3.7
---------------------------------------------- ------ --------
Sub-total 78.8 74.3
Cost to income ratio 79.8% 77.0%
---------------------------------------------- ------ --------
M&A transaction expenses (staff costs and
operating expenses) 5.4 13.6
One-off costs and consolidation entries 9.8 1.9
Atlas Mara Consolidated Reported Cost Base 94.0 89.8
Cost to income ratio 95.2% 93.0%
---------------------------------------------- ------ --------
(1) Includes $3.7m of share based payments (share buyouts for
senior hires)
Income from Associates
H1 2015: $10.5 million
Pro Forma H1
2014: $11.8 million
Income from associates represents the equity accounted earnings
of the 31.1% stake held both directly and indirectly in UBN, based
on their published 30 June 2015 results. The impact of the
depreciating Naira and declining oil and other commodity prices
represent key focus areas for UBN's management and are being
monitored and managed closely. Upon accounting for UBN's results
into Atlas Mara, the translation of Naira into US Dollar for
reporting purposes resulted in a foreign exchange translation loss
which was accounted for directly against equity, namely a charge of
approximately $14 million.
Credit Impairments
H1 2015: $6.1 million
Pro Forma H1
2014: $17.2 million
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The H1 2015 credit impairment charge was $6.1 million, driven
largely by persistent challenging macroeconomic conditions in
Zimbabwe, but represents a marked improvement on the comparative
pro forma H1 2014 position. The establishment of the Special
Operations Unit to manage the restructuring, resolution and
recovery of NPLs have started to yield positive results and further
recoveries are expected during the latter half of 2015. Additional
impairments recognized during the period were partly offset by fair
value adjustments on non-performing loan provisions as part of
post-acquisition closing adjustments in line with IFRS3 on ABCH (of
$8.1 million in total).
The Group expects credit quality ratios to continue to improve
during 2015, as enhancements to credit origination and monitoring
processes are put in place. The arrears book is already showing
declines in both volume and value.
Balance Sheet Review
Total Assets: $2,507 million
Customer Loans: $1,174 million
Total Deposits: $1,463 million
Customer loans and advances contributed approximately 47% of the
total asset base, with cash, short term funds and marketable
securities representing approximately 15%. Investments held in
government securities constitute 8% of the total asset base. The
investment in associate (UBN) represents 15% of the current asset
base, and, post the business combinations concluded during 2014 and
the subsequent valuation of purchased assets in line with IFRS 3,
goodwill and intangible assets represent 6% of the Group's asset
base. Property and fixed assets /other assets make up the remaining
9%.
Credit Quality
In management's view, the customer loan book is adequately
provided for, as reflected in the H1 2015 provision adequacy ratio
of 45% (FY 2014: 32.4%). NPLs as a percentage of the loan book of
10.7% are above market averages and management's medium-term
guidance, but have been steadily improving from December 2014
levels. The Special Operations Unit, mentioned above, was largely
responsible for the positive downward trend in the cost of credit
debited against the income statement. The Group remains focused on
the legacy non-performing loan book going forward.
Capital position
As at 30 June 2015, all of Atlas Mara's regulated operating
banks complied with local minimum capital requirements.
Goodwill and Intangibles
Post the acquisitions made during 2014, and in compliance with
IFRS3: Business Combinations rules, the balance sheet reflects a
goodwill asset of $91.5 million and an intangible asset of $63.7
million. The fair value of said acquisition was reassessed during
H1 2015, resulting in the recognition of an additional $18.5
million of goodwill. The intangible assets are amortized over a
10-year useful life, in accordance with IFRS. Combined, these
assets represent 6% of the Group's asset base, resulting in a
tangible book value of $7.00 per share.
Investment in Associate: UBN
The investment in UBN is equity accounted for on the balance
sheet as an Investment in Associate, with a closing balance of
$384.5 million. This value is based on the published June 2015
half-year UBN results. Atlas Mara holds, both directly and
indirectly, an effective 31.1% shareholding in UBN.
Liabilities
Deposits due to Customers: $1,463 million
Borrowed funds: $284.7 million
Assets are funded mainly through corporate depositors,
government-backed institutions and interbank funding lines (82% of
total deposit base). The retail liability base of 18% of total
deposits represents an improvement from 13% as at pro forma H1 2014
and is indicative of efforts to diversify the funding mix so as to
support healthier margins in the longer term.
The renewed focus on attracting retail deposits is coupled with
an emphasis on accessing lower cost DFI funding through strong
partnerships, such as the recently announced partnership with
OPIC.
Segment Information
The segmental results and balance sheet information are
representative of Atlas Mara's management of its underlying
operations and consistent with the Group's emphasis on alignment of
its operations with sub-Saharan Africa's key trading blocs. The
business is managed on a geographic basis with an increased focus
on underlying business line performance going forward.
The seven countries of operation and investment are allocated as
follows:
Southern Africa
Southern Africa includes the operations of BancABC, excluding
Tanzania, i.e. Botswana, Mozambique, Zambia and Zimbabwe, as well
as BancABC's holding company, ABC Holdings Limited, incorporated in
Botswana, and various affiliated non-bank group entities. The
financial performance of the Southern region in H1 2015 was
supported, among other factors, by asset recoveries emanating from
continued management efforts, particularly the increased focus on
non-performing loans and the establishment of new collections
activities.
In Botswana, due to the low inflationary environment, in
February, the BoB reduced its policy rate by 100bps to 6.5%,
resulting in a negative endowment impact in banking revenue across
the industry. The negative endowment impact experienced by BancABC
Botswana was partly offset by a meaningful reduction in the cost of
funding as liquidity pressures eased in the market during the
second quarter. Customer volume growth resulted in balance sheet
growth since December 2014 of greater than 10%, mainly driven by
consumer lending which, specifically in Botswana, which has a good
track record in this asset class of quality assets with low
impairments. Increased revenues from commissions on insurance
underwriting further contributed to the positive half-on-half
performance at BancABC Botswana.
As mentioned above, the Mozambican Metical has depreciated
significantly against the US Dollar (YTD by almost -23.7%) owing to
large import requirements and start-up costs for investments in the
gas sector. This resulted in a volatile currency environment during
H1 2015, with banks, including BancABC Mozambique, capitalising on
trading opportunities from the volatile foreign exchange market.
The cost of funds at BancABC Mozambique declined by 130 bps from
2014 highs, positively contributing to net interest income. This
was offset by unexpected impairment charges on the retail portfolio
following some employment losses in the mining sector, which are
being actively managed. The delayed approval of the government
budget, and thus subsequent government spending, has affected the
level of economic activity, adversely impacting BancABC
Mozambique's non-funded fee income, with transactional volumes on
both guarantees and transfers decreasing.
The Bank of Zambia has left the policy rate unchanged at 12.5%.
However, it increased statutory reserves from 14% to 18% in April
of this year in an attempt to address Kwacha volatility. This, in
turn, significantly increased domestic interest rates. Furthermore,
Zambia's recent credit rating downgrade has resulted in a sharp
increase in Treasury bill rates, negatively impacting the Zambian
banking sector. Given shortages of local currency in the market, it
has also become more challenging and costly to manage short term
mismatches on the balance sheet. However, despite these challenges,
BancABC Zambia has managed to maintain a largely unchanged cost of
funds during the period. Non-interest revenue at BancABC Zambia was
largely driven by consumer loan origination. No movements on single
name non-performing loans were reported during the period. The
depreciating currency had an adverse impact on BancABC Zambia's
USD-denominated expenses.
Zimbabwe's economic challenges continue to put negative pressure
on business performance and the slowdown in economic activity is
expected to continue throughout 2015. BancABC Zimbabwe's results
were negatively impacted by liquidity challenges that continue to
worsen, exacerbated by persistent trade deficits. Reducing BancABC
Zimbabwe's cost of funding remains a key focus and will be achieved
through an intense focus on deposit mobilisation. A decrease in
BancABC Zimbabwe's loan book had a corresponding impact on interest
income as the bank focused on a low-risk lending strategy in a
competitive market in a challenging business environment. The
positive impact of the Special Operations Unit, tasked with the
restructuring, resolution and recovery of non-performing loans, was
evident in various asset recoveries at BancABC Zimbabwe during H1
2015 and is expected to continue to positively impact results.
Furthermore, various cost reduction and optimization initiatives
have been put in place by management to weather the current
challenging market conditions.
East Africa
East Africa consists of BRD Commercial Bank and BancABC
Tanzania. Our Rwandan business has been profitable in 2015. The
balance sheet is liquid, presenting the opportunity to capitalize
on several identified opportunities. The cost base is largely
reflective of a start-up business, including with respect to
integration expenditures incurred in preparation for the pending
combination with BPR.
In Tanzania, newly introduced regulations by the Central Bank on
minimum liquidity requirements had a detrimental effect on market
liquidity. The banking industry has experienced an increase in
deposit rates which are expected to continue during the lead up to
the release of the 2015/16 Annual National Budget and the October
general elections. Notwithstanding relatively high costs of
funding, BancABC Tanzania reported a significant increase in
interest income and a 260bps increase in the reported net margin,
driven largely by increases in payroll deduction lending marketed
through an agency network. Following the de-risking of the loan
book and newly embarked upon business strategy, no significant
impairments have been raised during H1 2015 and the new management
team remains focused on ensuring the growth of a quality asset
book. BancABC Tanzania is expected to contribute positively to the
Group's earnings in the near future.
West Africa
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West Africa represents the investment made in UBN, adjusted for
attributable equity earnings. Our investment in UBN is continuing
to perform in line with expectations and, following UBN's reported
H1 2015 results on the Nigeria Stock Exchange on 30 July 2015,
Atlas Mara has reflected its associate income of $10.5 million in
its H1 2015 results (H1 2014 pro forma: $11.8 million). The
depreciating Naira had around 17% negative impact on associate
earnings (in USD terms) recognized for the period.
UBN continues to deliver results from its transformation program
and, among the group's achievements, was the successful upgrade of
its centralized core banking system. The bank's focus on identified
retail and business banking segments has intensified, with
management focused on a liquidity-led strategy to reduce the bank's
cost of funding and increase its deposit base.
The downwards pressure from various macro-and global economic
pressures has not visibly impacted many Nigerian banks' performance
reported during H1 2015. UBN's impairments are in line with
expectations and considered adequate for the risks inherent in the
loan assets on the balance sheet. UBN management and, by way of our
three seats on the Board of Directors, Atlas Mara are monitoring
the implications of the recent oil price declines and currency
weakness on the credit portfolio and capital position very closely.
We see positive growth potential for UBN irrespective of challenges
in the macroeconomic environment.
Other
Other includes Atlas Mara Limited, the BVI incorporated holding
company, as well as Atlas Mara's Dubai subsidiary and all other
intermediate group holding entities acquired in connection with
acquisitions of ABCH and ADC in August 2014. The legal entity
structure is in the process of being streamlined with the objective
of driving cost efficiencies. Accounting consolidation adjustments
are also presented within the Other segment.
The corporate center of Atlas Mara, depicted in the table below,
reflects a net loss of $11.9 million for H1 2015. The increase in
the cost base against the comparable period is reflective of the
current "protect" phase of the business model and related
investments to ensure sustainable growth and the implementation of
a best in class banking Infrastructure.
Included in the column "M&A, ADC and Consol" below are
M&A-related expenses incurred in connection with Atlas Mara's
acquisition-driven strategy. It is anticipated that these will
continue to reduce over time.
Segmental results for H1 2015 are presented below:
BANKING OPERATIONS OTHER
---------- ----------------------------------- --------------------------
Atlas Mara Limited Audited West East Southern Atlas M&A, ADC,
Segmental Reported Mara Consol
Financial Statements Corporate
Center
---------- --------- --------- ----------- ----------- -------------
30.06.15 30.06.15 30.06.15 30.06.15 30.06.15 30.06.15
$'m $'m $'m $'m $'m $'m
Net interest income 49.4 - 6.3 48.8 (0.1) (5.6)
Non-interest revenue 49.4 - 0.4 42.6 (1.0) 7.4
Total income 98.8 - 6.7 91.4 (1.1) 1.8
Impairments (6.1) - 0.2 (6.3) -
Net income from associates 10.5 10.5 - - -
Total operating income 103.2 10.5 6.9 85.1 (1.1) 1.8
Operating expenses (88.6) - (9.3) (64.1) (10.8) (4.4)
Transaction and integration
expenses (5.4) - - - (5.4)
Profit/(loss) before
taxation 9.2 10.5 (2.4) 21.0 (11.9) (8.0)
Taxation (5.8) - (0.3) (5.3) (0.2)
Profit/(loss) after
taxation 3.4 10.5 (2.7) 15.7 (11.9) (8.2)
Ordinary shareholders 4.1 10.5 (2.1) 15.7 (11.9) (8.1)
Non-controlling interests (0.7) - (0.6) - (0.1)
BANKING OPERATIONS OTHER
Atlas Mara Audited West East Southern Atlas Mara M&A,
Limited Reported Corporate ADC,
Segmental Center Consol
Financial
Statements
----------- ----------- ----------- --------- ------------ ---------
30.06.15 30.06.15 30.06.15 30.06.15 30.06.15 30.06.15
$'m $'m $'m $'m $'m $'m
----------- ----------- ----------- --------- ------------ ---------
Assets 2 506.6 12.2 246.4 1 698.3 710.5 (160.8)
--------------------- ----------- ----------- ----------- --------- ------------ ---------
Cash and short term
funds 374.1 - 56.0 300.9 8.5 8.7
Trading and other
financial assets 247.5 - 45.3 181.9 30.7 (10.4)
Loans and advances 1 173.9 - 125.1 1 059.1 0 (10.3)
Intangible assets
and goodwill 155.2 - 0.8 8.1 541.4 (395.1)
Investment in
associates 384.5 12.2 0.2 2.1 0 370.0
Other assets 171.4 - 19.0 146.2 129.9 (123.7)
Liabilities 1 867.2 - 212.3 1 628.1 42.0 (15.2)
--------------------- ----------- ----------- ----------- --------- ------------ ---------
Deposits 1 462.9 - 183.7 1 279.2 -
Borrowed funds 284.7 - 16.5 285.4 20.1 (37.3)
Disposal groups - - - - - -
held
for sale
Derivative
liabilities 5.6 - 2.5 3.1 - -
Other liabilities 114.0 - 9.6 60.4 21.9 22.1
Total equity 639.4 12.2 34.1 70.2 668.5 (145.6)
--------------------- ----------- ----------- ----------- --------- ------------ ------------
Performance measures
Net interest margin 3.9% - 5.1% 6.1% - -
NII as % of total
income 50.0% - 94.3% 56.8% - -
Credit loss ratio 1.0% - 0.3% 1.2% - -
Loan to deposit
ratio 80.2% - 68.1% 82.8% - -
Provision coverage
ratio 45.0% - 55.1% 43.1% - -
Impairment as % of
gross loans and
advances 4.8% - 8.8% 4.3% - -
Full year December 2014 segmental results are presented
below:
BANKING OPERATIONS OTHER
---------- ------------------------------- ----------------------
Atlas Mara Limited Pro Forma West East Southern Atlas M&A,
Segmental Mara ADC,
Financial Statements Corporate Consol
Center
---------- --------- --------- --------- ----------- ---------
31.12.14 31.12.14 31.12.14 31.12.14 31.12.14 31.12.14
$'m $'m $'m $'m $'m $'m
Net interest income 87.9 - 3.2 96.6 (11.9)
Non-interest revenue 92.6 - 5.1 65.7 (1.2) 23.0
Total income 180.5 - 8.3 162.3 (1.2) 11.1
Impairments (32.7) - (0.3) (32.4) -
Net income from
associates 36.0 36.0 - - -
Total operating
income 183.8 36.0 8.0 129.9 (1.2) 11.1
Operating expenses (190.1) - (17.4) (136.2) (27.3) (9.2)
Transaction and
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