TIDMATMA
RNS Number : 9911H
ATLAS Mara Limited
24 August 2016
24 August 2016
Atlas Mara Limited Interim Results -- Six Months Ended 30 June
2016
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 2016.
Key highlights for the period:
-- Profitable first half with improving operational performance
in the second quarter relative to the first. Reported earnings of
$1.2 million as at 30 June 2016.
(Adjusted Net Profit excluding M&A and integration costs
$9.2 million)
-- Managing through macroeconomic headwinds with positive momentum continuing into Q3.
-- Closed two additional acquisitions. Integration of Rwanda
businesses completed ahead of schedule, with Zambia integration
progressing well.
-- Driving cost efficiencies through restructuring and reducing
Shared Services & Center's cost base. Acquisition cost
synergies on track to be delivered.
-- Accelerating growth plans of markets businesses and digital
finance initiatives. Operational leverage from this expansion
expected to increase both earnings and ROE significantly from 2017
onwards.
Financial highlights during the period
-- Reported net profit after tax for the first half of 2016 was
US$1.2 million compared to a profit of US$4.1 million reported for
the prior year period and a loss of US$6.7m in the first quarter.
The decline in African currencies, a worse macroeconomic backdrop
and market liquidity tightness across a number of our markets were
contributory factors to the weaker net profit year-on-year.
-- Net interest income increased by 4.2% year on year on a
constant currency (ccy) basis supported by lower funding costs as a
result of our strategy of raising less expensive transactional
deposits. All countries, with the exception of Tanzania, reduced
their cost of funds year on year.
-- Growth in non--interest income of 66.3% on a ccy basis with
this figure boosted by fair value gains of US$15.4 million as a
result of the devaluation of the Nigerian Naira in June 2016 and a
provisional US$1 million accounting gain on the acquisition of
Finance Bank Zambia. We have also seen good growth in fee and
commission income and very strong growth in FX flow related
income.
-- Loan impairment charges of US$9.1 million increased on the
prior year net charge of US$6.1 million. The second quarter charge
of US$0.6 million was considerably lower than the first quarter
(US$8.5 million) as a result of recoveries of US$2.7 million with
Rwanda, Mozambique and Zimbabwe particularly positive contributors
in this regard.
-- Union Bank of Nigeria Plc (UBN) continued to demonstrate
ongoing operational improvements and contributed US$12.5 million of
net income to Atlas Mara's results, an increase of 22.9% versus the
prior year period in ccy terms. The impact of further Naira
depreciation against the US Dollar may dampen UBN's contribution to
net income of Atlas Mara in the second half.
-- Loans and advances were US$1.42 billion at 30 June 2016.
Excluding acquisitions the loan book grew by 2.5% on a ccy basis
since December 2015.
-- Deposits were US$1.81 billion at 30 June 2015. Excluding
acquisitions, this represented growth of 10% on a ccy basis since
June 2015.
-- Reported equity at period end was US$577 million, a decline
from US$625.5 million at December 2015, largely due to US$83
million of foreign exchange translation losses principally driven
by the depreciation of the Naira. At the end of June our book value
was US$8.07 per share (December 2015: US$ 8.94) and our tangible
book value was US$ 6.07 per share (December 2015: US$ 7.00).
-- Our business performance has been improving over the course
of 2016 with the second quarter better than the first and with June
representing our best month of the first half of this year. July
has continued this trend.
Key operational highlights during the period
-- We completed two acquisitions in the first half of 2016;
Banque Populaire du Rwanda (BPR) in early January and are now the
second largest bank in Rwanda by assets. Finance Bank Zambia
completed at the end of June despite challenging market conditions.
The acquisition places us as Zambia's second largest bank by branch
numbers.
-- Our integration efforts are now complete in Rwanda with the
successful integration of BPR with our existing asset, BRD
Commercial in July. Our predecessor banks now operate as a single
entity on a common platform.
-- Atlas Mara has been implementing a comprehensive program to
strengthen its subsidiaries' end--to--end credit process. This is
expected to yield results in terms of profitable book growth. The
asset recoveries in the second quarter and NPL ratios that continue
to trend down are evidence of the work undertaken here.
-- We remain focused on delivering operational improvements
across our existing network. As indicated with the first quarter
results, we are implementing clear plans to deliver incremental
revenues and lower costs to ensure our key operating subsidiaries
deliver an acceptable level of performance. These initiatives will
deliver tangible improvements to profitability in the second half
of 2016.
-- In Zambia we were awarded the 2016 Visa Growth Champion Award
largely driven by the growth we have achieved in our Prepaid Card
which was launched last year. In Rwanda BPR was awarded the 'best
overall exhibitor for customer service at Rwanda's 19th
International Trade Fair.
Key events since period end
-- We have executed a group-wide cost reduction programme to
align our cost base with the current revenue environment. We expect
to reduce headcount by 30% - 35% across our Shared Services and
Centre and reduce non-staff central costs. We expect this to lead
to a decline in the run-rate of our operating expenses of US$8
million on a full year basis from 2017.
-- We have accelerated growth plans for certain digital initiatives and the build out of our markets/treasury businesses to ensure we can deliver the level of revenue growth our investors expect of us into 2017 and beyond.
-- The migration of all branches onto our new global network
commenced in the second week of July and has been completed
successfully. Network connections have been stable since the
migration with much improved response times and notable business
system improvements.
Commenting on these results, John Vitalo, Atlas Mara's Chief
Executive Officer, said:
"The first half of 2016 presented a particularly difficult
operating environment for Atlas Mara. The full impact of last
year's decline in African currencies, a more challenging
macroeconomic backdrop and market liquidity constraints across a
number of our countries of operation have all presented particular
challenges to profitability. Notwithstanding these challenges, we
are pleased to report that our businesses have demonstrated an
improving trend over the course of 2016 resulting in the second
quarter better than the first, with June representing our best
month of the first half and with this trend continuing into
July."
H1 Results Review -- Investor Conference Call
Atlas Mara's senior management will today be holding a
conference call for investors at 10am EST / 5pm 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: 66627689
US: +1 646 741 2119 / +1 866 869 2352
United Kingdom: 08444 934 488
International: +44 (0) 1452 554 946
Contact Details
Investors
John-Paul Crutchley, +971 4275 6025
Kojo Dufu, +1 212 883 4330
Media
Teneo Strategy, +44 (0)20 7240 2486
Anthony Silverman
Atlas Mara Limited
Consolidated Summary Statement of Comprehensive Income
USD'million
Net interest
23.7 21.5 (9.3%) income 45.2 49.4 4.2%
Non-interest
28.2 40.1 42.2% income 68.3 49.4 66.3%
------------------- ------------------- ------------- ------------------- ------------------ ---------------
51.9 61.6 18.7% Total income 113.5 98.8 34.5%
Credit
(8.5) (0.6) 92.5% impairment (9.1) (6.1) (64.0%)
-----------------
43.4 61.0 40.6% Operating income 104.4 92.7 32.4%
Operating
(57.5) (57.9) (0.7%) expenses (115.5) (94.0) (39.1%)
------------------- ------------------- ------------- ----------------- ------------------- ------------------ ---------------
Net operating
(14.1) 3.1 >100% income (11.1) (1.3) >(100%)
------------------- ------------------- ------------- ----------------- ------------------- ------------------ ---------------
Income from
6.9 5.6 (18.8%) associates 12.5 10.5 22.9%
------------------- ------------------- ------------- ----------------- ------------------- ------------------ ---------------
Profit/(loss)
(7.2) 8.7 >100% before tax 1.4 9.2 (76.6%)
Taxation and
minority
0.5 (0.7) >(100%) interest (0.2) (5.0) 94.6%
Profit/(loss)
(6.7) 8.0 >100% after tax 1.2 4.2 (33.9%)
------------------- ------------------- ------------- ----------------- ------------------- ------------------ ---------------
Net interest
margin (total
3.5% 2.9% assets) 3.1% 3.9%
Net interest
margin (earning
4.9% 3.9% assets) 4.1% 5.5%
Net interest
margin (customer
7.1% 6.0% loans) 6.4% 8.4%
Credit loss
2.5% 0.2% ratio 1.3% 1.0%
Cost to income
110.9% 94.0% ratio 101.7% 95.2%
(1.0%) 1.1% Return on assets 0.1% 0.3%
(2.0%) 2.7% Return on equity 0.4% 1.3%
------------------- ------------------- ------------- ----------------- ------------------- ------------------ ---------------
Atlas Mara Limited
Consolidated Summary Statement of Financial Position
USD million
Cash and
345.0 448.3 29.9% investments 448.3 374.1 34.8%
Financial
assets held
143.5 160.4 11.8% for trading 160.4 209.7 (10.0%)
Loans &
advances to
1,339.4 1,421.0 6.1% customers 1,421.0 1,173.9 33.2%
110.9 181.9 64.0% Investments 181.9 37.7 >100%
Investment
in
422.1 324.3 (23.2%) associates 324.3 384.5 (17.5%)
Intangible
153.5 166.7 8.7% asset 166.7 155.2 13.9%
Other
163.3 244.0 49.5% assets 244.0 171.4 59.4%
----------------- -------------- ------------ ----------- -------------------- --------------------- --------------
Total
2,677.8 2,946.7 10.0% assets 2,946.6 2,506.6 28.1%
----------------- -------------- ------------ ----------- -------------------- --------------------- --------------
Customer
1,628.8 1,814.9 11.4% deposits 1,814.9 1,462.9 37.9%
Borrowed
298.3 342.9 15.0% funds 342.9 284.7 55.0%
Other
89.1 211.5 137.4% liabilities 211.5 119.6 62.6%
Capital and
661.7 577.3 (12.8%) Reserves 577.3 639.4 (12.5%)
----------------- -------------- -------------------- ---------------------
Total
equity and
2,677.8 2,946.6 10.0% liabilities 2,946.6 2,506.6 28.1%
----------------- -------------- ------------ ----------- -------------------- --------------------- --------------
Loan :
Deposit
82.2% 78.3% ratio 78.3% 80.2%
----------------- -------------- ------------ ----------- -------------------- --------------------- --------------
John Vitalo, Chief Executive Officer
Overview
Atlas Mara faced a particularly difficult operating environment
in the first half of 2016. The full impact of the decline in
African currencies, a worse macroeconomic backdrop and market
liquidity tightness across a number of our countries of operation
have all presented particular challenges to profitability.
While we remain wholly focused on our long-term objective of
building sub-Saharan Africa's premier financial institution, we are
also working to ensure that the company is well positioned to
deliver adequate short-term results as we build towards our
medium-term targets. We have placed more weight on growth plans
within our execution priorities during the first half of this year
during which we undertook the following steps to improve
returns:
-- First, we executed a bank-wide cost reduction effort to align
our cost base with our current revenue environment. We expect to
reduce headcount by 30% - 35% across our Shared Service and Centre
and reduce non-staff central costs. This will ensure our cost base
is more aligned with our current revenue environment. We expect
this to lead to a decline in the run-rate of our operating expenses
of US$8 million on a full year basis from 2017 and we continue to
look for further opportunities to reduce costs.
-- Secondly, we have accelerated growth plans for certain
digital initiatives and the build out of our markets/treasury
businesses to help deliver the level of revenue growth our
investors expect of us into 2017 and beyond.
-- Finally, we are focused on operational improvements across
our existing network. As I indicated when we announced our first
quarter results, we have clear plans to achieve incremental
revenues and to reduce costs to bring our key operating
subsidiaries back to an acceptable level of profitability. We
anticipate tangible improvements to profitability from these
initiatives in the second half of 2016.
Notwithstanding the challenges that we faced, we are pleased to
report that our business has demonstrated an improving operational
performance trend over the course of 2016 with the second quarter
better than the first and with June representing our best month of
the first half. July has continued this trend.
As our CFO, Arina McDonald, will discuss in more detail below,
we reported net income of US$1.2 million for the first six months
of this year against US$4.1 million last year. Within this, our
weak operational performance in the first half was offset by
certain accounting adjustments, as a result of the devaluation of
the Naira in Nigeria at the end of the period.
Strategic Update
In our 2015 Annual Report, we highlighted the components of our
"Buy, Protect, and Grow" model for how we intend to build our
business to be sub-Saharan Africa's premier financial institution
and deliver our financial goals of a 20% RoE, 2% RoA and a 65% cost
income ratio in the medium-term. Despite near-term headwinds, we
remain cautiously optimistic of achieving these objectives, albeit
that this is predicated on a supportive economic environment and
having achieved scale from further acquisitions.
Acquisitions remain central to the Atlas Mara strategy and are
essential if we are to achieve the scale we need to make our
business model work but, over the course of 2016, we have
deliberately sought to rebalance our priorities. While we remain
focused on our pipeline of acquisitions, we are increasingly
focused on the "Grow" aspect of our strategy. This is being
implemented through increasing investment in digital initiatives,
led by Chidi Okpala, our Chief Digital Officer who joined the group
at the beginning of the year, and the build out of our onshore and
offshore treasury and markets businesses by Mike Christelis, our
Group Head of Global Markets and Treasury.
Execution
Benchmarking our progress so far in 2016 against our Buy,
Protect, and Grow model can be summarized as follows:
Buy
We announced two acquisitions in 2015 and completed both in the
first half of 2016. The acquisition of Banque Populaire du Rwanda
was completed in early January and Finance Bank Zambia at the end
of June.
We are now Zambia's second largest bank by branch numbers. We
announced the appointment of Ben Dabrah as CEO for our new
operations in Zambia. Ben joined us from Standard Chartered Bank
and he also previously worked for Barclays Africa. Integration
plans to combine Finance Bank Zambia with our existing operations
in Zambia are under way. Although much remains to be done, we are
very excited about the growth prospects for this business given the
increased scale of our operations.
Protect
Within our Southern operations, we have been focused on a number
of business improvement projects such as rolling out our Point of
Sale (POS) card acquiring business, reducing operational costs and
managing down non-performing loans and impairments.
The total first half impairment charge was US$9.1 million after
taking a US$8.5 million charge in the first quarter. The lower
second quarter charge reflected the improvement in recoveries we
anticipated when we announced our first quarter results. Rwanda and
Zimbabwe were particular contributors in this regard.
We continue to improve governance and compliance processes, such
as automating Know Your Customer and transaction monitoring
procedures, to mitigate our operational risk exposure to these
areas.
The team in Rwanda has done an excellent job and completed the
integration of BPR with our existing asset BRD Commercial in July,
with the combined bank live on a common operational platform. All
client and internal data was successfully transferred and our
predecessor banks now operate as a single entity. We remain focused
on growing revenues and delivering operational improvements to
reduce the cost:income ratio of the combined business towards the
level we target for the group.
Grow
As noted above, we have deliberately accelerated investment into
specific growth initiatives in our digital finance and our treasury
and global markets operations and we look forward to updating the
market as we make progress here.
We have been particularly pleased with our ability to attract
deposits at attractive pricing over the course of 2016 with growth
here running ahead of our expectations. This has been a key area of
focus for us. While growth in loans and advances has been somewhat
slower, we have seen selective areas of expansion and, of course,
remain vigilant on maintaining high levels of credit quality given
the uncertain economic environment.
In terms of progress across individual businesses, I am pleased
to highlight the following:
In Corporate Banking, we saw net interest growth of 30.8%
year-on-year driven by reduction in cost of funds, a decline in
credit impairments of 32.3% reflecting improved credit processes
and a focus on NPL recovery. A new transactional banking platform
will be fully implemented in the second half which will boost
non-funded income and support customer retention.
Within Treasury and Markets, trade volumes are running at US$1
billion year to date (31% higher than at the comparable period last
year), sales revenue growth is up 51%, trading revenue is up 121%
and we have implemented a funds transfer pricing mechanism across
all our subsidiary banks to ensure that all products are priced
appropriately.
Retail Banking has been steady. Recent developments include
deployment of point of sale (POS) terminals in Zimbabwe which is
yielding positive results and agency banking will be rolled out in
Tanzania and Mozambique in the second half to deliver further
customer and asset & liability growth.
Branding
We recognise that each of our banks possess certain unique brand
equity in the markets in which they operate. Our research has also
shown that there is also value from the Atlas Mara brand in
enhancing the perception of the strength and standing of our local
operations and that this translates into tangible business
improvement through, for example, larger deposits at a lower cost
than the businesses could have achieved on a standalone basis.
To combine the best of local and global capabilities, last year
we launched a brand endorsement strategy across BancABC wherein
"part of Atlas Mara" appears on all BancABC communications, from
billboard signage to cheque books, and the Atlas Mara logo is
combined with a refreshed Banc ABC logo. A similar rebranding
exercise was undertaken at our Rwandan operations earlier this year
following the merger of BPR and BRD Commercial. We are considering
the brand proposition of our new operations in Zambia carefully
given the need to dovetail this with our existing brand positioning
in that country.
Valuation and shareholder returns
We are acutely conscious that, to date in 2016, it has again
been a difficult year for investors in our stock. In
particular:
-- Although we do not take comfort from the fact, we do note
that since both the beginning of 2015 and our IPO, the Atlas Mara
stock price has performed broadly in line with the median of its
African peers, in US Dollar terms.
-- We also recognize that the market capitalization of the
company, at around US$220 million, is below what we paid for our
investment and subsequent capital injection into our principal
operating entity BancABC or what we paid for our Associate interest
in UBN.
In our view, our current market valuation does not reflect the
economic value we expect to deliver to shareholders from our
businesses over time. In particular, the market value of our stake
in UBN at 30 June was around US$95 million against a carrying value
(post-devaluation) of US$321.4 million. We believe this latter
valuation provides a fairer reflection of its economic value. The
fact that the stock is relatively illiquid and tightly owned means
that the market valuation is not close to a level where control
could be obtained nor is it representative of the value that we
would expect a well-run Nigerian banking business to deliver to our
shareholders over time.
We remain focused on improving our businesses and delivering our
medium-term targets in the expectation that the valuation of the
company will follow.
Macroeconomic perspectives
Atlas Mara has operations and/or investments in seven
sub-Saharan African countries. Demographics coupled with low
financial penetration make us confident that banking businesses in
these markets are structurally positioned to enjoy high growth
rates over time, but we recognize that some of these economies face
cyclical short-term headwinds. We believe that there are benefits
from our regional and trade bloc diversification as some markets
continue to perform well (such as Botswana and Rwanda), while
others face challenges (as is the case in Nigeria and Zimbabwe). A
brief review of our markets is provided below:
Southern Africa
Subdued commodity prices weighed heavily on the Botswanan
domestic economy last year with the economy contracting by an
estimated 0.25% in 2015 after the growth of 3.2% recorded in 2014.
Encouragingly, the economy delivered positive growth in the first
quarter of 2016 at an annualized rate of 2.8%. While developments
in the diamond and commodities markets will drive the speed at
which the economy recovers, we note that NKC Economics expects that
GDP growth will recover to an estimated 3.5% in 2016 and 4.6% in
2017, supported by a modest pickup in diamond demand, as the impact
of government's Economic Stimulus Program (ESP) to boost the
domestic economy begins to take effect.
Mozambican real GDP growth slowed in the first quarter of 2016
with preliminary data indicating that the economy expanded by 5.3%
y-o-y in Q1 2016, compared to 6.1% year on year expansion recorded
in Q4 2015. Drought within the agricultural sector is expected to
continue to weigh on growth. NKC Economics forecasts growth of 4.9%
in 2016 and 5.5% for 2017. The more important short term issue for
the economy is debt sustainability as a need to restructure
previously undisclosed loans to state-owned companies has led to a
substantial increase in Government debt to GDP.
In Zambia, the first six months of this year have been
overshadowed by heightened tensions during the build-up to
elections earlier in August, which passed off relatively
trouble-free. The overall economy has been under stress as a result
of a commodity-induced cyclical slowdown from lower copper prices
and this was aggravated by a drought-induced power crisis. NKC
Economics expects that the real economy will expand by just 3.3%
this year before recovering to c.4.5% per annum over the medium
term driven by moderate improvement in copper prices. The second
quarter of this year also saw weakness in the Kwacha exchange rate
and continuing tight liquidity conditions which has contributed to
pressure on margins in our local operations.
In Zimbabwe the economic challenges remain intense with weak
levels of economic activity expected to continue throughout 2016.
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. Across the entire banking system, a lack of
availability of physical cash also remains a constraint on economic
activity. Although 2016 will continue to be a challenging year, we
remain hopeful with respect to Zimbabwe's longer-term
prospects.
East Africa
The Rwandan economy continued to perform well in the first
quarter with growth at a real rate of 7.1%. This was broadly based
with each of agriculture, services and industry each delivering a
strong outcome. This makes the economy likely to achieve one of the
highest growth rates in sub-Saharan Africa (and the world) in 2016
- with inflation expected to be in line with the Central Bank's 5%
target.
While Tanzania has not released GDP growth figures for this
year, growth is projected to remain at a level significantly higher
than the sub-Saharan average. In July, the International Monetary
Fund completed a review of Tanzania and concluded that
macroeconomic performance has been strong with growth remaining
close to 7% and inflation at moderate levels. They noted that the
macroeconomic outlook is favourable, supported by the authorities'
ambitious development agenda, although risks are tilted to the
downside and that sustaining high growth and implementing the
development agenda while preserving fiscal and external
sustainability will require a range of policy reforms.
West Africa
In Nigeria, the policy environment has been dictated by the
dearth of foreign exchange which led to the devaluation of the
Naira in June. The consequent impact of this upon our financial
statements is summarized in the CFO report below. The CBN reported
that economic activities in Nigeria declined faster in June and
confirmed that the nation's economy formally entered into recession
in the second quarter, following a modest contraction of 0.4% in
the first quarter. In terms of economic stimulus, the CBN is
setting aside 500bn (c.US$2.5bn) for loans to non-oil exporters.
The facility is expected to address the decline in export credit
and reposition the sector to increase its contribution to revenue
generation and economic development, particularly in light of the
slump in oil revenues (from lower prices and disruption in the
Delta) and declining GDP. In addition, the federal government has
planned a fresh 90bn bailout for state governments to provide
financial relief.
Inflation has picked up (the rate of 15.6% in May represented an
increase of 188bps from April) fueled by an increase in food prices
and imported inflation due to foreign exchange scarcity and a
weaker Naira.
Outlook
We expect a better operational performance from our businesses
during the second half of the year as the cost and revenue
initiatives that we have implemented begin to deliver results.
Notwithstanding this, our medium-term financial targets and
strategic goals remain unchanged and we remain optimistic about our
ability to achieve them but recognize that further acquisitions and
a supportive economic environment are central to achieving this. As
a result of the measures we are taking, we continue to strive to
meet our goal of matching last year's earnings of US$11.3 million.
However, we do recognize that the combination of weaker currencies,
restructuring costs associated with staff reductions and
integration expenses associated with the two completed
acquisitions, as well as the uncertain economic outlook, provide
challenging headwinds in this regard.
We believe that the execution of our strategy will, in time, be
reflected in a higher share price but we understand the frustration
of our investors with recent performance. The Board and Management
remain focused on addressing investor concerns, enhancing
communication and are considering ways to encourage more liquidity
in our stock.
The remarkable progress that we have seen to date in building
the operation that is Atlas Mara in what is still a relatively
short time period 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 wholly focused on delivering our stated objectives and we
welcome your continued engagement.
Arina McDonald, Chief Financial Officer
Overview
As our CEO, John Vitalo, has already noted, Atlas Mara has faced
a number of challenges so far in 2016. Africa has not been isolated
from broad global macroeconomic trends and several factors have
combined to provide headwinds in our operating markets this year.
These include the impact of lower commodity prices, the lower oil
price and its effect on oil-exporting economies, such as Nigeria,
and a significant weakening of a number of African currencies
against the US Dollar in the second half of last year, the full
impact of which we are now experiencing on an annualised basis.
The net impact of the devaluation of the Naira towards the end
of June had a positive impact on our P&L, largely due to fair
value adjustments of US$15.4 million. However, there has been a
negative impact on our reported equity of US$83 million from
unrealised translation losses, principally on our investment in
UBN. This latter item was the principal reason for the decline in
our equity since the end of December. At the end of June our book
value was US$8.07 per share (December 2015: US$ 8.94) and our
tangible book value was US$6.07 per share (December 2015: US$
7.00). In the second half, the contribution from our Associate,
UBN, can be expected to be somewhat lower when translated into our
functional reporting currency, the US Dollar, given the continued
depreciation seen in the Naira.
We are taking a number of steps to improve the operational
performance of the business and we remain wholly focused on
execution to deliver the returns our shareholders expect. The
consolidated reported profit after tax and non-controlling interest
for the period to June 2016 was US$1.2 million which compares with
the prior year profit of US$4.1 million. Excluding the impact of
exchange rate movements, our first half net profit would have been
US$3.5 million.
We also focus on operating earnings which exclude certain
revenues and costs that are not part of the ongoing earnings base
of the future. This reflects the fact that Atlas Mara is focused on
targeting acquisitions whilst simultaneously protecting and
integrating acquired businesses to put them in a position to
deliver high-quality growth. Our operating earnings for the first
half were US$9.2 million versus the US$17.0 million calculated on a
similar basis for 2015.
Excluding one-off and transaction-related expenses, our cost to
income ratio was 91.7% versus the comparable figure in 2015 of
79.8%. This ratio remains higher than we would like as a result of
a challenging revenue environment coupled with planned investments
to facilitate future growth. A further factor is the impact of
having a significant component of US dollar linked costs while our
revenues are in local African currencies which have depreciated
over the last 12 months.
We remain very focused on managing costs and initiated a
group-wide cost reduction plan at the beginning of the second half
which will lower our Shared Services and Center costs on an
annualised basis by c.US$8 million. As for incremental budgeted
expenditure, our priority in 2016 is on investment in building our
digital businesses and capital markets/treasury operations, both of
which will drive future revenues.
Table 1: Adjusted operating profit and reconciliation to IFRS profit
for six months to end
June 2016 2015 Var CC Var(1)
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Total income $ million 113.5 98.8 14.9% 34.5%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Impairment $ million (9.1) (6.1) 49.2% 64.0%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Total expenses (excluding one-off) $ million (104.1) (78.8) 32.1% 53.5%
Income from associates $ million 12.5 10.5 19.0% 22.9%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Adjusted profit/(loss) before tax $ million 12.8 24.4 (47.5%) (39.7%)
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Adjusted net profit/(loss) $ million 9.2 17.0 (45.9%) (38.4%)
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
M&A transaction expenses $ million (7.8) (5.4) 44.4% 44.4%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Reorganising/restructuring costs $ million (3.6) (9.9) (63.6%) (63.3%)
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Reported profit/(loss) before tax $ million 1.4 9.1 (84.6%) (76.6%)
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Reported net profit/(loss) $ million 1.2 4.1 (70.7%) (33.9%)
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Reported cost to income ratio % 101.7% 95.2%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Adjusted cost to income ratio % 91.7% 79.8%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Reported return on equity % 0.4% 1.7%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Adjusted return on equity % 3.2% 6.9%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Return on assets % 0.1% 0.4%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Adjusted return on assets % 0.6% 1.7%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Reported EPS $ 0.02 0.05
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Credit loss ratio % 1.3% 1.0%
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Book value per share $ 8.07 8.94
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Tangible book value per share $ 6.07 7.00
---------------------------------------------------------------------- --------- ------- ------ ------- ---------
Notes: 1. Constant currency variance excludes the impact of
depreciating currencies against the US dollar.
Income statement review
Table 2: Total income
We reported growth in total income of 34.5% on a constant
currency basis, largely attributable to momentum in Botswana and
Rwanda with the former being a particular beneficiary of lower cost
of funds and on optimising growth both organically and via
acquisitions. We continue to build our capability in digital and
mobile banking and expect less balance-sheet-intensive revenues
from these sources to build over the course of 2016 and into
2017.
2016 2015 Var CC Var
$m $m % %
------------- ------- ----- ------- ------
Net interest $49.4
income $45.2 m m (8.5%) 4.2%
------------- ------- ----- ------- ------
Non-interest $49.4
income $68.3 m m (38.3%) 66.3%
------------- ------- ----- ------- ------
Net interest income
During the 6 months, there have been market-wide, liquidity
shortages in a number of our countries of operation including
Mozambique, Tanzania and Zambia. Despite this, the improvement in
net interest income on a constant currency basis is largely due to
a reduction in funding costs in other markets. The decline in cost
of funds from 6.43% in the first quarter of 2016 to 5.95% for the
second quarter of 2016 reflects the Group's focus on targeting
cheaper transactional deposits and placing less reliance on
interbank funding. Our partnership with a number of development
finance institutions (DFI) has also contributed to achievement of
this goal.
As we continue to focus on attracting low-cost retail deposits
across the Group, we expect to see our retail business making a
greater contribution to net interest income over time and this
will, in turn, support an improvement in net interest margins.
Notable headwinds to growth in the first half came from subdued
growth in loans and advances across all countries due to liquidity
challenges and delayed deal closure. We are taking steps to ensure
a faster and smoother process from credit approval to drawdown to
ensure that balance sheet growth is not compromised by unnecessary
bottlenecks in the process.
Non-interest income
Non-interest income increased by 66.3% on a constant currency
basis to US$68.3 million in 2016 (2015: US$49.4 million) with this
figure boosted by fair value gains of US$15.4 million post
devaluation of the Naira in June 2016 and a US$1 million
(provisional) bargain purchase gain on acquisition of Finance Bank
Zambia.
There was a notable uplift in trading revenue to US$17.8 million
from US$10.1 million a year ago reflecting our efforts to build out
our onshore treasury capability.
Total expenses
Total costs amounted to US$115.5 million, an increase of 39.1%
in constant currency terms year on year with the acquisitions
completed this year being a principal contributor to this.
Staff costs have been impacted by separation and hiring related
costs as we continue to hire top talent to lead change in the
businesses acquired.
Investment in centralised Group procurement has driven a better
understanding of country cost drivers. As a consequence, we have
prioritised key cost containment projects, including negotiating
lower annual license fees and rates with IT related vendors. The
benefits of this will be realised in the second half of 2016.
Loan impairment charges
The 2016 loan impairment charge of US$9.1 million represents a
significant increase on the prior year charge of US$6.1 million but
with the second quarter charge of US$0.6 million considerably lower
than the first quarter (US$8.5 million). This is after gross
recoveries of US$2.7 million, which were weighted towards the
second quarter and with Rwanda and Zimbabwe being particular
contributors in this regard. Areas of particular focus are
Mozambique where impairment model changes have driven higher credit
costs and Zambia where we continue to monitor a number of specific
exposures.
Table 3: Loan impairment charges
2016 2015 Var CC Var
$m $m % %
---------------- ---- ---- ------- -------
Loan impairment
charges 9.1 6.1 (49.2%) (64.0%)
---------------- ---- ---- ------- -------
Share of profit of associates
This represents Atlas Mara's share of profit from the 31.15%
stake in Union Bank of Nigeria Plc ('UBN') based on their published
results to 30 June 2016. The impact of intangible amortisation is
also included. Given that, as of the date of release of these
results, UBN had publicly disclosed its first half results to the
market, their results have been included in this set of accounts
without any change.
As noted above, the Nigerian macroeconomic environment has been
challenging in 2016 culminating in devaluation in the Naira just
before the period end. The decline in commodity prices, especially
in oil and gas, has led to a reduction in national income and
slower growth, as well as a reduction in Foreign Direct Investment.
Against this backdrop, UBN performed creditably and gross earnings
were up 7% on June 2015 with operating expenses in line with
planned investments in technology and network infrastructure.
Despite double digit inflation, the anticipated cost efficiencies
from the last two years' transformation projects are becoming
visible. Loans and advances were up 27% compared to June 2015, 12%
of which is real business growth and the rest driven by the impact
of the currency devaluation. Customer deposits grew by 11%.
Improved service offerings continue to generate customer
growth.
UBN's NPLs increased to 7.14% (December 2015: 6.99%), which
reflects UBN's conservative and realistic perspective on the
stresses expected in the local economy into 2016. UBN's CAR with
the benefit of the first half profit was at 15.2% as at June 2016,
modestly ahead of the Basel II 15% CAR requirement which became
effective from 30 June 2016.
A foreign exchange loss of approximately US$87 million arising
from the translation of our foreign operations from Naira to US
dollars was accounted for directly against equity upon the
inclusion of UBN's results into the Atlas Mara Group.
Table 4: Share of profit of associates
2016 2015 Var CC Var
$m $m % %
---------------- ---- ---- ----- ------
Share of profit
of associates 12.5 10.5 19.0% 22.9%
---------------- ---- ---- ----- ------
Statement of financial position review
Customer loans and advances comprise c.48% of the Group's total
asset base. Cash, short-term funds and marketable securities
represent c.15% and investment in our associate bank, UBN, accounts
for 11% of the asset base. Goodwill and intangible assets
represents c.6% of assets with fixed assets and other assets making
up the remainder. On a constant currency basis, total asset growth
was 28.1% compared to 2015 with the acquisitions in Rwanda and
Zambia the principal drivers of this.
Credit quality
In management's view, the customer loan book is adequately
provided for. This is reflected in the provision adequacy ratio of
58.7% (December 2015: 42.8%), which represents a satisfactory
coverage position given the uncertain economic outlook.
Non-performing loans (NPLs) as a percentage of the loan book also
declined to 13.2% (December 2015: 14.6%), reflecting evidence of
our improved resourcing behind our credit origination and
collection processes. Zambia is the economy of greatest concern
where we are monitoring developments closely. Although impairment
levels in Zambia are elevated and we have seen an increase in NPL
ratio, our NPL coverage at June 2016 was in excess of 100% after
taking into account the fair value of collateral.
We continue to focus on improving credit processes and embedding
responsible lending practices across the group to drive continuous
improvements in the quality of the loan portfolio as a key priority
for management.
Capital position
As at 30 June 2016, all of Atlas Mara's operating banks complied
with local minimum capital requirements relevant in that country,
as summarised in the graph below.
Table 5: Customer loans and deposits
2016 2015 Var CC Var
$m $m % %
--------------- ------- ------- ----- ------
Total assets 2,946.6 2,506.6 17.6% 28.1%
--------------- ------- ------- ----- ------
Customer loans 1,421.1 1,173.9 21.1% 33.2%
--------------- ------- ------- ----- ------
Total deposits 1,814.9 1,462.9 24.1% 37.9%
--------------- ------- ------- ----- ------
Our focus on deposit growth has delivered clear results with
constant currency growth of 37.9% year-on-year in retail deposits
supporting our aim of reducing the cost of funding for the Group.
The contribution of interbank deposits has decreased gradually from
9.5% at end of 2015 to 8.9% at end of H1 2016. Interbank funding in
Tanzania and Zambia remains high as a result of market-wide
liquidity constraints. Risk--weighted asset growth, excluding
acquisitions, was limited reflecting both the subdued demand for
credit across our markets but also our selective approach to credit
risk as a result of refining our overall risk appetite.
Goodwill and intangibles
As a result of the acquisitions made during 2016 and in
compliance with IFRS 3: Business Combinations, the statement of
financial position incorporates a goodwill asset of US$81.8 million
(December 2015: US$82.7 million) and intangible assets of US$84.9
million (December 2015: US$56.6 million). Intangible assets are
amortised over a 10-year useful life period.
These assets represent a combined 6% of the Group's asset base,
resulting in a tangible book value of US$6.07 per share (December
2015: US$7.00 per share) versus a book value per share of US$8.07
(December 2015: US$8.94).
Investment in associate: UBN
Our investment in UBN is equity-accounted for in the statement
of financial position as an investment in an associate, with a
closing balance of US$321.4 million (2015: US$395.9 million). The
value of the equity-accounted earnings is as reported in UBN's 30
June 2016 unaudited financials.
We have reviewed the carrying value of the investment held in
UBN from a valuation perspective. Stress-testing of future expected
earnings has been considered, taking into account the impact of the
devaluation in the Naira, as well as potential credit shocks in the
Nigerian market from lower oil prices and market-wide shortages of
US Dollar liquidity. The carrying value was substantiated
notwithstanding such potential stresses in the local market.
Liabilities
The reduction in equity largely reflects the translation impact
from converting our foreign operations in our African subsidiaries
into US Dollars. The negative impact on equity (as an unrealised
conversion loss) was US$83 million - of which Nigeria was the
largest contributor (US$87 million).
Customer deposits comprise 76.6% of the liability base and
represent 61.6% of the aggregate of liabilities and equity. The
loan to deposit ratio for June 2016 is 78.3% (June 2015:
80.2%).
Table 6: Composition of liabilities
2016 2015 Var CC Var
$m $m % %
--------------- -------- -------- ----- ------
Deposits due
to customers $1,814.9 $1,462.9 24.1% 37.9%
--------------- -------- -------- ----- ------
Borrowed funds $342.9 $284.7 20.4% 55.0%
--------------- -------- -------- ----- ------
Segment information
The segmental results and statement of financial position
information represents management's view of its underlying
operations. The business is managed on a geographic basis
consistent with the Group's emphasis on sub-Saharan Africa's key
trading blocs with a specific focus on underlying business line
performance.
The seven countries of operation and investment are grouped as
follows:
Southern Africa
Our Southern Africa segment includes the operations of BancABC
excluding Tanzania, i.e. Botswana, Mozambique, Zambia and Zimbabwe,
as well as BancABC's holding company, ABCH, incorporated in
Botswana, and various affiliated non-bank Group entities in those
jurisdictions. The scale of our operations in Zambia were
significantly increased by the acquisition of Finance Bank Zambia
at 30 June 2016. The integration process is underway and while
Zambia faces some short-term economic headwinds, we remain positive
about the long-term prospects for this market.
East Africa
Our East Africa segment consists of BancABC Tanzania and Banque
Populaire du Rwanda following its merger with BRD Commercial
Bank.
In January 2016 Atlas Mara acquired a 45.03% stake in BPR. BPR
was established in 1975 and is the second largest bank in Rwanda
with total assets of c.US$250 million, loans of US$164 million and
deposits of c.US$188 million as at 31 December 2015. BPR was merged
with BRD Commercial Bank at the beginning of January 2016 resulting
in Atlas Mara owning 62.06% of the merged entity, which is now the
second largest bank in this key market. The integration process is
complete and we are positive about the prospects for the merged
entity in Rwanda.
West Africa
The contribution to earnings from West Africa comprises our
associate investment in UBN, based on our 31.15% share of UBN's
earnings attributable to equity holders as disclosed in their
published results. Our investment in UBN resulted in associate
income of US$12.5 million in 2016 compared to US$10.5 million for
2015.
Atlas Mara, through its three board seats on the UBN board, is
working closely with UBN management to monitor the impact of the
recent oil price declines and currency weakening on the credit and
capital positions. We see positive medium-term growth potential for
UBN irrespective of the near-term challenges from the macroeconomic
environment.
Other
Included in this segment are Atlas Mara Limited, the BVI
incorporated holding company, and 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
Shared Services and Center of Atlas Mara reported a net loss of
US$11.8 million for the first half of 2016 compared to a net loss
of US$11.9 million for 2015. We have initiated plans to reduce the
Shared Services and Centre costs both through direct staff
reduction and through the transfer of certain personnel to
operating businesses. The increase in costs and expenses in 2016
reflect continued investment to build a best-in-class banking
infrastructure
USD'm
------------------------------- ---------------------------- ------------------------- ------------------------ ---------------------------- --------------------
Total Income 113.5 71.2 27.1 - 6.6 8.6
Loan
impairment
charge (9.1) (8.1) (1.5) - - 0.5
Operating
expenses (115.5) (61.0) (24.6) - (18.4) (11.5)
Share of
profits of
associate 12.5 - - 12.5 - -
Profit /
(loss)
before tax 1.4 (2.1) 1.0 12.5 (11.8) 1.8
Profit /
(loss) after
tax and NCI 1.2 (2.1) 1.1 12.5 (11.8) 1.5
============== =============================== ============================ ========================= ======================== ============================ ====================
- -
Loans and
advances 1,421.0 1,125.3 297.0 - - (1.3)
Total assets 2,946.7 1,979.3 504.2 321.4 722.4 (580.6)
Total equity 577.3 105.5 71.1 321.4 642.1 (562.8)
Total
liabilities 2,369.4 1,873.8 434.1 - 76.3 (14.8)
Deposits 1,814.9 1,423.7 391.5 - - (0.3)
============== =============================== ============================ ========================= ======================== ============================ ====================
Net interest
margin -
total assets 3.1% 3.4% 7.9% N/A
Net interest
margin -
earnings
assets 4.1% 4.3% 9.3% N/A
Cost to
income ratio 101.7% 85.7% 90.9% >100%
Statutory
Credit loss
ratio 1.3% 1.4% 1.0% N/A
Return on
equity 0.4% (3.9%) 3.1% (3.7%)
Return on
assets 0.1% (0.2%) 0.4% (3.3%)
Loan to
deposit
ratio 78.3% 79.0% 75.9% N/A
============== =============================== ============================ ========================= ======================== ============================ ====================
USD'm
---------------- --------------- ---------------- --------------- --------------- ----------------
Total Income 98.8 91.4 6.7 - (1.1) 1.8
Loan
impairment
charge (6.1) (6.3) 0.2 - - -
Operating
expenses (94.0) (64.1) (9.3) - (10.8) (9.8)
Share of
profits of
associate 10.5 - - 10.5 - -
Profit /
(loss)
before tax 9.2 21.0 (2.4) 10.5 (11.9) (8.0)
Profit /
(loss) after
tax and NCI 4.1 15.7 (2.1) 10.5 (11.9) (8.1)
============== ================ =============== ================ =============== =============== ================
Loans and
advances 1,173.9 1,059.1 125.1 - - (10.3)
Total assets 2,506.6 1,698.3 246.4 382.5 340.2 (160.8)
Total equity 639.4 70.2 34.1 382.5 298.2 (145.6)
Total
liabilities 1,867.2 1,628.1 212.3 - 42.0 (15.2)
Deposits 1,462.9 1,279.2 183.7 - - -
============== ================ =============== ================ =============== =============== ================
Net interest
margin -
total assets 3.9% 5.7% 5.1% N/A
Net interest
margin -
earnings
assets 5.5% 6.3% 5.6% N/A
Cost to
income ratio 95.2% 70.1% 138.8% >100%
Statutory
Credit loss
ratio 1.0% 1.2% (0.3%) N/A
Return on
equity 1.3% 44.7% (12.3%) (3.6%)
Return on
assets 0.3% 1.8% (1.7%) (3.3%)
Loan to
deposit
ratio 80.2% 82.8% 68.1% N/A
============== ================ =============== ================ =============== =============== ================
USD'm
--------------- --------------- ---------------- --------------- --------------- ------------------
Total Income 205.1 181.2 14.1 - 11.4 (1.6)
Loan
impairment
charge (12.0) (12.4) 0.4 - - -
Operating
expenses (194.2) (136.3) (17.7) - (33.4) (6.8)
Share of
profits of
associate 20.3 (0.1) 0.2 20.2 - -
Profit /
(loss)
before tax 19.2 32.4 (3.0) 20.2 (22.0) (8.4)
Profit /
(loss) after
tax and NCI 11.3 21.6 (1.9) 20.2 (22.0) (6.6)
============== =============== =============== ================ =============== =============== ==================
Loans and
advances 1,229.4 1,100.3 129.8 - - (0.7)
Total assets 2,452.1 1,643.3 241.6 395.3 355 (183.1)
Total equity 625.5 101.1 32.1 395.3 279.3 (182.3)
Total
liabilities 1,826.6 1,542.2 209.5 - 76 (1.1)
Deposits 1,436.1 1,248.5 187.6 - - -
============== =============== =============== ================ =============== =============== ==================
Net interest
margin -
total assets 4.3% 6.6% 5.3% N/A
Net interest
margin -
earnings
assets 6.0% 7.2% 5.6% N/A
Cost to
income ratio 94.7% 75.2% 125.4% >100%
Statutory
Credit loss
ratio 1.0% 3.8% (10.1%) N/A
Return on
equity 1.7% 21.4% (6.0%) (3.3%)
Return on
assets 0.4% 1.3% (0.8%) (3.0%)
Loan to
deposit
ratio 85.6% 88.1% 69.2% N/A
============== =============== =============== ================ =============== =============== ==================
Arina McDonald
Chief Financial Officer
Principal Risks
The principal risks as listed and described on pages 62 -- 67 of
the 2014 Annual Report have been evaluated and individually
considered by management. These risks are deemed to be still
applicable and no material additional risks have been identified as
at the period ended 30 June 2016.
Directors' Responsibilities Statement in Respect of the Interim
Results
We confirm that to the best of our knowledge:
The condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
The interim management report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
John F. Vitalo
Chief Executive Officer
24 August 2016
Forward Looking Statement and Disclaimers
This announcement does not constitute or form part of any offer
or invitation to purchase, otherwise acquire, issue, subscribe for,
sell or otherwise dispose of any securities, nor any solicitation
of any offer to purchase, otherwise acquire, issue, subscribe for,
sell, or otherwise dispose of any securities.
The release, publication or distribution of this announcement in
certain jurisdictions may be restricted by law and therefore
persons in such jurisdictions into which this announcement is
released, published or distributed should inform themselves about
and observe such restrictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR AKQDPABKKQFB
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