TIDMATMA
RNS Number : 5228X
ATLAS Mara Limited
30 April 2019
30 April 2019
Atlas Mara provides audited results for the year ended 31
December 2018
Atlas Mara Limited ("Atlas Mara" or the "Company" including its
subsidiaries, the "Group"), the sub-Saharan African financial
services group, releases its consolidated audited financial results
for the year ended 31 December 2018. The results represent an
extract from the audited summarised financial statements.
Principal financial highlights:
-- Reported net income of $39.7 million (2017: $45.4 million)
-- Underlying bank operating results include outperformance vs.
2017 in Nigeria and Zimbabwe, in-line performance in Botswana,
Mozambique, and Rwanda, and underperformance in Tanzania and
Zambia
-- In Nigeria, Union Bank of Nigeria ("UBN") contributed
associate income of an estimated $56.5 million for the period
(2017: $38.4 million), which reflects the Company's share of income
on an equity accounted basis of $27.8 million (2017: $17.8
million), as well as the impact of the gain on acquisition of $28.7
million
-- EPS of 23 cents compared to 26 cents in 2017 pro forma for
the 12 month impact of the 2017 equity issuance (2017 reported EPS:
42 cents)
-- Both the statement of financial position and profits of the
Group were adversely impacted by the implementation of IFRS 9. This
is consistent with the position reported by most banks across
EMEA
-- Executed on Nigeria strategy by increasing stake in Union
Bank of Nigeria ("UBN") from approximately 44.5 percent in Q4 2017
to 49.0 percent in Q4 2018 and 49.7 percent as at 30 April 2019
-- The Group's book value was adversely impacted by $59.1
million compared to 2017 and 1H 2018 due to the impact of the
currency change in Zimbabwe
-- Post IFRS 9 impact, all operating banks maintained adequate
capital adequacy ratios, reflecting stable balance sheets
-- Continued focus on deposit growth, loan book quality, and growth business lines:
o Launched a deposit drive across Retail, Corporate and
Institutional segments through innovative campaigns to lower cost
of funds and generate sustainable funding for balance sheet
growth
o Reduction in non-performing loan ("NPL") ratio to 11.1% at
year-end (2017: 11.8%)
o Digital channels volumes and revenues increasing month-on
month across all channels, especially mobile banking (all
countries), mobile push/pull (Zimbabwe) and POS (Mozambique and
Zimbabwe)
o Markets & Treasury pivoted to onshore, aligned to client
demand, and continued expansion of product catalogue and client
roster
Commenting on the results, Michael Wilkerson, Executive
Chairman, said: "We are pleased to report a profitable year for the
Company, including another strong performance from our largest
investment, UBN, but core operating performance remains below
target in many markets. We are disappointed in the decrease in book
capital, which resulted primarily from the transition to IFRS 9 and
the unrealized currency losses in Zimbabwe and elsewhere. In this
challenging environment, we are focused on the priorities we
outlined earlier this year from our ongoing strategic review,
including partnering in or exiting markets where we do not have a
clear near-term path to acceptable scale and profitability as
illustrated by the Proposed Transaction also announced today. We
continue to pursue other levers for value creation, including
improving asset quality, reducing our cost of funds, and
controlling operating expenses. We remain committed to delivering
improving returns for our shareholders."
Events Subsequent to Period End
-- The Group also announced today that it has entered into a
binding term sheet with Equity Group Holdings Plc ("EGH") for the
exchange of certain banking assets of the Company in four countries
for ordinary shares in EGH (the "Proposed Transaction"). The
Proposed Transaction is subject to confirmatory due diligence,
definitive transaction documentation, relevant regulatory
approvals, and other conditions precedent customary for
transactions of this nature. This transaction will result in the
deconsolidation of the referenced entities effective 30 April 2019.
Further information on the Proposed Transaction is included in the
announcement issued by the Company today.
-- Following the announcement relating to the Proposed
Transaction, the Company announces that John Staley has determined
to step down as Chief Executive Officer effective 30 April 2019 to
pursue other interests. The Board and the Company wish him well in
his future endeavours. The Company's executive leadership team will
report directly to Executive Chairman Michael Wilkerson.
Additional Financial Highlights During the Period:
-- Credit impairments reduced to $0.2 million, driven by
recoveries in Mozambique and Zambia and the overall improvement in
credit quality compared to the IFRS 9 Day 1 position
-- 2018 reported profit benefitted from a gain of $28.7 million
associated with the acquisition of additional shares in UBN, as a
result of the fair value of the shares acquired exceeding the
purchase consideration paid. It relates to both the additional
shares allocated from the rights issue during January 2018 and the
share purchase reported on 26 June 2018
-- Total revenue decreased by 11.2%, attributable to the decline
in interest income on loans, as a result of contraction of the loan
book, the impact of IFRS 9 on the accounting for interest in
suspense, lower margins and tight market liquidity. Trading income
declined due to lower trading volumes
-- Operating expenses increased by 7.6% driven by increases in
the cost base of operating banks in most countries, most notably
Zimbabwe which also saw a double-digit increase in inflation during
2018
-- The Group's continued focus of managing down higher risk
portfolios in certain countries where we had a cautious credit risk
appetite has resulted in a further improved NPL ratio, but combined
with the impact of IFRS 9 the total loan book contracted by
13.2%
-- Asset recoveries totalled $6.0 million for the year
reflecting continued focus to deliver shareholder value through
managing the asset portfolio
-- Financial highlights from the UBN results included:
o Profit after tax increased by 39% to 18 billion Nigerian Naira
($59 million)
o Returns on average tangible equity at the bank increased from
5.9% to 11.3%
o NPL ratio declined from 20.8% to 8.1% resulting from loan book
clean-up, improved collections and collateral management, and
adoption of IFRS 9
o Total expenses increased by 12%, largely due to higher
AMCON/Nigerian Deposit Insurance Corporation (NDIC) premium,
increased depreciation and maintenance expenses, staff costs and
business promotion expenses
o Loans and advances reduced by 8% mainly as a result of
write-off of some fully provisioned non-performing loans
o Deposits increased by 7%, reflecting the success of the bank's
mobilization efforts
o BVPS declined to 7.75, a decline of 36.1% from 2017, which
resulted primarily from loan book clean-up including IFRS 9
adoption
Key operational highlights during the period:
-- Continued focus on strengthening the existing retail and
corporate business platform across all countries of operation. In
2018 we increased focus on operational and IT improvements, and
talent acquisition in the banks
-- Launched a deposit drive across Retail, Corporate and
Institutional segments through innovative campaigns across the
franchise to lower cost of funds and generate sustainable
funding
-- Launched improved corporate transaction platforms and
improved mobile banking applications for USSD, Android and iOS in
Mozambique, Rwanda, Tanzania and Zambia. The POS offering was
enhanced in Zimbabwe to include mobile money while MPOS was
introduced for the SME clients
-- Digital channels volumes and revenues, though on a small
scale relative to total revenues, have been increasing
month-on-month across all channels, especially mobile banking (all
countries), mobile push/pull (Zimbabwe) and POS (Mozambique and
Zimbabwe)
-- Strong performance in the Markets & Treasury Business in
Zambia, Rwanda and Tanzania. In Mozambique we led the first ever
secondary market transaction on fixed income trading and executed
the issuance of BancABC Mozambique corporate paper
-- We saw a number of notable achievements in our operating territories:
- Botswana:
- Completed an IPO for 20.5% of the shares in issue, raising
$28.1 million for ABCH Holdings, a portion of which has been
reinvested in the ongoing efforts to develop and enhance the
Group's IT infrastructure and banking platforms
- Raised $15 million from the market to refinance Tier 2 Capital
- Renegotiated a three-year retail savings and loans scheme with
two of the largest employee unions with a combined membership of
80,000 members
- Officially launched a prepaid Pula card to public service
employees. If we achieve our goal of 200,000 cards issued in the
next 24 months our Botswana franchise will become the largest card
issuer in the market
- Partnered with one of the biggest telecom companies for the
issuance of the telco's mobile wallet prepaid card
- Mozambique:
- Launched an online cash management solution with an automatic
banking machine at client premise for Corporate and SME
customers
- Initiated a micro-credit pilot with 19,000 mobile wallet
subscribers of one of the biggest telecoms companies in Mozambique
with a planned market-wide launch in 2019
- Launched a new Corporate and Retail online transactional
platform with enhanced functionality and client experience
- Rwanda:
- Continue to grow our presence in the Corporate Banking space. During 2018 we:
-- Participated in a $50 million syndicated loan for a large MNO
as lead arranger and extended financing ($11 million) for
infrastructure expansion and modernization
-- Participated in the funding of a Corporate client contracted
to construct a new Airport
-- Launched a new pre-export value chain financing in the
country's coffee sector
- Obtained VISA license and commenced integration process
- Tanzania:
- Launched a virtual card in partnership with the leading Mobile
Network Operator in the market and Mastercard. This is the first of
its kind in the Tanzanian market. The virtual card will allow MNO
mobile wallet holders to make payments on any local or
international website
- Zambia:
- Launched an improved mobile banking application and a mobile
wallet for both savings and micro-credit with multi-lingual
functionality to support the Bank's financial inclusion drive
- Strong performance in Corporate Banking with new advances to
our Corporate clients rising 150% compared to 2017
- Commenced rollout of 90 new ATMs with upgraded functionality.
The ATMs are bringing new features like card-less transactions and
cash deposit facilities
- Successfully completed the rebranding of the merged bank and
was awarded second place for brand equity conducted by IPSOS, a
global market research and a consulting firm
- Zimbabwe:
- Executed on our liability-led strategy which resulted in
Current and Savings accounts contribution to total liabilities
improving to 57% from 50% in 2017
- Introduced new Agribusiness unit to take advantage of
potential growth in the Agricultural sector, expected to become a
major contributor to the country's GDP. New products specifically
suited to small scale farming customers have been developed with a
significance increase in funding to our agri-finance clients
- Raised large funding facility as the second tranche of the
Public sector road infrastructure programme
- Renewed significant stock financing facility with one of the
biggest players in the agricultural sector
- Utilized partnership with one of the strongest insurance
players in the market to serve the Retail & SME segments better
through the issuance of zero-deposit mortgage advance and
performance bonds and bid bonds
- Partnered with World Remit, a global leader in international
transfers to mobile money accounts, to enable the bank to
participate in diaspora remittances processing
Investor Conference Call
Atlas Mara will be holding a conference call for investors at
10am EST / 3pm BST today. There will be a presentation available in
the Investor Relations section of the Company's website,
http://atlasmara.com. The Company will not be disclosing any new
material information.
Dial-in details are as follows:
United States: +1 631 913 1422
United Kingdom: +44 3333000804
Participant PIN Code: 45055004#
Contact Details:
Investors
Kojo Dufu, +1 212 883 4330
Media
Teneo, +44 (20) 7260 2700
Anthony Silverman
About Atlas Mara
Atlas Mara Limited (LON: ATMA) is a financial services
institution founded by Bob Diamond and listed on the London Stock
Exchange. With a presence in seven sub-Saharan countries, Atlas
Mara aims to be a positive disruptive force in the markets in which
we operate by leveraging technology to provide innovative and
differentiated product offerings, deliver excellent customer
service and accelerate financial inclusion. For more information,
visit www.atlasmara.com.
Summary of Results
Table 1: Adjusted operating profit and reconciliation to IFRS
profit for year ended December 2018
$'m 2018 2017 Total CCY
Audited Audited Var % Var %
-------- -------- ------- --------
Adjusted profit after tax 26.4 37.0 28.5 (28.5)
-------- -------- ------- --------
Transaction and M & A related items 26.3 20.6 27.8 27.8
-------- -------- ------- --------
Reorganisations and restructuring costs (8.7) (10.0) (13.0) (13.0)
-------- -------- ------- --------
Tax and NCI (4.3) (2.2) 99 ->100
-------- -------- ------- --------
Reported net profit 39.7 45.4 (12.6) (12.6)
-------- -------- ------- --------
Reported cost to income ratio 104.0% 85.8%
-------- -------- ------- --------
Adjusted cost to income ratio 99.3% 82.0%
-------- -------- ------- --------
Reported return on equity 5.8% 5.6%
-------- -------- ------- --------
Adjusted return on equity 3.8% 4.5%
-------- -------- ------- --------
Reported return on assets 1.4% 1.4%
-------- -------- ------- --------
Adjusted return on assets 0.9% 1.2%
-------- -------- ------- --------
Reported EPS ($) 0.23 0.42
-------- -------- ------- --------
Operational EPS ($) 0.15 0.34
-------- -------- ------- --------
Book value per share ($) 3.83 4.77
-------- -------- ------- --------
Tangible book value per share ($) 3.00 3.87
-------- -------- ------- --------
Total Shares in issue ('000) 173 073 172 259
-------- -------- ------- --------
Table 2: Summary of Financial Position as at December 2018
Q1 Q2 Q3 $' Audited Audited Total CCY
2018 2018 2018 million 2018 2017 Var % Var %
--------- --------- ------------------------------------------- --------- --------- -------- --------
302.9 339.6 343.8 Cash and short-term funds 382.0 457.0 (16.4%) 6.6%
--------- --------- ------------------------------------------- --------- --------- -------- --------
82.0 25.3 18.8 Financial assets at fair value through OCI 24.9 95.9 (74.0%) (69.5%)
--------- --------- ------------------------------------------- --------- --------- -------- --------
1,367.7 1,280.9 1,261.5 Loans & advances 1,154.1 1,330.0 (13.2%) 2.4%
--------- --------- ------------------------------------------- --------- --------- -------- --------
429.5 509.6 608.4 Investments 369.8 355.0 4.2% 61.1%
--------- --------- ------------------------------------------- --------- --------- -------- --------
515.6 537.5 542.2 Investment in associates 532.2 444.6 19.7% 19.5%
--------- --------- ------------------------------------------- --------- --------- -------- --------
177.1 169.4 152.6 Intangible asset 159.0 174.6 (8.9%) (3.9%)
--------- --------- ------------------------------------------- --------- --------- -------- --------
226.7 242.0 218.3 Other assets 182.6 283.3 (35.5%) (27.7%)
--------- --------- ------------------------------------------- --------- --------- -------- --------
3,101.6 3,104.3 3,145.7 Total assets 2,804.7 3,140.4 (10.7%) 6.0%
--------- --------- ------------------------------------------- --------- --------- -------- --------
1,853.9 1,910.1 1,911.8 Customer deposits 1,631.8 1,877.5 (13.1%) 7.2%
--------- --------- ------------------------------------------- --------- --------- -------- --------
350.5 358.1 408.2 Borrowed funds 410.2 346.2 18.5% 27.6%
--------- --------- ------------------------------------------- --------- --------- -------- --------
70.9 59.9 65.5 Other liabilities 73.8 103.5 (28.7%) 58.2%
--------- --------- ------------------------------------------- --------- --------- -------- --------
826.3 573.1 757.5 Capital and reserves 688.9 813.2 (15.3%) (15.3%)
--------- --------- ------------------------------------------- --------- --------- -------- --------
3,101.6 3,104.3 3,145.7 Total equity and liabilities 2,804.7 3,140.4 (10.7%) 6.0%
--------- --------- ------------------------------------------- --------- --------- -------- --------
73.8% 67.1% 66.0% Loan: Deposit ratio 70.7% 70.8%
--------- --------- ------------------------------------------- --------- --------- -------- --------
11.6% 12.9% 11.9% NPL ratio 11.1% 11.8%
--------- --------- ------------------------------------------- --------- --------- -------- --------
Notes: CCY refers to constant currency variance which excludes
the impact of local currencies' changes against the US$.
Chairman's Introduction
Dear fellow shareholders,
This is my first letter to you since assuming the role of
Chairman of Atlas Mara in February 2019. I welcome the opportunity
to serve our shareholders and the Company in this leadership
position, and I appreciate the support expressed by many of you
since the announcement. I'm further grateful for the full support
of the Board and management team, and for Bob Diamond's support and
assistance in the transition. I accepted the responsibility
recognizing the scale of the opportunities and challenges we face,
and I am optimistic about the potential to achieve our strategic
objectives.
Update on Review of Strategic Options
In February, the Board of Atlas Mara announced that it was
undertaking a review of strategic options, including an analysis of
each banking operation to ensure that top five market leadership
was practicably achievable in the near term, with the intention to
focus on investments in such core markets, and to partner, exit or
reduce risk exposure elsewhere.
Earlier today the Company announced a proposed share exchange
transaction with Equity Group Holdings ("EGH") for our banks in
Rwanda, Zambia, Mozambique, and Tanzania, which aligns clearly with
this strategic objective. In 2018, the four banks contributed in
aggregate less than 2% of Group net income with an implied
aggregate return on equity of 2%, and represent substantial
carrying costs in terms of capital and liquidity support. At $105.4
million of aggregate upfront consideration, we believe the proposed
transaction represents fair value to the Company for these assets.
Over time the proposed transaction is expected to be substantially
value-enhancing for Atlas Mara, notwithstanding any potential
near-term accounting loss as a result of the discount to gross book
value. Atlas Mara will become a meaningful shareholder in one of
Africa's most successful and well-run banks. The transaction will
result in increased scale in two of the four markets (Rwanda and
Tanzania) as a result of in-country mergers with EGH's local banks,
and through the implementation of EGH's business model for
digitally-driven banking, we expect these four banks will generate
improved financial performance. The Board believes this transaction
is in the best interests of Atlas Mara's shareholders and will
enable us to maximize value from these assets.
With the closing of this transaction and concurrent initiatives
to streamline the operating platform, Atlas Mara will be better
positioned to deliver shareholder value.
2018 in Review
Atlas Mara reported net profit attributable to shareholders of
$39.7 million for the full year 2018, a decline of 12.6% from $45.4
million in 2017. Return on average equity increased from 5.6% to
6.3%. Financial performance in Nigeria and Zimbabwe exceeded
management expectations, Botswana, Mozambique and Rwanda were in
line, while Tanzania and Zambia lagged. On a consolidated basis,
Zimbabwe's strong performance in local terms was undermined by the
severe devaluation of the currency in the first quarter of 2019,
which along with currency devaluations in other BancABC markets
resulted in an aggregate $71.8 million impact to the Group's
capital position from an unrealized loss on foreign currency
translation, in Zimbabwe's case retroactively imposed as at 31
December 2018. As a result of Zimbabwe's and other currencies'
impact on consolidated capital, as well as one-time IFRS 9
adjustments taken by all of our banks in 2018, book value per share
declined from $4.77 at year-end 2017 to $3.83 at year-end 2018.
IFRS 9 imposes a different approach to the treatment of loan
impairments, and our results, like those of most banks across the
EMEA region, have been impacted, including in a negative impact on
retained earnings and capital. These factors led to a $124.3
million decrease in the Company's book value, despite the
substantial net profit contribution for the year. However, as a
result of the full adoption of IFRS 9 in 2018, we expect that
future loan impairments will have a lesser impact on our financial
results, and that the Company may benefit from recoveries going
forward.
While we were not pleased with the financial impact of these two
factors to the Group's capital, we believe they are non-recurring
in nature. The underperformance across most of the BancABC banks
during the year remains a concern, and we have taken immediate
steps to address these performance challenges, including by way of
the proposed transaction with EGH.
In a more positive light, UBN, our largest investment, delivered
a strong performance in 2018, continuing the positive trend of
operational improvements seen since Atlas Mara's investments were
made in 2016 and 2017. For 2018, UBN's profit after tax increased
39% to 18 billion Nigerian Naira ($59 million), while returns on
average tangible equity at the bank increased from 5.9% to 11.3%
and bank NPLs declined to 8.1%. Amidst an improving environment for
growth in the Nigerian economy, the bank achieved substantially
increased profitability while delivering on the key strategic
priorities for the year, which included disciplined balance sheet
management, growth in retail deposits, an aggressive reduction of
the NPL ratio, and optimizing the capital and funding structure
including through an oversubscribed local bond issuance. Looking
ahead, we remain positive about the near-term opportunities for
UBN, and remain committed to supporting management's initiatives in
pursuit of higher shareholder returns, which in 2019 include a
program to make the cost structure more efficient without
sacrificing customer service.
We ended 2018 having increased our shareholding in UBN to 49%
from 44.5% in December 2017. After acquiring additional shares in
the open market in recent months, as of 30 April 2019 we control,
directly and indirectly, 49.7% of the shareholding in UBN. This
increase aligns with our stated focus on UBN and underscores the
importance of the bank to our plans.
Finally, I would note that in December 2018, the Company
successfully completed the IPO of BancABC Botswana on the Botswana
Stock Exchange, selling 20.5% to institutional and retail investors
at a price to book value of 1.5x. The transaction was intended to
strengthen BancABC Botswana's local market connectivity by
providing a broad base of more than 450 domestic shareholders, and
served to illustrate the value of the Group's underlying banking
operations not reflected in the share price of Atlas Mara.
2019 and Beyond
Our key strategic priorities for 2019 include completing the
proposed transaction with EGH, achieving our shareholding
objectives at UBN, working with UBN's management to drive for
further growth and profitability improvement at the bank,
stabilizing Zimbabwe operations in the current macroeconomic
environment, and fully streamlining the Atlas Mara platform to
align with a simpler group structure. By delivering on these aims
we can create an accelerated path to our return targets through a
more narrowly focused and efficient platform. We share your
frustration with the Company's share price and believe it does not
represent the fundamental value of the Company. We remain committed
to delivering value to shareholders, and believe a streamlined
Atlas Mara focused on growing our position in Nigeria and other
core markets will be better equipped to execute our strategies.
With the strategic initiatives to be completed in 2019 -
including the proposed transaction with EGH announced today, which
will result in the relevant operations being classified as held for
sale and deconsolidated from the Group - we expect greater than
usual variability in our financial results over the course of this
year. In light of these circumstances, and in line with our
regulatory requirements, we will release financial results to the
market on a six-month (as opposed to three-month) basis going
forward.
We remain positive on what lies ahead. Our position in Nigeria
is strong with a good management team and a path to accelerated
growth. A shareholding in EGH, and the relationship that this
represents with the leader in digital banking in Africa, can
meaningfully enhance our value proposition across our operations.
Our strategic review continues, but we believe the new Atlas Mara
emerging from the proposed transaction is the right model for
delivering value for shareholders over the long-term.
On behalf of the Board I want to thank our shareholders and all
stakeholders for their continued support.
Michael Wilkerson
Executive Chairman
Kenroy Dowers, Chief Financial Officer
Performance Overview
2018 was a year in which we continued to pursue our strategy for
delivering shareholder value, with a focus on operations and
profitability, as well as increasing our share in UBN. We also saw
sustained profit performance driven in large part by the
performance of UBN.
Our adjusted operating profit for 2018 was $26.4 million versus
the $37.0 million on a similar basis for 2017, representing a
decrease of 28.5% on a constant currency basis (computing 2017
operating earnings on 2018 foreign exchange rates as a more
appropriate year-on-year comparative). Adjusted operating profit
excludes certain non-recurring revenues and costs that are not part
of the ongoing earnings base, to make us more comparable to other
market peers by separately identifying and excluding one-off gains
and charges, including acquisition costs, integration of
businesses, etc.
Excluding one-off and transaction-related expenses or gains, our
cost to income ratio was 99.3% versus the comparable figure in 2017
of 82.0%, driven primarily by a decrease in total income more than
an increase in expenses.
Overall the returns being generated by the business remain below
the level to which we aspire, but there is a positive trajectory.
We remain committed to improving the ROE realized by the
business.
2018 represents the first year where the full impact of IFRS 9
Financial Instruments have been included in the Group results, and
the impact negatively affected a number of key lines in the
financial statements, including the loan book, financial
investments and our investment in UBN, which in turn negatively
impacted book value, without 2017 being restated. The impact of
IFRS 9 has been seen across the industry in all our countries of
operation as all banks reported higher portfolio or general
impairments compared to IAS 39 and higher coverage ratios on all
stages.
In October 2018, the Reserve Bank of Zimbabwe (RBZ) instructed
banks to separate bank accounts into FCA Nostro (USD balances) and
FCA RTGS (RTGS balances). This confirmed the position in Zimbabwe
that both USD and RTGS were legal tender and that the different
currencies could have different values, even though the official
exchange rate remained 1:1 through the end of 2018. During February
2019, further clarification was provided as the exchange rate was
formally moved to 2.5:$1.
In line with the general market practice, we included the assets
and liabilities of our Zimbabwean operations in our statement of
financial position using an exchange rate of 2.5:$1 whereas this
was previously included at a rate of 1:1, while income has been
included at 1: 1 vs an average exchange rate, as the impact of such
a change was deemed immaterial.
At the end of the year our book value was $3.83 per share
(December 2017: $4.77) and our tangible book value was $3.00 per
share (December 2017: $3.87). The main contributors to this
reduction in year-on-year book value is the impact of IFRS 9 for
both our operating subsidiaries and our share of the impact
reported by UBN. The currency change in Zimbabwe, which became
effective 31 December 2018 for accounting purposes, further
impacted the situation.
Looking to 2019, following the announcement of the proposed
transaction with EGH and our continued efforts to increase our
shareholding in UBN, we expect results throughout the year to be
negatively impacted by the impact of deconsolidation of those
subsidiaries, earmarked for disposal during the next 12 months, and
the possible consolidation of UBN. This will be driven mostly by
the realisation of cumulative translation losses booked and the
write down of goodwill and intangible assets associated with the
business combination at the time of the acquisition of these
investments.
Statement of comprehensive income review
Table 2: Total income for the year ended 31 December 2018
$'m 2018 2017 CC Var %
Net interest income 132.6 145.3 (12.1)
------ ------ ---------
Non-interest income 98.8 115.2 (17.9)
------ ------ ---------
Total income 231.4 260.5 (14.7)
------ ------ ---------
Atlas Mara reported a reduction in total income of 11.2% (14.7%
on a ccy basis) as a result of decline in net interest income and
non-interest revenue.
Net interest income
Net interest income declined by 12.1% on a constant currency
basis, mainly driven by the decline in interest income on loans, as
a result of contraction of the loan book, lower margins and market
illiquidity experienced in a number of the operating countries.
Interest expense declined by 5% compared to the prior period as
a result of decline in deposits. The decline in interest income was
negated by the decline in interest expense.
The net interest margin at 7.3% (2017: 6.8%) benefited from the
reduction in earning assets driven by the impact of IFRS 9 and the
continued focus on managing the risk appetite for credit growth
given the more challenging economic conditions across the
sub-Saharan Africa region.
Although improved cost of funds continues to be a key focus area
for the Group, in the markets where we experienced liquidity
pressures, specifically relating to local currency shortages, there
continues to be pressure on loan growth and the cost of
funding.
Non-interest income
Non-interest income declined in 2018 by 14.2% to $98.8 million
(2017: $115.2 million) mainly as a result of decline in net trading
revenue and lower fee and commission income and other income.
The decline in trading revenue is attributable to depressed
trading volumes and reduced trading activity at the SSC level.
Total expenses
Total costs of $229.8 million, excluding one-offs, represented
an increase of 7.6%, with this increase mostly attributable to
increased costs in the countries of operation, specifically in
Zimbabwe where inflation increased to approximately 20% during Q4,
driven by the acute foreign exchange shortages which triggered fuel
and basic goods shortages, in the process, partially reversing the
positive economic gains that had been experienced earlier during
the year.
Shared Services and Centre costs increased but remain under
control, increasing to $30.2 million from $29.0 million. The Group
continues to focus on driving these costs lower.
Staff costs remained relatively constant at $96.8 million (2017:
$98.8 million) for the year, but the contribution to total
expenditure has reduced to 40.2%. On an adjusted operating profit
basis, Atlas Mara reported a cost to income ratio of 99.3% (2017:
82.0%), compared to 104.0% (2017: 85.8%) on an IFRS basis.
Loan impairment charges
Impairment charges reduced gradually quarter by quarter to end
the year at $0.2 million as a result of loan recoveries, loan
write-offs and impairment reversals carried out in Zimbabwe and
Mozambique. Improvements in credit quality seen by movements from
stage 2 and 3 from the day 1 levels also contributed to the lower
impairment charge during the year.
We continue to focus on restructuring and recovering further
from the legacy NPL book, and have made good progress on a couple
of large single name exposures in Mozambique and Zimbabwe, both to
increase profitability and to reduce our overall NPL ratios to
closer to comparable peer levels.
Statement of financial position review
Customer loans and advances comprise c.41.2% of the Group's
total asset base. Cash, short-term funds and marketable securities
represent c.27.7%, other assets represent 6.5%, the investment in
associate UBN accounts for 19.0% of the asset base, with goodwill
and intangible assets making up the remainder at c.5.7% of total
assets. Total assets contracted by 10.7%, but grew by 6.0% on a
constant currency basis, reflecting the impact of the currency
change in Zimbabwe.
Customer loan composition - 2018
Table 3: Customer loan composition - By Country ($ millions)
Botswana Mozambique Rwanda Tanzania Zambia Zimbabwe Other Total
541.4 65.9 193.1 57.2 193.0 86.6 13.7 1 154.1
----------- ------- --------- ------- --------- ------ --------
Credit quality
The credit information presented below is based on the IFRS
results reported by operating countries, excluding the impact of
IFRS 3 Business Combinations and fair value adjustments made on
acquisition in respect of gross loans and advances and impairment
allowances.
The stage 3 impairment coverage ratio of 44.8% (NPL coverage
2017: 46.5%), is considered appropriate given the credit quality at
year-end and in line with coverage ratios reported by other African
banking Groups.
NPLs as a percentage of the loan book declined to 11.1%
(December 2017: 11.8%), reflecting our focused efforts on credit
monitoring and the collection processes. The year-on-year
improvement was specifically supported by asset recoveries secured
in Mozambique and Zimbabwe.
Capital position
As at 31 December 2018, all of Atlas Mara's operating banks
complied with local minimum capital requirements relevant in that
country, as summarised below.
Table 5: Capital Adequacy ratios
Capital Ratios 2018 2017 Regulatory Minimum
Botswana 17.6% 19.7% 15.0%
------ ------ -------------------
Mozambique 23.8% 24.4% 9.0%
------ ------ -------------------
Rwanda 23.7% 22.6% 15.0%
------ ------ -------------------
Tanzania 14.8% 17.7% 14.5%
------ ------ -------------------
Zambia 15.9% 13.8% 10.0%
------ ------ -------------------
Zimbabwe 39.0% 37.6% 12.0%
------ ------ -------------------
In Zambia, the bank remains compliant with the minimum capital
adequacy requirement and is now compliant with the absolute capital
requirement of ZMW520 million set by the Central Bank for
foreign-owned banks.
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 from refining our
overall risk appetite.
Investment in associate: UBN
Our investment in Union Bank of Nigeria of 49.0% at the end of
December 2018, is equity-accounted for in the statement of
financial position as an investment in associate, with a closing
balance of $530.6 million (2017: $442.7 million). The value of the
asset increased due to the additional investments, the gain on
acquisition booked and the increased profits reported by UBN,
however was offset by a further clean-up of the loan book including
the impact of IFRS 9 on UBN's accounts.
We have reviewed the carrying value of the investment held in
UBN from a valuation perspective as part of the year-end audit
review and valuation work. We have stress-tested future expected
earnings and having considered the impact of the devaluation of the
Naira, coupled with potential credit shocks in the Nigerian market
from lower oil prices and market-wide shortages of US Dollar
liquidity, the carrying value was nonetheless substantiated, with
no impairment required to the UBN carrying value for this
investment at December 2018.
Goodwill and intangibles
Due to the acquisitions made in the prior years and in
compliance with IFRS 3: Business Combinations, the statement of
financial position incorporates goodwill and intangible assets of
$159.0 million at December 2018 (December 2017: $174.6 million).
These assets represent 5.6% of the Group's asset base, resulting in
a tangible book value of $3.00 per share (December 2017: $3.87 per
share) versus a book value per share of $3.83 (December 2017:
$4.77).
Liabilities
Table 6: Customer deposits ($ millions)
Retail Corporate Treasury Total
FY 2018 410.4 972.1 249.3 1,631.8
------- ---------- --------- --------
FY 2017 489.5 1 115.3 272.7 1 877.5
------- ---------- --------- --------
There was a decline in total deposits compared to the prior
year, mainly attributable to loss of deposits in Tanzania, Botswana
and Zambia.
Term deposits remained the highest percentage of deposits
reflecting the tight liquidity situation in the countries of
operation.
Decline in transactional deposits and overnight deposits reflect
the tight liquidity situation experienced in most of our countries
of operation especially the ones listed above.
Customer deposits comprise 77.1% of the liability base and
represent 58.2% of the aggregate of liabilities and equity. The
loan to deposit ratio for 2018 was 70.7% (December 2017: 70.8
%).
Segment information
The segmental results and statement of financial position
information represents management's view of its underlying
operations on a geographic distributed basis, with the business
focus aligned to promote inter-Africa trade within the trade blocs
on the continent. The seven countries of operation and investment
are grouped as follows:
Our Business
Through our 49% stake in UBN and Board representation, Atlas
Mara has a footprint in Africa's largest economy, Nigeria. Nigeria
continues to represent a long-term destination for investment,
particularly in financial services, and our stake in UBN is a key
facet of our strategy for the region.
Atlas Mara, through its board seats on the UBN board, is working
closely with UBN management to monitor the impact of oil price and
currency changes 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.
Our share of profit from the 49.0% stake in UBN is based on
UBN's audited year-end results.
Botswana continued to perform well during 2018, although the
impact of liquidity constraints particularly in the earlier part of
the year, and a significant decline in the forex trading volumes,
affected overall income.
Despite broader economic challenges in Mozambique in 2018, the
business reported a profit for 2018, underscoring the benefit of
the focus during 2016 and 2017 to improve the capability of the
workforce.
Our business in Zimbabwe reported strong operating profits
boosted by NPL recoveries, continued focus on cost reduction and
fair value gains booked on some core banking and other assets.
In Rwanda our business continues to show improvement in
performance due to the strong focus on cost efficiency
initiatives.
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 through the
acquisitions of ABCH and ADC in August 2014, also referred to as
the Shared Services and Centre.
Table 7: Segment report
2018 Banking Operations Other
US$m Group Southern East West Corporate
------------------------------ ------- -------- ------ ----- ---------
Total Income 231.4 193.6 52.2 - (14.4)
------------------------------ ------- -------- ------ ----- ---------
Loan impairment charge (0.2) 6.9 (6.6) - (0.5)
------------------------------ ------- -------- ------ ----- ---------
Operating expenses (240.5) (165.3) (45.0) - (30.2)
Share of profits of associate 56.3 - - 27.8 28.5
Profit / (loss) before
tax 47.0 35.2 0.6 27.8 (16.6)
Profit / (loss) after
tax and NCI 39.7 27.5 (2.9) 27.8 (12.7)
Loans and advances 1,154.1 886.9 250.3 - 16.9
Total assets 2,804.7 1,674.4 421.7 530.6 178.0
Total liabilities 2,115.8 1,479.9 353.5 - 282.4
Deposits 1,631.8 1,319.8 312.0 - -
Net interest margin -
total assets 4.7% 7.4% 9.2%
Net interest margin -
earning assets 7.3% 8.8% 10.4%
Cost to income ratio 104.0% 85.4% 86.2%
Statutory Credit loss
ratio 0.0% (0.8%) 2.6%
Return on equity 6.1% 11.7% (4.2%)
------------------------------ ------- -------- ------
Return on assets 1.4% 1.6% (0.7%)
Loan to deposit ratio 70.7% 67.2% 80.2%
------------------------------ ------- -------- ------
2017 Banking Operations Other
US$m Group Southern East West Corporate
Total Income 260.5 181.7 54.1 - 24.7
------------------------------ ------- -------- ------ ----- ---------
Loan impairment charge (22.3) (12.7) (9.6) - -
------------------------------ ------- -------- ------ ----- ---------
Operating expenses (223.5) (156.8) (41.3) - (25.4)
Share of profits of associate 38.4 - - 38.4 -
Profit / (loss) before
tax 53.1 12.2 3.2 38.4 (0.7)
Profit / (loss) after
tax and NCI 45.4 8.5 1.4 38.4 (2.9)
Loans and advances 1,330.0 1,037.6 286.7 - 5.7
Total assets 3,140.4 2,000.1 503.0 442.7 194.6
Total liabilities 2,327.2 1,875.2 422.3 - 29.7
Deposits 1,877.5 1,505.1 372.4 - -
Net interest margin -
total assets 4.6% 5.6% 7.6%
Net interest margin -
earning assets 6.8% 6.7% 9.0%
Cost to income ratio 85.8% 86.3% 76.5%
Statutory Credit loss
ratio 1.7% 1.2% 3.3%
Return on equity 5.6% 6.8% 1.8%
------------------------------ ------- -------- ------
Return on assets 1.4% 0.4% 0.3%
Loan to deposit ratio 70.8% 68.9% 77.0%
------------------------------ ------- -------- ------
This statement contains certain non-GAAP financial information.
The primary non-GAAP financial measures used are 'adjusted
operating profit' which is computed by adjusting reported results
for the impact of one-off and transaction related items and
"constant currency balances/variances, which adjusts for the
period-on-period effects of foreign currency translation
differences. One-off items are considered, but not limited to be
those related to matters such as separation packages paid to staff
and executives, integration cots when acquiring new business and
costs associated with corporate restructures and reorganisations
which management and investors would identify and evaluate
separately when assessing performance and performance trends of the
business. Reconciliations between non-GAAP financial measurements
and the most directly comparable IFRS measures are provided in the
2018 Annual Report and Accounts - Annexure A and the
Reconciliations of Non-GAAP Financial Measures document, which will
be available on the Atlas Mara website.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR WGUBCCUPBUAU
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