Absa records strong earnings growth

20 February 2007 Absa Group Limited

Summary of financial performance:

* 25,3% growth in headline earnings to R7 872 million

* 23,8% increase in headline earnings per share to 1 181,8 cents per share

* 27,4% return on shareholders equity

* 473c dividend per share

Absa today announced strong earnings growth for the full year ended 31 December 2006. Headline earnings grew by 25,3% to R7 872 million compared with pro forma1 headline earnings of R6 282 million for the corresponding 12-month period of the previous year.

Commenting on the results, Steve Booysen, Absa Group Chief Executive, says: "Absa has delivered another year of strong results, leveraging the buoyant operating environment and the benefits of the Barclays-Absa integration, and clearly demonstrating the sustainable growth momentum across our businesses."

Headline earnings per share increased by 23,8% to 1 181,8 cents per share, compared to 954,8 cents per share for the comparable period the previous year. The Group delivered a return of 27,4% on average shareholders' equity for the period under review.

The total dividend for the twelve months ended 31 December 2006 is 473 cents per share, representing a dividend cover of 2,5 times.

Booysen points out that all of the Groups banking businesses delivered strong growth in attributable earnings, contributing to the Groups performance.

Absa Capital delivered an excellent 45,9% growth in attributable earnings to R1 115 million, largely as a result of increased customer flows following the launch of Absa Capital, and additions to product depth and breadth. This business is well-positioned for future growth, benefiting from its affiliation to Barclays Capital and its unique fully-local, fully-global proposition.

Retail banking has continued to perform strongly, with attributable earnings up by 31,8% to R4 166 million on the back of solid growth in Absa Private Bank, Absa Retail Banking Services and Absa Card. During the year, Absa continued to expand its delivery footprint in line with its strategy to provide extended access to banking services in previously disadvantaged areas. 31 staffed outlets were opened and an additional 1 218 ATMs were added to the network.

Corporate and Business Banking benefited from the introduction of a new operating model and a new value-aligned performance measurement tool, both contributing to improved productivity and profitability in the business. The business achieved attributable earnings growth of 36,7% to R1 282 million, driven by solid growth in advances, deposits and transaction volumes.

The Bancassurance cluster delivered a strong operational performance, posting attributable earnings of R1 500 million for the period under review, an increase of 7,4%. Investment management operations reported very strong growth in assets under management, demonstrating good progress in the Groups strategy to become a significant player in this market.

Attributable earnings in the Group's African operations grew by 24,5% to R127 million, largely driven by an excellent operational performance from the National Bank of Commerce (NBC) in Tanzania.

As expected, the impairment charge continued to move to more normalised levels, increasing to 0,44%, or R1 573 million, from the very low level of 0,31% for the previous year. The higher loss ratio resulted from a moderate increase in delinquencies in the main consumer debt products, as well as from the need to bolster retail provisions to cater for the expected lower recoveries as a result of the National Credit Act (NCA).

The Group recorded an improved cost-to-income ratio of 54,6%, which compares very favourably to the previous years ratio of 57,0%. Income grew by 19,0%, outpacing increases in operating expenditure by 5,1 percentage points. The increase in operating expenditure resulted from increased investment in the businesses to facilitate the continued growth in volumes and customers; an increase in the Groups employee complement; increases in salaries and incentive payments in-line with the improved return to shareholders; investment in new delivery channels and new business initiatives, such as the launch of Virgin Money; and costs arising from Barclays integration activities.

The Group has made excellent progress in delivering the sustainable synergy benefits that were envisaged at the time of the Barclays-Absa transaction. In the year under review, sustainable profit before tax benefits of R753 million were realised against the 2006 target of R300 million, putting the synergy delivery programme approximately one year ahead of target. The once-off cost of R640 million was in line with expectations. Absa remains confident that the targets previously communicated to the market will be achieved.

"The domestic economic landscape is expected to remain favourable, but inflationary pressures are expected to continue in 2007 with the CPIX inflation rate likely to test the 6% upper limit of the target range. Real economic growth of around 4,5% is anticipated in 2007, says Booysen. He believes that, while the recent increases in interest rates will lead to a slowdown in household consumption, Absa is well-positioned to deal with this successfully, as well as to benefit from the expected acceleration in fixed investment spending, and to capitalise on the opportunities that arise.

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