ANNUAL REPORT 2012 - ADC African Development Corporation

114 Pages·2013·8.8 MB·English

ANNUAL REPORT 2012
ADC ANNUAL REPORT 2012 3
KEY FINANCIAL FIGURES 2012
IN EUR MILLION
INCOME STATEMENT 2012 2011
Interest and similar income 65.4 0.4
Interest and similar expenses -35.5 -0.0
Net interest income 29.9 0.4
Provision for credit losses -8.1 0.0
Net interest income after provision for credit loss 21.7 0.4
Net fee and commission income 16.9 0.0
Net gains (losses) on financial instruments designated at fair
-12.7 17.2
value through profit or loss
Net income (loss) from equity method investments 3.7 0.0
Total operating income 54.6 22.2
Operating expenses -58.5 -13.4
Reorganization expenses -4.3 0.0
Result before tax -8.2 8.7
PROFIT FOR THE YEAR -10.3 8.7
BALANCE SHEET 31.12.2012 31.12.2011
Cash and short term funds 183.2 43.3
Loans and advances 886.6 0.0
Investment in associates 54.1 49.2
Total assets 1,414.1 103.0
Deposits 1,041.9 0.0
Borrowed funds 161.6 11.8
Total liabilities 1,259.5 14.7
Total equity 154.6 88.3
RATIOS
Credit loss ratio 1.8%* 1.7%*
Non-performing loans ratio 9.2% 6.6%*
Cost/ Income ratio neg. 74%*
Return on equity neg. 9.8%
Net interest margin 6.7% 6.5%*
Loan to deposit ratio 85.7% 86.7%*
Employees 1,362 29
Branches 61 0
* For informational purposes based on BancABC subgroup financial statements.
ADC BUSINESS DEVELOPMENT
SERVICES
CONTENTS
218 SUPERVISORY BOARD REPORT
7 ADC AT A GLANCE
08 Main Divisions
222 FINANCIAL CALENDAR
09 Geographic Focus
10 Highlights of the year
11 Letter to the shareholders
224 CONTACT INFORMATION
14 Management and Supervisory Board
18 ADC on the Capital Markets
22 GROUP MANAGEMENT REPORT
24 Group structure
25 Banking operations
35 Private equity investments
46 Financial results
57 Supplemental report of post balance sheet events
60 Corporate governance report
65 Risk report and Risk management system
87 Outlook & Opportunities
91 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
92 Consolidated Income Statement
93 Consolidated Statement of Comprehensive Income
94 Consolidated Statement of Financial Position
96 Consolidated Statement of Changes in Equity
98 Consolidated Statement of Cash Flows
100 Notes to the Consolidated Financial Statements
216 Auditor’s Report
ADC AT A GLANCE
Main Division 08
Geographic Focus 09
Highlights of the year 10
Letter to the shareholders 11
Management and Supervisory Board 14
ADC on the capital markets 18
8 ADC AT A GLANCE ADC ANNUAL REPORT 2012 9
MAIN DIVISION GEOGRAPHIC FOCUS
BANKING OPERATIONS REGIONAL PRESENCE
RWANDA
Botswana, Zimbabwe, Mozambique, South Africa, Zambia, Tanzania
— BancABC: leading regional corporate & retail banking group with ope-
rations in Botswana, Mozambique, Tanzania, Zambia, Zimbabwe and a
group services office in South Africa
Nigeria
KENYA
— Union Bank Nigeria: top five commercial bank in Nigeria with a vast
deposit base and large blue chip client base
PRIVATE EQUITY INVESTMENTS
Equatorial Guinea
— BANGE: leading commercial bank with a large corporate client base EQUATORIAL GUINEA
mainly from natural resources and infrastructure
NIGERIA
Zimbabwe
TANZANIA
— Brainworks: indigenous Zimbabwean investment and advisory compa-
ny focused on banking, insurance, mining and the fuel sector
ZAMBIA
Kenya
— RHEAL: dynamically growing medical insurance provider for East Afri-
ca - based in Kenya
BOTSWANA
Rwanda
— RSwitch: the national payment switch
SOUTH AFRICA
South Africa
ZIMBABWE MOZAMBIQUE
— iVeri: payment solutions provider at the forefront of payment technolo-
gy - not only on its home continent of Africa, but worldwide Banking operations
Private equity investments
10 ADC AT A GLANCE ADC ANNUAL REPORT 2012 11
HIGHLIGHTS OF THE YEAR LETTER TO THE SHAREHOLDERS
DEAR SHAREHOLDERS, BUSINESS PARTNERS & FRIENDS OF ADC,
MARCH Announcement of ADC’s strategy to create a leading pan-African banking
group
Over the last five and half years, ADC has steadily grown alongside the frontier markets of sub-Sa-
haran Africa and is now optimally positioned to grow from within as the continent reaches a pinnacle
of growth and development. The economic buzz of African markets is now complimented by higher
MAY Successful placement of a EUR 40m bond with warrants attached
degrees of efficiency and product sophistication and this increase in competition has brought lower
prices and selection for consumers who have increasingly more disposable income. Infrastructure
and technology is outpacing that of the developed world and there is increasing evidence that Afri-
can businesses and entrepreneurs are now developing home-grown solutions and starting to export
JUNE Entry into Nigerian banking sector by investment into Union Bank of Nigeria innovative products to the rest of the world.
It is in the context of Africa’s sustainable and high growth rates that ADC will launch its vision to be-
come one of the leading pan-African banking groups in sub-Saharan Africa over the next 3 -5 years.
JULY Majority acquisition of BancABC ADC Management and the Supervisory Board worked alongside an independent strategy team over
the last few months to develop the most effective operational strategy to merge ADC with BancABC
and to create a geographically focused leading pan-African banking group in key markets.
BANKING OPERATIONS
OCTOBER Increase of the representation in Union Bank of Nigeria
In 2012, ADC increased its shareholding in BancABC and acquired majority ownership of the fast gro-
wing retail and corporate banking group operational in five different countries in East and Southern
Africa. At the end of the 2012 financial year, BancABC posted a net profit of EUR 13.8 million, 54%
NOVEMBER Takeover of the General Partner to initiate transformation to a stock corporati-
higher than that of 2011, while the Group’s balance sheet increased by 47% from EUR 948 million in
on
2011 to EUR 1.4 billion in 2012. In line with the Group dividend policy, a final dividend of 8 thebe per
share was paid to ADC in May 2013, totalling EUR 0.9 million.
Furthermore, ADC was a driving force behind one of the largest transactions ever made in the Nige-
rian banking market in 2012. ADC and a consortium of investors recapitalized Union Bank of Nigeria
(UBN) with USD 500 million, acquiring 65% of the shares of the banking group. UBN recorded a
net profit of EUR 38.1 million in 2012 versus a loss of EUR 371.9 million in 2011, while the Group’s
balance sheet increased by 7% from 2011, reaching EUR 4.0 billion as the bank focuses on building
a well-diversified loan portfolio.
PRIVATE EQUITY INVESTMENTS
In 2013, ADC will begin to streamline its private equity portfolio in order to concentrate on implemen-
ting its pan-African banking strategy. After the opportunity to acquire a majority did not materialize
over the 4-year investment period in BANGE, ADC handed the management of the bank to a local
CEO and started preparations for its exit in 2012. Negotiations successfully concluded with co-share-
holders of the bank who took over our stake. Inclusive of dividend payments, a total gain of EUR 6.6
million was realized, reflecting a gross IRR of 34% and a total value to paid in multiple of 3.4x.
12 ADC AT A GLANCE ADC ANNUAL REPORT 2012 13
PAN-AFRICAN BANKING GROUP RESULTS
The sub-Saharan region is the most attractive banking market on the continent as it is still fragmen- Due to the consolidation of BancABC, ADC’s profit and loss accounts and balance sheet grew sig-
ted, growing and open to new entrants. Banks across Africa are implementing higher standards and nificantly this year, thereby transforming it into an operational banking group. As a result, the Group
learning lessons based on the European and American banking crises, but new regulatory changes earned a net interest income of EUR 29.9 million, resulting in a net interest margin of 6.7% compa-
will increase the cost of funding and also force banks to increase in scale in order to offset higher red to 6.5%1 for sub-Saharan African banks in 2011.
funding costs. National and regional champions will develop a universal model and streamline head
office units in order to respond efficiently through diversification of funding, broader product ranges, Due to the change of the organizational structure, the transformation into a stock corporation, write-
enhanced generation of fee income and cross-selling. downs in the private equity portfolio and the integration of only 5 months of BancABC business,
ADC’s loss before tax in 2012 amounted to EUR -8.2 million compared to a profit of EUR 8.7 million
Current low levels of retail account penetration and debit card ownership show significant potential in 2011 with a net loss for the year 2012 of EUR -10.3 million.
to bank the currently unbanked or under-banked population. Advances in technology coupled with
Africa’s high mobile phone penetration is proving to be the enabler for low cost alternative channels, At year-end, ADC had assets totaling EUR 1,414.1 million, up from EUR 103.0 million in 2011 due
while rising disposable income and financial awareness are driving sustained increases in bankable to the first time consolidation of BancABC. The growth of ADC’s balance sheet will greatly facilitate
populations. ADC’s planned expansion while simultaneously increasing the group’s banking activities in the highly
profitable wholesale business.
Over the course of the next 2-3 years, ADC and BancABC will integrate and expand into core markets
with an enhanced Management team and Supervisory Board. BancABC’s current operations will Net loans and advances amounted to EUR 886.6 million at year-end 2012. This line item is new to
serve as a starting point to expand services to Multinational Corporations and African Corporates, ADC’s balance sheet due to the consolidation of BancABC but reflects an increase of 41% compa-
while innovative technology will be used to increase the retail banking presence in order to benefit red to BancABC’s standalone loan book of EUR 627.5 million in 2011. Deposits at balance sheet date
from Africa’s demographic dividend and low penetration rates. ADC Management will lead efforts to came in at EUR 1,041.9 million a 37% growth compared to BancABC’s standalone deposits of EUR
raise growth capital in order to effectively capitalize existing operations and expansion efforts. 761.4 million at the end of 2011.
CHANGE IN LEGAL STRUCTURE Total equity increased from EUR 88.3 million at year-end 2011 to EUR 154.6 million at the end of the
2012 fiscal year.
At the end of 2012, ADC bought out the General Partner, ADC Management GmbH from Altira AG, in
order to reorganize its legal structure and provide shareholders with more control, improve corporate OUTLOOK
governance and eliminate the fee structure. Discussions with current and prospective shareholders
indicate that the change in corporate structure is welcome as it increases transparency and reduces ADC’s banking group strategy delivers increased stability and less volatility than disparate and uncor-
costs. related investments. ADC’s vision is to strengthen existing banking operations and begin to expand
into attractive banking markets, such as Angola and the CEMAC region by 2014. Based on the revised
ADC is in the process of becoming a class German stock corporation (Aktiengesellschaft; AG) which business plan, the Group will strive for an average cost-income ratio of 50-55% by 2015 to control
will improve overall corporate governance structures. ADC‘s current shareholders retain the same costs and a target return on equity (ROE) of up to 25% with a strong growth of its asset base and a
number of shares as they hold in the previous structure. positive group net profit by the end of 2013 and further growth of both assets and net profit in 2014.
SUPERVISORY BOARD I would sincerely like to thank all of the employees of ADC, BancABC and each of our portfolio com-
panies for their hard work and dedication. The basis for our expected exponential growth has been
In March 2012, Pierre Lorinet, CFO of Trafigura joined ADC’s Supervisory Board, taking over from Ron successfully laid out, enabling us to fulfil our vision to become a leading and innovative player in SSA
Braverman. Mr Lorinet has a wealth of knowledge from his career in banking with Merrill Lynch in banking.
London and Bahrain.
Should you have any questions regarding our expansion strategy, the change in corporate structure
In late November 2012, Christian Angermayer resigned from ADC’s Supervisory Board. Mr Anger- or any other matter, please do not hesitate to contact us via email: investor-relations@african-deve-
mayer was instrumental in launching ADC in 2007 and we thank him for his valuable input and lopment.com or via phone: [phone].
continued support. Jyrki Koskelo, former Vice President Global Industries at the International Finan-
cial Corporation (IFC) officially joined the Supervisory Board on 08 January 2013. We welcome Mr. Sincerely yours,
Koskelo’s inclusion on the board and believe that his extensive experience in global financial markets
will be invaluable as ADC accelerates its vision to become a leading pan-African bank in sub-Saharan Dirk Harbecke
Africa. Chief Executive Officer
1 Bancscope, Average net interest margins of banks in sub-Saharan Africa excluding South Africa in 2011.
ADC AT A GLANCE ADC ANNUAL REPORT 2012 15
ADC BUSINESS DEVELOPMENT
SERVICES
MANAGEMENT
MANAGEMENT AND SUPERVISORY
DIRK HARBECKE
BOARD CHIEF EXECUTIVE OFFICER
Dirk successfully founded and developed ADC into one of the leading Merchant Banking groups
targeting African frontier markets. He has more than 16 years of experience as a manager, ent-
repreneur and consultant in the financial and ICT industries and worked as Project Leader with
Boston Consulting Group (2006 – 2008) before founding ADC. He already founded two companies
in the financial services and research sectors and was acting as their CEO.
During his career, Dirk has collected project and managerial experience in France, the UK, China,
Abu Dhabi/Dubai, the US, North Africa and many countries in sub-Saharan Africa. He holds an
international MBA from St. Gallen (HSG) in Switzerland.
ADC AT A GLANCE ADC ANNUAL REPORT 2012 17
SUPERVISORY BOARD
ALASTAIR NEWTON PIERRE LORINET
CHAIRMAN OF THE SUPERVISORY BOARD MEMBER OF THE SUPERVISORY BOARD
POLITICAL ANALYST AND FORMER DIPLOMAT CHIEF FINANCIAL OFFICER AND DIRECTOR OF TRAFIGURA
Alastair first became associated with ADC in early 2008 as an advisor to the Supervisory Board, Pierre joined Trafigura in 2002 following a career in banking with Merrill
before joining the Board a few months later. He served as Vice Chairman from 2009 to 2012 and Lynch in London and Banque Indosuez in Bahrain.
was elected Chairman in January 2013.
He is also a Supervisory Board member of GDE, France‘s
Alastair is currently Senior Political Analyst/Managing Direc- second largest scrap recycling company, and an Executive
tor at Nomura International, a post he has held since Sep- Committee member of the GTSA (Geneva Trade and Ship-
tember 2008 (prior to which he worked for Lehman Brothers ping Association).
International for just over three years in the same capacity). He graduated from Ecole de Commerce Supérieure de Paris
As such, he is responsible for identifying, tracking and ana- and holds an MSc in Finance, with distinction, from Britain’s
lyzing political events worldwide which are likely to impact Lancaster University.
the financial markets.
From 1985 to 2005 he was a career diplomat with the British
diplomatic service. He served twice in sub-Saharan Africa,
Paris (at the OECD) and the United States. In London, he
worked in intelligence co-ordination (including during the JYRKI KOSKELO
1990/91 Gulf War), policy planning and economic relations, MEMBER OF THE SUPERVISORY BOARD
as well as running the Prime Minister’s G7/8 team from SENIOR DEVELOPMENT BANKER AND FORMER MEMBER OF THE MANAGE-
1998 to 2000. He was on secondment from the Diplomatic Service to Lehman Brothers from MENT COMMITTEE OF THE INTERNATIONAL FINANCIAL CORPORATION (IFC)
2000 to 2002. Jyrki served until July 2011 as Vice President Global Industries at the Inter-
national Finance Corporation (IFC), the private sector arm of the World Bank
Presently based in London, he also has a home in Livingstone, Zambia where he is co-founder and Group. He joined the IFC in 1987 as an Investment Officer in the African
director of Alavan Business Advisory. Investment Department.
He founded the USD 3 billion IFC bank capitalization fund
and made major contribution to IFC’s top tier performance
in Emerging Markets Private Equity, decentralization and
growth of investments in banking / financial markets. In 1999
he was appointed Director of Special Operations managing the restructuring and recovery opera-
tions of IFC during the Asian, Argentinean and Russian crisis.
Jyrki played a critical role in the expansion of IFC’s operations in financial markets, and acted in se-
veral regional Vice President positions covering Africa, Europe and Latin America before assuming
his Global Industries role. Prior to joining IFC, he spent more than 10 years in Senior Management
positions in the private sector.
Jyrki Koskelo holds a Master of Science degree in International Management/Finance from Sloan
School of Management/MIT and a Master of Science degree in Civil Engineering from the Techni-
cal University of Helsinki, Finland.
18 ADC AT A GLANCE ADC ANNUAL REPORT 2012 19
ADC ON THE CAPITAL MARKETS
14 20
10
12
00
10 -10
SHARE INFORMATION -20
08
-30
Legal Domicile
06
-40
Frankfurt, Germany
04 -50
Shares Outstanding
-60
8,606,764 02
-70
Listing 00 -80
XETRA, Frankfurt, Stuttgart, Berlin, Duesseldorf, Tradegate
DEC MAR JUN SEP DEC MAR JUN SEP DEC
2010 2011 2011 2011 2011 2012 2012 2012 2012
Market Segment
ADC share price MSCI Frontier Markets Africa (rebased) SDAX (rebased)
Deutsche Börse / Prime Standard (Main Board)
ISIN Management would like to assure its investors that the ADC stock is undervalued and is trading
DE000A1E8NW9 at a discount relative to its fair value, a fact that has been reiterated by the analysts covering the
stock this year.1 Furthermore, ADC’s main banking assets, BancABC and UBN, are both trading
Bloomberg at a discount to the average sub-Saharan African bank’s price-to-book value (P/B) of 1.80x due to
AZC.GR relatively recent takeover and subsequent restructuring of the banks. UBN’s profit of EUR 38.1
million and BancABC’s 54% increase in profits in 2012 show both the growth potential and value
Reuters of ADC’s cornerstone investments.
AZCGne.DE
ADC’s market capitalization at year-end 2012 stood at EUR 73.1 million. The total number of shares
in issue increased from 8,410,764 in 2011 to 8,606,764 in 2012. The increased number of shares
outstanding is due to the conversion of a convertible bond issued in April 2010.
PERFORMANCE OF THE ADC STOCK
ADC’s share closed at EUR 8.40 at year-end. Trading volumes increased by 15.7% over the last
quarter from an average of 4,992 shares traded per day in Q3 to an average of 5,777 shares traded SHAREHOLDER STRUCTURE
per day in the fourth quarter.
ADC improved its standing on the international capital markets significantly in 2012, further ent-
ADC’s share price largely stabilized in 2012 after some initial fluctuation following the company’s renching its reputation as a Gateway to Africa for institutional investors as well as investors with
listing in late 2010 and market unrest in the euro-zone and North Africa. The financial and fiscal a strategic interest in the sub-continent. In the latter half of 2012, Christopher Charles Rokos, a
crises in Europe and America caused some investors to pull out of high-growth emerging markets former hedge fund manager and co-founder of Brevan Howard, joined ADC’s investor base. In ad-
in 2011 and 2012 due to the perceived risks. Many investors adopted a wait-and-see approach, dition, the well-known US-based Asset Manager, Wellington Management Company announced
which led to the undervaluation and undercapitalization of solid growth companies on the conti- its shareholding in ADC in December 2012.
nent such as BancABC, which has seen its stock price drop by 42% this year due to low liquidity
in Zimbabwe and Botswana. This adversely affected ADC’s share price given that ADC’s financials In September 2012, ADC sold its treasury shares to a strategic investor for a premium of 2.9%
were directly related to BancABC’s stock performance until ADC took control of the bank and con- on the market price, though the shares were discounted by 3.6% on the average entry price in
solidated it onto its balance sheet, which will only now be reflected in ADC’s accounts. order to free-up funds for the acquisition of the majority of shares in BancABC. Management
and the Board believe that the opportunity to become the majority shareholder in BancABC far
1 Analysts include: Standard Bank, African Alliance, DZ Bank