Barclays PLC reduces ownership in Barclays Africa to 23.4% in overnight bookbuild

•  Share placement multiple times subscribed
•  Barclays Africa emerges with significantly more diverse shareholder base

Johannesburg, 1 June 2017: Barclays Africa Group Limited today announced that following the completion of South Africa’s largest bookbuild in South African rand, Barclays PLC has sold 33.7% of Barclays Africa’s issued share capital at a price of R132 per share.

This results in accounting deconsolidation of Barclays Africa from Barclays PLC.

Barclays PLC sold 285,691,979 Barclays Africa ordinary shares at a price of R132 per share, which results in Barclays PLC reducing its shareholding to 23.4%, with a further 7% to be taken up by the Public Investment Corporation at a later date, following receipt of the necessary regulatory approvals.

The shares in the overnight bookbuild were multiple-times subscribed and sold to a mix of existing and new investors, both locally and internationally.

The aggregate gross sale proceeds were approximately R37.7 billion.

It was announced in March 2016 that Barclays PLC would reduce its shareholding over time.  The overwhelming investor interest in this bookbuild process that took place overnight has given Barclays PLC the opportunity to expedite this process.

“The completion of this transaction demonstrates an exceptionally healthy investor appetite for Barclays Africa and our strategy of becoming a leading standalone financial services group in Africa,” said Maria Ramos, Barclays Africa Group Chief Executive Officer.

Diverse shareholder portfolio

The significance of this sell-down is that Barclays PLC is no longer the controlling shareholder of Barclays Africa, which now has a diverse shareholder portfolio made up of very supportive, long-term, institutional and individual investors.

Barclays PLC will remain an important shareholder and will support Barclays Africa throughout the sell-down and operational separation processes, which are already well underway. Barclays PLC and Barclays Africa will continue to work with regulators to ensure that the sell-down and separation are managed appropriately, with no unnecessary impact to stakeholders or the business.

According to Ms Ramos, independence from Barclays PLC will create several opportunities, which will ultimately result in benefits for different stakeholders, “This is a very exciting time for Barclays Africa. There is an opportunity for increased African ownership of our business through a planned staff share scheme as well as a broad-based black empowerment scheme that will contribute to the growth of an entrepreneurial culture”.

Barclays PLC will contribute the equivalent of 1.5% of Barclays Africa’s market capitalisation, equating to approximately R1.85 billion (based on Barclays Africa’s share price of R145.95 as at 30 May 2017), towards the establishment of a broad-based black economic empowerment scheme.

As announced in February 2017, Barclays PLC has agreed to contribute approximately R12 billion (£765 million) primarily to fund the investments required for Barclays Africa to complete the separation from Barclays PLC. The contribution will, in part, go towards investments in technology, rebranding and other separation projects.

Opportunity

This process presents an opportunity to modernise and harmonise systems across Barclays Africa operations. Ownership of Barclays and Absa operations in Africa does not change as a result of the reduction in shareholding. The 11 banks that form part of Barclays Africa will continue to be led and operated by people with deep local knowledge and a diversity of skills and experience.

Barclays PLC announced on 1 March 2016 that it intended reducing its 62.3% shareholding in Barclays Africa over time because of regulatory changes in the UK.  On 5 May 2016, Barclays Bank PLC sold 103.6 million shares in Barclays Africa in a bookbuild, reducing its shareholding to 50.1%.

Ms Ramos concluded: “This is a defining moment for Barclays Africa.  We now have a significant opportunity to determine our own destiny and make our own decisions on what is right for a pan-African focused business”.

Barclays PLC has today announced its intention to sell 187 million ordinary shares in Barclays Africa Group, which represents approximately 22% of Barclays Africa’s issued share capital.

This follows receipt of the required regulatory approvals, including approval from the South African Minister of Finance, for Barclays PLC to reduce its shareholding in Barclays Africa to below 50%.

Barclays PLC announced on 1 March 2016 that it intended, over a two to three year period, to reduce its shareholding in Barclays Africa.  On 5 May 2016, Barclays PLC sold 103.6 million shares in Barclays Africa, reducing its shareholding to 50.1%.

The sell-down transaction announced today is in the form of an accelerated bookbuild, which has been activated, and is expected to be concluded overnight.  The conclusion of the sale, which is expected to be announced tomorrow (Thursday, 1 June 2017), will see Barclays PLC’s shareholding reducing to below 50%.

“This transaction marks the next phase of Barclays Africa’s evolution as a standalone pan-African financial services group, committed to Africa,” said Maria Ramos, Barclays Africa CEO.

Please see the SENS announcement

Today’s young graduates are driven by ideas and the desire to effect real change in the world they live in. All they require is the opportunity to bring their ideas to life. It is on this premise, and the belief that ideas can change the world, that the Absa Rising Eagles Graduate Programme is based – to give young graduates the platform to make their ideas happen.

Rising Eagles targets graduates across a multitude of disciplines with a strong focus on, but not limited to, technology, maths, stats, analytics, risk management, finance as well as those with a customer-centric mindset.

As a young graduate, you’ll get the opportunity to work with colleagues across Africa. You’ll work alongside the best in the business – go-getting achievers with sky-high aspirations just like yours. You’ll be challenged. You’ll be inspired to spread your wings. And you’ll define where your ambitions lie within our dynamic, global organisation.

Recruitment for the 2018 Rising Eagles programme is now open and runs until 18 June 2017.

To find out more about the Rising Eagles programme in South Africa, click here.

To find out more about the Rising Eagles graduate programme in the rest of Africa, click here.

 

Key points:

• Headline earnings increased by 5% to R14.9 billion, with South Africa up 2% to R12.2bn and Rest of Africa up 17% to R2.8bn
• Pre-provision profit increased by 10% to R32.4 billion
• Revenue increased by 8% to R72.4 billion
• Barclays Africa Group Limited’s Common Equity Tier 1 (CET1) ratio increased to 12.1%, well above regulatory requirements
• Contribution from non-SA businesses increases to 23% of group revenue
• Revenue grew 8% while costs increased by 6%, with positive effect on our cost-to-income ratio, which improved to 55.2% during the period.
• Impairments increased by 26% resulting in a credit loss ratio of 1.08% from 0.92%

Barclays Africa Group, the financial services group with operations in 12 countries in Africa, today reported a third consecutive year of earnings growth.

“The creation of the Barclays Africa Group was a crucial strategic play – it created the platform for us to develop our businesses,” said Maria Ramos, Chief Executive, Barclays Africa Group. “It has given us a significant footprint across Africa. We set out with a vision to create a proudly pan-African bank and today we can confidently say that we are a delivering on this ambition.”

A key priority since the formation of the group was stemming losses at our retail and business banking (RBB) franchise in South Africa, which remains our largest revenue generator. RBB added 2.5 million new customers over the last three years, generating strong returns.

Other priorities over the past three years included growing our corporate banking operation, which has achieved double-digit growth for the past four years; and, delivering on the opportunity we have in our Wealth, Investment Management and Insurance (WIMI) business, which is achieving an attractive 23.9% return on equity.

2016 performance

Barclays Africa Group’s headline earnings increased 5% to R14.9 billion in 2016 compared with 2015 as efforts to contain costs and increase efficiencies in order to invest in delivering better services to customers yielded results. Revenue increased by 8%, outpacing the 6% increase in the cost of running the business.

Slower economic growth resulted in an increase in impairments, and non-performing loans (where customers are more than three months in arrears). South Africa’s economic growth is expected to have slowed to 0.4% in 2016, while growth in the Group’s presence markets in the rest of Africa slowed to 3.7%, the weakest level in more than a decade.

Credit impairments rose 26% in 2016 compared with 2015, negatively affecting the return that Barclays Africa shareholders earned on the money they invest in the business. Return on equity declined to 16.6% from 17% in 2015.

Outlook

In 2017, we expect to see modest economic recovery with South Africa’s economy estimated to grow at 1%. We expect 4.5% average GDP growth in other markets.

Moderate economic growth and regulatory changes, will impact revenue growth. Positively, we expect that some of the bad debts recorded last year, won’t be repeated.

Barclays Africa Group, which owns Absa in South Africa and the Barclays-branded businesses in the rest of Africa, as well as of the majority of NBC in Tanzania, has strong capital and liquidity levels and is independently funded.

Barclays Africa will continue to invest for growth in Africa and with a footprint in 12 markets, is well positioned to benefit from economic growth.

Absa is in receipt of and notes the Public Protector’s Provisional Report. As this is a confidential provisional document released to a limited number of parties for comment and further input, it may change materially following further submissions.

We have fully cooperated with the Public Protector’s investigation since it began and we will continue to do so. Following an interview with senior executives of Absa in June 2016, the Public Protector accepted our written offer for her to inspect confidential documents in our possession that are very pertinent to the successful finalisation of the investigation. The Public Protector accepted this offer in writing but never actually took it up. This offer remains open.

These documents pertain to, among others, due diligence performed by Absa prior to acquiring Bankorp. Bankorp started receiving SA Reserve Bank assistance in 1985. Absa acquired Bankorp in April 1992 at fair value. All the obligations pertaining to the SA Reserve Bank’s assistance were discharged in full by October 1995.

We have written to the Public Protector informing her that we accept her invitation to make further submissions in terms of the Public Protector Act. These submissions will correct several factual and legal inaccuracies that are contained in the Provisional Report. This will be done on or before the deadline of 28 February 2017.

Davis Panel of Experts

It is regrettable that the Public Protector’s Report has been leaked before further submissions and finalisation because in its current form it perpetuates an incorrect view that Absa Bank Ltd was the beneficiary of undue SA Reserve Bank assistance.

The Davis Panel of Experts appointed by former SARB Governor, Mr Tito Mboweni found that that Absa’s shareholders did not derive any undue benefit from the SARB’s intervention and as such no claim of restitution could be pursued against Absa. We emphatically agree with this position and attach the full Executive Summary of the Davis Panel Report for reference. The full Davis Panel Report can be accessed on:

http://www.gov.za/sites/www.gov.za/files/gov_panelexperts_bankorp_0.pdf

It must be noted that the matters and events under investigation occurred during the period 1985 to 1995, 21 to 31 years ago. The testimony provided by current Absa senior executives to the Public Protector was based on records available to the bank’s current management as none of them have personal knowledge of events at the time.

In order to provide the Public Protector with the space she requires to complete her final report we do not intend to provide running public commentary on the Provisional Report until it has been finalised and published.

The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) declined to 46.7 index points in December 2016 from 48.3 in November. This means that the manufacturing PMI remained stuck below the neutral 50-point for a fifth straight month. This is in stark contrast to the sustained upward momentum seen in global PMI figures since mid-2016. In the US and the Eurozone, manufacturing PMI readings came in above 54 index points in December. The most recent Chinese PMIs are also pointing to accelerating output growth.

In all likelihood, the key reason why the South African manufacturing sector is underperforming is the persisting weakness of domestic demand. Key supply constraints (most notably load-shedding and strike activity) actually moderated through 2016. A recovery in agricultural output and an uptick in the mining sector on the back of higher commodity prices could support demand going forward. However, this could be offset by the outlook for the local consumer which is more downbeat. On a positive note, the uptick in global industrial activity could benefit local manufacturers targeting the export market in coming months.

Four of the five major subcomponents of the PMI remained below 50 points in December. Most notably, the index measuring suppliers’ performance slumped to a historic low of 40.9 from 48 index points in November. This reflected the broad-based weakness of the domestic economy as it implies that suppliers are operating way below capacity.

The business activity index fell by 2.6 points to 46.3 in December – the sixth straight month that the index reflects a decline in output. Encouragingly, the new sales orders index managed to stay just above 50 in December (50.9), likely lifted by continued export orders. The inventories index declined for a third month, keeping it well below the new sales orders index.

This meant that the PMI leading indicator remained above 1, suggesting that output growth could pick up as demand outstrips inventories. Manufacturers were also relatively optimistic about expected business conditions in six months’ time, albeit that the index fell slightly from 53.9 to 53.2 in December.

The purchasing price index remained unchanged at 65.6 index points in December. While the rand exchange rate was slightly stronger compared to November, this was countered by a sharp rise in the Brent crude oil price.

Starting with the release of the January 2017 PMI, the name of the index will change from the Barclays PMI to the Absa PMI.

Barclays Africa Group today announced that it has agreed terms for operational separation with UK-based Barclays PLC, which is reducing its shareholding in Barclays Africa. The agreement is expected to unlock opportunities for Barclays Africa as an independent pan African bank.

“It is a good outcome that enables us to complete the separation, and to provide continuity and improved service for our customers,” said Maria Ramos, Chief Executive, Barclays Africa.

UK-based Barclays PLC announced on 1 March 2016 that it intends to sell the majority of its shareholding in Barclays Africa over a period of two to three years. Since then, Barclays PLC and Barclays Africa Group have worked jointly to ensure the best outcome for all of our stakeholders.

Barclays PLC has submitted an application to the South African Reserve Bank for approval to reduce its shareholding in Barclays Africa Group to below 50%. The application, which also requires the approval of the Minister of Finance, includes the terms of the separation payments and transitional services arrangements, which have been agreed between Barclays PLC and Barclays Africa.

The agreement provides for contributions by Barclays PLC totalling GBP765 million (R12.8 billion based on 31 Dec 2016 exchange rate) primarily to fund the investments required for Barclays Africa Group to separate from Barclays PLC as follows:

• £515 million (R8.6 billion) for investments required in technology, rebranding and other separation projects;
• £55 million (R0.9 billion) to cover separation related expenses, of which £27.5 million was received in December 2016; and
• £195 million (R3.3 billion) to terminate the existing service level agreement between Barclays and BAGL, relating to the Rest of Africa operations acquired in 2013.

The expectation is that the financial contributions will neutralise the capital and cash flow impact of separation investments on the Group over time.

Barclays PLC currently owns 50.1% of Barclays Africa. Following the reduction of Barclays PLC’s shareholding below the 50% mark, Barclays Africa will be able to continue using the Barclays brand at its operations outside of South Africa for three years. Barclays Africa will receive certain services from Barclays PLC on arms’ length basis for a transitional period, typically up to three years.

An important feature of discussions has been the provision for a broad-based black economic empowerment scheme. While the full details are still under consideration, we are pleased to announce that Barclays PLC has agreed to contribute an amount equivalent to 1.5% of Barclays Africa’s market capitalisation, or R2.1 billion (based on a Barclays Africa’s share price of R168.69 on 31 December 2016) towards the establishment of such a scheme.

“Separation has a number of implications for our business,” said Ramos. “It gives us the opportunity to unlock the potential to do things differently and build energy and momentum for our future as a pan-African organisation.”

Alongside a black economic empowerment scheme, Barclays Africa also wants to create an equity proposition for our staff in the next 12 to 18 months. This will give our people the opportunity to benefit from share ownership, and to share in the future growth of our business.

“Both these schemes will help us to build an ownership-based, entrepreneurial culture that goes to the heart of our commitment to the communities which we serve,” Ramos said.

We remain firmly focused on building a leading standalone Pan African financial institution.

Barclays Africa Group is pleased to announce the appointment of new agencies to handle its significant business across the continent. Specifically, FCB Africa will handle its corporate, brand, sponsorship, retail and insurance advertising portfolios, and Mortimer Harvey will handle its business to business advertising portfolio.

Barclays Africa offers a full and integrated range of products and services to more than 12 million customers in 12 countries across Africa. We have a strong franchise with assets of over R1 trillion, and are deeply committed to the success of our continent. Partnering with these two renowned agencies, FCB Africa and Mortimer Harvey, is a key step on our journey.

A continent-wide strategic evaluation of over 50 top agencies in Africa informed our decision, overseen by Yardstick who are an independent firm specialising in the provision of measurement and assurance services to the advertising industry. The review included a rigorous internal and external governance process.

Commitment to Africa

Group Executive, Marketing and Corporate Relations, Bobby Malabie, said: “As we continue to focus our business and commitment to Africa, the evolution to a new agency model is critical. Both FCB Africa and Mortimer Harvey demonstrated an impressive understanding of our business requirements and are committed to building a market leading partnership model with us. FCB Africa and Mortimer Harvey boast enviable credentials and awards, and we look forward to building on these together”

“We also saw this as an opportunity to drive a greater focus on transformation in the advertising industry, and our new agencies, FCB Africa and Mortimer Harvey, have demonstrated their commitment in this area. We look forward to engaging further with the broader advertising industry on some of our more specialist requirements to further improve transformation within the industry” he added.

Barclays Africa would also like to thank its incumbent agencies for the long standing and highly valued relationships. Over the last decade the partnerships have achieved both business and creative success.

The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) reversed October’s loss and rose by 2.4 points to 48.3 index points in November. Despite the uptick, this was the fourth straight month that the index stayed below the neutral 50-point mark, suggesting that factory sector output growth remains under pressure.

In addition, the average for the first two months of the fourth quarter is 1.8 points below that of the third quarter. In the absence of official data for the fourth quarter, the PMI suggests that output is likely to remain subdued after a 1.3% quarter-on-quarter contraction in manufacturing production in the third quarter.

Two of the key subcomponents of the headline PMI showed an encouraging improvement in November. Most notable is the 6.9-point increase in the new sales orders index to 51.4 index points. Higher export orders likely drove this improvement with local (consumer) demand remaining under pressure. Increased orders helped lift the business activity index to 48.9 index points in November, up from 43.5 in October.

Despite the improvement, the business activity index has now been below 50 for five straight months. Also lingering below 50 points is the inventory index which fell by a further 2 points to 45.2 in November.

On a positive note, this means that the new sales orders index outstripped the inventories index, resulting in the PMI leading indicator edging above 1 – this usually bodes well for production going forward. Overall, purchasing managers were also slightly more upbeat about business conditions during the first half of 2017. The index measuring expected business conditions in six months’ time rose by 3.3 points to 53.9 in November after plunging by 13.2 points in the previous month.

After moving lower for four consecutive months, the price index reversed the trend and rose to 65.6 points in November, up from 59.4 in October. The increase was likely driven by the hefty fuel price hike at the start of November, but the expected fuel price decline in December could alleviate some of the upward pressure on costs

The seasonally adjusted Barclays Purchasing Managers’ Index (PMI) declined by 6.2 index points to reach 46.3 in August 2016. The magnitude of the drop was somewhat surprising after the PMI managed to remain above the neutral 50-point mark during the preceding five months. The decline was driven by a steep fall in the new sales orders index and a second straight monthly decline in the business activity index.

Both of these indices are now well below the neutral 50-point mark. However, the majority of respondents indicated that sales orders and output levels were unchanged compared to the previous month rather than down. This suggests that activity may be largely flat compared to July instead of sharply lower.

Despite the big drop in the headline PMI, there were some encouraging signs that the deterioration may have been temporary. The employment index remained just above 50, which could suggest that purchasing managers expect activity to pick up again and in anticipation kept employment levels steady. Indeed, purchasing managers were the most optimistic about expected business conditions in about a year. The index measuring expected business conditions in six months’ time rose to 61.5 index points from 55.4 previously.

The second consecutive decline in the price index was likely also welcomed by manufacturers. The stronger rand exchange rate (in the first three weeks of the month) and the hefty fuel price decline at the start of the month likely contributed to slower cost increases. However, renewed rand weakness in the final week of August (if sustained) means that upward cost pressure could return in coming months.