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Trading update for the first quarter ended 31 December 2012
AFRICAN BANK INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registered Bank controlling company)
(Registration number 1946/021193/06)
(Ordinary share code: ABL) (ISIN: ZAE000030060)
(Preference share code: ABLP) (ISIN: ZAE000065215)
(“ABIL” or “the group”)
TRADING UPDATE FOR THE FIRST QUARTER ENDED 31 DECEMBER 2012
ABIL issues quarterly updates in order to provide investors with timely insights into strategic and operational
performance trends. These updates cover certain key metrics but are not in themselves indicators of the
group’s profitability.
Trading conditions in both the unsecured lending and furniture industry remained challenging during the
period under review. ABIL continued to proactively manage risk and return through this period as part of its
philosophy of building a sustainable business that positively impacts on people’s lives through all cycles. In
this regard, the group also continued to work closely with stakeholders including government and regulators,
to ensure that the credit industry plays its rightful role in society and to support economic growth.
Notwithstanding the trading conditions, the group achieved good advances growth and satisfactory
performances in the other business drivers in the quarter ended 31 December 2012 (“the period” or “the
quarter”). Retail sales slowed in the wake of a drop in consumer confidence, continuing deflation in furniture
and durable goods and subsiding growth in unsecured lending.
Banking business unit
Total credit disbursements for the quarter was flat relative to the first quarter of the 2012 financial year (“the
comparable period”), at R7,43 billion (Q1 2012: R7,45 billion), mainly as a result of risk reduction measures
and further refinements to ABIL’s customer segmentation in this period. These changes resulted in average
loan size declining from R12 650 for the 2012 financial year to R11 444 in December and loan term reducing
from an average of 48 months to 46 months. It is also apparent that there is a slowdown in customers’
appetite and capacity (through reduced affordability) for credit, with the number of credit applications
decreasing by 7% over this period.
Gross advances increased by 8% to R57,3 billion from R 53,0 billion in September 2012, aided by new
disbursements as well as credit card utilisation (which is not measured as part of disbursements) of R509
million. More subdued competitor activity reduced external settlements by more than 50% over the past six
months. It should be noted that the December quarter is traditionally the strongest quarter and therefore not
representative of the performance expected for the full year, which should be more in line with the targeted
advances growth of greater than 23% for the full year.
Yields reduced marginally during the period while operating cost growth was limited to single digits.
Non-performing loans (“NPLs”) as a percentage of advances improved marginally from September 2012,
while NPL coverage was maintained. The fallout from labour unrest increased the bad debt charge slightly.
ABIL’s exposure to sectors that are currently experiencing labour volatility is limited, with its exposure to
platinum and agriculture less than 3% and 1% of advances, respectively. NPL coverage on both of these
books is prudent based on the expected performance, and is substantially higher than on the overall
portfolio. The industrial action, while disruptive to the economy, has also resulted in substantial wage
increases in those sectors of the economy. The overall impact of the labour unrest and potential
retrenchments will become clearer over the next few months. The group has intensified its focus on
collections in the wake of the current trends in the market.
Retail business unit
Merchandise sales decreased by 8% for the quarter to R1,5 billion and were flat year-on-year on a
comparable basis. The trading environment in durable goods weakened towards the end of 2012 and this,
together with lower appetite for credit amongst consumers, had an adverse effect on sales. The merchandise
sales credit mix improved to 66,7% from 65,9% in 2012, while cash sales reduced by 10%.
Ellerines, which constitutes 49% of total merchandise sales, maintained sales relative to last year and
increased sales by 7% on a comparable basis. The other brands experienced negative sales growth ranging
from 8% to 24%. Dial-a-Bed and Furniture City also experienced negative sales growth, but increased sales
on a comparable basis by 4% and 2%, respectively.
Gross margins increased relative to the comparative period in 2012, mainly as a result of improved trading
margins. Cost growth was maintained in the low single digits, despite the duplicated costs from the rollout of
the decentralised distribution centres and new logistics infrastructure.
The full new distribution network operated successfully through its first peak trading period. The group made
steady progress in its longer term strategy of improving efficiencies. The footprint optimisation project
continued with a further reduction in store space, while sales per employee showed good improvement in the
quarter.
Outlook
The economy faces some tough challenges as a result of both global and local dynamics. This, together with
the growth in the supply of credit over the past few years, will continue to exert pressure on customers.
Accordingly, ABIL will remain cautious and vigilant. On a positive note, wage increases together with the
boost from ongoing demographic changes in South Africa should continue to support growth, albeit at lower
levels than 2012.
The Banking unit will continue to target sales and advances growth by constantly calibrating its risk appetite
and underwriting models to match the trading environment. The furniture retail sector is unlikely to grow this
year, as consumers decrease spending on durables. EHL has implemented strategies to optimise returns
through cost reductions and margin management and to maximise and optimise financial services value
extraction from the Retail unit. The group targets to meet its 2013 financial objectives for the Banking unit
while Retail targets are at risk, given the fixed cost nature of retailers and the impact on earnings of lower
sales.
The group continues to maintain a strong capital and liquidity position and will look to further diversify its
sources of cost effective funding. In this regard, African Bank intends to conduct investor meetings in
Europe, Middle East and Asia in early February.
The information provided in this update is not an earnings forecast and has not been reviewed and reported
on by ABIL’s external auditors.
On behalf of the board
Midrand
30 January 2013
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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