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Trading statement on results to 31 August 2013
AFRICAN BANK INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1946/021193/06)
(Ordinary share code: ABL) (ISIN: ZAE000030060)
(Preference share code: ABLP) (ISIN: ZAE000065215)
(“ABIL” or “the group”)
AFRICAN BANK LIMITED
(Incorporated in the Republic of South Africa)
(Registered bank)
(Registration number 1975/002526/06)
Company code: BIABL
(“African Bank”)
TRADING STATEMENT ON RESULTS TO 31 AUGUST 2013
As noted in our SENS announcement published on 16 September 2013, ABIL shareholders have
approved the proposed rights issue. The group intends to complete the rights issue later in 2013 and
the process is well advanced. A further announcement relating to details on the rights issue will be
made in due course.
In anticipation of the rights issue being completed in calendar 2013, the board believes it prudent to
update investors on key developments and decisions affecting the financial results for 2013 as well as
the expectations in respect of 2014.
The South African economy and operating environment within which both the retail and credit
businesses operate continues to prove challenging with little respite expected in the next year.
In light of these market conditions the board has implemented further prudent and definitive actions
both at the retail unit and banking unit level which provide a solid underpin for a recovery into the
latter part of 2014 and beyond.
Ellerines retail unit
The continued pull back in credit in the retail business in the second half of 2013 is expected to result
in a sales decline of approximately 15% compared to 2012. As previously communicated, the
reduction in credit risk has been a deliberately prudent decision in order to avoid writing unacceptably
high credit risk business in the current challenging environment. The group is developing new credit
strategies and remains focussed on balancing the trade-off between merchandise sales and credit
quality.
The expected sales decline is anticipated to result in an after tax headline loss in the retail unit of
approximately R200 m. This excludes the impact of the long term incentive plan (“LTIP”) hedge losses
due to share price movements.
Banking Unit – Increase the impairment coverage on non-performing loans (“NPLs”) in
financial 2013
In light of the current economic climate, the impairment provision against NPLs is expected to be
increased by between 2.5% to 3.5% of the NPLs, from the 60% coverage reported at 31 March 2013.
The after tax headline earnings impact of this increase is expected to range between R350 m and
R500 m.
As communicated on 5 August 2013, ABIL has implemented a number of strategic initiatives to
improve the yield/risk relationship of its credit book as well as to enhance its collection activities. As a
result, despite current tough economic conditions, ABIL expects the risk charge to start declining from
the current cyclical high levels in the course of 2014 as strategic initiatives start to take effect.
Operating Cost and Long Term Incentive Plans
Normal operating cost growth continues to be kept well under control, with the exception of the
additional charge for the ABIL LTIP due to the significant decline in the ABIL share price. As the share
price declined from R33 in September 2012 to R16 in August 2013, the expected additional charge in
the income statement is approximately R220 m after tax. This total amount is made up of R180 m for
the banking unit and R40 m for the retail unit. For every R1 change in the ABIL share price the
additional charge in relation to the ABIL LTIP is R16m.
The major portion of this charge relates to a timing difference as a result of the full hedge being
implemented at inception of the schemes and the liability vesting over four to five financial years. The
corresponding reduction in the liabilities to staff will offset this charge in future years assuming the
ABIL share price remains unchanged.
Outlook
Primarily as a result of the above pressures, ABIL 2013 full year group headline earnings are
expected to be lower than 2012 full year group headline earnings by between 58% and 63%.
Excluding the impact of the increasing coverage ratio and the LTIP charge, ABIL 2013 full year group
normalised headline earnings are expected to be lower than 2012 full year group normalised headline
earnings by between 30% and 40%.
The full year banking unit headline earnings are expected to be lower than 2012 full year banking unit
headline earnings by between 47% and 53%. The banking unit normalised headline earnings are
expected to be lower than 2012 full year banking unit normalised headline earnings by between 20%
and 30%.
The management actions taken during the current year are expected to result in a stabilisation of the
business. In addition, the impairment coverage is not expected to materially increase further in
financial year 2014. As a result, despite the current challenging economic conditions, we expect
earnings in the second half of financial 2014 to recover.
The information provided in this trading statement is not an earnings forecast and has not been
reviewed and reported on by the groups external auditors.
Communication with management
Management remain available to engage with shareholders prior to the commencement of the closed
period on 1 October 2013.
Queries: Investor Relations on 27 11 564 7495 or investor.relations@africanbank.co.za
On behalf of the board
Midrand
18 September 2013
Sponsor
Rand Merchant Bank Limited (A division of FirstRand Bank Limited)
Date: 18/09/2013 12:25:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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