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Trading statement and related information
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" or the "Company")
AFRICAN BANK LIMITED
(Incorporated in the Republic of South Africa)
(Registered bank)
(Registration number 1975/002526/06)
Company code: BIABL
("African Bank")
TRADING STATEMENT AND RELATED INFORMATION
In terms of the JSE Limited Listing Requirements ("Listings Requirements"), companies are obliged to publish
a trading statement as soon as they are satisfied that a reasonable degree of certainty exists that the financial
results for the period to be reported upon next will differ by at least 20% from the financial results for the
previous corresponding period.
Accordingly, shareholders of ABIL are advised that, for the six months ended 31 March 2014, the Company
expects a headline loss of between R3,1 billion and R3,3 billion relative to the R604 million restated headline
earnings for the equivalent six months to 31 March 2013 and the headline loss per share is expected to be
between 239 cents and 254 cents relative to the comparable restated headline earnings of 62,3 cents per
share. The basic loss is expected to be between R4,3 billion and R4,5 billion in relation to the R602 million
restated basic earnings for the comparative period. The basic loss per share is expected to be between 331
cents and 347 cents per share compared to the restated basic earnings of 62,1 cents per share for the
comparative period.
The operating environment continues to be challenging, with consumers remaining under financial pressure.
The loans business written up to the end of June 2013 ("pre July 2013 business") continues to produce an
elevated level of non-performing loans ("NPLs") each month whilst the business written post June 2013
shows the expected level of reduction in credit risk due to the stricter underwriting interventions implemented
in July 2013. Consumer spending on furniture and appliances remains very subdued.
Banking Unit
The Banking unit is expected to show a headline loss of between R1,9 billion and R2,0 billion due to:
- An increase in specific provisions of approximately R600 million driven by the following factors:
o NPL emergence on business written pre July 2013 being at higher than anticipated levels.
The total NPL formation in this reporting period was approximately R6 billion, which was
about R600 million more than the level anticipated; and
o An increase in specific provision coverage on NPLs of over 1% from 30 September 2013 to
31 March 2014. This is due to seasonal factors that impacted collections and a continued
challenging collections environment.
- A decision to significantly increase the general provision for credit impairment relating to the
performing loans ("PLs") by approximately R2,5 billion.
Although the expected slowdown in NPL formation is evident, this decline is taking longer than originally
anticipated. More than 25% of the NPL's that emerged in each of the first three months of this period came
from business written in the last quarter of the 2012 calendar year, which was impacted by particularly high
volumes and poor quality. This emergence of NPLs has since reduced to an average of approximately 15%
in the second three months of this period. It is expected that the emergence of NPLs from the last quarter of
2012 will gradually fall further in the months ahead. Vintages on business written in the period post June
2013 reflect improvement in credit risk which is evident from the loans that have missed two instalments to
the end of March 2014 after three months on book being at 1.9% versus the equivalent of 2.8% at March
2013.
In light of the elevated level of NPLs emerging from the pre July 2013 business, a decision has been taken to
significantly increase the general provision on PLs that are anticipated to become NPLs in the next six
months and beyond. This general provision will be transferred to the specific impairment provision as and
when the expected higher than normal level of NPLs from the pre July 2013 business emerges. This action
is being taken to prevent future results from continuing to be adversely affected by the higher level of
emergence of NPLs from the pre July 2013 business. The benefit of taking this step of accelerating the
provision for future credit risk NPL emergence positions the business for an earlier recovery.
Excluding the impact of the increased impairment charge of approximately R3,1 billion, normalised headline
earnings for the Banking Unit would have been between R232 million and R332 million, in relation the
comparative period restated headline earnings of R604 million.
Retail Unit
The Retail Unit headline loss is expected to be between R1,2 billion and R1,3 billion for the six months to
March 2014 in relation to the nominal profit for the corresponding period. Trading conditions in the furniture
industry continued to deteriorate during the period, as both the willingness and ability of consumers to spend
came under further pressure. This unit continues to be negatively impacted by African Bank’s stricter
underwriting criteria. Efforts to further reduce costs and maintain firm margins did not sufficiently counter the
decline in merchandise sales. The loss was exacerbated by the deferred tax adjustment. In light of the
operating losses, a decision has been taken to cease raising any further deferred tax on these losses which
would have been a credit to headline earnings of approximately R180 million and to impair the deferred tax
asset held at 30 September 2013 of R723 million. This asset will only be recognised in the future once the
business starts to generate an operating profit.
Excluding the effect of these adjustments the retail unit would have generated a headline loss of between
R300 million and R400 million in relation to the comparative restated headline earnings of R4 million.
In addition, the following two items which do not impact headline earnings, do affect basic earnings:
- Given the trading environment, a decision has been taken to write off the residual goodwill
attributable to the retail unit of R831 million, which includes R115 million held at the group level.
- Trademarks which are no longer expected to be utilised amounting to approximately R600
million were impaired.
ABIL continues to work towards the disposal of Ellerines, but in the interim is also focussed on returning it to
profitability.
Capital Adequacy
The group and Bank’s capital adequacy ratios had initially improved significantly as a result of the rights
issue, but has since been impacted by this set of results. The board has implemented certain measures to
preserve and increase capital through both operational and strategic initiatives and is pursuing additional
measures. The write down of the deferred tax asset, trademarks and the goodwill in the Retail unit has no
impact on regulatory capital as these items were already deducted from capital
Liquidity and Funding
African Bank continues to adopt a conservative stance to its asset and liability management policies. Given
the lower sales volumes as a result of both the lower demand for credit and ABIL’s stricter credit underwriting
criteria introduced in June 2013, cash collections from the debtors book continue to exceed cash
disbursements on new loans by approximately R1 billion a month. As at 31 March 2014, the bank had
approximately R5 billion in cash balances.
Dividend policy
In light of the forecast interim results as discussed above, the board has decided that no interim dividend will
be declared in 2014. Further details on the dividend policy going forward will be provided with the release of
the final results on or about 17 November 2014.
The forecast financial information, on which this trading statement is based, has not been reviewed nor
audited and reported on by the Company’s auditors.
ABIL’s results for the six months ended 31 March 2014 are expected to be released on SENS and RNS on
or about Monday, 19 May 2014. The Company is in a closed period and will therefore engage with
shareholders from 19 May 2014 to explain fully the results for the period.
ABIL will be holding a conference call with investors and analysts at 16:00 SA time, on Monday 5 May 2014.
Given that ABIL is in a closed period, no questions will be taken from participants on the conference call.
Conference call Access numbers for participants dialling from their country:
Live call 48 hour playback Code 28767#
South Africa & Other South Africa & Other
Toll 011 535 3600 011 305 2030
USA USA
Toll free 1 855 481 5362 1 855 481 5363
UK UK
Toll free 0 808 162 4061 0 808 234 6771
On behalf of the board
Midrand
2 May 2014
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Date: 02/05/2014 08:43:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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