| Tue 10 Feb 2009, 9:35 | | ABL / ABLP - African Bank Investments - Trading Update for the First Quarter |
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ABL ABLP
ABL
ABL / ABLP - African Bank Investments - Trading Update for the First Quarter
Ended 31 December 2008
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")
TRADING UPDATE FOR THE FIRST QUARTER ENDED 31 DECEMBER 2008
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.
ABIL believes that the strength and sustainability of its businesses are best
measured in tough market conditions. During the quarter under review, the
contrasting performance of African Bank and Ellerines clearly illustrates the
different stages of strategic development of these two business units. African
Bank has achieved a strong operating result and displayed greater resilience,
whilst Ellerines` weaker operating model has led to its short term performance
being below expectation.
African Bank
The African Bank business unit achieved a solid operating result for the 3
months ended 31 December 2008, with all its financial performance indicators
meeting expectations.
The business remains mindful of the current economic environment within South
Africa, which has seen a shift in focus from the negative effects of high
inflation and interest rates to concerns regarding slower economic growth and
the resultant fear of job losses. However, credit supply conditions, a key risk
indicator for the business, have shown signs of moderation, resulting in an
improved outlook for consumer indebtedness levels and affordability. African
Bank`s control over its risk and pricing levers, given its differentiated
underwriting models, has allowed the business to successfully navigate through
varying macro-economic cycles.
Sales of new loans granted for the quarter increased by 17% to R3.0 billion (31
December 2007: R2.6 billion). As a result, gross advances increased by 10% to
R17.4 billion (30 September 2008: R15.8 billion). The December quarter is
traditionally the strongest in terms of sales volumes and therefore results in a
stronger annualised growth rate in gross advances than can be expected for the
full financial year.
The growth in sales was achieved primarily as a result of an increase in the
volume of new loans granted, particularly to medium and low risk segments,
whilst the average loan size of R6 900 and average loan term of 32 months have
remained steady. The average monthly instalment has fallen by 5% to R530 per
month, whilst wage levels have increased by approximately 10% over the past
year, resulting in improved client affordability.
Asset quality, as evidenced by the most recent vintage curves, continues to
improve towards the middle of the underwriting range, from the high points
recorded during the 2008 financial year, due to progressive tightening of the
underwriting models. Non-performing loans (NPLs) as at 31 December 2008 were
R4.5 billion, equivalent to 26.1% of gross advances (30 September 2008: 26.4%).
Bad debts written off as a percentage of average gross advances were an
annualised 5.8% for the 3 months to 31 December 2008, compared to 6.6% for the
12 months to 30 September 2008, whilst NPL provision coverage has remained
steady at 62,3% (30 September 2008: 62.0%).
Focus on cost control remains a key priority, especially in times of slower
growth rates, and the business continues to manage its operating cost growth
within tight parameters.
Events around the world have highlighted the risk of managing capital, funding
and liquidity at inappropriate levels during buoyant market conditions, only to
be exposed when market conditions turn. African Bank continues to approach its
capital management and funding strategies from a conservative position to ensure
that the sustainability of the business is enhanced. Particular focus remains
on attracting long-term funding, albeit at higher credit spreads, and
maintaining sufficient cash reserves to cover short-term funding maturities.
The robustness of African Bank`s business model has resulted in a solid 1st
quarter, and the business is confident that it will achieve its previously
communicated financial objectives for 2009.
Ellerines
The Ellerines business is in the midst of an extensive restructuring programme,
which is designed to place it on a more competitive footing over the next three
years. Central to this exercise is the downsizing of its cost base, which
entails significant brand and store rationalisation. Seventeen brands are being
rationalized into six, and the number of stores has declined from 1 242 to 1 161
over the past year. Staffing levels have reduced from 17 454 to 15 351 over the
same period. In addition, credit underwriting has been substantially tightened
in order to reduce the extent of bad debts that arose as a result of the liberal
credit granted during the pre-acquisition period. Credit accept rates have
declined from 73% for the quarter ending December 2007 to 67% in the current
year, albeit up from a low of 56% in April 2008.
In this context, sales of merchandise for the three months to 31 December 2008
were R1 399 million (31 December 2007: R1 851 million), of which 57% was
facilitated on credit. For the nine months ending 30 September 2008, 44.3% of
the sales were credit enabled. Whilst consumer demand remains subdued, sales for
the remaining 9 months of the current financial year are expected to be
approximately 10% higher than the comparable period of the 2008 financial year.
Gross advances increased by 3% in the quarter from R5.1 billion to R5.2 billion.
The most recent Ellerines vintages are trending lower, towards the levels
attained prior to the introduction of the NCA in June 2007. Focused collection
efforts continue to have the desired effect on the vintages written post the
NCA, as evidenced by the downward turn in their trajectory.
However, as a result of the higher credit risk taken in the pre-acquisition
period, and a lower level of sales in the quarter under review, non-performing
loans were 37.7% of gross advances at 31 December 2008 (30 September 2008:
35.2%).The bad debt write offs for the three months ended 31 December 2008 were
an annualised 14.2% (30 September 2008: 12.6%), and NPL coverage remained
steady.
As a result of improved merchandise management, retail margins have firmed over
the last quarter. In addition, current trading conditions have prompted an
acceleration of planned cost control measures.
The market repositioning and restructuring of Ellerines is expected to deliver a
fundamentally more attractive client proposition over the medium term.
Therefore, while sales growth in the current trading environment is challenging,
Ellerines remains confident of its medium term financial objectives, as
previously communicated.
On behalf of the board
Midrand
10 February 2009
This announcement, together with a short presentation, is available on the
African Bank Investments Limited website at http://www.abil.co.za.
CONFERENCE CALL
ABIL management will conduct a conference call for investors, fund managers and
analysts on Tuesday 10 February 2009. The conference call will take the form of
a short presentation, followed by questions. Interested parties are invited to
download the presentation from our website prior to the conference call.
CONFERENCE CALL TIMES
South Africa: 16:00pm
United States: 09:00am Eastern Time
United Kingdom: 14:00pm
Access numbers for participants dialling from their country:
South Africa Toll +27 11 535 3600
Toll Free 0800 200 648
United States Toll Free 1800 860 2442
United Kingdom Toll Free 0800 917 7042
PLAYBACK
A replay of the recording will be available for 48 hours should you be unable to
participate in the call and wish to listen to the trading update.
To access the replay please call:
South Africa +27 11 305 2030
Code 2134#
USA 1 412 317 0088
Code 2134#
UK 0808 234 6771
Code 2134#
Date: 10/02/2009 09:35:33 Produced by the JSE SENS Department.
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