| Wed 10 Feb 2010, 7:05 | | ABL/ABLP - African Bank Investments Limited - Trading update for the first |
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ABL ABLP
ABL
ABL/ABLP - African Bank Investments Limited - Trading update for the first
quarter ended 31 December 2009
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 2009
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.
The quarter ended 31 December 2009 continued to be characterised by a
conservative underwriting appetite and muted trading conditions, given the
challenging consumer environment. Indications are that market conditions have
stabilised however, with job losses in particular appearing to have peaked.
African Bank ("the Bank")
The Bank`s continued cautious approach to credit underwriting resulted in
sales of new loans declining by 12% to R2.6 billion (Q1 2009: R3.0 billion).
The sales mix shifted further towards lower risk clients and market segments.
As a result, average loan sizes for the quarter increased 11% over the
equivalent period in 2009 to R7 600 and the average term of these loans
increased to 39 months, compared to the average 33 months for FY2009.
Over the recent past the business has been steadily steering away from its
higher risk customers. Whilst this has been positive from a risk perspective,
over the longer term it is important to remain relevant to all customer
segments. Given the fact the conditions have now started to stabilise, African
Bank has begun to cautiously relax its underwriting criteria towards these
customers. This change in mix will start to become evident during the course
of the year in respect of average loan sizes, term, number of customers and
yield.
Gross advances grew by 4% over the quarter to R21.9 billion, which translates
into an annualised 17% on a year-to-date basis, somewhat behind the targeted
25% growth for the full year. Although the growth in advances has been
adversely affected by the lower sales of new loans, it was positively impacted
by higher levels of settlement re-advance products and revolving credit card
utilisations, both of which are excluded from the current definition of sales.
While advances growth is currently tracking below expectation, targets will
only be reviewed at the interim stage as the trading pattern becomes more
predictable.
Asset quality has improved over the last quarter, as evidenced by the most
recent vintage curves which are approximately 2% below the peaks experienced
in FY2009. Non-performing loans ("NPLs") increased in line with expectations
and NPL coverage remained steady. The bad debt charge, which largely reflects
the emergence of risk 8 to 12 months after loans are written, peaked at the
end of FY2009, and the lower vintages combined with the lower sales volumes in
2009, are expected to result in the bad debt charge moderating over the
remainder of the year.
Total income yields continue to fall slightly ahead of targets, and this has
been a function of continued high insurance claims (albeit falling from their
peaks in 2009), higher levels of suspended interest on NPLs and the continued
shift to lower risk loans. The impact of the insurance claims and suspended
interest is expected to reduce over the remainder of the year given the more
recent vintages.
Operating expenses continued to be well controlled. In light of the current
environment, initiatives to extract cost efficiencies from the integration of
the African Bank and Ellerines financial services business are being fast
tracked, and various other initiatives to extract further cost reductions
through improved processes are being implemented.
African Bank`s funding and liquidity position remain sound. New funding
raised of R1.8 billion and an 85% rollover of maturing loans exceeded
expectations during the quarter, resulting in cash reserves as at 31 December
2009 of R5.0 billion (Sept 2009: R4.6 billion). Continued low interest rates
and a steady compression of credit spreads on new funding raised, has resulted
in the average cost of funding falling in line with expectation.
Ellerines
Merchandise sales for the quarter ended 31 December 2009 were R1 401 million
(Q1 2009: R1 382 million), up 1.4% over the previous comparable period, whilst
like-for-like sales grew by 5.3%. The improvement in sales was widespread
across the brands, with notable performances by Geen and Richards (+22%), Dial-
a-Bed (+22%) and Beares (+20%). The credit sales mix improved across all
brands and retail gross profit margins were slightly firmer during the
quarter.
Costs continued to decline on the back of the initiatives implemented since
acquisition as well as new distribution and marketing strategies being rolled
out.
Gross advances grew by 9% to R5 629 million over the quarter, due to higher
approval rates and credit limits available to customers as a result of new
scoring models. Credit sales of R424 million (50% of the total credit sales)
were processed during the quarter, through the recently implemented African
Bank front end underwriting system, and this will increase over the remainder
of the year as the rollout of the new system is completed. The tighter
underwriting criteria implemented since acquisition, together with a greater
focus on collections management continued to benefit asset quality, with the
vintage curves for business written over the past year showing substantial
improvement. Yields remain under pressure as a result of interest suspension
on the non-performing book, emanating largely from sales in July to December
2007, the impact of which has now peaked.
The quarter was characterised by far more stability in the operating
environment given the extent of the changes that have taken place over the
last two years. This together with a better understanding of the key business
levers, including the effect of better priced credit, has enabled us to
establish a platform on which to build critical mass for the benefit of
customers over the medium to long term. The integration of the financial
services activities of Ellerines into African Bank is key in that regard and
this should be completed by 30 September 2010.
Outlook
Whilst the outlook for the economy and operating environment remains subdued
for the remainder of the year, this has only served to strengthen our resolve
to build a stronger business franchise focused on delivering great value to
clients.
On behalf of the board
Midrand
10 February 2010
This announcement, together with a short presentation, is available on the
African Bank Investments Limited website at http://www.abil.co.za.
ABIL will hold a conference call on Wednesday, 10 February 2010 for interested
parties. The conference call will take the form of a short overview of the
quarter, followed by questions. (No RSVP required). A slide presentation
covering the overview will be available for download prior to the call on
www.abil.co.za
Time 16:00 (SA time)
LIVE CALL PLAYBACK (available for 48 hours)
South Africa & Other
South Africa & Other 011 305 2030
Toll 011 535 3600 Code 2134#
USA
USA 1 412 317 0088
Toll-free 1800 860 2442 UK
UK 0808 234 6771
Toll-free 0800 917 7042
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 10/02/2010 07:05:22 Produced by the JSE SENS Department.
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