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African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
African Bank Investments Limited 3Q 2013 financial results presentation
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African Bank Investments Limited 3Q 2013 financial results presentation

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African Bank Investments Limited 3Q 2013 presentation

African Bank Investments Limited 3Q 2013 presentation

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  • 1. STRATEGIC ANNOUNCEMENTS AND QUARTERLY TRADING UPDATE FOR THE NINE MONTHS ENDED 30 JUNE 2013 1
  • 2. 2
  • 3. Consumer environment A continuation of a challenging environment evidenced by • Elevated levels of indebtedness and deterioration in consumers’ affordability • Disposable incomes eroded by fuel, utility tariffs and higher than anticipated inflation • Consumer confidence impacted, leading to lower demand for credit and for durable goods • Industry-wide slowdown in the granting of unsecured lending • Short term woes should not detract from long term growth view of the middle market of South Africa Compelling evidence of improving economic conditions for our customers Unsecured credit granted per quarter 35 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% 25 20 15 10 5 Credit Granted Source: NCR 2013-Q1 2012-Q4 2012-Q3 2012-Q2 2012-Q1 2011-Q4 2011-Q3 2011-Q2 2011-Q1 2010-Q4 2010-Q3 2010-Q2 2010-Q1 2009-Q4 2009-Q3 2009-Q2 2009-Q1 0 2008-Q4 R billion 30 % change in credit granted y-on-y 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% LSM 9-10 LSM 7-8 LSM 5-6 LSM 1-4 2001 2004 2008 2011 Source: Saarf 3
  • 4. Regulatory environment Considerable progress on a number of fronts • Substantial dialogue achieving positive outcomes • Progress with emolument attachment orders, payments system processes and affordability guidelines • Continuing cooperative productive engagement on credit life Probe by the NCR • Matter before the National Consumer Tribunal is following due process – expected to be heard in October 2013 4
  • 5. Key strategic announcements • Over the past 12 months ABIL has responded to the significant changes in the trading environment by reducing risk, bolstering collections capacity and capabilities and assisting customers who are in financial distress • Given the group’s view that the tough operating conditions will continue over the medium term, the group has taken further significant steps to strengthen the business • Key strategic initiatives: • Significantly improve the yield/risk relationship, and the asset quality of the book • Enhanced collection procedure • Strengthen the capital base, and • Review the strategic alternatives for EHL 5
  • 6. Improve yield/risk relationship Considerable refinements to the customer acquisition model to increase returns • Higher than expected risk emergence has altered our underwriting choices • Far reaching capital and pricing changes implemented • Loan sizes for medium and high risk groups reduced by between 7% - 63% • Loan terms for medium and high risk groups reduced by between 3 - 24 months • Improvements in the proposition for low risk customers being rolled out – the foundation for this has already been laid over the past year with > 50% of new branch roll outs in shopping malls such as Eastgate, Menlyn, Tygervalley, Fourways and others and the look and feel substantially upgraded Expected impact • 40% of customers will receive smaller loans, shorter terms and thus lower instalments • Overall negative impact on disbursements expected to be approximately 10%, despite the considerable changes being implemented. This is due to the shift in portfolio weight towards a larger proportion of low risk customers that generally have larger loans • Asset growth expected to slow from current levels over the near to medium term • Emerging improvements in credit quality bode well for 2014 - 2015 6
  • 7. Improve yield/risk relationship – changing risk mix % Capital distribution by risk group 16% 14% Little or no price increase Selective price increases Significant price increases 12% 10% Significant shift in weight of capital disbursed to a larger proportion of low risk customers. Loan sizes and terms reduced for higher risk customers 8% 6% 4% 2% Jul-12 Jul 13 0% Low risk Medium risk High risk 7
  • 8. Strengthening the capital base ABIL to raise up to R4 billion in equity • Strengthen the Tier 1 base, support growth prospects and cater for Basel III additional capital requirements • R4 billion achieves the following objectives.   Allows a sustainable dividend cover range within a sustainable book growth rate  • Adds CET1 equivalent of an additional 8.2% of risk-weighted assets (RWA) Provides surplus liquidity Capital raising will predominantly take the form of ordinary equity to existing shareholders.  The strongest form of capital  Increases buffer from Basel III Point of Non Viability, facilitating better issuance of Basel III compliant instruments through 2014/15  Positively impacts credit rating • Goldman Sachs International will provide underwriting of up to R4 billion • Given the impact of the stresses in the unsecured lending markets, and it’s impact on short term profitability, ABIL believes it prudent to increase target capital adequacy ranges • During times of market pressures, as is the case currently, we will target the top end of target ranges in order to provide an additional buffer for unexpected losses 8
  • 9. Strengthening the capital base - Pro forma impact (%) 40 African Bank Investments Limited Pro-forma impact of R4 billion capitalisation • • 35 30 27.6 26.0 25 20 R 4 billion equity adds 8.2% capital adequacy Significant equity underpin 2013 beyond • Increase scope for effective capital structuring • Long term benefits significantly outweigh additional Cost of Equity in the near term 35.8 17.8 28.1 27.6 19.9 + R4.0 billion equity capital injection 15 17.8 19.9 – 5 Target Tier 1 : 20% - 23% – 10 Target Total : 30% - 33% 0 March 2013 (reported) Common Equity Tier 1 March 2013 (pro-forma) Tier 1 Pro forma excluding raising costs, balance sheet and profitability impact Total 9
  • 10. EHL’s fit in ABIL’s long term portfolio • Since the acquisition of EHL, ABIL indicated that it would consider a disposal of furniture retailing once the majority of the key strategic initiatives are implemented and little further value can be added to the retailing entity. • In this regard, ABIL has  Transferred the financial services to African Bank  Optimised the value from the acquisition, with R3,6 billion in non-furniture credit sales in 2012 and a doubling of advances from R5 billion to R11 billion  Built a standalone furniture retailer with: • Better quality assets • Over 50% of stores refurbished, relocated or new in past 3 years • Stock profile rejuvenated w.r.t discontinued stock and obsolescence • State-of-the-art distribution and logistics infrastructure with capacity to 2021 • A smaller, productive workforce • No long term strategic fit for a product-based retailer and risk-based financial service provider. ABIL to accelerate the disposal of the EHL furniture retail business • Several viable options are currently being reviewed to optimise the strategic outcomes for both the group and EHL 10
  • 11. Operational update
  • 12. Key points • Slowing growth in sales and advances • Yield, operating cost growth and funding rates remain stable • Yield protected by price increases filtering through and diminishing effect of in duplum adjustment in H1 2013 • Operating costs well maintained and in line with H1 2013, except for additional charge for share-based incentive scheme hedge • Funding cost has recently trended higher, but the full year funding cost is expected to be lower than previous year • Continued elevated risk charge and tough collections environment, but new NPL formation is peaking and collection rates are showing signs of improvement • Outlook for full year remains muted, however underwriting model refinements and emerging green shoots in credit quality bode well for 2014 - 2015 12
  • 13. Lower, better quality credit disbursements Lower demand and credit cutbacks curtail disbursements 90% 300 000 85% 250 000 80% 200 000 75% 150 000 70% 100 000 No of applications (LHS) Apr 13 Jan 13 Oct 12 Jul 12 Apr 12 Jan 12 Oct 11 Jul 11 Apr 11 Jan 11 Oct 10 Jul 10 60% Apr 10 0 Jan 10 65% Oct 09 50 000 R million 350 000 Lower applications and offer rates reflect negative trading environment 2 800 2 600 2 400 2 200 2 000 1 800 1 600 1 400 1 200 1 000 Oct Nov Dec Jan Feb Mar Apr May Jun Offer Rate % (RHS) 2012 Jul Aug Sep 2013 Reduced sales generates significant cash 3500 3000 2500 2000 1500 Disbursements 1000 Receipts 500 Net cash 0 Cumulative net cash -500 Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 Dec-12 Nov-12 -1000 Oct-12 R million Furniture credit initiatives • Oct 12- Mar 13: Some cuts to retail credit granted and increased credit pricing, improving new business quality and yield/risk relationship • Post March 13: Substantially more cuts in furniture credit (11% reduction in sales) and materially reduced non-furniture credit (76% reduction in disbursements) • Early evidence of improved new business quality 13
  • 14. Slower but solid growth in advances Advances growth of 19% to R60,3 billion • • Advances growth slowing as anticipated, on the back of lower disbursements 70 50% 38% 60 Book growth remains higher than disbursement growth as older, shorter term loans are being replaced by longer term loans Settlements by external parties have also reduced substantially, keeping loans on the book for their full term 37% 29% 27% 40 19% 14% 15% 30 47.0 20 African Bank traditional advances up 22% 10 • Credit card advances up 19%, credit card usage of R1,4 billion 23.7 25.2 30% 25% 22% • 40% 33% 50 R billion • Advances growth 27.1 29.0 34.4 53.0 58.8 60.3 39.9 0 • Furniture related credit up 10% 20% 10% 0% -10% -20% H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 Q3 13 Total advances Growth rate y-on-y 14
  • 15. Collections continue to stabilise NPLs as % of advances have increased slightly over the past 3 months 80% 73% 72% 71% 71% First missed instalments on the furniture credit book 14% 70% 70% 12% 60% 10% Arrears 13+ months Performing 5% 6% 6% 7% H2 11 H1 12 H2 12 H1 13 Q3 13 Debit order strike success rates continue to improve Cash to Instalments success ratio 80% 90% 70% 86% 84% 85% 82% 83% 83% 82% 78% 79% 80% 80% 80% 78% 76% External settlements by other credit providers 67% 65% 64% 61% 61% 62% 60% 82% 80% Jun-13 6% May-13 0% 0% Apr-13 13% Mar-13 12% Feb-13 11% Jan-13 10% Jun-12 10% 2% 12% Dec-12 11% 4% Nov-12 11% 11% Oct-12 12% 60% 57% 59% 58% 59% 54% 57% 50% 40% 30% 75% 20% 70% 10% Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 Dec-12 Nov-12 Oct-12 Jul-12 Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 Dec-12 Nov-12 Oct-12 Sep-12 Aug-12 Jul-12 Jun-12 May-12 Jun-12 0% 65% Sep-12 20% 10% 6% Arrears 4-6 months 30% Sep-12 27% 29% Aug-12 30% 29% Aug-12 28% Jul-12 40% 8% Arrears 7-12 months 50% 15
  • 16. African Bank vintages trending higher VINTAGE GRAPH - African Bank More than three cumulative missed instalments 20% 18% Cutbacks and risk reduction will impact positively 16% Outstanding Repayable of NPL over Total Original Repayable 14% 12% 10% 8% 6% 4% 2% 0% 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Months on Book 201106 201201 201208 201107 201202 201209 201108 201203 201210 201109 201204 201211 201110 201205 201212 201111 201206 201301 201112 201207 201302 16
  • 17. Early stage delinquency vintages are showing that new NPL formation has peaked Vintage performance - 30 days contractual delinquency 3 000 Months on book 10% 2 500 Disbursements 8% 2 000 6% 1 500 2 R million Original repayable of NPL over total original repayable 12% 3 4 4% 1 000 2% 500 5 6 0% 201210 201211 201212 201301 201302 201303 201304 Disbursement month Lower monthly disbursements and lower early stage delinquencies 17
  • 18. Credit card vintages continue to improve post risk reduction measures implemented in 2012 25% Vintage graph - Credit card (More than 3 missed instalments) Risk increased due to new customer acquisition strategy in 2011/12 20% 15% 10% Risk reduction due to focus on lower risk customers 5% 0% 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 201106 201107 201108 201109 201110 201111 201112 201201 201202 201210 201203 201211 201204 201212 201205 201301 201206 201302 201207 201303 201208 201209 Months on Book 18
  • 19. Furniture credit vintages not yet in line Vintage graph - furniture credit (More than three cumulative missed instalments) Outstanding repayable of NPL over total original repayable 35% 30% 25% 20% Implemented measures to reduce risk and change sales mix to lower risk groups 15% 10% 5% 0% 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 201101 201102 201103 201104 201105 201106 201107 201108 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 28 201109 201110 27 201301 19
  • 20. Stable funding and liquidity • R600 million, 7-year bond and R1 billion, 3-year Jibar-linked bond issued in Q3 • Continued, significant rollover rates of maturing money market liabilities • Funding costs for the 9 months down marginally, recent issuances more expensive African Bank Limited –Quarterly net liquidity gap 10 000 8 000 6 000 4 000 2 000 0 -2 000 -4 000 Up to one month More than one to three months Net liquidity gap - Sep 12 More than 3 months to 6 months Net liquidity gap - Dec 12 More than 6 months to 1 year 1 year to 3 years More than 3 year to More than 5 years 5 years Net liquidity gap - Mar 13 Net liquidity gap - Jun 13 20
  • 21. A tough trading environment 2012/11/01 2013/03/01 2013/01/01 2013/04/01 2012/07/01 2012/03/01 2011/11/01 2011/07/01 2011/03/01 2010/11/01 2010/07/01 2010/03/01 2009/11/01 2009/07/01 2009/03/01 Furniture deflation leads to inability to increase pricing 2008/11/01 Source: Econometrix Goods Inflation: Durable,Semi-durable and Non-durable Durable Semi-durable 2012/10/01 2012/07/01 2012/04/01 2012/01/01 2011/10/01 2011/07/01 2011/04/01 2011/01/01 2010/10/01 2010/07/01 2010/04/01 2010/01/01 2009/10/01 2009/07/01 2009/04/01 14 12 10 8 6 4 2 0 -2 -4 2009/01/01 % • 2008/07/01 Reduced supply of credit in ABIL and across the industry also a key driver for declining activity levels, a trend likely to persist in the short term 2008/03/01 • 20 15 10 5 0 -5 -10 -15 -20 2007/11/01 Continued pressure on disposable income and lower consumer confidence lead to fewer customers in the stores 2007/07/01 • % change in Nominal Retail Sales m-o-m (Household Furniture, Appliances and Equipment) Non-durable Source: Stats SA 22
  • 22. Merchandise sales Sale of merchandise Merchandise sales of R3,2 billion for the nine months – a 13% decline y-on-y, 7% decline on a comparable basis • Reduction in merchandise sales across all brands • Cash sales down 12%, credit merchandise sales down 13% • Recent rand weakness puts pressure on input prices and margins • Credit sales percentage at 62,6% for the 9 months, but lower in recent months after implementation of risk reduction measures R million • 700 650 600 550 500 450 400 350 300 250 200 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2011 2012 2013 Sales decline % 5 (5) (10) (15) (20) (25) (30) Y-on-y change 0 -2 -9 -13 -13 -15 -23 Sales growth -15 -20 -7 -9 -8 -13 -13 -25 -23 Comparable sales growth 23
  • 23. Other business drivers • Gross margins reduced to 44,2% from 44,8% over the past quarter, as a result of lower volumes • Stock turn reduced to 2,9 times given lower sales • Stock levels improving as centralised logistics capabilities start to manifest • Single digit operating cost growth notwithstanding the charge for share-based incentive scheme hedge • Store footprint increased by 11 stores • Efficiency drive continued with trading area reduced by another 4% to 651 178m² 24
  • 24. Bar graph style 25
  • 25. Outlook Banking unit • • • • • • • • Trading conditions expected to remain challenging Advances growth will continue to slow, towards the lower end of the target range of 18% - 22% Collections remain tough but are stabilising Risk charge to remain elevated for 2013, risk reduction measures should benefit charge from 2014 Incoming yield is higher and the credit card in duplum charge effect is diluting Operating costs and funding cost growth should remain well contained Marginally higher impairment charge, lower sales and share incentive scheme hedge costs is likely to result in lower H2 profits than H1 Changes in ABIL’s offering bode well for risk-adjusted returns over medium term Retail unit • • • Slowdown in furniture sales growth expected to endure R100 million of duplicate costs to come out in 2014, attempts made to accelerate the process Medium term cost reduction and margin improvement initiatives on track 26

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