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African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
African Bank Investments Limited FY 2013 financial results presentation
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African Bank Investments Limited FY 2013 financial results presentation

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African Bank Investments Limited FY 2013 financial results presentation

African Bank Investments Limited FY 2013 financial results presentation

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  • 1. African Bank Investments Limited Annual Results Presentation for the year ended 30 September 2013 1
  • 2. African Bank Investments Limited Our purpose Our purpose is to impact positively on people’s lives through the provision of credit led, risk based financial services. We help our customers to affordably meet their needs, achieve their dreams, and manage the unanticipated financial events that occur through life. We achieve this purpose by actively engaging with our people and through them, with our customers. 2
  • 3. African Bank Investments Limited Contents of presentation Slides History 4–6 Financials 7 – 13 The future 14 – 22 Booklet only slides Income statement 25 Balance sheet 26 3
  • 4. African Bank Investments Limited What events led up to this point Personal loans YoY growth The industry and African Bank have grown significantly 50% 45% 40% The economy has weakened and disposable income has been eroded 35% 30% 25% 20% Poorer quality business written in the second half of 2012 as 15% 10% growth cycle peaked African Bank* 5% Market (excludes AB) › Determination of customer affordability › Customer protection › Payment systems › Capital adequacy Jul 13 Apr 13 Jan 13 Jul 12 Oct 12 Apr 12 Jan 12 Jul 11 Oct 11 Apr 11 Jan 11 Jul 10 Oct 10 Apr 10 Jan 10 Jul 09 *The acquisition of EHL has been excluded from AB YoY growth for the period between September 2010 and August 2011 Source: SARB BA900 returns › Credit extension › Insurance products Oct 09 Regulatory debate has intensified Apr 09 Jan 09 0% Weak economy (%) 6 12% 4 8% 2 4% 0 0% GDP - seasonally adjusted annualised % change Sep 13 Jun 13 Mar 13 Dec 12 Sep 12 Jun 12 Mar 12 Dec 11 Sep 11 Jun 11 Mar 11 Dec 10 Sep 10 Jun 10 Mar 10 (16%) Dec 09 (8) Sep 09 (12%) Jun 09 (8%) Mar 09 have led to a perceived loss of credibility (4) Dec 08 Four negative trading statements from May to October 2013 (4%) (6) Current perception of the unsecured lending industry negative (2) CPI (RHS) *Source:StatsSA 4
  • 5. African Bank Investments Limited What signs were missed During calendar year 2012 (at the peak and the end of this rapid growth phase) › In August 2012, ABIL cautioned against high growth levels in the unsecured industry › This centred around the increased total instalments on all loans in our customer base › High growth in consolidation loan activity by competitors in our customer base › Pull backs in offer rates and reduction of loan sizes by December 2012, though these actions should have occurred sooner and to a larger extent (average loan size declined to R11 444 in December 2012 from R12 650 for the 2012 financial year; average term reduced to 46 months from 48 months) › We also reduced offer sizes and terms to customers employed in the civil service that were becoming increasingly indebted During calendar year 2013, as growth started slowing, we saw the risk emerging in our data › By end March 2013 it was clear that the level of collections was below historic norms › Revised collections practices, while yielding improvements, did not make up for the shortfall › The extent to which the quality of the business had deteriorated was underestimated › We hesitated, until June 2013, in ultimately applying the significant changes to the risk appetite to improve the yield/risk relationship 5
  • 6. African Bank Investments Limited How ABIL responded Second round of risk cut backs – March 2013 Changing customer mix First round of IBNR provisioning increases – March 2013 (R350 million) 9,4% Collections activities further enhanced – March 2013 › Selected branch and furniture store working hours dedicated to collections › Call centre staff bolstered further to 1 300 agents › Special campaigns and insurance initiatives have been introduced › Amended branch staff KPI’s (early stage collections) 11,5% 22,0% 20,6% Revised credit risk appetite / Improve the yield/risk relationship – June 2013 › Lower offer rates and smaller loans to 40% of our customers › Improved risk-based pricing – incoming ROE increased 47,1% 45,6% 48,1% 51,9% 2012 Q4 2013 Q1 2013 Q2 2013 Q3 16,8% 10,9% 6,2% 11,1% 15,2% 13,4% 19,5% 21,8% Low risk Low/med risk Med risk High risk Thin file 21,0% 60,0% 2013 Q4 Med/high risk Other Pull back in credit affects merchandise sales 15 10 5 0 (5) (10) (15) (20) (25) (30) (35) Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 October 2013 trading update › Asset quality starting to stabilise › Collection activities delivering positive results › Considerable increase in provisions to 66,6% following change in loan impairment methodology › Credit write offs significantly increased due to increased conservatism – R3 billion › Significant reduction in the value of written off loans (R800 million) › Goodwill written off – R4,6 billion (no impact on capital) › Increased the rights offer to R5,5 billion 15,7% Merchandise sales YoY % August 2013 update › Announced R4 billion rights offer to strengthen the balance sheet › Further increases to provisions – to 63% from 60% › Significant reduction in credit granted through the Retail unit › Accelerating the disposal of the Retail unit › Non-cash flow loss on LTIP hedge 12,3% EHL sales growth 6
  • 7. African Bank Investments Limited The financial impact – key performance metrics FY 2013 Restated FY 2012 R million 365 3 041 Banking unit R million 654 2 875 Retail unit R million (284) 249 HEPS cents 45,1 378,2 Dividend per ordinary share cents 30 195 NAV per share cents 1 063 1 634 Tangible NAV per share cents 863 782 RoE % 2,9 24,3 RoTE % 6,8 50,0 Total risk charge % 18,2 11,9 Credit impairment charge* % 15,5 10,1 Claims paid* % 2,7 1,8 ABIL headline earnings *As a percentage of gross average advances 7
  • 8. African Bank Investments Limited 2013 Results affected by exceptional events 2013 results negatively affected by the operating environment and further impacted by exceptional non-cash items, including: ABIL group Exceptional items (R million, pre-tax) LTIP hedge 2013 241 Goodwill impairment 4 641 Provisioning changes (R million, pre-tax) Impairment provisioning Insurance IBNR Credit IBNR Total 2 175 550 300 2013 844 264 300 2012 (355) (46) - Prior 1 686 332 - The impairment provisioning and insurance IBNR changes resulted in a restatement of prior year results 8
  • 9. African Bank Investments Limited Banking unit results largely affected by exceptional events Banking unit adjusted earnings ROE 28,7% ROE 16,7% 37% (YoY) 205* R million (445) 300 ROE 6,4% 241* 2 875 77% (YoY) 844 1 799 654 2012 Headline 2013 Headline earnings earnings (restated) (reported) Impairment Insurance IBNR provisioning *Amounts applicable to the Banking unit only Credit IBNR LTIP hedge Taxation 2013 adjusted earnings for the period 9
  • 10. African Bank Investments Limited Income yield analysis Interest income on advances Interest yield beginning to increase Interest income grew by 21% 2013 includes a negative once-off 20 bps impact due to in duplum adjustment for credit cards Total income yield 40 37,2 35,4 34,1 35 8,0 This trend is expected to reverse effective from June 2013 Assurance income Increased 30% to R4,4 billion 7,5 5,2 5,2 7,1 30 8,2 7,5 Non-interest income Changes in sales mix with more internal consolidation loans on which no initiation fees are raised 33,0 7,3 25 Flat year-on-year at R3 billion 32,8 6,9 6,3 (%) 20 15 10 22,0 20,6 20,6 19,7 20,2 2011 FY 2012 FY 2013 H1 2013 FY 5 0 2010 FY Interest Other income Assurance Total insured credit balance increased 27%, after lapses 10
  • 11. African Bank Investments Limited Banking unit loans and advances increased by 11% Banking unit gross loans and advances R billion Disbursements in 2013 were 13% lower than 2012 Of which R3 billion was due to the change in write off policy 19,3 29,2 24,6 Loan revenue is a considerable driver of growth 53,0 Opening balance 8,7 Total disbursements Loan revenue Repayments (collections) 11,3% Growth 59,0 Net write offs Closing balance 11
  • 12. African Bank Investments Limited Asset quality 2013 Rm Restated 2012 Rm Published 2012 Rm Banking unit Breakdown of gross loans and advances (%) Performing loans 11,9 42 338 37 824 37 824 Non-performing loans 9,6 16 622 15 160 15 160 Gross advances 11,3 58 960 52 984 52 984 Written off book (20,4) 1 321 1 659 2 143 Deferred administration fees (>100) 195 (18) (18) 60 476 54 625 55 109 2013 2012 Restated 2012 Published NPLs as a % of gross advances 28,2% 28,6% 28,6% NPL coverage 66,6% 67,0% 60,0% 63,6% 64,8% 59,2% 3,1% 2,2% 0,7% 6,3c 13,7c 17,6c Gross advances including the written off book Ratios Impairment provisions Credit life reserves Written off valuation (cents in the rand) 10,7 12
  • 13. African Bank Investments Limited Risk charge Impairment charge Risk charge 20 Higher credit impairment charge reflecting difficult collections environment in financial year 2013 18,2 18 2,7 Change in provisioning methodology added R844 million to the bad debt charge in financial year 2013 2,3 14 Additional credit to IBNR reserve of R300 million as a result of increased conservatism Credit life claims Increase in claims paid as a result of the group adopting a broader definition of retrenchment Insurance IBNR provision of R241 million (relating to the Banking unit) raised in 2013 12,2 11,9 11,9 2,3 Changes in the write-off policy resulted in an additional R3,0 billion in write-offs 15,9 16 1,8 1,8 12 (%) 10 8 15,5 13,6 6 9,9 10,1 10,1 2010 2011 2012 4 2 0 Credit impairment charge 2013 2013 (adjusted*) Claims paid *Excluding exceptional items related to the Banking unit, the changes to credit provisioning methodology, insurance IBNR and credit IBNR as per slide 9 13
  • 14. African Bank Investments Limited ABIL has taken action Actions taken have positioned the group for sustainable growth and improving profitability in the medium to long term: Provisions › Impairments provisions increased to 63,6% from 59,2%* › Credit life reserves increased to 3,1% from 0,7%* (%) Coverage 70 66,6 65 › Total coverage of NPLs now 66,6% from 60,0%* 61,5 Write offs › 105% increase in written off amount › NPLs decreased to 28,2% from a high of 30,5% as at July 2013 (September 2012: 28,6%)* › Valuation of the written off book significantly reduced to 6,3 cents in the rand from 17,6 cents 60,9 60,0 60 55 50 Goodwill of R4,6 billion has been written off Rights offer results in a strong capital position and allows sufficient capital for growth 45 2010 2011 2012 2013 Historic comparatives are as originally published *As a percentage of average gross loans and advances. 14
  • 15. African Bank Investments Limited ABIL is confident and committed to the future Unsecured lending contributes to the success of the economy There has been visible improvement in the living standards of our customers An increasing number of South Africans are between the ages of 18 and 64 Only 16% of the population has access to secured credit Internal research in 2013 regarding affordability has shown 76% of all respondents have a personal disposable income. This disposable income constitutes approximately one third of net personal income across income segments 60% Compelling evidence of improving conditions for our customers 50% 2001 40% 2004 2008 30% 2011 20% 10% 0% LSM 1-4 How the industry has changed Increased regulation R5 522 over 29 months versus the average loan in 2013 of R13 182 over 51 months LSM 7-8 Unsecured lending makes credit accessible to a wide range of people (%) 100 16 90 Secured credit (including mortgages) 80 Going forward, the industry needs to adapt, the old practices are not sustainable Growth cannot be driven only by term, size and yield Insurance without value can no longer be relied on to drive profitability The role of garnishee orders must be reviewed Payment systems to ensure lenders are treated equitably Standardised affordability tests cannot replace quality customer intelligence The constant churning of customers’ loans is detrimental to the customer and the industry LSM 9-10 LSM: Living standards measure Source: SAARF More competitive Product features – for African Bank, the average loan in 2007 was LSM 5-6 70 60 75 50 84 40 30 Unsecured credit (including facilities, short term credit and developmental credit) 20 10 25 0 R million # of accounts Source: NCR Credit Bureau Monitor report, June 2013 15
  • 16. African Bank Investments Limited Enhanced purpose Our core proposition to customers has always been to impact positively on people’s lives through the provision of credit that is accessible, reliable and affordable As our understanding of our customers’ needs has deepened, we have enhanced our proposition to complement credit with insurance and savings Life stages and requirements change as customers move from young adulthood, through the family stage, and the years leading to retirement As customers progress through these life stages, both anticipated and unanticipated events may occur, with the result that the ability to access credit, insurance and savings will vary The Platinum card was launched as a prototype that encompasses this vision. Once proven it will be rolled out across our customer base Retail deposits now rolled out into branches supplementing online offering 16
  • 17. African Bank Investments Limited Deliver on our purpose by executing our strategy ABIL’s strategic direction for 2014 and beyond Strengthening the core Developing the "New" Growth in customers New products • Card, including platinum card • Prime loan • Rehabilitation • Expanding insurance products • Savings and investments Ellerines Holdings • Implement remaining strategic initiatives • Finalise the disposal and strategic positioning New channels • Expanding virtual channels • EHL – use as expanded channel • Other retail channels • Vehicle finance and dealerships 17
  • 18. African Bank Investments Limited Improved yield/risk relationship Income yield The actions taken to date have strengthened the core business 35 34,1 34 32,8 33 Improved yield/risk relationship › The yield on average advances has improved from 2013 H1 primarily as a result of improved risk-based pricing 33,1 32 31 (%) 30 29 28 27 26 25 2012 The percentage of missed instalments has improved 2013 H2 % of Accounts 1st missed instalments* 10% % of expected instalment Repricing and improved quality of loans written are expected to impact positively on earnings in FY2014 and beyond 2013 H1 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 *September 2013 shows that 3,6% of accounts opened in September missed the 1st payment, compared to 4,6% in September 2012 18
  • 19. African Bank Investments Limited The balance sheet supports our purpose African Bank Limited Net liquidity gap 30 September 2013 Funding R million R7,6 billion DMTN issuance Treasury desk funding reduced to 48% of total funding 16 000 14 000 12 000 CHF125 million Swiss Franc bond issued Cost of funds reduced to 8,6% from 9,2% of average liabilities Significant unutilised bank facilities not included Commitment from our funding partners 10 000 8 000 6 000 4 000 2 000 0 Up to 1 month Two to three months Four to twelve months Thirteen to twenty four months Twenty five to Beyond thirty thirty six six months months Equity, and other assets, etc Pro forma including rights offer Pro forma including rights offer Total assets Total liabilities and equity On balance sheet liquidity gap Pro forma including rights offer 19
  • 20. African Bank Investments Limited The balance sheet supports our purpose Capital R5.5 billion rights offering will strengthen the capital base Target internal capital adequacy levels have been increased for 2014 and beyond: › Tier 1: >20% › Total CAR: >28% Capital levels cater for Basel III and supported by internal capital model risk appetite Post rights offering capital levels are significantly above target levels providing capital for growth Dividends Final dividend of 5 cents to existing shareholders prior to issue of new shares Dividend cover expected to be between 2,5 times and 3,5 times from 2014 ABIL will continue to balance growth and internal capital requirements in determining overall dividend payouts Capital Adequacy Ratios % Core Equity Tier 1 Total Tier 1 Tier 2 Total CAR (%) 40 ABIL Sep 13 13,0 15,1 8,1 23,2 African Bank Sep 12 17,0 21,4 8,0 29,4 Sep 13 15,7 15,7 8,3 24,0 Sep 12 18,6 20,3 8,7 29,0 African Bank Investments Limited Pro forma impact of the rights offering* 33,4 35 30 23,4 23,2 25 25,5 20 15 13,0 15,1 10 Rights proceeds of R5,2 billion 5 0 Sept 2013 Common Equity Tier 1 Sept 2013 (pro-forma) Tier 1 *Calculated based on proceeds held as cash Total 20
  • 21. African Bank Investments Limited What differentiates ABIL The business has what it takes to succeed and thrive Loan usage 35 ABIL has the know-how – deep industry knowledge and vision with valuable lessons learnt from this period 30 ABIL’s customer base is significant 20 2010 Mean 25 2011 Mean 2012 Mean 15 5 Far ranging set of skills › Focus › Underwriting (%) In a small business Vehicle Assist family Source: Lodestar market research report produced fro African Bank Great brands Death, funeral One of the largest distribution networks in the country Furniture Experienced and motivated people who played a pivotal role in the establishment of the unsecured lending market in SA Education 0 Housing, home improvements › Applications are running consistently at 200k per month ytd 2013 Mean 10 Debt › 2,7 million customers with 75% repeat rate Service level scores 100 95 90 › Collections 85 › People 80 › Culture 75 › Resilience 70 › Belief 2012 2013 Q1 2013 Q3 21
  • 22. African Bank Investments Limited The outlook While economic conditions in 2014 will continue to be challenging these are expected to improve in the medium term ABIL operates within a vibrant and relevant market Our customers’ needs are real and growing The business is robust and now more experienced We have taken decisive action and are confident of the future Our vision has been enhanced and we are committed to it 22
  • 23. African Bank Investments Limited Customers Investment community The board Thank you Our people Regulators Funders 23
  • 24. Booklet only slides
  • 25. African Bank Investments Limited Group income statement FY 2013 Rm Gross margin on retail Interest income on advances Assurance income Non-interest income Income from operations Credit impairment charge Claims paid Risk-adjusted income Interest expense Operating costs Other Profit/(loss) from operations Capital items (Loss)/profit before taxation Taxation (Loss)/profit for the period Preference dividends Adjustments Headline earnings Banking unit Rm Retail unit Rm Consolidation Rm FY 2012 Rm 1 770 11 964 4 862 3 337 21 933 (9 155) (1 609) 11 169 (4 564) (6 124) 170 651 (4 641) (3 990) (209) (4 199) (88) 4 652 365 11 859 4 426 3 058 19 343 (9 096) (1 585) 8 662 (4 509) (3 331) 218 1 040 (4 000) (2 960) (304) (3 264) (88) 4 006 654 1 770 105 436 384 2 695 (59) (1) 2 635 (105) (2 929) 16 (383) (39) (422) 94 (328) 44 (284) (105) (105) (23) (128) 50 136 (64) (6) (602) (608) 1 (607) 602 (5) 2 134 9 919 3 828 3 291 19 172 (4 842) (867) 13 463 (3 680) (5 467) 87 4 403 (6) 4 397 (1 307) 3 090 (61) 12 3 041 25
  • 26. African Bank Investments Limited Group balance sheet FY 2013 Rm Banking unit Rm Retail unit Rm Consolidation Rm FY 2012 Rm Short term deposits and cash Statutory assets – bank and insurance Inventories Other assets Other assets – intragroup Taxation Net advances Deferred tax asset Property and equipment Intangible assets Goodwill Total assets 3 091 5 233 731 3 894 520 50 276 1 012 1 077 801 831 67 466 3 770 4 384 3 676 651 490 49 910 279 453 131 63 744 173 729 731 181 121 30 366 730 636 670 716 5 083 (852) 120 37 (772) 3 (12) 115 (1 361) 2 845 4 322 871 1 535 389 44 683 780 965 870 5 472 62 732 Short term funding Short term funding – intragroup Other liabilities Other liabilities – intragroup Taxation Deferred tax liability Bonds and other long term funding Subordinated bonds Total liabilities Ordinary shareholders’ equity Preference shareholders’ equity Total equity (capital and reserves) Total liabilities and equity 8 034 2 996 7 199 42 065 4 361 57 662 8 674 1 130 9 804 67 466 7 513 121 1 506 33 1 11 41 990 4 361 55 536 7 078 1 130 8 208 63 744 521 493 1 529 49 6 188 75 2 861 2 222 2 222 5 083 (614) (39) (82) (735) (626) (626) (1 361) 4 587 2 488 21 216 37 320 3 831 48 463 13 139 1 130 14 269 62 732 26

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