High energy reaping rewardsOperational update – quarter one of 2011
Momentum in last 6 months of 2010 accelerated into 2011
External environment
• Moderately improving economic conditions
• Stronger retail sales over the festive period
• Unemployment claims have stabilised but remain high
• Intensely competitive trading conditions
• Low inflation, low interest rates and above inflation salary increases improving consumer affordability
• Debt mediation rules finalised – deployment expected by February 2011
Introduction
Substantial reinvigoration of business and focus on people bearing fruit
• Strong quarter for both businesses
• New products for the ‘festive’ and ‘back-to-school’ seasons well received
• EHL brands experienced some impact of change over to African Bank systems in September 2010
• Substantial growth in the number of new clients
• High growth in credit card continued
• African Bank footprint expanding rapidly through a presence in EHL stores
• Ezi*cash (top-up credit products) and Ezi*Loans (credit only initiatives) in EHL stores proving successful
• New retail categories and private label expansion in EHL
• Group operating cost slightly ahead of budget given higher sales
• Asset quality continued to improve
• Yields relatively stable
ABIL initiatives
Credit sales of R5,5 billion (up 59% y-on-y)
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200
400
600
800
1 000
1 200
1 400
1 600
1 800
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
R m
illio
n
African Bank credit sales up 63%
2011 2009 2010
0
5
10
15
20
25
30
35
0
50
100
150
200
250
Sep
09
Oct
09
Nov
09
Dec
09
Jan
10
Feb
10
Mar
10
Apr
10
May
10
Jun
10
Jul 1
0
Aug
10
Sep
10
Oct
10
Nov
10
Dec
10
R m
illio
n
R m
illio
n
Card sales grew 87%
New card sales (LHS) Limit increases on existing cards (RHS)
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5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
2009
09
2009
10
2009
11
2009
12
2010
01
2010
02
2010
03
2010
04
2010
05
2010
06
2010
07
2010
08
2010
09
2010
10
2010
11
2010
12
African Bank
New client base up 41%
0
100
200
300
400
500
600
700
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
R m
illio
n
EHL credit sales up 29%
2011 2009 2010
Risk mix positive
• Loan offer rates have remained steady
• The move in the mix to low risk was largely a function of the ‘Payment break’ campaign
• Low/Med customers have increased from 69% of portfolio to 74%
100 000
150 000
200 000
250 000
300 000
0%
10%
20%
30%
40%
50%
60%
70%
80%
Oct
09
Nov
09
Dec
09
Jan
10
Feb
10
Mar
10
Apr
10
May
10
Jun
10
Jul 1
0
Aug
10
Sep
10
Oct
10
Nov
10
Dec
10
Loan applications – African Bank
No of applications Offer Rate %
41.6%
18.2%
14.3%
14.0%
1.8%2.7%
7.4% Sales risk mix Dec 2010
1Low
2LowMed
3Med
4MedHigh
5High
6Thin
7Other
37.6%
18.5%
13.3%
14.2%
2.3%2.6%
11.6% Sales risk mix Dec 2009
1Low
2LowMed
3Med
4MedHigh
5High
6Thin
7Other
Product innovation paying off
• Insights gained from staff and customer roadshows and the retail business, are driving product development
• PAYMENT BREAK
Offered from October to December 2010 – R1 billion in sales (19% of credit sales)
Aimed at lower risk and new clients – sales volumes skewed towards lower risk as a result
1st instalments due in January 2011
Similar product in EHL and an African Bank April/May 2010 promotion have performed satisfactorily
• INTEREST BUSTER
Designed to capitalise on short term lending opportunities and attract new and long-dormant clients
Product available for limited time and specific book size – currently +/- 15% of sales by number of loans, 9% by value
0% interest, no service fees, R10 000 maximum loan size, 12-month product
Standard initiation fee and compulsory credit life
R2 500 potential saving for customers
• MOBILE SERVICE (balance enquiries, airtime, lost cards) - 50 000 active users
Product innovation paying off
• EZI*CASH (top-up credit) and EZI*LOANS (credit only) in EHL proving successful – R112 million for the quarter
• Category expansion in EHL through new imported furniture ranges and computers
• TEK private label – further development into appliances as well
• Club membership reached 570 000 members – new club magazines & benefits positively received
• Credit facilities pilot launched in Wetherlys in December 2010
Distribution network expanding rapidly
• 32 new African Bank branches opened to date
in 2011, including 10 sales centres
• 30 new EHL stores opened for the quarter and 41 more secured for 2011, with a strong focus on improving trading densities
• 121 (55 in Qtr1 2011) African Bank kiosks opened in EHL stores - R90 million of additional sales for the quarter
• 10 African Bank ‘carve-out’ branches in EHL –R73 million of sales
• 5 African Bank promotional vehicles deployed
• Expectation for 100 more kiosks and 100 ‘carve-out’ branches this year
Advances growth tracking sales
• African Bank traditional advances increased by 10% for the quarter to R26,8 billion
• Furniture credit advances increased by 17% to R5,9 billion
• First quarter is traditionally the highest growth quarter
• Advances growth on track to reach the 2011 objective
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5
10
15
20
25
30
35
Oct
08
Dec
08
Feb
09
Apr
09
Jun
09
Aug
09
Oct
09
Dec
09
Feb
10
Apr
10
Jun
10
Aug
10
Oct
10
Dec
10
R b
illion
Monthly advances growth
Furniture African Bank traditional
EHL – retail performance
• Merchandise sales up 8% to R1,5 billion, 12% on a like-for-like m²
• Focus on trading densities paying off - m² down but number of stores up
• Ellerines (48% of EHL sales) performed well
• Fire at Furniture City’s biggest store
• Wetherlys continued to battle with legacy location strategy and slow recovery in upper LSMs
• Gross margins increased relative to same period in 2010 and stock turn improved
• Merchandise sales credit mix increased from 60% (Sep 10) to 66% (Dec 10)
• Productivity ratios continued to improve further
18%
12%
-1%
9%
-4%
3%
12%
-10%
-5%
0%
5%
10%
15%
20%
Elle
rine
s
Bear
es
Furn
iture
City
Gee
n &
Ric
hard
s
Wet
herl
ys
Dia
l-a-B
ed
Tota
l
Comparable sales growth - m²
African Bank vintages continue to fall from peaks of 2008
0%
5%
10%
15%
20%
25%
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Out
stan
ding
Rep
ayab
le o
f NPL
ov
er T
otal
Ori
gina
l Rep
ayab
le
Month on Book
VINTAGE GRAPH - African Bank More than three missed instalments
Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09
May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10
Furniture credit vintages at the lower end of target range
0%
5%
10%
15%
20%
25%
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
NPL
90 %
Months on book
VINTAGE GRAPH - EHLMore than three missed instalments
200808 200809 200810 200811 200812 200901 200902 200903 200904
200905 200906 200907 200908 200909 200910 200911 200912 201001
201002 201003 201004 201005 201006 201007 201008
Looking ahead
The main strategic initiatives for ABIL in 2011 remain as follows:• Integrate and optimise the African Bank operations
• Transform the value proposition and delivery model of the Bank to service a broader market
• Grow the client base of the Bank and convert EHL customers into African Bank customers as well
• Build EHL into a premier cash retailer
• Expand ABIL’s presence in the retail footprint in South Africa.
ABIL
group objectivesActual 2010
Target
2011
Medium term target (rolling 4
years)
Advances growth 20% > 25% > 15% CAGR
Merchandise sales R4,5 bn > 8,5% R8 bn – R9 bn p.a.
Return on equity 15,6% > 18% > 30%
Our people journey has only just started!Our people journey has only just started!