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• Second level • Third level

• Fourth level

• Fifth level

Reviewed annual results

For the year ended September 2012



• Fourth level

• Fifth level

Our purpose ABIL’s 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



• Fourth level

• Fifth level

A robust and competitive business

model

3 3

A business model designed and managed to provide through-the-cycle profitability and attractive returns

• Strong returns 20% return on equity , 36% return on tangible equity

• Solid capital adequacy Group 29,4%, African Bank 29,0%

• Unique funding and liquidity structure Wholesale, duration of liabilities > assets

• Highly cash generative Annual collections ≥ new business volumes

• Strong central underwriting

Rapid adjustments to changes in the environment

• Extensive collections infrastructure

Large staff complement, systems and call centre

• Deep experience and industry knowledge Provided unsecured lending for > 15 years

• Wide and efficient distribution network 1 041 retail stores and 637 credit outlets

• Diversified customer base 2,6 million customers across all sectors and regions



• Fourth level

• Fifth level

• A tale of two halves – risk reduction measures more pronounced in second half

• Solid but cautious growth

• Asset quality intact, strengthening of provisions initiated

• Yields stabilising, selective price management will impact positively in 2013

• Cost trends improving

• Sufficient capital for growth

• Global funding programme reaching large pool of new investors

• Operating leverage at Retail business unit reducing risk

• Return on equity improving at a steady pace

4

Key features – 2012 results



• Fourth level

• Fifth level

Results at a glance

5

1.5

1.8

1.9

2.3

2.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

08* 09 10 11 12

R b

illio

n

Headline earnings (CAGR 17%)

19.5%

15.2% 15.6% 18.4% 20.0%

40.8%

32.9% 32.9% 36.2% 36.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

08* 09 10 11 12

Return on equity

RoE Return on tangible equity

* Acquisition of Ellerine Holdings Ltd

32

3

(9

5) 7

8

49

4 7

55

-150

0

150

300

450

600

750

900

08* 09 10 11 12

R b

illio

n

Economic profit

10

5

85

85

85

85

10

5

10

0

10

0

10

0

11

0

1.2 1.2 1.3

1.6 1.8

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0

50

100

150

200

250

08* 09 10 11 12

Tim

es

Cen

ts

Ordinary dividends per share

H1 H2 Dividend cover



• Fourth level

• Fifth level

• 33% growth in advances

• R7,4 bn of credit sales through EHL network

• Customer rehabilitation gaining momentum

• Direct and mobile channels growing strongly

• Offer rates now < 7 minutes

• Strong commitment in 2012 employee surveys

• First Swiss bond issued by a bank in Africa

• Extension and revitalisation of distribution

network

• Cost growth at EHL below 2%

• All retail distribution centres active!

6

Operational highlights

6



• Fourth level

• Fifth level

• Subdued economy

• Competition intensifies

• Risk emergence in small segments of the market

• Balancing growth, shareholder returns and capital requirements

• Containing cost growth

• Growing merchandise sales in a challenging economic environment

• Risk/return in EHL credit offer not yet satisfactory

• Growing the customer base

• Reputation of unsecured lending industry

7

Challenges



• Fourth level

• Fifth level

• Higher wage increases and mix effects provide good growth in net income and affordability

• Low interest rate environment

• Retrenchments remain off the peaks of 2008

8

Economic environment

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

20

08

/10

20

09

/01

20

09

/04

20

09

/07

20

09

/10

20

10

/01

20

10

/04

20

10

/07

20

10

/10

20

11

/01

20

11

/04

20

11

/07

20

11

/10

20

12

/01

20

12

/04

Retrenchment claims received

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

20

09

01

20

09

03

20

09

05

20

09

07

20

09

09

20

09

11

20

10

01

20

10

03

20

10

05

20

10

07

20

10

09

20

10

11

20

11

01

20

11

03

20

11

05

20

11

07

20

11

09

20

11

11

20

12

01

20

12

03

20

12

05

20

12

07

20

12

09

Ran

ds

Calculated net income by risk group

Low risk Medium risk High risk

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

20

09

07

20

09

09

20

09

11

20

10

01

20

10

03

20

10

05

20

10

07

20

10

09

20

10

11

20

11

01

20

11

03

20

11

05

20

11

07

20

11

09

20

11

11

20

12

01

20

12

03

20

12

05

20

12

07

20

12

09

Instalments to net income

Disbursed Rejected



• Fourth level

• Fifth level

Unsecured lending on a more

sustainable path

9

• Intense scrutiny on unsecured lending

• Large proportion of growth above ABIL’s core target market (> R15 000)

• Early evidence that growth momentum is slowing down

• Actions by government, regulators and banks have reduced systemic risk

0

500

1 000

1 500

2 000

2 500

3 000

3 500

20

11

02

20

11

03

20

11

04

20

11

05

20

11

06

20

11

07

20

11

08

20

11

09

20

11

10

20

11

11

20

11

12

20

12

01

20

12

02

20

12

03

20

12

04

20

12

05

20

12

06

20

12

07

20

12

08

R m

illio

n

Monthly business booked by major credit providers

Source: Credit bureau data

ABIL



• Fourth level

• Fifth level

10

Key financial features

ABIL 2012 2011 % change

Return on equity 20,0% 18,4%

Return on tangible equity 36,3% 36,2%

Economic profit R755 m R494 m 53%

Headline EPS 342,5c 291,0c 18%

Ordinary DPS 195c 185c 5%

Banking unit


Economic profit R945 m R847 m 12%

Headline earnings R2,6 bn R2,3 bn 12%

Retail unit


Economic loss (R139 m) (R211 m) 34%

Headline earnings R257 m R190 m 35%

0

5

10

15

20

08* 09 10 11 12

Ran

d b

illio

n

Income from operations (CAGR 19%)

Banking Retail

10.5 10.6 9.9 10.1

10.8

0

2

4

6

8

10

12

08* 09 10 11 12

%

Bad debt expense to average advances



• Fourth level

• Fifth level

Continuous tracking of loan usage key

to understanding credit environment

11

Higher growth in debt settlement – effect of consolidation loans

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

May10

Jun10

Jul10

Aug10

Sep10

Oct10

Nov10

Dec10

Jan11

Feb11

Mar11

Apr11

May11

Jun11

Jul11

Aug11

Sep11

Oct11

Nov11

Dec11

Jan12

Feb12

Mar12

Apr12

May12

Jun12

Jul12

African Bank loan usage

Housing and home improvements Education Settling debt

Source: e-view marketing research



• Fourth level

• Fifth level

Funding

• R45,7 bn of funding, up 34%

• Two Swiss Franc bonds raised in 2012, totaling CHF275m (R2,4 bn) – one after financial year-end. Strong appetite caused substantial improvement in funding cost of second issue

• US$ issuance for the year totaled $400m (R3,1 bn). More diversified participants, increased investment from Europe and Asia

• Continued strong relationships with our well diversified local debt investors

• Average funding rate reduced from 9,4% to 9,2%

30%

16%

54%

2012 Funding liabilities

DMTN EMTN Money Market

37%

8%

55%

2011 Funding liabilities

DMTN EMTN Money Market

12



• Fourth level

• Fifth level

• Conservative gearing and strong internal capital generation = robust capital adequacy and strong core Tier 1

• Basel III at implementation and Solvency II at the planning stage

• Dividend cover a function of :

Capital adequacy

Return on tangible equity

Growth in advances

Ability to source appropriate capital

13

Capital management

42

04

2

42

04

2

1 738 21.4

20.7

20 000

25 000

30 000

35 000

40 000

45 000

50 000

10

12

14

16

18

20

22

24

26

Sep-12 Sep-12 proforma BIII

R'm % ABIL - Capital adequacy ratio

Total RWE Basel III adjustment Tier 1

• R1,3 bn Basel III entry level compliant capital and R411 million of preference share capital issued in 2012

• ABIL is offering a scrip dividend alternative to final ordinary gross cash dividend of 110 cents

• Dividend cover for 2013 expected to range between 1,7 to 2,0 times

Balancing growth, solvency and shareholder returns



• Fourth level

• Fifth level



• Fourth level

• Fifth level

Highlights

15

• Strong growth in disbursements and advances

• Slower reduction in yield from 35,4% to 34,1%

• Stable asset quality

• Elevated cost growth as business scaled up rapidly – slowing in H2 as efficiencies implemented

• Bad debt charge increased by large write-off in Q4

1 8

63

2 3

02

2 5

80

0

500

1000

1500

2000

2500

3000

2010* 2011 2012

R m

illio

n

Headline earnings

* Pro forma

5.4 5.5 4.7

19.7 22.9 22.9

34.0

38.2 35.4

0

5

10

15

20

25

30

35

40

45

2010* 2 011 2 012

%

Returns

RoA RoE Return on tangible equity



• Fourth level

• Fifth level

Our people

16

• People survey highlights strong commitment

• Road shows provide opportunity for face-to-face engagement between management and employees

• New benefits added - interest-free study loans, a financial planning tool, staff loans, credit cards, funeral cover

• Personal development, balanced life workshop & health risk assessments - additional dimension to value proposition

• African Bank radio, Facebook, Twitter and blogs - new engagement tools

• ABIL Institute (corporate university) and a pilot Grade 12-equivalent programme launched countrywide Source: Corporate Leadership Council

7

70

23 19

62

19 18

62

20 20

62

18

0

10

20

30

40

50

60

70

80

True believers Agnostics (neutral) Disaffected

Employee satisfaction

Global benchmark African Bank 2011

African Bank H1 2012 African Bank H2 2012



• Fourth level

• Fifth level

A tale of two halves

17

1 000

1 200

1 400

1 600

1 800

2 000

2 200

2 400

2 600

2 800

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

R m

illio

n

Disbursement growth curtailed

2012 2011

• Managing risk trends

• ABIL adjusted operations to environment

• Business levers fine-tuned dynamically

• Group continued to grow profits

31%

16%

0%

5%

10%

15%

20%

25%

30%

35%

H1 H2

Expenses growth run rate reduced

Year on year growth

-

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

-

500

1 000

1 500

2 000

2 500

3 000

Mar 11 Sep 11 Mar 12 Sep 12

R m

illio

n

R m

illio

n

Provisions and write-offs increased

Credit impairment charge (LHS) Net write-offs (RHS)



• Fourth level

• Fifth level

Customer base unchanged despite industry

growth in > R15 000 income group

18

0%

10%

20%

30%

40%

50%

60%

Low - R3 500 R3 501 - R5 500 R5 501 - R7 500 R7 501 - R10 000 R10 001 - R15 000 R15 000 +

Rel

ativ

e V

olu

me

Volume distribution per gross income band ABIL customers

Feb 2011

Mar 2011

Apr 2011

May 2011

Jun 2011

Jul 2011

Aug 2011

Sep 2011

Oct 2011

Nov 2011

Dec 2011

Jan 2012

Feb 2012

Mar 2012

Apr 2012

May 2012

Jun 2012

Jul 2012



• Fourth level

• Fifth level

Disbursements and

advances

19

• Disbursements increased by 22% to R26 billion

• African Bank (including kiosk and carve-outs) up 31%,

• New cards up 3% - pulled back on higher risk entry-level cards

• EHL up 7%

• Risk reduction strategies during the year slowed volumes in H2

• Interest Buster remains successful in attracting new customers

• Payment Break innovations for 2012/2013

• Vehicle Finance progressing cautiously

• Advances increased by 33% to R53 billion

• African Bank up 33%

• Card (including card usage) up 40%

• Furniture credit up 25%

39.9

27.7

16.2

(27.7)

(3.1)

53.0

(40.0) (20.0) - 20.0 40.0 60.0

R billion

Advances growth waterfall

Gross advancesopening balance

Disbursements & cardutilisation

Interest, assurance andfees

Receipts

Bad debts written off

Gross advances closingbalance



• Fourth level

• Fifth level

Consolidation loans

20

• Very selective offering – low offer rate

• Defensive product - effective in defending low risk customers against competitive poaching,

but losing higher risk customers to larger loan offers from competitors

• As with all African Bank products, total exposure is capped - both in terms of percentage of

monthly sales and of total capital

• Useful tool to ease affordability for customers

• Profitable product supplementing our overall product offering

23% 22% 19% 22% 22% 21%

25% 26% 25% 24% 20% 18%

74% 73% 73% 72% 71% 70% 69% 69% 70% 68% 70% 68%

15%

25%

35%

45%

55%

65%

75%

85%

20

11

10

20

11

11

20

11

12

20

12

01

20

12

02

20

12

03

20

12

04

20

12

05

20

12

06

20

12

07

20

12

08

20

12

09

Offer rates

Consolidation loans All loans

0%

10%

20%

30%

40%

50%

60%

70%

80%

Low Low Medium Medium Medium High High

Exp

osu

re b

y ri

sk g

rou

p

Risk group

External settlements vs Consolidation loans

Consolidation loans External settlements



• Fourth level

• Fifth level

Expense management

21

23.2 22.7 23.0

19.4 18.2

10.7 9.6 8.8

6.9 6.2

0

5

10

15

20

25

08* 09 10 11 12

%

Efficiency improvements

Cost to income Cost to average advances

•Opening of kiosks and carve-outs and scaling the

business up have led to above average cost growth

• Cost focus already reduced run-rate

• Employment restrictions reduced staff numbers by 6% from peak of 5 500 in March 2012

• Operating leverage provided strong efficiency improvements

• Cost management remains a key strategic imperative to add value to customers



• Fourth level

• Fifth level

Underwriting experience– a key

competitive advantage

22

0%

2%

4%

6%

8%

10%

12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Low Low Medium Medium Medium High High

Bad

deb

t ra

te

Nu

mb

er o

f lo

ans

Risk group

African Bank Debit Order Number of loans and bad debt rate - 3 months performance

Volume - Q1 2011 Volume - Q2 2011 Volume - Q3 2011 Volume - Q4 2011

Volume - Q1 2012 Volume - Q2 2012 Volume - 2012/07/01 Volume - 2012/08/01

Bad Rate - Q1 2011 Bad Rate - Q2 2011 Bad Rate - Q3 2011 Bad Rate - Q4 2011

Bad Rate - Q1 2012 Bad rate - Q2 2012



• Fourth level

• Fifth level

Asset quality

23

• Inflow of younger NPLs from strong sales in 2011 and 2012

• Further refinements to the write-off policy through scorecards - R1,9 bn write-off in August 2012

• Provision coverage post write-off at 58%, raised to 60% in line with historical levels

• Refined write-off policy and IBNR will result in higher provisions

• Insurance claims stable but expected to grow as benefits are extended - R95 million general provisions for strikes

• Confidence in provisioning models - cash flow tests prove models are robust

0

500

1 000

1 500

2 000

2 500

0

20

40

60

80

100

120

140

160

180

200

Oct

-11

No

v-1

1

De

c-1

1

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

R m

illio

n

R m

illio

n

IAS39 back test – NPL cash flow received vs modeled cash flow

ACTUAL MODEL Actual_Cum Model_Cum



• Fourth level

• Fifth level

Risk reduction measures effective

24

0%

5%

10%

15%

20%

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Ou

tsta

nd

ing

Rep

ayab

le o

f N

PL

o

ver

Tota

l Ori

gin

al R

epay

able

Months on Book

VINTAGE GRAPH - African Bank More than three cumulative missed instalments

Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12



• Fourth level

• Fifth level

Strong collections capability

and experience

• 1 000 seat collections call centre

• Collections scorecards used to predict early trends in financial distress, as well as recoverability of defaulting loans

• Scorecards now also used to enhance write-off decision trees

• Extensive use of Bureau data to provide up-to-date trends and improve contactability

• Substantial use of rehabilitation/restructuring alternatives to legal processes –judgments 2% of total book

25

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Mo

nth

1

Mo

nth

2

Mo

nth

3

Mo

nth

4

Mo

nth

5

Mo

nth

6

Mo

nth

7

Mo

nth

8

Mo

nth

9

Mo

nth

10

Mo

nth

11

Cu

mu

lati

ve C

ash

as

% o

f O

uts

tan

din

g B

alan

ce

at T

ran

sfer

Call centre collections per risk group Cumulative cash as % of outstanding balance

> 5 months delinquency



• Fourth level

• Fifth level



• Fourth level

• Fifth level

Progress on strategic agenda

27

• Transfer financial services to African Bank – completed in 2010

• Build a profitable standalone retailer – Return on sales or 5,4% and 35% growth in earnings in 2012

• Reduce costs - main cost drivers:

• People – down from 17 344 to 9 200 over 5 years, without significant retrenchment

• Stores - closed 260 unprofitable stores

• m² - decline of 175 000m² or 21% since acquisition

• Distribution costs – centralised distribution system implemented in 3-year project

• Total cost reduction of R600 million over 5 years

• Optimise the value from the acquisition

• R3,6 billion in non-furniture credit sales in 2012

• Advances doubled from R5 billion to R11 billion

• Reduced cost of credit and insurance for customers



• Fourth level

• Fifth level

Highlights

28

Employee Satisfaction Index – Second Review • Good operating leverage despite slow merchandise sales

• Strong cost containment – 1,5% growth on 2011

• Steady and firming margins

• Increased efficiencies i.r.o cost and space utilisation

• More than 4 800 people exposed to Beyonders programme

• Great progress in skills development and transformation

• Key appointments strengthened management team

• Four distribution centres rolled out in 2012

• Logistics project nearing completion

* Pro forma

130

190

257

0

50

100

150

200

250

300

2010* 2011 2012

R m

illio

n

Headline earnings

2.9

4.0

5.4

4.8

6.9

9.4

0

1

2

3

4

5

6

7

8

9

10

2010* 2011 2012%

Returns (48% return on tangible equity)

RoS RoE



• Fourth level

• Fifth level

Merchandise sales

29

Employee Satisfaction Index – Second Review

• Merchandise sales increased 1,7% to R4,8 billion

• Challenging environment

• Credit pull back in Beares and Geen & Richards

• Reduction in store base and square metres

• Comparable sales growth of 4,7%

• Cash sales up 6,3%

• Decline in credit approvals affected Beares, Geen & Richards and Rest of Africa

0

500

1 000

1 500

2 000

2 500

Elle

rin

es

Be

ares

Furn

itu

re C

ity

Gee

n &

Ric

har

ds

Dia

l-a-

Bed

We

the

rlys

Re

st o

f A

fric

a

R m

illio

n

Merchandise sales by brand

2010 2011 2012

Ellerines

Beares

Furniture City

G & R

Dial-a-bed

Wetherlys

Rest of Africa

(10)

(5)

-

5

10

15

%

Comparable sales growth/(m²)



• Fourth level

• Fifth level

Product and merchandising

30

• New strategic relationship with Ashley USA – the world’s 2nd largest furniture manufacturer and retailer

• All current suppliers integrated in new supply chain and terms renegotiated

• New quality assurance protocols enhances product quality

• Flat pack merchandise introduced

• Exclusive agreement with Hartmann & Keppler to supply Wetherlys with high quality and differentiated products

• Online stores launched in Dial-a-Bed, Appliance City and Furniture City



• Fourth level

• Fifth level

Operating leverage through margins

and cost reductions

31

• Margin growth from 44,2% to 44,5% despite closure of numerous large stores and Roodefurn production facility

• Focus on preserving margin, not pursuing sales growth

• Cost growth well contained – 4,2% (2011), 1,5% (2012)

• Cost initiatives:

• Centralised back office

• Integration of management teams

• Reduced space

• Reduced staff

• Duplicate costs for distribution centres in 2013

42.5 42.7

44.0 44.2 44.5

38

39

40

41

42

43

44

45

46

2008 2009 2010 2011 2012

%

Gross profit margin

2 972 3 096 3 143

66.2 65.7 65.6

60

62

64

66

68

70

0

500

1000

1500

2000

2500

3000

3500

2010 2011 2012

%

R m

illio

n

Gross operating cost

Operating expenses (LHS)

Gross operating cost to sales % (RHS)



• Fourth level

• Fifth level

Valuable credit

distribution system

32

3 586 3 874

691 685

1 038

2 875

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

2011 2012R

mill

ion

Credit disbursements from Retail distribution

Furniture on credit Ezi cash and loans

Kiosk and carve-out loans

• Kiosks and carve-outs add considerable access for customers

• R7,4 billion of new credit volumes from EHL in 2012, up 40%

• Non-furniture credit R3,6 billion, equivalent size to furniture credit within 18 months

• Retail stores have been ‘franchised’ to provide African Bank credit products and the number of kiosks reduced



• Fourth level

• Fifth level

Footprint optimisation yielding

results

33

• Excess space reduced

• Smaller store formats developed

• Numerous large legacy sites closed in 2012

• Store count of 1 041 – 39 new store openings in 2012, 57 store closures

• Smaller stores

• Added benefit of opening up smaller profitable target markets

• New distribution system has been integral to success of these stores

6 218

9 111

12 150

-

2 000

4 000

6 000

8 000

10 000

12 000

14 000

-

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

2010 2011 2012

Ran

ds

/ m

²

R m

illio

n

Sales efficiencies

Merchandise sales (LHS) Non furniture credit sales (LHS)

Total sales/m2 (RHS)

-

100

200

300

400

500

600

4 200

4 250

4 300

4 350

4 400

4 450

4 500

4 550

4 600

4 650

2010 2011 2012

R 0

00

R 0

00

Efficiency ratios

Merchandise sales per store (LHS) Merchandise sales per employee (RHS)



• Fourth level

• Fifth level

• Better stores, better quality products

• 500 of 1 000 stores refurbished, relocated or new in past 3 years

• Stock profile rejuvenated w.r.t discontinued stock, obsolescence, etc.

• New merchandise, new suppliers, improved quality

• State-of-the-art distribution and logistics infrastructure with capacity to 2021

• Smaller, productive workforce

• One IT system and good infrastructure versus 7 different systems at acquisition

• Infrastructure productively used for merchandise sales and credit disbursement – great

infrastructural leverage for ABIL

A significant player in the industry with a simpler, more efficient and more

resilient business

A business in good shape

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• Fourth level

• Fifth level



• Fourth level

• Fifth level

Outlook

• Increasing clarity around economic, regulatory and credit risk trends

• ABIL is comfortable that risks remain well controlled and significant growth opportunities exist

• Banking unit – targeting quality sales and advances growth, stable yields and asset quality

• Retail unit - will continue to outperform in a challenging environment by driving efficiencies and

operating leverage

ABIL

group objectives

Actual

2011

Actual

2012

Target

2013

Medium term target

2016

Return on equity 18,4% 20,0% > 21% > 25% - 30%

Advances growth 38% 33% > 23% > 15% CAGR

Return on sales 4,0% 5,4% 5,6% - 5,8% 8% - 10%

Merchandise sales

growth 5,0% 1,7% > 3% > 8% CAGR

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A robust adaptable competitive business, providing customer and employee

value resulting in superior shareholder returns through the cycle



• Fourth level

• Fifth level

click to edit master text styles second level - the vault business model designed and managed to...

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