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• Second level • Third level
• Fourth level
• Fifth level
Reviewed annual results
For the year ended September 2012
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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
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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
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• 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
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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
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• 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
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• 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
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• 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
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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
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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
Return on equity 22,9% 22,9%
Economic profit R945 m R847 m 12%
Headline earnings R2,6 bn R2,3 bn 12%
Retail unit
Return on equity 9,4% 6,9%
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
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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
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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
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• 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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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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
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• Fifth level
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• 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
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• 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
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• 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)
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• 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
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• 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)
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• 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
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• Second level • Third level
• Fourth level
• Fifth level
Footprint optimisation yielding
results
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• 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)
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• 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
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• 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
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• Second level • Third level
• Fourth level
• Fifth level