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| Introduction |
ABIL generated headline earnings of R1 334 million (2006:
R1 109 million), an increase of 20% on the prior year. Headline
earnings per share increased by 20% to 268,4 cents (2006:
223,3 cents), while dividends per share increased 13% to
225 cents (2006: 200 cents). Basic earnings attributable to
ordinary shareholders of R1 334 million (2006: R1 140 million)
grew by 17% over the equivalent period, at a slower pace to
headline earnings because of the R31 million capital profit
made on the sale of the Commercial Vehicle Finance division
in 2006. Return on assets reduced from 14,2% to 13,5% as a
result of the price reduction strategies, whilst improved gearing
from 3,9 to 4,5 times resulted in the return on equity increasing
from 55,3% to 60,6%.
In order to measure performance which encapsulates both
return on equity and the growth in profits, the group focuses
on economic profit as a financial target. Economic profit is
arrived at after deducting a charge for the cost of equity.
During the current financial year, ABIL generated an economic profit of R1 004 million, a 24% increase over the
prior year. |
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 It is ABIL's intention to
continue to grow our
business to sufficient
scale so that we can
further lower the cost
of credit to our clients
and grow the size of
the market through
cheaper products. |
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| Operational performance |
| The drivers of the results for the 12 months were: |
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Advances: Sales increased by 31% over the year, which,
combined with the extension of average term from 21 to
29 months, resulted in advances growing by 41%. Given
that growth was particularly strong in the second half of
the year, average gross advances for the year grew by a
lesser 29%. |
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Yields: The overall yield on advances was reduced to
49,2% (2006: 53,8%). Sales volume increase and related
advances book growth from the price reductions has
again exceeded our price/volume elasticity assumptions.
The latest series of price cuts took place in September
2007. |
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Operating costs: Expenditure increased 4% to
R1 091 million (2006: R1 048 million) which resulted in
the cost to average advances ratio falling from 14,7% for
the prior period to 11,8%. |
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Bad debts: The charge for bad debt increased by
R217 million to R823 million or 8,9% of average advances
2006: 8,5%). NPL coverage has reduced to 63,0%
2006: 64,8%), due to higher actual cashflows being
achieved on these portfolios than that assumed
in the previous year's IAS 39 models. Write-offs of
R549 million (2006: R455 million) represent 5,9% (2006:
6,4%) of average advances, although this ratio is distorted
by the recent strong growth in gross advances and
rehabilitated loans. |
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Funding costs: The average cost of funds fell marginally to 9,7% (2006: 9,9%) as older, more expensive funding was settled on maturity. Given that the majority of funding is fixed at long-term rates, the recent rises in short-term interest rates have had little effect on the group’s funding costs. |
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Taxation: The all-in tax rate was 36,5% (2006: 37,3%). In
addition to the normal corporate tax rate of 29%, the
group paid R138 million in STC on dividends (2006:
R118 million). Indirect taxes reduced to R38 million
(2006: R46 million), as a result of the abolition of RSC
levies and improved VAT apportionment ratio. |
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| The above drivers combined to produce a 19% increase in
profit from operations from R1 792 million to R2 129 million. |
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| Dividends |
| The ABIL board declared a final ordinary dividend of 130 cents per share bringing the total dividends for the year to 225 cents (2006: 200 cents) per share. This full year ordinary dividend is covered 1,2 times by basic earnings attributable to ordinary shareholders. The group also declared a final preference dividend of 460 cents per share. |
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| Looking ahead |
| Our financial objectives for 2008 are set out in the year under review. We are confident that we will achieve these financial objectives for next year. We will continue to use the high return on equity currently being achieved to strengthen our competitive position and growth prospects through further risk discovery and price reductions to our clients. |
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| Financial objectives for 2007 |
| Objectives |
Target for 2007 |
Actual for 2007 |
| Sales growth |
20% – 25% |
31% |
| Advances growth |
34% |
41% |
| Decline in total yield on average advances |
5% |
4,6% |
| Cost to advances |
<12,5% |
11,8% |
| Bad debt expense to advances |
8,5% – 9,5% |
8,9% |
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| Medium-term financial objectives |
| Objectives |
Medium-term target |
Actual for 2007 |
| Economic profit growth |
Consumer price inflation (CPI) + 15% = 21% |
24% |
| Capital adequacy optimised |
Minimise surplus capital as per capital model |
R73 million of surplus capital retained |
| Ordinary dividend cover |
1,0 – 1,5 times |
1,2 times |
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