But the performance for the six months to 31 March is the result of a “tale of two stories,” said CEO Leon Kirkinis.
The banking business grew and it was financially solid, while the furniture operations traded below expectations. The group did not expect the trading environment to improve much in the second half.
A better performance was expected for the full year, but growth from Ellerines was not likely to be strong, he said.
Kirkinis said the introduction of the National Credit Act had caused a marked slide in retail furniture sales, indicating the level of credit to the industry had been artificially high.
Although Ellerines' performance was still being measured against these previous artificially high levels, the level of credit to the sector was starting to reach a “normalised level”, said Kirkinis.
The focus in the second half would be on further integration of financial services, revitalising Ellerines's retail activities and refining the bank's collection and underwriting processes.
Abil's headline earnings increased 16% to R937m for the six months. Headline earnings per share fell 7% to 116.6c due to the more than 60% increase in the number of shares to pay for the acquisition of Ellerines early last year. The interim dividend was lowered to 85c from 105c at the same time last year.
African Bank, Abil's bank subsidiary, raised headline earnings 15% to R747m and its return on equity was 56,8%.
Ellerines reported R190m headline earnings compared with R153m in the previous three months.
The integration of Ellerines's financial services into African Bank was slower than expected.
African Bank's bad debt charge improved to 10.4% of average advances compared with 10.7% in the first quarter of 2008. Sales of new loans increased 11%. Funding liabilities were up 43% to R14,9bn.
Ellerines's sales fell 20.5% to R2,3bn, with cash and credit sales falling 19.7% and 21.2% respectively, mainly due to the smaller store footprint, lower credit approvals, weaker demand and the inflated base of the comparable reporting period.
Adjustments were made to Ellerines' comparative figures as there had “not been sufficient data” at the time of the acquisition and 30 September 2008 “upon which Abil could have more accurately projected the expected performance of the advance book in particular, the loans written during June to December 2007.”
Cash flow comparatives were also restated.
It was not all bad news for Ellerines, as it made some progress towards its objective of providing products at the right price, complemented by a differentiated risk-based credit offering. The rationalised management had been bedded down, new merchandise management skills were introduced and the store footprint continued to be optimised.
Development of a strategically aligned supply chain was on track.
African Bank continued to implement and refine its price differentiation, risk segmentation and price reduction strategies in the first half.
As a result, the customer base grew steadily, asset quality had been maintained, while a conservative approach to liability and capital management had negated much of the impact of the dislocation in capital markets. Abil's share price slipped 3.6% to R26.75 yesterday.
Source: Business Day
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