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MICROFINANCE

AFRICAN BANK INVESTMENTS LIMITED Retail Business Unit

Gross Profit Margin

The return to profitability achieved in 2010 carried through into 2011. Despite the adverse trading conditions in the furniture market, the retail business unit showed good improvements in profitability on the back of cost and margin management. Headline earnings increased by 13% to ZAR 144.0m in H1 2011, while the economic loss after including a charge for goodwill reduced to ZAR 75.0m, (H1 2010: loss of ZAR 101.0m). Return on sales was 5.7%, while ROE improved from 8.4% in H1 2010 to 9.9% and operating margin up to 8% (6.5%).

46.0% 45.0% 44.0% 43.0% 42.0% 41.0% 40.0% 39.0% H2 2008

H1 2009

H2 2009

H1 2010

H2 2010

H1 2011

Source: Joab’s Technologies and Research. CapitalJoab’s Technologies and Research.

Sales figure slightly below target. Although sales growth at 7.0% was below management’s target of 8.5%, we believe that if the forward momentum can be carried into H2 2011, the target is by no means out of reach. The credit sales mix increased from 59% to 64% of total sales. Also, despite a 6.0% growth in the cost of sales, the GP margin increased from 43.2% in H1 2010 to 43.9%. The reduction in gross margin can be attributed to the cyclical influence of promotional campaigns in the festive season, lower supplier volume rebates and discounts in the second quarter, as well as some stock losses and write-offs incurred due to the closure and relocation of Wetherlys stores. Retail Unit Income Statement (ZARm) Sale of Merchandise

H1 2010 2,348

H1 2011 2,515

%∆ 7%

Cost of sales

(1,334)

(1,410)

6%

Gross margin

1,014

1,105

9%

42

63

50%

Assurance Income

216

239

11%

Non-Interest Income

199

245

23%

Income from operations

1,471

1,652

12%

Risk Adj. Income from operations

1,441

1,602

11%

Profit from operations

154

202

31%

Profit before taxation

173

202

17%

Profit after taxation

127

144

13%

Interest Income on Advances

Cost control was a strong focus. It is worth noting that savings were also achieved through changes to organizational design, streamlined management structures, logistics efficiencies and cost reductions at a head office level. Moreover, headcount continued to come down through a recruitment freeze aimed at driving personnel costs down further. The total number of staff reduced further from 12,456 in March 2010 to 11,304. There has also been improved buying and better promotions campaign management.

Merchandise Sales By Brand (ZARm) 1,400

Retail Unit Balance Sheet (ZARm) Assets

800

Short term deposits & cash

9 9 1

1,000

1, 1 7 5

1,200

H1 2010

H1 2011

Joab’s Technologies and Research.

158

183 164 Dial-aBed

149

275

273

Wet herl ys

Furniture City

Source: Joab’s Technologies and Research. CapitalJoab’s Technologies and Research.

Beares

Ellerines

-

H1 2011

%∆

42

69

64%

Statutory assets-bank & insurance

131

257

96%

Intergroup deposit- African Bank

187

176

-6%

Inventories

777

816

5%

Other assets

384

332

-14%

Net Advances 225 211

200

Geen &Richards

495

400

534

600

H1 2010

274

350

28%

3,905

4,148

6%

Short term funding

432

421

-3%

Intergroup loan- African Bank

178

214

20%

Total Assets Liabilities and equity

Trade and sundry creditors

609

707

16%

Total Liabilities

1,885

2,172

15%

Total equity (capital & reserves)

2,020

1,976

-2%

Total Liabilities & Equity

3,905

4,148

6%

Page 82 of 104

Equity Research in Africa, Like an Electric Train Africa is picking up, a True Emerging Market  

Economic analysis of Africa as a whole, as well as of particular countries and sectors, with special regard to their potential as investment...

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