African Bank Investments Limited wants to double the sales of furniture and appliances at recently acquired Ellerines, pushing its return on sales above 10% from the 7% it reported last August.
For consumers, this spells great deals on furniture and appliances as Abil slashes prices and reduces the cost of credit and insurance from previous Ellerines' levels as part of a drive to grow the overall size of the retailer's market and the scale of the credit market.
The Abil-isation of Ellerines is well under way, with cost- reduction initiatives, a brand review to cut the number — and define the reach — of brands, and an international benchmarking exercise to entrench it as a standalone retailer.
Abil chief executive Leon Kirkinis said Ellerines had been financial-services focused and credit-led instead of market focused and merchandise led.
Presenting his credit and, now, retailer group's March interims, Kirkinis's disarmingly simple spread-sheet take on how to run Ellerines prompted one analyst to ask whether Abil had plans for further moves into retail. “Yes, but we're going to take it one step at a time,” came the reply.
But Kirkinis and his team are not losing sight of growing their core, unsecured lending business, which they also plan to double in size. The integration of Ellerines' financial services activities into main Abil operating unit African Bank is a priority to achieve this doubling.
“Your ability to bring down the cost of your product is important in growing the credit market,” Kirkinis said, pointing to African Bank's 47% increase in gross advances and 28% rise in total operating income.
Clever risk selection is African Bank's hallmark.
Illustrating the benefit to borrowers of its risk differentiation strategy, Kirkinis said a lower risk client paying R500 a month could have borrowed R7500 three years ago. Today the same client could borrow R17500 for the same monthly outlay.
But lower income borrowers are being hurt by inflation, and higher income borrowers both by rising interest rates and inflation.
So African Bank reported a higher than expected charge for credit losses, at 10.7% of average advances, above the upper 10% band of its target range. It is targeting 9% in the medium term.
Abil has further tightened its lending criteria since the National Credit Act was introduced last June — to the extent that Kirkinis believes Abil may have been too cautious.
Abil's interim earnings a share for the newly combined group were 125.1c, creating a base for future reporting periods, and allowing for a dividend of 105c, covered 1.2 times.
Source:Business Times
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