Bangkok--27 Feb--Krungthai Card
- 2011 performance affected by provision of bad debts and doubtful accounts as well as government’s tax reduction policy and extraordinary provisions to accommodate marketing policy changes caused by customer point redemption.
- Cost reduction strategy expected to help boost profitability in Q2/2012 and generate recorded profits in 2013.
Hit by the recent flood crisis that has severely impacted the credit cards market and consumer spending, KTC announced it made net account receivable of Bt42.92 billion, down by 4%, from a customer base of 2.2 million accounts. But its annual revenue still rose 3% to Bt12.497 billion, thanks to slightly improved performance in the personal loans business.
However, the company has also been hit by rising overall cost that rose 20% to Bt14.094 billion.
- Extraordinary provision for bad debts and doubtful accounts especially for flood hit customers.
- Extraordinary provision for possible changes in marketing policies designed to accommodate mileage redemption by KTC and Royal Orchid Plus card members.
- Government policy to reduce corporate income tax from 30% to 23% in 2012, and 20% in 2013.
The last one is posing a concern over the realisation of future returns for deferred tax asset which was temporary differences of allowance for doubtful accounts from and others. It resulted in 7% decline and caused the company’s loss of Bt1.621 billion. However, KTC is confident that its 2012 cost reduction strategy for administrative and IT operations with focus on taking outsourcing work back to internal functions would help resume its profitability from Q2 of 2012 and generate an unprecedented improvement in profits in 2013. The company also projects to become No. 1 in the credit card market by 2014.
“Despite the fact that the overall credit card business performed well in the first nine months last year, the massive flooding severely affected the last quarter, making credit card spending noticeably slowed down,” said Rathian Srimongkol, President and CEO, “KTC” or Krungthai Card Public Company Limited. “Most growth figures of the credit card industry for 2011 stood below those of 2010. The total value of outstanding credit card debt in 2011 amounted to Bt228.903 billion, up 6% from the same period of 2010 which enjoyed an increase of 10%. Of this, there were 15.3 million accounts, up 8% from the year earlier. The total spending (excluding foreign card spending and cash advance) improved 13% compared with 16% in 2010. The personal finance sector gained 14% growth last year.”
“Hit by the crisis like others, KTC experienced a tough time encouraging card spending. Its total net account receivable amounted to Bt42.920 billion, a decrease of 4%. The personal loans receivable expanded 10% to Bt11.650 billion, while credit card segment (73% of the total portfolio) fell 8% to Bt30.940 billion. Still, we recorded 3% increase in revenue to 12.497 billion due mostly to incomes from personal loans business.”
“While we are trying to control financial costs at the similar level as the previous year, we have to shoulder the total expense of Bt14.094 billion, up 20%, that caused a loss of Bt1.621 billion. This can be attributed to the following key factors.
- Extraordinary provision of Bt633 million in addition to the existing Bt4.978 billion (40% of total revenues) for bad debts and doubtful accounts especially for flood hit customers. The amount is in line with the company’s normal provision criteria.
- Extraordinary provision for possible changes in marketing policies designed to accommodate mileage redemption by KTC and Royal Orchid Plus card members. All mileage earned has now transformed to be KTC Forever Rewards, from which card members can use for gift redemption whenever they want. And to be compliant with the 13rd edition of TFRI (Thailand Financial Reporting Interpretation), which is expected to be effective in 2012 and requires retroactive adjustment of accounting figures, the company needs to provide more redemption points to Bt838 million in value, or 7% of the total revenue.
- Government policy to reduce corporate income tax from 30% to 23% in 2012, and 20% in 2013. This is posing a concern over the realisation of future returns for deferred tax assets which was temporary differences of allowance for doubtful accounts and others, which has resulted in 7% decline in 2012 followed by 3% in 2013. This has generated a decrease of Bt404 million in the company’s income before tax.
“For the financial year ended December 31, 2011, KTC had total assets of Bt47.443 billion, down from Bt48.541 billion at December 31, 2010. Accounts receivable totaled Bt42.92 billion, drop from Bt44.775 billion at the end of 2010. KTC member base has 2.2 million accounts, which are 1,619,863 credit card accounts with total outstanding balance of Bt30.940 billion; 583,637 KTC Cash personal loan accounts with total balance of Bt11.650 billion; and KTC Million loans for business owners representing Bt58 million.”
“In 2011, KTC had total revenues of Bt12.497 billion, or 3% growth. Revenues from interest (including credit usage fee), fee income and others were Bt8.139 billion, Bt3.166 billion and Bt1.193 billion, or 65%, 25% and 10% of the total revenue respectively. Other revenues, about 71% of them came from bad debt recovery. Total expenses for 2011 (excluding income tax) were Bt14.094 billion, up 20% from Bt11.752 billion due to the provision of points. As a result of this, cost to income ratio in 2011 increased to 52% from 47% in the previous year. But if not inclusive of the provision of points of Bt838 million in value, or 7% of the total revenue, the operating cost for 2011 would reach 46% only.”
“Bad debts and doubtful accounts amounted to Bt5.611 billion, up from Bt4.073 billion in 2010, due to an increase in regular provision and extraordinary provision in the event of flooding, and in order to weigh risks caused by economic uncertainties and accelerate the removal of bad debts. If not include the extraordinary provision in the event of flooding, the company would has bad debts and doubtful accounts of Bt4.978 billion, up 22% from the same period last year. At the end of 2011, the company registered available credit line of Bt25.740 billion. Debt to equity ratio for 2011 remained strong at 8.8, which is below the bond covenant at the maximum of 10 times.”
“The business direction for 2012, KTC will be restructuring its operations to allow for more strength and greater efficiency. To achieve the goals, we will try our best to control operation costs to the level that is below the industry average by bringing back all outsourcing work to internal organistions in an attempt to improve agility and efficiency. The plan covers credit risk control, debt collection, customer service, and focus on stafftraining in order to gain more efficiency and become a knowledge-based organization. Others include more decisive development of revenue generating opportunities with better product positioning, improved customer retention, effective applications of online marketing, as well as forging a closer relationship with Krung Thai Bank. All of these are believed to help us secure better return on investment and sustainability. However, effective cost reduction might take time and rely on efficiency in operational conversion, and it would visibly provide a positive effect on the business as a whole and long-term cost reduction in the future.”
Commenting on the effect of the massive flooding in the last quarter of 2011, he said, “Though the government has launched several help packages, impact of bad debts showed after a 90-day term of service and this will be clearly seen in the first quarter of 2012. We anticipate that the Q1/2012 performance will remain in the negative zone but it will resume with expected profitability in the second quarter.”