Chairman’s Report
I have great pleasure in presenting my report to the shareholders of Letshego Holdings Limited for the financial year ended 31 January 2010.
Highlights
The Board of Directors of Letshego Holdings Limited are pleased to present the consolidated audited financial results for the year ended 31 January 2010. The highlights for the financial reporting period include:
- Loans and advances to customers have grown to over P1.6 billion (2009: P1.3 billion), an increase of 25% over the prior year
- Profit before tax has increased by 60% to P462.6 million from P288.6 million
- Increase in earnings per share of 33% after taking into account the share issue successfully completed in March 2009
- Cost to income ratio reduced from 24% to 22% – this remains a very competitive industry benchmark
- Return on average assets of 23% (2009: 20%) and return on average equity of 37% (2009: 39%)
- Impairment expense on average loans and advances to customers has increased to 3.2% (2009: 2.9%) but remains a very competitive industry benchmark
- P120.4 million (2009: P49.7 million) profit before tax (26% (2009: 17%) generated outside of Botswana
All of the above figures exclude the once-off profit before tax of P42.5 million arising on the sale of Letshego Guard (Pty) Limited (“LG”) and Letshego Guard Insurance Company Limited (“LGICL”) which was completed on 31 January 2010.
Developments During the Year
A number of developments took place during the financial period:
- Conclusion of sale of LG and LGICL
- Introduction of new minority shareholders in Namibia
- Rebranding of Letshego Namibia and Letshego Tanzania
- Strengthening the capital base of subsidiaries in Namibia, Uganda, Zambia, and Tanzania
- Introduction of a central registry in Swaziland
Financial Performance
Overall, the Directors are satisfied with the financial performance of the Group during the year.
Botswana remains the most significant market for Letshego as it accounts for 67% (2009: 68%) of the period-end advances book and 74% (2009: 83%) of the Group’s profit before tax. Operations outside of Botswana continue to gain critical mass and have contributed P120.4 million to Group profit before tax.
Profitability is acceptable with excellent growth in contribution to Group profits from Botswana, Namibia, Swaziland, and Tanzania. Uganda and Zambia have not achieved internal targets for contribution to Group profitability, and specific actions are being taken to address this. Mozambique recorded a small loss, which was expected as operations have not yet commenced.
The loan book in Swaziland declined due to the disruption in operations during the period leading up to the introduction of the central registry. Profitability was not impacted as the average loan book remained higher than the prior period.
The growth in the Uganda loan book has not yet translated into profitability, but this is expected to normalise in the current financial period.
The increase in operational expenses reflects the growth of the Group. The investment in people and infrastructure positions the Group and augurs well for sustained growth going forward. To this end, the staff complement increased by 36%, representing 481 employees (2009: 354), customer numbers increased by 38% to 130,136 (2009: 93,965), and the number of branches increased to 137 (2009: 106).
Impairment and Non-Performing Advances to Customers
The overall level of impairments and non-performing loans remains in line with expectations. Over 95% of customers are civil servants of their respective countries in which the Group operates. In general, this sector has been stable and has not seen any significant impact arising from recent and ongoing global economic challenges.
The impairment charges for Namibia, Uganda, and Zambia are above the Group’s target range.
- Namibia – There was a one-off charge to write off historical debts to bring the impairment charge in line with Group norms. These are not expected to reoccur.
- Uganda and Zambia – The Group has taken a very conservative approach on these books, and the situation is expected to normalise in the current year.
- Swaziland – The Group intends to introduce credit life insurance during the current year similar to what is in place in Botswana and Namibia.
New Markets
New start-up operations and targeted acquisitions continue to be explored by the Group. This is in line with the next phase of the Pan African expansion strategy.
Regulatory Environment
It is evident that there will be an introduction of regulation or more enforcement of regulation in the industry over time. This is good for consumers, their employers, and the industry. Letshego will continue to fully support these initiatives and is also well-positioned in this regard. The proposed regulations from NBFIRA in Botswana and the introduction of a Central Registry in Swaziland are examples of this and are supported by the Group.
Funding
At the year-end date, total borrowings were P377.6 million (2009: P644.3 million), representing a debt-to-equity ratio of 28% (2009: 97%). The Directors believe that this presents a platform for Letshego to leverage its balance sheet for further borrowing opportunities.
Shareholders approved a convertible loan for the Pula equivalent of USD 36.0 million on 12 April 2010. These funds are available for a period of 18 months.
Over and above this, efforts continue to be made to identify new lines of credit, and the Group is exploring a number of alternatives locally, regionally, and internationally. Given international financial markets, it is evident that it will be more challenging to source funding, which if available, may come at a premium. Shareholders will be advised in due course regarding any outcome of these matters as the continued access to funding will be a determining factor of the Group’s sustainable growth prospects.
Communication
During the year, the Group’s website was upgraded, and more improvements are planned to be made to the website over time. The website allows information about the Group and all communications to shareholders to be available via this forum.
The internal quarterly newsletter, the African Tripod, is now in its second year as a medium to keep all staff aware of developments within the Group. This newsletter is also available on the Group’s website.
Human Resources
The Letshego team continues to be strengthened with a number of new appointments during the year. The Group performs regular benchmarking exercises to ensure remuneration policies and practices are in line with best practice. The Group has a Long Term Incentive Plan (LTIP) in place for key management, and this aligns their goals with the shareholders – over 20 members of staff have become shareholders in Letshego via the LTIP.
Further details regarding Human Resources are included in the Group Sustainability report section of the annual report.
Enterprise Risk Management
The Group established an Internal Enterprise Risk Management (ERM) department during the 2008 financial period. This department has overall responsibility for implementing all risk and compliance strategies for the Group and has performed internal reviews of all operating areas since its establishment.
Social Responsibility
The Group continues to support the principle of social responsibility, believing it to be one of the core pillars of good corporate citizenship. Further details regarding the Corporate Social Investment (CSI) initiatives are included in a separate section of the annual report.
Post Period End Developments
Our subsidiary in Swaziland has received in-principle approval to be registered with the Central Bank of Swaziland as a non-deposit-taking financial institution. Operations in Mozambique have not yet started but are expected to commence during the 2010 calendar year.
Future Outlook
The Directors expect continued growth in the loan book during the financial year to 31 January 2011 and continued profitability, albeit both being at lower levels of growth than was achieved during the current year.
Change in Directors
Dr. Hassy H. B. Kitine resigned from the board during the period under review, having served on the Letshego board since 2007. Dr. Hassy’s invaluable contribution to the Group is recognised and appreciated.
I would also like to take this opportunity to welcome M. Dawes, G. Hassam, and L.E. Serema, who joined the board during the year.
Acknowledgements
In conclusion, I wish to thank our shareholders, board of directors, management and staff, customers, and those Government Departments and Staff Associations who have assisted us with their advice and contributions to the continuing success of the Group over the past financial period.
I would also like to take this opportunity to thank our colleagues at Letshego Guard (Pty) Limited for the contribution that they have made to the Letshego Group since 2004.
C M Lekaukau
Chairman
GABORONE, 12 April 2010
