Chairman’s Report
Ours is a long-term view and our emphasis in all our operating environments is to improve the overall sustainability of the consumer finance industry in all of our markets. As noted in my report in previous years, this involves working toward the establishment of central registries and adhering to minimum take-home pay standards. There is more on this important aspect of our business strategy in the sustainability section of this report.
These elements have all translated to the overall increase of 13% in Group profit before tax on 2011 levels to P711 million.
Funding
Our business growth is funded significantly out of external lines of credit, in addition to retained earnings. By January 2012, total borrowings had increased by 59% to P802.9 million (2011: P505.2 million), representing a debt-to-equity ratio of 35% (2011: 29%), which is well below the industry norm.
The balance sheet is strong with low gearing and a debt-to-equity ratio of 35%, indicating far more “headroom” for new funding levels. Though we have confirmed key funding lines in place, this aspect of our financial strategy remains an area of focus, and we will continue to vigorously pursue further debt funding avenues in the year ahead.
Shareholder Wealth
Also noteworthy was the issue of a paper dividend to the value of P273.6 million to shareholders on a basis of 7 new shares being issued for every 100 shares owned. This issue was motivated in order to ensure optimum use of additional company tax reserves, which was achieved. The ensuing credit to the Letshego Holdings tax charge has resulted in a 22% increase in the profit after tax reported, and is a once-off occurrence. It is anticipated that this issue of shares will assist further in the liquidity and trading of the Letshego stock on the local bourse.
In April 2012, Directors further approved a cash dividend of 2.5 thebe a share, which was carefully weighed against the funds required to further our numerous growth and strategic drives.
Operating Environment
During the period, an industrial action was undertaken by employees of the Government of the Republic of Botswana. This action started in mid-April 2011 and ended on 6 June 2011. While the duration of the action was longer than anticipated, it did not have any significant impact on Letshego Botswana, or for that matter, Group operations.
Another significant event that occurred during the year was the uncertainty caused by the announcement of the Government of Botswana regarding possible actions on the deduction at source facilitation as well as its relationship with the Central Registries in Botswana. As communicated to Shareholders on 29 February 2012, no changes to the collection methodology in Botswana have occurred since August 2011. The operations of the Central Registries in Botswana continue as normal and collections remain at historical levels via the deduction at source basis.
We continue to monitor ongoing developments in this regard and remain committed to engaging in business in a manner that is responsible and cognisant of the changing environment in Botswana.
Ours is a long-term view and our emphasis in all our operating environments is to improve the overall sustainability of the consumer finance industry in all of our markets. As noted in my report in previous years, this involves working toward the establishment of central registries and adhering to minimum take-home pay standards. There is more on this important aspect of our business strategy in the sustainability section of this report.
Regulatory Environment
We believe that Central Registries are the building blocks to best practices and responsible dealings in our industry. We will continue to promote the establishment of effective Registries in all regions we operate in. Central Registries have been and continue to be in place in Botswana, Namibia, Swaziland, and Uganda.
In Botswana, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) published the regulations for the industry, and these are effective from 9 March 2012. Letshego Botswana will be in a position to comply with these new regulations, and we do not anticipate any significant implications or changes to the business arising from these regulations, which are welcomed.
Overall, we welcome any new regulations and legislation as we believe that these can only serve to improve a culture of stringency, ethics, and social responsibility, both on the part of financial service providers, employers, and ultimately the consumer.
Funding Outlook
As mentioned already, funding is key to the Letshego Group’s continued growth and service to our valued market. We have maintained all lines of credit and continue to work on introducing new lines to support the growth of the business. Routes being explored include private and public debt/bond funding, money market investments, and capital market injections, whose cost would need to be balanced with the changing global economy and investment appetite.
Human Resources
Letshego now employs over 695 people across its operations, almost equally split between men and women. The staff complement grew significantly during the period, with growth particularly in Uganda and Tanzania and the staffing of the new operation in Mozambique. We welcome the new employees to the team and look forward to a long and mutually beneficial relationship.
We had also increased our staff complement at middle management levels in the holding company in the previous financial year, with the introduction of what is evolving into a strong second-in-command layer for our executive management team. We believe that, overall, these new positions and staff members will help drive attainment of our strategic objectives. The Group’s commitment to assembling the highest skilled, motivated professionals across functions is high, and this is another aspect of our strategic investment that is given importance in our development initiatives.
The Group performs regular benchmarking exercises to ensure remuneration policies and practices are in line with best practice. The Group has a share-based payments scheme, the “Long Term Incentive Plan” (LTIP) in place for key management. The LTIP aligns team members’ goals with the shareholders’ and seeks to ensure retention and a shared long-term vision.
Sustainability
Sustainability is not just a feature of our annual reporting, but a living concept in how the Letshego Group teams across Africa manage operations.
From an external stakeholder perspective, management and their teams spend time and effort cultivating relationships and engaging with our many stakeholders, seeking ways to enforce better business practice, address concerns and issues that may arise. Internally, management and the board continue to interact to improve governance and systems of control within the Group, with regular 360-degree communication.
The board also endorses the King Code of Governance Principles for South Africa 2009 (“King III”) issued by the Institute of Directors (Southern Africa). In particular, the Group is working towards meeting the revised governance and recommended practices outlined in these codes and explains overall compliance and exceptions to the core King III principles further on in this report.
Letshego recognises its social responsibilities and partners with governments in its countries of operations to address social ills and provide for the needs of the communities in which it operates and, as in previous years, sets aside 1% of its profit after tax on an annual basis. We have ploughed back millions into communities across our operations.
During the year we supported various welfare projects focused on young people in Namibia with P352,000; people with disabilities in Tanzania with P288,000; various health and youth projects in Botswana with P500,000; and a youth and health project in Uganda with P329,000. Letshego Holdings Limited also contributed P700,000 to various youth and housing projects. These strengthened our relationships with our communities and allowed our employees to participate in uplifting communities.
We recognise that our business must meet the needs of our customers on a sustainable basis in order to thrive. While Letshego does not actively dictate how our loan products should be utilised, we consciously ensure that amounts lent and the related pricing do not compromise our customers’ take-home pay.
The establishment of independent central registries is very close to the Letshego Group’s impetus for industry sustainability.
Central registries consolidate all third-party government payroll deductions under one deduction code, which is then sent to government payroll centres. The resultant benefits include ensuring minimum take-home pay rules are adhered to, efficiency and standardised operating models by lenders. We have been working with regulators in a number of countries to assist in the establishment of such systems as we believe they will contribute to the development of a sustainable industry and a direct bearing on the achievement of our strategic growth objectives.
Changes in Directorship
There were no changes in the board of directors during the year.
Areas of Focus
For the year ahead, these include:
- Continue to grow quality customer advances in existing territories
- Commence operations in Lesotho
- Continue to explore new countries to extend the Group’s footprint
- Utilise the existing staff complement, branch network, and ICT platform to drive efficiencies and new opportunities
- Introduce comprehensive credit insurance in other countries
- Pursue banking licenses in selected countries
- Continue to promote regulatory developments and industry best practice
- Integrate Micro Africa into the Letshego Group
Given prevailing economic conditions, the Directors expect continued growth in the loan book during the financial year to 31 January 2013 and continued profitability. However, this will be coupled with a more conservative lending approach in Botswana, following on from the Botswana fiscal budget speech (delivered in February 2012) indicating the possible reduction in the number of Government employees over time. This new risk is continually being assessed.
Strategy
Letshego will continue to focus on controlling credit risk in the territories in which it currently operates. During the period, we commenced lending in Mozambique and, subsequent to the year end, the acquisition of Micro Africa was completed, which brings Kenya, Rwanda, and South Sudan into the Group.
We also plan to commence operations in Lesotho during the 31 January 2013 financial year, and this will bring to 11 the number of countries Letshego has a presence in (7 in 2011 and 6 in 2010), yet another indicator of our progressive strategy in action.
We will also look to enter new countries where it is possible to implement our proven payroll deduction model or markets that support our retail banking plans. Countries currently being considered include, but are not limited to, Ghana, Nigeria, Malawi, and Zimbabwe.
Letshego’s drive to transform itself into a broader-based financial services organisation over time remains unchanged. We are mindful that the investments we make now in growing our infrastructure must be able to cater for the organisation we want to become, necessitating a long-term view from the top down within the Group. To facilitate our transformation, we have invested in, and continue, our IT platform to enable us to move from varying applications across our African footprint into a single integrated, seamless, and robust banking and lending system. We will incorporate the best systems available to facilitate existing business, but ensure they allow for new products and services to be offered.
Pivotal to our strategic pillars (discussed further in our sustainability report) is enabling regional as well as business diversification in the strategic period ahead. Prospects for broader-based expansion into financial services still look positive.
Gratitude
Letshego depends on a wide range of stakeholders for its continued success. I am very grateful to our customers, staff, shareholders, and strategic partners for ensuring Letshego goes from strength to strength. Our shareholders and other funders are key to our business model, and I thank them for their support.
We work with many government departments, staff associations, and regulators across our markets, all of whom have been critical to ensuring we operate a successful business model that delivers fuss-free, affordable finance in times of need to our customers. My thanks go to them all.
Thanks also to our board of directors, whose guidance has been invaluable to me and the rest of the management team.
CM Lekaukau
Chairman
27 April 2012
