Chairman’s Report
After my long association with Letshego, going back to 1998, I am honoured to have this opportunity to present my report as Chairman of this dynamic Group. The review period was one of the most exciting in the Group’s history: we celebrated the 10th anniversary of our listing on the Botswana Stock Exchange and we passed the 10-country mark in our mission to develop a truly Pan-African footprint. In addition, despite a challenging global economic environment, we achieved solid and satisfactory financial results. Profit before tax rose by 18% and advances to customers now stand at 3.3 billion, an increase of 10% over the previous reporting period.
Macro Economy
Africa as a whole, and the countries in which we operate, could not escape the fallout resulting from the Euro Zone crisis, or the slowdown in growth in some of the world’s largest developing economies, including China.
Nevertheless, the continent experienced growth of around 4.8% in 2012, while a third of African countries – including Botswana, which continues to be the largest contributor to our loan book and profits – turned in growth rates of over 6%, according to the World Bank.
Given this performance, it’s not surprising that Afro-pessimism – best summed up in a May 2000 comment in The Economist magazine that Africa was “the hopeless continent” – is fading. Eleven years on, The Economist dubbed Africa “the hopeful continent” and last year declared that “investors have been piling into Lagos and Nairobi” as has previously been the case in Europe and the Far East.
An October 2012 report by the International Monetary Fund noted that 11 of the world’s 20 fastest-growing economies are in Africa, and this is helping to create the fastest growing middle class in the world.
So Letshego’s pan-African strategy is both timely and well-grounded.
However, there are ongoing concerns that given the fragile state of the global economy, Africa’s relatively strong growth rates remain vulnerable to any potential decline in market conditions in the Euro Zone.
Indeed, as the Botswana Minister of Finance and Development Planning, the Honourable O.K. Matambo said in his budget address to Parliament in February 2013, responsible countries have no choice but to reduce their fiscal deficits as a precautionary measure – and Botswana is no exception. As a result, this may have implications for Letshego’s key customer base.
In addition, it goes without saying that political stability remains a prerequisite for ongoing growth. Letshego remains acutely aware of the vulnerability to potential political upheavals of some of the countries in which we operate. Strategies are in place to ameliorate potential negative effects of political instability.
Power of 10
The last 10 years have been very successful for Letshego. The Group’s growth over this period has been exceptional as can be seen from the growth in virtually all our key performance indicators.
We could rest on our laurels but we are acutely aware that every business needs to renew itself. It’s a well-documented phenomenon that a business that doesn’t take active steps to reinvent itself in some way will ultimately slip into decline.
As Albert Einstein once said: “the definition of insanity is doing the same thing over and over again and expecting a different result.”
Letshego has therefore embarked on a strategy that will transform it from its roots as a Botswana consumer financing company with a single product, into a pan-African, broad-based financial institution. In line with this strategic intent, the Group acquired Micro Africa Limited, an East African financial group that concentrates on the SME and group lending financial debt products. We have also embarked on a process of applying for banking licences in several territories.
Implementation of this broader, transformational strategy has required considerable investment in information technology systems, a critical evaluation of available resources, and an understanding of regulatory requirements in each country to achieve our envisaged transformation. At the same time, we remain alert to appropriate acquisition opportunities while ensuring organic growth of our existing operations.
I am confident that the effective, measured roll out of this strategy will ensure the sustainability of the Group well into the future.
Corporate Governance
The Letshego Group subscribes to the spirit and the intention of the King III Code of Corporate Governance and is taking the necessary steps to comply with its requirements but recognises that this can’t be achieved immediately.
We are therefore in the process of reconstituting the Board. Subsequent to year-end, we appointed Mr Josias de Kock, Mr Stephen Price, and Mr Robert Thornton to our Board, to take up positions as independent non-executive directors, and we look forward to a long, rewarding relationship with them. They bring a wealth of relevant experience and we look forward to their contribution to the Group.
We are also in the process of sourcing and identifying appropriate individuals to fill an additional two positions as independent, non-executive directors. We are confident that this will be achieved within the current financial year.
These appointments are expected to include a permanent Chairman who will replace Mr. C M Lekaukau, who stepped down as Chairman of the Group on 30 November 2012 after 10 years of dedicated service and visionary leadership. During his watch, the Group experienced tremendous growth in terms of the nature of the business as well as in its financial performance.
However, Mr Lekaukau felt it would be in the Group’s best interest for a new Chairman to drive its transformation from the outset. While Mr Lekaukau has resigned from the board of Letshego Holdings Limited, we are delighted that he has agreed to remain as a director of Letshego Financial Services (Pty) Limited (Botswana), the largest subsidiary in the Group.
Despite the work that needs to be done to address the current Board composition issues, the various committees are reasonably well constituted and have members with the appropriate skills set. This will continue to be improved with the appointment of additional independent non-executive directors as noted above. Board self-assessments are conducted at regular intervals and this will continue.
Corporate Responsibility
Every business has a responsibility not only to its shareholders but also to its employees and the communities it serves.
The Group sets aside 1% of its profits for CSR, and this is shared by our operations in each of the countries in which we operate. A report of our activities appears on page 60 of this annual report.
Looking Ahead
A potential challenge for the Group going forward is possible amendments to the deduction code policy. It is important that Letshego remains cognisant at all times of our obligations to consumers. We are mindful of our responsibility to ensure that our customers are not borrowing beyond their means. To this end, we will continue to invoke our own, potentially more stringent, affordability criteria where this is deemed appropriate.
I am very appreciative of the good relationships we have with officials and governments in all the countries in which we operate, and our goal is to ensure these relationships remain cordial. The acquisition of Micro Africa in the review period marks an important milestone in the Group’s transformation. Letshego increased its shareholding in the company to 100% at the end of February 2013, and I welcome the Micro Africa team to the Group and look forward to their contribution to the Group moving forward. We continue to look for other opportunities around the continent.
Appreciation
On behalf of the Board, I sincerely thank our former Chairman, Mr Lekaukau, for his wisdom and counselling over the years. His insights and intimate knowledge of the SADC and Botswana business environment were invaluable. His contribution to making Letshego into the thriving organisation it is today was considerable.
My personal thanks go to my fellow Board members for their unwavering and welcome support in the months since my appointment as Chairman, as well as for the loyalty and skilled guidance provided to the Group as a whole. This includes the Boards of Directors of our various subsidiary companies as well as their minority shareholders.
I would also like to congratulate and thank the entire management team across Africa for the way in which they have led the Group in these challenging times. Special mention must be made of the enormous contribution of our dedicated members of staff as without them, none of the Group’s achievements would have been possible.
Finally, our thanks go to our customers and other stakeholders. We look forward to continuing and strengthening these relationships into the future.
John Burbidge
Chairman
17 April 2013
