Group Chief Executive insights
“In challenging operating environments, Letshego derives its resilience from our robust business fundamentals. We are maintaining a strong momentum in the execution of our Transformation Strategy as we enter the final phase of our 6-2-5 execution strategy, ‘Plan 5’. This final phase serves to drive returns from our structured investment over the last two years, and integrate our eco-system methodology. Cementing a sustainable customer value proposition, leveraging our digital assets and continuing to diversify our product offering will support revenue growth, all while ensuring we optimise our cost base.”
Operating context
2022 was not without its forecast economic headwinds. Globally, inflation worsened from mid-2022, driven by the ongoing Russia-Ukraine turmoil and supply chain constraints. Several African currencies declined against a strengthening US Dollar coupled with escalating global commodity prices. Public debt and debt servicing ratios were elevated despite fiscal consolidation measures across the countries.
The disposable income of our customer populations incurred further pressure as monetary policies tightening continued through the year, resulting in marked interest rate increases. Some of our markets experienced emerging fiscal liquidity challenges, which understandably has an impact on our public sector partnerships, sometimes delaying timely settlement of loan payment remittances from government payrolls.
Financial performance
Economic challenges and interest rate expense increases were evident in our full year 2022 results, with overall profit down year-on-year, weighted by downside performance in specific markets. Profit before tax declined by 30% to P801 million (2021: P1.15 billion). Profit after tax was down 36% year-on-year to P469 million (2021: P730 million). Performance across our markets was mixed, with some countries evidencing more resilience.
Total income increased 6% year-on-year, driven by growth in non-interest income, which increased by 43% (19% excluding foreign exchange gains). Additionally, strong growth of 21% in insurance income to P243 million (2021: P201 million) was mainly driven by customers accessing our expanding suite of LetsGo Insurance products as we continue to expand our LetsGo Digital Mall offering in services and products.
The impact of economic headwinds and subsequent central bank interventions saw upward pressure on interest expenses for the Group. Reference rates increased in the second half of the year, resulting in a 23% year-on-year increase in interest expense.
The Group is making progress in converting customers with more traditional mindsets to use our digital channels. The number of customer registrations on our LetsGo Digital Mall exceeded one million for the year, and 22% new and top-up loan applications were originated through one of our digital channels available on the Digital Mall, including WhatsApp, USSD or mobile application. Expanding customer choice by offering more solutions and products via the LetsGo Digital Mall remains a priority across all markets. We also enhanced our social impact portfolios with the launch of dynamic inclusive finance products including Affordable Housing, Small business Working Capital and Purchase Order financing and Education Solutions – all digitally accessible via the LetsGo Digital Mall.
Credit impairment charges were P98.7 million translating to a loan loss ratio of 0.5% against a net recovery of 0.1% in 2021. In 2022, the non-performing loans ratio increased to 6.5% (Dec 2021: 5.9%), driven mainly by extraneous factors which impacted our MSE portfolios, tightening macroeconomic conditions reducing overall DAS portfolio loan performance. This was partly offset by the credit default insurance in place in Mozambique and Namibia. The Group’s loss coverage remains strong.
Strategic progress
2022 saw the conclusion of the second and investment-driven phase of our 6-2-5 execution roadmap, entitled ‘Plan 2’. The two year period (2021 and 2022) was characterised by increased investment into products, technology and systems architecture, enabling our LetsGo Digital Mall to deliver expanded solutions.
We have been resolute in maintaining momentum and delivery of our Transformation Strategy since announcing this future-fit approach on 1 September 2020. The objectives of our Transformation Strategy are consistent – to create a future-fit organisation that leverages digitalisation and technology to empower our people and maintain a competitive edge in a rapidly evolving sector.
How we deliver our Transformation Strategy is laid out in our 6-2-5 execution roadmap and is guided by 5 pillars of focus or “5 Conversations”: Product Diversification; Digitalisation; Geographic Rebalancing; Execution Engine and Sustainable Stakeholder Returns. Our 6-2-5 execution roadmap sets out the Group’s phased approach in the investment, adaption and implementation of digital and technical enhancements, systems automation and product launches to ultimately improve our delivery and the experiences that our customers have with Letshego, ultimately supporting growth and long-term stakeholder value.
To reflect on our progress, the Group delivered the pre-determined targets for Plan 6 within allocated timeframes (six month period – July to December 2020). Activities within this first phase comprised the digitisation of customer channels across all markets on a consistent and efficient basis. We set out to build resilience through the pandemic and beyond, our focus being to strengthen our core business and lay the foundation for inclusive product diversification and increased customer access across all platforms.
We have now reached the end of our Plan 2 (2021 and 2022), an investment phase that is critical to any operation that aims to remain relevant and competitive in a rapidly developing global financial sector. Our investment phase centred on selecting the technology and automation that unlocks our future potential. Technology that is adaptive to ongoing evolution, as well as an enabler for us to leverage and collaborate with like-minded partners.
This year sees the Group commence with the third and final phase of our strategic execution – Plan 5, which encompasses platform and ecosystem thinking with a focus on building a refreshed and comprehensive customer value proposition, that leverages our digital assets and continues to diversify our products to grow revenues and returns while optimising our cost base. Guiding our approach, and unifying our vision is our commitment to embedding our Environmental and Social Governance (ESG) framework, that meets our brand promise and purpose to improve lives, and deliver tangible social benefits to our customers and communities across the continent.
Outlook
From a macroeconomic perspective, short-term economic factors are expected to remain pressured across our footprint, with continued impact expected from global economic and political events. Internationally, we anticipate that the risk of recessions remains high for the coming year.
The Group will continue to monitor economic trends, mitigating downside risk through an enhanced ERMF (Enterprise Risk Management Framework) that includes thorough portfolio stress testing within multiple economic scenarios to maintain asset quality. We will continue to implement strategic measures in product structuring and affordability criteria to fine-tune eligible customer segments that show greater stability – while still delivering on our purpose to support under-banked populations, extending the reach of inclusive finance to achieve social and sustainable change.
Our #PeopleFirst commitment, launched within our Transformation Strategy in 2020, continues to centre on future-fit and digital skills upliftment in addition to leadership development to foster a culture of digital and global thinkers and doers. In 2023, 25 members of our risk team will be commencing their international qualification in Risk Management in partnership with international risk institute, PRMIA. Our people are increasingly focused, disciplined and passionate about delivering simple solutions that improve lives.
Our understanding of customers’ needs, trends and behaviour is also improving with the development of our ESG Framework, leveraging the benefits of a data-centric operating environment. In 2022 we concluded our latest independent impact survey across all 11 markets with world-class research group, 60_Decibels. The survey included a financial impact module, and assists in deepening our understanding and insight into the behavioural needs and trends of our customers.
Acknowledgements
I would like to take this opportunity to thank the Board, the Executive team, our people, our customers, our partners and all our other stakeholders for their support during the year.
In looking back at 2022 an emotive highlight was meeting and getting to know our first Affordable Housing homeowner based in Swakopmund, Namibia. A single mother of two, she was elated to own her own home for the first time. Her pride in being able to provide a secure place for herself and her young children to live was palpable. Owning your own home is not a given for our continent – it is sadly still a rarity in many areas and communities where we live and work. Letshego is committed to doing all we can to extend solutions like our Affordable Housing product to bring dignity, a sense of pride and personal achievement that genuinely does improve the lives of others.
I am proud to be part of an organisation that centres its commercial strategy around improving the lives of others across Africa.
Thank you to all our stakeholders, our people, customers, investors, funders, public and private sector partners for supporting Letshego as we continue in our transformative journey.
Mr Aupa Monyatsi
Group Chief Executive
