The Board of Directors of Letshego Holdings Limited (“the Group”) herewith presents an extract of the reviewed consolidated half year financial results for the period ended 30 June 2021.

OVERVIEW

As Letshego progresses its digital Transformation Strategy, the Group’s strong performance for the first half of 2021 reflects accelerating growth trends on the back of increased net payout volumes.

With the persistence of the global pandemic, the Group continues to prioritise the health and wellbeing of its people and customers, while building and maintaining business resilience. With pandemic variants posing additional economic pressures on regional markets, along with intermittent access and dissemination of vaccines, Letshego is ommitted to progressing its digitalisation strategy that enables flexibility, adaptability and operational efficiencies, while enhancing an effective risk management framework.

2021 saw Letshego commence the second phase of its 6-2-5 execution roadmap, ‘Plan 2’. This two year phase is characterised by increased investment into digital-first initiatives, along with the end-to-end automation of processes and platforms. In the first 6 months of this year, Letshego has already achieved targeted digital milestones, including the roll out of its LetsGo Digital Platform across 10 markets, giving customers direct access to lending solutions via their mobile phones.

Despite the challenging economic environment, Letshego achieved double digit growth for the period, with profit before tax up 23% year on year to P544 million. Profit after tax rose 28% for the same comparative period. Asset quality remains robust with the Group’s Loan Loss Ratio (LLR) within target range at 1.4%, and the non-performing loans ratio reducing to 5.6% (H1 2020: 7.9%). Strong performance for the interim period was driven by a 20% growth in net customer advances, totalling P11.1 billion.

Product performance saw double digit portfolio growth in Letshego’s primary deduction at source (DAS) portfolio of 16%. DAS customer numbers increased by 19% to 694k (H1 2020: 586k). The Micro and Small Entrepreneur (MSE) segment remained more sensitive to economic slowdowns with net loan book values dropping 3%. However, MSE profitability improved with recovery and collection efficiencies. Letshego’s Mass Mobile portfolio performed well with a portfolio value increase over 200% year on year.

Letshego remains well capitalised at 34% capital adequacy ratio, and has a strong liquidity position to support business growth. The Group is pleased to announce an interim dividend of 7.3 thebe, with a dividend yield of 17%.

Statement of profit and loss review

Net Interest Income increased by 9% to P1.019 billion (H1 2020*: P910million), buoyed by strong net payout growth. Borrowing costs decreased by 7% year on year (excluding non-risk interest component on mobile loans), following concerted efforts by the Group to diversify its funding base and grow its customer deposit base. Operating income was up 14%, despite the new Delta variant of COVID-19.

Non-funded income increased 33% year on year, largely boosted by Namibia’s revised insurance arrangement, increasing overall insurance revenue by 116% to P90 million (HY 2020:P42 million). Further diversification in Letshego’s insurance offering will see Kenya, Mozambique and Botswana expand their offerings into life and short-term insurance leveraging the Group’s increasing efficiencies achieved via digitised channels and platforms.

Total operational expenses increased 8% year on year to P549 million. Employee costs increased by 6% for the period with more specialist skills appointments made in product, digital and risk. Other operating expenses were up by 9%, driven by the roll out of Letshego’s LetsGO Digital Platform. Digital investment will continue in the second half as the Group seeks to achieve end to end automation and digitisation to deliver 6-2-5 growth targets.

Effective Tax Rate:

Letshego’s effective tax rate for the period was 42% (H1 2020*: 45%). This is attributable to:

• Dividend flows from subsidiaries which contributed 5% to ETR (HY 2020: 7%). LHL received dividends of P346m from subsidiaries, making up 5% of ETR, in the form of withholding tax that cannot be claimed as foreign tax credits under Botswana IFSC regime.
• Contribution of deferred tax assets and withholding tax credits not utilised by the holding company

The components of ETR are broken down as follows:

Components of the Effective Tax Rate	HY 2021 %	HY 2020 %
Baseline tax charge	32	32
Dividends from subsidiaries & preference shares	5	7
Intergroup costs	4	3
LHL Deferred taxation	1	3
Effective tax rate	42	45

 

The Group target ETR is expected to reduce by 50 basis points in the next two years. Having established a specialist tax team in this first half of the year, the Group expects to make further headway in improving its tax rate in the longer term.

ASSET QUALITY

Credit quality remains strong with the Group’s Loan Loss Ratio (LLR) at 1.4%, remaining within Group risk appetite and consistent with the same period last year. 2020 year end LLR of 0.3% was inclusive of a once-off write back of P105.3 million from Ghana Mobile Loans. LLR as at June 2021 has thus improved against a normalised year end LLR of 1.8%. Non-performing loans improved to 5.6% from 7.9% in June 2020.

Resilience against the COVID-19 pandemic

• Deduction at Source (DAS) portfolio remains stable as regional governments seek to minimise retrenchments despite ongoing pandemic conditions.
• Letshego’s MSE portfolio (9%) was impacted by lockdowns in Uganda and Rwanda. However impact was limited with the portfolio only comprising 0.5% of the Group’s total loan portfolio. Customers have been offered support via repayment holidays and structured repayment plans.
• The Group, in the short-term, has curtailed loan growth in volatile segments across specific markets and prioritised portfolio remediation and collection efforts.
• Stress testing continues in line with the Group’s Enterprise Risk Management Framework (ERMF).

Structural and Process enhancements

• In 2021, Group materially enhanced capacity and bench strength in its Collections and Recoveries functions across the countries in the first half of 2021.
• The Group made significant progress in the automation of Credit Decisioning and Collections/Recoveries processes in the first half of the year 2021. Group is on track to fully automate these processes by year end 2021.
• Credit Bureau data scrub capability deployed across the Group.

Strong deposit growth

Letshego’s deposit portfolio almost doubled to P989million in the first half (H1 2020; P499m) spurred by the Group’s digitised payment capabilities (USSD, Cards, Agency & Community Commerce) and deepening strategic partnerships, particularly in Mozambique, Namibia, Ghana and Tanzania.

Deposit customer numbers grew by 19% to 694k (H1 2020: 586k), with more than half of our new customers signing up via digital channels. Cost of deposits decreased by two percent to 13% through deposit base diversification (H1 2020: 15.06%).

Funding

Total borrowings increased by 22% to P5.9billion (H1 2020*: P4.8 billion) for the half year period, comprising bank loans, developmental financial institution funding and bonds. Diversifying our funding mix remains a key stream within Letshego’s overall de-risking strategy, with the proportion of total funding from commercial banks reducing from 41% to 38% from 31 December 2020. Bonds and DFI funding contributions increased in the period with Namibia raising NAD231 million through its inaugural bond issuance in May 2021. Progress in increasing local currency borrowing contributed to reducing concentration and foreign exchange rate risks. With customer deposits nearing the P1 billion mark, the Group expects to gain another lever in reducing funding costs.

Liquidity

Liquidity is stable with half year cash and cash equivalents over P1 billion. The funding pipeline from regional banks and developmental financial institutions remains strong.

STRATEGIC TRANSFORMATION: OUR 5 CONVERSATIONS

2020 saw the first phase of Letshego’s “6-2-5 execution roadmap” centred on leveraging the Group’s legacy, and strengthening our core business. This second phase, “Plan 2” commenced in 2021, and will focus on leveraging digital to automate processes end-toend, diversify our product offering and dramatically enhancing customer experience by increasing operational efficiencies and access.

1. Diversifying our product offering

DEDUCTION AT SOURCE (“DAS”)
The DAS net loan book portfolio grew by 19% to P9.9 billion in H1 2021 (H1 2020: P8.3 billion). Profit before tax for this portfolio increased by 31% in the first half to P677 million (H1 2020 P516 million). Growth is attributed to the rapid deployment of digital channels to meet evolving customers needs during the pandemic, as well as supporting our ‘digital first’ ambitions. Supported by ‘Digital Eagles’ (front line employees), and in-house sales teams, 74% of our DAS customers have now transitioned to digital channels.

Letshego’ s ‘LetsGO Digital Platform’ has now been rolled out in 10 regional markets, enabling existing and new customers to register online, access new DAS lending solutions and update account information via their mobile phones.

MICRO & SMALL ENTREPRENEURS (MSES)
The ongoing pandemic has impacted the Group’s most vulnerable customer segment, Micro and Small Entrepreneurs (“MSEs”), with net loan book values decreasing by 3% in the first half to P817 million (H1 2020: P842 million). Despite the decrease, Letshego MSE profit before tax more than doubled following improvements in credit recoveries as well as lowered costs due to digital efficiencies (MSE PBT: H1 2021 P42 million; H1 2020: P11 million).

The Group continues to progress its ‘Programmatic Approach’, a holistic structure that leverages partnerships to maximise value for the MSE segment, while mitigating downside risks in the segment. Programmatic Approach initiatives include eco-friendly lending solutions in Ghana and Educational Impact solutions in Botswana, Ghana and Kenya. With partner support, Letshego is increasing products and solutions that achieve a social and environmental impact within targeted economic segments, that include Housing, Education, Agriculture and Health.

MASS MOBILE LOANS
Mobile mass lending has shown resilience through the pandemic given the ease in customer access, as well as enhanced credit management and credit automation processes. The net loan book value for the mobile lending portfolio grew by 219% to P364 million (H1 2020: P114 million). Profit before tax for this segment increased by 19% to P8.3 million (H1 2021: P7 million). Customer usage of the mobile lending platforms increased by 30% year on year, with more than 6 million transactions processed over the period. Letshego continues to invest and grow this segment, deepening strategic partnerships for longer term return.

2. Accelerating digitalisation

Aggregated digital adoption levels increased to 74% at the end of June 2021 (H1 2020: 30%). Digitisation was achieved with the deployment of customer-facing digital platforms, including WhatsApp, Webforms, and more recently the LetsGo Digital Platform that was delivered in record time with Enterprise Agility. Our ‘Digital Eagles’ continue to support the process by educating customers on digital access. By the end of June 2021, digital loan approvals surpassed 95 000.

Geographic Rebalancing centres around the Group’s strategy to scale East and West subsidiaries, seizing local growth opportunities, and increasing their collective contribution to Group profits over the medium to long term. Profit before tax contribution for East and West markets in H1 2021 increased to 23% to P130 million (H1 2020: P106 million). This was the result of continuous business growth in Ghana, digital adoption in Nigeria and cost optimisation in Uganda.

4. Enterprise Agility & People Culture

Employee engagement and adoption of Enterprise Agility methodologies continues to expand across Letshego’s markets, functions and segments via online ‘Lunch & Learn’ sessions. To date, 20 certified squads representing employees from multiple markets and functions now support the swift execution of strategic goals and digital project roll outs.

Digital is also supporting Letshego’s ‘People First’ culture with the launch of the Group’s inaugural ‘Online Learning Platform’ in May. Every employee across the Group can now choose from 4 500 online accredited courses to upskill and expand their career choices. 96% of employees have enrolled and completed over 1 700 courses in just 3 months. Individual and Squad performance tracking has recently been automated with the introduction of an online Enterprise Agility platform that enables employees to manage and track their individual Objectives and Key Results (OKRs) from their desktop or device, wherever they are located.

5. Sustainable Shareholder Value

Letshego has completed the first phase of its Capital Allocation and Optimisation exercise identifying relevant capital levers for sustainable returns. The exercise involved the review of subsidiaries with excess capital and the risk-cost return per country. The Group is now finalising its long-term capital plan, a comprehensive capital optimisation plan and determining mechanisms for capital allocation going forward. At 30 June 2021, the Group’s capital adequacy ratio was 34% with a Debt-to-Equity Ratio of 119% (H1 2020*: 105%) – well within the Group’s target range. The Group is pleased to see improved performance of the Letshego counter with the share price increasing from 70 thebe at 30 June 2020 to 105 thebe in July 2021, a 50% increase. The dividend yield has remained strong at 17%.

OUTLOOK

With the onset of a ‘third wave’ in many sub Saharan markets, Letshego continues to maintain a proactive stance in adjusting and evolving its Pandemic Response Plans and risk mitigation strategies to meet ever-changing economic environments. With the staggered dissemination of vaccines and the identification of multiple variants the Group will continue to prioritise the lives and livelihoods of employees and customers, as well as local communities by supporting national pandemic relief plans.

Letshego’s ‘Plan 2’ horizon will see increased investment into digital and strategic partnerships towards year end and into 2022, supporting further system and product enhancements. By the end of 2022 the Group will see further expansion of the Group’s vision to develop a foundation for ‘eco-systems’, expanded multi-tier partnerships and digital hubs, all while upskilling and empowering employees and customers with world-class, digital skills that supports sustainable financial inclusion and digital-savvy economies.

AUDITORS’ REVIEW

The condensed half year financial statements from which the financial information is set out in this announcement has been reviewed but not audited by Ernst & Young, Letshego Group’s external auditors. Their review report is available for inspection at the Group’s registered office.

DIVIDEND NOTICE

Notice is hereby given that the Board has declared an interim dividend of 7.3 thebe per share for the half year ended 30 June 2021. In terms of the Botswana Income Tax Act (Cap 50:01) as amended, withholding tax at the rate of 7.5% or any other currently enacted tax rate will be deducted from interim dividend for the half year ended 30 June 2021.

• Important dates pertaining to this dividend are:
• Declaration date: 12 August 2021
• Shares go ex-dividend from 3 November 2021
• Last date to register is 5 November 2021
• Dividend payment date on or about, 16 November 2021

For and on behalf of the Board of Directors:

Enos Banda
Group Chairman

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Related download

Letshego Holdings Group HY2021 Reviewed Consolidated Financial Statements.pdf