Wrap Text
FGL - Finbond - Audited group results for the year ended 28 February 2010
Finbond Group Limited
(Formerly Finbond Property Finance Limited)
(Incorporated in the Republic of South Africa)
(Registration number: 2001/015761/06)
Share code: FGL ISIN: ZAE000138095
("Finbond" or "the Company" or "the Group")
AUDITED GROUP RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2010
Statement of comprehensive income
Group
Figures in rand 2010 2009
Interest income 65 599 170 55 196 880
Interest expense (19 724 362) (15 497 772)
Net interest income/ margin 45 874 808 39 699 108
Fee income 72 618 652 63 544 026
Other microfinance income 15 917 543 5 157 167
Fair value adjustments 138 781 647 24 565 646
Net commission income 1 392 910 16 068 724
Net impairment charge on loans and advances (27 668 720) (7 745 426)
Operating expenses (189 306 532) (111 368 806)
Operating profit 57 610 308 29 920 439
Impairment of goodwill and intangibles - (91 237 953)
Profit /(loss) on sale of subsidiary - (740 059)
Excess of acquirers` interest in net assets 3 738 160 -
Profit/ (loss) before taxation 61 348 468 (62 057 573)
Taxation (3 150 464) 4 376 429
Profit/ (loss) for the period 58 198 004 (57 681 144)
Other comprehensive income net of taxation 2 532 -
Foreign currency translation differences 2 532 -
for foreign operations
Total comprehensive income/ (loss) for the 58 200 536 (57 681 144)
period
Owners of the company 58 200 536 (60 960 431)
Non controlling interest - 3 279 287
Profit/ (loss) for the period attributable
to:
Owners of the company 58 198 004 (60 960 431)
Non controlling interest - 3 279 287
Basic earnings/loss per share (cents) 16.1 (23.0)
Diluted earnings/loss per share (cents) 16.1 (23.0)
Reconciliation of headline loss per share:
Figures in rand 2010 2009
Net profit/ (loss) attributable to ordinary 58 198 004 (60 960 431)
equity holders of the parent
Adjusted for:
Excess of acquirer interest in net asset (3 214 817) -
value
Loss on sale of subsidiary - 636 451
Loss/ (profit) on disposal of property, 14 535 (23 937)
plant and equipment
Goodwill and intangible impairment - 78 899 275
Revaluation of investment properties (119 352 216) (21 143 397)
(64 354 495) (2 592 039)
Headline earnings/loss per share (cents) (17.8) (1.0)
Diluted headline earnings/loss per share (17.8) (1.0)
(cents)
Statement of financial position at 28 February 2010
Group
Figures in rand 2010 2009
Assets
Cash and cash equivalents 58 686 238 86 759 323
Other financial assets 6 489 872 11 075 070
Loans and advances 96 174 927 118 574 890
Other receivables 9 107 028 17 571 942
Property, plant and equipment 18 758 228 8 073 375
Investment property 207 000 000 49 599 294
Intangible assets 25 224 686 54 706 804
Goodwill 61 332 358 68 873 709
Total Assets 482 773 337 415 234 407
Equity and liabilities
Equity
Share capital and premium 201 708 334 166 117 212
Reserves 5 004 282 38 716 052
Accumulated profit/ (loss) 45 738 137 (11 144 128)
Non-controlling interest 142 455 20 196 152
Total equity 252 593 208 213 885 288
Liabilities
Trade and other payables 28 338 422 23 214 404
Current tax payable 5 415 620 10 004 357
Finance lease obligation 3 974 258 849 998
Other financial liabilities 164 562 060 145 491 391
Loans from group companies 13 473 281 8 093 589
Deferred tax 14 416 488 13 695 380
Total liabilities 230 180 129 201 349 119
Total equity and liabilities 482 773 337 415 234 407
Statement of changes in equity at 28 February 2010
Figures in Rand Share Share Treasury Total Share Reserves
Capital premium shares Capital
Balance at 1 230 142 059 247 - 142 059 477 64 224 960
March 2008
(Loss)/ profit - - - - -
for the period
Other - - - - -
comprehensive
income
Total - - - - -
comprehensive
income for the
period
Contributions by
and
distributions to
owners:
Issue of 67 26 360 384 (2 302 716) 24 057 735 (64 224 960)
ordinary shares
Share reserve - - - - 38 716 052
Dividends to - - - -
equity holders
Total 67 26 360 384 (2 302 716) 24 057 735 (25 508 908)
transactions
with owners
Balance at 1 297 168 419 631 (2 302 716) 166 117 212 38 716 052
March 2009
Profit for the - - - - -
period
Other - - - - -
comprehensive
income
Total - - - - -
comprehensive
income for the
period
Contributions by
and
distributions to
owners:
Issue of 85 43 846 258 - 43 846 343 (34 796 052)
ordinary shares
Share issue - (991 689) - (991 689) -
costs
Shares reclaimed - - (6 826 445) (6 826 445) -
based on
contingent
consideration
Transactions - - - - -
with minorities
Share based - - - - 3 686 011
payment
transactions
Transfer to - - - - 1 315 739
contingency
reserve
Own shares - - (437 087) (437 087) -
purchased
Reclassification - - - - (3 920 000)
to liabilities
based on amended
settlement
Total 85 42 854 569 (7 263 532) 35 591 122 (33 714 302)
transactions
with owners
Balance at 28 382 211 274 200 (9 566 248) 201 708 334 5 001 750
February 2010
Statement of changes in equity (continued)
Figures in Foreig Accumulated Total Non Total equity
Rand n profit/ Attributable controlling
curren (loss) to equity interest
cy holders of
transl the company
ation
reserv
e
Balance at 1 - 69 984 794 276 269 231 16 916 865 293 186 096
March 2008
(Loss)/ - (60 960 431) (60 960 431) 3 279 287 (57 681 144)
profit for
the period
Other - - - - -
comprehensive
income
Total - (60 960 431) (60 960 431) 3 279 287 (57 681 144)
comprehensive
income for
the period
Contributions
by and
distributions
to owners:
Issue of - - (40 167 225) - (40 167 225)
ordinary
shares
Share reserve - - 38 716 052 - 38 716 052
Dividends to - (20 168 491) (20 168 491) - (20 168 491)
equity
holders
Total - (20 168 491) (21 619 664) - (21 619 664)
transactions
with owners
Balance at 1 - (11 144 128) 193 689 136 20 196 152 213 885 288
March 2009
Profit for - 58 198 004 58 198 004 - 58 198 004
the period
Other 2 532 - 2 532 - 2 532
comprehensive
income
Total 2 532 58 198 004 58 200 536 - 58 200 536
comprehensive
income for
the period
Contributions
by and
distributions
to owners:
Issue of - - 9 050 291 - 9 050 291
ordinary
shares
Share issue - - (991 689) - (991 689)
costs
Shares - - (6 826 445) - (6 826 445)
reclaimed
based on
contingent
consideration
Transactions - - - (20 053 697) (20 053 697)
with
minorities
Share based - - 3 686 011 - 3 686 011
payment
transactions
Transfer to - (1 315 739) - - -
contingency
reserve
Own shares - - (437 087) - (437 087)
purchased
Reclassificat - - (3 920 000) - (3 920 000)
ion to
liabilities
based on
amended
settlement
Total - (1 315 739) 561 081 (20 053 697) (19 492 616)
transactions
with owners
Balance at 28 2 532 45 738 137 252 450 753 142 455 252 593 208
February 2010
Statement of cash flow for the period ending 28 February 2010
Group
Figures in rand 2010 2009
Cash flows from operating activities
Cash receipts from customers 144 882 495 241 329 870
Cash paid to suppliers and employees (115 723 386) (165 473 909)
Cash generated by operating activities 29 159 109 75 855 961
Increase in net loans and advances (33 335 184) (43 195 548)
Interest paid (17 765 039) (11 707 966)
Interest received on cash and cash 5 198 381 7 534 017
equivalents
Taxation paid (4 987 675) (17 229 109)
Dividends paid - (23 867 453)
Net cash outflow from operating activities (21 730 408) (12 610 098)
Cash flows from investing activities
Property, plant and equipment acquired (8 863 211) (3 976 091)
Proceeds on disposals of property, plant and 257 513 1 621 796
equipment
Investment properties acquired (23 707 161) (4 943 949)
Increase in loans from/ (to) group companies 5 379 692 -
Increase in financial assets (6 484 302) (2 569 500)
Proceeds on loans to staff members - 11 911
Expenditure to maintain and expand operating (33 417 469) (9 855 833)
capacity
Contingent consideration settled in cash - (36 749 776)
Business combinations and divisionalisation (1 514 185) (4 334 735)
Expenditure for expansion (1 514 185) (41 084 511)
Net cash from investing activities (34 931 654) (50 940 344)
Cash flows from financing activities
Repurchase of own shares held as treasury (437 087) -
shares
Proceeds received for shares to be issued - 34 796 119
Finance lease payments (444 180) (643 915)
Funding/ other financial liabilities raised 45 638 631 68 159 031
Funding/ other financial liabilities (15 176 698) -
(repaid)
Share premium expenses (991 689) -
Net cash from financing activities 28 588 977 102 311 235
(Decrease)/ increase in cash and cash (28 073 084) 38 760 793
equivalents
Cash and cash equivalents at beginning of 86 759 323 47 998 530
period
Cash and cash equivalents at end of the 58 686 238 86 759 323
period
Segmental report
Business
segments
2010 Micro Property Mortgag
Group e
Figures Finance Investment Origina Reconciling Consolidated
in rand tion
Interest 61 538 590 - 95 820 3 964 760 65 599 170
revenue
Interest (6 514 755) (4 798 782) (8 893) (8 401 932) (19 724 362)
expense
Net 55 023 835 (4 798 782) 86 927 (4 437 172) 45 874 808
interest
revenue
Fee 72 618 652 - - - 72 618 652
income
Net - - 1 392 - 1 392 910
commissi 910
on
income
Other 15 917 543 - - - 15 917 543
microfin
ance
income
Fair - 138 781 647 - - 138 781 647
value
adjustme
nt
Net (27 668 720) - - - (27 668 720)
impairment
charge on
loans and
advances
Operatin (112 094 352) (14 070 306) (6 860 (56 281 224) (189 306 532)
g 650)
expenses
Operatin 3 796 958 119 912 559 (5 380 (60 718 396) 57 610 308
g profit 813)
Excess of 3 738 160 - - - 3 738 160
acquirers`
interest in
net assets
Profit/( 7 535 118 119 912 559 (5 380 (60 718 396) 61 348 468
Loss) 813)
before
taxation
Taxation (3 448 941) (14 146 086) 710 104 13 734 459 (3 150 464)
Profit/ 4 086 177 105 766 473 (4 670 (46 983 937) 58 198 004
(loss) 709)
for the
year
7% 182% -8% -81% 100%
Attribut
able to:
Equity 4 086 177 105 766 473 (4 670 (46 983 937) 58 198 004
holders 709)
of the
parent
Minority - - - - -
interest
Segment 220 870 423 207 000 000 23 727 31 175 789 482 773 337
assets 125
Investme - 207 000 000 - - 207 000 000
nt
property
Loans 96 174 927 - - - 96 174 927
and
advances
Cash & 24 379 618 - 3 130 31 175 789 58 686 238
cash 831
equivale
nts
-
Segment 172 262 346 5 878 343 2 645 49 394 081 230 180 129
liabilit 359
ies
Business
segments
2009 Group Micro Property Mortgage
Figures in Finance Investment Origination Consolidated
rand
Interest 55 196 880 - - 55 196 880
revenue
Interest (11 896 997) (3 571 619) (29 156) (15 497 772)
expense
Net interest 43 299 883 (3 571 619) (29 156) 39 699 108
revenue
Fee income 63 544 026 - - 63 544 026
Net - - 16 068 724 16 068 724
commission
income
Other 4 753 417 403 750 - 5 157 167
microfinance
income
Fair value - 24 565 646 - 24 565 646
adjustment
Net impairment charge (7 745 426) - - (7 745 426)
on loans and advances
Operating (84 633 984) (14 387 831) (12 346 991) (111 368
expenses 806)
Operating 19 217 916 7 009 946 3 692 577 29 920 439
profit
Impairment - - (91 237 953) (91 237 953)
of goodwill
and
intangibles
Excess of acquirers` (740 059) - - (740 059)
interest in net
assets
Profit/(Loss 18 477 857 7 009 946 (87 545 376) (62 057 573)
) before
taxation
Taxation (5 089 166) (907 827) 10 373 422 4 376 429
(Loss)/ 13 388 691 6 102 119 (77 171 954) (57 681 144)
profit for
the year
23% 11% -134% -100%
Attributable
to:
Equity 10 109 404 6 102 119 (77 171 954) (60 960 431)
holders of
the parent
Minority 3 279 287 - - 3 279 287
interest
Segment 279 355 726 121 123 785 14 754 896 415 234 407
assets
Investment - 49 599 294 - 49 599 294
property
Loans and 118 574 890 - - 118 574 890
advances
Cash & cash 84 463 467 - 2 295 856 86 759 323
equivalents
Segment 190 801 458 6 763 595 3 784 066 201 349 119
liabilities
The Group is primarily a financial services provider with significant business
interests in the term lending/ micro finance environment. On a primary basis,
the Group is organised into three major operating divisions, namely: micro
finance, property investment and mortgage origination. These divisions are the
basis on which the Group reports its primary segment information for internal
purposes. The Group`s operating divisions operate in three principal
geographical segments/ areas of the world, namely South Africa, Namibia and
Botswana. As the Namibian and Botswana operations are insignificant in context
of Group operations, no secondary segmental information is provided.
Basis of preparation
These audited group results are prepared in accordance with International
Financial Reporting Standards ("IFRS"), IAS34: Interim Financial Reporting
Standards (disclosure), the Listings Requirements of the JSE as well as the
requirements of the Companies Act of South Africa. Accounting policies are
consistent with those applied in the previous year, unless otherwise stated.
The Group applies revised IAS 1 Presentation of Financial Statements (2007),
which became effective as of 1 January 2009. As a result, the Group presents in
the consolidated statement of changes in equity all owner changes in equity,
whereas all non-owner changes in equity are presented in the consolidated
statement of comprehensive income. This presentation has been applied in these
annual financial statements as of and for the period ended 28 February 2010.
Comparative information has been re-presented so that it also is in conformity
with the revised standard. Since the change in accounting policy only impacts
presentation aspects, there is no impact on earnings per share.
The group has made certain presentational changes to further improve
comparability of its results to those of other Micro finance institutions to
allow readers to make a more accurate assessment of the sustainable earnings
capacity of the Group. These changes, which have been applied retrospectively,
are listed below:
- The statement of financial position is presented in the banking format with
line items disclosed in order of liquidity. This is supported by detailed
maturity analysis in the notes to the annual financial statements. Since
the restatement only impacts presentation aspects, there is no impact on
the numbers or earnings per share;
- Movements in loans and advances has been moved from changes in working
capital within the notes to the statement of cash flow to the face of the
statement of cash flow. Since the restatement only impacts presentation
aspects, there is no impact on the numbers or earnings per share.
Audit opinion
The auditors, KPMG Inc., have issued their opinion on Finbond`s separate and
consolidated results for the year ended 28 February 2010. The audit was
conducted in accordance with International Standards on Auditing. KPMG Inc.`s
unmodified audit opinion is available for inspection at the company`s registered
office.
Annual report
The Company`s annual report, together with a notice convening the annual general
meeting, will be mailed to Finbond shareholders before the end of May 2010, at
which time an announcement incorporating a no change statement and the details
of the annual general meeting will be published on SENS.
COMMENTARY
Against the backdrop of the post recessionary environment in South Africa, the
directors are pleased to present the financial results of the Finbond Group for
the year ended 28 February 2010. During the twelve months under review Finbond
made good progress despite continued extremely challenging market conditions.
This process resulted in a number of achievements and significant developments
for the Group:
- Net profit before tax - R61,4 million (up 198.9%)
- Basic earnings per share - 16.1 cents (up 170%)
- Headline loss per share - 17.8 cents (up from 1 cents)
- Return on average equity - 26.1% (up 200.6%)
- Total assets - R482,8 million (February 2009: R415,2 million), (up 16.3%);
- Centralised control, standardised operations and a rebranded 167 branch
national network in the South African and African Micro Finance sectors
- Significant enhancements to the Group`s loan sub-system
The twelve month period ended 28 February 2010 has been pivotal for Finbond in
terms of its evolving strategy of repositioning itself in the Micro Finance
market and exiting of the Mortgage Origination market.
The Group continues to manage for the long term 5 to 10 to 15 years and to
invest in infrastructure, people, training, information technology and systems,
as well as in enhanced collection strategies and systems, to build a
sustainable, professional business. We believe that doing the right things now,
will allow us to reap the rewards in the medium and long term.
MARKET CONDITIONS
According to the ABSA Capital research South Africa`s recession is officially
over with the economy growing by 0.9% quarter on quarter (q/q) Q3, ending South
Africa`s first recession in 17 years. While overall GDP grew in Q3, domestic
expenditure fell 1.7% q/q , underpinned by a noticeable fall in gross capital
formation, a slower q/q decline in household consumption spending and a further
contraction in inventory accumulation. However, the government`s ongoing support
to the economy in the quarter remained evident through strong government
consumption expenditure growth and still robust public sector spending. Although
the 2.8% peak-to-trough decline in GDP may look modest compared with experiences
elsewhere in the world, nearly one million jobs amongst the formal and informal
sectors (about 7% of total employment) have already been lost and Q4 labour
indicators do not look promising.
According to Fitch Ratings the financial performance of Micro Finance
Institutions are coming under increased pressure from higher impairment charges,
linked to a deterioration in asset quality, stagnant loan portfolio growth,
higher funding cost and funding and refinancing risks due to current market
conditions. In the wake of the recent economic crisis, the microfinance
industry is on the verge of a major transformation in 2010. Despite many
assurances that the diversity of funding sources to microfinance institutions
(MFIs) would shield them from the global economic downturn, it now appears that
funding to MFIs could shrink by as much as $2.3 billion this year. According to
Neil Lightfoot at Genesis Analytics. "2010 is going to be a year of reckoning
for the micro finance industry as microfinance funding which amounted to $15
billion in 2009 will contract by at least 15% during 2010." In addition funding
from International Financial Institutions ("IFI`s") and Development Financial
Institutions ("DFI`s") are also reaching its limits due to counterparty or
country exposure limits. The fact that many MFI`s failed or are experiencing
extreme liquidity constraints also contributes negatively to a very difficult
fund raising environment. Funding constraints will have a significant funding
and liquidity impact on many MFI`s and will contribute to increased levels of
refinancing risks, particularly for non deposit taking MFI`s dependant on local
and international wholesale funding.
Fitch Ratings further points out that MFI loan portfolios are very cash flow
generative given their relatively short term nature, which is a big positive in
the current environment, by providing an important source of internally
generated liquidity. Faced with refinancing constraints MFI`s may need to look
to their loan books as a source of liquidity to service maturing obligations. As
a consequence lower growth scenarios for 2010 are very likely, falling from
double digit growth to single digits or losses and where there are particular
funding constraints shrinkage of the book is even possible.
Micro Finance
Total segment revenue from Micro Finance activities, made up of interest, fee
and insurance income (portfolio yield) grew 14.5% to R154 million (2009: R134
million).
Micro finance net profit before tax amounting to R7.5 million is net of, and
notwithstanding, the following:
- Upfront share option expenses
- Restructuring and retrenchment costs amounting to R2 million (not expected
to recur);
- An increase in net loan impairment expenses (refer portfolio quality and
bad debts below);
- The effect of opening new branches (term to profitability approximately 6
months) in line with Group strategy amounting to R1,1 million (expected to
recur in the short to medium term).
Bad debts experienced during the period deteriorated, with the net impairment
loss ratio (total impairment loss to the income statement / average gross loan
portfolio (NILR)) reflecting 19.4%, up from 15.9% (5.3% net of the initial
impact of placing a value on previously written-off loans) in the prior period.
This increase in impairment reflects an overall deterioration in the book as a
result of current economic conditions, job losses in the formal and informal
sectors, a higher than expected emergence of risk on sales written in the
September to December 2009 period and a portfolio sanitisation performed in the
aforementioned period. NILR reported in the prior period of 5.3% was net of the
initial impact of placing a value on previously written-off loans. These
rehabilitated loans are treated as negative bad debts written off in the income
statement. The policy regarding rehabilitation of written off loans requires
such loans to be performing, with a regular payment profile, before they qualify
for reinstatement onto the balance sheet, together with appropriate impairment
provisions. Current Group practice is to reinstate rehabilitated loans at their
net recoverable value, determined on a discounted cash flow basis.
Total arrears (outstanding loans delinquent by one day or more) to gross loans
and advances strengthened to 13.4% (2009: 30.5%). Non performing loans (PaR90 -
outstanding loans with arrears over 90 days) to gross loans and advances
amounted to 3.9% (2009: 7.2%). This ratio has improved significantly due to
improved collections strategies and the portfolio sanitisation performed in Q3
and Q4 of the current reporting period. The portfolio sanitization has the
inverse effect on balance sheet portfolio quality ratios opposed to the NILR.
Loan loss reserve, also referred to as the risk coverage ratio (Loan loss
reserves (impairment provision)/ PaR90) remains conservative at 134% (2009:
120.3%), which is an indication of a micro finance institution`s ability to cope
with estimated loan losses.
The Group continues to follow strict credit criteria upfront, supported by
robust collection strategies and processes to achieve improved default rates
going forward.
Gross loans and advances organically grew by R33,3 million in the reporting
period, after taking the effects of the Blue Chip Finance (BCF1) transaction
with minorities and the purchase of the net assets of Moneyline Financial
Services into account. Finbond`s debtors book remains geared at lower than one
times, well below industry average.
At the end of February 2010 Finbond had R 58,7 million cash in bank and R18
million in undrawn facilities. Although the aforementioned liquidity position
seems favourable relative to Finbond`s operations and book size, Finbond is not
immune to the funding and refinancing risks that the Micro Finance market is
currently experiencing. As a non deposit taking MFI dependant on development
funding from International Development Funders and wholesale funding from Local
and International Banks, Finbond is particularly vulnerable to funding and
refinancing risks in the current environment.
The agreement which Finbond signed with World Business Capital ("WBC") regarding
the funding transaction with WBC that Finbond announced on 23 February 2010 has
not closed and funds have not been disbursed due to WBC and Finbond`s other
major lenders failure to reach agreement on the exact wording of lenders
consent`s which WBC insisted on after signing the agreement.
Business Priorities and Strategic initiatives underway include:
- Focus on increased sales of short term product range, specifically 30 day
and 90 day products in order to shift book to be predominantly in 30 - 90
days,
- Monitor and drive robust collections of bad debt in all regions;
- Conservative expansion of the branch network in the year ahead,
specifically in; Gauteng, Limpopo, the Southern Cape, Northern Cape, North
West, Mpumalanga, Namibia and Botswana;
- Further staff training and continued roll out of collections efficiencies,
strategies and processes throughout the country,
- Further improvements and enhancements to the Group`s loan management
system,
- Stricter lending criteria to improve loan portfolio quality,
- Measures to cut operational cost by 15%,
- National and international fundraising efforts.
Subject to obtaining the required funding Finbond is well positioned for the
implementation of its growth and expansion plans in the micro finance market in
South Africa and Africa.
Mortgage Origination
Total segment revenue declined by 77.5% to R20,9 million (2009: R93 million).
Mortgage origination activities reported a decline in net commission income of
91,3% to R1,4 million (2009: R16,1 million).
According to Reserve Bank Statistics in September 2009 mortgage advances growth
by monetary institutions tapered off to 4,8% year-on-year (y/y) in September
2009 (5,6% y/y in August), which was the lowest growth rate since February 2000.
According to ABSA`s Senior Analyst Jacques du Toit year-on-year mortgage
advances growth is projected to recover gradually from current levels during the
course of 2010 on the back of improved economic conditions, filtering through to
the household sector and the property market. However, mortgage advances growth
is still expected to remain in single digits this year compared with 2009.
Given that Mortgage Origination contributes less than 1% of Finbond`s bottom
line (R4,7 million loss in the current reporting period in point of fact) and
there is no real sign of any significant recovery, Finbond made the strategic
decision to completely exit the mortgage origination market by outsourcing its
remaining mortgage origination channels . Effective 1 March 2010 Finbond
receives 0,01% commission on all transactions originated through its origination
channels without having to spend any management time, physical expense or effort
on the various channels.
Property Investments
The Finbond board has approved an investment strategy that focuses on:
- strategically positioning Finbond as a Southern African Micro Finance
Institution;
- securing additional markets and revenue streams; and
- growing Finbond`s balance sheet.
In the current post recessionary environment numerous opportunities present
themselves for the acquisition of assets that are substantially undervalued or
where cash strapped institutions or individuals are forced to sell assets at
prices far below their market value. Depending on Finbond`s liquidity and cash
position it will from time to time exploit these opportunities and will continue
to evaluate investment opportunities that will grow its balance sheet.
Investment opportunities must always meet the following criteria:
- the investment must be priced at a significant discount to fair market
value; and
- this discount is supported by two independent property valuations.
The following investment properties were acquired in the current reporting
period:
- Portion 10,11 and remaining extent of Portion 6 of Farm Zwartkoppies 316
J.T.;
- Portions 28,36,40,66 of Farm Kareekraal 135 J.T.;
- Erf 7/315 and 8/315 Hatfield, Pretoria.
Fair value adjustments, as required by IAS40, based on the valuation placed on
investment properties by independent valuators, resulted in a before tax profit
of R138,8 million (2009: R24,6 million).
Although over the long term property is considered a low risk asset, investors
must be aware that significant short and medium term risk factors are inherent
in the asset class. Investments in property are relatively illiquid and usually
more difficult to realise than listed equities or bonds and this restricts the
Group`s ability to realise value in cash in the short term. The property
valuations in this period have been prepared in a period of market uncertainty.
The current turmoil in the world`s financial markets has resulted in commercial
and residential properties selling in much reduced quantities with virtually
little or no market activity in some areas. The lack of market activity and the
resulting lack of market evidence means that it is generally not possible to
value with as high a degree of certainty as would be the case in a more stable
market with a good level of market evidence. The best evidence of fair value is
current prices in an active market for similar property investments. In
obtaining evidence to support fair value the Group has gone to great lengths and
obtained and considered information from a variety of sources.
EXECUTIVE OVERVIEW
General Overview
In the context of this challenging economic and financial environment the Group
achieved satisfactory trading results for the twelve months under review, the
result of sustained progress in the execution of the Group`s strategy.
During the past year, Finbond continued the improvement and refinement of
management structures, management information and processes. Finbond have also
continued to invest management time and money in building the Finbond Micro
Finance brand and a unified culture through: improved policy and procedure ,
Finbond branded clothing for personnel, marketing material, rebranding of
branches, revamping of branches, branch infrastructure, improved credit scoring,
taxi branding, training of personnel and customers. The result of these
initiatives will take time before the effect thereof will be visible in the
bottom line performance of the Group, however these improvements have already
started to show their worth in respect of quality of management information
systems, standardised operating procedures and internal control across the
Group.
There remain numerous major challenges for Finbond in the short and medium term,
not only in respect of the prevailing adverse market conditions, but also
relating to the ongoing process of improving the overall effectiveness of the
Group to enable it to compete aggressively with its peers.
In the year under review The Netherlands Development Finance Company (FMO) again
approved a Capacity Development Program for Finbond, which allowed the Group to
significantly improve the core loan management system, overall reporting,
management information, collections and legal systems, change control,
impairment provisioning, automated credit scoring, as well as the seamless
integration of the aforementioned.
Challenging Business Environment
Despite the various major challenges facing Finbond in the current adverse
business environment we remain committed to the Group`s principle objective of
maximizing shareholder value.
Finbond is in the process of building a sound platform and strategic base from
which to grow its micro finance operations in South and Southern Africa. The
focus for the year ahead will be on improving the quality of our loan portfolio
, stricter lending criteria, decreasing arrears rates, accessing long term
funding, optimal capital utilization, reducing operational cost, tighter
liquidity management, and improved operational efficiency.
Prospects
The challenging macro-economic environment, in the wake of the worldwide
financial crisis and post recessionary environment in South Africa, as well as
the adverse market conditions in the markets that Finbond operate in are not
expected to abate in the short and medium term.
Although the Group is confident that we have the required resources and depth in
management to successfully confront the various significant challenges facing
Finbond, market conditions in general and specifically higher impairment
charges, higher cost of funding, refinancing risks and the lack of availability
of funding could have a negative impact on the performance of the Group in the
year ahead.
Dividend
It is Finbond`s policy to consider the declaration of a dividend annually.
Given the current economic climate and the need to protect the Company`s balance
sheet, the board of directors has decided not to declare a dividend for the year
ended 28 February 2010.
For and on behalf of the Board
Dr. Malesela Motlatla Dr. Willie van Aardt
7 May 2010
Directors:
Chairman: Dr. MDC Motlatla*(BA , D Com (Unisa)); Chief Executive Officer : Dr.
W van Aardt (B-Proc (Cum Laude), LLM (UP), LLD (PU CHE) Admitted Attorney of The
High Court of South Africa, QLTT (England and Wales UK), Solicitor of the
Supreme Court of England and Wales; Chief Compliance Officer: H J Wilken (BCom
Hons ( UNISA); Chief Risk Officer: DC Pentz CA(SA) (B Comm Hons); Chief
Financial Officer: GW Labuschagne CA(SA) (B Com Fin.Acc (Cum Laude), B Com Acc
(Hons); N Mapetla*.(BA (Lesotho) MBA(UK); Adv. J Noeth SC* (B Iuris LLB). * Non-
Executive
Secretary:
Catharina Dora Du Plessis Sekretari Secretarial Services
Transfer secretaries:
Link Market Services South Africa (Proprietary) Limited
(Registration number 2000/007239/07)
11 Diagonal Street, Johannesburg, 2001
(PO Box 4844, Johannesburg, 2000)
Finbond Group Limited:
Finbond Group Limited
(Registration Number: 2001/015761/06) also TA Finbond Micro Finance TM
337 Veale Street, Brooklyn, Pretoria
PO Box 2127 Brooklyn Square, 0075
www.finbondlimited.co.za
www.finbond.co.za
Designated Advisor:
Grindrod Bank Limited
Date: 07/05/2010 13:29:01 Supplied by www.sharenet.co.za
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