Wrap Text
Unaudited consolidated interim results for the six months ended 31 August 2016
FINBOND GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2001/015761/06)
Share code: “FGL” ISIN: ZAE00013895
(“Finbond” or “the Company” or “the Group")
UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED
31 AUGUST 2016
HIGHLIGHTS
- Revenue from continuing operations increased by 100.2% to R540.3 million (Aug 2015: R269.9
million).
- Earnings attributable to shareholders of R49.6 million, representing growth of 75.8% over the R28.2
million in the comparative period.
- Earnings before interest, taxation, depreciation and amortization (EBITDA) increased by 57.8% to
R143.3 million (Aug 2015: R90.8 million).
- Headline earnings per share increased by 40.5% to 6.69 cents (Aug 2015: 4.76 cents).
- Collection rate up 2% to 89% in South Africa and averaging 95% in North America.
- Branch network increased by 149 branches to 470 branches.
- Successful ongoing North American expansion.
- Earnings currency diversification up to 38.3% in USD.
EXECUTIVE OVERVIEW
The directors are pleased to present the financial results of the Finbond Group for the six months
ended 31 August 2016.
These results were achieved despite an extremely difficult and challenging operating environment in
South Africa. Conservative lending practices, strict upfront credit scoring procedures, effective
collections, an increased distribution footprint and a strong focus on client service helped us weather
this storm.
During the six months under review Finbond successfully executed its earnings-enhancing growth
strategy after concluding its phase 1 North American expansion while the South African business
continued its strong organic growth.
Finbond Group Limited, with its 1,588 staff members (Aug 2015: 1,079) and 470 branches (Aug 2015:
321), specialises in the design and delivery of unique value- and solution-based savings, credit,
transactional and insurance solutions tailored around depositor and borrower requirements rather
than institutionalised policies and practices. We exist to improve and transform the lives and
livelihoods of our clients by making available modern inclusive banking products and services that
benefit and empower them. Finbond Group Limited conducts its business through four divisions
focused on:
1. Short and Medium Term Unsecured Lending Products (South Africa and North America);
2. Investment and Savings Products (South Africa);
3. Transactional Banking Products (South Africa); and
4. Insurance Products (South Africa).
Positive business momentum is contributing to improved results which are evident in the following
achievements and significant developments:
• Earnings attributable to shareholders of R49.6 million, representing growth of 75.8%
over the R28.2 million in the comparative period.
• Operating profit from continuing operations increased by 79.2% to R75.6 million (Aug
2015: R42.2 million).
• Headline earnings per share increased by 40.5% to 6.69 cents (Aug 2015: 4.76 cents).
• Earnings before interest, taxation, depreciation and amortization (EBITDA) increased
by 57.8% to R143.3 million (Aug 2015: R90.8 million).
• Revenue from continuing operations increased by 100.2% to R540.3 million (Aug
2015: R269.9 million).
• Cash received from customers increased by 100.4% to R1.2 billion (Aug 2015: R598.9
million).
• Number of loans advanced grew by 85.7% to 1,379,246 (Aug 2015: 742,649) while the
value of loans advanced increased by 286.4% to R1.6 billion (Aug 2015: R414.1
million).
• Finbond entered the North American short-term loan lending market with the
acquisition of 91 pay day lending stores in the United States of America and Canada,
while growing its South African network by 58 branches to a total of 379 branches
(Aug 2015: 321).
• Organic revenue growth of 19.2% to R276.6 million in revenue from the prior period’s
static-branch-base (Aug 2015: R232 million).
We remain focused on executing the Group’s five-year strategy and top business priorities; namely
continued expansion into North America, optimal capital utilisation, earnings growth, conservative
risk management, strict upfront credit scoring, good quality sales, effective collections, cost
containment, diversifying bank product ranges, diversifying income streams to USD, consumer
education and training, and development of staff members. This enabled us to achieve overall strong
operational results despite the current difficult and challenging business environment.
SUSTAINABLE PROFITABILITY
Finbond increased revenue for the first six months of the financial year to R540.3 million, an increase
of 100.2% over the comparative period.
The majority of profit for the period was derived from Finbond’s main economic driver, small short-
term unsecured loans in the South African and North American markets. Finbond’s attributable
earnings increased by 75.8%.
Finbond saw both organic and inorganic growth during the period under review. The 285 branches
already owned by Finbond as at 28 February 2015 contributed R276.6 million of the current period
revenue compared to the R232.5 million generated in the six months ended 31 August 2015,
representing a 19% period-on-period organic growth. The 22 branches acquired in South Africa during
the six months following the 31 August 2015 reporting period contributed R11.2 million revenue
during the period under review, while 36 branches acquired in South Africa during the current period
contributed R13.4 million. The 91 North American branches contributed R193.1 million to revenue
during the current period.
Revenue earned in USD contributed 35.7% of total revenue, while 38.3% of net profit attributable
to the owners of the company was earned in USD.
Despite issuing additional shares our return on equity remained stable at 15.5%, from the 15.6%
achieved at the closing of the previous financial year before the rights-issue. It is important to note
that Finbond Mutual Bank maintains conservative capital adequacy and liquidity positions (i.e. a 36.1%
capital adequacy ratio which is well above the prudential limit of 25%) which negatively skews the
ratio.
COST STRUCTURE
Operating costs increased by 133.8% from R135.2 million in August 2015 to R316.1 million for the six
months ended August 2016. The biggest reasons for the growth in expenses were the North American
expansion, cost related to the transactional banking platform and an additional 58 South African
branches.
Capital expenditure for the six months amounted to R14.6 million (Aug 2015: R28.2 million).
We continued to seriously invest in our distribution network and people. Across the group we added
an additional 509 jobs and sent our branch staff in South Africa on an average of 6.5 training sessions
per year. We are creating an action and results-oriented, customer-focused culture. Face-to-face
communication and excellent customer service are an integral part of our business model.
HEALTHY CAPITAL POSITION
Finbond follows a conservative approach to capital management and holds a level of capital which
supports its business, while also growing its capital base ahead of business requirements. Finbond’s
capital position remains strong.
Total assets increased by 85.2% to R2.3 billion (Aug 2015: R1.2 billion), while liabilities only increased
by 49.9% to R1.3 billion (Aug 2015: R0.9 billion) compared with 29 February 2016 (assets: R1.4 billion;
liabilities: R1.0 billion). These changes were the result of the completion of a R525 million rights-issue
that enabled the Group to expand into North America through the acquisition of four entities, adding
an additional R212 million to the goodwill asset. As at 31 August 2016 the company had a net asset
value of R942 million (29 Feb 2016: R388 million).
Current assets of R1.2 billion substantially exceed the current liabilities of R571 million, giving rise to
a current ratio of 2.1. The debt-to-equity ratio of the Group was 1.43:1 at the end of August 2016.
Significant asset changes include higher balances for loans to customers (132.2% increase) net cash
and cash equivalents (467.9% increase) and goodwill (189.2% increase). These increases were as a
result of the North America acquisitions and increased South African volumes.
The significant liability changes comprise of higher balances for the contingent liability (100% increase)
and fixed and notice deposits (23.9% increase). The contingent liability is due to remaining North
American purchase considerations being accrued for and only payable once the profit warranty period
is completed. The level of fixed and notice deposits raised increased due to higher/market related
rates being offered to attract depositors in order to fund the growth in the loans to customers.
Finbond Mutual Bank remains well in excess of its minimum regulatory capital requirements, with an
excess of R130.3 million over and above the R294.6 million required by the Registrar of Banks and an
excess of R308.5 million over and above the normal DI 400 required minimum for mutual banks.
Although Finbond as a mutual bank is not subject to the Basel III requirements, Finbond Mutual Bank
already complies with and significantly exceeds all Basel III requirements set for 2018 and 2019.
As at 31 August 2016, Finbond Mutual Bank had a:
- liquidity coverage ratio was 259% [159% more than required from 2019]
- net stable funding ratio was 499% [399% more than required from 2018]
- capital adequacy ratio was 36.1% [26.1% more than required from 2018].
LOW RISK LIQUIDITY STRUCTURE
Finbond’s liquidity position at the end of August 2016 reflects R446.5 million cash in bank (Aug 2015:
R78.6 million). Overall cash, cash equivalents and liquid investments increased by 76.7% to R640.9
million (Aug 2015: R362.8 million) as Finbond raised capital for the North American expansion.
Cash received on loans and other advances to customers (including capital repaid, fees and interest)
as a percentage of cash granted for the period from February 2016 to August 2016, averaged 142%
(Aug 2015: 145%), reflecting the fact that despite consumer pressure Finbond’s conservative credit
granting policies translate into a minimal impact on collections.
The deposit book totalled R1.0 billion, a 23.9% increase from R819.2 million last year with an average
interest rate of 9.73% (up from 9.5% last year), an average term of 26.8 months (down from 29.5
months last year) and an average deposit size of R362,192 (up from R338,184 last year). The increase
in deposit size speaks favourably of the customer experience that Finbond has delivered to deposit
clientele since launching the product as more and more depositors are choosing to increase their
deposit size, trusting Finbond based on the positive results experienced with their initial deposit
transactions.
Finbond is not exposed to the uncertainty that accompanies the use of corporate call deposits as a
funding mechanism since Finbond accepts mainly 6 – 72 month fixed and indefinite term deposits.
Given the long-term nature of Finbond’s liabilities (fixed-term deposits with average term of 28
months) and short-term nature of its assets (short-term micro loans with an average term less than
four months) Finbond possesses an unusually low risk liquidity structure as a result of this positive
liquidity mismatch.
Finbond Mutual Bank is funded through 2,695 (Aug 2015: 2,344) individual fixed long-term deposits
resulting in a smooth debt-maturity profile with no (0%) dependence on large funders or the debt
capital markets and no concentration risk.
SOUTH AFRICAN SHORT-TERM UNSECURED LENDING
Finbond’s South African business’ main focus remains on small short-term loans. Total segment
revenue from Finbond’s short-term lending activities made up of interest, fee and insurance income
(portfolio yield) increased by 22.8% to R294.2 million (Aug 2015: R239.5 million).
The overall gross short-term loan book reflected another period of positive growth totalling 31.7%,
ending the six month period at R509.5 million (Aug 2015: R386,9 million).
During the period under review Finbond’s short-term average loan size was R2,102 and our average
tenure was 3.97 months. Given the short-term nature of Finbond’s products, Finbond’s loan portfolio
is cash flow generative and a good source of internally generated liquidity. The whole loan portfolio
turns more than three times per year.
For the period ended 31 August 2016 Finbond received cash payments of R833.3 million from
customers, 39.1% greater than last year, while granting R586.6 million in new loans, an increase of
41.7% period-on-period (Aug 2015: R598.9 million in cash received and R414.1 million in new loans
granted).The ratio of cash received to cash granted was at 142.1% for the period under review. The
period-on-period movement in the portfolio includes increases in numbers of both new clients
serviced to 99,983 (38% more than in the six months ended August 2015: 61,356) and new contracts
granted to 419,010 (34% more than in the six months ended August 2015: 274,361), setting new
record monthly highs for the Group in both measures during the financial year. Growth in short-term
loans advanced was most heavily concentrated in the mid-term products (loans of between two and
six months in duration).
Finbond’s average short-term loan period is significantly shorter than that of our larger competitors
and our average short-term loan size, significantly smaller. Given this conservative approach Finbond
does not have any exposure to the 25 to 84 month, R21,000 to R180,000 long-term unsecured lending
market that continues to cause significantly increased write-offs, bad debts and forced rescheduling
of loans. Finbond’s historic data and vintage curves indicate that shorter term loans offer lower risk
as consumers are more likely to pay them back as opposed to longer term loans.
Furthermore, Finbond’s short-term loan portfolio is not exposed to any concentration risk and does
not have any significant exposure to any specific employer or industry.
NORTH AMERICAN UNSECURED LENDING
Finbond’s North American business’ main focus is on short-term small unsecured loans being offered
through 91 branches, of which 41 are located in Louisiana, 36 in California, 8 in Indiana and 6 in
Toronto, Canada.
As at 31 August 2016 38.3% of Finbond’s earnings was earned in USD and the intention is to grow the
dollar earnings of the group to approximately 70%-80% of net earnings in three to five years.
The rationale for Finbond’s North American expansion includes:
- Unique opportunity to enter the $46 Billion-a-year USA alternative financial services market;
- Earnings enhancing growth;
- Significant growth and consolidation opportunity in the North American alternative financial
services market;
- Organic growth in Finbond’s core “30-day” competency;
- Diversification of country and political risk;
- Effective ZAR hedge; and
- Economies of scale.
There are various similarities between the South African micro credit industry and the North American
pay day lending industry.
Over the past 10 years Finbond learned some valuable lessons in the difficult South African unsecured
lending environment with regards to effective credit risk management, liquidity risk management and
adapting to a changing market and regulatory conditions. We survived and remained profitable in
South Africa while many of our larger peers did not. We believe we will be able to continue to apply
this experience profitably in the North American payday lending market in the years ahead.
Total segment revenue from Finbond’s North American short-term lending activities, made up of
interest and fees (portfolio yield) amounted to $13 million (R188 million) for the period under review
with the overall gross payday loan book ending the six month period at $12 million (R175.9) million.
For the period ended 31 August 2016 Finbond’s average North American loan size was $266.62
(R4,133) at an average tenure of one month.
We are in the process of acquiring a further 20 branches located in Alabama, Missouri and Florida in
the United States of America are also in discussions with a number of larger strategic acquisition
targets in the United States of America short-term instalment lending and auto title lending market as
part of Finbond’s phase 2 expansion plan.
SECURED MORTGAGE LENDING
Finbond introduced a new mortgage-finance product in June 2015 that predominantly focuses on
debt-consolidation-mortgages to clients that already have an existing home loan and would like to
consolidate their debt by refinancing the existing loan and repaying other creditors by using the equity
in the property as collateral. A very conservative roll-out is being followed with strict credit
criteria in place to ensure assets of high quality are being included in the secured mortgage loan
portfolio.
Finbond received a total of 580 (Aug 2015: 148) applications during the period under review, with 458
(Aug 2015: 136) being declined, resulting in a decline rate of 79% (Aug 2015: 92%). Total credit of R69
million (Aug 2015: R8 million) was granted to 101 customers (Aug 2015: 12) during the period under
review with an average loan size of R672,415 (Aug 2015: R707 686) and an average tenure of 240
months. The book is secured by a very healthy weighted average loan-to-value (LTV) of 68.96% (Aug
2015: 67.75%), which closely tracks the distressed sales factor for the South African market.
TRANSACTIONAL BANKING CUSTOMERS
Our transactional banking solutions include a savings account with the lowest cost in the industry. The
savings account has a monthly fee of only R4.00 and pays the highest interest rates in South Africa for
an account of its type. We pay up to 6% interest on savings accounts with a maximum balance of
R20,000.
Our debit card is a fully functional MasterCard, giving our customers access to all Saswitch ATMs and
can be used for purchases at all linked shops. At Finbond Mutual Bank a debit order costs between
R3.42 and R4.00.
We still have a very long way to go to build a low-cost, full-service mass market bank in South Africa.
CONSERVATIVE UPFRONT CREDIT SCORING
The current economic climate where the consumer remains under stress in South Africa places the
consumer's ability to qualify for credit under adverse pressure. Finbond takes a conservative view
when managing credit risk which begins at the credit granting stage based on credit score. The credit
scores on all products are monitored on a monthly basis and the dynamic performance of the portfolio
is regularly taken into account when considering potential tightening of scores. We made our
affordability criteria for short-term lending even more stringent during the past 12 months which led
to subdued organic growth in the short-term loan portfolio. We understand that our conservative
approach led to reduced profitability but would rather err on the side of caution in the current
economic climate.
Detailed affordability calculations continue to be performed prior to extending any loans in order to
determine whether the client can in fact afford the loan repayments. Finbond’s lending practices have
been consistently conservative over the past number of years. Rejection rates stand at between 20%
and 60% for the three to six month product range, and they remain at 78% - 91% for the 12 to 24
month product range at the end of August 2016.
CHALLENGING EXTERNAL ENVIRONMENT
The South African consumer continued to experience high levels of financial strain throughout the
period under review. Economic growth and employment levels remained low, while inflationary
pressures increased on the back of rising food and fuel prices, exchange rate trends and above-
inflation electricity price hikes caused interest rates to be hiked further, eroding consumers’ spending
power further.
Credit-active consumers’ risk profiles remained a constraint to the accessibility of credit. The South
African consumer is forecast to continue to experience financial strain over the short to medium term,
due to factors such as low economic and employment growth, high levels of unemployment, rising
inflation, high interest rates and subdued disposable income growth. These adverse developments
will continue to have a deleterious effect on consumers’ spending power and will prevent any
significant improvement in savings, with a concurrently adverse impact on the consumers ability to
service debt and take up further credit.
Consumers’ credit-risk profiles will stay under pressure for the foreseeable future which will remain a
key factor in the accessibility of and growth in credit extension in South Africa.
IMPROVING BAD DEBTS AND IMPAIRMENTS
Conservative lending practices and strict upfront credit scoring supported by robust collection
strategies and processes were maintained and contributed to a 2.14% improvement in arrears during
2016 despite the difficult external environment specifically in South Africa.
Finbond consistently applied the conservative impairment provisioning methodology that has been
used in prior financial periods, which allowed for growth in impairment provisioning to provide even
more prudently for future losses on the portfolio. Overall impairment provisions increased by 12.73%
to R53.3 million (Aug 2015: R28.2 million) compared to gross loans and advances growth of 20.28%
during the year.
During the period, the Group further enhanced affordability calculations, thereby tightening credit
granting criteria to even stricter levels than the already high levels previously set. The result is that
notwithstanding an increase in impairments, the arrears coverage ratio has improved to 53.17% from
49.1% over the past year.
The loan loss reserve, also referred to as risk coverage ratio (impairment provision/portfolio at risk:
90 days in arrears and longer), which is an indication of a micro-finance institution’s ability to cope
with the estimated loan losses, has remained relatively unchanged at the end of the reporting period
at 112.7% (Aug 2015: 95.7%). The 30-day arrears coverage ratio (impairment provision/portfolio at
Risk: 30 days in arrears and longer) reflects an improvement in short-term arrears coverage, being
recorded at 66.5%, which increased from a ratio of 55.9% at the end of August 2015. This improvement
occurred as a combined result of continued and consistent conservative provisioning against future
losses undertaken by management coupled with an improvement in the level of arrears in the
portfolio at year-end.
Finbond recorded an increase in overall impairment expenses (including provision expenditure) of
19.6%. This is partly driven by the increase, in 2016 which is directly in line with the increase in gross
loans and advances notwithstanding the overall improvement in arrears and the quality of the
portfolio. The overall unadjusted income statement net impairment loss ratio remained relatively
unchanged at 19% (Aug 2015: 20%), while Finbond’s significantly lower and much more accurate
adjusted loan loss ratios decreased during the year. Net impairment as a percentage of expected
instalments amounting to 6% (Aug 2015: 7.3%) and net impairment as a percentage of cash received
(which is more conservative than instalments due) stood at 6.9% at the end of August 2016 (Aug 2015:
8.6%). These adjusted measures are a more appropriate reflection of the impairment cost related to
a short-term, low-value loan portfolio such as that held by Finbond compared to traditional balance
sheet ratios. The best measurement of arrears and impairments on the short-term products is against
instalments due and not outstanding balances, because a large part of a short-term loan is repaid
before month-end/year-end and is therefore, not reflected on the balance sheet. Thus, computations
based on the outstanding balance distort this ratio on short-term products.
STRATEGIC INITIATIVES AND FUTURE PROSPECTS
Strategic initiatives under way include:
- Growing market share through the increased sale of short- and medium-term products,
specifically 30 days, 90 days and 6 months;
- Further refining, developing and improving all bank information technology systems and
processes;
- Converting Finbond’s mutual banking license to a commercial banking license;
- Expansion of the South African branch network in high growth areas;
- Acquiring a further 20 branches located in Alabama, Missouri and Florida in the United States
of America; and
- Selective further strategic acquisitions in the South African and North American unsecured
short-term lending markets.
The challenging and difficult macro-economic environment, as well as the adverse market conditions
in the South African market within which Finbond operates, are not expected to abate in the short-
and medium-term. However, we remain confident that we have the required resources and depth in
management to successfully confront and overcome these various challenges.
We remain positive about our prospects for the future due to Finbond’s improved earnings and
profitability despite difficult market conditions, improvement achieved in cash generated from
operating activities, significant percentage of revenue now earned in USD, management expertise,
strong cash flow, strong liquidity and surplus cash position, uniquely positioned 379 branch network
in South Africa and 91 branches in North America (with a further 20 in the process of being acquired),
superior asset quality, access to funding, conservative risk management and growth potential.
We believe that our continued growth in South Africa and the expansion into the North American short-
term lending market and the implementation of our strategic action plan will ensure that we achieve
results in the medium- and long-term.
References to future financial performance included anywhere in this announcement have not been
reviewed or reported on by the Group’s external auditors.
DIVIDEND
No interim dividend has been declared.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Interim Interim Full year
%
unaudited unaudited audited
Change
R’000 31 August 2016 31 August 2015 29 February 2016
Assets
Cash and cash
equivalents 446,526 78,623 468% 136,035
Other financial assets 194,368 284,179 (32%) 231,879
Unsecured loans and
other advances to
customers 534,815 300,231 78% 343,749
Secured loans and other
advances to customers 185,326 9,947 1763% 94,781
Trade and other
receivables 136,679 94,344 45% 133,436
Inventories 1,381 2,305 (40%) 1,764
Current tax receivable 184 2,071 91% 684
Property, plant and
equipment 94,036 52,191 80% 62,090
Investment property 271,060 264,605 2% 269,540
Goodwill 404,364 139,808 189% 152,976
Intangible assets 15,381 171 8895% 171
Deferred tax 3,713 6,670 (44%) 4,323
Total Assets 2,287,833 1,235,145 85% 1,431,428
Equity
Equity attributable to
equity holders of parent
Share capital and
premium 715,876 183,868 289% 203,365
Reserves (24,153) 4,586 (627%) 6,476
Retained income 203,149 149,936 35% 178,972
Equity attributable to
owners of the company 894,872 338,390 164% 388,813
Non-controlling interest 47,225 (824) (5831%) (824)
Total Equity 942,097 337,566 179% 387,989
Liabilities
Bank overdraft 38,173 - 100% 29,628
Trade and other payables 211,776 17,354 1120% 33,003
Fixed and notice
deposits 1,014,939 819,237 24% 907,705
Transactional deposits 4,941 2,601 90% 3,189
Current tax payable 11,787 25 47048% 4,771
Finance lease obligation 1,801 1,181 52% 1,644
Loans from shareholders 18,000 18,000 - 18,000
Deferred tax 44,319 39,181 13% 45,499
Total Liabilities 1,345,736 897,579 50% 1,043,439
Total Equity and
Liabilities 2,287,833 1,235,145 85% 1,431,428
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six Months ended
Full year
Interim Interim %
audited
unaudited unaudited Change
29 February 2016
R’000 31 August 2016 31 August 2015
Interest income 200,905 78,978 154% 161,435
Interest expense (55,304) (42,658) 30% (87,525)
Net interest income 145,601 36,320 301% 73,910
Fee income 218,842 98,338 123% 208,025
Management fee income 26,875 16,724 61% 48,987
Other lending income 89,978 76,304 18% 139,732
Operating loss from cell
captive arrangement - (131) (100%) (465)
Fair value changes 3,743 (422) (987%) 3,032
Net commission expense (3,219) (1,911) 68% (4,903)
Net impairment charge on
loans and advances (90,118) (47,885) 88% (71,314)
Operating expenses (316,057) (135,187) 134% (302,089)
Profit before taxation 75,645 42,150 79% 94,915
Taxation charge (21,178) (13,932) 52% (37,661)
Profit for the period 54,467 28,218 93% 57,254
Other comprehensive
income
- Exchange
differences on
translation of
foreign operations (30,629) - 100% -
Total comprehensive
income for the period 23,838 28,218 (16%) 57,254
Profit attributable to:
Owners of the company 49,615 28,218 76% 57,254
Non-controlling interest 4,852 - 100% -
Profit for the period 54,467 28,218 93% 57,254
Earnings per share:
Basic and diluted
earnings per share
(cents) 6.7 4.8 41% 9.7
Headline earnings per
share (cents) 6.7 4.8 41% 10.5
Total number of ordinary
shares outstanding 747,712 570,103 31% 590,981
Weighted average number
of ordinary shares
outstanding 741,065 592,230 25% 593,084
Net profit attributable
to ordinary equity
holders of the parent 49,615 28,218 76% 57,254
Adjusted for:
Profit on disposal of
property, plant and
equipment - - - 615
Fair value changes of
investment properties - - - (2,883)
Tax effect on change in
capital inclusion rate
- - - 7,398
Headline earnings 49,615 28,218 76% 62,384
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
Six Months ended
Full year
Interim audited
%
Interim unaudited unaudited
Change 29 February 2016
R’000 31 August 2016 31 August 2015
Cash flow
from
operating
activities
Cash
generated
from/
(utilised in)
operations 20,054 (115,080) (117%) (109,167)
Tax paid (14,106) (8,906) 58% (17,838)
Net cash
outflow from
operating
activities 5,948 (123,986) (105%) (127,005)
Cash flow
from
investing
activities
Purchase of
property,
plant and
equipment (13,096) (12,404) 6% (28,682)
Sale of
property,
plant and
equipment - 254 (100%) -
Purchase of
investment
property (1,520) (15,785) (90%) (17,005)
Purchase of
other
intangible
assets (645) (19,774) (97%) (32,943)
Purchase of
financial
assets - (116,426) (100%) (186,211)
Sale of
financial
assets 41,530 204,597 (80%) 316,582
Net cash flow
from business
combination (176,768) - 100% -
Net cash flow
from
investing
activities (150,499) 40,462 (472%) 51,741
Cash flow
from
financing
activities
Issue of
shares 513,929 - 100% -
(Share buy-
back)/re-
issue of
shares (1,418) (17,654) (92%) 1,842
Proceeds from
shareholders’
loans (40,632) 3,000 (1,454%) 3,000
Finance lease
payments 56 (640) (109%) (612)
Dividends
paid (25,438) (20,059) (27%) (20,059)
Net cash flow 446,497 (35,353) (1363%) (15,829)
from
financing
activities
Total cash
movement for
the period 301,946 (118,877) (354%) (91,093)
Cash at the
beginning of
the period 106,407 197,500 (46%) 197,500
Total cash at
the end of
the period 408,353 78,623 419% 106,407
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
R’000 Interim Interim Full year
unaudited unaudited audited
31 August 31 August 29
2016 2015 February
2016
Total equity at the beginning of the period 387,989 345,904 345,904
Change in share capital and premium
Issue of shares 513,929 - -
Purchase of treasury shares (1,418) (17,654) -
Treasury shares re-issued - - 1,842
Change in reserves
Equity-settled share-based payment - 1,157 3,048
Total comprehensive income for the period 18,986 28,218 57,254
Dividends paid (25,438) (20,059) (20,059)
Change in non-controlling interest
Total comprehensive income for the period 4,852 -
Movement in non-controlling interest in
reserves
43,197 - -
Total equity at the end of the period 942,097 337,566 387,989
CONDENSED SEGMENTAL INFORMATION
OPERATING SEGMENTS
Investment Lending Property Transactional Other Total
R’000 Products Investment Banking
6 Months ended
31 August 2016
Interest
income 8,162 180,366 - - 12,377 200,905
Interest
expense (30,023) (54,639) - (156) 29,514 (55,304)
Net Interest
Income (21,861) 125,727 - (156) 41,891 145,601
Fee income
- 217,226 201 937 478 218,842
Management fee
income - - - - 26,875 26,875
Other lending
income - 89,978 - - - 89,978
Fair value
changes 4,020 (277) - - - 3,743
Net commission
income - (6,165) (141) 1,226 1,861 (3,219)
Net impairment
charge on
loans and
advances - (83,995) - (5) (6,118) (90,118)
Operating
expense (1,155) (292,393) (947) (5,038) (16,524) (316,057)
Profit/(Loss)
before
taxation (18,996) 50,101 (887) (3,036) 48,463 75,645
Taxation
charge 5,318 (14,027) 248 850 (13,567) (21,178)
Profit/(loss)
for the period (13,678) 36,074 (639) (2,186) 34,896 54,467
Significant
segment assets
Cash and cash
equivalents 74,440 367,424 - 3,777 885 446,526
Other
Financial
Assets 182,974 - - - 11,394 194,368
Loans and
advances - 544,113 - - 176,028 720,141
Property,
Plant and
Equipment - 79,607 - 752 13,677 94,036
Investment
Property - - 271,060 - - 271,060
Goodwill
- 403,508 - - - 403,508
Significant
segment
liabilities
Bank overdraft - 38,173 - - - 38,173
Deposits
received from
customers 1,014,939 - - - - 1,014,939
Loans from
shareholders - - - - 18,000 18,000
Investment Lending Property Transactional Other Total
R’000 Products Investment Banking
6 Months ended
31 August 2015
Interest 10,938 66,208 - - 1,832 78,978
income
Interest (24,648) (5,708) - (257) (12,045) (42,658)
expense
Net Interest (13,710) 60,500 - (257) (10,213) 36,320
Income
Fee income 30 96,967 - 2,112 (771) 98,338
Management fee - 16,724 16,724
income
Other lending - 76,304 - - - 76,304
income
Operating - (131) - - - (131)
profit from
Cell captive
arrangement
Fair value (422) - - - - (422)
changes
Net commission - (2,271) 95 - 265 (1,911)
income
Net impairment - (46,221) - - (1,664) (47,885)
charge on
loans and
advances
Operating (1,040) (120,351) (948) (1,395) (11,453) (135,187)
expense
Profit/(Loss) (15,142) 64,797 (853) 460 (7,112) 42,150
before
taxation
Taxation 5,006 (21,420) 282 (152) 2,352 (13,932)
charge
Profit/(loss) (10,136) 43,377 (571) 308 (4,760) 28,218
for the period
Significant
segment assets
Cash and cash 43,693 32,992 2 1,748 188 78,623
equivalents
Other 268,819 - - - 15,360 284,179
Financial
Assets
Loans and - 302,827 - - 7,351 310,178
advances
Property, 7 40,831 - 1,315 10,038 52,191
Plant and
Equipment
Investment - - 264,605 - - 264,605
Property
Goodwill - 139,808 - - - 139,808
Significant
segment
liabilities
Deposits 819,237 - - - - 819,237
received from
customers
Loans from - - - - 18,000 18,000
shareholders
Investment Micro Property Transactional Other Total
R’000 Products Finance Investment Banking
12 Months
ended 29
February 2016
Interest 20,127 138,201 - 517 2,590 161,435
income
Interest (49,360) (10,597) - (590) (26,978) (87,525)
expense
Net Interest (29,233) 127,604 - (73) (24,388) 73,910
Income
Fee income - 199,030 - 8,995 - 208,025
Management fee - - - - 48,987 48,987
income
Other lending - 139,732 - - - 139,732
income
Operating - (465) - - - (465)
profit from
cell captive
arrangement
Fair value (683) - 3,715 - - 3,032
changes
Net commission - (4,903) - - - (4,903)
income
Net impairment - (72,080) - - 766 (71,314)
charge on
loans and
advances
Operating (2,352) (264,147) (1,920) (8,946) (24,724) (302,089)
expense
Profit/(Loss) (32,268) 124,771 1,795 (24) 641 94,915
before
taxation
Taxation 10,288 (39,782) (7,971) 8 (204) (37,661)
charge
Profit/(loss) (21,980) 84,989 (6,176) (16) 437 57,254
for the period
Significant
segment assets
Cash and cash 61,132 47,259 - 2,782 (4,766) 106,407
equivalents
Other 231,522 357 - - - 231,879
financial
assets
Loans and - 438,530 - - - 438,530
advances
4 49,210 - 1,034 11,842 62,090
Plant and
Equipment
Investment - - 269,540 - - 269,540
property
Goodwill - 152,976 - - - 152,976
Significant
segment
liabilities
Deposits 907,705 - - - - 907,705
received from
customers
Loans from - - - - 18,000 18,000
shareholders
GEOGRAPHICAL SEGMENTS
R'000 South Africa North America Total
Six months ended 31 August
2016
Net profit
Interest Income 99,205 101,700 200,905
Interest expense (50,955) (4,349) (55,304)
Net interest income 48,250 97,351 145,601
Fee income 132,317 86,525 218,842
Management fee income 26,875 - 26,875
Fair value changes 4,020 (277) 3,743
Other lending income 84,826 5,152 89,978
Net commission expense (2,668) (551) (3,219)
Net impairment charge on loans
and advances (56,918) (33,200) (90,118)
Operating expenses (194,216) (121,841) (316,057)
Profit before taxation 42,486 33,159 75,645
Taxation charge (11,893) (9,285) (21,178)
Profit for the period 30,593 23,874 54,467
Significant segment assets
Cash and cash equivalents 162,114 284,412 446,526
Other financial assets 194,368 - 194,368
Loans and advances 564,669 155,472 720,141
Property, plant and equipment 63,194 30,842 94,036
Investment property 271,060 - 271,060
Goodwill 192,389 211,975 404,364
Significant segment liabilities
Bank overdraft 38,173 - 38,173
Deposits received from
customers 1,014,939 - 1,014,939
Loans from shareholders 18,000 - 18,000
Notes to the condensed consolidated interim financial statements
Finbond Group Limited is a company domiciled in South Africa. The condensed
consolidated interim financial statements of the Company as at and for the
six months ended 31 August 2016 comprise the Company and its subsidiaries
(together referred to as the “Group”) and the Group’s interests in
associates and jointly controlled entities.
Basis of preparation
The condensed consolidated interim financial statements have been prepared
in accordance with the requirements of the JSE Limited Listings Requirements
and the requirements of the Companies Act of South Africa. The interim
report has been prepared in accordance with the conceptual framework, the
measurement and recognition requirements if International Financial
Reporting Standards (“IFRS”) IAS 34 Interim Financial Reporting, the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee
and financial pronouncements as issued by the Financial Reporting Standards
Council IAS 34 Interim Financial Reporting, the Companies Act and the JSE
Listings Requirements. They do not include all of the information required
for full annual financial statements and should be read in conjunction with
the consolidated annual financial statements of the Group as at and for the
year ended 29 February 2016.
The accounting policies applied in the preparation of the condensed
consolidated interim financial statements are consistent with those applied
in the audited consolidated annual financial statements as at and for the
year ended 29 February 2016. These unaudited interim results have been
prepared under the historical cost convention, except for investment
properties, which are measured at fair value, and certain financial
instruments, which are measured at either fair value or amortized cost.
The condensed consolidated interim financial statements were prepared under
the supervision of Mr C Eksteen CA(SA), in his capacity as Group Financial
Director.
Estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities,
income and expenses. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgements made by Management in applying the Group’s accounting
policies and the key sources of estimation uncertainty were the same as
those that applied to the consolidated annual financial statements as at and
for the year ended 29 February 2016.
Fair value measurement
Fair value hierarchy of instruments measured at fair value
The fair value hierarchy reflects the significance of the inputs used in
making fair value measurements. The level within which the fair value
measurement is categorised in its entirely is determined on the basis of the
lowest level input that is significant to the fair value measurement in its
entirety.
The different levels have been defined as follows:
Level 1: Fair value is based on quoted unadjusted prices in active markets
for identical assets or liabilities that the group can access at measurement
date.
Level 2: Fair value is determined through valuation techniques based on
observable inputs, either directly, such as quoted prices, or indirectly,
such as derived from quoted prices. This category includes instruments
valued using quoted market prices in active markets for similar instruments,
quoted prices for identical or similar instruments in markets that are
considered less than active or other valuation techniques where all
significant inputs are directly observable from market data.
Level 3: Fair value is determined through valuation techniques using
significant unobservable inputs. This category includes all assets and
liabilities where the valuation technique includes inputs not based on
observable data, and the unobservable inputs, have a significant effect on
the instrument’s valuation. This category includes instruments that are
valued based on quoted prices for similar instruments where significant
unobservable adjustments or assumptions are required, to reflect differences
between the instruments.
Levels of fair value
measurements
Level 1 Level 2 Level 3 Total
R'000
Assets and liabilities
measured at fair value:
Recurring
Other financial assets - 194,010 358 194,368
Investment property - - 271,060 271,060
- 194,010 271,418 465,428
Valuation techniques used to derive level 2 and 3 fair values
Level 2 fair values of other financial assets have been derived by using the
rate as available in active markets. The underlying assets and liabilities
of the investment in the Cell captive arrangement are mainly cash and cash
equivalents, gross debtors and SARS liabilities. These all approximate fair
value and the fair value hierarchy is considered level 1 and level 2, with
no elevated risk areas. The IBNR provision is managed from industry data
accumulated on the Alexander Forbes Risk and Insurance Services claim
system, and is classified as a Level 3.
Level 3 fair values of investment properties have been generally derived
using the market value, the comparable sales method of valuation, and the
residual land valuation method, as applicable to each property.
The fair value is determined by external, independent property valuers,
having appropriate, recognised professional qualifications and recent
experience in the location and category of the properties being valued. The
valuation company provides the fair value of the Group’s investment
portfolio every twelve months.
Reconciliation of assets and liabilities measured at level 3
R’000 Opening Purchases Subsequent Closing
Balance capitalised balance
expenditure
Investment 269,540 - 1,520 271,060
properties
Assets and liabilities not measured at fair value, but fair values are
disclosed
Level 1 Level 2 Level 3 Total
Finance lease
obligations - 1 640 - 1 640
Transfer of assets and liabilities within levels of the fair value hierarchy
No transfers of assets and liabilities within levels of the fair value
hierarchy occurred during the period under review.
Cash and cash equivalents are not fair valued and the carrying amount is
presumed to equal fair value.
Short-term receivables and short-term payables are measured at amortised
cost and approximate fair value, due to the short-term nature of these
instruments. These instruments are not included in the fair value
hierarchy.
Business Combination
During the reporting period the group acquired a number of branches in South
Africa, USA and Canada as a going concern through business combinations,
summarised below:
Interim Interim Full year
unaudited unaudited audited
31 August 2016 31 August 2015 29 February 2016
South Africa
Recognised amounts of
identifiable assets
acquired and
liabilities assumed
Loans and other 12,743 6,456 9,840
advances to customers
Total liabilities - - -
Total identifiable 12,743 6,456 9,840
net assets at fair
value
Goodwill arising on 39,412 19,774 32,943
acquisition
Purchase 52,155 26,230 42,783
consideration
transferred
Consideration paid in 52,155 26,230 42,783
cash
North America
Shareholders are referred to the details of these transactions as disclosed
in Note 38 of the consolidated annual financial statements of the Group as
at 29 February 2016 and included in the SENS announcement dated 5 February
2016.
Recognised amounts of
identifiable assets
acquired and
liabilities assumed
Cash and cash 50,386 - -
equivalents
Loans and other 134,000 - -
advances to customers
Property, plant and 32,608 - -
equipment
Other assets 18,060 - -
Total liabilities (64,205) - -
Total identifiable 170,849 - -
net assets at fair
value
Non-controlling (46,103) - -
interest measured at
fair value
Goodwill arising on 225,883 - -
acquisition
Purchase 350,629 - -
consideration
transferred
Purchase
consideration
Consideration paid in 172,475 - -
cash
Contingent 178,154 - -
consideration
liability
Total consideration 350,629 - -
Events after the reporting period
There have been no subsequent events that require reporting.
For and on behalf of the Board
Dr Malesela Motlatla Dr Willie van Aardt
30 September 2016
Directors : Chairman: Dr MDC Motlatla* (BA, DCom (Unisa)); Chief Executive
Officer: Dr W van Aardt (BProc (Cum Laude), LLM (UP), LLD (PU CHE) Admitted
Attorney of The High Court of South Africa, QLTT (England and Wales),
Solicitor of the Supreme Court of England and Wales); HJ Wilken-Jonker*
(BCom Hons (Unisa); Chief Financial Officer: C Eksteen (CA(SA), CPA (USA));
Adv J Noeth* (B Iuris LLB); Adv. N Melville* (BLaw, LLB (Natal) LLM(Cum
Laude) (Natal), SEP (Harvard); RN Xaba* (CA(SA));R Emslie* (B Com (Law),
Hons (Acc), (CA)(SA)); D Brits* (BCom, MBA (PU CHE)); H Kotze* (BCom
(Acc)(Hons), HDip Tax, Certificate in Treasury Management)CA(SA, C van Heerden
(BCom Risk Management, LLB). *Non-executive
Secretary: B Bredenkamp (BCom Accounting, LLB)
Transfer secretaries : Link Market Services South Africa (Proprietary)
Limited, (Registration number 2000/007239/07), 11 Diagonal Street,
Johannesburg, 2001, (PO Box 4844, Johannesburg, 2000)
Sponsor: Grindrod Bank Limited
Date: 03/10/2016 11:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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