Wrap Text
Audited consolidated results for the year ended 28 February 2017
FINBOND GROUP 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 CONSOLIDATED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2017
Executive Overview
The directors are pleased to present the financial results of the Finbond Group for
the twelve months ended 28 February 2017.
During the 12 months under review, Finbond delivered another set of solid results,
increasing headline earnings per share by 77%, Income from operations by 207%,
Operating profit from continuing operations by 194% and EBITDA by 137%.
These results were achieved in a particularly trying and challenging operating
environment. Our successful expansion into the United States of America, strong
focus on our core short term lending business, conservative lending practices,
strict upfront credit scoring procedures, effective collections, an increased
distribution footprint and a strong focus on client service helped us achieve
exceptional results despite the hostile external environment.
In giving effect to our strategic plan of action we made the following progress
during the period under review:
- Headline earnings per share increased by 77% to 18.6 cents (Feb 2016: 10.5
cents).
- Operating profit from continuing operations increased by 194% to R279.4 million
(Feb 2016: R94.9 million).
- Loan fee income increased by 152% to R985.6 million (Feb 2016: R391.8 million).
- Earnings before interest, taxation, depreciation and amortization (EBITDA)
increased by 137% to R462.9 million (Feb 2016: R195.3 million).
- Revenue from continuing operations increased by 177% to R1.5 billion (Feb 2016:
R561.2 million).
- Insurance revenue increased by 10% to R110.5 million (Feb 2016: R100.3
million).
- Number of loans advanced grew by 155% to 1 484 973 (Feb 2016: 583 265)
- Cash received from customers increased by 328% to R5.4 billion (Feb 2016: R1.3
billion).
- Value of loans advanced increased by 360% to R4.1 billion (Feb 2016: R883.9
million).
- The loan to deposit ratio, for the South African entities, improved by 13.2% to
54.5% (Feb 2016: 41.3%) as loans grew while the quantum of deposits was
deliberately kept at existing levels given our excess surplus cash position.
- We expanded our overall branch network by 60% to 550 branches of which 379
branches are in South Africa (Feb 2016: 344) and 171 are the United States of
America (Mar 2016: 91).
- We won the 2016 Sustainability Data Transparency Index awards for the
Integrated Annual Report, achieving the highest score in the sector:
“Financials – Other”, and the most improved score, awarded by Integrated
Reporting and Assurance Services (IRAS), coming seventh overall.
Finbond’s exceptional financial and operational performance is testimony to a well-
executed sustainable strategy in terms of the Board Approved Five Year Strategic
Plan of Action. Our strategy is transforming Finbond into a focussed multinational
business diversified across geographies, market segments and products with 53.5% of
revenue in US$. Finbond’s strategy is by no means unique with many other
international financial services groups following a similar approach. Finbond’s
ability to effectively execute strategy is the key differentiator. This enabled the
Group to achieve particularly satisfactory results, delivering 50% + growth in all
key operating indicators despite a challenging environment.
Finbond continues to manage for the long term and to invest in people, training,
information technology, banking systems, compliance systems as well as in enhanced
collection strategies and systems, in order to build a sustainable business that
creates long term economic value. The bulk of the increased expenses during the
period under review relates to increasing capacity and improving risk management
functions and processes within the Group.
We remain focused on executing the Group’s strategy and top business priorities
namely, optimal capital utilization, earnings growth, strict upfront credit
scoring, good quality sales, effective collections, cost containment and training
and development of staff members.
Increasing Revenue, Profit and Profitability
Operating profit from continuing operations increased by 194.4% to R279.4 million
(Feb 2016: R94.9 million)
Finbond increased turnover to R1.6 billion, an increase of 177% over 2016.
Finbond’s profit margin increased from 8.9% of turnover in 2016 to 10.2% in 2017.
The majority of profit for the year was derived from small personal loans. The
operating Cost to Income ratio improved this year to end the financial year at
61.1% (Feb 2016: 64.5%).
Total segment revenue from Finbond’s Micro Finance activities in both South Africa
and North America, made up of interest, fee and insurance income (portfolio yield)
increased by 220% to R1.5 billion (Feb 2016: R475.4 million).
Continued Strong Focus on Short Term Loans in South Africa
Finbond’s focus remains on small, short-term loans. Despite continued strong
competition in the short term loan market over the past 12 months we still have a
30% market share of all two and three month loans in South Africa.
Finbond’s consistent conservative approach has ensured sustainable growth in the
Micro Credit portfolio that is not driven by advancing larger loans or increasing
the term of loans. We prefer quality above quantity.
During the period under review Finbond’s average loan size was R1,426 with an
average tenure of 3.7 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. For the twelve months ended 28 February 2017, Finbond granted
R1.26 billion worth of loans and received cash payments of R1.82 billion from
customers. The whole loan portfolio turns over three times a year.
Finbond’s average loan period is significantly shorter than our larger competitors
and our average loan size significantly smaller. Given this conservative approach,
Finbond does not have any exposure to the 25 – 84 month, R21 000 – 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.
The Department of Trade and Industry published new regulations dealing with capping
of fees on credit life insurance that will become effective from 9 August 2017. The
new regulations may have a material adverse impact on the insurance revenues of
Finbond. We are however confident that the loss in revenue could potentially be
replaced by refining and/or expanding the range of assistance-insurance products
that Finbond offers to clients.
Conservative Upfront Credit Scoring Practices
While the size of the South African loan book has increased, the risk profile of
the book has at the same time again been adjusted to take into account the
increased financial pressure on the South African consumer. During the period under
review the asset quality of our loan book remained high and the average credit
scores of customers remained stable. One of the key value drivers is the quality of
new business. Without quality, new business growth is meaningless and not
sustainable.
Detailed affordability calculations are also performed prior to extending any loans
in order to determine whether clients can in fact afford the loan repayments. In
line with our conservative approach additional expense buffers were again included
in all affordability assessments.
Finbond continued to apply strict upfront credit scoring and affordability
criteria. The credit scores on the various products are monitored on a monthly
basis and are continually adjusted to reduce credit risk and further improve the
quality of assets held. We again made our affordability criteria even more
stringent during the past 12 months which led to subdued growth in the loan
portfolio.
Finbond’s lending practices have been consistently conservative over the past
number of years and our rejection or decline rates remain higher than that of our
major competitors. Rejection rates in South Africa stood at between 76.26%-90.58%
for our 12-24 month product at the end of February 2017.
Conservative Liquidity Management
The growth in the surplus funding was curbed during the financial year in an effort
to reduce interest expense on excess surplus cash. Finbond’s liquidity position at
the end of February 2017 reflects R727.3 million in cash, cash equivalents and
liquid investments. (Feb 2016: R338.3 million).
Cash Received as a percentage of Cash Granted for the period of twelve months ended
28 February 2017, averaged 133%.
By the end of February 2017 the deposit portfolio amounted to R 1.099 billion (Feb
2016: 907.7 million). The average deposit size was R371,991, the average term 26,34
months and the average interest rate was 9.81%.
Finbond is not exposed to the uncertainty that accompanies the use of corporate
call deposits as a funding mechanism since Finbond only accepts 6 – 72 month fixed
and indefinite term deposits. Given the long term nature of Finbond’s liabilities
(fixed term deposits with an average term of 26,34 months) and short term nature of
its assets (short term micro loans with an average term just more than 3,7 months),
Finbond possesses a low risk liquidity structure.
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 Mutual Bank continued to comfortably exceed the minimum regulatory capital
requirement in February 2017, reflecting an excess of R110.1 million over and above
the R303.3 million (25% of Risk Weighted Assets) required by the Registrar of
Banks, and an excess of R290.5 million over and above the required qualifying
regulatory capital per Basel III.
Although Finbond as a mutual bank is not subject to the Basel III requirements,
Finbond already complies with, and significantly exceeds, all Basel III
requirements set for 2018 and 2019. As at 28 February 2017, Finbond’s:
- liquidity coverage ratio was 219% (119% more than required from 2019);
- net stable funding ratio was 488% (388% more than required from 2018); and
- capital adequacy ratio was 34.1% (24.1% more than required from 2018), and 9.1%
above the minimum prudential limit required by the Registrar of Banks.
North American Expansion in Finbond’s Core Competency
During 2016 Finbond successfully established a business presence in the North
American short-term lending market through acquisition of a number of short term
lenders that specialize in the advancement of short-term credit.
Finbond currently has 171 branches in North America operating in the following
states: Florida, Ohio, Missouri, Ontario, Michigan, Mississippi, Alabama, South
Carolina, Illinois, Indiana, Wisconsin, California, Louisiana and it is the
intention to increase our footprint by a further 80 branches in the year ahead.
Approximately 53% of revenue is currently denominated in US$ and the intention is
to grow US$ earnings to approximately 70% - 80% of the Group’s earnings in three to
five years.
The rationale for the North American expansion inter alia included:
- Earnings enhancing growth;
- Significant growth and consolidation opportunity in the North American short
term, lending industry;
- Anorganic growth in Finbond’s core “30-day” competency;
- Diversification of Country and Political Risk;
- Effective ZAR hedge;
- Teaming up with existing owners/managers with 10 - 30 years’ experience in
operating short term lending businesses in North America; and
- Opportunity to operate and earn revenue in the $46 billion a year USA pay day
lending market.
Finbond North American sales are well diversified across the various US states in
which Finbond operates.
Serious Investment in Distribution and People
During the past financial year Finbond increased its overall branch network by 206
to 550 branches.
In South Africa Finbond increased its branch network by 35 branches to 379 branches
of which 140 are located in Gauteng, North West, Limpopo and Mpumalanga, 62 in
Kwazulu Natal, 68 in the Western Cape, 51 in the Eastern Cape and 58 in the Free
State and Northern Cape. As part of our client-centric focus we ensured that our
distribution channels reflect the demographics of our clients.
In the United States of America and Canada Finbond increased its branch network
from 91 branches to 171 branches of which 35 are located in California, 42 are
located in Louisiana, 40 are located in Illinois, 5 are located in Indiana, 2 are
located in Florida, 1 is located in Ohio, 14 are located in Missouri, 6 are located
in Ontario, 1 is located in Michigan, 2 are located in Mississippi, 8 are located
in Alabama, 7 are located in Wisconsin and 8 are located in South Carolina.
We intend to open a further 40 branches in South Africa in the year ahead and to
expand our branch network in the United States of America with an additional 80
branches.
Extension of Shareholders Loans
On 20 October 2016, shareholders were advised that as part of the Company’s
earnings enhancing growth strategy in terms of which Finbond expanded its short-
term lending business into the North American market, Finbond entered into an
agreement to acquire 50% of Americash Holding LLC and Creditbox.com LLC with an
option to acquire the remaining 50% by 1 October 2017.
Finbond intended to raise the requisite capital to fund this acquisition from its
shareholders by means of a Rights Offer.
In order to fund the purchase consideration in respect of the acquisition, that was
due and payable in the course of October 2016, Finbond’s three major shareholders
(Riskowitz Value Fund LP, Net1 Finance Holdings (Pty) Ltd and Finbond Chief
Executive Officer, Dr Willie van Aardt through Kings Reign Investments (Pty) Ltd)
(“the Lenders”) extended unsecured shareholder loans to Finbond to the value of
US$37.5 million (R525 million).
On 28 February 2017 the Board of Directors agreed with the Lenders to extend the
Repayment Date of the shareholder loans and provide for certain additional rights
exercisable by each individual Lender in terms of the Amendment Agreement to the
Rights Offer Shareholders’ Loan Agreement (“the Amendment Agreement”).
Subject to the terms and conditions set out in the Amendment Agreement, the Lenders
made available to Finbond the shareholders’ loans on the following terms and
conditions:
- The Amended Commencement Date: 28 February 2017
- Loan Amount: $37,5 million (R525 million)
- Repayment Date: on/or before 31 August 2017 or such later date as may be
mutually agreed upon by the Parties in writing.
- Security: Unsecured.
- Interest Rate: LIBOR plus 12% (LIBOR meaning the three month US Dollar London
interbank offered rate administered by ICE Benchmark Administration Limited).
- The Conversion Rate: the rate of exchange against which the Shareholders’ Loans
shall be converted from US Dollars into South African Rand at such time as
which the Rights Option shall be exercised and which shall, notwithstanding the
prevailing rate of exchange at such time, be the greater of (a) R14.54 to $1
or, (b) the average mid-point rate for the 30 day period immediately preceding
close of business on the business day prior to the Repayment Date.
- Rights Option: the Lenders’ respective entitlement to: (a) elect to convert
their shareholders loans into shares in FGL at a price of R 2.68 by way of a
Rights Offer in the future; or (b) continue earning interest at the applicable
interest rate until such a time as the loans are repaid in full.
- In determining the number of shares which a Lender is entitled to, a Lender
should be in the same position the Lender would have been had it elected to
convert its new loan to Finbond shares on 28 February 2017 on the basis that
Finbond had 762,210,879 shares in issue on a fully diluted basis.
- Interest shall be paid in US dollars on a quarterly basis within five business
days of the last day forming part of the relevant interest measurement period.
- The terms and conditions of the original Shareholders’ Loan Agreement remain
unaltered save to the extent contemplated in the Amendment Agreement.
Black Economic Empowerment
South Africa’s policy of Black Economic Empowerment (BEE) is not simply a moral
initiative to redress the wrongs of the past. It is a pragmatic growth strategy
that aims to realise the country’s full economic potential while helping to bring
the black majority into the economic mainstream.
As a responsible corporate citizen Finbond is committed to contribute to the
improvement and development of the quality of life of the communities in which it
operates, and to support sustainable community development initiatives. We believe
that BBBEE is a fundamental driver of economic and social transformation in South
Africa and therefore an integral component of our business.
We are committed to align our business in the workplace and in society, with the
national transformation agenda. We are further dedicated to the creation and
development of an enabling environment, for effective BBBEE within our
organisation.
Finbond also apportions resources, within reasonable means, to the pursuit and
accomplishment of the aims and goals of BBBEE, in line with our vision, mission and
strategic objectives, and in doing so, ensuring that Finbond retains its character,
business focus, values and high performance standards.
Finbond has been rated as a level 4 contributor to BBBEE and it is our aim to
achieve level 3 status by 2018.
Responsible Lending Practices and Inclusive Banking and Financial Services
There is a need among Finbond’s current customer base and target market for a
mutual and savings bank that specifically caters for their needs with regards to
inter alia the following banking products and needs:
- Branch network in rural areas;
- Low monthly bank charges and no cash deposit or cash handling fees;
- Innovative and modern cash deposits, transfers and drawings;
- Unsecured loans with credit guarantee insurance;
- Basic financial education;
- Savings accounts that earn higher interest on small amounts, that actively
encourage saving; and
- No minimum operating balance.
Finbond is well positioned and able to provide much needed inclusive banking
services and products to the vulnerable, unbanked, under banked and previously
disadvantaged in step with the principles set out in Treasury’s National Policy
Document “a safer financial sector to serve South Africa better” with regards to
financial inclusion and promoting access to financial services.
Looking Ahead
The challenging and difficult macro-economic environment as well as the adverse
market conditions in the markets 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 overcome these challenges and remain optimistic about our prospects
for the future due to Finbond’s: Improvement achieved in earnings and profitability
despite difficult market conditions; Improvement achieved in cash generated from
operating activities; Management expertise; Strong Cash Flow; Strong Liquidity and
surplus cash position; Uniquely positioned 379 branch network in South Africa and
171 branches in North America; Superior Asset Quality; Access to funding;
Conservative Risk Management and growth potential in the Micro Finance and Banking
markets in the lower end of the market both in South Africa and North America.
We believe that the evolution from a short term Micro Finance Institution to a Bank
in South Africa and our continued expansion into the North American Short Term
Lending market in the implementation of our strategic action plan will ensure that
we achieve good results in the medium and long term.
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at
%
R’000 28 February 2017 29 February 2016 Change
Assets
Cash and cash equivalents 547,351 136,035 302%
Other financial assets 207,717 231,879 (10)%
Unsecured loans and other
advances to customers 800,599 343,749 133%
Secured loans and other advances
to customers 220,958 94,781 133%
Trade and other receivables 139,850 134,120 4%
Property, plant and equipment 113,800 62,090 83%
Investment property 278,185 269,540 3%
Goodwill 752,699 152,976 392%
Intangible assets 115,064 171 67,189%
Other assets 1,379 6,087 (77)%
Total Assets 3,177,602 1,431,428 122%
Equity
Equity attributable to equity
holders of parent
Share capital and premium 715,667 203,365 252%
Reserves (72,350) 6,476 (1,217)%
Retained income 292,351 178,972 63%
Equity attributable to owners of
the company 935,668 388,813 141%
Non-controlling interest 201,740 (824) 24,583%
Total Equity 1,137,408 387,989 193%
Liabilities
Bank overdraft 27,725 29,628 (6)%
Trade and other payables 81,428 33,003 147%
Purchase consideration payable 213,375 - 100%
Fixed and notice deposits 1,098,609 907,705 21%
Current tax payable 40,456 4,771 748%
Loans from shareholders 508,440 18,000 2,725%
Deferred tax 60,056 45,499 32%
Other liabilities 10,105 4,833 109%
Total Liabilities 2,040,194 1,043,439 96%
Total Equity and Liabilities 3,177,602 1,431,428 122%
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the period ended
%
28 February 2017 29 February 2016 Change
R’000
Interest income 568,060 161,435 252%
Interest expense (144,929) (87,525) 66%
Net interest income 423,131 73,910 472%
Fee income 740,416 208,025 256%
Management fee income 58,229 48,987 19%
Other lending income 186,939 139,732 34%
Foreign exchange gain 27,931 - 100%
Net impairment charge on loans
and advances (296,213) (71,314) 315%
Operating expenses (860,993) (304,425) 183%
Profit before taxation 279,440 94,915 194%
Taxation charge (98,994) (37,661) 163%
Profit for the period 180,446 57,254 215%
Other comprehensive income
- Foreign currency translation
difference for foreign
operations (107,847) - (100)%
Total comprehensive income for
the period 72,599 57,254 27%
Profit attributable to:
Owners of the company 138,727 57,254 142%
Non-controlling interest 41,719 - 100%
Profit for the period 180,446 57,254 215%
Total comprehensive income
attributable to:
Owners of the company 55,496 57,254 (3)%
Non-controlling interest 17,103 - 100%
72,599 57,254 27%
Earnings per share:
Basic and diluted earnings per
share (cents) 18.6 9.7 92%
Headline earnings per share
(cents) 18.6 10.5 77%
Total number of ordinary shares
outstanding 746,712 590,981 26%
Weighted average number of
ordinary shares outstanding
746,539 593,084 26%
Net profit attributable to
ordinary equity holders of the
parent
138,727 57,254 142%
Adjusted for:
Profit on disposal of property,
plant and equipment 601 615 (2)%
Fair value changes of investment
properties (245) (2,883) (92)%
Tax effect on change in capital
inclusion rate
- 7,398 (100)%
Headline earnings 139,083 62,384 123%
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the period ended
%
R’000 28 February 2017 29 February 2016 Change
Cash flow from operating
activities
Cash generated from/
(utilised in) operations 262,995 (109,167) 341%
Tax paid (44,788) (17,838) 151%
Net cash from operating
activities 218,207 (127,005) 272%
Cash flow from investing
activities
Purchase of property,
plant and equipment (29,103) (28,682) 1%
Sale of property, plant -
and equipment 720 100%
Purchase of investment
property (8,330) (17,005) (51)%
Purchase of other
intangible assets (19,064) (32,943) (42)%
Purchase of financial
assets - (186,211) (100)%
Sale of financial assets 26,814 316,582 (92)%
Cash flow from business
combination (714,576) - 100%
Net cash flow from
investing activities (743,539) 51,741 (1,537)%
Cash flow from financing
activities
Buy back of shares (3,964) 1,842 (315)%
Issue of share capital 516,266 - 100%
Proceeds from
shareholders’ loans 490,440 3,000 16,248%
Finance lease payments 1,873 (612) 406%
Dividends paid (66,064) (20,059) 229%
Net cash flow from
financing activities 938,551 (15,829) 6,029%
Total cash movement for
the year 413,219 (91,093) 554%
Cash at the beginning of
the year 106,407 197,500 (46)%
Total cash at the end of
the year 519,626 106,407 388%
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended
R’000 28 February 2017 29 February 2016
Total equity at the beginning of the period 387,989 345,904
Total comprehensive income for the year 72,599 57,254
Issue of shares 516,266 -
Treasury shares (purchased)/re-issued (3,964) 1,842
Equity settled share based payment change 4,405 3,048
Business combinations 185,461 -
Dividends (25,348) (20,059)
Total equity at the end of the period 1,137,408 387,989
SUMMARISED CONSOLIDATED SEGMENTAL INFORMATION
OPERATING SEGMENTS
Investment Lending Property Transactional Other Total
R’000 Products Investment Banking
28 February 2017
Interest
income 16,654 544,544 - 3,430 3,432 568,060
Interest
expense (70,063) (58,577) - (658) (15,631) (144,929)
Net Interest
Income /
(expense) (53,409) 485,967 - 2,772 (12,199) 423,131
Fee income - 738,229 - 2,187 - 740,416
Management fee
income - - - - 58,229 58,229
Other
operating
income - 186,939 - - - 186,939
Foreign
exchange gain - - - - 27,931 27,931
Net impairment
charge on
loans and
advances - (294,943) - (1,270) - (296,213)
Operating
expense 1,647 (832,069) (1,880) (3,946) (24,745) (860,993)
Profit/(Loss)
before
taxation (51,762) 284,123 (1,880) (257) 49,216 279,440
Taxation
charge 15,327 (100,381) 557 76 (14,573) (98,994)
Profit/(loss)
after taxation (36,435) 183,742 (1,323) (181) 34,643 180,446
Significant
segment assets
Cash and cash
equivalents 120,760 359,713 - 5,443 61,435 547,351
Other
Financial
Assets 207,359 358 - - - 207,717
Unsecured
loans and
other advances
to customers - 800,599 - - - 800,599
Secured loans
and other
advances to
customers - 220,958 - - - 220,958
Trade and
other
receivables - 107,481 - - 32,923 139,850
Property,
Plant and
Equipment 4 103,584 - 471 9,741 113,800
Investment
Property - - 278,185 - - 278,185
Goodwill
- 752,699 - - - 752,699
Intangible
assets - 115,064 - - - 115,064
Significant
segment
liabilities
Purchase
consideration
payables - 213,375 - - - 213,375
Fixed and
notice
deposits 1,098,609 - - - - 1,098,609
Loans from
shareholders - - - - 508,440 508,440
Investment Lending Property Transactional Other Total
R’000 Products Investment Banking
29 February 2016
Interest
income 20,127 138,201 - 517 2,590 161,435
Interest
expense (49,360) (10,597) - (590) (26,978) (87,525)
Net Interest
Income / (29,233) 127,604 - (73) (24,388) 73,910
(expense)
Fee income - 199,030 - 8,995 - 208,025
Management fee
income - - - - 48,987 48,987
Other
operating
income - 139,732 - - - 139,732
Net impairment
charge on
loans and advances - (72,080) - - 766 (71,314)
Operating
expense (3,035) (264,515) 1,795 (8,946) (24,724) (304,425)
Profit/(Loss)
before (32,268) 124,771 1,795 (24) 641 94,915
taxation
Taxation
charge 10,288 (39,782) (7,971) 8 (204) (37,661)
Profit/(loss)
for the period (21,980) 84,989 (6,176) (16) 437 57,254
Significant
segment assets
Cash and cash
equivalents 61,132 47,259 - 2,782 (4,766) 106,407
Other
financial 231,522 358 - - - 231,880
assets
Unsecured
loans and
advances - 343,749 - - - 343,749
Secured loans
and advances - 94,781 - - - 94,781
Trade and
other
receivables - 88,441 - - 45,679 134,120
Property,
Plant and 4 49,210 - 1,034 11,842 62,090
Equipment
Investment
- - 269,540 - - 269,540
property
Goodwill - 152,976 - - - 152,976
Intangible
assets - 171 - - - 171
Significant
segment
liabilities
Deposits
received from 907,705 - - - - 907,705
customers
Loans from
shareholders - - - - 18,000 18,000
GEOGRAPHICAL SEGMENTS
28 February 2017
South North
R'000 Africa America Total
Interest Income 202,412 365,648 568,060
Interest expense (107,385) (37,544) (144,929)
Net interest income 95,027 328,104 423,131
Fee income 299,782 440,634 740,416
Management fee income 73,167 (14,938) 58,229
Other operating income 173,783 13,156 186,939
Foreign exchange gain 27,931 - 27,931
Net Impairment charge on loans and advances (120,306) (175,907) (296,213)
Operating expenses (403,253) (457,740) (860,993)
Profit before taxation 146,131 133,309 279,440
Taxation charge (43,270) (55,724) (98,994)
Profit for the period 102,861 77,585 180,446
Significant segment assets
Cash and cash equivalents 232,058 315,293 547,351
Other financial assets 207,717 - 207,717
Unsecured loans and other advances to customers 395,763 404,836 800,599
Secured loans and other advances to customers 203,562 17,396 220,958
Trade and other receivables 124,531 15,319 139,850
Property, plant and equipment 58,929 54,871 113,800
Investment property 278,185 - 278,185
Goodwill 192,389 560,310 752,699
Intangible assets 171 114,893 115,064
Significant segment liabilities
Purchase consideration payable - 213,375 213,375
Fixed and notice deposits 1,098,609 - 1,098,609
Loans from shareholders 508,440 - 508,440
The Group only had South African operations for the year ended 29 February 2016.
Notes to the summarised consolidated financial statements
Finbond Group Limited is a company domiciled in South Africa. The summarised
consolidated financial statements of the Company as at and for the 12 months ended
28 February 2017 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 summarised consolidated 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 summarised consolidated financial
statements have been prepared in accordance with the framework concepts and the
measurement and recognition requirements of 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.
It does not include all of the information required for full annual financial
statements and should be read in conjunction with the audited consolidated annual
financial statements of the Group as at and for the year ended 28 February 2017.
The accounting policies applied by the Group in these summarised consolidated
financial statements are consistent with those accounting policies applied in the
preparation of the previous consolidated annual financial statements.
The summarised consolidated financial statements were prepared under the
supervision of Mr C Eksteen CA(SA), in his capacity as chief financial officer.
These summarised consolidated financial statements are extracted from the Group’s
audited financial statements and are not itself audited. The directors take full
responsibility for the preparation of these summarised consolidated financial
statements and the financial information has been correctly extracted from the
Group’s audited financial statements.
Estimates
The preparation of annual 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 summarised consolidated 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 entirety, 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
Rand Thousand Level 1 Level 2 Level 3 Total
Assets and liabilities
measured at fair value:
Recurring
Other financial assets - 207,359 358 207,717
Investment property - - 278,185 278,185
- 207,359 278,543 485,902
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 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
Rand Thousand
Gains/losses
recognized Subsequent
Opening in profit or capitalised Closing
Balance loss Purchases expenditure balance
Investment Property
Investment properties 269,540 315 - 8,330 278,185
No transfers of assets and liabilities within levels of fair value hierarchy
occurred during the current financial year.
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:
28 February 2017 29 February 2016
South Africa
Recognised amounts of identifiable assets
acquired and liabilities assumed
Loans and other advances to customers 12,744 9,840
Total liabilities - -
Total identifiable net assets at fair value 12,744 9,840
Goodwill arising on acquisition 39,413 32,943
Purchase consideration transferred 52,157 42,783
Consideration paid in cash 52,157 42,783
North America
Recognised amounts of identifiable assets
acquired and liabilities assumed
Cash and cash equivalents 82,430 -
Loans and other advances to customers 469,541 -
Property, plant and equipment 59,648 -
Intangible 126,601 -
Other assets 22,755 -
Total liabilities (140,770) -
Total identifiable net assets at fair value 620,205 -
Non-controlling interest measured at fair (259,211) -
value
Goodwill arising on acquisition 621,961 -
Purchase consideration transferred 982,955 -
Purchase consideration
Consideration paid in cash 744,849 -
Contingent consideration liability 238,106 -
Total consideration 982,955 -
Events after the reporting period
There have been no subsequent events that require reporting.
Independent auditor's opinion
The Group’s consolidated annual financial statements have been audited by the
Company’s auditors, KPMG Inc., who have expressed an unmodified opinion which is
available for inspection at the Company’s registered office.
Dividend
The board has approved the declaration of a dividend from retained earnings of 7.28
cents per share (“Cash Dividend”). Shareholders will, however, be entitled to elect
to receive a capitalisation share issue alternative (“the Capitalisation Issue
Alternative”). If no election is made, the Cash Dividend will be paid.
The circular related to the Cash Dividend and Capitalisation Issue Alternative will
be distributed to shareholders in due course.
The Cash Dividend will be payable in the currency of South Africa. The Cash
Dividend is subject to a local dividend tax rate of 20%, resulting in a net Cash
Dividend of 5.824 cents per share, unless the relevant shareholder is exempt from
dividend tax or is entitled to a reduced rate in terms of the applicable double tax
agreement. The company's income tax reference number is 9194313145. At the date of
this announcement the company has 762 210 879 ordinary shares in issue.
If approved, the Capitalisation Issue Alternative will not be subject to dividend
tax. However, there are possible tax implications of electing to receive shares
under the Capitalisation Issue Alternative and shareholders are advised to obtain
their own professional advice in this regard.
References to future financial performance included anywhere in this announcement
have not been reviewed or reported on by the Group’s external auditors.
For and on behalf of the Board
Dr Malesela Motlatla Dr Willie van Aardt
29 May 2017
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Directors
Chairman: Dr MDC Motlatla* (BA, DCom (Unisa)); Chief Executive Officer: Dr W van
Aardt (BProc (Cum Laude), LLM (UP), LLD (PUCHE) 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* (BComHons (Unisa); Chief Financial Officer:
CH Eksteen (CA (SA) BCom (Hons Acc) (UP)); Adv J Noeth* (B Iuris LLB); Adv. N
Melville* (B Law, LLB (Natal) LLM (Cum Laude)(Natal) SEP (Harvard); RN Xaba*
(CA)(SA) BCompt, BCompt (Hons) (Unisa); D Brits* (B Com, MBA) (NW); HG Kotze*
(BCom (Acc)(Hons), HDip Tax, Certificate in Treasury Management); Chief Operating
Officer: C van Heerden (MBA).
Secretary: Ben Bredenkamp (B Com Accounting, LLB (UP))
*Non-executive
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: 29/05/2017 12:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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