Wrap Text
Audited consolidated results for the year ended 28 February 2018
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 2018
Executive Overview
The directors are pleased to present the financial results of the Finbond Group for
the 12 months ended 28 February 2018.
During the 12 months under review, Finbond delivered another set of excellent results,
increasing headline earnings per share by 81.2%, Operating profit from continuing
operations by 57.3% and EBITDA by 52.2%.
Our continued 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 customer service helped us achieve these exceptional results.
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 81.2% to 33.7 cents (Feb 2017: 18.6
cents).
- Operating profit from continuing operations increased by 57.3% to R439.5 million
(Feb 2017: R279.4 million).
- Loan and other fee income increased by 46.3% to R841.3 million (Feb 2017: R575.1
million).
- Earnings before interest, taxation, depreciation and amortization (EBITDA)
increased by 52.2% to R704.5 million (Feb 2017: R462.9 million).
- Revenue from continuing operations increased by 53.5% to R2.38 billion (Feb 2017:
R1.55 billion).
- Number of loans advanced grew by 26.6% to 1 880 108 (Feb 2017: 1 484 973)
- Value of loans advanced increased by 31.7% to R5.4 billion (Feb 2017: R4.1
billion).
- Cash received from customers increased by 33.3% to R7.2 billion (Feb 2017: R5.4
billion).
- We expanded our overall branch network by 22.2% to 672 branches of which 415
branches are in South Africa (Feb 2017: 379) and 257 are in the United States of
America (Feb 2017: 171).
- We increased our presence in the North American short term lending market with
the acquisition of a further 86 short term lending stores in the United States
of America.
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.
Headline Earnings up 81.2%
Headline earnings increased by 81.2% from R139.1 million to R252.6 million, and
generated a return of 24.1% on our shareholders’ equity for the 2018 financial year.
Earnings before interest, taxation, depreciation and amortization (EBITDA) increased
by 52.2% to R704.5 million (Feb 2017: R462.9 million).
The success of our expansion strategy is evident from the increased earnings generated
from each regional income stream.
Revenue, Profit and Profitability
Operating profit from continuing operations increased by 57.3% to R439.5 million (Feb
2017: R279.4 million)
Finbond increased turnover to R2.4 billion, an increase of 53.4% over 2017. Finbond’s
profit margin slightly increased from 18.0% of turnover in 2017 to 18.4% in 2018.
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 59.6%
(Feb 2017: 61.1%).
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 52.2% to R2.2 billion (Feb 2017: R1.5 billion).
Well-Executed Sustainable Strategy
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 and products with 59% 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 despite a challenging business environment.
South Africa:
Continued Strong Focus on Short Term Loans
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 R1,479 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 2018, Finbond granted R1.6 billion
worth of loans and received cash payments of R2.5 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
repay these loans as opposed to longer term loans.
Consistent 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 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.
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 74.59% and 90.75% for
our 12-24 month product at the end of February 2018.
Low Risk Liquidity Structure and 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 2018 reflects R548.2 million in cash, cash equivalents and liquid
investments (Feb 2017: R727.3 million).
Cash Received from customers as a percentage of Cash Granted to customers for the
twelve months ended 28 February 2018 averaged 133%.
By the end of February 2018 the deposit portfolio amounted to R1.03 billion (Feb 2017:
R1.10 billion). The average deposit size was R370 310, the average term 52 months and
the average interest rate was 9.93%.
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 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.
Basel III Requirements
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 2018, reflecting an excess of R91.1 million over and above
the R290.2 million (25% of Risk Weighted Assets) required by the Registrar of Banks,
and an excess of R265.5 million over and above the required qualifying regulatory
capital per Basel III.
Although Finbond Mutual Bank 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 2018, Finbond’s:
- liquidity coverage ratio was 176% (76% more than required from 2019);
- net stable funding ratio was 495% (395% more than required from 2019); and
- capital adequacy ratio was 34.8% (9.8% more than required from 2019), and 7.85%
above the minimum prudential limit required by the Registrar of Banks.
United States of America and Canada
Continued Expansion and Focus on Short Term Instalment Loans
During 2018 Finbond continued expanding its business presence in the United States of
America’s short-term lending market.
Finbond currently has 257 branches in North America operating in the following states:
Florida, Ohio, Missouri, Michigan, Mississippi, Alabama, South Carolina, Illinois,
Indiana, Wisconsin, California, Oklahoma, Tennessee, Nevada, New Mexico, Utah,
Louisiana. In addition to the US States Finbond also has a presence in Ontario,
Canada.
Finbond also has and an online offering that offers instalment loans in the states of
Illinois, Wisconsin, Missouri, New Mexico, Utah and Nevada via the Creditbox.com
website.
It is the intention to increase our footprint by a further 60 branches in the year
ahead.
Approximately 59% 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 continued North American expansion inter alia includes:
- Earnings enhancing growth;
- Significant growth 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 Alternative
Financial Services Market.
Finbond’s North American sales are well diversified across the various US states in
which Finbond operates.
Serious Investment in Distribution and People
Our operating costs increased by 50.0% from R864.0 million to R1,296.4 million in the
current year.
During the past financial year Finbond increased its overall branch network by 122 to
672 branches (March 2017: 550).
In South Africa Finbond increased its branch network by 36 branches to 415 branches
and installed 89 ATM’s.
In North America Finbond expanded its branch network from 171 to 257. As part of our
client-centric focus we ensured that our distribution channels reflect the
demographics of our clients.
We intend to open a further 30 branches in South Africa in the year ahead and to
expand our branch network in the United States of America with an additional 60
branches.
Providing Inclusive Financial Services
Achieving sustainable and inclusive development in the Financial Services Sector goes
hand-in-hand with improving access to financial services, particularly for the poor
and vulnerable. Unsecured lending has become a permanent feature of the credit
landscape in the different markets that Finbond operate in, providing credit solutions
and access to funding to the previously disadvantaged, under-banked and unbanked.
A significant portion of the adult population are still actively seeking banking and
credit solutions but remain largely unattended and underserviced. These unbanked and
underserviced do not fall outside the banking sector by choice. An important reason
for their predicament is that banks do not offer products tailored to their specific
needs.
Responsible unsecured lending fulfills the important role in both North America and
South Africa of including the previously excluded and giving them access to credit
and will continue to grow rather than diminish in importance.
Finbond is well positioned and able to provide much needed inclusive financial
services and products to the unbanked, underbanked and previously disadvantaged in
step with the principles of financial inclusion and promoting access to financial
services.
Credit ratings Upgrade
In October 2017, Global Credit Ratings upgraded the long term national scale rating
of Finbond Group Limited to BBB(ZA) and affirmed the short term national scale rating
of A3(ZA); with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit ratings to Finbond based on the
following key criteria:
- The upgrade of Finbond Group Limited’s long term rating stems from notably
improved earnings diversification, following business acquisitions undertaken
during FY17.
- Further rating support is derived from the Group’s very strong capitalisation,
low risk liquidity structure, as well as strong competitive position in a niche
market of short term unsecured lending.
- Finbond reflects notably improved earnings diversification, following the
successful execution of the initial phase of its Five Year Strategic Plan,
targeting local and offshore businesses with product ranges and customer bases
in sync with the Group’s existing core competencies.
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 International (Ltd) (“the Lenders”)
extended unsecured shareholder loans to Finbond to the value of US$37.5 million (R525
million).
During April 2018, two of the lenders elected to convert their loans into equity by
way of the Rights Offer that was offered to all shareholders and concluded on 23 April
2018. Both Riskowitz Value Fund LP and Net 1 Finance Holdings (Pty) Ltd elected to
convert their loans and the only loan that remains in place is that of Kings Reign
International Ltd at $10 million.
Subject to the terms and conditions set out in the Amendment Agreement, the Lender
made available to Finbond the shareholder loan on the following terms and conditions:
- The Amended Commencement Date: 28 February 2018
- Loan Amount: $10 million.
- Repayment Date: on/or before 31 August 2021 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) R13.01 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 2.39 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.
Appointment and Retirement of Directors
In accordance with the requirements of paragraph 3.59 of the JSE Limited Listings
Requirements, shareholders are advised of the appointment to the Boards of Finbond
Group Limited and Finbond Mutual Bank, effective 1 June 2018, of Mr Pieter Albert
Naude as an Independent Non-Executive Director.
Mr Naude spent many years in various executive positions in the banking sector and
has extensive executive and managerial experience in Discounting, Relationships, Asset
Based Finance and Corporate Banking during his long and industrious career at Absa
Corporate and Merchant Bank. Some of Mr Naude’s positions included Business Centre
Manager (E-level), Regional General Manager (E-level) and Manager: Corporate Banking
Services (E-level). The Board looks forward to the valuable experience and
contributions he will bring to Finbond.
In accordance with the requirements of paragraph 3.59 of the JSE Limited Listings
Requirements, shareholders are advised of the retirement and resignation of Adv Jasper
Jurgens Noeth as Independent Non-Executive Director from the Boards of Finbond Group
Limited and Finbond Mutual Bank due to ill health.
Finbond would like to thank Adv Noeth for his extremely valuable contributions to the
Board over that past 12 years and wish him a speedy recovery.
Thank You
Leonardo da Vinci said that “It had long since come to my attention that people of
accomplishment rarely sat back and let things happen to them. They went out and
happened to things.”
Quality staff with passion, commitment and dedication that ‘make things happen’ is
the driving force in creating a successful business. We would like to thank each one
of them for their continued valued contributions.
Looking Ahead
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 to long term. Sustained focus on our core competencies
will keep us on course to become the best short term instalment lender in the world.
There are still a number of challenges facing Finbond in the various markets that it
operates in. 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: Improvements 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 415 branch network in South
Africa and 257 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 plan for a continued rise in revenue both in South Africa and in North America.
Our business is in a development and growth phase and, as with all growing businesses,
real risks remain.
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at
28 February 28 February
2018 2017 * Change
R'000
Assets
Cash and cash equivalents 422,339 547,351 (23%)
Other financial assets 216,856 207,717 4%
Unsecured loans and other advances to
customers 937,391 800,599 17%
Trade and other receivables 158,177 139,850 13%
Other assets 12,632 760 1562%
Secured loans and other advances to
customers 210,977 220,958 (5%)
Property, plant and equipment 131,816 113,800 16%
Investment property 266,771 278,185 (4%)
Deferred taxation 14,215 20,115 (29%)
Goodwill 830,077 752,699 10%
Intangible assets 108,035 115,064 (6%)
Total assets 3,309,286 3,197,098 4%
Equity
Capital and reserves
Share capital 724,525 715,667 1%
Reserves (194,581) (72,350) (169%)
Retained income 477,442 292,351 63%
Share capital and reserves
attributable to ordinary shareholders 1,007,386 935,668 8%
Non-controlling interest 163,346 226,249 (28%)
Total equity 1,170,732 1,161,917 1%
Liabilities
Bank overdraft 91,033 27,725 228%
Trade and other payables 124,029 81,428 52%
Other liabilities 11,757 10,105 16%
Current tax payable 42,073 40,456 4%
Derivative financial instrument 47,430 - 100%
Loans from shareholders 470,586 508,440 (7%)
Purchase consideration payable - 213,375 (100%)
Fixed and notice deposits 1,027,114 1,098,609 (7%)
Deferred taxation 45,704 55,043 (17%)
Commercial paper 278,828 - 100%
Total liabilities 2,138,554 2,035,181 5%
Total equity and liabilities 3,309,286 3,197,098 4%
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the period ended
28 February 28 February
2018 2017 * Change
R'000
Interest income 1,541,716 978,551 58%
Interest expense (208,231) (144,929) (44%)
Net interest income/(expense) 1,333,485 833,622 60%
Fee income 458,540 329,925 39%
Management fee income 66,971 58,229 15%
Other operating income 315,783 186,939 69%
Fair value adjustments (6,872) 2,967 (332%)
Foreign exchange gain/(loss) 52,318 27,931 87%
Net impairment charge on loans and
advances (484,238) (296,213) (63%)
Operating expenses (1,296,444) (863,960) (50%)
Profit before taxation 439,543 279,440 57%
Taxation (104,582) (72,156) (45%)
Profit after taxation 334,961 207,284 62%
Other comprehensive income to be
reclassified to profit or loss
Foreign currency translation difference
for foreign operations (140,825) (110,176) (28%)
Total comprehensive income for the year 194,136 97,108 100%
Profit attributable to:
Owners of the company 234,201 138,727 69%
Non-controlling interest 100,760 68,557 47%
Profit for the period 334,961 207,284 62%
Total comprehensive income attributable
to:
Owners of the company 118,824 55,496 114%
Non-controlling interest 75,312 41,612 81%
Total comprehensive income 194,136 97,108 100%
Earnings per share
Earnings per share (cents)
Basic 31.3 18.6 68%
Diluted 29.8 18.6 60%
Headline earnings per share (cents)
Basic 33.7 18.6 81%
Diluted 31.7 18.6 70%
Total number of ordinary shares
outstanding 748,547 746,712 0%
Weighted average number of ordinary
shares outstanding 748,570 746,539 0%
Effect on conversion of shareholders
loans into equity 204,131 - 100%
Weighted average number of ordinary
shares (diluted) at 28 February 2018 952,701 746,539 28%
Profit attributable to owners of the
Company 234,201 138,727 69%
Adjusted for:
Interest on shareholders loans 49,284 - 100%
Fair value adjustment on foreign exchange
derivative 34,150 - 100%
Foreign exchange gain on loans from
shareholders (34,044) - (100%)
Diluted earnings 283,591 138,727 104%
Net profit attributable to ordinary
equity holders of the parent 234,201 138,727 69%
Adjusted for:
Loss on disposal of property, plant and
equipment 1,755 632 178%
Fair value changes of investment
properties 16,639 (245) 6891%
Headline earnings 252,595 139,114 82%
Adjusted for:
Interest on shareholders loans 49,284 - 100%
Fair value adjustment on foreign exchange
derivative 34,150 - 100%
Foreign exchange gain on loans from
shareholders (34,044) - (100%)
Diluted headline earnings 301,985 139,114 117%
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the period ended
28 February 28 February
2018 2017 * Change
R'000
Cash flows from operating activities
Cash generated fromfrom operations 71,004 262,995 (73%)
Taxation paid (105,872) (44,788) (136%)
Net cash from operating activities (34,868) 218,207 (116%)
Cash flows from investing activities
Purchase of property, plant and
equipment (57,050) (29,103) (96%)
Sale of property, plant and equipment - 720 (100%)
Purchase of investment property (10,029) (8,330) (20%)
Sale/(Purchase) of other intangible
assets - (19,064) 100%
Purchase of financial assets (20,238) - (100%)
Sale of financial assets 52,863 26,814 97%
Acquisition of subsidiaries net of cash
acquired (213,498) (714,576) 70%
Net cash from investing activities (247,952) (743,539) 67%
Cash flows from financing activities
Buy back of shares (43,478) (3,964) (997%)
Issue of share capital - 516,266 (100%)
(Repayment)/proceeds from shareholders
loan (5,565) 490,440 (101%)
Proceeds from commercial paper 278,828 - 100%
Finance lease payments (2,525) 1,873 (235%)
Dividends paid (101,945) (66,064) (54%)
Net cash from financing activities 125,315 938,551 (87%)
Total cash movement for the year (157,505) 413,219 (138%)
Cash at the beginning of the year 519,626 106,407 388%
Effect of movements in exchange rates
on cash held (30,815) - (100%)
Total cash at end of the year 331,306 519,626 (36%)
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended
28 February 2018 28 February 2017 *
R'000
Total equity at the beginning of the period 1,161,917 387,989
Total comprehensive income for the year 194,136 97,108
Rights issue net of costs - 516,266
Change in control (8,992) -
Issue of shares 54,049 -
Equity settled share based payment released (10,881) -
Equity settled share based payment charge 4,027 4,405
Treasury shares purchased (45,191) (3,964)
Business combinations (24,052) 226,177
Dividends (154,281) (66,064)
Total equity at the end of the period 1,170,732 1,161,917
SUMMARISED CONSOLIDATED SEGMENTAL INFORMATION
OPERATING SEGMENTS
R'000
Property Transact
28 February Investment Investme ional
2018 Products Lending nt Banking Other Total
Interest
income 19,560 1,516,473 - 1,517 4,166 1,541,716
Interest
expense (107,205) (76,013) - (167) (24,846) (208,231)
Net interest
income (87,645) 1,440,460 - 1,350 (20,680) 1,333,485
Fee income - 455,171 - 3,369 - 458,540
Management
fee income - - - - 66,971 66,971
Other
operating
income 52 264,928 - 603 50,200 315,783
Fair Value
adjustments - 62,086 (21,443) - (47,515) (6,872)
Foreign
exchange gain 52,318 52,318
Net
impairment
charge on
loans and
advances - (474,727) - 27 (9,538) (484,238)
Operating
expenses (2,271) (1,230,178) (1,999) (2,306) (59,690) (1,296,444)
Operating
(loss)/profit
before
taxation (89,864) 517,740 (23,442) 3,043 32,066 439,543
Taxation 32,668 (133,010) 8,522 (1,106) (11,656) (104,582)
Profit/(loss)
for the
period (57,196) 384,730 (14,920) 1,937 20,410 334,961
Significant
segment
assets
Cash and cash
equivalents 153,096 231,733 - 6,937 30,573 422,339
Other
financial
assets 216,709 147 - - - 216,856
Unsecured
Loans and
other
advances to
customers - 937,391 - - - 937,391
Secured Loans
and other
advances to
customers - 210,977 - - - 210,977
Trade and
other
receivables - 97,922 - - 60,255 158,177
Property,
plant and
equipment - 111,264 - 2,441 18,111 131,816
Investment
property - 266,771 - - 266,771
Goodwill - 830,077 - - - 830,077
Intangible
assets - 108,035 - - - 108,035
Significant
segment
liabilities
Fixed and
notice
deposits 1,027,114 - - - 1,027,114
Commercial
Paper 278,828 - - - 278,828
Loans from
shareholders - - - - 470,586 470,586
Property Transact
28 February Investment Investme ional
2017 * Products Lending nt Banking Other Total
Interest
income 16,654 955,035 - 3,430 3,432 978,551
Interest
expense (70,063) (58,577) - (658) (15,631) (144,929)
Net interest
income (53,409) 896,458 - 2,772 (12,199) 833,622
Fee income - 327,738 - 2,187 - 329,925
Management
fee income - - - - 58,229 58,229
Other
operating
income - 186,939 - - - 186,939
Fair value
adjustment - - 315 - 2,652 2,967
Foreign
exchange gain - - - - 27,931 27,931
Net
impairment
charge on
loans and
advances - (294,943) - (1,270) - (296,213)
Operating
expenses 1,647 (832,069) (2,195) (3,946) (27,397) (863,960)
Operating
(loss)/profit
before
taxation (51,762) 284,123 (1,880) (257) 49,216 279,440
Taxation 15,327 (73,543) 557 76 (14,573) (72,156)
Profit/(loss)
for the
period (36,435) 210,580 (1,323) (181) 34,643 207,284
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 - 220,958 - - - 220,958
advances to
customers
Trade and
other
receivables - 107,481 - - 32,369 139,850
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
payable - 213,375 - - - 213,375
Fixed and
notice
deposits 1,098,609 - - - - 1,098,609
Loans from
shareholders - - - 508,440 508,440
GEOGRAPHICAL SEGMENTS
28 February 2018
R'000 South Africa North America Total
Interest Income 237,757 1,303,959 1,541,716
Interest expense (146,129) (62,102) (208,231)
Net interest income 91,628 1,241,857 1,333,485
Fee income 413,878 44,662 458,540
Management fee income 66,909 62 66,971
Other operating income 303,023 12,760 315,783
Fair value adjustment (68,958) 62,086 (6,872)
Foreign exchange gain/(loss) 52,355 (37) 52,318
Net Impairment charge on loans (159,184) (325,054) (484,238)
and advances
Operating expenses (506,570) (789,874) (1,296,444)
Profit before taxation 193,083 246,463 439,543
Taxation charge (70,188) (34,394) (104,582)
Profit for the period 122,893 212,069 334,961
Significant segment assets
Cash and cash equivalents 248,575 173,764 422,339
Other financial assets 216,709 147 216,856
Unsecured loans and other 471,858 465,533 937,391
advances to customers
Secured loans and other 185,389 25,588 210,977
advances to customers
Trade and other receivables 137,440 20,737 158,177
Property, plant and equipment 68,629 63,187 131,816
Investment property 266,771 - 266,771
Goodwill 196,787 633,290 830,077
Intangible assets 171 107,864 108,035
Significant segment liabilities
Fixed and notice deposits 1,027,114 - 1,027,114
Commercial Paper 278,828 - 278,828
Loans from shareholders 470,586 - 470,586
28 February 2017
R'000 South Africa North America Total
Interest Income 202,412 776,139 978,551
Interest expense (107,385) (37,544) (144,929)
Net interest income 95,027 738,595 833,622
Fee income 299,782 30,143 329,925
Management fee income 58,229 - 58,229
Other operating income 173,783 13,156 186,939
Fair value adjustment 1,833 1,134 2,967
Foreign exchange gain 27,931 - 27,931
Net Impairment charge on
loans and advances (120,306) (175,907) (296,213)
Operating expenses (405,086) (458,874) (863,960)
Profit before taxation 131,193 148,247 279,440
Taxation charge (43,271) (28,885) (72,156)
Profit for the period 87,922 119,362 207,284
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 58,928 54,872 113,800
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
* - For the 2017 financial year the results have been restated due a reclassification
between Deferred Tax Liability and Non-controlling interest as well as between
Interest Income and Fee Income. See additional information later.
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 twelve months ended
28 February 2018 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 2018.
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 themselves 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 28 February
2017.
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
Level 1 Level 2 Level 3 Total
Rand Thousand
Assets and liabilities
measured at fair value:
Recurring
Other financial assets - 216,498 358 216,856
Investment property - - 266,771 266,771
Foreign exchange
derivative on loans from
shareholders - - 47,430 47,430
- 216,498 314,559 531,057
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.
Rand Thousand
Gains/losses
recognized Subsequent
Opening in profit or capitalised Closing
Balance loss expenditure balance
Assets
Investment properties 278,185 (21,443) 10,029 266,771
Liabilities
Contingent consideration (31,458) 62,573 (31,115) -
Derivative financial
instrument - (47,430) - (47,430)
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.
Correction of prior period error
During the year the Group discovered that taxation had been erroneously accounted for
on the pass-through entities where less than 100% interest is held. These pass-through
entities are taxed as partnerships and the taxation due on income attributable to
minorities are not to be included in the consolidated Group assets and liabilities.
As a consequence, deferred taxation was overstated and non-controlling interest
understated in the prior year. The error has been corrected by restating each of the
affected financial statement line items for the prior year. The Group also restated
its statement of comprehensive income classification of certain fee income on loans
advanced, to interest income due to it falling within the effective interest rate
definition. Comparatives amounts in the statement of comprehensive income were
restated for consistency. Since the amounts are classifications within the operating
activities in the statement of comprehensive income, the restatement did not have any
effect on the Group's statement of financial position nor the statement of cash flows.
The following tables summarise the impact on the Group's consolidated financial
statements for the year ended 28 February 2017:
Impact of correction of error
As
As
previously Adjustments
restated
R'000 reported
Consolidated statement of financial position
Deferred taxation - 20,115 20,115
Other assets 1,379 (619) 760
Other asset items 3,176,223 - 3,176,223
Total assets 3,177,602 19,496 3,197,098
Deferred taxation 60,056 (5,013) 55,043
Other liability items 1,980,138 - 1,980,138
Total liabilities 2,040,194 (5,013) 2,035,181
Non-controlling interest 201,740 24,509 226,249
Other equity items 935,668 - 935,668
Total liabilities 1,137,408 24,509 1,161,917
Consolidated statement of comprehensive income
Taxation (98,994) 26,838 (72,156)
Others 279,440 - 279,440
Profit after taxation 180,446 26,838 207,284
Foreign currency translation difference for
foreign operations (107,847) (2,329) (110,176)
Total comprehensive income for the year 72,599 24,509 97,108
Profit attributable to :
Owners of the company 138,727 - 138,727
Non-controlling interest 41,719 26,838 68,557
180,446 26,838 207,284
Total comprehensive income attributable to :
Owners of the company 55,496 - 55,496
Non-controlling interest 17,103 24,509 41,612
72,599 24,509 97,108
Impact of correction of error
As
As
previously Adjustments
restated
R'000 reported
Consolidated statement of comprehensive income
Interest income 568,060 410,491 978,551
Fee income 740,416 (410,491) 329,925
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 2018 28 February 2017
South Africa
Recognised amounts of identifiable assets
acquired and liabilities assumed
Loans and other advances to customers 32,542 12,744
Property, plant and equipment 110 -
Total identifiable net assets at fair value 32,652 12,744
Goodwill arising on acquisition 4,398 39,413
Purchase consideration transferred 37,050 52,157
Consideration paid in cash 37,050 52,157
North America
Recognised amounts of identifiable assets
acquired and liabilities assumed
Cash and cash equivalents 10,379 82,430
Loans and other advances to customers 70,704 469,541
Property, plant and equipment 5,949 59,648
Intangible 3,908 12,930
Goodwill 67 126,601
Other assets 2,077 9,825
Total liabilities (6,691) (140,770)
Total identifiable net assets at fair value 86,393 620,205
Non-controlling interest measured at fair (9,019) (259,211)
value
Goodwill arising on acquisition 141,695 621,961
Purchase consideration transferred 219,069 982,955
Purchase consideration
Consideration paid in cash 186,827 744,849
Contingent consideration liability 32,242 238,106
Total consideration 219,069 982,955
Events after the reporting period
Shareholders were advised on 23 March 2018 that Finbond would be raising capital by
way of a partially underwritten rights offer (“the Rights Offer”) in order to partially
repay the loans that were extended to Finbond during the course of September 2016
that allowed Finbond to conclude the Americash Holding LLC and Creditbox.com LLC
acquisitions.
In terms of the Rights Offer, 172 609 725 new Finbond ordinary shares of 0.0001 cents
each were offered for subscription to Finbond shareholders in the register at the
close of trade on Friday, 6 April 2018. The shareholders were able to subscribe for
shares at 239 cents per share, on the basis of 22.18391 Rights Offer shares for every
100 Finbond ordinary shares held.
The Rights Offer was successfully concluded on Monday, 23 April 2018 with R398.7
million being raised. Two of the Shareholders, Riskowitz Value Fund LP and Net 1
Finance Holdings (Pty) Ltd, that extended loans to the Group, elected to convert
their loan into equity during the Rights Offer. The only Shareholder loan that remains
in place is that of Kings Reign International Ltd at $10 million.
Independent auditor's opinion
The Group’s consolidated 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 9.91
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 and the relevant dates will be announced on SENS,
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
7.928 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 944 907 501 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 Willem van Aardt
30 May 2018
--------------------------------------------------------------------
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* (BCom Hons (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), MBA (Edinburgh))
*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: 30/05/2018 10:12:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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