FINBOND GROUP LIMITED - Unaudited Consolidated Interim Results for the Six Months ended 31 August 2018

Release Date: 07/11/2018 15:00
Code(s): FGL
 
Wrap Text
Unaudited Consolidated Interim Results for the Six Months ended 31 August 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")


UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2018

EXECUTIVE OVERVIEW
The directors are pleased to present the financial results of the Finbond Group for the six months
ended 31 August 2018.

During the period under review, Finbond delivered another set of solid results and made further
progress with regards to the realisation of its vision “to be the leading mutual bank in South Africa,
improving the quality of life of our clients through their participation in saving together, growing
together and ownership of their own community bank”. This included a number of achievements and
significant developments:

 •      Finbond Mutual Bank rated 2nd best bank in South Africa and 11th best bank in the world in the
        Lafferty Global 500 Benchmark Study
 •      Revenue from continuing operations increased by 12.7% to R1 250.8 million (Aug 2017:
        R1 110.1 million).
 •      Operating profit from continuing operations increased by 7.3% to R183.9 million (Aug 2017:
        R171.4 million).
 •      Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 5.3%
        to R315.0 million (Aug 2017: R299.2 million).
 •      Earnings attributable to shareholders of R94.2 million, represented growth of 1.6% over the
        R92.8 million for the comparative period.
 •      Overall cash, cash equivalents and liquid investments increased by 29.7% to R772.3 million
        (Aug 2017: R595.3 million).
 •      Number of loans advanced remained constant year-on-year at 880,440 (Aug 2017: 880,387)
        while the value of loans advanced increased by 4.6% to R2 630.3 million (Aug 2017: R2 515.4
        million).
 •      Cash received from customers increased by 10.9% to R3 665.4 million (Aug 2017: R3 304.0
        million).
 •      Branch network increased by 12 branches, to 684 branches, from 28 February 2018.
 •      USD Revenue contributed 60.1% of Revenue (Aug 2017: 55.9%).


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 R1 250.8 million, an increase
of 12.7% 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.

Revenue earned in USD contributed 60.1% of revenue (Aug 2017: 55.9%), while 52.9% (Aug 2017:
13.6%) of net profit attributable to owners of the company, was earned in USD.

The Group’s return on equity saw a decrease to end at 7.2%, from the 9.7% achieved during the
comparative period.

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.

The increase in capital is due to two shareholder loans that were converted into equity by way of a
rights issue that was offered to all shareholders and concluded during April 2018. A total of 166.8
million shares were issued and the only shareholder loan that remains in place is that of Kings Reign
International Ltd at $10 million.

Total assets increased by 15.3% to R3.8 billion (Aug 2017: R3.3 billion), while total liabilities decreased
by 14.3% to R1.8 billion (Aug 2017: R2.1 billion). As at 28 February 2018 total assets at R3.3 billion and
total liabilities at R2.1 billion were at similar levels to the comparative period.

LOW RISK LIQUIDITY STRUCTURE

Finbond’s liquidity position at the end of August 2018 reflects R540.7 million cash in bank (Aug 2017:
R402.7 million). Overall cash, cash equivalents and liquid investments increased by 29.7% to R772.3
million (Aug 2017: R595.3 million).

Cash received from loans and other advances to customers (consisting of capital repaid, fees and
interest) as a percentage of cash granted (consisting of capital only) for the period from 1 March 2018
to 31 August 2018, averaged 139% (Aug 2017: 131%). This metric demonstrates that despite consumer
pressure and a challenging business environment, Finbond’s conservative credit granting and rigorous
underwriting policies have actually led to improved collections.

The deposit book totalled R1 070.5 million, a 1.8% decrease from R1 090.1 million as at 31 August
2017 with; an average interest rate of 9.91% (up from 9.85% last year), an average term of 25.7 months
(up from 25.4 months last year), and an average deposit size of R387,314 (up from R378,423 last year).
The increase in deposit size speaks favourably to 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 to 72 month fixed and indefinite term deposits.
Given the long-term nature of Finbond’s liabilities (fixed-term deposits with an average term of 25
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 due to this positive liquidity
mismatch.

SOUTH AFRICAN SHORT-TERM UNSECURED LENDING

Finbond’s South African business’ main focus remains on small short-term loans through its 427
branches. Total segment revenue from Finbond’s lending activities made up of interest, fee and other
micro finance related income increased by 2.1% to R500.0 million (Aug 2017: R489.4 million).

The short-term loan book declined from the comparative period, ending the six-month period at
R366.0 million (Aug 2017: R451.2 million). Business volumes have been under severe pressure due to
a large portion of Finbond’s South African client base transitioning to the new “SASSA” card resulted
in more than 50% reduction in our SASSA customer base. This card was launched by the SA Post Office
and South African Social Security Agency (SASSA) on 3 May 2018, but does not avail the functionality
to load EFT debits or stop orders, which limited our ability to extend credit to this segment of the
market. Accordingly, the First Strike Collection rate in South Africa decreased by 6% to 85%. Finbond
has taken appropriate actions to address this issue and manage through the SASSA transition.

During the period under review Finbond’s average loan size was R1 572 (Aug 2017: R1 475) and the
average tenure was 3.97 months (Aug 2017: 4.04 months). Given the short-term nature of Finbond’s
products, the 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 2018 Finbond received cash payments of R1 269.8 million from
customers, 8.5% greater than last year, while granting R723.8 million in new loans, a decrease of 7.0%
period-on-period (Aug 2017: R1 169.8 million in cash received and R778.3 million in new loans
granted). The ratio of cash received to cash granted increased to 175.4% (Aug 2017: 150.3%) for the
period under review mainly due to the decrease in cash granted. The period-on-period movement in
the portfolio includes decreases in numbers of both new clients serviced to 85,381 (32.5% less than in
the six months ended August 2017: 126,515) and new contracts granted to 463,362 (12.1% less than
in the six months ended August 2017: 527,171).

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 increasing write-offs, bad debts and forced rescheduling
of loans. Finbond’s historic data and vintage curves and detailed analysis indicates 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 geography, employer or industry other than SASSA.

FAVOURABLE JUDGMENT BY NATIONAL CONSUMER TRIBUNAL

The National Consumer Tribunal ("NCT"), handed down judgment in favour of Finbond´s subsidiary,
Finbond Mutual Bank (“FMB”), in the matter between the National Credit Regulator ("NCR") and FMB
as the First Respondent (“the Referral”).

The Referral, which the NCR unilaterally initiated in 2015, primarily alleged that FMB’s customers were
required to pay unreasonable premiums for the provision of credit life insurance in contravention of
Section 106 (2) of the National Credit Act (“NCA”), was unanimously dismissed by a full panel of the
NCT.

In its unanimous judgment dismissing the Referral, the NCT inter alia also pointed out that:

 • FMB was entitled to require its consumers to maintain credit life insurance; and
 • No evidence was presented by the NCR which justifies the NCT to make a finding that the
   insurance offered by FMB to its customers is unreasonable.
On September 28, 2017, the National Credit Regulator appealed and the appeal was heard on June
19, 2018. Judgment was reserved. Our external counsel believes that there will again be a favourable
outcome for FMB. The expected date of the judgment is not yet known.



NORTH AMERICAN UNSECURED LENDING

Finbond’s North American business’ main focus is on small short-term unsecured loans being offered
through 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 and Louisiana. In addition to the US states, Finbond also has a
presence in Ontario, Canada.

Additionally, small unsecured instalment loans are offered online in Illinois, Missouri, Nevada, New
Mexico, Utah and Wisconsin through CreditBox, our online platform. We are currently pursuing
licensing in Tennessee and Florida and have plans to expand to up to 10 additional states within the
next 24 months.

First strike collection rates in North America remained at an impressive average rate of 96%, indicative
again of Finbond’s conservative credit granting and rigorous underwriting policies.

Total segment revenue from Finbond’s North American short-term lending activities, made up of
interest and fees increased by 21% to R751.1 million (Aug 2017: R620.7 million) for the period under
review. The short-term loan book ended the six month period at R701.3 million, 24.3% up from 31
August 2017 of R564.3 million). For the period ended 31 August 2018 Finbond’s average North
American loan size was up by 1.7% to $352 (Aug 2017: $346) at an average term of 6.2 months (Aug
2017: 6.1 months).



CONSERVATIVE UPFRONT CREDIT SCORING

The current economic climate where the consumer remains under financial strain 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.

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 25%
and 59% for the three to six-month product range, and they remain at 76% to 91% for the 12 to 24-
month product range at the end of August 2018.



SUCCESSFUL IFRS 9 ADOPTION

The financial statements are prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB). IFRS 9 is the revised
accounting standard for financial instruments, where the provision calculated under the IFRS 9
provision model and credit losses are recognised on default events projected over a 12-month horizon
or over the lifetime of the asset. IFRS 9 provision models therefore address criticism of the provision
models previously used, which only recognised credit losses once incurred i.e. Expected Credit Loss
(ECL) model under IFRS 9 vs Incurred Credit Loss models previously. Furthermore, the new standards
promotes enhanced consistency across financial statements and disclosures made across credit
providers.

Transition to IFRS 9 took place on 1 March 2018. For detailed information regarding the transitional
impact, provisioning methodology and revised policies following the implementation of IFRS 9, please
refer to “A. IFRS 9 Financial Instruments” included later in the notes to the summarised consolidated
financial statements. In summary, the total impact on the Group’s retained earnings as at 1 March
2018 was R18.8 million. With the adjustments made to Loans and Other Advances to Customers being
mostly driven by the change in the write-off definition and transition to expected life time losses. IFRS
9 requires that loans and advances only be written-off at the point that the company is expected not
to collect any more. Accordingly, the increase to the Loans and Advances receivable balances relates
to loans previous written-off, based on the previous write-off policy, being re-recognised in terms of
IFRS 9. The increase in Allowance for Impairments to Loans and Advances relates to the change from
12 months losses to expected life time losses, as well as holding allowances on the previously written-
off loans and advances being re-recognised. The written-off portfolio previously recognised at fair
value is not permitted under IFRS 9 and thus the balance is being derecognised and re-recognised if
the loan and advance falls within the redefined write-off definition as described above.



IMPROVING BAD DEBTS AND IMPAIRMENTS IMPLEMENTATION

Stable credit portfolio with prudent provisioning maintained

Finbond applied the conservative IFRS 9 impairment provisioning methodology effective 1 March
2018.
Overall impairment provisions increased by 22.1% to R1 454.6 million (Feb 2018: R1 191.1 million)
compared to gross loans and advances growth of 15.1% to R2 688.5 million (Feb 2018: R2 335.5
million) during the year. The lower growth in gross loans and advances in comparison is predominantly
due to maintaining a strict credit granting strategy during the current reporting period whilst applying
a prudent provisioning methodology.

The impairment provisions for the core unsecured lending portfolios (which represents 91.8% of gross
loans and advances) increased by 22.4% to R1 429.6 million (Feb 2018: R1 167.7 million) compared to
gross loans and advances growth of 17.6% to R2 469.1 million (Feb 2018: R2 100.7 million) during the
year. The remainder of the impairment provision increase is attributable to secured lending.
The overall coverage ratio increased marginally from 51.0% to 54.1%, which can be broken down to a
coverage ratio of 9.6% for Stage 1, 48.7% for Stage 2 and 80.3% for Stage 3.

The 2.0% increase in coverage for Stage 1 from 7.6% to 9.6%, is mostly attributable to a slight increase
in the North American portfolio Stage 1 coverage, amplified by exchange rate movements. The
proportion of Stage 1 short term unsecured borrowers who transition to Stage 2 is very low. Therefore,
the Stage 1 provisioning is seen as prudent for the risk inherent in the portfolio seeing that Stage 1
provisions does not necessarily reflect the likelihood of transitioning to Stage 2.

The coverage of total provision for Stage 3 (excluding expected recoveries receivables) and for Stage
2 (where there has been a significant increase in credit risk) increased from 74.2% at 1 March 2018 to
75.0% at 31 August 2018 and can largely be explained by the difficult South African environment,
partially offset by robust collection strategies and positive forward looking economic expectations in
the North American economy, resulting in higher recoveries and lower bad debts.
Due to the change in our write-off policy, comparatives figures are not possible, however given the
prudent provisioning methodology, conservative lending practices and strict upfront credit scoring
which is furthermore supported by robust collection strategies and processes the Group is
comfortable that they have provided prudently for future losses on the portfolio.

FINBOND RATED 2nd IN SOUTH AFRICA AND 11th IN THE WORLD IN THE LAFERTY GLOBAL 500
BENCHMARK STUDY

The London based Lafferty Group just awarded Finbond with a 4-star quality award as a high quality
bank in the Lafferty Banking 500 global benchmarking study.
Finbond is one of some 174 banks among 500 of the largest banks worldwide to achieve 4 or 5-star
ratings. Two-thirds of the banks are rated 3-star or lower. The highest-quality banks are given 4 and
5-star ratings, while the lowest are rated as a 1-star or a 2-star.
Finbond is the second highest ranked bank in South Africa and has been named as one of the leading
banks globally, ranking 11th in the world.
Institutions from 72 markets across all global regions are included in the survey, ranging from large
global banks to small regional institutions. Lafferty Banking 500 is not one report but a vast database
of 500 banks with 19 individual metrics for each of them. Lafferty’s approach reveals a very different
picture of world banking from that given by traditional ratings and rankings. It goes far beyond
financial comparisons. Lafferty’s proprietary methodology, which is entirely based on bank annual
reports, takes account of multiple qualitative metrics such as strategy, culture, living the brand, digital
advancement, management experience and customer satisfaction – as well as more traditional
financial criteria such as capital, loan/deposit ratios and return on assets.

STRATEGIC INITIATIVES AND FUTURE PROSPECTS

Strategic initiatives underway include:

    -   Converting Finbond’s mutual banking license to a commercial banking license;
    -   Application for a banking license in Malta;
    -   Expansion of the South African branch network in high growth areas;
    -   Acquiring a further 40 to 60 branches in the United States of America;
    -   Growing US dollar earnings of the group to approximately 70% to 80% of net earnings.


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.

PROPOSED DEBT RELIEF BILL

The proposed Debt Relief Bill published in Government Gazette No 41274 of 24 November 2017 (“the
Bill”), proposes amendments to the National Credit Act of 2005 (“the NCA”), the most important of
which is that of Debt Intervention. The Bill is largely aimed at alleviating debt and protecting
consumers and the main provisions of the Bill relate to a debt intervention process. The socio-
economic impact of the Bill is that the cost of credit may be driven up and may limit the ability of low
income earners to access credit. Should the Bill be passed in its current form the credit industry and
consequently Finbond could be exposed to additional write-off. However, we remain confident that
we have the required resources and depth in management to successfully confront and overcome
these various related challenges.

FUTURE PROSPECTS
We remain positive about the Group’s prospects for the future due to: Finbond’s solid earnings and
profitability despite difficult market conditions, improvement achieved in cash generated from
operating activities, significant percentage of revenue now earned in USD (diversification),
management expertise, strong cash flow, strong liquidity and surplus cash position, uniquely
positioned 427 branch network in South Africa and 257 branches network in North America (with a
number of branches 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, 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.
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                           Interim      Interim                   Full year
                                         unaudited    unaudited          %          audited
                                         31 August    31 August                 28 February
R'000                                                                change
                                              2018         2017 *                      2018
ASSETS
Cash and cash equivalents                  540 675      402 683          34         422 339
Other financial assets                     231 655      192 593          20         216 856
Unsecured loans and other advances to
customers                                1 039 433      998 161           4         937 391
Trade and other receivables                168 245      151 521          11         158 177
Other assets                                16 883          612       2 659          12 632
Secured loans and other advances to
customers                                  209 514      202 706            3        210 977
Derivative financial instrument             16 820            -         100               -
Property, plant and equipment              182 482      136 779          33         131 816
Investment property                        266 807      286 662          (7)        266 771
Deferred taxation                           19 021          379       4,919          14 215
Goodwill                                   988 643      820 293          21         830 077
Intangible assets                          132 072      113 525          16         108 035
Total Assets                             3 812 250    3 305 914          15       3 309 286

Equity
Share capital and premium               1 135 684      732 016          55          724 525
Reserves                                   63 305      (79 078)        180        (194 581)
Retained income                           459 205      323 248          42          477 442
Equity attributable to owners of the
Company                                 1 658 194       976 186          70       1 007 386
Non-controlling interest                  306 499       212 129          44         163 346
Total Equity                            1 964 693     1 188 315          65       1 170 732
Liabilities
Bank overdraft                             94 061        94 691          (1)         91 033
Trade and other payables                  128 875       126 878            2        124 029
Other liabilities                          20 047         9 688         107          11 757
Current tax payable                        40 955        40 176            2         42 073
Derivative financial instrument                 -             -            -         47 430
Loans from shareholders                   161 920       503 021        (68)         470 586
Purchase consideration                          -       139 075       (100)               -
Fixed and Notice deposits               1 070 511     1 090 137          (2)      1 027 114
Deferred tax                               42 274        26 241          61          45 704
Commercial paper                          288 914        87 692         229         278 828
Total Liabilities                       1 847 557     2 117 599        (13)       2 138 554
Total Equity and Liabilities            3 812 250     3 305 914          15       3 309 286

SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                              Unaudited   Unaudited       %          Audited
                                             Six months  Six months    Change        Year to
R'000                                         31 August   31 August              28 February
                                                   2018        2017 *                   2018

Interest income                                 814 867     645 961         26       1 541 716
Interest expense                               (99 129)   (100 228)         (1)      (208 231)
Net interest income                             715 738     545 733         31       1 333 485
Fee income                                      266 893     279 955         (5)        458 540
Management fee income                            13 266      42 312       (69)          66 971
Other operating income                          155 762     141 907         10         315 783
Fair value adjustments                           62 442            -       100          (6 872)
Foreign exchange (loss)/gain                   (61 645)      (3 274)   (1 783)          52 318
Net impairment charge on loans and advances   (270 220)   (228 766)         18       (484 238)
Operating expenses                            (698 386)   (606 508)         15     (1 296 444)
Profit before taxation                          183 850     171 359           7        439 543
Taxation charge                                (41 918)    (38 519)           9      (104 582)
Profit for the period                           141 932     132 840           7        334 961
Other comprehensive income Exchange
differences on translation of foreign          365 677     (11 395)       3 309       (140 825)
operations
Total comprehensive income for the period      507 609     121 445          318         194 136

Profit attributable to:
Owners of the company                           94 190      92 750           2        234 201
Non-controlling interest                        47 742      40 090          19        100 760
Profit for the period                          141 932     132 840           7        334 961
Total comprehensive income attributable to:
Owners of the company                          348 307      81 505          327       118 824
Non-controlling interest                       159 302      39 940          299        75 312
Total comprehensive income                     507 609     121 445          318       194 136

Total number of ordinary shares outstanding    923 727     750 567                    748 547
Weighted average number of ordinary shares
outstanding                                    866 410     747 149                    748 570
Basic earnings per share (cents)                  10.9        12.4        (12)           31.3
Diluted earnings per share (cents)                10.9        12.4        (12)           29.8
Headline earnings per share (cents)               10.9        12.4        (12)           33.7
Net profit attributable to owners of the
company                                         94 190      92 750           2        234 201
Loss on disposal of property, plant and            251          148         70           1,755
equipment
Fair value loss of investment properties             -           -           -         16,639
Headline earnings                               94 441      92 898           2        252 595

SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOW
                                           Unaudited      Unaudited                   Audited
                                          Six months     Six months         %         Year to
R'000                                      31 August      31 August     Change    28 February
                                                2018           2017                      2018
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations                360 753        16 357       2 105         71 004
Taxation paid                                (46 413)      (73 450)         (37)     (105 872)
Net cash flow from operating activities       314 340      (57 093)         651       (34 868)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment    (50 135)      (30 838)          63       (57 050)
Sale of property, plant and equipment                -          115       (100)              -
Purchase of investment property                      -      (8 477)       (100)       (10 029)
Purchase of other intangible assets            (9 959)      (9 406)           6              -
Purchase of financial assets                 (14 189)             -       (100)       (20 238)
Sale of financial assets                             -       14 882         100         52 863
Acquisition of subsidiaries, net of cash             -     (73 673)       (100)      (213 498)
acquired
Net cash flow from investing activities      (74 283)     (107 397)        (31)      (247 952)
CASH FLOW FROM FINANCING ACTIVITIES
Issue of share capital                         17 708        52 111        (66)               -
Share buy-back                                       -     (35 763)       (100)        (43 478)
(Repayment)/proceeds from shareholders’      (15 141)        36 549       (141)         (5 565)
loans
Proceeds from issue of commercial paper        10 085              -        100        278 828
Finance lease payments                         (1 416)          (72)      1 867         (2 525)
Dividends paid                               (94 116)      (99 969)          (6)     (101 945)
Net cash flow from financing activities      (82 880)      (47 144)           76       125 315
NET INCREASE/(DECREASE) IN CASH               157 177     (211 634)         174      (157 505)
Cash at the beginning of the period           331 306       519 626         (36)       519 626
Effect on movements in exchange rates on     (41 869)              -        100       (30 815)
cash held
CASH AT THE END OF THE PERIOD                 446 614      307 992           45        331 306


SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                 Unaudited     Unaudited         Audited
R'000                                             31 August    31 August     28 February
                                                       2018         2017 *          2018
Total equity at the beginning of the period       1 170 732    1 137 408       1 161 917
 Change in accounting policy                          1 215            -               -
Restated balance as at 1 March                    1 171 947    1 137 408       1 161 917
Change in share capital and premium
  Issue of shares                                   411 159        52 111         54 049
  Purchase of treasury shares                             -      (35 762)        (45 191)
Change in reserves
  Equity-settled share-based payment                  3 769      (10 278)         (6 854)
  Total comprehensive income for the period         348 307        81 505        118 824
  Change in control                                       -         8 068          6 016
   Dividends paid                                  (93 640)       (55 126)       (55 126)
  Change in non-controlling interest
   Total comprehensive income for the period        159 302        39 940          75 312
   Change in control                                      -        (8 068)        (15 008)
   Dividends paid                                   (36 151)      (40 794)        (99 155)
   Business combination                                   -        19 311         (24 052)
  Total equity at the end of the period           1 964 693     1 188 315       1 170 732

SUMMARISED SEGMENTAL INFORMATION

OPERATING SEGMENTS
R'000                   Investment       Lending        Property       Transactional        Other            Total
                          Products                    Investment             Banking

Six months ended 31 August 2018
Interest Income              9 871       803 980              -                   46           970           814 867
Interest expense          (53 361)        (6 853)             -                (171)      (38,744)           (99 129)
Net interest income       (43 490)       797 127              -                (125)      (37 774)           715 738
Fee income                       -       274 351              -              (7 458)             -           266 893
Management fee                   -              -             -                    -        13 266             13 266
income
Other operating                 78       151 623              -                    -         4 061            155 762
income
Fair value adjustments           -              -             -                    -        62 442             62 442
Foreign exchange loss            -              -             -                    -      (61 645)           (61 645)
Net impairment
charge on loans and
advances                         -      (270 220)             -                 -                -          (270 220)
Operating expense          (1 135)      (672 060)       (1 031)           (7 665)         (16 495)          (698 386)
Profit/(loss) before      (44 547)        280 821       (1 031)          (15 248)         (36 145)            183 850
taxation
Taxation                    16 085       (76 933)          372                 5 506        13 052           (41 918)
Profit/(loss) for the     (28 462)       203 888         (659)               (9 742)      (23 093)           141 932
period

Significant segment assets
Cash and cash              207 670       250 057              -               8 097         74 851            540 675
equivalents
Other Financial Assets     231 655              -             -                  -               -            231 655
Unsecured loans and
other advances to
customers                        -      1 039 433             -                  -               -          1 039 433
Secured loans and
other advances to
customers                        -       209 514              -                  -               -            209 514
Property, Plant and
Equipment                        -       164 196             -                1 401           16 884           182 481
Investment Property              -             -       266 807                    -                -           266 807
Goodwill                         -       988 643             -                    -                -           988 643
Intangible assets                -       132 072             -                    -                -           132 072
Significant segment liabilities
Fixed and notice
deposits                  1 070 511            -             -                    -                -         1 070 511
Commercial Paper            288 913            -             -                    -                -           288 913
Loans from 
shareholders                      -            -             -                    -          161 920           161 920

Six months ended 31 August 2017 *
Interest income                10 279     632 140            -                    -            3 542           645 961
Interest expense             (42 356)     (51 496)           -                  (86)         (6 290)         (100 228)
Net Interest Income          (32 077)     580 644           -                   (86)         (2 748)          545 733
Fee income                           -    271 162           -                 8 793               -           279 955
Management fee
income                               -      (249)          -                      -          42 561            42 312
Other operating                 (242)     142 149          -                      -               -           141 907
income
Foreign exchange loss                -           -         -                      -          (3 274)          (3 274)
Net impairment
charge on loans and
advances                             -   (228 793)         -                     27               -         (228 766)
Operating expense                 (11)   (575 787)     (959)                 (7 135)       (22 616)         (606 508)
Profit/(loss) before
taxation                     (32 330)     189 126      (959)                  1 599         13 923           171 359
Taxation                        8 860     (43 138)       263                   (438)        (4 066)         (38 519)
Profit/(loss) for the period (23 470)     145 988      (696)                  1 161          9 857          132 840

Significant segment assets
Cash and cash
equivalents                    117 037    236 158          -                  5 702         43 786           402 683
Other Financial Assets         192 593          -          -                      -              -           192 593
Unsecured loans and
other advances to
customers                            -    998 161          -                      -              -           998 161
Secured loans and 
other advances to
customers                            -    202 706          -                      -              -           202 706
Property, Plant and
Equipment                            -    117 055          -                    232         19 492           136 779
Investment Property                  -          -    286 662                      -              -           286 662
Goodwill                             -    820 293          -                      -              -           820 293
Intangible assets                    -    113 525          -                      -              -           113 525
Significant segment liabilities
Fixed and notice
deposits                     1 090 137           -         -                      -              -         1 090 137
Commercial Paper                87 692           -         -                      -              -            87 692
Purchase
consideration payable                -    139 075          -                      -              -           139 075
Loans from
shareholders                         -           -         -                      -        503 021           503 021

Year ended 28 February 2018
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                    52      264 928            -           603                50 200            315 783
income
Fair value adjustments               -      62 086     (21 443)              -              (47 515)            (6 872)
Foreign exchange gain                -           -           -               -               52 318             52 318
Net impairment
release /(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)
Profit/ (loss) 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                  -     937 391             -             -               -                937 391
other advances to
customers
Secured loans and                          210 977                                                            210 977
other advances to                    -                         -             -               -
customers
Trade and other                      -      97 922             -             -          60 255                158 177
receivables
Property, plant and                  -     111 264             -         2 441          18 111                131 816
equipment
Investment Property                  -           -      266 771                -             -                266 771
Goodwill                             -     830 077            -                -             -                830 077
Intangible assets                    -     108 035            -                -             -                108 035
Significant segment liabilities
Fixed and notice             1 027 114           -            -               -              -              1 027 114
deposits
Commercial paper               278 828           -            -               -              -                278 828
Loans from
shareholders                         -           -            -               -        470 586                470 586


GEOGRAPHICAL SEGMENTS
                                Six months ended 31 August 2018       Six months ended 31 August 2017 *
R'000                             South      North        Total        South        North        Total
                                Africa     America                    Africa      America

Interest Income                128 950       685 917     814 867     120 271       525 690     645 961
Interest expense              (92 939)      (6 190)      (99 129)     (60 558)    (39 670)   (100 228)
Net interest income             36 011     679 727       715 738        59 713    486 020      545 733
Fee income                    211 787       55 106       266 893      193 465       86 490     279 955
Management fee income           13 283          (17)       13 266       42 561       (249)      42 312
Other operating income        145 679       10 083       155 762      133 149        8 758     141 907
Fair value adjustments          60 873        1 569        62 442            -          -            -
Foreign exchange loss         (61 231)        (414)      (61 645)      (3 274)          -      (3 274)
Net impairment charge on
loans and advances            (98 140)   (172 080)      (270 220)     (71 112)   (157 654)   (228 766)
Operating expenses           (238 816)   (459 570)      (698 386)    (244 005)   (362 503)   (606 508)
Profit before taxation          69 446     114 404        183 850      110 497      60 862     171 359
Taxation                      (25 075)    (16 843)       (41 918)     (30 393)     (8 126)    (38 519)
Profit for the period           44 371      97 561        141 932       80 104      52 736     132 840

Significant segment assets
Cash and cash equivalents     347 022      193 653        540 675     297 505     105 178     402 683
Other financial assets        231 655            -        231 655     192 593           -     192 593
Unsecured loans and other     365 966      673 467      1 039 433     451 196     546 965     998 161
advances to customers
Secured loans and other       181 721       27 793        209 514     185 355      17 351     202 706
advances to customers
Property, plant and             69 567     112 915        182 482      67 297      69 482     136 779
equipment
Investment property           266 807            -        266 807     286 662           -     286 662
Goodwill                      196 787      791 856        988 643     198 736     621 557     820 293
Intangibles                       171      131 901        132 072         171     113 354     113 525
Significant segment
liabilities
Purchase consideration               -           -             -           -      139 075     139 075
payable
Commercial paper               288 914           -        288 914       87,692          -      87,692
Fixed and Notice deposits    1 070 511           -      1 070 511    1 090 137          -   1 090 137
Loans from shareholders        161 920           -        161 920      503 021          -     503 021
 
                             Year ended 28 February 2018
                                    South      North          Total
                                   Africa     America

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      44 622       458 540
Management fee income              66 909          62        66 971
Other operating income            303 023      12 760       315 783
Fair value adjustments            (68 958)      62 086       (6 872)
Foreign exchange gain              52 355         (37)        52 318
Net impairment charge on
loans and advances               (159 184)   (325 054)      (484 238)
Operating expenses               (506 570)   (789 874)    (1 296 444)
Profit before taxation            193 081      246 462       439 543
Taxation                          (70 188)     (34 394)     (104 582)
Profit for the period             122 893      212 068        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                68 629       63 187        131 816
equipment
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


  * - For the 2017 interim period 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 six months ended 31 August 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 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 except for the estimation of income tax and the adoption of new and
  amended standards as set out below.
a) New and amended standards adopted by the Group

Several new or amended standards became applicable for the current reporting period and the Group
had to change its accounting policies and make retrospective adjustments as a result of adopting the
following standards:

• IFRS 9 Financial Instruments, and
• IFRS 15 Revenue from Contracts with Customers.

The impact of the adoption of these standards and the new accounting policies are disclosed below.
The other standards did not have any impact on the Group's accounting policies.



b) Impact of standards issued but not yet applied by the Group

(i) IFRS 16 Leases

IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance
sheet, as the distinction between operating and finance leases is removed. Under the new standard,
an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The
only exceptions are short-term and low-value leases. The accounting for lessors will not significantly
change.

The standard will affect primarily the accounting for the Group’s operating leases. However, the Group
has not yet determined to what extent these commitments will result in the recognition of an asset
and a liability for future payments and how this will affect the Group’s profit and classification of cash
flows.

Some of the commitments may be covered by the exception for short-term and low-value leases and
some commitments may relate to arrangements that will not qualify as leases under IFRS 16.
The standard is mandatory for first interim periods within annual reporting periods beginning on or
after 1 January 2019. The Group does not intend to adopt the standard before its effective date.

Use of judgements and 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 2018 except where the implementation of IFRS 9 requires a
different approach to the accounting previously applied, such as estimating the lifetime losses of
short-term receivables for the purposes of IFRS 9's expected credit loss model.

Changes in significant accounting policies

The changes in accounting policies are also expected to be reflected in the Group’s consolidated
financial statements as at and for the year ending 28 February 2019.

The Group has initially adopted IFRS 9 Financial Instruments (see A below) from 1 March 2018. Several
other new standards are effective from 1 January 2018, but they do not have a material effect on the
Group’s financial statements.
The adoption of IFRS 15 Revenue from Contracts with Customers has no impact on the Group’s
financial statements.

The effect of initially applying these standards is mainly attributed to an increase in impairment losses
recognised on financial assets (see A(ii) below).



A. IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and
some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments:
Recognition and Measurement. The following table summarises the impact, net of tax, of the
transition to IFRS 9 on the opening balance of unsecured loans and other advances to customers,
secured loans and other advances, reserves, retained earnings and NCI (for a description of the
transition method, see (iii) below).

Consolidated statement of financial position

 R'000                                                 28 February           IFRS 9         1 March
                                                              2018       transition             2018
                                                      as presented      adjustment          restated

 Assets
 Cash and cash equivalents                                 422 339                 -        422 339
 Other financial assets                                    216 856                 -        216 856
 Unsecured loans and other advances to         [a]         937 391           (4 403)        932 988
 customers
 Trade and other receivables                               158 177                -         158 177
 Other assets                                               12 632                -          12 632
 Secured loans and other advances to           [a]         210 977              447         211 424
 customers
 Property, plant and equipment                             131 816                 -        131 816
 Investment property                                       266 771                 -        266 771
 Deferred taxation                                          14 215                 -         14 215
 Goodwill                                                  830 077                 -        830 077
 Intangible assets                                         108 035                 -        108 035
 Total assets                                            3 309 286           (3 956)      3 305 330
 Liabilities
 Bank overdraft                                             91 033                 -         91 033
 Trade and other payables                                  124 029                 -        124 029
 Other liabilities                                          11 757                 -         11 757
 Current tax payable                                        42 073                 -         42 073
 Derivative financial instrument                            47 430                 -         47 430
 Loans from shareholders                                   470 586                 -        470 586
 Fixed and notice deposits                               1 027 114                 -      1 027 114
 Deferred taxation                             [b]          45 704           (5 170)         40 534
 Commercial paper                                          278 828                 -        278 828
 Total liabilities                                       2 138 554           (5 170)      2 133 384
 Equity
 Capital and reserves
 Share capital                                             724 525                -          724 525
 Reserves (deficit)                                      (194 581)                -        (194 581)
 Retained income                               [b]         477 442         (18 788)          458 654
 Share capital and reserves attributable                 1 007 386         (18 788)          988 598
 to ordinary shareholders
 Non-controlling interest                      [c]         163 346           20 002         183 348
 Total equity                                            1 170 732             1 214      1 171 946
 Total equity and liabilities                            3 309 286           (3 956)      3 305 330

 Basic earnings per share (cents)                                              (2.5)
 Diluted earnings per share (cents)                                            (2.0)

 [a] The adjustments are further explained as per the table below.


 R'000                                                 28 February          IFRS 9         1 March
                                                              2018      transition            2018
                                                      as presented      adjustment        restated


 Unsecured Loans and advances before                       971 770        1 128 931       2 100 701
 impairment
 Allowances for impairment to loans and                   (230 106)       (937 607)      (1 167 713)
 advances
 Net loans and advances at amortized cost                  741 664          191 324         932 988
 Written-off portfolio at fair value                       195 727        (195 727)               -
 Unsecured loans and other advances to                     937 391           (4 403)        932 988
 customers

 Secured Loans and advances before                         234 832                 -        234 832
 impairment
 Allowances for impairment to loans and                    (23 855)             447         (23 408)
 advances
 Secured loans and other advances to                       210 977              447         211 424
 customers

 Net movement in loans and other                         1 359 345           (3 956)      1 355 389
 advances to customers


The above table represents the IFRS 9 adoption impact with the adjustments being mostly driven by
the change in the write-off definition and life time losses. IFRS 9 requires that loans and advances only
be written-off at the point that the company is expected not to collect any more. The increase in the
loans and advances receivable balances relates to loans previous written-off, based on previous write-
off policy, being re-recognised. The increase in allowance for impairments to loans and advances
relates to the change from 12 months losses to expected life time losses, as well as holding allowances
on the previously written-off loans and advances being re-recognised. The written-off portfolio
previously recognised at Fair value is not permitted under IFRS9 and thus the balance has been
derecognised and re-recognised if the loan and advance falls within the redefined write-off policy (as
described above).

 [b] The total impact on the Group's Retained earnings as at 1 March 2018 is as follows:
 Closing retained earnings at 28 February 2018 as presented                                   477 442
 Decrease in net loans and advances to customers at amortised cost                            (23 958)
 Deferred tax effect                                                                            5 170
 Opening retained earnings 1 March 2018 restated                                              458 654

 [c] The total impact on the Non-controlling interest as at 1 March 2018 is as follows:

 Non-controlling interest at 28 February 2018 as presented                                     163 346
 Increase in net loans and advances to customers at amortised cost                              20 002
 Deferred tax effect                                                                                 -
 Non-controlling interest at 1 March 2018 restated                                             183 348


Taxation is not accounted for on 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 Group's assets or liabilities.

The details of new significant accounting policies and the nature and effect of the changes to previous
accounting policies are set out below.

(i) Classification and measurement of financial assets and financial liabilities

IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of
financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held to
maturity, loans and receivables and available for sale.

The adoption of IFRS 9 has not had a significant effect on the Group’s accounting policies related to
financial liabilities. The impact of IFRS 9 on the classification and measurement of financial assets is
set out below.

Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost; Fair
Value through Other Comprehensive Income (FVOCI) – debt investment; FVOCI – equity investment;
or Fair Value through Profit and Loss (FVTPL). The classification of financial assets under IFRS 9 is
generally based on the business model in which a financial asset is managed and its contractual cash
flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope
of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed
for classification.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not
designated as at FVTPL:

- it is held within a business model whose objective is to hold assets to collect contractual cash flows;
  and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal
  and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not
designated as at FVTPL:

- it is held within a business model whose objective is achieved by both collecting contractual cash
  flows and selling financial assets; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal
  and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably
elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an
investment-by-investment basis.

All financial assets not classified as measured at amortised cost or FVOCI as described above are
measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may
irrevocably designate a financial asset that otherwise meets the requirements to be measured at
amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting
mismatch that would otherwise arise from measuring assets or liabilities or recognising gains or losses
on them on different bases.

A financial asset (unless it is a trade receivable without a significant financing component that is
initially measured at the transaction price) is initially measured at fair value plus, for an item not at
FVTPL, transaction costs that are directly attributable to its acquisition. Transaction costs of financial
assets carried at FVTPL are expensed in profit or loss.

 The following accounting policies apply to the subsequent measurement of financial assets.
 Financial assets at FVTPL               These assets are subsequently measured at fair value. Net
                                         gains and losses, including any interest or dividend income,
                                         are recognised in profit or loss. See (iii) below for derivatives
                                         designated as hedging instruments.

 Financial assets at amortised cost      These assets are subsequently measured at amortised cost
                                         using the effective interest method. The amortised cost is
                                         reduced by impairment losses (see (ii) below). Interest
                                         income, foreign exchange gains and losses and impairment
                                         are recognised in profit or loss. Any gain or loss on
                                         derecognition is recognised in profit or loss.

 Debt investments at FVOCI                These assets are subsequently measured at fair value.
                                         Interest income calculated using the effective interest
                                         method, foreign exchange gains and losses and impairment
                                         are recognised in profit or loss. Other net gains and losses are
                                         recognised in OCI. On derecognition, gains and losses
                                         accumulated in OCI are reclassified to profit or loss.

 Equity investments at FVOCI             These assets are subsequently measured at fair value.
                                         Dividends are recognised as income in profit or loss unless the
                                         dividend clearly represents a recovery of part of the cost of
                                         the investment. Other net gains and losses are recognised in
                                         OCI and are never reclassified to profit or loss.

The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 March 2018 relates solely
to the new impairment requirements, as described further below.

The following table and the accompanying notes below explain the original measurement categories
under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial
assets as at 1 March 2018.
 Financial Assets                   Original             New              Original           New
                                 classification      classification       carrying         carrying
                                 under IAS 39        under IFRS 9         amount           amount
                                                                          (R '000)         (R '000)

 Cash and cash                  Loans and           Amortised cost           422 339          422 339
 equivalents (a)               receivables
 Other financial assets        Held to              Amortised cost           105 566          105 566
                               maturity
 Other financial assets        Designated at        FVTPL                    111 290          111 290
                               FVTPL
 Unsecured loans and            Loans and           Amortised cost           937 391          932 988
 other advances to             receivables
 customers (b)
 Secured loans and other        Loans and           Amortised cost           210 977          211 424
 advances to customers         receivables
 Other receivables              Loans and           Amortised cost           109 477          109 477
                               receivables
  Total financial assets                                              1 897 040     1 893 084
(a) Cash and cash equivalents that were classified as loans and receivables under IAS 39 are now
classified at amortised cost. These amounts were previously stated at cost which approximates fair
value due to the short-term nature and consequently no adjustment was recognised in opening
retained earnings at 1 March 2018 on transition to IFRS 9.

(b) Unsecured loans that were classified as loans and receivables and the written-off portfolio that
was classified as at fair value through profit and loss under IAS 39 are now classified at amortised cost.
This resulted in an increase of R933.2 million in the gross carrying amounts and an increase of R937.6
million in the allowance for impairment over these receivables. Consequently, a reduction of R4.4
million was recognised in opening retained earnings at 1 March 2018 on transition to IFRS 9.

(ii) Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The new
impairment model applies to financial assets measured at amortised cost, contract assets and debt
investments at FVOCI, but not to investments in equity instruments.

The financial assets at amortised cost consist of unsecured loans, secured loans, trade receivables,
cash and cash equivalents, and corporate debt securities.

Under IFRS 9, loss allowances are measured on either of the following bases:

- 12-month ECLs: these are ECLs that result from possible default events within the 12 months after
  the reporting date; and
- lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a
  financial instrument.

The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following,
which are measured as 12-month ECLs:

- debt securities that are determined to have low credit risk at the reporting date; and
- other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over
  the expected life of the financial instrument) has not increased significantly since initial recognition.
The Group has elected to measure loss allowances for unsecured loans and secured loans at an
amount equal to lifetime ECLs.

Significant increase in credit risk (SICR)

The Group considers reasonable and supportable information, mostly quantitative, based on historical
experience, credit risk assessment and forward-looking information (including macro-economic
factors) when determining whether the credit risk has increased significantly. The assessment of SICR
is key in determining when to move from measuring to impairment provision based on a 12-month
ECL to one that is based on a lifetime ECL.

When determining whether the credit risk of a financial asset has increased significantly since initial
recognition and when estimating ECLs, the Group considers reasonable and supportable information
that is relevant and available without undue cost or effort. This includes both quantitative and
qualitative information and analysis, based on the Group’s historical experience and informed credit
assessment and including forward-looking information.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than
30 days past due.

The Group considers a financial asset to be in default when:

- the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the
  Group to actions such as realising security (if any is held); or
- the financial asset is more than 90 days past due.

The maximum period considered when estimating ECLs is the maximum contractual period over which
the Group is exposed to credit risk.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present
value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance
with the contract and the cash flows that the Group expects to receive).

ECLs are discounted at the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt
securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events
that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Presentation of impairment

For debt securities at FVOCI, the loss allowance is recognised in OCI, instead of reducing the carrying
amount of the asset.

Impairment losses on other financial assets are presented under ‘finance costs’, similar to the
presentation under IAS 39, and not presented separately in the statement of profit or loss and OCI
due to materiality considerations.

Impact of the new impairment model

For assets in the scope of the IFRS 9 impairment model, impairment losses are generally expected to
increase and become more volatile. The Group has determined that the application of IFRS 9’s
impairment requirements at 1 March 2018 results in an additional impairment allowance as follows.
                                                                           Unsecured          Secured
                                                                               loans            loans
                                                                               R'000            R'000
 Loss allowance at 28 February 2018 under IAS 39                             230 106           23 855
 Additional impairment recognised at 1 March 2018:                             4 403            (447)
 Additional impairment recognised at 1 March 2018 as a result of re-         933 204                -
 classification of written-off portfolio
 Loss allowance at 1 March 2018 under IFRS 9                               1 167 713           23 408


The following analysis provides further detail about the calculation of ECLs related to loans and
advances on the adoption of IFRS 9. The Group considers the model and some of the assumptions
used in calculating these ECLs as key sources of estimation uncertainty.

The ECLs were calculated based on historical actual credit loss experience as well as forward looking
information. The Group performed the calculation of ECL rates separately at the portfolio and product
level.

Exposures within each group were segmented based on common credit risk characteristics such as
product, geographic region and delinquency status.

ECLs were then calculated using the derivation of term structured probability of default (PD), exposure
at default (EAD) and loss given default (LGD) parameters as well as the effective rate of interest for
discounting. The PDs and LGDs are calculated in accordance with the specific stage of allocation and
discounting is done using the average effective interest rate which is incorporated into the LGDs.

The following table provides information about the exposure to credit risk and ECLs for unsecured and
secured loans as at 1 March 2018.

 R'000                                                             Gross          Loss          Net
                                              Weighted          carrying     allowance     carrying
                                              average             amount                     amount
                                              loss rate
 Current (not past due)                                          968 149       129 598      838 551
 1-30 days past due                           55%                 79 076        43 582       35 494
 31-60 days past due                          57%                 38 063        21 540       16 523
 61 - 90 days past due                        64%                 80 993        52 165       28 828
 more than 90 days past due                   81%              1 169 253       944 236      225 017
                                                               2 335 534     1 191 121    1 144 413

 Unsecured loans and advances to customers                     2 100 701     1 167 713      932 988
 Secured loans and advances to customers                         234 833        23 408      211 425
                                                               2 335 534     1 191 121    1 144 413


There were no significant changes during the period to the Group’s exposure to credit risk.

(iii) Transition

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied
retrospectively, except as described below.
- The Group has taken an exemption not to restate comparative information for prior periods with
  respect to classification and measurement (including impairment) requirements. Differences in the
  carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9
  are recognised in retained earnings and reserves as at 1 March 2018. Accordingly, the information
  presented for 2017 does not generally reflect the requirements of IFRS 9 but rather those of IAS
  39.
- If an investment in a debt security had low credit risk at the date of initial application of IFRS 9,
  then the Group has assumed that the credit risk on the asset had not increased significantly since
  its initial recognition.



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

 R’000                                           Level 1        Level 2        Level 3          Total
 Assets and liabilities measured at fair
 value:
 Other financial assets                                 -      231 297             358        231 655
 Investment property                                    -            -         266 807        266 807
 Derivative financial instrument                        -            -          16 820         16 820
 Total                                                  -      231 297         283 985        515 282

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

 R’000                                  Opening                       Gains recognised     Closing
                                        balance         Additions    in profit or loss     balance

 Investment property                      266 771              36               -          266 807
 Derivative financial instrument          (47 430)              -          64 250           16 820


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 previous 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. Comparative 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
period ended 31 August 2017:

                                                                    Impact of correction of error
                                                              As
                                                          previously  Adjustments   As restated
 R'000                                                     reported



 Consolidated statement of financial position

 Deferred taxation                                              -           379             379
 Other asset items                                      3 305 535             -       3 305 535
 Total assets                                           3 305 535           379       3 305 914

 Deferred taxation                                         41 321       (15 080)          26 241
 Other liability items                                  2 091 358             -       2 091 358
 Total liabilities                                      2 132 679       (15 080)       2 117 599

 Non-controlling interest                                 196 670         15 459         212 129
 Other equity items                                       976 186              -         976 186
 Total equity                                           1 172 856         15 459       1 188 315

 Consolidated statement of comprehensive income

 Taxation                                                (54 128)         15 609        (38 519)
 Others                                                  171 359               -        171 359
 Profit after taxation                                   117 231          15 609        132 840
 Foreign currency translation difference for foreign
 operations                                              (11 245)          (150)        (11 395)
 Total comprehensive income for the year                 105 986          15 459        121 445



 Profit attributable to:
 Owners of the company                                    92 750               -          92 750
 Non-controlling interest                                 24 481          15 609          40 090
 Profit for the period                                   117 231          15 609         132 840

 Total comprehensive income attributable to:
 Owners of the company                                    81 505               -          81 505
 Non-controlling interest                                 24 481          15 459          39 940
 Other comprehensive income                              105 986          15 459         121 445


                                                             Impact of correction of error
                                                            As
                                                        previously  Adjustments  As restated
 R'000                                                   reported

 Consolidated statement of comprehensive income

 Interest income                                         244,132       401,829       645,961
 Fee income                                              681,784      (401,829)      279,955


Events after the reporting period

There have been no subsequent events that require reporting.

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

7 November 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), CPA(USA)); D Brits* (BCom, MBA (PUCHE); HG
Kotze* (CA(SA), HDip Tax, Certificate in Treasury Management); PA Naude* (BCom (Marketing),
Gaining Competitive Advantage (Michigan), IEP (INSEAD)); Chief Operating Officer: C van Heerden
(BCom (Risk), MBA).

Secretary: Ben Bredenkamp (BCom Acc, 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

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