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
Date: 07/11/2018 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
