Wrap Text
Unaudited consolidated interim results for the 6 months ended 31 August 2017
FINBOND GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2001/015761/06)
Share code: “FGL”
ISIN: ZAE000138095
(“Finbond” or “the Company” or “the Group")
UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST
2017
EXECUTIVE OVERVIEW
The directors are pleased to present the financial results of the Finbond
Group for the six months ended 31 August 2017.
During the six months under review Finbond successfully continued its
earnings-enhancing growth strategy after concluding additional North
American acquisitions while the South African business continued its strong
organic growth.
Finbond Group Limited, with its 1,985 staff members (Feb 2017: 1,803; Aug
2016: 1,588) and 633 branches (Feb 2017: 550; Aug 2016: 470), specialises in
the design and delivery of unique value- and solution-based savings, credit
and transactional solutions tailored around depositor and borrower
requirements rather than institutionalised policies and practices.
We exist to improve and transform the lives and livelihoods of our clients
by making available modern, inclusive products and services that benefit and
empower them.
Positive business momentum is contributing to improved results which are
evident in the following achievements and significant developments:
- Earnings attributable to shareholders of R92.8 million, representing
growth of 87.1% over the R49.6 million in the comparative period.
- Operating profit from continuing operations increased by 126.7% to
R171.4 million (Aug 2016: R75.6 million).
- Headline earnings per share increased by 85.8% to 12.43 cents (Aug
2016: 6.69 cents).
- Earnings before interest, taxation, depreciation and amortization
(EBITDA) increased by 120.4% to R315.8 million (Aug 2016: R143.3
million).
- Revenue from continuing operations increased by 105.5% to R1,110.1
million (Aug 2016: R540.3 million).
- Number of loans advanced grew by 30.3% to 880,387 (Aug 2016: 675,666)
while the value of loans advanced increased by 56.3% to R2.5 billion
(Aug 2016: R1.6 billion).
- Collection rate up 2% to 91% in South Africa and averaging 96% in North
America.
- Cash received from customers increased by 65.0% to R3.3 billion (Aug
2016: R2.0 billion).
- Branch network increased by 83 branches to 633 branches.
- Finbond continued its expansion into the North American short-term
lending market with the acquisition of 52 short-term unsecured lending
stores in the United States of America to a total of 223 branches (Feb
2017: 171; Aug 2016: 91), while growing its South African network by
31 branches to a total of 410 branches (Feb 2017: 379; Aug 2016: 379).
- USD Revenue contributing 55.9% of Total Revenue
- National Consumer Tribunal dismissed the National Credit Regulator's
claims against Finbond Mutual Bank
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
R1,110.1 million, an increase of 105.5% 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 55.9% of total revenue, while 13.6% of net
profit, attributable to the owners of the company, was earned in USD.
The Group’s return on equity saw an increase to end at 9.7%, from the 7.5%
achieved during the comparative period. It is important to note that Finbond
Mutual Bank maintains conservative capital adequacy and liquidity positions
(i.e. a 32.6% capital adequacy ratio which is well above the prudential limit
of 25%) which negatively skews the ratio.
HEALTHY CAPITAL POSITION
Finbond follows a conservative approach to capital management and holds a
level of capital which supports its business, while also growing its capital
base ahead of business requirements. Finbond’s capital position remains
strong.
Total assets increased by 44.5% to R3.3 billion (Aug 2016: R2.3 billion),
while liabilities increased by 58.5% to R2.1 billion (Aug 2016: R1.3 billion)
compared with 28 February 2017 (assets: R3.2 billion; liabilities: R2.0
billion).
Finbond Mutual Bank remains well in excess of its minimum regulatory capital
requirements, with an excess of R94 million over and above the R308 million
required by the Registrar of Banks and an excess of R277.8 million over and
above the normal DI 400 required minimum for mutual banks.
Although Finbond as a mutual bank is not subject to the Basel III
requirements, Finbond Mutual Bank already complies with and significantly
exceeds all Basel III requirements set for 2018 and 2019.
As at 31 August 2017, Finbond Mutual Bank’s:
- liquidity coverage ratio was 290% [190% more than required from 2019]
- net stable funding ratio was 411% [311% more than required from 2018]
- capital adequacy ratio was 32.6% [22.6% more than required from 2018].
FAVOURABLE JUDGMENT BY NATIONAL CONSUMER TRIBUNAL
The National Consumer Tribunal ("NCT"), handed down judgment in favour
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.
LOW RISK LIQUIDITY STRUCTURE
Finbond’s liquidity position at the end of August 2017 reflects R402.7
million cash in bank (Aug 2016: R446.5 million). Overall cash, cash
equivalents and liquid investments decreased by 7.1% to R595.3 million (Aug
2016: R640.9 million).
Cash received on loans and other advances to customers (including capital
repaid, fees and interest) as a percentage of cash granted for the period
from March 2017 to August 2017, averaged 131% (Aug 2016: 121%), reflecting
the fact that despite consumer pressure, Finbond’s conservative credit
granting policies translate into a minimal impact on collections.
The deposit book totalled R1 090.1 million, a 7.4% increase from R1 014.9
million last year with an average interest rate of 9.85% (up from 9.73% last
year), an average term of 25.4 months (down from 26.8 months last year) and
an average deposit size of R378,423 (up from R362,192 last year). The increase
in deposit size speaks favourably of the customer experience that Finbond
has delivered to deposit clientele since launching the product as more and
more depositors are choosing to increase their deposit size, trusting Finbond
based on the positive results experienced with their initial deposit
transactions.
Finbond is not exposed to the uncertainty that accompanies the use of
corporate call deposits as a funding mechanism since Finbond accepts mainly
6 to 72 month fixed and indefinite term deposits. Given the long-term nature
of Finbond’s liabilities (fixed-term deposits with 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 as a result of this positive liquidity mismatch.
Finbond Mutual Bank is funded through 2,786 (Aug 2016: 2,695) individual
fixed long-term deposits resulting in a smooth debt-maturity profile with no
(0%) dependence on large funders or the debt capital markets and no
concentration risk.
SOUTH AFRICAN SHORT-TERM UNSECURED LENDING
Finbond’s South African business’ main focus remains on small short-term
loans. Total segment revenue from Finbond’s short-term lending activities
made up of interest, fee and insurance income (portfolio yield) increased by
32.8% to R375.0 million (Aug 2016: R282.4 million).
The overall gross short-term loan book reflected another period of positive
growth totalling 18.0%, ending the six month period at R486.5 million (Aug
2016: R412.2 million).
During the period under review Finbond’s average loan size was R1,475 and
our average tenure was 4.04 months. Given the short-term nature of Finbond’s
products, Finbond’s loan portfolio is cash flow generative and a good source
of internally generated liquidity. The whole loan portfolio turns more than
three times per year.
For the period ended 31 August 2017 Finbond received cash payments of R1,169.8
million from customers, 40.4% greater than last year, while granting R778.3
million in new loans, an increase of 32.7% period-on-period (Aug 2016: R833.3
million in cash received and R586.6 million in new loans granted). The ratio
of cash received to cash granted was at 150.3% for the period under review.
The period-on-period movement in the portfolio includes increases in numbers
of both new clients serviced to 126,515 (26.5% more than in the six months
ended August 2016: 99,983) and new contracts granted to 527,171 (25.8% more
than in the six months ended August 2016: 419,010), setting new record monthly
highs for the Group in both measures during the financial year.
Finbond’s average short-term loan period is significantly shorter than that
of our larger competitors and our average short-term loan size, significantly
smaller. Given this conservative approach Finbond does not have any exposure
to the 25 to 84 month, R21,000 to R180,000 long-term unsecured lending market
that continues to cause significantly increased write-offs, bad debts and
forced rescheduling of loans. Finbond’s historic data and vintage curves
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
employer or industry.
NORTH AMERICAN UNSECURED LENDING
Finbond’s North American business’ main focus is on short-term small
unsecured loans being offered through 223 branches, of which 9 are located
in Alabama, 35 in California, 2 in Florida, 40 in Illinois, 5 in Indiana, 61
in Louisiana, 1 in Michigan, 10 in Mississippi, 14 in Missouri, 1 in Ohio,
9 in Oklahoma, 8 in South Carolina, 15 in Tennessee, 7 in Wisconsin and 6 in
Toronto, Canada.
For the period under review 55.9% of Finbond’s revenue was earned in USD and
the intention is to grow the dollar earnings of the group to approximately
70% to 80% of net earnings in three to five years.
Total segment revenue from Finbond’s North American short-term lending
activities, made up of interest and fees (portfolio yield) amounted to $46.6
million (R652.0 million) (Aug 2016: $12.8 million) for the period under
review with the overall gross short-term unsecured loan book ending the six
month period at $54.3 million (R706.7 million) (Aug 2016: $12 million). For
the period ended 31 August 2017 Finbond’s average North American loan size
was $346 (R4,928) at an average tenure of 6.07 months.
We are in the process of acquiring further branches located in Alabama,
Missouri, Florida in the United States of America and Ontario in Canada. We
are also in discussions with a number of larger strategic acquisition targets
in the United States of America’s short-term instalment lending and auto
title lending market, as part of Finbond’s phase 2 expansion plan.
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 27% 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 2017.
IMPROVING BAD DEBTS AND IMPAIRMENTS
Finbond consistently applied the conservative impairment provisioning
methodology that has been used in prior financial periods. Overall impairment
provisions increased by 94.9% to R212.2 million (Aug 2016: R108.8 million)
compared to gross loans and advances growth of 70.5% to R1 413.0 million
(Aug 2016: R829.0 million) during the year. The impairment provisions for
the core unsecured lending portfolio’s (which represents 84.4% of the gross
loans and advances) increased by 81.3% to R194.1 million (Aug 2016: R107.1
million) compared to gross loans and advances growth of 85.7% to R1 192.3
million (Aug 2016: R641.9 million) during the year while the remainder
impairment provision increase is attributable to secured lending
Over the same period write-offs increased by 164.8% to R208.2 million (Aug
2016: R78.6 million), therefore given the prudent write-off and provisioning
methodology, the Group has provided prudently for future losses on the
portfolio.
Conservative lending practices and strict upfront credit scoring supported
by robust collection strategies and processes were maintained and contributed
to a 2.67% improvement in bad debts during 2017.
During the period, the Group further enhanced affordability calculations,
thereby tightening credit granting criteria to even stricter levels than the
already high levels previously set. Notwithstanding an increase in
impairments, the arrears coverage ratio has improved to 110. 7% from 53.3%
over the past year, despite the difficult external environment specifically
in South Africa
The loan loss reserve, also referred to as risk coverage ratio (impairment
provision/portfolio at risk: 90 days in arrears and longer), which is an
indication of a micro-finance institution’s ability to cope with the
estimated loan losses, has remained relatively unchanged at the end of the
reporting period at 247.1% (Aug 2016: 112.7%).
The 30-day arrears coverage ratio (impairment provision/portfolio at Risk:
30 days in arrears and longer) reflects an improvement in short-term arrears
coverage, being recorded at 153.6%, which increased from a ratio of 66.5% at
the end of August 2016. This improvement occurred as a combined result of
continued and consistent conservative provisioning against future losses
undertaken by management coupled with an improvement in the level of arrears
in the portfolio at year-end.
Finbond recorded an increase in overall impairment expenses (including
provision expenditure) of 153.9%, mainly attributable to the robust
impairment and write-off policies being followed by the North American
operations.
The overall unadjusted income statement, net impairment loss ratio was a
negative 2.5% (Aug 2016: 19%), while Finbond’s significantly lower and much
more accurate adjusted loan loss ratios decreased during the year. Net
impairment as a percentage of expected instalments amounting to 6.9% (Aug
2016: 6%) and net impairment as a percentage of cash received (which is more
conservative than instalments due) stood at 7.2% at the end of August 2017
(Aug 2016: 6.9%). These adjusted measures are a more appropriate reflection
of the impairment cost related to a short-term, low-value loan portfolio
such as that held by Finbond compared traditional balance sheet ratios. The
best measurement of arrears and impairments on the short-term products is
against instalments due and not outstanding balances, because a large portion
of a short-term loan is repaid before month-end/year-end and is therefore,
not reflected on the balance sheet. Thus, computations based on the
outstanding balance distort this ratio on short-term products.
STRATEGIC INITIATIVES AND FUTURE PROSPECTS
Strategic initiatives under way include:
- Growing market share through the increased sale of short- and medium-term
products, specifically 30 days, 90 days and 6 months;
- Further refining, developing and improving all bank information technology
systems and processes;
- Converting Finbond’s mutual banking license to a commercial banking
license;
- Expansion of the South African branch network in high growth areas;
- Acquiring a further 40 to 60 branches located in Alabama, Missouri and
Florida in the United States of America and Ontario in Canada; and
- Selective further strategic acquisitions in the South African and North
American unsecured short-term lending markets.
The challenging and difficult macro-economic environment as well as the
adverse market conditions in the South African market within which Finbond
operates are not expected to abate in the short- and medium-term. However,
we remain confident that we have the required resources and depth in
management to successfully confront and overcome these various challenges.
We remain positive about our prospects for the future due to Finbond’s
improved earnings and profitability despite difficult market conditions,
improvement achieved in cash generated from operating activities, significant
percentage of revenue now earned in USD, management expertise, strong cash
flow, strong liquidity and surplus cash position, uniquely positioned 410
branch network in South Africa and 223 branches 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
2017 2016 2017
ASSETS
Cash and cash equivalents 402 683 446 526 (10) 547 351
192
Other financial assets 194 368 (1) 207 717
593
Unsecured loans and other
998 534
advances to customers 87 800 599
161 815
Secured loans and other
202 185
advances to customers 9 220 958
706 326
Trade and other receivables 151 521 138 244 10 139 850
Property, plant and equipment 136 779 94 036 45 113 800
Investment property 286 662 271 060 6 278 185
Goodwill 820 293 404 364 103 752 699
Intangible assets 113 525 15 381 638 115 064
Other assets 612 3 713 (84) 1 379
3 305 2 287 3 177
Total Assets 44
535 833 602
Equity
Share capital and premium 732 016 715 876 2 715 667
( 79 ( 24 ( 72
Reserves 227
078) 153) 350)
Retained income 323 248 203 149 59 292 351
Equity attributable to owners
of the Company 976 186 894 872 9 935 668
201
Non-controlling interest 196 670 47 225 316
740
1 172 1 137
Total Equity 942 097 24
856 408
Liabilities
Bank overdraft 94 691 38 173 148 27 725
Trade and other payables 126 878 41 323 207 81 428
Purchase consideration 139 075 170 453 (18) 213 375
1 090 1 014 1 098
Fixed and Notice deposits 7
137 939 609
Commercial paper 87 692 - 100 -
Current tax payable 40 176 11 787 241 40 456
2 508
Loans from shareholders 503 021 18 000
695 440
41 44
Deferred tax (7) 60 056
321 319
Other liabilities 9 688 6 742 44 10 105
2 132 1 345 2 040
Total Liabilities 58
679 736 194
3 305 2 287 3 177
Total Equity and Liabilities 44
535 833 602
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited % Audited
Six months Six months Change Year to
R'000 31 August 31 August 28
2017 2016 February
2017
Interest income 244 132 200 905 22 568 060
Interest expense (100 228) (55 304) 81 (144 929)
Net interest income 143 904 145 601 (1) 423 131
Fee income 681 784 218 842 212 740 416
Management fee income 42 312 26 875 57 58 229
Other operating income 141 907 90 502 57 186 939
Foreign exchange (loss)/gain (3 274) - 100 27 931
Net impairment charge on loans and (228 766) (90 118) 154 (296 213)
advances
Operating expenses (606 508) (316 057) 92 (860 993)
Profit before taxation 171 359 75 645 127 279 440
Taxation charge (54 128) (21 178) 156 (98 994)
Profit for the period 117 231 54 467 115 180 446
Other comprehensive income
Exchange differences on (11 245) (30 629) (63) (107 847)
translation of foreign operations
Total comprehensive income for the 105 986 23 838 345 72 599
period
Profit attributable to :
Owners of the company 92 750 49 615 87 138 727
Non-controlling interest 24 481 4 852 405 41 719
Profit for the period 117 231 54 467 115 180 446
Total comprehensive income
attributable to :
Owners of the company 81 505 18 986 329 55 496
Non-controlling interest 24 481 4 852 405 17 103
Total comprehensive income 105 986 23 838 345 72 599
Total number of ordinary shares 750 567 747 712 746 712
outstanding
Weighted average number of
ordinary shares outstanding 747 149 741 065 746 539
Basic and diluted earnings per 12.4 6.7 85 18.6
share (cents)
Headline earnings per share 12.4 6.7 85 18.6
(cents)
Net profit attributable to owners
of the company 92 750 49 615 87 138 727
Loss on disposal of property, 148 - -
plant and equipment
Headline earnings 92 898 49 615 87 138 727
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOW
Unaudited Unaudited Audited
Six Six % Year to
months months
R'000 31 August 31 August Change 28
2017 2016 February
2017
CASH FLOW FROM OPERATING
ACTIVITIES
Cash generated from operations 16 357 20 054 (18) 262 995
Taxation paid (73 450) (14 106) 421 ( 44 788)
Net cash flow from operating (57 093) 5 948 (1 060) 218 207
activities
CASH FLOW FROM INVESTING
ACTIVITIES
Purchase of property, plant and (30 838) (13 096) 135 (29 103)
equipment
Sale of property, plant and 115 - 100 720
equipment
Purchase of investment property (8 477) (1 520) 458 (8 330)
Purchase of other intangible (9 406) (645) 1 358 (19 064)
assets
Sale of financial assets 14 882 41 530 (64) 26 814
Net cash outflow from business (73 673) (176 768) (58) (714 576)
combinations
Net cash flow from investing (107 397) (150 499) (29) (743 539)
activities
CASH FLOW FROM FINANCING
ACTIVITIES
Issue of share capital 52 111 513 929 (90) 516 266
Share buy-back (35 763) (1 418) 2 422 (3 964)
Proceeds from shareholders’ loans 36 549 (40 632) (190) 490 440
Finance lease payments (72) 56 (229) 1 873
Dividends paid (99 969) (25 438) 293 (66 064)
Net cash flow from financing (47 144) 446 497 (111) 938 551
activities
NET INCREASE/(DECREASE) IN CASH (211 634) 301 946 (170) 413 219
Cash at the beginning of the 519 626 106 407 388 106 407
period
CASH AT THE END OF THE PERIOD 307 992 408 353 (25) 519 626
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
R'000 31 August 2017 31 August 28 February
2016 2017
Total equity at the beginning of the period 1 137 408 387 989 387 989
Change in share capital and premium
Issue of shares 52 111 513 929 516 266
Purchase of treasury shares (35 762) ( 1 418) ( 3 964)
Change in reserves
Equity-settled share-based payment (10 278) - 4 405
Total comprehensive income for the period 81 505 18 986 55 496
Transfer between reserves 8 068 - -
Dividends paid (55 126) (25 438) (25 348)
Change in non-controlling interest
Total comprehensive income for the period 24 481 4 852 17 103
Transfer between reserves (8 068) - -
Dividends paid (40 794) - -
Business combination 19 311 43 197 185 461
Total equity at the end of the period 1 172 856 942 097 1 137 408
SUMMARISED SEGMENTAL INFORMATION
OPERATING SEGMENTS
R'000 Investment Lending Property Transactional Other Total
Products Investment Banking
Six months ended 31 August 2017
Net Interest (32 077) 178 815 (86) (2 748) 143 904
Income -
Interest income 10 279 230 311 3 542 244 132
- -
Interest expense (42 356) (51 496) - (86) (6 290) (100 228)
Fee income - 672 991 - 8 793 - 681 784
Management fee
income - (249) - - 42 561 42 312
Other operating 242) 142 149 - - - 141 907
income
Foreign exchange - - - - (3 274) (3 274)
loss
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 (58 747) 263 (438) (4 066) (54 128)
(Loss)/profit for
the period (23 470) 130 379 (696) 1 161 9 857 117 231
Significant segment assets
Cash and cash
equivalents 117 037 236 158 - 5 702 43 786 402 683
Other Financial 192 593 - - - - 192 593
Asset
Loans and advances - 1 200 867 - - - 1 200 867
Trade and other
receivables - 106 725 - - 44 796 151 521
Property, Plant
and Equipment - 117 055 - 232 19 492 136 779
Investment - - 286 662 - - 286 662
Property
Goodwill - 820 293 - - - 820 293
Intangible assets - 113 525 - - - 113 525
Significant segment liabilities
Deposits received
from customers 1 090 137 - - - - 1 090 137
Purchase
consideration - 139 075 - - - 139 075
payable
Loans from
shareholders - - - - 503 021 503 021
Six months ended 31 August 2016
Net Interest (21 861) 125 727 - (156) 41 891 145 601
Income
Interest income 8 162 180 366 - - 12 377 200 905
Interest expense (30 023) (54 639) - (156) 29 514 (55 304)
Fee income - 217 226 201 937 478 218 842
Management fee
income - - - - 26 875 26 875
Other operating 277 90 225 - - - 90 502
income
Net impairment
charge on loans
and advances - (83 995) - (5) (6 118) (90 118)
Operating expense 2 588 (299 082) (1 088) (3 812) (14 663) (316 057)
Profit/(Loss)
before taxation (18 996) 50 101 (887) (3 036) 48 463 75 645
Taxation 5 318 (14 027) 248 850 (13 567) (21 178)
(Loss)/profit for
the period (13 678) 36 074 (639) (2 186) 34 896 54 467
Significant segment assets
Cash and cash
equivalents 74 440 367 424 - 3 777 885 446 526
Other Financial 182 974 - - - 11 394 194 368
Assets
Loans and advances 720 720
- 141 - - - 141
Trade and other
receivables - 107 201 - 1 381 29 662 138 244
Property, Plant
and Equipment - 79 607 - 752 13 677 94 036
Investment - - 271 060 - - 271 060
Property
Goodwill - 403 508 - - - 403 508
Significant segment liabilities
Deposits received
from customers 1 014 939 - - - - 1 014 939
Purchase
consideration - 170 453 - - - 170 453
payable
Year ended 28 February 2017
Net Interest (53 409) 485 967 - 2 772 (12 199) 423 131
Income
Interest income 16 654 544 544 - 3 430 3 432 568 060
Interest expense (70 063) (58 577) - (658) (15 631) (144 929)
Fee income - 738 229 - 2 187 - 740 416
Management fee
income - - - - 58 229 58 229
Other lending - 186 939 - - - 186 939
income
Foreign exchange - - - - 27 931 27 931
gain
Net impairment
charge on loans
and advances - (294 943) - (1 270) - (296 213)
Operating expense 1 647 (832 069) (1 880) (3 946) (24 745) (860 993)
Profit/(Loss)
before taxation (51 762) 284 123 (1 880) (257) 49 216 279 440
Taxation 15 327 (100 381) 557 76 (14 573) (98 994)
(Loss)/profit for
the period (36 435) 183 742 (1 323) (181) 34 643 180 446
Significant segment assets
Cash and cash
equivalents 120 760 359 713 - 5 443 61 435 547 351
Other Financial 207 359 358 - - - 207 717
Assets
Loans and advances 1 021 557 1 021 557
- - - -
Trade and other
receivables - 107 481 - - 32 369 139 850
Property, Plant
and Equipment 4 103 584 - 471 9 741 113 800
Investment - - 278 185 - - 278 185
Property
Goodwill - 752 699 - - - 752 699
Intangible assets - 115 064 - - - 115 064
Significant segment liabilities
Purchase
consideration - 213 375 - - - 213 375
payable
Deposits received
from customers 1 098 609 - - - - 1 098 609
Loans from
shareholders - - - - 508 440 508 440
GEOGRAPHICAL SEGMENTS
Six months ended 31 August 2017 Six months ended 31 August 2016
R'000 South North Total South North Total
Africa America Africa America
Net profit
Interest Income 120 271 123 861 244 132 99 205 101 700 200 905
Interest expense (60 558) (39 670) (100 228) (50 955) (4 349) (55 304)
Net interest income 59 713 84 191 143 904 48 250 97 351 145 601
Fee income 193 465 488 319 681 784 132 317 86 525 218 842
Management fee income 42 561 (249) 42 312 26 875 - 26 875
Other operating income 133 149 8 758 141 907 85 627 4 875 90 502
Foreign exchange loss (3 274) - (3 274) - - -
Net impairment charge on
loans and advances (71 112) (157 654) (228 766) (56 918) (33 200) (90 118)
Operating expenses (244 005) (362 503) (606 508) (193 665) (122 392) (316 057)
Profit before taxation 110 497 60 862 171 359 42 486 33 159 75 645
Taxation (30 393) (23 735) (54 128) (11 893) (9 285) (21 178)
Profit for the period 80 104 37 127 117 231 30 593 23 874 54 467
Significant segment assets
Cash and cash equivalents 297 505 105 178 402 683 162 114 284 412 446 526
Other financial assets 192 593 - 192 593 194 368 - 194 368
Loans and advances 636 537 564 330 1 200 867 564 669 155 472 720 141
Property, plant and 67 297 69 482 136 779 63 194 30 842 94 036
equipment
Investment property 286 662 - 286 662 271 060 - 271 060
Goodwill 198 736 621 557 820 293 192 389 211 975 404 364
Intangibles 171 113 354 113 525 171 15 210 15 381
Significant segment
liabilities
Purchase consideration - 139 075 139 075 - 170 453 170 453
payable
Fixed and Notice deposits 1 090 137 - 1 090 1379 1 014 939 - 1 014 939
Loans from shareholders 503 021 - 503 021 18 000 - 18 000
Year ended 28 February 2017
South North Total
Africa America
Net profit
Interest Income 202 412 365 648 568 060
Interest expense (107 385) (37 544) (144 929)
Net interest income 95 027 328 104 423 131
Fee income 299 782 440 634 740 416
Management fee income 73 167 ( 14 938) 58 229
Other operating income 173 783 13 156 186 939
Foreign exchange gain 27 931 - 27 931
Net impairment charge on
loans and advances (120 306) (175 907) (296 213)
Operating expenses (403 253) (457 740) (860 993)
Profit before taxation 146 131 133 309 279 440
Taxation (43 270) (55 724) (98 994)
Profit for the period 102 861 77 585 180 446
Significant segment assets
Cash and cash equivalents 232 058 315 293 547 351
Other financial assets 207 717 - 207 717
Loans and advances 599 325 422 232 1 021 557
Trade and other receivables 124 531 15 319 139 850
Property, plant and 58 929 54 871 113 800
equipment
Investment property 278 185 - 278 185
Goodwill 192 389 560 310 752 699
Intangible assets 171 114 893 115 064
Significant segment
liabilities
Purchase consideration - 213 375 213 375
payable
Fixed and Notice deposits 1 098 609 - 1 098 609
Loans from shareholders 508 440 - 508 440
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 2017 comprise the Company and its subsidiaries (together
referred to as the “Group”) and the Group’s interests in associates and
jointly controlled entities.
Basis of preparation
The summarised consolidated financial statements have been prepared in
accordance with the requirements of the JSE Limited Listings Requirements
and the requirements of the Companies Act of South Africa. The summarised
consolidated financial statements have been prepared in accordance with the
framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (“IFRS”) IAS 34 Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and financial pronouncements as issued by the Financial
Reporting Standards Council IAS 34 Interim Financial Reporting, the Companies
Act and the JSE Listings Requirements. It does not include all of the
information required for full annual financial statements and should be read
in conjunction with the audited consolidated annual financial statements of
the Group as at and for the year ended 28 February 2017.
The accounting policies applied by the Group in these summarised consolidated
financial statements are consistent with those accounting policies applied
in the preparation of the previous consolidated annual financial statements.
The summarised consolidated financial statements were prepared under the
supervision of Mr C Eksteen CA(SA), in his capacity as chief financial
officer.
Estimates
The preparation of annual financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities,
income and expenses. Actual results may differ from these estimates.
In preparing these summarised consolidated financial statements, the
significant judgements made by management in applying the Group’s accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the consolidated annual financial statements as at and for
the year ended 28 February 2017.
Fair value measurement
Fair value hierarchy of instruments measured at fair value
The fair value hierarchy reflects the significance of the inputs used in
making fair value measurements. The level within which the fair value
measurement is categorised in its entirety, is determined on the basis of
the lowest level input that is significant to the fair value measurement in
its entirety.
The different levels have been defined as follows:
Level 1: Fair value is based on quoted unadjusted prices in active markets
for identical assets or liabilities that the group can access at measurement
date. Level 2: Fair value is determined through valuation techniques based
on observable inputs, either directly, such as quoted prices, or indirectly,
such as derived from quoted prices. This category includes instruments
valued using quoted market prices in active markets for similar instruments,
quoted prices for identical or similar instruments in markets that are
considered less than active or other valuation techniques where all
significant inputs are directly observable from market data. Level 3: Fair
value is determined through valuation techniques using significant
unobservable inputs. This category includes all assets and liabilities where
the valuation technique includes inputs not based on observable data, and
the unobservable inputs, have a significant effect on the instrument’s
valuation. This category includes instruments that are valued based on
quoted prices for similar instruments where significant unobservable
adjustments or assumptions are required, to reflect differences between the
instruments.
Levels of fair value measurements
R’000 Level 1 Level 2 Level 3 Total
Assets and liabilities
measured at fair value:
Recurring
Other financial assets - 192 235 358 192 593
Investment property - - 286 662 286 662
Total - 192 235 287 020 479 255
Valuation techniques used to derive level 2 and 3 fair values
Level 2 fair values of other financial assets have been derived by using the
rate as available in active markets. The IBNR provision is managed from
industry data accumulated on the Alexander Forbes Risk and Insurance Services
claim system, and is classified as a Level 3. Level 3 fair values of
investment properties have been generally derived using the market value,
the comparable sales method of valuation, and the residual land valuation
method, as applicable to each property.
The fair value is determined by external, independent property valuers,
having appropriate, recognised professional qualifications and recent
experience in the location and category of the properties being valued. The
valuation company provides the fair value of the Group’s investment portfolio
every twelve months.
Reconciliation of assets and liabilities measured at level 3 Rand Thousand
R’000 Opening Gains Subsequent Closing
balance recognised in capitalised balance
profit or loss expenditure
Investment property 278 185 - 8 477 286 662
No transfers of assets and liabilities within levels of fair value hierarchy
occurred during the current financial year.
Cash and cash equivalents are not fair valued and the carrying amount is
presumed to equal fair value.
Short-term receivables and short-term payables are measured at amortised cost
and approximate fair value, due to the short-term nature of these
instruments. These instruments are not included in the fair value hierarchy.
Business Combination
During the reporting period the group acquired a number of branches in South
Africa and USA as going concerns through business combinations:
Interim Interim Full year
unaudited unaudited audited
R'000 31 August 31 August 28 February
2017 2016 2017
South Africa
Recognised amounts of identifiable assets acquired and
liabilities assumed
Loans and other advances to 30 593 12 744 12 744
customers
Other net assets -
110 -
Total identifiable net assets 30 703 12 744 12 744
at fair value
Goodwill arising on acquisition 6 347 39 413 39 413
Purchase consideration 37 050 52 157 52 157
transferred
Consideration paid in cash 37 050 52 157 52 157
North America
Recognised amounts of identifiable assets acquired and
liabilities assumed
Cash and cash equivalents 4 824 50 386 82 430
Loans and other advances to 69 318 134 000 469 541
customers
Property, plant and equipment 6 430 32 608 59 648
Intangible assets - - 126 601
Other assets - 18 060 22 755
Total liabilities (1 705) (64 205) (140 770)
Total identifiable net assets 78 867 170 849 620 205
at fair value
Non-controlling interest
measured at fair value (19 717) (46 103) (259 211)
Goodwill arising on acquisition 64 049 225 883 621 961
Purchase consideration 123 199 350 629 982 955
transferred
Consideration paid in cash 31 496 172 475 744 849
Contingent consideration 91 703 178 154 238 106
liability
Total consideration 123 199 350 629 982 955
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 Willie van Aardt
12 October 2017
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)); Adv J Noeth* (B Iuris
LLB); Adv. N Melville* (BLaw, LLB (Natal) LLM (Cum Laude) (Natal) SEP
(Harvard); RN Xaba* (CA(SA)); D Brits* (BCom, MBA (PUCHE); HG Kotze* (CA(SA),
HDip Tax, Certificate in Treasury Management); 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: 12/10/2017 04:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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