| Tue 30 Oct 2007, 7:30 | | KGH - Kagisano - Audited results for the period en |
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KGH
KGH
KGH - Kagisano - Audited results for the period ended 31 August 2007
KAGISANO GROUP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 2002/003827/06)
(JSE code: KGH ISIN: ZAE000098448)
("Kagisano" or "the company")
AUDITED RESULTS FOR THE PERIOD ENDED 31 AUGUST 2007
Highlights
Headline earnings +32% *
Headline earnings per +30% *
share
Number of clients +145%
Net loans and advances +138%
Number of outlets +102%
* Based on the pro-rata unaudited 2006 12 month adjusted comparative
Condensed consolidated income statement For the year ended 31 August 2007
R`000 Audited Unaudited Audited
2007 2006 2006
(12 months) (12 months) (14 months)
#
Revenue from loans and advances 167 434 141 712 165 331
Net impairment charge on loans (20 554) (36 845) (42 986)
and advances
Risk adjusted revenue from loans 146 880 104 867 122 345
and advances
Gross profit from other products 8 367 2 687 3 134
and services
Other income 315 1 345 1 569
Net revenue from operations 155 562 108 899 127 048
Other interest income 467 185 216
Finance costs (9 536) (6 981) (8 144)
Operating costs (101 346) (66 229) (77 267)
Net income before taxation 45 147 35 874 41 853
Income tax expense (13 293) (11 572) (13 501)
Attributable earnings 31 854 24 302 28 352
Basic earnings (cents) 31.3 24.3 28.4
Dividends per share (cents) 3.5 - -
Number of shares in issue (`000)
Total shares in issue (Net of 115 750 100 000 100 000
treasury shares)
Weighted number of shares in 101 640 100 000 100 000
issue
# These numbers were converted to a 12 month equivalent by multiplying the
audited 2006 numbers by 12 and dividing by 14.
Condensed consolidated balance sheet
as at 31 August 2007
R`000 Audited Audited
2007 2006
Assets
Non-current assets 29 784 19 606
Current assets 152 739 66 442
Loans and advances 119 523 50 239
Other current assets 33 216 16 203
Total assets 182 523 86 048
Equity and liabilities
Equity 108 237 36 992
Issued share capital 42 891 -
Reserves 65 346 36 992
Non-current liabilities 2 158 1 490
Current liabilities 72 128 47 566
Borrowings 30 500 23 195
Other current liabilities 41 628 24 371
Total liabilities 74 286 49 056
Total equity and liabilities 182 523 86 048
Number of shares in issue (Net of 115 750 100 000
treasury shares)
Net asset value per share (cents) 93.51 36.99
Condensed consolidated statement of changes in equity
for the year ended 31 August 2007
R`000 Issued share Retained Minority Total
Audited capital and earnings interest equity
premium
Balance at 1 July - 8 640 (405) 8 235
2005
Profit for the year - 28 352 - 28 352
Business - - 405 405
combinations
Balance at 1 - 36 992 - 36 992
September 2006
Shares acquired by (4 750) - (4 750)
staff share
incentive trust
Shares issued 52 000 - 52 000
during the year
Share issue (4 359) - (4 359)
expenses
Profit for the year - 31 854 31 854
Dividends - (3 500) (3 500)
Balance at 31 42 891 65 346 108 237
August 2007
Condensed consolidated cash flow statement
for the year ended 31 August 2007
Audited Audited
R`000 2007 2006
(12 months) (14 months)
Cash flows from operating (45 004) 10 684
activities
Cash flows from investing (9 301) (9 296)
activities
Cash flow from financing 51 711 (4 344)
activities
Net cash movement for the (2 594) (2 956)
year/period
Cash at the beginning of the 6 658 9 614
year/period
Total cash at end of the 4 064 6 658
year/period
Comments
The Board of Directors is pleased to present the final audited financial results
of the group for the year ended 31 August 2007.
Nature of business and products
Kagisano is a financial services provider that targets the financial needs of
clients in the LSM 4 to 7 bands with a broad range of Everyday Financial
Services products to its customers, which include:
- Credit products
- Cellular products
- Insurance products
- Other financial solutions
The group deals primarily with customers through its national network of more
than 125 branded outlets which is supported by its in-house call centre and
website.
Kagisano`s target market is clients in the LSM 4 - 7 category, a target market
not effectively serviced by the prominent market players in the financial
services industry, due to their focus on the higher income brackets.
The group operates only in South Africa.
Products and services
- Credit Products
Kagisano offers a range of unsecured credit products, such as educational,
emergency and home improvement loans, that suit the need and risk profiles
of applicants.
- Cellular Products
Kagisano Mobile acts as the group`s cellular service provider where bulk
airtime is purchased from service providers, packaged and sold to Kagisano
clients together with state of the art handsets. This product range is
updated quarterly to stay in line with current market trends and the
current cellular contract term is twenty four (24) months.
- Insurance Products
Kagisano Insurance is registered with the Financial Services Board and the
current products include:
- Credit life, as part of all credit transactions being granted by
Kagisano; and
- Protection Plan (Funeral Benefit) with added benefits.
- Other Financial Solutions
Through other service providers, Kagisano also offers access to medical,
insurance, housing and vehicle finance through its outlets and call centre.
Some of these products are currently still being tested.
These products are also offered as a solution to companies, resulting in a
synergistic co-operation with the employer, which benefits the company
employee.
Distribution
Kagisano deals primarily with clients through its national network of more than
125 branded outlets throughout South Africa. The national distribution structure
is supported by an in-house call centre and website.
Each Kagisano branch has a modern interior layout and provides a personal
interface to address the client`s needs. In-store located kiosks position
Kagisano in the retail environment frequently entered by clients.
Kagisano has a roll-out strategy with a ratio of 75:25 between own branches and
in-store outlets, while the total number of outlets is expected to grow to more
than two hundred (200) in 2009.
National Credit Act
We are of the opinion that the National Credit Act will, to a large extent,
assist in preventing the development of a "sub-prime" lending problem in South
Africa. In addition, its implementation has had the anticipated positive effect
on our market segment and has added significant impetus to the growth in
advances. There is, as yet, no sign that this trend is abating. Due to extensive
preparation the transition to the new NCR regime has been smooth.
As stated in our pre-listing presentations, we continue to believe that the
impact of the National Credit Act on our industry segment will create
opportunities for robust organic growth as well as consolidations, as smaller
lenders face a margin squeeze caused by the rising cost of compliance on the one
hand and lower yields on the other hand.
Financial review
The company converted to a public company on 29 June 2007 and subsequently
listed on the ALTx exchange of the JSE Limited on 24 July 2007.
Headline earnings per share
R`000 Audited Unaudited Audited
2007 2006 2006
(12 months) (12 months) (14 months)
#
Net profit attributable to 31 854 24 302 28 352
ordinary shareholders
Non-headline items after tax
Impairment of goodwill 147 - -
Headline earnings attributable to 32 001 24 302 28 352
ordinary shareholders
Weighted average number of 101 640 100 000 100 000
ordinary shares in issue (`000)
Headline earnings per share 31.5 24.3 28.4
(cents)
Loans and advances
Gross advances has more than doubled (up 113%) from R68.4 million to R146
million during the period under review. Non Performing Loans are at 28%, which
is within the target range of 25 - 30% and in line with the industry. In the
period post the implementation of the National Credit Act demand for advances
has accelerated and new loans for the first three months since the
implementation - which corresponds with the last quarter of the group`s
financial year - were 67% higher than new loans for the corresponding period in
2006.
Cellular division
Turnover for the business unit increased by 204% with a 211% increase in gross
profit. This resulted in a substantial increase in trade receivables and
inventory at 31 August 2007.
Non-current assets
Non-current assets increased by 52% mainly due to infrastructure expansion as
well as the acquisition and development of new business management systems. The
deferred tax asset increased by 125% mainly as a result of increased timing
differences due to higher impairment provisions on the loan book.
Other current assets
Other current assets increased by 105% as a result of the performance of the
cellular division and the related increase in client receivables and inventory
on hand.
Equity
The group restructured its equity by sub-dividing the issued share capital and
issuing additional share capital in two tranches at a premium of 199.9 cents and
299.99 cents. At year-end there were 118 000 000 shares in issue with 2 250 000
shares held by the Staff Share Incentive Trust as treasury shares.
Borrowings
The group`s debt increased as a result of the growth in advances. We will
continue to raise debt using the balance sheet in line with the forecast growth
in advances.
Other current liabilities
Other current liabilities include provisions, general trade payables and tax
liabilities. Tax for the year has been provided for at an effective rate of 29%.
Segment report
R`000 Credit Cellular Other Corporate Consolidated
Revenue 166 748 37 125 686 - 204 559
Net income 52 446 3 687 (1 917) (9 069) 45 147
before
taxation
Assets 145 622 24 640 10 749 1 512 182 523
Liabilities 38 927 3 986 1 334 30 039 74 286
Non-Performing Loans (NPLs)
NPLs are at 28% of gross advances at balance sheet date. NPLs are identified
with reference to the contractual status of a loan. As this methodology was
adopted recently a comparative number based on the same methodology for 2006 is
not available.
While we expect that one of the effects of the National Credit Act will be to
encourage more responsible borrowing and better quality lending, it is too early
to predict what effect its implementation and the new default management regime
will have on the behaviour of lenders and thus NPLs in our segment of the
industry.
When viewed against the backdrop of the recently increased cost of credit it is
premature to set a target range for NPLs for next year. For the period under
review, however, we believe that the applicable target range for the risk
profile of the group is 25 - 30% and we are within that range.
The group is satisfied that the impairment models which were introduced during
the year are robust. During 2008 the models will be re-calibrated to take into
effect the data gathered and a migration matrix approach will in future be
applied. For 2007 the impairments are at 18% of gross advances which is in line
with our industry.
Prospects
The total credit market of South Africa is a R500 billion industry. Short-dated
credit is around R100 billion, with overdrafts and credit card debt representing
R60 billion.
The total credit costs of the industry result in about R25 billion in service
charges. With the growth of the black middle class, more than 800 000 people
joined South Africa`s middle class in 2006. This contributed to the increase in
the size of South Africa`s LSM 7 category, thereby increasing the size of
Kagisano`s target market.
Since the establishment of the Micro Finance Regulatory Council (`MFRC`),
Kagisano has adhered to the regulatory requirements. With the evolution of the
MFRC into the National Credit Regulator (`NCR`), companies like Kagisano have
continuously upgraded their operations and management systems to comply with
newly formulated requirements. The group`s management systems also operate along
the National Credit Act guidelines, with the group`s back office and management
systems capable of assessing new applications reliably, as stipulated by the
Act.
In order to capitalise on its penetration of the target market, the group
continually seeks to expand its product range with Everyday Financial Products
that will satisfy the needs of its typical customer. Product expansion will
continue with various industry players, in order to ensure that best-of-breed
products are provided to the Kagisano target market.
Kagisano values the interaction with its customer as key to its successful
growth in the past. In order to reach its target market effectively, it intends
to grow the number of outlets to 200.
The first part of the new financial year has so far been characterized by an
acceleration of the already high demand for the group`s products. This is
further proof that the underlying business conditions within the industry
segment will continue to present favourable business conditions for the group.
Basis of preparation
The financial report is prepared in accordance with IAS 34 Interim Financial
Reporting and Schedule 4 of the South African Companies Act, 1973, as amended.
Kagisano prepares its accounts in accordance with International Financial
Reporting Standards. The accounting policies applied are consistent with the
prior year annual financial statements. All IFRS and IFRIC interpretations
issued and effective at 31 August 2007 have been applied.
Post balance sheet events
Effective 1 September 2007, the remaining 50% of the shares in Fount Investments
(Pty) Limited were acquired.
Contingencies
Guarantees to the value of R752 758 were issued through ABSA Bank Limited on
properties leased by the group.
Corporate governance
The group subscribes to the principles of, and implements where possible, the
recommendations of the King II Code on Corporate Governance.
Dividends
Based on the 2006 financial results a dividend of R3 500 000 was declared and
paid on 19 October 2006.
No dividends are proposed for the current year.
Audit opinion
The auditors, Deloitte & Touche, have issued their opinion on the group`s
financial statements for the year ended 31 August 2007. The audit was conducted
in accordance with International Standards on Auditing. They have issued an
unmodified audit opinion. A copy of their audit report is available for
inspection at the company`s registered office. These summarised financial
statements have been derived from the group financial statements and are
consistent in all material respects, with the group financial statements.
For and on behalf of the Board
Eugene van Niekerk
CEO
Registered office:
Eco Fusion 4, Block B, Witch Hazel Street, Highveld, Centurion (PO Box 7508,
Centurion, 0046)
Transfer secretaries:
Computershare Limited, Ground Floor, 70 Marshall Street, Johannesburg
Directors:
E van Niekerk (CEO), W Bornman, E Grobbelaar, C de Beer, GAF van Niekerk*, RL
Hendricks*, DA Bosman*
*Non-executive
Date: 30/10/2007 07:30:01 Produced by the JSE SENS Department.
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