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KGH
KGH
KGH - Kagisano - Condensed Interim Consolidated For the period ended
29 February 2008
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")
Highlights
- Revenue up 28%
- Earnings up 12%
- NAV per share up 120%
- R100 million additional funding to grow advances book
- Name changed to Credit U
Condensed Interim Consolidated Income Statement
For the period ended 29 February 2008
R`000 Reviewed Reviewed Audited
29 February 28 February 31 August
2008 2007 2007
Total revenue 140 531 100 850 204 559
Revenue from loans and 107 297 86 126 167 434
advances
Net impairment charge on (16 728) (19 490) (20 554)
loans and advances
Risk adjusted revenue from 90 569 66 636 146 880
loans and advances
Gross profit from other 12 011 3 431 8 367
products and services
Other income 633 1 007 315
Net revenue from operations 103 213 71 074 155 562
Other interest income 191 123 467
Finance costs (8 374) (3 650) (9 536)
Operating costs (71 791) (42 891) (101 346)
Net income before taxation 23 239 24 655 45 147
Income tax expense (5 213) (8 518) (13 293)
Attributable earnings 18 026 16 136 31 854
Basic earnings (cents) 15.6 16.1# 31.3
Dividends per share (cents) - 3 5# 3.5
Number of shares in issue
(`000)
Total shares in issue (Net 115 750 100 000 115 750
of treasury shares)
Weighted number of shares in 115 750 100 000 101 640
issue
# The basic earnings and dividends per share are based on the number of shares
in issue, taking into account the capital restructuring that was done as part of
the listing process in April 2007.
Condensed Interim Consolidated Balance Sheet
as at 29 February 2008
R`000 Reviewed Reviewed Audited
29 February 28 February 2007 31 August
2008 2007
Assets
Non-current assets 38 076 23 627 29 784
Current assets 253 326 91 219 152 739
Loans and advances 194 466 64 798 119 523
Other current assets 58 860 26 421 33 216
Total assets 291 402 114 846 182 523
Equity and liabilities
Equity 126 263 49 628 108 237
Issued share capital 42 891 - 42 891
Reserves 83 372 36 992 65 346
Non-current liabilities 3 763 1 764 2 158
Current liabilities 161 376 63 454 72 128
Borrowings 114 000 30 432 30 500
Other current liabilities 47 376 33 022 41 628
Total liabilities 165 139 65 218 74 286
Total equity and 291 402 114 846 182 523
liabilities
Number of shares in issue 115 750 100 000 115 750
(Net of treasury shares)
Net asset value per share 109.08 49.63# 93.51
(cents)
# The net asset value per share are based on the number of shares in issue,
taking into account the capital restructuring that was done as part of the
listing process in April 2007.
Condensed Interim Consolidated Statement of Changes in Equity
for the period ended 29 February 2008
R`000 Issued Retained Minority Total equity
share earnings interest
capital and
premium
Balance at 1 July - 8 640 (405) 8 235
2005
Profit for the period - 28 352 - 28 352
Business combinations - - 405 405
Balance at 1 - 36 992 - 36 992
September 2006
Shares acquired by (4 750) - - (4 750)
staff share incentive
trust
Shares issued during 52 000 - - 52 000
the period
Share issue expenses (4 359) - - (4 359)
Profit for the period - 31 854 - 31 854
Dividends - (3 500) - (3 500)
Balance at 31 August 42 891 65 346 - 108 237
2007
Profit for the period - 18 026 18 026
Balance at 29 42 891 83 372 - 126 263
February 2008
Condensed Interim Consolidated Cash Flow Statement
for the period ended 29 February 2008
Reviewed Reviewed Audited
R`000 29 February 28 February 31 August
2008 2007 2007
Cash flows from operating (69 245) (57) (45 004)
activities
Cash flows from investing (6 569) (2 866) (9 301)
activities
Cash flow from financing 82 290 4 057 51 711
activities
Net cash movement for the 6 476 1 134 (2 594)
period
Cash at the beginning of the 4 064 6 658 6 658
period
Total cash at end of the 10 541 7 792 4 064
period
Comments
The Board of Directors is pleased to present the reviewed interim financial
results of the group for the period ended 29 February 2008.
Nature of business and products
Kagisano is a financial services enterprise that targets the financial needs of
clients in the Living Standards Measurement ("LSM") 4 to 7 bands with a broad
range of financial services products to its customers, which include:
Credit products
Cellular products
Insurance products
Other financial solutions
The product range is also offered as a solution to companies, resulting in a
synergistic co-operation with the employer, which benefits the company employee.
The company deals primarily with customers through its national network of more
than 100 branded outlets which is supported by its in-house call centre and
website.
Kagisano`s target market of clients is in the LSM 4 to 7 band, 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.
Since its inception, Kagisano has elected to comply with the regulations of its
industry, adhering initially to the requirements of the Micro Finance Regulatory
Council ("MFRC") and the Financial Services Board ("FSB") and more recently
providing product and solutions compliant with the National Credit Act ("NCA").
The group operates only in South Africa.
Strategy and focus
The group will continue to focus its strategy on the following strategic area`s:
Providing innovative products and services to our identified markets and
servicing our clients` needs through interaction and fast turnaround times;
Strong investment into credit risk management and collection techniques;
Expanding infrastructure and distribution models to ensure effective and
efficient client service;
Rendering service excellence through our existing branch and client service
infrastructure; and motivated and trained staff compliment. Strong focus on
Return on Assets and Return on Equity.
The key focus area`s will enhance service delivery to our clients, improve
returns to our shareholders and operate as a cost sensitive business through:
Sustained industry aligned growth;
Improving the quality of credit with specific emphasis on the further
development of credit evaluation methods;
Further refine credit underwriting, enhance collection processes and instill a
trust relationship between Company and Client.
Support the NCR to establish a culture of responsible borrowers;
Innovation and expansion of products and services in the current market;
Improve costs to advances ratio;
Secure long term funding at competitive rate;
Lower the cost of funding.
Distribution
Kagisano deals primarily with clients through its national distribution network
that consist of:
More than 100 branded outlets throughout South Africa
Broker network operating nationally
Call centre based at Head Office
Each Kagisano branch has a modern interior layout and provides a personal
interface to address the client`s needs. Kagisano`s broker network is supported
from Head office and distributes all products.
The call centre markets Kagisano`s products to potential and existing clients to
ensure client retention and to assit clients with the product take up.
Kagisano has a roll-out strategy on new branches, while the total number of
outlets is expected to grow to more than two hundred (200) in 2010. The
intention is to also grow the company`s broker network extensively over the next
two years as well as its call centre.
Name change
Kagisano decided to change the company brand to CREDIT U. The philosophy for the
changes was the growth of the company from a micro lender to a broad based
financial services provider.
The new name CREDIT U signals the refreshed financial contract with current and
potential customers.
CREDIT U will forge stronger and more enduring relationships with customers
built on recognising their needs and selfworth.
National Credit Act
Kagisano remain of the opinion that the National Credit Act has, to a large
extent, assisted in preventing the development of a "sub-prime" lending problem
in South Africa. It has however had a number of unintended consequences and need
to be revisited so that negative consequences can be identified and removed.
We continue to believe that the impact of the National Credit Act on our
industry segment will create opportunities for further 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. This consolidation is not
happening as fast as we expected during our last review as both the industry and
the Credit Regulator have been given time to adapt to the new compliance regime
Financial review
Total revenue increased by 39% to R140.5 million from R100.8 million in the
previous interim period ended 28 February 2007. This growth in revenue is due to
good performance through all three main segments of the group. Revenue from
Loans increased by 19% while sales from the Cellular division increased by 126%.
Gross profit margins for the mobile division continue to increase and are
slightly higher in percentage terms at 36% (August 2007: 33%).
Operating profit grew by 11% to R31.4 million, representing 22% of revenue.
Growth in operating expenses increased due to a combination of strong growth in
the distribution network, significant enhancement of executive corps and
increased expenditure on IT related systems and infrastructure.
Growth in net profits was negatively affected by the increase of funding costs
which are linked to market rates, but somewhat mitigated by the utilization of
previously un-utilised tax losses.
Taking into account the full effect of the increase in issued shares due to the
listing for the first time has caused basic earnings per share as well as
headline earnings per share dilute by 3% to 15.6cps from 16.1cps.
Net asset value per share has increased by 17%, from 93.5 cents (August 2007) to
109.1 cents.
Loans and advances
Net advances have increased by 63% from R120 million to R194 million during the
6 months under review and 200% from the previous interim period.
Non-Performing Loans (NPLs)
Significant developments and improvements on our scoring and vetting systems
have enabled us not only to increase the volume but also enhance the quality of
all new loans approved. Non Performing Loans have increased marginally from
27.8% at 31 August 2007 to 28.7% in February 2008, mainly due seasonal factors.
However, this is still within the group`s target range of 25 - 30% and in line
with the industry.
We are concerned that the implementation of the NCA has impacted negatively on
the Court`s interpretation of the legitimate Pre-NCA regime. This is causing
legal uncertainty especially in the Magistrate`s Courts. This will hopefully be
restored soon and the industry will be able to return to normality. When viewed
against the backdrop of the recently increased cost of credit and the slowdown
in the economy we expect the NPL`s to remain in the upper end of the target
range of 25 - 30%.
The group is monitoring the impairment models as applied during the last audit
and believe that the empricial evidence gathered so far will allow it to re-
calibrate the models especially as to the ratio between actual write-offs and
the provisions.
Non-current assets
Non-current assets increased by 51% compared to the previous interim period. The
majority of this increase can be attributed to the strong focus on
infrastructure expansion as well as the acquisition and development of new
business management systems.
The 81% increase in property, plant and equipment and software expenditure is in
line with our strategy for 2008 to align ourselves to ensure effective and
efficient client service.
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.
As indicated in a recently announced transaction we have rationalised and
restructured our existing R120 million loan facility and secured another R100
million long term loan facility from Blackstar Investor Plc. The new funding
structure will significantly reduce the average cost of funding within the
group.
Cash raised in terms of the new loan facility will be utilised to grow the
group`s advances book and avail ourselves of the opportunities prevailing in the
unsecured lending environment.
Segment report
R`000 Credit Cellular Insuranc Corporate Elimination Consolid
e ated
Revenue 102 101 33 223 5 196 - - 140 521
Net income 21 284 7 198 2 940 (8 183) - 18 026
before
taxation
Assets 233 729 42 273 7 756 4 419 (5 520) 288 620
Liabilities 144 517 35 044 5 083 114 039 (141 320) 162 357
Prospects
The South African Credit market is obviously negatively impacted by the
tightening of monitory and financial conditions and increasing costs of living.
The market Kagisano operates in is not immune to such changes in recent months
to be. Despite this, the length and depth of the economic downturn will
obviously mean that growth will have to be tempered with caution. This may also
accelerate some of the consolidation opportunities in the market. There is
definitely more uncertainty and volatility than at any stage during the last two
years. We expect this to continue for at least the rest of the financial year.
The introduction of Blackstar will result in a strategic alliance with Kagisano
for existing and future funding requests. The recently announced loan facility
of R100 million from Blackstar will enable Kagisano to grow its advances book to
more than R300 million as well as expanding its number of branches to 200 in
2010.
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 period annual financial statements. All IFRS and IFRIC interpretations
issued and effective at 31 August 2007 have been applied.
Post balance sheet events
The directors are not aware of any matter or circumstance arising since the end
of the financial other than the conclusions of the announced funding
rationalization and restrucuture transaction.
Corporate governance
The group subscribes to the principles of, and implements where possible, the
recommendations of the King II Code on Corporate Governance.
Dividends
No dividends are proposed for the current period. Cash generated will be
retained and utilised to grow and expand the business of the group.
Audit opinion
The auditors, Deloitte & Touche, have issued their review opinion on the group`s
financial statements for the period ended 29 February 2008. The review was
conducted in accordance with International Standards on Auditing. A copy of
their audit report is available for inspection at the company`s registered
office.
For and on behalf of the Board
Eugene van Niekerk
CEO
Corporate information
Registered office: Eco Fusion 4, Block B, Witch Hazel Street, Highveld,
Centurion (PO Box 7508, Centurion, 0046)
Company secretary: Morestat Corporate Services (Pty) Ltd
Telephone: (012) 676 7411
Facsimile: (012) 676 661 5867
Transfer secretaries: Computershare Limited, Ground Floor, 70 Marshall Street,
Johannesburg
Designated adviser: Exchange Sponsors
Directors: E van Niekerk (CEO), W Bornman, E Grobbelaar, C de Beer, GAF van
Niekerk*, RL Hendricks*, DA Bosman* (*Non-executive)
Date: 08/04/2008 07:00:02 Produced by the JSE SENS Department.
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