| Tue 6 May 2008, 15:34 | | FPF - Finbond Property Finance Limited - Audited g |
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FPF
FPF
FPF - Finbond Property Finance Limited - Audited group results for the year
ended 29 February 2008
Finbond Property Finance Limited
(Previously Quantum Leap Investments 527 (Proprietary) Limited)
(Incorporated in the Republic of South Africa)
(Registration number: 2001/015761/06)
Share code: FPF ISIN: ZAE000097259
("Finbond" or "the Company")
AUDITED GROUP RESULTS FOR THE YEAR ENDED 29 FEBRUARY 2008
INCOME STATEMENT
R`000
Group Group
2008 2007
Revenue 286,061 12,496
Other income 9,995
Operational expenses (209,000) (6,100)
Operating profit 87,056 6,396
Fair Value adjustments 2,709 1,651
Investment revenue 4,352 391
Finance charges (5,459) (89)
Profit before taxation 88,658 8,349
Tax expense
Income tax (25,655) (2,225)
STC (334) (326)
Profit for the year 62,669 5,798
Attributable to:
Equity holders of the parent 60,266 5,798
Minority interest 2,403 -
62,669 5,798
Per share statistics
Weighted attributable 32.6 3.1
earnings per share (cents)
Fully diluted attributable earnings 23.9 2.3
per share (cents)
Weighted number of shares in 1 184,742,104 184,742,104
issue
Diluted pro forma number of 2 252,329,987 252,329,987
shares
Reconciliation of headline
earnings per share
Profit attributable to 60,266 5,798
ordinary shareholders
Adjusted for acquirer`s excess of (1,381) -
net assets purchased
Adjusted for loss on disposal of property, 1,195 -
plant and equipment
Headline earnings attributable to 60,080 5,798
ordinary shareholders
Per share statistics on
headline earnings
Weighted headline earnings 32.5 3.1
per share (cents)
Fully diluted headline 23.8 2.3
earnings per share (cents)
1 The weighted number of shares in issue is also used for the
February 2007 figures to reflect a more meaningful comparison.
It takes into account the effect of the 65 000 000 ordinary
shares issued during the private placement in June 2007
2 The diluted pro forma number of shares in issue is also used
for the February 2007 figures to reflect a more meaningful
comparison. It takes into account the effect of the ordinary
shares that will be issued as further purchase consideration
for the acquisition of the subsidiaries where profit warrantees
have been met at 28 February 2008
BALANCE SHEET
R`000
Group Group
2008 2007
ASSETS
Non-Current assets 250,026 8,787
Investment property 8,150 3,200
Property, plant and equipment 8,659 533
Goodwill 115,703 -
Intangible Assets 101,002 -
Loans to group companies 3,798 5,053
Other Financial assets 10,891 -
Deferred tax asset 1,823 -
Current Assets 189,277 7,187
Loans to directors, managers and 35 -
employees
Trade and other receivables 150,397 6,086
Prepayments 1,281 -
Cash and cash equivalents 37,564 1,101
TOTAL ASSETS 439,303 15,973
EQUITY AND LIABILITIES
EQUITY
Equity Attributable to Equity Holders of
Parent
Share capital 178,559 1
Reserves 64,225 -
Accumulated profit 64,785 9,719
Minority interest 16,917 -
TOTAL EQUITY 324,486 9,720
LIABILITIES
Non-current liabilities 43,595 1,839
Other financial liabilities 12,203 1,439
Finance lease obligation 1,354 163
Deferred tax 30,038 237
Current liabilities 71,222 4,414
Other financial liabilities 6,202 24
Current tax payable 18,612 1,342
Finance lease obligation 140 34
Trade and other payables 27,452 408
Deferred income 5,882 -
Provisions 4,036 -
Dividend payable 8,899 2,606
TOTAL LIABILITIES 114,817 6,253
TOTAL EQUITY AND LIABILITIES 439,303 15,973
CASH FLOW STATEMENTS
R`000
Group Group
2008 2007
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash generated from operations 94,212 6,576
Changes in working capital (112,666) (1,598)
Cash generated from operations (18,454) 4,978
Interest income 4,352 391
Dividends received - -
Finance costs (5,419) (89)
Tax paid (9,001) (3,630)
Net cash from operating activities (28,523) 1,650
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant and (11,585) (148)
equipment
Sale of property, plant and 380 1,128
equipment
Purchase of investment property (3,257) -
Purchase of other intangible assets (101,002) -
Acquisition of businesses (157,701) -
Loans advanced to group companies 1,256 (3,121)
Sale of financial assets (10,891) -
Other non-cash items 102,687 -
Net cash used in investing (180,113) (2,140)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds on share issue 142,059 -
Redeemable preference shares 36,500 -
Proceeds from other financial - (27)
liabilities
Repayment of other financial - 27
liabilities
Movement in loans to directors, (35) -
managers and employees
Finance lease payments 1,257 (664)
Repayment of other financial - -
liabilities
Dividends paid 1,093 2,300
Other non-cash item 64,225 (4,608)
Net cash used in financing 245,099 (2,972)
activities
Net increase in cash and cash 36,463 (3,463)
equivalents
Cash and cash equivalents at 1,101 4,564
beginning of year
Cash and cash equivalents at end of 37,564 1,101
year
Cash generated from operations
Profit before taxation 88,658 8,349
Adjustments for:
Depreciation and amortisation 1,991 180
Loss on sale of assets 1,195 -
Acquirers excess of net asset (1,381) -
purchased
Interest received (4,352) (391)
Finance costs 5,459 89
Fair value adjustments (1,328) (1,651)
Impairment reversals (67) -
Movements in provisions 4,036 -
94,212 6,576
Changes in working capital: - -
Trade and other receivables (144,311) (1,851)
Prepayments (1,281) -
Trade and other payables 27,044 253
Deferred income 5,882 -
Changes in working capital (112,666) (1,598)
STATEMENT OF CHANGES IN EQUITY
R`000
Attributable to Share Share Total Reserves
the equity capital premium share for own
holders of the capital shares /
Group Share
repurchase
reserve
Balance at 01 1 - 1 -
March 2006
Net profit for - - - -
the year
Dividends - - - -
declared
Total changes - - - -
Balance at 01 1 - 1 -
March 2007
Profit for the - - - -
year
Issue of shares 0 142,059 142,059 -
Preference 36,500 - 36,500 -
shares
Dividends - - - -
Business - - - 64,225
combinations
Total changes 36,500 142,059 178,559 64,225
Balance at 29 36,500 142,059 178,559 64,225
February 2008
Table continues:.
Attributable to Accumulat Total Minority Total equity
the equity ed profit attribu- interest
holders of the / (loss) table to
Group equity
holders
of the
group/com
pany
Balance at 01 6,527 6,527 - 6,527
March 2006
Net profit for 5,798 5,798 - 5,798
the year
Dividends (2,606) (2,606) - (2,606)
declared
Total changes 3,192 3,192 - 3,192
Balance at 01 9,719 9,720 - 9,720
March 2007
Profit for the 60,266 60,266 2,403 62,669
year
Issue of shares - 142,059 - 142,059
Preference - 36,500 - 36,500
shares
Dividends (5,200) (5,200) - (5,200)
Business - 64,225 14,514 78,739
combinations
Total changes 55,066 297,850 16,917 314,767
Balance at 29 64,785 307,569 16,917 324,486
February 2008
INTRODUCTION
The directors are pleased to present the financial results of the Finbond
Property Finance Group for the year ended 29 February 2008. During the twelve
months under review Finbond showed excellent growth, exceeding its profit
forecast despite challenging market conditions brought about by the
implementation of the National Credit Act, increases in interest rates. Finbond
further positioned itself in the non-bank term lending / consumer finance market
to ensure its continued growth. This has resulted in a number of achievements
and significant developments for Finbond:
- Achieved a Net Profit Before Tax of R88 658 000 exceeding the forecast
published in its prospectus by 6,7%
- Achieved a Net Profit After Tax of R62 669 000 exceeding the forecast
published in its prospectus by 6,5%
- Achieved an Operating Profit of R87 056 000 exceeding the forecast
published in its prospectus by 6,9%
- Achieved headline earnings per share of 32,5c per share exceeding the
forecast published in its prospectus by 18,9%;
- Achieved a return on average equity of 37%; and
- Expanded its national branch network in the consumer finance market to 101
branches under the Miloc, Blue Chip Finance and Mzanzi brands.
Finbond exceeded its forecasts in a very difficult market that changed very
rapidly over the past year.
The year ending 29 February 2008 has been a pivotal year for the Finbond group
in terms of its evolving strategy. The rising interest rate environment had a
significant impact on volumes in the mortgage origination industry that will
continue in the year ahead. Due to business written in the first nine months of
the year and the timeous re-positioning and expansion of the Group in the non-
bank term lending / consumer finance markets, profits were not adversely
affected by the rising interest rates, despite mortgage origination volumes
decreasing by between 25% and 40% towards year end.
Although still vulnerable to the rising interest environment and further
declines in mortgage origination volumes, Finbond has managed to diversify it`s
income streams. At the time of listing, 70% of Finbond`s income was derived from
mortgage origination and related activities and 30% from consumer finance
activities. For the year ended 29 February 2008 Mortgage Origination and related
activities contributed R28,5m or 45,5% of Net Profit after Tax and Term Lending,
together with investment income contributed R34,2m or 54,5% to Net Profit After
Tax.
EXTERNAL ENVIRONMENT
In the period under review important changes occurred in the external
environment posing interesting challenges and opportunities:
REGULATORY ENVIRONMENT AND MARKET CONDITIONS
Mortgage Origination
In April 2008 the Reserve Bank increased interest rates by a further 50 basis
points bringing total interest rate increases over the past 18 Months to 450
basis points. The full effect of the latest interest rate increases is still to
work its way through the mortgage origination market and current sentiment
points to further interest rate increases in the year ahead.
The affordability of housing, especially for first time home buyers in the low
and middle income categories, has been adversely affected by the various rate
hikes. Consumer spending has also been severely eroded by higher fuel and food
prices over the past number of months. In addition to this, the cumulative hike
of 450 basis points in interest rates since mid 2006 has caused the average
monthly repayment on a mortgage loan to have risen by more than 31%. Further
increases in interest rates could cause mortgage origination volumes to decline
even further.
Year-on-year growth of 23,1% was recorded in mortgage advances in February 2008
according to data released by the South African Reserve Bank (24,5% in January
2007 and 30,9% in October 2006 ). This brought the total amount of Mortgage
Advances to R871,5 billion in February 2008. On a month-on-month basis, mortgage
advances growth was lower by 0,8% in February from 2,3% in August. According to
Reserve Bank statistics monthly growth in mortgage advances have fallen sharply
from a peak of R17,7 billion in August 2007 to R7 billion in February 2008.
According to ABSA Senior Economist Jacques du Toit the declining trend in year-
on-year growth in mortgage advances, is expected to continue largely due to the
lagged effect of higher interest rates and the impact of the National Credit Act
that also had a dampening effect on domestic credit extension, including
mortgage advances. Factors such as a slower pace of economic expansion, lower
growth in real household disposable income, and a slowing housing market this
year, are also set to contribute to year-on-year mortgage advances growth of
around 17%, projected by the end of 2008. Mortgage advances as a percentage of
total private sector credit extension (PSCE) increased somewhat further to 48,8%
in December 2007 ( 48,8% in November 2007).
The seismic shift taking place in the mortgage market suggests that the decline
of residential property prices may be imminent. Du Toit`s research further show
that nominal house price growth dropped to 8.7% year on year in March 2008
(10,6% in December 2007). This was the lowest growth since the end of 1999.
Month-on-month growth was down to only 0,3% in February, with prices declining
in real terms since September 2007. This downward trend in price growth is set
to continue in 2008, averaging at around 7% (about -2% in real terms) according
to du Toit. It will be the first time since 1999 that annual real house price
growth will be in negative territory. The further slowdown in property price
growth will be driven by factors impacting affordability, such as rising
interest rates, the National Credit Act and the electricity situation, which is
set to influence economic growth, employment, household income and housing
demand and supply.
The CPIX inflation rate pushed higher to 9,4% in March 2008 on the back of the
international oil price, the rand exchange rate and food price movements. CPIX
inflation is forecast to peak at a level of well above 9% in the first quarter
of this year. Further inflationary pressures fuelled by higher commodity prices,
a weaker rand and potential significant increases in electricity prices might
force the Reserve Bank`s Monetary Policy Committee to further increase interest
rates at it`s next meeting.
According to du Toit; in the third quarter of 2007, the ratio of household debt
to disposable income was at an all time high of 77,4%. The ratio of household
debt to disposable income is estimated to have increased somewhat further to
78,1% in the fourth quarter. A household debt ratio of 78,8% is projected for
2008, causing the debt servicing ratio to rise to a level of 11,4% on average
this year from an estimated 10,1% in 2007.
Non Bank Term Lending [Consumer Finance]
The implementation of the National Credit Act (NCA) has provided the mass term
lending market with greater regulatory certainty. The NCA imposes certain lower
interest rates on term loans, but allows certain additional fees. The NCA
should force lenders, through its fixed fee structures, to lower interest rates
and to move from larger longer-term loans to smaller loans over shorter
repayment periods.
The implementation by Finbond of revised systems and procedures, resulting from
the requirements of the NCA has been completed.
Legislative procedural prescription, fee and interest rate controls and industry
pressures to formalise the mass term lending market, primarily through
regulation of operators, have and will continue to force smaller less
sophisticated players out of the market. This together with high levels of
fragmentation in the industry will precipitate industry consolidation. A
substantial opportunity exists for consolidation of the R32 billion micro
finance industry in South Africa. Finbond intends to capitalise on this
opportunity by being at the forefront of this activity. While Finbond`s Consumer
Finance business is well established, Finbond is currently positioning itself to
undergo a period of further rapid expansion in order to gain market share in
South and southern-Africa.
Finbond`s non-bank term lending subsidiaries experienced rapid organic growth
since the implementation of the National Credit Act. Turmoil in the credit
market has pushed up the cost of borrowing and forced many lenders to withdraw
from the market. With the stricter lending and credit criteria of the four major
banks, consumers are forced to use the non-bank lending sector for personal
loans.
EXECUTIVE OVERVIEW
General Overview
Finbond`s strong operational performance continued during the twelve months
under review. We successfully delivered on our primary objective to grow
earnings and to maximize shareholder value while exceeding the forecasts
published at listing.
Finbond`s maiden results as a listed company were achieved during a challenging
period that was brought about by the implementation of the National Credit Act
and the increasing interest rate environment. Due to a combination of business
written in the first nine months of the year and the timeous re-positioning of
Finbond into the non-bank term lending / consumer finance market, profits were
not adversely affected by the rising interest rate environment in the year under
review. The company`s positioning with strategic banking partners and the
National Council of Trade Unions, its product design, matching funding, cost
containment, well developed national distribution channels and strong organic
and acquisition led growth in it`s consumer finance division ensured that the
Group achieved strong growth in earnings for the twelve months under review.
Finbond Group invested heavily in trade and other receivables mainly through
it`s non-bank term lending operations. The net amount invested, after increasing
trade and other payables, came to R117 267 000. Before this investment the group
reflected a strong positive cash flow of R 89 611 000.
Despite our rapid expansion in the consumer finance market we are still
extremely vulnerable to the rising interest environment that could cause
mortgage origination revenues to be adversely affected due to lower volumes in
the ensuing financial year.
Prospects
The success of Finbond`s strategic direction and the efforts of its management,
staff and intermediaries are evident in continued strong financial performance
during the twelve months ending 29 February 2008.
Mortgage origination volumes are expected to continue to decline in the year
ahead. It is our strategy to build further critical mass in our no-bank term
lending operations through organic and acquisition led growth. Given our
historically strong dependency for revenues from the mortgage origination market
in our Bond Originating, Debt Consolidation and Bridging Finance divisions -
that are to a large degree interlinked and inter dependant - it is our intention
to continue to focus on the rapid expansion of our Term Lending Division.
Finbond`s current national branch network of 101 branches under the Blue Chip
Finance , Miloc and Mzanzi brands will be expanded by a further 60- 80 branches
during 2008 and early 2009 in order to further entrench ourselves in the South
and southern African consumer finance markets.
The challenges, in a volatile and rising interest rate environment, are enormous
but exciting. We believe that the rapid expansion into the Consumer Finance
market in the implementation of our strategic action plan will yield positive
results in the short, medium and long term. Industry pressures to formalise the
non-bank term lending market, primarily through regulation of operators through
the National Credit Act, will force smaller less sophisticated players out. This
together with high levels of fragmentation in the industry will precipitate
industry consolidation. This will present further opportunities for Finbond to
grow its business through strategic acquisitions and achieve its vision of
becoming the national non-bank lender of choice.
Market conditions in general, and in particular rising interest rates and lower
volumes in our mortgage origination division could have an impact on our ability
to repeat the excellent growth achieved in the past year. We are positive about
our prospects for the future and continue to implement our investment and
expansion plans for the 2008/9 financial year.
COMMENTARY
Financial results
The results for the year ended 28 February 2008 have been audited by the
auditors PKF (Pretoria) Inc. Their unqualified report dated 6 May 2008 is
available for inspection at the Company`s registered offices.
Basis of preparation
The interim results have been prepared in accordance with International
Financial Reporting Standards, IAS 34 and the Companies Act, 1973. The
accounting policies applied by the various companies in the group are consistent
with those used in prior financial periods.
Dividend
As announced on 22 April, the directors of Finbond have declared a maiden
ordinary dividend of 8c per share in respect of the year ended 29 February 2008.
The salient dates for the payment of the dividend are as follows:
Last day to trade cum dividend: Friday, 9 May 2008
Trading ex dividend commences: Monday, 12 May 2008
Record date: Friday, 16 May 2008
Payment date: Monday, 19 May 2008
Share certificates may not be dematerialised or rematerialised between Monday,
12 May 2008 and Friday, 16 May 2008, both days inclusive.
For and on behalf of the Board
Dr. Malesela Motlatla Dr. Willie van Aardt
Non Executive Chairman Chief Executive Officer
6 May 2008
Directors
Chairman: Dr. MDC Motlatla*( BA , D Com HC (Unisa)); Chief Executive Officer:
Dr. W van Aardt ( B- Proc (Cum Laude) , LLM (UP) , LLD (PU CHE) Admitted
Attorney of The High Court of South Africa, QLTT (England and Wales UK),
Admitted Solicitor of the Supreme Court of England and Wales; H J Wilken ( BCom
Honss ( UNISA); Financial Director: DC Pentz (B Comm Honns , CA SA); N
Mapetla*.( BA (Lesotho) MBA( UK); Adv. J Noeth SC* ( B Iuris LLB). * 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)
Finbond Property Finance Limited
Finbond Property Finance Limited
Bank Forum Building, Veale Street , Brooklyn, Pretoria
PO Box 2127 Brooklyn Square, 0075
Designated Advisor:
Exchange Sponsors (Proprietary) Limited
www.finbondlimited.co.za
Date: 06/05/2008 15:34:01 Produced by the JSE SENS Department.
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