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FPF
FPF
FPF - Finbond Property Finance - Interim Results For The Six Months Ended
31 August 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")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2008
INCOME STATEMENT
Unaudited Unaudted Audited
Six Six Year
Months Months ended
to to to
31-Aug 31-Aug 29-Feb
R000 2008 2007 2008
Unaudited Unaudite Audited
d
Revenue 120,726 61,828 286,062
Other income 26,950 381 9,995
Operating expenses (105,112) (19,271) (209,000)
Operating profit 42,564 42,938 87,057
Investment revenue 3,056 1,808 4,352
Fair value 0 0 1,328
adjustments
Excess of acquirer interest in 0 0 1,380
net asset value
Finance costs (4,682) (1,343) (5,459)
Profit before 40,938 43,403 88,658
taxation
Taxation (12,357) (12,345) (25,989)
Preference (2,611) 0 0
dividends
Profit for the 25,970 31,058 62,669
period
Attributable to:
Equity holders of 21,248 31,058 60,265
the parent
Minority 4,722 0 2,404
Per share
statistics
Basic earnings per share 7.16 13.51 32.51
(cents)
Diluted earnings per share 8.60 12.30 23.8
(cents)
Number of shares in 296,713,315 229,802, 229,802,000
issue 000
Weighted average number of 246,948,029 184,742, 184,742,104
shares outstanding 104
Diluted weighted average 246,948,029 252,329, 252,329,987
number of shares 987
Reconciliation of headline
earnings per share
Profit attributable to 21,248 31,058 60,265
ordinary shareholders
Adjusted for:
Loss/ profit on disposal
of property,
plant and - 306 1,195
equipment
Profit on disposal of (2,607) -
subsidiary shares
Excess of acquirer interest in - - (1380)
net asset value
Revaluation of property, plant - - (67)
and equipment
Headline earnings attributable to 18,641 31,364 60,013
ordinary shareholders
Per share statistics on headline
earnings
Fully diluted headline earnings 7.54 12.53 23.8
per share (cents)
BALANCE SHEET
R`000
31-Aug 31-Aug 29-Feb
2008 2007 2008
Unaudited Unaudited Audited
ASSETS
Non current
assets
Investment 8,150 3,200 8,150
property
Property, plant and 6,859 4,757 8,660
equipment
Goodwill 101,599 89,660 115,703
Intangible assets 101,002 0 101,002
Other financial assets 26,144 0 4,840
243,754 97,617 238,355
Current assets
Loans to group companies 0 0 3,798
Other financial assets 0 0 5,412
Trade and other 167,716 107,076 145,795
receivables
Cash and cash 15,150 55,592 47,999
equivalents
182,866 162,668 203,004
Total assets 426,620 260,285 441,359
EQUITY AND LIABILITIES
Equity attributable to equity holders
of parent
Share capital and 168,155 142,472 142,059
premium
Reserves 0 0 64,225
Retained 68,098 40,777 69,985
income
Total 236,253 183,249 276,269
Minority interest 21,638 3,319 16,917
Total equity 257,891 186,568 293,186
Liabilities
Non current liabilities 123,648 25,318 78,273
Borrowings 58,021 26,047 13,557
Preference shares 36,500 0 36,500
Deferred tax 29,127 (729) 28,216
Current 45,081 48,399 69,900
liabilities
Trade and other 16,043 33,817 31,487
liabilities
Borrowings 75 588 16,103
Loan from holding 6,318 0 0
company
Current income tax 22,645 13,994 18,611
liabilities
Shareholders for 0 0 3,699
dividend
Total equity and 426,620 260,285 441,359
liabilities
CASH FLOW STATEMENTS
Unaudited Unaudited Audited
6 months 6 months Year
to 31 to 31 Aug to 29 Feb
Aug
R`000 2008 2007 2008
CASH FLOWS FROM OPERATING
ACTIVITIES
Adjustments for:
Profit before 40,938 43,403 88,658
taxation
Depreciation and 1,666 667 1,991
amortisation
Profit/loss on sale of (2,607) 0 1,195
investment in subsidiaries
Profit/loss on sale of non 0 431 0
current assets
Acquirer`s excess of net assets 0 0 (1,381)
purchased
Movements in 1,348 69 0
provisions
Interest received (3,056) (2,000) (4,351)
Finance expenses 4,682 1,344 5,459
Fair value (15,000) 0 144
adjustments
Changes in working
capital
Trade and other (43,097) (26,980) (18,359)
receivables
Trade and other (3,334) 1,599 (8,875)
payables
Cash generated from (18,460) 18,533 64,481
operations
Interest received 3,056 2,000 (4,352)
Interest paid (4,682) (1,344) 5,459
Taxation paid (3,618) (7,373) (20,428)
Net cash generated from (23,704) 11,816 45,160
operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquistion of property (837) (948) (2,271)
and equipment
Proceeds on disposals of 124 1054 584
property and equipment
Movement in other (11,312) 20,884 22,650
financial assets
Subsidiaries acquired (23,270) (113,929) (164,577)
Net cash used in investing (35,295) (92,939) (143,614)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from share 0 146,250 146,250
issue
Preference shares 0 0 36,500
Movement in other 46,318 (4,147) (27,976)
financial liabilities
Share premium 0 (3,778) (4,191)
expenses
Dividends paid (20,168) (2,711) (3,017)
Net cash used in financing 26,150 135,614 147,566
activities
NET INCREASE IN CASH AND CASH (32,849) 54,491 49,112
EQUIVALENTS
Cash and cash equivalents at 47,999 1,101 1,101
beginning of year
Cash and cash equivalents at end 15,150 55,592 50,213
of year
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 AUGUST 2008
Attributable to the equity holders of the Group
R`000
Share Share Reserves Retained Minority
capita premium for own earnings interest Total
l
shares
Balance at 1 1 142,059 64,224 69,985 16,917 293,186
March 2008
Less 0 (64,224) (64,224)
adjustment on
share issue
Share 26,095 26,095
issue
Attributable 21,248 4,722 25,970
earnings for
the period
Reserves of (2,967) (2,967)
subsidiary
disposed of
Dividends (20,168) 0 (20,168)
paid
Balance at 1 168,154 68,098 21,639 257,892
31 August
2008
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 AUGUST 2007
Attributable to the equity holders of the Group
R000
Share Share Reserves Retained Minority
capita premium for own earnings interest Total
l
shares
Balance at 1 1 0 0 9,719 0 9,720
March 2007
Proceeds on 146,250 0 146,250
share issue
Share issue (3,779) (3,779)
expenses
Attributable 31,058 0 31,058
earnings for
the period
Business 3,319 3,319
combinations
Balance at 31 1 142,471 0 40,777 3,319 186,568
August 2007
SEGMENT REPORT AS AT 31 AUGUST 2008
R`000
Consolida Mortgage Term Investme
ted originat Lending nts
ion and
related
activiti
es
Segment Revenue
External segment revenue 150,732 65,906 81,770 3,056
Inter segment revenue 0 0 0 0
Total segment revenue 150,732 65,906 81,770 3,056
Segment expenses 109,794 64,368 45,426 0
Segment Result 40,938 1,538 36,344 3,056
Income taxes 12,357 1,325 10,177 855
Preference shares 2,611 0 2,611 0
Profit for the period 25,970 213 23,556 2,201
Segment Assets
-Property, plant and 6,859 1,629 5,230 0
equipment
-Investment 8,150 3,900 4,250 0
property
-Goodwill 101,599 46,741 54,858 0
-Intangible assets 101,002 46,959 54,043 0
-Financial assets 26,144 11,910 14,234 0
-Current assets 182,866 21,409 160,287 1,170
426,620 132,548 292,902 0
Segment 16,042 4,367 11,675 0
Liabilities
Depreciation and 1,666 404 1,262 0
amortisation
Capital 838 443 395 0
expenditure
Reconciliation of segment liabilities and total liabilities per
balance sheet
Liabilities per 16,042
segment
Deferred tax 29,126
Current tax 22,645
payable
Interest bearing 64,416
liabilities
Preference shares 36,500
Total liabilities per balance 168,729
sheet
Segmental
reporting
The Group is primarily a financial services provider with
significant business interest in the tem lending and mortgage
originating industries.
On a primary basis, the Group is organised into three major
operating divisions, namely, term lending, mortgage originating and
an investment division, each of which is headed by a managing
director. These divisions are the basis on which the Group reports
its primary segment information for internal purposes. The Group`s
operating divisions operate in one principal geographical area of
the world, southern Africa, and therefore no secondary segmental
information if provided.
COMMENTS
The directors are pleased to present the interim financial results of the
Finbond Group for the six months ended 31 August 2008. During the six months
under review Finbond made good progress despite extremely challenging market
conditions. This process resulted in a number of achievements and significant
developments; Finbond:
- Achieved a Net Profit Before Tax of R 40 938 000 down 5,7%;
- Achieved an Operating Profit of R 42 564 000 down 1 %;
- Achieved fully diluted Headline Earnings Per Share of 7,54 c down 40%;
- Achieved return on average equity of 16,59% on an annualized basis;
- Increased Net Asset Value from R 186,6m to R 257,9m compared to August
2007;
- Expanded its national branch network in the South African and African Micro
Finance market to 118 branches;
- Successfully entered both the Namibian and Botswana micro finance markets
with branches in Windhoek and Gaborone;
- Arranged a R 100 000 000 funding line with Dutch Development Bank the
Netherlands Development Finance Company NV FMO ("FMO")to fund the organic
growth of it`s Micro Finance Books.
The six months ending 31 August 2008 have been of crucial importance for Finbond
in terms of its evolving strategy and repositioning in the micro finance market.
The rising interest rate environment had a significant impact on volumes in the
mortgage origination industry that will continue in the six months ahead.
Although still vulnerable to the rising interest rate environment and further
declines in mortgage origination volumes, Finbond has managed to further
diversify its income streams. For the six months ended 31 August 2008 Mortgage
Origination and investment income contributed R4,594 m or 12 % of Profit Before
Tax and Non Bank Term Lending, contributed R36,344 m or 88 % to Net Profit
Before Tax.
MARKET CONDITIONS
The turmoil in international financial markets intensified during the first six
months of the financial year. The international banking / liquidity crisis and
the rising interest rate environment in South Africa presented threats and
opportunities during the six months under review.
Mortgage Origination
According to Reserve Bank Statistics in July 2008, year-on-year ("y/y") growth
in mortgage advances by monetary institutions tapered off further to 19,1% from
19,9% in June, based on data released by the South African Reserve Bank. This
brought the total amount of mortgage balances outstanding to R923,1 billion at
the end of July (R908,8 billion at the end of June).
The y/y growth in mortgage advances to the household sector, mainly related to
residential property, was also lower at 22,9% in July (24,0% in June). The
amount of outstanding mortgage balances in the household sector was R672,8
billion in July, having a share of 72,9% in total mortgage debt, which comprises
commercial and residential mortgages.
The continuing declining trend in mortgage advances is a reflection of a
residential property market that has cooled off markedly since late 2007 on the
back of surging inflation and rising interest rates, causing household finances
to come under severe pressure. According to ABSA nominal house price growth
slowed down to a 9-year low of 3,2% y/y in July 2008, whereas prices were down
by around 9% y/y in real terms in the month. That was the biggest real y/y
decline in house prices since late 1992. Year-on-year growth in nominal house
prices is set to be significantly lower in 2008 and 2009 compared with recent
years, while prices are forecast to drop in real terms this year and next year.
These developments are also evident from the year-on-year flow in total mortgage
advances, which was down by 9,5% in July.
Taking the abovementioned into account, mortgage advances are expected to
continue their declining trend to well below current levels at year-end and into
2009, largely driven by the effect of the rising interest rates, the effect of
the National Credit Act and the worldwide financial and liquidity crisis on
credit extension by financial institutions to consumers, the difficult financial
conditions consumers are experiencing in general, and the slowdown in the
housing market.
Non Bank Term Lending (Micro / Consumer Finance)
The implementation of the National Credit Act ("NCA") has provided the South
African Micro Finance market with greater regulatory certainty. The NCA imposes
certain lower interest rates on term loans, but allows certain additional fees.
The NCA forced 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.
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. While Finbond`s Micro/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.
The crisis 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.
In March 2008 Standard Chartered Bank provided Finbond with a R 40m facility to
grow it`s micro finance books. In October 2008 The FMO provided Finbond with a R
100m (EUR 7,5m) facility to grow it`s micro and consumer debtors books. Finbond
is well funded and positioned for the implementation of it`s growth and
expansion plans in the micro finance market in South Africa and Africa.
EXECUTIVE OVERVIEW
General Overview
In the context of this challenging business environment the Group achieved
satisfactory trading results for the six months under review, the result of
sustained progress in the execution of the Group`s strategy.
Finbond`s results were achieved during a challenging period that was brought
about by a significant decrease in the rate at which banks are approving the
mortgage applications submitted by Finbond`s Mortgage Origination division.
Monthly mortgage origination volumes measured by formal grants by the four major
banks have declined from R 1,8 billion in May 2007 to R 560 million in August
2008. Due to the timeous re-positioning of the Group in the Micro Finance
Market, the company`s positioning with Strategic Funding Partners, product
design, matching funding, cost containment, and significant national
distribution channels, the Group performed well notwithstanding lower earnings
levels in current market conditions.
Given the rising interest rate cycle and expected further decline in mortgage
origination volumes our three Mortgage Origination businesses will be
rationalised and consolidated in the months ahead in order to contain cost and
remain profitable.
It remains our strategy to focus on the further rapid expansion of our Micro and
Consumer Finance Division. The expansion of our Non Bank Term Lending activities
will also ensure medium and long term sustainability in the South African
market. To this end, during the six under review Finbond expanded it`s Micro
Finance branch network from 101 to 118 branches. We also acquired branches in
Namibia and Botswana. Our African expansion is on track and on schedule.
Finbond signed two Rand facilities totalling an equivalent of EUR7.5m ( R 100m )
with FMO. The first facility is a five year Senior unsecured loan of the Rand
equivalent of EUR2.5m with an interest only period of two years. The second
facility comprises the Rand equivalent of EUR5m in subordinated mezzanine
funding repayable in five years. These facilities will enable Finbond to grow
its book by two thirds and entail no currency risk for the company. Moreover,
the subordinated facility provides Finbond with a platform to raise further
senior debt to realize its growth plans.
FMO N.V. is a solid funding partner with an investment portfolio of EUR3.4bn. It
was established jointly by the Dutch government and Dutch private sector
organizations in 1970 to catalyse development by financing private sector
parties in developing countries. In conjunction with the facilities, FMO has
provided Finbond with a grant to accelerate Finbond`s process of centralisation
and to fund consultancy services to identify areas where Finbond can further
strengthen its risk management and credit monitoring capabilities. In addition,
the facilities incentivise Finbond to adhere to `best in class` lending
practices in the South African market, with a view to servicing its customers
sustainably, to limit risk and to facilitate future fund raisings abroad.
Delivering on Strategy
Despite the challenges facing Finbond in the current business environment, we
remain committed to the Group`s principle objective of maximising shareholder
value.
Finbond has a sound platform and strategic base from which to grow. The focus
for the remainder of the financial year remains on further diversification into
the micro finance market , funding, growth, optimal capital utilisation ,
operational efficiency , consolidation and rationalization of mortgage
origination businesses.
A challenging and competitive business environment necessitates optimal
operational efficiencies. Finbond is currently in the process of implementing a
number of measures in all Mortgage Origination subsidiaries and subsidiaries not
performing optimally in order to improve efficiencies and reduce their cost base
and will continue to do so.
Prospects
The success of Finbond`s strategic direction and the efforts of its management,
staff and intermediaries are evident in the financial performance during the six
months ending 31 August 2008.
The challenging macro-economic environment and volatile market conditions are
not expected to abate for the remainder of the financial year and are likely to
continue impacting negatively on Finbond`s Mortgage Origination Division. The
challenges, in a volatile and rising interest rate environment, are enormous but
exiting. We believe that the continued rapid expansion into the Micro Finance
market in the implementation of our strategic action plan will ensure that we
achieve results and yield dividends in the medium and long term.
Market conditions in general, and in particular rising interest rates and
further declines in our mortgage origination business could have an impact on
our ability to repeat the performance of the first six months during the second
half of the 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.
Finbond is confident that it has the required resources and depth in management
to successfully confront these challenges.
FINANCIAL RESULTS
The actual results for the six months to 31 August 2008 have not been audited
and represens the unaudited interim results for the group. The consolidated
interim report is prepared in accordance with and contains the information
required International Financial Reporting Standards (IFRS), IAS 34: Interim
Financial Reporting, JSE Limited Listings Requirements and the Companies Act of
South Africa. The interim results are prepared under the historical cost
convention. The accounting policies are consistent with those of the previous
financial period.
Notes:
1. Expenditure on property, plant and equipment during the period amounted to
R837 000 and disposals of vehicles came to R207 000. No further commitments
were incurred.
2. Depreciation and amortisation totalled R1666 000
3. In the preparation of the financial statements at 29 February 2008 a
"Reserve for own shares" amounting to R64 224 960 was created for the issue
of shares following the achievement of profit warrantees by subsidiary
companies. The reserve was calculated at a share issue price of 90c a
share, which was the ruling market price at the time. During the period
under review, the shares were actually issued when the market price was 39c
a share. Accordingly the reserve of R64 224 960 was reversed and share
capital issued at R 26 095 000 accounted for.
4. During the period under review, the subsidiary Blue Dot Finance (Pty) Ltd
was sold to the previous shareholders. The result was a reduction of R2 967
000 in the reserves of the Group.
Dividend
No interim dividend has been declared.
For and on behalf of the Board
Dr. Malesela Motlatla Dr. Willie van Aardt
31 October 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, Admitted Solicitor of The Supreme
Court of England and Wales, QLTT (England and Wales UK) ; 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
(Registration Number : 2001/015761/06) TA Finbond Property Finance TM
107 Nicholson Street , Brooklyn, Pretoria
PO Box 2127 Brooklyn Square, 0075
www.finbondlimited.co.za
Designated Advisor:
Grindrod Bank Limited
Date: 31/10/2008 10:33:38 Produced by the JSE SENS Department.
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