| Thu 5 May 2011, 16:52 | | FGL - Finbond Group Limited - Audited results for the 12 months ended 28 |
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FGL
FGL
FGL - Finbond Group Limited - Audited results for the 12 months ended 28
February 2011
FINBOND GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2001/015761/06)
Share code: "FGL" ISIN: ZAE00013895
("Finbond" or "the Company")
AUDITED RESULTS FOR THE 12 MONTHS ENDED 28 FEBRUARY 2011
STATEMENT OF COMPREHENSIVE INCOME
Figures in rand 2011 2010
Interest income 58 427 288 65 599 170
Interest expense (15 949 026) (19 724 362)
Net interest income/ margin 42 478 262 45 874 808
Fee income 96 150 062 72 618 652
Other microfinance income 21 661 411 15 917 543
Fair value adjustments 22 586 138 781 647
Net commission income 1 381 319 1 392 910
Net impairment charge on loans and (23 461 057) (27 668 720)
advances
Operating expenses (145 327 (189 306 532)
085)
Operating (loss)/ profit (7 094 503) 57 610 308
Dividends from subsidiaries - -
Impairment of goodwill and intangibles (19 444 029) -
Impairment of investments in - -
subsidiaries
Loss on sale of subsidiary (115 697) 0
Gain on a bargain purchase 167 383 3 738 160
(Loss)/ profit before taxation (26 486 845) 61 348 468
Taxation 6 143 136 (3 150 464)
(Loss)/ profit for the period (20 343 709) 58 198 004
Other comprehensive income net of - 2 532
taxation
Foreign currency translation - 2 532
differences for foreign operations
Total comprehensive (loss)/ income for (20 343 709) 58 200 536
the period
Owners of the company (20 020 806) 58 200 536
Non controlling interest (322 903) -
(Loss)/ profit for the period
attributable to:
Owners of the company (20 020 806) 58 198 004
Non controlling interest (322 903) -
Basic (loss)/ earnings per share (5.6) 16.1
(cents)
Diluted (loss)/ earnings per share (5.6) 16.1
(cents)
RECONCILIATION OF HEADLINE LOSS PER
SHARE
Figures in rand 2011 2010
Net (loss)/ profit attributable to (20 020 806) 58 198 004
ordinary equity holders of the parent
Adjusted for:
Gain on a bargain purchase (143 949) (3 214 817)
Loss on sale of subsidiary (99 499) -
Loss/ (profit) on disposal of property, (46 841) 14 535
plant and equipment
Intangible impairment 13 999 701 -
Revaluation of investment properties - (119 352 216)
(6 311 394) (64 354 494)
Headline loss per share (cents) (1.8) (17.8)
Diluted headline loss per share (cents) (1.8) (17.8)
STATEMENT OF FINANCIAL POSITION
Figures in rand 2011 2010
Assets
Cash and cash equivalents 36 938 202 58 686 238
Other financial assets 6 292 302 6 489 872
Loans and advances 95 720 902 96 174 927
Other receivables 9 669 248 9 107 028
Loans to group companies - -
Investments in subsidiaries - -
Property, plant and equipment 22 540 764 18 758 228
Investment property 207 000 000 207 000 000
Intangible assets - 25 224 686
Goodwill 61 262 303 61 332 358
Total Assets 439 423 721 482 773 337
Equity and liabilities
Equity
Share capital and premium 201 793 187 201 708 334
Reserves 7 439 436 5 004 282
Accumulated profit/ (loss) 26 303 854 45 738 137
Equity attributable to owners of the 235 536 477 252 450 754
Company
Non-controlling interest (441 756) 142 455
Total equity 235 094 721 252 593 208
Liabilities
Trade and other payables 15 412 126 28 338 422
Current tax payable 2 580 031 5 415 620
Finance lease obligation 4 629 418 3 974 258
Other financial liabilities 170 427 271 164 562 060
Loans from shareholders/ group 8 055 299 13 473 281
companies
Deferred tax 3 224 855 14 416 488
Total liabilities 204 329 000 230 180 129
Total equity and liabilities 439 423 721 482 773 337
STATEMENT OF CHANGES IN EQUITY
Figures in Rand Share Share Treasury Total
Capital premium shares Share
Capital
Balance at 1 March 2009 297 168 419 631 (2 302 716)
Profit for the period - - - 166 117
212
Other comprehensive income - - - -
Total comprehensive income - - - -
for the period
Contributions by and -
distributions to owners:
Issue of ordinary shares 43 846 258 -
85
Share issue costs - (991 689) 43 846
- 343
Shares reclaimed based on - - (6 826 445) (991 689)
contingent consideration
Transactions non- - - - (6 826
controlling interest 445)
Share based payment - - - -
transactions
Transfer to contingency - - - -
reserve
Own shares purchased - - (437 087) -
Reclassification to - - - (437 087)
liabilities based on
amended settlement
Total transactions with 85 42 854 569 (7 263 532) 35 591
owners 122
Balance at 1 March 2010 382 211 274 200 (9 566 248) 201 708
334
Loss for the period - - -
-
Other comprehensive income - - -
-
Total comprehensive loss - - -
for the period -
Contributions by and
distributions to owners:
Own shares transferred - - 265 026 265 026
based on contingent
consideration
Share based payment - - - -
transactions
Transfer to contingency - - - -
reserve
Own shares purchased - - (180 173) (180 173)
Disposal of interest in - - - -
subsidiary
Derecognition of non - - - -
controlling interest
Transaction with Joint - - - -
Venture, recorded directly
in equity
Total transactions with - - 84 853 84 853
owners
Balance at 28 February 382 211 274 200 (9 481 395) 201 793
2011 187
STATEMENT OF CHANGES IN EQUITY (continued)
Figures in Rand Reserves Foreign Accumulated
currency profit/
translation (loss)
reserve
Group
Balance at 1 March 2009 38 716 052 - (11 144
128)
Profit for the period - - 58 198 004
Other comprehensive income - 2 532
Total comprehensive income 2 532 58 198 004
for the period
Contributions by and (34 796 052)
distributions to owners:
Issue of ordinary shares - - -
Share issue costs - - -
Shares reclaimed based on - - -
contingent consideration
Transactions non-controlling - - -
interest
Share based payment 3 686 011 - -
transactions
Transfer to contingency 1 315 739 - (1 315 739)
reserve
Own shares purchased - -
Reclassification to (3 920 000) - -
liabilities based on amended
settlement
Total transactions with (33 714 302) - (1 315 739)
owners
Balance at 1 March 2010 5 001 750 45 738 138
2 532
Loss for the period - - (20 020
806)
Other comprehensive income - (2 532)
Total comprehensive loss for (2 532) (20 020
the period 806)
Contributions by and - - -
distributions to owners:
Own shares transferred based - - -
on contingent consideration
Share based payment 1 660 448 - -
transactions
Transfer to contingency 777 238 - (777 238)
reserve
Own shares purchased - - -
Disposal of interest in - - 128 053
subsidiary
Derecognition of non - - 386 798
controlling interest
Transaction with Joint - 848 910
Venture, recorded directly in
equity
Total transactions with 2 437 686 - 586 522
owners
Balance at 28 February 2011 7 439 436 - 26 303 854
STATEMENT OF CHANGES IN EQUITY (continued)
Figures in Rand Total Non Total
Attributable controlling equity
to equity interest
holders of
the company
Group
Balance at 1 March 2009 193 689 136 20 196 152 213 885 288
Profit for the period 58 198 004 - 58 198 004
Other comprehensive income 2 532 - 2 532
Total comprehensive income 58 200 536 - 58 200 536
for the period
Contributions by and
distributions to owners:
Issue of ordinary shares 9 050 291 - 9 050 291
Share issue costs (991 689) - (991 689)
Shares reclaimed based on (6 826 445) - (6 826 445)
contingent consideration
Transactions non-controlling - (20 053 697) (20 053
interest 697)
Share based payment 3 686 011 - 3 686 011
transactions
Transfer to contingency - - -
reserve
Own shares purchased (437 087) - (437 087)
Reclassification to (3 920 000) (3 920 000)
liabilities based on amended -
settlement
Total transactions with 561 081 (20 053 697) (19 492
owners 616)
Balance at 1 March 2010 252 450 753 142 455 252 593 209
Loss for the period (20 020 806) (322 903) (20 343
709)
Other comprehensive income (2 532) - (2 532)
Total comprehensive loss for (20 023 338) (322 903) (20 346
the period 241)
Contributions by and
distributions to owners:
Own shares transferred based 265 026 - 265 026
on contingent consideration
Share based payment 1 660 448 - 1 660 448
transactions
Transfer to contingency - - -
reserve
Own shares purchased (180 173) - (180 173)
Disposal of interest in 128 053 (104 322) 23 731
subsidiary
Derecognition of non 386 798 (156 985) 229 812
controlling interest
Transaction with Joint 848 910 - 848 910
Venture, recorded directly in
equity
Total transactions with 3 109 061 (261 307) 2 847 754
owners
Balance at 28 February 2011 235 536 477 (441 756) 235 094 721
STATEMENT OF CASH FLOW
Figures in rand 2011 2010
Cash flows from operating activities
Cash receipts from customers 144 492 513 144 882 495
Cash paid to suppliers and employees (103 852 (115 723
613) 386)
Cash generated by operating activities 40 639 900 29 159 109
Increase in net loans and advances (33 985 158) (33 335
184)
Interest paid (15 029 746) (17 765
039)
Interest received on cash and cash 2 007 976 5 198 381
equivalents
Taxation paid (7 763 318) (4 987 675)
Net cash outflow from operating activities (14 130 346) (21 730
408)
Cash flows from investing activities
Property, plant and equipment acquired (7 027 972) (8 863 211)
Proceeds on disposals of property, plant 596 115 257 513
and equipment
Investment properties acquired - (23 707
161)
Dividends received - -
Increase in loans (to)/ from group (5 417 982) 5 379 692
companies
Increase in financial assets (634 299) (6 484 302)
Expenditure to maintain and expand (12 484 138) (33 417
operating capacity 469)
Business combinations and 134 147 (1 514 185)
divisionalisation
Expenditure for expansion 134 147 (1 514 185)
Net cash from investing activities (12 349 990) (34 931
654)
Cash flows from financing activities
Repurchase of own shares held as treasury (63 168) (437 087)
shares
Finance lease payments (1 112 161) (444 180)
Funding/ other financial liabilities 67 654 835 45 638 631
raised
Funding/ other financial liabilities (61 747 206) (15 176
(repaid) 698)
Share premium expenses - (991 689)
Net cash from financing activities 4 732 300 28 588 977
Decrease in cash and cash equivalents (21 748 036) (28 073
085)
Cash and cash equivalents at beginning of 58 686 238 86 759 323
period
Cash and cash equivalents at end of the 36 938 202 58 686 238
period
SEGMENTAL REPORT
2011 Group Micro Property Mortgage
Figures in rand Finance Investment Origination
Interest revenue 56 956 267 - 51 985
Interest expense (12 673 035) (45 922) -
Net interest revenue 44 283 232 (45 922) 51 985
Fee income 96 150 062 - -
Net commission income - - 1 312 513
Other microfinance income 21 661 411 - -
Fair value adjustment 22 586 -
Net impairment charge on (23 461 057) - -
loans and advances
Operating expenses (130 983 (855 953) (416 429)
651)
Operating (loss)/ profit 7 672 583 (901 876) 948 069
Net impairment charge on - - -
intangibles
Loss on sale of subsidiary - - -
Gain on a bargain purchase - - -
(Loss)/ profit before 7 672 583 (901 876) 948 069
taxation
Taxation 101 382 - (230 840)
(Loss)/ profit for the year 7 773 965 (901 876) 717 229
38% -4% 4%
Attributable to:
Equity holders of the parent 8 096 868 (901 876) 717 229
Non-controlling interest (322 903) - -
Segment assets 203 601 245 207 000 000
3 900 112
Investment property - 207 000 000 -
Loans and advances 95 720 902 - -
Cash & cash equivalents 24 662 140 - 1 012 308
Segment liabilities 185 885 621 - 898 194
SEGMENTAL REPORT (Continued)
2011 Group
Figures in rand Reconciling Consolidated
Interest revenue 1 419 036 58 427 288
Interest expense (3 230 069) (15 949 026)
Net interest revenue (1 811 033) 42 478 262
Fee income - 96 150 062
Net commission income 68 806 1 381 319
Other microfinance income - 21 661 411
Fair value adjustment - 22 586
Net impairment charge on - (23 461 057)
loans and advances
Operating expenses (13 071 052) (145 327
085)
Operating (loss)/ profit (14 813 278) (7 094 503)
Net impairment charge on (19 444 029) (19 444 029)
intangibles
Loss on sale of subsidiary (115 697) (115 697)
Gain on a bargain purchase 167 383 167 383
(Loss)/ profit before (34 205 621) (26 486 845)
taxation
Taxation 6 272 594 6 143 136
(Loss)/ profit for the year (27 933 027) (20 343 709)
-137% -100%
Attributable to:
Equity holders of the parent (27 933 027) (20 020 806)
Non-controlling interest - (322 903)
Segment assets 24 922 364 439 423 721
Investment property - 207 000 000
Loans and advances - 95 720 902
Cash & cash equivalents 11 263 754 36 938 202
-
Segment liabilities 17 545 185 204 329 000
SEGMENTAL REPORT (Continued)
Business segments
2010 Group Micro Property Mortgage
Figures in rand Finance Investment Origination
Interest revenue 61 538 590 - 95 820
Interest expense (6 514 755) (4 798 782) (8 893)
Net interest revenue 55 023 835 (4 798 782) 86 927
Fee income 72 618 652 - -
Net commission income - - 1 392 910
Other microfinance income 15 917 543 - -
Fair value adjustment - 138 781 647 -
Net impairment charge on (27 668 720) - -
loans and advances
Operating expenses (112 094 (14 070 306) (6 860 650)
352)
Operating profit 3 796 958 119 912 559 (5 380 813)
Gain on a bargain purchase 3 738 160 - -
Profit/(Loss) before 7 535 118 119 912 559 (5 380 813)
taxation
Taxation (3 448 941) (14 146 086) 710 104
(Loss)/ profit for the year 4 086 177 105 766 473 (4 670 709)
7% 182% -8%
Attributable to:
Equity holders of the parent 4 086 177 105 766 473 (4 670 709)
Non-controlling interest - - -
Segment assets 220 870 423 207 000 000 23 727 125
Investment property - 207 000 000 -
Loans and advances 96 174 927 - -
Cash & cash equivalents 24 379 618 - 3 130 831
Segment liabilities 172 262 346 5 878 343 2 645 359
SEGMENTAL REPORT (Continued)
Business segments
2010 Group
Figures in rand Reconciling Consolidated
Interest revenue 3 964 760 65 599 170
Interest expense (8 401 932) (19 724 362)
Net interest revenue (4 437 172) 45 874 808
Fee income - 72 618 652
Net commission income - 1 392 910
Other microfinance income - 15 917 543
Fair value adjustment - 138 781 647
Net impairment charge on - (27 668 720)
loans and advances
Operating expenses (56 281 224) (189 306
532)
Operating profit (60 718 396) 57 610 308
Gain on a bargain purchase - 3 738 160
Profit/(Loss) before (60 718 396) 61 348 468
taxation
Taxation 13 734 459 (3 150 464)
(Loss)/ profit for the year (46 983 937) 58 198 004
-81% 100%
Attributable to:
Equity holders of the parent (46 983 937) 58 198 004
Non-controlling interest - -
Segment assets 31 175 789 482 773 337
Investment property - 207 000 000
Loans and advances 96 174 927
-
Cash & cash equivalents 31 175 789 58 686 238
Segment liabilities 49 394 081 230 180
129
The Group is primarily a financial services provider with significant
business interests in the microfinance environment. The Group is organised
into three major operating divisions, namely: microfinance, property
investment and mortgage origination. These divisions are the basis on which
the Group reports its primary segment information for internal purposes. The
Group`s operating divisions operate in two principal geographical segments/
areas of the world, namely South Africa and Namibia. As the Namibian
operations are insignificant in context of Group operations, no secondary
segmental information is provided.
BASIS OF PREPARATION
These Finbond Group Limited ("the Group") financial results for the year
ended 28 February 2011 constitute a summary (prepared in accordance with the
JSE Listing Requirements, the South African Companies Act (Act 61 of 1973) as
amended, and the recognition and measurement requirements of International
Financial Reporting Standards and the presentation and disclosable
requirements of International Accounting Standard 34 and the AC 500
interpretation as issued by the Accounting Profession Council of SAICA) of
the Group`s audited financial statements.
These summarized consolidated financial statements do not include all of the
information required for full annual financial statements and should be read
in conjunction with the consolidated financial statements of the Group as at
and for the year ended 28 February 2011.
The accounting policies applied by the Group in these summarized consolidated
financial statements are consistent with those applied in the previous year.
AUDIT OPINION
This announcement has been audited by the Company`s auditors, KPMG Inc., who
have expressed an unmodified opinion which is available for inspection at the
Company`s registered office.
ANNUAL REPORT
The Company`s annual report, together with a notice convening the annual
general meeting, will be mailed to Finbond shareholders before the end of May
2011, at which time an announcement incorporating details of the annual
general meeting will be published on SENS.
INTRODUCTION
The directors are pleased to present the financial results of the Finbond
Group for the year ended 28 February 2011. During the twelve months under
review Finbond made good progress despite difficult economic conditions as
well as continued challenging market conditions. This process resulted in a
number of achievements and significant developments for Finbond:
* Headline loss per share - 1.8 cents (89.9% improvement)
* Microfinance revenue - R175 million (13.6% improvement)
* Value of loans advanced - R417 million (7.8% improvement)
* Net tangible asset value - R174 million ((5.1% improvement)
* Expanded national branch network in the South African Micro Finance
sector to 189 uniquely positioned branches
* Biometric identification and verification of clients at all branches
* Significant enhancements to the Group`s loan sub-system and a new Codix
credit scoring implemented
* Detailed Vintage Curves available on all loan products
* Received a credit rating of Ba3.za/NP.za from ratings agency Moody`s
The Group continues to manage for the long term 5 - 10 - 15 years and to
invest in customer focused low cost delivery channels, infrastructure,
people, training, upfront credit scoring, unique innovative modern
information technology and systems as well as enhanced collection strategies
and systems, to build a sustainable, professional business. We believe that
doing the right things now, will allow us to reap the rewards in the medium
and long term.
MARKET CONDITIONS
The South African economy recovered in 2010 after the recession of 2009,
supported by the global recovery, growing domestic demand, and low inflation
and interest rates. Real GDP growth of just below 4% is forecast for 2011.
Despite the positive effect of declining inflation and interest rates in
2010, the household sector was plagued by continued job losses in most
sectors of the economy up to late last year, while the ratio of household
debt to disposable income remained high at just below 79%.
ABSA Capital research highlights that "from 26% y/y in Q4 06, private sector
credit extension fell to -0.7% y/y in Q1 10 and at present, remains languid
at best (5.4% in February 2011). Illustrating the unevenness of growth in the
economy, household credit grew to 7.0% y/y in February 2011, while corporate
credit measured just 2.7% y/y. Interestingly, while consumer credit is being
held back by a mix of demand (indebtedness) and supply (stricter lending
requirements), high levels of corporate savings in the economy means
companies generally have less need to borrow. Until corporate savings starts
to decline and spare capacity has been used up, we do not expect corporate
credit to perform strongly. A general improvement in growth metrics through
2011 leaves us expecting private sector credit extension ending 2011 at 10.3%
y/y - a welcome improvement from 5.4% at the end of 2010. Unfortunately the
same fortunes have not extended to the other two household consumption
drivers, deleveraging and employment. Since the start of the rate reduction
cycle in December 2008, household debt to income has only fallen slightly
(from 81% in 2009 to 78% in 2010) and while a little deleveraging may
actually be stimulatory in a cutting cycle (by creating more `room` in
consumer pockets for future spending), a still-high household debt ratio will
increase consumer vulnerability when the hiking cycle finally commences. At
the same time, unemployment remains extremely challenging. Since the peak of
employment in Q4 08 (13.8 million jobs) a net 712k jobs have been shed as of
Q4 10 which has not only deducted from nominal income but has also weighed
heavily on consumer confidence. Even as the government`s New Growth Path
places employment creation at the epicentre of policy-making, the landscape
remains tricky, largely because wages are settled well-above inflation. This
can be a strong deterrent to hiring intentions".
MICRO FINANCE
Total segment revenue from Microfinance activities, made up of interest, fee
and insurance income (portfolio yield) grew 13,6% (R21 million) to R175
million (2010: R154 million).
Microfinance net profit before tax amounting to R7,7 million (2010: 7,5
million) is net of, and not withstanding, the following:
* High net loan impairment expenses (refer portfolio quality and bad debts
below)
* The effect of opening 33 new branches in the year under review (term to
profitability approximately 6 - 18 months) amounting to R4,5 million
(not expected to recur in the short to medium term to this extent).
Bad debts experienced during the period improved, with the net impairment
loss ratio (total impairment loss to the income statement / average gross
loan portfolio (NILR)) down to 19.2%, marginal improvement from 19.4% in the
prior period (net of the value placed on rehabilitated loans). This high
impairment reflects current economic conditions and job losses in the formal
and informal sectors.
Non-performing loans (PaR90 - outstanding loans with arrears over 90 days) to
gross loans and advances amounted to 8,9% (2010: 3.9%) and again reflects
credit risk in the current market and consumer stress.
Loan loss reserve, also referred to as the risk coverage ratio (Loan loss
reserves (impairment provision)/ PaR90) remains conservative at 94.5% (2010:
134.3%), which is an indication of a Microfinance institution`s ability to
cope with estimated loan losses.
The Group continued to improve on and apply strict upfront credit scoring
criteria, supported by robust collection strategies and processes to achieve
improved default rates going forward.
Finbond`s debtors` book remains geared at less than one and half times, well
below industry average.
At the end of February 2011 Finbond had R 36,9 million (2010: R58,7 million)
cash in bank. In addition, Finbond has R12,6 million in undrawn facilities
available as at the end of February 2011. Although the aforementioned
liquidity position seems favorable relative to Finbond`s operations and book
size, Finbond is not immune to the funding and refinancing risks that the
Microfinance market is currently experiencing. As a non deposit taking MFI
dependent on development funding from International Development Funders and
wholesale funding from local and international Banks, Finbond is particularly
vulnerable to funding and refinancing risks in the current environment.
Finbond`s loan portfolio is very cash flow generative given the short term
nature of our book, which is a big positive in the current environment, by
providing an important source of internally generated liquidity. Faced with
refinancing constraints we will be able to look to our loan book as a source
of liquidity to service maturing obligations if we are unable to raise
additional funding in the fourth quarter of the year.
Following the Moody`s Credit rating of Finbond and their decision to assign
aBa3.za/NP.za national scale issuer rating to Finbond Group Limited, we are
considering an issue of debt within the capital markets in order to refinance
existing maturing debt and raise some additional funds for growth.
Subject to obtaining the required funding Finbond is well positioned for the
implementation of its growth and expansion plans in the Microfinance market
in South Africa and Africa.
MORTGAGE ORIGINATION
Given that Mortgage Origination contributes less than 1% of Finbond`s bottom
line (R717000 in the current reporting period in point of fact) and there is
no real sign of any significant recovery, Finbond made the strategic decision
at the end of the previous financial year to completely exit the mortgage
origination market by outsourcing its remaining mortgage origination
channels.
Effective 1 March 2011 Finbond received 0,01% commission on all transactions
originated through its origination channels without having to spend any
management time, physical expense or effort on the various channels.
PROPERTY INVESTMENTS
There was no change to the valuation placed on investment properties in the
current period.
Two Independent valuations by professional valuers registered with the South
African Institute of Valuers were again obtained as at 28 February 2011, as
required by IAS 40. The Independent Valuations confirmed the value of
Finbond`s property portfolio at R207 million.
The directors again draw attention to the risks associated with property
investments. Although over the long term property is considered a low risk
asset, investors must be aware that significant short and medium term risk
factors are inherent in the asset class. Investments in property are
relatively illiquid and usually more difficult to realise than listed
equities or bonds and this restricts the Group`s ability to realise value in
cash in the short term. The property valuations in this period have been
prepared in a period of market uncertainty. The current turmoil in the
world`s financial markets has resulted in commercial and residential
properties selling in much reduced quantities with virtually little or no
market activity in some areas. The lack of market activity and the resulting
lack of market evidence means that it is generally not possible to value with
as high a degree of certainty as would be the case in a more stable market
with a good level of market evidence. The best evidence of fair value is
current prices in an active market for similar property investments.
In obtaining evidence to support fair value the Group has gone to great
lengths and obtained and considered information from a variety of sources.
EXECUTIVE OVERVIEW
GENERAL OVERVIEW
In the context of this challenging economic and financial environment the
Group achieved satisfactory trading results for the twelve months under
review, the result of sustained progress in the execution of the Group`s
strategy.
During the past year, Finbond continued to invest management time and
resources into the improvement and refinement of management structures,
management information, information technology systems, biometric customer
identification, upfront credit scoring programs and processes and back end
collection processes. Through these improvements Finbond aims to
differentiate itself in the market by using modern technology in order to
deliver simple easy to understand products and services to its target market.
The result of these initiatives will take time before the effect thereof will
be visible in the bottom line performance of the Group.
There remain numerous major challenges for Finbond in the short and medium
term, not only in respect of the prevailing adverse market conditions, but
also relating to the ongoing process of improving the overall effectiveness
of the Group to enable it to compete aggressively with its peers.
Strategic initiatives during the year under review included:
* Applying for Mutual Banking License to the South African Reserve Bank.
* Developing a new loan management system with EMID that is of ISO
9001:2000 ISAE 3402* (SAS70) standard and quality and will be
implemented in June 2011.
* Expanding the branch Network by a further 33 branches in South Africa.
* Introducing the Codix upfront Credit Scoring System on all loan
products.
* Focus on increased sales of the short term product range, specifically
30 day and 90 day products.
* Developing detailed vintage curves on all loan products.
* Monitoring and driving robust collections of bad debt in all regions.
In the year under review The Netherlands Development Finance Company (FMO)
yet again approved a Capacity Development Program for Finbond, which allowed
the Group to further improve and develop the core loan management system,
overall reporting, management information, collections and legal systems,
change control, impairment provisioning, upfront credit scoring, as well as
the seamless integration of the aforementioned.
HUMAN RECOURSES
Emphasis is placed on market-related remuneration structures with performance-
based rewards as well as long-term share incentives for all personnel.
APPOINTMENTS THE BOARD
In accordance with the requirements of paragraph 3.59 of the JSE Limited
Listings Requirements, shareholders are advised of the following appointments
to the board with immediate effect:
* Mr. Paul Mavrothalassitis (MBA Stell) has been appointed as Executive
Director and Chief Operating Officer; and
* Mrs. Loretta Xaba (B Com, B Compt Hons, CA(SA)) has been appointed as
an Independent Non Executive director on 4 May 2011.
It is expected that these appointments will greatly enhance the quality and
diversity of management expertise within the Group.
CHALLENGING BUSINESS ENVIRONMENT
Despite the challenges facing Finbond in the current business environment we
remain committed to the Group`s principle objective of maximizing shareholder
value.
Finbond is in the process of building a sound platform and strategic base
from which to grow its micro finance operations in South and Southern Africa.
The focus for the year ahead will be on further improving the quality of our
loan portfolio , stricter lending criteria, decreasing arrears rates,
accessing medium and long term funding, growing our loan portfolio, optimal
capital utilization, reducing operational cost, tighter liquidity management,
and improved operational efficiency.
BUSINESS PRIORITIES
In the year ahead through Courage, Discipline, Commitment, Confidence,
Persistence, Passion and a strong Sense of Values we will continue to work
hard to realize our vision "To be the leading micro finance institution in
South Africa".
After a period of significant branch expansion in 2009 and 2010 our focus in
2011 will be on Finbond being profitable from a branch, regional and national
perspective.
Our 6 top business priorities in 2011 are to:
1 Be profitable from a Net Profit After Tax perspective
2 Drive good quality sales of current product range in all branches
3 The focus is on achieving sales targets with `good quality sales` and to
do proper and effective upfront scoring, affordability`s and apply group
4 credit policy in order for the new loans written not to become bad
debt.
4 Collect our money effectively and efficiently in all branches and
regions. Focus will be on robust, timeous and effective management of
all collections at branch and regional level that starts with effective
pay date management and ends with the issuing of notices and legal
letters where required.
5 Reduce current high bad debt levels significantly in all regions.
6 Reduce cost and tightly control and manage expenses.
7 Train and develop all Finbond Staff members to be the absolute best they
can be in their respective jobs and enforce a culture of excellence and
discipline throughout our organization.
CREDIT RATING
After conducting their ratings review process, Moody`s decided to assign
Ba3.za/NP.za national scale issuer ratings to Finbond Group Limited.
According to Moodys Finbond`s Ba3.za/NP.za national-scale issuer ratings
reflect: "(i) its small size and narrow franchise; (ii) its focus on a high
risk business segment and resultant high level of impaired loans; (iii) its
low earnings generating capabilities; and (iv) narrow funding base.
The ratings also reflect Finbond`s adequate capitalisation and the robust
growth prospects of South Africa`s microfinance industry. We believe Finbond
has a "scale-able" franchise given its nationwide branch network and
potential to develop into a banking institution serving the lower income
brackets (subject to the relevant regulatory approvals). No external support
has been imputed into Finbond`s ratings."
PROSPECTS
The South African economy is not going to stage a large scale recovery in
2011 and the challenging macro-economic environment, in the wake of the
worldwide financial crisis and difficult economic environment in post
recessionary South Africa, as well as the adverse market conditions in the
markets that Finbond operate in are not expected to abate in the short and
medium term.
Subject to being able to raise the required funding , given Finbond`s
extensive uniquely positioned 189 branch network, current low productivity
ratio`s, low average loan size and short term tenure there is room to
significantly grow it`s micro finance debtors book in the year ahead.
Although the Group is confident that we have the required resources and depth
in management to successfully confront the various significant challenges
facing Finbond, market conditions in general and specifically higher
impairment charges, higher cost of funding, refinancing risks, liquidity risk
and the lack of availability of funding could have a negative impact on the
performance of the Group in the year ahead.
Any reference to future financial performance included in this announcement
has
not been reviewed or reported on by the group`s external auditors.
DIVIDEND
It is the Group`s policy to consider the declaration of a dividend annually.
Given the current economic climate and the need to protect the Group`s
balance sheet the Board of Directors have decided not to declare a dividend
for the year ended 28 February 2011.
For and on behalf of the Board
Dr. Malesela Motlatla Dr. Willie van Aardt
5 May 2011
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) ; Chief Compliance
Officer: H J Wilken ( BCom Honss ( UNISA); Chief Risk Officer: DC Pentz (B
Comm Honns , CA (SA)) , Chief Financial Officer: G Labuschagne B. Com Fin Acc
(Cum Laude) B Com Acc Honns/CTA (UP) CA (SA); Adv. J Noeth SC* ( B Iuris
LLB). * Non- Executive
Transfer secretaries
Link Market Services South Africa (Proprietary) Limited
(Registration number 2000/007239/07)
13th Floor, Rennie House, 19 Ameshoff Street
Johannesburg, 2001
(PO Box 4844, Johannesburg, 2000)
Finbond Group Limited
(Registration Number: 2001/015761/06)
337 Veale Street, Brooklyn, Pretoria
PO Box 2127 Brooklyn Square, 0075
www.finbondlimited.co.za
www.finbond.co.za
Designated Advisor:
Grindrod Bank Limited
Date: 05/05/2011 16:52:01 Produced by the JSE SENS Department.
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