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FGL
FGL
FGL - Finbond - Unaudited consolidated results for the six months ended 31
August 2011 and renewal of cautionary announcement
Finbond Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2001/015761/06)
Share code: FGL
ISIN: ZAE000013895
("Finbond" or "the Company")
UNAUDITED CONSOLIDATED RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2011
Figures in Rand Interim Interim Full year
unaudited 31 unaudited 31 audited 28
August 2011 August 2010 Feb 2011
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Assets
Cash and cash equivalents 29 231 039 51 466 082 36 938 202
Other financial assets 6 819 355 10 005 455 6 292 302
Loans and advances 82 620 863 84 704 267 95 720 902
Maximum exposure to credit 114 663 092 116 887 914 127 766 631
risk (Gross book)
Deferred future income (17 236 826) (20 230 395) (21 341 311)
Allowance for impairment (14 805 403) (11 953 252) (10 704 418)
to loans and advances
Other receivables 9 537 846 10 232 263 9 669 248
Property, plant and 21 146 973 21 303 605 22 540 764
equipment
Investment property 207 081 002 207 000 000 207 000 000
Intangible assets - 22 071 601 -
Goodwill 61 262 303 61 332 358 61 262 303
Total Assets 417 699 381 468 115 631 439 423 721
Equity and liabilities
Equity
Share capital and premium 201 793 187 201 696 472 201 793 187
Reserves 8 091 179 6 182 424 7 439 436
Accumulated profit 21 667 129 40 985 412 26 303 854
Non-controlling interest (496 394) - (441 756)
Total equity 231 055 101 248 864 308 235 094 721
Liabilities
Trade and other payables 18 038 787 23 005 144 15 412 126
Current tax payable 1 781 187 2 623 424 2 580 031
Finance lease obligation 3 852 242 4 072 111 4 629 418
Other financial 155 434 066 170 176 454 170 427 271
liabilities
Loans from group companies 8 000 000 7 921 248 8 055 299
Deferred tax (462 002) 11 452 942 3 224 855
Total liabilities 186 644 280 219 251 323 204 329 000
Total equity and 417 699 381 468 115 631 439 423 721
liabilities
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Interest income 26 561 817 29 718 340 58 427 288
Interest expense (8 296 461) (9 548 082) (15 949 026)
Net interest income 18 265 356 20 170 258 42 478 262
Fee income 49 322 068 47 345 258 96 150 062
Other microfinance income 11 312 610 10 866 995 21 661 411
Fair value adjustments - - 22 586
Net commission income 137 565 1 175 838 1 381 319
Net impairment charge on (16 048) 739 (14 119) 807 (23 461 057)
loans and advances
Operating expenses (68 482 555) (71 471 057) (145 327 085)
Operating (loss)/ profit (5 493 695) (6 032 515) (7 094 502)
Excess of acquirers` - 432 409 -
interest in net assets
Dividends from
subsidiaries - - -
Impairment of goodwill and (19 444 029)
intangibles - -
Impairment of investments
in subsidiaries - - -
Loss on sale of subsidiary - - (115 697)
Gain on a bargain purchase
- - 167 383
(Loss)/ profit before (5 493 695) (5 600 106) (26 486 845)
taxation
Taxation 770 868 571 852 6 143 136
(Loss)/ profit for the (4 722 827) (5 028 254) (20 343 709)
period
(Loss)/ profit for the
period attributable to:
Owners of the company (4 668 189) (4 885 799) (20 020 806)
Non-controlling interest (54 638) (142 455) (322 903)
Other comprehensive income
net of taxation - (1 894) -
Foreign currency
translation differences - (1 894) -
for foreign operations
Total comprehensive (4 722 827) (5 030 148) (20 343 709)
(loss)/ income for the
period
Total comprehensive
(loss)/ income
attributable to:
Owners of the company (4 668 189) (4 887 693) (20 020 806)
Non-controlling interest (54 638) (142 455) (322 903)
(Loss)/ earnings per
share:
Basic (loss)/ earnings per (1.2) (1.4) (5.6)
share
Diluted (loss)/ earnings (1.2) (1.4) (5.6)
per share
Total number of ordinary 382 025 250 382 025 250 382 025 250
shares outstanding
Weighted average number of 382 025 250 357 352 398 356 722 829
ordinary shares
outstanding
RECONCILIATION OF HEADLINE
LOSS PER SHARE:
(Loss)/ profit (4 668 189) (4 885 799) (20 020 806)
attributable to owners of
the company
Adjusted for:
Gain on a bargain purchase (143 949)
Loss on sale of subsidiary
(99 499)
Intangible asset 13 999 701
impairment
Excess of acquirer - (371 872) -
interest in net asset
value
Profit on disposal of (122 026) 1 055 (46 841)
property, plant and
equipment
Revaluation of investment - - -
properties
Headline loss per share (4 790 215) (5 256 616) (6 311 394)
(cents)
Headline loss per share:
Basic headline loss per (1.3) (1.5) (1.8)
share
Diluted headline loss per (1.3) (1.5) (1.8)
share
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating
activities
Cash receipts from 77 866 894 81 216 336 144 492 513
customers
Cash paid to suppliers and (48 231 029) (56 450 558) (103 852 612)
employees
Cash generated in 29 635 865 24 765 778 40 639 901
operating activities
Increase in net loans and (9 415 234) (8 781 247) (33 985 158)
advances
Interest paid (8 296 461) (9 548 082) (15 029 746)
Interest received on cash 569 811 1 132 430 2 007 976
and cash equivalents
Taxation paid (3 136 295) (5 046 927) (7 763 318)
Net cash from operating 9 357 686 2 521 952 (14 130 345)
activities
Cash flows from investing
activities
Property, plant and (820 406) (5 156 888) (7 027 972)
equipment acquired
Proceeds on disposals of - - 596 115
property, plant and
equipment
Investment properties - - -
acquired
(Decrease)/ increase in 80 850 (5 552 032) (5 417 982)
loans from/ (to) group
companies
Increase in financial (542 168) (3 515 583) (634 299)
assets
Proceeds on loans to staff - - -
members
Expenditure to maintain (1 281 724) (14 224 503) (12 484 138)
and expand operating
capacity
Contingent consideration - - -
settled in cash
Business combinations and - 302 441 134 147
disposals
Expenditure for expansion - 302 441 134 147
Net cash from investing (1 281 724) (13 922 062) (12 349 991)
activities
Cash flows from financing
activities
Repurchase of own shares - (11 862) (63 168)
held as treasury shares
Finance lease payments (716 802) (336 708) (1 112 161)
Funding (other financial - 55 336 708 67 654 835
liabilities) raised
Funding (other financial (15 066 323) (50 808 184) (61 747 206)
liabilities) repaid
Share premium expenses
- - -
Net cash from financing (15 783 125) 4 179 954 4 732 300
activities
Increase/ (Decrease) in (7 707 163) (7 220 156) (21 748 036)
cash and cash equivalents
Cash and cash equivalents 36 938 202 58 686 238 58 686 238
at beginning of period
Cash and cash equivalents 29 231 040 51 466 082 36 938 202
at end of the period
Cash generated in
operating activities
(Loss)/ profit before (5 493 695) (5 600 106) (26 486 845)
taxation
Adjustments for:
Depreciation and 2 549 825 5 443 664 10 505 106
amortisation
Loss on sale of assets (113 894) 1 465 (65 057)
Gain on a bargain purchase (167 383)
Acquirer`s excess of net - (432 409) -
asset purchased
Interest received on cash (569 811) (1 132 430) (2 007 976)
and cash equivalents
Finance costs 8 296 461 9 548 082 15 949 026
Fair value adjustments - - (22 586)
Other non-cash items (847 562) - 38 919
Movement in impairment 22 515 273 21 670 928 36 006 811
charge and bad debts
written off
Impairment of intangibles 19 444 029
Share option costs 686 154 464 200 1 660 448
Loss on sale of subsidiary 115 697
Impairment of other - - -
financial assets
Changes in working
capital:
Trade and other 115 591 219 342 (562 220)
receivables
Trade and other payables 2 497 523 (5 416 958) (13 768 069)
Cash generated in 29 635 865 24 765 778 40 639 900
operating activities
STATEMENT OF CHANGES IN EQUITY
Share Share Treasury Total Share
Capital premium shares Capital
For the six months
ended 31 August 2011
Balance at 1 March 382 211 274 200 (9 481 395) 201 793 187
2011
Loss for the period - - - -
Other comprehensive - - - -
income
Total comprehensive - - - -
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Share based payment - - - -
transactions
Transfer to - - - -
contingency reserve
Own shares purchased - - - -
Transactions with - - - -
Joint Venture,
recorded directly in
equity
Total transactions - - - -
with owners
Balance at 31 August 382 211 274 200 (9 481 395) 201 793 187
2011
For the six months
ended 31 August 2010
Balance at 1 March 382 211 274 200 (9 566 248) 201 708 334
2010
Loss for the period - - - -
Other comprehensive - - - -
income
Total comprehensive - - - -
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Share based payment - - - -
transactions
Transfer to - - - -
contingency reserve
Own shares purchased - - (11 862) (11 862)
Transactions with - - - -
Joint Venture,
recorded directly in
equity
Total transactions - - (11 862) (11 862)
with owners
Balance at 31 August 382 211 274 200 (9 578 110) 201 696 472
2010
For the year ended 28
February 2011
Balance at 1 March 382 211 274 200 (9 566 248) 201 708 334
2010
Profit for the period - - - -
Other comprehensive - - - -
income
Total comprehensive - - - -
income for the period
Own shares transferred 265 026 265 026
based on contingent
consideration
Share based payment - - - -
transactions
Transfer to - - - -
contingency reserve
Own share 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 - - 84 853 84 853
with owners
Balance at 28 February 382 211 274 200 (9 481 395) 201 793 187
2011
STATEMENT OF CHANGES IN EQUITY(CONTINUED)
Reserves Foreign Accumulated
currency profit/
translation (loss)
reserve
For the six months ended 31
August 2011
Balance at 1 March 2011 7 439 436 - 26 303 854
Loss for the period - - (4 722 827)
Other comprehensive income - - -
Total comprehensive income for - - (4 722 827)
the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share based payment - - -
transactions
Transfer to contingency - - -
reserve
Own shares purchased 651 742 - 34 412
Transactions with Joint - - -
Venture, recorded directly in
equity
Total transactions with owners 651 742 - 34 412
Balance at 31 August 2011 8 091 178 - 21 615 438
For the six months ended 31
August 2010
Balance at 1 March 2010 5 001 750 2 532 45 738 137
Loss for the period - - (4 885 799)
Other comprehensive income - (1 894) -
Total comprehensive income for - (1 894) (4 885 799)
the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share based payment 464 200 - -
transactions
Transfer to contingency 715 836 - (715 836)
reserve
Own shares purchased - - -
Transactions with Joint - - 848 910
Venture, recorded directly in
equity
Total transactions with owners 1 180 036 - 133 074
Balance at 31 August 2010 6 181 786 638 40 985 412
For the year ended 28 February
2011
Balance at 1 March 2010 5 001 750 2 532 45 738 138
Profit for the period - - (20 020
806)
Other comprehensive income - (2 532) -
Total comprehensive income for - (2 532) (20 020
the period 806)
Own shares transferred based
on contingent consideration
Share based payment 1 660 448 - -
transactions
Transfer to contingency 777 238 - (777 238)
reserve
Own share 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 owners 2 437 686 - 586 523
Balance at 28 February 2011 7 439 436 - 26 303 855
STATEMENT OF CHANGES IN EQUITY(CONTINUED)
Total Non- Total
Attributable controlling equity
to equity interest
holders of
the company
For the six months ended 31
August 2011
Balance at 1 March 2011 235 536 477 (441 756) 235 094 721
Loss for the period (4 722 827) (54 638) (4 777 465)
Other comprehensive income - - -
Total comprehensive income for (4 722 827) (54 638) (4 777 465)
the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share based payment - - -
transactions
Transfer to contingency - - -
reserve
Own shares purchased 686 154 - 686 154
Transactions with Joint - - -
Venture, recorded directly in
equity
Total transactions with owners 686 154 - 686 154
Balance at 31 August 2011 231 499 804 (496 394) 231 003 410
For the six months ended 31
August 2010
Balance at 1 March 2010 252 450 753 142 455 252 593 208
Loss for the period (4 885 799) (142 455) (5 028 254)
Other comprehensive income (1894) - (1 894)
Total comprehensive income for (4 887 693) (142 455) (5 030 148)
the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share based payment 464 200 - 464 200
transactions
Transfer to contingency - - -
reserve
Own shares purchased (11 862) - (11 862)
Transactions with Joint 848 910 - 848 910
Venture, recorded directly in
equity
Total transactions with owners 1 301 248 - 1 301 248
Balance at 31 August 2010 248 864 308 - 248 864 308
For the year ended 28 February
2011
Balance at 1 March 2010 252 450 754 142 455 252 593 209
Profit for the period (20 020 806) (322 903) (20 343
709)
Other comprehensive income (2 532) - (2 532)
Total comprehensive income for (20 023 338) (322 903) (20 346
the period 241)
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 share purchased (180 173) - (180 173)
Disposal of interest in 128 053 (104 322) 23 731
subsidiary
Derecognition of non- 386 798 (156 985) 229 813
controlling interest
Transaction with Joint 848 910 - 848 910
Venture, recorded directly in
equity
- - -
Total transactions with owners 3 109 062 (261 307) 2 847 755
Balance at 28 February 2011 235 536 478 (441 755) 235 094 723
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Figures in Rand Microfinance Property Mortgage
Investment Origination
Unaudited six months ended 31
August 2011
Interest income 26 372 008 - 15 811
Interest expense (7 526 212) (219 099) -
Net interest income 18 845 796 (219 099) 15 811
Fee income 49 322 068 - -
Net commission income - - 136 776
Other microfinance income 11 312 610 - -
Net impairment charge on loans (16 048 739) - -
and advances
Operating expenses (65 348 (466 144) 273 202
889)
Operating (loss)/ profit (1 917 154) (685 243) (425 788)
Excess of acquirers` interest - - -
in net assets
(Loss)/ profit before taxation (1 917 154) (685 243) 425 788
Taxation (2 876 439) - (118 512)
(Loss)/ profit for the period (4 793 593) (685 243) 307 276
(Loss)/ profit for the period
attributable to:
Owners of the company (4 738 955) (685 243) 307 276
Non-controlling interest (54 638) - -
Segment assets 209 626 578 207 081 002 991 801
Investment property - 207 081 002 -
Loans and advances 82 620 863 - -
Cash and cash equivalents 28 239 238 - 991 801
Segment liabilities 164 954 443 21 689 837 -
Unaudited six months ended 31
August 2010
Interest income 29 271 418 - 21 351
Interest expense (7 922 861) (1 199 650) -
Net interest income 21 348 557 (1 199 650) 21 351
Fee income 47 345 258 - -
Net commission income - - 649 886
Other microfinance income 10 810 384 56 611 -
Net impairment charge on loans (14 119 807) - -
and advances
Operating expenses (66 117 131) (1 008 121) (251 670)
Operating (loss)/ profit (732 739) (2 151 160) 419 567
Excess of acquirers` interest 432 409 - -
in net assets
(Loss)/ profit before taxation (300 330) (2 151 160) 419 567
Taxation 341 860 737 336 (134 932)
(Loss)/ profit for the period 41 530 (1 413 824) 284 635
(Loss)/ profit for the period
attributable to:
Owners of the company 183 985 (1 413 824) 284 635
Non-controlling interest (142 455) - -
Segment assets 216 630 440 207 000 000 22 413 590
Investment property - 207 000 000 -
Loans and advances 84 704 267 - -
Cash and cash equivalents 49 288 700 - 2 177 382
Segment liabilities 188 612 464 24 458 811 -
Audited year ended 28 February
2011
Interest income 56 956 267 - 51 985
Interest expense (12 673 035) (45 922) -
Net interest income 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 adjustments 22 586 - -
Net impairment charge on loans (23 461 057) - -
and advances
Operating expenses (130 983 (855 953) (416 429)
651)
Operating (loss)/ profit 7 672 583 (901 875) 948 069
Net impairment charge on
intangibles
Loss on sale of subsidiary
Gain on a bargain purchase
Excess of acquirers` interest - - -
in net assets
(Loss)/ profit before taxation 7 672 583 (901 875) 948 069
Taxation 101 382 - (230 840)
(Loss)/ profit for the period 7 773 965 (901 875) 717 229
(Loss)/ profit for the period -
attributable to:
Owners of the company 8 096 868 (901 875) 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 and cash equivalents 24 662 140 - 1 012 308
Segment liabilities 185 885 621 5 878 343 898 194
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS (CONTINUED)
Figures in Rand Reconciling Consolidated
Unaudited six months ended 31 August 2011
Interest income 173 998 26 561 817
Interest expense (551 151) (8 296 461)
Net interest income (377 153) 18 265 356
Fee income - 49 322 068
Net commission income 789 137 565
Other microfinance income 0 11 312 610
Net impairment charge on loans and - (16 048 739)
advances
Operating expenses (2 940 724) (68 482 555)
Operating (loss)/ profit (3 317 087) (5 493 695)
Excess of acquirers` interest in net - -
assets
(Loss)/ profit before taxation (3 317 087) (5 493 695)
Taxation 3 765 819 770 868
(Loss)/ profit for the period 448 732 (4 722 827)
(Loss)/ profit for the period
attributable to:
Owners of the company 448 732 (4 668 189)
Non-controlling interest - (54 638)
Segment assets - 417 699 381
Investment property - 207 081 002
Loans and advances - 82 620 863
Cash and cash equivalents - 29 231 039
Segment liabilities - 186 644 280
Unaudited six months ended 31 August 2010
Interest income 425 571 29 718 340
Interest expense (425 571) (9 548 082)
Net interest income - 20 170 258
Fee income - 47 345 258
Net commission income 525 952 1 175 838
Other microfinance income - 10 866 995
Net impairment charge on loans and - (14 119 807)
advances
Operating expenses (4 094 135) (71 471 057)
Operating (loss)/ profit (3 568 183) (6 032 515)
Excess of acquirers` interest in net - 432 409
assets
(Loss)/ profit before taxation (3 568 183) (5 600 106)
Taxation (372 412) 571 852
(Loss)/ profit for the period (3 9405 95) (5 028 254)
(Loss)/ profit for the period
attributable to:
Owners of the company (3 940 595) (4 885 799)
Non-controlling interest - (142 455)
Segment assets 22 071 601 468 115 631
Investment property - 207 000 000
Loans and advances - 84 704 267
Cash and cash equivalents - 51 466 082
Segment liabilities 6 180 048 219 251 323
Audited year ended 28 February 2011
Interest income 1 419 036 58 427 288
Interest expense (3 230 069) (15 949 026)
Net interest income (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 adjustments - 22 586
Net impairment charge on loans and - (23 461 057)
advances
Operating expenses (13 071 052) (145 327
085)
Operating (loss)/ profit (14 813 279) (7 094 502)
Net impairment charge on intangibles (19 444 029) (19 444 029)
Loss on sale of subsidiary (115 697) (115 697)
Gain on a bargain purchase 167 383 167 383
Excess of acquirers` interest in net - -
assets
(Loss)/ profit before taxation (34 205 622) (26 486 845)
Taxation 6 2725 94 6 143 136
(Loss)/ profit for the period (27 933 028) (20 343 709)
(Loss)/ profit for the period
attributable to:
Owners of the company (27 933 028) (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 and cash equivalents 11 263 754 36 938 202
Segment liabilities 17 545 185 230 180 129
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Finbond Group Limited is a company domiciled in South Africa. The condensed
consolidated interim financial statements of the Company as at and for the
six months ended 31 August 2011 comprise the Company and its subsidiaries
(together referred to as the "Group") and the Group`s interests in
associates and jointly controlled entities.
The consolidated financial statements of the Group as at and for the year
ended 28 February 2011 are available upon request from the Company`s
registered office at Bank Forum Building, Cnr. Veale and Fehrsen Streets,
Nieuw Muckleneuk, Brooklyn, Pretoria, 0181 or at www.finbondlimited.co.za.
These unaudited condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting. They
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 Board acknowledges its responsibility for the preparation of the
abridged consolidated interim financial statements in accordance with
International Accounting Standard 34 (IAS 34 - Interim Financial Reporting)
and the Listings Requirements of the JSE Limited. These abridged
consolidated interim financial statements are unaudited and prepared using
accounting policies consistent with International Financial Reporting
Standards (IFRS) and in compliance with the Listings Requirements of the
JSE Limited and the South African Companies Act.
Significant accounting policies
The accounting policies applied by the Group in these condensed
consolidated interim financial statements are the same as those applied by
the Group in its consolidated financial statements as at and for the year
ended 28 February 2011.
Estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities,
income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgements made by management in applying the Group`s
accounting policies and the key sources of estimation uncertainty were the
same as those that applied to the consolidated financial statements as at
and for the year ended 28 February 2011.
Executive Overview
Against the backdrop of the worsening worldwide debt crisis and severe
retreat in global market liquidity, the directors are pleased to present
the interim financial results of the Finbond Group for the six months ended
31 August 2011. During the six months under review, Finbond made further
progress despite continued challenging market conditions and an adverse
fundraising environment. This period included a number of achievements and
significant developments for Finbond:
* Net cash from operating activities - R9.4 million (271% improvement)
* Value of loans advanced- R 197 million (0% improvement)
* Cash received from customers R280 million (1% improvement)
* Net tangible asset value - R170 million (2.6% improvement);
* Headline loss per share - 1.3 cents (15% improvement)
* Microfinance revenue - R87 million (1% down)
* Operating expenses reduced from R 71.5 million (Aug 2010) to R68.5
million (Aug 2011), a saving of R 3 million (4.2%)
* Received a BB flat Unsecured Credit Rating and BBB- Secured Credit
Rating (using the debtors book as security) from Global Credit Ratings.
The Group continues to manage for the longer term and to invest in people,
training, information technology and systems, as well as in enhanced
collection strategies and systems, in order to build a sustainable,
professional business.
We continue to believe that doing the right things now, will allow us to
reap the rewards in the medium and long term.
Micro Finance
Total segment revenue from Finbond`s Micro Finance activities, made up of
interest, fee and insurance income (portfolio yield) remained relatively
unchanged at R87 million (2010: R87,9 million).
Finbond offers micro loans from R 100 - R 7,000 with an average loan size
of R 2,000 and an average tenure of about 2 months. Given the short term
nature of Finbond`s products, Finbond`s loan portfolio is very cash flow
generative. The whole loan portfolio turns 6 times a year. For the twelve
months ended August 2011 Finbond granted R 416m worth of loans and received
cash payments of R 567m from customers.
Finbond`s Net Impairment as a percentage of expected instalments amounted
to 5.1% and Net Impairment as a percentage of cash received (which is more
conservative than instalments due) stood at 5.5% at the end of August 2011
(Note: The best measurement of arrears and impairments on the short term
products is against instalments due and not outstanding balances, because a
large part of a short term loan is repaid before month-end/year-end and is
therefore not reflected on the balance sheet. Computations based on the
outstanding balance therefore distort this ratio on short term products.)
Loan loss reserve, also referred to as the risk coverage ratio (Loan loss
reserves = (impairment provision)/ PaR90) stands at 82.3%, which is an
indication of a Microfinance institution`s ability to cope with estimated
loan losses. This improvement of 7.8% from 89.3% at August 2010 shows the
improvement achieved in the quality of the loan portfolio arising from the
investment in technology and systems mentioned earlier.
Finbond`s gross debtors book remains geared at less than one and half
times, well below industry average.
Finbond`s liquidity position at the end of August 2011 reflects R29,2
million cash in bank. Although the aforementioned liquidity position seems
favourable 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 International Banks, Finbond is particularly vulnerable to
funding and refinancing risks in the current environment.
During the period under review Finbond was unable to refinance existing
funding lines or to attract additional funding lines, which placed the
business under liquidity pressure given the capital repayments made to
existing funders in order to meet maturing debt obligations. In order to
meet these maturing debt obligations, Finbond shifted the debtor`s book
into shorter term loans in order to release cash from the book. 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, providing an
important source of internally generated liquidity.
Following the rating of Finbond by Global Credit Ratings, and their
decision to assign a BB flat unsecured rating and a BBB- secured rating
(using the debtors book as security) to Finbond Group Limited, we are in
the process of raising funds from the South African debt capital markets in
a further attempt to refinance existing maturing debt and raise some
additional funds for growth.
Over the past 6 months Finbond continued to improve on and apply strict
upfront credit scoring criteria by implementing full Codix Credit Scores on
all loan products in 1 March 2011. The scores on the various products are
monitored on a monthly basis and adjusted upwards or downwards. This
upfront credit scoring is supported by robust collection strategies and
processes to achieve improved default rates going forward. 100% of
Finbond`s book is collected by way of advance debit orders on the Nupay
system.
Subject to obtaining the required funding, Finbond is well positioned for
the implementation of its growth plans in the micro finance market in South
Africa.
Mortgage Origination
For the period under review Mortgage Origination contributed less than 1%
to Finbond`s revenue. All of Finbond`s mortgage origination activities
have been out sourced and Finbond now mainly focus on Micro Finance
business.
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.
General Overview
During the past six months, Finbond continued the improvement and
refinement of management structures, management information, upfront credit
scoring, pay date management and collection strategies in support of the
branch distribution network. Finbond also continued to invest resources in
building the Finbond Micro Finance brand and a unified culture through:
Finbond branded clothing for personnel, marketing material, revamping of
branches, branch infrastructure spend and training of personnel and
customers. The result of these initiatives will take time to become visible
in the bottom line performance of the Company; however these improvements
have already started to show their worth in respect of the quality of
management information systems, standardized operating procedures and
internal control across the Group.
Strategic initiatives under way include:
* Applying for a Mutual Banking license to the South African Reserve
Bank in order to provide clients with full range of low cost banking
services once approved.
* Diversification of funding base
* Implementation of a new loan management system, EMID, that is of ISO
`9001:2000 ISAE 3402* (SAS70) standard and quality
* Increased sale of short term products, specifically 30 day and 90 day
loans.
Challenging Business Environment
The financial performance of Non- Bank Micro Finance Institutions in
general is coming under increased pressure due to higher funding costs, an
extremely adverse fundraising environment, higher impairment charges,
stagnant loan portfolio growth and funding and refinancing risks due to
current market conditions.
In addition, funding from International Financial Institutions ("IFI`s")
and Development Financial Institutions ("DFI`s) is also reaching its limits
due to counterparty or country exposure limits. European IFI`s (Banks) are
also deleveraging as they work towards higher core capital requirements
which could have a further negative impact on cross border financing.
The fact that many non-bank MFI`s worldwide are experiencing extreme
liquidity constraints also contributes negatively to a very difficult fund
raising environment. Funding constraints will have a significant adverse
impact on many MFI`s and will contribute to increased levels of refinancing
risks, particularly for non-deposit taking MFI`s dependent on international
funding.
There remain numerous significant challenges for Finbond in the short and
medium term, not only in respect of the prevailing difficult fund raising
environment and general market conditions, but also relating to the ongoing
process of improving the overall effectiveness of the Company to enable it
to compete aggressively with its larger, better capitalized and funded
peers.
Despite the various challenges facing Finbond in the current business
environment we remain committed to the Group`s principle objective of
maximizing shareholder value.
Our major challenge at the moment is to secure significant long term
funding in order to grow our micro finance book. Finbond has built a sound
platform and strategic base from which to grow its Micro Finance operations
in South-Africa over the past two years, but now needs to obtain the
necessary funding to leverage from this platform and reach the Group`s full
potential.
The focus for the remainder of the year will be on accessing long term
funding, stricter lending criteria, decreasing arrears rates, optimal
capital utilization, reducing operational cost, improving collections,
tighter liquidity management, profitability and improved operational
efficiency.
Prospects
The challenging macro-economic environment 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.
The Group is confident that we have the required resources and depth in
management to successfully confront the various challenges facing Finbond.
The challenges to be overcome, which arise from external market conditions
in general, are specifically: refinancing risks and a lack of availability
of funding, a higher cost of funding, higher impairment charges and job
losses within Finbond`s target customer market. Any of these challenges,
if left unmet, could have a negative impact on the performance of the Group
in the remainder of the year ahead.
Dividend
No Interim Dividend has been declared.
Renewal of cautionary announcement
Shareholders are referred to the cautionary announcement originally
published by the Company on 2 September 2011 and subsequently renewed on 14
October 2011. Shareholders are advised that negotiations are still in
progress and, if successfully concluded, may have an effect on the
price at which Finbond`s securities trade on the JSE Limited. Accordingly,
shareholders are advised to continue exercising caution when dealing in the
Company`s securities until a further announcement is made.
For and on behalf of the Board
Dr. Malesela Motlatla Dr. Willie van Aardt
25 November 2011
--------------------------------------------------------------------
Directors
Chairman: Dr MDC Motlatla* (BA, DCom (Unisa)); Chief Executive Officer: Dr
W van Aardt (BProc (Cum Laude), LLM (UP), LLD (PU CHE) Admitted Attorney
of The High Court of South Africa, QLTT (England and Wales), Solicitor of
the Supreme Court of England and Wales); Chief Compliance Officer: HJ
Wilken-Jonker (BCom Hons (Unisa)); Chief Financial Officer: GT Sayers (CA
(SA), BCom (Hons) (UNP), BComt (Hons) (Unisa)); Chief Operating Officer:
A Mavrothalassitis (MBA (Stell.)); DC Pentz* (CA (SA), BCom Hons); Adv J
Noeth* (B Iuris LLB); RN Xaba* (CA (SA) BComt, BComt (Hons) (Unisa)) *Non-
Executive. Secretary: CD du Plessis - Sekretari
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 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: 25/11/2011 16:06:53 Produced by the JSE SENS Department.
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