In its 2018 annual report and audited accounts, LHL said the acquisition was done by exercising a put option embedded in the original sale and purchase agreement. The report further said the holding company which made P1,021 million pre-tax profit, was led by deduction at source business segment.
“The core of Letshego’s business continues to be led by the deduction at source business segment in its consumer lending and microfinance bank offering in Southern, East and West Africa. Markets in Southern Africa continue to be the largest contributors to the business performance, (70 percent of gross loans) with Botswana and Namibia making up 72 percent of total group DAS profit,” the report stated.
The report further noted that as a result of the achievement, shareholder return included a return on equity of 12 percent. Although the group posted profits during the year, the report highlighted that International Financial Reporting Standards 9 which came into effect in January 2018 as having eroded increased its risk cost.
In addition, the other risk factor was the “Asset quality in East and West Africa is weaker than in Southern Africa although margin performance is better.”
Commenting on the performance, former group CEO, Smit Crouse said the performance was good. “In a world where change is exponential, evolution of one’s strategy and resultant business model are essential to deliver superior returns to shareholders, whilst creating value for all stakeholders including customers, staff and regulators,” Crouse said.
“With so much unrealised potential, Letshego is now due for change,” added Crouse who resigned end last year and the board picked Dumisani Ndebele as interim CEO.
The report stressed that the impact of IFRS 9 on the group was a 110 percent increase in total balance sheet impairment provisions from P402 million to P843 million, and a P192 million decline in group retained earnings.
The annual report further pointed out that unfavourable group effective tax rate of 50 percent is as the result of three main factors: partial write-down of the carrying value of deferred tax assets at Letshego Holdings; higher withholding tax charge on dividends from subsidiaries and tax provisions in respect to two subsidiaries.
“The Group effective tax rate is expected to improve in 2019,” the report added noting however that goodwill arising from the acquisition of Nigeria business (prior carrying value P43 million) has been impaired by P22 million based on a reassessment of the future cashflows of the business.
“Ratings agency Moody’s kept Letshego Holdings Group’s credit rating unchanged at Ba3 (stable) outlook. The group remains well capitalised with a capital adequacy ratio (CAR) of above 35 percent which is well above the regulatory minimum in all of its operating countries,” the report added.
Despite high reliance on wholesale funding, significant progress has been made in diversification of the group’s funding base away from the bank loan market through the issuance of local currency corporate bonds in Botswana, Ghana, Mozambique and South Africa.
“The group has also been successful in attracting new funding from specialist international investors based in the UK and Europe with focus on micro and inclusive finance ventures. The new funding has enabled the group to better manage its debt maturity profile and liquidity position,” the 2018 Letshego Holdings Limited full year report stressed.