Letshego Holdings Limited (LETSHE.bw) HY2021 Interim Report
The Board of Directors of Letshego Holdings Limited (“the Group”) herewith presents an extract of the reviewed consolidated half year financial results for the period ended 30 June 2021.
As Letshego progresses its digital Transformation Strategy, the Group’s strong performance for the first half of 2021 reflects accelerating growth trends on the back of increased net payout volumes.
With the persistence of the global pandemic, the Group continues to prioritise the health and wellbeing of its people and customers, while building and maintaining business resilience. With pandemic variants posing additional economic pressures on regional markets, along with intermittent access and dissemination of vaccines, Letshego is ommitted to progressing its digitalisation strategy that enables flexibility, adaptability and operational efficiencies, while enhancing an effective risk management framework.
2021 saw Letshego commence the second phase of its 6-2-5 execution roadmap, ‘Plan 2’. This two year phase is characterised by increased investment into digital-first initiatives, along with the end-to-end automation of processes and platforms. In the first 6 months of this year, Letshego has already achieved targeted digital milestones, including the roll out of its LetsGo Digital Platform across 10 markets, giving customers direct access to lending solutions via their mobile phones.
Despite the challenging economic environment, Letshego achieved double digit growth for the period, with profit before tax up 23% year on year to P544 million. Profit after tax rose 28% for the same comparative period. Asset quality remains robust with the Group’s Loan Loss Ratio (LLR) within target range at 1.4%, and the non-performing loans ratio reducing to 5.6% (H1 2020: 7.9%). Strong performance for the interim period was driven by a 20% growth in net customer advances, totalling P11.1 billion.
Product performance saw double digit portfolio growth in Letshego’s primary deduction at source (DAS) portfolio of 16%. DAS customer numbers increased by 19% to 694k (H1 2020: 586k). The Micro and Small Entrepreneur (MSE) segment remained more sensitive to economic slowdowns with net loan book values dropping 3%. However, MSE profitability improved with recovery and collection efficiencies. Letshego’s Mass Mobile portfolio performed well with a portfolio value increase over 200% year on year.
Letshego remains well capitalised at 34% capital adequacy ratio, and has a strong liquidity position to support business growth. The Group is pleased to announce an interim dividend of 7.3 thebe, with a dividend yield of 17%.
Statement of profit and loss review
Net Interest Income increased by 9% to P1.019 billion (H1 2020*: P910million), buoyed by strong net payout growth. Borrowing costs decreased by 7% year on year (excluding non-risk interest component on mobile loans), following concerted efforts by the Group to diversify its funding base and grow its customer deposit base. Operating income was up 14%, despite the new Delta variant of COVID-19.
Non-funded income increased 33% year on year, largely boosted by Namibia’s revised insurance arrangement, increasing overall insurance revenue by 116% to P90 million (HY 2020:P42 million). Further diversification in Letshego’s insurance offering will see Kenya, Mozambique and Botswana expand their offerings into life and short-term insurance leveraging the Group’s increasing efficiencies achieved via digitised channels and platforms.
Total operational expenses increased 8% year on year to P549 million. Employee costs increased by 6% for the period with more specialist skills appointments made in product, digital and risk. Other operating expenses were up by 9%, driven by the roll out of Letshego’s LetsGO Digital Platform. Digital investment will continue in the second half as the Group seeks to achieve end to end automation and digitisation to deliver 6-2-5 growth targets.
Effective Tax Rate:
Letshego’s effective tax rate for the period was 42% (H1 2020*: 45%). This is attributable to:
- Dividend flows from subsidiaries which contributed 5% to ETR (HY 2020: 7%). LHL received dividends of P346m from subsidiaries, making up 5% of ETR, in the form of withholding tax that cannot be claimed as foreign tax credits under Botswana IFSC regime.
- Contribution of deferred tax assets and withholding tax credits not utilised by the holding company
The components of ETR are broken down as follows:
|Components of the Effective Tax Rate
|Baseline tax charge
|Dividends from subsidiaries & preference shares
|LHL Deferred taxation
|Effective tax rate
The Group target ETR is expected to reduce by 50 basis points in the next two years. Having established a specialist tax team in this first half of the year, the Group expects to make further headway in improving its tax rate in the longer term.
Credit quality remains strong with the Group’s Loan Loss Ratio (LLR) at 1.4%, remaining within Group risk appetite and consistent with the same period last year. 2020 year end LLR of 0.3% was inclusive of a once-off write back of P105.3 million from Ghana Mobile Loans. LLR as at June 2021 has thus improved against a normalised year end LLR of 1.8%. Non-performing loans improved to 5.6% from 7.9% in June 2020.
Resilience against the COVID-19 pandemic
- Deduction at Source (DAS) portfolio remains stable as regional governments seek to minimise retrenchments despite ongoing pandemic conditions.
- Letshego’s MSE portfolio (9%) was impacted by lockdowns in Uganda and Rwanda. However impact was limited with the portfolio only comprising 0.5% of the Group’s total loan portfolio. Customers have been offered support via repayment holidays and structured repayment plans.
- The Group, in the short-term, has curtailed loan growth in volatile segments across specific markets and prioritised portfolio remediation and collection efforts.
- Stress testing continues in line with the Group’s Enterprise Risk Management Framework (ERMF).
Structural and Process enhancements
- In 2021, Group materially enhanced capacity and bench strength in its Collections and Recoveries functions across the countries in the first half of 2021.
- The Group made significant progress in the automation of Credit Decisioning