Fortune favors not only the brave but also the resilient — this phrase that perfectly captures Letshego Africa’s journey from a staggering loss at the end of December 2023 to turning a profit in the first half of 2024.
The company attributes its improved performance to a shift in its business model. When Letshego was hemorrhaging value in key East and West African markets, it was because the company attempted to transplant a business model that had been successful in core markets like Botswana. However, this approach led to significant losses in these new regions.
In East and West Africa, where some stakeholders actually advocated for Letshego’s exit, Letshego has found reason to stick around. At the results presentation, Aupa Monyatsi, the CEO of Letshego said the question of exiting doesn’t have a straight answer. What he said they had to do is that “we now have to look at this business model to say when we look at all the markets that we are in, will we be able to replicate what we did in Ghana in other markets like Rwanda, Kenya”.
“If we are, is the return above the cost of equity? Then we remain in that market, but if we look at this business model and its hemorrhaging value, we have to do what is responsible and exit the market. That assessment needs to be done.”
During the 2023 reporting period, Letshego management faced pressure from stakeholders and shareholders who wanted Letshego to exit non-performing East and West African markets based on losses necessitated by hyperinflation especially in Ghana and high interest rates in other markets. Monyatsi’s famous saying is that Letshego is not a speed boat but a Titanic. What he meant was that when it turns, it does this slowly but will ultimately steer to calm waters. He pleaded for some patience from key stakeholders and shareholders because as he professes, he is a very optimistic person, although he admits he can overshoot.
Monyatsi said that when Letshego expanded to countries like Nigeria and Ghana, they wanted to replicate the successful model of Deduction At Source (DAS), which unfortunately was not as successful in East and West Africa.
While the government would deduct loans from its customers at those markets, funds were not remitted back to Letshego, which led to impairments.
“Those economies were going through difficult times and governments were using the money to run their departments. That’s a reality when these economies are on their knees,” he disclosed.
But Letshego had to find a better strategy, that would reduce impairments and improve financial performance.
“As management, we sat down and found a solution in mobile lending, which proved to be a hit, especially in Ghana,” he said.
For the half year ending June 2024, Ghana’s mobile loans revenue performance grew 526 percent to P278 million.
This according to Monyatsi, resulted in 78 percent growth in net advances to P684 million. Ghana’s growth in customer loans grew 3 times to P260 million. Mobile loans in Ghana resulted in 90 percent of total income.
“Currently, looking at the tough macroeconomics such as hyperinflation, it is impossible to grow a business income by 562 percent. This shows that this is a solid business. We could not exit Ghana just because of hyperinflation, which is expected to end in 2024. When hyperinflation ends, Ghana will be very profitable,” Monyatsi said.
Ghana also recorded a 220 percent growth in customer deposits to sit at P259 million, which Moyatsi said will help reduce the cost of funding in Ghana.
Monyatsi added that post hyperinflation, they plan to scale up mobile loans market share in Ghana, which currently stands at under 20 percent. “We also want to scale up insurance income for diversity,” he said.
Outside of the impact of hyperinflation, half-year results would have delivered P62 million, and over a full year, Monyatsi estimates a PBT of over P100 million. Monyatsi remains optimistic, predicting that Ghana could become one of their top four, if not top three, markets within the next two to three years—especially if they manage to double their mobile lending.
THE REBOUND
During the review period, Letshego returned to profitability, reversing the loss reported at the end of December 2023. On a historical cost basis and excluding hyperinflationary effects, profit after tax increased by 4 percent year-on-year, reaching P74.2 million compared to P71 million in the first half of 2023.
With hyperinflation, profit after tax closed at P17.8 million in June 2024, from P71 million in 2023. This was a return to profitability from the year-end loss of P149 million, which Monyatsi said was a step in the right direction.
Chief Finance Officer, Gwen Muteiwa said Letshego has strong business fundamentals as shown by their strong balance sheet.
She pointed to Letshego’s profit and loss statement, which he says depicts a company far from distress.
Among the key performance indicators are net customer advances and the company’s core product, the Deduction at Source (DAS). Loans and advances grew by 6 percent to P14.34 billion, compared to the P13.2 billion realised in the previous corresponding period.
Muteiwa attributed this growth to the strong performance of their core products.
Additionally, she highlighted the mobile phone operators’ loan book. Under this product, Letshego partnered with mobile network operators like MTN and Orange Money to facilitate easy access to short-term loans, particularly. Monyatsi and his CFO note that this product contributed P308 million to Letshego’s loan book in the 2024 reporting period. The two Letshego executives are excited by the fact that mobile loans grew by 334 percent from the June 2023 reporting period, indicating a growing appetite for such a product.
“The good thing about this product is that it’s a short-term product of 30 days, less risky and has higher margins than longer-term loans. We expect significant growth from this product,” Muteiwa explained.
Letshego also considers its customer deposits and insurance revenue as core components of its product offerings. By focusing on mobile lending and insurance revenue, Letshego aims to diversify its revenue streams.
In terms of mobile loan performance, Letshego operates in 7 African markets and has partnered with 11 fintech/Mobile Network Operators (MNOs). As for its insurance offerings, Letshego offers six product types and has issued over 277,000 policies.
Customer deposits amounted to P1.7 billion, marking a notable 30 percent increase, while income from insurance products reached P158 million, showing a robust growth of 8 percent.
Deposits were garnered through Letshego’s commercial banking subsidiaries, namely Letshego Bank Namibia and Letshego Bank Tanzania.
Letshego is also proud of the performance of traditional markets like Botswana and Southern African markets, which have shown strong results from a top-line perspective. In 2022, financial analysts expressed concerns that Letshego should be cautious not to deviate from its core product, which is the deduction at source. Letshego reports that upon closer examination of the 2023 results, the company has regained traction in the deduction at source market segment and has observed growth in that area.
In 2022, Letshego spoke about looking at East and West Africa and decided to come up with a very good plan for trying to penetrate that market.
At the time, Letshego looked at Ghana as a key market.
Ghana tripled its profit before tax in 2023. Unfortunately, the profitability was eroded by the hyperinflation declaration towards the end of last year.
Letshego says Nigeria also did extremely well in profitability, in local currency. However, 2023 has been an emotional mix-bag. Notwithstanding the strong business fundamentals like a good book and revenue, some extraordinary items led to the bottom like depression.
Just two weeks before Letshego Africa released its half-year financial results for the year ending 30 June 2024, its Ghanaian subsidiary, Letshego Ghana Savings and Loans PLC, received notable recognition at the 2024 National Business Honours Awards. The company won two prestigious accolades, solidifying its status as a leader in financial innovation and digital solutions. To date, Letshego has earned a total of six awards in Ghana.
Making a presentation during the half-year financials, Monyatsi stressed that the recent recognition is not by chance. He said it was part of Letshego’s strategy to re-align its modus operandi into the macroeconomics in Ghana.
In addition to this leadership recognition, Letshego Ghana’s flagship digital product, Qwikloan, was awarded ‘The Digital Instant Loan of the Year.’ This award highlights the success of Qwikloan in providing quick, accessible, and reliable financial support to Ghanaians, particularly in underserved communities. The product has revolutionised how customers access credit, enabling them to meet their financial needs conveniently through the MTN mobile money platform.
