Letshego Stays the Course Amidst Macro-Economic Challenges

• Group to jealously safeguard strong performing DAS

He made these remarks while presenting Letshego’s 2023 interim financial results – which show that the company continues to cement its position as a leading player in the industry – on Monday this week.

During the period under review, Letshego achieved growth in its key lending product, Deduction At Source (DAS). The DAS net loan book value grew 8 percent year-on-year to P10.7 billion (H1 2021 P9.3 billion) but profit before tax for the segment decreased 7 percent to P632 million (H1 2021: P677 million), driven by costs that include strategic digital investments.

Monyatsi said the focus in the first half has been to continue the Group’s campaign to convert existing customers to the LetsGo Digital Mall. In the last six month period, 180,000 customers transferred to the Digital Mall, compared to only 2,370 customers in the same period last year. The current DAS portfolio on the Digital Mall is valued at P734million, with Letshego saying there is an ongoing focus on growing this portfolio in the second half.

The mobile mass book grew 12 percent year-on-year to P407 million (H1 2021: P364 million) while profit before tax for this segment decreased 86 percent to P1.2 million (H1 2021: P8 million), driven by costs that include strategic digital investments. Monyatsi said having achieved the first-half ambitions in building online credit scoring capabilities and a new customer value proposition for this segment on the Digital Mall, focus in the second half will be on driving adoption of this new offering in Botswana and Uganda.

“For the second quarter, we are approaching it being cautiously optimistic because the macroeconomic headwinds that we operated under will continue to persist,” he said. “However, we are much optimistic about 2024.” Monyatsi noted that the operational economic environment at local, regional and global levels has been difficult, adding that high inflationary levels across different markets added pressure to the business.

“Central banks across the markets effected monetary policy changes to deal with high levels of inflation,” he said. “We borrow money from commercial banks, and it means that if the interest rates increase, our cost also increases. We are monitoring developments as they unfold across our 11 markets.” Due to the uncertainties, Monyatsi emphasised that the importance of stabilization. “We continue to engage with regulators, shareholders and customers to assure them that business is resilient and stable,” he said.

According to the CEO, Letshego will continue to jealously guard against the DAS product because it is key to the the Group. He described the business as “highly optimistic” about the microeconomic operating environment next year, saying the new east and western Africa markets offer high prospects of growth as well. “Our turnaround strategy, which we announced at the beginning of the year, is putting the business on a solid footing in East and West Africa markets and the resilience is evident,” he said.

“We are proud of the year-on-year local currency profit before tax growth in Rwanda (90 percent), Tanzania Faidika (123 percent), Ghana (17 percent) and Uganda (24 percent). In Tanzania, we have successfully completed the amalgamation of our two businesses and see a strong future in that market” According to Monyatsi, the solid performance in the first-half of last year was boosted by a P47million exchange gain compared to the P1.1 million gain in the current half year period.

“The Group has seen volatile currency movements in this first half, more specifically in Nigeria and Ghana,” he said. “The impact of this volatility for these two West Africa markets was a P14 million foreign exchange loss compared to a P23 million foreign exchange gain in the first half of 2022.” Meanwhile, Letshego’s capital base is solid with a capitalisation ratio of 32 percent. All subsidiaries remain well capitalised. The Group demonstrated a strong funding base, with ongoing commitment to retire expensive funding, accelerated by recent increasing interest rate environments.

Wholesale bank funding makes up 45 percent of Letshego’s total funding portfolio (FY2021:39 percent), while Development Finance Institution (DFIs) funding constitutes 23 percent of the Group’s total funding portfolio (FY2021: 25 percent). Bonds constitute 18 percent of total funding (FY2021: 23 percent). The Group says it matured its bonds on the Johannesburg Stock Exchange, with Namibia now raising its own funding through the local bond market. Namibia’s note programme increased by 108 percent to P289 million (H1 2021: P139million).

In light of the increasing interest rate regime, the Group says it made every effort to secure fixed rate funding to curb fluctuations in cost of funds. Letshego’s fixed or indexed interest debt profile increased to P4.6 billion (H1 2021: P2.3 billion) while the variable interest rate debt profile decreased marginally to P4.4 billion (H1 2021: P4.5 billion). The Group says it actively drew fixed rate funding, and in some instances, hedged floating rate facilities to fixed rate using cross currency swaps. Overall, cost of funds increased by 60 basis points in the reporting period, driven by macro-economic factors.

Letshego says efforts to raise local or indexed currency borrowing to manage foreign exchange risk continue. Liquidity is stable with cash and cash equivalents at P1.3 billion (H1 2021: P1 billion).  Thirty two percent of this constituted government bonds and treasury bills used to secure local currency funding on the back of foreign denominated instruments.