FINBOND GROUP LIMITED - Unaudited consolidated interim results for the 6 months ended 31 August 2017

2017-10-12 16:15:00

FGL 201710120050A
Unaudited consolidated interim results for the 6 months ended 31 August 2017

FINBOND GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2001/015761/06)
Share code: “FGL”
ISIN: ZAE000138095
(“Finbond” or “the Company” or “the Group')


UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST
2017

EXECUTIVE OVERVIEW
The directors are pleased to present the financial results of the Finbond
Group for the six months ended 31 August 2017.

During the six months under review Finbond successfully continued its
earnings-enhancing growth strategy after concluding additional North
American acquisitions while the South African business continued its strong
organic growth.

Finbond Group Limited, with its 1,985 staff members (Feb 2017: 1,803; Aug
2016: 1,588) and 633 branches (Feb 2017: 550; Aug 2016: 470), specialises in
the design and delivery of unique value- and solution-based savings, credit
and transactional solutions tailored around depositor and borrower
requirements rather than institutionalised policies and practices.

We exist to improve and transform the lives and livelihoods of our clients
by making available modern, inclusive products and services that benefit and
empower them.

Positive business momentum is contributing to improved results which are
evident in the following achievements and significant developments:

 -   Earnings attributable to shareholders of R92.8 million, representing
     growth of 87.1% over the R49.6 million in the comparative period.
 -   Operating profit from continuing operations increased by 126.7% to
     R171.4 million (Aug 2016: R75.6 million).
 -   Headline earnings per share increased by 85.8% to 12.43 cents (Aug
     2016: 6.69 cents).
 -   Earnings before interest, taxation, depreciation and amortization
     (EBITDA) increased by 120.4% to R315.8 million (Aug 2016: R143.3
     million).
 -   Revenue from continuing operations increased by 105.5% to R1,110.1
     million (Aug 2016: R540.3 million).
 -   Number of loans advanced grew by 30.3% to 880,387 (Aug 2016: 675,666)
     while the value of loans advanced increased by 56.3% to R2.5 billion
     (Aug 2016: R1.6 billion).
 -   Collection rate up 2% to 91% in South Africa and averaging 96% in North
     America.
 -   Cash received from customers increased by 65.0% to R3.3 billion (Aug
     2016: R2.0 billion).
 -   Branch network increased by 83 branches to 633 branches.
 -   Finbond continued its expansion into the North American short-term
     lending market with the acquisition of 52 short-term unsecured lending
     stores in the United States of America to a total of 223 branches (Feb
     2017: 171; Aug 2016: 91), while growing its South African network by
     31 branches to a total of 410 branches (Feb 2017: 379; Aug 2016: 379).
 -   USD Revenue contributing 55.9% of Total Revenue
 -   National Consumer Tribunal dismissed the National Credit Regulator's
     claims against Finbond Mutual Bank
We remain focused on executing the Group’s five-year strategy and top
business priorities; namely continued expansion into North America, optimal
capital utilisation, earnings growth, conservative risk management, strict
upfront credit scoring, good quality sales, effective collections, cost
containment, diversifying bank product ranges, diversifying income streams
to USD, consumer education and training, and development of staff members.
This enabled us to achieve overall strong operational results despite the
current difficult and challenging business environment.

SUSTAINABLE PROFITABILITY

Finbond increased revenue for the first six months of the financial year to
R1,110.1 million, an increase of 105.5% over the comparative period.

The majority of profit for the period was derived from Finbond’s main economic
driver, small short-term unsecured loans in the South African and North
American markets.

Revenue earned in USD contributed 55.9% of total revenue, while 13.6% of net
profit, attributable to the owners of the company, was earned in USD.

The Group’s return on equity saw an increase to end at 9.7%, from the 7.5%
achieved during the comparative period. It is important to note that Finbond
Mutual Bank maintains conservative capital adequacy and liquidity positions
(i.e. a 32.6% capital adequacy ratio which is well above the prudential limit
of 25%) which negatively skews the ratio.
HEALTHY CAPITAL POSITION

Finbond follows a conservative approach to capital management and holds a
level of capital which supports its business, while also growing its capital
base ahead of business requirements. Finbond’s capital position remains
strong.

Total assets increased by 44.5% to R3.3 billion (Aug 2016: R2.3 billion),
while liabilities increased by 58.5% to R2.1 billion (Aug 2016: R1.3 billion)
compared with 28 February 2017 (assets: R3.2 billion; liabilities: R2.0
billion).

Finbond Mutual Bank remains well in excess of its minimum regulatory capital
requirements, with an excess of R94 million over and above the R308 million
required by the Registrar of Banks and an excess of R277.8 million over and
above the normal DI 400 required minimum for mutual banks.

Although Finbond as a mutual bank is not subject to the Basel III
requirements, Finbond Mutual Bank already complies with and significantly
exceeds all Basel III requirements set for 2018 and 2019.

 As at 31 August 2017, Finbond Mutual Bank’s:

 -   liquidity coverage ratio was 290% [190% more than required from 2019]
 -   net stable funding ratio was 411% [311% more than required from 2018]
 -   capital adequacy ratio was 32.6% [22.6% more than required from 2018].

FAVOURABLE JUDGMENT BY NATIONAL CONSUMER TRIBUNAL

The National Consumer Tribunal ('NCT'), handed down judgment in favour
Finbond´s subsidiary, Finbond Mutual Bank (“FMB”), in the matter between the
National Credit Regulator ('NCR') and FMB as the First Respondent (“the
Referral”).

The Referral, which the NCR unilaterally initiated in 2015, primarily alleged
that FMB’s customers were required to pay unreasonable premiums for the
provision of credit life insurance in contravention of Section 106 (2) of
the National Credit Act (“NCA”), was unanimously dismissed by a full panel
of the NCT.

In its unanimous judgment dismissing the Referral, the NCT inter alia also
pointed out that:

 -   FMB was entitled to require its consumers to maintain credit life
     insurance; and
 -   No evidence was presented by the NCR which justifies the NCT to make a
     finding that the insurance offered by FMB to its customers is
     unreasonable.

LOW RISK LIQUIDITY STRUCTURE

Finbond’s liquidity position at the end of August 2017 reflects R402.7
million cash in bank (Aug 2016: R446.5 million). Overall cash, cash
equivalents and liquid investments decreased by 7.1% to R595.3 million (Aug
2016: R640.9 million).

Cash received on loans and other advances to customers (including capital
repaid, fees and interest) as a percentage of cash granted for the period
from March 2017 to August 2017, averaged 131% (Aug 2016: 121%), reflecting
the fact that despite consumer pressure, Finbond’s conservative credit
granting policies translate into a minimal impact on collections.

The deposit book totalled R1 090.1 million, a 7.4% increase from R1 014.9
million last year with an average interest rate of 9.85% (up from 9.73% last
year), an average term of 25.4 months (down from 26.8 months last year) and
an average deposit size of R378,423 (up from R362,192 last year). The increase
in deposit size speaks favourably of the customer experience that Finbond
has delivered to deposit clientele since launching the product as more and
more depositors are choosing to increase their deposit size, trusting Finbond
based on the positive results experienced with their initial deposit
transactions.

Finbond is not exposed to the uncertainty that accompanies the use of
corporate call deposits as a funding mechanism since Finbond accepts mainly
6 to 72 month fixed and indefinite term deposits. Given the long-term nature
of Finbond’s liabilities (fixed-term deposits with average term of 25 months)
and short-term nature of its assets (short-term micro loans with an average
term less than four months) Finbond possesses an unusually low risk liquidity
structure as a result of this positive liquidity mismatch.

Finbond Mutual Bank is funded through 2,786 (Aug 2016: 2,695) individual
fixed long-term deposits resulting in a smooth debt-maturity profile with no
(0%) dependence on large funders or the debt capital markets and no
concentration risk.

SOUTH AFRICAN SHORT-TERM UNSECURED LENDING

Finbond’s South African business’ main focus remains on small short-term
loans. Total segment revenue from Finbond’s short-term lending activities
made up of interest, fee and insurance income (portfolio yield) increased by
32.8% to R375.0 million (Aug 2016: R282.4 million).

The overall gross short-term loan book reflected another period of positive
growth totalling 18.0%, ending the six month period at R486.5 million (Aug
2016: R412.2 million).

During the period under review Finbond’s average loan size was R1,475 and
our average tenure was 4.04 months. Given the short-term nature of Finbond’s
products, Finbond’s loan portfolio is cash flow generative and a good source
of internally generated liquidity. The whole loan portfolio turns more than
three times per year.

For the period ended 31 August 2017 Finbond received cash payments of R1,169.8
million from customers, 40.4% greater than last year, while granting R778.3
million in new loans, an increase of 32.7% period-on-period (Aug 2016: R833.3
million in cash received and R586.6 million in new loans granted). The ratio
of cash received to cash granted was at 150.3% for the period under review.
The period-on-period movement in the portfolio includes increases in numbers
of both new clients serviced to 126,515 (26.5% more than in the six months
ended August 2016: 99,983) and new contracts granted to 527,171 (25.8% more
than in the six months ended August 2016: 419,010), setting new record monthly
highs for the Group in both measures during the financial year.

Finbond’s average short-term loan period is significantly shorter than that
of our larger competitors and our average short-term loan size, significantly
smaller. Given this conservative approach Finbond does not have any exposure
to the 25 to 84 month, R21,000 to R180,000 long-term unsecured lending market
that continues to cause significantly increased write-offs, bad debts and
forced rescheduling of loans. Finbond’s historic data and vintage curves
indicates that shorter term loans offer lower risk as consumers are more
likely to pay them back as opposed to longer term loans.

Furthermore, Finbond’s short-term loan portfolio is not exposed to any
concentration risk and does not have any significant exposure to any specific
employer or industry.

NORTH AMERICAN UNSECURED LENDING

Finbond’s North American business’ main focus is on short-term small
unsecured loans being offered through 223 branches, of which 9 are located
in Alabama, 35 in California, 2 in Florida, 40 in Illinois, 5 in Indiana, 61
in Louisiana, 1 in Michigan, 10 in Mississippi, 14 in Missouri, 1 in Ohio,
9 in Oklahoma, 8 in South Carolina, 15 in Tennessee, 7 in Wisconsin and 6 in
Toronto, Canada.

For the period under review 55.9% of Finbond’s revenue was earned in USD and
the intention is to grow the dollar earnings of the group to approximately
70% to 80% of net earnings in three to five years.

Total segment revenue from Finbond’s North American short-term lending
activities, made up of interest and fees (portfolio yield) amounted to $46.6
million (R652.0 million) (Aug 2016: $12.8 million) for the period under
review with the overall gross short-term unsecured loan book ending the six
month period at $54.3 million (R706.7 million) (Aug 2016: $12 million). For
the period ended 31 August 2017 Finbond’s average North American loan size
was $346 (R4,928) at an average tenure of 6.07 months.

We are in the process of acquiring further branches located in Alabama,
Missouri, Florida in the United States of America and Ontario in Canada. We
are also in discussions with a number of larger strategic acquisition targets
in the United States of America’s short-term instalment lending and auto
title lending market, as part of Finbond’s phase 2 expansion plan.
CONSERVATIVE UPFRONT CREDIT SCORING

The current economic climate where the consumer remains under financial
strain in South Africa places the consumer's ability to qualify for credit
under adverse pressure. Finbond takes a conservative view when managing
credit risk which begins at the credit granting stage based on credit score.
The credit scores on all products are monitored on a monthly basis and the
dynamic performance of the portfolio is regularly taken into account when
considering potential tightening of scores.

Detailed affordability calculations continue to be performed prior to
extending any loans in order to determine whether the client can in fact
afford the loan repayments. Finbond’s lending practices have been
consistently conservative over the past number of years. Rejection rates
stand at between 27% and 59% for the three to six month product range, and
they remain at 76% to 91% for the 12 to 24 month product range at the end of
August 2017.

IMPROVING BAD DEBTS AND IMPAIRMENTS

Finbond consistently applied the conservative impairment provisioning
methodology that has been used in prior financial periods. Overall impairment
provisions increased by 94.9% to R212.2 million (Aug 2016: R108.8 million)
compared to gross loans and advances growth of 70.5% to R1 413.0 million
(Aug 2016: R829.0 million) during the year. The impairment provisions for
the core unsecured lending portfolio’s (which represents 84.4% of the gross
loans and advances) increased by 81.3% to R194.1 million (Aug 2016: R107.1
million) compared to gross loans and advances growth of 85.7% to R1 192.3
million (Aug 2016: R641.9 million) during the year while the remainder
impairment provision increase is attributable to secured lending

Over the same period write-offs increased by 164.8% to R208.2 million (Aug
2016: R78.6 million), therefore given the prudent write-off and provisioning
methodology, the Group has provided prudently for future losses on the
portfolio.

Conservative lending practices and strict upfront credit scoring supported
by robust collection strategies and processes were maintained and contributed
to a 2.67% improvement in bad debts during 2017.

During the period, the Group further enhanced affordability calculations,
thereby tightening credit granting criteria to even stricter levels than the
already high levels previously set. Notwithstanding an increase in
impairments, the arrears coverage ratio has improved to 110. 7% from 53.3%
over the past year, despite the difficult external environment specifically
in South Africa

The loan loss reserve, also referred to as risk coverage ratio (impairment
provision/portfolio at risk: 90 days in arrears and longer), which is an
indication of a micro-finance institution’s ability to cope with the
estimated loan losses, has remained relatively unchanged at the end of the
reporting period at 247.1% (Aug 2016: 112.7%).

The 30-day arrears coverage ratio (impairment provision/portfolio at Risk:
30 days in arrears and longer) reflects an improvement in short-term arrears
coverage, being recorded at 153.6%, which increased from a ratio of 66.5% at
the end of August 2016. This improvement occurred as a combined result of
continued and consistent conservative provisioning against future losses
undertaken by management coupled with an improvement in the level of arrears
in the portfolio at year-end.

Finbond recorded an increase in overall impairment expenses (including
provision expenditure) of 153.9%, mainly attributable to the robust
impairment and write-off policies being followed by the North American
operations.

The overall unadjusted income statement, net impairment loss ratio was a
negative 2.5% (Aug 2016: 19%), while Finbond’s significantly lower and much
more accurate adjusted loan loss ratios decreased during the year. Net
impairment as a percentage of expected instalments amounting to 6.9% (Aug
2016: 6%) and net impairment as a percentage of cash received (which is more
conservative than instalments due) stood at 7.2% at the end of August 2017
(Aug 2016: 6.9%). These adjusted measures are a more appropriate reflection
of the impairment cost related to a short-term, low-value loan portfolio
such as that held by Finbond compared traditional balance sheet ratios. The
best measurement of arrears and impairments on the short-term products is
against instalments due and not outstanding balances, because a large portion
of a short-term loan is repaid before month-end/year-end and is therefore,
not reflected on the balance sheet. Thus, computations based on the
outstanding balance distort this ratio on short-term products.
STRATEGIC INITIATIVES AND FUTURE PROSPECTS

Strategic initiatives under way include:

-   Growing market share through the increased sale of short- and medium-term
    products, specifically 30 days, 90 days and 6 months;
-   Further refining, developing and improving all bank information technology
    systems and processes;
-   Converting Finbond’s mutual banking license to a commercial banking
    license;
-   Expansion of the South African branch network in high growth areas;
-   Acquiring a further 40 to 60 branches located in Alabama, Missouri and
    Florida in the United States of America and Ontario in Canada; and
-   Selective further strategic acquisitions in the South African and North
    American unsecured short-term lending markets.

The challenging and difficult macro-economic environment as well as the
adverse market conditions in the South African market within which Finbond
operates are not expected to abate in the short- and medium-term. However,
we remain confident that we have the required resources and depth in
management to successfully confront and overcome these various challenges.

We remain positive about our prospects for the future due to Finbond’s
improved earnings and profitability despite difficult market conditions,
improvement achieved in cash generated from operating activities, significant
percentage of revenue now earned in USD, management expertise, strong cash
flow, strong liquidity and surplus cash position, uniquely positioned 410
branch network in South Africa and 223 branches in North America (with a
number of branches in the process of being acquired), superior asset quality,
access to funding, conservative risk management and growth potential.

We believe that our continued growth in South Africa, the expansion into the
North American short-term lending market and the implementation of our
strategic action plan will ensure that we achieve results in the medium- and
long-term.

References to future financial performance included anywhere in this
announcement have not been reviewed or reported on by the Group’s external
auditors.

DIVIDEND

No interim dividend has been declared.
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                 Interim     Interim                 Full year
                                 unaudited   unaudited    %          audited
                                 31 August   31 August               28 February
R'000                                                     change
                                 2017        2016                    2017
ASSETS
Cash and cash equivalents          402 683     446 526        (10)      547 351
                                       192
Other financial assets                         194 368         (1)      207 717
                                       593
Unsecured loans and other
                                       998         534
advances to customers                                           87      800 599
                                       161         815
Secured loans and other
                                       202         185
advances to customers                                            9      220 958
                                       706         326
Trade and other receivables        151 521     138 244          10      139 850
Property, plant and equipment      136 779      94 036          45      113 800
Investment property                286 662     271 060           6      278 185
Goodwill                           820 293     404 364         103      752 699
Intangible assets                  113 525      15 381         638      115 064
Other assets                           612       3 713        (84)        1 379
                                     3 305       2 287                    3 177
Total Assets                                                    44
                                       535         833                      602

Equity
Share capital and premium          732 016     715 876           2      715 667
                                      ( 79        ( 24                     ( 72
Reserves                                                       227
                                      078)        153)                     350)
Retained income                    323 248     203 149          59      292 351
Equity attributable to owners
of the Company                     976 186     894 872           9      935 668
                                                                            201
Non-controlling interest           196 670      47 225         316
                                                                            740
                                     1 172                                1 137
Total Equity                                   942 097          24
                                       856                                  408
Liabilities
Bank overdraft                      94 691      38 173         148       27 725
Trade and other payables           126 878      41 323         207       81 428
Purchase consideration             139 075     170 453        (18)      213 375
                                     1 090       1 014                    1 098
Fixed and Notice deposits                                        7
                                       137         939                      609
Commercial paper                    87 692           -         100            -
Current tax payable                 40 176      11 787         241       40 456
                                                                 2          508
Loans from shareholders            503 021      18 000
                                                               695          440
                                        41          44
Deferred tax                                                   (7)       60 056
                                       321         319
Other liabilities                    9 688       6 742          44       10 105
                                     2 132       1 345                    2 040
Total Liabilities                                               58
                                       679         736                      194
                                     3 305       2 287                    3 177
Total Equity and Liabilities                                    44
                                       535         833                      602
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                     Unaudited    Unaudited       %          Audited
                                     Six months   Six months      Change     Year to
R'000                                31 August    31 August                  28
                                     2017         2016                       February
                                                                             2017

Interest income                         244 132      200 905            22      568 060
Interest expense                      (100 228)     (55 304)            81    (144 929)
Net interest income                     143 904      145 601           (1)      423 131
Fee income                              681 784      218 842           212      740 416
Management fee income                    42 312       26 875            57       58 229
Other operating income                  141 907       90 502            57      186 939
Foreign exchange (loss)/gain            (3 274)               -        100       27 931
Net impairment charge on loans and    (228 766)     (90 118)           154    (296 213)
advances
Operating expenses                    (606 508)    (316 057)            92    (860 993)
Profit before taxation                  171 359       75 645           127      279 440
Taxation charge                        (54 128)     (21 178)           156     (98 994)
Profit for the period                   117 231       54 467           115      180 446
Other comprehensive income
Exchange differences on                (11 245)     (30 629)          (63)    (107 847)
translation of foreign operations
Total comprehensive income for the      105 986       23 838           345       72 599
period

Profit attributable to :
Owners of the company                    92 750       49 615            87      138 727
Non-controlling interest                 24 481        4 852           405       41 719
Profit for the period                   117 231       54 467           115      180 446
Total comprehensive income
attributable to :
Owners of the company                    81 505       18 986           329       55 496
Non-controlling interest                 24 481        4 852           405       17 103
Total comprehensive income              105 986       23 838           345       72 599


Total number of ordinary shares         750 567      747 712                    746 712
outstanding
Weighted average number of
ordinary shares outstanding             747 149      741 065                    746 539
Basic and diluted earnings per             12.4          6.7            85         18.6
share (cents)
Headline earnings per share                12.4          6.7            85         18.6
(cents)
Net profit attributable to owners
of the company                           92 750       49 615            87      138 727
Loss on disposal of property,               148               -                         -
plant and equipment
Headline earnings                        92 898       49 615            87      138 727
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOW
                                     Unaudited Unaudited                Audited
                                    Six         Six           %         Year to
                                    months      months
R'000                               31 August   31 August   Change      28
                                    2017        2016                    February
                                                                        2017
CASH FLOW FROM OPERATING
ACTIVITIES
Cash generated from operations         16 357      20 054      (18)       262 995
Taxation paid                        (73 450)    (14 106)         421   ( 44 788)
Net cash flow from operating         (57 093)       5 948   (1 060)       218 207
activities
CASH FLOW FROM INVESTING
ACTIVITIES
Purchase of property, plant and      (30 838)    (13 096)         135    (29 103)
equipment
Sale of property, plant and               115           -         100         720
equipment
Purchase of investment property       (8 477)     (1 520)         458     (8 330)
Purchase of other intangible          (9 406)       (645)     1 358      (19 064)
assets
Sale of financial assets               14 882      41 530      (64)        26 814
Net cash outflow from business       (73 673)   (176 768)      (58)     (714 576)
combinations
Net cash flow from investing        (107 397)   (150 499)      (29)     (743 539)
activities
CASH FLOW FROM FINANCING
ACTIVITIES
Issue of share capital                 52 111     513 929      (90)       516 266
Share buy-back                       (35 763)     (1 418)     2 422       (3 964)
Proceeds from shareholders’ loans      36 549    (40 632)     (190)       490 440
Finance lease payments                   (72)          56     (229)         1 873
Dividends paid                       (99 969)    (25 438)         293    (66 064)
Net cash flow from financing         (47 144)     446 497     (111)       938 551
activities
NET INCREASE/(DECREASE) IN CASH     (211 634)     301 946     (170)       413 219
Cash at the beginning of the          519 626     106 407         388     106 407
period
CASH AT THE END OF THE PERIOD         307 992     408 353      (25)       519 626
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                             Unaudited            Unaudited           Audited
R'000                                                        31 August 2017       31 August           28 February
                                                                                  2016                2017
Total equity at the beginning of the period                     1 137 408        387 989              387 989
Change in share capital and premium
  Issue of shares                                                  52 111        513 929              516 266
  Purchase of treasury shares                                     (35 762)       ( 1 418)              ( 3 964)
Change in reserves
  Equity-settled share-based payment                              (10 278)             -               4 405
  Total comprehensive income for the period                  81 505         18 986            55 496
  Transfer between reserves                                         8 068              -                     -
  Dividends paid                                                  (55 126)       (25 438)              (25 348)
Change in non-controlling interest
  Total comprehensive income for the period                         24 481         4 852             17 103
  Transfer between reserves                                         (8 068)            -                     -
  Dividends paid                                                   (40 794)            -                     -
  Business combination                                              19 311        43 197           185 461
Total equity at the end of the period                            1 172 856       942 097          1 137 408


SUMMARISED SEGMENTAL INFORMATION


OPERATING SEGMENTS
R'000                Investment        Lending       Property          Transactional     Other         Total
                     Products                        Investment        Banking



Six months ended 31 August 2017
Net Interest             (32 077)        178 815                              (86)      (2 748)        143 904
Income                                                       -
Interest income            10 279        230 311                                         3 542         244 132
                                                             -                  -
Interest expense         (42 356)        (51 496)            -                (86)      (6 290)       (100 228)
Fee income                     -         672 991             -              8 793            -         681 784
Management fee
income                         -            (249)            -                  -       42 561          42 312
Other operating              242)        142 149             -                  -            -         141 907
income
Foreign exchange               -               -             -                  -      (3 274)          (3 274)
loss
Net impairment
charge on loans
and advances                   -        (228 793)            -                 27           -         (228 766)
Operating expense            (11)       (575 787)         (959)            (7 135)    (22 616)        (606 508)
Profit/(Loss)
before taxation          (32 330)        189 126          (959)             1 599      13 923          171 359
Taxation                   8 860         (58 747)          263               (438)     (4 066)         (54 128)
(Loss)/profit for
the period               (23 470)        130 379          (696)             1 161       9 857          117 231
Significant segment assets
Cash and cash
equivalents               117 037        236 158             -              5 702      43 786          402 683
Other Financial           192 593              -             -                  -           -          192 593
Asset
Loans and advances              -      1 200 867             -                  -           -        1 200 867
Trade and other
receivables                     -        106 725             -                  -      44 796          151 521
Property, Plant
and Equipment                   -        117 055             -                232     19 492           136 779
Investment                      -              -       286 662                  -          -           286 662
Property
Goodwill                        -        820 293            -                   -         -            820 293
Intangible assets               -        113 525            -                   -         -            113 525
Significant segment liabilities
Deposits received
from customers          1 090 137              -            -                   -         -         1 090 137
Purchase
consideration                   -        139 075            -                   -         -           139 075
payable
Loans from
shareholders                    -              -            -                   -    503 021          503 021


Six months ended 31 August 2016
Net Interest               (21 861)      125 727            -                (156)    41 891     145 601
Income
Interest income               8 162      180 366            -                   -     12 377     200 905
Interest expense            (30 023)     (54 639)           -                (156)    29 514    (55 304)
Fee income                        -      217 226          201                 937        478     218 842
Management fee
income                            -            -            -                   -     26 875      26 875
Other operating                 277       90 225            -                   -          -      90 502
income
Net impairment
charge on loans
and advances                      -     (83 995)             -                 (5)    (6 118)   (90 118)
Operating expense             2 588    (299 082)        (1 088)            (3 812)   (14 663)  (316 057)
Profit/(Loss)
before taxation             (18 996)      50 101          (887)            (3 036)    48 463     75 645
Taxation                      5 318      (14 027)          248                850    (13 567)   (21 178)
(Loss)/profit for
the period                  (13 678)      36 074          (639)            (2 186)    34 896      54 467
Significant segment assets
Cash and cash
equivalents                  74 440      367 424             -              3 777        885     446 526
Other Financial             182 974            -             -                  -     11 394     194 368
Assets
Loans and advances                           720                                         720
                                  -        141               -                  -          -         141
Trade and other
receivables                       -      107 201             -              1 381      29 662    138 244
Property, Plant
and Equipment                     -       79 607             -                752      13 677     94 036
Investment                        -            -       271 060                  -          -     271 060
Property
Goodwill                          -      403 508             -                  -          -     403 508
Significant segment liabilities
Deposits received
from customers            1 014 939            -             -                  -          -    1 014 939
Purchase
consideration                     -      170 453             -                  -          -     170 453
payable

Year ended 28 February 2017
Net Interest               (53 409)      485 967             -               2 772    (12 199)    423 131
Income
Interest income             16 654       544 544             -               3 430      3 432     568 060
Interest expense           (70 063)      (58 577)            -                (658)   (15 631)   (144 929)
Fee income                        -      738 229             -               2 187          -     740 416
Management fee
income                            -            -             -                   -     58 229      58 229
Other lending                     -      186 939             -                   -          -     186 939
income
Foreign exchange                  -            -             -                   -     27 931      27 931
gain
  Net impairment
  charge on loans
  and advances                    -     (294 943)            -              (1 270)         -     (296 213)
  Operating expense           1 647     (832 069)       (1 880)             (3 946)   (24 745)    (860 993)
  Profit/(Loss)
  before taxation           (51 762)      284 123       (1 880)               (257)    49 216      279 440
  Taxation                   15 327      (100 381)         557                  76    (14 573)     (98 994)
  (Loss)/profit for
  the period                (36 435)      183 742       (1 323)               (181)    34 643      180 446



  Significant segment assets
  Cash and cash
  equivalents                  120 760     359 713            -               5 443      61 435     547 351
  Other Financial              207 359         358            -                   -           -     207 717
  Assets
  Loans and advances                     1 021 557                                                1 021 557
                                    -                         -                   -           -
  Trade and other
  receivables                       -      107 481            -                   -      32 369     139 850
  Property, Plant
  and Equipment                     4      103 584            -                  471      9 741     113 800
  Investment                        -            -      278 185                    -          -     278 185
  Property
  Goodwill                          -      752 699            -                    -          -     752 699
  Intangible assets                 -      115 064            -                    -          -     115 064
  Significant segment liabilities
  Purchase
  consideration                     -      213 375            -                    -          -     213 375
  payable
  Deposits received
  from customers             1 098 609           -            -                    -          -   1 098 609
  Loans from
  shareholders                      -            -            -                    -    508 440     508 440


GEOGRAPHICAL SEGMENTS
                                 Six months ended 31 August 2017             Six months ended 31 August 2016
R'000                           South         North         Total            South           North          Total
                                Africa        America                        Africa          America
Net profit
Interest Income                    120 271       123 861        244 132         99 205        101 700       200 905
Interest expense                  (60 558)      (39 670)      (100 228)       (50 955)         (4 349)       (55 304)
Net interest income                 59 713        84 191        143 904         48 250         97 351        145 601
Fee income                         193 465       488 319        681 784        132 317         86 525        218 842
Management fee income               42 561         (249)         42 312         26 875              -        26 875
Other operating income             133 149         8 758        141 907         85 627          4 875        90 502
Foreign exchange loss              (3 274)             -        (3 274)              -             -             -
Net impairment charge on
loans and advances                (71 112)     (157 654)      (228 766)       (56 918)         (33 200)      (90 118)
Operating expenses               (244 005)     (362 503)      (606 508)      (193 665)        (122 392)     (316 057)
Profit before taxation             110 497        60 862        171 359         42 486          33 159        75 645
Taxation                          (30 393)      (23 735)       (54 128)       (11 893)          (9 285)      (21 178)
Profit for the period               80 104        37 127        117 231         30 593          23 874        54 467
Significant segment assets
Cash and cash equivalents          297 505       105 178        402 683        162 114         284 412       446 526
Other financial assets             192 593              -       192 593        194 368               -       194 368
Loans and advances                 636 537       564 330      1 200 867        564 669         155 472       720 141
Property, plant and                 67 297        69 482        136 779         63 194          30 842        94 036
equipment
Investment property                286 662              -        286 662       271 060               -       271 060
Goodwill                          198 736        621 557         820 293       192 389         211 975       404 364
Intangibles                           171        113 354         113 525           171          15 210        15 381
Significant           segment
liabilities
Purchase consideration                  -        139 075         139 075             -         170 453       170 453
payable
Fixed and Notice deposits       1 090 137              -      1 090 1379      1 014 939               -    1 014 939
Loans from shareholders           503 021              -         503 021         18 000               -       18 000


                                Year ended 28 February 2017
                                South          North         Total
                                Africa         America
Net profit
Interest Income                   202 412        365 648         568 060
Interest expense                (107 385)       (37 544)       (144 929)
Net interest income                95 027        328 104         423 131
Fee income                        299 782        440 634         740 416
Management fee income              73 167      ( 14 938)          58 229
Other operating income            173 783         13 156         186 939
Foreign exchange gain              27 931              -          27 931
Net impairment charge on
loans and advances              (120 306)      (175 907)       (296 213)
Operating expenses              (403 253)      (457 740)       (860 993)
Profit before taxation            146 131        133 309         279 440
Taxation                         (43 270)       (55 724)        (98 994)
Profit for the period             102 861         77 585         180 446


Significant segment assets
Cash and cash equivalents         232 058        315 293         547 351
Other financial assets            207 717              -         207 717
Loans and advances                599 325        422 232       1 021 557
Trade and other receivables       124 531         15 319         139 850
Property, plant and                58 929         54 871         113 800
equipment
Investment property               278 185              -         278 185
Goodwill                          192 389        560 310         752 699
Intangible assets                     171        114 893         115 064
Significant segment
liabilities
Purchase consideration                  -        213 375         213 375
payable
Fixed and Notice deposits       1 098 609              -       1 098 609
Loans from shareholders           508 440              -         508 440

Notes to the summarised consolidated financial statements

Finbond Group Limited is a company domiciled in South Africa. The summarised
consolidated financial statements of the Company as at and for the six months
ended 31 August 2017 comprise the Company and its subsidiaries (together
referred to as the “Group”) and the Group’s interests in associates and
jointly controlled entities.
Basis of preparation

The summarised consolidated financial statements have been prepared in
accordance with the requirements of the JSE Limited Listings Requirements
and the requirements of the Companies Act of South Africa. The summarised
consolidated financial statements have been prepared in accordance with the
framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (“IFRS”) IAS 34 Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and financial pronouncements as issued by the Financial
Reporting Standards Council IAS 34 Interim Financial Reporting, the Companies
Act and the JSE Listings Requirements. It does not include all of the
information required for full annual financial statements and should be read
in conjunction with the audited consolidated annual financial statements of
the Group as at and for the year ended 28 February 2017.

The accounting policies applied by the Group in these summarised consolidated
financial statements are consistent with those accounting policies applied
in the preparation of the previous consolidated annual financial statements.

The summarised consolidated financial statements were prepared under the
supervision of Mr C Eksteen CA(SA), in his capacity as chief financial
officer.

Estimates

The preparation of annual 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 expenses. Actual results may differ from these estimates.

In preparing these summarised consolidated 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 annual financial statements as at and for
the year ended 28 February 2017.

Fair value measurement

Fair value hierarchy of instruments measured at fair value

The fair value hierarchy reflects the significance of the inputs used in
making fair value measurements. The level within which the fair value
measurement is categorised in its entirety, is determined on the basis of
the lowest level input that is significant to the fair value measurement in
its entirety.

The different levels have been defined as follows:

Level 1: Fair value is based on quoted unadjusted prices in active markets
for identical assets or liabilities that the group can access at measurement
date. Level 2: Fair value is determined through valuation techniques based
on observable inputs, either directly, such as quoted prices, or indirectly,
such as derived from quoted prices.     This category includes instruments
valued using quoted market prices in active markets for similar instruments,
quoted prices for identical or similar instruments in markets that are
considered less than active or other valuation techniques where all
significant inputs are directly observable from market data. Level 3: Fair
value is determined through valuation techniques using significant
unobservable inputs. This category includes all assets and liabilities where
the valuation technique includes inputs not based on observable data, and
the unobservable inputs, have a significant effect on the instrument’s
valuation.   This category includes instruments that are valued based on
quoted prices for similar instruments where significant unobservable
adjustments or assumptions are required, to reflect differences between the
instruments.
Levels of fair value measurements

R’000                            Level 1       Level 2     Level 3     Total
Assets    and     liabilities
measured   at   fair   value:
Recurring
Other financial assets                     -     192 235         358     192 593
Investment property                        -           -     286 662     286 662
Total                                      -     192 235     287 020     479 255

Valuation techniques used to derive level 2 and 3 fair values

Level 2 fair values of other financial assets have been derived by using the
rate as available in active markets. The IBNR provision is managed from
industry data accumulated on the Alexander Forbes Risk and Insurance Services
claim system, and is classified as a Level 3.        Level 3 fair values of
investment properties have been generally derived using the market value,
the comparable sales method of valuation, and the residual land valuation
method, as applicable to each property.

The fair value is determined by external, independent property valuers,
having appropriate, recognised professional qualifications and recent
experience in the location and category of the properties being valued. The
valuation company provides the fair value of the Group’s investment portfolio
every twelve months.
Reconciliation of assets and liabilities measured at level 3 Rand Thousand

R’000                 Opening    Gains              Subsequent       Closing
                      balance    recognised   in    capitalised      balance
                                 profit or loss     expenditure
Investment property    278 185                 -        8 477        286 662


No transfers of assets and liabilities within levels of fair value hierarchy
occurred during the current financial year.

Cash and cash equivalents are not fair valued and the carrying amount is
presumed to equal fair value.

Short-term receivables and short-term payables are measured at amortised cost
and approximate fair value, due to the short-term nature of these
instruments. These instruments are not included in the fair value hierarchy.
Business Combination

During the reporting period the group acquired a number of branches in South
Africa and USA as going concerns through business combinations:

                                  Interim           Interim          Full year
                                  unaudited         unaudited        audited
R'000                             31      August    31     August    28     February
                                  2017              2016             2017
South Africa
Recognised amounts of identifiable assets acquired and
liabilities assumed
Loans and other advances to            30 593        12        744              12 744
customers
Other net assets                                                 -
                                          110                                        -
Total identifiable net assets          30 703        12        744              12 744
at fair value
Goodwill arising on acquisition         6 347        39        413              39 413
Purchase consideration                 37 050        52        157              52 157
transferred
Consideration paid in cash             37 050        52        157              52 157


North America
Recognised amounts of identifiable assets acquired and
liabilities assumed
Cash and cash equivalents               4 824        50 386                     82 430
Loans and other advances to                69 318          134 000             469 541
customers
Property, plant and equipment               6 430           32 608              59 648
Intangible assets                               -                -             126 601
Other assets                                    -           18 060              22 755
Total liabilities                         (1 705)      (64 205)             (140 770)
Total identifiable net assets              78 867       170 849               620 205
at fair value
Non-controlling interest
measured at fair value                   (19 717)      (46 103)             (259 211)
Goodwill arising on acquisition            64 049       225 883               621 961
Purchase consideration                    123 199       350 629               982 955
transferred

Consideration paid in cash                 31 496          172 475             744 849
Contingent consideration                   91 703          178 154             238 106
liability
Total consideration                       123 199          350 629             982 955
Events after the reporting period

There have been no subsequent events that require reporting.

References to future financial performance included anywhere in this
announcement have not been reviewed or reported on by the Group’s external
auditors.

For and on behalf of the Board

Dr Malesela Motlatla                Dr Willie van Aardt

12 October 2017

Directors

Chairman: Dr MDC Motlatla* (BA, DCom (Unisa)); Chief Executive Officer: Dr
W van Aardt (BProc (Cum Laude), LLM (UP), LLD (PUCHE) Admitted Attorney of
The High Court of South Africa, QLTT (England and Wales), Solicitor of the
Supreme Court of England and Wales); HJ Wilken-Jonker* (BCom Hons (Unisa);
Chief Financial Officer: CH Eksteen (CA(SA), CPA(USA)); Adv J Noeth* (B Iuris
LLB); Adv. N Melville* (BLaw, LLB (Natal) LLM (Cum Laude) (Natal) SEP
(Harvard); RN Xaba* (CA(SA)); D Brits* (BCom, MBA (PUCHE); HG Kotze* (CA(SA),
HDip Tax, Certificate in Treasury Management); Chief Operating Officer: C
van Heerden (BCom (Risk), MBA).

Secretary: Ben Bredenkamp (BCom Acc, LLB (UP))

*Non-executive

Transfer secretaries: Link Market Services South Africa (Proprietary) Limited
(Registration number 2000/007239/07) 11 Diagonal Street, Johannesburg, 2001
(PO Box 4844, Johannesburg, 2000)
Sponsor:    Grindrod Bank Limited

Date: 12/10/2017 04:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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