Mozambique: Letshego’s problem child

Mozambique: Letshego’s problem child

Christopher Low, Managing Director (MD) of the iconic microfinance firm, Letshego Holdings Limited is unshaken by the quirky currency volatility, which comes with being pan-African. He instead foresees potential for greater benefits in the long term from the company’s expansion, KITSO DICKSON reports.

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Being a man who has headed institutions like the mighty Goldman Sachs, Low is unfazed by the Mozambican currency translation losses.  He says it is just beyond his control, adding however that his patience would pay off in markets like Namibia, Tanzania, Ghana and Nigeria, where the currency is on a rebound.

 

 
In a defiant stance, the head of the P4.5 billion valued blue-chip lender rather looks confident, during the group’s full year 2016 presentation. “Mozambique we believe will come around,” he declares confidently. He believes the P33 million setback made by the Mozambique investments will someday be profitable. In 2015, Portuguese speaking the Mozambique unit together with the Namibian operation had grown to such extent that they made up over 40 percent of revenues, profit and advances.

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With Mozambique contributing a substantial amount to Letshego’s earnings, currency translation losses were obviously going to be high, in light of the poor currency. In the previous fiscal year, Profit before Tax exceeded P1 billion for the first time in Letshego’s history despite depreciating exchange rates against the Pula. However Low emphasised that his organisation has no control whatsoever over currency performance and simply had to ride out the storm even when Mozambican Metical (MZN), the Southern African country’s currency, was what pundits viewed as “one of the worst performing African currencies”.

 

 
Translation losses arising on the conversion of the results of non-Botswana operations had a significant impact on the group’s results for 2016, penned Low this past week. The most notable however was the impact of the depreciation of the Mozambican Metical versus the Botswana Pula (the group’s functional and reporting currency). The 60 percent depreciation of the Metical resulted in a reduction of the group profit before tax of P33 million, suppressing the group’s Profit before Tax to the grounds of P948 million, which is a 9 percent reduction from 2015. Depreciation of MZN reduced the loan book by P437million, an equivalent of 6 percent compared to the previous year. Had the exchange rates been akin to the previous reporting period, they would have recorded a P33m higher profit before tax.

 

 
Mozambique makes part of the strong performers of the Southern African subsidiaries, including Namibia, Botswana, Lesotho, and Swaziland. The group says the region has seen modest growth, perhaps slowed by the embattled Mozambique unit. Analysts argue that currency deprecations are once off misfortunes that fade with the passage of time, lending credence to Low’s aspirations of future turnaround.

 

 
The Business Weekly and Review asked the group’s head where Letshego sees growth in the interim, as Mozambique ‘momentary’ falls short of what they needed to lead another successive round P1 billon in profit before tax. “We are looking to create a portfolio of growing businesses across our market.” He responded alluding to almost every country Letshego enjoys presence in. Letshego is nestled across 11 countries: Botswana, Kenya, Lesotho, Mozambique, Namibia, Nigeria, Rwanda, Swaziland, Tanzania, Uganda and most recently Ghana. Upper most in his mind is Namibia, Tanzania, West Africa’s Tanzania and Ghana.

 

 
In Namibia, the group is alive to growing profitability during the reporting fiscal year, which otherwise should see no interruption to momentum. In Tanzania, Low points to early success in fully integrating Letshego Bank Tanzania into the Group, with sourced profit before tax at P10 million.  Letshego Bank Tanzania was rebranded last year August 2016 after entering the market the previous year. The group’s key focus has been on integration of people and systems. A new management team was recruited, all staff trained and upskilled to group standards. And the group’s boss says losses were reduced from prior year. Customer deposits grew from 29 085 to 37 757.

 

 
In Nigeria, the first West African country Low penetrated, the journey hasn’t progressed as rapidly. Yet he says it should be one of his money spinners. Nigerian operations were re-branded last year August. the Nigerian economy shrunk by 1.5 percent in 2016, while inflation had more than doubled to 18.7 percent in 12 months. Acquisition of Letshego MFB was certainly not decided upon based on the current economic scenario; rather the group looked to what potential the investment would contribute to the group in the future.  Entry into West Africa through the Nigeria acquisition was based on the fact that Letshego believed that Nigeria would be a key contributor to the pan African company’s strategy looking to the future – with continued investment in people and systems. The performance of this subsidiary should become significant, so believes Low.

 

 
Just as promising is Ghana’s afb Ghana Plc (“afb”), a financial services company providing innovative credit products to consumers. The deal was struck last year. Now Letshego has control of a lender which made a handsome P18 million in profit before tax over the just ended year. Afb has grown to service over 60,000 customers through a country-wide network of more than 25 branch and customer access points and an end-to-end automated service delivery model. Its strategy – to deliver responsible lending services by leveraging technology to drive access, simplicity and customer satisfaction – fully aligns to Letshego’s own inclusive finance agenda as does its established product offering. This includes deduction-at-source loans for government employees and direct loans to private sector employees as well as loans to micro and small entrepreneurs (MSEs).

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