Crunching Letshego numbers

SHARE   |   Monday, 23 May 2016   |   By Kabelo Adamson
Letshego CFO, Colm Patterson Letshego CFO, Colm Patterson

Colm Patterson – the current Chief Financial Officer – was long won over by Letshego’s strategy. As an eternal auditor for the company, he was astounded by its growth and bulging accounts. He was soon on its employ and he doesn’t see himself quitting anytime soon. KABELO ADAMSON reports

Letshego Financial Holdings Limited has a story to tell about its growth to date – it equally has big ambitions and plans to use gains made as a base from which to further grow the business. Formed 18 years as a micro lender with just a small office, the company which today has footprints in 10 African countries and boasts of market capitalisation of over P5.5 billion has grown tremendously since its formative years. In an interview at the company offices which houses Letshego group as well as the Botswana subsidiary, Letshego Chief Financial Officer (CFO), Colm Patterson says the company’s ambition is to become a truly Pan African company. He frankly admits that this would be a challenge. “But hopefully we can achieve that,” he says as he begins to discuss the company’s journey and the future.

Judging by the intensity in which the company has spread its operations over the last few years and acquisitions that have taken place in that period, Patterson may have valid reasons to believe in the determination. Patterson insists that they are in a position to do something unique and has a strong base to build on that, including a strong balance sheet and strong footprint. Established back in 1998 in Gaborone, Letshego which today is the leading microlender has diversified from just giving credit to include other financial offerings to its portfolio. Besides giving credit, the company also holds deposit taking licenses in a number of countries. “We have got a very clear agenda.  We have got a clear strategy and that is to become a broad based financial services group with a very clear focus on financial inclusion,” says Patterson, the Irishman who joined the group in May 2007 from PricewaterhouseCoopers where he was also responsible for auditing the entity that he today works for.

Pan African business
In Patterson‘s account, the group has grown from humble beginnings to what it is now, and is building on the gains made over the last two years to seriously look into the prospects of becoming a Pan-African financial services group. “We have got what we believe is a very good base to build that off. We have got a strong balance sheet and our businesses in Botswana and elsewhere are well capitalised.” In 2015, for the first time in the company’s history, total revenues reached P2 billion while profit before tax reached P1 billion. Patterson says this is an impressive growth that cannot be ignored. “So we are growing,” he declares. The group boasts of 400,000 customers across those 10 countries with 35 000 of those coming from Botswana, which translates into 20 percent market share, according to Patterson. With this strong foundation, Patterson says opportunities in Botswana and elsewhere are very compelling. Over the years, Letshego has been known to offer credit to only formally employed individuals, particularly those under the government payroll. Patterson says they are moving away from by partnering with private organisations to extend the same to those employed in the private sector. “In Botswana we have agreements in place with 150 private companies. While the government remains the largest employer that we deal with in Botswana, we would like to replicate that in private companies as well.”

Expansion strategy
Patterson says the group is looking into expanding into three ways; geographically; product offering and deposit taking licenses. He emphasizes they a have a very broad agenda, saying he was hopeful they can use their brand promise - “Lets improve lives” – to indeed improve those lives. That, he says, is to be done in ways that generate returns to the company’s shareholders which are in the region of 3,000. Geographically the group has done well as today has presence in 10 countries and looking to expand into other countries in the continent to become a Pan- African Financial Services group. In terms of product offering, Letshego has enhanced in this aspect by launching products which Patterson says are influenced by the eagerness to improve lives. “Going forward we would like to replicate what we doing elsewhere in Botswana, that is not giving loans to not only formally employed people, but also enterprising people, and we are already doing that in Rwanda, Tanzania, Kenya, Uganda and Nigeria.”

In other countries Letshego has introduced house improvement loans, which Patterson says are not a typical mortgage but are for improving existing structures. This is done in Kenya and Tanzania. A number of conversations to improve the mobile loans offering is said to be taking place as the smartphone demand is growing each day, Patterson says. Due to growth in technology resulting in demand for smartphones escalating, Letshego is in addition to its offerings introducing smartphone loans. “We are doing it in Kenya and we looking to partner with a mobile company in Mozambique sometime this year.” One of the expansion strategies that Letshego is seriously looking into is deposit taking licenses. At the moment the group has four of those licenses. Patterson says Letshego does not aspire to go into the commercial banking space but are only interested in micro finance deposit taking license. “In terms of our agenda we are very clear on our financial inclusion plan and micro finance. We are not looking to become a commercial bank.” A couple of years ago the company applied for a banking license, which was declined by the regulator, Bank of Botswana. Paterson says they are not intending to reapply for it. None of the available licenses are aligned to what Letshego intends to do. “If it was possible we could apply for the deposit taking license, but as it stands it is impossible,” Patterson says, adding that they had to respect the decision of the central bank.

Financial literacy
Patterson says they cannot dictate what their customers do with the loans they get from Letshego but says from the feedback they receive from their clients, it does give an impression that the loans are being used to improve the lives, like paying for school fees as well being channeled to other wealth creation activities. The group has rolled out a number of initiatives targeted at addressing the financial well-being of the citizens. Patterson says they have conducted a number of financial education classes across the country with the view of educating people on financial literacy. He says they trained many in the country about access to credit, saying access to it is very paramount – which is the basic reason why Letshego was established in the first place.

Listing on the BSE
Letshego’s success can be partially apportioned to the decision to list on the BSE. Patterson says such undertaking has its own positives and negatives. Patterson, who recently spoke at the listing conference organised by the BSE to attract companies to the exchange house, says listing has assisted Letshego in a number of ways including profile and capital raise. Letshego listed in 2002 and went on to become one of the most capitalised companies on the stock market. “It raises the bar in terms of corporate governance requirements and comes with lot of responsibilities,” he says, adding that the initiative by the BSE was very good. Due to its listing, Letshego now has about 3,000 shareholders which Patterson says are mostly public servants by the virtue of Botswana Public officers Pension Fund (BPOPF) holding a major stake in the micro-lender, with the fund holding a 20 percent stake. Patterson says companies should not just list for the sake of it, as that comes with a lot of responsibilities and requirements. His advice to unlisted companies is simple: “Do not do it if you are not ready”. Will Letshego consider secondary listing on other stock markets? “It is a possibility,” is Patterson’s response to the question, saying only time will tell.

Who is Patterson?
The Irishman, who has lived in Botswana since 1997, says his arrival at Letshego in 2007 was not his first contact with the company. “Before that I worked at PwC as an external auditor for Letshego and was impressed on how Letshego went about on its business.” He feels at home at his current job and does not see himself leaving the company anytime soon. “It has been very interesting here; there is no a day or month that goes by without learning something new.”
Patterson says he would love to remain part of the team that would deliver the group’s ambition to become a truly pan-African company. Before being asked on his interests, Patterson quickly makes it clear that he is not a fan of reading and has not read a book in many years. “I read emails and proposals only,” he jokingly says.

Graph for illustration: Page 44 figure 5 … from integrated annual report