ASA International Group PLC

Good morning, good afternoon or good evening, dear investors, lenders, potential investors, raters and all interested parties to ASHA International. Warm welcome to our webcast on the H1 results presentation for 2023. and we're happy to take you along our results as well as to the outlook. I'm here in London in the room with Tanvir Rahman, our CFO, with Misha Asink, our Chief Investor Relations, and also chief accountant. And we're happy to go through the presentation with the results. Also on our webcast, you will find our press release as well as business updates, and the presentation given will also be shared there. Starting on the highlights of the performance, we can summarize that the operational performance has improved. And at the same time, we face disappointing financial performance due to external factors mainly. If you look to the number of clients, then as you know, we do have a deliberate shrinking strategy in India. And that's mostly why the total number of clients went down in combination with the impact of Nigeria, where there were elections and demonetization. The number of branches is growing slightly, and if you look to our pre-tax profit, it's 13.8 million, and the net profit being 3.7 million. The OLP growth has been very good in Pakistan, Philippines, Ghana, and Tanzania, especially in local currency, where if you look to the local currency OLP growth, our portfolio grew with plus 6%. So here are the dollar numbers, and they're being tempered by currency depreciation. If you look to the par, it has improved to the end of 2022, and our current par 30, so portfolio at risk, overdue payments more than 30 days amounts to 3.8%. Our ECL expenses have gone down significantly since COVID and now are 2.8 million, with the majority taken for India. The unrestricted cash balance is 45 million, which is we have a sufficient cash position there. It has been lowered since earlier levels. That's mainly because of paying off some debt in India. whilst we were shrinking there. If you look to the key performance indicators operationally, you can see the number of clients already commented on. If you look to the OLP per client, you can see that in dollars it stays quite stable, but with the devaluation of the dollar, You can see that it's in constant currency, which you can see on the last column. It's growing with 8%. The par levels have decreased. And if you look to our returns on assets and equity, you can see that it's lower and that the first half year profits are also lower, also because of higher incidental tax rates. If you look to the geographies, then we earlier announced a shift that we could see South Asia shrinking and East Africa growing. You can still see this pattern continuing in the first half of the year. And so our portfolios, and these are in dollar rates, are shrinking in Pakistan and South Asia. And you can see that East Africa is growing. with Tanzania now being a very significant portfolio of 56 million OLP at the end of the half year. Now we'll hand over to Tanvir, our CFO on some of the financials, and I'll come back later.

Thank you, Karen. So we just concluded our half-year review by EYUK. Where we landed is a PBT of $13.8 million and a net profit of $3.7 million. We see a big gap there, and that is mainly due to the deferred tax assets that we couldn't avail in India, the PLC, and the NV. Also, as Karen mentioned, the lower profit can be attributable to devaluation, ECL, and the super tax in Pakistan. On the OLP side, there's constant currency growth. On the equity side, we see the FX impact something that is beyond our control. If we look at our yield and margin and cost of funding, good improvements there, all positive. And the reason can be attributable to more disbursements in higher-yielding countries, and also the fact that in some of our jurisdictions, the rate caps were lifted. Cost of funds remains broadly stable, and it It is expected to grow up, but that should have a marginal impact for us because we are going to cover that with increased interest rates in some of our jurisdictions. Next slide, you can see our funding profile mix. As you can see on the left-hand side, that's our mix. And, yeah, it continues to be a mixture of equity, microfinance loan funds, local deposits, loan from development banks. and like, you know, DFC and commercial institutions. So this period, we raised 75 million in fresh debt, cash unrestricted, 45 million in the balance sheet. Strong funding pipeline with close to 181 million fresh loans. We do see a downtrend in deposits and equity, and as mentioned earlier, it's mostly due to the devaluation. We did have some covenants that were breached in this period. So in total, we had 55 million of debt that had problems, but eventually we received waivers for 36 million. Funders and lenders have been very cooperative and is with us into the future. With that, I pass it to Karen again.

Thanks, Tanvir. And let's have a look from H1 figures to the business update of August, so the most recent figures. And if you look to our loan portfolio, first a word on the distribution. So whereas India was the number one and largest country at one point, now you can see that others have grown while India has shrunk. So Pakistan is a large contributor to our OLP and income. And Tanzania has grown to a portfolio of 57 million in OLP per August. And also the Philippines and Ghana are large contributors. Where you see India mentioned and the word total, it refers to the total portfolio. But the majority of this is our business correspondence portfolio, where others provide the capital and also there is a maximum cap on the risk there. So our own book is much smaller than the number annotated on this page. If you look to the par 30, then after June you can see it further go down, and not only the par 30, but also the par 30 less the par 180, which now shrunk from 1.7% at the end of half year to 1.3% at the end of August. If you look to our collection efficiencies, then you can see that they are very high at the end of August, that there is only one outlier not starting with a 9 or a 10, which is India. And here again, the number refers to the total book. And so a large part of it, the risk is with BC partners after CAP. If you look to the other rates, you can see that they are very high, and also Nigeria is a special mention, as the year has started there with a lot of problems regarding the election, the demonetization, the very high fuel cost, and the unprecedented high fixed evaluation. But if you look at the numbers here in collection efficiency, it has grown from 78% in March to 95% at the end of August. So we're very happy with that improvement. Then on the regulatory side, and this is an important one as we are moving from being a microfinance institution to microfinance banking in several of our markets. This relates to our wish to have a more enhanced product suite to our clients, not only loans, but also payments, deposits, savings, and other value-added services. If we look to Pakistan, then we have received the microfinance banking license. And at the moment, we are waiting for the certificate of commencement to be able to literally, in our branches, receive deposits and money from the clients. We have declared a dividend on the 22 results, and this has been applied to the central bank, the State Bank of Pakistan, and approval is pending there. Then if we go to Ghana, we have received an approval for the application of our digital financial services, and that's very important in our route to digitalization. The dividend declared was also improved and it has been partly paid in the meantime. In Nigeria, also the central bank has approved the dividend over 2021. And we now were able to also get not only the dividend approved, but also part of the payment has been paid and transferred. Now the dollar market has improved there in terms of there is a market to convert dividends. local currency to dollar and then to upstream it from the country to the group. Then to Kenya, there the Digital Credit Providers Act took effect and that had some impact on us because we could not take deposits from our clients. We do have the ambition to be licensed there, so this is an intermediate phase. And so this will lead to having more loans in Kenya for the time being. So that's why if you look to the financing costs in Kenya, they have gone up a little. That will be offset once we have the licenses. And regarding our digital route, we have also prioritized Tanzania and Kenya as key markets where we want to implement our core banking system and digital services first after the launch of Pakistan and Ghana. If you look to our strategy, then we want to gain sustainable growth and increase financial inclusion by our growing loan portfolio. The increasing financial inclusion has been our strategy for a long time, and we've added two layers, of which the first one is the digital channel, adding to our branch model, so not replacing but adding, And not only digital offering to the clients, but also using this as a digital internal process so that we can reduce the manual work. The third layer in the strategy is to broaden products and services. So to go beyond loans, offer the loans online, then payments, deposits and value-added services. If you look to the technology, we are now well underway in launching in the coming months the core banking system, the package system in Pakistan, and then soon after that in Ghana and release the digital financial services. Also the supplier marketplace which already is being launched in Ghana and we have a thousand plus clients that have downloaded our app. On the client channel side you see the branch on the left and the right and so we do not aim to stop working from branches. Our view is that the close vicinity to the client is really key to the ASHA model, and we want to keep that. We will add the digital app and the S&P app and keep the branches as well. In the product suite already alluded on, so beyond loans and the internal processes, we aim to make them from manual to digital, from complex to simplified, and from here and there duplicated to straight through processing. Then an important sheet on the redesign of the group meeting. The group meeting is very important to us. And you can see at the bottom of the slide that the purpose for the group meeting for ISHA is that it has social and financial benefits. It's mitigating credit risk because we can learn from the group what the developments in the markets are, how our female entrepreneurs are, how they are doing, and it helps us also in the KYC. And also we can seek opportunities for growth by being so close to the clients. Well, some of the questions we get and also raise ourselves is, how will the future look vis-a-vis the client group meeting? And if you look to this slide, you see that the analog financial transactions will over time disappear. Because if the money is distributed in a digital way, then clients won't need to come to us or to our branch to receive their loan. nor do they need to go to the group for handing in their installment. However, the financial inclusion and education will still be a reason for clients to have added value from the group. Also, the social inclusion plays a big role, and the digital inclusion and the learning will be added because they are eager to learn how digital finance works. On the picture of the page on the left hand side, you see the traditional picture with the traditional client passbook and the traditional written loans and physical money. And on the right hand side, you can see pictures from Ghana where one of our loan officers is explaining about the digital app. And on the picture below, you can see a lady who has three phones in her hand. Those are client phones. We do see the mobile phone penetration growing in the client groups. And she is uploading here the supplier marketplace app on the phones of the clients. Also, if you look at this digitalization, not all clients will go digital at once. Some don't have smartphones or some are eager to wait a little bit and see how the experience is. Also, clients can go partially digital. So we are more eager to distribute the loans digitally and in the start still have physical money in the payment to still have this must-go reason to the groups. Also, disbursement has larger financial risk for our clients to walk on the streets with a big pile of money, so that's partially digital. Also, the frequency of the meetings can change, and so if you have less meetings but still have these meetings, the benefits and the purpose for the group meetings can still be relevant whilst the frequency can go down. Well, we are taking substantial strides in implementing the digital strategy. And so, as I already indicated, we are about to launch the CBS in Pakistan. It's been a whole process, but it's going well and we are going to launch it soon. After that, directly we go for the implementation in Ghana, where we are running in parallel, but simply cannot launch a system in two markets at the same time. So Ghana will follow very soon. And then with CBS, Ghana is the first market where the digital loans will be launched. The S&P app already is launched and a thousand plus clients have the app. And now it's about conversion from having the app to orders and repeat orders. Well, that brings us to the summary. So if you look to our operational performance in the first half of the year, you see that we are growing in constant currency terms in the OLP with plus 6% in the first half year compared to end of last year. If you look to dollar terms, we do see a decrease, mainly because of some external headwinds, and we do see our net profit amounting to 3.7 million. There is some lower recovery than expected of overdue loans in India. There is higher ECL expenses. The main reason is the FX headwinds. And, well, Nigeria had that table with a devaluation of 70%, and then Pakistan went down with 27%. That's unprecedented since inception. Then there is a provision of 1.4 million for an additional super tax. So in Pakistan, the government raised a super tax. They announced that this year, and it was effective retrospectively since 1st January 22. So that was incidental and unexpected, but really hitting the net profits. Pakistan, Philippines, Ghana, and Tanzania made positive contributions to our net profitability. And as already indicated, devaluation of the operating currencies made a big part. So that will land in the exchange translation loss. So that needs to be booked off our equity. And we want to note as well that we still have a sufficient capital base. So although there was a big write-off of the equity, we still sufficiently capitalized. Well, regarding the outlook, so on the one hand, we are positive in seeing improvements in the operating markets and continue to see them for the remainder of the year. So to that extent, we are positive in the outlook in terms of quality portfolio, but also in OLP terms and growth in constant currencies. However, we had big setbacks in the first half of 2023. And so that's why we restate our expectation for the outlook for the whole year that our net profit will be lower this year compared to 2022. So the reasons relate to demonetization and further inflation, unprecedented high, the developments in Nigeria, and also to incidental tax claims. What that means to our dividend is that although the board has planned to return to its pre-COVID dividend policy, we now have to say, given the tough market circumstances, that we believe that it's prudent at the moment not to commit to a dividend payment. So this brings me to the end of the presentation. For investors or potential investors, we also want to announce that we will be in Scotland next week at the 28th of September. We will be present at the EFG conference, and we also will be in New York in 3 and 4 October. So if any of you are interested also in a follow-up meeting or a one-on-one meeting, please, reach out to Misha Asink, our head of investor relations, and I'm also happy to hand over to him for any further questions.