ASA International Group PLC

Good day, ladies and gentlemen, and welcome to ASA International's 2024 results. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session through the phone lines, and instructions will follow at that time. I would like to remind all participants that this call is being recorded. I will now hand over to Jonathan Berger, Head of IR, to open the presentation. Please go ahead.

Thank you. Good afternoon. And thank you for joining ASHA International's 2024 results webcast. As you will no doubt have already seen, we released our 2024 results first thing this morning, alongside our Q1 2025 business update. I'm joined here on the call by ASHA International CEO, Rob Keijers and CFO, Tamwe Rahman. Rob and Tamwe will run through this results presentation and afterwards we'll be happy to take any questions you may have. Before we begin, let me draw your attention to the disclaimer at the end of the presentation. Please be advised that if you continue to listen to this presentation, you are bound by this disclaimer. With the formalities out of the way, I would now like to hand over to Rob for his opening remarks.

Yeah, thank you, Jonathan. And I'd also like to add my own warm welcome to today's webcast. Of course, I'm honored to be hosting my first results since being appointed as CEO. But let's start with the important part, and that's the 2024 performance. And last year truly saw a return to sustainable growth for us international. It is pleasing to note that we've seen sustained improvement in both business and financial KPIs in 2024, when compared to last year. And also the start of 2025 was very promising. It has always been clear to me that leadership is at the heart of driving success throughout the company. And since 2024, I've sought to implement a new leadership and management approach, which I believe has empowered our people and created a renewed alignment. This was also combined with strengthening our executive committee at the group, as well as senior layers of local management in the countries. And what we've seen from this focus on leadership is that it has led to further operational excellence. Clients have grown by 8% compared to 2023, as our client base has surpassed the 2.5 million mark per the end of December. By the end of March, we've reached 2.6 million. The loan portfolio, or OLP, increased to 446.6 million, which includes both the on-book and the off-book portfolio, and represents a 21% growth year on year. From an efficiency and productivity perspective, we can see that on average, individual loan officers are serving more clients than last year. And the strong operational performance has also translated into significantly improved financial performance with net profit more than traveling. Total comprehensive income grew to 22.1 million in 2024, compared to a loss of 16 million in 23, as the negative FXG valuation impact was much reduced. It is this financial performance which provided the confidence to resume the payment of dividends last December in line with our dividend policy. And today we announced a final dividend of 4.1 cents per share, which along with the interim dividends equates to a 25% payout ratio. Later, Tonwe will dive into the financials in great detail in this presentation. But let me take you through the ORP from a regional perspective, the Outstanding Loan Portfolio. Here you can see that our well-diversified portfolio is driving OOP growth with the portfolio effects, helping to drive the improved operational performance we are reporting today. And then on a regional basis, all four of our regional reporting segments have demonstrated loan growth in 24 versus 23. Moreover, the positive trends also continued into Q1 of this year. East Africa continues to be the growth engine for the group, both in terms of total portfolio size and the year-on-year growth. but other regions have performed well as a whole as well. In South Asia, the strong performance lever, both in Pakistan and Sri Lanka, was offset by the deliberate reduction of our loan book in India, in line with our decision to deconsolidate the business in that country. In West Africa, Ghana continues to be the standard contributor, while it's pleasing to also see that Nigeria starts to grow its loan portfolio once again after difficult periods. And lastly, the Philippines and Myanmar Both performed well and contributed to the region's positive contribution in 2024. Then, of course, after the outstanding loan portfolio, also the loan portfolio quality. One of the big benefits of the ASA model is that it consistently delivers high portfolio quality, as evidenced by the low group par of 2.2%, the par 30, that is. This level was achieved both at the end of 2024 and also at the first quarter of this year. Outstanding portfolio quality was consistently recorded in Ghana, Kenya, Uganda, and Myanmar with a par 30 less than half a percent. Other items to note here include India portfolio quality, which reflect the market dynamics and fed into the decision to withdraw from this market. Also the Philippines worsening par was due to the multiple typhoons, which hit the country badly in 2024. And of course, we're all aware that a devastating earthquake hit Myanmar at the end of March. Thankfully, the direct impact of the earthquake on AASA Myanmar was limited from both a client and employee perspective, as well as from an office and branch infrastructure standpoint. AASA Myanmar is currently not facing any loan collection or portfolio quality issues, as there are no AASA branches in the affected areas. But this situation will continue to be closely monitored. And of course, we stand by our colleagues and clients in Myanmar. On that note, I'll hand over to Tanvir to review our financial performance in greater detail. Tanvir, over to you.

Thank you, Rob. On this slide, we have set out the key financial highlights for 2024. All these major metrics have moved in the right direction when compared to prior year. As Rob mentioned, we have seen strong profitability delivered by the business with net profit in 2024 growing more than threefold compared to 2023. This substantial net profit growth was achieved despite the USD 3.9 million negative net impact from the application of IAS 29 hyperinflation accounting. This improved income profile has materially reduced our cost to income ratio, which demonstrates a degree of operational leverage within the business. On the balance sheet side, total assets have grown strongly since the end of 2023. Total assets have comfortably suppressed the USD 500 million mark. This is yet another positive indicator with respect to the normalization of the business and indeed our prospects going forward. Total equity has also increased, reflecting the increase in retained earnings, which have more than offset the currency translation reserve. Lastly, we have total comprehensive income grow to USD 22.1 million in 2024 compared to a loss of USD 16 million in 2023. Alongside the increase in net profit, this was also driven by a much reduced negative impact from the FX translation reserve. Now turning to yield and NIM. Here we can see the positive yield and NIM trends during the 2024 time period. Gross yield increased to 44.2% as we saw a positive mixed effect with subsidiaries with higher yields increasing their proportion to overall OLP. Funding rates ticked up slightly, but this was more than offset by the increased yield. This meant that NIM increased by nearly five percentage points to 35.2% in 2024. Lastly, in terms of the NIM buildup, we can see that the increase in NIM was predominantly driven by interest income. Now, moving to the income statement, The NIM expansion I covered on the previous slide, alongside a growing loan portfolio, drove the USD 31.5 million year-on-year increase in net interest income. In essence, there was a positive volume mix effect seen in 2024. Other operating income also increased in 2024, mainly due to the rise in document application and service fees and an increase in fees on the off-book portfolio. There was also an incidental gain of USD 3 million from the loan assignment agreement with ASHA Myanmar lenders. As a result of these components, total operating income increased by 27% year-on-year. This improved income profile was a key driver to the significant increase in profitability seen in 2024 versus 2023. I also wanted to flag that the effective tax rate reduced from 63% in 2023 to 45% in 2024 due to a change in profit mix. The effective tax rate was still high due to pending implementation of transfer pricing in four of our countries and not capitalizing tax losses in India and at the holding companies. Please also note that the negative hyperinflation adjustment is not a tax deductible item. Moving to the cost side, we see a moderate 4% increase in total operating expenses year on year. This increase was driven by business expansion activities. As I mentioned earlier, the cost to income ratio improved to 61.4% in 2024 from 72.1% in 2023. As can be seen from the bridge, this is mainly due to the growth in net interest income. From a funding standpoint, we saw the company's funding position increase two years $499.3 million at the end of 2024. The overall funding profile remained stable. USD $193.8 million of new debt was also raised in the year in line with our overall funding strategy to support the growth of the business. As you can see on the chart, local deposits have increased year on year in line with our funding strategy with the intention to grow further focused on fixed deposits. To give some more color around our liquidity position, there was USD 79.1 million of cash at bank and in hand as at 31st December 2024, of which USD 50.2 million is unrestricted and utilized for operational needs in line with our capital allocation framework. Lastly, we want the opportunity to highlight that our favorable maturity profile with term loan maturities exceeds our client loan tenor, an indication of an efficient asset liability management. Here we provide a quick update on hyperinflation accounting. As a reminder, IAS 29 is applicable to hyperinflation economies, and a key indicator for this is a cumulative three-year inflation to exceed 100%. Under this accounting standard, the balance sheet and P&L are adjusted to reflect the current purchasing power at the reporting date. These are non-cash adjustments. In 2024, hyperinflation was applicable for both KANA and Sierra Leone. Ghana is expected to be no longer hyperinflationary for 2025, while Nigeria remains on the watch list. A key aspect of hyperinflation accounting is determining the net monetary position, which is monetary assets minus monetary liabilities. It is the net monetary position loss, which is mostly driving the negative P&L impact, as can be seen on the bottom right chart. The net monetary position loss of approximately 5.4 million, and this time a positive CPI adjustment for other P&L items for approximately 1.1 million amounted to an overall negative impact of USD 3.9 million on profitability in 2024. As you can see from the top chart, hyperinflation accounting, had a positive impact on the FX translation difference in other comprehensive income. The CPI adjustments balance out the FX impact. This contributed to a positive impact to equity for 2024. Over to you, Rob.

Thanks, Tanvir. And we started 2025 in the same way we ended 2024, very positively. But I want to take a little bit of time to outline how we need to drive long-term growth at AASA International. We have developed a strategy on how to fulfil our mission of enhancing socio-economic progress of low-income entrepreneurs by increasing financial inclusion. The strategy has basically three pillars which cover our plans to drive growth, build resilience and achieve a sustainable impact. Let's start with the growth pillar. In terms of driving this growth, we will first maximise the current lending model. As I touched on earlier, effective leadership is key and this involves empowering our colleagues as well as a rigorous KPI setting. We will boost productivity by increasing the number of clients each loan officer serves while broadly maintaining the same loan officer population. If we do this, all peak growth and subsequent increased profitability will follow. Secondly, we will accelerate our growth even more through the rollout of our digital financial services platform, which will increase further the number of clients. This will enhance our already inherent operational leverage within the business. And lastly, the digitalization will unlock additional potential through the offering of broader banking products to increase our share of wallet. In the longer term, we could also expand into new markets. Then let's talk about resilience. If you want to grow fast, you need the proper guardrails in place to support that growth. I already covered leadership and governance, but this is an absolute prerequisite to delivering the growth strategy. We need to complete a rollout of a mature technology stack, which is based around the core banking system. This will create system resilience and as a key enabler for areas such as launching new products, digitalization, enhanced reporting, meeting regulatory demands, and certainly scale the business. Another critical area is to expand our regulatory framework by obtaining additional deposit taking licenses. We currently have licenses to take deposits in six of our operating countries. we'd like to expand that over time to more markets these new licenses will enable us to launch new products as well source deposits to reduce the cost of funding and lower our overall risk profile we also need to mature our three lines of defense model as i mentioned earlier grace youngo has recently joined as chief risk and compliance officer and she will drive the development and full embedding of her three layers of defense model across the organization and generally deepen a risk-aware culture throughout the company. And lastly, from a financial resilience standpoint, there are a number of key areas to focus on. These include equity preservation efforts, reducing our effective tax rates, mitigating the impact of FX on the group, as well as adhering to a disciplined capital allocation framework. And then, well, last but certainly not least, our sustainable impact pillar. We view this in terms of delivering a triple bottom line impact across financial performance, social and environmental sustainability. Financial performance is the thing that will drive the achievement of our goals. And as we all know, social impact is at the heart of what we do here at ASA International. And we will seek to deepen this impact across areas such as female empowerment, responsible lending and community initiatives. And lastly, we will be ensuring that our operations are sustainable and climate resilient. All of these activities are aligned with six of the UN SDGs. During many of the previous slides, I already referenced our digital transformation program. And on this slide, I thought it would be useful to outline our approach to delivering this for AASA International on the different phases that we take. And the first stage is to enhance our current operations by integrating mobile money solutions, be it for repayments or for disbursements. So basically to take the cash out of the hands. The second stage relates to the true transformation, which follows two strands. The first is the implementation of a core banking system to provide resilience and compliance, as I talked about, as well as being foundational for many of the activities we're seeking to undertake. And secondly, we have the implementation of digital financial services, which will create an even more compelling client offering with the addition of our digital channels. And the third stage will be the optimization, where we will leverage DFS, digital financial services, to scale growth and develop additional income streams. So what does this all mean from a roadmap perspective? In terms of country rollouts, we have focused on de-risking the program by migrating the largest countries first, and then subsequently leveraging these infrastructure investments to other countries. And as announced previously, we successfully completed the migration of more than 600,000 clients in Pakistan from our incumbent loan system to the Temenos Transact core banking system. And this success positions as well to move to the next stage of the rollout, which will focus on Ghana and Tanzania, and that covers a combined 500,000 clients. And after Ghana and Tanzania, quickly thereafter, Kenya and Nigeria will follow. When we finalized Nigeria somewhere in the course of 26, we have covered 70% of our client base that we migrated to the new system setup. And then of course, we'll move to the subsequent countries. Then let's also talk about the capital allocation policy. I already alluded to it. We wanted to clarify our thinking around our capital allocation framework. And here you will see, of course, the classic levers. We want to efficiently invest in our long-term market opportunity to drive organic growth. This also includes digital transformation program I just outlined. And our current strategy focuses on organic growth. However, once we have a surplus at the holding company's level in organic growth could become an option. focus mainly on financial institutions with banking licenses, where we can accelerate growth in specific countries. And from a leverage standpoint, we'll focus on creating value through systematic capital management. And in practice, this means increasing local deposits and bank funding. And lastly, in terms of shareholder returns, our dividend policy targets, over time, an aggregate 30% payer ratio of annual net profit. And a potential future surplus cash position at the holdings level could allow share buybacks over and above the dividend payouts. Then maybe a short outlook on 2025. We expect really continued strong client demand from our products and greater efficiency in the business, which should translate into robust financial performance. And the first signs are clearly there in the first quarter of 2025. And we are providing some signposts for this performance. We're expecting around a 20% growth in OLP this year at outstanding loan portfolio with a cost-income ratio in the mid-60s. And as a reminder, currency movements and inflation will continue to affect financial performance for AASA International. And just wrapping up, I'd like to wrap the presentation by drawing out the key highlights basically for 2024. And I believe that we have demonstrated that 2024 has indeed seen a return to a sustainable growth. From a leadership perspective, a new leadership and management approach has been bedded in, as well as strengthening key management layers, both at the head office and in the countries. This has led to operational excellence with continued loan book growth with exceptional portfolio quality. And this operational excellence has driven significantly improved financial performance, both in terms of net profit, but also in terms of balance sheet metrics, such as total assets and total equity. This financial performance has supported the decision to resume the payment of dividends to shareholders. We have now concluded the formal part of the presentation. I'll hand back to the operator to open the floor to questions from the conference lines. Thank you.

Thank you. Participants can submit questions in written format via the webcast page by clicking the Ask a Question button. If you are dialed into the call and would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will pause for a moment to assemble the queue. Your first question comes from the line of Milo Bussell with Cavendish. Please go ahead.

Hi guys, congratulations on the results and thanks for taking my questions. So I could see the cost to income ratio falling, but just looking at the forward guidance you provided is more towards the mid 60s versus the 61% this year. So my question is, why is the ratio ticking up slightly and what do you have to do to further improve on the level achieved this year? Secondly, On the trend of growing the higher yielding loans, there's a proportion of ALP. Do you expect that to continue in the coming year? And then finally, just looking at the transformation roadmap on slide 16, could you provide some color on the expected timelines for completing the transformation across the various geographies? Any indication would be great. Thanks very much.

Yeah, thank you very much. Maybe first, the cost-income ratio. We are at a very healthy 61% at this moment in time, and Yes, we see that we are investing heavily, of course, in our digital transformation program, so that will take some investments. We will try, of course, to be as close to the current percentages as we currently are, but we are a little bit conservative based on the digital transformation program that we're running. Tamir, you want to add something on that, on the CR ratio?

No, it's just, you know, we have budgeted a good investment into the digital transformation process, as you said, and that's going to, some of the costs we cannot capitalize. So those would, you know, go straight to cost. So you're exactly right. That's the reason that it'll be in the mid 60s.

Thanks, Samuel. Your next question was on the OOP growth. And yes, I see a very strong demand for clients. We are driving first the number of clients very much So we're growing with tens of thousands of clients per month. At this moment in time, we are increasing the OOP, the outstanding loan portfolio per client in dollars. So I'm looking towards a strong OOP growth in the years to come. Your third question was on the roadmap. Well, I said the 70% after Nigeria. So somewhere at the end of 26, We should have finalized both the core banking implementation and the DFS implementation that go hand in hand, of course, in Ghana, in Tanzania, in Kenya and in Nigeria. And then the last 30 percent of the client base will take another two to three years after that. Does that answer your question?

Yeah, that's great. Thanks.

Next question comes from the line of Hugo Cruz with KBW. Please go ahead.

Hi, thank you for the time. I also have a few questions. Let's start with the funding costs. You have more than 50% of the funding maturing in the next 12 months. So I was just wondering, what's the interest rate of the maturing funding? What's maturing now? And how does that compare to the cost of new funding? And also, if you could... potentially break down the cost of local deposits against the cost of other debt as well. Any call there would be appreciated. A second question on the tax. You talk about pending implementation of transfer pricing for countries. When do you expect that to be in place and what could be the impact on the group's tax rate? And the final question on, you mentioned a potential purchase of financial institutions with banking licences. Is that really an option for the next two or three years, or is it something more conceptual for now? If it's a more meaningful option, which countries are you thinking about and why buy rather than just build a banking license organically? Thank you.

Let me start and then I'll hand over for a bit more deeper answer on the funding and the tax by Tanvir. Let me start with the last question on buying. The first priority is growing, of course, in the countries that we are. And if we would look into buying an institution with a banking license that would most logically be in one of the markets that we already are, but are pursuing a banking license. And you can go through the application process yourself. which might take a lengthy period of time or acquire an institution that already holds a microfinance banking license or a deposit taking license. The most important reason to do so would indeed be to be able to take deposits. And if you look at our different markets, you could see that East Africa is growing very, very fast. And not in all markets we have banking licenses there. So, yes, it is an option also for the next two to three years. And as I see it now, one of the East African countries that we are in, would be the most eligible for that. Then very shortly on the funding costs, Tanger can dig a bit deeper, but we see a very stable cost of funding, not only for the last couple of months, but basically also before that, nearly surprisingly with the increasing interest rates. So we are pretty upbeat also to have a a rather stable funding profile. And on the transfer pricing, that is not only up to us. Of course, it's a lot of talking, aligning with the regulators and central banks on their allowance to have transfer pricing in place. So to have a definitive answer on when we would have done it in the remaining countries is difficult, but we're pursuing it with full force. Maybe it's over to you to give a bit more color on the funding cost.

Yeah, so right now we are at 11.4%, and as I mentioned, it did go up. And with everything that is happening in the USA, there is a probability um, the rates, you know, might go up a little, um, and based on, you know, our maturity profile of our tenors, um, that would have an impact. Um, the second question was, uh, do we need to go further into?

I think that the second part of the, of the, um, uh, transfer pricing was. Yeah. Yeah. Potential like impact should those, uh, transfer pricing arrangements come into place.

Right, and the relation with taxes. So, yeah, right now, you know, there are, you know, four major jurisdictions where, you know, we haven't been able to initiate the transfer pricing policy. India, Nigeria, Ghana, and so forth. That will, you know, when that comes into effect, that will have a positive impact to the effective tax rate.

Okay, thank you.

Your next question comes from the line of Andy Renton with ASIA. Please go ahead.

Well, just one for me actually was, you talked about potentially expanding into new markets eventually. Are there any particular countries that you see as low-hanging fruits that you'd eye up as new targets?

Let's first state that we have our first focus on getting the untapped potential that we see in the countries that we are already in. That is our first and foremost focus. Just to give you an example, we are in Nigeria. There's 220 million people living there, 110 million women, 70% in the informal sector. So the addressable market, if you just look at Lagos alone, is humongous. So we are still able to grow significantly in the markets that we're in. And yes, if we would go to another market, that would be a country that had regulations that are favorable, where we could have foreign directors where we would be able to hold 100% from an ownership perspective and where there are large urban areas because that's an easier start than when you have a thinly populated country. Maybe a bit too early to call out countries, but the focus would be on Africa.

Great, thank you. The next question comes from the line of Nidesh Jain with Investec. Please go ahead.

Hi, everyone. My question is on India. What is the strategy going forward in India? We have witnessed slight growth in client addition in March. So how are we thinking about growth and what is the strategy in India?

As we've announced earlier, we are pursuing a deconsolidation of our business in India. So we are in alignment with the RBI on the relinquishment of the license. That is an ongoing process for now with some back and forth with the regulator. And we'll have to wait the outcome in a month to come.

There are no further questions on the conference line. I will now hand over to Jonathan to address the written questions submitted via the webcast page.

Thank you. We've received one question from the webcast audience, and that was really for Rob. But now that you're installed as permanent CEO, what are your kind of key priorities for this year?

Yeah, thanks, Jonathan. Well, of course, strengthening the management layers, both in head office and country level. I think we have, well, neglected is a big word, but we haven't done enough in the last years. So we'll strengthen the bench, both in the countries and at head office. I really aim to drive the share of wallets, increase the OOP per client in USD, not to over-debt our clients, but For instance, to club loans, if our clients have another loan with another MFI to pursue the full share of wallet with our clients. And of course, drive the number of clients, because often in the last couple of years, we've been able to make our budgets on OOP and what have you, but not always on clients. And since the second half of 24, we're growing our client base significantly. And I certainly intend to keep growing from a number of clients perspective. And of course, the first steps towards diversification of our product portfolio. We talked about deposits. Deposit is something we really want to pursue to fund our balance sheets, to lower our risk profile. You can think of other products as well to focus on. So that would be the next 12 months for me, basically, Jonathan.

And just one last one, which was how do you How do you view the current tariff situation that's unfurling in the world and any potential impact on ASHA International?

I think you need a crystal ball at this moment in time to really understand the geopolitical situation and where it will turn into. But if I really look into ASA, luckily, we have a very, very broad lender portfolio. And in case there would be an issue, we have, luckily, alternatives to turn to. Um, so we have not seen any impact until now. Uh, and we, and we talk to them, uh, quite regularly. Uh, and what we also see is that our client base, um, in, um, in Africa is trading and also in Asia, by the way, is trading with products that are coming from Africa or from Asia and not so much from America. So, uh, in the bottom of the pyramids in Asia and Africa, it also goes a bit above their head. Um, The only, not the only thing, there's many things on geopolitical point of view that are worried about, but if you look at ASA, it could be the ethics impacts, of course, with the dollar going up and down and the reflection that has on our local currencies that we trade in.

Great, thank you. That was everything from a Q&A standpoint. So we'll draw the call to a close. I'd like to remind Those participating that our next formal announcement will be on the 22nd of July with our Q2 business update and the next webcast from the team will be on the 26th of September with the announcement of our H1 results. And so with that, thank you very much. Thank you.

Thank you.