6 November 2018
ASA International Group plc
Q3 2018 Trading Update
ASA International Group plc, ("ASA International", the "Company" or the "Group"), one of the world's largest international microfinance institutions providing socially responsible loans to low-income female entrepreneurs throughout Asia and Africa, today releases its trading update for the nine-month period from the 1 January 2018 to 30 September 2018 ("the period").
The Group's overall operating performance remained strong across all segments during the period, but Outstanding Loan Portfolio ("OLP") and net profits were adversely affected by substantially higher than expected currency depreciation in some major markets, particularly Pakistan and India.
Key highlights for the period:
· Number of clients up by 23.2% year-on-year (14% up YTD, 4.9% up Q3) exceeding 2.1mn as of 30 September 2018
· Number of branches up by 19.8% year-on-year (15% up YTD, 2.4% up Q3) reaching 1,595 as of Q3 2018
· OLP grew to USD 321mn and up by 22.4% year-on-year (34.2% up on a constant currency basis; up by 7.6% YTD, up by 2.1% Q3). OLP includes managed loans disbursed under the Business Correspondent and Partnership models in India, except for IDFC which is off-book. Off-book IDFC BC Portfolio component grew by 255% year-on-year to USD 35mn
· OLP/client averaged USD 162 as of Q3 2018 up by 3.2% year-on-year (13.1% up on a constant currency basis); 2.9% down YTD, 1.6% down Q3)
· Higher than expected ongoing depreciation of Asian currencies against USD as previously reported
· The quality of the loan portfolio remained stable with PAR>30 at 0.5%
Due to substantial currency depreciation in Pakistan (PKR down 11.8% against USD YTD), India (down 13.6% against USD YTD) and Sri Lanka (down 10.2% against USD YTD), South Asia's loan growth in USD terms was muted for the quarter. OLP (excluding off-book IDFC portfolio in India) was up to USD 170.2mn. 16.3% up relative to Q3 2017 (32.2% up on a constant currency basis). Number of clients grew to 1mn, 32.5% up relative to Q3 2017, branches are up to 611, up by27.8% relative to Q3 2017, while OLP/Client in USD averaged USD 186, down by 5.4% relative to Q3 2017, primarily due to substantial PKR and INR depreciation against USD with OLP/client up 7.5% in constant currency.
South East Asia
Loan growth in the Philippines was in line with expectations despite continued currency depreciation in the Philippines (PHP down 8% against USD YTD). Myanmar loan growth was lower than expected in both local and USD terms (MMK down 14.7% against USD YTD). This was due to regulatory delays in approvals for opening new branches as well as adverse weather conditions. OLP has reached USD 55.3mn, up by 16.3% relative to Q3 2017 (25% up on a constant currency basis). Clients are up by 10.8% relative to Q3 2017, exceeding 430k, branches are up to 363, 14.2% up relative to Q3 2017 and OLP/Client in USD is up by 5% relative to Q3 2017, reaching USD 128.
West Africa's OLP grew to USD 67.5mn, up by 32.7% relative to Q3 2017 (39.8% up on a constant currency basis), which is higher than expected due to (i) lower than expected depreciation of this segment's operating currencies relative to the USD for the nine-month period (NGN stable, GHS down 5.5%, and SLL down 9.2%), and (ii) higher than expected OLP growth in all countries with an increased average OLP/client across the segment. Clients are up to 426k, up by 7% relative to Q3 2017, Branches are up to 386, 8.4% up relative to Q3 2017 and OLP/client in USD is up by 24% relative to Q3 2017 averaging USD 158.
East Africa's loan growth in Q3 2018 continued to perform better than expected while maintaining a high-quality loan portfolio with PAR>30 stable at 0.5%. OLP is up to USD 27.8m, up by 61.6% relative to Q3 2017 (61.1% on a constant currency basis), due to continued expansion of operations in all countries across the segment. Clients are up to 215k, up by 50.4% relative to Q3 2017, branches are up to 235, 31.3% up and OLP/client in USD is up by 7.4% relative to Q3 2017 reaching USD 129.
Impact of foreign exchange rates
During Q3 2018, the US dollar continued to strengthen more than expected, particularly against a number of Asian currencies where the Group has major operations. The effect of this is (i) existing and future local currency earnings translate into less US dollar earnings, and (ii) the local currency capital of any of the operating subsidiaries will translate into less US dollar capital.
Currency depreciation of, in particular, the PKR and INR in Q3 2018 and beyond continued to be higher than expected which will have an adverse impact on the US dollar net profit growth of these two subsidiaries over the next year.
Underlying operating performance is expected to be in-line with management expectations, however, the higher than expected currency depreciation in Asia is expected to have an adverse impact on 2018 consolidated USD net profit growth, with consolidated net profits expected to be USD 1.5 - 2 million lower than previously expected. Over the medium term we continue to target earnings growth of 20-25% per annum in US dollars.
Dirk Brouwer, Chief Executive, commented:
"We have seen a continuing positive operational performance during Q3 of 2018, maintaining the momentum seen during the first half of the year.
The performance of our African operations has demonstrated ongoing strength with increasing profitability in our East Africa division.
Our operational performance in Asia has also been strong, driven by further growth in branch and client numbers. Whilst the higher than expected depreciation of the US Dollar against Asian currencies, particularly in Pakistan and India, will impact USD earnings growth in the short term, we continue to focus on the high-quality growth being demonstrated across our franchises.
We continue to deliver strong profit growth and once these currencies have stabilised against the USD, with the Group continuing to benefit from its well-diversified portfolio of profitable, high growth assets in both Asia and Africa, we remain confident that we will be able to maintain our 20-25% medium-term earnings target."
MHP Communications +44 20 3128 8572
Charlie Barker ASA International@mhpc.com