Aupa Monyatsi, CEO Letshego Africa
The Titanic is back on course with adjusted sails
Aupa Monyatsi, the CEO of Letshego Africa always has an amplified voice of hope. He stepped up to the podium in March, with his trademark energy to disclose Letshego’s P149 million loss for the year ended December 2023.
Despite the company being hit hard by hyperinflation in Ghana and a surge in credit provisions, Monyatsi faced the audience with calm resolve.
Undeterred by the financial turbulence and complex accounting adjustments, Monyatsi was determined to steer the company back on course, likening the challenge to righting a colossal Titanic that had been tossed about by rough seas. With a firm promise to navigate the ship through these stormy waters, he committed to using every available resource to stabilise it and return it to smoother sailing. From deposit mobilisation to collections, Monyatsi came back to the market with a profit of P17.8 million in June 2024.
Despite his optimism about the currents, Monyatsi also tempered his enthusiasm with a note of caution.
He acknowledged, “We’re not out of the woods yet.”
While he remains hopeful, he is acutely aware that unpredictable macroeconomic winds could upend the ship’s course at any moment. He stressed the importance of staying focused, urging the need to keep eyes on the prize and avoid premature celebrations.
Already, Nigeria’s inflation printed 33.2% in June 2024 from 28.8% in December 2023 and poses a risk of sliding into a hyperinflationary economy in the near term.
“We need to be focused to close with a respectable position. We need to hold back on celebrating yet and start focusing to finish with respectable numbers.”
Prudently, Letshego dropped anchor on dividend payments, opting to gauge the tides before moving forward.
Traditionally, Monyatsi has faced significant pressure from shareholders worried about the declining value in East and West African markets. Despite the mounting concerns and the temptation to pull out of these regions, he has remained steadfast. It now seems that exiting these markets is off the table, as Monyatsi continues to navigate through the challenges and maintain his commitment to what he feels are solid businesses, especially Ghana.
As Letshego re-evaluated its strategy, Monyatsi explained that the company closely examines its business models to determine if they can be successfully replicated in other markets. A key factor in their decision-making is whether the returns exceed the cost of equity, which will influence their choice to remain or exit. If a business model is bleeding value, Monyatsi emphasised the need for responsible action, which could mean withdrawing from that market. This rigorous assessment process was applied to their operations in Ghana.
Letshego found that Ghana was bleeding value. Instead of cutting their losses and jumping ship, the group decided to stay the course and roll the dice on a new business model for a second chance.
Monyatsi explained that the company had taken its tried-and-true Deduction at Source (DAS) business model - proven to thrive in core markets like Botswana—into new territories like Ghana. It was like bringing a winning playbook from one game and hoping it would score big in a different field. It didn't.
DAS is the lifeblood of Letshego, where governments collect payments from employees and funnel them directly to Letshego. This model represents 80% of Letshego’s total loan book. However, in Ghana and Nigeria, Monyatsi noted that while governments were deducting the payments, they were falling short in remitting them to Letshego, leading to significant impairments. He observed that the countries were grappling with financial strains and often diverted these funds into the government's needs before settling their dues with Letshego.
Letshego vowed to revisit its business model to ensure it could live up to its promises and opted to explore mobile lending. This new approach paid off, delivering a 50% boost in operating income in the first half of 2024, proving their gamble was a winning hand. Despite the high inflation and rate environment in Ghana, the business registered a 276% year-on-year growth in operating income. Ghana’s total loan portfolio grew by 8% year on year to P1.1 billion (H1 2023: P995 million) with mobile lending now making up 60% of the portfolio from 35% in the prior year.
In this kind of environment, you’ll struggle to find a business that can grow interest income by 41% year on year,” Monyatsi said pointing out that this is what Ghana has done boosted bymobile lending.
Monyatsi stressed the need to look at the underlying business before bailing out. “We said hyperinflation will end in 2024. By the time you actually don’t adjust for inflation, the contribution and value creation for the business will be immense,” he said adding that Letshego Ghana is a very solid business that delivers a Profit Before Tax of P100 million when there’s no hyperinflation adjustment and will contribute to immense shareholder value.
Excluding hyperinflation, Monyatsi noted that Ghana would have delivered P62 million by mid-2024 and over P100 million in Profit Before Tax over the full year. Ghana's deposits have tripled year on year, reaching P260 million. Monyatsi also promised that more products and partnerships with other lenders are on the horizon.
Ghana’s inflation eased in the first half of the year but will still be classified as a hyperinflationary economy. Businesses like Letshego must account for this. As at June 2023, Letshego’s figures did not reflect this but took it into account for the reporting period. When Monyatsi compared like-for-like growth between June 2023 and June 2024, stripping out hyperinflation adjustments, “We are up year on year by 4% (Profit after tax) but when it's added it takes away profitability.”
Put differently, on a historical cost basis, excluding hyperinflationary accounting, profit after tax grew to P74.2 million from P71 million. The Group recognised a net monetary loss of P50 million for the first half, due to the subsidiary being in a net monetary asset position for the period, and the Ghanaian Cedi losing purchasing power.
Despite this success, Monyatsi said they’ve only scratched the surface of their market potential. Our market share is likely under 20%, he noted. With over 2 million customers in Ghana receiving instant loans, he believes they can introduce products like micro-insurance and micro-savings, which will boost revenue.
Monyatsi envisions Ghana becoming one of Letshego’s top four markets within the next 2 to 3 years, especially if they double down on mobile lending, which has a lower cost base and scales rapidly. He aims to replicate the success seen in Ghana and Eswatini. Eswatini, currently Letshego’s second most successful mobile lending venture, serves as a model for this expansion.
Monyatsi committed to expanding mobile lending into additional markets, having already launched it in seven. However, he admits, they are proceeding cautiously, mindful that in the last year, rapid scaling of test initiatives led to impairments.
“We want to learn the markets,” Monyatsi said.
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