Q2 2022 ASA International Group PLC Earnings Call Sep 20, 2022 (Thomson StreetEvents) -- Edited Transcript of ASA International Group PLC earnings conference call or presentation Tuesday, September 20, 2022 at 12:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Dirk Machgielis Brouwer ASA International Group PLC - Co-Founder, CEO & Executive Director * Karin Kersten ASA International Group PLC - Executive Director of Corporate Development & Executive Director * Tanwir Rahman ASA International Group PLC - CFO * Veronique Schyns ASA International Group PLC - Head of IR ================================================================================ Presentation -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [1] -------------------------------------------------------------------------------- Okay. Good morning, and good afternoon. It's Dirk Brouwer, CEO of ASA International. I hope you can hear me. I just want to give you a quick update of our operational performance, financial performance over the last 6 months, first half 2022. I'll take you to Slide #1 as the highlights for the period. And what we can say, summarize is that we've seen substantial improvement in profits for the first half 2022. This has been driven by some client growth, particularly in Pakistan and Tanzania, which was offset by actually quite a substantial strengthening of our business in India, intentionally, by the way, which brought the client growth actually effectively at 1%, which at this point a lot higher with substantial growth in 2 major markets, which also actually yields higher. Branches are up about 4%. We increased number of branches by about 93 during the period, the latest on (inaudible). We've seen pretax profits go up about 86%. That's year-to-date annualized, and our net profits for the -- on an annualized basis, year-to-date, is up about 311%. So we are actually really getting back to a level of profitability, which we were used to prior to COVID, more like in 2019. OLP is down a bit, that's primarily caused by the devaluation, particularly in the last couple of months up till June in Ghana, in Pakistan. And if you look at it on a constant currency basis, minus some shrinkage of our business in India, our OLP is up about 12%. PAR 30 is just a tiny bit above 5%. It's 5.1%. We expect (inaudible) come further in the second half of the year. Our ECL expenses have come down substantially. As you may recall, they were in the first half 2021, $22.1 million. For the full year of 2021, it was $37.5 million. So the business improvement is really -- you can see what we feel the necessity for making more expected credit loss expense as I said, come down substantially with the gradual -- the company gradually coming out of the whole COVID situation in most of the markets where we operate. From a capitalization point of view, we continue to be well capitalized and maintain actually at this point, about $91 million of unrestricted cash. (inaudible) is the overview of the key financial metrics. I don't have to go through everything again. We summarized it already for you. But the average gross OLP per client is basically down a little bit. It has to do more -- that's primarily due to the devaluation in Ghana and Pakistan in the first half -- of the currencies in the first half of 2022. Ghana was down actually, from a currency point of view, about 30% and Pakistan actually about 16%. So it has impact on our business, and it will also continue to have an impact on our business or at least the financials for the second half of 2022. We can talk about it later if any questions about this, what this all means. The cost/income ratio, as you can see, has also improved substantially to about 66% as mentioned before, for 85% first half 2021. RoAA is substantially up. They're up by 4.6%, and RoAE is up 25.5%. Now if you compare that to the year 2019, which was the full year prior to the start of COVID, our RoAAs were about 6.7%, and our RoAEs were about 34.7%. So we still have a way to go to get to the levels where we were used to prior to COVID. But clearly, we feel that we're going now in the right direction with COVID getting more under control in almost all operating markets where we have our businesses. Profit before tax, this is all reflected in the profit before tax. Profit before tax is up, it's $23.8 million, which is year-to-date, change is about 86%. And if you look at it for 2019, it was 54.3%. Again, a lot of -- still has some work to do, but it is actually -- it's going all in the right direction. Same applies with the net profit. First half 2022 is about 31 -- 13.1%. And the full year periods for 2019 was 13.4%. So we're feeling that we're all getting all in the right direction and making big improvements with COVID now gradually getting out of the way from an operational perspective. Then the final point I would probably make is that, as you see, the total assets come down a bit, and that has primarily to do with the reduction of our asset base in India. Okay. Now I'd like to hand it over to Tanwir. -------------------------------------------------------------------------------- Tanwir Rahman, ASA International Group PLC - CFO [2] -------------------------------------------------------------------------------- Hi. We're going to talk about movements in our yield, cost of funding and margin mix. So in this period, we have seen a slight increase both in margin and yield. The main reason being we had higher disbursements in countries with higher yield. Basically, the percentage will be on those countries were higher. Cost of funding remained broadly stable, and we do saw -- we saw that there has been a benchmark increase in the interest rates that's going to come out in the later part of this year. For the funding profile side, basically, we kept the same mix. We do see a down trend there, but that's mainly because of the FX devaluation, $85 million in fresh debt raised in this period. We remain well capitalized, $91 million unrestricted cash in the balance sheet with a total of $154 million cash in the balance sheet. We do have a strong funding pipeline, $190 million fresh debt coming in. And 50% of that is already in equity terms. We did have an issue with the covenants this period, but we did manage to get $34.3 million of waivers after the year -- the half year, but most of it is coming from India because of the PAR. We did take a hit in the equity, $17.7 million. That's why you see the book number more or less going down a little bit. So although we brought in $13.1 million, but we did take a hit for $17.7 million. So with that, I'll pass it over to Karin Kersten. -------------------------------------------------------------------------------- Karin Kersten, ASA International Group PLC - Executive Director of Corporate Development & Executive Director [3] -------------------------------------------------------------------------------- Thank you, Tanwir. So my name is Karin Kersten, Executive Director and Director of Corporate Development as well. I would like to go to the business update and the collection efficiency of our portfolio. And in line with the highlights Dirk already gave, if you'd look to our collection efficiencies and if you look to the numbers, we are mostly back to pre-COVID collection efficiency rates between 97% and 100%. There are a few exceptions, one of which is India compared to our lastly published figures in May. We have a slight improvement to 84%. Also, if you look to India and you look at the way of calculation of the collection efficiency in the local market, they also take into account, the overdue collection and the denominator as a percentage of regular realizable collections and advance spend, if you look at that number then we are at 101% collection efficiency. Then if you look to Sri Lanka, obviously, because of the political situation in the country, the collection efficiency is lower at 88% and Myanmar also because of the political situation in the country as well as some lockdowns and COVID restrictions there as one of the longest compared to all the countries where we are (inaudible) 84%. Nigeria and Sierra Leone are slightly below because the credit portfolio is a bit off there, if you look to, for example, in Nigeria to the average loan size per customer, which has increased. Then if we go to the business update figures to the loan portfolio quality, well, what's important to mention here is that if you remember to our '21 results, India, the performance in India and the loss in India made a big impact on our yearly results. And since then, we have a deliberate strategy to reduce the portfolio there. And you can see in terms of OLP that since the end of last year, we have decreased the portfolio from $113 million to $66 million at the end of August, which is a significant decrease. If you look to the PAR>30 for the group, and for business update figures that's including the off-book portfolio in India, we have improved our PAR>30 from 7.3% in December '21 to 6.5% in August. Also here, if you compare country by country and look at the PAR over 30 and less than 108 years -- 80 days, sorry, you see India, Sri Lanka and Myanmar standing out there for the same reasons as elaborated on -- in the prior page. Then if we go to the regulatory updates, there are some developments. In India, in March of this year, the RBI has announced new regulations. And what is good for the MFI sector is that the interest rate cut and the margin cut has been removed, which make that we can raise our interest rates to the clients. Also in looking to the MFI credits, we'll not only look at the client, but as a client's household income, which is broadening. So other conditions have improved in India. Then if we go to Pakistan, just before summer, we received a letter from the State Bank of Pakistan for our Microfinance Banking license, which allows us to also offer deposits, payments. They have put certain requirements in their letter to us of which implementing our new core banking system is one of the requirements, which we are working on now. Then in Sri Lanka, the maximum interest rate cap has been relieved. So we can rise our interest rates to clients. In Myanmar, because of the situation in the country, there are some restrictions in repaying international lenders. So we can't pay back the loans from international lenders there, which allows us to disburse a little bit more to clients if we wish. Then in Tanzania and Kenya, which are interesting markets in terms of our digital financial services, a strategy there we are in the preparation for our application to get a deposit-taking license, which will be submitted to the central banks of Tanzania and Kenya, and once we will be able to receive deposits from the public, it will also reduce our cost of funding in those markets. Then if we go to our strategy, we would like to go for sustainable growth and increased financial inclusion. Our purpose is to reduce poverty. And so we have 3 key lines for our 5-year strategy. One is to increase our financial inclusion, and this is the growth strategy by which we want to increase our number of branches, number of clients, increase the loan volumes, also grow revenues from payments and deposits and look at new countries. If you remember back the percentage of growth, if you would make the percentage on our first page of the presentation in constant currency and exclude India, you saw that our portfolio indeed is growing double digit. Then the second priority in our strategy is the digital channel adding. It's on top of the branch model. So we will not be replacing the branch network or the group meetings we have, but add on the digital channel and introduce that via smartphone device. And we want to enrich our high-touch service and keep the face-to-face channel. Thirdly, we would like to broaden our products and services. So we want to continue to grow the loan portfolio, but on top of that, offer online loans, payments, deposits, and add value-added services by launching a platform which connects our clients to their suppliers. And by this platform, our clients could place their orders for buying their stocks. And so we would allow them to buy their goods via this EV platform. We also would like to attract new clients, especially via the supplier marketplace but also by offering deposits from the public. Some of these items on the strategy are shaded and every shaded item has to do with our digital strategy. This is just to emphasize how important the retail strategy is going forward. If we look at the process of digitization, our progress so far is on the 3 key elements. The most important is that we want to launch our digital financial services app. So that's the new channel by which we will offer full financial services experience to our clients. Secondly, we are building this platform. It's a supplier marketplace platform. It's a digital platform which would allow clients to grow their business. They would not have to close their shop to do their logistics and buying. They could get more attractive prices because of bundling the volumes and the stock will be delivered at their doorstep. Thirdly, we need to install a core banking system. We currently have a lending system called AMBS, and we want to add core banking system from terminals, the T24 financial inclusion suite and we are currently implementing that in Ghana and Pakistan. The time lines are that we are currently working on the implementation of this core banking system, what is a key point for Pakistan is to -- to get all the hardware delivered. And in Ghana, we're also working on the communication to the Central Bank to get approval on this new system. Then the first launch is expected this year, at the end of this year, in Ghana for our supplier marketplace. And then the digital financial services and the launch of our core banking system is expected to go live in the second half of next year. Compared to the prior plannings we've given, the change here is that we now have an integrated planning in which we know what it takes to get all the hardware delivery and to link the different systems, for example, our current NBF system via APIs to the new systems. So the planning and time lines you see now is an integrated planning. Then I would like to give back to Dirk. -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [4] -------------------------------------------------------------------------------- Thank you. Okay. I'll just want to quickly give a summary on the outlook for 2022. As mentioned, our operational and financial performance continued to improve with substantial OLP growth and high portfolio quality in most markets. This led to a pretax profit increase from $7.5 million to $23.8 million, as mentioned. Just a quick summary. Almost all our operating countries grew their OLP in constant currency terms. We maintained high portfolio quality in most countries, and those countries made also a positive contribution to Group's profitability. The challenges we still face are in India, but the challenge in India is getting smaller. For the simple reason that actually we're reducing the size of the business quite substantially, as you have seen in the numbers. The other challenge we faced in Myanmar already mentioned, it's a complex environment currently with the military having takeover -- military takeover, which has basically been a more challenging business for our clients to do their business. And as a result, it's more challenging also for us to service these clients. Sri Lanka, probably everyone knows. This has been in real trouble. They are effectively, I would say, well, bankrupt is probably not exactly the right word, but it looks like it and they're waiting for a substantial recapitalization of the country by the IMF, and that's ongoing. And that might help them to -- Sri Lanka to gradually recover their economy. We've seen higher OLP growth in Pakistan as mentioned, the Philippines and in Ghana, but this has been tempered by the significant substantial currency depreciation in 2 of those markets mentioned already, Pakistan and also Philippines as well as Ghana down by substantial percentages. And that's contributed to the decrease of our Group's OLP in U.S. dollar terms. And I would also like to state that, that is important to know because it also means this has all happened in the first half, but the impact will also take place in the second half of this year and potentially also for next year. So it will have some further impact on the dollar terms per -- dollar per portfolio performance over the next couple of periods. Portfolio quality otherwise improved substantially across pretty much all markets and if not improved, then stabilized. We reduced our credit losses by a very substantial amount. It's from $1.9 million and it came in fiscal year 2021, where it was $37.5 million. Now keep in mind, as you probably all know, most of those provisions were made in India. And that is now really gradually stabilizing and also benefiting from the fact that this portfolio has shrunk substantially as well. So that is an important point to make. I think on the outlook side, we've seen positive developments during the first half of 2022. We also expect that our operating performance in terms of OLP growth and portfolio quality will continue to improve. But as mentioned before, the impact of inflation and the related foreign exchange movements are expected to continue to dampen the financial performance in U.S. dollar terms in the second half of 2022. It's very difficult for us to really estimate what the impact is going to be. It's -- we just have to see a little bit how the markets -- the currency markets are going to move over the next coming months, but then it will have an impact. We're quite unfortunately, quite confident about. Dividend policy, important for many of our shareholders. Based on the performance of this current half year and from this year, we expect for the full year, we considered whether we should start basically providing a dividend again to our shareholders. But with the new developments, with the big currency movements, we've decided that we do not want to declare a dividend yet for the period in 2022, but we do expect to return to our pre-COVID 30% dividend policy in 2023. This, of course, assuming that the operation and financial performance of our company continue to improve. So we will not -- we will evaluate it very carefully throughout the next year if and when we should reinstate our previous dividend policy of 30%. I think this completes the presentation, and we're now open for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [1] -------------------------------------------------------------------------------- We have a couple of questions. The first one, could you -- Dirk, I think this question is for you. What is your strategy and expectation for the business in India? You are downsizing to which turning points? -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [2] -------------------------------------------------------------------------------- Yes. I think we want to ensure that the business stabilizes. And we felt that for us to recapitalize it now where we still have a substantial amount of debt will not help the business that much because some of our lenders would like to get repaid some of their loans early, some of them as soon as possible effectively. And that wouldn't really help the business that much. So we are -- we have basically taken the strategy that we should work very hard to downsize the business and effectively by reducing the portfolio in 2 ways: one, by actually collecting from existing clients more than actually what we disburse. We actually generate a lot of cash flow in the company, which we can then use to reduce the size of the portfolio. And this will help us and enable us to reduce the leverage in the business. Secondly, we also have increased the number of BC, Business Correspondent, portfolios over the last couple of months. And that also means that part of the portfolio goes from our own book to the business correspondence books, which again, frees up cash, which enable us to start reducing or increase the amount of debt we -- decrease the amount of debt which we -- which the company currently has. Now we think that this will basically stabilize the business without much pressure for -- from our lenders to kind of reduce it by them. So we take basically the steps ourselves. And then once the situation is stabilized, we will carefully evaluate based on the new regime with no interest rate caps and no margin caps. What's the actual economic proposition is for our business in India? And we are relatively confident that with the new regime with no margin caps and no interest rate caps and the interest rates for most -- by most by us, but also most of our competitors in the region, having increased already by about 2.5% to 3.5%, that actually the economics of our business in India will improve. So we would hope that based on that, once we've seen that's really taking place in action, that we may be able to start rebuilding the business once it has fully stabilized, and that we expect to see taking place simply throughout the remaining part of this year and probably also throughout the bulk of next year, I would say, depends a little bit how quickly it will go. And then we'll make our decisions what further investment the group will make in our Indian operations. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [3] -------------------------------------------------------------------------------- Okay. Thank you. Another one for you, Dirk. In your strategy, you mentioned greenfield branches in new countries. What new countries are you thinking about? And how big do you expect the operations to be in these new countries related to your current footprint by 2025? -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [4] -------------------------------------------------------------------------------- Yes. I think we are looking at various countries. I'm not going to say exactly which ones, but they're all pretty much in Africa. There's not a lot of countries where we can still go in. In Asia, just from a regulatory perspective, it's very difficult. We are -- we'll restart the evaluation of some of those countries, which we had in mind already pre-COVID. And we're actually dusting off our files on these countries to try to evaluate what the current situation is in these countries and whether it makes sense to make a small greenfield -- start a small greenfield in each of those countries. But I mean, obviously, we still have a lot of work to do with our existing portfolio. It's not the highest priority, but that we will send off -- send some teams of people to evaluate some of these countries and some of them we have already evaluated in the past, but we need to just update them. That is probably going to take place throughout the remainder of this year and also next year. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [5] -------------------------------------------------------------------------------- Karin, can you comment on the impact of inflation on the business? -------------------------------------------------------------------------------- Karin Kersten, ASA International Group PLC - Executive Director of Corporate Development & Executive Director [6] -------------------------------------------------------------------------------- Yes. There are 3 types of impact. And to start with the most important 1 is how does inflation impact the business of our clients. And if you look to the operational activities of our clients and their businesses, what you see is that they will have to buy goods for higher prices, but they also have the tendency to raise the prices they charge to their clients. So if you look to the performance and the businesses of our clients, the impact of inflation is not that big, which is good news for our credit and loan portfolio. If you look to the effect of inflation to ASA Group, then there are 2 impacts. So if you look to inflation, the largest inflation has taken place in the last half year in Sri Lanka, where depreciation was 77%. Then the largest one was Ghana with a deflation of 30% and Pakistan was 16%. Well, these high numbers apply by coincidence for our large size countries. So both Pakistan and Ghana are large operations and profitable operations. And so the currency depreciation will run through our equity via a translation loss reserve, and that's where some of you have commented on the equity, which was not going up, although we had a profit, and that's because we had to book off in this translation loss reserve. The third impact of inflation is, if we take up dividends from the different countries, operating countries to the group and then the profits in lock -- are in local currencies, but the group figures are in dollars. So what we see is that the profits generated in the countries will shrink in dollar terms. So that's the fee impact. So in short, the operations of the clients, not big influence. There is an impact on the equity via the reserve and thirdly, profits when they are transferred to the group, they are less in dollar denomination. -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [7] -------------------------------------------------------------------------------- Maybe I should add to that. Obviously, we have in an inflationary environment in many countries over -- since the start of ASA International. Ghana is actually a very interesting example. We've been in Ghana since 2008. We've seen -- actually we've operated in a fairly inflationary environment in Ghana for many years. And we've seen really in action in that country that the clients needed bigger and bigger loans. They -- once they buy, they get a loan, they buy goods for their shops, they restock their shops. During the period of restocking, actually, they can make bigger margins because they buy in before they sell, they generally already increasing the prices based on the market price of many of the goods and in inflation environments don't generally go up. But once they are restocked, i.e., by selling most of the goods, they need to generally get bigger loans to restock their shop to the same level. So what we've generally seen in an inflationary environment that clients' needs for bigger loans increases, and they sell, basically, it's similar, say, 20% margin. So also their incomes increase and it enables them to ask for bigger loans, but also to manage those loans without having to default on these loans. So generally, that's a process which can go on for years. What we do see, though, yes, the portfolio is saying Ghana grows up quite substantially. Profits go up as well. But if you then bring it back to U.S. dollars, that's -- it might roughly stay the same in certain situation, you'll see better profitability, sometimes slightly less profitability, but they go a little bit hand-in-hand. And it varies a bit per year, but you generally do not have as much negative impact from inflation because of the short-term business, we provide or the short-term loans, which we provide to these clients, which have high turnover as well -- the stock they have a high turnover as well. So the impact for the operations of our clients and as a result, for us, as a group of our business in each of those countries where this happens is less than you would generally expect. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [8] -------------------------------------------------------------------------------- Karin, another question for you. Can you comment on the impact of the flooding in Pakistan? -------------------------------------------------------------------------------- Karin Kersten, ASA International Group PLC - Executive Director of Corporate Development & Executive Director [9] -------------------------------------------------------------------------------- Yes. If you look to the flooding in Pakistan, then, of course, there is a big impact to the country as a whole and the UN and the Government of Pakistan have launched the 2022 Pakistan Flood Relief plan, indicated that this is not a normal situation of flooding in Pakistan. If you look to our own footprint vis-a-vis where the floodings are, then the regions mostly impacted are not the regions where we are active. There are 3 branches of us, which have been damaged by the floodings directly so -- physically, so the direct impact is not that significantly. Having said that, of course, we do have impact because the whole infrastructure has been damaged. And so the whole, well, transport, et cetera, and rural areas have been affected. If you look to our expectations, we would expect our PAR levels to go up. But if things normalize, we would expect them to be below 1% by year-end. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [10] -------------------------------------------------------------------------------- Tanwir, it would be useful to have some commentary on the extent to which local currency borrowings mitigate exchange rate exposure. -------------------------------------------------------------------------------- Tanwir Rahman, ASA International Group PLC - CFO [11] -------------------------------------------------------------------------------- Yes. Local currency is always good. You do want to borrow in local currency. Locally if you borrow in dollars, you do have to hedge, and that's hedging cost is going off the roof right now. But the direction we have taken, if you look at our total debt, 70% debts are in local currency right now. So that's a good direction. But it's also true that there is a fine line. It really depends which country you're taking that debt, and what's the situation in that particular country. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [12] -------------------------------------------------------------------------------- Another question for you, Tanwir. Can you explain how the cost of funding will evolve in the second half of '22? -------------------------------------------------------------------------------- Tanwir Rahman, ASA International Group PLC - CFO [13] -------------------------------------------------------------------------------- Yes. I touched upon that a little. But the benchmark rates have all gone up. And in the first half, we were still using some of the December rates, but second half, we'll be using the June rates. So I suspect and expect that will put additional costing there. So cost of fund is going up. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [14] -------------------------------------------------------------------------------- Now related to the funding costs, can you give an estimate for the potential impact of the deposit-taking licenses in Tanzania and Kenya, can the licenses lower your funding costs materially? -------------------------------------------------------------------------------- Tanwir Rahman, ASA International Group PLC - CFO [15] -------------------------------------------------------------------------------- Yes, it's always true when you get deposits and if you can utilize that deposit locally that can help share cost of funding. But at this time, we don't have an exact estimate on those. -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [16] -------------------------------------------------------------------------------- Neither on timing when those deposit-taking licenses are granted. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [17] -------------------------------------------------------------------------------- Karin, how has your digital app piloting progressing? What is ASA learning, both good and bad? Now that ECLs are down to $2 million for the half year, do you expect them to remain near these levels going forward? -------------------------------------------------------------------------------- Karin Kersten, ASA International Group PLC - Executive Director of Corporate Development & Executive Director [18] -------------------------------------------------------------------------------- Well, it's too early to say that because there is no pilot yet because before we can start launching our digital financial services app, we also need to install the core banking system because the data need to feed from the one to the other. And so implementing a core banking system really is a big program. And so that's not expected to be implemented before summer 2023. So we expect the implementation also the starting testing of DFS only after summer. What we do see is -- so we are currently -- when we are visiting some of the client groups, we are already talking about the digital app and so testing our appetite. And what we do see is that we expect some phasing in the digital financial services that clients who have a little bit larger enterprise will be more digitized and having smartphone access than the really very small loan clients. And we see quite some appetite and enthusiasm on us explaining that we want to go digitally. The fact that we do not want to replace the channel does give us, like, on the one hand, the strength of our model of being really close and in the vicinity of our clients, which helps our credit quality of the portfolio. And on the other hand, by going digital, we also can have the benefits of that reach. We might enter some direct debit possibilities for paying installments. So we do hope that adding that will also help our ECL by having the one and the other channel. But let's see when we launch it, how the first results are. We will be able to see some results at the end of the year or beginning of next year of our supplier marketplace, but that will not, at that moment, be linked and attached to our digital financial services, but we could see already how the digital appetite of our clients is, and that could also be a marker for the appetite of DFS later on. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [19] -------------------------------------------------------------------------------- All right. We have a couple of questions about the dividend, Dirk. Can you explain why the Board has decided not to declare dividend already for the full year? We are only at half year. And what is your view about 2023? What is different? What will be different in 2023 versus 2022? -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [20] -------------------------------------------------------------------------------- Yes. Well, it has to do a lot with the currency movements and the impact it has on particularly 2 of our bigger markets, which is Pakistan and obviously, Ghana, where we've seen substantial currency depreciation, and we just want to ensure that we are well positioned to deal with that. And the distribution of dividends is obviously a welcome step by most of our investors. But I would also say that it's also important that we're coming out a fairly complex scenario with COVID. But the current scenario, with these high levels of inflation, in many countries actually quite relatively unprecedented levels of inflation, we think that we just need to be a little bit more careful. And before we actually make the decision that we're going to reinstate the dividend. The dividend we pay actually weakens our balance sheet a bit. That's generally not a good -- big problem, particularly if we make good profits. But we just want to be a bit cautious with all the uncertainty now caused because of the Ukraine situation, the impact it has, actually, food, markets, the extra, the higher -- much higher cost of oil and gas, which also affects some of our clients in the countries where we operate. So we just want to be cautious instead of making a promise now that we are going to reinstate that, we are just going to reevaluate it but with the intention as soon as we feel comfortable that the business is on the right track, and we can manage the new environment that we will try to reinstate that as soon as recently possible. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [21] -------------------------------------------------------------------------------- Can you also comment on the question to what extent have you had any difficulty exchanging or repatriating currency from your market? -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [22] -------------------------------------------------------------------------------- Yes. That's also a valid sort of question, and relates actually it also somewhat answers the first question or question I just answered. There's a general tendency when currencies go down, the central banks are going to be more cautious with regard to funds being basically dividended upwards to -- from local currency into dollars back to a parent company. And what we see, what we experience now is very similar to many big companies who have subsidiaries in countries like, particularly I want to call is Nigeria, which has been traditionally very difficult over many years. Backing of actually Ghana has been generally very good. But also, Ghana will be much more cautious. We haven't submitted yet another dividend declaration. But we have done actually 2 in the fairly recent past, over the last 2 years. And it worked out fine, but we just believe it's going to be a little bit more difficult now also in Ghana. And the same applies in Pakistan. Pakistan is slightly different also because we just received our license. As far as part of that license, we have made a commitment to make a capital injection in the company. Once we have done that, we can start like -- we can start to see -- we can get dividend coming out. But we just have to see how that's going to work. And normally, all those things will require Central Bank approval and we just have to see how this whole process will work. We have never taken the dividend out of Pakistan yet. So we just have to see if the authorities, the Pakistani Central Bank will be happy to approve that very quickly or that they will be slightly more reluctant to approve it because of the fact that their whole financial situation in Pakistan is not particularly stable at the moment with the big currency devaluation. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [23] -------------------------------------------------------------------------------- Tanwir, are you going to be able to mitigate your increased cost of funding by passing through higher rates to customers? And how difficult will it be and how quickly can you do that if you would do that? -------------------------------------------------------------------------------- Tanwir Rahman, ASA International Group PLC - CFO [24] -------------------------------------------------------------------------------- Yes, we are thinking of introducing some product mix to mitigate this situation, but that is still in the research stage. -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [25] -------------------------------------------------------------------------------- And I would add to that. I mean, as mentioned before, generally, inflation requires our clients' needs for bigger loan increases. When we provide to same client a bigger loan and that client actually has a sufficient amount of income to service that loan at inflated rate effectively, we also -- they will return -- they will pay us more interest over the period because of the fact that they have a bigger loan. And it's no -- there's no extra cost for us for a loan officer to service that or to have the client service that loan when it's a slightly bigger loan. So effectively, the impact for our business is not so big, although it creates much more volatility. But over a period of time, say 12 months, 24 months, 36 months, we generally see that inflationary environment will lead to bigger income streams for our business in that particular market, but then bringing it back into U.S. dollars, it can be just a little bit below or a little bit above in terms of profitability. -------------------------------------------------------------------------------- Karin Kersten, ASA International Group PLC - Executive Director of Corporate Development & Executive Director [26] -------------------------------------------------------------------------------- Yes. So what's good to mention is that if you look to our figures, and we do have a growth strategy, that operationally, we do grow in the countries and our loan size per client also does grow. The only thing is you do not see it in dollar terms. Also a good point to mention is that we grow the loan size after repayment of the loan. So we are not increasing our risk appetite while doing it half way. So a client needs to pay off a loan, and then there are a certain amount of increases and not during, yes. I think the last question is again about dividend to be clear. Until which calendar year do you expect not to pay any dividend and on which year's profit is it based? We need to be clear on that. So is it based on 2023 profit? And is it -- that is not going to be paid until year 2024? -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [27] -------------------------------------------------------------------------------- Well, yes. I mean -- I'm sorry that we are not extremely clear about it. I can tell you that we've had a discussion about dividends actually before June this year and with the intention to reinstate the dividend policy, but then with all the havoc in the markets where we're seeing this big currency depreciation, we said, look, it would be a little too aggressive to actually know and may weaken the balance sheet essentially. It's not about large sums essentially also the dividend, but they weaken the balance sheet a bit. And since we have all this uncertainty, with the high amount of devaluation in some of the bigger markets where we are as a result of the increased inflation and also some restrictions we anticipate from some of these subsidiaries, which make generally good profits and related their ability to distribute to the holding, we've decided let's be a bit more cautious and see how the situation develops over the next 6 to 12 months. And if situation improves, then we would be very keen to reinstate the previous dividend policy we've had and if situation unfortunately would not improve, then we may have to delay it to a little longer. So I really don't feel specially confident to inform our shareholders now that we will reinstate it over the next 6 to 12 months, but it will be our attention to if we feel it is in the company's and therefore, also in the shareholders' interest to do so. -------------------------------------------------------------------------------- Veronique Schyns, ASA International Group PLC - Head of IR [28] -------------------------------------------------------------------------------- Thank you. There are no further questions currently. So Dirk, could you receive with your closing remarks. -------------------------------------------------------------------------------- Dirk Machgielis Brouwer, ASA International Group PLC - Co-Founder, CEO & Executive Director [29] -------------------------------------------------------------------------------- Yes. Well, thank you so much for taking the time to listen to our update -- our business update. And I appreciate your support to our company over many of you for many years. We are working very hard to improve our business. We're coming out of a complex situation, as you all know, with COVID. We would have like to been able to tell you, well, now we're going to be back to where we were before, and we start growing from there to much higher levels. And now we just have to just face the fact that the situation has changed a bit with high levels of inflation in many of our operating markets and the impact it's going to have in the short term on our businesses. And I hope that all our shareholders will continue to be a bit more patient with us. We do whatever we can to get the business in good shape again and have the levels of annual earning growth at pre-COVID levels, again, which should be in the interest of the company and clearly then also in the interest of our shareholders. So thank you very much.