When Madison Finance Limited reported its end of financial year results on Friday 23 July 2021, investors had to brace for weaker financial performance from the financial services coming.
“In accordance with the Lusaka Securities Exchange (“LuSE”) Listings Requirements, the Board of Directors of Madison Finance Limited (“the Company”) hereby advises the Shareholders of the Company that the Earnings per Share for the financial year ended 31st December 2020 are expected to be approximately 630% lower than for the financial year ended 31st December 2019”, read the first signal sent out to shareholders in a statement published on SENS and released by Pangaea Securities on 22 July 2021.
When the 2020 financials were reported, the showed performance woes in four areas: exchange losses, decline in interest income, reduction in loans and advances and shrinking customer deposits.
“Loss of K 34 million against a profit of K6 million in 2019. The loss is mainly on account of the de-recognition of deferred tax in the year, exchange losses experienced and the decline of interest income due to suspension in lending to one sector due to delayed remittances of loan repayments”. The suspension of lending to one sector due to delays in remittances of loan repayments indicates a failure in the business model that recognized this particular unnamed stream as source of value creation that has now created an unwanted situation on the company’s financials.
“Interest income of K 104 million is lower than last year by 23% while the Interest expense of K 71 million is lower than last years by 5%”.
“The loans and advances to customers declined by 28% from last year .The decline of the loan book was as a result of suspension in lending due to delayed payments by counter parties”.
“Customers’ deposits declined by 25% due to reduced deposit mobilisation activities as appetite to lend to one sector reduced”
On the balance sheet, “the total assets and liabilities reduced by 19% during the period under review”. The reduction in assets is mainly arising from a reduced growth in the loan book which has been occurring for some time. The reduction in liabilities is driven by the reduction in customer deposits.
The balance sheet further raises concerns for shareholders on the equity line. Shareholder funds reduced to K11 million to K46.9 million in the previous year.
In an earlier article published by this website on 23 July 2020, the decision to liquidate some of the company assets came as a follow up to an earlier statement that came after an emergency general meeting that resolved that the company would consider disposing of assets in order to bridge the financing gap. “Further to that cautionary announcement, shareholders will be aware that an Extraordinary General Meeting (“EGM”) of the Company was requestioned by a shareholder and was held via electronic teleconference on 04 May 2020 and 18th May 2020, at which the following special resolution was tabled: To consider the passing of a resolution to dispose of some of the Madison Financial Services PLC Group assets to raise capital to meet some of the group’s liabilities”.