Financial Results Presentation | Tuesday, 1 October 2024 at 8am | Capitec

Reimagining Banking with Capitec

Vision and Strategy for 2023

• Capitec aims to enhance client lives by leveraging existing strengths and optimizing current clients to dominate mass market banking in South Africa.

• The bank plans to build on its reputation as a leading digital bank by introducing new digital products and services, enhancing utility for clients.

Growth through Innovation

• Capitec's strategic initiatives focus on non-traditional services, reducing dependency on lending income, and creating value-added services like data airtime and cash send.

• The introduction of Capitec Connect aims to utilize data and connectivity as incentives for better banking behavior among clients.

Client-Centric Rewards Programs

• The "Live Better" rewards program will incorporate new technology to incentivize good banking behaviors observed in clients.

• Capitec Pay offers an alternative payment solution that simplifies transactions by allowing payments via cell phone numbers instead of traditional banking details.

Financial Performance Insights

• Alternative income streams now constitute over 70% of total income at Capitec, indicating significant growth potential in this area.

• The success of these initiatives is reflected in the financial statements, showcasing the effectiveness of diversifying income sources.

Expanding into Insurance

Trustworthy Insurance Solutions

• Capitec Tech Insurance aims to provide accessible, affordable insurance options that are easy to understand, targeting previously underserved markets.

• A new life cover product is set to launch alongside their successful funeral cover offering, which has seen high demand with over 100,000 policies sold monthly.

Building a Comprehensive Insurance Business

• By the end of the year, Capitec plans to operate a fully-fledged insurance business with three products under its own license.

Launching Business Banking Services

Affordable and Accessible Banking for Businesses

• The new business bank will mirror retail banking principles: simplicity, affordability, accessibility, and personalized service for all businesses regardless of size.

• Clients can open business accounts quickly from home within minutes while having access to apps and internet banking; support from experienced bankers is also readily available.

Continuous Improvement Through Technology

Commitment to Innovation

Investment and Business Model Transformation

Overview of Investment Strategy

• The company has invested close to 7 billion Rand to ensure future growth, transitioning from a pure retail banking model to a comprehensive financial services provider.

• The speaker reflects on the economic stability of 2019, highlighting low inflation and interest rates before the onset of COVID-19 in March 2020, which led to significant uncertainty.

Economic Impact and Recovery

• Post-COVID challenges included high inflation and interest rates, compounded by geopolitical tensions such as the Russia-Ukraine war.

• Despite these challenges, there is renewed optimism for South Africa's growth due to government unity and decreasing inflation rates.

Client Base Expansion

• The client base expanded from 12.6 million in 2019 to 23 million currently, with significant enhancements in payment systems including QR payments and mobile banking solutions.

• The business model evolved significantly; previously simplistic offerings have diversified into various credit products and value-added services like vouchers and insurance.

Technological Advancements

System Overhaul

• Acknowledgment of legacy systems prompted a shift towards modern technology solutions including AWS for data management.

• Integration with Amazon Connect enhances customer service by consolidating client history through Salesforce integration.

Data Utilization

• The organization now leverages over 2.5 trillion data points for machine learning applications, improving decision-making speed by 80%.

Financial Performance Insights

Profit Growth Analysis

• Recent financial results show a profit increase from approximately 4.6 billion Rand to 6.4 billion Rand, marking a growth rate of 36% compared to previous years.

Financial Performance Overview

Key Financial Metrics

• The highest impairments were noted, with transactional advances increasing by 29%, totaling 2 billion Rand in transactional income.

• Operating expenses rose by 24%, and the share price has doubled over the past year, leading to increased bonuses for employees.

• The growth in Average Income (Ain) was reported at 36%, contributing over 60 million to the bottom line.

Credit Loss Ratios

• The credit loss ratio improved from 99.6% in August '23 to a reduction of 2%.

• Business banking's credit loss ratio stands at 1.8%, while retail banking is at 8.3%.

Income Sources

• Other income now constitutes approximately 70% of total income, driven by transactional income and value-added services (VAS).

• Personal banking contributed significantly with an increase from 4.6 billion to around 5.3 billion Rand.

Client Growth and Digital Adoption

Client Base Expansion

• Business banking shows strong growth in credit, aligning with expectations despite a drop in transaction volumes due to pricing changes.

• Insurance business also performed well, contributing over 1.5 billion Rand primarily from funeral services.

Digital Engagement

• Active digital clients grew from 11.7 million to 13.7 million, indicating robust digital adoption trends.

Demographics and Market Share Insights

Client Demographics

• The active client base increased from 22.8 million to a potential of up to that number; significant growth observed among clients depositing salaries.

Age Group Market Share

• Notable market shares include:

• Under age of 20: Represents about 88.5% market share.

• Ages between 20 and 35: Holds 53.6% market share.

• Over age of 60: Achieved a 36% market share.

Credit Performance Analysis

Credit Trends

Market Trends and Strategic Focus

Overview of Market Performance

• The market has seen a slight decline over the past two to three years, remaining relatively flat.

• A significant focus was placed on improving collection systems after experiencing a 28% market pullback due to external factors like the Ukraine-Russia war.

Debt Review Insights

• There is an ongoing emphasis on educating clients about debt review, as many individuals enter it without understanding its implications.

• The goal for critical loss ratio is set at 8.5%, with current figures stabilizing around 88.3%.

Credit Expansion Strategy

• Plans are in place to expand credit offerings, with August showing one of the highest figures ever at 4.5 million.

• The company aims to increase its credit card market share from 89% to between 15% and 20%, reflecting a strong growth strategy.

Lending Opportunities and Digital Innovations

Lending Growth Areas

• Focus areas include credit cards, vehicle financing, and education loans, with notable growth in these sectors over the last year.

• Education loans have gained traction, particularly before academic terms begin.

Home Loans Development

• A new SPV approval for home loans worth $5 billion aims to enhance offerings in this sector.

Digital Banking Enhancements

• With a client base of approximately 8.5 million, there’s potential for streamlined credit applications through app pre-approvals.

Transaction Trends and Payment Innovations

Transaction Income Analysis

• Net transaction income has increased significantly by $1.1 billion to reach $6.5 billion; cash transactions are identified as a major challenge.

Shift Towards Card Transactions

• Cash transactions now account for only 11% of total transactions compared to previous years' higher percentages.

Emerging Payment Solutions

• New payment methods such as P2P payments via cell phone numbers are gaining popularity due to their cost-effectiveness and convenience.

Capc Pay Success Metrics

Growth in Prepaid Services and New Offerings

Overview of Growth Metrics

• The company has seen a 14% growth in prepaid electricity and data services.

• Cash sending services to Pick and Pay have increased by 66%, indicating strong demand.

• The V business segment is performing exceptionally well, contributing to overall growth.

Market Share Insights

• The company holds a 40% market share in prepay data transactions, showcasing significant competitive strength.

• For electricity payments, the market share stands at 24%, while vehicle license renewals account for 15% of transactions.

Launch of DStv Stream and Client Control

Introduction of DStv Stream

• A new service called DStv Stream will launch in October, allowing customers to pay only for content they wish to watch instead of a full package.

Enhancing Customer Experience

• This initiative aims to provide clients with more control over their viewing options, enhancing perceived value.

Cap Connect's Revenue Growth

Financial Performance

• Cap Connect's income surged from 4 million to 69 million, reflecting robust growth within one year.

Product Offering Expansion

• The product range has expanded significantly; previously offering 1 GB at R45 non-expiry now includes various bundles with expiry options.

Competitive Pricing Strategy

Market Positioning

• Current pricing is about 30%-40% lower than competitors, appealing to cost-conscious consumers.

Transparency and Simplicity

• Emphasis on clear pricing structures enhances customer trust and satisfaction.

Data Usage Insights

Data Consumption Statistics

• Active SIM users total approximately 1.2 million, with half generating revenue recently.

Streaming Capacity Comparison

• Five petabytes of data equate to streaming around 1.7 million rugby games, illustrating substantial capacity for high-demand events.

Savings Products Launch

New Savings Options

• Launched two savings products: the 7-Day Notice and the 32-Day Notice, achieving rapid growth from R1.2 billion to R2.4 billion in just one month.

Client Empowerment

• These products allow clients higher interest rates while providing flexibility regarding notice periods for withdrawals.

Insurance Sector Growth

Insurance Income Increase

• Insurance income grew by 14%, contributing significantly (11%) to total group income.

Coverage Statistics

• Over R400 billion worth of lives are insured across South Africa, marking a 25% increase in coverage.

App Sales Performance

Digital Sales Growth

• App sales have risen from 18%-19% up to 25% since launching new features, indicating growing digital engagement among customers.

New Life Cover Product Launch

Simplified Process

• The newly launched life cover product requires only seven health questions without blood tests, streamlining access for clients.

Flexibility in Payout Options

• Clients can choose how payouts are distributed—lump sum or monthly payments—providing tailored financial solutions based on individual needs.

Vision for Business Banking

Digital Relationship-Based Banking

Business Banking Growth and Innovations

Rebranding and Pricing Strategy

• The business banking sector has undergone a rebranding in March, aligning its prices with retail banking, which is unprecedented.

• Loan disbursements reached 1 billion Rand, with the opening of 69,000 accounts and a deposit balance growth of 21% to 5.2 billion.

System Improvements and Customer Service

• Initial system stability issues were resolved after March-May; current satisfaction score stands at 95%.

• Account opening times improved significantly from an average of 4 hours to just 37 minutes for businesses, with some accounts opened in as little as four minutes.

Merchant Services Expansion

• A focus on disrupting the acquiring side led to reduced prices for payment machines, resulting in sales of 5,000 devices within the first ten days.

• Monthly sales increased dramatically from about 700 devices to approximately 4-500 daily due to remote selling strategies.

Transparency in Merchant Commission Rates

• The bank aims for transparency regarding commission rates between banks and merchants by permanently lowering these rates starting September.

• The number of merchants increased from 30,000 at the end of August to an expected growth towards 70-80,000 by year-end.

Future Growth Strategies

• Active client base nearing 200,000 with significant loan disbursements; ongoing efforts are focused on expanding market presence.

• Plans include funding for expansion into new markets pending Reserve Bank approval while maintaining competitive pricing strategies.

Operational Efficiency and Investment Focus

• Operating expenses (Opex) are projected around 30%, but excluding certain factors shows a healthier growth rate of about 14%.

• IT investment has risen from R1.3 billion to R1.7 billion reflecting commitment towards technological advancements.

Client Optimization and Ecosystem Development

• Emphasis on optimizing services for existing clients while integrating business clients into the ecosystem is crucial for mutual growth.

Business Ecosystem Development and Future Vision

Creating a Seamless Payment Ecosystem

• The focus is on developing an integrated ecosystem involving business banking, insurance, value-added services (VAS), and personal banking to enhance payment systems.

• Aiming for a streamlined payment process where clients are guided to the best payment options without confusion over various methods like QR codes or wallets.

Transitioning from Legacy Systems

• Plans to move away from the Sunlum platform by November, with a goal of growing both business banking and insurance sectors in the upcoming year.

• Discussion about consolidating two separate banking systems into one service platform to improve client experience and efficiency.

Unified Product Development Strategy

• Emphasis on creating products that cater to both business and retail clients rather than developing separate offerings for each segment.

Leveraging Data and AI for Client Understanding

• Highlighting the importance of optimizing data usage through AI to better understand client needs and experiences, aiming for personalized service.

• Long-term vision includes building a global brand, leveraging existing strengths while expanding internationally.

Financial Insights and Projections

Net Interest Income Analysis

• Inquiry regarding net interest income projections; current estimates suggest it will remain around 11% rather than exceeding one-third as speculated.

Macro-Economic Indicators Impact

• Questions raised about why forward-looking macro indicators increased despite improving conditions; emphasis on historical data models affecting provisions.

Loan Coverage Adjustments

• Explanation of changes in loan coverage criteria under IFRS 9 regulations leading to adjustments in how loans are written off based on client behavior.

Acquisition Strategy Clarification

Bond Issuance Plans and Market Strategy

Current Bond Issuance Status

• Grant indicates that there are no plans for bond issuance in the DCM market for the remainder of the financial year, pending finalization of flak regulations.

• The focus will shift to potential issuance once regulations are established.

Atime Advances Strategy

• Rosker asks about the strategy for atime advances; it was recently launched due to significant client demand.

• The opportunity is linked to capital connect, with expectations to expand offerings across all suppliers over time.

Client Success Metrics in Business Banking

• Discussion on successful client segments reveals a focus on clients generating revenue levels of 20 million and higher.

• There is an emerging interest in smaller clients (7.5 million and lower), indicating a strategic shift expected over the next two years.

Growth Focus: Domestic vs. International

• Mark from Oyster Catcher Investments questions when the focus will shift from South African growth to international markets.

• Emphasis remains on optimizing operations within South Africa for the next three to four years before considering international expansion into countries like Poland, Czech Republic, Spain, or Mexico.

Future Outlook