Capitec Bank Holdings Limited (CPI) Earnings Call Transcript & Summary

Okay. And your last question as well in terms of GSE versus the other NED. I think it's an important question. What we do in Capitec from a Board point of view, we do a board evaluation, performance evaluation. And we cover every single director in terms of contribution to the business and adding value to the business as well as the functioning of the different committees. So performance evaluation plays a major role in Capitec not just from exact point of view, but also from a nonexec point of view. So benchmarking is one thing, but performance through our scoreboard is really what it's about. So I'm giving you a generic answer, we can take it offline as well further remuneration wise. But I note the point on benchmark spiraling because it's something we discuss at the Remuneration Committee on a fairly regular basis. And Capitec at the moment, to pay a 50% benchmark, a lot of shareholders feel we should be at 75%, but we are quite comfortable at 50%. So I'm going to close that question. Any more questions from other shareholders as well? Can we have a microphone, please.

I'm [ Nicky Rust ], individual shareholder. I'd just like to know to what extent is the bank exposed to bad debts and is there a trend of higher risk developing?

I'm going to ask the CEO to deal with that question.

Sure. Thanks. We are the largest unsecured lender in South Africa. Our business is taking on that risk and making sure that we manage and mitigate better than anybody else. Of course, there is a risk, but we make sure that we price for it, we track it, and we manage it. All of our risk targets are coming in precisely and within the metrics of tolerance that we passed for.

Any more questions in the room and then I'm going to close it. Okay. Thank you very much for the questions. I'm now going to look at the questions that we've received or comments that we've received via text, Nicolas [indiscernible], there's question. My compliments to Capitec on the new Capitec card machines, which are vast improvement on their old machines. But the -- I'm not going to read all the words, but the situation where each card machine requires a different e-mail address for registration is very difficult where one uses several machines. I've been told that it is how it is. So, I can't believe we've been told that, that is what is this. So the -- can I please ask that we -- the person have asked that we sought out the simple issue. [indiscernible], is there anything you would like to add to that comment there. Okay. We take note of the comments, and we will be honored to fix it. So that is undertaking. [ Nicolas Van Reit ], another question. The acquisition of Everson leaves some questions. The write-down for [ Everson ] seems to exceed the purchase price. And yes, it is claimed to be making a profit. Please elaborate on the road map with Everson. We had a discussion this morning were the CEO of Everson who is at the Board meeting, acquired a lengthening discussion. Maybe Graham, you want to give two sentences also on Everson on that.

Thank you. So -- thank you. Everson does remain profitable. It is an excellent young management team running a business that allows us to experiment in different markets without burning capital because it is already profitable in those markets. And I do not understand the write-down part of the question.

So thank you for that. Then the third comment from -- and that's the last one I'm going to read from Nicolas Van Reit is the insurance side of Capitec could do with lots more focus. As this side of the business should be an absolute money seller given the client base of Capitec. Please elaborate with Capitec plans on how to compete in this competitive market. Now this is a long discussion. So maybe two sentences on the insurance market and the potential that we see in this market. So Graham, I'm going to ask you to answer that as well.

Thank you. I am going to stop sitting down, I think. Insurance is a business that leverages what Capitec trends are. The strength in distribution, a strengthened brand and of course, all of the data that allows us to understand our clients and predict all of the necessary attributes looking forward. We have a massive opportunity looking forward with respect to insurance. As successful as it's been, and it is already more than 1/4 of Capitec's total earnings. There are many more opportunities to come as we look forward to other types of insurance. Different ways of thinking as to how we reach those clients and serve them.

Then a question from [indiscernible] this is relating to [ Ram ] as well as social FX, first Ram and then social FX. The remuneration disclosure can the remuneration committee confirm where the ESG KPIs, including financial inclusion, fraud prevention, responsible credit extension and customer satisfaction are incorporated into SCI and/or LTI awards, where the [indiscernible] provisions apply to all executive awards where the LTI vesting is at least 3 years. We've clearly defined performance conditions and where the individual executive remuneration, including FY '26, STI and LTI outcomes will be disclosed.

I can confirm that all of those things are in place. If you look at our remuneration report, you will see that we do have nonfinancial KPIs and all of those things are mentioned there. And all of those [indiscernible], we do have them. So everything that has been asked, I think I can confirm that we do those things.

Financial inclusion strategy. Can the Social, Ethics Committee explain how Capitec is advancing financial inclusion among underserved communities, how the March 2025 fee simplification aligns with responsible and client center banking. Our responsible credit extension and [indiscernible] are monitored and how Capital Connect contributes to digital inclusion. Now that's about five questions in one. But Cora, maybe just high level, talk about financial inclusion, the importance of that with insertion and FX.

[indiscernible]. strategy. Our focus is on serving our clients well. [indiscernible] life cycle. Level of income [indiscernible]. So we don't have a financial inclusion [indiscernible]. By serving our clients were on by building a trusted brand. People that were previously underserved, they become their first choice and that's how we make sure that people that were previously not served or underserved come to Capitec is through our pricing and being a trusted brand and meeting the clients wherever they are being the branch, SSGs on the app.

Thank you, Cora. Climate risk lending book, TCF. Can the risk and capital management committee explain how Capitec assesses and manages climate-related risks across its lending book and operations, including the integration of climate risk into provisioning and impairment, operational decarbonization targets and the environmental impact of Capital Connect infrastructure. Stan as Chairman of our CMC's present.

Risk modeling and assessment is extensive. We do so both for the assets and liability side of the group's balance sheet. And on the operational risk side of balance sheet. And we do so within a regulated framework. So this is not just an initiative by Capitec. We do so as do all the other banks in the country under the guidance of the Prudential Authority and we submit those climate-related scenario modeling results also to the Prudential Authority for their confirmation. So we are compliant and I can also assure the shareholders that we do -- that we take very seriously and do so very rigorously.

So Nicolas Van Reit, there's more questions from him as a shareholder. May I suggest, I'm going to ask the question because he is very clear that he would like answers on his questions. But Nicolas can I also suggest via our Group Secretary, we will reach out to you, that we have a proper detailed discussion with you from a Board point of view that we cover literally all the basis of all the questions that you've asked. The question from Nicolas said, I will read out as well and Grant, I'm going to ask you to address this is the approval to issue the relevant loss absorbed in capital securities and the ordinary shares upon the occurrence of the trigger events, is asking what specific loss absorbent issues are being addressed and why can they not be addressed in the normal balance sheet manner. So can we maybe just Grant, look at that?

Thank you very much for the question. So I think just talking about loss absorption, you will be aware that from this year, all banks are required to issue flat instruments. So it's called First Loss Absorbed capital. Our DMTN has just been approved. And so we'll take our first issuance to market probably the first week in November. So as the regulations are changing, we are having to issue these type of instruments let's say, for loss-absorbing purposes. I think there's nothing more to add than that.

Then the [indiscernible], CEO transition and Board succession. Following Chris Otto's retirement. Can the Nominations and Governance Committee explain how the Board is managing succession following Chris Otto's retirement, reserving institutional knowledge and Capitec's founding values addressing the Board's current skills composition and strengthening expertise in areas such as FinTech, international banking and climate risk. Now clearly, one of the things that we take extremely seriously in Capitec is succession planning. And the whole issue of having the right people around the table of where the business is at and where the business is going, also from a fintech perspective. So in terms of Chris Otto's retirement, one of the resolutions. Ordinary resolution #4 is for the appointment of Harry Fourie. So I don't think you get more institutional knowledge than that. So it's from one founder to another who's also going to sit around the table. So succession planning is really top of mind within our business. Now there's more questions from Nicolas Van Reit. I will personally attend to that as well to really say less engage further in terms of the questions raised. Okay. So are there any questions because -- yes, so it's basically just those two shareholders who each had quite a long list of questions, but we will engage with them on an individual basis. So are there any questions by phone? Okay. So thank you very much. So I'm now going to ask we've now covered all the questions. So I'm now going to ask that you talk amongst yourselves for sort of a minute or 2, whilst the team will collate the results of the resolutions and then we will display the results on the screen. Ladies and gentleman. The results are ready, and I'm pleased to report that all the resolutions have been passed with the requisite majority. So can we just have a look at them. So, as you can see on all the resolutions, Ordinary Resolutions, the first team have all been passed with the requisite majority. In the Special Resolutions, of which there are four have also been passed. So thanks very much to the team for doing the administration on that. So before I conclude on the formal part of this AGM, allow me to say a few words about Dr. Chris Otto, one of the founders of Capitec. Chris has served on the Capitec boards since launch, more than 25 years ago. He is without doubt one of the foremost investments and business entrepreneurs that this country has produced to date. I have worked with Chris for the past 7 years. Chris is the force of nature, with a strong opinion on most issues, be it in the form of fact, belief or just being devil's advocate, never group think for Chris. The attributes that Chris has in abundance, are a razor sharp intellect, deep integrity, innovative thought, an entrepreneurial drive, immense business experience and expertise and sound judgment. Chris has been relentless in continuously raising the ambition of management and making sure that the company is well positioned for the future on all business levels. It has always been ready for any new challenge that the Board has to face and certainly no tick-box Director. Chris has been a constant and a major asset in the world of Capitec. I speak on behalf of the Board, Chris, and management when I say thank you for being ever present, and I'm sure we'll continue to be so in the ongoing growth journey of this incredible business. We wish you well in your continued quest for greatness in South Africa and beyond. Let's all be upstanding please and give Chris a round of applause. so ladies and gentlemen, we have now dealt with all the agenda items, and I would like to sincerely thank you for attending this AGM, both here as well as virtually. And for your interest in Capitec I declare the formal part of this AGM closed. We now have one last video to watch before I'm going to hand over to Graham Lee to do the overview presentation of the business. And there's no more questions after Graham's presentation. We have lots of time after Graham's presentations. Any questions you would like to ask, any of us from a Board point of view or the executive team.[Presentation]

The way that I recall last year is there were definitely fewer and distinctly easier question for Carrie. It's been a really exciting 25 years of Capitec, none more so than the last year for me personally. Thank you. Thank you very much for the privilege that you've given me and the trust that you've shown in me in allowing me to lead Capitec for the last 25 years. Thank you to all of our incredible people who work so tirelessly and our board and our shareholders and, of course, our clients as we continue to work together to build this great company. Out there in the world, it remains volatile and uncertain. But at Capitec, our response is not uncertain. We build resilience deliberately. We do so with discipline. We do so by diversifying our income by being appropriately prudent with our capital and provisions by being disciplined and never dropping our standards, and of course, by focusing on our clients. If when you look at the screen, you feel a little board because you have seen it before. Good. I'm really glad, that's what I was going for. I hope to be showing you this slide again next year and the year after and many years from now because whilst the world changes, our principles do not. We remained disciplined and focused on the things that have always mattered. A great company requires three things: people, exceptional people, purpose, those people working together towards a common purpose and principles. All of them aligned by shared values and fundamentals. Capitec has all of those three in abundance. And because of that, the last year microtransition into the role of CEO has been an absolute joy. We make sure that we don't ask the wrong questions. We think of the long term. We don't ask ourselves how do we lock our clients here. Rather, our focus is winning our clients every day again and again. And that takes exceptional people, really exceptional people and exceptional people do not grow on trees nor are they readily available at Scot competitors. And so our focus is on growing our own. What makes me most proud about our last few years is our people growing in their careers. All of the efforts that we put into wellness and opportunity and development, but most importantly, the internal mobility that focuses our people development plans on giving our own people opportunities to grow. It means that our attrition rate continues to drop even since the year-end, and that's now 7.4%. Our internal higher rates is up at 74%. That's not by my sake. That is years of planning and prioritization so that people ready to step into those positions and be excellent when they're there. And all of our people thrive within the communities that we serve. Economic and financial inclusion remains central to our purpose. We don't have specific targets because Cora nailed it in serving every client in South Africa the best we can, if necessarily creates financial inclusion. In addition, though, we also recognize that education is one of the most powerful drivers of opportunity. Through the Capitec Foundation, we're working inside 33 public schools with a whole school model, which is not a workshop. All 1 year of intervention. It is a sustainable program that's touched more than 23,000 learners. I will share with you just a of the results from year-end. It's not to bore you. It's just firstly, a reminder of a good year past, but much more importantly, to reemphasize our philosophies. Our approach is to continue to diversify earnings. And you see that in strong earnings growth across lending and noninterest revenue. You see that diversification across businesses beyond banking such as insurance value-added services and connect. In the credit numbers, you see our focus on accuracy and discipline in how we manage our credit business, and you see in the OpEx line continued investment. We always reinvest in our future, and we make sure we do so with the discipline that means that we can continue to stay true to our fundamental of affordability. Our business model is one of scale. It scales our business model because of our plants. That scale creates economies, and we share those economies back in order to scale further the virtuous cycle. In the last financial year, the total value of that share was ZAR 1 billion. The sources of our income are increasingly diversified. But our Personal Bank remains both the biggest contributor to those earnings as well as the launch pad from which all of our other businesses fly. Business Banking, for both formal and emerging businesses is the greatest growth opportunity in the 3 years ahead. Insurance is already 1/4 of our earnings and more than 1/4 of our earnings. Well, the platform enables future growth, both the on banking and beyond our borders. Clients vote with their feet. We've continued to grow our client numbers. What you see up on screen, these are updated numbers as of the 30th of June. They are just for 4 months, and they're not annualized. Growth rates across all segments are on track, and we continue to grow. Digital and youth particularly continued to grow very strongly and small businesses, and that includes formal business, entrepreneurs, so proprietus and emerging businesses have grown 50% in the last 4 months. because of the Capitec brand. Our vision is to be the most trusted brand. I believe that in the post truth world of AI-enabled cybercrime and greater instability and in security that it is and will continue to be a competitive advantage to be the most reliable, the most secure, the most stable, the most trusted. And to that end, we continue to invest heavily. Because of that investment, we continue to make significant strides in protecting our clients and preventing financial crime. Our interventions saved our clients ZAR 699 million and prevented forward losses in the last 12 months. And you see that reflecting not just in our own stats in terms of improved client satisfaction. You also see it out there in external indicators. For example, with the recent financial ombudsman's report, there are a few types of market share, which is fantastic to lose. And we are losing market share in complaints, and we are losing market share in crime and fraud. And you can see that in the [indiscernible] report. In addition, the growth in our brand value from 8 in the country last year to fit this year. Brand doesn't come from marketing. Brand comes from consistency in client experience, improving those problems and protecting our clients year after year. And so you see that in our brand strength. And we'll never stop. We continue to release improvements. Incremental and step change, big and small, every single day. The cadence is high, and we use every single tool that we have to enable us to do that better. AI is not a strategy, it's a tool. Its value comes from how our people use it. Our approach to Gena is rapid but highly governed adoption. We have fully funded multiple domains, and those domains are really creating significant value using Gen AI. We use the best tools around the world from around the world. We use both frontier models from the West, and we use [ Openwave ] models from the East because our clients deserve the best regardless of where it's from. It starts from protecting ourselves against cyber attack. If the criminals are using the best tools, you need to use them even better. It also includes governance. G&A is a little bit like a light saber. And the last thing we want to do is spend the first day cutting off our own leg with it. So governance of how we use that Gen AI is absolutely [indiscernible] and therefore, we have fully funded the right teams in order to be able to do so. We drive from the top-down dramatic change to improve our client experience, but we also enable all of our people, the bottom-up approach with the right training and tools and opportunities so that they can thrive in helping make Capitec better using these tools. Our purpose of making a meaningful difference, a significant impact in South Africa's growth sharpens what we focus on. Now A little while ago, a couple of weeks actually, Grant and I went and saw many investors in Singapore and Hong Kong. And one of those investors made the statement that he loves Capitec, the brand, but he hits the neighborhood. And our response was "glad you love the brand, we do too, but we love the neighborhood." we thrive because of the challenges so many of our opportunities come because the work that we can do makes a big difference in South Africa. And one of those opportunities you see up on screen. And also, by the way, over there in the corner. If you want to get your own Smart ID a little bit later, the self-service terminals are there and operational for you. We are already live in more than 200 branches, 211 actually, 212 with that one over there. And we have successfully served more than 430,000 clients since we launched this with getting in the SmartID. That's more than 85% of the total market of what banks have done. That -- we thrive on challenges and we love the neighborhood. We'll launch our stock fall account soon. I feel I'm pretty sure that [indiscernible] feel a little bit like you used to about Internet banking when it comes to [indiscernible] because we're certainly not the first, but we will be the best. And on this, we will lay future opportunities like group insurance. Capitec Connect continues to connect our clients better. We launched free Connect-to-connect calls. And in July alone, almost 400,000 clients have used 18 million free minutes because of that scale because of how we're able to leverage it to give back to clients. It was there already. Online banking. So we continue to build it using a small team with Gen AI, so that when we bring it to you, it will be everything that you need it to be. And we're in the latter stages, as I said, of the staff POC. And there are more and more opportunities that we are only just touching. The few that you see on screen show you the breadth of those opportunities and how we create value for all types of clients across the 95% of South Africa that we aspire to serve. The very greatest of those opportunities lies in backing South Africa's entrepreneurs, both formal and emerging. As I said earlier, clients vote with their feet. Since we launched the entrepreneur account and have made more services available for those people with hassles with small businesses. in all types of markets, including emerging markets. We've grown significantly and just the last 4 months is by 30%. They are the future engine of our economy. They are the future engine of our employment and the better we can serve them the better South Africa will be. I'd now like to share with you some excitingly low market share numbers. Excitingly low. Because there's runway. So if you look at Personal Bank, if you look at it from these angles, we have small market share. And we have not properly yet touched home loans and vehicle finance and all types of insurance, stock falls. We've still got so far to go. In Business Banking, it's even lower. If you take all of the relevant headline earnings in South Africa, and we're executing the very large corporate stuff here. If you look just at the relevant, we have only 5% market share of that ZAR 26 billion. of lending, 2% of deposits. There is so much for us to do. And that's before we look beyond banking. All of this needs to strategize and invest and plan and execute in multiple time frames. We prioritize protecting and growing what has made us strong. And we do that through stability, security and excellent client experience, but we think beyond that. In the next 1 to 3 years, we are accelerating those businesses, which will have the significant impact on our bottom line in that time frame. We are already incubating funding actually working on those businesses in a 3- to 5-year time horizon. Embedded finance, an enterprise payments business that can take South Africa forward. And beyond that, with capacity investing in strategizing and acting today for those businesses, which will take us further beyond banking and even beyond South Africa's borders. I would like to end as I began, with genuinely sincere gratitude. Thank you to all of our teams, our people for the fantastic job that you do. Thank you to all of our Board members and Santi for your expert guidance and support and to all of our shareholders for your support to our clients. Thank you for continuing to trust us. And as Sandy said, we're here to connect with for the rest of the afternoon. If you have any questions, myself and the rest of the Board and the executive team would love to be able to answer them for you. So in long established tradition. Please join us for some chips and bubblegum.