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

Good morning, ladies and gentlemen. It's my great privilege to present Capitec's results for the year 2021. I think if we look at the year that's gone past, I think the 2 words that's come out in the Capitec way is agility and digital. It's been an interesting year. I think nobody predicted the year -- now we thought the year is going to end the way it's ended. But I think overall, Capitec had a very good year, and to share with that -- we will share that with you during the whole -- full presentation. Just at the end, we will allow you to ask questions. So if you've got a particular question on a particular slide, just post your question to that particular e-mail address so that we can -- and myself and André will answer it at the end. We're going to share a video with you, which we've done, which is I think is a very good summary of the year that's gone by. [Presentation]

Yes, I think it's been actually a very interesting year, but a very good year. And actually, the video ended up with us celebrating our 20 years. That 20 years was a big occasion. And to celebrate that, we were over 40 people that actually were there that actually was there from day 1. So it was actually quite a experience to have all of the people there. If I look at the year, the year basically for us consists of 2 halves: March to August. I remember March, when COVID started, I was actually in [ Joburg ], and a friend of mine, actually phoned me and said to me, "What are you going to do with people that's overseas and if they come back?" At that stage, we didn't have a policy. We didn't know what we're going to do. André and myself quickly sat down, and we decided on a policy there within an hour or 2, and then the COVID actually started. I think the biggest priority for us was, at that stage, was our clients and then our staff, what do we do with our staff. I still remember, we were thinking how we're going to get people to work at the office. And then suddenly, 2 weeks later, everyone was working from home, and a complete new work environment started. Then the whole COVID -- our biggest potential of COVID, what is the impact of COVID, how many jobs is going to be lost. We spent hours and hours and hours trying to understand the impact. I remember the first forecast we did for this year said that we will make a profit of just over ZAR 1 billion, and that was quite a shocker. So it was interesting times, just to understand the COVID taking the high road, medium road, low road. And then we started in May, and we said, "We need to look at our strategies. We need to re-budget." I think there, we did well because the message out to our team was, go in, go hard, that we finish it. And then we know exactly where we are, and then we can focus. And then the second half actually started with when we said we're going to focus on growth. We need to make certain that we satisfy our client needs. We need to be able to work flexible from home and from the office. And then we started to produce new products. And it's actually quite remarkable, in a COVID period, we actually introduced 6 new products in the last -- latter part of the year. I think the important thing for me was in the middle. We maintained service delivery throughout the years by opening branches, closing branches, adjusting the hold time and being agile the whole time. So I think overall, a very good set of the results. If I look at the results itself, I think everyone has seen it now. 17% ROE, profit of ZAR 3.9 billion in the last 6 months. When we communicated to the market in September, we still said what we're aiming for is that we will make the same profit in this 6 months than what we would do in the last 6 months. So that was the aim, and as you could see, we've gone -- come in with 18% stronger, and I'll unpack that. I think the other important thing is if you look at our ROEs at 30% ROE in the latter part, so it's around about that 27%, 28% ROE that we've achieved. If I unpack the year, you can see this year, we're down 27%. But if I look at that last column because that unpacks the last 6 months, you can see on the credit side, we're down ZAR 222 million, and that's purely because we've cut back on the credit side. In the beginning, we were down about 30% of our credit appetite where we've got back. Then on the transactional side, that's done extremely well. We've always said that we need to be diversified. We need to have other income streams. And I think given the tight year on credit, our transactions saw a very strong in -- at ZAR 950 million up. And then funeral, we were up ZAR 650 million -- or the profit of funeral was ZAR 650 million. But interesting, in the last 6 months, we were actually down ZAR 6 million, and that's purely due to death claims, yes, in December, January, February. But it's normalized, and it's coming back to track. Then the impact of the provisionings. You can see the movements in the provisionings and then the OpEx that come in at a 10% growth. I think what is important is that in the last 6 months, Mercantile was in for 4 months for the whole year. Mercantile is in for 4 years, so you don't do a full comparison. If we do at our key performance indicators, the 2 that stands out for me is our -- where our transactional income and funeral income cover our OpEx. We've always said we want to be at 100%. On group level, we're at 99%, but for retail, we're at 102%. So we cover basically all our OpEx with our transactional income. And then on the transactional income versus the credit income or the net income, our transactional side, 61% of our income is coming from transactional side, and it's purely because of the growth that we've seen in that particular area. And then on the credit side that we've brought back as well as on the provisioning side. Cost-to-income at 40%, 100% in line with where we are. And then capital adequacy, I think a very impressive 37%. As you know, we didn't pay a dividend last year, so your returned earnings was kept. We had very strong growth in our deposit side, and we invested in government bonds. So I think a very good performance on the capital adequacy. So overall, if you look at all the key indicators, a very strong performance. We spent the last 3, 4 years, tremendous amount of time on culture because we believe culture enables us to drive our performance. It's also interesting, when COVID actually took place, and we actually said, "How are we going to manage COVID? What are we going to focus on?" We quickly decided it's the 3 components. We need to focus on our clients, we need to focus on our people and we need to be focused on how do we deliver to them. So the whole time, whenever we were deciding on some things, we were actually focusing and say, "But what is it happening to our client? What is happening to our people? And what's happening to our delivery side?" And I think that passion for our client, what can we do for our client, what can we do better, how can we do things completely different to satisfy his needs -- and I think the big focus is there, simplicity and transparency, making certain that the client fully understand what he's experiencing. And then people. I think people was very interesting during this time, and I'll share the next slide with you. You can see what we've done on the people side. The first thing is we frozen all appointments for the first up to June, July. And then we've opened up. And in total, we've appointed 820 people. But it's quite easy to say you appoint 820 people. As people all know, we've got a firm foundation. A firm foundation is that where every single person that gets appointed in the country gets flown down and actually comes to the [indiscernible] at the back, and then we spent 2 weeks with the person here. We couldn't do it. Suddenly we had to do it virtually. So that was an [ adoption ] in the very short period of time, to adapt everything that we're doing to a virtual component. And you can see the 55,000 training engagements that we've done. And then also to enhance our leadership, our senior managers, 182 attended different habit mentor programs to develop them, to lead them and to enable them to manage their people. We've also have engaged with Duke University. 10 -- no, 11 of our senior managers is on executive program where they will be working with Duke on international exposure and will have exposure with China and the east in the next year or 2. That was all developed during this year. Then I think the one thing is if you are in a changing environment, uncertainty is very high. And then it's all about communicate, communicate, communicate. The one thing I've learned during COVID is make decisions and communicate. If it's the wrong decision, correct it and communicate again. We had 18 virtual Live Better talks. That's where we actually brought our senior managers in and actually sat down for an hour. And we handled various topics from digital to what's happening in the branches, what's happening with COVID, to enlightening our people. And then we've had -- all our ex co people had monthly town halls. A town hall for us is where we actually bring all our people in a department together, it was all done on Teams and then -- particular agenda, and we discuss things and where the company is going, where the company is heading have addressed a big portion of our town halls. And it could be easily 600, 700, 800 people in those town halls attending it. We spend a lot of time on the employee well-being because mentally, it was tough just going through, am I going to be sick, what is going to happen, friends, family, that's been affected. So we spent a lot of time on our people side. And then I think on the community side, a very big plus, where we've actually said to our people, "Be involved in a community. If you're involved in a community project, you get 3 days extra leave off. Plus if you contribute ZAR 1, the company will contribute ZAR 2." It's got -- quite a lot has happened in the community side and on the financial education side. This is the graph that actually, I think, explains how we've moved from just being purely dependent on credit to digital and to transactional. What is quite interesting is 5 years ago, we had 7.3 million clients, of which 2.7 million was digital. Now we're sitting with 15.7%, and we ended March with 15.9%. We're probably now, anytime now, over 16 million clients. But it's quite interesting to see what has actually done in the last 2 years, where we've increased our client numbers from 11.4 million to 15.7 million. That's 4.2 million extra clients that we actually brought in. But you can see what it has done on that blue line on the digital side, where it's increased from 5.4 million to 8.6 million. You can clearly see that uptake that's taken in the last 2 years, the 5.4 million to 6.7 million and then 8.6 million. This gives us scalability. It gives us a lot of opportunities to grow. And then you can see in the banking clients, how solid our banking clients is growing with that 5.9 million because they are actually driving the transactional side. 4 million of our clients are savings clients, fixed-term savings clients. And then your credit clients is at 1 million, 1.1 million client. And that's purely effect of -- if you look at the last couple of years, we've cut back, and with COVID, we've cut back, and that's a number that we actually need to grow going forward. Digital. What is happening in the digital space? I think the 2 components I want to highlight on this graph, as you can see, these are the volumes as at end of February. So it's not the year volumes. But it gives you an indication how volumes has grown in 2 years. So digital has gone from 2.9 million to 86.4 million, so it's about 4x more. Just to give you another indication is on digital, there was about 5 million people in February on our app and over 6 million, close to 7 million people in March, as people are engaging more and more. And you see that the swap-to-card payments, tap and go, 24 million to 79 million, and then cash is still growing. But you can start seeing the -- we're making a dent to the cash side. And then there's this perception that the app is actually, therefore, the younger generation, people with higher incomes -- and you can clearly see what the take-up is, actually, we're starting to see lower incomes, people earning less than ZAR 7,500 start using the app very strongly. And we can see if people over 40 years are starting to use the app very strongly. So the acceptance of app and technology is a very positive trend. What's happened during COVID? Interesting, if you look at the green, you can clearly see when COVID hit, our card payments came down and slowly but truly starting to come back to normal levels. But you can see what's happened with digital. That blue line just kept on growing, growing, growing, and that helped also the adoption of people moving to a digital platform. And then cash flow is growing, but it's fairly flat. This is number of transactions. I think if you work on value, then cash is still much stronger because you can see there on cash, we're talking ZAR 663 per transaction versus card of ZAR 304 a transaction. On funeral, we had a very good year on funeral. For me, very encouraging is the 2 market share stats, 37% of all new policies issued on our Capitec policies. Sorry, everything new in the market. We control now 37% of the market, and our market share in totality is 16%. What is quite interesting is our coverage per policy is ZAR 96,000 per policy. It's the highest in the industry. And then for every rand, we cover ZAR 530 we cover, and that's a 38% higher than anyone else in the market. And that just shows, again, how we offering value to our client. I remember when we worked with Sanlam, my brief to them was we need to be -- we need to differentiate, and we need to differentiate with 30%. And it's interesting, we're coming up here at 38%, so it's very close to that 30%. Policy sold, 1 million. Collection rate was 85%. It actually went up to 90%, 92%. And then I've mentioned previously that book persistency with COVID in October, November, December, we saw an uptick, but we're coming back to normal levels. Then on the deposit side, 18% growth to ZAR 107 billion. We've got now -- if you include Mercantile, we've got now a 9.4% market share, close to a 10% market share. We've had very strong growth. I think the one thing that surprised all of us is the growth during the COVID period because everyone thought they -- people will withdraw the money, they will live off the money, but we actually saw the opposite. We actually saw more cash into the system. So we saw very strong growth. And yes, we're still offering very competitive rates. Even after the repo rate was reduced to 3%, we're still offering 2.25% on your core account, and we've paid over ZAR 4.1 billion out on interest. New products that we've launched, send cash. Send cash was last year only available at Shoprite-Checkers and Pick n Pay. Now it's also available at our own ATMs and as well as Pick n Pay and Massmart. You can see the number of transactions, how it increased. And this just gives you the capability to actually send cash to a friend wherever that person is, and he gets a code and he goes into our ATM or a Pick n Pay or a Shoprite, and he actually picks up the rand value that you've sent through to him. You can see we've moved ZAR 6.1 billion of value that was being created. The one that I'm very excited on is the scan-to-pay functionality on your app. What we've done is we've integrated Zapper, SnapScan and Masterpass into one. So any one of the QR codes, if you see it, you can actually just open up your app. Immediately, scan to pay comes up, and you can actually pay. And that's a big focus for us. The whole QR, digital payments are where we're going. Virtual card, we launched in November, and that's that capability to have a virtual card that you don't need to have your own card as well as you do online shopping, you've got much more a secured environment. And then also with the next one is were remote onboarding we've launched in March. The person has -- can remote onboarding by just downloading the app. We immediately take a facial recognition from yourself. We verify that with the Department of Home Affairs. So we do a full [ fit ] on you, and you're up and around, and you can transact. As well as you've got a virtual card, so you can do transactions. At this stage, you must still go and fetch your card at a branch. But from May, we will actually remotely deliver your card to yourself. And then Capitec Home Loans. We always said we had that our whole partnership with SA Home Loans. We marketed it as SA Home Loans product. We weren't happy with it. So we changed everything, and we actually created a Capitec Home Loan partnered with SA Home Loans. So I think it's working very well. We had only over 200 -- 24,000 applications in the first 3, 4 months. We've approved about over 300 loans. What is quite interesting is you can apply in 4 steps and within 5 minutes. And then you can track your whole process of when your house is -- a validation is done in your house, your bond is registered, et cetera, et cetera. You can actually track the whole process on where you are, which is quite unique. I think what everyone is asking about is credit. So I'll unpack all our different strategies and what we've done. If I look, the first thing is what has happened in the market. I was hoping that the NCR stats would come out for December because this is until the end of October. It's still not out. But I think the repo reduction have definitely seen a lot of people taking up mortgages and taking up vehicle finance. You can see mortgages up from ZAR 43 billion to ZAR 49 billion and basically vehicle flat. And then unsecured plus credit card and facilities, you can see how it actually has dropped. And that's what we're seeing in the market. There's a perception in the market. I've read a couple of articles over the weekend and the last -- a couple of weeks of debt counters that saying everyone is now only taking up unsecured lending. That's not what we've seen. We're still seeing everyone cautious, but people are slowly but surely starting to open up. If I look at our credit strategies, I think critical assessment, as always, that's helped us quite a lot, critically assessing daily on what is happening. We are [ advanced ] for both a robust challenge with COVID and then agile implementation. I think those 4 words sums up the way we manage credit. What is interesting is I think nobody predicted COVID. What we looked at was an economy that's going to be under pressure. And we said we need to reduce risk, and that's basically what we've done before COVID for 2 years. We've actually moved away from high-risk areas, lower-income levels, making certain that we are strong enough in an economy which is under pressure. And the one thing we didn't understand completely is essential services. But at the end of the day, when COVID happened, we had a 60%, 65% book exposure to essential services that actually helped us quite a lot. If I look at -- in the COVID, the first wave, that's basically what we've done is the first thing we did is to say, "What is our appetite? How are we going to grant? How are we going to evaluate all the different industries, employers, household incomes?" And we had to pull back the first time that -- in April or very early in April, we've pulled back about 30%, reacting very quickly and, I think, making very critical decisions. Then we said, "We had an existing business. We need to protect our existing business. How are we going to help them?" We had to bring in digital rescheduling and payment brakes options that had to come in, which we didn't have. And we had to look at behavioral incentives. I think that's the one area that we were completely different to the market. Everyone was giving a payment break or some other form of structuring, while we actually said to our clients, "If you behave well, we will incentivize you," and I'll unpack that. And then brave enough, we launched the access facility 1st of May. And the whole purpose of access facility is the fact that the person will be assessed from a credit perspective, and if he's up to date, he doesn't need to come to a branch again. So that takes, again, the safety component into consideration. We've increased provisions. And then the big -- the bite was in April, nobody wanted to reinsure us from a retention point of view. Everyone was scared, and we had to take it on the churn. So we had to manage that process. We had to increase prices. Then in the second half, what we see -- saw very clearly as payment breaks are performing, and as I said, in September, we saw very good performances coming through, we looked at the inflows, and I'll unpack that. We went to go and look and see how the behavioral incentives has performed and looked at retrenchment and death on that performance. And I'll unpack that with yourself in the next couple of slides. I think the question now is economic recovery, the outlook. I'll put those 4 components in there. Third wave, when is the third wave going to hit? I see with machine learning this morning, I say it's not going to hit us in the next 2 weeks. I think everyone speculates, nobody really knows. But if we look at the students in Stellenbosch, it's definitely going to hit us somewhere. If I look at the vaccine rollout, are we going to have? Are we not going to have? I think everyone knows those questions. Very interesting enough, 2 weeks ago, for the first time during COVID, I actually went out to the branches, and I spent a lot of time in Pretoria, Soweto and the Vaal triangle. And just a couple of scary thoughts. The first one is talking to our branch managers, the pressure that the government is because they haven't got laptops and infrastructure for their people to actually really work from home. And secondly, all their process is predominantly paper-based. So it's extremely difficult to operate in this particular function, so I think that's a nice challenge for them and a worry. But I must say from a positive side, I went -- I spent a whole day in Soweto and I was extremely impressed with the neatness to revive the economy, the informal sector talking to the people. I saw a very positive vibe in the Soweto area. And then the Vaal triangle, you always -- that's the area that's economically always under pressure. And clearly, the branch managers, all of them gave me indications, people are getting full salaries. People are being paid bonuses. We're starting to employ. So I've picked up something else in the market. Our people is this [ weak ] in the market, and very interesting to see what happens in this period. What did we see with COVID? The blue is actually just our balance at risk. So if I look at government at 45%, government parastatal, municipalities, and travel and leisure, only 2% of our book. So that gives you the book exposure. Now I think let's use manufacturing. Our PD estimates is what would our PDs be higher due to COVID. So if you look at when we did it in April, we said for manufacturing, we would be 22% higher on our PDs. Then in August, we did a re-evaluation. We do this actually every month. We dropped to 17%, and now we're at 8%. So you can clearly see how the economy is picking up and how we're reading things. We're adjusting our models, and then we're opening up and making certain that we utilize the market opportunities there is. And you can see on travel are those PDs has actually gone up, given the stress that there is in those particular areas. This is a very interesting slide, what has happened with the income levels. This is our credit lines, the flows that's coming through. You can see travel and leisure has taken a big beating. They're roughly 25% down. Government is basically flat, around [ 1% ]. We all know that government has been fully paid. And then you can see all the other industries. You can see the impact in May, June, July, where they've been down to, let's say, 95% -- 92% and then coming back to a 98% level. So we've seen positive trends in our credit clients. Remember, this is credit clients, so that's the 1 million clients out of the 15.6 million to 15.7 million clients. How has the payment relief been working? As I said, we've given ZAR 7.5 billion. I just want to get some water. We've given ZAR 7.5 billion in payment reliefs. Of that ZAR 7.5 billion, ZAR 3.9 billion is completely rehabilitated and settled. That's that light gray bar. And you can see the breaks we've given here in May, June, July and now that the performance is actually coming through. Then the blue and the light blue is actually the ZAR 1.7 billion that's not yet rehabilitated. That light blue is ZAR 1.3 billion. Those are payment breaks that's again been rescheduled and one we'll have to see and monitor what their performance looks like. And then you're sitting with the red, and the red is what is in arrears or, what is worse, have been written off. And so this is all built into our models to actually show you what's taking place. If I look at the question is the variable incentive working. In total, we're saying that we're going to pay out about ZAR 410 million out to our clients. Are we -- and it's 187 clients that's been helped. Maybe just, again, explaining the behavior incentive. If you've been variable, reschedule or payment break, and you pay your first 6 months on a repayment, you get 50% off of your interest. If you pay for a full year, you get 12 -- you've got 100% off. This is just a comparison between historical rescheduled performance and people on the behavior incentive. And you can clearly see there's a good 20%, 15% gap in the performance. We actually had, for the first time, people phoning our collection department and said, "Hey. You haven't collected, and you must please collect because otherwise, I'm going to miss my incentive." So you've changed the behavior around it. The client is actually taking responsibility to say, "Hey. I need to make certain that I'm in front." There's our provisioning. I think the critical figure there is the ZAR 2.9 billion, which we see the forward-looking on COVID. That is our -- what we're looking at the economy, the performance of our ZAR 7.5 billion or that ZAR 1.7 billion. We believe we've provided well enough, so we're quite happy. And I think if you take that out, you can see what it's done to your credit loss ratios, where it is now 6.2% versus the 11.3% versus the 6.8%. So actually, strictly speaking, if you take COVID out, our book has actually performed quite well. Credit life insurance, just unpacking credit life insurance. I think that was the million-dollar question, what's going to happen with credit life insurance. If you look at our net premium written, that's actually increased from ZAR 1.5 billion to ZAR 2.5 billion. We've received an extra ZAR 400 million because we've increased our prices when we saw there was extra risk. We've increased our prices. That's at 2.4 versus the 2.8. And then our premium spiked to our reinsurance. That dropped with ZAR 400 million, ZAR 500 million. And then the claims spiked. The 1 million-dollar question, what's going to happen there? And you can see that increase coming through of 85%. I think the net effect going through the whole year, basically, our income of -- from credit life is actually flat, and I think that's a tremendous performance. There is what you can see what's happened on retrenchment and death. Our retrenchment is up 100% from ZAR 500 million to ZAR 1 billion. We've seen a spike in retrenchments taking place in June, July, August, September and it's actually come down and is now in normal levels. It's all going to depend on what it's going to do if there's going to be another wave, wave 3. But we think it's fairly -- come back to normal levels. Interesting always, retrenchments were severely impacted in the last 3, 4, 5 years by the mines. And as you all know, the mines are doing extremely well currently. Death -- on death, you can see that increase, and that increase came through basically in the latter part of the year with level 2, where we've picked up quite a lot of death claims, but that has also stabilized. I'll give you the number of claims paid. It's interesting to see that death as a number of claims is only up 27%, but the value is growing up 64%. This gives you an indication of the value per client that's claimed. And yes, this is the granting side. What has happened in the granting side? You've seen our granting has come from ZAR 39 billion to ZAR 29 billion, where we've cut back, but a big focus on quality clients or higher-income clients. People earning more than ZAR 20,000 per month is now 55% of what we're granting. If we unpack that ZAR 10,000 to ZAR 20,000, that drop is actually predominantly in the ZAR 10,000 to ZAR 15,000. The ZAR 15,000 to ZAR 20,000 is basically flat or slightly up. But you can see in the lower-income segments, we've cut back. And that's in line with our policy or our strategy that we've actually started in 2018. And then the new access facility, I think a wonderful product. We're extremely pleased with this product. It was launched in May. We've already sold limits of ZAR 8.6 billion. There's just over ZAR 6 billion that's been taken up. It's interesting, 54% of the sales that's going out is for people earning more than ZAR 15,000 a month. And the nice thing about this product is for term loan product, if you take that term loan product, you pay fully on that amount. So if you take ZAR 100,000, you pay full interest on ZAR 100,000. On the access facility, you only pay when you use it. And if you don't use it, you don't pay any monthly fees, and your pricing is very competitive because it's priced at a facility rate, and it comes in around about 17%. So very strong growth in this product. And I think the other big thing is it's actually taken us out of the traditional 1- to 6-month market. So that old 1 to 6 micro loaning cash loan market, we're not in that market anymore, and we're actually operating only in the term loan market. Business banking. If I look at business banking, what has happened? I think we thought we're going to build a bank after we've acquired the bank. And then you suddenly realize that you had to manage COVID. So basically, for this first 6, 7, 8 months, it was all COVID, and how is your SMEs performing. We assisted just over 1,000 business clients with payment breaks up to ZAR 4.2 billion. And you can see, of that, only 46 clients is in arrears. We have a balance of ZAR 3 million. So outstanding is ZAR 3.6 billion. But overall, it's actually performed extremely well, and we're happy with that performance. The [ ZAR ] loan guarantee, I think that's the one question everyone is saying it's not been working. And I think it's a question that the private sector or the banks were just too quick, helping the clients with all the payment breaks, et cetera, et cetera. If you look at our total contribution, it was over ZAR 12 billion that we assisted clients if you take business banking and retail banking into consideration. I see it's been extended for another 3 months, but I think we're focusing and say, actually, how can we actually assist our clients ourselves going forward. We've provided our -- we believe on a very conservative basis we have a provision coverage of 6%. Where are we? We've brought in Mercantile now as a division of the bank from the 1st of December, so they haven't got a banking license anymore. We're basically focusing on 2 areas. The one area is actually building a very unique client experience for our business clients and new credit models for them. And then you need to integrate the support services from AML, fraud, accounting side, you need to bring that in. So we're busy with those integrations and working that through. You can see, we've appointed 134 new employers. That's predominantly in building the bank side. And we've seconded 81 retail people to build the bank. And maybe just come back to what I've said now, is that to align our systems, as you know, we've gone live on SAP on the retail side last year in March. That's gone very well with the whole year-end. We actually celebrated SAP's first birthday about 2, 3 weeks ago. And they're going live now on SAP and should be -- at half year, should be fully on SAP. But the big focus lies on the whole service model that we're building and the scalability. So we're still on track. Like I said, we're still looking at Capitec business banking for next year, and that whole process is taking place. Maybe the only thing that I need to highlight here is we've launched a franchise solution in the market. We brought in about 7 or 8 people that's focusing on franchises, because what we've seen is on the franchise side, you're picking up quite a lot of information and you've got quite a lot of history to actually support your strategy. If I look at the future, I think in the future, we can focus on those 4 area: people, scale, digital and data. On people, I think that's where the biggest challenge is and the biggest opportunities are because I'm not fond of working from home the whole time, I think it's a combination. If I look at our ex co team, we're probably 80% of the time in the office. We've just seen, if you brainstorm, if you're creative, if you're innovative, you need to have people around you. You need to have those serious debates, so we're really encouraging our people in a responsible manner to come and work from home -- work from office. So we're spending quite a lot of time. And then we're working on a lot of new models where you've got complete scalability, flexibility, multiskilling. To give you example, with our systems and things that we've implemented, our direct lending business normally had only their people that was working indirect lending that could assist with loans. Now people in branches seamlessly can switch over and can assist. So it's that cross-functional multiskilling. I'm challenging the HR department and say, "I think we need to throw away all job descriptions and just think and say, 'What is the opportunity?' and go -- let's go and do things." The human touch is still for us important. Everyone talks about branches and digital. I believe a very critical aspect of the Capitec winning recipe is those 3 sites. We've got a very strong branch infrastructure. We've got a very strong digital offer and then has a very strong client engagement side. And that branch side is that human touch. If there's an issue, a problem, I want to understand the product better, I want to engage, that's where the branch is critical. And we see that when we launch a new product that's coming out, that understanding, that human touch is critical. We've budgeted to a point close to 500 million -- 500 people, and all of those people are basically IT, digital, science, et cetera, coming through. So it's a very strong focus on where we're going. Then on scale, I think it's quite nice to sit with 15-point -- well, let's call it, 16 million clients. How do we leverage that client base? How do you optimize that client base? What products do you launch in that client base to make certain that you can optimize it but with a focus of simplicity and efficiency and transparency? And then to create efficiencies. As you scale and as you grow, there's always opportunities for efficiencies and do things better. So that will be a very strong focus. And then partnerships. I think if you look at what we've done with SA Home Loans, Sanlam, et cetera, et cetera, we'll continue looking for partnerships and working with people to create value for our clients. I think if you look at fintechs, it's critical that banks work with fintechs and that we partner and we solve those client solutions. Digital and data. Big focus areas is then the payment side. The QRs are changing the behavior, changing the behavior from cash to payments and the whole digital e-commerce side, the whole ability to move everything to the cloud. Just [ interesting ] that business banking data infrastructure is all in the cloud. And we're seriously moving retail into the cloud. We'll probably complete that in the next year. But all of that is that ability to actually understand your client better, to have better insights of your client and to be able to react quicker because all it goes about is understanding your business, making decisions much quicker, and to be able to do that, you need to have data available. So that's a very big project for us. We're spending over ZAR 250 million on that in the next 12 to 18 months. And then protect our client data and trust [ Poppy ] is coming in 1st of July. I think if I look at it, for me, it's not so much about [ Poppy ] but where the world is going with social media, et cetera, et cetera, is you need to make certain that you create value for your clients because if you create value for your client, that client is going to say, "I'm going to trust you with my data," and then you can use that data to actually create value for themselves. So our focus is not a compliance or regulatory focus, but more a client side and so making sure we're adding value to the client. And then business banking. I think I've actually addressed this. We're on track with the 20-month -- 24-month development plan for mid next year. And yes, it's looking at all processes, client interactions on a digital basis that we do it seamlessly. So I must say, if I look at the future, what we are busy for the next 2 to 3 years, I'm very excited. I think it's an exciting opportunity to actually sit with 16 million clients, close to 9 million digital clients. And you said working a business bank that you can -- that you're building up. And if you combine that, I think we've got a very strong future. Thank you very much. We will now hand over to Anton that's going to handle the questions, and I'll join André, and then you can ask any questions you want. Thank you very much.

The first question we have this morning regards the number of the client growth rates. So what is the current client growth rate if the average growth last year was 160,000 per month?

Well, there was 1 month that had negative growth, and that was right in the heart of COVID. Thereafter, bar for 2 months, we had a consistent growth in the growth of clients. And at the moment, it's roughly about 200 per month -- 200,000.

The next question relates to transaction fee income. What drove the increase in transaction fee income? People expected that the transaction activity was going to be lower during COVID.

I think your biggest lever there is the number of clients because if you look at the -- we've added 4 million clients in 2 years. That is about -- if you kind of look at -- and we haven't increased prices for 3 years. And we've grown very strongly in digital. So like I've shown in there, with COVID, the digital transactions kept growing. And even point-of-sale transactions kept growing later on. So I think it's the fact that you're moving away from cash but very strongly is the 4 million. Because remember, if you look at 2 years, that 2 million didn't give you a full income for that year. That's partial. And of 2 million they brought in this year is also not full, and it comes in -- actually, the full effect actually comes in the year after. So your ability to have that client base, I think, is a big driver. Like I said, 80% of that growth is coming from a number of clients.

Actually, if you specifically look -- and it's across the board even in cash transaction. I have to say that the business bank came in for 12 months, although it was only there for 3 months, the previous year, but their numbers are very low compared to the Capitec number. And the drive is really to move away from cash into point-of-sale. So it could very well be that someone in the past could have taken one withdrawal, and now they're doing 10 point-of-sale transaction or payment on digital.

Always remember, if you move from branch to digital, digital is ZAR 1 a transaction. Branch is, let's say, ZAR 4, ZAR 5 a transaction. So you need to do much more digital transactions to make up for that. And that's just the time growth on the digital side that's coming through.

Then what is the current demand for credit in business banking? Is the demand starting to pick up? Or is it still weak?

Well, generally, there's always demand for credit. But we do find that companies are very cautious at the moment. Even at the government loans that were supplied, a lot of companies did not want to take that because they want to wait and see what happens in future. So people are quite cautious at this point in time, especially for large developments.

It's interesting if we look at the retail applications, because that we measure very clearly. In your retail applications in January and February was around about 35% to 40% down. And suddenly in March, we picked up very strong applications again. So I don't know if people are starting to say they're looking for credit again given the economy has opened up. But generally, on the retail side, we were, for the year -- or let's take it from July, we were about 20% to 25% down on number of applications where people, I think, were just more cautious.

Good. Then moving on to the slides, we had a question around the banking clients that total 4 million. What do we -- how do we define a banking client?

It's 5.6 million -- the 4 million is the savings clients, so it's people the people that saves with us. The 5.9 million is the -- if I can remember now correctly. But the banking clients actually declined. We actually -- [ they deposit their ] salary with us.

Okay. We mentioned stable inflows, app usage, wide usage and debit orders. And then we've got various definitions within the bank in order to manage that because we are trying very hard to manage the idea away from cash and to use more digital and card transactions.

Then around the home loans. We had applications of 24,000, but approvals of 300. Why is that...

It's just that -- I remember you do application gets approved. Now you need to go and do a valuation of the house. Then you need to go through the bond registration process. So it just takes much longer. And our bond office or deeds office was also not at 100% capacity. So it's just a normal process that takes place.

Right. Then, what is the average value of the home loans granted? Do you have that?

I think the average, and I'm talking a little bit after correction was just under ZAR 1 million. It was about ZAR 950,000.

And are we targeting a specific home loan book? And can this be as large as the unsecured book?

Remember, this book is on home loans balance sheet, so it's not on our balance sheet. So we're not targeting a specific size. What we are doing is just offering value to our clients because Capitec never had a mortgage product. So if a person joined us, let's say, at 20, and he's now 30 years old and he wants to buy a house, he had to go to one of the 4 traditional banks. Now he can actually get a SA Home Loan because it's underwritten by SA Home Loans. So it's not our product, it's not on our balance sheet.

What is the key drivers for the cost growth, given that there was only a small increase in staff and lower branch numbers?

There was a 10% increase on OpEx. And remember, Mercantile was only in the previous year for 4 months, and now it's in for 12 months. And then there was an investment always on IT and digital.

That's where the major investment is from certainly the center is to streamline IT and develop new products.

Has there been any commission charge this year on loan originations?

Yes, we do. But it's very -- it's just a small charge that we do to effectively cover our cost for the initial capturing of the transaction. But it's really very small.

What are the increasing costs for e-commerce distribution?

Well, it's really the IT development. IT development and the app development, so there's a full team that look at that. And also, we make use of -- extensively of machine learning, and that's all factored into that. So it's not a physical cost. It's more on the development cost and then to get clients to get used to it and roll it out. So there's a marketing cost attached to that as well.

What would have been the NIR to OpEx retail coverage if we excluded funeral?

Well, there's a huge fixed cost into the branches. And 86% of all funeral policies are actually sold in branch. So I suppose one would have to look at it and say, "If we did not have funeral, we would, in all probability, have been able to decrease the headcount in branches." It's not that straightforward. We've computed a specific amount, which we charge as part of the funeral cover. In future, the funeral cover will furthermore be moved to a fellow subsidiary of the bank because we'll do all our insurance products from there, and then we will have a charge to the bank. But I don't believe that, that's going to be that significant because, as I said, these are huge fixed cost component in the branches.

I think that's the nice thing with digital. It does -- you create capacity in branch, so you can sell products out of branch. So that gives us a major advantage because the fact that we've got over, let's say, 840 branches gives us a very strong distribution footprint, plus then the 15.7 million, 15.8 million clients gives you massive opportunities to bring out new products and sell that properly.

And what is the strategy around wholesale funding? It looks like the book has been run off completely. And will Capitec remain active in the wholesale funding market?

Well, the idea was always to present in the market. I would say, fortunately, for ourselves, but probably unfortunate for the wholesale providers. We just have so much funding. I mean we've got significantly more in our -- money in our investment portfolio than in the retail and business book. So the intention is to stay in the market and even start issuing sub debt again in future. But at this point in time, the -- our need for wholesale funding is still quite low.

And we have a question around credit. '21 financial year has been heavily distorted by the increased credit charge. In the first half, the pre provision operating profit was up 11.5%. And then this decrease to 5% in the second half, given the full year figure of 8%. Can you comment on the slowdown in the second half? And comment on the outlook for the next financial year?

Well, to start with, as Gerrie said earlier, on the growth of the book, we were obviously very cautious. There are some industries that are still having problems like the travel industry. So obviously, we can't be bullish there at all. There's a lot of questions still on the third wave and maybe fourth wave. So generally, we are very cautious. So there's been a very significant slowdown in the first half. And as we said earlier on, gradually, we are increasing that as well. And also, by providing good-priced products and products like the access facility that clients really enjoy, we will see growth going forward. As for the provisions, we gave it our best shot in the first half of the year to make sure that we deal with it. And as Gerrie said earlier on, we're updating that on a monthly basis. And we do find pockets where we feel that provisions are or not required to be as severe as we thought about it in the first half. But hopefully, it will be so good that we can release all the provisions at this point in time going forward, but that's very unlikely. The one thing that we try to do is to deal with the pandemic so that we don't linger on it forever. So even at this point in time, we spend hours and hours and hours again at year-end to make sure that our economic forecast and everything is in line with what we believe a reasonable number is going forward.

That's it. No more questions. Thank you very much.

Thank you. Thanks very much.

Thank you very much.