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

Ladies and gentlemen, let's give a warm round of applause to our CEO, Gerrie Fourie.

Good morning, ladies and gentlemen. It's nice to see all the faces. The head office is basically full. I'm glad to cover with Grant and we've got everyone at work. So that's quite nice. It's a privilege for me to bring to you the financial results of 2024. I think if I look at the -- what stands out for me, exceptional growth in the second 6 months, 25%. I think the ability to move our clients to digital and electronic payments away from cash and how do we've diversified the company stands out. But I'll go through that in detail. There's the questions, if you want to ask questions, Anton is on standby. He is ready to bring those questions to us afterwards. Hopefully, we answer all those questions in the presentation. If I look at the last 3 years, what have we done. We've invested ZAR 6.3 billion in diversifying the company over a 3-year period. We've emphasized that in every single presentation that we've invested money. We're diversifying and going doing certain things. We see, if we look at what we've done is, we've re-platformed our IT platforms. I've said last time, we've actually now our SAP company, Microsoft company, AWS company and a Salesforce company, and that enables our IT people to really focus on delivering on our client needs. We've migrated all our data to AWS, and that's on that road map to make certain that we are becoming a data company. We've developed very innovative payment solutions, and then we've built basically 3 new businesses. So let's just go and look at that. I think retail bank, we know included in retail profit of ZAR 7 billion is the strategic initiatives income. But if I look at what we've done is we built a leading digital bank in Africa. We've optimized client value by bringing new products to our client base. I think the area that we've done exceptionally well is on the credit side, where we've been extremely agile, extremely quick to the market and reacted to what's happened in the last couple of years. And then we've leveraged very strongly on our 846 branches. It's still a very key -- is very key for us in our success, and I'll elaborate on that. Then strategic initiatives brought in ZAR 2.9 billion in profits. What is tremendous is, it's an extra ZAR 1 billion from last year. And it's all the new value-added services that we've launched. I'll unpack that in detail. I think the one that stand out or is part of it is Capitec Pay, we have actually taken payments and put a completely new dimension on Capitec Pays. And then on wallets, if you look at what we've done, we've Apple Pay, Samsung Pay, Google Pay, Garmin Pay, all the pays are in and we've done tremendous amount of volumes in that. Then if I look at Insure, income of ZAR 3.1 billion. I think what we are doing is to say, how do we optimize our own license, our insurance license. As you all know, we've received our license about a year ago. How do we build our own systems? We've exited with Sanlam. 1st of November is the due date. How do we bring all that data on and then how we're going to develop new products. And then business banking, the exciting one, we've promised that we will rebrand 1st of March. We've done that. We've built a completely new digital platform for business banking. We've launched a complete new app and online capabilities on it. Everything is in the cloud. So all our systems, all our data, et cetera, is all on the cloud. So that's what we've built with the ZAR 6.3 billion. If you really look at it, there's tremendous opportunity still in strategic initiatives on insurance and business banking, which will make certain that we can continue producing the results that we've done over the last couple of years. If I look at the income statement, I think the big number that everyone is looking at is the [ arrears ] number or the impairment number. I think in red day, you can see what has happened. Impairments was at a high at ZAR 4.7 billion at August. We told the market. It's coming -- our pullback is working, and we're starting to bring that back, and you can see the ZAR 3.9 billion. So there is a plus/minus ZAR 800 million improvement in our payment cycle, and we'll unpack that further. I think the one that will probably surprise the market. The market was expecting about 18%, 19% growth in transactional income. We came out of 29% and a big driver of that is our strategic initiatives that has come through. So on net noninterest income has grown with 26%. And then if you look at our performance, we came in with 16% growth year-on-year. And then I think the one that we can be extremely proud with is 25% growth in the last 6 months versus the previous 6 months. There's not a lot of companies that can say over a year, the last 6 months, you grow 25% stronger in the last 6 months. If I look at our profitability, our key ratios, I think the one that stands out is, I remember when we started the bank, we were 100% dependent on credit. All our income was coming from credit. So you were very dependent on the different economic cycles and what is taking place. It's difficult to grow credit when the economy start, but now 72% of our income is coming from other income, transactional income, VAS, connect, et cetera, et cetera. So a big portion that shows how we've diversified over the last couple of years, that 72% of our income is now coming from other income. Cost-to-income ratio is 39%. Our OpEx grew of 17%, but we're still coming at 39%, shows how we manage cost and how do we keep everything down. And then return on equity, we always promised the market at 25%. We came out at 26%. So we'll have to give back another 1% to our client base, and I'll show you later that we definitely are going to do it to make certain that we get to our 25% ROE. Balance sheet. I think the important one is the one marked in red is our deposits has grown. The market has grown about 7%, 8%. We're at about 7%. We're managing and make certain that we are in line with the market. But yes, we've got ZAR 156 billion that is invested with ourselves, where people are trusting us with their money. And then credit loss ratios. You can see in Retail Bank, we came out at 10.1%, we were at 9.2% through the cycle. We're normally about 8.5%. We were at 11% at August. So that shows the improvement we've done to come in at 10.1%. And then business banking at 1.9%, a big driver of that was the rental business that took strain during the economy as one can expect it. And then on capital adequacy, we've got enough capital, our capital adequacy of 36%. I think it's a tremendous performance to have ROE of 25% on a capital adequacy of 36%. We're quickly going to look at a video that actually just sums up and give more detail of all the new products that we've launched in the last couple of months. [Presentation]

Yes. I think we can be proud about all the innovations and everything we've done. And I think the challenge is to keep up with that and make certain that we deliver on the clients' needs. If I look at the Retail Bank, I think the first thing that I want to emphasize is, if I look at our client base, we've grown our client base with 6 million clients in the last 3 years. It's actually, if you look at the last 5 years, 10 million clients. So it's quite scary. If you look at 5 years and you're saying you've actually really doubled your client base, I'll give up where the client is going to grow to when we reach 15 million, and we still brought in 160,000 new clients in the last months. The one that I'm excited about is our client influence, that's your net inflows. The average salary in South Africa is about ZAR 15,000 a month. That's your net salary after your taxes and your deductions. And we've grown that with 61% to 2.9 million client. Then on the spending on the app, has grown with 95%. You can see the take-up of the client base. And that 45% of all clients, what they're spending, they're spending it on the app, using the app to spend. We've reduced cash from 24% to 17%. So it's only 17% of all our transactions are now cash, and we all know how important is to move people to electronic because then we better understand the client and we can create value. And clients are making 3.5x more online purchases than in 2001. So a tremendous adoption in the digital space. And if I look at where are people spending their money, Takealot, Checkers Sixty60, Mr Delivery food is important. Netflix, Showmax, Bolt and Uber. For me, it's still interesting. I don't know Bolt, but Bolt and Uber under the capital clients. So that's still for me amazing stat. If I look at our client base, what does our client base looks like? We've seen 11.2 million active app clients. Our client based on app is growing with about 180,000 to 190,000 clients per month, fully banked, that's where you've got your salary in, you've got debit orders, you are using the app 7.8 million, up 13%. Our savings clients, 8.5 million. The figure that always people don't understand because I think we're borrowing money to everyone, only 1.4 million of our clients are credit lines. If I look at our funeral plan clients, 2.7 million clients. And then VAS, 9.5 million clients has actually taken up VAS on the VAS products. I believe there's still a massive potential to grow that client base to a much bigger figure. On Capitec Pay, 4.6 million clients within a year using Capitec Pay, whereby if you do online purchase, you'll either use Capitec Pay, then screen scraping. And then PayShap, we're sitting over 60% of the market share on PayShap within a 6 to 8 months period. If I look at our service model, what is our service model. Everyone is asking me every time, why is the branch so important? Because we believe that personal service is important. You can see our one-on-one interactions with clients was 38 million. Interestingly, in 2014, we did 90 million transactions in the branches, but we have no SSD and we had no app. And what is done now with the SSD, the self-service device, in the branch, we've taken all the volumes away. So what our consultants are really doing now well is whenever we bring out a product, they are selling to a client. All the transactions has moved either to the SSD or to the app, enabling us that when we bring on a new product, we will see a massive take-up on that product range. So the branch for us is a very important aspect. Digital is there to protect the volume control, but that real selling of a product happens with our consultants. If we look at our cash availability, 8,300 ATMs. Volumes just up 5%. I would to have those volumes at 0, but that's probably a long shot. But you can see our is actually stagnant given our client base. If you look at the cash per client, that has come down quite a lot. And the one that's for us very interesting is our chat based support, 65% in February of all the chats with WeChat bot, enabling our people again to give that personal service to the client where there's more complex queries or questions that's coming through. On digital banking, I don't think we realized that 40 million messages per month. That's about 1.2, 1.3 messages per day that's going out to our clients, making certain the best offers going out to our clients, making certain we're engaging with our client in a proper manner. 1.6 billion financial transactions has been done in the last year on the app. It's quite interesting. We're sitting at any hour, we're sitting with about 500,000 people on the app doing transactions or doing something on the app. Interesting, if you look at electronic payments, the card payments, it's still ZAR 2.4 billion, up 32%. If you compare the app at ZAR 1.7 billion, it gives you a comparison of what, how important the card is still and then ZAR 1.6 billion that's been spent on wallets. That's now Apple Pay, Samsung Pay, et cetera, that's coming through. Interesting, Apple Pay is about 80% to 90% of those volumes is coming from Apple Pay. I think that's probably the most important aspect. If you look at what is happening here, it's giving us only 2 trillion data points. I don't even know how big is trillion, but it gives you an indication of how do we understand our clients because all of this is happening, and we can understand what is our client doing and we can advise our clients on what's taking place. And that's helping in our value-added services, that's happening our next best actions, that's happening in our credit side. So 2 trillion data points that we are working through and making certain that we optimize. And as I said, all of this is basically in the cloud currently. The biggest app in South Africa, 28% of South Africans over the age of 18 is actually on the app. So we've got a dominant market share on the app. Why is it so important for us? Or why people love it? Is you can open an account within minutes. Call us, showing in the video. We can open a business account in 4, 5 minutes, on average, about 25 to 30 minutes. There's over 70 features of products in that particular area. In app, the next best action where we actually prompt the client and say, what is your next base action that you need to take? And then if I look at fraud prevention and education, a very important part of it. As you all know, we brought in self into the app. So if you do a transaction to a new beneficiary or a bigger amount, you need to take a selfie. And we're actually saying to clients actually, if you talk to via Amazon Connect, we can make certain that you -- that we know, you're talking to one of our agents and we're telling yourself that you're talking to a Capitec agent, making certain that the client actually trust the brand and trust the transactions. Our clients use it, 180,000 new app clients per month. 11 million logins per day. It's quite scary, 11 million logins per day. And then on a peak day, close to 6,000 transactions per second, that's taking place. And on the app, 1.2 trillion has been processed through that. If I look at our new products that we've launched our new digital products, all the VAS products, Connect, I think the first one, if you can look at all the products, prepaid electricity and prepaid Anton. It's grown from ZAR 1.1 billion to ZAR 1.2 billion. We're controlling now 26% of the prepaid electricity and 39% of the prepaid airtime and data in South Africa has actually bought through ourselves. Then if we look at a lot of vouchers bill payments and license renewals has gone up to -- the growth is about ZAR 800 million. We launched license renewals in Feb and within 1.5 months, we've got 48,000 clients. That's actually renewal licenses via Capitec on one of those clients, and I was extremely happy with the service. Send cash, we've brought our PEP acumens. So there's quite a lot of new retailers that is involved in the whole same cash action, Capitec Pay close to ZAR 200 million. And I think that's an exciting space where we've actually taken green scraping away and the complexity of doing transactions online and making it a 2-step process quick and secured through it. And then Capitec Connect brought in ZAR 35 million. I'm very excited about Capitec Connect. We're bringing out quite a lot of new products that's going to come out in the next couple of months. And like I said, for us, it's an important part of the year is actually understanding the client better and using the data to optimize the client experience. Credit. I think the difficult one, given the economy, we all know what's happened with the economy. I'm not going to go through it, but I'm quickly going to touch on the economy. How did we respond? What is the results and how we've diversified in the last couple of months? If I look at the economy, the one that we all hate, the repo, interesting, if you look at the repo, it's only 2% higher than February '20 before COVID. At COVID, the Reserve Bank dropped to 4%, but it's at 8.3% versus 6.3%. Overall, we thought our interest rates is going to drop here from May, June, July point of view, but I think it's more going to be now September, October. I think the critical one to look at is what is going to happen on inflation. And I see that dark blue, I think that's the one that had the massive or the biggest impact on inflation is our food inflation, especially on people that's earning less. Food inflation as high as 14% and it's dropped to 6.1%. And the March figures came out -- or February figures came out and that was actually at 5.1%. So I'm very optimistic. We've seen now for the last month, basically no load shedding. Load shedding had a massive impact on inflation. I think the question is we need to ask what is going to happen in the Middle East and what's going to happen with oil and what's going to happen with rand dollar because those things impact inflation in January. I think the one that we track quite a lot in the credit space is insufficient funds. So that's where our clients are transacting. They've got debit orders, they go to ATM, they swap their cards, what is happening where we get the message insufficient funds. And you can see that is coming down. It peaked in February '23 at 10.7%, and it's coming down to 9.8%. So there is about a 2% swing that's taking place. We're still not at the February '20 levels at 7.3%, but there's big improvements coming through. And I think what load-shedding is going to do with food inflation, these type of things is going to cause us, that figure is going to come down to about 7%. What are we seeing in retrenchments? I think it's important to look at the August '19 figure and compare it to the February '23 figure. You've seen basically all the industries are lower than 2019 or February '20. You see the big peak there with COVID. But basically, very low retrenchments coming through. I think we've all seen what has done in the tourism and hospitality industry where overseas people coming into South Africa, big spending taking place. I think the difficult one is in the mining sector, where the platinum, gold, coal is under tremendous pressure. And we've seen in the last couple of months, a big spike in retrenchments coming through in those companies, and I expect that to actually increase even further in the next 2, 3 months. We all know what has happened with [ Somania ]. What have we done from a Capitec point of view, this is [indiscernible] stats that they produce. All we've done, we've taken out the Capitec stats so we can compare what our competitors have done. And basically, on average, they've cut back about 9% given what is happening in the economy. Whatever we've done, we've gone much stronger. We've cut back 32%. So we were very conservative in this period with 141 behavioral risk changes, close to 2,000 employees specific changes that we've done on the employer. And you can see the big cut that we've done is actually on, we basically cut it with 81%. What we are currently looking at is to say where are we maybe were too aggressive. And given the performance that we're seeing, should we open up in setting pockets, but there will only be uncertain pockets that we believe we will open up to make certain that we're in line with what we're seeing in the economy. If I look at our response, I think this is an important slide as -- and I don't think a lot of our people understand it. But we realize that if you people are -- if your client base is under financial strain, education is critical. So we've focused on 730,000 people that was under financial strain. We've used Live Better Academy and MoneyUp to actually make certain that these persons, these people understand their financial lives better, they budget better, they start saving and quite interesting, 82% of the people we surveyed had a very positive response. So a massive investment in financial education. The one that still concerns us is debt review. If you look at the total market, we are the one in the red, you can see we've grown from into ZAR 5.5 billion to ZAR 6.3 billion. The market is up from ZAR 51 billion to ZAR 77 billion. So if you include us, it's about ZAR 56 billion to about ZAR 83 billion. We believe there's a lot of people that unnecessarily go into debt review that we as a bank and other financial institutions should help first. And that's what we focused on. You can see we added tremendous focus on debt review education on social media and all other media platforms. We had pre-delinquency campaigns that we run. We made restructuring through our app possible. And we brought our rewards programming to see our market share has dropped from about 9% to 7.6%. Our credit market share is around about 28%, so it just gives you a feeling on it. But this for me is still a big concern in the industry. There is a place for debt review, but only if you are extreme debt stress, first come to your bank and make certain that we could see if we can't assist. If I look at our results, you can see the book basically February '23 at ZAR 82 billion and at February '24, ZAR 83 billion. So no growth in the book, which you'll expect, given what has happened in the economy. You've also seen Stage 3 increasing from ZAR 18 billion to ZAR 22 billion, and that's predominantly due to the old tranches that we've given, given a completely different outlook in the economy. So that's why we've seen a big turn to stage 3 coming through. And if I look at our expected credit loss coverage ratio is at a high of 25.5%. You can see when we had COVID, it was 26.9%. So we're well provided. But a big driver of that is the stage 3 areas where we basically fully provide for that particular client. We expect this to -- by the end of this year to come back to normal levels of about 23%, 24% as you'll see a stronger growth in your stage 1 coming through. And then on our credit loss ratio, we were in February '23 at 8.5%, half year at 11%. Signs were coming through that we are improving, and we ended the year at 9.2%, which I think is excellent performance. I think through the cycle, our history is about 8.5%, and we're optimistic that we'll get to that 8.5% rate. What have we also done in the credit space? We do diversified our approach, our products in that particular space. You can see client owning more than 50,000. How that has growth? It's grown 56% over 2 years, very strong growth in that particular area and a very strong focus on the credit card, which has grown also 57% over a 2-year period. And then our channels that we actually sell through Capitec Direct, I think, the market doesn't know. This is in direct competition of direct access. We've sold over 4 billion in last year in Capitec Direct business, strong growth of 59%. And important channel for us where people can actually just phone Capitec Direct and actually do the whole loan application through Capitec Direct. And then the app, we've launched the app about October '23. up 173%. That's a big focus for us where the person can actually go on to his app. If he banks with us, we can automatically score the client and we can provide credit to the client, and that's up 173%. And then the 2 areas that for me is very important, is purpose. If I look at our purpose, that's our education loans. It's our vehicle loans, it's our relationship with Cashbuild, CTM, where people are using credit in the right manner, in a purpose manner. We struggled to get that off, but I think we've gained that momentum. You can see a very strong growth coming through in 2024. This is a big focus area for ourselves and then multiple income that's where a person has got a salary, but he has got slight hassles. He's got other income coming through, and we've just done over ZAR 1 billion for ourselves. So that's another big focus area for us to say, how do we actually make certain that people who have other income is recognized and we can provide credit to those particular client. If I move on to insurance, I think credit life has been flat in line with your book. I don't expect anything on that particular product. It's 100% in line with that. What is important is close to 600,000 policies have been sold on our new system. So we're testing a system. We're busy migrating from Guardrisk. We should be by July, August, be fully migrated. And then should all the policies be on our own system and then we'll work from there. Funeral, the number of policies we sold grew up 23% to 2.7 million. But interestingly, we're covering 12 million lives in South Africa. So if you say South Africa has got 60 million people, take out the people below, let's say, 18, that's about 35%, 36%. So that gives you a feeling of the people, we are insured with funeral. And we've got a 35% market share of new. And then on Life, Capitec Life, we -- our in-staff pilots, it's going extremely well. About 15% of our staff has taken up the product. And we're very excited our first product on our own license that we're launching on the 9th of June. I think if I look at insurance, it's for us, all about our new systems that we're building. It is bringing our Sanlam business across making certain we're ready for new products that we can actually attack the market from next year on. Business banking. I think the big moment is arrived. First of March was the big date where we rebranded from Mercantile to Capitec. You can see the business cards there. We've got a full -- you can open up your account within a couple of minutes. On average, is about 25 to 30 minutes. A lot of people have done it in 4 minutes. If you've got a very simplistic self-prop or company with 1 director, it's a very slick, easy process. We've got a complete new app with online banking. And it's interesting if you go in a Capitec retail app, you swipe left, it's Capitec retail, you swipe right and you got business banking. So it's one access to think. And then as a relationship banker available 24 hours to service your particular need with a full client history available to that relationship manager to understand what the person has done. I think everyone always focuses on business banking and say, yes, we've got a business bank. But what they don't realize is it actually consists of our merchant e-commerce business, and I will elaborate on that now. We've got about 40,000 point-of-sale machines that's out in the market. And that for us, is a big market opportunity. We've got rental finance, we've got payment services, payment services where we collect on behalf of other people. If you take ADT, for example, has got debit orders. How do you collect for ADT on those debit orders? And then ForEx and video, we've said, we've just launched national payments for people to use your ZAR 1 million allowances. And that's going to be a massive take up for us in that particular area. So if you look at business banking, you have to look at those divisions in totality to understand the growth that's going to come through. I think the point I'm trying to make everyone asks me, are we happy with the buy versus build decision. I've just looked at a couple of businesses that decided to both, and I can promise you, all of them is not making a profit after 3, 4, 5 years. We've decided to buy Mercantile. We paid ZAR 3.6 billion for Mercantile. In the first year, that's now before we've taken them over their profit was ZAR 249 million. You can deduct about ZAR 50 million of that because the first step we've done is pricing was at ZAR 10 a transaction, we dropped that to ZAR 5. So it's actually about ZAR 200 million. And then you can see we've continued to grow with about 20% to 25% the business banking space, while rebuilding the complete new platform. So we're extremely happy with our acquisition, how that's gone and I'm exciting in what is lying ahead in the business banking space, especially in the emerging market. Gross loans and advances has grown with 23% to ZAR 19 billion. So a strong focus for us going forward as well is to look at the secured market while we're building the unsecured offer in the marketplace. So that's going to be a big focus on ourselves. We've only got below a 1% market share in this and how do we get to a 5% and a 10% market space over a period. And then if you look at our transactional side, only up 8%, but there's massive changes that we've done, you see volumes up 16%, but merchant services, we've moved completely away from our rental model to a buy model. What has happened in the past that the person would actually rent the machine from us, that will cost them plus minus about ZAR 400 a month. Now we're selling the machine to them for ZAR 1,000. And it's a once-off purchase. So you don't pay the ZAR 400. It's got a big impact on our income, but we believe it's the right thing to do. There we're going into digital commerce. That's our new point-of-sale machines that were coming out. The print we're selling for about ZAR 2,300 and the Pro for ZAR 1,200. We see it has a lot of space to actually go into this particular area. The first step we've done in the last week, 2 weeks as that now you can order these machines online. So you can sit at home, you order it and you get the delivery, you pay for it and you can set it up and you can start transacting. You need to have a Capitec business account. You settle imminently. And what we've done is we're going to -- we've got tiered pricing currently on -- depending on your turnover. We just want to make certain we can handle the volumes, and then we're going to be very aggressive on the commissioning space and then provide loans on this. This is all part of our strategy to move people away from cash to card payments so that we can understand your history and what you are doing. If you look at business banking, the call that we've made is to make business banking fees exactly the same as retail apart from your monthly fee, retailer ZAR 750 yes, it's ZAR 50 because you've got much more complicated transactions taking place. But our philosophy has always been transparent simplicity and why must a transaction for a retail client differs for business banking client, it's 100% in line what we've always done. Transaction costs this x, we're going to ask 100 in forward transaction. So the retail space and the business banking space, the transactional fees, the banking fee is exactly the same. I think that's the first in banking, it's ever taken place. So I'm very exciting about business banking. If I look at business banking, we've launched, we're still busy just making sure that we can handle the capacity and there's a couple of small areas that we're still fixing and from about July, August, then it's a matter of let's go and grow the business and let's go and create for our client base out there. I think if I look at OpEx, everyone is asking us, what we're expecting -- or if I look at all the other banks at a 6%, 7% growth, we had a 17% growth. Our average for the last couple of years has been 14%. So a little bit higher, but if you invest in business banking, if you invest in insurance, if you invest in cloud technology, if you invest in IT platforms, you are going to spend more. So 100% in line what we would like to do. And I think we will continue investing. If I look at the new businesses that we've launched, I can't see this trend to drop. We will be in the 15% range because we believe in what we're doing, and we believe investing in the future is important for the bank. Social impact. What are we doing the social impact? We must look at our clients and our environment as well. I think a big focus for us, what is important for us, if I look at SEG is to make certain nobody do what makes business sense and what is best for our clients. Our carbon footprint has dropped about 3%. I think the one we can be proud of about is, as you know, we're completely paperless in our branches and basically about head office as well. So if you sign a contract, you do it with biometrics. So a massive impact on the environment. If I look at social, our investment in education, the one that we're proud of is on the school side. We've basically affected about 24,000 people. That is in growth 7, 8, 9. We're actually spending quite a lot of time on headmasters and our science and math teachers to make certain that they are equipped to really take the schools to a next level because by just sponsoring and giving money to students, but the school is not properly run, doesn't make sense. And we've had tremendous successes in that space. And the one that we started last year is community projects. A lot of you have been involved in these community projects, 152 community projects, 2,500 people involved, giving back to our communities. The challenge here is how do you triple this figure for this coming year. We've set aside more money because our believe, it's important for our branch managers, our regional managers and yourself to be involved in the community and give back into the community. And then on the clients on Live Better, we've paid back ZAR 540 million to our clients. And interesting, if I look at the 3.5% that we pay on your savings account, we -- other banks are basically paying 0, we've paid back to our clients about ZAR 2.2 billion, which I actually received in that particular area. If I look at people, probably the most important, not probably, definitely the most important. Sorry for that. If I look at -- we've done a lot on delivering new products, futures, satisfying our client base. You can't do it without your people. And I think we all know our culture, our culture of looking at the client first, then our people and then delivery, the whole concept of CEO, whereby we say each and every one of you are CEO client first and then energy, then ownership. So I'm very excited. And all the programs and everything and we are busy with on the leadership front, you can see leadership academy, there's various academies for middle managers, senior managers, executive managers. We've just gotten 15 very senior managers that is part of our executive program by leaving to India and Singapore for 2 weeks now, beginning of May to wrap shoulders with the best-in-class in India. India, especially took a look at payments and what is happening in the payment space. And in Singapore to look at what fintech companies is doing in that particular space. Talent development, you can see 58% of all people are promoted from within. The target is for this year, 65%. We've brought in and we're bringing our branches and our branch staff giving the preference into our organization. And it's quite interesting to see the uptake. All our relationship managers now is coming from the branches. We bring -- if we're looking for talent, we're looking internally for it. And I think then the last one is just if I look at business ownership, what makes us different. So I'm going to ask me that question the other day, and I think is that accountability, ownership of the different people taking full accountability of their business, but it's not a silo effect because what we do is you take full accountability for it, but how does it fit into the total group and where Capitec is going and your objective is then measured against that particular area? So no signage all working to the same objective, but full accountability. And I think that is what you've seen in the delivery side. The future. I think the first thing, I know what asset managers is going to do and shareholders, they're going to think we're going to grow with 25% going forward. I've told you we're on a 26% ROE. We need to give back, and that's a Capitec philosophy. These decisions have already been made. The first one is cash withdrawal fees has been dropped. So if you're on SASWITCH or on Capitec ATM, you pay ZAR 10 per thousand. We're moving our payment streams away from RTC and then EFT to PayShap. The PayShap cost us much lower than RTC and EFT. And then we will lower the prices for our client base. So your whole drives to make electronic transactions cheaper, make it lower, more affordable and we can score you and we can add value. We've dropped the retail of -- the business banking fees to retail banking. So that was a big step. We've reduced the merchant commission and changed the whole business model, and we will further reduce that business, the merchant commission to 1 single right, irrespective of your turnover very soon in this coming year. And then we're investing quite a lot in our insurance business to track over all Sanlam data and Sanlam policies. What is quite interesting first of November, it's not a normal like a normal business where you take and you grow with the business, we're taking the full 2.7 million and of course, let's say, it's 3 million policies we're taking at 1st of November. So we need to scale from that first moment, we need to scale. So that we're investing in to make certain we can handle that particular area. As you know, we've actually got a double cross because you're paying 30% to Sanlam plus you're investing to make certain that we can handle it. Over time, the 30% of Sanlam will fall away. Then the one that we've just announced about, I think, it's 3, 4 weeks ago, Avafin, the Polish government has given us approval last week. We've paid the check on Friday. So, Avafin, control now 100%. On the slide, it says 97%. Management has got that difference. We're very excited about Avafin. It's interesting. We've been part of Avafin and that was the old cream finance. We've been part of them for the last 7, 8 years. We believe it's a massive opportunity. They operate in 5 countries. That gives us the opportunity to diversify. And I think the easiest way to sum it up, when Capitec started, we were 1 month lending business. This is a 1-month online lending business. And with the support of Capitec, how do you actually build it to a fully fledged bank over time. So we're very excited about Avafin. If I look, and I've shown this slide before, but this is basically what we're doing. We create the ecosystem. Our strategy starts with the client and our culture to make certain we deliver on it. We've got 222 million clients. We've got 866 branches. How do you optimize that client base? Do you want to optimize it, there's 2 critical areas. One is to make certain you've got the right tech. And I think we've done it in the last 3, 4 years. How do you make certain, you've got data. I've mentioned the 2 trillion data points that we've got. And how do you increase that make certain that we better understand the client base? How is our personal and digital service that we're bringing in and then how do you create an ecosystem, an ecosystem on our 4 businesses and make certain that we actually can create value for our client base because we're sitting with those 22 million clients, how do we actually move them to business banking? How do we make -- move them to Insure, how do we move them into retail. And I think at the end, as you can see the big circle, it goes all about our culture. Our culture of building and looking after our client end-to-end, make certain that we look at our people, our whole CEO principle and our delivery. So if I look at the future, we've built a big operation in the retail space. I'm very excited about the strategic initiatives what we can still do in that particular space, creating value for our client base. What is going to happen on business banking, especially in the emerging market space, the insurance side. How do you create and put this all together? And then long term, very long term, how do you take Capitec International? Thank you very much for the presentation. Thanks. Grant and myself will now answer questions from investors. I assume there's nothing, Anton.

I've deleted most of the difficult ones Gerrie, but there are a few that are left. The first one is from Peter Cromberg. Gerrie, it's for you following Capitec's successful bond auction in October, is it appetite for raising a larger quantum of capital through the DCM market? And when does Capitec next plan to issue local bonds?

Thanks for the question, Anton. So we have no plan for debt issuance in the next financial year, so in 2025, with flat expected to become applicable in the 2026 financial year, our next issuance will probably be a flat issuance. Thank you.

The next question from Johan Lau. We stated that cash reduced from 24% to 17% of total spend. Does that mean the actual cash spend in rands reduced or that accrued slower than card spend?

Well, it's interesting. If you look at total cash spend, it's basically up 5%, but you've added 2 million more clients. So if you look at the cash spend per client is actually coming down. I think what for me is important is 17% of our transactions is now cash. If we go person withdraw ZAR 1,000, I don't know what the person does with ZAR 1,000. But if he swipes up his card or uses his app and he does 5 transactions, we understand it. So cash spend is basically total is flat, 5%, but if you divide it by a number of clients, it's definitely down.

The next question relates to the strategic decisions that we are making that will impact profitability in the short term and what the expected impact should be?

I think if we look at what Gerrie alluded to, we managed to a 25% ROE. So if you look beyond the guidance we've given, we consistently look to manage that to the 25% ROE.

Then we have a question from [indiscernible] how is Capitec positioning itself in the township economy considering the emerging technologies that are coming out?

Well, I think the whole emerging market, I alluded to it a couple of times when I spoke about business banking price is important. How do we make certain -- if I look at -- when we started 60% of people weren't banked, and if I look at the emerging market now, probably about 70% of people is not banked. So how do we make certain that we get the emerging market that they are banking that they're swiping and they're using the app. And then we provide business accounts for them and provide credit for them to grow the business. Because if I look at South Africa, we're not going to get unemployment down and get the economy growing via the government and private sector. That's the entrepreneurs that we need to support. So that's where the whole focus is for business banking is to go look at the small businesses. So it's a big focus for us.

Then we have 3 questions from Ross Krige. The first one around the planned life cover product. How will this be different to what is currently available in the SA market? And are there any other products in the line?

Wait till the 9th of June.

Just checking that the retail credit ratio, we expect that to come down to 8.5% in the next year.

Correct.

And is there going to be an acceleration in the retail loan book going forward or you remain cautious on the top?

We'll remain cautious. If you look at the economy, we all know it's -- I'm going to say nice. We -- I remember in August, I said Ukraine and Russia are sorted out, and it looks like it's stabilized. And I think [indiscernible] happened in the world. And then Israel happened, and now 2, 3 weeks ago, Israel, Iran took place. So -- and that has all got to impact on South Africa. So we are -- our focus is being on the credit side is going to be on business banking on the secured side. But we will be very cautious on the retail space.

Thanks, Gerrie. And then a question from Charles Russell. How do we feel comfortable with our Stage 3 coverage of 54% in retail, when this was much higher in the 70s, in 2019 and 2020?

Thank you for the question. So I think, firstly, important, when we look at that Stage 3 book, we split the clients between paying and nonpaying. So if you look at the coverage we've held on nonpaying clients, that hasn't changed since 2019. It's been exactly the same. What we've then done and looked, if you look at the actual paying clients, when we used to allocate our overlays, we used to allocate them based on provision balance in the past. We've now adjusted for that. So that means that they are now allocated on loan balance. Furthermore, as we've had more data, we've been able to extend our recovery curves and then we've obviously seen that benefit come through, and that's based on actuals that we've actually seen come through and we've now brought into our models. We've also been able to negotiate better commission rates with our EDCs, our external debt collectors, which obviously enhance our recoveries and then finally, just more granular modeling of that default book. So splitting it on categories like debt review, terminated debt review, hold back and hand it over, and we actually understand the performance within those segments on paying clients a lot better and that's really what's driven that movement.

Thanks, Grant. Then we've got 2 questions from James Starke. The first one around net transactional commission income, which grew impressively at 29% year-on-year. Can you give us a sense of what sort of growth we expect over the medium term?

You're probably going to look at high 10s because remember, you mistaken consideration the strategic decisions we've taken, which is going to affect your pricing. If you look at the cash withdrawal pricing, if you look at the RTC to PaySHap pricing does, those are always going to have an impact.

And then the second question from James is what is the financial impact from migrating the credit life and funeral books to our own life license using the FY '24 numbers?

So if you look on the credit life, it's the fee that we effectively pay Guardrisk probably around sort of ZAR 4 million, ZAR 5 million a month, which we'll now save. From the funeral side, we currently incur the cost of paying Sanlam to perform services, and we have our own team and system here. So we effectively have a double cost. So moving it onto our own license will remove, let's say, half of that cost effectively.

You're going to -- you're covering 30% Sanlam and then our OpEx and then from next year, the 30% falls away.

Then we've got a question from Harry Botha regarding the strong growth in VAS income. You've answered that already with the James Starke question. Maybe let's go to the question around excess capital. We'll still have meaningful excess capital after the Avafin and Sanlam transactions. Anything specific to note on excess capital deployment other than organic usage?

We will be conservative, as always.

I think just to highlight on that with Basel IV becoming applicable, not the financial year, the 2026 financial year, that will also have an impact on capital required for operational risk and that will obviously reduce our capital by a few percentage points.

Question is how much can [ coal ] grow his business.

And that's all the questions that we have for now. Thank you.

Okay. Thank you very much.