Capricorn Investment Group Limited (Capricorn Group) released its consolidated group financial results for the year ending 30 June 2018 today.
Commenting on the operating environment during the year under review, Thinus Prinsloo, Group Managing Director said, “With the Namibian economy still in a technical recession, the second since 2009, the Capricorn Group (the group) delivered resilient results with total comprehensive income increasing by 5.9% year on year. Bank Windhoek Limited continued to be a solid performer for the group, while other operations in Namibia and Botswana delivered good growth. The results from the Zambian operations were, however, disappointing. The group has taken the necessary steps and implemented appropriate actions to enhance the performance of Cavmont Bank and improve the contribution by the Zambian operations to the group’s results in future. Capricorn Group is operating in a regional financial services environment that is experiencing longer-term structural change. Current macroeconomic challenges will take time to address, which means that low or no growth will become the new reality.”
The group’s normalised total comprehensive income decreased by 5.5% when compared to the year ended 30 June 2017. The decrease is to some extent reflective of the challenging economic conditions but was largely caused by the disappointing results of the Zambian operations. Any reference to “normalised” in this media release means that, for the sake of meaningful comparison, the effect of the following significant once-off transactions and acquisitions have been adjusted against actual account balances, to arrive at normalised balances:
- Prior year financial results have been adjusted to include the results, assets and liabilities of the Botswana and Zambia subsidiaries as if they were acquired at the beginning of the prior reporting period.
- Capital profit on the partial sale of the Visa Inc. shareholding in line with the group strategy to realise non-core investments, has been excluded from the current financial year’s results.
- Results have been adjusted to exclude any gain realised in the acquisition of a controlling interest in Entrepo Holdings (Pty) Ltd (Entrepo) in the current financial year, and to exclude the assets and liabilities of Entrepo at 30 June 2018
“The group’s net interest income increased by 10.3% to N$1,818.9 million (June 2017: N$1,649.5 million) largely due to the acquisition of Capricorn Investment Holdings Botswana (CIHB) and Cavmont Capital Holdings Zambia (CCHZ) that is now included for a full year. On a normalised basis the subdued growth in net interest of 1.1% is mainly due to increased pressures on interest margins in all three territories. Namibia experienced a 0.25% interest rate cut in August 2017, while Botswana had a 0.5% reduction in the repo rate to 5.0% in October 2017. Zambia saw the repo rate cut by an aggregate of 2.75% over the period from July 2017 to March 2018 to 9.75%. The margin squeeze was exacerbated in Botswana due to market liquidity challenges resulting in an increase in cost of funding”, said Jaco Esterhuyse, Group CFO.
The group’s normalised operating expenses increased by 14.7% to N$1,795.1 million (June 2017: N$1,565.2 million). The above-inflation increase is mainly due to three new branches opened in Namibia, including the Capricorn Private Wealth suite, which resulted in an increase in headcount; capacity building within our digital channels, marketing and strategic customer capabilities; and the group’s technology costs increasing by 28.6% as a result of the continued investment in IT infrastructure. The cost to income ratio for the period under review is 60.6% compared to 53.9% for the comparative period.
Loans and advances increased by 8.4% to N$36.2 billion (June 2017: N$33.4 billion), of which 2.6% relates to the acquisition of Entrepo. The modest normalised growth of 5.8% is due to subdued demand in both Namibia and Botswana, as well as the focused restructuring of the Bank Windhoek balance sheet to improve the group’s loans to funding ratio. Non-performing loans as a percentage of gross advances increased from 2.2% to 3.3% mainly as a result of a substantial increase in the value of non-performing loans at Bank Windhoek. This increase was mainly due to four large, but well secured, loans classified as non-performing during the period under review. Due to the substantial value and quality of the collateral held as security against these large exposures, potential losses are limited. For this reason, the bad and doubtful debt provisions did not increase in line with the increase in non-performing loans.
Income from associates increased by 6.6% to N$83.2 million (June 2017: N$78.1 million) and contributed 8.9% (June 2017: 8.5%) to profit after tax. The year on year increase is mainly due to good performance by Santam Namibia in the current year offset to some extent by a decrease in profit reported by Sanlam Namibia following a number of large life insurance claims settled during the year under review.
Non-interest income increased by 22.7% to N$1,225.2 million (June 2017: N$998.2 million). Included in the increase is the capital profit of N$77.3 million on the sale of a portion of the shareholding in Visa Inc. On a normalised basis, non-interest income increased by 4.0% compared to the prior year. The normalised increase is mainly due to strong growth in transactional income and electronic channels within Bank Windhoek as well as Capricorn Asset Management fees increasing by 15.1% (2017: 2.5%) largely as a result of an increase in assets under management of 18.2%.
“There was a deliberate strategic focus on improving the funding ratios of the group at all levels during the year under review. Growth in Bank Windhoek funding well exceeded growth in loans and advances, thereby improving the group’s loans to funding ratio to 95.2% (2017: 96.7%). Total funding increased by 8.4% to N$40.3 billion (June 2017: N$37.2 billion). Bank Windhoek’s funding increased by 8.5%, largely due to good growth in term and cheque deposits and senior debt. The group remains well capitalised with the total risk-based capital adequacy ratio of 15.3% (June 2017: 16.6%) remaining well above the minimum regulatory capital requirement of 10%”, said Jaco Esterhuyse.
“The group believes that the convergence between telecommunications and financial services poses a real risk for the financial services sector. This, combined with strong growth in demand for data services, prompted the group to invest in Nimbus Infrastructure Limited (Nimbus), a telecommunication and technology investment company at the time of its listing on the NSX. The group had a shareholding of 18.3% in Nimbus at 30 June 2018, which shareholding was increased to 30% shortly after the year end. Nimbus owns 51.4% of the issued shares of Paratus Telecommunications (Proprietary) Limited, a company that provides communication, connectivity, carrier, customer, cloud and cluster services to the public, private and corporate sectors in Namibia”, said Thinus Prinsloo.
The group has always been very dependent on Bank Windhoek which, during the year under review, contributed 86% of group profit after tax (2017: 83%). In pursuit of its strategic intent to diversity its profit streams, the group increased its investment in Bank Gaborone from 68.7% to 84.3% with effect on 1 January 2018. The group expect strong growth over the next few years from Bank Gaborone increasing its contribution to between 8% and 10% of the group profit after tax.
The group also acquired a controlling interest in Entrepo, who participates in micro-lending as well as life insurance and income protection business in Namibia. Entrepo has an attractive share of the government employee market and complements Bank Windhoek’s own micro-lending activities through subsidiary BW Finance, which focuses mainly on union members. The group expect Entrepo to contribute in the region of 15% of the group’s profit after tax in future.
Capricorn Capital started to operate in the first quarter of 2018 and offers investment banking, advisory services and solutions in Southern Africa. This includes corporate finance advice, including capital restructuring, mergers and acquisitions as well as capital fundraising.
20 June 2018 marked five years since the group listed on the NSX. The listing has since created significant value for our shareholders, employees, government and strategic partners, as is evident by the following:
- The share price increased from its initial public offer of N$8.75 on 20 June 2013 to N$17.23 on 30 June 2018, representing a growth of 96.9%
- Profit after tax achieved a compound annual growth rate of 13.6% over the five year period;
- N$1.5 billion was paid in dividends over the 5 year period.
- Net asset value per share increased from 617 cents on 30 June 2013 to 1,099 cents on 30 June 2018.
In conclusion, Thinus Prinsloo said “In this environment, our strategic choices guide us to find opportunity in a regional approach, new products and service offerings, while achieving operational excellence and increasing integration between the entities in the group. We made several acquisitions to diversify our revenue streams and reduce reliance on interest income. Our foundation is strong: a mature governance framework, embedded risk culture and a performance approach guided by The Capricorn Way. We remain committed to being a connector of positive change and creating opportunities for all our stakeholders to enjoy the benefits of the shared value we are able to generate. Notwithstanding the continued subdued economic and business outlook in the region, Capricorn Group remains in a healthy position to deliver solid results and to continue creating value. Our challenge as individuals and as a group is to keep abreast with and, where possible, predict the changes that will affect us and our stakeholders and to act decisively to take advantage of the disruptive change. We anticipate a heightened risk of a resurgence of fiscal challenges and will act with prudence and responsibility towards our customers and other stakeholders. Through our strategic choices, the group expects to improve efficiencies, realise cost savings, expand and diversify revenue streams, and manage risks responsively.”
The group’s Reviewed Consolidated Group Financial Results, incorporating the consolidated statement of comprehensive income and consolidated statement of financial position of Capricorn Group as at 30 June 2018 is published on the group’s website at www.capricorn.com.na