group chairman’s message

Capricorn Group performed well in difficult circumstances characterised by the new reality of low or no economic growth, extreme drought, relentless pressure on consumers, ever-expanding regulatory requirements and fierce competition. We elaborate more on our business landscape and the economies in the region from Strategic landscape and material matters.

I am grateful that we can report positive results notwithstanding the challenging economic and business environment. Group operating profit grew by 26.0% year on year, and group profit after tax reached a new milestone to exceed the N$1 billion mark. Shareholders are rewarded with a 14.9% growth in headline earnings per share and a final dividend of 36 cents per share, 20% more than the 2018 final dividend. I want to thank and congratulate our Capricorn citizens on a commendable performance and express my heartfelt appreciation for their resilience, dedication and hard work to deliver these results.

We remain committed to our vision and continue to grow our network of people and channels that enable opportunities to be created, financed, transacted and secured wherever we operate.

As a group with deep roots in Namibia, our prospects are strongly intertwined with those of our economy, people and environment. Despite deeply concerning realities, we believe we have what it will take to see us through the challenges ahead. We also believe that the cycle will start turning in the medium term and until then our country and group will rely and build on our collective resilience.

We are in the fortunate position to have a strong capital position. This is supplemented by the backing of our two shareholders of reference, Capricorn Investment Holdings and the Government Institutions Pension Fund (GIPF). The group has built up a considerable liquid asset buffer and have put in place appropriate contingency funding facilities as important measures to mitigate liquidity risk and secure access to funding.

Reflecting on the 2019 financial year, a few aspects stand out:

  • We continued to improve our customer value proposition. Given a contracting trading environment, the only way to grow our share of the market is by making it easier for our clients to do business with us. We are improving our ability to predict customer needs, to anticipate their behaviour and to use our strong personal relationships to enhance their experiences. The performance of Bank Windhoek, Capricorn Asset Management and Bank Gaborone is a positive indicator of the success of our customer strategy.
  • Managing the upward trajectory in non-performing loans remained a priority. Increasing non-performing loans has become an industry phenomenon in recent times. Believing that “prevention is better than cure”, we continued to refine our tools and interventions to proactively manage credit risk and to support our customers to continue meeting their financial obligations. The learnings from the IFRS 9 implementation also provided us with more sophisticated modelling tools and improved abilities to predict and early identify accounts with increased credit risk. Where accounts do become non-performing, we focus on rehabilitation of these accounts and ultimately on effective and efficient recovery processes.
  • We have made significant changes to our business model in Zambia, away from an elaborate network of small and unsustainable rural branches to serving more established small and medium-sized enterprises (SMEs). Without minimum scale for Cavmont Bank in any segment, we had to make difficult decisions to ensure a turnaround towards profitability. These interventions take time and require extensive interaction with regulators but are starting to deliver improvements.
  • Our investment in Entrepo exceeded expectation. The Entrepo group of companies became part of our group at the beginning of this financial year. This growing, well managed business with highly efficient and centralised processes has been very successful, as it meets a growing need for unsecured personal loans and associated long-term insurance. We are working with the Entrepo team to find innovative solutions that will address wider community needs, such as financial literacy and financial wellness.
  • Our employees are becoming more engaged and more appreciative about the ways we invest in them. The Capricorn Way has been effective in bringing people together from all parts of our business to create a shared vision and commitment to our future as Connectors of Positive Change. The focus on middle-management development was one of our key investments in operational excellence and succession planning over the longer term.
  • We adopted the King IV™ corporate governance framework* and transitioned from the Namcode during the year. We welcome the King IV focus on the outcomes of corporate governance as opposed to a compliance-driven inputs approach. Our group’s boards of directors embrace the core King IV™ principle of ethical and effective leadership at the top. In the discussions of the Capricorn Group’s material matters, ethics emerged as our group’s most important material matter. We have done extensive work on ethical risk management and reviewed and improved our ethics framework and policies. We realise that ethical behaviour is not a given and that we need to intervene and support our people to act with common good rather than self-interest in mind.
  • We revisited our approach to corporate social responsibility (CSR), and following thorough research and much deliberation, we decided to establish the Capricorn Foundation to coordinate and provide direction for the group’s CSR initiatives. We want to have fewer but more impactful projects that will help us to truly live up to our brand promise and vision. This will also ensure that we align our efforts more closely to our business model and competencies, away from ad hoc donations and charitable giving.
  • A number of initiatives were taken to further build our brand and to align the brand identities of all group entities to the Capricorn Group brand identity. We conducted extensive brand research in all our territories, testing the market about potential rebranding of our retail banks and assessing current perceptions and associations with the mother brand and subsidiary brands. We launched the “I am … Capricorn” brand campaign and refreshed our visual language. Our brand is building on existing local pride and the sense of being part of a group that is well established, successful and growing.
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As I alluded to before, I do not expect meaningful improvement in economic and market conditions in the region where we operate in the next financial year. We do hope and pray for good rainfall to break the severe drought and we trust that the ongoing structural reforms, initiatives to promote foreign direct investment, and collaboration between public and private sector will see the revival of regional economies. The Economic Growth Summit for Namibia held at the end of July 2019 brought together like-minded Namibians who had profound conversations to solve a national problem. The constructive discussions and debates underlined the fact that now, more than ever, all Namibians should work together towards a shared goal and vision to create a better future for us all. While these external factors play out, our group will continue to focus on and apply our energy, abilities and effort to those factors within our control, to identify and pursue opportunities and to support initiatives aimed at addressing national concerns.

We have an experienced, diverse and committed board that is confident about the future of the group. I sincerely thank them for their leadership, wise counsel, time and dedication and for always being available to support when needed. I encourage them to continue asking difficult questions, probing our assumptions and prompting a stakeholder-inclusive agenda.

I thank our customers, who remain the main reason for our being, for their continued support, our shareholders for their trust and all our other stakeholders for their continued vested interest in our shared success.

Johan Swanepoel
Group chairman