INTEGRATED 2019 ANNUAL REPORT 2019 INTEGRATED ANNUAL REPORT ANNUAL 2019 INTEGRATED I am … I am a mother/father. I am a child. I am a worker. I am a friend. I am big and small. I am powerful. I am determined to be better. I am focused. I am connected. I am free. I am a leader, but I follow my heart. I am part of a bigger story. I am inspired by the story and the people of my country. I am the strength of a nation. I am a Namibian. I am a Motswana. I am a Zambian. I am Capricorn. Chobe River Contents 1 The Capricorn Way and vision 2 2 Our group in 2019 5 Five-year financial overview 5 Group chairman’s message 6 2019 at a glance 8 3 Investment case 10 Our value creation summary 12 4 Group profile and structure 15 Who we are 15 Shareholding and ownership 21 5 Leadership reports 24 Group chief executive officer’s report 24 Financial director’s review 32 6 Strategic landscape and material matters 42 Our operating context informs the group’s strategic landscape 42 Our four strategic choices 48 Our eight material matters 52 7 Governance reports 69 Corporate governance 69 Risk report 86 Remuneration report 110 Board sustainability and ethics report 117 8 About this report 128 9 Appendices 129 Share analysis and detail for 2019 129 Financial value-added statement 130 10 Consolidated annual financial statements 133 This integrated annual report is for the financial year ended 30 June 2019 and was compiled with input from the executive leadership team, reviewed by the board audit, risk and compliance committee (BARC) and the board sustainability and ethics committee (BSEC), and approved by the board on 11 September 2019. It was prepared according to a set of regulatory and voluntary guidelines, set out on page 128. Please note the forward-looking statement on page 128 and consult the group structure diagram on page 15 for detail on entities covered. We welcome feedback and provide our contact details on page 128. 1 THE CAPRICORN WAY AND VISION OUR VISION AND PURPOSE Our group vision and purpose is to be the most trusted and inspiring Connector of Positive Change, through a highly relevant, convenient and responsive network of people and 1channels that enables opportunities to be created, financed, transacted and secured wherever we operate. We realise our vision by making strategic choices and We describe instances where we acted as by working according to The Capricorn Way. connectors on page 29. The Capricorn Way directs us towards positive change and is underpinned by three beliefs: OUR STAKEHOLDERS We We believe We believe believe that that Diversity that Being Purpose Inspires Ignites Quantum Connected Leadership Leaps Helps Us Grow Employees To reflect The Capricorn Way in our everyday lives, we agreed on nine behaviours in the workplace: Wisdom: choose when to speak and act Strategic alliance Shareholders partners Responsiveness: be concise when you speak and silent when you listen Our proposition to our Motivation: be an example of what is possible stakeholders is that we are catalysts of sustainable Resilience: navigate the ups and downs with perseverance opportunities. Curiosity: ask in order to learn, improve and discover Suppliers Customers Initiative: don’t wait to be told what to do Enjoyment: stop, be aware of the good things that are happening, big and small Impact: busy does not equal great results Government and Communities regulators Engagement: be fully present when you are with others We follow an inclusive process to identify, assess and track those matters that are material for us to create value Read more on page 52. 2 2019 Integrated Annual Report “Our brand, culture and strategy connect us so that we can create value through more connections – all for positive change.” We describe our strategic landscape and the progress OUR KEY COMPETENCIES made with strategy implementation on page 42. Understanding the Capricorn Group and 1 competitor environment OUR FOUR STRATEGIC CHOICES (2018–2020) 2 Deep understanding of client needs Focus on building our foundation in Namibia, Zambia and Botswana to get to a position of market leadership. 3 Relentless drive to improve performance Win in Namibia, Zambia and Botswana through operational excellence (lean, efficient, fast) and effective execution. In-depth business insight Compete in Namibia, Botswana and Zambia 4 through strategic relationships and partnerships in insurtech, fintech, mobile and telco, and education. In considering other African countries beyond 2020, 5 Unlock potential in self and others target technological/borderless/cyber opportunities above bricks and mortar entry. Evaluate opportunities, whether cyber or bricks and mortar, on 6 Excellence in execution a case-by-case basis. Ethical leadership, Credit risk management Financial Meeting customer management and and mitigating losses and cybercrime/ needs and business due to bad debt cybersecurity expectations Demand for specialist Responding to a Fintech, insurtech Enhancing skills driving focused changing regulatory and evolving and optimising development, training and operating context digital assets management and and diversity operational systems THE CAPRICORN WAY AND VISION 3 I AM 2 NAMIBIAN Namibia, the land of beauty and contrast – the place where the desert meets the sea. Namibians understand the value of freedom and unity, always striving for a better future together. With pride that is innate, we are dedicated to creating opportunities for all our people, helping to build a sustainable future for everyone. I am Capricorn 4 2019 Integrated Annual Report OUR GROUP IN 2019 FIVE-YEAR FINANCIAL OVERVIEW Five-year Statement of comprehensive income (N$’000) 2015 2016 2017 2018 2019 CAGR* Total income 2,079,559 2,411,946 2,647,682 3,044,065 3,492,357 15.0% Operating profit 979,023 1,171,014 1,194,679 1,168,117 1,325,772 10.8% 2Profit for the year after tax 7533,002 905,048 917,621 934,435 1,015,299 10.2% Total comprehensive income for the year 781,488 938,513 931,055 986,240 1,023,901 9.9% Headline earnings per share (cents) 151 181 182 158 182 8.4% Dividends per share (cents) 53 66 68 60 66 8.4% Total assets 28,608,842 32,333,653 42,920,914 47,433,686 50,677,955 15.8% Total loans and advances to customers 23,621,871 26,598,023 33,433,922 36,234,418 38,0495,83 13.5% Total deposits 21,993,9998 23,724,128 31,571,561 33,948,091 36,984,725 14.5% Net asset value per share (cents) 782 856 1,003 1,099 1,136 13.0% Performance indicators (%) Return on average equity 22.4 22.9 19.5 17.3 16.3 Return on average assets 2.8 3.0 2.4 2.1 2.1 Impairment charges as a % of average gross loans and advances 0.26 0.24 0.19 0.23 0.30 Non-interest income as % of operating income 40.2 40.6 38.5 41.3 40.2 Cost-to-income ratio 51.6 50.2 53.9 60.6 60.8 Closing share price (cents) at 30 June 1,556 1,724 1,809 1,723 1,600 Price-to-book ratio at closing price per share 2.1 2.0 1.8 1.6 1.4 Price-to-earnings ratio at closing price per share 10.3 9.5 10.0 9.5 8.8 Capital adequacy (%) Total risk-based capital ratio 15.8 15.8 16.8 15.4 14.9 * Compound annual growth rate OUR GROUP IN 2019 5 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 page 42 in section 6 of this integrated report. 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. JOHAN SWANEPOEL We are in the fortunate position to have a strong capital position. Group chairman 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.