Capricorn Group says it met the challenges of the Covid-19 pandemic head-on. The agility and quick decision-making within the Namibia Stock Exchange listed Group allowed it to quickly sense and respond to ever-changing challenges brought about by the pandemic.
This is reflected in the group's interim financial results for the six months ended 31 December 2020, which showed that although profit from continuing operations decreased by N$118.8 million, or 20.2%, relative to the pre-Covid-19 comparable period, it still managed to provide financial relief to clients and job security to employees, while implementing strategies to ensure sustainability.
"This year-on-year decrease is mainly due to interest margin compression and increased impairment provisions. Lower interest margins are a result of unprecedented interest rate decreases enacted by central banks to counter the slowdown in the economy. Increased impairment provisions resulted from the extremely challenging economic and market conditions in the wake of imposed lockdowns and other responses to the pandemic," said Capricorn Group CEO Thinus Prinsloo.
Moreover, the results show that roughly 80% of the group's operating expenses are fixed and could not be adjusted in line with lower expected income since the onset of the pandemic. In addition, a significant part of the group's technology costs, which increased by 21.5% year-on-year, are denominated in US Dollar and was severely impacted by a weakening of the Namibian Dollar against the US Dollar. Despite these shocks, the group contained an increase in operating expenses to 2.4%. This, said Prinsloo, bears testimony to the group's ability to contain costs during adverse economic conditions such as the Covid-19 pandemic.
As previously reported, the sale of the group's banking operation in Zambia, Cavmont Bank Limited, was concluded on 4 January 2021. Consequently, the losses made by Cavmont Bank Limited in the current and prior reporting periods are disclosed under discontinued operations.
Meanwhile, the group remains well capitalised with a total risk-based capital adequacy ratio of 14.1%, well above the minimum regulatory capital requirement of 10.0%. The strong capital position is expected to stand the group in good stead whilst navigating the perfect storm brought about by the Covid-19 economic shock.
Also, the group declared an interim dividend of 22 cents per ordinary share. The interim dividend per share for the period under review is 10% higher than the final dividend per share of 20 cents declared during September 2020. The group believes that the interim dividend balances prudency, in preserving the group's capital and liquid asset position, with a fair dividend yield for shareholders, whose earnings came under severe pressure since the onslaught of the global pandemic and depressed economic conditions.
"The forecasted contraction of the economies in Namibia and Botswana of 8.4% and 6.0% for 2020 effectively puts GDP's of these countries back to levels reported for 2015. Notwithstanding the forecast of modest economic growth for 2021 from this reduced base, the group's economic outlook remains fairly bleak. As a result, we expect the increase in customer defaults to continue, with impairment charges remaining high and interest rates remaining at the current all-time lows. The negative financial impact of these factors is expected to be offset by the growth in non-interest income, largely from our non-banking subsidiaries and associates, which were not as negatively impacted by the pandemic. The disposal of our loss-making operations in Zambia is expected to have a material positive impact on the profitability of the group going forward," said Jaco Esterhuyse, Financial Director, on the outlook for the group.
"Our employees showed genuine commitment and passion through their continued service and support to clients during these strenuous circumstances. I am grateful to be in the same storm with passionate and hardworking employees who resiliently adapted to the impact of the pandemic. We would not have come this far without them. I also wish to thank our loyal clients, partners and suppliers. The significance and value we draw from our relationships, collaborations and partnerships with these stakeholders are immeasurable in exceptional times like these. As a group, we are inspired by our purpose of improving lives through leadership in financial services by being connectors of positive change," Prinsloo concluded.