- Says opportunities are increasing
- Customers are increasingly trusting
- Cost to income ratio to breach 50%
Said Group CEO Andrew Okai at a briefing last week: “We are in a place where we have to invest at a much faster pace than we anticipated.”
What has become clear to Okai is that as Letshego delivers its digital platform, opportunities are growing and so is the number of partners who want to “tie up”. In addition, he said, customers are increasingly trusting.
“If we have to fulfil the promises we are making or if we have to meet expectations that have arisen, cost to income ratio will have to shift a bit before coming down,” he said as he presented the results for the full year ending 31 December 2021. The group posted double digit growth in profit with profit before tax and profit after tax rising 11 percent (P1.15 billion) and 16 percent (P730 million) respectively.
The group had promised to rein in cost to income ratio, keeping it below 50 percent in the course of its digitalisation journey. “We expect that this year, in the first half of the year, we will bring forward investments that will mean an increase in cost to income ratio,” Okai said, noting that as the new products kick in and revenue trajectory increases during the second half of the year, cost to income ratio will start to come down.
Asked how this would impact profit the CEO said: The future impact of cost to income on future profits will depend on the trajectory of revenue growth. “CIR could go up, but the direction of absolute future profits is not easy to predict given the number of new products and channels due to launch in 2022 and beyond. Naturally, we aim to maintain our recent performance as a minimum in the immediate term, with a clear trajectory towards significant profit growth thereafter in line with our 6-2-5 plan,” Okai told this publication
When the group realises the full impact of the transformation strategy in subsequent years, “we will go confidently to 40 percent cost to income ratio”, Okai said. He expects this to translate well into the 20 percent return of equity projected.
The 55 percent cost to income ratio for the first half of 2022 also factors in investments in skills. As at 31 December 2021, the cost to income ratio was 52 percent, up from 50 percent last year. CFO Gwen Muteiwa said this was in line with “our expectations in terms of increasing our costs during this phase of our strategy”. Muteiwa noted: “But over and above that, we also had an increase in insurance costs in Namibia, which is associated with insurance arrangements. So the main thing really is the insurance cost as well as the digitalisation drive. We have seen some costs that are coming down post COVID while others have increased slightly.”