Chairman Report

CHAIRMAN REPORT

Taking Flight

2011 was the year we spread our wings and stepped off the precipice after carefully judging the height, measuring the wind speed and calibrating our eagerness to soar. Having successfully penetrated the South African market through an acquisition in 2007, we launched into the Zimbabwean market with an innovative new product that we had diligently tested in the Namibian market. That product is Trustco Mobile, a pioneering mobile micro insurance product able to deliver micro insurance easily and affordably anywhere in the country where mobile telephony is available.

In October 2010, Ecolife, a partnership between Trustco, First Mutual Life and Econet Wireless Zimbabwe, was launched across Zimbabwe. The initial subscription for the life insurance exceeded expectation, proving the product's viability outside Namibia. While the current model leverages off the high penetration rate to increase insurance permeation in sub-Saharan Africa, where less than 5% of the population has access to insurance, the robustness and flexibility of the technology allows it to be applied to any transactional-based system. Given Trustco Mobile's potential replicability and adaptability across various emerging markets, this business is expected to blaze a trail for the expansion of Trustco's other subsidiaries into the rest of the African continent.

Maintaining Stability

Establishing a wider footprint in Africa requires patience and perseverance, qualities that Trustco has successfully honed over the years. With Zimbabwe marking our fledgling attempt, we anticipate taking full flight in 2012 and securing new markets in West Africa. Meanwhile, we continue to build a solid base, maintaining strong performance in our home markets. Namibia and South Africa have slowly started to emerge from the global recession which kept regional output and growth subdued over 2011. Consumer demand remained relatively flat while business confidence showed a cautious return. The heavy floods in the northern parts of Namibia wreaked havoc on business, infrastructure and the environment. In spite of all this, Trustco managed a relatively strong financial performance with after-tax profits coming in at NAD190 million, a 38% increase on the previous year ending 31 March 2010. Headline earnings, which were boosted by property sales, rose by 55%, reaching NAD132 million at the end of March 2011.

Alleviating poverty through enhanced access to productive finance remains the development objective of many governments and development institutions. Trustco has been a long-time partner in this endeavour through the extension of microloans to fund further education in Namibia. The demand for finance and quality education remains beyond the scope of supply. Striving to meet this demand efficiently and competitively, both in Namibia and beyond, means that Trustco will remain relevant and active for years to come.

Interest income has come down marginally as a result of the current low interest rate regime facing the credit market. We have attempted to combat this decline by improving the asset quality of our loan book and thereby reducing impairments. The tightening of our lending criteria has meant that the rate of growth of new loans granted declined significantly in the beginning before regaining upward momentum. The shift away from debit order payments in favour of salary stop orders has also helped to reduce our bad debt rate. With the introduction of new courses and learning tools through IOL, we should see the extension of new loans picking up during the course of 2012.

The insurance industry in Namibia is well developed and quite mature offering limited expansion opportunities and fierce competition. Trustco has succeeded in this market by focusing on the mass market where insurance is still not accessible, either because it is not affordable or simply not available. Ensuring that our products remain affordable and valuable to our clients requires continuous innovation and adaptation to the changing economic circumstances our clients constantly face. The speed with which we can act and respond is often hampered by the skills shortage the industry as a whole faces. The Namibian insurance industry is greatly challenged by the lack of underwriting and claims specialists as well as financial experts with an insurance background. While onthe- job training offers some relief, to adequately address the problem it needs to be coupled with appropriate technical training and knowledge construction.

Serving the lower end of the market can be rewarding for companies that incorporate flexibility, simplicity and responsiveness into their products and services. To date, the banking industry in Namibia has failed to respond appropriately to the needs of this market. High transaction costs and complex products mean that a large number of the population still remains underbanked. For those with bank accounts, the ability to transact payments efficiently is constrained by the high cost of debit order fees which, in some cases, can exceed the debit order payment, thus negating the efficiency of this payment method. As a consequence, credit terms become stricter as credit providers can no longer rely on debit orders as a secure method of payment. Enhancing market access and bringing down the cost of serving the economically sensitive consumer can best be achieved by bringing affordable, simple and responsive banking to the masses.

Despite the slow economic recovery of global markets, local bourses continued to rally in 2011 with the JSE All Share Index achieving a 12.0% return. The JSE Financial Index was less impressive, only achieving a 2.5% return. Following a precipitous decline in 2010, Trustco Shares shot up from a low of NAD0.28 per share in September to a high of NAD1.35 in March 2011. This represented an astounding 120.5% return over the 12 months ending 31 March 2011. The impressive rallying of Trustco's shares of the past 12 months bears testimony to the soundness of the Group's business model and the resilience of the management team. This business model is underpinned by a deep knowledge of Trustco's target market, a strong market position and brand recognition of Trustco's products, creative marketing and innovative solutions to meet the insurance, finance and education needs of southern Africa's emerging markets.

Trustco at a Glance

Trustco Group Holdings is made up of nimble, innovative companies focused on technology-driven, market reactive, affordable products and solutions to consumers in the middle to lower end of the socio-economic segment. What distinguishes Trustco from its competitors are:

"carefully researched and appropriately designed products and services that suit the needs of a constantly changing consumer market";
"our focus on affordability and accessibility, recognising that our clients are vulnerable to changing economic conditions";
a technology-driven strategy that maximises efficiency and reduces waste;
delivering financial solutions and services that address the various stages of the client's economic lifespan;
a formidable marketing strategy and tools that are carefully targeted and able to reach the remotest corners of our geographical markets; and
a strong loyalty to our customers and commitment to service excellence. Trustco Group Holdings - 16 Annual Report 2011

How Did We Get Here?

Year	Activity/Sector	Description
1992	Property development	Acquired Trustco from a small property development company and successfully completed the construction of 27 apartments over two years.
2000	Legal insurance	Established Trustco Insurance, a cost-efficient and affordable legal insurance product in Namibia that covers the policyholder and his/ her direct family members against legal costs plus a funeral benefit for the main policyholder. Trustco Insurance has subsequently introduced other short-term insurance products and has over 300 000 policyholders.
2005	Education and microfinance	Acquired Open Learning Group Namibia, later renamed Institute For Open Learning, ("IOL"), to get into microfinance through payroll deduction. IOL had 2 500 students and a loan book of NAD4million. The business consisted of both the education and finance operations.
2006	Life insurance	Trustco registered as a long-term life insurer providing affordable life cover under the name Trustco Life to underserved segments of the population.
2006	NSX listing	The listing brought over 2 800 ordinary Namibian citizens into the stock market.
2007	Expansion into South Africa	Acquired Trustco Financial Services, formerly Dex, an insurance claims administration company based in South Africa.
2008	Mobile insurance	Launched Trustco Mobile in Namibia and expanded access to life insurance through mobile telephony.
2009	Africa Board listing	Trustco Group Holdings was the first company to list on the Africa Board of the JSE.
2010	Expansion into Zimbabwe	Launched Trustco Mobile in Zimbabwe.