Chairman’s Statement
ECONOMIC OVERVIEW
The Gross Domestic Product (GDP) of the nation is estimated to have grown by 3.1% in 2014 mainly driven by agriculture up 23.4% on the back of a record tobacco output of 216 million kilogrammes, tourism up 3.9%, electricity and water up 3.5%. However, the mining and manufacturing sectors declined 2.1% and 4.9% respectively, with manufacturing sector capacity utilization decreasing to 36.3%. The Government expects GDP to grow by 3.2% in 2015 with growth spread evenly across most sectors. The central bank reported that annual broad money (excluding interbank deposits) grew by 12.8% from US$3.9bn in January 2014 to US$4.4bn by December 2014 partially due to the liquidity inflows from the tobacco selling season earlier in the year. Deposit rates at first tier banks ranged from 3%-6% per annum, while second tier banks averaged 9% per annum. The banking sector remained under pressure from high non-performing loans. The annualised inflation rate was -0.80% in December 2014 compared to 0.33% recorded in December 2013, benefitting largely from an 11% depreciation of the South African Rand against the US dollar, and declining aggregate demand. The Zimbabwe Stock Exchange (ZSE) Industrial Index closed the year down 19.46% to 162.79 points with a sizeable number of large cap stocks trading in the red while the Mining Index was up 56.61%. Bond and Prescribed Asset returns remained relatively high compared to the money market with most instruments quoted near the 10% p.a. rate. Property market returns were subdued owing to increasing voids and downward pressure on rental rates.
In Botswana, where the Group has a reinsurance operation, the IMF estimated a GDP growth of 4.5% for 2014 and 4.6% in 2015. while the Botswana government is expecting a GDP growth of 4.9%, mainly driven by the non-mining sectors including trade, hotels and restaurants, finance and banking and social and personal services. The December 2014 headline inflation fell to 3.8% from 4.1% in December 2013. The Pula depreciated by 8.4% against the US dollar while appreciating against the South African Rand by 1.7%.
DEVELOPMENTS IN THE INSURANCE SECTOR
In the 2015 National Budget Statement, the Minister of Finance announced that lump sum pension contributions by employers (pension fund capitalisation) would be treated as tax deductible with effect from 1 January 2015 as a way to encourage employers to fund the pension funds. This presents an opportunity for employers to enhance post-retirement benefits for their employees.
FINANCIAL PERFORMANCE
Statement of Comprehensive Income
Gross Premium Written (GPW) at $115.3 million for the year ended 31 December 2014 was 14% above the prior year figure of $101.1 million on the back of improved performance from the health insurance and life assurance businesses.
Rental income decreased by 3% from US$7.8 million in 2013 to US$7.5 million in 2014, reflecting the current challenges faced by tenants and the resultant decline in rentals per square metre. The average rental per square metre decreased from $8.28 in 2013 to $7.57 in the current year. The occupancy rate for the period was 80% compared to 76% in the prior year.
The Group had negative investment income of $3.8 million in 2014 compared to investment gains of $6.5 million in 2013 in line with movements in the stock market in general.
Total expenditure for the year increased by $10.9 million to $114.7 million compared to the previous year. The increase in total expenditure was partially due to the upturn in total claims which increased by 41% to $70 million (2013: $49.8 million) due to a higher claims ratio in the health insurance business, increased retrenchment and retirement withdrawals in the life company amounting to $44.9 million and $5.8 million respectively. During the year impairment charges totalling $2.7 million were made against certain money market investments with banks that are no longer operational and some unlisted investments. The provision for credit losses increased from $1.3 million to $2.1 million in 2014 due to an increase in the provision against trade receivables to take into account collection challenges with customers.
The Group also incurred staff rationalisation costs of $2.5 million as it aligned its operating structure with the environment. The payback period of the exercise is expected to be 1.8 years.
The Group incurred an overall loss after tax of $5.1 million compared to a profit of $6.0 million in the previous year. The total comprehensive loss attributable to the equity holders of the parent company for the year was $6.5 million (Profit of $3.7 million for 2013).
Statement of Financial Position
The Group’s total assets grew by 4% from $205.2 million at 31 December 2013 to $213.3 million at 31 December 2014. This growth was mainly attributable to an increase in investment properties following the acquisition of the remainder of Lot 57, Mount Pleasant, Harare for a purchase price of $9.6 million as well as the growth in held to maturity investments and cash and cash equivalents.
FIRST MUTUAL IN THE COMMUNITY
The Group recognises the importance of contributing to the societies within which we operate and are actively doing so through the First Mutual Foundation whose focus is on education. Partnering with World Education Inc., the Foundation gained traction this year and saw its first group of recipients obtain financial support allowing them to reintegrate into formal primary and secondary schools. In addition, it has provided bursaries for university students studying at local universities.
DIRECTORATE
Dr C U Hokonya resigned from his position as Non-Executive Director of the Board with effect from 9 May 2014. On behalf of the Board, I would like to extend my sincere gratitude to Dr Hokonya for his invaluable contribution to the Group. Mr S V Rushwaya was appointed to the Board on 9 September 2014.
DIVIDEND
In view of the loss incurred for the year, the directors recommend that no dividend should be declared.
OUTLOOK
While the operating environment is expected to remain challenging in the short term, the board is confident that the transformation initiatives, such as the staff rationalisation exercise concluded in 2014, will position the Group to deliver value to its stakeholders. A robust risk management framework will also be maintained and continuously reviewed to mitigate against risks in the operating environment.
Further efforts will be channelled towards improving business processes, working capital management and developing innovative and sustainable products.
APPRECIATION
On behalf of the Board of Directors, I would like to convey my profound gratitude to our clients, management and staff, the regulatory authorities and other stakeholders for their continued support and confidence in us to deliver sustainable value.
Oliver Mtasa
Chairman
16 March 2015
