Group Chairman’s Statement to Shareholders
ECONOMIC OVERVIEW
The local operating environment remained challenging with the Gross Domestic Product (“GDP”) growth rate for 2015 being revised downwards in the National Budget to 1.5% mainly due to underperformance in key sectors like agriculture and mining. The annualised inflation rate stood at -2.5% in December 2015 compared to +0.8% recorded in December 2014, largely due to a weaker South African Rand and declining aggregate demand. This deflationary tendency also contributed to the low industry capacity utilisation and low uptake of insurance products.
Despite the slowdown in GDP growth, the insurance sector recorded modest growth, with non-life insurance sector premiums for the nine months to 30 September 2015 remaining largely static at US$153 million while the premiums for the life insurance sector grew by 9% to US$244 million. The central bank reported that total banking sector deposits grew by 11.2% to US$5.6 billion in 2015 compared to US$5.1 billion in 2014. The loan to deposit ratio declined from 78.4% as at 31 December 2014 to 68.8% by the end of December 2015.
The Zimbabwe Stock Exchange Industrial Index closed the year down 29.5% to 114.80 points while the Mining Index declined by 66.9% to 23.70 points. Total value traded in 2015 amounted to US$228.6 million, 49.5% below the US$452.9 million achieved in 2014, reflecting the decline in the level of foreign investor interest on the market. Bond and prescribed assets returns remained high relative to money market, with most instruments near the 10% p.a. mark on average tenure of 2 years. Term deposit rates at first tier banks ranged from 0%-4% p.a. while second tier banks averaged 6% per annum. Property market returns were subdued owing to increasing voids and declining rental rates.
Most property companies reluctantly accepted reduced rentals to enhance tenant sustainability leading to fair value losses on investment property. The developments on the investment markets adversely affected the total assets in the life assurance sector which declined by 5% from US$1.64 billion as at 30 September 2014 to US$1.56 billion as at 30 September 2015. A combination of higher claims and losses from the equities and property markets impacted negatively on the performance of the insurance industry, with the non-life sector experiencing a steep 78% drop in profitability while the life sector was resilient, with a 32% rise in profitability.
FINANCIAL PERFORMANCE
Statement of comprehensive income
Gross premium written (“GPW”) for the year ended 31 December 2015 at US$116.1 million was 1% above the prior year figure of US$115.3 million on the back of improved performance from the health insurance business.
Rental income decreased by 3% from US$7.5 million in 2014 to US$7.3 million in 2015, reflecting the current challenges faced by tenants and the resultant decline in occupancy levels and rentals per square metre. The average rental per square metre decreased from US$7.86 in 2014 to US$7.58 in 2015. The occupancy rate for the period was 79% compared to 80% in the prior year.
The operating profit, before the outturn on the investment portfolio, improved from a loss of US$4.4 million in prior year to a profit of US$3.1 million largely due to the US$1.8 million increase in net premium earned, the US$2.3 million reduction in net claims incurred and the US$2.3 million reduction in staff rationalisation expenses. Claims at US$67.7 million declined by US$2.3 million from prior year mainly due to reduced retrenchments in the life and pensions segment and lower claims incurred for the health insurance business.
The Group incurred investment losses of US$4.7 million in 2015 compared to investment losses of US$3.8 million in 2014 in line with the downward movement in the stock market in general. Investment property was independently revalued as at 31 December 2015 resulting in fair value losses of US$6.6 million. The impairment of the investment in Rainbow Tourism Group Limited (“RTG”) by US$2.6 million also contributed to the negative investment outturn.
The Group achieved an overall profit of US$0.1 million for the year compared to a loss for the year of US$5.1 million in the previous year. The total comprehensive profit attributable to the equity holders of the parent company for the year was US$0.2 million (loss of US$6.5 million for 2014).
Statement of financial position
The Group’s total assets declined by 2% from US$213.3 million at 31 December 2014 to US$209.0 million at 31 December 2015. The decline was mainly attributable to the fair value loss on investment property of US$6.6 million, fair value losses of US$7.3 million on the listed equity investments portfolio and the US$2.6 million impairment of the investment in RTG. The decline in total assets was, however, mitigated by net new cash inflows as reflected in the increase in money market and held to maturity investments.
Investment in associate – RTG
In line with its focus on the core insurance business, the Group reclassified its 20% interest in RTG from an investment in associate to a non-current assets held for sale. The carrying value of this asset was realigned to stock market prices resulting in an impairment of the asset by US$2.6 million.
FIRST MUTUAL IN THE COMMUNITY
The First Mutual Foundation continues to provide children with multiple vulnerabilities (e.g. abandoned children, orphaned children, and child-headed families) with educational support and necessary ancillary services to reintegrate them into formal school. To date the foundation assists 110 primary and secondary school children and further assists three university students studying medicine, risk insurance and commerce respectively. Schools attended by the First Mutual Foundation scholars are located throughout the country.
The Group is also involved in conducting free health checks and wellness programmes primarily to corporate clients to promote healthier lifestyles.
DIRECTORATE
There were some changes to the Boards and Committees of the First Mutual Holdings Group following the re-constitution of the Board of the major shareholder and as part of a Group-wide initiative to manage costs. Mr Misheck Manyumwa, Mr James Matiza and Mr Israel Ndlovu resigned as Non-Executive Directors of the Board during the course of the year. Mrs Memory Mukondomi, Mr Robin Vela, Advocate Thembinkosi Magwaliba and Mr John Sekeso were appointed as Non-Executive Directors. Subsequent to year-end, Ms Thembelihle Khumalo, Mr John Chikura and Advocate Thembinkosi Magwaliba resigned from the Board and Ms Evlyn Mkondo was appointed as a Non-Executive Director of the Board. I would like to extend my sincere thanks to the outgoing Directors for their invaluable contribution to the Group and to welcome the new members.
DIVIDEND
In view of the need to conserve cash, the Directors recommend that no dividend be declared for the year ended 31 December 2015.
OUTLOOK
While the operating environment is expected to remain challenging, the Board is confident that business process efficiencies being implemented coupled with prudent cost containment measures will position the Group to deliver value to its stakeholders. Enhanced enterprise risk management initiatives and strict adherence to the actuarial control cycle remain key in mitigating against risks in the operating environment.
Continuous effort will be channelled towards improving business processes, working capital management and developing innovative and sustainable products relevant to our environment. The insurance sector is expected to deliver modest growth driven by sustained demand for retail products while the employee benefits segment is likely to shrink further due to limited growth in the formal employment sector. The Group will maintain a prudent approach in respect of its investments. Investment returns are projected to improve driven by the positive performance of fixed income securities and the resilience of the property sector while bearish conditions on the Zimbabwe Stock Exchange (ZSE) will continue to dampen the performance of equities.
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 2016
