Extract from the Chairman’s Statement – 2020 Annual Report
“The inflation rate significantly declined in the second half of the year from a year-on-year inflation high of 837.5% in July 2020 to 348.6% by December 2020…”
ECONOMIC OVERVIEW
The COVID-19 pandemic had a huge and unanticipated impact on the political, social and economic structure of communities across the globe. The Government, like elsewhere in the world, responded with progressive lockdowns to manage the spread of the virus and this had a far-reaching negative impact on the level of economic activity. The Group has not been spared from the effects of the downturn. Like other entities, the Group adjusted its business processes mainly through the use of technology, in order to continue to meet the expectations of its customers and other stakeholders.
Gross Domestic Product initially projected, by the Ministry of Finance and Economic Development to grow by 3% in 2020, was revised downwards and is estimated to have contracted by 4.1%. The negative performance largely stemmed from the lower than anticipated output in the key industries of mining and tourism though this downward trend was moderated by growth in power generation, health, food processing related manufacturing industries and nickel exports as an outlier in the mining sector. Although ZIMRA statistics indicated that Zimbabwe recorded a negative trade balance for 2020, the extent of the deficit was 30% of the average recorded during the United States dollar era. In addition, there were significant inflows from the Diaspora community which resulted in the country achieving a positive capital account for 2020. While foreign currency supplies improved in the second half of the year, the fragility of the exchange rate remains a key risk as the Reserve Bank of Zimbabwe Dutch Auction system for foreign currency has seen settlement delays and indications of a widening rift between the official exchange rate and alternative market rate. Such a situation has the potential to drive rent seeking behaviour that could negatively affect the exchange rate stability currently being experienced. The inflation rate significantly declined in the second half of the year from a year-on-year inflation high of 837.5% in July 2020 to 348.6% by December 2020 and further to 240.6% by March 2021. The slow down in inflation has been supported by the better value retaining capabilities of the local currency which has seen limited forward pricing by stakeholders in industry and commerce.
The Zimbabwe Stock Exchange (“ZSE”) All Share Index gained 1,045.9% during 2020, outpacing both inflation and exchange rate movements thereby resulting in real value gains for listed equity asset class holders. The Group has maintained its position that, in times of turbulence, quoted equities remain a viable long-term asset class and will continue to diversify its real assets portfolio with investments in areas such as private equity and property. Prudent asset class selection amongst these real assets is required in the future should the stability of macro-economic variables remain uncertain.
REGIONAL DEVELOPMENTS
The Group acquired, through its subsidiary NicozDiamond Insurance Company Limited, a controlling stake in Diamond Companhia de Seguros (“Diamond Seguros”), a general insurance company incorporated and domiciled in Mozambique, on 24 November 2020 following the completion of a rights offer by that company. Diamond Seguros had been an associate of the Group prior to the attainment of control. The Group is also strengthening its reinsurance operations through a capital raise in Botswana.
FINANCIAL HIGHLIGHTS
In October 2019 the Public Accountants and Auditors Board concluded that conditions for applying Financial Reporting in Hyperinflation Economies (International Accounting Standard (IAS) 29) had been met in Zimbabwe. The historical cost financial results have been restated to take account of changes in the purchasing power of the local currency during the year. Inflation adjusted financial results therefore represent the main financial statements with historical cost financials providing supplementary information.
FINANCIAL PERFORMANCE
“The Group’s total assets appreciated in value by 43% at 31 December 2020…”
Statement of comprehensive income
Gross Premium Written (“GPW”) at $5.9 billion grew by 2% in inflation adjusted terms as a result of organic growth on the existing portfolio and the continuous revaluation of insurance policy values in line with inflation to ensure clients had adequate cover.
Rental income for the year amounted to $257 million and was ahead of prior year by 9%. The real growth, relative to prior year, was due to quarterly rental reviews and increases in occupancy rates in retail and residential properties. The Group achieved investment income of $346 million for the year under review compared to an investment loss of $1.8 billion in 2019. The investment gains were driven by fair value gains on listed and unlisted equities in line with the general performance of the ZSE Industrial Index.
Statement of financial position
The Group’s total assets appreciated in value by 43% at 31 December 2020 compared to 31 December 2019. The increase is mainly attributable to the fair value adjustment on investment properties and listed equities as well as revaluation of net foreign currency denominated assets.
SUSTAINABILITY
The Group remains committed to upholding sustainability principles in all business activities. Despite the challenges created by the COVID-19 outbreak, embedding sustainability enabled us, through a proactive mindset, to cope with future challenges. We remain committed to providing sustainable financial services which are responsive to emerging trends of risks and challenges faced by our clients. In the last quarter of the year, the Group commenced the process to implement a solar powered energy solution for our head office in Harare. While the COVID-19 pandemic may have created unforeseen challenges, the Group remains optimistic of opportunities for business growth.
FIRST MUTUAL IN THE COMMUNITY
Despite the difficult operating environment fuelled by the COVID-19 pandemic, First Mutual continues to actively contribute to the community in which we operate. We contributed to the national effort to mitigate the impact of COVID-19 on vulnerable members of the community. In addition, we continue to provide educational assistance to selected children in need from primary school to tertiary level through the First Mutual Foundation and the First Mutual Reformed Church University Scholarship based on humanitarian need and academic merit. The Group is also playing a key role in equipping university students with financial literacy education through its Future First programme and providing support to cancer awareness programs. Donations of non-perishable goods and clothing have been made to selected charitable organisations through our Employee Corporate Social Responsibility initiative.
OUTLOOK
The Ministry of Finance and Economic Development is projecting that the economy will rebound with a growth of 7.4% expected in 2021 supported by recovery of the agriculture sector and monetary and fiscal stability.
A globally sustainable vaccination programme is expected to slow down the impact of COVID-19 and facilitate the opening up of economies across the globe. There are currently several vaccines that have been developed and the Government received several consignments as part of the public vaccination programme.
The Group will leverage on its diverse business portfolio, strategic partnerships, as well as its regional footprint to sustain a positive growth trajectory into the future.
DIRECTORATE
In line with the principles of good governance that require periodic rotation of directors and board revitalisation, Mr Oliver Mtasa stepped down as a director and Chairman of the Board with effect from 7 August 2020.
Mr Mtasa had been a board member since 2012 and Chairman of the FMHL Group since 2014. He oversaw significant growth in the Group both organic and through acquisition and integration of a key SBU, NicozDiamond Insurance. The Group benefitted immensely from his wise and professional leadership.
Mrs Daphine Tomana, a non-executive member of the board resigned with effect from 1 August 2020. Mrs Tomana had served the Board since July 2018.
I would like to convey the Board’s heartfelt appreciation to Mr Mtasa and Mrs Tomana for their dedication, professionalism, hard work and invaluable contribution to the Group.
I was appointed as Chairman of the First Mutual Holdings Limited Group Board with effect from 7 August 2020.
DIVIDEND
On 4 May 2021, the Board resolved that a final dividend of $50 million, being 6.88 cents per share be declared from the profits of the Group for the year ended 31 December 2020. This brings the total dividend for the year to $70 million, being 9.63 cents per share. The dividend will be payable on or about 25 June 2021 to all shareholders of the Company registered on close of business on 18 June 2021. The shares of the company will be traded cum-dividend on the ZSE up to 15 June 2021 and ex-dividend as from 16 June 2021.
APPRECIATION
On behalf of the Board, I would like to extend my gratitude to our customers, regulators and other stakeholders for their support during the year under review. We especially appreciate the commendable efforts by employees in executing their duties during the current difficult COVID-19 environment.
Finally, I wish to thank my fellow board members for their support, as well as open and honest contributions.
Amos R T Manzai
Chairman
