CHAIRMAN’S STATEMENT
ECONOMIC OVERVIEW
The economy experienced increased use of the United States dollar during the first quarter of the year due to a rapid depreciation of the Zimbabwe dollar (ZWL). Over this period the official exchange rate moved from USD1: ZWL5,986 to USD1: ZWL33,887, representing 80% loss of value of the local currency. Similarly, inflation, as measured by the Total Consumption Poverty Line, surged ahead by approximately 553% in the same period. In response, and in an effort to bring currency stability in the economy, the monetary authorities replaced the ZWL with a new currency, the Zimbabwe Gold (ZWG), on 05 April 2024. The introduction of the ZWG resulted in a significant improvement in the stability of the local currency compared to the ZWL. ZWG inflation was 2.4% in Q2 2024 whilst USD annual inflation ranged between 3.2% to 3.8% for Q2 2024. This was on the back of an official USD: ZWG exchange rate movement of only 1.1% in three months. Notwithstanding this stability there were reports of shortages in the formal foreign currency markets and an increasing premium between the USD: ZWG exchange rate on the alternative market.
The consequence of the weak ZWL currency was increased USD dollarisation of the economy and with it, the proportion of USD insurance policies increased, as clients sought to protect the value of the insurance benefit in the event of a claim.
The El Nino effect induced drought in the country and Zimbabwe’s GDP growth forecast was revised from an initial forecast of 3.5% to 2%. The drought has had a significant downside impact on the economy though lower weather related claims were recorded across the agriculture insurance industry. Sluggish performance in the agriculture sector will be partially offset by the growth in Tourism, Mining and Construction sectors which are expected to perform to expectation for the rest of the year. Firmer gold prices and strong diaspora remittances have been instrumental in shoring up the country’s foreign currency earnings.
Given the attendant developments, the Group will maintain a real asset bias to hedge against potential value loss arising from exchange rate and inflation shocks. The Group will provide input to the authorities to craft the necessary policy refinements that will better protect policyholder assets, allow investment inflows to increase and promote the growth and stability of the wider macro-economy.
FIRST MUTUAL LIFE SETTLEMENT AGREEMENT
In January 2022 the Insurance and Pensions Commission (IPEC) instituted a forensic investigation on First Mutual Life Assurance Company (FML), a wholly owned subsidiary of First Mutual Holdings Limited (FMHL). The forensic investigation was in respect of the separation of assets between the policyholders and shareholder during the period from 1 February 2009 to 31 December 2021. The investigation formally commenced on 5 September 2022 following the appointment of BDO Zimbabwe to conduct the exercise. On 10 May 2023 FML received the forensic investigation report from IPEC and submitted its response to the Ministry of Finance on 8 June 2023 in line with section 67(5) of the Insurance Act.
On 21 December 2023 FML received a Corrective Order from IPEC in relation to the BDO report. To protect FML’s legal rights, an application for review of the Corrective Order was filed with the High Court. Notwithstanding the institution of legal proceedings, which had become unavoidable to safeguard FML’s rights, engagements between IPEC and FML resulted in a settlement agreement that incorporated an agreed set of action items which were expected to be completed by 31 August 2024. Due to the complexities of the action items, the exercise was not completed within the envisaged time frame and are now expected to be completed by 31 December 2024.
CHANGE IN FUNCTIONAL AND PRESENTATION CURRENCY
The Group recorded a steady increase in the use of foreign currency across its business units over the past 18 months in line with the general macroeconomic trends in the country. This trend was also reported in the Monetary Policy Statement issued by the Governor of the Reserve Bank of Zimbabwe on 5 April 2024. The statement reported that 80% of the transactions in the economy were in USD. In line with International Accounting Standard (IAS) 21 – The Effects of Changes in Foreign Exchange (IAS 21) requirements, the board assessed the functional currency of the various business units and concluded that the functional currency, along with the presentation currency, had changed from the ZWL/ZWG to the USD effective 1 January 2024.
The Group has complied with the guidance of IAS 21, which directs entities operating in hyperinflationary economies to translate their last reported inflation adjusted financial statements using the closing official exchange rate at the reporting date, to derive and present comparative financial statements under a newly assessed functional currency and presentation currency. While the Directors have applied the guidance of IAS 21 to present the comparative financial information the following key factors should be noted:
- There were significant distortions between the official exchange rate and the pricing exchange rate for goods and services during 2023.
- Pure USD transactions and balances (non-monetary), recorded in the prior year were subjected to the hyperinflation adjustments as required by International Accounting Standard 29 – Financial Reporting in Hyperinflationary Economies. Translating these to the Group’s presentation currency has the impact of overstating the reported value of the transactions which are in a stable currency.
Due to the distortions resulting from compliance with IFRS, the board is of the view that the above factors result in the 2023 comparative information being unrepresentative of the historic financial performance of the Group. There was a lack of consensus with auditors on the interpretation of IAS 1 – Presentation of Financial Statements paragraph 19, that the currency situation being faced (multicurrency environment and decommissioning of a hyperinflationary currency) was indeed “extremely rare” and thus requiring a departure from IAS 21. Please refer to the supplementary information provided in this report for information that the board believes, while not fully compliant with IFRS, more accurately captures the financial results of the Group.
FINANCIAL HIGHLIGHTS
FINANCIAL PERFORMANCE
The financial results are presented in US Dollars following the change of reporting currency on 1 January 2024. The conversion of the first half results and prior year figures was done in compliance with IFRS which may deviate from the underlying financial performance as tracked by management for decision making purposes.
Insurance contract revenue increased by 160% compared to the prior period mainly due to the IFRS related distortions that result in the understatement of the revenue for 2023. During the period under review, the Group incurred a loss after tax of $33 million compared to a profit of $56 million. The significant drop from prior year stems from distortions arising from following the provisions of IFRS. Major distortions to the Group’s performance were noted on investment property which was valued in the prior year in ZWL which when translated to USD, following IFRS guidelines, resulted in a valuation of $178 million on 31 December 2023 compared to the independent USD valuation of $128 million. This was the driver for the fair value loss on investment property of $ 50 million.
SUSTAINABILITY
The Group continues to prioritise sustainability in the various aspects of operations that include value creation and optimisation, compliance with IFRS and GRI reporting requirements whilst fulfilling good corporate citizenry dictates. Creation of sustainable economic value remains a pillar of the Group’s corporate strategy and core values.
Environmental, social and governance (“ESG”) aspects anchor the Group’s strategy with workflows and processes in place that ensure sustainability stretches to other areas of the business beyond the core operations.
FIRST MUTUAL IN THE COMMUNITY
The First Mutual Holdings Limited corporate social responsibility program continues to offer educational assistance to vulnerable children pursuing their academic dreams through the First Mutual Foundation. The program supports their attendance, retention, and transition from primary to secondary schools and from secondary school to tertiary institutions.
In the reporting period, 72 learners were supported with educational assistance, including tuition, stationery, and levies. Of the supported learners, 6 are in primary school, 61 in secondary school and 5 at tertiary institutions. The scholarship fund also paid examination fees for 18 ‘O’ and 4 ‘A’ Level learners.
The scholarship program is expanding to 15 scholarships at five state owned universities, to complement the existing universities namely University of Zimbabwe and Chinhoyi University of Technology. The additional universities, National University of Science & Technology, Midlands State University and Bindura State University will each be awarded three scholarships.
The Group continues to contribute to the health sector through free wellness programs and healthcare services including consultations, blood checks, diabetes testing, eye, dental and cancer screening, as well as community support through targeted sponsorships and donations to initiatives with a wide reach.
OUTLOOK
Despite the complex economic environment, the Group businesses have developed strategies to adapt their operations to achieve real growth in the future. FMHL continues to provide a compelling value proposition to clients through maintaining the relevance of its products and delivering on its promise thus achieving sustainable operations. We will continue to pursue value enhancing initiatives such as widening our product offering and investments in assets that achieve real growth.
DIRECTORATE
There were no changes to the directorate during the period under review.
DIVIDEND
On 11 September 2024 the Board resolved that an interim dividend of $0.6 million be declared from the reserves of the Company for the period ended 30 June 2024. This represents a dividend per share of zero point zero eight two (0.082) United States cents. Further details on the payment of the dividend will be communicated in a separate dividend announcement.
APPRECIATION
On behalf of the Board, I would like to thank our clients and stakeholders for their continued support. I also extend my appreciation and gratitude to the FMHL’s employees and management for their commitment to serve our clients and ensuring that the businesses continue to adapt to major environmental changes. I am grateful to my fellow board members for their support, including their continued and valuable contributions, their insight and guidance to management as we pursue the realisation of the Group’s strategy.
Amos Manzai
Chairman
11 September 2024
FMHL – Unaudited Abridged Financial Results For the Half Year ended 30 June 2024
