Tuesday, March 30, 2010

A Review of the recent December 2009 Financial Performance of selected companies in Zimbabwe - Chapter 1

Introduction
This reporting season has seen a mixed bag of results from both listed and unlisted counters in Zimbabwe. The truth is that many companies are trying to get the basics right. These includes capitalisation, strategy implementation, working on the road to IFRS compliance and managing the risks associated with working in a multicurrency environment.

There is evidence that some financial sector players still have capitalisation challenges and have posted losses at the back of a subded trading environment.
Capital raising and working capital will remain a major challenge with local investors and institutions hoping to hold on to their shareholding as much as possible and as long as possible. However most will have to relinquish their comfort zones and move fast albeit in an environment of limited liquidity and financial engineering to remain relevant on the shareholding matrices of the various organisations.
ROA in the banking sector is low but the insurance sector seems to be performing well in terms of sweating shareholder capital. The returns in the banking sector seem to reflect the conservative lending attitude calibrated to the country risk profile and subdued level of economic activity in the economy.
TN Holdings
The Holding company posted a loss of USD1,1m. This is at the back of expenses incurred in bankrolling a banking project and retaining staff.

The group seems to have taken the FBC Holding Group strategy of taking over noncore business onto its balance sheet through the takeover of Tedco Company. We will wait to see how the synergy effects of this reverse takeover will takeoff.

The financials still reflect the IFRS challenges bedevling the companies of Zimbabwe. These are the redenomination of share capital, determination of deferred tax, impairment losses and devaluation of property, plant and equipment and investment property.

The Nominee Balance sheet of the TN Asset Management with a balance sheet value of USD27,9m is quite significant though there is need to increase the share capital of the Company to match the signicant risks associated with a growing nominee balance sheet.

Lafarge Cement Zimbabwe Limited
The Cement company has held its own in the recovery process of the country even though activity in the construction sector is still subdued. With profit at USD5,2million the company did well.

The cash resources however at USD620k are not so healthy reflecting the working capital challenges of many local companies. This is further reflected by the Borrowings of USD1,6m.

The exchage loss of USD0.4 million reflects the significant exchange rate risks affecting both liabilities and assets of companies.

Risk management will remain a priority for many boardrooms going forward.

TA Holdings Limited
The financial results of the group have shown the positive impact of a diversified group and surely Shingi Mutasa and his investment group are doing well. With a strong balance sheet of USD162m there is evidence that the group has grown over the years and value is being created especially in the markets outside Zimbabwe i.e. Botswana, South Africa and Nigeria.

Its interesting that the group has made an investment in PG Group and this shows its interest in the construction sector.

Unlike exchange translation losses incurred by ABC Group, TA Holdings had positive translation exchange gains of USD3.2million which augured well for the total comprehensive income for the group. This goes to show the impact of prudent exchange rate risk management.

Total Comprehensive Income after tax stood at USD710 532. The profitability of the group was impacted negatively by the loss of USD2m arising from Zimbabwean operations and associated companes namely Sable Chemicals and Cresta Zimbabwe. Cresta was affected by all time low occupancy rates standing at 40% and revenue per room (REVPAR) of USD37.3 which is quite low given that the breakeven hotel rates should be around USD50-USD70.

Cresta’s performance does not compare favourably to a sister associate company, Cresta Marakanelo with REVPAR of USD59 and occupancy rate of 67%. In the hotelling business it is all about volumes and one hopes Cresta in 2010 will do more to boost its Zim operations especially with the World Cup on the shores of SA already!

The cash resources of the group are quite healthy with the company sitting on USD11.8 million of cash resources of which USD11.7million (more than 90%) are outside Zimbabwe. This shows that the company is still cautious of the sovereign risk of the parent country Zimbabwe and would want to manage this risk going forward.

Stanbic Bank
Nothing beats a sound bank with a sound balance sheet! This is the case of Stanbic Bank, modelled around the basics of banking – mobilise deposits and deploy in the interbank market and loans to various sectors. There is little financial engineering and fancy financial instruments on the bank’s books and yet the company posts what seems to be the best profit so far of USD6.7m from the banking sector results.

Most depositors such as NGOs and embassies bank with Stanbic and this seems to be reflected in the strength of the balance sheet standing at USD201m. This translates to ROA of 3%.

The bank is adequately capitalised with Tier 1 Capital standing at USD18.5m way above the minimum prescribed capital of USD12.5m. The shareholders do not have to do much and of course the the bank benefits from centralised technical support from Standard Bank in areas such as credit and risk.

The synergies with the parent group are also reflected in loans amounting to USD2.5m which were forgiven by Standard Bank group, further boosting the group’s profits and lowering its gearing ratio.

This shows that the parent company sees value in maintaining its value in Zimbabwe. Unlike MBCA which did not post good results, Stanbic Bank has prooved that one does not need to do much to sell an established brand such as Stanbic.

Local banks should know that depositors are now looking at the soundness of the balance sheet, good service and risk management systems before depositing funds in any institution. The funds under custody of USD167m further reflect the confidence clients have in the soundness and reliability of the financial institution.

Renaissance Financial Holdings Limited
If one thinks, TA Holdings is a monster of a group, then pause for a moment and look at Renaissance Financial Holdings Limited. With a balance sheet of USD173m, slightly more than USD162m of TA Holdings, the group has done far much better in terms of profitability with USD9.2m total comprehensive income attributable to non-controlling interests and USD1.2m to equity holdings of the parent.

A closer analysis of the segment performance reveals that much of the profit was generated by the insurance arm of the group, Afre Corporation which posted USD31.6m total comprehensive income for the year.

Renaissance Capital in Uganda continues to post losses and one hopes this business segment was a worthwhile investment given that Uganda still has its civil unrests affecting parts of the country. The other business segments, RFHL, Stock broking and renaissance merchant bank posted losses at the bank of a challenging environment for a financial services sector not involved in mobisiling cheap deposits.

The merchant banking model is facing challenges in Zimbabwe given a financial market without much depth and lackingz financial engineering. This has seen merchant banks such as Interfin looking at penetrating the retail banking sector through the planned takeover of CFX bank.

Nicoz Diamond
The insurance company posted a humble USD1.8m for the year ended 31 December 2009. The balance sheet stood at USD17.7m reflecting the USD4m rights issue concluded in December 2009.

Given the small balance sheet, the ROA is obviously quite high standing at 10.2% which shows management is doing well to sweat its capital in the face of limited resources.

Turnal Holdings
The total comprehensive income of USD8.1m was largely driven by revaluation gains in property plan and equipment. This non- cash gains were reflected in the cash and cash equivalents balances of only USD996k.

The performance of this company will be closely linked to the performance of the construction and housing sectors. As the economic recovery continues, the group is likely to post better results. However the profitability of the company is commendable with ROA standing at 24.7%.

Fidelity Life Assurance of Zimbabwe
Fidelity Life stood its own in this reporting season posting total comprehensive income of USD2.3m with a balance sheet size of USD15.9m translating to ROA of USD14.5%.

The group’s performance was largely sparred by good performance of Fidelity Life Assurance of Zimbabwe contributing USD2.1m (91.3%) akin to the Afre Corporation performance although on a much smaller scale.

Zimbabwe Actuary Consultants only contributed USD5k to the group profits and in my view is a reflection of the skills gaps in qualified actuaries in the local market.
Dony Mazingaizo has an interest in Financial Management & Financial Reporting

Thursday, March 25, 2010

FBC Holdings End of Year 2009 Audited Financial Results

For a bank that i worked for, one would naturally want to see how it is performing. The bank is obviously driven by entrepreneurs who are looking at the slightest opportunity to create value for its shareholders.
The profit results were largely a reflection of 2 main things, low interest income as reflected by the high cost to income ratio of 80% and once off gain of USD4,8m on acquisition of turnall holdings limited which was a conversion of debt to equity. This gain had a favourable effect on the profit of the group.
The disposal of non core properties and equipment also created value for the group translating positively on the cashflows too. This reminds me of the Path to Growth (PTG) initiative that was followed by Unilever some time ago to create value through disposal of non-core operations. Such strategies are obviously needed for survival and unlocking shareholder value.
FBC Building society still reflects the challenges of the mortgage market with disposable incomes of households still limited to fund house development. However the proposed recapitalisation of the society should put it on a solid footing for the future.
One remains to see how the Turnall investment will be handled as it is definately non-core but this could herald a diversification stragegy on the part of the group.
The stragetic alliance of the group with NSSA was reflected in the board with the appointment of Mr Matiza to the group board. NSSA continues to be a significant shareholder in the group with significant stake in FBC Building Society.
There was no impairment of investment properties showing that there was no excessive valuations done in the 2008 periods and the marginal fair value gain of USD12K had a positive contribution to the total income of the group. Other companies have been posting impairment losses on properties.
Operational Risk remains a major concern for the bank as it is for many banks in the country which have been affected by roberries and thefts. However the bank seems to have put in place strategies to curb further losses by having staff rotations and Operational Risk Assessments.
The country is behind Basel II implementation targets as many other jurisdictions such as South Africa have already rolled out Basel II. With Basel III already being mooted on the back of revisions to Basel II, one can only hope that the implementation of th Capital Accord is fast-tracked so that the country keeps pace with the global financial and prudential developments.
FBC has however already implemented the piecemeal guidelines on Basel II outlined by Reserve Bank.
One sincerely hopes the stock market will reflect the performance of the bank as the shareprice has been heavily discounted over the years trailing the likes of NMB Bank which has a very small balance sheet compared to FBC Holdings!

Dony Mazingaizo has interest in Financial Management and Financial Reporting

Thursday, March 11, 2010

ABC Holdings Results for YTD 31 Dec 2009 showing strong growth

The results of ABC Group - a regional financial institution registered in Botswana have shown significant growth with the balancesheet growing by 11% which would be above the growth in GDP in many of the countries where the group has a footprint. However, the results show the effect of the global recession and credit crunch that affected its Zambian operations. I think this might necessitate a need to invest in fresh blood in the employees of that country!. However this also shows that credit risk and risk management in general will remain key issues for the banking industry going forward.
Group total comprehensive income was affected by revaluation losses on owner occupied property of USD5.4K . The investment property also had write downs of BWP14.6K . This reflects the stress in the property market prices in the region and Zimbabwe in particular.
Exchange rate risk is also reflected in the exchange losses on translating foreign operations with USD11.02K knocking the total comprehensive income thus weighing down on the total comprehensive income which reflects a total loss of USD5.7K.
The cashflow which is the lifeblood of any business showed positive changes over the 2 years with an increase of BWP338K registered over the period. The once off disposal of associate registered a profit contributing positively to the cashflows.
Segmental results show interesting growth in Mozambique and Botswana and these seem to be jurisdictions of promise in the SADC region despite the Diamond prices that remained depressed in 2009.
The Group Chairman, an astute entrepreneur and engineer, Mr. Chdawu resigned after 9 years serving the company and one hopes for continued growth in the Bank into a true pan-african entreprise

Dony Mazingaizo has an interest in IFRS and Financial Management

Monday, March 8, 2010

Black Economic Empowerment and the Future of Zimbabwe

I think in the minds of many, there is concensus on the need for black economic empowerment in Zimbabwe, also called BEE in South Africa. The real challenge seems to be on the operational modadilities.
In addition if one looks at the case study of South Africa, one realises that BEE is more than just share ownership, but looks at other broader equity issues such as preferrential procurement, and skills training. In addition the BEE environment in South Africa in cemented by codes which have gone through periods of ammendments largely due to evolutionary consultations done with other stakeholders.
There is more that can be done by the government of Zimbabwe to create an enabling investor climate during this recovery period while balancing off the need for economic participation by locals.
Dony Mazingaizo, has and interest in IFRS and Financial Management