A Review of selected companies' financial performance for the year ended 31 Dec 2009 - Part 2

CBZ Holdings

CBZ profitability of USD16million was spurred mostly by net income from foreign currency dealings, fair value adjustments on investment property and revaluation gains on property plant and equipment. Total assets of the group stood at USD452.5m hence the profitability represent a ROA of 4%.

The deposits position of the bank is quite healthy standing at USD360.8m up from USD63.9m in 2008. The bank has benefited a lot from Government accounts and ZIMRA deposits since it has significant deep pockets in these customer segments.

The liberalisation of ZIMRA bank accounts in 2010 should see other banks sharing these cheap deposits too allowing them to deploy them to short term investments. Previously only CBZ, FBC Bank and Standard Chartered Bank enjoyed ZIMRA deposits. This liberalisation should even out the playing field and going forward, any bank that will do well is one that is able to have cash rich clients on their balance sheet such as Inscor and Econet!

The significant deferred tax balance of USD4.3m represents timing differences between the company’s depreciation rates and capital allowances offered by tax legislation which is in sympathy with the revaluations done and significant PPE of USD11m purchased during the year. However the note on deferred tax did not separate the deferred tax arising from investment properties and component attributable to property plant and equipment and the charge of deffered tax to the income statement is different from the amount noted in note 18.

Cost to income ratio at 63% is relatively high compared to previous years but is in line with cost to income ratio of other regional banks in South Africa.

Impairment losses represented 22% of operating income and 1% of total advances which reflects prudent advances and loan policies in light of volatile and short term deposits in the market.
Segmental analysis of the results indicates that the commercial banking arm is the biggest contributor to profit with 91% contribution to the profit before taxation of the group.

The appointment of the group board should help in better execution and delivery of group strategy. Further the integration of CBZ Building society as a division of the bank – home loans should help in benefiting from synergies such as shared services and lower capital requirements.

ZB Financial Holdings
Targeted sanctions on the group have affected customer confidence in the group. Ultimately banking is about confidence whether perceived or real.
The removal of the group from targeted sanctions by the EU block should increase confidence of customers however there is need by the USA to remove the group from the sanctions list so that the group can freely transact with other correspondent banks and access any balances tied up in the US Treasury department.

Inevitably the group had to focus on cost containment with retrenchment of staff done at a total cost of USD1.1million with total comprehensive income of USD8.5m driven largely by gains on property revaluations of USD8.5m.

The group profit was largely influenced by a good performance from the Reinsurance and life assurance SBUs which contributed 65% to the total income of the group which is in line with market trends in companies such as Afre Corporation.

The rationalisation of the group saw ZB Bank acquiring the 100% shareholding of a property investment company – Barcelona from ZB Holdings. Such a move may have been done to strengthen the balance sheet of the bank and boost the capital base of the bank subsidiary.

Kingdom Financial Holdings
Total assets as at 31 December 2009 stood at USD106m compared to total assets of CBZ Holdings of USD452m.

Post the demeger it will be interesting to see how the group will find replacement capital of USD22.5m which had been injected by Meikles Africa into the group through Reserve Bank.
Significant directorship changes have already taken place with the Appointment of Mrs L. Mukonoweshuro as GCEO. Further there has been staff retrenchments which saw the group incurring a once off cost of USD3m in packages resulting in total comprehensive loss of USD2.8m.

The cost to income ratio of the group of 121% is reflective of the loss position of the group driven largely by retrenchment costs without which the group would have made a profit after tax of USD1.5m.

Barclays Bank
Barclays bank had a total asset base of USD169m as at 31 December 2009 and total comprehensive income for the year of USD1.8m representing a Return on assets (ROA) of 1%. The income of the bank was largley driven by fee and commission income of USD10m.
The deposit base of the bank stood at USD121m compared to CBZ Bank of USD360.8m. Unlike other banks which had revaluation gains on property the bank registered an impairment loss of USD127k during the period knocking off the income statement. However there was no impairment on plant and equipment.

The offbalance sheet guarantees and letters of credit offered by the bank to customers amounted to USD18.3m which amounts to 11% of the total assets. CBZ Bank on the other hand has commitments of USD63.6m representing 14% of its total assets. This low level of exposure shows prudent management of off –balance sheet risk.

The bank needs to do more to mobilise cheap deposits and stand neck to neck with the likes of CBZ and Stanbic Bank in the market since the business environment is post survival mode and now is the time for entrepreneurs to claim their share in the competitive environment.

ZIMRE Propery Investments Limited
The company posted a loss of USD4.3m driven largely fair value loss on investment properties of USD11.3m. the company has a balance sneet of USD37m which looks inadequate to underwrite significate business in the property development sector.

The company results also reflect liquidity stress with cash of only USD0.5m. This does not augur well for major construction work and working capital needs.
However the company has ongoing construction work/pipeline projects in Masvingo, Chinhoyi, Harare and Bulawayo which should begin to add value to the balance sheet once complete

Hippo Valley Estates Limited
The company posted total comprehensive income of USD21m at the back of very strong revenues of USD59.9m. The total assets for the yead ended 31 Dec 2009 stood at USD248m representing a ROA of 8%.

However the profit of the business has an element of IAS41, Agriculture adjustments on growing crops of USD17.5m as reflected in the group cashflow statement resulting in a negative cashflow from operating activities of USD444k.

The cashflows of the group remain strong at USD4.6m at the end of the period with long term borrowings of USD2.2m which augurs well for the working capital position of the business
The removal of price controls on the local market and improved export performance to the European Union and United States impacted positively on the business operations.

CABS
CABS showed strong performance for the six months ended 31 December 2009 despite the sluggish activity in the construction sector. The company posted USD17.7m in total comprehensive income buyoed by gains on revaluation of properties of USD10.6m and fair value adjustments on investment properties of USD9.6m.

This represents ROA of 21% which is way above the 15% return on investment set by the Old Mutual group of which CABS is associated with. This return was achieved with total assets of the building society at USD86m.

This ROA is quite good given that most banks have not posted ROA of below 10% over the 12 months period ended 31 Dec 2009. One can only see even stronger performance by end of the 12 months ending 30 June 2009 for CABS.

The company has deposits of USD35m and is bound to benefit from a strong brand linked to the Old Mutual group. One wonders what the impact of the recently gazetted Indeginisation and Empowerment Act and regulations will have on the building society and Old Mutual as a group.

Dony Mazingaizo has interest in Financial Management and IFRS

Show me the money! The case of Zimbabwean Companies in their quest to recapitalise

Many Zimbabwean companies have been focusing on recapitalising their businesses and also restructuring their balance sheets in the recent past.

Companies have have had two main options i.e. equity or debt. Debt has been expensive to raise and with the liquidity challenges in the local market, many banks have not been able to provide longterm debt with a more acceptable maturity profile. Equity capitalisation has been the preferred route by many companies which include Nicoz Diamond, OK Zimbabwe, Star Africa Corporation and Art Corporation. Where debt capitalisation has been pursued, this has been utilising external funds from banks such as Banc ABC with strong balance sheets and South African financial institutions such as Investec.

Recent rights issues on the market have however reflected the liquidity constraints with the Star Africa Corporation recent rights issue subcribed to less than 30 percent showing that most shareholders could not follow their rights given the low liquidity leaving financial institutions to take the residual equity as underwriters. However OK Zimbabwe was subscribed to 70.4% by local shareholders with 29.6% taken by underwriter Investec of South Africa as per results published in the Herald Newspaper dated 14 April 2010.

Art Corporation has CBZ Bank and Interfin as the 2 underwriters of its right issue aimed at liquidating part of its short term debt by USD3.9m, reduce interest expense and bolster its working capital position. A total of USD4.67m is targeted to be raised by 30 April 2010 when the rights offer period comes to a close.
It remains to be seen how such equity will be offloaded since financial institutions are supposed to dispose of the equity holding after some time unless such an investment has been approved by the central bank.

Its most likely that the strategy is to kickstart production and at the back of improved profitability allow local shareholders to buy back the shareholding from underwriters and restore their diluted control.

It is no easy road for any local shareholder and one could say the coming of the indegenisation and empowerment act has not helped much either with so much hesitation by foreign investors to put their dollar in Zimbabwe given the peceived sovereign risk profile of the country.

Dony Mazingaizo has an interest in Financial Management and IFRS