FBC Holdings Limited (FBC.zw) HY2021 Interim Report
It is with great pleasure that I present to you the Group’s audit reviewed interim financial statements for the period ending 30 June 2021. The results are presented at a time when the country is confronted by a third wave of the Covid-19 pandemic. Barring protracted headwinds caused by the resurgence of the Covid-19 pandemic in the form of new variants, the Group showed resilience and tenacity in the period under review.
Financial Performance Review – Inflation Adjusted
Despite the negative impact of Covid-19, Group financial performance showed resilience, registering a profit before tax of ZWL1.16 billion and an after tax profit of ZWL529.14 million. This performance was largely anchored on the Group’s core business revenue lines which accounted for 66% of total income. The Group’s strategic thrust of intensive investment in digitalisation and hedging strategies contributed largely to overall performance.
The Group achieved a total income of ZWL4.75 billion for the period, representing a 34% decline from the prior year’s corresponding period performance. The Group’s subdued total income outturn was largely influenced by a 76% reduction in net trading and dealing income, following the stabilisation of the ZWL interbank exchange rate against all the major currencies, bolstered by the foreign exchange auction system. The significant reduction in this revenue line was counter balanced by a strong growth in other core business revenue streams.
Net interest and related income was 43% ahead of the prior year’s corresponding period, at ZWL1.33 billion, leveraging on the Group’s 12% growth in loans and advances. The Group reduced its minimum lending rate during the period under review in order to assist customers in coping with the Covid-19 induced low economic activity and reduced demand. Fee and commission income improved by 89% to ZWL1.12 billion, partly supported by the Group’s digitalisation thrust which enhanced retail and service fee performance. Transactional volumes have generally been subdued within the financial services sector with most institutions implementing digital solutions to augment business growth.
The Group’s net insurance premium earned was 40% ahead of the same period last year, at ZWL635.16 million. The insurance portfolio has remained susceptible to the subdued economic activity and general reduction of consumer disposable income.
Net profit from property sales was ZWL50.97 million, recording a significant growth of 350% compared to the same period last year. This was achieved as a result of an improvement in pricing and an increased number of units sold. The Group is set to improve this revenue line following significant progress achieved on the Fontaine Ridge project in Harare – Kuwadzana high density suburb.
Other income largely relating to the Group’s net trading and dealing activities declined by 70% to ZWL1.62 billion following the stabilisation of the ZWL interbank exchange rate, which has depreciated by less than 5% against the USD from the end of December 2020.
Group cost to income ratio of 76% was achieved on the back of an 18.6% decline in administrative expenses. This ratio however, is significantly higher than the 39% achieved last year, mainly due to the 34% decline in total income caused by the dip in trading and exchange income. The Group will continue to implement prudent cost containment measures against declining revenue growth and relative inflationary pressures.
A net monetary loss of ZWL678.61 million was incurred, in contrast to a ZWL316.64 million gain achieved in the corresponding period last year, mainly as a result of the increased net holding of monetary assets in line with the Group’s inherent business model. The slowing down of inflation helped to contain the net monetary loss.
The Group’s statement of financial position grew by 7% to ZWL41.67 billion from the 31 December 2020 position of ZWL39.11 billion. This growth was mainly driven by a 5% growth in deposits from ZWL24.71 billion to ZWL 25.92 billion.
Total equity attributable to the Group’s shareholders grew by 13% to ZWL6.90 billion, benefiting from an increase in retained profits and other non-distributable reserves following the disposal of treasury shares.
The 2021 interim period was characterised by a challenging macroeconomic environment brought about by the Covid-19 pandemic, which had a significant impact on business operations. Successive episodes of lockdown measures have culminated in the adoption of remote working arrangements, with reduced business operating hours, militating against the Group’s capacity to aggressively grow revenue lines across business segments.
Meanwhile, Zimbabwe’s Gross Domestic Product (GDP) is anticipated to rebound, largely anchored on a good 2020/21 rainfall season, higher international mineral commodity prices, and a stable macroeconomic environment. Higher growth rates are projected in agriculture, electricity generation and manufacturing. The Government’s efforts to stabilise prices through prudent fiscal policy and rules-based monetary and exchange rate policies, have been effective and must be continued in order to enhance confidence and improve macroeconomic conditions. On the fiscal side, in addition to measures improving revenue collection, stringent fiscal policies are required to reduce unbudgeted spending and redirect resources where they are most needed, including social service delivery and re-establishment of human capital.
Despite the tough operating environment, the Group is making good progress in its various strategies. We continue to grow our key focus areas, leveraging on emergent opportunities from the relatively stable macro-economic environment. We are in the process of simplifying our business processes through digital value chains in order to improve customer experience.
Foreign Exchange Rates
The Foreign Exchange Auction System has contributed immensely in bringing about transparency in the trading of foreign currency as well as stability to the exchange rate which has culminated in price stability. The efficient allocation of foreign currency through the Foreign Exchange Auction System has contributed to increased confidence and growth in economic activity. Encouragingly, the Foreign Exchange Auction System continues to support productive sectors of the economy with more than 70% of foreign exchange allotted to this sector.
The Reserve Bank of Zimbabwe’s efforts in addressing the gap between the official and parallel exchange rates through tightening money supplyc and expunging the foreign exchange allotment backlog, are commendable. In addition, increasing the attractiveness of local currency and creating complimentary attributes is imperative. We are confident that these initiatives coupled with other monetary policy measures will continue to support the stability of the exchange rate going forward.
Annual inflation has maintained a downward trend since July 2020. Encouragingly, the policies being implemented by Government and the Reserve Bank of Zimbabwe have managed to anchor inflation expectations as attested by a significant decline in inflation from 837.5% in July 2020 to 106.6% in June 2021. The environment brought about by foreign currency availability has greatly improved business confidence.
The success of the conservative monetary targeting framework since 2020, has helped to contain money supply growth, which in turn stabilised the exchange rate and eased inflationary pressures in the economy. Reserve money stock stood at ZWL24.17 billion which was well within the target of ZWL28 billion as at the end of June 2021. Concomitantly, moderate price increases were experienced during th