FBC Holdings Limited (FBC.zw) 2018 Annual Report

We have extracted below the Chairman’s Statement from the 2018 annual report of FBC Holdings Limited (FBC.zw), listed on the Zimbabwe Stock Exchange:

Financial Highlights

  • Group profit before income tax up 86% to US$54.6 million.
  • Group profit after tax increased by 91% to US$44.4 million.
  • Cost to income ratio improved to 62% from 72%.
  • Basic earnings per share registered a 92% growth to 6.95 US cents per share.
  • Net asset value increased by 32% to 28.44 US cents per share.
  • Total shareholders’ equity increased by 24% to US$178.3 million.
  • Group total assets increased by 56% to US$1.1 billion.
  • Return on equity improved to 25% from 16%.
  • Final dividend proposed RTGS$6.2 million, excluding an interim dividend of US$2 million paid in September 2018

Financial Performance Review

I am pleased to present the 2018 full year financial performance for FBC Holdings Limited. Our 2018 financial performance is a reflection of the continued success of our diversified business model which has enabled us to continue bolstering our performance.

The 2018 Group profit before tax of US$54.6 million was 86% ahead of last year’s comparative amount of US$29.3 million and the Group profit after tax of US$44.4 million was 91% better than last year’s amount of US$23.2 million, culminating in a return on equity of 25%.

Total net income for the Group was up 39% toUS$145.9 million, with strong growth being registered in all the major revenue streams driven by a commendable product penetration of the market. Net interest income was up 41% to US$65.2 million from US$46.1 million, while net fees and commissions income also increased by 35% from US$31.6 million to US$42.8 million. Performance of our property development operations was also stronger this year, as evidenced by the 112% growth in our gross profit to US$2.5 million from prior year. Despite the challenges weighing down the insurance sector in Zimbabwe, our insurance operations managed to register a modest 16% growth in net earned insurance premium. The improved performance was driven by increased volumes of business across the subsidiaries supported by the continued entrenchment of the FBC brand in the market.

As you will observe from our set of results, the Group’s impairment allowance charge on financial assets for the period is down 63%, mainly due to the effects of changes to International Financial Reporting Standard (IFRS 9) which uses an expected credit loss model compared to the previous model that used an incurred loss approach. This is consistent with the realities of our strong asset quality and we expect that scenario to obtain in the future.

The Group’s administrative expenses of US$73.3 million were however 29% higher compared to the previous year, reflecting the adverse changes in the operating environment.

The Group’s total assets as at 31 December 2018 surpassed the US$1 billion mark, recording a 56% growth to US$1.1 billion from US$712.4 million the previous year. The Group’s capital position over the same period closed at US$178.3 million, translating to a 24% growth from US$144.6 million recorded in the previous year. The Group’s market capitalisation on the Zimbabwe Stock Exchange closed the year at US$235.2 million, representing a 32% trading premium to net asset value.

Audit Opinion

The country adopted the multi-currency system to replace the use of the Zimbabwean dollar in 2009, which subsequently resulted in the Zimbabwean dollar being demonetised and since then the country has been operating in a multi-currency regime, with the local Real Time Gross Settlement (RTGS) foreign currency account (FCA) bank balances trading at par the United States Dollar. As a result, the country adopted the United States Dollar (USD) as the functional and presentation currency.

In the Monetary Policy Statement issued in October 2018, the Reserve Bank of Zimbabwe (RBZ) directed that separate bank accounts be maintained for RTGS balances and US Dollar balances, although the official exchange rate between the two remained at 1:1. In February 2019, the RBZ introduced the interbank foreign exchange market and a new electronic currency called the RTGS Dollar which encompassed RTGS FCA balances, bond notes and bond coins. The new currency commenced trading on 22 February 2019 at an exchange rate of 1 USD to 2.5 RTGS Dollars. At the time of the introduction of the new currency, the Government issued a Statutory Instrument 33 of 2019 (SI33/19) which fixed the exchange rate between the RTGS balances, bond notes and coins at 1:1 to the US Dollar for the period prior to the effective date of the introduction of the RTGS Dollar. The fixing of an exchange rate of 1:1 for the period prior to the effective date of 22 February 2019 is not in compliance with International Accounting Standard 21 (IAS 21) which deals with The Effects of Foreign Exchange Rates. IAS 21 requires, among other key requirements, that the financial statements be presented at an exchange rate which approximates the market exchange rate. From October 2018 to 22 February 2019, the effective date of the new currency, the market traded at various rates, with some significant transactions also being traded at 1 US Dollar to 1 RTGS Dollar in compliance with the law. The Group maintained a fixed rate of 1:1 between the US Dollar and the RTGS Dollar and has therefore not complied with IAS 21 for the year ended 31 December 2018, as compliance would have resulted in the Group violating the law which required parity between the US Dollar and RTGS Dollar. The Group has, however, provided a sensitivity analysis of the statement of financial position that would prevail if various exchange rates had been used instead of the gazetted rate of 1:1. The sensitivity analysis is shown in note 44.2.

In view of the above failure to fully comply with the requirements of IAS21, the Group Independent Auditors, Deloitte & Touche Zimbabwe, have issued an adverse opinion on the financial statements for the year ended 31 December 2018.

Operating Environment

The 2018 financial reporting season comes in the midst of significant monetary and fiscal policy reforms that started in October 2018 with the launch of an economic reform programme under the Transitional Stabilisation Programme (TSP). Fiscal consolidation through containment of the fiscal deficit to sustainable levels has been the key stabilisation objective of the TSP and the 2019 National Budget. Preliminary indications are pointing to a change in approach in the management of public finances, with the government recording surpluses in its public finances since December 2018. This commendable progress will significantly support the stabilisation of the economy as well as attract investment. It is our hope that the government will continue to consolidate its fiscal discipline for the long term benefit of the nation.

Inflationary pressure however remains a cause of concern and its effects have been felt in our operations through a general increase in the cost of doing business. Inflation is expected to slow down during the second half of 2019, on the back of fiscal consolidation measures and containment of money supply growth.

Distortions in the foreign exchange market negatively affected the markets through multiple pricing of goods and services. Mostly affected in our Group was FBC Building Society through procurement of construction materials while our insurance businesses witnessed punitive realities in their claims management processes.

The Monetary Policy Statement announced in February 2019, paved the way for market determined exchange rates between the RTGS dollar and other currencies which promotes financial sector stability, containment of inflationary pressures and the building of confidence.

Financial Services Sector

The banking sector remained generally stable as reflected by impressive capital levels and industry wide improved earnings performance for the period ended 31 December 2018. Asset quality however, deteriorated as reflected by the increase in the average non-performing loans to total loans ratio, from 7.1% at the end of 2017 to 8.39% by December 2018. FBC Bank Limited’s (non-performing loans) NPL ratio was at 1.1%, FBC Building Society at 6.1% whilst Microplan was at 4.91% as at 31 December 2018.

The Insurance Sector

The uptake of insurance products has generally remained subdued due to prevailing vulnerabilities in the local economy. Given pricing disparities of insurance policies, we have witnessed a general increase in under insurance as most customers are failing to keep pace with the premium requirements from insurers. It is against this background that, going forward, FBC Insurance has taken a deliberate decision to develop innovative products that are customer centric, whilst at the same time preserving the general risk management expectations of decent insurance cover. Claims costs also went up significantly as most service providers adjusted their pricing models in response to the distortions of the foreign currency market. This trend has been most prevalent in the motor insurance business class.

Property Market Sector

The need to preserve value, at both individual and corporate level, has continued to influence the demand for properties within the local market. The aforementioned pricing distortions have filtered through to property valuation disparities. Property development has remained constrained due to distortions in the pricing of construction materials which invariably would distort the pricing of completed housing units.

Stock Market Performance

The industrial index gained 46.28% during the year to close at 487.13 points. The pressures to hedge monetary assets remain the key driver of the bullish performance on the Zimbabwe Stock Exchange as investors chase inflation indexed assets. Market players have resultantly been rebalancing investment portfolios out of money market investments in favour of the stock market.

FBCH 2018 Share Price Performance

The FBC Holdings share experienced relatively high trading volumes with a total of 69,742,707 shares being traded during the year at a volume weighted average price of 0.2603 cents. Prior year volumes were recorded at only 7,645,248 shares at a volume weighted average price of 0.1546 cents. The recorded growth in the company’s share price of 68.37% was ahead of that registered by the broad market index of 46% and ahead of the official inflation figure of 42.1%.

FBC Trend-Setting

During the period under review, the Group was recognised for outstanding performance in various fields of interest. The recognitions below bear testimony to this achievement:

  • FBC Holdings won the Institute of People Management of Zimbabwe (IPMZ) HR Technology award.
  • FBC Bank won the CSR Network Zimbabwe 2018 Top Sustainable Company of the Year award.
  • FBC Building Society scooped the First Prize in the Chartered Institute of Project Managers Zimbabwe (CIPMZ) Awards for being the Best in Property Development under the Residential Projects Category.
  • FBC Insurance Company scooped the Short Term Insurance Runner up Award in the 2018 Top Companies Survey.
  • MicroPlan became the first local firm to receive the Smart Campaign Certification in Zimbabwe. The Smart Campaign is a global initiative aimed at promoting the embedding of client protection practices into the institutional culture and operations of micro-financing firms.
  • MicroPlan was also recognised at the Zimbabwe Association of Microfinance Institutions (ZAMFI) Awards as follows; Most Client Focused and Socially Responsible Microfinance Institution (MFI). Most Innovative Use of ICT by an MFI.
  • Microplan also won the Zimbabwe National Chamber of Commerce (ZNCC) Matabeleland Region 1st Runner- Up Enterprise Development Award.

FBC in the Community

The FBC Group invested in a considerable number of community-based, sustainable and value-driven corporate social responsibility (CSR) initiatives to improve the livelihoods of ordinary Zimbabweans across the country. FBC established an exceptional track-record of success in spearheading CSR initiatives in the fields of education, health, environment, sport, culture and the welfare of senior citizens. The details of the Group’s activities are provided in the Group Chief Executive’s report. Following the devastation of Cyclone Idai that hit Mozambique, Zimbabwe and Malawi in March 2019, the Group responded swiftly by offering help to fellow countrymen affected by this disaster. The Group donated forty (40) tonnes of groceries and two thousand (2000) litres of fuel to assist victims of Cyclone Idai in Manicaland and Masvingo Provinces. The total value of the Group’s donation is in excess of $120 000. In addition, the whole of the FBC Family across the nation contributed resources towards alleviating the plight of Cyclone Idai victims. FBC Group members of staff mobilised important items such as tents, blankets, clothes, buckets, dry –food, pots and basic hygienic items. The Group has also pledged to assist with the reconstruction of four classroom blocks in the affected provinces.

Digital Transformation and Innovation

The Group accelerated its digitalisation and innovation programme in 2018 through deployment of both human and technology investment. Amongst other outcomes, the program should enable the business to be leaner, cost-efficient, agile and competitive locally and beyond. Aside from lowering costs, the initiatives will continuously realign processes to focus on improving customer experience, business growth, as well as delivery reach across the integrated organisation.


FBC Holdings Limited and its subsidiaries are committed to complying with all applicable laws that are legally binding for the Group, including anti money- laundering laws. Any breach of the applicable laws and regulations exposes the Group to legal, financial and reputational risks and may result in de- risking which will impair the Group’s ability to provide products and services to its customer base. The Group therefore realises the serious impact of noncompliance and will continue to place great emphasis and commit resources on measures to mitigate the same. During the course of 2018, the Group invested in Anti Money Laundering Software and Systems to enhance transaction monitoring and surveillance. The Group continues to work with its correspondent banks to continuously improve on transaction monitoring and sanctions screening.

Environment, Social and Governance (ESG)


In line with the adopted International Finance Corporation (IFC) and Global Reporting Initiative (GRI) reporting guidelines on environmental management, the Group continues to spearhead initiatives that assist in combatting environmental harm and subsequently raising livelihoods. We are making relentless efforts, through our lending units, to work towards low-emission and climate resilient projects. The Group is building and enhancing processes incorporating ESG risks as part of the overall enterprise risk management with the objective of sustaining longterm value creation for all our stakeholders and the Board is devoting time to discuss the ESG risks and opportunities to ensure that they are embedded in the long-term strategy of the Group.


The Board was strengthened by the appointment of Mr. Rute Moyo and Mr. Gary Steven Collins with effect from 2 July and 9 July 2018 respectively. The two non- executive directors each bring a wealth of experience which will come to bear in providing strategic direction to the Group.


On behalf of the Board of Directors, I am pleased to advise shareholders that a final dividend of 0.9182 RTGS cents per share was proposed. This is in addition to the interim dividend of 0.2976 US cents per share which was paid in September 2018. The total dividend paid for the year 2018 amounted to RTGS Dollars 6.2 million and US$2 million that was paid in September 2018 as an interim dividend.


Along with the rest of the nation, we remain optimistic that the fiscal and monetary interventions that the government is pursuing will yield the desired results, providing the bedrock for strengthening our business development initiatives. Digital transformation, investment in ICT capabilities and strengthening our compliance and risk management frameworks will remain the key enablers of our business going forward. We look forward to making significant strides as we embark on our exciting digital transformation journey.


My sincere gratitude goes out to our various stakeholders, strategic partners, clients and regulatory authorities for their steadfast support and commitment in our journey to elevate and consolidate the FBC Holdings Brand.

I am also grateful to my fellow Non-Executive Directors of FBCH, Group Chief Executive, John Mushayavanhu and the entire FBC Team for placing the Group on a path of sustainable growth. I look forward to your unwavering support throughout the year ahead.

I thank you.

Herbert Nkala
Group Chairman