Old Mutual Zimbabwe says it is diversifying its business focus by growing its private equity portfolio and expanding into the informal sector due to limited investment opportunities and a shrinking formal sector. Group CE Jonas Mushosho told a recent analyst briefing for the company’s FY15 results that the loss of value on the Zimbabwe Stock Exchange and the shrinking insurance business which have been core to the group’s operations necessitated the adoption of the new strategy.
“There are now limited opportunities on the ZSE and in the year to date we have since lost 14percent of value, so we want to increase our private equity portfolio,” he said.
He said there has been huge informalisation that had taken place in the economy and the group has been working on a strategy to enter the informal sector.
“Our plan is ready and has been approved by the Board, and we are now in the process of implementing that plan.We have since appointed a Head of Financial inclusion and we are in the process of recruiting staff that will work under this unit which will be a separate unit,” he said.
Mr Mushosho said the focus on financial inclusion was based on the group’s five key pillars (customers; responsible investment; employees; communities and environmentalmanagement).
As such, the group will roll out a financial literacy programme tailored to the informal sector. “We have a programme that we will be rolling out and it will be the cornerstone of our entrance in the informal sector,” he said.
He said the group will also set up a Micro Finance Institution that it is currently working on and waiting for approval. It will also set up Micro-Insurance and Micro-Housing which is different from mortgages.
Meanwhile, Mr Mushosho said the group is committed to supporting government programmes and to date has spent over $100 million in various projects. In the year, the group invested a total of $70 million in the Budiriro housing project, $9.5 million was spent on AMA Bills, $2.5 million on ZETDC Bond and $2.6 million on the Pension and Housing scheme.
Turning to the financials, group revenues for the year grew by 6percent to $203.8 million from $192.3 million in 2014 driven largely by interest income at the bank ($101 million), Net Earned Premiums ($171 million) in both life and general insurance businesses.Investment income was a negative $126 million from a loss of $101 million in 2014 due to the negative investment returns across the group’s investment portfolio.
The growth in the insurance business was driven by new business that was acquired during the year.
Consequently, Adjusted Operating Profit (AOP) grew by5percent to $76 million from $72 million in 2014.AOP is comprised of operating profit plus smoothed investment income on the shareholder funds.
Mr Mushosho said the group’s strong performance is premised on key lead indicators which show how the business will be performing in the future. He said first of the indicators wereloans and advances which grew by 27percent to $563 million, saying the group was able to find quality clients and businesses to lend toas well as theincreased mortgage portfolio.
The other indicator was the19percent growth in Net Client Cash Flow (NCCF)at $117.5 million which according to Mushoshoshow that a lot of clients trust the group with their money. The growth in NCCF also cushioned the decline in funds under management which went down by 4percent to $1.6 bln.
Non-life sales increased by 46percent to $221.5 million whilst Life Sales also went up 45percent to $28.6 million, drivenby corporates and the recovery that was seen soon after dollarisation.
Expenses grew 13percent to $109.9 million from $97.3 million in prior year continuing to support businessgrowth in the banking business. During the year, a number of CABS branches were refurbished and the IT system upgraded.
“The expenditure was deliberate because we are seeing opportunities in this economy thus we made a significant investment in CABS,” he said.
In terms of individual business performances, the group’s Life Assurance (OMLAC) gross premium income grew 6percent to $147.6 million from $139.8 million in 2014 driven by the growing retail business. Life sales went up 5percent to $28.6 million which was a result of new client acquisitions gained from intensified marketing strategies. Mushosho said AOP and IFRS profit at $29.9 million and $0.9 million respectively were 4percent and 91percent down in that order as a result of negative returns on the ZSE. NCCF was down 2percent to $48.6 million.
At CABS, net interest income increased 25percent to $100.84 million from $80.5 million driven by the growing loan book. Loans and advances grew by 27percent to $563.1 million from $443 million in prior year due to an increase in demand for loans and availability of funds for lending. Total deposits went up 27percent to $829.1 million compared to $651.5 million as a result of acquisition of new clients. NPLs decreased marginally to 7.5percent from 7.7percent resulting from strengthening of the credit approval process. The bank made a surplus of $28.4 million up 18percent.
Short Term Insurance premium income was up 16percent at $35.9 million from $30.9 million in prior year due to new business acquired. Profit before tax advanced 19percent at $3.7 million from $3.1 million in 2014 as a result of a good underwriting result which went up 30percent to $4.4 million from $3.4 million reflecting the quality of business written.The underwriting ratio improved by 6percent to 16.9percent while the claimed ratio worsened to49.6percent from 47percent. AOP was up 26percent to $6.2 million and the profit before tax surged 19percent to $3.7 million benefiting from a good underwriting result.
On Investment Services, Non-Life sales were 46percent down at $221.5 million compared to $151.8 million. Fees income went down 2percent to $16.9 million from $17.3 million due to depressed income sources resulting from the subdued macro environment. Funds Under Management slumped 4percent to $1.6 billion from $1.7 billion in prior year affected by the weak market performance.
Profit before tax was down 14percent to $7.22 million but the NCCF was up $68.9 million largely driven by the increased inflows from the unit trusts business. – Wires.