Analysts presentation Audited results for the year ended 31 - - PowerPoint PPT Presentation

Analysts’ presentation

Audited results for the year ended 31 December, 2018 ZB Financial Holdings

Outstanding Financial Institution of the year - 1st runner up - Business Awards 2016 (MEGAFEST) Property development –Commercial projects - 1st runner up - Zimbabwe Project Management 2017 Awards (CIPMZ) Silver medal - Best SMEs Business Advisory Services -SMEs International Expo 2016 (BUSINESS CONNECT) Superbrand’s 2018 Top 200 Brands – Participant in the Superbrand Research Report (MAZ) Top 100 Local Brands 2018 – Nominated among Zimbabwe’s top 100 local brands (BUY ZIMBBAWE) Best bank supporting SMEs development - 1st runner up 2017 (ZNCC)

Market recognition of the Group’s efforts remained high.…

Best Turnaround Strategy in 2015 - Zimbabwe Quoted Companies Survey 2016 Awards (ZIMBABWE INDEPENDENT) 2

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Business Environment : An overview 01

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Negative real returns on interest earning assets.

• The Ministry of Finance & Economic Development estimated GDP growth for FY18 at 4%,

down from an initial projection of 4.5% with constrains being experienced across most sectors.

• The El Nino phenomenon contributed significant downside risk affecting food security.
• Currency dynamics affected business confidence in the wake of rising inflation and value

erosion.

ZSE experienced increased volatility, with capitalisation going up by 124.5% Y-o-y inflation closed at 42.09% in Dec 18. Broad money supply increased by 28% y-o-y. National payments systems skewed towards mobile platforms – 85.4% volume contribution. Persistent cash and forex shortages and sustained currency arbitrage.

Headwinds persisted in the business environment in FY18....

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Enhanced partnerships with Afreximbank, Trade & Development Bank (TDB), AfDB and IFC US$30m lines of credit mobilised from regional financial institutions and at various stages of utilisatiion Increased volume of foreign transactions (WorldRemit & Mukuru) as well as DStv payments Geographical footprint reviewed: new sub- branch opened in Glendale Q3 2018 whilst Mutare branch refurbished – Q1 2018. POS network expanded; 1500 new mPOS machines at distribution stage Significant investment made to improve performance of IT channels and overall customer experience +$5m New suite of Hospital Cash Plan products launched in Q3 2018 Partial success in fundraising for roads rehabilitation (+US$62m

• ut of a mandate of

US$150m from ZINARA)

Whilst the Group continued to make inroads....

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MTA Growth FY18 FY17 % Inc Volume 37.1k 3.4k 986 Val ($)m 7.71 0.74 938

Roll-out of renewable energy solutions in partnership with selected universities and local authorities continued Cumulative count for household electricity reticulation now above 4,000 units Property sales placed on hold in order to preserve

• value. Servicing to

“stock” will continue subject to resource availability. Customer Care Clinics and Wellness programs completed to horne skills and increase staff engagement levels Branch refurbishment program slowed down as a result of unforeseen price escalations Group-wide product audit commissioned and completed

Whilst the Group continued to make inroads....

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Credit ratings remained stable whilst the target is to achieve investment grade ratings across all units....

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Company FY18 FY17 Rating Review Date ZB Bank Limited BB BB- Sept, 2019 ZB Building Society BB- BB Sept, 2019 ZB Reinsurance Limited A- A- May, 2019

The Group is targeting a tier 1 capital level of $100m for its banking operations by 2020….

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As at 31 December 2018 (US$m) Company Gross Capital Base Regulatory Capital Regulatory Minimum Excess Available against regulated 2020 Regulatory Target Gap to 2020 ZB Bank Limited 70.8 71.7 25 46.7 100 (28.3) ZB Building Society 18.9 18.9 20 (1.1) 25 (6.1) ZB Reinsurance Limited 12.1 12.1 5 7.1 5 7.1 ZB Life Assurance 19.0 19.0 2.5 16.5 5 14.0 ZB Transfer Secretaries Limited 1.2 1.2 0.15 1.0 0.15 1.0

Financial Outturn 02

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• 1. The adverse opinion arises from the failure to fully comply with IAS 21 “Effects of Changes in Foreign

Exchange Rates”

• 2. Compliance with IAS 21 would have been required to recognise the impaired convertibility of the local

currencies to other foreign currencies

• 3. The US$ has been used as the functional and reporting currency in the financial results to 31 December

2018 in compliance with SI 33 of 2019 and applying the guidance from PAAB on the subject.

• 4. Sensitivity analysis has been incorporated in the detailed financial statements to show the possible

impact of translating the Statement of Financial Position to the new currency, the ZWL, at various rate scenarios as at the reporting date.

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Financial results only comply with IFRSs partially and carry an adverse audit opinion....

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Nominal performance for FY18 was ahead of the FY17 outturn….

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• Profit increased by 54% from US$14.15m in FY17 to US$21.79m in FY18 resulting in the EPS increasing by 51% from

US8.29c to US12.5c whilst the ROE improved from 14% to 20% over the same period.

Summarised statement of profit or loss FY18 US$(m) FY17 US$(m) % Change Total Income 83.53 68.95 21% Total expenses (56.20) (50.94)

• 10%

Profit Before Tax 27.33 18.01 52% Movement in the Life Fund (5.63) (3.56)

• 58%

Share of profit in associate 2.24 3.04

• 26%

Income tax expense (2.15) (3.34) 35% Profit for the period 21.79 14.15 54% Earnings per share (EPS) (cents) 12.52 8.29 51% Return on equity (ROE) 20% 14% 600bp

9.36 11.43 14.15 21.79 FY15 FY16 FY17 FY18

Profit after tax ($m)

Income concentration in non-funded sources remained high; contribution from lending activities improved….

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Total income contribution FY18 FY17 % US$(m) US$(m) Change Net earnings from trading and lending activities (NELA) 19.09 14.81 29% Net reinsurance income (NRI) 2.25 3.18

• 29%

Net life assurance income (NLA) 7.70 6.41 20% Non-funded income (NFI) 54.49 44.56 22% Total income 83.53 68.95 21% 21% 5% 9% 65% 23% 3% 9% 65%

Total income contribution

NELA NRI NLA NFI

FY18 FY17

Interest rates were soft as excess liquidity dominated most of the year….

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• Interest paying liabilities re-priced faster than interest earning assets resulting in a higher NII to GII ratio from 72% in FY17 to 79% in

FY18.

• A net charge of US$4.9m was posted for FY18 in respect of impairment on non performing loans against a charge of US$3m for FY17.

Net interest income FY18 US$(m) FY17 US$(m) % Change Gross interest income(GII) 30.57 24.82 23% Interest expense 6.56 7.01 6% Net interest income(NII) 24.01 17.81 35% Net impairment movement (4.92) (3.00)

• 64%

Net earnings from lending activities 19.09 14.81 29% NII to GII ratio 79% 72% 700bp Net interest margin 29% 26% 300bp

210 223 264 327 0.55% 0.56% 0.57% 0.58% 0.59% 0.60% 0.61% 0.62% 50 100 150 200 250 300 350 FY15 FY16 FY17 FY18 Interest earning assets Interest margin

Interest earning assets (US$m) and Interest Margin Analysis(%)

Life assurance premiums improved underpinned by growth in new business….

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• The technical result improved by 20%, driven by a 17% increase in gross premiums which was partially offset by a 12%

increase in policy benefits and reassurance premium commission expenses.

• Policy surrenders increased by 14% as household income levels deteriorated due to a resurgent inflationary trend.
• The technical expense ratio however improved from 45.2% in FY17 to 43.5% in FY18.

Net Life Assurance Premium Income FY18 US$(m) FY17 US$(m) % Change

Life assurance premium 13.63 11.70 17% Benefits paid and reassurance commission expenses (5.93) (5.29)

• 12%

Technical re resu sult 7.70 6.41 20% Technical expense ratio 43.5% 45.2% 380bp

4.98 5.76 6.41 7.70

FY15 FY16 FY17 FY18

Net life assurance premium income (US$m)

Reinsurance business remained flat….

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• Foreign premium contribution reduced from US$4.7m for FY17 to US$3.3m for FY18 due to the amplified foreign exchange

risk on the local market. The loss was offset by increases in other local risk classes such as tobacco hail.

• Claims remained at acceptable levels (5.3% increase) whilst retrocession premiums reduced by 18%, with the net reduction

in cost being offset by a 336% adverse movement in technical reserves to result in an overall 6% increase in reinsurance expenses.

Reinsurance gross premium income posted a flat outturn….

FY18 FY17 % US$(m) US$(m) Change

Local premium income 15.90 14.37 11% Foreign premium income 3.26 4.73

• 31%

Reinsurance premium 19.16 19.10 0.3% Reinsurance expenses (16.91) (15.92) 6% Technical result 2.25 3.18

• 29%

Local premium income contribution 83.0% 75.2% 780bp Foreign premium income contribution 17.0% 24.8%

• 780bp

Technical expenses ratio 88.3% 83.4% 490bp

3.51 3.03 3.18 2.25 FY15 FY16 FY17 FY18

Net reinsurance premium income (US$m)

Revenue expansion from transaction fees was constrained by controls during the year….

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Non-funded income

FY18 US$(m) FY17 US$(m) % Change Mix

Fees and commissions 39.96 37.80 6% 73% Fair Values 9.25 2.73 239% 17% Dividend received 1.94 0.06 3244% 4% Other income 3.34 3.97

• 16%

6% Total 54.49 44.56 22% 100%

• Banking fees and commissions improved by 6% largely driven by increased volumes of electronic banking transactions.
• Investment returns improved by 301% from US$2.79m in FY17 to US$11.19 in FY18 driven by movements in ZSE stock prices

(contributing US$5.95m) and fair value adjustment on investment properties (contributing US$3.3m). Dividend income increased by 3 244% and this was due to the reversal of a once off dividend from an investee entity in FY17 which is not expected to recur going forward.

• Other income includes fees earned on advisory mandates.

Cost to income ratio improved to 67% whilst cost pressure mounted in Q4 FY18….

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• Operating expenses increased due to higher acquisition costs in banking and insurance operations, advertising and brand

promotion expenses.

• Growth in revenue (21%) was higher than level of cost expansion (10%) creating a positive jaw, enhancing prospects for

the future sustainability of operations.

OPEX analysis

FY18 US$(m) FY17 US$(m) % Change Mix

Administration 16.63 14.21

• 17%

30% Staff 26.69 23.49

• 14%

47% Occupation 2.79 4.23 34% 5% Computer and IT 2.74 2.20

• 25%

5% Communication 1.15 0.88

• 30%

2% Transport 1.01 1.00

• 1%

2% Cash based OPEX 51.01 46.01

• 11%

91% Depreciation 3.25 2.47

• 31%

6% Amortisation 1.94 2.45 21% 3% Non-cash OPEX 5.19 4.93

• 5%

9% Total Expenditure 59.20 50.94

• 10%

100%

99% 80% 76% 74% 67% FY14 FY15 FY16 FY17 FY18

Cost to income ratio %

Cost to income ratio %

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Banking operations continued to dominate Group performance between FY17 and FY18….

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• All other business segments contributed positively to total outturn. The insurance operations have contributed

19% FY18 to profitability compared to 12% in FY17.

15.99 2.34 1.88 1.57 Banking Life Assurance Reinsurance Other segments

HY18 ($m)

SBU PAT contribution- FY 18($m)

11.34 1.28 0.42 1.11 Banking Life Assurance Reinsurance Other segments

HY17 ($m)

SBU PAT contribution- FY 17($m)

Total assets increased by 26%....

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• Earning Assets contributed 75% of total assets increasing from 70% in FY17.
• Investment securities increased by 16% as the Group optimised on short-term opportunities.

Composition of Total Assets FY18 US$(m) FY17 US$(m) % Change Earning assets Treasury Bills 194.35 155.95 25% Money market investments and savings bonds 52.75 3.54 1390% Loans and other advances 121.91 104.97 16% Investment properties 33.32 29.97 11% Investment securities 56.51 36.71 54% Investment in associates 36.15 35.49 2% Total earning assets 494.99 366.63 35% Non-earning assets Cash and short term funds 101.84 106.82

• 5%

Other assets 12.04 12.83

• 6%

Right of use assets 6.41

• 100%

Property and equipment 47.92 39.45 21% Total non-earning assets 168.21 159.10 2% Grand total 663.20 525.73 26% Earning assets contribution 75% 70% 500bp

230 287 307 367 495 416 418 439 526 663

FY14 FY15 FY16 FY17 FY18

Chart Title

Earning assets Total assets Total assets growth ($m)

Treasury Bills (TBs) investments increased by 25%….

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Treasury bills by category FY18

US$(m)

FY17

US$(m)

% change TBs from primary market 22.75 11.43 99% TBs from secondary market 134.77 105.69 28% Capitalisation treasury bills 16.10 15.34 5% ZAMCO TBs 20.73 23.49

• 12%

Total 194.35 155.95 25%

• Coupons on primary market acquisitions ranged between 7% and 10% whilst discounts on secondary market trades

ranged between 4% and 14%. 8 106 119 156 194

• 0.17

0.03 0.23 0.43 0.63 0.83 1.03 1.23 50 100 150 200 250 FY14 FY15 FY16 FY17 FY18 Total % Growth

Treasury bills growth US$(m)

47% of TBs in portfolio are maturing in FY19....

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Maturity profile FY 18 Contribution FY 17 Contribution US$(m) % US$(m) % Up to 1 year 91.87 47% 29.25 19% 1 to 2 years 36.97 19% 58.19 37% 2 to 5 years 21.62 11% 27.89 18% 5 to 10 years 20.05 10% 33.65 22% Above 10 years 23.85 12% 6.97 4% Total 194.35 100% 155.95 100% Portfolio Carrying Amount Yield Weighted yield Primary market TBs 22.75 8.06% 0.92% Secondary market TBs 134.77 12.61% 8.53% Capitalisation TBs 16.10 1.00% 0.10% ZAMCO TBs 20.73 5.00% 0.53% Total 194.35 10.08%

• The TB portfolio achieved a value weighted yield of 10.08% which was comparable to the gross earning rate
• n the loan portfolio. The Group’s minimum lending rate averaged 10% during the year.

Investment securities increased by 67% with a fair spread of underlying instruments….

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• The portfolio remains significantly exposed to monetary instruments thus carrying performance and

valuation risk in a highly inflationary environment.

• Within regulatory parameters, rebalancing will be undertaken to harden the portfolio.

Investment securities and money market investments FY18 FY17 % US$(m) US$(m) Change Money market 10.71 3.54 203% Parastatal bonds 21.16 7.80 171% Quoted equities 21.44 14.74 45% Unquoted and public utilities stock 13.92 14.17

• 2%

Total 67.23 40.25 67%

Credit expansion continues to suffer from adverse macro factors affecting borrowers.…

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Gross Loans by product FY18

US$(m)

FY17

US$(m)

% Change Mortgage advances 21.28 16.90 26% Short term loans 107.14 91.85 17% Bankers acceptances 1.18 1.40

• 16%

Insurance debtors 6.60 4.62 43% Guarantees 16.03 13.57 18% Total 152.23 128.34 19%

• General facility utilization averaged 55% during the period under review.
• The Group has increased focus on guarantee programmes for loan growth.
• Pervasive low credit quality on the market has had negative effects on loan uptake whilst mortgage facilities have

struggled to find favour with property sellers.

119 115 128 152

FY15 FY16 FY17 FY18

Gross loans growth trend ($m)

Lending increased by 19% with significant increase in the mining, construction and private sectors….

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GROSS LOANS SECTORAL ANALYSIS FY18 FY17 % Change FY18 Contribution FY17 Contribution

US$(m) US$(m)

Private 61.79 29.05 113% 41% 23% Mortgage loans 21.28 16.90 26% 14% 13% Agriculture 12.16 12.75

• 5%

8% 10% Mining 6.27 0.67 837% 4% 1% Manufacturing 4.95 20.24

• 76%

3% 16% Distribution 6.46 7.29

• 11%

4% 6% Construction 4.78 1.90 151% 3% 1% Transport 3.45 3.47

• 1%

2% 3% Services 20.79 25.39

• 18%

14% 20% Financial 10.02 10.03 0% 7% 8% Communication 0.28 0.64

• 57%

0% 1% Total 152.23 128.34 19% 100% 100%

A sustained reduction in NPLs has been experienced over the years….

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• The NPL book reduced by 49% from US$13.7m at 31 Dec 17 to US$6.9m at 31 Dec 18, the movement having been a result
• f recoveries and write offs made during the period.
• The NPL ratio improved from 10.7% at 31 Dec 17 to 4.6% at 31 Dec 18.

29% 20% 23% 10.7% 4.6% 0% 5% 10% 15% 20% 25% 30% 35% FY14 FY15 FY16 FY17 FY18

Non-performing loans (%)

Non-performing loans ratio (%) 49 24 26 14 7 5 13 10 10 14

• ,10

,20 ,30 ,40 ,50 ,60 FY14 FY15 FY16 FY17 FY18

Gross loans impairment analysis ($m)

Non-performing loans Impairments Gross loans impairment analysis ($m)

The reduction in NPLs was across all sectors apart from the manufacturing sector….

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NPL sectoral analysis FY18 FY17 % Change FY18 Contribution FY17 Contribution

US$(m) US$(m)

Private 1.57 3.42 54% 23% 25% Agriculture 0.49 0.76 36% 7% 6% Mining 0.18 0.39 55% 2% 3% Manufacturing 3.77 3.59 5% 54% 26% Distribution 0.35 2.30 85% 5% 17% Construction 0.05 1.02 95% 1% 7% Services 0.50 1.38 64% 7% 10% Financial Services 0.05 0.83 95% 1% 6% TOTAL 6.95 13.69 49% 100% 100%

A steady increase in nostro and foreign cash balances has been observed....

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27 ANALYSIS OF CASH AND CASH EQUIVALENTS FY18 % Contribution FY17 % Contribution US$(m) US$(m)

LOCAL BALANCES AT RBZ 88.25 87% 64.82 61% NOSTRO BALANCES AND FOREIGN CASH 11.05 11% 8.32 8% CASH ON HAND 2.54 2% 33.68 32% TOTAL 101.84 100% 106.82 100%

Funding improved supported by deposit expansion and organic growth in capital….

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Funding Sources FY18 US$(m) FY17 US$(m) % Change Total equity

120.37 99.77 21%

Deposits and other accounts

433.01 347.11 25%

Life assurance funds

37.44 31.81 18%

Trade and other payables

45.23 33.09 37%

Long term loan

14.64 13.94 5%

Offshore borrowings

5.95

• 100%

Lease liability

6.56

• 100%

Total

663.20 525.73 26%

• The increase in funding was across all sources, driven by earnings growth and business generation.

Current period profitability has more than offset diminution in capital at the beginning of the period due to adoption of IFRS 9….

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• Total dividends paid out by the Group in respect of FY17 amounted to US$3.04m comprising US$2.88m paid to holders of the

Company and $0.16m to non-controlling shareholders in subsidiary companies.

• At US$98.11m, equity attributable to shareholders of the parent company as at 31 Dec 18 equalled 82% of total equity.

Equity distribution($m) FY18 US$(m) FY17 US$(m) % Change Total equity 120.37 99.77 21% Equity attributable to parent 98.11 78.65 25% Equity attributable to NCI 22.26 21.12 5%

120.37 4.23 21.79 99.77 2.38 3.04

FY17 Initial adoption of IFRS 9 and IFRS 16 Other reserves Dividend Profit FY18

Movement in capital levels ($m)

Movement in capital levels ($m)

Deposits increased in line with money supply trends on the market….

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• Fixed deposits contribution reduced to 27% at 31 Dec 18 compared to 36% at 31 Dec 17 reflecting funding

sustainability in the short to medium term.

Deposits by product FY18

US$(m)

FY17

US$(m)

% Change FY18 % Mix FY17 % Mix Bank placements 14.78 13.20 12% 3% 4% Demand 83.33 53.67 55% 19% 15% Savings 218.09 154.06 42% 50% 44% Fixed deposits 116.80 126.16

• 7%

27% 36% Total 433.01 347.11 25% 100% 100%

264 270 275 347 433 50 100 150 200 250 300 350 400 450 500 FY14 FY15 FY16 FY17 FY18

Deposits growth ($m)

Deposits growth was experienced across all sectors except for construction and communication....

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31 Deposit sectoral analysis FY18 FY17 % Change FY18 Contribution FY17 Contribution US$(m) US$(m) Private individuals 70.32 66.92 5% 16% 19% Agriculture 29.99 11.49 161% 7% 3% Mining 2.29 1.19 93% 1% 0% Manufacturing 44.04 44.32

• 1%

10% 13% Distribution 11.15 10.72 4% 3% 3% Construction 4.76 6.13

• 22%

1% 2% Transport 3.94 1.57 150% 1% 0% Services 154.19 92.35 67% 36% 27% Financial 56.23 66.25

• 15%

13% 19% Communication 56.09 46.16 21% 13% 13% TOTAL 433.01 347.11 25% 100% 100%

Strategy Update 03

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Growth oriented strategy anchored on a 5 Action Schema....

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Pillar 1: Grow Asset Base and Capital

1. Short-term focus will be on capital preservation in order to counter the effects of rising inflation. 2. De-risking of the balance sheet will continue to be pursued as an ongoing strategy to hedge against loss of value and concentration risk. Land bank acquisition remains a key strategic focus area. 3. The Group will seek to mobilise more lines of credit, leveraging on the correspondent banking relationships that have been created. 4. Increased activity in International Business & Trade Finance and Project Finance will be expected to result in increased and better quality revenues. 5. New business initiatives, including inter alia Diaspora Banking and Microfinance Banking, expected to contribute to revenue growth.

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Pillar 2: Expand Investment Portfolio & Markets

1. Focused diversification of revenue streams leveraging on technologies for quick

• deployment. Focus areas to include

i. Agency Banking ii. Diaspora Banking to enhance profitability iii. Micro, small and medium enterprises (MSME) sector. 2. Continued deployment of POS and mPOS – a target of 12000 for FY19 3. Tactical review of business portfolio & products: culling of non-performing product lines. 4. Regional expansion initiative for ZB Reinsurance remains on the cards

Growth oriented strategy anchored on a 5 Action Schema....

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Pillar 3: Improve Customer Service

• 1. Adopting insights from Product Audit in realigning products to

customer needs and expectations.

• 2. Technological platforms being optimised for

better customer

• experience. The Group will commission a Call Centre in FY19 to

enhance customer engagement.

• 3. The branch refurbishment program will continue as the Group

seeks to improve general ambience, and re-orient branches as customer service centers. Growth oriented strategy anchored on a 5 Action Schema....

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Pillar 4: Operational Effectiveness & Governance

• 1. The Group is investing in a suite of systems for compliance

management as required to satisfy Anti-Money Laundering and Combatting Financing of Terrorism (AML/CFT).

• 2. Implementation of fraud management systems to tackle the

emerging risk of cyber crime, in view of increased usage of electronic platforms.

• 3. Attainment of ISO certification in a number of areas.

Growth oriented strategy anchored on a 5 Action Schema....

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Pillar 5: Digitalise Group Operations

• 1. The Group will continue to invest in technologies in order to

improve customer experience and operational efficiencies.

• 2. Automation
• f

processes through implementation

• f

a workflow, document management and archiving solution will commence in Q2FY19.

• 3. Social Media Banking Solution is at advanced stage and planned

for launch in Q2FY19. Growth oriented strategy anchored on a 5 Action Schema....

• --THANK YOU---