The Sunday Mail
MARKET watchers are agreed that financial statements are a seemingly accurate reflection of the health of an economy, providing a dashboard of the economic fundamentals.
A flurry of year-end financials hit the market last week, with many industrial and mining counters reporting contrasting fortunes.
There is, however, an elaborate trend where banks continue to post solid results, while companies that are heavily borrowed from the same banks are being weighed by huge debt overhangs.
Despite being implored to charge reasonable service charges and interest rates by monetary authorities, banks have not relented and they continue to be relatively solid and profitable, notwithstanding non-performing loans that are way above regional averages.
Analysts claim that there is now a vicious circle of high interest charges and increasing non-performing loans, whose aggregate impact is to put a tax on the productive sectors of the economy.
This might explain the reason why the loan-to-deposit rate continues to grow despite an increase in souring loans.
Laughing all the way … to the bank
Though local economic growth retreated from 4,5 percent to 3,1 percent last year, conditions in the financial services sector continued to be favourable.
Bank deposits rose four percent to US$5,1 billion, while loans and advances climbed to US$4 billion, yielding a loan-to-deposit ratio of 78,9 percent.
Also, broad money supply improved to US$4,4 billion from US$3,93 billion while credit to the private sector increased to US$3,8 billion from US$3,65 billion in the same period a year earlier.
POSB reported that it had recovered from a loss of US$209 000 in 2003 to a profit of US$1,25 million in the year ending December 31, 2014.
Its net operating income rose 25 percent to US$24 million on new revenue generating products and better margins on lending products.
Though operating expenses climbed 17 percent US$22,8 million, the lender’s cost-to-income ratio improved to 95 percent from 101 percent.
POSB’s loan-to-deposit ratio gained 67 percent from 54 percent buoyed by increased lending conditions.
The loan’s loan book naturally rose by 46 percent to US$84 million from US$72,15 million.
However, it is still contends that credit risk and liquidity constraints remain challenging for local banks.
FBC Bank also performed relatively well.
Although the lender, a unit of FBC Holdings, reported a loss for the year of US$272 048, it took a US$9 million charge from the divestment from Turnall, a building and pipe products manufacturer that it took over after converting a US$8 million loan extended to Shabanie Mashava Mine (SMM) into equity.
Profit before tax for the year slowed 42 percent to US$8 million against the US$14 million recorded in the same period a year earlier on impairments and losses arising from the disposal of Turnall.
Net income, however, grew eight percent to US$77 million from US$71 million, while net interest income gained 14 percent to US$29 million driven by growth in loans and advances as well as mortgages on the back of increased deposits and credit lines.
FBC Banks deposits improved 24 percent to US$347 million, while the lending portfolio gained 19 percent to US$252 million.
Also, the bank’s sister company, FBC Building Society, recorded a profit of US$7 million as total net income increased seven percent to US$14 million from US$13 million.
The loan book registered a 11 percent growth to US$50 million spurred by mortgage lending on heightened housing development projects.
The group’s insurance unit, Eagle Insurance, also noted that profit grew to US$1,76 million in 2014 compared to US$1,67 million in 2013 on success of the hospital cash plan.
Gross written premium increased 15 percent to US$17 million from US$15 million recorded in the comparable perioed a year earlier.
But FBC Reinsurance Limited (FBC Re) profit before tax fell seven percent to US$2,7 million from US$2,9 million on the continued bloodletting on the ZSE which reduced investment income from US$1,64 million to US$650 000.
However, gross premium income for 2014 grew 6 percent US$16 million.
On the overall, FBC Holdings’ net profit narrowed to US$4,9 million from US$11,6 million in 2013.
There is, however, is a clear pattern.
Banks continue to expand their loan book in circumstances where credit risk is still challenging. The high interest rates, attracted by the transitory nature of short-term deposits that characterise the banking sector, are proving irresistible for banks and devastating for companies.
Mixed insurance results
Fidelity Life Assurance of Zimbabwe is now reaping from its deliberate move to invest into the property portfolio.
Though the group performed relatively well, with revenues rising 56 percent to US$38,3 million from a year ago and insurance premiums growing 12 percent to US$16,1 million, property sales remarkably contributed US$18,2 million of the revenues.
The US$18,2 million was generated from the sale of 4000 stands from the Fidelity Life Southview Park project, which is now 40 percent complete.
On the overall, servicing of stands at the project, which is expected to bring an additional 5 304 stands on the market, is forecasted to be completed by the end of this yeatr following the success of the Fidelity Life Park bond, which raised US$12,7 million.
The bond was oversubscribed 1,5 times.
On the overall, profit for the group stood at US$5 million.
Fidelity Life Assurance, the flagship arm of the business, continued performing well. Net premium income at US$13 million was up 25 percent from US$10,4 million a year ago.
As a result, net profit for FLA rose 181 percent to US$1,4 million.
There are signs that its Malawian unit, Vanguard Life Assurance, which has been a drag on the business for quite some time, is now recovering.
However, the South Sudan venture is yet to meaningfully take off due to political disturbances in the new state.
Fidelity becomes one of the few companies to reward its shareholders are declaring a dividend of US,04561 cents per share, an increase of 30 percent from a year ago.
It was a different story for re-insurance giant Zimre Holdings.
Its revenues fell 3 percent to US$67 365 from US$69 362 achieved in the prior year.
Operating profit for the year fell 50 percent to US$800 000 million from US$1,7 million on declines in investment revenue and gross premium written.
In the twelve months under review, the group achieved gross premium written of US$74 million, 4 percent weaker than the 2013 figures of US$76,9 million.
The group reported a loss after tax of US$3,4 million in 2014 compared to a profit of US$1,5 million on increase in the share of losses from the agro-industrial operations and losses in property asset revaluations.
Miners dig up debt
Listed coal miner Hwange Colliery Company Limited is pulling all the stops to ensure it regains a solid footing.
Recapitalisation projects are beginning to bear fruit as shown by the increase in throughput from its mines.
In the year ended December 31, HCCL reported that production improved 23 percent while sales gained 6 percent.
Total sales were 1 691 981 metric tonnes from 1 602 187 tonnes a year ago.
Volumes of Hwange Power Station coal rose eight percent to 996 200 from 924 659, while coal fines also increased 20 percent to 242 802 tonnes.
Notably, sales of coke fell to 13 070 tonnes from 82 510 tonnes on the controlled cooling of the coke oven battery in June 2014 “after the antiquated plant developed some drop in temperatures”. Coke usually accounts for 30 percent of revenues.
However, toll coking arrangements have been made with South Mining Company and Hwange Coal Gasification Company.
Increased production also reflected in the company’s top line, with revenues climbing to US$72 million from US$71,5 million.
But, worryingly, though production and sales volumes rose, product prices for both local and export markets continued to decrease.
Production volumes were also below target. The miner also reported that the loss for the year widened to US$37,2 million from US$31,6 million a year ago.
But there are non -recurring items amounting to US$13,4 million loss such as asset impairments of US$3,4 million, accrued retrenchment expenses of US$5 million and Palehouse Ltd contract costs of US$4,9 million that ate into the company’s profitability.
What has become more threatening for the business are legacy debts that presently stand at US$136 million.
An estimated US$25 million was paid during the course of the year to liquidate part of the legacy debts.
There are indications that HCCL will take a legal route to pursue some of the parties that might have acted in a manner that led to the reckless contraction of debt.
Promising signs are on the horizon.
A US$88 million rights issue is in the pipeline and a conditional placement of US$51 million is being planned.
It is no reason to pop an champagne as yet as key shareholder Nick van Hoogstraten has in the past moved in to block such initiatives.
Plans to increase production to 450 000 tonnes per month, however, seems to be on course and various finance facilities for equipment and supplier agreements continue to be concluded. Contractor Mota Engil is now producing more than 200 000 tonnes per month.
But plans to push for the re-pricing of HPS coal from US$29 per tonne to US$35 per might prove daunting as this might have implications on the price of electricity.
Similarly, Rio Zim continues to struggle to exorcise its own ghosts.
It seems to have relapsed as it registered an operating loss of US$11 million from an operating profit of US$2,1 million. The performance of Empress Nickel Refinery, which received less than one third of matte from its sole supplier – way below contractual commitments — dragged the business. Consequently, the refinery operated below 25 percent capacity.
Base metal volumes also slumped 52 percent to 2 915 from 6 114 tonnes a year ago, while revenues naturally fell 40 percent to US$40 million from US$78,7 million last year.
Renco bucked the down trend as production at the gold mine improved 6 percent to 648 kilogrammes from 613 kilogrammes in 2013 on improved ore milled and plant recoveries.
However, gold prices on the international market slumped, resulting in revenues falling 4 percent to US$25,9 million from US$27 million a year earlier.
Mine flooding also affected output.
Output and production at Murowa was similarly affected.
As part of broad plans to survive, Rio Zim plans to reopen Cam & Motor Mine and minimising the risks of depending on one matte supplier.
The miner will be approaching its shareholders to raise US$10 million for the venture.
This initiative is expected to materialise between the fourth quarter of 2015 and the second quarter of 2016.
Hoteliers look abroad
Hoteliers continue to find succour in international markets as local liquidity conditions affect domestic tourists.
Naturally, revenues in the review period rose 5 percent to US$30,7 million from US$29,3 million a year ago driven by foreign business, which accounts for between 28 percent of the revenues.
Revenues for the Zimbabwe operations, excluding the newly opened Rainbow Beitbridge Hotel, increased by US$100 000 to US$27,8 million.
City hotels recorded a US$700 000 decline in revenues.
Revenues in Mozambique fell US$200 000 to the impact of refurbishment works, but occupancy improved to 48 percent from 47.
Loss for the year topped US$1,4 million from a profit of US$1,1 million in 2013.
There were however setbacks as the Ebola outbreak resulted in cancellations worth more than US$500 000.
The group’s average daily rate dropped to US$75 from US$81 as the group tried to review its pricing model.
There were impairment charges of US$2,8 million as a result of US$1,9 million that is presently locked up in Capital Bank that was meant for the refurbishment of Rainbow Towers Hotel and Conference Centre.
There are also overdue management fees of US$900 000 owed by Savoy Hotel in Zambia and US$900 000 in retrenchments at central office
Critically, debts topped US22,2 million, while the cost of debt remained at 11 percent since the beginning of the year.
African Sun its also trying to liquidate its debt obligations.
