Despite posting solid numbers in the first quarter Zimre Holdings says it will need to rethink its strategies going forward as the Covid-19 pandemic has increased business uncertainty.
The health pandemic has affected the global economy and business operations.
“In the first quarter of 2020, the group was on course to achieve its performance targets for the year. However, the unexpected outbreak of the Covid-19 global pandemic in the last part of the quarter with its negative impact on business performance created a material uncertainty that would require extensive business re-strategizing for survival,” said Zimre in a Q1 trading update.
The diversified group said its property division performed well during the period under review, but increased voids and debtors in the last part of the quarter is likely to have a negative impact on the group’s financial performance going forward.
“Rental income performance for Zimre Property Investments Limited (ZPI) was on budget on account of the quarterly rental reviews being implemented reconfiguration of existing rental space for other uses in line with market demand and move towards turnover based leases,” said Zimre.
“The company obtained a waiver to charge for some of its services in hard currencies. However, the reduced capacity of tenants to service lease contracts due to the mounting economic challenges which became more pronounced in March 2020 with the outbreak of the Covid-19 pandemic, resulted in increases in void space and debtors.”
During the period under review, Zimre Holdings remained profitable with sufficient cashflows on account of the continued and calculated disposal of its stock of residential stands, and the tight management of property operating and administrative costs.
However due to the hyperinflationary climate in Zimbabwe and the depreciating local currency, rental income declined in real terms translating into weakened property values in real terms.
With regards to its reinsurance operations the group said the subsidiaries’ capital positions met or exceeded the minimum statutory levels in the first quarter.
“Some regional operations are within the transitional periods set by regulators for compliance with new minimum capitalization levels,” said the group.
Zimre said its on course to provide competitive capital to regional operations mostly from its internal resources in order to increase capacity and take advantage of business growth opportunities in those markets.
“Key among those markets is Mozambique with its growth prospects from the multi-billion US dollar natural gas projects, which were at the verge of being commissioned. Credsure was set to meet the $37,5 million minimum capitalization level for short-term insurers through organic growth.
“Zimre’s reinsurance operations started the year on a positive note with increased treaty participation especially from top tier cedants in the domestic market on account of a relatively strong balance sheet, excellent service delivery and the increasing Emeritus brand equity.”
The group said it expected both its domestic and regional entities to contribute the bulk of its total income in 2020, but due to the tight liquidity situation and other challenges, premium collections were subdued thus slowing down its investment portfolio growth.
The general insurance division, Credit Insurance Zimbabwe Limited (Credsure), recorded above budget performance in most key result areas as well as significant growth compared to the same period last year.
“The improvement is credited to its focus on offering specialized products to the market especially to the tobacco sector and infrastructure development projects through underwriting management agents,” said Zimre.
“In historical cost terms profit for the period was 439 percent above budget on account of the significant growth in topline performance, favourable claims experience (15 percent claims ratio) and controlled operating expenses.
“Due to the depreciating local currency against the United States Dollars (USD), the company is experiencing an increase in the demand for cover in harder currencies. The industry is working with IPEC to reintroduce USD denominated policies following their suspension in 2019 (IPEC Circular 13 of 2019).”