Zimbabwe | ZSE

The Group presented a decent set of financials given sub inflation interest rates for much of the period. Total income for the bank increased 710% y/y from ZWL$11.41bn in 1H21 to ZWL$92.44bn for 1H22 mainly driven by revaluations on investment properties which were up 9,503%. Interest income went up 283% y/y from ZWL$3.76bn to ZWL$14.39bn on the back of interest rate repricing and a 90% increase in the loan book. The Agro Business continues to make up 51% of the loan book while commercial loans make up 32%. Of interest is the 25% growth in US$ denominated loans and advances to customers suggesting a shift towards the foreign currency business. The bank’s NPL ratio is estimated at 0.7% against the banking industry average of 1.5% as of June 2022. Non-funded income grew 751% y/y from ZWL$9.27bn to ZWL$78.89bn driven by fair value adjustments on investment property and unrealized foreign currency gains.

Notwithstanding a challenging operating environment characterized by exchange rate and inflation headwinds, the Group’s financial performance showed resilience and tenacity. In historical terms, net interest income surged 287.20% from ZWL$1.25bn in 1H21 to ZWL$4.85bn in the period under review, leveraging on the Group’s higher foreign currency lending portfolio proportion. Net fees and commission income registered a growth of 219.37% largely emanating from the Group’s digital thrust which has positively impacted payments and processing systems. The Group’s net earned insurance premium increased by 109.63% to ZWL$1.10bn from ZWL$524.48mn realised same period prior year, which is relatively low compared to other lines of business revenue growth, reflecting subdued consumer capacity in the face of declining disposable incomes.

According to government estimates, mining sector production grew 3.4% in 2021 while receipts were up 25% y/y to US$5bn in 2021 supported by firm international prices and a raft of measures taken towards turning the sector into a US$12bn industry by 2023. Going into 2022, government has forecast annual growth in production of 8%. Optimism for 2022 in the sector remains encouraged by ongoing developments to increase capacity, and outlook on commodity prices. Capital constraints and policy shifts remain the main downside risks for the sector. Beneficiation remains a key issue hindering earning growth.

The global mining environment in 2021 was characterised by prolonged Covid-19 disruptions. Despite this, precious metals sub-sector seemed to have been resilient to the pandemic buoyed by firm demand and elevated prices. Bullion in particular performed well as investors sought a hedge against turmoil in global markets and sustained inflationary pressures. Caledonia’s operational asset, Blanket mine posted a strong year enabled by a cocktail of tailwinds. Gold production surged 16.54% to a record 67,476 ounces as the Central Shaft came online following a 5-year development phase. Revenue for the period grew 21.33% to US$121mn from a combination of increased production and a marginal increase in average realised gold price from US$1,749/ounce in FY20 to US$1,766/ounce in FY21. Production costs in the year under review grew 21.53% y/y to US$53.13mn. Consumables from operations went up 11.73% to US$17.29mn on account of increased production whilst electricity costs grew 28.4% to US$10.36mn emanating from reliance on diesel generators following increased power cuts on the national grid.

The group had previously noted a shift in consumer dynamics in favour of smaller handbags and therefore smaller skins due to a defensive Asian market. Skins 40cm/+ size were rejected regardless of quality and were/will be sold at reduced prices negatively impacting Padenga. Crocodile skin sales volumes for the period under review remained firm at 39,936 skins (FY20 43,254). No export meat sales were made due to COVID-19 induced restrictions on sales of exotic meat across the globe. Revenue for the crocodile business was down 9% from US$27.28mn to US$24.70mn. The business contributed 31% to Padenga’s total revenue. Fair value adjustment fell as the larger crocodile skins in inventory are expected to fetch lower prices. Resultantly, the crocodile business’ loss for the period was US$3.41mn from a profit of US$1.38mn in FY20. Looking at the Alligator Segment; volume of skins sold was down 47% with the bulk being lower grade skins sold to best advantage.

On a macro level, there have been some evident green shoots within the economy According to Fitch Solutions, consumer spend went up by 2 2 in 2021 during which there was real underlying growth in production and sales volumes despite the COVID 19 lock downs Capacity utilisation grew from 41 in 2020 to an estimated 55 at the end of 2021 Going into 2022 the government forecasts growth in the key economic sectors of mining and manufacturing of 8 and 5 50 respectively with sustained capital injections going into the former, which has now emerged as the primary driver of economic growth However, according to recently released government statistics, agricultural output is now forecasted below earlier expectations given erratic, unevenly distributed rains with maize expected to come in 43 lower than the previous harvest leaving a deficit of at least 300 000 tonnes We believe that continued corporate activity is a partial indicator of improved confidence in the local operating environment, marquee investments like the US 1 8 bn commitment from Zimplats appear to signal some change in perceptions The growth prospects for the economy are however heavily dependent on currency stability, moderate inflation and policy stability Year to date the parallel rate has deteriorated by 88 to US 1 ZWL 405 representing a 135 premium to the auction rate of US 1 ZWL 175 M o m inflation accelerated to double digits in April at 15 5 re introducing the downside risk of potential hyper inflation With consumer price increases outpacing salaries and the rapid deterioration of real disposable incomes and monetary value, it was perhaps inevitable that some form of intervention would be attempted in line with past historical trends under similar circumstances It is against this background that the Government has introduced new economic measures ...