Costs weigh on FMHL H1 operating profit

Inflationary costs weigh on FMHL H1 operating profit

Staff Writer

HARARE, First Mutual Holdings operating profit for the interim period to June 30, 2019 declined 16% to $4,5 million compared to $5,4 million same period last year largely driven by increased costs.

The company’s financials show that total expenses increase 126% to $39,3 million from $17,2 million same period comparable, due to a 112% increase in administration costs.

“The decline in operating profit is attributed to an increase in shareholder risk reserves, expansion projects underway and rationalisation expenses,” chairman Oliver Mutasa said in a statement of the financials.

He said the business achieved strong growth in Gross Premium Written (GPW) to $157,6 million compared to $84,7 million in prior year same period but experienced pressure in operating costs due to persistent inflationary conditions.

“GPW for the period at $157.6 million, was 86% higher than 2018. The growth is a result of conversion of USD business for the period 1 January 2019 to 24 June 2019 written by some of First Mutual Strategic business Units (SBUs) whereas last year it was USD 1 : ZWL 1,” he said. He added that also contributing to strong growth was the organic growth and acquisition of new business both in USD and ZWL.

He said Rental income for the period, at $6.6 million, was 75% ahead of prior year with the growth relative to prior year due to new lettings, rental reviews during the period and increased turnover rentals.

“Occupancy levels increased to 82.79% (2018: 74.44%). Furthermore, turnover rentals increased relative to same period,” said Mutasa.

However, Doug Hoto, the group CEO, at an analyst briefing said while expenses grew in line with inflation, some group companies were not able to adjust revenue at the same pace ( Life assurance –Salaries increases have generally not matched inflation)

He said the group also suffered delays in discharging foreign obligations which had a negative impact on operating profitability with applications for USD3 million having been submitted to RBZ for takeover, being a foreign currency legacy debt owed to creditors.

Net USD Group exposure excluding FMRE Botswana and Afreximbank shares is now USD,3 million.

In the midst of these hard times First Mutual Health gross premium written however went up 55% to $46, 1 million compared to USD29, 8 million same period last year driven by organic growth on corporate clients and acquisition of new business.

The claims ratio for the period was 68, 65% compared to 83, 81% HY2018 with claims payments increasing from $24,9 million to $31,7 million while  membership increased by 10,000 in this difficult operating environment.

“The company continue to roll out the bio-metric system countrywide to improve customer convenience and enhance efficiency of claims processing and settlement Admin cost to income ratio negatively impacted by inflationary trends particularly in Q4 2018,” Hoto said.

On the other hand First Mutuals’ new investment Nicoz  Diamond registered a 102% growth in GPW to $51,7 million from $ 25,6 million due to revision of sums insured (USD business converted to ZWL using official interbank exchange rates) and Organic growth.

Client retention Motor class contributed 53% to GPW (2018: 51%) with increase in motor claims mitigated by relatively lower claims of 3rd party motor business.

First Mutual Reinsurance recorded a GPW of $20,5million but a decline in regional due to concerns about Zimbabwe’s capacity to discharge foreign obligation was also recorded.