Operating Environment
The global economy has been saddled with crippling financial crises and a sharp economic recession which has seen marked decline in demand in advanced economies whilst inflation in developing economies has assumed an upward trend.
On the local scene the operating environment continued to deteriorate, thus making 2008 a watershed year.
General prices increased at a blistering pace during the second half of the year although official inflation data was not readily available.
Numerous factors combined to make the independent estimation of a reliable inflation index impossible. These factors included:
- the unavailability of goods on the local market that were sold in Zimbabwean dollars.
- the existence of multiple prices that were sensitive to the mode of payment used.
- the prevalence of barter trade in the settlement of routine transactions.
- the difficulty in establishing an indicative basket of goods required for the calculation of the indices.
- the rapid pace at which price adjustments were taking place which made it difficult to maintain reliable information on indicative prices at any given time.
As a consequence of the above, only historical cost financial information has been presented in the financial statements for the year ended 31 December, 2008.
The real sector of the economy continued to experience shrinkage in capacity utilization, a situation which was exacerbated by the continued shortage of foreign currency, loss of critical manpower, power shortages and administration of prices. Numerous measures were instituted in an attempt to stimulate production and also to guarantee the availability of basic commodities, chief amongst which was the licencing of shops to trade their merchandise in foreign currency.
The capital and financial markets experienced unprecedented activity as investors struggled to reposition their investments towards instruments that provided a hedge against inflation. This saw the Zimbabwe Stock Exchange (ZSE) index peaking at a level of 1 833% movement in one day during November 2008 before trade was suspended amid allegations of financial impropriety following the intervention of the Reserve Bank of Zimbabwe (RBZ).
The Zimbabwean dollar was de-based in August 2008 by the removal of ten (10) zeroes. Cash outages on the other hand presented a significant challenge to the national payments system, causing material inconvenience to the transacting public.
A tiered interest rate regime subsisted during the year with the lower rates targeted at the productive sectors of the economy whilst other forms of lending were kept at punitive rates. The yield on treasury instruments, however, remained at sub-inflation levels and, together with the high statutory reserves, imposed a huge constraint on capital growth on the financial services sector.
Economic Outlook
Indications are that changes in the economic fortunes of the country will largely depend on the concerted implementation of the Global Political Agreement signed on the 15th of September, 2008 by the country’s three main political parties, which subsequently ushered in an inclusive government in February 2009.
Positive economic development will depend, amongst other things, on the fostering of economic policy stability and predictability, re-establishment of rapport with the international community, restoration of confidence in the financial system and promotion of a culture of saving, as well as implementation of investor friendly policies that lead to a recapitalization of the real sectors of the economy.
The liberalization of the foreign exchange regime in February 2009 had the effect of allowing all traders to transact in multiple hard currencies. Since the implementation of these reforms, evidence abounds to suggest that businesses are slowly beginning to enjoy some financial relief.
Group’s Financial Performance
Against the background of a difficult operating environment,
The Group posted a profit of $465.6 hexillion in historical cost terms.
The financial outturn is discussed in more detail by the Group Chief Executive in his report.
Strategic Thrust
As I indicated in my half year report, the on-going recapitalization of Intermarket Banking Corporation (Zambia) Limited continued in the second half of the year, with the Group eventually ceding complete control of the entity to a third party. Once the Group returns to a more stable operating platform, call options enshrined in the share surrender agreement will be exercised in order to regain control of the entity subject to it meeting the strategic focus of the Group.
The Group successfully completed the registration of ZB Securities (Private) Limited on the 31st of October 2008 in a move to revamp its stock-broking operations. The unit is now positioned more strategically to extend value to our esteemed customers.
The amalgamation of ZB Bank Limited and Intermarket Banking Corporation Limited (Zimbabwe) received member approval and is at an advanced stage of implementation.
Regional expansion continues to be a strategic imperative and is receiving attention in various forms.
Litigation
The matter in which Transnational Holdings Limited (THL) is challenging the acquisition of a controlling interest in Intermarket Holdings Limited (IHL) by ZBFH is now at the Supreme Court of Zimbabwe. This follows an appeal by the applicant on a judgement handed down in favour of ZBFH by the High Court of Zimbabwe during the financial year. The Board remains optimistic of a positive outcome.
Sanctions
The Council of the European Union adopted a common position on the 27th of January, 2009 which, amongst other things, lists ZB as one of the groups of companies on which restrictive measures must be applied. This follows the inclusion of the Group on the United States Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals as of the 25th of July, 2008.
Sufficient measures have been implemented to mitigate the effects of the sanctions.
Brand Management
The Group received the Herbert Evans Perpetual Trophy for the overall best exhibitor at the Zimbabwe Agricultural Show held in August 2008.
Management of brand equity remains a matter of critical importance in the Group’s strategy implementation.
Corporate Social Responsibility
The Group continued to play a significant role in the upliftment of the lives of the less privileged members of the communities in which it operates.
A portion of the Group’s profits is regularly allocated to the Group’s Corporate Social Responsibility program.
Corporate Governance
ZBFH is listed on the Zimbabwe Stock Exchange (ZSE) and upholds the principles of the code of corporate practices and conduct contained in the second report of the King Commission (King II Report on Corporate Governance) as well as the listing requirements of the ZSE. The Group complies with relevant statutory and regulatory requirements and the provisions of its Memorandum and Articles of Association at all times.
The Group is committed to meaningful and accurate disclosure through comprehensive reporting in order to facilitate objective assessment of the Group’s potential, its earnings capacity, and the risks associated with the generation of those earnings.
In the spirit of the aforementioned philosophy, readers of the attached financial statements are advised that the information is fraught with material uncertainty obtaining from difficulties in estimating values of certain balances due to the imperfect nature of the trading environment. As such, caution is advised in the use of the information for decision making purposes.
Executive Appointments
Mr. Collin Chimutsa, then Managing Director of ZB Building Society, resigned from the Group effective 31 December, 2008. In his stead, Mr. Sifiso Mahlangu was appointed in an acting capacity effective from the same date. He also became a member of the Group Executive Committee. The Group looks forward to his contribution to its affairs.
Going Concern Assessment
Notwithstanding the current state of the operating environment, the directors have carried out business sustainability assessment and are of the view that the business will be a going concern for the foreseeable future.
Dividends
As the Group repositions itself in a changing environment, cash conservation becomes a strategic imperative. As a result, the Board of Directors does not recommend the paying of a dividend for the year under review.
Acknowledgements
I would like to thank members of the Board for the support and advice they rendered during the year.
I would also like to thank management and staff for remaining steadfast in dealing with the challenges of the year under review.
On behalf of the Board, I wish to thank the various authorities and all stakeholders for their support and hope for continued harmonious relations into the future.
R C Hove
Chairman
25 March, 2009
Harare
