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Chairman’s Statement 2008

After declining by 6% in 2007, Zimbabwe’s GDP is estimated to have declined by a further 7% in 2008. The GDP decline is a result of output slump across all the major sectors of the economy, particularly agriculture, mining, manufacturing, and tourism. The agricultural sector suffered from lack of inputs. The mining sector saw some mining houses closing shop or suspending operations citing foreign currency shortages and the central bank’s delay in releasing proceeds from mineral sales. The manufacturing sector still has low capacity utilization of below 15% as a result of shortages of raw materials, foreign currency, and a whole host of other production bottlenecks.

Although no official figures have been forthcoming from the Central Statistical Office, hyperinflation continued to wreck havoc throughout the economy, with the result that by year end, the local currency had ceased to be accepted for commercial transactions in most sectors of the economy. The decision by the authorities to allow the use of multiple foreign currencies is a welcome development as hyperinflation had rendered the use of the local currency impractical.

Money market investment rates remained depressed for the whole of the year 2008, with short-term interest rates hardly exceeding 200% against inflation rate in excess of 231m%. Despite a sharp decline towards the end of the year, the equities market, on the other hand, achieved a brilliant performance, recording a 30.3 sextillion percent growth during the year 2008.

While we acknowledge that due to the hyperinflationary environment, detailed presentation of financial statements in Zimbabwe dollar terms does not allow for meaningful analysis and interpretation, the same figures are presented to comply with regulatory requirements.

Financial Performance Overview

Given the hyperinflationary environment, management must be commended for having employed strategies that not only preserve shareholder’s value, but also grew the business in real terms through investing in properties and the stock market, resulting in a profit before transfer to policyholders and tax of $143.3 sextillion, for the year ended 31 December 2008.

Total income for the year 2008 amounted to $155.2 sextillion, representing a growth of 39.5 quintillion percent over the $6 430 achieved in the year 2007. Investments income remained the dominant contributor, accounting for 99.6% of total income for the year 2008.

Administration expenses went up from $1.99 thousand in 2007 to $10.2 sextillion for the year ended 31 December 2008. This was reflective of the hyperinflationary environment that we are operating in, and the staff remuneration measures that management implemented during the year to retain essential skills.

Fidelity Life Assurance

Reflecting the dwindling disposable incomes as a result of the hyperinflationary environment, total premium income grew by 5 quadrillion percent from $22.3 in 2007 to $11.2 quintillion for the year ended 31 December 2008. The growth in premiums, though lower than inflation, was higher than the claims growth of 14.3 trillion percent, from $1.9 in the year 2007 to $2.7 quadrillion in 2008.

Realised income on equities grew marginally to $1.2 quadrillion in 2008, as the strategy was to hold inflation hedging assets.

The company’s profit before tax for the year 2008, at $134.7 sextillion, was above the prior year figure of $5.95 thousand.

Vanguard Life Assurance

This subsidiary, based in Malawi, posted a profit before tax of $2.55 sextillion for the year ended 31 December 2008 compared to $86 recorded for the year 2007.

Fidelity Life Asset Management

The asset management subsidiary posted a profit before tax of $4.09 sextillion for the year ended 31 December 2008. This compares favourably to the $810 recorded in the year 2007.

Fidelity Funeral Assurance

Fidelity Funeral Assurance in its second year of operating managed to post $167 quintillion before tax.

Cavmont Life and Asset Management Company (Pvt) (Ltd) (Zambia)

Cavmont Life and Asset Management Private Limited based in Zambia posted a profit before tax of $1.24 sextillion for the year. The premium income generated for the period ended 31 December 2008 was $3.63 sextillion and other income was $0.52 sextillion. The results exceeded expectations since it was the first year of operation under the group.

Zimbabwe Actuarial Consultancy

The subsidiary posted a profit before tax of $325 quintillion for the year.

Dividend

The Board has not declared a dividend in respect of the 2008 financial year.

Outlook

The recent reforms introduced by both the monetary and fiscal policies will help improve the business landscape in the country, and Fidelity Life Assurance is well positioned to take advantage of the arising opportunities, as well as deal with the associated challenges. The company welcomes the opportunity to charge premiums in foreign currency, and is ready to explore alternative investment opportunities that may arise as the financial markets become more liberalised.

Appreciation

I would like to commend my fellow directors, management and staff for the efforts made during the past year. Clients and other stakeholders’ support is greatly appreciated.

S. Tembo

Chairman

Chairman’s Statement 2009

 

The introduction of the multi currency system in February 2009 brought stability in the economy with notable positive results on inflation. The 2009 monetary and fiscal policies managed to reduce inflation to a negative 7.7% and created a conducive environment which resulted in companies increasing capacity utilization to average between 30 and 40%. We expect continual improvement in the Socio economic and political environment, leading to enhanced growth in Gross Domestic Product in 2010. The Pensions and Insurance sector will benefit from improved industrial activity and disposable incomes.

FINANCIAL PERFORMANCE REVIEW

Group Results

The Group financial performance during the period under review was commendable, given the prevailing operating environment. Total revenue for the year was $3.9 million, while profit after tax was $2.065 million.

During the same period, Investment income’s contribution to total income was 20% from the 95% in the previous year. This was largely a result of decline in values of mainly equity investments, in view of the liquidity challenges and low economic activity.

The Group successfully undertook a capital raising exercise during the second half of 2009 to recapitalize the business. Your company will use the stronger capital base to take advantage of the expected growth in the economy going forward.

FIDELITY LIFE ASSURANCE OF ZIMBABWE

Total premium income for the year was $1.473 million, while claims during the same period were at $130 000. Investments income stood at $1.482 million. This was due to a deliberate non crystallization strategy on equities positions to take advantage of the upside potential to be triggered by economic recovery. We are hopeful that our strategy on investments will still deliver value going forward.

Operating and administration costs were $1.260 million. Overally the company recorded a profit after tax for the year of $2.137 million.

Individual Life Division

Premium income was $239,462 reflecting the harsh economic realities characterized by low household disposable incomes. Product innovation remains a priority area going into the future.

Employee Benefits Division

Premium income for the period ended 31 December 2009 was $1.233 million. Most companies have reverted to remunerating employees via the payroll albeit on low salaries and this has helped in terms of premium income inflows. Going forward, the company will be aggressive on acquiring new business while at the same time ensuring business presently on board is retained.

Vanguard Life Assurance

This subsidiary, based in Malawi, posted a profit before tax of $813,478 for the year ended 31 December 2009.

Fidelity Life Assurance Zambia

This subsidiary, based in Zambia, posted a loss before tax of $597,394 for the year ended 31 December 2009. There was a fraud involving senior management. The extent of the loss to date is about USD$100 000 and the investigation is still on going to establish the full extent of the loss. The

company’s trading license was subsequently suspended in June 2009 hence the loss due to fixed overheads without income being generated.

The company’s operation has been temporarily suspended pending the resolution of the license suspension.

Fidelity Life Asset Management

The asset management subsidiary posted a loss before tax of $41,693 for the year ended 31 December 2009. The company was largely affected by prevailing liquidity challenges and low economic activity which affected institutional, corporate entities and individual investors alike.

Zimbabwe Actuarial Consultants

Profit before tax for the year ended 31 December 2009 amounted to $5,316. The subsidiary continues to compete for business with other players in the industry, both locally and regionally.

Fidelity Funeral Services

The company recorded a marginal loss of $113,954 for the period under review. We expect the company to increase its presence in the market in 2010 and compete effectively with other players in the sector. Contribution to Group performance is expected to improve going forward.

Dividend

Due to the need to strengthen the company’s balance sheet and underwriting capacity, your Directors recommend that no dividend be declared for the year.

Outlook

General economic improvement is expected across all sectors of the economy and this is likely to boost disposable incomes of workers. Your company is positive about the future in view of the political dispensation ushered in by the signing of the Global Political Agreement and already improving operating environment.

Appreciation

I take this opportunity to express my deep appreciation to our clients and stakeholders for their continued support. I would also like to commend my fellow directors, management and staff for the efforts made during the past twelve months.

S. Tembo

Board Chairman

 

Chairman’s Statement 2007

FINANCIAL HIGHLIGHTS (HISTORICAL COSTS)

Net premium income up 181 212%

Underwriting surplus up 183 473%

Investment income up 79 096%

Profit before tax up 80 345%

Total income up 82 774%

Basic earnings per share up 119 967%

The Operating Environment

Zimbabwe’s GDP declined by 6% in 2007, after consecutive declines of 4.8% in 2006, and 5.3% in 2005.The GDP decline is a result of output slump across all sectors of the economy, except for agriculture, which grew by a marginal 1.4%. Shortages of foreign currency with which to import raw materials and spare parts, the frequent power cuts, shortages of fuel, and increasing production costs all resulted in lower industry capacity utilization.

Year on year inflation rose from 1 593.6% in January 2007 to 66 212% by December 2007, exposing consumers’ disposable incomes to unbearable pressure for the whole of the year 2007. The insurance industry, whose core business relies heavily on the level of consumer disposable incomes, faced enormous challenges to increase business volumes in the face of the hyperinflationary environment.

Money market investment rates remained depressed for the whole of the year 2007, with short-term interest rates hardly exceeding 300%. The equities market, on the other hand, achieved a brilliant year, recording a 335 338% growth during the year 2007.

Financial Performance Overview

Faced with the above challenges, management deployed various strategies not only to preserve shareholders’ value, but also to grow it in real terms. These strategies enabled your company to achieve an excellent set of results for the year ended 31 December 2007.

At $61.1 trillion profit before tax for the year ended 31 December 2007 was 80 345% higher than the $76.4 billion recorded for the year 2006.

Total income for the year 2007 amounted to $64.3 trillion, representing a growth of 82 774% over the $77.6 billion achieved in the year 2006. Investments income remained the dominant contributor, accounting for 93.2% of total income for the year 2007. It should be noted that the growths in both total income and profit before tax was higher than the year on year inflation, which was 66 212% as at 31 December 2007.

Administration expenses, however, went up by 222 482% from $892.7 million in 2006 to $1.99 trillion for the year ended 31 December 2007. This was reflective of the hyperinflationary environment that we are operating in, and the staff remuneration measures that management implemented during the year to retain essential skills.

Fidelity Life Assurance

Total premiums income for the year 2007 amounted to $223.1 billion, which was a 16 738% growth over the $1.3 billion recorded in the year 2006. The growth in premiums, though lower than inflation, was higher than the claims growth of 11 198%, from $169.9 million in the year 2006 to $19.2 billion in 2007. Realised income on equities grew by 338 725% to 4.7 trillion in 2007, and equities revaluation increased by a massive 514 867% from $9.4 billion in 2006 to $48.6 trillion as at 31 December 2007. This growth is higher than both the industrial index growth of 335 338% in 2007, and the December 2007 year on year inflation of 66 212%. Our investments strategy was biased towards those asset classes that will ensure consistently high returns that are above the prevailing inflation rates.

The Company’s profit before tax for the year 2007, at $59.5 trillion, was 78 086% above the prior year figure of $76.1 billion.

Vanguard Life Assurance

This subsidiary, based in Malawi, posted a profit before tax of $864 billion for the year ended 31 December 2007. This was a 2 864 787% growth over the $30.2 million recorded for the year 2006.

Fidelity Life Asset Management

The asset management subsidiary posted a profit before tax of $810.6 billion for the year ended 31 December 2007. This represents a growth of 405 200% from the $210 million recorded in the year 2006.

Fidelity Funeral Assurance

Fidelity Funeral Assurance is now up and running and the company has recorded a profit in its first 6 months of operation. The company currently has a client base of about 5 000, which includes corporate clients.

Dividend Recommendation

An interim dividend of $300 per share was declared and paid in December 2007. Your board has recommended a final dividend of $1500 per share for the trading year ended 31 December 2007.

Outlook

Despite the deteriorating operating environment, management will continue to ensure that the Group achieves superior results going into the future. We will continue re-capitalising and consolidating our local subsidiaries, and at the same time pursue regional opportunities. We seek to ensure that the interests of all our stakeholders are preserved.

Appreciation

I would like to commend my fellow directors, management and staff for the efforts made during the past year. Special mention should go to Mr C. R. Maradza who retired from the board for the diligent service during his time as a board member. Clients and other stakeholders’ support is greatly appreciated.

C. Tembo

Chairman

Chairman’s Statement 2006

FINANCIAL PERFOMANCE REVIEW (Historical Cost)

Group Financial Highlights

Net Premium Income up 1,047%

Investment Income up 11,943%

Total Income up 9,532%

Underwriting Surplus up 1,899%

Profit After Taxation up 11,153%

Basic Earnings per share up 14,844%

GROUP CONSOLIDATED RESULTS

Group financial performance during the period under review was commendable, given the hostile operating environment. Profit before tax for the twelve months to 31 December 2006 was $76.45 billion, an 11 077% above prior year figure amounting to $683.97 million. Profit after tax for the Group was a commendable $75.85 billion.

Total income, at $77.60 billion for the year ended 31 December 2006 was 9 529% up on $805.72 million for the prior year. During the same period, premium income from core operations was $1 486 million, representing a 1 047% growth on prior year figure of $129,57 million. Investment income contribution to total income improved from 82% in 2005 to 98% during the period under review. This was largely a result of appreciation in values of both property and equity investments, in view of the hyperinflationary environment.

Administration expenses went up 896% to $892.7 million while commission paid was only 293% up. This was reflective of cost containment strategies employed by the Company during the period. Claims expense growth, at 1 299%, was in line with year on year inflation which stood at 1281% as at 31 December 2006.

The Company will always ensure that strategies that maximize shareholders and policyholders returns are maintained, while at the same time enforcing tight cost management strategies.

FIDELITY LIFE ASSURANCE OF ZIMBABWE

Total premium income, at $1 325 million was 1 119% above prior year which stood at $108.33 million while during the same period, claims amounted to $786.04 million, a 765% growth on prior year. Realised investments income went up 547% on prior year. This was deliberate given that the environment favoured holding assets that mitigate against the ravages of inflation and this entailed low crystallized listed equity positions. Equities revaluation was a massive 5 227% up, at $9.43 billion. Prior year equity revaluation stood at $180. 59 million. We are hopeful that our strategy on investments will pay off going forward. Administration costs were contained at $540.53 million, an 835% increase from prior year figure of $57.80 million. This was due to a more focused cost control strategy adopted particularly in the second half of the year under review. The Company recorded a profit before tax for the year of $76.12 billion, representing a growth of 11 366% on prior year figure of $633.87 million.

Individual Life Division

This division underwent a major rationalization during the period under review, leading to closure of a number of branches nationwide. The restructuring exercise arose from the need to maintain economically viable divisions in this hostile operating environment, where demand for mainline products has been dwindling over the years as a result of the erosion of disposable incomes. Premium income, at $277.47 million was 847% up on prior year. This is reflective of the harsh economic environment in which companies are operating. Product innovation will remain a priority area going into the future.

Employee Benefits Division

Employee Benefits Division has continued to do well as a result of both new business acquisition as well as recurring business. Premium income for the period ended 31 December 2006 was $1 047.63 million, an increase of 1 219% on prior year while claims went up 1440% to $168.97 million.

Going forward, the Company will be aggressive on acquiring new business while at the same time ensuring that existing business is retained.

Premium Finance Division

The Division continues to contribute positively to the Company. We are currently exploring synergies within the Group. Performance during the period has continued to improve.

Balance Sheet

The Company’s balance sheet continues to strengthen due to organic growth as well as new business acquisitions, particularly in Employee Benefits Division. We will strive to ensure that the Company remains solid so that it can withstand the pressures inherent in an economy, which is hostile to business.

FIDELITY LIFE ASSET MANAGEMENT (PRIVATE) LIMITED (FLAM)

Since the restructuring exercise, which was undertaken in 2005, the Company has continued to make positive progress. Profit before tax for the period ended 31 December 2006 was $212.38 million, up from $3.8 million in 2005. Prospects for this Company are bright.

VANGUARD LIFE ASSURANCE LIMITED

The Malawi based subsidiary turned a profit before tax of $30.19 million. The Company was successfully turned around and is poised for continued positive growth.

ZIMBABWE ACTUARIAL CONSULTANTS (ZAC)

Profit before tax for the year ended 31 December 2006 amounted to $10.75 million, up from prior year figure of $491,700. The subsidiary continues to fight for business with other players in the industry, both locally and regionally.

KU FINANCE

The subsidiary posted a profit before tax amounting to $11.9 million. There is a need, however, to consider increasing the Company’s critical mass in order for it to meet the ever increasing demand for micro-financing. KU Finance has the potential of becoming one of the leading providers of micro finance in the Country.

FIDELITY LIFE MEDICAL SERVICES COMPANY (PRIVATE) LIMITED

There has been an improvement in terms of visibility of the Company in the market. Profit before tax for the period under review amounted to $24.44 million. We expect the Company to increase its presence in the market in 2007 and compete effectively with other players in the sector. Contribution to Group performance is expected to improve going forward.

BUSINESS CONSOLIDATION

At their meeting in December 2006, your directors decided to merge the Premium Finance Division, KU Finance and Fidelity Life Medical Services Company into Fidelity Financial Services effective 1 January 2007. There are synergies between the units with significant scope to optimize business growth whilst eliminating duplication of costs.

DIVIDEND

Your Board has resolved to award a final dividend of 25 cents per share. The dividend declared takes into account the need by the Group to exploit new investment opportunities, which have arisen as well as recapitalization of subsidiaries in the financial services industry in line with the regulatory requirements. The dividend was paid on 30 April 2007 to shareholders registered in the books of the Company at the close of business on 20 March 2007.

OUTLOOK

General economic decline is expected across the country and this is not likely to help the business community. Shortages of foreign currency, products supply shortages, inflationary pressures and a decline in the standards of living of the general populace will remain major challenges. We will, however, continue to pursue strategies that will ensure policyholders’, shareholders’ and other stakeholders’ interests are preserved.

APPRECIATION

I would like to commend my fellow directors, management and staff for the efforts made during the past year. Clients and other stakeholders’ support is greatly appreciated.

 

S. Tembo

Chairman