In compliance with the requirements of the Securities Act No. 41 of 2016 of the Laws of Zambia and Listings Requirements of the Lusaka Securities Exchange, the Directors of Zanaco are pleased to announce the unaudited results for the half-year ended 30th June 2020.
Operating Environment
The negative effects of the Novel Corona Virus 2019 (COVID-19) remained the dominant influence on global and domestic economic performance in the first half of 2020. Various forecasts now show the Zambian economy shrinking between 2.4 and 5.2 percent, from an initial growth projection of around 3 percent before the impact of the pandemic. Business activity hit new lows in the second quarter of the year as firms cut back production and headcount due to a slump in trade activities and consumption resulting from the lockdown and other national health emergency measures that were effected. Business sentiment was negatively affected by the material impact that COVID-19 had over a relatively short period of time.
Review of Results
Despite the challenges in the operating environment, we are pleased to have delivered strong results in the first half (H1) of the year. Operating income grew by 37 percent to K982 million from the same period last year. The growth was primarily supported by strong performance from our lending and trading activities where the Bank assumed market leadership. Income from lending grew by 32 percent to K493m while trading income grew by 317 percent to K196m from H1 last year.
The results reflect the resilience of the Zanaco Group and the strategic success of its focus on key productive sectors of the economy despite the difficult economic environment. The Group has also begun to reap the benefits of its investments in restructuring, new systems and products and channels that will ultimately lead to business growth in line with the strategic plan and objectives.
Net profit for the period stood at K62 million representing a net margin of 6 percent. This is down from 9 percent in 2019 mainly due to cost inflation resulting from a weakened Kwacha, coupled with the restructuring activities aimed at improving long-term efficiencies and performance, creating sustainable growth and stability, and ultimately increasing value and optimising return for our shareholders. As with Net Profit, the Group’s Return on Equity shows a short-term decline in the first half of the year of 2020, which is expected to rebound in the near term on account of the realization of benefits from current year investments.
Equity Performance
Return on equity has consistently been growing from -7% in 2016 to a high watermark of 22% in 2019, only declining to 14% in 2020 due to the strategic investments the Group has embarked on in the year. The consistent growth in Return-on-equity over the years, together with the good performance in 2020 enabled a comfortable dividend distribution at a pay-out ratio of 35% for the financial year ended December 2019; this translated into a dividend yield of 10% compared to a lower peer average, and represented a 100% growth in dividend year-on-year.
During the first half of the year, the share price remained static at K0.5 despite an 8% decline in the Lusaka Securities Exchange All-Share Index over the same period. Despite the sustainably good business and financial performance, the price to book ratio (PB ratio) of the Bank, which compares the market capitalisation to the book value of the net assets, stood relatively low at 0.78x, which therefore reflects a high intrinsic stock value and positive future prospect.
Capital Position
The Group remained adequately capitalized to support the business strategy and met regulatory requirements at all times. The Group’s capital adequacy ratio as at 30 June 2020 stood at 13% after allowing for payment of an annual dividend. The Directors recommendation for a K75.1m dividend payment was approved at the Annual General Meeting in June this year.
Outlook
The effects of the coronavirus on the economy and society pose the largest threat to the future performance of the Group. Therefore, it is closely monitoring developments in the environment emanating from the pandemic to avert risks and identify opportunities. Our performance so far in this tough environment validates our chosen strategy. We will continue to invest in enhancing our customers’ experience and restructuring operations to increase long-term efficiency and sustainability.
By Order of the Board
Kaluba G Kaulung’ombe-Inampasa
Company Secretary
Issued in Lusaka, Zambia on 28 September 2020
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