Madison Financial Services in 2017: Case of the PHD Syndrome
Finance, Madison Financial Services Plc

In a year of mixed fortunes, Madison Financial Services will remember 2017 for the highs and lows that where omnipresent in their financials.

According to SENS Announcement published 14th June 2018, after a tremendous recovery was recorded for the total insurance business which had a triple jump in profits at 275%, the company made positive strides in revenue growth with a 9% increase in insurance premiums. The company prided itself with improved efficiencies that had premium growth translate into substantial growth in operating results.

Whilst the company continued to maintain a strong brand in the market, their solid performance was however pulled down by the poor performance recorded in the groups other businesses. Their statement on the matter pointed to 3 areas were performance was low and these included:

  • “A counterparty, with whom MFS through its subsidiaries had placed funds, is under stress and this resulted in a full impairment provision of the Group’s receivables with the said counterparty in accordance with International Financial Reporting Standards to the extent of K35 million. A counterparty is the other party that participates in a financial transaction, and every transaction must have a counterparty in order for the transaction to go through.
  • Increased impairments were made on some of the loans made to SME borrowers in prior years, whose businesses experienced poor recovery.
  • Also, there was depressed demand for medium to high cost housing, resulting in a number of unsold housing units on the Group’s balance sheet against continuing financing costs. Inadvertent delays in the completion of certain property development projects and the resultant delayed sales also led to losses for the period”

The recorded impairment rears its ugly head on the highlights of the financials which showed that in the previous two financial years they had recorded north of K29 million in operating results for other businesses. This inevitable led to the 115% drop in operating results from 2016 to 2017.

However, their statement was quick to point out that remedial measures were already underway and were so far on course to work out the case of the “counterparty situation” with other creditors and external advisors in putting in place the best possible solution. This is a very optimistic statement coming from the MAFS Board. The statement does achieve its aim of calming investors however, with Bank of Zambia raising concerns during the year on non-performing loans (NPL) the recovery roadmap must be closely watched.

Lack of liquidity in the period under review played a large part in the other issue of the MAFS not being able to off load property. In this vain, the group states that it is making corrections in its property development area by re-aligning its strategy. With raised consumer interest in some of the unsold units, the management team is confident of disposing the outstanding stock. Specifics on the details of new strategy were not availed in the statement. However, if consumer appetite in an illiquid market is a factor, initiatives such as redesigning the product offerings comes to mind. Furthermore, with new home loan companies emerging with a tumbled MPC rate that has made mortgage interest rates “slightly fairer”, it is no surprise that the management team would be optimistic.

Shareholders will be disappointed with the fall in earnings per share (EPS). From a high of 0.25 in 2016, 2017 saw the EPS enter negative territory. Equity took a 23% haircut as well. However, the balance sheet appears to be increasing in strength year after year. Shareholders will be comfortable knowing that the management team are working tirelessly to align all their businesses to move northwards in terms of profit.

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