–Extract from IZWE Loans Audited Financial Statements for 2020 published on SENS
Review of the Business Environment
During the first Quarter of 2020 the World Health Organisation (“WHO”) declared COVID-19 as a pandemic, which resulted in widespread precautions to restrict the movement of people to reduce the risk of infection. Izwe Loans Zambia PLC (“Izwe”) invoked its business continuity plan as part of its broader risk management policy which involved several of its staff working remotely from their homes, as well as the limiting of branch operating hours. The Government initiated lockdown broadly affected the economic activities in Zambia.
To support citizens at large, the Bank of Zambia provided the Medium-Term Refinancing Facility to the financial sector with the intention to increase credit extension to sectors of the economy effected by the pandemic. Izwe successfully accessed the facility which assisted in providing much-needed liquidity and ensured continued support to its clients.
At Izwe, the primary focus remains that of providing a safe environment for both our customers and staff. Izwe provided the delivery of quality service to our customers, despite the unprecedented circumstances created by COVID-19.
Despite the difficult trading conditions, Izwe performed well and adequately maintained all loan covenants during the year and it remains well capitalised to improve on its results.
Review of Financial Performance for the year ended 31 December 2020
The Directors are pleased to present the Company’s abridged audited financial results for the year ended 31 December 2020.
The information disclosed in the SENS was derived from the information contained in the Audited Financial Statements and does not contain full or complete disclosure details. Izwe reported an after-tax profit of ZMW48.8 million (2019: ZMW96.8 million) for the year
ending 31 December 2020, representing a 49.5% year-on-year reduction. Gross revenue amounted to ZMW354.7 million, a decrease of 18% when compared with prior year. The reduction in revenue is primarily attributed to the strategy adopted by management to
preserve liquidity and reduce growth levels amidst adverse macro-economic conditions. As a result, Earnings Per Share (EPS) decreased year-on-year from ZMW0.93 to ZMW0.47.
Operating expenses increased by 32.4% from prior year expenditure of ZMW93.1 million to ZMW123.4 million in 2020. The strategic changes introduced in the year resulted in a longterm sustainable cost base restructuring with the impact likely to be seen only in the coming
trading years. Impairment loss expenses reduced to ZMW8.4 million (2019: ZMW33.2 million), partly attributable to the reduction in the loans and advances book but also an improvement in the underlying credit quality. Foreign exchange losses increased to ZMW31.8 million (2019:ZMW29.0 million) and can mainly be attributed to the depreciation of the Kwacha against the major international currencies.
Net loans and advances reduced by 25% from ZMW810.2 million in 2019 to ZMW611.5 million in 2020. This reduction is attributed to the strategic decision to preserve book quality by tightening credit policies, introducing more conservative credit evaluations and placing
additional focus on collections initiatives. Borrowings and corporate notes reduced to ZMW449.0 million from ZMW655.0 million in 2019 as some contractual facility repayments were concluded.
Capital
Izwe remains strongly capitalised with healthy equity of ZMW260.6 million (2019: ZMW311.8 million) enabling it to comfortably meet all obligations; return the business to a growth trajectory; and continue to exceed the Bank of Zambia minimum capital requirements.
Dividends
During the year under review the Board elected to pay a special interim dividend of ZMW100 million (2019: Nil) out of accumulated profits. At the Annual General Meeting, the Board of
Directors elected not to declare a final dividend in respect of the year ended 31 December 2020.
Macro-economic Outlook
The Bank of Zambia decreased the policy rate in the second quarter of 2020 from 9.25%pa to 8.00%pa. This was later increased to 8.50%pa in 2021, with the aim of mitigating the rise in inflation rate which closed the year 2020 at 19.2%.
The economy fell into a deep recession due the adverse impact of the COVID–19 pandemic.
Real GDP contracted by an estimated 4.9% in 2020, after high relative growth in previous years. The economy is projected to grow by 1.0% in 2021 and 2.0% in 2022, underpinned by recovery in the mining, tourism, and manufacturing sectors. Izwe is strategically implementing new products to the market in anticipation of this expected growth.
The Government initiatives provided to the financial sector in the second half of 2020 provided the much-needed liquidity relief, and gave Izwe a strong base in the second half of 2020, despite the negative effects of the COVID-19 on the sector.