ECONOMICOVERVIEW

During the first half of the year macroeconomic developments continued to be negatively impacted by price and exchange rate volatility, particularly in Q2 2023. Significant policy interventions were implemented by Government towards the end of the period aimed at stabilising the Zimbabwe dollar and reducing inflationary pressures. However, the impact of these measures is likely to be fully felt post June 2023. Blended annual inflation had increased to 175.8% as at June 2023 compared to 101.5% in January 2023 and the ZWL also lost its value as the official exchange rate advanced from USD1:ZWL669 to USD1:ZWL5,739 by the end of the period. The Government revised its GDP growth estimates for 2023 from 3.8% to 5.3% on the back of better than anticipated agricultural output from tobacco. Moreover, the Reserve Bank of Zimbabwe expected the blended annual inflation to close the year at between 60%-70% from an initial estimate of between 10%-30%. The ratio of USD to ZWL bank deposits rose to 80%:20% in the first half of 2023 compared to a ratio of 64%:36% last year.

As the local economy increasingly dollarised, FMHL continued to expand its USD based product portfolio to maintain product relevance. In addition, the Group maintained its stance of diversifying its pool of investment assets with a skew towards real assets to minimise the impact of the volatility i in the macro-economic environment. Save for the VFEX listed equities, there was a positive real return on the remaining components of the investment portfolio, including ZSE listed shares, investment property and alternative investments.

FIRSTMUTUALLIFEFORENSICINVESTIGATION

During 2022, the Insurance and Pensions Commission (IPEC) instituted a forensic investigation on First Mutual Life Assurance Company (FML), a subsidiary of FMHL. The forensic investigation related to the separation of assets between the policyholders and shareholder during the period 1 February 2009 and 31 December 2021. The investigation formally commenced on 26 August 2022 following the appointment of BDO Zimbabwe to conduct the exercise. On 10 May 2023, FML received a copy of the forensic investigation report from IPEC. At the direction of IPEC, FML submitted its response to the forensic investigation report to the Ministry of Finance on 8 June 2023.

As at the date of issuing these results, the half year audit review of the Group interim financial statements is incomplete pending the finalisation of the forensic investigation and, consequently, the Group will not be in a position to publish audit reviewed financial statements in line with the Zimbabwe Stock Exchange listings requirements and approved timelines. In the interim, the board of directors, in consultation with the ZSE, has decided to publish the financial information in the form of a preliminary report.

IFRS17REPORTING

The International Financial Reporting Standard IFRS17 – Insurance Contracts (IFRS 17) was issued by the International Reporting Standards Board in May 2017. This standard replaced IFRS 4 on accounting for insurance contracts effective 1 January 2023. IFRS 17 requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. This requirement will provide more transparent reporting on the financial position and risk of insurance entities. The Group financial highlights and performance have been analysed in line with the requirements of this new standard.

FINANCIALHIGHLIGHTS

In October 2019 the Public Accountants and Auditors Board concluded that the conditions for applying International Accounting Standard IAS 29 – Financial Reporting in Hyperinflation Economies had been met in Zimbabwe. The historical cost financial results have been restated to consider changes in the purchasing power of the local currency during the year. Effective February 2023, the Zimbabwe National Statistics Agency ( ZimStat) ceased the publication of the ZWL Consumer Price Indices (CPIs) and replaced them with the weighted average consumer price index also known as blended indices in line with the Statutory Instrument 27 of 2023 which requires the inflation rate to be calculated as the weighted average of the ZWL and USD rates. This created challenges for financial reporting purposes as the weighted average consumer price index does not comply with the International Accounting Standard (IAS) 29 which requires the use of a General Price Index (GPI) of the hyperinflationary currency (ZWL) as a basis of restatement. FMHL has continued to apply IAS 29 for the half-year ended 30 June 2023 with the CPI estimated using the Total Consumption Poverty Line (TCPL) movement. The inflation adjusted financial results therefore represent the main financial statements with historical cost financials provided as supplementary information:

FINANCIALPERFORMANCE

STATEMENTOFCOMPREHENSIVEINCOME

Insurance contract revenue

During the period under review, Insurance Contract Revenue (ICR) at $199.5 billion, grew by 105% compared to prior year (a growth of 750% to $106.4 billion compared to the prior year in historical cost terms). The growth in comparison to the same period last year was largely driven by the continued revaluation of ZWL insurance policy values to ensure adequate cover for clients as well as a migration of more policies to the USD for value restoration in case of the occurrence of an insured event. The proportion of the USD business being written by the Group constituted 74% of the total ICR at USD 45.8 million.

Insurance service result

The Insurance service result declined by 65% to $11.2 billion compared to the prior year (1,379% to a negative insurance service result of $37.1 billion compared to prior year negative result of $2.9 billion in historical cost terms). The deterioration was as a result of increases in direct insurance expenses despite the growth in ICR as well as significant foreign denominated business written mostly in Q1 2023 and translated to ZWL at a lower exchange rate against the claims expenses that were settled at a higher exchange rate during the course of the period as the ZWL rapidly depreciated. The underlying pure USD business was profitable.

Rental income and Investment return

During the period under review, rental income grew by 117% to $7.9 billion compared to the prior year (658% growth to $3.7 billion compared to the prior year in historical cost terms). The growth arose from a combination of factors which included a migration to the USD denominated leases as well as inflation driven adjustments on ZWL rentals. The occupancy levels stood at 88.10% compared to prior year of 89.99% and the average rental/square metre was $4.02/ square metre compared to prior year of $3.3/ square metre. The overall Group net investment returns amounted to $109.3 billion ($159.3 billion in historical cost terms) that was 1,701% above prior year. The positive investment outturn was mainly due to fair value gains on the ZSE and the ZWL depreciating at a faster rate than the USD fair value losses on the VFEX.

Profit for the period

The Group achieved a profit for the period of $386.4 billion which represented a 19,409% increase relative to the prior year (a growth of 1,330% to $486.7 billion compared to the prior year in historical cost terms). The increase is attributable to the increases rental income, net fair value gains in investment properties and listed equities.

STATEMENTOFFINANCIALPOSITION

The Group’s total assets grew by 125% to $1.4 trillion in inflation adjusted terms and 591% to $1.3 trillion in historical cost terms compared to 31 December 2022. The growth in both inflation adjusted and historical cost terms was mainly driven by positive fair value adjustments on investment properties and the impact of the depreciation of the ZWL on USD denominated current assets including balances with banks, insurance contract assets.

In recent periods, the investment properties have witnessed significant growth in Zimbabwe dollar values and this was the case for the period under review. The ZWL continued to decline in comparison to the USD for the period under review, which had an impact in the forward- looking information utilised in the valuations by property experts, hence the net fair value gains of $510.3 billion in inflation adjusted terms and $746.6 billion in historical cost terms. The total investment property value grew by 147% compared to last year in inflation adjusted terms and 670% in historical cost terms.

SUSTAINABILITY

The Group has prioritised the sustainability agenda not only from a risk management perspective but also considering the various aspects in Group operations that include value creation and maximisation, potential growth and compliance with reporting requirements as well as fulfilling the good corporate citizenry mandate as a governance tool. The Group’s objective to create sustainable economic value is a pillar of our corporate strategy and core values.

In order to achieve the above, the Group makes an allowance for environmental, social and governance (“ESG”) aspects in its strategy. FMHL has also laid out processes to ensure that the impact of sustainability is not only limited to core operations but also stretches to other areas of the business.

FIRSTMUTUALINTHECOMMUNITY

First Mutual continues to actively support the communities in which we operate including the ongoing provision of educational support through the First Mutual Foundation to deserving students from disadvantaged backgrounds. This includes tuition fees, stationery, laptops, uniforms and other ancillary support as necessary. The recipients are spread across primary and secondary schools as well local universities.

As part of expanding the tertiary bursary programme, FMHL partnered with Africa University and established the First Mutual Scholarship Fund, which supports an additional 6 students under this initiative which is cognisant of the Group’s diversity policy and incorporates students with vulnerabilities.

Additional community support was implemented through donations to charitable causes as well sponsorship of industry bodies as the Group believes that this is an integral part of thought leadership and capacitating industry to ensure a vibrant and sustainable business environment.

OUTLOOK

The strategic assumptions for the outturn of the economic environment have remained largely unchanged however policy fluidity may lead to temporary negative outcomes during the realignment period. With that background, the various business units within the Group will deploy their strategies accordingly and adjust as appropriate to new policy measures but maintaining the aim to achieve sustainable real growth into the future. FMHL will continue to pursue value enhancing initiatives such as investments in real assets to preserve and grow the net assets of the Group.

DIRECTORATE

There were no changes to the directorate during the period under review.

DIVIDEND

On 13 September 2023 the Board resolved that an interim dividend of 0.068 US cents per share amounting to USD500,000 be declared from the profits of the Company for the half year ended 30 June 2023. Further details on the payment of the dividend will be communicated in a separate dividend announcement.

APPRECIATION

On behalf of the FMHL Board, I would like to thank our clients and stakeholders for their continued support. I also extend my appreciation and gratitude to FMHL employees and management for their commitment to serve our clients and ensuring that the Group continues to adapt to operate sustainably in a challenging environment. I would also like to extend my gratitude to my fellow board members for their continued support, including their valuable contributions, insight and guidance to management as we pursue the realisation of the Group’s strategy.

Amos Manzai

Chairman

13 September 2023

GROUPCHIEFEXECUTIVEOFFICER’SREVIEWOFOPERATIONS

The operating environment continued to be volatile with high inflation and a depreciating local currency during the review period. The country experienced significant Zimbabwe dollar exchange rate depreciation between May and June 2023 driven by both demand and supply factors. The demand factors mainly reflected elevated demand for foreign currency for purposes of value preservation. The effect of the high demand for foreign currency on the economy was coupled with the sudden decline in the demand for local currency. The measures instituted by the Reserve Bank of Zimbabwe (RBZ), which included further liberalisation of the exchange rate, tighter monetary policy and the introduction of gold-backed digital tokens bore fruit as evidenced by the recovery of the ZWL and relatively stable exchange rate. As at 30 June 2023, the exchange rate stood at USD1:ZWL5,739 compared to USD1:ZWL4,516 at 31 July 2023. The blended month-on-month inflation moved in sympathy with exchange rate with a steep increase from 15.7% in May 2023 to 74.5% in June 2023 followed by a significant reversal in July 2023 to minus 15.3%. Similarly, the blended annual inflation, which had risen from 86.5% in May 2023 to 175.8% in June 2023, fell to 101.3% in July 2023.

During the first half of the year 2023 the Zimbabwe Stock Exchange (ZSE) registered nominal gains which tended to track money supply dynamics rather than fundamental corporate performance. The ZSE registered a return of 779.3% which was behind both official and alternative market exchange rate movements for H1 2023. The Victoria Falls Stock Exchange (VFEX) All Share Index was characterized by bearish sentiments during the period and declined by 23.1% in the first 6 months of the year.

This was despite its market capitalization rising due to new listings on the bourse.

The Botswana economy continues to be stable despite the BWP weakening against the USD. In Mozambique, the economy has maintained signs of growth as evidenced by a stable exchange rate and declining inflation.

OPERATIONSREVIEW

The commentary below relates to the unconsolidated performance of each business unit in both inflation adjusted and historical cost terms for the period ended 30 June 2023. All the figures are in ZWL except where another currency is indicated.

LIFEANDHEALTHCLUSTER

First Mutual Life Assurance Company (Private) Limited

Insurance contract revenue (“ICR”) for the period amounted to $15.7 billion in inflation adjusted terms which was 343% above the prior year $0.7 billion in historical terms representing a growth of 1,457% against the prior year). The year-on-year growth in the ICR was driven by the regular revisions in sums assured with the objective of retaining the value of policyholder benefits. Growth in premiums from the retail segment was largely due to significant growth in USD denominated premiums on the Eternal Life Plan and E-FML Gold Funeral products. In the corporate segment, growth in premiums was attributable to growth in the Group Life Assurance portfolio arising from new business and organic growth. The organic growth stemmed from the effect of employee salary increases, as employers sought to attain the target financial security benefits of this product.

The business achieved a profit for the period of $103.8 billion in inflation adjusted terms that reflected a growth of 202% compared to the prior year and a 1,257% growth in historical cost terms to $132.8 billion. The profit after tax growth was driven by increases in premiums as noted above and net investment returns (investment property and quoted and unquoted equities).

First Mutual Health Company (Private) Limited

For the period ended 30 June 2023, the business achieved an ICR of $82.1 billion which represented a growth of 117% compared to prior year in inflation adjusted terms (in historical cost terms the ICR grew by 714% to $40.3 billion). The growth in both inflation adjusted and historical cost terms was largely driven by the regular exchange rate linked reviews to premiums in response to increased medical benefit costs in order to cushion members from the negative impact of shortfalls driven by price increases effected by medical service providers. There were also modest adjustments of USD premiums on account of rises in USD costs of medical benefits by service providers. There was a gradual growth in pure USD medical policies as members are migrating to a more stable product.

The unit generated a profit for the period ended 30 June 2023 amounting to $33.1 billion in inflation adjusted terms representing a growth of 1,410% against prior year. In historical cost terms, the profit for the period amounted to $41.8 billion, 2,319% higher than the prior year. The positive outturn arose from significant fair value gains on the equity portfolio and a positive operating result.

The business continues to roll-out medical services facilities (clinics, pharmacies, dental and optometry services) as a long-term strategic priority. Our objective in this space is to complement government efforts to provide greater access to Zimbabweans to quality healthcare at affordable prices.

GENERALINSURANCECLUSTER

NicozDiamond Insurance Limited

The ICR grew by 35% to $44.1 billion in inflation adjusted terms and 465% to $23.2 billion in historical cost terms. The revenue increase was primarily a function of increased migrations to USD denominated policies, organic growth as well as the continued review of statutory covers in line with exchange rate linked reviews.

The business recorded a profit for the period ended 30 June 2023 in inflation adjusted terms of $49.6 billion which represented a growth of 78% against the prior year. The historical cost terms profit for the period amounted to $23.9 billion a 3,003% rise above the prior year. The improved performance was mainly driven by a notable growth in the ICR as well as growth in net fair value gains in equities and investment properties.

Diamond Seguros – Mozambique

Diamond Seguros recorded an ICR of $4.2 billion which was 133% above the prior year in inflation adjusted terms (55% growth to $0.6 billion in historical cost terms). The growth was mainly driven by continued improvements in broker business reflecting increasing market confidence. In Mozambican Metical (MZN) terms, an ICR growth of 57% to MZN99.9 million was recorded compared to prior year.

REINSURANCECLUSTER

FMRE Property and Casualty (Proprietary) Limited – Botswana

The ICR for the period went up by 169% to $40.4 billion in inflation adjusted terms and 977% to $22.6 billion in historical cost terms. In Botswana Pula (BWP), the year-on-year growth was 16% at BWP134.4 million compared to BWP116.3 million in the prior year. The double-digit growth was partly attributable to improved local and international treaty participation and growth of specialist lines of business under the casualty segment. The BWP stood at USD1:BWP12.9 to the USD at the beginning of the year, closing at USD1: BWP13.5 as at 30 June 2023, shedding almost 5% of its total value against the USD. However, this movement in the exchange rate was lower than the growth in the ICR in both BWP and ZWL terms.

First Mutual Reinsurance Company Limited – Zimbabwe

The business recorded an increase of 447% to $20.4 billion in the ICR in inflation adjusted terms and 1,936% to $11.1 billion in historical cost terms for the period ended 30 June 2023. The increase in ICR was attributed to the significant increases in demand for USD policies by clients, which consequently led to more business for reinsurers as there was limited USD underwriting capacity at local direct insurers.

The business achieved an inflation adjusted profit for the period of $28.2 million, 727% above the profit for the same period in prior year and $34.5 million which represented a growth of 6,225% in historical cost terms. The growth in profit was driven by increases in ICR and exchange gains.

INVESTMENTSCLUSTER

First Mutual Properties Limited

Rental income for the period ended 30 June 2023 grew by 121% to $7.9 billion in inflation adjusted terms and 668% to $3.6 billion in historical cost terms. The growth compared to prior year is largely attributed to the migration to USD foreign denominated leases with those maintained in the local currency being adjusted for inflation linked reviews. This growth in revenues occurred despite a decrease in the occupancy rate to 88.10% in 2023 compared to 89.61% in 2022. Independent investment property valuations as at 30 June 2023 resulted in net fair value gains of $744.4 billion.

First Mutual Microfinance (Private) Limited

The interest income grew by 304% to $4.2 billion for the period ended 30 June 2023 in inflation adjusted terms and 1,697% to $2.4 billion in historical cost terms. The growth was principally due to increases in the USD loan book which was 92% of the total loan book as at 30 June 2023. The corresponding interest costs amounted to $1.3 million in inflation adjusted terms, 214% above prior year and $0.7 billion in historical costs terms which represented an increase of 1,157%. The business turned a corner and attained critical mass leading to a profit for the period ended 30 June 2023 of $1.9 billion 1,161% above the prior year in inflation adjusted terms and 7,069% growth to $2.4 billion in historical cost terms.