NicozDiamond to tighten its belt

Published: 10 March 2014

NicozDiamond will focus on managing costs and maintaining a healthy bottom line in F14 as revenue growth is expected to be subdued in line with a downcast economic environment, managing director Grace Muradzikwa told an analyst briefing on Friday.

"We've witnessed a slow start to the year; we've seen that across all industries and naturally our focus is on revenue and cost alignment. We are very much alive to the developments in the industry and in the economy. We've realised that for us to sustain the good performance that we've enjoyed so far we need to tighten our belts," she said.

Muradzikwa noted that the "belt tightening" has already started as they are seriously interrogating their cost structures and business model.

She further indicated that they will focus on enhancing and sustaining liquidity as well as growing and preserving their investment portfolio.

Commenting on the operating environment, Muradzikwa said tight liquidity prevailed and premium collections remain a challenge in the market.

"What we've actually seen is that…some of our clients who are supposed to be quite liquid are struggling to make payments. We've moved in, and tried to negotiate with our clients, which has of course made a significant impact on our debtors' book," she said.

She noted that the firm is operating in a highly competitive market. Meanwhile, she said alternative distribution channels are gaining prominence.

Muradzikwa noted that NicozDiamond embraces the new insurance bill which is under consideration, saying that it will introduce higher corporate governance in the market therefore they expect to see stability as the regulator continues to monitor the industry.

Presenting on group's financial performance, General Manager Corporate Services Gloria Zvaravanhu noted that the group's gross premium written went up 21% to $30.02 million with the biggest contributor NDI weighing with $28.06 million and FICO, $1.995 million.

PBT for the period under review went up 56% to $3.211 million with NDI contributing $1.482 million while FICO contributed $202 000. Meanwhile, net premium written improved to $18.31 million against $14.15 million posted in the prior period.

"For this particular year in terms of our reinsurance, we actually increased our retentions slightly on prior year. We were operating on retentions of about 57% in F12 and for F13 we were at about 60%. So that also helped improve our bottomline for the year," she said.

Net claims income was $7.9 million for F13 while net commission paid was $1.791 million and management expenses closed the period at $6.325 million.

Furthermore, Zvaravanhu indicated that claims, commissions and expenses "were very much controlled in the year."

"We always say that it's a matter of luck as well when it comes to claims so this year was a particularly good year for us in that respect," she said.

She told analysts that underwriting profit for the group closed at $892 000 which was a 727% increase on prior year and according to her, this was due to better management of expenses and claims.

NDI contributed an underwriting profit of $821 000 while FICO recorded a negative $65 000.

"We are particularly happy about this because it shows the sustainability of the business because this is core business, so if it is going up it shows that the sustainability of the business is not in question definitely," she added.

Zvaravanhu indicated that the firm recorded a growth of almost 60% in terms of the cash that they generated from their operations with net cash from operating activities improving to $1.411 million from $886 000 in the prior period.

However, she noted that the environment was still tight in terms of liquidity and their clients are also facing the same challenges and the firm is not collecting its premiums as they should.

"For insurance, our premiums should be collected upfront but we have to negotiate payment plans with our clients just to accommodate them as well…So from this cash that we generated, at least we were able to make new investments in the year," she said.

Moving to the group investment portfolio mix, she pointed out that properties went down to 61% from 76% in FY12, money market 28% versus 18%, quoted equities 7% against 3% and unquoted equities 4% from 3% in the prior period.

The group's investment income was at $2.325 million with properties getting $1.544 million, "which is as a result of revaluation of the firm's properties."

Under the key investor ratios, she noted that basic EPS went down to 0.40c from 0.43c.

Furthermore, she told analysts that expenses to earned premium ratio went down to 39% from 41% (against a 35% benchmark), claims/EP ratio slightly decreased by 1% to 47% while ROCE closed unchanged at 17%. The solvency margin decreased to 59% from 66%.

Turning to the class performance highlights, General Manager Operations Noel Manika noted the 47% contribution to GPW by motor, 26% by fire and 13% contribution by accident.

"We have the motor, which is the biggest class growing by 33%, fire growing at 24% and unfortunately accident did not do so well, it actually reduced by 3%. However, we have other classes that are coming up; farming is still small but growing at 278% and also the credit book coming up, growing at 102%," he said.

He further indicated that the firm retained 75% under the motor class, 70% in accident, 72% in farming and 96% from the credit book.

Motor's contribution to claims was 73% while fire contributed 10% and accident 9%.

Giving a trading update on the current year, Muradzikwa told analysts that gross premium written up to February slightly decreased to $6.955 million compared with $6.962 million recorded in the prior comparative period.

She noted that as anticipated, "revenue growth is subdued" and performance is in-line with expectations., She added that their focus is on managing costs and maintaining a healthy bottom line.

Under evolving initiative the "Diamond Villas" - Hatfield Cluster Project - has now commenced with civil works in progress. NicozDiamond has also commenced its operations in Mozambique.

Going forward, Muradzikwa said they will focus on product innovation, as well as relooking the business model to embrace technological advancements.

- zfn

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