Zimre Holdings’ Back to the Future

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HARARE – Back to the Future was released on July 3, 1985. It was well-received, placing at the top of the box office for eleven weeks and grossing over $381 million worldwide to become the highest-grossing film of 1985. It featured the Delorian, poodle skirts, Marty McFly played by Michael J Fox and Doc Brown. In the film, McFly goes into the past to change his timeline. Originally, his mother. Lorraine, and father, George, met when George was hit by a car. When Marty goes back in time, he pushes George out of the way. This action saves George but prevents his parents from meeting.

Back to the Future provided a huge cultural phenomenon as it was full of sci-fi ideas of time travel. One of the greatest things about Back to the Future’s construction is how the movie is completely centered on the idea of running out of time. But in as much as it was humorous, it also provided life’s lessons as it did lessons for business premised on its two main themes: timing and decision making. Marty isn’t an innovator, but he is a problem solver. Solving problems in the face of adversity (in Zimbabwe’s case economic challenges) — or, more often, in the presence of naysayers — is a daily challenge for business. Paying attention to the world around him, and his as well as others’ needs is Marty’s recipe for success. The film also shows us that actions decide the future. Without that one decision, George and Lorraine would never have gotten together. More than that, it leads to George’s success, changing the future. In the new 1985 he is a successful author.

Tracing back to the beginning

Although Zimre Holdings Limited is not a sci-fi project, it is at the present moment seeking to rebalance and consolidate the group as it seeks to grow the balance sheet and enhance the insurance arm’s underwriting capacity. ZHL recently published a circular, detailing two transactions; the purchase of a majority stake in Fidelity Life Assurance through a share swap with NSSA and the proposed acquisition of all the ordinary shares of Zimre Property Investments currently held by minority shareholders. Shareholders of Zimre will be asked to vote for the proposed transactions at an EGM to be held on Wednesday 30 September at 0900hrs. If the ZPI transaction is approved by shareholders, ZPI will ultimately delist from the Zimbabwe Stock Exchange This is not the first restructuring that ZHL has undergone, but it is the first that brings the company closer to its original vision; leveraging the balance sheet for growth.

Zimre was established in 1983 through an Act of Parliament. The objective as laid out by the company’s then principal (Government) was to use local solutions to create wealth while also serving a greater purpose of propelling economic progress. “The objective is to create a nucleus from which insurance as a major sector can be localised in ownership and control, developed in the country and beyond,” said Government then. In addition, there was need to curb the outflow of foreign exchange by reinsuring locally. The company started operations in 1984 with $2.5 mln seed capital from Government.

Expansion started off with the establishment of a broking operation Zimbabwe Reinsurance Brokers in 1985. In 1988, the corporation acquired Legal & General to enter life pensions (name changed to Fidelity Life Assurance) and NEM for non-life business (Name changed to National Insurance Company of Zimbabwe in 1989). “This creates a strong infrastructure in the development of a truly locally owned and controlled insurance industry,” then CEO Albert Nduna was quoted as saying in 1989.

The company listed on the ZSE in 1999 and the ZimRe Act was subsequently repealed.

ZHL embarked on a group restructuring exercise in 2002 under the theme; ‘Sector growth and profitability’, which saw the creation of a holding company; Zimre Holdings Limited (previously it was referred to as ZimRe). Further to that the operating activities were to be streamlined and consolidated into sector specific operating units. The exercise saw the demerger of Nicoz (followed by a successful merger with Diamond Insurance to form Nicoz Diamond). As a bigger company with a stronger balance sheet, Nicoz was subsequently listed on the ZSE but ZHL disinvested from the company in 2018 following a 100.0% acquisition by First Mutual Holdings Limited.

The first residential development was the Zimre Gardens in Harare, built at a cost of $4 mln in the early 90s and comprising of 28 two-bedroomed and 10 three-bedroomed flats. The property unit was unbundled and subsequently listed as ZPI in 2007 with an objective of diversifying revenue streams and unlocking shareholder value.

ZHL also spread its operations into the region by opening offices in South Africa and Malawi. Its management at that time said Malawi would be the key hub of regional business and a catalyst for regional expansion.

But then the wheels came off

With business links in 30 countries by the turn of the new millennium, the vision for the company was in motion. No doubt it had solid assets, and a strong solvency position, but required liquid cash to compete against the best in their respective domains. However, a capitalisation drought, coupled with the OFAC restrictions saw the group losing the sector specific focus it once pursued. It operated under a fragmented state, where the group was merely a portfolio investor in assets whose returns were suboptimal for a holding company.

Key members of the current ZHL management; CEO Stan Kudenga, Chairman Ben Kumalo and Group Corporate Finance and Business Strategy Executive, Chakanyuka Nziradzemhuka, below

Fidelity Life was struggling under a huge cost structure and while inflation solved the capitalisation issue, the assets were there for the picking and were, in fact, a target for many. ZHL’s main advantage was to structure the share swap, which meant that everyone involved in the deal has cover under a ‘no-value-lost’ arrangement. The proposed acquisition also allows ZPI minority shareholders to have a stake in a large and diversified entity.

The refocus will create a bigger, stronger, and more resilient player that will be better placed to withstand underwriting risks and to absorb, macroeconomic shocks. Insurers make their money from the spread between their assets and liabilities and it is commendable that the group is now following this path as many insurers face the risk of just targeting to grow GPW without any consideration and tact. And just like the Back to the Future film, the proposed transaction also revives asset power; from reorganization, to restructuring to leveraging.

After both transactions, Government and NSSA combined will become the largest shareholders, so in a way it returns the company to its origins. Both Government and NSSA reduced their shareholding in the group when they elected not to follow their rights under a $15m capitalisation programme.

The proposed acquisitions will result in ZHL having combined assets of ZWL$2.2bn (c.USD 27.0m from c.13.0m) and shareholders’ equity of ZWL$840.0m (c.USD 10.0m from c.USD 7.0m) had the acquisitions been implemented on 31 December 2019. The growth of the group’s balance sheet is expected to significantly increase the insurance arm’s underwriting capacity and hence its competitiveness both in Zimbabwe and the region. In addition, the proposed acquisitions will enhance the group’s future capital raising efforts as the balance sheet will now be anchored by a significant property portfolio comprising a mixture of properties in prime locations around the country. Nonetheless the group remains with the onerous task of raising capital for the subsidiaries in a fluid local and international environment.

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