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Home » News » Business » Sluggish economy collides with BIHL targets

Sluggish economy collides with BIHL targets

Publishing Date : 12 June, 2017

Author : AUBREY LUTE

The BIHL Group has not escaped the repercussions of subdued economies and regional distress compounded by the recent Credit Rating downgrade of South Africa’s sovereign rating to sub-investment grade could potentially undermine growth by constraining private investment and household consumption – but the Group beat the odds and posted exceptional performances with most of its subsidiaries.


To demonstrate the domestic and external pressure, although the BIHL Group returned laudable profits under challenging circumstances with Operating Profit After Tax (OPAT) of P475 million, this is a decline of 19% compared to the previous year. The Group rightly attributes the decline in profitability can be attributed mainly to reduced investment returns resulting from subdued performance in world markets and a decline in single premium profits for the life company.


According to the company’s 2016 annual report, the weak commodities cycle continued, as did the volatility of investment markets. It notes that at home, GDP was 4.3% - a long way from the double digits of the past; and unemployment rates continued to rise – a situation exacerbated by the liquidation of two large mining companies, BCL and Tati Nickel.


The Group chairman notes that this had a significant impact on our society at large, and directly affected Botswana Life and the Botswana Insurance Company (BIC). In addition, she observes the high levels of indebtedness among ordinary Batswana as placing the affordability of insurance under pressure.


“There are many factors that affect the performance of any organisation both positively and negatively. Many of these are external factors, over which we, as an organisation, have no control. We have to ensure that we do whatever we can to mitigate the negative. Unfortunately, in 2016, negative external factors far outweighed the positive,” observed Mrs Batsho Dambe-Groth.


The challenges captured Mrs Dambe-Groth had a direct impact on Botswana Life’s net premium income which declined some 15% year-on-year to P2.07 billion. However, recurring premium income grew by an impressive 7% to P1.085 billion thanks to a significant upswing in retail recurring premium income. According to Dambe-Groth, the launch of the Affluent Division as well as the launch of three trailblazing products in the first half of 2016 also started to yield results towards the end of the year.


“Meanwhile our asset management business, Bifm, turned in excellent results, a truly remarkable achievement in the face of what was a turbulent and challenging year. Assets Under Management for the year grew an impressive 24% to P25.9 billion. Legal Guard, however, experienced a decline in new business and this was compounded by rising operating costs. Nevertheless, we are encouraged by the progress that is being made with the implementation of its new strategy, and by the fact that the business remains profitable,” she writes.


The BIHL Group is also very active outside Botswana borders, inflationary pressure in Zambia and Malawi affected the returns delivered by BIHL investments in those countries. During the review period, the Group advanced its diversification strategy by using the Group’s shareholder investment portfolio to make some significant investments. According to the annual report these included acquiring a 50% stake in Teledimo Pty, which owns Botswana Insurance Company, the leading and oldest short term insurance company in Botswana. BIHL also increased its shareholding of Letshego Holdings Limited from 23.17% to 26.28%.


“Although experiencing their own challenges in the region’s economic climate, our expansion of associated investments resulted in an increase in equity accounted earnings from P186,7 million to P224,7 million. It is also important to understand that a long-term view for new investments must be adopted. We are also investing in our future profitability by utilising technology to boost our operational efficiencies as well as to introduce innovative products. This includes, for example, Botswana Life’s LifeRewards card and Bifm’s Unit Trusts,” observes Dambe-Groth.


It is clear therefore that as a business, BIHL Group is doing well. We have the resilience and the agility needed to ensure that we continue to provide the products and services required by our markets as well as to deliver sound returns to our clients and shareholders. Dambe-Groth praises the partnership with Sanlam as “excellent, mutually beneficial partnership with that enables us to draw on their technical expertise where necessary and maximise synergies between our organisations. Sanlam recognises that BIHL is their largest contributor to their emerging markets business and is therefore keen to assist wherever possible to ensure our ongoing success.”

BIFM TURNAROUND, SLUGGISH ECONOMY  

Following a difficult year at BIFM, Mrs. Catherine Lesetedi-Letegele, the Group Chief Executive Officer reserved special recognition for BIFM noting that: “while 2016 was a challenging year, there were numerous positives, the most pleasing and energising of which was the excellent bifm turnaround. The previous year had been extremely difficult for bifm. Following the loss of a portion of the Botswana Public Officers Pension Fund (BPOPF) mandate, the entire organisation was restructured, and the staff complement rationalised to ensure employees were “fit-for purpose.”


She observes in her report that this was a traumatic process, yet the Bifm team adopted an aggressive recovery strategy, performed well and, ultimately, was able to regain some of the assets we had lost as well as new mandates. She writes that this put Bifm on the road to a solid recovery and well positioned for a strong start at the beginning of 2017.


“In the review period, Assets Under Management increased by 54% to P1.5 billion ending with a small profit of P1.2 million. The turnaround of Bifm and Bifm Unit Trusts business is a testament to the people we have at the company, their focus and determination, and their efforts in creating and maintaining meaningful and mutually beneficial relationships with clients.”


Meanwhile Lesetedi-Letegele notes that Botswana Life as a business dependent on discretionary income, its performance was negatively affected by the sluggish economy, which was characterised by retrenchments, mine closures and high unemployment. The harsh economic conditions resulted in underperformance of some of the company’s business lines. According to the 2016 BIHL annual report the net premium income for the Life Company shrunk by 15% year on year at P2.07 billion during 2016 compared to P2.44 billion achieved in prior year.


“This was primarily due to the non-recurring one-off schemes that were signed in 2015 on single premiums. Recurring premium income grew by an impressive 7% from P1 billion in December 2015 to P1.085 billion for the full year to December 2016 spurred by a 9% growth in retail recurring premium income. Despite the challenging economic environment, the quality of new business written saw the Value of New Business, which represents the present value of future profits from new business premiums written remain stable at 99% of prior year.”


The report further indicate that operating profit was 9% lower than prior year showing resilience despite the significant dip in single premiums. “Given the pressure on sales volumes, management focused on containing expenditure and the 2016 administration expenses were 2% (P4 million) below prior year; this was so despite funding the introduction of new segments that are expected to deliver revenue growth in the near future.”

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