Zanaco 2016 AGM Presentation – MD

2015 Financial Performance
(The Transformation Journey)
A Presentation to Shareholders at the
2016 AGM
Bruce Dick
Chief Executive Officer
Zambia National Commercial Bank Plc.
March 31st, 2016
Agenda
Introduction
Our Board & Executive Team
Our Journey
What Drives Us?
Focused & Consistent Strategy in Chosen Segments
Current Significant Developments
Economic & Market Conditions
Market Performance
How Is Our Performance?
Financial Performance
Outlook
Fit2Serve
Conclusion
2
Our Governance Structure
ViceChairperson Chairman
Member
Member
Member
Board Of Directors
MD
Member
Member
Key
Business unit
HR & Training
Office of CEO
Support function
CEO
Internal Audit
Compliance
CCO
Chief Commercial Officer
COO
Chief Operations Officer
CRO
Chief Risk Officer
CFO
Chief Finance Officer
Note: Office of CEO includes (Transformation & Strategy, Corporate Affairs investor relations, PR, external communications, Corporate Legal Counsel,
Bank Secretary)
Our Journey
Mar ‘13Jan ‘14
• Board approved upgrade to core banking system
• Designed and implemented the system
Feb ‘14Jun ‘15
• Post implementation challenges arose from upgraded core banking
system
• Market conditions challenging (cheque truncation, new reserving
requirements, liquidity)
• Revised Medium Term Plan (2015-2017) approved by the Board
Jul ‘15 to
date
• Revised Medium Term Plan put to context (how we will align organisation
with MTP, position for challenging market conditions, etc)
• Planned for operating model review and redesign, the Fit2Serve (F2S)
program
• Implementing the F2S
Source: Zanaco MIS
4
Focused & Consistent Strategy
978K
customers
o Increasing engagements
197 ATMs
2,044 PoS
Clear focus on
Food & Agric
1.2
million
Cards
67 Branches
& Agencies
>500 Zanaco
Xpress Agents
with our customers
o Increasing focus on our
core segments;
 Personal
 Food & Agriculture
 SME
 GRZ
 Corporate
o Driving operating model realignment to deliver;
 Increased productivity
across the organisation
 increased efficiency in
the way we conduct the
business
Source: Zanaco MIS
5
Deteriorating Macro Backdrop
Economic & Market Conditions
Domestic economy experiencing
strong headwinds
Source: BoZ, WB country
report
6
cont’d
Deteriorating Macro Backdrop
Economic & Market Conditions
……..Driven by among other issues, a
decline in copper prices, which is also
negating the positive impact of lower
global oil prices
7
Source: BoZ, WB country
report
Deteriorating Macro Backdrop
cont’d
Economic & Market Conditions
…..Thus achieving price stability remains a
big challenge
Source: BoZ, WB country
report
8
Deteriorating Macro Backdrop
cont’d
Economic & Market Conditions
Tighter liquidity with rising interbank
funding
Impact of
inflation/Fx rate
on money mkts
Source: BoZ, WB country
report
9
How Has The Market Performed?
Growing market, but fx assets and liabilities driving most of the growth, thus
disadvantaging banks with predominantly Kwacha balance sheets
Source: BoZ
10
How Has Fx Impacted Market Deposit Growth?
Significant Fx
rate influence
YoY Growth
Dec-15
Total Deposits
33%
Demand Deposits
35%
Savings Deposits
15%
Time Deposits
33%
Normalized market deposits growth rate (after stripping-out abnormal fx
influence on demand deposits) remains in the upper teens
Source: BoZ
11
How Has Fx Impacted Market Deposit Growth?
Fx rate
influence on
growth
Abnormal growth in Fx deposits arising from translation
effects
Source: BoZ
12
How Have Core Deposits in the Market Performed?
Significant Fx
rate influence
……Non-traditional fx demand, & volatile term deposits driving funding growth
in the market
Source: BoZ
13
How Was Our Financial Performance?
Grew but at a much slower rate, however, cost were significantly
higher
Financial Highlights
(ZMW’ million)
2015
2014
1,068
785
283
98
67
118
6,033
7,946
3,447
1,040
74%
973
606
367
104
49
71
143
5,054
6,664
3,139
1,001
62%
65%
62%
5%
Dividend/share in ZMW
EPS in ZMW
0.03
0.081
0.005
0.016
500% **
406% **
ROA
1.5%
2.1%
-31%
ROE
11.3%
14.3%
-21%
Revenues
Operating expenses
PBT
Exceptional Loss
Impairment
Tax charge
PAT
Deposits
Assets
L & A (net)
Equity
Operational C/ I
Operational C/ I (less one-off)
Change
* Impact of steep exchange rate depreciation on FX NPLs
** Impact of share consolidation exercise in 2015
•
10%
30%
-23%
100% *
-6%
-17%
19%
19%
10%
4%
18%
•
Revenue
grew
but
below
the
historically normal growth rate on the
back of;
•
•
High cost of funding
Slower than normal growth in L & A
Operating cost significantly up due to;
•
Challenges in the current operating
model
•
FX impact on US $ denominated service
contracts (IT, & property expenses)
•
One-off
truncation
costs
relating
clean-up
to
cheque
(industry
wide
challenge), operating model redesign
etc
•
Deposits grew but mainly driven by
term deposits which are expensive and
rate driven
Source: Zanaco IFRS Financials
14
How Was Our Financial Performance?
cont’d
There is scope for revenue productivity improvement
Source: Zanaco IFRS Financials
15
How Was Our Financial Performance?
cont’d
Further financial efficiency improvement expected
Source: Zanaco IFRS Financials
16
Balance Sheet Structure & Efficiency
Strong opportunities still exist to further improve the way we sweat our assets
Source: Zanaco IFRS Financials
17
How Do We Fund Growth?
Stable and sticky funding paramount to
our growth strategy
18
Source: Zanaco IFRS Financials
Balance Sheet Utilization
…….But current monetary policy measures hurting asset efficiency development.
High liquidity level arising from unwinding the bond portfolio in 2014 key for
relatively strong liquidity position
19
Source: Zanaco IFRS Financials
How Are We Adding Value?
Increasing our share in the key
sectors of the economy driving our
focus
Source: Zanaco IFRS Financials
20
How Are We Adding Value?
cont’d
……While we also maintain a robust risk management framework, that support
our strategy of taking a long term view on our customers. The Food and
Agric segment which is core to the Bank demonstrate our ethos
Source: Zanaco IFRS Financials
21
How Do We Turn Around Performance?
o We recognise that since privatisation,
Zanaco;
 Has changed its outlook, business
model, key performance metrics, and it
has significantly grown but has never
reviewed its operating model
 Has updated its core banking system
without fully reviewing the supporting
processes
o The need to review the current operating
model is apparent and thus, Zanaco
embarking on the transformation journey,
which involves re-organising the way we
currently operate.
o The aim of the transformation is to realign the way Zanaco is organised with a
view to;
 Increase productivity across the
organisation
 increase efficiency in the way we
The re-organization of Zanaco is a Board approved
conduct the business
program led by a core group of executive
 Increase financial sustainability &
growth
management with assistance from consultants
Source: Zanaco MIS
22
What Have We Done So Far?
o We have reviewed how the Bank is performing (diagnostics)
o We have used the outcomes of the diagnostics to design what Zanaco
should look like in order to deliver on its Medium Term Plan
aspirations, as well as build a sustainable bank
o We are now in the implementation phase of the re-organisation.
o Implementation is a collective team effort driven by executive and
senior management together with their respective teams, and
supported by consultants
o The implementation of program initiatives is driven from a central
point, the Results Delivery Office, that manages, monitors, and
provide feedback to the executive team and the Board on progress,
challenges, and required mitigating solutions to encountered
challenges
23
What will it take? The journey will be tough but will create a
winning culture based on strategic goals and investing in
Zambia
WE MUST CREATE A
CONSISTENT WINNING CULTURE…
…BASED ON LONG
TERM STRATEGIC GOALS
Be #1 in Zambia’s
most critical sectors
(e.g. Agric, SME)
Increase sales
coverage to serve target
sectors and reach the
underbanked
Reward top performers
with above market
compensation
What Is Our Dividend Proposal?
Dividend Amount (K '000)
42,013
2013
43,313
2014
43,313
2015
43,313
Maintain dividend declared & paid in 2014
2012
Source: Zanaco IFRS Financials
25
Conclusion
Challenges in the macro and market conditions will
continue, but focus on delivering performance is key
o Economic outlook, and market conditions will remain fragile due to;
 Elections pressure
 Continued inflationary pressure
 Continued power challenges
 Tight liquidity
 Further decline in industrial productivity due to increasing cost of borrowing as a
direct result of MPR upwards adjustment and removal of lending cap
 Potential rise in default rate as borrowers are likely to struggle with payment
obligations
o Our focus will be on;
 Continue building on the current improvements (deposits, customer engagement,
service delivery etc.)
 Effective implementation of initiatives under F2S (Branch productivity
improvements, new organization structure, cost improvements etc)
 Closely managing different stakeholders expectations during this massive
change program
 Increasing risk management for both F2S and BAU activities
 Turning around the financial performance of the Bank
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Thank You for Time, Any Questions?
Disclaimer
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all material respects, does not contain any untrue statement of a material fact, is not misleading and does not omit to state any material fact, the result of which would make
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