Vunani sees improved performance despite Covid-19 impact

CFO Tafadzwa Mika says Vunani’s improvement is key to solidify the group as a formidable financial service.

JSE-listed Vunani has released its results for the six-month period ended 31 August 2020. “The 2020/21 financial year commenced in the eye of the Covid-19 storm and as South Africa was entering hard lockdown from 27 March,” says CFO Tafadzwa Mika. “Innovative thinking was required to optimise business activity within the constraints of the lockdown restrictions and to facilitate speedy unlocking as restrictions were gradually lifted.”

He explains that it was inevitable that business would be adversely affected, particularly during the earlier lockdown period. “Nevertheless, some mitigation could be achieved by rapidly adapting to a work-from-home dispensation as business switched to a virtual world of Teams and Zoom meetings.”

According to the company’s results presentation, the South African economy suffered an unprecedented supply shock which culminated in quarterly output contracting by more than 50 percent in the second quarter of 2020 as the economy was abruptly shut down. The company only expects the economy to return to 2019 nominal output levels in 2023.

“Nevertheless, Vunani was fortunate that its financial services businesses could, within the constraints of the lockdown legislation, remain operational,” Tafadzwa says. “During the initial phases of the government imposed lockdown, the mining and commodities trading operations did suffer significant adverse impact, though the situation did improve with successive relaxation of the lockdown conditions. The group is very fortunate to be positioned for some growth in the current financial year and to return to full activity in the post Covid-19 era.”

Vunani’s performance for the period has improved considerably in comparison to the prior period. The group generated a total profit for the period of R36 million, while total profit attributable to equity holders of the company amounted to R31.6 million.

“The first six months of the year has seen an improvement in the performance when compared to the prior period, despite the impact of Covid-19 on the global and local economy,” Tafadzwa says. “We believe that the improved profitability on the operating businesses is a key strategy to solidify the group as a formidable financial services player and ultimately ensure the long-term success of Vunani.”

Segment performance
Its fund management segment reported a revenue of R66.9 million for the period, which is an increase of 68 percent from R29.8 million. The reportable segment profit amounted to R8.9 million for the period.

The segment’s performance and profitability improved during the period as a result of an increase in asset under management. The asset under management increased by R4.9 billion from R39.6 billion to R44.6 billion. “The increase in assets under management will boost the segment’s profitability going forward,” says Tafadzwa.

The insurance segment contributed a revenue of R107.1 million and profit of R5.7 million over the period.

The asset administration segment contributed R10.3 million to the group’s results for the period.

The advisory segment performance decreased from the prior period due to long lead times in finalising several mandates. This resulted in a 50 percent drop in revenue earned from R10.6 million in the prior period to R5.3 million. The segment reported a profit for the period of R0.6 million.

The institutional securing broking segment, which includes equity, derivative and capital market trading services to institutional clients, reported an improved performance for the segment due to the turnaround strategy it implemented in the prior year. Revenue increased by 40 percent from R16.2 million to R22.6 million, which resulted in the segment contributing a profit of R4.6 million.

The commodities trading segment generated a revenue of R12.8 million compared to R32.8 million the previous year. “The decline in revenue is attributable to the disposal of a portion of the commodities trading division housed within Vunani Resources Proprietary. The segment reported a loss of R1.9 million for the period.

The other investments segment generated a revenue of R3.5 million and a profit of R7.7 million due to positive fair value adjustments on its listed investments.

Financial performance
Vunani’s revenue from operations increased by 69 percent to R288.2 million for the period. “Revenue has increased compared to the prior period due to the inclusion of the insurance segment, the results of the fund management segment and the improved performance in the main operating subsidiaries.

Other income increased to R9.3 million, comprising insurance recoveries, directors’ fees, gaming income and sundry income, whereas investment income is received in the form of dividends. The total investment income for the period amounted to R2 million compared to R10 million for the previous year. “This is due to reduction in dividends from the mining-related investments,” Tafadzwa says.

“The group remains focused on cost containment and monitors spending on an ongoing basis,” he adds. “We also continue to focus on improving the performance of our operating businesses as well as improving synergies.”

He explains that Vunani will continue to look at acquisitions that are in line with creating a diversified financial services business.