Zim in hyperinflationary: Old Mutual Limited…. to manage capital from Zim business on ring fence basis
Staff Writer
HARARE, OLD Mutual Limited (OML) says its Zimbabwean business will be managed on a ring fenced basis until such a time the group will be able to access capital by way of dividends.
The diversified group has a primary listing in South Africa and in Zimbabwe. Old Mutual has a diversified financial services offering and is a leader in insurance, property as well as equity investments.
But, due to the deteriorating economic fundamentals in Zimbabwe, the group has applied hyperinflation accounting for the Zimbabwe’s operations.
“During the first half of 2019, the Group concluded that Zimbabwe was a hyperinflationary economy and made a decision to account for it as such,” OML said in a trading statement for six months 2019.
“This decision was supported by a rapid increase in the inflation rate, which at the end of June 2019 was far in excess of 100% at 176%, the significant deterioration in the traded interbank RTGS dollar exchange rate over the period and the lack of access in Zimbabwe to foreign currency to pay foreign denominated liabilities.
“We have applied hyperinflation accounting from 1 October 2018 and used the Zimbabwe Consumer Price Index (CPI) to inflation adjust reported numbers. The results, net assets and cash flows are then translated into rand at the closing rate of 1 RTGS to 2.13 ZAR.
“The closing rate used to translate the December 2018 results was 1 RTGS to 4.35 ZAR. Until such time as we are able to access capital by way of dividends from our business in Zimbabwe, we will manage it on a ring fenced basis. Consequently, the results of this business have been removed from RFO and AHE.
“The ability to access capital is exacerbated by the volatility that hyperinflationary economy and the reporting thereof introduces. This adjustment has been applied from 1 January 2019 and we have restated comparatives to reflect this decision,” said the company.
OML operates in 14 countries in two continents and recently had to forgo its UK listings and other businesses. It also demerged Nedbank as part of a major organizational restructuring exercise.
Meanwhile, Old Mutual Limited is currently in the process of finalising its interim results for the six months ended 30 June 2019 (“current period”).
Results from Operations (RFO) is expected to be between a decrease by 1% and an increase of 4% compared to the comparative period. Adjusted Headline Earnings (AHE) is expected to increase by approximately 6% to 12% mainly driven by higher shareholder investment return in South Africa. Accordingly AHE per share is expected to increase by approximately 7% to 13% to 106 -111 cents in the current period compared to 98.9 cents for the comparative period.
IFRS profits in the 2018 financial year include the accounting impacts of the transactions executed to complete the Managed Separation.
These transactions included the distribution of Quilter plc and the unbundling of Nedbank. Profit after tax for the comparative period therefore included the consolidated profits in respect of the Quilter plc and Nedbank businesses, these were classified as profit from discontinued operations. Profits for the comparative period also included the profit recognised on the distribution of Quilter plc on 24 June 2018. Profit after tax for the current period no longer includes the impact of these items related to the execution of Managed Separation, which is the main driver of the expected decrease. IFRS profit after tax attributable to equity holders of the parent on a comparable basis is expected to increase by approximately 8% to 13%.
Accordingly we expect Basic earnings per share to decrease by approximately 53% to 55% to 123.5 – 129.8 cents compared to 277.2 cents in the comparative period. Headline Earnings (HE) is expected to decrease by approximately 33% to 36%. We expect Headline Earnings per share (HEPS) to decrease by approximately 31% to 35% to 124.3 – 130.7 cents compared to 190.6 cents in the comparative period.
