Old Mutual Zimbabwe records $2,6 billion loss


DIVERSIFIED financial services firm Old Mutual Zimbabwe recorded a massive loss of $2,61 billion for the financial year ended December 31, 2019 due to the devaluation of the Zimbabwe dollar .

The loss was registered in Old Mutual Zimbabwe’s inflation-adjusted results for the period under review from a 2018 comparative profit after tax of $427,1 million.

An indication of a loss for Old Mutual Zimbabwe’s was first reported in March by its parent company, Old Mutual Limited (OML), headquartered in South Africa.

In the report, OML stated that the translation of the results of its Zimbabwe subsdiary for the period under review, at a closing rate for the group, had reduced
the profit after tax by 312 million rand.

“The scale of inflation experienced in the economy as well as the magnitude of currency depreciation within a short period, however, severely undermined the ability of the business to deliver positive financial returns to shareholders in real terms,” said Old Mutual Zimbabwe chairman Johannes Gawaxab in a statement accompanying the results.

“This is reflected in the fact that most financial statement categories, on a historical cost fair value accounting basis, yearon-year nominal growth was below inflation.

“With the business being mostly exposed to financial assets denominated in Zimbabwe dollars, significant loss of value in real terms was experienced by both shareholders and customers.”

In inflation-adjusted terms, total assets declined by 42% to $16

billion in the period under review from the 2018 comparative of $27, 5 billion.

This was due to the nominal growth in assets on the historical cost and fair value basis of accounting of 250% being exceeded by inflation for 2019 at 521,2%.

The reduction in total assets was mainly due to a decrease in investments and securities to $6,13 billion in the period under review from $17,25 billion in the 2018 comparative.

The decrease in total assets was driven by drops in total equities from $13,77 billion to $5,32 billion, Treasury Bills ($1,54 billion to $136,6 million) and deposits and money market securities ($1,83 billion to $641,8 million).

Old Mutual Zimbabwe has been pursuing growth in equities as a growth strategy to militate against growing uncertainty in the market since 2017.

As a result, the inflation-adjusted total equity of $2,3 billion was 55% lower than the inflationadjusted comparable of $5,1 billion mainly due to the impact of asset growth lagging inflation.

In terms of revenue, this was mostly subdued for Old Mutual Zimbabwe as growth was 1,46% to $10,06 billion for the period under review from the 2018 comparative of $9,92 billion.

The poor performance was recorded despite Old Mutual Zimbabwe registering 8,33% growth in total customers to 1,3 million in the period under review from a 2018 comparative of 1,2 million.

Earnings per share were at a loss of 763,2 cents from the 2018 profit after tax comparative of 126,1 cents.

Gawaxab said there was urgent need to get the foreign currency circulating in the informal sector into the formal sector.

“Going forward, limited fiscal funding options, the inability to access foreign capital markets, a rapidly weakening local currency, the impact of the Covid-19 pandemic on the economy and policy inconsistency poses the risk of further economic instability risk.

“Overall, we have a negative view on the near-term outlook as economic scenarios remain skewed to the downside,” he said.

“We, however, back government efforts to contain inflation and stabilise the currency market through measures that increase production in the primary and secondary industries and support stated intentions of avoiding increasing money supply at levels, which are not supported by the level of productive activity.”

Gawaxab urged the intensification of initiatives to fight corruption and financial mismanagement, which place an intolerable cost on the economy.

Source – the standard