Old Mutual Group has removed its Zimbabwean subsidiary from financial results until the economic climate on that country improves.
Zimbabwe is currently bogged down by inflationary pressures.
Old Mutual Holdings said financial results from Old Mutual Zimbabwe has been moved from the group’s results from operations (RFO) and adjusted headline earnings (AHE).
“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. 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 percent at 176 percent, 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.”
The parent company expects RFO for the six months to June 30, 2019 to be between a decrease by 1 percent and an increase of 4 percent compared to the comparative period.
Adjusted Headline Earnings is expected to increase by approximately 6 percent to 12 percent mainly driven by higher shareholder investment return in South Africa.
Accordingly, AHE per share is expected to increase by approximately 7 percent to 13 percent to 106 -111 cents in the current period compared to 98.9 cents for the comparative period.