OM banks on diversified business

(Last Updated On: March 20, 2020)

LIVINGSTONE MARUFU

Old Mutual is betting on diversified business lines to shield the company from challenging macro-economic conditions in Africa.

In its financial results for 2019, interim chief executive Iain Williamson said results from operations were down 2% reflecting the impact of a difficult operating environment.

“We remain confident that our diversified business allows us to protect value for stakeholders in tough economic times,” Williamson said.

“Our business was resilient against significant headwinds in 2019. We faced challenging macroeconomic conditions in South Africa, our largest market and many of our operating countries in the rest of Africa and this put pressure on the disposable income levels of our customers and investor.”

Results from operations decreased by 2% reflecting positive assumption changes offset by a decrease in Old Mutual Insure’s underwriting result.

Adjusted Headline Earnings was up 5% mainly due to stronger shareholder investment returns in South Africa, partially offset by reductions in the fair value of properties in East Africa.

Old Mutual, which has warned that it may miss some of its medium-term targets due to market turmoil caused by the coronavirus, says it has seen the gains it recorded from the third quarter of 2019 reverse in the first two months of 2020.

Williamson said 2019 was an “extraordinarily challenging” year, not only for Old Mutual, but for its peers too.

The group only started seeing “an upswing” from its 2018 results in the third quarter of 2019 but 2020 looks set to be even worse as those gains have been reversed and the threat of a global recession is starting to seem more realistic every day that passes, he said.

Profit after tax dropped by 77% in 2019 to R9.65bn from R42.70bn.

Following the conclusion to apply hyperinflationary accounting in June 2019 and the subsequent confirmation by the Zimbabwe Public Accountants and Auditors Board during the second half of the year, Old Mutual has used the Zimbabwe Consumer Price Index (CPI) to adjust reported number for inflation.

The impact of applying hyperinflationary accounting resulted in an increase in profit after tax of R187m with a corresponding increase in the net value.

The results, net assets and cash flows of its business in Zimbabwe have been translated to closing exchange rate of ZWL$1 to R0.835, in line with the requirements of the provisions of IAS 21 for the translation of hyperinflationary economies.

The translation of the results of Zimbabwe at closing rate rather than average rate has reduced the profit after tax by R312m.

Going forward, the Zimbabwean division reviewed its investment strategy and weighted our portfolio towards asset classes deemed to better preserve value during periods of hyperinflation and continues to invest and transact in foreign currency where permissible as a natural hedge to the fast depreciating local currency, Williamson said.

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