SOUTH African financial services firm, Old Mutual Limited, says Zimbabwe’s annual inflation rate for the half year ended June 30, 2024, was 538%, more than double the 2023 comparative period.
Old Mutual is the parent company of Old Mutual Zimbabwe.
The annual inflation rate provided by Old Mutual appears as local authorities ceased to report the annual inflation following the introduction of the Zimbabwe Gold (ZiG) currency on April 5 this year.
In its half year report for the period ended June 30, 2024, Old Mutual said due to hyperinflation in Zimbabwe and barriers to accessing capital by way of dividends, they continued to exclude results from their Zimbabwe business from adjusted headline earnings.
“Profits in Zimbabwe were driven by investment returns earned on the group’s shareholder portfolio and volatile currency movements. The investment returns largely relate to fair value gains earned on equities traded on the Zimbabwe Stock Exchange [ZSE] as market participants seek to invest in equities that preserve value in an inflationary environment,” Old Mutual said.
“The ZSE generated returns of 459% during the period compared to 779% reported in the prior period. For the six-month period to June 2024, the inflation rate for Zimbabwe was reported at 538% compared to 212% in the prior period. We caution users of our financial results that the investment returns earned on the shareholder portfolio may reverse in future.”
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Old Mutual said until such time as they were able to access capital by way of dividends from its Zimbabwe business, they would manage it on a ring-fenced basis and exclude its results from adjusted headline earnings.
“The lack of ability to access capital by way of dividends is exacerbated by the volatility that a hyperinflationary economy and the reporting thereof introduces. This adjustment has been applied from 1 January 2019,” the financial services firm said.
According to the firm, the results of its operations with a functional currency of ZWL$ and ZiG had been prepared in accordance with IAS 29 Financial Reporting in Hyperinflationary Economies (IAS 29).
“Hyperinflationary accounting requires transactions and balances to be stated in terms of the measuring unit current at the end of the reporting period to account for the effect of loss of purchasing power during the period,” Old Mutual said.
“To comply with IAS 29, the group estimated a ZWL$ CPI [consumer price index] for the period January to March 2024 based on the monthly movement in the total consumption poverty line and for the period April to June 2024, the official ZiG CPI was used for hyperinflation reporting purposes.”
The firm noted that the impact of applying IAS 29 in the current period resulted in a net monetary gain of ZAR152 million (US$8,84 million) compared to a 2023 loss of ZAR479 million (US$27,86million).
“During the current year, our operations in Zimbabwe reported pre-tax IFRS [International Financial Reporting Standards] profits of ZAR2,9 billion (June 30, 2023: ZAR2,1 billion), of which ZAR1,3 billion (June 30, 2023: ZAR1,3 billion) was driven by investment returns earned on the group’s shareholder portfolio,” Old Mutualsaid “Most of these investment returns relate to fair value gains earned on equities traded on the ZSE.”
The ZAR2,9 billion converts to US$168,71 million, ZAR2,1 billion (US$122,17 million), ZAR1,3 billion (US$74,62 million).