FINANCIAL services giant, Old Mutual Limited (OML) says its Zimbabwe business partially offset the group’s headline earnings last year owing to the continued depreciating local currency.
Last year, the Zimbabwe dollar depreciated significantly against major currencies, including the South African rand, as it continues to lack adequate support structures.
The decline meant that the South Africa-based OML’s headline and adjusted headline earnings for 2022, while better than 2021, were partially offset by its Zimbabwe business unit.
“Headline earnings is higher than adjusted headline earnings, as adjusted headline earnings exclude earnings from operations in Zimbabwe, adjustments in respect of equity and debt instruments held in life funds as well as the impact of restructuring,” OML said in a statement on Friday.
“The movement in headline earnings and adjusted headline earnings relative to prior year was primarily driven by substantial improvement in operating profits, partially offset by the deferred tax associated with the unbundling of Nedbank in the prior year and the decline in Zimbabwe earnings.”
OML continued: “The decline in Zimbabwe earnings was largely driven by the deterioration of Zimbabwean dollar to the rand and the decrease in investment returns on equities traded on the Zimbabwe Stock Exchange (ZSE) relative to the prior year.”
During the period, OML headline earnings were estimated anywhere between ZAR7,2 billion, recorded in 2021, to as high as ZAR8,63 billion in 2022.
Meanwhile, adjusted headline earnings were estimated to range anywhere between R5,79 billion and R6,87 billion last year, from a 2021 comparative of R5,4 billion.
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Income from normal business activities, including trading and investment gains, is what is reported in the headline earnings.
“Investors are advised that Old Mutual is currently in the process of finalising its annual results for the year ended December 31, 2022 (current period), which will be released on the Stock Exchange News Service of the JSE []Johannesburg Stock Exchange Limited on Tuesday, 14 March 2023,” OML said.
The poor performance by the local currency has largely kept foreign investors stuck on Zimbabwe’s equity market fence.
“Due to the continued impact of hyperinflation on the Zimbabwean economy, and in particular the unrealised nature of the listed investment return supporting the IFRS net asset value for this business, the value of Zimbabwe is reduced to zero in Group equity value,” OML said in its half year report ended June 30, 2022.
In OML’s case, apart from the depreciating local currency, its local unit’s shares remain banned from trading on the ZSE due to the fungibility of its OML shares owing to the group’s multiple stock market listings in other countries, which has been used to derive the Zimbabwe dollar’s true value.
As previously reported in our sister paper, Zimbabwe Independent last week, without reforms, inter alia, respect for the rule of law and property rights, deregulation of forex controls, and enforcing anti-corruption laws, foreigners will continue to shun the ZSE.
“If you look at our trading costs, for example on the ZSE, at the moment, a round trip cost to buy or sell they are between 4% to 7,1% and that is quite a significant cost for you to trade,” Imara Asset Management Zimbabwe (Pvt) Limited chief investment officer Shelton Sibanda said recently.
“But, when you compare with other regional markets like Zambia, just next door, less than 3%, Botswana will be ranging at between 1,7% to about 4% and even lower in Mauritius.”
He said this makes it harder for foreign investors to also participate on the US dollar-exclusive Victoria Falls Stock Exchange.
