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Zim Currency Reforms – Old Mutual Left Counting Losses

Currency reforms undertaken by Zimbabwe during Third Quarter of 2018 have left Old Mutual Limited, the holding company of Old Mutual Zimbabwe counting losses, the company’s latest results published Monday reveal.

The South African insurance giant’s overall results from operations (RFO) slid by four percent to R9.963 billion in 2018 on the backdrop of a recession in Namibia and exchange rate distortions in Zimbabwean currency,

This follows the conversion of Zimbabwean payments to RTGS dollars from the US Dollar denominated calculations prior to the Monetary Policy Statement issued on October 1 last year.

“We delivered Adjusted Headline Earnings (AHE) of R11,512 million, a decrease of 11% compared to the prior period. The primary cause of this was the lower RFO, lower investment income in South Africa as a result of weaker equity markets and in Zimbabwe, the change in functional currency in the fourth quarter,” read the company statement.

With the insistence of the 1;1 USD to RTGS parity by the Reserve Bank of Zimbabwe then, the company came to a consensus to peg the exchange rate of its Zimbabwean figures to US$ 1 is to 3.3 RTGS dollars starting 3Q 2018.

However, Central Bank has since conceded to market pressure and pegged RTGS value to 2.5 with the USD, which still remains too conservative.

“We have estimated a RTGS: US dollar exchange rate of 3.3 to 1 by assessing various inputs that impact inflation. The application of the change in functional currency has been applied prospectively in our financial results for the 2018 reporting period. For inclusion in the condensed consolidated income statement of the Group, Zimbabwe results have been translated at the average US dollar exchange rate for the period up to 30 September 2018 and at the estimated RTGS rate for the remaining three months of the financial year,’ said Old Mutual.

In its outlook, the company has projected uncertainty for its Zimbabwean operations citing currency instability is likely to persist in the short to medium term.

Analysts, including the Central Bank chief Dr John Mangudya have also hinted on the high possibility of the official 1 is to 2.5 USD/RTGS exchange rate further escalating until it reaches a rate of equilibrium to be determined by market forces.

The Zimbabwe Stock Exchange (ZSE) recently issued a public notice that it is now trading in the RTGS currency, and the conversion of values from USD to RTGS is likely to witness more companies on the bourse and pensions losing value.

Source : 263Chat

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