Old Mutual earnings weighed by a change in Zimbabwe’s functional currency

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    HARARE-JSE and ZSE listed Old Mutual Limited, which is parent to Old Mutual Zimbabwe, said reported profits and net asset value of its Zimbabwe unit in the 12 months period to December were negatively affected by the change in the functional currency in Zimbabwe.

    The group undertook a decision to adjust its book values as well as its profits from the Zimbabwe operation over the 12 months period to December 2018 in line with the MPS statement of October 1 2018 which split the RTGS FCA from the USD FCA as well as the prevailing market conditions.

    The company said trading in RTGS FCA, which had become a de-facto currency in line with cash shortages, brought a new dimension to the currency matrix, which some companies prudently discounted for by adjusting their books to derived exchange rate typically in line with the black market.

    The financial services giant Old Mutual said in line with industry consensus, it had applied a reporting change to the functional currency for the Zimbabwe business. The insurance giant undertook to adopt an unofficial exchange rate of 1:3.3 between the USD and the RTGS for purposes accounting.

    “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.

    For inclusion in the condensed consolidated statement of financial position, Zimbabwe results have been translated at the RTGS rate” the company said.

    Consequent to the adjustment in earnings in Zimbabwe among other factors, Old Mutual Limited’s operating and baseline performance came off by -4% and -11% respectively below the comparable period in 2017.

    Before the functional currency adjustment, Zimbabwe contributed to a 10% increase in gross flows, a 5% growth in gross written premiums, improved operating performance and a worse off underwriting margin.

    Looking ahead, Old Mutual said monetary policy reforms in Zimbabwe are likely to continue contributing to continued uncertainty.

    reporting currency matter however looks set to affect a great deal of reporting among companies for the period to December 2018. Some companies have delayed their results release altogether while some have proceeded to report their financials using 1:1 exchange rate citing the promulgation of a new currency only after the end of the reported period.

    So far 3 companies including Old Mutual have released results over the last 2 weeks and of these 2 , that is Simbisa and Axia have used the 1:1 exchange rate despite acknowledging that the PAAB is yet to reach a conclusion on the matter.

    In a statement Simbisa said “For the reporting period, there was no official local currency in Zimbabwe and the quasi currency instruments were officially valued at a rate of 1:1. These developments have triggered all stakeholders to consider the appropriateness of maintaining the US Dollar as the reporting and functional currency and for the measurement and fair presentation of transactions and monetary balances denominated in local dollars.

    The Accountancy profession in Zimbabwe is currently looking into the matter and as at the date of this report had not yet reached a consensus”

    However, TSL another listed entity, delayed the release of its results citing the lack of a conclusive statement from the responsible authorities, the PAAB.

    -Equity Axis News

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