11 August 2017

Zimbabwe: Old Mutual Avoids Monetary Assets

Old Mutual Ltd will take positions in real assets and avoid monetary assets to preserve value, CE Jonas Mushosho said.

This comes amid concerns inflationary pressures are re-emerging in the economy.

Mushosho said this week the group was looking at alternative investments.

"Our strategy is to move to real assets," he said. "We are looking at alternative investments. We see opportunities in property development."

The group noted that inflationary pressures in the economy had re-emerged.

Mushosho said funds under management stood at US$2 billion.

"General monetary concerns persisted, with signs of inflationary pressures re-emerging in the economy. Also supporting inflationary pressures are supply side constraints arising from foreign currency shortages. Inflation turned positive in February 2017, before reaching a 43 month peak of 0.75% in May 2017," the company said in a statement attached to its results.

"The emerging inflationary pressures, concerns over the sustainability of the budget deficit, coupled with low interest rates, are discouraging investors from holding monetary assets. As a result, portfolio shifting from monetary assets to real assets has supported the performance of Zimbabwe Stock Exchange (ZSE) listed stocks, despite notable downward pressure on corporate earnings. The ZSE industrial index firmed 36% between December 2016 and June 2017, with overall market capitalisation gaining 41% to US$5,9 billion over the same period."

The group said life profits were driven by improved risk profits thanks to a better claims ratio.

Adjusted operating profit was US$36,8 million, which is a growth of 11% from 2016 performance, buoyed by life assurance and asset management profits.

"Life profits were driven significantly by improved risk profits as a result of an improved claims ratio. In addition, capital charges on funds administered increased on the back of a higher asset base following the performance of the ZSE. The asset management business experienced higher fee income in the period under review than in the prior year due to the recovery of the stock market," the company said.

The group said its banking business was negatively affected by decreased net interest income on loans and advances to a cap on lending rates.

"The first six months of 2016 also saw the substantial recovery of non-performing loans sold to the Zimbabwe Asset Management Corporation (Private) Limited (ZAMCO), which was not repeated during the first half of 2017," the group said. "These factors contributed to the Central Africa Building Society (CABS), recording net a surplus of US$16.5 million compared to US$20,8 million in June 2016. In the general insurance business, underwriting margins remained robust despite higher claims than in the prior period."

Operating expenses were contained at 11% despite significant investment in IT systems, additional staff recruitment and the rise in costs associated with enabling the use of plastic money and other digital payment channels, the group said.

Mushosho said the group had invested around US$5 million in power projects with a capacity of 1,6MW and a 17% internal rate of return.

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