HARARE – Old Mutual's Zimbabwe unit is to restructure its business as its focus on private equity bears fruits in terms of enhancing investor returns after interim pre-tax profits surged 671 percent to ZWL509 million (R20.5m) following a revenue increase of 741 percent to ZWL2.4 billion.
This was underpinned by a rise in gross written premiums and profit growth in the banking and asset management unit where funds under management grew by a massive 139 percent, mainly due to “positive investment performance”.
Despite its parent company fighting to part ways with chief executive Peter Moyo, the Zimbabwean unit has embarked on a restructuring programme for its operations.
This will see the Old Mutual Zimbabwe operation being unbundled into three separate units - insurance, investment markets and wealth management as well as banking - which will be held by the Zimbabwe listed financial services company.
“Having reviewed the current structure of the Old Mutual Zimbabwe Limited Group, the directors concluded that the interests of both shareholders, and customers would best be served by restricting the group into a simpler and more optimal outfit. Old Mutual Zimbabwe will remain the holding company of the (three) clusters,” said Johannes Gwawaxab, the chairperson for Old Mutual Zimbabwe.
The company has already received shareholder and regulatory approvals for this restructuring process. This is expected to result in cost efficiencies and “improved market responsiveness” for the company's operations.
The alternative investments portfolio grew from ZWL108.2m at the end of 2018 to ZWL199.6m by the end of June 2019. The growth has been attributed to “a combination of new investment disbursements and capital appreciation of existing portfolio” companies. The ZWL was trading at around 1:14 against the US dollar on Friday. “Our focus on private equity is bearing fruit in terms of enhancing investment returns,” explained Gwawaxab.
Funds under management for the asset management business quickened 139 percent for the period to ZWL6.8bn, with performance boosted by foreign currency denominated listed equities, property and investment portfolios. The group, meanwhile, also incurred “higher staff costs in the process of cushioning staff” against rising inflation.
Old Mutual Zimbabwe has also been impacted by the shift in Zimbabwe's functional currency and subsequent policies, which removed foreign currencies as legal tender. Old Mutual Zimbabwe said it had started to denominate products in foreign currency as it was deemed that these would help minimise the risk of loss of value for investors.
“We achieved commendable performance from these US dollar products in the first half of the year. However, Statutory Instrument 142 of 2019 will have an impact on the sustainability of this suite of products which is still being ascertained.”
The company's executives believe that the policy reforms that Zimbabwe is undertaking to correct the economy need to be complemented by fiscal discipline, parastatal reforms as well as urgently addressing current electricity shortages and restoring efficiency in foreign currency allocation and management.