Old Mutual Zimbabwe publishes impressive half year results

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Old Mutual Zimbabwe Limited (OMZIL) and its subsidiaries announced their half year financial results which showed a revenue growth of 175%. This in turn led to an 11% growth in the adjusted operating profit. The remarkable feat was attributable to life assurance and asset management profits.

The OMZIL group’s subsidiaries are in the banking, life assurance, asset management and general insurance sectors. Traditionally CABS, the banking business, has contributed the most to group profits. This remains the case but the contribution fell from 63% of adjusted operating profit last year to 45% this first half of 2017.

The reason for this is threefold:

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  • The banking operating environment in Zimbabwe remains challenging. The net interest income fell because of various factors including implementation of a maximum cap on lending rates. There was an increase in loans and advances but non performing loans and the aforementioned cap on lending rates adversely affected the outcome.
  • The first half of 2016’s profits were buoyed by the recovery of a significant non performing loans sold to ZAMCO which was not repeated in 2017.
  • The life assurance operations saw a marked increase in profits.

Life profits were driven by an improved claims ratio which in turn improved the risk profits. The improved performance of the ZSE led to a higher capital base which then led to increased capital charges on funds administered. This all saw life profits increase from $5.6m in 2016 (17% contribution to group profits) to $13.5m (36% of group profits in 2017.)

The asset management operations performed well as unrealised investment gains increased significantly as a result of strong performance of the stock market. This is the main reason the asset management operations excelled.

The general insurance operations profits decreased by 20% despite underwriting margins remaining robust. There were higher claims, especially in motor vehicle insurance which was as a result of heavy rains.

The results published by Old Mutual Zimbabwe Limited are both impressive and concerning. The banking operations profits are likely to keep falling in the short term even as operational costs continue to increase. The goal of financial inclusion (cash-lite society) meant costs related to enabling use of plastic money increased as did investment in IT systems. Net interest income is unlikely to bounce back as lending rates remain low and non performing loans do not decrease. All while non interest income is likely to decrease if the RBZ revises bank charges.

The performance by the life assurance operations, though impressive is probably not going to be replicated indefinitely. The stellar performance of the ZSE which led to that performance cannot be relied on to continue unbounded.

The banking operations will remain most important to the fortunes of the Old Mutual Zimbabwe group in the foreseeable future. When the operating environment remains tough for CABS, adjusted operating profits will not show much growth, barring exceptional performance from the other operations as it was this first half of 2017.

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