Old Mutual Sees Rand Depreciation Further Eroding 2013 Earnings

Old Mutual Plc (OML), the London-based insurer that generates about 70 percent of revenue in South Africa, said the rand’s weakness against the pound may further erode earnings.

The currency’s depreciation has already reduced income by 1 pence per share in the first half of this year and may widen that to 2 pence or more for the full year, Chief Financial Officer Philip Broadley said in a conference call.

The rand has dropped 11 percent against sterling this year, making it the world’s worst performer among 16 major peers. It was 1 percent weaker at 15.40 per pound as of 3:03 p.m. London time. Old Mutual reported a 14 percent increase in first-half profit from continuing operations to 555 million pounds. Adjusted earnings per share were 9.1 pence, missing analyst estimates.

“The most significant external risks to earnings relate to the concentration of businesses in South Africa and the translation of earnings from rand to sterling,” the company said in a statement today. “Current levels may have some allowance for further short-term volatility priced in.”

South Africa’s rand has weakened as speculation the U.S. Federal Reserve will begin reducing stimulus spurred investors to cut their holdings of emerging-market currencies and as the nation struggles to recover from the 2009 recession.

To contact the reporter on this story: Morgane Lapeyre in London at mlapeyre@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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