Econet Wireless Zimbabwe Audited Abridged Consolidated Financial Results for the year ended 28 February 2022

By Published On: July 13th, 2022Categories: Corporate announcement, Earnings

Chairman’s statement

CAUTIONARY

The report of the Directors and the related commentary is based on inflation adjusted financial statements which are the primary financial statements. Historical financial statements have been presented only as supplementary information. In as much as all reasonable care and attention has been taken by the Directors to present information that is meaningful and relevant to the users of the financial statements, the Directors caution users on making any decisions or deriving any conclusions based on these results, in light of distortions that arise when reporting in a hyperinflationary economy. It is for this reason that the auditors have issued an adverse opinion on these financial statements, given the extenuating operating conditions that mitigate against the Company’s ability to report in terms of International Financial Reporting Standards (“IFRS”). The Directors’ commentary is, therefore, limited to volumes and does not focus on the financial information presented.

OVERVIEW

Our commitment remains ensuring a sustainable business, in a challenging operating environment, whilst enabling national development through technology. Our results for the year ended 28 February 2022 reflect increasing demand for broadband and data services across the country. Whilst we constantly strive for service excellence, we face challenges in meeting this demand as effectively as we would wish due principally to contraints in accessing foreign currency for capital expenditure. We also face significant cost pressures in an inflationary environment due to infrequent tariff reviews. In this context, these results reflect that we were able to achieve an accounting profit, although this picture is somewhat distorted by the impact of inflation and exchange rates in determing the true economic profit of the business, hence the cautionary on the usefulness of these financial statements in reflecting accurate financial performance.

Digital inclusion is critical to national economic growth and creating new economic opportunities. The COVID-19 pandemic exposed the digital divide that exists, both locally and globally, whilst highlighting the digitalisation opportunity in a very significant way. Under the National Development Strategy 1 (NDS1) digital inclusion is part of the Government’s agenda to enable the country to achieve upper middle class status by 2030. Consistent with this, our own commitment, as expressed in our vision statement, is to create a digitally connected future that leaves no Zimbabwean behind.

ENVIRONMENT AND REGULATORY REVIEW

During the period under review, the Data Protection Act was promulgated. Our existing robust processes meet the requirements of the new legislation and we are confident that our data protection policies meet international standards.

Regulations were promulgated that impose a levy of not more than US$ 50 for the registration of any new cellular telephone handset by a mobile network operator where the customer is unable to show proof that customs duty for the device was paid.

The Postal Telecommunications Regulatory Authority of Zimbabwe (“POTRAZ”) installed a system on our sites which, according to the TTMS regulations (SI 95 of 2021), is aimed at combating network fraud and addressing billing integrity issues. The system attracts an additional tax of US 6 cents per minute on international incoming traffic, payable in foreign currency. This increases the taxes that are levied on the telecommunications sector, specifically. The industry is currently subject to 10% excise duties on revenue. This is over and above the 14.5% VAT as well as other regulatory levies and taxes of 3.5%, bringing the total taxes on each dollar of revenue to approximately to 28%. These taxes are prior to the allocation of any operating costs applied in the determination of the Company’s liability for income taxes. These taxes are generally higher than the African average and have the impact of increasing the connectivity costs for consumers.

OPERATIONS REVIEW

The Company achieved a number of key milestones and made significant progress in improving its operational processes for greater efficiency and effectiveness. The summary below serves to highlight a few of these key achievements. Our integrated report, which will be issued in due course, provides more extensive detail on various aspects that are critical to understanding the full scope of our operations, shareholder value creation and our contributions to society.

In line with our commitment to enhance digitalisation, Econet launched the first 5G network in Zimbabwe reaching throughputs of up to twenty times higher than 4G. This launch will help us better understand the 5G technology and explore the opportunities that individuals and businesses can realise from this new technology. As digital technologies evolve and the Fourth Industrial Revolution gathers momentum, we are making sure that Zimbabwe is ready for the digital opportunities that come with the rapid speeds provided by 5G technology.

We rolled out network upgrades to improve our customer carrying capacity. These upgrades included the deployment of ten greenfield base stations, and upgrading one hundred sites, across the country, from 3G to 4G, as part of our efforts to increase the 4G network coverage. Although these upgrades are in line with our continuing process to digitalize our network, they are far less than what is required to achieve our objectives. We are limited in our ability to meet network upgrade requirements due to continuing issues related to accessing foreign currency to maintain the necessary capex investment to appropriately grow the network. This impacts our ability to roll out to previously underserved areas, such as the rural areas and/or new towns/townships.

As a way of addressing the rural customer, and to deliver customer convenience, we launched an additional twelve (12) mobile shops across the country, which are fully kitted with high speed Wi-Fi and are solar powered, allowing our customers to access our products and services at more locations that are closer to them. This has enabled us to provide services to underserved areas of our market.

Building on technology and innovation to deliver better customer service, we implemented digital services that allow customers to resolve their own queries and issues. These solutions include subscriber registration verification self-service, PUK retrieval, airtime transfer and over scratched card retrieval, among others. Our virtual Chatbot is another key enabler that provides an additional digital customer support channel in resolving customer queries and enquiries. This has improved customer experience through significantly improved turnaround times in resolving customer issues.

EXCHANGE RATES

The Company uses the Reserve Bank of Zimbabwe (RBZ) auction rate for reporting purposes. In the period under review, the exchange rate to the US dollar moved from ZW$84 to ZW$124 (prior year from ZW$18 to ZW$84), a depreciation of 48%. This resulted in exchange losses arising from foreign currency denominated obligations decreasing from ZW$22.8 billion to ZW$5.1 billion, resulting in an incremental profit of ZW$17.7 billion. Unfortunately, immediately following the end of the financial year, a