2020 Annual Report
Globally, companies and individuals are demanding access to products and services using digital channels. Zimbabwe’s high level of literacy means that it is a fast adopter of new technologies. Our business, built on strong foundations, continues to support the growing demand for digital services. Our business model is highly adaptable to the challenging operating conditions and also responsive to the changing needs of our customer base. We service approximately 60% of all the mobile customers and provide approximately 70% of all the mobile data capacity that is used in the country.
Smart phone penetration is at low 52%, compared to about 90% for South Africa, remains a limitation for the adoption of digital services. Kenya’s penetration rate of mobile Internet users is at about 80%. Zimbabwe’s internet penetration rate remains low as approximately 22% of the devices on our network trying to access data services are “feature” phones with low data handling capacity.
We are working closely with the Government to review the duty regime for mobile devices to enhance the rapid adoption of digital services across the economy. According to the latest Postal and Telecommunications Regulatory Authority of Zimbabwe (“POTRAZ”) report, for the second quarter of 2020, “…active internet and data subscriptions declined by 2.4% to reach 56.7% from 59.1% recorded in the previous quarter.” According to the GSMA, “Governments and policymakers should implement policies to enhance access to connectivity and drive investment in more resilient digital infrastructure for the future. This is crucial to reactivating the region’s economy…”. We are optimistic that the Government, which also acknowledges the benefits of a digitised economy, will ensure that Zimbabweans are not left behind.
The increasing digitalisation of the economy necessitates an increase in 4G/LTE infrastructure. Increased access to data services is necessary to support, among other critical imperatives, online education, health and business digitalisation initiatives. To date, we have a 3G population coverage of about 70% for data services across the country, and, inclusive of our 4G coverage, we now have 90% of the population covered by data-capable base stations, although based on the internet penetration rate, only 59% of the population have access to internet services. 4G/LTE is a technology that provides upload and download speeds that are up to 10 times faster than 3G. As we increase our 4G coverage, complemented by the increase in data capable devices, we are able to provide faster upload and download speeds so that our customers can enjoy high speed applications. Our efforts have been hampered, in the last financial year, by the lack of foreign currency to increase our capacity and coverage to desired levels. However, we remain committed to providing telecommunications to all the people of Zimbabwe, which is the premise the business was founded upon, over 20 years ago.
During the year under review, our service quality and network availability were significantly impacted by power disruptions. Our network, during the peak of load shedding required over 3 million litres of diesel to operate optimally. This is a cost inefficient way to power the network as 1 kW of diesel power is 3-times more expensive than 1 kW of solar power, limiting the number of base stations that could be operated in this manner. These service disruptions also affected mobile money services across the country as the disruptions are common to all networks. Our operational costs increased as we had to constantly service the generators and also run an extensive fleet of fuel refilling tankers to ensure that network availability remained at an acceptable standard.
Our strategy to implement a clean energy network, driven by solar power is critical as we are cognisant of the power deficit that the country may continue to experience into the foreseeable future. Addressing this challenge will greatly reduce the demand for operational foreign currency, which is a critical national resource.
Although we have an extensive network of over 50 shops and franchisees across the country, for the convenience of our customers, our preferred customer service approach is to interface through digital channels and our self-care portals.
One of the main drivers of traffic into our shops were simcard replacements. Our customers will soon be able to have a sim replacement at any of our partner agencies in addition to our shops, allowing for more service channels to be opened up. We continue to enhance our service offerings to customers, as PIN and PUK resets can now be performed through our self-service portals. We are in the process of marketing these channels for enhanced service delivery to our customers.
Our business-in-a-box approach to call centre services now allows our call centre consultants to operate from anywhere where there is broadband connectivity. This has increased the capacity that we have in addressing the needs of our customers, whilst offering employment opportunities for the youth. These initiatives, among many others have helped us to reduce the ever-increasing costs of running our services whilst making it easier for customers to access our services.
The report of the Directors is based on the primary financial statements, being the inflation adjusted financial statements, having adopted IAS 29 (“Financial Reporting in Hyperinflationary Economies”), as recommended by the Public Accountants and Auditors Board (“PAAB”). In preparing the inflation adjusted results, the Group adopted the consumer price index (CPI) as published by the Zimbabwe Central Statistical Office. The Directors are however cognisant of the fact that certain distortions may arise due to divergent interpretation of specific economic factors that may affect the relevance and reliability of information that is presented in a hyperinflationary environment and the Directors caution users of the financial statements on the usefulness of these reported financial statements, in light of these distortions. These potential distortions are addressed in more detail in the Integrated Annual Report.
The Auditors have expressed an adverse opinion on our financial statements for reasons that relate mainly to the manner in which the Zimbabwe Dollar was reintroduced which caused the legal environment to be incongruent with the financial reporting framework, International Financial Reporting Standards (“IFRS”). Following guidance from the PAAB, most entities reporting in Zimbabwe have not been able to release financial statements with unmodified audit reports.
The business experienced a 31% increase in revenue, in inflation-adjusted terms, to ZW$ 6.8 billion. Earnings before interest, taxation, depreciation and amortisation (“EBITDA”) decreased by 4%, from the previous year, to ZW$ 2.7 billion, representing an EBITDA margin of 39% being maintained.
The focus on operational efficiencies resulted in margin being maintained despite the pressures resulting from general price increases in the economy as well as the increase in network operational costs.
The Group’s exposure in foreign currency denominated obligations resulted in exchange losses of ZW$ 6.1 billion.
The Group continued to engage the Central Bank on the settlement of legacy debts at the prescribed rate of ZW$ 1 to US$ 1 in line with the blocked funds framework announced by the Central Bank. The Group has a positive net foreign currency exposure as a result of its investment in Liquid Telecommunications Holdings Limited, which is valued at US$ 135 million.
The business performed a professional revaluation of its property, plant and equipment for the year ended 29 February 2020 as the associated value in Zimbabwe Dollars was no longer meaningful due to inflation. Most of the Company’s assets were procured in foreign currency. Our revaluation approach is explained in the notes to the detailed financial statements.
Although the Directors continue to account for all debentures issued during the May 2017 Rights Offer as though they were all US Dollar denominated instruments, this position may change in future in order for the Company to comply with monetary authority policy and regulations. This may particularly impact local shareholders who participated in the rights offer using onshore dollars whose counterpart offshore dollars were provided by the Rights Offer Underwriter.
Our sustainability initiatives remain focused on the environment, ethical and business conduct, national health delivery systems capacitation, leadership and lifelong development, job creation and sustainable livelihoods. The multi-faceted approach to human capital development benefited over 780 students enrolled in technical and vocational colleges for skills development in fields encompassing; bricklaying, poultry farming and carpentry. Over 385 mentees were involved in leadership training sessions, demonstrating our commitment to the next generation through scholarships and mentorship.
Our people are well trained and have extensive experience in managing technological transitions that have taken place in the telecommunications industry over time. Although investments in our platforms have been limited, we believe that the plans and initiatives we have for the future will result in an enhancement of the capacity and capabilities of our systems.
The Board has decided not to declare a dividend for the year.
On behalf of the Board, I extend my appreciation to our customers, whose support we truly cherish. I would also like to appreciate our staff, whose ideas and dedication is quite exceptional. My sincere appreciation also extends to our customers, business partners, suppliers, regulators and all stakeholders for the immense support which has sustained the business to this date. The continued unity of purpose and wise counsel from the Board members remains invaluable and sincerely appreciated.
We are grateful to Government for the opportunity to engage on issues of policy formulation and implementation. We are committed to the growth and development of a prosperous Zimbabwe.
Dr J. Myers
CHAIRMAN ON THE BOARD
Download the Econet Wireless Zimbabwe Limited 2020 Annual Report.pdf