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, an exchange loss of about ZW$13.4 billion was incurred when the official rate was devalued from ZW$124 to the US dollar to ZW$338, a depreciation of 172% thereby eroding the gains made by the Company in the year ended 28 February 2022. The Company is highly susceptible to exchange rate movements because it imports equipment and software for operating purposes, which means that any exchange rate depreciation significantly impacts on its ability to invest in new equipment.
REGIONAL TARIFF BENCHMARKS
The last tariff review for the sector, during the reporting period, was carried out in September 2021 using the telecommunications pricing index (TPI). The inflation that was experienced since that time has not been factored into our pricing framework as at February 2022, meaning that our tariffs are now unviable for the business to continuously invest to meet the increasing demand for its services. Using the Willing Buyer Willing Seller rate, the tariffs across the region in comparison to the local tariffs are as follows:
| Zimbabwe US cents* |
Regional comparative US cents |
|
|---|---|---|
| Voice | 4.2 | 8.8 |
| SMS | 0.9 | 2.7 |
| Data | 0.7 | 5.5 |
* Regional comparatives are based on average operator tariffs in the SADC region. Local tariffs were converted to US$ from ZWL using an interbank rate of ZW$ 380 to the US dollar.
The low tariffs of the industry are much lower than the region and this poses a threat to industry viability. The telecommunications industry has been struggling to meet the capacity and coverage demands of its consumers.
On 6 July 2022, the Regulator approved a headline tariff increase for the sector of 61%. The last approval of tariffs was granted in September 2021.
FINANCIAL REVIEW
Volume increases in data and voice of 58% and 19%, reflected the increased demand from our customers. Stringent cost alignment measures and close monitoring of the business’ cost structure had a positive result on the earnings before interest, taxation, depreciation and amortization (EBITDA) margin which marginally firmed to close the year at 52% against a prior comparative of 51%.
INVESTMENT AND CAPACITY
Investment in infrastructure over the years has been on a downward trend as a result of acute foreign currency shortages in the country. The business has been investing an average of 5% of revenue compared to other telecommunication peers in the region whose average annual capital investment is over 15% of revenue. This continues to have an adverse effect on the customer experience.
STATUTORY PAYMENTS
In inflation adjusted terms, the business contributed to the fiscus more than ZW$ 31.1 billion through various statutory payments in the current year, a 53% increase from the ZW$ 20.3 billion paid in prior year. Statutory payments comprise 142% (prior year 804%) of profit before tax.
DEBENTURES
Pursuant to the offer that was made to debenture holders in July 2021, 22.46% of the debentures were offered for early redemption. The Company fully settled the debentures offered for early redemption and remains with an obligation for 904 778 710 debentures which are due for redemption in April 2023. 50% of the outstanding debenture liability is due from EcoCash Holdings Limited.
DIVIDEND DECLARATION
The Directors have decided not to declare a dividend for the period under review as they continue to assess the economic environment.
CORPORATE SOCIAL INVESTMENT
The Group’s social investment initiatives continued to play a catalytic role in education, with a special focus on continuing to support children who are orphaned as well as academically gifted students; and vulnerable children, through access to a network of local and international schools and universities.
Through our implementing partner, Higherlife Foundation, we continued to support the Ministry of Health and Childcare by placing large-scale and high-tech critical maternity ward equipment as well as providing Emergency Obstetric and Neonatal Care (EmONC) training to eight maternity wards in Zimbabwe’s major referral and provincial hospitals.
To complement government efforts, we scaled up our support for climate-smart conservation farming (“Pfumvudza / Intwasa”) through training, provision of inputs and extension services to our small-scale farmers. In the long-term, through sustained efforts, we aim to assist Government in ensuring food and nutritional security, elimination of stunting and eradication of poverty to end hunger and poverty in line with the sustainable development goals (SDGs).
OUTLOOK
We remain committed to maintaining our position as the digital service provider of choice in Zimbabwe, and so it is important that we continue investing in infrastructure and capacity enhancements to meet needs and expectations. Investment in network upgrades and increased 5G coverage will be at the core of our digital transformation journey.
To ensure we have skilled and committed staff, the business has invested in various learning platforms to enhance employee knowledge and ensure that we continuously innovate and offer relevant products, services and solutions to meet customer needs. Our efforts to develop our staff has also allowed us to remain globally competitive as we retain critical skills. This is one of the key parameters of our ability to maintain our position as the digital service provider of choice.
APPRECIATION
On behalf of the Board, I would like to extend my appreciation to our valued customers, business partners and stakeholders who continue to support our business. We appreciate the support we receive from Government, regulators and policy makers in the telecommunications sector. I wish to thank our dedicated and exceptional staff who remain committed to our vision and have immensely contributed to the success of the Group during these trying times. The invaluable wise counsel and leadership from my fellow Directors is also acknowledged and appreciated.
Dr. J. Myers
CHAIRMAN OF THE BOARD
16 June 2022
