Econet 2010 annual report


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Econet 2010 annual report

  1. 1. experience a whole new world
  2. 2. “Behold I make all things new” Revelations 21 v 5 (KJV)
  3. 3. Experience a whole new world A world of endless possibilities. This is a world where data, voice and video coverage serve our different but often concurrent communication needs. Econet Wireless Zimbabwe Limited Annual Report 2010 1
  4. 4. Contents experience a whole 3 Financial Highlights new world 4 Organisational Vision 6 Board of Directors 8 Econet Corporate Profile 10 Chairmans Statement to the Shareholders 12 Chief Executive Officer’s Operations Review 14 Corporate Social Investment 16 Directors’ Report 17 Directors’ Responsibility for Financial Reporting 18 Corporate Governance 23 Financial Statements 62 Supplementary Information Detachable Proxy Form for Annual General A strong brand to drive our data offering.Econetworld comes to life as the data portal offering the latestnews, music, sports and entertainment among many excitingfeatures.GPRS EDGE 3G 4G 2 Econet Wireless Zimbabwe Limited Annual Report 2010
  5. 5. Financial HighlightsSUMMARY (US$) 2010TRADING RESULTSTotal Revenue- Cellular network operations 347 092 651- Other services 15 684 321Earnings before interest, taxation, depreciation, impairment and amortisation 179 285 617Profit before taxation 148 122 147Profit attributable to shareholders 113 209 756Cash generated from operations 129 909 998Capital expenditure 160 148 716Share PerformanceBasic earnings per share (US$) 0.66Basic diluted earnings per share (US$) 0.66Market price per share 28 February 2010 (US cents) 485Number of shares in issue at 28 February 2010 163 786 300Market capitalisation at 28 February 2010 (US$) 794 363 555RatiosReturn on shareholders equity 89%Shareholders equity 165 485 596Debt to shareholders equity 75%subscribers Subscribers (thousands) 3 500 1 2003 500 000 654 640 450 250Connected Capacity 2005 2006 2007 2008 2009 2010We have delivered a solid performance due to our significant investment innetwork equipment. The frontiers of communication have been expanded.Everyone, everywhere, now connected. A new world has been created.Over 3.5 million people are now talking. Econet Wireless Zimbabwe Limited Annual Report 2010 3
  6. 6. Organisational VisionOur VisionTo provide telecommunications to all the people of Zimbabwe.Our MissionTo serve Zimbabwe by pioneering, developing and sustaining reliable,efficient and high-quality telecommunications of uncompromisingworld-class standards and ethics.OUR VALUESThe values we hold in common are:PioneeringWe are a company committed to finding the best way forward in the fast moving and highly competitive technologyfield. To remain the leader in the field, we shall relentlessly pursue innovative solutions and constantly grow ourknowledge base, with an uncompromising passion for excellence.ProfessionalismIn everything we do, both within Econet and in the community, we always work in a customer and objective-orientedmanner with clearly defined goals, in terms of quality of service. In all our professional areas and at all levels, we willcarry out our duties skillfully and diligently.PersonalInternally we will always remember that we are a company made up of individuals. These people are the Company.Each one is an intrinsically valuable member of the organisation, irrespective of their gender, race or position. We willalways show concern for each other in an atmosphere that is open and stimulates personal development, jobsatisfaction and a sense of responsibility. We believe in working in teams, in effective and confident co-operation, inenvironments where honesty, praise, constructive criticism and fair reward have their place.Who we are inside the Company shall reflect who we are externally. Our relationship with our customers will enthusewith warmth and a genuine desire to meet their needs. We will reach out to customers in a holistic and organic waythat makes them true stakeholders in Econet Wireless.The business will continue innovating to meet the evolving needs of our customers;hence the investment in new technologies such as GPRS, 3G, Wi-Fi and Wi-Max.With our inspired brands, we foresee a bright future. We are movingahead with renewed vigour and refreshed confidence, to open newfrontiers of communication.4 Econet Wireless Zimbabwe Limited Annual Report 2010
  7. 7. With the introduction of 3G, we have entered a new world of communication,where the mobile phone has now become more than just a tool forcommunication. It has become a gateway for the transmission of essential,possibly life-saving information. Econet Wireless Zimbabwe Limited Annual Report 2010 5
  8. 8. Board of DirectorsAs at 28 February 2010T. Nyambirai S. T. Masiyiwa C. FitzgeraldChairman Executive Non-Executive T.P. Mpofu (Mrs) D. Mboweni Non-Executive Chief Executive Officer6 Econet Wireless Zimbabwe Limited Annual Report 2010
  9. 9. J. G. B. Pattison P.J. Campbell J. MyersExecutive Non-Executive Non-ExecutiveK.V. Chirairo A. N. H. EastwoodFinance Director Non-Executive Econet Wireless Zimbabwe Limited Annual Report 2010 7
  10. 10. Econet Corporate ProfileECONET WIRELESS ZIMBABWE LIMITEDEconet Wireless Zimbabwe Limited (EWZL) is the holding company of businesses involved in cellular operations, provision ofinternet access and transaction processing services. EWZL, which is listed on the Zimbabwe Stock Exchange (ZSE), is Zimbabwesleading technology company. It is one of the largest quoted companies in terms of market capitalisation, and directly and indirectlyemploys in excess of 1 500 staff.SUBSIDIARIESEconet Wireless (Private) LimitedEconet Wireless (Private) Limited is EWZLs cellular network operator, with a subscriber base of 3 500 000 as at 28 February 2010.EW Capital Holdings (Private) LimitedEW Capital Holdings (Private) Limited is EWZLs investment vehicle through which the Group holds a variety of investments,carefully selected with the twin objectives of growing earnings and preserving value for shareholders.Pentamed Investments (Private) LimitedEWZL through wholly owned Pentamed Investments (Private) Limited, holds 69% of Mutare Bottling Company (Private) Limited(inclusive of a 6% shareholding in the form of convertible instruments).Data Control and Systems (1996) (Private) Limited T/A EcowebEcoweb is an internet service provider in Zimbabwe, offering broadband and dial-up services to both corporate and individualcustomers. It has a presence in all major cities and towns and has embarked on an extensive fibre optic project throughoutZimbabwe.Transaction Payment Solutions (Private) LimitedThe company is a leading provider of financial transaction switching, point of sale and value-added services, that exploit theconvergence of banking, information technology and telecommunications. The company provides local and international financialinstitutions and telecommunications operators access to cutting edge technology to enhance customer service, in partnership withone of the worlds leading manufacturers of smart card-based point-of-sale systems.8 Econet Wireless Zimbabwe Limited Annual Report 2010
  11. 11. We have delivered solid performance as a result of our strong brands.The launch of econetworld has enriched the user experience and createda whole new world of endless possibilities. Econet Wireless Zimbabwe Limited Annual Report 2010 9
  12. 12. Chairman’s Statement to the Shareholders INTRODUCTION located in Bulawayo and the other The Econet brand is synonymous with two in Harare. Close to 200 base innovation, perseverance and a relentless stations were commissioned pursuit of excellence. Econet Wireless aims during the same period. Although to remain the undisputed leader in the the network upgrade resulted in telecommunications market in Zimbabwe. service disruptions, this exercise The increase from 1.2 million to the current 4 was necessary to improve network million subscribers is a firm testimony of that quality and performance. Econet intent. has now established itself as the network with the widest coverage Telecommunications is a key contributor to as illustrated by the coverage map economic development because it provides below (diagram 2). more efficient and effective access to information, business partnerships and Data services through GPRS and markets. The countrys mobile penetration EDGE were extended to all areas rate improved from below 15% to about where Econet has coverage. 3G 40% largely as a result of Econets capacity, which was initially investment in network equipment. restricted to Harare, is being deployed to all other major cities, INVESTMENT REVIEW resort towns and the main ports of In the financial year ended 28 February 2010 entry. The business expects the equipment worth US$ 160.1 million was additional capacity to be purchased. The planned investment of US$ commissioned before the 300 million in the next financial year, is a commencement of the FIFA 2010 clear demonstration of the strong belief by Soccer World Cup which is being the business in the future prospects of the hosted by South Africa in June/July Zimbabwean economy. The value added 2010. statement for the financial year ended 28 February 2010 is reflected below (diagram 1). Econet launched a state of the art Of the total value added for the financial year TAWANDA NYAMBIRAI highly integrated Call Centre solution. The equipment is capable ended 28 February 2010 of US$ 362.8 CHAIRMAN OF THE BOARD of offering multimedia options to million, over U$ 63.3 million, representing access the call centre i.e. telephone, email, SMS, faxing and 17% of the value added was distributed to the Government in the internet for Econets customers’ convenience. Customer care form of various taxes and levies. US$ 244.5 million, which personnel are being trained in key service competences in order represents 68% of the value created was reinvested in the to improve the service excellence. business to fund long term assets and working capital expenditure. 13% was paid back to the providers of finance by Econet was recognized as a leading telecommunications way of capital and interest repayments as well as dividends. The operator in Africa by being awarded the prize for The Best Voice business invested US$ 7.0 million in various social investment Operator in Southern and Eastern Africa by Africa Telecom People programmes, representing 2% of the value added. Arguably, this Awards of France. In the same period Otherways Management is the largest social investment spend by any corporate entity in Consultants of France awarded the business the Global Award for Zimbabwe. Perfection, Quality and Ideal Performance. OPERATIONS REVIEW FINANCIAL PERFORMANCE Econets switching capacity increased with the commissioning of The Groups performance includes the results of its subsidiary two more switch centres during the financial year ended 28 companies. The Groups operating subsidiaries are Mutare February 2010. The business now has three switch centres; one isDiagram 1 Diagram 2VALUE ADDED STATEMENT COVERAGE MAP FOR EXISTING 2% 17% NETWORK FEBRUARY 2010 13% 68% GPRS, EDGE & GSM NATIONAL COVERAGE Value invested in Invested in funding long-term 3G COVERAGE social programmes assets and working capital (WHEN OUT OF 3G COVERAGE YOU WILL STILL BE COVERED VIA GPRS) Paid to providers of Finance Paid to Government 10 Econet Wireless Zimbabwe Limited Annual Report 2010
  13. 13. Highlights Subscribers Investment Revenue in long term assets *4.0 Million US$ 160.1 million US$ 362.8 million CAPEX/EBITDA Basic earnings per share Total dividend per share 89% US$ 0.66 US$ 0.14* Subscribers as at 31 March 2010Bottling Company (Private) Limited which is in the beverages sector; Transaction Payment Solutions (Private) Limited which provideselectronic payment solutions and Data Control and Systems (1996) (Private) Limited t/a Ecoweb, an internet access provider.Revenue for the year ended 28 February 2010 was US$ 362.8 million. This revenue performance was achieved as a result of the significantinvestment in network infrastructure. This investment enabled the business to increase the subscriber base by 233% from 1.2 millionsubscribers to the current 4 million subscribers. The Group achieved an EBITDA of US$ 179.3 million, a margin of 49% of revenue. Thenetwork investment resulted in the statement of financial position totals increasing by 116% to US$ 392.7 million as at 28 February 2010.FINANCIAL REPORTINGThe Group changed its functional currency from the Zimbabwe Dollar to the United States Dollar with effect from 1 January 2009.Having considered the recommendations of the Zimbabwe Stock Exchange, the Zimbabwe Accounting Practices Board and the PublicAccountants and Auditors Board, the Group has opted not to show certain comparative information. The audit opinion on the Groupsfinancial statements is modified in respect of the non-disclosure of this comparative information.CORPORATE SOCIAL INVESTMENTIn line with the Groups broad corporate social investment policy, the Group continued to play a significant role in the community throughits social investment vehicles.Over 50 000 economically disadvantaged students have been assisted through the Groups Corporate Social Investment initiatives toattain educational qualifications at pre-tertiary level. During the period under review two students, who were exposed to the InternationalBaccalaureate programme, were awarded scholarships to study at Harvard University. The Group assisted with funding which resulted inopening of the University of Zimbabwe Medical School. As a result, 275 students were able to progress with their studies. The Groupsscholarship fund continues to assist over 360 students with impeccable academic credentials by funding their tertiary education.OUTLOOKThe network expansion drive continues to be the main focus of the business in order to increase subscriber capacity and network quality.To meet the needs of increasingly complex financial reporting and risk management requirements, the Group has commenced theimplementation of Oracle Financials, a best of breed Enterprise Resource Planning system that is used extensively by telecommunicationsoperators. The Group will also commission a new fraud and revenue assurance system during the upcoming financial year in order toimprove revenue assurance.APPRECIATIONI would like to extend my sincere appreciation to our customers for their loyalty and for bearing with us during the network upgrade. Iwould like also to extend my appreciation to all our business partners and various stakeholders who have assisted us in achieving thisperformance. I applaud management and staff for the sterling work they have done during the financial year just ended. To the Board, Iextend my gratitude for the vision and insight that has resulted in the growth of the business.T. NyambiraiCHAIRMAN OF THE BOARD28 May 2010 Econet Wireless Zimbabwe Limited Annual Report 2010 11
  14. 14. Chief Executive Officer’s Operations ReviewINTRODUCTION OPERATIONS REVIEWMobile telephones have created many The increase in switching capacityinnovations that were otherwise not possible. and the installation of a significantThis has transformed the lives of many number of base stations haspeople especially in developing countries improved the competitivewhere fixed line technology was too advantage of the business. Theexpensive to deploy over large geographical rapid pace of deployment of baseareas. It is in these previously unreached station infrastructure that has beencommunities that mobile telephony will have experienced will continue unabatedthe greatest social and economic impact. It is as the business consolidates itsthe intention of the Group to extend its market leadership position. Wecoverage to allow more people to benefit anticipate that optimisation of thefrom access to telecommunications. network, which will be executed in the next financial year, will increaseThe level of investment that the Group has operational efficiency and reliability.embarked on is unprecedented in Zimbabwe. The business is in the process ofA facility of US$ 93.9 million from Econet implementing a generatorWireless Global enabled the business to deployment strategy which willincrease its subscriber base to about 3.5 minimize service disruptionsmillion subscribers and its share of the resulting from the unavailability ofmobile market to 73% as at 28 February electrical power.2010. The financial performance achievedduring the year under review is a result of this FINANCIAL HIGHLIGHTSsignificant investment in infrastructure. Revenue for the 12 months ended DOUGLAS MBOWENI 28 February 2010 was US$362.8New loan facilities are in the process of being million and the Earnings before,negotiated. These additional funds will result CHIEF EXECUTIVE OFFICER Interest, Tax, Depreciation,in the expansion of the existing capacity and Impairment and Armortisationthe improvement of the quality of the network. were US$ 179.3 million, a margin of 49%. The Groups basic earnings per share for the period was US$0.66. The largest driver of profitability was the mobile business which contributed US$ 347.1 million, representing 96% of the overall Group revenues.The level of investment that the Group has Most of the Groups earnings are cash earnings, reflecting a highembarked on is unprecedented in quality earnings profile.Zimbabwe. A facility of US$ 93.9 million Net cash generated from operating activities was US$ 106.9 million. Most of the internally generated cash flows werefrom Econet Wireless Global enabled the reinvested in the business. The debt to equity ratio of 75% is reflective of the level of leverage required to fund mobilebusiness to increase its subscriber base to businesses and is not dissimilar to other network operators in theabout 3.5 million subscribers and its share of region.the mobile market to 73% as at 28 February Interest costs at US$ 4.9 million, represented 2.7% of the Earnings before, Interest, Tax, Depreciation, Impairment and Armortisation2010. The financial performance achieved margin. This reflects a high interest cover. Average interest costsduring the year under review is a result of for the period relative to net debt were less than 6% per annum. The Group has been able to leverage on established relationshipsthis significant investment in infrastructure. with debt providers and its shareholding structure to facilitate lending at lower risk adjusted rates of interest.12 Econet Wireless Zimbabwe Limited Annual Report 2010
  15. 15. INNOVATIONSThe introduction of mobile and fixed broadband services remains an area of strategic focus for the business. The Group embarked on a fibrenetwork roll out project that will result, ultimately, in a connection to the undersea cable. This will bring the benefits of high speedbroadband to Zimbabwe in a cost effective and efficient manner. The base station configurations will also take advantage of the availabilityof fibre technology to improve quality and reliability of the network.INTERNAL TRANSFORMATIONThe rapid growth that the business has experienced needs to be well managed in order to ensure effective utilization of resources and todeliver appropriate shareholder return. The planned investment in revenue and fraud assurance as well as enterprise risk planning systemswill enhance the Groups ability to leverage the value of its people and systems to enhance profitability as the business continues to grow.DISTRIBUTIONEconet increased its distribution and retail presence through the opening of new shops in Gweru, Chitungwiza and Chinhoyi. In addition,the business deployed point-of-sale terminals in partnership with Transaction Processing Solutions (Private) Limited in order to achieve costeffective and efficient airtime distribution. The company has also strengthened its relationship with key strategic partners therebyincreasing the number of retail outlets selling airtime.OUTLOOKThe improvement of the customer service experience, through staff training, information systems enablement and more efficient processesis a key strategic imperative. With a mobile penetration rate of 40%, there is still significant demand for communication services inZimbabwe. The Group will continue to invest and focus on product development and service innovation to continue to excite ourcustomers and build strong brand loyalty.D. MboweniChief Executive Officer28 May 2010 Econet Wireless Zimbabwe Limited Annual Report 2010 13
  16. 16. Corporate Social Investment THE JOSHUA NKOMO SCHOLARSHIP FUND continues to fund the nation’s most gifted students. 14 Econet Wireless Zimbabwe Limited Annual Report 2010
  17. 17. We remain firm in our belief that a companys success cannot be Environmentmeasured on financial performance alone. Our success also lies in During the year, Econet also came up with a comprehensivethe positive transformation of our communities. Environmental and Waste Management Policy. Econet believes environmental awareness is now more than just a factor of socialWe believe that every business has a responsibility beyond its basic responsibility, but rather a business imperative.responsibility to its shareholders; it is a responsibility to the people Joshua Nkomo Scholarship Fundof the communities in which it serves. The Joshua Nkomo Scholarship Fund continued with its valuable work in the provision of funding to the nations most giftedAs a pioneering company, we are moving beyond corporate social students. There was fresh focus on supporting maths and scienceresponsibility to social innovation. Econet believes that technology students as part of the Groups contribution to the developmentthat does not transform lives is irrelevant. We must provide a of technology in Zimbabwe.service that contributes meaningfully to the improvement of thelives of members of the communities that we serve. The Capernaum Trust The Capernaum Trust was established in 1996 to transform theOur social role is therefore constantly being reviewed in order to lives of orphaned children in economically disadvantagedremain relevant to our communities. situations. The Trust continued its work to offer hope and inspiration to orphaned children. In the face of greater demandNational Healthcare Trust Zimbabwe (NHTZ) for welfare intervention, the Trusts work continued in theIn 2008, our social responsibility role took on a more direct and provision of scholarships, food packs and life skills training to overurgent role. Under our health and welfare programme, Econet 26 000 orphans nationwide.provided financial and logistical support to teams of dedicatedhealth workers that were involved in fighting the cholera epidemic Our involvement goes beyond the provision of material support,that affected the country during the latter part of 2008. as the trust runs a deliberate and planned programme designed to empower beneficiaries with life skills and activities to restore theirWe employed our wide airtime distribution network to spread self-esteem and groom them into inspired leaders.awareness by printing anti-cholera messages on our rechargecards. HIV/AIDS POLICYOur involvement in fighting the cholera crisis opened our eyes to Econet is convinced that HIV and AIDS have the potential to wastethe urgent need to make our intervention in health care more valuable trained human resources and reduce productivity. Wefocused. Econet therefore established the National Healthcare continue to recognise the huge impact of HIV and AIDS on theTrust Zimbabwe in December 2008. wellbeing of our employees. This includes their welfare outside the workplace, where staff face the burden of committing effortThe Trusts immediate task was the procurement of essential and resources to care and provide for family members. Policiesmedicines and equipment needed for delivery of basic healthcare and structures therefore continue to be followed to address thisservices, and the provision of key support in the areas of concern. Econet Wireless continues to provide anti-retroviralcommunication. drugs for the infected employee and other members of their immediate family. Through the “Live 2 Love” programme, theRather than merely reacting to crisis, the Trust will implement a Company continued to encourage open dialogue among staff onmore proactive and sustained strategy for the rehabilitation and HIV/AIDS. By encouraging open debate on HIV and AIDS, we helplong-term maintenance of Zimbabwes health sector. The Trust remove the stigma attached to HIV and AIDS and increase accessseeks to build and maintain capacity within the health sector in to critical information on the pandemic.Zimbabwe. Econet Wireless Zimbabwe Limited Annual Report 2010 15
  18. 18. Directors’ ReportThe directors have pleasure in presenting their twelfth Annual Report and the Audited Financial Statements of Econet Wireless Zimbabwe Limited and itssubsidiaries for the year ended 28 February 2010. In the report “Group” refers to Econet Wireless Zimbabwe Limited and its subsidiary companies.Change of name of CompanyFollowing the approval by members at the Annual General Meeting held on 30 September 2009 and subsequent approval by the Registrar of Companies,the Company changed its name from Econet Wireless Holdings Limited to Econet Wireless Zimbabwe Limited. The change was with effect from 21 January2010.Principal ActivitiesThe Groups principal activities remained the same during the year, that is, the provision of cellular services, provision of internet access services, transactionprocessing services and mobile banking services.The Group also retained its investments in its subsidiaries companies, however, there were some changes in the level of investments in some of the entities.Where appropriate it also continued to oversee the management of these companies.Consolidated ResultsThe Groups financial results and its activities during the year are adequately covered in the statements of the Chairman and the Chief Executive Officer.DividendsAn interim dividend of US$0.08 per share for the half-year ended 31 August 2009 was declared by the board at its meeting held on 23 September 2009.Shareholders were given the option of either receiving their interim dividend in cash or in the form of additional shares. The final dividend of US$0.06 willbe paid in cash.Share CapitalThe authorised share capital of the Group remained unchanged during the year. The issued share capital changed following the scrip dividend and theshare buy-backs and now stands at 163 786 300 shares made up of 73 069 615 Class “A” shares and 90 716 685 ordinary shares.ReservesThe movements in the reserves of the Group are shown in the Statement of Changes in Equity.DirectorsMessers D Mboweni and K V Chirairo will retire by rotation at the Groups Annual General Meeting and, being eligible, will offer themselves for re-election.Dr J Myers was appointed to the board on 27 May 2009. His appointment was confirmed at the Annual General Meeting held on 28 September 2009.At the Annual General Meeting shareholders will be asked to approve payment of the directors fees and the re-appointment of Directors.Mr A H N Eastwood has expressed his wish to retire from the Board. He will not be standing for re-election at the next Annual General Meeting. The Boardwishes to express its deep appreciation to Mr A H N Eastwood for the long and valuable contribution he has made to the Company since his appointmentto the Board in January 2001.Capital commitmentsDetails of the Group’s capital commitments are set out in note 36 of the financial statements.Interest of DirectorsDetails of the interest of the directors in the ordinary shares of the company are detailed in note 24.5 of the financial statements.Funding requirementsThe Group increased its interest bearing debt during the current financial year in order to finance its network expansion. Details of the Groups borrowingsare disclosed in note 28 of the financial statements.Borrowing PowersThe details of the Groups borrowing powers are set out in Note 35 to the financial statements.Pension FundThe Groups pension fund scheme is administered by a Board of Trustees. The Trustees manage the assets of the pension fund, which are held separatelyfrom those of the Group. The assets and funds of the scheme are administered in accordance with the rules of the pension fund.Corporate Social InvestmentCommitment to the economic and social development of the country remained firmly in place during the year. The commitment finds its roots in theGroups own commitment to Christian values and the Groups wish to uphold and improve the quality of life of the people of Zimbabwe. The Groups“Econet in the Community“ programme saw it continuing with its social investment initiatives in education, environmental matters, health and socialwelfare and religious organisations.Donations to Political PartiesThe Group does not , as a matter of policy, contribute to any political party.AuditorsShareholders will be asked to approve the remuneration of the auditors for the year ended 28 February 2010.Deloitte & Touche stepped down as the Groups auditors with effect from 30 October 2009, after having served the Group for ten years. Ernst & Youngwere duly appointed as the Groups auditors with effect from the same date.By order of the BoardT Nyambirai D. Mboweni C A BandaCHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER GROUP COMPANY SECRETARY28 May 201016 Econet Wireless Zimbabwe Limited Annual Report 2010
  19. 19. Directors’ Responsibility For Financial ReportingThe directors are responsible for the preparation, integrity and fair presentation of the consolidated annual financial statements ofEconet Wireless Zimbabwe Limited (the Group) and the company’s abridged annual financial statements.The consolidated annual financial statements have been audited by the independent auditing firm Ernst & Young which was givenunrestricted access to all financial records and related data, including minutes of meetings of shareholders, the board of directorsand committees of the board. The directors believe that all representations made to the independent auditors during their auditwere valid and appropriate. The report of the auditors on the consolidated annual financial statements is presented on pages 25and 26.The consolidated annual financial statements for the year ended 28 February 2010 presented from page 27 to 61 have beenprepared using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board withthe exception that certain comparative information required by IAS 1 (Presentation of Financial Statements) has not beendisclosed in these financial statements for the reasons stated in note B1.2. The financial statements have been prepared inaccordance with the disclosure requirements of the Companies Act (Chapter 24:03). They are based on appropriate accountingpolicies which have been consistently applied, as modified, where necessary, by the impact of new and revised standards. Theapplication of these accounting policies is supported by reasonable and prudent judgements and estimates. The going concernbasis has been adopted in preparing these annual financial statements. The directors have no reason to believe that the Group northe company will not be a going concern in the foreseeable future based on forecasts and available cash resources.The directors are also responsible for the Groups system of internal controls. These are designed to provide reasonable, but notabsolute assurance as to the reliability of the consolidated and company abridged annual financial statements and to adequatelysafeguard, verify and maintain accountability of assets. These controls are monitored throughout the group by management andemployees with the necessary segregation of authority and duties. Processes are in place to monitor internal controls to identifymaterial breakdowns and implement timely corrective action .The consolidated annual financial statements were approved by the board of directors on 28 May 2010.T Nyambirai D. Mboweni K.V. ChirairoCHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCIAL DIRECTOR28 May 2010 Econet Wireless Zimbabwe Limited Annual Report 2010 17
  20. 20. Corporate GovernanceThe Group and its subsidiaries have continued to embrace the principles of good corporate governance in their business operationsand financial reporting. Transparency, responsibility and accountability as set out in the Principles for Corporate Governance inZimbabwe: Manual of Best Practice, the Cadbury Report of the United Kingdom and the King Reports of South Africa remainedpart and parcel of the Groups culture and way of doing business. The Group also retained its membership of the Institute ofDirectors of Zimbabwe.THE BOARD OF DIRECTORSComposition and appointmentThe Board membership stood at 10 during the year, consisting of 4 executive and 6 non-executive directors, with a wide range ofbusiness and industry expertise. A non-executive director chairs the Groups Board.Appointment of the non-executive directors is on the basis of their skills and experience or expertise in their respective fields, theultimate objective being to have in place a variety of skills and experience on the Board. The non-executive directors are subject toelection by shareholders. All directors retire by rotation and stand for re-election as provided for in the Companys Articles ofAssociation.Accountability and delegated functionsThe Board of Directors is accountable for the Groups welfare and general outlook and assumes overall responsibility for the Groupsstrategic development. It provides leadership and sound judgement in directing the Group to achieve its objectives and sustainableprosperity and in the process, uphold the interests of the Groups shareholders and stakeholders. The Board formulates key policiesand has responsibility for the following specific areas: review and approval of the Groups strategic business plans, incorporating operating and capital expenditure budgets; setting of corporate objectives and performance targets; review and approval of major acquisitions and disposals; reviewing the share capital of the Group and subsidiaries and recommending alteration thereof; reviewing annual financial statements and significant changes in accounting policies; and monitoring and reviewing the Groups overall performance.In the execution of its responsibilities the Board delegates certain specific responsibilities to various committees and the boards ofsubsidiary companies. It reviews and ratifies the appointment of directors to the boards of its subsidiary companies.RightsTo facilitate the exercise of their responsibilities all directors have unrestricted access to management, including the GroupCompany Secretary, and to the Groups records and other information as and when they so require. The directors also haveauthority, where necessary, to seek independent professional advice at the Groups expense.Directors namesThe following are the directors who served during the year:Mr T Nyambirai (Chairman), Mr S T Masiyiwa, Mr P J Campbell, Mr R Chidembo (resigned 27 May 2009), Mr K V Chirairo, Mr A H NEastwood, Mr C Fitzgerald, Mr D Mboweni, Mrs T P Mpofu, Mr J G B Pattison, Mr Z M T Wazara (resigned 27 May 2009) and Dr JMyers (appointed 27 May 2009).Directors interestsAs is the practice, directors are required each year to indicate in writing whether they have any material interest in any contract ofsignificance with the Company or any of its subsidiaries, which could give rise to a conflict of interest. Directors are also required todisclose their other business interests. With the exception of Mr T Nyambirai, none of the directors had a material interest in anycontract of significance to which the Group was a party during the year, other than their service contracts.Mr Nyambirai is the Group Chief Executive Officer of TN Holdings Limited, which is one of the Groups financial advisors. He is also apartner in Mtetwa and Nyambirai Legal Practitioners, a firm that provides legal services to the Group. During the year the Groupestablished a business relationship with TN Bank Limited which is a subsidiary of TN Holdings Limited.Details of related party transactions are disclosed in note 30.18 Econet Wireless Zimbabwe Limited Annual Report 2010
  21. 21. The Group Company SecretaryAll directors have access to the advice and services of the Group Company Secretary.Directors remunerationThe remuneration of directors and senior executives is reviewed by the Audit and Remuneration Committee. The Committee isconstituted of non-executive directors, with executive directors sitting in as ex-officio members, and is chaired by a non-executivedirector.BOARD COMMITTEESThe Board has appointed a number of committees to which it has delegated some of its responsibilities. The committees operatewithin defined terms of reference set by the Board.The attendance record of the members of the Econet Wireless Zimbabwe Limited Board and Board Committee meetings is set outbelow.Audit and Remuneration CommitteeThe Audit and Remuneration Committee of the Group and its subsidiary companies is constituted of non-executive directors andchaired by a non-executive chairman. Two executive directors sit in as ex-officio members. The Committees overall responsibility isto advise the Board on financial management and other governance issues and to facilitate Board decisions on matters relating tofinancial policy and control. It meets not less than four times a year.The Committee ensures the Group delivers meaningful and transparent reporting of its financial results. The Committee works inconjuction with the Groups external auditors to ensure financial discipline within the Group and the observance by the Group ofInternational Financial Reporting Standards.Members of the Audit and Remuneration Committee are: Mr P J Campbell (Chairman), Mr K V Chirairo, Mr A H N Eastwood, Mr CFitzgerald, Mrs M Harris, Mr D Mboweni and Mrs T Mpofu.Investments CommitteeThe Investments Committee is responsible for the review of the Groups investments and making recommendations on these to theBoard for consideration and approval. It evaluates potential investments, expansion and development of the network and newproducts. It also examines the technical aspects of acquisitions, mergers and reconstructions.Members of the Investment Committee are: Mr S T Masiyiwa (Chairman), Mr C Fitzgerald, Mr P J Campbell, Mr A H N Eastwood, MrK V Chirairo, Mrs M Harris, Mr D Mboweni, Mrs T P Mpofu, Mr J G B Pattison and Dr J Myers. BOARD AUDIT AND INVESTMENTS LOANS REMUNERATION COMMITTEE COMMITTEE COMMITTEE Meetings held 3 5 3 3 S.T. Masiyiwa 3 N/A 3 N/A T. Nyambirai 3 N/A N/A N/A P.J. Campbell 3 5 3 3 A.H.N. Eastwood 3 4 3 3 C. Fitzgerald 3 5 3 3 K.V. Chirairo 3 5 3 3 D. Mboweni 3 5 3 3 T.P. Mpofu 3 4 3 3 J. Myers 3 N/A 3 N/A J.G.B. Pattison 3 N/A 3 N/A Econet Wireless Zimbabwe Limited Annual Report 2010 19
  22. 22. Corporate Governance (continued)Loans CommitteeThe Committee reviews the Groups major loans obligations, both local and foreign, and puts forward recommendations on theservicing of these obligations.The members of the Committee are: Mr A H N Eastwood (Chairman), Mr P J Campbell, Mr K V Chirairo, Mr C Fitzgerald, Mrs MHarris, Mr D Mboweni and Mrs T P Mpofu.INVESTOR RELATIONSEffective communication with the public and shareholders continues to remain a primary policy of the Group. The Groupsexecutive meets with shareholders and investment analysts at least bi-annually after the release of the Groups results.The Groups Annual Report and other corporate publications are available on the corporate website the Groups Annual General Meeting each substantial issue is put to the meeting for discussion and /or noting. The meeting isalso presented with, and asked to adopt, the Groups annual financial statements and directors report.If and whenever necessary the board calls for Extraordinary General Meetings to deal with specific issues. The levels of proxy voteslodged for and against each resolution are disclosed at each meeting, together with details of abstentions.EMPLOYMENT AND EQUITY PRACTICESA communications system is in place within the Group through which employees are kept informed of the Groups financialperformance and matters affecting their welfare. Communications are done through regular briefings, presentations, electronicmailings and the corporate website.The Group is an equal opportunity employer. All applications for employment are given full and fair consideration; this includesapplications from disabled persons. Career development and promotion of disabled people is, as far as possible, the same as thatof other employees.The development of skills and expertise remains a major policy of the Group. Secondment of skilled and professional employees tooverseas and regional operations takes place on a regular basis.Observance of the highest standards of ethical behaviour by the directors and the Groups employees remains one of the pillars ofthe Groups culture. The policy ensures that business practices are conducted with the highest levels of integrity andprofessionalism.INSIDER TRADINGThe Group complies with the Zimbabwe Stock Exchange listing rules in relation to transactions by directors and employees insecurities issued by the Group. Directors and employees or their nominees or members of their immediate family are prohibitedfrom dealing in the Groups securities at anytime when they are in possession of unpublished, price-sensitive information.T he Group operates a closed period prior to the publication of its interim and annual results, during which directors and employeesof the Group may not deal in securities of the Group. In terms of policy, directors and employees who wish to transact in the sharesof the Group, even outside of the Groups “closed or blocked period”, are required to obtain the clearance of the Chairman.INTERNAL CONTROLSInternal controls comprise methods and procedures adopted by management to achieve the objective of safeguarding assets,preventing and detecting errors and fraud, ensuring the accuracy and completeness of accounting records and the preparation ofaccurate reliable financial statements. The Board confirms that the internal control procedures have been in place throughout theyear to identify and eliminate the stated risks.20 Econet Wireless Zimbabwe Limited Annual Report 2010
  23. 23. The Group has an internal audit function which monitors, and reports on, the internal control systems. The head of the functionattends the meetings of the Audit and Remuneration Committee at which he submits a report on the systems and risks that wouldhave been identified.INDEPENDENCE OF AUDITORSThe Groups Audit and Remuneration Committee confirms the independence of the Auditors, Ernst & Young, who are engaged bythe Group for audit-related services. Whenever necessary the Group calls upon the services of other firms to assist with non-auditmanagement consultancy work.GOING CONCERNThe Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for theforeseeable future. Accordingly they have prepared the financial statements on the basis of the Group as a going concern.By order of the BoardT Nyambirai D. Mboweni K.V. ChirairoCHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCIAL DIRECTOR28 May 2010 Econet Wireless Zimbabwe Limited Annual Report 2010 21
  24. 24. TRANSACTION PAYMENT SOLUTIONS has made it possible for electronic payments to be morewidely accepted. The business will continue innovating to meet the evolving needs of ourcustomers; hence the investment in new technologies such as GPRS, 3G, Wi-Fi and Wi-Max.With our inspired brands, we foresee a bright future. We are moving ahead with renewedvigour and refreshed confidence, to open new frontiers of communication. 22 Econet Wireless Zimbabwe Limited Annual Report 2010
  25. 25. Econet Wireless Zimbabwe Limited2010 Financial Statements24 Certificate by Company Secretary25 Report of the Independent Auditors27 Consolidated Statement of Comprehensive Income28 Consolidated Statements of Financial Position29 Company Statements of Financial Position30 Consolidated Statement of Changes in Equity31 Consolidated Statement of Cash Flows32 Notes to the Consolidated Financial Statements62 Supplementary Information Detachable proxy form for the Annual General Meeting Econet Wireless Zimbabwe Limited Annual Report 2010 23
  26. 26. Certificate by Company Secretary In my capacity as Group Company Secretary, I confirm that, in terms of the Companies Act (Chapter 24:03), the Group has lodged with the Registrar of Companies, the returns required under the Act and the returns are true and correct. CHARLES A. BANDA GROUP COMPANY SECRETARY 28 May 2010 CHARLES A. BANDA GROUP COMPANY SECRETARY24 Econet Wireless Zimbabwe Limited Annual Report 2010
  27. 27. REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF ECONET WIRELESS ZIMBABWE LIMITEDWe have audited the accompanying financial statements of Econet Wireless Zimbabwe Limited as set out on pages 27 to 61,which comprise the Company and consolidated statements of financial position at 28 February 2010, and the consolidatedstatement of comprehensive income, the consolidated statement of changes in equity and consolidated statement of cashflows for the year then ended, and the notes to the financial statements, which include a summary of significant accountingpolicies and other explanatory notes.Directors Responsibility for the Financial StatementsThe companys directors are responsible for the preparation and fair presentation of these financial statements in accordancewith International Financial Reporting Standards ( IFRS ) and in the manner required by the Companies Act (Chapter 24:03).This responsibility also includes: designing, implementing and maintaining internal controls relevant to the preparation andfair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting andapplying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. TheDirectors have elected to comply with the guidance in the Joint Media Statement On The Impact On Financial Reporting as aConsequence of The Change In Functional Currency ( the Financial Reporting Guidance) issued jointly by the PublicAccountants and Auditors Board (“PAAB”), the Zimbabwe Accounting Practices Board (“ZAPB”) and the Zimbabwe StockExchange (“ZSE”) in July 2009.Auditors ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance on whether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditors judgement, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal controls relevant to the entitys preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entitys internal controls. An audit also includes evaluating the appropriateness of accounting policies usedand the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of thefinancial statements.Our audit report has been modified in the manner in which we report on the compliance of these financial statements withprovisions of the Companies Act (Chapter 24:03) and the relevant Statutory Instruments (SI 33/99 and SI 62/96), as set out inthe guidance and recommendations on audit reports issued jointly by the Public Accountants and Auditors Board, theZimbabwe Stock Exchange and the Zimbabwe Accounting Practices Board in July 2009.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our modified opinion. A member firm of Ernst & Young Global Limited 25
  28. 28. REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF ECONET WIRELESS ZIMBABWE LIMITED(continued)Basis for modified opinion on the comparative consolidated statement of comprehensive income, consolidatedstatement of changes in equity and consolidated statement of cash flowsNon-compliance with IAS 1: Presentation of Financial StatementsThe Directors have not presented all the required comparative information as required by IAS 1 because they believe theinformation will be misleading for reasons stated in note B1.2.Modified opinionIn our opinion, except for the effects of non-compliance with IAS 1 (Presentation of Financial Statements) the consolidatedfinancial statements, in all material respects; give a true and fair view of the financial position of the Company and Group andthe results of the Group operations of Econet Wireless Zimbabwe Limited at 28 February 2010 in accordance with InternationalFinancial Reporting Standards.Report on other legal and regulatory requirementsIn our opinion, the financial statements have not been properly prepared in compliance with the disclosure requirements ofthe Companies Act (Chapter 24:03) and Statutory Instruments (SI 33/99 and SI 62/96) due to the inability to comply with IAS 1.In our opinion, the Company has complied, in all material respects with the Financial Reporting Guidance. This guidance wasissued jointly by the Public Accountants and Auditors Board, the Zimbabwe Stock Exchange and the Zimbabwe AccountingPractices Board to assist preparers of financial statements in converting their financial statements from Zimbabwe Dollars intotheir new functional currency in a manner that is consistent with the principles of International Financial Reporting Standards,in as far as is practicable, in the Zimbabwean economic environment, at the date of the change of functional currency.Emphasis of matterWithout further modifying our opinion, we draw your attention to note S1, which details the significant judgments andestimation uncertainties with respect to the values of property, plant and equipment as at 28 February 2009. Thesejudgements and estimates relate to the Directors valuation of property, plant and equipment. This may result in significantvariations in values depending on factors and assumptions used.Ernst & YoungChartered Accountants (Zimbabwe)28 May 2010Harare, Zimbabwe26
  29. 29. Consolidated Statement of Comprehensive Income for the year ended 28 February 2010All figures in US$ NOTES 2010Revenue 2 362 776 972Cost of sales and external services sold (72 469 513)Gross profit 290 307 459Other income 1 186 993Foreign currency gains 7 166 097 291 660 549Operating costs-General administrative expenses (82 595 132)-Marketing and sales expenses (16 496 550)-Network expenses (10 977 630)-Other expenses (2 305 620)Profit before interest, taxation, depreciation, impairment and amortisation 179 285 617Depreciation and amortisation (21 110 647)Impairment of property, plant, equipment and investment property (7 496 290)Profit from operations 3 150 678 680Finance income 5 472 885Finance costs 6 (4 903 297)Share of profit of associate 16 1 089 844Fair value gain recognised on disposal of interest in former associate 16 722 715Profit on disposal of investment in associate 61 320Profit before taxation 148 122 147Taxation 8 (34 912 391)Profit for the year 113 209 756Other comprehensive incomeExchange differences arising on translation (88 700)Reversal on revaluation (128 000)Fair value gain on available-for-sale investments 5 076 133Taxation effect of other comprehensive income 1 565 692Other comprehensive income for the year, net of taxation 4 6 425 125Total comprehensive income for the year 119 634 881Profit for the year attributable to:Equity holders of Econet Wireless Zimbabwe Limited 114 645 631Non-controlling interests (1 435 875) 113 209 756Total comprehensive income attributable to:Equity holders of Econet Wireless Zimbabwe Limited 121 132 041Non-controlling interests (1 497 160) 119 634 881Basic profit per share (dollars) 9 0.66Headline profit per share (dollars) 9 0.66Diluted basic profit per share (dollars) 9 0.66Diluted headline profit per share (dollars) 9 0.66 Econet Wireless Zimbabwe Limited Annual Report 2010 27
  30. 30. Consolidated Statements of Financial Positionas at 28 February 2010All figures in US$ NOTES 2010 2009ASSETSNon-current assetsProperty, plant and equipment 10 267 536 571 137 269 131Investment property 11 293 600 699 600Intangible assets 12 1 573 300 29 561Deferred taxation assets 13.1 1 937 742 3 047 094Held-to-maturity investments 15 4 162 668 2 240 923Investment in associate 16 - 1 414 552Available-for-sale investments 17 21 371 066 8 897 012Total non-current assets 296 874 947 153 597 873Current assetsInventories 20 8 678 279 2 781 629Trade and other receivables 21 30 545 189 17 774 829Equipment deposits 22 42 600 012 2 238 103Financial assets at fair value through profit or loss 19 46 892 18 703Cash and cash equivalents 29.3 13 923 748 5 550 606Total currents assets 95 794 120 28 363 870Total assets 392 669 067 181 961 743EQUITY AND LIABILITIESEquity attributable to owners of Econet Wireless Zimbabwe LimitedShare capital and share premium 24.1 12 861 502 -Other reserves 150 307 499 85 057 986Equity attributable to owners of Econet Wireless Zimbabwe Limited 163 169 001 85 057 986Non-controlling interests 2 316 595 3 813 755Total equity 165 485 596 88 871 741Non-current liabilitiesDeferred taxation liabilities 13.2 35 697 603 41 302 705Long-term interest bearing debt 28 91 763 217 9 055 965Total non-current liabilities 127 460 820 50 358 670Current liabilitiesTrade and other payables 25 22 767 484 22 601 914Provisions 26 6 125 865 1 516 316Deferred revenue 27 7 525 212 3 319 606Short-term interest bearing debt 28 46 944 097 13 759 080Taxation 16 359 993 1 534 416Total current liabilities 99 722 651 42 731 332Total liabilities 227 183 471 93 090 002Total equity and liabilities 392 669 067 181 961 743T. NYAMBIRAI D. MBOWENI K.V. CHIRAIROCHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR28 May 201028 Econet Wireless Zimbabwe Limited Annual Report 2010
  31. 31. Company Statements of Financial Positionas at 28 February 2010All figures in US$ NOTES 2010 2009ASSETSNon-current assetsProperty, plant and equipment 260 000 260 000Investment in subsidiaries 14.1 34 576 487 34 576 487Total non-current assets 34 836 487 34 836 487Current assetsIntercompany balances 14.2 485 277 3 830 687Loan to subsidiary 14.2 1 783 179 604 099Bank and cash 19 116 -Total assets 37 124 059 39 271 273EQUITY AND LIABILITIESEQUITYEquity attributable to owners of EWZLTotal capital and reserves (4 408 184) 39 271 273LIABILITIESCurrent liabilitiesIntercompany liabilities 14.2 41 531 149 -Other payables 1 094 -Total equity and liabilities 37 124 059 39 271 273The principal information has been stated in the consolidated financial statements; therefore no statement of cashflows, statementof changes in equity or statement of comprehensive income is provided for the company.T. NYAMBIRAI D. MBOWENI K.V. CHIRAIROCHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR28 May 2010 Econet Wireless Zimbabwe Limited Annual Report 2010 29
  32. 32. Consolidated Statement of Changes in Equityfor the year ended 28 February 2010 Share Equity Non- capital and Other holders controllingAll figures in US$ Share premium reserves of the parent interest TotalBalance at 28 February 2009 - 85 057 986 85 057 986 3 813 755 88 871 741Comprehensive incomeProfit for the year - 114 645 631 114 645 631 (1 435 875) 113 209 756Other comprehensive incomeExchange differences arising on translation - (88 700) (88 700) - (88 700)Reversal on revaluation - (66 715) (66 715) (61 285) (128 000)Fair value gain on available-for-sale investments - 6 641 825 6 641 825 - 6 641 825Total other comprehensive income - 6 486 410 6 486 410 (61 285) 6 425 125Total comprehensive income - 121 132 041 121 132 041 (1 497 160) 119 634 881Transactions with equity holders of EconetWireless Zimbabwe LimitedScrip dividend 12 861 502 (12 861 502) - - -Cash dividend - (507 198) (507 198) - (507 198)Share buy-back - (42 513 828) (42 513 828) - (42 513 828)Total transactions with equity holdersof Econet Wireless Zimbabwe Limited 12 861 502 (55 882 528) (43 021 026) - (43 021 026)Balance at 28 February 2010 12 861 502 150 307 499 163 169 001 2 316 595 165 485 596Other reserves- consist of reserves arising from the revaluation of property and available-for-sale financial assets, all components of totalcomprehensive income net of distributions to the equity holders of the Company and a currency translation reserve which arises from thechange in functional currency that occurred from Zimbabwe dollars to United States dollars in January 2009. Where a revalued financialasset is sold, the portion of the reserve that relates to that financial asset is effectively realised and recognised in the statement ofcomprehensive income. Where a revalued financial asset is impaired, the portion of the reserve that relates to that financial asset is alsorecognised in the statement of comprehensive income.30 Econet Wireless Zimbabwe Limited Annual Report 2010
  33. 33. Consolidated Statement of Cash Flowsfor the year ended 28 February 2010All figures in US$ NOTES 2010Operating ActivitiesCash generated from operations 29.1 129 909 998Taxation paid 29.2 (23 016 872)Net cash from operating activities 106 893 126Investing activitiesFinance income 261 049Acquisition of intangible assets (1 761 291)Acquisition of available-for-sale financial assets (4 402 026)Acqusition of held-to-maturity investments (1 709 909)Purchase of property, plant and equipment (160 148 716)Proceeds on disposal of property, plant and equipment. 980 428Proceeds on disposal of associate 292 535Net cash used in investing activities (166 487 930)Financing activitiesFinance costs (4 903 297)Dividends paid (507 198)Share buy-back (42 513 828)Proceeds from borrowings 171 027 962Repayment of borrowings (55 135 693)Net cash from financing activities 67 967 946Net increase in cash and cash equivalents 8 373 142Cash and cash equivalents at the beginning of the year 5 550 606Cash and cash equivalents at the end of the year 29.3 13 923 748 Econet Wireless Zimbabwe Limited Annual Report 2010 31
  34. 34. Notes to the Consolidated Financial Statementsfor the year ended 28 February 2010A GENERAL INFORMATIONA.1 The Company was incorporated in Zimbabwe on 4 August 1998 and its main operating subsidiary on 23 August 1994. The address of its registered office and principal place of business is Econet Park, 2 Old Mutare Road, Msasa, Harare. The main business of the Group is mobile telecommunications and related value added services. The ultimate holding Company for the Group is Econet Wireless Global Limited. These financial statements are presented in United States dollars being the currency of the primary economic environment in which the Group operates. The Group changed its functional currency from Zimbabwe dollars on 1 January 2009.A.2 Except where specific reference is made to "the Company", the notes disclosed in the financial statements pertain to the Group.B BASIS OF PREPARATION The basis of preparation of these financial statements is International Financial Reporting StandardsB.1 Statement of ComplianceB 1.1 Non-disclosure of certain comparative information The financial statements have been prepared in conformity with International Financial Reporting Standards, promulgated by the International Accounting Standards Board (IASB), which includes standards and interpretations approved by the IASB as well as International Accounting Standards and Standing Interpretations Committee (SIC) interpretations issued under previous constitutions (IFRS’s), with the exception that certain comparative information has not been disclosed as required by IAS 1 (Presentation of Financial Statements). The comparative information that has not been disclosed pertains to the statements below: Statement of comprehensive income; Statement of cash flows; and Statement of changes in equity.B 1.2 Reasons for non-disclosure of certain comparative information The economic environment prevailing during the previous financial year deteriorated to such an extent that the accounting fraternity in Zimbabwe, as represented by the Public Accountants and Auditors Board (PAAB), the Zimbabwe Accounting Practices Board (ZAPB) and the Zimbabwe Stock Exchange (ZSE) arrived at the conclusion that compliance with International Financial Reporting Standards was no longer possible under the prevailing economic circumstances, at that time, for entities that applied the Zimbabwe Dollar as their functional currency. This decision was arrived after considering the following issues: (i) the indices used for financial reporting in Zimbabwe’s hyperinflationary economy ceased to be published after July 2008 because prices could not be obtained for the basket of goods that was used to determine the general consumer price index as the majority of formal sources of supply did not have the requisite goods that were required for input into the basket; (ii) attempts to convert Zimbabwean Dollars (ZWD) to other recognised currencies gave rise to unreliable and misleading results because of the wide spread of exchange rates available in the economy; (iii) attempts to determine ZWD fair values using present value/discounting models were severely hampered by inconsistent and unrealistic discount (interest) rates giving rise to unreliable and misleading results; (iv) the general level of price volatility was very high due to inefficiencies in the market resulting from shortages of goods as well as price controls which rendered the normal function of market efficiencies redundant in determining fair price levels between willing buyers and willing sellers; the Zimbabwe Stock Exchange (ZSE) did not operate from mid-November 2008 to mid-February 2009 which meant that there were no ZWD market-observable prices. The effects of these economic circumstances on the prior year financial information is considered to be material and pervasive to the comparative information for the statement of comprehensive income, statement of changes in equity and the statement of cash flows for that period. Therefore, the Directors have decided not to show comparative information for this period because it is potentially misleading.B1.3 Disclosure of comparative information for the statement of financial position The Group changed its functional currency on 1 January 2009. This date coincides with the effective date that was approved by the Exchange Control Authorities for the mobile business to charge for its services in United States Dollars. Subsequent to this approval, general approval was given for all entities to trade in foreign currency on 29 January 2009. This means that by the time the Group reported on 28 February 2009 all its assets and liabilities were denominated in a stable foreign currency. For this reason the Directors believe that the comparative statement of financial position is a fair reflection of the financial position of the Group as at 28 February 2009. Therefore the Directors have presented comparative information for the statement of financial position.32 Econet Wireless Zimbabwe Limited Annual Report 2010
  35. 35. C ADOPTION OF NEW AND REVISED STANDARDSC.1 Standards and Interpretations effective in the current period- Adopted In the current year, the Group has adopted all of the revised Standards and Interpretations applicable to the Group issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the accounting periods beginning on or after 1 January 2009. The adoption of these new and revised Standards and Interpretations did not have a material impact on the financial statements of the Group. IFRIC 18: Transfers of assets from Customers (effective 1 July 2009) IFRS 2 Share-based payment revised ( effective 1 January 2009) : The IASB issued an ammendment to IFRS which clarifies the definition of vesting conditions and prescribes the treatment for an award that is cancelled. The group adopted this ammendment as of 1 January 2009. It did not have an impact on the financial position or performance of the Group. IFRS 3 Business combinations (revised) and IAS 27 Consolidated and separate Financial statements ammended (early adopted): The Group adopted the revised standard from 1 March 2009. IFRS 3 (revised) introduces significant changes in the accounting for business combinations occuring after this date. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the inital recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. IFRS 7 Financial instruments revised (effective 1 January 2009): The ammended standard requires additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierachy, by class, for all financial instruments recognised at fair value. In addition, a reconciliation between the beginning and ending balance for level 3 fair value measurements is now required as well as significant transfers between levels in the fair value hierachy. IFRS 8 Operating segments revised (effective 1 January 2009): IFRS 8 replaced IAS 14 (Segment Reporting) upon its effective date. The group concluded that the operating segments determined in accordance with IFRS 8 are the same as the business segments previously identified under IAS 14. IFRS 8 disclosures are shown in note 1. IAS 1 Presentation of financial statements (effective 1 January 2009): The revised standard separates owner and non-controlling changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented in the statement of comprehensive income. The statement of comprehensive income, which is introduced in the standard, presents all items of recognised income and expense, either in one single statement, or in two linked statements. The group has elected to present one statement. IAS 23 Borrowing Costs revised (effective 1 January 2009): The revised IAS 23 requires capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. The Groups previous policy was to expense borrowing costs as they were incurred. In accordance with the transitional provisions of the ammended IAS 23, the Group has adopted the standard on a prospective basis. Therefore , borrowing costs are capitalised on qualifying assets with a commencement date on or after 1 January 2009. IAS 32 Financial instruments: Puttable Financial Instruments and obligations arising on liquidation (effective 1 January 2009): The standards have been amended to allow a limited scope exception for puttable financial instruments to be classified as equity if they fulfil a number of specified criteria. The adoption of these ammendments did not have any impact on the financial postition or the performance of the Group.C.2 Standards and interpretations issued but not effective- Not adopted At the date of the authorisation of these financial statements, the following Standards and Interpretations, which are applicable to the Group, were either issued or revised but not yet effective. These standards have not been early adopted as they do not have a material effect on the financial statements. IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement (effective for periods ending on or after 30 June 2009). IFRIC 16 (amended) Hedges of a Net Investment in a Foreign Operation (effective 1 July 2009). IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2009). IFRS 1 First-time Adoption of International Financial Reporting Standards: Measurement of the cost of investments in subsidiaries, jointly controlled entities and associates when adopting IFRS for the first time (effective1 July 2009). IFRS 2 Share-based Payment: Group Cash settled Share based payment Transactions (effective 1 January 2010) IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (Revised). Effective from 1 July 2009. IFRS 9: Financial Instruments (effective 1 January 2013). IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (Revised). Effective from 1 July 2009. IAS 7 Statement of Cash Flows: Classification of expenditures on unrecognised assets (effective 1 January 2010). Econet Wireless Zimbabwe Limited Annual Report 2010 33