Econet 2011 annual report


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Econet 2011 annual report

  1. 1. ANNUAL REPORT 2011 Building the Future
  2. 2. ”But seek first the kingdom of God andHis righteousness and all these thingswill be added to you.”Matthew 6 v 33
  3. 3. Building theFutureOur investment in capital equipment has seen the rollingout of WiMax Base Stations throughout the country. Wehave invested in a Fibre-Optic Project that is designed toincrease the country’s access to world-class, high-speedinternet services. This modern telecommunicationtechnology is geared to present the real Broadband thatoffers new and endless possibilities to all sectors of theeconomy. It will change the lives of every Zimbabwean bylaying down the foundation to Building The Future that isbright and full of opportunities. Annual Report 2011 1
  4. 4. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DContents3 Financial Highlights 16 Directors’ Report4 Organisational Vision 17 Directors’ Responsibility for Financial Reporting6 Econet Corporate Profile 18 Corporate Governance8 B oard of Directors 22 2011 Financial Statements10 Chairmans Statement to the Shareholders 74 Supplementary Information12 Chief Executive Officer’s Operations Review Detachable Proxy Form for Annual General Meeting14 Corporate Social Investment2 Annual Report 2011
  5. 5. B U I L D I N G T H E F U T U R EFinancial HighlightsSubscribers EBITDAin thousands change since previous year in US$thousand change since previous year 179 286 242 746 640 654 1 200 3 551 5 510 +35% +2% +84% +196% +55%6 000 300 0005 000 250 0004 000 200 0003 000 150 0002 000 100 0001 000 50 0000 0 2007 2008 2009 2010 2011 2010 2011Earnings per share Capital expenditurein US$ change since previous year in US$ thousand change since previous year 0.66 0.83 160 149 270 034 +26% +69% 0.9 450 000 0.8 400 000 0.7 350 000 0.6 300 000 0.5 250 000 0.4 200 000 0.3 150 000 0.2 100 000 0.1 50 000 0 0 2010 2011 2010 2011Breakdown of revenue (2011) Revenue in US$ thousand change since previous year 5% 362 777 493 491 14% +36%2% 500 000 7% 450 000 64% 400 000 8% 350 000 300 000 250 000 200 000 150 000 Local airtime International airtime-roaming 100 000 Interconnection fees-local Data - SMS and internet services 50 000 Interconnection fees-foreign Other sales 2010 2011 Annual Report 2011 3
  6. 6. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DOrganisational VisionOur VisionTo provide telecommunications to all the people of Zimbabwe.Our MissionTo serve Zimbabwe by pioneering, developing and sustainingreliable, efficient and high-quality telecommunications ofuncompromising world-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 technology field. Toremain leader in the field, we shall relentlessly pursue innovative solutions and constantly grow our knowledge base, with anuncompromising passion for excellence.ProfessionalismIn everything we do, both within Econet and in the community, we always work in a customer and objective-oriented mannerwith clearly defined goals, in terms of quality of service. In all our professional areas and at all levels we carry out our dutiesskillfully and diligently.PersonalInternally we always remember that we are a company made up of individuals. These people are the Company. Each one is anintrinsically valuable member of the organisation irrespective of their gender, race or position. We will always show concern foreach other in an atmosphere that is open and stimulates personal development, job satisfaction and a sense of responsibility. Webelieve in working in teams, in effective and confident co-operation, in environments where honesty, praise, constructive criticismand fair reward have their place.Who we are inside the Company reflects who we are externally. Our relationship with our customers enthuses with warmth and agenuine desire to meet their needs. We reach out to customers in a holistic and organic way that makes them true stakeholders inEconet Wireless.4 Annual Report 2011
  7. 7. B U I L D I N G T H E F U T U R ECONNECT TO REAL BROADBAND. Annual Report 2011 5
  8. 8. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DEconet Corporate ProfileHOLDING COMPANYThe ultimate Holding Company of Econet Wireless Zimbabwe Limited is Econet Wireless Global Limited, which owns a number ofinternational telecommunications companies. Econet Wireless Zimbabwe Limited is the subsidiary through which Econet WirelessGlobal Limited owns various interests in Zimbabwe. This annual report incorporates the results of all the subsidiaries and associates ofEconet Wireless Zimbabwe Limited.ECONET WIRELESS ZIMBABWE LIMITEDEconet Wireless Zimbabwe Limited (EWZL) is the holding company of businesses involved in cellular operations, provision of internetaccess and transaction processing services. EWZL, which is listed on the Zimbabwe Stock Exchange (ZSE), is Zimbabwes leadingtechnology company. It is one of the largest quoted companies in terms of market capitalisation, and directly and indirectly employs inexcess of 1 500 staff.SUBSIDIARIESEconet Wireless (Private) LimitedEconet Wireless (Private) Limited is EWZLs cellular network operator, with a base of 5 510 000 subscribers as at 28 February 2011.EW Capital Holdings (Private) LimitedEW Capital Holdings (Private) Limited is EWZLs investment vehicle through which the Group holds a variety of investments, carefullyselected 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 access provider in Zimbabwe, offering broadband and dial-up services to both corporate and individual customers.It has a presence in all major cities and towns and has embarked on an extensive fibre-optic project throughout Zimbabwe.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 with oneof the worlds leading manufacturers of smart card-based point-of-sale systems. discover endless possibilities6 Annual Report 2011
  9. 9. B U I L D I N G T H E F U T U R EEcolife is a new and convenient package offering free life cover. Annual Report 2011 7
  10. 10. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E D Board of Directors T. Nyambirai S. T. Masiyiwa C. Fitzgerald Chairman Executive Non-Executive T.P. Mpofu (Mrs) D. Mboweni Non-Executive Chief Executive Officer8 Annual Report 2011
  11. 11. B U I L D I N G T H E F U T U R E J. G. B. Pattison P.J. Campbell J. MyersExecutive Non-Executive Non-ExecutiveK.V. Chirairo A.H.N. Eastwood B. Mtetwa (Mrs)Finance Director Non-Executive Non-Executive (retired 30 July 2010) (Appointed 26 October 2010) Annual Report 2011 9
  12. 12. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DChairman’s Statement to the Shareholders TAWANDA NYAMBIRAI CHAIRMAN OF THE BOARDHighlights Subscribers Network Investment Revenue EBITDA Earnings per share AUDITED 28 FEBRUARY 2011 5 510 000 $270.0 million $493.5 million $242.7 million $0.83 AUDITED 3 551 000 $160.1 million $362.8 million $179.3 million $0.66 +26% 28 FEBRUARY 2010 PERCENTAGE CHANGE +55% +69% +36% +35%INTRODUCTIONDuring the year under review, the countrys mobile penetration rate increased to more than 66%, from about 40% in the previousyear. Zimbabwe has surpassed some of the countries in the region in terms of mobile penetration. This reflects that the goal ofproviding universal access to voice communication has now largely been attained. Econet has contributed immensely to theattainment of this significant milestone through its investment in network infrastructure. As a result, Econet has widened the gapin terms of geographical and population coverage against other operators.INVESTMENT REVIEWIn the year under review, Econet invested US$270.0 million into network construction, bringing the cumulative investment in thepast two years to US$430.1 million. The universal access to voice telephony services, has been achieved. Econet is now focused onproviding subscribers with access to pervasive data and value-added services, in line with international trends. To date, Econet hasbuilt the most extensive fibre-optic grid in the country and has upgraded most of its base stations to make them 3G compatible.Econet continues to contribute directly and indirectly to economic development through its impact on employment creation,revenue contribution to Government and other regulatory bodies, as well as payments to local suppliers for goods and services.Econet remitted a total of US$165.2 million to the fiscus in the form of corporate tax, Value Added Tax, PAYE, licence fees, leviesand duties. This represents 33% of value created by the business. Econet uses local labour and local suppliers for goods andservices wherever it is possible. However, Econet uses foreign suppliers mainly on turnkey site projects which are funded throughvendor financing provided by the same suppliers. The main foreign suppliers of the Company are Ericsson of Sweden and ZTE ofChina.OPERATIONS REVIEWEconet ushered in a new era in telecommunications by offering the countrys first mobile broadband service. Even after surpassinga million subscribers since the launch of broadband services, less than six months ago, the demand remains high and Econet hasalready adequately invested in the infrastructure required to meet the demand.10 Annual Report 2011
  13. 13. B U I L D I N G T H E F U T U R EEcolife, the mobile insurance product which was launched in October 2010, continues to receive overwhelming support fromsubscribers. This product has redefined the concept of how insurance is delivered and has brought access to life insurance formany people that previously had no access to such services.Econet has the most extensive multi-layer distribution channel in the telecommunications sector. This distribution network allowsproducts and services to be more accessible to its subscribers.The business is continuously improving its network quality in an environmentally friendly manner, through green power, hybridpower solutions and effective network optimisation. Econet Energy was launched to provide access to alternative power solutions.The roll out of the fibre-optic network to expand the transmission backbone will improve the quality of service as more capacity isavailed. More high-capacity base stations are being installed to carry the increased traffic that has resulted from the subscriberacquisitions and the introduction of new services.In the year under review, Econet was voted the “Best Employer in Zimbabwe” in a survey that was conducted by a local humanresources consulting firm. Econet also received the “Superbrand of the Year” award which was presented by the MarketersAssociation of Zimbabwe.FINANCIAL PERFORMANCERevenue for the year ended 28 February 2011 increased by 36% to US$493.5 million, an increase of US$130.7 million. Total assetsincreased by US$244.8 million to US$637.5 million, an increase of 62%. The debt equity ratio of 86% is comparable to peercompanies during their high growth phase. Interest cover at over 30 times of EBITDA shows that Econet has strong cash flows toservice its debt commitments. Econet recorded an EBITDA of US$242.7 million, a margin of 49% of revenue. The growth in EBITDAwas US$63.5 million, representing 35% growth over the past year.Through an equity transaction, Liquid Telecommunications Holdings Limited, a technical partner, was brought in to assist withrevamping the operations of Ecoweb. Ecoweb had only been marginally profitable for a long period of time. As part of thisstrategy the technical partner was required to provide a loan to finance the building of the fibre-optic network.CORPORATE SOCIAL INVESTMENTThe Group has undertaken several initiatives aimed at making a positive impact on society. Over the years, Capernaum Trust hassponsored over 50 000 disadvantaged children to enable them to have access to primary, secondary and tertiary education.Joshua Nkomo Scholarship Fund offers assistance to over 500 academically gifted students. National Healthcare TrustZimbabwe’s main strategic thrust is the promotion of a healthy Zimbabwe. The trust achieves its objectives through humanresources development projects, infrastracture improvement, water sanitation and waste management programmes.OUTLOOKThis year marks the completion of the major network upgrade programme that has been a key focus of the business in the pasttwo years. The deployment of network equipment acquired in the past year will be completed in the next financial year. Thebusiness will now focus on optimising the current capital investments to improve network quality and enhance its data capacityand value-added services. Econet will continue to focus on retaining its market leadership and increasing its value share of thetelecommunications market. The launch of the broadband offering has provided Econet with the opportunity to introduce moreexciting products and services. Several value-added services are in the innovation pipeline and will be unveiled in the near future.APPRECIATIONI would like to express my heartfelt appreciation to my fellow Board members, management and staff for their commitmenttowards our shared values and the vision of our business. I would also like to thank our shareholders, strategic partners, customersand other stakeholders for their continued support.T. NyambiraiCHAIRMAN OF THE BOARD19 May 2011 Annual Report 2011 11
  14. 14. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DChief Executive Officer’s Operations Review DOUGLAS MBOWENI I CHIEF EXECUTIVE OFFICERINTRODUCTIONThe business has demonstrated its ability to create and sustain shareholder value, as evidenced by the strong financial performance thathas been delivered to date. Innovative funding structures have allowed the Group to obtain lines of credit in an environment that hasbeen challenging to Zimbabwean businesses raising capital in international markets. This has given the business a strong strategicadvantage as it has managed to expand far more rapidly than its competitors.OPERATIONS REVIEWEconet coverage and capacity is the best in the country. During the year, the business launched products and services as well as bundledpackages aimed at the data market. Zimbabwe has one of the highest literacy rates on the continent thereby presenting a goodopportunity for the proliferation of data services. Like what the business has managed to achieve in the voice market, the businessintends to lead and dominate the data market using new generation technologies and high speed broadband access. The deploymentof the metro rings in the major cities and the link to the undersea cable will assist the business in delivering on this strategy.The business increased its 3G and Wimax base stations thereby improving its data network coverage. The business is working ondeploying more efficient energy solutions to power the network infrastructure and reduce network down times. The investment inrenewable energy solutions will be a focus area as the business develops its Econet Energy brand. Through the launch of targeted loyaltyprogrammes such as the Buddie Bonus Points Programme and Ecolife, the mobile insurance product, the Group intends to build greatercustomer loyalty to the Econet brand. Similar products that are aimed at attracting and retaining subscribers will be launched in thenear future.FINANCIAL HIGHLIGHTSThe Group delivered exceptional financial performance in the past financial year ended 28 February 2011. Earnings per share increasedfrom US$0.66 to US$0.83 per share, an increase of 26%. The business secured additional credit facilities that were used for networkexpansion with a significant focus on the 3G capability of the network. Operational cash flows remained strong. The business generatednet cash flows from operating activities of US$209.9 million. Most of the cash flow was reinvested in the business. The debt to equityratio remained at 86% as a result of the strong earnings growth.Loan funding that is required for capital projects for the upcoming financial year has already been secured. In the period under review,all loan commitments were serviced in line with the loan covenants. Prudent financial guidelines have been put in place to ensure thatthe Group is able to service all its commitments.12 Annual Report 2011
  15. 15. B U I L D I N G T H E F U T U R EINTERNAL TRANSFORMATIONThe investment in new enterprise risk planning systems had a major impact on the optimisation of internal processes by allowing theGroup to consolidate the gains of its rapid growth by improving on efficiencies. The growth of the Group will continue to be driven by itsinvestment in people, processes and systems.OUTLOOKThe key focus areas in the year ahead will be: Improving the customer services environment; Growth in the number of subscribers and value generated by data services; Improving network efficiency and grade of service; Maintaining a stable cost base and diversification of revenue streams; Meeting debt obligations as they fall due; and Maintaining market leadership and growing areas of competitive advantage.As we move into the future, greater focus will continue to be placed on improving network quality and the customer experience. Thebusiness will continue to pioneer and inspire new product offerings for the customer.D. MboweniChief Executive Officer19 May 2011 Annual Report 2011 13
  16. 16. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DCorporate Social InvestmentTo secure our future as a successful commercial enterprise, we realise we must continue to invest in the success of our communities. Oursuccess cannot be sustained if we attempt to achieve it in isolation from the communities we are privileged to serve.Our investment continues to be targeted at growing communities from the roots, building the capacity of our social institutions,training up future leaders, and providing social safety nets for the vulnerable.We therefore continue to broaden and refocus our corporate social investment programmes, ensuring our communities grow with us,providing support for our own growth.Capernaum TrustCapernaum Trust remains a central pillar in the transformation of the lives of orphaned children in economically disadvantagedsituations. The Trust, continues to provide inspiration and motivation to orphaned children, through deliberate faith-basedprogrammes that are aimed at empowering beneficiaries with life skills.To enhance the sustainability, 50 graduates of these mentorship programmes were recruited as trainees in all the countrys tenprovinces to mentor younger recruits.National Healthcare Trust Zimbabwe (NHTZ)The National Healthcare Trust Zimbabwe was established as part of our emergency response to the 2008/9 cholera outbreak. The trustcontinues to implement a proactive and sustained strategy for the rehabilitation and long-term maintenance of Zimbabwes healthsector.In the year under review, the trusts programmes included the refurbishment of public healthcare institutions, sinking and rehabilitationof boreholes and the installation of new waste management systems at referral hospitals across the country. In partnership withmedical associations, outreach programmes were run under which free medical care was provided to hundreds in economicallydisadvantaged communities.The Trust stepped up programmes to raise awareness on public health, supporting local councils by producing information, educationand communication materials for urban authorities. In collaboration with the College of Primary Care Physicians of Zimbabwe, the trustalso hosted the first of a series of public lectures on community health issues. To build capacity, training was widened for healthcareworkers.The Joshua Nkomo Scholarship FundThe Joshua Nkomo Scholarship Fund continues with its valuable work in the provision of funding to the nations most gifted students.There was fresh focus on supporting maths and science students as part of the Groups contribution to the development of technologyin Zimbabwe.Environment SustainabilityThe launch of Econet Energy represents our commitment to take leadership in encouraging the use of renewable and eco-friendlyenergies, securing a sustainable future for business and our environment.HIV/AIDS PolicyEconet is convinced that HIV and AIDS have the potential to waste valuable trained human resources and reduce productivity.We continue to recognise the huge impact of HIV and AIDS on the wellbeing of our employees. This includes their welfare outside theworkplace, where staff face the burden of committing effort and resources to care and provide for family members. Policies andstructures therefore continue to be followed to address this concern.Econet Wireless continues to provide anti-retroviral drugs for the infected employee and other members of their immediate family.Through the Live 2 Love programme, the Group continues to encourage open dialogue among staff on HIV/AIDS. By encouraging opendebate on HIV and AIDS, we help remove the stigma attached to HIV and AIDS and increase access to critical information on thepandemic.14 Annual Report 2011
  17. 17. B U I L D I N G T H E F U T U R EWe are bringing lasting transformation to our communities, by building the capacity of our social institutions and providing social safety nets for the vulnerable. Annual Report 2011 15
  18. 18. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DDirectors’ ReportThe directors have pleasure in presenting their thirteenth Annual Report and the Audited Financial Statements of Econet WirelessZimbabwe Limited and its subsidiaries for the year ended 28 February 2011. In the report “Group” refers to Econet Wireless ZimbabweLimited and its subsidiary companies.Principal ActivitiesThe Groups core business remained the same during the year, that is the provision of cellular services, provision of internet accessservices, transaction processing services and mobile banking services. Various products, designed to enhance these activities, weredeveloped and offered during the year.Consolidated ResultsThe Groups financial results and its activities during the year are adequately covered in the statements of the Chairman and the ChiefExecutive Officer.DividendsA dividend of 12.16 US cents per share was declared for the year ended 28 February 2011 in addition to a dividend in specie whereby theCompany distributed its shares in Meikles Africa Limited and Kingdom Financial Holdings Limited to its shareholders.Share CapitalFollowing the passing of a Special Resolution at the Annual General Meeting held on 30 July 2010 the authorised share capital of theCompany was redenominated from ZW$ to US$. The authorised share capital now stands as follows: US$3 000 000 divided into 200000 000 ordinary shares and 100 000 000 class “A” shares of US$0.01 each. The issued share capital is US$1 673 127 divided into 94 251512 ordinary shares and 73 069 615 class “A” shares of US$0.01 each.ReservesThe movements in the reserves of the Group are shown in the Statements of Changes in Shareholders’ Equity.DirectorsMessrs P.J. Campbell, C. Fitzgerald and Mrs T. Mpofu will retire by rotation at the Annual General Meeting and, being eligible, will offerthemselves for re-election.Mr A.H.N. Eastwood retired from the board on 30 July 2010. Mrs B. Mtetwa was appointed to the Board with effect from 26 October2010. In accordance with Article 89.2 of the Companys Articles of Association she will retire at the next Annual General Meeting andseek re-election.At the Annual General Meeting shareholders will be asked to approve payment of the directors fees and the re-appointment of thedirectors.Capital commitmentsDetails of the Groups capital commitments are set out in note 36 of the financial statements.Interests of DirectorsDetails of the interests of the directors in the shares of the Company are detailed in note 23.5 of the financial statements.Register of MembersThe register of members of the Company is open for inspection to members and the public, during business hours, at the offices of theCompanys transfer secretaries, First Transfer Secretaries (Private) Limited.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 areheld separately from those of the Group. The assets and funds of the scheme are administered in accordance with the rules of thepension fund.Corporate Social InvestmentThe Group retained its commitment to the economic and social development of the country. The Groups own commitment to Christianvalues and the Groups wish to uphold and improve the quality of life of the people of Zimbabwe underlies this overall policy. The Groups“Econet in the Community“ programme saw it continuing with its social investment initiatives in education, environmental matters,health and social welfare .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 2011 and their re-appoinmentfor the ensuing financial year.By order of the BoardT. Nyambirai D. Mboweni C. A. BandaCHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER GROUP COMPANY SECRETARY19 May 201116 Annual Report 2011
  19. 19. B U I L D I N G T H E F U T U R EDirectors’ Responsibility For Financial ReportingThe directors of Econet Wireless Zimbabwe Limited and its subsidiary companies are responsible for the maintenance of adequateaccounting records, the preparation, integrity and fair representation of the financial statements and related information. EconetWireless Zimbabwe Limited and its subsidiary companies independent external auditors, Messrs Ernst & Young, have audited thefinancial statements and their report appears on page 25 of this annual report.The consolidated annual financial statements for the year ended 28 February 2011 presented from page 26 to 73 have been preparedusing International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The financialstatements have been prepared in accordance with the disclosure requirements of the Companies Act (Chapter 24:03) and the relavantstatutory instruments (SI 33/99 and SI 62/96). They are based on appropriate accounting policies which have been consistently applied,as modified, where necessary, by the impact of new and revised standards. The application of these accounting policies is supported byreasonable and prudent judgements and estimates.The directors are also responsible for the systems of internal control. The systems are designed to provide reasonable, but not absolute,assurance as to the reliability of the financial statements, and to safeguard, verify and maintain accountability over the assets, and toprevent and detect material misstatements and losses. Suitably trained and qualified personnel within the Groups staff implementand monitor the systems. Nothing has been brought to the attention of the directors to indicate that any material breakdown in thefunctioning of these controls, procedures and systems had occurred during the course of the year.The directors have reviewed the performance and financial position of the Group up to the date of signing of these financial statements.They have also reviewed the prospects of the Group based on its budgets and are satisfied that the Group is a going concern andtherefore continue to apply the going-concern assumption in the preparation of these financial statements.The financial statements set out on pages 26 to 73 were approved by the Board of Directors on 19 May 2011 and signed on its behalf by:T. Nyambirai D. Mboweni K.V. ChirairoCHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR19 May 2011 Annual Report 2011 17
  20. 20. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DCorporate GovernanceThe Groups holding company is listed on the Zimbabwe Stock Exchange (ZSE). By virtue of its listing the Group is obliged to comply withthe ZSE listing rules. In addition the Group and its subsidiaries continued to observe the principles of good corporate governance ingeneral in their business operations and financial reporting. Transparency, responsibility and accountability as set out in the Principlesfor Corporate Governance in Zimbabwe: Manual of Best Practice and the King Reports of South Africa remained part and parcel of theGroups culture and way of doing business. The Group also retained its membership of the Institute of Directors of Zimbabwe andcontinued with its financial support for this institute.THE BOARD OF DIRECTORSComposition and appointmentThe Board membership stood at ten during the year. Mr A.H.N. Eastwoods retirement from the Board on 30 July 2010 was followed byMrs B. Mtetwas appointment to the Board on 26 October 2010. The Board thus constituted of four executive and six non-executivedirectors, with a wide range of business 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 bring balanced and unrestrained judgement on Board business. The non-executive directors are subject toelection by shareholders. As provided in the Companys Articles of Association and the Companies Act (Chap 24:03), at every AnnualGeneral Meeting at least one third of the directors have to retire. In addition a director appointed by the Board to fill a vacant seat mustretire at the next annual general meeting and seek re-election. These requirements will be complied with in full at the next AnnualGeneral Meeting.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 policies andhas 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; reviewing of key risks; 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 policies and processes to ensure the integrity of the Groups management of risk and internal control.The Board meets formally at least four times a year to review the Groups 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 Group CompanySecretary, and to the Groups records and other information as and when they so require. The directors also have authority, wherenecessary, 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 K.V. Chirairo, Mr A.H.N. Eastwood (retired 30 July 2010), Mr C.Fitzgerald, Mr D. Mboweni, Mrs T.P. Mpofu, Mr J.G.B. Pattison, Dr J. Myers and Mrs B. Mtetwa (appointed 26 October 2010).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 Group or any of its subsidiaries, which could give rise to a related conflict of interest. Directors are also required todisclose their other business interests. With the exception of Mr T. Nyambirai and Mrs B. Mtetwa, none of the directors had a materialinterest in any contract 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 Financial Services, which is one of the Groups financial advisors. He is also headof TN Medical Aid Scheme, of which a significant number of the Groups employees are members. He is also a partner, together with Mrs18 Annual Report 2011
  21. 21. B U I L D I N G T H E F U T U R EB. Mtetwa in Mtetwa and Nyambirai Legal Practitioners, a firm that provides legal services to the Group. The Groups businessrelationship with TN Bank Limited continued during the year.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 assist it in the discharge of its duties. The committees operate within defined termsof reference set by the Board. The Board committees may take independent professional advice at the Companys expense whennecessary. The chairpersons of the Board committees submit reports to the main Board at its meeting.The attendance record of the members of the Econet Wireless Zimbabwe Board at 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 and chairedby a non-executive chairman. Two executive directors sit in as ex-officio members. The committees overall responsibility is to advise theBoard on financial management and management of risk across the Group, the safeguarding of assets, the identification of andexposure to significant risk, the implementation of adequate control systems and processes and the presentation of accurate andbalanced financial statements and reports, complying with all relevant corporate disclosure requirements and accounting standards. Itmeets not less than four times a year.The committee works in conjunction with the Groups internal and external auditors to ensure financial discipline within the Group andthe observance by the Group of International 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 (retired 30July 2010), Mr C. Fitzgerald, 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 new products.It also examines the technical aspects of acquisitions, mergers and reconstructions.Members of the Investment Committee are: Mr S.T. Masiyiwa (Chairman - until 26 October 2010), Mr C. Fitzgerald (Chairman since 26October 2010), Mr P.J. Campbell, Mr K.V. Chirairo, Mrs M. Harris, Mr D. Mboweni, Mrs T.P. Mpofu, Mr J.G.B. Pattison, Dr J. Myers, Mrs B.Mtetwa and Mr A.H.N. Eastwood (retired 30 July 2010). EWZL AUDIT AND INVESTMENTS LOANS REMUNERATION COMMITTEE COMMITTEE COMMITTEEMeetings held 4 5 3 3S.T. Masiyiwa 3 N/A 3 N/AT. Nyambirai 3 N/A N/A N/AP.J. Campbell 4 5 3 3A.H.N. Eastwood 2 2 2 2C. Fitzgerald 4 5 3 3K.V. Chirairo 4 5 3 3D. Mboweni 4 5 3 3T.P. Mpofu 4 4 3 3J. Myers 3 N/A 3 N/AJ.G.B. Pattison 3 N/A 3 N/AB. Mtetwa 1 N/A 1 N/A Annual Report 2011 19
  22. 22. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DCorporate GovernanceLoans 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-retired 30 July 2010), Mr P.J. Campbell (Chairman since 1 August2010), Mr K.V. Chirairo, Mr C. Fitzgerald, Mrs M. Harris, Mr D. Mboweni and Mrs T.P. Mpofu.INVESTOR RELATIONSThe Company maintains regular communication with the public and shareholders; it enters into dialogue with institutional investorsand meets with investment analysts at least bi-annually after the release of the Groups half year and year-end 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 is alsopresented with, and asked to adopt, the Groups 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. Career developmentand promotion of disabled people is, as far as possible, the same as that of other employees. All employees are accountable foradherence to equal opportunity and anti-discrimination policies.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 of theGroups culture. New employees are advised, at the time of their induction, of the Companys values, standards and complianceprocedures. The policy ensures that business practices are conducted with the highest levels of integrity and professionalism, with aview to achieving excellence in customer satisfaction, quality of products and services, optimisation in the use of assets and employeedevelopment and sound relationships with regulatory authorities.INSIDER TRADINGThe Group complies with the Zimbabwe Stock Exchange listing rules in relation to transactions by directors and employees in securitiesissued by the Group. Directors and employees or their nominees or members of their immediate family are prohibited from dealing,either directly or indirectly, in the Groups securities at anytime when they are in possession of unpublished, price-sensitive informationregarding the Companys business or activities.The Group operates a closed period prior to the publication of its interim and annual results. No director or employee of the Companymay deal in the securities of the Company during the closed period. In terms of policy, directors and employees who wish to transact inthe shares of 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 and reliable financial statements. The Board confirms that the internal control procedures have been in place throughout theyear to identify and eliminate the stated risks.The Group has an internal audit function which monitors, and reports on, the internal control systems. The head of the function attendsthe meetings of the Audit and Remuneration Committee at which reports are presented relating to systems and risks that would havebeen identified.20 Annual Report 2011
  23. 23. B U I L D I N G T H E F U T U R EINDEPENDENCE OF AUDITORSThe Groups Audit and Remuneration Committee confirms the independence of the Auditors, Ernst & Young, who are engaged by theGroup 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 FINANCE DIRECTOR19 May 2011 Annual Report 2011 21
  24. 24. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DEconet Wireless Zimbabwe Limited2011 Financial Statements 24 Certificate by Company Secretary 25 Independent Auditor’s Report 26 Consolidated Statements of Comprehensive Income 27 Consolidated Statements of Financial Position 28 Consolidated Statements of Changes in Equity 29 Consolidated Statements of Cash Flows 30 Notes to the Consolidated Financial Statements 74 Supplementary Information Detachable Proxy Form for Annual General Meeting We have built our business around the pillars of mobility, data and Internet Protocol to provide the fully integrated, everywhere connectivity that our customers want and expect.
  25. 25. B U I L D I N G T H E F U T U R E Experience the future nowExperience the convenience of the new “Next Generation Econet Shops” The year under review saw the successful roll out of the new “Next Generation Econet Shops” that offer customers convenient access to Econets products such as handsets, SIM starter packs and broadband products. The roll-out programme gathered a lot of momentum and with it our customers got to experience world-class services through thesenew Next Generation shops in Bulawayo, Mutare, Masvingo, Zvishavane, Beitbridge, Chiredzi, Victoria Falls and other parts of the country. Annual Report 2011 23
  26. 26. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DCertificate by Company Secretary CHARLES A. BANDA I GROUP COMPANY SECRETARYIn my capacity as Group Company Secretary, I confirm that, in terms of the Companies Act (Chapter 24:03), the Group has lodged withthe Registrar of Companies, the returns required under the Act and the returns are true and correct.CHARLES A. BANDAGROUP COMPANY SECRETARY19 May 201124 Annual Report 2011
  27. 27. Annual Report 2011 25
  28. 28. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DConsolidated Statements of Comprehensive IncomeFor the year ended 28 February 2011All figures in US$ NOTE 2011 2010Revenue 2 493 491 226 362 776 972Cost of sales and external services sold (97 723 647) (72 469 513)Gross profit 395 767 579 290 307 459Other income 7 4 972 007 1 353 090 400 739 586 291 660 549Operating expenses- General administrative expenses (124 103 950) (82 595 132)- Marketing and sales expenses (11 489 756) (16 496 550)- Network expenses (18 172 922) (10 977 630)- Other expenses (4 226 643) (2 305 620)Profit before interest, taxation, depreciation, impairment and amortisation 242 746 315 179 285 617Depreciation and amortisation (40 255 320) (21 110 647)Impairment of property, plant and equipment and investment property (34 410) (7 496 290)Reversal of impairment loss on property, plant and equipment 1 255 903 -Profit from operations 3 203 712 488 150 678 680Finance income 5 820 273 472 885Finance costs 6 (8 061 711) (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 196 471 050 148 122 147Income tax expense 8 (55 501 650) (34 912 391)Profit for the year 140 969 400 113 209 756Other comprehensive incomeExchange differences arising on translation - (88 700)Revaluation of property, plant and equipment 280 515 (128 000)Fair value (loss)/gain on available -for- sale investments (1 162 909) 5 076 133Taxation effect of other comprehensive income 6 463 1 565 692Other comprehensive income for the year net of tax 4 (875 931) 6 425 125Total comprehensive income for the year 140 093 469 119 634 881Profit for the year attributable to:Equity holders of Econet Wireless Zimbabwe Limited 140 445 946 114 645 631Non-controlling interests 523 454 (1 435 875) 140 969 400 113 209 756Total comprehensive income attributable to:Equity holders of Econet Wireless Zimbabwe Limited 139 570 015 121 132 041Non-controlling interests 523 454 (1 497 160) 140 093 469 119 634 881Earnings per shareBasic earnings per share (dollars) 9 0.83 0.66Headline earnings per share (dollars) 9 0.83 0.66Diluted basic earnings per share (dollars) 9 0.83 0.66Diluted headline earnings per share (dollars) 9 0.83 0.6626 Annual Report 2011
  29. 29. B U I L D I N G T H E F U T U R EConsolidated Statements of Financial PositionAs at 28 February 2011All figures in US$ NOTE 2011 2010 2009ASSETSNon-current assetsProperty, plant and equipment 10 498 860 819 267 536 571 137 269 131Investment property 11 411 600 293 600 699 600Intangible assets 12 1 308 758 1 573 300 29 561Deferred tax assets 13.1 4 370 261 1 937 742 3 047 094Held-to-maturity investments 15 10 677 761 4 162 668 2 240 923Investment in associate 16 - - 1 414 552Available-for-sale investments 17 20 810 359 21 371 066 8 897 012Total non-current assets 536 439 558 296 874 947 153 597 873Current assetsInventories 20 12 034 207 8 678 279 2 781 629Trade and other receivables 21 42 559 355 30 545 189 17 774 829Equipment deposits 22 11 738 808 42 600 012 2 238 103Financial assets at fair value through profit or loss 19 50 911 46 892 18 703Cash and cash equivalents 29.4 34 690 685 13 923 748 5 550 606Total currents assets 101 073 966 95 794 120 28 363 870Total assets 637 513 524 392 669 067 181 961 743EQUITY AND LIABILITIESCapital and reservesShare capital and share premium 23.1 22 980 326 12 861 502 -Other reserves 24 264 657 170 150 307 499 85 057 986Equity attributable to owners of Econet Wireless Zimbabwe Limited 287 637 496 163 169 001 85 057 986Non-controlling interests 2 840 049 2 316 595 3 813 755Total equity 290 477 545 165 485 596 88 871 741Non-current liabilitiesDeferred tax liabilities 13.2 45 518 461 35 697 603 41 302 705Long-term interest-bearing debt 28 198 520 430 91 763 217 9 055 965Total non-current liabilities 244 038 891 127 460 820 50 358 670Current liabilitiesTrade and other payables 25 28 576 786 22 767 484 22 601 914Provisions 26 8 490 490 6 125 865 1 516 316Deferred revenue 27 15 940 068 7 525 212 3 319 606Short-term interest-bearing debt 28 49 872 251 46 944 097 13 759 080Income tax payable 117 493 16 359 993 1 534 416Total current liabilities 102 997 088 99 722 651 42 731 332Total liabilities 347 035 979 227 183 471 93 090 002Total equity and liabilities 637 513 524 392 669 067 181 961 743T. Nyambirai D. Mboweni K.V. ChirairoCHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR19 May 2011 Annual Report 2011 27
  30. 30. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DConsolidated Statements of Changes in EquityFor the year ended 28 February 2011 SHARE CAPITAL EQUITY NON- AND SHARE OTHER HOLDERS CONTROLLINGAll figures in US$ PREMIUM RESERVES OF THE PARENT INTEREST TOTALBalance at 28 February 2009 - 85 057 986 85 057 986 3 813 755 88 871 741Profit for the year - 114 645 631 114 645 631 (1 435 875) 113 209 756Other comprehensive income - 6 486 410 6 486 410 (61 285) 6 425 125Exchange 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 comprehensive income - 121 132 041 121 132 041 (1 497 160) 119 634 881Transactions with equity holders ofEconet Wireless Zimbabwe Limited 12 861 502 (55 882 528) (43 021 026) - (43 021 026)Scrip dividend 12 861 502 (12 861 502) - - -Cash dividend - (507 198) (507 198) - (507 198)Share buy-back (Note 14.4) - (42 513 828) (42 513 828) - (42 513 828)Balance at 28 February 2010 12 861 502 150 307 499 163 169 001 2 316 595 165 485 596Profit for the year - 140 445 946 140 445 946 523 454 140 969 400Other comprehensive income - (875 931) (875 931) - (875 931)Revaulation of property, plant and equipment - 280 515 280 515 - 280 515Fair value loss on available-for-sale investments - (1 156 446) (1 156 446) - (1 156 446)Total comprehensive income - 139 570 015 139 570 015 523 454 140 093 469Transactions with equity holders ofEconet Wireless Zimbabwe Limited 10 118 824 (25 220 344) (15 101 520) - (15 101 520)Share redenomination 1 637 863 (1 637 863) - - -Issue of shares 8 480 961 - 8 480 961 - 8 480 961Cash dividend - (10 000 000) (10 000 000) - (10 000 000)Share buy-back (Note 14.4) - (13 582 481) (13 582 481) - (13 582 481)Balance at 28 February 2011 22 980 326 264 657 170 287 637 496 2 840 049 290 477 545Other reserves- consist of reserves arising from the revaluation of property, plant and equipment and available-for-sale financial assets, allcomponents of total comprehensive income net of distributions to the equity holders of the Company and a currency translation reservewhich arises from the change in functional currency that occurred from Zimbabwe dollars to United States dollars in January 2009. Where arevalued financial asset is sold the portion of the reserve that relates to that financial asset is effectively realised and recognised in thestatement of comprehensive income. Where a revalued financial asset is impaired the portion of the reserve that relates to that financial assetis also recognised in the statement of comprehensive income.28 Annual Report 2011
  31. 31. B U I L D I N G T H E F U T U R EConsolidated Statements of Cash FlowsFor the year ended 28 February 2011All figures in US$ NOTE 2011 2010Operating ActivitiesCash generated from operations 29.1 273 920 806 129 909 998Income tax paid 29.2 (64 063 844) (23 016 872)Net cash flows from operating activities 209 856 962 106 893 126Investing activitiesFinance income 820 273 261 049Acquisition of intangible assets (774) (1 761 291)Acquisition of available-for-sale financial assets (866 707) (4 402 026)Acquisition of held-to-maturity investments (6 056 265) (1 709 909)Purchase of property, plant and equipment (270 034 151) (160 148 716)Proceeds on disposal of property, plant and equipment 150 061 980 428Proceeds on disposal of associate - 292 535Net cash used in investing activities (275 987 563) (166 487 930)Financing activitiesFinance costs (8 061 711) (4 903 297)Dividends paid (9 624 598) (507 198)Share buy-back (13 582 481) (42 513 828)Proceeds from borrowings 167 810 291 171 027 962Repayment of borrowings 29.3 (49 643 963) (55 135 693)Net cash flows from financing activities 86 897 538 67 967 946Net increase in cash and cash equivalents 20 766 937 8 373 142Cash and cash equivalents at the beginning of the year 13 923 748 5 550 606Cash and cash equivalents at the end of the year 29.4 34 690 685 13 923 748 Annual Report 2011 29
  32. 32. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DNotes to the Consolidated Financial StatementsFor the year ended 28 February 2011POLICY NOTE IFRS/IAS REFERENCE CONTENTA IAS 1 (Revised) General information and functional currencyB IFRS 1 (Revised), IAS 1 Basis of preparation and statement of non-complianceC IAS 8 (Revised) Adoption of new and revised standardsD IFRS 3, IAS 27 Business combinations, basis of consolidationE IAS 28 Investment in associatesF IAS 38 Intangible assetsG IAS 23 Borrowing costsH IAS 16 Property, plant and equipmentI IAS 40 Investment propertiesJ IAS 36 Impairment of property, plant and equipment and of investment propertyK IAS 17 LeasesL IAS 2 InventoriesM IAS 18 Revenue recognitionN IAS 12 TaxationO IAS 19, 26 Employee benefits and retirement benefitsP IFRS 2 Share-based paymentsQ IAS 32, 37, 39, IFRS 7 Financial instrumentsR IFRS 8 Operating segmentsS IFRS 5 Non-current assets held for saleT IAS 1 (Revised) Significant assumptions and key sources of estimation uncertaintyA 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 functional and reporting currency of the primary economic environment in which the Group operates.A.2 Except where specific reference is made to "the Company", the notes disclosed in these financial statements pertain to the Group.B BASIS OF PREPARATION The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards, (IFRS) and the International Financial Reporting Interpretations Committee, (IFRIC) interpretations. The financial statements are based on statutory records that are maintained under the historical cost convention as modified by the revaluation of property, plant and equipment and investment property. Transition to IFRS The Group has achieved explicit and unreserved compliance with IFRS after early adoption of the revised IFRS 1 "First-time Adoption of International Financial Reporting Standards" issued on 20 December 2010. The Group failed to express a statement of explicit and unreserved compliance with IFRS for the financial year ended 28 February 2010 due to the effects of severe hyperinflation as defined in IFRS 1 (Revised). On 20 December 2010, the IASB amended IFRS 1 in order to: - provide relief for first-time adoptors of IFRS from having to reconstruct transactions that occurred before their date of transition to IFRS; and - provide guidance for entities emerging from severe hyperinflation to either resume presenting IFRS financial statements or to present IFRS financial statements for the first time.30 Annual Report 2011
  33. 33. B U I L D I N G T H E F U T U R EB BASIS OF PREPARATION (continued) IFRS 1 (Revised) is applicable for periods beginning on or after 1 July 2011, early adoption is permitted. The Group has elected to early adopt the amendments to IFRS 1. The effect of the application of the amendments to IFRS 1 is to render the opening statement of financial position, prepared on 28 February 2009 (date of transition to IFRS) IFRS compliant. The opening statement of financial position was reported in the prior year as not being compliant with IFRS due to the inability to comply with International Accounting Standard IAS 21 The Effects of Changes in Foreign Exchange Rates and IAS 29; Financial Reporting in Hyperinflationary Economies. The Groups previous functional currency, the Zimbabwe dollar (ZW$), was subjected to severe hyperinflation before the date of transition to IFRS because it had both of the following characteristics: (a) a reliable general price index was not available to all entities with transactions and balances in the ZW$; and (b) exchangeability between the ZW$ and a relatively stable foreign currency did not exist. The Group changed its functional currency from Zimbabwe dollars on 1 January 2009, however the Group has adopted 28 February 2009 as the effective date of currency normalisation and the date of transition to reporting in terms of International Financial Reporting Standards. Deemed cost exemption The Group elected to measure certain items of trade and other receivables, inventories and trade and other payables at fair value and to use the fair value as the deemed cost of those assets and liabilities in the opening IFRS statement of financial position. The determination of balances for the opening statement of financial position is summarised below : Financial assets and liabilities - Fair value as agreed by the shareholders, i.e. willing buyer willing seller. Accounts receivable - Settlement amounts agreed with debtors in United States dollars. Property, plant and equipment - Property was valued at gross replacement value and reassessed in line with subsequent market trends and necessary adjustments were made. Plant and equipment was reconstructed based on archived information from suppliers’ invoices denominated in United States dollars. Investment property - Fair value as reassessed by the Directors in line with subsequent market trends. Investment in associates - Applied the percentage shareholding on the deemed opening reserves. Payables - Settlement amounts agreed with creditors in United States dollars. Bank balances - All ZW$ bank accounts were written off to nil. Opening balances represented actual United States dollars. Shareholders’ equity (NDR) - Difference between total assets and total liabilities. Comparative financial information The financial statements comprise three statements of financial position, two statements of comprehensive income, changes in equity and cash flows as a result of the application of the Amendments to IFRS 1. Reconciliation to previously prepared IFRS compliant financial statements In preparing its opening IFRS statement of financial position, the Group has not adjusted amounts previously determined in accordance with the "Guidance on Change in Functional Currency - 2009", which was drafted jointly by the Public Accountants and Auditors Board (PAAB), Zimbabwe Accounting Practices Board (ZAPB) and the Zimbabwe Stock Exchange (ZSE). This guidance was adopted as the local standard for reporting by most listed entities and other incorporated entities in Zimbabwe reporting subsequent to severe hyperinflation. As amounts have not changed from those presented in previously issued financial statements, reconciliations have not been presented, because the amendments to IFRS 1 effectively endorsed the approach adopted in the guidance paper issued by the PAAB, ZAPB and the ZSE, which dealt with conversion of local currency balances to stable foreign currency after a period of severe hyperinflation.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 March 2010. The adoption of these new and revised Standards and Interpretations did not have a material impact on the financial statements of the Group. Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards - Additional Exemptions for First- time Adopters (as part of improvements to IFRS issued in 2009): The amendments provide two exemptions when adopting IFRS for the first time relating to oil and gas assets, and the determination as to whether the arrangement contains a lease. Not applicable. Annual Report 2011 31
  34. 34. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DNotes to the Consolidated Financial StatementsFor the year ended 28 February 2011C.1 Standards and Interpretations effective in the current period- Adopted (continued) Amendments to IFRS 2 Share-based Payments - Group Cash-settled Share-based Payment Transactions: The amendments clarify the scope of IFRS 2, as well as the accounting for Group cash-settled share -based payment transactions in the separate (or individual) financial statements of an entity receiving the goods or services when another group entity or shareholder has the obligation to settle the award. IFRS 3 Business Combinations (revised in 2008): allows a choice on a transaction-by-transaction basis for the measurement of non-controlling interests at the date of acquisition (previously referred to as minority interests) either at fair value or at the non- controlling interests share of recognised identifiable net assets of the acquiree. IFRS 3 (2008) changes the recognition and subsequent accounting requirements for contingent consideration. Previously, contingent consideration was recognised at the acquisition date only if payment of the contingent consideration was probable and it could be measured reliably; any subsequent adjustments to the contingent consideration were always made against the cost of the acquisition. Under the revised standard, contingent consideration is measured at fair value at the acquisition date; subsequent adjustments to the consideration are recognised against the cost of the acquisition only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the date of the acquisition. All other subsequent adjustments to contingent consideration classified as an asset or liability are recognised in profit or loss. IFRS 3 (2008) requires the recognition of a settlement gain or loss when the business combination in effect settles a pre-existing relationship between the Group and the acquiree. IFRS 2 (2008) requires the recognition of a settlement gain or loss when the business combination in effect settles a pre-existing relationship between the Group and the acquiree. In addition, IFRS 3 (2008) requires acquisition-related costs to be accounted for separately from the business combination, generally leading to those costs being recognised as an expense in profit or loss incurred, whereas previously they were accounted for as part of the cost of the acquisition. Amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (as part of Improvements to IFRSs issued in 2008 and 2009): The amendments to IFRS 5 clarify that the disclosure requirements in IFRSs other than IFRS 5 do not apply to non-current assets (or disposal groups) classified as held for sale or discontinued operations unless those IFRS require (i) specific disclosures in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations, or (ii) disclosures about measurement of assets and liabilities within a disposal group that are not within the scope of the measurement requirement of IFRS 5 and the disclosure are not already provided in the financial statements. The amendments also clarify that all assets and liabilities of a subsidiary should be classified as held for sale when the Group is commited to a sale plan involving loss of control of that subsidiary, regardless of whether the Group will retain a non-controlling interest in the subsidiary after the sale. Amendments to IFRS 7 Financial Instruments: Disclosures (as part of Improvements to IFRSs issued in 2010): The amendments to IFRS 7 clarify the required level of disclosures about credit risk and collateral held and provide relief from disclosures previously required regarding renegotiated loans. Amendments to IAS 1 Presentation of Financial Statements (as part of Improvements to IFRSs issued in 2009): The amendments to IAS 1 clarify that the potential settlement of a liability by the issue of equity is not relevant to its clarification as current or non-current. Amendments to IAS 1 Presentation of Financial Statements (as part of improvements to IFRSs issued in 2010): The amendments to IAS 1 clarify that the entity may choose to present the required analysis of items of other comprehensive income either in the statement of changes in equity or in the notes to the financial statements. Amendments to IAS 7 Statement of Cash Flows (as part of Improvements to IFRSs issued in 2009): The amendments to IAS 7 specify that the only expenditures that result in a recognised asset in the statement of financial position can be classified as investing activities in the statement of cash flows. IAS 27 Consolidated and Separate Financial Statements (revised in 2008): specifies that when control of a subsidiary is lost as a result of a transaction, event or other circumstance, the Group is required to derecognise all assets, liabilities and non-controlling interests at their carrying amount and to recognise the fair value of the consideration received. Any related interest in the former subsidiary is recognised at its fair value at the date control is lost. The resulting difference is recognised as a gain or loss in profit or loss. IAS 28 Investments in Associates (revised in 2008): specifies that when significant influence over an associate is lost, the investor measures any investment retained in the former associate at fair value, with any consequential gain or loss recognised in profit or loss. Amendments to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items: The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options.32 Annual Report 2011
  35. 35. B U I L D I N G T H E F U T U R EC.1 Standards and Interpretations effective in the current period- Adopted (continued) Amendments to IFRIC 13 Customer Loyalty Programmes (as part of Improvements to IFRSs issued in 2010): The amendments clarify that when determining the fair value of award credits the preparerer of the financial statements should take into account non- performance risk, i.e. the fair value of awards that would be offered to customers who have not earned award credits from an initial sale; and the proportion of award credits that are not expected to be redeemed by customers. IFRIC 17 Distributions of Non-cash Assets to Owners: The interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to shareholders. IFRIC 18 Transfers of Assets from Customers: The interpretation addresses the accounting by receipients for transfers of property, plant and equipment from customers and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the transfer, with the credit being recognised as revenue in accordance with IAS 18 Revenue.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. Amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (effective for annual periods beginning on or after 1 July 2010). Amendments to IFRS 7 Disclosures - Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011). IFRS 9 (as amended in 2010) Financial Instruments (effective for annual periods beginning on or after 1 January 2013). IAS 24 (revised in 2009) Related Party Disclosures (effective for annual periods beginning on or after 1 January 2011). Amendments to IAS 32 Classification of Rights Issues (effective for annual periods beginning on or after 1 February 2010). Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement (effective for annual periods beginning 1 January 2011). IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010).D BUSINESS COMBINATIONS - IFRS 3 (REVISED) Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. Applying the acquisition method requires (a) identifying the acquirer; (b) determining the acquisition date; (c) recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; and (d) recognising and measuring goodwill or a gain from a bargain purchase. At acquisition - measurement The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a business is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed. The acquirees identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (revised) are first assessed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date and recognised at their fair values at the acquisition date, except for non-current assets (or disposal Groups) that are classified as held- for-sale in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" which are recognised and measured at fair value less costs to sell. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit and loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as change to other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured until it is finally settled within equity. Annual Report 2011 33
  36. 36. E C O N E T W I R E L E S S Z I M B A B W E L I M I T E DNotes to the Consolidated Financial StatementsFor the year ended 28 February 2011D BUSINESS COMBINATIONS - IFRS 3 (REVISED) (continued) At acquisition - measurement of goodwill (see also policy note F.1 below) Goodwill arising on acquisition is recognised as an asset and initially is measured at cost, being the excess of the consideration transferred, excluding directly related expenditure, over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised less the non-controlling interest (measured at fair value or their proportion of the net asset) less the fair value of the acquirer’s previously held interest in the acquiree if it is a step acquisition. If, after reassessment, the Groups interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in comprehensive income. At acquisition - measurement of a non-controlling interest The non-controlling interest in the acquiree is initially measured at the non-controlling interests proportion of the net fair value of assets, liabilities and contingent liabilities recognised. Business combination achieved in stages In a business combination achieved in stages, the previously held equity interest in the acquiree is remeasured at its acquisition date fair value. Any resultant gain or loss is recognised in profit or loss. If a previously remeasurement gain or loss was recognised in other comprehensive income, that gain or loss is recognised as if the previously held equity interest had been disposed of. Acquisition of interests from non-controlling interest Acquisitions of non-controlling interests in subsidiaries are accounted for as transactions between shareholders. There is no remeasurement to fair value of net assets acquired that were previously attributable to non-controlling interests. Subsequent measurement Acquisitions or disposal of non-controlling interests in subsidiaries without a change in control are accounted for as transactions between shareholders in equity. There is no remeasurement to fair value of net assets acquired that were previously attributable to non-controlling interest. Basis of consolidation - IAS 27 The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the end of February of each year. For consolidation purposes, control is achieved where the Company has the power to govern the financial and operating activities of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. If a subsidiary company uses different accounting policies from other Group companies, then for consolidation purposes the accounting policies and accounting treatment of that subsidiary are adjusted to be consistent with other Group companies. All intra-group transactions, balances and income and expenses are eliminated in full on consolidation. Non-controlling interests in the net assets of consolidated subsidiaries (excluding goodwill) are identified separately from the Groups equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests share of changes in equity since the date of the combination. Losses applicable to the non-controlling interest are applied even if that results in a deficit in the balance of the non-controlling interest. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: - Derecognises the assets (including goodwill) and liabilities of the subsidiary. - Derecognises the carrying amount of any non-controlling interest. - Derecognises the cumulative translation differences, recorded in equity. - Recognises the fair value of consideration received. - Recognises the fair value of any investment retained. - Recognises any surplus or deficit in profit or loss. - Reclassifies the parents share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.34 Annual Report 2011