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Econet Wireless Zimbabwe 2014 annual report

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Econet Wireless Zimbabwe 2014 annual report

Econet Wireless Zimbabwe 2014 annual report

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Econet Wireless Zimbabwe 2014 annual report Econet Wireless Zimbabwe 2014 annual report Document Transcript

  • “Whatever your hand finds to do, do it with all your might…” Ecclesiastes 9:10 New International Version (NIV) Our Commitment to Integrated Reporting Our commitment to value creation for our stakeholders, innovation and sustainability leadership made this publication the natural evolution in our communication with stakeholders. This marks our third year of integrated reporting covering social responsibility investment, environmental issues and ethical reporting. Disclaimer - Forward-looking statements An integrated report includes certain ’forward-looking statements’.These forward-looking statements are necessarily about the future and therefore incorporate degrees of uncertainty. Consequently future actual results and performance may differ from these statements. The forward-looking statements are current as of the date of publication of the integrated report.The Company makes no representation that the information will be publicly updated after the release of the integrated report. Welcome to Econet Wireless Zimbabwe Limited ABOUT THIS REPORT
  • 14 Investing for the future Econet’s innovations are inspiring and life changing; we believe that technology that does not change and improve lives is irrelevant. Hence we continuously search for transforming technologies to facilitate social transformation in existing and new markets. With the most extensive coverage in Zimbabwe, Econet commands market leadership, delivering value and inspiring transformation across the country. 14
  • 2 4 Contents TheYear in Perspective Corporate and Leadership Administration People and Community Financial Reporting Governance Performance Highlights New in the Group Chairman’s Statement to Shareholders Chief Executive Officer’s Operations Review Consolidated Financial Statements Notes To The Consolidated Financial Statements Our Performance Our Brands 3 14 40 9 18 487 13 Performance Highlights 3 Shareholder Value Delivery Report 4 Share price movement from February 2009 to February 2014 5 Five-year Trading History 8 New Products and Services 9 Our Business 10 Corporate Profile 11 Chairman’s Statement to Shareholders 14 Chief Executive Officer’s Operations Review 18 Board of Directors 21 From the Directors 24 Governance Statement 27 Risk Report 30 Corporate Social Investment 32 Our People and our Community 36 Econet Coverage Map 39 Consolidated Financial Statements 40 Certificate by the Group Company Secretary 41 Directors’ Responsibility for Financial Reporting 42 Independent Auditors’ Report 43 Consolidated Statement of Financial Position 44 Consolidated Statement of Comprehensive Income 45 Consolidated Statement of Changes in Equity 46 Consolidated Statement of Cash Flows 47 Notes To The Consolidated Financial Statements 48 Policy Notes To The Consolidated Financial Statements 92 Administration 118 Our Strategic Business Partnerships 119 Shareholder Analysis 120 Corporate and Advisory Information 121 Financial Diary 122 Notice to Members 123 2 4
  • 34 TheYearinPerspective Performance Highlights 1 Earnings before interest, taxation, depreciation, impairment and amortisation (EBITDA) for 2012 excludes once-off profit on disposal of investments. EBITDA includes share of profit/(loss) of associate. 2 Profit after taxation 3 Average revenue per user per month 4 Capital expenditure
  • 4 4 Shareholder Value Delivery Report The Group continues to grow and maintain shareholder value as illustrated by the metrics above. Through the authority of the shareholders, the Group has made a number of prudent share buy-backs in an effort to retain value. The Group has also declared a dividend of US 1.29 cents per share to reward our valued shareholders. Over the period, the Group made significant efforts to grow shareholder value, which mainly included the following: Renewing operating licence In the current financial year, the cellular operating licence of the principal subsidiary within the Group was renewed for a further 20 years. This will enable the Group to continue to grow. Investment in infrastructure and resources The Group continues to invest in network infrastructure development aimed at increasing network coverage and improving network quality. As at year end, the Group’s total assets reached US$1.2 billion representing the Group’s aggregate investment in technology into the Zimbabwe economy to date. The Group’s subscriber base has also increased from 1.2 million in 2009 to 8.8 million subscribers. Investment in various systems that are aimed at improving operational efficiencies and containing costs continues to be made. Further, in the current year, the Group managed to launch 4G LTE service which is among the first of such service in Africa. The focus on customer experience The Group launched a Customer Service Charter during the period. This Charter is aimed at instilling customer-centric values within the organisation. Continuing efforts are made to improve our customers’ experience through consistent provision of highly innovative services and products and to satisfying their needs. This will ensure that we are able to sustain and grow our revenues. Growing Overlay Services Overlay services refer to services that use the existing mobile network operator technology platforms to provide additional services beyond the existing traditional telecommunications offerings of Voice, SMS and Data. The Group has identified and is pursuing Mobile Financial Services (“MFS”) as an area of potential significant growth, given the low level of conventional banking penetration in Zimbabwe. As a network operator we are able to provide convenience to our customers by creating innovative financial products that use the mobile phone as the delivery channel. Associates and subsidiaries The Group has associates and subsidiaries in diverse industry sectors which compliment the overall Group strategy. These include subsidiaries in financial services, fibre optic transmission delivery, financial transaction processing and switching. Our acquisition of a bank and subsequent launch of EcoCash, a mobile financial services product, has been one of our major initiatives of recent years. The bank provides the licensing and regulatory framework for us to provide mobile financial services and to launch certain savings and credit products. Significant progress has been made since the time of the acquisition in restructuring the bank’s balance sheet and right-sizing the business, and the restoration of profitability via the development of new income streams is now key to delivering shareholder value. Liquid Zimbabwe, which is accounted for as an associate of the Group, provides us with fibre transmission and backhaul infrastructure. This investment is now contributing profitably to the Group. Its continued network expansion and the stable platform that it provides are critical as the Group continues to grow its data and voice traffic.
  • 54 TheYearinPerspective Share price movement from February 2009 to February 2014 As denoted above, our share price continues to trend upwards gradually as we create and retain shareholder value in an unstable and uncertain economic environment.
  • 66 4 Infrastructure There have been significant benefits arising from this investment, which include the creation of over 20,000 new indirect jobs and about US$ 900 million paid to Government in the form of taxes, duties and levies since 2009. Econet continues to invest in the country and in the telecommunications sector and is transforming the way people communicate and do business. Over US$ 1.2 billion invested 10% growth in subscribers 6 4
  • 74 OurPerformance Investing for the future Over 7 200km of fibre laid in and around Zimbabwe EcoCash revenue Growth 307% 74
  • 8 4 Summarised income statement (US$ 000) 2014 2013 2012 2011 2010 Revenue 752,678 695,791 611,116 493,491 362,776 EBITDA 332,174 302,413 290,894 242,746 179,285 Finance charges (37,037) (28,600) (10,202) (8,061) (4,903) Profit before tax 194,009 204,903 239,130 196,471 148,122 Taxation (74,612) (64,965) (73,389) (55,502) (34,912) Net profit for the year 119,397 139,938 165,741 140,969 113,210 Summarised statement of financial position (US$ 000) Non-current assets 942,878 739,952 644,763 536,439 296,875 Current assets 230,786 275,158 167,664 101,073 95,794 Equity and reserves 603,719 492,883 382,793 290,477 165,486 Non-current liabilities 244,690 288,293 174,005 244,038 127,460 Current liabilities 325,255 233,933 255,629 102,997 99,723 Debt 227,895 264,571 249,138 248,392 138,707 Capital expenditure 139,718 147,044 216,010 270,034 160,148 Number of shares in issue (millions) 1,640 1,640 1,716 1,673 1,673 Performance per ordinary share (cents) Basic earnings per share 8.0 9.0 10.0 8.3 6.6 Headline and diluted earnings per share 8.0 9.0 10.0 8.3 6.6 Net asset value per share 37 30 22 17 10 Profitability and returns (%) EBITDA margin 44% 43% 45% 49% 49% Operating profit margin 31% 20% 27% 29% 31% Net profit margin 16% 20% 27% 29% 31% 2012: EBITDA margin excludes once off profit on disposal of investments. Five-year Trading History
  • 94 New Products and Services NEW PRODUCTS AND SERVICES During the year, we successfully launched a number of products and services that are diversified and aimed at adding value to our subscribers. Notable among these new innovations are the following; BROADBAND 1. Facebook Bundles – allow Econet Broadband subscribers to have unlimited access to Facebook. This service is available to prepaid subscribers only and is subscription based. 2. WhatsApp Bundles – allow Econet Broadband subscribers to have unlimited access to WhatsApp and is subscription based. 3. Zero Rated Websites – allow Econet Broadband subscribers to access certain websites for free. 4. 4G LTE (Long Term Evolution), a standard wireless communication for high speed data for mobile phones and data terminals. Econet Wireless Zimbabwe is the first mobile operator in the country and, among the first on the continent to offer this service. BUDDIE 1. Airtime Credit – allows subscribers to call on credit during emergencies when they do not have airtime. 2. SMS Bundles – allows subscribers to purchase an SMS bundle of their choice with unlimited SMSs that can be used across all networks. BUSINESS PARTNA 1. New numbering plan (Unique/Special numbers) – allows our subscribers to customise their number to suit their unique personality. 2. Mobile Office – Closed User Group (CUG) – allows the creation of a predetermined community/group of users within an organisation to make calls at a discounted tariff within the group. ECOCASH 1. EcoCashSave – a paperless banking service offered to EcoCash subscribers in partnership with Steward Bank. A subscriber can save and earn interest on a dollar at a time and this has brought banking convenience to the previously unbanked population. 2. Online Bill Payments – allows real time processing of financial transactions e.g. a DSTV payment automatically triggers activation of the subscription. 3. EcoCash App – a software application which simplifies making EcoCash transactions. It is currently available on Google Play Store for Android users. ECOFARMER – a bundle of Econet services which include crop insurance, agricultural information, payment (EcoCash) and market linkages in partnership with other EcoFarmer registered providers. TheYearinPerspective
  • 1010 4 Our Business Our Vision To provide world-class telecommunications to all the people of Zimbabwe. Our Mission To serve Zimbabwe by pioneering, developing and sustaining reliable, efficient and high-quality telecommunications of uncompromising world-class standards and ethics. Our Values The values we hold in common are: Pioneering We are a company committed to finding the best way forward in the fast-moving and highly competitive technology field. To remain leader in the field, we shall relentlessly pursue innovative solutions and constantly grow our knowledge base, with an uncompromising passion for excellence. Professionalism In everything we do, both within Econet and in the community, we always work in a customer and objective-oriented manner with clearly defined goals, in terms of quality of service. In all our professional areas and at all levels we carry out our duties skilfully and diligently. Personal Internally we 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 will always show concern for each other in an atmosphere that is open and stimulates personal development, job satisfaction and a sense of responsibility. We believe in working in teams, in effective and confident co-operation, in environments where honesty, praise, constructive criticism and 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 a genuine desire to meet their needs. We reach out to customers in a holistic way that makes them true stakeholders and willing participants in Econet Wireless.
  • 114 CorporateandLeadership Corporate Profile ECONETWIRELESS ZIMBABWE LIMITED
  • 12 4 ECONET WIRELESS ZIMBABWE LIMITED (EWZL) - ZIMBABWE HOLDING COMPANY This Annual Integrated Report incorporates the results of all the subsidiaries and associates of EWZL. EWZL is the holding company of businesses involved in various sectors of the economy as detailed below. EWZL, which is listed on the Zimbabwe Stock Exchange (ZSE), is Zimbabwe’s leading technology company. SUBSIDIARY COMPANIES Econet Wireless (Private) Limited Econet Wireless (Private) Limited is EWZL’s cellular network operator. EW Capital Holding (Private) Limited EW Capital Holdings (Private) Limited is EWZL’s 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. Transaction Payment Solutions (Private) Limited The company is a leading provider of financial transaction, switching, point of sale and value-added services that benefits from the convergence of banking, information technology and telecommunications. The company provides local and international financial institutions and telecommunications operators access to cutting-edge technology to enhance customer service, in partnership with one of the world’s leading manufacturers of smart card-based point-of-sale systems. Steward Bank Limited Steward Bank Limited offers commercial banking services in Zimbabwe. It is planned to play a pivotal role in the Group, especially EcoCash, for which the bank holds the banking licence necessary for money transfer services. Pentamed Investments (Private) Limited EWZL, through wholly-owned Pentamed Investments (Private) Limited, holds 63% of the ordinary shares of Mutare Bottling Company (Private) Limited. It also holds 6% in the form of convertible instruments. Mutare Bottling Company (Private) Limited Mutare Bottling Company operates The Coca Cola Company’s bottling franchise in the eastern region of Zimbabwe. ASSOCIATE COMPANY Data Control And Systems (1996) (Private) Limited T/A Liquid Telecom Zimbabwe Liquid Zimbabwe is the leading provider of fibre optic infrastructure in Zimbabwe and to date has laid over 7,200 km of fibre optic cable. An extensive fibre network which has linkages within the major cities and towns as well as long distance links to the EASSY and Seacom cables has been established. The fibre network has been developed to provide alternative routes for connection to allow easy recovery in failure events which makes it a robust network. This fibre is used to provide backhaul infrastructure for the mobile network operators base stations and acts as a link to the outside world by providing a reliable transmission for internet traffic outside Zimbabwe. Liquid Zimbabwe is accounted for as an associate because it is operated by Liquid Telecommunications Operations Limited, domiciled in Mauritius, under a management contract. Corporate Profile (continued)
  • 134 Ourbrands Broadband ECONET BROADBAND Econet Broadband market share is estimated at a market leadership position of 81%, spurred by the introduction of low cost smart phones and the bundling of these smartphones with starter data bundles. The Company also launched innovative products such as Facebook and WhatsApp bundles. This was supported by the commercial roll out of 4G-LTE. 134
  • 1414 4 Chairman’s Statement to Shareholders DR J. MYERS Chairman of the Board Introduction Zimbabwe continues to seize the potential that the mobile telecoms revolution offers. Its overall mobile penetration rate increased to 104%, breaking the 100% threshold for the first time. Internet penetration rates increased to over 42%. These milestone developments in the Zimbabwe ICT sector are largely as a result of significant investment in network and fibre-optic infrastructure by Econet and its subsidiaries and associates. Investment Review The resilience of our business model is anchored on service excellence in our core and enterprise businesses and this is demonstrated by our consistent financial performance and innovations. The core business focuses on the delivery of Voice, SMS, Broadband and Overlay Services. The enterprise business consists of Steward Bank (SB) and Mutare Bottling Company (MBC). Steward Bank continues to play a key role in promoting the growth of Broadband through credit schemes designed to increase smart phone penetration and providing the regulatory platform for mobile financial services, which form part of our Overlay Services. Our Broadband business has grown by 62% whilst Overlay Services grew by over 307%. With over US$ 1 billion invested into the Zimbabwean economy to date, Econet has made a significant contribution to the development of the Zimbabwean economy. There have been significant benefits arising from this investment, which include the creation of over 20,000 new jobs and about US$ 900 million paid to Government in the form of taxes and levies since 2009. Econet continues to invest in the country and in the telecommunications sector and is transforming the way people communicate and do business. Our confidence in our business model is demonstrated in the continued investment in the network, new services and our staff despite the current economic challenges. Operations Review Due to the constant and rapid change in the telecommunications industry, a high performance innovation-led culture is critical to ensure the creation of new commercial opportunities. The current business model focuses on growth from new revenue streams mainly through data and Overlay Services. Validation of this strategy is evident from the growth in Broadband and Overlay Services that now contribute 15% of the overall revenues of the business. Maintaining a high quality network and delivering high client service standards remain core priorities for the business. To this end, Econet has continued to expand its customer service channels and to train customer service agents. Econet has demonstrated the ability to introduce new products and services that are unique and, consequently, has won many accolades at international fora. For example, Capital Finance International recently awarded Econet “ The Best Telecom Services and Solutions in Africa” for its culture of innovation. The current business focuses on growth from new revenue streams mainly Data and Overlay services.
  • 154 CorporateandLeadership In excess of 4.2 million people, representing 53% of the adult population in Zimbabwe, were impacted by EcoCash during the year. Transactions on the platform registered a significant increase. EcoCash has provided access to banking accounts to many people who were previously excluded from the financial system, and in doing so, has contributed about half of the national financial services penetration level of about 30%. EcoCash has also brought added convenience to the payment of transactions within the country. Financial Performance Revenue for the year ended 28 February 2014 recorded growth of 8% to close at US$ 752.7 million. Earnings Before Interest, Taxation and Depreciation closed at US$ 332.2 million, compared to US$ 302.4 for the previous year. Depreciation and amortisation increased by 42% to US$ 101.7 million in line with the growth of the asset base. Total assets value increased by 16% to close at US$ 1.2 billion. The debt to equity ratio improved to 38% from 54% for the previous year. During the year, Econet fully paid for a 20-year operating licence at a cost of US$ 137.5 million. Corporate Social Investment Econet believes that the private sector should contribute to alleviating the social challenges arising from Zimbabwe’s current constraints. Through Capernaum Trust, Econet has assisted over 50,000 orphans and vulnerable children with fully funded scholarship support. Econet was awarded the Best Mobile Health Product or Service for its “Energise the Chain” Project, through which excess power from base stations is used to power vaccine refrigerators. 50 free educational websites were introduced to allow students to perform academic research and other learning activities. We believe that it is important to demonstrate our commitment to the people of Zimbabwe through these various support programmes. Dividend announcement I am pleased to announce that the Directors declared a dividend of 1.29 US cents per share for the year ended 28 February 2014 which amounts to a total of US$ 20 million. The dividend will be payable to shareholders registered in the books of the Company at the close of business on Friday 18 July 2014. The share transfer books and the register of members will be closed from the close of business on Friday 18 July 2014 to 20 July 2014, both dates inclusive. Payment of the dividend will be done on, or about 25 July 2014. Withholding tax will be deducted at the rate of 10% where applicable. Outlook Econet has developed a solid business model that focuses on growth through corporate sustainability. Given the high mobile penetration rate, smart phone penetration at below 10% and financial inclusion at about 30% present significant opportunities for the business. We plan to continue our investment program to ensure that these service delivery capabilities and innovative solutions are available to our customers. I would like to thank our shareholders, strategic partners, customers, the regulatory authorities and our employees for their full support during the year under review. I would also like to extend my appreciation for all the support that I received from my fellow Board members. DR JAMES MYERS CHAIRMAN OF THE BOARD 25 April 2014
  • 1616 4 Econet unveiled a series of exclusive Platinum Suites for its high value customers to offer differentiated customer experience. The new store design puts the customer at the heart of Econet’s service philosophy by ensuring that the needs of its premium customers are easily identified and efficiently addressed. 4G (LTE) Launch Exclusive Platinum Suites Innovation 16 4
  • 174 Investing for the future EcoFarmer OurPerformance 174 Steward Bank We are a technologically driven mass bank with currently over 1.2 million customers to whom we provide customised innovative world-class Banking products and financial services. Our key values are Integrity, Professionalism, Innovation, Excellence and Ubuntu. We have a wide range of products which include: Online Banking, Card Services (on Zimswitch and MasterCard), Mobile Banking, Diaspora Banking, and Personal accounts. We also offer specialised financial services for the SME and Agribusiness sectors.
  • 1818 4 Chief Executive Officer’s Operations Review Introduction Innovation and investment in new areas of growth helped deliver another year of good growth. As the traditional voice revenues began to mature, new services such as EcoCash and broadband have begun to contribute more to earnings. Econet maintained its market leadership, as we retained our share of the market, value and traffic volumes. Operations Review Since EcoCash was launched, the number of people the mobile money service has impacted has now reached over four million. In total, over US$4.5 billion has been transacted since 2011. Registered users increased by over 2.5 million to over 3.5 million during the period. We continue to expand the role that EcoCash plays in the daily lives of our customers, as the service now offers more than just money transfer services. The platform now makes it possible for users to pay for goods and services, to service their utility bills, to earn interest through holding EcoCashSave accounts and to pay their employee wages in a secure, fast and convenient way through the EcoCash payroll facility. EcoCash has significant potential for further growth in the future. Our decision to focus on delivering world class customer service saw the business investing in the expansion of our Contact Centre, which we equipped with a new and advanced contact centre solution. To improve our interface with the high-value market segment, we also launched the Platinum Suite service centres. These outlets are designed to the highest specifications so as to give personalised service to high value clients. To support our investment into robust customer management technology, an internal company-wide campaign was launched to focus all staff towards the importance of customer service. The average waiting and handling time greatly improved and will continue to improve as the new Contact Centre becomes fully resourced. The Econet brand remained the number one brand in the market as confirmed by the annual Marketers Association of Zimbabwe “Super Brand Awards”. A customer experience survey showed that Econet retained its position as the best telecommunications service provider. We continued to consolidate our market leadership through further expansion of our retail footprint, ensuring widest availability and strong visibility of our products. A new billing system was commissioned towards the end of the year, which allowed the introduction of more flexible product and service packages for all post-paid customers. Data usage continues to grow, driven by our strategy to offer attractive data packages while increasing access to data-capable devices such as smart phones and tablets. Mobile data penetration in Zimbabwe stood at 39.8%, whereas Econet has reached over 48% of its total subscriber base. DOUGLAS MBOWENI Chief Executive Officer Our brand surveys continued to show that our brand is highly visible, well recognised, respected and appreciated.
  • 194 CorporateandLeadership The strategic investment in Steward Bank has created unique leverage for the business to drive growth in Broadband and Overlay Services. The EcoCash business would not be where it is today had it not been for the decision to invest in the Bank. The future looks promising as we continue to drive EcoCash to greater heights. The Bank is also critical in driving smart phone penetration into the market through device financing schemes. The contribution of the Bank is therefore quite pivotal to the long-term growth prospects of the business. Our strategy to finance smart devices on two-year contracts to the market continues to bear fruit. The primary objective of this strategy is to increase access to smart devices, the key driver of data usage. The introduction of various bundled data packages was hugely successful, with a high uptake of our Facebook and WhatsApp bundles. During the year, free browsing on major educational sites was also introduced, increasing brand loyalty. Prepaid and data roaming coverage was increased (18 new prepaid partners, 14 new post-paid partners and 24 data partners) and inflight and SMS-only roaming was also introduced to limited airlines. Data speed quality, data coverage and customer offers increased in the period. One of the major highlights is the successful introduction of Long Term Evolution LTE (4G) services, the first such service in the country, and among the first on the continent. Coverage is planned to be increased in major cities to ensure continued leadership in mobile broadband. Operational Efficiency Investment in new systems designed to improve our internal efficiencies continues. A new Customer Service Charter was adopted, and the business rededicated its commitment to placing the customer at the core of its operations. During the year, a global-standard Environmental and Social Management System was also adopted to ensure a safe and healthy environment for staff, customers and the community. Financial results The Group delivered strong earnings and operating cash flows. Earnings at US$ 119.3 million and operating cash flows at US$ 347.7 million are a result of the significant investment made into the business of over US$ 1.2 billion over the last 5 years. The business continues to meet all its debt covenants and debt service obligations. The debt to equity ratio has declined from 65% to 38% over the last three years. We anticipate that free cash flows will continue to increase as we reduce our debt exposure and capital commitments. Significant progress was made in restructuring the bank’s balance sheet and right-sizing the business. Various strategic initiatives have been implemented to restore profitability via the development of new income streams. As these new initiatives begin to take form, we anticipate that the bank will start to contribute positively to the Group’s profitability. Outlook Focus will remain on containing costs, while increasing our range of innovations. As traditional earning streams begin to mature, additional investment will be made into expanding our range of overlay services to further their contribution to growth. Customer service will remain central to the business, as customer retention will be essential in maintaining our market leadership. We will continue to leverage on the synergies that exist within the EWZL Group, which operates a fibre business and financial services segment, for the benefit of our customers and shareholders. D. MBOWENI CHIEF EXECUTIVE OFFICER 25 April 2014
  • 2020 4 ECOCASH EcoCash experienced phenomenal growth with over one million new subscribers previously financially excluded but now included. The focus for the year was to deploy the relevant innovations aimed at extending financial inclusion to the next level. The year saw introduction of a one of its kind savings product EcoCashSave, where the customer can save as little as one USD at a time. Three months after launch EcoCashSave achieved over one million bank accounts. EcoCash 2020 4
  • 4 CorporateandLeadership 21 Board of Directors Dr James Myers Chairman of the Board of Directors Independent non executive director Mr Strive Masiyiwa Executive director Mr Craig Fitzgerald Non-executive director Mr Douglas Mboweni Executive director - Chief Executive Officer Mrs Sherree Shereni Independent non-executive director MrsTracy Mpofu Non-executive director Mr Kris Chirairo Executive director - Finance director Ms Beatrice Mtetwa Non-executive director 1 5 2 Mr Godfrey Gomwe Independent non-executive director Mr Martin Edge Independent non-executive director 9 10 6 3 7 4 8 Notes Audit Committee Mr M. Edge*, Dr J. Myers, Mrs S. Shereni, Mr C. Fitzgerald, Mrs M. Harris. Risk Committee Mrs S. Shereni*, Mr M. Edge, Mr D. Mboweni. Remuneration Committee Dr J. Myers*, Mr C. Fitzgerald, Mrs T. P. Mpofu, Ms B. Mtetwa. Related Party Sub-Committee Mr G. Gomwe*, Mr K. Chirairo, Mr M. Edge, Mrs T. Mpofu Ms B. Mtetwa * Chairperson
  • 22 4 1. Dr James Myers Dr James Myers is a former Executive Vice-President of South Western Bell International (SBC Inc., now AT&T), the largest telecoms operator in the world. He has considerable experience in Africa, having led the team that acquired a controlling stake in MTN in the early nineties. He went on to lead a consortium of SBC and Malaysia Telekom that for a while controlled Telkom SA. Dr Myers also sits on the Board of Econet Wireless Group (EWG), the parent company of Econet Wireless Zimbabwe. He holds a BA in Mathematics from Texas A&M University (1962), MA in Mathematics from University of Arizona (1965) and a PhD in Industrial Engineering/Operations Research from Texas Tech University (1969). 2. Mr Strive Masiyiwa Strive Masiyiwa spearheaded the formation of Econet Wireless, Zimbabwe’s largest mobile network operator. His extensive resumé, awards and achievements can be found on the Econet website. 3. Mr Craig Fitzgerald Craig Fitzgerald has worked in a number of senior positions in leading quoted and unquoted companies. He has been involved in setting up Econet businesses in other parts of the world. He holds a Bachelor of Accounting Science (Hons.) degree from the University of Zimbabwe and is a Chartered Accountant (Zimbabwe). 4. Mr Douglas Mboweni Douglas Mboweni joined Econet in 1996. He was part of the team that launched the Mascom Wireless network in Botswana and Econet Wireless Nigeria (EWN). He assumed various positions in Econet Wireless International before his appointment as Chief Executive Officer of Econet Wireless Zimbabwe Limited in March 2002. Among other qualifications, Douglas holds a Masters in Business Leadership (UNISA) and a BSc Maths and Computer Science degree from the University of Zimbabwe (UZ). 5. MrsTracy Mpofu Tracy Mpofu joined Econet in February 2001 as Finance Director from Coca-Cola Central Africa, where she occupied senior positions. As regional Finance Director, she was responsible for all accounting functions for the region of ten countries. Before then Tracy worked for Ernst & Young and the Comptroller and Auditor General. She holds a Bachelor of Accountancy degree and an MBA, both from the University of Zimbabwe. Tracy is a Chartered Accountant (Zimbabwe) and a Chartered Management Accountant and has completed her qualification for registration as a Chartered Accountant (South Africa). She is currently the Econet Group Chief Operating Officer. 6. Mr Kris Chirairo Kris Chirairo holds an MBA from the University of Zimbabwe. He is a registered Public Accountant and is a fellow member of both the Chartered Institute of Management Accountants and the Institute of Chartered Secretaries and Administrators. He joined Econet Wireless on June 1, 1998. Kris was posted to Econet’s operations in Nigeria where he set up the Finance Department in March 2001 before returning to Zimbabwe in January 2004. 7. Ms Beatrice Mtetwa Beatrice Mtetwa is one of Zimbabwe’s most recognised lawyers, and brings over two decades’ worth of legal experience to the Group. She is a partner at Mtetwa and Nyambirai Legal Practitioners, and is a past president of the Law Society of Zimbabwe. 8. Mrs Sherree Shereni Sherree Shereni brings a wealth of expertise from The Coca-Cola Company which she joined in 2002 and has gained experience in public affairs and communication, working in Central and East Africa and in southern Asia. She was also Chairperson of the Women’s Leadership Council for the Coca-Coca Central, East and West Africa Business Unit. As Programme Director of The Coca-Cola Africa Foundation, she was responsible for formulating community intervention strategies and managing implementation of over 200 projects by 15 international partners of The Coca -Cola Africa Foundation across the continent. She previously held senior positions at the Reserve Bank of Zimbabwe prior to joining Coca-Cola. She holds a Bachelor of Science (Economics) Hons degree (UZ), a Diploma in Business Administration (University of Manchester, UK), leadership training from The Coca-Cola Company and a host of other top qualifications, among Board of Directors
  • 234 CorporateandLeadership them from the Bank of England’s Centre for Central Banking Studies, the University of Pennsylvania’s Wharton International Housing Finance School, the International Monetary Fund Institute, the World Bank, and the Macro- Economic and Finance Management Institute. 9. Mr Godfrey Gomwe Godfrey, a businessman, is former Chief Executive Officer of Anglo American Plc’s global Thermal Coal business. He was previously Executive Director of Anglo American South Africa until August 2012, prior to which he was Head of Group Business Development, Africa. He also served as Finance Director and Chief Operating Officer of Anglo American South Africa. Previously, Godfrey was Chairman and Chief Executive of Anglo American Zimbabwe Limited. Godfrey also served on a number of Anglo American Operating Boards and Executive Committees including Kumba Iron Ore, Anglo American Platinum, Highveld Steel & Vanadium and Mondi South Africa, the latter two in the capacity of Chairman. Prior to joining Anglo American in 1999, Godfrey held many Leadership positions and directorships in listed and unlisted companies. Godfrey is currently Chairman of Tshikululu Social Investments NPC and Non-Executive Director of Thebe Investment Corporation Pty Ltd. He is past President of Institute of Chartered Accountants of Zimbabwe, past Senior Vice-President of the Chamber of Mines of Zimbabwe in addition to serving on the Executive Council of the Chamber of Mines of South Africa. Godfrey is a Chartered Accountant (Zimbabwe) who holds a Masters degree in Business Leadership, from the University of South Africa(Unisa) as well as a Bachelor of Accountancy (Honours) Degree from the University of Zimbabwe (UZ). 10. Mr Martin Edge Martin Edge brings the experience gained from a financial career focused on both Africa and the telecommunications sector. Until mid-2012 he was a Managing Director with Standard Chartered Bank. Martin has practised as a corporate finance advisor since 1985, working for nine years at Hambros Bank in London, four years as head of TMT Advisory at HSBC in Johannesburg and 7 years as Director and Head of Corporate Finance at First Africa, which was acquired by Standard Chartered Bank in 2009. In between, he spent three years working at CCAfrica (& Beyond), a leading African luxury tourism group, as its Finance Director and Corporate Finance Director. Martin has advised on some of the largest corporate finance transactions in Africa for clients such as Econet, Anglogold, MTN, Vodacom, Bharti Airtel and McDonalds. He has served on many private company Boards in Africa and is a Trustee of two trusts within the Macmillan Africa group. Martin graduated with an honours degree in Philosophy, Politics and Economics from the University of Oxford, and is a UK Chartered Accountant. He has lived in Africa since 1995.
  • 2424 4 From the Directors The Directors present their report and audited financial statements for the year ended 28 February 2014. In the report “Group” refers to Econet Wireless Zimbabwe Limited and its subsidiary companies. Principal Activities and Operations Review The Group’s principal activities during the year were provision of cellular services, provision of internet access services, transaction processing services and mobile banking services. Econet continued to consolidate its position as the market leader in the industry. The overall review of the Group’s operations, results and principal activities during the year and the likely future developments and the expected results of those developments, are given in the Chairman’s and the Chief Executive Officer’s Reports. Operations Review The contributions of the Group’s active subsidiaries are given in note 1 to the financial statements. Human Capital The Group continues to focus on, and uphold, the core values of accountability, teamwork and integrity. Instilling of these core values among the Group’s workforce remains one of the Board’s strategic objectives. This ensures employees not only deliver shareholder value, but also meet and respond to any challenges arising within the Group. New Developments During the year, the Group completed the 100% acquisition of Steward Bank Limited. The bank constitutes the main platform through which the Group channels its EcoCash product. Other new products introduced during the year are noted on page 9 of this report. Consolidated Results The Group’s financial results during the year are covered in the Chairman’s report and the Chief Executive Officer’s Review and disclosed fully from page 44 to 117 of this report. Dividends The Directors declared a dividend of 1.29 US cents per share for the year ended 28 February 2014. Share Capital Details of the Group’s share capital are set out in note 25 to the financial statements. Directors The names of the Directors who served during the year are shown in the Board of Directors section. Directors are not required to hold any shares in the company by way of qualification. Three non-executive directors were appointed to the Board during the course of the year, bringing the total number of directors to ten: three executive and seven non-executive. In accordance with Article 81 of the Company’s Articles of Association, at least one third of the directors must retire and seek re-election at each Annual General Meeting. The following directors retire by rotation and being eligible, offer themselves for re-election: Mr D. Mboweni, Mr G. Gomwe and Mrs S. Shereni. At the Annual General Meeting shareholders will be asked to approve payment of the directors’ fees and the re- appointment of the retiring directors. Capital commitments Details of the Group’s capital commitments are set out in note 41 of the financial statements. Directors’ Interests The beneficial interests of the directors in the shares of the Company are shown on page 66 of the financial statements.
  • 254 CorporateandLeadership Register of Members The register of members of the Company is open for inspection to members and the public, during business hours, at the offices of the Company’s transfer secretaries, First Transfer Secretaries (Private) Limited. Borrowing Powers The details of the Group’s borrowing powers are set out in note 40 to the financial statements. Pension Fund The Group’s pension fund scheme is administered by a Board of Trustees. The Trustees manage the assets of the pension fund, which are held separately from those of the Group. The assets and funds of the scheme are administered in accordance with the rules of the pension fund. An exercise is currently underway to find the best means of recapitalising the fund. Thefundisadefinedcontributionfund.Anyrecapitalisations will be at the discretion of the Board of Directors. Corporate Social Investment Contributing to the country’s economic and social development remains a key component of the Group’s culture. Through various initiatives and activities the Group fulfilled this commitment during the year. At the root of this commitment is the Group’s own policy of observing and upholding our core values and principles. Donations to Political Parties As a matter of policy, the Group does not make donations for political purposes. Auditors Ernst & Young continued in office as the Group’s auditors during the year. At the Annual General Meeting shareholders will be requested to approve the remuneration of the auditors for the year ended 28 February 2014, and to consider their reappointment for the ensuing year. By order of the Board DR J MYERS CHAIRMAN D MBOWENI CHIEF EXECUTIVE OFFICER C A BANDA GROUP COMPANY SECRETARY 25 April 2014
  • 26 4 ONLY BUDDIE GIVES YOU MORE! Buddie, as the leading prepaid brand in the country has revolutionary products and services that have changed the standard of telecommunications in Zimbabwe. It offers more customer convenience, more exciting discounts, more promotions, more fun and more entertainment. Buddie is committed to offering more value through outstanding competitive offers. Buddie Ourbrands 2626 4
  • 274 Integrity and compliance with good ethical standards remain key values of the Group. In addition to observing generally accepted best practice standards of transparency and accountability, the Group applies and complies with the regulatory obligations applying to listed companies in Zimbabwe. The Group is also subject to government regulations affecting various areas of its operations. The Group makes it a policy to comply with these regulations. THE BOARD OF DIRECTORS Composition and appointment The Board is comprised of ten members, made up of three executive directors and seven non-executive directors. An independent non-executive director chairs the Board. The offices of the Chairman and Chief Executive Officer are separate. The separation is essential to good governance, ensuring as it does, that the Chief Executive Officer and the executive focus on operational issues while the Chairman and the non-executive directors concentrate on the oversight role. The non-executive directors are drawn from a wide range of fields, bringing broadly based business knowledge and experience to the deliberations of the Board, the objective being to effectively serve the current and future needs of the business. The election to the Board of non-executive directors is subject to confirmation by shareholders. In terms of the Company’s Articles of Association and the Companies Act (Chap 24:03) at least one third of the directors must retire at every Annual General Meeting and, if eligible, can stand for re-election. At the last Annual General Meeting, held on 17 September 2013, the following directors were re-elected: Ms B. Mtetwa, Mr K. V. Chirairo and Mr C. Fitzgerald. Accountability and delegated functions The Board’s ultimate responsibility is to focus on the Group’s strategic and sustainable development with a view to achieving growth of the business. To achieve these goals the Board focuses on the following key areas: • reviewing and debating the Group’s overall strategy • reviewing and approving the Group’s capital allocation and expenditure • reviewing and approving of the Group’s major investments and acquisitions and safeguarding the Group’s assets • monitoring and ensuring observance of high standards of governance in the Group • reviewing financial, operational and compliance controls • reviewing risk management and ensuring prudent management thereof • reviewing and approving the Group’s budget and maintaining proper accounting records • reviewing and approving annual financial statements and all notices to shareholders and stakeholders • reviewing human capital strategies and compensation policies. Governance Statement The Board is ultimately accountable to shareholders for the performance of the business. Directors are responsible for the preparation of financial statements for each financial period which give a true and fair view of the state of affairs of the Group as at the end of the financial period. To achieve this the directors oversee the maintenance of adequate internal controls and procedures for financial reporting on the Group and seek to ensure that financial managers conduct themselves with integrity and honesty and in accordance with the ethical standards of their profession. The Board is also ultimately responsible for communication with the investor community. This communication is done through the Chief Executive Officer, the Finance Director and the Chairman, who organise regular briefing meetings with analysts, institutional investors and the media. The outcome of the meetings is communicated to the Board from which it learns of shareholders and investors’ opinions and perceptions of the Group. Rights All directors have full and unfettered access to management and the Group Company Secretary for information required to discharge their responsibilities fully and effectively. Whenever they deem it necessary, the directors are entitled at the Group’s expense, to engage independent advisers for expert or independent professional advice in the furtherance of their duties. Directors’ Names The following are the directors who served during the year: Dr J Myers (Chairman)*, Mr S T Masiyiwa, Mr K. V. Chirairo, Mr M. Edge*, Mr C. Fitzgerald*, Mr G. Gomwe*, Mr D. Mboweni, Mrs T. P. Mpofu*, Ms B. Mtetwa* and Mrs S. Shereni*. Directors’ interests In compliance with good corporate governance, directors are required each year to declare in writing whether they have any material interest in any contract of significance with the Group or any of its subsidiaries, which could give rise to a related conflict of interests. Directors are also required to disclose their other business interests. None of the directors, in their personal capacities, had a material interest in any contract of significance to which the Group was a party during the year, other than their service contracts. BOARD COMMITTEES During the year the Board reviewed the roles of its committees and resolved that changes were needed. Accordingly the Board dissolved the existing Investments and Loans Committees and in their place established the Risk Committee and the Remuneration Committee. The Board retained the Audit Committee. * Non-executive director Governance
  • 28 4 Audit Committee The Committee’s primary function is to review the integrity of the Group’s financial reporting, risk management and internal controls. The Committee also takes note of new legislation and new international reporting standards and ensures that these are adopted by the business. The Committee oversees the Group’s risk management policies and procedures and ensures these are fully implemented and observed. The Committee meets regularly with the Group’s external and internal auditors to consider risk assessment, review accounting principles in relation to preparation of financial statements, review financial controls and put in place the audit planning process. The external auditors and the head of internal audit have unrestricted access to the committee and its chairman and attend Audit Committee meetings. The committee considers reports from the external auditors by way of assessing and evaluating the effectiveness of the Group’s internal controls over financial reporting and disclosures. The following constituted the committee during the year: Mr M. Edge (Chairman), Dr J. Myers (Member), Mrs S. Shereni (Member), Mr C. Fitzgerald (Member), Mrs M. Harris (External Member), Mrs T. Mpofu (Attendee) and Messrs D. Mboweni, K. Chirairo and P. J. Campbell (Attendees). The full members of the Committee are all non-executive directors. Risk Committee The Committee is responsible for the identification and assessment of risk in the Group as well as review of the effectiveness of management policies and procedures relating to risk. Upon identification of the risk, the Committee reviews the risk and its potential impact on the Group and brings it to the attention of the Board. Members of the Committee are; Mrs S. Shereni (Chairperson), Mr M. Edge (Member), Mr D. Mboweni (Member) and Mr P. J. Campbell (Attendee). Remuneration Committee The Committee’s role is to assist the Board ensure that remuneration policies and reward practices are fair and in accordance with the Group’s and individual performance. The Committee defines remuneration structure and policies and ensures their implementation within the Group. ThemembersoftheCommitteeare:DrJ.Myers(Chairman), Mr C. Fitzgerald (Member), Mrs T. P. Mpofu (Member), Ms B. Mtetwa (Member) and Mr D. Mboweni (Attendee). Related Party Sub-Committee The Related Party Sub-committee is a sub-committee of the Audit Committee. Its function is to review all transactions between the Company and its related parties. The Sub-commitee is chaired by an independent non- executive director. The Sub-committee reports to the Audit Committee. Investor Relations The Group continues to recognize the importance of communicating with the various stakeholders. To this end the Group holds analysts briefings at which investors and analysts are briefed on the Group’s performance up to the end of that period. The communication offers the Group the opportunity to receive valuable feedback on its performance and general perception of it by the investor community. Two meetings are held with investment analysts each year, one after the release of the Group’s half-year results and the other after the release of the full year results, at which a full briefing of the Group’s performance is given. The Group also presents at various investor conferences. The Group’s Annual Report and other corporate publications are available on the corporate website www.econet.co.zw. Employment and equity practices The Group has maintained its policy of retaining a culture of accountability,respectandteamworkamongitsemployees. In line with best practice, the Group has adopted as part of its culture observance by its directors and employees of the highest standards of ethical behaviour. Directors and employees are expected to conduct themselves with integrity and professionalism, with a view to achieving excellence in customer satisfaction, quality of products and services and generally maintain the good name of the business. A “whistle-blowing” programme is also in place to encourage employees to report any concerns, including any suspicion of violation of the Group’s financial reporting or environmental procedures. The Group is committed to equality of opportunity. It employs people with disabilities and ensures that disabled employees feel they are part of the team. All employees are accountable for adherence to equal opportunity and anti-discrimination policies. Developing people for growth remains part of the Group’s strategic goals. Opportunities are given to employees to attend training in leadership, managerial, technical and operational skills. Governance Statement (continued)
  • 294 Governance A communication system is in place to keep employees informed of announcements and important developments in the Group. The Group also recognises its obligation to comply with health and safety legislation and through training and communication, encourages employees to create and secure a safe and healthy working environment. Directors’ and Employees’ dealings in shares The Group complies with the Zimbabwe Stock Exchange Listing Rules in relation to transactions by directors and employees in securities issued 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 Group’s securities at anytime when they are in possession of unpublished, price- sensitive information regarding the Company’s 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 Company may deal in the securities of the Company during the closed period. In terms of policy, directors and employees who wish to transact in the shares of the Group, even outside of the Group’s “closed or blocked period”, are required to obtain the clearance of the Chairman. Independence of Auditors The Group’s Audit Committee confirms the independence of the Auditors, Ernst & Young, who are engaged by the Group for audit-related services. Ernst & Young have indicated their willingness to continue in office as auditors of the Group. A resolution to re-appoint them as auditors for the ensuing year will be proposed at the 2014 Annual General Meeting. Members can either appoint them for the ensuing year or pass a resolution to appoint another firm of auditors. Whenever necessary, the Group calls upon the services of other firms to assist with non-audit management consultancy work. Going concern The Directors have satisfied themselves that the Group is a going concern as it has adequate financial resources to continue in operational existence for the foreseeable future. By order of the Board DR J MYERS CHAIRMAN D MBOWENI CHIEF EXECUTIVE OFFICER C A BANDA GROUP COMPANY SECRETARY 25 April 2014
  • 30 4 Corporate Risk Management Line management throughout the Econet Group is responsible for managing risk. In carrying out this role, management is guided and assisted by the Risk Division which, through the Chief Risk Officer (C.R.O) reports functionally to the Audit Committee, and Risk Committee Chairpersons and administratively to the Chief Executive Officer. The Group has developed a system of risk management and internal control that delivers: • A demonstrable system of risk management • A commitment by management to the process • A demonstrable system of risk mitigation activities and documented risk communication strategies • A proactive alignment of assurance efforts to the risk profile. The Risk Division structure is comprised of three independent and objective units namely: • Internal Audit, • Corporate Risk, and • Safety, Health and Environment. The Risk Division conducts its activities in line with the recommendations of the ISO 31000 principles. These principles encompass risk identification, analysis, evaluation, treatment, monitoring and review. The Risk Division’s role involves regular reporting of risks to management, the Board Risk Committee and Audit Committee which assist the board in fulfilling their risk management responsibilities. Commitment by Management Management demonstrates its commitment to the risk management process by investing appropriate resources in technology, human capital and processes to facilitate effective risk management within the Group. Internal Audit The Group has an internal audit department which monitors and reports on internal control systems. As the role of internal audit continues to evolve, EWZL’s internal audit is also shifting its focus from purely assurance activities to a mix between assurance and advisory/consultative activities. Risk Report In 2014/15, internal audit intend to focus on the following primary areas; • Finance • Information Systems • Expenditure Control and Cost Containment • Commercial and Customer Services • Human Resources • Network Performance. In addition to these areas, internal audit will continue to perform audits and analytics on key business processes to identify key trends and opportunities for management to create or protect value. Corporate Risk The business has a corporate risk department whose function is to implement an Enterprise Resource Management (ERM) programme within the business. In 2014/15, the corporate risk department intends to focus primarily on the following areas: • Full implementation of Business Processes • Implementation of the Business Continuity Management plan for the business • Aiding the Stakeholder engagement process • Ensuring that Information Security risks are mitigated to acceptable levels • Updated Risk Registers. Safety Health and Environment Environmental and Social Policy Environmental and Social (E&S) protection is a key concern in continuously improving the dynamic working environment. Protecting people and the environment is not just a legal or social obligation, it is an integral part of Econet‘s operations. The Group in 2013 reviewed its safety, health and environmental policy to formulate broader commitments to Environmental and Social issues in line with International Finance Corporation (IFC) requirements. The new Environmental and Social policy was launched in September 2013. Commensurate with the policy review, the Group embarked on a journey to develop an Environmental and Social Management System (ESMS) to support the new policy. The ESMS is being developed to meet the IFC Environmental, Health and Safety guidelines for Telecommunications and this is anchored on ISO 14001 and OHSAS 18001 standard requirements.
  • 314 Governance The business is progressively maintaining these standards by adhering to laws and regulations, engaging stakeholders and communicating openly about its activities and operations. The E&S policy’s overarching theme is “Our Community, Our Environment, and Our Business” which forms part of the Corporate Social Responsibility for staff members, customers and the community. Safety Health and Environmental (SHE) champions were appointed at each work site and trained to be responsible for environmental and social operations impact. Environmental and Social Expenditure The business has continued to increase investment in environmental and social programmes to ensure effective implementation and development of risk management culture with the bulk of the expenditure going towards the following; • Engagement of consultants on environmental and social management system capacity development • Installation of environmental spill containment (fuel spillages), pollution prevention and noise abatement • Improvement of thermal conditions in offices through installation of air conditioning and ventilation systems and modernisation of offices, including ergonomic considerations • Emission monitoring and licensing of infrastructure and utilities • Training of staff members on environmental and social management. Environmental and Social Accidents Processes were developed for accident and incident reporting, recording and investigation. As a result of this awareness, all accidents that happened during the year were reported and corrective measures implemented. Further strategies will be developed and existing systems strengthened to ensure effective collation, analysis and use of information on accident management for preventative systems and decision making. Strategic Focus Areas 2014/2015 The environmental and social management strategic focus for the coming financial year will target the following areas; • Finalisation of ESMS procedures, implementation and continuous improvement • Capacity development on Environmental and Social Management Systems internal auditing • Implementation of the carbon footprint measuring project • Implementation of a Stakeholder Engagement Process to ensure effective and efficient stakeholder relationships • Implementation of integrated waste management systems • Developing synergies with subsidiaries for implementation of environmental and social management systems.
  • 32 4 Econet corporate social responsibilities Econet believes its future depends on the sustainable development of its communities. We remain firm in our belief that a company’s success cannot be measured on financial performance alone. We believe the true measure of a successful company is its ability to positively transform its communities. 15 state-of-the- art Resource Centres Building capacity in health delivery Corporate Social Investment 3232 4
  • 334 OurPerformance Investing for the future Over 700 University Graduates Financing of UZ Electrical Engineering Centre 334
  • 3434 4 Ourbrands Business Partna Business Partna offers a complete, exceptional and comprehensive communications contract package designed with the customer’s individual and professional business needs in mind. We offer un- paralleled contract packages, exceptional devices on contract, closed user group functionalities, personalised numbers, international roaming, data services and Telemetry packages with a convenient 30 day postpaid billing cycle. Business Partna 34 4
  • 354 PeopleandCommunity Corporate Social Investment At Econet Wireless we believe in contributing to the communities in which we live and work. We therefore provide support to a wide variety of initiatives and organisations through charitable donations and sponsorships, contributing to areas such as healthcare, education, the environment and community development. We offer local communities a better future through partnerships that focus on leaving a legacy of social and economic benefits. We also provide our philanthropic assistance through targeted Trusts which administer our corporate giving programmes. Joshua Nkomo Scholarship Fund is the initiative that gives scholarships to the top ten students from each of the ten provinces of Zimbabwe to study in tertiary institutions each year. A total of over 100 academically gifted and socially responsible students benefit from this fund annually. To date over 871 ‘Joshualites’ have benefited from this life changing programme. Capernaum Trust (CT) provides scholarships and life changingskillstothedisadvantagedandtheunderprivileged children in the community. CT has established 15 state-of- the-art learning hubs and libraries in selected schools with complete e-learning facilities. National Health Care Trust (NHCT) is an institution collaborating with the Ministry of Health and Child Welfare, WHO, UNICEF, OXFAM and Hellen Keller Foundation to build capacity in health delivery. NHCT financed the reopening of the UZ Medical School.
  • 3636 4 Our People and our Community HUMAN CAPITAL (HC) Our employee value proposition is anchored on our organisational values of being Pioneering, Professionalism and Personal. We aim high in embedding a high performing and winning culture across all levels within the organization. To create alignment of purpose among staff, Econet Wireless has a clear line of sight from the vision of our organization through to the organisational values. Econet Wireless maintains a strong employer brand equity in the market. We have deployed e-recruitment tools enabling us to reach out to Zimbabwean talent in the diaspora. Our attrition rate still remains below 2%. We promote open dialogue with staff and the CEO’s quarterly staff briefing sessions provide an opportunity to inform, listen to and engage staff across the business. Key Human Capital initiatives We strive to; • Maintain high operational efficiencies by investing in automation of HR processes and creation of Shared Services model • Controlling overheads through enhanced productivity measures • Developing talent with global impact • Continuously benchmarking our reward proposition so as to remain competitive. Operational efficiencies HR Process Automation - During the period under review, an e-learning platform was launched. Through e-learning staff are able to access learning material and undertake learning assessments at a time that is convenient to them. In addition, e-learning has reduced training costs.
  • 374 HUMAN CAPITAL (HC) (continued) Shared Services - We have started to draw on the strengths and competencies within Centers of Excellence. We aim to eliminate duplications, and promote effective execution of business policies, processes and procedures. Job grading matrices as and when structures, and jobs change have been ongoing. Overheads control Headcount Audit - The business engaged a consultant to conduct a headcount audit. The audit results confirmed that the organisation’s headcount is in line with the size and development stage of the business. Staff costs - During the period under review staff costs have increased due to growth oriented initiatives of the organisation as well as funding for pension fund enhancement. Talent Development Leadership Development Centre - 81 managers attended a Leadership Development Centre. The exercise assisted line managers to understand their strengths and areas for development resulting in customised training and development interventions. Staff Training – Forty-seven training programs were conducted and the business achieved an average of 8.87 training days per staff member per annum.The organisation continues to invest in staff development through in-house and external programs. Our staff members have attended some of the prestigious telecommunications industry conferences such as the World Telecommunications Congress in Barcelona, Spain and African Communications Conference in Cape Town, South Africa. GraduateTrainees andTraineeTechnicians - The business recruited 37 graduate trainees and 11 trainee technicians to enhance the talent pipeline. The two-year graduate learnership program enables trainees to acquire functional and cross-functional competencies. Objectives for FY 2014 - 2015 • Management of staff costs • Full implementation of Shared Services supported by Service Level Agreements • Automation of proccesses • Entrenching a robust performance culture • Continuous review of reward and compensation structures • Focus on talent identification, recruitment and retention • Focused training programmes tailored to meet individuals’ requirements. PeopleandCommunity
  • 3838 4 Econet Solar Light up your world with Econet Solar Econet Solar continues to roll out new high quality products that are transforming the lives of Zimbabweans through access to clean, safe and affordable renewable energy solutions for both the rural, off grid and urban areas. Econet Solar takes pride in providing unrivalled quality offering Africa true energy independence. 38 4
  • 394 Econet Coverage Map - February 2014 4G LTE COVERAGE 4G LTE COVERAGE 4G LTE COVERAGE 4G LTE COVERAGE Our network coverage continues to expand year on year.To date, we have 2G (GSM, GPRS, and EDGE) network connectivity in over 69% of the land area of Zimbabwe, with more base station rollouts planned for the coming year. 2G population coverage has reached 87%. In the year, we launched 4G LTE service which we will continue to rollout to cover most of the urban centres of Zimbabwe.
  • 4040 4 Consolidated Financial Statements 42 44 45 47 48 Directors’ Responsibility for Financial Reporting Consolidated Statement of Financial Position Consolidated Statement of Comprehensive Income Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 40 4 Financial Reporting Certificate by the Group Company Secretary 41 Directors’ Responsibility for Financial Reporting 42 Independent Auditors’ Report 43 Consolidated Statement of Financial Position 44 Consolidated Statement of Comprehensive Income 45 Consolidated Statement of Changes in Equity 46 Consolidated Statement of Cash Flows 47 Notes to the Consolidated Financial Statements 48 Policy Notes to the Consolidated Financial Statements 92
  • 414 FinancialReporting C. A. BANDA Group Company Secretary In my capacity as the Group Company Secretary, I hereby confirm, in terms of the Companies Act (Chapter 24:03), that, for the year ended 28 February 2014, Econet Wireless Zimbabwe Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Companies Act and that all such returns are, to the best of my knowledge and belief, true and correct and up to date. C. A. Banda GROUP COMPANY SECRETARY 25 April 2014 Certificate by the Group Company Secretary
  • Directors’ Responsibility for Financial Reporting The Directors of Econet Wireless Zimbabwe Limited and its subsidiary companies are responsible for the maintenance of adequate accounting records, the preparation, integrity and fair presentation of the financial statements and related information. Econet Wireless Zimbabwe Limited and its subsidiary companies’ independent external auditors, Messrs Ernst & Young, have audited the financial statements and their report appears in this annual report. 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 to prevent and detect material misstatements and losses. Suitably trained and qualified personnel within the Group’s staff implement and monitor the systems. Nothing has been brought to the attention of the directors to indicate that any material breakdown in the functioning 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 to the date of signing of these financials and the prospects based on the budgets and are satisfied that the Group is a going concern and therefore continue to adopt the going concern assumption in the preparation of these financial statements. The financial statements set out on pages 44 to 117 were approved by the Board of Directors on 25 April 2014 and signed on its behalf by:- DR J MYERS CHAIRMAN D MBOWENI CHIEF EXECUTIVE OFFICER C A BANDA GROUP COMPANY SECRETARY 25 April 2014 42 4
  • 44 4 All figures in US$ Note 2014 2013 ASSETS Non-current assets Property, plant and equipment 12 734,664,113 690,805,885 Investment property 13 3,656,586 951,517 Intangible assets 14 143,394,762 9,492,568 Deferred tax asset 15.1 19,238,457 5,642,613 Goodwill 43.1 6,090,632 6,090,632 Investment in associates 18.1 20,768,186 14,061,120 Financial instruments: -Held-to-maturity investments 17 11,736,041 9,896,415 -Available-for-sale investments 19 3,329,214 3,010,797 Total non-current assets 942,877,991 739,951,547 Current assets Inventories 22 25,901,874 14,443,786 Financial instruments: -Trade and other receivables 23 67,205,085 63,105,361 - Financial assets at fair value through profit or loss 21 76,853 58,006 - Loans and advances 24.6 66,271,160 119,321,627 - Cash and cash equivalents 32.4 71,331,021 78,229,628 Total currents assets 230,785,993 275,158,408 Total assets 1,173,663,984 1,015,109,955 EQUITY AND LIABILITIES Capital and reserves Share capital and share premium 25.2 37,448,131 35,697,496 Retained earnings 561,884,250 453,138,968 Other reserves 27 462,848 568,775 Equity attributable to owners of Econet Wireless Zimbabwe Limited 599,795,229 489,405,239 Non-controlling interest 3,924,078 3,477,998 Total equity 603,719,307 492,883,237 Non-current liabilities Deferred tax liability 15.2 109,837,492 85,493,429 Financial instruments - Long-term interest-bearing debt 30 134,852,046 202,799,895 Total non-current liabilities 244,689,538 288,293,324 Current liabilities Deferred revenue 29 14,109,056 10,127,617 Financial instruments: -Trade and other payables 28 168,988,197 118,871,498 - Short-term interest bearing debt 30 105,427,999 61,771,039 - Deposits due to banks and customers 31.2 19,363,364 36,350,711 Income tax payable 17,366,523 6,812,529 Total current liabilities 325,255,139 233,933,394 Total liabilities 569,944,677 522,226,718 Total equity and liabilities 1,173,663,984 1,015,109,955 Dr J. Myers D. Mboweni K. V. Chirairo CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR 25 April 2014 Consolidated Statement of Financial Position As at 28 February 2014
  • 45 FinancialReporting 4 Consolidated Statement of Comprehensive Income For the year ended 28 February 2014 All figures in US$ Note 2014 2013 Revenue 2 752,677,719 695,790,625 Cost of sales and external services sold (203,065,419) (182,955,954) Impairment losses- loans and advances relating to the furniture book 8 (18,369,859) - Gross profit 531,242,441 512,834,671 Other income 9 8,683,092 1,534,333 Share of profit/(loss) of associate 18.3 6,707,066 (2,930,659) Gain on financial assets at fair value through profit or loss 21 18,847 5,030 General administrative expenses (139,407,992) (140,686,551) Marketing and sales expenses (21,800,993) (17,961,279) Network expenses (47,195,736) (45,434,962) Other expenses (6,072,642) (4,947,261) Profit from operations 332,174,083 302,413,322 Depreciation, amortisation and impairment (101,723,923) (71,563,248) Profit for the year 4 230,450,160 230,850,074 Finance income 6 595,931 2,653,217 Finance costs 7 (37,037,230) (28,600,048) Profit before taxation 194,008,861 204,903,243 Income tax expense 10 (74,612,119) (64,965,023) Profit for the year 119,396,742 139,938,220 Other comprehensive income Items that may be reclassified subsequently to profit or loss Fair value loss on available-for-sale investments 19 (111,956) (781,769) Taxation effect of other comprehensive income 5 1,109 7,818 (110,847) (773,951) Items that may not be reclassified to profit or loss Gain arising on revaluation of property and equipment 6,626 - Taxation effect of other comprehensive income 5 (1,706) - 4,920 - Other comprehensive loss for the year, net of tax (105,927) (773,951) Total comprehensive income for the year 119,290,815 139,164,269 Profit for the year attributable to: Equity holders of Econet Wireless Zimbabwe Limited 119,281,716 139,593,292 Non-controlling interest 115,026 344,928 119,396,742 139,938,220 Total comprehensive income attributable to: Equity holders of Econet Wireless Zimbabwe Limited 119,175,789 138,819,341 Non-controlling interest 115,026 344,928 119,290,815 139,164,269 Basic earnings per share (dollars) 11 0.08 0.09 Diluted basic earnings per share (dollars) 11 0.08 0.09
  • 46 4 Consolidated Statement of Changes in Equity For the year ended 28 February 2014 Attributed to the equity holders of EconetWireless Zimbabwe Limited Non- controlling interest Total All figures in US$ Share capital and Share premium Retained earnings Other reserves (Note 27) Total Balance at 29 February 2012 33,124,930 345,478,251 1,342,726 379,945,907 2,847,008 382,792,915 Profit for the year - 139,593,292 - 139,593,292 344,928 139,938,220 Other comprehensive income - - (773,951) (773,951) - (773,951) Fair value loss on available-for-sale investments - - (781,769) (781,769) - (781,769) Taxation effect of other comprehensive income - - 7,818 7,818 - 7,818 Total comprehensive income - 139,593,292 (773,951) 138,819,341 344,928 139,164,269 Transactions with equity holders of Econet Wireless Zimbabwe Limited 2,572,566 (31,932,575) - (29,360,009) 286,062 (29,073,947) Issue of shares 1,684,577 - - 1,684,577 - 1,684,577 Cancellation of shares bought back (731,008) - - (731,008) - (731,008) Share buy back (Note 16.4) - (31,932,575) - (31,932,575) - (31,932,575) Acquisition of subsidiary - - - - 286,062 286,062 Utilisation of treasury shares 1,618,997 - - 1,618,997 - 1,618,997 Balance at 28 February 2013 35,697,496 453,138,968 568,775 489,405,239 3,477,998 492,883,237 Profit for the year - 119,281,716 - 119,281,716 115,026 119,396,742 Other comprehensive income - - (105,927) (105,927) - (105,927) Fair value loss on available-for-sale investments - - (111,956) (111,956) - (111,956) Gain arising on revaluation of property and equipment - - 6,626 6,626 - 6,626 Taxation effect of other comprehensive income - - (597) (597) - (597) Total comprehensive income - 119,281,716 (105,927) 119,175,789 115,026 119,290,815 Transactions with equity holders of Econet Wireless Zimbabwe Limited 1,750,635 (10,536,434) - (8,785,799) 331,054 (8,454,745) Utilisation of treasury shares 1,750,635 - - 1,750,635 - 1,750,635 Share buyback (Note 16.4) - (9,902,521) - (9,902,521) - (9,902,521) Change in ownership - (633,913) - (633,913) 331,054 (302,859) Balance at 28 February 2014 37,448,131 561,884,250 462,848 599,795,229 3,924,078 603,719,307
  • 47 FinancialReporting 4 Consolidated Statement of Cash Flows For the year ended 28 February 2014 All figures in US$ Note 2014 2013 Operating activities Cash generated from operations 32.2 401,085,354 216,176,544 Income tax paid 32.3 (53,310,503) (53,096,888) Net cash flows from operating activities 347,774,851 163,079,656 Investing activities Finance income 203,822 2,653,217 Acquisition of intangible assets 14 (141,607,981) (565,570) Acquisition of available-for-sale investments (430,373) (134,406) Acquisition of investment property (376,668) - Acquisition of held-to-maturity investments (1,447,517) (1,872,598) Acquisition of associate 18.2 - (20,000,000) Net cash (outflow)/ inflow on acquisition of subsidiary 43 (302,859) 16,597,539 Purchase of property, plant and equipment: - to expand operating capacity (139,718,276) (147,043,725) Proceeds on disposal of property, plant and equipment 237,033 - Net cash used in investing activities (283,442,819) (150,365,543) Financing activities Finance costs (34,339,697) (33,359,941) Share buy-back (9,902,521) (25,413,484) Proceeds from borrowings 48,385,371 52,000,000 Repayment of borrowings (75,373,792) (31,807,690) Issue of shares - 3,303,659 Net cashflows used in financing activities (71,230,639) (35,277,456) Net decrease in cash and cash equivalents (6,898,607) (22,563,343) Cash and cash equivalents at the beginning of the year 78,229,628 100,792,971 Cash and cash equivalents at the end of the year 32.4 71,331,021 78,229,628
  • 48 4 1 OPERATING SEGMENTS The principal activities set out below are the basis on which the Group reports its primary segment information. For management purposes, the Group is organised into business units based on their products and services and has the following reportable segments: Cellular Network Operations Econet Wireless (Private) Limited provides cellular network services which form the main business of the Group. Financial Services Steward Bank Limited provides retail, corporate, and investment banking services in the key economic centres of Zimbabwe. EcoCash provides mobile money transfer services, while Transaction Payment Solutions (Private) Limited provides financial transaction switching, point of sale and value added services that exploit the convergence of banking, information technology and telecommunications. Beverages Mutare Bottling Company (Private) Limited provides beverages to both individual and corporate clients. Investments and Administration Included in this segment is E W Capital Holdings (Private) Limited which is the investment vehicle through which the Group holds a variety of investments listed on the Zimbabwe Stock Exchange. Also included in this section is Econet Wireless Zimbabwe Limited, the Group’s holding company. Reporting No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit and is measured consistently with operating profit or loss in the consolidated financial statements. Notes To The Consolidated Financial Statements For the year ended 28 February 2014
  • 49 FinancialReporting 4 1 OPERATING SEGMENTS (continued) Segment information for the year ended 28 February 2014 All figures in US$ Cellular network operations Financial Services* Beverages Investments and administration Segments total Adjustments and eliminations Group total Revenue from external customers 692,677,828 35,054,954 19,307,981 - 747,040,763 - 747,040,763 Revenues from transacting with other operating segments of the same entity - 6,182,640 - - 6,182,640 (6,182,640) - Interest income from banking operations - 5,636,956 - - 5,636,956 - 5,636,956 Total revenue 692,677,828 46,874,550 19,307,981 - 758,860,359 (6,182,640) 752,677,719 Depreciation (88,050,181) (2,082,621) (1,055,918) (383) (91,189,103) - (91,189,103) Amortisation of intangibles (6,486,411) (638,621) - - (7,125,032) - (7,125,032) Finance income 484,181 89,707 4,371 1,565 579,824 16,107 595,931 Finance costs (36,616,949) (26,501) (465,339) - (37,108,789) 71,559 (37,037,230) Share of profit of associate - - - 6,707,066 6,707,066 - 6,707,066 Income tax expense (81,092,689) 6,917,105 (436,535) - (74,612,119) - (74,612,119) Segment profit/(loss) 140,913,749 (27,195,268) 740,581 3,898,487 118,357,549 1,039,193 119,396,742 Acquisition of segment non-current assets (259,889,923) (7,256,114) (14,180,514) - (281,326,551) - (281,326,551) Segment assets** 1,140,941,856 201,656,013 30,925,537 184,866,062 1,558,389,468 (384,725,484) 1,173,663,984 Segment liabilities 489,039,339 131,092,392 19,823,732 174,821,464 814,776,927 (244,832,250) 569,944,677 Note: *In prior year, the Financial Services segment was called Banking Operations and only comprised of Steward Bank Limited. **Included in segment assets is an amount of US$20 768 186 pertaining to an investment in associate accounted for using the equity method. Segment information for the year ended 28 February 2013 All figures in US$ Cellular network operations Financial Services* Beverages Investments and administration Segments total Adjustments and eliminations Group total Revenue 674,135,536 2,636,113 18,120,587 - 694,892,236 (48,628) 694,843,608 Revenues from transacting with other operating segments of the same entity - (48,628) - - (48,628) 48,628 - Interest income from banking operations - 947,017 - - 947,017 - 947,017 Total revenue 674,135,536 3,534,502 18,120,587 - 695,790,625 - 695,790,625 Depreciation (68,732,031) (270,838) (680,964) (913) (69,684,746) - (69,684,746) Amortisation of intangibles (1,820,355) (58,147) - - (1,878,502) - (1,878,502) Finance income 2,329,937 14,171 8,346 429,134 2,781,588 (128,371) 2,653,217 Finance costs (28,469,128) (41,830) (89,090) - (28,600,048) - (28,600,048) Share of loss of associate - - - (2,930,659) (2,930,659) - (2,930,659) Income tax (expense)/income (67,594,763) 2,923,898 (294,158) - (64,965,023) - (64,965,023) Segment profit(loss) 141,337,575 5,784,401 606,554 (4,023,574) 143,704,956 (3,766,736) 139,938,220 Acquisition of segment non-current assets (190,650,894) (35,366) (548,133) - (191,234,393) - (191,234,393) Segment assets* 981,837,567 185,869,795 17,402,314 155,481,755 1,340,591,431 (325,481,476) 1,015,109,955 Segment liabilities 470,848,799 112,466,765 6,939,641 133,670,397 723,925,602 (201,698,884) 522,226,718 Note: *Included in segment assets is an amount of US$14 061 120 pertaining to an investment in associate accounted for using the equity method.
  • 50 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 1 OPERATING SEGMENTS (continued) All figures in US$ 2014 2013 Reconciliation of profit Segment profit 118,357,549 143,704,956 Adjustments Revenue (6,182,640) - Cost of sales 1,155,474 155,655 Expenses 5,394,315 40,885 Other income / (expenses) 794,474 (3,834,905) Investment income (122,430) (128,371) Group profit 119,396,742 139,938,220 Reconciliation of assets Segment operating assets 1,558,389,468 1,340,591,431 Investment in subsidiaries (124,469,860) (108,681,234) Inter-company receivables (260,255,624) (216,800,242) Group operating assets 1,173,663,984 1,015,109,955 Segment operating liabilities 814,776,927 723,925,602 Inter-company payables (244,832,250) (201,698,884) Group operating liabilities 569,944,677 522,226,718 2 REVENUE Revenue is made up of : Local airtime 441,042,715 495,952,665 Interconnection fees and roaming 127,623,451 115,283,694 Data - SMS and internet services 101,242,680 44,587,064 Other sales (beverages sales, handset sales, accessories and commissions) 77,131,917 39,020,185 Interest income from banking operations (Note 3) 5,636,956 947,017 752,677,719 695,790,625 3 NET INTEREST INCOME FROM BANKING OPERATIONS 3.1 Interest income from banking operations Loans and advances to customers 5,636,956 612,150 Other - 334,867 5,636,956 947,017 3.2 Interest expense from banking operations Interest on deposits due to banks and other customers (1,816,837) (201,868)
  • 51 FinancialReporting 4 4 PROFIT FROM OPERATIONS All figures in US$ 2014 2013 Profit from operations is arrived at after taking the following income/ (expenditure) into account: Impairment of trade and other receivables (Note 23) (19,678,214) (19,893) Impairment of loans and advances to customers (Note 24.4) (2,276,283) (2,328,183) Auditors remuneration (1,352,500) (1,528,000) Group audit fees* (1,352,500) (1,528,000) Depreciation and impairment of property, plant and equipment (Note 12) (92,018,851) (69,684,748) Amortisation and impairment of intangible assets (Note 14) (7,598,976) (1,878,500) Loss on disposal of property, plant and equipment (92,507) (224,410) Write off of property, plant and equipment (2,105,775) (450,371) Employee benefits (72,555,215) (51,341,404) - short-term benefits (67,460,006) (49,889,388) - post-employment benefits (5,095,209) (1,452,016) Compensation of directors and key management: (7,868,629) (6,327,566) - For services as directors (1,400,578) (387,500) - For management services (Note 33.3) (6,468,051) (5,940,066) *Group audit fees includes US$ 1 150 000 (2013: US$ 1 144 000) for the mobile business and the balance of US$ 202 500 (2013: US$ 384 000) relates to other subsidiaries. 5 DISCLOSURE OF TAX EFFECTS RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME 2014 2013 All figures in US$ Gross amount Tax effect Net amount Gross amount Tax effect Net amount Items that may be reclassified subsequently to profit or loss Fair value loss on available-for-sale financial assets (111,956) 1,109 (110,847) (781,769) 7,818 (773,951) Items that may not be reclassified to profit or loss Gain arising on revaluation of property and equipment 6,626 (1,706) 4,920 - - - (105,330) (597) (105,927) (781,769) 7,818 (773,951)
  • 52 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 6 FINANCE INCOME All figures in US$ 2014 2013 Interest earned from bank deposits 203,822 2,237,517 Interest from held-to-maturity investments 392,109 415,700 595,931 2,653,217 7 FINANCE COSTS Interest on loans and bank overdrafts (37,037,230) (28,600,048) The interest rate applied is based on an effective interest rate calculated using the cashflow obligations arising under the terms of the loans. 8 IMPAIRMENT LOSSES- LOANS AND ADVANCES RELATING TO FURNITURE BOOK Impairment of furniture loans (Note 24.5) (15,546,073) - Bad debts written off (2,823,786) - (18,369,859) - Less interest income (included in revenue) 1,653,007 - Net (loss)/profit attributable to furniture loans (16,716,852) - This related to the previous banking model where the bank was acting as a financier for furniture loans. In the new model, no new furniture loans are being granted. The net profit attributable to furniture loans in the prior year was US$ 1 971 750. 9 OTHER INCOME Sundry income 2,020,053 1,471,463 Other bank income 5,689,539 153,234 Fair value adjustment on investment property (Note 13) 809,401 15,000 Realised forex losses (25,286) (173,388) Unrealised forex gains 189,385 68,024 8,683,092 1,534,333 10 INCOME TAX EXPENSE Current income tax (51,038,012) (41,129,194) Deferred tax (Note 15.3) (10,747,622) (14,029,298) Withholding tax (12,826,485) (9,806,531) Income tax expense (74,612,119) (64,965,023) Tax rate reconciliation Profit before taxation 194,008,861 204,903,243 Reconciliation of tax charge: Normal tax at 25.75% (49,957,282) (52,762,585) Effect of share of profit/ (loss) from associate 1,727,069 (754,645) Net dis-allowable expenses (13,555,421) (1,641,263) Withholding tax (12,826,485) (9,806,530) Income tax expense (74,612,119) (64,965,023)
  • 53 FinancialReporting 4 11 EARNINGS PER SHARE All figures in US$ 2014 2013 Profit for the year attributable to ordinary shareholders 119,281,716 139,593,292 Adjustment for capital items (gross of tax): Loss on disposal of property, plant and equipment 92,507 224,410 Write off of property, plant and equipment 2,105,775 450,371 Tax effect on adjustments (566,058) (173,756) Headline earnings attributable to ordinary shareholders 120,913,940 140,094,317 Basic earnings basis The calculation is based on the profit attributable to ordinary shareholders and the weighted average number of shares in issue for the year which participated in the profit of the Group. Fully diluted earnings basis The calculation is based on the profit attributable to ordinary shareholders and the weighted average number of shares in issue after adjusting for conversion of share options not yet exercised and convertible instruments (as applicable). There were no instruments with a dilutive effect at the end of the financial year. Headline earnings Headline earnings comprise of basic earnings attributable to ordinary shareholders adjusted for profits, losses and items of a capital nature that do not form part of the ordinary activities of the Group, net of their related tax effects. Number of shares Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share 1,563,868,999 1,545,324,020 Basic earnings per share (dollars) 0.08 0.09 Headline earnings per share (dollars) 0.08 0.09 Diluted basic earnings per share (dollars) 0.08 0.09 Diluted headline earnings per share (dollars) 0.08 0.09
  • 54 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 12 PROPERTY, PLANT AND EQUIPMENT All figures in US$ Land and Buildings Cellular Network Equipment Office Equipment Beverage Plant and Equipment Vehicles Capital Work-in- Progress Total At cost At 29 February 2012 41,590,470 500,775,531 29,448,216 4,041,657 7,838,745 171,487,487 755,182,106 Acquisition of subsidiary 1,587,813 - 6,149,488 - 489,262 - 8,226,563 Additions 146,780 2,159,718 5,079,733 301,712 1,303,545 138,052,237 147,043,725 Write offs - (3,057,281) (26,722) - (73,478) - (3,157,481) Disposals - - (242,091) - (59,100) - (301,191) Transfers 1,413,795 162,633,880 1,181,477 - - (165,229,152) - At 28 February 2013 44,738,858 662,511,848 41,590,101 4,343,369 9,498,974 144,310,572 906,993,722 Reclassification - - (6,332,137) 6,332,137 - - - Additions 2,919,945 3,542,522 7,909,983 10,485,295 3,326,955 111,533,576 139,718,276 Write offs - (3,849,911) (9,400) - (33,970) (156,702) (4,049,983) Disposals - - (963,376) - (288,518) - (1,251,894) Transfer to Investment property (1,519,000) - - - - - (1,519,000) Transfers 1,256,386 169,120,341 6,432,587 - - (176,809,314) - Transfer from Intangible assets - 114,987 - - - - 114,987 At 28 February 2014 47,396,189 831,439,787 48,627,758 21,160,801 12,503,441 78,878,132 1,040,006,108 Accumulated depreciation & impairment At 29 February 2012 (6,295,823) (132,776,975) (6,995,172) (1,005,564) (2,261,858) - (149,335,392) Charge for the period (1,160,578) (62,375,334) (4,428,899) (401,329) (1,318,608) - (69,684,748) Write offs - 2,650,039 12,718 - 44,353 - 2,707,110 Disposals - - 99,227 - 25,966 - 125,193 Transfers - (5,196) 5,196 - - - - At 28 February 2013 (7,456,401) (192,507,466) (11,306,930) (1,406,893) (3,510,147) - (216,187,837) Reclassification - - 1,729,850 (1,729,850) - - - Charge for the period (1,187,301) (80,516,917) (7,212,885) (667,683) (1,603,996) - (91,188,782) Write offs - 2,532,914 1,869 - 6,270 - 2,541,053 Disposals 1,019 - 241,247 - 82,925 - 325,191 Revaluation 6,625 - - - - - 6,625 Transfers - (8,176) - - - - (8,176) Impairment (46,455) - (524,933) (197,381) (61,300) - (830,069) At 28 February 2014 (8,682,513) (270,499,645) (17,071,782) (4,001,807) (5,086,248) - (305,341,995) Carrying value At 28 February 2014 38,713,676 560,940,142 31,555,976 17,158,994 7,417,193 78,878,132 734,664,113 At 28 February 2013 37,282,457 470,004,382 30,283,171 2,936,476 5,988,827 144,310,572 690,805,885 Debt is collateralised over Zimbabwean based network equipment. The fair value of the related debt is US$ 227.9 million (2013 : US$ 264.6 million). Refer to note 30 for the breakdown of loan facilities with collateralised debt. The amount of borrowing costs capitalised during the year ended 28 February 2014 is US$ 552 532 (2013: US$9 931 222). The rate used to determine the amount of borrowing costs eligible for capitalisation was 15% (2013: 18%), which is the effective interest rate of the specific borrowings. During the course of the year the Group received additional information pertaining to the costs of dismantling and restoring a site. The Directors are of the view that the new information better reflects the actual costs that will be incurred at the point that network equipment will need to be decommissioned and necessary rehabilitative work performed. This change in accounting estimate has been applied prospectively from 1 March 2013. The effect of the change in accounting estimate in the current period is to increase the carrying amount of assets by US$453 885. The change in estimate is also expected to result in an additional finance charge of US$6 344 062 on the unwinding of the discount over the next 24 years.
  • 55 FinancialReporting 4 13 INVESTMENT PROPERTY All figures in US$ 2014 2013 Opening balance 951,517 411,000 Additions 376,668 - Acquisition of subsidiary - 525,517 Gain on fair value of investment property 809,401 15,000 Transfer from property, plant and equipment* 1,519,000 - Closing balance 3,656,586 951,517 Investment property pertains to industrial and residential properties leased to third parties. The Group’s investment properties were valued by an independent professional valuer at 28 February 2014 on the basis of open market value. Rental income pertaining to the investment property recognised in profit and loss for the year amounted to US$153 169 (2013: US$49 800) and costs amounted to US$23 186 (2013: US$18 450). Description of valuation techniques used and key inputs to valuation on investment properties: Valuation technique Significant observable inputs Range (weighted average) Office properties Implicit investment approach (Refer below) Comparable rentals per month per sqm US$8.86 - US$12.00 Residential stands Market value of similar properties (Refer below) Comparable rate per sqm US$20.00 - US$25.00 In arriving at the market value for property, the implicit investment approach was applied based on the capitalisation of income. This method is based on the principle that rent and capital values are inter- related. Hence given the income produced by a property, its capital value can be estimated. Comparable rentals inferred from properties within the locality of the property based on use, location, size and quality of finishes were used. The rentals were then adjusted per square meter to the lettable areas, being rentals achieved for comparable properties as at 28 February 2014. The rentals are then annualised and a capitalisation factor was applied to give a market value of the property, also inferring on comparable premises which are in the same category as regards the building elements. In assessing the market value of the residential stands, values of various properties that had been recently sold or which are currently on sale and situated in comparable residential areas were used. Market evidence from other Estate Agents and local press was also taken into consideration. *Some land and buildings previously owner occupied by the bank have been re-classified to investment property following the closure of some banking halls in line with the bank’s strategy.
  • 56 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 14 INTANGIBLE ASSETS All figures in US$ Licences Computer software Total At 29 February 2012: Cost 452,237 8,986,982 9,439,219 Accumulated amortisation (452,237) (995,978) (1,448,215) Carrying amount - 7,991,004 7,991,004 Movement for the year: Additions - 565,570 565,570 Acquisition of subsidiary 2,814,494 - 2,814,494 Amortisation (55,526) (1,822,974) (1,878,500) At 28 February 2013: Cost 2,814,494 9,552,552 12,367,046 Accumulated amortisation (55,526) (2,818,952) (2,874,478) Carrying amount 2,758,968 6,733,600 9,492,568 Movement for the year: Additions 139,118,755 2,489,226 141,607,981 Amortisation (5,220,910) (1,904,122) (7,125,032) Impairment (473,944) - (473,944) Transfer - (106,811) (106,811) At 28 February 2014: Cost 141,933,249 12,041,778 153,975,027 Accumulated amortisation and impairment (5,750,380) (4,829,885) (10,580,265) Carrying amount 136,182,869 7,211,893 143,394,762 Intangible assets pertain to licences and computer software held by Econet Wireless (Private) Limited, Steward Bank Limited and Transaction Payment Solutions (Private) Limited. The Group uses the expected usage of the asset to determine the useful life of intangible assets. At 28 February 2014 the computer software had an average remaining useful life of two and a half years and licences had an average remaining useful life of 19 years. During the course of the current year, Econet Wireless (Private) Limited, the Group’s telecommunications operation, renewed their operating licence for a further 20 years at a cost of US$137.5 million.
  • 57 FinancialReporting 4 15 DEFERRED TAX The following are the major deferred tax liabilities and assets recognised by the Group, and the movements thereon. All figures in US$ Assessed losses Property, plant and equipment Deferred revenue Provisions and other Total 15.1 Deferred tax asset At 29 February 2012 - - 2,603,578 82,737 2,686,315 Acquisition of subsidiary 2,151,404 - - - 2,151,404 (Charge)/ credit to profit for the year - - (17,298) 822,192 804,894 At 28 February 2013 2,151,404 - 2,586,280 904,929 5,642,613 Tax charged to equity - - - (1,706) (1,706) Credit to profit for the year 6,542,597 - 1,025,221 6,029,732 13,597,550 At 28 February 2014 8,694,001 - 3,611,501 6,932,955 19,238,457 The Group has accounted for a deferred tax asset pertaining to deferred revenue since the temporary difference is expected to reverse in the foreseeable future. Further, the Group has also accounted for a deferred tax asset arising from losses incurred by Steward Bank Limited in anticipation of the bank’s return to profitability. All figures in US$ Assessed losses Property, plant and equipment Deferred revenue Provisions and other Total 15.2 Deferred tax liability At 29 February 2012 - 70,629,130 - 37,925 70,667,055 Disposal of subsidiary - - - - - Charge to profit for the year - 14,834,192 - - 14,834,192 Credit to other comprehensive income - - - (7,818) (7,818) At 28 February 2013 - 85,463,322 - 30,107 85,493,429 Charge to profit for the year - 24,345,172 - - 24,345,172 Credit to other comprehensive income - - - (1,109) (1,109) At 28 February 2014 - 109,808,494 - 28,998 109,837,492 The deferred tax liability arises mainly from the difference between accounting and tax treatment of depreciation.
  • 58 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 15 DEFERRED TAX (continued) All figures in US$ Assessed losses Property, plant and equipment Deferred revenue Provisions and Other Total 15.3 Net deferred tax asset / (liability) At 29 February 2012 - (70,629,130) 2,603,578 44,812 (67,980,740) Acquisition of subsidiary 2,151,404 - - - 2,151,404 Charge to profit for the year - (14,834,192) (17,298) 822,192 (14,029,298) Credit to other comprehensive income - - - 7,818 7,818 At 28 February 2013 2,151,404 (85,463,322) 2,586,280 874,822 (79,850,816) Credit /(charge) to profit for the year 6,542,597 (24,345,172) 1,025,221 6,029,732 (10,747,622) Credit to other comprehensive income - - - (597) (597) At 28 February 2014 8,694,001 (109,808,494) 3,611,501 6,903,957 (90,599,035) 16 INVESTMENTS AND LOANS IN SUBSIDIARIES All figures in US$ Percentage 2014 2013 COMPANY 16.1 Cost of investments Econet Wireless (Private) Limited 100% 3,133,903 3,133,903 (Cellular network operator in Zimbabwe) Transaction Payment Solutions (Private) Limited 84.3% 108 108 (Computer data processing service provider) E. W. Capital Holdings (Private) Limited 100% 17,797,668 17,797,668 (Investment company) Pentamed Investments (Private) Limited 100% 6,220,598 6,220,598 (Investment company) Steward Bank Limited 100% 97,317,584 74,025,091 (Banking operations in Zimbabwe) Total investments in subsidiaries 124,469,861 101,177,368 During the year, the Company acquired the remaining 1.4% stake in Steward Bank Limited resulting in the bank becoming a 100% owned subsidiary. Refer to note 43 on acquisition of subsidiaries.
  • 59 FinancialReporting 4 16 INVESTMENTS AND LOANS IN SUBSIDIARIES (continued) All figures in US$ 2014 2013 16.2 Inter-company receivables Pentamed Investments (Private) Limited 1,886,351 1,886,351 Econet Wireless Global Limited 16,385,901 485,277 Total loans to group companies 18,272,252 2,371,628 16.3 Inter-company payables Econet Wireless (Private) Limited (137,497,797) (111,701,337) Econet Wireless Capital Holdings Limited (16,611,898) (16,611,898) (154,109,695) (128,313,235) Net investments and loans in group companies (11,367,582) (24,764,239) 16.4 Treasury shares The cost of the share buy-backs (treasury stock) has been debited to capital and reserves. The cost of shares bought back for the year ended 28 February 2014 was US$9 902 521 (2013: US$31 932 575). Treasury shares on hand at 28 February 2014 were 89 674 249 (2013: 75 981 050). 17 HELD-TO-MATURITY INVESTMENTS All figures in US$ 2014 2013 Opening balance 9,896,415 14,161,138 Eliminated on acquisition of subsidiary - (6,088,909) Additions 1,447,517 1,430,000 Disposals - (21,514) Interest accrued 392,109 415,700 Closing balance 11,736,041 9,896,415 Held-to-maturity investments include foreign currency bearer bonds with a carrying amount of US$4 088 443 (2013: US$2 940 140) and investments with local financial institutions amounting to US$7 647 598 (2013: US$6 956 275). The bearer bonds yield interest at a rate of 6.8% per annum.
  • 60 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 18 INVESTMENT IN ASSOCIATES The Group has a 51% interest in Data Control & Systems (1996) (Private) Limited, which is involved in the provision of internet related services. Data Control & Systems (1996)(Private) Limited is a private entity that is not listed on any public exchange. The Group’s interest in Data Control & Systems (1996) (Private) Limited (“DCS”) is accounted for using the equity method in the consolidated financial statements. The following table illustrates the summarised financial information of the Group’s investment in Data Control & Systems (1996) (Private) Limited: 18.1 Data Control & Systems (1996) (Private) Limited All figures in US$ 2014 2013 Associate’s statement of financial position: Non-current assets 113,945,824 79,084,362 Current assets 37,270,592 23,108,455 Current liabilities (29,315,323) (14,619,420) Non-current liabilities (84,119,686) (62,943,101) Equity 37,781,407 24,630,296 Proportion of the Group’s ownership 51% 51% Group's ownership 19,268,517 12,561,451 Fair value adjustment resulting from the acquisition of 51% in DCS 1,499,669 1,499,669 Carrying amount of the investment 20,768,186 14,061,120 Associate’s revenue and profit: Revenue 59,353,260 47,175,927 Cost of sales (13,423,530) (12,126,812) Administrative expenses (23,455,697) (18,185,699) Finance costs (4,553,119) (3,801,202) Profit before tax 17,920,914 13,062,214 Income tax expense (4,769,804) (3,088,232) Profit for the year (continuing operations) 13,151,110 9,973,982 Group’s share of profit for the year 6,707,066 5,086,731 Reconciliation of carrying amount of investment in associate Opening balance 14,061,120 8,974,389 Share of profit of associate 6,707,066 5,086,731 Closing balance 20,768,186 14,061,120 18.2 Steward Bank Limited Steward Bank was acquired through a step acquisition process, beginning as an associate from 1 July 2012 to a subsidiary from 31 January 2013. Cost of investment paid for in cash - 20,000,000 Share of loss of associate - July 2012 to January 2013 - (8,017,390) Transferred to investment in subsidiary (Refer note 43) - (11,982,610) Carrying amount at 28 February 2014 - -
  • 61 FinancialReporting 4 18 INVESTMENT IN ASSOCIATES (continued) 18.3 Net share of profit/(loss) of associates All figures in US$ 2014 2013 Share of profit of Data Control & Systems (1996) (Private) Limited 6,707,066 5,086,731 Share of loss of Steward Bank Limited - (8,017,390) 6,707,066 (2,930,659) 19 AVAILABLE-FOR-SALE INVESTMENTS Listed investments Opening balance 3,010,797 4,692,566 Additions 430,373 134,406 Fair value loss (111,956) (781,769) Eliminated on acquisition of subsidiary - (1,034,406) Closing balance 3,329,214 3,010,797 20 FAIR VALUES OF FINANCIAL INSTRUMENTS Set out below is a comparison by class of the carrying amounts and fair values of the Group’s financial instruments that are carried in the financial statements: The fair values of the financial instruments approximate their carrying amounts. All figures in US$ 2014 Carrying amount 2013 Carrying amount Financial assets Trade and other receivables 67,205,085 63,105,361 Loans and advances to bank customers 66,271,160 119,321,627 Available-for-sale financial investments 3,329,214 3,010,797 Cash and cash equivalents (Note 32.4) 71,331,021 78,229,628 Financial assets at fair value through profit or loss 76,853 58,006 Held-to-maturity investments 11,736,041 9,896,415 Total 219,949,374 273,621,834 Financial liabilities Interest-bearing loans and borrowings 240,280,045 264,570,934 Deposits due to banks and customers 19,363,364 36,350,711 Trade and other payables 168,988,197 118,871,498 Total 428,631,606 419,793,143 The values of the financial assets and liabilities are included at the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: Cash and cash equivalents, trade receivables, trade payables, and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Long-term fixed-rate and variable-rate receivables / borrowings are evaluated by the Group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 28 February 2014, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.
  • 62 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 20 FAIR VALUES OF FINANCIAL INSTRUMENTS (continued) Fair value of quoted notes and bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases as well as other non- current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. Fair value of available-for-sale financial assets is derived from quoted market prices in active markets. The fair value of interest bearing loans and borrowings is determined after taking into account the effective interest on the loans. This involves an assessment of world market rates, specific country risk , credit risk and other relevant factors. The Directors believe that the amortised cost of the interest bearing loans and borrowings approximates their fair value. Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique; Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. All figures in US$ Total Level 1 Level 2 Level 3 At 28 February 2014 Investment Property 3,656,586 - - 3,656,586 Financial assets at fair value through profit or loss 76,853 76,853 - - Available-for-sale financial assets 3,329,214 3,329,214 - - 7,062,653 3,406,067 - 3,656,586 During the reporting period ending 28 February 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. All figures in US$ Total Level 1 Level 2 Level 3 At 28 February 2013 Investment Property 951,517 - - 951,517 Financial assets at fair value through profit or loss 58,006 58,006 - - Available-for-sale financial assets 3,010,797 3,010,797 - - 4,020,320 3,068,803 - 951,517 During the reporting period ending 28 February 2013, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
  • 63 FinancialReporting 4 21 FINANCIAL ASSETS AT FAIR VALUETHROUGH PROFIT OR LOSS All figures in US$ 2014 2013 Opening balance 58,006 52,976 Fair value gain 18,847 5,030 Closing balance 76,853 58,006 Investments held at fair value through profit or loss comprise of equity investments. The fair value is based on the Zimbabwe Stock Exchange published price. 22 INVENTORIES Merchandise at net realisable value 16,697,314 8,606,682 Spares, stationery and other 9,204,560 5,837,104 25,901,874 14,443,786 The directors are of the opinion that the inventory amounts are recorded at values that are not in excess of their recoverable amounts. All inventories values are expected to be recovered within twelve (12) months. The cost of inventories recognised as an expense during the year amounted to US$28 858 164 (2013:US$23 215 938). Inventories written off during the course of the year amounted to US$1 229 241 (2013: US$1 474 197). 23 FINANCIAL INSTRUMENTS:TRADE AND OTHER RECEIVABLES Trade receivables 37,562,131 36,189,048 Interconnect debtors 31,835,084 11,487,301 Intercompany receivables 200,000 1,036,705 Other receivables 27,170,084 24,276,307 Impairment losses recognised (29,562,214) (9,884,000) 67,205,085 63,105,361 There is a concentration of credit risk associated with Interconnect Debtors. Impairment losses recognised Pertaining to prior year balances (9,884,000) (9,935,325) Bad debts recovered - 71,218 Impairment losses recognised in current year (19,678,214) (19,893) (29,562,214) (9,884,000) Prior year amounts written off amounted to US$76 million. In determining the impairment losses disclosed above, the Group considers any change in the credit quality of a trade receivable from the date the credit was initially granted up to the end of the reporting period. Ageing of trade and other receivables that are past due but not impaired 30 days 7,817,881 1,863,609 60-90 days 6,161,400 7,056,114 90+ 13,535,817 11,105,525 Total 27,515,098 20,025,248 Before accepting any new individual customer, the Group conducts trade reference checks to establish the credit history of the applicant . The Group also conducts due diligence assessments on individuals, companies and their directors. In light of the fact that security is held against the amounts detailed above, the Group considers the trade and other receivables past due to be recoverable and thus has not impaired these amounts.
  • 64 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 24 LOANS AND ADVANCESTO BANK CUSTOMERS All figures in US$ 2014 2013 24.1 Total loans and advances to bank customers Corporate lending 58,832,365 69,863,575 Small-to-medium Enterprise lending 290,209 576,222 Consumer lending 1,434,046 323,526 Other - 2,514,146 60,556,620 73,277,469 Less: Allowance for impairment losses (4,604,466) (2,328,183) 55,952,154 70,949,286 24.2 Maturity analysis Less than one month 38,666,379 41,676,094 1 to 3 months 139,393 1,800,000 3 to 6 months 418,812 24,604,980 6 months to 1 year 843,308 894,492 1 to 5 years 19,852,023 4,301,903 Over 5 years 636,705 - Gross loans and advances 60,556,620 73,277,469 Allowance for impairment losses (4,604,466) (2,328,183) 55,952,154 70,949,286 24.3 Sectorial analysis of utilisations 2014 2013 All figures in US$ US$ % US$ % Mining 871,158 1% 4,514,349 6% Manufacturing 53,315,925 88% 44,616,254 61% Agriculture 1,537,546 3% 3,131,329 4% Distribution 660,086 1% 4,204,801 6% Services 2,101,322 4% 10,446,996 14% Individuals 2,070,583 3% 6,363,740 9% 60,556,620 100% 73,277,469 100% There is a material concentration of loans and advances in the Manufacturing category constituting 88% (2013: 61%) of gross loans and advances. 24.4 Allowance for impairment losses on loans and advances A reconciliation of the allowance for impairment losses for loans and advances, by class, is as follows: All figures in US$ Corporate lending SME lending Consumer lending Total At 1 March 2012 - - - - Acquisition of subsidiary 2,776,720 20,406 (468,943) 2,328,183 At 28 February 2013 2,776,720 20,406 (468,943) 2,328,183 Acquisition of subsidiary - - - - Charge for the year 1,827,746 (20,406) 468,943 2,276,283 At 28 February 2014 4,604,466 - - 4,604,466
  • 65 FinancialReporting 4 24.5 Loans and advances relating to furniture All figures in US$ Note 2014 2013 Gross furniture loans 25,865,079 51,201,320 Allowance for credit losses (15,546,073) (2,828,979) Total 10,319,006 48,372,341 24.6 Total loans and advances Total loans and advances to bank customers 24.1 55,952,154 70,949,286 Loans and advances relating to furniture 24.5 10,319,006 48,372,341 66,271,160 119,321,627 25 SHARE CAPITAL Group and company Authorised 3 000 000 000 (2013: 3 000 000 000) Shares consisting of: -2 000 000 000 (2013: 2 000 000 000) Ordinary shares of US$0.001 each 2,000,000 2,000,000 -1 000 000 000 (2013: 1 000 000 000) Class "A" ordinary shares of US$0.001 each 1,000,000 1,000,000 3,000,000 3,000,000 25.1 Issued and fully paid 1 640 021 430 (2013: 1 640 021 430) Shares consisting of: -909 325 280 (2013: 909 325 280) 909,325 909,325 Ordinary shares of US$0.001 each -730 696 150 (2013: 730 696 150) 730,696 730,696 Class "A" ordinary shares of US$0.001 each (Note 25.3) 1,640,021 1,640,021 25.2 Capital and Reserves Movement in share capital and share premium Number of shares Share capital US$ Share premium US$ Total US$ Balance at 29 February 2012 171,554,202 1,715,542 31,409,388 33,124,930 Issue of shares 705,400 7,054 1,677,523 1,684,577 Share cancellations (8,257,459) (82,575) (648,433) (731,008) Utilisation of treasury shares - - 1,618,997 1,618,997 Total before share split 164,002,143 1,640,021 34,057,475 35,697,496 Effect of share split 1,476,019,287 - - - Balance at 28 February 2013 1,640,021,430 1,640,021 34,057,475 35,697,496 Utilisation of treasury shares - - 1,750,635 1,750,635 Balance at 28 February 2014 1,640,021,430 1,640,021 35,808,110 37,448,131
  • 66 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 25 SHARE CAPITAL (continued) 25.3 Class “A” shares On 1 July 2003, Econet Wireless Zimbabwe Limited (“EWZL”) entered into an arrangement with Dunstone (Private) Limited, to acquire its 100% owned subsidiary Econet Wireless Capital Holdings (Private) Limited (“EWCH”). Under the arrangement, EWZL issued 73,984,368 (739,843,680 after share split) Class “A” ordinary shares in exchange for 999,000 EWCH shares. These shares rank parri passu in all respects with the existing issued ordinary shares with the exception that, in the event of EWZL becoming the owner of Econet Wireless Limited (“EWL”) shares, and deciding to distribute the shares to its members, the Class “A” ordinary shares will not participate in the distribution of the EWL shares. 25.4 Share buy-backs Under the authority granted at the Annual General Meeting of 17 September 2013 the directors were authorised to re-purchase the Company’s own shares on the market. The company, as duly authorized by Article 10 of its Articles of Association, may undertake the purchase of its own ordinary shares in such manner or on such terms as the directors may from time to time determine, provided that the repurchases are not made at a price greater than 5% above the weighted average of the market value for the securities for the five business days immediately preceding the date of the repurchase and also provided that the maximum number of shares authorized to be acquired shall not exceed 10% (ten percent) of the Company’s issued ordinary share capital. This authority shall expire at the next Annual General Meeting, and shall not extend beyond 15 months from the date of this resolution. 25.5 Issue of shares There was no new issue of shares in the current year. 26 DIRECTORS’ SHAREHOLDING At 28 February 2014, there were no outstanding share options granted to the directors. At that date, the following directors held directly and indirectly the following number of ordinary shares in the Company. 28 February 2014 Ordinary shares S.T. Masiyiwa* 329,217 C. Fitzgerald 10,709,010 D. Mboweni 7,014,684 T.P. Mpofu 10,380,580 K. Chirairo 84,400 J. Myers 19,970 B. Mtetwa 130,910 S. Shereni 2,200 Total 28,670,971 28 February 2013 Ordinary shares S.T. Masiyiwa* 2,561,870 C. Fitzgerald 10,699,010 D. Mboweni 6,645,460 T.P. Mpofu 10,376,420 K. Chirairo 84,400 J. Myers 19,970 B. Mtetwa 130,910 Total 30,518,040 *Mr. S.T. Masiyiwa is a beneficiary of a trust that has an indirect shareholding in Econet Wireless Global Limited. Econet Wireless Global Limited holds 659 539 483 shares (2013: 678 442 400 shares) in Econet Wireless Zimbabwe Limited.
  • 67 FinancialReporting 4 27 OTHER RESERVES All figures in US$ Other Available-for sale Total Balance at 29 February 2012 - 1,342,726 1,342,726 Fair value loss on available-for-sale investments - (773,951) (773,951) Balance at 28 February 2013 - 568,775 568,775 Additions 6,626 - 6,626 Fair value loss on available-for-sale investments - (111,956) (111,956) Deferred tax arising out of reserves (1,706) 1,109 (597) Balance at 28 February 2014 4,920 457,928 462,848 Available for sale reserve This reserve records fair value changes on available-for-sale financial assets. Other reserves relate to Steward Bank revaluation of assets. 28 TRADE AND OTHER PAYABLES All figures in US$ 2014 2013 Local trade accounts payable 50,912,050 7,850,582 Foreign trade accounts payable 53,923,898 41,453,827 Short term inter-group payables 1,008,652 13,688,438 Other payables 63,143,597 55,878,651 168,988,197 118,871,498 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs together with credit granted on equipment purchases. The average credit period on purchases is between 7 and 30 days. The Group has financial risk management policies in place to ensure that all payables are settled within the agreed credit timeframe. Other payables comprise of the accrual of certain operational expenses. 29 DEFERRED REVENUE Deferred prepaid airtime 14,109,056 10,127,617 14,109,056 10,127,617 The deferred revenue arises from the unused prepaid airtime. The directors are of the opinion that the carrying amounts approximate the fair values of the services to be provided.
  • 68 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 30 FINANCIAL INSTRUMENTS: INTEREST-BEARING DEBT All figures in US$ 2014 2013 Opening balance 264,570,934 249,138,516 Additions during the year 48,385,371 52,000,000 Accrued/(prepaid) interest 2,697,532 (4,759,892) Net repayments (75,373,792) (31,807,690) Closing balance 240,280,045 264,570,934 Long term portion 134,852,046 202,799,895 Short term portion 105,427,999 61,771,039 240,280,045 264,570,934 Loan repayment structure Financier Effective date Initial Facility Limit Value at Acquisition date Amounts paid to date Finance cost accrued Total loan obligation Short-term portion Long-term portion Effective Borrowing rate as at 28 Feb 13 Security terms All figures in US$ ZTE Vendor financing 6-Oct-09 8,254,179 8,254,179 8,254,179 - - - - 3.9% African Export and Import Bank/ Econet Wireless Global Limited 24-May-12 75,000,000 64,741,635 27,631,579 7,623,312 44,733,368 14,115,871 30,617,497 11.4% Guarantee by Econet Wireless Global Limited African Export and Import Bank 27-Dec-13 28,000,000 27,440,000 4,666,667 166,929 22,940,262 22,940,262 - 9.0% Guarantee by Steward Bank Limited ZTE Vendor financing 23-Dec-10 135,134,715 135,134,715 135,134,715 - - - - LIBOR +3.5% Guarantee by Econet Wireless Global Limited Ericsson Credit AB 24-May-12 39,900,000 37,115,392 22,800,000 4,249,930 18,565,322 12,778,435 5,786,888 5.0% Guarantee by Econet Wireless Global Limited China Development Bank 11-May-12 135,000,000 125,171,774 31,752,000 10,547,241 103,967,015 31,736,368 72,230,647 6.4% Guarantee by Econet Wireless Global Limited Industrial Development Corporation 28-Sep-12 20,000,000 17,151,454 8,000,000 5,671,588 14,823,042 3,579,977 11,243,065 6.4% Guarantee by Econet Wireless Global Limited PTA 15-Jan-13 20,000,000 19,820,000 9,090,909 4,160,658 14,889,749 7,678,869 7,210,880 6.2% Guarantee by Econet Wireless Global Limited PTA 4-Apr-13 8,000,000 8,190,051 302,616 88,481 7,975,916 212,846 7,763,069 10.0% Equipment Purchased SubTotal 469,288,894 443,019,200 247,632,665 32,508,139 227,894,674 93,042,628 134,852,046 7.8% Bank working capital facility 22-Jul-13 12,385,371 12,385,371 - - 12,385,371 12,385,371 - Unsecured Total 481,674,265 455,404,571 247,632,665 32,508,139 240,280,045 105,427,999 134,852,046 Refer note 36.2 for a maturity profile of financial liabilities The weighted average interest rate on long-term borrowings for the Group as at 28 February 2014 was 7.8% (2013: 7.3%). In addition to the all inclusive rate of borrowing of 7.8% the Group pays guarantee fees of 6% per annum to EWG for the guarantee provided on the multi-creditor loan facilities. The borrowing powers of the directors are as disclosed in Note 40.
  • 69 FinancialReporting 4 30 FINANCIAL INSTRUMENTS: INTEREST-BEARING DEBT (continued) In December 2013, Steward Bank Limited provided a guarantee facility to Econet Wireless Zimbabwe Limited, its holding company, and another to Econet Wireless (Private) Limited, a fellow subsidiary, as security for loan facilities of US$20 million and US$8 million, respectively, which were obtained from Afrexim Bank. The loan facilities have a tenor of 12 months, with monthly repayments of capital and interest. Summary of borrowing covenants Econet Wireless (Private) Limited and Econet Wireless Global Limited signed an agreement with Afrexim on 24 November 2011 for a facility of US$130 million. US$75 million of this loan facility was applied to Econet Wireless (Private) Ltd to refinance an existing bridging facility of US$63 million from the same Bank and at the same time increase the loan facility by a further US$12 million. This loan is part of the multi-creditor loan facilities detailed below. ZTE The facilities in the schedule above have been applied to the expansion of the cellular network. In May 2012, US$135 million of the facilities was refinanced through a loan from the China Development Bank, as part of the multi-creditor loan facilities detailed below. Multi-creditor loan facilities The company secured multi-creditor loan facilities of US$307 million from a group of financial institutions namely; Industrial Development Corporation of South Africa (IDC), Eastern and Southern African Trade and development bank (PTA Bank), China Development Bank (CDB) and Ericsson Credit AB (Ericsson)and a syndicate led by African Export Import Bank (Afrexim Bank), which also includes DEG, PROPARCO, FMO, Steward Bank and CBZ Bank. The terms of the security package are detailed in an Inter-creditor Security Sharing Agreement, which provides for the sharing of security between the financial institutions. The multi-creditor loan facilities were used to refinance the existing loans and for further network expansion. The loans are at various interest rates and maturity periods of up to five years. The multi-creditor loan facilities contain a number of covenants, representations, and events of default typical of a credit facility arrangements of this size and nature, including financial covenants relating to consolidated debt (as defined) including: 1. Debt service coverage ratio (DSCR) of greater than or equal to 1.5 2. Net Interest bearing Indebtedness (NIBFI) to EBITDA ratio of less than or equal to 1.5 Debt service means in respect of a relevant period, the short term portion of long term borrowings (as defined under IFRS) plus interest paid for that relevant period ( as defined under IFRS). The DSCR is therefore the ratio of cash generated from operations for the relevant period, to debt service for that period. Net Interest bearing Financial Indebtedness means in respect of any relevant period, all short term interest bearing debt and long term interest bearing debt for that relevant period less cash and cash equivalents. The Company was in compliance with such covenants as at 28 February 2014. The Directors believe the company will be able to continue to meet these covenant ratios during the term of the facilities. Inter-creditor and Security Sharing Agreement In terms of the agreements for the multi-creditor loan facility between Econet Wireless Group companies and the lenders listed above - ZTE, Industrial Development Corporation of South Africa, China Development Bank, Ericsson Credit AB, Afrexim Bank - the lenders have agreed to a pool arrangement for security of their facilities. The Security Pool arrangement is contained in the Inter-creditor and Security Sharing Agreement. Afrexim Bank was appointed the “Security Agent” in terms of the Inter-creditor and Security Sharing Agreement to hold in trust security on behalf of the syndicated creditors. The role of the Security Agent being, inter alia, to mobilize the syndicate lenders, holding security on behalf of the lenders, managing the collection of debt service payments on behalf of the lenders and enforcing securities while under instruction of the lenders. Barclays Bank of Zimbabwe Limited, Steward Bank Limited and Ecobank Burundi SA are the “Local Administrative Agents” to assist the Security Agent.
  • 70 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 30 FINANCIAL INSTRUMENTS: INTEREST-BEARING DEBT (continued) Inter-creditor and Security Sharing Agreement (continued) The security pool includes the following: • An Econet Wireless (Private) Limited (EWPL) Notarial General Covering Bond (NGCB) • The Security Agent to be the loss payee on proceeds of All-Risk Insurance policy covering the EWPL assets, and • A charge over escrow accounts established as part of the facility agreements • Econet Wireless Global Limited and Mr. S. T. Masiyiwa (in his personal capacity) have provided irrevocable guarantees to the lenders participating in the inter-creditor and security sharing agreement. 31 DEPOSITS DUE TO BANKS AND CUSTOMERS All figures in US$ 2014 2013 31.1 Due to banks Deposits due to other banks - 3,746,651 31.2 Due to customers Current accounts 10,909,404 20,418,219 Term deposits 8,453,960 12,185,841 19,363,364 32,604,060 19,363,364 36,350,711 31.3 Maturity analysis of deposits Less than 1 month 10,909,404 33,550,247 1 to 3 months 8,453,960 2,800,464 19,363,364 36,350,711 31.4 Sectoral analysis of deposits 2014 2013 US$ % US$ % Financial 449,560 2.3% 3,483,942 9.6% Transport and telecommunications 2,628,524 13.6% 5,331,285 14.7% Mining 15,426 0.1% 18,800 0.1% Manufacturing 121,355 0.6% 2,367 0.0% Agriculture 161,760 0.8% 137,439 0.4% Distribution 284,506 1.5% 2,883 0.0% Services 3,934,700 20.3% 8,014,417 22.0% Government and parastatals 13,499 0.1% - 0.0% Individuals 11,581,738 59.8% 11,720,477 32.2% Other 172,296 0.9% 7,639,101 21.0% 19,363,364 100% 36,350,711 100%
  • 71 FinancialReporting 4 32 CASH FLOW INFORMATION 32.1 Cash generated from operations All figures in US$ 2014 2013 Profit before tax 194,008,861 204,903,243 Adjustments for : Depreciation and impairment 92,018,851 69,684,748 Amortisation and impairment of intangible assets 7,598,977 1,878,500 Bad debts written off 1,323,581 12,245,139 Write off of property, plant and equipment 2,105,775 450,371 Loss on disposal of property, plant and equipment 92,506 224,410 Fair value gains on financial assets at fair value through profit or loss (18,847) (5,030) Impairment of trade receivables 19,678,214 (51,325) Impairment of loans and advances 19,930,954 - Share of (profit)/loss of associate (6,707,066) 2,930,659 Gain on fair value of investment property (809,401) (15,000) Net finance costs 36,441,299 25,946,831 Increase/(decrease) in deferred revenue 3,981,439 (387,551) Cash generated from operations before working capital changes 369,645,143 317,804,995 32.2 Adjustments for working capital changes Increase in inventories (11,458,088) (2,389,124) Increase in trade and other receivables (23,350,566) (17,269,302) Decrease in loans and advances to bank customers 33,119,513 3,518,249 Increase in trade and other payables 50,116,699 22,184,483 Decrease in deposits due to banks and customers (16,987,347) (107,672,757) 31,440,211 (101,628,451) 401,085,354 216,176,544 32.3 Income tax paid Opening balance of liability 6,812,529 8,647,819 Add: tax payable assumed on acquisition of subsidiary - 325,874 Add: current taxation charge for the year (Note 10) 51,038,012 41,129,194 Add: withholding taxes paid (Note 10) 12,826,485 9,806,530 Less: closing balance of liability (17,366,523) (6,812,529) 53,310,503 53,096,888 32.4 Cash and cash equivalents Short term investments - 64,887 Bank balances and cash 71,331,021 78,164,741 71,331,021 78,229,628 Reserved and restricted cash balances 58,265,500 44,964,555 Restricted and reserved cash balances represent debt service reserve amounts which are secured to lenders and amounts held in trust for the EcoCash customers.
  • 72 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 33 RELATED PARTY TRANSACTIONS 33.1 Transactions All figures in US$ 2014 2013 Transactions with Members of Econet Wireless Global Group Sales of goods and services to associates 60,213,320 57,238,627 Sales of goods and services to fellow subsidiaries 540,920 910,070 Purchases of goods and services from associates (50,876,053) (49,100,180) Purchases of goods and services from subsidiaries (32,153,813) (28,810,908) 33.2 Net balances Amounts owed to Members of Econet Wireless Global Group (8,561,184) (13,258,828) Amounts receivable from Members of Econet Wireless Global Group 7,029,674 5,968,160 Details of guarantees provided by the parent company are disclosed in note 30. 33.3 Compensation of key management personnel The remuneration of directors and other members of key management during the year was as follows: Short-term benefits-for management services 6,468,051 5,940,066 For services as directors 1,400,578 387,500 7,868,629 6,327,566 34 GROUP EMPLOYEE BENEFITS Econet Wireless Group Pension Fund Contributions are made to the defined contribution scheme through monthly deduction by the Company on members’ salaries and remitted to the Fund. National Social Security Authority Scheme This is a defined contribution scheme promulgated under the National Social Security Act of 1989. The Company’s obligation under the scheme are limited to specific contributions legislated from time to time. 35 FINANCIAL RISK MANAGEMENT 35.1 Capital risk management The Group’s objectives when managing capital are: • to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and • to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt (as shown in the statement of financial position) less cash and cash equivalents. Adjusted capital comprises all components of equity other than amounts accumulated in equity relating to cash flow hedges, and includes some forms of subordinated debt.
  • 73 FinancialReporting 4 35 FINANCIAL RISK MANAGEMENT (continued) 35.1 Capital risk management (continued) The debt-to-adjusted capital ratios were as follows: All figures in US$ 2014 2013 Total debt 240,280,045 264,570,934 Less: cash and cash equivalents (71,331,021) (78,229,628) Net debt 168,949,024 186,341,306 Total equity 603,719,307 492,883,237 Adjusted debt-to-capital ratio 28% 38% (i) Debt is defined as long- and short-term borrowings, as detailed in note 30. (ii) Equity includes all capital and reserves of the Group. 35.2 Financial risk management objectives The Group’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the group through internal risk reports which analyses exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s Audit Committee, consisting of executive and non-executive directors, meet on a regular basis to analyse, amongst other matters, currency and interest rate exposures and re-evaluate treasury management strategies against revised economic forecasts. Compliance with Group policies and exposure limits is reviewed at quarterly Board meetings. The Group has a dedicated committee of the Board which reviews the loan exposures on a regular basis and monitors repayment plans. The Group has been able to meet its obligations in the current financial period and the Directors believe that appropriate measures have been implemented to ensure that the Group has the ongoing capacity to meet its obligations arising from these exposures. 35.3 Interest rate risk management Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group invests in money market instruments which are subject to changes in interest rates on the local money markets. The Group’s policy is to adopt a non-speculative approach to managing interest rate risk. Approved funding instruments include; bankers acceptances, call loans, overdrafts, foreign loans and where appropriate, long-term loans. The Group has borrowings that are subject to both fixed interest rates and floating interest rates. Details of the Group’s borrowings are described in note 30. The Board of Directors has a committee that is dedicated to reviewing the loan exposures and repayment plans for the Group’s external borrowings. The Committee that reviews the loan exposures meets on a regular basis and uses various models to project the Group’s risk exposures and proposes methods to deal with the risk arising in an appropriate manner. This committee also approves the term sheets for such borrowings, and ensures that the interest rate exposure of the Group is appropriately managed. The sensitivity of the Group’s statement of comprehensive income to the changes in interest rates on its material exposures disclosed in note 35.3.1 below. The Directors, at the reporting date, were not aware of any information or events that may have a significant impact on the reported profit and loss of the Group or that would result in material changes in the structure of the Group’s statement of comprehensive income.
  • 74 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 35 FINANCIAL RISK MANAGEMENT (continued) 35.3.1 Interest rate sensitivity analysis The following table demonstrates the sensitivity to a reasonably possible change in interest rates on interest bearing debt. The interest rate sensitivity is applied on an effective interest rate of 7.8%. 2014 All figures in US$ Adjusted interest Future interest payable at current rate Impact on profit or loss: gain / (loss) Tax effect Impact on equity: gain/(loss) If interest rate goes up by 2% to 9.8% 25,427,165 18,866,150 (6,561,015) 1,689,461 (4,871,554) If interest rate goes down by 2% to 5.8% 10,191,666 18,866,150 8,674,484 (2,233,680) 6,440,804 2013 All figures in US$ Adjusted interest Future interest payable at current rate Impact on profit or loss: gain / (loss) Tax effect Impact on equity: gain/(loss) If interest rate goes up by 2% to 6.7% 43,160,200 34,116,045 (9,044,155) 2,328,870 (6,715,285) If interest rate goes down by 2% to 2.7% 23,986,442 34,116,045 10,129,603 (2,608,373) 7,521,230 35.4 Other price risks Other price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk and currency risk) whether those changes are caused by factors specific to the individual financial instrument or to its issuer or factors affecting all similar financial instruments traded in that market. The Group invests in tradable securities that are quoted on the Zimbabwe Stock Exchange and maintains two portfolios for these investments, a trading portfolio and a long-term investment portfolio. 35.5 Credit risk management Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the credit exposure is controlled by counterparty limits that are reviewed and approved regularly. Financial assets, which potentially subject the group to concentrations of credit risk, consist principally of cash, short-term deposits, trade receivables and intercarrier receivables and payables. The group’s cash equivalents are placed with high quality financial institutions. Trade receivables are presented net of the allowance for impairment losses. Credit risk with respect to debtors is limited due to the widespread customer base and ongoing credit evaluations to maintain credit worthiness of the customers. Where appropriate, trade receivables are converted onto the prepaid service. Intercarrier receivables and payables are regulated by interconnect contracts. Intercarrier receivables and payables for foreign cellular traffic are managed through a reputable foreign finance house which ensures the net monthly outstanding amounts are collected from the foreign interconnect partners. At the reporting date, there was significant concentration of credit risk on the interconnect balances owing to the company. Refer to note 23.
  • 75 FinancialReporting 4 35 FINANCIAL RISK MANAGEMENT (continued) 35.6 Foreign currency risk management The schedule below shows the composition of the bank and cash balances at the respective year end in United States dollars at the reporting date. Bank and cash balances All figures in US$ BWP Euro Rand USD GBP Total 2014 Bank and cash balances 6,870 21,461 452,388 70,846,414 3,888 71,331,021 Closing balance 6,870 21,461 452,388 70,846,414 3,888 71,331,021 2013 Bank and cash balances - 75,727 1,512,472 76,575,165 1,377 78,164,741 Short term deposits - - - 64,887 - 64,887 Closing balance - 75,727 1,512,472 76,640,052 1,377 78,229,628 Foreign currency risk is the risk that the Group may be affected adversely as a result of foreign currency fluctuations on the various currencies that the entity holds. The Group maintains cash and bank balances in various currencies so that payments can be made in the currency of the respective invoices. This covers the entity against short- term foreign currency fluctuations. In addition to this the bulk of the Group’s bank and other monetary balances are United States Dollar denominated thereby minimising this risk. As at year end, the converted values of the non USD denominated bank and other monetary balances were minimal and insignificant to the Group hence a sensitivity analysis has not been performed for foreign currency fluctuations. 35.7 Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. All figures in US$ On demand Less than 3 months 3 to 12 months 1 to 5 years Total Year ended 28 February 2014 Interest-bearing debt 12,385,371 30,137,195 62,905,433 134,852,046 240,280,045 Trade and other payables - 168,988,197 - - 168,988,197 Deposits due to banks and other customers 10,909,404 8,453,960 - - 19,363,364 23,294,775 207,579,352 62,905,433 134,852,046 428,631,606 Year ended 28 February 2013 Interest-bearing debt 2,673,013 32,409,843 67,269,718 259,345,738 361,698,312 Trade and other payables - 118,871,498 - - 118,871,498 Deposits due to banks and other customers 33,550,247 - 2,800,464 - 36,350,711 36,223,260 151,281,341 70,070,182 259,345,738 516,920,521 The disclosed financial instruments in the above table are the gross undiscounted cash flows.
  • 76 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY 36.1 Statement of financial position for Steward Bank Limited All figures in US$ 2014 2013 ASSETS Cash and cash equivalents 19,118,215 25,538,011 Financial assets at fair value through profit or loss 20,750,864 22,562,274 Loans and advances to customers 57,293,301 68,120,307 Loans and advances relating to furniture loans 10,319,006 51,201,320 Financial assets held to maturity 4,088,444 1,359,110 Other receivables 3,243,770 1,701,136 Investment properties 3,276,586 525,518 Property and equipment 4,571,613 8,113,139 Intangible assets 5,587,482 2,758,965 Deferred tax asset 10,497,296 3,050,311 138,746,577 184,930,091 EQUITY AND LIABILITIES Deposits due to banks and customers 62,119,670 103,179,792 Loans and borrowings 2,307,807 4,328,149 Derivative financial instruments - 34,942 Provisions 626,365 583,005 Other liabilities 1,892,751 1,664,245 Equity 71,799,984 75,139,958 138,746,577 184,930,091 36.2 Risk management Risk is inherent in the Bank’s activities, but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is exposed to credit risk, liquidity risk, strategic risk, reputational risk and market risk. It is also subject to country risk and various operating risks. Risk management structure The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies, policies and principles. The Board has established the Assets and Liabilities Management Committee (ALCO) and other governance committees which have the responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits . The Bank also has fully embedded the Bankwide Risk Management Framework with all significant risk types allocated to the risk control owners. Risk measurement and reporting systems Information compiled from all the businesses is examined and processed in order to analyse, control and identify risks on a timely basis. The Board receives a comprehensive risk report once a quarter which is designed to provide all the necessary information in order for them to exercise their oversight role. Excessive risk concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographical location.
  • 77 FinancialReporting 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) Excessive risk concentration (continued) In order to avoid excessive concentrations of risk, the Bank’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. 36.2.1 Credit Risk Credit risk is the risk that the Bank will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentrations, and by monitoring exposures in relation to such limits. The Bank has established a credit quality review process to provide early identification of possible changes in the credit worthiness of counterparties, including regular collateral revisions. Counterparty limits are established by the use of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the bank to assess the potential loss as a result of the risks to which it is exposed and take corrective action. Impairment assessments For accounting purposes, the Bank uses an incurred loss model for the recognition of losses on impaired financial assets. This means that losses can only be recognised when objective evidence of a specific loss event has been observed. Triggering events include the following: - Significant financial difficulty of the customer - A breach of contract such as a default of payment - Where the bank grants the customer a concession due to the customer experiencing financial difficulty - It becomes probable that the customer will enter bankruptcy or other financial reorganisation - Observable data that suggests that there is a decrease in the estimated future cash flows from the loans This approach differs from the expected loss model used for regulatory capital purposes in accordance with Basel II. Individually assessed allowances: The Bank determines the allowances appropriate for each individually significant loan or advance on an individual basis, including any overdue payments of interests, credit rating downgrades, or infringement of the original terms of the contract. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance if it is in a financial difficulty, projected receipts and the expected pay-out should bankruptcy ensue, the availability of other financial support, the realisable value of collateral and the timing of the expected cash flows. Impairment allowances are evaluated at each reporting date, unless unforeseen circumstances require more careful attention. Collectively assessed allowances: Allowances are assessed collectively for losses on loans and advances and for held-to-maturity debt investments that are not individually significant (including residential mortgages, government debt and unsecured consumer lending) and for individually significant loans and advances that have been assessed individually and found not to be impaired. The Bank generally bases its analyses on historical experience. However, when there are significant market developments, regional and/or global, the Bank would include macroeconomic factors within its assessments. These factors include, depending on the characteristics of the individual or collective assessment: unemployment rates, current levels of bad debts, changes in laws, changes in regulations, bankruptcy trends, and other consumer data. The Bank may use the aforementioned factors as appropriate to adjust the impairment allowances.
  • 78 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) Allowances are evaluated separately at each reporting date with each portfolio. The collective assessment is made for groups of assets with similar risk characteristics, in order to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as historical losses on the portfolio, levels of arrears, credit utilisation, loan to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and local or industry–specific problems). The approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. Local management is responsible for deciding the length of this period, which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignment with the Bank’s overall policy. Financial guarantees and letters of credit are assessed in a similar manner as for loans. Credit related commitments risks: The Bank makes available to its customers guarantees that may require that the Bank makes payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit) commit the bank to make payments on behalf of customers in the event of a specific act. Such commitments expose the Bank to similar risks to loans and are mitigated by the same control processes and policies. Analysis of maximum exposure to credit risk and collateral or other credit enhancements held Fair value of collateral and credit enhancements held All figures in US$ Maximum Exposure to Credit Risk Listed Securities Letters of credit /Guarantees Property Other Total Net Exposure to Credit Risk At 28 February 2014: Financial assets: Cash and cash equivalents 12,715,322 - - - - - 12,715,322 Financial assets at fair value through profit or loss 20,750,864 - - - - - 20,750,864 Loans and advances to customers 61,897,766 - - 1,843,470 661,250 2,504,720 59,393,046 Financial assets held to maturity 4,088,444 - - - - - 4,088,444 Other receivables 3,243,768 - - - - - 3,243,768 102,696,164 - - 1,843,470 661,250 2,504,720 100,191,444 Total credit risk exposure 102,696,164 - - 1,843,470 661,250 2,504,720 100,191,444 At 28 February 2013: Financial assets: Cash and cash equivalents 20,960,934 - - - - - 20,960,934 Financial assets at fair value through profit or loss 22,562,274 - - - - - 22,562,274 Loans and advances to customers 72,843,343 - - 6,017,991 5,992,304 12,010,295 60,833,048 Financial assets held to maturity 1,359,109 - - - - - 1,359,109 Other receivables 1,701,136 - - - - - 1,701,136 119,426,796 - - 6,017,991 5,992,304 12,010,295 107,416,501 Total credit risk exposure 119,426,796 - - 6,017,991 5,992,304 12,010,295 107,416,501
  • 79 FinancialReporting 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral. The Bank also obtains guarantees from parent companies for loans to their subsidiaries. Management monitors the market value of collateral, and will request additional collateral in accordance with the underlying agreement. Credit quality per industrial sector The Bank manages the credit quality of financial assets using internal credit ratings. The table below shows the credit quality by industrial sector for all financial assets exposed to credit risk, based on the Bank’s internal credit rating system. The amounts presented are gross of impairment allowances. Neither past due nor impaired All figures in US$ Grade A High grade Grade B Standard grade Grade C Sub- standard Past due but not impaired Individually impaired Total At 28 February 2014: Individuals 134,890 240,850 1,271,868 758,510 1,005,613 3,411,731 Mining - 421,158 - - 450,000 871,158 Manufacturing 52,621,213 44,814 - - 649,898 53,315,925 Agriculture 41,682 371,929 - 234,266 889,669 1,537,546 Distribution 9,452 409,590 - - 241,044 660,086 Services 547,185 - 185,894 - 1,368,242 2,101,321 53,354,422 1,488,341 1,457,762 992,776 4,604,466 61,897,767 The Bank’s concentrations of risk are managed by client/counterparty, by geographical region and by industry sector. The maximum credit exposure to any client or counterparty as of 28 February 2014 was US$30.6 million (2013: US$ 8.5 million) Neither past due nor impaired All figures in US$ Grade A High grade Grade B Standard grade Grade C Sub- standard Past due but not impaired Individually impaired Total At 28 February 2013: Individuals 2,865,597 1,118,216 198,920 - 2,181,007 6,363,740 Mining - 35,148 - 2,306,906 2,172,295 4,514,349 Manufacturing 42,935,744 33,180 - - 1,647,330 44,616,254 Agriculture - - - - 3,131,329 3,131,329 Distribution - - - - 4,204,801 4,204,801 Services 6,945,404 846,083 6,398 54,732 2,160,253 10,012,870 52,746,745 2,032,627 205,318 2,361,638 15,497,015 72,843,343
  • 80 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) Commitments and guarantees To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognised on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Bank. The table below shows the Bank’s maximum credit risk exposure for commitments and guarantees. The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Bank could have to pay if the guarantee is called upon. The maximum exposure to credit risk relating to a loan commitment is the full amount of the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognised as a liability in the statement of financial position. All figures in US$ 2014 2013 Financial guarantees 63,300,000 40,904,200 Commitments to lend 24,000 300,574 63,324,000 41,204,774 Included in Financial Guarantees at 28 February 2014 is an amount of US$23.3 million extended to Econet Wireless Zimbabwe Limited, the Bank’s holding company and Econet Wireless (Private) Limited, the Bank’s fellow subsidiary. 36.2.2 Liquidity Risk and Funding Management Liquidity risk is defined as the risk that the Bank will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Bank might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis. The Bank has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required. The Bank maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption of cash flow. The Bank places emphasis on lines of credit that it can access to meet liquidity needs. In accordance with the Bank’s policy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Bank. The most important of these is to maintain limits on the ratio of net liquid assets to customer liabilities, to reflect market conditions. The key ratios during the year were, as follows: 2014 2013 At 28 February Maximum during period Minimum during period At 28 February Maximum during period Minimum during period Advances to deposits ratio Net liquid assets to customer liabilities ratio 100% 29% 146% 31% 87% 2% 68% 25% 99% 24% 72% 2% The Bank stresses the importance of current accounts and savings accounts as sources of funds to finance lending to customers. They are monitored using the advances to deposit ratio, which compares loans and advances to customers as a percentage of core customer current and savings accounts, together with term funding with a remaining term to maturity in excess of one year. Loans to customers that are part of reverse repurchase arrangements, and where the Bank receives securities which are deemed to be liquid, are excluded from the advances to deposits ratio.
  • 81 FinancialReporting 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) The Bank defines liquid assets for the purposes of the liquidity ratio as cash balances, short–term interbank deposits and highly-rated debt securities available for immediate sale and for which a liquid market exists. Analysis of financial assets and liabilities by remaining contractual maturities The table below summarises the maturity profile of the undiscounted cash flows of the Bank’s financial assets and liabilities. Repayments which are subject to notice are treated as if notice were to be given immediately. However, the Bank expects that many customers will not request repayment on the earliest date the Bank could be required to pay and the table does not reflect the expected cash flows indicated by the Bank’s deposit retention history. All figures in US$ On demand Less than 3 months 3 monts to 1 year 1 year to 5 years Over 5 years Total At 28 February 2014: Financial assets: Cash and cash equivalents 19,118,215 - - - - 19,118,215 Financial assets at fair value through profit or loss 20,750,864 - - - - 20,750,864 Loans and advances to customers 13,212,355 139,393 1,262,120 46,647,193 636,705 61,897,766 Loans and advances relating to furniture loans - - 10,346,031 15,519,047 - 25,865,078 Financial assets held to maturity - - - - 4,088,444 4,088,444 Other receivables - 3,243,770 - - - 3,243,770 Total undiscounted financial assets 53,081,434 3,383,163 11,608,151 62,166,240 4,725,149 134,964,137 Financial liabilities: Deposits due to banks and customers 45,622,074 16,497,596 - - - 62,119,670 Loans and borrowings 918,381 437,878 1,052,817 - - 2,409,076 Total undiscounted financial liabilities 46,540,455 16,935,474 1,052,817 - - 64,528,746 Net undiscounted financial assets/ (liabilities) 6,540,979 (13,552,311) 10,555,334 62,166,240 4,725,149 70,435,391
  • 82 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) All figures in US$ On demand Less than 3 months 3 monts to 1 year 1 year to 5 years Over 5 years Total At 28 February 2013: Financial assets: Cash and cash equivalents 25,538,011 - - - - 25,538,011 Financial assets at fair value through profit or loss 22,562,274 - - - - 22,562,274 Loans and advances to customers 41,676,094 1,800,000 25,499,472 3,867,777 - 72,843,343 Loans and advances relating to furniture loans - - 20,480,528 30,720,792 - 51,201,320 Financial assets held to maturity - - - - 1,359,109 1,359,109 Other receivables - 1,701,136 - - - 1,701,136 Total undiscounted financial assets 89,776,379 3,501,136 45,980,000 34,588,569 1,359,109 175,205,193 Financial liabilities: Deposits due to banks and customers 100,379,328 2,800,464 - - - 103,179,792 Derivative financial liabilities - 34,942 - - - 34,942 Loans and borrowings - 1,796,818 1,970,453 1,313,636 - 5,080,907 Total undiscounted financial liabilities 100,379,328 4,632,224 1,970,453 1,313,636 - 108,295,641 Net undiscounted financial assets/ (liabilities) (10,602,949) (1,131,088) 44,009,547 33,274,933 1,359,109 66,909,552 The table below shows the contractual expiry by maturity of the bank’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest date it can be drawn down. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. All figures in US$ On demand Less than 3 months 3 monts to 1 year 1 year to 5 years Over 5 years Total At 28 February 2014: Financial guarantees - - 63,300,000 - - 63,300,000 Commitments to lend - 24,000 - - - 24,000 Total commitments and guarantees - 24,000 63,300,000 - - 63,324,000 At 28 February 2013: Financial guarantees 40,904,200 - - - - 40,904,200 Commitments to lend 300,574 - - - - 300,574 Total commitments and guarantees 41,204,774 - - - - 41,204,774 The Bank expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments.
  • 83 FinancialReporting 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) 36.2.3 Market Risk Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Board has established limits on the non–trading interest rate gaps for stipulated periods. The Bank’s policy is to monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within the established limits. Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Bank’s statement of comprehensive income. The sensitivity of the statement of comprehensive income is the effect of the assumed changes in interest rates on the profit or loss for a year, based on the variable and fixed rate financial assets and financial liabilities held. 2014 2013 Change in interest rates % Sensitivity of profit or loss US$ Sensitivity of capital US$ Change in interest rates % Sensitivity of profit or loss US$ Sensitivity of capital US$ Currency: USD +6 4,763,928 4,763,928 +6 6,088,010 6,088,010 USD +4 3,175,952 3,175,952 +4 4,058,673 4,058,673 USD +2 1,587,976 1,587,976 +2 2,029,337 2,029,337 USD -2 (1,587,976) (1,587,976) -2 (2,029,337) (2,029,337) USD -4 (3,175,952) (3,175,952) -4 (4,058,673) (4,058,673) USD -6 (4,763,928) (4,763,928) -6 (6,088,010) (6,088,010) Interest rate repricing and gap analysis The table below analyses the Bank’s interest rate risk exposure on assets and liabilities. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates.
  • 84 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) All figures in US$ On demand Less than 3 months 3 monts to 1 year 1 year to 5 years Non- interest bearing Total TOTAL POSITION At 28 February 2014 Assets: Cash and cash equivalents - - - - 19,118,215 19,118,215 Financial assets at fair value through profit or loss - - - - 20,750,864 20,750,864 Loans and advances to customers 27,958,699 139,393 1,262,120 27,933,089 - 57,293,301 Loans and advances relating to furniture loans - - - 10,319,006 - 10,319,006 Financial assets held to maturity - - - 4,088,444 - 4,088,444 Other receivables - - - - 3,243,770 3,243,770 Investment properties - - - - 3,276,586 3,276,586 Property and equipment - - - - 4,571,613 4,571,613 Intangible assets - - - - 5,587,482 5,587,482 Deferred tax asset - - - - 10,497,295 10,497,295 27,958,699 139,393 1,262,120 42,340,540 67,045,825 138,746,577 Liabilities and equity: Deposits due to banks and customers 45,622,074 16,497,596 - - - 62,119,670 Loans and borrowings 699,442 437,879 1,170,486 - - 2,307,807 Provisions - - - - 626,365 626,365 Other liabilities - - - - 1,892,751 1,892,751 Equity - - - - 71,799,984 71,799,984 46,321,516 16,935,475 1,170,486 - 74,319,100 138,746,577 Interest rate repricing gap (18,362,817) (16,796,082) 91,634 42,340,540 (7,273,275) - Cumulative gap (18,362,817) (35,158,899) (35,067,265) 7,273,275 - -
  • 85 FinancialReporting 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) All figures in US$ On demand Less than 3 months 3 monts to 1 year 1 year to 5 years Non- interest bearing Total TOTAL POSITION At 28 February 2013 Assets: Cash and cash equivalents - - - - 25,538,011 25,538,011 Financial assets at fair value through profit or loss - - - - 22,562,274 22,562,274 Loans and advances to customers 41,676,094 1,800,000 21,473,902 5,565,164 - 70,515,160 Loans and advances relating to furniture loans - - 19,348,936 29,023,405 - 48,372,341 Financial assets held to maturity - - - - 1,359,109 1,359,109 Other receivables - - - - 1,701,136 1,701,136 Investment properties - - - - 525,517 525,517 Property and equipment - - - - 8,113,139 8,113,139 Intangible assets - - - - 2,758,965 2,758,965 Deferred tax asset - - - - 3,050,311 3,050,311 41,676,094 1,800,000 40,822,838 34,588,569 65,608,462 184,495,963 Liabilities and equity: Deposits due to banks and customers 100,379,328 2,800,464 - - - 103,179,792 Loans and borrowings 144,549 1,594,201 1,376,703 1,212,696 - 4,328,149 Derivative financial instruments - - - - 34,942 34,942 Provisions - - - - 583,005 583,005 Other liabilities - - - - 1,230,118 1,230,118 Equity - - - - 75,139,957 75,139,957 100,523,877 4,394,665 1,376,703 1,212,696 76,988,022 184,495,963 Interest rate repricing gap (58,847,783) (2,594,665) 39,446,135 33,375,873 (11,379,560) - Cumulative gap (58,847,783) (61,442,448) (21,996,313) 11,379,560 - - Foreign currency exchange rate risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. In accordance with the Bank’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits. In view of the Bank’s minimal exposures to other currencies in the financial periods presented, the impact of currency fluctuations with the United States Dollar are not anticipated to have a significant impact on the Bank’s profit or loss and capital. Operational Risk Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Bank cannot expect to eliminate all operational risks, but it endeavours to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education and assessment processes, such as the use of internal audit.
  • 86 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) Compliance Risk Complianceriskisthecurrentandprospectiverisktoearningsorcapitalarisingfromviolationsof,ornon-conformance with, law, rules, regulations, prescribed practices, internal policies, and procedures, or ethical standards. This risk exposes the institution to fines and payment of damages. Compliance risk can lead to diminished reputation, limited business opportunities, reduced expansion potential, and an inability to enforce contracts. The Internal Audit and the Risk Department ensure that the Bank fully complies with all relevant laws and regulations. Reputational Risk Reputational risk is the current and prospective impact on earnings and capital arising from negative public opinion. This affects the institution’s ability to establish new relationships or services or continue servicing existing relationships. This risk may expose the institution to litigation, financial loss, or a decline in its customer base. The Bank has a Business Development department whose mandate is to manage this risk. 37 CAPITAL MANAGEMENT - IN RESPECT OF BANKING OPERATIONS The objective of the Bank’s capital management is to ensure that it complies with the Reserve Bank of Zimbabwe (RBZ) requirements. In implementing the current capital requirements, the RBZ requires the Bank to maintain a prescribed ratio of total capital to total risk weighted assets. Risk weighted assets are arrived at by applying the appropriate risk factor as determined by the RBZ to the monetary value of the various assets as they appear on the Bank’s statement of financial position. Regulatory capital consists of: - Tier 1 Capital (“the core capital”), which comprises of share capital, share premium, retained earnings (including the current year profit or loss), the statutory reserve and other equity reserves. - Tier 2 Capital (“supplementary capital”), which includes subordinated term debt, revaluation reserves and portfolio provisions. The core capital shall comprise not less than 50% of the capital base and portfolio provisions are limited to 1.25% of total risk weighted assets. Tier 3 Capital (“tertiary capital”) relates to an allocation of capital to meet market and operational risks.
  • 87 FinancialReporting 4 37 CAPITAL MANAGEMENT - IN RESPECT OF BANKING OPERATIONS (continued) The Bank’s regulatory capital position was as follows: All figures in US$ 2014 2013 Share capital 4,077 4,075 Share premium 106,317,629 83,311,858 Retained earnings (36,434,372) (9,539,051) 69,887,334 73,776,882 Less: Capital allocated for market and operational risk (7,778,045) (3,397,146) Advances to insiders (1,753,119) (2,693,125) Guarantees to insiders* (23,300,000) - Tier 1 capital 37,056,170 67,686,611 Tier 2 capital 1,912,650 1,363,075 Non-distributable reserve 26,856 21,936 Portfolio provisions 1,885,794 1,341,139 TotalTier 1 and 2 capital 38,968,820 69,049,686 Tier 3 capital (sum of market and operational risk capital) 7,778,045 3,397,146 Total Capital Base 46,746,865 72,446,832 Total risk weighted assets 142,527,572 171,910,374 Tier 1 ratio 26% 39% Tier 2 ratio 1% 1% Tier 3 ratio 5% 2% Total capital adequacy ratio 32% 42% RBZ minimum requirement 12% 12% *In December 2013, the Bank provided a guarantee facility to Econet Wireless Zimbabwe Limited, its holding company, and another to Econet Wireless (Private) Limited, a fellow subsidiary, as security for loan facilities of US$20 million and US$8 million, respectively, which were obtained from Afrexim Bank. The loan facilities have a tenor of 12 months, with monthly repayments of capital and interest. In line with banking regulations governing the treatment of bank exposures to insiders, the Bank has taken the prudent approach of reflecting the guarantee facility amounts remaining as a reduction to its core capital at 28 February 2014. The amount of the bank guarantees however reduces on a monthly basis in line with Econet Wireless Zimbabwe Limited and Econet Wireless (Private) Limited’s loan repayments to Afrexim Bank, resulting in a corresponding decrease to the reduction in core capital emanating from the guarantees advanced to insiders.
  • 88 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 38 OPERATING LEASE ARRANGEMENTS 38.1 Leasing arrangements Operating leases include leases of certain buildings and sites where the Group’s base stations are located. The remaining lease terms vary between 4 months and 8 years. Various options exist for the Group to renew the leasing arrangements on expiry. All figures in US$ 2014 2013 38.2 Payments recognised as an expense Minimum lease payments 3,412,798 5,689,184 38.3 Non-cancellable lease commitments Not later than one year 6,304,543 5,123,394 Later than one year and not later than five years 14,813,035 11,587,297 Later than five years 5,739,852 1,196,676 26,857,430 17,907,367 39 GOING CONCERN The Directors have assessed the ability of the company to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is appropriate. The cellular operating licence of the principal subsidiary in the Group was renewed effective 10 July 2013 for an additional 20 years. 40 BORROWING POWERS In terms of the Company’s Articles of Association, the directors may exercise the powers of the Company to borrow up to 200% of the aggregate of: -the issued share capital and share premium or stated capital of the Company and: -the distributable and non-distributable reserves, including unappropriated profits of the Company reduced by any adverse amount reflected in the statement of comprehensive income, excluding: - goodwill - revaluation reserves arising prior to 28 February of each year - provision for taxation, deferred tax, and any balance standing to the credit of the tax equalisation account. The current borrowings are within the limit. 41 CAPITAL COMMITMENTS All figures in US$ 2014 2013 Authorised and contracted for 139,940,260 44,448,403 Authorised and not contracted for 49,765,045 126,138,887 189,705,305 170,587,290 The capital expenditure is to be financed from internal cash generation, extended supplier credits and bank credits.
  • 89 FinancialReporting 4 42 CONTINGENT LIABILITIES Ecolife The matter relating to First Mutual Assurance Company (Private) Limited and Trustco (Pty) Limited was settled in the courts and there is no liabilities arising from it. Tax Matters The Group is regularly subject to an evaluation by tax authorities on its direct and indirect tax filings. The consequence of such reviews is that disagreements can arise with tax authorities over the interpretation or application of certain tax rules applicable to the Group’s business. Such disagreements may not necessarily be resolved in a manner that is favourable to the Group. Additionally, the resolution of the disputes could result in an obligation to the Group. 43 ACQUISITION OF SUBSIDIARY 43.1 Acquisition of Steward Bank Limited In a business acquisition, on 12 July 2012, the Group acquired 45% of the voting shares of Steward Bank Limited (formerly TN Bank Limited), a commercial bank incorporated and registered in Zimbabwe whose principal business is to provide retail, corporate, and investment banking services in the key economic centres of Zimbabwe. This investment gave the Group significant influence over the financial and operating affairs of Steward Bank Limited and as such it was accounted for as an associate from that date, refer Note 18.2. The Group acquired a further 53.6% of the voting shares of Steward Bank on 31 January 2013 bringing its total interest to 98.6%. As a result, Steward Bank was consolidated as a subsidiary from that date. In the current financial year, the Group acquired the remaining 1.4% of the shares in Steward Bank Limited effectively owning the bank 100%. The Group acquired Steward Bank Limited because it significantly enlarges the range of products that can be offered to its clients. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of Steward Bank Limited as at the date of acquisition were: All figures in US$ Fair value recognised on acquisition 2014 Fair value recognised on acquisition 2013 Assets Balances with banks and cash - 17,094,485 Available for sale investments - 18,795,537 Other receivable - 3,266,789 Loans and advances to customers - 122,839,876 Property, equipment and vehicles - 8,226,563 Investment property - 525,517 Deferred taxation - 2,151,404 Intangible assets - 2,814,495 - 175,714,666 Liabilities Deposits and other accounts - (150,995,267) Loans and borrowings - (4,483,694) Accruals and other payables - (1,689,313) Taxation payable - (325,873) - (157,494,147) Total identifiable net assets at fair value - 18,220,519 Non controlling-interest - (286,062) Goodwill - 6,090,632 Purchase consideration - 24,025,089
  • 90 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 43 ACQUISITION OF SUBSIDIARY 43.1 The acquisition of Steward Bank Limited (continued) The fair values of the loans and advances to customers at acquisition date were US$122 839 876. The fair values of property, equipment and vehicles at acquisition date were US$8 226 563. The gross contractual amounts of loans and advances to customers at acquisition date were US$122 839 876. The gross contractual amounts of property, equipment and vehicles at acquisition date were US$8 226 563. There was no gain or loss realised as a result of remeasurement to fair value at date of acquisition. This is because the carrying amounts of the assets acquired and liabilities were assumed to approximate their fair values. All figures in US$ 2014 2013 Purchase consideration Consideration paid Paid for by treasury shares - 11,545,533 Paid for in cash - 496,946 Fair value of 45% investment already held (note 18.2) - 11,982,610 Total consideration - 24,025,089 Analysis of cash flows on acquisition: Net cash acquired with the subsidiary (included in cash flows from investing activities) - 17,094,485 Consideration paid for in cash on acquisition of subsidiary - (496,946) Net cash inflow on acquisition of subsidiary - 16,597,539 The Group issued 2,520,589 ordinary shares (before the share split) as consideration for the 53.6% interest in Steward Bank Limited. The fair value of the shares is the published price of the shares of the Group as at the date of offer, which was US$4.58 each. The fair value of the consideration given is therefore US$11 545 533. 43.2 Goodwill Goodwill arose on the acquisition of Steward Bank Limited because the cost of the acquisition included a control premium. 43.3 Impact of acquisition on results of the Group Included in the profit for the year ended 28 February 2013, are profits amounting to US$5 574 291 attributable to additional business generated by Steward Bank . Revenue for the year includes US$1 128 381 relating to Steward Bank. Had the business combination been effected at 1 March 2012, the effect on the Group’s revenue and profit for the year would not have been material. 43.4 Compulsory acquisition of remaining non-controlling interest In the current financial year, the Group acquired the remaining 1.4% of the shares in Steward Bank effectively owning the bank 100%. Shareholding as at 28 February 2013 98.60% Additional acquisition 1.40% Shareholding as at 28 February 2014 100.00% The Group paid a total of US$302 859 to the remaining non-controlling interest for this acquisition. 44 EVENTS AFTER THE REPORTING DATE On 25 April 2014, the Board of Directors declared a dividend in respect of the year ended 28 February 2014, of US cents 1.29 per share. 45 APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the board of directors and authorised for issue on 25 April 2014.
  • 91 FinancialReporting 4 46 COMPANY STATEMENTS OF FINANCIAL POSITION All figures in US$ 2014 2013 ASSETS Non-current assets Property, plant and equipment 622,500 630,412 Investment in subsidiaries (Note 16.1) 124,469,861 101,177,368 Available-for-sale investments 366,070 1,034,308 Investment in associate (Note 18.1) 20,768,186 14,061,120 Long term intercompany receivable (Note 16.2) 1,886,351 1,886,351 Total non-current assets 148,112,968 118,789,559 Current assets Short-term inter-company receivables (Note 16.2) 16,385,901 485,277 Other receivables - 4,724,540 Cash and cash equivalents 792,151 4,236,695 Total currents assets 17,178,052 9,446,512 Total assets 165,291,020 128,236,071 EQUITY AND LIABILITIES EQUITY Share capital and reserves (7,341,861) (3,388,829) LIABILITIES Non current liabilities Intercompany payables 154,109,695 128,313,235 Current liabilities Short term portion of long term borrowings (Note 16.2) 16,385,901 - Other payables 2,137,285 3,311,665 Total current liabilities 18,523,186 3,311,665 Total equity and liabilities 165,291,020 128,236,071 DIRECTORS Dr J. Myers D. Mboweni K. V. Chirairo CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR 25 April 2014
  • 92 4 Policy note IFRS/IAS Reference Content A IAS 1 Presentation of financial statements: General information and functional currency B IFRS 1 (revised) First time adoption of IFRS C IAS 8 Change in accounting policy, adoption of new and revised Standards D IAS 21 Effects of changes in foreign exchange rates E IFRS 3 IAS 27, IFRS 10 Business combinations, basis of consolidation F IAS 28 Investment in associates and joint ventures G IAS 38 Intangible assets H IAS 23 Borrowing costs I IAS 16 Property, plant and equipment J IAS 40 Investment properties K IAS 36 Impairment of property, plant and equipment, investment property, and intangible assets L IAS 17 Leases M IAS 2 Inventories N IAS 18 Revenue O IAS 12 Income taxes P IAS 19, 26 Employee benefits and retirement benefits Q IFRS 2 Share-based payments R IAS 32, 37, 39, IFRS 7, 9 Financial instruments S IAS 32 Treasury shares T IFRS 8 Operating segments U IAS 37 Provisions V Financial Guarantees W Fiduciary Assets X IAS 1 (Revised) Significant assumptions and key sources of estimation uncertainty IAS 33 Earnings per share IAS 24 Related party disclosures IAS 10 Events after the reporting period Y IFRS 13 Fair value measurements Z Current versus non-current classification Policy Notes To The Consolidated Financial Statements For the year ended 28 February 2014
  • 93 FinancialReporting 4 A GENERAL INFORMATION A.1 The Company The Company was incorporated in Zimbabwe on 4 August 1998 and its main operating subsidiary, Econet Wireless (Private) Limited, 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 which is incorporated in Mauritius. Except where specific reference is made to “the Company”, the notes disclosed in these financial statements pertain to the Group. A.2 Currency of Account 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. B.1 BASIS OF PREPARATION The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), the International Financial Reporting Interpretations Committee (IFRIC) and the Zimbabwe Companies Act (Chapter 24:03) and related statutory instruments. With the exceptions noted below in policy note C1 “New and Revised Standards and Interpretations-Adopted”, the accounting policies set out below have been consistently applied from the previous year and through the current year. B.2 BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of Econet Wireless Zimbabwe Limited and its subsidiaries as at 28 February 2014. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee, and • The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement with the other vote holders of the investee • Rights arising from other contractual arrangements • The Group’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income and financial position from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. 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 the consideration received • Recognises the fair value of any investment retained • Recognises any surplus or deficit in profit or loss.
  • 94 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 • Reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities. C NEW AND REVISED STANDARDS C.1 New and Revised Standards and Interpretations - Adopted The accounting policies adopted are consistent with those of the previous financial year, except for the following amended IFRS effective for the Group with effect from 1 March 2013. The amended standards, described below, did not have a material impact on the financial position or performance of the Group. IAS 1 Financial statement presentation (Amendment): The amendment requires that items of other comprehensive income (OCI) be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. The amendment affects presentation only and has no effect on the Group’s financial position or performance. IAS 19 Post employee benefits (Amendment): The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The more significant changes include the following: • For defined benefit plans, the ability to defer recognition of actuarial gains and losses (i.e. the corridor approach) has been removed. As revised, actuarial gains and losses are recognised in Other Comprehensive Income (OCI) when they occur. Amounts recorded in profit or loss are limited to current and past service costs, gains or losses on settlements, and net interest income (expense). All other changes in the net defined benefit asset (liability) are recognised in OCI with no subsequent recycling to profit or loss. • Objectives for disclosures of defined benefit plans are explicitly stated in the revised standard, along with new or revised disclosure requirements. These new disclosures include quantitative information of the sensitivity of the defined benefit obligation to a reasonably possible change in each significant actuarial assumption. • Termination benefits will be recognised at the earlier of when the offer of termination cannot be withdrawn, or when the related restructuring costs are recognised under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The distinction between short-term and other long-term employee benefits will be based on expected timing of settlement rather than the employee’s entitlement to the benefits. IAS 27 Separate Financial Statements (as revised in 2011): As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The amendment did not impact the accounting in the Company’s separate financial statements. IAS 28 Investments in Associates and Joint Ventures (as revised in 2011): As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment did not have a significant impact on the Group as the Group does not have any investments in joint ventures previously accounted for using proportionate consolidation. IAS 32 Financial Instruments: Presentation (Amendment) – Offsetting Financial Assets and Financial Liabilities: The IASB issued an amendment to clarify the meaning of “currently has a legally enforceable right to set off the recognised amounts” (IAS 32.42(a)). This means that the right of set-off: • must not be contingent on a future event; and • must be legally enforceable in all of the following circumstances: o the normal course of business; o the event of default; and o the event of insolvency or bankruptcy of the entity and all of the counterparties. The Group has adopted the standard during the current year with no impact on the Group’s performance or position.
  • 95 FinancialReporting 4 IFRS 7 Disclosures: Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7: These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. The amendment is effective for annual periods beginning on or after 1 January 2013. The Group does not have any assets with these characteristics so there has been no effect on the presentation of its financial statements. IFRS 10 Consolidated Financial Statements: IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12 Consolidation – Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Application of the standard did not result in changes as to which entities are controlled by the Group. As a result, all entities that were treated as subsidiaries or associates in the prior year are still accounted for as subsidiaries or associates in the current year. IFRS 11 Joint Arrangements: IFRS 11 replaces IAS 31 and SIC-13. Joint control under IFRS 11 is defined as the contractually agreed sharing of control of an arrangement, which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. The reference to ‘control’ in ‘joint control’ refers to the definition of ‘control’ in IFRS 10. IFRS 11 also changes the accounting for joint arrangements by moving from three categories under IAS 31 to the following two categories: Joint operation — An arrangement in which the parties with joint control have rights to the assets and obligations for the liabilities relating to that arrangement. Joint operations are accounted for by showing the party’s interest in the assets, liabilities, revenues and expenses, and/or its relative share of jointly controlled assets, liabilities, revenue and expenses, if any. Joint venture — An arrangement in which the parties with joint control have rights to the net assets of the arrangement. Joint ventures are accounted for using the equity accounting method. The option to account for joint ventures (as newly defined) using proportionate consolidation has been removed. Under this new classification, the structure of the joint arrangement is not the only factor considered when classifying the joint arrangement as either a joint operation or a joint venture, which is a change from IAS 31. Under IFRS 11, parties are required to consider whether a separate vehicle exists and, if so, the legal form of the separate vehicle, the contractual terms and conditions, and other facts and circumstances. The Group has evaluated its investments in other entities and concluded that they are not joint arrangements. As a result the standard did not have an impact on the Group. IFRS 12 Disclosure of Interest in Other Entities: IFRS 12 includes all the disclosures that were previously required relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities as well as a number of new disclosures. An entity is now required to disclose the judgements made to determine whether it controls another entity. IFRS 12 disclosures are provided in note 18. IFRS 13 Fair Value Measurement: IFRS 13 establishes a single framework for all fair value measurement (financial and non-financial assets and liabilities) when fair value is required or permitted by IFRS. IFRS 13 does not change when an entity is required to use fair value but rather describes how to measure fair value under IFRS when it is permitted or required by IFRS as well as providing clarification on certain areas. There are also consequential amendments to other standards to delete specific requirements
  • 96 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 for determining fair value. IFRS 13 defines fair value as an exit price. As a result of the guidance in IFRS 13, the Group re-assessed its polices for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair value measurement of liabilities. IFRS 13 also requires additional disclosures. Application of IFRS 13 has not materially impacted the fair value measurements of the Group. Additional disclosures where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in Note 20. Recoverable Amount Disclosures for Non- Financial Assets – Amendments to IAS 36 Impairment of Assets: These amendments remove the unintended consequences of IFRS 13 on the disclosures required under IAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or CGUs for which impairment loss has been recognised or reversed during the period. These amendments are effective retrospectively for annual periods beginning on or after 1 January 2014 with earlier application permitted, provided IFRS 13 is also applied. The Group has early adopted these amendments to IAS 36 in the current period since the amended/additional disclosures provide useful information as intended by the IASB. Accordingly, these amendments have been considered while making disclosures for impairment of non-financial assets. These amendments would continue to be considered for future disclosures. IFRS 13 Fair Value Measurement - Short term receivables and payables The IASB clarified in the Basis for Conclusions that short term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial. This is effective immediately. The Group has evaluated that the effect of discounting on its short term receivables and payables is not material. C.2 Standards issued but not yet effective at the reporting date Standards issued but not yet effective up to the date of issuance of the consolidated financial statements are listed below: IFRS 9 Financial Instruments: Classification and Measurement: IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The Group is currently assessing the impact of adopting IFRS 9, however, the impact of adoption depends on the assets held by the Group at the date of adoption and it is not practical to quantify the effect and this will be done when the final standard including all phases is issued. Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) These amendments are effective for annual periods beginning on or after 1 January 2014 provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to the Group, since none of the entities in the Group would qualify to be an investment entity under IFRS 10. IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after 1 January 2014. These amendments are not expected to be relevant to the Group. IFRIC Interpretation 21 Levies (IFRIC 21) IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached.
  • 97 FinancialReporting 4 IFRIC 21 is effective for annual periods beginning on or after 1 January 2014. The Group does not expect that IFRIC 21 will have material financial impact in future financial statements. IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39 These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after 1 January 2014. The Group has no derivatives during the current period. However, these amendments would be considered in the future. Improvements to IFRSs In December 2013, the IASB issued two cycles of Annual Improvements to IFRSs that contain changes to 9 standards. The changes are effective from 1 July 2014 either prospectively or retrospectively. A summary of each amendment is described below: IFRS 2 Share based payment (Amendments to Definitions relating to vesting conditions) Performance conditions and service conditions are defined in order to clarify various issues. The issues relate to performance conditions which must contain a service condition and a performance target which must be met while the counterparty renders service. The amendment also clarifies that a performance target may relate to the operations of an entity or to those of an entity in the same group. The amendment is effective from 1 July 2014 and is not expected to have a material impact on the Group financial statements. The Group does not currently have share based payments. IFRS 3 Business Combinations -Scope for joint ventures The amendment clarifies that joint arrangements are outside the scope of IFRS 3, not just joint ventures and the scope exception applies only to the accounting in the financial statements of the joint arrangement itself. Amendment will not affect the Group as it is currently not part to any joint arrangements. This amendment is effective from 1 July 2014. IFRS 3 Business Combinations - Accounting for contingent consideration in a business combination Contingent consideration in a business acquisition that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of IFRS 9 Financial Instruments. The amendment will not have a material impact on the financial statements of the Group. IFRS 8 Operating Segments -Aggregation of operating segments and reconciliation of the total of the reportable segment assets to the entity’s total assets. Operating segments may be combined/ aggregated if they are consistent with the core principle of the standard, if the segments have similar economic characteristics and if they are similar in other qualitative respects. If they are combined, the entity must disclose the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’. The amendment is not expected to impact the Group. Reconciliation of the total of the reportable segment assets to the entity’s total assets. The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities. The amendment is not expected to affect the Group’s segment reporting. IFRS 13 Fair value measurement - Portfolio exception The amendment clarifies that the portfolio exception in IFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is not expected to affect the Group. The amendment is effective from 1 July 2014. IAS 16 Property, plant and equipment and IAS 38 Impairment - Revaluation method- proportionate restatement of accumulated depreciation The amendment clarifies that revaluation can be performed by adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying amount and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. The amendment also clarified that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount of the asset (i.e., gross carrying amount – accumulated depreciation/ amortisation = carrying amount).
  • 98 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 The amendment to IAS 16.35(b) and IAS 38.80(b) clarifies that the accumulated depreciation/ amortisation is eliminated so that the gross carrying amount and carrying amount equal the market value. The Group will need to consider the impact of the amendment when it becomes effective as it does revalue its properties. The amendment is effective from 1 July 2014. IAS 24 Related party disclosures - Key management personnel The amendment clarifies that a management entity – an entity that provides key management personnel services – is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. Amendment will not affect the Group as it has no management entity providing key management services to the Group. The amendment is effective from 1 July 2014. IAS 40 Investment property -Clarifying the interrelationship of IFRS 3 and IAS 40 when classifying investment property or owner occupied property- Amendment to IAS 40. The description of ancillary services in IAS 40 differentiates between investment property and owner occupied property. IFRS 3 is used to determine if the transaction is the purchase of an asset or a business combination. The amendment is not expected to affect the Group and is effective 1 July 2014. D EFFECT OF CHANGES IN FOREIGN CURRENCY RATES – IAS 21 Foreign currency translation The Group’s consolidated financial statements are presented in United States dollars (US$), which is also the parent company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group has elected to recycle the gain or loss that arises from the direct method of consolidation, which is the method the Group uses to complete its consolidation. i) Transactions and balances Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are re-translated at the functional currency spot rate of exchange at the reporting date. All differences arising on settlement or translation of monetary items are presented in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on re-translation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss. E BUSINESS COMBINATIONS – IFRS 3 Recognition 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. Acquisition costs incurred are expensed. Measurement at acquisition 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.
  • 99 FinancialReporting 4 The acquiree’s 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 are recognised and measured at their fair values at the acquisition date, except: (i) non-current assets (or disposal groups) that are classified as held-for-sale which are recognised and measured in accordance with IFRS 5 “Non- current Assets Held-for-Sale and Discontinued Operations”; (ii) liabilities or equity instruments related to share- based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree which are measured in accordance with IFRS 2 Share-based payment transactions; (iii) deferred tax assets or liabilities which are recognised and measured in accordance with IAS 12 Income Taxes; and (iv) assets and liabilities related to employee benefits which are recognised and measured in accordance with IAS 19 Employee benefits. 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 re-measured to fair value at the acquisition date through profit or loss. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in the business combination. 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 in profit or loss. If the contingent consideration is classified as equity, it shall not be re-measured until it is finally settled within equity. Measurement of goodwill at acquisition Goodwill arising on acquisition is recognised as an asset and initially is measured at cost, being the excess of (a) the aggregate of the consideration transferred and the amount recognised for non – controlling interest, over (b) the net identifiable assets acquired and liabilities assumed. In a business combination achieved in stages (a step acquisition), the previously held equity interest in the acquiree is remeasured at its acquisition date fair value and the resulting gain or loss, if any, is recognised in profit or loss, or in other comprehensive income, as appropriate. Measurement period The measurement period begins on the acquisition date and ends as soon as the information sought about facts and circumstances that existed as of the acquisition date is available or it becomes apparent that more information is not obtainable. However, the measurement period does not exceed one year from the acquisition date. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, then provisional amounts are presented for the items for which the accounting is incomplete. During the measurement period provisional amounts are retrospectively adjusted to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. During the measurement period, additional assets or liabilities are recognised and presented if new information is obtained about facts and circumstances that existed at the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities at that date. Measurement period adjustments If, after re-assessment and adjustment during the measurement period, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments made against goodwill. Subsequent measurement of Goodwill After initial recognition, goodwill is measured at carrying value less any accumulated impairment losses.
  • 100 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 Impairment of Goodwill For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Cash-generating units to which goodwill has been allocated are tested for impairment annually or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount, then the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss is recognised in profit or loss and is not reversed in subsequent periods. Where goodwill has been allocated to a cash- generating unit and part of the operations within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. F INVESTMENTS IN ASSOCIATES – IAS 28 An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Data Control and Systems (1996) (Private) Limited t/a Liquid Telecom Zimbabwe is accounted for as an associate in these financial statements. Steward Bank Limited was also accounted for as an associate in the prior year before becoming a subsidiary company. Recognition The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held-for-sale. There are no investments in associates which are held-for-sale in these financial statements. At acquisition - initial measurement: On acquisition, the investment in associate is measured at cost. Any excess of the cost of acquisition over the Group’s share of the net fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair values of the identifiable net assets of the associate, over the cost of the acquisition, (i.e. discount on acquisition or a bargain purchase) is credited to profit or loss in the period of acquisition. Subsequent measurement Investments in associates are carried in the statement of financial position at cost adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. The statement of comprehensive income reflects the Group’s share of the results of operations of the associate. When there has been a change recognised directly in the equity or in other comprehensive income of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity or other comprehensive income. Intra-group transactions Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. Impairment Goodwill that forms part of the carrying amount of an investment in an associate is not separately recognised, it is not tested for impairment separately by applying the requirements for impairment testing for goodwill in IAS 36 Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever there is an indicator that the investment may be impaired. An impairment loss recognised in those circumstances is not allocated to any specific asset, including goodwill, which forms part of the carrying amount of the investment
  • 101 FinancialReporting 4 in the associate. Accordingly, any reversal of that impairment loss is recognised to the extent that the recoverable amount of the investment subsequently increases. Associate losses After the entity’s interest is reduced to zero, losses of an associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the entity resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. De-recognition Investments in associates are de-recognised when the Group disposes of the investment. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. G INTANGIBLE ASSETS - IAS 38 Intangible assets in these financial statements comprise: software held by Transaction Payment Solutions (Private) Limited, software held by Econet Wireless (Private) Limited, and software held by Steward Bank Limited. Goodwill, previously recognised under intangible assets, is now disclosed under business combinations (see E above). Recognition Intangible assets are recognised when (a) it is probable that future economic benefits will flow to the entity from the intangible asset, and (b) the cost of the intangible asset can be reliably measured. Initial measurement Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Subsequent measurement Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally-generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in profit and loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss as the expense category that is consistent with the function of the intangible assets. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash- generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Impairment See policy note K below. G.1 Research and development costs Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: • The technical feasibility of completing the intangible asset so that the asset will be available for use or sale • Its intention to complete and its ability to use or sell the asset • How the asset will generate future economic benefits • The availability of resources to complete the asset
  • 102 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 • The ability to measure reliably the expenditure during development During the period of development, the asset is tested for impairment annually. Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. G.2 Software and other intangible assets Software and other intangible assets comprise software held by Transaction Payment Solutions (Private) Limited, software held by Econet Wireless (Private) Limited, and software held by Steward Bank Ltd and licence held by Econet Wireless (Private) Limited. The software and licences are amortised as follows: - software held by Transaction Payment Solutions (Private) Limited is amortised over 2 to 4 years; - software held by Econet Wireless (Private) Limited is amortised over 5 years; and - software held by Steward Bank Limited is amortised over 4 years. - licence held by Econet Wireless (Private) Limited amortised over 20 years. De-recognition An intangible asset shall be de-recognised: (a) on disposal; or (b) when no future economic benefits are expected from its use or disposal. The gain or loss arising from the de- recognition of an intangible asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. The gain or loss is recognised in profit or loss when the asset is derecognised. H BORROWING COSTS - IAS 23 (revised) Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised. Where borrowing costs are not capitalised, they are expensed through profit or loss. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. The main qualifying asset during the year was network equipment and the related base stations. If the carrying amount or ultimate cost of the qualifying asset exceeds its recoverable amount or net realisable value, then the carrying amount is impaired accordingly. Recognition The Group begins capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions: (a) it incurs expenditures for the asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale. Measurement Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. Where funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. Where funds are borrowed generally and are used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to the Group’s borrowings that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalised during a period shall not exceed the amount of borrowing costs incurred during that period. Cessation of borrowing costs Capitalisation of borrowing costs is suspended during extended periods in which active development of a qualifying asset is suspended. Capitalising borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
  • 103 FinancialReporting 4 When the construction of a qualifying asset is completed in parts and each part is capable of being used while construction continues on other parts, then capitalisation of borrowing costs ceases on each part when substantially all the activities necessary to prepare that part for its intended use or sale are completed. The Group’s projects are integrated projects, consequently it has been determined that qualifying assets need to be complete before any part can be used and capitalisation continues until all parts of the project are complete. I PROPERTY, PLANT AND EQUIPMENT (PPE) - IAS 16 Property, plant and equipment are tangible assets that (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and (b) are expected to be used for more than one financial period. Recognition PPE is recognised as an asset when (a) it is probable that future economic benefits associated with the item will flow to the entity, and (b) the cost of the item can be reliably measured. Measurement Initial measurement Property, plant and equipment is initially stated at cost, such cost includes the cost of replacement parts of the property, plant and equipment, and borrowing costs for long term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. The present value of the expected cost for the decommissioning of an asset after the end of its useful life is included in the cost of the asset if the recognition criteria for a provision are met. Assets in the course of construction for production or for other purposes not yet determined (capital work-in-progress) are carried at cost less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs (see policy note G above). Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for intended use. Repairs and maintenance costs are recognised in profit or loss as incurred. Subsequent measurement Property, plant and equipment is subsequently measured at cost less subsequent depreciation and accumulated impairment charges. (See also note K on Impairment of PPE.) Depreciation Depreciable amount of an asset is its cost less its residual value. Depreciation is charged so as to write off the depreciable amount of assets over their estimated useful lives, using the straight line method, as follows: Buildings - 40 years Network equipment - 3 to 25 years Beverage plant and equipment - 25 years Office equipment - 4 to 10 years Motor vehicles - 4 to 5 years The residual value of an asset is the estimated amount that would be obtained at the reporting date from disposal of the assets, after deducting disposal costs, if the asset was already of the age and in the condition expected at the end of its useful life. The estimated useful lives, depreciation periods, and residual values of the assets are reviewed at each financial year end and, if expectations differ from expectations at the end of the previous financial year, the changes are accounted for as a change in accounting estimate according to IAS 8 (Accounting Policies, Changes in Estimates and Errors). The method of depreciation of the assets is reviewed at each financial year end and, if a different method gives rise to a more accurate depreciation charge, the changes resulting from the change in method are accounted for as a change in accounting estimate according to IAS 8 (Accounting Policies, Changes in Estimates and Errors). Depreciation is charged to profit or loss.
  • 104 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 De-recognition of PPE PPE is de-recognised when; (a) the asset is disposed of or retired from use, or (b) when no future economic benefits are expected from its use or disposal. The gain or loss arising on de-recognition of PPE is the difference between the net disposal proceeds, if any, and the carrying value of the asset. The gain or loss is included in profit or loss at the time the item is de-recognised. Impairment of PPE See policy note K below. J INVESTMENT PROPERTIES - IAS 40 Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties still being developed are also classified in accordance with the provisions of IAS 40. Investment properties in these financial statements comprise industrial and residential properties leased to third parties. Recognition Investment properties are recognised when; (a) it is probable that future economic benefits associated with the investment property will flow to the entity, and (b) the costs of the acquisition or construction of the investment property can be reliably measured. Investment property is also recognised when a fixed property is transferred from property, plant and equipment to investment property because of a change in use. Measurement Initial Measurement Investment property is measured initially at its cost. If an owner-occupied property becomes an investment property that will be carried at fair value, IAS 16 is applied up to the date of change in use. At that date, any difference between the carrying amount of the property in accordance with IAS16 and its fair value is treated in the same way as a revaluation in accordance with IAS16. Subsequent Measurement Subsequently, investment property is stated at its fair value as determined by independent professional valuers. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise. De-recognition An investment property is de-recognised either: (i) on disposal, when withdrawn from use or when no future economic benefits are expected from its continued use or disposal; or (ii) when an investment property is transferred to property, plant and equipment because of a change in use. Gains or losses on disposal or retirement of investment properties are measured as the difference between the net disposal proceeds and the carrying amount of the asset at the date of disposal or retirement. Gains or losses on de-recognition of investment property are recognised in profit or loss. K IMPAIRMENT OF NON FINANCIAL ASSETS. - IAS 36 The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exist, or when annual impairment testing for an asset is required, the Group estimates an asset’s recoverable amount. Recoverable amount is the higher of an asset’s or a cash-generating unit’s fair value less costs to sell and its value in use. Recoverableamountisdeterminedforanindividual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In determining the value in use of assets, expected cash flows are discounted to their present values using risk-adjusted pre-tax discount rates that reflect current market assessments of the time value of money and the risks specific to the asset In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
  • 105 FinancialReporting 4 The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s cash generating units (CGUs) to which the individual assets are allocated. The budgets and calculations generally cover a period of five years. For longer periods, a long term growth rate is calculated and applied to future project cash flows after the fifth year. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. This write-down is an impairment loss and is recognised in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. L LEASES - IAS 17 A lease is an agreement in which the lessor conveys to the lessee, in return for payment, the right to use an asset for an agreed period of time. Afinanceleaseisaleasethattransferssubstantially all the risks and rewards of ownership of an asset to the lessee. Assets under finance leases are accounted for under IAS 16 PPE (see policy note I above). An operating lease is a lease which is not a finance lease. All the risks and benefits of ownership are effectively retained by the lessor. The Group only has operating leases, as both lessor and lessee. The Group as Lessor Lease income from operating leases is recognised on a straight-line basis over the lease term. The Group as Lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which the economic benefits from the leased assets are consumed. M INVENTORIES - IAS 2 Inventories are assets (a) held-for-sale in the ordinary course of business; (b) in the process of production for such sale; or (c) to be consumed in the production process or the rendering of services. The main categories of inventory recognised in the financial statements are (a) Merchandise comprising calling cards, handsets, accessories and simcards and (b) Spares, stationery, raw materials, and containers. Measurement Inventories are measured at the lower of cost or net realisable value. Cost comprises all costs necessary to bring the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs incurred in the marketing, selling or distribution, where applicable. The basis of determining cost is the weighted average method. Impairment Write-downs to net realisable value and inventory losses are expensed in the period in which they occur. Obsolete and slow-moving inventories are identified and written down to their estimated realisable value. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is accounted for as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. De-recognition Inventories are de-recognised when they are sold, and the carrying amount is recognised as an expense in the period in which the related revenue is recognised.
  • 106 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 N REVENUE RECOGNITION - IAS 18 Recognition Recognition and Measurement Revenue, which excludes Value Added Tax, cash discounts and sales between Group companies, represents the invoiced value of goods and services supplied by the Group. The Group measures revenue at the fair value of the consideration received or receivable. Revenue is recognised only when it is probable that economic benefits associated with the transaction will flow to the Group and the amount of revenue and associated costs incurred can be measured reliably. If necessary, revenue is split into separately identifiable components. Telecommunications N.1 Contract products Connection fees Revenue is recognised on the date of activation. Access charges Revenue from access charges is recognised as the customers are provided access to the network based on the agreed fixed charges. Airtime Revenue is recognised on the usage basis. N.2 Pre-paid products Airtime Revenue is recognised when a customer utilises the airtime, at which point the risks and rewards have been transferred. Upon purchase of an airtime voucher the customer receives the right to make outgoing voice calls, use the short message service and download internet data to the value of the voucher. Revenue is deferred until such a time as the customer uses the airtime. Starter packs Revenue is recognised on the date all risks and rewards associated with the starter-packs are transferred to the purchaser on the date of purchase. N.3 Internet services - Subscriptions Subscriptions revenue is recognised on a straight- line basis over the period of the subscription. - Services Revenue is recognised on the accrual basis in accordance with the substance of the agreement. N.4 Automated transaction services - Software and hardware sales Revenue is recognised when goods are delivered and ownership has passed. - Service revenues Revenue is recognised on the accrual basis in accordance with the substance of the agreement. N.5 Interconnect services Interconnect services revenue is recognised when the service is rendered. N.6 Bundled Products Post-paid and prepaid products with multiple deliverables are defined as multiple element arrangements. Post-paid products typically include the sale of a handset, activation fee and a service contract; and prepaid products include a subscriber identification module (SIM) card and airtime. These arrangements are divided into separate units of accounting, and revenue is recognised through application of the residual value method. In applying the residual value method, fair value is allocated to each of the undelivered elements in the transaction, and any consideration remaining (the residual value) is allocated to the delivered elements. N.7 Other revenue and income - Other sales Revenue is recognised on the date all risks and rewards associated with the sale are transferred to the purchaser. - Services Revenue is recognised on the accrual basis in accordance with the substance of the agreement. Interest income and expense Forallfinancialinstrumentsmeasuredatamortised cost, interest-bearing financial assets classified as available-for-sale, and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR method. EIR (Effective Interest Rates) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.
  • 107 FinancialReporting 4 The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Interest income’ for financial assets and ’Interest expense’ for financial liabilities. However, for a reclassified financial asset for which the Bank subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Banking fee and commission income The bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories: Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis. Fee income from providing transactions services Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria. Non-interest income from financial instruments Results arising from trading activities include all gains and losses from changes in fair value and related interest income or expense and dividends for financial assets and financial liabilities ‘held for trading’. This includes any ineffectiveness recorded in hedging transactions. Dividend income Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. O TAXATION - IAS 12 Income tax expense represents the sum of the tax currently payable and deferred tax. O.1 Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. O.2 Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are not recognised if temporary differences arise from goodwill or from initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is also not recognised in respect of temporary differences associated with investments in subsidiaries and associates where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
  • 108 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 Deferred tax is calculated at the tax rates that are expected to apply in the periods when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited to other comprehensive income or directly to equity, in which case the deferred tax is also dealt with in other comprehensive income or equity. The carrying amount of the deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity in which the deferred tax asset has been recognised. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exist to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. O.3 Value Added Tax (VAT) Expenses and assets are recognised net of the amount of VAT, except: • when the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; or • when receivables and payables are stated with the amount of tax included. The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. P EMPLOYEE BENEFITS - IAS 19 Employee benefits are all forms of benefits given in exchange for services rendered by employees. These are classified as: a) Short-term employee benefits - benefits due to be settled within 12 months after the end of the period in which the employees rendered the related services; b) Post-employment benefits are benefits payable after the completion of employment. Post employment benefit plans are benefit plans which are formal or informal arrangements providing post-employment benefits for one or more employees. Such plans (or funds) may be either defined contribution funds or defined benefit funds. c) Termination benefits are employee benefits payable as a result of either the Group’s decision to terminate an employee’s employment before normal retirement date, or an employee’s decision to accept voluntary redundancy in exchange for those benefits. Recognition Short-term benefits The cost of all short-term employee benefits, such as salaries, employee entitlements to leave pay, bonuses, medical aid and other contributions, are recognised during the period in which the employee renders the related service. The Group recognises the expected cost of bonuses only when the Group has a present legal or constructive obligation to make such payment and a reliable estimate can be made. The Group’s short term employee benefits comprise remuneration in the form of salaries, wages, and bonuses. Post-employment Retirement Benefit Funds Retirement benefits are provided for Group employees through an independently administered defined contribution fund and by the National Social Security Authority (NSSA). Payments to the defined contribution fund and to the NSSA scheme are recognised as an expense when they fall due, which is when the employee renders the service. During the year the Group contributed to the Group defined contribution fund and to the NSSA scheme. Other long-term benefits Other long-term benefits are recognised as an expense when an obligation arises. The Group had no other long-term benefit commitments during the year.
  • 109 FinancialReporting 4 Termination benefits The Group recognises termination benefits as a liability and an expense at the earlier of when the offer of termination can not be withdrawn or when the related restructuring costs are recognised under IAS 37 Provisions, Contingent Liabilities and Contingents Assets. The Group had no termination benefit commitments during the year. Measurement Short-term employee benefits All short-term employee benefits are measured at cost. Post-employment Retirement Benefit Funds The Group has no liability for Post-employment Retirement Benefit Funds once the current contributions have been paid at the time the employees render service. Termination benefits Benefits are measured according to the terms of the termination contract. Where termination benefits are due more than 12 months after the reporting period, the present value of the benefits shall be determined by reference to market yields on high quality corporate bonds at the end of the reporting period. Short and long term distinction The distinction between short term and other long term employee benefits will be based on expected timing of settlement rather than the employee’s entitlement to the benefits. Q SHARE-BASED PAYMENT TRANSACTIONS - IFRS 2 Equity-settled share-based payment transactions with employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. For equity-settled share-based payment transactions with employees, the fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight- line basis over the vesting period, based on the Group’s estimate of the equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with a corresponding adjustment to the equity-settled employee benefits reserve. Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of equity instruments granted, measured at the date the entity obtains the goods or the counter-party rendered the service. R FINANCIAL INSTRUMENTS - IAS 39 Financial instruments comprise financial assets and financial liabilities. Financial instruments are those contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments, with the exception of contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements. R.1 Financial Assets Financial assets are classified as either (i) cash and bank balances, or (ii) financial assets at fair value through profit or loss, or (iii) loans and receivables, or (iv) held-to-maturity investments, or (v) available-for-sale financial assets or (vi) as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets on initial recognition. The Group’s financial assets include cash and short-term deposits, trade receivables excluding prepayments, loans and advances to banking customers and quoted and unquoted financial instruments as financial assets either held-to- maturity, available-for-sale, or at fair value through profit or loss. Each category of financial assets is dealt with in detail below.
  • 110 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 Recognition and Measurement Initial recognition A financial asset is recognised in the statement of financial position when, and only when, the company becomes party to the contractual provisions of the instrument. Initial measurement All financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Classification and Subsequent measurement The subsequent measurement of financial assets depends on their classification, as follows: R1.1 Financial assets at fair value through profit or loss (FVTPL) The company has quoted investments that are classified as assets at fair value through profit or loss as detailed in Note 21. Financial assets are classified as at FVTPL where the financial asset is either held-for-trading or it is designated as at FVTPL. A financial asset is classified as held for trading if: • it has been acquired principally for the purpose of selling in the near future; or • on initial recognition it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or • is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument). A financial asset other than a financial asset held- for-trading may be designated as at FVTPL upon initial recognition if: o such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or o the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. R.1.2 Held-to-maturity investments The company has held-to-maturity financial assets as detailed in Note 17. Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the group has the positive intention to hold them to maturity. After initial measurement, held to maturity investments are measured at amortised cost using the effective interest rate (EIR) method, less impairment. The EIR amortisation is included as finance income in profit or loss for non-banking entities and as interest income from banking activities. The losses arising from impairment are recognised in profit or loss in finance costs for non-banking entities and as interest expense from banking activities. R.1.3 Available-for-sale (AFS) financial assets Available-for-sale financial assets include investments in equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held-for- trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, available-for -sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised in other comprehensive income and accumulated in the available-for-sale reserve in equity until the investment is de-recognised, at which time the cumulative gain or loss is reclassified through other comprehensive income into other operating income or the investment is determined to be impaired at which time the cumulative loss is reclassified through other comprehensive income into finance costs and removed from the available-for-sale reserve. Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established.
  • 111 FinancialReporting 4 The Group evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held to maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly. For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss. R.1.4 Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest rate method less any impairment. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial. R.1.5 Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if and only if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued at the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in profit or loss.
  • 112 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in profit or loss. Available-for-sale financial investments For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available- for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss. When a decline in the fair value of an available-for- sale financial asset has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, then the cumulative loss that had been recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognised. The amount of the cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for- sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, and the reversal is recognised in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss. R.1.6 De-recognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • the rights to receive cash flows from the asset have expired; or • the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
  • 113 FinancialReporting 4 Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. R.2 Financial liabilities Financial liabilities within the scope of IAS 39 are classified appropriately as either: (i) financial liabilities at fair value through profit or loss, (ii) liabilities, loans and borrowings at amortised cost, or (iii) derivatives designated as hedging instruments in an effective hedge. The Group determines the classification of its financial liabilities at initial recognition. The Group had financial liabilities comprising trade payables and accruals, and interest-bearing debt, deposits and liabilities due to banks and other customers all classified at amortised cost. Initial measurement The financial liabilities are initially measured at fair value, net of transaction costs. Subsequent measurement Such financial liabilities are subsequently measured at amortised cost using the effective interest rate method (see R.4 below). Interest expense is recognised in profit or loss. De-recognition of financial liabilities A financial liability is de-recognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss. R.3 Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. R.4 Effective interest rate (EIR) method The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or liability, or, where appropriate, a shorter period. S TREASURY SHARES – IAS 32 Treasury shares are re-acquired own equity instruments and are deducted from equity. Considerations paid or received for such equity instruments are recognised directly in equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of treasury shares. Such shares may be acquired and held by the entity or by other members of the consolidated group. In these financial statements the Group has treasury shares which are re-acquired shares of Econet Wireless Zimbabwe Limited. T OPERATING SEGMENT INFORMATION - IFRS 8 The Group identifies segments as components of the Group that engage in business activities from which revenues are earned and expenses incurred (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The chief operating decision-maker has been identified as the Group Chief Executive Officer Measurement of segment information Theaccountingpoliciesofthereportablesegments are the same as the Group’s accounting policies. Segment information has been reconciled to the consolidated annual financial statements to take account of intersegment transactions and transactions and balances that are not allocated to reporting segments.
  • 114 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 U PROVISIONS - IAS 37 Provisions are recognised when (a) the Group has a present obligation (legal or constructive) as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and (c) a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss net of any reimbursement. V FINANCIAL GUARANTEES In the ordinary course of business, the Group’s banking operation gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within ‘Other liabilities’) at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of comprehensive income, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recorded in profit and loss as an ‘Impairment loss expense’. The premium received is recognised in profit and loss as part of ‘Net fees and commission income’ on a straight-line basis over the life of the guarantee. W FIDUCIARY ASSETS To the extent that the Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients, the assets held in a fiduciary capacity are not reported in the financial statements, as they are not the assets of the Group. X SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Although these estimates and assumptions are based on the Directors best knowledge of current events and actions that the Group may undertake in the future, actual results may ultimately differ from those estimates and assumptions. X.1 Property, plant and equipment - IAS 16 Property, plant and equipment represent a significant proportion of the asset base of the Group, being 63% (68% in prior year) of the Group’s total assets in the year under review. Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to the Group’s financial position and performance. Residual values of property, plant and equipment During the year management assessed the residual values of property, plant and equipment. Residual values of each asset category have been assessed by considering the fair value of the assets after taking into account age, usage and obsolescence. These residual values are reassessed each year and adjustments are made where appropriate. The valuation methods adopted in this process involves significant judgement and estimation. Useful lives of property, plant and equipment A review of the estimated remaining lives of all network equipment was performed using the engineering expertise within the business with reference to published industry benchmarks. This review considered the following factors, at a minimum; the age of the equipment, technological advancements, current use of the equipment, and planned network upgrade programmes. The determination of the remaining estimated useful lives of the network equipment is deemed to be a significant area of judgment due to its highly specialised nature. Capitalisation of borrowing costs When capitalising borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, the matter of determining whether an asset takes a substantial period of time to get ready for its intended use, is deemed to be a significant area of judgement.
  • 115 FinancialReporting 4 In particular, where – as in the case of Econet – there are multiple financing sources for both general and specific use, allocation of borrowing costs demands significant judgement. X.2 Intangible assets - IAS 38 Intangible assets include licences and development costs. These assets arise from both separate purchases and from acquisition as part of business combinations. On the acquisition of mobile network operators, the identifiable intangible assets may include licences, customer bases and brands. The fair value of these assets is determined by discounting estimated future net cash flows generated by the asset, where no active market for the assets exists. The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets. Estimation of useful life The useful life used to amortise intangible assets relates to the future performance of the assets acquired and management’s judgement of the period over which economic benefit will be derived from the asset. The basis for determining the useful life for the most significant categories of intangible assets is as follows: X.2.1 Licences The estimated useful life is, generally, the term of the licence, unless there is a presumption of renewal at negligible cost. Using the licence term reflects the period over which the Group will receive economic benefit. For technology specific licences with a presumption of renewal at negligible cost, the estimated useful economic life reflects the Group’s expectation of the period over which the Group will continue to receive economic benefit from the licence. The economic lives are periodically reviewed, taking into consideration such factors as changes in technology. Historically, any changes to economic lives have not been material following these reviews. X.2.2 Capitalised software The useful life is determined by management at the time the software is acquired and brought into use and is regularly reviewed for appropriateness. For computer software licences, the useful life represents management’s view of expected benefits over which the Group will receive benefits from the software, but not exceeding the licence term. For unique software products controlled by the Group, the life is based on historical experience with similar products as well as anticipation of future events, which may impact their life, such as changes in technology. Historically, changes in useful lives have not resulted in material changes to the Group’s amortisation charge. X.3 Impairment reviews - IAS 36 IAS 36 requires management to undertake an annual test for impairment of assets with indefinite useful lives and, for assets with finite useful lives, to test if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. X.4 Provision for impairment of accounts receivable The provision for impairment is based on an estimate of the recoverability of accounts receivable and subject to estimation. Refer to note 23 for the basis of determining impairment loss provisions. X.5 Syndicated loans Certain cash flows used in the calculation of amortised cost of the syndicated loans are based on forecast future interest rates (LIBO) which are subject to estimation. The interest is based on various interest arrangements on facilities with various lenders. The Syndicated loans are detailed on Note 31. X.6 Deferred revenue Revenue for cellular network services is recognised when the airtime is utilised by the customer. The unused air time as at 28 February 2014 has been deferred from revenue until the airtime has been used by the customers. The deferred revenue portion is determined by both information technology related checks and arithmetical formulae to identify the portion of revenue to be deferred. X.7 Investment property - determination of fair value Where the fair values of investment property cannot be derived from an active market, they
  • 116 Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 are determined using a variety of valuation techniques. The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. Determining the valuation technique to use and the inputs requires significant judgement. Refer note 13 for more detail on valuation of investment property. X.8 Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values. The judgements include considerations of liquidity and model inputs such as volatility for discount rates, prepayment rates and default rate assumptions for ‘asset-backed’ securities. The valuation of financial instruments is described in more detail in Note 20. X.9 Impairment losses on loans and advances to bank customers The Group reviews its individually significant loans and advances to bank customers at each statement of financial position date to assess whether an impairment loss should be recorded in the statement of comprehensive income. In particular, management’s judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilisation, loan-to-collateral ratios, etc.), and judgements on the effect of concentrations of risks and economic data. Y Fair value measurement The Group measures non-financial assets such as property, at fair value at reporting date. Also, fair values of financial instruments measured at amortised cost are disclosed in Note 30.3. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
  • 117 FinancialReporting 4 Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re- assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Z Current versus non-current classification The Group presents assets and liabilities in statement of financial position based on current/ non-current classification. An asset as current when it is: • Expected to be realised or intended to be sold or consumed in normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within twelve months after the reporting period, or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: • It is expected to be settled in normal operating cycle • It is held primarily for the purpose of trading • It is due to be settled within twelve months after the reporting period, or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Group classifies all other liabilities as non- current. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
  • 118 4 Continuing efforts are made to improve our customers’ experience through consistent provision of highly innovative services and products. We are present in all major locations countrywide and continue to expand our branch network to be closer to our customers. Investing for the future Our Strategic Business Partnerships 119 Shareholder Analysis 120 Corporate and Advisory Information 121 Financial Diary 122 Notice to Members 123 118 4 Administration
  • 1194 Administration Our Strategic Business Partnerships The opportunities in the market have made it imperative to broaden our relationship with key partners. This has enabled the business to deliver value to stakeholders and promote accelerated growth.
  • 120120 4 Shareholder Analysis For the year ended 28 February 2014 Consolidated Top 20 Rank Account Name Shares % of Shares 1 ECONET WIRELESS GLOBAL LIMITED 659,539,483 40.22% 2 STANBIC NOMINEES (PRIVATE) LIMITED (NNR) 361,750,711 22.06% 3 AUSTIN ECO HOLDINGS LIMITED - NNR 89,872,460 5.48% 4 OLD MUTUAL LIFE ASSURANCE COMPANY OF ZIMBABWE LIMITED 79,555,416 4.85% 5 ECONET WIRELESS ZIMBABWE LIMITED 57,993,756 3.54% 6 STANDARD CHARTERED NOMINEES (PVT) LIMITED - NNR 39,011,050 2.38% 7 STEWARD BANK LIMITED 31,680,493 1.93% 8 NORTHUNDERLAND INVESTMENTS (PVT) LIMITED 22,020,090 1.34% 9 AMRO INTERNATIONAL HOLDINGS LIMITED (NNR) 15,033,962 0.92% 10 MINING INDUSTRY PENSION FUND 11,710,419 0.71% 11 FED NOMINEES (PRIVATE) LIMITED 10,733,698 0.65% 12 HELLIKOP INVESTMENTS (PVT) LIMITED-NNR 10,699,010 0.65% 13 PRESSFORTH INVESTMENTS (PRIVATE) LIMITED 10,317,570 0.63% 14 OLD MUTUAL ZIMBABWE LIMITED 10,023,880 0.61% 15 ECONET EMPLOYEES BENEFICIARYTRUST 9,677,915 0.59% 16 LOCAL AUTHORITIES PENSION FUND 8,604,755 0.52% 17 COVERSITE (PRIVATE) LIMITED 7,014,684 0.43% 18 NATIONAL SOCIAL SECURITY AUTHORITY 6,968,225 0.42% 19 DATVEST NOMINEES (PRIVATE) LIMITED 6,873,559 0.42% 20 FIRST MUTUAL LIFE 6,664,705 0.41% OTHER SHAREHOLDERS 184,275,589 11.24% TOTAL ISSUED SHARES 1,640,021,430 100.00% Range Holders % of Holders Shares % of Shares 0 - 100 2507 26.05 100,659 0.01 101 - 200 772 8.02 126,602 0.01 201 - 500 1056 10.97 360,183 0.02 501 - 1,000 1078 11.20 745,621 0.05 1,001 - 5,000 2488 25.85 5,194,103 0.32 5,001 - 10,000 556 5.78 3,868,797 0.24 10,001 - 50,000 645 6.70 13,926,872 0.85 50,001 - 100,000 153 1.59 10,761,720 0.66 100,001 - 500,000 222 2.31 49,517,286 3.02 500,001 - 1,000,000 57 0.59 41,053,186 2.50 1,000,001 - 10,000,000 74 0.78 105,432,326 6.42 Above 10,000,000 15 0.16 1,408,934,075 85.90 Total 9,623 100 1,640,021,430 100
  • 1214 Administration Corporate and Advisory Information Registered Office Incorporated in the Republic of Zimbabwe Company registration number 7548/98 Econet Park, 2 Old Mutare Road Msasa Harare Zimbabwe Telephone: +263-486124-5 +263-772 793 700 Fax:+263- 4-486183 E-mail: info@econet.co.zw Website: www.econet.co.zw Group Company Secretary Charles Alfred Banda Econet Park, 2 Old Mutare Road, Msasa Harare Zimbabwe Independent Auditors Ernst &Young (Zimbabwe) Registered Public Auditors Angwa City Cnr Julius Nyerere Way, Kwame Nkrumah Avenue Harare Zimbabwe Principal Bankers African Export-Import Bank Limited 72 (B) EL Maahad EL-Eshleraky Street Opposite Merryland Park Roxy, Heliopolis, Cairo 11341 Egypt Barclays Bank Kurima House Nelson Mandela Avenue Box CY 881 Causeway Harare Stanbic Bank Stanbic Centre 59 Samora Machel Avenue Harare Steward Bank Limited 2nd Floor, 101 Union Avenue Building 101 Kwame Nkrumah Avenue Harare Zimbabwe CBZ Bank Limited Union House 60 Kwame Nkrumah Avenue Harare Zimbabwe Principal legal advisors Mtetwa and Nyambirai Legal Practitioners 2 Meredith Drive Eastlea Harare Zimbabwe Registrars andTransfer Secretaries FirstTransfer Secretaries (Private) Limited 1 Armagh Avenue Eastlea Harare Zimbabwe
  • 122 4 Econet is owned by one of the largest and most diverse base of shareholders on the stock exchange. As we continue to deliver value to our shareholders, we bring positive transformation to thousands of our people. Investing for the future 1 August 2014 Sixteenth Annual General Meeting of Shareholders, Econet Park, Harare October 2014 Interim results and analyst briefing 28 February 2015 Financial year end April 2015 Financial results and analyst briefing June 2015 Annual Report 2015 publication July 2015 Seventeenth Annual General Meeting of Shareholders, Econet Park, Harare Financial Diary For the year ended 28 February 2014 122 4
  • 1234 Notice is hereby given that the Sixteenth Annual General Meeting of the members of Econet Wireless Zimbabwe Limited will be held in the staff canteen, at the registered office of the Company at Econet Park, 2 Old Mutare Road, Msasa, Harare, Zimbabwe on Friday 1 August 2014 at 10.00am for the following purposes. Ordinary Business To consider and adopt the following resolutions: 1. Financial Statements To receive and adopt the financial statements for the year ended 28 February 2014 together with the reports of the directors and auditors thereon. 2. Election of Directors To re-elect Messrs’ D. Mboweni, G. Gomwe and Mrs S. Shereni as directors of the company. 2.1. In accordance with Article 81 of the Company’s Articles of Association they retire by rotation at the Company’s Annual General Meeting and, being eligible, offer themselves for re-election. 3. Directors Remuneration To approve the fees paid to the directors for the year ended 28 February 2014. 4. Auditors 4.1. To approve the auditors’ remuneration for the previous year. 4.2. To consider re-appointing Ernst and Young Chartered Accountants (Zimbabwe) as auditors for the current year. 5. Special Business To consider and, if thought fit, to adopt, with or without amendment, the following resolutions: 5.1. As an ordinary Resolution: Share Buy-back “That the Company , as duly authorised by Article 10 of its Articles of Association, may undertake the purchase of its own ordinary shares in such manner or on such terms as the directors may from time to time determine , provided that the repurchases are not made at a price greater than 5% above the weighted average of the market value for the securities for the five business days immediately preceding the date of the repurchase and also provided that the maximum number of shares authorised to be acquired shall not exceed 10% (ten percent) of the Company’s issued ordinary share capital. That this authority shall expire at the next Annual General Meeting, and shall not extend beyond 15 months from the date of this resolution”. 6. Any Other Business To transact such other business as may be transacted at an Annual General Meeting. NOTE: A member of the Company entitled to attend and vote at this meeting is entitled to appoint a proxy to speak and, on a poll, vote in his/ her stead. A proxy need not be a member of the Company. Proxy forms should be forwarded to reach the office of the Transfer Secretaries, or the Group Company Secretary at least 48 hours before the commencement of the meeting. By order of the Board C. A. Banda GROUP COMPANY SECRETARY 25 April 2014 Notice to Members
  • 124 4