Econet Wireless Zimbabwe 2014 annual report

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Econet Wireless Zimbabwe 2014 annual report

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Econet Wireless Zimbabwe 2014 annual report

  1. 1. “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
  2. 2. 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
  3. 3. 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
  4. 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
  5. 5. 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.
  6. 6. 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.
  7. 7. 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
  8. 8. 74 OurPerformance Investing for the future Over 7 200km of fibre laid in and around Zimbabwe EcoCash revenue Growth 307% 74
  9. 9. 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
  10. 10. 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
  11. 11. 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.
  12. 12. 114 CorporateandLeadership Corporate Profile ECONETWIRELESS ZIMBABWE LIMITED
  13. 13. 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)
  14. 14. 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
  15. 15. 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.
  16. 16. 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
  17. 17. 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
  18. 18. 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.
  19. 19. 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.
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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.
  25. 25. 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.
  26. 26. 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
  27. 27. 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
  28. 28. 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
  29. 29. 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)
  30. 30. 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
  31. 31. 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.
  32. 32. 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.
  33. 33. 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
  34. 34. 334 OurPerformance Investing for the future Over 700 University Graduates Financing of UZ Electrical Engineering Centre 334
  35. 35. 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
  36. 36. 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.
  37. 37. 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.
  38. 38. 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
  39. 39. 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
  40. 40. 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.
  41. 41. 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
  42. 42. 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
  43. 43. 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. 44. 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. 45. 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. 46. 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. 47. 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. 48. 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. 49. 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$14 061 120 pertaining to an investment in associate accounted for using the equity method.
  50. 50. 50 Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014 4 1 OPERATING SEGMENTS (continued) All figures in US$ 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. 51. 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. 52. 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. 53. 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. 54. 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$6 344 062 on the unwinding of the discount over the next 24 years.
  55. 55. 55 FinancialReporting 4 13 INVESTMENT PROPERTY All figures in US$ 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.

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