Econet capitalises on cash shortage

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Econet Wireless Zimbabwe

Kudzanai Sharara
The country’s digital services giant Econet Wireless Zimbabwe, this week reported its results for the year ended 28 February 2018 showing phenomenal growth in its profits which were up by 265 percent from what was achieved in the comparable prior year.

Profit after tax for the group grew to $132,3 million up from $36,2 million prior year with financial director Roy Chimanikire, saying the growth in profits was driven by cost optimisation strategies as well as revenue enhancement measures that were implemented during the course of the year.

“Basically, this demonstrates that the cost optimisation measures we have been implementing are yielding exceptional results,” said Chimanikire in his results presentation on Wednesday.

The measures saw EBITDA margins firming to close the year at 41 percent, an increase from 36 percent in the previous year. Nominal EBITDA was up 52 percent to $339,7 million up from $224 million prior year comparative.

Cost cutting measures paying off
Although total costs still grew by 28 percent to $520,4 million, the rate was lower than the 34 percent growth in revenue to $831,6 million as the company moves to become a $1 billion revenue company.

The group’s earnings per share grew to 5,8 cents from 2,6 cents prior year comparative. A final dividend of 0,3927 cents per share to make the year’s total dividend of 2,3562 cents per share or $60 million.

Some of the cost lines that came off include depreciation down 16,9 percent to $140,5 million and finance costs down 73 percent to $7,1 million following the repayment of foreign debts during the financial year.

This saw debt coming down to $58,8 million from $127,8 million resulting in the debt to equity ratio coming down to 7,7 percent from 18,3 percent prior year comparative.

Management believes, continued cost optimisation is critical to maintain and grow profits as well as sustain margins.

Chimanikire, however, said the strong growth was not only in terms of cost management strategies but also in terms of the revenue enhancement strategies that were put in place.

“Looking at the composition of our revenue, total revenue was up by 34 percent to $831,6 million largely driven by our financial technology segment which comprises largely results from Ecocash and Steward Bank and also EcoSure which is also doing extremely well,” Chimanikire said.

He added that 63 percent of the revenue growth had come from the fintech segment where revenue was up 120 percent to $244,7 million from $111,1 million.

Group capitalises on cash shortage
The phenomenal growth is to be expected as the country is going through a major cash shortage that has forced most people to transact using electronic platforms where Econet’s fintech segment has a significant market share for both mobile money as well as in the traditional banking space.

Banking unit, Steward Bank reported a 289 percent growth in profit before tax, with non-funded income (read transactions and fees) growing by 125 percent to $63 million and net interest income by 87 percent to $13,5 million. Profit after tax mounted to $22,4 million.

According to Chimanikire, the group’s banking unit now has 600 000 accounts constituting 28 percent of the banked population while Ecocash has approximately a 99 percent market share. The two are thus well positioned to capitalise on the current situation where, according to the Reserve Bank of Zimbabwe, 96 percent of transactions are now being conducted on electronic platforms.

The fintech segment’s revenue surpassed the revenue from data which despite growing by 18 percent stood at $144,8 million from $122,6 million.

Of the 34 percent revenue growth, 21,5 percent was attributed to the fintech segment, 5,8 percent to voice, and 3,6 percent to data.

“The growth in the fintech segment makes us the fastest growing fintech company in Africa and possibly in the world ,” Chimanikire said.

He said the growth had even surpassed that of M-Pesa of Kenya which is often touted as the most successful fintech company in Africa.

Overall, non-voice revenue growth was 57 percent to $476,8 million making it the biggest contributor to revenue with a 57,3 percent share up from a 48,8 percent contribution prior year comparative.

The results also showed that there is an increased use of the Group’s services with the Average Revenue Per User (ARPU) increasing to $9,73 from $7,32.

As part of the revenue enhancement measures, Econet invested $102,7 million into the business up 212 percent from the $32,8 million that was spent prior year comparative.

Chimanikire said the Group which has a capex to revenue ratio of 12 percent, would continue to spend between 10 to 15 percent of the revenue on capex. As it stands such spending will be above the $100 million mark, unless revenue is to fall in the years ahead.

He said other players in the region spend even more on capex with some spending as much as 20 percent.

Chimanikire said Econet had spent more than $1,3 billion into capex.

If you can’t go digital then go home
At the start of his presentation, Econet chief executive officer Douglas Mboweni, said the popular saying in business these days is that “If you can’t go digital then go home,” and the results show that the Group has since transformed itself from a telecoms company into one that relies heavily on digital platforms to deliver innovative solutions to relevant problems.

The latest results is clear testimony of how the model has capitalised on the prevailing economic environment. The business model is now centred on a customer centric telecoms media and technological (TMT) digital services platform.

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