eBusiness Weekly
Africa Moyo
State-owned mobile phone operator, NetOne, must implement sweeping reforms such as re-orienting its pricing policy from a low value to a mid-tier network, as well as maintaining the current cost cutting measures in order to guarantee its status as a going concern.
This is captured in NetOne’s annual report for 2017, which was presented to the company’s annual general meeting (AGM) on June 22, 2018.
NetOne recorded an overall loss of $57,8 million last year mainly due to legacy debt issues, which saw the Zimbabwe Revenue Authority (Zimra) demanding payment of principal, penalties or fines of $13,5 million from the firm, after performing an audit for the period covering 2009 to 2015.
The company also suffered an exchange loss of $15,1 million on its China Eximbank loans for the Mobile Broadband Phase I and II expansion projects, which worsened its financial position.
The loans are denominated in Renminbi, China’s official currency, and foreign exchange losses arose from the rate movements on the China Eximbank loans. NetOne accessed two loan facilities to $263,9 million from the Chinese bank, which was guaranteed by Government.
By June this year, just over $248,6 million had been draw-down to enable NetOne to undertake expansion projects. The facilities have a repayment period of 180 months, with a grace period of 60 months.
Principal loan repayments for the first loan started in March 2016. Interest on the loans is being charged at a fixed rate of 2 percent per annum.
Reads the annual report in part: “The ability of the company to continue operating as a going concern is dependent on its return to profitable operations and being able to significantly narrow the liquidity gap.”
As at December last year, NetOne’s current liabilities exceeded its current assets by $217,1 million compared to $224,6 million in the year earlier.
Some of the initiatives indicated in the annual report which are expected to make NetOne profitable include the appointment of a new substantive CEO.
The company appointed Mr Lazarus Muchenje as the substantive CEO in April, taking over from Mr Brian Mutandiro who served in an acting capacity.
Touted as a “proven turnaround strategist” with a “wealth of experience in the industry”, Mr Muchenje has already hit turbulence after he was suspended early this month, just five months into his new post, on allegations of gross misconduct pertaining to the manner in which he handled contracts of nine top managers.
The matter has since spilled into the courts.
In terms of cost containment, the report says costs were 7 percent below budget for the unaudited period ended April 30, 2018.
In the same period last year, costs were 5 percent.
As it seeks to realise more revenue, NetOne also plans to engage Government and some of its departments in order to provide additional services to them.
“This is expected to yield positive results, and improve overall company performance and narrow the liquidity gap due to the resultant cash flows improvements,” reads the report.
NetOne also wants Government to honour its obligations with the mobile phone player timeously, for services rendered to enable it to settle legacy interconnection debt. The debt could not be established by time of going to print.
If Government pays its obligations with NetOne, this will lead to a reduction of current liabilities to the tune of $10 million.
Some of the turnaround initiatives are already bearing fruit as evidenced by an unaudited earnings before interest, taxes, depreciation, and amortisation (Ebidta) of $8,4 million posted by the company in the four months to April 30, 2018 compared to $5 million in the same period last year.
NetOne is also in talks with some of its lenders and creditors over legacy debts.
Conclusion of the negotiations, which is expected this year, is expected to have a positive cash flow impact on the firm amounting to $20 million.
Last year, NetOne’s revenue declined by 8 percent to $105, 5 million, mainly due to cash shortages experienced during the year which affected the sale of airtime through traditional means.
Cash shortages, combined with the absence of a functional mobile financial services platform for the greater part of the year to provide an alternative way of purchasing airtime, worsened the situation.
The introduction of an additional 5 percent levy (excise duty) on airtime further eroded revenue for the business as it was not passed on to customers.
Going forward, NetOne board chairman Peter Chingoka believes the “changes that have occurred in the political arena” have the potential to trigger economic revival.
“We are optimistic that the new political administration’s re-engagement approach should see foreign direct investment flowing into the country,” said Chingoka.
“The company has also begun the process of restructuring its balance sheet which remains as an impediment to the company’s growth strategy.
“The board has approved plans proposed by management to restructure the balance sheet with the implementation of some initiatives having commenced.’
The company obtained “partial privatisation” in April 2018 from Cabinet, in sync with Government aspirations of restructuring or killing badly performing parastatals.
Investment into network expansion, new technology and modernisation of legacy information technology systems are the backbone upon which the business converges into a telecommunication, media and technology (TMT) operating model.
The board is confident the combined approach to the business model will see greater value being created for the shareholder.
