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“Whatever your hand finds to do, do it with all your might…” Ecclesiastes 9:10 New International Version (NIV)
Welcome to Econet Wireless Zimbabwe Limited
ABOUT
THIS REPORT 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.
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.
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Contents The Year in Perspective 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
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Performance Highlights New in the Group
Corporate and Leadership 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 Governance Statement
27
Risk Report
30
14 18
Chairman’s Statement to Shareholders Chief Executive Officer’s Operations Review
People and Community Corporate Social Investment
32
Our People and our Community
36
Econet Coverage Map
39
Financial Reporting 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
7
Our Performance
Administration Administration
118
Our Strategic Business Partnerships
119
Shareholder Analysis
120
Corporate and Advisory Information
121
Financial Diary
122
Notice to Members
123
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Our Brands
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Consolidated Financial Statements Notes To The Consolidated Financial Statements
Performance Highlights The Year in Perspective
1 2 3 4
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. Profit after taxation Average revenue per user per month Capital expenditure
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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.
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Share price movement from February 2009 to February 2014
The Year in Perspective
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.
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Infrastructure
Over US$ 1.2 billion invested 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.
10% growth in subscribers
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Our Performance
Investing for the future EcoCash revenue Growth 307%
Over 7 200km of fibre laid in and around Zimbabwe
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Five-year Trading History
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
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
1,640
1,640
1,716
1,673
1,673
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
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EBITDA margin
44%
43%
45%
49%
49%
Operating profit margin
31%
20%
27%
29%
31%
Net profit margin
16%
20%
27%
29%
31%
Summarised income statement (US$ 000)
Summarised statement of financial position (US$ 000)
Number of shares in issue (millions)
Performance per ordinary share (cents)
Profitability and returns (%)
2012: EBITDA margin excludes once off profit on disposal of investments.
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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.
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The Year in Perspective
NEW PRODUCTS AND SERVICES
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.
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Corporate Profile Corporate and Leadership
ECONET WIRELESS ZIMBABWE LIMITED
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Corporate Profile (continued)
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.
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Broadband
Our brands
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.
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Chairman’s Statement to Shareholders
The current business focuses on growth from new revenue streams mainly Data and Overlay services.
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.
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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
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Corporate and Leadership
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.
Innovation
Exclusive Platinum Suites 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
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Our Performance
Investing for the future EcoFarmer
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.
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Chief Executive Officer’s Operations Review
Our brand surveys continued to show that our brand is highly visible, well recognised, respected and appreciated.
DOUGLAS MBOWENI Chief Executive Officer
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.
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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
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Corporate and Leadership
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.
EcoCash
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.
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Board of Directors
Corporate and Leadership
1
5
Dr James Myers Chairman of the Board of Directors Independent non executive director
Mrs Tracy Mpofu Non-executive director
2
6
Mr Strive Masiyiwa Executive director
Mr Kris Chirairo Executive director Finance director
3
7
Mr Craig Fitzgerald Non-executive director
Ms Beatrice Mtetwa Non-executive director
4
Mr Douglas Mboweni Executive director Chief Executive Officer
8
Mrs Sherree Shereni Independent non-executive director
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
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Mr Godfrey Gomwe Independent non-executive director
10
Mr Martin Edge Independent non-executive director
Mr G. Gomwe*, Mr K. Chirairo, Mr M. Edge, Mrs T. Mpofu Ms B. Mtetwa * Chairperson
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Board of Directors 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. Mrs Tracy 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,
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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
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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.
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.
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).
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23
Corporate and Leadership
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 MacroEconomic and Finance Management Institute.
From the Directors
The Directors present their report and audited financial
Dividends
statements for the year ended 28 February 2014. In the
The Directors declared a dividend of 1.29 US cents per
report “Group” refers to Econet Wireless Zimbabwe
share for the year ended 28 February 2014.
Limited and its subsidiary companies.
Share Capital Principal Activities and Operations Review
Details of the Group’s share capital are set out in note 25 to
The Group’s principal activities during the year were
the financial statements.
provision of cellular services, provision of internet access services, transaction processing services and mobile
Directors
banking services.
The names of the Directors who served during the year are
Econet continued to consolidate its
position as the market leader in the industry. The overall
shown in the Board of Directors section.
review of the Group’s operations, results and principal activities during the year and the likely future developments
Directors are not required to hold any shares in the
and the expected results of those developments, are
company by way of qualification. Three non-executive
given in the Chairman’s and the Chief Executive Officer’s
directors were appointed to the Board during the course
Reports.
of the year, bringing the total number of directors to ten: three executive and seven non-executive.
Operations Review The contributions of the Group’s active subsidiaries are
In accordance with Article 81 of the Company’s Articles of
given in note 1 to the financial statements.
Association, at least one third of the directors must retire and seek re-election at each Annual General Meeting. The
Human Capital
following directors retire by rotation and being eligible,
The Group continues to focus on, and uphold, the core
offer themselves for re-election: Mr D. Mboweni, Mr G.
values of accountability, teamwork and integrity. Instilling
Gomwe and Mrs S. Shereni.
of these core values among the Group’s workforce remains one of the Board’s strategic objectives. This
At the Annual General Meeting shareholders will be asked
ensures employees not only deliver shareholder value, but
to approve payment of the directors’ fees and the re-
also meet and respond to any challenges arising within the
appointment of the retiring directors.
Group.
Capital commitments New Developments
Details of the Group’s capital commitments are set out in
During the year, the Group completed the 100% acquisition
note 41 of the financial statements.
of Steward Bank Limited. The bank constitutes the main platform through which the Group channels its EcoCash
Directors’ Interests
product.
The beneficial interests of the directors in the shares of the Company are shown on page 66 of the financial
Other new products introduced during the year are noted
statements.
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.
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4
Donations to Political Parties
The register of members of the Company is open for
As a matter of policy, the Group does not make donations
inspection to members and the public, during business
for political purposes.
hours, at the offices of the Company’s transfer secretaries, First Transfer Secretaries (Private) Limited.
Auditors Ernst & Young continued in office as the Group’s
Borrowing Powers
auditors during the year. At the Annual General Meeting
The details of the Group’s borrowing powers are set out in
shareholders will be requested to approve the remuneration
note 40 to the financial statements.
of the auditors for the year ended 28 February 2014, and to consider their reappointment for the ensuing year.
Pension Fund The Group’s pension fund scheme is administered by a Board of Trustees. The Trustees manage the assets of
By order of the Board
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
DR J MYERS CHAIRMAN
of recapitalising the fund. The fund is a defined contribution fund. Any recapitalisations will be at the discretion of the Board of Directors.
Corporate Social Investment
D MBOWENI CHIEF EXECUTIVE OFFICER
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.
C A BANDA GROUP COMPANY SECRETARY 25 April 2014
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25
Corporate and Leadership
Register of Members
Buddie
Our brands
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.
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4
Governance Statement
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.
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 4
27
Governance
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.
Governance Statement (continued) 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.
28
The members of the Committee are: Dr J. 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 nonexecutive 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, respect and teamwork among its employees. 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.
4
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, pricesensitive 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.
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
Independence of Auditors
D MBOWENI CHIEF EXECUTIVE OFFICER
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.
C A BANDA GROUP COMPANY SECRETARY
The Group’s Audit Committee confirms the independence of the Auditors, Ernst & Young, who are engaged by the Group for audit-related services.
25 April 2014
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29
Governance
A communication system is in place to keep employees informed of announcements and important developments in the Group.
Risk Report 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.
30
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.
4
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 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.
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.
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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.
Econet corporate social responsibilities Corporate Social Investment
15 state-of-theart Resource Centres 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.
Building capacity in health delivery
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Our Performance
Investing for the future Over 700 University Graduates
Financing of UZ Electrical Engineering Centre
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33
Business Partna
Our brands
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 unparalleled 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.
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4
Corporate Social Investment
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.
Capernaum Trust (CT) provides scholarships and life changing skills to the disadvantaged and the underprivileged children in the community. CT has established 15 state-ofthe-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.
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People and Community
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.
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.
At Econet Wireless we believe in contributing to the communities in which we live and work.
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.
36
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.
4
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. Graduate Trainees and Trainee Technicians 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.
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People and Community
HUMAN CAPITAL (HC) (continued)
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.
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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.
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Consolidated Financial Statements
Financial Reporting 42
44
Consolidated Statement of
45
Consolidated Statement of
47
Consolidated Statement of
for Financial Reporting
Financial Position
Comprehensive Income
Cash Flows
48
40
Directors’ Responsibility
Notes to the Consolidated Financial Statements
4
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
Certificate by the Group Company Secretary
Financial Reporting
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
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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
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4
Consolidated Statement of Financial Position As at 28 February 2014
All figures in US$
Note
2014
2013
12 13 14 15.1 43.1 18.1
734,664,113 3,656,586 143,394,762 19,238,457 6,090,632 20,768,186
690,805,885 951,517 9,492,568 5,642,613 6,090,632 14,061,120
17 19
11,736,041 3,329,214 942,877,991
9,896,415 3,010,797 739,951,547
22
25,901,874
14,443,786
23 21 24.6 32.4
67,205,085 76,853 66,271,160 71,331,021
63,105,361 58,006 119,321,627 78,229,628
230,785,993
275,158,408
1,173,663,984
1,015,109,955
37,448,131 561,884,250 462,848 599,795,229 3,924,078
35,697,496 453,138,968 568,775 489,405,239 3,477,998
603,719,307
492,883,237
109,837,492 134,852,046
85,493,429 202,799,895
244,689,538
288,293,324
29
14,109,056
10,127,617
28 30 31.2
168,988,197 105,427,999 19,363,364 17,366,523
118,871,498 61,771,039 36,350,711 6,812,529
325,255,139
233,933,394
569,944,677 1,173,663,984
522,226,718 1,015,109,955
ASSETS Non-current assets Property, plant and equipment Investment property Intangible assets Deferred tax asset Goodwill Investment in associates Financial instruments: -Held-to-maturity investments -Available-for-sale investments Total non-current assets Current assets Inventories Financial instruments: -Trade and other receivables - Financial assets at fair value through profit or loss - Loans and advances - Cash and cash equivalents Total currents assets Total assets EQUITY AND LIABILITIES Capital and reserves 25.2
Share capital and share premium Retained earnings Other reserves Equity attributable to owners of Econet Wireless Zimbabwe Limited Non-controlling interest
27
Total equity Non-current liabilities Deferred tax liability Financial instruments - Long-term interest-bearing debt
15.2 30
Total non-current liabilities Current liabilities Deferred revenue Financial instruments: -Trade and other payables - Short-term interest bearing debt - Deposits due to banks and customers Income tax payable Total current liabilities Total liabilities Total equity and liabilities
Dr J. Myers D. Mboweni K. V. Chirairo CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FI N A N C E D I R E C TO R 25 April 2014
44
4
Consolidated Statement of Comprehensive Income For the year ended 28 February 2014
Note
2014
2013
Revenue
2
752,677,719
695,790,625
Cost of sales and external services sold Impairment losses- loans and advances relating to the furniture book
8
(203,065,419) (18,369,859)
(182,955,954) -
531,242,441
512,834,671
8,683,092 6,707,066 18,847 (139,407,992) (21,800,993) (47,195,736) (6,072,642)
1,534,333 (2,930,659) 5,030 (140,686,551) (17,961,279) (45,434,962) (4,947,261)
332,174,083
302,413,322
(101,723,923)
(71,563,248)
Gross profit Other income Share of profit/(loss) of associate Gain on financial assets at fair value through profit or loss General administrative expenses Marketing and sales expenses Network expenses Other expenses
9 18.3 21
Profit from operations Depreciation, amortisation and impairment Profit for the year
4
230,450,160
230,850,074
Finance income Finance costs
6 7
595,931 (37,037,230)
2,653,217 (28,600,048)
194,008,861
204,903,243
10
(74,612,119) 119,396,742
(64,965,023) 139,938,220
Other comprehensive income Items that may be reclassified subsequently to profit or loss Fair value loss on available-for-sale investments Taxation effect of other comprehensive income
19 5
(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 Taxation effect of other comprehensive income
5
6,626 (1,706) 4,920
-
(105,927)
(773,951)
119,290,815
139,164,269
119,281,716 115,026 119,396,742
139,593,292 344,928 139,938,220
119,175,789 115,026 119,290,815
138,819,341 344,928 139,164,269
Profit before taxation Income tax expense Profit for the year
Other comprehensive loss for the year, net of tax Total comprehensive income for the year Profit for the year attributable to: Equity holders of Econet Wireless Zimbabwe Limited Non-controlling interest
Total comprehensive income attributable to: Equity holders of Econet Wireless Zimbabwe Limited Non-controlling interest
Basic earnings per share (dollars)
11
0.08
0.09
Diluted basic earnings per share (dollars)
11
0.08
0.09
4
45
Financial Reporting
All figures in US$
Consolidated Statement of Changes in Equity For the year ended 28 February 2014
Attributed to the equity holders of Econet Wireless Zimbabwe Limited
Noncontrolling interest
Total
379,945,907
2,847,008
382,792,915
-
139,593,292
344,928
139,938,220
-
(773,951) (781,769) 7,818
(773,951) (781,769) 7,818
-
(773,951) (781,769) 7,818
-
139,593,292
(773,951)
138,819,341
344,928
139,164,269
2,572,566 1,684,577 (731,008) 1,618,997
(31,932,575) (31,932,575) -
-
(29,360,009) 1,684,577 (731,008) (31,932,575) 1,618,997
286,062 286,062 -
(29,073,947) 1,684,577 (731,008) (31,932,575) 286,062 1,618,997
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 Fair value loss on available-for-sale investments Gain arising on revaluation of property and equipment Taxation effect of other comprehensive income
-
-
(105,927) (111,956)
(105,927) (111,956)
-
(105,927) (111,956)
-
-
6,626 (597)
6,626 (597)
-
6,626 (597)
Total comprehensive income
-
119,281,716
(105,927)
119,175,789
115,026
119,290,815
1,750,635 1,750,635 -
(10,536,434) (9,902,521) (633,913)
-
(8,785,799) 1,750,635 (9,902,521) (633,913)
331,054 331,054
(8,454,745) 1,750,635 (9,902,521) (302,859)
37,448,131
561,884,250
462,848
599,795,229
3,924,078
603,719,307
Retained earnings
Other reserves (Note 27)
Total
33,124,930
345,478,251
1,342,726
Profit for the year
-
139,593,292
Other comprehensive income Fair value loss on available-for-sale investments Taxation effect of other comprehensive income
-
Total comprehensive income
All figures in US$ Balance at 29 February 2012
Share capital and Share premium
Transactions with equity holders of Econet Wireless Zimbabwe Limited Issue of shares Cancellation of shares bought back Share buy back (Note 16.4) Acquisition of subsidiary Utilisation of treasury shares
Balance at 28 February 2013
Transactions with equity holders of Econet Wireless Zimbabwe Limited Utilisation of treasury shares Share buyback (Note 16.4) Change in ownership
Balance at 28 February 2014
46
4
Consolidated Statement of Cash Flows For the year ended 28 February 2014
Note
2014
2013
Cash generated from operations
32.2
401,085,354
216,176,544
Income tax paid
32.3
(53,310,503)
(53,096,888)
347,774,851
163,079,656
203,822 (141,607,981) (430,373) (376,668) (1,447,517) (302,859) (139,718,276) 237,033
2,653,217 (565,570) (134,406) (1,872,598) (20,000,000) 16,597,539 (147,043,725) -
(283,442,819)
(150,365,543)
Finance costs Share buy-back Proceeds from borrowings Repayment of borrowings Issue of shares
(34,339,697) (9,902,521) 48,385,371 (75,373,792) -
(33,359,941) (25,413,484) 52,000,000 (31,807,690) 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
71,331,021
78,229,628
Operating activities
Net cash flows from operating activities Investing activities Finance income Acquisition of intangible assets Acquisition of available-for-sale investments Acquisition of investment property Acquisition of held-to-maturity investments Acquisition of associate Net cash (outflow)/ inflow on acquisition of subsidiary Purchase of property, plant and equipment: - to expand operating capacity Proceeds on disposal of property, plant and equipment
14
18.2 43
Net cash used in investing activities Financing activities
Cash and cash equivalents at the end of the year
32.4
4
47
Financial Reporting
All figures in US$
Notes To The Consolidated Financial Statements For the year ended 28 February 2014
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.
48
4
OPERATING SEGMENTS (continued)
Segment information for the year ended 28 February 2014 All figures in US$
Cellular network operations
Financial Services*
692,677,828
35,054,954
Investments and administration Beverages Segments total 747,040,763 19,307,981 -
Adjustments and eliminations -
Group total 747,040,763
Revenue from external customers Revenues from transacting with other operating segments of the same entity Interest income from banking operations Total revenue
-
6,182,640
-
-
6,182,640
(6,182,640)
-
692,677,828
5,636,956 46,874,550
19,307,981
-
5,636,956 758,860,359
(6,182,640)
5,636,956 752,677,719
Depreciation Amortisation of intangibles
(88,050,181) (6,486,411)
(2,082,621) (638,621)
(1,055,918) -
(383) -
(91,189,103) (7,125,032)
-
(91,189,103) (7,125,032)
Finance income
484,181
89,707
4,371
1,565
579,824
16,107
595,931
(36,616,949)
(26,501)
(465,339)
-
(37,108,789)
71,559
(37,037,230)
-
-
-
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
(7,256,114) (14,180,514)
-
(281,326,551)
- (281,326,551) (384,725,484) 1,173,663,984
Finance costs Share of profit of associate
Acquisition of segment non-current assets
(259,889,923)
Segment assets**
1,140,941,856 201,656,013
30,925,537
184,866,062
1,558,389,468
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*
674,135,536
2,636,113
Investments and administration Segments total Beverages 694,892,236 18,120,587 -
Adjustments and eliminations
-
(48,628)
-
-
(48,628)
48,628
-
674,135,536
947,017 3,534,502
18,120,587
-
947,017 695,790,625
-
947,017 695,790,625
Depreciation
(68,732,031)
(270,838)
(680,964)
(913)
(69,684,746)
-
(69,684,746)
(1,820,355)
(58,147)
-
-
(1,878,502)
-
(1,878,502)
2,329,937
14,171
8,346
429,134
2,781,588
(128,371)
2,653,217
(28,469,128)
(41,830)
(89,090)
-
(28,600,048)
-
(28,600,048)
-
-
-
(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
(190,650,894)
(35,366)
(548,133)
-
(191,234,393)
- (191,234,393)
981,837,567 185,869,795
17,402,314
155,481,755
1,340,591,431
(325,481,476) 1,015,109,955
Amortisation of intangibles Finance income Finance costs Share of loss of associate
Acquisition of segment non-current assets Segment assets*
(48,628)
Group total 694,843,608
Revenue Revenues from transacting with other operating segments of the same entity Interest income from banking operations Total revenue
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$14 061 120 pertaining to an investment in associate accounted for using the equity method.
4
49
Financial Reporting
1
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
1
OPERATING SEGMENTS (continued) All figures in US$
2014
2013
118,357,549
143,704,956
(6,182,640) 1,155,474 5,394,315 794,474 (122,430)
155,655 40,885 (3,834,905) (128,371)
119,396,742
139,938,220
Segment operating assets Investment in subsidiaries Inter-company receivables
1,558,389,468 (124,469,860) (260,255,624)
1,340,591,431 (108,681,234) (216,800,242)
Group operating assets
1,173,663,984
1,015,109,955
Segment operating liabilities Inter-company payables
814,776,927 (244,832,250)
723,925,602 (201,698,884)
569,944,677
522,226,718
441,042,715 127,623,451 101,242,680 77,131,917 5,636,956 752,677,719
495,952,665 115,283,694 44,587,064 39,020,185 947,017 695,790,625
5,636,956 5,636,956
612,150 334,867 947,017
(1,816,837)
(201,868)
Reconciliation of profit Segment profit Adjustments Revenue Cost of sales Expenses Other income / (expenses) Investment income Group profit
Reconciliation of assets
Group operating liabilities
2
REVENUE Revenue is made up of : Local airtime Interconnection fees and roaming Data - SMS and internet services Other sales (beverages sales, handset sales, accessories and commissions) Interest income from banking operations (Note 3)
3 NET INTEREST INCOME FROM BANKING OPERATIONS 3.1 Interest income from banking operations Loans and advances to customers Other
3.2 Interest expense from banking operations Interest on deposits due to banks and other customers
50
4
PROFIT FROM OPERATIONS All figures in US$
2014
2013
(19,678,214)
(19,893)
Impairment of loans and advances to customers (Note 24.4)
(2,276,283)
(2,328,183)
Auditors remuneration Group audit fees*
(1,352,500) (1,352,500)
(1,528,000) (1,528,000)
(92,018,851)
(69,684,748)
(7,598,976)
(1,878,500)
(92,507)
(224,410)
(2,105,775)
(450,371)
(72,555,215) (67,460,006) (5,095,209)
(51,341,404) (49,889,388) (1,452,016)
(7,868,629) (1,400,578) (6,468,051)
(6,327,566) (387,500) (5,940,066)
Profit from operations is arrived at after taking the following income/ (expenditure) into account: Impairment of trade and other receivables (Note 23)
Depreciation and impairment of property, plant and equipment (Note 12) Amortisation and impairment of intangible assets (Note 14) Loss on disposal of property, plant and equipment Write off of property, plant and equipment Employee benefits - short-term benefits - post-employment benefits Compensation of directors and key management: - For services as directors - For management services (Note 33.3)
*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
All figures in US$ Items that may be reclassified subsequently to profit or loss Fair value loss on available-for-sale financial assets Items that may not be reclassified to profit or loss Gain arising on revaluation of property and equipment
Gross amount
2014 Tax effect
Net amount
Gross amount
2013 Tax effect
Net amount
(111,956)
1,109
(110,847)
(781,769)
7,818
(773,951)
6,626
(1,706)
4,920
-
-
-
(105,330)
(597)
(105,927)
(781,769)
7,818
(773,951)
4
51
Financial Reporting
4
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
6
FINANCE INCOME All figures in US$ Interest earned from bank deposits Interest from held-to-maturity investments
7
2013
203,822 392,109
2,237,517 415,700
595,931
2,653,217
(37,037,230)
(28,600,048)
FINANCE COSTS Interest on loans and bank overdrafts
2014
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) Bad debts written off
(15,546,073) (2,823,786) (18,369,859) 1,653,007 (16,716,852)
Less interest income (included in revenue) Net (loss)/profit attributable to furniture loans
-
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 Other bank income Fair value adjustment on investment property (Note 13) Realised forex losses Unrealised forex gains
2,020,053 5,689,539 809,401 (25,286) 189,385 8,683,092
1,471,463 153,234 15,000 (173,388) 68,024 1,534,333
Current income tax Deferred tax (Note 15.3) Withholding tax
(51,038,012) (10,747,622) (12,826,485)
(41,129,194) (14,029,298) (9,806,531)
Income tax expense
(74,612,119)
(64,965,023)
194,008,861
204,903,243
(49,957,282)
(52,762,585)
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)
10 INCOME TAX EXPENSE
Tax rate reconciliation Profit before taxation Reconciliation of tax charge: Normal tax at 25.75% Effect of share of profit/ (loss) from associate
52
4
EARNINGS PER SHARE All figures in US$
2014
2013
119,281,716
139,593,292
Loss on disposal of property, plant and equipment Write off of property, plant and equipment
92,507 2,105,775
224,410 450,371
Tax effect on adjustments
(566,058)
(173,756)
120,913,940
140,094,317
Profit for the year attributable to ordinary shareholders Adjustment for capital items (gross of tax):
Headline earnings attributable to ordinary shareholders
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
4
53
Financial Reporting
11
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
12
PROPERTY, PLANT AND EQUIPMENT Land and Buildings
Cellular Network Equipment
Office Equipment
Beverage Plant and Equipment
41,590,470
500,775,531
29,448,216
4,041,657
1,587,813 146,780 1,413,795
2,159,718 (3,057,281) 162,633,880
6,149,488 5,079,733 (26,722) (242,091) 1,181,477
301,712 -
At 28 February 2013
44,738,858
662,511,848
41,590,101
Reclassification Additions Write offs Disposals Transfer to Investment property Transfers Transfer from Intangible assets
2,919,945 (1,519,000) 1,256,386 -
3,542,522 (3,849,911) 169,120,341 114,987
At 28 February 2014
47,396,189
Vehicles
Capital Work-inProgress
Total
7,838,745
171,487,487
755,182,106
489,262 1,303,545 138,052,237 (73,478) (59,100) - (165,229,152)
8,226,563 147,043,725 (3,157,481) (301,191) -
4,343,369
9,498,974
144,310,572
906,993,722
(6,332,137) 7,909,983 (9,400) (963,376) 6,432,587 -
6,332,137 10,485,295 -
3,326,955 (33,970) (288,518) -
111,533,576 (156,702) (176,809,314) -
139,718,276 (4,049,983) (1,251,894) (1,519,000) 114,987
831,439,787
48,627,758
21,160,801
12,503,441
78,878,132 1,040,006,108
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 Write offs Disposals
(1,160,578) -
(62,375,334) 2,650,039 -
(4,428,899) 12,718 99,227
(401,329) -
(1,318,608) 44,353 25,966
-
-
(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 Charge for the period Write offs Disposals Revaluation Transfers Impairment
(1,187,301) 1,019 6,625 (46,455)
(80,516,917) 2,532,914 (8,176) -
1,729,850 (7,212,885) 1,869 241,247 (524,933)
(1,729,850) (667,683) (197,381)
(1,603,996) 6,270 82,925 (61,300)
-
(8,682,513) (270,499,645)
(17,071,782)
(4,001,807)
(5,086,248)
- (305,341,995)
31,555,976 30,283,171
17,158,994 2,936,476
7,417,193 5,988,827
All figures in US$ At cost At 29 February 2012 Acquisition of subsidiary Additions Write offs Disposals Transfers
Accumulated depreciation & impairment
Transfers
At 28 February 2014
(69,684,748) 2,707,110 125,193 -
(91,188,782) 2,541,053 325,191 6,625 (8,176) (830,069)
Carrying value At 28 February 2014 At 28 February 2013
54
38,713,676 37,282,457
560,940,142 470,004,382
78,878,132 144,310,572
734,664,113 690,805,885
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$6 344 062 on the unwinding of the discount over the next 24 years.
4
INVESTMENT PROPERTY All figures in US$
2014
2013
Opening balance
951,517
411,000
Additions Acquisition of subsidiary Gain on fair value of investment property Transfer from property, plant and equipment*
376,668 809,401 1,519,000
525,517 15,000 -
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
Office properties Residential stands
Implicit investment approach (Refer below) Market value of similar properties (Refer below)
Significant observable Range inputs (weighted average) Comparable rentals per month per sqm US$8.86 - US$12.00 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.
4
55
Financial Reporting
13
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
14
INTANGIBLE ASSETS Licences
Computer software
Total
452,237
8,986,982
9,439,219
Accumulated amortisation Carrying amount
(452,237) -
(995,978) 7,991,004
(1,448,215) 7,991,004
Movement for the year: Additions Acquisition of subsidiary Amortisation
2,814,494 (55,526)
565,570 (1,822,974)
565,570 2,814,494 (1,878,500)
At 28 February 2013: Cost Accumulated amortisation Carrying amount
2,814,494 (55,526) 2,758,968
9,552,552 (2,818,952) 6,733,600
12,367,046 (2,874,478) 9,492,568
Movement for the year: Additions Amortisation Impairment Transfer
139,118,755 (5,220,910) (473,944) -
2,489,226 (1,904,122) (106,811)
141,607,981 (7,125,032) (473,944) (106,811)
At 28 February 2014: Cost Accumulated amortisation and impairment Carrying amount
141,933,249 (5,750,380) 136,182,869
All figures in US$ At 29 February 2012: Cost
12,041,778 153,975,027 (4,829,885) (10,580,265) 7,211,893 143,394,762 Intangible assets pertain to licences and computer software held by Econet Wireless (Private) Limited, Steward Bank Limited and Transaction Payment Solutions (Private) Limited. The Group uses the expected usage of the asset to determine the useful life of intangible assets. At 28 February 2014 the computer software had an average remaining useful life of two and a half years and licences had an average remaining useful life of 19 years.
56
During the course of the current year, Econet Wireless (Private) Limited, the Group’s telecommunications operation, renewed their operating licence for a further 20 years at a cost of US$137.5 million.
4
The following are the major deferred tax liabilities and assets recognised by the Group, and the movements thereon.
All figures in US$
Assessed losses
Property, plant and equipment
Deferred revenue
Provisions and other
Total
15.1 Deferred tax asset At 29 February 2012
-
-
2,603,578
82,737
2,686,315
Acquisition of subsidiary (Charge)/ credit to profit for the year
2,151,404 -
-
(17,298)
822,192
2,151,404 804,894
At 28 February 2013
2,151,404
-
2,586,280
904,929
5,642,613
Tax charged to equity Credit to profit for the year
6,542,597
-
1,025,221
(1,706) 6,029,732
(1,706) 13,597,550
At 28 February 2014 8,694,001 3,611,501 6,932,955 19,238,457 The Group has accounted for a deferred tax asset pertaining to deferred revenue since the temporary difference is expected to reverse in the foreseeable future. Further, the Group has also accounted for a deferred tax asset arising from losses incurred by Steward Bank Limited in anticipation of the bank’s return to profitability.
Assessed losses
Property, plant and equipment
Deferred revenue
Provisions and other
Total
At 29 February 2012
-
70,629,130
-
37,925
70,667,055
Disposal of subsidiary Charge to profit for the year Credit to other comprehensive income
-
14,834,192 -
-
(7,818)
14,834,192 (7,818)
At 28 February 2013
-
85,463,322
-
30,107
85,493,429
Charge to profit for the year Credit to other comprehensive income
-
24,345,172 -
-
(1,109)
24,345,172 (1,109)
At 28 February 2014
-
109,808,494
-
28,998
109,837,492
All figures in US$
15.2 Deferred tax liability
The deferred tax liability arises mainly from the difference between accounting and tax treatment of depreciation.
4
57
Financial Reporting
15 DEFERRED TAX
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
15 DEFERRED TAX (continued)
Assessed losses
Property, plant and equipment
Deferred revenue
Provisions and Other
Total
-
(70,629,130)
2,603,578
44,812
(67,980,740)
Acquisition of subsidiary Charge to profit for the year Credit to other comprehensive income
2,151,404 -
(14,834,192) -
(17,298) -
822,192 7,818
2,151,404 (14,029,298) 7,818
At 28 February 2013
2,151,404
(85,463,322)
2,586,280
874,822
(79,850,816)
Credit /(charge) to profit for the year Credit to other comprehensive income
6,542,597 -
(24,345,172) -
1,025,221 -
6,029,732 (597)
(10,747,622) (597)
At 28 February 2014
8,694,001
(109,808,494)
3,611,501
6,903,957
(90,599,035)
All figures in US$
15.3 Net deferred tax asset / (liability) At 29 February 2012
16
INVESTMENTS AND LOANS IN SUBSIDIARIES All figures in US$
COMPANY
Percentage
2014
2013
100%
3,133,903
3,133,903
84.3%
108
108
100%
17,797,668
17,797,668
100%
6,220,598
6,220,598
100%
97,317,584
74,025,091
124,469,861
101,177,368
16.1 Cost of investments Econet Wireless (Private) Limited (Cellular network operator in Zimbabwe) Transaction Payment Solutions (Private) Limited (Computer data processing service provider) E. W. Capital Holdings (Private) Limited (Investment company) Pentamed Investments (Private) Limited (Investment company) Steward Bank Limited (Banking operations in Zimbabwe) Total investments in subsidiaries
58
During the year, the Company acquired the remaining 1.4% stake in Steward Bank Limited resulting in the bank becoming a 100% owned subsidiary. Refer to note 43 on acquisition of subsidiaries.
4
INVESTMENTS AND LOANS IN SUBSIDIARIES (continued) All figures in US$
2014
2013
16.2 Inter-company receivables Pentamed Investments (Private) Limited Econet Wireless Global Limited Total loans to group companies
1,886,351
1,886,351
16,385,901 18,272,252
485,277 2,371,628
(137,497,797)
(111,701,337)
16.3 Inter-company payables Econet Wireless (Private) Limited Econet Wireless Capital Holdings Limited
Net investments and loans in group companies
(16,611,898)
(16,611,898)
(154,109,695)
(128,313,235)
(11,367,582)
(24,764,239)
16.4 Treasury shares The cost of the share buy-backs (treasury stock) has been debited to capital and reserves. The cost of shares
bought back for the year ended 28 February 2014 was US$9 902 521 (2013: US$31 932 575). Treasury shares on hand at 28 February 2014 were 89 674 249 (2013: 75 981 050).
17
HELD-TO-MATURITY INVESTMENTS All figures in US$
Opening balance Eliminated on acquisition of subsidiary Additions Disposals Interest accrued Closing balance
2014
2013
9,896,415 1,447,517 392,109 11,736,041
14,161,138 (6,088,909) 1,430,000 (21,514) 415,700 9,896,415
Held-to-maturity investments include foreign currency bearer bonds with a carrying amount of US$4 088 443 (2013: US$2 940 140) and investments with local financial institutions amounting to US$7 647 598 (2013: US$6 956 275). The bearer bonds yield interest at a rate of 6.8% per annum.
4
59
Financial Reporting
16
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
18 INVESTMENT IN ASSOCIATES The Group has a 51% interest in Data Control & Systems (1996) (Private) Limited, which is involved in the provision
of internet related services. Data Control & Systems (1996)(Private) Limited is a private entity that is not listed on any public exchange. The Group’s interest in Data Control & Systems (1996) (Private) Limited (“DCS”) is accounted for using the equity method in the consolidated financial statements. The following table illustrates the summarised financial information of the Group’s investment in Data Control & Systems (1996) (Private) Limited:
18.1 Data Control & Systems (1996) (Private) Limited All figures in US$
2014
2013
113,945,824 37,270,592 (29,315,323) (84,119,686) 37,781,407 51% 19,268,517
79,084,362 23,108,455 (14,619,420) (62,943,101) 24,630,296 51% 12,561,451
1,499,669
1,499,669
20,768,186
14,061,120
59,353,260 (13,423,530) (23,455,697) (4,553,119) 17,920,914 (4,769,804) 13,151,110 6,707,066
47,175,927 (12,126,812) (18,185,699) (3,801,202) 13,062,214 (3,088,232) 9,973,982 5,086,731
14,061,120 6,707,066 20,768,186
8,974,389 5,086,731 14,061,120
Associate’s statement of financial position: Non-current assets Current assets Current liabilities Non-current liabilities Equity Proportion of the Group’s ownership Group's ownership Fair value adjustment resulting from the acquisition of 51% in DCS Carrying amount of the investment Associate’s revenue and profit: Revenue Cost of sales Administrative expenses Finance costs Profit before tax Income tax expense Profit for the year (continuing operations) Group’s share of profit for the year Reconciliation of carrying amount of investment in associate Opening balance Share of profit of associate Closing balance
18.2 Steward Bank Limited Steward Bank was acquired through a step acquisition process, beginning as an associate from 1 July 2012 to a subsidiary from 31 January 2013.
Cost of investment paid for in cash Share of loss of associate - July 2012 to January 2013 Transferred to investment in subsidiary (Refer note 43) Carrying amount at 28 February 2014
60
-
4
20,000,000 (8,017,390) (11,982,610) -
INVESTMENT IN ASSOCIATES (continued)
18.3 Net share of profit/(loss) of associates All figures in US$
2014
2013
6,707,066 6,707,066
5,086,731 (8,017,390) (2,930,659)
Listed investments Opening balance Additions Fair value loss Eliminated on acquisition of subsidiary
3,010,797 430,373 (111,956) -
4,692,566 134,406 (781,769) (1,034,406)
Closing balance
3,329,214
3,010,797
Share of profit of Data Control & Systems (1996) (Private) Limited Share of loss of Steward Bank Limited
19
AVAILABLE-FOR-SALE INVESTMENTS
20 FAIR VALUES OF FINANCIAL INSTRUMENTS Set out below is a comparison by class of the carrying amounts and fair values of the Group’s financial instruments that are carried in the financial statements:
The fair values of the financial instruments approximate their carrying amounts.
All figures in US$ Financial assets Trade and other receivables Loans and advances to bank customers Available-for-sale financial investments Cash and cash equivalents (Note 32.4) Financial assets at fair value through profit or loss Held-to-maturity investments Total
2014 Carrying amount
2013 Carrying amount
67,205,085 66,271,160 3,329,214 71,331,021 76,853 11,736,041 219,949,374
63,105,361 119,321,627 3,010,797 78,229,628 58,006 9,896,415 273,621,834
Financial liabilities Interest-bearing loans and borrowings Deposits due to banks and customers Trade and other payables Total
240,280,045 19,363,364 168,988,197 428,631,606
264,570,934 36,350,711 118,871,498 419,793,143
The values of the financial assets and liabilities are included at the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: Cash and cash equivalents, trade receivables, trade payables, and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Long-term fixed-rate and variable-rate receivables / borrowings are evaluated by the Group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 28 February 2014, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.
4
61
Financial Reporting
18
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
20
FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
Fair value of quoted notes and bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases as well as other noncurrent financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. Fair value of available-for-sale financial assets is derived from quoted market prices in active markets. The fair value of interest bearing loans and borrowings is determined after taking into account the effective interest on the loans. This involves an assessment of world market rates, specific country risk , credit risk and other relevant factors. The Directors believe that the amortised cost of the interest bearing loans and borrowings approximates their fair value.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique; Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. All figures in US$
Total
Level 1
Level 2
Level 3
3,656,586
-
-
3,656,586
76,853 3,329,214 7,062,653
76,853 3,329,214 3,406,067
-
3,656,586
Total
Level 1
Level 2
Level 3
951,517 58,006
58,006
-
951,517 -
At 28 February 2014 Investment Property Financial assets at fair value through profit or loss Available-for-sale financial assets
During the reporting period ending 28 February 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. All figures in US$ At 28 February 2013 Investment Property Financial assets at fair value through profit or loss Available-for-sale financial assets
62
3,010,797 3,010,797 4,020,320 3,068,803 951,517 During the reporting period ending 28 February 2013, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
4
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS All figures in US$ Opening balance Fair value gain Closing balance
2014 58,006 18,847 76,853
2013 52,976 5,030 58,006
Investments held at fair value through profit or loss comprise of equity investments. The fair value is based on the Zimbabwe Stock Exchange published price.
22 INVENTORIES Merchandise at net realisable value Spares, stationery and other
16,697,314 9,204,560 25,901,874
8,606,682 5,837,104 14,443,786
The directors are of the opinion that the inventory amounts are recorded at values that are not in excess of their recoverable amounts. All inventories values are expected to be recovered within twelve (12) months. The cost of inventories recognised as an expense during the year amounted to US$28 858 164 (2013:US$23 215 938). Inventories written off during the course of the year amounted to US$1 229 241 (2013: US$1 474 197).
23
FINANCIAL INSTRUMENTS: TRADE AND OTHER RECEIVABLES
Trade receivables Interconnect debtors Intercompany receivables Other receivables Impairment losses recognised
37,562,131 31,835,084 200,000 27,170,084 (29,562,214)
36,189,048 11,487,301 1,036,705 24,276,307 (9,884,000)
67,205,085
63,105,361
There is a concentration of credit risk associated with Interconnect Debtors. Impairment losses recognised Pertaining to prior year balances (9,884,000) (9,935,325) Bad debts recovered 71,218 Impairment losses recognised in current year (19,678,214) (19,893) (29,562,214)
Prior year amounts written off amounted to US$76 million. In determining the impairment losses disclosed above, the Group considers any change in the credit quality of a trade receivable from the date the credit was initially granted up to the end of the reporting period. Ageing of trade and other receivables that are past due but not impaired 30 days 60-90 days 90+ Total
(9,884,000)
7,817,881 6,161,400 13,535,817 27,515,098
1,863,609 7,056,114 11,105,525 20,025,248
Before accepting any new individual customer, the Group conducts trade reference checks to establish the credit history of the applicant . The Group also conducts due diligence assessments on individuals, companies and their directors. In light of the fact that security is held against the amounts detailed above, the Group considers the trade and other receivables past due to be recoverable and thus has not impaired these amounts. 4
63
Financial Reporting
21
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
24
LOANS AND ADVANCES TO BANK CUSTOMERS All figures in US$
2014
2013
Corporate lending Small-to-medium Enterprise lending Consumer lending Other
58,832,365 290,209 1,434,046 60,556,620
69,863,575 576,222 323,526 2,514,146 73,277,469
Less: Allowance for impairment losses
(4,604,466) 55,952,154
(2,328,183) 70,949,286
Less than one month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years Gross loans and advances
38,666,379 139,393 418,812 843,308 19,852,023 636,705 60,556,620
41,676,094 1,800,000 24,604,980 894,492 4,301,903 73,277,469
Allowance for impairment losses
(4,604,466) 55,952,154
(2,328,183) 70,949,286
24.1 Total loans and advances to bank customers
24.2 Maturity analysis
24.3 Sectorial analysis of utilisations 2014 All figures in US$ Mining Manufacturing Agriculture Distribution Services Individuals
2013
US$
%
US$
%
871,158
1%
4,514,349
6%
53,315,925 1,537,546 660,086 2,101,322 2,070,583 60,556,620
88% 3% 1% 4% 3% 100%
44,616,254 3,131,329 4,204,801 10,446,996 6,363,740 73,277,469
61% 4% 6% 14% 9% 100%
There is a material concentration of loans and advances in the Manufacturing category constituting 88% (2013: 61%) of gross loans and advances.
24.4 Allowance for impairment losses on loans and advances A reconciliation of the allowance for impairment losses for loans and advances, by class, is as follows:
64
All figures in US$ At 1 March 2012 Acquisition of subsidiary
Corporate lending 2,776,720
SME lending 20,406
Consumer lending (468,943)
Total 2,328,183
At 28 February 2013 Acquisition of subsidiary Charge for the year
2,776,720 1,827,746
20,406 (20,406)
(468,943) 468,943
2,328,183 2,276,283
At 28 February 2014
4,604,466
-
-
4,604,466
4
All figures in US$
Note
Gross furniture loans Allowance for credit losses Total
24.6 Total loans and advances 24.1 24.5
Total loans and advances to bank customers Loans and advances relating to furniture
25
2014
2013
25,865,079 (15,546,073) 10,319,006
51,201,320 (2,828,979) 48,372,341
55,952,154 10,319,006 66,271,160
70,949,286 48,372,341 119,321,627
SHARE CAPITAL Group and company Authorised 3 000 000 000 (2013: 3 000 000 000) Shares consisting of: -2 000 000 000 (2013: 2 000 000 000) Ordinary shares of US$0.001 each -1 000 000 000 (2013: 1 000 000 000) Class "A" ordinary shares of US$0.001 each
2,000,000
2,000,000
1,000,000
1,000,000
3,000,000
3,000,000
25.1 Issued and fully paid 1 640 021 430 (2013: 1 640 021 430) Shares consisting of: -909 325 280 (2013: 909 325 280) Ordinary shares of US$0.001 each -730 696 150 (2013: 730 696 150) Class "A" ordinary shares of US$0.001 each (Note 25.3)
909,325
909,325
730,696
730,696
1,640,021
1,640,021
25.2 Capital and Reserves
Movement in share capital and share premium Number of shares
Share capital US$
Share premium US$
Total US$
171,554,202 705,400 (8,257,459) 164,002,143
1,715,542 7,054 (82,575) 1,640,021
31,409,388 1,677,523 (648,433) 1,618,997 34,057,475
33,124,930 1,684,577 (731,008) 1,618,997 35,697,496
Effect of share split
1,476,019,287
-
-
-
Balance at 28 February 2013 Utilisation of treasury shares
1,640,021,430 -
1,640,021 -
34,057,475 1,750,635
35,697,496 1,750,635
Balance at 28 February 2014
1,640,021,430
1,640,021
35,808,110
37,448,131
Balance at 29 February 2012 Issue of shares Share cancellations Utilisation of treasury shares Total before share split
4
65
Financial Reporting
24.5 Loans and advances relating to furniture
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
25
SHARE CAPITAL (continued)
25.3 Class “A” shares On 1 July 2003, Econet Wireless Zimbabwe Limited (“EWZL”) entered into an arrangement with Dunstone
(Private) Limited, to acquire its 100% owned subsidiary Econet Wireless Capital Holdings (Private) Limited (“EWCH”). Under the arrangement, EWZL issued 73,984,368 (739,843,680 after share split) Class “A” ordinary shares in exchange for 999,000 EWCH shares. These shares rank parri passu in all respects with the existing issued ordinary shares with the exception that, in the event of EWZL becoming the owner of Econet Wireless Limited (“EWL”) shares, and deciding to distribute the shares to its members, the Class “A” ordinary shares will not participate in the distribution of the EWL shares.
25.4 Share buy-backs Under the authority granted at the Annual General Meeting of 17 September 2013 the directors were authorised
to re-purchase the Company’s own shares on the market. The company, as duly authorized by Article 10 of its Articles of Association, may undertake the purchase of its own ordinary shares in such manner or on such terms as the directors may from time to time determine, provided that the repurchases are not made at a price greater than 5% above the weighted average of the market value for the securities for the five business days immediately preceding the date of the repurchase and also provided that the maximum number of shares authorized to be acquired shall not exceed 10% (ten percent) of the Company’s issued ordinary share capital. This authority shall expire at the next Annual General Meeting, and shall not extend beyond 15 months from the date of this resolution.
25.5 Issue of shares
There was no new issue of shares in the current year.
26 DIRECTORS’ SHAREHOLDING
At 28 February 2014, there were no outstanding share options granted to the directors. At that date, the following directors held directly and indirectly the following number of ordinary shares in the Company. 28 February 2014
Ordinary shares
S.T. Masiyiwa* C. Fitzgerald D. Mboweni T.P. Mpofu K. Chirairo J. Myers B. Mtetwa S. Shereni Total
329,217 10,709,010 7,014,684 10,380,580 84,400 19,970 130,910 2,200 28,670,971
28 February 2013
Ordinary shares
S.T. Masiyiwa* C. Fitzgerald D. Mboweni T.P. Mpofu K. Chirairo J. Myers B. Mtetwa Total
66
2,561,870 10,699,010 6,645,460 10,376,420 84,400 19,970 130,910 30,518,040
*Mr. S.T. Masiyiwa is a beneficiary of a trust that has an indirect shareholding in Econet Wireless Global Limited. Econet Wireless Global Limited holds 659 539 483 shares (2013: 678 442 400 shares) in Econet Wireless Zimbabwe Limited.
4
OTHER RESERVES Other
Available-for sale
Total
Balance at 29 February 2012
-
1,342,726
1,342,726
Fair value loss on available-for-sale investments
-
(773,951)
(773,951)
Balance at 28 February 2013
-
568,775
568,775
6,626 (1,706)
(111,956) 1,109
6,626 (111,956) (597)
4,920
457,928
462,848
2014
2013
50,912,050 53,923,898 1,008,652 63,143,597 168,988,197
7,850,582 41,453,827 13,688,438 55,878,651 118,871,498
All figures in US$
Additions Fair value loss on available-for-sale investments Deferred tax arising out of reserves Balance at 28 February 2014
Available for sale reserve
This reserve records fair value changes on available-for-sale financial assets.
Other reserves relate to Steward Bank revaluation of assets.
28
TRADE AND OTHER PAYABLES All figures in US$
Local trade accounts payable Foreign trade accounts payable Short term inter-group payables Other payables
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs together with credit granted on equipment purchases. The average credit period on purchases is between 7 and 30 days. The Group has financial risk management policies in place to ensure that all payables are settled within the agreed credit timeframe. Other payables comprise of the accrual of certain operational expenses.
29
DEFERRED REVENUE Deferred prepaid airtime
14,109,056 14,109,056
10,127,617 10,127,617
The deferred revenue arises from the unused prepaid airtime. The directors are of the opinion that the carrying amounts approximate the fair values of the services to be provided.
4
67
Financial Reporting
27
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
30
FINANCIAL INSTRUMENTS: INTEREST-BEARING DEBT All figures in US$
2014
2013
Opening balance Additions during the year Accrued/(prepaid) interest Net repayments Closing balance
264,570,934 48,385,371 2,697,532 (75,373,792) 240,280,045
249,138,516 52,000,000 (4,759,892) (31,807,690) 264,570,934
Long term portion Short term portion
134,852,046 105,427,999 240,280,045
202,799,895 61,771,039 264,570,934
Loan repayment structure Total loan obligation
Short-term portion
Long-term portion
Effective Borrowing rate as at 28 Feb 13
-
-
-
-
3.9%
27,631,579
7,623,312
44,733,368
14,115,871
30,617,497
27,440,000
4,666,667
166,929
22,940,262
22,940,262
-
135,134,715
135,134,715
135,134,715
-
-
-
24-May-12
39,900,000
37,115,392
22,800,000
4,249,930
18,565,322
12,778,435
5,786,888
Guarantee by 5.0% Econet Wireless Global Limited
China Development Bank
11-May-12
135,000,000
125,171,774
31,752,000
10,547,241
103,967,015
31,736,368
72,230,647
Guarantee by 6.4% Econet Wireless Global Limited
Industrial Development Corporation
28-Sep-12
20,000,000
17,151,454
8,000,000
5,671,588
14,823,042
3,579,977
11,243,065
Guarantee by 6.4% Econet Wireless Global Limited
PTA
15-Jan-13
20,000,000
19,820,000
9,090,909
4,160,658
14,889,749
7,678,869
7,210,880
Guarantee by 6.2% Econet Wireless Global Limited
PTA
4-Apr-13
8,000,000
8,190,051
302,616
88,481
7,975,916
212,846
7,763,069
10.0%
469,288,894
443,019,200
247,632,665
32,508,139
227,894,674
93,042,628 134,852,046
7.8%
12,385,371
12,385,371
-
-
12,385,371
481,674,265
455,404,571
247,632,665
32,508,139
240,280,045
Value at Acquisition Amounts paid date to date
Financier
Effective Initial Facility date Limit
ZTE Vendor financing
6-Oct-09
8,254,179
8,254,179
8,254,179
African Export and Import Bank/ Econet Wireless Global Limited
24-May-12
75,000,000
64,741,635
African Export and Import Bank
27-Dec-13
28,000,000
ZTE Vendor financing
23-Dec-10
Ericsson Credit AB
Finance cost accrued
Security terms
All figures in US$
Sub Total Bank working capital facility Total
22-Jul-13
12,385,371
Guarantee by 11.4% Econet Wireless Global Limited 9.0%
Guarantee by Steward Bank Limited
Guarantee by - LIBOR +3.5% Econet Wireless Global Limited
-
Equipment Purchased
Unsecured
105,427,999 134,852,046
Refer note 36.2 for a maturity profile of financial liabilities The weighted average interest rate on long-term borrowings for the Group as at 28 February 2014 was 7.8% (2013: 7.3%). In addition to the all inclusive rate of borrowing of 7.8% the Group pays guarantee fees of 6% per annum to EWG for the guarantee provided on the multi-creditor loan facilities. The borrowing powers of the directors are as disclosed in Note 40.
68
4
FINANCIAL INSTRUMENTS: INTEREST-BEARING DEBT (continued)
In December 2013, Steward Bank Limited provided a guarantee facility to Econet Wireless Zimbabwe Limited, its holding company, and another to Econet Wireless (Private) Limited, a fellow subsidiary, as security for loan facilities of US$20 million and US$8 million, respectively, which were obtained from Afrexim Bank. The loan facilities have a tenor of 12 months, with monthly repayments of capital and interest.
Summary of borrowing covenants Econet Wireless (Private) Limited and Econet Wireless Global Limited signed an agreement with Afrexim on 24 November 2011 for a facility of US$130 million. US$75 million of this loan facility was applied to Econet Wireless (Private) Ltd to refinance an existing bridging facility of US$63 million from the same Bank and at the same time increase the loan facility by a further US$12 million. This loan is part of the multi-creditor loan facilities detailed below.
ZTE
The facilities in the schedule above have been applied to the expansion of the cellular network. In May 2012, US$135 million of the facilities was refinanced through a loan from the China Development Bank, as part of the multi-creditor loan facilities detailed below.
Multi-creditor loan facilities
The company secured multi-creditor loan facilities of US$307 million from a group of financial institutions namely; Industrial Development Corporation of South Africa (IDC), Eastern and Southern African Trade and development bank (PTA Bank), China Development Bank (CDB) and Ericsson Credit AB (Ericsson)and a syndicate led by African Export Import Bank (Afrexim Bank), which also includes DEG, PROPARCO, FMO, Steward Bank and CBZ Bank. The terms of the security package are detailed in an Inter-creditor Security Sharing Agreement, which provides for the sharing of security between the financial institutions. The multi-creditor loan facilities were used to refinance the existing loans and for further network expansion. The loans are at various interest rates and maturity periods of up to five years. The multi-creditor loan facilities contain a number of covenants, representations, and events of default typical of a credit facility arrangements of this size and nature, including financial covenants relating to consolidated debt (as defined) including: 1. 2.
Debt service coverage ratio (DSCR) of greater than or equal to 1.5 Net Interest bearing Indebtedness (NIBFI) to EBITDA ratio of less than or equal to 1.5
Debt service means in respect of a relevant period, the short term portion of long term borrowings (as defined under IFRS) plus interest paid for that relevant period ( as defined under IFRS). The DSCR is therefore the ratio of cash generated from operations for the relevant period, to debt service for that period.
Net Interest bearing Financial Indebtedness means in respect of any relevant period, all short term interest bearing debt and long term interest bearing debt for that relevant period less cash and cash equivalents.
The Company was in compliance with such covenants as at 28 February 2014. The Directors believe the company will be able to continue to meet these covenant ratios during the term of the facilities.
Inter-creditor and Security Sharing Agreement
In terms of the agreements for the multi-creditor loan facility between Econet Wireless Group companies and the lenders listed above - ZTE, Industrial Development Corporation of South Africa, China Development Bank, Ericsson Credit AB, Afrexim Bank - the lenders have agreed to a pool arrangement for security of their facilities. The Security Pool arrangement is contained in the Inter-creditor and Security Sharing Agreement. Afrexim Bank was appointed the “Security Agent” in terms of the Inter-creditor and Security Sharing Agreement to hold in trust security on behalf of the syndicated creditors. The role of the Security Agent being, inter alia, to mobilize the syndicate lenders, holding security on behalf of the lenders, managing the collection of debt service payments on behalf of the lenders and enforcing securities while under instruction of the lenders. Barclays Bank of Zimbabwe Limited, Steward Bank Limited and Ecobank Burundi SA are the “Local Administrative Agents” to assist the Security Agent.
4
69
Financial Reporting
30
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
30
FINANCIAL INSTRUMENTS: INTEREST-BEARING DEBT (continued)
Inter-creditor and Security Sharing Agreement (continued)
31
The security pool includes the following: • An Econet Wireless (Private) Limited (EWPL) Notarial General Covering Bond (NGCB) • The Security Agent to be the loss payee on proceeds of All-Risk Insurance policy covering the EWPL assets, and • A charge over escrow accounts established as part of the facility agreements • Econet Wireless Global Limited and Mr. S. T. Masiyiwa (in his personal capacity) have provided irrevocable guarantees to the lenders participating in the inter-creditor and security sharing agreement.
DEPOSITS DUE TO BANKS AND CUSTOMERS All figures in US$
2014
2013
-
3,746,651
10,909,404 8,453,960 19,363,364
20,418,219 12,185,841 32,604,060
19,363,364
36,350,711
10,909,404 8,453,960
33,550,247 2,800,464
19,363,364
36,350,711
31.1 Due to banks Deposits due to other banks
31.2 Due to customers Current accounts Term deposits
31.3 Maturity analysis of deposits Less than 1 month 1 to 3 months
31.4 Sectoral analysis of deposits 2014
Financial Transport and telecommunications Mining Manufacturing Agriculture Distribution Services Government and parastatals Individuals Other
70
2013
US$
%
US$
%
449,560 2,628,524 15,426 121,355 161,760 284,506 3,934,700 13,499 11,581,738 172,296
2.3% 13.6% 0.1% 0.6% 0.8% 1.5% 20.3% 0.1% 59.8% 0.9%
3,483,942 5,331,285 18,800 2,367 137,439 2,883 8,014,417 11,720,477 7,639,101
9.6% 14.7% 0.1% 0.0% 0.4% 0.0% 22.0% 0.0% 32.2% 21.0%
19,363,364
100%
36,350,711
100%
4
CASH FLOW INFORMATION
32.1 Cash generated from operations All figures in US$ Profit before tax
2014 194,008,861
2013 204,903,243
92,018,851 7,598,977 1,323,581 2,105,775 92,506 (18,847) 19,678,214 19,930,954 (6,707,066) (809,401) 36,441,299 3,981,439
69,684,748 1,878,500 12,245,139 450,371 224,410 (5,030) (51,325) 2,930,659 (15,000) 25,946,831 (387,551)
369,645,143
317,804,995
(11,458,088) (23,350,566) 33,119,513 50,116,699 (16,987,347)
(2,389,124) (17,269,302) 3,518,249 22,184,483 (107,672,757)
31,440,211
(101,628,451)
401,085,354
216,176,544
6,812,529 51,038,012 12,826,485 (17,366,523) 53,310,503
8,647,819 325,874 41,129,194 9,806,530 (6,812,529) 53,096,888
Short term investments Bank balances and cash
71,331,021 71,331,021
64,887 78,164,741 78,229,628
Reserved and restricted cash balances
58,265,500
44,964,555
Adjustments for : Depreciation and impairment Amortisation and impairment of intangible assets Bad debts written off Write off of property, plant and equipment Loss on disposal of property, plant and equipment Fair value gains on financial assets at fair value through profit or loss Impairment of trade receivables Impairment of loans and advances Share of (profit)/loss of associate Gain on fair value of investment property Net finance costs Increase/(decrease) in deferred revenue Cash generated from operations before working capital changes
32.2 Adjustments for working capital changes Increase in inventories Increase in trade and other receivables Decrease in loans and advances to bank customers Increase in trade and other payables Decrease in deposits due to banks and customers
32.3 Income tax paid Opening balance of liability Add: tax payable assumed on acquisition of subsidiary Add: current taxation charge for the year (Note 10) Add: withholding taxes paid (Note 10) Less: closing balance of liability
32.4 Cash and cash equivalents
Restricted and reserved cash balances represent debt service reserve amounts which are secured to lenders and amounts held in trust for the EcoCash customers.
4
71
Financial Reporting
32
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
33
RELATED PARTY TRANSACTIONS
33.1 Transactions All figures in US$ Transactions with Members of Econet Wireless Global Group Sales of goods and services to associates Sales of goods and services to fellow subsidiaries Purchases of goods and services from associates Purchases of goods and services from subsidiaries
2014
2013
60,213,320 540,920 (50,876,053) (32,153,813)
57,238,627 910,070 (49,100,180) (28,810,908)
(8,561,184) 7,029,674
(13,258,828) 5,968,160
6,468,051 1,400,578 7,868,629
5,940,066 387,500 6,327,566
33.2 Net balances Amounts owed to Members of Econet Wireless Global Group Amounts receivable from Members of Econet Wireless Global Group
Details of guarantees provided by the parent company are disclosed in note 30.
33.3 Compensation of key management personnel
The remuneration of directors and other members of key management during the year was as follows: Short-term benefits-for management services For services as directors
34
GROUP EMPLOYEE BENEFITS
Econet Wireless Group Pension Fund
Contributions are made to the defined contribution scheme through monthly deduction by the Company on members’ salaries and remitted to the Fund. National Social Security Authority Scheme This is a defined contribution scheme promulgated under the National Social Security Act of 1989. The Company’s obligation under the scheme are limited to specific contributions legislated from time to time.
35 FINANCIAL RISK MANAGEMENT 35.1 Capital risk management
72
The Group’s objectives when managing capital are: • to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and • to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt (as shown in the statement of financial position) less cash and cash equivalents. Adjusted capital comprises all components of equity other than amounts accumulated in equity relating to cash flow hedges, and includes some forms of subordinated debt.
4
FINANCIAL RISK MANAGEMENT (continued)
35.1 Capital risk management (continued) The debt-to-adjusted capital ratios were as follows: All figures in US$
2014
2013
Total debt Less: cash and cash equivalents Net debt
240,280,045 (71,331,021) 168,949,024
264,570,934 (78,229,628) 186,341,306
Total equity
603,719,307
492,883,237
28%
38%
Adjusted debt-to-capital ratio
(i) Debt is defined as long- and short-term borrowings, as detailed in note 30. (ii) Equity includes all capital and reserves of the Group.
35.2 Financial risk management objectives The Group’s Corporate Treasury function provides services to the business, coordinates access to domestic and
international financial markets, monitors and manages the financial risks relating to the operations of the group through internal risk reports which analyses exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s Audit Committee, consisting of executive and non-executive directors, meet on a regular basis to analyse, amongst other matters, currency and interest rate exposures and re-evaluate treasury management strategies against revised economic forecasts. Compliance with Group policies and exposure limits is reviewed at quarterly Board meetings.
The Group has a dedicated committee of the Board which reviews the loan exposures on a regular basis and monitors repayment plans. The Group has been able to meet its obligations in the current financial period and the Directors believe that appropriate measures have been implemented to ensure that the Group has the ongoing capacity to meet its obligations arising from these exposures.
35.3 Interest rate risk management
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group invests in money market instruments which are subject to changes in interest rates on the local money markets. The Group’s policy is to adopt a non-speculative approach to managing interest rate risk. Approved funding instruments include; bankers acceptances, call loans, overdrafts, foreign loans and where appropriate, long-term loans. The Group has borrowings that are subject to both fixed interest rates and floating interest rates. Details of the Group’s borrowings are described in note 30. The Board of Directors has a committee that is dedicated to reviewing the loan exposures and repayment plans for the Group’s external borrowings. The Committee that reviews the loan exposures meets on a regular basis and uses various models to project the Group’s risk exposures and proposes methods to deal with the risk arising in an appropriate manner. This committee also approves the term sheets for such borrowings, and ensures that the interest rate exposure of the Group is appropriately managed. The sensitivity of the Group’s statement of comprehensive income to the changes in interest rates on its material exposures disclosed in note 35.3.1 below. The Directors, at the reporting date, were not aware of any information or events that may have a significant impact on the reported profit and loss of the Group or that would result in material changes in the structure of the Group’s statement of comprehensive income.
4
73
Financial Reporting
35
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
35
FINANCIAL RISK MANAGEMENT (continued)
35.3.1 Interest rate sensitivity analysis The following table demonstrates the sensitivity to a reasonably possible change in interest rates on interest bearing debt. The interest rate sensitivity is applied on an effective interest rate of 7.8%.
2014 All figures in US$ If interest rate goes up by 2% to 9.8% If interest rate goes down by 2% to 5.8%
2013 All figures in US$ If interest rate goes up by 2% to 6.7% If interest rate goes down by 2% to 2.7%
Adjusted interest
Future interest payable at current rate
Impact on profit or loss: gain / (loss)
Tax effect
Impact on equity: gain/(loss)
25,427,165 10,191,666
18,866,150 18,866,150
(6,561,015) 8,674,484
1,689,461 (2,233,680)
(4,871,554) 6,440,804
Adjusted interest
Future interest payable at current rate
Impact on profit or loss: gain / (loss)
Tax effect
Impact on equity: gain/(loss)
43,160,200 23,986,442
34,116,045 34,116,045
(9,044,155) 10,129,603
2,328,870 (2,608,373)
(6,715,285) 7,521,230
35.4 Other price risks
Other price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk and currency risk) whether those changes are caused by factors specific to the individual financial instrument or to its issuer or factors affecting all similar financial instruments traded in that market.
The Group invests in tradable securities that are quoted on the Zimbabwe Stock Exchange and maintains two portfolios for these investments, a trading portfolio and a long-term investment portfolio.
35.5 Credit risk management
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the credit exposure is controlled by counterparty limits that are reviewed and approved regularly. Financial assets, which potentially subject the group to concentrations of credit risk, consist principally of cash, short-term deposits, trade receivables and intercarrier receivables and payables. The group’s cash equivalents are placed with high quality financial institutions. Trade receivables are presented net of the allowance for impairment losses. Credit risk with respect to debtors is limited due to the widespread customer base and ongoing credit evaluations to maintain credit worthiness of the customers. Where appropriate, trade receivables are converted onto the prepaid service. Intercarrier receivables and payables are regulated by interconnect contracts. Intercarrier receivables and payables for foreign cellular traffic are managed through a reputable foreign finance house which ensures the net monthly outstanding amounts are collected from the foreign interconnect partners. At the reporting date, there was significant concentration of credit risk on the interconnect balances owing to the company. Refer to note 23.
74
4
FINANCIAL RISK MANAGEMENT (continued)
35.6 Foreign currency risk management
The schedule below shows the composition of the bank and cash balances at the respective year end in United States dollars at the reporting date. Bank and cash balances All figures in US$
BWP
Euro
Rand
USD
GBP
Total
2014 Bank and cash balances Closing balance
6,870 6,870
21,461 21,461
452,388 452,388
70,846,414 70,846,414
3,888 3,888
71,331,021 71,331,021
2013 Bank and cash balances 75,727 1,512,472 76,575,165 1,377 78,164,741 Short term deposits 64,887 64,887 Closing balance 75,727 1,512,472 76,640,052 1,377 78,229,628 Foreign currency risk is the risk that the Group may be affected adversely as a result of foreign currency fluctuations on the various currencies that the entity holds. The Group maintains cash and bank balances in various currencies so that payments can be made in the currency of the respective invoices. This covers the entity against shortterm foreign currency fluctuations. In addition to this the bulk of the Group’s bank and other monetary balances are United States Dollar denominated thereby minimising this risk. As at year end, the converted values of the non USD denominated bank and other monetary balances were minimal and insignificant to the Group hence a sensitivity analysis has not been performed for foreign currency fluctuations.
35.7 Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.
All figures in US$
On demand
Less than 3 months
3 to 12 months
1 to 5 years
12,385,371 -
30,137,195 168,988,197
10,909,404
8,453,960
23,294,775
207,579,352
62,905,433 134,852,046 428,631,606
2,673,013 -
32,409,843 118,871,498
67,269,718 259,345,738 361,698,312 - 118,871,498
33,550,247
-
Total
Year ended 28 February 2014 Interest-bearing debt Trade and other payables Deposits due to banks and other customers
62,905,433 134,852,046 240,280,045 - 168,988,197 -
-
19,363,364
Year ended 28 February 2013 Interest-bearing debt Trade and other payables Deposits due to banks and other customers
2,800,464
-
36,350,711
36,223,260 151,281,341 70,070,182 259,345,738 516,920,521 The disclosed financial instruments in the above table are the gross undiscounted cash flows. 4
75
Financial Reporting
35
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY 36.1 Statement of financial position for Steward Bank Limited All figures in US$
2014
2013
19,118,215 20,750,864 57,293,301 10,319,006 4,088,444 3,243,770 3,276,586 4,571,613 5,587,482 10,497,296 138,746,577
25,538,011 22,562,274 68,120,307 51,201,320 1,359,110 1,701,136 525,518 8,113,139 2,758,965 3,050,311 184,930,091
62,119,670 2,307,807 626,365 1,892,751 71,799,984
103,179,792 4,328,149 34,942 583,005 1,664,245 75,139,958
138,746,577
184,930,091
ASSETS Cash and cash equivalents Financial assets at fair value through profit or loss Loans and advances to customers Loans and advances relating to furniture loans Financial assets held to maturity Other receivables Investment properties Property and equipment Intangible assets Deferred tax asset
EQUITY AND LIABILITIES Deposits due to banks and customers Loans and borrowings Derivative financial instruments Provisions Other liabilities Equity
36.2 Risk management
Risk is inherent in the Bank’s activities, but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is exposed to credit risk, liquidity risk, strategic risk, reputational risk and market risk. It is also subject to country risk and various operating risks.
Risk management structure
The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies, policies and principles. The Board has established the Assets and Liabilities Management Committee (ALCO) and other governance committees which have the responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits . The Bank also has fully embedded the Bankwide Risk Management Framework with all significant risk types allocated to the risk control owners.
Risk measurement and reporting systems
Information compiled from all the businesses is examined and processed in order to analyse, control and identify risks on a timely basis. The Board receives a comprehensive risk report once a quarter which is designed to provide all the necessary information in order for them to exercise their oversight role.
Excessive risk concentration
76
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographical location.
4
In order to avoid excessive concentrations of risk, the Bank’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.
36.2.1 Credit Risk
Credit risk is the risk that the Bank will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentrations, and by monitoring exposures in relation to such limits. The Bank has established a credit quality review process to provide early identification of possible changes in the credit worthiness of counterparties, including regular collateral revisions. Counterparty limits are established by the use of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the bank to assess the potential loss as a result of the risks to which it is exposed and take corrective action.
Impairment assessments
For accounting purposes, the Bank uses an incurred loss model for the recognition of losses on impaired financial assets. This means that losses can only be recognised when objective evidence of a specific loss event has been observed. Triggering events include the following: - Significant financial difficulty of the customer - A breach of contract such as a default of payment - Where the bank grants the customer a concession due to the customer experiencing financial difficulty - It becomes probable that the customer will enter bankruptcy or other financial reorganisation - Observable data that suggests that there is a decrease in the estimated future cash flows from the loans This approach differs from the expected loss model used for regulatory capital purposes in accordance with Basel II.
Individually assessed allowances:
The Bank determines the allowances appropriate for each individually significant loan or advance on an individual basis, including any overdue payments of interests, credit rating downgrades, or infringement of the original terms of the contract. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance if it is in a financial difficulty, projected receipts and the expected pay-out should bankruptcy ensue, the availability of other financial support, the realisable value of collateral and the timing of the expected cash flows. Impairment allowances are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.
Collectively assessed allowances:
Allowances are assessed collectively for losses on loans and advances and for held-to-maturity debt investments that are not individually significant (including residential mortgages, government debt and unsecured consumer lending) and for individually significant loans and advances that have been assessed individually and found not to be impaired. The Bank generally bases its analyses on historical experience. However, when there are significant market developments, regional and/or global, the Bank would include macroeconomic factors within its assessments. These factors include, depending on the characteristics of the individual or collective assessment: unemployment rates, current levels of bad debts, changes in laws, changes in regulations, bankruptcy trends, and other consumer data. The Bank may use the aforementioned factors as appropriate to adjust the impairment allowances.
4
77
Financial Reporting
36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued) 36.2 Risk management (continued) Excessive risk concentration (continued)
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
36
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued)
Allowances are evaluated separately at each reporting date with each portfolio. The collective assessment is made for groups of assets with similar risk characteristics, in order to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as historical losses on the portfolio, levels of arrears, credit utilisation, loan to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and local or industry–specific problems). The approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. Local management is responsible for deciding the length of this period, which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignment with the Bank’s overall policy. Financial guarantees and letters of credit are assessed in a similar manner as for loans.
Credit related commitments risks:
The Bank makes available to its customers guarantees that may require that the Bank makes payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit) commit the bank to make payments on behalf of customers in the event of a specific act. Such commitments expose the Bank to similar risks to loans and are mitigated by the same control processes and policies. Analysis of maximum exposure to credit risk and collateral or other credit enhancements held Fair value of collateral and credit enhancements held
All figures in US$
Maximum Exposure to Credit Risk
Listed Securities
12,715,322
Letters of credit /Guarantees
Property
Other
Total
Net Exposure to Credit Risk
-
-
-
-
-
12,715,322
20,750,864 61,897,766 4,088,444 3,243,768 102,696,164
-
-
1,843,470 1,843,470
661,250 661,250
2,504,720 2,504,720
20,750,864 59,393,046 4,088,444 3,243,768 100,191,444
102,696,164
-
-
1,843,470
661,250
2,504,720
100,191,444
20,960,934
-
-
-
-
-
20,960,934
22,562,274 72,843,343 1,359,109 1,701,136 119,426,796
-
-
6,017,991 6,017,991
5,992,304 5,992,304
12,010,295 12,010,295
22,562,274 60,833,048 1,359,109 1,701,136 107,416,501
119,426,796
-
-
6,017,991
5,992,304
12,010,295
107,416,501
At 28 February 2014: Financial assets: Cash and cash equivalents Financial assets at fair value through profit or loss Loans and advances to customers Financial assets held to maturity Other receivables
Total credit risk exposure At 28 February 2013: Financial assets: Cash and cash equivalents Financial assets at fair value through profit or loss Loans and advances to customers Financial assets held to maturity Other receivables
Total credit risk exposure
78
4
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued)
Collateral and other credit enhancements
The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral. The Bank also obtains guarantees from parent companies for loans to their subsidiaries. Management monitors the market value of collateral, and will request additional collateral in accordance with the underlying agreement.
Credit quality per industrial sector
The Bank manages the credit quality of financial assets using internal credit ratings. The table below shows the credit quality by industrial sector for all financial assets exposed to credit risk, based on the Bank’s internal credit rating system. The amounts presented are gross of impairment allowances. Neither past due nor impaired
All figures in US$
Grade A High grade
Grade B Standard grade
Grade C Substandard
Past due but not Individually impaired impaired
Total
At 28 February 2014: Individuals Mining Manufacturing Agriculture Distribution Services
134,890 240,850 1,271,868 758,510 1,005,613 3,411,731 421,158 450,000 871,158 52,621,213 44,814 649,898 53,315,925 41,682 371,929 234,266 889,669 1,537,546 9,452 409,590 241,044 660,086 547,185 185,894 1,368,242 2,101,321 53,354,422 1,488,341 1,457,762 992,776 4,604,466 61,897,767 The Bank’s concentrations of risk are managed by client/counterparty, by geographical region and by industry sector. The maximum credit exposure to any client or counterparty as of 28 February 2014 was US$30.6 million (2013: US$ 8.5 million) Neither past due nor impaired
All figures in US$
Grade A High grade
Grade B Standard grade
Grade C Substandard
Past due but not Individually impaired impaired
Total
At 28 February 2013: Individuals Mining Manufacturing Agriculture Distribution Services
2,865,597 1,118,216 198,920 35,148 2,306,906 42,935,744 33,180 6,945,404 846,083 6,398 54,732 52,746,745 2,032,627 205,318 2,361,638
2,181,007 2,172,295 1,647,330 3,131,329 4,204,801 2,160,253 15,497,015
6,363,740 4,514,349 44,616,254 3,131,329 4,204,801 10,012,870 72,843,343
4
79
Financial Reporting
36
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
36
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued) Commitments and guarantees
To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognised on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Bank.
The table below shows the Bank’s maximum credit risk exposure for commitments and guarantees. The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Bank could have to pay if the guarantee is called upon. The maximum exposure to credit risk relating to a loan commitment is the full amount of the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognised as a liability in the statement of financial position.
All figures in US$ Financial guarantees Commitments to lend
2014 63,300,000 24,000 63,324,000
2013 40,904,200 300,574 41,204,774
Included in Financial Guarantees at 28 February 2014 is an amount of US$23.3 million extended to Econet Wireless Zimbabwe Limited, the Bank’s holding company and Econet Wireless (Private) Limited, the Bank’s fellow subsidiary.
36.2.2 Liquidity Risk and Funding Management
Liquidity risk is defined as the risk that the Bank will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Bank might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis. The Bank has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required. The Bank maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption of cash flow. The Bank places emphasis on lines of credit that it can access to meet liquidity needs. In accordance with the Bank’s policy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Bank. The most important of these is to maintain limits on the ratio of net liquid assets to customer liabilities, to reflect market conditions. The key ratios during the year were, as follows: 2014 At 28 February
80
2013
Maximum during period
Minimum during period
At 28 February
Maximum during period
Minimum during period
Advances to deposits ratio 100% 146% 87% 68% 99% 72% Net liquid assets to customer liabilities ratio 29% 31% 2% 25% 24% 2% The Bank stresses the importance of current accounts and savings accounts as sources of funds to finance lending to customers. They are monitored using the advances to deposit ratio, which compares loans and advances to customers as a percentage of core customer current and savings accounts, together with term funding with a remaining term to maturity in excess of one year. Loans to customers that are part of reverse repurchase arrangements, and where the Bank receives securities which are deemed to be liquid, are excluded from the advances to deposits ratio.
4
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued)
The Bank defines liquid assets for the purposes of the liquidity ratio as cash balances, short–term interbank deposits and highly-rated debt securities available for immediate sale and for which a liquid market exists.
Analysis of financial assets and liabilities by remaining contractual maturities
The table below summarises the maturity profile of the undiscounted cash flows of the Bank’s financial assets and liabilities. Repayments which are subject to notice are treated as if notice were to be given immediately. However, the Bank expects that many customers will not request repayment on the earliest date the Bank could be required to pay and the table does not reflect the expected cash flows indicated by the Bank’s deposit retention history.
On demand
Less than 3 months
3 monts to 1 year
1 year to 5 years
Over 5 years
Total
19,118,215
-
-
-
-
19,118,215
All figures in US$ At 28 February 2014: Financial assets: Cash and cash equivalents Financial assets at fair value through profit or loss
20,750,864
-
-
-
-
20,750,864
Loans and advances to customers
13,212,355
139,393
1,262,120
46,647,193
636,705
61,897,766
-
-
10,346,031 -
15,519,047 -
4,088,444
25,865,078 4,088,444
Loans and advances relating to furniture loans Financial assets held to maturity Other receivables Total undiscounted financial assets
-
3,243,770
-
-
-
3,243,770
53,081,434
3,383,163
11,608,151
62,166,240
4,725,149
134,964,137
45,622,074
16,497,596
-
-
-
62,119,670
918,381
437,878
1,052,817
-
-
2,409,076
46,540,455
16,935,474
1,052,817
-
-
64,528,746
6,540,979
(13,552,311)
10,555,334
62,166,240
4,725,149
70,435,391
Financial liabilities: Deposits due to banks and customers Loans and borrowings Total undiscounted financial liabilities Net undiscounted financial assets/ (liabilities)
4
81
Financial Reporting
36
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
36
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued) All figures in US$
On demand
Less than 3 months
3 monts to 1 year
1 year to 5 years
Over 5 years
Total
25,538,011
-
-
-
-
25,538,011
22,562,274 41,676,094 -
1,800,000 -
25,499,472 20,480,528
3,867,777 30,720,792
-
22,562,274 72,843,343 51,201,320
-
1,701,136
-
-
1,359,109 -
1,359,109 1,701,136
89,776,379
3,501,136
45,980,000
34,588,569
1,359,109
175,205,193
100,379,328
2,800,464
-
-
-
103,179,792
At 28 February 2013: Financial assets: Cash and cash equivalents Financial assets at fair value through profit or loss Loans and advances to customers Loans and advances relating to furniture loans Financial assets held to maturity Other receivables Total undiscounted financial assets Financial liabilities: Deposits due to banks and customers Derivative financial liabilities Loans and borrowings Total undiscounted financial liabilities
-
34,942 1,796,818
1,970,453
1,313,636
-
34,942 5,080,907
100,379,328
4,632,224
1,970,453
1,313,636
-
108,295,641
Net undiscounted financial assets/ (liabilities)
(10,602,949)
(1,131,088)
44,009,547
33,274,933
1,359,109
66,909,552
The table below shows the contractual expiry by maturity of the bank’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest date it can be drawn down. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. All figures in US$
On demand
Less than 3 months
3 monts to 1 year
1 year to 5 years
Over 5 years
Total
-
24,000
63,300,000 -
-
-
63,300,000 24,000
-
24,000
63,300,000
-
-
63,324,000
40,904,200 300,574
-
-
-
-
40,904,200 300,574
41,204,774
-
-
-
-
41,204,774
At 28 February 2014: Financial guarantees Commitments to lend Total commitments and guarantees At 28 February 2013: Financial guarantees Commitments to lend Total commitments and guarantees
The Bank expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments.
82
4
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued) 36.2.3 Market Risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Board has established limits on the non–trading interest rate gaps for stipulated periods. The Bank’s policy is to monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within the established limits.
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Bank’s statement of comprehensive income. The sensitivity of the statement of comprehensive income is the effect of the assumed changes in interest rates on the profit or loss for a year, based on the variable and fixed rate financial assets and financial liabilities held. 2014 Change in Sensitivity interest of profit or rates loss % US$
Currency: USD +6 4,763,928 USD +4 3,175,952 USD +2 1,587,976 USD -2 (1,587,976) USD -4 (3,175,952) USD -6 (4,763,928)
2013 Sensitivity of capital US$
Change in interest rates %
4,763,928 3,175,952 1,587,976 (1,587,976) (3,175,952) (4,763,928)
+6 +4 +2 -2 -4 -6
Sensitivity of profit or loss US$
Sensitivity of capital US$
6,088,010 4,058,673 2,029,337 (2,029,337) (4,058,673) (6,088,010)
6,088,010 4,058,673 2,029,337 (2,029,337) (4,058,673) (6,088,010)
Interest rate repricing and gap analysis The table below analyses the Bank’s interest rate risk exposure on assets and liabilities. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates.
4
83
Financial Reporting
36
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
36
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued)
On demand
Less than 3 months
3 monts to 1 year
1 year to 5 years
Noninterest bearing
Total
-
-
-
-
19,118,215
19,118,215
27,958,699
139,393
1,262,120
27,933,089
20,750,864 -
20,750,864 57,293,301
27,958,699
139,393
1,262,120
10,319,006 4,088,444 42,340,540
3,243,770 3,276,586 4,571,613 5,587,482 10,497,295 67,045,825
10,319,006 4,088,444 3,243,770 3,276,586 4,571,613 5,587,482 10,497,295
45,622,074 699,442 46,321,516
16,497,596 437,879 16,935,475
1,170,486 1,170,486
-
626,365 1,892,751 71,799,984 74,319,100
138,746,577
Interest rate repricing gap
(18,362,817)
(16,796,082)
91,634
42,340,540
(7,273,275)
-
Cumulative gap
(18,362,817)
(35,158,899)
(35,067,265)
7,273,275
-
-
All figures in US$ TOTAL POSITION At 28 February 2014 Assets: Cash and cash equivalents Financial assets at fair value through profit or loss Loans and advances to customers Loans and advances relating to furniture loans Financial assets held to maturity Other receivables Investment properties Property and equipment Intangible assets Deferred tax asset
138,746,577
Liabilities and equity: Deposits due to banks and customers Loans and borrowings Provisions Other liabilities Equity
84
4
62,119,670 2,307,807 626,365 1,892,751 71,799,984
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued) On demand
Less than 3 months
3 monts to 1 year
1 year to 5 years
Noninterest bearing
Total
-
-
-
-
25,538,011
25,538,011
41,676,094
1,800,000
21,473,902
5,565,164
22,562,274 -
22,562,274 70,515,160
41,676,094
1,800,000
19,348,936 40,822,838
29,023,405 34,588,569
1,359,109 1,701,136 525,517 8,113,139 2,758,965 3,050,311 65,608,462
48,372,341 1,359,109 1,701,136 525,517 8,113,139 2,758,965 3,050,311 184,495,963
100,379,328 144,549 100,523,877
2,800,464 1,594,201 4,394,665
1,376,703 1,376,703
1,212,696 1,212,696
34,942 583,005 1,230,118
103,179,792 4,328,149 34,942 583,005 1,230,118
75,139,957 76,988,022
75,139,957 184,495,963
Interest rate repricing gap
(58,847,783)
(2,594,665)
39,446,135
33,375,873 (11,379,560)
-
Cumulative gap
(58,847,783)
(61,442,448)
(21,996,313)
11,379,560
-
All figures in US$ TOTAL POSITION
At 28 February 2013 Assets: Cash and cash equivalents Financial assets at fair value through profit or loss Loans and advances to customers Loans and advances relating to furniture loans Financial assets held to maturity Other receivables Investment properties Property and equipment Intangible assets Deferred tax asset
Liabilities and equity: Deposits due to banks and customers Loans and borrowings Derivative financial instruments Provisions Other liabilities Equity
-
Foreign currency exchange rate risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. In accordance with the Bank’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits. In view of the Bank’s minimal exposures to other currencies in the financial periods presented, the impact of currency fluctuations with the United States Dollar are not anticipated to have a significant impact on the Bank’s profit or loss and capital.
Operational Risk
Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Bank cannot expect to eliminate all operational risks, but it endeavours to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education and assessment processes, such as the use of internal audit.
4
85
Financial Reporting
36
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
36
DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued) Compliance Risk
Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or non-conformance with, law, rules, regulations, prescribed practices, internal policies, and procedures, or ethical standards. This risk exposes the institution to fines and payment of damages. Compliance risk can lead to diminished reputation, limited business opportunities, reduced expansion potential, and an inability to enforce contracts. The Internal Audit and the Risk Department ensure that the Bank fully complies with all relevant laws and regulations.
Reputational Risk
Reputational risk is the current and prospective impact on earnings and capital arising from negative public opinion. This affects the institution’s ability to establish new relationships or services or continue servicing existing relationships. This risk may expose the institution to litigation, financial loss, or a decline in its customer base. The Bank has a Business Development department whose mandate is to manage this risk.
37
CAPITAL MANAGEMENT - IN RESPECT OF BANKING OPERATIONS
The objective of the Bank’s capital management is to ensure that it complies with the Reserve Bank of Zimbabwe (RBZ) requirements. In implementing the current capital requirements, the RBZ requires the Bank to maintain a prescribed ratio of total capital to total risk weighted assets. Risk weighted assets are arrived at by applying the appropriate risk factor as determined by the RBZ to the monetary value of the various assets as they appear on the Bank’s statement of financial position. Regulatory capital consists of: - Tier 1 Capital (“the core capital”), which comprises of share capital, share premium, retained earnings (including the current year profit or loss), the statutory reserve and other equity reserves. - Tier 2 Capital (“supplementary capital”), which includes subordinated term debt, revaluation reserves and portfolio provisions. The core capital shall comprise not less than 50% of the capital base and portfolio provisions are limited to 1.25% of total risk weighted assets. Tier 3 Capital (“tertiary capital”) relates to an allocation of capital to meet market and operational risks.
86
4
CAPITAL MANAGEMENT - IN RESPECT OF BANKING OPERATIONS (continued)
The Bank’s regulatory capital position was as follows: All figures in US$
2014
2013
Share capital Share premium Retained earnings
4,077 106,317,629 (36,434,372)
4,075 83,311,858 (9,539,051)
69,887,334
73,776,882
(7,778,045) (1,753,119) (23,300,000)
(3,397,146) (2,693,125) -
37,056,170
67,686,611
Tier 2 capital Non-distributable reserve Portfolio provisions
1,912,650 26,856 1,885,794
1,363,075 21,936 1,341,139
Total Tier 1 and 2 capital
38,968,820
69,049,686
7,778,045
3,397,146
46,746,865
72,446,832
142,527,572
171,910,374
Less: Capital allocated for market and operational risk Advances to insiders Guarantees to insiders* Tier 1 capital
Tier 3 capital (sum of market and operational risk capital) Total Capital Base
Total risk weighted assets
Tier 1 ratio 26% 39% Tier 2 ratio 1% 1% Tier 3 ratio 5% 2% Total capital adequacy ratio 32% 42% RBZ minimum requirement 12% 12% *In December 2013, the Bank provided a guarantee facility to Econet Wireless Zimbabwe Limited, its holding company, and another to Econet Wireless (Private) Limited, a fellow subsidiary, as security for loan facilities of US$20 million and US$8 million, respectively, which were obtained from Afrexim Bank. The loan facilities have a tenor of 12 months, with monthly repayments of capital and interest. In line with banking regulations governing the treatment of bank exposures to insiders, the Bank has taken the prudent approach of reflecting the guarantee facility amounts remaining as a reduction to its core capital at 28 February 2014. The amount of the bank guarantees however reduces on a monthly basis in line with Econet Wireless Zimbabwe Limited and Econet Wireless (Private) Limited’s loan repayments to Afrexim Bank, resulting in a corresponding decrease to the reduction in core capital emanating from the guarantees advanced to insiders.
4
87
Financial Reporting
37
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
38 OPERATING LEASE ARRANGEMENTS 38.1 Leasing arrangements
Operating leases include leases of certain buildings and sites where the Group’s base stations are located. The remaining lease terms vary between 4 months and 8 years. Various options exist for the Group to renew the leasing arrangements on expiry. All figures in US$
2014
2013
3,412,798
5,689,184
6,304,543 14,813,035 5,739,852 26,857,430
5,123,394 11,587,297 1,196,676 17,907,367
38.2 Payments recognised as an expense Minimum lease payments
38.3 Non-cancellable lease commitments Not later than one year Later than one year and not later than five years Later than five years
39 GOING CONCERN The Directors have assessed the ability of the company to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is appropriate.
The cellular operating licence of the principal subsidiary in the Group was renewed effective 10 July 2013 for an additional 20 years.
40 BORROWING POWERS
In terms of the Company’s Articles of Association, the directors may exercise the powers of the Company to borrow up to 200% of the aggregate of: -the issued share capital and share premium or stated capital of the Company and: -the distributable and non-distributable reserves, including unappropriated profits of the Company reduced by any adverse amount reflected in the statement of comprehensive income, excluding: - goodwill - revaluation reserves arising prior to 28 February of each year - provision for taxation, deferred tax, and any balance standing to the credit of the tax equalisation account. The current borrowings are within the limit.
41
CAPITAL COMMITMENTS All figures in US$ Authorised and contracted for Authorised and not contracted for
88
2014
2013
139,940,260 49,765,045
44,448,403 126,138,887
189,705,305 170,587,290 The capital expenditure is to be financed from internal cash generation, extended supplier credits and bank credits.
4
the courts and there is no liabilities arising from it.
Tax Matters
The Group is regularly subject to an evaluation by tax authorities on its direct and indirect tax filings. The consequence of such reviews is that disagreements can arise with tax authorities over the interpretation or application of certain tax rules applicable to the Group’s business. Such disagreements may not necessarily be resolved in a manner that is favourable to the Group. Additionally, the resolution of the disputes could result in an obligation to the Group.
43 ACQUISITION OF SUBSIDIARY
43.1 Acquisition of Steward Bank Limited
In a business acquisition, on 12 July 2012, the Group acquired 45% of the voting shares of Steward Bank Limited (formerly TN Bank Limited), a commercial bank incorporated and registered in Zimbabwe whose principal business is to provide retail, corporate, and investment banking services in the key economic centres of Zimbabwe. This investment gave the Group significant influence over the financial and operating affairs of Steward Bank Limited and as such it was accounted for as an associate from that date, refer Note 18.2.
The Group acquired a further 53.6% of the voting shares of Steward Bank on 31 January 2013 bringing its total interest to 98.6%. As a result, Steward Bank was consolidated as a subsidiary from that date.
In the current financial year, the Group acquired the remaining 1.4% of the shares in Steward Bank Limited effectively owning the bank 100%. The Group acquired Steward Bank Limited because it significantly enlarges the range of products that can be offered to its clients.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Steward Bank Limited as at the date of acquisition were:
All figures in US$ Assets Balances with banks and cash Available for sale investments Other receivable Loans and advances to customers Property, equipment and vehicles Investment property Deferred taxation Intangible assets Liabilities Deposits and other accounts Loans and borrowings Accruals and other payables Taxation payable Total identifiable net assets at fair value Non controlling-interest Goodwill Purchase consideration
Fair value recognised on acquisition 2014
Fair value recognised on acquisition 2013
-
17,094,485 18,795,537 3,266,789 122,839,876 8,226,563 525,517 2,151,404 2,814,495 175,714,666
-
(150,995,267) (4,483,694) (1,689,313) (325,873) (157,494,147)
-
18,220,519 (286,062) 6,090,632 24,025,089
4
89
Financial Reporting
42 CONTINGENT LIABILITIES Ecolife The matter relating to First Mutual Assurance Company (Private) Limited and Trustco (Pty) Limited was settled in
Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
43 ACQUISITION OF SUBSIDIARY
43.1 The acquisition of Steward Bank Limited (continued)
The fair values of the loans and advances to customers at acquisition date were US$122 839 876. The fair values of property, equipment and vehicles at acquisition date were US$8 226 563. The gross contractual amounts of loans and advances to customers at acquisition date were US$122 839 876. The gross contractual amounts of property, equipment and vehicles at acquisition date were US$8 226 563. There was no gain or loss realised as a result of remeasurement to fair value at date of acquisition. This is because the carrying amounts of the assets acquired and liabilities were assumed to approximate their fair values. All figures in US$ Purchase consideration Consideration paid Paid for by treasury shares Paid for in cash Fair value of 45% investment already held (note 18.2) Total consideration Analysis of cash flows on acquisition: Net cash acquired with the subsidiary (included in cash flows from investing activities) Consideration paid for in cash on acquisition of subsidiary
2014
2013
-
11,545,533 496,946 11,982,610 24,025,089
-
17,094,485
-
(496,946)
Net cash inflow on acquisition of subsidiary 16,597,539 The Group issued 2,520,589 ordinary shares (before the share split) as consideration for the 53.6% interest in Steward Bank Limited. The fair value of the shares is the published price of the shares of the Group as at the date of offer, which was US$4.58 each. The fair value of the consideration given is therefore US$11 545 533.
43.2 Goodwill Goodwill arose on the acquisition of Steward Bank Limited because the cost of the acquisition included a control premium.
43.3 Impact of acquisition on results of the Group
Included in the profit for the year ended 28 February 2013, are profits amounting to US$5 574 291 attributable to additional business generated by Steward Bank . Revenue for the year includes US$1 128 381 relating to Steward Bank.
Had the business combination been effected at 1 March 2012, the effect on the Group’s revenue and profit for the year would not have been material.
43.4 Compulsory acquisition of remaining non-controlling interest In the current financial year, the Group acquired the remaining 1.4% of the shares in Steward Bank effectively owning the bank 100%.
Shareholding as at 28 February 2013 98.60% Additional acquisition 1.40% Shareholding as at 28 February 2014 100.00% The Group paid a total of US$302 859 to the remaining non-controlling interest for this acquisition.
44
EVENTS AFTER THE REPORTING DATE
On 25 April 2014, the Board of Directors declared a dividend in respect of the year ended 28 February 2014, of US cents 1.29 per share.
45
APPROVAL OF FINANCIAL STATEMENTS
90
The financial statements were approved by the board of directors and authorised for issue on 25 April 2014.
4
COMPANY STATEMENTS OF FINANCIAL POSITION All figures in US$
2014
2013
ASSETS Non-current assets Property, plant and equipment Investment in subsidiaries (Note 16.1) Available-for-sale investments Investment in associate (Note 18.1) Long term intercompany receivable (Note 16.2)
622,500 124,469,861 366,070 20,768,186 1,886,351
630,412 101,177,368 1,034,308 14,061,120 1,886,351
Total non-current assets
148,112,968
118,789,559
16,385,901 792,151 17,178,052
485,277 4,724,540 4,236,695 9,446,512
165,291,020
128,236,071
(7,341,861)
(3,388,829)
154,109,695
128,313,235
Short term portion of long term borrowings (Note 16.2) Other payables
16,385,901 2,137,285
3,311,665
Total current liabilities
18,523,186
3,311,665
Current assets Short-term inter-company receivables (Note 16.2) Other receivables Cash and cash equivalents Total currents assets Total assets EQUITY AND LIABILITIES EQUITY Share capital and reserves LIABILITIES Non current liabilities Intercompany payables Current liabilities
Total equity and liabilities 165,291,020 128,236,071 DIRECTORS Dr J. Myers CHAIRMAN OF THE BOARD 25 April 2014
D. Mboweni K. V. Chirairo CHIEF EXECUTIVE OFFICER F I N A N C E D I R E C T O R
4
91
Financial Reporting
46
Policy Notes To The Consolidated Financial Statements For the year ended 28 February 2014
Policy note
IFRS/IAS
Reference Content
A
IAS 1
Presentation of financial statements: General information and functional currency
B
IFRS 1
(revised) First time adoption of IFRS
C
IAS 8
Change in accounting policy, adoption of new and revised Standards
D
IAS 21
Effects of changes in foreign exchange rates
E
IFRS 3 IAS 27,
IFRS 10
Business combinations, basis of consolidation
F
IAS 28
Investment in associates and joint ventures
G
IAS 38
Intangible assets
H
IAS 23
Borrowing costs
I
IAS 16
Property, plant and equipment
J
IAS 40
Investment properties
K
IAS 36
Impairment of property, plant and equipment, investment property, and intangible assets
L
IAS 17
Leases
M
IAS 2
Inventories
N
IAS 18
Revenue
O
IAS 12
Income taxes
P
IAS 19, 26
Employee benefits and retirement benefits
Q
IFRS 2
Share-based payments
R
IAS 32, 37, 39,
IFRS 7, 9
Financial instruments
S
IAS 32
Treasury shares
T
IFRS 8
Operating segments
U
IAS 37
Provisions
V
Financial Guarantees
W
Fiduciary Assets
X
IAS 1
(Revised) Significant assumptions and key sources of estimation uncertainty
IAS 33
Earnings per share
IAS 24
Related party disclosures
IAS 10
Events after the reporting period
Y
IFRS 13
Fair value measurements
Z
92
Current versus non-current classification
4
GENERAL INFORMATION
A.1
The Company
The Company was incorporated in Zimbabwe on 4 August 1998 and its main operating subsidiary, Econet Wireless (Private) Limited, on 23 August 1994. The address of its registered office and principal place of business is Econet Park, 2 Old Mutare Road, Msasa, Harare. The main business of the Group is mobile telecommunications and related value added services. The ultimate holding company for the Group is Econet Wireless Global Limited which is incorporated in Mauritius. Except where specific reference is made to “the Company”, the notes disclosed in these financial statements pertain to the Group.
A.2
Currency of Account
B.1
BASIS OF PREPARATION
B.2
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement with the other vote holders of the investee • Rights arising from other contractual arrangements • The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income and financial position from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary. • Derecognises the carrying amount of any non – controlling interest. • Derecognises the cumulative translation differences, recorded in equity • Recognises the fair value of the consideration received • Recognises the fair value of any investment retained • Recognises any surplus or deficit in profit or loss.
These financial statements are presented in United States dollars being the functional and reporting currency of the primary economic environment in which the Group operates. The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), the International Financial Reporting Interpretations Committee (IFRIC) and the Zimbabwe Companies Act (Chapter 24:03) and related statutory instruments. With the exceptions noted below in policy note C1 “New and Revised Standards and Interpretations-Adopted”, the accounting policies set out below have been consistently applied from the previous year and through the current year.
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of Econet Wireless Zimbabwe Limited and its subsidiaries as at 28 February 2014. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • • •
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns
4
93
Financial Reporting
A
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
•
C
NEW AND REVISED STANDARDS
C.1
New and Revised Standards and Interpretations - Adopted
The accounting policies adopted are consistent with those of the previous financial year, except for the following amended IFRS effective for the Group with effect from 1 March 2013. The amended standards, described below, did not have a material impact on the financial position or performance of the Group. IAS 1 Financial statement presentation (Amendment): The amendment requires that items of other comprehensive income (OCI) be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. The amendment affects presentation only and has no effect on the Group’s financial position or performance.
IAS 19 Post employee benefits (Amendment): The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording.
94
Reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.
The more significant changes include the following: • For defined benefit plans, the ability to defer recognition of actuarial gains and losses (i.e. the corridor approach) has been removed. As revised, actuarial gains and losses are recognised in Other Comprehensive Income (OCI) when they occur. Amounts recorded in profit or loss are limited to current and past service costs, gains or losses on settlements, and net interest income (expense). All other changes in the net defined benefit asset (liability) are recognised in OCI with no subsequent recycling to profit or loss. • Objectives for disclosures of defined benefit plans are explicitly stated in the revised standard, along with new or revised disclosure requirements.
•
These new disclosures include quantitative information of the sensitivity of the defined benefit obligation to a reasonably possible change in each significant actuarial assumption. Termination benefits will be recognised at the earlier of when the offer of termination cannot be withdrawn, or when the related restructuring costs are recognised under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The distinction between short-term and other long-term employee benefits will be based on expected timing of settlement rather than the employee’s entitlement to the benefits.
IAS 27 Separate Financial Statements (as revised in 2011): As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The amendment did not impact the accounting in the Company’s separate financial statements.
IAS 28 Investments in Associates and Joint Ventures (as revised in 2011): As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment did not have a significant impact on the Group as the Group does not have any investments in joint ventures previously accounted for using proportionate consolidation.
IAS 32 Financial Instruments: Presentation (Amendment) – Offsetting Financial Assets and Financial Liabilities: The IASB issued an amendment to clarify the meaning of “currently has a legally enforceable right to set off the recognised amounts” (IAS 32.42(a)).
This means that the right of set-off: • must not be contingent on a future event; and • must be legally enforceable in all of the following circumstances: o the normal course of business; o the event of default; and o the event of insolvency or bankruptcy of the entity and all of the counterparties.
4
The Group has adopted the standard during the current year with no impact on the Group’s performance or position.
The Group does not have any assets with these characteristics so there has been no effect on the presentation of its financial statements.
IFRS 10 Consolidated Financial Statements: IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12 Consolidation – Special Purpose Entities.
IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Application of the standard did not result in changes as to which entities are controlled by the Group.
As a result, all entities that were treated as subsidiaries or associates in the prior year are still accounted for as subsidiaries or associates in the current year.
IFRS 11 Joint Arrangements: IFRS 11 replaces IAS 31 and SIC-13. Joint control under IFRS 11 is defined as the contractually agreed sharing of control of an arrangement, which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. The reference to ‘control’ in ‘joint control’ refers to the definition of ‘control’ in IFRS 10. IFRS 11 also changes the accounting for joint arrangements by moving from
three categories under IAS 31 to the following two categories:
Joint operation — An arrangement in which the parties with joint control have rights to the assets and obligations for the liabilities relating to that arrangement. Joint operations are accounted for by showing the party’s interest in the assets, liabilities, revenues and expenses, and/or its relative share of jointly controlled assets, liabilities, revenue and expenses, if any.
Joint venture — An arrangement in which the parties with joint control have rights to the net assets of the arrangement. Joint ventures are accounted for using the equity accounting method.
The option to account for joint ventures (as newly defined) using proportionate consolidation has been removed. Under this new classification, the structure of the joint arrangement is not the only factor considered when classifying the joint arrangement as either a joint operation or a joint venture, which is a change from IAS 31. Under IFRS 11, parties are required to consider whether a separate vehicle exists and, if so, the legal form of the separate vehicle, the contractual terms and conditions, and other facts and circumstances.
The Group has evaluated its investments in other entities and concluded that they are not joint arrangements. As a result the standard did not have an impact on the Group.
IFRS 12 Disclosure of Interest in Other Entities: IFRS 12 includes all the disclosures that were previously required relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities as well as a number of new disclosures. An entity is now required to disclose the judgements made to determine whether it controls another entity. IFRS 12 disclosures are provided in note 18.
IFRS 13 Fair Value Measurement: IFRS 13 establishes a single framework for all fair value measurement (financial and non-financial assets and liabilities) when fair value is required or permitted by IFRS. IFRS 13 does not change when an entity is required to use fair value but rather describes how to measure fair value under IFRS when it is permitted or required by IFRS as well as providing clarification on certain areas. There are also consequential amendments to other standards to delete specific requirements
4
95
Financial Reporting
IFRS 7 Disclosures: Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7: These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. The amendment is effective for annual periods beginning on or after 1 January 2013.
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
for determining fair value. IFRS 13 defines fair value as an exit price. As a result of the guidance in IFRS 13, the Group re-assessed its polices for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair value measurement of liabilities. IFRS 13 also requires additional disclosures.
Application of IFRS 13 has not materially impacted the fair value measurements of the Group. Additional disclosures where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in Note 20.
Recoverable Amount Disclosures for NonFinancial Assets – Amendments to IAS 36 Impairment of Assets: These amendments remove the unintended consequences of IFRS 13 on the disclosures required under IAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or CGUs for which impairment loss has been recognised or reversed during the period. These amendments are effective retrospectively for annual periods beginning on or after 1 January 2014 with earlier application permitted, provided IFRS 13 is also applied. The Group has early adopted these amendments to IAS 36 in the current period since the amended/additional disclosures provide useful information as intended by the IASB. Accordingly, these amendments have been considered while making disclosures for impairment of non-financial assets. These amendments would continue to be considered for future disclosures.
C.2
96
IFRS 13 Fair Value Measurement - Short term receivables and payables The IASB clarified in the Basis for Conclusions that short term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial. This is effective immediately. The Group has evaluated that the effect of discounting on its short term receivables and payables is not material.
Standards issued but not yet effective at the reporting date
Standards issued but not yet effective up to the date of issuance of the consolidated financial statements are listed below:
4
IFRS 9 Financial Instruments: Classification and Measurement: IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The Group is currently assessing the impact of adopting IFRS 9, however, the impact of adoption depends on the assets held by the Group at the date of adoption and it is not practical to quantify the effect and this will be done when the final standard including all phases is issued. Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) These amendments are effective for annual periods beginning on or after 1 January 2014 provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to the Group, since none of the entities in the Group would qualify to be an investment entity under IFRS 10. IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after 1 January 2014. These amendments are not expected to be relevant to the Group. IFRIC Interpretation 21 Levies (IFRIC 21) IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached.
IFRIC 21 is effective for annual periods beginning on or after 1 January 2014. The Group does not expect that IFRIC 21 will have material financial impact in future financial statements.
IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39 These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after 1 January 2014. The Group has no derivatives during the current period. However, these amendments would be considered in the future.
Improvements to IFRSs In December 2013, the IASB issued two cycles of Annual Improvements to IFRSs that contain changes to 9 standards. The changes are effective from 1 July 2014 either prospectively or retrospectively. A summary of each amendment is described below: IFRS 2 Share based payment (Amendments to Definitions relating to vesting conditions) Performance conditions and service conditions are defined in order to clarify various issues. The issues relate to performance conditions which must contain a service condition and a performance target which must be met while the counterparty renders service. The amendment also clarifies that a performance target may relate to the operations of an entity or to those of an entity in the same group. The amendment is effective from 1 July 2014 and is not expected to have a material impact on the Group financial statements. The Group does not currently have share based payments. IFRS 3 Business Combinations -Scope for joint ventures The amendment clarifies that joint arrangements are outside the scope of IFRS 3, not just joint ventures and the scope exception applies only to the accounting in the financial statements of the joint arrangement itself. Amendment will not affect the Group as it is currently not part to any joint arrangements. This amendment is effective from 1 July 2014. IFRS 3 Business Combinations - Accounting for contingent consideration in a business combination Contingent consideration in a business acquisition that is not classified as equity is subsequently
measured at fair value through profit or loss whether or not it falls within the scope of IFRS 9 Financial Instruments. The amendment will not have a material impact on the financial statements of the Group.
IFRS 8 Operating Segments -Aggregation of operating segments and reconciliation of the total of the reportable segment assets to the entity’s total assets. Operating segments may be combined/ aggregated if they are consistent with the core principle of the standard, if the segments have similar economic characteristics and if they are similar in other qualitative respects. If they are combined, the entity must disclose the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’. The amendment is not expected to impact the Group. Reconciliation of the total of the reportable segment assets to the entity’s total assets. The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities. The amendment is not expected to affect the Group’s segment reporting. IFRS 13 Fair value measurement - Portfolio exception The amendment clarifies that the portfolio exception in IFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is not expected to affect the Group. The amendment is effective from 1 July 2014. IAS 16 Property, plant and equipment and IAS 38 Impairment - Revaluation methodproportionate restatement of accumulated depreciation The amendment clarifies that revaluation can be performed by adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying amount and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. The amendment also clarified that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount of the asset (i.e., gross carrying amount – accumulated depreciation/ amortisation = carrying amount).
4
97
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
The amendment to IAS 16.35(b) and IAS 38.80(b) clarifies that the accumulated depreciation/ amortisation is eliminated so that the gross carrying amount and carrying amount equal the market value. The Group will need to consider the impact of the amendment when it becomes effective as it does revalue its properties. The amendment is effective from 1 July 2014. IAS 24 Related party disclosures - Key management personnel The amendment clarifies that a management entity – an entity that provides key management personnel services – is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. Amendment will not affect the Group as it has no management entity providing key management services to the Group. The amendment is effective from 1 July 2014. IAS 40 Investment property -Clarifying the interrelationship of IFRS 3 and IAS 40 when classifying investment property or owner occupied property- Amendment to IAS 40. The description of ancillary services in IAS 40 differentiates between investment property and owner occupied property. IFRS 3 is used to determine if the transaction is the purchase of an asset or a business combination. The amendment is not expected to affect the Group and is effective 1 July 2014.
D
EFFECT OF CHANGES IN CURRENCY RATES – IAS 21
Foreign currency translation The Group’s consolidated financial statements are presented in United States dollars (US$), which is also the parent company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group has elected to recycle the gain or loss that arises from the direct method of consolidation, which is the method the Group uses to complete its consolidation.
i)
98
Monetary assets and liabilities denominated in foreign currencies are re-translated at the functional currency spot rate of exchange at the reporting date. All differences arising on settlement or translation of monetary items are presented in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
The gain or loss arising on re-translation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss.
E
BUSINESS COMBINATIONS – IFRS 3
Recognition Acquisitions of subsidiaries and businesses are accounted for using the acquisition method.
Applying the acquisition method requires (a) identifying the acquirer; (b) determining the acquisition date; (c) recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; and (d) recognising and measuring goodwill or a gain from a bargain purchase. Acquisition costs incurred are expensed.
Measurement at acquisition The consideration transferred for the acquisition of a business is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.
For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
FOREIGN
Transactions and balances
Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.
4
(i)
(ii)
(iii) (iv)
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (revised) are first assessed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date and are recognised and measured at their fair values at the acquisition date, except: non-current assets (or disposal groups) that are classified as held-for-sale which are recognised and measured in accordance with IFRS 5 “Noncurrent Assets Held-for-Sale and Discontinued Operations”; liabilities or equity instruments related to sharebased payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree which are measured in accordance with IFRS 2 Share-based payment transactions; deferred tax assets or liabilities which are recognised and measured in accordance with IAS 12 Income Taxes; and assets and liabilities related to employee benefits which are recognised and measured in accordance with IAS 19 Employee benefits. If the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously-held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in the business combination. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 in profit or loss. If the contingent consideration is classified as equity, it shall not be re-measured until it is finally settled within equity. Measurement of goodwill at acquisition Goodwill arising on acquisition is recognised as an asset and initially is measured at cost, being the excess of (a) the aggregate of the consideration transferred and the amount recognised for non – controlling interest, over (b) the net identifiable assets acquired and liabilities assumed.
In a business combination achieved in stages (a step acquisition), the previously held equity interest in the acquiree is remeasured at its acquisition date fair value and the resulting gain or loss, if any, is recognised in profit or loss, or in other comprehensive income, as appropriate. Measurement period The measurement period begins on the acquisition date and ends as soon as the information sought about facts and circumstances that existed as of the acquisition date is available or it becomes apparent that more information is not obtainable. However, the measurement period does not exceed one year from the acquisition date.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, then provisional amounts are presented for the items for which the accounting is incomplete.
During the measurement period provisional amounts are retrospectively adjusted to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date.
During the measurement period, additional assets or liabilities are recognised and presented if new information is obtained about facts and circumstances that existed at the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities at that date.
Measurement period adjustments If, after re-assessment and adjustment during the measurement period, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.
Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments made against goodwill.
Subsequent measurement of Goodwill After initial recognition, goodwill is measured at carrying value less any accumulated impairment losses.
4
99
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
Impairment of Goodwill For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Cash-generating units to which goodwill has been allocated are tested for impairment annually or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount, then the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.
An impairment loss is recognised in profit or loss and is not reversed in subsequent periods.
Where goodwill has been allocated to a cashgenerating unit and part of the operations within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
F
INVESTMENTS IN ASSOCIATES – IAS 28
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Data Control and Systems (1996) (Private) Limited t/a Liquid Telecom Zimbabwe is accounted for as an associate in these financial statements. Steward Bank Limited was also accounted for as an associate in the prior year before becoming a subsidiary company.
Recognition The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held-for-sale. There are no investments in associates which are
100
held-for-sale in these financial statements.
At acquisition - initial measurement: On acquisition, the investment in associate is measured at cost. Any excess of the cost of acquisition over the Group’s share of the net fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair values of the identifiable net assets of the associate, over the cost of the acquisition, (i.e. discount on acquisition or a bargain purchase) is credited to profit or loss in the period of acquisition.
Subsequent measurement Investments in associates are carried in the statement of financial position at cost adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments.
The statement of comprehensive income reflects the Group’s share of the results of operations of the associate. When there has been a change recognised directly in the equity or in other comprehensive income of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity or other comprehensive income.
Intra-group transactions Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.
Impairment Goodwill that forms part of the carrying amount of an investment in an associate is not separately recognised, it is not tested for impairment separately by applying the requirements for impairment testing for goodwill in IAS 36 Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever there is an indicator that the investment may be impaired. An impairment loss recognised in those circumstances is not allocated to any specific asset, including goodwill, which forms part of the carrying amount of the investment
4
Associate losses After the entity’s interest is reduced to zero, losses of an associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the entity resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.
De-recognition Investments in associates are de-recognised when the Group disposes of the investment. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
G
INTANGIBLE ASSETS - IAS 38
Goodwill, previously recognised under intangible assets, is now disclosed under business combinations (see E above).
Intangible assets in these financial statements comprise: software held by Transaction Payment Solutions (Private) Limited, software held by Econet Wireless (Private) Limited, and software held by Steward Bank Limited.
Recognition Intangible assets are recognised when (a) it is probable that future economic benefits will flow to the entity from the intangible asset, and (b) the cost of the intangible asset can be reliably measured.
Initial measurement Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Subsequent measurement Following initial recognition, intangible assets are carried at cost less any accumulated amortisation
and accumulated impairment losses.
Internally-generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in profit and loss in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.
The amortisation expense on intangible assets with finite lives is recognised in profit or loss as the expense category that is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cashgenerating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Impairment See policy note K below.
G.1
Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: • • • •
The technical feasibility of completing the intangible asset so that the asset will be available for use or sale Its intention to complete and its ability to use or sell the asset How the asset will generate future economic benefits The availability of resources to complete the asset
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101
Financial Reporting
in the associate. Accordingly, any reversal of that impairment loss is recognised to the extent that the recoverable amount of the investment subsequently increases.
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
•
The ability to measure reliably the expenditure during development
During the period of development, the asset is tested for impairment annually.
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses.
Recognition
Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit.
Amortisation is recorded in cost of sales.
G.2
Software and other intangible assets
Software and other intangible assets comprise software held by Transaction Payment Solutions (Private) Limited, software held by Econet Wireless (Private) Limited, and software held by Steward Bank Ltd and licence held by Econet Wireless (Private) Limited. The software and licences are amortised as follows: - software held by Transaction Payment Solutions (Private) Limited is amortised over 2 to 4 years; - software held by Econet Wireless (Private) Limited is amortised over 5 years; and - software held by Steward Bank Limited is amortised over 4 years. - licence held by Econet Wireless (Private) Limited amortised over 20 years.
De-recognition An intangible asset shall be de-recognised: (a) on disposal; or (b) when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an intangible asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. The gain or loss is recognised in profit or loss when the asset is derecognised.
H
102
BORROWING COSTS - IAS 23 (revised)
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised. Where borrowing costs are not capitalised, they are expensed through profit or loss.
A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. The main qualifying asset during the year was network equipment and the related base stations. If the carrying amount or ultimate cost of the qualifying asset exceeds its recoverable amount or net realisable value, then the carrying amount is impaired accordingly. The Group begins capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions:
(a) it incurs expenditures for the asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale. Measurement Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.
Where funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings.
Where funds are borrowed generally and are used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to the Group’s borrowings that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalised during a period shall not exceed the amount of borrowing costs incurred during that period.
Cessation of borrowing costs Capitalisation of borrowing costs is suspended during extended periods in which active development of a qualifying asset is suspended.
Capitalising borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
4
I
When the construction of a qualifying asset is completed in parts and each part is capable of being used while construction continues on other parts, then capitalisation of borrowing costs ceases on each part when substantially all the activities necessary to prepare that part for its intended use or sale are completed. The Group’s projects are integrated projects, consequently it has been determined that qualifying assets need to be complete before any part can be used and capitalisation continues until all parts of the project are complete.
PROPERTY, PLANT AND EQUIPMENT (PPE) - IAS 16
Property, plant and equipment are tangible assets that (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and (b) are expected to be used for more than one financial period.
Recognition PPE is recognised as an asset when (a) it is probable that future economic benefits associated with the item will flow to the entity, and (b) the cost of the item can be reliably measured.
Measurement
Initial measurement Property, plant and equipment is initially stated at cost, such cost includes the cost of replacement parts of the property, plant and equipment, and borrowing costs for long term construction projects if the recognition criteria are met.
When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied.
The present value of the expected cost for the decommissioning of an asset after the end of its useful life is included in the cost of the asset if the recognition criteria for a provision are met.
Assets in the course of construction for production or for other purposes not yet determined (capital work-in-progress) are carried at cost less any recognised impairment loss. Costs include
professional fees and, for qualifying assets, borrowing costs (see policy note G above).
Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for intended use.
Repairs and maintenance costs are recognised in profit or loss as incurred.
Subsequent measurement Property, plant and equipment is subsequently measured at cost less subsequent depreciation and accumulated impairment charges. (See also note K on Impairment of PPE.)
Depreciation Depreciable amount of an asset is its cost less its residual value. Depreciation is charged so as to write off the depreciable amount of assets over their estimated useful lives, using the straight line method, as follows:
Buildings - 40 years Network equipment - 3 to 25 years Beverage plant and equipment - 25 years Office equipment - 4 to 10 years Motor vehicles - 4 to 5 years
The residual value of an asset is the estimated amount that would be obtained at the reporting date from disposal of the assets, after deducting disposal costs, if the asset was already of the age and in the condition expected at the end of its useful life.
The estimated useful lives, depreciation periods, and residual values of the assets are reviewed at each financial year end and, if expectations differ from expectations at the end of the previous financial year, the changes are accounted for as a change in accounting estimate according to IAS 8 (Accounting Policies, Changes in Estimates and Errors).
The method of depreciation of the assets is reviewed at each financial year end and, if a different method gives rise to a more accurate depreciation charge, the changes resulting from the change in method are accounted for as a change in accounting estimate according to IAS 8 (Accounting Policies, Changes in Estimates and Errors).
Depreciation is charged to profit or loss.
4
103
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
De-recognition of PPE PPE is de-recognised when; (a) the asset is disposed of or retired from use, or (b) when no future economic benefits are expected from its use or disposal.
The gain or loss arising on de-recognition of PPE is the difference between the net disposal proceeds, if any, and the carrying value of the asset. The gain or loss is included in profit or loss at the time the item is de-recognised.
Impairment of PPE See policy note K below.
J
INVESTMENT PROPERTIES - IAS 40
Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties still being developed are also classified in accordance with the provisions of IAS 40. Investment properties in these financial statements comprise industrial and residential properties leased to third parties.
Recognition Investment properties are recognised when; (a) it is probable that future economic benefits associated with the investment property will flow to the entity, and (b) the costs of the acquisition or construction of the investment property can be reliably measured.
Investment property is also recognised when a fixed property is transferred from property, plant and equipment to investment property because of a change in use.
Measurement
If an owner-occupied property becomes an investment property that will be carried at fair value, IAS 16 is applied up to the date of change in use. At that date, any difference between the carrying amount of the property in accordance with IAS16 and its fair value is treated in the same way as a revaluation in accordance with IAS16.
Initial Measurement Investment property is measured initially at its cost.
De-recognition
An investment property is de-recognised either: (i) on disposal, when withdrawn from use or when no future economic benefits are expected from its continued use or disposal; or (ii) when an investment property is transferred to property, plant and equipment because of a change in use. Gains or losses on disposal or retirement of investment properties are measured as the difference between the net disposal proceeds and the carrying amount of the asset at the date of disposal or retirement.
Gains or losses on de-recognition of investment property are recognised in profit or loss.
K IMPAIRMENT OF ASSETS. - IAS 36
NON
FINANCIAL
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exist, or when annual impairment testing for an asset is required, the Group estimates an asset’s recoverable amount.
Recoverable amount is the higher of an asset’s or a cash-generating unit’s fair value less costs to sell and its value in use.
Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
In determining the value in use of assets, expected cash flows are discounted to their present values using risk-adjusted pre-tax discount rates that reflect current market assessments of the time value of money and the risks specific to the asset
In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
Subsequent Measurement Subsequently, investment property is stated at its fair value as determined by independent professional valuers.
104
Gains or losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise.
4
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s cash generating units (CGUs) to which the individual assets are allocated. The budgets and calculations generally cover a period of five years. For longer periods, a long term growth rate is calculated and applied to future project cash flows after the fifth year. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. This write-down is an impairment loss and is recognised in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years.
A reversal of an impairment loss is recognised immediately in profit or loss.
L
LEASES - IAS 17
A finance lease is a lease that transfers substantially all the risks and rewards of ownership of an asset to the lessee. Assets under finance leases are accounted for under IAS 16 PPE (see policy note I above).
A lease is an agreement in which the lessor conveys to the lessee, in return for payment, the right to use an asset for an agreed period of time.
An operating lease is a lease which is not a finance lease. All the risks and benefits of ownership are effectively retained by the lessor.
The Group only has operating leases, as both lessor and lessee.
The Group as Lessor Lease income from operating leases is recognised on a straight-line basis over the lease term.
The Group as Lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are
consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which the economic benefits from the leased assets are consumed.
M
INVENTORIES - IAS 2
The main categories of inventory recognised in the financial statements are (a) Merchandise comprising calling cards, handsets, accessories and simcards and (b) Spares, stationery, raw materials, and containers.
Inventories are assets (a) held-for-sale in the ordinary course of business; (b) in the process of production for such sale; or (c) to be consumed in the production process or the rendering of services.
Measurement Inventories are measured at the lower of cost or net realisable value. Cost comprises all costs necessary to bring the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs incurred in the marketing, selling or distribution, where applicable. The basis of determining cost is the weighted average method. Impairment Write-downs to net realisable value and inventory losses are expensed in the period in which they occur.
Obsolete and slow-moving inventories are identified and written down to their estimated realisable value. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is accounted for as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
De-recognition Inventories are de-recognised when they are sold, and the carrying amount is recognised as an expense in the period in which the related revenue is recognised.
4
105
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
N
REVENUE RECOGNITION - IAS 18
Recognition Recognition and Measurement Revenue, which excludes Value Added Tax, cash discounts and sales between Group companies, represents the invoiced value of goods and services supplied by the Group. The Group measures revenue at the fair value of the consideration received or receivable. Revenue is recognised only when it is probable that economic benefits associated with the transaction will flow to the Group and the amount of revenue and associated costs incurred can be measured reliably. If necessary, revenue is split into separately identifiable components.
Telecommunications N.1 Contract products Connection fees Revenue is recognised on the date of activation.
N.4 Automated transaction services - Software and hardware sales Revenue is recognised when goods are delivered and ownership has passed.
- Service revenues Revenue is recognised on the accrual basis in accordance with the substance of the agreement.
N.5 Interconnect services Interconnect services revenue is recognised when the service is rendered.
N.6 Bundled Products Post-paid and prepaid products with multiple deliverables are defined as multiple element arrangements.
Post-paid products typically include the sale of a handset, activation fee and a service contract; and prepaid products include a subscriber identification module (SIM) card and airtime. These arrangements are divided into separate units of accounting, and revenue is recognised through application of the residual value method. In applying the residual value method, fair value is allocated to each of the undelivered elements in the transaction, and any consideration remaining (the residual value) is allocated to the delivered elements.
N.7 Other revenue and income - Other sales Revenue is recognised on the date all risks and rewards associated with the sale are transferred to the purchaser.
- Services Revenue is recognised on the accrual basis in accordance with the substance of the agreement.
Interest income and expense For all financial instruments measured at amortised cost, interest-bearing financial assets classified as available-for-sale, and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR method. EIR (Effective Interest Rates) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.
Access charges Revenue from access charges is recognised as the customers are provided access to the network based on the agreed fixed charges.
Airtime Revenue is recognised on the usage basis. N.2 Pre-paid products Airtime Revenue is recognised when a customer utilises the airtime, at which point the risks and rewards have been transferred. Upon purchase of an airtime voucher the customer receives the right to make outgoing voice calls, use the short message service and download internet data to the value of the voucher. Revenue is deferred until such a time as the customer uses the airtime.
Starter packs Revenue is recognised on the date all risks and rewards associated with the starter-packs are transferred to the purchaser on the date of purchase.
N.3 Internet services - Subscriptions Subscriptions revenue is recognised on a straightline basis over the period of the subscription.
- Services Revenue is recognised on the accrual basis in accordance with the substance of the agreement.
106
4
The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Interest income’ for financial assets and ’Interest expense’ for financial liabilities. However, for a reclassified financial asset for which the Bank subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate.
Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Banking fee and commission income The bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories: Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.
Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis.
Fee income from providing transactions services Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.
Non-interest income from financial instruments Results arising from trading activities include all gains and losses from changes in fair value and related interest income or expense and dividends for financial assets and financial liabilities ‘held for trading’. This includes any ineffectiveness recorded in hedging transactions.
Dividend income Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
O
TAXATION - IAS 12
Income tax expense represents the sum of the tax currently payable and deferred tax.
O.1
Current tax
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
O.2
Deferred tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are not recognised if temporary differences arise from goodwill or from initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is also not recognised in respect of temporary differences associated with investments in subsidiaries and associates where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
4
107
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
Deferred tax is calculated at the tax rates that are expected to apply in the periods when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited to other comprehensive income or directly to equity, in which case the deferred tax is also dealt with in other comprehensive income or equity.
The carrying amount of the deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
O.3
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity in which the deferred tax asset has been recognised. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exist to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Value Added Tax (VAT)
Expenses and assets are recognised net of the amount of VAT, except: • when the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; or • when receivables and payables are stated with the amount of tax included.
The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
P
EMPLOYEE BENEFITS - IAS 19
108
Employee benefits are all forms of benefits given in exchange for services rendered by employees. These are classified as:
a) Short-term employee benefits - benefits due to be settled within 12 months after the end of the period in which the employees rendered the related services; b) Post-employment benefits are benefits payable after the completion of employment. Post employment benefit plans are benefit plans which are formal or informal arrangements providing post-employment benefits for one or more employees. Such plans (or funds) may be either defined contribution funds or defined benefit funds. c) Termination benefits are employee benefits payable as a result of either the Group’s decision to terminate an employee’s employment before normal retirement date, or an employee’s decision to accept voluntary redundancy in exchange for those benefits.
Recognition Short-term benefits The cost of all short-term employee benefits, such as salaries, employee entitlements to leave pay, bonuses, medical aid and other contributions, are recognised during the period in which the employee renders the related service.
The Group recognises the expected cost of bonuses only when the Group has a present legal or constructive obligation to make such payment and a reliable estimate can be made.
The Group’s short term employee benefits comprise remuneration in the form of salaries, wages, and bonuses.
Post-employment Retirement Benefit Funds Retirement benefits are provided for Group employees through an independently administered defined contribution fund and by the National Social Security Authority (NSSA). Payments to the defined contribution fund and to the NSSA scheme are recognised as an expense when they fall due, which is when the employee renders the service.
During the year the Group contributed to the Group defined contribution fund and to the NSSA scheme.
Other long-term benefits Other long-term benefits are recognised as an expense when an obligation arises. The Group had no other long-term benefit commitments during the year.
4
Termination benefits The Group recognises termination benefits as a liability and an expense at the earlier of when the offer of termination can not be withdrawn or when the related restructuring costs are recognised under IAS 37 Provisions, Contingent Liabilities and Contingents Assets.
The Group had no termination commitments during the year.
Measurement
Short-term employee benefits All short-term employee benefits are measured at cost. Post-employment Retirement Benefit Funds The Group has no liability for Post-employment Retirement Benefit Funds once the current contributions have been paid at the time the employees render service. Termination benefits Benefits are measured according to the terms of the termination contract. Where termination benefits are due more than 12 months after the reporting period, the present value of the benefits shall be determined by reference to market yields on high quality corporate bonds at the end of the reporting period. Short and long term distinction The distinction between short term and other long term employee benefits will be based on expected timing of settlement rather than the employee’s entitlement to the benefits.
Q
SHARE-BASED PAYMENT TRANSACTIONS - IFRS 2
Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of equity instruments granted, measured at the date the entity obtains the goods or the counter-party rendered the service.
R
FINANCIAL INSTRUMENTS - IAS 39
Financial instruments are those contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments, with the exception of contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements.
R.1 Financial Assets Financial assets are classified as either (i) cash and bank balances, or (ii) financial assets at fair value through profit or loss, or (iii) loans and receivables, or (iv) held-to-maturity investments, or (v) available-for-sale financial assets or (vi) as derivatives designated as hedging instruments in an effective hedge, as appropriate.
The Group determines the classification of its financial assets on initial recognition.
The Group’s financial assets include cash and short-term deposits, trade receivables excluding prepayments, loans and advances to banking customers and quoted and unquoted financial instruments as financial assets either held-tomaturity, available-for-sale, or at fair value through profit or loss. Each category of financial assets is dealt with in detail below.
benefit
equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with a corresponding adjustment to the equity-settled employee benefits reserve.
Equity-settled share-based payment transactions with employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. For equity-settled share-based payment transactions with employees, the fair value determined at the grant date of the equity-settled share-based payment is expensed on a straightline basis over the vesting period, based on the Group’s estimate of the equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of
Financial instruments comprise financial assets and financial liabilities.
4
109
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
Initial recognition A financial asset is recognised in the statement of financial position when, and only when, the company becomes party to the contractual provisions of the instrument.
Initial measurement All financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.
Classification and Subsequent measurement The subsequent measurement of financial assets depends on their classification, as follows:
R1.1 Financial assets at fair value through profit or loss (FVTPL)
The company has quoted investments that are classified as assets at fair value through profit or loss as detailed in Note 21.
Financial assets are classified as at FVTPL where the financial asset is either held-for-trading or it is designated as at FVTPL.
A financial asset is classified as held for trading if: • it has been acquired principally for the purpose of selling in the near future; or • on initial recognition it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or • is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).
A financial asset other than a financial asset heldfor-trading may be designated as at FVTPL upon initial recognition if: o such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or o the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis.
110
Recognition and Measurement
Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss.
The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.
R.1.2 Held-to-maturity investments
The company has held-to-maturity financial assets as detailed in Note 17.
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the group has the positive intention to hold them to maturity.
After initial measurement, held to maturity investments are measured at amortised cost using the effective interest rate (EIR) method, less impairment.
The EIR amortisation is included as finance income in profit or loss for non-banking entities and as interest income from banking activities. The losses arising from impairment are recognised in profit or loss in finance costs for non-banking entities and as interest expense from banking activities.
R.1.3 Available-for-sale (AFS) financial assets
Available-for-sale financial assets include investments in equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held-fortrading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.
After initial measurement, available-for -sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised in other comprehensive income and accumulated in the available-for-sale reserve in equity until the investment is de-recognised, at which time the cumulative gain or loss is reclassified through other comprehensive income into other operating income or the investment is determined to be impaired at which time the cumulative loss is reclassified through other comprehensive income into finance costs and removed from the available-for-sale reserve.
Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established.
4
The Group evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term is still appropriate.
When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity.
Reclassification to the held to maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly.
For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss.
R.1.4 Loans and receivables
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at amortised cost
Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued at the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in profit or loss.
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest rate method less any impairment. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial.
R.1.5 Impairment of financial assets
estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated.
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if and only if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the
For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.
4
111
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in profit or loss. Available-for-sale financial investments For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as availablefor-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost.
However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss.
When a decline in the fair value of an available-forsale financial asset has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, then the cumulative loss that had been recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognised. The amount of the cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss.
112
Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. If, in a subsequent period, the fair value
of a debt instrument classified as available-forsale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, and the reversal is recognised in profit or loss.
Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss.
R.1.6
De-recognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • the rights to receive cash flows from the asset have expired; or • the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
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R.2
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
R.4
Financial liabilities
Financial liabilities within the scope of IAS 39 are classified appropriately as either: (i) financial liabilities at fair value through profit or loss, (ii) liabilities, loans and borrowings at amortised cost, or (iii) derivatives designated as hedging instruments in an effective hedge. The Group determines the classification of its financial liabilities at initial recognition. The Group had financial liabilities comprising trade payables and accruals, and interest-bearing debt, deposits and liabilities due to banks and other customers all classified at amortised cost.
S
Effective interest rate (EIR) method
The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or liability, or, where appropriate, a shorter period.
TREASURY SHARES – IAS 32
Treasury shares are re-acquired own equity instruments and are deducted from equity.
Considerations paid or received for such equity instruments are recognised directly in equity.
No gain or loss is recognised on the purchase, sale, issue or cancellation of treasury shares.
Initial measurement The financial liabilities are initially measured at fair value, net of transaction costs.
Such shares may be acquired and held by the entity or by other members of the consolidated group.
Subsequent measurement Such financial liabilities are subsequently measured at amortised cost using the effective interest rate method (see R.4 below). Interest expense is recognised in profit or loss.
In these financial statements the Group has treasury shares which are re-acquired shares of Econet Wireless Zimbabwe Limited.
T
De-recognition of financial liabilities A financial liability is de-recognised when the obligation under the liability is discharged or cancelled, or expires.
OPERATING SEGMENT INFORMATION IFRS 8
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.
R.3
The chief operating decision-maker has been identified as the Group Chief Executive Officer
Measurement of segment information The accounting policies of the reportable segments are the same as the Group’s accounting policies. Segment information has been reconciled to the consolidated annual financial statements to take account of intersegment transactions and transactions and balances that are not allocated to reporting segments.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
The Group identifies segments as components of the Group that engage in business activities from which revenues are earned and expenses incurred (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
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113
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
U
V
PROVISIONS - IAS 37
Provisions are recognised when (a) the Group has a present obligation (legal or constructive) as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and (c) a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain.
In the ordinary course of business, the Group’s banking operation gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within ‘Other liabilities’) at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of comprehensive income, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.
W
FIDUCIARY ASSETS
114
Although these estimates and assumptions are based on the Directors best knowledge of current events and actions that the Group may undertake in the future, actual results may ultimately differ from those estimates and assumptions.
X.1
Property, plant and equipment - IAS 16
Residual values of property, plant and equipment During the year management assessed the residual values of property, plant and equipment. Residual values of each asset category have been assessed by considering the fair value of the assets after taking into account age, usage and obsolescence. These residual values are reassessed each year and adjustments are made where appropriate. The valuation methods adopted in this process involves significant judgement and estimation.
FINANCIAL GUARANTEES
Any increase in the liability relating to financial guarantees is recorded in profit and loss as an ‘Impairment loss expense’. The premium received is recognised in profit and loss as part of ‘Net fees and commission income’ on a straight-line basis over the life of the guarantee.
X
The expense relating to any provision is presented in profit or loss net of any reimbursement.
at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.
To the extent that the Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients, the assets held in a fiduciary capacity are not reported in the financial statements, as they are not the assets of the Group.
Property, plant and equipment represent a significant proportion of the asset base of the Group, being 63% (68% in prior year) of the Group’s total assets in the year under review. Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to the Group’s financial position and performance.
Useful lives of property, plant and equipment A review of the estimated remaining lives of all network equipment was performed using the engineering expertise within the business with reference to published industry benchmarks. This review considered the following factors, at a minimum; the age of the equipment, technological advancements, current use of the equipment, and planned network upgrade programmes. The determination of the remaining estimated useful lives of the network equipment is deemed to be a significant area of judgment due to its highly specialised nature.
Capitalisation of borrowing costs When capitalising borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, the matter of determining whether an asset takes a substantial period of time to get ready for its intended use, is deemed to be a significant area of judgement.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
4
In particular, where – as in the case of Econet – there are multiple financing sources for both general and specific use, allocation of borrowing costs demands significant judgement.
X.2
Intangible assets - IAS 38
Intangible assets include licences and development costs. These assets arise from both separate purchases and from acquisition as part of business combinations. On the acquisition of mobile network operators, the identifiable intangible assets may include licences, customer bases and brands. The fair value of these assets is determined by discounting estimated future net cash flows generated by the asset, where no active market for the assets exists. The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets. Estimation of useful life The useful life used to amortise intangible assets relates to the future performance of the assets acquired and management’s judgement of the period over which economic benefit will be derived from the asset. The basis for determining the useful life for the most significant categories of intangible assets is as follows:
term. For unique software products controlled by the Group, the life is based on historical experience with similar products as well as anticipation of future events, which may impact their life, such as changes in technology. Historically, changes in useful lives have not resulted in material changes to the Group’s amortisation charge.
X.3
Impairment reviews - IAS 36
Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate.
X.4
Provision for impairment of accounts receivable
X.2.1 Licences
The estimated useful life is, generally, the term of the licence, unless there is a presumption of renewal at negligible cost. Using the licence term reflects the period over which the Group will receive economic benefit. For technology specific licences with a presumption of renewal at negligible cost, the estimated useful economic life reflects the Group’s expectation of the period over which the Group will continue to receive economic benefit from the licence. The economic lives are periodically reviewed, taking into consideration such factors as changes in technology. Historically, any changes to economic lives have not been material following these reviews. The useful life is determined by management at the time the software is acquired and brought into use and is regularly reviewed for appropriateness. For computer software licences, the useful life represents management’s view of expected benefits over which the Group will receive benefits from the software, but not exceeding the licence
The provision for impairment is based on an estimate of the recoverability of accounts receivable and subject to estimation. Refer to note 23 for the basis of determining impairment loss provisions.
X.5
Syndicated loans
X.6
Deferred revenue
X.7
Investment property - determination of fair value
X.2.2 Capitalised software
IAS 36 requires management to undertake an annual test for impairment of assets with indefinite useful lives and, for assets with finite useful lives, to test if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Certain cash flows used in the calculation of amortised cost of the syndicated loans are based on forecast future interest rates (LIBO) which are subject to estimation. The interest is based on various interest arrangements on facilities with various lenders. The Syndicated loans are detailed on Note 31. Revenue for cellular network services is recognised when the airtime is utilised by the customer. The unused air time as at 28 February 2014 has been deferred from revenue until the airtime has been used by the customers. The deferred revenue portion is determined by both information technology related checks and arithmetical formulae to identify the portion of revenue to be deferred.
Where the fair values of investment property cannot be derived from an active market, they
4
115
Financial Reporting
Policy Notes To The Consolidated Financial Statements (continued) For the year ended 28 February 2014
collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilisation, loan-to-collateral ratios, etc.), and judgements on the effect of concentrations of risks and economic data.
are determined using a variety of valuation techniques.
The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value.
Determining the valuation technique to use and the inputs requires significant judgement.
Refer note 13 for more detail on valuation of investment property.
X.8
Fair value of financial instruments
X.9
116
Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values. The judgements include considerations of liquidity and model inputs such as volatility for discount rates, prepayment rates and default rate assumptions for ‘asset-backed’ securities. The valuation of financial instruments is described in more detail in Note 20.
Impairment losses on loans and advances to bank customers
The Group reviews its individually significant loans and advances to bank customers at each statement of financial position date to assess whether an impairment loss should be recorded in the statement of comprehensive income. In particular, management’s judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The
Y
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability
The Group measures non-financial assets such as property, at fair value at reporting date. Also, fair values of financial instruments measured at amortised cost are disclosed in Note 30.3.
The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
4
Z
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
All other assets are classified as non-current. A liability is current when: • It is expected to be settled in normal operating cycle • It is held primarily for the purpose of trading • It is due to be settled within twelve months after the reporting period, or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Group classifies all other liabilities as noncurrent.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
Current versus non-current classification
The Group presents assets and liabilities in statement of financial position based on current/ non-current classification. An asset as current when it is: • Expected to be realised or intended to be sold or consumed in normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within twelve months after the reporting period, or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
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117
Financial Reporting
Administration
Continuing efforts are made to improve our customers’ experience through consistent provision of highly innovative services and products. We are present in all major locations countrywide and continue to expand our branch network to be closer to our customers.
Our Strategic Business Partnerships
119
Shareholder Analysis
120
Corporate and Advisory Information
121
Financial Diary
122
Notice to Members
123
Investing for the future
118118
4
4
Our Strategic Business Partnerships
Administration
The opportunities in the market have made it imperative to broaden our relationship with key partners. This has enabled the business to deliver value to stakeholders and promote accelerated growth. 4
119
Shareholder Analysis For the year ended 28 February 2014
Consolidated Top 20 Rank
Account Name
Shares
% of Shares
1
ECONET WIRELESS GLOBAL LIMITED
659,539,483
40.22%
2
STANBIC NOMINEES (PRIVATE) LIMITED (NNR)
361,750,711
22.06%
3
AUSTIN ECO HOLDINGS LIMITED - NNR
89,872,460
5.48%
4
OLD MUTUAL LIFE ASSURANCE COMPANY OF ZIMBABWE LIMITED
79,555,416
4.85%
5
ECONET WIRELESS ZIMBABWE LIMITED
57,993,756
3.54%
6
STANDARD CHARTERED NOMINEES (PVT) LIMITED - NNR
39,011,050
2.38%
7
STEWARD BANK LIMITED
31,680,493
1.93%
8
NORTHUNDERLAND INVESTMENTS (PVT) LIMITED
22,020,090
1.34%
9
AMRO INTERNATIONAL HOLDINGS LIMITED (NNR)
15,033,962
0.92%
10
MINING INDUSTRY PENSION FUND
11,710,419
0.71%
11
FED NOMINEES (PRIVATE) LIMITED
10,733,698
0.65%
12
HELLIKOP INVESTMENTS (PVT) LIMITED-NNR
10,699,010
0.65%
13
PRESSFORTH INVESTMENTS (PRIVATE) LIMITED
10,317,570
0.63%
14
OLD MUTUAL ZIMBABWE LIMITED
10,023,880
0.61%
15
ECONET EMPLOYEES BENEFICIARY TRUST
9,677,915
0.59%
16
LOCAL AUTHORITIES PENSION FUND
8,604,755
0.52%
17
COVERSITE (PRIVATE) LIMITED
7,014,684
0.43%
18
NATIONAL SOCIAL SECURITY AUTHORITY
6,968,225
0.42%
19
DATVEST NOMINEES (PRIVATE) LIMITED
6,873,559
0.42%
20
FIRST MUTUAL LIFE
6,664,705
0.41%
OTHER SHAREHOLDERS
184,275,589
11.24%
TOTAL ISSUED SHARES
1,640,021,430
100.00%
Range
Holders
% of Holders
Shares
% of Shares
0 - 100 101 - 200 201 - 500 501 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 50,000 50,001 - 100,000 100,001 - 500,000 500,001 - 1,000,000 1,000,001 - 10,000,000 Above 10,000,000
2507 772 1056 1078 2488 556 645 153 222 57 74 15
26.05 8.02 10.97 11.20 25.85 5.78 6.70 1.59 2.31 0.59 0.78 0.16
100,659 126,602 360,183 745,621 5,194,103 3,868,797 13,926,872 10,761,720 49,517,286 41,053,186 105,432,326 1,408,934,075
0.01 0.01 0.02 0.05 0.32 0.24 0.85 0.66 3.02 2.50 6.42 85.90
Total
9,623
100
1,640,021,430
100
120
4
Corporate and Advisory Information
Incorporated in the Republic of Zimbabwe Company registration number 7548/98 Econet Park, 2 Old Mutare Road Msasa Harare Zimbabwe Telephone: +263-486124-5 +263-772 793 700 Fax:+263- 4-486183 E-mail:
[email protected] Website: www.econet.co.zw
Group Company Secretary Charles Alfred Banda Econet Park, 2 Old Mutare Road, Msasa Harare Zimbabwe
Independent Auditors Ernst & Young (Zimbabwe) Registered Public Auditors Angwa City Cnr Julius Nyerere Way, Kwame Nkrumah Avenue Harare Zimbabwe
Principal Bankers African Export-Import Bank Limited 72 (B) EL Maahad EL-Eshleraky Street Opposite Merryland Park Roxy, Heliopolis, Cairo 11341 Egypt
Administration
Registered Office Stanbic Bank Stanbic Centre 59 Samora Machel Avenue Harare Steward Bank Limited 2nd Floor, 101 Union Avenue Building 101 Kwame Nkrumah Avenue Harare Zimbabwe CBZ Bank Limited Union House 60 Kwame Nkrumah Avenue Harare Zimbabwe
Principal legal advisors Mtetwa and Nyambirai Legal Practitioners 2 Meredith Drive Eastlea Harare Zimbabwe
Registrars and Transfer Secretaries First Transfer Secretaries (Private) Limited 1 Armagh Avenue Eastlea Harare Zimbabwe
Barclays Bank Kurima House Nelson Mandela Avenue Box CY 881 Causeway Harare
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121
Financial Diary
For the year ended 28 February 2014
Econet is owned by one of the largest and most diverse base of shareholders on the stock exchange. As we continue to deliver value to our shareholders, we bring positive transformation to thousands of our people.
1 August 2014
Sixteenth Annual General Meeting of Shareholders, Econet Park, Harare
October 2014
Interim results and analyst briefing
28 February 2015
Financial year end
April 2015
Financial results and analyst briefing
June 2015
Annual Report 2015 publication
July 2015
Seventeenth Annual General Meeting of Shareholders, Econet Park, Harare
Investing for the future
122122
4
4
Notice to Members
Notice is hereby given that the Sixteenth Annual General Meeting of the members of Econet Wireless Zimbabwe Limited will be held in the staff canteen, at the registered office of the Company at Econet Park, 2 Old Mutare Road, Msasa, Harare, Zimbabwe on Friday 1 August 2014 at 10.00am for the following purposes.
Ordinary Business
To consider and adopt the following resolutions:
1.
2.
Financial Statements
To receive and adopt the financial statements for the year ended 28 February 2014 together with the reports of the directors and auditors thereon.
Election of Directors
To re-elect Messrs’ D. Mboweni, G. Gomwe and Mrs S. Shereni as directors of the company.
2.1. In accordance with Article 81 of the Company’s Articles of Association they retire by rotation at the Company’s Annual General Meeting and, being eligible, offer themselves for re-election.
3.
Directors Remuneration
To approve the fees paid to the directors for the year ended 28 February 2014.
4. Auditors 4.1. To approve the auditors’ remuneration for the previous year. 4.2. To consider re-appointing Ernst and Young Chartered Accountants (Zimbabwe) as auditors for the current year.
5.
Special Business
To consider and, if thought fit, to adopt, with or without amendment, the following resolutions:
5.1. As an ordinary Resolution: Share Buy-back “That the Company , as duly authorised by Article 10 of its
Articles of Association, may undertake the purchase of its own ordinary shares in such manner or on such terms as the directors may from time to time determine , provided that the repurchases are not made at a price greater than 5% above the weighted average of the market value for the securities for the five business days immediately preceding the date of the repurchase and also provided that the maximum number of shares authorised to be acquired shall not exceed 10% (ten percent) of the Company’s issued ordinary share capital.
6.
That this authority shall expire at the next Annual General Meeting, and shall not extend beyond 15 months from the date of this resolution”.
Any Other Business
To transact such other business as may be transacted at an Annual General Meeting.
NOTE:
A member of the Company entitled to attend and vote at this meeting is entitled to appoint a proxy to speak and, on a poll, vote in his/ her stead. A proxy need not be a member of the Company. Proxy forms should be forwarded to reach the office of the Transfer Secretaries, or the Group Company Secretary at least 48 hours before the commencement of the meeting. By order of the Board
C. A. Banda GROUP COMPANY SECRETARY 25 April 2014 4
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124
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