Sustainability through Innovation
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.
1 Contents
The Year in Perspective 3 Performance Highlights 3 Shareholder Value Delivery Report 4 Share price movement from February 2009 to February 2015 5 Six-year Trading History 8 New Products and Services 9
Corporate and Leadership 12 Our Business 12 Corporate Profile 13 Chairman’s Statement to Shareholders 15 Chief Executive Officer’s Operations Review 20 Board of Directors 23 From the Directors 25
Governance 28 Governance Statement 28 Risk Report 32
People and Community 39 Corporate Social Investment 39 Our People and our Community 42 Econet Coverage Map- February 2015 45
Financial Reporting 46
Certificate by the Group Company Secretary 47 Directors’ Responsibility for Financial Reporting 48 Independent Auditor’s Report 49 Consolidated Statement of Financial Position 50 Consolidated Statement of Comprehensive Income 51 Consolidated Statement of Changes in Equity 52 Innovation, Infrastructure Consolidated Statement of Cash Flows 53 Notes to the Consolidated Financial Statements 54 & Social Responsibility Policy Notes to the Consolidated Financial Statements 96
Administration 119 Administration 119 Our Strategic Business Partnerships 120 Shareholder Analysis 121 Corporate and Advisory Information 122 Financial Diary 123 Notice to Members 124
2 The Year in Perspective
Performance Highlights 9.2 million 8.0 million $752.7 million $746.2 million $746.2 $695.8 million 9.2 millio 9.2 millio $147.0 million $147.0 $139.7 million 9.2 millio $118.6 million $118.6 $332.2 million $ $302.4 million $ $285.6 million $139.9 million 36% $119.4 million $119.4 $ $70.2 million
1 Earnings before interest, taxation, depreciation, impairment and amortisation (EBITDA). EBITDA for 2012 excludes once-off profit on disposal of investments. EBITDA includes share of profit/(loss) of associate. 2 Profit after taxation 3 Average revenue per user per month 4 Capital expenditure
3 Shareholder Value Delivery Report 1.18 0.98 0.83 0.79 0.71
The Group continues to maintain shareholder value as illustrated by the metrics above. Since dollarisation, 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 total dividend of US 0.92 cents per share, for the year ended 28 February 2015, to reward our valued shareholders. Over the period (2009-2015), the Group made significant efforts to grow shareholder value, which mainly included the following:
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$1.25 billion representing the Group’s aggregate investment in technology into the Zimbabwean economy to date. The Group’s subscriber base has also increased from 1.2 million in 2009 to 9.2 million subscribers in 2015. Investment in various systems that are aimed at improving operational efficiencies and containing costs continues to be made. Furthermore, in the current year, the Group has started to replace the network infrastructure with completion expected in the next financial year.
The focus on customer experience The Group continues to abide by its Customer Service Charter launched in the prior year. 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 continues to pursue 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. The group is also continuing to focus on other overlay services so as to diversify revenue sources away from voice. Overlay services such as EcoHealth, ConnectedCar, Ecofarmer and Ecosure are expected to add more revenue to the current mix.
Associates and subsidiaries The Group has associates and subsidiaries in diverse industry sectors which compliment the overall Group strategy. These include subsidiaries and associates in financial services, fibre optic transmission delivery, financial transaction processing and switching. The 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 in restructuring the bank’s balance sheet and right-sizing the business. The restoration of profitability of the bank 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.
4 The Year in Perspective
Share price movement from February 2009 to February 2015
*The Industrial Index and Econet Share price have been indexed to 28 February 2009 as a base year. Our share price has increased from 28 February 2009 as we create and retain shareholder value in an unstable and uncertain economic environment.
5 Infrastructure
SUSTAINABILITY THROUGH INNOVATION
New call center management system which connects via social sites, email & sms
New investments in Wi-Fi Offload in major cities
6 Our Performance Our
6000 independent shop outlets that offer Econet products and services
Retail footprint of Green Kiosks now New Platinum lounge suite over 1200 opened in Borrowdale
7 Six-year Trading History
2015 2014 2013 2012 2011 2010 Summarised income statement (US$ 000)
Revenue 746,183 752,678 695,791 611,116 493,491 362,776
EBITDA 285,645 332,174 302,413 290,894 242,746 179,285
Finance charges (37,076) (37,037) (28,600) (10,202) (8,061) (4,903)
Profit before tax 123,345 194,009 204,903 239,130 196,471 148,122
Taxation (53,136) (74,612) (64,965) (73,389) (55,502) (34,912) Net profit for the year 70,209 119,397 139,938 165,741 140,969 113,210
Summarised statement of financial position (US$ 000)
Non-current assets 1,013,154 963,367 739,952 644,763 536,439 296,875
Current assets 243,337 210,297 275,158 167,664 101,073 95,794
Equity and reserves 665,295 603,719 492,883 382,793 290,477 165,486
Non-current liabilities 286,216 244,690 288,293 174,005 244,038 127,460 Current liabilities 304,980 325,255 233,934 255,629 102,997 99,723 Debt (excluding overdrafts) 242,450 227,895 264,571 249,138 248,392 138,707
Capital expenditure 118,545 139,718 147,044 216,010 270,034 160,148
Number of shares in issue (millions) 1,640 1,640 1,640 1,716 1,673 1,673
Performance per ordinary share (cents)
Basic earnings per share 4.4 8.0 9.0 10.0 8.3 6.6
Headline and diluted earnings per share 4.4 8.0 9.0 10.0 8.3 6.6
Net asset value per share 41 37 30 22 17 10
Profitability and returns (%)
EBITDA margin 38% 44% 43% 45% 49% 49%
Operating profit margin 21% 31% 20% 27% 29% 31% Net profit margin 9% 16% 20% 27% 29% 31%
2012: EBITDA margin excludes once off profit on disposal of investments.
8 The Year in Perspective
New Products and Services
During the year, the Group 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;
Buddie s Twitter on USSD - A service that allows customers to get twitter updates via USSD with no internet connection s Daily SMS Bundles - Allows customers to get daily unlimited SMSes for a minimum subscription of 15 cents s Mobile Job Alerts - Service that facilitates customers to get unlimited updates on the latest job openings for a weekly or monthly subscription s Mobile News Alerts - Service that allows customers to get the latest news headlines and stories in brief. This is in partnership with the local news publishing houses
Broadband s Opera Mini Surf bundles - These are bundles that allow subscribers to surf the internet unlimited for a period of time. They however do not include downloading, uploading and streaming media s Econet Wifi Zone - These zones allow subscribers to move seamlessly between their 3G connection to WiFi s Free Twitter - This allowed subscribers to tweet for free s Free BiNU - This is a free content management system for feature phones
Econet Premium s Premium - Provides subscribers with the best of both the contract and recharge worlds s Premium Plus - Offers subscribers access to a variety of top-of-the-range devices s Premium Unlimited - Is an open ended package that is tailored to complement any lifestyle perfectly
EcoCash s EcoCash Loans - An emergency facility which allows EcoCashSave customers to borrow money from their phone from anywhere anytime s EcoCash Diaspora - In partnership with World Remit & Western Union, links the Zimbabwean remitter in the diaspora to beneficiaries at home in a cost-effective and efficient way. Consequently, EcoCash customers have the liberty of receiving money sent from World Remit and Western Union straight into their EcoCash wallets s Debit Card - Issued to any EcoCash customer, the card allows customers to perform local and international withdrawals at ATMs as well as payments on POS devices and online s ATM Cashout - A service which allows EcoCash customers to perform cashless withdrawals at any Steward Bank ATM using their phone
EcoSure s EcoSure Funeral Cover - A micro-insurance product launched in December 2014. This revolutionary micro- insurance product enables all Econet customers to access the most affordable funeral cover in Zimbabwe on their mobile phones s Econet Health - Leverages on the mobile phone platform to deliver innovative mobile health solutions that transform lives of communities. EcoHealth tips avails health information to the customer via the phone in their language, while Dial-a-Doc enables callers to speak to a doctor anytime of the day to obtain health information s Econet ConnectedCar - Gives Econet customers the power to manage and maintain their vehicles right from their tablet, smartphone, any web portal or through the Econet ConnectedCar Mobile Application
9 New Products and Services (continued)
Eco School s Econet Zero - Targets the 5 million Econet Broadband subscribers enabling zero-rated access to 50 plus education websites including Coursera, EdX, Wikipedia, Codecademy and others; a global first for any Mobile Network Operator in scale s EcoSchool Academy - Is accessible to all 9 million plus Econet subscribers, offering an interactive mobile learning environment, which provides 50 short courses covering a range of topics from professional development to language learning
Steward Bank s %CO#ASH ,OANS Customers that have been saving money in their EcoCashSave accounts for at least 3 months are able to instantly access micro loans between US$15 and US$500 using their mobile phone s $IASPORA "ANKING This is a suite of products for Zimbabweans living abroad. They are able to access their account either using the online banking platform or their roaming Econet line. This gives them the ability to make Real Time Gross Settlement (RTGS) payments, pay local bills, buy groceries and transfer money to local recipients s 3OLAR ,ANTERNS ,OANS This is a partnership with Econet to offer solar lanterns on credit s /NLINE "ANKING The Online Banking service allows customers to conduct financial transactions on a secure website from anywhere, at any time using their phone, smart device or laptop s #ARD 0RODUCTS 0ROPRIETARY -ASTER#ARD The Steward Bank Debit card allows customers to transact from any ATM or Point Of Sale (POS) machine with the Steward Bank or ZimSwitch sign. The MasterCard credit card was offered to Econet High Value Customers with a credit limit of US$500 s !GENT "ANKING A new banking service that brings financial services to the consumer’s doorstep. Agent Banking is in line with the bank’s vision and agenda to improve financial inclusion by providing banking services to every Zimbabwean, in their areas of residence s 7ORLD 2EMIT Customers are able to collect money sent from abroad through World Remit at any one of our Steward Bank Branches
10 Corporate and Leadership 1111 Broadband Econet Broadband connections and grow services steadily continue attaining to an share estimated of market 81%, leadership buoyed customer centric by innovative services low that are costhighly-valued smartby our customers phones such and as Econet Bundles and Wi-Fi Opera Mini Surf bundles. Zone, WhatsApp Our Business
Our Vision To provide world-class telecommunications to all the people of Zimbabwe.
Our Mission To serve Zimbabwe by pioneering, developing and sustaining reliable, efficient and high- quality telecommunications of uncompromising world-class standards and ethics.
Our Values The values we hold in common are:
Pioneering We are a company committed to finding the best way forward in the fast-moving and highly competitive technology field. To remain leader in the field, we shall relentlessly pursue innovative solutions and constantly grow our knowledge base, with an uncompromising passion for excellence.
Professionalism In everything we do, both within Econet and in the community, we always work in a customer and objective-oriented manner with clearly defined goals, in terms of quality of service. In all our professional areas and at all levels we carry out our duties skilfully and diligently.
Personal Internally we always remember that we are a company made up of individuals. These people are the Company. Each one is an intrinsically valuable member of the organisation irrespective of their gender, race or position. We will always show concern for each other in an atmosphere that is open and stimulates personal development, job satisfaction and a sense of responsibility. We believe in working in teams, in effective and confident co-operation, in environments where honesty, praise, constructive criticism and fair reward have their place.
Who we are inside the Company reflects who we are externally. Our relationship with our customers enthuses with warmth and a genuine desire to meet their needs. We reach out to customers in a holistic way that makes them true stakeholders and willing participants in Econet Wireless.
12 Corporate and Leadership 13 BUSINESS ENTERPRISE ENTERPRISE ECONET WIRELESS ECONET ZIMBABWE LIMITED ZIMBABWE CORE CORE BUSINESS Corporate Profile Corporate Corporate Profile (continued)
ECONET WIRELESS ZIMBABWE LIMITED (EWZL) - ZIMBABWE HOLDING COMPANY
This Integrated Annual 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 Holdings (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 overlay 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 plays a pivotal role in the Group, especially for EcoCash, 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 7,000 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 operator’s 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.
14 Corporate and Leadership 15 Chairman of the Board
| DR J. MYERS MYERS DR J. Chairman’s Statement to Shareholders Chairman’s Telecoms operators throughout the world pay each other interconnect fees for traffic terminating on each other’s networks. networks. other’s each on terminating traffic for fees interconnect other each pay world the throughout operators Telecoms This is by governed agreements entered into between the operators. Econet TelOne, has Interconnect agreements with two the review under and A other partners. period trend interconnection disturbing Telecel has the emerged the NetOne over and During last five debts. years in their which settle to unwilling or unable increasingly been have TelOne and NetOne million. 26.3 US$ about to amounting debts new accumulated operators money transfers, compounded by a 35% voice tariff reduction has negatively affected the viability of the telecommunication telecommunication the of viability the affected negatively has reduction tariff voice 35% a by compounded transfers, money economic vitality creation in our country. employment has hitherto been a mainstay of investment, and which sector, began it since time first the for creation employment further stop and expenditure capital reduce to had has Company The and about is the concerned and both indirectly, directly in is Econet the one country, of operations. the employers largest look to be inevitable. job losses that now TELONE AND NETONE DEBTS BY OF INTERCONNECT NON PAYMENT as prices fall. fall. prices as We continue to respond to positively taken initiatives by policy The situation makers to address this situation. worsening and Government. workers from all economic actors including other employers, urgent concerted efforts for calls now mobile on transaction per REVIEW levy cents 5 REGULATORY a and handsets, on duty 25% a sales, airtime on duty excise 5% a of introduction The the the business has been by affected factors outside our control, principally the impact of economic deflation and regulatory directives. certain REVIEW ECONOMIC ENVIRONMENT The Zimbabwean economy is now in a sustained period hyperinflation which of we experienced deflation. This a even demand, economic few consumer years low and phenomenon ago. employment, is All informal of levels the the increasing manifestations failures, of opposite company constraints, deflation liquidity of include are now fully These evident. INTRODUCTION established have we The business, a As telecommunications operators. telecom industry of services the consume by and demand customers its way the very transform nature is constantly experiencing dramatic a technological strong capacity changes to that anticipate these review, under period in the changes and However, we developments. have technological responded of new face in the to thrive appropriately strategies clear with established strong We innovations. have Chairman’s Statement to Shareholders (continued)
With assistance from the Government of Zimbabwe and the Reserve Bank of Zimbabwe, we have had to come up with innovative solutions to address this worsening problem and prevent the disconnection of the defaulting networks from our network. If unchecked, the rate at which NetOne and TelOne have continued to default on their contractual obligations will threaten the viability of the entire telecommunications sector.
CONTRIBUTIONS TO THE FISCUS The Company has surpassed US$1 billion in its contribution to the fiscus through taxes, fees, and other levies since the dollarisation of the economy in 2009. This contribution, and that of others in the sector, reflects the importance of the sector in contributing to economic development. Through supportive policies, the sector has immense potential to continue to contribute significantly to national development and to complement Government’s efforts in economic development.
INVESTMENT REVIEW Network investment of US$125.4 million was made during the year under review. This continued investment, was due to the need to invest constantly to remain relevant in the context of technological advances. Increased data capacity and faster data download speeds are amongst the many benefits for the customer that have resulted from this investment.
Econet Wireless has invested over US$1.2 billion, in the last five years. This investment enables communications for more than 9 million of our customers, on a day to day basis. As a result of this investment, we now have the capacity to carry an additional 2 million users.
In addition, this investment sustains the jobs of over 2,000 direct employees, and over 35,000 indirect jobs. More than 20,000 small businesses across the country, particularly in rural areas, receive regular income from selling airtime, and also transacting for EcoCash.
OPERATIONS REVIEW
Econet services Despite the changes, challenges and increasing complexity of the operating environment, the business continues to introduce new innovations that address the needs of its customers, whilst also diversifying its sources of revenue.
During the period under review, the company intensified its efforts to diversify its revenue base to other sectors of the economy whilst leveraging its core assets. New innovations include the following: t EcoCash (financial transactions). t EcoSure (insurance services). t EcoHealth (mobile health). t EcoFarmer (agricultural sector). t Connected Car (vehicle tracking).
This diversification strategy takes time to yield the desired returns. However, early results have been encouraging. These services contributed US$72.7 million to revenue during the period under review. This growth of 64.9% on the last financial year went a long way to mitigating the impact of the worsening operating environment.
Broadband Econet was the first operator in the country, and one of the first in Africa, to anticipate that customer communications would shift significantly from voice to data. We understood that we would have to invest heavily in infrastructure to carry Data, at high speed.
Our associate, Liquid Telecom Zimbabwe (a specialist fibre operator), has built more than 7,000 km of fibre optic network in Zimbabwe. This is an open network, which is available for use by any operator or customer that is willing to pay for such services. The fibre optic network allows us to move data between our base stations, and also to and from smart phones and tablets. It is generally considered to be the most extensive fibre optic network of any country in the region, including South Africa.
We have the widest and most extensive 3G network in the country. We were the second operator in SADC and one of the first in Africa to start rolling out 4G/LTE. Since 2013, when we rolled out the first 4G/LTE service in Victoria Falls, we have been extending our network nationwide. The Company has also rolled out the most extensive Wi-Fi system throughout the country. Many of these Wi-Fi sites have the unique capability for seamless transition from mobile broadband.
During the period under review, income from broadband services rose by 42.3%, to US$103.0 million.
16 Corporate and Leadership 17 NNOUNCEMENT A IVIDEND DR J MYERS THE BOARD CHAIRMAN OF 2015 April 29 APPRECIATION I would like to thank our shareholders and our regulators for the continuous engagements that we have had to support its to success also commitment business owes The whose its and continued partners customers business the business. drive to continue has determination enabled and us perseverance to skills, deliver these contribution, commendable whose results, business albeit this in of a employees difficult the to environment. I appreciation would also like to extend our the over counsel, wise whose without members, Board fellow to my extends also My appreciation forward. the business today. do we as strongly as stand to able be not would we years, OUTLOOK The business will continue to leverage on its robust business model, diverse product portfolio, and its on brand the to strength retain of and grow the volume and quality of its the subscriber business has priority, key base. Whilst intensified its in cost order efforts optimisation to revenue remain enhancement viable in will a deflationary remain economic allow to a required be will policies supportive industry, telecommunications local the in value retain to order In environment. their capacity. local companies to grow 28 February 2015 28 which amounts February 2015 to a total of US$ 5 The dividend million. will be payable to shareholders registered in the books of the Company at The the share close books transfer of and business the on July 17 register 2015. of Friday both dates inclusive. 2015, July to 19 2015 July 17 members will be closed from the close of business on Friday Payment of the dividend will be effected on,applicable. orwhere about10% of 24 rate July the 2015. at deducted be will tax Withholding Zimbabwe, and in collaboration with the Ministry of Health, supported the training of healthcare professionals, health support support health professionals, healthcare of training the the Following outbreak of Africa, the West Econet, in Virus supported through Ebola one of Health, its Trust trusts, of the National Healthcare Ministry the with collaboration in and Zimbabwe, and medications procured also It cases. Ebola manage to how and Ebola prevent to how on communities several and staff healthcare workers. equipment for personal protective D I am pleased to announce that the Directors declared a final dividend of 0.31 US cents per share for the year ended platforms. Through the Joshua Nkomo Scholarship Fund (JNSF), Econet currently invests in secondary and tertiary education education tertiary and secondary in invests currently 20 and its Over nationwide these formation. learning been centres Econet have are developed resourced with e-learning various (JNSF), Fund Scholarship Nkomo Joshua the Through platforms. program. this under 900students, over assisted has and youths talented academically most Zimbabwe’s of The company is also a major contributor of fees in school the helping country, to not only support the needy but also to sustain the public education sector. business will continue to execute measures aimed at improving its profitability. its measures aimed at improving business will continue to execute its debt increased business The to 36%. year 38% in the previous from to improve to has continued debt equity ratio The its with course on remained has Company The 29.7%. of increase an million, US$75.4 from million US$97.8 to repayments 3 years. within the next most of its debt off will see the business paying programme, which debt repayment SOCIAL INVESTMENT CORPORATE Econet Through Trust, has Capernaum assisted over 75,000 deserving and orphaned children across the country since Amortisation (EBITDA) closed at US$285.6 million, compared to US$332.2 million for the previous year. The EBITDA margin margin EBITDA The year. previous the for million US$332.2 to compared million, US$285.6 at closed (EBITDA) Amortisation of One million. US$126.3 to 24.1% by increased amortisation and Depreciation 38.3%. to points, percentage 5.8 by eased License fees. million Operating on the US$137.5 the introduction of amortisation in this increase was factors the key been have we Whilst million. US$70.2 to million US$119.4 from decreased taxation after profit review, under period the For financial like areas into diversifications revenue and innovations new through losses revenue some against mitigate to able The depreciation. and amortisation as such charges against mitigate cannot and margins, lower carry areas these services, Notwithstanding the impact of economic deflation and the prevailing regulatory environment, the company managed to use use to FINANCIAL PERFORMANCE managed company the environment, the regulatory for prevailing the Revenue and deflation revenue. economic its of on impact impact the negative Notwithstanding the of some mitigate to strategy, diversification revenue and innovations, its arrested lines revenue new The 1%. than less of year last on fall a representing million, US$746.2 was review under period and Depreciation Taxation, Interest, Before Earnings environment. operating from the resulting worsening losses revenue Innovation
SUSTAINABILITY THROUGH INNOVATION
Econet Platinum Connect MasterCard launched
Initiation of EcoSure Funeral Cover
18 Our Performance Our
The only bank that offers full bouquet of MasterCard cards with over 4000 POS machines countrywide
Steward Bank launched Agent Econet awarded Banking services Sole distribution of Apple devices in Zimbabwe
19 Chief Executive Officer’s Operations Review
DOUGLAS MBOWENI | Chief Executive Officer
Introduction Innovation, customer-centricity and business efficiency continue to be the key drivers of the business. Several innovations were introduced within the broadband and overlay services categories, which were supported by a device strategy aimed at increasing broadband penetration. As voice revenues continue to decline globally due to cheaper Over-the-Top services (OTTs), the business continues to invest in innovative products and services to grow its non-voice revenues. The business became the first industry player to launch a Customer Service Charter, comprising the Service Charter and Customer Bill of Rights. This is evidence of the commitment to deliver exceptional service to customers. Besides systematically increasing business efficiencies and cost-containment internally, the business in the year under review embarked on a three year cultural service orientation program for all employees, through the Service Quality Institute (SQI), aimed at instilling a customer-centric culture across the entire organisation.
Operations Review During the period under review, the business continued to diversify its revenues through introducing innovative products and services. The business launched a convenient, subscription-based, mobile insurance product with a mass-market appeal branded “EcoSure”. The EcoCash MasterCard debit card, a ground-breaking product was launched in partnership with MasterCard and Steward Bank. The EcoCash MasterCard debit card product is a customer-centric innovation that provides customer convenience while at the same time creating an additional revenue opportunity for the business.
Mobile broadband continued to drive revenue growth, recording significant growth in usage and in revenues on the back of various creative offers and unique products, such as the Wifi Off-load service, which allows Econet mobile broadband customers to access Wifi hotspots using seamless billing capabilities. With the continued growth in smartphone penetration, spurred by our aggressive devices strategies, we see tremendous growth in the adoption and consumption of broadband products going forward.
The business was awarded the sole distributorship of Apple devices in Zimbabwe which helped support the launch of the premium packages targeted at High Value Customers. To ensure convenience to our customers, the retail footprint growth is now over 1,200 Green Kiosks and 6,000 independent shop outlets that offer Econet products and services. This has particularly enabled the business to achieve growth in devices sales particularly in data capable handsets, which has helped to grow data services.
The Call Centre, which is equipped with a Call Centre Management system that has multi–channel capability supporting interactions via Facebook, Twitter, Live Chat, Email, SMS, voice and self-care functionality continued to provide world class services. Operational efficiency is critical as margins are under pressure due to the unfavourable operating environment.
20 Corporate and Leadership 21
offered using our wide distribution network. Our commitment customerexceed expectations resulting towards in continued strengthening our of brand equity. service excellence will ensure we meet and the bank will start contribute to profitability. positively the Group’s to Outlook Econet Wireless as the market leader, will continue to defend its position not only from a subscriber point of view but also offering the best value for money and innovative offerings. We are excited about the prospects presented by data smartphonescost low in investments major by services.spurredbe overlay growthDatawillgrowth, EcoCashother and Financial results EarningsUS$at 70.3 operatingandmillion significantcashUS$theflows at made of result investment a 227 are million into the business of over US$ 1.2 billion over the last 6 years. The and debtbusiness servicecontinues obligations. to Themeet debt all to equityits debtratio has covenants improved from 38%, in the prior financial anticipateyear, to that cash free 36%. flows will continue increase to reduce as we our debt exposure and capital commitments. We Significant progress was made in restructuring the bank’s balance sheet and right-sizing the business. Various strategic initiatives have been implemented profitability. restore to As these new initiatives begin form,take to we anticipate that Cost optimisation is one of the critical strategiesThe business that aims to we improve efficiencies have by been leveraging synergies pursuing across its to various maintain units processes. and and through automation improve of profitability. D. MBOWENID. CHIEF EXECUTIVE OFFICER 29 April 2015 Econet Premium
Econet Premium is a revamped package that gives the customer the nostalgic feeling about being on a contract package. The new package which comes in three categories Premium Unlimited, Premium and Premium Plus is in-line with the Econet Wireless’ vision to provide world- class service to its customers. It also comes at a time when the business has invested heavily in improving its end service to the customer. Econet Premium is designed with corporates and individuals in mind as it comes with flexible plans which allow customers to access the best device deals, personalised number, international roaming, data services and telemetry packages with a convenient 30 day post-paid billing cycle.
22 Corporate and Leadership 23 director Executive director - Executive Mrs Sherree Shereni Mrs Sherree Mr Douglas Mboweni Chief Executive Officer Chief Executive Independent Non-executive 8 4 Mr Craig Fitzgerald Ms Beatrice Mtetwa Ms Beatrice Non-executive director Non-executive Non-executive director Non-executive Dr J. Myers*, Mr C. Fitzgerald, Mrs T. P. Mpofu, Mr C. Fitzgerald, P. Dr J. Myers*, Mrs T. Ms B. Mtetwa. Social and Ethics Committee Mpofu, T. Mrs Edge, M. Mr Chirairo, K. Mr Gomwe*, G. Mr Ms B. Mtetwa. * Chairperson Notes Audit Committee Fitzgerald,C. Mr Shereni, S. Mrs Myers, J. Dr Edge*, M. Mr Mrs M. Harris. Risk Committee Mr M. Edge, Mboweni. MrMrs D. S. Shereni*, Remuneration Committee 7 3
director Mr Martin Edge Mr Kris Chirairo Finance director Executive director Executive Executive director - Executive Mr Strive Masiyiwa Mr Strive Independent Non-executive Independent Non-executive 2 6 10 director director Directors Mrs Tracy Mpofu Tracy Mrs Dr James Myers Dr James Mr Godfrey Gomwe Gomwe Mr Godfrey Non-executive director Non-executive Chairman of the Board of Chairman of the Board Independent Non-executive Independent Non-executive Independent Non-executive 9 1 5 Board of Directors Board Board of Directors
Dr James Myers Chairman
Dr Myers was appointed to the board in May 2009. He was appointed as Chairman of the board in December 2012. He sits on the board of Econet Wireless Global, the parent company of Econet Wireless Zimbabwe Limited. Apart from chairmanship of the board, Dr Myers chairs the board’s Remuneration Committee.
Mr Strive Masiyiwa Mr Masiyiwa is the founder of the Econet Group. His full resume can be found on the Group’s website.
Mr Craig Fitzgerald A Chartered Accountant, Mr Fitzgerald was appointed to the board in December 2003. He serves on a number of boards within the Group.
Mrs Tracy Mpofu Mrs Mpofu joined Econet in February 2001 as Finance Director from Coca-Cola Central Africa. She holds a Bachelor of Accountancy Degree and an MBA, both from the University of Zimbabwe. Mrs Mpofu is a Chartered Accountant (Zimbabwe) and a Chartered Management Accountant and has completed her qualification for registration as a Chartered Accountant (South Africa).
Ms Beatrice Mtetwa A lawyer whose achievements in the legal field have earned her international recognition, Ms Mtetwa was appointed to the board in October 2010.
Mrs Sherree Shereni Mrs Shereni joined the board in May 2013. She holds a senior position at Coca-Cola Sabco with oversight on the Group’s corporate affairs function and has significant accomplishments notably in stakeholder management in its markets across Africa. She chairs the board’s Risk Committee. The Company has, in the past year, benefitted from Mrs Shereni’s experience and expertise in stakeholder engagement and management, and she continues to play a crucial role in assisting the Company’s management in this regard.
Mr Godfrey Gomwe Mr Gomwe was appointed to the board in May 2013. He is Chairman of the board’s Social and Ethics Committee. He is a Chartered Accountant and sits on a number of other boards.
Mr Martin Edge Mr Edge is a UK CA and an Oxford MBA, who joined the board in June 2013.
In his chosen field of corporate finance and M&A, he has been a corporate finance advisor to many institutions in Europe and Africa over some 30 years, as well as spending some time as a CFO. He has advised on some of the most important transactions in Africa’s telecoms sector.
Mr Edge chairs the board’s Audit Committee.
Mr Douglas Mboweni Mr Mboweni is the Chief Executive Officer of Econet Wireless Zimbabwe Limited. He has been with the Group since 1996 and was appointed to the board in December 2003.
Mr Krison Chirairo Mr Chirairo joined the Group in 1998. He was appointed to the board in February 2007. He is currently the Company’s Finance Director and also heads some of the Company’s subsidiaries.
24 Corporate and Leadership 25 Directors’ Interests Details in the directors’ share capital of interests the of Company shown are on Note 26 the of financial statements. At At the Annual General Meeting, shareholders appointment the directors. retiring of will be asked to approve payment of the directors’ fees and the re- Capital commitments capitalDetails the the financial of Group’s to commitments statements. out set in Note 41 are There were no changes to the Board during the Theyear. Board consisted of three executive and seven non-executive directors. In accordance with Article 81 of the Company’s Articles of Association,and seek re-electionat least at eachone Annual third General Meeting.of Thethe following directorsdirectors retire by rotationmust and beingretire eligible, offer themselves re-election: for Dr J Myers, Mr M Edge and Mrs T Mpofu. Note 25 to the financial statements gives details of the Group’s share capital. There were no changes in both the authorised the both in changesShare Capitalno were There capital. share Group’s the of details gives statements financial the to 25 Note and issued share capital during the year. Directors The names of the directors who served during the year are shown in the Board of Directors holdrequiredsection. to shares in the any company qualification. by way of Directors are not Dividends declared was share, per 0.61 cents US to dividend,amounting first dividends. Thetwo declared Board the year the During October in respecton the 14 half of 2014 year ended August 31 2014. endedTheyear28 secondtherespect final declaredin dividendandof was0.31 cents 29 US April onpershare, of 2015 February 2015. values. Through this move, the Board ensured that the employees’ shareholdersperformance and also enabled respond them challenges to any to arising within the Group. grew value for both customers and Consolidated Results Thefinancial Group’s results during the year are fully covered in the reportChairman’s and the Chief Executive Officer’s Review. Executive Officer’s Operations Review. The contributions active segments the of Group’s given the financial are in Note 1 to statements. Human Capital The Group continues to focus on, and uphold, the Board’s core objectives values has beenof to accountability, instill in teamwork the and Group’s employees integrity. a One spirit of of dedicationthe and commitment to the Group’s provision of internet access services, transaction processing services and mobile ConnectedHealth,EconetEconetEcoSure, Premium, Car Econet Thesewere banking year. introducedtheduringproducts were services. A number of new and various other overlay services such as Daily SMS bundles, onTwitter USSD, Opera Mini surf bundles, Mobile Jobs alerts, Mobile News Alerts, Econet Wifi Zones among others. The overall review of the Group’s developments operations, and the results expected and results principal of those activities developments, during are given the in year the and Chairman’s Report the likely and the future Chief The Directors present their report and audited financial statements for the year ended 28 February 2015. In the report, Econet Wireless to refers Zimbabwe Limited“Group” and its subsidiary companies. Principal Activities and Operations Review During the year, the Group continued to focus on its core activities, these being; the provision of cellular services, From the Directors From From the Directors (continued)
Register of Members The register of members of the Company is open for inspection to members and the public, during business hours, at the offices of the Company’s transfer secretaries, First Transfer Secretaries (Private) Limited.
Borrowing Powers The details of the Group’s borrowing powers are set out in Note 40 to the financial statements.
Pension Fund The Group’s pension fund scheme is administered by a Board of Trustees. The Trustees manage the assets of the pension fund, which are held separately from those of the Group. The assets and funds of the scheme are administered in accordance with the rules of the pension fund.
An audit of the fund established that the fund was significantly undercapitalised. During the year the Board authorised various initiatives to recapitalise the fund. Subsequently a capital injection of US$ 3 million was made into the pension fund.
Corporate Social Investment The Group continues to recognise the need for it to play a role in developing societies in the country. Through various initiatives and activities the Group engages with, and supports communities in various projects aimed at improving the welfare of these communities. Underlying this commitment is the Group’s own policy of observing and upholding Christian values and principles.
Donations to Political Parties As a matter of policy, the Group does not make donations for political purposes.
Auditors Ernst & Young continued in office as the Group’s auditors during the year. At the Annual General Meeting, shareholders will be requested to approve the remuneration of the auditors for the year ended 28 February 2015 and to appoint Deloitte & Touche as auditors of the Group for the financial year 2016.
By order of the Board
Dr J Myers CHAIRMAN
D Mboweni CHIEF EXECUTIVE OFFICER
C A Banda GROUP COMPANY SECRETARY
29 April 2015
26 Corporate and Leadership 2727 offers. changed the standard Zimbabwe. It of offers telecommunications more more customer exciting in convenience, discounts, andmoreentertainment.fun more Buddie committedis to promotions, more offeringvaluemorethrough outstanding competitive Buddie, as the leading prepaid brand in the country, has revolutionary products and services that have Buddie Governance Statement
Compliance with good corporate governance continued to remain a key ingredient in the values of the Group. Behind this is recognition by the Group that good corporate governance is a key deliverable, in the sense that it gives assurance to shareholders, stakeholders and regulators that the business is being properly run and managed. The Group observes generally accepted best practice standards of transparency and accountability; it complies with the widely accepted principles enunciated in the King Codes and, at the local level, with the regulatory obligations applying to listed companies in Zimbabwe, among these being the ZSE Listing Rules and the recently adopted Zimbabwe National Code on Corporate Governance. The Group is also subject to government regulations affecting various areas of its operations. The Group makes it a policy to comply with these regulations.
THE BOARD OF DIRECTORS
Composition and appointment The Board’s composition has not changed and currently has ten members, made up of three executive directors and seven non-executive directors. A non-executive director chairs the Board. The offices of the Chairman and Chief Executive Officer are separate. The Group recognizes how it is essential to separate the two offices. Apart from the good corporate governance aspect, the separation ensures that the Chief Executive Officer and the executive directors focus on operational issues while the Chairman and the non-executive directors concentrate on the oversight role. In particular this clear division of responsibilities enables the board Chairman to exercise effective leadership of the board.
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 (Chapter 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 1 August 2014, the following directors were re-elected: Messrs D Mboweni and G Gomwe, and Mrs S Shereni.
Accountability and delegated functions The Board’s role is to set the Group’s strategic objectives and to ensure the growth of the business. To achieve these goals the Board focuses on the following key areas: s provide stewardship of the Group by keeping itself fully informed of major developments in the Group and monitoring the performance of management in meeting agreed goals and objectives s reviewing and approving the Group’s capital allocation and expenditure s reviewing and approving of the Group’s major investments and acquisitions, and safeguarding the Group’s assets s through its various committees monitoring and ensuring observance of high standards of governance in the Group s reviewing financial, operational and compliance controls s reviewing risk management and ensuring prudent management thereof s reviewing and approving the Group’s budget and maintaining proper accounting records s reviewing the integrity of the Group’s financial statements and all notices to shareholders and stakeholders
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 that 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 make it a point of monitoring management’s performance and also that prudent and effective controls are in place all the time. In particular, the Board ensures that financial managers conduct themselves with integrity and honesty and in accordance with the ethical standards of their profession.
The Board appreciates the importance of interacting with the investment community in order to give investors an informed understanding of the Group’s performance. To this end the Board has delegated to the Chief Executive Officer, the Financial Director and the Chairman the responsibility of communicating with the investment community. Regular briefing meetings with analysts, institutional investors and the media are held, at which investors are updated on the Group’s performance as well as the Group’s plans going forward. The outcome of these meetings is communicated to the Board, enabling the Board to become conversant with 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. In addition certain members of senior management are standing invitees to board meetings at which they brief the Board on the performance of the Group’s main business units. 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.
28 Governance
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 interest. At board meetings directors are also requested to disclose their other business interests. None of the directors 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 established, in addition to the existing board committees, a Social and Ethics Committee after recognizing the need for such a committee. The Board now has four committees: Audit Committee, Risk Committee, Remuneration Committee and Social & Ethics Committee. Each committee is chaired by an independent non-executive director.
The committees assist the Board by dealing with specific matters delegated to them by the Board. Each committee conducts its business in accordance with its terms of reference.
Audit Committee The Committee’s primary function is to review the integrity of the Group’s financial reporting, risk management and internal controls. Review of the Group’s financial issues remains the key role for the Committee. The Committee identifies any major issues and brings these to the attention of the Board, together with recommendations to the Board on how best to address the issues. The Committee also reviews the Group’s budget prior to this being submitted to the Board for approval.
The Committee also takes note of new legislation and new International Financial Reporting Standards (IFRS) 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 putting 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 independent non-executive directors.
The Committee met seven times during the year, three times more than the scheduled four meetings.
Risk Committee The Committee is responsible, on behalf of the Board, for driving the Group’s risk strategy. It identifies and assesses areas of risk in the Group as well as reviews the effectiveness of management policies and procedures relating to risk.
Upon identification of the risks, the Committee reviews the risks and their potential impact on the Group and brings this to the attention of the Board, together with recommendations on the required remedial measures. In this process the Committee achieves its ultimate objective, which is to play its role in the building and growth of a long-term sustainable business.
Members of the Committee are; Mrs S Shereni (Chairperson), Mr M Edge (Member), Mr D Mboweni (Member) and Mr P J Campbell (Attendee).
The Committee met four times during the year. The Chief Risk Officer attends the meetings and presents reports outlining the Group’s risk profile and progress in addressing the identified risks. The Committee Chairperson in turn reports to and updates the Board on the risk issues.
29 Governance Statement (continued)
Remuneration Committee The Committee’s role is to assist the Board to 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.
During the year the Committee oversaw the successful implementation of the performance management system whose overall objective is to ensure attainment of defined targets by individuals. The attainment of defined targets translates into significant contributions by individual employees to the Group’s strategic goals.
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). All members of the Committee, including the Chairman, are non- executive directors, with two of them being independent non-executive.
The Committee met four times during the year. The Chief Human Resources Officer attends the committee meetings and provides materials on matters for the Committee’s consideration.
During the year the Committee also reviewed the Group’s pension policy. It identified a number of issues that needed to be addressed and initiated an exercise to that effect.
Social and Ethics Committee During the year the Board having realised the need for a full board committee to address the various social and ethics issues reconstituted the Related Party Transactions Sub-Committee to establish the Social and Ethics Committee. All matters previously dealt with by the Sub-Committee now fall under the new committee.
The role of the Committee is to review, advise and make recommendations to the Board on the Group’s social and ethics policy and programmes and the Group’s stakeholder governance. In pursuance of this role the Committee looks at, and advises on the following: business integrity; the business’ interaction with communities; health, safety and the environment and compliance with regulations relating thereto; bribery and corruption.
Membership of the Committee is made up of four non-executive directors (two of them, including the Chairman, are independent) and one executive director. The following are the members of the Committee: Mr G Gomwe (Chairman), Mr K Chirairo (Member), Mr M Edge (Member), Mrs T Mpofu (Member), Mrs B Mtetwa (Member) and Mr P J Campbell (Attendee). Following its establishment in mid-year the Committee held three meetings.
Investor Relations The Group continues to recognise 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 highlight its plans going forward. The engagement also enables the Group 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’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 behavior. 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 equal opportunities. It is the Group’s policy to ensure that recruitment, promotion and all other aspects of employee management are free from discrimination, whether on the grounds of gender, disability or religious belief. 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.
A communication system is in place to keep employees informed of announcements and important developments in the Group.
30 Governance
The Group also recognises its obligation to comply with health and safety legislation and through training and communication, encourages employees to create and secure a safe and healthy working environment.
Directors and Employees dealings in shares The Group complies with the Zimbabwe Stock Exchange listing rules in relation to transactions by directors and employees in securities issued by the Group. Directors and employees or their nominees or members of their immediate family are prohibited from dealing, either directly or indirectly, in the Group’s securities at anytime when they are in possession of unpublished, price-sensitive information regarding the Company’s business or activities.
The Group operates a closed period prior to the publication of its interim and annual results. No director or employee of the Company may deal in the securities of the Company during the closed period. In terms of policy, directors and employees who wish to transact in the shares of the Group, even outside of the Group’s “closed or blocked period”, are required to obtain the clearance of the Chairman.
Independence of Auditors The Group’s Audit Committee confirms the independence of the Auditors, Ernst & Young, who were engaged by the Group for audit-related services. A resolution to appoint Deloitte & Touche as auditors for the ensuing year will be proposed at the 2015 Annual General Meeting.
Going concern The Directors have satisfied themselves that the Group is a going concern as it has adequate financial resources to continue operating for the foreseeable future.
By order of the Board
Dr J Myers CHAIRMAN
D Mboweni CHIEF EXECUTIVE OFFICER
C A Banda GROUP COMPANY SECRETARY
29 April 2015
31 Risk Report
Risk Management The Risk Division structure is comprised of four The business is exposed to a wide variety of risks across independent and objective units namely: the range of business operations. As a consequence, the s )NTERNAL !UDIT Board has put in place comprehensive risk management s #ORPORATE 2ISK and internal control structures that enable the business s 3AFETY (EALTH AND %NVIRONMENT to identify and analyse risks early on and thereby take s "USINESS #ONTINUITY -ANAGEMENT appropriate action. The risk management and internal The Risk Division conducts its activities in line with the control system is designed to identify potential events recommendations of the ISO 31000 principles. that could negatively impact the Group and to provide reasonable assurance regarding the achievement of the Commitment by Management Group objectives, specifically our ability to achieve our Management continues to demonstrate its commitment financial, operational, or strategic goals as planned. to the risk management process by investing appropriate resources to facilitate effective risk management within This system comprises of multiple control mechanisms the group. and is an important element of the corporate decision- making process. It is therefore implemented as an integral Internal Audit part of business processes across the entire Group. Our audit function conducts regular audits to assess the Ensuring that our global risk management efforts are effectiveness of our risk management systems. The effective and to enable us to aggregate risks and report function assesses if the early risk identification system is on them transparently, we have adopted an integrated risk adequate to identify risks that may endanger the Group’s management and internal control approach. ability to continue as a going concern.
Risk Management Policy and Framework Corporate Risk The risk management policy issued by the Board governs The business has a corporate risk department whose how we handle risk in line with the Group’s risk appetite role is to coordinate the Enterprise Risk Management and defines a methodology that is applied uniformly (ERM) across the Group. In 2015/16, the corporate risk across all parts of the Group. The policy stipulates who is department intends to focus on the following key areas: responsible for conducting risk management activities and s Risk culture entrenchment within the business defines reporting and monitoring structures. The business s Automation of the enterprise risk management system routinely reviews and updates the policy as necessary. s Continued development and implementation of business processes s Updated Risk Registers
The following are some of the key risks facing the business: +EY 2ISK Mitigation measures Effective stakeholder management including government, s The business has embarked on a project to develop a legal and regulatory stakeholders Stakeholder management system to enable efficient and cost- effective engagement of all relevant stakeholders across the business. Low investment in ICT infrastructure that is negatively s In house development and intelligent outsourcing for business impacting on service delivery for the Information Systems solutions continue to be developed in order to derive maximum division and may compromise efficiency and effectiveness. returns from existing available resources There may be inherent Information Security weaknesses s A consolidated Information Security Plan has been within the technology systems that create vulnerabilities developed to address the key risks identified from the and impact on information privacy. Information Security Risk Assessment reviews The business may face challenges in containing s Cost control measures are being enforced to prevent escalating costs at a time revenues are declining. This expenditure overshooting the budget in addition to may negatively impact on profitability. initiatives targeted at growing revenues Absence of a tested and integrated Business Continuity s The business is rolling out a Business Continuity Plan that may negatively impact the going concern of the Management System (BCMS) that is aligned to the ISO business in the event of a disaster or service disruption. 22301 Standard Failure to document and implement required business s The business has documented most of its processes and is processes, which may lead to reduced business currently embarking on full scale implementation of these efficiencies and weakens the control environment. processes
32 Governance
+EY 2ISK Mitigation measures Exposure to fraud, corruption and bribery risk within the s The business continues to raise staff awareness on fraud business that may lead to financial prejudice. through targeted training s In addition to internal channels available to report unethical conduct, Econet subscribes to an externally administered whistleblower program that is accessible to all stakeholders The threat posed by new entrants and use of alternative s The business continues to pursue other revenue growth technologies may result in loss of market share and initiatives through introducing new overlay services to reduced profitability. mitigate revenue loss Failure to attract and retain critical skills within the s The business continuously reviews its remuneration technical functions of the business. structure and incentive schemes to ensure that it attracts and retains the required talent
Business Continuity Management Program 2014 Carbon Footprint Assessment The Business is rolling out a Business Continuity Results: Scope 1 + 2 (t CO2e) Management System (BCMS) that is aligned to the ISO 22301 Standard to pursue certification by end of 2015. s Scope 1 emissions (direct emissions from the Major benefits of this programme will be business combustion of fuel in basestation sites, buildings and resilience, mitigating impact of disruptions and prioritisation company vehicles and the use of refrigerants) account of processes during recovery from a disruption. A massive for 41% of Econet’s total Scope 1 and 2 emissions for BCM awareness campaign was done for all staff members full year 2013 /2014. and is now entering a second phase where staff will be s Scope 2 emissions (indirect emissions associated trained in Crisis Management. Some staff members were with the use of purchased electricity at Econet also trained on Fire Fighting and Prevention and first aid controlled premises) account for the 59% of Econet’s as part of our business continuity management in dealing Scope 1 and 2 emissions for full year 2013 /2014. with emergencies. Evacuation drills for key sites are also being carried out regularly to ensure that staff members Results for Scope 1 and 2 Emissions (t CO2e) by are prepared for site “denial of access” emergencies. Business Category
Safety Health and Environment The business is committed to the protection of the environment and social resources through Safety, Health and Environmental Management systems. ISO 14001 Environmental Management System, OHSAS 18001 Occupational Health and Safety Management, ISO 26000 Social Responsibility, ISO 22301 Business Continuity Management and IFC Performance standards are the reference guidelines for the Risk Division systems.
The focus projects for the year were Stakeholder Engagement, Business Continuity Management, Carbon Footprint establishment and Environmental, Health and Safety Management initiatives.
Environmental and Social Programs Scope 1 and 2 emissions present the greatest opportunity The business has continued to invest in environmental and for improvement and this will be the improvement focus social initiatives with the bulk of the expenditure going going forward. towards the following programs: Stakeholder Management Initiative Carbon Footprint Reporting The business is committed to ensuring that stakeholder The thrust of the project was to establish the emission values and interests are integrated in the decision making levels of greenhouse gases to facilitate the implementation and operational processes for sustainable business of initiatives for energy consumption reduction in line with growth. The business has identified and prioritized the the business efficiency strategic pillar. With regards to the stakeholders to facilitate the development of effective market leadership pillar the organisation is amongst the stakeholder engagement plans. The aim of this project first ICT companies in Zimbabwe to report on carbon is to ensure efficient and cost-effective engagement of footprint. stakeholders across the business, which will result in continual coordination, monitoring and effective dialogue for business relationships. The stakeholder’s engagement plans will be implemented going forward.
33 Risk Report (continued)
The broad stakeholder classes for the business are detailed in the table below:
Table : Business Stakeholders categories
3TAKEHOLDER #ATEGORY Why We Engage s "UILD AND STRENGTHEN RELATIONSHIPS BOTH AS PARTNER IN THE DEVELOPMENT OF THE country and as a client Government s )NPUT INTO LEGISLATIVE DEVELOPMENT PROCESSES THAT AFFECT OUR ACTIVITIES AND operations s 2EAFlRM OUR COMMITMENT TO PUBLIC SECTOR DEVELOPMENT s 0ARTICIPATE AND BE A PARTNER TO TRANSFORMATION OF :IMBABWE AND INDUSTRY s -AINTAIN HONEST OPEN AND TRANSPARENT RELATIONSHIPS Regulators s 2ETAIN OUR VARIOUS LICENSES AND MINIMISE OPERATIONAL RISKS s %NSURE COMPLIANCE s #OLLABORATE ON LEGAL ISSUES s 0ROVIDE AND SECURE FUNDING FOR INFRASTRUCTURAL DEVELOPMENT Lenders s %NSURE COMPLIANCE WITH LOCAL AND INTERNATIONAL REQUIREMENTS )&# AND %QUATOR principles s %NSURE VIABLE REPAYMENT TERMS AND AGREEMENTS s %MPLOYER OF CHOICE THAT PROVIDES SAFE POSITIVE AND INSPIRING WORKING ENVIRONMENT People /Staff s 5NDERSTAND AND RESPOND TO NEED AND CONCERNS OF STAFF s 0ROVIDE STRATEGIC DIRECTION AND KEEP INFORMED ABOUT 'ROUP BUSINESS ACTIVITIES s 4O GET FEEDBACK AND INPUT FOR BUSINESS GROWTH AND HARMONY s 'AIN BETTER UNDERSTANDING OF CUSTOMER ASPIRATIONS BUSINESS AND lNANCIAL services needs s 0ROVIDE CUSTOMERS WITH APPROPRIATE lNANCIAL SOLUTIONS AND VALUE ADDING Customers/ Consumers services s %NSURE HIGH QUALITY SERVICE s )NFORM PRODUCT SERVICE DEVELOPMENT AND PRIORITISATION s %NSURE ACCURACY OF CUSTOMERS PERSONAL BUSINESS INFORMATION s #ONTINUE LEARNING AND INTERACTING WITH INDUSTRYSECTORS s ,EVERAGE AND BUILD BUSINESS STRATEGIC PARTNERSHIPS FOR MAXIMUM BENElTS Industry / Business Partners s 5SE BUSINESS ASSOCIATIONS AS FORUM FOR PROMOTION OF KEY VIEW POINTS s %NSURE CONSENSUS OF BUSINESS ISSUES s 2ESOLVE ACTUAL POTENTIAL CONmICTS s #OLLABORATE ON INDUSTRYSECTOR ISSUES s #REATE PARTNERSHIPS FOR SUSTAINABILITY INPUTS Communities and Local Authorities s /BTAIN INPUT ON KEY FOCUS AREAS s #REATE AWARENESS OF SUSTAINABILITY COMMITMENT AND INITIATIVES s 0ROVIDE AND SECURE FUNDING AND PARTNER ON COMMON SOCIAL AND ENVIRONMENTAL issues; e.g. Higher Life Foundation Energise The Chain s 3TRENGTHENING RELATIONSHIPS s #OMMUNICATE WITH RELEVANT STAKEHOLDERS AND THE BROADER PUBLIC s $EVELOP POSITIVE INmUENCE AND BEHAVIOUR THAT LEADS TO DESIRED OUTCOMES Media s 0OSITION BUSINESS AS h4HOUGHT ,EADERv s 0ROTECT AND MANAGE REPUTATION AND BRAND s %DUCATE AND INFORM AUDIENCE ON THE BUSINESS AND ADDRESS PERCEPTIONS s 4O INFORM ON OUR CONTRIBUTION TO THE ECONOMY AND PRODUCTSSERVICES s 4O PROVIDE AND OBTAIN PRODUCTS AND SERVICES s -AINTAIN AN IDEAL SUPPLY OF GOODS AND SERVICES s %NSURE SUSTAINABILITY OF PAYMENT TERMS Suppliers s %NCOURAGE RESPONSIBLE PRACTICES ACROSS SUPPLY CHAIN s )NCLUDE CRITICAL SUPPLIERS IN CROSS FUNCTIONAL TEAMS s .EGOTIATE PRICING AND CONTRACTS s 0ROMOTE NEW PRODUCTS SERVICE OFFERINGS
34 Governance
Employee Wellness Program accidents. The figure below provides a summary of the Econet Wireless (Private) Limited launched an Employee accident statistics for the year. Wellness Program in October 2014 at a family fun-day. The family fun-day was held in all the major business centers across the country. During the launch, wellness service providers offered wellness counselling and medical advice to staff members and their families. The objective of the Employee Wellness Program is to promote wellness among staff by ensuring that they make informed choices about their health hence reducing health risks.
Environmental and Social Management Systems The business continued to strengthen the Safety, Health and Environmental (SHE) systems within the Group through capacity development for implementation of systems. The following initiatives were implemented: s Steward Bank; SHE training and risk assessment were conducted. Implementation of the SHE system is currently in progress s Mutare Bottling Company; Implementation of ISO 14001 EMS and OSHAS 18001 systems in preparation Investigations and implementation of corrective actions for ISO Certification by South African Bureau of continue to enhance improvements. Standards (SABS). Strategic Focus Areas 2015/16 Our environmental and Environmental and Social Performance social management strategic focus for the coming financial Management of environmental and social performance year will target the following areas; remains key to the business. Initiatives for proactive risk s 4HE IMPLEMENTATION OF SAFETY HEALTH AND assessment and thorough accident investigation in risk environmental management systems within the management continues to be reviewed and strengthened group going forward. s 4HE FULL IMPLEMENTATION AND MONITORING OF THE stakeholder management programme Accidents Statistic 2014 s 4HE IMPLEMENTATION OF THE ENERGY SAVING There was continual monitoring and improvement on management and green business initiatives the systems for reporting and recording of incidents and s 4HE IMPLEMENTATION OF INTEGRATED WASTE management systems s #ONTINUOUS RISK ASSESSMENT AND REVIEWS AND s 3(% SYSTEM AUDITS AND MANAGEMENT REVIEWS
35 Overlay services
SUSTAINABILITY THROUGH INNOVATION
EcoHealth leverages on the mobile phone platform to deliver innovative mobile health solutions that transform lives of communities. EcoHealth Tips avails health information via the phone.
EcoSure Funeral Cover, a micro- insurance product, was launched in December 2014. This revolutionary micro-insurance product enables all Econet customers’ access to the most affordable funeral cover in Zimbabwe on their mobile phones.
36 Our Performance Our
The Econet ConnectedCar which was launched in October 2014 gives Econet customers the power to manage and maintain their vehicles right from their tablet, smartphone, any web portal or through the Econet ConnectedCar mobile application. Econet ConnectedCar offers Fleet Management Service and Personal Vehicle Management making it the perfect affordable vehicle tracking solution for both corporates and In keeping with the pioneering spirit, the individuals who want to be in control of business launched EcoFarmer as a pilot their vehicles. project. The business seeks to serve over 67% of Zimbabwe’s population who reside in the rural areas and mostly depend on agriculture, through offering products which improve access to information, market and financial services. Projects and initiatives are at various stages of implementation.
37 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 US Dollar at a time.
38 People and community 39 UND F TRUST CHOLARSHIP S EALTHCARE KOMO H N ATIONAL OSHUA As Econet took a leadershipin raising role awareness and nationally mobilisingbe to proved supportagain and NHTZ once the epidemic, Ebola andthe combat regionally funding to emergencyhealth of implementer competent and effective an ZimbabweNationalthe Trust, interventions,crisisthe winning (ZNCC)Commerce SocialCorporate ‘Outstandingof Chamber Responsibility’ 2014. for award duringperiodthe JNSFunder review conducted Leadership9 and Personal Development workshops which students reachedon the scholarship 480 and impacted 337,193 students nationwide. 3. N TheNational Zimbabwe Healthcare (NHTZ), Trust established by Econet in 2008 epidemic, has in since inception collaborated response with a number of to a partnersrespondemergency to to health crises Zimbabwe.in nation-wide Cholera Besides the Cholera epidemic, has the worked Trust with the Ministry of Health and Child Care to respond to the global scareTyphoid in the same andoutbreak year. the N1H1 2010 of In 2014, the NHTZ supported over 25,000 people by displaced the Tokwe-Mukosi flood disaster with drugs, food clothing, aid, solar medical lighting and special needs the girl child support caught in the crisis. for In the year under review, the NHTZ has worked closely Union-supported,Africanwith successful, the implement to Econet continent-widecampaign deadlyfightthe to Ebola virus. With Econet partnering with other telcos across the raise continent millions to of dollars in funds directed at the epicentre the of disease outbreak in West Africa, the NHTZ worked with government departments and to agencies train across public Zimbabwe health equipment care and personnel, clothing to to supply health and institutions protective to and distribute information, facilities, communication and education materials the public. to 2. J ScholarshipFund Nkomo Joshua the fundingbeen has Econet (JNSF) since its establishment talented in and academically 2005gifted students by awarding to them support full education scholarships. young, Since inception, nearly scholarships. 900About 100 of them students have secured scholarships have to study abroad mainly been at universities in the United Kingdom offered and the United States, including Harvard University. An equal-opportunity-basedtransparency its on built been has years the programme over credibility and whose reputation and fairness, the JNSF scholarships are awarded to an equal number of female and male administrative provinces Zimbabwe. of students drawn from the 10 The programme blends performance impeccablewith community leadership qualities thatensure academic record a and future end-product of exceptionally young capable and leaders talented with awareness and responsibility their towards communities. a highly developed global sense In line with of the goal to mentor and equip beyond academics, TRUST APERNAUM above food pack support that impacted 35,025 over families. In a measure that is energycleanusingstudy equippedbeneficiaries to ensure are set to improve academic results lighting, and the Trust distributed lanterns close to to secondary 10,000 school study students. This solar was over and available at the Learning Hubs and elsewhere. Study and material support the facilities to take advantage of the free and diverse learningdiverseand free the advantage of take to facilitiesthe resources. The Trust trained 1,836 skills, ‘contact equipping teachers’ them in to train IT resources learning online 389,200the utilise fully they ensure that skills students in basic IT Community Impact In the year under review, Capernaum Trust made significant impact through the Learning Hubs as 320,000 students used and the university’s College includingregion,MonashtheUniversity of universitiesin several Health Sciences, and with in South Africa and the highly regarded Waterford College in Swaziland. country, cementing the strong strategic collaboration that the Trust has long cultivated and enjoyed withtertiary universities learning and institutions around the country and The Trust also abroad. collaborates with the University of Zimbabwe Strategic Collaboration One of the 21 Learning Hubs was commissioned at Bindura University of Science Education in the north-east of the additional Learning Hubs to an existing wide, 16 which facilities provide nation- a convenient for and accessible educational platform enrichment beneficiaries for research, and communities at large. learning support and spiritual provided educational support 75,000 over to children. Access to education During the year under review, Capernaum Trust set up 5 opportunities for thousandssupport.material education andthrough Zimbabwe in children of orphaned 1996,establishedinceptionwassincein which has Trust, The and vulnerable 1. C 1. Capernaum Trust, empowermentthe biggest create of to the continued Higher Econet, Life by Foundationsupported Trusts content viacontent the EcoSchool tablet. Econet’s community work communities operate we the past in over years. has significantly touched the Information Communication Technology (ICT) and mobile innovations programmes to fast track change. Our EcoSchool programme is one of our latest innovations that has provided world-class to digitalaccess with children school of thousands to help solveto social problems. We’re also determined to the bring Education and about Health lasting sectors by changes developing innovative in With a vision that is subscribers aimed at connected, humanity, changing of benefit the and for lives, used be can creating technology keeping our believe our new possibilities, we Corporate Social Investment Social Corporate Corporate Social Investment
SUSTAINABILITY THROUGH INNOVATION
Investment in malaria prevention in all affected regions
Helping under-privileged children through primary education
40 Our Performance Our
Joshua Nkomo Scholarship graduates exceed 900 from inception
Communities assisted through Christian values
41 Our People and our Community
HUMAN CAPITAL
PERFORMANCE MANAGEMENT
A high performance culture has been embedded in the Group. Various tools are being used to monitor performance on a quarterly basis. Targeted training is being provided to close any performance gaps. In addition, performance improvement plans have been introduced to track performance of employees.
SAGE VIP - HR INFORMATION SYSTEMS IMPLEMENTATION
The implementation of SAGE VIP Payroll module was completed and the team is in the final stages of implementing the other modules of SAGE VIP.
HR SHARED SERVICES
The HR Shared Services model has been developed and it comprises of transactional and advisory service delivery channels. Automation and standardization of HR processes and systems will result in improved service delivery through employee and manager self-service portals.
STAFF COSTS MANAGEMENT
During the year, management remained focused on controlling staff costs within agreed thresholds. One key objective that the business embarked on is automation of systems and processes so as to minimize headcount pressures.
42 People and community 43 The business launched an Employee Wellness week whereby staff and their spouses and children are educated on the importance of healthy living. The company continues to sponsor the Live to Love program whereby it provides medical support staff to and their dependents affected by HIV and AIDS. The business continuously promotes open communication across all levels and the Chief Executive Officer’s quarterly staff briefs have been useful in promoting open dialogue between staff and the leadership team. Monthly newsletters have been distributed to all staff. An employee engagement survey using the Survey Monkey tool was conducted and the shared result with staff. EMPLOYEE WELLNESS During the period, managers will attend classroom lessons and work on individual pipeline.Othertalentkey our develop andto orderembarking in businessis on theinitiatives many group the of one Theprogramis on-the-job assignments. access staffto enable eLearningplatforms to of use as well as traineesgraduate of mentoring coachingand are initiatives learning material during times convenient without negatively impacting on productivity. ENGAGEMENTSTAFF TALENT DEVELOPMENTTALENT The business launched a Management Development Program in partnership with the University of Stellenbosch. This is months. eight for runs thatprogram the Zimbabwe.Thirtyon enrolledin programbeen kind managers its have of first the 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.
44 People and community 4545 GE GE VERA VERA CO CO 4G LTE 4G LTE 4G LTE 4G LTE COVERAGE 4G LTE 2G (GSM, GPRS & EDGE COVERAGE) WIMAX COVERAGE 3G COVERAGE 4G LTE COVERAGE4G LTE of the land area of Zimbabwe. We also have 3G coverage in all urban centers and towns. 4G LTE service will continue to be rolled rolled 70.6% in be to connectivity continue network will EDGE) and service GPRS, LTE (GSM, 2G 4G have We towns. and year. on centers year urban expand to all in continues coverage coverage 3G network have Our also We Zimbabwe. of area land the of most of the urban centres of Zimbabwe. out to cover Econet Coverage Map - February 2015 - February Map Coverage Econet Consolidated Financial Statements
Financial Reporting
Certificate by the Group Company Secretary 47
Directors’ Responsibility for Financial Reporting 48
Independent Auditor’s Report 49
Consolidated Statement of Financial Position 50
Consolidated Statement of Comprehensive Income 51
Consolidated Statement of Changes in Equity 52
Consolidated Statement of Cash Flows 53
Notes to the Consolidated Financial Statements 54
Policy Notes to the Consolidated Financial Statements 96
46 Financial Reporting Financial
Certificate by the Group Company Secretary
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 2015, 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
29 April 2015
47 Directors’ Responsibility for Financial Reporting
As required by company law, 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 representation of the financial statements and related information for each financial year. 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. 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 confirm that the financial statements give a true and fair view of the state of affairs of the Group at 28 February 2015. They further confirm that they are satisfied that the Group has adequate financial resources to continue as a going concern.
The financial statements set out on pages 50 to 118 were approved by the Board of Directors on 29 April 2015 and signed on its behalf by:-
Dr J Myers CHAIRMAN
D Mboweni CHIEF EXECUTIVE OFFICER
C A Banda GROUP COMPANY SECRETARY
29 April 2015
48 Financial Reporting Financial
49 Consolidated Statement of Financial Position As at 28 February 2015
All figures in US$ Note 2015 2014
ASSETS
Non-current assets
Property, plant and equipment 12 736,320,233 734,664,113 Investment property 13 4,167,267 3,656,586 Intangible assets 14 140,776,068 143,394,762 Deferred tax asset 15.1 19,000,816 19,238,457 Goodwill 43.3 6,090,632 6,090,632 Investment in associate 18.1 29,816,203 20,768,186 Financial instruments: -Held-to-maturity investments 17 40,177,977 11,736,041 -Available-for-sale investments 19 3,173,882 3,329,214 -Loans and advances - long term portion 24.6 20,676,622 20,488,728 -Other receivables - long term portion 23 12,954,603 -
Total non-current assets 1,013,154,303 963,366,719
Current assets
Inventories 22 18,533,606 25,901,874 Financial instruments: -Trade and other receivables 23 88,334,541 67,205,085 - Financial assets at fair value through profit or loss 21 408,820 76,853 - Loans and advances 24.6 40,821,466 45,782,432 - Cash and cash equivalents 32.4 95,238,733 71,331,021
Total currents assets 243,337,166 210,297,265
Total assets 1,256,491,469 1,173,663,984
EQUITY AND LIABILITIES
Capital and reserves
Share capital and share premium 25.2 40,763,691 37,448,131 Retained earnings 614,111,627 561,884,250 Other reserves 27 5,894,089 462,848 Equity attributable to owners of Econet Wireless Zimbabwe Limited 660,769,407 599,795,229 Non-controlling interest 4,525,321 3,924,078
Total equity 665,294,728 603,719,307
Non-current liabilities
Deferred tax liability 15.2 120,458,424 109,837,492 Financial instruments - long-term interest-bearing debt 30 165,757,698 134,852,046
Total non-current liabilities 286,216,122 244,689,538
Current liabilities
Deferred revenue 29 18,381,526 14,109,056 Financial instruments: -Trade and other payables 28 138,569,201 168,988,197 - Short-term interest bearing debt 30 98,175,726 105,427,999 - Deposits due to banks and customers 31.2 41,635,843 19,363,364 Income tax payable 8,218,323 17,366,523
Total current liabilities 304,980,619 325,255,139
Total liabilities 591,196,741 569,944,677 Total equity and liabilities 1,256,491,469 1,173,663,984
Dr J. Myers D. Mboweni K. V. Chirairo CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR
29 April 2015
50 Financial Reporting Financial
Consolidated Statement of Comprehensive Income For the year ended 28 February 2015
All figures in US$ Note 2015 2014
Revenue 2 746,182,640 752,677,719
Cost of sales and external services sold (245,952,350) (203,065,419) Impairment reversal/(losses) - loans and advances relating to the furniture book 8 85,585 (18,369,859)
Gross profit 500,315,875 531,242,441
Other income 9 6,590,029 8,683,092 Share of profit of associate 18.2 9,048,017 6,707,066 (Loss)/gain on financial assets at fair value through profit or loss 21 (2,740) 18,847 General administrative expenses (164,729,317) (139,407,992) Marketing and sales expenses (13,842,670) (21,800,993) Network expenses (47,971,645) (47,195,736) Other expenses (3,762,985) (6,072,642)
Profit from operations 285,644,564 332,174,083
Depreciation, amortisation and impairment (126,289,195) (101,723,923)
Profit for the year before net finance costs 4 159,355,369 230,450,160
Finance income 6 1,064,612 595,931 Finance costs 7 (37,076,496) (37,037,230)
Profit before taxation 123,343,485 194,008,861
Income tax expense 10 (53,135,878) (74,612,119)
Profit for the year 70,207,607 119,396,742
Other comprehensive income Items that may be reclassified subsequently to profit or loss Fair value gain/(loss) on available -for- sale investments 19 210,738 (111,956) Taxation effect of other comprehensive income 5 (2,107) 1,109 208,631 (110,847) Items that may not be reclassified to profit or loss Gain arising on revaluation of property and equipment - 6,626 Taxation effect of other comprehensive income - (1,706) - 4,920
Other comprehensive income/(loss) for the year, net of tax 208,631 (105,927)
Total comprehensive income for the year 70,416,238 119,290,815
Profit for the year attributable to: Equity holders of Econet Wireless Zimbabwe Limited 70,256,228 119,281,716 Non-controlling interest (48,621) 115,026
70,207,607 119,396,742
Total comprehensive income attributable to: Equity holders of Econet Wireless Zimbabwe Limited 70,464,859 119,175,789 Non-controlling interest (48,621) 115,026 70,416,238 119,290,815
Basic earnings per share (dollars) 11 0.04 0.08
Diluted earnings per share (dollars) 11 0.04 0.08
51 Consolidated Statement of Changes in Equity For the year ended 28 February 2015
Attributed to the equity holders of Econet Wireless Non- Total Zimbabwe Limited controlling Share interest capital Other and Share Retained reserves All figures in US$ premium earnings (Note 27) Total Balance at 28 February 2013 35,697,496 453,138,968 568,775 489,405,239 3,477,998 492,883,237
Profit for the year - 119,281,716 - 119,281,716 115,026 119,396,742
Other comprehensive income - - (105,927) (105,927) - (105,927) Fair value loss on available-for-sale investments - - (111,956) (111,956) - (111,956) Gain arising on revaluation of property and equipment - - 6,626 6,626 - 6,626 Taxation effect of other comprehensive income - - (597) (597) - (597)
Total comprehensive income - 119,281,716 (105,927) 119,175,789 115,026 119,290,815
1,750,635 (10,536,434) - (8,785,799) 331,054 (8,454,745) Utilisation of treasury shares 1,750,635 - - 1,750,635 - 1,750,635 Share buyback (Note 16.4) - (9,902,521) - (9,902,521) - (9,902,521) Acquisition of shareholding of non-controlling interest - (633,913) - (633,913) 331,054 (302,859)
Balance at 28 February 2014 37,448,131 561,884,250 462,848 599,795,229 3,924,078 603,719,307
Profit for the year - 70,256,228 - 70,256,228 (48,621) 70,207,607
Other comprehensive income - - 208,631 208,631 - 208,631 Fair value gain on available-for-sale investments - - 210,738 210,738 - 210,738 Taxation effect of other comprehensive income - - (2,107) (2,107) - (2,107)
Total comprehensive income - 70,256,228 208,631 70,464,859 (48,621) 70,416,238
3,315,560 (18,028,851) 5,222,610 (9,490,681) 649,864 (8,840,817) Sale of treasury shares 3,315,560 17,405,612 - 20,721,172 - 20,721,172 Dividend paid - (29,835,888) - (29,835,888) - (29,835,888) Incorporation of subsidiary - - - - 300,000 300,000 Transfer to regulatory reserves - (5,222,610) 5,222,610 - - - Acquisition of shareholding of non-controlling interest (Note 43.2) - (375,965) - (375,965) 349,864 (26,101)
Balance at 28 February 2015 40,763,691 614,111,627 5,894,089 660,769,407 4,525,321 665,294,728
52 Financial Reporting Financial
Consolidated Statement of Cash Flows For the year ended 28 February 2015
All figures in US$ Note 2015 2014 Operating Activities
Cash generated from operations 32.2 226,962,021 384,953,189
Income tax paid 32.3 (51,421,332) (53,310,503)
Net cash flows from operating activities 175,540,689 331,642,686
Investing activities
Finance income 984,551 203,822 Acquisition of intangible assets 14 (6,841,825) (141,607,981) Acquisition of available-for-sale investments - (430,373) Acquisition of financial assets at fair value through profit or loss 21 (332,635) - Acquisition of investment property 13 (494,567) (376,668) Acquisition of held-to-maturity investments 17 (30,722,081) (1,447,517) Repayments on maturity of investments 2,360,205 - Net cash inflow on acquisition of subsidiary 120,631 (302,859) Incorporation of subsidiary 300,000 - Increase/(decrease) in deposits due to banks and customers 22,272,479 (16,987,347) (Increase)/decrease in loans and advances (12,393,019) 33,119,512 Purchase of property, plant and equipment: - to expand operating capacity (118,545,457) (139,718,276) Proceeds on disposal of property, plant and equipment 175,702 237,033
Net cash used in investing activities (143,116,016) (267,310,654)
Financing activities
Finance costs (36,593,731) (34,339,697) Dividends paid (29,815,016) - Share disposal/(buy-back) 34,721,172 (9,902,521) Proceeds from borrowings 120,963,640 48,385,371 Repayment of borrowings (97,793,026) (75,373,792)
Net cashflows used in financing activities (8,516,961) (71,230,639)
Net increase/(decrease) in cash and cash equivalents 23,907,712 (6,898,607)
Cash and cash equivalents at the beginning of the year 71,331,021 78,229,628
Cash and cash equivalents at the end of the year 32.4 95,238,733 71,331,021
53 Notes to the Consolidated Financial Statements For the year ended 28 February 2015
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 overlay 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 and 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.
54 Financial Reporting Financial
1 OPERATING SEGMENTS (continued)
Segment information for the year ended 28 February 2015
Cellular Investments Adjustments NETWORK Financial and All other Segments and All figures in US$ operations Services Beverages administration Segments total eliminations Group total
Revenue from external customers* 647,534,217 71,532,232 19,150,946 - 832,406 739,049,801 - 739,049,801 Revenue from transacting with other operating segments of the same entity - 10,372,080 - - (1,040,886) 9,331,194 (9,331,194) - Interest income from banking operations - 7,132,839 - - - 7,132,839 - 7,132,839 Total revenue 647,534,217 89,037,151 19,150,946 - (208,480) 755,513,834 (9,331,194) 746,182,640 Depreciation (107,973,728) (3,536,254) (1,514,200) - (13,135) (113,037,317) - (113,037,317) Amortisation of intangibles (9,146,433) (358,781) - - - (9,505,214) - (9,505,214) Finance income 1,379,374 179,678 61,486 971,420 2,137 2,594,095 (1,529,483) 1,064,612 Finance costs (36,927,447) (22,494) (1,592,441) (971,420) - (39,513,802) 2,437,306 (37,076,496) Share of profit of associate - - - 9,048,017 - 9,048,017 - 9,048,017 Income tax expense (52,339,931) (895,047) 197,822 (11,496) (87,226) (53,135,878) - (53,135,878) Segment profit(loss) 64,642,643 (372,692) 241,189 9,045,328 (490,539) 73,065,929 (2,858,322) 70,207,607
Acquisition of segment non-current assets*** (116,105,283) (5,616,868) (2,269,245) - (1,395,886) (125,387,282) - (125,387,282)
Segment assets** 1,207,758,616 248,251,256 33,525,937 184,789,873 5,583,090 1,679,908,772 (423,417,303) 1,256,491,469
Segment liabilities 491,213,455 178,060,323 22,182,942 179,937,084 2,612,963 874,006,767 (282,810,026) 591,196,741
Notes * Revenue for all other segments includes medical aid subscriptions as well as funeral assurance premiums. **Included in segment assets is an amount of $29 816 203 pertaining to an investment in associate accounted for using the equity method. *** The amount excludes acquisition of financial instruments and deferred tax assets.
Segment information for the year ended 28 February 2014
Cellular Investments Adjustments NETWORK Financial and All other Segments and All figures in US$ operations Services Beverages administration Segments total eliminations Group total
Revenue from external customers 692,677,828 35,054,954 19,307,981 - - 747,040,763 - 747,040,763 Revenue from transacting with other operating segments of the same entity - 6,182,640 - - - 6,182,640 (6,182,640) - Interest income from banking operations - 5,636,956 - - - 5,636,956 - 5,636,956 Total revenue 692,677,828 46,874,550 19,307,981 - - 758,860,359 (6,182,640) 752,677,719 Depreciation (88,050,181) (2,082,622) (1,055,918) (383) - (91,189,104) - (91,189,104) Amortisation of intangibles (6,486,411) (638,620) - - - (7,125,031) - (7,125,031) Finance income 484,181 89,706 4,371 1,565 - 579,823 16,107 595,930 Finance costs (36,616,949) (26,501) (465,339) - - (37,108,789) 71,559 (37,037,230) Share of profit of associate - - - 6,707,066 - 6,707,066 - 6,707,066 Income tax expense (81,092,689) 6,917,105 (436,535) - - (74,612,119) - (74,612,119) Segment profit(loss) 140,913,749 (27,195,268) 740,581 3,898,487 - 118,357,549 1,039,193 119,396,742
Acquisition of segment non-current assets (259,889,923) (7,256,114) (14,180,514) - - (281,326,551) - (281,326,551)
Segment assets 1,140,941,856 201,656,013 30,925,537 184,866,062 - 1,558,389,468 (384,725,484) 1,173,663,984
Segment liabilities 489,039,337 131,092,392 19,823,732 174,821,464 - 814,776,925 (244,832,250) 569,944,675
Note: Included in segment assets is an amount of $20 768 186 pertaining to an investment in associate accounted for using the equity method.
55 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
1 OPERATING SEGMENTS (continued)
All figures in US$ Note 2015 2014
Reconciliation of profit
Segment profit 73,065,929 118,357,549
Adjustments Revenue (1,040,887) (6,182,640) Cost of sales 6,416,934 1,155,474 Expenses 1,863,447 5,394,315 Other (expenses)/income (8,568,333) 794,474 Investment income (1,529,483) (122,430)
Group profit 70,207,607 119,396,742
Reconciliation of assets
Segment operating assets 1,679,908,772 1,558,389,468 Investment in subsidiaries (127,881,311) (124,469,860) Inter-company receivables (295,535,992) (260,255,624)
Group operating assets 1,256,491,469 1,173,663,984
Reconciliation of liabilities
Segment operating liabilities 874,006,767 814,776,925 Inter-company payables (282,810,026) (244,832,250)
Group operating liabilities 591,196,741 569,944,675
2 REVENUE
Revenue is made up of : Local airtime 362,375,773 441,042,715 Interconnection fees and roaming 117,477,421 127,623,451 Data - SMS and internet services 154,425,141 101,242,680 Other sales (beverage sales, handset sales, accessories and commissions) 104,771,466 77,131,917 Interest income from banking operations 3 7,132,839 5,636,956 746,182,640 752,677,719
3 NET INTEREST INCOME FROM BANKING OPERATIONS
3.1 Interest income from banking operations Loans and advances to customers 7,132,839 5,636,956
3.2 Interest expense from banking operations
Interest on deposits due to banks and other customers (1,225,129) (1,816,837)
.ET INTEREST INCOME FROM BANKING OPERATIONS 5,907,710 3,820,119
56 Financial Reporting Financial
4 PROFIT FROM OPERATIONS All figures in US$ Note 2015 2014 Profit for the year before net finance costs is arrived at after taking the following income/(expenditure) into account:
Impairment reversal/ (charge) on trade and other receivables 23 11,683,306 (19,678,214) Impairment of loans and advances to customers 24.4 (3,251,676) (2,276,283)
Auditors remuneration* (1,166,076) (1,352,500) - audit fees (1,166,076) (1,352,500)
Depreciation and impairment of property, plant and equipment 12 (115,812,011) (92,018,851)
Amortisation and impairment of intangible assets 14 (9,505,214) (7,598,976)
Loss on disposal of property, plant and equipment (55,882) (92,507)
Write-off of property, plant and equipment (747,283) (2,105,775)
Employee benefits (77,378,784) (72,555,215) - short-term benefits (72,012,473) (67,460,006) - post-employment benefits (5,366,311) (5,095,209)
Compensation of directors and key management: (8,582,589) (7,868,629) Non-executive directors - For services as directors (1,434,815) (1,400,578) Executive directors - For management services 33.3 (7,147,774) (6,468,051)
*Group audit fee includes US$ 977 000 (2014: US$ 1 150 000) for the mobile business and the balance of US$ 189 076 (2014: US$ 202 500) relates to other subsidiaries.
5 DISCLOSURE OF TAX EFFECTS RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME
2015 2014 Gross Tax Net Gross Tax Net All figures in US$ amount effect amount amount effect amount Items that may be reclassified subsequently to profit or loss Fair value loss on available-for-sale financial assets 210,738 (2,107) 208,631 (111,956) 1,109 (110,847)
Items that may not be reclassified to profit or loss Gain arising on revaluation of property and equipment - - - 6,626 (1,706) 4,920
Other comprehensive income, net of tax 210,738 (2,107) 208,631 (105,330) (597) (105,927)
57 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
6 FINANCE INCOME
All figures in US$ Note 2015 2014
Interest earned from bank deposits 592,443 203,822 Interest from held-to-maturity investments 472,169 392,109
1,064,612 595,931
7 FINANCE COSTS
Interest on loans and bank overdrafts (37,076,496) (37,037,230)
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 reversal/(loss) on furniture loans 85,585 (15,546,073) Bad debts written off - (2,823,786) 85,585 (18,369,859) Add interest income (included in revenue) 348,956 1,653,007 Net profit/(loss) attributable to furniture loans 434,541 (16,716,852)
This related to the previous banking model where the bank was acting as a financier for furniture loans. In the new model, no new furniture loans are being granted.
9 OTHER INCOME
Sundry income 185,030 2,020,053 Other bank income 6,503,605 5,689,539 Fair value adjustment on investment property 13 (83,874) 809,401 Realised forex gains/(losses) 160,497 (25,286) Unrealised forex (losses)/gains (175,229) 189,385 6,590,029 8,683,092
10 INCOME TAX EXPENSE
Current income tax (27,604,970) (51,038,012) Deferred tax 15.3 (10,862,746) (10,747,622) Withholding tax (14,668,162) (12,826,485)
Income tax expense (53,135,878) (74,612,119)
Tax rate reconciliation
Profit before taxation 123,343,485 194,008,861
Reconciliation of tax charge:
Normal tax at 25.75% (31,760,947) (49,957,282)
Effect of share of profit from associate 2,329,864 1,727,069
Net dis-allowable expenses (9,036,633) (13,555,421)
Withholding tax (14,668,162) (12,826,485)
Income tax expense (53,135,878) (74,612,119)
58 Financial Reporting Financial
11 EARNINGS PER SHARE
All figures in US$ 2015 2014 Profit for the year attributable to ordinary shareholders 70,256,228 119,281,716
Adjustment for capital items (gross of tax):
Loss on disposal of property, plant and equipment 55,882 92,507 Write off of property, plant and equipment 747,283 2,105,775 Impairment of property, plant and equipment 2,774,694 830,069
Tax effect on adjustments (921,299) (779,800)
Headline earnings attributable to ordinary shareholders 72,912,788 121,530,267
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 1,581,784,694 1,563,868,999
Basic earnings per share (dollars) 0.04 0.08
Headline earnings per share (dollars) 0.05 0.08
Diluted basic earnings per share (dollars) 0.04 0.08
Diluted headline earnings per share (dollars) 0.05 0.08
59 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
12 PROPERTY, PLANT AND EQUIPMENT Cellular Beverage Land and Network Office Plant and Work-in- All figures in US$ buildings equipment equipment equipment Vehicles progress Total At Cost
At 28 February 2013 44,738,858 662,511,848 41,590,101 4,343,369 9,498,974 144,310,572 906,993,722
Reclassification - - (6,332,137) 6,332,137 - - - Additions 2,919,945 3,542,522 7,909,983 10,485,295 3,326,955 111,533,576 139,718,276 Write offs - (3,849,911) (9,400) - (33,970) (156,702) (4,049,983) Disposals - - (963,376) - (288,518) - (1,251,894) Transfer to Investment property (1,519,000) - - - - - (1,519,000) Transfer from WIP 1,256,386 169,120,341 6,432,587 - - (176,809,314) - Transfers from Intangible assets - 114,987 - - - - 114,987
At 28 February 2014 47,396,189 831,439,787 48,627,758 21,160,801 12,503,441 78,878,132 1,040,006,108
Acquisition of Subsidiaries - - 21,808 - 24,415 - 46,223 Additions 1,007,433 3,629,894 5,895,436 2,338,995 1,041,432 104,632,267 118,545,457 Write offs - (2,502,020) (113,006) - (20,371) (33,465) (2,668,862) Disposals - (59,042) (328,171) - (148,161) - (535,374) Transfer to Investment property (99,988) - - - - - (99,988) Transfer from WIP 1,911,791 89,520,169 11,589,027 - 41,556 (103,062,543) - Transfers to Intangible assets - - - - - (44,695) (44,695)
At 28 February 2015 50,215,425 922,028,788 65,692,852 23,499,796 13,442,312 80,369,696 1,155,248,869
Accumulated depreciation & impairment
At 28 February 2013 (7,456,401) (192,507,466) (11,306,930) (1,406,893) (3,510,147) - (216,187,837)
Reclassification - - 1,729,850 (1,729,850) - - - Charge for the period (1,187,301) (80,516,917) (7,212,885) (667,683) (1,603,996) - (91,188,782) Write offs - 2,532,914 1,869 - 6,270 - 2,541,053 Disposals 1,019 - 241,247 - 82,925 - 325,191 Revaluation 6,625 - - - - - 6,625 Transfers - (8,176) - - - - (8,176) Impairment (46,455) - (524,933) (197,381) (61,300) - (830,069)
At 28 February 2014 (8,682,513) (270,499,645) (17,071,782) (4,001,807) (5,086,248) - (305,341,995)
Charge for the period (1,516,273) (99,492,160) (9,547,270) (1,000,750) (1,480,864) - (113,037,317) Write offs - 1,856,846 50,015 - 14,718 - 1,921,579 Disposals - 5,623 213,750 - 84,418 - 303,791 Transfers - (4,769) 4,769 - - - - Impairment - - (2,567,741) - (206,953) - (2,774,694)
At 28 February 2015 (10,198,786) (368,134,105) (28,918,259) (5,002,557) (6,674,929) - (418,928,636)
CARRYING VALUE
At 28 February 2015 40,016,639 553,894,683 36,774,593 18,497,239 6,767,383 80,369,696 736,320,233 At 28 February 2014 38,713,676 560,940,142 31,555,976 17,158,994 7,417,193 78,878,132 734,664,113
During the financial year ended 28 February 2015, one subsidiary closed some of its branches and, as a result, certain leasehold improvements such as partitioning and furniture and fittings became unusable. Another subsidiary had point of sale terminals that management evaluated and decided that they are not going to realise any value from their use. The recoverable amount of the assets was therefore determined to be nil and hence an impairment of US$2,774,694 was recorded, being the difference between the carrying amount of these assets and their recoverable amounts. The recoverable amount was based on fair value less costs to sell.
Debt is collateralised over Zimbabwean based network equipment. The carrying amount of the related debt is US$ 242.5 million (2014: US$ 227.9 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 2015 is US$ Nil (2014: US$552 532). The rate used to determine the amount of borrowing costs eligible for capitalisation was Nil% (2014: 15%), which is the effective interest rate of the specific borrowings.
60 Financial Reporting Financial
13 INVESTMENT PROPERTY
All figures in US$ 2015 2014 Opening balance 3,656,586 951,517
Additions 495,270 376,668 Disposal (703) - (Loss)/gain on fair value of investment property (83,874) 809,401 Transfer from property, plant and equipment 99,988 1,519,000
Closing balance 4,167,267 3,656,586
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 2015 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$53 000 (2014: US$153 169) and costs amounted to US$12 634 (2014: US$23 186).
$ESCRIPTION OF VALUATION TECHNIQUES USED AND KEY INPUTS TO VALUATION ON INVESTMENT PROPERTIES
Valuation technique Significant observable Range inputs (weighted average)
Office properties Implicit investment approach Comparable rentals per (Refer below) month per sqm US$8.86 - US$12 Residential stands Market value of similar properties (Refer below) Comparable rate per sqm US$20- US$25
In arriving at the market value for property, the implicit investment approach was applied based on the capitalisation of income. This method is based on the principle that rents and capital values are inter-related. Hence given the income produced by a property, its capital value can be estimated. Comparable rentals inferred from properties within the locality of the property based on use, location, size and quality of finishes were used. The rentals were then adjusted per square meter to the lettable areas, being rentals achieved for comparable properties as at 28 February 2015. The rentals are then annualised and a capitalisation factor was applied to give a market value of the property, also inferring on comparable premises which are in the same category as regards the building elements.
In assessing the market value of the residential stands, values of various properties that had been recently sold or which are currently on sale and situated in comparable residential areas were used. Market evidence from other Estate Agents and local press was also taken into consideration.
Generally, a change in the assumption made for the estimated comparable rentals per month and comparable rate per square metre is accompanied by a directionally similar change in the fair value of the investment property.
61 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
14 INTANGIBLE ASSETS
Computer All figures in US$ Licences software Total At 28 February 2013: Cost 2,814,494 9,552,552 12,367,046 Accumulated amortisation (55,526) (2,818,952) (2,874,478) Carrying amount 2,758,968 6,733,600 9,492,568
Movement for the year: Additions 139,118,755 2,489,226 141,607,981 Amortisation (5,220,910) (1,904,122) (7,125,032) Impairment (473,944) - (473,944) Transfer - (106,811) (106,811)
At 28 February 2014: Cost 141,933,249 12,041,778 153,975,027 Accumulated amortisation (5,750,380) (4,829,885) (10,580,265) Carrying amount 136,182,869 7,211,893 143,394,762
Movement for the year: Additions - 6,841,825 6,841,825 Amortisation (6,875,000) (2,630,214) (9,505,214) Transfer from property, plant and equipment - 44,695 44,695
At 28 February 2015: Cost 141,933,249 18,928,298 160,861,547 Accumulated amortisation and impairment (12,625,380) (7,460,099) (20,085,479) Carrying amount 129,307,869 11,468,199 140,776,068
Intangible assets pertain to licences and computer software held by Econet Wireless (Private) Limited and Steward Bank Limited. The Group uses the expected usage of the asset to determine the useful life of intangible assets. At 28 February 2015 the computer software had an average remaining useful life of two and a half years and licences had an average remaining useful life of 18 years.
62 Financial Reporting Financial
15 DEFERRED TAX
The following are the major deferred tax liabilities and assets recognised by the Group, and the movements thereon.
Property, Assessed plant and Deferred Provisions All figures in US$ losses equipment revenue and other Total
15.1 Deferred tax asset
At 28 February 2013 2,151,404 - 2,586,280 904,929 5,642,613
Tax charged to equity - - - (1,706) (1,706) Credit to profit for the year 6,542,597 - 1,025,221 6,029,732 13,597,550
At 28 February 2014 8,694,001 - 3,611,501 6,932,955 19,238,457
Credit to profit for the year 1,190,019 (6,280) 1,119,342 (2,547,002) (243,921) Acquisition of subsidiaries - 6,280 - - 6,280
At 28 February 2015 9,884,020 - 4,730,843 4,385,953 19,000,816
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.
The unrecognised deferred tax assets arising from unused tax losses for subsidiaries of the Group amount to US$1 956 898 (2014: US$494 000).
Property, Assessed plant and Deferred Provisions All figures in US$ losses equipment revenue and other Total
15.2 Deferred tax liability
At 28 February 2013 - 85,463,322 - 30,107 85,493,429
Charge to profit for the year - 24,345,172 - - 24,345,172 Credit to other comprehensive income - - - (1,109) (1,109)
At 28 February 2014 - 109,808,494 - 28,998 109,837,492
Charge to profit for the year - 12,046,485 - (1,427,660) 10,618,825 Charge to other comprehensive - - - 2,107 2,107 income
At 28 February 2015 - 121,854,979 - (1,396,555) 120,458,424
The deferred tax liability arises mainly from the difference between accounting and tax treatment of depreciation.
63 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
15 DEFERRED TAX (continued)
Property, Assessed plant and Deferred Provisions All figures in US$ losses equipment revenue and Other Total
15.3 Net deferred tax asset / (liability)
At 28 February 2013 2,151,404 (85,463,322) 2,586,280 874,822 (79,850,816)
Credit /(charge) to profit for the year 6,542,597 (24,345,172) 1,025,221 6,029,732 (10,747,622) Credit to other comprehensive income - - - (597) (597)
At 28 February 2014 8,694,001 (109,808,494) 3,611,501 6,903,957 (90,599,035)
Credit /(charge) to profit for the year 1,190,019 (12,052,765) 1,119,342 (1,119,342) (10,862,746) Charge to other comprehensive income - - - (2,107) (2,107) Acquisition of subsidiaries - 6,280 - - 6,280
At 28 February 2015 9,884,020 (121,854,979) 4,730,843 5,782,508 (101,457,608)
16 INVESTMENTS AND LOANS IN SUBSIDIARIES
All figures in US$ Percentage 2015 2014
COMPANY
16.1 Cost of investments Econet Wireless (Private) Limited 100% 3,133,903 3,133,903 (Cellular network operator in Zimbabwe)
Transaction Payment Solutions (Private) Limited 100% 26,209 108 (Computer data processing service provider)
E. W. Capital Holdings (Private) Limited 100% 17,797,668 17,797,668 (Investment company)
Pentamed Investments (Private) Limited 100% 6,220,598 6,220,598 (Investment company)
Steward Bank Limited 100% 97,317,584 97,317,584 (Banking operations in Zimbabwe)
Econet Life (Private) Limited 85% 2,885,350 - (Funeral assurance company in Zimbabwe)
Steward Health (Private) Limited 100% 500,000 - (Medical aid company in Zimbabwe)
Total investments in subsidiaries 127,881,312 124,469,861
On the 27th of June 2014, the Company incorporated a new subsidiary, Econet Life (Private) Limited which is involved in funeral assurance. The capital injected into Econet Life (Private) Limited was $2 885 350. The company also acquired the remaining 15.7% stake in Transaction Payment Solutions (Private) Limited resulting in it becoming a 100% owned subsidiary. The Company also acquired Steward Health (Private) Limited. Refer to Note 43 for the acquisition of Steward Health (Private) Limited and the acquisition of the minority interest in Transaction Payment Solutions (Private) Limited.
64 Financial Reporting Financial
16 INVESTMENTS AND LOANS IN SUBSIDIARIES (continued)
All figures in US$ 2015 2014
16.2 Inter-company receivables
Pentamed Investments (Private) Limited 1,886,351 1,886,351 Econet Wireless Global Limited - 16,385,901 Total loans to group companies 1,886,351 18,272,252
16.3 Inter-company payables
Econet Wireless (Private) Limited (160,630,873) (137,497,797) Econet Wireless Capital Holdings Limited (16,611,898) (16,611,898) (177,242,771) (154,109,695)
Net investments and loans in group companies (47,475,108) (11,367,582) 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 2015 was US$32 859 424 (2014: US$9 902 521). Proceeds from sale of Treasury shares for the year ended 28 February 2015 amounted to US$53 580 596. The number of treasury shares on hand at 28 February 2015 were 33 162 109 (2014: 89 674 249).
17 HELD-TO-MATURITY INVESTMENTS
All figures in US$ 2015 2014 Opening balance 11,736,041 9,896,415 Additions 30,722,081 1,447,517 Repayments received on maturity (2,752,314) - Interest accrued 472,169 392,109 Closing balance 40,177,977 11,736,041
Held-to-maturity investments include bearer bonds with a carrying amount of US$33 699 847 (2014: US$4 088 443) and investments with local financial institutions amounting to US$6 478 130 (2014: US$7 647 598). The bearer bonds yield interest at a rate of 6.8% and 7.332% per annum. The bonds are contracted to be repaid within the next 2 years.
65 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
18 INVESTMENT IN ASSOCIATE
18.1 The Group has a 51% interest in Data Control & Systems (1996) (Private) Limited, which is involved in the provision of internet related services. Data Control & Systems (1996)(Private) Limited is a private entity that is not listed on any public exchange. The Group’s interest in Data Control & Systems (1996) (Private) Limited is accounted for using the equity method in the consolidated financial statements. The following table illustrates the summarised financial information of the Group’s investment in Data Control & Systems (1996) (Private) Limited:
All figures in US$ 2015 2014 Associate’s statement of financial position:
Non-current assets 158,558,581 113,945,824 Current assets 35,269,098 37,270,592 Current liabilities (48,222,473) (29,315,323) Non-current liabilities (90,082,590) (84,119,686) Equity 55,522,616 37,781,407 Proportion of the Group’s ownership 51% 51% Group's ownership 28,316,534 19,268,517
Fair value adjustment 1,499,669 1,499,669
Carrying amount of the investment 29,816,203 20,768,186
Associate’s revenue and profit:
Revenue 74,095,310 59,353,260 Cost of sales (14,366,543) (13,423,530) Administrative expenses (29,843,323) (23,455,697) Finance costs (5,522,299) (4,553,119) Profit before tax 24,363,145 17,920,914 Tax expense (6,621,928) (4,769,804) Profit for the year (continuing operations) 17,741,217 13,151,110 Group’s share of profit for the year 9,048,017 6,707,066
Reconciliation of carrying amount of investment in associate Opening balance 20,768,186 14,061,120 Share of profit of associate 9,048,017 6,707,066 Closing balance 29,816,203 20,768,186
18.2 Share of profit associate
Share of profit of Data Control & Systems (1996) (Private) Limited 9,048,017 6,707,066 9,048,017 6,707,066
19 AVAILABLE-FOR-SALE INVESTMENTS
Opening balance 3,329,214 3,010,797 (Disposals)/additions (366,070) 430,373 Fair value gain/(loss) 210,738 (111,956)
Closing balance 3,173,882 3,329,214
The available for sale instruments comprise of investments in listed entities.
66 Financial Reporting Financial
20 FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments as disclosed in the statement of financial position approximate their fair values.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique; Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
All figures in US$ Total Level 1 Level 2 Level 3
At 28 February 2015
Investment Property 4,167,267 - - 4,167,267 Financial assets at fair value through profit or loss 408,820 408,820 - - Available-for-sale financial assets 3,173,882 3,173,882 - - 7,749,969 3,582,702 - 4,167,267
During the reporting period ending 28 February 2015, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
All figures in US$ Total Level 1 Level 2 Level 3
At 28 February 2014
Investment Property 3,656,586 - - 3,656,586 Financial assets at fair value through profit or loss 76,853 76,853 - - Available-for-sale financial assets 3,329,214 3,329,214 - - 7,062,653 3,406,067 - 3,656,586
During the reporting period ending 28 February 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurements.
21 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
All figures in US$ 2015 2014 Opening balance 76,853 58,006 Additions 332,635 - Acquisition of subsidiaries 2,072 - Fair value (loss)/gain (2,740) 18,847
Closing balance 408,820 76,853
Investments held at fair value through profit or loss comprise of equity investments. The fair value is based on the Zimbabwe Stock Exchange published share prices.
67 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
22 INVENTORIES
All figures in US$ 2015 2014 Merchandise at net realisable value 10,622,118 16,697,314 Spares, stationery and other 7,911,488 9,204,560
18,533,606 25,901,874
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 are expected to be recovered within twelve (12) months.
The cost of inventories recognised as an expense during the year amounted to US$29 835 702 (2014:US$28 858 164).
Inventories written off during the course of the year amounted to US$723 214 (2014: US$1 229 241).
23 FINANCIAL INSTRUMENTS: TRADE AND OTHER RECEIVABLES
All figures in US$ 2015 2014 Trade receivables 34,579,267 37,562,131 Interconnect debtors 39,666,016 31,835,084 Intercompany receivables 3,345,108 200,000 Other receivables 28,623,058 27,170,084 Impairment losses recognised (17,878,908) (29,562,214) 88,334,541 67,205,085 There is a concentration of credit risk associated with Interconnect Debtors.
Interconnect debt is split between current and non-current as follows: Payable within 1 year 39,666,016 31,835,084 Payable 1 Year to 2 Years 12,954,603 - 52,620,619 31,835,084
Impairment losses recognised Pertaining to prior year balances (29,562,214) (9,884,000) Impairment reversed/(recognised) during the year 11,683,306 (19,678,214)
(17,878,908) (29,562,214)
Trade receivables are non-interest bearing and are generally on terms of 30 to 90 days.
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 6,144,566 7,817,881 60-90 days 4,001,324 6,161,400 90+ 26,642,863 13,535,817 Total 36,788,753 27,515,098
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.
68 Financial Reporting Financial
24 LOANS AND ADVANCES TO BANK CUSTOMERS
All figures in US$ 2015 2014
24.1 Total loans and advances to bank customers
Corporate lending 47,152,417 58,832,365 Small-to-Medium Enterprise lending 291,602 290,209 Consumer lending 18,618,158 1,434,046 66,062,177 60,556,620
Less: Allowance for impairment (7,856,141) (4,604,466) 58,206,036 55,952,154
24.2 Maturity analysis
Due within 1 year Less than one month 39,836,416 38,666,379 1 to 3 months 2,768,796 139,393 3 to 6 months 672,577 418,812 6 months to 1 year 2,107,766 843,308 Gross loans and advances due within 1 year 45,385,555 40,067,892
Allowance for impairment (7,856,141) (4,604,466)
Total due within 1 year 37,529,414 35,463,426
Due after 1 year 1 to 5 years 15,419,488 19,852,023 Over 5 years 5,257,134 636,705 Gross loans and advances due after 1 year 20,676,622 20,488,728
Total gross loans 66,062,177 60,556,620
Total loans net of impairment 58,206,036 55,952,154 24.3 Sectorial analysis of utilisations
2015 2014 All figures in US$ US$ % US$ % Mining 2,772,970 4% 871,158 1% Manufacturing 32,640,655 49% 53,315,925 88% Agriculture 3,900,345 6% 1,537,546 3% Distribution 2,413,259 4% 660,086 1% Services 5,725,605 9% 2,101,322 4% Individuals 18,609,343 28% 2,070,583 3%
66,062,177 100% 60,556,620 100%
There is a material concentration of loans and advances in the Manufacturing category constituting 49% (2014: 88%) of gross loans and advances.
69 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
24 LOANS AND ADVANCES TO BANK CUSTOMERS (continued)
24.4 Allowance for impairment on loans and advances
A reconciliation of the allowance for impairment losses for loans and advances, by class, is as follows: Corporate SME Consumer All figures in US$ lending lending lending Total At 28 February 2013 2,776,720 20,406 (468,943) 2,328,183 Charge/(credit) for the year 1,827,746 (20,406) 468,943 2,276,283 At 28 February 2014 4,604,466 - - 4,604,466
Charge for the year 3,251,676 - - 3,251,676 At 28 February 2015 7,856,142 - - 7,856,142 24.5 Loans and advances relating to furniture
All figures in US$ Note 2015 2014 Gross furniture loans 18,752,539 25,865,079 Allowance for credit losses (15,460,487) (15,546,073) Net furniture loans 3,292,052 10,319,006
24.6 Total loans and advances
Total loans and advances to bank customers 24.1 58,206,036 55,952,154 Loans and advances relating to furniture 24.5 3,292,052 10,319,006 61,498,088 66,271,160
The amount above is broken down into current and non-current as follows: Non-current portion 20,676,622 20,488,728 Current 40,821,466 45,782,432 61,498,088 66,271,160
25 SHARE CAPITAL Group and company
Authorised 3 000,000,000 (2014: 3 000,000,000) Shares consisting of: -2 000,000,000 (2014: 2 000,000,000) Ordinary shares of $0.001 each 2,000,000 2,000,000 - 1 000,000,000 (2014: 1 000,000,000) Class "A" ordinary shares of $0.001 each 1,000,000 1,000,000
3,000,000 3,000,000
70 Financial Reporting Financial
All figures in US$ 2015 2014
25.1 Issued and fully paid
1 640 021 430 (2014: 1 640 021 430) Shares consisting of: 909 325 280 (2014: 909 325 280) 909,325 909,325 Ordinary shares of $0.001 each -730 696 150 (2014: 730 696 150) 730,696 730,696 Class "A" ordinary shares of $0.001 each 1,640,021 1,640,021
Unissued shares are under the control of the directors, subject to the Companies Act (24:03) and the Memorandum & Articles of Association.
25.2 Capital and Reserves
Movement in share capital and share premium Number of Share Share All figures in US$ shares capital premium Total
Balance at 28 February 2013 1,640,021,430 1,640,021 34,057,475 35,697,496 Utilisation of treasury shares - - 1,750,635 1,750,635
Balance at 28 February 2014 1,640,021,430 1,640,021 35,808,110 37,448,131 Sale of treasury shares - - 3,315,560 3,315,560
Balance at 28 February 2015 1,640,021,430 1,640,021 39,123,670 40,763,691 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 1 August 2014 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.
71 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
26 DIRECTORS’ SHAREHOLDING
At 28 February 2015, 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 2015 Ordinary shares S.T. Masiyiwa* 13,287 C. Fitzgerald 10,699,010 D. Mboweni 7,014,684 T.P. Mpofu 10,376,420 K. Chirairo 84,400 J. Myers 17,168 B. Mtetwa - S. Shereni 2,200 Total 28,207,169
28 February 2014 Ordinary shares S.T. Masiyiwa* 329,217 C. Fitzgerald 10,709,010 D. Mboweni 7,014,684 T.P. Mpofu 10,380,580 K. Chirairo 84,400 J. Myers 19,970 B. Mtetwa 130,910 S. Shereni 2,200 Total 28,670,971
*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 630 579 551 shares (2014: 659 539 483 shares) in Econet Wireless Zimbabwe Limited.
27 OTHER RESERVES
Available-for All figures in US$ Other sale Total Balance at 28 February 2013 - 568 775 568 775 Additions 6,626 - 6,626 Fair value loss on available-for-sale investments - (111,956) (111,956) Deferred tax arising out of reserves (1,706) 1,109 (597)
Balance at 28 February 2014 4,920 457,928 462,848
Transfer to regulatory reserves 5,222,610 - 5,222,610 Fair value gain on available-for-sale investments - 210,738 210,738 Deferred tax arising out of reserves - (2,107) (2,107)
Balance at 28 February 2015 5,227,530 666,559 5,894,089
Available for sale reserve This reserve records fair value changes on available-for-sale financial assets.
Other reserves relate to Steward Bank Regulatory Reserve which caters for excess credit loss provisions that result from calculation of impairments on loans and receivables according to the expected loss model as required per Reserve Bank of Zimbabwe regulations.
72 Financial Reporting Financial
28 TRADE AND OTHER PAYABLES
All figures in US$ 2015 2014
Local trade accounts payable 66,076,714 50,912,050 Foreign trade accounts payable 18,648,390 53,923,898 Short term inter-group payables 1,306,432 1,008,652 Other payables 52,537,665 63,143,597 138,569,201 168,988,197
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
All figures in US$ 2015 2014 Deferred prepaid airtime 18,381,526 14,109,056 18,381,526 14,109,056
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.
30 FINANCIAL INSTRUMENTS: INTEREST-BEARING DEBT
All figures in US$ 2015 2014 Opening balance 240,280,045 264,570,934 Additions during the year 120,963,640 48,385,371 Net repayments (97,793,026) (75,373,792) Accrued interest 482,765 2,697,532 Closing balance 263,933,424 240,280,045
Long term portion 165,757,698 134,852,046 Short term portion 98,175,726 105,427,999 263,933,424 240,280,045
73 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
30 FINANCIAL INSTRUMENTS: INTEREST-BEARING DEBT (continued)
Loan repayment structure Effective Value at Borrowing Effective Initial Facility Acquisition Amounts Finance cost Total loan Short-term Long-term rate as at 28 Security Financier date Limit date paid to date accrued obligation portion portion Feb 15 terms
All figures in US$ African Export and Import Bank/ Econet Wireless Global Guarantee by Econet Limited 24-May-12 75,000,000 64,741,635 43,421,053 9,282,724 30,603,306 14,867,569 15,735,737 11.4% Wireless Global Limited African Export and Import Bank/ Econet 27-Dec-13 Wireless Global Guarantee by Steward Limited 28,000,000 27,440,000 27,440,000 - - - - 9.0% Bank Limited Guarantee by Econet Ericsson Credit AB 24-May-12 39,900,000 37,115,392 34,200,000 2,838,709 5,754,101 5,754,101 - 5.0% Wireless Global Limited China Development Guarantee by Econet 11-May-12 135,000,000 125,171,774 63,519,882 10,165,834 71,817,726 31,874,731 39,942,995 6.4% Bank Wireless Global Limited Industrial Development Guarantee by Econet Corporation 28-Sep-12 20,000,000 17,151,454 8,000,000 2,098,672 11,250,126 3,705,299 7,544,827 6.4% Wireless Global Limited Guarantee by Econet PTA 15-Jan-13 20,000,000 19,820,000 12,727,273 348,478 7,441,205 7,441,205 - 6.2% Wireless Global Limited PTA 4-Apr-13 8,800,000 9,220,982 302,616 154,899 9,073,265 2,264,927 6,808,338 10.0% Equipment Purchased Guarantee by Econet Ericsson Credit AB 30-Jun-14 14,763,973 13,458,837 2,952,795 848,739 11,354,781 5,499,583 5,855,198 7.4% Wireless Global Limited Guarantee by Econet Ericsson Credit AB 30-Jun-14 50,567,500 19,932,861 1,292,697 160,648 18,800,812 5,400,974 13,399,838 4.4% Wireless Global Limited China Development Guarantee by Econet Bank 30-Jun-14 93,000,000 75,095,408 - 1,259,700 76,355,108 (115,657) 76,470,765 5.7% Wireless Global Limited
Sub Total 485,031,473 409,148,343 193,856,316 27,158,403 242,450,430 76,692,732 165,757,698 7.3% Bank working capital facility 22-Jul-13 21,482,994 21,482,994 - - 21,482,994 21,482,994 - Unsecured
Total 506,514,467 430,631,337 193,856,316 27,158,403 263,933,424 98,175,726 165,757,698
The weighted average interest rate on long-term borrowings for the Group as at 28 February 2015 was 7.3% (2014: 7.8%). In addition to the all inclusive rate of borrowing of 7.3% 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.
Summary of borrowing covenants
African Export and Import Bank (Afrexim Bank) / Econet Wireless Global 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) Limited 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.
CDB 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 prior to 28 February 2014 and US$158.3 million in the 2015 financial year, 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.
74 Financial Reporting Financial
The terms of the security package are detailed in an Inter-creditor Security Sharing Agreement, which provides for the sharing of security between the financial institutions. The multi-creditor loan facilities were used to refinance the existing loans and for further network expansion. The loans are at various interest rates and maturity periods of up to five years. The multi-creditor loan facilities contain a number of covenants, representations, and events of default typical of a credit facility arrangements of this size and nature, including financial covenants relating to consolidated debt (as defined) including:
1. Debt service coverage ratio (DSCR) of greater than or equal to 1.5 2. Net Interest bearing Indebtedness (NIBFI) to EBITDA ratio of less than or equal to 1.5 3. Total liabilities/Total assets ratio less than or equal to 0.67 4. Shareholders’ funds/Total assets ratio geater than or equal to 0.4
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 2015. 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.
The security pool includes the following: s !N %CONET 7IRELESS 0RIVATE ,IMITED %70, .OTARIAL 'ENERAL #OVERING "OND .'#" s 4HE 3ECURITY !GENT TO BE THE LOSS PAYEE ON PROCEEDS OF !LL 2ISK )NSURANCE POLICY COVERING THE %70, assets, and s ! CHARGE OVER ESCROW ACCOUNTS ESTABLISHED AS PART OF THE FACILITY AGREEMENTS s %CONET 7IRELESS 'LOBAL ,IMITED AND -R 3 4 -ASIYIWA IN HIS PERSONAL CAPACITY HAVE PROVIDED IRREVOCABLE guarantees to the lenders participating in the inter-creditor and security sharing agreement.
75 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
31 DEPOSITS DUE TO BANKS AND CUSTOMERS
All figures in US$ 2015 2014
31.1 Due to banks Deposits due to other banks - -
31.2 Due to customers Current accounts 23,711,243 10,909,404 Term deposits 17,924,600 8,453,960
41,635,843 19,363,364
31.3 Maturity analysis of deposits Less than 1 month 23,711,243 10,909,404 1 to 3 months 17,924,600 8,453,960
41,635,843 19,363,364
31.4 Sectoral analysis of deposits 2015 2014 All figures in US$ US$ % US$ %
Financial 4,077,478 9.8% 449,560 2.3% Transport and telecommunications 4,738,484 11.4% 2,628,524 13.6% Mining 17,355 0.1% 15,426 0.1% Manufacturing 554,742 1.3% 121,355 0.6% Agriculture 181,461 0.4% 161,760 0.8% Distribution 417,577 1.0% 284,506 1.5% Services 14,455,715 34.7% 3,934,700 20.3% Government and parastatals 4,223,936 10.1% 13,499 0.1% Individuals 12,032,189 28.9% 11,581,738 59.8% Other 936,906 2.3% 172,296 0.9%
41,635,843 100% 19,363,364 100%
76 Financial Reporting Financial
32 CASH FLOW INFORMATION
32.1 Cash generated from operations before working capital changes All figures in US$ Note 2015 2014 Profit before tax 123,343,485 194,008,861
Adjustments for : Depreciation and impairment 12 115,812,011 92,018,851 Amortisation and impairment of intangible assets 14 9,505,214 7,598,977 Impairment of Goodwill 43.3 224,685 - Bad debts written off 303,936 1,323,581 Write off of property, plant and equipment 12 747,283 2,105,775 Loss on disposal of property, plant and equipment 55,882 92,507 Fair value gains/(loss) on financial assets at fair value through profit or loss 21 2,740 (18,847) Impairment of trade receivables - 19,678,214 Increase in other provisions 48,506 - Impairment of loans and advances 3,166,091 19,930,954 Share of profit of associate 18.1 (9,048,017) (6,707,066) Loss/(gain) on fair value of investment property 83,874 (809,401) Net finance costs 6 & 7 36,011,884 36,441,299 Increase in deferred revenue 29 4,272,470 3,981,439 Inventory write-off 22 723,214 1,229,241 Increase in provision for inventory write-off 860,138 -
#ASH GENERATED FROM OPERATIONS BEFORE WORKING CAPITAL CHANGES 286,113,396 370,874,385
32.2 Adjustments for working capital changes
Decrease/(increase) in inventories 5,786,498 (12,687,329) Increase in trade and other receivables (34,227,663) (23,350,566) (Decrease)/increase in trade and other payables (30,710,210) 50,116,699 (59,151,375) 14,078,804
Cash generated from operations 226,962,021 384,953,189 32.3 Income tax paid
Opening balance of liability 17,366,523 6,812,529 Add: current taxation charge for the year 10 27,604,970 51,038,012 Add: withholding taxes paid 10 14,668,162 12,826,485 Less: closing balance of liability (8,218,323) (17,366,523) 51,421,332 53,310,503
32.4 Cash and cash equivalents Short term investments 875,104 - Bank balances and cash 94,363,629 71,331,021 95,238,733 71,331,021
Included in cash and cash equivalents is the following: Reserved and restricted cash balances 69,030,205 58,265,500
Restricted and reserved cash balances represent debt service reserve amounts which are secured to lenders and amounts held in trust for the Ecocash customers.
77 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
33 RELATED PARTY TRANSACTIONS
33.1 Transactions All figures in US$ 2015 2014 Transactions with Members of Econet Wireless Global Group Sale of goods and services to fellow subsidiaries 53,173,818 60,213,320 Sale of goods and services to associates 1,483,242 540,920 Purchases of goods and services from associates (40,728,942) (32,153,813) Purchases of goods and services from fellow subsidiaries (61,604,598) (50,876,053)
Other related parties Transactions with Econet Wireless Pension fund (4,250,505) (4,905,844) 33.2 Net balances Amounts owed to Members of Econet Wireless Global Group (9,550,199) (8,561,184) Amounts receivable from Members of Econet Wireless Global Group 6,709,805 7,029,674 Amounts owed by Econet Wireless Pension fund 4,145,258 -
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 7,147,774 6,468,051 For services as directors 1,434,815 1,400,578
8,582,589 7,868,629
34 GROUP EMPLOYEE BENEFITS
Econet Wireless Group Pension Fund Contributions are made to the defined contribution scheme through monthly deduction by the Company on members’ salaries and remitted to the Fund.
National Social Security Authority Scheme This is a defined contribution scheme promulgated under the National Social Security Act of 1989. The Company’s obligation under the scheme are limited to specific contributions legislated from time to time.
35 FINANCIAL RISK MANAGEMENT
35.1 Capital risk management The Group’s objectives when managing capital are:
s TO SAFEGUARD THE ENTITYS ABILITY TO CONTINUE AS A GOING CONCERN SO THAT IT CAN CONTINUE TO PROVIDE RETURNS FOR shareholders and benefits for other stakeholders, and s 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.
78 Financial Reporting Financial
The debt-to-adjusted capital ratios were as follows: All figures in US$ 2015 2014 Total debt 263,933,424 240,280,045 Less: cash and cash equivalents (95,238,733) (71,331,021) Net debt 168,694,691 168,949,024
Total equity 665,294,728 603,719,307
Adjusted debt-to-capital ratio 25% 28%
(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. (iii) Steward Bank Limited has met Reserve Bank of Zimbabwe Capital requirements as detailed in Note 37.
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 analyse 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, meets 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 is 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.
79 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
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 7.3% (2014 7.8%).
2015 Future interest Impact on Impact on Adjusted payable profit or loss: Tax equity: All figures in US$ interest at current rate gain / (loss) effect gain/(loss) If interest rate goes up by 2% to 9.3% 36,178,519 27,034,204 (9,144,315) (2,354,661) (6,789,654) If interest rate goes down by 2% to 5.3% 18,140,660 27,034,204 8,893,544 2,290,088 6,603,456
2014 Future interest Impact on Impact on Adjusted payable profit or loss: Tax equity: All figures in US$ interest at current rate gain / (loss) effect gain/(loss) If interest rate goes up by 2% to 9.8% 25,427,165 18,866,150 (6,561,015) (1,689,461) (4,871,554) If interest rate goes down by 2% to 5.8% 10,191,666 18,866,150 8,674,484 2,233,680 6,440,804
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.
At the reporting date, the exposure to listed equity securities at fair value was US$ 3 173 882. A decrease of 5% on the share price could have an impact of approximately US$159 000 on the income or equity attributable to the Group, depending on whether the decline is significant or prolonged. An increase of 5% in the value of the listed securities would only impact equity, but would not have an effect on profit or loss.
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. 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.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in the statement of financial position.
80 Financial Reporting Financial
35.6 Foreign currency risk management The schedule below shows the composition of the monetary assets, by currency at the respective year end in United States dollars at the reporting date.
Bank and cash balances- US$
All figures in US$ AUD JPY BWP Euro Rand USD GBP Total 2015 Bank and cash balances 2,168 495 14,132 741,017 599,645 92,990,625 15,546 94,363,628 Short term deposits - - - - - 875,104 - 875,104 Closing balance 2,168 495 14,132 741,017 599,645 93,865,729 15,546 95,238,732
2014 Bank and cash balances - - 6,870 21,461 452,388 70,846,414 3,888 71,331,021 Closing balance - - 6,870 21,461 452,388 70,846,414 3,888 71,331,021
Foreign currency risk is the risk that the Group may be affected adversely as a result of foreign currency fluctuations on the various currencies that the entity holds. The Group maintains cash and bank balances in various currencies so that payments can be made in the currency of the respective invoices. This covers the entity against short-term foreign currency fluctuations. In addition to this the bulk of the Group’s bank and other monetary balances are United States Dollar denominated thereby minimising this risk.
As at year end, the converted values of the non USD denominated bank and other monetary balances were minimal and insignificant to the Group hence a sensitivity analysis has not been performed for foreign currency fluctuations.
35.7 Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.
On Less than 3 to 12 1 to 5 All figures in US$ demand 3 months months years Total Year ended 28 February 2015
Interest-bearing debt 21,482,994 20,585,193 56,107,539 165,757,698 263,933,424 Trade and other payables - 138,569,201 - - 138,569,201 Deposits due to banks and other customers 23,711,243 17,924,600 - - 41,635,843
45,194,237 177,078,994 56,107,539 165,757,698 444,138,468
Year ended 28 February 2014
Interest-bearing debt 12,385,371 30,137,195 62,905,433 134,852,046 240,280,045 Trade and other payables - 168,988,197 - - 168,988,197 Deposits due to banks and other customers 10,909,404 8,453,960 - - 19,363,364
23,294,775 207,579,352 62,905,433 134,852,046 428,631,606
The disclosed financial instruments in the above table are the gross undiscounted cash flows.
81 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY
36.1 Statement of financial position for Steward Bank Limited All figures in US$ 2015 2014 ASSETS
Cash and cash equivalents 23,755,668 19,118,215 Financial assets at fair value through profit or loss 14,538,537 20,750,864 Loans and advances to customers 59,547,175 57,293,301 Loans and advances relating to furniture loans 3,292,051 10,319,006 Financial assets held to maturity 33,699,848 4,088,444 Other receivables 5,032,108 3,243,770 Investment properties 3,430,267 3,276,586 Property and equipment 3,959,860 4,571,613 Intangible assets 5,692,934 5,587,482 Deferred tax asset 11,687,315 10,497,296 164,635,763 138,746,577
EQUITY AND LIABILITIES
Deposits due to banks and customers 87,685,312 62,119,670 Loans and borrowings 8,840,300 2,307,807 Provisions 788,389 626,365 Other liabilities 3,815,499 1,892,751 Equity 63,506,263 71,799,984
164,635,763 138,746,577
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 Bank wide Risk Management Framework with all significant risk types allocated to the risk control owners.
Risk measurement and reporting systems Information compiled from all the businesses is examined and processed in order to analyse, control and identify risks on a timely basis. The Board receives a comprehensive risk report once a quarter which is designed to provide all the necessary information in order for them to exercise their oversight role.
Excessive risk concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographical location.
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.
82 Financial Reporting Financial
36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued)
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 creditworthiness 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 interest, 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 analysis 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.
83 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
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.
!NALYSIS OF MAXIMUM EXPOSURE TO CREDIT RISK AND COLLATERAL OR OTHER CREDIT ENHANCEMENTS HELD
Fair value of collateral and credit enhancements held
Maximum Letters of Net Exposure to Listed credit Exposure to All figures in US$ #REDIT 2ISK Securities /Guarantees Property Other Total #REDIT 2ISK At 28 February 2015: Financial assets: Cash and cash equivalents 18,650,991 - - - - - 18,650,991 Financial assets at fair value through profit or loss 14,538,537 - - - - - 14,538,537 Loans and advances to customers 86,155,854 - - 4,414,697 744,250 5,158,947 80,996,907 Financial assets held to maturity 33,699,848 - - - - - 33,699,848 Other receivables 5,032,108 - - - - - 5,032,108
4OTAL CREDIT RISK EXPOSURE 158,077,338 - - 4,414,697 744,250 5,158,947 152,918,391
At 28 February 2014: Financial assets: Cash and cash equivalents 12,715,322 - - - - - 12,715,322 Financial assets at fair value through profit or loss 20,750,864 - - - - - 20,750,864 Loans and advances to customers 61,897,766 - - 1,843,470 661,250 2,504,720 59,393,046 Financial assets held to maturity 4,088,444 - - - - - 4,088,444 Other receivables 3,243,768 - - - - - 3,243,768
4OTAL CREDIT RISK EXPOSURE 102,696,164 - - 1,843,470 661,250 2,504,720 100,191,444
84 Financial Reporting Financial
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 Grade B Grade C Past due Grade A Standard Sub- but not Individually All figures in US$ High grade grade standard impaired impaired Total At 28 February 2015: Individuals 14,952,872 888,042 725,895 815,261 2,568,412 19,950,482 Mining 89,133 2,159,276 - - 524,561 2,772,970 Manufacturing 26,122,567 52,145 - 5,711,818 754,125 32,640,655 Agriculture 1,367,404 1,280,384 - 300,412 952,145 3,900,345 Distribution 1,706,100 164,848 - - 542,311 2,413,259 Services 3,010,517 - 200,501 - 2,514,587 5,725,605 47,248,593 4,544,695 926,396 6,827,491 7,856,141 67,403,316
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 2015 was US$29 million (2014: US$ 30.6 million).
Neither past due nor impaired Grade B Grade C Past due Grade A Standard Sub- but not Individually All figures in US$ High grade grade standard impaired impaired Total At 28 February 2014: Individuals 134,890 240,850 1,271,868 758,510 1,005,613 3,411,731 Mining - 421,158 - - 450,000 871,158 Manufacturing 52,621,213 44,814 - - 649,898 53,315,925 Agriculture 41,682 371,929 - 234,266 889,669 1,537,546 Distribution 9,452 409,590 - - 241,044 660,086 Services 547,185 - 185,894 - 1,368,242 2,101,321 53,354,422 1,488,341 1,457,762 992,776 4,604,466 61,897,767
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 would 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.
85 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued)
All figures in US$ 2015 2014 Financial guarantees 40,313,388 63,300,000 Commitments to lend - 24,000 40,313,388 63,324,000
Included in financial guarantees at 28 February 2014 is an amount of $23.3 million extended to Econet Wireless Zimbabwe Limited, the Bank’s holding company and Econet Wireless (Private) Limited, the Bank’s fellow subsidiary. The guarantee expired in the current year.
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: 2015 2014 Maximum Minimum Maximum Minimum At 28 during during At 28 during during February period period February period period Advances to deposits ratio 105% 105% 72% 100% 146% 87% Net liquid assets to customer liabilities ratio 56% 57% 50% 29% 31% 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.
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.
86 Financial Reporting Financial
On Less than 3 months 1 year to 5 Over 5 All figures in US$ demand 3 months to 1 year years years Total At 28 February 2015:
Financial assets: Cash and cash equivalents 23,755,668 - - - - 23,755,668 Financial assets at fair value through profit or loss 14,538,537 - - - - 14,538,537 Loans and advances to customers 39,836,416 2,768,796 2,780,343 16,760,627 5,257,134 67,403,316 Loans and advances relating to furniture loans 18,752,538 - - - - 18,752,538 Financial assets held to maturity - - 15,522,683 18,177,165 - 33,699,848 Other receivables 5,032,109 - - - - 5,032,109 Total undiscounted financial assets 101,915,268 2,768,796 18,303,026 34,937,792 5,257,134 163,182,016
Financial liabilities: Deposits due to banks and customers 58,180,228 29,505,084 - - - 87,685,312 Loans and borrowings 181,500 4,600,800 2,517,000 1,541,000 - 8,840,300 Total undiscounted financial liabilities 58,361,728 34,105,884 2,517,000 1,541,000 - 96,525,612
Net undiscounted financial assets/(liabilities) 43,553,540 (31,337,088) 15,786,026 33,396,792 5,257,134 66,656,404
At 28 February 2014:
Financial assets: Cash and cash equivalents 19,118,215 - - - - 19,118,215 Financial assets at fair value through profit or loss 20,750,864 - - - - 20,750,864 Loans and advances to customers 13,212,355 139,393 1,262,120 46,647,193 636,705 61,897,766 Loans and advances relating to furniture loans - - 10,346,031 15,519,047 - 25,865,078 Financial assets held to maturity - - - - 4,088,444 4,088,444 Other receivables - 3,243,770 - - - 3,243,770 Total undiscounted financial assets 53,081,434 3,383,163 11,608,151 62,166,240 4,725,149 134,964,137
Financial liabilities: Deposits due to banks and customers 45,622,074 16,497,596 - - - 62,119,670 Loans and borrowings 918,381 437,878 1,052,817 - - 2,409,076 Total undiscounted financial liabilities 46,540,455 16,935,474 1,052,817 - - 64,528,746
Net undiscounted financial assets/(liabilities) 6,540,979 (13,552,311) 10,555,334 62,166,240 4,725,149 70,435,391
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.
On Less than 3 months 1 year to 5 Over 5 All figures in US$ demand 3 months to 1 year years years Total At 28 February 2015:
Financial guarantees Total commitments and guarantees - - 40,313,388 - - 40,313,388 - - 40,313,388 - - 40,313,388
At 28 February 2014:
Financial guarantees - - 63,300,000 - - 63,300,000 Commitments to lend - 24,000 - - - 24,000 Total commitments and guarantees - 24,000 63,300,000 - - 63,324,000
The Bank expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments.
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.
87 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued)
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.
2015 2014 Change in Sensitivity Change in Sensitivity interest of profit or Sensitivity interest of profit or Sensitivity rates loss of capital rates loss of capital % US$ US$ % US$ US$
Currency: USD +6 3,914,104 3,914,104 +6 4,763,928 4,763,928 USD +4 2,609,402 2,609,402 +4 3,175,952 3,175,952 USD +2 1,304,701 1,304,701 +2 1,587,976 1,587,976 USD -2 (1,304,701) (1,304,701) -2 (1,587,976) (1,587,976) USD -4 (2,609,402) (2,609,402) -4 (3,175,952) (3,175,952) USD -6 (3,914,104) (3,914,104) -6 (4,763,928) (4,763,928)
88 Financial Reporting Financial
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.
On Less than 3 months 1 year to 5 Over 5 All figures in US$ demand 3 months to 1 year years years Total TOTAL POSITION
At 28 February 2015
Assets: Cash and cash equivalents - - - - 23,755,668 23,755,668 Financial assets at fair value through profit or loss - - - - 14,538,537 14,538,537 Loans and advances to customers 39,836,416 2,768,796 672,577 2,107,766 14,161,620 59,547,175 Loans and advances relating to furniture loans 3,292,051 - - - - 3,292,051 Financial assets held to maturity - - 15,522,683 18,177,165 - 33,699,848 Other receivables - - - - 5,032,109 5,032,109 Investment properties - - - - 3,959,860 3,959,860 Property and equipment - - - - 3,430,267 3,430,267 Intangible assets - - - - 5,692,934 5,692,934 Deferred tax asset - - - - 11,687,314 11,687,314 43,128,467 2,768,796 16,195,260 20,284,931 82,258,309 164,635,763
Liabilities and equity: Deposits due to banks and customers 58,180,228 29,505,084 - - - 87,685,312 Loans and borrowings 181,500 4,600,800 2,517,000 1,541,000 - 8,840,300 Provisions - - - - 788,389 788,389 Other liabilities - - - - 3,815,499 3,815,499 Equity - - - - 63,506,263 63,506,263 58,361,728 34,105,884 2,517,000 1,541,000 68,110,151 164,635,763
Interest rate repricing gap (15,233,261) (31,337,088) 13,678,260 18,743,931 14,148,158 -
Cumulative gap (15,233,261) (46,570,349) (32,892,089) (14,148,158) - -
89 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
36 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY (continued)
36.2 Risk management (continued)
On Less than 3 months 1 year to 5 Over 5 All figures in US$ demand 3 months to 1 year years years Total TOTAL POSITION
At 28 February 2014
Assets: Cash and cash equivalents - - - - 19,118,215 19,118,215 Financial assets at fair value through profit or loss - - - - 20,750,864 20,750,864 Loans and advances to customers 27,958,699 139,393 1,262,120 27,933,089 - 57,293,301 Loans and advances relating to furniture loans - - - 10,319,007 - 10,319,007 Financial assets held to maturity - - - 4,088,444 - 4,088,444 Other receivables - - - - 3,243,770 3,243,770 Investment properties - - - - 3,276,586 3,276,586 Property and equipment - - - - 4,571,613 4,571,613 Intangible assets - - - - 5,587,482 5,587,482 Deferred tax asset - - - - 10,497,295 10,497,295 27,958,699 139,393 1,262,120 42,340,540 67,045,825 138,746,577
Liabilities and equity: Deposits due to banks and customers 45,622,074 16,497,596 - - - 62,119,670 Loans and borrowings 699,442 437,879 1,170,486 - - 2,307,807 Provisions - - - - 626,365 626,365 Other liabilities - - - - 1,892,751 1,892,751 Equity - - - - 71,799,984 71,799,984 46,321,516 16,935,475 1,170,486 - 74,319,100 138,746,577
Interest rate repricing gap (18,362,817) (16,796,082) 91,634 42,340,540 (7,273,275) -
Cumulative gap (18,362,817) (35,158,899) (35,067,265) 7,273,275 - -
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.
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.
90 Financial Reporting Financial
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.
The Bank’s regulatory capital position was as follows: All figures in US$ 2015 2014 Share capital 4,077 4,077 Share premium 106,317,629 106,317,629 Retained earnings (48,042,962) (36,434,372) Deferred tax asset (11,687,314) - 46,591,430 69,887,334
Less: Capital allocated for market and operational risk (2,400,917) (7,778,045) Advances to insiders (1,774,997) (1,753,119) Guarantees to insiders* (88,389) (23,300,000)
Tier 1 capital 42,327,127 37,056,170
Tier 2 capital 5,227,519 1,912,650 Non-distributable reserve 26,856 26,856 Portfolio provisions 5,200,663 1,885,794
Total Tier 1 and 2 capital 47,554,646 38,968,820
Tier 3 capital (sum of market and operational risk capital) 2,400,917 7,778,045
Total Capital Base 49,955,563 46,746,865
4OTAL RISK WEIGHTED ASSETS 141,325,266 142,527,572
Tier 1 ratio 30% 26% Tier 2 ratio 4% 1% Tier 3 ratio 1% 5% Total capital adequacy ratio 35% 32% RBZ minimum requirement 12% 12%
91 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
37 CAPITAL MANAGEMENT - IN RESPECT OF BANKING OPERATIONS (continued)
*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 $20 million and $8 million, respectively, which were obtained from Afrexim Bank. The loan facilities have a tenor of 12 months, with monthly repayments of capital and interest. In line with banking regulations governing the treatment of bank exposures to insiders, the Bank took the prudent approach of reflecting the guarantee facility amounts remaining as a reduction to its core capital at 28 February 2014. The amount of the bank guarantees however reduces on a monthly basis in line with Econet Wireless Zimbabwe Limited and Econet Wireless (Private) Limited’s loan repayments to Afrexim Bank, resulting in a corresponding decrease to the reduction in core capital emanating from the guarantees advanced to insiders. As at 28 February 2015, the guarantee had expired.
38 OPERATING LEASE ARRANGEMENTS
38.1 Leasing arrangements Operating leases include leases of certain buildings and sites where the Group’s base stations are located. The remaining lease terms vary between 4 months and 8 years. Various options exist for the Group to renew the leasing arrangements on expiry.
All figures in US$ 2015 2014
38.2 Payments recognised as an expense Minimum lease payments 6,241,007 3,412,798
38.3 Non-cancellable lease commitments Not later than one year 5,983,462 6,304,543 Later than one year and not later than five years 17,951,563 14,813,035 Later than five years 624,786 5,739,852 24,559,811 26,857,430
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 still appropriate.
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$ 2015 2014
Authorised and contracted for 72,378,031 139,940,260 Authorised and not contracted for 3,325,270 49,765,045
75,703,301 189,705,305
92 Financial Reporting Financial
The capital expenditure is to be financed from internal cash generation, extended supplier credits and bank credit.
42 CONTINGENT LIABILITIES
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 SUBSIDIARIES
43.1 Acquisition of Steward Health (Private) Limited The Group acquired 100% of the shares of Steward Health (Private) Limited on 1 March 2014. As a result, Steward Health (Private) Limited was consolidated as a subsidiary from that date. The Group acquired Steward Health (Private) Limited because it 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 Health (Private) Limited as at the date of acquisition were: Fair value recognised on acquisition All figures in US$ 2015 Assets Property, equipment and vehicles 46,223 Inventory 1,582 Available for sale investments 2,072 Trade and other receivables 160,332 Deferred taxation 6,280 Cash and cash equivalents 120,631 337,120 Liabilities Trade and other payables (61,805) (61,805)
Total identifiable net assets at fair value 275,315 Goodwill 224,685 Purchase consideration 500,000
The fair values of trade and other receivables at acquisition date were US$160,332. The gross contractual amounts of trade and other receivables at acquisition date were US$160,332.
Fair value recognised on acquisition All figures in US$ 2015 Purchase consideration: Consideration paid Paid for by treasury shares 366,070 Take-over of debt owed by Steward Health (Private) Limited 133,930
Total consideration 500,000
Analysis of cash flows on acquisition: Net cash acquired with the subsidiary (included in cash flows from investing activities) 120,631 Consideration paid for in cash on acquisition of subsidiary -
Net cash inflow on acquisition of subsidiary 120,631
93 Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
43 ACQUISITION OF SUBSIDIARIES (continued)
43.2 Acquisition of additional interest in Transaction Payment Solutions (Private) Limited On 1 November 2014, the Group acquired an additional 15.7% interest in the voting shares of Transaction Payment Solutions (Private) Limited, increasing its ownership interest to 100%. Cash consideration of $26 101 was paid to the non-controlling shareholders. Following is a schedule of additional interest acquired in Transaction Payment Solutions (Private) Limited:
US$ Cash consideration paid to non-controlling shareholders 26,101 Carrying value of the additional interest in Transaction Payment Solutions (Private) Limited 349,864 Difference recognised in retained earnings 375,965
43.3 Goodwill
As at 28 February 2013 6,090,632
Movements -
As at 28 February 2014 6,090,632
Acquisition of subsidiary 224,685 Impairment of Goodwill (224,685)
As at 28 February 2015 6,090,632 Impairment testing of Goodwill The goodwill relates to the investment in Steward Bank.
The Group performed its annual impairment test as at February 2015 and February 2014. The Group considers the relationship between the investment in subsidiary and its net book value, among other factors, when reviewing for indicators of impairment. The pre-tax discount rate applied to cash flow projections is 15% (2014: 15%). As a result of this analysis, management did not identify an impairment of goodwill.
Key assumptions used in value in use calculations and sensitivity to changes in assumptions The calculation of value in use is most sensitive to the following assumptions: - Discount rates
Discount rates Discount rates represent the current market assessment of the risks specific to the Group, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of debt is based on the interest-bearing borrowings the Group is obliged to service. Adjustments to the discount rate are made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate.
A rise in pre-tax discount rate to 17% (i.e. +2%) would not result in an impairment.
43.4 Impact of acquisition on results of the Group Included in the profit for the year ended 28 February 2015, is a loss of US$375 660 attributable to Steward Health (Private) Limited. Revenue for the year includes US$710 359 relating to Steward Health (Private) Limited.
43.5 Compulsory acquisition of remaining non-controlling interest In the prior financial year, the Group acquired the remaining 1.4% of the shares in Steward Bank effectively owning the bank 100%.
Fair value recognised on acquisition All figures in US$ 2014 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$302 859 to the remaining non-controlling interest for this acquisition.
94 Financial Reporting Financial
44 EVENTS AFTER THE REPORTING DATE
There have been no material subsequent events.
45 APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the board of directors and authorised for issue on 29 April 2015.
46 COMPANY STATEMENT OF FINANCIAL POSITION
All figures in US$ Note 2015 2014 ASSETS Non-current assets Property, plant and equipment 622,500 622,500 Investment in subsidiaries 16.1 127,881,312 124,469,861 Available-for-sale investments - 366,070 Investment in associate 18.1 29,816,203 20,768,186 Long term intercompany receivable 16.2 1,886,351 1,886,351
Total non-current assets 160,206,366 148,112,968
Current assets
Short-term inter-company receivables 16.2 - 16,385,901 Other receivables 4,296,056 - Cash and cash equivalents 501,669 792,151 Total currents assets 4,797,725 17,178,052
Total assets 165,004,091 165,291,020
EQUITY AND LIABILITIES
EQUITY
Share capital and reserves (12,654,949) (7,341,861)
LIABILITIES
Non current liabilities Intercompany payables 16.3 177,242,771 154,109,695
Current liabilities Short term portion of long term borrowings - 16,385,901 Other payables 416,269 2,137,285
Total current liabilities 416,269 18,523,186
Total equity and liabilities 165,004,091 165,291,020
Dr J. Myers D. Mboweni K. V. Chirairo CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR
29 April 2015
95 Policy Notes to the Consolidated Financial Statements For the year ended 28 February 2015
Policy note IFRS/IAS reference Content
A IAS 1(revised) Presentation of financial statements: General information and functional currency
B IAS 1(revised) Basis of preparation
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, 10 Business combinations and goodwill
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 and intangible assets
L IAS 17 Leases
M IAS 2 Inventories
N IAS 18 Revenue
O Other Income
P IAS 12 Income taxes
Q IAS 19 Employee benefits and retirement benefits
R IAS 1(revised) Current versus non-current classification
S IFRS 13 Fair value measurements
T IFRIC 17 Cash dividend and non-cash distribution to equity holders of the parent
U IAS 39, IFRS 7 Financial instruments – initial recognition, subsequent measurement and disclosure
V IAS 7 Cash and short term deposits
W IAS 32 Treasury shares
X IAS 37 Provisions
Y Fiduciary assets
Z IFRS 8 Operating segments
AA IAS 1 (Revised) Significant assumptions and key sources of estimation uncertainty
96 Financial Reporting Financial
A GENERAL INFORMATION s 4HE CONTRACTUAL ARRANGEMENT WITH THE other vote holders of the investee A.1 The Company s 2IGHTS ARISING FROM OTHER CONTRACTUAL The Company was incorporated in Zimbabwe on arrangements 4 August 1998 and its main operating subsidiary, s 4HE 'ROUPS VOTING RIGHTS AND POTENTIAL Econet Wireless (Private) Limited, on 23 August voting rights 1994. The address of its registered office and principal place of business is Econet Park, 2 Old The Group re-assesses whether or not it controls Mutare Road, Msasa, Harare. The main business an investee if facts and circumstances indicate of the Group is mobile telecommunications and that there are changes to one or more of the related overlay services. The ultimate holding three elements of control. Consolidation of a company for the Group is Econet Wireless Global subsidiary begins when the Group obtains control Limited which is incorporated in Mauritius. over the subsidiary and ceases when the Group Except where specific reference is made to “the loses control of the subsidiary. Assets, liabilities, Company”, the notes disclosed in these financial income and expenses of a subsidiary acquired or statements pertain to the Group. disposed of during the year are included in the consolidated financial statements from the date A.2 Currency of Account the Group gains control until the date the Group These consolidated financial statements are ceases to control the subsidiary. presented in United States Dollars (US$) being the functional and presentation currency of the Profit or loss and each component of Other primary economic environment in which the Comprehensive Income (OCI) are attributed to Group operates. the equity holders of the parent of the Group and to the non-controlling interests, even if this B.1 BASIS OF PREPARATION results in the non-controlling interests having a The Group’s financial statements have been deficit balance. When necessary, adjustments are prepared in accordance with International Financial made to the financial statements of subsidiaries Reporting Standards (IFRS), the International to bring their accounting policies into line with the Financial Reporting Interpretations Committee Group’s accounting policies. All intra-group assets (IFRIC) and the Zimbabwe Companies Act and liabilities, equity, income, expenses and cash (Chapter 24:03) and related statutory instruments. flows relating to transactions between members With the exceptions noted below in policy Note C1 of the Group are eliminated in full on consolidation. “New and Revised Standards and Interpretations- Adopted”, the accounting policies set out below A change in the ownership interest of a subsidiary, have been consistently applied from the previous without a loss of control, is accounted for as an year and through the current year. equity transaction. B.2 BASIS OF CONSOLIDATION If the Group loses control over a subsidiary, The consolidated financial statements comprise it derecognises the related assets (including the financial statements of the Group and its goodwill), liabilities, non-controlling interest and subsidiaries as at 28 February 2015. Control other components of equity while any resultant is achieved when the Group is exposed, or has gain or loss is recognised in profit or loss. Any rights, to variable returns from its involvement investment retained is recognised at fair value. with the investee and has the ability to affect those returns through its power over the investee C NEW AND REVISED STANDARDS if, and only if, the Group has: s 0OWER OVER THE INVESTEE IE EXISTING C.1 New and Revised Standards and rights that give it the current ability to direct Interpretations - Adopted the relevant activities of the investee) The Group applied for the first time certain s %XPOSURE OR RIGHTS TO VARIABLE RETURNS standards and amendments, which were effective from its involvement with the investee for the Group from 1 March 2014. s 4HE ABILITY TO USE ITS POWER OVER THE investee to affect its returns The nature and the impact of each new standard and amendment is described below: 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:
97 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
IFRS 10, IFRS 12 and IAS 27 Investment IAS 32 Offsetting Financial Assets and Entities (Amendments) Financial Liabilities — Amendments to IAS 32 The investment entities amendments provide an Effective for annual periods beginning on or exception to the consolidation requirement for after 1 January 2014. entities that meet the definition of an investment The amendments to IAS 32 clarify the meaning entity. of “currently has a legally enforceable right to set- off”. The amendments also clarify the application The key amendments include: of the IAS 32 offsetting criteria to settlement s @)NVESTMENT ENTITY IS DElNED IN )&23 systems (such as central clearing house systems), s !N ENTITY MUST MEET ALL THREE ELEMENTS which apply gross settlement mechanisms that of the definition and consider whether it are not simultaneous. has four typical characteristics, in order to qualify as an investment entity The amendments clarify that rights of set-off s !N ENTITY MUST CONSIDER ALL FACTS AND must not only be legally enforceable in the normal circumstances, including its purpose and course of business, but must also be enforceable design, in making its assessment in the event of default and the event of bankruptcy s !N INVESTMENT ENTITY ACCOUNTS FOR ITS or insolvency of all of the counterparties to the investments in subsidiaries at fair value contract, including the reporting entity itself. The through profit or loss in accordance with amendments also clarify that rights of set-off IFRS 9 (or IAS 39, as applicable), except must not be contingent on a future event. for investments in subsidiaries that provide services that relate to the entity’s The IAS 32 offsetting criteria require the reporting investment activities, which must be entity to intend either to settle on a net basis, consolidated or to realise the asset and settle the liability s !N INVESTMENT ENTITY MUST MEASURE simultaneously. The amendments clarify that its investment in another controlled only gross settlement mechanisms with features investment entity at fair value that eliminate or result in insignificant credit and s ! NON INVESTMENT ENTITY PARENT OF AN liquidity risk and that process receivables and investment entity is not permitted to payables in a single settlement process or cycle retain the fair value accounting that the would be, in effect, equivalent to net settlement investment entity subsidiary applies to its and, therefore, meet the net settlement criterion. controlled investees s &OR VENTURE CAPITAL ORGANISATIONS MUTUAL The amendments must be applied retrospectively. funds, unit trusts and others that do not Early application is permitted. If an entity chooses qualify as investment entities, the existing to early adopt, it must disclose that fact and option in IAS 28, to measure investments also make the disclosure required by IFRS 7 in associates and joint ventures at fair Disclosures — Offsetting Financial Assets and value through profit or loss, is retained. Financial liabilities — Amendments to IFRS 7.
The amendments must be applied retrospectively, These amendments have no impact on the Group, subject to certain transition reliefs. since none of the entities in the Group has any offsetting arrangements. Early application is permitted and must be disclosed. IAS 39 Novation of Derivatives and Continuation of Hedge Accounting — The concept of an investment entity is new in Amendments to IAS IFRS. The amendments represent a significant The amendments provide an exception to the change for investment entities, which are currently requirement to discontinue hedge accounting in required to consolidate investees that they control. certain circumstances in which there is a change Significant judgement of facts and circumstances in counterparty to a hedging instrument in order may be required to assess whether an entity to achieve clearing for that instrument. The meets the definition of investment entity. amendments cover novations: s 4HAT ARISE AS A CONSEQUENCE OF LAWS OR These amendments have no impact on the Group, regulations, or the introduction of laws or since none of the entities in the Group qualifies to regulations be an investment entity under IFRS 10. s )N WHICH THE PARTIES TO THE HEDGING instrument agree that one or more clearing counterparties replace the original counterparty to become the new counterparty to each of the parties s 4HAT DID NOT RESULT IN CHANGES TO THE
98 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
terms of the original derivative other than C.2 Standards issued but not yet effective at changes directly attributable to the change reporting date in counterparty to achieve clearing IFRS 9 Financial Instruments – classification All of the above criteria must be met to continue and measurement hedge accounting under this exception. On 24 July 2014, the International Accounting Standards Board (IASB) issued the final version The amendments cover novations to central of IFRS 9-Financial Instruments bringing together counterparties, as well as to intermediaries such the classification and measurement, impairment as clearing members, or clients of the latter that and hedge accounting phases of the IASB’s are themselves intermediaries. project to replace IAS 39 Financial Instruments: Recognition and Measurement and all previous For novations that do not meet the criteria for the versions of IFRS 9. The classification and exception, entities have to assess the changes to measurement requirements address specific the hedging instrument against the de-recognition application issues arising in IFRS 9 (2009) that criteria for financial instruments and the general were raised by preparers, mainly from the financial conditions for continuation of hedge accounting. services industry. The expected credit loss model addresses concerns expressed following the The amendments must be applied retrospectively. financial crisis that entities recorded losses too Early application is permitted and must be late under IAS 39. disclosed. The Group currently has no derivatives and therefore there is no significant impact on the IFRS 9 stipulates that financial assets are measured Group financial statements. at amortised cost, fair value through profit or loss, or fair value through other comprehensive income, IFRIC 21 Levies based on both the entity’s business model for IFRIC 21 is applicable to all levies other than managing the financial assets and the financial outflows that are within the scope of other asset’s contractual cash flow characteristics. standards (e.g., IAS 12 Income Taxes) and fines or other penalties for breaches of legislation. Levies Apart from the ‘own credit risk’ requirements, are defined in the interpretation as outflows of classification and measurement of financial resources embodying economic benefits imposed liabilities is unchanged from existing requirements. by governments on entities in accordance with IFRS 9 is applicable for annual periods beginning legislation. on or after 1 January 2018, but early adoption is permitted. The Group is still assessing the impact The interpretation clarifies that an entity of IFRS 9. recognises a liability for a levy when the activity that triggers payment, as identified by the relevant IFRS 15 Revenue from Contracts with legislation, occurs. It also clarifies that a levy Customers liability is accrued progressively only if the activity The IASB and FASB have issued their joint that triggers payment occurs over a period of revenue recognition standard, IFRS 15 Revenue time, in accordance with the relevant legislation. from Contracts with Customers, which replaces For a levy that is triggered upon reaching a all existing IFRS and US GAAP revenue minimum threshold, the interpretation clarifies requirements. The core principle of IFRS 15 is that no liability is recognised before the specified that revenue is recognised to depict the transfer minimum threshold is reached. of promised goods or services to customers in an amount that reflects the consideration to which The interpretation does not address the accounting the entity expects to be entitled in exchange for for the debit side of the transaction that arises those goods or services. from recognising a liability to pay a levy. Entities look to other standards to decide whether the IFRS 15 establishes a five-step model that will recognition of a liability to pay a levy would give apply to revenue earned from a contract with a rise to an asset or an expense under the relevant customer (with limited exceptions), regardless of standards. the type of revenue transaction or the industry. The standard’s requirements will also apply to the The interpretation must be applied retrospectively. recognition and measurement of gains and losses Early application is permitted and must be on the sale of some non-financial assets that are disclosed. The interpretation has no impact on the not an output of the entity’s ordinary activities Group as it has applied the recognition principles (e.g., sales of property, plant and equipment under IAS 37 Provisions, Contingent Liabilities or intangibles). Extensive disclosures will be and Contingent Assets consistent with the required, including disaggregation of total revenue; requirements of IFRIC 21 in prior years. information about performance obligations;
99 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
changes in contract asset and liability account existing business is contributed by the entity to balances between periods and key judgements the joint operation on its formation. Furthermore, and estimates. the amendments clarify that for the acquisition of an additional interest in a joint operation in which The standard is effective for annual periods the activity of the joint operation constitutes a beginning on or after 1 January 2017, but early business; previously held interests in the joint adoption is permitted under IFRS. The Group is operation must not be remeasured if the joint still assessing the impact of the standard on its operator retains joint control. contracts with customers. The amendments are applied prospectively and IAS 16 and IAS 38 Clarification of Acceptable are effective for annual periods beginning on or Methods of Depreciation and Amortisation after 1 January 2016. The Group will consider The IASB issued amendments to IAS 16 Property, the amendments when it enters into transactions Plant and Equipment and IAS 38 Intangible Assets where the amendments are applicable. prohibiting the use of revenue-based depreciation methods for fixed assets and limiting the use Applying the Consolidation Exception - of revenue-based amortisation methods for Amendments to IFRS 10, IFRS 12 and IAS 28 intangible assets. The amendments are effective The amendments address issues that have arisen prospectively. The amendment becomes effective in applying the investment entities exception for annual periods beginning on or after 1 January under IFRS 10. The amendments to IFRS 10 clarify 2016 and will not have any impact on the Group as that the exemption from presenting consolidated depreciation is not based on revenue methods. financial statements applies to a parent entity that is a subsidiary of an investment entity, when the IFRS 10 and IAS 28 Sale or Contribution of investment entity measures all of its subsidiaries at Assets between an Investor and its Associate fair value. Furthermore, the amendments to IFRS or Joint Venture – Amendments to IFRS 10 10 clarify that only a subsidiary of an investment and IAS 28 entity that is not an investment entity itself and The amendments address the conflict between that provides support services to the investment IFRS 10 and IAS 28 in dealing with the loss of entity is consolidated. All other subsidiaries of an control of a subsidiary that is sold or contributed investment entity are measured at fair value. to an associate or joint venture. The amendments clarify that the gain or loss resulting from the The amendments to IAS 28 allow the investor, sale or contribution of assets that constitute when applying the equity method, to retain the a business, as defined in IFRS 3 Business fair value measurement applied by the investment Combinations, between an investor and its entity associate or joint venture to its interests in associate or joint venture, is recognised in full. Any subsidiaries. gain or loss resulting from the sale or contribution of assets that do not constitute a business, The amendments are effective for annual periods however, is recognised only to the extent of beginning on or after 1 January 2016 and are not unrelated investors’ interests in the associate or expected to affect the Group as no companies joint venture. within the Group meet the definition of an investment entity. The amendments are effective for annual periods beginning on or after 1 January 2016 and must be IAS 19 Defined Benefit Plans: Employee applied prospectively. The Group will consider the Contributions — Amendments to IAS 19 amendments when they become effective. IAS 19 requires an entity to consider contributions from employees or third parties when accounting IFRS 11 Accounting for Acquisitions of for defined benefit plans. IAS 19 requires such Interests in Joint Operations – Amendments contributions that are linked to service to be to IFRS 11 attributed to periods of service as a negative The amendments require an entity acquiring an benefit. interest in a joint operation in which the activity of the joint operation constitutes a business to apply, The amendments clarify that, if the amount of to the extent of its share, all of the principles in the contributions is independent of the number IFRS 3, and other IFRSs, that do not conflict with of years of service, an entity is permitted to the requirements of IFRS 11. Furthermore, entities recognise such contributions as a reduction in the are required to disclose the information required in service cost in the period in which the service is those IFRSs in relation to business combinations. rendered, instead of allocating the contributions to the periods of service. The amendments also apply to an entity on the formation of a joint operation if, and only if, an
100 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
The amendments are effective for annual periods C.3 Improvements to existing standards beginning on or after 1 July 2014 and are not expected to affect the Group as it does not have 2010- 2012 annual cycle of improvements defined benefit schemes. (issued December 2013) In December 2013, the IASB issued two cycles IAS 27 Equity Method in Separate Financial of Annual Improvements to IFRS. The changes Statements – Amendments to IAS 27 are effective from 1 July 2014 either prospectively The amendments to IAS 27 Separate Financial or retrospectively. A summary of applicable Statements allow an entity to use the equity amendments is described below: method as described in IAS 28 to account for its investments in subsidiaries, joint ventures and IFRS 3 Business Combinations - Scope for associates in its separate financial statements. joint ventures Therefore, an entity must account for these The amendment clarifies that joint arrangements investments either: are outside the scope of IFRS 3, not just joint s !T COST ventures, and the scope exception applies only s )N ACCORDANCE WITH )!3 OR to the accounting in the financial statements of s 5SING THE EQUITY METHOD the joint arrangement itself. Amendment will be considered by the Group when it becomes The entity must apply the same accounting for effective to the extent applicable. each category of investments. IFRS 3 Business Combinations - Accounting The amendments must be applied retrospectively for contingent consideration in a business and are effective for year ends beginning on or after combination 1 January 2016 with early adoption permitted. The Contingent consideration in a business acquisition parent entity early adopted the amendment and that is not classified as equity is subsequently investments in associates are being accounted for measured at fair value through profit or loss using the equity method in the separate financial whether or not it falls within the scope of IFRS statements. 9 Financial Instruments. The amendment will not affect the Group as it does not have any contingent IAS 1 Disclosure Initiative – Amendments to considerations. IAS 1 The amendments to IAS 1 Presentation of Financial IFRS 8 Operating Segments - Aggregation of Statements clarify, rather than significantly operating segments and reconciliation of the change, existing IAS 1 requirements. total of the reportable segment assets to the entity’s total assets The amendments clarify: Operating segments may be combined/ s 4HE MATERIALITY REQUIREMENTS IN )!3 aggregated if they are consistent with the core s 4HAT SPECIlC LINE ITEMS IN THE STATEMENTS principle of the standard, if the segments have of profit or loss and OCI and the statement similar economic characteristics and if they are of financial position may be disaggregated. similar in other qualitative respects. If they are s 4HAT ENTITIES HAVE mEXIBILITY AS TO THE ORDER combined, the entity must disclose the economic in which they present the notes to financial characteristics (e.g., sales and gross margins) used statements to assess whether the segments are ‘similar’. The s 4HAT THE SHARE OF /#) OF ASSOCIATES AND JOINT amendment will not have a material impact on the ventures accounted for using the equity Group financial statements as no segments are method must be presented in aggregate combined. as a single line item, and classified between those items that will or will not be Reconciliation of the total of the reportable subsequently reclassified to profit or loss. segment assets to the entity’s total assets Furthermore, the amendments clarify the The reconciliation of segment assets to total assets requirements that apply when additional is only required to be disclosed if the reconciliation sub-totals are presented in the Statement is reported to the chief operating decision maker, of Financial Position and the statement(s) similar to the required disclosure for segment of profit or loss and other comprehensive liabilities. The amendment will not have a material income. impact on the Group financial statements as the entity provides the reconciliation to the Chief The amendments are effective for annual periods Decision maker and a reconciliation is included beginning on or after 1 January 2016 and early under Note 1. application is encouraged.
101 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
IFRS 13 Fair value measurement - Portfolio The Group will consider the amendment, where exception applicable, when it becomes effective. The amendment clarifies that the portfolio exception in IFRS 13 can be applied to financial IFRS 7 – Applicability of the offsetting assets, financial liabilities and other contracts. The disclosures to condensed interim financial amendment is not expected to affect the Group as statements. it does not have financial assets, financial liabilities In December 2011, IFRS 7 was amended to and other contracts that meet this criteria. add guidance on offsetting of financial assets and financial liabilities. In the effective date and IAS 24 Related party disclosures - Key transition for that amendment, paragraph 44R of management personnel IFRS 7 states that “An entity shall apply those The amendment clarifies that a management amendments for annual periods beginning on or entity (an entity that provides key management after 1 January 2013 and interim periods within personnel services) is a related party subject to those annual periods. the related party disclosures. In addition, an entity that uses a management entity is required to The interim disclosure standard, IAS 34, does not disclose the expenses incurred for management reflect this requirement, however, and it is not services. The amendment will not affect the clear whether those disclosures are required in Group as it has no management entity providing the condensed interim financial report. key management services to the Group. The amendment removes the phrase ‘and IAS 40 Investment property - Clarifying the interim periods within those annual periods’ interrelationship of IFRS 3 and IAS 40 when from paragraph 44R, clarifying that these IFRS classifying investment property or owner 7 disclosures are not required in the condensed occupied property - Amendment to IAS 40 interim financial report. However, the IASB noted The description of ancillary services in IAS 40 that IAS 34 requires an entity to disclose ‘an differentiates between investment property explanation of events and transactions that are and owner occupied property. IFRS 3 is used to significant to an understanding of the changes in determine if the transaction is the purchase of financial position and performance of the entity an asset or a business combination. The Group since the end of the last annual reporting period’. will consider the amendment when it enters Therefore, if the IFRS 7 disclosures provide a into business combination transactions where significant update to the information reported in judgement needs to be applied to determine the most recent annual report, the IASB would whether the transaction is a purchase of a expect the disclosures to be included in the business or an asset. entity’s condensed interim financial report.
2012 – 2014 Annual improvement cycle (issued The Group will consider the amendments in September 2014) preparing its interim financial statements when In September 2014, the International Accounting they become effective. Standards Board (“IASB”) issued Annual Improvements to IFRSs 2012-2014 cycle, which IAS 34 Disclosure of information ‘elsewhere in contains five amendments to four standards, the interim financial report’. excluding consequential amendments. The IAS 34 requires entities to disclose information in amendments are effective for annual periods the notes to the interim financial statements ‘if not beginning on or after 1 January 2016. Below is a disclosed elsewhere in the interim financial report’. list of those amendments. However, it is unclear what the IASB means by ‘elsewhere in the interim financial report’. IFRS 7 – Servicing Contracts Paragraphs 42A - H of IFRS 7 require an entity to The amendment states that the required interim provide disclosures for any continuing involvement disclosures must either be in the interim financial in a transferred asset that is derecognised in its statements or incorporated by cross-reference entirety. The amendment clarifies that a servicing between the interim financial statements and contract that includes a fee can constitute wherever they are included within the greater continuing involvement in a financial asset. An interim financial report (e.g., in the management entity must assess the nature of the fee and commentary or risk report). arrangement against the guidance for continuing involvement in paragraphs IFRS 7.B30 and IFRS The IASB specified that the other information 7.42C in order to assess whether the disclosures within the interim financial report must be are required. available to users on the same terms as the interim financial statements and at the same time. If
102 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
users do not have access to the other information of the item i.e. translation differences on items in this manner, then the interim financial report is whose fair value gain or loss is recognised in incomplete. other comprehensive income or profit or loss is also recognised in other comprehensive income The Group will consider the amendments, when or profit or loss. they become effective, when preparing its interim financial report. E BUSINESS COMBINATIONS AND GOODWILL Business combinations are accounted for using IFRS 5 – Changes in methods of disposal the acquisition method. The cost of an acquisition Assets (or disposal groups) are generally disposed is measured as the aggregate of the consideration of either through sale or through distribution to transferred measured at acquisition date fair value owners. The amendment to IFRS 5 clarifies that and the amount of any non-controlling interests changing from one of these disposal methods to in the acquiree. For each business combination, the other should not be considered to be a new the Group elects whether to measure the non- plan of disposal, rather it is a continuation of the controlling interests in the acquiree at fair value original plan. There is therefore no interruption of or at the proportionate share of the acquiree’s the application of the requirements in IFRS 5. identifiable net assets. Acquisition-related costs are expensed as incurred and included in The amendment must be applied prospectively administrative expenses. to changes in methods of disposal that occur in annual periods beginning on or after 1 January When the Group acquires a business, it assesses 2016, with earlier application permitted. the financial assets and liabilities assumed for appropriate classification and designation in The Group will consider the amendment, if accordance with the contractual terms, economic applicable, when it becomes effective. circumstances and pertinent conditions as at the acquisition date. This includes the separation of SUMMARY OF SIGNIFICANT ACCOUNTING embedded derivatives in host contracts by the POLICIES acquiree.
D FOREIGN CURRENCIES If the business combination is achieved in stages, The Group’s consolidated financial statements are any previously held equity interest is remeasured presented in United States dollars, which is also at its acquisition date fair value and any resulting the parent company’s functional currency. For gain or loss is recognised in profit or loss. each entity the Group determines the functional currency and items included in the financial Any contingent consideration to be transferred statements of each entity are measured using that by the acquirer will be recognised at fair value functional currency. at the acquisition date. Contingent consideration classified as an asset or liability that is a Transactions in foreign currencies are initially financial instrument and within the scope of recorded by the Group’s entities at their IAS 39 Financial Instruments: Recognition and respective functional currency spot rates at the Measurement, is measured at fair value with date the transaction first qualifies for recognition. changes in fair value recognised either in profit Monetary assets and liabilities denominated in or loss or as a change to OCI. If the contingent foreign currencies are translated at the functional consideration is not within the scope of IAS 39, currency spot rates of exchange at the reporting it is measured in accordance with the appropriate date. Differences arising on settlement or IFRS. Contingent consideration that is classified translation of monetary items are recognised in as equity is not re-measured and subsequent profit or loss. settlement is accounted for within equity.
Non-monetary items that are measured in Goodwill is initially measured at cost, being the terms of historical cost in a foreign currency are excess of the aggregate of the consideration translated using the exchange rates as at the transferred and the amount recognised for non- dates of the initial transactions. Non-monetary controlling interests, and any previous interest items measured at fair value in a foreign currency held, over the net identifiable assets acquired are translated using the exchange rates at the date and liabilities assumed. If the fair value of the when the fair value is determined. net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses The gain or loss arising on re-translation of whether it has correctly identified all of the non-monetary items is treated in line with the assets acquired and all of the liabilities assumed recognition of gain or loss on change in fair value and reviews the procedures used to measure
103 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
the amounts to be recognised at the acquisition The aggregate of the Group’s share of profit date. If the reassessment still results in an excess or loss of an associate is shown on the face of of the fair value of net assets acquired over the the statement of comprehensive income and aggregate consideration transferred, then the gain represents profit or loss after tax and non- is recognised in profit or loss. controlling interests in the subsidiaries of the associate. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. The financial statements of the associate are For the purpose of impairment testing, goodwill prepared for the same reporting period as the acquired in a business combination is, from the Group. acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit After application of the equity method, the from the combination, irrespective of whether Group determines whether it is necessary to other assets or liabilities of the acquiree are recognise an impairment loss on its investment in assigned to those units. its associate. At each reporting date, the Group determines whether there is objective evidence Where goodwill has been allocated to a cash- that the investment in the associate is impaired. generating unit and part of the operation within that If there is such evidence, the Group calculates the unit is disposed of, the goodwill associated with amount of impairment as the difference between the disposed operation is included in the carrying the recoverable amount of the associate and its amount of the operation when determining the carrying value, and then recognises the loss in the gain or loss on disposal. Goodwill disposed in Statement of Comprehensive Income. these circumstances is measured based on the relative values of the disposed operation and the Upon loss of significant influence over the portion of the cash-generating unit retained. associate, the Group measures and recognises any retained investment at its fair value. Any F INVESTMENTS IN ASSOCIATES difference between the carrying amount of the An associate is an entity over which the Group has associate upon loss of significant influence and significant influence. Significant influence is the the fair value of the retained investment and power to participate in the financial and operating proceeds from disposal is recognised in profit or policy decisions of the investee, but is not control loss. or joint control over those policies. G INTANGIBLE ASSETS The considerations made in determining Intangible assets acquired separately are measured significant influence are similar to those necessary on initial recognition at cost. The cost of intangible to determine control over subsidiaries. assets acquired in a business combination is their fair value at the date of acquisition. Following The Group’s investment in its associate are initial recognition, intangible assets are carried accounted for using the equity method. at cost less any accumulated amortisation and accumulated impairment losses. Under the equity method, the investment in an associate or a joint venture is initially recognised Internally generated intangibles, excluding at cost. The carrying amount of the investment is capitalised development costs, are not capitalised adjusted to recognise changes in the Group’s share and the related expenditure is reflected in profit of net assets of the associate since the acquisition or loss in the period in which the expenditure is date. Goodwill relating to the associate is included incurred. in the carrying amount of the investment and is not tested for impairment individually. The useful lives of intangible assets are assessed as either finite or indefinite. The statement of comprehensive income reflects the Group’s share of the results of operations Intangible assets with finite lives are amortised of the associate. Any change in OCI of those over the useful economic life and assessed for investees is presented as part of the Group’s impairment whenever there is an indication OCI. In addition, when there has been a change that the intangible asset may be impaired. The recognised directly in the equity of the associate, amortisation period and the amortisation method the Group recognises its share of any changes, for an intangible asset with a finite useful life are when applicable, in the statement of changes in reviewed at least at the end of each reporting equity. Unrealised gains and losses resulting from period. Changes in the expected useful life or transactions between the Group and the associate the expected pattern of consumption of future are eliminated to the extent of the interest in the economic benefits embodied in the asset are associate. considered to modify the amortisation period
104 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
or method, as appropriate, and are treated as government agency with the option of renewal at changes in accounting estimates. The amortisation the end of this period. As a result, the licence is expense on intangible assets with finite lives is assessed as having a finite useful life. recognised in the statement of comprehensive income in the expense category that is consistent Software comprises software held by Transaction with the function of the intangible assets. Payment Solutions (Private) Limited, software held by Econet Wireless (Private) Limited, and Intangible assets with indefinite useful lives are not software held by Steward Bank Limited. amortised, but are tested for impairment annually, The software and licences are amortised as either individually or at the cash-generating unit follows: level. The assessment of indefinite life is reviewed - licence held by Econet Wireless (Private) Limited annually to determine whether the indefinite life amortised over 20 years. continues to be supportable. If not, the change in - software held by Transaction Payment Solutions useful life from indefinite to finite is made on a (Private) Limited is amortised over 2 to 4 years; prospective basis. - software held by Econet Wireless (Private) Limited is amortised over 5 years; and De-recognition - software held by Steward Bank Limited is An intangible asset shall be de-recognised: amortised over 4 years. (a) on disposal; or (b) when no future economic benefits are H BORROWING COSTS expected from its use or disposal. Borrowing costs directly attributable to the acquisition, construction or production of an Gains or losses arising from de-recognition of an asset that necessarily takes a substantial period intangible asset are measured as the difference of time to get ready for its intended use or sale between the net disposal proceeds and the are capitalised as part of the cost of the asset. All carrying amount of the asset and are recognised other borrowing costs are expensed in the period in the statement of comprehensive income when in which they occur. Borrowing costs consist of the asset is derecognised. interest and other costs that an entity incurs in connection with the borrowing of funds. G.1 Research and development costs Research costs are expensed as incurred. I PROPERTY, PLANT AND EQUIPMENT Development expenditures on an individual project Capital work in progress, plant and equipment are recognised as an intangible asset when the and land and buildings are stated at cost, net Group can demonstrate: of accumulated depreciation and accumulated s 4HE TECHNICAL FEASIBILITY OF COMPLETING THE impairment losses, if any. Such cost includes the intangible asset so that the asset will be cost of replacing part of the plant and equipment available for use or sale and borrowing costs for long-term construction s )TS INTENTION TO COMPLETE AND ITS ABILITY AND projects if the recognition criteria are met. When intention to use or sell the asset significant parts of plant and equipment are s (OW THE ASSET WILL GENERATE FUTURE required to be replaced at intervals, the Group economic benefits depreciates them separately based on their s 4HE AVAILABILITY OF RESOURCES TO COMPLETE specific useful lives. Likewise, when a major the asset inspection is performed, its cost is recognised in s 4HE ABILITY TO MEASURE RELIABLY THE the carrying amount of the plant and equipment expenditure during development as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs Following initial recognition of the development are recognised in profit or loss as incurred. expenditure as an asset, the asset is carried The present value of the expected cost for the at cost less any accumulated amortisation and decommissioning of an asset after its use is accumulated impairment losses. Amortisation of included in the cost of the respective asset if the the asset begins when development is complete recognition criteria for a provision are met. and the asset is available for use. It is amortised over the period of expected future benefit. Property, plant and equipment is subsequently Amortisation is recorded in cost of sales. During measured at cost less subsequent depreciation the period of development, the asset is tested for and accumulated impairment charges. (See Note impairment annually. K on Impairment of PPE.)
G.2 Licence and Software The Group made upfront payments for the renewal of its cellular operating licence. The licence was granted for a period of 20 years by the relevant
105 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
Depreciation is calculated on a straight-line basis K IMPAIRMENT OF NON-FINANCIAL ASSETS over the estimated useful lives of the assets, as Further disclosures relating to impairment of non- follows: financial assets are also provided in the following s "UILDINGS YEARS notes: s .ETWORK EQUIPMENT TO YEARS s $ISCLOSURES FOR SIGNIlCANT ASSUMPTIONS s "EVERAGE PLANT AND EQUIPMENT YEARS Note AA s /FlCE EQUIPMENT TO YEARS s 0ROPERTY PLANT AND EQUIPMENT .OTE s -OTOR VEHICLES TO YEARS s 'OODWILL .OTE
Depreciation is charged to profit or loss. The Group assesses, at each reporting date, whether there is an indication that an asset may be The residual values, useful lives and methods of impaired. If any indication exists, or when annual depreciation of property, plant and equipment are impairment testing for an asset is required, the reviewed at each financial year end and adjusted Group estimates the asset’s recoverable amount. prospectively, if appropriate. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value Any item of property, plant and equipment and any less costs of disposal and its value in use. The significant part initially recognised is derecognised recoverable amount is determined for an individual upon disposal or when no future economic asset, unless the asset does not generate cash benefits are expected from its use or disposal. inflows that are largely independent of those Any gain or loss arising on de-recognition of the from other assets or groups of assets. When asset (calculated as the difference between the the carrying amount of an asset or CGU exceeds net disposal proceeds and the carrying amount of its recoverable amount, the asset is considered the asset) is included in profit or loss when the impaired and is written down to its recoverable asset is derecognised. amount.
J INVESTMENT PROPERTIES In assessing value in use, the estimated future Investment properties are measured initially at cash flows are discounted to their present value cost, including transaction costs. Subsequent to using a pre-tax discount rate that reflects current initial recognition, investment properties are stated market assessments of the time value of money at fair value, which reflects market conditions at and the risks specific to the asset. In determining the reporting date. Gains or losses arising from fair value less costs of disposal, recent market changes in the fair values of investment properties transactions are taken into account. If no such are included in profit or loss in the period in which transactions can be identified, an appropriate they arise, including the corresponding tax effect. valuation model is used. These calculations are Fair values are determined based on an annual corroborated by valuation multiples, quoted share evaluation performed by an accredited external prices for publicly traded companies or other independent valuer. available fair value indicators.
Investment properties are derecognised either The Group bases its impairment calculation on when they have been disposed of or when they detailed budgets and forecast calculations, which are permanently withdrawn from use and no are prepared separately for each of the Group’s future economic benefit is expected from their CGUs to which the individual assets are allocated. disposal. The difference between the net disposal These budgets and forecast calculations generally proceeds and the carrying amount of the asset cover a period of five years. For longer periods, a is recognised in profit or loss in the period of long-term growth rate is calculated and applied to derecognition. project future cash flows after the fifth year.
Transfers are made to (or from) investment Impairment losses of continuing operations, property only when there is a change in use. including impairment on inventories, are For a transfer from investment property to recognised in the statement of comprehensive owner-occupied property, the deemed cost for income in expense categories consistent with the subsequent accounting is the fair value at the function of the impaired asset. date of change in use. If owner-occupied property becomes an investment property, the Group For assets excluding goodwill, an assessment accounts for such property in accordance with the is made at each reporting date to determine policy stated under property, plant and equipment whether there is an indication that previously up to the date of change in use. recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss
106 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
is reversed only if there has been a change in the end of the lease term, the asset is depreciated the assumptions used to determine the asset’s over the shorter of the estimated useful life of the recoverable amount since the last impairment loss asset and the lease term. was recognised. The reversal is limited so that the carrying amount of the asset does not exceed Operating lease payments are recognised its recoverable amount, nor exceed the carrying as an operating expense in the statement of amount that would have been determined, comprehensive income on a straight-line basis net of depreciation, had no impairment loss over the lease term. been recognised for the asset in prior years. Such reversal is recognised in the Statement of Group as a lessor Comprehensive Income. Leases in which the Group does not transfer substantially all the risks and rewards of Goodwill is tested for impairment annually as at 28 ownership of an asset are classified as operating February and when circumstances indicate that leases. Initial direct costs incurred in negotiating the carrying value may be impaired. and arranging an operating lease are added to the carrying amount of the leased asset and Impairment is determined for goodwill by recognised over the lease term on the same basis assessing the recoverable amount of each CGU as rental income. Contingent rents are recognised (or group of CGUs) to which the goodwill relates. as revenue in the period in which they are earned. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is The Group only has operating leases, as both recognised. Impairment losses relating to goodwill lessor and lessee. cannot be reversed in future periods. M INVENTORIES Intangible assets with indefinite useful lives are Inventories are assets (a) held for sale in the tested for impairment annually as at 28 February ordinary course of business; (b) in the process of at the CGU level, as appropriate, and when production for such sale; or (c) to be consumed circumstances indicate that the carrying value in the production process or the rendering of may be impaired. services. The main categories of inventory recognised in the financial statements are (a) L LEASES Merchandise comprising calling cards, handsets, The determination of whether an arrangement is accessories and simcards and (b) Spares, (or contains) a lease is based on the substance of stationery and other inventory the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment Measurement of the arrangement is dependent on the use of Inventories are measured at the lower of cost or a specific asset or assets and the arrangement net realisable value. conveys a right to use the asset or assets, even if that right is not explicitly specified in an Cost comprises all costs necessary to bring the arrangement. inventories to their present location and condition.
Group as a lessee Net realisable value represents the estimated A lease is classified at the inception date as a selling price less all estimated costs incurred finance lease or an operating lease. A lease that in the marketing, selling or distribution, where transfers substantially all the risks and rewards applicable. incidental to ownership to the Group is classified as a finance lease. The basis of determining cost is the weighted average method. Finance leases are capitalised at the commencement of the lease at the inception date Impairment fair value of the leased property or, if lower, at the Write downs to net realisable value and inventory present value of the minimum lease payments. losses are expensed in the period in which they Lease payments are apportioned between occur. Obsolete and slow moving inventories are finance charges and reduction of the lease liability identified and written down to their estimated so as to achieve a constant rate of interest on the economic or realisable value. remaining balance of the liability. Finance charges are recognised in finance costs in the statement The amount of any reversal of any write-down of comprehensive income. of inventories, arising from an increase in net realisable value, is accounted for as a reduction A leased asset is depreciated over the useful life in the amount of inventories recognised as an of the asset. However, if there is no reasonable expense in the period in which the reversal occurs. certainty that the Group will obtain ownership by
107 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
N REVENUE RECOGNITION Revenue is recognised when goods are delivered Revenue is recognised to the extent that it is and ownership has passed. probable that the economic benefits will flow to the Group and the revenue can be reliably Service revenues measured, regardless of when the payment is Revenue is recognised on the accrual basis in being made. Revenue is measured at the fair accordance with the substance of the agreement. value of the consideration received or receivable, taking into account contractually defined terms N.5 Interconnect services of payment and excluding taxes or duty. The Interconnect services revenue is recognised when Group has concluded that it is the principal in all the service is rendered. of its revenue arrangements since it is the primary obligor in all the revenue arrangements, has N.6 Bundled Products pricing latitude and is also exposed to inventory Post-paid and prepaid products with multiple and credit risks. deliverables are defined as multiple element arrangements. The specific recognition criteria described below must also be met before revenue is recognised. Post-paid products typically include the sale of a handset, activation fee and a service contract; Telecommunications and prepaid products include a subscriber N.1 Contract products identification module (SIM) card and airtime. Connection fees These arrangements are divided into separate Revenue is recognised on the date of activation. units of accounting, and revenue is recognised through application of the residual value method. Access charges In applying the residual value method, an estimate Revenue from access charges is recognised as of the stand-alone selling price of a good or service the customers are provided access to the network is made by reference to the total transaction price based on the agreed fixed charges. less the sum of the observable stand-alone selling prices of other goods or services promised in the Airtime contract (the residual value). Revenue is recognised on a usage basis. N.7 Other revenue N.2 Pre-paid products N.7.1 Sale of goods Starter packs Revenue from the sale of goods is recognised Revenue is recognised on the date of purchase when the significant risks and rewards of when all risks and rewards associated with the ownership of the goods have passed to the buyer, starter-packs are transferred to the purchaser. usually on delivery of the goods. Revenue from the sale of goods is measured at the fair value Airtime of the consideration received or receivable, net Revenue is recognised when a customer utilises of returns and allowances, trade discounts and the airtime, at which point the risks and rewards volume rebates. The Group does not provide any have been transferred. Upon purchase of an extended warranties or maintenance contracts to airtime voucher the customer receives the right to its customers. make outgoing voice calls, use the short message service, download internet data and other overlay N.7.2 Interest income and expense services to the value of the voucher. Revenue is For all financial instruments measured at deferred until such a time as the customer uses amortised cost, interest-bearing financial assets the airtime. classified as available-for-sale, and financial instruments designated at fair value through profit N.3 Internet services or loss, interest income or expense is recorded Subscriptions using the effective interest (EIR) method. EIR is Subscriptions revenue is recognised on a straight- the rate that exactly discounts estimated future line basis over the period of the subscription. cash payments or receipts through the expected life of the financial instrument or a shorter period, Data Services where appropriate, to the net carrying amount Revenue is recognised on the basis of usage by of the financial asset or financial liability. The the subscriber in accordance with the substance calculation takes into account all contractual of the agreement. terms of the financial instrument (for example, prepayment options) and includes any fees or N.4 Automated transaction services incremental costs that are directly attributable to Software and hardware sales the instrument and are an integral part of the EIR, but not future credit losses.
108 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
The carrying amount of the financial asset or Fees financial liability is adjusted if the Bank revises its Fees are recognised as revenue in the accounting estimates of payments or receipts. The adjusted period in which the services were rendered, carrying amount is calculated based on the original by reference to the completion of the specific EIR and the change in carrying amount is recorded transaction assessed on the basis of the actual as ’Interest income’ for financial assets and service provided as a proportion of the total ’Interest expense’ for financial liabilities. However, services to be provided. for a reclassified financial asset for which the Bank subsequently increases its estimates of future N.7.5 Insurance income cash receipts as a result of increased recoverability Premium income of those cash receipts, the effect of that increase Gross premiums comprise the premiums on is recognised as an adjustment to the EIR from the contracts entered into during the year. Premiums date of the change in estimate. written include adjustments to premiums written in prior periods. Premium income arising from Once the recorded value of a financial asset or a funeral cover is recognised when paid. group of similar financial assets has been reduced due to an impairment loss, interest income O OTHER INCOME continues to be recognised using the rate of interest used to discount the future cash flows for O.1 Net trading income from financial instruments the purpose of measuring the impairment loss. Results arising from trading activities include all gains and losses from changes in fair value and . "ANKING FEE AND COMMISSION INCOME related interest income or expense and dividends The bank earns fee and commission income for financial assets and financial liabilities ‘held for from a diverse range of services it provides to its trading’. customers. Fee income can be divided into the following two categories: O.2 Dividend Income Dividend income is recognised when the Group’s Fee income earned from services that are right to receive the payment is established, which provided over a certain period of time is generally when shareholders approve the Fees earned for the provision of services over dividend. a period of time are accrued over that period. These fees include commission income and asset O.3 Rental income management, custody and other management Rental income arising from operating leases and advisory fees. on investment properties is accounted for on a straight-line basis over the lease terms and is Loan commitment fees for loans that are likely to included in other income in the statement of be drawn down and other credit related fees are comprehensive income. deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the P TAXES loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised P.1 Current income tax over the commitment period on a straight line Current income tax assets and liabilities are basis. measured at the amount expected to be recovered from or paid to the taxation authorities. The tax Fee income from providing transactions rates and tax laws used to compute the amount services are those that are enacted or substantively Fees arising from negotiating or participating in enacted, at the reporting date in the country the negotiation of a transaction for a third party, where the Group operates and generates taxable such as the arrangement of the acquisition of income. shares or other securities or the purchase or sale of businesses, are recognised on completion of Current income tax relating to items recognised the underlying transaction. Fees or components directly in equity is recognised in equity and of fees that are linked to a certain performance not in the statement of comprehensive income. are recognised after fulfilling the corresponding Management periodically evaluates positions criteria. taken in the tax returns with respect to situations in which applicable tax regulations are subject to N.7.4 Medical aid income interpretation and establishes provisions where Contribution income appropriate. Contribution income is recognised in the accounting period in which contributions are received and membership is granted.
109 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
P.2 Deferred tax be recovered. Deferred tax is provided using the liability method on temporary differences between the tax bases Deferred tax assets and liabilities are measured at of assets and liabilities and their carrying amounts the tax rates that are expected to apply in the year for financial reporting purposes at the reporting when the asset is realised or the liability is settled, date. based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting Deferred tax liabilities are recognised for all taxable date. temporary differences, except: s 7HEN THE DEFERRED TAX LIABILITY ARISES Deferred tax relating to items recognised outside from the initial recognition of goodwill or profit or loss is recognised outside profit or loss. an asset or liability in a transaction that Deferred tax items are recognised in correlation to is not a business combination and, at the the underlying transaction either in OCI or directly time of the transaction, affects neither the in equity. accounting profit nor taxable profit or loss s )N RESPECT OF TAXABLE TEMPORARY Deferred tax assets and deferred tax liabilities are differences associated with investments offset if a legally enforceable right exists to set in subsidiaries, associates and interests off current tax assets against current tax liabilities in joint ventures, when the timing of the and the deferred taxes relate to the same taxable reversal of the temporary differences can entity and the same taxation authority. be controlled and it is probable that the temporary differences will not reverse in Tax benefits acquired as part of a business the foreseeable future combination, but not satisfying the criteria for separate recognition at that date, are recognised Deferred tax assets are recognised for all subsequently if new information about facts and deductible temporary differences, the carry circumstances change. The adjustment is either forward of unused tax credits and any unused tax treated as a reduction in goodwill (as long as it losses. Deferred tax assets are recognised to the does not exceed goodwill) if it was incurred during extent that it is probable that taxable profit will be the measurement period or recognised in profit or available against which the deductible temporary loss. differences, and the carry forward of unused tax credits and unused tax losses can be utilised, P.3 Value Added Tax (VAT) except: Expenses and assets are recognised net of the s 7HEN THE DEFERRED TAX ASSET RELATING amount of sales tax, except: to the deductible temporary difference s 7HEN THE 6ALUE !DDED 4AX 6!4 INCURRED arises from the initial recognition of an on a purchase of assets or services is not asset or liability in a transaction that is recoverable from the taxation authority, in not a business combination and, at the which case, the tax is recognised as part time of the transaction, affects neither the of the cost of acquisition of the asset or as accounting profit nor taxable profit or loss part of the expense item, as applicable s )N RESPECT OF DEDUCTIBLE TEMPORARY s 7HEN RECEIVABLES AND PAYABLES ARE STATED differences associated with investments with the amount of Value Added Tax in subsidiaries, associates and interests included in joint ventures, deferred tax assets are recognised only to the extent that it is The net amount of VAT recoverable from, or probable that the temporary differences payable to, the taxation authority is included as will reverse in the foreseeable future and part of receivables or payables in the statement of taxable profit will be available against financial position. which the temporary differences can be utilised Q EMPLOYEE BENEFITS Employee benefits are all forms of consideration The carrying amount of deferred tax assets is given in exchange for services rendered by reviewed at each reporting date and reduced employees or for the termination of employment. to the extent that it is no longer probable that sufficient taxable profit will be available to allow The classification, recognition and measurement all or part of the deferred tax asset to be utilised. of these employee benefits is as follows; Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the a) Short-term employee benefits extent that it has become probable that future Short-term employee benefits are employee taxable profits will allow the deferred tax asset to benefits (other than termination benefits) that
110 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
are expected to be settled wholly before twelve after the reporting period, the present value of months after the end of the annual reporting the benefits shall be determined. The discount period in which the employees render the related rate used to calculate the present value shall be service. The Group’s short term employee determined by reference to market yields on high benefits comprise remuneration in the form of quality corporate bonds at the end of the reporting salaries, wages, bonuses, employee entitlement period. to leave pay and medical aid. The Group had no termination benefit The undiscounted amount of all short-term commitments during the year. employee benefits expected to be paid in exchange for service rendered are recognised R CURRENT VERSUS NON- as an expense or as part of the cost of an asset CURRENT CLASSIFICATION during the period in which the employee renders The Group presents assets and liabilities in the related service. The Group recognises the statement of financial position based on current/ expected cost of bonuses only when the Group non-current classification. An asset is current has a present legal or constructive obligation to when it is: make such payment and a reliable estimate can be s %XPECTED TO BE REALISED OR INTENDED TO BE made. sold or consumed in the normal operating cycle or; b) Post-employment benefits s (ELD PRIMARILY FOR THE PURPOSE OF TRADING Post-employment benefits are employee benefits or; (other than termination benefits and short-term s %XPECTED TO BE REALISED WITHIN TWELVE employee benefits) that are payable after the months after the reporting period or; completion of employment. s #ASH OR CASH EQUIVALENT UNLESS RESTRICTED from being exchanged or used to settle a Post-employment benefits comprise retirement liability for at least twelve months after the benefits that are provided for Group employees reporting period through an independently administered defined contribution fund and by the National Social All other assets are classified as non-current. Security Authority (NSSA), which is also a defined contribution fund from the Group’s perspective. A liability is current when: Payments to the defined contribution fund and to s )T IS EXPECTED TO BE SETTLED IN THE NORMAL the NSSA scheme are recognised as an expense operating cycle or; when they fall due, which is when the employee s )T IS HELD PRIMARILY FOR THE PURPOSE OF renders the service. The Group has no liability for trading or; Post-employment Retirement Benefit Funds once s )T IS DUE TO BE SETTLED WITHIN TWELVE MONTHS the current contributions have been paid at the after the reporting period or; time the employees render service. s 4HERE IS NO UNCONDITIONAL RIGHT TO DEFER the settlement of the liability for at least During the year the Group contributed to the twelve months after the reporting period Group defined contribution fund and to the NSSA scheme. The Group classifies all other liabilities as non- current. c) Termination benefits are employee benefits provided in exchange for the termination of an Deferred tax assets and liabilities are classified as employee’s employment as a result of either non-current assets and liabilities. an entity’s decision to terminate an employee’s employment before the normal retirement date S FAIR VALUE MEASUREMENT or an employee’s decision to accept an offer The Group measures financial instruments such of benefits in exchange for the termination of as available for sale financial assets and financial employment. The Group recognises termination assets at fair value through profit or loss and non- benefits as a liability and an expense at the financial assets such as investment properties, at earlier of when the offer of termination cannot fair value at each balance sheet date. Fair value be withdrawn or when the related restructuring related disclosures for financial instruments costs are recognised under IAS 37 Provisions, and non-financial assets that are measured at Contingent Liabilities and Contingents Assets. fair value or where fair values are disclosed, are summarised in the following notes: Termination benefits are measured according to the terms of the termination contract. Where termination benefits are due more than 12 months
111 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
s $ISCLOSURES FOR VALUATION METHODS For assets and liabilities that are recognised in significant estimates and assumptions the financial statements on a recurring basis, Notes AA, 13, 20 and 21 the Group determines whether transfers have s 1UANTITATIVE DISCLOSURES OF FAIR VALUE occurred between levels in the hierarchy by re- measurement hierarchy Note 20 assessing categorisation (based on the lowest s )NVESTMENT PROPERTIES .OTE level input that is significant to the fair value measurement as a whole) at the end of each Fair value is the price that would be received to sell reporting period. an asset or paid to transfer a liability in an orderly transaction between market participants at the The board of directors through management measurement date. The fair value measurement determines the policies and procedures for is based on the presumption that the transaction both recurring fair value measurement, such as to sell the asset or transfer the liability takes place investment properties, and for non-recurring either: measurement, such as assets held for sale, where s )N THE PRINCIPAL MARKET FOR THE ASSET OR applicable. liability or; s )N THE ABSENCE OF A PRINCIPAL MARKET IN THE External valuers are involved for valuation of most advantageous market for the asset significant assets, such as investment properties. or liability Involvement of external valuers is decided upon annually by the board of directors. Selection The principal or the most advantageous market criteria includes market knowledge, reputation, must be accessible by the Group. independence and whether professional standards are maintained. The fair value of an asset or a liability is measured using the assumptions that market participants At each reporting date, management analyses the would use when pricing the asset or liability, movements in the values of assets and liabilities assuming that market participants act in their which are required to be remeasured or re- economic best interest. assessed as per the Group’s accounting policies. For this analysis, management verifies the major A fair value measurement of a non-financial asset inputs applied in the latest valuation by agreeing takes into account a market participant’s ability to the information in the valuation computation to generate economic benefits by using the asset in contracts and other relevant documents. its highest and best use or by selling it to another market participant that would use the asset in its For the purpose of fair value disclosures, the Group highest and best use. has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of The Group uses valuation techniques that are the asset or liability and the level of the fair value appropriate in the circumstances and for which hierarchy as explained above. sufficient data are available to measure fair value, maximising the use of relevant observable inputs T CASH DIVIDEND AND NON-CASH and minimising the use of unobservable inputs. DISTRIBUTION TO EQUITY HOLDERS OF THE PARENT All assets and liabilities for which fair value is The Company recognises a liability to make cash measured or disclosed in the financial statements or non-cash distributions to equity holders of the are categorised within the fair value hierarchy, parent when the distribution is authorised and the described as follows, based on the lowest distribution is no longer at the discretion of the level input that is significant to the fair value Company. As per the corporate laws in Zimbabwe, measurement as a whole: a distribution is authorised when it is approved by the shareholders. A corresponding amount is Level 1 — Quoted (unadjusted) market prices in recognised directly in equity. active markets for identical assets or liabilities Level 2 — Valuation techniques for which the Non-cash distributions are measured at the fair lowest level input that is significant to the fair value value of the assets to be distributed with fair measurement is directly or indirectly observable value re-measurement recognised directly in Level 3 — Valuation techniques for which the equity. Upon distribution of non-cash assets, any lowest level input that is significant to the fair difference between the carrying amount of the value measurement is unobservable liability and the carrying amount of the assets distributed is recognised in the statement of comprehensive income.
112 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
U FINANCIAL INSTRUMENTS – INITIAL acquisition and fees or costs that are an integral RECOGNITION AND SUBSEQUENT part of the EIR. The EIR amortisation is included in MEASUREMENT finance income in the statement of comprehensive A financial instrument is any contract that gives income. The losses arising from impairment are rise to a financial asset of one entity and a financial recognised in profit or loss. liability or equity instrument of another entity. For more information on receivables, refer to Note U.1 Financial assets 23 and 24.
Initial recognition and measurement U.1.3 Held-to-maturity investments Financial assets are classified, at initial recognition, Non-derivative financial assets with fixed or as financial assets at fair value through profit or determinable payments and fixed maturities are loss, loans and receivables, held-to-maturity classified as held to maturity when the Group investments, available for sale financial assets, or has the positive intention and ability to hold them as derivatives designated as hedging instruments to maturity. After initial measurement, held to in an effective hedge, as appropriate. All financial maturity investments are measured at amortised assets are recognised initially at fair value plus, in cost using the EIR, less impairment. Amortised the case of financial assets not recorded at fair cost is calculated by taking into account any value through profit or loss, transaction costs that discount or premium on acquisition and fees or are attributable to the acquisition of the financial costs that are an integral part of the EIR. The EIR asset. amortisation is included as finance income in the statement of comprehensive income. The losses Purchases or sales of financial assets that require arising from impairment are recognised in the delivery of assets within a time frame established statement of comprehensive income. by regulation or convention in the market place (regular way trades) are recognised on the trade U.1.4 Available For Sale financial assets date,i.e., the date that the Group commits to Available For Sale (“AFS”) financial assets include purchase or sell the asset. equity investments and debt securities. Equity investments classified as AFS are those that are Subsequent measurement neither classified as held for trading nor designated For purposes of subsequent measurement at fair value through profit or loss. Debt securities financial assets are classified in four categories: in this category are those that are intended to be s &INANCIAL ASSETS AT FAIR VALUE THROUGH PROlT held for an indefinite period of time and that may or loss be sold in response to needs for liquidity or in s ,OANS AND RECEIVABLES response to changes in market conditions. s (ELD TO MATURITY INVESTMENTS s !VAILABLE FOR SALE lNANCIAL ASSETS After initial measurement, AFS financial assets are subsequently measured at fair value with U.1.1 Financial assets at fair value through profit or unrealised gains or losses recognised in OCI and loss credited in the AFS reserve until the investment is Financial assets at fair value through profit or derecognised, at which time the cumulative gain loss include financial assets held for trading and or loss is recognised in other operating income. financial assets designated upon initial recognition If the investment is determined to be impaired, at fair value through profit or loss. Financial the cumulative loss is reclassified from the AFS assets are classified as held for trading if they are reserve to profit or loss. acquired for the purpose of selling or repurchasing in the near term. Financial assets at fair value Interest earned whilst holding AFS financial through profit or loss are carried in the statement assets is reported as interest income using the of financial position at fair value with net changes EIR method. The Group evaluates whether the in fair value presented in the statement of ability and intention to sell its AFS financial assets comprehensive income. in the near term is still appropriate. When, in rare
circumstances, the Group is unable to trade these U.1.2 Loans and receivables financial assets due to inactive markets, the Group Loans and receivables are non-derivative financial may elect to reclassify these financial assets if assets with fixed or determinable payments management has the ability and intention to hold that are not quoted in an active market. After the assets for foreseeable future or until maturity. initial measurement, such financial assets are subsequently measured at amortised cost using For a financial asset reclassified from the AFS the effective interest rate (EIR) method, less category, the fair value carrying amount at the date impairment. Amortised cost is calculated by of reclassification becomes its new amortised taking into account any discount or premium on cost and any previous gain or loss on the asset
113 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
that has been recognised in equity is amortised The Group assesses, at each reporting date, to profit or loss over the remaining life of the whether there is objective evidence that a financial investment using the EIR. Any difference between asset or a group of financial assets is impaired. An the new amortised cost and the maturity amount impairment exists if one or more events that has is also amortised over the remaining life of the occurred since the initial recognition of the asset asset using the EIR. If the asset is subsequently (an incurred ‘loss event’), has an impact on the determined to be impaired, then the amount estimated future cash flows of the financial asset recorded in equity is reclassified to the statement or the group of financial assets that can be reliably of comprehensive income. estimated. Evidence of impairment may include indications that the debtors or a group of debtors is Derecognition experiencing significant financial difficulty, default A financial asset (or, where applicable, a part of a or delinquency in interest or principal payments, financial asset or part of a group of similar financial the probability that they will enter bankruptcy or assets) is primarily derecognised (i.e., removed other financial reorganisation and observable data from the Group’s consolidated statement of indicating that there is a measurable decrease in financial position) when: the estimated future cash flows, such as changes s 4HE RIGHTS TO RECEIVE CASH mOWS FROM THE in arrears or economic conditions that correlate asset have expired or; with defaults. s 4HE 'ROUP HAS TRANSFERRED ITS RIGHTS TO receive cash flows from the asset or has U.1.5.1 Financial assets carried at amortised cost assumed an obligation to pay the received For financial assets carried at amortised cost, cash flows in full without material delay the Group first assesses whether impairment to a third party under a ‘pass-through’ exists individually for financial assets that are arrangement; and either (a) the Group individually significant, or collectively for financial has transferred substantially all the risks assets that are not individually significant. If the and rewards of the asset, or (b) the Group determines that no objective evidence of Group has neither transferred nor retained impairment exists for an individually assessed substantially all the risks and rewards of financial asset, whether significant or not, it the asset, but has transferred control of includes the asset in a group of financial assets the asset with similar credit risk characteristics and collectively assesses them for impairment. Assets When the Group has transferred its rights to that are individually assessed for impairment and receive cash flows from an asset or has entered for which an impairment loss is, or continues to into a pass-through arrangement, it evaluates be, recognised are not included in the collective if and to what extent it has retained the risks assessment of impairment. and rewards of ownership. When it has neither transferred nor retained substantially all of the The amount of any impairment loss identified risks and rewards of the asset, nor transferred is measured as the difference between the control of the asset, the Group continues to asset’s carrying amount and the present value recognise the transferred asset to the extent of of estimated future cash flows (excluding future the Group’s continuing involvement. In that case, expected credit losses that have not yet been the Group also recognises an associated liability. incurred). The present value of the estimated The transferred asset and the associated liability future cash flows is discounted at the financial are measured on a basis that reflects the rights asset’s original effective interest rate. and obligations that the Group has retained. The carrying amount of the asset is reduced through Continuing involvement that takes the form of a the use of an allowance account and the loss is guarantee over the transferred asset is measured recognised in the statement of comprehensive at the lower of the original carrying amount of the income. Interest income (recorded as finance asset and the maximum amount of consideration income in the statement of comprehensive that the Group could be required to repay. income) continues to be accrued on the reduced carrying amount and is accrued using the rate of U.1.5 Impairment of financial assets interest used to discount the future cash flows for Further disclosures relating to impairment of the purpose of measuring the impairment loss. financial assets are also provided in the following Loans together with the associated allowance notes: are written off when there is no realistic prospect s $ISCLOSURES FOR SIGNIlCANT ASSUMPTIONS of future recovery and all collateral has been Note AA realised or has been transferred to the Group. If, s 4RADE RECEIVABLES .OTE in a subsequent year, the amount of the estimated s ,OANS AND ADVANCES .OTE impairment loss increases or decreases because
114 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
of an event occurring after the impairment was U.2 Financial liabilities recognised, the previously recognised impairment loss is increased or reduced by adjusting the Initial recognition and measurement allowance account. If a write-off is later recovered, Financial liabilities are classified, at initial the recovery is credited to finance costs in the recognition, as financial liabilities at fair value statement of comprehensive income. through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging U.1.5.2 AFS financial assets instruments in an effective hedge, as appropriate. For AFS financial assets, the Group assesses at each reporting date whether there is objective All financial liabilities are recognised initially at fair evidence that an investment or a group of value and, in the case of loans and borrowings and investments is impaired. payables, net of directly attributable transaction costs. The Group’s financial liabilities include In the case of equity investments classified trade and other payables, loans and borrowings as AFS, objective evidence would include a including bank overdrafts, financial guarantee significant or prolonged decline in the fair value of contracts and derivative financial instruments. the investment below its cost. The determination of what is ‘significant’ or ‘prolonged’ requires Subsequent measurement judgement. ‘Significant’ is evaluated against the The measurement of financial liabilities depends original cost of the investment and ‘prolonged’ on their classification, as described below: against the period in which the fair value has been below its original cost. When there is evidence of U.2.1 Loans and borrowings impairment, the cumulative loss – measured as This is the category most relevant to the Group. the difference between the acquisition cost and After initial recognition, interest-bearing loans the current fair value, less any impairment loss and borrowings are subsequently measured at on that investment previously recognised in the amortised cost using the EIR method. Gains and statement of comprehensive income – is removed losses are recognised in profit or loss when the from OCI and recognised in the statement of liabilities are derecognised as well as through the comprehensive income. Impairment losses on EIR amortisation process. equity investments are not reversed through profit or loss; increases in their fair value after Amortised cost is calculated by taking into account impairment are recognised in OCI. any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The In the case of debt instruments classified as EIR amortisation is included as finance costs in AFS, the impairment is assessed based on the statement of comprehensive income. the same criteria as financial assets carried at amortised cost. However, the amount recorded This category generally applies to interest-bearing for impairment is the cumulative loss measured loans and borrowings. For more information refer as the difference between the amortised cost and Note 30. the current fair value, less any impairment loss on that investment previously recognised in the U.2.2 Financial guarantee contracts statement of comprehensive income. Financial guarantee contracts issued by the Group are those contracts that require a payment to be Future interest income continues to be accrued made to reimburse the holder for a loss it incurs based on the reduced carrying amount of because the specified debtor fails to make a the asset, using the rate of interest used to payment when due in accordance with the terms discount the future cash flows for the purpose of a debt instrument. Financial guarantee contracts of measuring the impairment loss. The interest are recognised initially as a liability at fair value, income is recorded as part of finance income. adjusted for transaction costs that are directly If, in a subsequent year, the fair value of a debt attributable to the issuance of the guarantee. instrument increases and the increase can be Subsequently, the liability is measured at the objectively related to an event occurring after the higher of the best estimate of the expenditure impairment loss was recognised in the statement required to settle the present obligation at the of comprehensive income, the impairment loss is reporting date and the amount recognised less reversed through the statement of comprehensive cumulative amortisation. income. Derecognition A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
115 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
When an existing financial liability is replaced by rate that reflects, when appropriate, the risks another from the same lender on substantially specific to the liability. When discounting is used, different terms, or the terms of an existing liability the increase in the provision due to the passage of are substantially modified, such an exchange or time is recognised as a finance cost. modification is treated as the derecognition of the original liability and the recognition of a new Y FIDUCIARY ASSETS liability. The difference in the respective carrying To the extent that the Group provides trust and amounts is recognised in the statement of other fiduciary services that result in the holding comprehensive income. or investing of assets on behalf of its clients, the assets held in a fiduciary capacity are not reported U.3 Offsetting of financial instruments in the financial statements, as they are not the Financial assets and financial liabilities are offset assets of the Group. and the net amount is reported in the consolidated statement of financial position if there is a currently Z OPERATING SEGMENT INFORMATION enforceable legal right to offset the recognised The Group identifies segments as components amounts and there is an intention to settle on a of the Group that engage in business activities net basis or to realise the assets and settle the from which revenues are earned and expenses liabilities simultaneously. incurred (including revenues and expenses relating to transactions with other components V CASH AND SHORT-TERM DEPOSITS of the same entity), whose operating results are Cash and short-term deposits in the statement regularly reviewed by the entity’s chief operating of financial position comprise cash at banks and decision maker to make decisions about resources on hand and short-term deposits with a maturity to be allocated to the segment and assess its of three months or less, which are subject to an performance, and for which discrete financial insignificant risk of changes in value. information is available.
For the purpose of the consolidated statement of The chief operating decision-maker has been cash flows, cash and cash equivalents consist of identified as the Group Chief Executive Officer. cash and short-term deposits, as defined above. Measurement of segment information W TREASURY SHARES The accounting policies of the reportable Own equity instruments that are reacquired segments are the same as the Group’s accounting (treasury shares) are recognised at cost and policies. Segment information has been reconciled deducted from equity. to the consolidated annual financial statements to take account of intersegment transactions and No gain or loss is recognised in profit or loss on the transactions and balances that are not allocated to purchase, sale, issue or cancellation of the Group’s reporting segments. own equity instruments. Any difference between the carrying amount and the consideration, if AA SIGNIFICANT ACCOUNTING JUDGEMENTS; reissued, is recognised in share premium. ESTIMATES AND ASSUMPTIONS The preparation of the Group’s consolidated X PROVISIONS financial statements requires management to make judgements, estimates and assumptions General that affect the reported amounts of revenues, Provisions are recognised when the Group has expenses, assets and liabilities, and the a present obligation (legal or constructive) as a accompanying disclosures, and the disclosure result of a past event, it is probable that an outflow of contingent liabilities. Uncertainty about these of resources embodying economic benefits will assumptions and estimates could result in be required to settle the obligation and a reliable outcomes that require a material adjustment to estimate can be made of the amount of the the carrying amount of assets or liabilities affected obligation. When the Group expects some or in future periods. all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement Other disclosures relating to the Group’s exposure is recognised as a separate asset, but only to risks and uncertainties includes: when the reimbursement is virtually certain. The s #APITAL MANAGEMENT .OTE expense relating to a provision is presented in the s &INANCIAL RISK MANAGEMENT AND POLICIES statement of comprehensive income net of any Note 35 reimbursement. s 3ENSITIVITY ANALYSIS DISCLOSURES .OTES 35.3 and 36.2. If the effect of the time value of money is material, Judgements provisions are discounted using a current pre-tax In the process of applying the Group’s accounting
116 Financial Reporting Financial
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
policies, management has made the following reference to published industry benchmarks. judgements, which have the most significant This review considered the following factors, at a effect on the amounts recognised in the minimum; the age of the equipment, technological consolidated financial statements: advancements, current use of the equipment, and planned network upgrade programmes. The Capitalisation of borrowing costs determination of the remaining estimated useful When capitalising borrowing costs that are directly lives of the network equipment is deemed to be attributable to the acquisition, construction or a significant area of judgment due to its highly production of a qualifying asset, the matter of specialised nature. Refer to Note I for the useful determining whether an asset takes a substantial lives of property, plant and equipment. period of time to get ready for its intended use, normally one year, is deemed to be a significant AA.2 Intangible assets - IAS 38 area of judgement. Intangible assets include licences and development costs. These assets arise from both In particular, where – as in the case of Econet separate purchases and from acquisition as part – there are multiple financing sources for both of business combinations. On the acquisition general and specific use, allocation of borrowing of mobile network operators, the identifiable costs demands significant judgement. intangible assets may include licences, customer bases and brands. The fair value of these assets Estimates and assumptions is determined by discounting estimated future The key assumptions concerning the future and net cash flows generated by the asset, where other key sources of estimation uncertainty at no active market for the assets exists. The use the reporting date, that have a significant risk of different assumptions for the expectations of of causing a material adjustment to the carrying future cash flows and the discount rate would amounts of assets and liabilities within the change the valuation of the intangible assets. next financial year, are described below. The Group based its assumptions and estimates on Estimation of useful life parameters available when the consolidated The useful life used to amortise intangible assets financial statements were prepared. Existing relates to the future performance of the assets circumstances and assumptions about future acquired and management’s judgement of the developments, however, may change due to period over which economic benefit will be market changes or circumstances arising that are derived from the asset. beyond the control of the Group. Such changes are reflected in the assumptions when they occur. The basis for determining the useful life for the most significant categories of intangible assets is AA. 1 Property, plant and equipment - IAS 16 as follows: Property, plant and equipment represent a significant proportion of the asset base of the AA.2.1 Licences Group, being 58% (63% in prior year) of the The estimated useful life is, generally, the term Group’s total assets in the year under review. of the licence, unless there is a presumption of Therefore, the estimates and assumptions made renewal at negligible cost. Using the licence to determine their carrying value and related term reflects the period over which the Group depreciation are critical to the Group’s financial will receive economic benefit. For technology position and performance. specific licences with a presumption of renewal at negligible cost, the estimated useful economic life Residual values of property, plant and reflects the Group’s expectation of the period over equipment which the Group will continue to receive economic During the year management assessed the residual benefit from the licence. The economic lives are values of property, plant and equipment. Residual periodically reviewed, taking into consideration values of each asset category have been assessed such factors as changes in technology. Historically, by considering the fair value of the assets after any changes to economic lives have not been taking into account age, usage and obsolescence. material following these reviews. These residual values are reassessed each year and adjustments are made where appropriate. AA.2.2 Capitalised software The valuation methods adopted in this process The useful life is determined by management at involves significant judgement and estimation. the time the software is acquired and brought into use and is regularly reviewed for appropriateness. Useful lives of property, plant and equipment For computer software licences, the useful life A review of the estimated remaining lives of all represents management’s view of the period network equipment was performed using the over which the Group will receive benefits from engineering expertise within the business with the software, but not exceeding the licence term.
117 Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015
For unique software products controlled by the AA.7 Investment property - determination of fair Group, the life is based on historical experience value with similar products as well as anticipation of Where the fair values of investment property future events, which may impact their life, such cannot be derived from an active market, they are as changes in technology. Historically, changes in determined using a variety of valuation techniques. useful lives have not resulted in material changes to the Group’s amortisation charge. Determining the valuation technique to use and the inputs requires significant judgement. AA.3 Impairment reviews - IAS 36 Impairment exists when the carrying value of Refer Note 13 for more detail on valuation of an asset or cash generating unit exceeds its investment property. recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. AA.8 Impairment losses on loans and advances to The fair value less costs of disposal calculation bank customers is based on available data from binding sales The Group reviews its individually significant transactions, conducted at arm’s length, for loans and advances to bank customers at each similar assets or observable market prices less statement of financial position date to assess incremental costs for disposing of the asset. The whether an impairment loss should be recorded value in use calculation is based on a Discounted in the statement of comprehensive income. In Cashflow (“DCF”) model. The cash flows are particular, management’s judgement is required in derived from the budget for the next five years the estimation of the amount and timing of future and do not include restructuring activities that cash flows when determining the impairment loss. the Group is not yet committed to or significant These estimates are based on assumptions about future investments that will enhance the asset’s a number of factors and actual results may differ, performance or the CGU being tested. The resulting in future changes to the allowance. recoverable amount is sensitive to the discount rate used for the DCF model as well as the Loans and advances that have been assessed expected future cash-inflows and the growth rate individually and found not to be impaired and all used for extrapolation purposes. These estimates individually insignificant loans and advances are are most relevant to the goodwill recognised by the then assessed collectively, in groups of assets Group. The key assumptions used to determine with similar risk characteristics, to determine the recoverable amount for the different CGUs are whether provision should be made due to incurred disclosed and further explained in Note 43. loss events for which there is objective evidence, but the effects of which are not yet evident. The AA.4 Provision for impairment of collective assessment takes account of data accounts receivable from the loan portfolio (such as levels of arrears, The provision for impairment is based on an credit utilisation, loan-to-collateral ratios, etc.), estimate of the recoverability of accounts and judgements on the effect of concentrations receivable and subject to estimation. Refer to of risks and economic data. Refer to Note 24 Note 23 for the basis of determining impairment for the carrying amount of loans and advances loss provisions. to customers and more information on the impairment of loans and advances to customers. AA.5 Syndicated loans Certain cash flows used in the calculation of AA.9 Taxes amortised cost of the syndicated loans are based Deferred tax assets are recognised for unused tax on forecast future interest rates (LIBOR) which losses to the extent that it is probable that taxable are subject to estimation. The interest is based profit will be available against which the losses can on various interest arrangements on facilities with be utilised. Significant management judgement is various lenders. The Syndicated loans are detailed required to determine the amount of deferred tax on Note 30. assets that can be recognised, based upon the likely timing and the level of future taxable profits AA.6 Deferred revenue together with future tax planning strategies. Revenue for cellular network services is recognised when the airtime is utilised by the Refer to Note 15 for tax losses carried forward. customer. The unused air time as at 28 February These losses relate to subsidiaries that have a 2015 has been deferred from revenue until the history of losses, do not expire and may not be airtime has been used by the customers. The used to offset taxable income elsewhere in the deferred revenue portion is determined by both Group. Further details on taxes are disclosed in information technology related checks and Note 15. arithmetical formulae to identify the portion of revenue to be deferred.
118 Administration
Policy Notes to the Consolidated Financial Statements (continued) For the year ended 28 February 2015 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 120 Shareholder Analysis 121 Sustainability through Corporate and Advisory Information 122 Innovation. Financial Diary 123 Notice to Members 124
119 Our Strategic Business Partnerships
The opportunities in the market have made it imperative to broaden our relationship with key partners. This has enabled the business to deliver value to stakeholders and promote accelerated growth.
120 Administration
Shareholder Analysis For the year ended 28 February 2015
Consolidated Top 20 2ANK Account Name Shares % of Total
1 ECONET WIRELESS GLOBAL LIMITED 630,579,551 38.45 2 STANBIC NOMINEES (PRIVATE) LIMITED (NNR) 389,280,618 23.74 3 AUSTIN ECO HOLDINGS LIMITED - NNR 89,872,460 5.48 4 OLD MUTUAL LIFE ASSURANCE COMPANY OF ZIMBABWE LIMITED 80,290,314 4.90 5 ECONET WIRELESS ZIMBABWE SPV LIMITED 48,475,095 2.96 6 ECONET WIRELESS ZIMBABWE LIMITED 34,055,345 2.08 7 EBENEZER TRUST 28,959,972 1.77 8 STANDARD CHARTERED NOMINEES (PRIVATE) LIMITED 27,110,683 1.65 9 STANDARD CHARTERED NOMINEES (PVT)LTD - NNR 24,207,410 1.48 10 NORTHUNDERLAND INVESTMENTS (PVT) LTD 22,020,090 1.34 11 AMRO INTERNATIONAL HOLDINGS LTD (NNR) 15,033,962 0.92 12 MINING INDUSTRY PENSION FUND 11,318,349 0.69 13 HELLIKOP INVESTMENTS (PVT) LTD-NNR 10,699,010 0.65 14 NATIONAL SOCIAL SECURITY AUTHORITY 10,454,285 0.64 15 PRESSFORTH INVESTMENTS (PRIVATE) LIMITED 10,317,570 0.63 16 ECONET EMPLOYEES BENEFICIARY TRUST 9,936,300 0.61 17 LOCAL AUTHORITIES PENSION FUND 8,156,137 0.50 18 COVERSITE (PRIVATE) LIMITED 7,014,684 0.43 19 CAPERNAUM TRUST ENDOWMENT FUND 6,218,472 0.38 20 FIRST MUTUAL LIFE 6,068,263 0.37
OTHER SHAREHOLDERS 169,952,860 10.33
TOTAL ISSUED SHARES 1,640,021,430 100.00
Range Holders % of Holders Shares % of Shares 0 - 100 2,443 26.63 104,951 0.01 101 - 200 738 8.04 121,727 0.01 201 - 500 988 10.77 338,431 0.02 501 - 1,000 1009 11.00 696,033 0.04 1,001 - 5,000 2361 25.73 4,851,664 0.30 5,001 - 10,000 525 5.72 3,632,680 0.22 10,001 - 50,000 582 6.34 12,527,721 0.76 50,001 - 100,000 157 1.71 11,033,049 0.67 100,001 - 500,000 209 2.28 48,866,670 2.98 500,001 - 1,000,000 61 0.67 44,037,521 2.69 1,000,001 - 10,000,000 82 0.89 244,113,916 14.88 10,000,001 - 20 0.22 1,269,697,067 77.42 Total 9,175 100.00 1,640,021,430 100.00
121 Corporate and Advisory Information
Registered Office
Incorporated in the Republic of Zimbabwe 3TANBIC "ANK Company registration number 7548/98 Stanbic Centre Econet Park, 2 Old Mutare Road 59 Samora Machel Avenue Msasa Harare Harare Zimbabwe 3TEWARD "ANK ,IMITED 2nd Floor, Telephone: +263-486124-5 101 Union Avenue Building +263-772 793 700 101 Kwame Nkrumah Avenue Fax:+263- 4-486183 Harare E-mail: [email protected] Zimbabwe Website: www.econet.co.zw #": "ANK ,IMITED Group Company Secretary Union House 60 Kwame Nkrumah Avenue Charles Alfred Banda Harare Econet Park, 2 Old Mutare Road, Msasa Zimbabwe Harare Zimbabwe Principal legal advisors
Independent Auditors Mtetwa and Nyambirai Legal Practitioners Ernst & Young (Zimbabwe) 2 Meredith Drive Registered Public Auditors Eastlea Angwa City Harare Cnr Julius Nyerere Way, Kwame Nkrumah Avenue Zimbabwe Harare Zimbabwe Registrars and Transfer Secretaries
Principal Bankers First Transfer Secretaries (Private) Limited 1 Armagh Avenue !FRICAN %XPORT )MPORT "ANK ,IMITED Eastlea 72 (B) EL Maahad EL-Eshleraky Street Harare Opposite Merryland Park Zimbabwe Roxy, Heliopolis, Cairo 11341 Egypt
"ARCLAYS "ANK Kurima House Nelson Mandela Avenue Box CY 881 Causeway Harare
122 Administration
Financial Diary For the year ended 28 February 2015
31 July 2015 Seventeenth Annual General Meeting of Shareholders, Econet Park, Harare
October 2015 Interim results and analyst briefing
28 February 2016 Financial year end
April 2016 Financial results and analyst briefing
June 2016 Annual Report 2016 publication
July 2016 Eighteenth Annual General Meeting of Shareholders, Econet Park, Harare
Sustainability through Innovation.
123 Notice to Members
Notice is hereby given that the Seventeenth 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 31 July 2015 at 10.00am for the following purposes.
Ordinary Business To consider and adopt the following resolutions:
1. Financial Statements To receive and adopt the financial statements for the year ended 28 February 2015 together with the reports of the directors and auditors thereon.
2. Election of Directors To re-elect Dr. J. Myers, Mr. M. Edge and Mrs. T. Mpofu 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. Each director shall be separately elected.
3. Directors Remuneration To approve the fees paid to the directors for the year ended 28 February 2015.
4. Auditors 4.1. To approve the auditors’ remuneration for the previous year.
4.2. Pursuant to the Special Notice to Members published on 2 July 2015, to consider the appointment of Deloitte & Touche as auditors for the Company with effect from 31 July 2015.
5. Special Business To consider and, if thought fit, to adopt, with or without amendment, the following resolutions:
5.1. As an ordinary Resolution: Share Buy-back “That the Company, as duly authorised by Article 10 of its Articles of Association, may undertake the purchase of its own ordinary shares in such manner or on such terms as the directors may from time to time determine, provided that the repurchases are not made at a price greater than 5% above the weighted average of the market value for the securities for the five business days immediately preceding the date of the repurchase and also provided that the maximum number of shares authorised to be acquired shall not exceed 10% (ten percent) of the Company’s issued ordinary share capital.
That this authority shall expire at the next Annual General Meeting, and shall not extend beyond 15 months from the date of this resolution”.
After considering the effect of the maximum repurchase of the shares, the Directors are confident that: a) The Company will be able to pay its debts for a period of 12 months after the date of the notice of the Annual General Meeting. b) The assets of the Company will be in excess of its liabilities. c) The share capital and reserves of the Company are adequate for a period of 12 months after the date of the notice of the Annual General Meeting. d) The Company will have adequate working capital for a period of 12 months after the date of the notice of the Annual General Meeting.
5.2 As a special resolution: Amendment to the Company‘s Articles of Association
5.2.1 That the Board be and is hereby authorised to amend the Articles of Association of the Company by insertion in Article 2, after the definition of “Secretary”, of the following definition –“Securities Act” means the Securities and Exchange Act of Zimbabwe [Chapter 24:25]; and
5.2.2 That the Board be and is hereby authorised to amend the Articles of Association of the Company by the insertion after Article 16.4 of the following Article - “16.5 Notwithstanding the preceding provisions of this Article, the Directors shall be empowered to resolve that the Company shall issue shares in dematerialised form, and convert certificated shares to dematerialised shares, all as envisaged by the Securities and Exchange Act: provided that no certificated share shall be converted to a dematerialised share without the consent of the current holder thereof.”
124 Administration
5.2.3 That the Board is hereby authorised to amend the Articles of Association of the Company by addition of the following Article 128.2 (a) after Articles 128.2: “Electronic copies of the Directors’ Report, Statements of Financial Position, Comprehensive Income, Changes in Equity and Cash Flow and all other documents required to be annexed thereto, publicised on the Company’s website and delivered by electronic means to every member shall be deemed to be sufficient delivery to members. Provided that should a member request a hard copy of the Directors’ Report, Statements of Financial Position, Comprehensive Income, Changes in Equity and Cash Flow and all other documents required to be annexed thereto from the Company, the documents shall be provided to the member in hard copy format.”
5.2.4 That Article 123 of the Articles of Association of the Company be amended by the addition of a new paragraph to read as follows: “123.1 Any dividend, interest or other monies payable in respect of the shares may also be paid through any and all approved national payment systems and such payment may be notified to the recipient by communication to his electronic address, or in the case of joint holders, to the electronic address of that of one of the joint holders who is first named on the register of members or to such person or to such electronic address as the holder or joint holders may direct. Any one of the two or more joint holders may give effectual receipts for any dividends, bonuses or other money payable in respect of the shares held by them as joint holders.”
By order of the Board
C. A. Banda GROUP COMPANY SECRETARY 29 April 2015
125 ECONET WIRELESS ZIMBABWE LIMITED
To be delivered by hand to:
First Transfer Secretaries (Private) Limited 1 Armagh Avenue Eastlea Harare Zimbabwe
Or to The Group Company Secretary Econet Wireless Zimbabwe Limited Econet Park 2 Old Mutare Road Msasa HARARE
Or by post to: First Transfer Secretaries P O Box 11 HARARE ZIMBABWE Proxy form for the Seventeenth Annual General Meeting of Econet Wireless Zimbabwe Limited to be held at Econet Park, 2 Old Mutare Road, Msasa, Harare, Zimbabwe on Friday 31 July 2015 at 10.00 a.m.
I/We
Being the registered holder/s of
Ordinary shares in Econet Wireless Zimbabwe Limited, do hereby appoint:
1 or failing him/her
2 or failing him/her the Chairman of the Annual General Meeting as my/our proxy to act for me/us at the Seventeenth Annual General Meeting of the Company which will be held at Econet Park, 2 Old Mutare Road, Msasa, Harare to vote for me/us on my/our behalf or to abstain from voting.
IN FAVOUR AGAINST ABSTAIN 1. Adoption of the 2015 Annual Financial Statements together with the reports of the Directors and the Auditors 2. Appointment of Directors 5. Appointment of Auditors for the coming year 6. Special Business: Renewal of share buy-back authority 7. Special Business: Amendments to the Articles of Association (Kindly tick where appropriate)
Explanatory notes to resolutions for Annual General Meeting provided, with or without deleting “the Chairman of the Annual General Meeting”, but such deletion must be initialled by the to act as proxy to the exclusion of those whose names follow.
2. The authority of the person signing a proxy or representing an institutional shareholder should be attached to the proxy form in the general meeting .
Mutare Road, Msasa, Harare, Zimbabwe, not less than 24 hours before the time of the meeting.
4. The completion and lodging of this form of proxy shall not preclude the relevant shareholder from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms therefor should the shareholder wish to do so.
5. The Chairman of the Annual General Meeting may accept a proxy form which is completed and /or received other than in
6. Any alteration or correction to this form must be initialled by the signatory/signatories.
Signature of Shareholder Date
PLEASE NOTE
Name FOR OFFICIAL USE No. of Shares held Address
......