Zimbabwe’s largest telecom provider, Econet Wireless suffered a huge $16.6 million loss after tax in financial year FY 2020. This is according to its recently published FY 2020 audited abridged consolidated financial results.
Data from the latest report, audited by Big Four accounting firm Deloitte, revealed that Econet recorded a 100% loss of the $8.4 million profit realised in FY 2019 and incurred an additional $8.2 million loss in FY 2020.
Econet failed to consolidate on a 31% Y-o-Y increase in revenue to $83.6 million, with foreign exchange losses of up to $75 million plunging the telco giant into significant losses at the end of FY 2020.
The company’s financials has been plagued by Zimbabwe’s crippling currency exchange rate as well as the clamp down on EcoCash and other mobile money platforms in the country.
Subscriber Growth Drives 31% Revenue Increase
Despite the proscription of its mobile money service EcoCash, Econet recorded a 31% increase in revenue from $64 million in FY 2019 to $83.6 million in FY 2020.
Revenue increase was largely driven by a 10% gain in subscribers. 1.2 million subscribers joined Econet in FY 2020, taking its subscriber base from 11.4 million to 12.6 million.
This brought about a 7% increase in voice traffic Y-o-Y as well as a corresponding 4% increase in data traffic for the telecom group.
Although this was enough to shoot up the company’s generated revenue, the crackdown on EcoCash by the Reserve Bank of Zimbabwe has effectively curtailed Econet’s biggest revenue stream.
EcoCash catered to about 7 million users and processed 99% of the country’s mobile money/cash transactions, therefore contributing massively to the telco’s revenue.
200% Loss Due to Foreign Exchange Woes
In FY 2020, Econet Group posted a $16.6 million loss – about 200% of the $8.4 million profit recorded in the previous financial year.
The group attributed the reversal of fortunes to the devaluation of the Zimbabwean Dollar (ZW$) which led to a sharp fall in its value against the US Dollar (US$).
With Econet heavily dependent on forex to finance the majority of its operations, the subsequent depreciation of the ZW$-US$ exchange rate raised the valuation of foreign exchange losses.
For context, the exchange rate in 2020 – US$ 1 to ZW$ 17.95 in February, depreciated to US$ 1 to ZW$ 81.35 in October.
Apart from the currency exchange crisis, Econet also accumulated finance costs of $2.6 million, about 15 times the $0.18 million spent in the previous year.
Econet Group’s Board Chairman, James Myers disclosed that the company’s operational costs increased significantly due to fuel-related and maintenance expenses incurred while solving the constant power disruptions which negatively impacted the telco’s service quality and network availability.
Going by the Econet FY 2020 figures, it is evident that the company has veered off from the path of profitability due to the continued foreign exchange currency crisis and cash shortage in Zimbabwe. The group has a current negative working capital of $5.48 million.
While Econet can no longer rely on EcoCash as a significant revenue stream, it appears the telecom giants are considering selling some stake for much-needed forex to offset losses.
In the unlikely event that the Directors and management fail to meet the foreign obligations after implementing listed strategies, this investment is available for the Group to generate additional foreign currency to settle foreign obligations.Econet Wireless Zimbabwe
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