Business Development Science and Technology

ICT Uptake Underpins TelOne’s Revenue Growth

Minister Jenfan Muswere

Dr. Jenfan Muswere, the Minister of Information Communication and Technology (ICT), Postal and Courier Services has singled out TelOne’s strategic thrust as a catalyst for the company’s revenue growth that was underpinned by priorities on infrastructure development with ICTs and the Digital Economy being central to socio-economic transformation.

“I have noted that TelOne has posted an Operating Profit of ZW$523million, which is an improvement from the operating profit of ZW$449million in 2019. Further, I note that TelOne has managed to contain staff cost to income ratio to 30% which is within stipulated thresholds. The growth in revenue is commendable and I have noted that the growth is due to the 14% increase in home broadband subscribers to 128,545 at the end of the 2020 financial year.

“From Managing Director’s Trading Update, I have also noted that the trend is continuing to gain momentum with the broadband subscribers now at 129,590. This development is key in that it resonates with the the drive by Government to increase access and utilization of broadband especially as a key driver for economic development. While the company’s voice utilization in terms of minutes declined by 19%, it is even more concerning that there has been a 4% decline in voice subscribers. Management is encouraged to ensure strategies are put in place to counter the loss of voice subscribers due to the fixed-mobile migration, ” Minister Muswere said.

 

TelOne’s  7th successive Annual General Meeting was held virtually yesterday where its Audited Financial Results shows an inflation adjusted revenue growth of 147% mainly propelled by an upsurge in demand in broad band services.

MAJOR HIGHLIGHTS

  • Revenue increased by 147%, in inflation adjusted terms from ZW$1.9 billion in 2019 to ZW$4.7 billion in 2020 owing to a 14% increase inbroad-band subscribers coupled with a 22% increase in usage.
  • The upsurge in demand for Home Broadband services was driven by the COVID-19 induced remote working model(tele-working) adopted by many corporates, accompanied by an increase in online shopping and e-learning.
  • Despite the slowdown in the economy due to the COVID-19 pandemic, the company managed to post an inflation adjusted operating profit of ZW$523million from ZW$449million in the previous year, building on the strong performance recorded in the inaugural year of the Telecommunication Media and Technology (TMT) strategy in 2019.
  • Influenced by our client centric approach, TelOne achieved an improved customer satisfaction index of 79% in 2020 as compared to 73.2% in 2019. We remain committed to enhance customer experience through new services, improved customer support and efficient customer complaints resolution.

Profitability –Earnings Before Interest Depreciation and Tax (EBITDA)

The company achieved a 2% increase in EBITDA from ZW$658 million in 2019 to ZW$671 million in 2020. The improved performance was driven by revenue growth and cost containment initiatives. Operating expenses increased by 220% from $1billion in 2019 to $3.2billion in 2020. The increase in operating expenses was mainly driven by the depreciation in the exchange rate of 381% which exceeded inflation of 348%. Operating costs for the ICT sector are largely foreign currency driven as most of the equipment and software are imported. The depreciation in the rates of exchange therefore has a bearing on the company’s operating expenses.

However, the company closely monitored its costs by prioritizing critical expenditure which resulted in the increase in EBITDA by 2% in real terms and 329% in historical terms.

Legacy Loans Impact – Posts and Telecommunications Corporation of Zimbabwe

The foreign legacy loans expenses amounting to ZW$34,7 billion emanating from the legacy debt of ZW$35.9 billion (US$432million), continued burdening the company despite persistent efforts for the government to warehouse the debt.

The Government announced plans to warehouse TelOne legacy loans in April 2019 amounting to ZW$35.9 billion (US$432 million), which were inherited from the Posts and Telecommunications Corporation of Zimbabwe at its unbundling. The warehousing of the legacy loans was meant to restructure the company balance sheet and pave way for privatization. However the formalities of the legacy loan restructuring had not yet been finalized at the end of the year to allow the company to derecognise these loans.

During the period under review, the company’s Net Loss Before Tax of ZW$10.3 billion compared to loss Before Tax of ZW$35 billion in 2019, is attributable mainly to the legacy loans expenses amounting to ZW$34.7 billion being partially offset by a monetary gain achieved of ZW$24.7 billion. If legacy loan expenses are excluded, the company achieves a profit before tax of ZW$24,4 billion (2019: ZW$508 million).

Trade Receivables (What is owed to TelOne)

Trade receivables grew to ZW$1.7billion from ZW1.36 billion in 2019. The Government of Zimbabwe owed ZW$575 million while Parastatals and State Owned Enterprises accounted for ZW$105 million. The government has 22% (ZW$119 million) of its debt outstanding for more than 6 months, thereby constraining the company’s cash flows and liquidity position. As means to mitigate the problem, the company has made an appeal to the Ministry of Information Communication Technology, Postal and Courier Services and Ministry of Finance & Economic Development to facilitate the company’s initiatives to ease the debt. A number of Government ministries have now been migrated to prepaid services.

Trade Payables (What TelOne Owes)

Trade Payables decreased from ZW$2.7 billion (2019) to ZW$2.3 billion in 2020. The bulk of these creditors are foreign creditors whose balances are affected by exchange rate fluctuations on translation. In an effort to maintain good relationship with creditors, the company continuously engages suppliers for flexible payment plans. Also, the company continued navigating on new strategies to improve revenue generation and cash collections on outstanding receivables to accelerate creditor’s payment plans.

Network enhancements

Investment into network upgrades for the period under review amounted to ZW$151 million. The following key investment projects into the network were commenced in 2020 and are expected to be completed in 2021:

  • Data centre facilities upgrade at a cost of US$1,7million.
  • FTTH deployment in Mabvazuva with a capacity of 1,800 homes at a cost of US$282K.
  • Upgrade of Kariba-Harare-Masvingo-Beitbridge backbone link from 100G to 300G. This was completed in March, 2021 at a cost of US$578K.

Network Vandalism

While efforts have been made to improve our client experience, the business continues to experience setbacks resulting from copper network vandalism. We continue to be mindful of network vandalism that not only affects our reputation but has become costly to the business. Efforts are now underway to address copper network thefts through a project to replace copper with fibre and other technologies less prone to vandalism.

OUTLOOK

Building on the customer centric culture, TelOne continues to adapt to technological changes bringing about new innovative products to meet the ever evolving needs of our market. The business remains focused on providing unparalleled customer experience in an evolutionary way, whilst pursuing our vision of ‘digitally enabled society by 2025’.

Speaking at the Virtual Annual General Meeting today, TelOne Board Chairman, Dr. Douglas Zimbango said; “We remain confident of our ability to deliver our vision through the dynamic strategies that are coming through as well as the support of the shareholder, as has become custom”.

TelOne’s 2021 strategic focus areas are:

  • Expansion of the network countrywide;
  • Further revenue growth for enhanced profitability;
  • Growing our digital innovation capabilities;
  • Improving foreign currency generation capacity;
  • Continuously improving Customer Experience and
  • Intensifying debt collection measures to improve liquidity.”

 

Dr. Jenfan Muswere, the Minister of Information Communication and Technology (ICT), Postal and Courier Services has singled out TelOne’s strategic thrust as a catalyst for the company’s revenue growth that was underpinned by priorities on infrastructure development with ICTs and the Digital Economy being central to socio-economic transformation.

“I have noted that TelOne has posted an Operating Profit of ZW$523million, which is an improvement from the operating profit of ZW$449million in 2019. Further, I note that TelOne has managed to contain staff cost to income ratio to 30% which is within stipulated thresholds. The growth in revenue is commendable and I have noted that the growth is due to the 14% increase in home broadband subscribers to 128,545 at the end of the 2020 financial year.

“From Managing Director’s Trading Update, I have also noted that the trend is continuing to gain momentum with the broadband subscribers now at 129,590. This development is key in that it resonates with the the drive by Government to increase access and utilization of broadband especially as a key driver for economic development. While the company’s voice utilization in terms of minutes declined by 19%, it is even more concerning that there has been a 4% decline in voice subscribers. Management is encouraged to ensure strategies are put in place to counter the loss of voice subscribers due to the fixed-mobile migration, ” Minister Muswere said.

 

TelOne’s  7th successive Annual General Meeting was held virtually yesterday where its Audited Financial Results shows an inflation adjusted revenue growth of 147% mainly propelled by an upsurge in demand in broad band services.

MAJOR HIGHLIGHTS

  • Revenue increased by 147%, in inflation adjusted terms from ZW$1.9 billion in 2019 to ZW$4.7 billion in 2020 owing to a 14% increase inbroad-band subscribers coupled with a 22% increase in usage.
  • The upsurge in demand for Home Broadband services was driven by the COVID-19 induced remote working model(tele-working) adopted by many corporates, accompanied by an increase in online shopping and e-learning.
  • Despite the slowdown in the economy due to the COVID-19 pandemic, the company managed to post an inflation adjusted operating profit of ZW$523million from ZW$449million in the previous year, building on the strong performance recorded in the inaugural year of the Telecommunication Media and Technology (TMT) strategy in 2019.
  • Influenced by our client centric approach, TelOne achieved an improved customer satisfaction index of 79% in 2020 as compared to 73.2% in 2019. We remain committed to enhance customer experience through new services, improved customer support and efficient customer complaints resolution.

Profitability –Earnings Before Interest Depreciation and Tax (EBITDA)

The company achieved a 2% increase in EBITDA from ZW$658 million in 2019 to ZW$671 million in 2020. The improved performance was driven by revenue growth and cost containment initiatives. Operating expenses increased by 220% from $1billion in 2019 to $3.2billion in 2020. The increase in operating expenses was mainly driven by the depreciation in the exchange rate of 381% which exceeded inflation of 348%. Operating costs for the ICT sector are largely foreign currency driven as most of the equipment and software are imported. The depreciation in the rates of exchange therefore has a bearing on the company’s operating expenses.

However, the company closely monitored its costs by prioritizing critical expenditure which resulted in the increase in EBITDA by 2% in real terms and 329% in historical terms.

Legacy Loans Impact – Posts and Telecommunications Corporation of Zimbabwe

The foreign legacy loans expenses amounting to ZW$34,7 billion emanating from the legacy debt of ZW$35.9 billion (US$432million), continued burdening the company despite persistent efforts for the government to warehouse the debt.

The Government announced plans to warehouse TelOne legacy loans in April 2019 amounting to ZW$35.9 billion (US$432 million), which were inherited from the Posts and Telecommunications Corporation of Zimbabwe at its unbundling. The warehousing of the legacy loans was meant to restructure the company balance sheet and pave way for privatization. However the formalities of the legacy loan restructuring had not yet been finalized at the end of the year to allow the company to derecognise these loans.

During the period under review, the company’s Net Loss Before Tax of ZW$10.3 billion compared to loss Before Tax of ZW$35 billion in 2019, is attributable mainly to the legacy loans expenses amounting to ZW$34.7 billion being partially offset by a monetary gain achieved of ZW$24.7 billion. If legacy loan expenses are excluded, the company achieves a profit before tax of ZW$24,4 billion (2019: ZW$508 million).

Trade Receivables (What is owed to TelOne)

Trade receivables grew to ZW$1.7billion from ZW1.36 billion in 2019. The Government of Zimbabwe owed ZW$575 million while Parastatals and State Owned Enterprises accounted for ZW$105 million. The government has 22% (ZW$119 million) of its debt outstanding for more than 6 months, thereby constraining the company’s cash flows and liquidity position. As means to mitigate the problem, the company has made an appeal to the Ministry of Information Communication Technology, Postal and Courier Services and Ministry of Finance & Economic Development to facilitate the company’s initiatives to ease the debt. A number of Government ministries have now been migrated to prepaid services.

Trade Payables (What TelOne Owes)

Trade Payables decreased from ZW$2.7 billion (2019) to ZW$2.3 billion in 2020. The bulk of these creditors are foreign creditors whose balances are affected by exchange rate fluctuations on translation. In an effort to maintain good relationship with creditors, the company continuously engages suppliers for flexible payment plans. Also, the company continued navigating on new strategies to improve revenue generation and cash collections on outstanding receivables to accelerate creditor’s payment plans.

Network enhancements

Investment into network upgrades for the period under review amounted to ZW$151 million. The following key investment projects into the network were commenced in 2020 and are expected to be completed in 2021:

  • Data centre facilities upgrade at a cost of US$1,7million.
  • FTTH deployment in Mabvazuva with a capacity of 1,800 homes at a cost of US$282K.
  • Upgrade of Kariba-Harare-Masvingo-Beitbridge backbone link from 100G to 300G. This was completed in March, 2021 at a cost of US$578K.

Network Vandalism

While efforts have been made to improve our client experience, the business continues to experience setbacks resulting from copper network vandalism. We continue to be mindful of network vandalism that not only affects our reputation but has become costly to the business. Efforts are now underway to address copper network thefts through a project to replace copper with fibre and other technologies less prone to vandalism.

OUTLOOK

Building on the customer centric culture, TelOne continues to adapt to technological changes bringing about new innovative products to meet the ever evolving needs of our market. The business remains focused on providing unparalleled customer experience in an evolutionary way, whilst pursuing our vision of ‘digitally enabled society by 2025’.

Speaking at the Virtual Annual General Meeting today, TelOne Board Chairman, Dr. Douglas Zimbango said; “We remain confident of our ability to deliver our vision through the dynamic strategies that are coming through as well as the support of the shareholder, as has become custom”.

TelOne’s 2021 strategic focus areas are:

  • Expansion of the network countrywide;
  • Further revenue growth for enhanced profitability;
  • Growing our digital innovation capabilities;
  • Improving foreign currency generation capacity;
  • Continuously improving Customer Experience and
  • Intensifying debt collection measures to improve liquidity.”

About the author

Byron Adonis Mutingwende