The biggest mobile network operator in Zimbabwe, Econet, recently released its annual report for the year ended February 2024. I still find it frustrating that we only get to examine Econet’s financials, while the competition can remain as secretive as it wants.
Anyway, we will be digging into the Econet report, but first, let’s hit the highlights.
If you had forgotten how dominant Econet is, feast on this: they report:
- 10.44 million active customers (out of 16.8 million connected customers)
- 69.7% of mobile subscribers
- 83.7% market share of internet and data traffic
Positives
The report shows growth in key areas. Revenue, adjusted for inflation, reached ZW$14.8 trillion, marking a substantial 133% increase compared to the previous year’s ZW$6.3 trillion.
I know those figures might seem abstract. Zimbabwean currencies are always in flux, and it’s hard to recall how much a trillion was worth in February.
Unfortunately, the country was in a hyperinflationary period, so while we can convert those figures at the prevailing exchange rate at the end of February, it will only give a rough idea of their actual value.
At the official rate of 1:15,000 as of the end of February, revenues would be roughly US$987 million. I know some may balk at the idea of Econet collecting nearly a billion in revenue, but that sounds about right. Back in 2018, when financial statements were in USD, Econet reported revenues of $831 million.
This growth was fueled by a 363% surge in capital expenditure, which rose from ZW$0.4 trillion in 2023 to ZW$1.9 trillion in 2024. This capital expenditure deserves its own discussion, but for now, we can note that Econet invested roughly US$127 million in equipment.
This investment in infrastructure led to better service and higher revenue, as expected.
The company’s earnings (EBITDA) also demonstrated significant growth, reaching ZW$7.1 trillion, a 175% increase from the previous year’s ZW$2.6 trillion. Remember, this is how much money Econet made from its core operations before considering things like taxes, loan payments, and depreciation.
So we’re saying Econet made roughly US$433 million from its core operations—a massive 175% increase from the previous year’s $172 million.
So those are the positives:
- A 133% revenue increase to about a billion USD
- 363% increase in money spent on equipment etc to roughly US$127 million
- 175% increase in money made from core business to roughly US$433 million
The loss
Despite these positive indicators, the company reported a net loss of ZW$1.1 trillion (roughly US$73 million), a significant increase from the ZW$0.3 trillion loss in 2023.
Wrap your mind around it: nearly a billion dollars in revenue, yet a loss of about $70 million.
There are a few factors to consider to make sense of this:
First, Econet incurred substantial exchange losses due to the depreciation of the ZW$. You’ll remember how quickly that currency lost its value.
These exchange losses amounted to US$213 million (ZW$3.2 trillion), or 22% of revenue. These losses are not related to the company’s operational efficiency but rather to external economic conditions. It’s the price you pay for operating in Zimbabwe.
The increase in capital expenditure also affects profitability. Econet saw a notable increase in depreciation and amortization expenses. These non-cash expenses reduce net income, even though they do not impact cash flow directly.
Another factor is hyperinflation. The distortions caused by hyperinflation can lead to discrepancies between operational performance (revenue and EBITDA) and the net income figure.
Finally, there’s taxation. Econet’s tax increased by 85% to roughly US$253 million (ZW$3.8 trillion).
So, just tax and exchange losses wiped out 50% of revenues. I consider exchange losses a kind of tax because they result from the government’s monetary policies affecting currency stability.
With all this in mind, you can better understand how nearly a billion in revenue and close to half a billion in operational income can still lead to losses.
That said, this was a 245% increase in losses, which is concerning, regardless of the caveats we discussed.
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What’s your take?