Econet annual profit down to $36 million

Econet released its annual financial results today. The company’s profit for the year, as generally expected, declined. This time by 10% to $36.2 million from $40.2 million the previous year.

Revenue was also decreased from $641 million to $622 million. EBDTA (which stands for earnings before interest, taxes, depreciation and amortization) also declined 6.4%. to $224 million from US$238.4 million.

EBIDTA essentially shows the company’s earnings if things like depreciation and debt interest are not taken into account, since telecoms companies spend lots of money on these things resulting in high figures that may not give a clear picture of the company’s alternative earnings. Econet for example is spending a lot on infrastructure upgrades to 4G.

In a press release announcing the results, Econet expresses confidence that these results are in fact good, suggesting things could have been worse if they did not use “innovation, effective market segmentation and solid infrastructure” to maintain a leading position in the market.

Econet also asserts that they are no longer just a telecoms company but a fully-fledged Telecom, Media and Technology (TMT) company. CEO Douglas Mboweni confirmed the generally obvious that voice call revenues are down, but said that the decline is being compensated well by growth in data revenues.

Data (internet) and EcoCash, the two products the company is betting its future growth on, together contributed about $199 million. This is an unexpected slight increase to 32% from 29% last year. We expected the growth of the two to be much higher. EcoCash, we expected, would have significantly increased revenues especially as more people rely on it because of the cash crunch locally. Banks in Zimbabwe cashed in big on the cash crisis with electronic transaction fees.

We also expected much higher data consumption and therefore revenues. Econet likely knows this and made a deliberate effort to avoid comparing the contribution of EcoCash and Data to last year so that the lack of growth is bare. Instead they compared 32% contribution of 2017 to a 6% contribution from 5 years ago.

That aside, Econet also didn’t mention clearly what stage they are in of building their Media and E-commerce products, since the company’s entry into that space 2 years ago with the launch of Ownai and the regulatory hurdles to launch their media play, Kwese TV.

This too feels a little dishonest since Econet has been clear in previous results that the 3 pillars for the future are Mobile Financial Services, Broadband and Media & E-commerce. A one line mention of this is what we’ve been able to do (or not) would have been better in our opinion. Download the full announcement here.

Econet Zimbabwe Finance Director, Roy Chimanikire commented on the results:

Against the background of limited foreign currency, we continued exploring innovative ways to address this challenge. We believe that it is not the Government or the Reserve Bank of Zimbabwe alone that need to come up with solutions to the current challenges we face. Our need to address the imminent default on our loans due the limited availability of foreign currency saw us launching the largest capital raising exercise in the history of Zimbabwe Stock Exchange (ZSE). We are thankful to the support from our shareholders and all stakeholders which resulted in the Company raising sufficient capital to retire its foreign long-term bank debt. We are now in a stronger position to deal with the challenges of operating in an increasingly more difficult economic environment.

And Mboweni commented:

Going into the future we remain cognisant of the fact that our success hinges on meeting and exceeding our customers’ needs. Leveraging on our solid infrastructure we will continue to be innovative in order to respond proactively to environmental changes and take advantage of technological developments, especially in the areas of content, media and financial technology (Fintech)