Econet leverages on broadband and Ecocash to protect topline

Econet leverages on broadband and Ecocash to protect topline

By Simbarashe Zishiri, HARARE, June 14 (The Source) –  Zimbabwe’s largest mobile operator, Econet continues to leverage on broadband and mobile transactions growth to protect its topline against a background of waning voice and SMS revenues owing to the downside presented by over-the-top (OTT) services.

Econet group revenue fell 3 percent to $621,75 million in the full year to February 28 from the $640,99 million in the prior year. Then, its revenue was down from the $746 recorded in 2015.

The industry recorded a total revenue of $722,9 million, with Econet enjoying a lion share of 76,5 percent of the total revenue in 2016, while Netone and Telecel had 14,4 percent and 9,1 percent respectively.

Econet voice revenues contributed 50,8 percent to total revenue in the full year ended February 2017 down from 80 percent in 2010, a 6 percent decline from prior year while  Ecocash and broadband contributed 12,2 percent and 19,5 percent respectively.

On voice traffic market share, Econet commanded 69,9 percent while Telecel and Netone shared the remaining 10,5 percent and 14,4 percent respectively.

Zimbabwe is experiencing liquidity challenges, but this has boosted Econet’s mobile money unit, EcoCash, which recorded a 16 percent increase in customers to 6,7 million from 5,8 million recorded in the previous year, resulting in a 5,48 percent increase in EcoCash revenue to $77 million from $73 million recorded in the prior year.

At industry level, Econet led mobile transactions in the country, garnering a 98,6 percent market share through its Ecocash platform while Telecel’s Telecash  and Netone’s Netcash  contributed a meagre 1,1 percent and 0,3 percent respectively.

Econet’s broadband revenue for the full year to February 2017 increased by 8 percent to $123 million from $113 million recorded in the previous year, following an additional 2,9 million subscribers during the year.

Relative to its peers, in terms of data, Econet had 71 percent market share while Netone and Telecel got 21,3 percent and 7,7 percent respectively in 2016

Additionally, the group’s banking unit, Steward Bank, had an impressive financial year, with revenue increasing by 24 percent $30,11 million from  $24,34 million on the back of  a 36 percent  increase in non-funded income to $28 million.

The group’s earnings before interest, tax, depreciation and amortization (EBITDA) was down 6 percent to $223,95 million from $238,42 million achieved in the previous year, while EBITDA margin eased to 36 percent  from  37,2 percent previously.

Econet raised $130 million — possibly the biggest ever local capital raise in Africa outside of South Africa – in February  through a highly contentious rights issue to pay off foreign loans. This resulted in a 26 percent reduction in finance costs to $26,7 million. Debt to equity ratio was more favourable at 17,8 percent from 31,3 percent.

The low finance costs should also increase its net income in the half-year period.

Econet’s net profit of $36,19 million represented a 10 percent decline from $40,2 million recorded in the previous year.

However, capital expenditure was constrained during the year due to the unavailability of foreign currency to pay foreign suppliers, with $32,93 million spent on capital projects compared to $82,85 million in the prior year or the $148 million and $140 million in 2013 and 2014 respectively.

Econet’s cash generating ability remains strong, with cash flow from operations of $174 million achieved in the the period from $199 million previously.

The company remains a firm favourite with investors after paying a dividend of 0.467 cents per share, a total of $12,1 million, which is 35 percent of its net income.

Since the release of the financials on May 31, Econet’s share price has risen by 11,5 percent to close at 34 cents on Tuesday.

Analyst view

The challenge posed by foreign currency shortages is an industry wide problem, and as such, it will not create a competitive edge for Econet’s rivals, Telecel and NetOne.

On November 4 last year, Zimbabwe introduced compulsory infrastructure sharing for the country’s mobile operators through Statutory Instrument 137 of 2016 although this has yet to take effect.

The law will not benefit Econet, which is currently owed $26 million in interconnect fees by  other operators, which analysts expect will be settled in treasury bills (TBs).

Econet has come up with a diversified operating model which consists of telecommunications (broadband, voice and SMS), media (content provision through Kwese) and technology (payment solutions and digital banking e.g. EcoCash and Steward Bank), e-commerce solutions such as Ownai, E-learning platforms like Ruzivo and Internet of Things solutions, including ConnectedCar.

Ecocash is likely to thrive through the current liquidity challenges, after adding more applications to its portfolio that include prepaid electricity tokens, school fees payments, bank-to-wallet transfers among others.

Overall, broadband and Ecocash remain key pillars in light of falling voice revenues and management has indicated that the group will continue to prioritise cost rationalisation to improve margins. It expects to cut costs by a further 10  to 15 percent during the year.

Despite the headwinds besetting the country at large, analysts anticipate revenue to increase in the coming year-end on better revenue contribution by EcoCash and broadband. An improvement in EBITDA margin is also likely on the back of cost containment measures.