Listed telecoms giant, Econet Wireless Zimbabwe, is projected to continue battling foreign exchange losses for the full financial year 2023 (FY23) on the back of weaknesses in the local currency.
During its half year to August 31, 2022, the mobile network service provider, slumped into a $5 billion loss compared to a profit of $25 billion during the same period last year on foreign exchange losses and high cost pressures.
The business incurred foreign exchange losses of $43,7 billion representing 39 percent of revenue against a prior year comparative of 2 percent, which eroded profitability.
In an update for the half year period, Econet chairman Dr James Myers said: “The foreign debt carried by the business represents the debt that was on the balance sheet at the time of the change of the currency in 2018 and the business continues to engage the monetary authorities for a settlement of this debt at 1:1 in light of a provision in existing government policy.”
With persistent exchange rate volatility, market watchers contend the foreign exchange losses will inch up, further weighing on the company’s operations, a challenge that has affected businesses across sectors.
The depreciation of the local currency will continue to significantly impact the company’s ability to invest in new equipment and software for operating purposes.
“For years, the group’s financial performance has been weighed down by foreign exchange losses stemming from foreign currency denominated obligations and debentures,” said brokerage firm IH Securities in an earnings review.
“This situation had to some extent improved in FY22 owing to a relatively stable local currency during that period. Moving forward, FY23 foreign exchange losses are expected to come in elevated again as evidenced by losses for 1H23 which are already high at 36 percent of revenue.
“Although exchange rate depreciation has slowed in 2H23 compared to 1H23, the country hasn’t yet achieved currency stability,” said IH Securities.
However, the debentures are being redeemed in April 2023 and according to IH Securities “we should see a significant difference on foreign exchange losses in FY24 in our view.
“With Capex hovering around 5 percent versus SADC peers at circa 15 percent, the network will remain suboptimal in the near term.”
IH Securities maintains that the misalignment in the review of tariffs relative to inflation and ‘real’ costs will continue to impact revenue and profitability creating downside risk to the business.
Whilst voice and data volumes increased by 27 percent and 40 percent, respectively, the increases were negated by tariffs which, according to Dr Myers remained unaligned to the cost base of the business.
“The subdued revenue performance is indicative of frequent tariff reviews that are lagging behind inflation and changes in the consumer price index (CPI). For the period under review, year-on-year inflation was 285 percent and the tariff increase of 61 percent was not adequate to cover the loss in value,” he said.
He added access to foreign currency remained a challenge while lack of adequate capital investment also adversely impacted network coverage and, in turn, customer satisfaction.
Despite the challenges, the group is however expected to remain a market leader with technology and innovations that drive the sector.
“Econet remains best placed to lead the advancement of technology within the industry, and to unlocking interminable opportunities, reaping the benefits that come with being a diversified pioneer,” said IH Securities. – Business Weekly
