Chris Muronzi/ Paidamoyo Muzulu
ZIMBABWE’S first mobile phone operator, NetOne Cellular (Pvt) Ltd is technically insolvent, having made a US$14,4 million loss in the full year to December 2010 after administration expenses and finance charges ate into the bottom line.
Revenue for the wholly government owned company for the period fell to US$77 million from US$101 million reported in 2009.
Gross profit was at US$52,4 million but marketing, distribution and administration expenses gobbled US$63,3 million and left the business with an operating loss of US$10,5 million.
Net finance charges of US$3,3 million were incurred, bringing the total loss for the period to US$14,4 million, reversing a US$7,7million profit made in 2009.
The company’s financial results, which were audited by Grant Thornton Camelsa carried an adverse note, which said:
“Without qualifying our opinion on the financial statements, we draw attention to Note 18 which indicates that the company incurred an operating loss of US$10 463 497 for the year ended December 31 2010 and, as at that date, the company’s current liabilities exceeded its current assets by US$65 427 621. These conditions, along with other matters, indicate the existence of a material uncertainty which may cast significant doubt on the company’s ability to meet its short term obligations.”
The auditors also noted that: “The company did not comply with the Postal and Telecommunications Act (Chapter 12:05) and Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) regulations with respect to the remittance of annual licence and spectrum fees.”
NetOne’s board is optimistic that the Potraz issue will not have a significant impact on the ability of the business to continue as a going concern, given that the company has shareholder support and a common shareholder with the regulator.
NetOne’s precarious financial position, as observed by the Auditors, renders the company technically insolvent as its short-term obligations far outstrip its liquid assets.
On contingent liabilities, the auditors also noted that Econet Wireless Zimbabwe Ltd instituted legal proceedings claiming US$9, 3 million from NetOne.
“Econet has sued the company and legal correspondence indicates that the claim is likely to be successful. Legal costs for the claim are estimated at US$8 000. Legal costs for other outstanding litigation claims are estimated at US$5 000. This brings total legal costs to an estimated US$13 000 as at December 2010,” the auditors said.
Grant Thornton also said that Alliance Media sued NetOne for approximately US$2 million.
The failure by Net One to service its debts is reflected by the steep rise in its trade payables which stood at US$47,6 million at the period end from US$31,8 million in 2009.
The auditors, however, did not fully qualify their opinion on the business, whilst the directors also believe that NetOne is still a going concern.
However, an analysis of the financials shows that the company is relying heavily on loans and overdraft facilities as evidenced by the negative working capital.