Legacy debt chokes NetOne

Brian-Mutandiro2.jpg

Acting CE Brian Mutandiro

Zimbabwe’s second largest mobile network operator by subscriber numbers, NetOne, has engaged creditors with a view to restructuring its legacy loans which are choking the business, the company has said.

By Taurai Mangudhla

Acting CE Brian Mutandiro

Acting CE Brian Mutandiro

The legacy debt and creditors, coupled with huge depreciation and financing costs, has rendered the business unprofitable.

Although the extent of legacy debts would not be revealed by NetOne management at the time of going to print, acting CE Brian Mutandiro, speaking at the annual general meeting last Friday, reported US$7 million worth of penalties on outstanding taxes.

The US$7 million penalty, according to insiders, has risen to US$10,1 million recently.

This compares to the company’s US$2,7 million loss position at the end of 2016 and US$2,6 million in losses the previous year.

“What I can just say is suppose all taxes had been paid, this means that US$7 million will be there available to us and we would have actually been in a profit position. This excludes several millions in legacy debts and so on,” a NetOne official who requested not to be named told businessdigest.

The loss position was despite a 1% revenue growth to US$116 million, the highest in five years, while gross profit also grew to US$82,9 million from US$77,5 million the previous year. Earnings before interest, depreciation and amortisation growth was strong at US$41,6 million compared to US$24,6 million in 2015, indicative of the business potential.

However, overheads remained an albatross with the overheads-to-revenue ratio at 49% compared to 50%.

The legacy debts have a bearing on financing costs. These debts, coupled with high depreciation, are a nightmare for management.

“Financing costs and depreciation on network equipment are high relative to the revenues generated. Management’s challenge is to get revenues to a level that will adequately cover the depreciation of equipment and financing costs so that the business becomes profitable,” Mutandiro said.

“In addition, legacy debt from Post and Telecommunication Corporation as well as long outstanding creditors continue to negatively impact on the balance sheet and the bottom line. Management has engaged a huge portion of the legacy debt providers and creditors with a view to restructuring the legacy loans and creditors,” Mutandiro added.

Mutandiro said the restructuring of costs remains a key focus for management in the coming years in order to reduce the overheads to more sustainable levels.

NetOne reported 297% growth in data traffic in 2016 following significant investment in network expansion and a deliberate strategy to grow subscriber numbers and data use.

The growth was driven by high demand for data by the network’s growing customer base.

“Consequently, network quality improved significantly in all areas, enhancing customer experience. Given the need for the business to grow its data offering on the back of the accelerated network investment, data traffic carried by the network recorded an exponential 297% growth against a backdrop of very high demand for data services from our customers,” Mutandiro said.

“The company will continue to innovate on data-driven products in order to satisfy the demand for data.”

So far, NetOne is offering low data and voice tariffs through its One Fusion packages and recently launched One-Cliq and One-Fi Solution to further compete on the data front.

In 2016, the company registered a 36% growth in the number of 2G base stations to 1 678 while 3G base stations also grew by 19% to 734 and 4G base stations jumped by 96% to 261. Physical base stations grew by 39%. The huge growth in 4G base stations signifies the company focus on latest high-speed internet provision.

Going forward, the company is riding on the growing customer base and product portfolio to expand.

Mutandiro said customer growth focus will be pursued in the data segment by investing extensively in network expansion particularly in high-speed data to take advantage of new services around content videos.

“Whilst all indications point to a difficult trading environment ahead, we have a clear strategic framework focussed on profitability and shareholder return. Going forward, innovation will be central to everything that we do as a business and our customers can expect to see more innovative products coming from NetOne,” Mutandito said.

“We are focussed on the key objectives of transforming NetOne’s operating model to realise the significant value inherent in our core business. As we look forward, the focus remains on connecting more people in more ways than ever before.”

NetOne said new products will be launched in mobile financial services.

2 thoughts on “Legacy debt chokes NetOne”

  1. mgobhozi wezintabeni says:

    Not surprising at all, as long as the government is in control,there would be no monumental growth and like all government entities, it is likely to be brought to its knees sooner than later.The viable solution is to allow private players to come in and rescue the situation.Corporate governance is alien to all government run entities as such, no plausible results could be expected in this type of business environment.

  2. shumbasamaita says:

    Given this background by management, what is the size of the legacy debt and how long it will take netone to turn around with what levels of revenues & productivity. It doesn’t look good especially looking how Econet has stronghold on the market. Just look at how the better part of the market is so reliant on ecocash for paying and receiving money. Actually the cash situation would have been dire if we didnt have ecocash & its a bit naive for Netone management to think they can wrestle the market from Econet overnight. Government should dispose some of these SOEs & and get cash to improve other areas of the economy. Why does government want own another telecom company in the form of an ailing Telecel, it baffles the mind.

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