TelOne Records $10 million Turn-around Just Enough For A Break-even

TelOne today held its fifth successive Annual General Meeting where its Audited Financial Results for the year ended 31 December 2018 were adopted, reflecting a bounce back in their financials, but good enough for a break even as they increase revenue.

TelOne last year recorded a $10.2 million loss, which they have covered against an increase of $10million on the back of a 5% increase in revenue for the financial year ended 31 December 2018, owing to a 37% upsurge in broadband revenue. Total revenue grew to $125 million in 2018 compared to $119 million achieved in same period in prior year.

The company also registered a strong broadband subscriber base increase and revenue, before the highly inflationary environment, a move in the positive towards market share and profitability.

In statement, TelOne announced that

“We are pleased to announce a $10 million turn-around which saw TelOne achieving break-even in 2018 from a loss position of $10,2 million in 2017 without Legacy Loan Expenses and ZIMRA penalties and interest.

The once perceived loss making entities are slowly turning around with Powertel recently recording a profit, NetOne increasing its margins and now TelOne completely covering the gap, fortunes may turn, even for the would be next investor

TelOne Broadband revenue grew to reach $61.1 million from $45 million in 2017. Since the beginning of the implementation of the National Broadband Project in 2016, TelOne has witnessed an 85% cumulative growth in data revenue resulting for the first time, in the off-setting of voice revenue loss by gain in data revenue, a direct result of the business’ transformation strategy.

The company’s fixed data subscriber base grew from 87 851 in 2017 to 100 005 marking an increase of 14%. 

Despite the inflation induced increases in operating costs, the Company’s performance at EBITDA level improved by 21%, growing from $19 million in 2017 to $23 million in 2018. Despite the inflationary pressures experienced in 2018 at 42%, the company managed to contain operating costs seeing an increase of just 2% from $84 million to $86 million.  

The company performance improved, witnessing a decrease of 19.4% in Loss before Tax from $39million in 2017 to $19.6 million in 2018.

The loss position though improved, is a result of the balance sheet issues which have been obtaining as follows;

  • Finance charges on legacy loans of $12.4 million. Company performance continues to be eroded by the legacy loans which were inherited from the Post and Telecommunications Corporation (PTC) at its unbundling in 2000.
  • In 2018, the company was penalised $8.9 million by ZIMRA for late settlement of its tax obligations. The company’s default on its ZIMRA obligations was due to liquidity challenges brought by late settlement of amounts owed by various customers who mainly include Government of Zimbabwe. The company will continue to work with ZIMRA and the Government for an amicable solution to clear the ZIMRA debt while also recovering amounts due from Government.
  • Without the Legacy Loan Expenses, exchange gains and ZIMRA penalties and interest, the company would have incurred a narrowed Loss before tax position of just $380 000  in 2018, which is a marked reduction from the $10.2 million loss incurred in 2017 before legacy loan charges.

2019 TRADING UPDATE

Having completed the five years of the transformational strategy which was largely anchored on technology modernisation and expansion, TelOne’s strategic thrust for the period 2019-2023 has shifted to digital innovation services and products.

Building on the capacity of the National Broadband Project, the company has re-focused to become an enabler of a digitally enabled society by 2023. This also dovetails with the Government of Zimbabwe’s thrust of becoming a middle income economy by 2030 through creation of a digitally enabled society.

The new strategic thrust has seen the company adopting a Technology, Media & Telecommunications (TMT) model, offering Digital Solutions and Products.

The new strategy will focus on the following key pillars:

  • Revenue growth, Profitability and Sustainability
  • Transformation into a Technology, Media & Telecommunications company offering Value Added Services and Digital Solutions.
  • Customer Experience Enhancement
  • Human Capital Development

Revenue and Profitability (January-May)

  • A revenue increase of 62% has been recorded compared to same period last year. Growing from $48,6million to $79million.
  • For the first time in three years, an EBIT profit of $1million from negative $4,2million has been recorded over the period marking a $125% increase.
  • For the period under review, broadband contribution to revenue has grown to 51% compared to 43% in 2017.
  • A 15% increase in broadband subscribers to 112,356 has been recorded over the period.

Tarriffs

TelOne tariffs remain the most affordable on the market with an adjustment of 150% having been effected in line with the changes in the interbank forex rate. This however remain way below the market trends which averaged 500%.

TelOne will continue to strive to offer the best service at the least possible price.

Network Vandalism

While efforts have been made to improve our client experience, the business continues to experience setbacks resulting from network vandalism. The adverse economic environment, coupled with the global increase in copper prices, have been contributing factors that have resulted in illicit copper dealings in the country. Our strategic focus is thereby to gradually replace copper with fibre which is less prone to vandalism. This is a process that we have already started in areas like Southerton and Willowvale Industrial areas in Harare. This is a process that will however take longer as it requires a huge capital investment. TelOne has thus also continued to step up efforts to curb network vandalism by putting in place a number of measures such as installing security alarms on the copper cable infrastructure, increasing physical security patrols in high risk areas and engaging in massive anti-vandalism campaigns. This has resulted in increased arrests with 164 arrests in 2018 alone while as at May 2019, a total of 68 arrests had been recorded. We are also pleased that the issue of network vandalism has been escalated to Cabinet resulting in police being tasked to address the matter decisively resulting in a number of joint operations being carried out countrywide.

Debtors (Accounts Receivables)

Although TelOne’s trade debtors’ book decreased by 7% from $162 million in 2017 to $151 million in 2018 it is still high and efforts are being made to reduce the debtors’ book. The amount is made up of balances due from Government Ministries, Parastatals, Corporates and Household clients. Government indebtedness to TelOne of $93 million constitute 62% of the net accounts receivables. Delayed settlement by debtors continues to have a negative impact on the company’s ability to settle critical statutory and contractual obligations. While mindful of economic challenges being experienced by the country, we continue to implore on all clients both corporate and residential to settle their debts to allow ease of business by TelOne. To this end we have put in place different strategies for debt collection including black listing or litigation were necessary. This has resulted in a 26% increase in collections of at least $64million between January and May this year.

Accounts Payables

The TelOne debt to service providers and other creditors increased by 7% from $152 million to $162 million. The increase in foreign creditors is due to challenges faced by the business in securing foreign currency to settle foreign obligations amounting to $32 million. Settlement of critical local creditors of $98 million has been affected by late settlement of what is owed to us. Local creditors, namely Postal and Telecommunications Regulatory Authority of Zimbabwe, Zimbabwe Revenue Authority, local interconnection partners and the Pension Fund are collectively owed $93 million.

OUTLOOK

Despite the environmental challenges obtaining, the company is expecting to exit the year with an EBIT profit for the first time in three years.

Speaking at the TelOne Annual General Meeting today, TelOne Board Chair, Mrs Juliet Machoba, said the company expects a challenging 2019 with foreign currency availability challenges  and inflationary pressures in the country becoming more pronounced. “Despite these challenges, TelOne is looking forward to leveraging on Government’s digitalisation drive and e-government initiatives which are aligned to the Company’s strategic thrust for the next 5 years,” she said.

“Partial privatisation plans are expected to gather momentum in 2019 and this is expected to create room for the company to attract a suitable strategic partner. The potential investor is expected to have the following;

  • A strong capital and financial base
  • Ability to deliver technology
  • Skill transfer
  • A global network with clear marketing strengths ability to mobilise lines of credit on a continuous basis.
  • Possession of vision congruencies

TelOne’s strategic focus areas in 2019 are:

  • Partial Privatisation
  • Recovery of our accounts receivables to allow settlement of accounts payables
  • Improving our foreign currency generation capacity
  • Increasing our digital innovation capabilities
  • Continued improvement in our response rate to customer queries and service requests to ensure a unique customer experience
  • Phased upgrade of our access network
  • Further revenue growth for enhanced profitability
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