Annual Integrated Report2013 Inspiring Innovations ‘ Unl ess t he Lor d bui l ds t he house, t hey l abour i n vai n who bui l t i t . Unl ess t he Lor d guar ds t he ci t y, t he wat chman st ays awake i n vai n.’ Psal m 127 NKJV “An I nt egr at ed Repor t t el l s t he over al l st or y of t he or gani sat i on. I t i s a r epor t t o st akehol der s on t he st r at egy, per for mance, and act i vi t i es of t he or gani sat i on i n a manner t hat al l ows st akehol der s t o assess t he abi l i t y of t he or gani sat i on t o cr eat e and sust ai n val ue over t he shor t , medi um, and l ong- t er m. An effect i ve I nt egr at ed Repor t r ef l ect s an appr eci at i on t hat t he or gani sat i on’s abi l i t y t o cr eat e and sust ai n val ue i s based on f i nanci al , soci al , economi c, and envi r onment al syst ems and by t he qual i t y of i t s r el at i onshi ps wi t h i t s st akehol der s. The I nt egr at ed Repor t shoul d be wr i tt en i n cl ear and under st andabl e l anguage i n or der for i t t o be a usef ul r esour ce for st akehol der s.” I ntegrated Reporti ng Commi ttee of South Af ri ca ( I RC SA) Our Commi tment to I ntegrated Reporti ng I n our f i r st I nt egr at ed Repor t , we acknowl edged t hat we had st ar t ed on a j our ney. The f i r st st ep was t o l ay a foundat i on for i nt egr at ed r epor t i ng. Thi s i s our second I nt egr at ed Repor t and we t rust you wi l l per cei ve t he i mpr ovement s over l ast year : mor e i nfor mat i on; gr eat er i nsi ght s; i mpr oved t r anspar ency. Di scl ai mer - Forward- l ooki ng statement An I nt egr at ed Repor t i ncl udes cer t ai n ’ for war d- l ooki ng st at ement s’. These ‘ for war d- l ooki ng st at ement s’ ar e necessar i l y about t he f utur e and t her efor e i ncor por at e degr ees of uncer t ai nt y. Consequent l y f utur e actual r esul t s and per for mance may di ffer f r om t hese st at ement s. The for war d- l ooki ng st at ement s ar e curr ent as of t he dat e of publ i cat i on of t he I nt egr at ed Repor t . The Company makes no r epr esent at i on t hat t he i nfor mat i on wi l l be publ i cl y updat ed aft er t he r el ease of t he I nt egr at ed Repor t . 1 Inspiring Innovations Econet’s innovations are inspiring and life changing; we believe that technology that does not change and improve lives is irrelevant. Hence we continuously search for transforming technologies to facilitate social transformation in existing and new markets. With the most extensive coverage in Zimbabwe, Econet commands market leadership, delivering value and inspiring transformation across the country. 2 3. New in the Group 4. Performance highlights 5. Shareholder value delivery report 6. Share price movement 7. Four- year trading view Contents The year in perspective Corporate and leadership Governance Administration People and community Financial reporting “...What matters most about a new technology is not how it works, but how people use it and the changes it brings about in human lives…” Frances Cairncross 10. Our business 11. Corporate profile 14. Chairman’s statement to shareholders 18. Chief Executive Officer’s operations review 22. Board of Directors 25. From the Directors 28. Governance statement 31. Risk report 36. Remuneration 37. Our people and our community 41. Corporate social investment 46. Directors’ responsibility for financial reporting 47. Certificate by the Group Company Secretary 48. Independent Auditor’s Report 49. Consolidated annual financial statements 131. Our strategic business partnerships 132. Shareholder analysis 133. Corporate and advisory information 134. Financial diary 135. Notice to Members Detachable Proxy Form for Annual General Meeting 3 New company acquisition – TN Bank Limited In a business acquisition, on 12 July 2012, the Company acquired 45% of the voting shares of TN Bank Limited (TN Bank), a commercial bank incorporated and registered in Zimbabwe. This investment gave the Company significant influence over the financial and operating affairs of TN Bank Limited and as such it was accounted for as an associate from that date. The business is in the proccess of rebranding the bank to Steward Bank Limited. The Company acquired a further 53.6% of the voting shares of TN Bank Limited on 31 January 2013 bringing its total interest to 98.6%. As a result, TN Bank Limited was consolidated as a subsidiary from that date. In May 2013 the Company completed 100% acquisition of the bank. The Board took a strategic decision to acquire a licenced banking entity after realising the need to accelerate the convergence of mobile telephone and financial services, in line with global trends. TN Bank’s licence is critical to the regulatory environment in which EcoCash operates. This acquisition will allow the mobile business to develop, sustain and enhance its mobile based financial services products. TN Bank Limited’s responsibility is to act as custodian of the financial dreams and aspirations of our banking customers, in growing and protecting their investments. New Products and Services Buddie Zone – this product was launched in September 2012 and has been a huge success with our customers. This service allows our customers to obtain dynamic discounts which are the best in the market. Multiple value-added services launched during the year: - Buddie Beatz; - ‘SMS & Win’; - Mobile News. High Value and Business Customer Bundles – new bundles were launched for our high value and business customers bundling handsets with contracts. Econet Solar - new solar-powered products are changing the lives of people, especially in rural and developing areas. EcoCash - multiple new features were introduced during the year. These included the EcoCash “debit-card” functionality. Several new merchant payment options as well as the ability to perform EcoCash transactions whilst roaming were also added. Details of our products and services can be found on our corporate website: www.econet.co.zw T h e Y e a r I n P e r s p e c t i v e New in the Group 4 Performance highlights Revenue Composition 1 Earnings before interest, taxation, depreciation, impairment and amortisation EBITDA for 2012 excludes once-off profit on disposal of investments. 2 Profit after taxation 3 Average revenue per user per month 4 Capital expenditure 5 The Group continues to grow shareholder value as illustrated by the metrics above. Through the authority of the shareholders, the Group has made a number of prudent share buy-backs in an effort to retain value. Over the period, the Group made significant efforts to grow shareholder value, which mainly included the following: Securing long-term funding In the current financial year, the Group managed to secure substantial debt facilities, and continued to service ongoing facilities. This has enabled the Group to continue in its infrastructure and resource development aimed at optimising operations and remaining the network of choice in the country. Investment in infrastructure and resources The Group continues to invest in network infrastructure development aimed at increasing network coverage and improving network quality. As at year end, the Group’s total assets have surpassed the $1 billion mark. The Group’s subscriber base has also increased from 1.2 million in 2009 to 8 million subscribers. Investment in various systems that are aimed at improving operational efficiencies and containing costs continues to be made. The focus on customer experience through delivery of superior products EcoCash, the Group’s mobile money transfer and payment system continues to transform the lives of individuals across the country. New functionalities have been added to the EcoCash system that are aimed at servicing the needs of our customers. A wide range of solar products was also introduced in the year. The Group increased its mobile data coverage in the year through setting up new base stations to enable users to access data facilities. We continue to leverage our investment in fibre infrastructure to deliver exceptional quality and data speeds. The acquisition of core investments The Group acquired TN Bank Limited as a strategic investment after realising the need to accelerate the convergence of mobile telephone and financial services in line with global trends. TN Bank Limited also holds the licence for EcoCash, a key product in the Group. Reducing investor uncertainty through the provision of value-relevant information Following the publication of the Group’s inaugural integrated annual report in 2012, the Group has continued in its efforts to provide useful and valuable information to all stakeholders. To this end, this year’s annual integrated report has improved in the quality of information provided, with a focus towards meeting the informational needs of key stakeholders. Through diligent adherence to the latest International Financial Reporting Standards and best practices in financial reporting, the Group continued to provide improved disclosure of its activities in its annual reports, interim financial results publications, as well as presentations to the market. T h e Y e a r I n P e r s p e c t i v e Shareholder value delivery report !"#$%$&' )*# '+"#* ,-*$.'/ !"#" $#" %#" &#" '#" 9 . 0 1 0 . 0 8 . 3 6 Share price movement from February 2009 to February 2013 Note: The share price during the year has been adjusted for the 10 for 1 share split in February 2013. 7 Summarised income statement ('000) 2013 2012 2011 2010 Revenue 694,844 611,116 493,491 362,776 EBITDA 305,344 290,894 242,746 179,285 Finance charges (28,600) (10,202) (8,061) (4,903) Proft before tax 204,903 239,130 196,471 148,122 Taxation (64,965) (73,389) (55,502) (34,912) Net Proft for the year 139,938 165,741 140,969 113,210 Summarised statement of fnancial position ('000) Non-current assets 739,951 644,763 536,439 296,875 Current assets 275,158 167,664 101,073 95,794 Equity and reserves 492,883 382,793 290,477 165,486 Non-current liabilities 288,293 174,005 244,038 127,460 Current liabilities 233,933 255,629 102,997 99,723 Net debt 264,571 249,138 248,392 138,707 Capital expenditure (147,044) (216,010) (270,034) (160,148) Performance per ordinary share (cents) Basic earnings per share 9.0 10.0 8.3 6.6 Headline and diluted earnings per share 9.0 10.0 8.3 6.6 Net asset value per share 319 232 172 95 Proftability and returns (%) EBITDA margin 44% 45% 49% 49% Operating proft margin 20% 27% 29% 31% Efective tax rate 32% 31% 28% 24% Net proft margin 20% 27% 29% 31% Notes: 1. 2012 EBITDA margin excludes once off profit on disposal of investments Four-year trading view T h e Y e a r I n P e r s p e c t i v e 8 INFRASTRUCTURE Infrastructure Zimbabwe’s telecommunications sector has entered a new age of growth and opportunity. After years of investment and dedication to building our country’s telecommunications infrastructure, we can now look forward with greater hope. Once seen as backward in terms of technology, today Zimbabwe has leapfrogged many of its regional peers to become one of the fastest growing ICT markets in sub-Saharan Africa. To date, Econet has invested over one billion US dollars into building a modern network for our country. New Econet sites are going up across the country, bringing affordable telecommunications services to previously marginalised communities across the country. New switches have been built across Zimbabwe. We have built an extensive fibre network, connecting all our switches and base stations, for the benefit of all; from businesses and government agencies, to individual customers. We are humbled to see our investment take the country forward. Today, Zimbabwe is one of the most connected countries in Africa. Our growth is empowering many of our young entrepreneurs, who are seizing the vast opportunities available to develop supporting businesses. We are excited by the vast business opportunities that lie ahead of us. The possibilities are endless. 9 Inspiring Innovations 10 Our business Our Vision To provide world-class telecommunications to all the people of Zimbabwe. Our Mission To serve Zimbabwe by pioneering, developing and sustaining reliable, efficient and high- quality telecommunications of uncompromising world-class standards and ethics. Our Values The values we hold in common are: Pioneering We are a company committed to finding the best way forward in the fast-moving and highly competitive technology field. To remain leader in the field, we shall relentlessly pursue innovative solutions and constantly grow our knowledge base, with an uncompromising passion for excellence. Professionalism In everything we do, both within Econet and in the community, we always work in a customer and objective-oriented manner with clearly defined goals, in terms of quality of service. In all our professional areas and at all levels we carry out our duties skilfully and diligently. Personal Internally we always remember that we are a company made up of individuals. These people are the Company. Each one is an intrinsically valuable member of the organisation irrespective of their gender, race or position. We will always show concern for each other in an atmosphere that is open and stimulates personal development, job satisfaction and a sense of responsibility. We believe in working in teams, in effective and confident co-operation, in environments where honesty, praise, constructive criticism and fair reward have their place. Who we are inside the Company reflects who we are externally. Our relationship with our customers enthuses with warmth and a genuine desire to meet their needs. We reach out to customers in a holistic and organic way that makes them true stakeholders and willing participants in Econet Wireless. 11 C o r p o r a t e a n d L e a d e r s h i p Corporate profile EWZL - Zimbabwe holding company This annual integrated report incorporates the results of all the subsidiaries and associates of Econet Wireless Zimbabwe Limited. Econet Wireless Zimbabwe Limited (EWZL) is the holding company of businesses involved in various sectors of the economy as detailed below. EWZL, which is listed on the Zimbabwe Stock Exchange (ZSE), is Zimbabwe’s leading technology company. It is one of the largest quoted companies in terms of market capitalisation and directly and indirectly employs in excess of 15 000 people. Subsidiary Companies Econet Wireless (Private) Limited Econet Wireless (Private) Limited is EWZL’s cellular network operator with a base of 8 000 000 subscribers. EW Capital Holdings (Private) Limited EW Capital Holdings (Private) Limited is EWZL’s investment vehicle through which the Group holds a variety of investments carefully selected with the twin objectives of growing earnings and preserving value for shareholders. Transaction Payment Solutions (Private) Limited The Company is a leading provider of financial transaction, switching, point of sale and value-added services that exploit the convergence of banking, information technology and telecommunications. The Company provides local and international financial institutions and telecommunications operators access to cutting-edge technology to enhance customer service, in partnership with one of the world’s leading manufacturers of smart card-based point-of-sale systems. TN Bank Limited TN Bank Limited offers commercial banking services in the major centres of Zimbabwe. It is planned to play a pivotal role in the Group, especially concerning EcoCash, for which the Bank holds the banking licence neccessary for money transfer services. Pentamed Investments (Private) Limited EWZL through wholly-owned Pentamed Investments (Private) Limited holds 63% of the ordinary shares of Mutare Bottling Company (Private) Limited. It also holds 6% in the form of convertible instruments. Mutare Bottling Company (Private) Limited Mutare Bottling Company operates the Coca-Cola franchise in the Eastern Region of Zimbabwe. Associate Company Data Control and Systems (1996) (Private) Limited t/a Liquid Telecom Zimbabwe Liquid is a registered internet access provider in Zimbabwe and is a leading data, voice and Internet Protocol provider in the country. The Company supplies wholesale and retail fibre- optic and satellite services throughout Zimbabwe. Econet Wireless Zimbabwe Limited (EWZL; listed on Zimbabwe Stock Exchange) Econet Wireless (Private) Limited (EWPL; cellular network operator) EW Capital Holdings (Private) Limited (EWCH; group investment vehicle) TN Bank Limited (commercial bank) Pentamed Investments (Private) Limited (holding company) Mutare Bottling Company (Private) Limited (MBC; Coca-Cola franchise) Data Control and Systems (1996) (Private) Limited t/a Liquid Telecom Zimbabwe 98.60% 84.30% 63% 12 BUSINESS PARTNA Business Partna The country’s premium contract package from the country’s leading cellular network that is smarter, dependable and well connected. It is a post-paid package that gives you choice and unlimited network access with a lot of Value-Added Services like Mobile Data, Roaming, Conference Calling, Unlimited Talk Time, Smart Phones, Voicemail, Vehicle Tracking , a High Value Loyalty Programme, Corporate Account Management and a lot more. With a flexible and convenient 30-day post- paid billing cycle subscribers receive their bills once a month via email or SMS alerts. It is the ideal package for the business individual or small- to-medium enterprise consumer, designed to reward the high-end user with lower tariffs and extra value-added services in keeping with the smart partnership. 13 Inspiring Innovations 14 Chairman’s statement to shareholders DR J. MYERS - Chairman of the Board Introduction Through pursuing inspiring innovations and continued investment in human capital, systems and technology, Econet continues to maintain its market leadership position. The Company is changing lives and transforming the communities for the better by providing products and services that address the needs of people across the country in line with its vision to provide telecommunication services to all people in Zimbabwe. The country’s mobile penetration rate improved from 15% in 2010 to almost 100% for the period under review, largely as a result of the increase in Econet Wireless’ subscriber base. The Company’s extensive network coverage has allowed access to telecommunication and other services to previously marginalised communities resulting in a transformational impact on those communities. Econet made significant strides in providing access to internet services by making internet access ubiquitously available through its extensive data-enabled network resulting in the internet penetration rate increasing to about 35%. Investment Review Since inception the business has invested over US$1 billion in the Zimbabwean economy, making it one of the largest investors in the country. Further investment was made in the year under review in network infrastructure to improve coverage and bring more capacity, particulary for data services. This investment resulted in an increase to 8 million subscribers; a growth of 25% from the previous year. The investment in network infrastructure is complemented by an extensive distribution network which has made the Company’s products and services easily accessible to its subscribers across the country. This distribution network consists of over 100 different locations where there is either a company owned shop, an exclusive franchise or a dealer. This investment has had a profound effect on employment as it has created an extensive network that deals directly and indirectly with the Company’s products and services. The business identified an opportunity in the financial services sector where most of the people in the country did not have access to bank accounts or a means to do financial transactions easily and responded by launching EcoCash; which to date has been a highly successful intervention with over 2.1 million customers. Internationally, there has been a trend towards convergance of mobile telecommunications and financial services. The Company acquired TN Bank Limited as it realises the strategic role financial services will play in its future growth. Mobile money services in Zimbabwe require a banking licence and this investment allows the Company to be firmly in control of the future growth prospects of its financial services- related innovations. The Company continues to research into areas in which technology can be used to address needs that are unique to Zimbabwe and Africa. Its innovations in solar devices has brought power and phone charging solutions to communities that previously were not addressed by conventional power solutions. Innovation is a core value of the Company and it will continue to drive its investment philosophy. Operations Review EcoCash subscribers increased by 62% from 1.3 million to 2.1 million subscribers. The agency network that supports the EcoCash business witnessed a growth of 242% to close at over 3,000 agents thereby creating further employment opportunities and improving the national payments system. Under the EcoCash service offering, new services were introduced which include: bill payments, bulk payments, merchant services, as well as banking-related facilities. The provision of banking-related services necessitated the integration of most of the banks in Zimbabwe onto the EcoCash platform. Through this intergration new features such as the bank to wallet functionality that allows banked customers to transfer money from their bank account to their mobile wallet were launched. Further to this the EcoCash debit card which facilitates payments to retailers and other merchants was 15 C o r p o r a t e a n d L e a d e r s h i p 500 academically talented students on a full scholarship basis. º Ñalional Heallh Care Trusl Zinbabwe, whose vision is to be the “Partner of Choice” in all programmes aimed at responding to national healthcare crisis, such as cholera and typhoid, as well as building and maintaining capacity in the national healthcare delivery system. Licence Renewal The Econet Wireless Zimbabwe operating licence was issued, as a 15 year licence in July 1998, and was scheduled to expire on the 9th of July 2013. The original licence, as is standard international practice, set out guidelines to be followed for the renewal process. It also stipulated a licence renewal fee of $100 million. I am pleased to advise that the operating licence has now been formally renewed by government, on substantially the same terms and conditions as the previous period, save for the fact that the licence period was extended to 20 years, and the renewal fee, was set at $137.5 million. All operators will be required to pay the same licence fee on renewal of their licences. Outlook Econet Wireless is inspired to change the world of its customers through relevant innovations that address customer needs. Having made a significant investment in network capacity and coverage in the past few years the Company will continue to focus on improving its customer service platforms, distribution network, and further enhance its internet service delivery capabilities. Research and innovation in services that address the needs in financial services, farming, health and education sectors will continue so that the Company remains on the cutting edge of new and inspiring innovations. Appreciation I would like to extend my appreciation to the outgoing Chairman Mr. Tawanda Nyambirai, for the guidance and leadership during his tenure. His invaluable contribution over a period spanning years in the Company’s history is greatly appreciated. I extend my appreciation to our customers, shareholders, strategic partners, and regulatory authorities for their unwavering support during the year under review. I would also like to thank management and staff for their commitment in creating value for all stakeholders. I acknowledge the tremendous support that I received from fellow Board members who provided insightful wisdom and direction which has propelled the Company to yet another level of success. DR J. MYERS CHAIRMAN OF THE BOARD 14 May 2013 introduced. These innovations introduce a greater level of convienence to our subscribers and makes the technology relevant for their day to day lives. Another first by the Company was the introduction of the exciting “Buddie Zone”, a service that allows customers to receive exciting dynamic discounts for voice calls. This innovative concept has allowed for network resources to be more optimally utilised. Broadband continues to gain popularity due to its high speed, excellent quality and the most extensive coverage of any operator in Zimbabwe. Data subscribers increased by 52% from 2.1 million to 3.2 million in the year under review. The Green Kiosk initiative continued in the year under review. Under this initiative traders have the opportunity to merchandise airtime, accessories, lanterns and other products. This is yet another example of how the Company is transforming the lives of ordinary people by giving small traders an opportunity to retail the Company’s products and creating for them unique opportunities to better their lives. At the same time this initiative allows the provision of free solar powered phone charging solutions to subscribers who have limited or no access to grid power. Financial Performance Revenue for the year ended 28 February 2013 was US$694.8 million, an increase of 14% compared to the previous year. Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) recorded a margin of 44%. Depreciation and amortisation increased by 54% to US$71.6 million in line with growth of the asset base. Finance charges increased due to finalisation of the multi-creditor facilities in the year under review. Total assets surpassed the US$1,0 billion mark as of reporting date, registering a growth of 25% from last year. The debt to equity ratio improved to 54%, from 65% as at 28 February 2013. The Group increased its investment in TN Bank Limited from 45% (an associate as at half year) to 98.6% (a subsidiary). This investment has been accounted for as a subsidiary from the date control was assumed, on 31 January 2013. Shareholders approved a 10 (ten) to 1 (one) ordinary share split at an Extraordinary General Meeting held on 28 February 2013. Corporate Social Investment The Company has introduced a more sustainable way of assisting the marginalised members of our society. The Company set up the Higher Life Foundation, which consists of the following Trusts: º Capernaun Trusl, whose vision is lo lransforn orphaned children into “History Makers” with a leadership mindset for global impact. There are currently over 41 000 “History Makers” who are benefiting through the Capernaum Trust. º Joshua Ñkono Scholarship Fund (JÑSFì, lhe Scholarship Fund which so far has supported over 16 ECOCASH ECOCASH Econet launched EcoCash Mobile Money in 2011. EcoCash, our mobile money transfer and payment system, has promoted financial inclusion in Zimbabwe by connecting the rural to the urban population. It has also opened a new world of financial transactions to our unbanked population. Through EcoCash, we are redefining the mobile experience and transforming the way people transact in Zimbabwe. Our customers are now able to pay for goods and services, including airtime, using their mobile handsets. With EcoCash you no longer have to worry about change issues. So cash in (deposit money into your EcoCash wallet) today and pay the exact fare. EcoCash also facilitates the purchase of merchandise from shops or vendors that accept EcoCash. Once registered, one can send or receive money at any time. To date EcoCash has built the widest distribution network with more than 3 000 agents country-wide and more than 2,1 million registered customers. Your phone. !"#$ &'(()* 17 Inspiring Innovations 18 Introduction The exceptional track record that has been achieved so far demonstrates that the fundamental pillars that are required to build, develop and sustain a robust and profitable business are in place. As the economic environment continues to improve and disposable incomes increase, new opportunities for growth will be created. The Group is well positioned to take advantage of these opportunities. Operations review Continued growth Econet Wireless Zimbabwe registered 14% growth in revenues in the year ended February 2013. This continued growth was despite a subdued economic environment. The focus of the business remained on growing sustainable value for all stakeholders by developing products and services that meet the needs of customers and ensuring that the pricing of these products reflects a sustainable value proposition; having regard to the high capital nature investments required in the telecommunications industry. Chief Executive Officer’s operations review DOUGLAS MBOWENI - Chief Executive Officer Exciting products and services Notable developments in the business during the year under review include the launch of exciting and innovative products such as the Buddie Zone initiative which is aimed at ensuring that we derive maximum benefit from our investment in the network through enhancing the customer’s appetite to make voice calls based on certain dynamic criteria. Other exciting products and services developments are outlined below. Mobile Money Transfers EcoCash, the Mobile Money Transfer (MMT) System, launched several exciting features that were an unprecedented success. The continued roll out of point- of-sale machines and the interface between point-of-sale terminals and the mobile wallet brings with it unparalleled convenience for our customers. In addition, the continued integration with all major banking institutions of the EcoCash platform as well as the extensive agent network makes EcoCash the most integrated, widely accessible and most convenient financial transaction service in Zimbabwe 19 products and services. We believe that this continued investment demonstrates our commitment to ensuring that our customers get the best quality of service. Brand quality Our brand surveys continued to show that our brand is highly visible, well recognised, respected and appreciated. Our brand is founded on strong principles that embody a pioneering approach to business, which means we will always relentlessly pursue new ways of doing things in a very fast moving field. We continue to defend and protect our leading market share position and revenue growth through new innovations, aggressive promotions that create a heightened brand awareness and a positive disposition towards the Econet brand. Going Forward Our focus continues to be on providing world-class services that are relevant to our customers. We aim to provide a platform for continued economic growth whilst transforming our communities in a way that goes beyond the normal corporate social responsibility practices. The licence renewal has provided a new lease of life for us to plan and execute our strategic priorities. We welcome the future with confidence that we are poised for some exciting opportunities as the economy continues on its current path to recovery. D. MBOWENI CHIEF EXECUTIVE OFFICER 14 May 2013 today. The acquisition of TN Bank Limited is another exciting development which will propel the success of EcoCash. EcoCash has been cited as the second fastest growing MMT service after the world renowned M-PESA system that operates in Kenya. The fact that this feat has been achieved in just under 18 months of operation is a significant achievement. Our vision is to continue to innovate and provide Mobile Phone-based Applications. Roaming services Continued rollout of post-paid, data and prepaid roaming with international partners remained a key priority. Campaigns to increase customer awareness of roaming as a mass-market offering continued. Data services Our data service continues on an exceptional growth curve. Our investment in fibre technology and our superior data coverage has resulted in a growth rate of over 50% in our data subscribers. Our data speeds are amongst the fastest in Africa and our coverage is superior to our competitors. Network quality and customer service The network is truly a world-class network which has a quality and performance that we constantly benchmark with other leading operators in the region and on a global scale. Our network performance has been well above international benchmark performance and our continued focus in this area will result in a network that is far superior to many other operators. To complement the network quality and performance initiatives, significant investment has been made to upgrade call centre facilities and capacity as well as the retail and customer services footprint. This has enhanced our customer points of presence as well as our responsiveness to customer enquiries about our C o r p o r a t e a n d L e a d e r s h i p 20 ECONET SOLAR Light up your world with Econet Solar Econet Solar is a manufacturer and distributor of solar products. Econet Solar is committed to improving the lives of our customers and providing a range of practical and affordable products that have been manufactured to perform in African conditions. Our team is constantly innovating and developing new ranges of products. The target market is predominantly rural dwellers that rely on paraffin and wood for lighting energy. They have mobile handsets which are not being used optimally due to restricted access to power and mobile owners have to pay to charge their handsets once they run out of power. There are safety concerns attached to paraffin as there are cases of blow-outs which have been reported. Solar light users are urban and rural dwellers who are affected by power outages or stay in non-electrified areas and need safe and renewable access to energy. These consumers will enjoy a better quality of life as a result of opportunities brought by the access to renewable solar energy. Econet solar solutions are reliable, give up to 15 hours of light, do not emit any fumes and enhance safety for households. 21 Inspiring Innovations 22 Board of Directors Dr James Myers Chairman of the Board of Directors (W.E.F 12-12-2012) Mr Strive Masiyiwa Executive director Mr Craig Fitzgerald Non-executive director Mr Douglas Mboweni Executive director - Chief Executive Officer Mrs Sherree Shereni Independent non-executive (Appointed 15-05-2013) Mrs Tracy Mpofu Non-executive director Mr Kris Chirairo Executive director - Finance director Ms Beatrice Mtetwa Non-executive director Mr Godfrey Gomwe Independent non-executive (Appointed 15-05-2013) Mr Martin Edge Independent non-executive (Appointed 06-06-2013) Mr John Pattison Retired (31-08-2012) Mr Tawanda Nyambirai Retired (12-12-2012) 23 Dr James Myers Dr James Myers is a former Executive Vice-President of South Western Bell International (SBC Inc., now AT&T), the largest telecoms operator in the world. He has considerable experience in Africa, having led the team that acquired a controlling stake in MTN in the early nineties. He went on to lead a consortium of SBC and Malaysia Telekom that for a while controlled Telkom SA. Dr Myers also sits on the Board of Econet Wireless Group (EWG), the parent company of Econet Wireless Zimbabwe. He holds a BA in Mathematics from Texas A&M University (1962), MA in Mathematics from University of Arizona (1965) and a PhD in Industrial Engineering/Operations Research from Texas Tech University (1969). Mr Strive Masiyiwa Strive Masiyiwa spearheaded the formation of Econet Wireless, Zimbabwe’s largest mobile network operator. His extensive resume, awards and achievements can be found on the Econet website. Mr Craig Fitzgerald Craig Fitzgerald has worked in a number of senior positions in leading quoted and unquoted companies. He has been involved in setting up Econet businesses in other parts of the world. He holds a Bachelor of Accounting Science (Hons.) degree from the University of Zimbabwe and is a Chartered Accountant (Zimbabwe). Mr Douglas Mboweni Douglas Mboweni joined Econet in 1996. He was part of the team that launched the Mascom Wireless network in Botswana and Econet Wireless Nigeria (EWN). He assumed various positions in Econet Wireless International before his appointment as Chief Executive Officer of Econet Wireless Zimbabwe Limited in March 2002. Among other qualifications, Douglas holds a Master’s in Business Leadership (UNISA) and a BSc Maths and Computer Science degree from the University of Zimbabwe (UZ). Mrs Tracy Mpofu Tracy Mpofu joined Econet in February 2001 as Finance Director from Coca-Cola Central Africa, where she occupied senior positions. As regional Finance Director, she was responsible for all accounting functions for the region of ten countries. Before then Tracy worked for Ernst & Young and the Comptroller and Auditor General. She holds a Bachelor of Accountancy degree and an MBA, both from the University of Zimbabwe. Tracy is a Chartered Accountant (Zimbabwe) and a Chartered Management Accountant and has completed her qualification for registration as a Chartered Accountant (South Africa). She is currently the Econet Group Chief Operating Officer. Mr Kris Chirairo Kris Chirairo holds an MBA from the University of Zimbabwe. He is a registered Public Accountant and is a fellow member of both the Chartered Institute of Management Accountants and the Institute of Chartered Secretaries and Administrators. He joined Econet Wireless on June 1, 1998. Kris was posted to Econet’s operations in Nigeria where he set up the Finance Department in March 2001 before returning to Zimbabwe in January 2004. Ms Beatrice Mtetwa Beatrice Mtetwa is one of Zimbabwe’s most recognised lawyers, and brings over two decades’ worth of legal experience to the Group. She is a partner at Mtetwa and Nyambirai Legal Practitioners, and is a past president of the Law Society of Zimbabwe. Mrs Sherree Shereni Sherree Shereni brings a wealth of expertise from The Coca-Cola Company which she joined in 2002 and has gained experience in public affairs and communication, managing functions in eight countries across Central Africa. She was also Chairperson of the Women’s Leadership Council for the 39-country Coca-Coca Central, East and West Africa Business Unit. As Programme Director of The Coca-Cola Africa Foundation, she was responsible for formulating community intervention strategies and managing implementation of over 200 projects by 15 international partners of The Coca -Cola Africa Foundation across the continent. She joined The Coca-Cola Company in October 2002. She previously held senior positions at the Reserve Bank of Zimbabwe prior to joining Coca-Cola. She holds a Bachelor of Science (Economics) Hons degree (UZ), a Diploma in Business Administration (University of Manchester, UK), leadership training from The Coca-Cola Company and a host of other top qualifications, among them from the Bank of England’s Centre for Central Banking Studies, the University of Pennsylvania’s Wharton International Housing Finance School, the International Monetary Fund Institute, the World Bank, and the Macro- Economic and Finance Management Institute. C o r p o r a t e a n d L e a d e r s h i p 24 Mr Godfrey Gomwe Godfrey is Chief Executive of Anglo American’s global Thermal Coal business. Until 31 August 2012, he was Executive Director, Anglo American South Africa Limited. He was previously Head of Group Business Development, Africa for Anglo American Plc and prior to that, Finance Director and Chief Operating Officer of Anglo American South Africa. He is Chairman of Tshikululu Social Investments and a former non-executive director of Kumba Iron Ore Ltd and Anglo Platinum Ltd. Before moving to South Africa in 2003, he was Chairman and CEO of Anglo American Zimbabwe. He is a past President of the Institute of Chartered Accountants of Zimbabwe and past Senior Vice President of the Chamber of Mines of Zimbabwe. He has held many Directorships in both listed and unlisted companies. He is currently on the board of Thebe Investment Corporation (Pty) Ltd where he is Chairman of Thebe Mining Resources Limited, Chairman of the Remuneration Committee as well as a member of the Investment Committee. He currently serves on the Executive Council of the Chamber of Mines of South Africa. Godfrey has a Bachelor of Accountancy degree from the University of Zimbabwe, is a Chartered Accountant (Zimbabwe), and holds a Master’s degree in Business Leadership from the University of South Africa. Mr Martin Edge Martin Edge brings the experience gained from a financial career focused on both Africa and the telecommunications sector. Until mid-2012 he was a Managing Director with Standard Chartered Bank in Johannesburg. Martin has practised as a corporate finance advisor since 1985, working for nine years at Hambros Bank in London, four years as head of TMT Advisory at HSBC in Johannesburg and 7 years as Director and Head of Corporate Finance at First Africa, which was acquired by Standard Chartered in 2009. In between, he spent three years working at CCAfrica (& Beyond), a leading African luxury tourism group, as its Finance Director and Corporate Finance Director. Martin has advised on some of the largest corporate finance transactions in Africa for clients such as Econet, Anglogold, MTN, Vodacom, Bharti Airtel and McDonalds. He has served on many private company Boards in Africa and is a Trustee of two trusts within the Macmillan Africa group. Martin graduated with an honours degree in Philosophy, Politics and Economics from the University of Oxford, and is a UK Chartered Accountant. He has lived in South Africa since 1995. Mr John Pattison (retired 31-08-12) Mr Tawanda Nyambirai (retired 12-12-12) BOARD OF DIRECTORS (continued) Notes Audit Committee C. Fitzgerald* K. V. Chirairo D. Mboweni T. P. Mpofu (Mrs) P. J. Campbell M. Harris (Mrs) Investments Committee C. Fitzgerald* K. V. Chirairo D. Mboweni T. P. Mpofu (Mrs) Dr J. Myers B. Mtetwa (Ms) P. J. Campbell M. Harris (Mrs) Loans Committee C. Fitzgerald* K. V. Chirairo D. Mboweni T. P. Mpofu (Mrs) P. J. Campbell M. Harris (Mrs) Related Party Committee P. J. Campbell* Dr J. Myers B. Mtetwa (Ms) *Chairman 25 The Directors have pleasure in presenting their report for the year ended 28 February 2013. In the report “Group” refers to Econet Wireless Zimbabwe Limited and its subsidiary companies. Principal Activities and Operations Review The Group’s core business continued to be the provision of cellular services, provision of internet access services, transaction processing services and mobile banking services. Econet continued to consolidate its position as the market leader in the telecoms industry, including EcoCash mobile banking services. A detailed review of the Group’s operations, results and principal activities during the year and the likely future activities are given in the Chairman’s Report and the Chief Executive Officer’s Operations Review. New Developments The Group acquired control of TN Bank Limited towards the end of the year. This acquisition is expected to strengthen Group activities, particularly its EcoCash mobile money service and increase its penetration of rural markets. The full effects of this acquisition will be felt through the Group in the coming years. Several new products were launched during the year, particularly under the Buddie banner. Human Capital The Directors are pleased to report that the Group’s staff continued to demonstrate commitment and dedication in all aspects of the business. As a result, the Group has been able to continue achieving the high levels of performance and market leadership it enjoys. From the Directors Various initiatives, which are elaborated on in the Human Capital Report, were embarked on during the year, aimed at achieving continuous improvement in the Group’s performance. The Directors are confident that these initiatives will bring about the intended benefits. Consolidated Results The Group’s financial results during the year are fully covered in the Chairman’s Report. Dividends In order to allow the business to focus on achieving the targets of the various initiatives it has embarked on, the Board considered it prudent not to declare a dividend for the year. Share Capital Due to new developments in terms of investment expectations, in particular the wish to reach more investors, the Board recommended the sub-division of the Group’s shares at the rate of ten (10) shares for every one (1) existing share. At an Extraordinary General Meeting held on 28 February 2013 shareholders approved the share sub-division. The special resolutions implementing the sub-division and amending the relevant provisions in the Company’s Memorandum and Articles of Association, were adopted. The notes to the annual financial statements provide further details on the share capital of the Company. The new shares were listed on the Zimbabwe Stock Exchange on 1 March 2013. C o r p o r a t e a n d L e a d e r s h i p 26 Share Buy-back The cost of shares bought back during the year was US$31.9 million (2012: US$28.4 million). Total treasury shares on hand as at 28 February 2013 were 75 981 050 (2012: 105 444 310). During the year the Company cancelled 82 574 590 shares which represents approximately 5% of the issued share capital as part of its strategy to return value to shareholders. It is the intention of the Company to cancel the shares on hand at an appropriate time. Directors In accordance with Article 81 of the Company’s Articles of Association, at least one third of the directors must retire and seek re-election at each annual general meeting. The following directors retire by rotation and, being eligible, offer themselves for re-election: Mr Craig Fitzgerald, Ms Beatrice Mtetwa and Mr Kris Chirairo. Mr Tawanda Nyambirai retired from the Board on 12 December 2012 and Dr James Myers succeeded him as chairman on the same date. Mr John Pattison, executive director for Customer Services, retired from the Company’s employ with effect from 31 August 2012. In terms of section 89.2 of the Articles of Association, the following directors, who were appointed after the reporting date, are to be confirmed as independent non-executive directors: Mr Godfrey Gomwe, Mrs Sherree Shereni and Mr Martin Edge. At the Annual General Meeting shareholders will be asked to approve payment of the directors’ fees, the re- appointment of the retiring directors and the confirmation of newly appointed directors. Directors’ Interests The beneficial interests of the directors in the shares of the Company are shown on note 26.6 of the financial statements. Register of Members The register of members of the Company is open for inspection to members and the public, during business hours, at the offices of the Company’s transfer secretaries, First Transfer Secretaries (Private) Limited. Borrowing Powers The details of the Group’s borrowing powers are set out in Note 40 of the financial statements. Capital commitments Details of the Group’s capital commitments are set out in Note 41 of the financial statements. Pension Fund The Group’s pension fund scheme is administered by a Board of Trustees. The Trustees manage the assets of the pension fund, which are held separately from those of the Group. The assets and funds of the scheme are administered in accordance with the rules of the pension fund. FROM THE DIRECTORS (continued) 27 An audit of the fund had established that the fund was significantly undercapitalised. An exercise is currently underway to find the best means of recapitalising the fund. Corporate Social Investment Contributing to the country’s economic and social development remains a key component of the Group’s culture. Through various initiatives and activities the Group fulfilled this commitment during the year. Further discussion on the Group’s activities can be found in the section on Community and Trusts. Donations to Political Parties The Group does not, as a matter of policy, contribute to any political party. Auditors Ernst & Young Chartered Accountants (Zimbabwe) continued in office as the Group’s auditors during the year. At the annual general meeting, shareholders will be requested to approve the remuneration of the auditors for the year ended 28 February 2013. Going concern The Directors have satisfied themselves that the Group is a going concern as it has adequate financial resources to continue in operational existence for the foreseeable future. The Group’s Annual Report and other corporate publications are available on the corporate website www.econet.co.zw. By order of the Board Dr J. Myers CHAIRMAN D. Mboweni CHIEF EXECUTIVE OFFICER C. A. Banda GROUP COMPANY SECRETARY 14 MAY 2013 C o r p o r a t e a n d L e a d e r s h i p 28 The Board of Directors and Board Committees Composition and appointment Following the retirements of Messrs John Pattison and Tawanda Nyambirai on 31 August 2012 and 12 December 2012 respectively, the Board comprised seven directors made up of three executive and four non-executive directors. A non-executive director chairs the Board. The offices of the Chairman and Chief Executive Officer are separate. To strengthen the independence of the Board of Directors, three new independent non-executive directors are being appointed: Anglo Thermal Coal CE Godfrey Gomwe, Coca- Cola Africa Foundation Programme Director Sheree Gladys Shereni and Martin Edge, former Managing Director of Standard Chartered Bank. The non-executive directors are drawn from a wide range of fields, bringing broadly-based business knowledge and experience to the deliberations of the Board. The election to the Board of non-executive directors is subject to confirmation by shareholders. In terms of the Company’s Articles of Association and the Companies Act (Chap 24:03) at least one third of the directors must retire at every annual general meeting and, if eligible, can stand for re-election. At the last annual general meeting, held on 27 July 2012, the following directors were re-elected: Mr Tawanda Nyambirai who subsequently retired on 12 December 2012, Mr John Pattison who subsequently retired on 31 August 2012, and Dr James Myers. Accountability and delegated functions The Board has the ultimate responsibility of upholding and promoting the Group’s strategic and sustainable development. To achieve these goals the Board focuses on the following key areas: - reviewing and approving the Group’s overall strategy - reviewing and approving the Group’s capital expenditure - reviewing and approving the Group’s major investments and acquisitions and safeguarding the Group’s assets - monitoring and ensuring observance of good governance in the Group Governance Statement - reviewing financial, operational and compliance controls - reviewing and monitoring risk management procedures and assessing their effectiveness - reviewing and approving the Group’s budget and maintaining proper accounting records - reviewing and approving annual financial statements and all notices to shareholders and stakeholders. The Board is ultimately accountable to shareholders for the performance of the business. Directors are responsible for the preparation of financial statements for each financial period which give a true and fair view of the state of affairs of the Group as at the end of the financial period. To achieve this, the directors ensure the maintenance of adequate internal controls and procedures for financial reporting on the Group and that financial managers conduct themselves with integrity and honesty and in accordance with ethical standards of their profession. The Board is also ultimately responsible for communicating with the investor community. This communication is done through the Chief Executive Officer, the Financial Director and the Chairman, who organise regular briefing meetings with analysts, institutional investors and the media. The outcome of the meetings is communicated to the Board from which it learns of shareholders’ and investors’ opinions and perceptions of the Group. Access to Executives All directors have full and unfettered access to management and the Group Company Secretary for information required to discharge their responsibilities fully and effectively. Whenever they deem it necessary the directors are entitled, at the Group’s expense, to engage independent advisors for expert or independent professional advice in the furtherance of their duties. Directors’ interests In compliance with good corporate governance, directors are required each year to declare in writing whether they have any material interest in any contract of significance with the Group or any of its subsidiaries, which could give rise to a related conflict of interests. Directors are also required to disclose their other business interests. None of the directors had a material interest in any contract of significance to which the Group was a party during the year, other than their service contracts. 29 G o v e r n a n c e Board Committees The Board retained its three committees to assist it in discharging its duties and responsibilities. The Audit Committee has a sub-committee, the Related Party sub- committee. The committees and the role they play are fundamental to good corporate governance in the Group. The committees operate within defined terms of reference set by the Board. Regular reports of committee business and activities are given to the Board and minutes are circulated to all directors. The Board committees share with the main Board the authority to take independent professional advice at the Group’s expense when deemed necessary to do so. The committees are chaired by non- executive directors. They submit reports to the main Board on the committee’s deliberations and findings. Audit Committee The Committee’s main responsibilities include the reviewing of the Group’s internal controls and internal audit functions. It reviews the plans, principles, policies and practices adopted in the preparation of the Group’s financial information. It also reviews, in conjunction with management, procedures relating to financial and capital expenditure controls. Together with external auditors the Committee reviews the scope and results of the audit. The Committee also takes note of new legislation and new international reporting standards and ensures that these are adopted by the business. The Committee oversees the Group’s risk management policies and procedures and ensures these are fully implemented and observed. The Board, through the Committee, has since established a process of identifying, evaluating and managing the significant risks faced by the Group. The Committee meets regularly with the Group’s external and internal auditors and executive management to consider risk assessment. The Audit Committee has a sub-committee in the form of the Related Party Sub-Committee. The external auditors and the Chief Risk Officer have unrestricted access to the committee and its chairman and attend audit committee meetings. Investments Committee The Investments Committee’s main responsibility is to review the Group’s existing and proposed investments and advise the Board on the viability or otherwise of the investments. It provides the Board with reports on the performance or potential performance of the investments so that the Board can take informed decisions on those investments. Loans Committee The Loans Committee’s role remained the same and that is to review the Group’s major loans obligations, both local and foreign, and put forward recommendations on the servicing of these obligations. The Committee appraises the Board of the Group’s performance in terms of meeting its loan obligations and compliance with the covenants attaching to those obligations. Related Party Transactions Sub-Committee The Related Party Transactions Sub-Committee is a sub-committee of the Audit Committee. Its function is to review all transactions between the Company and its related parties. The sub-committee reports to the Audit Committee. Investor Relations The Group continues to recognise the importance of communicating with the various stakeholders. To this end the Group holds analyst briefings at which investors and analysts are briefed on the Group’s performance up to the end of that period. The communication offers the Group the opportunity to receive valuable feedback on its performance and general perception of it by the investor community. Two meetings are held with investment analysts each year, one after the release of the Group’s half-year results and the other after the release of the full year results, at which a full briefing of the Group’s performance is given. Employment and equity practices The Group has in place policies and procedures to achieve good behaviour and conduct among its employees. In line with best practice the Group has adopted as part of its culture observance by its directors and employees of the highest standards of ethical behaviour. Directors and employees are expected to conduct themselves with integrity and professionalism, with a view to achieving excellence in customer satisfaction, quality of products and services, and generally maintain the good name of the business. A “whistle-blowing” programme is also in place to encourage employees to report any concerns, including any suspicion of violation of the Group’s financial reporting or environmental procedures. The Group is committed to equality of opportunity. Career development and promotion of disabled people is, as far as possible, the same as that of other employees. All employees are accountable for adherence to equal opportunity and anti-discrimination policies. 30 The Group recognises the need to continuously develop skills and, accordingly, efforts towards providing employees with opportunities for growth and development are promoted, and in the process achieve team effectiveness. Human capital development remains part of the Group’s growth strategy. The Group also recognises its obligation to comply with health and safety legislation and through training and communication, encourages employees to create and secure a safe and healthy working environment Environmental Awareness Sending of e-waste back to suppliers is an initiative being pursued but authority to return imported equipment has still not been received from the relevant authorities. Directors and Employees dealings in shares The Group complies with the Zimbabwe Stock Exchange listing rules in relation to transactions by directors and employees in securities issued by the Group. Directors and employees or their nominees or members of their immediate family are prohibited from dealing, either directly or indirectly, in the Group’s securities at any time when they are in possession of unpublished, price- sensitive information regarding the Company’s business or activities. The Group operates a closed period prior to the publication of its interim and annual results. No director or employee of the Company may deal in the securities of the Company during the closed period. In terms of policy, directors and employees who wish to transact in the shares of the Group, even outside of the Group’s “closed or blocked period”, are required to obtain the clearance of the Chairman. Independence of Auditors The Group’s Audit Committee confirms the independence of the Auditors, Ernst & Young Chartered Accountants (Zimbabwe), who are engaged by the Group for audit- related services. Ernst & Young Chartered Accountants (Zimbabwe) have indicated their willingness to continue in office as auditors of the Group. A resolution to re-appoint them as auditors for the ensuing year will be proposed at the 2013 Annual General Meeting, members can either appoint them for the ensuring year or pass a resolution to appoint another firm of auditors. Whenever necessary the Group calls upon the services of other firms to assist with non-audit management consultancy work. By order of the Board Dr J. Myers CHAIRMAN OF THE BOARD D. Mboweni CHIEF EXECUTIVE OFFICER K.V. Chirairo FINANCE DIRECTOR 14 MAY 2013 GOVERNANCE STATEMENT (continued) 31 Enterprise Risk Management (ERM) The risk management division within Econet Wireless Zimbabwe Limited (EWZL) is headed by the Chief Risk Officer who reports directly to the Audit Committee Chairman and administratively to the CEO. The risk management process is integrated within the day-to-day activities of Econet Wireless Zimbabwe Limited (EWZL). The Group has developed a system of risk management and internal control that delivers: º A denonslrable syslen of risk nanagenenl. º A connilnenl by nanagenenl lo lhe process. º A denonslrable syslen of risk niligalion aclivilies and documented risk communication strategies. º A proaclive alignnenl of assurance efforls lo lhe risk profile. The risk division structure comprises of four independent and objective units: Internal Audit, Revenue Assurance and Fraud Management, Corporate Risk, Safety Health and Environment. The risk division system involves regular reporting of risks to the Board which assists the Board in fulfilling its risk management responsibilities. Commitment by Management Management demonstrates its commitment to the process by investing in the necessary technology, human resources and processes. A competitive human resources complement makes up the Risk team. These skills and technologies are augmented by robust processes which are well documented and tailored to align with organisational processes. Risk communication Interactions with various governance groups occurred as planned during the year. Within these interactions risk issues are discussed as part of the agenda. The risk division meets regularly with functional divisions on a monthly basis to discuss emerging risk issues and to make follow-ups on previously identified risk issues. The division attends and submits a Quarterly Risk Report to the Audit Committee of all its activities for information as well as to guide the Committee in decision making. Risk report Risk mitigation activities Internal Audit The Group has an internal audit department which monitors and reports on internal control systems. The internal audit department adopts a risk-based audit approach guided by extensive risk assessment of business issues, particularly those issues identified by the Audit Committee and senior management. Whenever necessary, the Group calls upon the services of independent expert firms to assist with non-audit management consultancy work. These outsourcing arrangements add to the objectivity and independence of the internal audit work undertaken. Internal control and risk management During the year, internal audit efforts were focused on: º Conpliance lo policies and procedures º Segregalion of dulies º Fundanenlal conlrols and reconcilialions º índependenl supervisory review of reconcilialions º índependenl noniloring of operalions and fnancial performance. The planned audit assurance plan for the year was ninety percent (90%) fulfilled. The internal audit function has implemented an audit grading system which is used to gauge the performance of individual auditable units or areas against expectations and compares performance to previous audits. Focus will continue to be on the improvement of the quality and maturity of internal audit coverage through a combination of increasing allocation of resources within the internal audit department in addition to the continued outsourcing arrangements for some internal audit assignments. This will be measured in terms of the total number of man hours that the audit team will spend in the auditing activity for the various functions as well as measuring against target deliverables for outsourced arrangements. In 2013-14, the internal audit department intends to focus primarily on the following inherent fraud risk categories from both a fraud risk and an internal audit perspective: Mobile Money, Procurement, Inventory, Treasury, Customer Services and Network Services P e o p l e a n d c o m m u n i t y 32 On a quarterly basis the risk appetite of the business is reviewed and risk efforts are revised where appropriate, in line with changing priorities. Revenue Assurance The New Product and Value Added Services (VAS) Assurance function carry out all new product and existing product assessment activities. This ensures that all new product risks are addressed before launch and that existing products are continuously monitored. The Service Risk function minimises revenue leakage through reviewing the switch to billing and charging processes in order to facilitate complete and accurate billing of all call events on the network. Partner and product management activities ensure revenue collection is maximised. The Network Fraud Section ensures fraudulent activities are timeously detected and investigated. Adequate preventive measures are proactively implemented to plug any fraud leakages. Corporate Risk The business has a Corporate Risk department whose function is to implement an Enterprise Risk Management programme within the business. In 2013-14, the Corporate Risk department intends to focus primarily on the following areas: º Business Process Docunenlalion º Enhancing Business Conlinuily íanagenenl wilhin the business º Fisk Fegislers. Management Systems Implementation We are continuously improving our environmental and social performance in an effort to attain excellent standards, particularly in the following areas: - Risk assessment system reviews and improvements. - Independent consultants are engaged to perform environmental and social impact assessments (EIAs) on all sensitive sites for new projects. - New GSM sites are outsourced to reputable companies with adequate technical capabilities, environmental and social management standards - Coastal and Environmental Services of South Africa has been appointed (through deutsche investitions- und Entwicklunggesellschaft mbH, Köln (DEG)) to assist Econet Wireless in the review, development and implementation of an Environmental and Social Management system based on International Finance Corporation (IFC) performance standards. Occupational Safety and Health (OHS) Econet Wireless has a SHE policy which clearly defines our commitment to providing a safe and healthy work place for all staff members. The following strategic interventions are being consistently implemented to ensure best practices and legal compliance: º Slaff nenbers are provided wilh adequale proleclive clothing and equipment º All accidenls are reporled and invesligaled wilh delegated responsibility for the implementation of recommendations. º Slalulory inspeclions of lifling equipnenl are done through competent authorities. º Firsl aid facililies and personnel are provided lo ensure emergency care in case of accidents. º Fire equipnenl is provided and regularly serviced in line with statutory requirements. º SHE lraining is conducled on a regular basis lo ensure effective knowledge, skills and attitudes necessary for implementation of programmes. º Specifed slaff nenbers are senl for annual heallh assessments to ensure work and health compatibility. º The business conlinues lo play ils role wilh regards lo the impact of HIV/AIDS through the company-funded ‘Live to Love’ programme Environmental Health Econet Wireless has defined its Resources Efficiency and Pollution Prevention commitment designed to minimise and reduce the level of waste, to improve pollution prevention, and to enhance resource conservation. These strategic initiatives included the following: RISK REPORT (continued) 33 P e o p l e a n d c o m m u n i t y Resource Efficiency Programmes: Challenge: Currently Zimbabwe has electricity challenges forcing the use of stand-by generators to minimise network down time. This has resulted in the increased use of diesel and therefore carbon emission concerns. Response: Econet Wireless is investing in solar power solutions in order to supplement generator power in selected rural towers. In urban centres green hybrid power solutions with deep cycle batteries, have been implemented to reduce running time for generators thereby reducing their run-hours, minimising the use of non-renewable energy. Prevention of Green House Gasses (GHG): Challenge: Greenhouse gas emissions from generators. Response: (i) The Company has upgraded its procurement processes to ensure the acquisition of EU-certified low emission generators. (ii) Programmes to monitor greenhouse gasses in compliance with local legislation were carried out and results submitted to the Environmental Management Agency. Results achieved were in the blue zone, indicating normal acceptable levels. Waste-Management and Recycling: Challenge: Disposal of hazardous substances. Response: The Company has developed and implemented procedures on the management of hazardous substances Reforestation and rehabilitation: Challenge: Construction sites often require deforestation and some environmental modification which must be rectified. Response: (i) The Company ensures that, during tower construction, there is minimisation of interference with vegetation such as cutting down of trees and, where vegetation is removed, the business carries out reforestation and rehabilitation. (ii) The business has embarked on a project to put eco- friendly towers such as lamp posts and monopoles consistent with Good International Industry Practice. Future Programmes for 2013-14 Econet Wireless is currently strengthening the SHE system consistent with International Finance Corporation (IFC) guidelines and performance standards. This entails the development of the Environmental and Social Management System (ESMS) manual and its implementation. The focus will be on reviewing the existing SHE policy, conducting a gap analysis and development of a risk register based on detailed risk profiling of the business in order to align with the IFC requirements. 34 BROADBAND ECONET BROADBAND Econet Wireless Zimbabwe launched Econet Broadband in October 2010 and since then it has revolutionised the way people communicate, work and socialise. It allows subscribers to communicate and keep in touch with the rest of the world unhindered by geography. The Econet Broadband On the Go package is tailor- made for individual users so that they can access the internet on their handheld device. On the Go connectivity is available any time and anywhere. People can be on the move, certain they will receive their communication unhindered by their location. This can be their cell phone, iPad or on their dongle. Econet Broadband On the Go currently has over 3 million subscribers. So you can connect to the office from your favourite coffee shop, send an email while visiting your parents in the rural areas or download your favourite song while you take a jog. Econet Broadband has brought a world of endless possibilities. With this efficiency comes greater opportunities for the transformation of critical areas of our economy like health, education and manufacturing. Econet Broadband, Discover Endless Possibilities! 35 Inspiring Innovations 36 The Group remains committed to the principles of good corporate governance. In addition to observing generally accepted best practice standards, the Group applies and complies with the principles enunciated in the King Code, the listing rules of the Zimbabwe Stock Exchange, and the Companies Act (Chapter 24:03). The Group recognises that implementation of, and compliance with, all legal and statutory requirements is in the best interests of the Group and is crucial to the sustainable growth of the business. Employee Benefits Retirement funding All full-time employees are members of the Group’s defined contribution pension fund and of the compulsory defined benefit National Social Security Authority (NSSA) fund. The Group’s fund requires 5% of pensionable earnings from the employee which is matched with 7% of pensionable earnings by the Group. The NSSA fund requires 3.5% of pensionable earnings, up to a ceiling of $700 per month from employees and the same from the Group. Incentives In acknowledgement of the importance of incentivising employees, the Group is in the process of enhancing its incentive schemes and linking them to performance. Remuneration Industrial Relations The Group seeks to achieve the highest level of good industrial relations as evidenced by no industrial action by employees against Group companies. At the reporting date, there had been no industrial action during the year and there was none in progress at that date. Directors’ Remuneration The Board oversees remuneration matters which are confirmed by the shareholders. Executive Remuneration Executive remuneration is deemed to be an important element in the sustainability of the Group and is linked to the nature and responsibilities of the executive’s position as well as on market benchmarks and individual performance. Non-executive Remuneration Non-executive directors remuneration is subject to shareholder approval. Remuneration of directors and other members of key management during the year is disclosed in note 34.3 of the financial statements. 37 Our people and our community Human Capital (HC) Econet Wireless attained employer of choice status through its strong employer brand equity in the market. We are competitive in attracting and retaining talent both locally and abroad as evidenced by our strong leadership team, and our exceptionally low staff attrition rate of <2%. Our guiding principles of Pioneering, Professionalism and Personal form the foundation of our culture. We celebrate our successes, which we have achieved mostly through teambuilding events and Customer Service Excellence Awards whereby the Company recognises staff members who succeed in offering excellent customer experiences. Key HC Deliverables We strive to: º íainlain high operalional effciencies by invesling in sound HR systems and processes; º íanage headcounl overall and in lerns of cerlain characteristics; º Pronole and nainlain a harnonious enployee relations environment that enhances productivity; º Pronoling equal enploynenl opporlunilies based on merit; º Praclice conlinuous enployee engagenenl, º íainlain a robusl reward nanagenenl philosophy to attract and retain talent locally, regionally and internationally; and º Praclice conlinuous leadership developnenl - by encouraging, coaching, attracting and retaining talented leaders. Deliverable - Operational efficiencies The business strives to continuously improve its organisation structures, systems, and policies in line with business goals and objectives. º The business enbarked on lhe Palerson job evalualion exercise and the grading of all jobs was completed during the period under review. º The job evalualion exercise presenled an opporlunily for the business to review its organisation structures, and bring clarity on roles and responsibilities throughout each staff member’s job value chain. º The job·grading franework laid a sound foundalion for the implementation of a results-based performance management system. The implementation of a new Performance Management System is set for the Financial Year 2013-14. Employee Relations The business recognises each employee as an individual and promotes open and harmonious employee relations. The employee relations climate has been exciting and peaceful as the business did not experience any collective industrial actions from its staff members. The business attrition rate remains insignificantly low at <2% as compared to the international benchmark figure of <5%. Deliverable - Equal employment opportunities based on merit The organisation promotes a working environment where all staff members feel valued in order for them to fully contribute to the success of the business. The business does not discriminate against anyone on the basis of race, tribe, gender, age, disability, religion, marital status, colour, ethnicity or national origin. Staff Analysis The charts presented below show staff analysis as at February 2013. Headcount Distribution by Gender as at February 2013. The chart shows that 71% of the staff members are male, whilst 29% are female. The organisation shall continue to make concerted efforts towards the engagement of females, based on merit. P e o p l e a n d C o m m u n i t y 38 ONLY BUDDIE GIVES YOU MORE! Buddie, our prepaid package keeps you in touch with friends and family in so many ways. Only Buddie gives you more value for money, more talk time, more convenience when you travel and so much more fun, ensuring that you stay connected always. Buddie offers a wide range of products and services. Buddie unveiled a massive campaign dubbed “Buddie Gives You More” which explains the various services and benefits that a customer enjoys on their Buddie line. There are many exciting services under the Buddie brand, which are aimed at making the lives of customers more convenient whilst offering the VALUE, CONNECTIVITY AND TALK TIME. BUDDIE 39 Inspiring Innovations 40 person for the year, a figure slightly above the international benchmark of five (5) training days per staff member per year according to the Chartered Institute of Personnel Development (CIPD). Our objective is to achieve at least eight (8) training days per staff member per year. Learning Return-on-Investment methodology We have implemented a Learning Return-on-Investment Methodology to ensure that we validate the added value of people development initiatives. To support this initiative, we have partnered with leading service providers in developing and implementing training and development interventions. Achievements º The Supervisory íanagenenl Progranne achieved a 100% pass rate on a public exam administered by the Zimbabwe Institute of Management. º Thirleen (13ì Craduale Trainees were appoinled inlo substantive positions within the various divisions. º During lhe period under review we engaged four (4ì trainee chartered accountants to go through their articled clerk training under the supervision of qualified chartered accountants within Econet. º Our inaugural lrainee charlered accounlanls achieved a 100 % pass rate in their final qualifying examination. º One of our lrainee charlered accounlanls allained besl overall student nationally. Objectives for 2013-14 º Cusloner Service Excellence cullure enlrenchnenl - through training the entire organisation and conducting external customer satisfaction surveys. º Perfornance íanagenenl · Fedesigning of lhe business’ Performance Management System in line with the newly implemented Paterson Job Evaluation System. º Succession Planning and Leadership Developnenl in line with business strategic objectives and target 1:1 cover ratio for identified critical positions. º Enlrenching an innovalion and conlinuous inprovenenl culture - consistent with our pioneering value. º Headcounl íanagenenl - lhe business will conlinue to manage head count in the FY 2013-14 in line with the business’ strategic objectives. Age Distribution The Age Distribution graph shows that the organisation’s manpower lies between the range of 26 to 45 years. The young vibrant workforce has assisted the business in achieving its strategic objectives through professionalism and pioneering. Deliverable - Continuous employee engagement The CEO embarks on roadshows so as to reach out to all staff members. Econet Wireless believes it is vital to keep staff informed about issues that affect the Group and themselves. As a result, the Group has established a range of communication processes that will ensure open and effective two-way communication throughout the Group. We aim to achieve an Engagement index of over 70% as this is considered a good result for high performing organisations. Deliverable - Reward management philosophy The business will continue to pay market competitive remuneration in line with our Total Cost to Employer remuneration model. Our objective is to pay above the 75th percentile of the market, as a way of attracting and retaining talent locally, regionally and internationally. The business shall always seek to ensure that it does not lose talent on the basis of remuneration. The strong reward philosophy has played a pivotal role in the significant progress made by the business in retaining staff as evidenced by the low attrition rate of <2%. Leadership development “Developing leaders with global impact” Our investment in training and development continued to enhance our bench-strength through on and off-the-job training and development activities. During the year under review, we realised 5 445 participant training days (PTDs), ultimately achieving an average of six (6) training days per HUMAN CAPITAL (HC) (continued) 41 Corporate social investment – Community and Trusts Higher Life Foundation As part of its community involvement and bringing community transformation, Econet Wireless has established the Higher Life Foundation which actively manages the three corporate responsibility vehicles. º Capernaun Trusl (CTì lakes care of lhe orphaned and marginalised children º Joshua Ñkono Scholarship Fund (JÑSFì sponsors lhe socially responsible and academically gifted students. º Ñalional Heallhcare Trusl (ÑHTì pronoles lhe heallh of the nation 1. Capernaum Trust The Trust was established in 1996 with the vision of transforming the lives of the disadvantaged and orphaned children into ‘history makers’ with a ‘leadership mind-set for Global Impact.’ Since inception, Capernaum Trust has positively changed the lives of more than 70 000 children in Zimbabwe. The Trust provides a holistic approach in the care of the children including scholarships, needs-based food and health support, and counselling services. There are visits which are conducted on a regular and planned basis. All the students under this program are profiled and known by name and face under the “Know your Flock” banner. During the year, the Trust embarked on an innovative project of establishing and resourcing 15 state-of-the- art Academic Resource Centres and libraries in selected schools across Zimbabwe. These Centres are equipped with internet facilities, computers and e-learning facilities. In addition, a wide selection of study books covering primary, secondary and tertiary levels were also distributed to the Resource Centres. 2. National Healthcare Trust Zimbabwe The Trust was established in 2008 with the objective of being the ‘Partner of choice’ in all programmes aimed at responding to national health care crisis such as cholera, as well as building and maintaining capacity in the national healthcare delivery system. In the period under review, the NHT significantly contributed to health delivery systems in Zimbabwe through: responding to a typhoid crisis; health information systems development; mobile health solutions; health infrastructure development; human resources for health development; special surgical procedures and other health delivery related activities. Of special mention is the College of Health Sciences, University of Zimbabwe project- Virtual Learning Hall. The National Health Care Trust continued to support the Virtual Learning Hall it established in the previous year at the College of Health Sciences with bandwidth for effective and efficient connectivity. To date the facility has eleven (11) regular partnering universities in France, England, United States of America, South Africa, Germany, India, Tanzania and the Netherlands. Over 500 students have accessed the learning hall for lectures and research seminars in subjects ranging from Anatomy, Physiology, Dentistry, Pharmacy, Veterinary Sciences, Computer Sciences, and Biochemistry. Over 52 lectures have been held excluding short courses, seminars and once-off lectures. The lectures are stored for later access by students on the server that came with the video conferencing equipment and are available through the University of Zimbabwe website. Another important project to highlight is the Mobile Health Clinics initiative- The Trust piloted Mobile Health Solutions where integrated primary healthcare services were provided through the use of a mobile health clinic. Nine (9) medical outreach clinic sessions were carried out. 3. The Joshua Nkomo Scholarship Fund The scholarship fund was established in 2005 to support academically gifted and socially responsive students on a full scholarship basis. The vision of the JNSF is to promote and equip students who demonstrate high academic excellence and community involvement to help them transform their communities and the nation at large. Over 700 students are currently benefiting from this prestigious and transformational scholarship scheme. The scholarships are awarded to students drawn from all provinces of Zimbabwe based on their record of educational performance and community leadership .Leadership and mentoring courses are periodically held to equip the students with skills. A numbers of these students ,’Joshualites’, have been enrolled in international universities such as Yale, Harvard, Massachusetts Institute of Technology, Columbia & University of Pennsylvania. P e o p l e a n d C o m m u n i t y 42 CORPORATE SOCIAL RESPONSIBILITIES Econet believes its future depends on the sustainable development of our communities. We remain firm in our belief that a company’s success cannot be measured on financial performance alone. We believe the true measure of a successful company is its ability to positively transform its community. Joshua Nkomo Scholarship Fund is the initiative that gives scholarships to the top ten students from all the ten provinces of Zimbabwe to go and study in tertiary institutions each year. Over 100 academically gifted and socially responsible students benefit from it. To date over 650 ‘ Joshualites’ have benefited from this life changing programme. Capernaum Trust provides scholarships, food-packs and life changing skills to the disadvantaged and the underprivileged children in the community. CT has established 15 state- of-the-art resource centres and libraries in selected schools with complete e-learning facilities. National Health Care Trust is an institution collaborating with the Ministry of Health, WHO, UNICEF, OXFAM and Hellen Keller Foundation to build capacity in health delivery. NHCT financed the re- opening of the UZ Medical School. ECONET CORPORATE SOCIAL RESPONSIBILITIES 43 Inspiring Innovations 44 Econet is getting everyone connected everywhere. Econet has the widest voice and data coverage as a result of the massive investment in network infrastructure. Inspiring Innovations 45 From humble roots, Econet today is one of the largest companies on the Zimbabwe Stock Exchange. Through our pioneering innovation, we are inspiring budding entrepreneurs and large companies to fulfil their own dreams. With our integrated range of product and services, Econet provides innovative business solutions to every business model, from the growing home industry to the conglomerate. 46 Directors’ responsibility for financial reporting 47 Certificate by the Group Company Secretary 48 Independent Auditor’s Report 49 Consolidated Statements of Financial Position 50 Consolidated Statements of Comprehensive Income 51 Consolidated Statements of Changes in Equity 52 Consolidated Statements of Cash Flows 53 Notes to the Consolidated Financial Statements 130 Administration Detachable Proxy Form for Annual General Meeting 2013 Consolidated financial statements 46 Directors’ responsibility for financial reporting The Board of Directors is responsible for the integrity and objectivity of the financial statements and related information contained in this annual report. The Board considers that the financial statements have been prepared in accordance with applicable accounting standards and is satisfied with the integrity of the information provided. The Group’s independent external auditors, Messrs Ernst & Young Chartered Accountants (Zimbabwe), have audited the financial statements and their report appears on page 48 of this annual report. In the discharging of this responsibility, the Directors ensure that the Group maintains effective systems of internal control. The systems seek to provide reasonable assurance as to the accuracy and reliability of the financial systems as well as safeguard and maintain accountability over the Group’s assets. The Directors have reviewed the performance and financial position of the Group up to the point of signing of the financial statements and are satisfied that it is a true reflection of the Group’s position. The Board has concluded that the Group has adequate resources to continue as a going concern for the foreseeable future. The financial statements set out on page 49 to 129 were approved by the Board of Directors on 14 May 2013 and signed on its behalf by: Dr J. Myers D. Mboweni K. V. Chirairo CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCIAL DIRECTOR 14 MAY 2013 47 In my capacity as the Group Company Secretary, I hereby confirm, in terms of the Companies Act (Chapter 24:03), that, for the year ended 28 February 2013, Econet Wireless Zimbabwe Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Companies Act and that all such returns are, to the best of my knowledge and belief, true and correct and up to date. C. A. Banda GROUP COMPANY SECRETARY 14 MAY 2013 Certificate by the Group Company Secretary CHARLES A. BANDA - Group Company Secretary F i n a n c i a l S t a t e m e n t s 49 Consolidated Statements of Financial Position As at 28 February 2013 All fgures in US$ Note 2013 2012 ASSETS Non-current assets Property, plant and equipment 12 690,805,885 605,846,714 Investment property 13 951,517 411,000 Intangible assets 14 9,492,568 7,991,004 Deferred tax asset 15.1 5,642,613 2,686,315 Goodwill 44.1 6,090,632 - Investment in associate 18.1 14,061,120 8,974,389 Financial instruments: -Held-to-maturity investments 17 9,896,415 14,161,138 -Available-for-sale investments 19 3,010,797 4,692,566 Total non-current assets 739,951,547 644,763,126 Current assets Inventories 22 14,443,786 12,054,662 Financial instruments: -Trade and other receivables 23 63,105,361 54,763,082 - Financial assets at fair value through proft or loss 21 58,006 52,976 - Loans and advances to bank customers 24.1 119,321,627 - - Cash and cash equivalents 33.4 78,229,628 100,792,971 Total current assets 275,158,408 167,663,691 Total assets 1,015,109,955 812,426,817 EQUITY AND LIABILITIES Capital and reserves Share capital and share premium 26.2 35,697,496 33,124,930 Retained earnings 453,138,968 345,478,251 Other reserves 27 568,775 1,342,726 Equity attributable to owners of Econet Wireless Zimbabwe Limited 489,405,239 379,945,907 Non-controlling interests 3,477,998 2,847,008 Total equity 492,883,237 382,792,915 Non-current liabilities Deferred tax liability 15.2 85,493,429 70,667,055 Financial instruments - Long-term interest-bearing debt 31.1 202,799,895 103,338,155 Total non-current liabilities 288,293,324 174,005,210 Current liabilities Provisions 29 - 3,466 Deferred revenue 30 10,127,617 10,515,168 Financial instruments: -Trade and other payables 28 118,871,498 90,661,877 - Short-term interest-bearing debt 31 61,771,039 145,800,362 - Deposits due to banks and customers 32.3 36,350,711 - Income tax payable 33.3 6,812,529 8,647,819 Total current liabilities 233,933,394 255,628,692 Total liabilities 522,226,718 429,633,902 Total equity and liabilities 1,015,109,955 812,426,817 Dr J. Myers D. Mboweni K. V. Chirairo CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER FINANCE DIRECTOR 14 May 2013 F i n a n c i a l S t a t e m e n t s 50 Consolidated Statements of Comprehensive Income For the year ended 28 February 2013 All fgures in US$ Note 2013 2012 Revenue 2 694,843,608 611,115,533 Cost of sales and external services sold (182,955,954) (159,156,746) Gross proft 511,887,654 451,958,787 Net interest income from banking operations 3.2 926,513 - Net fees and commission income from banking operations 8 20,504 - Other income 9 1,534,333 1,580,889 Gain on disposal of available-for-sale investments 19.1 - 11,693,274 Gain on disposal of interest in former subsidiary 43.3 - 2,941,972 Gain on fnancial assets at fair value through proft or loss 21 5,030 - 514,374,034 468,174,922 Operating expenses -General administrative expenses (140,686,551) (124,170,919) -Marketing and sales expenses (17,961,279) (13,969,662) - Network expenses (45,434,962) (35,450,814) - Other expenses (4,947,261) (3,689,201) Proft before interest, taxation, depreciation, impairment and amortisation 305,343,981 290,894,326 Depreciation and amortisation (71,563,248) (46,497,440) Proft from operations 4 233,780,733 244,396,886 Finance income 6 2,653,217 2,105,472 Finance costs 7 (28,600,048) (10,202,838) Share of (loss)/proft of associate 18.3 (2,930,659) 2,830,389 Proft before taxation 204,903,243 239,129,909 Income tax expense 10 (64,965,023) (73,388,821) Proft for the year 139,938,220 165,741,088 Other comprehensive income Available-for-sale reserve recycled to proft or loss 19.1 - (3,885,824) Loss on available-for-sale investments 19 (781,769) (696,996) Taxation efect of other comprehensive income 5 7,818 159,652 Other comprehensive income for the year, net of tax 5 (773,951) (4,423,168) Total comprehensive income for the year 139,164,269 161,317,920 Proft for the year attributable to: Equity holders of Econet Wireless Zimbabwe Limited 139,593,292 165,734,129 Non-controlling interests 344,928 6,959 139,938,220 165,741,088 Total comprehensive income attributable to: Equity holders of Econet Wireless Zimbabwe Limited 138,819,341 161,310,961 Non-controlling interests 344,928 6,959 139,164,269 161,317,920 Basic earnings per share (dollars) 11 0.09 0.10 Diluted basic earnings per share (dollars) 11 0.09 0.10 51 Consolidated Statements of Changes in Equity For the year ended 28 February 2013 All fgures in US$ Share capital and share premium Retained earnings Other reserves Total Non- controlling interest Total Balance at 28 February 2011 22,980,326 258,891,276 5,765,894 287,637,496 2,840,049 290,477,545 Proft for the year - 165,734,129 - 165,734,129 6,959 165,741,088 Other comprehensive income - - (4,423,168) (4,423,168) - (4,423,168) Realisation to proft or loss on disposal of available- for-sale investment (Note 19.1) - - (3,885,824) (3,885,824) - (3,885,824) Fair value loss on available-for-sale investments - - (696,996) (696,996) - (696,996) Taxation efect of other comprehensive income - - 159,652 159,652 - 159,652 Total comprehensive income - 165,734,129 (4,423,168) 161,310,961 6,959 161,317,920 Transactions with equity holders of Econet Wireless Zimbabwe Limited 10,144,604 (79,147,154) - (69,002,550) - (69,002,550) Issue of shares 10,144,604 - 10,144,604 - 10,144,604 Dividend in specie - (10,535,742) - (10,535,742) - (10,535,742) Cash dividend - (40,160,937) - (40,160,937) - (40,160,937) Share buy-back (Note 16.4) - (28,450,475) - (28,450,475) - (28,450,475) Balance at 29 February 2012 33,124,930 345,478,251 1,342,726 379,945,907 2,847,008 382,792,915 Proft for the year - 139,593,292 - 139,593,292 344,928 139,938,220 Other comprehensive income - - (773,951) (773,951) - (773,951) Fair value loss on available-for-sale investments - - (781,769) (781,769) - (781,769) Taxation efect of other comprehensive income - - 7,818 7,818 - 7,818 Total comprehensive income - 139,593,292 (773,951) 138,819,341 344,928 139,164,269 Transactions with equity holders of Econet Wireless Zimbabwe Limited 2,572,566 (31,932,575) - (29,360,009) 286,062 (29,073,947) Issue of shares 1,684,577 - - 1,684,577 - 1,684,577 Cancellation of shares bought back (731,008) - - (731,008) - (731,008) Share buyback (Note 16.4) - (31,932,575) - (31,932,575) - (31,932,575) Acquisition of subsidiary - - - - 286,062 286,062 Disposal of treasury shares 1,618,997 - - 1,618,997 - 1,618,997 Balance at 28 February 2013 35,697,496 453,138,968 568,775 489,405,239 3,477,998 492,883,237 Other reserves - Other reserves are detailed in Note 27 and consist of reserves arising from the valuation of available- for-sale financial assets. Where a revalued financial asset is sold the portion of the reserve that relates to that financial asset is effectively realised and recognised in profit or loss. Where a revalued financial asset is impaired the portion of the reserve that relates to that financial asset impairment is also recognised in profit or loss. F i n a n c i a l S t a t e m e n t s 52 Consolidated Statements of Cash Flows For the year ended 28 February 2013 All fgures in US$ Note 2013 2012 Operating activities Cash generated from operations 33.2 216,176,544 315,327,155 Income tax paid 33.3 (53,096,888) (36,465,392) Net cash fows from operating activities 163,079,656 278,861,763 Investing activities Finance income 2,653,217 1,834,505 Acquisition of intangible assets (Note 14) (565,570) (3,860) Acquisition of available-for-sale investments (134,406) (2,994,047) Proceeds on disposal of available-for-sale fnancial assets - 5,285,524 Acquisition of held-to-maturity investments (1,872,598) (3,212,410) Acquisition of associate 18.2 (20,000,000) - Net cash infow on acquisition of subsidiary 44.1 16,597,539 - Purchase of property, plant and equipment - to expand operating capacity (147,043,725) (216,010,394) Proceeds on disposal of property, plant and equipment - 2,326,522 Net cash outfow on disposal of interest in former subsidiary 43.2 - (1,639,442) Net cash used in investing activities (150,365,543) (214,413,602) Financing activities Finance costs (33,359,941) (10,202,838) Dividends paid - (36,371,846) Share buy-back (25,413,484) (28,450,475) Proceeds from borrowings 52,000,000 132,910,541 Repayment of borrowings (31,807,690) (56,231,257) Issue of shares 3,303,659 - Net cash fows (used in)/from fnancing activities (35,277,456) 1,654,125 Net (decrease) / increase in cash and cash equivalents (22,563,343) 66,102,286 Cash and cash equivalents at the beginning of the year 100,792,971 34,690,685 Cash and cash equivalents at the end of the year 33.4 78,229,628 100,792,971 53 F i n a n c i a l S t a t e m e n t s Accounting Policy IFRS/IAS reference Content note note 4-9, 39, 40 A IAS 1 Presentation of financial statements: General information and functional currency B IFRS 1 (revised) First-time adoption of IFRS C IAS 8 Change in accounting policies, adoption of new and revised Standards 37.2 D IAS 21 Effects of changes in foreign exchange rates 16,34,43,44,47 E IFRS 3, IAS 27 Business combinations, basis of consolidation 18 F IAS 28 Investment in associates 14 G IAS 38 Intangible assets 12 H IAS 23 Borrowing costs 12, 25, 41 I IAS 16 Property, plant and equipment 13 J IAS 40 Investment properties 36 K IAS 36 Impairment of property, plant and equipment, investment property, and intangible assets 38 L IAS 17 Leases 22 M IAS 2 Inventories 2, 3, 30 N IAS 18 Revenue 5, 10, 15 O IAS 12 Income taxes 35 P IAS 19, 26 Employee benefits and retirement benefits 26.6 Q IFRS 2 Share-based payment 17, 19, 20, 21, 23 R IAS 32, 37, 39, IFRS 7, 9 Financial instruments 24, 28, 31, 32, 36 37, 42 16 S IAS 32 Treasury shares 1 T IFRS 8 Operating segments 29 U IAS 37 Provisions V IFRS 5 Non-current assets held-for-sale and discontinued operations 36, 37 W Financial Guarantees 37 X Fiduciary Assets 37.3 Y IAS 1 (Revised) Significant assumptions and key sources of estimation uncertainty 11 IAS 33 Earnings per share 34 IAS 24 Related party disclosures 45 IAS 10 Events after the reporting period Notes to the Consolidated Financial Statements For the year ended 28 February 2013 54 1 OPERATING SEGMENTS The principal activities set out below are the basis on which the Group reports its primary segment information. For management purposes, the Group is organised into business units based on their products and services and has the following reportable segments: Cellular network operations Econet Wireless (Private) Limited provides cellular network services which form the main business of the Group. Banking operations TN Bank Limited provides retail, corporate, and investment banking services in the key economic centres of Zimbabwe. Transaction processing systems Transaction Payment Solutions (Private) Limited provides financial transaction switching, point of sale and value added services that exploit the convergence of banking, information technology and telecommunications. The company provides local and international financial institutions and telecommunications operators access to cutting edge technology. Beverages Mutare Bottling Company (Private) Limited provides beverages to both individual and corporate clients. Investments EW Capital Holdings (Private) Limited is the investment vehicle through which the Group holds a variety of investments listed on the Zimbabwe Stock Exchange. Reporting No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit and is measured consistently with operating profit or loss in the consolidated financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 55 F i n a n c i a l S t a t e m e n t s 1 OPERATING SEGMENTS (continued) Segment information for the year ended 28 February 2013. All fgures in US$ Cellular network operations Banking operations Transaction processing systems Beverages Investments and administration Segments total Adjust- ments and eliminations Group total Revenue from external customers 674,135,536 - 2,636,113 18,120,587 694,892,236 (48,628) 694,843,608 Revenues from transacting with other operating segments of the same entity - (48,628) - - - (48,628) 48,628 - Net interest income from banking operations - 926,513 - - - 926,513 - 926,513 Depreciation (68,732,031) (113,399) (157,439) (680,964) (913) (69,684,746) - (69,684,746) Amortisation of intangibles (1,820,355) (55,528) (2,619) - - (1,878,502) - (1,878,502) Finance income 2,329,937 - 14,171 8,346 429,134 2,781,588 (128,371) 2,653,217 Finance costs (28,469,128) - (41,830) (89,090) - (28,600,048) - (28,600,048) Share of loss of associate - - - - (2,930,659) (2,930,659) - (2,930,659) Income tax expense (67,594,763) 3,003,585 (79,687) (294,158) - (64,965,023) - (64,965,023) Segment proft/(loss) 141,337,575 5,574,291 210,110 606,554 (4,023,574) 143,704,956 (3,766,736) 139,938,220 Acquisition of segment non-current assets (190,650,894) - (35,366) (548,133) - (191,234,393) - (191,234,393) Segment assets 981,837,567 182,925,023 2,944,772 17,402,314 155,481,755 1,340,591,431 (325,481,476) 1,015,109,955 Segment liabilities 470,848,799 109,130,211 3,336,554 6,939,641 133,670,397 723,925,602 (201,698,884) 522,226,718 Note: Included in segment assets is an amount of $14 061 120 pertaining to an investment in associate accounted for using the equity method. 56 1 OPERATING SEGMENTS (continued) Segment information for the year ended 29 February 2012. All fgures in US$ Cellular network operations Banking operations Transaction processing systems Beverages Investments and administration Segments total Adjustments and eliminations Group total Revenue 592,853,777 - 2,242,222 16,149,802 - 611,245,801 (130,268) 611,115,533 Depreciation (44,587,519) - (270,943) (692,667) (575) (45,551,704) - (45,551,704) Amortisation of intangibles (941,847) - (3,889) - - (945,736) - (945,736) Finance income 1,797,347 - 11,141 7,194 289,790 2,105,472 - 2,105,472 Finance costs (10,067,665) - (43,909) (91,264) - (10,202,838) - (10,202,838) Share of proft of associate - - - - 2,830,389 2,830,389 - 2,830,389 Gain on disposal of available-for-sale investments - - - - 11,693,274 11,693,274 - 11,693,274 Gain on disposal of interest in former subsidiary - - - - 2,941,972 2,941,972 - 2,941,972 Income tax (expense)/income (72,504,220) - 29,628 (282,703) (631,526) (73,388,821) - (73,388,821) Segment proft/(loss) 157,294,062 - (119,713) 69,605 8,497,134 165,741,088 - 165,741,088 Acquisition of segment non-current assets (181,826,188) - (75,276) (1,627,981) (9,400) (183,538,845) - (183,538,845) Segment assets 782,918,169 - 2,927,272 18,711,432 79,626,326 884,183,199 (71,756,382) 812,426,817 Segment liabilities 413,266,977 - 3,529,164 7,318,897 42,917,004 467,032,042 (37,398,140) 429,633,902 Note: Included in segment assets is an amount of $8 974 389 pertaining to an investment in associate accounted for using the equity method. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 57 1 OPERATING SEGMENTS (continued) All figures in US$ 2013 2012 Reconciliation of profit Segment profit 143,704,956 165,741,088 Adjustments Cost of sales 155,655 - Expenses 40,885 - Other income / (expenses) (3,834,905) - Investment income (128,371) - Group profit 139,938,220 165,741,088 Reconciliation of assets Segment operating assets 1,340,591,431 884,183,199 Property, plant and equipment - - Investment in subsidiaries (108,681,234) (34,656,144) Inter-company receivables (216,800,242) (37,100,238) Group operating assets 1,015,109,955 812,426,817 Segment operating liabilities 723,925,602 467,032,042 Inter-company payables (201,698,884) (37,398,140) Group operating liabilities 522,226,718 429,633,902 2 REVENUE Revenue comprises: Local airtime 454,822,747 412,003,920 Interconnection fees and roaming 115,283,694 93,215,436 Data - SMS and internet services 86,165,402 77,207,200 Other sales (beverages, handsets, accessories and commissions) 38,571,765 28,688,977 694,843,608 611,115,533 F i n a n c i a l S t a t e m e n t s 58 All figures in US$ 2013 2012 3 NET INTEREST INCOME FROM BANKING OPERATIONS 3.1 Interest income from banking operations Loans and advances to customers 814,018 - Other 314,363 - 1,128,381 - 3.2 Interest expense from banking operations Interest on deposits due to banks and other customers (201,868) - NET INTEREST INCOME FROM BANKING OPERATIONS 926,513 - 4 PROFIT FROM OPERATIONS Profit from operations is arrived at after taking the following income/(expenditure) into account: Impairment of trade and other receivables (Note 23) (19,893) (19,762,148) Auditors remuneration (1,144,000) (1,100,000) - audit fees (1,144,000) (1,100,000) Depreciation of property, plant and equipment (Note 12) (69,684,748) (45,551,704) Amortisation of intangible assets (Note 14) (1,878,500) (945,736) Write off of property, plant and equipment (450,371) - Loss on disposal of property, plant and equipment (224,410) (774,864) Employee benefits (51,341,404) (41,934,483) - short-term benefits (49,889,388) (41,238,051) - post-employment benefits (1,452,016) (696,432) Compensation to directors and key management (6,716,149) (3,934,234) - For services as directors (388,583) (403,400) - For management services (Note 34.3) (6,327,566) (3,530,834) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 59 5 DISCLOSURE OF TAX EFFECTS RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME 2013 2012 Gross Tax Net Gross Tax Net All figures in US$ amount effect amount amount effect amount Available-for-sale financial assets (781,769) 7,818 (773,951) (4,582,820) 159,652 (4,423,168) Other comprehensive income, net of tax (781,769) 7,818 (773,951) (4,582,820) 159,652 (4,423,168) All figures in US$ 2013 2012 6 FINANCE INCOME Interest earned from bank deposits 2,237,517 1,834,505 Interest from held-to-maturity investments 415,700 270,967 2,653,217 2,105,472 7 FINANCE COSTS Interest on loans and bank overdrafts (28,600,048) (10,202,838) The interest rate applied is based on an effective interest rate calculated using the cashflow obligations arising under the terms of the loans. 8 NET FEES AND COMMISSION INCOME FROM BANKING OPERATIONS Dealing fee income 20,504 - 9 OTHER INCOME Sundry income 1,471,463 1,633,348 Other bank income 153,234 - Fair value adjustment on investment property (Note 13) 15,000 (600) Realised forex losses (173,388) (155,671) Unrealised forex gains 68,024 103,812 1,534,333 1,580,889 F i n a n c i a l S t a t e m e n t s 60 All figures in US$ 2013 2012 10 INCOME TAX EXPENSE Current income tax (41,129,194) (39,047,153) Deferred tax (Note 15.3) (14,029,298) (28,889,169) Withholding tax (9,806,531) (5,452,499) Income tax expense (64,965,023) (73,388,821) Tax rate reconciliation Profit before taxation 204,903,243 239,129,909 Reconciliation of tax charge: Normal tax at 25.75% (52,762,585) (61,575,952) Effect of share of (loss)/profit from associate (754,645) 728,826 Net disallowable expenses (1,641,263) (7,089,196) Withholding tax (9,806,530) (5,452,499) Income tax expense (64,965,023) (73,388,821) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 61 All figures in US$ 2013 2012 11 EARNINGS PER SHARE Profit for the year attributable to ordinary shareholders 139,593,292 165,734,129 Adjustment for capital items (gross of tax): - Gain on disposal of available for sale investments (Note 19.1) - (11,693,274) - Gain on disposal of interest in former subsidiary (Note 33.1) - (2,941,972) - Loss on disposal of property, plant and equipment 224,410 774,864 - Write off of property, plant and equipment 450,371 - - Tax effect on adjustments (173,756) 3,640,516 Headline earnings attributable to ordinary shareholders 140,094,317 155,514,263 Basic earnings basis The calculation is based on the profit attributable to ordinary shareholders and the weighted average number of shares in issue for the year which participated in the profit of the Group. Fully diluted earnings basis The calculation is based on the profit attributable to ordinary shareholders and the weighted average number of shares in issue after adjusting for conversion of share options not yet exercised and convertible instruments (as applicable). There were no instruments with a dilutive effect at the end of the financial year. Headline earnings Headline earnings comprise of basic earnings attributable to ordinary shareholders adjusted for profits, losses and items of a capital nature that do not form part of the ordinary activities of the Group, net of their related tax effects. Number of shares (after share split) Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share: 1,545,324,020 (2012: 1,651,513,490) Basic earnings per share 0.09 0.10 Headline earnings per share 0.09 0.09 Diluted basic earnings per share 0.09 0.10 Diluted headline earnings per share 0.09 0.09 F i n a n c i a l S t a t e m e n t s 62 12 PROPERTY, PLANT AND EQUIPMENT Cellular Beverage Capital Land and Network Office Plant and Work-in- All figures in US$ Buildings Equipment Equipment Equipment Vehicles Progress Total At cost At 28 February 2011 31,729,986 371,922,728 23,527,522 4,041,657 6,824,650 168,681,661 606,728,204 Disposal of subsidiary - (35,084,459) (150,264) - (326,853) (29,047,670) (64,609,246) Additions 77,361 3,487,009 3,537,443 - 1,771,991 218,851,849 227,725,653 Disposals - (4,818,754) (276,069) - (471,418) (167,191) (5,733,432) Transfers 9,783,123 165,269,007 2,809,584 - 40,375 (186,831,162) (8,929,073) At 29 February 2012 41,590,470 500,775,531 29,448,216 4,041,657 7,838,745 171,487,487 755,182,106 Acquisition of subsidiary 1,587,813 - 6,149,488 - 489,262 - 8,226,563 Additions 146,780 2,159,718 5,079,733 301,712 1,303,545 138,052,237 147,043,725 Write offs - (3,057,281) (26,722) - (73,478) - (3,157,481) Disposals - - (242,091) - (59,100) - (301,191) Transfers 1,413,795 162,633,880 1,181,477 - - (165,229,152) - At 28 February 2013 44,738,858 662,511,848 41,590,101 4,343,369 9,498,974 144,310,572 906,993,722 Accumulated depreciation & impairment At 28 February 2011 (6,099,720) (96,447,087) (3,374,533) (532,892) (1,413,153) - (107,867,385) Charge for the period (196,103) (40,006,464) (3,820,783) (472,672) (1,055,682) - (45,551,704) Disposal of subsidiary - 1,422,612 9,793 - 19,246 - 1,451,651 Disposals - 2,253,964 190,351 - 187,731 - 2,632,046 At 29 February 2012 (6,295,823) (132,776,975) (6,995,172) (1,005,564) (2,261,858) - (149,335,392) Charge for the period (1,160,578) (62,375,334) (4,428,899) (401,329) (1,318,608) - (69,684,748) Write offs - 2,650,039 12,718 - 44,353 - 2,707,110 Disposals - - 99,227 - 25,966 - 125,193 Transfers - (5,196) 5,196 - - - - At 28 February 2013 (7,456,401) (192,507,466) (11,306,930) (1,406,893) (3,510,147) - (216,187,837) CARRYING VALUE At 28 February 2013 37,282,457 470,004,382 30,283,171 2,936,476 5,988,827 144,310,572 690,805,885 At 29 February 2012 35,294,647 367,998,556 22,453,044 3,036,093 5,576,887 171,487,487 605,846,714 Debt is collateralised over Zimbabwean-based network equipment. The fair value of the related debt is USD 264.6 million (2012 : USD 249.1 million) . Refer to note 31 for the breakdown of loan facilities with collateralised debt. Some items within the statement of financial position for the year ended 29 February 2012 have been reclassified. The Group reclassified equipment deposits to work in progress in line with the true nature of the underlying balances. This has resulted in comparatives being reclassified for 29 February 2012. Refer note 25 for detail on the impact of the reclassification on the statement of financial position. The amount of borrowing costs capitalised during the year ended 28 February 2013 is US$ 9,931,222 (29 February 2012: US$6,877,128). The rate used to determine the amount of borrowing costs eligible for capitalisation was 18% (29 February 2012: 4.75%), which is the effective interest rate of the specific borrowings. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 63 All figures in US$ 2013 2012 13 INVESTMENT PROPERTY Opening balance 411,000 411,600 Acquisition of subsidiary 525,517 - Gain/(loss) on fair value of investment property 15,000 (600) Closing balance 951,517 411,000 Investment property pertains to industrial and residential properties leased to third parties. The Group’s investment properties were valued by an independent professional valuer at 28 February 2013 on the basis of open market value. Rental income pertaining to the investment property recognised in profit and loss for the year amounted to US$49 800 (2012: US$47 900). 14 INTANGIBLE ASSETS Computer All figures in US$ Licences software Total Year ended 28 February 2011 Cost 1,757,187 54,050 1,811,237 Accumulated amortisation (452,237) (50,242) (502,479) Carrying amount 1,304,950 3,808 1,308,758 Movement for the year: Additions - 3,860 3,860 Disposals (1,304,950) - (1,304,950) Transfer from property, plant and equipment (CWIP) - 8,929,072 8,929,072 Amortisation - (945,736) (945,736) At 29 February 2012: Cost 452,237 8,986,982 9,439,219 Accumulated amortisation (452,237) (995,978) (1,448,215) Carrying amount - 7,991,004 7,991,004 Movement for the year: Additions - 565,570 565,570 Acquisition of subsidiary 2,814,494 - 2,814,494 Amortisation (55,526) (1,822,974) (1,878,500) At 28 February 2013: Cost 2,814,494 9,552,552 12,367,046 Accumulated amortisation and impairment (55,526) (2,818,952) (2,874,478) Carrying amount 2,758,968 6,733,600 9,492,568 Intangible assets pertain to computer software held by Econet Wireless (Private) Limited, TN Bank Limited and Transaction Payment Solutions (Private) Limited. The Group uses the expected usage of the asset to determine the useful life of intangible assets. At 28 February 2013 the computer software had a remaining useful life of three and a half years. F i n a n c i a l S t a t e m e n t s 64 15 DEFERRED TAX The following are the major deferred tax liabilities and assets recognised by the Group, and the movements thereon. Property, plant Deferred All figures in US$ and equipment revenue Other Total 15.1 Deferred tax asset At 28 February 2011 - 4,099,532 270,729 4,370,261 Credit to profit for the year - (1,495,954) (187,992) (1,683,946) At 29 February 2012 - 2,603,578 82,737 2,686,315 Acquisition of subsidiary - - 2,151,404 2,151,404 (Credit)/charge to profit for the year - (17,298) 822,192 804,894 At 28 February 2013 - 2,586,280 3,056,333 5,642,613 The Group has accounted for a deferred tax asset pertaining to deferred revenue since the temporary difference is expected to reverse in the forseeable future. 15.2 Deferred tax liability Property, plant Deferred All figures in US$ and equipment revenue Other Total At 28 February 2011 45,317,767 - 200,694 45,518,461 Disposal of subsidiary (1,893,860) - (3,117) (1,896,977) Charge to profit for the year 27,205,223 - - 27,205,223 Credit to other comprehensive income - - (159,652) (159,652) At 29 February 2012 70,629,130 - 37,925 70,667,055 Charge to profit for the year 14,834,192 - - 14,834,192 Credit to other comprehensive income - - (7,818) (7,818) At 28 February 2013 85,463,322 - 30,107 85,493,429 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 65 15.3 Net deferred tax asset / (liability) Property, plant Deferred All figures in US$ and equipment revenue Other Total At 28 February 2011 (45,317,767) 4,099,532 70,035 (41,148,200) Disposal of subsidiary 1,893,860 - 3,117 1,896,977 Charge to profit for the year (27,205,223) (1,495,954) (187,992) (28,889,169) Credit to other comprehensive income - - 159,652 159,652 At 29 February 2012 (70,629,130) 2,603,578 44,812 (67,980,740) Acquisition of subsidiary - - 2,151,404 2,151,404 Charge to profit for the year (14,834,192) (17,298) 822,192 (14,029,298) Credit to other comprehensive income - - 7,818 7,818 At 28 February 2013 (85,463,322) 2,586,280 3,026,226 (79,850,816) 16 INVESTMENTS AND LOANS IN SUBSIDIARIES All figures in US$ COMPANY Percentage 2013 2012 16.1 Cost of investments Econet Wireless (Private) Limited 100% 3,133,903 3,133,903 (Cellular network operator in Zimbabwe) Transaction Payment Solutions (Private) Limited 84.3% 108 108 (Computer data processing service provider) E. W. Capital Holdings (Private) Limited 100% 17,797,668 25,200,186 (Investment company) Pentamed Investments (Private) Limited 100% 6,220,598 6,220,598 (Investment company) TN Bank Limited 98.6% 74,025,091 - (Banking operations in Zimbabwe) Total investments in subsidiaries 101,177,368 34,554,795 During the year, the Company acquired a 98.6% stake in TN Bank Limited resulting in the bank becoming a subsidiary. Refer to note 44 on acquisition of subsidiary. Subsequent to the acquisition, the Company made an additional equity investment of USD50 000 000. The allotment of shares relating to this additional investment had not yet been made as at 28 February 2013. F i n a n c i a l S t a t e m e n t s 66 All figures in US$ 2013 2012 16.2 Inter-company receivables Pentamed Investments (Private) Limited 1,886,351 1,886,351 Econet Wireless Global Limited 485,277 485,277 Total loans to group companies 2,371,628 2,371,628 16.3 Inter-company payables Econet Wireless (Private) Limited (111,701,334) (12,873,273) Econet Wireless Global Limited - (3,878,206) Econet Wireless Capital Holdings Limited (16,611,898) (11,292,561) (128,313,232) (28,044,040) Net investments and loans in group companies (24,764,236) 8,882,383 16.4 Treasury shares The cost of the share buy-backs (treasury stock) has been debited to capital and reserves. The cost of shares bought back for the year ended 28 February 2013 was US$31 932 575 (2012: US$28 450 475). Treasury shares on hand at 28 February 2013 were 75,981,050 (2012: 105,444,310). During the year ended 28 February 2013, 25 205 890 (2 520 589 before the share split) treasury shares were issued for the acquisition of a 53.6% interest in TN Bank Limited. The shares had a fair value of $11 545 533 at the time of the transaction. During the year ended 28 February 2013, the Company cancelled 82 574 590 shares (8 274 590 before the share split). 17 HELD-TO-MATURITY INVESTMENTS All figures in US$ 2013 2012 Opening balance 14,161,138 10,677,761 Eliminated on acquisition of subsidiary (6,088,909) - Additions 1,430,000 3,212,410 Disposals (21,514) - Interest accrued 415,700 270,967 Closing balance 9,896,415 14,161,138 Held-to-maturity investments include foreign currency bearer bonds with a carrying amount of US$2 940 140 (2012: $2 702 403) and investments with local financial institutions amounting to US$6 956 275 (2012: US$11 437 221). The bearer bonds yield interest at a rate of 6.8% per annum. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 67 18 INVESTMENT IN ASSOCIATES The following summarises financial information of the Group’s investments in associates: 18.1 Data Control & Systems (1996) (Private) Limited All figures in US$ 2013 2012 Share of the associate’s statement of financial position: Current assets 11,785,312 8,097,719 Non-current assets 40,333,025 33,030,683 Current liabilities (7,455,904) (5,121,039) Non-current liabilities (32,100,982) (28,532,643) Equity 12,561,451 7,474,720 Fair value adjustment 1,499,669 1,499,669 Carrying amount of the investment 14,061,120 8,974,389 Reconciliation of carrying amount of investment in associate Opening balance 8,974,389 6,144,000 Share of profit of associate 5,086,731 2,830,389 Closing balance 14,061,120 8,974,389 Share of the associate’s revenue and profit: Revenue 24,059,723 15,417,169 Profit 5,086,731 2,830,389 18.2 TN Bank Limited In a business acquisition, on 12 July 2012, the Company acquired 45% of the voting shares of TN Bank Limited, a commercial bank incorporated and registered in Zimbabwe. This investment gave the Company significant influence over the financial and operating affairs of TN Bank Limited and as such it was accounted for as an associate from that date. The Company acquired a further 53.6% of the voting shares of TN Bank Limited on 31 January 2013 bringing its total interest to 98.6%. As a result, TN Bank Limited was consolidated as a subsidiary from that date. 2013 2012 Cost of investment paid for in cash 20,000,000 - Share of loss of associate July 2012 to January 2013 (8,017,390) - Transferred to investment in subsidiary (Refer note 44) (11,982,610) - Carrying amount at 28 February 2013 - - TN Bank Comparative figures All comparative figures with respect to TN Bank Limited indicate nil balances because the bank was acquired during the year ended 28 February 2013. The affected notes are 3.1, 3.2, 8, 24, 32 and 37. 18.3 Net share of (loss)/profit of associates 2013 2012 Share profit of Data Control & Systems (note 18.1) 5,086,731 2,830,389 Share of loss of TN Bank (note 18.2) (8,017,390) - Net share of (loss)/profit of associates (2,930,659) 2,830,389 F i n a n c i a l S t a t e m e n t s 68 19 AVAILABLE-FOR-SALE INVESTMENTS All figures in US$ 2013 2012 Listed investments Opening balance 4,692,566 20,810,359 Additions 134,406 2,994,047 Fair value loss (781,769) (696,996) Payments made in shares - (2,517,962) Disposal (Note 19.1) - (5,361,140) Distributed as dividend in specie - (10,535,742) Eliminated on acquisition of subsidiary (1,034,406) - Closing balance 3,010,797 4,692,566 19.1 Gain on disposal of available-for-sale investments Consideration received - 13,168,590 Fair value of investments disposed of - (5,361,140) - 7,807,450 Available-for-sale reserve recycled to profit or loss - 3,885,824 - 11,693,274 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 69 20 FAIR VALUES OF FINANCIAL INSTRUMENTS Set out below is a comparison by class of the carrying amounts and fair values of the Group’s financial instruments that are carried in the financial statements: Carrying amount Fair value Carrying amount Fair value All figures in US$ 2013 2013 2012 2012 Financial assets Trade and other receivables 63,105,361 63,105,361 54,763,082 54,763,082 Loans and advances to bank customers 119,321,627 119,321,627 - - Available-for-sale financial investments 3,010,797 3,010,797 4,692,566 4,692,566 Cash and cash equivalents 78,229,628 78,229,628 100,792,971 100,792,971 Financial assets at fair value through profit or loss 58,006 58,006 52,976 52,976 Held-to-maturity investments 9,896,415 9,896,415 14,161,138 14,161,138 Total 273,621,834 273,621,834 174,462,733 174,462,733 Financial liabilities Interest-bearing loans and borrowings 264,570,934 264,570,934 249,138,517 249,138,517 Deposits due to banks and customers 36,350,711 36,350,711 - - Trade and other payables 118,871,498 118,871,498 90,661,877 90,661,877 Total 419,793,143 419,793,143 339,800,394 339,800,394 The values of the financial assets and liabilities are included at the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: º Cash and cash equivalents, trade receivables, trade payables, and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. º Long-term fixed-rate and variable-rate receivables / borrowings are evaluated by the Group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 28 February 2013, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values. º Fair value of quoted notes and bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. º Fair value of available-for-sale financial assets is derived from quoted market prices in active markets. º The fair value of interest-bearing loans and borrowings is determined after taking into account the effective interest on the loans. This involves an assessment of world market rates, specific country risk, credit risk and other relevant factors. The Directors believe that the amortised cost of the interest -bearing loans and borrowings approximates their fair value. F i n a n c i a l S t a t e m e n t s 70 Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique; º Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities º Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly º Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. As at 28 February 2013, the Group held the following financial instruments measured at fair value: All figures in US$ Total Level 1 Level 2 Level 3 At 28 February 2013 Financial assets at fair value through profit or loss 58,006 58,006 - - Available-for-sale financial assets 3,010,797 3,010,797 - - 3,068,803 3,068,803 - - During the reporting period ending 28 February 2013, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements All figures in US$ Total Level 1 Level 2 Level 3 At 29 February 2012 Financial assets at fair value through profit or loss 52,976 52,976 - - Available-for-sale financial assets 4,692,566 4,692,566 - - 4,745,542 4,745,542 - - During the reporting period ending 29 February 2012, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements 21 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS All figures in US$ 2013 2012 Opening balance 52,976 50,911 Fair value gain 5,030 2,065 Closing balance 58,006 52,976 Investments held at fair value through profit or loss comprise of equity investments. The fair value is based on the Zimbabwe Stock Exchange published price. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 71 All figures in US$ 2013 2012 22 INVENTORIES Merchandise at net realisable value 9,707,148 7,224,424 Spares, stationery and other at cost 5,837,104 6,431,217 Provision for obsolescence (1,100,466) (1,600,979) 14,443,786 12,054,662 The directors are of the opinion that the inventory amounts are recorded at values that are not in excess of their recoverable amounts. All inventories are expected to be recovered within twelve (12) months. The cost of inventories recognised as an expense during the year amounted to US$23 215 938 (2012:US$19 335 411). Inventories written off during the course of the year amounted to US$ 1 474 197 (2012 US$ 1 863 975). 23 TRADE AND OTHER RECEIVABLES 2013 2012 Trade receivables 36,189,048 34,137,095 Interconnect debtors 87,747,259 80,459,139 Intercompany receivables 1,036,705 4,430,914 Other receivables 24,276,307 21,931,217 Impairment losses recognised (86,143,958) (86,195,283) 63,105,361 54,763,082 There is a concentration of credit risk associated with Interconnect Debtors. Impairment losses recognised: 2013 2012 Pertaining to prior year balances (86,195,283) (66,941,989) Impairment losses recognised in current year (19,893) (19,762,148) Bad debts recovered 71,218 - Reversal on disposal of subsidiary - 508,854 (86,143,958) (86,195,283) In determining the impairment losses disclosed above, the Group considers any change in the credit quality of a trade receivable from the date the credit was initially granted up to the end of the reporting period. Ageing of trade and other receivables that are past due but not impaired 2013 2012 30-60 days 1,863,609 6,120,776 60-90 days 7,056,114 1,833,627 90-120 days 7,460,244 6,479,845 120+ days 3,645,281 1,604,272 Total 20,025,248 16,038,520 Before accepting any new individual customer, the Group conducts trade reference checks to establish the credit history of the applicant. The Group also conducts due diligence assessments on individuals, companies and their directors. In light of the fact that security is held against the amounts detailed above, the Group considers the trade and other receivables past due to be recoverable and thus has not impaired these amounts. F i n a n c i a l S t a t e m e n t s 72 All figures in US$ 2013 2012 24 LOANS AND ADVANCES TO BANK CUSTOMERS 24.1 Total loans and advances to bank customers Corporate lending 69,863,575 - Small and Medium Enterprise (SME) lending 576,222 - Consumer lending 51,524,846 - Other 3,855,285 - 125,819,928 - Less: Allowance for impairment losses (6,498,301) - 119,321,627 - 24.2 Maturity analysis Less than one month 41,676,094 - 1 to 3 months 1,800,000 - 3 to 6 months 24,604,980 - 6 months to 1 year 21,375,020 - 1 to 5 years 36,363,834 - Gross loans and advances 125,819,928 - Allowance for impairment losses (6,498,301) - 119,321,627 - 24.3 Sectorial analysis 2013 2012 Mining 4,514,349 4% - - Manufacturing 44,616,254 35% - - Agriculture 3,131,329 2% - - Distribution 4,204,801 3% - - Services 35,613,530 29% - - Individuals 33,739,665 27% - - 125,819,928 100% - 0% 24.4 Allowance for impairment losses on loans and advances A reconciliation of the allowance for impairment losses for loans and advances, by class, is as follows: Corporate SME Consumer lending lending lending Total At 1 March 2011 - - - - Charge for the year - - - - Recoveries - - - - Bad debts written off - - - - Interest accrued on impaired loans and advances - - - - At 29 February 2012 Acquisition of subsidiary 2,776,720 20,406 3,701,175 6,498,301 Charge for the year - - - - Recoveries - - - - Bad debts written off - - - - Interest accrued on impaired loans and advances - - - - At 28 February 2013 2,776,720 20,406 3,701,175 6,498,301 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 73 25 EQUIPMENT DEPOSITS Some items within the statement of financial position for the year ended 29 February 2012 have been reclassified. The Group reclassified equipment deposits to work in progress in line with the true nature of the underlying balances. This has resulted in comparatives being reclassified for 29 February 2012. The reclassification had the following impact on the statement of financial position: All figures in US$ 2013 2012 2011 Equipment deposits As previously stated - 44,214,217 11,738,808 Reclassification to work in progress - (44,190,668) (11,738,808) Reclassification to other receivables - (23,549) - As currently stated - - - Work in progress As previously stated 138,052,237 174,661,181 227,410,706 Reclassification - 44,190,668 11,738,808 As currently stated 138,052,237 218,851,849 239,149,514 Other receivables As previously stated - 21,907,668 12,932,558 Reclassification - 23,549 - As currently stated - 21,931,217 12,932,558 26 SHARE CAPITAL Share split On 28 February 2013, the shareholders approved a share split in the ratio 1:10. All figures in US$ 2013 2012 Group and company Authorised 3 000,000,000 (2012-300,000,000) shares consisting of: - 2 000,000,000 (2012- 200,000,000 before the split) Ordinary shares of $0.001 each (before the split $0.01) 2,000,000 2,000,000 - 1 000,000,000 (2012-100,000,000 before the split) Class “A” ordinary shares of $0.001 each (before the split $0.01) 1,000,000 1,000,000 3,000,000 3,000,000 26.1 Issued and fully paid 1 640 021 430 (2012 - 171 554 202) shares consisting of: 909 324 850 (2012 - 98,484,587) 909,325 984,846 Ordinary shares of $0.001 each (before the split $0.01) - 730 696 150 (2012 - 73 069 615) 730,696 730,696 Class “A” ordinary shares of $0.001 each (before the split ($0.01) 1,640,021 1,715,542 F i n a n c i a l S t a t e m e n t s 74 Unissued shares are under the control of directors, subject to the Companies Act (24:03) and the Memorandum & Articles of Association 26.2 Movement in share capital and share premium Number of shares Share capital Share premium Total US$ US$ US$ Balance at 28 February 2011 167,321,127 1,673,211 21,307,115 22,980,326 Issue of shares 4,233,075 42,331 10,102,273 10,144,604 Balance at 29 February 2012 171,554,202 1,715,542 31,409,388 33,124,930 Issue of shares 705,400 7,054 1,677,523 1,684,577 Share cancellations (8,257,459) (82,575) (648,433) (731,008) Disposal of treasury shares - - 1,618,997 1,618,997 Total before share split 164,002,143 1,640,021 34,057,475 35,697,496 Effect of share split 1,476,019,287 - - - Balance at 28 February 2013 1,640,021,430 1,640,021 34,057,475 35,697,496 26.3 Class “A” shares On 1 July 2003, Econet Wireless Zimbabwe Limited (“EWZL”) entered into an arrangement with Dunstone (Private) Limited, to acquire its 100% owned subsidiary EW Capital Holdings (Private) Limited (“EWCH”). Under the arrangement, EWZL issued 73,984,368 (739,843,680 after share split) Class “A” ordinary shares in exchange for 999,000 EWCH shares. These shares rank pari passu in all respects with the existing issued ordinary shares with the exception that, in the event of EWZL becoming the owner of Econet Wireless Limited (“EWL”) shares, and deciding to distribute the shares to its members, the Class “A” ordinary shares will not participate in the distribution of the EWL shares. 26.4 Share buy-backs Under the authority granted at the Annual General Meeting of 27 July 2012 the directors were authorised to re-purchase the Company’s own shares on the market . The repurchases were to be made at an amount not exceeding 5% above the weighted average market value for the securities for the five business days immediately preceding the date of the repurchase. 26.5 Issue of shares During the year under review, 705 400 shares (7 054 000 after share split) (2012: 4 233 075 after share split-42 330 750) were issued to Econet Wireless Global in accordance with the terms of an Instalment sale agreement entered into in the financial year ended 28 February 2010. 26.6 Directors’ shareholding As at 28 February 2013 there were no outstanding share options granted to the directors. At that date, the following directors held directly and indirectly the following number of ordinary shares in the Company. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 75 Number of Ordinary Shares 2013 2012 (after split) S.T. Masiyiwa* 2,561,870 1,561,870 C. Fitzgerald 10,699,010 10,699,010 D. Mboweni 6,645,460 7,541,550 T.P. Mpofu 10,376,420 10,487,140 K. Chirairo 84,400 224,620 J. Myers 19,970 19,970 B. Mtetwa 130,910 - T. Nyambirai** - 144,440 J. G. B. Pattison*** - 1,308,550 Total 30,518,040 31,987,150 *S.T. Masiyiwa is a beneficiary of a trust that has an indirect shareholding in Econet Wireless Global Limited. Econet Wireless Global Limited holds 678 442 400 (before the share split-67 844 240; 2012 - 732 603 590, before the share split 73 260 395). ** Mr. T. Nyambirai stepped down from the Board with effect from 12 December 2012. *** Mr. J. G. B. Pattison retired from the Board with effect from 31 August 2012. 27 OTHER RESERVES All figures in US$ Available-for sale Total Balance at 28 February 2011 5,765,894 5,765,894 Transfer of available-for-sale reserve on disposal of investments (3,885,824) (3,885,824) Fair value loss on available-for-sale investments (537,344) (537,344) Balance at 29 February 2012 1,342,726 1,342,726 Fair value loss on available-for-sale investments (773,951) (773,951) Balance at 28 February 2013 568,775 568,775 Available-for-sale reserve This reserve records fair value changes on available-for-sale financial assets. All figures in US$ 2013 2012 28 TRADE AND OTHER PAYABLES Local trade accounts payable 7,850,582 6,193,470 Foreign trade accounts payable 41,453,827 33,816,329 Short-term inter-group payables 13,688,438 12,549,125 Other payables 55,878,651 38,102,953 118,871,498 90,661,877 F i n a n c i a l S t a t e m e n t s 76 Some items within the statement of financial position for the year ended 29 February 2012 have been reclassified. The Group reclassified certain provisions to other payables in line with the true nature of the underlying balances. This has resulted in comparatives being reclassified for 29 February 2012. Refer to note 29.1 for detailed effect of the reclassification. Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs together with credit granted on equipment purchases. The average credit period on purchases is between 7 and 30 days. The Group has financial risk management policies in place to ensure that all payables are settled within the agreed credit timeframe. Other payables comprise the accrual of certain operational expenses. 29 PROVISIONS All figures in US$ 2013 2012 Provisions - 3,466 The provisions balance comprises the following: Warranties - terminals Total Balance at 28 February 2011 1,770,816 1,770,816 Current provision (1,767,350) (1,767,350) Balance at 29 February 2012 3,466 3,466 Amount utilised (3,466) (3,466) Balance at 28 February 2013 - - 29.1 Reclassification Some items within the statement of financial position for the year ended 29 February 2012 have been reclassified. The Group reclassified certain provisions to other payables in line with the true nature of the underlying balances. This has resulted in comparatives being reclassified for 29 February 2012. The reclassification had the following impact on the statement of financial position: All figures in US$ 2013 2012 2011 Provisions As previously stated - 10,961,156 8,490,490 Reclassified to other payables - (10,957,690) (6,719,674) As currently stated - 3,466 1,770,816 Other payables Other payables as previously stated 55,878,651 27,145,263 13,910,715 Reclassified from provisions - 10,957,690 6,719,674 As currently stated 55,878,651 38,102,953 20,630,389 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 77 All figures in US$ 2013 2012 30 DEFERRED REVENUE Deferred prepaid airtime 10,127,617 7,816,891 Customer loyalty points - 2,698,277 10,127,617 10,515,168 The deferred revenue arises from the unused prepaid airtime. The Directors are of the opinion that the carrying amounts approximate the fair values of the services to be provided. 31 INTEREST-BEARING DEBT All figures in US$ 2013 2012 Opening balance 249,138,516 248,392,681 Extinguished on disposal of subsidiary - (65,788,843) Additions during the year 52,000,000 132,910,540 Net repayments (36,567,582) (66,375,862) Closing balance 264,570,934 249,138,516 Long-term portion 202,799,895 103,338,155 Short-term portion 61,771,039 145,800,362 264,570,934 249,138,517 F i n a n c i a l S t a t e m e n t s 78 31 INTEREST-BEARING DEBT (continued) 31.1 Loan repayment structure Financier Efective date Initial Facility Limit Value at Acquisition date Amounts paid to date Finance cost accrued Total loan obligation Long-term portion Short-term portion Efective Borrowing rate as at 28 Feb 13 Security terms All fgures in US$ ZTE Vendor fnancing 6-Oct-09 8,254,179 8,254,179 (7,669,507 ) 4,270 588,942 - 588,942 3.9% Equipment Purchased African Export and Import Bank/ Econet Wireless Global Limited 24-May-12 75,000,000 64,741,635 (11,842,105) 5,484,369 58,383,899 44,775,767 13,608,132 11.4% Guarantee by Econet Wireless Global Limited Econet Wireless Global Limited 30-Apr-09 93,874,135 93,874,135 (93,874,135) - - - - n/a Equipment Purchased ZTE Vendor fnancing 23-Dec-10 135,134,715 135,134,715 (135,000,000) 1,058,379 1,193,094 - 1,193,094 LIBOR +3.5% Guarantee by Econet Wireless Global Limited Ericsson Credit AB 24-May-12 39,900,000 37,115,392 (11,400,000) 4,627,669 30,343,061 20,578,686 9,764,375 5.0% Guarantee by Econet Wireless Global Limited China Development Bank 11-May-12 135,000,000 125,171,774 - 10,368,023 135,539,797 108,226,957 27,312,840 6.4% Guarantee by Econet Wireless Global Limited Industrial Development Corporation 28-Sep-12 20,000,000 17,151,454 - 1,142,437 18,293,891 15,574,950 2,718,941 6.4% Guarantee by Econet Wireless Global Limited PTA 15-Jan-13 20,000,000 19,820,000 - 408,250 20,228,250 13,643,535 6,584,715 6.2% Guarantee by Econet Wireless Global Limited Total 527,163,029 501,263,284 (259,785,747) 23,093,397 264,570,934 202,799,895 61,771,039 7.3% Refer note 36.7 for a maturity profile of financial liabilities The weighted average interest rate on long-term borrowings for the Group as at 28 February 2013 was 7.3% (2012: 4.7%). In addition to the all-inclusive rate of borrowing of 7.3% the Group pays guarantee fees of 6% per annum to EWG for the guarantee provided on the multi-creditor loan facilities. The borrowing powers of the directors are disclosed in Note 40. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 79 31.2 Summary of borrowing covenants Econet Wireless (Private) Limited and Econet Wireless Global Limited signed an agreement with Afrexim Bank on 24 November 2011 for a facility of US$130 million. US$75 million of this loan facility was applied to Econet Wireless (Private) Limited to refinance an existing bridging facility of US$63 million from the same Bank and at the same time increase the loan facility by a further US$ 12 million. This loan is part of the multi-creditor loan facilities detailed below. ZTE The facilities in the schedule above have been applied to the expansion of the cellular network. In May 2012, USD135million of the facilities was refinanced through a loan from the China Development Bank, as part of the multi-creditor loan facilities detailed below. Multi-creditor loan facilities The Company secured multi-creditor loan facilities of US$307 million from a group of financial institutions namely; Industrial Development Corporation of South Africa (IDC), Eastern and Southern African Trade and Development Bank (PTA Bank), China Development Bank (CDB) and Ericsson Credit AB (Ericsson) and a syndicate led by African Export Import Bank (Afrexim Bank), which also includes DEG, PROPARCO, FMO, TN Bank and CBZ Bank. The terms of the security package are detailed in an Inter-creditor Security Sharing Agreement, which provides for the sharing of security between the financial institutions. The multi-creditor loan facilities were used to refinance the existing loans and for further network expansion. The loans are at various interest rates and maturity periods of up to five years. The multi-creditor loan facilities contain a number of covenants, representations, and events of default typical of credit facility agreements of this size and nature, including financial covenants relating to consolidated debt (as defined) including: 1. Debt service coverage ratio (DSCR) of greater than or equal to 1.5 2. Net Interest-bearing Financial Indebtedness (NIBFI) to EBITDA ratio of less than or equal to 1.5 Debt service means, in respect of a relevant period, the short-term portion of long-term borrowings (as defined under IFRS) plus interest paid for that relevant period (as defined under IFRS). The DSCR is therefore the ratio of cash generated from operations for the relevant period, to debt service for that period. Net Interest-bearing Financial Indebtedness means, in respect of any relevant period, all short-term interest- bearing debt and long-term interest-bearing debt for that relevant period less cash and cash equivalents. The Company was in compliance with all covenants as at 28 February 2013. The Directors believe the Company will be able to continue to meet these covenant ratios during the term of the facilities. Inter-creditor and Security Sharing Agreement In terms of the agreements for the multi-creditor loan facilities between Econet Wireless Group companies and the lenders listed above - PTA, Industrial Development Corporation of South Africa, China Development Bank, Ericsson Credit AB, Afrexim Bank Syndicate - the lenders have agreed to a pool arrangement for security of their facilities. The Security Pool arrangement is contained in the Inter-creditor and Security Sharing Agreement. Afrexim Bank was appointed the “Security Agent” in terms of the Inter-creditor and Security Sharing Agreement to hold in trust security on behalf of the syndicated creditors. The role of the Security Agent is, inter alia, to mobilise the syndicate lenders, hold security on behalf of the lenders, manage the collection of debt service payments on behalf of the lenders, and enforce securities while under instruction of the lenders. Barclays Bank of Zimbabwe Limited, TN Bank Limited and Ecobank Burundi SA are the “Local Administrative Agents” to assist the Security Agent. The security pool includes the following: º An Econel vireless Privale Liniled (EvPLì Ñolarial Ceneral Covering Bond (ÑCCBì º The Securily Agenl lo be lhe loss payee on proceeds of an All·Fisk ínsurance policy covering lhe EvPL assets, and º A charge over escrow accounls eslablished as parl of lhe facilily agreenenls º Econel vireless Clobal Liniled and Slrive íasiyiwa (in his personal capacilyì have provided irrevocable guarantees to the lenders participating in the inter-creditor and security sharing agreement. F i n a n c i a l S t a t e m e n t s 80 All figures in US$ 2013 2012 32 DEPOSITS DUE TO BANKS AND CUSTOMERS 32.1 Due to banks Deposits due to other banks 3,746,651 - 32.2 Due to customers Current accounts 20,418,219 - Term deposits 12,185,841 - 32,604,060 - Total 36,350,711 - 32.3 Maturity analysis of deposits Less than 1 month 33,550,247 - 1 to 6 months 2,800,464 - 36,350,711 - 32.4 Sectorial analysis of deposits 2013 2012 US$ % US$ % Financial 3,483,942 9.6% - - Transport and telecommunications 5,331,285 14.7% - - Mining 18,800 0.1% - - Manufacturing 2,367 0.0% - - Agriculture 137,439 0.4% - - Distribution 2,883 0.0% - - Services 8,014,417 22.0% - - Government and parastatals - 0.0% - - Individuals 11,720,477 32.2% - - Other 7,639,101 21.0% - - 36,350,711 100% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 81 All figures in US$ 2013 2012 33 CASH FLOW INFORMATION 33.1 Cash generated from operations Profit before tax 204,903,243 239,129,909 Adjustments for : Depreciation 69,684,748 45,551,704 Amortisation of intangible assets 1,878,500 945,736 Bad debts written off 12,245,139 - Write off of property, plant and equipment 450,371 - Loss on disposal of property, plant and equipment 224,410 774,864 Fair value gains on financial assets at fair value through profit or loss (5,030) (2,065) Impairment of trade receivables (51,325) 19,762,148 Increase in provision for obsolete inventory - 1,600,979 Increase in other provisions - 2,543,897 Share of loss/(profit) of associate 2,930,659 (2,830,389) Gain on disposal of interest in former subsidiary - (2,941,972) Expenses paid in shares - 2,517,961 Profit on disposal of available-for-sale investments - (11,693,274) (Gain)/ Loss on fair value of investment property (15,000) 600 Net finance costs 25,946,831 8,097,366 Decrease in deferred revenue (387,551) (7,192,280) Cash generated from operations before working capital changes 317,804,995 296,265,184 33.2 Adjustments for working capital changes Increase in inventories (2,389,124) (1,621,434) Increase in trade and other receivables (17,269,302) (28,422,285) Decrease in loans and advances to bank customers 3,518,249 - Increase in trade and other payables 22,184,483 49,105,690 Decrease in deposits due to banks and customers (107,672,757) - (101,628,451) 19,061,971 Cash generated from operations 216,176,544 315,327,155 33.3 Income tax paid Opening balance of liability 8,647,819 117,493 Add: tax payable assumed on acquisition of subsidiary 325,874 - Add: current taxation charge for the year (Note 10) 41,129,194 39,047,153 Add: withholding taxes paid (Note 10) 9,806,530 5,452,499 Add: tax receivable extinguished on disposal of former subsidiary - 496,066 Less: closing balance of liability (6,812,529) (8,647,819) 53,096,888 36,465,392 F i n a n c i a l S t a t e m e n t s 82 All figures in US$ 2013 2012 33.4 Cash and cash equivalents Short-term investments 64,887 8,750,902 Bank balances and cash 78,164,741 92,042,069 78,229,628 100,792,971 Included in cash and cash equivalents are reserved and restricted cash balances of 44,964,555 7,234,206 Restricted and reserved cash balances represent amounts set aside to service future debt commitments and amounts held in trust for Ecocash customers. 34 RELATED PARTY TRANSACTIONS 34.1 Transactions Transactions with Members of Econet Wireless Global Group Sales of goods and services to associates 57,238,627 42,004,226 Sales of goods and services to subsidiaries 910,070 271,521 Purchases of goods and services from associates (49,100,180) (35,777,388) Purchases of goods and services from subsidiaries (28,810,908) (23,366,858) 34.2 Net balances Amounts owed to Members of Econet Wireless Global Group (13,258,828) (12,485,001) Amounts receivable from Members of Econet Wireless Global Group 5,968,160 3,945,637 Details of guarantees provided by the parent company are disclosed in note 31.2 34.3 Compensation of key management personnel The remuneration of directors and other members of key management during the year was as follows: Short-term-benefits 5,940,066 3,494,397 Post-employment benefits 387,500 36,437 6,327,566 3,530,834 34.4 EWG equipment supply agreement Econet Wireless (Private) Limited, a subsidiary of the Group, entered into an agreement with Econet Wireless Global Limited (EWG), a related party, for the supply of telecommunications equipment, engineering and technical services in 2009. The transaction was classified as a related party transaction requiring shareholder approval in terms of the Zimbabwe Stock Exchange Listing Requirements due to the fact that EWG is the majority shareholder of EWZL and it was also the owner of the telecommunications equipment. Shareholders approved the transaction at the Extraordinary General Meeting held on 27 March 2009. In prior year, the loan with EWG was ceded to Econet Wireless Capital Limited. As at 28 February 2013, the Company had no outstanding amounts payable to EWG. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 83 35 GROUP EMPLOYEE BENEFITS Econet Wireless Group Pension Fund The fund is a defined contribution fund. The contributions are made through monthly deduction by the Company from members’ salaries and contributions by the group companies. National Social Security Authority Scheme This is a defined contribution scheme promulgated under the National Social Security Act of 1989. The contributions are made through monthly deductions by the company from employees’ salaries and contributions by group companies. The employee deductions and the Company’s obligation under the scheme are limited to specific contributions legislated from time to time. 36 FINANCIAL RISK MANAGEMENT 36.1 Capital risk management The Group’s objectives when managing capital are: º lo safeguard lhe enlily´s abilily lo conlinue as a going concern, so lhal il can conlinue lo provide relurns for shareholders and benefits for other stakeholders, and º lo provide an adequale relurn lo shareholders by pricing producls and services connensuralely wilh the level of risk. The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt (as shown in the statement of financial position) less cash and cash equivalents. Adjusted capital comprises all components of equity other than amounts accumulated in equity relating to cash flow hedges, and includes some forms of subordinated debt. F i n a n c i a l S t a t e m e n t s 84 The debt-to-adjusted capital ratios were as follows: All figures in US$ 2013 2012 Total debt 264,570,934 249,138,517 Less: cash and cash equivalents (78,229,628) (100,792,971) Net debt 186,341,306 148,345,546 Total equity 492,883,237 382,792,915 Adjusted debt-to-capital ratio 38% 39% (i) Debt is defined as long- and short-term borrowings, as detailed in note 31. (ii) Equity includes all capital and reserves of the Group. 36.2 Financial risk management objectives The Group’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s Audit Committee, consisting of executive and non-executive directors, meets on a regular basis to analyse, amongst other matters, currency and interest rate exposures, and to re-evaluate treasury management strategies against revised economic forecasts. Compliance with Group policies and exposure limits is reviewed at quarterly Board meetings. A Loans Review Committee is also in place to review the loans structure of the Group on a regular basis. The Group has a dedicated committee of the Board which reviews the loan exposures on a regular basis and monitors repayment plans. The Group has been able to meet its obligations in the current financial period and the Directors believe that appropriate measures have been implemented to ensure that the Group has the ongoing capacity to meet its obligations arising from these exposures. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 85 36.3 Interest rate risk management Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market interest rates. The Group invests in money market instruments which are subject to changes in interest rates on the local money markets. The Group’s policy is to adopt a non- speculative approach to managing interest rate risk and to only invest in instruments that are approved by the Investments Committee of the Board of Directors. Approved funding instruments include: bankers acceptances, call loans, overdrafts, foreign loans and, where appropriate, long-term loans. The Group has borrowings that are subject to both fixed interest rates and floating interest rates. Details of the Group’s borrowings are described in note 31. The Board of Directors has a committee that is dedicated to reviewing the loan exposures and repayment plans for the Group’s external borrowings. The Committee that reviews the loan exposures meets on a regular basis and uses various models to project the Group’s risk exposures and proposes methods to deal in an appropriate manner with the risk arising. This committee also approves the term sheets for such borrowings, and ensures that the interest rate exposure of the Group is appropriately managed. The sensitivity of the Group’s statement of comprehensive income to the changes in interest rates on its material exposures is disclosed in the note below. The Directors, at the reporting date, were not aware of any information or events that may have a significant impact on the reported profit or loss of the Group or that would result in material changes in the structure of the Group’s statement of comprehensive income arising from interest rate risks Interest rate sensitivity analysis The following table demonstrates the sensitivity to a reasonably possible change in interest rates on interest-bearing debt. The interest rate sensitivity is applied on an effective interest rate of 7.3%. 2013 Adjusted Future Impact on Impact on interest interest at profit or loss: Tax equity: All figures in US$ current rate gain/(loss) effect gain/(loss) If interest rate goes up by 2% to 9.3% 43,160,200 34,116,045 (9,044,155) 2,328,870 (6,715,285) If interest rate goes down by 2% to 5.3% 23,986,442 34,116,045 10,129,603 (2,608,373) 7,521,230 2012 Adjusted Future Impact on Impact on interest interest at profit or loss: Tax equity: All figures in US$ current rate gain/(loss) effect gain/(loss) If interest rate goes up by 2% to 6.7% 26,569,182 18,463,661 (8,105,521) 2,087,172 (6,018,349) If interest rate goes down by 2% to 2.7% 10,506,334 18,463,661 7,957,327 (2,049,012) 5,908,315 F i n a n c i a l S t a t e m e n t s 86 36.4 Other price risks Other price risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in market prices (other than those arising from interest rate risk and currency risk) whether those changes are caused by factors specific to an individual financial instrument or to its issuer or factors affecting all similar financial instruments traded in that market. The Group invests in tradable securities that are quoted on the Zimbabwe Stock Exchange and maintains two portfolios for these investments: a trading portfolio and a long-term investment portfolio. The Investments Committee of the Board of Directors is responsible for evaluating investment opportunities and authorising strategic and short-term investments of the Group. This Committee consists mainly of non-executive Directors and meets regularly to evaluate the risk exposures and to propose mitigating mechanisms to limit the Group’s exposure. 36.5 Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the credit exposure is controlled by counterparty limits that are reviewed and approved regularly. Financial assets, which potentially subject the group to concentrations of credit risk, consist principally of cash, short-term deposits, trade receivables and intercarrier receivables and payables. The Group’s cash equivalents are placed with high quality financial institutions. Trade receivables are presented net of the allowance for impairment losses. Credit risk with respect to debtors is limited due to the widespread customer base and ongoing credit evaluations to maintain creditworthiness of the customers. Where appropriate, trade receivables are converted onto the prepaid service. Intercarrier receivables and payables are regulated by interconnect contracts. Intercarrier receivables and payables for foreign cellular traffic are managed through a reputable foreign finance house which ensures the net monthly outstanding amounts are collected from the foreign interconnect partners. At the reporting date, there was significant concentration of credit risk on the interconnect balances owing to the company. Refer to note 23. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 87 36.6 Foreign currency risk management Foreign currency risk is the risk that the Group may be affected adversely as a result of foreign currency fluctuations of the various currencies that the entity holds. The schedule below shows the composition of the bank and cash balances at the respective year end translated into United States dollars at the reporting date. Bank and cash balances translated into US$ Euro Rand US$ GBP Total 2013 Bank and cash balances 75,727 1,512,472 76,575,165 1,377 78,164,741 Short term deposits - - 64,887 - 64,887 Closing balance 75,727 1,512,472 76,640,052 1,377 78,229,628 2012 Bank and cash balances 38,969 1,633,493 90,366,994 2,613 92,042,069 Short term deposits - - 8,750,902 - 8,750,902 Closing balance 38,969 1,633,493 99,117,896 2,613 100,792,971 The Group maintains cash and bank balances in various currencies so that payments can be made in the currency of the respective invoices. This covers the entity against short-term foreign currency fluctuations. In addition to this the bulk of the Group’s bank and other monetary balances are United States Dollar denominated thereby minimising this risk. As at year end, the converted values of the non-US$ denominated bank and other monetary balances were minimal and insignificant to the Group, hence a sensitivity analysis has not been performed for foreign currency fluctuations. 36.7 Liquidity risk management Liquidity risk is the risk that Group companies will not have sufficient cash or cash equivalents to meet its immediate and short-term obligations. Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. On Less than 3 to 12 1 to 5 All figures in US$ demand 3 months months years Total Year ended 28 February 2013 Interest-bearing debt 2,673,013 32,409,843 67,269,718 259,345,738 361,698,312 Trade and other payables - 118,871,498 - - 118,871,498 Deposits due to banks and other customers 33,550,247 - 2,800,464 - 36,350,711 36,223,260 151,281,341 70,070,182 259,345,738 516,920,521 Year ended 29 February 2012 Interest-bearing debt 46,366,505 30,127,193 80,560,132 110,215,765 267,269,595 Trade and other payables - 79,704,187 - - 79,704,187 Deposits due to banks and other customers - - - - - 46,366,505 109,831,380 80,560,132 110,215,765 346,973,782 The disclosed financial instruments in the above table are based on the gross undiscounted cash flows. F i n a n c i a l S t a t e m e n t s 88 37 DISCLOSURES IN RESPECT OF BANKING SUBSIDIARY 37.1 TN Bank Limited statement of financial position All figures in US$ 2013 2012 ASSETS Cash and cash equivalents 25,538,011 - Financial assets at fair value through profit or loss 22,562,274 - Loans and advances to customers 119,321,627 - Financial assets held-to-maturity 1,359,110 - Other receivables 1,701,136 - Investment properties 525,518 - Property and equipment 8,113,139 - Intangible assets 2,758,965 - Deferred tax asset 3,050,311 - 184,930,091 - LIABILITIES AND EQUITY LIABILITIES Deposits due to banks and customers 103,179,792 - Loans and borrowings 4,328,149 - Derivative financial instruments 34,942 - Provisions 583,005 - Other liabilities 1,664,245 - EQUITY 75,139,958 - 184,930,091 - 37.2 Bank risk management Risk is inherent in the Bank’s activities, but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is exposed to credit risk, liquidity risk, strategic risk, reputational risk and market risk. It is also subject to country risk and various operating risks. Risk management structure The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies, policies and principles. The Board has established the Assets and Liabilities Management Committee (ALCO) and other governance committees which have the responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits . The Bank also has fully embedded the Bankwide Risk Management Framework with all significant risk types allocated to the risk control owners. Risk measurement and reporting systems Information compiled from all the businesses is examined and processed in order to analyse, control and identify risks on a timely basis. The Board receives a comprehensive risk report once a quarter which is designed to provide all the necessary information in order for them to exercise their oversight role. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 89 Excessive risk concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographical location. In order to avoid excessive concentrations of risk, the Bank’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Credit risk Credit risk is the risk that the Bank will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentrations, and by monitoring exposures in relation to such limits. The Bank has established a credit quality review process to provide early identification of possible changes in the creditworthiness of counterparties, including regular collateral revisions. Counterparty limits are established by the use of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the bank to assess the potential loss as a result of the risks to which it is exposed and take corrective action. Impairment assessments For accounting purposes, the Bank uses an incurred loss model for the recognition of losses on impaired financial assets. This means that losses can only be recognised when objective evidence of a specific loss event has been observed. Triggering events include the following: - Significant financial difficulty of the customer. - A breach of contract such as a default of payment. - Where the bank grants the customer a concession due to the customer experiencing financial difficulty. - It becomes probable that the customer will enter bankruptcy or other financial reorganisation. - Observable data that suggests that there is a decrease in the estimated future cash flows from the loans. This approach differs from the expected loss model used for regulatory capital purposes in accordance with Basel II. Individually assessed allowances: The Bank determines the allowances appropriate for each individually significant loan or advance on an individual basis, including any overdue payments of interests, credit rating downgrades, or infringement of the original terms of the contract. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance if it is in financial difficulty, projected receipts and the expected payout should bankruptcy ensue, the availability of other financial support, the realisable value of collateral and the timing of the expected cash flows. Impairment allowances are evaluated at each reporting date, unless unforeseen circumstances require more careful attention. F i n a n c i a l S t a t e m e n t s 90 Collectively assessed allowances: Allowances are assessed collectively for losses on loans and advances and for held-to-maturity debt investments that are not individually significant (including residential mortgages, government debt and unsecured consumer lending) and for individually significant loans and advances that have been assessed individually and found not to be impaired. The Bank generally bases its analyses on historical experience. However, when there are significant market developments, regional and/or global, the Bank would include macroeconomic factors within its assessments. These factors include, depending on the characteristics of the individual or collective assessment: unemployment rates, current levels of bad debts, changes in laws, changes in regulations, bankruptcy trends, and other consumer data. The Bank may use the aforementioned factors as appropriate to adjust the impairment allowances. Allowances are evaluated separately at each reporting date with each portfolio. The collective assessment is made for groups of assets with similar risk characteristics, in order to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as historical losses on the portfolio, levels of arrears, credit utilisation, loan to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and local or industry–specific problems). The approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. Local management is responsible for deciding the length of this period, which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignment with the Bank’s overall policy. Financial guarantees and letters of credit are assessed in a similar manner as for loans. Credit-related commitments risks The Bank makes available to its customers guarantees that may require that the Bank makes payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit) commit the bank to make payments on behalf of customers in the event of a specific act. Such commitments expose the Bank to similar risks to loans and are mitigated by the same control processes and policies. Analysis of maximum exposure to credit risk and collateral or other credit enhancements held Maximum Fair value of collateral and credit enhancements held Net Exposure to Listed Letters of credit Exposure to All figures US$ Credit Risk Securities Guarantees Property Other Total Credit Risk At 28 February 2013: Financial assets: Balances with other banks 20,960,934 - - - - - 20,960,934 Financial assets at fair value through profit or loss 22,562,274 - - - - - 22,562,274 Loans and advances to customers 124,044,663 - - 6,017,991 5,992,304 12,010,295 112,034,368 Financial assets held to maturity 1,359,110 - - - - - 1,359,110 Other receivables 1,701,136 - - - - - 1,701,136 Total credit risk exposure 170,628,117 - - 6,017,991 5,992,304 12,010,295 158,617,822 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 91 Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral. The Bank also obtains guarantees from parent companies for loans to their subsidiaries. Management monitors the market value of collateral, and will request additional collateral in accordance with the underlying agreement. Credit quality per industrial sector The Bank manages the credit quality of financial assets using internal credit ratings. The table below shows the credit quality by industrial sector of all financial assets exposed to credit risk, based on the Bank’s internal credit rating system. The amounts presented are gross of impairment allowances. Neither past due nor impaired Past due Grade A Grade B Grade C but not Individually High grade Standard Sub-standard impaired impaired Total All figures in US$ grade grade At 28 February 2013: Individuals 28,466,257 1,118,216 198,920 - 3,956,272 33,739,665 Mining - 35,148 - 2,306,906 2,172,295 4,514,349 Manufacturing 42,935,744 33,180 - - 1,647,330 44,616,254 Agriculture - - - - 3,131,329 3,131,329 Distribution - - - - 4,204,801 4,204,801 Services 32,546,064 846,083 6,398 54,732 2,160,253 35,613,530 103,948,065 2,032,627 205,318 2,361,638 17,272,280 125,819,928 The Bank’s concentration of risk is managed by client/counterparty, by geographical region, and by industry sector. The maximum credit exposure to any client or counterparty as of 28 February 2013 was $8.5 million. Commitments and guarantees To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognised on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Bank. The table below shows the Bank’s maximum credit risk exposure for commitments and guarantees. The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Bank could have to pay if the guarantee is called upon. The maximum exposure to credit risk relating to a loan commitment is the full amount of the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognised as a liability in the statement of financial position. F i n a n c i a l S t a t e m e n t s 92 All figures in US$ 2013 2012 Financial guarantees 40,904,200 - Commitments to lend 300,574 - 41,204,774 - Liquidity risk and funding management Liquidity risk is defined as the risk that the Bank will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Bank might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis. The Bank has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required. The Bank maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption of cash flow. The Bank places emphasis on lines of credit that it can access to meet liquidity needs. In accordance with the Bank’s policy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Bank. The most important of these is to maintain limits on the ratio of net liquid assets to customer liabilities, to reflect market conditions. The key ratios during the year were, as follows: 2013 2012 At 28 Maximum Minimum February during period during period Advances to deposits ratio 115% 99% 72% - Net liquid assets to customer liabilities ratio 25% 24% 2% - The Bank stresses the importance of current accounts and savings accounts as sources of funds to finance lending to customers. They are monitored using the advances to deposit ratio, which compares loans and advances to customers as a percentage of core customer current and savings accounts, together with term funding with a remaining term to maturity in excess of one year. Loans to customers that are part of reverse repurchase arrangements, and where the Bank receives securities which are deemed to be liquid, are excluded from the advances to deposits ratio. The Bank defines liquid assets for the purposes of the liquidity ratio as cash balances, short–term interbank deposits and highly rated debt securities available for immediate sale and for which a liquid market exists. Analysis of financial assets and liabilities by remaining contractual maturities The table below summarises the maturity profile of the undiscounted cash flows of the Bank’s financial assets and liabilities. Repayments which are subject to notice are treated as if notice were to be given immediately. However, the Bank expects that many customers will not request repayment on the earliest date the Bank could be required to pay and the table does not reflect the expected cash flows indicated by the Bank’s deposit retention history. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 93 On Less than 3 months 1 to Over All figures in US$ demand 3 months to 1 year 5 years 5 years Total At 28 February 2013: Financial assets: Cash and cash equivalents 25,538,011 - - - - 25,538,011 Financial assets at fair value through profit or loss 22,562,274 - - - - 22,562,274 Loans and advances to customers 41,676,094 1,800,000 45,980,000 36,363,834 - 125,819,928 Financial assets held- to-maturity - - - - 1,359,110 1,359,110 Other receivables - 1,701,136 - - - 1,701,136 Total undiscounted financial assets 89,776,379 3,501,136 45,980,000 36,363,834 1,359,110 176,980,459 Financial liabilities: Deposits due to banks and customers 100,379,328 2,800,464 - - - 103,179,792 Derivative financial liabilities - 34,942 - - - 34,942 Loans and borrowings - 1,796,818 1,970,453 1,313,636 - 5,080,907 Total undiscounted financial liabilities 100,379,328 4,632,224 1,970,453 1,313,636 - 108,295,641 Net undiscounted financial assets/(liabilities) (10,602,949) (1,131,088) 44,009,547 35,050,198 1,359,110 68,684,818 The table below shows the contractual expiry by maturity of the bank’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest date it can be drawn down. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. On Less than 3 months 1 to Over All figures in US$ demand 3 months to 1 year 5 years 5 years Total At 28 February 2013: Financial guarantees 40,904,200 - - - - 40,904,200 Commitments to lend 300,574 - - - - 300,574 Total commitments and guarantees 41,204,774 - - - - 41,204,774 F i n a n c i a l S t a t e m e n t s 94 The Bank expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments. Market risk Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates, and equity prices. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Board has established limits on the non–trading interest rate gaps for stipulated periods. The Bank’s policy is to monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within the established limits. Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Bank’s statement of comprehensive income. The sensitivity of the statement of comprehensive income is the effect of the assumed changes in interest rates on the profit or loss for a year, based on the variable and fixed rate financial assets and financial liabilities held. At 28 February 2013 Change in Sensitivity of Sensitivity of interest rates profit or loss Capital % US$ US$ Currency: USD +6 6,088,010 6,088,010 USD +4 4,058,673 4,058,673 USD +2 2,029,337 2,029,337 USD -2 (2,029,337) (2,029,337) USD -4 (4,058,673) (4,058,673) USD -6 (6,088,010) (6,088,010) Interest rate repricing and gap analysis The table below analyses the Bank’s interest rate risk exposure on assets and liabilities. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 95 Up to 1 1 month to 3 months Non-interest All figures in US$ month 3 months to 1 year 1 to 5 years bearing Total TOTAL POSITION At 28 February 2013 ASSETS: Cash and cash equivalents - - - - 25,538,011 25,538,011 Financial assets at fair value through profit or loss - - - - 22,562,274 22,562,274 Loans and advances to customers 41,676,094 1,800,000 45,980,000 29,865,533 - 119,321,627 Financial assets held-to-maturity - - - - 1,359,110 1,359,110 Other receivables - - - - 1,701,136 1,701,136 Investment properties - - - - 525,517 525,517 Property and equipment - - - - 8,113,139 8,113,139 Intangible assets - - - - 2,758,965 2,758,965 Deferred tax asset - - - - 3,050,311 3,050,311 41,676,094 1,800,000 45,980,000 29,865,533 65,608,463 184,930,090 LIABILITIES AND EQUITY: Deposits due to banks and customers 100,379,328 2,800,464 - - - 103,179,792 Loans and borrowings 144,549 1,594,201 1,376,703 1,212,695 - 4,328,148 Derivative financial instruments - - - - 34,942 34,942 Provisions - - - - 583,005 583,005 Other liabilities - - - - 1,664,245 1,664,245 EQUITY - - - - 75,139,958 75,139,958 100,523,877 4,394,665 1,376,703 1,212,695 77,422,150 184,930,090 Interest rate repricing gap (58,847,783) (2,594,665) 44,603,297 28,652,838 (11,813,687) - Cumulative gap (58,847,783) (61,442,448) (16,839,151) 11,813,687 - - Foreign currency exchange rate risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. In accordance with the Bank’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits. In view of the Bank’s minimal exposures to other currencies in the financial periods presented, the impact of currency fluctuations with the United States Dollar are not anticipated to have a significant impact on the Bank’s profit or loss and capital. F i n a n c i a l S t a t e m e n t s 96 Operational risk Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Bank cannot expect to eliminate all operational risks, but it endeavours to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education, and assessment processes such as the use of internal audit. Compliance risk Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or non- conformance with, laws, rules, regulations, prescribed practices, internal policies, and procedures, or ethical standards. This risk exposes the institution to fines and payment of damages. Compliance risk can lead to diminished reputation, limited business opportunities, reduced expansion potential, and an inability to enforce contracts. The Internal Audit and the Risk Department ensure that the Bank fully complies with all relevant laws and regulations. Reputational risk Reputational risk is the current and prospective impact on earnings and capital arising from negative public opinion. This affects the institution’s ability to establish new relationships or services or continue servicing existing relationships. This risk may expose the institution to litigation, financial loss, or a decline in its customer base. The Bank has a Business Development department whose mandate is to manage this risk. 37.3 Banking operations capital management The objective of the Bank’s capital management is to ensure that it complies with the Reserve Bank of Zimbabwe (RBZ) requirements. In implementing the current capital requirements, the RBZ requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets. Risk-weighted assets are arrived at by applying the appropriate risk factor as determined by the RBZ to the monetary value of the various assets as they appear on the Bank’s statement of financial position. Regulatory capital consists of: - Tier 1 Capital (“the core capital”), which comprises share capital, share premium, retained earnings (including the current year profit or loss), the statutory reserve and other equity reserves. - Tier 2 Capital (“supplementary capital”), which includes subordinated term debt, revaluation reserves and portfolio provisions. The core capital shall comprise not less than 50% of the capital base; portfolio provisions are limited to 1.25% of total risk-weighted assets. Tier 3 Capital (“tertiary capital”) relates to an allocation of capital to meet market and operational risks. The Bank’s regulatory capital position was as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 97 Regulatory Capital 28 February 29 February All figures in US$ 2013 2012 Share capital 4,075 - Share premium 83,311,858 - Retained loss (9,539,051) - 73,776,882 - Less: Capital allocated for market and operational risk (3,397,146) - Advances to insiders (2,693,125) - Tier 1 capital 67,686,611 - Non-distributable reserve 21,936 - Portfolio provisions 1,341,139 - Tier 2 capital 1,363,075 - Total Tier 1 and 2 capital 69,049,686 - Tier 3 capital (sum of market and operational risk capital) 3,397,146 - Total Capital Base 72,446,832 - Total risk-weighted assets 171,910,374 - Tier 1 ratio 39.37% - Tier 2 ratio 0.79% - Tier 3 ratio 1.98% - Total capital adequacy ratio 42.14% - RBZ minimum requirement 12% - F i n a n c i a l S t a t e m e n t s 98 38 OPERATING LEASES 38.1 Leasing arrangements Operating leases include leases of certain buildings and sites where the Group’s base stations are located. The remaining lease terms vary between 4 months and 8 years. Various options exist for the Group to renew the leasing arrangements on expiry. 38.2 Payments recognised as an expense All figures in US$ 2013 2012 Minimum lease payments 5,689,184 5,256,644 38.3 Non-cancellable lease commitments Not later than one year 5,123,394 5,765,189 Later than one year and not later than five years 11,587,297 22,959,929 Later than five years 1,196,676 4,372,797 17,907,367 33,097,915 39 GOING CONCERN The Directors have assessed the ability of the company to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. The cellular operating licence is due to expire on the 9 th of July 2013. Nothing has come to the attention of the Directors to suggest that the licence will not be renewed. 40 BORROWING POWERS In terms of the Company’s Articles of Association, the directors may exercise the powers of the Company to borrow up to 200% of the aggregate of: - the issued share capital and share premium or stated capital of the Company and: - the distributable and non-distributable reserves, including unappropriated profits of the Company reduced by any adverse amount reflected in the statement of comprehensive income, excluding: - goodwill - revaluation reserves arising prior to 28 February of each year - provision for taxation, deferred tax, and any balance standing to the credit of the deferred tax account. The current borrowings are within the limit. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 99 41 CAPITAL COMMITMENTS All figures in US$ 2013 2012 Authorised and contracted for 44,448,403 22,039,679 Authorised and not contracted for 126,138,887 165,121,295 170,587,290 187,160,974 The capital expenditure is to be financed from internal cash generation, extended supplier credits and bank credit. 42 CONTINGENT LIABILITIES Econet Wireless (Private) Limited (“the Company” or “Econet”), First Mutual Life Assurance Company (Private) Limited (“FML”) and Trustco Mobile (Pty) Limited (“Trustco”) entered into an agreement that facilitated the launch of a mobile insurance product (Ecolife) which allowed Econet’s customers to earn free life cover by purchasing a certain amount of airtime each month. Trustco was contracted to provide the transaction facilitation system for the product and FML provided the underwriting required for this product in terms of the applicable laws and regulations for insurance contracts. The duration of the agreement, which was eighteen (18) months, commenced on 12 August 2010 and expired on 17 February 2012. As a consequence of the expiry of the agreement the Company ceased to offer the Ecolife product to its subscribers. During the tenure of the agreement a dispute arose between the parties with regards the interpretation of the agreement and the financial obligations of the parties to the agreement. The dispute is yet to be resolved and the financial implications are yet to be determined. Certain aspects of the dispute will be resolved through the courts and other aspects through mandatory arbitration as per the agreement between the parties. 43 DISPOSAL OF INTEREST IN FORMER SUBSIDIARY Disposal of interest in Data Control & Systems (1996) (Private) Limited In the prior financial year, the company entered into an agreement with Liquid Telecommunications Holdings Limited (“LTH”) in terms of which LTH agreed to subscribe for 49% of the issued share capital of Data & Control Systems (1996) (Private) Limited (“Ecoweb”), which carries out business as an internet service provider through an extensive fibre-optic infrastructure. In consideration for the allotment and issue of the shares in Ecoweb, LTH agreed to invest in the Company through the supply and fitting of fibre optic transmission equipment of a total invoice value of US$ 85.6 million, of which US$ 79.7 million will be invested through a loan and the balance of US$ 5.9 million was invested as equity in the company. Having obtained the necessary regulatory approvals, the transfer and allotment of shares and the effective date of implementation of the agreement signed with LTH was 1 March 2011. All figures in US$ 2013 2012 43.1 Consideration received Consideration received upon issue of new shares in former subsidiary - 5,903,040 F i n a n c i a l S t a t e m e n t s 100 All figures in US$ 2013 2012 43.2 Analysis of assets and liabilities over which control was lost Current assets: Inventories - 40,715 Trade and other receivables - 1,342,445 Cash and cash equivalents - 1,639,442 Non-current assets: Property, plant and equipment - 30,947,222 Intangible assets - 639,426 Current liabilities: Provisions - (35,884) Non-current liabilities Long-term loans - (373,748) Intercompany payables - (28,807,898) Deferred Tax liabilities - (929,519) Net assets disposed of - 4,462,201 43.3 Gain on disposal of interest in former subsidiary Consideration received - 5,903,040 Net assets disposed of - (4,462,201) - 1,440,839 Fair value gain recognised on disposal of interest in former subsidiary - 1,501,133 Gain on disposal - 2,941,972 44 ACQUISITION OF SUBSIDIARY 44.1 Acquisition of TN Bank Limited In a business acquisition, on 12 July 2012, the Group acquired 45% of the voting shares of TN Bank Limited, a commercial bank incorporated and registered in Zimbabwe whose principal business is to provide retail, corporate, and investment banking services in the key economic centres of Zimbabwe. This investment gave the Group significant influence over the financial and operating affairs of TN Bank and as such it was accounted for as an associate from that date, refer Note 18.2. The Group acquired a further 53.6% of the voting shares of TN Bank on 31 January 2013 bringing its total interest to 98.6%. As a result, TN Bank was consolidated as a subsidiary from that date. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 101 The Group acquired TN Bank Limited because it significantly enlarges the range of products and services that can be offered to its clients, particularly with respect to EcoCash. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of TN Bank Limited as at the date of acquisition were: Fair value recognised on All figures in US$ acquisition Assets Balances with banks and cash 17,094,485 Available for sale investments 18,795,538 Other receivables 3,266,789 Loans and advances to customers 122,839,876 Property, equipment and vehicles 8,226,563 Investment property 525,517 Deferred taxation 2,151,404 Intangible assets 2,814,494 175,714,666 Liabilities Deposits and other accounts (150,995,267) Loans and borrowings (4,483,693) Accruals and other payables (1,689,313) Taxation payable (325,874) (157,494,147) Total identifiable net assets at fair value 18,220,519 Non-controlling interest (286,062) Goodwill 6,090,632 Purchase consideration 24,025,089 The fair values of the loans and advances to customers at acquisition date were US$122 839 876. The fair values of property, equipment and vehicles at acquisition date were US$8 226 563. The gross contractual amounts of loans and advances to customers at acquisition date were US$122 839 876. The gross contractual amounts of property, equipment and vehicles at acquisition date were US$8 226 563. There was no gain or loss realised as a result of remeasurement to fair value at date of acquisition. This is because the carrying amounts of the assets acquired and liabilities assumed approximated their fair values. F i n a n c i a l S t a t e m e n t s 102 Purchase consideration USD Consideration paid Paid for in treasury shares 11,545,533 Paid for in cash 496,946 Fair value of 45% investment already held (Refer note 18.2) 11,982,610 Total consideration 24,025,089 Analysis of cash flows on acquisition: Net cash acquired with the subsidiary (included in cash flows from investing activities) 17,094,485 Consideration paid for in cash on acquisition of subsidiary (496,946) Net cash inflow on acquisition of subsidiary 16,597,539 The Group issued 2,520,589 ordinary shares as consideration for the 53.6% interest in TN Bank Limited. The fair value of the shares is the published price of the shares of the Group as at the date of offer, which was $4.58 each. The fair value of the consideration given is therefore $11,545,533. 44.2 Goodwill Goodwill arose on the acquisition of TN Bank Limited because the cost of the acquisition included a control premium. 44.3 Impact of acquisition on results of the Group Included in the profit for the year are profits amounting to US$5 574 291 attributable to additional business generated by TN Bank Limited. Revenue for the year includes US$ 1 128 381 relating to TN Bank Limited. Had the business combination been effected at 1 March 2012, the effect on the Group’s revenue and profit for the year would not have been material. 45 EVENTS AFTER THE REPORTING DATE There have been no material subsequent events after the reporting date. 46 APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the board of directors and authorised for issue on 14 May 2013. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 103 All figures in US$ 2013 2012 47 COMPANY STATEMENTS OF FINANCIAL POSITION ASSETS Non-current assets Property, plant and equipment 630,412 631,325 Investment in subsidiaries (Note 16.1) 101,177,368 34,554,795 Available-for-sale investments 1,034,308 900,000 Investment in associate 14,061,120 6,144,000 Long-term intercompany receivable 1,886,351 1,886,351 Total non-current assets 118,789,559 44,116,471 Current assets Short-term inter-company receivables 485,277 485,277 Other receivables 4,724,540 714,668 Cash and cash equivalents 4,236,695 3,233,249 Total currents assets 9,446,512 4,433,194 Total assets 128,236,071 48,549,665 EQUITY AND LIABILITIES EQUITY Share capital and reserves (3,388,829) 15,839,565 LIABILITIES Non-current liabilities Intercompany payables 128,313,235 - Current liabilities Inter-company payables - 28,044,040 Other payables 3,311,665 4,666,060 Total current liabilities 3,311,665 32,710,100 Total liabilities 131,624,900 32,710,100 Total equity and liabilities 128,236,071 48,549,665 F i n a n c i a l S t a t e m e n t s 104 Policy Notes to the Consolidated Financial Statements For the year ended 28 February 2013 A GENERAL INFORMATION A.1 The Company The Company was incorporated in Zimbabwe on 4 August 1998 and its main operating subsidiary, Econet Wireless (Private) Limited, on 23 August 1994. The address of its registered office and principal place of business is Econet Park, 2 Old Mutare Road, Msasa, Harare. The main business of the Group is mobile telecommunications and related value-added services. The ultimate holding company for the Group is Econet Wireless Global Limited which is incorporated in Mauritius. Except where specific reference is made to “the Company”, the notes disclosed in these financial statements pertain to the Group. A.2 Currency of Account These financial statements are presented in United States dollars being the functional and reporting currency of the primary economic environment in which the Group operates. B BASIS OF PREPARATION The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), the International Financial Reporting Interpretations Committee (IFRIC) interpretations and the Zimbabwe Companies Act (Chapter 24:03) and related statutory instruments. With the exceptions noted below in policy note C1 “New and Revised Standards and Interpretations- Adopted”, the accounting policies set out below have been consistently applied from the previous year and through the current year. B.2 BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 28 February 2013. Subsidiaries are consolidated from the date on which the Group obtains control and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra- group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full on consolidation. Total comprehensive income within a subsidiary is attributed to the company and the non-controlling interest even if it results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: º Derecognises lhe assels (including goodwillì and liabilities of the subsidiary º Derecognises lhe carrying anounl of any non· controlling interest º Derecognises lhe cunulalive lranslalion differences recorded in equity º Fecognises lhe fair value of lhe consideralion received º Fecognises lhe fair value of any inveslnenl retained º Fecognises any surplus or defcil in profl or loss º Feclassifes lhe parenl´s share of conponenls previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate. C ADOPTION OF NEW AND REVISED STANDARDS C.1 New and Revised Standards and Interpretations - Adopted The accounting policies adopted are consistent with those of the previous financial year, except for the following amended IFRS effective for the accounting periods beginning on or after 1 March 2012. The amended standards, described below, did not have a material impact on the financial position or performance of the Group. IAS 12 Income taxes (Amendment): The amendment introduces a rebuttable presumption that deferred tax on investment properties measured at fair value will be recognised on a sale basis, unless an entity has a business model that would indicate the investment property will be consumed in the business. If consumed, a use basis should be adopted. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. The group has rebutted the presumption as the objective of its business model is to consume substantially all of the economic benefits embodied in the investment property over time rather than through sale. As a result the Group will continue to apply the corporate income tax rate of 25.75% for the purpose of measuring deferred tax. 105 IFRS 7 Financial Instruments: Disclosures - Enhanced De-recognition Disclosure The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about the entity’s continuing involvement in derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after 1 July 2011. The Group does not have any assets with these characteristics so there has been no effect on the presentation of its financial statements. C.2 Standards issued but not yet effective at the reporting date Standards issued but not yet effective up to the date of issuance of the consolidated financial statements are listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt those standards when they become effective. The Group expects that adoption of these standards, amendments and interpretations, in most cases, will not have a significant impact on the Group’s financial position or performance in the period of initial application but additional disclosures will be required. In cases where it will have an impact, the Group is still assessing the possible impact. IAS 1 Financial statement presentation (Amendment): The amendment requires that items of other comprehensive income (OCI) be grouped into items that would be reclassified to profit or loss at a future point and items that will never be reclassified to profit or loss. This amendment does not change the nature of items that are recognised in OCI, nor does it impact the determination of whether items of OCI are reclassified through profit or loss in future periods. The amendment affects presentation only and has no effect on the Group’s financial position or performance. IAS 19 Post-employment benefits (Amendments): The amendments are effective for annual periods beginning on or after 1 January 2013. The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The more significant changes include the following: º For defned benefl plans, lhe abilily lo defer recognition of actuarial gains and losses (i.e. the corridor approach) has been removed. As revised, actuarial gains and losses are recognised in Other Comprehensive Income (OCI) when they occur. Amounts recorded in profit or loss are limited to current and past service costs, gains or losses on settlements, and net interest income (expense). All other changes in the net defined benefit asset (liability) are recognised in OCI with no subsequent recycling to profit or loss. º Objeclives for disclosures of defned benefl plans are explicitly stated in the revised standard, along with new or revised disclosure requirements. These new disclosures include quantitative information of the sensitivity of the defined benefit obligation to a reasonably possible change in each significant actuarial assumption. º Terninalion benefls will be recognised al lhe earlier of when the offer of termination cannot be withdrawn, or when the related restructuring costs are recognised under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The distinction between short-term and other long-term employee benefits will be based on expected timing of settlement rather than the employee’s entitlement to the benefits. The Group is currently assessing the possible full impact of the remaining amendments (termination benefits and definitions of short- term and long-term employee benefits) IAS 27 Separate Financial Statements (as revised in 2011): As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013 and does not impact the accounting in the Company’s separate financial statements. IAS 28 Investments in Associates and Joint Ventures (as revised in 2011): As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the F i n a n c i a l S t a t e m e n t s 106 equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after 1 January 2013 and will not have a significant impact on the Group as the Group does not have any investments in joint ventures. IAS 32 Financial Instruments: Presentation (Amendment) – Offsetting Financial Assets and Financial Liabilities: The IASB issued an amendment to clarify the meaning of “currently has a legally enforceable right to set off the recognised amounts” (IAS 32.42(a)). This means that the right of set-off: º nusl nol be conlingenl on a fulure evenl, and º nusl be legally enforceable in all of lhe following circumstances: o the normal course of business; o the event of default; and o the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendment is effective for annual periods beginning on or after 1 January 2013 and the Group is still in the process of determining how it will impact the Statement of Financial Position and Statement of Comprehensive Income upon adoption. IFRS 7 Disclosures: Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7: These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g. collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. The amendment is effective for annual periods beginning on or after 1 January 2013 and the Group is still in the process of determining how it will impact the note disclosures upon adoption. IFRS 9 Financial Instruments: Classification and Measurement: IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The Group is currently assessing the impact of adopting IFRS 9; however, the impact of adoption depends on the assets held by the Group at the date of adoption and it is not practical to quantify the effect and this will be done when the final standard including all phases is issued. IFRS 10 Consolidated Financial Statements: IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12 Consolidation – Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Therefore, IFRS 10 may change which entities are within the Group. This standard becomes effective for annual periods beginning on or after 1 January 2013 and the Group is still assessing the impact upon adoption of this new standard. IFRS 11 Joint Arrangements: IFRS 11 replaces IAS 31 and SIC-13. Joint control under IFRS 11 is defined as the contractually agreed sharing of control of an arrangement, which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 107 The reference to ‘control’ in ‘joint control’ refers to the definition of ‘control’ in IFRS 10. IFRS 11 also changes the accounting for joint arrangements by moving from three categories under IAS 31 to the following two categories: Joint operation — An arrangement in which the parties with joint control have rights to the assets and obligations for the liabilities relating to that arrangement. Joint operations are accounted for by showing the party’s interest in the assets, liabilities, revenues and expenses, and/or its relative share of jointly controlled assets, liabilities, revenue and expenses, if any. Joint venture — An arrangement in which the parties with joint control have rights to the net assets of the arrangement. Joint ventures are accounted for using the equity accounting method. The option to account for joint ventures (as newly defined) using proportionate consolidation has been removed. Under this new classification, the structure of the joint arrangement is not the only factor considered when classifying the joint arrangement as either a joint operation or a joint venture, which is a change from IAS 31. Under IFRS 11, parties are required to consider whether a separate vehicle exists and, if so, the legal form of the separate vehicle, the contractual terms and conditions, and other facts and circumstances. This standard becomes effective for annual periods beginning on or after 1 January 2013 and will have no impact on the Group as it is not party to any joint arrangements. IFRS 12 Disclosure of Interests in Other Entities: IFRS 12 includes all the disclosures that were previously required relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities as well as a number of new disclosures. An entity is now required to disclose the judgements made to determine whether it controls another entity. IFRS 12 will be effective for year ends beginning on or after 1 January 2013 and will be effective for the Group from 1 March 2013. The amendment affects disclosure only and has no effect on the Group’s financial position or performance. IFRS 13 Fair Value Measurement: IFRS 13 establishes a single framework for all fair value measurement (financial and non-financial assets and liabilities) when fair value is required or permitted by IFRS. IFRS 13 does not change when an entity is required to use fair value but rather describes how to measure fair value under IFRS when it is permitted or required by IFRS as well as providing clarification on certain areas. There are also consequential amendments to other standards to delete specific requirements for determining fair value. The Group will need to consider the new requirements to determine fair values going forward. IFRS 13 will be effective for annual periods beginning on or after 1 January 2013. Improvements to IFRS May 2012 These improvements will not have an impact on the financial position or performance of the Group, but include: IAS 1 Presentation of Financial Statements: This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the information given in the financial statements of the previous period. IAS 16 Property, Plant and Equipment This improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. IAS 32 Financial Instruments: Presentation This improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes. IAS 34 Interim Financial Reporting The amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures. F i n a n c i a l S t a t e m e n t s 108 D EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES – IAS21 Foreign currency translation The Group’s consolidated financial statements are presented in United States dollars (US$), which is also the parent company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group has elected to recycle the gain or loss that arises from the direct method of consolidation, which is the method the Group uses to complete its consolidation. i) Transactions and balances Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are re-translated at the functional currency spot rate of exchange at the reporting date. All differences arising on settlement or translation of monetary items are presented in profit or loss with the exception of monetary items that are designated as part of a hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on re-translation of non- monetary items is treated in line with the recognition of gain or loss on change in fair value of the item i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss. ii) Group companies On consolidation, assets and liabilities of foreign operations are translated into US$ at the rate of exchange prevailing at the reporting date, and their statements of profit or loss and comprehensive income are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. E BUSINESS COMBINATIONS – IFRS 3 Recognition Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. Applying the acquisition method requires (a) identifying the acquirer; (b) determining the acquisition date; (c) recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; and (d) recognising and measuring goodwill or a gain from a bargain purchase. Acquisition costs incurred are expensed. Measurement at acquisition The consideration transferred for the acquisition of a business is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 109 For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (revised) are first assessed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date and are recognised and measured at their fair values at the acquisition date, except: (i) non-current assets (or disposal groups) that are classified as held-for-sale which are recognised and measured in accordance with IFRS 5 “Non- current Assets Held-for-Sale and Discontinued Operations”; (ii) liabilities or equity instruments related to share- based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree which are measured in accordance with IFRS 2 Share- based payment transactions; (iii) deferred tax assets or liabilities which are recognised and measured in accordance with IAS 12 Income Taxes; and (iv) assets and liabilities related to employee benefits which are recognised and measured in accordance with IAS 19 Employee benefits. If the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously-held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in the business combination. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 in profit or loss. If the contingent consideration is classified as equity, it shall not be re-measured until it is finally settled within equity. Measurement of goodwill at acquisition Goodwill arising on acquisition is recognised as an asset and initially is measured at cost, being the excess of (a) the aggregate of the consideration transferred, excluding directly related expenditure, over (b) the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised less the non-controlling interest in the acquiree (measured at fair value or their proportion of the net asset). In a business combination achieved in stages ( a step acquisition), the previously-held equity interest in the acquiree is remeasured at it’s acquisition date fair value and the resulting gain or loss, if any, is recognised in profit or loss, or in other comprehensive income, as appropriate. Measurement period The measurement period begins on the acquisition date and ends as soon as the information sought about facts and circumstances that existed as of the acquisition date is available or it becomes apparent that more information is not obtainable. However, the measurement period does not exceed one year from the acquisition date. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, then provisional amounts are presented for the items for which the accounting is incomplete. During the measurement period provisional amounts are retrospectively adjusted to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. F i n a n c i a l S t a t e m e n t s 110 During the measurement period, additional assets or liabilities are recognised and presented if new information is obtained about facts and circumstances that existed at the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities at that date. Measurement period adjustments If, after re-assessment and adjustment during the measurement period, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments made against goodwill. Subsequent measurement of Goodwill After initial recognition, goodwill is measured at carrying value less any accumulated impairment losses. Impairment of Goodwill For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the business combination, irrespective of whether other assets or liabilities of the acquirer are assigned to those units. Cash-generating units to which goodwill has been allocated are tested for impairment annually or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount, then the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss is recognised in profit or loss and is not reversed in subsequent periods. Where goodwill has been allocated to a cash- generating unit and part of the operations within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. F INVESTMENTS IN ASSOCIATES – IAS 28 An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Two associated companies are recognised in these financial statements: Data Control and Systems (1996) (Private) Limited t/a Liquid Telecom Zimbabwe and TN Bank Limited (for part of the year before becoming a subsidiary company). Recognition The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held-for-sale. There are no investments in associates which are held-for- sale in these financial statements. At acquisition - initial measurement: On acquisition, the investment in associate is measured at cost. Any excess of the cost of acquisition over the Group’s share of the net fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition or a bargain purchase) is credited to profit or loss in the period of acquisition. Subsequent measurement Investments in associates are carried in the statement of financial position at cost adjusted for POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 111 post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. The statement of comprehensive income reflects the Group’s share of the results of operations of the associates. When there has been a change recognised directly in equity or in other comprehensive income of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity or other comprehensive income. Intra-group transactions Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. Impairment Since goodwill that forms part of the carrying amount of an investment in an associate is not separately recognised, it is not tested for impairment separately by applying the requirements for impairment testing for goodwill in IAS 36 Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever there is an indicator that the investment may be impaired. An impairment loss recognised in those circumstances is not allocated to any specific asset, including goodwill, which forms part of the carrying amount of the investment in the associate. Accordingly, any reversal of that impairment loss is recognised to the extent that the recoverable amount of the investment subsequently increases. Associate losses After the entity’s interest is reduced to zero, losses of an associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the entity resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. De-recognition Investments in associates are de-recognised when the Group disposes of the investment. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. G INTANGIBLE ASSETS - IAS 38 Intangible assets in these financial statements comprise: software held by Transaction Payment Solutions (Private) Limited, software held by Econet Wireless (Private) Limited, and software held by TN Bank Limited. Goodwill, previously recognised under intangible assets, is now disclosed under business combinations (see E above). Recognition Intangible assets are recognised when (a) it is probable that future economic benefits will flow to the entity from the intangible asset, and (b) the cost of the intangible asset can be reliably measured. Initial measurement Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Subsequent measurement Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally-generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in profit and loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and are assessed for impairment whenever there is an indication that the F i n a n c i a l S t a t e m e n t s 112 intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss as the expense category that is consistent with the function of the intangible assets. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Impairment See policy note K below. A reversal of an impairment loss is recognised immediately in profit or loss. G.1 Research and development costs Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: º The lechnical feasibilily of conpleling lhe intangible asset so that the asset will be available for use or sale º íls inlenlion lo conplele and ils abilily lo use or sell the asset º How lhe assel will generale fulure econonic benefits º The availabilily of resources lo conplele lhe asset º The abilily lo neasure reliably lhe expendilure during development During the period of development, the asset is tested for impairment annually. Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. G.2 Software and other intangible assets Software and other intangible assets comprise software held by Transaction Payment Solutions (Private) Limited, software held by Econet Wireless (Private) Limited, and software held by TN Bank Limited. The software is amortised as follows: - software held by Transaction Payment Solutions (Private) Limited is amortised over 2 to 4 years; - software held by Econet Wireless (Private) Limited is amortised over 5 years; and - software held by TN Bank Limited is amortised over 4 years. De-recognition An intangible asset shall be de-recognised: (a) on disposal; or (b) when no future economic benefits are expected from its use or disposal. The gain or loss arising from the de-recognition of an intangible asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. The gain or loss is recognised in profit or loss when the asset is derecognised. H BORROWING COSTS - IAS 23 (revised) Borrowing costs that are directly attributable to the acquisition, construction or production of a POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 113 qualifying asset are capitalised. Where borrowing costs are not capitalised, they are expensed through profit or loss. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. The main qualifying asset during the year was network equipment and the related base stations. If the carrying amount or ultimate cost of the qualifying asset exceeds its recoverable amount or net realisable value, then the carrying amount is impaired accordingly. Recognition The Group begins capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions: (a) it incurs expenditures for the asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale. During the year, there were no qualifying assets whose construction began pre-2009. Measurement Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. Where funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. Where funds are borrowed generally and are used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to the Group’s borrowings that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalised during a period shall not exceed the amount of borrowing costs incurred during that period. Cessation of borrowing costs Capitalisation of borrowing costs is suspended during extended periods in which active development of a qualifying asset is suspended. Capitalising borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. When the construction of a qualifying asset is completed in parts and each part is capable of being used while construction continues on other parts, then capitalisation of borrowing costs ceases on each part when substantially all the activities necessary to prepare that part for its intended use or sale are completed. The Group’s projects are integrated projects, consequently it has been determined that qualifying assets need to be complete before any part can be used and capitalisation continues until all parts of the project are complete. I PROPERTY, PLANT AND EQUIPMENT (PPE) - IAS 16 Property, plant and equipment are tangible assets that (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and (b) are expected to be used for more than one financial period. Recognition PPE is recognised as an asset when (a) it is probable that future economic benefits associated with the item will flow to the entity and (b) the cost of the item can be reliably measured. F i n a n c i a l S t a t e m e n t s 114 Measurement Initial measurement Property, plant and equipment is initially stated at cost. Such cost includes the cost of replacement parts of the property, plant and equipment, and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. The present value of the expected cost for the decommissioning of an asset after the end of its useful life is included in the cost of the asset if the recognition criteria for a provision are met. Assets in the course of construction for production or for other purposes not yet determined (capital work- in-progress) are carried at cost less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs (see policy note G above). Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for intended use. Repairs and maintenance costs are recognised in profit or loss as incurred. Subsequent measurement Property, plant and equipment is subsequently measured at cost less subsequent depreciation and accumulated impairment charges. (See also note K on Impairment of PPE.) Depreciation The depreciable amount of an asset is its cost less its residual value. Depreciation is charged so as to write off the depreciable amounts of assets over their estimated useful lives, using the straight line method, as follows: Buildings - 40 years Network equipment - 3 to 25 years Beverage plant and equipment - 25 years Office equipment - 4 to 10 years Motor vehicles - 4 to 5 years The residual value of an asset is the estimated amount that would be obtained at the reporting date from disposal of the asset, after deducting disposal costs, if the asset was already of the age and in the condition expected at the end of its useful life. The estimated useful lives, depreciation periods, and residual values of the assets are reviewed at each financial year end and, if expectations differ from expectations at the end of the previous financial year, the changes are accounted for as a change in accounting estimate according to IAS 8 (Accounting Policies, Changes in Estimates and Errors). The method of depreciation of the assets is reviewed at each financial year end and, if a different method gives rise to a more accurate depreciation charge, the changes resulting from the change in method are accounted for as a change in accounting estimate according to IAS 8 (Accounting Policies, Changes in Estimates and Errors). Depreciation is charged to profit or loss. De-recognition of PPE PPE is de-recognised when; (a) the asset is disposed of or retired from use, or (b) when no future economic benefits are expected from its use or disposal. The gain or loss arising on de-recognition of PPE is the difference between the net disposal proceeds, if any, and the carrying value of the asset. The gain or loss is included in profit or loss at the time the item is de-recognised. POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 115 Impairment of PPE See policy note K below. J INVESTMENT PROPERTIES - IAS 40 Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties still being developed are also classified in accordance with the provisions of IAS 40. Investment properties in these financial statements comprise industrial and residential properties leased to third parties. Recognition Investment properties are recognised when: (a) it is probable that future economic benefits associated with the investment property will flow to the entity, and (b) the costs of the acquisition or construction of the investment property can be reliably measured. Investment property is also recognised when a fixed property is transferred from property, plant and equipment to investment property because of a change in use. Measurement Initial measurement Investment property is measured initially at its cost. If an owner-occupied property becomes an investment property that will be carried at fair value, IAS 16 is applied up to the date of change in use. At that date, any difference between the carrying amount of the property in accordance with IAS 16 and its fair value is treated in the same way as a revaluation in accordance with IAS 16. Subsequent Measurement Subsequently, investment property is stated at its fair value as determined by independent professional valuers. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise. De-recognition An investment property is de-recognised either: (i) on disposal, when withdrawn from use or when no future economic benefits are expected from its continued use or disposal; or (ii) when an investment property is transferred to property, plant and equipment because of a change in use. Gains or losses on disposal or retirement of investment properties are measured as the difference between the net disposal proceeds and the carrying amount of the asset at the date of disposal or retirement. Gains or losses on de-recognition of investment property are recognised in profit or loss. Impairment See section K below. K IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, OF INVESTMENT PROPERTY CARRIED AT COST, AND OF INTANGIBLE ASSETS - IAS 36 (Impairment of Financial Instruments is set out in Section R.1.5.) The residual values of property, plant and equipment, of investment property carried at cost and of intangible assets are reassessed each year taking into account age, usage and obsolescence. The carrying amount is compared to its recoverable amount. Recoverable amount is the higher of an asset’s or a cash-generating unit’s fair value less costs to sell and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In determining the value in use of assets, expected cash flows are discounted to their present values using risk-adjusted pre-tax discount rates, and taking account of all relevant known factors. Value in use is estimated after taking account of all relevant factors, particularly reasonable and supportable cash flow projections under prevailing F i n a n c i a l S t a t e m e n t s 116 economic conditions; most recent management budgets/forecasts up to 5 years forward; estimated asset useful lives and residual values; and other related and relevant factors. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. This write-down is an impairment loss and is recognised in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash- generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. L LEASES - IAS 17 A lease is an agreement in which the lessor conveys to the lessee, in return for payment, the right to use an asset for an agreed period of time. A finance lease is a lease that transfers substantially all the risks and rewards of ownership of an asset to the lessee. Assets under finance leases are accounted for under IAS 16 PPE (see policy note I above). An operating lease is a lease which is not a finance lease. All the risks and benefits of ownership are effectively retained by the lessor. The Group only has operating leases, as both lessor and lessee. The Group as Lessor Lease income from operating leases is recognised on a straight-line basis over the lease term. The Group as Lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which the economic benefits from the leased assets are consumed. M INVENTORIES - IAS 2 Inventories are assets (a) held-for-sale in the ordinary course of business; (b) in the process of production for such sale; or (c) to be consumed in the production process or the rendering of services. The main categories of inventory recognised in the financial statements are (a) Merchandise comprising calling cards, handsets, accessories and simcards and (b) Spares, stationery, raw materials, and containers. Measurement Inventories are measured at the lower of cost or net realisable value. Cost comprises all costs necessary to bring the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs incurred in the marketing, selling or distribution, where applicable. The basis of determining cost is the weighted average method. Impairment Write-downs to net realisable value and inventory losses are expensed in the period in which they occur. POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 117 Obsolete and slow-moving inventories are identified and written down to their estimated realisable value. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is accounted for as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. De-recognition Inventories are de-recognised when they are sold, and the carrying amount is recognised as an expense in the period in which the related revenue is recognised. N REVENUE - IAS 18 Recognition and measurement Revenue, which excludes Value Added Tax, cash discounts and sales between Group companies, represents the invoiced value of goods and services supplied by the Group. The Group measures revenue at the fair value of the consideration received or receivable. Revenue is recognised only when it is probable that economic benefits associated with the transaction will flow to the Group and the amount of revenue and associated costs incurred can be measured reliably. If necessary, revenue is split into separately identifiable components. Telecommunications N.1 Contract products Connection fees Revenue is recognised on the date of activation. Access charges Revenue is recognised in the period to which it relates. Airtime Revenue is recognised on the usage basis. N.2 Pre-paid products Airtime Revenue is recognised when a customer utilises the airtime, at which point the risks and rewards have been transferred. Upon purchase of an airtime voucher the customer receives the right to make outgoing voice calls, use the short message service and download internet data to the value of the voucher. Revenue is deferred until such a time as the customer uses the airtime. Starter packs Revenue is recognised on the date all risks and rewards associated with the starter-packs are transferred to the purchaser which is on the date of purchase. N.3 Internet services Subscriptions Subscriptions revenue is recognised on a straight- line basis over the period of the subscription. Services Revenue is recognised on the accrual basis in accordance with the substance of the agreement. N.4 Automated transaction services Software and hardware sales Revenue is recognised when goods are delivered and ownership has passed. Service revenues Revenue is recognised on the accrual basis in accordance with the substance of the agreement. N.5 Interconnect services Interconnect services revenue is recognised when the service is rendered. F i n a n c i a l S t a t e m e n t s 118 N.6 Other revenue and income Other sales Revenue is recognised on the date all risks and rewards associated with the sale are transferred to the purchaser. Services Revenue is recognised on the accrual basis in accordance with the substance of the agreement. Interest income and expense For all financial instruments measured at amortised cost, interest-bearing financial assets classified as available-for-sale, and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR method. EIR (Effective Interest Rate) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Interest income’ for financial assets and ’Interest expense’ for financial liabilities. However, for a reclassified financial asset for which the Bank subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Banking fee and commission income The bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories: Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis. Fee income from providing transactions services Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria. Non-interest income from financial instruments Results arising from trading activities include all gains and losses from changes in fair value and related interest income or expense and dividends for financial assets and financial liabilities ‘held for trading’. This includes any ineffectiveness recorded in hedging transactions. POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 119 Dividend income Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. O TAXATION - IAS 12 Income tax expense represents the sum of the tax currently payable and deferred tax. O.1 Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. O.2 Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are not recognised if temporary differences arise from goodwill or from initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is calculated at the tax rates that are expected to apply in the periods when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited to other comprehensive income or directly to equity, in which case the deferred tax is also dealt with in other comprehensive income or equity. The carrying amount of the deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised. Historical differences between forecast and actual taxable profits have not resulted in material adjustments to the recognition of deferred tax assets. O.3 Value Added Tax (VAT) Expenses and assets are recognised net of the amount of VAT, except: º when lhe lax incurred on a purchase of assels or services is not recoverable from the taxation authority, in which case the tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; or º when receivables and payables are slaled wilh the amount of tax included. The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. P EMPLOYEE BENEFITS - IAS 19 Employee benefits are all forms of benefits given in exchange for services rendered by employees. These are classified as: a) Short-term employee benefits - benefits due to be settled within 12 months after the end of F i n a n c i a l S t a t e m e n t s 120 the period in which the employees rendered the related services; b) Post-employment benefits are benefits payable after the completion of employment. Post-employment benefit plans are benefit plans which are formal or informal arrangements providing post-employment benefits for one or more employees. Such plans (or funds) may be either defined contribution funds or defined benefit funds. c) Termination benefits are employee benefits payable as a result of either the Group’s decision to terminate an employee’s employment before normal retirement date, or an employee’s decision to accept voluntary redundancy in exchange for those benefits. Recognition Short-term benefits The cost of all short-term employee benefits, such as salaries, employee entitlements to leave pay, bonuses, medical aid and other benefit contributions are recognised during the period in which the employee renders the related service. The Group recognises the expected cost of bonuses only when the Group has a present legal or constructive obligation to make such payment and a reliable estimate can be made. The Group’s short term employee benefits comprise remuneration in the form of salaries, wages, and bonuses. Post-employment Retirement Benefit Funds Retirement benefits are provided for Group employees through an independently administered defined contribution fund and by the National Social Security Authority (NSSA). Payments to the defined contribution fund and to the NSSA scheme are recognised as an expense when they fall due, which is when the employee renders the service. During the year the Group contributed to the Group defined contribution fund and to the NSSA scheme. Other long-term benefits Other long-term benefits are recognised as an expense when an obligation arises. The Group had no other long-term benefit commitments during the year. Termination benefits The Group recognises termination benefits as a liability and an expense when, and only when, it is demonstrably committed to either: (a) terminate the employment of an employee or group of employees before the normal retirement date; or (b) provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. Termination benefits are recognised as an expense immediately. The Group had no termination benefit commitments during the year. Measurement Short-term employee benefits All short-term employee benefits are measured at cost. Post-employment Retirement Benefit Funds The Group has no liability for Post-employment Retirement Benefit Funds once the current contributions have been paid at the time the employees render service. Termination benefits Termination benefits are measured according to the terms of the termination contract. Where termination benefits are due more than 12 months after the reporting period, the present value of the benefits is determined by reference to market yields on high quality corporate bonds at the end of the reporting period. Q SHARE-BASED PAYMENT TRANSACTIONS - IFRS 2 Equity-settled share-based payment transactions with employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. For equity-settled share-based payment transactions with employees, the fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight- POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 121 line basis over the vesting period, based on the Group’s estimate of the equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with a corresponding adjustment to the equity-settled employee benefits reserve. Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of equity instruments granted, measured at the date the entity obtains the goods or the counter-party rendered the service. R FINANCIAL INSTRUMENTS - IAS 39 Financial instruments comprise financial assets and financial liabilities. Financial instruments are those contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments, with the exception of contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements. R.1 Financial assets Financial assets are classified as either (i) cash and bank balances, or (ii) financial assets at fair value through profit or loss, or (iii) loans and receivables, or (iv) held-to-maturity investments, or (v) available-for-sale financial assets or (vi) as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets on initial recognition. The Group’s financial assets include cash and short-term deposits, trade receivables excluding prepayments, loans and advances to banking customers, and quoted and unquoted financial instruments as financial assets either held-to- maturity, available-for-sale, or at fair value through profit or loss. Each category of financial assets is dealt with in detail below. Recognition and Measurement Initial recognition A financial asset is recognised in the statement of financial position when, and only when, the company becomes party to the contractual provisions of the instrument. Initial measurement All financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Classification and Subsequent measurement The subsequent measurement of financial assets depends on their classification, as follows: R.1.1 Financial assets at fair value through profit or loss (FVTPL) The company has quoted investments that are classified as assets at fair value through profit or loss as detailed in Note 21. Financial assets are classified as at FVTPL where the financial asset is either held-for-trading or it is designated as at FVTPL. A financial asset is classified as held for trading if: º il has been acquired principally for lhe purpose of selling in the near future; or º on inilial recognilion il is a parl of an idenlifed portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or º il is a derivalive (excepl for a derivalive lhal is a financial guarantee contract or a designated and effective hedging instrument). F i n a n c i a l S t a t e m e n t s 122 A financial asset other than a financial asset held- for-trading may be designated as at FVTPL upon initial recognition if: o such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or o the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. R.1.2 Held-to-maturity investments The company has held-to-maturity financial assets as detailed in Note 17. Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the group has the positive intention to hold them to maturity. After initial measurement, held to maturity investments are measured at amortised cost using the effective interest rate (EIR) method, less impairment. The EIR amortisation is included as finance income in profit or loss for non-banking entities and as interest income from banking activities. The losses arising from impairment are recognised in profit or loss in finance costs for non-banking entities and as interest expense from banking activities. R.1.3 Available-for-sale (AFS) financial assets Available-for-sale financial assets include investments in equity and debt securities. Equity investments classified as available-for-sale are those which are neither classified as held-for- trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised in other comprehensive income and accumulated in the available-for-sale reserve in equity until the investment is de-recognised, at which time the cumulative gain or loss is reclassified through other comprehensive income into other operating income; or the investment is determined to be impaired at which time the cumulative loss is reclassified through other comprehensive income into finance costs and removed from the available- for-sale reserve. Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established. The Group evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 123 is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly. For a financial asset reclassified from the available- for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss. R.1.4 Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest rate method less any impairment. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial. R.1.5 Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if and only if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued at the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in profit or loss. Loans together with the associated allowance are written off when there F i n a n c i a l S t a t e m e n t s 124 is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in profit or loss. Available-for-sale financial investments For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss. When a decline in the fair value of an available-for- sale financial asset has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, then the cumulative loss that had been recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognised. The amount of the cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for- sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, and the reversal is recognised in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss. R.1.6 De-recognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: º lhe righls lo receive cash Hows fron lhe assel have expired; or º lhe Croup has lransferred ils righls lo receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 125 retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. R.2 Financial liabilities Financial liabilities within the scope of IAS 39 are classified appropriately as either: (i) financial liabilities at fair value through profit or loss, (ii) liabilities, loans and borrowings at amortised cost, or (iii) derivatives designated as hedging instruments in an effective hedge. The Group determines the classification of its financial liabilities at initial recognition. The Group had financial liabilities comprising trade payables and accruals, and interest-bearing debt, all classified at amortised cost. Initial measurement The financial liabilities are initially measured at fair value, net of transaction costs. Subsequent measurement Such financial liabilities are subsequently measured at amortised cost using the effective interest rate method (see R.4 below). Interest expense is recognised in profit or loss. De-recognition of financial liabilities A financial liability is de-recognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss. R.3 Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. R.4 Effective interest rate (EIR) method The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or liability, or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. R.5 Fair value of financial instruments The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include: º Using recenl arn´s lenglh narkel lransaclions, º Feference lo lhe currenl fair value of anolher instrument that is substantially the same; and º A discounled cash How analysis or olher valuation models. F i n a n c i a l S t a t e m e n t s 126 An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 20. S TREASURY SHARES – IAS 32 Treasury shares are re-acquired own equity instruments and are deducted from equity. Considerations paid or received for such equity instruments are recognised directly in equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of treasury shares. Such shares may be acquired and held by the entity or by other members of the consolidated group. In these financial statements the Group has treasury shares which are re-acquired shares of Econet Wireless Zimbabwe Limited and that Group company holds its own treasury shares. T OPERATING SEGMENTS - IFRS 8 The Group identifies segments as components of the Group that engage in business activities from which revenues are earned and expenses incurred (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The chief operating decision-maker has been identified as the Group Chief Executive Officer. Measurement of segment information The accounting policies of the reportable segments are the same as the Group’s accounting policies. Segment information has been reconciled to the consolidated annual financial statements to take account of intersegment transactions and transactions and balances that are not allocated to reporting segments. U PROVISIONS - IAS 37 Provisions are recognised when (a) the Group has a present obligation (legal or constructive) as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and (c) a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss net of any reimbursement. V NON-CURRENT ASSETS HELD-FOR-SALE - IFRS 5 Non-current assets and disposal groups are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held-for-sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. Non-current assets (and disposal groups) classified as held-for-sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Property, plant and equipment and intangible assets once classified as held-for-sale are not depreciated or amortised. POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 127 W FINANCIAL GUARANTEES In the ordinary course of business, the Group’s banking operation gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within ‘Other liabilities’) at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of comprehensive income, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recorded in profit or loss as an ‘Impairment loss expense’. The premium received is recognised in profit or loss as part of ‘Net fees and commission income’ on a straight-line basis over the life of the guarantee. X FIDUCIARY ASSETS To the extent that the Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients, the assets held in a fiduciary capacity are not reported in the financial statements, as they are not the assets of the Group. Y SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Although these estimates and assumptions are based on the Directors best knowledge of current events and actions that the Group may undertake in the future, actual results may ultimately differ from those estimates and assumptions. Y.1 Property, plant and equipment - IAS 16 Property, plant and equipment represent a significant proportion of the asset base of the Group, being 68% (75% in prior year) of the Group’s total assets in the year under review. Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to the Group’s financial position and performance. Residual values of property, plant and equipment During the year management assessed the residual values of property, plant and equipment. Residual values of each asset category have been assessed by considering the fair value of the assets after taking into account age, usage and obsolescence. These residual values are reassessed each year and adjustments are made where appropriate. The valuation methods adopted in this process involve significant judgement and estimation. Useful lives of property, plant and equipment A review of the estimated remaining lives of all network equipment was performed using the engineering expertise within the business with reference to published industry benchmarks. This review considered the following factors, at a minimum: the age of the equipment, technological advancements, current use of the equipment, and planned network upgrade programmes. The determination of the remaining estimated useful lives of the network equipment is deemed to be a significant area of judgment due to its highly specialised nature. Capitalisation of borrowing costs When capitalising borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, the matter of determining whether an asset takes a substantial period of time to get ready for its intended use, is deemed to be a significant area of judgement. In particular, where – as in the case of Econet – there are multiple financing sources for both general and specific use, allocation of borrowing costs demands significant judgement. F i n a n c i a l S t a t e m e n t s 128 Y.2 Intangible assets - IAS 38 Intangible assets include licences and development costs. These assets arise from both separate purchases and from acquisition as part of business combinations. On the acquisition of mobile network operators, the identifiable intangible assets may include licences, customer bases and brands. The fair value of these assets is determined by discounting estimated future net cash flows generated by the asset, where no active market for the assets exists. The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets. Estimation of useful life The useful life used to amortise intangible assets relates to the future performance of the assets acquired and management’s judgement of the period over which economic benefit will be derived from the asset. The basis for determining the useful life for the most significant categories of intangible assets is as follows: Y.2.1 Licences The estimated useful life is, generally, the term of the licence, unless there is a presumption of renewal at negligible cost. Using the licence term reflects the period over which the Group will receive economic benefit. For technology-specific licences with a presumption of renewal at negligible cost, the estimated useful economic life reflects the Group’s expectation of the period over which the Group will continue to receive economic benefit from the licence. The economic lives are periodically reviewed, taking into consideration such factors as changes in technology. Historically, any changes to economic lives have not been material following these reviews. Y.2.2 Capitalised software The useful life is determined by management at the time the software is acquired and brought into use and is regularly reviewed for appropriateness. For computer software licences, the useful life represents management’s view of expected benefits over which the Group will receive benefits from the software, but not exceeding the licence term. For unique software products controlled by the Group, the life is based on historical experience with similar products as well as anticipation of future events, which may impact their life, such as changes in technology. Historically, changes in useful lives have not resulted in material changes to the Group’s amortisation charge. Y.3 Impairment reviews - IAS 36 IFRS requires management to undertake an annual test for impairment of assets with indefinite useful lives and, for assets with finite useful lives, to test if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. Y.4 Provision for impairment of accounts receivable The provision for impairment is based on an estimate of the recoverability of accounts receivable and subject to estimation. Refer to note 23 for the basis of determining impairment loss provisions. Y.5 Syndicated loans Certain cash flows used in the calculation of amortised cost of the syndicated loans are based on forecast future interest rates which are subject to estimation. The interest is based on various interest arrangements on facilities with various lenders. The Syndicated loans are detailed on Note 31. Y.6 Deferred revenue Revenue for cellular network services is recognised when the airtime is utilised by the customer. The unused air time as at 28 February 2013 has been deferred from revenue until the airtime has been used by the customers. The deferred revenue portion is determined by both information technology-related checks and arithmetical formulae to identify the portion of revenue to be deferred. POLICY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 129 Y.7 Investment property - determination of fair value Where the fair value of investment property cannot be derived from an active market, they are determined using a variety of valuation techniques. The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. Assessing such variabilities and probabilities requires significant judgement. Y.8 Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values. The judgements include considerations of liquidity and model inputs such as volatility for discount rates, prepayment rates and default rate assumptions for ‘asset-backed’ securities. The valuation of financial instruments is described in more detail in Note 20. Y.9 Impairment losses on loans and advances to bank customers The Group reviews its individually significant loans and advances to bank customers at each statement of financial position date to assess whether an impairment loss should be recorded in the statement of comprehensive income. In particular, management’s judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilisation, loan-to-collateral ratios, etc.), and judgements on the effect of concentrations of risks and economic data. F i n a n c i a l S t a t e m e n t s 130 Econet is owned by one of the largest and most diverse base of shareholders on the stock exchange. As we continue to deliver value to our shareholders, we bring positive transformation to thousands of our people. 131 Our strategic business partnerships 132 Shareholder analysis 133 Corporate and advisory information 134 Financial diary 135 Notice to Members Detachable Proxy Form for Annual General Meeting Administration 131 Our strategic business partnerships The opportunities in the market have made it imperative to broaden our relationship with key partners. This has enabled the business to deliver value to stakeholders and promote accelerated growth. ENERGY pattern matched technologies inspire create express K F W B A N K E N G R U P P E Entrepreneurial Development Bank China Development Bank AFRICAN BANKING CORPORATION 132 Shareholder analysis For the year ended 28 February 2013 Consolidated Top 20 Ordinary % of Total Rank Account Name Shares Share capital 1 ECONET WIRELESS GLOBAL LIMITED 678,442,400 41.37% 2 STANBIC NOMINEES (PRIVATE) LIMITED (NNR) 313,364,650 19.11% 3 AUSTIN ECO HOLDINGS LIMITED - NNR 89,872,460 5.48% 4 OLD MUTUAL LIFE ASSURANCE COMPANY OF ZIMBABWE LIMITED 85,350,840 5.20% 5 ECONET WIRELESS ZIMBABWE LIMITED, 46,482,600 2.83% 6 BARCLAYS ZIMBABWE NOMINEES (PRIVATE) LIMITED - NNR 32,247,050 1.97% 7 TN BANK LIMITED, 32,062,960 1.96% 8 STANDARD CHARTERED NOMINEES (PRIVATE) LIMITED - NNR, 29,141,000 1.78% 9 NORTHUNDERLAND INVESTMENTS (PRIVATE) LIMITED 22,020,090 1.34% 10 FED NOMINEES (PRIVATE) LIMITED 13,101,680 0.80% 11 AMRO INTERNATIONAL HOLDINGS LTD (NNR), 12,724,800 0.78% 12 TN SECURITIES NOMINEES (PRIVATE) LIMITED 11,982,410 0.73% 13 HELLIKOP INVESTMENTS (PRIVATE) LIMITED-NNR, 10,699,010 0.65% 14 PRESSFORTH INVESTMENTS (PRIVATE) LIMITED 10,317,570 0.63% 15 ECONET EMPLOYEES BENEFICIARY TRUST 9,299,290 0.57% 16 CAPERNAUM TRUST ENDOWMENT FUND 9,229,760 0.56% 17 FIRST MUTUAL LIFE 8,796,050 0.54% 18 DATVEST NOMINEES (PRIVATE) LIMITED 8,265,330 0.50% 19 LOCAL AUTHORITIES PENSION FUND 8,083,900 0.49% 20 OLD MUTUAL ZIMBABWE LIMITED 7,841,440 0.48% OTHER SHAREHOLDERS 200,696,140 12.23% TOTAL ISSUED SHARES 1,640,021,430 100.00% Following the approval by the shareholders at the Extra Ordinary General Meeting (EGM) on 28 February 2013 for the share split of 10:1, the shares disclosed below are shown post split. Range Holders % of Holders Shares % of Shares 0 - 100 5,129 56.96% 1,245,980 0.08% 101 - 200 1,282 14.24% 1,637,590 0.10% 201 -500 1,020 11.33% 3,068,230 0.19% 501 - 1,000 548 6.09% 3,785,840 0.23% 1,001 - 5,000 599 6.65% 13,156,740 0.80% 5,001 - 10,000 137 1.52% 9,573,110 0.58% 10,001 - 50,000 190 2.11% 40,221,080 2.45% 50,001 - 100,000 37 0.41% 26,438,290 1.61% 100,001 - 500,000 37 0.41% 81,397,300 4.96% 500,001 - 1,000,000 11 0.12% 83,985,890 5.12% 1,000,001 - 10,000,000 11 0.12% 331,443,740 20.21% 1,000,001 - 10,000,000 Class A 2 0.02% 52,253,750 3.19% Above 10,000,000 1 0.01% 313,371,490 19.11% Above 10,000,000 Class A 1 0.01% 678,442,400 41.37% 9,005 100.00% 1,640,021,430 100.00% 133 Corporate and advisory information Registered Office Incorporated in the Republic of Zimbabwe Company registration number 7548/98 Econet Park, 2 Old Mutare Road Msasa Harare Zimbabwe Telephone: +263-4-486121/6 +263-91-222 500 Fax:+263- 4-486120 E-mail:
[email protected] Website: www.econet.co.zw Group Company Secretary Charles Alfred Banda Econet Park, 2 Old Mutare Road, Msasa Harare Zimbabwe Independent Auditors Ernst & Young Chartered Accountants (Zimbabwe) Registered Public Auditors Angwa City Cnr Julius Nyerere Way, Kwame Nkrumah Avenue Harare Zimbabwe Principal Bankers African Export-Import Bank Limited 72 (B) EL Maahad EL-Eshleraky Street Opposite Merryland Park Roxy, Heliopolis, Cairo 11341 Egypt Barclays Bank Kurima House Nelson Mandela Avenue Box CY 881 Causeway Harare Stanbic Bank Stanbic Centre 59 Samora Machel Avenue Harare TN Bank Limited 2nd Floor, 101 Union Avenue Building 101 Kwame Nkrumah Avenue Harare Zimbabwe CBZ Bank Limited Union House 60 Kwame Nkrumah Avenue Harare Zimbabwe Principal legal advisors Mtetwa and Nyambirai Legal Practitioners 2 Meredith Drive Eastlea Harare Zimbabwe Registrars and Transfer Secretaries First Transfer Secretaries (Private) Limited 1 Armagh Avenue Eastlea Harare Zimbabwe 134 With all its integrated services, Econet provides innovative business solutions for every business model, from small home industry to conglomerate. Econet is one of the highest ranking Blue Chip companies on the Zimbabawe Stock Exchange. Through it’s pioneering spirit of innovation, it is inspiring budding entrepreneurs and large companies to fulfll their dreams of becoming major players on the business scene. Financial Diary 17 September 2013 Fifteenth Annual General Meeting of Shareholders, Econet Park, Harare October 2013 Interim results and analyst briefng 28 February 2014 Financial year end April 2014 Financial results and analyst briefng June 2014 Annual Report 2014 publication July 2014 Sixteenth Annual General Meeting of Shareholders, Econet Park, Harare 135 Notice to Members Notice is hereby given that the Fifteenth Annual General Meeting of the members of Econet Wireless Zimbabwe Limited will be held in the staff canteen, at the registered office of the Company at Econet Park, 2 Old Mutare Road, Msasa, Harare, Zimbabwe on Tuesday 17 September 2013 at 10.00 a. m. for the following purposes: Ordinary Business To consider and adopt the following resolutions: 1. Financial Statements To receive and adopt the financial statements for the year ended 28 February 2013, together with the reports of the directors and auditors thereon 2. Election of Directors 2.1 In accordance with Article 81 of the Company’s Articles of Association Mr Craig Fitzgerald, Ms Beatrice Mtetwa and Mr Kris Chirairo retire by rotation at the Company’s Annual General Meeting and, being eligible, offer themselves for re-election. 2.2 The following have been appointed as directors of the Company and in terms of Article 89.2 of the Articles of Association they retire at the forthcoming Annual General Meeting. Being eligible they offer themselves for election: Mr Godfrey Gomwe, Mrs Sheree Shereni and Mr Martin Edge. 3. Directors’ Remuneration To approve the fees paid to the directors for the year ended 28 February 2013. 4. Auditors 4.1 To approve the auditors’ remuneration for the previous year. 4.2 To consider re-appointing Messrs Ernst & Young Chartered Accountants (Zimbabwe) as auditors for the current year. 5. Special Business To consider and, if thought fit, to adopt, with or without amendment, the following resolutions: 5.1 As an Ordinary Resolution: Share Buy-back ”That the Company, as duly authorized by Article 10 of its Articles of Association, may undertake the purchase of its own ordinary shares in such manner or on such terms as the directors may from time to time determine, provided that the repurchases are not made at a price greater than 5% above the weighted average of the market value for the securities for the five business days immediately preceding the date of the repurchase and also provided that the maximum number of shares authorized to be acquired shall not exceed 10% (ten percent) of the Company’s issued ordinary share capital. That this authority shall expire at the next Annual General Meeting, and shall not extend beyond 15 months from the date of this resolution”. 6. Any Other Business To transact such other business as may be transacted at an Annual General Meeting. NOTE: A member of the Company entitled to attend and vote at this meeting is entitled to appoint a proxy to speak and, on a poll, vote in his/her stead. A proxy need not be a member of the Company. Proxy forms should be forwarded to reach the office of the Transfer Secretaries, or the Group Company Secretary at least 48 hours before the commencement of the meeting. By order of the Board C. A. BANDA GROUP COMPANY SECRETARY. 14 MAY 2013 136 Notes www.econet.co.zw