Econet Wireless Zimbabwe : Q3 Trading Update

ECONET WIRELESS ZIMBABWE LIMITED

(Incorporated in Zimbabwe on 4 August 1998 under Company registration number 7548/98)

ZSE alpha code: ECO ISIN: ZW 000 901 212 2

T R A D I N G U P D A T E

for the third quarter ended 30 November 2022

OPERATING ENVIRONMENT

The country's foreign receipts increased by almost 20% year-on-year to reach USD11.6 billion. The major contributors to improved foreign receipts were exports of USD7.6 billion and remittances from non-resident Zimbabweans of USD2.7 billion. This positively impacted the country's balance of payments account. These positive developments were achieved against the backdrop of high global inflation and heightened geopolitical uncertainty relating to the Russia-Ukraine conflict leading to an unprecedented increase in energy and food costs. Locally the continued challenges with grid power availability remains one of the biggest impediments to economic growth.

BUSINESS PERFORMANCE

We are pleased to report that the Group continues to make progress on its journey towards being a fully-fledged digital service provider (DSP). Anticipating the changing customer needs and innovating to fulfil them remains one of our core operating principles. This transformation will enhance service delivery and unlock several opportunities for our customers in fulfillment of our vision of a digitally connected future that leaves no Zimbabwean behind. Our strategy is anchored on modernising and digitalising our network.

Although the business continued to witness an increase in the demand for our services, foreign currency availability for servicing our network foreign suppliers continues to be a major challenge and has hampered our ability to implement much needed network maintenance and expansion. Overall, the local telecommunications industry has been struggling to meet the capacity and coverage demands of consumers as investment in long overdue capacity enhancements and routine maintenance remains severely contrained by the lack of access to foreign currency for our foreign network suppliers. Management continues to engage and negotiate payment terms with our network equipment vendors that take into account local business challenges.

Despite these challenges, for the 9-month period ended 30 November 2022, voice and data volumes increased by 32% and 46% respectively relative to the same period in the prevous year. In order to improve quality of service, we plan to modernize the current core network to one that is virtualized in order to increase our ability to efficiently allocate network resources. Modernization of the current know-your-client (KYC) system is also underway in line with our DSP strategy. This will include biometric detection as well as digital identification which will enable better protection for our customers against growing cyber-security risks.

Due to the unreliable national power grid, the business continues to invest in alternative power solutions in a bid to ensure network availability. As green energy solutions, such as solar and battery storage, require significant foreign currency investment, the pace of investment has remained below desired levels, thereby impacting service quality. The business has also had to continue investing in diesel engine generators in the face of sharp declines in available grid power.

REGULATORY ENVIRONMENT

During the quarter, POTRAZ, the sector regulator, authorised two separate tariff increases of 61% in September and November. Whilst these tariff reviews provided some relief in aligning operating costs with the current inflationary operating environment, they were below the inflation rate in the economy. Zimbabwe's current telecom tariffs remain below regional benchmarks, resulting in investments in the sector being undermined.

In the quarter 3 Sector Performance report, the sector regulator noted the following: "The sector will continue enabling other sectors as envisioned in Government's National Development Strategy 1 (NDS1). One main hurdle to overcome in the remainder of the year is the pressure on the profitability and overall financial sustainability of the sector. As this report has shown, although operating revenue increased in the third quarter of 2022, expenditure also rose across all subsectors. Prioritisation of the sector in terms of government expenditure, power availability, protection against vandalism, resource mobilisation, foreign currency availability amongst other issues, is pertinent."

FINANCIAL PERFORMANCE

Revenue for the 9 months period grew by 9% in inflation adjusted terms compared to the same period in the previous fiscal year. The growth was largely driven by voice and data volumes, which were however weighed down by tariffs which were below inflation.

Whilst the Company is starting to see growth in the proportion of USD demoninated sales to local customers, we have observed that other consumer facing businesses are now selling above 60% of their products and services in US dollars.

DEBENTURES

The Company has outstanding USD denominated debentures that were issued in March 2017. These debentures are due for redemption in April 2023. The Company will in due course issue a substantive announcement to debenture holders prior to the retirement date on the modalities for the redemption of these debentures.

OUTLOOK

Network maintenance and expansion remain key to ensuring service delivery to our customers. The Group will continue to pay attention to the unique challenges and opportunities presented by the current operating environment. We continue to seek opportunities to access foreign currency for which all our initiatives are dependent. As our customers demand better digital experiences in line with global trends, we will use our experience and culture of innovation to respond to these demands.

By order of the Board of Directors

C.A. Banda

Group Company Secretary

6 February 2023
Registered Office:	Registrars and Transfer Secretaries:
Econet Park, 2 Old Mutare Road	First Transfer Secretaries (Private) Limited
Msasa, Harare, Zimbabwe.	1 Armagh Avenue, Eastlea
E-mail: [e-mail]	Harare, Zimbabwe
	Directors:
Dr. J. Myers (Chairman)*,	Dr. D. Mboweni (Chief Executive Officer), Mr. R. Chimanikire (Deputy Chief Executive Officer),

Dr. J. Chimhanzi*, Mr. M. Edge*, Mr. M. Gasela*, Mr. G. Gomwe*, Miss E.T. Masiyiwa, Ms. B. Mtetwa*, Ms T. Moyo*, Mr. H. Pemhiwa*.

*Non Executive

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