TelOne: When not even good management can save a parastatal

TelOne Zimbabwe
TelOne: Results show good management, but legacy issues a burden

Bad management has helped sink many Zimbabwean parastatals, but TelOne, the state-owned telco, shows that not even the best leadership can keep a state enterprise afloat as long as government keeps up its abuse.

TelOne’s 2018 financial results, released Friday, show a company that has managed to narrow its losses, while the results of a strategy to move the company from its fixed telephony roots and into a broadband company are beginning to show.

Yet, old legacy debts and a big government phone bill burned a hole through the company’s financials. Government owes TelOne money, while it still has to pay finance charges on debts that are two decades old.

During the year, TelOne narrowed its losses by 19.4%, from $39million in 2017 to $19.6 million in 2018. TelOne’s trade debtors’ book is still too high, despite it coming down 7% from $162 million in 2017 to $151 million in 2018. Government owes TelOne $93 million, which is 62% of what TelOne is owed.

“Delayed settlement by debtors continues to have a negative impact on the company’s ability to settle critical statutory and contractual obligations. While mindful of economic challenges being experienced by the country, we continue to implore on all clients both corporate and residential to settle their debts to allow ease of business by TelOne,” the company says.

Because government is not paying what it owes, TelOne was hit with a $8.9million penalty by Zimra for late settlement of its tax obligations.

“The company’s default on its Zimra obligations was due to liquidity challenges brought by late settlement of amounts owed by various customers who mainly include Government of Zimbabwe. The company will continue to work with Zimra and the Government for an amicable solution to clear the Zimra debt while also recovering amounts due from Government.”

A call from the past

One of TelOne’s biggest liabilities is a pile of legacy loans of US$384 million inherited from the 2000 unbundling of the Posts and Telecommunications Corporation. TelOne has had to pay finance charges of US$12.4 million of those debts.

Leaving out the legacy loan expenses, Zimra penalties and interest, the company would have incurred a narrowed loss before tax position of $380 000 in 2018, which would have been a reduction from the $10.2 million loss incurred in 2017 before legacy loan charges.

Revenue was up 62% at $79million. For the first time in three years, there is an EBIT profit of $1million from minus $4.2million, a $125% jump.

Under MD Chipo Mtasa, TelOne has spent the past few years looking to shift focus from the loss-making fixed line business on which it was founded, to become a more broadband-focused company. That plan is working; broadband, for the first time, is now contributing more to earnings than voice. Broadband accounted for 49.8% of revenue, compared to 38% in 2017. Voice is down from 60% to 49.7%.

Says TelOne: “This is in line with the strategic path the business has adopted to move from a traditional voice to a data service centric business.”

There was a 15% increase in broadband subscribers to 112,356. TelOne’s blended average revenue per user (ARPU) – a measure of how much each customer spends on the network – is $28, compared to the $5.58 average ARPU for mobile phone firms in 2018. ARPU at regional peer Telkom, a potential suitor, is about double that at TelOne.

TelOne: Risk of cut off

But progress is overshadowed by the hole in the balance sheet; the company is technically insolvent, with liabilities exceeding assets by $190 million.

Unable to pay US$25million owed to foreign creditors, TelOne is facing the real risk of being cut off from the web. TelOne owes the West Indian Ocean Cable Company (WIOCC), which runs the EASSy fibre cable that provides the bulk of TelOne’s upstream bandwidth.

“Service withdrawal will have an impact on the Company’s operations and will affect the country at large as most Government and business operations which rely on TelOne services will be negatively affected,” the company says in its latest report.

TelOne is among the firms put up for privatisation under Finance Minister Mthuli Ncube’s Transitional Stabilisation Programme. Instead of selling TelOne and mobile firm NetOne as two separate entities, Ncube wants them sold as a single entity. TelOne had already selected Price Waterhouse Coopers (PwC) as its lead advisor on its own privatisation, prior to government’s decision to have the company sold together with NetOne.

TelOne’s latest numbers would look good to investors, but the unpaid government bill and the foreign debt will keep any suitors at bay.

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