Telecommunication firm NetOne Private Limited has been found to be technically bankrupt and at risk of being unable to continue operations. A new report from the acting Auditor-General (AG), Rheah Kujinga, highlights serious financial issues facing the company.
According to the report, NetOne’s total liabilities exceeded its total assets by ZWL$32 billion in 2022. Additionally, the company’s current liabilities surpassed its current assets by ZWL$20.9 billion, compared to ZWL$20.5 billion the previous year. “These conditions indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern,” Kujinga stated. Despite these concerns, her opinion on the matter remained unmodified.
In financial terms, a company’s inability to continue as a going concern means there are significant doubts about its ability to operate and meet its obligations for at least the next 12 months. For NetOne, this period would have been the previous year. The firm has been losing active subscribers, which could indicate further vulnerabilities.
In the first quarter of 2024, NetOne recorded a 5.52% drop in active subscribers, bringing the total down to 4,017,167 from the previous quarter. The Postal and Telecommunications Regulatory Authority of Zimbabwe reported that NetOne’s market share contracted by 6.66 percentage points, dropping to 11.84% in the first quarter from the fourth quarter of last year.
Kujinga noted that the company’s liabilities exceeding assets resulted in a loss of ZWL$40 billion for the financial year ending December 31, 2022. This widened the firm’s loss-making position from ZWL$31 billion the previous year. Mobile operators, including NetOne, have cited their inability to charge cost-reflective tariffs, which hampers their ability to raise money to pay suppliers for maintenance services that are only available in foreign currency.
Part of NetOne’s financial troubles includes ineffective debt management. Kujinga pointed out that the company failed to control debt effectively during the review period. “Post-paid customer accounts with outstanding balances were not suspended 90 days after barring outgoing calls,” she said. This practice was contrary to the company’s debt management policy, which mandates the suspension of services 90 days after barring outgoing calls.
Furthermore, the AG issued an adverse opinion due to the forex conversions used for the year ending December 31, 2021. This affected the firm’s financial reporting for 2022. “The company did not restate the prior year’s financial statements in accordance with International Accounting Standard (IAS) 8,” Kujinga noted. As a result, her opinion on the current year’s financial statements was modified because of the potential residual effects of non-compliance with IAS 21 and the comparability of current period figures to the previous period. The non-compliance was considered material but not pervasive to the financial statements.
In response to the audit findings, NetOne has committed to addressing unaccounted cash deposits into its accounts. The company also plans to upgrade its software to better capture performance and data. These measures aim to improve financial management and reporting accuracy, hoping to stabilize the company’s financial standing.
NetOne’s situation highlights the broader challenges facing the telecommunications sector in Zimbabwe. Companies struggle with economic instability, currency fluctuations, and regulatory hurdles. The inability to charge cost-reflective tariffs, combined with the requirement to pay suppliers in foreign currency, puts additional pressure on operators. These challenges necessitate significant operational and financial adjustments to ensure sustainability.
