Cell C reports R8bn loss, drags down Blue Label

Samuel Mungadze
By Samuel Mungadze
Johannesburg, 26 Sept 2019
Cell C CEO Douglas Craigie Stevenson.
Cell C CEO Douglas Craigie Stevenson.

Cell C today reported a loss of R8 billion for the year ended May. The record loss places the company among the few in the country that have reported such huge losses, including Eskom, which recorded a R20 billion loss in one year.

The embattled telco’s net debt, excluding finance leases, has ballooned from R7.44 billion to R8.24 billion, which Cell C claims was driven by increased capital expenditure and working capital drawdown facilities.

EBITDA was 19% lower at R3.4 billion (2018: R4.18 billion). Net finance costs were down by 44% to R2.15 billion, mainly as a result of the lower finance costs on long-term debt and a reduction in forex losses.

During the previous financial year, the operator’s losses stood at R656 million.

The huge loss has negatively impacted Blue Label Telecoms, which holds 45% of Cell C’s shareholding. The company this morning declared a core headline loss of 304.77c per share for the same period.

Blue Label said it is evident the investment in Cell C had a significant negative impact on the group’s earnings.

However, it believes the contemplated national roaming agreement with MTN will result in substantial cost savings for Cell C by reducing network and capital expenditure.

These savings will further be enhanced on completion of an intended extensive capital restructure objective, the JSE-listed Blue Label said in a statement to shareholders.

No surprise

Cell C’s loss was expected, as it has a debt burden of some R6 billion (with interest rates as high as 17%), and has now fallen behind on payments for these services.

In the past six months, it reportedly failed to pay MTN its dues, burdening the pan-African telco with an unpaid bill of R393 million.

MTN has since written off R211 million of the amount.

Cell C has been under pressure for some time, facing myriad problems, including job stoppages, declining revenue and debt management challenges.

In June, the operator was downgraded by global rating agency Standard & Poor’s (S&P) after the operator renegotiated terms of its R1.4 billion debt.

In August, it received a downgrade for the third time by S&P for its debt profile.

In April, the agency lowered Cell C’s issuer credit rating to CCC- from CCC+, placing it deeper in trouble territory.

Last week, Cell C suffered a huge blow after two of its key shareholders were forced into a write-down of value in the telco.

The news got worse when Net1, which holds a 15% stake in Cell C, issued a statement saying it “believes the fair value of Cell C at 30 June 2019 (Net1’s fiscal year end) is nil ($0)”.

Now, Cell C says its net loss after tax includes impairments to the value of R6.2 billion.

The telco says it performed an annual impairment test on the carrying value of the property, plant, equipment and intangible assets (cash generating unit, CGU) during the 31 May 2019 period.

“The impairment was calculated at the higher of fair value, less cost to sell or the value in use. The impairments assumptions were made on the cash flows which were limited to the generation of cash by the CGU with no regard to new technology, expansionary growth or the pending recapitalisation transaction.”

Zaf Mahomed, chief financial officer of Cell C, said the year under review was bad for the company.

“The 2019 financial year has been characterised by slow growth, a volatile rand against major currencies, service issues relating to load-shedding and a continuing slowdown in the economy, which resulted in a decline in GDP in the first quarter of 2019.

“Consumer purchasing power has weakened, which, together with reduced disposable income, contributed to a lower than expected financial performance of the company.”

Still hopeful

Cell C is, however, optimistic its fortunes may change.

The telco says despite the new regulatory and legislative framework pertaining to data expiry and out of bundle usage, implemented with effect from 1 March 2019, it is still growing revenue.

Cell C CEO Douglas Craigie Stevenson remains confident Cell C will stabilise and recover.

“Our turnaround strategy is focused on ensuring operational efficiencies, restructuring our balance sheet, implementing a revised network strategy and improving our overall liquidity. Cell C has a real opportunity to address its historical performance through a focus on operations that will restore shareholder value. We are convinced our wide-ranging operational initiatives will position Cell C for long-term success,” he says.

“We believe in Cell C’s long-term prosperity, and I’m confident that we will get there. We have a customer base of almost 16 million customers, a distribution network of over 240 stores countrywide and a strong brand that has been recognised as one of the top 30 valuable brands in the country.”

Cell C says a consortium of local banks has committed to provide a liquidity platform that will allow for the recapitalisation of Cell C. In addition to the new funding facility, it says lenders have extended the maturity of an existing R1.1 billion funding facility which would have matured in August.

Mahomed adds Cell C remained focused on restructuring the balance sheet and optimising the business for long-term competitiveness.

On the corporate governance initiatives, he was comfortable the new performance-based approach ensured active steps throughout the business to align to King Code IV.