Cell C boss pursues recapitalisation, freezes jobs, reviews contracts
Shares of Blue Label Telecoms, Cell C’s majority shareholder, tumbled 12% in morning trade today on the back of an open letter by the mobile operator’s interim CEO Douglas Craigie Stevenson outlining the company’s challenges.
In the letter, Craigie Stevenson says there is an acknowledgement that the company faces, and continues to face, financial and other challenges.
Craigie Stevenson was named interim group chief executive officer, effective 1 March, following the departure of Jose Dos Santos.
In August 2017, Blue Label completed Cell C's recapitalisation through a R5.5 billion investment, as well as further subscription of shares from Net1 UEPS Technologies for R2 billion.
Blue Label holds a 45% stake in Cell C, Net1 owns 15% and 10% is held on behalf of Cell C management and staff. 3C Telecommunications' shareholding is 30%.
Cell C has been under pressure for some time, facing myriad problems, including job stoppages, declining revenue and debt management challenges.
In February, Blue Label announced Cell C’s unaudited results for the year ended 31 December 2018, reflecting a R638 million loss.
Two weeks ago, the operator was downgraded by a global rating agency.
Standard & Poor’s (S&P) downgraded Cell C’s debt rating further after the operator renegotiated terms of its R1.4 billion debt.
This was the second time in the space of three months that the troubled operator had been downgraded 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; now, it has been lowered further to 'SD' (selective default) from 'CCC-'.
“We have implemented a wide range of initiatives across the business to improve and meet the requirements of the King IV Code of Corporate Governance, including driving greater transparency to the board,” Craigie Stevenson says in the open letter.
“The executive directors have had positive engagements with all major stakeholders.”
The company has appointed attorneys Bowmans to investigate any parts of the business where it suspects there may be irregular business practices, and has also hired PwC to do a full procurement audit and review of its processes.
According to Craigie Stevenson, the new executive team, along with Cell C’s new management committee, is completely aligned with the company’s priorities and has committed to ensure changes that are necessary to deliver on the new business strategy.
“We have implemented significant austerity measures and have cut costs which do not contribute to revenue-generating activities, including a review of all contracts to ensure alignment with business priorities and a hiring freeze.
“We have engaged in discussions with our staff and the company’s union in an open and transparent manner and adhering to all legal requirements.”
SA’s third largest mobile operator says it is now focusing on pursuing recapitalisation to optimise the capital structure of the business.
Craigie Stevenson says the operator is strategically positioning itself in the market.
“We are using our best efforts to be a strong participant in the industry. I firmly believe we are on the right track. The goal for Cell C is to become significantly better focused on operational performance, sound business ethics and accountability throughout the business.
“I was appointed in March 2019 as the interim CEO with the clear mandate from the Cell C board to right-size and optimise the business. There was an acknowledgement that the company faces, and continues to face, financial and other challenges.
“Our efforts to improve the financial management of the business were enhanced in December 2018 with the board appointment of a new CFO, Zaf Mahomed, who has extensive business and finance experience. The financial results for Q2 2019 are showing some promising improvements to the bottom line, based on the measures taken since March 2019 to right-size the business.”
He adds Cell C has appointed Deloitte as independent financial restructuring advisor to assist in optimising business processes.
Peter Takaendesa, senior equity investment analyst at Mergence Investment Managers, believes: “Without fresh capital injection into Cell C and assuming the South African mobile market remains challenging as we have seen over the past 12 months, I would not be surprised if Cell C’s credit rating is downgraded further.
“Fortunately, Cell C’s key shareholders understand this situation and are likely accelerating the process to inject new capital into the business. The key question will remain: is that enough or is it just patching the balance sheet as we have seen before.”
It’s been 17 years since Cell C signed up its first customer. The operator launched in November 2001, targeting 20% market share by 2006. Then-CEO Talaat Laham said the operator “will perform better than our own expectations”.
Brian Neilson, director of BMI-TechKnowledge, says: “Cell C has an ongoing challenge with historical debt that has accumulated, largely because of an unfavourable regulatory environment in the early days, prior to the introduction of more favourable termination rates a few years ago. The mix of customers on its network is also not ideal, with generally lower ARPUs.”