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Cell C major shareholder, Blue Label Telecoms [JSE:BLU] - which bounced back to profit after removing the mobile operator from its financial statements - says a roaming agreement concluded with MTN last year, as well as a fresh capital injection, will help Cell C survive.
Blue Label was forced to write off its entire stake in Cell C in 2019, as the mobile operator’s debt problems dragged it into loss-making territory.
On Friday, Blue Label said during the release of its financial results that the implementation of the MTN agreement would result in substantial cost savings for Cell C as it would reduce its network and capex spend.
The group said a recapitalising programme for Cell C, spearheaded by CEO Douglas Craigie Stevenson, is already in process, and if it's implemented successfully, it will help Cell C with its solvency and liquidity problems. But the shareholder added that if these initiatives do not pan out as thought, Cell C’s future will be bleak.
"These ongoing matters cast significant doubt over Cell C’s ability to continue as a going concern should they not materialise. Nevertheless, management believes it is more likely than not that Cell C will continue as a going concern," wrote said Blue Telecoms in its interim results booklet, despite the fact that Cell C defaulted on an interest payment that was due in December.
Blue Label said the MTN agreement had not been implemented by the end of its financial year in November 2019. The agreement, which Cell C signed in mid-November, was still subject to satisfying certain conditions.
Blue Label Telecoms bought a 45% stake in Cell C for R5.5 billion in August 2017. But that stake was written down to zero in the company’s previous financial year, which ended on 31 March 2019. This plunged Blue Label to a core headline loss of 304.77 cents per share. In the six months to November, the value of the group’s shareholding in Cell C did not change. The company said it appointed an independent third-party valuation specialist, who - after looking at cash flow projections and other things - decided to keep it at R0.
While the group said it continued to recognise Cell C as a going concern in the results published on Friday, it said it had stopped recognising its share of further losses from the mobile operator. This is what helped Blue Telecoms swing back to profit in the six months to November, reporting R313 million in net profit from continuing operations. The group’s core headline earnings jumped to R390 million from a R128.7 million loss in November 2018.
- Compiled by Londiwe Buthelezi
