Blue Label Telecoms has warned shareholders that it expects headline earnings for the year ended May 2019, to be down by at least 20% from the prior year, as it tries to quantify the impact of Cell C’s financial woes on its balance sheet.
Blue Label said that its audit for the year ended May 2019 is ‘substantially complete’. However, the group said it is currently in the process of determining the valuation of its investment in Cell C, “incorporating the effects of the transactions that are currently in progress”.
“The outcome will have an impact on the carrying value of the investment, the assessment of the remaining fair values of SPV1 and SPV2 as well as the recoverability of the existing deferred tax asset within Cell C,” it said.
Blue Label led a recapitalisation of Cell C some two years ago and holds a 45% stake in the carrier. It advised on Monday (19 August), that basic, headline and core headline earnings per share for the year ended May 2019 are expected to decrease by more than 20% in comparison to the year ended May 2018.
It said that an extensive process is currently being undertaken by Cell C management to perform an assessment of the extent of the impact that the above transactions will have on its financial statements.
Accordingly, the group has pushed back its financial results, initially scheduled for publication at the end of August, to 26 September 2019.
“A further trading statement will be issued as soon as there is a reasonable degree of certainty as to the likely range within which the company’s basic, headline and core headline earnings per share which are expected to decrease,” Blue Label said.
Cell C’s financial woes
In an open letter published in early July, Cell C chief executive Douglas Craigie Stevenson said that the group is labouring under R8.9 billion ($639 million) of debt and trying to secure new funding from a consortium of investors.
The chief executive said that the company started a round of cost cuts, has frozen hiring and is reviewing its contracts, and has begun talks to delay debt payments and hired consultants to probe its business practices and advise on a restructuring.
Cell C paid R116 million in interest due to bondholders for June and a further R90 million on another funding arrangement with local banks, Craigie Stevenson said at the time. This led to further sharp declines in the share price of Blue Label on the JSE.
Cell C was also recently downgraded by ratings agency S&P Global, which announced that it had lowered its rating on Cell C to SD (selective default).