Lower Cell C value hurts Net1
Stake shrinks by $15.8m because of network operators’ troubles
Net1’s investment in SA’s third-largest mobile operator has shrunk, hurting the former distributor of social grants in the three months to December. The company said on Friday the value of its 15% stake in Cell C had been reduced by $15.8m (R216m) amid a broader decline in the valuations of mobile operators. At the end of December, its stake was worth $149m, which is slightly less than it paid for it 18 months ago.
Net1’s investment in SA’s thirdlargest mobile operator has shrunk, hurting the former distributor of social grants in the three months to December.
The company said on Friday the value of its 15% stake in Cell C had been reduced by $15.8m (R216m) amid a broader decline in the valuations of mobile operators. At the end of December, its stake was worth $149m, which is slightly less than it paid for it 18 months ago.
The group said in a quarterly earnings report the fair value adjustment loss related to Cell C
a non-cash pre-tax item –was recorded “due to lower industry comparable valuations”.
Partly because of declining voice revenues and lower data prices, as well as regulatory troubles in SA and abroad, network operators have mostly lost ground in recent months.
MTN has lost a third of its value over the past 12 months, while Vodacom has lost 29%. Telkom has bucked the trend, having risen by a third, albeit off a low base. The partially stateowned operator is said to be discussing a possible merger with Cell C, which is still grappling with a heavy debt burden.
Shares in Blue Label, which owns 45% of Cell C, fell 4.65% to R4.31 on Friday, the worst level in nearly a decade. Net1’s stock was unchanged at R45.49.
Net1 said in its report on Friday it slumped to a net loss of $63.9m in the three months to end-December 2018 as its social grants contract was wrapped up. A year before, it made a profit of $9.6m.
The company said it wanted to get its local financial inclusion business to break even by the end of June.
“This was a very difficult quarter for our company,” said Net1 CEO Herman Kotzé, who attributed the quarterly loss to the company’s rural SA business. The other transaction driven businesses remained profitable, he said.
“Currently, our primary focus is to immediately stem the losses in our SA financial inclusion operations, right-size the businesses and get them to a breakeven level by the end of this fiscal year,” Kotzé said.
“The board and management are squarely focused on reviewing all options available for the business in SA and will provide updates when there are tangible actions to report.”
He said in a conference call with investors that Net1 expected to report a group-wide loss, on an earnings before interest, taxes, depreciation and amortisation basis, of about $5m for the third quarter to the end of March.
In late January, Net1 warned of its “significant loss” for the second quarter, following a ruling by the high court in Pretoria that “reversed a portion” of an interim order made in November 2018. At the time, the court had directed the SA Social Security Agency (Sassa) to continue paying grants into the EasyPay Everywhere accounts of certain recipients.
MIGRATING GRANTS
These were recipients who had previously chosen to receive their grants in their Net1-provided EasyPay Everywhere accounts but had not submitted the required form from Sassa.
But the high court ultimately ruled Sassa was not required to pay grants into those accounts and the agency could continue migrating those grants to SA Post Office accounts.
“We are currently evaluating the options available to it, including an appeal against the judgment,” Net1 said on Friday.