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Cell C’s Financials Must Be Read with a Pinch of Salt 

Is Cell C manipulating its latest financial figures?

I recently found out that the troubled mobile phone company somehow managed to pay its workers’ outstanding bonuses and 13th cheques that were promised in March 2020.

It is commendable that Cell-C, with much-reported money troubles, paid out much-needed cash to hard-pressed workers who had been struggling under COVID-19 lockdown.

Last year on 26 September 2019, Cell C said its earnings before interest, taxation, depreciation, and amortisation (EBITDA) decreased by 19% to R3.39-billion. These financial results were for the year ended March 2019 (2018: R4.18-billion) due to the expanded network roaming agreement with MTN.  For more read: Cell C reports massive R8 billion loss

Given the dire situation Cell C reported, it boggles the mind about how and why the telco paid bonuses and 13th cheques to workers when the company said it was underperforming.

A few years ago, on 1 September 2017, Cell C also awarded employees shares in the Believe Phantom Option Shares Scheme (Believe Share Scheme), based on the company’s audited financial results for 2016. At the time, the share price was R31.06.

The base EBITDA of R3, 106 billion was determined using accounting policies in 2016. The R3,39 billion EBITDA reported in September 2019 was above the base EBITDA and as such workers deserved their bonuses and the 13th cheque paid to them.

This year in March, Cell C sent an internal communication confirming that stretched EBIDTA had been reached. Workers would hence be paid a 13th cheque and top-up.

In an internal memo written by Chief Human Resources Officer Juba Mashaba, Cell C said despite prevailing liquidity challenges faced by the company, the board had approved salary hikes.

“Annual salary increases for the Senior Leadership Team to be implemented effective from March 2020. These payments will be processed in the normal salary payroll with payment date being 25 March,” Mashaba wrote.

“The payment of short-term incentives to the Senior Leadership Team including the Exco to be paid in installments over three months (March, April, and May) in light of the prevailing cash-flow constraints.

“As previously communicated, the pay-out of the 13th Cheque and where applicable, the Top-Up, will be made over three months (March, April, and May) in light of the prevailing cash-flow constraints.

“The payment of a top-up will be made to eligible employees (excluding commission earners) within the bargaining unit who achieved a performance rating of ‘On Target’ or higher.”

Believe Share Scheme

However, last Sunday Cell C sent a letter to the Information Communication Technology Union (ICTU) – an affiliate of the South African Federation of Trade Unions (SAFTU), which is led by Zwelinzima Vavi.

Cell C said it had set the first vesting date for 1 September 2020 for the Believe Share Scheme.

“We tasked external auditors to assess the value of the Believe Share Scheme using the terms and conditions that prevailed at the inception of the scheme, particularly as our profit targets linked to this share scheme were not met,” says a letter signed by Prince Mphogo, Cell C’s executive: employee relations.

“The aim was to incentivise extraordinary business performance at all levels throughout the business and it was subject to the company achieving its eight-year business plan with a year-on-year increase in EBITDA allowing participants to reap the economic benefit of the subsequent growth over this period.”

While Mphogo is junior to Mashaba, the Cell C’ Chief Human Resources Officer, it is strange that his letter overrides an earlier one by his senior.

“The EBITDA has decreased over the period and is lower than the initial issue value of R3 106 billion,” wrote Mphogo.

He further revealed that EBITDA for 2020 was R2.38 billion. See below figures as revealed in a letter written by Mphogo.

The external auditors confirmed that the calculation performed is a reflection of the terms and conditions at the inception of the scheme,” Mphogo informed ICTU.

“Based on the EBITDA results to date, the Believe Share Scheme has regrettably not met the required performance conditions. This means no value accrued over the period and no amounts are payable to participants.”

But why did Cell C report to the media that its EBITDA decreased by 19% to R3.39-billion for the year ended-March 2019?

Was the company misleading the public?

Cell C initially informed the public that its EBITDA for 2019 was sitting at R3,39 billion, but the sole union representing workers have been told EBITDA was below the threshold of R3,1 billion.

EBITDA, the union was told, came in at R2,4 billion.

Cell C is not a listed entity. This makes it difficult to pin them down on what the correct financial position of the company is.

To make things more complicated, Cell C’s main shareholder, JSE-listed firm Blue Label Telecoms, has written down its investment to zero.

Not surprisingly, the union has sought clarity.

In a letter to Cell C HR boss Mashaba, the ICTU says: “There seems to be confusion created by Cell C management with regards to issues of EBIDTA, which one would not want to comment on because as ICTU, we need proper clarity.

“You will recall that on the 31 January 2020, you issued an internal communication relating to the negotiations with ICTU and that the 13th cheque payment is subject to stretched EBIDTA reached.

“Fast forward to March 2020, you send an internal communication confirming that stretched EBIDTA is reached hence the payment of the 13th cheque and top-up.”

ICTU is already battling Cell C, demanding the troubled company withdraw retrenchment notices served to employees in June.

Is it possible that Cell C is involved in selective disclosure of information while keeping other parts secret?

Cell C response

TechFinancials was not able to contact Cell C, but in a previous communication in April with the then newly appointed spokesperson Lethiwe Hlatshwayo stated in an email that: “I have noted your query. Being new to the communications function at Cell C, I am still familiarising myself with all the details, including understanding our media targets”.

Thereafter, TechFinancials was blacklisted and removed from the Cell C media list to receive press statements and invites to events.

We have written several stories about Cell C’s finances in the past and not once did they dispute our stories or sue.

Read more exclusive stories here that you cannot find in embedded media.

ICTU Response

TechFinancials has seen a copy of a letter ICTU sent to Cell C regarding the 13th cheque and bonus shares that vest at the end of August.

“Unfortunately what transpired in March, Cell C through their Chief of HR confirmed that targets were met and the board had approved payments of 13th cheque and what they called a top-up,” said the ICTU letter.

“Remember in January, the very Chief Of HR, had said the trigger to pay the above is if EBIDTA is met, fortunately, employees worked hard and a stretched EBIDTA was met,” said Origenous Mogoatlhe, ICTU deputy president.

“We are in the dark and it needs to be clear who is fooling who here.”

“The question still remains, what’s going on at Cell C … they don’t engage ICTU … we are the majority union and have full organisational rights?” – lourie@techfinancials.co.za 

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