PricewaterhouseCoopers has expressed a qualified audit opinion on Blue Label’s audited results for the year ended 31 May 2022 related to Cell C.
An auditor typically provides a qualified opinion when there are material misstatements within the financial statements.
Another reason is if there is insufficient evidence to conclude that specific items are not materially misstated.
In this case, the qualification arose due to PricewaterhouseCoopers’ inability to obtain sufficient and appropriate audit evidence to support Blue Label’s going concern assumption at Cell C.
In Blue Label’s financial report, its management said they believe Cell C will continue as a going concern for the foreseeable future for a few reasons. These include:
- Cell C’s concluded a national roaming agreement with MTN to optimise operating costs and reduce capital outlay. It is anticipated to positively impact the cost base and future cash flows.
- The Cell C board established a committee to monitor the operator’s liquidity and avoid reckless trading during the recapitalisation and debt restructure negotiations.
- Cell C and its shareholders appointed advisers to assist in Cell C’s liquidity monitoring and designing revised business plans that support the new operating business model.
- Cell C signed a roaming agreement with Vodacom in November 2020 to manage more scalable and cost-efficient capacity.
- Cell C embarked on a strategy to reconsider its current service offering. It identified the need to either wind down or restructure the service offering provided to its postpaid mobile base.
- Cell C started defaulting on its bond and loan facilities in 2020. However, Blue Label said it had considered the default and believes Cell C’s going concern assumption is still applicable.
- Blue Label and Cell C developed a turnaround strategy and recapitalisation programme, which included suspending debt payments, cutting costs, reducing staff, and removing non-profitable products from its portfolio.
To conclude the recapitalisation transaction, Blue Label, through The Prepaid Company (TPC), will lend Cell C R1.03 billion to pay the “20c to the rand” claims from secured lenders.
TPC will also purchase R2.4 billion in prepaid airtime from Cell C and buy certain minimum levels of prepaid airtime from Cell C per an agreed monthly schedule.
Qualified audit opinion about Cell C’s going concern assumption
PricewaterhouseCoopers (PwC) said its audit report for Blue Label from last year contained a qualified audit opinion.
That qualification arose due to its inability to obtain sufficient and appropriate audit evidence to support the going concern assumption at Cell C.
“The restructuring of the operations and capital structure of Cell C is still in progress, and the outcome thereof remains uncertain as of the date of this audit report [25 August 2022],” it said.
“As a result, we are still unable to obtain sufficient and appropriate audit evidence to support the going concern assumption for Cell C.”
It explained that the assets and liabilities of Cell C might be impaired, measured at fair value rather than cost, or written off entirely, depending on how Cell C plans to recover or settle these assets and liabilities.
The possible effect on the consolidated financial statements would be that the disclosure of the summary financial information of Cell C may require material adjustment.
In simple terms, PwC could not find sufficient audit evidence to make the assumption that Cell C would continue operating in the foreseeable future.
Daily Investor asked Blue Label for details about the qualified audit opinion, but it referred all questions to Cell C.
Cell C did not respond to the question by the time of publication.
Cell C results release date postponed
Cell C was set to present its annual results for the 2021 financial year and the interim results for the six months ended 30 June 2022 on Wednesday, 13 September.
An investor roadshow would have followed the results announcement.
However, on Tuesday, 12 September, Blue Label said the market update was postponed due to Cell C CEO Douglas Craigie Stevenson’s ill health.
It said Craigie Stevenson had been diagnosed with an upper respiratory tract infection, so the results update and investor roadshow have been postponed.
It is not clear why Cell C’s new CFO, Lerato Pule, who was appointed at the beginning of September, could not take over from Craigie Stevenson.
Pule replaced former Cell C CFO Zaf Mahomed, who left the company two weeks before their financial results release date.
Mahomed was a core part of the executive team who drove the company’s restructuring and turnaround plan.
Cell C said Mahomed left the company to pursue new opportunities.
Blue Label said new dates would be communicated to the market in due course.