Blue Label Telecoms Integrated Annual Report 2019

Blue Label integrated annual report 2019 27 ABOUT US 1 – 21 LEADERSHIP 22 – 29 PERFORMANCE 30 – 73 GOVERNANCE 74 – 120 SHAREHOLDERS’ INFORMATION AND ADMINISTRATION 121 – IBC This is the hardest Chairman’s report I have had to write in my 25 years of serving on listed company boards. The board and executive management are acutely aware of the destruction of shareholder value caused primarily by our investment in Cell C. Together with Cell C’s trading loss and further impairment of its property, plant and equipment and an impairment of our own investment, Blue Label recorded a net loss related to Cell C of more than R6 billion. The investment in Cell C was motivated to the Board, on the basis of a defensive strategy of protecting higher margin business flow received from Cell C, the ability to extract synergistic savings and an opportunistic approach to investing in a distressed asset. The board were however concerned by the quantum of our investment in Cell C. We were very aware that we might be betting the farm. Our concerns were overcome by the subsequent due diligence conducted by international experts, and the business plans and budgets presented by the then Cell C management team. Fairly soon after our investment of R5.5 billion in Cell C and a further R750 million liquidity support to the SPV structures, it became clear that the Cell C budget plan was not being met. This lead to our re-examination of the business plan and budgets presented to us by the previous management team at Cell C, which had predicated our investment decision. It was evident that further capital would be required far sooner than initially expected. This sequence of events led to an unusually high level of board oversight in support of the concerns of Blue Label’s Executive Management. Additionally, the Cell C board conducted their own investigation, which led to the early termination of certain senior management contracts. A new management team has been appointed, and it has developed business plans that are more realistic and innovative. This turnaround strategy is starting to show encouraging results at Cell C. The transactions related to Cell C regarding the extended national roaming agreement with the MTN Group and the recapitalisation by the Buffet Consortium, are progressing well and we are likely to provide further updates to our stakeholders during the remainder of the 2019 calendar year. The Board is aware that the erosion of shareholder value as a result of the investment in Cell C has to be met by accountability and consequence senior management. The Board will initiate a management and Board reset to restore the Blue Label core business focus. The balance sheet restructuring has already begun with the disposal of non-core assets to address gearing and liquidity management. In addition, we have adopted a far more conservative risk framework and revised capital allocation policy. Blue Label has announced that it is disposing of the Blue Label Mobile group and the handset division of the 3G Group, together with unwinding a portion of the Comm Equipment Company book. The The transactions related to Cell C regarding the extended national roaming agreement with the MTN Group and the recapitalisation by the Buffet Consortium, are progressing well and we are likely to provide further updates to our stakeholders during the remainder of the 2019 calendar year. Chairman’s report