JSE-listed Blue Label Telecoms has successfully turned around its earnings for the year ended May 31, 2020, as Cell C’s recapitalisation deal discussions continue.
Cell C’s lengthy recapitalisation deal is likely to be concluded this year, with a term sheet expected in due course, said Blue Label joint CEO Brett Levy.
The teams have made “huge” inroads over the last three to four months to wrap up the complex agreement, which Levy deems to be “extremely” fair for all stakeholders and lenders.
“We really believe that we will recap this business this year. There is no indication why we should not recap it this year,” he said, noting that all the stakeholders over the last two months have been really cooperative to get this over the line.
The deal is being discussed with South African, US, Chinese and Lebanese banks, vendors and bondholders.
“To get everyone around the table to agree on an final umbrella agreement . . . has proven to be a lot more difficult than we envisaged and has taken a lot more time.”
However, the discussions, which started over a year and a half ago, will lead to a fair deal for stakeholders and shareholders.
“It is a fair deal for everybody, we will see how the market likes what we have done. [However] it is a really good deal for Cell C. It will give them the chance to recap this business once and for all and go ahead with their vision and strategy,” he told media during a virtual presentation of Blue Label’s financial results.
Cell C’s new strategy and vision has been implemented despite the uncertainty of the recapitalisation deal “hanging over their heads”.
“Their performance through this time has been really good. The management and the board of Cell C have really done a good job,” he added.
During the period from June 2019 to May 2020, Cell C has had a 28% reduction in customers but only 2% decline in service revenue to R13.9-billion.
Earnings before interest, taxes, depreciation and amortisation (Ebitda) grew 10% to R3.74-billion.
Cell C will update the market in the first week of October.
Cell C CFO Zaf Mahomed said that Cell C will continue to focus on its turnaround and network strategy with confidence that the deal will be delivered this year.
Meanwhile, JSE-listed Blue Label posted earnings a share and headline earnings a share of 13.89c and 58.16c respectively, a turnaround from the respective loss and headline loss a share of 727.81c and 312.49c reported in the prior year.
Core headline earnings for the year ended May 31 amounted to R562-million, equating to core headline earnings a share of 62.71c apiece, compared with the loss of R2.78-billion, equating to a loss of 304.77c a share in 2019.
Excluding negative contributions to core headline earnings of R210-million in the current year and R3.66-billion in the comparative year, core headline earnings declined by R100-million to R772-million, resulting in core headline earnings of 86.13c a share.
The decline in core headline earnings of R100-million was also partly attributable to starter pack distribution, gaming vouchers and ticketing being negatively impacted during the initial lockdown period.
The core headline earnings for the current year, after the exclusion of the negative contributions, comprised R632-million from continuing operations and R140-million from discontinued operations.
Negative contributions to the May 2020 financial results included R66-million in fair value downward adjustments of the Glocell loan and R49-million unrealised foreign exchange loss on the $20-million liquidity support provided to special purpose vehicle (SPV); R156.5-million impairments of goodwill relating to Blue Label Connect; a R57-million partial impairment relating to Glocell Distribution and the 3G Mobile handset division and the Blue Label Mobile Group discontinued operations; and extraneous expenditure and R21-million related to the goodwill impairment within the retail division as a result of the closure of the 71 WiConnect stores.
The comparative year included extraneous costs of R1.1-billion, of which R874-million pertained to fair value losses relating to SPV1, SPV2 and the Glocell loan and R193-million to guarantees payable and loan impairments recognised on behalf of Oxigen Services India.
During the year under review, gross profit contracted 2% to R2.12-billion, while gross profit margin increased from 9.21% to 10.05%.
No further fair value losses relating to the SPVs were recognised in the current year and, as the carrying value of Blue Label's investment in Cell C was fully impaired for the year ended May 31, 2019, the financial results of Cell C did not have any impact on Blue Label's earnings for the current year.
Group revenue generated contracted 10% to R21.1-billion; however, as only the gross profit earned on PINless top-ups, prepaid electricity, ticketing and gaming is recognised as revenue, imputing the gross revenue generated equated to a 7% effective growth in revenue to R59.9-billion.