As telecommunications firm Cell C swings to a profit, the embattled group has taken another step closer to the conclusion of a long-awaited recapitalisation.

Cell C majority shareholder Blue Label Telecoms said on August 26 that the operator had reported a significant turnaround in profitability, achieving a net profit after tax of R2.45-billion during the period from June 1, 2020, to May 3, 2021, compared with a net loss after tax of R10.86-billion in the comparative period last year.

According to Blue Label, which was presenting its own financial results for the year ended May 31, 2021, Cell C’s performance was driven by the optimisation of costs and its network strategy.

“Earnings are up, margins are stabilising and there is a single-minded focus on cost management,” said Blue Label.

Cell C reported a 10% decrease in operating expenses, particularly network expenses, a 130% increase in earnings before interest and tax and a 122% increase in net income during the year under review.

Revenue for the period under review declined from R4.59-billion in the corresponding period in 2020 to R13.95-billion by May 2021.

The group achieved a 19% growth in prepaid average revenue per user to an overall R76, with a 4% year-on-year growth in customers to 12.3-million.

Cell C reiterated that it remains focused on its turnaround plan, which includes ensuring operational efficiencies, restructuring its balance sheet, implementing a revised network strategy and improving overall liquidity.

Meanwhile, the group’s recapitalisation plan has taken a significant step forward after securing funds from various banks.

The recapitalisation of the business involves confidential discussions with various stakeholders, including Cell C’s board, shareholders, financiers and professional advisers.

Blue Label subsidiary The Prepaid Company concluded a term sheet for an airtime purchase transaction with Investec Bank, First Rand Bank, acting through its Rand Merchant Bank division, and other financiers.

Cell C, in a separate statement noted that it was a positive step for its recapitalisation and is a part of the overall process and structure of a possible transaction.

The arrangement, the proceeds of which are intended to be used for the recapitalisation of Cell C, remains subject to the conclusion of all legal documentation and fulfilment of all conditions precedent under such legal documentation.

The parties will update the market in due course.