Blue Label reveals Cell C in the black

20 Oct 2016

Cell C, which trades in a distant third place in the South African cellphone market, suddenly looks a more engaging proposition after surprisingly trading in the black for the six months to end June.

Cell C's latest financial performance was detailed in a circular released on Tuesday by prepaid technology specialists Blue Label Telecoms, which has proposed acquiring a 45% stake in the debt-laden mobile operator for R5.5bn. As an unlisted company Cell C has not released financial statements for public consumption. But anecdotal evidence has suggested the company's massive debt burden has meant large operating losses over the past few years.

The circular shows that Cell C's bottom line profits saw a massive swing from a loss of more than R1.1bn in the half-year to end June 2015 to a small R2.8m profit in the interim period ending June 2016.

A summary of the previous years' financials showed Cell C reported a net loss of R5.6bn from revenues of R13bn in the year to end June 2015. The company also suffered a R4.9bn loss from revenues of R11.6bn in 2014 and a R3.5bn loss from revenues of R11.5bn in 2013. The group reported growth in revenue - up 17% to R7bn. Operating profits came in at R628m compared with a R89m loss in the corresponding period in 2015.

The circular noted the growth in revenue was attributable to an increase in service spend and equipment revenue. The prepaid segment was the main driver of growth in service spend, thanks mainly to a growth in the core customer base, significant growth in data usage and the introduction of innovative offerings. Equipment sales were buoyed by increased demand for smartphones, as well as handsets being readily available due to handset financing arrangements being implemented during the second half of 2015.

AlphaWealth asset manager Keith McLachlan - a shareholder in Blue Label - said Cell C's numbers were better than expected. "The figures show that if Cell C's balance sheet problems are resolved then the company will be on a very strong footing."

Cell C's profitable interim numbers also confirm just how desperately it needed the recapitalisation from Blue Label and its existing shareholders. The interim income statement showed finance costs of almost R1.7bn (2015: R1.4bn) with noncurrent and current borrowings topping R19bn. Cell C's total liabilities exceeded its total assets by more than R12bn.

After the Blue Label-led recapitalisation, Cell C's net debt will be reduced to R8bn.

McLachlan contended Blue Label had clinched an excellent deal in buying a commanding position in Cell C.

Source: Business Day

Source: I-Net Bridge

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