Profits tank for Cell C owner Blue Label

Blue Label Telecoms’s financials have been severely affected by the recapitalisation of Cell C and the effects of load shedding on the group’s operations.

In its audited results for the year ended 31 May 2023, the group’s total revenue grew from R17.8 billion in FY22 to R18.9 billion in FY23.

However, the group’s core headline earnings dropped over 60% from R1.061 billion (121.01 cents per share) in FY22 to R402 million (45.55 cents per share) in FY23.

Although the group’s core business operations continued to grow revenues and profits, the group’s headline earnings per share were significantly limited by the recapitalisation transaction of Cell C, which was completed in September 2022.

Load shedding also had an extremely negative impact on the group’s prepaid electricity, prepaid airtime starter packs and the group’s call centre operations, which provide a significant revenue stream for the group.

“The frequent power outages imposed by external factors have adversely affected our operational efficiency, resulting in disruptions, delays, and additional costs,” the group said.

“While the management team has worked diligently to mitigate the effects of load shedding, it has disrupted the availability and accessibility of these essential services to our customers and has negatively affected our overall financial performance.”

“The demand for these product offerings has experienced a decline, resulting in a significant
reduction in revenue. The unpredictability and intermittent nature of load shedding have made it challenging for customers to conveniently purchase these products, especially during the second half of the financial year when the country experienced stage 4 and increased levels of load shedding.”

Amidst these challenges, the group has decided not to declare a dividend. Some of the group’s financials can be found below:

Restructuring explained

As part of the restructuring of Cell C’s debt of R7.3 billion (fixed as of November 2019) to specific secured lenders, Blue Label provided liquidity via a secured loan of R1.46 billion.

Just over R1 billion of this debt would be used to pay out secured lenders at an accepted compromise of 20 cents for every R1 of debt.

The secured lenders who wanted to remain invested in Cell C have loaned an amount equal to the 20 cents received from the compromise offer through a new loan arrangement referred to as the Reinvestment Instrument.

This loan arrangement is interest-bearing and gives an aggregate capital face value equal to 2.75 times (or 55c) of the amount advanced.

Every lender involved in the new loan will have the right to distribute shares in Cell C based on their proportionate amount. At the same time, existing shareholders will experience dilution to accommodate this new share issuance.

Blue Label subsidiary, The Prepaid Company (TPC), now holds 49.53% of the shares in Cell C following the restructure.

TPC also purchased Cell C prepaid airtime to the value of R1.2 billion, with it also then purchasing four quarterly payments of airtime to the value of R300 million.

TPC will also need to secure R1.6 billion from financial institutions, with the repayment spread over a 24-month in equal monthly instalments.

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