Cell C sees a massive swing in financial fortunes

Blue Label Telecoms has disclosed a 10.9% revenue decline for Cell C, from R13.3 billion to R11.9 billion. Simultaneously, Cell C’s after-tax profits underwent a dramatic turnaround, transitioning from a R2.4 billion loss to a R4.6 billion profit, marking a remarkable 289% increase.

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The context surrounding these drastic shifts in Cell C’s reported profit wasn’t directly provided by Blue Label. However, its financial results for this period encompass the consequences of the recapitalization deal that witnessed a substantial reduction in the company’s debt owed to creditors.

Under the recapitalization, Cell C’s secured lenders faced two choices: a substantial 80% debt reduction for a cash payment of 20c per rand or a reinvestment yielding 55c debt in Cell C per rand, corresponding to a 45% debt reduction.

As a result of these transactions, Blue Label’s ownership stake in Cell C elevated from 45% to 63.2%. Nevertheless, the company clarified that it holds only 49.5% of the voting rights linked to this stake. The application of the equity method to investments in associates is governed by the existing ownership interests, without factoring in potential voting rights or derivatives unless they provide immediate access to associated returns.

Amid the recapitalization, Blue Label subsidiary The Prepaid Company secured an additional 13.7% interest in Cell C, albeit without the accompanying voting rights, subject to caps tied to loan repayments.

Notably, Blue Label reported that its portion of Cell C’s profits amounted to R1.8 billion, which does not equate to 63.2% of the stated profits. The discrepancy arises from a strategy by Blue Label to resume recognizing its share of profits only when it balances the unaccounted share of previous accumulated losses, which stands at nearly R1.1 billion.

Furthermore, Blue Label addressed the variance between its financial year-end on May 31 and Cell C’s year-end on December 31. It revealed that special-purpose accounts are devised to align with the Group’s reporting period, accounting for the Group’s equity-accounted adjustments.

Jorge Mendes, CEO of Cell C, informed the media that efforts are underway to harmonize the company’s financial calendar with Blue Label’s year-end.