Cell C remains technically insolvent

Blue Label Telecoms’ interim results revealed a huge decrease in earnings partly due to its ongoing Cell C headaches.

Blue Label’s results for the six months ending November 2022 showed that its net profit per share decreased from 60.59 cents to -8.74 cents year-on-year.

It translates to a net loss of R77 million to Blue Label, compared to the previous period’s R531 million profit.

Blue Label told shareholders that the large drop in profits was mainly due to the recapitalisation process of Cell C.

In September 2022, Blue Label concluded a series of agreements with Cell C and its financial stakeholders to restructure and refinance the mobile operator.

The deal included restructuring Cell C’s large debt burden by settling creditors’ claims at 20 cents to the rand.

It also involved a new loan of R1.03 billion from The Prepaid Company (TPC), a wholly-owned subsidiary of Blue Label.

Cell C weighed heavily on Blue Label since it first bought a stake in the operator in 2017, and investors eagerly awaited the latest result to assess the impact of the recapitalisation process.

Cell C reported interim revenue of R6.4 billion for the period ended November 2022, 4% lower than the previous period’s R6.68 billion.

The downward trend in revenue from 2019 can be seen in the chart below:

Cell C continues to struggle with solvency. Although it improved significantly after recapitalisation, the operator remains technically insolvent.

A company is technically insolvent when it cannot settle all its liabilities if all its assets are liquidated.

Cell C’s assets decreased significantly after recapitalisation – from R21.16 billion in 2021 to R17.7 billion in November 2022.

The encouraging news for investors is that Cell C’s liabilities also significantly decreased, shrinking the gap between liabilities and assets.

So while Cell C remains technically insolvent, with liabilities exceeding assets by R1.83 billion, it is on the right path.

With less strain on the asset base because of a smaller debt burden, a good performance from Cell C can turn its equity positive.

The charts below show Cell C’s assets and liabilities, and equity over the last few years.