Blue Label Telecoms is paying off $15M Cell C debtBlue Label Telecoms is paying off $15M Cell C debt

Johannesburg-listed Blue Label Telecoms has reported flat interim earnings as the group prepares to increase its investment in mobile operator Cell C and pay off a significant debt for Cell C by the end of 2026.

The group's core headline earnings for the six months to the end of November 2024 were up 1% year-on-year (YoY) to R424.3 million (US$23 million).

Headline earnings per share (HEPS) – a key profit measure in South Africa – came in flat at 46 South African cents per share ($0.025 cents per share).

As part of its interim results announcement, the company revealed it is in the process of paying off some of Cell C debt worth R275 million ($15 million).

In 2022, a debt owed by Cell C to a lessor was transferred to a newly established special purpose vehicle (dubbed SPV5) in exchange for a 10% shareholding in Cell C, which remains SPV5's sole asset. The debt will be repaid by the end of 2026, through Blue Label subsidiary The Prepaid Company (TPC).

TPC advanced the first R100 million ($5.4 million) tranche of funding on December 31, 2024. It will pay another R100 million ($5.4 million) on December 31, 2025, and R50 million ($2.7 million) on December 31, 2026. An additional R25 million ($1.4 million) will be paid on December 31, 2026, "contingent upon the occurrence of certain liquidity events."

Related:Headwinds hit South Africa's Blue Label Telecoms

Blue Label profit inches up

Blue Label's gross profit for the six-month period increased 2% to R1.63 billion ($88.4 million) and the gross profit margin improved from 21.08% to 22.44%. Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased by 6% to R653 million ($35.4 million); and group revenue declined 4% YoY to R7.2 billion ($390 million).

However, it's important to highlight that the revenue figure includes only gross profit earned and not gross revenue for its "pin-less top-ups," prepaid electricity, ticketing and universal vouchers.

If you input the gross revenue generated from those products, Blue Label's overall revenue actually grew by 8% YoY for the six months to R47.4 billion ($2.6 billion).

Blue Label said the decline in EBITDA and the modest growth in core headline earnings were primarily driven by a reduction in its Comm Equipment Company (CEC) subscriber base, lower average revenue per user (ARPU) and increased finance costs associated with the sale of a portion of the CEC handset receivable book.

Controlling stake approval drags on

Blue Label owns a non-controlling 49.53% stake in Cell C and is in the process of trying to increase its stake to over 50% which will give it more voting power on the mobile operator's board.

Related:Cell C plans to claw back market share in South Africa

In January 2025, Blue Label received approval from the Independent Communications Authority of South Africa (ICASA) for the transfer of control of the relevant telecommunications licenses held by Cell C to TPC.

Cell C first applied to ICASA to have its telecom licenses transferred to Blue Label back in December 2023.

However, Cell C later explained that this was more of an obligatory governance requirement, due to the planned majority ownership change, and Cell C would still own and control its license going forward. Cell C's spectrum licenses will also not be transferred to any party.

For Blue Label to take a controlling stake in Cell C it still needs approval from South Africa's Competition Tribunal. Blue Label joint-CEO Brett Levy said the company was still waiting for the Tribunal to set a date for hearings on the matter, but he expects it to take place sometime between June and August 2025.

In April 2024, the Competition Commission recommended that the Competition Tribunal approve the proposed transaction, with some conditions.

Blue Label's investment in Cell C has been a rocky one in the past, but both groups are now positive about the company's improved performance going forward.  

In August 2017, Blue Label bought a 45% stake in Cell C for R5.5 billion (about $420 million at the time). But by the end of 2019, it had to write down the value of its entire investment in Cell C to zero. Since then, the investment in Cell C has been consistently weighing on Blue Label's earnings.

Cell C back on track

Cell C has not yet released its full financial results for the half-year, but CEO Jorge Mendes shared a few top-line updates during the Blue Label results call with journalists on Thursday.

He said that Cell C's "capex light model" – referring to the group disposing of its tower infrastructure and instead roaming on MTN and Vodacom's networks – is yielding positive results.

In early 2021, Cell C began migrating its customers to roam on MTN and Vodacom's networks; and in June 2023, it deactivated its radio access network.

Cell C's total revenue was up 13% YoY for the six months to November 2024, EBITDA had increased by 87% and blended ARPU grew 14%. Mendes highlighted a good performance from Cell C's mobile virtual network operator (MVNO) segment, with MVNO revenue growing 22%. Broadband revenue grew 26% and mobile data traffic was up 27% for the six-month period. The figures show significant progress for the mobile operator that has been trying to improve its financial position and gain back market share in South Africa.

Mendes previously told Connecting Africa that when he joined Cell C as CEO in July 2023, the company had been in revenue decline for 24 consecutive months. The latest figures show the operator may have turned the corner.

Cybersecurity incident

In January 2025, Cell C revealed it had been hit by a "cybersecurity incident," which it said may have exposed the data of a limited number of customers.

Mendes would not share any further details about the breach, saying it is an ongoing investigation. But he said the operator had reported all relevant information to the Information Regulator and ICASA.

"We have been improving our cybersecurity posture ever since I arrived. So, it was not as a result of the incident. We have fast tracked a number of things, obviously, as a result of the incident, to further improve our cybersecurity posture," Mendes said.