One of South Africa’s biggest companies technically insolvent

Cell C remains technically insolvent, but there are some signs of improvement for the embattled telco company.

Blue Label’s interim results for the six months ended 30 November 2024 show that Cell C has assets totalling R13.8 billion, while liabilities amount to R17.14 billion.

A company is technically insolvent when its liabilities outweigh its assets. This results in a company having negative equity, which, in Cell C’s case, totals -R3.3 billion.

Negative equity means that a company will not be able to settle all of its liabilities with its assets if it is liquidated.

Companies that are technically insolvent often need drastic measures to improve their financial situation.

For instance, when Pick n Pay became technically insolvent, it underwent a two-step recapitalisation plan, which included a R4 billion rights offer and the IPO of Boxer worth R8 billion.

Cell C’s technical insolvency is not new, but the group’s position has worsened compared to the prior six-month period, where its negative equity was -R3.2 billion.

However, it should be noted that Cell C is showing signs of improvement, with its negative equity position improving from the -R4 billion recorded in the 2024 financial year.

Blue Label is pumping billions into Cell C. As per the latest recapitalisation, the Blue Label-owned The Prepaid company lent Cell C R1.03 billion to pay off debt claims and purchased R2.4 billion in airtime.

The Prepaid Company now has a 63.19% economic interest in Cell C, which is much higher than the previous 45%.

Cell C’s latest income statement also points to signs of life, with the net loss before taxation dropping from R336 million in the prior comparable period to R149 million.

Blue Label results

Blue Label’s results over the period were a mixed bag, with revenue dropping by 4% to R7.2 billion, while gross profit increased by 2% to R1.6 billion.

Blue Label, however, noted that only gross profit earned on “PINless top-ups,” prepaid electricity, ticketing, and universal vouchers is recognised as revenue.

When the gross revenue generated from the sources is in considered, the effective revenue growth equates to R3.5 billion (+8%), and total revenue grows to R47.4 billion.

The group’s EBITDA decreased by 6% to R653 million, while core headline earnings recorded a marginal increase of R5 million to R424 million.

The group said that the decline in EBITDA and growth in core headline earnings were partly driven by a reduction in the Comm Equipment Company (CEC) subscriber base and a lower ARPU.

It was also due to the increased finance costs associated with selling a portion of the CEC handset receivable book.

The proceeds from the sale were transferred from CEC to The Prepaid Company and eventually to Cell C via the acquisition of airtime.

Earnings per share dropped by 4% to 43.98 cents per share, while headline earnings per share increased slightly to 46.01 cents per share.