Blu Label Unlimited Group Limited (BLU) Earnings Call Transcript & Summary

Brett, over to you.

Okay. Excellent. Hello, everybody. I'm not sure who is on the line and who's not on it because I have to come in on my phone, so I apologize. So I think what we'll do is, I'll just give you a high level, and then I'm going to open it up immediately to questions. I think that would be the easiest and the quickest. But when we met with you a couple of months ago, we told you that there are going to be -- sorry everybody, please could you put your phone on mute?

Christopher [indiscernible], who else, can you please put your -- your phones and your computers on mute? You can continue.

So basically, we told you there will be 3 announcements in order to finish this long journey of the Recapitalization of Cell C. The first one was the signing of what we call the UTS or the umbrella term sheet. And of course, that announcement was announced a while back. The second one, which is obviously a very big announcement, is the official launch of the bond process, which we announced yesterday. That is, of course, a public document. The bonds are publicly listed. So there was obviously an announcement of the bond launch. And then, of course, the third and final announcement will be that the transaction is complete and that money has been paid away. So the announcement of yesterday was obviously a very big announcement for all of us at Blue Label and Cell C. And once the bonds are launched, as you saw yesterday, nothing could change from here on inwards. Obviously, it's an official document, it's a document to them. So the first one was the basis of the shareholders, the ICA lenders, of course. And now with the bond launch, it obviously incorporates everything from leaseholders, bank money, everything that's there. So it's a great milestone for us, as Blue Label. And as I said to you, we now expect the bonds, obviously, are meeting on around the 20th of June for their vote. We obviously wouldn't have launched the bond process if we hadn't had access to the bond people before to have discussions with certain of them. And we expect the transaction to close out in the next 5 to 7 weeks. From my perspective, I think the positive thing is there's really nothing more for me to do from our point of view, from a negotiating point of view, from where everything stands, that's all complete. And now it's really up to all the lawyers across the board to put pen to paper. Obviously, we've been running this process parallel. So we're not starting the legal documents for the first time. And obviously, it's up to them now to close this off and have this, as I said, long journey or deal behind us and start the new part of our lives with Cell C. So I hope that's a nice overview. There's obviously a lot to talk about, a lot that I can talk about, maybe a bit I can't talk about. We are in an open period still on Blue Label. Obviously, our year-end is the end of May. So if there's any questions on Blue Label, only with pleasure, we've got the forum, so I welcome you to ask them. And let's start there and see if we cover everything and we'll take it from there. Okay. I'm just going to...

Thank you so much, Brett...

Can you see the hands up and everything, so you can just direct the traffic.

Yes, sure, I will do so, Brett.

The first hand that I saw was Ed Pienaar. Ed?

Congrats on this. Could I perhaps ask the bond documents and the mechanism on those things? Are those public documents? Can you publish some links for us to that on the Blue Label website?

Absolutely, all public documents. So we will direct you where you can go and pull them and get the documents themselves. Absolutely, Ed.

Got to be fantastic. Thanks, Brett. And sorry to -- just a little bit, how has trading been in Blue Label core?

So Blue Label has been good. You obviously saw our half year results in February, which we thought were really good, exceptionally good. The good news is things continue, which is nice. Our market has really been stable. Our new products, as we've mentioned to you, are all really working and going. So we've had a nice year. We've had a solid year from a Blue Label perspective across the board, from a cash generation, from a revenue perspective, from a product perspective. So as we said, we look forward to presenting our results, which are around about the 20th or 25th of August, like every year. And obviously, you'll have a clear picture of where we are and how the year has been. But overall, Ed, it's been a nice solid year for us.

Okay, cool. And maybe just a sense, second half better than first half? Or second half sort of like first half?

Second half is always -- our halves are pretty similar. The second half is pretty similar to the first half. Obviously, if all things are achieved and bonuses are paid, obviously, that just affects the second half numbers slightly. But overall, pretty similar. We have some really good months in our first -- as the year goes in our first half of the year. And of course, in our second half of the year, we get 1 or 2 of the extra [ special ] months. So generally, our halves are the same, as you noticed from the past. And yes, you can expect more of the same.

Thank you so much, Ed. Philip Short, your hand is next. [Operator Instructions].

Again, congratulations. Just given the mix up on the links line, as you mentioned, with sending this out, given that this is recorded, would you mind just putting this call on the website later in the...

Yes, we will certainly do so. Thanks, Philip.

Great. Yes. So given that those bond documents are public, maybe, Brett, can you share with us what the debt stack will look like post -- at Cell C post recap?

Sure. So when we had an informal halt on the debt, which was around about November 2019, the debt was sitting at ZAR 7.3 billion. Obviously, if you had to add interest onto that today, the debt stack would be sitting over ZAR 10 billion. But the informal hold of the debt was at that ZAR 7.3 billion mark. As you know, the compromise to all of the ICA lenders and the bondholders is ZAR 0.20 in the ZAR 1. So that is approximately ZAR 1.4 billion will be paid out to the -- to all noteholders, if we can call them that. What then happened, there was an opportunity for everyone who wanted the cash to take the cash. There was then an opportunity for anyone who didn't want the cash, which meant they would take the cash, but then reinvest it back into the new Cell C, at approximately ZAR 0.55 in the rand, where Blue Label stepped into all of the ICA lenders, except for Nedbank and Gramercy. Nedbank and Gramercy chose to come along on the new ride. So they will be cashing out and then reinvest in their portion. So the total debt stack being paid out in ZAR 0.20 in the rand is ZAR 1.4 billion. Once it's reinvested into Cell C, the debt stack will sit at just on ZAR 4 billion, of which Blue Label will be reinvesting it's ZAR 1.2 billion at about ZAR 3.1 billion into Cell C, and Nedbank and Gramercy is ZAR 400 million at around ZAR 880 million. So the total debt stack in Cell C will be just on ZAR 4 billion.

Okay. Great. And I suppose -- I mean, we can work at it on to the back of that, but maybe just to avoid any confusion. What does that mean for the equity value that's -- the new equity value that sits in Cell C?

I think let [ Tom ] show then I fill there. Obviously, as part of the recapitalization, we will be doing a complete revaluation of Cell C, and that will be in our results in August.

Thank you so much. I do not see any other hands. I see Oswell Kapotsa. Oswell? And then there's [indiscernible].

Just have a quick question. On the debt stack, you said is ZAR 4 billion. So out of that, what do you expect the running interest cost to be on a year-on-year basis?

It's actually very low because of how it's structured. So the first 2 years, there's actually -- on the Blue Label perspective, it's actually in the deal itself, so there's 0 interest on the Blue Label portion for 24 months. And on the Gramercy and Nedbank, it's a very low interest at a [ pick ]. So it's actually -- it's not paid on a monthly basis. So it allows Cell C enough headroom with very, very little interest in the first 24 months. Post the 24 months, the interest is back to bank levels. So that's good news. It's not any of the exorbitant interest rates that Cell C has been paying over the last couple of years. So overall, as part of the structure, this was taken into account. And your answer in short is that the interest over the first 24 months is absolutely minimal.

Okay. And just to follow up on that. I found the analyst briefings by Cell C to be quite good, are we going to get any more of those for, let's say, the full year to December -- I mean December 2021?

Yes, absolutely. So we -- as you know, we don't want to mix Blue Label and Cell C from that perspective as we've done in the past not very well. We were expecting Cell C to do a full presentation by the end of April actually, so they're a little bit behind on that. So the short answer is yes. Lionel will get back to you on when Cell C will call for an investor meeting, where they will present their full year results and everything to you independent to your Blue Label, and I would imagine pretty shortly.

Thank you so much. [ Verner ]?

Yes. Brett, if you say closures within 5 to 7 weeks, does that mean the recap will happen within 5 to 7 weeks, the money will flow?

Absolutely, [ Verner ]. So from the actual negotiation side, as I said, that's really done. It's now about concluding all of the documents, the legal documents that are out there. Just to put everyone's mind at ease, these things have been running parallel. So we're very, very far down the line on a lot of them. And really, our expectation is to have pen to paper and to conclude everything by the end of June. But everyone knows that these things might take a little bit longer. We expect the bond results, obviously, the latest the 20th of June, so that, that would be out the way. And then it's really just about the finalization of all the [ LFA ]. So our expectation is the end of June. And I guess what we'll do is, we will update the market as we go in June just to know where we are in the process and how far away we are from the 30th of June. But if it's not the 30th of June, we're not expecting too much of a delay past the 30th of June.

Thank you so much, [ Verner ]. I see Philip's hand, it is not an old one. And I also see Ed Pienaar's hand, again. Philip?

I just wanted to clarify, Brett, in the beginning of this call you said nothing can change from here on in. The process is launched and that's it. Is that correct?

So what that means is in the bond documents that you read, everything has been put down, so you're getting a vote on the bonds as the deal stands. So it means that nothing could change because the bonds are voted on the deal. So obviously, the bondholders still need to vote. That, of course, goes without saying, we all understand that process. But as far as the deal goes, you cannot have the bondholders voting on a deal that could change. So they voted on the final deal of Cell C and where it stands. And therefore, as far as the construct, the structure, the payouts, the [ roll ins ] and everything else that goes with it, yes, nothing can change.

Okay. And I'm going to put a bit of a cheeky question in there just as I'm trying to get a proper handle on the valuation to Cell C. We've got a debt number. Can you give just the latest sort of EBITDA or EBIT number? I know you guys are really giving results on Cell C in a month or so. But maybe just I can do it back a little [indiscernible] just for EBITDA or EBIT.

I can, but I'm not going to. You'll have to wait for that. Cell C, overall, has been trading pretty nicely. You obviously saw the half year in our results. Cell C strategy is good. I think they should present it to you themselves. They have been. I know I've been reading a lot of articles lately on the CapEx side and where that's going. And I think that just shows exactly where Douglas and his team's strategy of what we're doing around CapEx has been definitely spot on in our belief. But I think let them give you the time that they deserve and that you guys deserve to ask all the questions and to get the answers that you rightfully deserve rather than piecemeal from my side.

Thanks very much, Philip. Ed?

Sorry, Peppa Pig is just causing some trouble in my life here. Okay. Just a follow-up perhaps on Cell C. Can they perhaps just put out a financial [indiscernible] for January or for the year to December? Or is the release going to be after the recap is completed? And I'm going to mute because it's...

No problem. Ed, I think that the presentation to you should be line with the recap, so they should be, hopefully, now in the month of June. So the recap is happening fast now. Please go ahead. As I said, at least from my perspective, my job is done. It's really just the legality that needs to be done now. And I would hope that Cell C are ready to present to you everything from their side. But let Lionel follow up on that, and we will give you indication very shortly when Cell C and a date of their presentation. Tell Peppa Pig, I said, hello, Ed.

Thank you so much. I see Myuran and Oswell, again. Myuran, you're up.

Congratulations from my side.

Myuran, we can't hear you. Can you put your speaker up a little bit? Sorry, Myuran, we can't hear you properly.

Is it better or [indiscernible].

You're very, very faint. I don't know if it's just me, but I can't hear you properly.

Yes, whispering, Brett. Myuran, should we go to Oswell, while you're sorting out your sound system? And that sounds good. You can continue, Myuran. Let's see.

Okay. Is that better? Okay.

Yes, that's better.

Sorry, man. Congratulations was the first point, well done. And secondly, I missed the early part of the call for that because of some links that didn't work to us. So can we just confirm that -- okay, so the structure of the deal can't change because that's what the bondholders [indiscernible]. And we've had some agreements from the bondholders that they are in favor of this agreement, but the actual voting taking place on the 20th. How tight is the voting here? You need, obviously, you agreed to it in principle, but I think you answered both my question on the 20th.

I think, Myuran, just as a general question is, I don't believe anyone launches a bond process in fear that it's not going to happen, right? So a bond process is a bond process and anything can happen at the end. We know that, that's just how the world works. But obviously, we've done a lot of work. There are a lot of the ICA lenders who are our bondholders. So I don't -- I mean, without going into too much, a lot of the actual lenders are ICA lenders. So obviously, they're part of the structure as a whole. So yes, we are obviously very confident that it's not tight and that the offer on the table is more than fair, obviously. This has been a process that's been going on for ages. And obviously, the offer is the same to everybody. So no one's been treated unfairly. No one's been treated differently. And I think that's key to any process. So we are quietly very confident that the bond process will run smoothly and it should be okay. Okay. Is that all, Myuran? We'll move on.

Thanks, Myuran. I see who else? Oswell?

Yes. I guess just one final question for me. There was some talk a while back about listing Cell C at some point. Is that still on the cards? And if it is, what's the sort of time line, let's say, all this goes well?

Yes. I think there's been a lot of discussions around a lot of things, Oswell. I think the most important thing is that this recap is nearing. It's, getting closer. I think everyone can feel it now. This thing will be done when it's done, obviously. But the first 2 announcements are critical, which we have done. And of course, the third one is the most critical because it means money has gone. But let's get this recap behind us. And at that stage, you will have a very, very, very good indication of where Cell C is going, not only from a strategy point of view, but obviously from a finance point of view. And we see where we go. So is there plans today to list Cell C? Absolutely not. Our strategy is to get the engine going again and to make Cell C what we've always believed that can be in its own way. And down the line, we have a look at many options. But for now, it's really about the recap done, voting done, everything and, finally, delivering to Blue Label shareholders, I guess, what we promised many, many years ago.

Thanks so much. [ Magnus Sherman ]?

I just wanted to -- I wondered if you could just walk us through the new shareholder structure after the transaction. I know Blue Label will get 49.3%, but could you just walk us through the remaining?

No, I can't take you through that exactly now. We have it exactly, but that will be presented in time of exactly where it falls. There's a few pieces to it that are in the SPVs that are just where they sit ultimately are -- it's the same percentages, but where they sit ultimately, that will come out now in the [ wash ], if I can use it. So it's not a negotiation or things standing. It's just the actual structure in -- the end structure, how it looks. So unfortunately, I can't give you that yet, but we'll give you that shortly as soon as we can.

Okay. But the 49.3% for TPC is still the relevant number?

That's correct.

Any more questions? Going once. Twice. I guess there's none. Blue Label has always been very committed -- oh, there's Myuran's hand again. Myuran, you can go ahead.

I hope you can hear me.

We can.

Okay. The question is just on the capital structure of Cell C, as it stands, who is most senior? The ICA lenders who are not bondholders or the bondholders?

The more senior are the ICA lenders.

Who are not bondholders, right? The banks basically?

The banks. But in the ICA lender group, there are a certain percentage of bondholders as well. So it's a bit of a mixture. But in the actual current structure, the ICA lenders are more senior than the bondholders. But there are a couple of the bondholders, which sit in the main ICA debt. So yes, the moral of the story, Myuran, is you have to do deal with both, the ICA lenders, which was umbrella term sheet, that was the first announcement. And of course, you have to run the bond process. You need both in order to do the deal. The bond process is interesting because you don't need 100% of the bonds. You need 75% of the bonds to agree and then that drags the 100% of the bonds into the process. So yes, that's where we are. Just [indiscernible] by the way, just to -- it was came to me by WhatsApp, people just wanted to know in the last indication from Cell C is we're trans -- we had already trans over to the MTN network about -- transitioned about 40% and around about 7,500 base stations. We currently are now up to about 50% of the transition across, and we're up to about 8,500 base stations. So that's going really well and according to plan. And obviously, we expect to be completely transitioned in the next 2 years. But the actual transition is going according to plan.

Thanks so much, Brett. Any other questions?

Sorry about that. I'm just struggling to...

Raise your hand. Please go ahead, Ziyad.

Congratulations to everyone at Blue Label, Brett, particularly for concluding what has been an exceptionally complex transaction. And I was wondering, Brett, when you look at rewriting up the equity value of Cell C, could you maybe just give us a bit more color on what process that will follow? Are you hiring? Are you going to be pursuing an independent valuation? Or how are you actually going to reach that stake in the ground level? Because obviously, we all got our own views of what it's worth, just need to find out what steps you will be taking.

Yes. So that's a great question, Ziyad. It's absolutely independent. So we have hired one of the big 5, in time, we'll announce it, but it's one of the ones you know. It will be a completely independent evaluation. And obviously, whatever they come up with, we will present to the market. And it's going to be quite a -- when I use the word refreshing, process just to get an absolute outsider's viewpoint of what, if I can use the new Cell C looks like. They will probably use 2 or 3 different mechanisms of how they value it, I would imagine, just in the normal course of what I've seen in the past. And as I said in August, we'll definitely share that with you. But the short answer is that will be 100% independent, it's not a Blue Label valuation at all.

Okay. And just to confirm, the moment the recap is fully concluded, so end of June or a little bit after that, you will initiate the valuation process with one of the big 5.

No, we are already initiating it because it's part of our [indiscernible]. We have to revalue Cell C. So the initiation is already under process -- I mean, underway, sorry. And so we'll be ready to present it. Obviously, this thing takes a couple of months. It's not a small process. So we've already started and it will be ready for us to present by August when we present.

Thank you so much, Ziyad. Any other questions at the stage colleagues?

Lionel, sorry, there's no hand for me to lift up. I think other people are having the same problem, I'm not sure why.

You can speak today.

Nick, we did it on purpose because if we can't see your hand, we don't have to take questions.

Okay. But that independent process you're talking about now of independent valuator, I mean, how does Net1 fit into that? Are they going to take that valuation? Are you guys working together?

No. So...

Will they have a separate valuation for Cell C?

I can't speak on behalf of Net1 because I'm not quite sure what they're going to do. But -- in short, we're not working on the valuation with them at all. Ours is a Blue Label initiative. So it's not even a Cell C initiative, by the way. It's obviously a Blue Label initiative [indiscernible]. And it's for the purposes of Blue Label. So I'm not sure what Net1 will do themselves or how they will revalue. But on behalf of Blue Label, you will get an independent valuation from an independent valuator, obviously.

I am just trying to find any other hands. Anyone else who have hand -- that might have hand problems?

I think Myuran [indiscernible] is up again.

Lionel, one question. The bond in [ Ireland ], does it trade at all? And if it does, where is the trading [indiscernible] you guys know.

Yes, yes, I think it does trade. I mean that's how it's traded in the past. I don't know how much it trades, I'm not sure too much. I think it continues to trade. I'm not exactly sure of the process. But I guess, once we give you the link of where you can go and pull down the documents and get all the information, maybe this will give you more information of how much is traded or where it's traded. We are -- we've actually never followed it from our side. Obviously, never done anything with it. So let us just give you a direct link to where to go to for that and maybe you'll get some of the answers you need there, Myuran.

Thank you so much, everyone. Thank you so much for participating. I just want to give you the assurance that Blue Label Telecoms has always been open to have any conversation about particularly this matter with our valued stakeholders, like yourselves. And if anyone would want to set up a meeting with any of our leaders to discuss this matter further, please simply send me an e-mail, and we would set that up either during today or tomorrow, but I want to reiterate that commitment. We have committed ourselves to publish all the links and all the important dates by 12:00 on our website, and that would be within the next 53 minutes, so -- where you would then be able to get access to all those documents and the necessary information as asked here and as promised by our Interim CEO. Thank you so much, everyone, for coming. We hope to talk again in future. And for any media queries that you might have on this matter, we suggest that you speak to Cell C directly. We value your participation. And thank you so much, everyone, who participated.