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

Good afternoon, everybody on this fine spring day. The long-awaited Cell C results are finally here. Thank you, everybody, for their patience with regards to that. We've got quite a busy deck to go through to give both the market update, which will include the financials. And also, at the same time, like to take the opportunity to introduce our new CFO, Lerato Pule. It will be our first presentation. So she will be taking us through the financial portions of the deck. I will obviously then take everybody through the closing and the strategic and the opening overviews. Moving into the agenda. It's quite a big and full agenda. So Lerato and I will handle it. We've broken it up into 3 sections: the strategic and operational overview of the business; the financial review of the business and then the looking forward position as I end of this session. The presenters, as you all by now should hopefully know us is myself, Douglas and our new CFO, Lerato. So I don't think I need to spend too much time going through the detail of that. And I'll get stuck -- straight into everything and start with the strategic and operational review. So I think what is important is to understand that we've got quite a big amount of space to cover over the period. We will be obviously giving results for the 2021 year and the first half of 2022. But I think it's important to perhaps just to turn back a little bit and go and have a look at a little bit of the background and the backdrop towards where we were as an organization. We believe we have delivered on our agenda in spite of a number of amount of challenges. With those specifically to Cell C, obviously, the impact of the delays of our complex recapitalization process have been numerous. It's been a difficult and complex adjustment period. It required high liquidity support measures and extensively higher recapitalization costs. The simple long and short of it was, this was no easy feat. And I don't think that there's many companies that have been through a recapitalization process that lasted anywhere near as long as this. And in the meantime, behind the backdrop of that, we've also had the impacts of COVID-19. We can start to feel the effects of a constraint consumer wallet. Load shedding is not doing us any favors. And we've got some strong economic downturn and headwinds that we have to face off as an organization. But in general, we have to face off that as a country as a whole. So it's certainly not an excuse. I think going back to where we were -- my earlier statement in terms of delivering our promises. I think that's a very important thing for us as an organization, specifically Cell C. And if I rewind back to sort of mid-2019 and the promises that I specifically made to stakeholders, what we pledged and what we delivered on. We pledged to change agenda to turn the business around as well as a big pledge to install sound business ethics and accountability within the organization. I'm happy to say that we have delivered on both of those. Specifically on the operational efficiencies, we continue with the cost efficiency program and the new operating model with a rightsized workforce, product rationalization is something that is an ongoing thing. And going simpler and more easy with product is something we're going to focus on. I'll talk about it a little bit later in the deck. Rebalance of the network traffic and the retention of profitable clients, implementing a new innovative network strategy, we're well far into the new network strategy. And you'll see a slide later on that, which I think will be quite exciting for everybody to see. Liquidity, while constrained, the overall improvement is definitely coming through in the liquidity. And then the big thing was the recapitalization to address the balance sheet, and that had to be a permanent solution to a debt problem that we had with regards to the recapitalization. Underneath that, you also had to improve your disclosure and transparency around that, and that done together with a focused leadership team executing on a strategy that we put in together and are moving on. Nonexecutive Independent Directors on our Board bolstering governance, diversity and transformation that has allowed us to be fully aligned to a set of values that has been properly defined through the Cell C organization. And it's something that I think a lot of organizations take for granted, but we have been on a very long journey on making sure that we get our people aligned to that and that our value set is agreed, which basically boils down to agile, lean, fixable accountable, responsible, resilient and respectful, things we take for granted in the business environment, but definitely need to be monitored on a continuing basis. I don't want to harp on the history, but I think it's important to go and have a look a little bit at a strategic turnaround journey. This was, as I said, a very long recapitalization process, which started in 2019 and has gone through to the announcements that we have been seen last week, Friday, where we announced the finalized recapitalization of the organization. In 2019, we went into an informal debt standstill. Everybody will remember the default on the bonds and the S&P downgrade. That necessitated making sure we establish a liquidity committee, started getting cost efficiency programs and more importantly, getting a network strategy in place. I've been quoted many times that there was no possibility that Cell C would ever be able to come into any kind of a CapEx race and be part of a CapEx build. And hence, this differentiation in the market now between builders of infrastructures and users of infrastructure are 2 very specific points that need to be understood as part of our strategy going forward. Then during the course of 2020, we had to restructure and rightsize the organization, implement this new operating model as we moved into the network transformation process. There was a big event around the transition of our postpaid subscribers. And then, of course, COVID hit and everybody was sort of working from home in sort of 2020, I think everybody wants to put behind themselves. But nonetheless, 2021 soon enough to and upon us, and we were hoping to get to a number of things in 2021, but 2021 was a sticky year as well. And of course, that led to a number of things, specifically a brand repositioning. We were able to come back into broadband proposition with the successful launch of our Home Connecta Flexi. And then we started the digital transformation process as well as the transition of the prepaid subscribers over onto our infrastructure partner networks. 2022 came and the recapitalization to reduce the debt has finally been concluded as I alluded to. And I'm happy to announce that 62% of the network migration has also been completed and the leadership team across the whole executive leadership of the organization, not just ExCo, has now been put firmly in place. And so from that, I believe our turnaround journey has started to finally get to a place where everybody wants. And this is the big slide that I think you were looking for is i.e. our turning point and for me to start doing the unpack of what the recap is really about. So essentially, the recap is a restructure of the financial and operating liabilities of the organization and most importantly, a deleverage of the balance sheet to a manageable debt stack. I think that is something that -- that's burdened us for many, many years. And the obvious question being is, is Cell C able to go away from the massive debt stack that it had in the previous financial years. This was an involvement of new funders coming in, reinvestment by certain lenders, the new cash plan, ForEx exposure reduction, which has been very successful, and Lerato will talk to you a little bit about that later in it and in the liquidity base establishment as it's been tricky to manage through a process in the last sort of 3.5 years with the recap not finalized. So our journey to sustainability. I've talked about it before, but just again to remind everybody the old Cell C significant financial operational channels, challenges, quite frankly, a misguided business strategy, unsustainable debt, poor decision-making and bad governance. There's many articles about the black content platform and the continued build of infrastructure and how fast the business would be able to turn itself around. I was never of the view at the time when we were competing with 5,500, 6,000 sites that we were to be anywhere near able to offer customer service or a sustainable customer base if you simply just didn't have a network to do it. That then was the formulation of the turnaround strategy, which was the 4-pillar turnaround, which I've talked about on a number of occasions. We have relentlessly stayed to that turnaround strategy and delivered against that, specifically the operational efficiencies. And I think a lot of that talks more to a view of build it and they will come you keep building and building and building. And don't worry, it's just going to be there. You get more, more marketing, more staff, more customers, more everything, but you're not efficient, you're busy doing a lot of things that are there that create a number, but it's something that's not adequately measured. The network strategy was an essential part of this. There was no ways that we, as an organization, were ever going to be able to compete with big infrastructure providers. We had a site deficit at the time of probably 8,000 or 9,000 sites. There was no point of not only where we're behind on sites, but the technology on the sites where you're struggling between 3G and 4G network. And obviously, the big question is where everything moves forward into the 5G and 5G is very much the talk around the support for the fourth industrial revolution. And so the importance of 5G cannot be underestimated. So it was absolutely critical that Cell C put themselves in a position to be able to execute on a network that made sense. The liquidity has obviously been, I'm not going to label that one, has been a very, very tight, constraint for us. It's been difficult for us to manage through it, but we've been successful in making sure that every cent we spend has been spent as efficiently as possible and that there's as little leakage as you could get in any organization. It has resulted in very tough decisions being made, specifically at the C-suite level. And I've been asked many times how do you get through some of these decisions? Well, the simple answer is you make it. And that has been -- it's been tough, but it has to happen. And then the last part of the turnaround strategy was obviously the recapitalization failing, which everything was not going to be available in any event. The institution of the new operating model to drive the sustainable growth is now set and in place. We reset the business into a high-performance type of culture. It was something that was lacking in the organization. You have to understand that shareholder creation of value goes along with a high-performance culture, and we've been up against some pretty good operators. So we can be under no illusion that our performance was definitely not up to what it should have been. And so the resetting of the culture in terms of understanding that we have to deliver against what we say we are, was something that was very much included in the turnaround strategy narrative on the more soft side. This then resulted in the new Cell C, a fit-for-purpose entity building on customer-centric, CapEx-light, network-agnostic digital business and very much a view that we're collaborative and leading in an innovation-driven ecosystem. I think collaboration is one of the biggest parts of it. Our view is that we have to look at making sure that we have partnerships that support the sustainability of this new business model. If I have a look at the business model now going forward, focused on prepaid and wholesale model with a much lighter asset base going forward. In the old business model is FY '18 as an actual transition phase, which is FY '21's actuals, a lot of 2020 to FY '21 actuals. And then what we see as a sort of a post network transition and recapitalization. We're talking to you the 4 fundamentals here, revenue expenditure, EBITDA and adjusted EBITDA less finance lease and CapEx. We're giving an element of CAGR guidance over the next 5 years, but the revenue side of the business model geared towards prepaid and wholesale revenue growth with the launch of new MVNOs, limited focus on postpaid following Project Boston, but we will still stay in postpaid. Postpaid is very resilient and a strong market. Continued review of expenditure roaming costs have obviously increased as we transitioned the network and it completes at the end of 2023, beginning 2024. And thereafter, the network costs fall after the full transition of the network. I think important thing for people to understand is that we had to unwind and that's where impairments have been where we've unwound our existing old infrastructure network and gone on to a new network into the capacity situation. This then leaves us with an adjusted EBITDA less finance leases and CapEx, which we expect to be in a target range that will be very close to [ double ] that. Obviously, that's based on the back of lease costs exiting during the transition pace while CapEx stays broadly flat and substantially lower than any of the other CapEx models. The bulk of our CapEx, obviously, going into IT and our billing platforms. The big question then is day-1 post recap what does the balance sheet look like? The basic commentary here is that the working capital improved by 40% post day 1 post-recap, a conversion of current and noncurrent liabilities and the way they're structured in the -- within the balance sheet, interest-bearing borrowings. I think one of the big takeaways is no foreign debt. Previously, 75% of our debt was foreign, which was a massive problem for us, and that's what you will have seen with the huge movements in the rand and a lot of the ForEx -- unrealized forest charges that have been recognized against the P&L that Lerato will talk about a little later and an improvement in the cash flow sustainability resulting in a massive reduction in the negative equity of the organization. What obviously needs to be considered against that negative equity is the values that you have in tax shields on our asset loss, which we obviously cannot recognize until such a stage as we execute against the plan, but that's an asset that obviously can come back on to the balance sheet as it passes all the necessary tests through the auditors and IFRS. And the other thing is obviously the value that is in the intangible in the spectrum. So in effect, we see it as a positive equity balance sheet going forward. The next big question is what happens to the money, day 1, and I think this is an important question for everybody to sort of take note of. Cash available, ZAR 2.5 billion. It will be used to settle our ICA lenders and other liabilities to the extent of about ZAR 1.1 billion. Historical liabilities of basically then the ZAR 1.1 billion, working capital normalization and restructuring transaction costs. So out of the ZAR 2.5 billion, we use approximately ZAR 2.3 billion of it. with a closing cash balance of ZAR 224 million. We expect after year 1 that we were in to -- move into a much more positive frame as we just start to get back into cash generated and some of the normalization of the costs of the recapitalization, excess liquidity payment costs and the like of those as they start to disappear on a permanent basis as well as some of the lease costs. Cash flow projection for 2022. Operational inflows of around ZAR 23 million, opening cash balance ZAR 581 million, closing cash balance of ZAR 603 million. Those cash flows then obviously deleverage the balance sheet for a long-term debt and the creditor payments start to move towards normalized creditor payments. Overall, the short-term compounded improvement rate in our cash flow is expected to be around 30%. The next big question that I think everybody needs to ask is, why is this recapitalization different? There would be no point in recapitalizing an organization if there was no fundamental changes to we were doing in the business. The number one change is the new business model, and that is to transform us to a customer-centric CapEx-light digital business, allowed us to put us into a position where we have access to network, and we are able to then best price, best quality network. So the network strategy, you'll see in the short while, you will see what the work has been done in terms of the strategy where we have gone CapEx light on the network and been able to get ourselves into a position where we have migrated off a considerable amount of what was old technology 3G sites on to 4G sites. So the business model change, the network strategy. The third one is a permanent debt reduction. There was no point in parking debt in a different place. We had to get a permanent debt reduction. That was the essence behind the haircut in the debt to the ZAR 0.20 [ in a rand ]. that was agreed through the ICA lender group and the bonds. And that has been obviously there to deleverage the balance sheet, to give us a manageable debt stack that allows us then to be able to service the debt and have capacity to invest in growth both in terms of subscribers as well as on our IT and core platforms. The next thing was to have a fit-for-purpose organization that was restructured, rightsized and that your underlying business and financial foundations were there. The simple long and short of it was we couldn't put out capital expenditure. There was no point in trying to build it and there will come in philosophy where you just went bigger and bigger and bigger with understanding what your underlying margin and cost was. So yes, humbling as it may be, to a certain extent, we had to restructure and rightsize the business so that we understood that we were spending money that was going into the right places and that we are effectively getting a return on everything that we put into our network. And yes, there will be certain exceptions where there will be a specific reason for a last lead. But we needed to make sure we fully understood why we were doing things and what the outcomes were. If I move from there, I'm going to have a look now at essentially talking a little bit to the strategic overview and has taken on the backdrop of a now recapitalized business. Our strategy, in essence to become the market-leading, customer-centric digital lifestyle company. We want to make sure that we leverage our telco platforms. We have R&M at the end of the day, but become pioneering in the digital services that we offer over those -- over the telco platform, strengthen and leverage our position as a significant wholesale buy an aggregator of network capacity. I think it's important to understand that the notion now of who is able to afford infrastructure and who is able to use infrastructure are now decoupled from each other. And in order for this market to thrive, there has to be an ability for the investor of infrastructure to be able to have a customer on it that can aggregate it and can talk the same language where we are able to make use of that and that you're not building a 2-lane highway that only really needs 5. Customer centricity and a focused market segmentation. I think we're moving away from an industry or want to position ourselves as an industry that's not really popular, if we're quite honest with ourselves. You see nonstop views around Data Must Fall. And generally, we're not -- if you look at the surveys of that likes, so we have got a lot of work to do to become customer-centric. This industry has tended to be exceptionally prescriptive in how it sees its customer products and its makeup. And our view is going forward that we are going to make sure we listen a lot closer to our customers to understand what their needs are. And in doing that, we reset the organization to a new way of doing business and a new way of thinking that says what do we need to do for our customer? Our customer isn't necessarily only just an ARPU, but is actually a behavioral person. So with a customer-centric view, we sort of broke it up into 6 basic things: agnostic network, value proposition that's customer-led; seamless interaction, which we've done, the customer journey is tough sometimes, and it is incumbent on us to make sure that we can start making processes to connect to the network, be with the networking, contact with network as easy as possible. Become a digital business, the transformation acceleration of digital of anything digital for any kind of business for that matter, isn't going to reside only with the network, the day of using a handset as we call it now or a device, is very far evolved from the days of it being a telephone where analog or a circuit switch core was on it. So we need to become this digital business and lead the ecosystems that will take us to making our device friendly and useful in our life, and that requires us to be agile and then continually accept the fact that we need to improve where we are. This is the slide I think that people will find the most exciting and for me, it certainly was. If I think back to the clock in 2019 and roll back a little bit of time, we were at around 5,500, 6,000 sites, half of those were 3G, half of those were 4G. That wasn't helping anybody at the time. Very happy to announce that at the end of September, effectively tomorrow, we have 9,131 sites migrated, 61% completed, 6 provinces are 100% migrated and the move towards an excess of close to 14,000 sites. We actually have slightly more than 9,100 sites because we've got just over 2,500 of our own sites, which are in the process of decommissioning, which will come out. But as available to customers to use at the moment, we consider ourselves well over the 11,000 mark. And this has been something that's been very good, as you'll see in the subscriber number in the sense that our subscriber base has remained constant, but our subscriber base has remained loyal and resilient. And so we certainly believe that we are in a position to start to migrate and grow our customer base. Because the one thing that we were missing as an organization, 3.5 years was a fundamental thing called the network. So the efficiencies introduced into the telco value chain enabled to focus investment from our side, as I said, on platforms and on systems. The network strategy allows us to make those systems and platform service our customers. And we essentially have at 2 current key projects. The first is the replacement of our old billing platform into a modern generation system. And the second is the core network upgrade, which is in progress now for the virtualization of implementing 5G and voice over LTE services. So where we see ourselves being a competitive network that doesn't have a deficit in a sort of less than a year from now, but we are able to offer the best quality network for the best possible price. The commercial approach that we will look to doing this to get our customer growth. I've talked to a lot of it, but effectively, looking at your customer-led value propositions in an ecosystem where we can control our narrative and a seamless user interaction. We're looking for exciting products. So you can look out for some exciting products that are going to be coming from us in the next couple of weeks and months that we believe are going to start talking to customer-led and customer-centric focused products. The big slide here is to have a look at what the customer base is compared to FY 2021 base. So the '20 to 2021 base. The base went up from circa 12.5 million to 13 million subscribers, and ARPU at around ZAR 81 for that. Obviously, there were shifts in the composition of the subscriber base, but it essentially remained stable overall. In the end of FY '21, we had a slight increase in the total ARPU. Going into 2022, you can see a little bit of the impact coming through, and I'm not going to blame COVID and load shedding and everything on that entirely. We had to make sure we had a network, but I think our customers have been exceptionally loyal. And so the reduction in the base has been marginal relative to -- at circa ZAR 12.8 million and an ARPU that has remained resilient. So it's very important for us to understand that in a 3.5-year period of liquidity constraints and a recapitalization environment, we've now sort of been released, so to speak, post recap to be able to really now focus on growth. And we're not overambitious about growth. We just want to make sure that we understand how we're growing, who we're growing with, why we are growing and making sure that our propositions talk to the people that we are serving. Another big thing that we see ourselves in is working partnerships. And what I mean by that is, I've always sort of taken the view that obviously, we still remain a leading MVNO enabler, but affordability, simplicity, our mobile virtual network enabling proposition and connected partnerships is something that's very, very important. There's a number of things going on in the market and Cell C needs to be in a place where it understands and is available to be in working partnerships because partnerships are what are actually going to grow people and grow businesses together. We are enabled by 2 other enablement partners, namely FREI and MVN-X, which are great partners to us, and it allowed us to create some of these MVNO working partnerships. But I think there's a lot of change going to take place in the market over the next couple of years. And it's going to be driven out of a number of things, it's going to be driven out of, obviously, the economic environment where we have to become more efficient. It's going to be one of the main things that we need to do. The second thing is that businesses are going to start looking towards each other, I believe, to align strategically to serve the customers that we all serve together at the end of the day. And then thirdly, we need to leapfrog and push towards getting a digital framework that goes with these partnerships that takes us from a telephone company of today to a digital company going forward. I think if I was to think about it, I would look at potentially my revenue of today being [indiscernible] and the like as being a cost of sale going forward, where we start to actually put service layers and more and more services onto it so that we are understanding how to leverage what is brought to us by technology that is effectively the digital future. And that talks to the next slide, I've pivot into a techco. The transformation of our core business model while simultaneously building and scaling the new. The traditional business model, you'll see over the time line, '22 through '23, '24 is our current focus, transforming the core, growing the core. But then emerging capability as we go into a pivot where we start to look at digital service enablement model and our lifestyle and that is where we see the future of the business and the partnerships that we see going forward. Another very important thing that I had alluded to earlier, was that we needed to have right people, right roles, right culture and I talked about the fact that we have got a business purpose really high-performance type of culture. Rightsizing the organization with relevant capabilities to deliver on our strategy. Our new operating model and structure, right people in the right roles also the shift towards the high performance. I will not go into all the details of it, but 2020 through to 2021 has been -- it's been difficult. And I have to acknowledge that within the organization, it's been stressful, and there is no pleasure in headcount reductions and everybody thinks rightsizing is entirely based on that. It's not based only on that, it's based on a number of things. It's an incumbent on us getting people to understand that we are a service-orientated industry, we need to be that, we need to deliver our model as best as possible, and we need to grow with that, and we need to grow with that with a view that performance culture is the only culture that we can have, and that is how we need to run this organization. Another very important part that underpins all of this is a transition to the right governance framework. Personally, it was something that I thought was always lacking in the organization. In the current stage, our governance structures and accountability, I'm happy to say have been implemented. Our risk and compliance framework really are progressing on risk appetite and tolerance statements. Organization resilience framework in line with our new business strategy. So risk obviously remains a very, very big thing. Transparency and disclosure has always been something that is market critical. We obviously are not able to go from a sort of private-owned company through to a full King IV principle, but we are very much aligned in getting through that and are progressing to a full alignment of the King IV principles. And as we finalize AFS and the likes of that, you will start to see that I look forward to being able to publish our first integrated report in due course that will then close out a lot of the issue around transparency and disclosure. And the last thing being ethical leadership and culture, which I think has been implemented. Obviously, I've seen a lot of press and media over the last couple of years about the goings on of this organization. I think we're past that now and they're looking forward position on this is to say, we've done our recap. We're ready to do business, and we want to look forward to the future of participating in the economy. We have an organizational financial framework, which will lead to the sustainable growth. Our main drivers here being our revenue of MVNO prepaid in the digital businesses, continuous cost management programs. It's an opportunity area for us. And we do believe that there is a lot of efficiency still to be extracted out of the organization, aside from the ones that we've been able to do in the period of the liquidity constraints, liquidity growth to support it. As I said, working capital needed to be put behind the right projects. And then obviously, post the recap, now the stabilization and the growing of the balance sheet because it's tough out there when you don't have a balance sheet. Medium-term guidance is to single-digit growth in terms of revenue, mid-single-digit growth in terms of EBITDA, sustainable working capital levels and cash conversion and a net debt to LTM EBITDA post recap of less or equal to 2.6x. So last 12 months EBITDA. And on that is how we base our financial framework in terms of going forward into the sustainable growth. I'm going to hand over to Lerato, our newly appointed CFO. A very welcome to you, Lerato, and I hand over clicker to you.

Thank you, Douglas. Thank you to everyone. I'm quite proud to be joining the Cell C environment. On our financial overview, I'd like to start with key items that are actually impacting our performance as a business, which is our ForEx loss where we saw ZAR 155 million, a negative impact compared to the gain of the previous year. This was actually due to the rand strengthening, but also, it was compounded by the debt freeze that we saw in our debt as we were going through the recapitalization process. We also were impacted by once-off costs which are really about the recapitalization costs and the liquidity support measures that Douglas mentioned earlier on and conversion of some of our finance leases into operating leases as we were constrained in terms of renewing some of our leases over long term. But this is also in support on our long-term strategy of our network transformation. The third element that impacted our half year results was an impact of impairment as a result of our network transition as we had to impair some of our assets, decommission some of our assets that were -- our towers that were closer to ZAR 300 million. and also writing of some of the customer incentive bonus things that we had within our books. Moving into the actual numbers in comparison of the half year. We're comparing half year 2021 to 2022, where we saw our revenue really remaining resilient and stable due to the interventions that we actually put in place through the recap. In terms of our operating expenditure, we were actually negatively impacted a bit there, but it is mainly because of our high recapitalization costs as we had to be paying some of our advisors, our legals, legalese and also some of our consultants that we are consulting with that got us over the line. That actually negatively impacted our EBITDA quite drastically, but I will be unpacking our EBITDA in terms of what is a once-off cost and what is normal cost that will be business as usual of underlying performance. In terms of normalizing our EBITDA, we saw in H 21, our EBITDA sitting at ZAR 1.2 billion in comparison to H1 '22 where our EBITDA was sitting on ZAR 366 million. Some of the key aspect is that we had to support our business from a liquidity and cash flow perspective, that actually hit us in H '21 by ZAR 223 million, legal and consulting fees that were due from a recap perspective of close to ZAR 100 million and network site restoration as we decommissioned some of our network -- our towers to support our network strategy. And then also some of the lease conversions as we actually were expiring some of our leases into the OpEx line. And looking at the normalized EBITDA, we can say that for half year '21, we're sitting at ZAR 1.2 billion. Then I will touch on H1 '22 normalization, more or less following the same kind of trajectory, the one area that I wanted to touch on was actually the cost relating to winding down of our contract basis. As Douglas has shared earlier on, I'll move away from the postpaid business being heavily involved and focusing on our digital, simplicity and the prepaid base. We saw admin costs of winding down that book of closer [ to ZAR 160 million ] and also some of the write-down from an accounting perspective of our expected losses in terms of that book. So if we look at the normalized EBITDA, you could actually see that our EBITDA actually decreased by 16% if we compare half year '21 to '22. And this is really the underlying performance that was due by some of the challenges that we found where it was in the base and some of the gross adds that we needed to actually achieve with regards to operational challenges that we had. I also wanted to reconcile in terms of our net profit and loss as we've had quite much of a noise in the market with regards to this number. In terms of our H1 2021, we were sitting at a net profit of ZAR 148 million compared to H1 2022, where we're sitting at a loss of close to ZAR 2 billion. And there's a number of factors that have impacted on those. I've touched bases when I started my H1 presentation, in terms of the foreign impact where we saw the rand actually going weaker. And then also due to the freeze of some of our debt payments, we had a high interest charge and some finance charges coming through that because of the base being quite high. I've touched bases on the impairment that has negatively impacted us in terms of our business as we transition from our network in terms of the new model that we are seeing as a business. In terms of the true operational impact close to ZAR 460 million. It is mainly driven by our liquidity support that we actually had to offer for us to actually meet our day-to-day operations where our effective rate literally increased from 3% to 11% from a liquidity support perspective. And that 75% of the -- 11% of our discounts that we're giving to support our liquidity, we're merely a one-off in nature that we'll not be seeing moving forward. If we have to look at our balance sheet, this is actually said in the back-end way. Douglas took us through our day 1 balance sheet. By just quickly going through our H1 balance sheet, we're seeing our fixed assets are decreasing, mainly due to the network transition plan, and also reduction of our carrying value as we decommission some of our towers. Our intangible assets are increasing relating to our spectrum licenses. And that's what we're seeing currently in terms of 61% growth in that. Our trade and receivables increased airtime due in terms of our liquidity support. As I've mentioned previously, as we're going to be wind-downing now in terms of releasing, some of those trade and other receivables. Loans increased due to the weakening of the rand, as I've mentioned, the exchange rate impact previously and higher interest rates that we have seen as a result of the freezing of some of our loan payments. Our other liabilities and provisions were increased due to our credit stretches as we had negotiated certain terms with our existing creditors to allow us and enable us a space where we can get recap to a finalization. Our lease obligations and decrease, as I've mentioned before, moved and converted into our operating expenses as we actually go through the network transition and actually decreasing our leasing holds. If you have to look at our cash flows, I'll be quite brief on this one. As we've mentioned, moving forward, we will be seeing a compounded improvement rate of 30% in terms of our cash flows. And our cash generated from operations was lower, mainly due to the decrease in our EBITDA. Our capital expenditure increased mainly due to our spectrum fees. And then we're seeing that decrease in our cash flow financing activities is actually due to ongoing recapitalization measures and agreements that we reached in terms of the freeze of debt payments. The next section, ladies and gentlemen, I will be looking at FY 2021 in comparison to FY 2022. As we have 18 months that we're reporting on and segmented it into the 2 sections. As I have alluded before, in the financial year of FY '21, we saw ForEx losses of close to ZAR 519 million, and this was due to the weakening of the rand, where in the prior year, we had only seen ZAR 237 million in terms of that. Once-off costs, again, as you know, that recapitalization program has been running for the past 3 to 4 years within the Cell C organization, it negatively impacted us in the full year of FY '21 by ZAR 1.18 billion, that is compounded also by the liquidity support that we had to actually implement and also conversion of some of our finance leases into operating leases where you see them above the line. Our impairment has reduced by -- reduced by close to 99% and if we compare to prior year, where we actually impaired a huge amount close to ZAR 5.1 billion, in which in the year of 2021, we only impaired ZAR 35.9 million in terms of our impairment. Following in terms of our revenue performance, our revenue performance really held the negative impact was coming merely from our contract revenue as we were starting the transition, but also taking into account and the change in the consumer behavior during this period of COVID periods where we saw most of our consumers coming out of the prepaid -- the postpaid proposition into the prepaid proposition. Our operating expenditure increased due to some of the recap costs. And some of accruals that were made within this financial period as we were actually waiting for the recap process. Basically, our EBITDA was impacted negatively, but it really held in the year of FY '20 to '21. But the key reason for the decline was the postpaid business. If I should actually reconcile our normalized EBITDA for the full year of FY '20 to FY 2021, you will see that in FY '20, we are a business that settled an EBITDA of ZAR 2.8 billion, that when we normalize for 2 main factors that I've mentioned earlier on, we are a business that actually sat on ZAR 4.1 billion. And then in the year of FY '21, you could see that we are sitting at ZAR 2.5 billion. But if you have to take into account some of the lease conversion, we're sitting at the levels of ZAR 2.9 billion and taking into account all the costs that actually we had to incur overall. If we look at our -- at first glance, if you have to compare our EBITDA overall, you will see that we actually have performed quite better than what it's anticipated if you have to exclude all the once-off items that we have seen in our business overall. In terms of reconciling our net profit, you will see that an improvement. And this is what I really need to highlight to the market is that we were sitting at a net loss of ZAR 5.3 billion in FY 2020 in comparison now to the loss that we're sitting in, in FY 2021 of ZAR 390 million. Some of the key drivers that we saw in FY 2020 was our ForEx and that actually negatively impacted us. It was our interest and finance costs, and that impairment of ZAR 5 billion that I mentioned earlier on that came through into the numbers and materially our recap costs that will now not be incurred moving anywhere further. Just to remind the market, and everyone in terms of the ZAR 5 billion impairment loss, it was really mainly from the towers where we incurred a ZAR 1.9 billion in terms of owned towers and also ZAR 1.6 billion in terms of lease towers. As we transition in terms of our new network model, we will not be seeing such impairments coming through. If I move quickly into the FY 2021, you will see we kept costs coming through. Our impairment. As I've mentioned, we really took a big knock and a big hit in FY 2020 and then what actually impacted us quite negatively was the ForEx and the interest finance charges as most of our foreign debt that we actually were holding and freezing was incurring high interest charges and also the weakening of the rand. Therefore, if you look at really our underlying performance, you will see year-on-year, we are at ZAR 2.9 billion business in terms of operation. And at first, we have actually -- our net profit has declined by nearly 1% overall. In terms of our full balance sheet, Douglas has actually given a synopsis and a view of the day 1 balance sheet. -- but just to go through it, we've seen our fixed asset decrease due to the impairment that I've mentioned, our intangible assets in terms of our spectrum license acquired. And then also in terms of our trade and receivables as we went through the recap, we had to actually implement some measures in terms of our liquidity support. And we saw also in terms of our lease obligations declining, but that cost moving into our P&L above the line. In terms of our cash flows year-to-date, we saw our cash generation from operations actually decreased as a result in debtors' turnover as well as the support of recapitalization and liquidity costs. And then also, we saw high subscriber acquisition costs were incurred during FY 2020. And then also, we continue to service interest and capital repayment of it through the option from our stakeholders. And Douglas, over to you.

Thank you, Lerato. So looking forward, I guess, I guess for me, there is a 3.5 year finish line that's been had on the recap only for the baton to be handed over now for us to go and take on the next chapter of the post-recap environment. But certainly, look at looking at the focus going forward, obviously, we need to manage the post-recapitalization phase in terms of its operations and its liquidity management. It's absolutely essential that no areas of the past are rehashed again. We will work as vigorously and as hard as possible to complete the network migration of the remaining provinces by the end of 2023 or earlier. I've alluded to that we would be starting to look at bringing more products into the market that would then be innovative and more attuned towards listening to our customers. Continued investments in the key technology projects that are aligned to our strategy, namely the core network and the base stations support systems. And then a progression of our digital strategy, transforming and growing the core while scaling up for new opportunities. And this then, of course, obviously has to be underlined by the continuing building and supporting of this high-performance culture within having the right people in the right roles and getting this business into a place where it understands that it's very much got a place and a part to play within our economy and moving forward. I think this has been a very testing time for myself, my management team and my staff in general. And I think if anything, I'd like to just end this by saying a very big thank you to everybody who is involved in this in all of the stakeholder groups over listening to the last 3.5 years of Cell C and Cell C story, and we very much look forward to bringing the first set of results in a post recapitalized environment, where we can talk to what we're really doing and not focus on some of the history, but rather on the future.

Thank you, everyone. We will now be taking the questions that have come online. The first one is post recap having cleaned up the noise, the 1 Sources, et cetera, are you comfortable that going forward, there will be less noise in the numbers and fewer adjustments?

Thank you, [ Letiva ]. Definitely, we are confident and comfortable. We've been going through a very kind of due diligence for our business to ensure that we offer a sustainable business model. So there will not be any adjustments that are material unless there are any changes from accounting, recognitions, et cetera.

Thanks. Okay. The next 1 is going forward in line with the financial framework that you presented. What are going to be your focus areas and the measures post-recap?

Okay. We will always, as a business, go back to our 4 strategic pillars. Basically, the first one will be to ensure that the revenue delivery and growth translate as per our plans. The second one, we're going to be relentless in making sure that we've got a sustainable cost model to manage our costs. And the fourth one it is as a business that we have sufficient cash flows and look at enough to meet our short-term and our long-term requirements. And lastly, we want to actually have a stabilized balance sheet that is robust that we will actually be able to go out there in the market to raise capital in the future.

Okay. Thank you. The next one is from [ Paul Woodburn ] and he's got quite a few, I'll break them down. Is the new Capitec MVNO positive for Cell C? Can you walk us through the economics of this MVNO?

Thanks, Letiva. Well, it's definitely positive. I think, for Cell C, it's testimony to Cell C being the market pioneer an MVNO. It also talks to our view of partnering and collaboration within the market. Capitec is certainly, to our mind, being a very, very good acquisition for us as an MVNO. With regards to the economics of the deal, that's obviously commercially confidential in terms of our contract.

Okay. And why would a Capitec or an F&B not run an MVNO directly with MTN or Vodacom?

Nothing precludes him running an MVNO directly with the MTN or Vodacom. In fact, part of the ITA licensing bid was that all operates that offer MVNO services. But MVNO is a reasonably specialized area. It's not just the case of lumping a subscriber on to a network, and we believe that we understand the business better than any of the other operators at the moment. MTN is, for argument sake, already announced the fact that they've gone into MVNO with the announcement of the TFG Group joining them. So I think it just is a place where there will be increased competition and availability of services.

Okay. And the next one is the contribution of MVNOs to the business from a revenue perspective and the customer base.

So the revenue split is probably -- well, that actually -- it's around 15% and your customer base is -- on our current customer base, I would estimate just over 10%.

All right. And the next one, the sole [ Paul Hesse ] has a few here as an individual customer, what is Cell C offering that would make it compelling compared to MTN? Is it just price?

Well, that's a very good question. If you think about it as what is Cell C's response to all the MVNO customers that are coming on board. I think no price is not it. If it was price, we would supposedly on that notion be ahead because we already are at a price parity level that is below any of the networks. The big benefit, I think, is that we are very seriously taking the view that there's requirement from customers to do things differently. And as I've said earlier, it's an industry that's been incredibly prescriptive. There's an opportunity for us now to start looking at delivering very clear and simplistic pricing and what customers are looking for. So that's where we will focus.

Okay. And moving away from the wholesale business. What are the large related party transactions between Blue Label and Cell C going forward?

Well, in terms of that, as you know that Blue Label has supported us with regards to the recap proposition, and that is one of the major transition in terms of related party that I can actually mention at this point in time.

And the last one is, will the majority of Cell C economic profits accrue to Blue Label rather than Cell C monitories going forward?

I'll step in that one. I think we need to just look at related parties in a whole. All groups in the world have got related party transactions. The disclosures around related parties and the arm's length testing of related party transactions is probably the bigger question that needs to be answered. And I think earlier in the presentation, I think it was important for me to emphasize that the governance framework that we would put together over the last 3 years while building towards a recap is dealing in larger part with regards to that. So what accrues to Cell C will accrue to Cell C. [indiscernible] due to Blue Label as arm's length and related party would be like any company would handle it.

Okay. Thank Douglas. From [indiscernible], the question is how much is the new debt repayments for the recap and how will this affect Cell C's bottom line?

In terms of the facility, we have ZAR 1.4 billion nominal value and over -- fair valuing the facility over 5 years, it comes back to ZAR 4 billion. And this facility will be repayable only after 42 months post recap, in which ZAR 2.2 billion will be payable within -- after 42 months and the remainder of ZAR 1.8 billion will be payable in the next -- after the 66th month, which we are actually anticipating. And overall, the interest charge in that facility will come up to 2.6 billion over the period of 5 years.

Thank Lerato. You mentioned Cell C is investing in high-value opportunities. What are these opportunities? And I think it's related to the other question on a number of initiatives that have been mentioned.

High value.

high value. High-value opportunities. in the next coming months? What are these opportunities?

You're going to have to just wait until we bring them out because they're going to be in the product sets that are going -- but suffice to say, we're going to start challenging the market. I think, and it goes back to what I'm saying about bringing simplicity into a quagmire of pricing and plans that are in the market, and that's where we're going to go. We've realized that data is data, obviously, voice being connected is an absolute need for anybody to function, any business to function. And that's the opportunity that sits there and for us to be able to start maneuvering our product set and the evolution of the techco is premised on that. So look forward to products coming.

All right. [indiscernible] has asked, post recap, assuming a steady-state market, what is the level of normalized EBITDA, CapEx and interest expense you expect over the next year or 2?

Our normalized EBITDA is around ZAR 2.5 billion. And then in our CapEx, as we have said, that we believe we're going to be very CapEx light investing in our key IT infrastructure and our platform. We're looking around plus/minus ZAR 1.2 billion overall. And then on the interest side of things, Letiva, as I have mentioned that interest will only start being payable in most of our interest-bearing loans in the month of 42 months post-recap, and it will be around ZAR 2.6 billion over the period of 5 years with capital repayments.

Then the next question from Myuran of MIBFA. Is it possible to comment on the Capitec, MVNO deal specifically?

I need an elaboration specifically on the Capitec deal. I'm sorry, I don't really understand the question.

Is it possible to comment on the Capitec, MVNO deal, how profitable it is for Cell C compared to other deals? Is this question, that's the specifics.

No. Those are commercially sensitive agreements. So we will obviously, as we start reporting forward on a more normalized basis, start to split out those things. I think an earlier question around what the matrices will look like out of the business as it starts to do its evolution and all the noise is removed. And we go back to a normalized income statement and we can start to break out the various cohorts of the income makeup and expenditure.

All right. I think we will leave it there. Other questions have actually been answered as we carried on. Thank you very much.

Thank you, everybody.