Net1 Concludes Investments in Cell C and DNI - Seite 2

"The conclusion of our recapitalization with the introduction of key strategic partners like Net1 and Blue Label, sets Cell C up to be a disruptor in the traditional mobile market in South Africa," said José Dos Santos, CEO of Cell C. "With Net1's products, logistical expertise, technology and rural footprint, along with distribution platforms of Blue Label and DNI, we are confident of picking up a significant amount of share in an otherwise relatively stagnant industry," he added.

Transaction details

Cell C:

Net1 has acquired a 15% direct interest in the issued share capital of Cell C for a consideration of ZAR 2 billion ($151 million based on exchange rates as of August 1, 2017). The purchase consideration was settled using a combination of ZAR 750 million ($57 million) in cash and ZAR 1.25 billion ($95 million) in debt. The debt facility provided by RMB and Nedbank is a two-year straight-amortizing facility with quarterly repayments and an interest rate of JIBAR + 2.75% (approximately 10% per annum at current rates). In terms of the subscription agreement, Net1 has the right to nominate two directors to the board of Cell C. Net1's investment in Cell C forms part of the larger recapitalization plan for Cell C, which has resulted in Cell C's net indebtedness being reduced from approximately ZAR 19.5 billion ($1.47 billion) to less than ZAR 6 billion ($453 million). For the year ended December 31, 2016, Cell C's revenue increased 11% to ZAR 14.6 billion ($1.1 billion), while EBITDA grew 59% to ZAR 3.1 billion ($234 million) and it reported its first net profit of ZAR 540 million ($41 million). Cell C's current year results are tracking higher than the previous year. Net1 will account for its investment at the purchase consideration paid for the year ended June 30, 2018, and expects the investment to be mildly dilutive to fundamental net income* in the 2018 financial year. Thereafter, the investment will be accounted for at fair value, and is expected to be accretive to fundamental net income*.

DNI:

Net1 has acquired a 45% direct interest in the issued share capital of DNI for a consideration of ZAR 945 million ($72 million). The purchase consideration was settled utilizing existing cash reserves. Under the terms of the transaction, Net1 is obliged to pay DNI an additional amount not exceeding ZAR 360 million ($27 million) in cash, subject to DNI achieving certain performance targets. Net1 has a two-year option to acquire a further 10% interest in DNI. DNI is highly cash generative and for the 12-month period ending June 2018, DNI expects revenue of between ZAR 1.6 to ZAR 1.8 billion ($121 million to $136 million) and net income after tax (using the South African corporate tax rate of 28%) of approximately ZAR 220 million ($17 million). DNI is currently tracking ahead of prior year results, current year budgets, and the level of earnings needed to achieve the performance targets. The Company expects to account for its interest in DNI utilizing the equity method. The investment is expected to be accretive to fundamental net income* in fiscal 2018.