Digicel takes $50m charge for redundancies and restructuring

Bonds in company surge amid first signs of an earnings turnaround in fourth quarter

Haitians line up in 2006, at the newly opened Digicel office in Port-au-Prince to get new cellular phones and service. Photograph: Thony Belizaire/AFP/Getty Images

Haitians line up in 2006, at the newly opened Digicel office in Port-au-Prince to get new cellular phones and service. Photograph: Thony Belizaire/AFP/Getty Images

 

Denis O’Brien’s mobile phone company Digicel, which operates in emerging markets, booked a charge of about $50 million (€44.4 million) in the year to March to cover its biggest-ever restructuring programme, which will result in a quarter of its workforce leaving the company by the middle of next year.

Market sources said the group, which operates in 31 markets across the Caribbean and Asia Pacific regions, saw its earnings before interest, tax, depreciation and amortisation (Ebitda) fall by 8 per cent in the financial year to $1.03 billion, as it continued to be weighed down by currency weakness across some of its main markets.

However, the group experienced what it will hope was the beginning of a turnaround in the fourth quarter, when Ebitda rose 6 per cent on the same period last year to $280 million. This marked the first period of year-on-year earnings growth for Digicel since early 2015.

When currency effects were stripped out, earnings increased 14 per cent during the final three months of the financial year, driven by cable television and broadband income, as well as its business-solutions arm.

Huge job cuts

In February, Digicel outlined plans to cut more than 1,500 jobs, or 25 per cent of its staff, over 18 months as it seeks to reboot earnings and lower the burden of its $6 billion-plus debt pile. The cost-cutting programme, Project Swan, is based around moving functions scattered across its various markets to four regional hubs.

The restructuring charge taken last year is believed to cover the bulk of the programme. The group also entered a multi-year deal with Chinese telecommunications equipment and systems group, ZTE, earlier this year to upgrade its network in a deal that is expected to see it lower its capital investment costs in each of the next few years.

Digicel had a net debt level of $6.2 billion at the end of March, according to the sources, with its debt-to-Ebitda ratio falling to 5.8 times from just north of 6 times in December. The group has made a commitment to investors to lower this ratio to 4.5 times by March 2019.

High capital spending

Having spent billions of dollars in recent years investing in its network, capital expenditure fell by about €170 million last year to €430 million. Fitch, a leading credit ratings agency, noted last month that Digicel had been dogged by having “negative” free cash flow in recent years due to high capital spending on fibre networks, thus making it difficult to chip away at its debt mountain.

Last month the group raised $1.255 billion in long-term debt to allow it repay existing borrowings that were due to be repaid by 2020. The deal would give it significant financial headroom as it focuses on the massive restructuring programme.

Mr O’Brien, who set up Digicel in 2001, received $1.1 billion in dividends from the group in the three years to the middle of 2015.

Digicel’s $2 billion of bonds due to be repaid in 2020 surged 1.7 per cent, sending the market interest rate, or yield, down from 10.2 per cent to below 9.7 per cent, the lowest since Mr O’Brien scrapped a planned flotation of the group in October 2015.