Digicel posts negative cash flow for year ending 2017
The Digicel Group generated negative cash flow for its financial year ending March 2017 but is on track to break even by 2020, according to United States-based Moody's Investors Service, which tracks the telecommunications company's financials.
At the same time, the telecoms secured US$635 million in new loans that it plans to use to refinance its existing debt, stated Moody's, which affirmed its rating for the company.
"Digicel generated negative free cash flow in both fiscal 2016 ended 3/31/16 and fiscal 2017 ended 3/31/17 due to elevated capital expenditure," stated Moody's, which did not disclose the financial figures but stated that cash flow should improve going forward. "Moody's expects the company to reduce its cash burn in fiscal 2018 (ended 3/31/18) and approach break-even."
The Financial Gleaner sent queries to Digicel for comments but it traditionally avoids full disclosure on its financials as the company, founded and controlled by Irishman Denis O'Brien, is privately held.
"Thank you, but we will not be providing comments on this," said Antonia Graham, head of group public relations at Digicel.
Digicel operations span more than 30 markets in the Caribbean, Central America and the Pacific Islands. Moody's affirmed a B2 family rating for the company and its debt. It said Digicel's B2 rating reflects its product and geographic diversification, good margins, and leading market position.
"The stable outlook reflects Moody's view that Digicel will grow revenues and earnings-before-interest-tax-depreciation-amortisation (EBITDA) such that Moody's adjusted debt to EBITDA will return below 6-times and will be sustained under that level within the rating horizon," said Moody's in its statement posted on Digicel's website.
In addition, Moody's has assigned a Ba2 rating to Digicel International Finance Limited's (DIFL) new $635 million term loan B, US$100-million revolving credit facility and US$300-million term loan A. "The proceeds will be used to repay a US$837-million credit facility at DIFL as well as for general corporate purposes," said the ratings agency.
Moody's said that it also affirmed the B1 rating on the unsecured notes of Digicel Limited and the Caa1 rating on its unsecured notes.
"The outlook remains stable," said Moody's.
Digicel recently announced its 'Project Swan', which aims to cut operating expenses while reducing its headcount. Moody's expects this to positively benefit the company, which would see its debt maturities reach US$2.25 billion in 2020 that equates to US$2 billion at Digicel Group and US$250 million at Digicel Limited. It would then dip to US$1 billion afterwards towards 2023, said Moody's.
"Digicel's rating is constrained by its high leverage of approximately 6.5 times (Moody's adjusted, 12/31/16) and aggressive financial policy, which includes frequent debt- funded acquisitions and opportunistic dividend payments. Additionally, Digicel's ratings are negatively impacted by its negative free cash flow, despite high margins, due to high capital intensity and interest costs, despite modest underlying growth in constant currencies," stated Moody's,
Moody's sees Digicel as having adequate liquidity and expects the company to have approximately US$200 million in cash and full access to the new US$100-million revolving credit facility issued by DIFL at the close of this refinancing transaction, said Moody's.
The company is in the final stages of network expansions/ upgrades, fibre-to-the-home and cable expansions, upgrading acquired cable businesses, and 4G roll-outs in the Caribbean and Pacific geographies. Moody's projects Digicel will continue to spend heavily on cap ex in FY2018, but to a lesser degree due to the completion of capital initiatives; and Digicel should transition to positive free cash flow in the financial year 2018-19 period, said Moody's.
Moody's said that it could upgrade Digicel's rating if the company showed continued "restraint" with respect to dividends and if leverage were on track to fall below four-times debt-to-EBITDA (Moody's adjusted). A rating upgrade would also require Digicel to generate free cash flow in excess of five per cent of total debt (Moody's adjusted) on a sustained basis while maintaining very good liquidity.