Cell C made a net loss of R588 million in the first half of 2017, despite growing subscriber numbers and revenue during the six-month period. This compared to an interim profit of R3 million in the first six months of 2016.
Cell C grew its total active subscribers by 12%, from 14 million at the end of June 2016 to 15.7 million at the end of June 2017. Total interim revenue was up 11% to R7.7 billion and service revenue grew 12% to R6.3 billion; however, total expenditure was also up 8% year-on-year to almost R6.2 billion.
The financial information, for the six months to 30 June, comes from an investor presentation published by major shareholder Blue Label Telecoms ahead of a local and international investor roadshow, kicking off today.
In March, Cell C CEO Jose Dos Santos announced the operator had posted its first profit, of R540 million, for the year ending 31 December 2016, when the privately-owned company for the first time publicly announced its financial results. The operator's 1.7 million interim subscriber additions come after it grew its customer base by 20% from 12.8 million to 15.3 million in the 2016 financial year.
SA's third biggest mobile operator says it now has 8.1 million smartphones on its network and data traffic grew by 84% year-on-year. This was shown by the 33% year-on-year boost in interim data revenue to R2.6 billion. Average revenue per user was steady at R75 as of June.
Earnings before interest, tax, depreciation and amortisation for the first half of the year grew 16% to R1.6 billion.
In August, Cell C's long-awaited recapitalisation was completed, and the investor presentation confirms that as part of the recapitalisation, the company received R7.5 billion fresh equity from new shareholders.
After the close of the transaction, Blue Label Telecoms holds 45% in Cell C, 3C Telecommunications 30% (in turn held as 29.4% by the Employee Believe Trust, 45.6% by Oger Telecom and 25% by broad-based black empowerment grouping CellSAf), Net1 UEPS owns 15% and 10% is held on behalf of Cell C management and staff.
Post-recapitalisation, the company's debt is now sitting at R6.1 billion, significantly down from the previous debt levels of over R20 billion.
Cell C's capital expenditure was only R561 million for the six months to June, 68% less than the R1.7 billion it spent in the first half of 2016. The group acknowledged capital expenditure slowed in the first half of the year "due to the delayed recapitalisation but is expected to pick up again post-recapitalisation".
BEE battles
Cell C's BEE partner, CellSAf, has been for some time trying to block the recapitalisation and in late August it raised concerns over the deal, claiming it did not comply with various provisions of the Companies Act, the ECA or the Competition Act, and faced "a number of legal and regulatory hurdles".
Following this, the Independent Communications Authority of South Africa (ICASA) stated the telco may not have followed regulation in terms of its licence and said it was engaging Cell C to seek clarity on the apparent non-compliance.
Cell C, however, believes it made the necessary notification to ICASA as required in respect of the recapitalisation.
"Based on the many and various detailed legal opinions from eminent senior counsel obtained by the parties to the recapitalisation, Cell C has in fact followed the correct process," Cell C says.
The operator says it has now made extensive written and oral submissions to ICASA providing details of the structure and effect of the transaction.
"We are awaiting ICASA's decision as to whether to accept Cell C's position or to refer the matter to ICASA's Complaints and Compliance Committee for adjudication."
CellSAf also laid a complaint with the Competition Commission that Cell C had not obtained approval from the commission. However, Cell C says the recapitalisation was not a merger within the meaning of the Competition Act. It has also "made an extensive submission to the Competition Commission to explain the factual and legal position as to why this is not a notifiable merger".
"In November 2016, CellSAf issued summons in the High Court of South Africa against the then parties to the recapitalisation transaction seeking to have the agreements that had been signed prior to that date set aside. If this matter is ever heard by the court on the merits of CellSAf's claim, this is unlikely to be before 2019," Cell C adds.
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