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Cell C signals optimism, elevated by half-year performance

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 27 Oct 2021
Cell C CEO Douglas Craigie Stevenson.
Cell C CEO Douglas Craigie Stevenson.

Mobile operator Cell C has been buoyed by an improved half-year performance in which it reported R148 million profit before tax.

Cell C, which today reported interim results for the six months to June, says this is a turnaround in profitability from a R7.6 billion loss reported year-on-year. Earnings before interest and taxes also increased to R736 million (H1 2020: R5.3 billion loss).

The telco credited the current performance to “significant impairment of network assets in the previous financial year and operational expenditure savings in this reporting period”.

Last year, Cell C had an impairment of R5 billion, as it evolves to become a buyer of infrastructure services, and decommissions its own physical infrastructure by 2023.

In the current reporting period, Cell C maintained average revenue per user (ARPU) at R66 year-on-year, while growing the prepaid customer base by 15% to 9.6 million.

The mobile operator’s operational expenditure decreased by 25% to R1.7 billion compared to R2.2 billion during the same period in 2020.

Further, Cell C says, its total subscriber base has grown to close to 13 million; last year, it had 11.7 million subscribers in the comparable period.

However, total revenue for the six-month period was down by 5% to R6.6 billion (H1 2020: R6.9 billion), “with the largest part of the revenue contribution from Cell C’s prepaid base at R3 billion (H1 2020: R3.1 billion) and a reduction in its post-paid base by 25% to R563 million (H1 2020: R754 million)”.

CEO Douglas Craigie Stevenson says: “Our financial performance has improved, and we are making good progress on the three-year transition to a virtual RAN (Radio Access Network), the implementation of our new business model and the introduction of new products to market.”

“We have successfully migrated 40% of the network, with access to 7 500 towers, of which 95% are 4G/LTE-enabled. Four provinces are now fully migrated, namely Eastern Cape, Free State, Northern Cape and Limpopo. We will continue to add new sites, which will reduce our network deficit. In two years, we will have access to more than 12 500 sites across the country, improving the quality and coverage of our network.

“This has enabled us to get back into the broadband market, reconsider the mix of products we offer and sustain our ARPU at R66 year-on-year, while growing the prepaid customer base by 15% to 9.6 million (H1 2020: 8.4 million) in the first half of 2021.”

More cash needed

Going forward, CFO Zafar Mahomed says Cell C would need more than R5 billion capex annually to build a comparable network, and this would also take several years to implement.

Instead, the operator says it is deploying an asset-light infrastructure model and plans to invest capex of R1 billion a year, which includes technologies to support the platform model it is implementing as it evolves to a technology company.

Additionally, Mahomed says: “Our three most valuable assets that are not on our balance sheet and underpin our transformation journey are spectrum, a loyal and profitable customer base, and a resilient brand. Together with our network strategy, consumer-driven digital products and solutions, as well as our focus on a high-performance culture, we have a sound platform from which to compete and assist us to deliver on our strategic intent.”

The mobile operator says despite improvements in the income statement and being on track to return Cell C to profitability, a recapitalisation is needed to address the debt on the balance sheet.

Cell C’s largest shareholder, Blue Label Telecoms, which holds a 45% stake, is in negotiations with potential funders to recapitalise the financially-strained mobile operator.

Blue Label announced in August that it had concluded a term sheet for an airtime purchase transaction with Investec, Rand Merchant Bank for the recapitalisation.

The recapitalisation of Cell C has been on the cards for some time, as shareholders continue to engage with potential investors.

In a statement today, Cell C says recapitalisation is the final pillar in its turnaround strategy and will provide momentum to effectively manage the transition and focus on profitable revenue growth.