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Cell C will be profitable, says CEO, rules out merger

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Cell C is in no rush to deliver profit.
Cell C is in no rush to deliver profit.

Debt-burdened mobile operator Cell C will make profit.

So said CEO Douglas Craigie Stevenson in an interview with ITWeb yesterday after the company posted an R8 billion loss.

Craigie Stevenson reiterated Cell C is not considering a merger as an option to make it competitive and profitable.

He believes the telco still has a fighting chance to reverse its fortunes.

Cell C has been lurching from crisis to crisis over the year, leading to analysts suggesting consolidation as the saving grace for the under-fire mobile operator.

“Our position is that there are a lot of initiatives that can take place, especially in the Cell C environment, before we could consider any consolidation. The smaller operators must operate differently as they cannot keep the capex profile like the big operators,” said Craigie Stevenson.

“I think this market is able to carry four networks, and we also need to look at the reasons for consolidation.”

Premature move

Despite Cell C’s ballooning debt, which now sits at R8.24 billion from R7.44 billion last year, Craigie Stevenson said business rescue is unthinkable.

“I think it’s premature to look at business rescue at the moment. We don’t believe business rescue will benefit the company, or the industry as a whole.”

Craigie Stevenson noted the telco is in discussions with shareholders and its lenders regarding the debt.

“We have been an investment or company in the making for the past 19 years and we have never produced profit to date. The implementation of a strong governance framework is important, and so is the implementation of a performance type of a culture within the organisation.

“There is an investment case in this business and it needs to be looked at going forward. We have to get it right and we have to compete on the market.”

For the financial year ended May 2019, Cell C’s EBITDA was 19% lower at R3.4 billion (2018: R4.18 billion). Net finance costs were down by 44% to R2.15 billion, mainly as a result of the lower finance costs on long-term debt and a reduction in forex losses.

Craigie Stevenson, who is betting on a win in the turnaround strategy, says the mobile operator will soon announce a new roaming deal with MTN SA.

With the deal, he noted, it is expected Cell C will be able to manage its network capacity requirements in a more scalable and cost-efficient manner.

Also speaking during the interview, Zaf Mahomed, chief financial officer of Cell C, refuted reports that Cell C owed MTN SA some money from the roaming deal.

It had been widely reported that Cell C had failed to pay MTN its dues, burdening MTN with an unpaid bill of R393 million.

Cell C CEO Douglas Craigie Stevenson.
Cell C CEO Douglas Craigie Stevenson.

“We are completely up to date with our payments. You can confirm with MTN,” Mahomed said.

Trim debt, inject funds

Ofentse Dazela, director for pricing research at Africa Analysis, believes Cell C needs to significantly reduce its current debt levels and get a massive capital injection to remain a going concern and profitable business.

“I don’t see how its current strategic initiatives alone, which include freezing the recruitment of new employees, optimising roaming agreements and the recent discontinuation of its wholesale fixed-LTE service, among others, will help them to move away from this ominous-looking future.

“Unless stakeholders are prepared to dig deep into their pockets and provide the much-needed capital injection, I am afraid the end is inevitable for the mobile network operator.

“Cell C shareholders are in a bit of a predicament at the moment – it is a case of you are damned if you cut your losses and run, or be prepared to spend a pretty penny if you stay, as there will be no financial returns for them in the foreseeable future.

“In a case of Blue Label Telecoms [which holds 45% of Cell C’s shareholding], simply writing off a R5.5 billion investment in just a little over two years is a bitter pill to swallow. They are trying at all costs to make this liaison work.”

Peter Takaendesa, portfolio manager at Cape Town-based Mergence Investment Managers, says the current Cell C business model is clearly not sustainable and he believes the company needs to narrow its focus to become a smaller but profitable business.

“It is still possible for Cell C to become a profitable business but that requires a major shift in its business model, significant cost reduction and raising capital to repair its balance sheet.

“All these required interventions take time and are difficult to implement, particularly in the current economic environment and state of the telecoms industry, so execution risk remains very high. Failure to execute on the above will surely result in Cell C bleeding cash to death in the near future.”

Takaendesa thinks recapitalisation without changing the Cell C business model will simply be kicking the can down the road.

“Significant restructuring and recapitalisation need to be implemented together in order to save on operational and finance costs at the same time. The longer term problem will be how to grow revenue profitably, but for now they have to deal with the stabilisation phase first,” he concluded.

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