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Cell C records R7.5bn loss, prepaid subscriber base plunges 34%

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Financially-distressed mobile operator Cell C recorded a R7.5 billion net loss after tax in the six months ended June, the company announced today.

The current losses were preceded by a massive double-digit drop in its subscriber base; however, Cell C remains optimistic and is forging ahead with its restructuring strategy to optimise operations.

Cell C says the half-year net loss was mainly as a result of once-off costs and adjustments, including impairments to the value of R5 billion.

According to the company, R5 billion worth of assets (network and right-of-use assets) were impaired due to the new MTN network arrangement.

Cell C and MTN entered into a roaming deal in 2018 that provided 3G and 4G services in areas outside of the main metros to Cell C, and the agreement was extended last year.

The latest Cell C results will likely add pressure to the already struggling Cell C, which has been facing operational and liquidity constraints.

The company is currently involved in a bitter fight with trade unions over retrenchments.

Cell C has consistently under-performed, incurring R33 billion in losses over the years. Last year, the telco posted a R4.2 billion loss and in 2018 losses were R7.3 billion.

It is still awaiting conclusion of a new funding deal being negotiated by Blue Label Telecoms, the largest shareholder of Cell C.

Blue Label recently promised the telco will be recapitalised this year, as the key partners have made huge inroads in negotiating the funding deal.

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

Brett Levy, Blue Label joint-CEO, noted in a media virtual roundtable that Cell C recap negotiations had been strenuous for the past year-and-a-half, but all parties to the proposed deal have been engaging and the transaction will be concluded before year-end.

For the current period under review, Cell C says considering the once-off recapitalisation and restructuring costs, it reported lower earnings before interest, taxes and amortisation at R1.2 billion, compared to R1.4 billion in 2019.

Earnings before interest and taxes (EBIT) for the period was declared at a loss of R5.3 billion, compared to a profit of R90 million in first half of 2019.

“Excluding once-off recapitalisation and restructure costs, EBIT for H1 2020 would have been at R162 million, an improvement of 80%,” says Cell C.

Cell C chief financial officer Zaf Mahomed comments: “We remain focused on restructuring the balance sheet and optimising the business for long-term competitiveness. We have a legacy debt challenge in our balance sheet, rather than an income statement one which will be addressed with the recapitalisation.

"The first six months of 2020 was characterised by the continuing slowdown in the economy which weakened general customer spend. We have taken active steps to reduce our focus on pure revenue and subscriber growth, and have shifted to more profitable, long-term growth in the prepaid and contract segments. We were also able to generate R418 million more cash from operations compared to the previous period."

Cell C also revealed that in the last 12 months, its prepaid subscriber base plunged 34.6%, with the company saying this is in line with management’s strategy to rationalise its subscriber customer base while retaining profitable customers.

“This translated into only a 9.9% decrease in prepaid revenue, while gross margin grew by 11.5% and prepaid average revenue per user (ARPU) increased by 26.9%. The rationalisation process translated into an overall improvement in the customer base and a further 4.8% increase in prepaid ARPU since the end of June 2020,” says the company.

Furthermore, the wholesale business declined by 7%, and Cell C says this is due to an exit from wholesale agreements, “which diluted margins and congested the network; the MVNO portion continued to reflect a solid growth and delivered an 18% increase to R398 million”.

Despite the challenging operating environment, Cell C CEO Douglas Craigie Stevenson remains optimistic.

“Our turnaround strategy rests on four pillars, namely: improved operational efficiencies, restructuring our balance sheet, implementing an innovative network strategy and improving our overall liquidity. This set of results highlights that our operational focus is in line with our effort to reposition Cell C for long-term success.”

According to Craigie Stevenson, Cell C’s focus in the future will be on offering the right solutions and services, and understanding the needs of its customers.

He explains: “To stay competitive, Cell C had to take a different approach against our large rivals who are all heavily invested in capital-hungry infrastructure – three operators with large-scale infrastructure simply doesn’t make financial sense.

“Our vision is to be the biggest aggregator of wholesale capacity and customers to the infrastructure providers. We will collaborate on infrastructure but compete on products and services. The 4G roaming agreement with MTN is the first step in cost synergies and bringing tangible benefits to our customers.”

He says Cell C’s strategy is aligned with this new approach and the management team is highly focused to turn the company into a profitable, innovative player in the local telecoms industry.

“The last six months show the early signs of recovery − our earnings are up, our margins are stabilising and there is a strong single-mindedness on cutting additional costs. We are leading the way in building a reloaded Cell C that creates value for its stakeholders.”

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