Cell C Financial Report Reflects R7.5-billion Loss

Cell C has published its interim results for the six months ended June 2020, reflecting a R7.5-billion net loss after tax. The company said this loss was mainly as a result of once-off costs and adjustments, and also reflects impairments to the value of R5 billion.

R5 billion worth of Cell C’s network and right-of-use assets were impaired due to the new MTN network arrangement.

The company’s reported EBITDA is lower than the same period last year at R1.2 billion, and EBIT was declared at a loss of R.53 billion compared to a profit of R90 million in the first half of 2019.

Cell C said that excluding once-off recapitalisation and restructure costs, EBIT for H1 2020 would have been at R162 million – an improvement of 80%.

“We remain focused on restructuring the balance sheet and optimising the business for long-term competitiveness,” said Cell C CFO Zaf Mahomed.

“We have a legacy debt challenge in our balance sheet, rather than an income statement one which will be addressed with the recapitalisation.”

Cell C CEO Douglas Craigie Stevenson said the company is on track with regards to its turnaround plan. He said he expects operating margins to improve over the medium term as Cell C transitions to its new business model.

Subscriber decline and revenue

Cell C’s prepaid subscriber base declined by 34.6% over the last 12 months, which the company said was in line with management’s strategy to rationalise its customer base.

“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%,” Cell C said.

“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.”

Overall revenue was at R6.9 billion, and more than 89% of its revenue came from service revenue, which was 6% lower at R6.5-billion, while hybrid and fibre-to-home saw an increase in sales of 16.7% and 11.1% respectively.

Cell C added that revenue from the wholesale business reflected a 7% decline due to an exit from wholesale agreements which diluted margins and congested the network, but the MVNO portion delivered an 18% increase to R398-million.

Craigie Stevenson said Cell C’s turnaround strategy rests on four pillars: improved operational efficiencies, restructuring its balance sheet, implementing an innovative network strategy, and improving its 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,” he said.

“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 customer to the infrastructure providers. We will collaborate on infrastructure but compete on products and services,” Craigie Stevenson added.

He said the 4G roaming agreement with MTN is the first step in cost synergies and bringing tangible benefits to the network’s customers.

Despite the significant net loss after tax, Cell C stated that its turnaround strategy is yielding results, which are shown in the infographic below.