After a 2020 of Abysmal Losses Has Cell C Started Bouncing Back?

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Image sourced from Town Press

Cell C’s interim results for the 6-month period to June 2021 have been released and highlight continued improvements in profitability and operational efficiency of the mobile operator with a $9.8-million (R148-million) net income before tax for the period compared to its abysmal performance in H1 2020 which saw Cell C amass $500-million (R7.6-billion) in losses.

The company says in a statement that its latest performance fits its new operating model and network strategy which “attracts new customers through innovation in products and services.” Cell C says that steady progress is being made as the company transitions and finalises a recapitalisation to strengthen its balance sheet.

Cell C’s recent profits are mainly due to the 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 $333.8-million (R5-billion), as the company evolves to become a buyer of infrastructure services and decommissions its own physical infrastructure by 2023.

“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,” says Cell C’s CEO, Douglas Craigie Stevenson.

Stevenson highlights that the company successfully migrated 40% of its network, with access to 7,500 towers of which 95% are 4G/LTE enabled. He adds that now four provinces are 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 average revenue per user (ARPU) at $4.41 (R66) year-on-year while growing the prepaid customer base by 15% to $640K (R9,6 million) in the first half of 2021.”

Cell C Sees Subscriber Growth but Revenue Decreases 

The total subscriber base has grown to close to 13.0 million from 11.7-million in H1 2020.

Total revenue for the 6-month period was down by 5% to $440-million (R6,6-billion) compared to $460-million (R6.9-billion) in H1 2020, with the largest part of the revenue contribution from Cell C’s prepaid base at $200.2-million (R3-billion) as compared to $206.9-million (R3,1-billion) in H1 2020 and a reduction in its postpaid base by 25% to $37.5-million (R563-million) as compared to $503.3-million (R754-million) in H1 2020.

The company assures that the contract and broadband revenue decrease is in line with Cell C’s approach to optimise its customer base.

“To improve the overall operational efficiency and returns of managing its 1.6 million postpaid and contract broadband subscriber base Cell C entered into a commercial agreement with Comm Equipment Company and Vodacom. Underlying this decision was the opportunity to move away from heavily subsidised devices, which Cell C could not get a return on due to its network shortfall. Going forward, as the network quality continues to improve the company will offer products based on customer need rather than driven by the device subsidy.”

Gross margin declined by 15% and overall direct expenses increased slightly to $240-million (R3,6-billion) as compared to $233.6-million (R3.5-billion) in H1 2020 while operating expenditure has been reduced to $113.4-million (R1,7-billion) as compared to $146.8-million (R2.2-billion) in H1 2020 because of the reduction in network expenses and administration costs.

Cell C Moves Away from Heavy Infrastructure

“In this wholesale aggregator model, transition and virtual RAN costs will increase as we bring on sites on a like-for-like basis. This will be offset by the savings in network CAPEX, related lease payments as well as reduced network maintenance-related costs. Even though the RAN costs will result in a decreased EBITDA, the net result will be lower depreciation, as well as an increase in cash flow due to the savings on capex and lease payments,” says Zaf Mahomed, CFO of Cell C.

Cell C would need more than $333.8-million (R5-billion) CAPEX annually to build a comparable network, this would also take several years to implement. Instead, the operator is deploying an asset-light infrastructure model and plans to invest CAPEX of $667.4-million (R1-billion) a year which includes technologies to support the platform model it is implementing as it evolves to a technology company.

“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,” Mahomed added.

Despite improvements in the income statement and the company on track to return Cell C to profitability, a recapitalisation is needed to address the debt on the balance sheet.


Edited by Luis Monzon
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