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Business of Tech

SA's Cell C reports $386M full-year loss

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South Africa's embattled mobile operator, Cell C, has reported a yearly loss of R5.5 billion (US$386 million), which was actually an improvement from its first-half loss of R7.6 billion ($533 million).

The operator announced its results for the 12 months to the end of December 2020, saying its turnaround strategy was having a positive impact and stabilizing the business.

Cell C's CFO, Zaf Mahomed, said in a virtual press briefing on Tuesday that although the company made a full-year loss due to impairments and once-off costs, the latter six months of 2020 was encouraging.

"Our results reflect a business in transition. We are starting to see the impact of our changes which included a focus on more profitable subscribers and through the reduction in costs a shift to revenue generating activities. The foundations are now in place," Mahomed said.

Normalized earnings before interest, tax, depreciation and amortization (EBITDA) were 30% higher at R4.1 billion ($287 million) as a result of the positive impact of cost containment initiatives and the stabilization of subscriber revenue and the group's gross margin, Cell C said.

But total revenue for the 12-month period was down by 8% to R13.8 billion ($967 million), with the largest part of the revenue contribution from Cell C's prepaid base at R6.2 billion ($435 million).

Customer profitability

The company's recent strategy to focus on more profitable customers is bearing fruit as the group recorded a 28% year-on-year increase in average revenue per user (ARPU) for prepaid customers. That was despite a decline in the prepaid subscriber base by 15% to 9.2 million customers.

Overall, the group's total subscriber base was back up to over 12.5 million, after dropping to 11.7 million in the first half of 2020. However, subscribers still declined 13% from 14.4 million at the end of 2019.

Table courtesy of Cell C's results presentation for the year ended December 31, 2020.
Table courtesy of Cell C's results presentation for the year ended December 31, 2020.

"Our turnaround strategy has improved our financial performance as a mobile network operator and Cell C is operationally more efficient. Over the next three years we will fully transition to roam on partner networks – all with the aim of providing a quality network, innovative value offerings for our customers and ensuring a profitable and sustainable business," said Cell C's CEO, Douglas Craigie Stevenson.

"Cell C is now generating cash and the performance shows that the business is operationally stronger. The fit-for-purpose entity can effectively implement its business strategy and with a recapitalization will benefit from a revised capital structure with manageable debt to ensure long-term sustainability," he added.

Earnings before interest, tax (EBIT) improved from a loss of R5.3 billion ($371 million) in the first six months of 2020 to a profit of R1.8 billion ($126 million) in the second half.

A net profit of R2.1 billion ($371 million) was declared for the last six months of 2020, however, because of an impairment and once-off expenses in the first half of the year the group still came out with a net loss before tax of R5.5 billion ($386 million), compared to a loss of R4.1 billion ($287 million) in 2019.

From telco to tech-co

Craigie Stevenson said that Cell C's focus in the future will be to evolve from a telco into a digital lifestyle company or "tech-co" by 2024.

"To stay competitive, Cell C had to take a different approach against our larger rivals which are all heavily invested in capital-needy infrastructure – multiple operators with large scale infrastructure simply doesn't make financial sense. We will collaborate on infrastructure but compete on products and services."

He said the Cell C team is highly focused to turn Cell C into a profitable, innovative player and is on track in achieving that ambition.

"2020 laid the foundation for change – our earnings are up; our margins are stabilizing and there is a single-mindedness on cost management. We are leading the way in building a reimagined Cell C that creates value for its stakeholders," he added.

Cell C is yet to finalize its long-awaited recapitalization deal.

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*Top image is of Cell C's CEO, Douglas Craigie Stevenson. (Source: Cell C).

— Paula Gilbert, Editor, Connecting Africa

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