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Business of Tech

Business stabilization efforts yielding results – Cell C

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South African mobile operator Cell C has published a trading update for its operational performance for the period from January to September 2023 (YTD September 2023) and July to September 2023 (Q3 2023), as well as its audited numbers for the 2022 financial year (FY22) and 2021 financial year (FY21).

The telco said it had slashed interest-bearing debt from 9 billion South African rands (US$481 million) to R3 billion ($160 million), fulfilling the objectives of its recapitalization drive.

"The company's business stabilization efforts are yielding improved results, positioning it to return to growth and enhanced competitiveness in the market," Cell C said in a statement on Monday.

"This year has been a rebasing year for Cell C and despite operating in a challenging landscape, exacerbated by load shedding, Cell C's business demonstrated resilience by maintaining the revenue position of R10.09 billion ($581 million) (YTD September 2023) versus R10.14 billion ($541 million) in 2022," the telco continued.

The company said because of the network transition and resultant decommissioning of network assets, property, plant and equipment decreased by R1 billion ($53 million).

"The lease concessions have also contributed to deleveraging the balance sheet. We have also issued an effective 11% of shares as part of the recapitalization transaction which changed Cell C's shareholding," the company continued.

"Overall negative equity improved year-on-year (YoY) but remained negative on December 31, 2022, and is expected to remain at these levels until the business turnaround is completed," Cell C added.

Cell C confident on prospects

Cell C CEO Jorge Mendes expressed his confidence in the company's prospects despite the 2022 financial year (FY22), with revenue dropping by 9% compared to FY21 in spite of a marginal increase in the customer base in 2022.

"The network transition implemented in line with Cell C's capex-light operating model resulted in an increase in roaming costs. Despite the increase in direct costs, the gross margin percentage improved from 29% in 2021 to 30% in 2022 due to a change in product mix," the company added.

Moreover, earnings before interest, tax, depreciation and amortization (EBITDA), reduced by 509% due to revenue reduction, the continued evolution of direct expenditure in line with the network transition plan and lower operating costs.

Cell C's earnings before interest, tax, depreciation and amortization (EBITDA), reduced by 509% due to revenue reduction, the continued evolution of direct expenditure in line with the network transition plan and lower operating costs.   (Source: Cell C)
Cell C's earnings before interest, tax, depreciation and amortization (EBITDA), reduced by 509% due to revenue reduction, the continued evolution of direct expenditure in line with the network transition plan and lower operating costs.
(Source: Cell C)

The company has not yet provided EBITDA for the six months ended June and nine months ended September 2023. During a virtual presentation, Cell C Acting CFO El Kope told the press that this is because they would not provide an accurate picture of the business due to the ongoing transformation.

Net profit before tax ended at R5.2 billion ($280 million) in 2022. The main drivers of the movement have been the recapitalization and the continuation of the network transition.

"Depreciation reduced by 39% YoY, in line with the network transition, with material impairments having occurred in 2021," the company added.

Cell C future expectations

Mendes highlighted that the telco has invested heavily in its current leadership team and he expressed full confidence in it.

"With our newly formed management team, building a great culture, a fully operational network and a robust strategy, Cell C is well-positioned to drive growth and profitability," he said.

"We have implemented several strategic initiatives to drive revenue generation and reverse the struggling performance we experienced in the past," he explained.

The mobile operator is confident that the deduction in its asset base as per its capex-light model will allow it to focus on driving profitable growth in the future.

"I am pleased that in the last quarter of 2023, we are seeing improved performance momentum," he said.

"By leveraging our robust network infrastructure, we aim to capitalise on growth opportunities in the market and deliver sustainable performance in coming years," Mendes explained.

Mendes told Connecting Africa in a virtual interview that the company's capex-lite strategy has ensured that even though it shed low-value customers, it is retaining its more profitable customer base.

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*Top image is of Cell C CEO Jorge Mendes. (Source: Vodacom).

— Matshepo Sehloho, Associate Editor, Connecting Africa

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