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cell c's turnaround strategy yields improved financial performance as the telco aims to transition to a techco by 2024

Tuesday, 20 April 2021

Key highlights:

  • Net loss pared back to R5,5-billion for the full year compared to R7,6-billion for H1
  • Normalised EBITDA 30% higher at R4,1-billion (2019: R3,2-billion)
  • 28% year-on-year increase in ARPU for prepaid customers
  • Positive cash flow as reflected in cash EBITDA at R844-million (2019: R240-million)

Tuesday, 20 April, 2021 – Johannesburg – Cell C, today released its annual financial performance for the 12 months period to December 2020 which highlights that the company’s turnaround strategy is having a positive impact in stabilising the business and there is an improvement in the quality of earnings.

Normalised EBITDA was almost 30% higher at R4,1-billion as a result of the positive impact of cost containment initiatives and the stabilisation of subscriber revenue and gross margin.

Total revenue for the 12-month period was down by 8% to R13,8-billion (2019: R15,1-billion), with the largest part of the revenue contribution from its prepaid base at R6,2-billion (2019: R6,9-billion). The company’s strategy of focusing on more profitable customers is bearing fruit as the average revenue per prepaid customer (ARPU) has increased by 28% on a year-on-year basis, despite a decline in its prepaid subscriber base by 15% to 9,2-million customers. The YTD ARPU of prepaid customers highlights an encouraging upward trend over the last four six-month cycles, moving from R52 (H1:2019) to R69 (H2:2020).

The operator’s gross margin declined by 7% and its cost optimisation resulted in overall direct expenses being 9% lower at R7-billion (2019: R7,7-billion). The total subscriber base was also back up to over 12,5 million (H1 2020: 11,7 million).

Zaf Mahomed, Chief Financial Officer of Cell C says 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.”

Considering the once-off costs which included expenses allocated to impairment, recapitalisation and the costs associated with network restoration, the normalised EBITDA was 30% higher at R4,1-billion (2019: R3,2-billion). EBIT improved from a loss of R5,3-billion in the first six months of 2020 to a profit of R1,8-billion in the second half.  A net profit of R2,1-billion was declared for the last 6 months of the annual period, however because of an impairment and once off expenses in the first half of the year the net loss before tax was R5,5-billion (2019: loss of R4,1-billion).

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

He added that the decrease in its overall operating costs – on an annual basis the business removed more than R500m worth of expenditure – and the focus on more profitable customers, has resulted in positive cash flow as reflected in its cash EBITDA being reported at R844-million (2019: R240-million).

“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 recapitalisation will benefit from a revised capital structure with manageable debt to ensure long-term sustainability.”

Craigie Stevenson added that Cell C’s focus in the future will be on evolving to a digital lifestyle company that offers value for money solutions and services by understanding the needs of its customers.

“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 says 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 stabilising 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 concluded that investors were looking forward to the proposed recapitalisation deal that will provide working capital aimed at driving revenue growth and profitability.

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