Cell C’s turnaround strategy is having a positive impact in stabilising the business and there is an improvement in the quality of earnings Cell C, according to the company’s annual financial performance for the 12 months period to December 2020.
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 six 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).
Douglas Craigie Stevenson, CEO of Cell C, states: “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 adds that the decrease in its overall operating costs – on an annual basis the business removed more than R500-million 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 adds 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 says investors are looking forward to the proposed recapitalisation deal that will provide working capital aimed at driving revenue growth and profitability.