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Cell C begins transition to digital lifestyle company

In its annual results release today, Cell C revealed a 28% year-on-year increase in average revenue per user – and its vision for the future

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Cell C will make a full transition to a roaming service, operating on partner networks, over the next three years, says its CEO.

The announcement comes as Cell C releases its annual financial results for the 12 months to December 2020, highlighting that its turnaround strategy is having a positive impact in stabilising the business and improving the quality of earnings.

“Our turnaround strategy has improved our financial performance as a mobile network operator and Cell C is operationally more efficient,” says CEO Douglas Craigie Stevenson. “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 said 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 earnings before interest, taxes, depreciation and amortisation (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 says 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 to 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.”

Cell C reported today that 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,” he says. “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).

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