Cell C records R5.5bn annual loss
CELL C, South Africa’s fourth largest mobile phone operator, reported a R5.5 billion loss during the year ended December from R4.08bn loss a year earlier as impairments and once-off costs weighed heavily on the group’s balance sheet.
Cell C said yesterday, Tuesday, that it had incurred a R5bn impairment charge, which resulted in a 62 percent reduction in fixed and intangible assets to R3bn compared with R8.5bn a year earlier.
Once-off costs included recapitalisation costs amounting to R434 million and R248m towards network site restoration, the group said. The weakening of the rand to R14.68 against the dollar compared to R13.99 a year earlier had also resulted in a R237 million forex loss.
Chief financial officer Zaf Mohamed said Cell C was confident it would unlikely see impairments in the next few years given that the impairments had been booked in 2020. Despite the full year loss due to impairments and once-off costs, the business remained strong, demonstrated by the recovery from the R7.6bn loss recorded during the first half of 2020, he said.
“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,” said Mohamed.
Mounting debt and loss of market share led Cell C to embark on a turnaround in 2019, which resulted in the group unveiling a recapitalisation programme set to be finalised later this year. The group also embarked on an aggressive cost-cutting initiative and announced a strategy ramp-up whose key was a roaming agreement with MTN.
Peter Takaendesa, the head of equities at Mergence Investment Managers, said it had been a very difficult environment to implement a turnaround strategy given a tough economic environment, Covid-19 lockdowns and increasing competition as the big two mobile operators were forced to reduce data prices by the competition commission.
Takaendesa said there were some early signs that Cell C had managed to stabilise the business but he believed there was still a lot to be done to get Cell C to a sustainable level.
“The recovery in the second half has largely been driven by significant cost reductions and unfortunately for affected stakeholders it looks the company has to keep looking for ways to reduce its cost base further to fit its new network strategy and leaner business model. Recapitalising the balance sheet and the success of the roaming agreement with MTN are key to Cell C’s long-term sustainability,” said Takaendesa.
As part of cost-cutting measures Cell C pointed to saving R171m going forward after halving the headcount to 1 340 from 2 600 a year earlier. It had migrated 700 000 members of its contract base to Vodacom as it shut down its radio access network to save costs.
Chief executive Douglas Craigie Stevenson said Cell C’s strategy of focusing on more profitable customers was bearing fruit as the average revenue per prepaid customer (ARPU) had increased by 28 percent on a year-on-year basis, despite a decline in its prepaid subscriber base by 15 percent to 9.2 million customers.
“We continue to clean the customer base and make (sure) that our customer acquisitions make sense in terms of revenue generation and quality service we want to offer as well as move forward with the recapitalisation of the balance sheet,” said Craigie Stevenson.
Cell C, which was South Africa’s fourth largest telco after being overtaken by Telkom last year, said its total subscriber base was also back up to more than12.5 million up from 11.7 million during the first half of 2020.
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