Cell C says turnaround strategy is starting to bear fruit

SA’s third largest mobile operator, Cell C, said on Monday it was starting to see positive results from its turnaround strategy as it continued efforts to change its operating model, address its debt and recapitalise its operations.

For the year to December 2019, the operator saw a 1% decline of service revenue to R14.2bn, while earnings before interest, tax, depreciation and amortisation (ebitda) fell 15% to R2.5bn. These results were due to tough economic conditions which resulted in higher, bad debt and delays in implementing the revised MTN roaming agreement penalised financial performance, the company said.

Total subscribers fell 16% from 17.2-million in 2018 to 14.4-million in 2019, with the largest decline attributed to prepaid customers.

Cell C’s CEO, Douglas Craigie Stevenson, said “I don't believe these were bona fide customers,” explaining that despite this loss of subscribers, their average revenue per user had gone up across its prepaid, contract and broadband customers.

He said the green shoots of the turnaround strategy, which was implemented from March 2019 onwards, were now visible.

“Operationally the business is stronger and a successful recapitalisation will secure the long-term sustainability of Cell C.”

Comparing the second half of 2019 to the first, the operator said gross profit increased by 9% and ebitda more than doubled to R1.7bn. Excluding impairments, the network operator made a profit of R705m before interest and tax, in the last six months of 2019, the company said.

Cell C, which has laboured under a huge debt pile, said the turnaround strategy was focused on operational efficiencies, including cutting costs that did not translate to revenue-generating opportunities, minimising operating expenses and optimising traffic.

The second pillar is a network strategy, which is an evolution of the capital intensive, high fixed-cost infrastructure-based network to a variable-cost operating expense model, resulting a roaming deal with larger rival MTN in November 2019.

The third pillar is improvement in liquidity and a new capital structure through a recapitalisation, which will take at least another month to complete, Craigie Stevenson said.

Cell C turned down a takeover bid from Telkom at the end of 2019. That’s despite the positives of a tie-up: combined financial muscle and about 28-million subscribers, which may give both operators a fighting chance against Vodacom and MTN.

Craigie Stevenson said they had worked hard to make sure that their debt did not go up during the period, standing at R8.7bn.

Cell C’s declining fortunes have resulted in Blue Label and Net1 writing their combined R7.5bn investment down to nil. The company has struggled to make consistent profits since it became SA’s third cellphone operator in 2001.

The operator recently decided to review its operating model and organisational structure, specifically at a senior manager and executive level. This has resulted in highlighting a number of inefficiencies that are contributing to the operating and financial challenges the company currently faces, the company said.

Consultations are expected to be concluded by the end of April.

gavazam@businesslive.co.za