Cell C makes R8-billion loss

Cell C has released its latest annual financial results, which show a net loss, after tax, declared at R8.03-billion.

This is compared to a net loss of R656 million in 2018.

Cell C’s results release coincides with that of Blue Label Telecoms – which owns a 45% stake in Cell C – and is releasing its annual financial results today.

Key highlights from Cell C’s income statement for the year ended May 2019 were:

  • Service revenue was up by 4% to R14.2-billion (2018: R13.5-billion)
  • EBITDA decreased by 19% to R3.39-billion (2018: R4.18-billion)
  • Low capital intensity of R1.9-billion – 12% of revenue
  • A net loss, after tax, was declared at R8.03-billion

“The net loss after tax includes impairments to the value of R6.275-billion. We performed an annual impairment test on the carrying value of the property, plant, equipment and intangible assets (cash generating unit “CGU”) during the 31 May 2019 period,” said Cell C.

“The impairment was calculated at the higher of fair value less cost to sell or the value in use. The impairments assumptions were made on the cash flows which were limited to the generation of cash by the CGU with no regard to new technology, expansionary growth or the pending recapitalisation transaction.”

“The exclusion thereof are requirements of IAS 36 (Impairment of Assets). It should be noted that future impairment assessments may result in the reversal of impairments recognised in this period.”

Turnaround plan

Cell C said that the turnaround strategy it implemented recently is progressing well, and has resulted in an 18% increase in EBITDA during the past three months.

Other indicators over the last three months were:

  • Year-on-year quarterly service revenue (June-Aug 2018 vs June-Aug 2019) grew by 2%
  • Year-on-year quarterly gross margin down 9%
  • Year-on-year quarterly EBITDA was 18% higher

Cell C CEO Douglas Craigie Stevenson said that he is confident Cell C will stabilise and recover to the benefit of all stakeholders.

“Our turnaround strategy is focused on ensuring operational efficiencies, restructuring our balance sheet, implementing a revised network strategy, and improving our overall liquidity. Cell C has a real opportunity to address its historical performance through a focus on operations that will restore shareholder value,” he said.

This strategy includes several cost-cutting initiatives, which are:

  • Black streaming service – a review of the channel options for the streaming service, which will ensure a saving of R120 million annually.
  • Rebalancing traffic and retail products – Cell C removed non-profitable products and increased its focus on retail product pricing and wholesale pricing.
  • Implementing a cost efficiency programme – this was done across all expense lines in the organisation.
  • Shifting service revenue back to growth – this will be achieved through a more focused approach on profitable products and re-energising distribution channels.

Total revenue and customers

Looking at total revenue, Cell C said it achieved R15.4 billion for the period, which was a 1% increase year-on-year.

This was thanks to growth in the contract (+6%), broadband (+20%), and wholesale (+14%) segments.

“The performance was offset by the decline in prepaid revenue (-1%) due to a decline in the prepaid customer base (-4%) and a decline in equipment revenue (-25%) due to an increase in subsidies driven by the market.”

There was also drop in total subscribers by 2% to 15.9-million – while ARPU of contract customers increased by 11% to R253 per customer.

Net debt

Cell C’s net debt, excluding finance leases, increased from R7.44 billion to R8.24 billion, it said. This was driven by the increased capital expenditure and working capital drawdown facilities.

“Networks will be a utility in the future with one or two mobile infrastructure providers per country and it does not make economic sense to overbuild on basic infrastructure. Against this background, we are in negotiations for an extended roaming agreement which will enable Cell C to manage its network capacity requirements in a more scalable and cost-efficient manner. This will also provide access to current and future technologies,” said Cell C.

It added that a consortium of local banks committed to provide a liquidity platform that will allow for the recapitalisation of Cell C.

“In addition to the new funding facility, lenders have extended the maturity of an existing R1.175-billion funding facility which would have matured in August 2019,” said Cell C.

Now read: Blue Label in big selling spree

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Cell C makes R8-billion loss