Cell C shows profit before tax — grows subscribers

Cell C has released its interim results for the six-month period to June 2021, showing a profit before tax and subscriber growth compared to this time last year.

The mobile operator reported a R148-million profit before tax.

This is a turnaround in profitability from a R7.6-billion loss reported year-on-year. EBIT increased to R736-million (H1 2020: R5.3-billion loss).

This is mainly due to the significant impairment of network assets in the previous financial year and operational expenditure savings in this reporting period.

Last year Cell C had an impairment of R5-billion. The company said it is evolving to become a buyer of infrastructure services and will decommission its own physical infrastructure by 2023.

“Our financial performance has improved, and we are making good progress on the three-year transition to a virtual Radio Access Network, the implementation of our new business model, and the introduction of new products to market,” said Cell C CEO Douglas Craigie Stevenson.

“We have successfully migrated 40% of the network, with access to 7,500 towers of which 95% are 4G/LTE enabled,” he said.

“Four provinces are now fully migrated, namely Eastern Cape, Free State, Northern Cape and Limpopo. We will continue to add new sites which will reduce our network deficit.”

Craigie Stevenson said that in two years, Cell C would have access to more than 12,500 sites across the country, improving the quality and coverage of its network.

“This has enabled us to get back into the broadband market, reconsider the mix of products we offer, and sustain our average revenue per user (ARPU) at R66 year-on-year while growing the prepaid customer base by 15% to 9.6 million (H1 2020: 8.4 million) in the first half of 2021.”

According to Cell C, it sustained its ARPU despite declining postpaid revenue because it focused on more profitable customers.

Cell C’s total subscriber base increased to almost 13 million, up from 11.7 million last year.

Cell C’s total revenue for the six months was down by 5% to R6,6-billion (H1 2020: R6.9-billion), with the most significant part of the revenue contribution from Cell C’s prepaid base at R3-billion (H1 2020: R3.1-billion).

Revenue from postpaid subscribers decreased by 25% to R563-million (H1 2020: R754-million).

The operator assured that the contract and broadband revenue decrease aligns with its approach to optimise its customer base.

Cell C said that to improve its overall operational efficiency and returns of managing its 1.6 million postpaid and contract broadband subscribers, it entered into a commercial agreement with Comm Equipment Company and Vodacom.

Underlying this decision was the opportunity to move away from heavily subsidised devices, which Cell C could not get a return on due to its network shortfall.

As the network quality improves, Cell C said it would offer products based on customer need rather than driven by the device subsidy.

Zafar Mahomed, Cell C CFO
Zafar Mahomed, Cell C CFO

Gross margin declined by 15%, and overall direct expenses increased slightly to R3.6-billion (H1 2020: R3.5-billion) while operating expenditure has been reduced to R1.7-billion (H1 2020: R2.2-billion).

The decrease in operating expenditure is because of the reduction in network expenses and administration costs.

“Our three most valuable assets that are not on our balance sheet and underpin our transformation journey are: spectrum, a loyal and profitable customer base, and a resilient brand,” said Cell C Chief Financial Officer Zaf Mahomed.

Cell C said that despite improvements in the income statement and being on track to return Cell C to profitability, a recapitalisation is needed to address the debt on the balance sheet.

The company said that a recapitalisation is the final pillar in Cell C’s turnaround strategy and will provide momentum to manage the transition effectively, focus on profitable revenue growth and the overall simplification of the cost base, putting Cell C on the path to long term sustainability.

Now read: Cell C slashes data prices

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Cell C shows profit before tax — grows subscribers