With a stronger second-half performance during the year ended December 31, embattled telecommunications operator Cell C is confident its turnaround strategy is starting to bear fruit.
The operator, which implemented a turnaround strategy in March last year, says it is now an operationally sound business that is financially viable and competitive.
“Operationally, the business is stronger and a successful recapitalisation will secure the long-term sustainability of Cell C,” says Cell C CEO Douglas Craigie Stevenson.
Cell C achieved improved operational efficiencies, with the positive impact of these changes flowing through in the latter half of the 2019 reporting period.
The turnaround strategy included a liquidity focus and network strategy, which have been completed, as well as ongoing opera- tional rationalisation and the current recapitalisation.
The efforts are bearing fruit, as Cell C posted a full-year operating loss of R3.94-billlion in 2019, compared with the 2018 loss of R7.36-billion, he says.
For the full year under review, earnings before interest, taxes, depreciation and amortisation (Ebitda) contracted 15% to R2.5-billion.
However, comparing the first six months of 2019 with the last six months of 2019, gross profit increased 9% and Ebitda more than doubled to R1.7-billion.
Excluding impairments, the mobile operator made a profit of R705-million, before interest and taxes, in the last six months of 2019.
Gross operating income was 9% up at R3.8-billion in the second half of 2019.
Further, the company saved R522-million during the past six months and reported 18% lower operating expenses.
The turnaround strategy was focused on operational efficiencies, including cutting costs that did not translate into revenue-generating opportunities, minimising operating expenses and optimising traffic.
Meanwhile, revenue levels remained steady at R15.2-billion during the year ended December 2019, with service revenue contracting 1% to R14.2-billion.
“Although there was a decrease of 2.9-million prepaid customers – a 21% drop – in the 12 months to 2019, the margin on our existing customers is better as a result of acquiring profitable customers and not signing on a customer at any cost,” Craigie Stevenson explains.
“Revenue from equipment sales, on a year-on-year basis, was 27% down, as we moved away from subsidising customers at all costs. This enabled us to build a quality customer base with better margins and quality of service,” adds Cell C CFO Zaf Mahomed.
The group has actively managed and pursued more profitable customers, which resulted in the reduction of the customer base, while removing non-profitable products and increasing the focus on retail product pricing.
Mahomed cites, as an example, the cancellation of the wholesale fixed long-term evolution services that were no longer feasible.
The network strategy is an evolution of the capital expenditure- (capex-) intensive, high-fixed-cost infrastructure-based network to a variable cost operating expenditure model.
“We are shifting from a build-and-buy strategy with high capex to a roaming model. By effectively managing traffic, we ensure the network cost is aligned with the network revenue,” he says.
“There were several contracts and transactions that were reviewed or renegotiated in order to streamline the business and ensure that the costs incurred are business beneficial.”
“This set of results is based on our old model. We are confident that a new way of business based on the extended roaming agreement with [telecommunications group] MTN will lead to even greater strategic clarity and operating momentum,” says Craigie Stevenson.
In November, MTN and Cell C concluded an expanded roaming agreement that will extend Cell C’s coverage nationwide, with a 36-month implementation starting in early 2020.
Improved business performance allows for a successful recapitalisation with a sustainable debt stack, he assures.
“The business performance allows for a successful recapitalisation to take place with a sustainable debt profile.”