More Africa NewsSouth Africa: Loss-making Cell C evolves into digital services company

April 21, 2021by myles0

Cell C is transitioning into a digital lifestyle company, as it tries to fend off competition and remain competitive.

The mobile operator says the evolution will make it more agile and able to hold off competition by taking a different approach, as its larger rivals are all heavily invested in infrastructure.

Cell C today announced its full-year financial results for the period ending December 2020, with CEO Douglas Craigie Stevenson revealing his vision to transform the telco in three years.

The company says an annual impairment assessment was performed and this resulted in an impairment of R5.1 billion. While the gross margin percentage increased by 0.5%, Cell C’s current year net loss after tax, excluding the impact of impairment, is a loss of R380 million.

“To stay competitive, Cell C had to take a different approach against our larger rivals, which are all heavily invested in capital-needy infrastructure – multiple operators with large-scale infrastructure simply doesn’t make financial sense. We will collaborate on infrastructure but compete on products and services,” says Craigie Stevenson.

“2020 laid the foundation for change – our earnings are up, our margins are stabilising and there is a single-mindedness on cost management. We are leading the way in building a reimagined Cell C that creates value for its stakeholders.”

In recent months, the firm has been advocating for infrastructure sharing, saying it doesn’t make sense to continue spending billions on infrastructure, as it would rather be focusing on being customer-centric, as opposed to being network-centric.

Craigie Stevenson says Cell C’s focus in the future will be on evolving to a digital lifestyle company as it transitions into a much more valuable entity.

Cell C says its financial performance for the 12-month period to December 2020 is an indication it is turning the tide after many years of depressed performance.

The mobile operator has been under-performing for some time, generating significant losses of R33 billion over the years. However, CFO Zafar Mahomed says Cell C is on the mend and the turnaround strategy being implemented by management is yielding positive impact, stabilising the business and improving the quality of earnings.

“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,” says Mahomed.

In the period under review, Cell C says, earnings before interest and taxes improved from a loss of R5.3 billion in the first six months of 2020 to a profit of R1.8 billion in the second half.

The operator declared a net profit of R2.1 billion for the last six months of the annual period; however, because of an impairment and once-off expenses in the first half of the year, the net loss before tax was R5.5 billion (2019: loss of R4.1 billion).

In the 12 months, Cell C says its strategy of focusing on more profitable customers is succeeding as the average revenue per prepaid customer has increased by 28% on a year-on-year basis, despite a decline in its prepaid subscriber base by 15% to 9.2 million customers.

The operator’s gross margin declined by 7% and Cell C says its cost optimisation resulted in overall direct expenses being 9% lower at R7 billion (2019: R7.7 billion). The total subscriber base was also back up to over 12.5 million (H1 2020: 11.7 million).

“Cell C is now generating cash and the performance shows the business is operationally stronger. The fit-for-purpose entity can effectively implement its business strategy, and with a recapitalisation, will benefit from a revised capital structure with manageable debt to ensure long-term sustainability,” says Mahomed.

Source: IT

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