Cell C makes R22 million loss – MyBroadband

Blue Label Telecoms has released its annual results for the year ended 31 May 2024, revealing that Cell C made R22.4 million before-tax loss between 1 June 2023 and 31 May 2024.

Blue Label Telecoms is Cell C’s largest shareholder. It holds a total economic interest of 63.19% in Cell C with 49.53% of the shareholder voting rights.

During the period, Cell C’s revenue declined from R11.85 billion to R11.28 and net profit before taxation declined from a R4.9 billion profit to a R22 million loss.

Factoring in a rebate and over-provisioning on taxes from the previous year, Cell C’s net profit after taxation was R298 million. This is much lower than the profit of R4.63 billion last year.

However, Cell C’s net profit after taxation of R4.63 billion in 2023 included extraneous income of R6.90 billion related to the recapitalisation transaction’s effects.

The extraneous income was predominantly related to debt release, and secured lenders accepted 20c to the rand as part of the recapitalisation.

Cell C recorded a loss of R2.30 billion for the year when the extraneous income was excluded. It shows that Cell C’s operational performance improved over the last year.

The mobile operator remained technically insolvent. Its liabilities of R17.3 billion exceeded its assets of R14.1 billion.

However, the balance sheet looked a little better. Its negative equity of R3.2 billion was much lower than the R4.0 billion last year.

That shows that Cell C is progressing in cleaning up its balance sheet and is on a path to becoming solvent.

However, the mobile operator is not out of the woods yet. Blue Label highlighted that The Prepaid Company (TPC) still contributed towards Cell C’s working capital requirements.

“As part of the recapitalisation transaction of Cell C, TPC is obligated to purchase R1.2 billion of additional prepaid airtime through four quarterly payments of R300 million each,” Blue Label stated.

“To fund these working capital requirements for Cell C, Comms Equipment Company (CEC) sold a portion of its handset receivable book to financial institutions,” it added.

“The funds generated from this transaction are transferred from CEC to TPC, and ultimately to Cell C through the acquisition of airtime as referred to above.”

Blue Label said TPC faced a reduction in core headline earnings due to certain rebates and a reduction in discounts from Cell C ending following its recapitalisation.

Cell C’s big turnaround plan

The improvement in negative equity is a good sign that Cell C’s turnaround plan is showing promising results.

Cell C hired veteran Vodacom executive Jorge Mendes last year to take over as CEO of the beleaguered mobile operator from 1 July 2023.

Mendes soon established his own leadership team, pulling in many former colleagues from Vodacom.

“It was important to stabilise leadership and hire the best professionals in the field with the technical competencies to deliver,” Mendes told MyBroadband during a recent interview.

“One of my biggest ambitions from the start was to build and foster a great, inclusive culture and team spirit,” Mendes said.

“An amazing culture will help people navigate both good and bad days.”

Mendes said a critical focus was fixing the basics in Cell C’s core business.

This included addressing operations and structures, understanding the financial position, and identifying key business drivers.

“This has enabled us to drive high performance rigorously and focus on returning to profitable growth, which remains high on our agenda,” he said.

Cell C said Q3 2023 was the first quarter in the year where it saw year-on-year revenue growth.

Major network improvement

Another key area was Cell C’s mobile network performance, which also improved substantially during the year.

Recent data from MyBroadband’s Speed Test app showed that Cell C’s average download speed for the year-to-date was 32.17Mbps — 41% faster than the average speed during the same period last year.

The average upload speed recorded on Cell C’s network in 2024 was 11.03Mbps, a 32% jump compared to last year.

Cell C’s average latency also improved by 17% from 52.48ms to 43.48ms.

These improvements helped Cell C overtake Telkom and rank third behind MTN and Vodacom in network quality during the first quarter of 2024.

The mobile operator told MyBroadband that the positive result was due to its new network strategy, which it has been implementing over the last four years.

Cell C realised it could not compete with Vodacom and MTN’s level of investment into their networks and would need to partner with them to stand a chance of being competitive.

In 2021, Cell C migrated its contract customers onto Vodacom through a traditional roaming agreement.

It also began migrating its prepaid customers and mobile virtual network operator clients — like FNB and Capitec Connect — onto a virtual radio access network (RAN) built and operated by MTN.

This virtual RAN uses Cell C’s radio frequency spectrum, with the added benefit of roaming on MTN’s network.

Cell C completed this migration in 2023 when it switched off the last of its towers.

Cell C CTO Schalk Visser said this strategy significantly improved connectivity for their customers.

“This business model is similar to other asset-light models like Airbnb and Uber, who provide services without owning the assets,” he said.

“It will allow Cell C to focus investment on deep customer centricity and quality experience, as well as to deliver value and choice to customers.”