Cell C posts its first-ever full-year profit

2017-03-14 13:55 - Gareth van Zyl
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Cell C's head office in Johannesburg. (Gareth van Zyl)


Johannesburg - South Africa’s third largest mobile network Cell C recorded its first full-year profit of R540m, following a R5.6bn loss in the previous year.

The mobile network, which first started operations in 2001, also toned down subscriber numbers to 15.3 million - a diversion from its previous claim that it had over 20 million users.

Revenue increased 11% to R14.6bn while earnings before interest, tax, depreciation and amortisation (Ebitda) grew 59% for the period to R3.1bn.

The disclosure of Cell C’s results comes as the company is opening up its books to the public to a greater extent amid a deal by JSE-listed Blue Label Telecom to buy 45% of the company.

Cell C CEO Jose Dos Santos attributed the swing to profit to a stronger rand.

"It's mainly got to do with forex. Part of the problem of our organisation is really we had foreign debt,” said Dos Santos, as he referred to the company’s debt bill of over R20bn.

"As the exchange rate of the rand improved, and that's the adjustment on the financials... Although the bigger portion of that swing is forex related, it just shows the clear indication of the profitability and growth path of the company.

"If you look at Ebitda...good, solid growth,” said Dos Santos.

Meanwhile, he added that the planned recapitalisation of Cell C will further aid the company.

In its deal to acquire 45% of Cell C’s share capital, Blue Label [JSE:BLU] late last month also said the “binding umbrella restructure agreement” is expected to bring Cell C’s maximum net borrowings to about R6bn.

READ: Last-minute deal reached between Cell C, Blue Label

This is as controversial social grants provider Net1 UEPS Technologies [JSE:NT1] is also set to subscribe for 15% of Cell C’s share capital at R2bn.

"More importantly, post this recapitalisation there will be no forex exposure and of course the interest will come right down,” said Dos Santos.

"With an Ebitda of R3bn, you're looking at a two times debt equity ratio, which is a good performance. Well, it's a good place to be," he said. 

The recaptalisation deal has come about amid Cell C's downgrade this year to a ‘D’ credit rating by ratings firm Standard & Poor’s (S&P). This is the lowest junk status rating for a corporate company. 

S&P’s decision to lower the mobile network’s credit status change from ‘CC’ to ‘D’ reflected Cell C's decision to miss interest payments in January 2017 on €400m (R5.7bn) in senior secured bonds due in 2018, said the ratings agency.

Data revenue boost

Apart from the lift provided by a stronger rand, Dos Santos said Cell C is also benefiting from strong data revenue growth of 35% year-on-year (y/y). The company has also recorded data usage growth of 67% for the period and said data revenue comprises 37% of its service revenue, compared to 30% a year ago.

In total, the company said its active data customers are up 23% to 12.5 million subscribers.

In comparison, its voice revenue declined 2% y/y, in line with trends in the global telecommunication space.

On the wholesale side of Cell C’s business - which includes sales on its mobile virtual network operators (MVNOs) - the company’s revenue rose 147% to R370m.

Dos Santos said Cell C has also signed on Lycamobile as an MVNO. Lycamobile is a mobile virtual network operator operating in 21 countries worldwide.

Currently, Cell C MVNO clients include the likes of local banking giant FNB.

Cell C also invested R3.4bn during 2016 in its network and other fixed and intangible assets, rolling out predominantly LTE and LTE-Advanced. Cell C’s total capital expenditure over the last four years amounted to more than R11.6bn, added the company.

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