The future of Cell C has been a big, unanswered question for sometime now but this morning the network operator provided an update on its turnaround strategy as well as how the business itself is doing.
Financially speaking, things are looking okay but not great. For the second half of 2019, Cell C made a profit of R705 million excluding impairments and before tax and interest are deducted.
While it’s not the billions in profit we see from the likes of Vodacom, for a firm that is struggling coming close to a R1 billion is admirable.
In terms of revenue, Cell C reports R15.16 billion in revenue for 2019 compared to R15.67 billion in 2018.
As for the sources of that, mobile revenue accounts for R11.68 billion. While prepaid revenue fell five percent year-on-year, revenue from broadband services was actually up two percent lessening the blow in subscriber revenue decrease to just three percent.
“Although there was a decrease of 2,9 million prepaid customers – a 21 percent 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. Revenue from equipment sales, on a year-on-year basis, was 27 percent 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,” explained chief financial officer at Cell C, Zaf Mahomed
Also of note is Cell C bringing its operating expenses down by 18 percent. The network operator has also managed to save R522 million in the last six months.
“There were several contracts and transactions that were reviewed or re-negotiated in order to streamline the business and ensure that the costs incurred are business beneficial. For example the negotiation of the black [the now defunct streaming service] liability realised savings of R177-million,” reported Mahomed.
The CFO also explained that Cell C recently reviewed it operating model and organisational structure. This highlighted a number of inefficiencies that have encumbered the firm financially and operationally particularly at a senior management and executive level.
The firm says consultations will continue into April, when they are expected to conclude.
It appears then as if Cell C is weathering the storm and green shots that have been nurtured by the firm’s turnaround strategy are starting to appear.
“Operationally the business is stronger and a successful recapitalisation will secure the long-term sustainability of Cell C,” said Cell C chief executive officer, Douglas Craigie Stevenson.
The CEO added that Cell C is shifting from a build and buy strategy to a roaming model. This is partly due to the former requiring swathes of capital expenditure.
“By effectively managing traffic we ensure the network cost is aligned with the network revenue. It does not make economic sense to continue to invest in capital-hungry infrastructure and the business is now positioned to go into the next phase with our roaming agreement,” said Craigie Stevenson.
It should be noted that these results are built on Cell C’s old model and the CEO expects better momentum given the roaming agreement with MTN.
“We are optimistic that the hard work of fixing the operations prepares us to conclude the recapitalisation and to continue to be a customer champion delivering innovative service offerings,” the CEO concluded.
Overall things look good at Cell C but the real test will be how the firm looks a year from now.
In fairness however, it has been just over a year since Cell C implemented its turnaround strategy and these results show that what Craigie Stevenson et al are doing, is working.