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Cell C reports R7.6bn interim net loss

Mainly due to once-off costs and adjustments.
Image: Moneyweb

Mobile operator Cell C has reported an interim net loss after tax for the six months to June 2020 of R7.6 billion, but said this was mainly the result of once-off costs and adjustments and that normalised earnings actually grew by 64% to R1.8 billion.

Read: Blue Label Telecoms Sens on Cell C’s interim results

The net loss after tax figure includes impairments to the value of R5 billion, Cell C said on Tuesday. Net loss after tax in the same period in 2019 was R875 million.

Revenue came in at R6.9 billion compared to R7.4 billion a year ago. More than 89% of its revenue came from service revenue, which was 6% lower at R6.5 billion, while hybrid and fibre-to-the-home services saw an increase in sales of 16.7% and 11.1% respectively.

“In line with management’s strategy to rationalise its subscriber customer base while retaining profitable customers, the prepaid subscriber base declined by 34.6% over a 12-month period.

“This translated into only a 9.9% decrease in prepaid revenue, while gross margin grew by 11.5% and prepaid average revenue per user (Arpu) increased by 26.9%. The rationalisation process translated into an overall improvement in the customer base and a further 4.8% increase in prepaid Arpu since the end of June 2020,” Cell C said in a statement.

And, although revenue from the wholesale business showed a 7% decline due to an “exit from wholesale agreements that diluted margins and congested the network”, the mobile virtual network operator portion delivered an 18% increase to R398 million. MVNO customers include the likes of First National Bank and Virgin Mobile.

Operating margin
Chief financial officer Zaf Mahomed said that despite the challenging circumstances that impacted on the commercial spend, the company was still able to improve its operating margin.

“The first six months of 2020 was characterised by the continuing slowdown in the economy which weakened general customer spend. We have taken active steps to reduce our focus on pure revenue and subscriber growth and have shifted to more profitable, long-term growth in the prepaid and contract segments. We were also able to generate R418 million more cash from operations compared to the previous period.”

Reported earnings before interest, tax, depreciation and amortisation was R1.2 billion, down from R1.4 billion. R5 billion worth of assets (network and right-of-use assets) were impaired due to the new MTN South Africa network deal. Earnings before interest and tax (Ebit) was a loss of R5.3 billion, compared to a profit of R90 million in the first half of 2019. Excluding once-off recapitalisation and restructure costs, Ebit for the first half of 2020 would have been at R162 million, an improvement of 80%, Cell C said.

“We remain focused on restructuring the balance sheet and optimising the business for long-term competitiveness.

“We have a legacy debt challenge in our balance sheet rather than an income statement one, which will be addressed with the recapitalisation,” Mahomed said.

CEO Douglas Craigie Stevenson said Cell C’s focus will be on offering the right solutions and services and understanding the needs of its customers.

Douglas Craigie Stevenson. Image: Supplied

“To stay competitive, Cell C had to take a different approach against our large rivals who are all heavily invested in capital-hungry infrastructure – three operators with large scale infrastructure simply doesn’t make financial sense. Our vision is to be the biggest aggregator of wholesale capacity and customer to the infrastructure providers. We will collaborate on infrastructure but compete on products and services.”  — © 2020 NewsCentral Media

This article was first published on TechCentral here.

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It is said that one shouldn’t invest in something they don’t understand. Blue Label Tel is once such company right now. I for one do not understand their play with holding on to Cell C. They should’ve sold this unicorn.

https://www.moneyweb.co.za/tools-and-data/click-a-company/BLU/ claims the following:

Blue Label’s core business is the virtual distribution of secure electronic tokens of value, predominantly prepaid airtime

How does a company that is predominantly a seller of prepaid airtime holding on to a company focused on post paid services? It’s a pass for me, I’ll keep my money in Aveng 😀

A sterling job -to lose R7,6 BILLION. Maybe go to Eskom, Denel or SAA for lessons as clearly the quality of the management is the same

Lucky for Telkom, they tried very hard to buy Cell C not too long ago?

The asset impairment : was that of real assets or previously written up intangible assets?

This IFRS system certainly creates (by value up or down) absurd fluctuations. We need to get back to basics : operating cashflow is all that matters because that is what:
– pays the debt
– finances reinvestment and growth
– pays the shareholders

The rest is just nonsense. “Tech” companies should go and learn from Amazon. It reported silly EPS and have on that basis an insane valuation, but for probably last 12 or so years it has always traded at between 25 and 30 times operating cashflow per share, extremely consistently. That valuation is almost boringly consistent

End of comments.

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