Whopping R8bn loss for Cell C
Battles its own internal cost problems and a weak economy.
Company is hamstrung by reduced disposable incomes and less purchasing power of consumers.
Cell C reported a net loss after tax of over R8 billion in the 12-month period ended May 31, 2019 (2018: R656 million loss), as it battles its own internal cost problems and a weak economy.
The net loss after tax includes impairments to the value of R6.3 billion, after Cell C performed an annual impairment test on the carrying value of the property, plant, equipment and intangible assets during the period.
“The impairment was calculated at the higher of fair value less cost to sell or the value in use,” it said, adding “future impairment assessments may result in the reversal of impairments recognised in this period.”
CFO Zaf Mahomed said the year’s financial performance was “below expectations”.
“The 2019 financial year has been characterised by slow growth, a volatile rand against major currencies, service issues relating to load shedding and a continuing slowdown in the economy, which resulted in a decline in GDP in the first quarter of 2019.
“Consumer purchasing power has weakened, which together with reduced disposable income contributed to a lower than expected financial performance of the company.”
One positive is revenue continues to grow, despite poor bottom-line performance.
Total revenue of R15.4 billion (+1%) increased year on year mainly due to growth in the contract (+6%), broadband (+20%) and wholesale (+14%) segments.
However, the performance was offset by the decline in prepaid revenue (-1%) due to a decline in the prepaid customer base (-4%) and a decline in equipment revenue (-25%) due to an increase in subsidies driven by the market.
Subscribers down
There was a 2% drop in total subscribers to 15.9 million while the average revenue per user of contract customers increased 11% to R253.
“Cell C has taken active steps to reduce its focus on pure revenue and subscriber growth to focus on profitable, long-term growth in prepaid and contract segments.”
Cost-cutting initiatives don’t reflect in the latest numbers.
Direct expenditure increased 11%, mainly due to higher roaming costs. The roaming agreement with MTN SA was finalised in August 2018, contributing 32% to direct costs incurred. The lower-than-expected revenue and unexpected increase in roaming costs pushed Cell C’s annual gross margin down 5%. Earnings before interest, tax, depreciation and amortisation was 19% lower at R3.4 billion (2018: R4.2 billion). Net finance costs were down 44% to R2.2 billion, mainly due to the lower finance costs on long-term debt and a reduction in forex losses. Net debt, excluding finance leases, increased from R7.4 billion to R8.2 billion, driven by increased capital expenditure and working capital drawdown facilities. The company insists it’s “on the road to recovery”, with an 18% increase in Ebitda in the three months to August 2019.
Duncan McLeod is editor of TechCentral. Article first published on TechCentral.
However, our firm is now on the way to recovery