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Debt-ridden Cell C posts R540m profit

Cell C CEO Jose dos Santos.

Cell C CEO Jose dos Santos.

As SA's third mobile operator Cell C looks to finalise its recapitalisation deal, the company has, for the first time, publicly announced its financial results.

Announcing the financial results for the year ending 31 December, Cell C CEO Jose Dos Santos said the company posted its first profit of R540 million.

He noted the profit follows strong operational and financial growth across key financial indicators.

As a private company, Cell C is not obliged to disclose its financials but Dos Santos noted it has become imperative the mobile operator becomes "transparent" in disclosing its results as the recapitalisation deal looms.

Under the imminent deal, which Dos Santos said will be finalised by the end of May or early June, Cell C is looking to reduce its overall debt from R20 billion to R6 billion.

New structure

In the proposed new structure, Blue Label Telecoms will acquire 45% of Cell C for R5.5 billion, Net1 a 15% interest for R2 billion, Cell C management 5%, 3C 30% and Cell C staff the remainder.

Although Cell C's BEE partner CellSAf recently vowed to head to court over the recapitalisation deal, Dos Santos said he is confident the transaction will go through. "There is no reason why CellSAf shouldn't participate in this deal; this will be the best opportunity for them as they are still part of the mix," he said.

"The 2016 financial year was exceptionally challenging, with South Africa's economic growth essentially flat. Despite this, the company delivered solid results," said Dos Santos.

Cell C increased its total revenue by 11% to R14.6 billion and service revenue by 8% to R11.8 billion in 2016.

"The strong revenue growth was the result of a focused strategy of innovation, exceptional value in product offerings and a customer-centric approach to how Cell C services its customers," he added.

Service revenue was driven largely by the growth in data volumes, which increased by 67% in the reporting year. Data revenue was up 35% year-on-year to R4.4 billion.

"While we did see a marginal decline in traditional voice traffic, in favour of other voice technologies, this was offset by the massive data growth," added Dos Santos.

Another financial highlight has been the strong growth in Cell C's MVNO segment. Wholesale revenue increased 147% year-on-year to R370 million in revenue.

EBITDA increased significantly by 59% to R3.1 billion during the year under review. EBITDA margin increased by 7% from 15% in 2015 to 21% in 2016 through a combination of increased revenue and cost management and savings initiatives.

According to Dos Santos, Cell C increased its customer base by 20% from 12.8 million to 15.3 million customers.

During 2016, Cell C invested approximately R3.4 billion in its network and other fixed and intangible assets, rolling out predominantly LTE and LTE-Advanced. The company's total capital expenditure over the past four years amounted to more than R11.6 billion.

"We've delivered on our promise to provide real value to consumers and despite already offering some of the lowest tariffs in the market, Cell C reduced the effective data rate by more than 20% during the last financial year," Dos Santos noted.

Operational highlights

Dos Santos pointed out Cell C's products and services were supported by significant investments in its infrastructure with the rollout of additional sites over the last financial year. Cell C now has approximately 5 000 sites, of which 2 500 are LTE and more than 2 000 are LTE-Advanced, he said.

In 2016, Cell C commenced the replacement of the core transmission legacy SDH technology with new IP-MPLS and DWDM core. This was done to increase capacity to support the data growth on its network, reduce reliance on third-party transmission providers and improve network redundancy.

Cell C says it has achieved success in its approach to embrace and partner with over-the-top players such as Facebook and WhatsApp. These unique value-added services have proved attractive and driven customer acquisition and retention, said Dos Santos.

In addition, Cell C's drive to offer customers alternative technologies like WiFi Calling has enhanced the overall customer experience while providing the company with alternative revenue streams. Cell C became the first mobile operator in Africa to offer WiFi Calling on Apple devices in 2016 and currently offers this service across more than 20 devices. It remains the only operator in SA to offer this service commercially to its customers.

Cell C has also placed a strong focus on customer service and efforts have paid dividends with significant improvements in service metrics across the board, it said.

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