Cell C remains technically insolvent

Cell C campus

Cell C remains in severe financial distress despite the Blue Label Telecoms recapitalisation deal that significantly reduced its debt.

Blue Label Telecoms, Cell C’s largest shareholder, released Cell C’s latest financial results today. It showed that the mobile operator is still technically insolvent.

Cell C’s total liabilities of R19 billion far exceed its total assets of R15 billion. This leaves the company with a negative equity of R4 billion.

Simply put, it shows Cell C cannot honour its current liabilities, including its short-term borrowings, with its assets.

The mobile operator’s balance sheet improved following the Blue Label recapitalisation deal, mainly due to a significant reduction in current liabilities.

In September 2022, Blue Label concluded a series of agreements with Cell C and its financial stakeholders to restructure and refinance the mobile operator.

The deal included restructuring Cell C’s large debt burden by settling creditors’ claims at 20 cents to the rand.

As a result, Cell C’s current liabilities declined from R20.9 billion to R12.4 billion. However, it was partly offset by increased non-current liabilities and a decline in current assets.

The table below shows the change in Cell C’s balance sheet over the last year. All figures are in ZAR million.

Measure31 May 202231 May 2023
Non-current assets12 83311 781
Current Assets5 3063 234
Total Assets18 13915 015
Non-current liabilities-5 280-6 698
Current liabilities-20 866-12 364
Total liabilities-26 146-19 062
Equity-8 007-4 047

Financial sustainability

For Cell C to dig itself out of this hole, it must generate significant profits to reduce debt or increase assets.

However, its latest results showed that Cell C’s revenue continued to decline – from R13.3 billion in the 2022 financial year to R11.9 billion in the 2023 financial year.

New Cell C CEO Jorge Mendes said they are currently working on their new strategy, which would require a minimum of 15% revenue market share in South Africa to become sustainable.

“We would be profitable before reaching 15% market share, but that would be a solid position to be in,” he said.

This means Cell C would have to increase revenue to at least R26 billion, which is more than double what it currently makes.

Even before thinking about this lofty goal, Mendes will have to stem the revenue decline that Cell C experienced over the last few years.

In 2017, Cell C generated R15.7 billion in revenue. It has steadily declined over the last six years, and the company’s revenue has now hit its lowest level since 2015.

The chart below shows Cell C’s revenue over the last eight years.