Cell C remains in financial distress

Douglas Craigie-Stevenson

Cell C released its latest financial results today, revealing that it remains technically insolvent following the Blue Label Telecoms recapitalisation deal.

On 22 September, Blue Label concluded a deal to restructure and refinance Cell C and reduce its debt to give the mobile operator a healthier balance sheet.

New money will also be injected into Cell C to stabilise the company and provide the needed liquidity to operate and grow its business.

Cell C’s secure lenders agreed to a huge reduction in outstanding debt. Those who wanted cash had to take an 80c haircut, while others stayed invested at 55c to the rand.

Stakeholders were eagerly awaiting Cell C’s financial results, which were released today following numerous delays.

Of particular interest was what Cell C’s balance sheet looked like after its debt restructuring.

Cell C revealed that it remains technically insolvent post-recap, with its total liabilities exceeding its total assets by R6 billion.

What it means, in simple terms, is that Cell C remains financially distressed and will have to perform well to avoid bankruptcy.

Cell C’s post-recapitalisation balance sheet is summarised below.

Assets and liabilitiesR billion
Non-current assets3.097
Current assets3.107
Total assets6.204
Non-current liabilities(4.795)
Current liabilities(7.617)
Total Liabilities(12.412)
Net equity(6.208)

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

However, its latest results showed that it moved from a net profit of R148 million in H1 2021 to a net loss of R2 billion in H1 2022.

Part of the problem was operating expenditure which increased from R5.3 billion to R6.2 billion year on year.

The operator’s earnings before interest, taxes, depreciation and amortisation (EBITDA) also declined from R1.3 billion to R366 million.

Cell C blamed the decline in profit and EBITDA on recapitalisation costs and liquidity support, but it does not adequately explain the challenges.

Cell C saved money on lower capital expenditure and network expenses, which should have been seen in the latest finances.

Another challenge for the operator is that its revenue and subscriber base continue to decline, which impacts service revenue.

In its latest financial results, Cell C did not report service revenue – which is a mobile operator’s main measure of success.

Between H1 2020 and H1 2021, its net service revenue declined from R6.54 billion to R6.16 billion. This trend most likely continued in 2022.

Cell C also owes a significant amount of money to debtors like its landlord, Attacq. 

Attacq signed a new agreement with Cell C, which includes two bullet payments in December 2024 and December 2026 to cover the outstanding rent.

Neither Cell C nor Attacq would comment on how much rent is owed and how much the bullet payments are, which Cell C agreed to pay.

Daily Investor asked Cell C about its financial challenges, but the company said time constraints prevented it from answering these questions.