Cell C hopelessly insolvent

Cell C released its latest financial results, which revealed that the mobile operator remains hopelessly insolvent despite the recapitalisation in September 2022.

Cell C’s balance sheet for its full year 2022 shows that it has assets of R5.798 billion and liabilities of R15.092 billion. It translates into negative equity of R9.294 billion.

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

It is striking that Cell C’s liabilities are nearly three times higher than its assets. To turn this situation around will be exceedingly difficult.

The full year 2022 results come after 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.

Before the recapitalisation, all old bonds and debt were classified as short-term as the R9 billion debt was due.

After the recapitalisation, the remaining R2.9 billion debt was denominated and classified appropriately, with the majority as long-term.

Cell C’s current liabilities decreased from R17.691 billion to R10.732 billion, which shows the impact of the recapitalisation.

However, non-current liabilities increased by R1.1 billion due to an increase in contract liabilities and other payables.

“Overall negative equity improved year on year but remained negative on 31 Dec’22 and is expected to remain at these levels until the business turnaround is completed,” Cell C said.

The table below, which comes from Cell C’s latest financial reporting, shows the mobile operator’s balance sheet at the end of the 2022 financial year.

Cell C remains upbeat

Despite significant challenges, Cell C remains upbeat about its prospects, saying its business stabilisation efforts are yielding improved results.

Cell C said the business demonstrated resilience by maintaining revenue of R10.09 billion for the year-to-date to September 2023 versus R10.14 billion in 2022.

The average blended revenue per user (ARPU) for Cell C’s consumer base has increased from R74 in 2022 to R80 by the end of September.

However, the number of subscribers plummeted to 8.2 million, down from 17.2 million five years ago.

Cell C has lost millions of subscribers over the last two years which should be of concern to the mobile operator.

Another challenge is Cell C’s higher expenses. Direct expenses increased by 7% year on year, partly because of its network transition.

The increase in roaming costs also had a direct impact on the gross margin, which also shows a reduction of 23%.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) declined by 509% due to revenue reduction.

Cell C CEO Jorge Mendes expressed confidence in the operator’s prospects and is focussing on changing company culture to drive growth.

“With our newly formed management team, building a great culture, a fully operational network, and a robust strategy, Cell C is well-positioned to drive growth and profitability,” he said.

“I am pleased that in the last quarter of 2023, we are seeing improved performance momentum.”