Cell C’s big loss – and its turnaround plan

Cell C reported a loss of R337 million for the six months to the end of November 2023. It highlights the difficulties its new CEO, Jorge Mendes, faces in turning around the company. 

This was revealed in Blue Label Telecoms’ results for the six months ending 30 November 2023. Blue Label is the largest shareholder in Cell C. 

The results paint a stark picture of Cell C’s deteriorating financial performance and the urgent need for a turnaround. 

The mobile operator’s revenue declined by 6.7% compared to the same period last year to R5.96 billion. 

Acting chief financial officer at Cell C, El Kope, said that this decline was due to an accounting treatment change for some parts of the business.

She said Cell C is now regarded as an agent rather than a principal for certain sales. When normalising for this, Cell C’s like-for-like revenue became R6.74 billion and grew by 5.49%.

Despite this, Cell C swung from a profit of R5.8 billion to a loss of R336.7 million. This is due to the previous period’s financials being skewed by Blue Label’s recapitalisation of the operator. 

The latest recapitalisation included a R1.46 billion loan from Blue Label to Cell C, which was used to repay Cell C lenders. The lenders received only 20% of their claimed loans.

The recapitalisation provided temporary relief, but Cell C’s long-term viability remains uncertain, especially considering its poor balance sheet.

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.

Cell C CEO Jorge Mendes presented his turnaround plan at a media engagement at the end of January.

“We are not in the clear yet. We have been recapitalised twice now. Our balance sheet still looks like a crime scene,” Mendes said. 

Mendes plans to turn this around by solving one of the core issues Cell C has faced since the beginning of its downward spiral – attracting and retaining skilled employees. 

“I want to have the best corporate culture in the country. I want staff retention and not staff attrition,” he said. 

This means that Cell C’s employee headcount will grow from where it is now – below 1,000 employees.

Mendes explained that key performance indicators and metrics such as revenue, profit, and profit margin will improve due to retaining talent and having a good work environment. 

“Profits will come as a result of the underlying culture and philosophy at Cell C,” he said. 

He made it clear that Cell C has no ambition to be the number one telecoms company in the country, but it certainly does not want to be last. 

The initial aim is to reclaim at least its position as South Africa’s third-largest telecoms company from Telkom. 

Cell C was South Africa’s third-biggest mobile network operator for several years, but Telkom’s mobile subscribers surpassed it in 2020.

To do this, the company aims to leverage its mobile virtual network operator (MVNO) status to be lighter and more nimble than its competitors. 

In effect, Mendes said, the company will be able to replace capex with opex by not having to build and maintain its own network. 

This will enable the company to retain its value proposition while backing it up with high-quality service. 

The company also aims to take market share away from its competitors by launching new products that are not currently offered in the market.