Cell C technically insolvent – but it has a plan

Cell C’s performance has only marginally improved since the telecoms company underwent a brand shake-up and embarked on a new turnaround journey.

Blue Label’s latest results for the six months through November 2024 revealed Cell C’s poor financial state.

Blue Label holds a 49.53% participatory stake in Cell C but does not control it. They have additional economic interests of 13.66%. 

The company’s latest interim results, released on Thursday, 20 February, revealed Cell C’s muted performance.

Cell C’s revenue was R5.99 billion, having remained relatively flat compared to the previous period’s R5.96 billion.

The company’s net loss after tax improved, with Cell C reporting a net loss of R149.24 million compared to a loss of R336.74 million in 2023.

Therefore, there are no signs of profitability yet, though the company’s losses have shrunk.

Cell C’s total liabilities remained high by the end of the reporting period, and its equity remains deeply negative at R3.33 billion.

This means the company is technically insolvent, as its liabilities outweigh its assets.

Blue Label confirmed that Cell C is a going concern, citing its improved cost-cutting efforts, lower operational expenditure, and increased focus on efficiency.

Blue Label’s loans to Cell C increased to R2.59 billion from R2.36 billion in May 2024.

The breakdown of these loans is as follows:

• Debt-funding loan: R1.76 billion
• Reinvestment loan: R222 million
• Deferral loan: R603 million

R393 million worth of interest has accrued on these loans, meaning Cell C is still racking up more debt to Blue Label.

However, the company’s expected credit losses reversed to R46 million, suggesting some improvement in Cell C’s ability to repay.

The results also revealed that Blue Label’s The Prepaid Company (TPC) was contractually obligated to buy large amounts of airtime from Cell C as part of its recapitalisation deal.

The company has fully completed four quarterly purchases of R300 million each.

Blue Label still has to buy minimum monthly airtime worth R378 million at a 4% discount, but only for another few months.

To fund these purchases, TPC borrowed money and has been gradually repurchasing the airtime from lenders.

To date, TPC has repurchased inventory with an aggregate face value of R203 million in 8 tranches for a cash consideration of R177 million.

This resulted in the balance of face value inventory remaining as at 30 November 2024 of R172 million.

Cell C 2.0

These results are the first set of results since Cell C announced its rebranding in August 2024.

At an event on 15 August 2024, Cell C unveiled a “brand refresh” that revealed the company’s new logo and brand identity.

Cell C chief marketing officer Melanie Forbes explained at the event that the company did not have an awareness problem – South Africans are very aware of Cell C.

However, the company’s problem is consideration. South Africans need to consider Cell C as one of the top providers in the country. 

The company further added that it wants to have an impact beyond telco offerings and recommitted itself to making a meaningful impact on socio-economic development in South Africa.

“We have millions of South Africans who have remained loyal to the brand, and we want to honour the legacy that has kept Cell C in the Top 30 South African brands. This isn’t about new leadership,” Forbes said.

“We encourage all South Africans to experience the best of both worlds – the best network with the best value. Nothing should stop you – switch to see.”

To achieve these goals, Cell C is focused on changing the narrative around its network and service quality.

Cell C wishes to reclaim its identity as an industry “challenger brand” and ” disruptor”. 

This echoes CEO Jorge Mendes’s strategy when he told the media in early 2024 that Cell C’s 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.