Cell C seems unperturbed by losing close to 2 million customers in the 2020 financial year. The struggling mobile phone operator disclosed that its subscribers dropped by 13% to 12,5 million in 2020 versus 14,4 million in 2019.
Losing a customer impacts a business in several ways; loss of a sale and future sales, reputational damage if a dissatisfied customer tells their friends or broadcasts it on social media, and loss of valuable referrals.
But Zaf Mahomed, Cell C chief financial officer, said the company’s results reflect a business in transition.
“We are starting to see the impact of our changes which included a focus on more profitable subscribers and through the reduction in costs a shift to revenue-generating activities. The foundations are now in place.”
Cell C’s strategy is to rationalise its subscriber base and retain profitable customers.
Prepaid base decreased by 15% to 10,8 million. However, annualised average revenue per user (ARPU) increased by 28%.
“Our strategy is to focus on profitable subscribers rather than size of subscriber base,” the company said in its results presentation.
The contract base decreased by 18% to 1,1 million due to shifts in consumer purchasing habits and economic factors. Contact customers ARPU has increased by 7%.
However, broadband customers decreased 18% to 315 000, and Cell C attributed this to rationalising the traffic and products. Broadband customers ARPU decreased by 9%.
ARPU is crucial because it provides a breakdown of what is driving revenue growth, and it also gives some indications of what is driving margins. Growing by increasing revenues from users tends to be better for margins than growing revenues by increasing the user base, as the latter incurs additional costs.
The group also undertook a massive reduction in its staff members by almost half to 1340 in 2020 versus 2600 in 2019.
The company is far from a turnaround as it is in an informal debt standstill, with current terms on hold while debt is restructured as part of the recapitalisation.
Cell C also delivered a full-year 2020 loss of R5,5 billion versus R7,6 billion loss in 2019.
Mahomed said that although the company made a full-year loss due to impairments and once-off costs, the latter six months of 2020 was encouraging.
Total revenue was down by 8% to R13.8 billion versus R15.1 billion, with the most significant part of the revenue contribution from its prepaid base at R6.2 billion versus R6.9 billion in 2019.
Considering the once-off costs, including expenses allocated to impairment, recapitalisation and the costs associated with network restoration, the normalised EBITDA was 30% higher at R4,1-billion.
“Cell C is now generating cash and the performance shows that the business is operationally stronger,” said Cell C CEO, Douglas Craigie Stevenson.
“The fit-for-purpose entity can effectively implement its business strategy and with a recapitalisation will benefit from a revised capital structure with manageable debt to ensure long-term sustainability.”
Cell C was expected to complete recapitalisation by the end of 2020, but it is mum on when it will be finalised.