Cell-C-2017

Cell C 2017 Results Analysis

Cell C announced their FY2017 results on 21 February 2018. This note presents a summary of their results.

 

FY2017 Summary

The refinancing of Cell C has removed a significant financial burden and has freed up cash flow for investment into the business.

Cell C looks confident in the marketplace and has displayed a dedicated focus in the consumer market with an upward revenue growth. They have indicated that they are willing to invest and acquire in order to grow the business through potential fibre acquisitions, content growth and digitisation.  Their latest numbers reflect as follows:

  • 2 million subscribers: Cell C reaches a total subscriber base of 16.2 million, (14.8 million retail and 1.4 million MVNO subscribers)
  • Cell C earned more revenue from data servicesthan it did from voice services
  • The normalised EBITDA margin increasedfrom 20% (FY2016) to 23% (FY2017)
  • The refinancing deal has cut debt from R17.7 billion to around R6.8 billion

In response to the new board structure, several new posts were created which includes Wholesale, Head of Content, and Digital Transformation.

Operational Performance

Cell C Subscriber Numbers

  • Cell C grew its retail subscriber base by 5% YoY growth.
  • Cell C’s data user subscriber base stagnated, showing only a 0.7% YoY growth. Data user growth has rapidly declined from 160% in FY2015, to 19% in FY2016, now to 0.7% in FY2017.
  • Similar to its slowdown in retail subscriber growth, Cell C’s MVNO subscribers showed an 5% YoY growth.
  • Cell C’s MVNO subscribers represent 8% of its total subscriber base.
  • The company has seen a strong uptake of its retail FTTH offering. FTTH subscribers grew by 678%in 2017.
    • Launched C-Fibre in 2016 with open access FNOs – FrogFoot, Mitsol and Vumatel
    • Launched C-Fibre in 2017 with open access FNOs – Metrofibre, Octotel and Openserve

Cell C refused to release any information on the performance of its content service Black.

Financial Analysis

On a blended basis, Cell C’s ARPU is the lowest in the market.

This suggests that they have a much higher proportion of Prepaid customers when compared to Telkom.  70% of Cell C’s service revenue is generated by its Prepaid segment.

Financial Commentary

In 2017, Cell C earned more revenue from data services than it did from voice services.

The normalised EBITDA margin, based on service revenue, increased from 26% (FY2016) to 28% (FY2017). Note that this differs from the reported EBITDA margin of 50% as Cell C incurred a significant Once-Off revenue item of R4 billion.

Capex reduced significantly from R2.3 billion to R1.2 billion, a reduction of 47%. This resulted from the delay in concluding the refinancing deal.

Strategy

Cell C have defined four strategic pillars:

(1) Mobile Prepaid and (2) Mobile Postpaid

  • 70% of Cell C’s service revenue is generated by its Prepaid segment.
  • A key focus area is the growth of data services. In 2017, data revenue surpassed voice revenue.
  • Cell C continues to seek out innovative offers to win subscriber market share and raise the Postpaid ARPU.

(3) MVNO Wholesale

  • Cell C reported that it will continue to drive growth in its MVNO business.
  • MVNO revenue grew from R315 million (FY2016) to R717 million (FY2017), however its MVNO subscriber base only grew from 1.3 to 1.4 million over the same period.
  • Cell C has seen strong growth in revenue, driven by the increased consumption of data services.

(4) Broadband

  • Cell C has defined its broadband strategy along two dimensions: (1) mobile broadband and (2) fixed broadband (fibre).
  • The operator plans on growing its LTE coverage and intends investing upwards of R3 billion to expand LTE coverage.
  • In Q2 2018, Cell C will launch a triple play offer that will include mobile, fibre and entertainment through the Black platform.
  • The operator indicated that it has acquired two fibre players (no names mentioned). The first is a retail ISP, while the 2nd acquisition is a network operator who has deployed FTTH access fibre.

Cell C plans to invest R3 billion in 2018, and R3.5 billion in 2019 respectively into their network (Capex).  Cell C has indicated that it will invest R1 billion in its LTE network in 2018.  Overall, Capex will increase steadily over the next coming years.