South Africa’s mobile operator, Cell C Improves, But Still No Net Profit

Mergers, Acquisitions and Financial Results

Cell C has made an operating profit of US$4.9 million in its most recent trading quarter, showing that efforts to turn the company around after six years in business are beginning to pay off.

The cellular operator is still a long way from achieving a net profit. Interest payments on some high-yield bonds, issued to restructure its debts, destroyed its profit, leaving a net loss that its CEO Jeffrey Hedberg declined to quantify. "We are going to be cash-flow positive in the first quarter of next year and we are very happy that things are proceeding as we prognosticated," he said.

The company's first operating profit was strong enough to appease its shareholders, so they were not planning on baling out or selling the company to a rival operator, he said.

"I'd like to starve the oxygen from the merger and acquisition speculations, which create a lot of uncertainty for our customers, channel partners and staff. There is a lot of speculation about who is dancing with whom and right now we are pleased our shareholders don't want to dance," he said. "The shareholders are committed to supporting Cell C because they see we are delivering on what we say we are going to do."

Cell C is 60% owned by Saudi Oger and 25% by black empowerment investors CellSaf. A 15% stake is held by Lanun Securities, a Saudi firm that bought the shares when CellSaf was struggling to pay for them.

In May, Moody's Investors Service downgraded Cell C's credit rating, fearing that it may default on an $805m debt if it failed to generate enough cash to pay the interest.

Cell C made that repayment in June "with no problem at all ", said Hedberg. It was paid partly from cash resources and partly by drawing US$24.7m from a US$84.8m credit facility with Nedbank, of which it has already paid back US10.6m.

Results for the six months to June showed revenue was up 18% to R3.6bn and there was a gross profit of R1,3bn, up 23% from a year ago. Earnings before interest, tax, depreciation and amortisation stood at R346m, up 36% for the half year and up 106% for the second quarter in isolation. Cell C added 720,000 more customers and serves 3.4-million active users, which still leaves it lagging far behind Vodacom and MTN.

(Source: Business Day)