Cell C Limited Investor Roadshow 2 - 10 November 2017 TABLE OF CONTENTS
01 Financial Overview 04 05 Conclusion 25
Operational 02 12 06 Questions 27
Disclaimer 28 03 Strategy 15 07
04 Post Recapitalisation Governance 20 CELL C PRESENTING TEAM
Tyrone Soondarjee - Cell C CFO Tyrone, a Chartered Accountant who holds a BCompt Honours, provides 30 years of experience in the financial services industry. Before joining Cell C, Tyrone’s decade of distinguished service at the listed Sasfin Group started in 2007 as the Group’s Chief Financial Officer. In 2010 Tyrone was appointed as the Financial Director. Throughout his tenure, Tyrone served on several Boards within the Sasfin Group. Previously, he also held several executive level positions at the Deloitte & Touche Group over a 10 year period, and was the Financial Director at TNBS Mutual Bank.
Robert Pasley - Cell C CSO A qualified Theoretical Physicist and Chartered Accountant, Robert has combined experience in finance and telecommunications since before the launch of mobile communications in South Africa. Robert was involved in the launch of the South African mobile industry, through the development of the original Vodacom business plans. He remained with Vodacom as Finance Executive and as Director of Corporate Strategy until 2004. Robert joined Cell C in 2012 as Chief Strategy Officer and subsequently took on the additional role of Chief Financial Officer while Cell C was recapitalised. From June 2017 Robert has returned to his preferred role in strategy.
3 Financial Overview SUMMARY 2017 H1 RESULTS
Total 02 Revenue 11% R7.7 03 Service Billion Revenue EBITDA 12% 17% R6.3 Billion R1.6 Billion 01 Summary 2017 Results Active 04 Mobile EBIT Subscribers (4%) 12% R0.6 Billion 15.7 Million Capital 06 Expenditure (68%) 05 R561 million
5 2017 HALF YEAR RESULTS
Financial Key Performance Indicators R’m H1 2017 H1 2016 Var Var % Service Revenue 6 321 5 625 696 12% Non-Service Revenue 1 386 1 338 48 4% Total Revenue 7 707 6 964 743 11% EBITDA 1 613 1 381 223 16% EBIT 605 629 (24) (4%) Net (loss)/profit (588) 3 (591) (>100%)
Other Key Performance Indicators Million H1 2017 H1 2016 Var Var %
Total Active Subscriber 15.7 14.0 1.7 12% Data Revenue (R’m) 2 603 1 953 650 33%
Data Traffic Growth YOY 84% Smartphones on our network (million) 8.1
6 2017 HALF YEAR RESULTS
Total Expenditure R’m H1 2017 H1 2016 Var Var % Direct Expenditure 3 723 3 384 339 10%
Operating Expenditure 2 471 2 365 106 5%
Total Expenditure 6 194 5 749 445 8%
• Capital Expenditure was strategically focused to provide mobile voice and data services through a combination of our own LTE-Advance network overlaying our LTE, 3G and 2G networks. • Cell C’s capital expenditure slowed in H1 2017 due to the delayed recapitalisation but is expected to pick up again post recapitalisation.
Total capital expenditure was: H1 2016 H1 2017 R 1 738 million R 561 million
7 RECAPITALISATION IMPACT
• The company received R7.5 billion of fresh equity from new shareholders;
• Uplifted approximately R9 billion to the SPV’s;
• Rolled over R6.1 billion of the existing debt at transaction date;
• Estimated tax losses of R19.8 billion of which R3.8 billion has been used to recognise a deferred tax asset at 31 December 2016.
81 POST-RECAPITALISATION STRUCTURE
Option to acquire
Effective 13.68% OTL Effective 8.82% Believe Trust 100% 100% MS15 OTSAH 49% 51% 100% Effective 7.5% OTSA Lanun CellSAf 60% 15% 25%
3C
100% 100% 100% SPV1 SPV2 SPV3 BLT Net1 M5 (Bonds) (Chinese) (Nedbank)
45.0% 15.0% 5.0% 5.0% 11.8% 16.0% 2.2%
Subscription for equity Cash equity in exchange for debt to settle debt R3.6bn R4.6bn R0.7bn
9 REGULATORY UPDATE ON THE RECAPITALISATION
ICASA Cell C has made the necessary notification to ICASA as required in respect of the recapitalisation. Despite this, CellSAf has made representations to ICASA that Cell C did not follow the correct process. Based on the many and various detailed legal opinions from eminent Senior Counsel obtained by the parties to the recapitalisation, Cell C has in fact followed the correct process. Cell C has now made extensive written and oral submissions to ICASA providing details of the structure and effect of the transaction. We are awaiting ICASA’s decision as to whether to accept Cell C’s position or to refer the matter to ICASA’s Complaints and Compliance Committee (CCC) for adjudication. Competition Commission The recapitalisation is not a merger within the meaning of the Competition Act. Despite this, CellSAf has laid a complaint with the Competition Commission that Cell C has not obtained approval from the Competition Commission. Cell C has now made an extensive submission to the Competition Commission to explain the factual and legal position as to why this is not a notifiable merger. CellSAf: High Court Litigation In November 2016, CellSAf issued summons in the High Court of South Africa against the then parties to the recapitalisation transaction seeking to have the agreements that had been signed prior to that date set aside. If this matter is ever heard by the Court on the merits of CellSAf’s claim, this is unlikely to be before 2019.
10 POST RECAP DEBT ANALYSIS & SUMMARY TERMS
Lender Currency Amount Amount Tenor Interest payment Capital repayment Hedge type Interest rate (USD'm) (ZAR'm) profile profile
Bonds USD 184 2 466 3 years Semi-Annual Bullet FX Future 8.625% Cross currency CDB USD 131 1 702 3 years Semi-Annual 2020 swap LIBOR + 3.45%
ICBC ZAR n/a 997 3 years Semi-Annual 2020 n/a JIBAR + 3.45%
Nedbank ZAR n/a 768 3 years Semi-Annual 2020 n/a JIBAR + 5%
DBSA ZAR n/a 180 3 years Semi-Annual 2020 n/a JIBAR + 5% Total 6 113
11 Operational KEY PERFORMANCE INDICATORS
Active Mobile Subscribers/millions H1 2016 H1 2017
14.0 15.7
ARPU H1 2016 H1 2017
75 75
Data percentage per subscriber Year on Year Growth
MB per customer per month 72%
Fibre H1 2017
New Connections 3 615
13 HANDSET FINANCE OVERVIEW
01 Purchase handsets from CEC 02 Provision for 08 future losses Sale to channel partners
Subscriber pays 03 handset portion to CEC Contract activated for Telco and 07 handset
Interest and subsidy paid monthly on behalf of customer Handset 04 Handset and contractually contract sold funded by 06 to CEC CEC 05
14 Strategy THE MOBILE TELECOM MARKET HAS GROWN ABOVE INFLATION …
Mobile market service revenue (R’bn) Operator service revenue growth YOY
Cell C - 11.7% Vodacom MTN (2013 – 10.2%) 47% Telkom CellC 43%
17% 15% 16% 12% 108 8% 9% 9% 10% 100 10% 91 84 84 3% 1% 6% 4% 4% 3% 2% -5% -3%
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Mobile market subscribers (mln) Voice vs data revenue (R’bn) Voice revenue Data revenue 63 59 59 60 Cell C 16.6% 57 (2013 – 12.5%) CAGR (1.2%) 48 41 34 88 81 84 74 25 69 21
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
16 … with Cell C gaining market share OPERATOR CONSOLIDATION IS A REAL POSSIBILITY IN THE FUTURE
Spectrum Allocations 4.92Mhz 4.92Mhz 850Mhz Liquid Liquid
9.6Mhz 11Mhz 2.4Mhz 1.4Mhz 8.6Mhz 900Mhz Cell C Vodacom MTN Cell C MTN
12Mhz 12Mhz 12Mhz 12Mhz 12Mhz 12Mhz 10Mhz 1800Mhz Liquid MTN Telkom Cell C Vodacom Rain Rain TDD
5Mhz 10Mhz 15Mhz 15Mhz 15Mhz 15Mhz 2100Mhz Voda MTN Vodacom Cell C MTN Telkom TDD TDD
60Mhz 28Mhz 28Mhz 28Mhz 28Mhz 2300Mhz Telkom 3500Mhz Telkom Liquid Telkom Liquid
2.5Ghz 15Mhz 2600Mhz Sentech Rain TDD
17 INNOVATION & VALUE
To achieve revenue and subscriber growth through affordable and disruptive product propositions, that offers our customers tremendous value, whilst ensuring customer satisfaction, as well as retaining the exiting subscriber base. PREPAID CONTRACT DATA CONTENT/ VAS
Enable great value and realise growth in Enable great value and realise growth in Promote strong Data rich proposition Disruptive and Innovative Propositions to the High end Subscriber market segment the High end Subscriber market segment relevant to the market achieve new Revenue streams (Digital / Content)
WhatsApp Bundles Connector
SmartData Share
Free Facebook Pinnacle SmartData Bundles
Social Bundles Pinnacle Topup LTE A
Increase Prepaid Additions Increased Postpaid and Hybrid Additions Increased Data additions with Data rich value Increase Market share with strong Digital and Reduced High Value Subscriber Churn propositions Content positioning Reduced Prepaid Churn Increased Customer Loyalty Reduced High Value Subscriber Churn Create Stickiness Offer great affordable value, and Increased Contract Base Increased Customer Loyalty Increase Customer Loyalty differentiating propositions Differentiate on value creation Increased Contract Base Increase Upsell and Cross Sell – Revenue 18 upliftment Ultimate Converged Bundles
RETAIL DISTRIBUTION – COMPANY OWNED STORES
Strategy: Less reliance on 3rd party retail distribution • A chain of 400 stores with “regional stock-holding hubs” enabling stock distribution between stores and/or quick delivery from the regional hub. • Segmentation of South Africa into economic clusters, priority 1 to 3 Priority 1: High population density and majority of economic activity plus good own coverage Priority 2: Future Network coverage and opportunities Priority 3: Limited coverage and only operating in economic hotspots Identified areas where we will not venture into at all
Priority 1 Priority 2 Priority 3 Priority 4
19 Post Recapitalisation Governance GOVERNANCE CHANGES
• Newly constituted Board with a broad range of skills and expertise
• Chaired by Independent Chairman
• Re-constituted Board committees
• Strengthened and Broadened Management Team with key new appointments of CFO, CHRO, COO and CDO
21 GOVERNANCE
Executives Directors
Jose Dos Santos Tyrone Soondarjee Robert Pasley CEO Chief Financial Officer Chief Strategy Officer
Non-Executives Directors
Kuben Pillay Laurence Nestadt Joe Mthimunye Independent Chairman Deputy Chairman Independent Director
Non-Executives Directors - Shareholder Nominees
Brett Levy Mark Levy Herman Kotzé Chris Seabrooke Nominated by: Blue Label Nominated by: Blue Label Nominated by: Net1 Nominated by: Net1 Telecoms Telecoms
22 BOARD COMMITTEES REPRESENTATION
Audit and Risk Social and Remuneration Committee Ethics and Committee Nominations Committee Joe Mthimunye Joe Mthimunye Chris Seabrooke (Chairman) (Chairman) (Chairman)
Members Chris Seabrooke Chris Seabrooke Kuben Pillay
Robert Pasley Robert Pasley Larry Nestadt
Invitees CEO, CFO CEO CEO, CHRO
23 TOP MANAGEMENT STRUCTURE
Surie Ramasary Tyrone Soondarjee Jose dos Santos Chief Financial Officer Chief Executive Officer Chief Executive: Content • Previous Companies: Sasfin Group, Deloitte • Previous Companies: Vodacom, Alcatel, Previous Companies: MTN Altech Autopage Cellular & Touche Group & TNBS Mutual Bank Telecom/Africa Experience: 15 years • Telecom/Africa Experience: 20+ years • Financial Services Experience: 30 years At Cell C since: 2012 • At Cell C since: Jul 2017 • At Cell C since: 2014 Nihmal Marrie Chief Digital Officer Graham Mackinnon • Previous Companies: Liberty Group, Michelle Beetar Chief Legal Officer Old Mutual Mass Market Chief Customer Experience Officer • Previous Companies: MTN • At Cell C since: Aug. 2017 • Telecom/Africa Experience: 19+ years Previous Companies: Experian, Novell, Oracle and MWeb CommerceZone Douglas Craigie Stevenson • At Cell C since: 2010 Chief Operations Officer Telecom/Africa Experience: 15 years • Previous Companies: Telekom Networks At Cell C since: 2016 Malawi Plc & Vodacom Business Africa Juliet Mhango • Telecom/Africa Experience: 20 years Chief HR Officer • At Cell C since: Sep. 2017 Björn Flormann • Previous Companies: Life Healthcare; Chief Executive: Wholesale Business Dana Bakker Momentum Group; Standard Bank, Sanlam Capital and Ernst & Young Previous Companies: Unisys, Chief Technical Officer Telefonica O2 and Vodafone • At Cell C since: Sep. 2017 Previous Companies: Vodacom Telecom/Africa Experience: 20+ years Telecom/Africa Experience: 18 years At Cell C since: 2011 At Cell C since: 2013 Robert Pasley Chief Strategy Officer Joshua Moele Sherhaad Kajee • Previous Companies: Coopers & Lybrand Managing Executive for Government Chief Property & Procurement Officer (UK), Vodacom Relations Previous Companies: Vodacom • Telecom/Africa Experience: 20+ years Previous Companies: Telkom & IDT Telecom/Africa Experience: 24 years • At Cell C since: 2012 Corporation At Cell C since: 2012 Telecom/Africa Experience: 25+ years At Cell C since: 2012 Regional Managing Executives and Commercial Division
24 Conclusion CELL C – A TURNAROUND STORY …..
2016 – 2017 2018 - 2021 2014 - 2016 2012 RECAPITALISATION 2001 PROCESS
Customer experience centric strategy with focused Price strategy evolves to New management team capital spend and innovation ambitions re-establishing Cell C launch customer value and Growth stifled by limited capital engaging with a price aggressive growth curve and profitability driven reboot strategy quality strategy investment and narrow commercial focus whilst securing recapitalisation
Total Revenue EBITDA R’bn R’bn
10.6% 13.8% 14.6 13.2 63.2% 11.5 11.6 8.5% 3.1 >100% 7.0 7.6 14.3% 1.9 1.4 1.6
H1 H1 0.4 H1 H1 0.8
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 -0.7 # - 2013 reported EBITDA 0.8 vs operational EBITDA
26 ….. with high growth re-established with new investment & focus Questions? DISCLAIMER
This presentation was produced in November 2017 by Cell C Limited solely for use as a source of general information regarding the financial condition of Cell C Limited and its consolidated subsidiaries (Cell C Limited together with its consolidated subsidiaries, “Cell C”). This presentation and its contents are confidential and may not be reproduced, redistributed, published or passed on to any other person, directly or indirectly, in whole or in part, for any purpose without the prior written consent of Cell C. If this presentation has been received in error, it must be returned immediately to Cell C.
Unless otherwise expressly stated, all financial figures in this presentation are unaudited.
This presentation contains certain forward-looking statements relating to the business, financial performance and results of Cell C, and the industry in which Cell C operates, and these statements are generally identified by using phrases such as “aim”, “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “guidance”, “intend”, “objective”, “plan”, “predict”, “target,” “project”, and “will be” and similar phrases. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Cell C’s control that could cause Cell C’s actual results or performance to be materially different from future results or performance expressed or implied by such forward-looking statements. These forward-looking statements speak only as at the date of this presentation. Cell C expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.
This presentation and the information contained herein does not constitute an offer of any securities of Cell C or any other company or an invitation, solicitation or advertisement to purchase or subscribe for any securities in South Africa, the United States, any member state of the European Economic Area or any other jurisdiction.
THIS PRESENTATION IS NOT FOR DISTRIBUTION, DIRECTLY OR INDIRECTLY, INTO THE UNITED STATES. Moreover, this presentation is not for publication, release or distribution in South Africa, Australia, Canada or Japan or any other jurisdiction where such publication, release or distribution would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.
28 Thank you.