Cell C Limited Investor Roadshow 2 - 10 November 2017 TABLE of CONTENTS
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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