Will Africell jump out of Orange’s troubles?

Timothy (real name withheld on request) woke up on Friday 27 last month to a normal working day. It had been a gloomy morning with patches of rain across the country.

But when he got to Africell office (formerly Orange) along Clement Hill road, guards stopped him at the entrance, telling him to report to Kabira Country Club in Bukoto, Kampala.

The club is synonymous with SUV’s that fill the parking lot every evening as patrons make it to the bar for a drink, or the gym for some abs and swimming for others.

But on this particular chilly morning it was not about the SUVs or the drinks but rather a collection of some Africell staff among them Timothy, who would later receive some bad news.

“They separated us into groups depending on our sections. Then the human resource manager and chief operations officer told us they had made the tough decision of laying us off,” he narrates the events of the morning.

Timothy was one of the 59 employees who Africell sent home recently, but they claim they were not given any prior notice or terminal benefits only receiving an upfront payment of one month’s salary, instead of the three months’ pay as stipulated by the law.

The acquisition
Africell acquired Orange in November 2014 for an undisclosed fee, marking the end of Orange’s five years in Uganda.

Orange had made a grand entry with massive investment in infrastructure, driving on the acquisition of Hits Telecom.

The launch in 2008 was received with some optimism as the telecom said in a May 2009 presser: “We have already positioned ourself as a strong challenger with a series of innovative and attractive offers.”

However, the company was soon driven into gloom registering a Shs6b loss in its first full year of operation. The losses continued into 2009 with the company posting a Shs90b loss. In 2010 the situation worsened with the entry of the telecom ‘prices wars’. Warid had tilted the market with low pricing on calls with other telecoms followed suit.

At the close of 2010, Orange losses escalated to Shs143b even as the telecom stayed away from the ‘price wars’.

Frustrated by the ‘price wars’ Philippe Luxcey, the Orange chief executive officer wrote to Uganda Communications Commission (UCC), asking the regulator “to reign in on the pricing”.
“A dumping competition, where you sell below the cost, shouldn’t be accepted,” he said in a 2012 interview with regional newspaper, The East African.

“We didn’t make profits because of competition on prices. The economic crisis has further jeopardised the situation. It’s truly a nightmare because costs have gone up by almost 50 per cent,” he added.

Auditors at the time – Ernst and Young began raising the red flag, saying “the losses were eroding the company’s fortunes”.

However, there would be no reprieve for Orange as loss of close to Shs50b were recorded in 2012. The auditors further cautioned the telecom, specifically on increasing losses which was eroding the capital.

Shareholders had in 2009 injected more than $200m (Shs500b) but by 2012 the injected capital had halved to Shs200b.

France Telecom, the parent company of Orange would have non of it and in mid-2012 opted to sell 180 masts across the country as they sought to free up some cash as well as cutting operating expenses.

Orange then aggressively went into marketing its data and internet services but this didn’t turn around the company as it continued to underperform. By 2013, the company’s debt obligations to shareholders had grown to more than Shs500b.

Huge expenses
But it should be noted that amidst all this the company continued to hugely spend on aertising and a bloated list of expatriate staff.

According to the 2015 Ipsos Media Landscape report, Orange spent Shs18b on aertising in 2011, before rising to Shs20b in 2012. However, the company cut back on aertising expenses to Shs16.5b in 2013 but rose again to Shs21.3b in 2014.

Orange officials would not admit it, at least in public, that Uganda just wasn’t working out for them, until when they put the company up for sale with three suitors including MTN, Vodafone and Africell showing interest.

Africell took the day and has, after acquiring the company, embarked on a massive restructuring, albeit under intense scrutiny.

Start of turnaround plans
At the end of last month, Africell started with its restructuring plans downsizing the company by 59 staff.

Mohammed Gaddar, the Africell chief operating officer, defended the decision, saying “in fact, we came in to save the day”.

“Orange wanted out and could not sustain the losses year-after-year. Had it not been for the Africell acquisition, the company was bound to close and everyone would have gone home. The 341 staff and thousands of indirect employees would have lost their jobs,” Ghaddar said in a statement issued during the lay off.

Planned investment
Africell is also planning a $150m (Shs450b) investment to turnaround the company and change the mode of operations. Allowances, per-diems and expenditure on fuel have all been cut.

“We took a losing operation, which had been classified by auditors as a an ‘on-going concern’ – which means that it was considered to be a non-viable business – and we are turning it around. Those are the facts, so no one can dispute that the prevailing model was not viable,” Ghaddar said in a statement.

A source who formerly worked with Orange told this newspaper that the company’s operating expenses had kept on increasing.

The source also noted that the company was losing a lot of money in inflated billing by suppliers of the company.

Emphasis on waste
Ghaddar, in his statement also refers to ‘substantial inefficiencies’ and ‘wasted resources’ as some of the reasons for the losses.

Africell is yet to share any clear move on how things will change as the process of restructuring has not been an easy one.
The company continues to shy away from the media amid accusations of racism and hiring of Lebanese to take-over from Ugandans.

But the company denies the allegations with Ghaddar insisting: “We are confident that we can turn this business around for the benefit of all. The first step of the turnaround involved setting up control procedures to prevent leakages and waste.”

Orange, just like Uganda Telecom has been limping, but analysts say managing the transition will be key in Africell’s maneuvers to change the status-quo.

About africell

Africell is a holding company with cellular communications companies in the Democratic Republic of Congo, The Gambia, Uganda and Sierra Leone.

In 2001, Africell setup its operations in Africa. Since then, the company has grown to rank first in the telecommunication sector in Gambia and Sierra Leone, as well as acquiring a considerable market influence in Democratic Republic of Congo. So far, Africell reached a total of 12 million subscribers with a predicted reach of 15 million users by the end of this year. All Africell’s operations offer voice and 3G data services.

Africell brought its 2G, 3G and LTE services to Uganda in November 2014 with an official re-branding in February 2015. It had more than 600,000 active subscribers by the end of 2014.

The company is entangled in a closely knitted performance failure, worsened by a huge debt burden left by five years of bloated results by its predecessor – Orange Uganda.

mmuhumuza@ug.nationmedia.com

SOURCE: Daily Monitor

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