Blue Label points to recovery following Cell C write down

Blue Label Telecoms on Thursday (27 August), reported a 10% drop in revenue for the year ended May 2020, to R21.1 billion.

Headline earnings per share of 58.16 cents per share, was up substantially, from a prior loss per share of 312.49 cents.

Gross profit declined by 2% from R2.17 billion to R2.12 billion, partially limited due to an increase in margins from 9.21% to 10.05%, the group said.

Earnings before interest, taxes, depreciation, and amortisation declined by R111 million, to R1.21 billion.

As the carrying value of Blue Label’s investment in Cell C was fully impaired for the year ended May 2019, the financial results of Cell C did not have any impact on Blue Label’s earnings for the current year, it said.

Blue Label said that the lockdown regulations and the downturn in economic activity have not impacted negatively on airtime, data  and electricity sales volumes.

“The products and services that Blue Label provides fulfil essential needs of the consumer, even more so during the lockdown period due to home confinement,” it said.

The group’s retail business, starter pack distribution, gaming vouchers and ticketing were negatively impacted during the initial lockdown period. Starter pack distribution and gaming voucher trading volumes are now back to pre-Covid-19 levels.

The lockdown, however, had a significant negative impact on the retail operations of WiConnect, a provider of mobile and electronic accessories. Blue Label said that given the uncertainty of the duration of the pandemic, it decided to operations of the WiConnect retail stores.

This resulted  in a negative impact of R318 million on the group’s basic earnings for the year ended May 2020.

Challenging economic conditions, an unfavourable trading environment, margin compression as a result of reduced incentives from the mobile networks and an increase in product costs, exacerbated by Covid-19, necessitated an impairment  of goodwill in Blue Label Connect of R156.5 million, a partial goodwill impairment in Glocell Distribution of R57 million and a fair value downward adjustment of the Glocell loan, net of taxation, of R47.8 million.

Blue Label Telecom’s management said it remains upbeat about Cell C’s prospects and is of the opinion that Cell C will continue as a going concern for the foreseeable future.

“Although no certainty exists around the successful implementation of the recapitalisation, management remains optimistic,” it said.

Read: Blue Label reports earnings turnaround after Cell C write down