Blue Label Telecoms, which was once a darling of JSE investors, is sinking deeper into trouble as Cell C knocks the JSE-listed group’s earnings.
Cell C’s largest shareholder reported on Thursday that core headline earnings for the year ended 31 May 2019 equated to a negative 304.77 cents per share. Headline earnings per share is South Africa’s main profit gauge.
The company as expected attributed the bad news to Cell C and impairment of its total investment in the Oxigen India group.
The company which used to be regarded as a JSE’s best-kept secret has seen its shares plummet 36% year-to-date and dropped 82% in the past 3 years, pushing its market value to just above R3 billion. However, in the past 7 days, the stock has tried to regain some lost ground gaining 17%.
Blue Label Telecoms said on Thursday that its earnings were negatively impacted by:
- Cell C’s trading losses, impairment of its property, plant and equipment, the impact of a derecognition of its deferred tax asset and the impairment of Blue Label’s total investment therein;
- fair value downward adjustments of the exposure relating to SPV1 and SPV2 pertaining to the initial recapitalisation of Cell C and the Glocell loan;
- an impairment of Blue Label’s total investment in the Oxigen India group, including 2DFine Holdings Mauritius (collectively, OSI), as well as providing for loan impairments and guarantees payable therein;
- and – partial impairments of goodwill and an investment in a joint venture company.
However, the JSE-listed company said if you strip out the above negative contributions, core headline earnings amounted to R904 million compared to R716 million in 2018 financial year, equating to a growth of 26%.
For the 12 months ended May 2019, Cell C incurred trading losses of R1.56 billion, impairments of its property, plant and equipment of R2.2 billion and de-recognised its deferred tax asset of R4.09 billion.
Blue Label Telecom’s 45% share amounted to R3.609 billion on the inclusion of the amortisation of intangible assets of R10 million and an expense of R65 million.
The company believes that things will get better for struggling Cell C.
“It is evident that the investment in Cell C had a significant negative impact on group earnings,” the company informed investors on Thursday.
“However, the contemplated national roaming agreement will result in substantial cost savings for Cell C by reducing network and capital expenditure. These savings will further be enhanced on completion of an intended extensive capital restructure objective.”
Furthermore, Blue Label Telecoms reported that revenue dropped by 3% to R25.9 billion.
The JSE-listed company added that the decline in EBITDA (earnings before interest, tax, depreciation and amortisation) was attributable to fair value downward adjustments of R874 million relating to SPV1, SPV2 and Glocell distribution, to a provision in OSI for loan impairments of R161 million offset by sureties receivable of R30 million and to a provision for guarantees payable of R62 million.
The company also attributed EBITDA declines to partial impairments of goodwill in both Via Media and Blue Label Connect of R74 million and R50 million respectively.
On the exclusion of these negative contributions, EBITDA generated by the Group increased by 24% from R1.34 billion to R1.65 billion, the company said.
The company also provided more information on a complicated deals to dispose of Blue Label Mobile and 3G Mobile.
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