Cell C shareholder Blue Label turns to profit despite Covid-19

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  • Cell C's shareholder reported a profit from its continuing operations for the year to end May after a multi-billion rand loss last year. 
  • Despite the lockdown, the group says it was able to continue providing essential services.
  • Blue Label says it is optimistic about the success of the recapitalisation programme for Cell C.

Cell C's key shareholder Blue Label Telecoms has reported a profit of R226 million for its continuing operations for the year to end May, a major improvement from last year's loss of R6.7 billion.

The group's shares were trading 7% stronger at R2.99 on Thursday morning after it released its results. Its share price has almost doubled from a 52-week low of R1.52 per share in March.

In its audited results on Thursday, Blue Label said despite restrictions stemming from the Covid-19 pandemic it was able to continue providing essential services such as electricity, airtime, data and other digital services, as well as financial transactional services.

"The lockdown regulations and the downturn in economic activity have not impacted negatively on airtime, data and electricity sales volumes.

"The group's digital expertise has enabled uninterrupted access of all its products and services through banks, formal retailers, independent retailers, petroleum forecourts and spaza shops across South Africa," it said.

Blue Label said its 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 have since returned to pre-Covid-19 levels. 

Group revenue was down 10% to R21.1 billion from R23.6 billion, while gross profit remained relatively flat at R2.1 billion. Its headline earnings increased to 58.16 cents per share, up from last year's loss of 312.49 cents per share.

Earlier this year the group decided to stop the retail operations of WiConnect, which provided cellular products through its retail stores, due to the "uncertainty" of the duration of the pandemic and the resulting losses which impacted its financial feasibility.

The group said an impairment of goodwill in Blue Label Connect of R156.5 million was warranted due to the challenging economic conditions, unfavourable trading environment and increased product costs "exacerbated" by Covid-19. A partial goodwill impairment in Glocell Distribution amounted to R57 million.

Cell C

Blue Label holds a 45% stake in Cell C last year cut the fair value of the mobile operator to zero. Cell C's financial results did not have an impact on the group's earnings this year, it said.

"Management is of the opinion that Cell C will continue as a going concern for the foreseeable future," its annual results presentation read. It said that management remained optimistic that Cell C's planned recapitalisation will be successful. As part of the restructure, about 40% of Cell C's 2 500 staff will be affected by a retrenchment consultation process, the mobile operator said in June.

*An earlier version of this article stated that Blue Label Telecoms is a majority shareholder of Cell C. The article was updated at 14:45 on Thursday, 27 August to reflect that Blue Label Telecoms has a 45% stake in Cell C and is not a majority shareholder.

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