Cell C's financial woes have weighed on major shareholder Blue Label. Picture: THAPELO MOREBUDI
Cell C's financial woes have weighed on major shareholder Blue Label. Picture: THAPELO MOREBUDI

Blue Label Telecoms has said trading losses and debt problems at Cell C helped push it into a R6.6bn loss in the year to end-May, more than double its market capitalisation of R3bn.

Blue Label reported that headline earnings per share (HEPS) fell 339% into a loss of 312.4c, as it wrote down its holding in Cell C by a further R2.52bn at the end of the period, bringing it to nil.

Blue Label holds a 45% stake in Cell C, which incurred trading losses of R1.56bn during the period, and impairments of R2.2bn. Cell C also de-recognised its deferred tax asset of R4.09bn, Blue Label said on Thursday.

The rescue of Cell C has proved to be disastrous for Blue Label as the cellphone operator struggles with debt and has failed to make inroads against bigger rivals MTN and Vodacom.

The company has been the subject of takeover speculation over the past two years, though analysts have noted that a merger with one of its two bigger rivals would likely be blocked by the country’s competition authorities. Talk of a merger with Telkom has also, as yet, come to nothing.

Blue Label paid R5.5bn in August 2017 for its stake in Cell C, through its wholly owned subsidiary The Prepaid Company (TPC), who’s share of the value-in-use of Cell C was R6.04bn at the start of the period, though this has been reduced to zero.

Among the reasons for this is that Cell C had been anticipating a gain in market share, but this had, instead, declined two percentage points to 14% as of the end of May.

The company also fully impaired its R118m investment in Oxigen Services India. The full value of loans to Oxigen of R31m and 2DFine Holdings Mauritius of R101m, net of a surety asset raised, were also impaired.

Excluding these impairments, the group grew its core headline earnings 26% to R904m, and HEPS would have been 98.98c.

Blue Label’s share price initially jumped as the JSE opened on Thursday, but at 11.20am it was 8.88% down at R3.08, bringing its 2019 loss to 43.07%.

Blue Label said after markets closed on Wednesday that it has agreed to sell 85% of its stake in subsidiary Blue Label Mobile for R450m to DNI, a SIM card distributor that is partly owned by Net1, which holds a 15% stake in Cell C.

In addition, Blue Label said that TPC has agreed to sell its interest in cellphones and tablets distributor 3G Mobile for R544m to DNI.

gernetzyk@businesslive.co.za