Blue Label leaps as it announces return to profit, store closures
The process, now more than a year and half in, has proved more difficult to complete than initially expected
Blue Label Telecoms, which is seeking a deal with lenders to recapitalise stricken Cell C, will no longer have a physical presence after shutting down its loss-making network of WiConnect retail stores, which were dealt a fatal blow by lockdowns due to the Covid-19 outbreak.
Its shares jumped the most since May as it recorded a R227m annual net profit.
Blue Label, which specialises in selling prepaid airtime, electricity and ticketing, wrote off its investment in Cell C, SA’s third cellular phone provider, which has struggled to make an impact in a market dominated by MTN and Vodacom since it was established almost two decades ago.
Blue Label is Cell C’s largest shareholder with a 45% stake, and the cellular phone company’s debt burden saw it and Net1, which joined a 2017 plan to save Cell C, write down their combined R7.5bn investment to nil.
But Blue Label co-CEO Brett Levy said the recapitalisation process, which has been going on for more than a year and a half, has proved more difficult to finish than initially expected. As of March, Cell C owed financial institutions, including the China Development Bank, Industrial and Commercial Bank of China, Nedbank, the Development Bank of Southern Africa, Absa and Rand Merchant Bank, a combined R8.9bn.
“To get everyone around the table and to agree has proven to be a lot more difficult than we envisaged and has taken a lot more time,” he said. But “we have really made good inroads in the last three or four months. We really believe that we’re going to recap this business this year.”
The company swung into a headline earnings per share profit of 58.16c in the year to May, recovering from a loss of R3.1249 in the prior period. Like others in the sector, it got a boost from an increase in demand for data and airtime during the national lockdown. The shares closed 11.8% stronger at R3.12, giving it a valuation of R2.8bn.
Levy said the company’s decision to close WiConnect, which sells smartphones, tablets, gadgets, accessories, airtime, data, event tickets and bus tickets, resulted in a R318m hit to earnings. Actual cash outflow required for the store closure will, however, be confined to “approximately” R30m of the R318m expense.
Challenging economic conditions, an unfavourable trading environment and pressure as a result of reduced incentives from the mobile networks and an increase in product costs necessitated writedowns of goodwill worth R214m and other downward adjustments of R47m.
Levy said Covid-19 had scuppered efforts to turn around WiConnect.
After the closure of 71 stores, the company would look to rather set up shops in other retailers’ locations, where they could take spots to sell their own products.
WiConnect has a presence across SA, with locations in upmarket shopping centres such as Sandton City and Canal Walk in Cape Town, together with townships such as KwaMashu in KwaZulu-Natal and Diepkloof in Gauteng.
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