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Brett Levy of Blue Label Telecoms at the annual financial results presentation at the head office in Sandton. Picture:FREDDY MAVUNDA
Cell C’s soon-to-be parent company still needs to claw back R2.2bn in losses from SA’s fourth largest mobile operator before it can start recognising contributions from the company in its books.
This is according to Brett Levy, co-CEO of Blue Label Telecoms who said at a media briefing on Thursday that the group would resume “recognising its share of the profits only after its share of the profits equals the share of accumulated losses not recognised”.
The group’s full earnings report to May shows that SA’s fourth largest mobile provider made R279.5m in net profit after tax. Blue Label would have typically recognised R176.6m of this as a contribution to its own bottom line but that cannot be done until Cell C’s accumulated losses have been made back.
Levy, who signalled positivity about Cell C’s performance since the recap, reiterated the group’s position, saying it was taking on “short-term pain for long-term gain” when it came to Cell C. He expected most of this pain to be felt in 2024/25.
As Cell C’s largest shareholder, Blue Label completed the long-awaited recapitalisation of the troubled mobile company in September 2022. The mobile network operator has struggled to make a profit since it opened in 2001.It had been laden with long-term debt of R8.7bn, prompting Blue Label and Lesaka Technologies (formerly Net1), which previously had a 15% stake, to write down their combined R7.5bn investment to nil.
Four years after this writedown, Blue Label said in February 2023 it had revalued the Cell C investment on its books to R962.5m, showing evidence of some positive momentum in the mobile business.
In 2023, Blue Label began a process of taking control of the cellphone provider with plans to move from a 49.53% stake to about 53%, with requisite applications having been made to local authorities.
By the end of November, Blue Label would have had a chance to make its case to SA’s telecom regulator and Competition Tribunal, which has the final say on local competition cases, in two separate public hearings, on the matter.
In April, the Competition Commission recommended that the deal be approved.
This comes as the prepaid group reported that its revenue declined by 23%, or R4.3bn, to R14.6bn. However, because only the gross profit earned on “Pinless top-ups”, prepaid electricity, ticketing and universal vouchers is recognised as revenue, the effective growth in revenue translated to R12.5bn, an increase of 16%.
Pinless revenue refers to revenue from “top ups” in transactions including for airtime or prepaid electricity, when users do not have to enter a PIN.
Total revenue was R89.3bn compared with R76.8bn previously, while gross profit fell 5% to R3.295bn. Core headline earnings amounted to R679m, or 76.08c a share.
As part of Cell C’s recapitalisation, and to help with the mobile provider’s working capital needs, Blue Label — through subsidiary The Prepaid Company — agreed to buy R1.2bn worth of additional prepaid airtime through four quarterly payments of R300m each.
To fund this, CEC — the group’s unit specialising in device procurement and financing — sold a portion of its handset receivable book to financial institutions. The funds generated were ultimately transferred to Cell C through the airtime transaction.
Shares in Blue Label were 4.06% down in afternoon trade on Thursday, at R5.20. The stock is up 35.06% so far in 2024, valuing the group at R4.75bn.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Blue Label works to claw back Cell C’s losses
Cell C’s soon-to-be parent company still needs to claw back R2.2bn in losses from SA’s fourth largest mobile operator before it can start recognising contributions from the company in its books.
This is according to Brett Levy, co-CEO of Blue Label Telecoms who said at a media briefing on Thursday that the group would resume “recognising its share of the profits only after its share of the profits equals the share of accumulated losses not recognised”.
The group’s full earnings report to May shows that SA’s fourth largest mobile provider made R279.5m in net profit after tax. Blue Label would have typically recognised R176.6m of this as a contribution to its own bottom line but that cannot be done until Cell C’s accumulated losses have been made back.
Levy, who signalled positivity about Cell C’s performance since the recap, reiterated the group’s position, saying it was taking on “short-term pain for long-term gain” when it came to Cell C. He expected most of this pain to be felt in 2024/25.
As Cell C’s largest shareholder, Blue Label completed the long-awaited recapitalisation of the troubled mobile company in September 2022. The mobile network operator has struggled to make a profit since it opened in 2001. It had been laden with long-term debt of R8.7bn, prompting Blue Label and Lesaka Technologies (formerly Net1), which previously had a 15% stake, to write down their combined R7.5bn investment to nil.
Four years after this writedown, Blue Label said in February 2023 it had revalued the Cell C investment on its books to R962.5m, showing evidence of some positive momentum in the mobile business.
In 2023, Blue Label began a process of taking control of the cellphone provider with plans to move from a 49.53% stake to about 53%, with requisite applications having been made to local authorities.
By the end of November, Blue Label would have had a chance to make its case to SA’s telecom regulator and Competition Tribunal, which has the final say on local competition cases, in two separate public hearings, on the matter.
In April, the Competition Commission recommended that the deal be approved.
This comes as the prepaid group reported that its revenue declined by 23%, or R4.3bn, to R14.6bn. However, because only the gross profit earned on “Pinless top-ups”, prepaid electricity, ticketing and universal vouchers is recognised as revenue, the effective growth in revenue translated to R12.5bn, an increase of 16%.
Pinless revenue refers to revenue from “top ups” in transactions including for airtime or prepaid electricity, when users do not have to enter a PIN.
Total revenue was R89.3bn compared with R76.8bn previously, while gross profit fell 5% to R3.295bn. Core headline earnings amounted to R679m, or 76.08c a share.
As part of Cell C’s recapitalisation, and to help with the mobile provider’s working capital needs, Blue Label — through subsidiary The Prepaid Company — agreed to buy R1.2bn worth of additional prepaid airtime through four quarterly payments of R300m each.
To fund this, CEC — the group’s unit specialising in device procurement and financing — sold a portion of its handset receivable book to financial institutions. The funds generated were ultimately transferred to Cell C through the airtime transaction.
Shares in Blue Label were 4.06% down in afternoon trade on Thursday, at R5.20. The stock is up 35.06% so far in 2024, valuing the group at R4.75bn.
gavazam@businesslive.co.za
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.