JSE-listed Blue Label Telecoms is going back to basics after mobile operator Cell C, in which it holds a 45% interest, drove the group into the red for the financial year ended May 31.

Shares in the embattled group contracted 10% by mid-Thursday afternoon as joint-CEO Brett Levy outlined how the group’s underperformance led to write-offs and trading losses that decreased its headline earnings by R3.97-billion.

For the year under review, Blue Label posted a core headline loss a share of 304.77c and a net loss of R6.6-billion, sliding into the red from earnings a share of 134.62c and net profit of R1.1-billion in the prior financial year.

The impairments contributing to the loss included Cell C’s R6.1-billion trading losses and impairments; SPV and Glocell’s fair value downward adjustments of R838-million; Oxigen India’s losses and impairments of R398-million; and ViaMedia, Blue Label Connect and SupaPesae’s impairments of R147-million.

However, Levy assured that the core businesses of Blue Label continued to generate profit, with core headline earnings for these operations having surged by 26% year-on-year to R904-million and core headline earnings a share of 98.98c with the exclusion of the impairments.

Gross profit increased by 16% from R2.28-billion to R2.65-billion, underpinned by an increase in margins from 8.54% to 10.23%.

The group will now focus on a back-to-basics-led strategy and vision after what Levy described as a "challenging" two years.

“For us really, it is about going forward,” he told media during the results presentation on Thursday.

Blue Label will focus on extending its reach and product set within its core trading and distribution business.

“We are going to focus on doing what we do best.”

In line with this, Blue Label is selling two noncore assets to increase available cash and reduce its debt.

Investment holding company DNI 4PL Contracts will acquire Blue Label’s interests in Blue Label Mobile and the handset division of the Prepaid Company’s 3G Mobile.

Blue Label will retain 3G Mobile’s Comm Equipment Company, or CEC, which will see a significant wind down of a major portion of its book over the next 24 months, further unlocking significant monthly cash flow.

CEC has grown its financing book to R2.8-billion.

“The sale of the two assets will not impact on the core operations,” Levy assured, highlighting that the transaction would leave Blue Label cash rich, flexible and able to bulk buy.

The collective proceeds are expected to be just over R1-billion.

The group is also progressing the transactions related to Cell C, which is expected to be substantially completed by the end of the year.

Blue Label has come under fire from shareholders for investing in Cell C, given the mobile operator’s high debt burden.

“It is evident that the investment in Cell C had a significant negative impact on group earnings,” Levy said.

However, the contemplated national roaming agreement with telecommunications giant MTN will result in substantial cost savings for Cell C by reducing network and capital expenditure (capex).

These savings will further be enhanced on completion of the intended extensive capital restructure objective.

For the 12 months to May 31, Cell C posted a net loss after tax of R8-billion.

Cell C CEO Douglas Craigie Stevenson said this included R6.2-billion in noncash impairments.

The net loss after tax without the noncash impairment totals a loss of R1.75-billion.

During the 12 months to May 31, service revenue increased by 4% to R14.2-billion, while total revenue edged up 1% to R15.4-billion.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) contracted by 19% to R3.4-billion, owing to capex for operational expenditure substitution on the expanded network roaming agreement.

However, Craigie Stevenson assured the market that the mobile operator was turning around and said the results of a “recharged” Cell C were already visible in the three months to August 31.

Operational Ebitda is growing strongly on a monthly basis and service revenue in the quarter to August 31 edged up year-on-year from R3.62-billion to R3.68-billion.

Cell C remains heavily focused on operational rationalisation, liquidity, an improved network strategy and the recapitalisation plans.

“Cell C is definitely not stagnating,” Craigie Stevenson concluded.