Despite the drag that the acquisition of Cell C has had on Blue Label Telecoms in recent months, the JSE-listed group has indicated that it remains committed to its stated strategy of developing a vertically integrated business.

Blue Label’s 45% acquisition of Cell C has been sending the former’s share price on the Johannesburg bourse on a downward spiral in recent months as investors question the strategy behind the acquisition.

The company continues to emphasise that Blue Label and Cell C remain different ‘engines’.

“Our company is not about telcos, but rather the aggregation of many, many products through what we do,” Blue Label joint CEO Brett Levy said at the company’s half-year results presentation.

“The last 12 months, for us as Blue Label, has been an extremely difficult time – difficult [in terms of] a market perspective and difficult from watching our share price being hammered by 50% to 60%,” he adds.

The group faced a double-digit share price plunge at the time of presenting its yearly results on February 28 and hit a low of R3.86 a share on March 4.

“We had to sit back and work out and think about the strategy . . . what we had done and . . . what we were doing, and, I think, when you look back at it, Blue Label was lost along the way in the last 12 months,” he said, noting the spotlight on Cell C’s performance in the past year.

However, the Levys have solid confidence in Blue Label’s strategy, with the company “positioned so perfectly” in the market.

He explained that there was a Cell C ‘engine’ and a Blue Label ‘engine’ – two large engines in their own rights – that would eventually become massive engines when they were put together.

“The first part of our strategy, along with all the acquisitions (3G and Airvantage), is to get the individual engines going and then to vertically integrate them. But, because the engines are so big, it takes time,” he warned.

The amount the two engines could do together once vertically integrated would bring exponential organic growth, assured Levy.

“The punishment does not fit the crime. We have a clear strategy and we have a clear vision. We know exactly what we are doing and we are asking the market to give us time.”

Within the “heart of Blue Label” – Blue Label Distribution – the company continually delivers excellent performance across all the financial metrics.

Blue Label’s strategy is focused on the integration of its various acquisitions; a continued focus on efficiencies and economies of scale; an aggressive informal market expansion plan; the building of a unified and integrated platform; leveraging Big Data analytics to up-sell and cross-sell; expanding reach, customer service and footprint; and actively growing revenue assurance, besides others.

Joint CEO Mark Levy maintained that Blue Label remained a strong performing separate entity.

“Blue Label had sterling results last year and decent results this year. The sad reality is that investors are really looking at what happens with Cell C and will readjudicate Blue Label,” he said.

Blue Label reported a share of losses in Cell C of R128-million during the six months ended November 30, 2018.

However, Cell C reported earnings before interest, taxes, depreciation and amortisation (Ebitda) of 21% – a strong performance relative to the market, the company noted.

Cell C further concluded a binding term sheet with the Buffet consortium to become a minority shareholder in Cell C.

“With Buffet’s support, the Cell C balance sheet will be bolstered and ensure Cell C’s sustainable growth for the future,” Brett Levy said.

The deal remains subject to certain conditions precedent.

Overall, Blue Label posted a 19% increase in core headline earnings, excluding the Cell C and special-purpose vehicle (SPV) revaluations that dragged overall financial performance during the six months to November 30, 2018.

The group posted core headline earnings per share of 3% to 55.13c, excluding the multimillion-rand Cell C and the SPV adjustments.

“The end of last year was a really difficult time for this country in so many different aspects. Our sector obviously came under a lot of pressure from July last year. [Despite this,] Blue Label, in our opinion, had an absolutely phenomenal year,” Brett Levy said at the company’s half-year results presentation.

During the half-year under review, core headline earnings for the six months under review equated to a negative 11.39c apiece, after a dilution resulting from the issue of additional shares to facilitate part-payment of the acquisitions of Cell C and 3G Mobile, as well as the negative impact of the fair value downward adjustment of R493-million relating to the derivative instruments on the SPVs.

The 2017 comparative period incorporated the group’s share of profits in Cell C of R928-million, inclusive of the recognition of a deferred tax asset of R865-million, which was a one-off recognition.

Core headline earnings from the balance of Blue Label’s entities increased by R80-million, from R431-million in 2017 to R510-million in the half-year to November, equating to core headline earnings per share of 55.13c.

Meanwhile, Blue Label posted revenue of R12.3-billion, a 10% decline on the comparative period, as only the gross profit earned on PINless top-ups, prepaid electricity and ticketing was accounted for.

However, including the gross amount generated on PINless top-ups, prepaid electricity and ticketing, the effective gross revenue increase equated to 7%.

Gross profit for the six months to November increased 15% to R1.31-billion, while the gross profit margin increased from 8.37% to 10.63%.

Excluding the SPV adjustments, Blue Label posted a 13% increase in Ebitda to R872-million.