Blue Label expects double-digit rise in earnings

6th July 2020 By: Natasha Odendaal - Creamer Media Senior Deputy Editor

JSE-listed Blue Label Telecoms expects to report a more than 20% increase in earnings for the year ended May 31, 2020.

This will be a turnaround on the prior year’s performance, which reported losses on basic, headline and core headline a share of 727.81c, 312.49c and 304.77c respectively.

The preceding year’s losses were as a result of Cell C’s trading losses, impairment of its property, plant and equipment, the impact of a derecognition of its deferred tax asset and the consequent impairment of Blue Label’s total investment therein.

Fair value downward adjustments of the complete exposure relating to Special Purpose Vehicle (SPV)1 and SPV2, as well as a fair value downward adjustment of Glocell Distribution.

Further, the 2019 financial year performance was hampered by an impairment of Blue Label’s total investment in the Oxigen India group and partial impairments of goodwill relating to Viamedia and Blue Label Connect and a partial impairment of the investment in the SupaPesa joint venture.

“The above factors are the primary contributors to the expected growth in earnings for the year ended May 32, 2020,” Blue Label commented in a trading update.

However, the gains made could be offset by a negative impact on the closure of the WiConnect retail stores as a result of perpetuating losses incurred on a monthly basis.

“While management had implemented a turnaround strategy at WiConnect, which incorporated the strengthening of the retail management team, a refocus of product sales as well as negotiating additional rebates from the network operators and original equipment manufacturers, Covid-19 had a significant negative impact on the retail operations of WiConnect,” the company explained.

These included increased costs of inventories as a result of a weaker Rand, periods of non-trading as a result of the nationwide lockdown and consumers foregoing discretionary purchases.

“Given the uncertainty of the tenure of the pandemic and the resultant losses attributable thereto impacting on its financial feasibility, a decision was made to cease the operations of the WiConnect retail stores,” it said.

This is expected to result in a negative impact of about R330-million on the group’s basic earnings for the 12 months under review.

“The actual cash outflow required for the closure of the stores, which is included in the R330-million, will however be confined to about R30-million, in that the balance of such negative earnings represents all trading losses which have been expended, impairments to property plant and equipment and goodwill.”

Blue Label’s exposure to the distressed Edcon group to the amount of R49-million has been provided for in full. Of this amount, R21-million relates to the retail stores and is included in the R330-million.

However, Blue Label generated positive cash flows from its trading operations for the 12 months to May, which, together with the proceeds received from the disposals of the 3G handset division and the Blue Label Mobile Group, have been applied to reduce interest-bearing debt and, in turn, the strengthening of the group’s balance sheet.