Johannesburg - Blue Label has dismissed speculation that its bid for a 45 percent stake in Cell C could cost its airtime distribution contract with Vodacom.
On Monday, Blue Label and Cell C’s transaction firmed up after the company announced that they had entered into an agreement that would see Blue Label, the largest distributor of prepaid airtime and data in South Africa, acquire the 45 percent interest for R5.5 billion. But the pursuit of the stake has fuelled speculation that Blue Label’s contract with Vodacom could be terminated.
Speaking after the release of Blue Label results for the six months ended November 30, joint chief executive Mark Levy on Tuesday moved to kill the speculation, saying the deal was not in danger.
“Not at all. We are six months into our five-year contract. We still have four-and-a-half years to run. It is business as usual. There is no notice to cancel the contract,” Levy said.
Commenting on the binding agreement, he said he was optimistic about Cell C’s prospects and would not judge the mobile operator on past performances. “In the past, they were under different management,” he said. “The new management under [chief executive] José [Dos Santos] has a great game plan.”
Levy credited the Dos Santos management for improving Cell C’s financial performance. “They have been great,” he said.
In the six months ended June last year, Cell C reported a R2.8 million profit, compared to a R1.2 billion loss in the previous corresponding period.
“We back the jockey, not the horse,” he said.
Blue Label’s headline earnings a share in the six months ended November 30 were up 54 percent at 81.78cents a share, mainly as a result of growth in local operations and the impact of a fair value gain.
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Blue Label, through wholly-owned subsidiary Gold Label Investments, holds an effective 58.18 percent interest in Oxigen Services India (Oxigen). This investment has historically been accounted for as an investment in an associate.
Oxigen was initially meant to emulate the business model of the Blue Label’s South African distribution operations. But, as a result of a change in focus to financial services, Blue Label said Oxigen was no longer strategically aligned with the other business units of the group and is unlikely to generate profitability in the short to medium term. As a result, Oxigen has been accounted for as a venture capital investment, with effect from November 30.
The fair value gain equated to a net increase of R135 million to group earnings. On exclusion of the net increase, core headline earnings a share would have ranged from between 61.48c and 62.53c a share, resulting in a growth of 15 percent in core headline earnings a share.
Revenue was up 3 percent to R13.2 billion, while gross profit rose 25 percent to R1.1 billion. The company increased total assets by R968 million to R8.3 billion.
Blue Label shares dropped 0.16 percent on the JSE to close at R18.58.