Cell C drags down Blue Label, will require robust ‘economic growth’ to thrive

Blue Label Telecoms office in Sandton, Johannesburg. File picture: Dimpho Maja/Independent Newspapers

Blue Label Telecoms office in Sandton, Johannesburg. File picture: Dimpho Maja/Independent Newspapers

Published Feb 23, 2024


It will take robust economic growth and more time for mobile operator Cell C, which dragged down Blue Label Telecoms’ core headline earnings for the interim period ended December 2023 by R100 million, to thrive again amid intense competition in the South African telecommunications industry.

Blue Label controls nearly 50% of Cell C and also controls CEC, a specialised finance house dealing with established South African enterprises.

Shares in the company softened by 6.34% in afternoon trade at R3.25. The shares closed the day 2.59% lower at R3.38.

Although Blue Label reported a 4% increase in gross profits to R1.6 billion for the half year period to end November 30 2023, the company’s core headline earnings for the same period were softer by R100m at R355m.

After “excluding the positive contributions of R65m in the current period and the negative contributions of R421m in the prior period resulting from the recapitalisation transaction of Cell C”, the company posted a core headline earnings per share decline of 23%.

The 39.90 cents per share realised in core headline earnings per share for the interim period contrast with the 51.72 cents per share recorded for the previous year’s similar period.

“While core headline earnings increased significantly, this was largely due to the Cell C recapitalisation transaction. Excluding this impact, core headline earnings declined. The company faces challenges from load shedding and CEC’s performance,” said market analyst Marco Olevano @MarcoOlevano on social media platform X.

The South African mobile telecom industry is intensely competitive, with MTN and Vodacom dominant across data and voice categories. Blue Telecom would have to bank on robust economic growth and build up momentum for Cell C to turn the corner for good.

“Looks like they are trying to clean up the Cell C Acquisition but it's a difficult environment with plenty of competition in the sector, so it probably needs some time and some economic growth to thrive again,” added Olevano.

An anticipated decline in CEC's core headline earnings has been attributed to “a decline in gross profit stemming from increased expenditure related to the distribution agreement, as well as a significant increase in the expected credit loss” compared to the previous period.

“This increase aligns with the expansion of CEC's book and the deteriorating macroeconomic environment in South Africa, marked by rising interest rates, power outages and a depreciating rand,” the company explained.

Furthermore, continued load shedding was a significant challenge faced by Blue Label throughout the period under review. Load shedding negatively impacted on Blue Label’s sales of prepaid electricity, prepaid airtime, starter packs and also affected its call centre operations.

With the impacted platforms formulating revenue streams for Blue Label, group revenue for the half year was lower by some R2.2bn at R7.6bn.

However, Blue Label said: “As only the gross profit earned on ‘PINless top‐ups’, prepaid electricity, ticketing and universal vouchers is recognised as revenue, on imputing the gross revenue generated from these sources, the effective growth in revenue equated to R4.5bn (12%), resulting in a total revenue of R43.8bn compared to the prior period of R39.3bn.”

There was also a partial reversal of R962.5m relating to the initial impairment of R2.5bn of Blue Label's investment in Cell C as at 31 May 2019. This was deemed to be in line with the “improvement in its equity valuation; and recognition of the group's share of Cell C's net accumulated” losses.

Ebitda in Blue Label for the period declined by R30m, or 4%, to R689m, excluding the positive contributions of R8m in the current period and negative contributions of R109m in the prior period.