Blue Label says its Cell C nightmare will end soon – with prospects of a dividend

Blue Label co-CEOs Mark Levy and Brett Levy

Blue Label Telecoms (Blue Label) released its results for the year ended 31 May 2022, which showed strong growth in headline earnings despite a reduction in revenue.

Blue Label’s revenue declined from R18.4 billion in 2021 to R17.4 billion in 2022, but its profit increased from R0.88 billion to R1.09 billion.

While the company produced good results, there was a lot of focus on Cell C because Blue Label’s costly investment in the mobile operator.

The company was flying high before its wholly owned subsidiary, The Prepaid Company, acquired a 45% stake in Cell C for R5.5 billion in August 2017.

At the time, Blue Label was upbeat about the investment, promising shareholders a quick turnaround in Cell C’s financial and operational performance.

However, Blue Label underestimated the tremendous challenges at Cell C. The mobile operator started to incur huge losses, and investors started promises about a turnaround.

Blue Label’s share price plummeted from around R21.00 to R3.51 per share, destroying R16 billion in shareholder value.

Even after Blue Label impaired its investment in Cell C to nil, the mobile operator continued to be of great interest to Blue Label shareholders because of its importance to the company.

At its latest results presentation, many questions revolved around Cell C and its impact on Blue Label’s future.

Of particular concern was Cell C’s R2.45 billion loss in 2022, which followed a R1.36 billion profit the year before.

Commenting on Cell C, Blue Label co-CEO Brett Levy said Cell C’s recapitalisation transaction will erase most of the costs associated with this loss.

These include R1.5 billion owed to lenders and R1.3 billion in non-recurring costs associated with the recapitalisation transaction.

He added that R750 million in foreign exchange losses would also be reversed through Cell C’s recapitalisation.

When these costs are removed, Cell C recorded a profit of well over R1 billion for the year, Levy said.

The Blue Label co-CEO added that when the recapitalisation of Cell C is concluded, it will free Blue Label to resume dividend payments and share buybacks.

Levy explained that the banks are currently restricting them from paying dividends before Cell C’s recapitalisation has been concluded.

The recapitalisation process is expected to close by mid-September 2022.

Statement of Cell C’s comprehensive income for the year

Blue Label share price