Cell C-owner’s earnings drop on R100 million slump

Cell C-owner Blue Label Telecoms saw its earnings slump over 20% as its Comm Equipment Company (CEC) saw a significant decrease in earnings.

Blue Label informed shareholders via SENS today that its core headline earnings for the six-month period ended 30 November 2023 amounted to R420 million, a massive increase compared to R35 million in H2 2022.

This equates to core headline earnings of 47.15 cents per share, compared to 3.94 cents per share a year earlier.

However, the company said that excluding once-off positive and negative contributions in 2022 and 2023, its earnings are actually far lower.

Blue Label saw net positive contributions to its H2 2023 basic, headline and core headline earnings per share, resulting from the recapitalisation transaction of Cell C, including –

• Expected credit losses and fair value movements of R3 million
• A gain on modification of the Class A Preference shares amounting to R11 million
• Finance costs of R178 million resulting from increased borrowings related to airtime sale and repurchase obligations, as well as the issuance of Class A Preference Share
• Finance income of R273 million resulting from the loan to Cell C for its debt funding requirements

Therefore, excluding the positive contributions of R65 million in the current period and the negative contributions of R421 million in November 2022, Blue Label’s core headline earnings declined significantly. 

Excluding these once-off contributions, Blue Label’s core headline earnings declined by R100 million, or 22% compared to 2022.

Core headline earnings per share declined by 23% from 51.72 cents per share in the comparative period to 39.90 cents per share.

Earnings per share and headline earnings per share declined by 23% to 38.42 cents per share and by 22% to 38.66 cents per share, respectively.

This decline in core headline earnings is attributed to a decrease of R119 million in CEC, while the remaining entities within the company increased by R19 million (10%) compared to the comparative period. 

This decline in CEC’s core headline earnings resulted from a decline in gross profit due to increased expenditure related to a distribution agreement, as well as a significant increase in the expected credit loss (ECL) compared to the comparative period. 

“This increase aligns with the expansion of CEC’s subscriber base and the deteriorating macroeconomic environment in South Africa, characterised by rising interest rates, power outages, and a depreciating rand,” the company said. 

“CEC has increased its ECLs (Expected credit losses) in anticipation of heightened future losses, aligning with the approach taken by other consumer lenders.”