Cell C-owner Blue Label’s earnings plummet

Blue Label revealed a significant drop in earnings and revenue for the six months through November 2023.

In its results for the six months ended 30 November 2023, Blue Label said its core earnings amounted to R420 million, equating to core headline earnings of 47.15 cents per share. 

In the comparative period, core headline earnings amounted to R35 million, equating to core headline earnings of 3.94 cents per share. 

Its low earnings in 2022 can primarily be attributed to the recapitalisation transaction of Cell C.

While this appears to be a significant jump in earnings, the company explained that when excluding certain positive contributions in 2023 and negative contributions in 2022, Blue Label’s earnings actually decreased.

Excluding positive contributions of R65 million in 2023 and negative contributions of R421 million in 2022, core headline earnings declined by 22%, and core headline earnings per share dropped by 23%.

Excluding these contributions, Blue Label’s earnings were:

• Core headline earnings – R355 million (22% decline)
• Core headline earnings per share – 39.90 cents (23% decline)
• Earnings per share – 38.42 cents per share (23% decline)
• Headline earnings per share –  38.66 cents per share (22% decline)

Blue Label said this decline in core headline earnings was attributable to a decrease of R119 million in Comm Equipment Company (CEC), while the remaining entities within the group increased by R19 million compared to 2022.

“The anticipated decline in CEC’s core headline earnings was a result of 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,” the company said. 

“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.” 

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

Revenue also declined by 23% to R7.6 billion. However, only the gross profit earned on “PINless top-ups”, prepaid electricity, ticketing and universal vouchers is recognised as revenue.

Therefore, the effective growth in revenue equated to R4.5 billion (12%), resulting in a total revenue of R43.8 billion compared to the prior period of R39.3 billion.

Gross profit increased by 4% to R1.598 billion, corresponding to an increase in margins from 15.67% to 21.08%. 

This increase can be partially attributed to the growth in “PINless top-ups”, prepaid electricity, ticketing and universal vouchers, where only the gross profit earned thereon is recognised as revenue.

“The Group remains vigilant in managing its total overhead costs,” Blue Label said.

“Furthermore, load-shedding continues to be a significant challenge faced by our organisation.” 

“It has negatively impacted the sale of prepaid electricity, prepaid airtime, starter packs and our call centre operations, all of which are significant revenue streams for the Group.”