Blue Label results improve – but there’s a catch

Blue Label released its annual financial statements for the 2024 financial year, from 1 June 2023 to 31 May 2024, which revealed mixed results for the telecoms company.

The company’s net profit after tax improved to R647.39 million from R268.97 million the year prior.

This was driven in part by Blue Label’s finance income more than doubling from the previous year.

However, gross profit decreased by R188 million (5%) from R3.48 billion to R3.30 billion. The decline was mitigated by an increase in the gross profit margin from 18.41% to 22.57%. 

This increase in margins 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.

In addition, earnings per share improved to 72.49 cents per share from 30.48 cents the year prior.

Headline earnings per share also increased to 73.64 cents per share from 41.97 cents the year prior. Core headline earnings per share grew from 45.55 cents in 2023 to 76.08 cents.

However, there’s a catch – the company explained that the predominant negative contributions to the May 2023 basic, headline and core headline earnings per share are primarily associated with the recapitalisation transaction of Cell C.

Therefore, when excluding the positive contributions of R66 million in the current year and the negative contributions of R523 million in the prior year, core headline earnings declined by 34% from R925 million to R613 million.

These effects also saw core headline earnings per share decline by 34% from 104.83 cents per share in the prior year to 68.66 cents per share. 

This decline in core headline earnings was attributable to a decrease of R188 million in CEC, while the remaining entities within the group declined by R124 million compared to the prior year.

Furthermore, the company reported that group revenue declined by 23% to R14.6 billion. 

However, it explained that because only the gross profit earned on “PINless top-ups”, prepaid electricity, ticketing and universal vouchers is recognised as revenue, the effective growth in revenue equated to 16%.

This results in a total revenue of R89.3 billion compared to the prior year of R76.8 billion.

Blue Label’s EBITDA declined by 18% from R1.46 billion to R1.21 billion, excluding the positive contributions of R20 million in the current year and negative contributions of R146 million in the prior year. 

A large part of this decline was due to Comm Equipment Company (CEC), which showed a negative impact of R368 million, while the remaining group operations contributed an additional R110 million compared to the previous year.

However, Blue Label said the decline in CEC’s earnings was offset by a reduction in the expected credit loss following a comprehensive base reconciliation at the end of the previous financial year.

In addition, the derecognition of the expected credit loss on the sale of a portion of its handset receivable books also offset the decline. 

As part of Cell C’s recapitalisation transaction and to further assist with its working capital requirements, The Prepaid Company (TPC) is obligated to purchase R1.2 billion of additional prepaid airtime through four quarterly payments of R300 million each. 

To fund Cell C’s working capital requirements, CEC sold a portion of its handset receivable book to financial institutions. 

The funds generated from this transaction are transferred from CEC to TPC and ultimately to Cell C through the acquisition of airtime.

The remaining entities within the group, particularly TPC, faced a reduction in core headline earnings due to the cessation of certain rebates and a reduction in discounts from Cell C following its recapitalisation.

Earnings per share for the current and prior years amounted to 72.49 cents and 30.48 cents, respectively. 

On the exclusion of the contributions resulting primarily from the recapitalisation transaction of Cell C from both the current and prior years, earnings per share and headline earnings per share declined by 35% to 65.07 cents per share and 66.22 cents per share, respectively.

In light of these results, Blue Label’s board elected not to declare a dividend.