Having completely taken write downs for Cell C because of accounting changes, Blu Label Unlimited (BLU) is now set to enter the new financial year with a clean slate and a streamlined structure.
Yesterday, the company reported a R4.9 billion loss for the year to May. Cell C’s separate listing in November meant BLU could no longer treat its stake as an associate and had to equity account for it instead – exposing the gap between the stake’s paper value and its listed value.
In an interview with ITWeb, BLU co-founder and joint CEO Brett Levy points out that the underlying business is strong. On a normalised basis, it generated earnings before interest, tax, depreciation and amortisation of R923 million and net profit after tax of almost R680 million. Core headline earnings per share came in at 75c.
Mike Gresty, fund manager at Anchor, says the normalised revenue from the distribution of all the various vouchers increased 7%, which provides a sense of what the organic growth rate of the core BLU business is looking like at the moment.
Paying it forward
Levy says “the big message” is that “your company has to be in a very good position when it pays out 72% of profits in dividends”.
“We wanted to show the market that we are a dividend-yielding company once again, as we had stated in February,” he adds.
BLU declared a final 10c a share dividend, taking its total payout to shareholders for the year to 53.56c a share. Its interim dividend of 43.56c a share for the period to November was its first dividend in eight years and coincided with its separate listing of Cell C.
In an announcement to shareholders yesterday, the company explained it adopted a formal dividend policy on 25 August. BLU targets a total annual payout to shareholders of between 30% and 50% of its core headline earnings, stripping out any earnings from its remaining 49.53% stake in Cell C.
This distribution, it explains, could take the form of dividends or share repurchases, or a combination of both.
BLU “will continue buying back the shares as long as we believe it’s accretive,” says Levy, noting that the board doesn’t believe Blu Label is correctly valued on the JSE. The company closed at R8 on the bourse yesterday, down 3.85% on the day, while the JSE All Share index lost 0.01%.
BLU also says it is targeting a distribution of between 50% and 70% of any dividends it earns from its remaining 49.53% stake in Cell C, either through dividends or distributing Cell C shares of the same value.
While Gresty says the share buyback is a positive, he was hoping for dividends in the form of Cell C shares distributed to investors “which didn’t happen”.
Untangling the mess
Cell C had made BLU a more complex business to unpack, sitting somewhat awkwardly alongside its core operations, while its losses, impairments and subsequent recapitalisation flowed through the group’s accounts in different ways.
BLU will not be carrying any Cell C-related costs next year. “This is finished. We have waited seven long years for this day,” Levy says.
Gresty says much of the financials are a “complete mess” because of the Cell C-related restructuring at the end of the first half. “At this stage, I must say I’m a bit disappointed with the marginal news here and I’m not seeing the catalysts I hoped for.”
“So, we will take the pain of everyone telling us they’re [financial statements] unreadable, they’re messy. We’ve got another four or five days where we are called funny names and then it’s done,” says Levy.
The long road
BLU first bought into Cell C in 2017, paying R5.5 billion for a 45% stake in the mobile operator. However, as Cell C’s financial position deteriorated, its losses flowed through BLU’s results and reduced the value at which the investment was carried, leaving it worth zero by the end of 2019.
Cell C also needed to be bailed out in 2022, with BLU subsidiary The Prepaid Company paying in R1 billion. This led to BLU reassessing the value of its Cell C investment and reversing R962.5 million of the earlier impairment.
This, however, meant previously unrecognised Cell C losses needed to be accounted for again, resulting in BLU consequently recognising R1.33 billion in accumulated Cell C losses.
At the time Cell C was listed, it was worth R9 billion and – as of the market’s close yesterday – had a market capitalisation of R8.7 billion.
Levy explains that the company’s reorganisation, now that it has spun out Cell C, will enable better line of sight into its business for investors, as well as streamlined operations.
The company, which dates back to 2001 when the Levy brothers started selling car radios from their car boots, last year restructured its operations into seven ‘buckets of solutions’ that combine physical and virtual distribution capabilities with an integrated digital ecosystem.
“We’ve got several engagements with management over the next few days which will give the opportunity to put further flesh on the bone here but at this point I’m not that impressed,” says Gresty.
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