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COVID-19 devastates Blue Label’s WiConnect

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Blue Label Telecoms expects to take a knock of R330 million on the group’s basic earnings for the year ending May due to the COVID-19-induced closure of its WiConnect retail stores.

WiConnect – which sold smartphones, tablets, gadgets, accessories, airtime, data, event tickets, bus tickets and bill payments – had to be closed due to the increased uncertainty of the COVID-19 pandemic, according to Blue Label.

“COVID-19 had a significant negative impact on the retail operations of WiConnect. These included increased costs of inventories as a result of a weaker rand, periods of non-trading as a result of the nationwide lockdown and consumers foregoing discretionary purchases,” it says.

Notwithstanding a turnaround strategy at WiConnect, which incorporated the strengthening of the retail management team, a refocus of product sales, as well as negotiating additional rebates from the network operators and original equipment manufacturers, the devastating impact of the pandemic was invertible, the company says.

Blue Label says: “Given the uncertainty of the tenure of the pandemic and the resultant losses attributable thereto impacting on its financial feasibility, a decision was made to cease the operations of the WiConnect retail stores. This will result in a negative impact of approximately R330 million on the group’s basic earnings for the 12 months ended 31 May.

“The actual cash outflow required for the closure of the stores, which is included in the R330 million, will, however, be confined to approximately R30 million, in that the balance of such negative earnings represents all trading losses which have been expended, impairments to property, plant and equipment and goodwill.”

Furthermore, Blue Label says exposure to the Edcon Group, amounting to R49 million, has been provided for in full.

“Of this amount, R21 million relates to the retail stores and is included in the R330 million above.”

However, Blue Label says it generated positive cash flows from its trading operations for the year ended 31 May.

“This, together with the proceeds received from the disposals of the 3G handset division and the Blue Label Mobile Group, have been applied to reduce interest-bearing debt and in turn the strengthening of the group’s balance sheet.”

The company advised shareholders that basic, headline and core headline earnings per share for the financial year ended 31 May are expected to increase by more than 20% in comparison to the previous year, in which reported losses on basic, headline and core headline per share equated to 727.81c, 312.49c and 304.77c respectively.

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