Blue Label Telecoms has, for the first time, revealed that fraud perpetrated by former senior executives at one of its subsidiaries amounts to R315 million.
However, announcing its half-year financial results up to November, the JSE-listed technology group says it has since recouped some of the monies lost, reportedly in Ventury Group, its subsidiary.
Ventury Group is the company that controls Blue Label’s entities in the prepaid market space.
Blue Label revealed today that a criminal case has been opened against the perpetrators and authorities are working on the case.
The company suspended the two executives in August last year, without shedding much light on the allegations against the employees, save to say it “was an internal matter”.
At the time, it did not quantify the losses Blue Label had incurred.
Seven months on, Blue Label joint-CEOs Mark and Brett Levy today informed the public of the outcome of the investigation, revealing the company had been prejudiced millions of rands, but has since recovered some of it.
“These fraudulent transactions were performed primarily outside the course and scope of the subsidiary’s immediate field of commercial dealings, whereby the perpetrators interposed themselves between intermediary companies and the subsidiary for their own benefit. In addition, certain transactions were identified, evidencing theft of funds from the subsidiary and the fraudulent concealment thereof.
“Once-off recoupment income, comprising the aggregate value of assets either realised by, or signed-over to the group as a result of the fraudulent scheme, amounted to R315 million. This income was partially offset by professional fees incurred, taxation and the non-controlling interest thereon totalling R167 million, resulting in a net recoupment of R148 million.”
According to Blue Label, the fraudulent scheme had been operating since 2015.
Cell C’s nil rands remain nil
Turning to the group’s key financial metrics in the six months to November, Blue Label generated revenue of R9.1 billion and recorded an increase in gross profit of 20% to R1.36 billion (2020: R1.14 billion). The gross profit margin rose 11.87% to 14.93% and net cash generated from operating activities was R862 million.
The company reported headline earnings of 60.86c per share (2020: 40.96c per share) and core headline earnings of 62.69c per share (2020: 42.70c per share).
Addressing matters relating to Cell C, a telco in which Blue Label is the largest shareholder with a 45% stake, Blue Label says its investment in the mobile operator remained at nil as at 30 November 2021.
According to Blue Label, for purposes of the group’s interim financial statements for the half-year ended 30 November 2021, Cell C has been accounted for using the going concern assumption.
“As the group’s share of Cell C’s losses exceeds the carrying amount of the investment (Rnil), the group has ceased recognising its share of further losses. If Cell C subsequently generates profits, the group will resume recognising its share of profits only after its share of the profits equals the share of losses not recognised.”
Nonetheless, Blue Label says, based on the facts available, its management is of the opinion that Cell C will continue as a going concern for the foreseeable future.
Some of those facts, according to Blue Label, include: “Cell C concluded the national roaming agreement with MTN on 7 August 2019, which became effective on 4 May 2020. This agreement is one of the key pillars in Cell C’s transformation plan, as well as its long-term network strategy to optimise operating costs and reduce capital outlay as part of the turnaround strategy.
“This agreement is anticipated to positively impact the cost base and future cash flows on the successful implementation of this transaction.”
Also, it says, the Cell C board established a liquidity committee to monitor the liquidity position of Cell C and ensure the business is not trading recklessly during the negotiations of the recapitalisation and debt restructure.
“Although the liquidity position of Cell C remains challenging, Cell C has proven it has managed to continue trading despite the liquidity concerns and management is confident this committee will manage the liquidity position of Cell C until the conclusion of the recapitalisation process.”
Further, Blue Label says: “Cell C appointed independent financial restructuring advisers to assist in stringent monitoring of the liquidity of Cell C, as well as design the revised business plans that support the new operating business model.”
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