Blue Label to return to profitability after Cell C write-down

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Distributor of prepaid secure electronic tokens of value, Blue Label Telecoms, is expecting to return to profitability after writing down its shareholding in Cell C to nil.

Yesterday, the company announced that it is expecting more than 20% jump in earnings for the six months to November 2019.

The company, which will release its interim results on Friday, says its core headline earnings for the current period amounted to R390 million, inclusive of non-recurring once-off costs of R61 million, and R50 million which pertained to extraneous expenditure within the retail division.

In addition,R11 million pertained to a fair value loss as a consequence of providing for an increase in the put-option liability for the acquisition of the remaining 40% minority share of Airvantage and AV Technology which will be settled this year.

Blue Label says core headline earnings per share for the group will be between 42.61 cents and 43.75 cents, up from a loss of 11.39 cents per share to November 2018. Headline earnings per share are expected to be between 39.24c and 40.74c, from a loss in the same period a year ago of 15.02c.

Blue Label is the largest shareholder in mobile operator Cell C with a 45% stake. During the previous financial year, the operator’s losses stood at R8billion. Blue Label was forced to write down its investment in Cell C to nil.

Cell C has been under pressure for some time, facing myriad problems, including job stoppages, declining revenue and debt management challenges.

In June, the operator was downgraded by global rating agency Standard & Poor’s (S&P) after the operator renegotiated terms of its R1.4 billion debt.

In August, it received a downgrade for the third time by S&P for its debt profile.

In April, the agency lowered Cell C’s issuer credit rating to CCC- from CCC+, placing it deeper in trouble territory.

In a statement on Monday, Blue Label said of Cell c investment: “As the carrying value of Blue Label’s investment in Cell C was fully impaired for the year ended 31 May 2019, the financial results of Cell C during the current period did not have any impact on Blue Label’s earnings for this reporting period.”

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