Blue Label Telecoms Sees Profit Surge Amid Revenue Decline: A Complex Financial Year Unveiled

Blue Label Telecoms has unveiled its annual financial results for the year ending 31 May 2024, showcasing a year of contrasts with a significant drop in revenue juxtaposed against a remarkable increase in profits.

Revenue Down, Profit Up

The group reported a 22.8% decline in revenue, with figures dropping from R18.9 billion in May 2023 to R14.6 billion in May 2024. However, despite this substantial revenue dip, Blue Label’s profit soared by an impressive 129%, climbing from R285 million in 2023 to R653 million in 2024.

This increase in profit, despite lower revenue, is partially attributed to the uptake of Blue Label’s PINless products. These include vouchers for prepaid electricity, ticketing, and gaming, which contribute directly to the company’s gross profit without significantly boosting topline revenue. When factoring in the gross amount generated by PINless products, Blue Label’s effective revenue saw a 6% increase, rising from R72.3 billion to R76.8 billion.

Impact of Cell C Recapitalisation

A critical factor in Blue Label’s financial performance has been the recapitalisation of Cell C, a mobile operator in which Blue Label has a significant stake. The recapitalisation had a profound effect on the company’s earnings, with Blue Label clarifying that the negative contributions to its basic, headline, and core headline earnings per share in May 2023 were mainly due to this process.

With the impact of Cell C’s recapitalisation considered, Blue Label’s revenue saw an even sharper decline of 24%, dropping from R18.8 billion to R14.6 billion. Additionally, net profit after tax plunged by 34%, from R886 million in May 2023 to R581 million in May 2024.

Accounting Adjustments and Reversals

Blue Label’s results were also shaped by several significant accounting treatments related to Cell C’s recapitalisation. These included expected credit loss and negative fair value movements amounting to R59 million, along with finance income of R600 million, arising from a loan extended to Cell C to support its debt funding needs.

In the previous financial year, Blue Label had to account for extraneous negative contributions, mainly due to the recapitalisation. This included recognizing expected credit losses and fair value movements of R110 million, alongside acknowledging the company’s share of Cell C’s net accumulated losses from 1 June 2019 to 31 May 2023, capped at R1.329 billion.

In a notable development, Blue Label partially reversed its initial R2.5 billion impairment of its investment in Cell C. This reversal, amounting to R962.5 million, reflects an improvement in Cell C’s equity valuation and accounts for the R1.329 billion in net accumulated losses and additional investments in Cell C totaling R366 million.

Supporting Cell C’s Working Capital

The Prepaid Company (TPC), a subsidiary of Blue Label and a shareholder in Cell C, continues to play a crucial role in supporting the mobile operator’s working capital needs. As part of Cell C’s recapitalisation, TPC committed to purchasing R1.2 billion worth of additional prepaid airtime through four quarterly payments of R300 million each.

To finance these requirements, Cell C’s handset receivable book was partially sold to financial institutions, with the proceeds channeled from Cell C Equipment Company (CEC) to TPC, and eventually to Cell C through airtime purchases.

Challenges for Group Entities

Despite the overall profit surge, other entities within the Blue Label group faced challenges, particularly due to the termination of rebates and a reduction in discounts from Cell C following its recapitalisation. These factors contributed to reductions in core headline earnings for these entities.

Conclusion

Blue Label Telecoms’ 2024 financial results paint a complex picture of a company navigating significant challenges while achieving remarkable profitability. The intricate dynamics of its investments in Cell C, combined with the strategic use of its PINless products, highlight both the hurdles and opportunities facing the group as it moves forward.