Blue Label, Net1 write down Cell C’s value to nil

Blue Label Telecoms will take an almost R6.71/share hit to its earnings per share for the full-year to 31 May 2019 thanks to the ongoing woes at Cell C, it warned on Thursday.

The JSE-listed technology group is impairing its Cell C investment — it holds 45% — to nil. Fellow Cell C shareholder Net1 UEPS Technologies has done the same and expects to record a non-cash fair-value adjustment to reduce its carrying value in Cell C to R0, it said.

The decisions by the two companies to write down the value of their respective equity holdings do not impact Cell C’s operations or the proposed transactions being pursued by it, said Net1 CEO Herman Kotze. “We believe that Cell C’s long-term prospects will significantly improve once it has been recapitalised.”

Blue Label’s share price fell to an all-time low of R2.51 shortly after the trading statement was released, but recovered ground to R2.65 shortly after 11.30am. It closed the session up 3.8% to R2.75.

It said in a trading statement on Thursday that the Cell C impairment and trading losses at the mobile operator, coupled with other challenges, including at its operations in India, will serve as a major drag on its full-year earnings. Fair-value downward adjustments and trading losses and impairments in its Indian operations will also knock the numbers lower, it warned.

Earnings smacked

These factors together will knock Blue Label’s earnings per share by a negative R8.23 and its headline earnings per share by a negative R4.05.

Although the core businesses of the Blue Label group continued to generate profits, the negative contributions to the May 2019 basic, headline and core headline earnings per share were attributable to:

• Cell C’s trading losses, impairment of its property, plant and equipment, the impact of a de-recognition of its deferred tax asset and the impairment of Blue Label’s total investment therein.
• Fair value downward adjustments of the complete exposure relating to Blue Label investment vehicles SPV1 and SPV2.
• A fair-value downward adjustment of Glocell Distribution, attributable to the impact of unfavourable wholesale trading conditions.
• An impairment of Blue Label’s total investment in the Oxigen India group, including 2Dfine Holdings Mauritius (OSI), as well as providing for loan impairments and guarantees payable. “This was attributable to an anticipated corporate transaction not materialising,” it said.
• Partial impairments of goodwill relating to Viamedia and Blue Label Connect and a partial impairment of the investment in a joint venture called SupaPesa.

Excluding these items, Blue Label said it expects core headline earnings from the balance of the entities within the group to be between R885-million and R922-million compared to R716-million in the prior year. That equates to a growth of between 24% and 29%.

“After taking into account the increase in the weighted average number of shares in issue, core headline earnings per share from the balance of the entities within the Blue Label group are expected to be between 96.95c and 100.95c for the year ended 31 May 2019, compared to 83.65c in the prior year. This represents an increase of between 16% and 21% on the prior year.”  — (c) 2019 NewsCentral Media