Blue Label to raise R1-billion through asset sales

A day before Blue Label Telecoms reports its annual results — the most hotly anticipated since its listing on the JSE 12 years ago — the technology group has announced it will sell various businesses, including part of 3G Mobile, to deleverage its balance sheet.

The group said after markets closed on Wednesday that it will sell its interests in Blue Label Mobile Group to DNI 4PL Contracts, while its subsidiary, The Prepaid Company, has agreed to sell its interest in 3G Mobile, excluding the share capital held in and loan claims against Comm Equipment Company, also to DNI. Blue Label bought 3G Mobile two years ago for R1.9-billion, at the same time that it bought 45% of Cell C for R5.5-billion.

Blue Label will raise about R1-billion through the asset sales, which it plans to use to reduce its interest-bearing liabilities. At the May 2018 year-end, the group had almost R1.8-billion in non-current liabilities.

DNI is an investment holding company that specialises in distribution and retail for the telecommunications industry, Blue Label said in a statement to shareholders.

“The Blue Label group has consistently generated positive cash flows from its trading operations since its listing. These funds have been applied to dividend distributions, share buybacks and investing activities, at all times ensuring sufficient surplus funds to facilitate working capital requirements,” the group said in the statement.

“Over the past two years, significant investments were made, necessitating an increase in interest-bearing debt in order to ensure that the group’s working capital requirements continued to be met. Accordingly, the Blue Label board of directors has made a decision to deleverage the business in order to ensure a more robust and liquid balance sheet going forward.”

Proceeds

It said the disposals will not have a negative impact on the extensive distribution network that Blue Label has established and will not inhibit its distribution capabilities or its ability to achieve its strategic objectives.

The Blue Label Mobile Group sale – described as the “VAS Operations transaction” – will bring in hundreds of millions of rand to the group. DNI will pay Blue Label R350-million plus R100-million, which will escalate at the prime rate plus 2% (compounding annually in arrears) from the fifth business day after the date on which all suspensive conditions are met and the date upon which the board of directors of Cell C resolve that the mobile operator passes the solvency and liquidity test set out in section 4 of the Companies Act.

The 3G Mobile disposal to DNI is for an initial consideration of R544-million, to be adjusted by the net amount by which surplus or inadequate provision was made for bad debts and obsolete trading stock in the consolidated audited 2019 balance sheet of 3G Mobile.

3G Mobile distributes mobile devices and handsets to major retailers and cellular network providers.

All eyes will be on Blue Label on Thursday when it is expected to provide more details about these transactions as it publishes its results for the year to 31 May 2019. An update on the operational and financial performance of Cell C in the six months to end-June is also expected to be announced.

Blue Label Telecoms said earlier this month that it will take an almost R6.71 hit to its earnings per share for the full-year to 31 May 2019 thanks to the ongoing woes at Cell C.

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.

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

These factors together would knock Blue Label’s earnings per share by a negative R8.23 and its headline earnings per share by a negative R4.05, it said. – © 2019 NewsCentral Media