Celcom results disappoint

Johannesburg, 18 Jun 2007

Celcom's second release of interim results warn of declining profit margins.

The black empowered telecommunications company listed on the JSE's Alternative Exchange in November.

It operates through five entities, which provide mobile phone accessories and enhancements, airtime switching and vending, machine-to-machine modules and applications, SME-focused voice and data packages, and services and products in the telecoms franchise environment.

The interim results posted on the Stock Exchange News Service are the second set posted since listing and reflect the 12 months to the end of March. Its full year results will feature 15 months of trading due to a change in year-end to 30 June.

Acquisitions count

Celcom says its 125% increase in revenue to R463 million, from R205 million the previous year, was largely attributable to V Cellular's six-month contribution.

It completed the acquisition of cellular franchise V Cellular in July 2006, but outstanding conditions pushed the effective date to October.

The group's 117% increase in operating expenses was also largely due to V Cellular, with the acquisition accounting for 101% of the increase.

According to the company, costs when compared to the comparative period remained within inflation, with the additional costs attributable to the listing and building of capacity within human resources and operating infrastructure.

While headline earnings increased 24% to R8.6 million from R7 million year-on-year, earnings per share decreased as a result of the amortisation of goodwill relating to the V Cellular acquisition.

However, the group says the robust performance of V Cellular and virtual payment solution provider VPS is expected to continue as a result of buoyant customer demand. These divisions should outperform forecasts in its listing prospectus.

Tough trading

While the company's second set of interims show a strong performance, the company warned shareholders last week that its full year results for the 15 months ended 30 June would be less positive than forecast in its listing prospectus.

In the notice to shareholders, the company said its cellphone accessories and enhancement business Celcom had faced changes in trading conditions in the final months of 2006 and the early part of 2007.

As a result, it expects earnings to be between 20% and 40% less than forecast; headline earnings down between 20% and 35%; earnings per share between 15% and 30% lower; and headline earnings per share between 10% and 25% less than forecast.

Celcom's first trade on the JSE came in at R1.25 and climbed to R1.50 by the middle of March. Since then, the company has lost favour with investors, closing at 99c on Friday.