Cell C’s majority shareholder Blue Label Telecoms has suffered huge losses in its annual financial results for the year ended 31 May.
The fintech group has a non-controlling 49.5% stake in Cell C, and is looking to get an additional 4.04% stake via its subsidiary, The Prepaid Company (TPC).
In the financial results published today, the Brett and Mark Levy-led Blue Label says group revenue declined by R4.3 billion (23%), to R14.6 billion.
However, Blue Label notes, as only the gross profit earned on “PINless top-ups”, prepaid electricity, ticketing and universal vouchers is recognised as revenue, on imputing the gross revenue generated from these sources, the effective growth in revenue equated to R12.5 billion (16%), resulting in total revenue of R89.3 billion, compared to the prior year’s R76.8 billion.
Blue Label’s gross profit decreased by R188 million (5%) from R3.483 billion to R3.295 billion. The company points out the decline was mitigated by an increase in the gross profit margin from 18.41% to 22.57%.
Earnings before interest, taxes, depreciation and amortisation declined by R258 million (18%) from R1.463 billion, to R1.205 billion, excluding the positive contribution of R20 million in the current year and negative contribution of R146 million in the prior year.
Of this decline, Blue Label says Comm Equipment Company (CEC), which is directly linked to Cell C, showed a negative impact of R368 million, while the remaining group operations contributed an additional R110 million compared to the previous year.
Core headline earnings for the year ended 31 May 2024 amounted to R679 million, equating to core headline earnings of 76.08 cents per share.
In the comparative year, says the firm, core headline earnings amounted to R402 million, equating to core headline earnings of 45.55 cents per share. The predominant negative contributions to the May 2023 basic, headline and core headline earnings per share are primarily associated with the recapitalisation transaction of Cell C, it explains.
Excluding the positive contributions of R66 million in the current year and the negative contributions of R523 million in the prior year, Blue Label’s core headline earnings declined by R312 million (34%) from R925 million to R613 million and core headline earnings per share declined by 34% from 104.83 cents per share in the prior year, to 68.66 cents per share.
“This decline in core headline earnings was attributable to a decrease of R188 million in CEC, while the remaining entities within the group declined by R124 million, compared to the prior year,” says the company.
Revenue-sharing factor
The decline in CEC's core headline earnings was primarily attributable to a decline in gross profit stemming from a decrease in earnings resulting from the expiry, in November 2022, of certain elements of the revenue-sharing agreement, increased expenditure related to the distribution agreement and an increase in the amortisation of handset subsidies, the company states.
“The declines were offset by a reduction in the expected credit loss following a comprehensive base reconciliation at the end of the previous financial year, as well as the derecognition of the expected credit loss on the sale of a portion of its handset receivable books,” it adds.
As part of the recapitalisation transaction of Cell C, and to further assist with working capital requirements, the firm points out that subsidiary, The Prepaid Company (TPC), is obligated to purchase R1.2 billion of additional prepaid airtime through four quarterly payments of R300 million each. To fund these working capital requirements for Cell C, CEC sold a portion of its handset receivable book to financial institutions.
The funds generated from this transaction are transferred from CEC to TPC, and ultimately to Cell C through the acquisition of airtime.
According to Blue Label, the remaining entities within the group, with particular reference to TPC, faced a reduction in core headline earnings due to the cessation of certain rebates and a reduction in discounts from Cell C, following its recapitalisation.
Earnings per share for the current and prior years amounted to 72.49 cents and 30.48 cents, respectively.
“On the exclusion of the contributions resulting primarily from the recapitalisation transaction of Cell C from both the current and prior years, earnings per share and headline earnings per share declined by 35% to 65.07 cents per share and 66.22 cents per share, respectively,” it says.
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