Mixed bag of interim results from SA's Blue Label Telecoms

South Africa's Blue Label Telecoms (BLT) has published a mixed bag of results for the six months ended November 30, 2023.

On face value, its revenue for the six months declined about 23% to 7.6 billion South African rand (US$400 million). But as Joint-CEO Brett Levy always points out, this number only includes gross profit earned and not gross revenue for its "pin-less top-ups," prepaid electricity, ticketing and universal vouchers which are big business for the company.

If the gross revenue of these products were included, then total revenue would have been up 12% to R43.8 billion ($2.3 billion).

A big part of Blue Label's business is selling prepaid airtime and electricity, as well as ticketing (for events and transport) and gaming vouchers. The company has evolved over the years from a distributor of telecoms and fintech products and services to what it calls "South Africa's largest virtual mall" where its products and services require no inventory management by merchants.

Gross profit grew by 4% to R1.6 billion ($84 million) but extensive power cuts – known locally as load shedding – continue to be a significant challenge for BLT.

"[Load shedding] has negatively impacted the sale of prepaid electricity, prepaid airtime, starter packs and our call centre operations, all of which are significant revenue streams for the Group," the company said.

Earnings before interest, taxes, depreciation and amortization (EBITDA) declined by R30 million ($1.6 million) or 4% to R689 million ($36.3 million). This was negatively impacted by declines at the group's Comm Equipment Company (CEC), while its electricity sales company Cigicell swung back to growth despite load shedding.

CEC manages the postpaid bases of local operators Cell C and Vodacom and Levy said that, despite a challenging six months, he believes the company has potential going forward and is just experiencing "short-term pain for long-term gain."

"It's not simple out there. Obviously, the macro environment is posing to be quite challenging in many ways. It obviously allows some opportunities in other ways," he told journalists at the results presentation on Thursday.

Levy said he was cautiously optimistic about the year ahead for BLT, despite a tough operating environment.

"We are allocating a significant amount of resources to building our own distribution and growing organically and of course, adding on products to that, which is extremely important," he added.

Cell C headwinds

As usual, BLT's investment in SA mobile operator Cell C also weighed on its results, but Levy said he is optimistic that Cell C's future will be prosperous.

In August 2017, Blue Label bought a 45% stake in Cell C for R5.5 billion (about $420 million at the time). But, by the end of 2019, it had to write down the value of its entire investment in Cell C to zero.

Blue Label's investment was part of Cell C's first recapitalization. But the telco has faced significant financial challenges and spent about four years working on the second recapitalization as a way reduce its debt and help stabilize the company.

The second recapitalization of Cell C was finally concluded in September 2022, after which Blue Label effectively owned 49.53% of the operator.

In February 2023, Blue Label said it had intentions to take a controlling stake in Cell C so it could have more impact on the operator's strategy going forward.

In December 2023, Cell C applied to the Independent Communications Authority of South Africa (ICASA) to have its telecoms licenses transferred to BLT. However, Cell C later explained this is more of an obligatory governance requirement in the regulatory framework, due to the majority ownership change, and Cell C would still own and control its license going forward.

Cell C's spectrum licenses will not be transferred to any party.

Blue Label Telecoms could not provide much of an update on the controlling stake application process but said that it had applied to both the Competition Commission and ICASA as required.

Levy said the process is running its course, but BLT is hopeful it will get both approvals in the next six months.

Cell C making positive strides

Cell C CEO Jorge Mendes spoke to the media on Thursday as part of the BLT results presentation and expressed his confidence in the company's prospects going forward despite revenue declines in recent years.

He said the company is focused on improving network quality and perception of the operator in the market.

"We've always had great value perception, but the network quality wasn't there," he said.

As of January 1, 2024, Cell C is now 100% roaming on the MTN network for its prepaid base and mobile virtual network operators (MVNOs), and Mendes said customers will see a significant quality-of-service improvement.

"The perception on the network side has always been poor, that we haven't had a great network, but we do and now we need to change the perception and I think that puts us in a strong position to offer commercial offerings going forward," he added.

Cell C CEO Jorge Mendes. (Source: Cell C)

He admitted that Cell C is coming from "a financially distressed situation" and is not out of the woods yet, but he said that from July 2023 the operator has seen consistent growth across all its key performance indicators which bodes well for the future of the company.

Cell C's results for the six months ended November 30, 2023, showed a 6.7% drop in revenue mostly due to accounting changes in its reporting due to operational changes from selling its tower infrastructure and roaming on partner networks.

On a normalized basis, Cell C acting CFO El Kope said revenue would have been up by 5% year-over-year for the six months.

"This is the first time in a while that we're starting to see consistent year-on-year growth in our performance," she said.

*Top image is of Blue Label Telecoms Joint-CEO Brett Levy. (Source: Blue Label Telecoms)

— Paula Gilbert, Editor, Connecting Africa