Blue Label Telecoms said on Monday it will report a sharp swing back into profit in the six months ended 30 November 2019 after previously writing down the value of its 45% stake in mobile operator Cell C to zero.

Headline earnings per share will be about 40c, from a loss in the same period a year ago of 15c, it said in an updated trading statement.

“The Blue Label Group generated further growth in revenue, gross profit and core headline earnings per share for the six-month period ended 30 November 2019. This was a resilient performance in an adverse economic environment. The group continues to increase market share and bolster its product and services mix to defend and grow its positions in the market,” it said.

The huge swing in earnings from a year ago is because Cell C’s performance no longer influences Blue Label given the stake has been written down to nil.

The year-ago six-month reporting period reflected fair-value losses of R493-million relating to the exposure to Cell C investment vehicles SPV1 and SPV2 as well as to the recognition of the group’s share of equity accounted losses in Cell C of R133-million. On exclusion of these negative contributions, core headline earnings amounted to R487-million in that period.

No further fair-value losses relating to the SPVs were recognised in the current reporting period as the exposure to them was fully accounted for at the year-end in May 2019. “As the carrying value of Blue Label’s investment in Cell C was fully impaired for the year ended 31 May 2019, the financial results of Cell C during the current period did not have any impact on Blue Label’s earnings for this reporting period,” it said.

Core headline earnings

Core headline earnings for the latest reporting period amounted to R390-million, inclusive of non-recurring once-off costs of R61-million, of which R50-million pertained to “extraneous expenditure” within the retail division and R11-million to a fair-value loss as a consequence of providing for an increase in the put-option liability for the acquisition of the remaining 40% minority share of Airvantage and AV Technology, which will be settled during the 2020 calendar year.

The comparative period of R487-million included income of R48-million, of which foreign exchange gains accounted for R25-million and finance income for R13-million. The balance of R10-million related to a fair-value gain as a result of providing for a decline in the put-option liability.

Excluding these factors and the non-recurring income of R48-million in the comparative period, core headline earning generated from trading operations increased from R439-million to R451-million, Blue Label said.