Cell C shareholder Blue Label takes R330m hit from WiConnect

Business: Cell C shareholder Blue Label takes R330m hit from WiConnect

Cell C major shareholder, Blue Label Telecoms, expects to bounce back from the trading losses it experienced because of Cell C in 2019 – but now it has its hands full with WiConnect.

The company said in a trading statement on Monday evening that while it expects to grow its headline earnings by more than 20% for the year ended on 31 May 2020, WiConnect ate R330 million into the group’s basic earnings. WiConnect, previously called Edgars Connect, was launched provide customers the full Blu Approved products.

It was forced to close its retail stores during the lockdown. This perpetuated losses that the company is incurring on a monthly basis, said Blue Label.

Although the business was loss making when it was still operating in partnership with Edgars – Edgars Connect incurred losses of R31 million for the 2018 financial year – Blue Label said it had started to stabilise last year after terminating the Edgars relationship.

On Monday the group added that WiConnect had implemented a turnaround strategy, but Covid-19 took it few steps back.

“Covid-19 had a significant negative impact on the retail operations of WiConnect. These included increased costs of inventories as a result of a weaker Rand, periods of non-trading as a result of the nationwide lockdown, and consumers foregoing discretionary purchases,” said Blue Label in a statement.

Blue Label said even though WiConnect had a negative impact of approximately R330 million, the actual cash outflow required for the closure of the stores would be confined to approximately R30 million.

The balance of R300 million represents all trading losses as well as impairments to property plant and equipment and goodwill.

The group has also provided for its R49 million exposure to Edcon in full. Of this amount, R21 million relates to the retail stores and is included in the R330 million earnings hit the company is expected to report when it presents its full year results later this year.