Blue Label Telecoms will take a R330-million knock to its earnings after it decided to close its WiConnect retail stores, which it opened in partnership with Edcon Group starting in 2015, with Covid-19 taking the blame for driving the stores to the wall.
The decision will knock Blue Label’s basic earnings for the 12 months ended 31 May 2020, it said in a trading statement on Monday.
It said that although a turnaround strategy had been put in place at WiConnect — which included strengthening the management team, refocusing product sales, and negotiating additional rebates from the network operators and original equipment manufacturers — Covid-19 had a “significant negative impact”.
“This 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,” it said.
“Given the uncertainty of the tenure of the pandemic and the resultant losses attributable thereto impacting on its financial feasibility, a decision was made to cease the operations of the WiConnect retail stores,” Blue Label said.
The actual cash outflow required for the closure of the stores, which is included in the R330-million, will be confined to about R30-million, it said, because the balance represents all trading losses which have been expended, impairments to property plant and equipment, and goodwill.
Furthermore, exposure to Edcon Group of R49-million has been provided for in full. Of this amount, R21-million relates to the retail stores and is included in the R330-million, Blue Label said.
It said the group generated positive cash flows from its trading operations for the year ended 31 May. This, together with the proceeds received from the disposals of the 3G handset division and the Blue Label Mobile Group, have been applied to reduce interest-bearing debt and the strengthen its balance sheet.