Sustainability report

VALUE ADDED STATEMENT

The value added statement of the group shows how much economic value has been created by Blue Label through its utilisation of capital, capacity and other resources and how the economic value was distributed to stakeholders.

MATERIAL IMPACTS AND RISKS

In determining the material impacts and risks of the group, a formalised group-wide “top down” and “bottom up” risk management process is applied. The following key impacts and risks to the group have been identified:

	Category			Impact/risk			Comment			Response
	Economic			General economic conditions, including certain political, social and environmental conditions in South Africa			In an economic downturn consumers are forced to limit expenditure, particularly on non-essential needs. This could have an adverse effect on revenue and profitability. The depressed interest rate environment affects the revenue earned from treasury. While South Africa features a highly developed financial and legal infrastructure at the core of its economy, it has high levels of unemployment, poverty and crime. Particular considerations include how the Government addresses political tensions and social and economic problems, the extent to which its efforts will be successful, the political, social and economic consequences of such efforts, and the effect on businesses of the continuing integration of the local economy with the economies of the rest of the world, in particular Brazil, Russia, India, China and South Africa.			It has been the group’s experience over the last 10 years that the diversity of its mix of products and services and distribution channels has limited its exposure to economic downturns. The bulk of the product mix consists of goods, the demand for which thus far appears inelastic. Consumers appear to be unwilling to reduce spending on utilities, transport and even airtime. In this regard the group’s products are bought rather than sold. The group has negotiated early settlement discounts and bulk purchase discounts with its suppliers to compensate, in part, for the loss of interest revenue from treasury activities. Blue Label believes that economic sentiment is positive in the areas in which it operates. In the past it has taken courageous decisions to terminate business activities in areas where returns have not delivered appropriately when compared to other competing opportunities. The group continues to consider expanding its operations beyond South Africa, India and Mexico with particular focus on other emerging markets, typified as large and fast growing with low penetration markets.
	Financial			Margin compression			Network operators determine the margins to the prepaid airtime distribution channel. Blue Label may not always be able to pass on to the retailer or customer any margin compression enforced by the network operators.			Management is confident that based on the terms of the group’s customer agreements and business model it should continue to be able to pass on any margin compression to the distribution channel. Any margin compression is also likely to force inefficient distributors out of the distribution chain, a trend welcomed by management.
	Financial			Reduction of inter-connect fees			Parliamentary intervention has reduced cellular inter-connect fees, and is likely to promote further decreases in the immediate future. This, in turn, has led to some lowering of cellular airtime prices. It is expected that downward pressure on the networks’ prices is likely to continue. Lower pricing may lead to both margin compression by the networks and decreased spend by consumers.			The group continues to monitor the situation, but believes that it should be able to pass margin compression onto the distribution channel. At this stage it would appear that networks are passing on the majority of the benefits of lower pricing to contract subscribers. The decreases in prepaid call rates that the networks have thus far implemented have not affected group turnover. It is management’s view that prepaid customers currently consume less airtime than they require, but as much as they are able to afford. It would therefore appear likely that prepaid consumers’ spend should remain the same, but consumers will receive more value for that spend.
	Economic			Changes in regulatory environment			Consumer Protection Act (CPA) governs suppliers and consumers in relation to, inter alia, the supply of goods and services in the ordinary course of business for consideration; the promotion of goods and services and the promotion of the supply thereof in South Africa. This act impacts the majority of the group. Protection of Personal Information Bill restricts the ability to use personal information of individuals. If promulgated it could affect the outbound sales campaigns of the group’s call centres and the revenues earned by Blue Label Data Solutions.			The group has made a number of changes to its business practices to comply with the provisions of the CPA. The most significant changes pertained to the group’s prepaid vouchers. In terms of the CPA these vouchers will not expire until the earlier of the date of redemption or three years after the date of issue. This requirement necessitated the upgrade of the group’s technology to allow for vouchers to remain valid for a period of three years. Revenues earned from the Solutions segment are not significant to overall group income. Regulations under the bill are unclear and could exempt certain activities. The group’s call centres and data aggregator have developed affinity campaigns in which permission is obtained to use personal information. The call centres continue to pursue inbound campaigns which will not be affected by the proposed legislation. The group’s data aggregator has renewed its certification from the Direct Marketing Association that it adheres to best practice.
	Social			Inability to attract and retain key and qualified employees in whom intellectual capital resides			The group’s future performance will depend largely on the efforts and abilities of its key personnel and employees. The existing management at Blue Label pioneered the mass prepaid market and established the group’s business model. Blue Label future success will depend, in part, upon its ability to continue to attract, retain, motivate and reward personnel, including executive officers and certain other key technical employees.			The joint chief executive officers and co-founders, are both substantial shareholders and are passionate and dedicated to the sustainability and growth of the group. Key members of the management team are bound by service and restraint agreements and in many instances are shareholders of Blue Label. Executive management has implemented talent management and succession planning in key areas of the group. Appropriate skills transfer activities are ongoing through on the job and other training programmes. The Remuneration and Nomination Committee has approved remuneration policies which include long-term retention benefits and incentives. In addition, key components of the group’s remuneration policy have been adjusted to focus on retention.
	Financial			Non-exclusivity of various supply, distribution and WASP agreements			Certain of the group’s supply, distribution and WASP agreements are non-exclusive and can be terminated at relatively short notice. This type of agreement is standard in the industry.			Management is committed to growing the group’s footprint by increasing its points-of-presence (touch points) and owning the entire technological value chain, which drives the group’s products and services. Presently the group’s points of presence number some 140 000 in South Africa alone and nearly 1 million across the world. This has placed the group in a strong position in the distribution chain. Relationships with and service to suppliers and customers are of paramount importance. The consolidation of the South African distribution segment allows for an increased focus on client relationships and management and specific CRM initiatives have been implemented.
	Financial			Elimination of the middle man			In most industries a wholesaler is at risk of being eliminated from the supply chain if the supplier elects to supply the customer directly.			From inception, the objective of the Blue Label group was to become a one-stop destination for the supply and distribution of all of the networks’ offerings. This would provide both convenience and efficiency to the retailer and customer. Furthermore the technology and footprint developed by the group allows retailers to earn additional revenue by the introduction of additional products. This would make it difficult to disintermediate the group. No single network can offer this complete solution. The introduction of the sale of prepaid electricity, and its phenomenal uptake in South Africa, would seem to be proof that it remains difficult to eliminate the middle man, who continues to rely on Blue Label as the neutral aggregator in both the prepaid airtime and electricity markets.
	Financial			Disaster recovery and continuity of business			The group has developed proprietary technology supporting the rollout of its bouquet of products and services. The group’s infrastructure connects into some of South Africa’s major banks, utility companies and telecommunication operators and switches both debit and credit card electronic funds transfer transactions and e-token products for some of the country’s leading retailers and petroleum companies. The effective continuous operation of this infrastructure is critical to the company’s service delivery.			Management recognises the importance assigned to IT in its corporate governance systems. The management team in the Technology segment is being strengthened. The group has compiled a formal Business Continuity and Disaster Recovery Plan which provides guidance for the restoration of Information Technology facilities. The plan describes the IT framework and procedures to be activated in the event of a disaster. The major goals of the plan are to: minimise interruptions to the normal operations; limit the extent of disruption and damage; minimise the economic impact of the interruption; establish alternative means of operation in advance; train personnel with emergency procedures; and provide for rapid restoration of service.

STAKEHOLDER ENGAGEMENT

The building of long-term and transparent relationships with the most significant stakeholders is one of Blue Label’s core values. A broad range of internal and external stakeholders having a material interest in or who are affected by Blue Label have been identified. The group has a deliberate and measured approach to its interaction with stakeholders, taking into account the impact that each stakeholder may have on the business, while the frequency and form of that engagement is commensurate to its estimated impact.

Initiatives and methods used to engage with stakeholders comprise face-to-face formal or informal, individual or group meetings (including the annual general meeting); media and stock exchange announcements; presentations; road shows; conference calls; the Blue Label website (www.bluelabeltelecoms. co.za); an intranet site for employees; investor days and site visits; perception studies and reputation audits; whistle-blowing facilities and formal grievance mechanisms; financial and sustainability reports; newsletters, circulars and e-mail updates; regular customer, business partner and supplier meetings and formal consultation and audit processes. Dialogue and feedback is encouraged wherever possible which is presented to Exco for consideration and/or further action.

Blue Label’s stakeholders consist of the following main groups:

SHAREHOLDER ANALYSIS

Below is a synopsis of Blue Label Telecoms Limited’s shareholder spread as at 27 May 2011, showing the distribution of shareholders and beneficial shareholders holding 2% or more of the issued share capital of the company:

SOCIAL PRACTICES

Transformation and broad-based black economic empowerment (B-BBEE)

The group continues to develop and progress transformation and B-BBEE in respect of the South African businesses. During the year under review Nthwese Investment Holdings Consortium (Pty) Ltd, the company’s empowerment partner, sold down its shareholding. The Transformation Committee continue discussions with various B-BBEE groupings with suitable skills and stability with a view to concluding an empowerment transaction.

The group’s approach to B-BBEE verification is at subsidiary level rather than holding company level. The group subsidiaries will undergo respective renewal verifications later this calendar year.

Transformation and B-BBEE focus areas continue to include training initiatives, inclusive of learnerships, enterprise development initiatives and comprehensive socio-economic initiatives through the Chairman’s Fund.

Socio-economic development (SED)

Blue Label contributed R3.5 million (2010: R3.1 million) to various projects via The Chairman’s Fund. The thrust of these contributions remained on youth development, HIV and Aids, and sports development with continuous support given to the Protea Glen Legacy Park and Nomonde’s Children’s Home and the Netcare Cranio Facial Programme in partnership with Vodacom.

Other charitable organisations supported, included Business Against Crime, Feed SA, Afrika Tikkun, Soweto Marimba Youth League and Malamulele Onwards.

Staff also actively participated in various charitable initiatives, collecting soup and blankets in winter, raising R18 000 in support of Madiba Day by selling home made products and including the children from the Soweto Mariba Youth League Band in the Family Day festivities.

Enterprise development

Blue Label, through its major subsidiary TPC continues to provide financial assistance on an interest free basis to ZOK Cellular (Pty) Limited (ZOK). In addition, Blue Label provides management and strategic support and other resources to ZOK. The ZOK strategy aims to empower budding entrepreneurs from South Africa’s previously disadvantaged communities, by equipping them with a ready-made ZOK container equipped for a Fast Moving Consumer Goods retailing solution. The container is a licensed business unit designed as a self contained turnkey business with start-up stock for food retail, airtime starter packs and top-up airtime, public phones, fax facilities, internet services and ATM facilities. Placing ZOK containers in previously disadvantaged areas is intended to bridge the gap in telecommunications, ICT and banking services in such areas, as well as to uplift the communities in the areas served by the containers.

Preferential procurement

The group continues to support those organisations which are B-BBEE verified.

HUMAN CAPITAL

The group recognises that its employees are its most valuable asset. All new employees undergo an induction session during which they receive a staff manual comprising the group’s vision, mission, values, ethics statement, conditions of employment, standard group practices, procedures and policies, as well as a health and safety booklet. The group human resources department oversees the group’s skills development and training initiatives. Senior management in each of the subsidiaries is responsible for ensuring that group strategy and culture are implemented consistently.

All permanent employees are automatically included in various group-wide schemes, namely, the group life benefit and medical aid, as well as free access to group products and services such as miTRAFFIC, Look4help, Look4me, MTN WhereRU, MTN 2MyAid and more recently MiPayslip.

The group life benefit scheme is employer funded and includes death, disability, dreaded disease and funeral benefits. All existing employees have an option to join Discovery Health, while membership is compulsory for all new permanent employees. All changes to terms and conditions of employment, inclusive of changes to significant operational matters are dealt with on the basis of consultation with staff and mutual acceptance

The company has a monthly internal newsletter detailing current affairs, various wellness issues, profiling employees and recognising those who have been nominated for making a positive contribution to their work place or community. Those employees are issued the “Super Hero of the Month “ award.

Blue Label does not consider incidents of child labour, forced or compulsory labour to be a risk to any of its operations due to the protection provided by the Constitution of the Republic of South Africa, the Bill of Rights as well as the labour laws of the country.

EMPLOYMENT EQUITY

The group promotes equal opportunity and fair treatment in employment in accordance with its employment equity policy. The objective is to create an environment in which all employees are able to compete for job opportunities on the sole criterion of merit.

The individual subsidiary company employee statistics are monitored by the group human resources department. The group strives to ensure job descriptions and functionalities of top, senior and junior management are accurately reflected in the Employment Equity reports submitted annually, and to align the dti Codes of Good Practice and the employment equity reports. Blue Label continues to be non-unionised.

The table below reflects the demographics of the employee base across the group, excluding international operations:

Blue Label Group

Equity headcount by category summary 2010

Equity headcount by category summary 2011

The decrease in the total number of employees compared to the previous reporting period is mainly attributable to the group’s disinvestment in CNS Call Centre, normal attrition and various cost cutting initiatives.

TRAINING AND SKILLS DEVELOPMENT

The group has implemented new training and development initiatives during the year as follows:

Learnership initiatives

The group has continued to partner with Bytes People Solutions in implementing various learnership programmes within its various subsidiaries as detailed in the table below:

A total of 30 learners (2010: 25 learners) within the various subsidiaries are mentored throughout the duration of the programme to ensure that they successfully complete their learnership qualification and integrate effectively into the Blue Label workforce

The group has also engaged disabled learners and has a total of nine such learners (2010: seven learners) currently engaged in the learnership programmes.

During the previous financial year the group hosted 25 learners and employed 10 within its various subsidiaries.

The Leadership Journey

Velociti (Proprietary) Limited, the group’s call centre business, implemented a leadership workshop aimed at developing its team leaders. The Leadership Journey is centred on Passionate, Assertive and Transformational leadership objectives. The workshop has been highly effective and looks at leadership and its relevance in order to transform both the individual and the business.

COMMUNITY CHANNELS (“CC”)

Community channels continued its development and empowerment of communities through the deployment of mobile technology. This allows the group to support continuing economic growth within broad-based communities, by creating jobs, developing skills and empowering South Africans through technology.

During the year under review the CC division successfully trained 1 500 “foot soldiers” in 11 communities across South Africa. In addition 16 new traditional councils have been signed up thereby creating 2 000 temporary jobs. Training provided to the “foot soldiers” includes introduction to the specific channel starter pack, the importance of retaining and recharging the starter pack, problems they might encounter when downloading the free airtime included in the starter pack and how to solve problems, how they need to dress and behave, recommended selling price and targets, what is RICA and how to operate a RICA terminal. Many of these “foot soldiers” have used this opportunity to start their own businesses or to earn additional income from the sale of starter packs.

SAFETY AND HEALTH RESPONSIBILITY AND PRACTICES

The Occupational Health and Safety Act No 85 of 1993 (“OHSA”) provides a legislative framework outlining an employer’s legal duty to provide healthy and safe conditions in the workplace.

The group Health and Safety Policy ensures comprehensive practical implementation of Blue Label’s responsibility and commitment to a healthy, safe and incident-free working environment.

Health and safety activities include:

Awareness of the group’s health and safety requirements is created for all new employees as part of their induction. Frequent information updates are circulated via e-mail and the internal newsletter to all existing employees.

The group’s health and safety officer manages health and safety practices in the group. Representatives appointed at each of the subsidiary companies assist the group’s health and safety officer. These health and safety representatives have been trained by qualified external service providers in accordance with the requirements of OHSA. Monthly health and safety meetings are held to discuss the outcome of inspections and precautions to be implemented to mitigate identified hazards. In addition to the health and safety representatives the group has also appointed first-aid practitioners and fire marshals. Training of these individuals is also provided by qualified external service providers.

Health and safety risks associated with the group’s business include fire, electrical safety and slippery floors. The group reported no major health and safety incidents during the year under review.

The group’s fire drills and evacuation procedures at its head office were evaluated by the Sandton Fire Department Disaster Management team (SFDDM) during the year and its recommendations were fully implemented.

The group’s “Wellness for Life Programme” has been operational for a year. Corporate wellness is the ability to reduce and manage employees’ stress and contributes to staff wellness, enabling them to re-focus and re-energise allowing them to perform at their peak. The Wellness for Life Programme has focused on a number of initiatives put in place to support, encourage and educate employees on the benefits of a healthy lifestyle. The human resource department coordinated wellness days throughout the year. These have included programmes on dental care, vision screening, substance abuse in the workplace and at home, debt counselling and trauma counselling. Information and support for chronic diseases such as HIV and Aids, tuberculosis, diabetes, cancer, heart problems and weight issues have continued to form topics of the wellness programme. Over 50 group employees participated in the JP Morgan Corporate Challenge in March 2011 and the company also sponsors employees participating in the 94.7 Cycle Challenge and Cape Argus Cycle Race.

Blue Label partners with the Bryanston Assessment Centre providing access for employees in matters of a psychological nature. In addition, all employees have access to disease management forums within Discovery Health, such as Oncology, Diabetes and HIV management. Health awareness programmes such as condom distribution, voluntary HIV testing, infection control, are ongoing.

ENVIRONMENTAL PRACTICES

Blue Label acknowledges that the responsible use and management of natural resources are integral elements of Blue Label’s commitment to sustainable development. While the group’s business activities are categorised as either low risk or very low risk from an environmental perspective, the group continues to develop processes and practices to improve the measurement and monitoring of its environmental impact including energy efficiency, carbon emissions and waste management.

Office buildings

The group occupies leased properties comprising mainly administrative office, technical facilities and warehouse facilities none of which are situated in biodiversity-rich or ecologically significant habitats. The office space leased by the group is in excess of 10 000m².

Energy efficiency

The group’s electricity usage for the year under review at its main office building situated at 75 Grayston Drive, Morningside, Sandton amounted to 2 449 827kWh. The majority of group subsidiaries are situated in Gauteng and occupy the head office building in Sandton.

Carbon emissions

Business activities resulting in carbon emissions include electricity usage, transportation and processes relating to an office environment. The Blue Label Distribution fleet used a total of 407 583 litres of fuel (petrol and diesel). The BLD fleet comprises approximately 90 vehicles used by field technicians, sales representatives, customer service representatives and company drivers.

During the year under review, no prosecutions or fines were brought against the group for the contravention of any environmental laws and regulations.