Chairman's report

Dear stakeholders


I am pleased to report that Blue Label has continued to deliver compounded growth to shareholders for the year ended 31 May 2013, endorsing its investment proposition of year-on-year growth in earnings and the distribution of dividends.

Overarching our business is the strategy of entering into partnership arrangements which add value to our business activities. Long-term contracts with the major mobile network operators underpin the airtime business in South Africa.

Alliances with commercial banks and the merchant acquirer, MasterCard, extend financial inclusion to many under-served communities. Expansion into rural India through Oxigen’s relationship with the State Bank of India typifies the benefits of such alliances.

The aggressive rollout of points of presence in Mexico is championed by Grupo Bimbo, our joint-venture partner in Blue Label Mexico, which has a vast distribution network in that territory.

Blue Label continues to differentiate itself in the market, with:

financial strength and stability through strong cash flows;
cutting-edge technical capability and back-up support;
leading innovation in technology, products and services;
market leadership in touch points focused on reaching middle and lower income areas;
a unique ability to collect small amounts of money from consumers efficiently; and
the capability of performing multiple transactions from the same terminal.

Blue Label is mindful of operating risks, while, at the same time, keeps a keen eye on business opportunities. Blue Label appreciates the need for a disciplined approach in relation to capital expenditure and measured and scaled approaches to expansion in South Africa, India and Mexico.

The Board is committed to delivering long-term value through sustainable business practices. This encompasses the achievement of profitability across the Group and, at the same time, making investments in the expansion of distribution footprint, systems, products and services in order to secure and maintain future profitability.

During the year the Group capitalised on its positive accumulated cash resources by utilising funds to take advantage of bulk inventory purchases at favourable discount rates, to acquire a post paid contract base and prepaid starter pack bases, and to provide additional funding for Blue Label Mexico’s expansion.

The comparative results included a once-off income receipt of R79.4 million. On exclusion of this income, the current year’s headline earnings per share increased by 17% to 64.17 cents. This growth was achieved through an increase in gross profit margins from 6.45% to 6.70% on revenue of R19 billion, overhead escalation confined to 3% and the impact of the reduction in issued shares following the share repurchase in December 2011.

On 18 August 2013, the Board approved ordinary dividend number 4 of 25 cents per share (gross of dividend withholding tax), equating to a dividend cover of 2.52 on headline earnings.

The Board is responsible for the Group’s corporate governance and in this duty is supported by the Company Secretary, whose main focus is in the areas of compliance, advisory, support, communications and advocacy. During the year, the Company Secretary, Elizna Viljoen, resigned and I thank her for six years of dedicated service. I welcome her replacement, Janine van Eden, who joined Blue Label in this role on 1 June 2013.

The Social, Ethics and Transformation Committee, under the chairmanship of Jerry Vilakazi, has been strengthened. While an important deliverable is monitoring and overseeing the Group’s reputational performance and transformation efforts, the Committee is also responsible for updating the Board on appropriate changes in legislation and makes recommendations in order to ensure compliance.

The Group continues to reach out and uplift communities in which it operates. Over the year a total of R4.2 million was disbursed, mainly in support of youth programmes, Aids and health awareness and sport development.

In February 2013, Blue Label launched its American Depositary Receipt (ADR) programme, with the ticker symbol BULBY and the Bank of New York Mellon as sponsor.

Looking ahead, the Group will continue to focus on diversifying the range of products and services it offers, as well as expanding its distribution footprint, both organically and acquisitively. In this regard the Group is expecting to benefit in particular from its customer affinity programmes, the new ticketing engine for events, innovative financial services products, the recently acquired starter pack bases, SMS aggregation and distribution together with its prepaid electricity offering.

I thank the Board of Directors, joint founders of Blue Label and CEOs Brett Levy and Mark Levy, the management team and employees for their contribution to the Group’s performance.

In conclusion, I extend our appreciation to shareholders, business partners, suppliers, customers and other stakeholders for their ongoing support.

Larry Nestadt

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