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DEAR STAKEHOLDERS Blue Label continues setting new paradigms for traditional businesses. This innovation may be illustrated as a virtual railway system, powered by a sophisticated and proprietary locomotive – technology, which distributes prepaid goods and services. Each additional product distributed is another carriage on the train and incremental products can be added at minimal additional cost, as the heavy lifting to establish the distribution network is already in place. As a result, profit margins filter straight to the bottom line. Our virtual railway now also crosses borders, predominantly in India and Mexico, in replicating the business model implemented in South Africa. Thirteen years ago we started commercialising the Levy brothers’ concept of offering prepaid airtime to unbanked and under-banked consumers. The model has now evolved into a business distributing secure electronic tokens of value in emerging markets. Through judicious investing in the distribution channel by rolling out various types of point-of-sale devices, we deliver both physical and virtual products countrywide. The business model is underpinned by long-term relationships, be it with the major mobile network operators, electricity suppliers and utilities, registered banks and merchant acquirers, or with associates and joint venture partners. The Group’s strategy is consistent – to diversify the range of products we offer while expanding our distribution footprint through organic and acquisitive growth. This year our expansion pace increased. In South Africa, distribution has crystallised into four categories of products and services. These are prepaid airtime and starter packs, prepaid electricity, event and transport ticketing, and financial services such as bill payments, merchant acquiring using debit and credit cards and mobile banking. Acquisitions totalling R336 million were completed, including RMCS. Subsequent to year-end we announced the purchase of a majority stake in Viamedia. In India the uptake of money transfer products has been rapid, while in Mexico growth in our merchant acquiring services is progressing steadily, simultaneously with our POS project roll-out. The Group reported a growth in headline earnings per share of 6% to 67.98 cents, on an EBITDA increase of 10% to R788 million. These results were achieved on growth in revenue, margin increases and the limiting of growth in overhead. Cash generated of R907 million from operating activities resulted in cash resources accumulating to R1.2 billion net of cost of acquisitions. On 19 August 2014, the Board approved ordinary dividend No 5 of 27 cents per share (2013: 25 cents per share), which equated to a dividend cover of 2.48 times on headline earnings. The Board acknowledges that exemplary leadership requires directors to keep a steady eye on the long-term corporate goals, always cognisant of potential movement in the industry going forward. The Audit, Risk and Compliance Committee assists the Board in identifying and assessing material risks to the Group, with the aim of supporting enterprise-wide risk management. The report of the Committee, as well as the summary of material impacts and risks are included in this integrated annual report. Given that the Group is driven by advanced technology, there is a strong focus on technology governance and skills. In taking cognisance of relevant changes to the legislative environment, the Board is reviewing potential transition arrangements to ensure compliance with the Broad-Based Black Economic Empowerment Act. Through the activities of the Social, Ethics and Transformation Committee, expenditure on uplifting communities reached R5.1 million. This spend was mainly directed towards the Boys and Girls Clubs ofSouth Africa and other youth programmes, along with HIV/Aids and health awareness programmes, where our support continues, as co-founders, of parkrun SA. Looking ahead the Group expects that the recent acquisition of RMCS and Viamedia will enhance profitability, and will afford it access to new products and services, as well as to new distribution channels. The Group’s propensity to generate positive cash flows from its operating activities will continue to facilitate opportunities, both on an acquisitive and trading basis, as well as for the distribution of dividends to shareholders. The growth in rolling out prepaid electricity meters is likely to continue, enhancing future revenues. TicketPros, our ticketing provider, continues to expand its service offering to a myriad of events and activities. The Group’s distribution footprint is perfectly positioned to offer a money transfer solution extending its reach across all sectors of the South African economic landscape. On the international front, Oxigen Services India’s mobile wallet, which facilitates instant money transfers, is expected to gain momentum. Blue Label Mexico continues with its objectives of expanding its footprint and increasing the range of its product and service offerings. With effect from 14 November 2013, David Rivkind stepped down as Financial Director in order to pursue other business opportunities. During his 11-year tenure David made a stand-out contribution in leading the Group’s finance and administration activities. In terms of our internal succession plan, we welcomed Dean Suntup, previously Financial Director of The Prepaid Company, to the Board as the Group’s Financial Director and look forward to extending our working relationship with him in his new position. I thank the Board, the management team led by Brett Levy and Mark Levy, all employees and other stakeholders for their support over the past year. Larry Nestadt 22 October 2014
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| Blue Label Integrated annual report 2014 |