Understanding material matters
| Risk | Context | Mitigating factors | ||||
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| Fluctuating economic conditions, including certain political, social and environmental conditions in South Africa and on the international front | These factors can affect consumer health, and in turn could have an adverse effect on revenue and profitability, in spite of the Group’s historical resilience to adverse economic conditions. | It has been the Group’s experience that the diversity
of its mix of products and services and distribution
channels has limited its exposure to economic
downturns and strikes. Consumers appear to be
unwilling to reduce spending on utilities, transport
and airtime. In this regard the Group’s products
continue to be in demand.
The Group is focusing on its existing platforms, both locally and internationally. Its vast geography of point-of-sale presence afford continuous opportunities to provide additional products and services to be expedited on these growing points of presence. |
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| Margin compression | Network operators determine the margins to the prepaid airtime distribution channel. The Group may not always be able to pass on to the retailer, merchant or customer any margin compression enforced by the network operators. | Management is confident that based on historical trends, the Group will be able to continue 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. In addition, the Group is constantly looking to add new product and service offerings comparable at higher margins than its traditional business, through the leverage of its significant distribution footprint and merchant relationships. | ||||
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| Declines in interest rates | As the Group is highly liquid, declines in interest rates have an effect on finance income. | Wherever possible, free cash flow is utilised for early settlements or bulk buying in order to obtain discounts in excess of prevailing interest rates. | ||||
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| Further increases in rand/foreign exchange rates | Changes to the rand exchange rate affect the results reported from, and any refinancing required by, associate and joint venture companies in India, Mauritius and Mexico. | Every effort will be made to secure the best
available foreign exchange rate for any further
financing required.
For the import to South Africa of devices, tablets, phones, accessories and hardware, forward cover is placed with reputable banking institutions. |
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| Non-compliance with legislation | Non-compliance with legislation applicable to the Group could lead to fines and negative reputational impact, i.e. POPI, CPA, WASPA legislation, Companies Act, Income Tax Act, Value Added Tax Act, JSE Listings Requirements, OHSA, BEE Act, Employment Equity Act, industry charters and scorecards. | Legislation that affects the Group is identified, analysed and categorised according to its impact and relevance. The process is ongoing to test and ensure ongoing compliance on an operational level. | ||||
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| Ability to attract and retain skilled resources | The Group’s future performance will depend largely on the efforts and abilities of its key personnel and employees. The existing Group Executive Management pioneered the mass prepaid market and established the Group’s business model. The Group’s 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 and specialised employees. | The joint CEOs and co-founders are both substantial
shareholders and are passionate about 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 most
instances are shareholders of Blue Label via the
Forfeitable Share Scheme. 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 RNC has approved remuneration policies which include long-term retention benefits and short-term incentives. In addition, key components of the Group’s remuneration policy have been adjusted to focus on retention. |
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| Increasing exposure to issues such as data security, breaches in technology security or privacy | As the bulk of the Group’s inventory is of a virtual nature, defence against cybercrime is a top priority, as susceptibility to hacking and the penetration of firewalls are always matters of extreme concern. | The Group is dependent on the systems and platforms that it utilises to deliver its products and services, as well as to manage its merchant base. In recent years, technology spend has been increasing in recognition of this key imperative, in order to support not only organic and acquisitive growth in the business (and the concomitant rise in the number and type of transactions processed), but also to improve system availability and resilience. This invariably includes a major focus on the security of all systems, both production and enterprise, in order to suitably detect and manage security threats, as well as the ability to recover from collateral damage that may be caused as a result of cyber security breaches. | ||||
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| Elimination of the middle man | In most industries a wholesaler is at risk of being eliminated from the supply chain if the supplier has the infrastructure and capabilities to supply the customer directly. | From inception, the objective of the Group was to
become a one-stop destination for the supply and
distribution of all of the mobile 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
introducing 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 tokens, and its phenomenal uptake in South Africa, strengthens the Group’s foothold as a one-stop destination that is most convenient to the retailer. The Group’s increasing bouquet of products and its neutral aggregation thereof will continue to ensure that its middle-man status as distributor is essential to the retailer and will remain entrenched. The Group will continually develop and upgrade new, innovative products to strengthen the foundation of its middle-man status. Many merchants have limited cash flow; however, utilising the Group’s vending solutions allows them to vend products and services which they previously could not afford. The lack of affordability was due to various complexities, such as managing stock levels, obsolescence, pilferage at store level, inability to order small quantities and access to limited stock ranges. Also, the addition of such products and services, and a growing suite of products, necessitates that the Group not only excels in the sourcing, management and delivery of these products and the management of relationships in its merchant base, but simultaneously delivering an excellent supporting back-office capability – including the ability to deliver and manage reconciliation and settlement on behalf of its customers, extensive and professional merchant support services, and deep technology support for online and integrated systems. These competencies make it even more difficult for the Group to be disintermediated, because of the significant value that it provides to merchants, not only in the products and services it delivers, but also in respect of the increasingly complex back-office support functionality required to deliver such services. The Group is an aggregator and an enabler to both its customers and suppliers. Without a distributor, every one of the four mobile operators and around 200 utilities across South Africa would need to deploy a device linked to technology at every merchant in the country, in order to provide the same access and level of service as the Group. For the amount of commission the mobile network operators charge the Group for distribution, they would not be able to provide the same level of service if they were to do it themselves. In addition the Group provides the capex, field support, R&D and call centre services to the merchant base. |
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| Disaster recovery and continuity of business | The Group has developed proprietary technology supporting the roll out of its bouquet of products and services. The Group’s infrastructure connects into some of South Africa’s major banks, Eskom, public and private utility companies and telecommunication operators. In addition, the Group switches both debit and credit cards, electronic funds transfer transactions and e-token products for some of the country’s leading retailers and petroleum companies. The effective and continuous operation of this infrastructure is critical to the Group’s service delivery. | Management recognises the importance assigned
to IT in its corporate governance systems.
The technology team has been strengthened – in people, skills and capability. A Group Information Security Officer has been appointed to assist in compliance processes and procedures from an IT governance perspective. The Group’s Business Continuity and Disaster Recovery Plan provides guidance for emergency and crisis management, business unit recovery and technology disaster recovery. The latter includes the restoration of IT 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:
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