Chairman's report
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Larry Nestadt
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DEAR STAKEHOLDERS
It has been 14 years since Blue Label commenced commercialising the Levy brothers’ entrepreneurial vision of offering prepaid airtime and other related services to the mass market in South Africa. Through our sophisticated and proprietary technology, the business model now embraces a vast network of POS devices, delivering both physical and virtual goods and services across South Africa, India and Mexico.
A key to the success of the Group has been the strong relationships that it has established with both its suppliers and customers.
In delivering on the Group’s stated strategy, this year we further diversified our range of products and services, through entrenching the new product lines of ticketing and prepaid water, as well as integrating the most recent acquisitions, RMCS and Viamedia. Our retail strategy progressed with the establishment of the Edgars Connect brand of standalone stores.
Oxigen Services India continues to benefit from the exponential growth in India’s e-commerce platforms, affirming its strategic decision to enter into the financial services arena.
Although Blue Label Mexico incurred losses, it continues to expand its distribution footprint of POS devices and is steadily benefiting from its election to become a multi-carrier. It has experienced several challenges, given the consolidating telco landscape resulting from regulatory changes.
During the course of the financial year we disposed of our minority shareholding in Ukash, contributing R37 million to pre-tax profit in this regard.
The Group once again achieved growth in its financial performance and returns to shareholders. Headline earnings per share increased 21% to 82.26 cents, on an EBITDA uplift of 37% to R1.08 billion. The increase in headline earnings was achieved through organic growth in the South African distribution segment and augmented by the acquisitions of RMCS and Viamedia. The growth in earnings was primarily attributable to increases in revenue of 14% and gross profit of 22%. Gross profit margins increased from 6.96% to 7.46%. Cash at year-end amounted to R788 million.
The Board approved ordinary dividend No 6 of 31 cents per share (2014: 27 cents per share), equating to a dividend cover of 2.62 times or pay-out ratio of 38% on HEPS.
Since the listing in 2007, the Company has achieved the following worthy milestones:
- Gross profit margin has grown from 5.56% to 7.46% in the current period;
- Revenue has grown from R13 billion to R22 billion;
- Identification and introduction of additional product categories besides prepaid airtime, starter packs and data, such as prepaid electricity, water, ticketing and a variety of financial services;
- Total dividends paid to shareholders, including dividend No 6, amount to R0.9 billion; and
- R392.2 million returned to shareholders via a 12% share buyback in 2011.
Our pipeline of corporate action remains active. In delivering on our stated M&A strategy, we consider acquisitions that are earnings enhancing, add to our product line, distribution network or geography and which are of a strategic or defensive benefit.
In September 2014, the Board received an unsolicited written expression of interest to acquire 100% of the Group. Over the ensuing months it became apparent that the potential acquirer was not advancing its proposal timeously and by mutual agreement, the engagement terminated in December 2014.
Since early 2011 we have regularly reported on the litigation proceedings surrounding the cancellation by Telkom SA SOC Limited of the Multi-Links contract in Nigeria. In December 2014 the Chairman of Telkom and I jointly announced our agreement to resolve the disputes on the basis that all claims, counterclaims and allegations would be withdrawn, with each party responsible for payment of its own costs. I am pleased that we resolved the dispute on an amicable basis.
Through the Social, Ethics and Transformation Committee, expenditure on uplifting communities reached R5.3 million for the year. The spend was mainly directed towards co-founding a new initiative, being the construction and operation of the Protea Glen Boys & Girls Clubs, which offers after school care and extramural activities to the local disadvantaged community. In addition, we provide ongoing support for expanding the parkrun SA franchise, promoting grassroots running, with a quarter of a million members registered to date.
Our journey of reporting on financial risks, performance and opportunities as well as many non-financial parameters, steadily progresses. As we mature, we understand the need to balance our levels of disclosure, while recognising areas of market and price sensitivity.
Looking ahead, South African Distribution is expected to gain further momentum from its enhanced bouquet of products, including mobile handsets and tablets. Edgars Connect, with its increasing number of standalone stores, is an ideal avenue for the retailing of cellular products and services, hardware and accessories requiring SIM connection. Sales of prepaid water tokens are also expected to gain momentum. Ticketing by TicketPro continues to increase its range of ticketing and access control services and solutions. Its technology offering and distribution reach affords it a competitive edge as it steadily grows its market share. A planned domestic and international money transfer solution will enhance the Group’s offerings in the financial services sector.
On the international front, the Group expects a significant increase in revenue streams at Oxigen Services India due to its shift to financial services and new proprietary micro-ATM roll-outs. At Blue Label Mexico, the distribution of additional products and services, over layered by improving revenues from the existing products, positions the business well in its drive towards reaching profitability.
After nearly eight years of service to the Board, Neil Lazarus SC resigned on 27 January 2015 in order to pursue other business opportunities. Neil joined the Board as a non-executive director at the time of our JSE listing in 2007. He actively participated at Board and Committee levels and made exceptional contributions in supporting the Group’s governance, legal and corporate finance functions. On 18 August 2015, we welcomed Yusuf Mahomed as an independent non-executive director to the Board and we look forward to engaging in a long and valuable working relationship with him. He brings a wealth of cellular industry experience as a long-standing board member of Cell C and a founder director of 3 C Telecommunications.
I wish to thank my fellow Directors, the management team led by Brett Levy and Mark Levy, all employees and other stakeholders for their support over the past year.
Larry Nestadt
Chairman
23 October 2015