Blue Label Telecoms Limited

Operational overview - South African distribution

This business segment distributes prepaid products and transactional services to the South African wholesale and retail markets, covering a diverse distribution footprint reaching all LSM groups.

Its product range includes prepaid airtime, electricity and water, starter packs and data, event and transport ticketing and financial services that include merchant acquiring.

South African Distribution contributes 98% to Group revenue.

Overview

As the leading distributor of prepaid airtime and electricity in South Africa, augmented by an expanding suite of products and services, this segment is well positioned to supply its customers through its widespread POS network of approximately 150 000 devices. Distribution capabilities range from independent stores, wholesalers, petroleum forecourts, spaza shops and Mom & Pop stores, through to numerous banking outlets and the multi-channel retail chains.

The informal sector contributes approximately 85% to South African Distribution’s revenue. Services to rural areas are facilitated by a fleet of trucks accompanied by footsoldiers. In this direct distribution model, innovative transactions and incentives are implemented, value is added directly to the consumers, in turn solidifying relationships with merchants.

The remaining 15% of revenue is derived from the formal corporate and retail sectors, in which the Group continues to capitalise on its base. During the year agreements were concluded that will afford greater access to new distribution channels. The acquisition of RMCS in 2014 has enhanced the reach into the retail channel. By managing the front end of retailers’ businesses, ensures that the full suite of Blue Label products and services is available to consumers at these outlets. Distribution to urban merchants is supported through the Group’s proprietary technology platforms.

The trend in consumers opting for “PINless or direct top-up” as an alternative redemption method for prepaid airtime, continues to escalate. During the past year sales through these means increased from R1.7 billion to R2.7 billion.

Airtime and starter packs

Prepaid airtime, starter packs and data

Prepaid airtime, starter pack and data sales continue to comprise the majority of this segment’s profits.

The Group’s prepaid airtime products are differentiated in the market, as they include community-based and customised benefit starter packs, such as healthcare cover and insurance policies for accidental death and funeral plans. Prepaid airtime sales are augmented by voucher sales that are utilised for data downloads and other online data products. Merchant acceptance of low-cost POS terminals and “business in a box” continues to gain momentum.

The importance of a targeted approach is that starter packs are distributed to market in a strategic manner which maximises activation which in turn results in a monthly compounded annuity revenue stream.

The Prepaid Company is the leading distributor of prepaid products for all the major network operators. It facilitates, manages and maintains the distribution of the group’s bouquet of products and starter packs, including the distribution of approximately 80 million bulk print vouchers per month. These services are supported by proven proprietary technology, which ensures purchasing efficiency and inventory control. Relationships with each of the network operators are key to the success of this business. It is responsible for supplier agreements and procurement for the Group, wholesale and community sales, starter packs, handsets, tablets and facilitating its merchants with bulk airtime printing capabilities. Group treasury falls under its ambit.

Blue Label Distribution distributes products through POS terminals, integrated gateways, vending machines, touch screens and RICA devices. It is supported by eight sales branches that are located in Sandton, Cape Town, Durban, Port Elizabeth, Bloemfontein, East London, Nelspruit and Polokwane. Each branch performs the functions of sales, customer service and field support. A 24/7 customer call centre for merchant and UniPIN support, as well as airtime and electricity sales, strengthens their efficient levels of service.

The Post Paid Company distributes hybrid top-up postpaid airtime and data contracts on behalf of all major South African cellular networks. It also distributes handsets, tablets and a number of insurance products.

Retail Mobile Credit Specialist is an enhanced service provider of cellular products and services engaged in the supply of telecommunication products and services, content, data, money transfers and allied activities. Virtual offerings are in the form of an “over the air” cellular application, which enables retailers, external credit providers and consumers to transact using their mobile devices. Physical offerings are available in store.

In strengthening the Group’s access to the retail channel, RMCS and TPPC merged to form Blue Label Connect with effect from 1 June 2015.

In a strategic partnership with the Edcon Group, Edgars Connect standalone stores are being launched. These stores retail cellular products and services, hardware and accessories.

Electricity

Prepaid electricity and water

The supply of prepaid electricity tokens on behalf of the utilities is based on the same model as that of prepaid airtime. Blue Label has been vending prepaid electricity for the past 11 years and is a leading distributor in its field.

In the current year turnover generated on behalf of the utilities increased to R10.4 billion (2014: R8.8 billion). The commission earned thereon equated to R165 million (2014: R133 million). This growth was attributable to the increasing of:

• the number of distributor contracts concluded with municipalities;
• installations of prepaid residential, commercial and corporate prepaid meters;
• revenue and arrears collection campaigns; and
• electrification of new and existing housing developments.

In a replication of the successful prepaid electricity model, the distribution of prepaid water e-tokens has recently been introduced.

Cigicell distributes prepaid electricity and water tokens through a broad network of channels, including formal and informal retail and electronic banking environments. It is responsible for managing the numerous distribution contracts with the utilities.

The Group acts as an agent and not as a principal in respect of electricity and water sales, resulting in only the commissions earned thereon and not the face value of sales being accounted for in revenue.

Ticketing by TicketPro

TicketPro is South Africa’s second largest solution for sport, transport and event ticketing. It specialises in bulk or mass ticketing through its sophisticated technology, including state-of-the-art access control systems and “big data” solutions. It provides event organisers with real-time information on attendance data, crowd arrival patterns, gate pressures, speed of transiting gates and the like thereof. The platform offers promoters a complete ticketing solution, including loyalty programmes and dynamic pricing.

A variety of ticketing types is offered, including 2D, 3D, NFC, bracelet, card, home print, secure print and till print.

During the year an increasing number of sports unions, event managers, commuter groups, concerts, hospitality and lifestyle shows, festivals and expos went live with TicketPro, enabling Blu Approved retail outlets to add ticketing to their product range. New distribution partners include The TicketPro Dome and Nasrec’s Johannesburg Expo Centre and Show Grounds.

The TicketPro Dome is an iconic landmark in Johannesburg, and was voted the best exhibition and concert venue in South Africa for 14 consecutive years. A long-term agreement includes naming and branding rights, ticketing and access management of approximately 44 events per year. Nasrec is the home of the Rand Show and Lifestyle Show. A long-term contract provides turnkey ticketing and access control solutions.

Financial services

In support of financial inclusion of unbanked and underbanked communities, an increasing number of financial services are available, including bill payments, merchant acquiring and money transfers.

This year, growth in the volume of bill payment transactions was approximately 33%. Payments in this regard include TV licences, satellite TV subscriptions, telephone landlines, traffic fines, municipal rates and taxes, electricity accounts, funeral policies, education and school fees and furniture accounts.

During the year EMV certification and user acceptance testing was successfully completed in support of credit and debit card acquiring arrangements with MasterCard and Absa.

A money transfer solution, developed in collaboration with Group companies, RMCS and Oxigen Services India, will be launched to market later this year.

Technology

The Technology division is housed in the South African Distribution segment as the bulk of its functions and services are interdependent with the distribution of airtime, starter packs, electricity and ticketing.

The proprietary AEON and AMS systems, as well as the banking and financial services grade Postilion platform, entrenches the Group’s capability as a neutral aggregator in connecting to mobile networks, utilities, banks, retailers, petroleum companies and POS devices.

This year, in an environment of steadily increasing transaction volumes driven by organic and acquisitive growth, the platforms remained stable. Technology supports in excess of 5 billion transactions per annum, peaking at approximately 4 million online transactions in a day. Transaction Junction provides the Group’s banking grade switching capability which includes EFTs.

During the year operating management processes and procedures were tested. Internal penetration tests and external vulnerability assessments revealed no significant issues.

The South African Distribution segment’s contribution to core net profit equated to R685 million (2014: R559 million).