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BLUE LABEL INTEGRATED ANNUAL REPORT 2016
Conversation with Joint Chief Executive Officers
continued
electricity and its proprietary, UniPIN,
the offline solution to an online
problem. The success and rapid
uptake of the product with
consumers, municipalities and utilities
alike, holds us in good stead as and
when the distribution of prepaid
water e-tokens are enabled, as in the
case of electricity.
Acquisitive and organic growth over
many years has enabled us to
consolidate and optimise various
technology landscapes, as well as
share technology skills, know-how
and resources, both locally and across
our international operations.
During the year, we commenced
accumulating “big data” in-house,
recognising the benefits from accruing
and channelling our vast data
resources. Ultimately, a “big
database” will aggregate, process,
analyse and prioritise the huge sets of
customer and transactional data
sourced from Group subsidiaries and
their partners. “Big data” records are
being normalised and harmonised
into a single usable profile per
customer. Initial output reveals
patterns and trends enabling us to
improve customer engagement and
spend, while results help identify
vertical integration as well as cross
and upselling opportunities around
the Group.
How we operate
The distribution model is based on
strategic partnerships, underpinned
by long-term contracts, which
inevitably develop into firm
relationships where customers
become partners. The model
continues to evolve, enabling us to
drive opportunities in both the vertical
and forward integration planes.
Income is derived from three main
pillars: the sales of commodities (such
as airtime, electricity and ticketing),
annuity transactions (from our SIM
card base, location-based services,
content and other subscription
services) and interest earned on
surplus cash generated.
The commission structure is based on
long-term contracts with not only the
network operators, but also other
product and service providers,
covering payment terms, annuity and
commissions receivable. Commissions
received are shared with merchants in
the distribution channel as an added
incentive to sell our merchandise. In
turn, the Group channels merchants’
R&D feedback and manages all their
field support requirements, in addition
to supplying merchandise and
marketing materials.
Field support is differentiated into
three tier groupings: Gold, Silver and
Bronze. Merchants are encouraged to
upgrade to a higher level, while their
value proposition in selling our
merchandise is enhanced. This allows
for price differentiation and response
times via service level agreements
with us.
We run our businesses sustainably
and ensure cost containment on all
levels. The Board oversees these
commitments, ensuring that a
rigorous risk assessment process is
driven through the IRCC, which in
turn reports to the ARCC, a
committee of the Board.
Operations are grouped into four
main segments: South African
Distribution, International Distribution,
Mobile and Solutions. The South
African segment remains the
predominant contributor to the
Group’s profitability, derived mainly
from the sale of prepaid airtime,
starter packs, data and the electricity
businesses. The Technology division is
housed in this segment, as the bulk of
its functions and services are
interdependent with the distribution
of airtime, starter packs, electricity
and ticketing. The strategy of the
International segment is to pursue
growth opportunities across our
global footprint, presently though our
operations in India and Mexico.
South Africa’s core business
is solid
South African Distribution segment is
the predominant contributor to Group
profitability. This year, revenue grew
19% to R26.2 billion, primarily
attributable to organic growth,
underpinned by an expanding
multitude of distribution channels,
ultimately resulting in growth in
market share. Revenue generated on
“PINless top-ups” increased by
R1.4 billion to R4.1 billion, equating
to effective growth in the segment’s
revenue of 23%, as only the
commissions earned thereon are
recognised.
International segment is
evolving
Since inception of the Group’s
investment in Oxigen Services India in
2004, our focus has been on
expanding its offline network of retail
outlets, now reaching in excess of
200 000 touch points. This part of the
business generated profitability of
which the Group’s share equated to
R24 million, in comparison to
R2.6 million in the previous financial
year.
In line with a dynamic shift in demand
for online wallets, a strategic decision
was made to enter this field of
business. Although offline retail-based
wallets continue to increase, creation
of wallets through online channels
has the potential to compound
transactional growth, as consumers
transact on web-based and/or mobile
applications.
Creating additional wallets not only
increases transactional revenue, but
also the wallets have an intrinsic value
based on worldwide trends.