Chairman's report

The Blue Label strategy endures

Larry Nestadt   “Blue Label’s highly cash generative model for distributing virtual goods and services, creates unique integration opportunities, which the Group continues to develop.”
Larry Nestadt

Dear stakeholders

Blue Label Telecoms continues to deliver on its vision of being a leading distributor of secure fintech products and services within emerging markets. The Group remains true to its mission of distributing products and services to the middle and lower tiers of the world’s economic pyramid. Fifteen years after the co-founders and Joint CEOs Brett Levy and Mark Levy envisioned the commercialisation of prepaid airtime, the Blue Label strategy endures. It focuses on diversifying its range of products and services, while expanding its distribution footprint through organic growth in South Africa, India and Mexico.

Products and services are delivered by sophisticated proprietary technology, through a vast network of point of sale devices. The range of merchandise distributed embraces prepaid airtime, prepaid electricity, ticketing and financial and value-added services. Recent additions to the bouquet of its offerings include hardware devices, handsets, low cost smartphones and tablets earmarked for the retail channel.

This year, the core South African Distribution segment delivered 19% growth in revenue, achieved mainly organically through increased sales and underpinned by the Group’s ever-expanding distribution channels.

On the international front, the share of losses in Blue Label Mexico declined by 28% from R89 million to R63 million. The share of losses of R27.7 million from Oxigen Services India was congruent with significant expenditure incurred on the expansion of its mobile wallet subscriber base, which presently touch some 25 million wallets.

Group earnings gained further momentum, resulting in headline earnings increasing by 22% to R668 million. This equated to an increase in headline earnings per share from 82.26 cents to 100.35 cents, net of the negative contributions by Blue Label Mexico and Oxigen Services India totalling 13.66 cents per share. Core headline earnings per share increased by 21% to 102.85 cents. This growth was predominantly achieved through the increase in revenue by 19%, gross profit by 11% and EBITDA by 15%. Earnings per share increased by 20% to 103.85 cents.

Capital and reserves accumulated to R4.5 billion, net of accumulated dividends paid to date totalling R913 million, further solidifying the foundation of Group resources. The net asset value equated to R6.62 per share.

The Board approved ordinary dividend number 7 of 36 cents per share, a 16% increase on the 31 cents per share declared in 2015. This equates to dividend cover of 2.73 times or a pay-out ratio of 35.9% on HEPS.

The Group’s pipeline of corporate action remains active. Criteria for considering acquisitions is that they enhance earnings, add to our product line, distribution network or geography, and are of a strategic or defensive benefit.

On 5 October 2016 Blue Label announced the finalised terms for its proposed participation in the recapitalisation of Cell C Proprietary Limited, by subscribing for a 45% shareholding in Cell C at a cost of R5.5 billion. The Board is of the opinion that the rationale for the transaction is compelling, both from an investment and commercial perspective. The process to completion of the transaction is progressing positively. A general meeting has been convened for shareholders to consider the proposed transaction on 16 November 2016.

The highlight of our CSI commitment was the official opening in May 2016 of the Protea Glen Boys & Girls Clubs of South Africa, offering after school care and extramural activities to the surrounding community. The Social, Ethics and Transformation Committee supported expenditure of R6.5 million for upliftment projects for the year.

Looking ahead, the distribution of prepaid electricity is expected to continue to grow through government programmes for the rolling out of additional prepaid electricity meters throughout South Africa. New initiatives at Blue Label Mexico, including the escalation of distribution of starter packs, are expected to result in further declines in losses incurred by its aggressive roll-out strategy. Oxigen Services India continues to focus on expanding its mobile wallet subscriber base, supported by increased marketing to the vast unbanked population in India. This is expected to result in compounding growth in both transactional revenue and the intrinsic value of the wallet subscriber base.

I thank my fellow Directors, the management team led by Brett Levy and Mark Levy, the senior management team, all employees and other stakeholders for their support over the past year.

Larry Nestadt

9 November 2016