Financial Director's report

A strong underlying performance

Mark Levy and Brett Levy   “The Group’s performance was primarily attributable to organic growth, underpinned by an expanding multitude of distribution channels and in turn a growth in market share.”
Dean Suntup
Financial Director

Financial review

The momentum of growth in Group earnings continued, resulting in core headline earnings increasing by 21% to R685 million. This equated to an increase in headline earnings per share from 82.26 cents to 100.35 cents. After adjusting for the amortisation of intangible asset write-offs, net of taxation and non-controlling interests as a consequence of purchase price allocations, the resultant core headline earnings per share increased by 21% to 102.85 cents.

Growth in earnings was predominantly achieved through increases in revenue of 19%, gross profit of 11% and EBITDA of 15%.

The Group’s performance was primarily attributable to organic growth, underpinned by an expanding multitude of distribution channels and in turn a growth in market share.

On the international front, the Group’s share of losses in Blue Label Mexico (BLM) declined by 28%, from R89 million to R63 million. A negative contribution of R27.7 million from Oxigen Services India (OSI) was congruent with significant expenditure incurred on the expansion of its mobile wallet subscriber base. The above losses incurred impacted negatively on Group headline earnings per share by 9.50 cents and 4.16 cents respectively.

Capital and reserves accumulated to R4.5 billion, net of accumulated dividends paid to date totalling R913 million, further strengthening the Group’s balance sheet. The net asset value equated to R6.62 per share.

Group income statement

  May 2016
  May 2015
Revenue 26 204 722   22 044 222   4 160 500   19  
Gross profit 1 829 694   1 644 340   185 354   11  
GP margins (%) 6.98   7.46   (0.48)      
Other income 126 294   99 972   26 322   26  
Overheads (715 429)   (664 147)   (51 282)   8  
EBITDA 1 240 559   1 080 165   160 394   15  
Depreciation, amortisation and impairment (98 183)   (94 019)   (4 164)   4  
EBIT 1 142 376   986 146   156 230   16  
Finance costs (214 110)   (233 165)   19 055   (8)  
Finance income 193 899   173 047   20 852   12  
Share of (losses)/ profit from associates (31 279)   12 497   (43 776)   (350)  
Share of losses from joint ventures (40 491)   (91 835)   51 344   (56)  
Net profit before taxation 1 050 395   846 690   203 705   24  
Taxation (318 783)   (265 497)   (53 286)   20  
Net profit after tax 731 612   581 193   150 419   26  
Non-controlling interest (40 022)   (3 576)   (36 446)   1 019  
Net profit attributable to equity holders of parent 691 590   577 617   113 973   20  
Core intangible adjustment 16 650   18 961   (2 311)   (12)  
Core net profit 708 240   596 578   111 662   19  
Headline earnings adjustment (23 329)   (30 566)   7 237   (24)  
Core headline earnings 684 911   566 012   118 899   21  
Earnings per share (cents) 103.85   86.86   16.99   20  
Headline earnings per share (cents) 100.35   82.26   18.09   22  
Core earnings per share (cents) 106.35   89.71   16.64   19  
Core headline earnings per share (cents) 102.85   85.11   17.74   21  


Revenue increased by 19% from R22 billion to R26.2 billion. This growth was organically achieved through access to additional channels of distribution.

Revenue does not include the turnover generated by the group’s international operations in that they are associate and joint venture companies which are equity accounted for only.

Gross profit

Although there was a contraction in gross profit margins from 7.46% to 6.98%, gross profit increased from R1.64 billion to R1.8 billion congruent with the increase in revenue generated.


Overheads, comprising employee costs and operating expenses increased by 8%, of which the former accounted for 5% and the latter 12%.


The resultant EBITDA increased by 15% from R1.08 billion to R1.24 billion. The comparative year included a once-off income receipt of R37 million relating to the disposal of the Group’s interest in Ukash.

Depreciation, amortisation and impairment charges

Depreciation, amortisation and impairment charges amounted to R98 million equating to an increase of R4 million on the comparative year. Of this amount, R20.6 million pertained to the amortisation of intangible assets resulting from purchase price allocations from historical acquisitions compared to R22.3 million in the comparative year.

Net finance costs

Finance costs

Finance costs totalled R214 million, of which R48 million related to interest paid on borrowed funds and facilities and R166 million to imputed IFRS interest adjustments on credit received from suppliers. On a comparative basis, interest paid on borrowed funds and facilities amounted to R68 million and the imputed IFRS interest adjustment equated to R165 million.

The decline of R20 million on interest paid on borrowed funds and facilities was congruent with cash generated from trading operations. This decline was net of the perpetuation of applying excess funds to bulk inventory purchase transactions and early settlement payments attracting favourable discounts. Finance facilities were utilised on a piecemeal basis for this purpose and repaid during the current year.

Finance income

Finance income totalled R194 million, of which R64 million was attributable to interest received on cash resources and R130 million to imputed IFRS interest adjustments on credit afforded to customers. On a comparative basis, interest received on cash resources amounted to R31 million and the imputed IFRS interest adjustment to R142 million.

The increase in interest received from cash resources was directly attributable to growth in revenue, partially offset by the utilisation of funds for financing and investing activities.

Share of losses from associates

Share of losses primarily related to Oxigen Services India in which the Group’s share of losses equated to R28 million.

Share of losses from joint ventures

The Group’s share of losses was attributable to losses incurred by Blue Label Mexico, of which the Group’s share equated to R63 million. This amount was partially offset by a net share of profit of R19.7 million generated by 2DFine Holdings Mauritius.

Non-controlling interests

Non-controlling interests comprises minority share of profits in Cigicell, Transaction Junction, Via Media and Blue Label Data Solutions, the total of which equated to a growth of R36 million inclusive of a reduction in minority share of losses in Africa Prepaid Services.

Of this growth, R15.6 million was attributable to Cigicell and R3.6 million to Transaction Junction. Non-controlling share of losses declined by R7.7 million, in line with the decline in losses in the APS Group. Viamedia increased by R6 million from R8.3 million to R14.3 million as the comparative year.

Core headline earnings

Core headline earnings increased by R119 million (21%) to R685 million. This equated to headline per share of 100.35 cents.

Segmental report

South African Distribution                
Revenue 25 722 540   21 657 891   4 064 649   19  
Gross profit 1 582 743   1 444 730   138 013   10  
EBITDA 1 133 433   1 038 252   95 181   9  
Core net profit 750 951   684 756   66 195   10  
Core headline earnings 751 086   683 744   67 342   10  
Gross profit margin (%) 6.15   6.67          
EBITDA margin (%) 4.41   4.79          

Growth in revenue of 19% was organically achieved through increased sales by expanding distribution channels. Revenue generated on “PINless top-ups” increased by R1.4 billion from R2.7 billion to R4.1 billion, equating to effective growth in South African Distribution revenue of 23%, in that only the commission earned thereon is recognised.

Net commissions earned on the distribution of prepaid electricity continued to increase, escalating by R33 million to R197 million (20%) on turnover of R12.1 billion generated on behalf of the utilities.

Although there was a contraction in gross profit margins, gross profit increased by R138 million (10%) to R1.6 billion. The decline in margins from 6.67% to 6.15% was directly attributable to revenue generated from large distributors that were afforded additional margin incentives. This in turn manifested itself in an element of the growth in revenue.

The resultant growth in EBITDA of 9% to R1.1 billion equated to an EBITDA margin of 4.41%.

Contribution to core net profit increased by R66 million to R751 million (10%).

International Distribution                
EBITDA 44 152   35 379   8 773   25  
Share of (losses)/profits from associates and joint ventures   (70 283)     (81 267)     10 984     14  
– Ukash   12 004   (12 004)   (100)  
– Oxigen Services India (27 672)   2 621   (30 293)   (1 156)  
– Blue Label Mexico (63 293)   (88 508)   25 215   28  
– 2DFine Holdings Mauritius   19 734     (7 574)     27 308     361  
– Mpower 948   190   758   399  
Core net loss (29 352)   (46 958)   17 606   37  
Core headline loss (59 304)   (80 025)   20 721   26  
– Equity holders of the parent   (59 327)     (72 337)     13 010     18  
– Non-controlling interests   23     (7 688)     7 711     100  

The share of net losses from associates and joint ventures comprised the following:


Share of profits in Ukash ceased in March 2015 as the Group disposed of its interest therein.

Oxigen Services India

Since inception of the Group’s investment in OSI in 2004, focus has been on expanding its offline network of retail outlets. In this regard approximately 200 000 points of presence are operative. This element of the business generated profitability of R45 million of which the Group’s share equated to R25 million, in comparison to R2.6 million in the previous financial year.

In line with the dynamics of a shift in demand for online wallets, a strategic decision was made to enter this field. Although offline retail-based wallets continue to increase, penetration into the creation of wallets through online channels has the potential of compounding transactional growth through consumers being afforded the ability to transact on web-based and/or mobile applications.

The creation of these additional wallets will not only increase transactional revenue, but the wallets in themselves have an intrinsic value based on worldwide trends in this regard. In order to escalate penetration in both online and offline wallet acquisition, brand awareness is key to achieving this objective. Accordingly, during the second half of the financial year significant expenditure was incurred on the marketing of the brand and the acquisition of wallets. This resulted in the online company incurring losses of R92 million of which the Group’s share equated to R53 million. The Group’s net share of losses amounted to R28 million, equating to a negative turnaround of R30.3 million, after the amortisation of intangibles.

At the end of the previous financial year the total wallet subscribers amounted to 5.4 million. At the end of the current year this subscriber base has increased to 22.6 million, the bulk of which was congruent with the expenditure incurred in the second half of the financial year.

Daily money transfer deposits have grown from USD3.3 million per day as at 31 May 2015 to USD4.0 million per day as at 31 July 2016, increasing exponentially through its connectivity with the National Payment Corporation of India.

Blue Label Mexico

BLM’s losses declined from R186 million to R130 million, of which the Group’s share was R63.3 million after the amortisation of intangible assets.

The decline in losses was attributable to increases in revenue by 14%, gross profit by R67 million, underpinned by higher gross profit margins. Focus on cost efficiencies confined an increase in operational expenditure to 3%. The resultant EBITDA increased by R54 million (44%).

The increase in gross profit was primarily attributable to BLM becoming a multi-carrier distributor as opposed to historically being confined to one network. This has created a more competitive environment among the networks to the benefit of the Company.

The introduction of the distribution of starter packs that generate monthly compounded annuity income is expected to gain momentum which will result in further declines in losses going forward.

2DFine Holdings Mauritius

The Group’s effective shareholding in OSI prior to March 2016 was 55.83%. Of this shareholding, 37.22% was held by Gold Label Investments (GLI), a wholly owned subsidiary of the Group and 18.61% indirectly through the Group’s 50% shareholding in 2DFine Holdings Mauritius. In March 2016, a rights issue was offered by OSI for USD10.5 million. The Group exercised its rights for the entire amount through GLI congruent with 2DFine Holdings Mauritius waiving its rights. The effect of this is that GLI’s shareholding has increased from 37.22% to 40.97% and its indirect shareholding of 18.61% has been diluted to 17.21%. The latter has in turn resulted in a gain of R30 million on dilution, being the Group’s share of the increased net asset value emanating from the rights issue.

This gain was offset by the Group’s share of losses of R10.2 million attributable to interest paid on historical loans from GLI and BLT. The Group’s share of interest paid in the comparative year amounted to R7.6 million.

After deducting the gain on dilution of R30 million, the negative contribution by the international segment to core headline earnings amounted to R59.3 million.

Revenue 291 856   240 168   51 688   22  
Gross profit 182 533   136 773   45 760   33  
EBITDA 111 142   51 359   59 783   116  
Core net profit 64 273   28 559   35 714   125  
Core headline earnings 65 333   28 346   36 987   130  

This segment comprises Viamedia, Supa Pesa, Blue Label One, Cellfind, Panacea and Simigenix, all of which contributed positive growth to revenue, EBITDA and core net profit.

Of the growth in EBITDA, Viamedia contributed R27 million, of which R17 million pertained to the release of a contingent portion of the acquisition price of a joint venture with Supa Pesa. The balance of the growth in EBITDA of R33 million pertained to the balance of the companies.

At core net profit level, of the positive contributions to growth, Viamedia accounted for R18 million, Blue Label One for R3 million and Cellfind, Panacea Mobile and Simigenix for R12 million. The balance of growth of R2 million was attributable to Blue Label Engage which incurred a loss in the comparative year. This company was disposed of in December 2014.

Revenue 190 326   146 163   44 163   30  
Gross profit 64 418   62 837   1 581   3  
EBITDA 35 889   40 831   (4 942)   (12)  
Core net profit 16 116   23 975   (7 859)   (33)  
Core headline earnings 21 564   23 975   (2 411)   (10)  

In October 2015 Velociti was disposed of at a loss of R5.4 million. On exclusion of this capital loss as well as its historical positive contribution of R4 million to core net profit, the growth of the remaining entities increased from R20 million to R21.6 million (8%). This growth was primarily attributable to the contribution by Blue Label Data Solutions which generated revenue of R155 million and a growth in EBITDA of 12% from R33 million to R37 million. Its contribution to core headline earnings amounted to R21.4 million, equating to a growth of 12%.

EBITDA (84 057)   (85 656)   1 599   2  
Core net loss (93 748)   (93 754)   6    
Core headline loss (93 745)   (97 716)   3 971   4  

In the comparative year EBITDA losses were confined to R86 million inclusive of a once-off income receipt.

The current year EBITDA includes a release of the contingent portion of the acquisition price of Viamedia amounting to R31 million, partially offset by professional fees of R22 million relating to potential acquisitions. This limited EBITDA losses to R84 million, resulting in a marginal decline of 2%.

Statement of financial position

Total assets increased by R279 million to R7.3 billion, of which growth in non-current assets accounted for R235 million and current assets for R44 million.

The movement in non-current assets included a net increase in investments in associate and joint venture companies of R362 million. These increases were offset by declines of R6 million of capital expenditure after depreciation, R53 million in intangible assets and goodwill, R24 million in loans receivable, R36 million in trade receivables relating to postpaid contracts in excess of 12 months and R8 million in other non-current assets.

The net increase in investment in associate and joint venture companies comprised additional capital contributions to BLM of R43 million and OSI of R168 million, a positive impact on foreign currency translation reserves of R82 million, a loan of R60 million granted to Edgars Connect, interest capitalised on loans of R46 million, unrealised foreign exchange gains thereon of R35 million and the gain of R30 million on dilution relating to the Group’s share of the increased net asset value emanating from the rights issue in OSI. These increases were partially offset by the Group’s share of losses totalling R102 million inclusive of the amortisation of applicable intangible assets.

The net decline in intangible assets and goodwill mainly pertained to the amortisation of intangibles by R130 million, the decline in goodwill and intangible assets by R5 million relating to the disposal of Velociti, offset by R85 million expended on the purchase of software, development costs, starter pack bases and the expansion of distribution channels.

There was a net increase in current assets of R44 million. The material movements relate to an increase in inventories of R226 million and loans receivable of R54 million, offset by declines in cash resources of R199 million and trade receivables of R33 million.

The stock turn was 25 days. Bulk inventory purchase opportunities at favourable discounts validated the consequent increase in inventory. The nature of the business enables it to reduce its inventory holdings within the above number of days at any given time.

The debtors collections improved from 46 days in the comparative year to 38 days.

The net profit attributable to equity holders of R692 million, less a dividend of R209 million, resulted in retained earnings accumulating to R3.1 billion.

In spite of an increase in trading activities, trade and other payables declined by R332 million as a result of early settlement payments in return for favourable settlement discounts. Consequently, average credit terms declined from 53 days in the comparative year to 40 days.

Statement of cash flows

Cash flows from operating activities amounted to R433 million predominately attributable to increased trading activity, net of working capital requirements.

Cash flows applied to investing activities amounted to R396 million. Of this amount, R43 million related to an additional investment in BLM and R159 million to OSI. A further R59 million was applied to a loan to the associated Edgars Connect stores, R85 million to the purchase of intangible assets, R29 million to net loans granted and R42 million to capital expenditure. The above outflows were partially offset by net inflows received of R21 million of which R13 million related to the disposal of Velociti.

After applying R23 million to the acquisition of treasury shares and a dividend payment of R213 million to shareholders and non-controlling interests, cash on hand at year-end amounted to R589 million.

Forfeitable share scheme

Forfeitable shares totalling 2 591 066 (2015: 2 937 836) were issued to qualifying employees. During the period 612 453 (2015: 419 998) shares were forfeited and 3 163 359 (2015: 3 819 409) shares vested.


The Group’s current dividend policy is to declare an annual dividend. On 23 August 2016 the Board approved a gross ordinary dividend (dividend number 7) of 36 cents per ordinary share (30.6 cents per ordinary share net of dividend withholding tax) for the year ended 31 May 2016.

This dividend of R242 823 255 inclusive of withholding tax, equates to a 2.73 cover on headline earnings. The dividend for the year ended 31 May 2016 has not been recognised in the financial statements as it was declared after that date.


I wish to express my gratitude to the Group’s finance team for their professional input and dedication throughout the year.

Dean Suntup
Financial Director

9 November 2016