South African Distribution
The South African Distribution segment
(SA Distribution) is the largest distributor of
prepaid products and transactional services
in South Africa, covering both the
wholesale and retail markets. The product
range includes prepaid airtime, data, starter
packs, postpaid contracts, hardware,
electricity, water and all forms of
ticketing and financial services.
These products are supplied
across a diverse distribution
footprint reaching all South
Africans, thereby achieving the strategic objective of positioning
core products and services within arm’s reach of urban and rural
communities.
SA Distribution is the predominant contributor to the Group’s revenue and profitability. The principal operating companies therein are The Prepaid Company, Cell C, Blue Label Connect, Blue Label Distribution, TicketPro, 3G Mobile, Cigicell, Prepaid24, Utilities World, Reware, Edgars Connect and Transaction Junction.
Overview
As the leading distributor of prepaid airtime and electricity in South Africa, this segment is well positioned to supply its expanding suite of products and services through its widespread distribution footprint of approximately 150 000 devices. Distribution channels range from Mom & Pop stores, spaza shops, independent stores, wholesalers, petroleum forecourts to multi-channel retail and corporate banking partners.
SA Distribution’s unique ability to deliver both virtual and physical products to an extensive distribution footprint through a single company with a proven platform across different channels to market, differentiates it as the market leader in South Africa.
Products include, but are not limited to, physical products such as hardware (POS terminals, handsets, tablets and accessories), prepaid starter packs, postpaid contracts and virtual products such as prepaid airtime, prepaid data, prepaid electricity, prepaid water, bill payments, voucher products, gaming, money transfers and ticketing.
The informal sector contributes approximately 85% to SA Distribution’s revenue, with the remaining 15% derived from the corporate and formal retail sectors. In reaching into and uplifting rural communities, SA Distribution utilises unique and diverse route-to-market strategies. Solutions are facilitated by a fleet of trucks accompanied by foot soldiers, with further opportunities available through Start your own Business initiatives, which include bicycle traders and informal vending points or the option of purchasing Business in a Box from sales agents or retail partners. In addition, incentives are offered to retain merchants and reward their growth, resulting in further opportunities to cross- and up-sell our merchandise.
The majority of SA Distribution’s revenue continues to be derived from the sales and distribution of prepaid airtime, electricity, data and starter packs.
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Prepaid airtime sales are predominantly voucher based and utilised for redeeming voice/data top-ups. Growth in prepaid airtime sales is driven further by “PINless” or “direct” top-ups, as an alternative redemption method for prepaid airtime. The trend in consumers opting for “PINless”, which is primarily sold in the independent channel, continues to escalate with sales increasing 49% to R6.1 billion during the past year. Growth in data sales is mostly derived from the independent and corporate/ banking channels. The chat 4 change product continues to gain momentum, further differentiating prepaid offerings in the market.
SA Distribution’s prepaid starter pack offers differentiation through community driven SIM packs that are pre-commissioned with community-related added value and content. All starter pack sales are tracked via state-of-the-art software and systems to ensure effective and accurate reporting. Flexible RICA registration solutions allow merchants to RICA SIM cards via a terminal, USSD and online from a mobile application.
Growth in sales is driven primarily through the merchant base increasingly selling more of our product lines and the expansion of the distribution footprint, both of which are complemented by the increasing range of products and value added services.
The Prepaid Company (TPC)
TPC is the leading distributor of prepaid products on behalf of all major network operators. It facilitates, manages and distributes all airtime and data, as well as approximately 80 million bulk print vouchers per month. In addition, TPC connects over 700 000 starter packs monthly. Services are supported by proprietary technology, which ensures purchasing efficiency, inventory control and activation management.
TPC is responsible for supplier agreements and procurement on behalf of the Group, including wholesale and community sales, starter packs, handsets, tablets and bulk airtime printing. Group treasury falls under its ambit.
Cell C
Subsequent to financial year-end, Blue Label announced that through its wholly owned subsidiary, TPC, it had concluded an agreement to participate in the recapitalisation of the mobile network operator, Cell C, by acquiring a 45% interest in Cell C for R5.5 billion. Since Cell C’s recapitalisation on 2 August 2017, its growth continues as it expands and upgrades its mobile network coverage. Approximately 16 million customers now benefit from the latest technologies, as well as innovative and value-added products and services, such as the recently launched content and entertainment platform, black.
Blue Label Distribution
Blue Label Distribution is the largest distributor of virtual vouchers, offering bespoke solutions enabling virtual products and services to reach a diverse distribution footprint.
Distribution extends across all segments of the market and includes corporates (insurance, banking), retail (food and non-food retailers including pharmaceuticals), petroleum forecourts, independent/informal channels (Moms & Pops/spaza shops), store-in-store and standalone stores.
Products and services are enabled in several ways, including connectivity to terminals, touch screens, vending machines, self-service terminals, mobile platforms and third-party integration into existing POS software and mobile channels.
The merchant base is supported by eight regional offices located in Johannesburg, Polokwane, Mbombela, Bloemfontein, Durban, Port Elizabeth, East London and Cape Town. Regional offices ensure that customer support teams are in close proximity to merchants in providing service and field support, while feeding back requirements and future needs.
Edgars Connect
Edgars Connect is managed in partnership with the Edcon Group. It represents our strategic reach into the retail channel in serving customers in “the last mile”. Edgars Connect is our one-stop connectivity destination store across the nation, currently with 64 standalone outlets.
It offers premium brands, specialist services and expert advice. The extensive range of products and services includes mobile devices, tablets, wearables, accessories, gadgets, smart home concepts and automation, wifi routers, laptops and a host of convenience items and services such as airtime, data, bill payments and ticketing.
Hardware, including handsets and tablets
The Group distributes tier 3 hardware, such as handsets, tablets and phablets, under proprietary brand names such as Boost, Verssed and Blaupunkt.
The product suite was recently augmented by smart watches and fitness bands. The Group’s subsidiary, Reware, refurbishes and distributes preowned tier 4 smartphones through its outlets in Sandton and Braamfontein.
The Group’s acquisition of 3G Mobile, offering tier 1 and tier 2 handsets, complements our hardware offering. Through its wholly owned subsidiary Comm Equipment Company, it provides financing of the handset element of postpaid and hybrid contracts on behalf of networks.
Prepaid electricity and water
The Group has been vending prepaid
electricity for the past 13 years and
is a leading distributor in this field.
Commissions earned on the supply of prepaid electricity equated to R215 million on sales of R14 billion generated on behalf of utilities. The Group acts as an agent and not as a principal in respect of sales, resulting in only the commissions earned thereon, and not the face value of sales, being accounted for in revenue.
Blue Label owns 50.1% of Prepaid24, an online vendor of prepaid products and payment services via the web, as well as a 25.1% stake in Utilities World, a provider of revenue management software and services to municipalities. The Group benefits from the re-award of distribution contracts by utilities and municipalities, distribution on behalf of additional municipalities, and growth in vending tokens in the retail and corporate channels.
TicketPro
TicketPro is South Africa’s second largest ticketing company and continues to expand into the sports, events, exhibitions, transport and travel ticketing sectors. Its sophisticated ticketing engine enables the administration of all forms of ticketing, including 1D, 2D, NFC, secure print, home print and till slips.
TicketPro’s ticketing platform is also one of the most innovative in the country, offering promoters, event organisers, stadiums, transport and travel companies a single turnkey ticketing system. It offers flexible payment options, CRM functionality with extensive and customisable reporting, complementary ticket management, tailor-made accreditation systems and state-of-the-art access control, including NFC and season ticket functionality.
The extensive distribution channel expanded further this year with the availability of ticketing across the Spar chain. Its large retail footprint and extended trading hours are particularly convenient for consumers.
During the year, Ticketpro expanded its product offerings in the bus transport sector. The Putco commuter ticket was introduced at over 200 stores strategically positioned around its key routes. Ticketing on behalf of Autopax was also implemented.
Financial services
In support of financial inclusion, Blue Label offers a comprehensive suite of financial services, including bill payments, merchant acquiring and money transfers. Distribution footprint in the independent and informal channels continues to increase steadily.
Technology
The SA Distribution segment houses Blue Label’s Technology division. The segment’s dependency on back-end system management, up-time and product and service delivery is crucial to ensuring the continual expansion of the distribution footprint and products and services offered.
The proprietary AEON and AMS systems, as well as Transaction Junction’s Postilion switch, entrenches the Group’s capability as a neutral aggregator in connecting to multiple service providers, product providers and distribution channels, regardless of the channel’s technology requirements.
Transaction Junction (TJ) is the foremost bank independent payment services provider in southern Africa. It processes over 1.2 billion transactions per annum. TJ plays a vital role in the payment ecosystem by consistently delivering quality solutions to customers. It serves multiple industries, including major retailers, financial institutions, petroleum companies and others seeking to extend their payment services requirements securely and on time.
The SA Distribution segment’s contribution to core headline earnings equated to R893 million (2016: R751 million).