Directors' report
The Directors have pleasure in presenting the Group annual financial statements of Blue Label Telecoms Limited (Blue Label Telecoms or the Company) and its subsidiary, associate and joint venture companies
(the Group) for the year ended 31 May 2019.
Principal activities and strategy
Blue Label Telecoms' core business is the virtual distribution of secure electronic tokens of value and transactional services across its global footprint of touch points. The Group's stated strategy is to extend its global footprint of touch points, both organically and acquisitively, to meet the significant demand for the delivery of multiple prepaid products and services through a single distributor, across various delivery mechanisms and via numerous merchants or vendors.
Financial results
The Group recorded a net loss after tax attributable to equity holders for the year ended 31 May 2019
of R6 646 million (2018: profit of R1 122 million). Full details of the financial position and results of the Group and its segments are set out in the Group annual financial statements. The Group annual financial statements for the year ended 31 May 2019 were approved by the Board and signed on its behalf on 26 September 2019.
Share capital
Full details of the authorised, issued and unissued capital of the Company at 31 May 2019 are contained
in note 6.1 of the Group annual financial statements. Over the period 22 August 2018 to 21 September 2018, 32 853 168 shares were repurchased at a weighted average price of R6.78 per share.
Dividends
The Board of Directors have elected not to declare a dividend.
Subsequent events and going concern
Disposals
The Blue Label Group has consistently generated positive cash flows from its trading operations since its listing. These funds have been applied to dividend distributions, share buy-backs and investing activities, at all times ensuring sufficient surplus funds to facilitate working capital requirements. Over the past two years significant investments were made, necessitating an increase in interest-bearing debt in order to ensure that working capital requirements remained intact. Accordingly, the Board of Directors have made a decision to deleverage the business in order to ensure a more robust and liquid balance sheet going forward. This deleveraging will be achieved through the disposal of certain assets, as reflected in subsequent events below, the proceeds of which will amount to approximately R1.07 billion. The disposal thereof will not have a negative impact on the extensive distribution network that Blue Label has established and will not inhibit its distribution capabilities nor on its strategic objectives going forward. These funds will be applied to reduce current interest-bearing debt.
Blue Label Mobile restructure and disposal
On 3 June 2019, BLT restructured its holdings in Cellfind Proprietary Limited (Cellfind), Viamedia Proprietary Limited (Viamedia), Airvantage Proprietary Limited (Airvantage) and AV Technology Limited (AV Technology). Prior to the restructure, BLT owned 100% of Cellfind, 60% of Airvantage SA, 60% of AV Technology and 75% of Viamedia. Malik Investments Holdings Proprietary Limited (Malik), a non-Group company, owned 25% of Viamedia. In terms of the restructure, BLT exchanged its shares in Cellfind, Viamedia, Airvantage and AV Technology for 89.51% of the shares in a new entity called Blue Label Mobile Group Proprietary Limited (BLM). Malik thereafter exchanged its 25% shareholding in Via Media for 10.49% in BLM. Following this, Malik subscribed for a further 4.51% in BLM for R34 million, increasing its shareholding in BLM to 15% with BLT owning the remaining 85%. BLT retains all of the existing rights and obligations with respect to the remaining put and/or call options on 40% of the shares in Airvantage and AV Technology (refer to note 3.7).
Subsequent to the restructure, BLT assigned its rights and obligations to acquire 50% of Hyve Mobile Proprietary Limited (Hyve) to BLM. The first tranche of payment due to the shareholders of Hyve was for R80 million, of which R47 million plus interest of R1.3 million has been paid. On payment of the balance of R33 million, BLM's 50% holding in Hyve will become effective. Thereafter, three additional tranches totalling an estimated R90.4 million will be payable over a three-year period based on performance targets. BLM has a call option to acquire a further 25% of Hyve, exercisable up until 30 September 2021, for an estimated purchase consideration of R85.2 million.
Post-year-end, BLT entered into an agreement to dispose of its 85% shareholding in BLM as well as its 51% shareholdings in Simigenix Proprietary Limited (Simigenix) and Panacea Proprietary Limited (Panacea), to DNI 4PL Contracts Proprietary Limited (DNI), for a purchase consideration of R450 million, inclusive of loan claims, plus the amounts which BLM has disbursed towards the acquisition of 50% of Hyve as at the transaction closing date. The purchase price will be as follows:
- R350 million plus the amounts BLT have disbursed for the acquisition of 50% of Hyve as at the transaction
closing date; and
- R100 million, bearing interest at prime overdraft rates plus 2% per annum compounded on a monthly basis,
deferred until the solvency and liquidity status of Cell C is proven.
The above proceeds received will be applied to reduce interest-bearing debt.
Post-disposal of BLM, BLT will continue to assume the obligation with respect to the put and/or call options on 40% of the shares in Airvantage and AV Technology, until such time as the liquidity and solvency status of Cell C is proven. At that stage the obligation in respect of the put and/or call options will revert back to BLM. The put and/or call options cannot be exercised prior to the finalisation of the 31 May 2020 financial results of both entities.
Should BLT be obligated to meet the commitment relating to the put option, and the liquidity and solvency is never proven thereafter, then the R100 million deferred purchase price and the interest accrued thereon will be forfeited by BLT, but in lieu thereof, BLM will transfer an additional 24% of the issued share capital of Airvantage and AV Technologies to BLT, resulting in BLT ownership of these entities amounting to 64%.
Should BLT be obligated to meet the commitment relating to the put option, and the liquidity and solvency of Cell C is proven thereafter, then the R100 million deferred purchase price and the interest accrued thereon will be payable to BLT plus the cost of the 40% put option shares that will be transferred to BLM.
Disposal of 3G Mobile
Post-year-end 3G Mobile Proprietary Limited (3G) will distribute its shares in Comm Equipment Company
(CEC) and 3G's loan account claim against CEC to its shareholder, TPC. The latter will thereafter dispose of 100% of the shares in 3G to DNI for a purchase consideration of R544 million. The above proceeds received will be applied to reduce interest-bearing debt.
Cell C R1.4 billion financial guarantee
On 2 August 2018, Cell C procured R1.4 billion of funding from a consortium of financial institutions for a tenure of 12 months, secured by airtime to the value of R1.75 billion. In the event of default, TPC is required to purchase such inventory from the consortium on a piecemeal basis over a specified period that has been agreed upon. These purchases would be made in lieu of purchases that would have been made from Cell C within that period.
As at 31 May 2019, the above funding declined from R1.4 billion to R1.25 billion as a result of BLT purchasing from the security airtime. Post-year-end, the financial institutions have agreed to extend the repayment date to 30 November 2019. If Cell C is unable to meet this commitment by that date, and no further extension is granted, BLT will be required to purchase R100 million of security airtime in November 2019 and R300 million per month in December 2019, January 2020 and February 2020.
Banking facility
In August 2019, The Prepaid Company concluded an addendum to its facilities agreement with Investec Bank Limited in terms of which the facility was increased by R150 million.
Going concern
The Board of Directors have evaluated the going concern assumption as at 31 May 2019 and considered it to be appropriate in the preparation of these financial statements.
The Prepaid Company's Investec banking facilities, which would have expired on 30 September 2019, have been extended to 29 November 2019 and discussions are in progress for a further extension beyond that date.
As at the date of these financial statements, the renegotiation of these facilities had not yet been completed, and although the directors are of the opinion that the facilities would be extended beyond November 2019, material uncertainty exists should these facilities not be extended. In this event, certain liabilities within the Group would not be settled in the normal course of business.
The directors are confident that the successful completion of the transactions, as detailed in the subsequent events above, will result in a significant reduction in interest-bearing debt and in turn the strengthening of the Group's balance sheet.
Directorate
The following are the details of the Company's Directors:
| Name |
Office |
Appointment date |
Date and nature of change |
| Larry M Nestadt |
Independent Non-Executive Director |
5 October 2007 |
— |
| Brett M Levy |
Joint Chief Executive Officer |
1 February 2007 |
— |
| Mark S Levy |
Joint Chief Executive Officer |
1 February 2007 |
— |
| Kevin M Ellerine |
Non-Executive Director |
8 December 2009 |
— |
| Gary D Harlow |
Independent Non-Executive Director |
5 October 2007 |
— |
| Phuti Mahanyele |
Independent Non-Executive Director |
1 September 2016 |
Resigned 23 November 2018 |
| Joe S Mthimunye |
Independent Non-Executive Director |
5 October 2007 |
— |
| Dean A Suntup |
Financial Director |
14 November 2013 |
— |
| Jeremiah S Vilakazi |
Independent Non-Executive Director |
19 October 2011 |
— |
Directors' interests
The individual interests declared by Directors in the Company's share capital as at 31 May 2019, held directly
or indirectly, were as follows:
| |
Nature of interest |
| |
Direct beneficial |
Indirect beneficial |
| Director/officer |
2018 |
|
2018 |
|
| BM Levy |
67 174 937 |
|
63 438 386 |
|
17 772 778 |
|
21 272 778 |
|
| MS Levy |
59 767 529 |
|
56 030 978 |
|
17 772 777 |
|
21 272 777 |
|
| KM Ellerine* |
— |
|
— |
|
114 660 000 |
|
114 660 000 |
|
| GD Harlow |
— |
|
— |
|
4 445 569 |
|
4 414 815 |
|
| JS Mthimunye |
130 000 |
|
50 000 |
|
242 573 |
|
20 000 |
|
| LM Nestadt |
— |
|
— |
|
10 000 000 |
|
8 204 674 |
|
| DA Suntup |
3 826 078 |
|
808 612 |
|
177 778 |
|
3 877 778 |
|
| JS Vilakazi |
— |
|
— |
|
— |
|
— |
|
| * |
KM Ellerine is a beneficiary of these shares together with multiple other beneficiaries. |
During the period 31 May 2019 to the date of signature of this report GD Harlow sold 2 754 920 shares.
The aggregate interest of the current Directors in the capital of the Company was as follows:
| |
Nature of shares |
| Director/officer |
2018 |
|
| Beneficial |
295 970 019 |
|
294 050 798 |
|
The beneficial interest held by Directors and officers of the Company constitutes 32.73% (2018: 31.25%) of the issued share capital of the Company.
Details of Directors' emoluments and equity compensation benefits are set out in note 5.3 of the Group annual financial statements and details of the forfeitable share plan are set out in note 5.1.
Resolutions
On 29 November 2018, the Company passed and filed with the Companies and Intellectual Property Commission the following special resolutions:
- approving the remuneration of non-executive directors;
- granting a general authority to repurchase the Company's shares; and
- approval to grant financial assistance in terms of sections 44 and 45 of the Act.
Except for the aforementioned, no other special resolutions, the nature of which might be significant to shareholders in their appreciation of the state of affairs of the Group, were passed by the Company or its subsidiaries during the period covered at the date of signing these Group annual financial statements.
Company Secretary
The Board is satisfied that Ms J van Eden has the requisite knowledge and experience to carry out the duties of a company secretary of a public company in accordance with section 88 of the Act and is not disqualified to act as such. She is not a director of the Board and maintains an arm's-length relationship with the Board.
The business and postal address of the Company Secretary appear on the Company's website
at www.bluelabeltelecoms.co.za.
Auditors
PricewaterhouseCoopers Inc. will continue in office in accordance with section 90(6) of the Companies Act.
Larry Nestadt
Chairman
