Blue Label Telecoms Integrated Annual Report 2019

Blue Label integrated annual report 2019 83 ABOUT US 1 – 21 LEADERSHIP 22 – 29 PERFORMANCE 30 – 73 GOVERNANCE 74 – 120 SHAREHOLDERS’ INFORMATION AND ADMINISTRATION 121 – IBC Our review has highlighted the need for a greater and more in-depth analysis of the risk profile of acquisitions and particularly the impact on gearing and shareholder perceptions of the risk and investment merits of these acquisitions. Finally, our review of the performance, strategic fit and investment merits in Oxigen and Blue Label Mexico have resulted in the ongoing negotiations to sell our stake in Oxigen and a more regular review of the future potential of Blue Label Mexico, notwithstanding a very strategic and supportive local partner, Group Bimbo. Blue Label’s strategy is to grow its businesses organically and to enhance its competitive advantage and offering to its customers, through strategic acquisitions. All new investments considered have to be motivated by alignment with Group objectives, and strategic focus, and they have to enhance future profitability. Among the considerations are the requirements that the future returns exceed Blue Label’s weighted average cost of capital (WACC) adjusted with a risk profile metric, meet stringent internal rate of return (IRR) targets, enhance Blue Label’s service and product offerings or complement existing ones, attract new skills and management and offer synergy benefits. The main challenge is that Blue Label operates in a rapidly developing and highly competitive market where the customer is ‘king’. Acquisitions need to be strongly motivated to the Investment Committee to meet these challenges. An increased focus will be on affordability within the constraints set by the Board of strengthening the balance sheet. Past acquisitions over the previous five years are reviewed in terms of actual performance compared to budget and whether they met the criteria set when they were initially approved by the Investment Committee. Any subperformance is analysed in full to assist the committee in shaping its criteria for future acquisitions as well as advising management on corrective steps to be taken. This has led to consolidation of some of these entities and strengthening management teams. In most cases, subperformance has been mitigated by synergies and strategic positioning of other business units (cross- selling) in the Group. Good examples are TicketPro and Viamedia. More will be done to accurately measure the extent of synergies realised. 2020 focus areas u u Cell C stabilisation and future strategy; u u Develop and apply revised risk and return parameters to new investments and monitor previous acquisitions and their performance; and u u Continue to look for buyers in order to dispose of Oxigen in India. As mentioned, due to the increased risk profile to the Group, attributable to the Cell C acquisition and to a lesser extent 3G and Airvantage, the Investment Committee has considered developing a new risk assessment metric to make target IRR goals more challenging before approval. The Investment Committee recognises that the risk appetite associated with the Cell C acquisition was exceeded, but was motivated by its investment return merits as well as a strategic defensive positioning resulting from the perceived future threat of Network disintermediation. The Investment Committee and the Board resolved to impose a moratorium on acquisitions for the following 12 months, as we enter a consolidation phase, strengthen our balance sheet and channel our energies to Cell C’s refinancing and stabilisation initiatives. The Committee has also requested certain interventions by the BLT-nominated directors of Cell C, as well as bi-annual Cell C management report backs to the Committee.