Overview

I am proud to report that, despite the enormous and ongoing macroeconomic strain created by the COVID-19 pandemic, Blue Label continued its growth trajectory during the year ended 31 May 2021. On exclusion of non-recurring income of R47 million in the current year and extraneous costs of R163 million in the prior year, core headline earnings from continued operations increased by R84 million from R632 million to R716 million. Positive cash flows were generated from our trading operations and we continued to increase our market share by bolstering our product and services mix. Cell C’s restructuring initiatives have manifested themselves in an improved performance, in line with its turnaround strategy.

The Board congratulates management on its successful leadership during a difficult year, reinforcing Blue Label’s dedication to growth, innovation, and sustainability.

Operating environment

The continuously changing COVID-19 landscape, both in terms of the pandemic itself and government’s responses thereto, creates a complex operating environment. At each turn, we demonstrated flexibility and embraced change to emerge as a stronger business, performing an increasingly important role in connecting people to the services that they require as a necessity. National lockdown responses have driven a fundamental shift in behavioural patterns in the way that people work, live and play, contributing to a rapid acceleration in the adoption of digital services.

Many of the products and services that we provide are considered to be essential, enabling us to capitalise thereon, through our technical ability to meet ever increasing demand for such offerings. Prepaid electricity, airtime, and data sales increased as more people spent time at home. Conversely, high lockdown levels negatively impacted on travel, exhibitions and sporting events, resulting in a significant decline in revenue generated by Ticketpro. Our call centres, which rely on live transactions between people were negatively impacted by social distancing and safety requirements.

Blue Label prioritised the safety and livelihoods of our employees by focusing on safety in the workplace, maintaining full remuneration and preserving jobs. Through a wide range of contributions, the Group stepped up to its responsibility to help fight and alleviate the impact of the COVID-19 pandemic on the people and communities of South Africa, by making a difference in the lives of our customers.

Our diversified business strategy proved exceptionally resilient in the most challenging economic climate that most businesses have ever experienced.

Refocusing

In September 2020, Blue Label Telecoms disposed of its 47.56% shareholding in Blue Label Mexico to its co-shareholder, Grupo Bimbo, for USD11.5 million (R191 million). This disposal was in line with our strategy to refocus on our South African distribution businesses and deleverage the business towards a more robust and liquid balance sheet.

Blue Label has now returned to its roots as a predominantly South Africa-centric business, in line with our ‘back to basics’ strategy. This has resulted in the emergence of a solid sense of purpose and cohesion.

Community

The success of our business strategy has enabled us to embed community upliftment into our system, returning Blue Label’s good fortune to the communities who made that success possible. This shared value is a strategic imperative. We believe education is the key to upliftment and we therefore invest heavily in initiatives such as the Boys and Girls Clubs, which afford children in Alexandra and Soweto a safe and supervised environment to study, eat and play after school. Some of these children may well become employees of Blue Label in future, while others may become its suppliers or customers. All deserve the opportunity to participate in the country’s workforce and economy and we are proud to be able to play our role therein.

Ethics

Since listing on the Johannesburg Stock Exchange 14 years ago, we have consistently worked on improving our ethical governance and compliance. The Group appointed a dedicated compliance officer in the previous reporting period, embracing new regulations and legislative requirements. We consistently improve our transformation and skills equity, understanding that ethics in the modern corporate reality is a journey and not a destination. The Group’s ethical framework becomes more embedded for improvement each year.

The Board experienced no resignations this year and we welcomed two new Independent Non-executive Directors in FY2021, namely, Lazarus Zim and Nomavuso Mnxasana. These additional appointments have broadened the Board’s diversity profile, introduced new skills and drive transformation, thereby continuing our Board restructuring process announced last year, in line with our orderly succession plan. There is a delicate balance between safeguarding institutional knowledge and experience and ensuring that the Board is reinvigorated by independent newcomers. We are grateful to Lazarus and Nomavuso for committing to guide Blue Label Telecoms in this regard.

Cybersecurity

As the ability to track and analyse ‘connected consumers’ becomes more sophisticated, a need to manage and protect personal information becomes essential. Consumers and regulators have become increasingly concerned about the security of personal data and how it is being utilised. The Protection of Personal Information Act (POPIA) came into effect on 1 July 2021 and the Cybercrime and Cybersecurity Bill has been promulgated. Such legislation introduces several provisions aimed at protecting data subjects from data breaches. Respecting customer privacy and protecting devices, networks, data, and applications remains a top priority. We adhere to the requirements of the Cybercrimes Act and accordingly, our cyber-defence team is in place to reduce the risks of cyberattacks, underpinned by specialised investigations and analytics consistent with global baselines for security monitoring.

Cell C

The restructuring of Cell C is in progress and, as previously communicated, it remains focused on its turnaround strategy which includes ensuring operational efficiencies, the restructuring of its balance sheet, implementing a revised network strategy and improving overall liquidity. Cell C had been in default on its bonds and loans since 2019, and the Board supports the recapitalisation to restore investment value. Discussions with all lenders and creditors on possible resolutions have been ongoing since 2019, during which time we simultaneously considered various capital raising options. Notwithstanding liquidity constraints, the management team at Cell C was able to implement their revised go-to-market strategy, resulting in a marked improvement of Cell C’s financial performance over the past year. On 26 August 2021, we announced the signing of funding term sheets with RMB, Investec and other financiers in order to provide the necessary capital required to recapitalise Cell C. Such funding is subject to various conditions to be fulfilled. We hope to make a more substantive announcement in due course.

In the interim, Cell C continues to optimise operational efficiencies and other initiatives to improve liquidity. Its recently concluded financial year laid the foundation for a restructured operating model, and the Company is reaping the benefits thereon. Earnings are up, profit margins are stabilising, and there is a single-minded focus on cost management. We are assisting to rebuild a reimagined Cell C that creates value for all its stakeholders. One of the highlights during the year was the implementation of Project Boston in which a roaming agreement with Vodacom was concluded in November 2020 which is aligned to Cell C’s revised network strategy, aimed at managing capacity in a more scalable and cost-efficient manner. Contract and broadband customers will be transitioned on a piecemeal basis to roam on the Vodacom network. The strategic vision is to differentiate Cell C by focusing on innovative products and services without incurring intensive capital expenditure on infrastructure. This creates more flexibility and capacity to deliver an optimal quality of service to its current and future customers.

Appreciation

I would like to thank my colleagues on the Board for their continued dedication and direction.

On behalf of the Board, I also congratulate Mark and Brett Levy and their team, as well as every employee of Blue Label, for their resilience and hard work as we navigated a full year of COVID-19. On behalf of the Board, we pledge our continued support as the Blue Label workforce enters undoubtedly another challenging year. I am confident that you will all again rise magnificently to the occasion.

Larry Nestadt

Independent Non-executive Chairman

27 September 2021