The core businesses of the Blue Label Group have shown consistent growth in revenue, gross profit, and core headline earnings per share for the year ended 31 May 2023. The predominant extraneous contributions to the May 2023 basic, headline, and core headline earnings per share are primarily associated with the recapitalisation transaction of Cell C.
DA SUNTUP Financial Director
Core headline earnings for the year ended 31 May 2023 amounted to R402 million, equating to core headline earnings of 45.55 cents per share.
In the comparative year, core headline earnings amounted to R1.061 billion, equating to core headline earnings of 121.01 cents per share.
The core businesses of the Blue Label Group have shown consistent growth in revenue, gross profit, and core headline earnings per share for the year ended 31 May 2023. The predominant extraneous contributions to the May 2023 basic, headline, and core headline earnings per share are primarily associated with the recapitalisation transaction of Cell C.
Excluding the extraneous contributions of R523 million in the current year and the non-recurring income of R214 million in the prior year, as illustrated in the underlying tables, core headline earnings increased by R78 million (9%) from R847 million to R925 million. Core headline earnings per share increased by 9% from 96.56 cents per share in the prior year to 104.83 cents per share.
Earnings per share for the current and prior years amounted to 30.48 cents and 117.13 cents respectively. On exclusion of the extraneous contributions and non-recurring income from both the current and prior years, earnings per share and headline earnings per share increased by 8% to 100.35 cents per share and 9% to 101.24 cents per share, respectively.
Blue Label's revenue increased by R1.1 billion (6%) to R18.9 billion. However, as only the gross profit earned on "PINless top-ups", prepaid electricity, ticketing, and gaming is recognised as revenue, on imputing the gross revenue generated from these sources, the effective growth in revenue equated to R4.5 billion (6%), resulting in a total revenue of R76.8 billion compared to the prior year of R72.3 billion.
Gross profit increased by R552 million (19%) from R2.931 billion to R3.483 billion, corresponding to an increase in margins from 16.46% to 18.41%. This increase in margins can be partially attributed to the growth in "PINless top-ups", prepaid electricity, ticketing, and gaming, where only the gross profit earned thereon is recognised as revenue.
Furthermore, load shedding has been a significant challenge faced by our organisation in recent times, which is entirely out of management's control. It has negatively impacted the sale of prepaid electricity, prepaid airtime, starter packs and our call centre operations, all of which are significant revenue streams for Blue Label. The frequent power outages imposed by external factors have adversely affected our operational efficiency, resulting in disruptions, delays, and additional costs.
While the management team has worked diligently to mitigate the effects of load shedding, it has disrupted the availability and accessibility of these essential services to our customers and has negatively affected our overall financial performance. The demand for these product offerings has experienced a decline, resulting in a significant reduction in revenue. The unpredictability and intermittent nature of load shedding has made it challenging for customers to conveniently purchase these products, especially during the second half of the financial year when the country experienced stage 4 and higher levels of load shedding.
For the year ended 31 May 2023
| Group May 2023 R'000 |
Extraneous costs* May 2023 R'000 |
Remaining May 2023 R'000 |
Group May 2022 R'000 |
Extraneous income** May 2022 R'000 |
Remaining May 2022 R'000 |
Growth remaining R'000 |
Growth remaining % |
|||
| Revenue | 18 918 263 | — | 18 918 263 | 17 806 262 | — | 17 806 262 | 1 112 001 | 6 | ||
|---|---|---|---|---|---|---|---|---|---|---|
| Gross profit | 3 483 075 | — | 3 483 075 | 2 930 974 | — | 2 930 974 | 552 101 | 19 | ||
| Other income | 90 176 | — | 90 176 | 390 851 | 360 955 | 29 896 | 60 280 | 202 | ||
| Bad debts, expected credit losses and fair value movements | (667 649) | (88 474) | (579 175) | (264 515) | 46 179 | (310 694) | (268 481) | (86) | ||
| Loss on modification of financial instruments | (57 453) | (57 453) | — | — | — | — | — | |||
| EBITDA | 1 316 926 | (145 927) | 1 462 853 | 1 698 494 | 326 301 | 1 372 193 | 90 660 | 7 | ||
| Finance costs | (682 599) | (321 915) | (360 684) | (201 225) | — | (201 225) | (159 459) | (79) | ||
| Finance income | 411 540 | 238 362 | 173 178 | 80 993 | — | 80 993 | 92 185 | 114 | ||
| Non-controlling interest | (19 207) | — | (19 207) | (64 918) | (43 203) | (21 715) | 2 508 | 12 | ||
| Reversal of impairments in associates | 962 531 | 962 531 | — | — | — | — | — | |||
| Share of (losses)/profits from associates and joint ventures | (1 329 747) | (1 328 767) | (980) | 8 042 | — | 8 042 | (9 022) | (112) | ||
| Net profit after tax | 268 966 | (616 688) | 885 654 | 1 027 079 | 214 410 | 812 669 | 72 985 | 9 | ||
| Core headline earnings | 401 961 | (523 157) | 925 118 | 1 061 080 | 214 410 | 846 670 | 78 448 | 9 | ||
| Gross profit margin (%) | 18.41 | 18.41 | 16.46 | 16.46 | ||||||
| EBITDA margin (%) | 6.96 | 7.73 | 9.54 | 7.71 | ||||||
| Weighted average shares ('000) | 882 530 | 882 530 | 876 857 | 876 857 | ||||||
| Share performance | ||||||||||
| EPS (cents) | 30.48 | 100.35 | 117.13 | 92.68 | 7.67 | 8 | ||||
| HEPS (cents) | 41.97 | 101.24 | 117.34 | 92.89 | 8.36 | 9 | ||||
| Core HEPS (cents) | 45.55 | 104.83 | 121.01 | 96.56 | 8.27 | 9 | ||||
* The extraneous contributions to Blue Label's earnings in the current year were primarily attributable to:
** The extraneous contributions to Blue Label's earnings in the prior year were attributable to once-off income(3), including:
| Extraneous costs* May 2023 R'000 |
Recap of Cell C(1) May 2023 R'000 |
Once-offs(2) May 2023 R'000 |
||
| Bad debts, expected credit losses and fair value movements | (88 474) | (110 474) | 22 000 | |
|---|---|---|---|---|
| Loss on modification of financial instrument | (57 453) | (57 453) | — | |
| EBITDA | (145 927) | (167 927) | 22 000 | |
| Finance costs | (321 915) | (321 915) | — | |
| Finance income | 238 362 | 238 362 | — | |
| Reversal of impairments in associates | 962 531 | 962 531 | — | |
| Share of losses from associates and joint ventures | (1 328 767) | (1 328 767) | — | |
| Net (loss)/profit | (616 688) | (638 688) | 22 000 | |
| Core headline earnings | (523 157) | (545 157) | 22 000 |
| Extraneous income** May 2022 R'000 |
Once-offs(3) May 2022 R'000 |
||
| Other income | 360 955 | 360 955 | |
|---|---|---|---|
| EBITDA | 326 301 | 326 301 | |
| Non-controlling interest | (43 203) | (43 203) | |
| Net profit | 214 410 | 214 410 | |
| Core headline earnings | 214 410 | 214 410 | |
EBITDA increased by R91 million (7%) from R1.372 billion to R1.463 billion, excluding the extraneous contributions of R146 million in the current year and non-recurring income of R326 million in the prior year.
Excluding the R145 million costs attributable to learnership initiatives in the current year and R65 million in the prior year, EBITDA increased by R171 million (12%) to R1.608 billion (2022: R1.437 billion). The benefit thereof is realised through income tax savings resulting from the section 12H allowances claimed for these learnerships.
Refer here for footnotes.
Africa distribution
| May 2023 R'000 |
Extraneous costs(1) May 2023 R'000 |
Remaining May 2023 R'000 |
May 2022 R'000 |
Extraneous income(3) May 2022 R'000 |
Remaining May 2022 R'000 |
Growth remaining R'000 |
Growth remaining % |
||||
| Revenue | 18 643 810 | — | 18 643 810 | 17 552 603 | — | 17 552 602 | 1 091 207 | 6 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross profit | 3 402 488 | — | 3 402 488 | 2 866 324 | — | 2 866 324 | 536 164 | 19 | |||
| Other income | 82 162 | — | 82 162 | 337 153 | 315 132 | 22 021 | 60 141 | 273 | |||
| Bad debts, expected credit losses and fair value movements | (722 046) | (110 474) | (611 572) | (323 091) | — | (323 091) | (288 481) | (89) | |||
| Loss on modification of financial instrument | (57 453) | (57 453) | — | — | — | — | — | ||||
| EBITDA | 1 363 916 | (167 927) | 1 531 843 | 1 700 844 | 234 853 | 1 465 991 | 65 852 | 4 | |||
| Finance costs | (681 193) | (321 915) | (359 278) | (197 477) | — | (197 477) | (161 801) | (82) | |||
| Finance income | 407 731 | 238 362 | 169 369 | 79 733 | — | 79 733 | 89 636 | 112 | |||
| Non-controlling interest | (14 997) | — | (14 997) | (59 001) | (43 203) | (15 798) | 801 | 5 | |||
| Reversal of impairments in associates | 962 531 | 962 531 | — | — | — | — | — | ||||
| Share of (losses)/profits from associates and joint ventures | (1 320 348) | (1 328 767) | 8 419 | 1 678 | — | 1 678 | 6 741 | 402 | |||
| Net profit | 360 771 | (638 688) | 999 459 | 1 058 951 | 122 962 | 935 989 | 63 470 | 7 | |||
| Core headline earnings | 493 402 | (545 157) | 1 038 559 | 1 092 828 | 122 962 | 969 866 | 68 693 | 7 | |||
| Gross profit margin (%) | 18.25 | 18.25 | 16.33 | 16.33 | |||||||
| EBITDA margin (%) | 7.32 | 8.22 | 9.69 | 8.35 |
Refer here for footnotes (1) and (3).
Revenue generated within the Africa distribution segment increased by R1.1 billion (6%) from R17.5 billion to R18.6 billion. As only the gross profit earned on "PINless top-ups", prepaid electricity, ticketing, and gaming are recognised as revenue, on imputing the gross revenue generated thereon, the effective growth in revenue equated to R4.4 billion (6%) from R72.1 billion to R76.5 billion.
Gross revenue generated on "PINless top-ups" increased by R246 million from R21.0 billion to R21.2 billion.
Although electricity revenue generated on behalf of the utilities increased by R983 million (3%) from R31.5 billion to R32.4 billion, the net commission earned, calculated based on a kW/hour usage, declined by R47 million (16%) from R298 million to R251 million. This decline in commissions was primarily due to a decrease in electricity usage resulting from a higher frequency of load shedding and margin compression, despite an increase in gross electricity revenue driven by NERSA electricity tariffs.
Gross gaming revenue increased by R1.5 billion (72%) from R2.1 billion to R3.6 billion, driven by the continued traction of BluVoucher sales. Additionally, gross ticketing revenue increased by R675 million (156%) to R1.1 billion, primarily from revenue generated through commuter bus channels.
Gross profit increased by R536 million (19%) from R2.87 billion to R3.4 billion, congruent with an increase in margins from 16.33% to 18.25%.
Excluding the extraneous contributions of R168 million relating to the Cell C recapitalisation transaction in the current year, and the once-off income of R235 million in the prior year, which included the non-recurring recoupment income, net of professional fees incurred, EBITDA increased by R66 million (4%) to R1.53 billion.
The anticipated increase in overheads included costs of R139 million attributed to learnership initiatives in the current year and R53 million in the prior year. Excluding these costs in both the current and prior years, EBITDA increased by R152 million (10%).
Core headline earnings reflected extraneous contributions of R545 million in the current year, relating to the recapitalisation transaction of Cell C, and R123 million in the prior year, pertaining to the net recoupment as a result of the fraudulent scheme.
Excluding the above extraneous contributions and non-recurring income in the current and prior years, core headline earnings increased by R69 million (7%) from R970 million to R1.04 billion.
Solutions
This segment comprises Datacel, Blue Label Data Solutions (BLDS), the data aggregation and lead generation entity in which Blue Label owns 81%, a 50% joint venture shareholding owned by BLDS in I Talk Holdings and 37.5% in I Talk Financial Services, both of which are outbound call centre operations.
In addition, the following underlying companies form part of the solutions segment, namely, Blue Train, Blue Label Communications, One World Telecoms and I Talk2U.
| May 2023 R'000 |
May 2022 R'000 |
Growth R'000 |
Growth % |
||
| Revenue | 274 453 | 253 659 | 20 794 | 8 | |
|---|---|---|---|---|---|
| Gross profit | 80 587 | 64 650 | 15 937 | 25 | |
| EBITDA | 40 359 | 27 503 | 12 856 | 47 | |
| Share of (losses)/profits from associates and joint ventures | (9 399) | 6 364 | (15 763) | (248) | |
| Core headline earnings | 25 240 | 29 487 | (4 247) | (14) | |
| Gross profit margin (%) | 29.36 | 25.49 | |||
| EBITDA margin (%) | 14.71 | 10.84 |
Increased demand for aggregated data, lead generations and SMS volumes resulted in an increase in revenue of 8% from R254 million to R274 million.
Gross profit increased by R16 million (25%) from R65 million to R81 million, congruent with the increase in revenue at higher margins from 25.49% to 29.36%.
EBITDA increased by R13 million (47%) from R28 million to R40 million, of which BLDS contributed R40 million. In the prior year, BLDS contributed R26 million, and the call centre operations R2 million.
Of the core headline earnings of R25.2 million, BLDS accounted for R32.5 million, I Talk Holdings and I Talk Financial Services generated negative earnings of R20 million, of which Blue Label's share amounted to R8 million. Blue Label Communications generated earnings of R1.3 million, of which Blue Label's share amounted to R0.7 million.
Of the core headline earnings of R29.5 million in the prior year, BLDS accounted for R24.4 million. I Talk Holdings and I Talk Financial Services generated earnings of R12.1 million, of which Blue Label's share thereof amounted to R5.1 million.
Corporate
| May 2023 R'000 |
Extraneous income(2) May 2023 R'000 |
Remaining May 2023 R'000 |
May 2022 R'000 |
Extraneous income (3) May 2022 R'000 |
Remaining May 2022 R'000 |
Growth remaining R'000 |
Growth remaining % |
|||
| Other income | 3 677 | — | 3 677 | 51 565 | 45 823 | 5 742 | (2 065) | (36) | ||
|---|---|---|---|---|---|---|---|---|---|---|
| EBITDA | (119 344) | 22 000 | (141 344) | (41 621) | 92 002 | (133 623) | (7 721) | (6) | ||
| Net profit | (140 844) | 22 000 | (162 844) | (70 580) | 92 002 | (162 582) | (262) | — | ||
| Core headline earnings | (140 785) | 22 000 | (162 785) | (70 884) | 92 002 | (162 886) | 101 | — |
Refer here for footnotes (2) and (3).
Excluding the extraneous income of R22 million in the current year and R92 million in the prior year, the negative contribution to Blue Label's core headline earnings remained constant at R163 million.
The extraneous fair value movements of R22 million in the current year related to the accounting implications of the termination of the Airvantage put option obligation for the acquisition of up to 40% of the shares therein.
The extraneous income of R92 million in the prior year related to the accounting effects of the settlement of the contingent consideration relating to the disposal of the VAS operations in April 2020 and the accounting implications of the put option obligation for the acquisition of up to 40% of the shares in Airvantage.
Depreciation, amortisation and impairment charges decreased by R16 million to R190 million. Of the latter amount, R72 million (2022: R65 million) pertained to depreciation on capital expenditure, R31 million (2022: R29 million) to depreciation raised in terms of IFRS 16 - Leases, R12 million (2022: R4 million) to impairments and R75 million (2022: R76 million) to the amortisation of intangible assets of which R42 million (2022: R43 million) emanated from purchase price allocations on historical acquisitions.
Finance costs increased by R481 million from R201 million to R682 million. Of the latter amount, R664 million was associated with interest paid on borrowed funds, R4 million with the unwinding of the lease liability in accordance with IFRS 16, and R14 million with other finance costs. In comparison, R187 million related to interest paid on borrowed funds, R6 million to the unwinding of the lease liability, and R9 million to other finance costs.
The recapitalisation transaction of Cell C in September 2022 resulted in an additional R309 million in finance costs, incurred due to increased borrowings related to airtime sale and repurchase obligations, as well as R13 million for the issue of Class A Preference Shares.
Excluding the aforementioned recapitalisation interest, finance costs increased by an additional R160 million from R201 million to R361 million. Of this increase, R119 million was a result of Comm Equipment Company Proprietary Limited securing a working capital financing facility of R1.9 billion from African Bank in November 2021, which was fully utilised by 31 May 2023. Furthermore, the remaining increase of R41 million primarily stemmed from higher finance costs due to the expansion of Blue Label's working capital facility from R1.15 billion to R1.4 billion on the recapitalisation date, as well as elevated interest rates compared to the previous year.
Finance income increased by R331 million from R81 million to R412 million. Of the latter amount, R77 million was attributable to interest received on cash resources, R83 million to a loan provided to Cell C in connection with the CEC R1.1 billion deferral amount, R235 million from a loan extended to Cell C as a component of the Debt Funding required as part of the recapitalisation transaction and R18 million from other granted loans. In the prior year, interest received on cash resources totalled R70 million, and interest on other loans granted amounted to R11 million.
Total assets increased by R1.4 billion to R14.7 billion, of which non-current assets accounted for R2.2 billion offset by a decline in current assets of R811 million.
Non-current assets included an increase in loans to associates and joint ventures, totalling R1.9 billion, along with investments in associates and joint ventures, which increased by R7 million. Additionally, advances to customers increased by R263 million and deferred taxation assets by R82 million. Loans receivable increased by R16 million, and capital expenditure net of depreciation by R29 million. However, these increases were offset by reductions of R12 million in right-of-use assets, R9 million in financial assets at fair value through comprehensive income, R20 million in financial assets at fair value through profit and loss, as well as R47 million in intangible assets and goodwill.
The increase of R1.9 billion in loans to associates and joint ventures primarily related to the recapitalisation of Cell C and comprised the following:
The significant net reduction in current assets included declines in trade and other receivables amounting to R1.7 billion, as well as a decrease of R1.4 billion in cash and cash equivalents. These decreases were offset by an increase in inventory amounting to R1.7 billion, advances to customers by R327 million, loans to associates and joint ventures by R215 million, and financial assets at fair value through profit and loss by R47 million.
The R1.7 billion decrease in trade and other receivables is predominately related to a decline in CEC's trade receivable balances from Cell C. This reduction was attributable to the settlement of the obligation owed to CEC, reducing it to an amount of R1.1 billion, with this deferred amount being reclassified as "loans to associates and joint ventures". Excluding the trade debtors relating to CEC, the debtor's collection period increased to 40 days compared to the 28 days reported for the year ended May 2022.
The increase in inventory of R1.7 billion was primarily attributable to Blue Label purchasing R1.2 billion of Cell C prepaid airtime as part of the recapitalisation transaction. This purchase was necessitated in order to assist Cell C with its working capital requirements.
Net profit attributable to equity holders amounted to R269 million, resulting in accumulated capital and reserves of R4.4 billion.
Non-current liabilities grew by R1.5 billion, comprising an increase in borrowings of R1.37 billion relating to the airtime sale and repurchase obligations totalling R278 million, the issuance of Class A Preference Shares amounting to R172 million and an increase in the non-current portion of Blue Label's working capital facilities of R918 million. Furthermore, financial liabilities through profit and loss increased by R62 million, deferred taxation liabilities by R19 million and lease liabilities by R14 million.
The increase in financial liabilities held at fair value through profit and loss of R62 million related to the issuance of Class B Preference Shares to the lenders and the recognition of the SPV5 derivative liability in line with the recapitalisation transaction.
Current liabilities decreased by R326 million, mainly due to a reduction in trade and other payables totalling R433 million, lease liabilities by R28 million, deferred revenue by R26 million and financial liabilities at fair value through profit and loss of R22 million. However, this decrease was offset by an increase in borrowings of R136 million and an increase in current tax liabilities of R47 million.
The reduction in trade and other payables of R433 million primarily related to a decrease in CEC's trade payable balance owed to Cell C. This decrease occurred concurrently with the decline in trade receivables, which resulted from the settlement of the obligation by Cell C to CEC to the amount of R1.1 billion. Average credit terms were 114 days, as compared to 124 days for the financial year ended 31 May 2022.
The net increase of R136 million in current borrowings is related to the current portion of the airtime sale and repurchase obligations, totalling R710 million. This increase was offset by a decrease in the current portion of Blue Label's working capital facilities, amounting to R574 million. This reduction resulted from extending the terms of these facilities, consequently classifying them as non-current borrowings.
The decrease in current financial liabilities held at fair value through profit and loss related to a release of R22 million due to the termination of the Airvantage put option obligation.
Cash generated from trading operations amounted to R203 million. Working capital movements included an increase in inventory of R1.7 billion and advances to customers of R590 million. These increases were offset by decreases in trade receivables of R656 million and trade payables of R38 million. After incurring net finance costs of R490 million and taxation of R215 million, net cash utilised in operating activities amounted to R502 million.
The increase in inventory of R1.7 billion was attributable to Blue Label purchasing R1.2 billion of Cell C prepaid airtime as part of the recapitalisation transaction. Congruent with this acquisition of airtime, Cell C settled amounts owing to CEC resulting in a significant decrease in trade receivables of R656 million.
Net cash flows utilised in investing activities amounted to R2.4 billion, primarily attributable to the purchase of intangible assets amounting to R936 million, net loans granted to associates and joint ventures of R898 million and an increase in the investment in Cell C of R366 million.
Of the R936 million invested in intangible assets, R429 million pertained to costs incurred by Blue Label in terms of the subscription income-sharing arrangement, and R403 million pertained to costs incurred by Blue Label in terms of subscriber acquisition costs.
The net loans granted to associates and joint ventures of R898 million included net loans of R896 million relating to Cell C. This amount comprised the R915 million Debt Funding and the R111 million originating from TPC's participation in the Reinvestment Instrument acquired at nominal value, offset by R128 million of capital repayments by Cell C.
The additional investment of R366 million comprised R25 million of notes acquired in SPV1, a loan of R223 million provided to SPV4, both of which are secured by shares in Cell C, and R118 million of the new money loan attributed to the acquisition of a further 9.53% of the issued share capital of Cell C.
Cash flows generated from financing activities amounted to R1.4 billion, of which R1.5 billion related to the net increase in borrowings and R67 million from the issuance of Class B Preference Shares, the proceeds of which were applied to the Cell C recapitalisation transaction. These amounts were offset by lease payments of R42 million and the purchase of treasury shares amounting to R66 million.
Cash and cash equivalents accumulated to R1.3 billion at 31 May 2023.
The Board of Directors has elected not to declare a dividend.
Subsequent to year end, the changes in the individual interests held directly and indirectly by the Directors in the Company's share capital were as follows:
| Nature of interest | ||||
| Direct beneficial | Indirect beneficial | |||
| Director | at 31 May 2023 |
at 29 September 2023 |
at 31 May 2023 |
at 29 September 2023 |
|---|---|---|---|---|
| BM Levy | 69 591 549 | 71 251 324 | 17 772 777 | 17 772 777 |
| MS Levy | 62 184 141 | 63 843 916 | 17 772 777 | 19 120 980 |
| DA Suntup | 5 106 011 | 5 985 092 | 177 778 | 177 778 |
The Blue Label Board would like to extend its gratitude to the staff, suppliers, customers, and business partners for their ongoing support and dedication to Blue Label.
DA Suntup CA(SA)
Financial Director
29 September 2023
Blue Label Telecoms Integrated Annual Report 2023
