Blue Label, through its various companies and subsidiaries, operates South Africa's largest virtual mall. Our digital transformation journey is driven by innovation, automation and the technologies that serve our communities and macro-economy. The following review provides deeper insight into the performance of the Group's main businesses.
The global and local economic landscape continues to be impacted by high interest rates, high inflation and increased levels of unemployment, all of which have presented significant obstacles for businesses across various sectors. These challenges had an impact on our operations and financial performance.
Companies within the Group have undertaken rigorous cost-cutting measures to reduce operational expenses. These include renegotiating supplier contracts, cutting non-essential spending and optimising workforce deployment. In addition, the implementation of automation measures and the leveraging off advanced technologies to streamline processes and improve productivity has assisted companies to reduce labour costs and increase efficiency.
Companies within the Group have focused on innovating and diversifying their product and service offerings to capture new market opportunities and to reduce reliance on traditional revenue sources. Leveraging digital marketing and data analytics in order to have a better understanding of customer needs and preferences has allowed the companies to target their marketing efforts more effectively in order to drive sales.
Continued investment in research and development has been essential for companies to innovate and remain competitive, even during challenging economic times.
Core headline earnings for the year ended 31 May 2024 amounted to R679 million, equating to core headline earnings of 76.08 cents per share.
In the comparative year, core headline earnings amounted to R402 million, equating to core headline earnings of 45.55 cents per share. The predominant negative 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 positive contributions of R66 million in the current year and the negative contributions of R523 million in the prior year, core headline earnings declined by R312 million (34%) from R925 million to R613 million and core headline earnings per share declined by 34% from 104.83 cents per share in the prior year to 68.66 cents per share.
The review that follows provides more detail on the operating performance of the core businesses in Blue Label.
As the premier distributor of prepaid products for all the major South African network operators, The Prepaid Company (TPC) leverages trusted proprietary technology to ensure purchasing efficiency and robust inventory control. This emphasis on mutually beneficial terms allows the business to provide wholesale and community sales, starter packs, handsets, tablets and bulk printing of vouchers.
TPC is a leader in the distribution of prepaid airtime and SIM cards. Their long-standing relationships with the mobile network operators are a key strength, hence it is vitally important for TPC to nurture and build these long-standing relationships.
TPC 's core contributors towards revenue generation are the wholesaling of prepaid airtime and prepaid SIM cards.
TPC comprises four strategic pillars: network agreements and procurement, recharge, SIM card distribution and treasury. TPC continues to leverage strategic partnerships with traditional wholesalers and aggregators.
TPC's RINGAS product has performed well with several exciting potential growth opportunities in the pipeline. This product is affiliated with BluAdvance to leverage its advance offerings.
BLD is a specialist in prepaid products and the electronic distribution of virtual merchandise across South Africa. It has an extensive distribution network that includes banks, retailers, spaza shops, informal traders and petroleum forecourts.
BLD is a leading distributor of prepaid airtime, data, electricity, gaming, money transfers, bill payments, ticketing and other virtual products.
BLD continued performing well, achieving strong sales growth and a corresponding increase in gross profits year-on-year. Pinned and PINless Blu Voucher sales were the main drivers of this year's performance.
BLD remains a leading distributor of prepaid airtime, data, electricity, universal vouchers and other virtual products against this backdrop. This performance was reflected in pleasing overall EBITDA growth during 2024. This was largely due to a stronger performance in BLD's universal voucher segment, as well as the realisation of further cost efficiencies in our revenue assurance programmes that maximise profitability across our existing business lines, together with additional realised cost containment benefits that came through during the year.
Comm Equipment Company (CEC) is a business unit with responsibilities across the Cell C postpaid offerings.
CEC continues to manage, in partnership with Cell C, most aspects of the Cell C postpaid base including supply chain, commercial, marketing, billing, credit and collections. It achieves this function through a hybrid of in-house and outsourced services.
CEC anchors its operational activities on four key drivers; profitable customer acquisition; subscriber retention; reduced churn; and customer satisfaction, to ensure the growth and profitability of this business.
CEC faced a challenging financial year in a difficult credit environment. The decline in CEC's core headline earnings was primarily attributable to a decline in gross profit stemming from a decrease in earnings resulting from the expiry, in November 2022, of certain elements of the revenue-sharing agreement, increased expenditure related to the distribution agreement and an increase in the amortisation of handset subsidies. The declines were offset by a reduction in the expected credit loss following a comprehensive base reconciliation at the end of the previous financial year as well as the derecognition of the expected credit loss on the sale of a portion of its handset receivable books.
Accordingly, CEC commenced tightening its credit policies and scorecards in May 2023, followed by further and more aggressive tightening from September 2023. This process provided significant insights into customer behaviour patterns during challenging periods. It enabled management to pinpoint the optimal credit scoring range to maximise sales while minimising risk, while simultaneously refining its approach to pricing based on risk and targeting credit offerings more precisely.
CEC ended the year with a more robust subscriber base of 840 000 users, with a stable average spend per user (ASPU) of R239 for the year when excluding the subscriber base of an intergroup reseller.
As part of the recapitalisation transaction of Cell C, and to further assist with their working capital requirements, The Prepaid Company Proprietary Limited (TPC) is obligated to purchase R1.2 billion of additional prepaid airtime through four quarterly payments of R300 million each. To fund these working capital requirements for Cell C, CEC sold a portion of its handset receivable book to financial institutions. The funds generated from this transaction are transferred from CEC to TPC and ultimately to Cell C through the acquisition of airtime as referred to above.
Strategically, CEC and Cell C remain closely aligned, and we have already seen exciting new prospects emanating from Cell C's new strategy.
Cell C is the third-largest provider of mobile services in South Africa.
Cell C's concerted focus on network improvement has yielded positive results by providing broader coverage through a strong partnership model.
The operator's customers can now stay more reliably connected through faster speeds and greater stability while enjoying the best value in terms of its competitive pricing. Major Cell C network improvements have led to better connectivity, reduced downtime and enhanced customer satisfaction.
From a management perspective, Cell C's executive committee is now in place and additional management capacity has been established, enabling focus on key strategic areas that should result in the successful implementation of the strategy.
Going forward, Cell C will leverage network parity and invest further to enhance customer offerings and experience. Additionally, they will continue improving customer touch points and journeys through investment in digital platforms for a seamless customer experience.
Cigicell collaborates with municipalities to enhance their revenue streams by offering prepaid electricity and water services. The business provides additional avenues for billpayers to pay their municipal accounts, both through formal and informal independent retailers and online via the UniPay e-commerce platform. Cigicell also provides revenue assurance services that include credit control, indigent management, meter audits and improving data quality.
Cigicell remains a trusted business partner in local government across the country, having recently received several awards in bill payments and credit control businesses. UniPay continues to perform exceptionally well, outperforming its targets and winning strong contracts resulting in revenue and profit growth.
While the environment was challenging in the six months leading up to the elections, with noticeably slower implementation processes, the business has a healthy pipeline and continues to foster great relationships, coupled with excellent service delivery to its clients.
Although electricity vending performed well during the year, this business continues to diversify and innovate from a product perspective to mitigate against margin compression risk.
Electricity revenue generated on behalf of the utilities increased by R3.7 billion (12%) from R32.4 billion to R36.2 billion and the net commission earned, mainly calculated based on a kW/hour usage, increased by R12 million (5%) from R251 million to R263 million.
Looking ahead, we are confident in Cigicell's defensive market position.
TicketPro provides customers with access to exclusive transport services, travel services, sporting events and entertainment.
TicketPro remains a trusted brand operating in a highly competitive environment that has recently seen some consolidation. We segment and view TicketPro's performance against two core categories, namely ticketing and travel.
On the ticketing side, we continue to sign partner agreements with leading South African sports unions and events management companies.
We also provide ticketing services in the transportation space as the exclusive provider of PUTCO ticketing, a seller of long-distance bus ticketing and a provider for SANRAL ABT card top-ups. For PUTCO, TicketPro built a rapid transportation, automatic near field communication (NFC), digitised ticketing transport system known as Smarttap.
In terms of travel, TicketPro has launched its new business-to-business (B2B) travel solution and onboarded a number of clients. Revenue from long-haul bus ticketing continues to remain strong, and we have refocused our efforts to add more carriers.
GloCell Retail Solutions (GCRS) is a distributor of prepaid products and value-added services for all major network operators. It supplies these offerings to a wide range of retailers, including national chains and petroleum forecourts.
GCRS performance was resilient during the year, recording pleasing growth in its merchant base. Blu Voucher sales continue to demonstrate strong growth bolstered through various campaigns and marketing initiatives. Year-on-year sales of RINGAS vouchers have also increased, with market penetration growing significantly.
Ticketing sales performed well year-on-year, resulting in marginal penetration growth. We are also pleased to have grown our partnerships with South Africa's leading petroleum forecourt brands.
The year was, however, not without headwinds, including margin compression, increased competitor activity and challenging economic conditions that impacted our merchants' cash flows.
Looking ahead, the business is focused on execution across its core product categories, including universal vouchers, money transfers and transportation, as well as identifying and building new products to complement the requirements of the business, its merchants and its vendors.
BluNova is one of the leading practitioners of data and decision science in South Africa, featuring a state-of-the-art decision engine that supplies intelligent data leads and assists in securing new business and innovating with new digital business models.
In the year under review, BluNova and its business units AltBureau, BluAdvance and MarTech have focused their attention on supporting the Group's CEC business in terms of insourced business intelligence (BI), data engineering (DE), customer value management (CVM), credit decisioning and campaigning functions. This operating model now centres on AltBureau continuing to provide credit scoring services to CEC as well as data enrichments. MarTech will continue to provide pre-to-post leads and re-activation leads to CEC, which are billable on a success basis.
Outside of the collaboration with CEC, BluNova will continue with its efforts to commercialise AltBureau and the affiliate marketing components of MarTech.
The year's strategic initiatives focused on making progress in restructuring BluNova's aggregated data, the foundation of the Company's algorithms and services. The Company also redirected efforts towards the deanonymisation of cash vouchers and identifying user behaviour around these.
BluAdvance achieved significant success over the past year, with its proof of value successfully demonstrated during its incubation within BluNova. The business has now transitioned to full commercialisation, supported by a dedicated team and executive leadership focused on expanding the product portfolio, growing the business customer base and reaching a wider end-consumer market.
Transaction Junction (TJ) is a business enablement platform offering tailored digital payment solutions for companies across a wide range of markets.
TJ experienced a challenging year, primarily due to shifting market dynamics. However, green shoots were in the second half of the year as the business actively invested in people and technology and pursued new revenue opportunities.
TJ continues to attract blue-chip clients from the banking and retail sectors. Together with an increased focus on innovative technologies, this bodes well for future cross-selling and revenue opportunities.
Looking ahead, the business anticipates an improved performance after the finalisation of an ISO agreement with one of Africa's largest banking groups to drive revenue across nine additional African countries.
Blue Label Connect (BLC) distributes tailor-made hybrid top-up airtime and data contracts.
BLC's call centre operations maintain a steady and promising growth trajectory. Collection percentages have consistently exhibited positive growth month on month, aligning with or surpassing all of its curve percentages. In addition, the integration of Real Time Transaction 1 (TT1) into its new process as well as an intensive focus on soft collections and electronic data captures is expected to yield a slight boost to the business's collections.
The application of sophisticated modelling and data analysis has played a pivotal role in driving these enhancements. As a result, BLC achieved a pleasing increase in collections during the year.
In terms of stock controls, BLC continued operating efficiently and remained closely in line with initial forecasts. The business consistently evaluates pricing against market standards and collaborates seamlessly with CEC to benchmark pricing strategies.
Over the past year, BLC has been actively implementing new strategies and leveraging innovative technologies. This strategy will likely continue, along with our revised approach to credit that resulted in the successful implementation of a new credit scorecard that has performed well since being introduced.
Blue Label Data Solutions (BLDS) is a market leader in consumer data, big data, validation and verification, data cleansing and lead creation.
BLDS's key strategy during the year and going forward is to control the entire data value chain, which would typically include controlling and managing data. In some cases, such as VAS, BLDS owns the product it sells.
Blue Label's aim is for BLDS to be the most efficient and reliable data provider, as well as the number one lead supplier in South Africa, by ensuring that our data leads the market in terms of quality, reliability and compliance. Blue Label intends for BLDS to broaden its managed services stable offering to include identity card verifications and the development and distribution of call centre software in what we believe is a burgeoning business process outsourcing (BPO) market.
From a regulatory perspective, BLDS prioritises the integrity and security of data, with adherence to regulatory frameworks such as POPI remaining all-important.
Blue Label Integrated Annual Report 2024
