Group results
Core headline earnings for the year ended 31 May 2021 amounted to R788 million, equating to core headline earnings of 89.65 cents per share, of which R763 million related to continuing operations and R25 million to discontinued operations.
Core headline earnings for the prior year amounted to R562 million, equating to 62.71 cents per share, of which R469 million related to continuing operations and R93 million to discontinued operations.
On exclusion of non-recurring income of R47 million in the current year and extraneous costs of R163 million in the prior year, as illustrated in the tables on the following page, core headline earnings from continued operations increased by R84 million from R632 million to R716 million. On exclusion of the items noted in the tables on the following page, core headline earnings per share from continuing operations increased by 16% from 70.54 cents per share in the prior year to 81.50 cents per share.
On exclusion of non-recurring income and extraneous costs in both the current and prior year, earnings per share and headline earnings per share from continued operations increased by 15% to 77.31 cents per share and 17% to 78.01 cents per share respectively.
The financial results of WiConnect in the current year of R25 million, as well as those of Blue Label Mobile, the Handset division of 3G Mobile and WiConnect, totalling R93 million in the prior year, are disclosed in core headline earnings from discontinued operations and are not included in the continuing operations’ revenue, gross profit, earnings before interest, tax, depreciation and amortisation (EBITDA), and net profit after taxation.
Revenue generated by the continuing operations within the Group declined by 11% to R18.8 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 10% from R59.9 billion to R66.0 billion.
Gross profit increased by R259 million (12%) to R2.38 billion, congruent with an increase in margins from 10.05% to 12.66%.
Group income statement
| Group May 2021 R'000 |
Extraneous income* May 2021 R'000 |
Remaining May 2021 R'000 |
Group May 2020 R'000 |
||
| Revenue | 18 821 290 | – | 18 821 290 | 21 135 326 | |
|---|---|---|---|---|---|
| Gross profit | 2 383 254 | – | 2 383 254 | 2 124 611 | |
| EBITDA | 1 360 273 | 131 777 | 1 228 496 | 825 364 | |
| Share of profits/(losses) from associates and joint ventures | 2 951 | (6 554) | 9 505 | 16 598 | |
| – Blue Label Mexico | (6 554) | (6 554) | – | (5 806) | |
| – Other | 9 505 | – | 9 505 | 22 404 | |
| Net profit/(loss) from continuing operations | 805 286 | 126 175 | 679 111 | 226 786 | |
| Core headline earnings | 787 580 | 71 663 | 715 917 | 562 132 | |
| – From continuing operations | 762 599 | 46 682 | 715 917 | 469 113 | |
| – From discontinued operations | 24 981 | 24 981 | – | 93 019 | |
| Gross profit margin (%) | 12.66 | 12.66 | 10.05 | ||
| EBITDA margin (%) | 7.23 | 6.53 | 3.91 | ||
| Weighted average shares ('000) | 878 463 | 878 463 | 896 409 | ||
| Share performance from continuing operations | |||||
| EPS (cents) | 91.67 | 77.31 | 25.30 | ||
| HEPS (cents) | 83.32 | 78.01 | 48.73 | ||
| Core HEPS (cents) | 86.81 | 81.50 | 52.33 | ||
| Extraneous costs** May 2020 R'000 |
Remaining May 2020 R'000 |
Growth remaining R'000 |
Growth remaining % |
|||
| Revenue | – | 21 135 326 | (2 314 036) | (11) | ||
| Gross profit | – | 2 124 611 | 258 643 | 12 | ||
| EBITDA | (387 754) | 1 213 118 | 15 378 | 1 | ||
| Share of profits/(losses) from associates and joint ventures | – | 16 598 | (7 093) | (43) | ||
| – Blue Label Mexico | – | (5 806) | 5 806 | 100 | ||
| – Other | – | 22 404 | (12 899) | (58) | ||
| Net profit/(loss) from continuing operations | (376 824) | 603 610 | 75 501 | 13 | ||
| Core headline earnings | (209 979) | 772 111 | (56 194) | (7) | ||
| – From continuing operations | (163 240) | 632 353 | 83 564 | 13 | ||
| – From discontinued operations | (46 739) | 139 758 | (139 758) | (100) | ||
| Gross profit margin (%) | 10.05 | |||||
| EBITDA margin (%) | 5.74 | |||||
| Weighted average shares ('000) | 896 409 | |||||
| Share performance from continuing operations | ||||||
| EPS (cents) | 67.34 | 9.97 | 15 | |||
| HEPS (cents) | 66.93 | 11.08 | 17 | |||
| Core HEPS (cents) | 70.54 | 10.96 | 16 | |||
| * | The predominant positive contributions to Group earnings in the current year were attributable to: | |
| – | realised foreign exchange gain on the USD20 million liquidity support provided to SPV2(1); | |
| – | partial recoupment of losses by the Retail division as a result of the closure of the WiConnect stores in the prior year(2); and | |
| – | once-off income, including the disposal of the Group’s interest in Blue Label Mexico(3). | |
| ** | The predominant negative contributions to Group earnings in the prior year were attributable to: | |
| – | Fair value downward adjustments of the Glocell loan and an unrealised foreign exchange loss on the USD20 million liquidity support provided to SPV2(4); | |
| – | Impairments of goodwill relating to Blue Label Connect and a partial impairment relating to Glocell Distribution(5); | |
| – | Extraneous expenditure within the Retail division as a result of the closure of the WiConnect stores(6); and | |
| – | Once-off expenditure and income(7). | |
| Extraneous income* May 2021 R'000 |
Fair value movements(1) May 2021 R'000 |
WiConnect(2) May 2021 R'000 |
Once-offs(3) May 2021 R'000 |
||
| EBITDA | 131 777 | 16 009 | – | 115 768 | |
|---|---|---|---|---|---|
| Net profit from continuing operations | 126 175 | 16 961 | – | 109 214 | |
| Core headline earnings | 71 663 | 16 961 | 24 981 | 29 721 | |
| – From continuing operations | 46 682 | 16 961 | – | 29 721 | |
| – From discontinued operations | 24 981 | – | 24 981 | – | |
| Extraneous costs May 2020 R'000 |
Fair value movements(4) May 2020 R'000 |
Impairments(5) May 2020 R'000 |
WiConnect(6) May 2020 R'000 |
Once-offs(7) May 2020 R'000 |
||
| EBITDA | (387 754) | (115 065) | (213 584) | – | (59 105) | |
| Net profit from continuing operations | (376 824) | (96 481) | (213 584) | – | (66 759) | |
| Core headline earnings | (209 979) | (96 481) | – | (183 773) | 70 275 | |
| – From continuing operations | (163 240) | (96 481) | – | – | (66 759) | |
| – From discontinued operations | (46 739) | – | – | (183 773) | 137 034 | |
On exclusion of the above non-recurring income of R132 million in the current year and extraneous costs of R388 million in the prior year, EBITDA increased by R15 million from R1.21 billion to R1.23 billion.
The anticipated increase in overheads, which included costs attributable to additional headcount and expenditure incurred in order to enhance IT Infrastructure, to escalate the quantum of distribution channels, to enhance capacity in the Customer Interaction Centre and implement value added services (VAS) and financial service strategies, contributed to the limited increase in EBITDA.
The Blue Label Group generated positive cash flows from its trading operations for the year ended 31 May 2021.
Segmental reportAfrica distribution
| May 2021 R'000 |
Extraneous costs(1, 2) May 2021 R'000 |
Remaining May 2021 R'000 |
May 2020 R'000 |
||
| Revenue | 18 641 531 | – | 18 641 531 | 20 946 222 | |
|---|---|---|---|---|---|
| Gross profit | 2 333 768 | – | 2 333 768 | 2 066 476 | |
| EBITDA | 1 374 735 | 16 009 | 1 358 726 | 931 175 | |
| Net profit from continuing operations | 820 819 | 16 961 | 803 858 | 375 952 | |
| Core headline earnings | 880 662 | 41 942 | 838 720 | 522 976 | |
| – From continuing operations | 855 681 | 16 961 | 838 720 | 616 564 | |
| – From discontinued operations | 24 981 | 24 981 | – | (93 588) | |
| Gross profit margin (%) | 12.52 | 12.52 | 9.87 | ||
| EBITDA margin (%) | 7.37 | 7.29 | 4.45 |
| Extraneous costs(4, 5, 6) May 2020 R'000 |
Remaining May 2020 R'000 |
Growth remaining R'000 |
Growth remaining % |
||
| Revenue | – | 20 946 222 | (2 304 691) | (11) | |
| Gross profit | – | 2 066 476 | 267 292 | 13 | |
| EBITDA | (328 649) | 1 259 824 | 98 902 | 8 | |
| Net profit from continuing operations | (310 065) | 686 017 | 117 841 | 17 | |
| Core headline earnings | (280 254) | 803 230 | 35 490 | 4 | |
| – From continuing operations | (96 481) | 713 045 | 125 675 | 18 | |
| – From discontinued operations | (183 773) | 90 185 | (90 185) | (100) | |
| Gross profit margin (%) | 9.87 | ||||
| EBITDA margin (%) | 6.01 |
| Refer to here for footnotes (1) , (2) and (4) to (6). |
Revenue generated by the continuing operations within the segment declined by 11% from R20.9 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 10% from R59.7 billion to R65.8 billion.
The Group continues to increase market share and bolster its product and services mix to defend and grow its positions in the market. Gross revenue generated on PINless top-ups increased by R4.2 billion (28%) from R15.0 billion to R19.2 billion.
Net commissions earned on the distribution of prepaid electricity amounted to R282 million. Revenue generated on behalf of the utilities increased by 18% from R22.7 billion to R26.7 billion. Gross profit increased by R267 million (13%) to R2.33 billion, congruent with an increase in margins from 9.87% to 12.52%.
EBITDA in the current year included non-recurring income of R16 million attributable to the realised foreign exchange gain on the USD20 million SPV2 liquidity support. Extraneous costs in the prior year of R329 million comprised a fair value downward adjustment, an unrealised foreign exchange loss on the USD20 million SPV2 liquidity support, and impairments of goodwill.
On exclusion of the above non-recurring income and extraneous costs, and despite an anticipated increase in overheads of R127 million, EBITDA increased by R99 million (8%) from R1.26 billion to R1.36 billion.
Core headline earnings from continuing operations of R856 million included the non-recurring income of R17 million pertaining to foreign exchange gains on the USD20 million liquidity support provided to SPV2. The prior year core headline earnings from continuing operations of R617 million included the fair value downward adjustment, net of taxation, to the Glocell loan of R47 million and an unrealised foreign exchange loss on the USD20 million SPV2 liquidity support of R49 million.
On exclusion of the above non-recurring income in the current year and extraneous costs in the prior year, core headline earnings from continuing operations increased by R126 million (18%) from R713 million to R839 million.
Solutions
This segment comprises Datacel, Blue Label Data Solutions (BLDS), the data aggregation and lead
generation entity in which the Group owns 81%, and a 50% joint venture shareholding owned by BLDS in
I Talk Holdings and I Talk Financial Services, outbound call centre operations.
| May 2021 R'000 |
May 2020 R'000 |
Growth remaining R'000 |
Growth remaining % |
||
| Revenue | 179 759 | 189 104 | (9 345) | (5) | |
|---|---|---|---|---|---|
| Gross profit | 49 486 | 58 135 | (8 649) | (15) | |
| EBITDA | 16 746 | 40 330 | (23 584) | (58) | |
| Share of profits from associates and joint ventures | 5 722 | 19 769 | (14 047) | (71) | |
| Core headline earnings | 21 411 | 40 910 | (19 499) | (48) | |
| Gross profit margin (%) | 27.53 | 30.74 | |||
| EBITDA margin (%) | 9.32 | 21.33 | |||
The decline in revenue of 5% to R180 million was attributable to lower demand for aggregated data and lead generations as a result of Covid-19, which negatively impacted the call centre operations.
Gross profit decreased by R9 million (15%) from R58 million to R49 million, congruent with the decline in revenue and margins from 30.74% to 27.53%.
Overheads increased by R15 million primarily attributable to new learnership initiatives, whereby the benefit of is realised by way of income tax savings as a result of the section 12H allowances being claimed for such learnerships. EBITDA declined by R24 million to R17 million.
Of the core headline earnings of R21 million, BLDS accounted for R16 million. I Talk Holdings and I Talk Financial Services generated earnings of R11.5 million, of which the Group’s share thereof amounted to R4.6 million. Of the core headline earnings of R41 million in the prior year, BLDS accounted for R24 million. I Talk Holdings generated earnings of R39.6 million, and which the Group’s share thereof amounted to R16 million.
Corporate
| May 2021 R'000 |
Extraneous income May 2021 R'000 |
Remaining May 2021 R'000 |
May 2020 R'000 |
||
| EBITDA | (82 033) | 43 151 | (125 184) | (165 615) | |
|---|---|---|---|---|---|
| Net loss from continuing operations | (104 965) | 43 151 | (148 116) | (196 150) | |
| Core headline earnings | (103 021) | 43 151 | (146 172) | (196 150) |
| Extraneous costs May 2020 R'000 |
Remaining May 2020 R'000 |
Growth remaining R'000 |
Growth remaining % |
|
| EBITDA | (61 865) | (103 750) | (21 434) | (21) |
| Net loss from continuing operations | (69 519) | (126 631) | (21 485) | (17) |
| Core headline earnings | (69 519) | (126 631) | (19 541) | (15) |
On exclusion of the non-recurring income in the current year and extraneous costs in the prior year pertaining to the liability relating to financial guarantee contracts, the foreign exchange movements in the Oxigen India Group and the accounting implications of the put option for the acquisition of the remaining 40% minority share of Airvantage and AV Technology, the negative contribution to Group core headline earnings increased by R20 million to R146 million. This increase was primarily attributable to management bonuses being accrued in the current year against a zero base in the prior year.
Depreciation and amortisation
Depreciation, amortisation and impairment charges on continuing operations decreased by R0.5 million to R189 million. Of the latter amount, R65 million (2020: R55 million) pertained to depreciation on additional capital expenditure incurred during the year, R29 million (2020: R32 million) to depreciation raised in terms of IFRS 16 – Leases, R6 million (2020: R7 million) to impairments and R88 million (2020: R94 million) to the amortisation of intangible assets of which R43 million (2020: R43 million) emanated from purchase price allocations on historical acquisitions.
Net finance costs
Finance costs totalled R132 million comprising interest paid on borrowed funds of R117 million and R9 million on the unwinding on the lease liability in terms of IFRS 16. On a comparative basis, finance costs amounted to R230 million, comprising interest paid on borrowed funds of R203 million, R12 million on the unwinding on the lease liability in terms of IFRS 16 and R8 million on an imputed IFRS interest adjustment.
Finance income totalled R60 million, of which R51 million was for interest received on cash resources and R4 million on loans granted. In the prior year, interest received on cash resources amounted to R63 million, interest on loans granted amounted to R7 million, and the imputed IFRS interest adjustment on credit afforded to customers to R3 million.
Statement of financial position
Total assets increased by R1.1 billion to R11.5 billion, of which non-current assets accounted for R0.5 billion and current assets for R0.6 billion.
Non-current assets included increases in intangible assets and goodwill of R518 million, advances to customers of R121 million and other receivables of R22 million. These increases were offset by decreases in investments in and loans to associates and joint ventures of R134.5 million, financial assets at fair value through profit and loss of R29.5 million, capital expenditure net of depreciation of R4.5 million and right‑of‑use assets of R29 million.
Of the net increase in intangible assets and goodwill of R518 million, additions to intangible assets amounted to R693 million offset by amortisation of R170 million and disposals of R4 million. Of the total additions to intangible assets, R545 million relates to costs borne by the Group in terms of a subscription income sharing arrangement and R111 million to subscriber acquisition costs.
The net decrease of R134.5 million in investments in and loans to associates and joint ventures comprised the Group’s net share of profits totalling R3 million, acquisition of an associate of R5.5 million, net loan increases of R7.4 million, offset by disposal of R127.5 million primarily relating to Blue Label Mexico, its share of the movements in the foreign currency translation reserve amounting to R8.8 million and dividends received of R14 million.
The material net increase in current assets included increases in inventory of R389 million and cash and cash equivalents of R402 million, offset by decreases in trade and other receivables of R178 million.
The stock turn from continuing operations equated to 22 days compared to 11 days for the financial year ended 31 May 2020.
The debtor’s collection period from continuing operations increased to 59 days compared to 57 days for the financial year ended 31 May 2020. Net profit attributable to equity holders amounted to R831 million, contributing to accumulated capital and reserves of R3.2 billion.
Current liabilities increased by R320 million, comprising an increase in trade and other payables of R1.4 billion. This increase was offset by decreases in financial liabilities at fair value of R366 million, financial guarantee contracts of R95 million and borrowings of R612 million. Average credit terms from continuing operations equating to 116 days compared to 94 days for the financial year ended 31 May 2021.
The decrease in financial liabilities at fair value was primarily due to the liquidity support payment of R331 million (USD20 million) to SPV2 and a foreign exchange movement of R19 million thereon. The decrease in financial guarantee contracts of R95 million was largely due to a settlement of a corporate guarantee of R54 million on behalf of Oxigen Services India, a reduction in the Group’s obligations relating thereto amounting to R25 million and foreign exchange movements of R9 million thereon.
Statement of cash flows
Cash generated from trading operations totalled R1.7 billion. Working capital movements comprised an increase in trade payables of R765 million, an increase in advances to customers of R130 million and an increase in inventory of R391 million, offset by a decrease in trade receivables of R172 million. After incurring net finance costs and taxation, net cash generated from operating activities amounted to R1.5 billion.
Net cash flows utilised in investing activities amounted to R246 million, primarily attributable to the liquidity support payment of R331 million (USD20 million) to SPV2, the purchase of intangible assets of R37 million, capital expenditure of R71 million and net loans granted of R20 million. This was offset by cash inflows from the proceeds on disposal of Blue Label Mexico of R191 million, proceeds on disposal of capital assets of R8 million and dividends received from a joint venture of R14 million.
Cash flows utilised in financing activities amounted to R820 million, of which R613 million related to the net decrease in borrowings, R57 million to dividend payments to non-controlling interests, R50 million to lease payments, R54 million to the settlement of a financial guarantee and R44 million to treasury shares acquired.
Cash and cash equivalents accumulated to R2.4 billion at 31 May 2021.
Forfeitable share scheme
Forfeitable shares totalling 14 611 406 (2020: 17 636 695) were issued to qualifying employees. During the year, 2 517 085 (2020: 1 227 578) shares were forfeited and 1 174 045 (2020: 1 753 874) shares vested.
Subsequent events
Glocell Distribution Proprietary Limited
On 29 June 2021, The Prepaid Company acquired the remaining 52% shareholding in Glocell Distribution
for a total purchase consideration of R137 million, of which R126 million was discharged by way of a
conversion of debt owing by Glocell Proprietary Limited, the owners of 40% of the Company, to The
Prepaid Company.
The balance of 12% was acquired by The Prepaid Company for R11 million. Over and above the cost of acquisition of 52% of Glocell Distribution by The Prepaid Company, the latter assumed Glocell Proprietary Limited’s obligation of R105 million to Investec Bank Limited.
Banking facilities
Subsequent to year-end, The Prepaid Company renegotiated a further extension of its Investec facility to
30 September 2022, whereby the facility of R1.45 billion was increased by R105 million relating to the Glocell
Proprietary Limited facility as referred to above. From December 2021, the exposure to Investec is required to
be reduced by R50 million per month, with the balance owing to be no more than R1 billion.
As at 31 May 2021 the Investec facility is disclosed as current borrowings, as the extension to 30 September 2022 was only granted in August 2021.
In August 2021, CEC entered into a debt funding agreement with Investec. Its mezzanine facility with Investec was due to expire on 31 August 2021 but has been extended to 31 March 2022.
As at 31 May 2021 CEC’s debt facility was disclosed as current borrowings, as the extension to 31 March 2022 was only granted in August 2021.
Airvantage and AV Technology put obligations
In October 2020, the minority shareholders of Airvantage Proprietary Limited (Airvantage) and
AV Technology Limited (AV Tech) exercised their rights to put their 40% shareholding therein to Blue Label
Telecoms (BLT), in line with the initial agreements that were concluded between the parties in 2017. The
purchase consideration under the put options, as determined by the parties in December 2020, for the
40% shareholdings in Airvantage and AV Tech, amounted to R152 million and USD4.6 million respectively
(purchase price).
In February 2021, the parties concluded an agreement legislating for a deferral of the purchase price payable to the minority shareholders of Airvantage and the minority shareholder of AV Tech from 31 December 2020 to 31 March 2021, with subsequent extensions being granted, payable in six equal monthly instalments, inclusive of interest, commencing on 30 November 2021.
If Cell C Limited is able to pass a solvency and liquidity test, the primary obligation in respect of the put options can be transferred to Digital Ecosystems Proprietary Limited (DE), formerly Blue Label Mobile Proprietary Limited, in terms of the agreement concluded with it in September 2019.
An agreement between BLT and DE was reached in August 2021, whereby the parties agreed that BLT’s primary obligations to the minority shareholders will be transferred to DE ahead of any Cell C test in respect of its solvency and liquidity. This agreement is subject to the fulfilment of certain conditions precedent.
If, however, Cell C is unable to pass the solvency and liquidity test in the future, the primary obligation in respect of the put options may revert back to BLT.
Recapitalisation facility
On 26 August 2021, The Prepaid Company Proprietary Limited, a wholly owned subsidiary of Blue Label and a shareholder of 45% of the issued share capital of Cell C Limited, has concluded a term sheet for an Airtime Purchase transaction with Investec Bank Limited, First Rand Bank Limited (acting through its Rand Merchant Bank division) and other financiers, the proceeds of which are intended to be utilised for the recapitalisation of Cell C. This arrangement is subject to the conclusion of all legal documentation and fulfilment of all conditions precedent under such legal documentation.
Independent audit
These summary consolidated financial statements for the year ended 31 May 2021 have been audited by PricewaterhouseCoopers Inc., who expressed a modified opinion thereon. The auditor also expressed a modified opinion on the consolidated annual financial statements from which these summary consolidated financial statements were derived.
A copy of the auditor’s report on the summary consolidated financial statements and of the auditor’s report on the annual consolidated financial statements are available for inspection at the Company’s registered office, together with the financial statements identified in the respective auditor’s reports.
The auditor’s report does not necessarily report on all of the information contained in this announcement/ financial results. Shareholders are therefore advised that, in order to obtain a full understanding of the nature of the auditor’s engagement, they should obtain a copy of the auditor’s report together with the accompanying financial information from the issuer’s registered office.
Appreciation
We are thankful to all our staff members who have adapted to new ways of working during these unprecedented times and continue to contribute to the Group’s performance. The Board of Blue Label wishes to express its appreciation to its suppliers, customers and business partners for their continued support and commitment to the Group.
For and on behalf of the Board
LM Nestadt
Chairman
BM Levy and MS Levy
Joint Chief Executive Officers
DA Suntup* CA(SA)
Financial Director
26 August 2021
| * | Supervised the preparation and review of the Group’s audited year-end results. |