Organic growth in revenues, a return to profitability in the call centre operations and a net reduction in the share of losses from associates and joint ventures were all positive contributing factors to the growth in group core earnings. This growth was augmented by an extraneous profit resulting from the dilution of the group’s equity holding in Blue Label Mexico. In February 2011, 40% of the share capital of Blue Label Mexico was issued to Grupo Bimbo for a capital injection of US$20 million.

Grupo Bimbo is a manufacturer and distributor of bread and allied edible foods. As the market leader in the Americas, Grupo Bimbo owns 103 manufacturing plants and more than 1 000 distribution centres strategically located in 17 countries throughout the Americas and Asia. It has one of the most extensive direct distribution networks in the world.

The sale of equity has created a strategic alliance between the two groups, with the objective of utilising Bimbo’s logistic capabilities and footprint to accelerate the roll out of point of sale devices.

The synergy between the two companies was the driving force behind the above transaction.

Trading losses in Africa Prepaid Services Nigeria (“APSN”) and the necessity for impairments of APSN following a commitment to dispose of the majority of assets and liabilities in May 2011, adversely impacted on profits. The decline in the financial performance of APSN was attributable to the failure by Multi-links to perform its obligations in terms of the distribution agreement and the consequent cancellation of that agreement arising from Multi-links‘ repudiation of its obligations.

Further impairments to goodwill and related intangibles in Sharedphone International and Content Connect Africa, as well as the write-off of internally generated intangible assets in Blue Label One and Blue Label Distribution, also inhibited the growth in core earnings.

The net positive growth in core earnings equated to 15%. Headline earnings however, declined by 4% after the net deduction relating to the extraneous profit in Blue Label Mexico and impairments described above. After extraction of the total negative contribution of APSN as a discontinued operation, the balance of the group increased headline earnings by 13%.

The group continued to generate positive cash flow, with cash generated from operations of R566 million. Cash resources accumulated to R2,2 billion at year end.


> Revenues increased by 13% to R18 billion.
> Gross profit increased by R51 million to R1,07 billion.
> Overheads decreased by 2%.
> EBITDA increased by 5% to R598 million.
> Net finance income declined by R23 million.
> Share of losses from associates and joint ventures declined from R15 million to R2,8 million.
> Net profit after tax and non-controlling interests increased by 18% from R365 million to R431 million.
> Basic earnings per share increased by 18% from 48,17 cents to 57,04 cents.
> Core earnings increased by 15% to R456 million.
> Core earnings per share increased by 15% from 52,34 cents to 60,34 cents per share.
> Headline earnings per share declined by 4% from 48,27 cents to 46,20 cents.
> Headline earnings per share from continuing operations increased by 15% from 43,46 cents to 50,12 cents.
> NAV per share increased from 342,76 cents per share to 388,90 cents per share.


The summarised group annual financial statements have been derived from the group annual financial statements and were prepared in accordance with the requirements of Section 8.57 of the JSE Limited Listings Requirements and the presentation and disclosure requirements of IAS 34 – Interim Financial Reporting. The group annual financial statements have been prepared in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. A copy of the group annual financial statements can be obtained from the company’s registered office.

This financial information has been prepared in accordance with the going concern principle, under the historical cost convention, as modified by the revaluation of certain assets and liabilities where required or elected in terms of IFRS. The accounting policies and methods of computation are consistent with those used in the comparative financial information for the year ended 31 May 2010, with the exception of the standards that are effective for the first time in the current period. These have been disclosed in note 1 to the annual financial statements for the year ended 31 May 2011. These standards have not had a significant impact on the financial information.

In addition, the group uses core net profit as a non-IFRS measure in evaluating its performance. This supplements the IFRS measures disclosed. Core net profit is calculated by adjusting net profit for the year with the amortisation of intangible assets that arise as a consequence of the purchase price allocations completed in terms of IFRS 3(R): Business Combinations.



    2011   2010   Growth      
    R’000   R’000   R’000   Growth  
  Revenue 17 821 605   15 543 337   2 278 268   15%  
  Gross profi 925 398   867 230   58 168   7%  
  EBITDA 711 767   685 686   26 081   4%  
  Core net profit 571 471   555 161   16 310   3%  
  Gross profit margin 5,19%   5,58%          
  EBITDA margin 4,00%   4,41%          


Revenue comprised sales of physical and virtual prepaid airtime, commissions on the distribution of prepaid electricity and compounded annuity revenue generated from starter packs.

Whilst there were piecemeal price increases from the networks during the financial year, the bulk of the growth in revenue was volume related and entirely organic. Commissions on the sale of prepaid electricity increased by 79% from R34 million to R61 million, equating to turnover generated on behalf of the utilities of R3,4 billion.

The growth in airtime revenue exceeded industry norms, with gains mainly attributable to an increase in market share from competitors.

Gross profit

Although gross profit margins declined from 5,58% to 5,19%, the current melded margins have been consistent for the past 18 months, albeit that electricity commissions do not attract a cost of sale and in turn account for 0,22% for the comparative period and 0,34% of the current year’s gross profit margins.

Margins on prepaid airtime declined due to the negative impact on the implementation of RICA from the second half of the comparative period, the passing on of network price increases at cost price to the client base as well as the forfeiture of margins in return for higher revenue volumes.

The distribution mix of prepaid airtime per network was:

  • Vodacom 52%
  • MTN 35%
  • Cell C 10%
  • Telkom 3%


The growth in EBITDA of 4% was achieved in spite of a decline in EBITDA margin from 4,41% to 4,00%. The decline in margin was due to the reduction in gross profit margins and an increase in certain group overheads.


  Revenue 29 254   159 800   (130 546)   (82%)  
  Gross profit 8 052   30 339   (22 287)   (73%)  
  EBITDA (8 683)   17 448   (26 131)   (150%)  
  Discontinued operations* 93 901   36 452   57 449   158%  
  Africa Prepaid Services Nigeria (40 813)   49 105   (89 918)   (183%)  
  Blue Label Mexico 134 714   (12 653)   147 367   1 165%  
  Share of (losses)/profits from associates and joint ventures (2 884)   (15 177)   12 293   81%  
  Ukash 8 782   (8 079)   16 861   209%  
  Oxigen Services India (5 163)   (7 098)   1 935   27%  
  Blue Label Mexico (6 503)     (6 503)    
  Core net profit 61 896   20 097   41 799   208%  

*Represents net profit after taxation and non-controlling interests.

In line with the commitment to dispose of the majority of assets and liabilities of Africa Prepaid Services Nigeria, IFRS requires its financial performance to be reflected as a discontinued operation. Consequently, revenue, gross profit and EBITDA exclude the Nigerian trading activities for both the current and comparative year.

The dilution from a 70% holding to a minority stake of 40% in Blue Label Mexico requires its trading performance for the period June 2010 to February 2011 to be reflected as a discontinued operation. Similarly, the results of Mexico are not reflected in revenue, gross profit and EBITDA, both in the current and comparative year.

As a result of the above, trading activities at EBITDA level only pertained to Sharedphone International, Africa Prepaid Services SA, Gold Label Investments, BLT USA and Blue Label Australasia.


Current revenue related only to Sharedphone International. Its revenue declined from R39 million to R29 million due to a fall in the competitive edge which payphones traditionally had over mobile phones. This has emanated from the mobile networks offering cheaper entry-level handsets and lower denomination airtime vouchers to consumers.The decline in revenue has warranted an impairment to goodwill and intangible assets relating to Sharedphone to the extent of R8,4 million.

The balance of the decline in revenue of R120 million related to the cessation of trading activities in the DRC, Mozambique and USA that existed in the comparative period.

Gross profit

Gross profit generated by Sharedphone declined from R10 million to R8 million, albeit at an increase in margin from 25,18% to 27,52%. The balance of the decline in gross profit of R20 million related to the above entities that ceased trading during the course of the prior year.


Sharedphone EBITDA declined from R3,9 million to R1,8 million. The balance of negative EBITDA of R10,4 million pertained to expenditure incurred by Africa Prepaid Services SA.

Discontinued operations

Discontinued operations include the financial results of APS Nigeria and Blue Label Mexico. Although the latter has not discontinued its operations per se, it is an IFRS requirement to categorise its results as a discontinued operation in line with the dilution to a minority stake.

– APS Nigeria

The cancellation of the distribution agreement with Multi-links impacted negatively on earnings culminating in a loss for the year of R41 million equating to a R90 million adverse movement on a comparative basis.

Impairments of assets and goodwill accounted for R23 million with the balance of R18 million attributable to trading losses.

Arbitration proceedings have been instituted to claim compensation for losses suffered consequent upon cancellation of the distribution agreement.

– Blue Label Mexico

The comparative share of losses represented 70% ownership for the full year ended 31 May 2010.The current share of profits represents the gain of R150 million relating to the dilution of equity from 70% to 40%, less a non-distributable reserve release of R4 million and the group’s share of trading losses of R11 million to the date of dilution.

Share of (losses)/profits from associates and joint ventures

– Ukash (15,75% holding)

Of the R17 million turnaround from a share of losses of R8 million to a share of profits of R9 million, a recognition of a deferred tax asset accounted for R6,5 million.The balance was directly attributable to volume growth, increased values in voucher redemption and the expansion of its footprint.

An increase in voucher redemption volumes by 84% resulted in a revenue increase of 71%. Gross profit margins remained static at 49% and overhead growth was limited to 1%, all reported in their local currency.

– Oxigen Services India (37,22% holding)

Revenue increased by 24% at static gross margins of 2,25%. A decline in overheads of 8% resulted in a positive EBITDA growth of 198%, all reported in their local currency.

– Blue Label Mexico (40% holding)

The share of losses of R6,5 million were from 23 February 2011 to 31 May 2011, the period in which Blue Label Mexico became a joint venture as a result of the dilution.

Revenues for the year ended 31 May 2011 increased by 232% reported in their local currency.In spite of this revenue increase, the company continued to incur losses due to an increase in overheads commensurate with the gearing up of infrastructure to accommodate the roll out of point of sale devices to the Grupo Bimbo channel of distribution as well as catering for organic growth.

Core net profit

The increase in core net profit of R42 million was inclusive of the gain attributable to the dilution of equity in Blue Label Mexico.On eliminating this gain, core net profit would have declined by a net R104 million of which R90 million pertained to an adverse movement in APS Nigeria and R15 million to the impairment of an available-for-sale financial asset in APS SA.


In order to enhance the availability of management information on the group’s performance from the distribution of mobile applications, Blue Label established the mobile segment on 1 June 2010.These mobile applications were previously housed in Value Added Services and Technology.A separate management and reporting structure has been established for Mobile, and the segmental analysis restated accordingly.The companies embodying this segment are Cellfind, Content Connect Africa and Blue Label One.

  Revenue 78 616   95 013   (16 397)   (17%)  
  Gross profit 62 444   66 119   (3 675)   (6%)  
  EBITDA 19 347   11 637   7 710   66%  
  Core net profit (756)   (2 494)   1 738   70%  

The bulk of the decline in revenue was due to a cut back in marketing spend by the networks on mobile content downloads being the main source of revenue generated by Content Connect Africa.

The decline in gross profit was limited to 6% due to melded margins increasing from 69,59% to 79,43%.The margin increase was attributable to growth in revenue from media sales and location based services generated by Blue Label One and Cellfind respectively.A decline in overheads, however, resulted in a growth in EBITDA.

The consistent under performance of Content Connect Africa, has necessitated the impairment of goodwill and intangibles by R11,2 million.A further impairment of R5,7 million was applied to Blue Label One’s internally generated intangible assets, as its current revenues do not support the value of these assets.

Core net profit of R18 million contributed by Cellfind was largely offset by the above impairments.


The Value Added Services segment has been renamed Solutions, which houses the Datacel group. The only change to the reporting of this segment is the extraction of financial information relating to the newly formed Mobile segment. The comparatives have been adjusted to reflect the change in segmental reporting accordingly.

  Revenue 118 277   123 285   (5 008)   (4%)  
  Gross profit 58 582   50 348   8 234   16%  
  EBITDA 18 731   (4 255)   22 986   540%  
  Core net profit/(loss) 7 061   (21 564)   28 625   133%  

The decline in revenue was due to the closure of the CNS call centre activities which was operational for part of the comparative period.The restructured Datacel group contributed a positive turnaround of R29 million to core net profit through a combination of call centre rationalisation and sustainable outbound sales of mobile services and applications.


  Revenue 16 820   18 329   (1 509)   (8%)  
  Gross profit 13 157   2 507   10 650   425%  
  EBITDA (61 766)   (58 382)   (3 384)   (6%)  
  Core net loss (84 932)   (70 774)   (14 158)   (20%)  

Technology losses and the growth thereon represented the costs of development and support of the group’s Information Technology infrastructure. Income generation was limited to services to third parties.


  EBITDA (81 664) (82 477) 813 1%
  Core net loss (98 317) (83 781) (14 536) (17%)

Corporate expenditure was contained to neutral growth. STC of R9 million on the maiden dividend declared in August 2010 and additional depreciation on leasehold improvements, accounted for the increase in core net losses.


Finance costs

Finance costs totaled R116 million, of which R8 million related to interest paid on borrowed funds and R108 million to imputed IFRS interest adjustments relating to credit received from suppliers.On a comparative basis the imputed IFRS interest adjustment was R102 million. The increase of R6 million was directly IFRS related.

Finance income

Interest received on cash resources declined by R33 million from R83 million to R50 million due to a continued reduction in interest rates and the preference of settlement discounts and bulk inventory procurements when the opportunities availed themselves.

The imputed IFRS interest adjustments increased by R19 million as a result of extended credit afforded to selected customers.


The increase of R31 million related to the increase in impairments with depreciation on property, plant and equipment remaining static.


The table, which has been prepared on a core headline earnings basis, excludes the impairments to intangible assets and goodwill as well as the extraneous profit on the Mexico dilution.

    2011   2010      
  Segments R’000   R’000   Growth  
  South African distribution 571 317   554 172   3%  
  International distribution (excluding Nigeria) (21 827)   (46 882)   53%  
  Mobile 15 640   (1 962)   897%  
  Solutions 7 021   (6 828)   203%  
  Total trading operations 572 151   498 500   15%  
  APS Nigeria (18 341)   49 117   (137%)  
  Technology (81 281)   (66 458)   (22%)  
  Corporate (98 107)   (83 728)   (17%)  
  Core headline earnings 374 422   397 431   (6%)  
  Core headline earnings excluding Nigeria 392 763   348 314   13%  

The decline in core headline earnings of 6% would have equated to an increase of 13%, on elimination of the discontinued Nigerian operation.


Total assets increased by R641 million to R5,1 billion.

Material increases related to the investment in joint ventures of R143 million, inventory by R452 million and cash resources by R171 million. The increase in investment in joint venture pertains to the fair value gain on the retained 40% shareholding in Blue Label Mexico.

The increase in inventory was mainly attributable to stockpiling shortly prior to year end in anticipation of price increases.

The group remained highly liquid, maintaining its current asset ratio at 2:1.

The stock turn averaged 12 days net of the advanced purchases of approximately R470 million in May 2011.

Debtors collection period averaged 17 days and creditors payment terms averaged 41 days.


The increase of cash on hand by R170 million accumulated cash resources to R2,2 billion at year end.

The cash flow generated by operations of R566 million represented a decline of R57 million on the comparative year, congruent with the decline in operating profit.

The purchase of a starter pack base for R83 million accounted for the majority of the acquisition of intangible assets of R113 million, with the balance being attributable to development costs and software.

Capital expenditure was confined to R74 million, representing a decline of R31 million.

The dividend payment of R91 million related to the maiden dividend declared in August 2010.


Forfeitable shares totaling 6 829 416 (2010: 4 567 247) were issued to qualifying employees, 1 316 366 (2010: 5 644 309) shares were forfeited during the period and a total of 909 823 (2010: nil) shares vested.


On 23 August 2011, the board approved a dividend of 14 cents per ordinary share, equating to a cover of 3,3 times on headline earnings per share. The dividend in respect of ordinary shares for the year ended 31 May 2011 of R107 092 578, (STC: R10 709 258) has not been recognised in the financial statements, as it was declared after this date. The salient dates are as follows:

Last date to trade cum dividend Friday, 9 September 2011
Shares commence trading ex dividend Monday, 12 September 2011
Record date Friday, 16 September 2011
Payment of dividend Monday, 19 September 2011

Share certificates may not be dematerialised or rematerialised between Monday, 12 September and Friday, 16 September 2011, both days inclusive.


Airtime sales are expected to continue to exceed industry growth norms.

Commissions generated from prepaid electricity sales on behalf of utilities are expected to increase both organically and through contracts with additional electricity providers.

The mobile segment is expected to generate advertising revenue on bulk printed prepaid vouchers and point of sale receipt vouchers.

The refocused international segment remains core to achieving footprint growth.

The vast distribution network of Grupo Bimbo and the accelerating roll-out of point of sale devices will result in increased volumes of sales of electronic tokens of value in Mexico.

Oxigen Services India is evolving to fulfilling its vision of supplementing its traditional business of a prepaid recharge platform, by providing versatile payment solutions, that will include Mobile Wallet, international remittances and cash cards.

The group will continue to focus on expanding its product range offering and distribution network, organically and through acquisition, both locally and internationally.


In June 2011, Microsoft sold its 37,22% shareholding in Oxigen Services India to 2D Fine Investments Mauritius, a wholly owned subsidiary of 2D Fine Holdings Mauritius. The shareholding in the latter is held through a joint venture between Gold Label Investments, a wholly owned subsidiary of Blue Label Telecoms Limited, and 2D Fine Holdings Limited. The latter is a company controlled by the management of Oxigen Services India.

The effect of the above is that Blue Label has increased its effective shareholding in Oxigen Services India above 50% however the group does not exercise control.


PricewaterhouseCoopers Inc.’s unmodified audit reports on the 2011 group annual financial statements and the summarised group annual financial statements contained herein are available for inspection at the company’s registered office. Any reference to future financial performance in this announcement has not been audited or reported on by PricewaterhouseCoopers Inc.


The board of Blue Label Telecoms would once again like to thank its suppliers, customers, business partners and staff for their ongoing support and loyalty.

For and on behalf of the board

LM Nestadt BM Levy and MS Levy DB Rivkind*
Chairman Joint Chief Executive Officers Financial Director

23 August 2011

*Supervised preparation of the group financial statements.