Blue Label Telecoms

Core headline earnings for the year ended 31 May 2019 equated to a negative 304.77 cents per share. Although the core businesses of the Blue Label Group continued to generate profit, the predominant negative contributions to Group earnings were attributable to:

• Cell C's trading losses, impairment of certain of its property, plant and equipment, the impact of the de-recognition of its deferred tax asset and the impairment of Blue Label's total investment in Cell C;
• Fair value downward adjustments of the exposure relating to SPV1 and SPV2 pertaining to the initial recapitalisation of Cell C (the structure of SPV1 and SPV2 as detailed in the trading statement published on SENS on 22 February 2019) and the Glocell loan;
• An impairment of Blue Label's total investment in the Oxigen India group, including 2Dfine Holdings Mauritius, (collectively, "OSI") as well as providing for loan impairments and guarantees payable therein;
• Partial impairments of goodwill and an investment in a joint venture.

On exclusion of the above negative contributions, core headline earnings amounted to R904 million compared to R716 million in the prior year, equating to growth of 26%.

After taking into account the increase in the weighted average number of shares in issue, core headline earnings per share from the balance of the entities within the Blue Label Group increased by 18% from 83.65 cents to 98.98 cents for the year ended 31 May 2019, as detailed in the table below.

It is evident that the investment in Cell C had a significant negative impact on Group earnings. However, the contemplated national roaming agreement will result in substantial cost savings for Cell C by reducing network and capital expenditure when implemented. These savings are expected to be further enhanced on completion of an intended Cell C capital restructure.

	Group  May 2019  R'000	Cell C  May 2019  R'000	Fair value  adjustments  May 2019  R'000	OSI  May 2019  R'000	Impair-  ments  May 2019  R'000	Remaining  entities  May 2019  R'000
Revenue	25 869 433	–	–	–	–	25 869 433
Gross profit	2 646 121	–	–	–	–	2 646 121
EBITDA	462 680	–	(873 877)	(193 364)	(124 401)	1 654 322
Impairments on associates and joint venture	(2 669 076)	(2 521 152)	–	(118 412)	(29 512)	–
Share of (losses)/profits from associates and joint ventures	(3 701 410)	(3 609 495)	–	(86 637)	–	(5 278)
– Cell C	(3 609 495)	(3 609 495)	–	–	–	–
– Oxigen Services India	(86 637)	–	–	(86 637)	–	–
– Blue Label Mexico	(24 096)	–	–	–	–	(24 096)
– Other	18 818	–	–	–	–	18 818
Net (loss)/profit	(6 646 384)	(6 130 647)	(837 831)	(398 412)	(146 535)	867 041
Core net (loss)/profit	(6 575 899)	(6 120 271)	(837 831)	(398 412)	(146 535)	927 150
Core headline earnings	(2 783 156)	(2 616 427)	(837 831)	(232 826)	–	903 928
Gross profit margin	10.23%					10.23%
EBITDA margin	1.79%					6.39%
Weighted average shares ('000)	913 208					913 208
EPS (cents)	(727.81)					94.94
HEPS (cents)	(312.49)					92.40
Core HEPS (cents)	(304.77)					98.98

	Group  May 2018  R'000	Cell C  May 2018  R'000	Fair value  adjustments  May 2018  R'000	OSI  May 2018  R'000	Remaining  entities  May 2018  R'000	Growth  remaining  entities  R'000	Growth  remaining  entities  %
Revenue	26 734 249	–	–	–	26 734 249	(864 816)	(3%)
Gross profit	2 282 093	–	–	–	2 282 093	364 028	16%
EBITDA	1 340 153	–	5 121	–	1 335 032	319 290	24%
Impairments on associates and joint venture	–	–	–	–	–	–
Share of (losses)/profits from associates and joint ventures	520 628	562 568	–	(45 184)	3 244	(8 522)	(263%)
– Cell C	562 568	562 568	–	–	–
– Oxigen Services India	(45 184)	–	–	(45 184)	–
– Blue Label Mexico	(21 900)	–	–	–	(21 900)	(2 196)	(10%)
– Other	25 144	–	–	–	25 144	(6 326)	(25%)
Net (loss)/profit	1 122 085	562 567	3 687	(128 480)	684 311	182 730	27%
Core net (loss)/profit	1 166 430	571 214	3 687	(128 480)	720 009	207 141	29%
Core headline earnings	1 160 477	569 474	3 687	(128 480)	715 796	188 132	26%
Gross profit margin	8.54%				8.54%
EBITDA margin	5.01%				4.99%
Weighted ave shares ('000)	855 687				855 687
EPS (cents)	131.13				79.97	14.97	19%
HEPS (cents)	130.44				79.48	12.92	16%
Core HEPS (cents)	135.62				83.65	15.33	18%

Group revenue declined by 3% to R25.9 billion. As only the gross profit earned on "PINless top-ups", prepaid electricity and ticketing are accounted for, on imputing the gross revenue generated thereon, the effective growth in revenue equated to 10% from R52.6 billion to R57.8 billion.

Gross profit increased by 16% from R2.28 billion to R2.65 billion, underpinned by an increase in margins from 8.52% to 10.23%.

The decline in EBITDA was attributable to fair value downward adjustments of R874 million relating to SPV1, SPV2 and the Glocell loan, guarantees payable recognised on behalf of OSI for R62 million and loan impairments therein of R161 million, offset by sureties receivable of R30 million on the latter amount. Additional declines related to partial impairments of goodwill in both Via Media and Blue Label Connect of R74 million and R50 million respectively. On exclusion of these negative contributions, EBITDA generated by the Group increased by 24% from R1.34 billion to R1.65 billion.

This was attributable to continued positive contributions by the remaining entities in the Group, of which the predominant companies include:

• The Prepaid Company, the leading distributor of prepaid airtime and data for all networks in South Africa;
• Blue Label Distribution which provides electronic products and services through its extensive distribution channels that encompass banks, retailers, spaza and informal shops and petroleum forecourts;
• Comm Equipment Company, a financier of the mobile handset element of postpaid contracts;
• 3G Mobile, a distributor of mobile handsets to the retail market;
• Ticketpro which offers customers access to transport services, sporting events and entertainment, all of which generate additional footprint at the vast points of presence within the Group;
• Cigicell which processes prepaid electricity and facilitates collections for multiple municipalities in South Africa;
• Blue Label Connect which distributes hybrid top-up airtime and data contracts on behalf of all the major networks;
• Transaction Junction, a payment service provider servicing major retailers, financial institutions and petroleum companies among others;
• Blue Label Data Solutions, a market leader in consumer data, big data, validation and lead generation; and
• United Call Centre Solutions, an outbound call centre selling products and services directly to consumers.

Earnings per share and headline earnings per share decreased from 131.13 and 130.44 cents per share to negative 727.81 and negative 312.49 cents per share respectively.

Africa Distribution

	May 2019  R'000	Cell C  May 2019  R'000	Fair value  adjustments  May 2019  R'000	Impair-  ments  May 2019  R'000	Remaining  entities  May 2019  R'000
Revenue	25 364 068	–	–	–	25 364 068
Gross profit	2 353 087	–	–	–	2 353 087
EBITDA	654 886	–	(873 877)	(50 398)	1 579 161
Impairments on associates and joint venture	(2 521 152)	(2 521 152)	–	–	–
Share of (losses)/profits from associates and joint ventures	(3 612 076)	(3 609 495)	–	–	(2 581)
– Cell C	(3 609 495)	(3 609 495)	–	–	–
– 3G Mobile	(95)	–	–	–	(95)
– Other	(2 486)	–	–	–	(2 486)
Net (loss)/profit	(6 127 508)	(6 130 647)	(837 831)	(50 398)	891 368
Core net (loss)/profit	(6 066 357)	(6 120 271)	(837 831)	(50 398)	942 143
Core headline earnings	(2 535 505)	(2 616 427)	(837 831)	–	918 753
Gross profit margin	9.28%				9.28%
EBITDA margin	2.58%				6.23%

The above table reflects the negative contribution by Cell C, the fair value downward adjustments relating to the exposure in SPV1 and SPV2 and the Glocell loan, the partial impairment of Blue Label Connect's goodwill as well as the positive contribution by the remaining entities within this segment. These entities include the 3G Mobile group, Airvantage and the core distribution companies, generating a combined contribution of R919 million to core headline earnings.

	Restated* May 2018   R'000	Cell C  May 2018  R'000	Fair value  adjustments  May 2018  R'000	Remaining  entities  May 2018  R'000	Growth  remaining  entities  R'000	Growth  remaining  entities  %
Revenue	26 245 206	–	–	26 245 206	(881 138)	(3%)
Gross profit	2 014 169	–	–	2 014 169	338 918	17%
EBITDA	1 344 824	–	5 121	1 339 703	239 458	18%
Impairments on associates and joint venture	–	–	–	–	–
Share of (losses)/profits from associates and joint ventures	583 122	562 567	–	20 555	(23 136)	(113%)
– Cell C	562 567	562 567	–	–	–
– 3G Mobile	31 155	–	–	31 155	(31 250)
– Other	(10 600)	–	–	(10 600)	8 114	(77%)
Net (loss)/profit	1 344 641	562 567	3 687	778 387	112 981	15%
Core net (loss)/profit	1 385 494	571 214	3 687	810 593	131 550	16%
Core headline earnings	1 384 739	569 474	3 687	811 578	107 175	13%
Gross profit margin	7.67%			7.67%
EBITDA margin	5.12%			5.10%

* As a result of the prior year errors the Group has restated their comparative financial information.

Cell C

For the 12 months ended May 2019, Cell C incurred trading losses of R1.56 billion, impairments of its property, plant and equipment of R2.2 billion and de-recognised its deferred tax asset of R4.09 billion. The Group's 45% share amounted to R3.609 billion on inclusion of the amortisation of intangible assets of R10 million and an expense of R65 million relating to equity settled share-based payment charges that were previously added back in the prior year in line with the Group's accounting policy. In the current year the share-based payment is regarded as cash settled. As at 31 May 2019, no value was attributed to the underlying value of Cell C and as a consequence thereto the balance of the carrying value of Blue Label's investment therein, amounting to R2.52 billion, was impaired.

Cell C Limited performs an annual impairment test on the carrying value of its property, plant, equipment and intangible assets (Cash generating unit "CGU"). The impairment was calculated by applying the value in use (VIU) method, on a discounted cash flow basis. The impairment assessment was based on the carrying value of the CGU and is reflective of the conditions that existed at the reporting date. Assumptions were made on the cash flows, which were limited to the generation of cash by the CGU, not taking into account new technology, expansionary growth or the pending recapitalisation transaction. The exclusion thereof are requirements of IAS 36 Impairment of Assets.

The recoverability of the deferred tax asset is required to be performed on an annual basis. A deferred tax asset is recognised in respect of deductible temporary differences and tax losses to the extent that it is probable that future taxable profits will be available. At the reporting date, based on estimated future profitability with no regard to new technology, expansionary growth or the pending recapitalisation transaction, the deferred tax asset was impaired.

For the 10 months ended 31 May 2018, Cell C's net profit amounted to R1.125 billion. This comprised trading losses of R765 million, impairment of certain of its property, plant and equipment of R32 million offset by the recognition of a deferred tax asset amounting to R1.92 billion. The Group's share of this net profit was R498 million after the amortisation of intangible assets of R9 million. In line with BLT's accounting policies, an exclusion relating to equity-settled share-based payment charges from its associates resulted in a positive adjustment of R65 million. The net result was a positive contribution of R563 million to BLT's earnings in the prior year.

Fair value adjustments and impairment

The fair value adjustments of R838 million for the year ended 31 May 2019 were attributable to downward adjustments of R750 million relating to the non-recoverability of the exposure to SPV1 and SPV2 and R88 million, net of taxation, to the Glocell loan. The impairment of R50 million pertained to Blue Label Connect.

Remaining entities

These entities incorporate the core distribution companies, 3G Mobile group and Airvantage.

Revenue declined by 3% from R26.2 billion to R25.4 billion, in that only the gross profit earned on "PINless top-ups", prepaid electricity and ticketing are accounted for. On imputing the gross revenue generated thereon, the effective growth in revenue equated to 10% from R52.1 billion to R57.2 billion.

Net commissions earned on the distribution of prepaid electricity continued to increase, escalating by R39 million to R278 million (17%) on an increase in revenue generated on behalf of the utilities from R16.9 billion to R20 billion (19%).

Gross profit increased by 17% from R2.01 billion to R2.35 billion, underpinned by an increase in margins from 7.67% to 9.28%. EBITDA increased by 18% from R1.34 billion to R1.58 billion, equating to an EBITDA margin of 6.23%.

Contribution to core headline earnings increased by 13% from R812 million to R919 million.

Below illustrates the contribution to the above by the 3G Mobile group and Airvantage.

3G Mobile group

The 3G Mobile group comprises a mobile handset trading division (3G) and, through its wholly owned subsidiary, Comm Equipment Company (CEC) it provides the financing for the handset element of postpaid contracts on behalf of Cell C as well as the financing of other hardware.

The underlying table reflects its financial results for the year ended 31 May 2019 in comparison to 10 months ended 31 May 2018:

3G Mobile

	May 2019 R'000	Aug – Nov 2017 Equity accounted R'000	Dec – May 2018 Consolidated R'000		10 months   to   May 2018   R'000	Growth R'000	Growth %
Revenue	2 245 687	569 315	764 917		1 334 232*	911 455	68%
Gross profit	505 319	139 478	226 184		365 662	139 657	38%
EBITDA	407 049	105 933	180 659		286 592	120 457	42%
Core net profit	278 341	75 020	121 184		196 204	82 137	42%

* Prior year revenue has been restated for the adoption of IFRS 15 for comparative purposes and has not been audited on this basis.

Revenue generated for the year ended 31 May 2019 amounted to R2.2 billion, gross profit to R505 million at a margin of 22.50% and EBITDA to R407 million. Core net profit amounted to R278 million.

From the date of acquisition of 47.37% in August 2017 until 30 November 2017, its financial results for the four-month period were equity accounted for as an associate. Its core net profit during that period amounted to R75 million, of which the Group's share equated to R35 million.

On 6 December 2017 the remaining 52.67% of the company was acquired, at which date it became a wholly owned subsidiary. Revenue generated for the six months to 31 May 2018 amounted to R765 million, gross profit to R226 million at a margin of 29.57% and EBITDA to R181 million. Its core net profit for the six months as a wholly owned subsidiary amounted to R122 million.

Airvantage

Airvantage advances emergency top-up airtime and data to prepaid subscribers, utilising sophisticated algorithms to assess their creditworthiness. On 2 January 2018, Blue Label acquired 60% of the company.

The underlying table reflects its financial results for the full year ended 31 May 2019 in comparison to five months ended 31 May 2018:

Airvantage SA

	May 2019 R'000	Five months to May 2018 R'000	Growth R'000	Growth %
Revenue	88 629	36 929	51 700	140%
Gross profit	74 811	29 241	45 570	156%
EBITDA	58 819	20 650	38 169	185%
Net profit	40 953	14 221	26 732	188%

Revenue generated for the year ended 31 May 2019 amounted to R89 million, gross profit to R75 million at a margin of 84.41%, EBITDA to R59 million and core net profit to R41 million. The Group's share thereof equated to R24 million.

Revenue generated by it for the five months to 31 May 2018 amounted to R37 million, gross profit to R29 million at a margin of 79.18%, EBITDA to R21 million and core net profit to R14 million, of which the Group's share equated to R8.3 million.

International

	May 2019  R'000	OSI  May 2019  R'000	Remaining  entities  May 2019  R'000		May 2018  R'000	OSI  May 2018  R'000	Remaining  entities  May 2018  R'000	Growth  remaining  entities  R'000	Growth  remaining  entities  %
Revenue	35 013	–	35 013		–	–	–	35 013
Gross profit	33 383	–	33 383		–	–	–	33 383
EBITDA	(20 358)	(71 675)	51 317		(2 903)	–	(2 903)	54 220
Impairments on associates and joint venture	(118 412)	(118 412)	–		–	–	–	–
Share of (losses)/profits from associates and joint ventures	(110 440)	(86 637)	(23 803)		(66 683)	(45 185)	(21 498)	(2 305)	11%
– Oxigen Services India	(86 637)	(86 637)	–		(45 185)	(45 185)	–	–
– Blue Label Mexico	(24 095)		(24 095)		(21 900)	–	(21 900)	(2 195)	10%
– Mpower	292		292		402	–	402	(110)	(27%)
Non-controlling interest	(6 587)	–	(6 587)		(26 058)	–	(26 058)	19 471	(75%)
Net (loss)/profit	(263 260)	(276 723)	13 463		(98 538)	(57 555)	(40 983)	54 446	(133%)
Core net profit/(loss)	(255 585)	(276 723)	21 138		(96 990)	(57 555)	(39 435)	60 573	(154%)
Core headline profit/(loss)	(90 142)	(111 137)	20 995		(102 154)	(57 555)	(44 599)	65 594	(147%)

Oxigen Services India and 2DFine

As from 30 November 2016 the Group applied the exemption available in IAS 28 Investments in Associates and Joint Ventures to account for the investment in Oxigen Services India, Oxigen Online and 2DFine Holdings Mauritius as venture capital investments. Therefore, the investment was accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement at fair value with changes in fair value recognised in profit or loss. Any changes in the fair value would have been recognised in the Group income statement.

This accounting treatment was highly judgemental therefore the Group included detailed disclosure on the critical judgement it had applied.

In June 2018 the Group received notification from the JSE proactive monitoring panel stating that they did not agree with the exemption we had applied in IAS 28. This resulted in a protracted engagement with the JSE to determine the appropriate accounting treatment. After lengthy discussions with the JSE, including the JSE consulting with the Financial Reporting Investigation Panel, the JSE concluded that the Group should not have applied venture capital accounting.

The Group has therefore agreed to not apply the exemption available under IAS 28 Investments in Associates and Joint Ventures to the investment in Oxigen Services India, Oxigen Online and 2DFine Holdings and now account for these associates and joint venture using equity accounting principles.

The proposed corporate transaction, referred to in the subsequent events of the 30 November 2018 interim results, did not materialise, and the resultant lack of funding necessitated BLT to impair its full investment of R118 million in the Oxigen Group. The full value of loans to Oxigen Services India of R30 million and 2DFine Holdings Mauritius of R41 million, net of a surety asset raised, were impaired. In addition, the Group has accounted for a R41 million liability relating to financial guarantee contracts and R46 million for its share of losses in OSI. The resultant negative contribution to core net loss totalled R276 million.

Remaining entities

The remaining entities within the international segment comprise shareholdings of 48% in Airvantage Brazil with effect from 2 January 2018, 60% in AV Technology with effect from 1 August 2018, 47.56% in Blue Label Mexico and 100% of Gold Label Investments.

The increases in revenue of R35 million and gross profit of R34 million were entirely attributable to AV Technology.

The increase in EBITDA of R54 million was attributable to positive foreign exchange movements of R26 million, the non-recurrence of start-up costs of R12 million incurred by Airvantage pertaining to its operation in Brazil, non-comparatives applicable to AV Technology amounting to R32 million, offset by loan releases of R16 million relating to the winding up process of the Africa Prepaid Services group in the comparative year.

Losses in Blue Label Mexico increased from R43 million to R47 million, of which the Group's share amounted to R24 million after the amortisation of intangible assets. In the comparative year the Group's share of losses amounted to R22 million.

The increase in loss was attributable to a decline in revenue from R4.0 billion to R3.6 billion (9%), with gross profit margins remaining static at 3.8%. In spite of limiting overheads to a growth of 4% and a reduction in depreciation, the above resulted in the Group's share of losses increasing by R2 million.

In order to mitigate such losses incurred, various initiatives that were implemented in the last quarter of the financial year resulted in positive improvements to its financial performance. These initiatives included a reduction in staff complement, increases in cash collection and daily rental fees, the closure of unprofitable retail stores, the outsourcing of certain sales functions on a variable cost basis, the enhancement of its technology platform and the increase in the distribution of starter packs generating monthly compounded annuity income. Bill payments, credit and debit card acquiring and food vouchers are increasing on a monthly basis. These initiatives will perpetuate in the year ahead, resulting in an expected turnaround to sustainable profitability.

Non-controlling interest declined by R19 million, of which R13 million related to minority shareholders in both Airvantage Brazil and AV Technology. In the comparative year, R32 million related to the Africa Prepaid Services group for its share of the loan releases as a consequence of the winding up process therein.

Net contribution to core headline earnings amounted to R21 million.

Mobile

This segment comprises Via Media, Cellfind, Panacea, Simigenix, Blue Label One and Supa Pesa.

	May 2019  R'000	Impair-  ments  May 2019  R'000	Remaining  May 2019  R'000		Restated* May 2018   R'000	Growth  R'000	Growth  %
Revenue	267 114	–	267 114		293 954	(26 840)	(9%)
Gross profit	197 766	–	197 766		204 349	(6 583)	(3%)
EBITDA	24 977	(74 003)	98 980		101 883	(2 903)	(3%)
Net (loss)/profit	(39 985)	(96 137)	56 152		57 609	(1 457)	(3%)
Core net (loss)/profit	(38 326)	(96 137)	57 811		59 553	(1 742)	(3%)
Core headline earnings	58 122	–	58 122		59 679	(1 557)	(3%)

* As a result of the prior year errors the Group has restated their comparative financial information.

Of the impairments of R96 million, R74 million pertained to a partial impairment of goodwill in Via Media and R22 million to a partial impairment of an investment in Supa Pesa, a joint venture company.

Although revenue declined by 9%, gross profit margins increased from 69.52% to 74.04%, limiting the decline in gross profit to 3% and EBITDA to 3%.

Contribution to Group core headline earnings declined by 3% to R58 million.

Solutions

This segment comprises Datacel, Blue Label Data solutions (BLDS), a data aggregation and lead generation entity in which the Group owns 81%, and a 50% joint venture shareholding by BLDS in United Call Centre Solutions, an outbound call centre operation.

	May 2019  R'000	May 2018  R'000	Growth  R'000	Growth  %
Revenue	203 238	195 089	8 149	4%
Gross profit	61 885	63 574	(1 689)	(3%)
EBITDA	37 786	42 838	(5 052)	(12%)
Share of (losses)/profits from associates and joint ventures	22 769	4 579	18 190	397%
Net profit	43 563	29 836	13 727	46%
Core net profit	43 563	29 836	13 727	46%
Core headline earnings	43 563	29 814	13 749	46%

The growth in revenue of 4% to R203 million was attributable to increased demand for aggregated data and lead generations. A marginal decline in gross profit margins from 32.59% to 30.45% resulted in a nominal movement in gross profit. After overhead increases of 10%, EBITDA equated to R38 million.

Of the core headline earnings of R44 million, BLDS accounted for R26 million. United Call Centre Solutions generated earnings of R45.1 million, of which BLDS's share amounted to R22.5 million. After accounting for a minority shareholding of 19%, the Group's share thereof amounted to R18 million.

Corporate

	May 2019  R'000	OSI  May 2019  R'000	Remaining  entities  May 2019  R'000		May 2018  R'000	OSI  May 2018  R'000	Remaining  entities  May 2018  R'000	Growth  remaining  entities  R'000	Growth  remaining  entities  %
EBITDA	(234 611)	(121 689)	(112 922)		(146 489)	–	(146 489)	33 567	23%
Net loss	(259 194)	(121 689)	(137 505)		(211 463)	(70 925)	(140 538)	3 033	2%
Core net loss	(259 194)	(121 689)	(137 505)		(211 463)	(70 925)	(140 538)	3 033	2%
Core headline loss	(259 194)	(121 689)	(137 505)		(211 601)	(70 925)	(140 676)	3 171	2%

On exclusion of the loan impairment of R60 million pertaining to 2DFine and R62 million to the liability relating to financial guarantee contracts, the negative contribution to Group core headline earnings declined by R3 million to R138 million.

Depreciation, amortisation and impairment charges increased by R97 million to R253 million. Of this increase, R26.9 million pertained to depreciation on additional capital expenditure incurred during the year, impairments of R3.2 million and R67.4 million relating to the amortisation of intangible assets, of which R52.6 million emanated from purchase price allocations on historical acquisitions which increased from R46.5 million to R99.1 million.

Finance costs totalled R246 million, of which R231 million related to interest paid on borrowed funds and R15 million to imputed IFRS interest adjustments. On a comparative basis, interest paid on borrowed funds amounted to R167 million and the imputed IFRS interest adjustment equated to R140 million. Of the latter amount, R75 million was attributable to credit received from suppliers and R65 million to the acquisition of 3G Mobile and Airvantage.

The increase of R64 million was attributable to additional borrowings utilised from existing facilities.

Finance income totalled R100 million, of which R97 million was attributable to interest received on cash resources and R3 million to imputed IFRS interest adjustments on credit afforded to customers. In the prior year, interest received on cash resources amounted to R192 million and the imputed IFRS interest adjustment to R3 million.

Total assets decreased by R5.9 billion to R12.1 billion of which non-current assets accounted for R5.9 billion net of an increase in current assets of R78 million.

The negative movement in non-current assets included a decline in investments in and loans to associates and joint ventures of R6.5 billion, in loans receivable of R12 million and in the long-term portion of trade and other receivables of R23 million. These decreases were offset by increases in intangible assets and goodwill of R205 million, in capital expenditure net of depreciation of R101 million, in advances to customers of R228 million and deferred tax assets of R31 million.

A net decrease of R7.5 billion in investments in and loans to associates and joint ventures was predominately attributable to net loan repayments of R1 billion, impairments of loans in OSI of R161 million and impairments of investments totalling R2.7 billion, of which Cell C accounted for R2.5 billion, OSI for R118 million and Supa Pesa for R29.5 million. This was compounded by the Group's net share of losses in associates totalling R3.7 billion, of which Cell C accounted for R3.6 billion inclusive of the amortisation of applicable intangible assets.

Of the net increase of R205 million in intangible assets and goodwill, R199 million related to goodwill and R6 million to intangible assets. Of the goodwill increase, R219 million pertained to Glocell Distribution, R49 million to AV Technology and R46 million to Wi-Connect. These increases were offset by partial impairments to goodwill in both Via Media and Blue Label Connect for R74 million and R50 million respectively.

Of the increase in intangible assets of R6 million, R130 million related to the purchase price allocations raised in terms of IFRS 3 and intangibles assets within the companies prior to the acquisition thereof, of which R78 million pertained to AV Technology and R52 million to Glocell Distribution. In addition R76 million was incurred on the purchase of software and internally generated software development costs with a further R8 million allocation in line with foreign currency translation movements. These intangible increases were offset by amortisations of R203 million and impairments of intangible assets of R5 million.

Of the increase in current assets, material movements included increases in inventory of R917 million and cash resources of R438 million, offset by decreases in advances to customers of R206 million.

The stock turn equated to 24 days compared to 9 days for the financial year ended 31 May 2018.

The average debtor's collection period remained unchanged year on year at 75 days.

Net loss attributable to equity holders of R6.7 billion, resulted in retained earnings declining to R2.4 billion.

Share capital and share premium decreased by R246 million congruent with the repurchase of 32.9 million shares at a weighted average price of R6.78, the purchase of treasury shares amounting to R42 million less R21 million of shares that vested.

Borrowings increased by R265 million, of which R155 million was for facilities utilised by CEC for the financing of mobile handsets.

Trade and other payables increased by R381 million, with average credit terms increasing from 66 days to 87 days.

Cash available from operations amounted to a negative R81 million, attributable to increased inventory of R864 million, trade receivables of R434 million, advances to customers of R22 million offset by additional credit of R208 million afforded to the Group by its suppliers.

The increase in inventory was attributable to bulk purchasing at favourable discounts. Although this resulted in a temporary increase in inventory holding days, being a highly liquid asset, such excess inventory is capable of reduction within any given month. Of the increase in accounts receivable, R157 million related to a prepayment to utilities for prepaid electricity, which was replaced by inventory shortly after the reporting period due to timing differences. Further supplier prepayments amounted to R128 million.

Cash flows received from investing activities amounted to R561 million, mainly attributable to the R1 billion loan that was repaid by Cell C, offset by funds applied, net of cash acquired, to the acquisition of Airvantage Mauritius amounting to R19 million. A further R326 million was granted for the liquidity support to SPV2, R76 million for the purchase of intangible assets and R134 million for capital expenditure.

Cash flows applied to financing activities amounted to R42 million, of which R224 million related to share buybacks, R42.4 million to the acquisition of treasury shares and a dividend payment of R35.6 million to non-controlling interests. After additional borrowings of R260 million, cash on hand at year end amounted to R1.4 billion.

Forfeitable shares totalling 5 947 453 (2018: 1 809 711) were issued to qualifying employees. During the year 473 121 (2018: 456 379) shares were forfeited and 2 020 901 (2018: 2 432 743) shares vested.

The Board of Directors has elected not to declare a dividend.

The Blue Label Group has consistently generated positive cash flows from its trading operations since inception. These funds have been applied to dividend distributions, share buybacks and investing activities, at all times ensuring sufficient surplus funds to facilitate working capital requirements. Over the past two years significant investments were made, necessitating an increase in interest-bearing debt in order to ensure that working capital requirements remained intact. Accordingly, the Board of Directors has made a decision to deleverage the business in order to ensure a more robust and liquid balance sheet going forward. This deleveraging will be achieved through the disposal of certain assets, as reflected in subsequent events below, the proceeds of which will amount to approximately R1.07 billion. These funds will be applied to reduce current interest-bearing debt.

Blue Label Mobile restructure and disposal

On 3 June 2019, BLT restructured its holdings in Cellfind Proprietary Limited (Cellfind), Via Media Proprietary Limited (Via Media), Airvantage Proprietary Limited (Airvantage) and AV Technology Limited (AV Technology). Prior to the restructure, BLT owned 100% of Cellfind, 60% of Airvantage SA, 60% of AV Technology and 75% of Via Media. Malik Investments Holdings Proprietary Limited (Malik), a non-Group company, owned 25% of Via Media. In terms of the restructure, BLT exchanged its shares in Cellfind, Via Media, Airvantage and AV Technology for 89.51% of the shares in a new entity called Blue Label Mobile Group Proprietary Limited (BLM). Malik thereafter exchanged its 25% shareholding in Via Media for 10.49% in BLM. Following this, Malik subscribed for a further 4.51% in BLM for R34 million, increasing its shareholding in BLM to 15% with BLT owning the remaining 85%. BLT retains all of the existing rights and obligations with respect to the remaining put and/or call options on 40% of the shares in Airvantage and AV Technology.

Subsequent to the restructure, BLT assigned its rights and obligations to acquire 50% of Hyve Mobile Proprietary Limited (Hyve) to BLM. The first tranche of payment due to the shareholders of Hyve was for R80 million, of which R47 million plus interest of R1.3 million has been paid. On payment of the balance of R33 million, BLM's 50% holding in Hyve will become effective. Thereafter, three additional tranches totalling an estimated R90.4 million will be payable over a three-year period based on performance targets. BLM has a call option to acquire a further 25% of Hyve, exercisable up until 30 September 2021, for an estimated purchase consideration of R85.2 million.

Post-year-end BLT entered into an agreement to dispose of its 85% shareholding in BLM as well as its 51% shareholdings in Simigenix Proprietary Limited (Simigenix) and Panacea Proprietary Limited (Panacea) to DNI 4PL Contracts Proprietary Limited (DNI) for a purchase consideration of R450 million, inclusive of loan claims, plus the amounts which BLM paid towards the acquisition of 50% of Hyve as at the transaction closing date. The purchase price will be settled in cash as follows:

• R350 million plus the amounts BLT paid for the acquisition of 50% of Hyve as at the transaction closing date; and
• R100 million, bearing interest at prime overdraft rates plus 2% per annum compounded on a monthly basis, deferred until the solvency and liquidity status of Cell C is proven.

The conditions precedent to this transaction have not been fulfilled as at reporting date. The above proceeds received will be applied to reduce interest-bearing debt.

Post disposal of BLM, BLT will continue to assume the obligation with respect to the put and/or call options on 40% of the shares in Airvantage and AV Technology, until such time as the liquidity and solvency status of Cell C is proven. At that stage the obligation in respect of the put and/or call options will revert back to BLM. The put and/or call options cannot be exercised prior to the finalisation of the 31 May 2020 financial results of both entities.

Should BLT be obligated to meet the commitment relating to the put option, and the liquidity and solvency is never proven thereafter, then the R100 million deferred purchase price and the interest accrued thereon will be forfeited by BLT, but in lieu thereof, BLM will transfer an additional 24% of the issued share capital of Airvantage and AV Technologies to BLT, resulting in BLT ownership of these entities amounting to 64%.

Should BLT be obligated to meet the commitment relating to the put option, and the liquidity and solvency of Cell C is proven thereafter, then the R100 million deferred purchase price and the interest accrued thereon will be payable to BLT plus the cost of the 40% put option shares that will be transferred to BLM.

Disposal of 3G Mobile

Post-year-end 3G Proprietary Limited (3G) will distribute its shares in Comm Equipment Company (CEC) and 3G's loan account claim against CEC to its shareholder, TPC.

The latter will thereafter dispose of 100% of the shares in 3G to DNI for a purchase consideration of R544 million. The above proceeds received will be applied to reduce interest-bearing debt.

Cell C R1.4 billion financial guarantee

On 2 August 2018, Cell C procured R1.4 billion of funding from a consortium of financial institutions for a tenure of 12 months, secured by airtime to the value of R1.75 billion. In the event of default, TPC is required to purchase such inventory from the consortium on a piecemeal basis over a specified period that has been agreed upon. These purchases would be made in lieu of purchases that would have been made from Cell C within that period.

As at 31 May 2019, the above funding declined from R1.4 billion to R1.25 billion as a result of BLT purchasing from the security airtime. At this stage, the financial institutions have agreed to extend the repayment date to 30 November 2019. If Cell C is unable to meet this commitment by that date, and no further extension is granted, BLT will be required to purchase R100 million of security airtime in November 2019 and R300 million per month in December 2019, January 2020 and February 2020 respectively.

It is the intention of TPC to accelerate payments to RMB in order to expunge the distribution of stock in full from the vault by January 2020 if there is risk/indication that Cell C will not be able to meet its obligations to the banking consortium by 30 November 2019.

Management has performed detailed assessments considering seasonality of trading and has determined that, based on current inventory holdings and anticipated sales cycles, should circumstances dictate the need to purchase the abovementioned inventory from the consortium, acceleration of such payments could well result in the debt being expunged by mid-January through its trading capabilities in the ordinary course of business at normal operating margins.

Banking facility

In August 2019, The Prepaid Company concluded an addendum to its facilities agreement with Investec Bank Limited in terms of which the facility was increased by R150 million.

The Board of Directors evaluated the going concern assumption as at 31 May 2019 and considered it to be appropriate in the preparation of these financial statements.

The Prepaid Company's Investec banking facilities, which would have expired on 30 September 2019, have been extended to 29 November 2019 and discussions are in progress for a further extension beyond that date.

As at the date of these financial statements, the renegotiation of these facilities had not yet been completed, and although the directors are of the opinion that the facilities would be extended beyond November 2019, material uncertainty exists should these facilities not be extended. In this event, certain liabilities within the group would not be settled in the normal course of business.

The directors are confident that the successful completion of the transactions, as detailed in the subsequent events above, will result in a significant reduction in interest-bearing debt and in turn the strengthening of the Group's balance sheet.

These summary consolidated financial statements for the year ended 31 May 2019 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.

The Board of Blue Label would once again like to express its appreciation to its suppliers, customers, business partners and staff for their ongoing support and loyalty.

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 September 2019

* Supervised the preparation and review of the Group's audited year-end results.