Blue Label Telecoms

In spite of a challenging economic environment, the Group delivered an encouraging performance for the six months ended 30 November 2015, resulting in growth in headline earnings per share of 25% to 53.26 cents.

These results were achieved through increases in revenue of 25%, gross profit of 17% and EBITDA of 20%. This performance was attributable to organic growth, underpinned by an expanding distribution channel and in turn a growth in market share.

On the international front, the Group’s share of losses in Blue Label Mexico (BLM) declined by 28%, albeit equating to a share of losses of R32.5 million. This impacted negatively on headline earnings per share by 4.88 cents. Oxigen Services India has remained profitable from year-end, focusing on expanding a valuable mobile wallet subscriber base.

The statement of financial position remains robust and liquid with accumulated equity increasing to R4.1 billion, net of accumulated dividends paid to date totalling R913 million. Net asset value equated to R6.03 per share.

South African distribution

Growth in revenue of 24% was organically achieved through increased sales by expanding distribution channels. Revenue generated on “PINless top-ups” increased by R641 million from R1.2 billion to R1.8 billion, equating to effective growth in South African Distribution revenue of 27%, in that only the commission earned thereon is recognised.

Net commissions earned on the distribution of prepaid electricity continued to increase, escalating by R16 million to R95 million (20%) on turnover of R6 billion generated on behalf of the utilities.

Although there was a contraction in gross profit margins, gross profit increased by R99 million (14%) to R795 million. This was congruent with the growth in revenue generated.

The resultant growth in EBITDA of 14% to R578 million equated to an EBITDA margin of 4.57%. Core net profit increased by R43 million to
R391 million (13%).

International distribution

Of the increase in EBITDA by R28 million, R9 million was attributable to the cessation of expenditure in Africa Prepaid Services Nigeria and R19 million to foreign exchange gains on loans owing by foreign Group companies.

The share of net losses from associates and joint ventures comprised the following:

Ukash

The share of profits in Ukash ceased in March 2015 as the Group disposed of its interest therein.

Oxigen Services India

There was a turnaround from the Group’s share of losses of R0.7 million in the comparative period to a share of profits of R2.8 million, after the amortisation of intangible assets.

The company is focused on increasing its wallet subscriber base, thereby creating value per subscriber simultaneously with the generation of transaction fees emanating from a multitude of transactional offerings. A continuous growth in the wallet subscriber base will in turn result in increased revenue from the various initiatives that the company has developed in this regard. These include domestic and international remittances, e-Commerce transactions, a loyalty wallet, chat applications and gift cards as well as augmenting its existing bouquet of prepaid tokens of value.

Daily money transfer deposits have grown from USD2.7 million per day as at 30 November 2014 to USD3.6 million per day as at 30 November 2015, increasing through its connectivity with the National Payment Corporation of India.

Blue Label Mexico

BLM’s losses declined from R95 million to R67 million, of which the Group’s share was R32.5 million after the amortisation of intangible assets.

The decline in losses was attributable to increases in revenue by 27% underpinned by higher gross profit margins. This was as a result of the company becoming a multicarrier distributor as opposed to historically being confined to one network. This has created a more competitive environment amongst the networks to the benefit of the company. Focus on cost efficiencies resulted in a decline in operational expenditure by 5%.

The above initiatives, together with the introduction of starter packs that generate monthly compounded annuity income, are expected to result in further declines in losses for the balance of the financial year.

Mobile

Viamedia, a mobile content and value-added services provider, was the predominant contributor to growth in revenue and profitability in this segment.

At core net profit level, positive contributions to growth by Viamedia of R7.8 million and Cellfind, Panacea Mobile and Simigenix of R2.7 million were partially negated by no contribution to profitability in the current period by Blue Label Engage as a result of its disposal in December 2014.

Solutions

In October 2015 Velociti was disposed of at a loss of R5.4 million. On exclusion of this capital loss, core net profit increased from R7.8 million to R12.2 million (55%). This growth was entirely attributable to the contribution by Blue Label Data Solutions which generated revenue of R71 million and a growth of 43% from R14 million to R21 million at EBITDA level.

Corporate

In the comparative period EBITDA losses were confined to R26 million as a result of a once-off income receipt. Corporate overheads increased by 8%.

Depreciation and amortisation amounted to R47 million in line with the comparative period. Of this amount, R10.4 million pertained to the amortisation of intangible assets resulting from purchase price allocations from historical acquisitions.

Finance costs

Finance costs totalled R99 million, of which R12 million related to interest paid on borrowed funds and R87 million to imputed IFRS interest adjustments on credit received from suppliers. On a comparative basis, interest paid on borrowed funds amounted to R29 million and the imputed IFRS interest adjustment equated to R71 million.

The decline of R17 million on interest paid on borrowed funds was congruent with an increase in cash generated from trading operations. This decline was net of the perpetuation of applying excess funds to bulk inventory purchase transactions and early settlement payments attracting favourable discounts. Finance facilities were utilised from time to time for this purpose and repaid during the current period.

Finance income

Finance income totalled R96 million, of which R28 million was attributable to interest received on cash resources and R68 million to imputed IFRS interest adjustments. On a comparative basis, interest received on cash resources amounted to R15 million and the imputed IFRS interest adjustment to R76 million.

The increase in interest received from cash resources was directly attributable to growth in revenue, partially offset by the utilisation of funds for financing and investing activities.

Total assets increased by R591 million to R7.6 billion, of which growth in non-current assets accounted for R66 million and current assets for
R525 million.

The net movement in non-current assets included a net increase in investments in associate and joint venture companies of R120 million and R8 million of capital expenditure net of depreciation. These increases were offset by net declines of R15 million in intangible assets and goodwill, R27 million in loans receivable and R20 million in other non-current assets.

The net increase in investment in associate and joint venture companies comprised a capital contribution to Blue Label Mexico of R43 million, a positive impact on foreign currency translation reserves of R34 million, a loan of R32 million granted to “Edgars Connect”, interest capitalised on loans of R9 million and unrealised foreign exchange gains thereon of R37 million. These increases were partially offset by the Group’s share of losses of R32 million in Blue Label Mexico.

The net decline in intangible assets and goodwill mainly pertained to the amortisation of intangibles by R64 million, the decline in goodwill and intangible assets by R5 million relating to the disposal of Velociti, offset by R54 million expended on the purchase of software, development costs, starter pack bases and the expansion of distribution channels.

An increase in cash resources by R694 million and a reduction in inventories by R165 million resulted in a net increase in current assets of R525 million.

The stock turn equated to 19 days compared to 26 days for the financial year ended 31 May 2015 in line with the increase in cost of sales and the reduction in inventory.

The debtors’ collection period declined to 39 days compared to 46 days for the financial year ended 31 May 2015, thereby contributing to the growth in cash resources.

The net profit attributable to equity holders of R349 million, less a dividend of R209 million, resulted in retained earnings accumulating to R2.8 billion.

Trade and other payables increased by R414 million in line with the growth in trading activities, with credit terms averaging 52 days.

Cash flows from operating activities amounted to R1.1 billion predominately attributable to increased trading activity and a reduction in working capital requirements.

Cash flows applied to investing activities amounted to R156 million. Of this amount, R43 million related to the additional investment in Blue Label Mexico, R32 million to a loan to the associated “Edgars Connect” stores, R52 million to the purchase of intangible assets, R11 million to net loans granted and R33 million to capital expenditure. The above outflows were partially offset by net proceeds received of R13 million from the disposal of Velociti.

After applying R23 million to the acquisition of treasury shares and a dividend payment of R213 million to shareholders and non-controlling interests, cash on hand accumulated to R1.5 billion.

Forfeitable shares totalling 2 583 819 (2014: 3 124 234) were issued to qualifying employees. During the period 530 375 (2014: 6 084) shares were forfeited and 2 915 266 (2014: 3 819 408) shares vested.

On 10 December 2015, BLT issued a SENS announcement with regard to the potential subscription of approximately 35% of the share capital of Cell C Proprietary Limited (Cell C), in terms of which Blue Label, in conjunction with other investors, has offered to participate in the recapitalisation of Cell C. Should the proposed transaction be concluded, Blue Label will contribute R4 billion for the above subscription.

Management are of the opinion that should the transaction be completed, it will be compelling both from an investment and commercial perspective.

Oxigen Services India will continue to focus on enhancing its mobile wallet subscriber base. It is the intention of the company to perpetuate its marketing of the benefits of prepaid wallets to the vast unbanked population of India. Growth in the base will not only increase revenue via transactional fees but will simultaneously enhance the underlying value of Oxigen in terms of market-related values per subscriber.

The decline in losses incurred by Blue Label Mexico is expected to continue in line with its roll-out of prepaid starter packs, which is gaining momentum on a monthly basis. Furthermore, its decision last year to become a multicarrier distributor has clearly manifested itself in an increase in melded gross profit margins. It has the opportunity of widening its bouquet of product offerings to its escalating multitude of distribution points of presence.

The strategy to enter into an initiative with the Edcon group relating to standalone “Edgars Connect” retail stores is expected to gain momentum through the establishment of additional outlets. This initiative has created an ideal platform for BLT to complement its strategy of the inclusion of marketing its products and services on a retail basis.

Mobile Money Transfer development has progressed significantly and implementation will soon commence.

South African Distribution has enhanced its bouquet of products to include mobile handsets and tablets. Low cost smart phones are expected to reach a wider spectrum of consumers which in turn will enhance the sale of prepaid tokens of value.

Blue Label advanced Oxigen Services India USD10.5 million by way of a rights issue in support of funding its growth in wallet subscribers.

The Board of Blue Label Telecoms 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