Group results
Core headline earnings for the period ended 30 November 2021 amounted to R549 million, of which R548 million related to continuing operations and R1 million to discontinued operations. Core headline earnings amounted of 62.69 cents per share.
In the comparative period, core headline earnings amounted to R376 million, of which R351 million related to continuing operations and R25 million to discontinued operations. Core headline earnings amounted to 42.70 cents per share.
On exclusion of the non-recurring income of R148 million in the current period and R22 million in the prior period, as illustrated in the underlying tables, core headline earnings from continuing operations increased by R71 million from R329 million to R400 million and core headline earnings per share from continuing operations increased by 22% from 37.35 cents per share in the prior period to 45.68 cents per share. This growth was indicative of a robust trading performance by the Group during the period under review.
The non-recurring income emanated from a fraudulent scheme, operating since 2015, which was perpetrated by two former senior key executives of a subsidiary company of the Group (“the subsidiary”). These fraudulent transactions were performed primarily outside the course and scope of the subsidiary’s immediate field of commercial dealings, whereby the perpetrators interposed themselves between intermediary companies and the subsidiary for their own benefit. In addition, certain transactions were identified evidencing theft of funds from the subsidiary and the fraudulent concealment thereof. Once-off recoupment income, comprising the aggregate value of assets either realised by or signed-over to the Group as a result of the fraudulent scheme, amounted to R315 million. This income was partially offset by professional fees incurred, taxation and the non-controlling interest thereon totalling R167 million, resulting in a net recoupment of R148 million.
On exclusion of the non-recurring income in both the current and prior periods, earnings per share and headline earnings per share from continuing operations increased by 24% to 43.69 cents per share and 23% to 43.85 cents per share respectively.
The financial results of WiConnect in the current and prior periods of R1 million and R25 million respectively, 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 5% to R9.1 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 12% from R32.4 billion to R36.2 billion.
Gross profit increased by R223 million (20%) to R1.36 billion, congruent with an increase in margins from 11.87% to 14.93%.
Group income statement
| Group November 2021 R’000 |
Extraneous income* November 2021 R’000 |
Remaining November 2021 R'000 |
Group November 2020 R'000 |
Extraneous income** November 2020 R’000 |
Remaining November 2020 R'000 |
Growth remaining R'000 |
Growth remaining % |
||
| Revenue | 9 112 874 | — | 9 112 874 | 9 582 022 | — | 9 582 022 | (469 148) | (5) | |
|---|---|---|---|---|---|---|---|---|---|
| Gross profit | 1 360 927 | — | 1 360 927 | 1 137 650 | — | 1 137 650 | 223 277 | 20 | |
| Other income | 323 959 | 315 132 | 8 827 | 93 212 | 85 830 | 7 382 | 1 445 | 20 | |
| EBITDA | 902 498 | 278 118 | 624 380 | 703 334 | 101 839 | 601 495 | 22 885 | 4 | |
| Non-controlling interest | (60 350) | (52 167) | (8 183) | (26 911) | — | (26 911) | 18 728 | 70 | |
| Net profit from continuing operations | 530 440 | 147 923 | 382 517 | 412 605 | 101 839 | 310 766 | 71 751 | 23 | |
| Core headline earnings | 548 831 | 148 934 | 399 897 | 376 433 | 47 211 | 329 222 | 70 675 | 21 | |
| – from continuing operations | 547 820 | 147 923 | 399 897 | 351 568 | 22 346 | 329 222 | 70 675 | 21 | |
| – from discontinued operations | 1 011 | 1 011 | — | 24 865 | 24 865 | — | — | ||
| Gross profit margin (%) | 14.93 | 14.93 | 11.87 | 11.87 | |||||
| EBITDA margin (%) | 9.90 | 6.85 | 7.34 | 6.28 | |||||
| Weighted average shares (’000) | 875 496 | 875 496 | 881 557 | 881 557 | |||||
| Share performance from continuing operations | |||||||||
| EPS (cents) | 60.59 | 43.69 | 46.80 | 35.25 | 8.44 | 24 | |||
| HEPS (cents) | 60.74 | 43.85 | 38.14 | 35.60 | 8.25 | 23 | |||
| Core HEPS (cents) | 62.57 | 45.68 | 39.88 | 37.35 | 8.33 | 22 | |||
| * | The extraneous contributions to Group earnings in the current period were attributable to: | |
| – | Once-off recoupment income, comprising the aggregate value of assets either realised by or signed-over to the Group relating to the fraudulent scheme. This income was partially offset by professional fees incurred, taxation and the non-controlling interest thereon1; and | |
| – | Partial recoupment of losses by the Retail division as a result of the closure of the WiConnect stores2. | |
| Extraneous income* November 2021 R’000 |
Once-offs1 November 2021 R’000 |
WiConnect2 November 2021 R’000 |
||
| Other income | 315 132 | 315 132 | — | |
|---|---|---|---|---|
| EBITDA | 278 118 | 278 118 | — | |
| Non-controlling interest | (52 167) | (52 167) | — | |
| Net profit from continuing operations | 147 923 | 147 923 | — | |
| Core headline earnings | 148 934 | 147 923 | 1 011 | |
| – from continuing operations | 147 923 | 147 923 | — | |
| – from discontinued operations | 1 011 | — | 1 011 | |
| ** | The extraneous contributions to Group earnings in the prior period were attributable to: | |
| – | Realised foreign exchange gains on the USD20 million liquidity support provided to SPV23; | |
| – | Once-off income, including the disposal of the Group’s interest in Blue Label Mexico4; and | |
| – | Partial recoupment of losses by the Retail division as a result of the closure of the WiConnect stores in the prior period5. | |
| Extraneous income** November 2020 R’000 |
Fair value movements3 November 2020 R’000 |
Once-offs4 November 2020 R’000 |
WiConnect5 November 2020 R’000 |
||
| Other income | 85 830 | — | 85 830 | — | |
| EBITDA | 101 839 | 16 009 | 85 830 | — | |
| Net profit from continuing operations | 101 839 | 16 009 | 85 830 | — | |
| Core headline earnings | 47 211 | 16 009 | 6 337 | 24 865 | |
| – from continuing operations | 22 346 | 16 009 | 6 337 | — | |
| – from discontinued operations | 24 865 | — | — | 24 865 | |
On exclusion of the R278 million relating to the non-recurring recoupment income net of professional fees incurred in the current period and R102 million in the prior period, EBITDA increased by R23 million from R601 million to R624 million.
As anticipated, the increase in overheads included costs of R25 million attributable to new learnership initiatives, whereby the benefit thereof is realised by way of income tax savings as a result of the section 12H allowances being claimed for such learnerships. Furthermore, additional headcount and expenditure incurred in order to enhance IT Infrastructure and the Group’s analytic and product development capabilities primarily contributed to the limited increase in EBITDA.
The Group generated positive cash flows of R862 million from its operating activities for the period ended 30 November 2021.
Segmental report
Africa Distribution
| November 2021 R’000 |
Extraneous income1,2 November 2021 R’000 |
Remaining November 2021 R'000 |
November 2020 R'000 |
Extraneous income3,5 November 2020 R’000 |
Remaining November 2020 R'000 |
Growth remaining R'000 |
Growth remaining % |
||
| Revenue | 8 986 965 | — | 8 986 966 | 9 492 806 | — | 9 492 806 | (505 840) | (5) | |
|---|---|---|---|---|---|---|---|---|---|
| Gross profit | 1 330 473 | — | 1 330 473 | 1 113 310 | — | 1 113 310 | 217 163 | 20 | |
| Other income | 320 511 | 315 132 | 5 379 | 4 623 | — | 4 623 | 756 | 16 | |
| EBITDA | 941 934 | 278 671 | 663 263 | 663 285 | 16 009 | 647 276 | 15 987 | 2 | |
| Non-controlling interest | (56 661) | (52 167) | (4 494) | (23 600) | — | (23 600) | 19 106 | 81 | |
| Net profit from continuing operations | 578 271 | 148 476 | 429 795 | 391 555 | 16 009 | 375 546 | 54 249 | 14 | |
| Core headline earnings | 596 722 | 149 487 | 447 235 | 432 934 | 40 874 | 392 060 | 55 175 | 14 | |
| – from continuing operations | 595 711 | 148 476 | 447 235 | 408 069 | 16 009 | 392 060 | 55 175 | 14 | |
| – from discontinued operations | 1 011 | 1 011 | — | 24 865 | 24 865 | — | — | ||
| Gross profit margin (%) | 14.80 | 14.80 | 11.73 | 11.73 | |||||
| EBITDA margin (%) | 10.48 | 7.38 | 6.99 | 6.82 |
Refer to Group income statement for footnotes 1, 2 and above for 3, 5.
Revenue generated by the continuing operations within this segment declined by 5% from R9.5 billion to R9.0 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 12% from R32.3 billion to R36.1 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 R1.2 billion (14%) from R9.0 billion to R10.2 billion.
Net commissions earned on the distribution of prepaid electricity amounted to R177 million. Revenue generated on behalf of the utilities increased by 21% from R13.2 billion to R15.9 billion.
Gross profit increased by R217 million (20%) to R1.33 billion, congruent with an increase in margins from 11.73% to 14.80%.
EBITDA in the current period included the non-recurring recoupment income, net of professional fees incurred, of R279 million attributable to the fraudulent scheme. Non-recurring income in the prior period of R16 million pertained to foreign exchange gains on the USD20 million liquidity support provided to SPV2.
On exclusion of the non-recurring income in both the current and prior periods, and despite an anticipated increase in overheads of R56 million, EBITDA increased by R16 million (2%) from R647 million to R663 million.
Core headline earnings from continuing operations reflected non-recurring income of R148 million in the current period relating to the net recoupment as a result of the fraudulent scheme and R16 million in the prior period pertaining to the foreign exchange gains on the USD20 million SPV2 liquidity support.
On exclusion of the above non-recurring income in the current and prior periods, core headline earnings from continuing operations increased by R55 million (14%) from R392 million to R447 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 an effective 37.5% in I Talk Financial Services (joint venture), both of which are outbound call centre operations.
As at 1 June 2021, the Group incorporated the following additional companies, namely, Blue Train, Blue Communications, One World Telecoms and I Talk2U.
| November 2021 R’000 |
November 2020 R’000 |
Growth R’000 |
Growth % |
|||
| Revenue | 125 909 | 89 216 | 36 693 | 41 | ||
|---|---|---|---|---|---|---|
| Gross profit | 30 454 | 24 340 | 6 114 | 25 | ||
| EBITDA | 7 584 | 13 424 | (5 840) | (44) | ||
| Share of profits from associates and joint ventures | 7 953 | 5 057 | 2 896 | 57 | ||
| Core headline earnings | 18 424 | 12 667 | 5 757 | 45 | ||
| Gross profit margin (%) | 24.19 | 27.28 | ||||
| EBITDA margin (%) | 6.02 | 15.05 |
Escalating demand for aggregated data and lead generations resulted in an increase in revenue of 41% to R126 million.
Gross profit increased by R6 million (25%) from R24 million to R30 million, congruent with the increase in revenue albeit at lower margins from 27.28% to 24.19%.
Overheads increased by R11 million primarily attributable to new learnership initiatives, whereby the benefit thereof is realised by way of income tax savings as a result of the section 12H allowances being claimed for such learnerships. EBITDA declined by R6 million to R8 million.
Of the core headline earnings of R18.4 million, BLDS accounted for R11.7 million. I Talk Holdings and I Talk Financial Services generated earnings of R6.1 million, of which the Group’s share amounted to R2.7 million. Blue Train generated earnings of R6.2 million, of which the Group’s share amounted to R4 million.
Of the core headline earnings of R13 million in the prior period, BLDS accounted for R9 million. I Talk Holdings generated earnings of R10 million, of which the Group’s share amounted to R4 million.
Corporate
| November 2021 R’000 |
November 2020 R’000 |
Extraneous income November 2020 R'000 |
Remaining November 2020 R’000 |
Growth remaining R'000 |
Growth remaining % |
|||
| EBITDA | (46 144) | (40 079) | 6 337 | (46 416) | 272 | 1 | ||
|---|---|---|---|---|---|---|---|---|
| Net loss from continuing operations | (65 465) | (58 474) | 6 337 | (64 811) | (654) | (1) | ||
| Core headline earnings | (65 519) | (56 530) | 6 337 | (62 867) | (2 652) | (4) |
On exclusion of the non-recurring income in the prior period of R6 million pertaining to foreign exchange movements, the negative contribution to Group core headline earnings increased by R3 million to R66 million.
Depreciation and amortisation
Depreciation, amortisation and impairment charges on continuing operations decreased by R3 million to R91 million. Of the latter amount, R32 million (2020: R32 million) pertained to depreciation on additional capital expenditure incurred during the year, R15 million (2020: R15 million) to depreciation raised in terms of IFRS 16 – Leases, R3 million (2020: R2 million) to impairments and R41 million (2020: R44 million) to the amortisation of intangible assets of which R22 million (2020: R22 million) emanated from purchase price allocations on historical acquisitions.
Net finance costs
Finance costs totalled R68 million, of which interest paid on borrowed funds amounted to R59 million and R3 million to the unwinding on the lease liability in terms of IFRS 16. On a comparative basis, finance costs amounted to R72 million, mainly comprising interest paid on borrowed funds of R64 million and R5 million on the unwinding on the lease liability.
Finance income totalled R36 million, of which R31 million was for interest received on cash resources and R2 million on loans granted. In the prior period, interest received on cash resources amounted to R24 million and interest on loans granted amounted to R1 million.
Statement of financial position
Total assets increased by R1.2 billion to R12.6 billion, of which non-current assets accounted for R0.3 billion and current assets for R0.9 billion.
Non-current assets included increases in intangible assets and goodwill of R387 million, investments in and loans to associates and joint ventures of R28 million, financial assets at fair value through profit and loss of R41 million and financial assets at fair value through other comprehensive income of R7 million. These increases were offset by decreases in advances to customers of R122 million, capital expenditure net of depreciation of R6 million, right-of-use assets of R9 million, deferred tax assets of R7 million and loans receivable of R3 million.
Of the net increase in intangible assets and goodwill of R387 million, additions to intangible assets amounted to R530 million offset by amortisation of R143 million. Of the total additions to intangible assets, R420 million relates to costs borne by the Group in terms of a subscription income sharing arrangement and R91 million to subscriber acquisition costs.
The net increase of R43.4 million in investments in and loans to associates and joint ventures comprised the Group’s net share of profits totalling R9.6 million, acquisition of further shares in an associate of R17.7 million, net loan increases of R15.3 million and its share of the movements in the foreign currency translation reserve amounting to R1.5 million.
The material net increase in current assets included increases in trade and other receivables of R778 million, cash and cash equivalents of R525 million, non-current assets classified as held-for-sale of R34 million and inventory of R17 million, offset by decreases in advances to customers of R386 million and financial assets at fair value through profit and loss of R126 million.
The stock turn from continuing operations equated to 23 days compared to 22 days for the financial year ended 31 May 2021.
The debtor’s collection period increased to 73 days compared to 59 days for the financial year ended 31 May 2021. On exclusion of the trade debtors relating to CEC, the debtor’s collection period increased to 29 days compared to 28 days for the financial year ended 31 May 2021.
Net profit attributable to equity holders amounted to R531 million, contributing to accumulated capital and reserves of R3.7 billion.
Current liabilities increased by R559 million, comprising an increase in trade and other payables of R449 million, borrowings of R130 million and tax liabilities of R87 million. This increase was offset by a decrease in financial guarantee contracts of R105 million. Average credit terms from continuing operations equated to 135 days compared to 116 days for the financial year ended 31 May 2021.
The decrease in financial guarantee contracts of R105 million was due to the settlement of an amount owing by Glocell Proprietary Limited to Investec Bank Limited that was guaranteed by Glocell Distribution Proprietary Limited, congruent with the buyout of the latter’s non-controlling interest in the current period.
Statement of cash flows
Cash generated from trading operations totalled R954 million. Working capital movements comprised an increase in trade payables of R310 million and a decrease in advances to customers of R508 million, offset by an increase in trade receivables and inventory of R729 million and R16 million respectively. After incurring net finance costs and taxation, net cash generated from operating activities amounted to R862 million.
Net cash flows utilised in investing activities amounted to R454 million, primarily attributable to the cost of intangible assets of R405 million, capital expenditure of R32 million, the acquisition of associate shares of R5 million and net loans granted of R15 million. Of the R405 million invested in intangible assets, R385 million related to costs borne by the Group in terms of the subscription income sharing arrangement.
Cash flows generated from financing activities amounted to R117 million, of which R157 million related to the net increase in borrowings offset by R19 million to lease payments and R21 million to dividend payments to non-controlling interests.
Cash and cash equivalents accumulated to R2.9 billion at 30 November 2021.
Forfeitable share scheme
No forfeitable shares were awarded or vested to qualifying employees during the period under review, due to the Group being in a closed period in line with the cautionary announcement released on 26 August 2021. During the current period, 3 972 259 shares were forfeited.
In the prior period, 15 565 697 forfeitable shares were issued to qualifying employees, 682 748 shares vested and 983 768 shares were forfeited.
Subsequent events
Banking facilities
In February 2022, The Prepaid Company Proprietary Limited renegotiated a further extension of its Investec facility to 31 March 2023. The total facility amounting to R1.56 billion outstanding as at 30 November 2021 was reduced by R340 million to R1.22 billion to date. Thereafter, the exposure to Investec is required to be reduced by a further R30 million per month in order to reduce the maximum facility balance to R1.01 billion.
Airvantage and AV Technology put obligations
On 14 December 2021, Blue Label Telecoms Limited (BLT) concluded agreements with the 40% shareholders of each of AV Technologies Limited (Mauritius) and Airvantage Proprietary Limited (South Africa) (Airvantage) in terms of which the put options which they had against BLT were terminated. On 15 December 2021, BLT concluded a put option agreement with Digital Ecosystems Proprietary Limited (formerly Blue Label Mobile Group) in terms of which the latter acquired the right to put up to 40% of the shares in Airvantage to BLT by no earlier than 15 December 2022 for a maximum amount of R110 million. If Cell C Limited, through a Board resolution, passes a solvency and liquidity test prior to 15 December 2022 the put option will be terminated.
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
23 February 2022
* Supervised the preparation of the Group’s unaudited six-month period ended results.