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Audited Results for the year ended 31 May 2013
Blue Label Telecoms Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/022679/06)
JSE Share code: BLU
ISIN: ZAE000109088
(Blue Label or BLT or the company or the group)
AUDITED RESULTS FOR THE YEAR ENDED 31 MAY 2013
Increase in headline earnings per share of 17% after excluding a once off income receipt in the comparative year*
Decrease in headline earnings per share of 1% after including a once off income receipt in the comparative year*
Increase in revenue to R19 billion
Increase in gross profit to R1,3 billion
Increase in EBITDA to R714 million
Dividend declared to 25 cents per share
*Once off income receipt amounted to R79,4 million
SUMMARISED GROUP STATEMENT OF FINANCIAL POSITION
As at 31 May 2013 2012
R000 R000
ASSETS
Non-current assets 1 340 410 993 076
Property, plant and equipment 88 125 112 188
Intangible assets and goodwill 706 018 505 698
Investment in and loans to associates and joint ventures 524 162 357 471
Loans receivable 1 000 1 435
Starter pack assets 2 573 4 501
Deferred taxation assets 18 532 11 783
Current assets 4 380 137 3 942 456
Inventories 1 858 511 539 221
Loans receivable 36 431 30 049
Starter pack assets 1 115 3 191
Trade and other receivables 1 539 365 1 387 650
Current tax assets 3 433 7 103
Cash and cash equivalents 941 282 1 975 242
Total assets 5 720 547 4 935 532
EQUITY AND LIABILITIES
Capital and reserves 3 242 853 2 914 386
Share capital, share premium and treasury shares 3 939 891 3 941 316
Restructuring reserve (1 843 912) (1 843 912)
Other reserves 113 139 25 539
Share-based payment reserve 39 496 38 915
Transaction with non-controlling interest reserve (931 125) (909 572)
Retained earnings 1 941 082 1 671 378
Non-controlling interest (15 718) (9 278)
Non-current liabilities 11 942 50 624
Deferred taxation liabilities 11 942 21 598
Trade and other payables - 29 026
Current liabilities 2 465 752 1 970 522
Trade and other payables 2 393 222 1 931 204
Provisions 19 029 6 260
Current tax liabilities 39 504 21 041
Current portion of interest-bearing borrowings 1 980 -
Current portion of non-interest-bearing borrowings 12 017 12 017
Total equity and liabilities 5 720 547 4 935 532
SUMMARISED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 May 2013 2012
R000 R000
Continuing operations
Revenue 18 984 210 18 715 390
Other income 16 137 97 412
Change in inventories of finished goods (17 712 965) (17 507 468)
Employee compensation and benefit expense (332 901) (327 830)
Depreciation, amortisation and impairment charges (67 951) (91 557)
Other expenses (240 859) (227 022)
Operating profit 645 671 658 925
Finance costs (167 096) (181 081)
Finance income 173 260 170 995
Share of loss from associates and joint ventures (47 326) (19 835)
Net profit before taxation 604 509 629 004
Taxation (196 404) (194 075)
Net profit from the year from continuing operations 408 105 434 929
Discontinued operation
Net loss for the year from discontinued operation - (15 455)
Net profit for the year 408 105 419 474
Other comprehensive income:
Exchange profits on translation of equity loans - 5 395
Exchange profits on translation of foreign operations 87 888 36 058
Other comprehensive income for the year, net of tax 87 888 41 453
Total comprehensive income for the year 495 993 460 927
Net profit for the year attributable to:
Equity holders of the parent 424 841 438 104
- From continuing operations 424 841 443 597
- From discontinued operation - (5 493)
Non-controlling interest (16 736) (18 630)
- From continuing operations (16 736) (8 668)
- From discontinued operation - (9 962)
Total comprehensive income for the year attributable to: 495 993 460 927
Equity holders of the parent 512 441 477 244
Non-controlling interest (16 448) (16 317)
Earnings per share for profit attributable to equity holders (cents)
Basic earnings per share (cents) 64,22 61,87
- From continuing operations 64,22 62,65
- From discontinued operation - (0,78)
Diluted earnings per share** (cents) 63,19 60,97
- From continuing operations 63,19 61,74
- From discontinued operation - (0,78)
Dividend per share (cents) 23,00 14,00
Weighted average number of shares 661 577 847 708 059 527
Diluted weighted average number of shares 672 304 611 718 577 060
Number of shares in issue 674 509 042 674 509 042
Headline earnings per share (cents) 64,17 64,65
- From continuing operations 64,17 65,43
- From discontinued operation - (0,78)
Diluted headline earnings per share** (cents) 63,14 63,70
Reconciliation between net profit and core net profit for the year:
Net profit for the year attributable to equity holders of the parent 424 841 438 104
Amortisation on intangible assets raised through business combinations
net of tax and net of non-controlling interest 12 675 17 693
Core net profit for the year 437 516 455 797
- Core earnings per share (cents)* 66,13 64,37
* Core earnings per share is calculated after adding back the amortisation of intangible assets as a consequence
of the purchase price allocations completed in terms of IFRS 3(R): Business Combinations.
** Diluted earnings per share and diluted headline earnings per share are calculated by adjusting the weighted average
number of ordinary shares outstanding for the number of shares that would be issued on vesting under the employee
forfeitable share plan.
SUMMARISED GROUP STATEMENT OF CASH FLOWS
for the year ended 31 May 2013 2012
R000 R000
Cash flows from operating activities (439 794) 528 109
Cash flows from investing activities (406 336) (276 991)
Cash flows from financing activities (188 066) (519 984)
Decrease in cash and cash equivalents (1 034 196) (268 866)
Cash and cash equivalents at the beginning of the year 1 975 242 2 226 170
Translation difference 236 17 938
Cash and cash equivalents at the end of the year 941 282 1 975 242
SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY
Share capital, Transaction with Share-based
share premium Retained Restructuring Other non-controlling payment Non-controlling Total
and treasury shares earnings reserve reserves* interest reserve reserve** interest equity
R000 R000 R000 R000 R000 R000 R000 R000
Balance as at 1 June 2011 4 348 231 1 340 318 (1 843 912) (13 601) (909 006) 19 099 14 234 2 955 363
Net profit for the year - 438 104 - - - - (18 630) 419 474
Other comprehensive income - - - 39 140 - - 2 313 41 453
Total comprehensive income/(loss) - 438 104 - 39 140 - - (16 317) 460 927
Dividends paid - (107 044) - - - - (2 945) (109 989)
Treasury shares purchased (16 095) - - - - - - (16 095)
Shares acquired (392 378) - - - - - - (392 378)
Equity compensation benefit scheme
shares vested 1 558 (1 517) (41) -
Equity-based compensation movements - - - - - 21 929 197 22 126
Share of equity movement in associates - - - - - (596) - (596)
Transaction with non-controlling interest
reserve movement - - - - (566) - - (566)
Non-controlling interests disposed of
during the year - - - - - - (4 406) (4 406)
Balance as at 1 June 2012 3 941 316 1 671 378 (1 843 912) 25 539 (909 572) 38 915 (9 278) 2 914 386
Net profit for the year - 424 841 - - - - (16 736) 408 105
Other comprehensive income - - - 87 600 - - 288 87 888
Total comprehensive income/(loss) - 424 841 - 87 600 - - (16 448) 495 993
Dividends paid - (155 137) - - - - (3 515) (158 652)
Treasury shares purchased (17 223) - - - - - - (17 223)
Equity compensation benefit scheme
shares vested 15 798 - - - - (15 559) (239) -
Equity-based compensation movements - - - - - 16 063 117 16 180
Share of equity movement in associates - - - - - 77 - 77
Transaction with non-controlling interest
reserve movement - - - - (21 553) - 7 553 (14 000)
Non-controlling interest acquired
during the year - - - - - - 6 092 6 092
Balance as at 31 May 2013 3 939 891 1 941 082 (1 843 912) 113 139 (931 125) 39 496 (15 718) 3 242 853
* Included in other reserves is the foreign currency translation reserve and the non-distributable reserve.
** Includes employee compensation benefit reserve.
SEGMENTAL SUMMARY
South African International
Total distribution distribution Mobile Solutions Corporate
Year ended R000 R000 R000 R000 R000 R000
31 May 2013
Total segment revenue 24 720 865 24 363 215 - 220 393 137 257 -
Internal revenue (5 736 655) (5 651 135) - (68 973) (16 547) -
Revenue 18 984 210 18 712 080 - 151 420 120 710 -
Operating profit/(loss) before depreciation,
amortisation and impairment charges 713 622 796 439 (31 000) 37 055 24 703 (113 575)
Net profit/(loss) for the year attributable to
equity holders of the parent 424 841 562 824 (54 861) 24 268 13 152 (120 542)
- From continuing operations 424 841 562 824 (54 861) 24 268 13 152 (120 542)
Amortisation on intangibles raised through business
combinations net of tax and non-controlling interest 12 675 7 942 4 176 519 38 -
Core net profit for the year attributable to
equity holders of the parent 437 516 570 766 (50 685) 24 787 13 190 (120 542)
- From continuing operations 437 516 570 766 (50 685) 24 787 13 190 (120 542)
At 31 May 2013
Total assets 5 720 547 4 950 040 481 712 94 581 145 989 48 225
Net operating assets/(liabilities) 1 914 385 1 981 975 (15 567) 3 313 16 904 (72 240)
Year ended
31 May 2012
Total segment revenue 30 173 943 29 883 770 17 429 96 084 176 660 -
Internal revenue (11 458 553) (11 444 082) - (8 840) (5 631) -
Revenue 18 715 390 18 439 688 17 429 87 244 171 029 -
Operating profit/(loss) before depreciation,
amortisation and impairment charges 750 482 737 488 (15 901) 97 359 38 927 (107 391)
Net profit/(loss) for the year attributable to
equity holders of the parent 438 104 504 035 (30 277) 69 270 21 259 (126 183)
- From continuing operations 443 597 504 035 (24 784) 69 270 21 259 (126 183)
- From discontinued operation (5 493) - (5 493) - - -
Amortisation on intangibles raised through business
combinations net of tax and non-controlling interest 17 693 9 095 3 841 4 692 65 -
Core net profit for the year attributable to
equity holders of the parent 455 797 513 130 (26 436) 73 962 21 324 (126 183)
- From continuing operations 461 290 513 130 (20 943) 73 962 21 324 (126 183)
- From discontinued operation (5 493) - (5 493) - - -
At 31 May 2012
Total assets 4 935 532 4 364 061 337 494 62 278 137 997 33 702
Net operating assets/(liabilities) 1 971 934 2 029 232 (10 126) 5 247 7 385 (59 804)
DISPOSAL OF SUBSIDIARIES
Shares in the following subsidiaries were disposed of during the year:
Effective date of % held and
disposal disposed of
Subsidiaries
Content Connect Africa Proprietary Limited 1 September 2012 100
Multiserv Proprietary Limited 1 January 2013 100
Details of the total net assets disposed and
the resulting profit on disposal are as follows: Total
R000
Total proceeds 12 338
Fair value of net assets disposed of 12 218
Profit on disposal 120
The assets and liabilities disposed of are as follows: Fair value at
disposal date
R000
Cash and cash equivalents 4 230
Property, plant and equipment 333
Intangible assets 7 588
Inventories 1 643
Receivables 7 615
Loan receivable 1 839
Deferred tax (468)
Borrowings (9 198)
Current tax liabilities (45)
Payables (11 911)
Fair value of subsidiaries disposed of 1 626
Goodwill 10 592
Fair value of net assets disposed of 12 218
Proceeds on disposal of subsidiaries 12 338
Proceeds still to be settled (7 853)
Proceeds received 4 485
Cash and cash equivalents of subsidiaries disposed of (4 230)
Cash inflow on disposals 255
ACQUISITION OF SUBSIDIARIES
Shares in the following subsidiaries were acquired during the year:
Effective date of
acquisition % acquired
Subsidiaries
Blue Label Engage Proprietary Limited 1 September 2012 50,1
Panacea Mobile Proprietary Limited 1 September 2012 51
TicketPros Proprietary Limited 5 April 2013 60
Details of the total net assets acquired and
the resulting goodwill as at acquisition are as follows: Total
R000
Total purchase consideration 22 569
Fair value of net assets acquired 7 840
Goodwill 14 729
The assets and liabilities acquired through acquisition are as follows: Acquirers
carrying
Fair value at amount on
acquisition date acquisition date
R000 R000
Cash and cash equivalents 17 130 17 130
Property, plant and equipment 578 578
Intangible assets 10 631 868
Goodwill 14 729 -
Inventories 994 994
Receivables 3 465 3 465
Deferred tax (2 734) -
Current tax liability (1 437) (1 437)
Borrowings (114) (114)
Payables (14 581) (14 581)
Fair value of subsidiaries acquired 28 661 6 903
Non-controlling interest (6 092)
Fair value of net assets acquired 22 569
Total purchase consideration 22 569
Deferred purchase consideration (2 669)
Cash and cash equivalents in subsidiaries acquired (17 130)
Cash outflow from acquisitions 2 770
HEADLINE EARNINGS
For the year ended 31 May 2013 2012
R000 R000
Net profit attributable to equity holders of the parent 424 841 438 104
Net profit on disposal of property, plant and equipment (562) (65)
(Profit)/loss on disposal of subsidiaries (120) 3 014
(Profit)/loss on disposal of associates and joint ventures (2 107) 3 025
Impairment of goodwill - 4 684
Impairment of intangible assets and property, plant and equipment 2 454 9 354
Profit on disposal of investment - (361)
Headline earnings 424 506 457 755
Headline earnings per share (cents) 64,17 64,65
- From continuing operations 64,17 65,43
- From discontinued operation - (0,78)
COMMENTARY
FINANCIAL REVIEW
The comparative year included a once off income receipt of R79,4 million. On exclusion of this income, headline
earnings per share increased by 17% to 64,17 cents. This growth was achieved through an increase in gross profit margins from
6,45% to 6,70% on revenue of R19 billion, overhead escalation contained at 3% and the effect of the reduction in issued
shares resulting from the repurchase of Microsofts 12% shareholding in December 2011.
The growth in earnings, with the South African distribution segment being the main contributor thereto, was achieved
in spite of compounding losses in Mexico and a decline in the performance in the call centre operation.
The distribution of pin-less top ups, as an alternative mechanism for the vending of prepaid airtime, continued to
escalate during the current year. This shift in consumer buying patterns has an impact on the treatment of revenue
generated thereon, in that only the gross profit is accounted for as revenue. This gross revenue increased from R177 million
to R997 million. The effective growth in group revenue therefore equated to 6% as opposed to 1% as reported.
Commissions earned on the distribution of prepaid electricity and compounding annuity revenue generated from starter
packs continued to grow exponentially.
The group capitalised on its accumulated cash resources by utilising funds to take advantage of bulk inventory
purchase opportunities at favourable discount rates. This resulted in an increase in inventory holding and a commensurate
decline in cash resources.
Capital and reserves accumulated to R3,2 billion, further solidifying the foundation of group resources. The net asset
value at year end equated to R4,81 per share (2012: R4,32 per share).
FINANCIAL OVERVIEW
- Revenue increased to R19 billion.
- Gross profit increased by R63 million to R1,3 billion supported by margin increases from 6,45% to 6,70%.
- Overheads increased by 3%.
- EBITDA increased to R714 million equating to a growth of 6%.*
- Headline earnings increased by 9% to R425 million.*
- Headline earnings per share increased by 17% from 55,01 cents* to 64,17 cents per share.
- On inclusion of the once off comparative receipt, headline earnings per share declined by 1% from 64,65 cents to 64,17 cents.
*On exclusion of the once off income receipt of R79,4 million in the comparative year.
BASIS OF PREPARATION
The summarised group annual financial statements have been derived from the group annual financial statements and were
prepared in accordance with the JSE Limited Listings Requirements, the presentation and disclosure requirements of IAS
34 - Interim Financial Reporting and the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council. The group annual
financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the
requirements of the Companies Act of South Africa. A copy of the group annual financial statements can be obtained from the
companys registered office.
This financial information has been prepared in accordance with the going concern principle, under the historical cost
convention, except for certain financial and equity investments which have been measured at fair value. The accounting
policies and methods of computation are consistent with those used in the comparative financial information for the year
ended 31 May 2012, with the exception of the standards that are effective for the first time in the current year. These
have been disclosed in note 1 to the annual financial statements for the year ended 31 May 2013. 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.
The summarised group annual financial statements should be read in conjunction with the group annual financial
statements which include details of all related party transactions and business combinations.
SEGMENTAL REPORT
SOUTH AFRICAN DISTRIBUTION
2013 2012 Growth %
R000 R000 R000 Growth
Revenue 18 712 080 18 439 688 272 392 1%
Gross profit 1 121 747 1 059 785 61 962 6%
EBITDA 796 439 737 488 58 951 8%
Core net profit 570 766 513 130 57 636 11%
Gross profit margin 5,99% 5,75%
EBITDA margin 4,26% 4,00%
In the comparative year, the technology segment was reported on separately. As the bulk of its function and services
are interdependent in the distribution of airtime, electricity and starter packs, it is more prudent to house its
expenditure in the South African distribution segment. Accordingly, the technology segment has been included in the South
African distribution segment and the comparative segmental results in this regard have been restated in accordance with
IFRS 8 Operating Segments.
Prepaid airtime, annuity revenue generated from starter packs and commissions earned on the distribution of prepaid
electricity, accounted for a 1% increase in revenue. This excluded the growth of R820 million in sales of pin-less top
ups, the gross profit thereon only being accounted for as revenue. Growth in revenue effectively equated to 6%.
Commissions earned on the distribution of prepaid electricity increased by R28 million (33%) to R113 million on
revenue generated on behalf of utility suppliers of R7,2 billion (2012: R5,5 billion). The group acts as an agent in the
distribution of prepaid electricity.
Gross profit increased by R62 million (6%), supported by margin increases from 5,75% to 5,99%. On exclusion of IFRS
adjustments and in turn reflecting the true trading performance of this segment, gross profit increased by R122 million on
margin growth from 5,33% to 5,90%. Of this growth of 0,57%, commissions on prepaid electricity accounted for 0,14%.
The growth in EBITDA of 8% was inclusive of the effects of IFRS adjustments. On exclusion of these adjustments in both
the comparative and current years, a more representative growth of R119 million (18%) was achieved.
INTERNATIONAL DISTRIBUTION
2013 2012 Growth %
R000 R000 R000 Growth
Revenue - 17 429 (17 429) (100%)
Gross profit - 2 574 (2 574) (100%)
EBITDA (31 000) (15 901) (15 099) (95%)
Discontinued operation
- Africa Prepaid Services Nigeria - (5 493) 5 493 100%
Share of losses from associates and joint ventures (49 036) (19 182) (29 854) (156%)
- Ukash 7 291 2 228 5 063 227%
- Oxigen Services India (565) 4 616 (5 181) (112%)
- Blue Label Mexico (51 124) (24 873) (26 251) (106%)
- Other (4 638) (1 153) (3 485) (302%)
Core net loss from continuing operations (73 294) (36 563) (36 731) (100%)
- Equity holders of the parent (50 685) (20 943) (29 742) (142%)
- Non-controlling interests (22 609) (15 620) 6 989 45%
Core net loss from discontinued operation - (15 455) 15 455 100%
- Equity holders of the parent - (5 493) 5 493 100%
- Non-controlling interests - (9 962) 9 962 100%
Historically revenue and gross profit was generated by SharedPhone International, which was disposed of in January
2012.
Negative EBITDA of R31 million was predominantly related to the costs incurred on the ongoing litigation pertaining to
Africa Prepaid Services Nigeria (APSN).
The losses in the comparative year from discontinued operations pertained to the winding down of APSN.
The groups objective in the international segment is to partner with local management in the countries in which it
operates. These partnerships result in its international operations being equity accounted for. The groups current active
international operations, namely, Ukash, Oxigen Services India and Blue Label Mexico are disclosed accordingly under
share of losses from associates and joint ventures.
Share of these net losses comprised the following:
Ukash
The groups share of profits in Ukash, after the amortisation of intangible assets, increased by 227% to R7,3 million.
These results were achieved through organic growth in revenue by 32%, an increase in gross profit by 39% and EBITDA
growth of 66%, all reported in its local currency.
Oxigen Services India
Oxigen Services Indias revenue increased by R470 million (18%) to R3 billion and gross profit increased by R10 million,
both reported on in SA Rands.
Operating expenses increased by R7,7 million (16%), resulting in a decline in EBITDA by R2,4 million to R11,7 million.
The increase in operating expenses was largely due to the necessity to recruit 200 field sales executives, who were
hired and trained during the current year in order to enable the company to reach the expansive rural and urban areas in
the Indian market place. Further expenditure was incurred on the costs of the migration of PSTN to GPRS, affording
wireless portable devices the capability of catering for more products at lower operating costs per terminal, as well as on the
migration of the entire OSI platform to the new Oxisecure platform. The implementation of the Mobicash wallet with
the State Bank of India to facilitate money transfers and the launching of an interbank mobile payment system together
with the National Payment Corporation of India to enable money transfers by the unbanked, utilising the Oxicash Wallet,
also necessitated additional operating expenses.
After accounting for depreciation of R10 million, NPAT declined from R4,9 million to R1,3 million. The groups share
of profits of R0,7 million equated to a decline on the prior year by R2,2 million. Amortisation of intangibles amounting
to R1,3 million resulted in a net share of losses of R0,6 million. In the comparative year, the groups share of profit,
after the amortisation of intangibles, amounted to R4,6 million inclusive of a consolidation adjustment of R2,9 million.
This adjustment had no impact on the trading performance of Oxigen Services India during that year.
Blue Label Mexico
In the comparative year, Blue Label Mexico (BLM) incurred losses of R60 million after the amortisation of intangible
assets, of which the groups 40% share equated to R24,9 million. In spite of revenue growth of 103% in the current year,
losses in BLM escalated to R113 million, of which the groups share equated to R51,1 million.
The increase in losses was attributable to margin compression and a significant increase in overheads. Furthermore,
the group increased its shareholding from 40% to 45% during the course of the financial year and in turn the group assumed
an additional 5% share of these losses.
The decline in gross profit margins was attributable to a reduction in discounts afforded by Telcel, Mexicos
predominant network operator, which controls approximately 70% of the Mexican market. Telcel, however, would reinstate the
previous margins afforded to BLM, plus additional discounts, on the proviso that BLM would contractually agree to become an
exclusive distributor on their behalf. Accordingly, a contract was concluded between BLM and Telcel on 1 April 2013
giving effect to this new arrangement.
The increase in overheads was congruent with BLMs strategy to gear-up as a national distributor. This process also
required the procurement of additional point-of-sale devices in anticipation of a national roll out. This in turn had a
negative impact on depreciation by 58% in local currency, which equated to 78% on conversion to Rand.
Although the above initiatives proved costly, during the current year, BLM is now positioned to roll out nationally,
offering more favourable discounts, with a solid foundation in place to support national distribution.
MOBILE
2013 2012 Growth %
R000 R000 R000 Growth
Revenue 151 420 87 244 64 176 74%
Gross profit 95 134 66 059 29 075 44%
EBITDA 37 055 97 359 (60 304) (62%)
Core net profit 24 787 73 962 (49 175) (66%)
This segment comprises Cellfind, Blue Label One, Content Connect Africa, Blue Label Engage and Panacea Mobile. Content
Connect Africa was disposed of in September 2012 and Panacea Mobile and Blue Label Engage were acquired during the
current year.
The growth in revenue by 74% to R151 million was mainly attributable to the introduction of bulk SMS facilitation by
Cellfind and Panacea Mobile. This resulted in the commensurate growth in gross profit by 44% to R95 million.
EBITDA for the comparative year included the once off income receipt of R79,4 million. On exclusion of this receipt,
EBITDA increased by R19 million (106%) to R37 million. On the same basis core net profit increased by R20 million after
taxation thereon.
SOLUTIONS
2013 2012 Growth %
R000 R000 R000 Growth
Revenue 120 710 171 029 (50 319) (29%)
Gross profit 54 364 79 505 (25 141) (32%)
EBITDA 24 703 38 927 (14 224) (37%)
Core net profit 13 190 21 324 (8 134) (38%)
The Solutions segment houses Blue Label Data Solutions (BLDS), Velociti and CNS Call Centre.
BLDS, which markets data and analytical products and services increased its revenue by R10 million (19%) and gross
profit by R4 million (12%), resulting in a contribution of R19 million towards group core net profit. This positive
contribution was negated by core net losses of R8 million incurred by Velociti.
Velocitis losses were incurred as a result of a significant decline in outbound campaigns. It is the intention to
increase the volume of inbound activity in order to compensate for outbound declines.
CORPORATE
2013 2012 Growth %
R000 R000 R000 Growth
EBITDA (113 575) (107 391) (6 184) (6%)
Core net loss (120 542) (126 183) 5 641 4%
The increase in negative EBITDA was attributable to a loan impairment of R6,3 million. The decline in core net loss
was mainly due to the change in legislation applicable to Secondary Tax on Companies (STC). No STC was payable on the
dividends declared in the current year, whereas STC on dividends declared in the comparative year amounted to R11 million.
DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES
Depreciation, amortisation and impairment charges declined by R24 million.
There was no impairments to goodwill in the current year as opposed to R4,7 million required in the comparative year.
The impairment of point-of-sale devices declined from R12,8 million to R3,4 million and the amortisation of intangible
assets in terms of purchase price allocations declined by R6,9 million in line with the expiration of useful tenure.
Depreciation on the remainder of the assets decreased by R3 million.
NET FINANCE INCOME
Finance costs
Finance costs totalled R167 million, of which R24 million related to interest paid on borrowed funds and R143 million
to imputed IFRS interest adjustments on credit received from suppliers. On a comparative basis, interest paid on
borrowed funds was R3 million and the imputed IFRS interest adjustment equated to R178 million. The increase in interest
paid on borrowed funds was attributable to bulk inventory purchase transactions of which facilities were utilised and
repaid during the year.
Finance income
Finance income totalled R173 million, of which R45 million was for interest received on cash resources and R128
million pertaining to IFRS adjustments. On a comparative basis interest received on cash resources amounted to R60 million
and the imputed IFRS interest adjustment R111 million. The decline in interest received on cash resources was in line with
the utilisation of funds on hand for bulk inventory purchase transactions and partly due to a reduction in interest
rates by 0,5% from July 2012.
STATEMENT OF FINANCIAL POSITION
Total assets increased by R785 million, of which R347 million was attributable to growth in non-current assets and
R438 million in current assets.
The movement of intangible assets and goodwill by R200 million related to acquisitions to the extent of R34 million,
the cost of annuity driven starter pack and post paid bases totalling R264 million, less disposals and amortisation of
R18 million and R79 million respectively.
The increase in investment in associates and joint ventures totalling R167 million was due to further investment into
Blue Label Mexico of R110 million, the impact of foreign currency translation reserves of R80 million, set off by net
losses of R47 million incurred by these companies.
The movement in current assets by R438 million was mainly due to an increase in inventories by R1,3 billion which was
attributable to bulk purchase transactions, causing a decline in cash resources by R1 billion. Although the stock turn
consequently increased from an historical average of 11 days to 38 days, the discount afforded thereon justified the
excess in inventory holding.
Accounts receivable increased by R152 million, maintaining the debtors collection period at 27 days.
The net profit of R425 million less a dividend of R155 million and a movement of R88 million in foreign exchange
translation reserves were the main contributors to the growth in capital and reserves.
Trade and other payables increased by R462 million with average creditors days increasing from 37 days to 46 days.
STATEMENT OF CASH FLOWS
Cash flows of R432 million were generated from operating activities before accounting for the movement in inventory
and accounts payable directly attributable to bulk purchasing transactions. There was a negative generation of cash flow
of R440 million after accounting for the bulk purchase transactions.
A further R406 million was applied to investing activities, of which R110 million related to an additional investment
in BLM, R264 million to the acquisition of the annuity bases, R26 million to capital expenditure and R3 million to
acquisitions.
After the payment of dividends of R159 million to shareholders and non-controlling interest and the acquisition of
treasury shares for R17 million, the cash on hand at year end amounted to R941 million.
FORFEITABLE SHARE SCHEME
Forfeitable shares totalling 3 496 103 (2012: 4 828 644) were issued to qualifying employees. During the year 1 285
962 (2012: 1 067 904) shares were forfeited and 2 700 513 (2012: 311 637) shares vested.
DIVIDEND NO 4
The groups current dividend policy is to declare an annual dividend. On 18 August 2013, the board approved and declared a gross
ordinary dividend (number 4) of 25 cents per ordinary share (21,25 cents per ordinary share net of dividend withholding
tax) for the year ended 31 May 2013. This dividend of R168 627 261, inclusive of withholding tax, equates to a 2,52 cover
on headline earnings. The dividend for the year ended 31 May 2013 has not been recognised in the financial statements as
it was declared after this date.
The dividend has been declared from reserves. The company has no Secondary Tax on Companies credits available. The
dividend withholding tax rate is 15%. The issued share capital at the declaration date was 674 509 042 ordinary shares. The
companys income tax reference number is 9062246179.
The salient dates are as follows:
Last date to trade cum dividend Friday, 6 September 2013
Shares commence trading ex dividend Monday, 9 September 2013
Record date Friday, 13 September 2013
Payment of dividend Monday, 16 September 2013
Share certificates may not be dematerialised or rematerialised between Monday, 9 September and Friday, 13 September
2013, both days inclusive.
PROSPECTS
A diverse range of customer engagement initiatives concerning membership and loyalty programmes has been developed.
This will enable delivery to the market of unique turnkey customer engagement solutions that will generate multiple
annuity based revenue streams through supporter engagement programmes. These programmes will include communications, events,
access-control, ticketing and concessionary services that enhance service value to supporters. In this regard five year
contracts have been concluded with both Cricket SA and The Blue Bulls Rugby Company.
A ticketing engine has recently been acquired which will enable the end user to acquire tickets for sporting and
entertainment events as well as transport services through the groups distribution capabilities and vast points of presence.
Innovative financial services products, aimed at bringing financial inclusion and transactional value to customers,
will be implemented. These initiatives will include debit and credit card processing through the existing extensive
point-of-sale network. These additional financial services products complement the groups existing prepaid products and
services and enhance the value-proposition to the merchants and their customers.
The recent acquisitions of a post paid contract base and prepaid starter pack bases is expected to compound the
annuity revenue generated from the existing bases within the group.
SMS aggregation is expected to continue to gain further momentum following the successful development of technology by
Panacea Mobile to support this service.
Consumer awareness of the benefits of prepaid electricity is expected to continue to escalate and in turn compound the
commissions earned on the distribution of this product.
Blue Label Mexico intends to roll out point-of-sale devices incorporating banking transactional capabilities on the
devices. It is the intention to aggressively implement this initiative, utilising the extensive distribution network of
our partner, Grupo Bimbo.
SUBSEQUENT EVENTS
In June 2013, the group secured a distribution agreement with a leading reseller at a purchase price of R84 million.
This is expected to further enhance the groups prominence in the distribution of prepaid services.
Subsequent to year end, dividend number 4 was declared and approved by the board.
LITIGATION UPDATE
In December 2008 Africa Prepaid Services (Pty) Ltd (APS), a subsidiary of Blue Label concluded a super dealer
agreement with Multi-Links Telecommunications Limited (MLT), a wholly owned subsidiary of Telkom, at the time, in terms
of which APS was appointed for a period of 10 years to market and distribute a range of products and services for MLT in
Nigeria (the agreement).
In 2009 APS ceded and assigned all its rights and obligations in terms of the agreement to Africa Prepaid Services
Nigeria Limited (APSN), a subsidiary of APS and Blue Label.
On 26 November 2010 APSN cancelled the agreement on the basis of MLTs wrongful repudiation of the agreement.
In June 2011 APSN launched arbitration proceedings in South Africa against MLT (the arbitration proceedings). APSN
claims payment of US$457 million against MLT and MLT has counterclaimed for payment of the sum of US$123 million.
Telkom sold its shareholding in MLT to Hip Oils Topco Limited on 3 October 2011. In terms of an indemnity contained in
the sale and purchase agreement, Telkom is liable for all amounts in excess of US$10 million in respect of APSNs claim
against MLT.
The arbitration was due to commence in November 2012 but was postponed and is due to reconvene in February 2014.
Telkom and MLT have instituted an action in the High Court against Blue Label, APS, APSN and certain individuals,
including a former senior executive of Telkom in the High Court for payment of an aggregate amount of US$724 million
(the action).
The claim in the action is based, inter alia, on an alleged breach of the duty of care and alleged misrepresentations
made by Blue Label together with alleged breaches of fiduciary duties on the part of the former senior Telkom executive,
at the time the agreement was concluded, in respect of which it is alleged Blue Label was a party to.
On 16 May 2013 Telkom and MLT obtained an order without notice to APSN in terms of which APSNs claim against MLT in
the arbitration proceedings together with a costs order in APSNs favour were purportedly attached in order to give the
High Court jurisdiction over APSN in the action (the ex parte order).
Telkom and MLT have conceded that there was no basis for the attachment and have abandoned the ex parte order. APSN is
seeking a punitive order for costs against Telkom and MLT, which was set down for a hearing commencing on 19 August
2013. The High Court will simultaneously determine an application which has been launched by MLT to stop the arbitration
proceedings, which is being opposed by APSN.
At the time of going to print the outcome of these proceedings is yet to be pronounced upon by the court. A further
announcement will be made when the court delivers its judgement.
INDEPENDENT AUDIT
PricewaterhouseCoopers Inc.s unqualified audit reports on the group annual financial statements and the summarised
group annual financial statements for the year ended 31 May 2013 are available for inspection at the companys registered
office. Any reference to future financial performance in this announcement has not been audited or reported on by
PricewaterhouseCoopers Inc.
APPRECIATION
The board of Blue Label Telecoms once again expresses 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 BM Levy and MS Levy DB Rivkind CA(SA)*
Chairman Joint Chief Executive Officers Financial Director 18 August 2013
*Supervised the preparation and review of the groups audited year end results.
Directors: LM Nestadt (Chairman)*, BM Levy, MS Levy, KM Ellerine*, GD Harlow*, NN Lazarus SC*, JS Mthimunye*,
MV Pamensky, DB Rivkind, J Vilakazi* (*Non-executive)
Company Secretary: J van Eden
Sponsor: Investec Bank Limited
Auditors: PricewaterhouseCoopers Inc.
American Depository Receipt (ADR) Programme: Cusip No.: 095648101 Ticker name: BULBY ADR to ordinary share: 10:1
Depository: The Bank of New York, 101 Barclay Street, New York NY. 10286, USA
www.bluelabeltelecoms.co.za
Date: 20/08/2013 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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