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BLUE LABEL TELECOMS LIMITED - Results for the year ended 31 May 2017

Release Date: 24/08/2017 07:05
Code(s): BLU     PDF:  
Wrap Text
Results for the year ended 31 May 2017

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")

Results for the year ended 31 May 2017

Highlights 

- Increase in revenue to
  R26.3 billion

- Increase in gross profit of 19% to
  R2.2 billion

- Increase in ebitda of 7% to
  R1.3 billion

- Increase in earnings per share of 14% to
  117.92 cents

- Increase in headline earnings per share of 18% to
  117.98 cents

- Increase in core headline earnings per share of 17% to
  120.09 cents

- Increase in dividend per share of 11% to
  40 cents


Commentary

Overview
Group earnings continued to increase organically primarily attributable to South Africa Distribution increasing its
contribution to Group core headline earnings by 19%.

Although Blue Label Mexico ("BLM") incurred losses, its losses continued to decline, with the Group's share thereof
reducing by 42%, from R63 million to R37 million.

The continuous shift in consumer buying patterns from traditional purchasing of airtime to that of "PINless top-ups",
resulted in limited growth in Group revenue. Only the gross profit earned thereon is accounted for in Group revenue as
opposed to the gross amount generated from transactions of this nature. On imputing such amounts, the effective growth
would have equated to 7%.

Gross profit increased by R343 million (19%) to R2.2 billion congruent with an increase in margins from 6.98% to
8.26%.

After accounting for a negative turnaround in foreign exchange movements of R125.7 million, a net negative movement of
R37.9 million relating to a release of a contingent portion of deferred purchase considerations and an increase in
overheads of R90 million, the resultant EBITDA increased by R91 million (7%) to R1.33 billion.

The investments in Oxigen Services India, Oxigen Online Services India, collectively ("Oxigen Services India"), and
2DFine Holdings Mauritius ("2DFine") were historically accounted for as investments in associates and joint venture,
applying the equity method up until 30 November 2016. From that date these entities are accounted for as venture capital
investments, which, in accordance with IAS 28 - Investments in Associates and Joint Ventures, have been accounted for at
fair value. The differential between the carrying value of the investments and their fair value is reflected as a gain on
associates and joint venture measured at fair value.

A fair value gain of R160 million and the Group's share of losses for the year under review of R125 million, equated
to a net positive contribution of R35 million to Group earnings. On exclusion of this positive contribution, headline
earnings would have amounted to R752 million and core headline earnings to R766 million, equating to 112.74 cents and
114.85 cents per share respectively.

Capital and reserves accumulated to R5 billion, net of accumulated dividends paid to date totalling R1.16 billion,
further strengthening the Group�s balance sheet. The net asset value increased by 11% to R7.32 per share. 

Segmental report
South African Distribution
                              May 2017          May 2016       Growth      Growth
                                 R'000             R'000        R'000           %
Revenue                     25 786 396        25 722 540       63 856          0%
Gross profit                 1 917 023         1 582 743      334 280         21%
EBITDA                       1 388 296         1 133 433      254 863         22%
Core net profit                893 106           750 951      142 155         19%
Core headline earnings         893 128           751 086      142 042         19%
Gross profit margin              7.43%             6.15%                         
EBITDA margin                    5.38%             4.41%                         

Revenue remained consistent with that of the prior year. However, revenue generated on "PINless top-ups" increased by
R2 billion from R4.1 billion to R6.1 billion, equating to effective growth in South African Distribution revenue of 7%,
in that only the commission earned thereon is recognised.

Net commissions earned on the distribution of prepaid electricity continued to increase, escalating by R18 million to
R215 million on a value of R14 billion generated on behalf of the utilities.

Gross profit margins improved from 6.15% to 7.43%, resulting in an increase in gross profit of R334 million (21%) from
R1.58 billion to R1.92 billion. The improvement in margins was attributable to a hybrid of additional discounts
received on early settlement payments and compounded annuity revenue. The increase in gross profit was partially negated by
additional net finance costs, congruent with applying excess funds and facilities on a piecemeal basis to early settlement
discounts. 

EBITDA increased by 22% to R1.39 billion equating to an EBITDA margin of 5.38%.

Contribution to Group core headline earnings increased by R142 million (19%) to R893 million.

International
                                                                    May 2017        May 2016        Growth      Growth 
                                                                       R'000           R'000         R'000           % 
EBITDA                                                               (31 792)         44 152       (75 944)      (172%)
Gain on associate measured at fair value                             160 200               -       160 200             
Share of (losses)/profits from associates and joint ventures        (162 218)        (70 283)      (91 935)      (131%)
- Oxigen Services India                                             (119 831)        (27 672)      (92 159)      (333%)
- Blue Label Mexico                                                  (36 978)        (63 293)       26 315         42% 
- 2DFine Holdings Mauritius                                           (5 409)         19 734       (25 143)      (127%)
- Mpower                                                                   -             948          (948)      (100%)
Core net loss                                                        (17 213)        (29 352)       12 139         41% 
Core headline loss                                                   (16 874)        (59 327)       42 453         72% 

The decline in EBITDA of R76 million was directly attributable to a negative turnaround in foreign exchange movements.

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

Oxigen Services India and 2DFine Holdings Mauritius
The financial performance of Oxigen Services India for the six months ending November 2016 was equity accounted for,
of which the Group's share of losses amounted to R120 million. The major portion of these losses was attributable to
substantial expenditure incurred on the marketing of the brand and the acquisition of wallets.

The Group's share of losses in 2DFine amounted to R5.4 million for the six months ending November 2016. These losses
were attributable to interest incurred on historical loans from Gold Label Investments and Blue Label. In the prior year,
the Group's share of profits amounted to R19.7 million. This pertained to a gain on dilution of R30 million, being the
Group's share of the increased net asset value emanating from a rights issue in Oxigen Services India, offset by a share
of losses of R10.2 million relating to interest incurred on the above loans. The gain on dilution was deducted as a
headline earnings adjustment, resulting in a negative contribution of R59.3 million by the International segment to core
headline earnings.

With effect from 30 November 2016, Oxigen Services India and 2DFine have been accounted for as venture capital investments,
and as a result thereof the investments are measured at fair value. Consequently, any further losses incurred by the above
entities from that date will have no impact on Group earnings.

The differential between the carrying value of the investments and their fair value amounted to R160 million and has
been accounted for in the reviewed condensed  Group statement of comprehensive income as a gain on associate and joint
venture measured at fair value. The fair value gain of R160 million and the Group's share of losses for the year of
R125 million,  equated to a net positive contribution of R35 million to Group earnings.

Blue Label Mexico
BLM's losses declined from R130 million to R74 million, of which the Group's share amounted to R37 million after the
amortisation of intangible assets. In the comparative period the Group's share of losses amounted to R63 million. 

The decline in losses was achieved in spite of a reduction in revenue by 23%. This decline was caused by intense
competition amongst carriers, resulting in lower tariffs payable by the end user. However, in the latter half of the
financial year pricing stabilised, resulting in an increase in revenue during that period.

The overall decline in revenue was compensated for by an increase in gross profit of R26.6 million (32%), underpinned
by higher gross profit margins. 

The increase in gross profit was primarily attributable to BLM 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 decrease in operational expenditure by 9%. Whilst the resultant EBITDA
remained negative, it increased by R42.7 million (61%).

Bill payments, credit and debit card acquiring, food vouchers and compounding annuity revenue emanating from starter
pack distribution are perpetually increasing, which together with improved margins and expense containment resulted 
in a decline in losses.

Mobile
                            May 2017      May 2016        Growth      Growth    
                               R'000         R'000         R'000           %    
Revenue                      347 858       291 856        56 002         19%    
Gross profit                 200 079       182 533        17 546         10%    
EBITDA                        99 101       111 142       (12 041)       (11%)   
Core net profit               56 327        64 273        (7 946)       (12%)   
Core headline earnings        56 289        65 333        (9 044)       (14%)   

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

Although revenue increased by 19% and gross profit by 10%, a negative movement of R12 million relating to a release
of a contingent portion of deferred purchase consideration resulted in negative growth in EBITDA by 11%.

On exclusion of the deferred purchase consideration adjustment, the effective contribution to core headline earnings
equated to a growth of R3 million (5%).

Solutions
                            May 2017      May 2016        Growth      Growth 
                               R'000         R'000         R'000           % 
Revenue                      177 621       190 326       (12 705)        (7%)
Gross profit                  55 480        64 418        (8 938)       (14%)
EBITDA                        34 020        35 889        (1 869)        (5%)
Core net profit               18 956        16 116         2 840         18% 
Core headline earnings        18 956        21 564        (2 608)       (12%)

In October 2015 Velociti was disposed of at a loss of R5.4 million. On exclusion of this capital loss from core net
profit in the prior year, core headline earnings in the remaining entities declined by R2.6 million.

On omission of Velociti's historical contribution, revenue generated by the remaining entities, dominated by Blue
Label Data Solutions, increased by 10%. However, margin compression resulted in static growth in gross profit, which
together with an increase in overheads, which included a R4 million loan impairment, resulted in the decline in its 
core headline earnings of 12%. 

Corporate
                         May 2017      May 2016        Growth      Growth    
                            R'000         R'000         R'000           %    
EBITDA                   (158 302)      (84 057)      (74 245)       (88%)   
Core net loss            (150 142)      (93 748)      (56 394)       (60%)   
Core headline loss       (150 103)      (93 745)      (56 358)       (60%)   

Of the decline in EBITDA of R74 million, R46 million pertained to a negative turnaround in foreign exchange movements 
and R26 million to a net negative movement relating to a release of a contingent portion of deferred purchase considerations.

Its negative contribution to Group core headline earnings increased by R56 million to R150 million.

DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES
Depreciation, amortisation and impairment charges increased by R15 million to R113 million. Of this amount, R18 million 
pertained to the amortisation of intangible assets resulting from purchase price allocations on historical acquisitions 
compared to R20.6 million in the comparative year. The balance of the increase was congruent with capital expenditure
incurred during the year.

NET FINANCE COSTS
Finance costs
Finance costs totalled R303 million, of which R106 million related to interest paid on borrowed funds and R197 million
to imputed IFRS interest adjustments on credit received from suppliers. On a comparative basis, interest paid on
borrowed funds amounted to R48 million and the imputed IFRS interest adjustment equated to R166 million. 

The increase of R58 million on interest paid on borrowed funds was mainly due to applying funds to bulk inventory purchase 
transactions and early settlement payments attracting favourable discounts. Finance facilities were utilised on a piecemeal 
basis for this purpose and repaid during the current year. The additional finance costs were more than compensated for by 
the growth in gross profit and gross profit margins.

Finance income
Finance income totalled R242 million, of which R79 million was attributable to interest received on cash resources and
R163 million to imputed IFRS interest adjustments on credit afforded to customers. In the prior year, interest received
on cash resources amounted to R64 million and the imputed IFRS interest adjustment to R130 million. 

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

STATEMENT OF FINANCIAL POSITION
Total assets increased by R1.4 billion to R8.7 billion of which current assets increased by R1.5 billion and
non-current assets reduced by R76 million. 

Non-current assets included increases in capital expenditure net of depreciation of R11 million, in loans receivable
of R30.9 million and trade and other receivables of R13.3 million. These increases were offset by decreases of 
R86 million in intangible assets and goodwill and R50.6 million in investments in associates and joint ventures. 

The net decrease of R50.6 million in investment in associate and joint ventures comprised the R160 million gains
measured at fair value relating to Oxigen Services India and 2DFine, a capital contribution of R25.5 million to Oxigen
Services India, a further equity loan granted to Lornanox of R9.3 million, the acquisition of Utilities World for R12 million,
interest of R23.5 million capitalised on loans and loans granted of R14 million. These increases were offset by the Group's 
share of losses therein totalling R165 million inclusive of the amortisation of applicable intangible assets, a negative impact
on foreign currency translation reserves of R82.4 million and unrealised foreign exchange losses on loans of R47.2 million.

The net decline of R86 million in intangible assets and goodwill mainly pertained to the amortisation of intangibles
by R143 million, offset by R56 million expended on the purchase of software, internally generated software development
costs and starter pack bases.

Of the increase in current assets, material movements included increases in inventories of R521 million, loans receivable of 
R90 million, cash resources of R762 million and trade receivables of R80 million. 

The stock turn equated to 33 days compared to 25 days for the comparative year. Bulk inventory purchase opportunities
at favourable discount rates validated the consequent increase in inventory. The nature of the business enables it to
reduce its inventory holdings within the above number of days at any given time. 

The debtors' collection period increased to 39 days compared to 38 days for the comparative year.

Net profit attributable to equity holders of R787 million, less a dividend of R243 million, resulted in retained
earnings accumulating to R3.6 billion.

Trade and other payables increased by R881 million, with average credit terms increasing to 53 days compared to 40 days 
for the comparative year.

STATEMENT OF CASH FLOWS
Cash flows generated from operating activities amounted to R1.36 billion, predominately attributable to increased
trading activity, net of working capital requirements. 

Cash flows applied to investing activities amounted to R320 million. Of this amount, R56 million related to the purchase 
of intangible assets, R57 million to capital expenditure, R25.5 million to a capital contribution to Oxigen Services
India, R133 million to net loans granted, R50.7 million to earn outs relating to prior acquisitions and R7.5 million to
the acquisition of Utilities World. These outflows were partially offset by R1.7 million from the sale of fixed assets
and R13 million from an earn-out received emanating from the sale of Ukash.

After applying R7 million to the acquisition of treasury shares and a dividend payment of R270 million to shareholders
and non-controlling interests, cash on hand at year end amounted to R1.35 billion.

FORFEITABLE SHARE SCHEME
Forfeitable shares totalling 1 376 257 (2016: 2 591 066) were issued to qualifying employees. During the year 121 226
(2016: 612 453) shares were forfeited and 2 141 673 (2016: 3 163 359) shares vested.

DIVIDEND
The Group's current dividend policy is to declare an annual dividend. On 23 August 2017 the Board approved a gross
ordinary dividend (dividend number 8) of 40 cents per ordinary share (32 cents per ordinary share net of dividend
withholding tax) for the year ended 31 May 2017. 

The dividend of R349 803 616 inclusive of withholding tax equates to a 2.25 cover on headline earnings. The dividend
for the year ended 31 May 2017 has not been recognised in the financial statements as it was declared after this date. 

The dividend has been declared from income reserves. The issued share capital at the declaration date was 874 509 041.
The Company's tax reference number is 9062246179. The salient dates are as follows:

Last date to trade cum dividend                 Tuesday, 12 September 2017 
Shares commence trading ex dividend           Wednesday, 13 September 2017 
Record date                                      Friday, 15 September 2017 
Payment of dividend                              Monday, 18 September 2017 

Share certificates may be dematerialised or rematerialised between Wednesday, 13 September 2017 and Friday, 
15 September 2017, both days inclusive.

Before declaring the final dividend the Board applied the solvency and liquidity test on the Company and reasonably
concluded that the Company will satisfy the solvency and liquidity test immediately after payment of the final dividend.
The final dividend will be paid 24 days after the Directors have performed the solvency and liquidity testing.

Dividend tax is provided for at 20% of the amount of any dividend paid by Blue Label, subject to certain exemptions.
The dividend tax is a tax borne by the beneficial owner of the dividend and will be withheld by either the issuer of the
dividend or by regulated intermediaries.

PROSPECTS
Blue Label is one of the primary distribution channels for Cell C Proprietary Limited ("Cell C") products and services. 
The acquisition therein provides a compelling value proposition to the Group, to Cell C and its customers through vertical 
integration that will afford both companies the opportunity to realise synergies in product distribution. Cell C now has a 
sustainable capital structure to deliver on their strategic objectives. 

3G Mobile Proprietary Limited ("3G Mobile") is one of Africa's largest distributors and financiers of mobile devices
and handsets to major retailers and cellular network providers. It has distribution rights for all major tier one and
tier two mobile devices and allied products from the manufacturers thereof. Through its wholly owned subsidiary, Comm
Equipment Company Proprietary Limited, it provides the financing of the mobile handset component of postpaid and hybrid
contracts to Cell C, with the capability of extending such services to other networks and channels. These functions
supplement Blue Label's strategic objectives to provide value added services to both Cell C and its own customer base.

3G Mobile provides the ideal platform to combine Blue Label's low cost and certified pre-owned mobile handset divisions 
into a consolidated group. The acquisition thereof is both earnings accretive and provides a solid foundation for
distribution into the burgeoning low cost smartphone market.

Blue Label Mexico is expected to provide a positive contribution to Group profitability, given their consistent growth
in revenue generation at sustainable improved gross profit margins and compounding annuity revenue generated from
starter packs.

"Big Data" creates the opportunity to upsell and cross sell the various bouquets of products and services that Blue
Label has to offer, through its distribution channels, by intelligently understanding consumer behaviour.

Value added services, including the provision of short-term finance for products and services required by consumers,
are initiatives that are currently under consideration.

INDEPENDENT AUDIT
These condensed Group financial statements for the year ended 31 May 2017 have been reviewed by PricewaterhouseCoopers 
Inc., who expressed an unmodified review conclusion. A copy of the auditor's review report is available for inspection 
at the Company's registered office together with the financial statements identified in the auditor's report.

The auditor's report does not necessarily report on all of the information contained in this announcement. 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.

This announcement which sets out the reviewed annual results for Blue Label Telecoms Limited for the year ended 31 May 2017 
contains "forward-looking statements", which have not been reviewed or reported on by the Group's auditors, with respect to 
the Group's financial condition, results of operations and businesses and certain of the Group's plans and objectives.

APPRECIATION
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

23 August 2017

* Supervised the preparation of the reviewed condensed Group financial statements.

Reviewed condensed Group statement of comprehensive income
For the year ended 31 May
                                                                                          2017              2016 
                                                                                      Reviewed           Audited 
                                                                                         R'000             R'000 
Revenue                                                                             26 311 875        26 204 722 
Other income                                                                            16 814           126 294 
Changes in inventories of finished goods                                           (24 139 293)      (24 375 028)
Employee compensation and benefit expense                                             (452 985)         (427 116)
Depreciation, amortisation and impairment charges                                     (112 851)          (98 183)
Other expenses                                                                        (405 088)         (288 313)
Operating profit                                                                     1 218 472         1 142 376 
Finance costs                                                                         (303 027)         (214 110)
Finance income                                                                         242 194           193 899 
Gain on associates and joint venture measured at fair value                            160 200                 - 
Share of losses from associates and joint ventures                                    (164 941)          (71 770)
Net profit before taxation                                                           1 152 898         1 050 395 
Taxation                                                                              (332 037)         (318 783)
Net profit for the year                                                                820 861           731 612 
Other comprehensive income:                                                                                      
Items that may be subsequently reclassified to profit or loss                                                    
Share of other comprehensive (loss)/income of associates and joint ventures            (82 424)           81 544 
Foreign exchange loss on translation of foreign operations                                 (52)              (15)
Other comprehensive (loss)/income for the year, net of tax                             (82 476)           81 529 
Total comprehensive income for the year                                                738 385           813 141 
Net profit for the year attributable to:                                               820 861           731 612 
Equity holders of the parent                                                           786 965           691 590 
Non-controlling interest                                                                33 896            40 022 
Total comprehensive income for the year attributable to:                               738 385           813 141 
Equity holders of the parent                                                           706 396           770 652 
Non-controlling interest                                                                31 989            42 489 


Share performance
For the year ended 31 May
                                                                                          2017              2016 
                                                                                      Reviewed           Audited 
                                                                                         R'000             R'000 
Earnings per share for profit attributable to equity holders                                                     
Basic earnings per share (cents)                                                        117.92            103.85 
Diluted earnings per share (cents)*                                                     116.91            102.84 
Weighted average number of shares                                                  667 348 522       665 950 277 
Diluted weighted average number of shares                                          673 162 133       672 520 023 
Number of shares in issue                                                          674 509 042       674 509 042 
Share performance                                                                                                
Headline earnings per share (cents)                                                     117.98            100.35 
Diluted headline earnings per share (cents)*                                            116.96             99.37 
Dividend per share (cents)                                                               36.00             31.00 
Reconciliation between net profit and core headline earnings for the year:                                       
Net profit for the year attributable to equity holders of the parent                   786 965           691 590 
Amortisation on intangible assets raised through business combinations net of                       
tax and net of non-controlling interest                                                 14 069            16 650 
Core net profit for the year                                                           801 034           708 240 
Headline earnings adjustments                                                              362           (23 329)
Core headline earnings                                                                 801 396           684 911 
Core headline earnings per share (cents)**                                              120.09            102.85 
*  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.                                        
** Core headline earnings per share are calculated after adding back to headline earnings, the amortisation of 
   intangible assets as a consequence of the purchase price allocations completed in terms of IFRS 3(R) - Business 
   Combinations.


Reviewed condensed Group statement of financial position
As at 31 May
                                                                                          2017              2016    
                                                                                      Reviewed           Audited    
                                                                                         R'000             R'000    
ASSETS                                                                                                              
Non-current assets                                                                   2 198 757         2 275 161    
Property, plant and equipment                                                          111 599           100 434    
Intangible assets                                                                      511 164           598 333    
Goodwill                                                                               604 590           603 440    
Investments in and loans to associates and joint ventures                              315 833           910 567    
Investments in and loans to venture capital associates and joint venture               544 165                 -    
Loans receivable                                                                        36 851             5 910    
Starter pack assets                                                                      5 346             6 099    
Trade and other receivables                                                             42 512            29 166    
Deferred taxation assets                                                                26 697            21 212    
Current assets                                                                       6 491 513         5 030 790    
Inventories                                                                          2 180 121         1 658 860    
Loans receivable                                                                       188 229            98 217    
Starter pack assets                                                                      1 365             1 576    
Trade and other receivables                                                          2 758 997         2 679 023    
Current tax assets                                                                      12 135             4 087    
Cash and cash equivalents                                                            1 350 666           589 027    

Total assets                                                                         8 690 270         7 305 951    
EQUITY AND LIABILITIES                                                                                              
Capital and reserves                                                                 5 004 442         4 519 567    
Share capital, share premium and treasury shares                                     3 953 871         3 942 512    
Restructuring reserve                                                               (1 843 912)       (1 843 912)   
Other reserves                                                                         107 036           187 605    
Equity compensation benefit reserve                                                     46 420            42 039    
Transactions with non-controlling interest reserve                                    (975 302)         (965 861)   
Retained earnings                                                                    3 649 192         3 105 050    
                                                                                     4 937 305         4 467 433    
Non-controlling interest                                                                67 137            52 134    
Non-current liabilities                                                                 59 226           102 954    
Deferred taxation liabilities                                                           52 952            62 141    
Trade and other payables                                                                 6 274            40 813    
Current liabilities                                                                  3 626 602         2 683 430    
Trade and other payables                                                             3 517 673         2 601 807    
Provisions                                                                              35 071            24 928    
Current tax liabilities                                                                 55 832            40 608    
Borrowings                                                                              18 026            16 087    
Total equity and liabilities                                                         8 690 270         7 305 951    


Reviewed condensed Group statement of cash flows
For the year ended 31 May
                                                                                          2017              2016    
                                                                                      Reviewed           Audited    
                                                                                         R'000             R'000    
Cash generated by operations                                                         1 753 991           744 185    
Interest received                                                                       52 300            42 082    
Interest paid                                                                         (105 518)          (48 207)   
Taxation paid                                                                         (338 814)         (305 118)   
Net cash generated from operating activities                                         1 361 959           432 942    
Cash flows from investing activities                                                                                
Acquisition of intangible assets and property, plant and equipment                    (113 280)         (127 131)   
Disposal of subsidiary net of cash disposed                                                  -            13 219    
Capital contribution to Blue Label Mexico                                                    -           (42 654)   
Capital contribution to Oxigen Services India                                          (25 534)         (159 425)   
Equity loans advanced to Lornanox                                                       (5 875)          (58 883)   
Loans granted                                                                         (117 268)          (27 306)   
Loans granted to associates and joint ventures                                         (15 756)           (1 620)   
Settlement of contingent consideration                                                 (50 666)           (1 931)   
Contingent proceeds received                                                            12 839             5 813    
Other investing activities                                                              (4 936)            3 585    
Net cash utilised in investing activities                                             (320 476)         (396 333)   
Cash flows from financing activities                                                                                
Acquisition of treasury shares                                                          (7 381)          (23 052)   
Dividends paid to non-controlling interest                                             (26 788)           (4 000)   
Dividends paid to equity holders of the parent                                        (242 823)         (209 098)   
Other financing activities                                                              (2 803)                -    
Net cash utilised in financing activities                                             (279 795)         (236 150)   
Net increase/(decrease) in cash and cash equivalents                                   761 688          (199 541)   
Cash and cash equivalents at the beginning of the year                                 589 027           788 411    
Exchange gains on cash and cash equivalents                                                (49)              157    
Cash and cash equivalents at the end of the year                                     1 350 666           589 027    



Reviewed condensed Group statement of changes in equity

                                                             Share 
                                                    capital, share 
                                                           premium 
                                                      and treasury         Retained      Restructuring          Other
                                                            shares         earnings            reserve      reserves*
                                                           Audited          Audited            Audited        Audited
                                                             R'000            R'000              R'000          R'000
Balance as at 31 May 2015                                3 943 888        2 622 558         (1 843 912)       108 543 
Net profit for the year                                          -          691 590                  -              - 
Other comprehensive income                                       -                -                  -         79 062 
Total comprehensive income                                       -          691 590                  -         79 062 
Dividends paid                                                   -         (209 098)                 -              - 
Treasury shares purchased                                  (23 052)               -                  -              - 
Equity compensation benefit scheme shares vested            21 676                -                  -              - 
Equity compensation benefit movement                             -                -                  -              - 
Share of equity movement in associates                           -                -                  -              - 

                                                      Transactions
                                                              with
                                                   non-controlling      Share-based
                                                          interest          payment      Non-controlling            Total
                                                           reserve        reserve**             interest           equity
                                                           Audited          Audited              Audited          Audited
                                                             R'000            R'000                R'000            R'000
Balance as at 31 May 2015                                 (965 861)          39 297               13 468        3 917 981    
Net profit for the year                                          -                -               40 022          731 612    
Other comprehensive income                                       -                -                2 467           81 529    
Total comprehensive income                                       -                -               42 489          813 141    
Dividends paid                                                   -                -               (4 000)        (213 098)   
Treasury shares purchased                                        -                -                    -          (23 052)   
Equity compensation benefit scheme shares vested                 -          (21 429)                (247)               -    
Equity compensation benefit movement                             -           23 421                  424           23 845    
Share of equity movement in associates                           -              750                    -              750


                                                                   Reviewed         Reviewed           Reviewed       Reviewed    
                                                                      R'000            R'000              R'000          R'000    
Balance as at 31 May 2016                                         3 942 512        3 105 050         (1 843 912)       187 605    
Net profit for the year                                                   -          786 965                  -              -    
Other comprehensive income                                                -                -                  -        (80 569)   
Total comprehensive income                                                -          786 965                  -        (80 569)   
Dividends paid                                                            -         (242 823)                 -              -    
Treasury shares purchased                                            (7 381)               -                  -              -    
Equity compensation benefit scheme shares vested                     18 740                -                  -              -    
Equity compensation benefit movement                                      -                -                  -              -    
Non-controlling interest acquired                                         -                -                  -              -    
Transaction with non-controlling interest reserve movement                -                -                  -              -    
Balance as at 31 May 2017                                         3 953 871        3 649 192         (1 843 912)       107 036    
*  Included in other reserves is the foreign currency translation reserve and the non-distributable reserve.
** Includes employee compensation benefit reserve.

                                                                   Reviewed         Reviewed           Reviewed       Reviewed    
                                                                      R'000            R'000              R'000          R'000    
Balance as at 31 May 2016                                          (965 861)          42 039             52 134      4 519 567    
Net profit for the year                                                   -                -             33 896        820 861    
Other comprehensive income                                                -                -             (1 907)       (82 476)   
Total comprehensive income                                                -                -             31 989        738 385    
Dividends paid                                                            -                -            (26 788)      (269 611)   
Treasury shares purchased                                                 -                -                  -         (7 381)   
Equity compensation benefit scheme shares vested                          -          (18 486)              (254)             -    
Equity compensation benefit movement                                      -           22 867                550         23 417    
Non-controlling interest acquired                                         -                -                 65             65    
Transaction with non-controlling interest reserve movement           (9 441)               -              9 441              -    
Balance as at 31 May 2017                                          (975 302)          46 420             67 137      5 004 442    
*  Included in other reserves is the foreign currency translation reserve and the non-distributable reserve.
** Includes employee compensation benefit reserve.


Segmental summary

Year ended 31 May 2017                                                                                  South African
                                                                                             Total       Distribution      International    
                                                                                          Reviewed           Reviewed           Reviewed    
                                                                                             R'000              R'000              R'000
Total segment revenue                                                                   32 724 069         32 058 672                  -    
Internal revenue                                                                        (6 412 194)        (6 272 276)                 -    
Revenue                                                                                 26 311 875         25 786 396                  -    
Operating profit/(loss) before depreciation, amortisation and impairment charges         1 331 323          1 388 296            (31 792)   
Net profit/(loss) for the year attributable to equity holders of the parent                786 965            883 542            (19 072)   
Amortisation on intangibles raised through business combinations net of tax                 14 069              9 564              1 859    
and non-controlling interest                                                                                                                
Headline earnings adjustments net of non-controlling interest                                  362                 22                339    
Core headline earnings for the year attributable to equity holders of the parent           801 396            893 128            (16 874)   
At 31 May 2017                                                                                                                              
Total assets                                                                             8 690 270          7 201 527            743 530    
Net operating assets/(liabilities)                                                       2 864 911          2 762 751             10 424    

Year ended 31 May 2017                                                                      Mobile      Solutions       Corporate   
                                                                                          Reviewed       Reviewed        Reviewed   
                                                                                             R'000          R'000           R'000   
Total segment revenue                                                                      361 754        178 286         125 357   
Internal revenue                                                                           (13 896)          (665)       (125 357)  
Revenue                                                                                    347 858        177 621               -   
Operating profit/(loss) before depreciation, amortisation and impairment charges            99 101         34 020        (158 302)  
Net profit/(loss) for the year attributable to equity holders of the parent                 53 681         18 956        (150 142)  
Amortisation on intangibles raised through business combinations net of tax                  2 646              -               -   
and non-controlling interest                                                                                                        
Headline earnings adjustments net of non-controlling interest                                  (38)             -              39   
Core headline earnings for the year attributable to equity holders of the parent            56 289         18 956        (150 103)  
At 31 May 2017                                                                                                                      
Total assets                                                                               593 595        141 100          10 518   
Net operating assets/(liabilities)                                                         103 458         45 517         (57 239)  


Year ended 31 May 2016                                                                     Audited        Audited         Audited    
                                                                                             R'000          R'000           R'000    
Total segment revenue                                                                   32 439 100     31 934 736               -    
Internal revenue                                                                        (6 234 378)    (6 212 196)              -    
Revenue                                                                                 26 204 722     25 722 540               -    
Operating profit/(loss) before depreciation, amortisation and impairment charges         1 240 559      1 133 433          44 152    
Net profit/(loss) for the year attributable to equity holders of the parent                691 590        739 588         (31 993)   
Amortisation on intangibles raised through business combinations net of tax                                                          
and non-controlling interest                                                                16 650         11 363           2 641    
Headline earnings adjustments net of non-controlling interest                              (23 329)           135         (29 975)   
Core headline earnings for the year attributable to equity holders of the parent           684 911        751 086         (59 327)   
At 31 May 2016                                                                                                                       
Total assets                                                                             7 305 951      5 787 731         809 096    
Net operating assets/(liabilities)                                                       2 347 360      2 341 780           1 872    

Year ended 31 May 2016                                                                     Audited        Audited         Audited    
                                                                                             R'000          R'000           R'000    
Total segment revenue                                                                      307 661        196 703         119 321    
Internal revenue                                                                           (15 805)        (6 377)       (119 321)    
Revenue                                                                                    291 856        190 326               -    
Operating profit/(loss) before depreciation, amortisation and impairment charges           111 142         35 889         (84 057)   
Net profit/(loss) for the year attributable to equity holders of the parent                 61 627         16 116         (93 748)   
Amortisation on intangibles raised through business combinations net of tax                                                          
and non-controlling interest                                                                 2 646              -               -    
Headline earnings adjustments net of non-controlling interest                                1 060          5 448               3    
Core headline earnings for the year attributable to equity holders of the parent            65 333         21 564         (93 745)   
At 31 May 2016                                                                                                                       
Total assets                                                                               543 561        137 061          28 502    
Net operating assets/(liabilities)                                                          40 423         37 376         (74 091)   


Headline earnings
For the year ended 31 May
                                                                             2017          2016    
                                                                         Reviewed       Audited    
                                                                            R'000         R'000    
Profit attributable to equity holders of the parent                       786 965       691 590    
Net loss/(profit) on disposal of property, plant and equipment                 23          (360)   
Loss on disposal of intangible assets                                           -             3    
Loss on disposal of subsidiary                                                  -         5 454    
Profit on dilution of joint venture                                             -       (29 975)   
Impairment of intangible assets and property, plant and equipment             339         1 549    
Headline earnings                                                         787 327       668 261    
Headline earnings per share (cents)                                        117.98        100.35    


Financial instruments
For the year ended 31 May

Contingent considerations, included in trade and other 
payables, are level 3 financial liabilities.

Changes in level 3 instruments are as follows:
                                                                                2017          2016    
                                                                            Reviewed       Audited    
                                                                               R'000         R'000    
Contingent consideration                                                                              
Opening balance                                                               83 563       123 902    
Acquisition of Reware Proprietary Limited                                      1 150             -    
Acquisition of Utilities World Proprietary Limited                             4 516             -    
Settlements                                                                  (50 666)       (1 931)   
Gains and losses recognised in profit or loss                                 (5 589)      (38 408)   
Closing balance                                                               32 974        83 563    
Total gains or losses for the year included in profit or loss for       
liabilities held at the end of the reporting period, under:             
Other income                                                                 (10 210)      (48 120)   
Finance costs                                                                  4 621         9 712    
Unrealised gains or losses recognised in profit or loss for liabilities 
held at the end of the reporting period                                        5 304         9 127    


The fair value of the contingent consideration is estimated by applying the income approach. The fair value 
is based on the discount rates applicable to the Group and management's probability assumptions on certain 
warranties being achieved. There have been changes in management's probability assumptions in respect of 
certain of the companies. The resulting changes in the fair values are accounted for in other income in the 
statement of comprehensive income. The discount rate has been increased in line with the increase in the prime 
lending rate. The resulting changes in the fair values are accounted for in finance costs in the statement of 
comprehensive income.

The investment in Oxigen Services India, Oxigen Online and 2DFine Mauritius are viewed as venture capital 
investments and accounted for at fair value, and are level 3 instruments. Refer to "Investment and loans to 
venture capital associates and joint venture".

The Group has not disclosed the fair values of all financial instruments measured at amortised cost, as their 
carrying amounts closely approximate their fair values.


Investments and loans to venture capital associates and joint venture
For the year ended 31 May
                                                              2017   
                                                          Reviewed
                                                             R'000
Venture capital associates and joint venture               291 550
Loan to venture capital associates and joint venture       252 615
                                                           544 165


The exemption available in IAS 28 - Investments in Associate and Joint Ventures has been applied to the investment
in Oxigen Services India, Oxigen Online and 2DFine Holdings Mauritius from 30 November 2016 and the investment is
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. The differential between the carrying amount of the investment 
(previously equity accounted for) and the fair value at this date is reflected as a gain on associate measured at 
fair value in the reviewed condensed Group statement of comprehensive income. Any additional changes in the fair 
value between 30 November 2016 and year-end have also been recognised in the reviewed condensed Group statement of 
comprehensive income.

Oxigen Services India was demerged into two separate entities with effect from 1 June 2016. This was done in line 
with the Group's exit strategy to improve the marketability of these entities to potential investors.

Prior to 30 November 2016, the investment in Oxigen Services India was of a strategic nature as it was it was expected 
to emulate the business model of the South African distribution operations. The original decision to invest in this 
business was because it was strategically aligned with other Blue Label distribution businesses in South Africa. However, 
its profile has changed from that of the traditional Group business to one of generating growth in the market value of 
the investment with a view to unlocking the Group's share thereof. With the advent of its change in focus to financial 
services through wallet subscription, it is no longer strategically aligned with the other business units of the Group 
and is unlikely to generate profitability in the short to medium term. However, the market value of the company is 
expected to increase exponentially in conjunction with its growth in wallet subscribers. This in turn creates the 
potential to unlock the investment in value in the future and the Group is pursuing this new strategy with respect to its 
investment in Oxigen Services India. In line with the Group's exit strategy Oxigen Services India was demerged into two 
separate entities with effect from 1 June 2016. This was done to improve the marketability of these entities to potential 
investors.

2DFine Holdings Mauritius is an investment holding company that holds an interest in Oxigen Services India and Oxigen 
Online.

Consequently, management review the results and operations of Oxigen Services India, Oxigen Online and 2DFine Holdings 
Mauritius on a fair value basis as opposed to the profits/losses that it generates. In addition, management have 
established an exit strategy that looks to realise this fair value in the foreseeable future.

Accordingly Oxigen Services India, Oxigen Online and 2DFine Holdings Mauritius are viewed as a venture capital investment 
which, in accordance with IAS 28 - Investments in Associates and Joint Ventures has been accounted for at fair value through 
profit and loss from 30 November 2016 at which date equity accounting ceased.

Fair value estimate
The fair value of the investment in our venture capital associate Oxigen Services India and Oxigen Online are not
traded in an active market and is therefore determined by the use of a valuation technique. An independent third party has
performed a valuation using the discounted cash flow model taking into account the current and projected performance of
Oxigen Services India and Oxigen Online. These calculations use cash flow projections based on financial budgets approved
by the Board of Directors for the forthcoming year and forecasts for ten years which are based on assumptions of the
business, industry and economic growth. Cash flows beyond this period are extrapolated using terminal growth rates, which
do not exceed the expected long-term economic growth rate. 

The discount rate and terminal growth rate used in calculating the fair values are 27% and 5% respectively. Capital
expenditure in Oxigen Services India and Oxigen Online is expected to range between R166 million and R311 million
on an annual basis. Customer acquistion and engagement spend for Oxigen Services India and Oxigen Online increases
aggressively from R103 million to R2 575 million. 

The fair value of the 2DFine Group is based on its share of the fair value of Oxigen Services India and Oxigen Online
less the liabilities of the 2DFine Group. 

The finance department of the Group includes a team that outsources the valuations to qualified independent third
party valuation specialists required for financial reporting purposes, including level 3 fair values. This team reports
directly to the Financial Director (FD) and the Audit, Risk and Compliance Committee (ARCC). Discussions of valuation
processes and results are held between the FD, ARCC and the valuation team at least once every six months, in line with the
Group's reporting periods.

The investments in our venture capital associates and joint venture are level 3 valuations in the fair value
hierarchy.

The following table summarises the quantitative information about the significant unobservable inputs used in the
level 3 fair value measurement for this investment.


                                               Change to inputs                  Movement in fair value
                                                                     Oxigen Services         Oxigen Online          
                                                                       India Private      Services Private        2DFine    
                                                                             Limited               Limited        Group1
Unobservable inputs                                           %                R'000                 R'000         R'000    
Discount rate                                             +0.5%              (16 489)               (9 938)      (10 831)   
                                                          -0.5%               17 575                10 573        11 531    
Terminal growth rate                                        +1%                5 172                 2 478         3 127    
                                                            -1%               (4 625)               (2 203)       (2 791)   
Customer acquisition and engagement spend                   +1%               (5 257)               (4 348)       (3 947)   
                                                            -1%                5 257                 4 348         3 947    
Capital expenditure                                         +1%               (3 000)                 (292)       (1 333)   
                                                            -1%                3 000                   292         1 333    
1  2DFine Group consists of 2DFine Holdings Mauritius and 2DFine Investments Mauritius.


Significant related party transactions and balances
For the year ended 31 May
                                                                2017         2016    
                                                            Reviewed      Audited    
                                                               R'000        R'000    
Purchases from related parties                                                       
ZOK Cellular Proprietary Limited                              17 552       26 001    
Interest received from related parties                                               
2DFine Holdings Mauritius                                     21 159       19 879    
Loans to related parties                                                             
2DFine Holdings Mauritius                                    218 305      234 892    
Lornanox Proprietary Limited trading as Edgars Connect        75 209       65 949    
Oxigen Services India Private Limited                         34 310       38 359    
ZOK Cellular Proprietary Limited                              26 364       20 881    


Subsequent events
On 2 August 2017, Blue Label, through its wholly owned subsidiary, The Prepaid Company Proprietary Limited ("The
Prepaid Company"), acquired 45% of the issued share capital of Cell C for a purchase consideration of R5.5 billion. 
In part settlement of this amount, 183 333 333 ordinary shares in Blue Label were subscribed for by third parties 
at an issue price of R15.00 per share, equating to R2.75 billion.
 
On the same date, The Prepaid Company concluded an agreement to purchase 100% of the issued share capital in 3G Mobile
from its shareholders for a purchase consideration of R1.9 billion. 

The acquisition has been structured in two stages, whereby 47.37% of the issued share capital was initially acquired
for a purchase consideration of R900 million. The remaining 52.63% of the issued share capital will be acquired for a
further R1.0 billion, subject to the fulfilment of conditions precedent. Of the initial purchase of 47.37%, 16 666 666
ordinary shares were issued to the vendors at R15.00 per share, equating to R250 million. The balance of R650 million 
will be payable on 28 February 2018. 

As part of the restructure of the debt within Cell C by third party lenders, The Prepaid Company will be required to
provide liquidity support to Magnolia Cellular Investment 2 (RF) Proprietary Limited ("SPV2"), which is 100% held by 3C
Telecommunications Proprietary Limited ("3C"), of up to USD80 million, which liquidity support will be provided over 24
months and will be in the form of subordinated funding to SPV2. Oger Telecoms contributed USD20 million of the aforesaid
USD80 million thus reducing The Prepaid Company's obligation in this regard to a maximum of USD60 million. In addition,
to the extent that certain assets of Oger Telecoms are realised within the aforesaid 24 month period, a portion of such
realisation shall further reduce The Prepaid Company's obligation. In this regard, USD16 million has been realised to
date, thereby reducing its current exposure to a maximum of USD44 million. 

The Prepaid Company, with effect from 2 August 2017, purchased Bond notes, issued by Cedar Cellular Investments 1
Proprietary Limited ("SPV1"), which is 100% held by 3C, from Saudi Oger Limited with a capital redemption value of 
USD18 million and with a coupon rate of 8.625% per annum for a purchase consideration of USD18 million, of which 
USD6 million has been paid, USD3 million will be payable on 30 September 2017 and USD9 million on 30 November 2017. 
The Prepaid Company is entitled to assign its rights and obligations, in whole or in part, to a nominee. Accordingly, 
it has assigned such rights and obligations in respect of 50% of the Bond notes, which assignment has been accepted by 
the assignee. 

The Prepaid Company concluded an agreement with Cell C on 2 August 2017 in terms of which it has undertaken to advance
R1.34 billion on a piecemeal basis for the purpose of applying such funds towards capital expenditure. This advance,
which is interest bearing, will be repayable in full by the end of July 2018. 

Subsequent to year-end, dividend number 8 was declared and approved by the Board.

Basis of preparation
The reviewed condensed Group financial statements for the year ended 31 May 2017 have been prepared in accordance with
the requirements of the JSE Limited Listings Requirements for provisional reports and the requirements of the Companies
Act of South Africa. The Listings Requirements require provisional reports to be prepared in accordance with the framework 
concepts and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS") as
issued by the International Accounting Standards Board ("IASB"), the preparation and disclosure requirements of IAS 34
Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Reporting Pronouncements as issued by Financial Reporting Standards Council ("FRSC"). 

The accounting policies applied in the preparation of the reviewed condensed Group financial statements are in terms
of IFRS and are consistent with those applied in the previous consolidated annual financial statements as at 31 May 2016.
The Group has adopted all new and amended accounting pronouncements issued by the IASB that are effective for financial
years commencing 1 June 2016. None of the new or amended accounting pronouncements that are effective for the financial
year commencing 1 May 2016 had a material impact on the Group.


Non-IFRS information
The auditor's report does not necessarily cover all of the information contained in this announcement. Shareholders
are therefore advised that in order to obtain a full understanding of the nature of the auditor's work they should obtain
a copy of that report together with the accompanying financial information from the registered office of the Company.
This announcement contains certain non-IFRS financial information which has not been reviewed or reported on by the
Group's auditors.

Directors: LM Nestadt (Chairman)*, BM Levy, MS Levy, K Ellerine**, GD Harlow*, P Mahanyele* (appointed 1 September 2016), 
Y Mahomed* (resigned 11 January 2017), JS Mthimunye*, DA Suntup, J Vilakazi*
(*Independent non-executive) (**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: 1:10

Depository: BNY Mellon, 101 Barclay Street, New York NY, 10286, USA


www.bluelabeltelecoms.co.za

Date: 24/08/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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