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Currently viewing: Conversation with Joint Chief Executive Officers / Next: Governance framework CONVERSATION WITH JOINT CHIEF EXECUTIVE OFFICERS
BLUE LABEL IS A DISTRIBUTOR OF VIRTUAL GOODS We are the leaders in what we do. In South Africa, where we started commercialising our innovation, we now distribute various categories of goods and services: prepaid airtime and starter packs, prepaid electricity, ticketing, merchant acquiring, bill payments and financial services. Our footprint across India, Mexico and the UK also continues to expand. Blue Label is a lifestyle enabler. Through the deployment of a myriad of different types of touch points, we are able to deliver products and services in an effective and efficient manner, while capable of facilitating convenient and suitable payments – be it cash, EFT, debit and credit cards. As we say ‘If it can be digitised it can be distributed by us’. BLUE LABEL IS ANALOGOUS TO A VIRTUAL RAILROAD DELIVERING PREPAID GOODS AND SERVICES The more often we repeat this analogy, the easier it is to follow it. Our business is about the distribution of secure electronic tokens of value and services, and can be compared to a virtual railroad. We commenced building our virtual railroad with our proprietary platform, AEON, as the enabling carrier for transactions, which in this analogy are the tracks and locomotive. Each additional product is another carriage on the train. Incremental costs are minimal, because the heavy lifting to establish the distribution network is already in place, which results in profit margins filtering straight through to the bottom line. The importance of distribution is how we leverage the last mile of our distribution channel which we have built. Whoever manages the last mile of the channel, actually owns the ability to extend products and services into the channel. Since the point-of-sale terminal is always located in the last mile, the person managing it decides what products and services may be sold from it. We are a B2B distribution and payments company, where our proprietary platform acts as a neutral aggregator in delivering products and services. We should not be likened to the more capital intensive mobile network operators, as our capital expenditure is mostly geared to the production of income, supported by an inexpensive, yet sophisticated, POS device. BARRIERS TO ENTERING OUR MARKETS Some of these barriers to entry are our greatest assets, which fortify our foundations:
OUR COMPETITIVE EDGE DIFFERENTIATES US We see few competitors in the horizontal plane, i.e. there are only a minimal number of names that offer the same breadth of products and services as we do. In the individual verticals of product or service, we do experience competitors facing up to us from time to time. This immediately provides us with an edge, as we have more products and services to spread across our cost base. We are able to identify the following factors which differentiate us in the market:
The Group’s entrepreneurial ethos may also set us apart from competitors. SKILLS DEVELOPMENT, SUCCESSION PLANNING AND A ‘CAN-DO CULTURE’ Technological developments continue to drive the Group. Consequently, we are required to identify, hire, develop and retain a large number of talented and skilled engineers and specialists. We have a number of initiatives in place to address this need, including training and succession planning. We continually strive to retain and instil our entrepreneurial culture across the organisation. Therefore, it is probably no coincidence that we see high levels of entrepreneurialflair among our staff complement, business partners and associates. We can identify a number of traits which characterise us, viz. our attitude to life, the will to achieve, and our spirit and vision, all of which are encapsulated in our ‘can-do culture’. ACTIVE PIPELINE OF ACQUISITIONS In delivering on our stated M&A strategy, we consider acquisitions that are earnings enhancing, add to our product line, distribution network or geography and which are of a strategic or defensive play. Internationally, we have impressive partners with whom we could consider extending growth opportunities.
EXPANDING OUR PRODUCT RANGE TO INCLUDE THREE MORE CATEGORIES OF PRODUCTS AND SERVICES In addition to distributing prepaid airtime and electricity, we have now introduced two more categories of products and services, as our plan to extend financial inclusion to more communities continues to unfold:
TURBULENCE IN THE SOUTH AFRICAN MARKET Ultimately, the economic health of consumers in certain LSM groups, particularly those affected by industrial action, gives us occasional cause for caution. Our policy on margin compression remains consistent. Any change in price is passed onto the distribution channel, although we acknowledge it does place pressure on our distribution planning, as merchants then seek more value-added products and services from us. Cognisant of change, our recent analysis of the route to market is informing us as to where to build on existing strengths, and is identifying new opportunities to entrench our distribution footprint in urban and rural areas – be it in independent and wholesale channels or petroleum forecourts. OPERATING PERFORMANCE – SOUTH AFRICA The South African business remains the predominant contributor to the Group’s profitability. Currently, we are investing in our distribution channel, mainly by expanding ourfleet of trucks and team of accompanying foot soldiers. Income is derived from three main pillars: the sales of commodities (such as airtime and electricity), income from annuity transactions (from our SIM card base, contractual Vodacom starter packs and location-based services and other subscription services) and interest earned on surplus cash. Over the years we have aggressively innovated, adapted and diversified our business model to prevailing circumstances. Examples are the introduction of prepaid electricity, formalising the business into a number of categories of products and identifying discounting opportunities in bulk purchasing of inventory and on early settlement discounts. INTERNATIONAL DISTRIBUTION In both Mexico and India, the catalyst for growth is in strategically augmenting our range of products and services, while expanding our distribution footprint. This requires rolling out higher-specification devices in both countries.
MEASURING GROWTH We believe our growth should be measured by gross profit or gross margin achieved. This is because there is an increasing trend for us to act as an agent on sales of certain products and services, of which only the commission or gross profit earned and not the face value of the sale, is included in the revenue line. The popularity of PINless products continues to grow as evidenced by consumer buying patterns. In distributing PINless products, such as ‘direct top-ups’, only the gross profit earned on such sales are included in revenue. The same approach applies to how we account for electricity sales, where we act as the agent on behalf of the utilities and not as principal. This means that only the commissions earned by us, and not the face value of the sales, are included in revenue. On imputing the gross sales generated in PINless airtime, Group revenue effectively increased by 6%.Gross profit increased by R78 million to R1.35 billion supported by margin increases from 6.70% to 6.96%. Operations continue to generate strong levels of cash, enabling the Group to consider further acquisitions and to continue to declare dividends to shareholders.
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| Blue Label Integrated annual report 2014 |