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FINANCIAL REVIEW EBITDA increased by 10% to R788 million, emanating from revenue growth of 2% to R19.4 billion, an increase in gross profit margins of 0.26% and limiting additional overheads to 3%. Headline earnings per share increased to 67.98 cents. The gross profit margin increase was mainly attributable to the application of cash resources to bulk inventory purchases at favourable rebates and early settlement discounts. Further growth was attributable to increases in commissions earned on the distribution of prepaid electricity, with turnover generated on behalf of the utilities, escalating to R8.8 billion. Share of net losses of R57 million from associates and joint ventures, mainly attributable to BLM, negatively impacted headline earnings by 9 cents per share. Expenditure incurred by BLM on the roll-out of point-of-sale devices on a national scale is in line with its strategy to enhance its product and service offerings, the benefits of which are expected to materialise in the future. In April 2014, the Group acquired RMCS, an enhanced s rvice provider of telecommunication products and services, content, data and allied activities, via physical and virtual mediums. This acquisition will afford the Group access to new channels for the distribution of both RMCS and its products and services. Cash resources accumulated to R1.2 billion of which R907 million was generated from operating activities.
REVENUE Revenue of R19.4 billion does not include the turnover of Oxigen Services India, Blue Label Mexico and Ukash, as these international associate and joint venture companies are equity accounted for only. The vending of “PINless top-ups” continues to gain momentum as a convenient and alternative mechanism for the distribution of prepaid airtime. Only the gross profit earned thereon is accounted for in Group revenue as opposed to the gross revenue generated from transactions of this nature. These sales increased from R997 million to R1.7 billion, equating to an effective increase in Group revenue of 6% as opposed to 2%. GROSS PROFIT Gross profit increased by R78 million (6%) with margins increasing by 0.26% from 6.70% to 6.96%. The increase in gross profit margins was achieved through the application of cash resources to bulk inventory purchases at favourable rebates and early settlement discounts. Further growth was attributable to increases in commissions earned on the distribution of prepaid electricity, with turnover generated on behalf of the utilities escalating to R8. 8 billion. OVERHEADS Overheads comprising employee costs and operating expenses totalled R588 million, confining an increase to R15 million (3%). EBITDA The resultant EBITDA amounted to R788 million, an increase of 11% before headline earnings adjustments. DEPRECIATION AND AMORTISATION Depreciation, amortisation and impairment charges decreased by R0.6 million. The amortisation of intangible assets, in terms of purchase price allocations, declined by R2.5 million in line with the expiration of useful tenure. This was offset by an increase in depreciation on the remainder of the Group’s assets by R1.9 million. FINANCE COSTS Finance costs totalled R167 million, of which R23 million related to interest paid on borrowed funds and R144 million to imputed IFRS interest adjustments on credit received from suppliers. On a comparative basis, interest paid on borrowed funds amounted to R24 million and the imputed IFRS interest adjustment equated to R143 million. Interest paid was attributable to the cost of financing bulk inventory purchase transactions and early settlement payments attracting discounts, for which facilities were utilised and repaid during the current year. FINANCE INCOME Finance income totalled R156 million, of which R39 million was attributable to interest received on cash resources and R117 million to IFRS interest adjustments on credit provided to customers. On a comparative basis, interest received on cash resources amounted to R45 million and the imputed IFRS interest adjustment to R128 million. The decline in interest received was attributable to the partial utilisation of funds on hand for bulk inventory purchase transactions, early settlement discounts as well as for the funding of the acquisitions of RMCS and a distribution channel. NON-CONTROLLING INTEREST Minority share of net losses decreased by R15.6 million to R1.3 million. Of this decrease, R10.4 million was attributable to a reduction in expenditure incurred by APSN as well as to the dilution of minority shareholding therein by 24.01% in the prior year and a further dilution by 18% in APS SA in January 2014. A further R5.2 million was attributable to an increase in minority share of profits in Transaction Junction. SHARE OF PROFIT FROM ASSOCIATES The share of profits of R8.4 million was mainly attributable to the Group’s net share of earnings of Ukash and Oxigen Services India. SHARE OF LOSSES FROM JOINT VENTURES The share of losses of R65 million was mainly attributable to the Group’s 45.57% share of Blue Label Mexico. HEADLINE EARNINGS Headline earnings increased by 6% to R451 million and headline earnings per share increased by 6% to 67.98 cents.
Although the South African distribution segment continues to dominate contribution to Group profitability, growth in EBITDA was confined to 3% due to costs incurred for future growth in its distribution channel as well as margin compression caused by competitive forces. The increase in revenue of 2%, effectively equating to 6% on imputing the gross revenue generated from “PINless top-ups”, and gross profit margin increases, resulted in the growth in EBITDA by 3% to R821 million. These earnings were inclusive of extraneous costs of R19 million that were incurred in the settlement of a contractual dispute and the early termination of a profit share agreement. EBITDA margins increased from 4.26% to 4.30%. Net commissions earned on the distribution of prepaid electricity increased by R20 million to R133 million (17%) on revenue generated on behalf of the utilities that increased from R7.2 billion to R8.8 billion. Core net profit declined by 2% primarily due to a reduction in net finance income of R15 million net of taxation. This was congruent with the application of cash resources to bulk purchasing transactions, early settlement discounts and the cost of funding acquisitions.
The positive movement in EBITDA was attributable to a decline in legal fees incurred by Africa Prepaid Services Nigeria from R31 million to R20 million and foreign exchange movements of R6 million. The share of net losses from associates and joint ventures comprised the following: UKASH The Group’s share of profits in Ukash, after the amortisation of intangible assets, increased from R7.3 million to R14.1 million. Of this growth, R2.1 million was attributable to foreign exchange gains and a consolidation adjustment of R3.2 million. Organic growth resulted from increases in revenue of 14%, gross profit of 20% and EBITDA of 7%, all reported in their local currency. OXIGEN SERVICES INDIA Although revenue increased by 27% at static margins, the Group’s share of losses increased by R2.7 million to R3.2 million. Expenditure increased in line with the strategy to focus on the growth of financial services transactions, facilitated by its vast network of points of presence. Implementation of this strategy requires working capital, improvements in IT infrastructure along with additional personnel and other resources. Oxigen Services India aims to become India’s first non-banked mobile wallet that empowers the unbanked masses to instantly transfer and receive cash across the entire country. Its money transfer services are currently transacting at USD2.3 million per day, increasing exponentially through its connectivity with the National Payment Corporation of India. This provides instantaneous services to its retail network in India. BLUE LABEL MEXICO In the comparative year, BLM incurred losses to the equivalent of R113 million of which the Group’s share equated to R51 million after the amortisation of intangible assets. In the current year, BLM’s losses increased to an equivalent of R131 million, of which the Group’s share equated to R61 million. Of this amount, R9 million was attributable to foreign exchange movements. Although revenue in local currency increased by 43%, increases in expenditure and depreciation, necessitated by an aggressive roll-out of point-of-sale devices and ancillary support required thereon, were the fundamental causes for the increase in losses. At the end of the financial year, 91 409 point-of-sale devices had been installed.
This segment comprises Cellfind, Panacea Mobile, Blue Label Engage, Simigenix and Blue Label One. Of the revenue growth of R1.2 million, Panacea, Blue Label Engage and Cellfind contributed R18 million. This was offset by a decline of R13 million in revenue generated by the projects and media divisions of Blue Label One. A further R4 million was attributable to the disposal of Content Connect Africa during the comparative year. The negative performance of Blue Label One manifested itself in neutral growth in core net profit for this segment. Positive growth contributions of R7 million to core net profit by the other companies within this segment were entirely offset by movement in losses incurred by Blue Label One. As a result, the latter has been restructured in order to avoid repetition of its negative performance.
The Solutions segment houses Blue Label Data Solutions (BLDS), Velociti, Forensic Intelligence Data Solutions, Datacision, Blue Label Call Centre and CNS Call Centre. BLDS contributed R26 million to EBITDA translating to R13 million at core net profit level.
The decline in losses was directly attributable to the forfeiture of executive bonuses. STATEMENT OF FINANCIAL POSITION Total assets increased by R782 million to R6.5 billion, of which growth in non-current assets accounted for R458 million and current assets for R324 million. The increase in non-current assets was mainly attributable to a net growth in intangible assets and goodwill of R300 million, capital expenditure net of depreciation of R9 million and to investment in associates and joint ventures of R74 million. The increase in intangible assets and goodwill was mainly attributable to the acquisition of RMCS, of which goodwill equated to R206 million and intangibles R104 million. A further R84 million was incurred for the purchase of a distribution channel. Amortisation of intangibles amounted to R95 million. The increase in investment in associates and joint ventures was predominantly due to an additional R89 million capital contribution to Blue Label Mexico, movement in loans of R11 million, unrealised foreign exchange gains of R16 million and a positive impact of R26 million in foreign currency translation reserves, offset by a dividend received from Ukash of R11 million and share of net losses incurred of R57 million. The net movement in current assets mainly comprised growth in cash resources of R243 million, an increase in accounts receivable of R643 million, offset by a decline in inventories of R552 million. The debtors collection period extended from 38 days reported at the interim reporting date to 40 days. In line with the decline in inventory, the stock turn improved from 33 days reported at the interim reporting date to 26 days. The net profit attributable to equity holders of R450 million, less a dividend of R169 million, resulted in an accumulation of retained earnings to R2.2 billion. Trade and other payables increased by R476 million with credit terms averaging 55 days. STATEMENT OF CASH FLOWS Cash flows from operating activities totalling R907 million, the dividend received of R11 million from Ukash and loans recovered of R29 million were applied to investing activities relating to the purchase of intangible assets to the extent of R103 million, acquisitions of R273 million, additional funding of R86 million to Blue Label Mexico and capital expenditure of R46 million. A further R197 million was applied to financing activities, of which R11 million was expended on the acquisition of treasury shares, dividends paid of R169 million and the acquisition of non-controlling interests totalling R16 million. The net increase in cash and cash equivalents amounted to R243 million, resulting in cash resources accumulating to R1.2 billion. FORFEITABLE SHARE SCHEME Forfeitable shares totalling 2 782 541 (2013: 3 496 103) were issued to qualifying employees. During the year 1 074 880 (2013: 1 285 962) shares were forfeited and 3 629 922 (2013: 2 700 513) shares vested. DIVIDEND NO 5 The Group’s current dividend policy is to declare an annual dividend. On 19 August 2014 the Board approved a gross ordinary dividend (number 5) of 27 cents per ordinary share (22.95 cents per ordinary share net of dividend withholding tax) for the year ended 31 May 2014. This dividend of R182 117 441, inclusive of withholding tax, equates to a 2.48 cover on headline earnings. The dividend for the year ended 31 May 2014 has not been recognised in the financial statements as it was declared after this date. LITIGATION UPDATE Further to the litigation update as disclosed in note 35 to the Group annual financial statements, subsequent events post this disclosure with regard to the Multi-links litigation took place. Parties have agreed that the trial will commence on 10 August 2015 and it is expected that the court will confirm this date shortly. APPRECIATION I wish to express my gratitude to the Group’s finance team for their professional input and dedication. Dean Suntup 22 October 2014 |
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| Blue Label Integrated annual report 2014 |