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BLUE LABEL INTEGRATED ANNUAL REPORT 2016
28
Conversation with Joint Chief Executive Officers
continued
Developing brand awareness and
visual identity are keys to acquiring
both online and offline wallets.
Accordingly, during the second half of
the financial year, significant
expenditure was incurred in marketing
the brand and the acquiring of
wallets. This resulted in the online
part of the business incurring losses,
with the effect that the Group’s net
share of losses in Oxigen Services
India amounted to R28 million.
At the end of the previous financial
year, the total wallet subscribers
amounted to 5.4 million. At the end
of the current year, this subscriber
base has increased to 22.6 million, the
bulk of which was congruent with the
expenditure incurred in the second
half of the financial year.
The Group’s share of losses in Blue
Label Mexico was R63.3 million, a
decrease of 28% from the previous
year. Although the telco sector is
highly competitive, declining losses
were attributable to increases in
revenue by 14% and gross profit by
R67 million, underpinned by higher
gross profit margins and a focus on
cost efficiencies. Further declines in
losses are expected.
Measuring Group
performance
This year, Group earnings gained
momentum, resulting in headline
earnings increasing by 22% to
R668 million. Revenue increased by
19% to R26.2 billion. We do not
measure an increase in revenue as
indicative of the Group’s growth.
Rather, we believe growth should be
measured by gross profit achieved, as
there is an increasing trend for us to
act as agent on products. This means
that only the gross profit or
commission earned, not the face
value of the sale, is included in the
revenue line.
As an illustration, growth continues
to escalate in “PINless top-ups”
distributed as an alternative
mechanism for vending prepaid
airtime.
An example of our reliance on the
gross profit metric is our accounting
treatment of prepaid electricity and
water sales, where we act as the
agent on behalf of utilities. Only the
commission earned on these sales is
included in revenue, not the product’s
face value.
Gross profit increased by 11% to
R1.8 billion. The contraction in gross
profit margin from 7.46% to 6.98%
was directly attributable to additional
margin incentives afforded to large
and long-term distributors, which in
part boosted our revenue.
We pride ourselves in working smart
in order to perform exceptionally. We
often deploy funds for financing bulk
inventory purchases or for making
early settlement payments, where
favourable discount rates are
obtainable.
We think of our culture as a “can-do
company”. This ethos speaks to our
tenacious entrepreneurial and creative
spirit complemented by robust
internal controls and due processes.
We believe we are unique – our
achievements in building the Group,
our proprietary AEON technology, the
UniPIN prepaid electricity voucher, and
various unique selling points such as
our ticketing engine and online
wallets, to name a few.
Our values (see page 2) were selected
and ranked by the staff. We celebrate
achievements by embodying our
values in a charter that ensures their
longevity in our working culture.
Forward integration – retail
strategy
The retail strategy complements our
existing distribution channels. By
extending reach in the formal retail
sector, we can amplify our footprint
and capitalise on opportunities in
“managing the last mile” of the
distribution chain.
The Group has a strong track record
on importing hardware, such as POS
devices, tablets, phablets and phones,
gained through varying economic
cycles. A derisked model is pursued,
with the bulk of stock (by value)
pre-ordered and the remainder held
on consignment in store. Certain
products, for example, cellphones, sell
better in retail outlets, with customers
preferring to purchase and activate
them in a personalised, hands-on,