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BLUE LABEL
INTEGRATED ANNUAL REPORT 2017
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How we operate
The distribution model is based on
strategic partnerships between
ourselves and our suppliers and
customers which are underpinned by
long-term contracts. These inevitably
evolve into constructive relationships
where customers in our ecosystem
become our partners. The integrity of
these relationships enables the model
to continuously develop and evolve.
Blue Label derives income from three
main pillars: the sale of commodities
(such as airtime, electricity and
ticketing), annuity transactions (from
our starter pack base, location-based
services, content and other
subscription services) and interest
earned on any surplus cash generated.
The discount structure is based on
long-term contracts with network
operators and other product and
service providers, which cover
payment terms, annuity and
commissions receivable. Discounts
received are shared with merchants
in the distribution channel as an
incentive to distribute our
merchandise. In turn, the Group
channels merchants’ feedback and
manages all their field support
requirements, in addition to supplying
products, services and marketing
materials, as well as looking at
building their future needs.
Group performance
Group earnings continue to increase
organically, primarily attributable to
the South African Distribution
segment raising its contribution to
core headline earnings by 19%. Group
core headline earnings increased by
17% to R801 million.
Group revenue remained static at
R26.3 billion, congruent with an
escalating shift in consumer buying
patterns from traditional purchasing
of airtime to that of “PINless top-ups”.
Only the gross profit earned thereon is
accounted for in revenue, as opposed
to the gross amount of such
transactions. On imputing such
amounts the effective growth in
revenue would have equated to 7%.
Gross profit increased by 19% to
R2.2 billion, in line with an increase
in margin from 6.98% to 8.26%.
In measuring performance, we place
reliance on gross profit as a growth
metric rather than revenue. A further
example of our preference for
measuring gross profit is in our
accounting treatment of prepaid
electricity, PINless airtime and water
sales. We act as the agent on behalf of
utilities, as only the commission
earned on these sales is included in
revenue, and not the product’s face
value.
South Africa’s core business
South African Distribution segment is
the predominant contributor to Group
profitability. Revenue remained
consistent at R25.8 billion. However,
revenue generated on “PINless
top-ups” increased by R2 billion to
R6.1 billion, equating to an effective
growth in revenue of 7%, as only the
commissions earned thereon are
recognised.
This year the management team was
enhanced by the appointment of
experienced professionals in
distribution.
International segment
The investment in Oxigen was initially
of a long-term nature as it was
expected to emulate the business
model of the South African
distribution operations. However, its
profile has changed from that of the
traditional Group business model to
one of generating growth in the