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BLUE LABEL
INTEGRATED ANNUAL REPORT 2017
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28
Financial Director’s report
continued
Revenue
Although growth in revenue was
confined to R107 million, revenue
generated on “PINless top-ups”
escalated, congruent with the
continued shift in consumer buying
patterns from the traditional
purchasing of airtime to that of
“PINless top-ups”. As only the
commission earned thereon is
accounted for, the effective growth
in group revenue equated to 7%.
Gross profit
The increase in revenue, underpinned
by an improvement in gross profit
margins from 6.98% to 8.26%,
resulted in gross profit increasing by
R343 million (19%) to R2.17 billion.
The improvement in margins was
attributable to a hybrid of additional
discounts received on early settlement
payments and compounded annuity
revenue.
Overheads
Overheads, comprising employee
costs and operating expenses,
increased by 20% to R858 million,
of which the former accounted for
6% and the latter 41%.
The increase in operating expenses
was predominately due to foreign
exchange losses incurred as well
as sponsorship costs both totalling
R81 million.
EBITDA
After accounting for a negative
turnaround in foreign exchange
movements of R126 million, a net
negative movement of R38 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.
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.
Gain on associates and joint
venture measured at fair
value
With effect from 30 November 2016,
Oxigen Services India and 2DFine have
been accounted for as venture capital
investments. The differential between
the carrying value of the investments
and their fair values amounted to
R160 million and has been accounted
for as a gain on associate and joint
venture measured at fair value. This
is further elaborated on in the
International Distribution segment,
under “Oxigen Services India and
2DFine Holdings Mauritius”.
Share of losses from
associates and joint ventures
The Group’s share of losses primarily
related to Oxigen Services India,
2DFine and BLM.
The financial performance of Oxigen
and 2DFine for the six months ended
November 2016 was equity accounted
for, of which the Group’s share of
losses amounted to R125 million.
Consequently, any further losses
incurred by Oxigen and 2DFine
Holdings Mauritius, from that date,
will have no impact on Group
earnings. The investment therein will
continue to be measured at fair value.
The Group’s share of losses in BLM
amounted to R37 million after the
amortisation of intangible assets.