Directors' report
The Directors have pleasure in presenting the Group and Company annual financial statements of Blue Label Telecoms Limited (Blue Label Telecoms or the Company) and its subsidiary, associate and joint venture companies (the Group) for the year ended 31 May 2017.
Principal activities and strategy
Blue Label Telecoms’ core business is the virtual distribution of secure electronic tokens of value and transactional services across its global footprint of touch points. The Group’s stated strategy is to extend its global footprint of touch points, both organically and acquisitively, to meet the significant demand for the delivery of multiple prepaid products and services through a single distributor, across various delivery mechanisms and via numerous merchants or vendors.
Financial results
The Group recorded a net profit after tax attributable to equity holders for the year ended 31 May 2017 of R787 million (2016: R692 million). Full details of the financial position and results of the Company, the Group and its segments are set out in the annual financial statements and Group annual financial statements. The Group and Company annual financial statements for the year ended 31 May 2017 were approved by the Board and signed on its behalf on 23 November 2017.
Going concern
The financial statements have been prepared on the going concern basis, since the Directors have every reason to believe that the Blue Label Telecoms Group and the Company have adequate resources in place to continue in operation for the foreseeable future.
Acquisitions
The Group’s effective shareholding in Oxigen Services India Private Limited (OSI) prior to April 2017 was 58.18%. Of this shareholding, 40.96% was held by Gold Label Investments (GLI), a wholly owned subsidiary of the Group and 17.21% indirectly through the Group’s 50% shareholding in 2DFine Holdings Mauritius. In April 2017, a rights issue was offered by OSI for USD1.5 million. The Group exercised its rights for the entire amount through GLI congruent with 2DFine Holdings Mauritius waiving its rights. The effect of this is that GLI’s shareholding has increased from 40.96% to 41.96% and its indirect shareholding of 17.21% has been diluted to 16.92%. The Group’s effective shareholding in OSI therefore increased by 0.7% to 58.88%.
Blue Label Telecoms acquired 25.1% of Utilities World on 1 June 2016 for a payment of R7.5 million and a further contingent payment of R5.0 million.
Refer to note 2.1 of the Group annual financial statements for further information.
Share capital
Full details of the authorised, issued and unissued capital of the Company at 31 May 2017 are contained in note 6 of the Group annual financial statements. There were no shares issued during the financial year ended 31 May 2017 (2016: nil).
Subsequent events
Subsequent to year-end, dividend number 8 was declared and approved by the Board.
On 2 August 2017, Blue Label, through its wholly owned subsidiary, The Prepaid Company Proprietary Limited (The Prepaid Company), acquired 45% of the issued share capital of Cell C Proprietary Limited (Cell C) for a purchase consideration of R5.5 billion. Of this amount, 183 333 333 ordinary shares were subscribed for by third parties at an issue price of R15.00 per share, equating to R2.75 billion.
On the same date, The Prepaid Company concluded an agreement to purchase 100% of the issued share capital in 3G Mobile Proprietary Limited (3G Mobile) from its shareholders for a purchase consideration of R1.9 billion.
The acquisition has been structured in two stages, whereby 47.37% of the issued share capital was initially acquired for a purchase consideration of R900 million. The remaining 52.63% of the issued share capital will be acquired for a further R1.0 billion, subject to the fulfilment of conditions precedent. Of the initial purchase of 47.37%, 16 666 666 ordinary shares were issued to the vendors at R15.00 per share, equating to R250 million. The balance of R650 million will be payable on 28 February 2018.
As part of the restructure of the debt into Cell C by third party lenders, The Prepaid Company will be required to provide liquidity support to Magnolia Cellular Investment 2 (RF) Proprietary Limited (SPV2), which is 100% held by 3C Telecommunications Proprietary Limited of up to USD80 million, which liquidity support will be provided over 24 months and will be in the form of subordinated funding to SPV2. Oger Telecoms contributed USD20 million of the aforesaid USD80 million thus reducing The Prepaid Company’s obligation in this regard to a maximum of USD60 million. In addition, to the extent that certain assets of Oger Telecoms are realised within the aforesaid 24 month period, a portion of such realisation shall further reduce The Prepaid Company’s obligation. In this regard, USD16 million has been realised, thereby reducing its exposure to a maximum of USD44 million.
With effect from 2 August 2017 The Prepaid Company purchased Bond notes, issued by Cedar Cellular Investments 1 Proprietary Limited, from Saudi Oger Limited with a capital redemption value of USD18 million and with a coupon rate of 8.625% per annum for a purchase consideration of USD18 million, of which USD6 million has been paid, USD3 million will be paid imminently and USD9 million will be payable on 30 November 2017. The Prepaid Company was entitled to assign its rights and obligations, in whole or in part, to a nominee. Accordingly, it has assigned such rights and obligations in respect of 50% of the Bond notes, which assignment has been accepted by the assignee.
On 2 August 2017 The Prepaid Company concluded an agreement with Cell C in terms of which it has undertaken to advance R1.34 billion on a piecemeal basis for the purpose of applying such funds towards capital expenditure. This advance, which is interest bearing, will be repayable in full by the end of July 2018.
Dividend
On 23 August 2017 the Board approved a dividend of 40 cents per ordinary share. The dividend in respect of ordinary shares for the year ended 31 May 2017 of R349 803 616 has not been recognised in the financial statements as it was declared after this date. The salient dates are as follows:
| Last date to trade cum dividend | Tuesday, 12 September 2017 |
| Shares commence trading ex dividend | Wednesday, 13 September 2017 |
| Record date | Friday, 15 September 2017 |
| Payment of dividend | Monday, 18 September 2017 |
Share certificates may be dematerialised or rematerialised between Wednesday, 13 September 2017 and Friday, 15 September 2017, both days inclusive.
Before declaring the final dividend the Board applied the solvency and liquidity test on the Company and reasonably concluded that the Company will satisfy the solvency and liquidity test immediately after payment of the final dividend. The final dividend will be paid 24 days after the Directors have performed the solvency and liquidity testing.
Dividend tax is provided for at 20% of the amount of any dividend paid by Blue Label Telecoms, subject to certain exemptions. The dividend tax is a tax borne by the beneficial owner of the dividend and will be withheld by either the issuer of the dividend or by regulated intermediaries.
Directorate
The following are the details of the Company’s Directors
| Name | Office | Appointment date | Date and nature of change | |
| Larry M Nestadt | Independent Non-Executive Director | 5 October 2007 | — | |
| Brett M Levy | Joint Chief Executive Officer | 1 February 2007 | — | |
| Mark S Levy | Joint Chief Executive Officer | 1 February 2007 | — | |
| Kevin M Ellerine | Non-Executive Director | 8 December 2009 | — | |
| Gary D Harlow | Independent Non-Executive Director | 5 October 2007 | — | |
| Phuti Mahanyele | Independent Non-Executive Director | 1 September 2016 | Appointed 1 September 2016 | |
| Yusuf Mahomed | Independent Non-Executive Director | 18 August 2015 | Resigned 11 January 2017 | |
| Joe S Mthimunye | Independent Non-Executive Director | 5 October 2007 | — | |
| Dean A Suntup | Financial Director | 14 November 2013 | — | |
| Jeremiah S Vilakazi | Independent Non-Executive Director | 19 October 2011 | — |
Directors’ interests
The individual interests declared by Directors in the Company’s share capital as at 31 May 2017, held directly or indirectly, were as follows:
| Nature of interest | ||||||||
| Direct beneficial | Indirect beneficial | |||||||
| Director/officer | 2017 | 2016 | 2017 | 2016 | ||||
|---|---|---|---|---|---|---|---|---|
| BM Levy | 63 155 047 | 62 883 164 | 21 272 778 | 21 272 778 | ||||
| MS Levy | 55 747 639 | 55 475 756 | 21 272 777 | 21 272 777 | ||||
| KM Ellerine | — | — | 266 667 | 266 667 | ||||
| GD Harlow | — | — | 2 414 815 | 2 414 815 | ||||
| P Mahanyele | — | — | — | — | ||||
| Y Mahomed | — | — | — | 12 500 | ||||
| JS Mthimunye | 30 000 | 30 000 | 5 000 | 5 000 | ||||
| LM Nestadt | — | — | 8 204 674 | 8 204 674 | ||||
| DA Suntup | 658 545 | 540 005 | 3 877 778 | 3 877 778 | ||||
| JS Vilakazi | — | — | — | — | ||||
The aggregate interest of the current Directors in the capital of the Company was as follows:
| Number of shares | ||||
| Director/officer | 2017 | 2016 | ||
|---|---|---|---|---|
| Beneficial | 176 905 720 | 176 255 914 | ||
The beneficial interest held by Directors and officers of the Company constitutes 26.48% (2016: 26.46%) of the issued share capital of the Company.
Post year-end and prior to the approval of the annual financial statements, JS Mthimunye has increased his indirect beneficial interest by 20 000 shares and his direct beneficial interest by 15 000 shares.
Details of Directors’ emoluments and equity compensation benefits are set out in note 5.3 of the Group annual financial statements and details of the forfeitable share plan are set out in note 5.2.
Resolutions
On 8 December 2016 the Company passed and filed with the Companies and Intellectual Property Commission the following special resolutions:
- approving the remuneration of non-executive directors;
- granting a general authority to repurchase the Company’s shares;
- granting financial assistance in terms of section 44 and 45 of the Act; and
- approving fraction of shares amendment of memorandum of incorporation.
Except for the aforementioned, no other special resolutions, the nature of which might be significant to shareholders in their appreciation of the state of affairs of the Group, were passed by the Company or its subsidiaries during the period covered at the date of signing these Group and Company annual financial statements.
Company Secretary
The Board is satisfied that Ms J van Eden has the requisite knowledge and experience to carry out the duties of a company secretary of a public company in accordance with section 88 of the Act and is not disqualified to act as such. She is not a director of the Board and maintains an arm’s-length relationship with the Board.
The business and postal address of the Company Secretary appear on the Company’s website at www.bluelabeltelecoms.co.za.
American depository receipt facility
Blue Label Telecoms has a sponsored American depository receipt facility. The facility is sponsored by BNY Mellon and details of the administrators are reflected on the Company’s website.
Auditors
PricewaterhouseCoopers Inc. will continue in office in accordance with section 90(6) of the Companies Act.
Larry Nestadt
Chairman