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CommentaryFINANCIAL REVIEW The company's performance for the year ended 31 May 2009 demonstrated continued growth in spite of the world economic downturn. Secure prepaid electronic tokens of value have demonstrated their resilience. The growth achieved by the group was predominantly organic. Basis of preparation The condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 - Interim Financial Reporting, the listing requirements of the JSE Limited and the South African Companies Act 61 of 1973, as amended. The condensed consolidated financial statements are prepared in accordance with the going concern principle, under the historical cost basis, as modified by the revaluation of certain assets and liabilities where required or elected in terms of IFRS. The accounting policies and methods of computation are consistent with those used in the comparative financial information for the year ended 31 May 2008. Overview Although net attributable earnings of R391 million exceeded the earnings for the 2008 relative period by R210 million, equating to a growth in basic earnings per share from 30.65c to 51.13c (66.82%), the board of directors believe it to be more prudent to compare actual earnings to historical core pro forma earnings in order to evaluate the real growth of the group. Core pro forma earnings are adjusted for non recurring and non operational items that applied during the comparative period and assume that the listing and restructuring of the group took place on 1 June 2007. The financial highlights and the underlying financial review reflect these comparisons:
Segmental report The following are the divisional segments that embody the group profile: South African distribution
International distribution
Value added services
Technology
Revenue
South African distribution The growth of 16.4% was entirely volume related. The South African distribution continues to be the major contributor to group revenue. International distribution The revenue reflected is in respect of subsidiaries only and does not include turnover from associate companies, namely, Ukash (United Kingdom and Europe) and Oxigen Services India. A hybrid of organic growth and contributions by start up operations resulted in an increase in revenue of R224 million (44.8%). Value added services Total growth in this segment was R128 million (61.7%) of which acquisitive growth accounted for R48 million (23.2%) and organic growth R80 million (38.5%). Technology The focus on in-house technological support and product development and enhancement has resulted in a conscious decision to reduce service and support to third parties. This explains the decline in revenue from third parties by R5 million. EBITDA
South African distribution The growth in EBITDA of R198 million (46.5%), largely due to the increase in revenue, gross profit percentage margins and containment of expenditure, equated to an increase in EBITDA margin from 3.50% to 4.40%. International distribution There was a decline in EBITDA of R19 million comprising R4 million from Polsa Holdings, which was disposed of in March 2009, the loss on disposal thereof of R4 million and R11 million from start up operations in the USA, Mexico and Australia. The above decline was set-off by a growth in EBITDA of R5 million from R16 million to R21 million (25%) by the remaining companies encompassing this segment. Value added services The growth in EBITDA of R28 million (60.5%) resulted from a hybrid of acquisitive contributions of R9 million (19.2%) and organic growth of R19 million (41.3%). The marginal decline in EBITDA percentage to revenue from 22.6% to 22.4% was in line with the decision to incur additional expenditure on infrastructure costs in order to enhance the platform for growth support in the future. Technology and corporate The growth in EBITDA generated by the trading operations from R495 million to R705 million (42.6%) could not have been achieved without skilled technological, administrative and managerial support. The increase in negative earnings by these segments of R79 million is in line with the need to invest in skills and product development in order to strengthen the foundation for future expansion both locally and internationally. The very nature of international expansion requires extensive overseas travel and professional support delivered by both the technology and corporate divisions of the group. Net finance income Finance income Finance income of R205 million was earned by the group. Of this amount R47 million related to imputed interest receivable on debtor balances in terms of IFRS requirements and R158 million yielded from liquid working capital. Finance income earned in the comparative pro forma period amounted to R239 million of which R16 million applied to imputed interest receivable on debtor balances in terms of IFRS requirements. The above equated to a net decline of R65 million in finance income earned on cash resources mainly due to the application of an element of cash in order to gain early settlement discounts, the investment of R134 million on acquisitions and the gradual decline in interest rates accumulating to 3.5%. Finance expense Of the finance expense of R113 million, R108 million related to imputed interest payable on creditor balances in terms of IFRS requirements. Share of losses from associates and joint ventures
Oxigen Services India Although, as anticipated, Oxigen Services India continued to incur losses, an improvement in the company’s performance in the last quarter of the financial year was apparent. Revenue for the year ended 31 March 2009 (year-end pertaining to Oxigen Services India (Pvt) Ltd) increased from R1.02 billion to R1.34 billion (30.83%) in line with the continued roll out of point of sale devices over a widespread area. Smart Voucher Limited t/a Ukash The minority stake that was acquired in October 2008 was primarily for strategic reasons. Ukash’s technology offering of electronic pins, enabling the redemption of online products and services, is in line with the group’s objective to increase its bouquet of value added services across its global footprint. Core net profit
The growth in core earnings of operational companies was 34%. The growth in core earnings per share was 16%. Dividends In line with the group’s current dividend policy, no dividends have been declared. Balance sheet Assets Total assets increased by R658 million (20.4%) to R3.9 billion primarily as a result of an increase in current assets, of which R432 million related to a growth in cash resources. Non-current assets The net increase in non current assets was R24 million. This was attributable to the following:
Current assets Current assets increased by R634 million. The increase was mainly attributable to the growth in cash and cash equivalents of R432 million, trade and other receivables of R268 million and a reduction in inventories of R100 million. The stock turn averaged 3 times per month and debtors collections were 21 days. Capital and reserves The share capital and share premium declined by R26 million attributable to the purchase of shares in terms of the group’s staff share incentive scheme. Goodwill arising on transactions with minorities of R914 million is recognised against reserves on the balance sheet, as minority shareholders are treated as equity participants. This is in accordance with the economic entity method which was adopted by the group in the prior year. Liabilities Total liabilities increased by R331 million, the material items being an increase in minority shareholders loans to subsidiaries of R28 million and an increase in trade creditors of R366 million. These amounts are set off against a reduction in tax liabilities of R43 million. The trade creditor payment terms equated to 40 days. Cash flow Growth in profitability and the benefits of stringent working capital management have manifested in the positive cash generated from trading operations of R746 million. Net interest received of R154 million compounded this cash generation to R900 million. Of these funds generated R233 million was applied to taxation paid, resulting in net cash flows from operating activities of R667 million. Total cash on hand at the end of the financial year accumulated to R1.76 billion. Prospects South African distribution The revenue growth of 16.4% in this segment translated into a growth of its divisional EBITDA of 46.5%.
It is anticipated that revenue will continue to grow organically, not only through the existing product offering, but also through – A technical arrangement with Gidani, the licensed operators of Lotto in South Africa. International distribution Africa Prepaid Services is expected to contribute significant growth to the international segment primarily through its strategic 51% shareholding in Africa Prepaid Services Nigeria. This company has been granted a service provider licence by Multilinks, a wholly owned subsidiary of Telkom. The current penetration of 45% in the cellular market in Nigeria augurs well for potential future growth, considering that most established markets have penetrations in excess of 100%. Blue Label Mexico is steadily increasing its points of presence with the aim being to replicate the South African distribution business model. Subsequent to year end, BLT USA terminated its equity investment in VPN by mutual consent and entered into a technology license arrangement with the KAP Holdings group. VPN repaid the US$5 million capital invested in the business to BLT USA.The license agreement allows Blue Label to pursue its efforts to grow a distribution footprint in the USA. Value added services The predominantly outbound call centres are constantly procuring additional product offerings to the databases that they communicate with, utilising the existing infrastructure of call centre seats to achieve additional revenue. The additional location based services that were introduced in the latter part of the financial year end 2009 is expected to gain momentum over a full year cycle. Technology The technology segment will complete projects in progress and will continue to innovate the bouquet of products to be rolled out to the group’s points of presence. The company will continue to invest in resources to achieve these objectives. The recent launch of Microsoft’s OneApp™ application in a joint initiative with BLT will enable Mibli™ to offer its subscribers access to a myriad of content irrespective of mobile device type or network utilised. Mibli™ is supported by technology developed inhouse which enables the rollout of these services. Start up operations Expanding the footprint of the start up operations that were initiated in the past financial year, will be the primary focus, aimed at replicating the South African distribution methodology into a wider international base. Audit opinion The results for the financial year ended 31 May 2009 have been audited by the company’s auditors, PricewaterhouseCoopers Inc. and the unqualified audit report is available for inspection at the Company’s registered office. Annual general meeting The annual general meeting will be held in Johannesburg on 12th November 2009. Further details will be included in BLT’s annual report. Appreciation The board of BLT is grateful to its staff, suppliers, customers and business partners for their ongoing support and loyalty. Sidney Ellerine, who passed away in July 2009, will be sorely missed as a colleague, friend and significant contributor to the success of the Blue Label Telecoms group. For and on behalf of the Board
Directors: LM Nestadt (Chairman)* BM Levy MS Levy GD Harlow* RJ Huntley* NN Lazarus* JS Mthimunye* MV Pamensky DB Rivkind (*Non Executive) (#American)
Blue Label Telecoms Limited
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