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Results for the year ended 31 May 2018
Blue Label Telecoms Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/022679/06)
JSE Share code: BLU ISIN: ZAE000109088
("Blue Label" or "BLT" or "the Company" or "the Group")
Results for the year ended 31 May 2018
Highlights
- Increase in revenue to R26.8 billion*
- Increase in EBITDA of 4% to R1.34 billion
- Increase in core headline earnings per share of 4% to R120.61 cents
- Increase in gross profit of 7% to R2.28 billion
- Increase in core headline earnings of 30% to R1.03 billion
- Increase in cash generated from operating activities to R3.2 billion
* On inclusion of the gross amount generated on "PINless top-ups", the effective increase equated to 9%.
Commentary
Overview
Core headline earnings for the year ended 31 May 2018 amounted to R1.03 billion, resulting in an increase of
R236 million (30%). Core headline earnings per share increased from 116.24 cents per share to 120.61 cents per
share (4%), post a dilution resulting from the issue of an additional 272 million shares to fund an element of
acquisitions made during the financial year. Core headline earnings are calculated after adding back the
amortisation of intangible assets as a consequence of the purchase price allocations to headline earnings.
On 2 August 2017, Blue Label, through its wholly owned subsidiary, The Prepaid Company ("TPC"), acquired 45% of
Cell C Limited ("Cell C") for R5.5 billion and 47.37% of 3G Mobile Proprietary Limited ("3G Mobile") for R0.9 billion.
On 6 December 2017, TPC acquired the remaining 52.63% of 3G Mobile for R1 billion. On 2 January 2018, Blue Label
acquired 60% of Airvantage Proprietary Limited ("Airvantage") for R151 million. The total of R7.55 billion was partly
funded through the issue of 272 million shares amounting to R3.9 billion.
The core headline earnings comprised the Group's share of profits of R569 million in Cell C which included the
recognition of an increase in a deferred tax asset of R1.92 billion, of which the Group's 45% share amounted to
R865 million, its profit contributions from 3G Mobile of R157 million and from Airvantage of R2.6 million. These
contributions were from the effective dates of each acquisition and not for a full year. The balance of earnings
pertained to the remaining companies within the Group, inclusive of a derivative fair value gain of R3.7 million
and once-off costs of imputed IFRS interest adjustments of R65 million attributable to the acquisitions of 3G Mobile
and Airvantage. A further R28 million pertained to interest and costs relating to the 3G Mobile acquisition.
Core headline earnings in the current year were negatively impacted by R217 million as a result of the cessation of
early settlement discounts and interest forfeiture. This was in lieu of the utilisation of working capital resources
to fund the cash element of the acquisitions.
The investments in Oxigen Services India, Oxigen Online Services India (collectively, "Oxigen Services India") and
2DFine Holdings Mauritius ("2DFine") were accounted for as investments in associates and joint venture, applying the
equity method up until 30 November 2016. Thereafter, these entities are accounted for as venture capital investments
at fair value. The net effect thereof, resulted in a positive contribution to Group earnings of R35 million in the
comparative year. In the current year, a downward fair value movement of R173 million less deferred taxation of
R3 million thereon, which together with a net loan impairment of R87 million resulted in a negative impact of
R257 million on Group earnings.
The underlying table demonstrates the impact on core headline earnings growth, on exclusion of the acquisitions of
Cell C, 3G Mobile and Airvantage, the derivative fair value gain, non-recurring costs, cessation of early settlement
discounts, interest forfeiture, the winding up process of Africa Prepaid Services as well as the impact on the
accounting treatment pertaining to Oxigen Services India and 2DFine. Adjusted core headline earnings per share
would have equated to a growth of 16% to 132.56 cents per share, had there been no further shares to fund the
above acquisitions.
May 2018 May 2017 Growth Growth
R'000 R'000 R'000 %
EPS (cents) 116.12 114.13 1.99 2
Core headline earnings 1 032 016 795 684 263 332 30
Core HEPS (cents) 120.61 116.24 4.36 4
Core headline earnings adjusted for:
Share of losses, fair value loss and
loan impairments from Oxigen 256 941 (35 484)
Share of profits from Cell C (569 475) -
Profit contribution from 3G Mobile (156 722) -
Profit contribution from Airvantage (2 627) -
Fair value gain on financial instruments (3 688)
Present value interest expense relating to 3G Mobile/Airvantage 64 525 -
Transaction interest and costs relating to 3G Mobile acquisition 28 128 -
Cessation of settlement discounts and interest forfeiture 216 604 -
Once-off winding up cost of Africa Prepaid Services Group 20 737 -
Adjusted core headline earnings 886 439 760 200 126 239 17
Adjusted core HEPS (cents) 132.56 113.91 18.65 16
Group revenue increased by 1% to R26.8 billion. On imputing gross revenue generated on the continued growth in sales
of "PINless top-ups", of which only the gross profit earned thereon is accounted for, the effective growth in revenue
equated to 9%.
EBITDA increased by 4% from R1.29 billion to R1.34 billion, underpinned by an increase in gross profit margins from
8.04% to 8.52%.
The Group's share of losses in Blue Label Mexico declined from R37 million to R21.9 million (41%).
Cash generated from operating activities amounted to R3.2 billion, partly facilitating the payment of the cash element
of the acquisitive transactions.
The net asset value per share increased by 35% to R9.88 and earnings per share increased by 2% to 116.12 cents per
share.
Segmental report
Africa Distribution
May 2018 May 2017 Growth Growth
R'000 R'000 R'000 %
Revenue 26 245 206 25 944 102 301 104 1
Gross profit 2 014 169 1 873 443 140 726 8
EBITDA 1 344 824 1 344 714 110 -
Share of profits/(losses) from associates and joint ventures 583 122 (5 404) 588 526 101
- Cell C 562 567 - 562 567 -
- 3G Mobile 31 155 - 31 155 -
- Other (10 600) (5 404) (5 196) (96)
Core net profit 1 385 494 887 396 498 098 56
Core headline earnings 1 384 739 887 417 497 322 56
Gross profit margin 7.67% 7.22%
EBITDA margin 5.12% 5.18%
The contributions to Group core headline earnings by the Africa Distribution segment totalled R1.38 billion, equating
to a growth of R497 million (56%). The financial results for the year ended May 2018 includes the contributions of
3G Mobile, Cell C, Airvantage and the remaining entities within this segment that were in existence in the
comparative year.
The table below illustrates the composition of the Africa Distribution division:
Remaining
May 2018 3G Group Airvantage Cell C entities
R'000 R'000 R'000 R'000 R'000
Revenue 26 245 206 1 387 029 36 929 - 24 821 248
Gross profit 2 014 169 226 184 29 241 - 1 758 744
EBITDA 1 344 824 181 322 20 650 - 1 142 852
Share of (losses)/profits from
associates and joint ventures 583 122 31 155 - 562 567 (10 600)
- Cell C 562 567 - - 562 567 -
- 3G Mobile 31 155 31 155 - - -
- Other (10 600) - (10 600)
Core net profit 1 385 494 157 479 8 267 571 214 648 534
Core headline earnings 1 384 739 156 722 8 267 569 475 650 275
Gross profit margin 7.67% 16.31% 79.18% - 7.09%
EBITDA margin 5.12% 13.07% 55.92% - 4.60%
3G Mobile
From the date of acquisition of 47.37% until 30 November 2017, its financial results for the four-month period were
equity accounted for as an associate. Its core net profit during that period amounted to R75 million, of which the
Group's share equated to R35 million. After the amortisation of intangible assets it's contribution as an associate
amounted to 31 million.
On 6 December 2017 the remaining 52.67% of the company was acquired and it became a wholly owned subsidiary from that
date. Revenue generated for the six months to 31 May 2018 amounted to R1.4 billion, gross profit to R226 million at a
margin of 16.31% and EBITDA to R181 million. Its core net profit for the six months as a wholly owned subsidiary
amounted to R122 million.
Core net profit for the 10 months ended 31 May 2018 totalled R196 million, of which the Group's share equated to
R157 million.
Airvantage
On 2 January 2018, Blue Label acquired 60% of Airvantage. Revenue generated by it for the five months to 31 May 2018
amounted to R37 million, gross profit to R29 million at a margin of 79.18% and EBITDA to R21 million.
Its core net profit contribution for the above period totalled R8.3 million.
Cell C
On the 2nd August 2017, The Prepaid Company acquired a 45% shareholding in Cell C.
For the 10 months ended May 2018, Cell C's net profit amounted to R1.14 billion. This comprised trading losses
of R782 million offset by the recognition of a deferred tax asset amounting to R1.92 billion. The group's share
of this net profit is R512 million. BLT's accounting policies exclude equity settled share-based payment charges
from its associates and we have not early adopted IFRS 15 and IFRS16. Thus an adjustment of R65 million and
negative R6 million respectively is required.
The net result was a positive contribution of R571 million to BLT's core earnings.
Remaining entities
The decline in revenue by R1.1 billion was attributable to the continuous shift in consumer buying patterns from
traditional purchasing of airtime to that of "PINless top-ups". Revenue generated on "PINless top-ups" increased
by R2.7 billion from R6.1 billion to R8.8 billion (44%), equating to an effective increase of 5%, in that only
the gross profit earned thereon is recognised.
Net commissions earned on the distribution of pre-paid electricity continued to increase, escalating by R24 million
to R239 million (11%) on an increase in revenue generated on behalf of the utilities from R14 billion to
R16.9 billion (21%).
Gross profit margins declined from 7.22% to 7.09%, partly attributable to the forfeiture of R50 million in early
settlement discounts. As a consequence of applying cash resources towards the acquisitive costs of the investments
made during the financial year, bulk purchasing opportunities and early settlement discounts were impeded to the
extent of those cash resources. The impact thereon equated to a minimum of R251 million, being the interest forfeiture
that arose as result of this alternative application of funds.
The above forfeiture of R301 million, together with an increase in overheads, which included costs attributable
to the escalation of the quantum of distribution channels, had a direct impact on negative growth in EBITDA.
Core net profit was inclusive of a derivative fair value gain of R3.7 million offset by once-off costs of the
imputed IFRS interest adjustments of R65 million attributable to the acquisition of 3G Mobile and Airvantage as
well as R28 million pertaining to interest and costs relating to the 3G Mobile acquisition.
International
May 2018 May 2017 Growth Growth
R'000 R'000 R'000 %
EBITDA (2 903) (31 792) 28 889 (91)
Gain on associate measured at fair value (173 645) 160 200 (333 845)
Share of (losses)/profits from associates
and joint ventures (21 647) (162 218) 140 571 87
- Oxigen Services India - (119 831) 119 831 100
- Blue Label Mexico (21 900) (36 978) 15 078 41
- 2DFine Holdings Mauritius - (5 409) 5 409 (100)
- Mpower 253 - 253
Non-controlling interest (26 058) 7 (26 065)
Core net loss (225 451) (17 213) (208 238) (1 210)
Core headline loss (230 615) (16 874) (213 741) (1 267)
The decline in negative EBITDA of R29 million was attributable to a positive turnaround in foreign exchange movements
of R24 million and loan releases of R16 million relating to the winding up process of the Africa Prepaid Services group.
These positive contributions were offset by start-up expenses of R11 million incurred by Airvantage pertaining to its
newly established operation in Brazil.
Non-controlling interest relates to minority shareholders in the Africa Prepaid Services group and Airvantage.
The former was allocated R32 million for its share of the loan releases as a consequence of the winding up process
therein, offset by the minority share of expenses of R4.8 million in Airvantage Brazil.
The share of net losses from associates and joint ventures comprised the following:
Oxigen Services India and 2DFine
In the comparative year, the investments in Oxigen Services India and 2DFine were accounted for as investments in
associates and joint venture, applying the equity method up until 30 November 2016. From that date these entities
have been accounted for as venture capital investments at fair value. The fair value gain of R160 million and the
Group's share of losses of R125 million, resulted in a positive contribution to Group earnings of R35 million in
the comparative year.
The fair value of venture capital investments is required to be assessed at each reporting period. The change in
fair value between 31 May 2017 and 31 May 2018 decreased by R173 million less deferred taxation of R3 million
thereon, which together with a net loan impairment of R16 million resulted in a negative impact of R186 million
on Group earnings. A further loan impairment of R71 million was accounted for in the corporate segment.
Although negotiations remain in progress with potential investors, until such time as a transaction is completed,
the lack of cash resources will inhibit its propensity for growth through the roll out of a significant number of
micro-ATM terminals. The latter is the essence of its ability to generate growth in the market value of the investment
therein and is the cause of the necessity to reduce the fair value of the Oxigen group.
Blue Label Mexico
Blue Label Mexico's losses declined from R74.4 million to R42.8 million, of which the Group's share amounted to
R21.9 million after the amortisation of intangible assets. In the comparative year the Group's share of losses amounted
to R36.6 million.
The decline in loss was attributable to an increase in revenue from R3.1 billion to R4 billion (30%). This was
achieved in the pursuance of its strategy by increasing the number of transactional terminals at higher ARPUs, in
line with customer penetration through incremental products and services provided as well as extending its reach
to merchants through the distribution channels of Grupo Bimbo.
The distribution of starter packs generates monthly compounded annuity income. This has gained momentum, placing Blue
Label Mexico as the leader in SIM distribution throughout Mexico. Bill payments, credit and debit card acquiring and
food vouchers have increased perpetually.
Gross profit increased by R43 million (39%), underpinned by an increase in gross profit margins. The growth in margins
was congruent with the increase in the distribution of starter packs, higher margins afforded by the smaller networks
and the expansion of the bouquet of its product offerings.
Operational expenditure increased by 7%, of which payroll costs accounted for the majority of the increase in line
with the necessity to employ additional staff in support of the growth in business operations.
The resultant EBITDA equated to a turnaround of R27 million (98%) from a negative R27 million to break even.
Mobile
May 2018 May 2017 Growth Growth
R'000 R'000 R'000 %
Revenue 359 970 347 858 12 112 3
Gross profit 204 349 200 079 4 270 2
EBITDA 101 883 99 101 2 782 3
Core net profit 59 553 56 327 3 226 6
Core headline earnings 59 679 56 289 3 390 6
This segment comprises Viamedia, Supa Pesa, Blue Label One, Cellfind, Panacea and Simigenix.
The revenue increase of 3%, resulted in a marginal increase in gross profit at static margins. Overhead increase was
confined to 2%, resulting in a growth in EBITDA by 3% to R102 million.
Contribution to core headline earnings increased by 6% to R60 million, supported by an increase in net finance income
through positive cash generation from operations.
Solutions
May 2018 May 2017 Growth Growth
R'000 R'000 R'000 %
Revenue 195 089 177 621 17 468 10
Gross profit 63 574 55 480 8 094 15
EBITDA 42 838 34 020 8 818 26
Share of (losses)/profits from associates and joint ventures 4 579 455 4 124 906
Core net profit 29 836 18 956 10 880 57
Core headline earnings 29 814 18 956 10 858 57
Escalating demand for aggregated data and lead generations resulted in an increase in revenue by 10% to R195 million
at a gross profit margin increase from 31.2% to 32.6%. Overhead increases were limited to 1%, resulting in a 26% growth
in EBITDA to R43 million.
A joint venture with United Call Centre Solutions, an outbound call centre operation, contributed R4.3 million towards
profitability.
Of the core headline earnings of R30 million, Blue Label Data Solutions accounted for R24.5 million in comparison to
R17.5 million in the prior year, equating to growth of 40%.
Corporate
May 2018 May 2017 Growth Growth
R'000 R'000 R'000 %
EBITDA (146 489) (158 302) 11 813 7
Core net loss (211 463) (150 142) (61 321) (41)
Core headline loss (211 601) (150 103) (61 498) (41)
Of the decline in negative EBITDA of R12 million, R15 million pertained to a positive turnaround in foreign exchange
movements offset by an increase of R3 million in expenditure.
The negative contribution to Group core headline earnings increased by R61 million to R211 million, which losses
included the loan impairment of R71 million pertaining to 2DFine resulting from the downward adjustment to the
fair value of the Oxigen group.
DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES
Depreciation, amortisation and impairment charges increased by R130 million to R243 million. Of this increase,
R2 million pertained to depreciation on additional capital expenditure incurred during the year, R91 million to
impairments and R37 million relating to the amortisation of intangible assets of which R29 million emanated from
purchase price allocations on historical acquisitions, which increased from R18 million to R47 million.
NET FINANCE COSTS
The Group has reconsidered its accounting policy with respect to financing components included in its sale and
purchase transactions in the ordinary course of business. It has concluded that there is no financing component
in the above transactions. In accordance with IAS 8, it has therefore restated the comparative financial
information for this change in accounting policy.
Finance costs
Finance costs totalled R307 million, of which R167 million related to interest paid on borrowed funds and
R140 million to imputed IFRS interest adjustments. Of the latter amount, R75 million was attributable to credit
received from suppliers and R65 million to the acquisitions of 3G Mobile and Airvantage. On a comparative basis,
interest paid on borrowed funds amounted to R106 million and the imputed IFRS interest adjustment equated
to R4 million.
The increase of R61 million was attributable to the part payment for the cash elements of the acquisition of
shareholdings in Cell C and 3G Mobile. These payments were facilitated through a change in the working capital
structure of the Group. In addition, a further R1 billion was advanced to Cell C on a piecemeal basis for the
purpose of it applying such funds towards capital expenditure.
Finance income
Finance income totalled R195 million, of which R192 million was attributable to interest received on cash resources
and R3 million to imputed IFRS interest adjustments on credit afforded to customers. In the prior year, interest
received on cash resources amounted to R79 million and the imputed IFRS interest adjustment to R5 million.
The increase of R113 million in interest received from cash resources included interest of R84 million from Cell C for
the advance of the R1 billion to them for capital expenditure.
The limited growth in finance income was predominately attributable to the utilisation of an element of cash resources
for the funding of the Cell C transaction.
STATEMENT OF FINANCIAL POSITION
Total assets increased by R9.2 billion to R18 billion of which non-current assets accounted for R7.2 billion and
current assets for R2 billion.
Non-current assets included increases in investments in and loans to associates and joint ventures of R6.1 billion,
in intangible assets and goodwill of R998 million, in capital expenditure net of depreciation of R25.5 million, in
loans receivable of R16.4 million, in trade and other receivables of R331 million and deferred tax assets of
R19 million. These increases were offset by a net decrease of R266 million in venture capital associates and
joint ventures.
The net increase of R6.1 billion in investment in associate and joint venture companies comprised the acquisition of
Cell C, 3G Mobile and iCrypto for R5.5 billion, R0.9 billion and R11.7 million respectively, the Group's net share of
profits totalling R592 million inclusive of the amortisation of applicable intangible assets and loans granted of
R18.5 million. These increases were offset by the step-up of 3G from an associate to a subsidiary which amounted to
R927 million, dividends received of R4.3 million and a negative impact on foreign currency translation reserves of
R15.9 million.
Of the net increase in intangible assets and goodwill of R998 million, R432 million related to goodwill and
R566 million to intangible assets. Of the goodwill increase, R381 million pertained to 3G Mobile and R53 million
to Airvantage. The increase in intangible assets related to purchase price allocations raised in terms of IFRS 3
of R464 million for 3G Mobile and R193 million for Airvantage as well as an additional R48 million expended on the
purchase of software and internally generated software development costs. These intangible increases were offset by
amortisation of R139 million and a negative impact of foreign currency translation of R2 million.
The net decrease in venture capital associates and joint ventures of R266 million was due to a decline of R173 million
in the fair value of the investment in Oxigen Services India and 2DFine which necessitated a loan impairment of
R142 million. In addition there were unrealised foreign exchange losses on loans of R9.8 million. These negative
movements were offset by a capital contribution for a rights issue amounting to R25.1 million, interest capitalised
of R23 million on loans as well as loans granted of R11.1 million.
Of the increase in current assets, material movements included increases in the loan granted to Cell C of R1 billion,
in a financial asset at fair value through profit and loss of R168 million, in trade and other receivables of
R2.8 billion offset by decreases in inventories of R1.6 billion and in cash resources of R403 million.
The increase of R168 million in a financial asset at fair value through profit and loss, emanating from the Cell C
transaction, related to a USD9 million (R117 million) part payment for the acquisition of bond notes issued by Cedar
Cellular Investments 1 Proprietary Limited. A net fair value gain of R5.6 million was recognised in the current year
relating to this financial asset as well as the USD80 million liquidity support provided to Magnolia Cellular
Investment 2 (RF) Proprietary Limited.
The stock turn equated to nine days compared to 33 days for the financial year ended 31 May 2017.
The debtor's collection period increased to 75 days compared to 39 days for the financial year ended 31 May 2017.
This increase in credit afforded was indicative of the impact of financing the handset element of 24-month post-paid
contracts provided to the Cell C customer base by Comm Equipment Company Proprietary Limited ("CEC"), a wholly owned
subsidiary of 3G Mobile. The debtor's collection period afforded through traditional trading averaged 43 days.
Net profit attributable to equity holders of R994 million, less a dividend of R350 million, resulted in retained
earnings accumulating to R4.3 billion.
Share capital and share premium increased by R3.9 billion congruent with the issue of 272 million shares for capital
raised to facilitate part payment of the acquisitions made during the financial year.
Borrowings increased by R3 billion, of which R1.5 billion accounted for facilities utilised by CEC for the financing
of mobile handsets and the balance utilised for working capital requirements.
Trade and other payables increased by R1.5 billion, with average credit terms increasing to 66 days compared to
53 days for the financial year ended 31 May 2017.
STATEMENT OF CASH FLOWS
Cash flows generated from operating activities amounted to R3.2 billion, partly attributable to a change in the
working capital structure.
Cash flows applied to investing activities amounted to R7.8 billion. Of this amount, funds applied to acquisitions
amounted to R5.5 billion for Cell C, R857 million for 3G Mobile, R151 million for Airvantage and R11.7 million for
iCrypto Inc. A further R1 billion was loaned to Cell C for its capital expenditure requirements, R25 million relating
to the rights issue in Oxigen Services India, R117 million for the purchase of the bond notes, R55 million for
professional fees, R31 million for the purchase of intangible assets and R72 million for capital expenditure.
Cash flows from financing activities amounted to R4.2 billion, of which R3.65 billion related to proceeds received on
shares issued and R935 million to an increase in borrowings. After applying R28.8 million to the acquisition of treasury
shares and a dividend payment of R378 million to shareholders and non-controlling interests, cash on hand at year end
amounted to R948 million.
FORFEITABLE SHARE SCHEME
Forfeitable shares totalling 1 809 711 (2017: 1 376 257) were issued to qualifying employees. During the year
456 379 (2017: 121 226) shares were forfeited and 2 432 743 (2017: 2 141 673) shares vested.
DIVIDENDS
The Board of Directors has elected not to declare a dividend.
SHARE BUYBACK
The Board has approved a share buyback programme.
SUBSEQUENT EVENTS
On 30 June 2018, TPC subscribed for 48% of Glocell Distribution Proprietary Limited ("Glocell Distribution�), a newly
formed company that acquired the business operations of Glocell Proprietary Limited ("Glocell�). The business operations
include the vending of airtime and other value-added services to a long established client base. The cost of
subscription for the shares amounted to R173.4 million by way of capitalising debt owing by Glocell to TPC.
On 2 August 2018, Cell C procured R1.4 billion of funding from a consortium of financial institutions for a tenure of
12 months, secured by airtime to the value of R1.75 billion. In the event of default, TPC has undertaken to purchase
such inventory from the consortium on a piecemeal basis over a specified period that has been agreed upon. Any shortfall
of this purchase would be in lieu of purchases made from Cell C within that period. The payment terms as between TPC and
Cell C on the normal Cell C trading account would be extended by 120 days, ensuring that TPC will not be at any risk of
having to purchase airtime in excess of its monthly requirements.
On 1 August 2018, BLT acquired 60% of the issued share capital of AV Technology Limited for a purchase consideration
of USD6.4 million (R84.2 million). Post year-end the Board approved a share buyback programme.
PROSPECTS
The Group is accelerating its programme of providing point of sale devices to traders within the informal market
and hereby enable them to distribute Blue Label's product offerings.
Blue Label is one of the primary distribution channels for Cell C products and services. The investment in Cell C
provides opportunities to realise synergies and enhance product distribution initiatives.
3G Mobile continues to expand its handset financing model to include other products.
Airvantage has concluded an agreement with a large network operator in Brazil where it will replicate its
business model.
Blue Label Mexico is seeing consistent growth in revenue, improved gross profit margins and compounding annuity
revenue generated from starter pack sales. This is expected to result in a positive contribution to Group earnings
within the year ahead.
INDEPENDENT AUDIT
These summary consolidated financial statements for the year ended 31 May 2018 have been audited by
PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The auditor also expressed an unmodified
opinion on the consolidated annual financial statements from which these summary consolidated financial statements
were derived.
A copy of the auditor's report on the summary consolidated financial statements and of the auditor's report on the
annual consolidated financial statements are available for inspection at the company's registered office, together
with the financial statements identified in the respective auditor's reports.
The auditor's report does not necessarily report on all of the information contained in this announcement/financial
results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's
engagement they should obtain a copy of the auditor's report together with the accompanying financial information
from the issuer's registered office.
APPRECIATION
The Board of Blue Label would once again like to express its appreciation to its suppliers, customers, business
partners and staff for their ongoing support and loyalty.
For and on behalf of the Board
LM Nestadt
Chairman
BM Levy and MS Levy
Joint Chief Executive Officers
DA Suntup* CA(SA)
Financial Director
21 August 2018
* Supervised the preparation and review of the Group's audited year-end results.
Independent auditor's report on summarised consolidated financial statements
To the shareholders of Blue Label Telecoms Limited
Opinion
The summary consolidated financial statements of Blue Label Telecoms Limited, contained in the accompanying
provisional report, which comprise the summary consolidated statement of financial position as at 31 May 2018,
the summary consolidated income statement, summary consolidated statements of comprehensive income, changes in
equity and cash flows for the year then ended, and related notes, are derived from the audited consolidated
financial statements of Blue Label Telecoms Limited for the year ended 31 May 2018.
In our opinion, the accompanying summary consolidated financial statements are consistent, in all material respects,
with the audited consolidated financial statements, in accordance with the requirements of the JSE Limited Listings
Requirements for provisional reports, as set out below in the summary consolidated financial statements, and the
requirements of the Companies Act of South Africa as applicable to summary financial statements.
Summary consolidated financial statements
The summary consolidated financial statements do not contain all the disclosures required by International Financial
Reporting Standards and the requirements of the Companies Act of South Africa as applicable to annual financial
statements. Reading the summary consolidated financial statements and the auditor's report thereon, therefore, is
not a substitute for reading the audited consolidated financial statements and the auditor's report thereon.
The audited consolidated financial statements and our report thereon
We expressed an unmodified audit opinion on the audited consolidated financial statements in our report dated
21 August 2018. That report also includes communication of key audit matters. Key audit matters are those matters
that, in our professional judgement, were of most significance in our audit of the consolidated financial statements
of the current period.
Directors' responsibility for the summary consolidated financial statements
The directors are responsible for the preparation of the summary consolidated financial statements in accordance
with the requirements of the JSE Limited Listings Requirements for provisional reports, as set out in the basis of
preparation paragraph below in the summary consolidated financial statements, and the requirements of the Companies
Act of South Africa as applicable to summary financial statements.
Auditor's responsibility
Our responsibility is to express an opinion on whether the summary consolidated financial statements are consistent,
in all material respects, with the audited consolidated financial statements based on our procedures, which were
conducted in accordance with International Standard on Auditing ("ISA") 810 (Revised), Engagements to Report on
Summary Financial Statements.
Other matters
We have not audited future financial performance and expectations expressed by the directors included in the
commentary in the accompanying financial statements and accordingly do not express opinion thereon.
PricewaterhouseCoopers Inc.
Director: D Storm
Registered Auditor
Johannesburg
21 August 2018
Summarised Group statement of comprehensive income
For the year ended 31 May
Restated*
2018 2017
R'000 R'000
Revenue 26 800 265 26 469 581
Other income 81 704 16 814
Changes in inventories of finished goods (24 518 173) (24 340 581)
Employee compensation and benefit expense (524 187) (452 985)
Depreciation, amortisation and impairment charges (242 604) (112 851)
Other expenses (499 456) (405 088)
Operating profit 1 097 549 1 174 890
Finance costs (306 636) (109 788)
Finance income 195 298 84 605
(Loss)/gain on associates and joint ventures measured at fair value (173 645) 160 200
Share of gains/(losses) from associates and joint ventures 565 812 (164 941)
Net profit before taxation 1 378 378 1 144 966
Taxation (331 069) (329 816)
Net profit for the year 1 047 309 815 150
Other comprehensive income:
Items reclassified to profit or loss
Foreign currency translation reserve reclassified to profit or loss** (3 097) -
Items that may be subsequently reclassified to profit or loss
Foreign exchange loss on translation of associates and joint ventures** (15 873) (82 424)
Foreign exchange loss on translation of foreign operations** (3 869) (52)
Other comprehensive loss for the year, net of tax (22 839) (82 476)
Total comprehensive income for the year 1 024 470 732 674
Net profit for the year attributable to:
Equity holders of the parent 993 624 781 254
Non-controlling interest 53 685 33 896
Total comprehensive income for the year attributable to:
Equity holders of the parent 971 250 700 685
Non-controlling interest 53 220 31 989
* As a result of the revised guidance in Circular 2/2017 the Group has restated its comparative financial
information for a change in accounting policy.
** These components of other comprehensive income do not attract any tax.
Share performance
For the year ended 31 May
Restated*
2018 2017
R'000 R'000
Earnings per share for profit attributable to equity holders
Basic earnings per share (cents) 116.12 114.13
Diluted earnings per share (cents)** 108.10 113.17
Weighted average number of shares 855 686 588 684 508 496
Diluted weighted average number of shares 860 487 563 690 322 107
Number of shares in issue 946 509 041 674 509 042
Share performance
Headline earnings per share (cents) 115.42 114.19
Diluted headline earnings per share (cents)** 107.41 113.22
Dividend per share (cents) 40 36
Reconciliation between net profit and core headline earnings for the year:
Net profit for the year attributable to equity holders of the parent 993 624 781 254
Amortisation on intangible assets raised through business combinations
net of tax and net of non-controlling interest 44 345 14 069
Core net profit for the year 1 037 969 795 323
Headline earnings adjustments (5 953) 362
Core headline earnings 1 032 016 795 685
Core headline earnings per share (cents)*** 120.61 116.24
* As a result of the revised guidance in Circular 2/2017 the Group has restated its comparative financial
information for a change in accounting policy.
** Diluted earnings per share and diluted headline earnings per share are calculated by adjusting the weighted average
number of ordinary shares outstanding for the number of shares that would be issued on vesting under the employee
forfeitable share plan.
*** Core headline earnings per share is calculated after adding back to headline earnings, the amortisation of
intangible assets as a consequence of the purchase price allocations completed in terms of IFRS 3(R) -
Business Combinations.
Summarised Group statement of financial position
As at 31 May 2018
Restated Restated*
2018 2017 2016
Audited Audited Audited
R'000 R'000 R'000
Assets
Non-current assets 9 404 315 2 198 757 2 275 161
Property, plant and equipment 137 120 111 599 100 434
Intangible assets 1 076 871 511 164 598 333
Goodwill 1 036 243 604 590 603 440
Investments in and loans to associates and joint ventures 6 398 305 315 833 910 567
Investments in and loans to venture capital
associates and joint ventures 277 835 544 165 -
Loans receivable 53 270 36 851 5 910
Starter pack assets 5 541 5 346 6 099
Trade and other receivables 373 907 42 512 29 166
Deferred taxation assets 45 223 26 697 21 212
Current assets 8 526 636 6 498 626 5 037 786
Starter pack assets 1 414 1 365 1 576
Loans to associate 1 029 626 - -
Inventories 597 946 2 180 121 1 658 860
Loans receivable 207 799 188 229 98 217
Trade and other receivables 5 529 877 2 766 110 2 686 019
Financial asset at fair value through profit and loss 168 144 - -
Current tax assets 43 942 12 135 4 087
Cash and cash equivalents 947 888 1 350 666 589 027
Total assets 17 930 951 8 697 383 7 312 947
Equity and liabilities 9 506 642 4 995 284 4 516 120
Capital and reserves
Share capital, share premium and treasury shares 7 844 847 3 953 871 3 942 512
Restructuring reserve (1 843 912) (1 843 912) (1 843 912)
Other reserves 84 662 107 036 187 605
Transactions with non-controlling interest reserve (1 069 268) (975 302) (965 861)
Share-based payment reserve 49 542 46 420 42 039
Retained earnings 4 283 854 3 640 034 3 101 603
9 349 725 4 928 147 4 463 986
Non-controlling interest 156 917 67 137 52 134
Non-current liabilities 1 745 790 55 665 113 397
Deferred taxation liabilities 229 100 49 391 60 800
Borrowings 1 514 140 - -
Trade and other payables 2 550 6 274 52 597
Current liabilities 6 678 519 3 646 434 2 683 430
Trade and other payables 5 086 196 3 537 505 2 601 807
Provisions 39 628 35 071 24 928
Financial liabilities at fair value through profit and loss 45 360 - -
Current tax liabilities 50 367 55 832 40 608
Borrowings 1 456 968 18 026 16 087
Total equity and liabilities 17 930 951 8 697 383 7 312 947
* As a result of the revised guidance in Circular 2/2017 the Group has restated its comparative financial
information for a change in accounting policy.
Summarised Group statement of cash flows
For the year ended 31 May 2018
2018 2017
Audited Audited
R'000 R'000
Cash generated by operations 3 588 780 1 753 991
Interest received 154 952 52 300
Interest paid (187 489) (105 518)
Taxation paid (368 099) (338 814)
Net cash generated from operating activities 3 188 144 1 361 959
Cash flows from investing activities
Acquisition of intangible assets (31 183) (55 987)
Acquisition of property, plant and equipment (71 640) (57 293)
Acquisition of subsidiary net of cash acquired (291 240) 771
Acquisition of associate (6 124 127) (7 530)
Transaction costs on associates (55 131) -
Capital contribution to Oxigen Services India (25 076) (25 534)
Purchase of bond notes (117 037) -
Loan granted to Cell C (1 017 522) -
Loans advanced to associates and joint ventures (31 641) (22 224)
Loans granted (54 981) (141 917)
Loans receivable repaid 78 329 24 649
Settlement of contingent consideration (27 867) (50 666)
Contingent proceeds received - 12 839
Other investing activities 10 737 2 416
Net cash utilised in investing activities (7 758 379) (320 476)
Cash flows from financing activities
Interest-bearing borrowings raised 935 442 -
Proceeds from shares issued 3 650 000 -
Transaction costs on share issue (12 424) -
Acquisition of treasury shares (28 846) (7 381)
Dividends paid to non-controlling interest (27 750) (26 788)
Dividends paid to equity holders of the parent (349 804) (242 823)
Other financing activities (58) (2 803)
Net cash generated/(utilised) in financing activities 4 166 560 (279 795)
Net (decrease)/increase in cash and cash equivalents (403 675) 761 688
Cash and cash equivalents at the beginning of the year 1 350 666 589 027
Exchange gains on cash and cash equivalents 897 (49)
Cash and cash equivalents at the end of the year 947 888 1 350 666
Summarised Group statement of changes in equity
For the year ended 31 May 2018
Share
capital, share
premium
and treasury Retained Restructuring Other
shares earnings reserve reserves(1)
Audited Audited Audited Audited
R'000 R'000 R'000 R'000
Balance as at 31 May 2016 3 942 512 3 105 050 (1 843 912) 187 605
Restatement due to adoption of accounting policy* - (3 447) - -
Restated balance as at 31 May 2016* 3 942 512 3 101 603 (1 843 912) 187 605
Restated net profit for the year* - 781 254 - -
Other comprehensive income/(loss) - - - (80 569)
Restated total comprehensive income/(loss)* - 781 254 - (80 569)
Treasury shares purchased (7 381) - - -
Equity compensation benefit scheme shares vested 18 740 - - -
Equity compensation benefit movement - - - -
Transaction with non-controlling interest reserve movement - - - -
Non-controlling interest acquired - - - -
Dividends paid - (242 823) - -
Restated balance as at 31 May 2017* 3 953 871 3 640 034 (1 843 912) 107 036
Net profit for the year - 993 624 - -
Other comprehensive income/(loss) - - - (22 374)
Total comprehensive income/(loss) - 993 624 - (22 374)
Treasury shares purchased (28 846) - - -
Shares issued 3 932 834 - - -
Transaction costs on shares issued (34 663) - - -
Equity compensation benefit scheme shares vested 21 651 - - -
Equity compensation benefit movement - - - -
Transaction with non-controlling interest reserve movement - - - -
B-BBEE transaction - - - -
Non-controlling interest acquired - - - -
Non-controlling interest disposed of - - - -
Dividends paid - (349 804) - -
Balance as at 31 May 2018 7 844 847 4 283 854 (1 843 912) 84 662
(1) Other reserves include foreign currency translation reserve and the non-distributable reserve.
(2) The transactions with non-controlling interest reserve relates to the excess payments over the carrying amounts
arising on transactions with non-controlling shareholders as these are treated as equity participants.
(3) Includes employee equity compensation benefit reserve.
(4) The B-BBEE transaction was concluded by Panacea Mobile Proprietary Limited and Simigenix Proprietary Limited
("the companies"), subsidiaries of Blue Label Telecoms. In October 2017 the companies declared dividends to
the full value of the companies to Blue Label Telecoms. Such dividends were immediately converted to preference
shares. Subsequent to this, the companies issued shares to Bitsana Investments Proprietary Limited for nominal
value. The Group has not recognised this dilution and accounts for the companies as wholly owned subsidiaries
until the preference shares have been settled in full. The preference shares will be settled through the
declaration of dividends by the companies. There are no specified dates for this.
(5) This relates to a put option that the Group has on the remaining 40% shareholding in Airvantage.
* As a result of the revised guidance in Circular 2/2017 the Group has restated their comparative financial
information for a change in accounting policy.
Summarised Group statement of changes in equity (continued)
For the year ended 31 May 2018
Transactions
with
non-controlling Share based Non-
interest payment controlling Total
reserve(2) reserve(3) interest equity
Audited Audited Audited Audited
R'000 R'000 R'000 R'000
Balance as at 31 May 2016 (965 861) 42 039 52 134 4 519 567
Restatement due to adoption of accounting policy* - - - (3 447)
Restated balance as at 31 May 2016* (965 861) 42 039 52 134 4 516 120
Restated net profit for the year* - 33 896 815 150
Other comprehensive income/(loss) - - (1 907) (82 476)
Restated total comprehensive income/(loss)* - 31 989 732 674
Treasury shares purchased - - - (7 381)
Equity compensation benefit scheme shares vested - (18 486) (254) -
Equity compensation benefit movement - 22 867 550 23 417
Transaction with non-controlling interest reserve movement (9 441) - 9 441 -
Non-controlling interest acquired - - 65 65
Dividends paid - - (26 788) (269 611)
Restated balance as at 31 May 2017* (975 302) 46 420 67 137 4 995 284
Net profit for the year - - 53 685 1 047 309
Other comprehensive income/(loss) - - (465) (22 839)
Total comprehensive income/(loss) - - 53 220 1 024 470
Treasury shares purchased - - - (28 846)
Shares issued - - - 3 932 834
Transaction costs on shares issued - - - (34 663)
Equity compensation benefit scheme shares vested - (21 362) (289) -
Equity compensation benefit movement - 23 084 778 23 862
Transaction with non-controlling interest reserve movement (93 966)(5) - - (93 966)
B-BBEE transaction - 1 400(4) - 1 400
Non-controlling interest acquired - - 66 645 66 645
Non-controlling interest disposed of - - (2 824) (2 824)
Dividends paid - - (27 750) (377 554)
Balance as at 31 May 2018 (1 069 268) 49 542 156 917 9 506 642
(1) Other reserves include foreign currency translation reserve and the non-distributable reserve.
(2) The transactions with non-controlling interest reserve relates to the excess payments over the carrying amounts
arising on transactions with non-controlling shareholders as these are treated as equity participants.
(3) Includes employee equity compensation benefit reserve.
(4) The B-BBEE transaction was concluded by Panacea Mobile Proprietary Limited and Simigenix Proprietary Limited
("the companies"), subsidiaries of Blue Label Telecoms. In October 2017 the companies declared dividends to
the full value of the companies to Blue Label Telecoms. Such dividends were immediately converted to preference
shares. Subsequent to this, the companies issued shares to Bitsana Investments Proprietary Limited for nominal
value. The Group has not recognised this dilution and accounts for the companies as wholly owned subsidiaries
until the preference shares have been settled in full. The preference shares will be settled through the
declaration of dividends by the companies. There are no specified dates for this.
(5) This relates to a put option that the Group has on the remaining 40% shareholding in Airvantage.
* As a result of the revised guidance in Circular 2/2017 the Group has restated their comparative financial
information for a change in accounting policy.
Summarised segmental summary
Africa
Total Distribution International Mobile Solutions Corporate
Audited Audited Audited Audited Audited Audited
Year ended 31 May 2018 R'000 R'000 R'000 R'000 R'000 R'000
Total segment revenue 33 633 266 32 897 392 - 370 358 196 762 168 754
Internal revenue (6 833 001) (6 652 186) - (10 388) (1 673) (168 754)
Revenue 26 800 265 26 245 206 - 359 970 195 089 -
Operating profit/(loss) before
depreciation, amortisation and
impairment charges 1 340 153 1 344 824 (2 903) 101 883 42 838 (146 489)
Net profit/(loss) for the year
attributable to equity holders
of the parent 993 624 1 344 642 (227 000) 57 609 29 836 (211 463)
Amortisation on intangibles raised
through business combinations net
of tax and non-controlling interest 44 345 40 852 1 549 1 944 - -
Headline earnings adjustments
net of non-controlling interest (5 953) (755) (5 164) 126 (22) (138)
Core headline earnings for the year
attributable to equity holders
of the parent 1 032 016 1 384 739 (230 615) 59 679 29 814 (211 601)
At 31 May 2018
Total assets 17 930 951 16 671 589 518 045 561 330 146 672 33 315
Net operating assets/
(liabilities) 1 848 117 1 758 210 94 701 62 036 36 780 (103 610)
Audited Audited Audited Audited Audited Audited
Year ended 31 May 2017 R'000 R'000 R'000 R'000 R'000 R'000
Total segment revenue 32 881 775 32 216 378 - 361 754 178 286 125 357
Internal revenue (6 412 194) (6 272 276) - (13 896) (665) (125 357)
Revenue 26 469 581 25 944 102 - 347 858 177 621 -
Operating profit/(loss) before
depreciation, amortisation and
impairment charges 1 287 741 1 344 714 (31 792) 99 101 34 020 (158 302)
Net profit/(loss) for the year
attributable to equity holders
of the parent 781 254 877 831 (19 072) 53 681 18 956 (150 142)
Amortisation on intangibles
raised through business
combinations net of tax
and non-controlling interest 14 069 9 564 1 859 2 646 - -
Headline earnings adjustments net
of non-controlling interest 362 22 339 (38) - 39
Core headline earnings for the
year attributable to equity
holders of the parent 795 685 887 417 (16 874) 56 289 18 956 (150 103)
At 31 May 2017
Total assets 8 697 313 7 208 640 743 530 593 595 141 100 10 518
Net operating assets/
(liabilities) 2 852 192 2 750 032 10 424 103 458 45 517 (57 239)
Headline earnings
For the year ended 31 May
Restated
2018 2017
Audited Audited
R'000 R'000
Profit attributable to equity holders of the parent 993 624 781 254
(Profit)/loss on disposal of property, plant and equipment (1 272) 23
Impairment of property, plant and equipment 2 736 -
Impairment of intangible assets 243 -
Foreign currency translation reserve recycled to profit or loss (3 097) -
Profit on disposal of subsidiary (2 824) -
Profit on disposal of property, plant and equipment in associate (12 075) -
Impairment of property, plant and equipment in associate - -
Impairment of intangible assets in associate 10 336 339
Headline earnings 987 671 781 616
Headline earnings per share (cents) 115.42 114.19
* As a result of the revised guidance in Circular 2/2017 the Group has restated its comparative financial
information for a change in accounting policy.
Financial instruments
For the year ended 31 May
Financial asset at fair value through profit and loss
Liquidity
Bond notes Support Other Total
Audited Audited Audited Audited
R'000 R'000 R'000 R'000
Opening balance - - - -
Acquisition of subsidiary - - 106 106
Additions 117 037 - - 117 037
Fair value gain/(loss) recognised
in profit or loss 50 482 (45 360) 519 5 641
Closing balance 167 519 (45 360) 625 122 784
Financial assets at fair value through
profit and loss 167 519 - 625 168 144
Financial liabilities at fair value
through profit and loss - (45 360) - (45 360)
Closing balance 167 519 (45 360) 625 122 784
Bond notes
With effect from 2 August 2017, TPC purchased bond notes, issued by Cedar Cellular Investments 1 Proprietary Limited
("SPV1"), from Saudi Oger Limited with a capital redemption value of USD42 million and with a coupon rate of 8.625% per
annum for a purchase consideration of USD18 million. TPC 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,
resulting in an effective purchase consideration of USD9 million with a capital redemption value of USD21 million.
Liquidity support
As part of the restructure of the debt into Cell C by third-party lenders, TPC 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 USD36 million of the aforesaid USD80 million thus
reducing TPC's obligation in this regard to a maximum of USD44 million. As at 31 May 2018, the Group has not paid
any amounts to SPV2.
Fair value estimate
SPV1 and SPV2 own 11.8% and 16%of the shares issued by Cell C respectively . No other assets are held by these
entities, and as such the Group's bond note and liquidity support arrangements will be settled only when the value
of the Cell C shares are realised by SPV1 and SPV2. The substance of these arrangements are therefore derivatives
exposing the Group to the share price of Cell C. Blue Label has a further revisionary pledge amounting to 5% of
the shares issued by Cell C relating to the Group's exposure in SPV2.
The derivatives are initially recognised by the Group at fair value and subsequently measured at fair value through
profit or loss.
The fair value of the derivatives are not traded in an active market and are therefore determined by the use of
a valuation technique. The Group has performed the valuations using a Monte Carlo simulation taking into account
the expected exit event date of Cell C in the next 11 to 24 months. These calculations use a valuation of Cell C
provided by a qualified independent third-party valuation specialist. By way of simulation, the model generates
a large number of random paths for the value of the Cell C share price from 31 May 2018 to the expected listing
date. The average payoffs across the simulated paths are then discounted at the risk-free rate to obtain the
present value of the shares owned by SPV1 and SPV2. As both arrangements are USD denominated, the model accounts
for the forward rate of the USD at the expected listing date.
The derivatives are level 3 valuations in the fair value hierarchy.
The breakeven valuation of Cell C is R18.60 billion, which represents the minimum valuation of Cell C required before
a collective fair value loss would be recognised on the derivatives. The following table represents the sensitivity of
the valuation of Cell C used in the Monte Carlo simulations to value the derivatives:
Movement in Movement in Total
Change to fair value of fair value of movement
inputs SPV1 SPV2 in fair value
Unobservable input R'000 R'000 R'000
Valuation of Cell C 5% 7 968 61 267 69 235
(5%) (8 211) (59 975) (68 186)
Financial liabilities
Contingent consideration
Contingent considerations, included in trade and other payables, are level 3 financial liabilities.
Changes in level 3 instruments are as follows:
2018 2017
Audited Audited
R'000 R'000
Opening balance 32 974 83 563
Acquisition of Reware Proprietary Limited - 1 150
Acquisition of Utilities World Proprietary Limited - 4 516
Settlements (27 867) (50 666)
Gains or losses recognised in profit or loss (548) (5 589)
Closing balance 4 559 32 974
Total gains or losses for the period included
in profit or loss for liabilities held at the
end of the reporting period, under:
Other income (1 390) (10 210)
Interest paid 590 4 621
Unrealised gains or losses recognised in profit
or loss for liabilities held at the end of the reporting period 800 5 304
The fair value of the contingent consideration is estimated by applying the income approach. The fair value is
based on the discount rates applicable to the Group and management's probability assumptions on certain warranties
being achieved. There have been changes in management's probability assumptions in respect of certain of the
companies. The resulting changes in the fair values are accounted for in other income in the statement of
comprehensive income. The discount rate has been increased in line with the increase in the prime lending
rate. The resulting changes in the fair values are accounted for in finance costs in the statement of
comprehensive income.
Put option liability
Put option liabilities represent contracts that impose an obligation on the Group to purchase the shares of
a subsidiary for cash or another financial asset. Put option liabilities are initially raised from the
transaction with non-controlling interest reserve in equity at the present value of the expected redemption
amount payable. Subsequent revisions to the expected redemption amount payable as well as the unwinding of
the discount related to the measurement of the present value of the put option liability, are recognised in
the income statement. Where a put option liability expires unexercised or is cancelled, the carrying value
of the financial liability is released to the transaction with non-controlling interest reserve in equity.
The Group recognises the non-controlling interest over which a put option exists at acquisition date. Put
option liabilities are presented within trade and other payables in the Group statement of financial
position.
Changes in level 3 instruments are as follows:
2018 2017
R'000 R'000
Opening balance - -
Acquisition of Airvantage 93 966 -
Remeasurements recognised in the income statement 3 981 -
Closing balance 97 947 -
Acquisition of Airvantage
This relates to a put option that the Group has on the remaining 40% shareholding in Airvantage. This is exercisable
within the next 12 months. The Group will settle this from available cash resources. The option is valued based on the
forecast net profit after tax for the 12 months ending 28 February 2019 at a six multiple, present valued to the date of
the acquisition 2 January 2018, as per the contract.
Sensitivity analysis
2018
R'000
Increase/(decrease) in put option liabilities and loss/(gain) in the income statement
1% increase in discount rate, 10% decrease in net profit after tax (10 664)
1% decrease in discount rate, 10% increase in net profit after tax 10 869
The investment in Oxigen Services India, Oxigen Online and 2DFine Holdings Mauritius are viewed as venture capital
investments and accounted for at fair value, and are level 3 instruments. Refer to "investment and loans to venture
capital associates and joint venture."
The Group has not disclosed the fair values of all financial instruments measured at amortised cost, as its carrying
amounts closely approximate its fair values.
Investments in and loans to venture capital associates and joint venture
2018 2017
Audited Audited
R'000 R'000
Venture capital associates and joint venture 142 981 291 550
Loan to venture capital associates and joint venture 134 854 252 615
277 835 544 165
IAS 28 exemption with respect to Oxigen Services India, Oxigen Online and 2DFine Holdings Mauritius
The exemption available in IAS 28 - Investments in Associates and Joint Ventures has been applied to the investment in
Oxigen Services India, Oxigen Online and 2DFine from 30 November 2016 and the investment is accounted for in accordance
with IAS 39 - Financial Instruments: Recognition and Measurement at fair value with changes in fair value recognised in
profit or loss. The difference between the carrying amount of the investment (previously equity accounted for) and the
fair value at this date is reflected as a gain on associate measured at fair value in the Group income statement. Any
additional changes in the fair value have been recognised in the Group statement of comprehensive income.
Oxigen Services India was demerged into two separate entities with effect from 1 June 2016. This was done in line with
the Group's exit strategy to improve the marketability of these entities to potential investors.
Prior to 30 November 2016, the investment in Oxigen Services India was of a strategic nature as it was expected to
emulate the business model of the South African Distribution operations. The original decision to invest in this business
was because it was strategically aligned with other Blue Label distribution businesses in South Africa. However, its
profile has changed from that of the traditional Group business to one of generating growth in the market value of the
investment with a view to unlocking the Group's share thereof. With the advent of its change in focus to financial services
through wallet subscription, it is no longer strategically aligned with the other business units of the Group and is
unlikely to generate profitability in the short to medium term. However, the market value of the company is expected to
increase exponentially in conjunction with its growth in wallet subscribers. This in turn creates the potential to unlock
the investment in value in the future and the Group is pursuing this new strategy with respect to its investment in Oxigen
Services India. In line with the Group's exit strategy, Oxigen Services India was demerged into two separate entities
with effect from 1 June 2016. This was done to improve the marketability of these entities to potential investors.
2DFine is an investment holding company that holds an effective interest in Oxigen Services India and Oxigen Online.
Consequently, management reviews the results and operations of Oxigen Services India, Oxigen Online and 2DFine on a
fair value basis as opposed to the profits/losses that it generates. In addition, management has established an exit
strategy that looks to realise this fair value in the foreseeable future.
Accordingly, in accordance with IAS 28 - Investments in Associates and Joint Ventures Oxigen Services India, Oxigen
Online and 2DFine are viewed as venture capital investments which have been accounted for at fair value through profit
and loss from 30 November 2016 at which date equity accounting ceased, in line with IFRS 13 - Fair Value Measurement.
The loans to 2DFine have been impaired as the only asset that 2DFine holds that can be utilised to recover this loan
is the investment in Oxigen Services and Oxigen Online. The fair values have decreased significantly in the current
year. B Levy and M Levy have signed personal sureties relating to a portion of the irrecoverable portion of the loan.
The fair value of Oxigen Services India, Oxigen Online and the 2DFine group as at 31 May 2018 has declined due to
lack of funding. This has resulted in Oxigen Online and 2DFine being carried at Rnil. Although negotiations remain
in progress with potential investors, until such time as a transaction is completed, the lack of cash resources
will inhibit its propensity for growth through the roll out of a significant number of micro-ATM terminals. The
latter is the essence of its ability to generate growth in the market value of the investment therein and is the
cause of the necessity to reduce the fair value of the Oxigen group.
Fair value estimate
The finance department of the Group includes a team that outsources the valuations to qualified independent third-
party valuation specialists required for financial reporting purposes, including level 3 fair values. This team
reports directly to the Financial Director ("FD") and the Audit, Risk and Compliance Committee ("ARCC").
Discussions of valuation processes and results are held between the FD, ARCC and the valuation team at least
once every six months, in line with the Group's reporting periods.
Management use this fair value information to monitor the performance of this investment as it relates to the revised
investment and exit strategies. Decisions relating to e-wallet acquisition, retention and exit strategy, are discussed
at monthly management meetings, focusing predominantly on the inputs (e.g. capital spend and customer
acquisition/retention spend) that drive the fair value.
The investments in venture capital associates and joint venture are level 3 valuations in the fair value hierarchy.
In terms of IFRS 13 - Fair Value Measurement, the market approach has been utilised in determining the fair value of
the Indian entities. This approach utilises relevant information generated by similar market transactions that have
been concluded by comparable businesses. The valuation is based on a multiple applied to gross revenue, based on the
same principles adopted by similar business to that of the Oxigen Services group, that was recently disposed of.
This differs from the discounted cash flow approach applied previously, as the market approach provided the Group
with more reliable evidence to support the valuation. The revenue multiple of 4.3 was applied in determining
the fair value.
In the prior year the discount rate and terminal growth rate used in calculating the fair values were 27% and
5% respectively.
In the prior year the main inputs into the cash flow models were the expected cash flows relation to capital
expenditure as well as cash flows relating to customer acquisition and engagement spend. Capital expenditure in
Oxigen Services India and Oxigen Online was expected to range between R166 million and R311 million on an annual
basis. Customer acquisition and engagement spend for Oxigen Services India and Oxigen Online was forecast to increase
aggressively from R103 million to R2 575 million in the prior year valuation models.
The fair value of the 2DFine group is based on its share of the fair value of Oxigen Services India and Oxigen Online
less the liabilities of the 2DFine group.
The following table summarises the quantitative information about the significant unobservable inputs used in the
level 3 fair value measurement for this investment.
Movement
Change in fair value
Unobservable input to inputs R'000
Revenue multiple 0.2 11 513
0.1 5 803
(0.1) (5 803)
(0.2) (11 513)
(0.3) (17 222)
Significant related party transactions and balances
For the year ended 31 May
2018 2017
Audited Audited
R'000 R'000
Sales to related parties
Cell C Limited 1 100 788 -
Purchases from related parties
Cell C Limited 4 873 215 -
Interest received from related parties
2DFine Holdings Mauritius 21 736 21 159
Cell C Limited 96 380 -
Loans to related parties
2DFine Holdings Mauritius 100 837 218 305
Cell C Limited 1 029 626 -
Lornanox Proprietary Limited trading as Edgars Connect 79 249 75 209
Oxigen Services India Private Limited 34 017 34 310
ZOK Cellular Proprietary Limited 19 768 26 364
Amounts due from related parties included in trade receivables
3G Mobile (Botswana) Proprietary Limited 31 688 -
Cell C Limited 2 623 194 -
Lornanox Proprietary Limited 35 528 13 676
Amounts due to related parties included in trade payables
3G Mobile (Botswana) Proprietary Limited 30 799 -
Cell C Limited 1 573 472 -
Subsequent events
On 30 June 2018, TPC subscribed for 48% of Glocell Distribution Proprietary Limited ("Glocell Distribution"), a newly
formed company that acquired the business operations of Glocell Proprietary Limited ("Glocell"). The business operations
include the vending of airtime and other value-added services to a long-established client base. The cost of
subscription for the shares amounted to R173.4 million by way of capitalising debt owing by Glocell to TPC.
On 2 August 2018, Cell C procured R1.4 billion of funding from a consortium of financial institutions for a tenure of
12 months, secured by airtime to the value of R1.75 billion. In the event of default, TPC has undertaken to purchase
such inventory from the consortium on a piecemeal basis over a specified period that has been agreed upon. Any shortfall
of this purchase would be in lieu of purchases made from Cell C within that period. The payment terms as between TPC
and Cell C on the normal Cell C trading account would be extended by 120 days, ensuring that TPC will not be at any
risk of having to purchase airtime in excess of its monthly requirements.
On 1 August 2018, BLT acquired 60% of the issued share capital of AV Technology Limited for a purchase consideration
of USD6.4 million (R84.2 million). The purchase agreement contains an option arrangement which may result in BLT
acquiring the remaining 40% of the entity.
Shares in the following subsidiaries were acquired subsequent to year-end:
Effective date %
of acquisition acquired
Subsidiaries
Glocell Distribution Proprietary Limited 30 June 2018 48
Distributor of airtime, starter packs and mobile phones
through its retail outlets and to wholesale customers
in South Africa, including post-paid and pre-paid contracts
AV Technology Limited 1 August 2018 60
Owner of system that offers Mobile Network Operators
the ability to advance airtime, data and mobile money
to subscribers in Africa
Lornanox Proprietary Limited 31 July 2018 100
Owner of retail stores trading in cellular handsets,
tablets and related accessories, as well as SIM cards,
post-paid and pre-paid contracts
Details of the provisional net assets acquired through acquisition are as follows:
Glocell
Distribution AV Lornanox
Proprietary Technology Proprietary
Limited Limited Limited
R'000 R'000 R'000
Total purchase consideration 173 400 84 187 5 000
Provisional fair value of net assets acquired 25 487 8 122 (66 993)
Goodwill 147 913 76 065 71 993
The provisional assets and liabilities acquired through acquisition are as follows:
Glocell Distribution AV Technology Lornanox
Proprietary Limited Limited Proprietary Limited
Acquirer's Acquirer's Acquirer's
provisional provisional provisional
Provisional carrying Provisional carrying Provisional carrying
fair value at amount on fair value at amount on fair value at amount on
acquisition acquisition acquisition acquisition acquisition acquisition
date date date date date date
R'000 R'000 R'000 R'000 R'000 R'000
Cash and cash equivalents 5 978 5 978 65 442 65 442 10 605 10 605
Property, plant and equipment 6 023 6 023 440 440 39 251 39 251
Intangible assets 80 685 28 665 15 596 - 2 000 -
Goodwill 147 913 - 76 065 - 71 993 -
Inventories 7 267 7 267 - - 34 255 34 255
Receivables 14 677 14 677 10 085 10 085 23 611 23 611
Deferred tax (14 566) - (4 367) - (11 648) -
Borrowings (39 787) (39 787) - - (104 880) (144 480)
Payables (7 179) (7 179) (73 658) (73 658) (60 187) (60 186)
Provisional value of
subsidiaries acquired 201 011 15 644 89 603 2 309 5 000 (96 944)
Non-controlling interest (27 611) (5 415) -
Provisional value of
net assets acquired (11 967) (3 106 (96 944)
Total purchase consideration 173 400 84 187 5 000
Glocell Distribution was purchased with the objective of affording the Group access to new channels for the supply and
distribution of airtime, mobile devices and contracts.
In most business acquisitions, there is a part of the cost that is not capable of being attributed in accounting terms
to identifiable assets and liabilities acquired and is therefore recognised as goodwill. In the case of the acquisition
of Glocell, this goodwill is underpinned by a number of elements, which individually cannot be quantified. Most
significant among these is the opportunity that the distribution network affords the Group.
AV Technology Limited ("AV Technology") was purchased with the objective of affording the Group the ability to advance
airtime, data and mobile money services to mobile network subscribers in Africa.
In most business acquisitions, there is a part of the cost that is not capable of being attributed in accounting terms
to identifiable assets and liabilities acquired and is therefore recognised as goodwill. In the case of the acquisition
of AV Technology, this goodwill is underpinned by a number of elements, which individually cannot be quantified. Most
significant among these is the opportunity that the pre-paid airtime advance system affords the Group.
Lornanox Proprietary Limited ("Lornanox") was purchased with the objective of affording the Group access to new
channels for the supply and distribution of airtime, mobile devices and contracts.
In most business acquisitions, there is a part of the cost that is not capable of being attributed in accounting terms
to identifiable assets and liabilities acquired and is therefore recognised as goodwill. In the case of the acquisition
of Lornanox, this goodwill is underpinned by a number of elements, which individually cannot be quantified. Most
significant among these is the opportunity that the distribution network affords the Group.
Basis of preparation
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited
Listings Requirements for provisional reports, and the requirements of the Companies Act applicable to summary financial
statements. The Listings Requirements require provisional reports to be prepared in accordance with the framework concepts
and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS") and the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim
Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements from which
the summary consolidated financial statements were derived are in terms of IFRS and are consistent with those accounting
policies applied in the preparation of the previous consolidated annual financial statements except for the change in
accounting policy as disclosed below. The comparative financial information has been restated as a result.
Change in accounting policy
During the current period, the South African Institute of Chartered Accountants issued Circular 2/2017 which replaced
Circular 9/2006. Circular 9/2006 - Transactions giving rise to adjustments to revenue/purchases previously included
guidance on the recognition of financing elements. Although the Group did not believe that its revenue and purchase
transactions constituted financing activities, the Group has previously accounted for its sale and purchase transactions
as including a financing element based on the guidance in Circular 9/2006.
Subsequent to the issuing of Circular 9/2006, the International Financial Reporting Standards Interpretations
Committee ("Interpretations Committee") has debated financing elements contained within transactions for both revenue
and purchases under the current accounting standards (IAS 2 - Inventories and IAS 18 - Revenue). Circular 2/2017
considers these developments and updates the previous guidance contained in Circular 9/2006 relating to financing
elements of revenue and purchases. Circular 2/2017 repeals the guidance in Circular 9/2006 that deals with extended
payment terms (paragraphs 23 to 30).
As a result of the revised guidance in Circular 2/2017, the Group has reconsidered its accounting policy with respect
to financing components included in its sale and purchase transactions in the ordinary course of business. In line with
the guidance contained in Circular 2/2017, in particular the indicators provided in paragraph 7 of the Circular, the
Group has concluded that there is no financing component included in its sale and purchase transactions that occur in
the ordinary course of business. In accordance with IAS 8, the Group has therefore restated its comparative financial
information for this change in accounting policy and provided an opening balance sheet as at 1 June 2016. The impact
of this change in accounting policy was immaterial to the opening retained earnings at 1 June 2016.
Group statement of financial position
As at 31 May
Restated Restated
2017 Adjustments 2017 2016 Adjustments 2016
Notes R'000 R'000 R'000 R'000 R'000 R'000
ASSETS
Non-current assets 2 198 757 - 2 198 757 2 275 161 - 2 275 161
Current assets 6 498 626 7 113 6 491 513 5 037 786 6 996 5 030 790
Trade and other receivables 3.1.2 2 766 110 7 113 2 758 997 2 686 019 6 996 2 679 023
Total assets 8 697 383 7 113 8 690 270 7 312 947 6 996 7 305 951
Equity and liabilities
Capital and reserves 4 995 284 (9 158) 5 004 442 4 516 120 (3 447) 4 519 567
Retained earnings 3 640 034 (9 158) 3 649 192 3 101 603 (3 447) 3 105 050
Non-current liabilities 55 665 (3 561) 59 226 101 613 (1 341) 102 954
Deferred taxation liabilities 7.2 49 391 (3 561) 52 952 60 800 (1 341) 62 141
Current liabilities 3 646 434 19 832 3 626 602 2 695 214 11 784 2 683 430
Trade and other payables 3.2.1 3 537 505 19 832 3 517 673 2 613 591 11 784 2 601 807
Total equity and liabilities 8 697 383 7 113 8 690 270 7 312 947 6 996 7 305 951
Group income statement
For the year ended 31 May
Restated
2017 Adjustments 2017
Notes R'000 R'000 R'000
Revenue 1.2 26 469 581 157 706 26 311 875
Changes in inventories of finished goods (24 340 581) (201 288) (24 139 293)
Operating profit 1.3 1 174 890 (43 582) 1 218 472
Finance costs 1.4 (109 788) 193 239 (303 027)
Finance income 1.4 84 605 (157 589) 242 194
Net profit before taxation 1 144 966 (7 932) 1 152 898
Taxation 7.1 (329 816) 2 221 (332 037)
Net profit for the year 815 150 (5 711) 820 861
Net profit for the year attributable to:
Equity holders of the parent 781 254 (5 711) 786 965
Earnings per share for profit attributable to:
Equity holders (cents)
- Basic 1.5 114.13 (0.84) 114.97
- Diluted 1.5 113.17 (0.83) 114.00
The change in accounting policy had no impact on the Group statement of cash flows.
Non-IFRS information
The auditor's report does not necessarily cover all of the information contained in this announcement. Shareholders
are therefore advised that in order to obtain a full understanding of the nature of the auditor's work they should obtain
a copy of that report together with the accompanying financial information from the registered office of the Company.
This announcement contains certain non-IFRS financial information which has not been reviewed or reported on by the
Group's auditors.
Administration
Directors: LM Nestadt (Chairman)*, BM Levy, MS Levy, K Ellerine**, GD Harlow*, P Mahanyele*, JS Mthimunye*,
DA Suntup, J Vilakazi*
(*Independent non-executive) (**Non-executive)
Company Secretary: J van Eden
Sponsor: Investec Bank Limited
Auditors: PricewaterhouseCoopers Inc.
American Depository Receipt (ADR) Programme:
Cusip No.: 095648101 Ticker name: BULBY ADR to ordinary share: 1:10
Depository: BNY Mellon, 101 Barclay Street, New York NY, 10286, USA
www.bluelabeltelecoms.co.za
Date: 22/08/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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