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Group revenue declined by R4.3 billion (23%) to R14.6 billion. However, as only the gross profit earned on "PINless top‑ups", prepaid electricity, ticketing and universal vouchers is recognised as revenue, on imputing the gross revenue generated from these sources, the effective growth in revenue equated to R12.5 billion (16%), resulting in a total revenue of R89.3 billion compared to the prior year of R76.8 billion.
Gross profit decreased by R188 million (5%) from R3.483 billion to R3.295 billion. The decline was mitigated by an increase in the gross profit margin from 18.41% to 22.57%. This increase in margins can be partially attributed to the growth in "PINless top-ups", prepaid electricity, ticketing and universal vouchers, where only the gross profit earned thereon is recognised as revenue.
The Group remains vigilant in managing its total overhead costs.
EBITDA declined by R258 million (18%) from R1.463 billion to R1.205 billion, excluding the positive contributions of R20 million in the current year and negative contributions of R146 million in the prior year. Of this decline, Comm Equipment Company Proprietary Limited (CEC) showed a negative impact of R368 million, while the remaining Group operations contributed an additional R110 million compared to the previous year.
Core headline earnings for the year ended 31 May 2024 amounted to R679 million, equating to core headline earnings of 76.08 cents per share.
In the comparative year, core headline earnings amounted to R402 million, equating to core headline earnings of 45.55 cents per share. The predominant negative contributions to the May 2023 basic, headline and core headline earnings per share are primarily associated with the recapitalisation transaction of Cell C.
Excluding the positive contributions of R66 million in the current year and the negative contributions of R523 million in the prior year, as illustrated in the underlying tables, core headline earnings declined by R312 million (34%) from R925 million to R613 million and core headline earnings per share declined by 34% from 104.83 cents per share in the prior year to 68.66 cents per share. This decline in core headline earnings was attributable to a decrease of R188 million in CEC, while the remaining entities within the Group declined by R124 million compared to the prior year.
The decline in CEC's core headline earnings was primarily attributable to a decline in gross profit stemming from a decrease in earnings resulting from the expiry, in November 2022, of certain elements of the revenue-sharing agreement, increased expenditure related to the distribution agreement and an increase in the amortisation of handset subsidies. The declines were offset by a reduction in the expected credit loss following a comprehensive base reconciliation at the end of the previous financial year as well as the derecognition of the expected credit loss on the sale of a portion of its handset receivable books.
As part of the recapitalisation transaction of Cell C, and to further assist with their working capital requirements, The Prepaid Company Proprietary Limited (TPC) is obligated to purchase R1.2 billion of additional prepaid airtime through four quarterly payments of R300 million each. To fund these working capital requirements for Cell C, CEC sold a portion of its handset receivable book to financial institutions Limited. The funds generated from this transaction are transferred from CEC to TPC, and ultimately to Cell C through the acquisition of airtime as referred to above.
The remaining entities within the Group, with particular reference to TPC, faced a reduction in core headline earnings due to the cessation of certain rebates and a reduction in discounts from Cell C, following its recapitalisation.
Earnings per share for the current and prior years amounted to 72.49 cents and 30.48 cents respectively. On the exclusion of the contributions resulting primarily from the recapitalisation transaction of Cell C from both the current and prior years, earnings per share and headline earnings per share declined by 35% to 65.07 cents per share and 66.22 cents per share, respectively.
Group Income Statement
* The extraneous net positive contributions to Group earnings in the current year were attributable to:
** The extraneous negative contributions to Group earnings in the prior year were primarily attributable to:
| Extraneous costs** May 2023 R’000 |
Recap of Cell C(2) May 2023 R’000 |
Once-offs(3) May 2023 R’000 |
||||
|---|---|---|---|---|---|---|
| Bad debts, expected credit losses and fair value movements | (88 474) | (110 474) | 22 000 | |||
| Loss on modification of financial instrument | (57 453) | (57 453) | — | |||
| EBITDA | (145 927) | (167 927) | 22 000 | |||
| Finance costs | (321 915) | (321 915) | — | |||
| Finance income | 238 362 | 238 362 | — | |||
| Reversal of impairments in associates | 962 531 | 962 531 | — | |||
| Share of losses from associates and joint ventures | (1 328 767) | (1 328 767) | — | |||
| Net loss after tax | (616 688) | (638 688) | 22 000 | |||
| Core headline earnings | (523 157) | (545 157) | 22 000 |
Africa Distribution
| May 2024 R’000 |
Extraneous income(1) May 2024 R’000 |
Remaining May 2024 R’000 |
May 2023 R’000 |
Extraneous costs(2) May 2023 R’000 |
Remaining May 2023 R’000 |
Growth remaining R’000 |
Growth remaining % |
||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | 14 343 953 | 127 742 | 14 216 211 | 18 643 810 | — | 18 643 810 | (4 427 599) | (24%) | |||
| Gross Profit | 3 215 296 | 127 742 | 3 087 554 | 3 402 488 | — | 3 402 488 | (314 934) | (9%) | |||
| Other expenses | (621 449) | (15 651) | (605 798) | (566 207) | — | (566 207) | (39 591) | (7%) | |||
| Bad debts, expected credit losses and fair value movements | (502 018) | (59 208) | (442 810) | (722 046) | (110 474) | (611 572) | 168 762 | 28% | |||
| Loss on modification/derecognition of financial instruments |
(32 576) | (32 576) | — | (57 453) | (57 453) | — | — | ||||
| EBITDA | 1 354 629 | 20 307 | 1 334 322 | 1 363 916 | (167 927) | 1 531 843 | (197 521) | (13%) | |||
| Finance costs | (1 120 225) | (461 932) | (658 293) | (681 193) | (321 915) | (359 278) | (299 015) | (83%) | |||
| Finance income | 896 028 | 599 823 | 296 205 | 407 731 | 238 362 | 169 369 | 126 836 | 75% | |||
| Reversal of impairments in associates | — | — | 962 531 | 962 531 | — | — | |||||
| Share of (losses)/profit from associates and joint ventures | (2 489) | (2 489) | (1 320 348) | (1 328 767) | 8 419 | (10 908) | (130%) | ||||
| Net profit after tax | 769 270 | 66 262 | 703 008 | 360 771 | (638 688) | 999 459 | (296 451) | (30%) | |||
| Core headline earnings | 801 571 | 66 262 | 735 309 | 493 402 | (545 157) | 1 038 559 | (303 250) | (29%) | |||
| Gross profit margin | 22.42% | 21.72% | 18.25% | 18.25% | |||||||
| EBITDA margin | 9.44% | 9.39% | 7.32% | 8.22% |
Refer to above for footnote (1) and here for footnote (2).
Revenue generated within the Africa Distribution segment declined by R4.3 billion (23%) from R18.6 billion to R14.3 billion. As only the gross profit earned on "PINless top-ups", prepaid electricity, ticketing and universal vouchers is recognised as revenue, on imputing the gross revenue generated thereon, the effective growth in revenue equated to R12.6 billion (16%) from R76.5 billion to R89.1 billion.
Gross revenue generated on "PINless top-ups" increased by R529 million from R21.2 billion to R21.8 billion.
Electricity revenue generated on behalf of the utilities increased by R3.7 billion (12%) from R32.4 billion to R36.2 billion and the net commission earned, mainly calculated based on a kW/hour usage, increased by R12 million (5%) from R251 million to R263 million. The limited growth in commissions was primarily due to inflationary increases, based on kW/hour usage offset by a marginal decrease in electricity usage resulting from a higher frequency of load shedding, during the first nine months of the financial year and margin compression, despite an increase in gross electricity revenue driven by NERSA electricity tariffs.
The gross revenue generated from universal vouchers increased by R12.3 billion (341%) from R3.6 billion to R15.9 billion, driven by the continued traction of BluVoucher sales as well as the onboarding of a new financial institution onto the platform. Additionally, gross ticketing revenue increased by R402 million (36%) to R1.511 billion, primarily from revenue generated through commuter bus channels.
Gross profit decreased by R187 million (6%) from R3.402 billion to R3.215 billion. The decline was mitigated by an increase in the gross profit margin from 18.25% to 22.42%.
Excluding the positive contribution of R20 million in the current year and the negative contributions of R168 million in the prior year, resulting from the recapitalisation transaction of Cell C, EBITDA declined by R197 million (13%) from R1.532 billion to R1.334 billion. Of this decline, CEC showed a negative impact of R368 million, while the remaining Africa operations contributed an additional R171 million compared to the previous year.
The decline in CEC's EBITDA of R368 million was primarily attributable to a decline in gross profit of R559 million stemming from a decrease in earnings resulting from the expiry, in November 2022, of certain elements of the revenue-sharing agreement, increased expenditure related to the distribution agreement and an increase in the amortisation of handset subsidies. The declines were offset by a reduction of R171 million in the expected credit loss following a comprehensive base reconciliation at the end of the previous financial year as well as the derecognition of the expected credit loss on the sale of a portion of its handset receivable books.
Excluding the positive contributions of R66 million in the current year and the negative contributions of R545 million in the prior year, resulting from the recapitalisation transaction of Cell C, core headline earnings decreased by R303 million (29%) from R1.039 billion to R735 million. This decrease in core headline earnings was attributable to a decrease of R188 million in CEC, while the remaining entities in the Africa Distribution segment decreased by R115 million compared to the prior year.
Solutions
This segment comprises Datacel, Blue Label Data Solutions (BLDS), the data aggregation and lead generation entity in which the Group owns 81%, a 50% joint venture shareholding owned by BLDS in I Talk Holdings and 37.5% in I Talk Financial Services, both of which are outbound call centre operations.
In addition, the following underlying companies form part of the solutions segment, namely, Blu Train, Blue Label Communications, One World Telecoms and I Talk2U.
| May 2024 R’000 |
May 2023 R’000 |
Growth R’000 |
Growth % |
||||
|---|---|---|---|---|---|---|---|
| Revenue | 254 491 | 274 453 | (19 962) | (7%) | |||
| Gross profit | 79 742 | 80 587 | (845) | (1%) | |||
| EBITDA | 29 193 | 40 359 | (11 166) | (28%) | |||
| Share of profit/(losses) from associates and joint ventures | 17 905 | (9 399) | 27 304 | 290% | |||
| Core headline earnings | 43 831 | 25 240 | 18 591 | 74% | |||
| Gross profit margin | 31.33% | 29.36% | |||||
| EBITDA margin | 11.47% | 14.71% |
A decline in SMS volumes resulted in a decrease in revenue of R20 million (7%) from R274 million to R254 million.
Gross profit decreased by R1 million (1%), from R81 million to R80 million, while margins improved from 29.36% to 31.33%, despite a decline in revenue.
EBITDA declined by R11 million (28%) from R40 million to R29 million. Excluding the R17 million costs attributable to learnership initiatives in the current year and R6 million in the prior year, EBITDA decreased by R1 million (1%) from R47 million to R46 million.
Of the core headline earnings of R43.8 million, BLDS accounted for R29.7 million, I Talk Holdings and I Talk Financial Services generated earnings of R18 million, of which the Group's share amounted to R5.4 million. Blue Label Communications and Blu Train generated earnings of R1.5 million and R14.7 million, of which the Group's share amounted to R0.9 million and R7.8 million, respectively.
Of the core headline earnings of R25.2 million in the prior year, BLDS accounted for R32.5 million. I Talk Holdings and I Talk Financial Services generated negative earnings of R20 million, of which the Group's share amounted to R8 million. Blue Label Communications generated earnings of R1.3 million, of which the Group's share amounted to R0.7 million.
Corporate
| May 2024 R’000 |
May 2023 R’000 |
Extraneous income(3) May 2023 R’000 |
Remaining May 2023 R’000 |
Growth remaining R’000 |
Growth remaining % |
||||
|---|---|---|---|---|---|---|---|---|---|
| EBITDA | (157 957) | (119 344) | 22 000 | (141 344) | (16 613) | (12%) | |||
| Net loss after tax | (164 174) | (140 844) | 22 000 | (162 844) | (1 330) | (1%) | |||
| Core headline earnings | (164 174) | (140 785) | 22 000 | (162 785) | (1 389) | (1%) |
Excluding the extraneous income of R22 million in the prior year, the negative contribution to Group core headline earnings increased by R1 million (1%) to R164 million.
The extraneous fair value movement of R22 million in the prior year related to the accounting implications of the termination of the Airvantage put option obligation for the acquisition of up to 40% of the shares therein.
Depreciation, amortisation and Impairment charges
Depreciation, amortisation and impairment charges decreased by R27 million to R164 million. Of the latter amount, R69 million (2023: R72 million) pertained to depreciation on capital expenditure, R13 million (2023: R31 million) to depreciation raised in terms of IFRS 16 - Leases, R14 million (2023: R12 million) to impairments and R68 million (2023: R75 million) to the amortisation of intangible assets of which R30 million (2023: R42 million) emanated from purchase price allocations on historical acquisitions.
Finance costs
Finance costs increased by R439 million from R682 million to R1.121 billion. Of the latter amount, R1.082 billion was associated with interest paid on borrowed funds, R4 million with the unwinding of the lease liability in accordance with IFRS 16, and R35 million with other finance costs. In comparison, R664 million related to interest paid on borrowed funds, R4 million to the unwinding of the lease liability, and R14 million to other finance costs.
The recapitalisation transaction of Cell C in September 2022 resulted in an additional R272 million (2023: R309 million) in finance costs, incurred due to increased borrowings related to airtime sale and repurchase obligations, R29 million (2023: R13 million) for the issue of Class A Preference Shares in the current year and R161 million (2023: Nil) from finance costs recognised on the date of sale of the CEC's handset receivable book, calculated using the prime interest rate multiplied by the gross handset value sold.
Excluding the aforementioned recapitalisation interest, finance costs increased by an additional R299 million from R360 million to R659 million. Of this increase, R19 million was primarily due to higher finance costs associated with the expansion of the Group's working capital facility from R1.15 billion to R1.4 billion on the recapitalisation date, coupled with elevated interest rates compared to the previous year. Additionally, R230 million of the increase was due to the granting of short-term working capital facilities for bulk inventory purchases at favourable rebates. Of the remaining R50 million increase, R29 million resulted from Comm Equipment Company Proprietary Limited's working capital financing facility of R1.9 billion from African Bank, with the remaining R21 million attributed to other finance costs.
Finance income
Finance income increased by R490 million from R412 million to R902 million. Of the latter amount, R44 million was attributable to interest received on cash resources, R102 million to the loan provided to Cell C in connection with the CEC R1.1 billion deferral amount, R600 million from the loan extended to Cell C as a component of the debt-funding required as part of the recapitalisation transaction, R100 million from interest accrued on the overdue trade receivable balance owed to CEC by Cell C and R56 million from other loans advanced.
In the prior year, R77 million was attributable to interest received on cash resources, R82 million to the loan provided to Cell C relating to the CEC R1.1 billion deferral amount, R235 million from the loan extended to Cell C as a component of the debt-funding required as part of the recapitalisation transaction and R18 million from other loans granted.
Statement of financial position
Total assets increased by R419 million to R15.1 billion, of which current assets account for R788 million, offset by a decrease in non-current assets of R369 million.
The decline in non-current assets included a reduction of R325 million in advances to customers, largely due to the partial sale of the handset receivable book to financial institutions and a decrease of R118 million in intangible assets, primarily from the amortisation of the subscription income-sharing arrangement and subscriber acquisition costs in CEC. These declines were partially offset by increases in loans to associates and joint ventures totalling R54 million.
The net growth in current assets includes an increase in inventory of R1.6 billion. As part of the Cell C recapitalisation transaction, and to further support their working capital requirements, The Prepaid Company purchased an additional R1.2 billion in prepaid airtime through four quarterly payments of R300 million each. Additionally, there was an increase in trade and other receivables by R177 million, and in loans to associates and joint ventures by R204 million. These increases were partially offset by decreases in advances to customers amounting to R696 million, primarily due to the partial sale of the handset receivable book, and a reduction in cash and cash equivalents by R407 million.
In August 2023, CEC concluded a arrangement with financial institutions, allowing CEC to sell handset receivables to them. From August 2023 to May 2024, CEC entered into three separate arrangements with a gross value of R1.4 billion, each negotiated on different terms. CEC's advances to customers decreased by R1.02 billion from R2.26 billion on 31 May 2023, to R1.24 billion on 31 May 2024. Excluding the disposal of the handset receivables, CEC's advances to customers increased by R209 million over that period.
The increase of R258 million in loans to associates and joint ventures is primarily attributable to the interest accrued of R600 million from the loan extended to Cell C as a component of the debt-funding and reinvestment instrument offset against expected credit losses on these loans amounting to R121 million. Additionally, R102 million related to interest accrued on the loan extended on the CEC deferral amount, less repayments received thereon of R332 million.
Net profit attributable to equity holders amounted to R647 million, resulting in accumulated capital and reserves of R5.1 billion.
Non-current liabilities increased by R1.11 billion, comprising an increase in non-current borrowings of R1.07 billionand deferred taxation liabilities of R38 million.
Current liabilitie and other payables by R301 million.
Statement of cash flows
Cash generated from trading operations amounted to R769 million. Working capital movements included an increase in inventory of R1.6 billion, trade and other receivables of R77 million and a decrease in trade and other payables of R270 million. These increases were offset by a decrease in advances to customers of R943 million. After incurring net finance costs of R883 million and taxation of R187 million, net cash utilised in operating activities amounted to R301 million.
Net cash flows utilised in investing activities amounted to R61 million, primarily attributable to the purchase of intangible assets amounting to R282 million and property, plant and equipment amounting to R88 million. These outflows were partially offset by the net repayment of loans to associates and joint ventures of R218 million, the repayment of loans receivable carried at fair value of R45 million, the net repayment of other third-party loans of R31 million, and proceeds from the disposal of property, plant, and equipment amounting to R15 million.
Included in net loan repayments by associates and joint ventures of R219 million are capital repayments by Cell C of R230 million offset by net loans granted to other associates and joint ventures of R11 million.
Cash flows utilised in financing activities amounted to R45 million, of which R22 million related to dividends paid to a minority shareholder of a subsidiary company, R17 million to lease repayments and R6 million to the net decrease in interest-bearing borrowings.
Cash and cash equivalents accumulated to R896 million at 31 May 2024.
Conditional share plan
Conditional shares totalling 17 000 314 (2023: 7 985 185) were issued to qualifying employees. During the year, 835 508 (2023: 2 282 379) shares were forfeited and 12 694 462 (2023: 16 764 722) shares vested.
Appreciation
The Blue Label Board would like to extend its gratitude to the staff, suppliers, customers, and business partners for their ongoing support and dedication to the Group.
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
28 August 2024
* Supervised the preparation and review of the Group's audited year-end results.
