annual report 2010 | living our vision - blue label telecoms
TRANSCRIPT
Annual report 2010 | Living our vision
The appeal of prepaid ...
to consumers
� Prepaid products and services are the ultimate budgeting tool, as consumers have
absolute choice and control over what they spend
� The majority of prepaid transactions are cash based, therefore using prepaid removes the
requirement for credit vetting
� Prepaid products and services can be conveniently topped up, either virtually or physically,
as and when required by consumers
� Prepaid products and services are sold across a broad footprint of traditional and
non-traditional outlets
� Prepaid products and services enable the world’s unbanked consumers to purchase
first-world products and services in a manner which suits them and allows consumers
to transact as and when they wish
to suppliers
� Prepaid products and services mean cash upfront for the supplier, thereby guaranteeing
payment
� Guaranteed payments translate into no need for debtor collections and therefore no bad
debts
to merchants
� Blue Label’s prepaid products and services allow for multiple products to be sold from one
device, thereby enabling merchants to have multiple revenue streams utilising a relatively
small retail space
� Prepaid products and services are delivered virtually, eliminating stock management
Financial highlights
Maiden dividend | 12 cents per share
�11% | Increase in revenue
�10% | Increase in gross profit
�21% | Increase in EBITDA
�6% | Decrease in core earnings per share
R516 million cash flows
from operating activities
The attached USB device will link you directly to our website and contains downloadable files in PDF format of the year-end results presentation and the 2010 Annual Report.
Our group in brief1 Corporate profile2 Vision and mission5 Investment proposition9 Strategic and operational highlights
11 Our values13 Group structure14 Milestones16 Board of directors22 Segmental management24 Chairman’s report30 Joint chief executive officers’ report36 Segmental reviews
Governance and sustainability59 Corporate governance78 Remuneration report86 Report of the Audit, Risk and Compliance Committee92 Sustainability report
120 Independent assurance statement124 Financial director’s report
Financial statements134 Directors’ responsibility135 Declaration by Company Secretary136 Independent Auditors’ report138 Directors’ report142 Group statement of financial position 144 Group statement of comprehensive income146 Group statement of changes in equity148 Group statement of cash flows 149 Notes to the group annual financial statements234 Company statement of financial position235 Company statement of comprehensive income236 Company statement of changes in equity237 Company statement of cash flows238 Notes to the company annual financial statements
Annual general meeting259 Notice of annual general meeting265 Explanatory notes to resolutions for consideration
at the annual general meeting267 Form of proxy268 Notes to the proxy form
Glossary269 Glossary
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1Corporate profile | Background and nature of business
Vision statement
To become the leading
global distributor of secure
electronic tokens of value
and other transactional
services within emerging
markets.
Mission statement
To provide world-class
product and service offerings
to consumers within the
middle and lower tiers of the
world’s economic pyramid.
We aim to achieve this
through the development and
acquisition of cutting-edge
technologies, the expansion
of our global footprint of
touch points and adherence
to our core values.
Blue Label Telecoms enables unbanked and underbanked consumers in emerging and developing markets to access first-world products and services, conveniently and cost effectively.
The vast majority of the world’s emerging market population are either unbanked or
underbanked, yet a large number of products and services are only available to people with
bank accounts, credit cards or debit cards. Even though consumers may be unbanked or
underbanked, they have access to cash and are increasingly demanding equal access to first-
world products and services. The key to enabling access to these products and services to
the unbanked or underbanked is to make them available on a prepaid or pay-as-you-go basis.
This method of distribution is growing rapidly in emerging and developing economies and is
the cornerstone of Blue Label’s business.
In 2001, when Blue Label commenced operations, “prepaid” was synonymous with airtime.
The group recognised the opportunity to grow the prepaid product and service concept from
airtime to other offerings, including but not limited to electricity, ticketing, insurance as well
as other transactional services.
The company develops proprietary technology to support the rollout of its bouquet of products
and services. The Blue Label network was built around the premise that any product or
service that can be digitised, can be distributed and paid for through its footprint.
Blue Label has established a distribution network for processing transactions through various
points-of-presence including individual merchants, single entity retail outlets, national chain
stores and petroleum forecourts in South Africa and beyond.
Blue Label aims to extend its global footprint of touch points, both organically and acquisitively,
by continuing to fulfil the significant demand for the delivery of a multiplicity of prepaid
products and services through multiple distribution bases utilising its various proprietary
delivery mechanisms.
ANNUAL REPORT 2010
2 Corporate profile
Blue Label Telecoms is:
• The owner of scalable and transferable proprietary technology
• An unaffiliated distributor of products and services in an open loop
– Hardware agnostic
– Product and services agnostic
• A payment facilitator
• A virtual mall:
• Our products and services require no stock management, therefore there is no dead stock, no perishables, no overstocking and no pilferage
• So long as you are able to pay, you are able to purchase: all payment options, including cash, debit card, credit card and EFT can be accommodated.
BLUE LABEL TECHNOLOGY PLATFORM (AEON)
How we operate: a technical overview
TRANSACTIONJUNCTION
(POSTILLION)
FINANCIAL INSTITUTIONS
Kiosk
Wholesale Main retailers
Independent retailers Kiosks Informal
retailers
POS terminal
Vending machine
Integrated gateway Touch screen Bulk voucherMOBILE
DEVICES
BLUE LABEL DISTRIBUTION
AIRTIME UTILITIES(ELECTRICITY) INSURANCE
GIFT VOUCHER, LOYALTY
CARD, ETC
BLUE LABEL TECHNOLOGY PLATFORM (AEON)
BILL PAYMENTS/
EFT
AIRLINE TICKETS,
BUS TICKETSOTHER
Products/ServicesBlue Label or third party
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Blue Label Telecoms, prepaid products and services
Blue Label has extensive operational experience in various prepaid markets, spanning several continents.
The enduring relationships with both supply partners and its distribution network enable Blue Label to reduce lead times in taking products and services to market.
Customers are partners in the supply and payment value chain.
DISTRIBUTIONLarge and growing footprintNew points of visual presenceVending machinesTouch screensPOS terminalsMobile phones
Management of salesAirtime/Starter packs
Inventory managementInventory balancing maximised
MARKETINGVisual presence to increase customer awarenessPoint-of-sale materials
Intelligent consumer dataDiverse mix of
communication channels
TECHNOLOGY
Designed and developed in-house
We own the technology – back-end and terminal firmware
Ongoing research and development
Country customisation – language and character changes
VALUE ADDED SERVICES
Helpdesk for retailers
Technical installation and support
4
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InvestingInvestment proposition
Blue Label is a South African-based lifestyle enabler. We provide consumers with additional choice of how to pay for
goods and services – prepay or as it is sometimes described, pay-as-you-go. This enables unbanked or underbanked
consumers to access goods and services by prepaying for them. Our growing distribution network in South Africa covers
over 130 000 points of sale from major retail stores to registered individuals and we continue to expand our footprint
across the emerging markets of India, Mexico and Nigeria.
=
business model STRENGTHENED since listing
+strong CASH generation even during recession
+robust GROWTH footprint
ANNUAL REPORT 2010
6
Business model strengthened
� Business founded in 2001 by entrepreneurial thinkers
� Business model strengthened by restructuring and consolidation ahead of listing
� Listing in November 2007 raised R1.3 billion
� Governance and compliance structure strengthened
� Low gearing since listing
� Global shift in consumer transactional behaviour: from credit to debit to prepaid terms
� High-volume low-margin distribution and sale of e-tokens of value
� Leveraging favourable working capital management
� Typical market is in emerging and developing economies
� Target market is world’s unbanked and underbanked consumer
� Enabling access to prepaid products and services
� Strong barriers to entry for competitors include entrenched relationships, vendor lock-up through systems integration, ubiquity of POS and proprietary technologies
� Long-term contracts with mobile network operators
� Long-term relationships with participants across seven main distribution channels
� Holds approximately 60% of South African prepaid airtime and about 11% of prepaid electricity market
� In-house developed and maintained proprietary technology
� Monetising existing footprint by offering additional value added services
� Processes over 400 million transactions per month
� Strategic 12% shareholding by Microsoft
� Entrepreneurial, young and talented management team
Investment proposition
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Strong cash generation
� Cash-generative business even during recession
�Trading revenue from sales of prepaid virtual and physical mobile and fixed line airtime, prepaid electricity, tickets, insurance and other transactional services via its wholesale, retail and merchant distribution footprint
� Trading and annuity revenue from sale of starter packs, their activation and ongoing utilisation
� Annuity revenue from subscription-based services
� Interest income derived from a combination of high revenue volumes and favourable trading terms
� Dividend policy in place
� Capital expenditure relates mainly to point-of-sale devices
Robust growth footprint
� Licensing of technology as an alternative to equity investment
� Expanding goods and services offerings in South Africa: prepaid electricity, bill payments, money transfers
� Replicate existing goods and services offerings in other emerging markets, particularly India, Mexico and Nigeria
� Impart offerings and learnings across global footprint
� Established systems and infrastructure, so growth costs incrementally decreasing
� Growth prospects, both organic and by merger and acquisition
� Growth can be funded from internal cash flows
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Strategic and operational highlights
Continuing focus on consolidating footprint in India, Mexico and Nigeria
India turnaround plan bears fruit
Mexico rollout programme steadily progresses with more than 3 500 POS devices
Nigeria extends offering to four additional networks as dealer relationship strengthens
South African distribution sees growth in products and services, including prepaid electricity, money transfer, EFT, Lotto, bill payments, PINless
Blu-approved branding being introduced
Growing
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Enduring relationships � Partnering with key stakeholders to ensure sustainability
� Skill retention through self-empowerment, incentivisation and creating a sense of ownership
Entrepreneurship � Indentifying new opportunities and converting them to profit centres
� Encouraging entrepreneurial thinking and rewarding innovation
� Encouraging a culture where excellence as opposed to position rules
Innovation � Encouraging lateral thinking to achieve proprietary technology and commercialisation
� Not allowing comfort zones to retard progress
� Not resting on our laurels
Integrity � Ethical business practices
� Sound governance
� Strict compliance with legal and regulatory obligations
� Respect for the interest of all stakeholders, including shareholders, customers, suppliers and employees
� Making a contribution to the betterment of society as responsible corporate citizen including commitment to transformation and socio-economic and environmental imperatives.
Our values
Connecting
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� Bricks and mortar
� Technology offerings
United Kingdom
South Africa
India
Nigeria
Mexico
GlobalOperational structure
Value addedservices
Datacel
Velociti
Blue Label Data Solutions 81%
CNS
Blue Label Procurement 50%
Cellfind
Content Connect Africa
South Africandistribution
The Prepaid Company
Crown Cellular
Bela Phone Company 51%
Ventury
Matragon
Kwikpay SA
Virtual Voucher
The Postpaid Company
Internationaldistribution
Africa Prepaid Services 72%
APS Nigeria 51%
Gold Label
Oxigen Services India 37.22%
Ukash15.79%
SharedPhone International 50.1%
Blue Label Australasia 50.5%
Blue Label Mexico70%
100% unless otherwise stated
Technology
Activi TechnologyServices
Activi
TransactionJunction 60%
Blue Label One
ANNUAL REPORT 2010
14 Milestones
June
BLI founded by Mark and Brett Levy after its primary investment vehicle, TPC, acquired a national licence to distribute prepaid airtime for Telkom
Between the formation of BLI and the listing of Blue Label Telecoms, TPC acquired a range of strategic businesses aligned to the telecommunications industry, resulting in substantial growth of market share
20
03
20
05
20
04
20
01
October
Acquires interest in Ventury
Acquires stake in Kwikpay SA
December
Acquires equity stake in Africa Prepaid Services
June
Acquires initial equity stake in Oxigen Services India
August
Acquires equity stake in Cellfind
February
Acquires indirect interest in Datacel
May
Acquires equity stake in SharedPhone International
Nthwese Investment Holdings Consortium (Proprietary) Limited, a BEE consortium, together with the Public Investment Corporation acquires 33.33% stake in BLI
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06
March
Acquires equity stake in Virtual Voucher
May
Acquires interest in Matragon
May
Commences operations in Nigeria
August 2010
Maiden dividend of 12 cents per share approved
June
Increases equity stake in Oxigen Services India
Establishes Blue Label Mexico
September
Acquires equity stake in Ukash
December
Establishes Africa Prepaid Services Nigeria
January
Acquires Content Connect Africa
March
Acquires Crown Cellular
April
Acquires remaining minority interest in Ventury2
00
8
April
Acquires equity stake in Activi Technology Services
November
Microsoft acquires 12% equity stake in BLT
Microsoft and BLT sign strategic collaboration and preferred partnership agreements
Prior to listing, BLT restructures, acquiring the majority of its minority shareholders’ interests
BLT lists in the
Telecommunications
sector on the main
board of the JSE
Limited
ANNUAL REPORT 2010
16 Board of directors
Laurence Nestadt (Larry)Independent non-executive chairman
Born: 1950
Larry has a long and successful corporate career, both in South Africa and internationally. Larry is a co-founder and former executive director of Investec Bank Limited. He assisted in the creation and strategic development of a number of listed companies such as Capital Alliance Holdings Limited, Super Group Limited, Hosken Consolidated Investments Limited, SIB Holdings Limited and Global Capital Limited.
In addition to serving as past chairman on the boards of these companies, he is currently the executive chairman of Global Capital (Proprietary) Limited. Larry has also served on the board of directors of Softline Limited, JCI Limited and Abacus Technologies Holdings Limited. Larry was a former director of a number of non-listed companies, internationally and locally; viz, Stenham Limited (UK) and Prefsure Life Limited (AUS). Currently he is chairman of the following non-listed South African companies: the Pro Shop Group, Melrose Nissan, SellDirect Marketing (Proprietary) Limited, BCE Foodservice Equipment (Proprietary) Limited and Placo Holdings (Proprietary) Limited.
Larry is a respected member of the South African business community and his strategic vision and experience contributes significantly to the board.
Brett LevyJoint chief executive officer
Born: 1975
Brett has an impressive entrepreneurial history having founded and operated a number of small businesses from the early 1990s. Brett has been involved in a wide range of industries, including the distribution of fast-moving consumer goods and insurance replacements for electronic goods. His business achievements have secured a number of prestigious nominations and awards, including the ABSA Bank Jewish Entrepreneur of the Year Award (2003) and the ABSA Jewish Business Achiever Non-Listed Company Award (2007), which he won jointly with his brother Mark. Brett was nominated as an Ernst & Young World Entrepreneur SA Finalist for 2007. In 2010 Brett was a finalist in the Top Young Entrepreneur category of the African Access National Business Awards and received the Liberty Life Award for a Remarkable Success Story in the 2010 David Awards.
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Mark LevyJoint chief executive officer
Born: 1971, BCompt (UNISA)
Mark graduated with a BCompt degree from UNISA in 1993. After a period as a commodity trader, Mark decided to pursue his goal of becoming an entrepreneur and has spent the past several years spearheading Blue Label Telecoms’ impressive growth and international expansion. Together with his brother Brett, Mark won the ABSA Jewish Business Achiever Non-Listed Company Award (2007). Mark was nominated as an Ernst & Young World Entrepreneur SA Finalist for 2007. In 2010 Mark was a finalist in the Top Young Entrepreneur category of the African Access National Business Awards.
Mark PamenskyChief operating officer
Born: 1972, BCom (Wits), BCompt (Hons) (UNISA), CA(SA)
Mark completed his articles with PricewaterhouseCoopers Inc. before moving to the corporate finance department of Mercantile Bank. In 1999 he joined the boutique corporate advisory firm, Nucleus Corporate Finance, before joining Blue Label Investments in 2001. Mark has played an integral role in the strategic and operational management of the Blue Label Telecoms group and much of its telecommunications footprint can be attributed to his leadership. Mark is a member of the South African Institute of Chartered Accountants (SAICA) and the Young Presidents Organisation (YPO).
ANNUAL REPORT 2010
18 Board of directors | continued
David RivkindFinancial director
Born: 1972, BAcc (UNISA), CA(SA)
David commenced his articles at Papilsky Hurwitz and in 1999 he joined Merrill Lynch International (UK) as a financial controller. David was employed by Credit Suisse for a brief period before his return to South Africa in 2002. On his return David became the financial director at Integr8IT (Proprietary) Limited prior to his appointment as the chief financial officer for Blue Label Investments where he contributed significantly to the rapid growth of the group. David is a member of SAICA.
Kevin EllerineNon-executive director
Born: 1969, National diploma in Company Administration
Kevin joined the family business, Ellerine Holdings, in January 1991 as merchandise manager. In 1993 he became property manager of Ellerine Bros. (Proprietary) Limited, and was appointed managing director of the Property Division in 2000, a position he still holds today. He sits on the boards of all the property and private equity companies in which Ellerine Bros. is invested.
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Gary HarlowIndependent non-executive director
Born: 1957, BBusSci (Hons) (UCT), FCMA, CA(SA)
Gary graduated from the University of Cape Town in 1979, later qualifying as a Chartered Accountant (SA) in 1982, an Associate of the Chartered Institute of Management Accountants (UK) in 1983 and as a Fellow Chartered Management Accountant (UK) in 1996. After forging a career in merchant banking, Gary was appointed adviser to the finance department of the African National Congress in the early 1990s regarding developing Black Economic Empowerment policy. In 1992, he played an instrumental role in the creation of Thebe Investment Corporation and also served as joint chief executive officer of Msele Corporate and Merchant Bank, South Africa’s first black-controlled merchant bank. Gary was appointed group chief executive officer of Unihold Limited in 1996, where he led the transformation from an engineering conglomerate holding company to an international IT and telecommunications focused group. Subsequent to leading a management buy-out, Unihold de-listed from the JSE in 2001. Gary has served on numerous private and public company boards, including three listed banking groups.
Joe MthimunyeIndependent non-executive director
Born: 1965, BCom (Zululand), BCompt Hons/CTA (UNISA), CA(SA)
Joe Mthimunye qualified as a Chartered Accountant in 1993. After working for KPMG, he joined Nampak Limited in the capacity of divisional accountant. In 1996, he co-founded Gobodo Incorporated, an accounting practice with eight other partners which in time became the biggest black accounting firm in South Africa. In 1999, he led a management buyout of Gobodo Corporate Finance from the accounting firm and re-branded it as AloeCap (Proprietary) Limited. He currently serves as the executive chairman of AloeCap. He also serves on the board of directors of Invicta Limited and all the non-listed companies in which AloeCap Private Equity is invested.
ANNUAL REPORT 2010
20 Board of directors | continued
Lucy (Pani) Mamage TyalimpiIndependent non-executive director
Born: 1962, BCom (Hons) (UNISA), MBL (UNISA), Diploma in Investment and Portfolio Management
Pani is the divisional executive of the Development Bank of Southern Africa, largely responsible for the funding of municipality infrastructure programmes in Eastern Cape, Mpumalanga and KwaZulu-Natal. Prior to working at the Development Bank of Southern Africa, Pani worked for several financial institutions, including Public Investment Corporation (“PIC”) as the head of Isibaya Fund, the private arm of the PIC for the funding of BEE transactions, infrastructure development in a socially responsible manner. She also worked for African Harvest Capital and ABN Amro, where she was employed in corporate advisory services. Pani also spent five years at the Development Bank of South Africa, working in the Project Finance Unit. She currently serves on the board of directors of a number of companies and investment committees. Pani brings extensive market and investment knowledge to the board.
Neil Lazarus SCNon-executive director
Born: 1958, BA LLB (Wits)
Neil graduated from the University of the Witwatersrand in 1981 with a BA LLB degree. After completing his articles, he was admitted as an attorney in 1983. He was admitted as an advocate in 1984 and practised at the Johannesburg bar. He was appointed as senior counsel by President Mandela in 1998. He also served as an acting judge. As an advocate, Neil specialised in corporate restructures, mergers and acquisitions and has been involved in significant corporate reorganisations both locally and internationally. Upon leaving the profession in 2000 he became a director of Corpcapital Limited, establishing its corporate finance business. Neil has discharged both corporate finance and legal mandates for a number of local and international transactions.
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Peter MansourNon-executive director
Born: 1970, BSc (Economics)
Peter began his career at Microsoft in 1995 as a Business and Strategy Analyst for MSN. During this period, he helped transition MSN from an Internet access business to an Internet portal business. He provided analytical and strategic support for several large acquisitions, including Hotmail and WebTV. In 1998, Peter joined the fledgling Windows CE team, where he served as the GPM for Pocket Outlook for the HandheldPC and PocketPC, which would eventually become Windows Mobile.
In 2000, Peter left Microsoft to start Sproqit Technologies, where he served as president and CEO for six years. Sproqit’s patented thin-client architecture increased performance and simplified development for mobile applications.
Peter returned to Microsoft in 2006, where, as GM of Strategy and Business Development for the Unlimited Potential Group, he created Microsoft’s emerging markets mobile payment strategy and led equity investments in Blue Label Telecoms in South Africa and Oxigen in India. Peter currently runs mobile engineering for Microsoft’s emerging market division.
ANNUAL REPORT 2010
22 Segmental management
Abraham Smit Angelo Roussos Bradley Turkington Brett Stagman David FraserGroup CEO Africa Prepaid Services (Proprietary) Limited Group chief information officer Chief sales officer – South
African distributionGroup CFO Africa Prepaid Services (Proprietary) Limited Group chief technology officer
BA LLB, BCom PGDA (UCT), Adv., CA(SA), CPA (USA)
BSc (Lab. Med.), MBBCh (Wits) BSoc Sci (Finance Hons) (Natal) BCompt (Hons) (UNISA),
CA(SA)
BSc (Eng), MSc (Eng), PhD (Natal), CEng (UK), MIET (UK), MIEEE (USA), MSAIEE (SA), MSPE
After completing his BA. LLB. Braam was admitted as an advocate in South Africa. Thereafter, he qualified with a CA(SA), working in Cape Town and San Francisco. He joined the group in 2005 initially as CFO and later CEO of Kwikpay SA (Proprietary) Limited. In 2008 he was involved in investigating international greenfield opportunities, which led to him setting up the group’s operations with its partners in Mexico. He was appointed by Africa Prepaid Services as Group CEO in May 2009.
Angelo became interested in high-speed networking and supercomputing while pursuing a postgraduate medical degree, collaborating on the NSFNet, a precursor to the modern internet. In 1990, he established one of the first companies in South Africa to provide e-mail services, and later the second SA business to provide commercial Internet services. With his partners in 1994, he created one of the largest ISPs in SA. In 1998, Angelo left medicine to focus full-time on IP-networking, and he formed InfoSat which was the second company in the world to offer DVB/IP services via satellite. Sentech, the largest signal distributor in Africa, acquired a majority stake in InfoSat. From 2002 through to 2003, Angelo guided Sentech as group executive Multimedia Services and was responsible for the technology selection, business strategy and business management of the new multimedia business. Apart from his extensive IP-based telecoms experience, Angelo has engaged in strategic, policy and regulatory representations to the SA government and regulator. Together with Dr David Fraser, Angelo is responsible for ensuring that the group remains ahead of the trend through the development of new and innovative technology solutions, with a focus on the transactional side of the business.
After completing a postgraduate degree in finance, Bradley became financial director of a London-based wholesaler. After four years abroad, he returned to South Africa and on the back of the international relationships established became involved in the South African cellular telephony industry from its inception. Bradley served on the local board of a NASDAQ listed company, bringing prepaid to South Africa and many other markets. In 2006, he joined the Matragon group as consultant to expand its international business. He was responsible for formulating Blue Label’s international strategy prior to listing and in 2007 was appointed COO of the International distribution segment, responsible for all the international business operations and initiatives. Earlier this year he assumed the new role of chief sales officer for the South Africa Distribution segment.
After completing articles Brett moved into the diamond industry where he later became the South African financial director of Rosy Blue International. Thereafter he joined Loreal as the CFO of their manufacturing division in South Africa. Brett joined Africa Prepaid Services in 2009.
David is a professional engineer who has considerable international and local business experience in telecommunications, mobile and transactional systems. After qualifying, David lectured and researched communications at university after which he established a number of successful companies, including telecoms and broadcasting services companies and a scientific consultancy firm. His know-how in wireless and related businesses has assisted in the establishment and growth of several European and USA-based companies. David became involved at Sentech in South Africa with the development of Africa’s first public broadband 3G wireless data network, and joined Blue Label in 2005. David is responsible for the group’s mobile strategy, both locally and internationally, and heads up the group’s Mobile pillar. He is passionate about the opportunities that integrated mobile platforms and services can bring to Blue Label’s customers and their customers. David is also involved with business development and maintaining key relationships with several of the group’s partners.
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Dean Suntup Gustav Vermaas JJ Botha Niel BarnardChief financial officer – South African distribution
Chief commercial officer – South African distribution
Group Executive International Business and Strategy
Chief executive officer – Blue Label One
BCom (Wits) Hons (UNISA), CA(SA) BCom CMA (ACMA UK) BCompt (Hons) (UNISA),
CA(SA)BSc (Information Technology), MSc (Programme Management), MCSE
After qualifying as a chartered accountant Dean remained at PricewaterhouseCoopers Inc as assistant manager, later joining BSC Technologies (Proprietary) Limited, a business established by the Levy brothers. He became financial director of BSC in 2003 and in 2005 transferred to The Prepaid Company as financial director. Dean has been instrumental in overseeing the growth of the SA distribution segment, including the successful integration of businesses which have been acquired over time.
Gustav is a BCom graduate and qualified as a Chartered Management Accountant (ACMA UK) in 1995. He joined Blue Label in 2005 to consolidate the group's field support teams into what became Activi. During 2007 – 2009 he was instrumental in the consolidation of the technology and operational teams.
His 20 years' experience has been focused on solving business problems by integrating strategy, technology, business processes and people interventions, while retaining a strong operational input. Before joining Blue Label he was co-founder of IQ Commerce, CEO of Nashua Connect and a member of the IQ Business Group international Exco. He started his career in the Anglo American Corporation, later joining TOTAL, spending nine years in the petroleum industry.
JJ Botha is a qualified chartered accountant and current Group Executive International Business and Strategy. His responsibilities include executive board appointment at international operations, strategy and review, as well as establishment and incubation of specialised group-wide business initiatives. He has served in the group for more than four years, including CEO of the Mobile Service Company and Cellfind.
He has over 15 years' experience in the mobile services industry in Africa, in particular South Africa and Nigeria. He was Chief Sales and Products Officer of Zain and spent eight years at Vodacom, where his particular successes included sales, distribution and product development.
Niel has a wide ranging skill set and has worked in various industry sectors such as medical aid, government, telecoms and IT. After completing his degree at UNISA, Niel worked for various companies, in diverse roles ranging from IT support to project management and has been in the telecoms industry since 2003. Niel spent five years with Nashua Mobile where he was key to the development of various new initiatives, including the strategic projects, strategic partners, product development, retail sales and business solutions. Niel joined the Blue Label group in 2006. He became the managing director and later chief executive officer of Cellfind. His current area of responsibility spans Content Connect Africa, Cellfind and Blue Label One, where the main focus areas are WASP services, mobile services and development, LBS, content aggregation, B2C marketing and media sales. Niel in conjunction with Dr David Fraser is responsible for the development and implementation of Blue Label's overall mobile strategy and its related aspects.
ANNUAL REPORT 2010
24 The group generated EBITDA of R689 million, up 21% for the year under review.
Larry Nestadt, chairman
Telecoms and Media 2009, predicts global
mobile banking users will
increase from 2008 to
2013 from 67 million
to 1 billion.
The company was
ranked 50th in the
2010 Financial Mail Top
Companies awards.
Chairman’s report
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DEAR STAKEHOLDERS
I am pleased to report the group continues to show remarkable resilience in spite of the recession,
with increased revenue of 11% to R17.03 billion for the year ended 31 May 2010. After the impact of
the sub-standard performance and consequent closure of certain operations in the call centre business,
the group has positioned itself leaner and healthier with a strong foundation for growth opportunities in
the year to come.
Blue Label’s core strategy remains investing in distribution platforms for electronic tokens of value in
emerging markets, presently covering South Africa, India, Nigeria and Mexico. On an international front,
the group’s share of losses in India declined significantly. Nigeria has solidified its distribution base and
has traded profitably since inception. Mexico, a greenfield start-up, has deployed over 3 500 point-of-sale
devices, which is a remarkable achievement by most comparable standards.
The group continues to strengthen relationships with suppliers and customers and extend its range of
products and services beyond airtime top-up to prepaid electricity, public transport ticketing, electronic
road toll collection, cash transfers and mobile wallets.
We are reminded that just some 15 years ago, the desktop computer morphed into the laptop or notepad
and nowadays the same functionality, and more, is available on smartphones. According to Ericsson, in
just the past 18 months to mid-2010, global mobile subscriptions increased some 25% reaching over
5 billion, driven mostly by growth in China, India and Nigeria. In the first six months of this calendar year,
some 80% of the growth came from Africa and Asia-Pacific. Ericsson estimates that by 2020 there will
be 50 billion mobile devices in use.
According to Informa Mobile Payments and Banking 2009, mobile-initiated transactions are forecast to
increase from 2008 to 2013 by value, from $72 billion to $800 billion and by volume, from 25 billion
to 300 billion. Informa Telecoms and Media 2009, predicts global mobile banking users will increase
over the same period from 67 million to 1 billion. The same source estimates that global mobile money
transfers will be worth some $200 billion by 2013. Blue Label is well positioned, through its e-voucher
distribution capabilities, to participate in this exciting and rapidly growing world of mobile transactioning.
ANNUAL REPORT 2010
26
GROUP PERFORMANCE
The group generated EBITDA of R689 million, up 21% for the year under review. While this was supported
by growth in both the South African and International distribution segments, the Value Added Services
(VAS) segment underperformed, particularly at the call centre operations. The impact of the recession
was felt in the VAS segment, where outbound insurance and cellular sales declined. This led to the closure
of the call centres in Johannesburg, Kimberley and Bloemfontein, which resulted in the impairment of
goodwill pertaining to these operations. Renewed focus has been given to inbound services and database
collection and management.
As a positive cash generative group with healthy cash reserves, any decline in interest rates has a
negative impact on profitability. The reduction of interest rates since November 2008 of 550 basis points,
resulted in a decline in actual interest earned of R74 million, in spite of an increase in cash reserves.
Notwithstanding growth in EBITDA and the containment of overheads, the above factors resulted in a
decline in core earnings of 7%.
DIVIDEND POLICY
On 23 August 2010, the board approved a maiden dividend of 12 cents per ordinary share, in respect of
the year ended 31 May 2010. The dividend policy is to consider paying a dividend after taking into account
cash flow needs for working capital, capital expenditure, share buy-backs and acquisitions. We intend
maintaining a dividend cover of three to four times earnings.
CORPORATE GOVERNANCE
I am pleased to report a strengthening in the corporate governance culture across the group, following
on from its entrepreneurial origins. An external service provider has been engaged to conduct a formal
assessment of Blue Label’s adherence and readiness to adopt the principles and practices of best
governance, as contained in King III. The assessment will provide Blue Label with key findings on areas
requiring improvement and a high-level roadmap addressing these over the ensuing financial year. The
board is committed to ensuring alignment over time with the requirements of King III and with the new
Companies Act, expected to come into effect later in 2010.
Chairman’s report | continued
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DIRECTORATE
In November 2009 the board bade farewell to two directors, Jackie Huntley and Herbert Theledi, who had
served since the listing. I thank each of them again for their contribution to board deliberations and wish
them well in their future endeavours.
Kevin Ellerine was appointed to the board in place of our friend and board colleague, Sidney Ellerine,
who passed away in July 2009. I look forward to his constructive participation in board and committee
proceedings.
The Remuneration and Nominations Committee is canvassing individuals, particularly from historically
disadvantaged groups, whom it believes can strengthen the board by making an active and positive
contribution to the continuing development and growth of the company.
BBBEE AND TRANSFORMATION
The group has made significant progress this year with BEE and transformation. The Transformation sub-
committee meets regularly to plan and strategise around all transformation and BEE initiatives.
The group has set BEE targets within each subsidiary to be achieved during the financial year ending
May 2011. These requirements have focused specifically on training initiatives, inclusive of learnerships,
enterprise development efforts through our partnership with ZOK, and comprehensive socio-economic
programmes through the Chairman’s Fund.
ANNUAL REPORT 2010
28 Chairman’s report | continued
SUSTAINABLE DEVELOPMENT
The board and management team remain committed to open and transparent dialogue with stakeholders.
The company was ranked 50th in the 2010 Financial Mail Top Companies awards, announced just after
financial year end. Blue Label Data Solutions was granted Centre of Excellence accreditation by the Direct
Marketing Association of South Africa. The Prepaid Company received Telkom’s Best Prepaid Channel
Partner for the sixth consecutive year, as well as Vodacom’s Best Prepaid Channel Award for the fourth
consecutive year.
Our joint chief executives, Mark and Brett Levy, were both finalists in the Top Young Entrepreneur category
at the sixth annual African Access National Business Awards 2010. Brett Levy also received the Liberty
Life Award for a Remarkable Success Story in the David Awards in 2010.
The Chairman’s Fund is an important donor to the Blue Label community and in the financial year ended
May 2010 contributed R3.1 million to various worthy causes. The focus of these contributions has been
on youth development, HIV/Aids, and sports development.
Contributions were made to the Protea Glen Legacy Park and Nomondes Children’s Home. At Legacy
Park, a quality sporting complex was built, utilised by schools from sunrise, corporate leagues during
the evening and for other community projects, activities, education and awareness programmes into the
night. Nomondes Children’s Home accommodates 32 abandoned and orphaned children. Representatives
from Blue Label actively support the home by serving on the board of trustees along with Nomonde Doda,
the Home’s founder, and assist with securing funding and encouraging good governance principles.
In the forthcoming year we will continue to support Legacy Park and Nomondes Children’s Home and are
looking forward to the support we can give to the Netcare Cranio Facial Programme, amongst others.
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PROSPECTS
The past year has been characterised by consolidation, rationalisation and cost containment. Blue Label’s
strong balance sheet positions it well to consider value accretive strategic acquisitions as well as organic
expansion opportunities.
APPRECIATION
I extend my gratitude to my fellow directors for their diligent service. On behalf of the board, I thank
our joint chief executives and group founders, Mark and Brett Levy, and their executive team for their
determination and enthusiasm in what turned out to be a difficult year. My gratitude to all employees of
Blue Label for their commitment and loyalty.
Larry Nestadt
Chairman
ANNUAL REPORT 2010
30
Mark and Brett Levy, joint CEOs
Increased revenues were
mainly achieved through:
• Further increases in
local and overseas
market penetration as
our footprint grew
• Expanding the range
of prepaid electronic
goods and services
• Additional revenue
derived from annuity
airtime services.
RICA enabled Blue Label
to position over 6 000
registration agents in
the market, the largest
number of any service
provider.
Joint chief executive officers’ report
We aim to extend the existing range of products and services to new markets, initiate new offerings and increase our distribution channel in the informal market.
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GROUP PERFORMANCE
The strength of the group’s South African distribution segment, together with its growing International
footprint in India, Mexico and Nigeria, and expansion of the range of products and services continues
to drive revenue growth. Over time it is our vision to derive 50% of our profit from the International
distribution segment and 50% of all profit from non-telephony sources, such as prepaid electricity, toll
road collections, money transfers and distribution of other secure tokens of value.
The financial year commenced with South Africa officially in recession, the first since the last quarter
of 1992. During the year, soaring job losses impacted consumers as businesses sought to cut
costs. Telecommunications spend reduced across the economy with an immediate impact on sales of
hardware, new software licences and contracts and services. Yet prepaid ARPU held up well in spite
of SIM card saturation. Emerging markets showed some growth, albeit only at single-digit figures
rather than the double-digit expansion of the past two years and in less evolved markets, consumer
expenditure was largely stable or at worst decreased slightly.
Against this background, the growth in demand for the group’s products and services contributed to an
increase in revenue, but the poor performance from the call centre operations resulted in reduced core
net profit of 7% to R397 million. Core earnings per share was down 6% to 52.34 cents per share year
on year.
Increased revenues were achieved through:
• Further increases in local and overseas market penetration, as our footprint grew
• Expanding the range of prepaid electronic goods and services
• Additional revenue derived from the growth in annuity airtime services.
In this difficult environment, Blue Label restructured and rationalised operations. This involved consolidating
some activities, selling businesses where partners recognised greater opportunity than we did, optimising
resources, in particular by transferring scarce skills to growth regions and rotating management. As the
process gains momentum, we look to achieving better operational efficiencies as we achieve economies
of scale.
ANNUAL REPORT 2010
32
Since August 2009, RICA required all new mobile phone starter pack activations and existing active
users to be registered. The impact of RICA was to drive lower churn among subscribers, particularly
during the eight months from August 2009 to March 2010. RICA enabled Blue Label to position over
6 000 registration agents in the market, the largest number of any service provider, to ensure that our
suite of goods and services was uppermost in mind at every registration. Since May 2010 we have seen
registrations return to the levels last seen prior to the implementation of RICA.
The group’s resilient operational performance during the recession, its cash-producing strength with
year end cash generated from operations of R516 million and strong local and international growth
programme evidenced a successful business model which we believe is sustainable.
For some years we have debated the suitability of the telecoms sector for Blue Label’s listing on the
JSE, given our business model is more aligned to a banking and distribution business than a telephone
company. This year we tasked an external service provider to review the sector options for our listing.
In short, there seems little prospect for a share price rerating by moving sector, especially as there is
no obvious best-fit alternative sector. Rather, it is suggested that a rerating compared to our developed
market peers, is more likely to be achieved through corporate activity, continuing strong cash generation
and ongoing success.
STRATEGIC ACQUISITIONS, INVESTMENTS AND DISPOSALS
In November 2009 the group sold its 90% share in African Prepaid Services Mozambique to the minority
shareholder AP Capital for US$3.95 million. The lessons learned in operating this, our first offshore
investment, continue to hold us in good stead as we expand our international products and services
footprint in larger and faster-growing emerging markets.
Africa Prepaid Services DRC was sold in December 2009 owing to the difficult operating conditions in
that country. Most of our expatriate staff were redeployed elsewhere in the group, most notably, Nigeria.
Joint chief executive officers’ report | continued
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In March this year, additional loan funding of US$6,8 million was approved for Blue Label Mexico.
Just before financial year end, a deal was closed at R59 million to purchase the client base and
recurring annuity income from The Starter Pack Company (Proprietary) Limited.
Since the financial year end, we announced a partnership with Neotel, for the distribution of its prepaid
communication services to the market.
NEW PRODUCT DEVELOPMENT
Investment in R&D remains an important tool in delivering our vision of widening our bouquet of offerings
and capitalising on the footprint already established. R22 million of total capex of R196 million for the
year, was invested in R&D.
During the year, Blue Label partnered with Gidani, the South African Lotto operator in respect of FNB’s
distribution channels. We also extended our relationship with Pick n Pay to cover the acceptance of our
Ukash prepaid vouchers.
The group concluded a reseller agreement with Symantec for the introduction of a protection product for
Smartphones, by utilising unique antivirus technology, advanced firewall and SMS anti-spam protection.
We continue development of a distribution platform for electronic road toll collection.
Mobile banking, specifically money transfers, is in its infancy in South Africa. Given the highly regulated
environment, Blue Label continues to engage with potential banks in a planned partnership to deliver this
service to the market. The product concept comes with a strong track record in emerging and frontier
markets and is particularly popular among migrant workers sending money home as well as paying school
fees and taxi fares.
ANNUAL REPORT 2010
34 Joint chief executive officers’ report | continued
SUSTAINABILITY REPORTING
We run our business mindful of our impact on economic, social and environmental issues. We remain
committed to open and transparent dialogue with stakeholders, as reported in the engagement
matrix on page 98 of this report. The company was ranked 50th by revenue in the Financial Mail Top
Companies survey.
PROSPECTS
The last financial year has been characterised by consolidation and rationalisation in our local and overseas
businesses, streamlining without compromising our strong cash-generative capabilities. This puts us in a
strong position to consider value-accretive strategic acquisition and organic expansion opportunities. We
aim to extend the existing range of products and services to new markets, initiate and bring to market new
products and services and increase our distribution capabilities in our target markets.
The South African distribution segment is expected to see airtime sales grow in keeping with the overall
performance of the mobile networks. The non-telephony contribution to the business is growing monthly as
prepaid electricity meters are introduced across the country. Future earnings growth is expected from the
establishment of Mobile Merchant Solutions, extending the group’s point-of-sale footprint, increasing use
of retail outlets for bill payments, the uptake of mobile banking across South Africa and the introduction
of free-flow toll roads.
We expect the International distribution segment to make meaningful strides in the year ahead. This
view is predicated on us overcoming some of the challenges we face with Multi-Links in Nigeria and the
10-year contract is currently under review. Additional distribution arrangements have been concluded with
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a number of mobile networks in that country. Blue Label Mexico is expected to continue its measured
rollout of POS terminals. At Oxigen India, the business has emerged more streamlined from its get well
plan. Oxigen India will roll out kiosk banking and mobile wallets via its web-enabled retailers in terms of
an agreement with the State Bank of India. This will facilitate virtual banking to India’s vast unbanked
population. New relationships formed with the State Bank of India, ICICI Bank and Corporation Bank could
facilitate access to over 100 million banking and internet clients.
APPRECIATION
We remain grateful to the head office staff who coped so spiritedly during the landlord’s upgrading of
the Sandton building – this pain has been assuaged by the splendid finished product. Our heartful thanks
to all employees for their diligence and hard work in this difficult year characterised by rebuilding and
restructuring. Our gratitude also goes to the executive team for their absolute dedication. We thank the
members of the board for their guidance and leadership over the past year. Finally, we would have no
business if it were not for our suppliers and customers, whom we recognise and thank for their loyalty
and support.
Mark Levy and Brett Levy
Joint chief executive officers
ANNUAL REPORT 2010
Segmental reviews | South African distribution
Revenue
EBITDA
201091.3%
201099.5%
200992.9%
2009109.9%
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This segment distributes prepaid products and transactional services to the South African wholesale
and retail consumer markets.
The strategy is to identify key objectives with a view to the effective sharing of Information Technology
and Intellectual Property across the group with growth and sustainability in mind. Expanding our footprint
remains a top priority driven through a co-ordinated and managed approach across numerous subsidiaries.
The product development team continues to build on the existing Blue Label technology platform, developing
proprietary e-tokens for distribution and deployment, as well as third-party e-tokens, into the entire prepaid
market.
This year we introduced a customer retention programme. It has shown significant results in maintaining
our customer base, while also facilitating the launch of new products and services to existing customers
and promoting organic growth.
This segment currently generates the majority of its profits from prepaid airtime which it purchases in bulk
from the networks at a discount and on-sells at a margin. While it is expected that there will be pressure
on margins resulting from the reduction of interconnect fees, most of the effect of margin compression,
is expected to be absorbed throughout the channel.
The Prepaid Company (TPC)
Established in 2001, TPC was the original company spearheading the group’s entrance into the prepaid
airtime industry. TPC wholesales virtual and physical e-tokens to all of the major chain stores in South
Africa and is a leading distributor of prepaid airtime on behalf of all the network operators. Through the
introduction of e-tokens this base was extended to include cash and carry operators and independent
retailers. Distribution of all virtual products and starter packs is facilitated, managed and maintained by
ANNUAL REPORT 2010
38
proven technology developed in-house, which ensures efficiency at purchasing, distribution and control
levels. TPC remains the major contributor to group revenue and profitability, being responsible for:
• All supplier agreements
• All wholesale sales
• Procurement of all stock
• All bulk print sales
• Starter packs
• Reconciliation and settlement
• Treasury.
Comm Express Services (CES)
CES markets and distributes all prepaid airtime through in-house manufactured vending machines and
POS terminals and touch screens in independent retailers countrywide, but mostly ‘mom and pop’ stores
from rural to urban areas. The technologies used are managed by Activi, a subsidiary responsible for
technology development, implementation and maintenance, in the group.
Virtual Voucher
Virtual Voucher started as a distributor of prepaid airtime through an integrated prepaid voucher
management system to over 550 Engen petroleum sites across South Africa. Using an integrated till
management system, the need for POS terminals was obviated.
Kwikpay
This is a leader in the distribution of virtual prepaid airtime, electricity vouchers and bill payments via multi-
application and managed terminal vending solutions and integrated POS devices. It services both large
corporate and independent clients, including Spar, Clicks, Nedbank and FNB.
Segmental reviews | South African distribution continued
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Cigicell
Virtual prepaid airtime and electricity is distributed through a broad network of channels, including POS
terminals at the forecourts of the major oil companies, including BP, Sasol and Shell. Cigicell maintains
strong ties with electricity suppliers and national petroleum accounts.
Crown Cellular (Crown)
Crown is a wholesale and retail distributor of physical and virtual prepaid airtime and starter packs
servicing the informal market. Crown operates 17 free-standing stores as well as serviced kiosks within
large independent stores. Its entire inventory is purchased from TPC. This is our typical retail/wholesale
model.
The Postpaid Company
This company is focused on the sale of contract-based products to pre-approved customers via tele-
marketing and sales techniques.
Each of these companies is responsible for ensuring customer maintenance, site expansion and growth of
new products and services. Over the past year, moving additional products through a retail environment
has positively impacted product sales. Blue Label is constantly engaged in channel expansion through
new retail and corporate relationships. Ultimately, our ability to offer an extensive range of products and
services, has strengthened our value proposition.
PRODUCTS
Prepaid electricityContribution to turnover from prepaid electricity has been exponential. In 2009 it was R0.7 billion, rising in 2010 to R1.9 billion. We do not, however, account for revenue at face value, but only for the commission received, as we act as agent on behalf of the utility�companies.
ANNUAL REPORT 2010
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Blue Label currently accounts for a small part of the third-party prepaid electricity market, thought to be around R7 billion. It is believed this share can grow substantially, particularly as Eskom and utility companies increase the number of its prepaid customers, both organically via the conversion of postpaid customers and through the aggressive rollout of new prepaid meters in previously non-electrified neighbourhoods. Through agreements with Eskom and numerous municipalities, we have created the single most comprehensive prepaid electricity supply pipeline, both on and off-line, in South Africa.
Our aim for the coming year is to grow this supply bouquet and to continue feeding it through to the end-consumer via our extensive distribution footprint in the formal and informal retail sectors. We are presently supplementing our existing vending technologies with new and innovative ones, which are expected to increase our market share.
FNB LottoA technical support arrangement was concluded with Gidani, the licensed operators of the Lotto in South Africa, to integrate their products into till points and those distribution channels managed by FNB.
Algoa bus ticketingPrepaid bus ticketing was introduced in Nelson Mandela Bay municipality. The model has allowed Algoa to eliminate bus ticketing fraud and to remove the cash receipt function from the bus drivers and place it in the hands of the vending merchants. The success of the project has led to interest from other bus companies who wish to replicate the model within their distribution base.
Cover2Go This prepaid insurance product was launched as a pilot in Umtata last year and was well received with a steady uptake in subsequent months. The model is currently being monitored in order to determine the appetite for a nationwide rollout.
The Bela international calling card and White Label international calling card Both these proprietary calling cards went live just before the December holidays through mass retail channels and as per the marketing plan, received quick uptake and adoption, particularly among communities with roots outside South Africa.
Segmental reviews | South African distribution continued
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UkashThis product, a form of prepaid digitalised cash, was introduced from our International distribution segment to the South African market, where it is sold through Pick n Pay and Shoprite. Negotiations are underway with other major retail chains to accept Ukash vouchers. There has been a steady growth in the uptake of the product as the number of redemption sites have increased.
Off-site ticketing for GautrainThe off-site Gautrain Gold Card vending machines, established since the financial year end, are gaining acceptance since the train’s launch in June 2010. The number of dispensing units is set to increase as new sectors on the train’s widening network are opened and as consumer demand for the service grows.
New products and servicesNew products and services introduced during the year included UNIPin and RICA registration.
PROSPECTS
The group is currently in the process of restructuring the South African distribution segment, which will
achieve a single management, accounting and distribution model. This unified business approach allows
for enhanced line of sight to market growth opportunities and customer retention, while incorporating
customer care and CRM methodologies and allowing for further market segmentation and product
specialisation.
It is anticipated that during the forthcoming year, revenue could continue to grow organically, not only through the existing product offering, but also via additional product offerings developed in-house or on behalf of third parties and which are expected to be rolled out across the group’s POS footprint. These initiatives include:• M-Pesa• Money remittances across the group’s POS footprint• Electronic toll collecting on toll roads• Bill payments.
42
ANNUAL REPORT 2010
Segmental reviews | International distribution
Revenue
EBITDA
20107.3%
201019.88%
20094.8%
20091.08%
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The strategy of the International distribution segment is to pursue growth opportunities within
the group’s global footprint, through a combination of established “bricks and mortar” operations
in selected markets, entering into strategic partnerships and providing technology licences to
third parties. The focus is on systematically rolling out multi-secure electronic tokens, including
but not limited to prepaid airtime distribution of goods and services, in replication of the South
African distribution segment model. It is our intention to introduce and distribute as many secure
electronic tokens, as well as other products, utilities and services, in our international markets.
The segment disposed of its investments in Mozambique and DRC during the year under review and
concentrated resources in growing the business footprint in the emerging markets of India, Mexico and
Nigeria.
OXIGEN INDIA
The company was incorporated in August 2003 and is 37.22% owned each by Blue Label and Microsoft
with the remaining 25.56% held by local partners. Currently, Oxigen is an electronic distributor of recharge
vouchers and prepaid subscriptions for mobile and satellite TV, supported by about 75 000 points of
presence, expected to rise during the financial year ending May 2011. Other transactions facilitated are
prepaid railway, airline and bus ticketing as well as bill payments for mobile, landline and utilities.
As reported last year, we implemented a ‘get well’ plan which has resulted in a sustained focus on
efficiencies and management of expenditure. The impact of the plan became evident as EBITDA turned
positive towards the end of calendar 2009 and losses reduced. Salient features of the plan were:
• Technical and other operational improvements
• Changes to the distribution structure and margins
• Availability of a wider selection of value added products and services
ANNUAL REPORT 2010
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• Introducing direct top-up already offered by the mobile operators (some 70% of all recharges are done
this way), but previously not available in our channels
• Facilitation of a more profitable bill payments system
• Major cost reductions and contained operating expenditure.
These improvements were delivered in a challenging and competitive environment, as it is noted that
margins in India are the lowest achieved among the international operations. This places pressure on
Oxigen to improve technology product and service offerings, as well as increase the effectiveness of
distribution channels to ensure a more consistent revenue stream from a diverse product mix.
In October 2009, the company launched cellphone vending, the first instance of offering all mobile
operators from a single phone. This was well received with over 3 000 re-sellers signing up within the
initial period after launch. To date over 17 000 re-sellers have been signed up and turnover for this
business has increased Rs 0.2 million per day to about Rs 0.3 million per day.
Technical integrations with the State Bank of India (SBI), the largest bank in India, ICICI Bank and
Corporation Bank resulted in Oxigen having access to more than 100 million banking customers in the
B2C segment for mobile and internet banking transactions. The success of the initiative with the SBI led to
the appointment of Oxigen’s affiliate Sahyog Micro Finance Foundation, as Business Correspondent to SBI.
This allows Oxigen’s retail outlets to become the bank’s Business Correspondents, for which we will provide
complete back-end and technological support. The intention of the Business Correspondent model is to
make retail outlets an extension of the bank’s branches, providing no-frills banking facilities to consumers.
This should enable Oxigen to consolidate its position in the market by strengthening its brand across India.
The company’s focus has remained on the distribution of airtime. However, good progress was also made
during the year in securing additional revenue sources from new and higher margin value added services.
Segmental reviews | International distribution continued
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While POS deployment has been steady, the rate is expected to accelerate as we plan to deploy GPRS-
enabled terminals. GPRS rates have reduced markedly to about $2 per month, thereby addressing the
connectivity constraint faced in terminal deployment.
Since year end, Oxigen jointly launched with SBI, kiosk banking, targeting some 20 000 Oxigen merchants,
initially in Delhi and Mumbai. SBI has also approved the introduction by Oxigen of a mobile wallet platform.
Overall business is expected to grow as Oxigen develops a stronger and broader market presence,
particularly once Oxicash and its wallet and card products are introduced.
BLUE LABEL MEXICO
Blue Label Mexico, which commenced trading operations in May 2009, is partially owned by Nadhari SA
de CV, a Mexican company with product and service expertise in emerging markets.
The business is now underpinned by a number of agreements with sales channels and key mobile
operators/service providers, giving Blue Label Mexico the ability to offer PINless recharge, direct top-up
for the primary mobile operators in Mexico, using our proprietary AEON platform developed by Activi.
At year end some 3 000 POS units were active in the market, with a rollout rate of a net few hundred
additional units per month, using internal channels and independent sales organisations. Integrated
solutions and POS devices are positioned in several retail environments, including convenience stores
and petroleum forecourts and are aimed at the previously unserviced or under-serviced communities,
replicating the successes achieved in these sectors in South Africa. A strategic and synergistic contract
was reached with the World Organisation of Credit Unions (WOCCU), providing extended reach into new
market segments for the millions of members of its affiliated credit unions and member micro-finance
sites.
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Recently, network integration into Atio and its associated petrol forecourts as well as the liquor chain
Alianza, commenced. The rollout of cellphone vending and PC-based vending solutions started towards the
end of the financial year. Additionally, Blue Label Mexico is currently deploying Bill Payment services into
its footprint, and planning to deliver other products, such as lottery from Pronosticos, which will diversify
the product offering and revenue streams.
Mexico presents several growth prospects, both in terms of POS deployment and the introduction of new
products and services replicating established offerings in other countries. Its geographic location makes
it an important springboard into the Unites States and Latin American markets.
AFRICA PREPAID SERVICES NIGERIA (APSN)
Blue Label has an effective ownership of 36.7% in APSN, through its 72% shareholding in Africa Prepaid
Services. The company provides a single point of contact to all network operators and distributors in
Nigeria, consistent with the Blue Label business model around the world. In support of this strategy, APSN
has an end-to-end distribution agreement with Multi-Links, a subsidiary of Telkom South Africa Limited.
The agreement with Multi-Links provides for APSN to service its entire distribution channel in Nigeria for
a 10-year period which commenced in December 2008. Operations started in May 2009 and current
products include the distribution of airtime cards, starter packs, phones and data products, while bulk
printing vouchers and other value-added services are likely to follow. The annual review of the contract
is currently underway. Multi-Links accounts for approximately 2% of the total 74 million subscribers in
Nigeria. At financial year end, some 907 000 phones had been distributed and 50 000 customers had
activated data products distributed by APSN.
Segmental reviews | International distribution continued
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During the past year, APSN extended its airtime offering in the market by entering into agreements with
ZAIN, Globacom, Etisalat and Starcomms to secure availability of their airtime. Agreements with other
network operators are expected to follow. With the current national subscriber penetration believed to
be less than 50% and growing significantly year on year, these distribution relationships are expected to
provide real growth opportunities for the company.
APSN will introduce one POS device which has the ability to distribute airtime recharge for each of the
networks, thereby reducing distribution costs to the current dealer channels. This is expected to entice
these channels to convert current physical distribution to a virtual method. The recharge products will be
offered either directly to the retail market at a margin or through mass market dealer channels where a
technology fee is charged.
As major dealers distribute on behalf of most of the Nigerian networks, the strength of the existing dealer
relationships forged to date, places the company in a strong position to leverage these channels for
launching additional network products and services.
The first application of Bulk printing technology in Nigeria, will soon be rolled out. The system is fully multi-
tiered, enabling dealers and merchants to on-sell the solution to their customers or to roll out bulk printing
to their sub-dealers, a process well suited to the Nigerian market. The company is exploring offering other
value-added products and services, which could include prepaid electricity vouchers and bill payments.
Revenue growth from Multi-Links will depend on the availability and pricing of up-to-date phones, the
introduction of RUIM card starter packs (which commenced in 2010), the provision of greater service
selection and the implementation of bulk distribution of airtime. It will also be subject to the ability of
Multi-Links to expand the product and service offering directly to the market in conjunction with increased
customer awareness activities.
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Market experience gained during the first year of operations, the process of obtaining recharge agreements
for all network airtime distribution and the solid relationships built with the major dealers, augur well for
the growth of products and services in Nigeria.
UKASH
The strategic investment in Smart Voucher Limited, trading as Ukash, was acquired in 2008. It is an
international developer of patented prepaid cash voucher technologies enabling it to supply end-users with
prepaid Ukash vouchers, which effectively digitises cash. Ukash is the global e-money network that enables
consumers to turn their cash into an e-cash voucher so that they can pay, play and reload online. It is
patented, proven and completely scaleable.
Ukash vouchers are now available in 400 000 locations in over 30 countries on six continents, principally
South Africa, the United Kingdom, Europe, Australia, South America, North America and China. In South
Africa Ukash is sold through Pick n Pay and Shoprite and negotiations with other major retail chains to
accept Ukash vouchers, is gaining momentum.
Revenues and redemptions have increased over the year under review, mainly as a result of an increase
in the number of issuing sites and a broader range of redemption opportunities online. Redemption
values continue to show approximately 70% annualised growth. Improved efficiencies have ensured the
containment of operating expenditure.
Ground work has been done this year to identify new channels for the use of Ukash, particularly for
transient communities. Many members of these groups are unbanked and previously found it difficult to
monetise products and services without access to a mobile network operator. Hence community-based
mobile wallets are now starting to gain acceptance. Initiatives like “reLoad” and “rePower”, for replenishing
prepaid debit cards, as well as other mobile and electronic wallet and e-commerce-type environments and
the Ukash virtual prepaid card Neo, positively impacted revenue during the year.
Segmental reviews | International distribution continued
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The repower agreement signed with MasterCard® earlier in 2009 is expected to enhance Ukash’s
revenue growth, providing an alternative means of redemption and facilitation of payment. Further growth
is anticipated to arise from an increase in the number of issuing sites, by entering into new markets and
expanding into known redemption environments, such as VOIP and gaming.
SHAREDPHONE INTERNATIONAL
SharedPhone operates SIM card mobile payphone software, which is particularly practical in rural areas,
as it allows vendors to provide public telephony services as well as sell prepaid airtime, from mobile
phones through a mobile payphone reimbursement system. This enables the sale of prepaid products and
services such as airtime, electricity and insurance. Results were adversely impacted through the overall
reduction of VOIP traffic and the effect of the earthquake in Haiti, where the major mobile operator is one
of SharedPhone’s major clients. In the coming year operations are expected to expand into west Africa.
PROSPECTS
Growth prospects for International distribution are firmly predicated on economic and other developments
in each of the main areas of presence, ie India, Mexico and Nigeria. The turnaround in Oxigen India is
expected to continue gaining momentum and the rate of traction growth shown at Blue Label Mexico
appears to be taking hold. The introduction of electronic distribution of airtime by APSN will further
diversify our footprint as well as enhance the sustainability of our existing operations. Indications are that
this segment should continue to improve its growth contribution to the group.
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ANNUAL REPORT 2010
Segmental reviews | Technology
Revenue
EBITDA
20100.1%
2010(11.97%)
20090.1%
2009(8.54%)
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The Technology segment is responsible for the group’s core technology systems. Its objective is to
develop, deploy and support the technology platforms within the group as well as a number of third-
party partners.
The core technology service offering includes:
� Facilitating secure financial transactions
� Providing and enabling various types of secure e-tokens
� Operational support of these e-token and transactional systems
� Device and customer field support
� Hosting and management of IT infrastructure
� Manufacturing and maintenance of devices in the field.
The strategy of the Technology segment is to:
� Develop commercially viable and functionally rich transaction engines
� Provide stable and robust platforms
� Standardise deployments with templates and methodologies
� Optimise technology investment through the sharing of Blue Label infrastructure
� Provide end-to-end support for technology and deployments
� Retain and develop skills.
The group’s infrastructure connects into some of South Africa’s major banks, utility companies and
telecommunication operators and switches both debit and credit card electronic funds transfer (EFT)
transactions and e-token products for some of the country’s leading retailers and petroleum companies.
ANNUAL REPORT 2010
52 Segmental reviews | Technology continued
KEY OPERATIONAL CAPABILITIES
The operational capabilities offered through the Technology segment include:
� Distribution platform for e-tokens of value:
• Prepaid airtime: the airtime vending platform enabling both local and international subsidiaries, to
vend airtime for all major telecommunication operators
• Prepaid electricity: enabling vending of prepaid electricity on behalf of electricity utilities, such as
Eskom, and a growing number of local authorities across the nation
• E-token distribution: takes place via cellphones, kiosks, POS terminals, internet, bulk printing devices
and self-service vending machines
� Electronic Voucher Management System: supporting the electronic generation, issuing and
redemption of paper vouchers and virtual PINs
� Electronic Funds Transfer: switching credit, debit and fleet card transactions for leading South African
retailers and petroleum companies, through the Blue Label subsidiary Transaction Junction (TJ)
� Hosting services: hosts production servers and applications on behalf of the group’s subsidiary
companies as well as third-party clients, through our IT infrastructure. All services are backed by
24x7x365 monitoring, support, reporting and full disaster recovery
� Device deployment services: full asset life cycle management and task tracking are provided. This service
includes the sourcing, procurement and financing of POS terminals, kiosks and vending machines as well
as the installation, training, task tracking and maintenance of these devices
� The factory focuses on the manufacturing, distribution and maintenance of POS terminals, kiosks
and vending machines.
PERFORMANCE OVERVIEW
The year under review has been both challenging and rewarding. Consolidating and integrating group
systems and platforms is progressing well and is expected to be completed during the course of the
coming financial year. As the nature of the transactional and secure e-token side of our business changes,
and more and more transactions are delivered through real-time transactional processing systems, so
the reliance on the group’s core technology systems increases. While we have implemented and continue
to roll out best-of-breed industry platforms and network solutions, a critical success factor is to ensure
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we attract and retain top-skilled people to operate our platforms and enhance our ability to support the
business technologically. In turn, they need the best supporting structure and systems possible.
e-tokens and VAS transactions
Progress was made in consolidating and enhancing existing core capabilities, including the group’s
e-token, PIN generation and redemption platforms. Further capabilities were added in South Africa
by additional network integrations, facilitating real-time top-up of airtime and novel electricity top-up
products. Product and services were extended to provide robust and scalable ticketing solutions,
resulting in Blue Label successfully completing its entry into transport ticketing.
We continue to provide innovative and robust products to customers and to deliver critical capabilities to
our partners.
Electronic Funds Transfer
TJ completed a number of major project delivery successes in the past year, resulting in transactional
volumes increasing three-fold. These include the introduction of Lotto-related products into multi-channel
retail and banking environments and the ongoing rollout of various large-scale EFT projects for retail
partners. TJ continues to earn its reputation as the pre-eminent independent financial value-added
switching services company in South Africa. TJ remains pivotal to the group’s commitment to deliver
electronic products and services across the entire arena of EFT, prepaid e-token distribution and fulfilment,
bill payment and e-top-up, including ticketing and stored-value-card solutions.
PROSPECTS
The emphasis for the year ahead is on consolidating progress made over the past few years. As the
nature of the business and solution requirements evolve, the Technology segment must continue to be
at the forefront of delivering enhancing functionality and scalability of its real-time transaction processing
capabilities and ensuring system and service uptime.
It is expected that a number of projects and opportunities, especially related to mobile vending, enhanced
merchant enablement and in remittance and mobile money transfers, are possible in the near future.
54
ANNUAL REPORT 2010
Segmental reviews | Value added services
Revenue
EBITDA
20101.3%
20103.67%
20092.2%
200913.24%
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The segment specialises in marketing cellular and financial products and services through outbound
telemarketing and other channels and also provides inbound customer care and technical support. The
VAS segment includes call centre operations (Datacel), a location-based reselling business (Cellfind)
and a digital marketing campaign business (Content Connect Africa).
DATACEL
Datacel is the group’s business process outsourcing (BPO) company and comprises CNS, Velociti and Blue
Label Data Solutions. Key clients include TransUnion ITC, iBurst, Virgin Mobile, Autopage, Liberty Life,
ABSA, Cisco, Nashua Mobile, Hollard and Pick n Pay.
The call centre operations did not perform well during the year, mainly due to the economic downturn,
which affected a lot of outbound cellular and insurance companies.
Rationalisation resulted in the closure of the Blue Label Call Centre in Johannesburg in September
2009 and the CNS call centre activities in Bloemfontein, Kimberley and Cape Town at the end of
the financial year. Most losses resulted from insurance companies reviewing their direct marketing
model and adjusting their commissions downwards based on a lower than expected persistency
ratio. The closure costs, combined with the non-contributing earnings from this business and the
resulting impairment charges against goodwill adversely impacted Datacel’s results for the year.
The remaining call centre activity was consolidated at Velociti which now operates 700 seats in Durban,
offering both inbound and outbound campaigns from internal and external companies.
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During this difficult trading period, the revenue benefits from Velociti’s inbound customer services division
were clearly apparent and the diversified client base ensured a more balanced spread of income, resulting
in Velociti trading profitably.
Blue Label Data Solutions achieved cost savings, mostly through consolidating back office functions and
delivered a satisfactory performance. It was granted Centre of Excellence Accreditation by the Direct
Marketing Association of South Africa.
The Datacel group is now appropriately streamlined and its management strengthened to rebuild its
reputation as a BPO call centre. The outlook for the business remains conservative as the effects of the
downturn are still evident in the market.
CELLFIND
Cellfind’s focus is on delivering annuity income derived from LBS via the Vodacom and MTN networks, as
well as providing WASP services. The long-term vision is to be the leading provider of LBS in Africa and,
with appropriate partners, to take interests in non-African countries.
Since inception, Cellfind has invested in developing generic interfaces to its LBS, allowing both easy and
expanded consumption of services through its own products, as well as those developed by partners,
using the same interfaces. Cellfind has the billing and management processes in place to monetise these
services.
The company continues to perform well in spite of tough trading conditions. The core LBS are provided
through Vodacom and MTN and have remained the key revenue drivers, although this year returned a
flatter growth rate. Newer services, such as miTraffic and miMusic, are showing steady increases in
consumption.
Segmental reviews | Value added services continued
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Product offerings were extended this year with the introduction of miTraffic, which is an MMS report on
traffic conditions within a 50 km radius, and GuardMe, a mobile safety alert available to the MTN 2MyAid
and Vodacom Look4Help emergency services.
Cellfind also provides WASP aggregation services, which include SMS, USSD and WAP services, as
well as airtime billing services. This is seen as the focus of growth efforts, along with the extension
of the core LBS and other platforms, for wider and more flexible use. For example, on-demand
consumption of location requests by third-party applications such as Mig33TM.
The B2B side of the business experienced constrained growth and Cellfind shifted efforts to other B2B
offerings, such as corporate panic buttons for scheme members, vehicle asset tracking and staff tracking.
Contracts have been concluded with Discovery Health, AngloGold Ashanti and Fidelity.
In addition to traditional LBS, the value-added services such as traffic congestion heat maps, security and
tracking services and location-specific weather, continue to show robust growth. Similarly, subscription
music downloads are now well entrenched and growing steadily. These services are offered in collaboration
with CCA. Cellfind services are now being bundled under the “mi-brand”, such as miLocate and miMusic.
The product range includes brands such as Look4Me, Look4Help, Look4Me for Business, MTN WhereRU,
MTN 2MyAid, Cellfind Assets, Cellfind Messaging Portal, 911 Alert, Look4Music and miTraffic.
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CONTENT CONNECT AFRICA (CCA)
CCA was purchased in 2008. It is an aggregator of on- and off-portal localised content for mobile
operators and third party clients throughout Africa. It is the custodian of the distribution rights to, and
licence agreements for, a number of products and services, including mobile music, mobile games,
entertainment, news and interactive television content.
CCA maintains its reputation as the leading digital content aggregator for mobile phones in Africa by
servicing solid relationships with key clients, such as MTN and Vodacom. In addition, it provides content
for Cellfind’s miMusic product. In South Africa, CCA manages promotional events and releases by the
mobile operators and executes digital marketing campaigns on their behalf.
CCA has had a difficult period as both its key clients, MTN and Vodacom, deployed new delivery platforms.
Both went live in November 2009 in time for the summer holiday promotions. The new platforms make it
easier to service multiple territories with a single upload step, meaning increased content consumption.
CCA content now reaches all 21 of MTN’s territories covered, thereby expanding the market base without
any increased costs.
In May 2010, CCA started loading World Cup 2010 content specifically for MTN Africa and in total
uploaded several thousand content items. CCA continues to sign up emerging and leading artists and
musicians and is extending its services to B2B channels other than the network operators.
Segmental reviews | Value added services continued
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The board regards corporate governance as fundamentally important to the success of the company’s
business and is unreservedly committed to applying the principles of good corporate governance in the
management of the company. The board is the focal point for, and custodian of, the company’s corporate
governance system through its relationship with management, shareholders and other stakeholders of
the company. The board remains ultimately accountable and responsible for the performance and affairs
of the company.
King III came into effect on 1 March 2010 and follows an “apply or explain” approach as opposed to
the “comply or explain” approach in King II. The “apply or explain” approach moves away from routine
compliance to systematic governance, showing an appreciation for the fact that it is not always about
whether to comply or not, but rather to consider how the principles and recommendations could be
applied in the best interest of the group and its stakeholders.
GOVERNANCE APPROACH AND COMPLIANCE
Blue Label is committed to the governance principles of King III and continues to develop its governance
policies, practices and procedures in line with an integrated governance, risk and compliance framework.
Blue Label has engaged with an external advisor to conduct a formal assessment of its adherence
and readiness to the principles and practices of best governance as contained in King III. The
assessment will provide Blue Label with key findings around areas requiring improvement, initiation
and a high-level roadmap addressing these areas over the ensuing financial year.
Corporate governance
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BOARD STRUCTURE AND BOARD COMMITTEES
Board structure
Good governance is underpinned by effective leadership exercised by the directors individually and
collectively as a board of Blue Label. The board comprised 11 directors: four executive directors, three
non-executive directors and four independent non-executive directors. The chairman is an independent
non-executive director.
During the period under review the following changes occurred in the board composition:
• Mr S Ellerine, non-executive director, passed away in July 2009
• Ms RJ Huntley, independent non-executive director, withdrew her eligibility for re-election at the annual
general meeting in November 2009 due to a conflicting appointment to the Telkom SA Limited board
• Mr HC Theledi, non-executive director, resigned in December 2009
• Mr KM Ellerine, non-executive director, was appointed in December 2009.
BOARD CONSTITUTION
The company’s empowerment partners Nthwese Investment Holdings Consortium (Proprietary) Limited
(Nthwese) have made it known that they wish to exit their shareholding in Blue Label. As a result of
that decision, two of the Nthwese representatives have resigned from the board. It had been hoped by
the company that those shares would be acquired by another BEE shareholder. In anticipation of other
BEE representatives filling the vacancies, the committee has held back in recommending new directors.
A suitable BEE partner has not been found and the committee is in the process of identifying appropriate
candidates to address the imbalance on the board.
The Remuneration and Nomination Committee is actively canvassing to strengthen the board with
individuals, particularly from historically disadvantaged groups, whom it believes can make an active and
positive contribution to the continuing development and growth of the company.
Corporate governance | continued
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The balance between executive, non-executive and independent non-executive directors ensures a
balance of power and also allows for appropriate and efficient decision-making. There is a clear division
of responsibilities between the executive responsibility for the running of the company’s business and the
leadership of the board.
All directors are subject to retirement by rotation every three years in accordance with the company’s articles
of association. In terms of the articles of association, one-third of the directors are required to retire by rotation
annually at the company’s annual general meeting. The retiring directors may be re-elected, provided they are
eligible. In addition the articles of association provides that directors have the power at any time to appoint any
person as a director subject to the provisions of article 16.2, which provides that a newly appointed director
will retain office only until the next annual general meeting and then retire and be eligible for re-election. In this
regard Mr KM Ellerine will retire at the forthcoming annual general meeting and be available for re-election.
The detailed categorisation of the directors as well as a brief curriculum vitae of each director appear on
pages 16 to 21 of this report.
Board responsibilities and charter
The board’s primary responsibilities include determining the company’s purpose and values and giving strategic
direction to the company, considering not only financial performance but also the impact of the company’s
operations on society and the environment, ensuring that there is an effective risk-based internal audit,
identifying key performance indicators of the business, monitoring the performance of the company against
agreed objectives, advising on significant financial matters, reviewing the performance of executive management
against defined objectives and, where applicable, industry standards and ensuring succession planning for the
CEOs and other senior executives and officers.
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A board charter has been adopted by the board, setting out the parameters for the board’s operation,
the specific responsibilities to be discharged by board members collectively as well as the roles and
responsibilities incumbent upon individual directors. The board charter furthermore provides an overview
of the policies and practices of the board with regard to matters such as board composition, meeting
procedures, board governance, dealings by directors in securities, disclosure and conflicts of interest
and the nomination, appointment, induction, training and evaluation of directors and members of board
committees.
The board charter is reviewed annually to ensure its continuing compliance with local and international best
practices and changes to the South African regulatory environment. During the past year the charter was
amended and updated to include the principles of integrated sustainable governance, as recommended
in the King III report. The most important additions made to the role and functions of the board include:
• Ensuring that the company’s ethics are managed effectively by, inter alia, building and sustaining an
ethical corporate culture in Blue Label and ensuring that a code of conduct and ethics-related policies
are implemented
• Ensuring the integrity of the company’s annual report
• Responsibility for information technology (IT) governance, focusing on the governance of the information
as well as the governance of technology, by establishing an IT governance framework that supports
effective and efficient management and decision making around the utilisation of IT resources to facilitate
the achievement of the company’s objectives and the management of IT-related risks
• Reporting on the effectiveness of the company’s system of internal controls
• Recognising that strategy, risk, performance and sustainability are inseparable and give effect to this by:
• Retaining full and effective control over the company by contributing to and approving the strategic
direction of the company
• Satisfying itself that the strategy and business plans proposed for the achievement of the company’s
objectives do not give rise to risks that have not been thoroughly assessed by management
Corporate governance | continued
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• Monitoring the implementation of the strategic plans and identifying key performance and risk areas
• Ensuring that the strategy will result in sustainable outcomes taking into account financial, environmental
and social objectives as approved by the board
• Considering sustainability as a business opportunity that guides strategy formulation
• Ensuring that Blue Label is and is seen to be a responsible corporate citizen by having regard to not
only the financial aspects of the business, but also the impact that the company’s business has on the
environment and the society in which it operates and ensure that the company acts responsibly towards
all its stakeholders
• Appreciating that stakeholders’ perceptions affect a company’s reputation and in this regard, identify,
manage and monitor the gap between stakeholder perceptions and the performance of the company so
as to enhance or protect Blue Label’s reputation
• Considering business rescue proceedings or other turnaround mechanisms should the group become
financially distressed as defined in the Companies Act, 2008.
Board procedure and related matters
The board retains full and effective control over the organisation and monitors executive management’s
implementation of approved plans and strategies. The board meets quarterly and additional board meetings
are convened as circumstances dictate. Where directors are unable to attend meetings personally,
teleconferencing facilities are made available to enable their participation.
All directors are entitled to liaise with the company secretary in regard to items on the agenda for
board meetings. Management ensures that all relevant information and facts are provided to board
members timeously to enable them to make informed decisions. Board agenda and meeting structures
have been adapted to focus on performance monitoring, strategy, risk management and internal controls,
governance and related matters. This ensures constructive discussion and efficient decision making.
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Attendance by directors of the meetings held during the year under review is detailed below:
DIRECTOR JUN AUG DEC1 DEC2 FEB
LM Nestadt (Chairman) √ √ √ √ √
BM Levy √ √ √ √ √
MS Levy √ √ √ √ √
KM Ellerine – – – √ √
S Ellerine √ D – – –
GD Harlow √ √ √ √ √
RJ Huntley √ √ R – –
NN Lazarus SC √ √ √ √ √
P Mansour³ √ A A A √
JS Mthimunye √ √ A √ A
MV Pamensky √ √ √ √ √
DB Rivkind √ √ √ √ √
HC Theledi √ A A A R
LM Tyalimpi √ √ A A A
Legend: √ Attendance A Apologies submitted and leave of absence granted D Passed away on 17 July 2009 R Resignation by RJ Huntley on 25 November and resignation by HC Theledi on 30 December ¹ Strategic board meeting held on 3 December ² Quarterly board meeting held on 8 December
³ Peter Mansour is based in the United States of America and attended board meetings via teleconference
Non-executive directors
The non-executive directors bring leadership, judgement and insight to the board. They have access to
management and may meet separately with management with or without the attendance of executive
directors. The directors are empowered to obtain independent professional advice, at the company’s
expense, should they deem it necessary. A non-executive director has no fixed term of appointment and
no service contract with the company. Their fees are independent of the company’s financial performance
and they receive no bonuses and do not participate in the company’s Forfeitable Share Plan.
Corporate governance | continued
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The company’s articles of association make provision for the payment of fees to non-executive directors for
services rendered to the company or its subsidiaries over and above the fees earned in their capacities as
directors. Both Messrs Harlow and Lazarus SC earn advisory fees for strategic input as well as corporate
finance advice and, in the case of Mr Lazarus SC, legal consultancy services as well. Mr Lazarus SC has
acted as consultant since listing and fees paid to him have been approved by the board from time to time
and disclosed in the annual financial statements. Mr Harlow’s consultancy commenced during the second
quarter of the 2010 financial year and services rendered have comprised the strategic input on offshore
relationships, transformation and chairman of the call centre group of companies.
Executive directors
Executive directors are bound by a three-year employment contract, each of which commenced in
November 2007. The contracts are renewable for a further three-year period. The Remuneration and
Nomination Committee is currently engaged with each of the executive directors on the renewal of their
contracts in November 2010.
Director appointments
The board, with the support of the Remuneration and Nomination Committee, ensures that it collectively
contains the skills, experience, diversity in demographics and mix of personalities appropriate for the
strategic direction of the company and necessary to secure its sound performance. Directors are
selected and appointed by the board based on the recommendation of the Remuneration and Nomination
Committee.
Conflict of interests
To avoid conflicts of interest, board members are required to disclose their interests in material contracts
involving group companies, their shareholdings in Blue Label as well as any other directorships. Board
members are required to make appropriate disclosures when participating in deliberations or decision-
making processes which could in any way be affected by vested interests and, if the circumstances
require, must recuse themselves from participation. The declarations received from directors in this
regard are tabled at the beginning of each quarterly board meeting.
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Board performance assessment
The board evaluates annually its effectiveness as well as the effectiveness of its committees. These
evaluations take place in November every year, with the next evaluation process due to be done in
November 2010. The process is a self-evaluation focusing on strategy and planning, board structure
and role, meeting process, independence of the board and its committees, performance monitoring,
board and director responsibilities, board culture and relationship. In addition, the chairman performs an
annual review of individual non-executive directors. The purpose of the director peer review is to evaluate
individual director performances and the performance of fellow directors on the board. The outcome of
the process is discussed individually by the chairman and the director. The chairman presents his findings
to the Remuneration and Nomination Committee for their appropriate recommendation to the board. The
board as a whole then considers the recommendations of the Remuneration and Nomination Committee.
Board committees
The board has established a number of board-appointed committees to assist in discharging their duties
and responsibilities. The responsibilities delegated to each board committee are formally documented
in board-approved terms of reference. These were reviewed and updated during the year under review
to align them further with best practice and to take into consideration the recommendations set out in
King III. The board deliberated the composition and independence of the respective board committees at
its meeting held in December 2009, resulting in certain changes made to the composition of committees.
The membership and principal functions of the committees are set out below.
Audit, Risk and Compliance Committee (“ARCC”)
The report from the ARCC is contained on page 86 of this report.
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Remuneration and Nomination Committee (“RNC”)
Members: NN Lazarus SC (Chairman), GD Harlow, RJ Huntley¹, KM Ellerine²
¹ Resigned on 25 November 2009 ² Appointed on 8 December 2009
Composition and meeting procedures: Messrs BM Levy and MS Levy and Mr DB Rivkind attend meetings
by invitation, but do not participate in discussions and decisions regarding their own remuneration and
benefits. The chairman, at his discretion, may invite other executives or employees to attend and to be
heard at meetings of the committee. Meetings are held at least twice a year. The quorum for an RNC
meeting is two members present throughout the meeting. The board discussed the composition and
chairmanship of the committee at its meeting held on 8 December 2009. The board satisfied itself that
Mr Lazarus SC acts with the required independence by expressing opinions, exercising judgement and
making decisions impartially, and confirmed Mr Lazarus SC in the position of chairman of the RNC.
Role and functions: Its role and responsibilities are set out in its terms of reference a summary of which
are to:
• Determine and agree with the board the framework or broad policy for the remuneration of the executive
directors, non-executive directors and such other members of the executive management as it is
designated to consider
• Review, for recommendation to the board, the design of, and targets for, any performance-related
pay schemes operated by the company and to approve the total annual payments made under such
schemes
• Review the design of all share incentive plans for approval by the board and shareholders and to
determine each year whether awards will be made, and, if so, the overall and individual amounts of
such awards
• Make recommendations to the board regarding the remuneration of non-executive directors for final
approval by the shareholders
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• Identify and nominate candidates for the approval of the board to fill vacancies as and when they arise
• Make recommendations to the board concerning the:
• Formulation of succession plans for both executive and non-executive directors and, in particular, for
the key roles of chairman and chief executive officer
• Appointment of new executive and non-executive directors, including making recommendations on
the composition of the board and the balance between executive and non-executive directors and any
adjustments that are deemed necessary
• Re-appointment of any director under the “retirement by rotation” provisions of the articles of
association, having due regard to their performance and ability to continue to contribute to the board
in light of the knowledge, skills and experience required.
Attendance at meetings:
MEMBERS (AND INVITEES) JUN# JUN# AUG
NN Lazarus SC (Chairman) √ √ √
S Ellerine √ √ D
GD Harlow √ √ √
RJ Huntley √ √ √
BM Levy^ A A √
MS Levy^ √ A √
DB Rivkind^ √ √ A
Legend: √ Attendance A Apologies submitted and leave of absence granted D Passed away on 17 July 2009 ^ Attends by invitation and is not a member of the committee # Strategic board meeting held on 3 December
Investment Committee (“IC”)
Members: GD Harlow [Chairman], NN Lazarus SC, JS Mthimunye, BM Levy, MS Levy, MV Pamensky,
DB Rivkind, DA Suntup and D Hilewitz
Corporate governance | continued
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Composition and meeting procedures: Meetings are held at least four times per year. The quorum for
an IC meeting is four members, of which two are executives and two non-executives, present throughout
the meeting.
Role and functions: The responsibilities of the IC include:
• The review of acquisitions, investments and disposals made by the executive committee in accordance
with the authority granted to it by the board
• The review, consideration and approval of acquisitions, investments and disposals of the group ranging
between R21 million and R100 million
• Making recommendations to the board on acquisitions and investments of the group above R100 million
• Reviewing the performance of investments and acquisitions made.
Attendance at meetings:
MEMBERS (AND INVITEES) JUL NOV1 NOV1 FEB
GD Harlow (Chairman) √ √ √ √
S Ellerine D – – –
S Gewer^ √ √ √ √
D Hilewitz √ √ √ √
E Isenschmid^ – √ √ √
NN Lazarus SC √ √ √ √
BM Levy A √ √ √
MS Levy √ A √ √
JS Mthimunye √ A √ A
MV Pamensky √ A √ √
DB Rivkind √ A √ √
DA Suntup √ √ √ √
HC Theledi² √ A A –
Legend: √ Attendance A Apologies submitted and leave of absence granted D Passed away on 17 July 2009 ¹ Two committee meetings held on 12 and 30 November 2009, respectively ² HC Theledi resigned on 30 December 2009 ^ Attends by invitation and is not a member of the committee
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Transformation Committee (“TC”)
Members: GD Harlow (Chairman), KM Ellerine², LM Tyalimpi, BM Levy, DB Rivkind (alternate to BM Levy)
² Appointed on 8 December 2009
Composition and meeting procedure: The board appointed Mr Harlow as chairman of the committee in
December 2009 following the resignation of Ms Huntley. The quorum for a TC meeting is two members of
the committee present throughout the meeting. Meetings are held at least twice per year. The chairman,
at his discretion, may invite other executives or employees to attend and to be heard at meetings of the
committee. Ms I Hindley (group human resource and transformation manager) is a mandatory attendee
of the TC meetings.
Role and functions: The responsibilities of the TC include:
• Developing a transformation framework and policy
• Monitoring and overseeing the implementation of the transformation framework and policy
• Overseeing the BBBEE accreditation process of the group and monitoring the group’s compliance with
the DTI Codes of Good Practice.
Attendance at meetings:
MEMBERS (AND INVITEES) JUN FEB
RJ Huntley (outgoing chairman) √ –
GD Harlow (incoming chairman) – √
KM Ellerine² – A
S Ellerine² √ –
BM Levy √ √¹
LM Tyalimpi √ √
I Hindley^ √ √
Legend: √ Attendance A Apologies submitted and leave of absence granted ¹ David Rivkind as alternate to Brett Levy attended in person ² S Ellerine passed away on 17 July 2009. KM Ellerine was appointed to the committee on 8 December 2009 ^ Attends by invitation and is not a member of the committee
Corporate governance | continued
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Executive committee (“Exco”) and the Strategy Implementation Committee
Members: MS Levy (Chairman), BM Levy, MV Pamensky, DB Rivkind
Composition and meeting procedures: Meetings of Exco take place weekly. Mr DA Suntup and Mr S
Gewer (the group legal adviser), attend Exco meetings by invitation.
Role and function: Exco is responsible for managing and monitoring the business affairs of the company
in line with board-approved plans, budgets, delegations and limits of authority, prioritising the allocation
of capital and other resources, reviewing and approving acquisitions, disposals and investments up
to R20 million, and establishing best management and operating practices. Exco is also mandated,
empowered and held accountable for implementing the strategies, business plans and policies determined
by the board. In assisting Exco with the implementation of strategies, business plans and policies
throughout the group, a Strategic Implementation Committee (SIC) was established. The SIC meets
monthly and comprises 15 members, which include the Exco members, the chief information officer, the
chief technology officer, senior managers of the group responsible for the four organisational segments,
as well as the heads of product development and commercial product offerings.
The role and function of the SIC include:
• Assisting Exco with group strategy and direction
• Responsible for implementing board decisions regarding strategy and direction throughout the group
• Ensuring all subsidiaries, associates and partners are aligned and striving to achieve the same goals
and objectives
• Ensuring that correct and consistent information is conveyed to all customers and suppliers
• Ensuring that the group is functioning as one combined company
• Implementing the group’s values and mission.
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COMPANY SECRETARY
Ms E Viljoen is the company secretary for Blue Label and oversees the statutory and governance compliance
of its subsidiary companies. It is the responsibility of the company secretary to ensure that the company
complies with the JSE Listings Requirements and statutory requirements as well as the implementation
of governance practices and procedures as applicable to the company. The company secretary is also
responsible for ensuring that the proceedings and affairs of the directorate, the company itself and,
where appropriate, owners of securities in the company, are properly administered in accordance with
the relevant laws. It is her responsibility to provide the board as a whole, and directors individually,
with guidance as to how their responsibilities should be properly discharged in the best interests of
the company. She also plays a pivotal role as compliance officer in ensuring compliance with applicable
statutes, regulations and internal policies and procedures. As compliance officer she reports directly
to the Audit, Risk and Compliance Committee. All directors have access to the advice of the company
secretary and may liaise with her on agenda items for board meetings.
The company secretary is furthermore responsible for the functions specified in section 268(G) of the
Companies Act. All meetings of shareholders, directors, and board sub-committees are properly recorded
as per the requirements of section 242 of the Act. The removal of the company secretary is a board
decision.
GOVERNANCE OF RISK
The board accepts responsibility for the governance of risk and is committed to managing risks in order
to achieve key objectives and protect the core values of the company. Effective risk management is
imperative to Blue Label and the realisation of the group’s strategy depends on management being
able to take informed and calculated risks in a manner that does not jeopardise the direct interests of
stakeholders. Sound management of risk enables the group to anticipate and respond to changes in the
business environment, as well as to enable an informed decision-making process under conditions of
uncertainty.
Corporate governance | continued
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Blue Label has adopted an enterprise-wide approach to risk management, which means that every key risk
in the group is identified, assessed and monitored in a structured and systematic process of risk review
and management.
Management is accountable to the board for designing, implementing and monitoring the process of risk
management and integrating it into the day-to-day activities of Blue Label. The Internal Risk and Compliance
Committee (IRCC) supports the enterprise-wide risk approach by identifying, evaluating and measuring
group-wide risks and compliance in all functional areas of the group and implementing and maintaining
adequate internal controls. The IRCC reports to the ARCC on a quarterly basis.
The IRCC conducts group-wide risk assessments on a quarterly basis to identify and prioritise major
risks in accordance with the impact and likelihood of these risks. In line with the group’s risk framework
the potential impact of the risks are quantified on a five-point scale comprising catastrophic, critical,
serious, significant and minor/insignificant. Risks are then further quantified in terms of the probability
of occurrence in accordance with probability factors viz almost certain, likely, possible, unlikely and rare.
Internal controls to mitigate the identified risks are evaluated to establish the appropriateness and
adequacy of the existing controls to ensure that they perform the required risk mitigation. Management
decides on the acceptance of the identified risk or exposure and, if considered high, an action plan and
timeframe are put in place to reduce the level of risk to a more acceptable level.
INTERNAL AUDIT AND INTERNAL CONTROLS
Internal audit reports administratively to the financial director and functionally to the Audit, Risk and
Compliance Committee of the board and is responsible for contributing to the achievement of Blue Label
goals and objectives by:
• Assisting management in evaluating their processes for identifying, assessing and managing the key
operational, financial and compliance risks of Blue Label
• Assisting management in evaluating the effectiveness of internal control systems, including compliance
with internal policies
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• Recommending improvements in efficiency to the internal control systems established by management
• Keeping abreast of new developments affecting Blue Label activities and in matters affecting internal
audit work
• Being responsive to the changing needs of Blue Label, striving for continuous improvement and
monitoring integrity in the performance of activities.
The Blue Label internal audit function is outsourced to KPMG Services (Proprietary) Limited (KPMG). The
ARCC is satisfied that the independence of the internal audit function has not been impaired in any way.
The ARCC is responsible for reviewing and approving the internal audit charter and internal audit plans. Internal
audit plans are compiled with input from management and balances risk-based and compliance reviews so
as to maximise the audit coverage while addressing the needs of management. At the ARCC meeting held
in February 2010 it was agreed that the internal audit plan for the 2009 calendar year be extended to May
2010 to coincide with the financial year end of Blue Label Telecoms. An overview of the status of the internal
audit work performed in terms of the 2009/2010 internal audit plan is presented below:
Reviews Completed Pending Cancelled Postponed Planned
Risk-based 3 – 1 1 5
Compliance 7 – 4 3 14
IT audits 2 – – – 2
Ad hoc requests 6 – – – 6
Total 18 – 5 4 27
The cancelled and postponed reviews related mainly to changes in the business structure following the
consolidation process.
Corporate governance | continued
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The majority of the reviews were rated “acceptable”. The following internal audit ratings have been
developed and agreed with management and the ARCC for prioritising internal audit findings according to
their relative significance:
Inadequate No control framework in place. Significant control weaknesses were noted which
have resulted in a material exposure at the entity audited. No compensating
controls in place to mitigate the identified risks
Weak Limited control framework in place. Significant control weaknesses were noted
which if not addressed, may result in a material exposure
Acceptable Overall a good control framework in place. Improvements needed in certain key
control activities
Good Overall a good control framework in place. Some improvements identified, which
would further strengthen the overall control environment
Optimum Strong control environment in place and operating effectively
CORPORATE ETHICS AND COMPLIANCE
The management of Blue Label is committed to fighting any fraud and corruption within the group and has
established a Whistle-blowing Policy supported by an Ethics Statement and Ethics Hotline. The purpose of
the policy and ethics hotline is to demonstrate the company’s commitment to organisational integrity and
a culture of openness and transparency. The board has endorsed the Whistle-blowing Policy supported
by the ethics statement.
The fully independent ethics hotline, the operation of which is outsourced to KPMG Ethics Line, a division
of KPMG, provides employees and suppliers with the opportunity to report perceived cases of unethical
practice of fraud, corruption, misconduct and malpractice within the group. EthicSA has certified KPMG
Ethics Line as meeting the External Whistle-blowing Hotline Service Provider Standard EO1.1.1. The
EO1.1.1 is a best-practice set of guidelines or norms for the professional and ethical conduct of external
whistle-blowing hotline service providers operating their own centres or facilities.
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76 Corporate governance | continued
BLOW THE WHISTLE ON
FRAUD, CORRUPTION
AND UNETHICAL BEHAVIOUR!
Alternatively you can:
Fax your information to 0800 200 796
Post your information free-of-charge to
KPMG Ethics Line at the following
address:
KPMG Hotpost, BNT371, P O Box
14671, Sinoville, 0129 or
Send an e-mail to [email protected]
To contact KPMG Ethics Line, please follow the steps as set out below:
1. Dial 0800 22 10 20 toll free from any Telkom telephone
2. You may remain anonymous. Provide full detail in respect of the
fraudulent, corrupt or unethical practice to the call operator. Such
details may include:
Who is involved or doing what?
What has happened?
How is it done and how often is it done?
Where is it done – exact location or place?
When was the incident observed, dates and times
Value involved – estimated monetary value?
3. You will be given a reference number. Keep this confidential as you will
need this number if you make a follow up call (call at a later date to add
additional information to the original report) or feedback call (call at a
later date to request feedback on the original call).
Blue Label Telecoms is appealing to you to utilise the toll-free number to
report any incidents of fraud, corruption or unethical practices. Do not be a
silent observer of practices that erode the very values we wish to uphold.
Blue Label Telecoms have decided to introduce an independent hotline facility where
employees can report any form of unethical practice, including sexual harassment and
racial discrimination, in an anonymous and secure manner.
This hotline is run by the KPMG call centre that is completely confidential and
anonymous. The number is 0800 22 10 20 and is toll free.
The call centre is manned on a 24-hour basis and calls are free. Employees who are afraid
to be overheard using telephones in the office, can call from home after hours.
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An awareness campaign has been rolled out to all group
business operations informing employees of the ethics
hotline and creating awareness of what type of activities
to report, explaining the procedure for reporting
incidents and the internal disciplinary procedures
applicable. Quarterly reports will be submitted to the
Audit, Risk and Compliance Committee on the number
of incidents reported and the outcome.
The board has furthermore endorsed the establishment
of a compliance function in Blue Label. In this regard
the company secretary was appointed compliance
officer to oversee the compliance function in the
group with assistance from the group legal adviser.
The compliance officer reports to the Audit, Risk and
Compliance Committee. The compliance function aims:
• To prevent, and where necessary identify and
respond to breaches of laws, regulations, policies
and procedures
• To identify and evaluate the compliance risks
• Organise, coordinate and structure compliance-related controls
• Control and monitor all measures taken to mitigate the compliance risks
• Report accordingly to executive management and the Audit, Risk and Compliance Committee.
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SHARE DEALINGS
Blue Label has an approved written policy on directors’ dealings in securities. This policy requires all
directors who wish to deal in BLT shares to obtain prior written clearance from the chairman of the RNC
and either the financial director or company secretary. The same requirement applies to the company
secretary. In his own case, the chairman of the RNC must obtain clearance to deal in BLT shares from
the chairman of the board and the financial director of BLT.
The group adheres to “closed periods” as defined in the JSE Limited Listings Requirements. These periods
are stipulated in the policy on directors’ dealing in securities and communicated to directors, officers and
employees in the group via electronic notices announcing the commencement or termination of closed
periods. During these closed periods, the group’s directors and their associates, officers and employees
may not deal in BLT shares. Additional closed periods may be enforced, when required, in terms of
corporate activities. There was no requirement for additional closed periods during the period under
review.
GOING CONCERN
The board is of the opinion that the business will be a going concern in the year ahead and their statement
in this regard is also contained in the statement on the responsibility of the directors for the consolidated
financial statements on page 134 of this report.
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REMUNERATION COMMITTEE
The Remuneration Committee has been delegated by the board with responsibility for determining the
remuneration of the executive directors and senior managers, as well as for approving the allocation of
shares under the company’s forfeitable share plan.
The committee also makes recommendations in respect of the fee structure for non-executive directors
and the fees for members of the board committees, for approval by the shareholders once approved by
the board.
The committee consists of three non-executive directors, being NN Lazarus SC (chairperson), GD Harlow
and KM Ellerine. The chief executive officers and the financial director attend certain meetings of the
committee by invitation but do not vote on committee decisions.
While the committee is not constituted by non-executive directors who are categorised as independent,
the board is satisfied that it is made up of the board members most suitably qualified to perform the role
and that the committee members act impartially and fairly in that role.
The chairperson reports to the board on the committee’s deliberations and decisions.
REMUNERATION PHILOSOPHY
The committee aims to achieve a balance between shareholders’ interests and attractive and appropriate
executive and senior management remuneration packages. The remuneration policy is formulated to
attract, retain and motivate top-quality people in the best interests of the company. Remuneration
arrangements are designed to support Blue Label’s business strategy, vision and to conform to best
Remuneration report
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practices. Total rewards are set at levels that are competitive in the context of the relevant areas of
responsibility and the industry in which the group operates. Total incentive-based rewards are earned
through the attainment of demanding targets consistent with shareholders’ growth expectations.
REMUNERATION POLICY
The remuneration of executive directors and senior management is determined on a total cost-to-company
basis and has three components:
• Fixed remuneration – fixed monthly salary and benefits
• Variable remuneration – a short-term performance-related bonus scheme
• Forfeitable Share Plan – a long-term performance-related incentive scheme.
Fixed remuneration is reviewed annually to ensure that the executives and senior management who
contribute to the success of the group remain remunerated at appropriate levels in accordance with the
remuneration philosophy. The variable pay element provided by the short-term bonus scheme is intended
to enhance total pay opportunities, should that be merited by corporate and individual performance. Long-
term incentives, in the form of forfeitable shares awarded under the share plan, are based on a percentage
of total annualised salary packages and are intended to reward sustained long-term performance and to
align the interests of the executive and senior management with those of shareholders.
The purpose of the annual performance-related bonus scheme is to reward and motivate the achievement
of group and subsidiary financial targets, as well as to motivate strategic and personal performance. The
joint chief executive officers may earn an annual incentive bonus of up to 120% of fixed remuneration and
other executive directors up to 70%. Senior management may earn up to 50% of their annualised salary
package.
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ADVISORS
In the course of its deliberations, the committee considered the view of the chief executives on the
remuneration and performance of the other executive directors and members of senior management.
Independent advice on market information and remuneration trends is provided to the committee by
external remuneration consultants. Blue Label’s human resources department also assists the committee
by providing supporting information and documentation relating to matters presented to the committee.
The company bears all the expenses relating to the appointment of external remuneration consultants and
other appropriate independent professional advisors.
CHANGES TO REMUNERATION POLICY DURING THE YEAR
In response to increasing challenges around staff retention and attraction of critical skills the board,
on the recommendation of the Remuneration Committee, approved the award of shares in terms of
the company’s share scheme to redress the retention issues that have resulted from the forfeiture of
all shares awarded in November 2008 and February 2009 due to the performance criteria not having
been achieved. The performance criteria which were not met are set out in note 30 of the group’s
annual financial statements. These performance criteria proved to be overly optimistic and too aggressive,
resulting in the share scheme not achieving one of its fundamental purposes, namely staff retention.
Altogether 2 882 000 and 2 269 814 shares were awarded in November 2008 and February 2009
respectively. These shares would have qualified for vesting in September 2010 had the performance
criteria been met. These shares were forfeited and will remain in treasury for allocation in future years.
A total of 1 405 621 shares are to be awarded to staff members as a retention award. The retention
award will vest in three equal tranches on 30 September 2010, 30 April 2011 and 30 April 2012 and
will be subject to forfeiture in the event of the employee not being in the employ of the company on the
date of vesting.
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No retention awards were made to any of the executive directors.
For future awards the criteria for vesting has been changed from the May 2009 criteria. Retention
comprises 25%, non-financial indicators 25% and group performance makes up 50% determined with
reference to growth in CPI plus 15% over the three-year vesting period.
In making these changes to Blue Label’s remuneration policy, the committee received advice from external
remuneration consultants and conducted its own research in order to ensure that the changes achieve an
alignment between the interests of shareholders whilst providing attractive and competitive remuneration
packages to ensure that the group attracts, retains and continually motivates the high calibre of employees
required to run the group efficiently and successfully.
FIXED REMUNERATION
Blue Label applies discretion in all remuneration reviews and there is no minimum across-the-board
increase to all employees.
The current inflation rate is approximately 5%. Salary increases for the forthcoming financial year ranged
from 0% to 5.5% in bands of 0%, 2%, 4% and 5.5%. Management of each operating company was
given the discretion to apply the appropriate increase to each staff member falling under their control
within the stipulated range. Proposed increases in excess of 5.5% were required to be motivated to the
Remuneration Committee for its approval. Increases above the maximum range were approved by the
committee in circumstances where a member of staff was promoted or where the member’s salary was
not market related.
The salaries of executive management for the forthcoming year, with the exception of the chief operating
officer, Mark Pamensky, were increased by 5.5%. His salary was increased by 22% due to the amount
of time that he was required to spend outside South Africa attending to the group’s overseas operations.
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Details of the directors’ emoluments for the period ended 31 May 2010 appear on pages 218 to 219
of this report.
INCENTIVE BONUS PLAN
The executive directors and senior management participate in an annual incentive bonus plan, which
is based on the achievement of short-term performance targets. These targets comprise financial and
non-financial components. The financial performance component was based on growth in profits, as
measured by headline earnings per share. The non-financial elements include the achievement of agreed
transformation targets, progress in the company’s growth strategy in the countries in which it operates,
the rollout of the group’s transactional footprint and the level of progress made in respect of organisational
development issues and succession planning. Each of these elements carried an appropriate weighting.
For the year ended 31 May 2010 the joint chief executive officers and the chief operating officer elected
not to take up their bonus allocations as they were not satisfied with the group’s financial performance.
They are to be commended for leading by example.
The aggregate sum of the bonuses allocated to senior members of staff and executives amounted to
R22 049 695.
FORFEITABLE SHARE PLAN
Forfeitable shares awarded in September 2009 will vest over a period of three years commencing on
1 September 2009 and ending on 31 August 2012. The element of performance criteria will be based
on group results and individual performance for the years ended May 2009 to May 2012.
Remuneration report | continued
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Details of the once-off retention awards made in 2010 have been set out earlier in this report.
The forfeitable shares that were granted to executive directors during the year are as follows:
Balance*
1 June2009 Issue date
Forfeitableshares
awarded Vesting date
Balance 31 May
2010
BM Levy 369 936 27 November 2009 343 060 31 August 2012 343 060
MS Levy 369 936 27 November 2009 343 060 31 August 2012 343 060
MV Pamensky 269 745 27 November 2009 250 148 31 August 2012 250 148
DB Rivkind 138 726 27 November 2009 149 572 31 August 2012 149 572
* These shares have been forfeited as detailed earlier in this report
SERVICE CONTRACTS
The three-year service contracts of the executive directors are due to end in November 2010. Negotiations
are underway to conclude successive three-year employment contracts.
NON-EXECUTIVE REMUNERATION
Non-executive directors receive fees for service on the board and board committees, dependent on
attendance. Non-executive directors do not receive short-term incentives nor do they participate
in the share plan of the company. The fees payable to the chairman and non-executive directors are
recommended by the Remuneration Committee to the board, which in turn proposes the fees for approval
by the shareholders at the annual general meeting.
ANNUAL REPORT 2010
84 Remuneration report | continued
Non-executive directors may be contracted to render services to the group in addition to the aforegoing
services from time to time. The remuneration for such additional services is signed off by the chairman of
the board on a monthly basis and is submitted to the board for recommendation to shareholders. During
the year, the group paid consulting fees to NN Lazarus SC and to GD Harlow. Details of the fees paid to
each of the non-executive directors during the period under review are reflected on pages 218 to 219
of this report.
The group intends to continue to use the services of GD Harlow and NN Lazarus SC during the forthcoming
2011 financial year for the provision of legal, corporate, financial and strategic advice, and the non-
executive directors shall continue to render those services for market related fees. The fees shall continue
to be approved by the chairman of the board on a monthly basis, who shall in turn submit those fees to
the board from time to time for consideration.
For the first time the chairman conducted a non-executive director evaluation process, the outcome of
which was reported to the committee, with the object to engage the non-executive directors with a view
to focusing on weaknesses identified and the improvement thereof.
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The proposed fees payable to the non-executive directors for the period 1 June 2010 to 31 May 2011
have been increased by 5.5% from the prior year and are as follows:
Current fee per meeting
Proposed feeper meeting*
Proposed capped fee per annum**
Services as directors • chairman of the board¹ — — R738 500• board members R32 550 R34 340 R171 700
Audit, Risk and Compliance Committee• chairman R45 208 R47 694 R190 776• member R27 125 R28 617 R114 468
Remuneration Committee• chairman R36 166 R38 155 R152 620• member R21 700 R22 894 R91 576
Investment Committee• chairman R27 125 R28 617 R228 936• member R16 275 R17 170 R137 360
Transformation Committee• chairman R27 125 R28 617 R114 468• member R16 275 R17 170 R68 680
Ad Hoc Committee• chairman R27 125 R28 617 R114 468• member R16 275 R17 170 R68 680
* In the event that there are fewer meetings than envisaged, the member shall receive the fee in respect of the number of meetings attended
** In the event that there are more meetings per year than initially planned, directors’ fees will be paid only up to the cap ¹ The annual fee paid to the chairman in respect of the year ended 31 May 2010 amounted to R700 000.
ANNUAL REPORT 2010
86 Report of the Audit, Risk and Compliance Committee
The Audit, Risk and Compliance Committee (“ARCC” or “the committee”) is pleased to present its report
on how the committee has discharged its duties during the year ended May 2010.
COMPOSITION AND PROCEDURES
The members of the ARCC are JS Mthimunye [chairman], GD Harlow, NN Lazarus SC and LM Tyalimpi.
Mr NN Lazarus SC was appointed to the committee by the board at a meeting held on 8 December 2009.
Mandatory attendees of the ARCC include BM Levy, MS Levy, DB Rivkind, DA Suntup (chief financial officer of
TPC), an audit partner from PricewaterhouseCoopers Inc. and a partner from the outsourced internal audit
function from KPMG.
The ARCC is specifically mandated to perform the functions required under section 270A(1) of the Companies
Act 61 of 1973 (“Companies Act”) on behalf of the group subsidiary companies. In this regard the committee
supported the formation of an IRCC to assist it in discharging its duties and responsibilities with regard to the
group’s subsidiary companies.
The quorum for an ARCC meeting was changed from two members to three members present throughout
the meeting. The ARCC meets quarterly and at every meeting the external and internal auditors have an
opportunity to have separate private discussions with the ARCC.
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Attendance at meetings:
MEMBERS (AND INVITEES) JUN AUG DEC FEB
JS Mthimunye (Chairman) √ √ √ √
GD Harlow √ √ √ √
NN Lazarus SC1 – – – √
LM Tyalimpi √ √ A √
BM Levy^ A A √ √
MS Levy^ √ √ A √
DB Rivkind^ √ √ √ √
DA Suntup^ √ √ √ √
Legend: √ Attendance A Apologies submitted and leave of absence granted 1 Appointed to the committee on 8 December 2009 ^ Attends by invitation and is not a member of the committee
The internal auditors and external auditors attended and reported at each meeting of the ARCC.
ROLE AND RESPONSIBILITIES
The role and responsibilities of the ARCC are set out in its terms of reference and include:
• Examining and reviewing the group’s financial statements and reporting of interim and final results, the
accompanying message to stakeholders and any other announcements regarding the company’s results
or other financial information to be made public
• Reviewing and considering, for recommendation to the board, the consolidated budget for the ensuing
financial year
• Overseeing annual reporting
• Reviewing the expertise, resources and experience of the company’s finance function
• Monitoring and supervising the effective function of internal audit, including the review and/or approval
of the internal audit charter, internal audit plans, reports and findings
• Reviewing and assessing the integrity of the risk control environment of the group to ensure that the
risk policies and strategies of the company are effectively managed
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• Reviewing the company’s compliance policy and its ongoing implementation to assess the extent to
which the company is managing its compliance risk effectively
• Considering and making recommendations to the board with regard to the appointment, re-appointment
and removal of the company’s external auditors as well as fees payable to such auditors
• Reviewing and/or approving external audit plans, findings and reports
• Evaluating the independence and effectiveness of the external auditors.
The committee fulfils an oversight role regarding the company’s report and the reporting process, including
the system of internal financial control. It is responsible for ensuring that the company’s internal audit
function is independent and has the necessary resources, standing and authority within the company to
enable it to discharge its duties. Furthermore, the ARCC oversees cooperation between the internal and
external auditors, and serves as a link between the board and these functions.
During the year, the committee met with the external auditors and internal auditors without management
being present.
EXTERNAL AUDITORS
The ARCC has satisfied itself as to the independence of the external auditor in accordance with
section 270A of the Companies Act. Principal matters considered in determining independence
included those arising from the ownership of shares, the quantum of the audit fee and the types
and quantum of the non-audit services provided by the firm. Requisite assurance was sought and
provided by the external auditor, that internal governance processes within the firm support and
demonstrate its claim to independence. The committee, in consultation with executive management,
agreed to the engagement letter, terms, audit plan and budgeted audit fees for the 2010 financial
year. The ARCC also considered and satisfied itself that PricewaterhouseCoopers Inc., including
their advisers, is accredited in terms of the JSE List of Accredited Auditors as contemplated in
paragraph 3.86 of the JSE Listings Requirements.
Report of the Audit, Risk and Compliance Committee | continued
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The committee also determines and carefully monitors the use of the external auditor for non-audit-related
services and is guided by a formal policy that precludes the external auditor from providing services which
would impair audit independence.
The non-audit services rendered by the external auditors during the year ended 31 May 2010, comprised
tax advisory services, tax compliance services and advisory services. The fees applicable to the
aforementioned services totalled R1.8 million.
Prohibited non-audit-related services include:
• Performing any internal audit or internal audit outsourcing services to Blue Label or any of its relevant
subsidiaries
• Performing any valuations on any business assets of Blue Label, or any of its relevant subsidiaries for
which the external auditors will be required to subsequently issue an audit opinion
• Services that involve the design and implementation of financial information technology systems used to
generate information that forms part of the financial statements
• Bookkeeping or other related services
• Actuarial services involving amounts recorded in the financial statements where it is likely that
the results of these services will be subject to audit procedures during the audit process
• Management functions
• Broker or dealer, investment adviser or investment banking services
• Expert services in an advocacy capacity unrelated to the audit
• Acting for Blue Label in the resolution of litigation, regulatory, administrative proceedings or
investigations including taxation matters that might reasonably be expected to have a material
impact on the financial statements and which involve a significant degree of subjectivity.
The ARCC nominated the re-appointment of PricewaterhouseCoopers Inc. as registered auditors for the
2011 financial year and Mr Eben Gerryts, the audit partner, as the independent registered auditor of
Blue Label.
ANNUAL REPORT 2010
90 Report of the Audit, Risk and Compliance Committee | continued
INTERNAL AUDITORS
Internal audit is an independent appraisal function established by the board to evaluate the adequacy
and effectiveness of controls, disciplines, systems and procedures within Blue Label, in order to reduce
business risks to an acceptable level in a cost-effective manner. The internal auditors report administratively
to the financial director and functionally to the ARCC and operate under an approved internal audit charter.
During the year the committee examined and reviewed the progress made by internal audit against the
approved 2009/2010 audit plan and furthermore approved the internal audit plan for the 2010/2011
financial year.
RISK MANAGEMENT
The board has assigned oversight of the company’s risk management process to the ARCC. In this regard
the committee:
• Reviews and assesses the integrity of the risk control systems and ensures that the risk policies and
strategies of the company are effectively managed
• Makes recommendations to the board concerning the levels of tolerance and appetite and monitors that
risks are managed within the approved levels
• Oversees that the risk management plan is widely disseminated throughout the group and integrated in
the day-to-day activities
• Ensures that frameworks and methodologies are implemented to increase the possibility of anticipating
unpredictable risks
• Ensures that risk assessments are performed on a continuous basis
• Ensures that management considers and implements appropriate risk responses.
WHISTLE-BLOWING AND ETHICS HOTLINE
Blue Label has established a Whistle-blowing Policy supported by an Ethics Statement and Ethics Hotline.
The committee receives information on any reported concerns, including follow-up information on actions
taken.
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COMPLIANCE
The board delegated to the ARCC the oversight of the compliance function within Blue Label to ensure
and monitor compliance with rules, regulations, statutes and procedures applicable to Blue Label. In this
regard the committee reviews:
• The company’s compliance policy and its ongoing implementation and recommends to the board
necessary changes to the policy
• The effectiveness of the system for monitoring compliance with legal, regulatory and internal requirements
and the result of management action relating to any instances of non-compliance
• Arrangements by which Blue Label employees may, in confidence, raise concerns about possible
improprieties in matters of financial reporting, financial or internal control or any other matters, and
ensuring that appropriate arrangements are in place to ensure independent investigation of such
matters, follow up-action and reporting
• The performance of the compliance officer.
EXPERTISE AND EXPERIENCE OF THE FINANCIAL DIRECTOR AND FINANCE FUNCTION
In accordance with the JSE Limited Listings Requirements and governance best practice, the committee
considered the appropriateness of the expertise and experience of the financial director and finance
function of the company. The ARCC is satisfied that David Rivkind possesses the appropriate expertise and
experience to discharge his responsibilities.
The ARCC has furthermore considered and has satisfied itself of the appropriateness of the expertise
and adequacy of resources of the finance function and experience of the senior members of management
responsible for the financial function.
RECOMMENDATION OF THE ANNUAL REPORT FOR APPROVAL BY THE BOARD
The ARCC has reviewed the report and recommended the report for approval by the board.
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• 11% increase in
revenue
• R516 million
cash generated
• R3.1 million spent on
corporate financial
investment
Sustainability report | Statement by the joint chief executive officers
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Societies across the globe face extensive challenges, ranging from climate change and resource constraints to social issues of poverty, skills shortage and digital exclusion. As a business operating in South Africa and internationally, Blue Label not only has cognisance of the aforementioned challenges across the globe, but also of its own environmental impact in terms of the management of its technological value chain that drives the group’s products and service. In line with this, the group carefully selects the right local partners in offshore territories to ensure alignment with the group’s values and culture.
Blue Label seeks to improve the lifestyles of the communities in which we operate by enabling the unbanked and underbanked consumers in the emerging and developing economies to access first-world products and services, conveniently and cost effectively. We will continue to expand our global footprint of touch points, both organically and acquisitively, as well as increase the range of products and services distributed through our footprint. Our commitment to improving lifestyles is carried through in our community development and corporate social investment activities whereby we contribute to job creation, youth, sports development and HIV/Aids awareness initiatives, as well as our approach to environmental concerns through adopting efficient energy use and recycling initiatives.
Sustainable development highlights include the following:• No significant occupational health or safety incidents recorded• R3.1 million spent on corporate social investment, particularly in the areas of youth development,
sports and HIV/Aids• Completion of our renovated head office building with the inclusion of significant environmental impact
reduction technologies• The initiation of a process to ensure that from 2011 Blue Label is able to report electricity usage and
carbon emissions data• 11% increase in revenue and R516 million cash generated.
We are energised by the opportunities that our products and services offer in contributing to sustainable development, which ultimately, we hope will have a positive impact on all our stakeholders.
BM Levy MS LevyJoint chief executive officer Joint chief executive officer
23 August 2010
BM L
We are energised by the opportunities that our products and services offer in contributing to sustainable development.
ANNUAL REPORT 2010
94
APPROACH TO SUSTAINABLE DEVELOPMENT
Blue Label’s primary focus is upon delivering goods and services to unbanked and underbanked persons
in communities which have previously been ignored or underserviced. The company recognises that the
well-being of the communities that it services has an impact on the sustainability of the company, and
attempts to manage its business practices in a manner which positively impacts the economic, social and
environmental well-being of those communities.
The company aims to sustain its business model by extending its global footprint of touch points, both
organically and acquisitively, by continuing to fulfil the significant demand for the delivery of a multiplicity of
prepaid products and services through multiple distribution bases utilising its various proprietary delivery
mechanism. Also key to the sustainability of the company is a focus on its governance, and social and
environmental objectives.
REPORT BOUNDARIES AND REPORTING STANDARDS
This report on sustainability performance should be read in conjunction with the other sections of this annual
report as information on the profile and global footprint, governance and risk management approach are
integrated in this annual report. The Sustainability Reporting Guidelines of the Global Reporting Initiative
(GRI) have been used in compiling the report. This information pertains to Blue Label’s economic, social
and environmental performance for the financial year ended 31 May 2010.
As with our last report, this document has been produced in alignment with the Global Reporting
Initiative (GRI) guidelines on sustainability reporting, to an application level of C (C+ with assurance from
SustainabilityServices.co.za). In adherence to the Guidelines, we have produced a GRI Index that is available
upon request at [email protected].
Sustainability report | continued
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Blue Label continues to develop its sustainable development policies, processes and reporting in line
with best practice. The company has engaged independent external advisors to conduct an analysis of
Blue Label’s existing sustainable development practices against a best practice framework taking into
account the GRI G3 Reporting Guidelines, recommendations contained in King III with specific reference
to integrated reporting and assurance, and reporting practices of peers and competitors. The outcome
of the analysis will provide Blue Label with recommendations to enhance its existing practices as well
as provide a high level roadmap to assist Blue Label in formulating and implementing a sustainable
development strategy.
This report predominantly incorporates information on the activities and initiatives of the South African
operations of the group. All statistical and “non-financial” data is limited to what systems and processes
allow. The content of this report has been structured, to the best of the company’s ability, according
to GRI’s guidelines on “materiality”. While areas of material risk and/or opportunity, for which there
are currently inadequate systems and/or reporting information, have been identified, the content is
nonetheless a fair representation of the company’s ability to respond to the concerns and interests of its
varied stakeholders.
There have been no re-statements of sustainability information or measurement techniques to be
discussed in relation to the 2009 annual report.
ANNUAL REPORT 2010
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VALUE ADDED STATEMENT
The group value added statement shows how much economic value has been created by Blue Label through utilisation of its capital, capacity and other resources and how the economic value was distributed to stakeholders.
2010 R’000
2010 %
2009 R’000
2009 %
Value added
Value added by operating activities 989 172 92.2 847 005 84.2
Revenue 17 027 696 15 281 449
Net operating expenses (16 038 524) (14 434 444)
Value added by investing activities 84 127 7.8 158 539 15.8
Fair value movement on financial assets at fair value through profit or loss — 32
Interest income 84 127 158 507
1 073 299 100 1 005 544 100
Value distributed
Distributed to employees 299 928 27.9 278 970 27.7
Salaries, wages, medical and other benefits 299 928 278 970
Distributed to providers of finance 5 130 0.5 4 891 0.5
Finance costs 5 130 4 891
Distributed to the state 183 773 17.2 190 144 18.9
Income tax 181 838 190 144
Withholding tax 1 935 —
Sustainability report | continued
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2010 R’000
2010 %
2009 R’000
2009 %
Value reinvested 159 287 14.8 166 574 16.6
Depreciation, amortisation and impairment 119 785 93 220
Net discounting finance cost 41 537 61 269
Share of losses of associates 14 982 27 445
Deferred taxation (17 017) (15 360)
Value retained 425 181 39.6 364 965 36.3
Retained profit 365 022 390 547
Minority shareholders’ interest 60 159 (25 582)
1 073 299 100 1 005 544 100
STAKEHOLDER RELATIONS
The building of long-term and transparent relationships with the most significant stakeholders is one of Blue Label’s core values. A broad range of internal and external stakeholders who have a material interest in or who are affected by Blue Label has been identified. The group has a deliberate and measured approach to its interaction with stakeholders and these take account of the impact that the stakeholders may have on the business and the frequency and form of that engagement is commensurate with such estimated impact.
2010 2009
27.9% 27.7%
0.5%
18.9%
16.6%
36.6%
0.5%
17.2%
14.8%
39.6% Distributed to employees
Distributed to providers of finance
Distributed to the state
Value reinvested
Value retained
ANNUAL REPORT 2010
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Initiatives and methods used to engage with stakeholders comprise face-to-face formal or informal meetings (including the annual general meeting); media and stock exchange announcements; presentations; conference calls; the Blue Label website (www.bluelabeltelecoms.co.za); an intranet site available to employees; investor days and retail site visits; perception studies and reputation audits; whistle-blowing facilities and formal grievance mechanisms; financial and sustainability reports; newsletters, circulars and e-mail updates; regular customer, business partner and supplier meetings and formal consultation and audit processes. Dialogue and feedback is encouraged wherever possible which is presented to Exco for consideration and/or further action.
Blue Label’s stakeholder group consists of the following stakeholders that contribute to its sustainability, either directly or indirectly:
STAKEHOLDER GROUP NATURE OF ENGAGEMENT
METHOD OF ENGAGEMENT FREQUENCY
Employees Communication with employees involves matters of an operational nature such as health and safety initiatives, internal policies and practices such as the establishment of the ethics hotline, new products, competitions, business initiatives, charitable initiatives, human resource matters and regulatory and compliance matters.
In addition to the ongoing communication Blue Label also holds an annual management conference attended by senior and middle management of the group. The purpose of the conference is to obtain input and feedback from the attendees on matters of a strategic nature specific to each business segment. The Executive Committee established an SIC. It meets monthly to agree, plan and monitor the most effective manner of implementing the board strategy. Senior managers are thereafter required to convey the group strategy to their businesses.
Intranet, staff meetings, newsletters, electronic mail, staff notices
Ongoing
Annual management conference
Annually
Sustainability report | continued
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STAKEHOLDER GROUP NATURE OF ENGAGEMENT
METHOD OF ENGAGEMENT FREQUENCY
Shareholders, investors, analysts and the media
Engagement with this stakeholder group involves presentations and ad hoc meetings covering the financial performance of the group, an overview of the strategic direction of the group, the group’s investment proposition, investor days and site visits.
Road shows to investors in South Africa, Europe, USA and United Kingdom
Ongoing
Half-year results and year-end results presentations to shareholders
Bi-annually
Annual report and annual general meeting
Annually
Press announcements of its interim and year end results
Bi-annually
SENS announcements via the JSE
Ongoing
Speaker at conferences and workshops
Ongoing
Investor alerts via website registration
Ongoing
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STAKEHOLDER GROUP NATURE OF ENGAGEMENT
METHOD OF ENGAGEMENT FREQUENCY
Customers The group’s customer base comprises corporate clients, chainstores, large independent retail clients, wholesale/cash-and-carry stores and petroleum industry forecourts. Engagement with customers involves information on new products, market trends, business queries, device installations, marketing, maintenance and support. Blue Label senior management liaises regularly with senior management of customers and suppliers, and in so doing, have built long-term relationships.
Face-to-face formal and informal meetings, formal consultation
Ongoing
Business partners and suppliers
The relationships that Blue Label has with its business partners such as Vodacom, MTN, Cell C, Telkom, municipalities and parastatals, among others, are managed in terms of distributor and/or dealer agreements and collaboration agreements. Relationship managers are appointed to each partner to provide a single and dedicated point of contact.
Suppliers are subjected to a formal procurement process whereby issues such as quality of product, creditworthiness and BBBEE status are confirmed prior to becoming suppliers. Suppliers of services are, if appropriate, initially engaged through a tender process and if successful, agreements are concluded which are then managed by Blue Label Procurement. The majority of the group’s goods and services are procured from locally based suppliers.
Distributor and/or dealer agreements
Ongoing
Face-to-face formal and informal meetings
Monthly
Sustainability report | continued
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STAKEHOLDER GROUP NATURE OF ENGAGEMENT
METHOD OF ENGAGEMENT FREQUENCY
Communities TPC formed a community division known as TPC Community Channel. This division specialises in the development and empowerment of broad-based communities through the deployment of mobile technology and products. The community channel aims to not only distribute the group’s products more widely but to create job opportunities for the members of the communities and to share a portion of the revenues earned with those communities.
Face-to-face formal and informal meetings and forums
Ongoing
Training and workshops
Casual weekly sessions and formal monthly sessions
Government, regulatory bodies and the public sector
The group regularly engages government (at national and local level), parastatals and other public organisations through various tender processes. From a compliance point of view, the completion and rendition of statutory returns are undertaken diligently. BLT is not a member of any industry association and/or national/international advocacy organisation in which the company has positions in governance bodies, participates in projects or committees or provides substantive funding.
Formal meetings and tender processes
Regular and ongoing
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SHAREHOLDER ANALYSIS
Below is a synopsis of Blue Label Telecoms Limited’s shareholder spread as at 31 May 2010, distribution of shareholders and beneficial shareholders holding 2% or more of the issued share capital of the company:
No of shareholdings %
No of shares %
Shareholder spread
1 – 1 000 shares 699 24.91 400 343 0.05
1 001 – 10 000 shares 1 495 53.28 5 558 723 0.73
10 001 – 100 000 shares 446 15.89 14 064 268 1.83
100 001 – 1 000 000 shares 104 3.71 33 168 064 4.33
1 000 001 shares and over 62 2.21 713 169 496 93.06
Totals 2 806 100.00 766 360 894 100.00
Distribution of shareholders
Banks 28 1.00 94 901 633 12.38
Close corporations 62 2.21 1 291 332 0.17
Empowerment 1 0.04 69 190 346 9.03
Endowment funds 10 0.36 93 493 0.01
Individuals 2 221 79.15 186 491 383 24.33
Insurance companies 12 0.43 13 811 177 1.80
Investment companies 11 0.39 19 929 800 2.60
Medical schemes 2 0.07 71 300 0.01
Mutual funds 53 1.89 55 340 482 7.22
Nominees and trusts 258 9.18 44 743 550 5.84
Other corporations 33 1.18 267 312 0.04
Private companies 88 3.14 154 610 340 20.17
Public companies 5 0.18 94 928 829 12.39
Retirement funds 20 0.71 20 988 204 2.74
Treasury stock 2 0.07 9 701 713 1.27
Totals 2 806 100.00 766 360 894 100.00
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No of shareholdings %
No of shares %
Non-public shareholders 20 0.71 403 430 620 52.64
Directors and associates 16 0.57 185 141 055 24.16
Strategic holdings (more than 10%) 2 0.07 208 587 852 27.22
Treasury stock 2 0.07 9 701 713 1.26
Public shareholders 2 786 99.29 362 930 274 47.36
Totals 2 806 100.00 766 360 894 100.00
No of shares %
Beneficial shareholders holding 4% or more
Shotput Investments (Proprietary) Limited 116 736 000 15.23
Microsoft Corporation 91 918 806 11.99
Levy, BM 81 613 331 10.65
Levy, MS 74 205 922 9.68
Nthwese Investment Holdings Consortium (Proprietary) Limited 69 190 346 9.03
Investec 36 917 640 4.82
Totals 470 582 045 61.40
73%
16%
6%5%
South Africa
USA
UK
Other
Geographic analysis of beneficial shareholders
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KEY IMPACTS AND RISKS
The group has identified the following key impacts and risks to the group.
IMPACT/RISK COMMENT RESPONSE
General economic conditions
In an economic downturn consumers are forced to limit expenditure, particularly on non-essential needs. This could have an adverse effect on revenue and profitability.
The depressed interest rate environment affects the revenue earned from treasury.
It has been the group’s experience thus far that its mix of products, services and distribution channels has limited its exposure to economic downturns, in that the bulk of the product mix consists of goods, the demand for which thus far appears inelastic. Consumers appear to be unwilling to reduce spending on utilities, transport and even airtime.
The group has negotiated early settlement discounts with its suppliers to compensate, in part, for the loss of interest revenue from treasury
High volume/low margin business which is sensitive to supplier pricing
Network operators determine the margins available to the prepaid airtime distribution channel. Blue Label Telecoms may not always be able to pass on to the retailer or customer any margin compression enforced by the network operators.
Management is confident that based on the terms of the group’s customer agreements and business model it should be able to pass on any margin compression to its customers. The possible margin compression is also likely to force smaller distributors out of the distribution chain.
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IMPACT/RISK COMMENT RESPONSE
Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA)
RICA requires the registration of personal details of all South African cellphone subscribers. All new starter pack activations subsequent to 1 August 2009 require such registration.
Furthermore, all historically active users of cellphones will have to be registered within 18 months from that date.
Registration is administratively complex and leads to a delay in the ultimate activation of starter packs.
Activi, the technology arm of the group, has developed a suite of data collection products that is designed to complement existing point-of-sale devices, enabling the immediate registration of RICA details.
While the number of starter packs activated by the group declined significantly immediately subsequent to the implementation of RICA, the group has seen these activations increase steadily thereafter, as its technology solutions were deployed and refined.
Once registered in terms of RICA the starter pack base is likely to be more stable and less likely to churn. By developing superior capabilities to RICA customers, this presents both an opportunity and a competitive edge for Blue Label.
Reduction of inter-connect fees
Parliamentary intervention has reduced cellular inter-connect fees, and is likely to result in further decreases in the immediate future.
This, in turn, has to led to some lowering of cellular airtime prices. It is expected that downward pressure on the networks’ prices will continue. Lower pricing may lead to both margin compression by the networks and decreased spend by consumers.
The group continues to monitor the situation, but believes that it should be able to pass margin compression onto its customers. At this stage it would appear that networks are passing on the majority of the benefits of lower pricing to contract subscribers. The decreases in prepaid call rates that the networks have thus far implemented have not affected group turnover.
It is management’s view that prepaid customers currently consume not as much airtime as they require, but as much as they are able to afford. It would therefore appear likely that prepaid consumers’ spend should remain the same, but consumers will receive more value for that spend.
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IMPACT/RISK COMMENT RESPONSE
Inability to attract and retain key personnel and qualified employees in whom intellectual capital resides
The group’s future performance will depend largely on the efforts and abilities of its key personnel and employees. The existing management at Blue Label Telecoms pioneered the mass prepaid market and established the group’s business model. Blue Label Telecoms’ future success will depend, in part, upon its ability to continue to attract, retain and motivate the necessary personnel, including the succession of executive officers and certain other key employees.
The joint chief executive officers and co-founders are both substantial shareholders and are dedicated to the sustainability and growth of the group.
Key members of the management team are bound by service and restraint agreements and are in many instances strategic shareholders in the group. Executive management have implemented succession planning in key areas of the group through the identification of, and skills transfer to, suitable personnel.
Blue Label Telecoms’ Remuneration Committee has designed remuneration policies that include long-term retention and incentives. In addition, key components of the group’s remuneration policy have been adjusted to place a focus on retention.
Non-exclusivity of various supply, distribution and WASP agreements
Certain of the group’s supply, distribution and WASP agreements are non-exclusive and can be terminated at short notice. This type of agreement is standard in the industry.
Management is committed to continue to grow the group’s footprint by increasing its points-of-presence (touch points) and owning the entire technological value chain, which drives the group’s products and services. This has placed the group in a strong position in the distribution chain.
Relationships with and service to suppliers and customers are of paramount importance. The consolidation of South African distribution will allow for an increased focus on client relationships and management.
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IMPACT/RISK COMMENT RESPONSE
Blue Label Telecoms conducts the majority of its existing business in South Africa and is subject to certain political, social, environmental and economic conditions in South Africa
While South Africa features a highly developed financial and legal infrastructure at the core of its economy, it has high levels of unemployment, poverty and crime. Particular considerations include how the South African Government will ultimately address the political tensions and social and economic problems, to what extent its efforts will be successful, the political, social and economic consequences of such efforts and the effect on South African businesses of the continuing integration of the South African economy with the economies of the rest of the world.
Blue Label Telecoms believes that the economic sentiment is broadly positive for the future. The group continues to expand its operations beyond the borders of South Africa, with particular focus on emerging markets.
Vulnerability of the middle man
In most industries a wholesaler is at risk of being eliminated from the supply chain if the supplier elects to supply the customer directly.
From its inception, the objective of the Blue Label group was to become a one-stop destination for the supply and distribution of all of the networks’ offerings. This would provide both convenience and efficiency to the retailer and customer. Furthermore the technology and footprint developed by the group allows retailers to earn additional revenue by the introduction of additional products. This would make it difficult to disintermediate the group.
No single network can offer this complete solution.
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IMPACT/RISK COMMENT RESPONSE
Annual contract review in APS Nigeria
The Super dealer agreement between Multi-Links Telkom Limited (“MLT”) and APS Nigeria provides for annual review. MLT has proposed to renegotiate the contract. APS Nigeria has made counter proposals. The negotiation process is ongoing, There is risk to the sustainability of the existing earnings.
APS Nigeria is deploying a POS footprint in the territory, across which it will vend the airtime of certain cellular networks. Network agreements have been concluded with the majority of networks.
Protection of Personal Information Bill
The bill restricts the ability to use personal information of individuals. If promulgated it could affect the outbound sales campaign’s of the group’s call centres and the revenues earned by Blue Label Data Solutions.
Revenues earned from this segment are not significant in overall group income.
Regulations under the proposed act are unknown and could exempt certain activities. The group’s call centres and data aggregator have developed affinity campaigns in which permission is obtained to use personal information. The call centres continue to pursue inbound campaigns which will not be affected by the proposed legislation.
The group’s data aggregator has received certification from the Direct Marketing Association that it adheres to best practice.
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SOCIAL PRACTICES
Transformation and broad-based black economic empowerment (BBBEE)The group has made progress with its transformation and BBBEE initiatives during the year including its empowerment rating of TPC. The Transformation Committee meets at least twice a year to plan, strategise and monitor all transformation and BBBEE initiatives. The group’s short-term approach to BBBEE has been to focus on subsidiary companies as opposed to a group rating at the holding company level. These subsidiaries include:
COMPANYCURRENT
SCORECURRENT
LEVEL
Activi Deployment Services (Proprietary) Limited 58.64 5
Cigicell (Proprietary) Limited 65.42 4
Comm Express Services SA (Proprietary) Limited 46.57 6
Velociti (Proprietary) Limited 47.51 6
The Prepaid Company (Proprietary) Limited 59.36 5
Demtrade 11 (Proprietary) Limited trading as Blue Label Procurement 95.58 2 (QSE)
The group has set BBBEE targets to be achieved within each subsidiary for the new financial year. These have focused specifically on training initiatives, inclusive of learnerships, enterprise development initiatives through ZOK and comprehensive socio-economic initiatives through the Chairman’s Fund.
Socio-economic development (SED)The Chairman’s Fund is an important contributor to the Blue Label community. In the financial year ended May 2010, Blue Label contributed R3.1 million (2009: R2.3 million) to various projects. The focus of these contributions has been on youth development, HIV and Aids, and sports development. Some of our most noteworthy initiatives have included the Protea Glen Legacy Park and Nomonde’s Children’s Home among others.
The Protea Glen Legacy Park initiative saw Blue Label sponsoring the construction of sporting facilities in Protea Glen for the purposes of providing quality sports facilities to the schools in the area during the day, facilities for corporate leagues and other community projects in the evening and a venue for education and awareness programmes for various charity groups late into the night.
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Blue Label sponsored the house for Nomonde’s Children’s Home which currently houses 32 abandoned and orphaned children. In addition, representatives of Blue Label actively participate and support Nomonde Doda, the retired nursing sister who founded the Nomonde’s Children’s Home. Also, representatives sit on the Board of Trustees to assist with securing additional funding and to support good governance principles.
Focus for the new financial year remains on youth development, HIV and Aids and sports development. We continue to support Protea Glen Legacy Park and Nomonde’s Children’s Home and welcome initiatives such as the Netcare Cranio Facial Programme along with Vodacom.
The spend in relation to the category entitled “other” pertained to other charitable organisations outside the primary SED focus areas such as Business Against Crime and the Jewish National Fund of South Africa.
Enterprise developmentBlue Label, through its major subsidiary TPC continued to provide financial assistance on an interest free basis to ZOK. In addition Blue Label provides management and strategic support and other resources to ZOK. ZOK aims to empower budding entrepreneurs from South Africa’s previously disadvantaged communities by equipping them with a ready-made FMCG retailing solution in the form of a ZOK container. This container is a licensed business unit designed as a self contained turnkey business with start-up stock for the food retail section, airtime starter packs and top-up airtime, public phones, fax facilities, internet services and ATM facilities. The placement of ZOK containers in previously disadvantaged areas is intended to bridge the gap in telecommunications, ICT and banking services in such areas, as well as to uplift the communities in the areas served by the containers.
June 2009 – May 2010 June 2008 – May 2009
18.4% 22.5%
8.5%
29%
40.0%
17.6%
56.8%
7.2%
Youth
HIV/Aids
Sports development
Other
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ZOK is Level 4 BEE rated and is therefore a suitable Enterprise Beneficiary. It supports the overall strategic goal of Blue Label of assisting in job creation and providing better access to telecommunications technology in disadvantaged and rural areas.
Preferential procurementThe implementation of a centralised procurement function via Blue Label Procurement, has ensured greater efficiencies and co-ordination of the group’s procurement initiatives. Blue Label Procurement holds a Level 2 BBBEE contributor status. As part of the centralisation process, a database has been set up to continually keep track of the group’s suppliers and their BBBEE statuses. The group strives to procure all goods/services from BBBEE certified suppliers, where possible.
HUMAN CAPITAL
The group recognises that its employees are its most valuable asset. All new employees undergo an induction session during which they receive their staff manual comprising the group’s vision, mission, values, ethics statement, conditions of employment, standard group practices, procedures and policies, as well as a health and safety booklet. The group human resources department oversees the group’s skills development and training initiatives. Senior management in each of the subsidiaries is responsible for ensuring that group strategy and culture are implemented consistently.
All permanent employees are automatically included in various group-wide schemes, namely, the group life benefit scheme and medical aid, as well as other group benefits such as miTRAFFIC, Look4help, Look4me, MTN WhereRU and MTN 2MyAid.
The group life benefit scheme is employer-funded and includes death, disability, dread disease and funeral benefits. All existing employees are given the option to join Discovery Health while membership of Discovery Health is compulsory for all new permanent employees. All changes to terms and conditions of employment, inclusive of changes to significant operational matters are dealt with on the basis of consultation with staff and mutual buy-in.
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A new initiative recently launched within the group is a Wellness for Life Programme. Corporate wellness is the ability to reduce and manage employees’ stress and contributes to staff wellness allowing them to re-focus and re-energise allowing them to perform at their peak. The Wellness for Life Programme is an array of wellness initiatives that are put in place to support, encourage and educate employees about the benefits of a healthy lifestyle. The human resource department runs wellness days throughout the year and the first wellness day was held in July 2010 focusing on dental and tooth hygiene sponsored by Colgate. Information and support for chronic diseases such as HIV/Aids, tuberculosis, diabetes, cancer, heart problems and weight issues are all topics forming part of the wellness programme. Over 50 group employees participated in the JP Morgan Corporate Challenge in March 2010 and the company also sponsors employees who participate in the 94.7 Cycle Challenge and Cape Argus Cycle event.
EMPLOYMENT EQUITY
The group promotes equal opportunity and fair treatment in employment in accordance with its employment equity policy. The ultimate objective is to create an environment in which all employees are able to compete for job opportunities on the sole criterion of merit and where the demographics at all levels within the workplace are a fair representation of the demographics of the relevant general and regional population.
The individual subsidiary company employee statistics are monitored by the group human resources department. It has been a group focus area to ensure that job descriptions and functionalities of top, senior and junior management, were accurately reflected in the Employment Equity reports submitted on an annual basis, and to ensure alignment between the dti CoGP and the EE2A reports. Blue Label is a non-unionised environment.
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The table below depicts the demographics of the employee base in the entire group excluding international operations:
Male Female 2010 2009
Permanent Afric
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Unskilled & defined decision makers 22 0 3 7 19 5 3 3 62 67
Semi-skilled & discretionary decision makers 142 60 106 23 279 114 126 69 919 786
Skilled technical & academically qualified workers, junior management, supervisors 47 25 12 95 43 15 7 56 300 317
Professionally qualified & experienced specialists & mid-management 8 3 7 47 3 2 3 15 88 162
Senior management 1 2 1 21 6 5 3 27 66 48
Top management 3 0 0 39 3 0 0 4 49 53
Total permanent 223 90 129 232 353 141 142 174 1 484 1 433
Non-permanent employees 114 6 0 7 2 4 0 3 136 546
Grand total 337 96 129 239 355 145 142 177 1 620 1 979
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The decrease in the total number of employees compared to the previous reporting period is attributable
to normal attrition and the group’s disinvestment in the Blue Label Call Centre. The table above does not
include the 483 “foot soldiers” referred to on page 115 as they are not directly employed by the group but
empowered to run their own micro businesses as a result of the community channel strategy within TPC.
TRAINING AND SKILLS DEVELOPMENT
The group has planned and implemented new training and development initiatives during the year as
follows:
Learnership initiatives
The group has partnered with Bytes People Solutions in implementing various learnership programmes within
its various subsidiaries. Activi Deployment Services (Proprietary) Limited, Cigicell (Proprietary) Limited,
Cellfind (Proprietary) Limited, Comm Express Service SA (Proprietary) Limited, Kwikpay (Proprietary)
Limited and The Prepaid Company (Proprietary) Limited all participate in learnership initiatives. Together
the subsidiaries participate in the following programmes:
• Contact Centre Support NQF level 2
• End User Computing NQF level 3
• System Support NQF level 5
• Systems Development NQF level 5
There are a total of 25 learners within the various subsidiaries. They are mentored throughout the
duration of the programme to ensure that they successfully complete their learnership qualification and
integrate effectively into the Blue Label workforce.
The group has also focused on engaging disabled learners and has a total of seven learners living with a
disability currently engaged within the learnership programme.
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Living Leadership
Velociti (Proprietary) Limited runs a “Living Leadership” programme aimed at developing their management
levels. This workshop has been highly effective and looks at leadership and its relevance in order to
transform both the individual and business. It focuses on insights and skills to enable staff to realise their
full potential and to use those skills within the work environment.
COMMUNITY CHANNELS
Community Channels is a division of TPC that specialises in the development and empowerment of
communities through the deployment of mobile technology. This division aims to create loyalty in an
otherwise unloyal prepaid market sector by providing mobile telecommunications products and services
that create sustainable income. The volatility of this market sector is derived from the fact that
subscribers within this space are driven more on price rather than brand or product loyalty. This presents
an opportunity for Blue Label via its community channel division to generate and develop loyalty bases
within this market and to create a sense of loyalty by subscribers, thereby ensuring improved subscriber
retention. The opportunities in this particular market allows the community channel to support continued
economic growth within broad-based communities, by creating jobs, developing skills and empowering
South Africans through technology.
The community channel division comprises 483 “foot soldiers” trained by the community channel division
to buy and sell starter packs within their communities. These “foot soldiers” have used this opportunity
to start their own businesses or to earn additional income from the sale of starter packs. The training
provided to these individuals include introduction to the specific channel starter pack, the importance of
retaining and recharging the starter pack, problems they might encounter when downloading the free
airtime included in the starter pack and how to solve such problems, how they need to dress and behave,
recommended selling price and targets, what is RICA and how to operate the RICA terminals.
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SAFETY AND HEALTH RESPONSIBILITY AND PRACTICES
Management and employees of Blue Label believe that ensuring a safe work environment is both a
legislative imperative and good business practice. In order to ensure comprehensive practical application
of Blue Label’s commitment to a healthy, safe and incident-free working environment, the group has
established an integrated Health and Safety Policy. The stated health and safety objectives are as follows:
• Identify all health and safety hazards in the workplace through formal hazard surveys and taking
appropriate action to mitigate those
• Continuous awareness and training of employees to ensure health and safety competence in the
workplace and a general awareness of potential safety and health hazards implicit to their work
environment
• Operating business activities in a manner that ensures an acceptable degree of physical, mental and
social wellbeing of all employees
• Ensuring Blue Label’s compliance with all relevant safety and health legislation.
Awareness of the company’s health and safety requirements is created for all new employees as part of
their induction process. Frequent information updates are circulated via e-mail to all existing employees.
Health and safety practices are managed by the group health and safety officer with the assistance
of appropriate representatives appointed at each of the subsidiary companies. These health and
safety representatives have been trained by qualified external service providers in accordance with the
requirements of the Occupational Health and Safety Act No 85 of 1993 (“OHS Act”). Monthly health
and safety meetings are held to discuss the outcome of inspections and precautions to be implemented
to mitigate identified hazards. In addition to the health and safety representatives the group has also
appointed first-aid practitioners and fire marshals. Training of these individuals is also provided by qualified
external service providers. During the period under review the group conducted a fire drill and the
evacuation procedures were evaluated by the Sandton Fire Department Disaster Management team. The
evacuation procedure received a “good” rating with some corrective actions to be taken relating to signage
at assembly points to ensure that all employees have a clear indication of where to stand.
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Health and safety risks associated with the group’s business include fire, electrical safety, warehouse
layout and stacking and injuries associated with the assembly facility. The group had no major health and
safety incidents during the period under review.
Blue Label Telecoms has a comprehensive HIV/Aids strategy to minimise the impact of the disease on its
employees by way of:
• Instilling a prevention culture within the organisation
• Providing employees with an opportunity to volunteer to have an HIV/Aids test resulting in detection of
infections
• Providing medication and treatment to affected employees as the final element to the strategy.
Workplace awareness programmes include awareness activities, condom distribution, voluntary HIV
testing, infection control, counselling and treatment. The company has a partnership with the Bryanston
Assessment Centre and all employee matters of a psychological nature are referred and treated
accordingly. In addition, as Discovery Health is the chosen medical aid service provider, all employees
are referred to the existing disease management forums within Discovery Health such as the Oncology,
Diabetes and HIV management forums.
ENVIRONMENTAL PRACTICES
Given the nature of Blue Label’s business, the group’s environmental impact could be classified as low.
However, the responsible use and management of natural resources are integral elements of Blue Label’s
commitment to sustainable development. The group continued to assess and develop processes and
practices to improve the measurement and monitoring of the group’s environmental impact including
carbon emissions.
A number of initiatives are under way reflecting the group’s commitment to the environment:
ANNUAL REPORT 2010
118 Sustainability report | continued
Office buildings
The group occupies leased properties comprising mainly administrative offices, technical facilities,
warehouse facilities and an assembly facility none of which are situated in biodiversity-rich or ecologically
significant habitats.
The construction of additional offices at the main office building situated at 75 Grayston Drive was
completed and the new building was occupied in April/May 2010. The design of the new building involved
the following eco-friendly systems:
• Electricity
• Lamps in focus areas are T5 which use 20% less energy and last in the order of 75% longer
• Lights in offices and basements are controlled by motion and sound detectors and are only activated
when the areas are occupied. The building is multi-zoned to best optimise the energy management
system
• Feature lighting uses LED technology with the benefits of reduced energy consumption and extremely
long-life expectancy.
• Water
• Toilets and urinals use Gebrit technology. This system is electronically controlled to flush after use only
and the amount of water is regulated using approximately 20% less water
• Hand basin taps are electronically controlled to present water only when activated by the presence
of hands which limits the amount of free running water. The saving of water has not been formally
measured but it is estimated that the system could allow a saving of up to 40% of normal water
usage.
• Air conditioning
• The system in the new building utilises an inverter system which allows for an estimated saving of
35% in electricity usage
• The system in the existing building has been replaced in its entirety with a two-pipe central air-
conditioning plant which allows for an estimated saving of 40% in electricity usage.
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In addition the group has embarked on an initiative in conjunction with greenOFFICE to assess all the office
automation equipment used by the group in terms of monthly rental costs and cost per copy made or
printed. The main objective of the initiative is to create better efficiency in the use of office automation
equipment including cost savings as well as establishing carbon emission and paper usage levels.
Water use
Water consumption and use is limited to drinking purposes and ablution facilities. The group’s consumption
is not formally measured as in most cases water costs form part of the monthly lease charge.
Energy efficiency
Various energy saving initiatives have been incorporated in the new offices. Formal measuring of the
electricity usages of all the subsidiaries occupying the building has been implemented with effect from the
new financial year and detail will be reported in the 2011 annual report.
Recycling
Blue Label continues to recycle its office waste such as paper and printer cartridges in an environmentally
friendly manner. Waste paper and scrap, including printer cartridges, associated with an office environment
are collected by scrap dealers for disposal in an environmentally friendly manner.
Greenhouse gas emissions
Business activities resulting in greenhouse gas emissions include electricity usage, transportation and
processes relating to an office environment. The group is aware that it is necessary to take reasonable
steps to limit the effects of such emissions. Monitoring of the group’s emissions via Blue Label Procurement
has been implemented with effect from the new financial year and the group will be able to report emission
data in its next report. Blue Label Procurement manages all the travel and fleet management services for
the group as a centralised function.
ANNUAL REPORT 2010
120 Independent assurance statement
To the board and stakeholders of Blue Label Telecoms:
SustainabilityServices.co.za (SS) was commissioned by Blue Label Telecoms (hereafter, ‘BLT’) to
provide independent third party assurance over the 2010 sustainability report (the ‘report’, covering
the period 1 June 2009 to 31 May 2010) contained within BLT’s annual report. The assurance team
comprised primarily Michael H. Rea, our principal sustainability assurance practitioner, with experience in
environmental and social performance measurement. Over the past 11 years, Michael has undertaken
over 35 assurance engagements in various countries, including Sudan, Kenya, the DRC, Nigeria,
Cameroon, Swaziland, Zimbabwe, Namibia, South Africa, Peru and Canada: working either as part of
a team (while in the employ of PwC and KPMG), or as an independent sustainability assurance provider.
INDEPENDENCE
SS has not participated in the preparation of any part of this report and has not undertaken any
commissions for BLT in the reporting period concerning sustainability management or reporting. SS’s
responsibility in performing its assurance activities is to the management of BLT alone and in accordance
with the terms of reference agreed with them.
ASSURANCE OBJECTIVES
The objectives of the assurance process were to provide stakeholders of BLT with a low level independent
assurance opinion on whether the report meets standard reporting principles, as well as to assess the
degree to which the report is consistent with the Global Reporting Initiative (GRI) G3 guidelines, with the
objective of establishing whether or not the report has met the GRI G3 Application Level C reporting
requirements.
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SCOPE OF WORK PERFORMED
The process used in arriving at this assurance statement is based on best practices in sustainability
reporting assurance. Our approach to assurance included the following:
• Reviews of drafts of the report for significant data and/or assertion anomalies, and to assess whether
sufficient ‘neutrality’ (ie, success and challenges) could be identified.
• Interviews with individuals responsible for writing the report in order to assess BLT’s measurement and
reporting procedures, and to assess the process used to define the content of the report by looking at
materiality of issues included in the report.
• An assessment of whether or not the requisite number of GRI’s G3 performance indicators have been
covered in the report to meet Application Level C requirements.
FINDINGS
In general, the company’s sustainability reporting processes are adequate, with some improvement
identified over BLT’s 2009 report. The integrated nature of the report is an improvement over the
previous report, but there is still room for further improvement in future reports, including such things as
the inclusion of comparable year-on-year data for key environmental and social performance indicators.
However, it was found that:
• Although additional performance data would be required to enhance the overall quality of BLT’s
sustainability reports, this report appears to reflect an accurate accounting of BLT’s sustainability
performance for the year ended 31 May 2010.
• Although limited reporting improvement has been identified over the previous report, statements
are made within the report committing BLT to additional improvement in the coming year, including
significant improvements in environmental performance monitoring.
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122 Independent assurance statement | continued
Based on our review of the report, as well as the processes employed to collect and collate information
reported herein, it is our assertion that this report meets the GRI’s G3 requirements for Application
Level C (responses to all required indicators, as well as no fewer than 10 core indicators, with at least one
from each of social, economic and environment). However, it was found that the reporting of performance
against some GRI G3 indicators continues to require either data quality improvements, or further detail
in disclosure. Indicator-specific performance is identified in BLT’s GRI G3 Indicator Table, which has been
made available via email at [email protected].
RECOMMENDATIONS
While we are satisfied that this report is a fair demonstration of BLT’s ability to collect, collate and report
on its current sustainability performance, the following recommendations have been identified:
• BLT should ensure that stakeholders are actively engaged to assess whether or not this report, and all
future reports, adequately reflect the reporting requirements of key stakeholders.
• Having made commitments to doing so within this report, BLT must ensure that subsequent reports
provide more comprehensive comparable sustainability performance data, including multi-year trends
for the company’s most material sustainability issues, particularly environmental issues.
• Having addressed the requirements of GRI G3 Application Level C, for a second straight year, it is
our recommendation that BLT make a concerted effort to meet the requirements of the GRI’s G3
Application Level B.
• BLT should continue to improve its reporting according to international best practice, including the
principles of inclusiveness, materiality and responsiveness, as guided by AA 1000AS (2008), with any
future assurance being conducted in accordance with AccountAbility’s AA 1000AS Type I (Moderate)
requirements.
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CONCLUSIONS
Based on the interviews conducted and information reviewed, SustainabilityServices.co.za is satisfied
that this report provides a reasonable and balanced account of the sustainability performance of BLT
during the period under review. The data presented is based on policies and procedures that are, in
many cases, still in the process of development and/or implementation, and we are satisfied that the
reported performance data reasonably represents the company’s ability to measure, manage and report
on the current environmental, safety and social performance of BLT. Moreover, and although the quality or
quantity of data of many GRI’s G3 indicators can yet be improved, this report appears to meet the GRI’s G3
requirements for Application Level C (C+ with this assurance engagement).
SustainabilityServices.co.za
Johannesburg (Parkhurst), South Africa
23 August 2010
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This achievement, together with contributions by the International segment resulted in growth in EBITDA of 21%.
An improved trading performance by Oxigen India resulted in the decline of the group’s share of losses in this associate company from R26 million to R7 million.
These growth contributors were negated by a substantial differentiation in comparative interest rates impacting on interest earned, the reversal of certain deferred tax assets, the impairment of goodwill relating to the negative performance of CNS call centre and the impairment of intangibles pertaining to technology.
The impact of the above equated to a decline in core earnings per share of 6%.
The foundations for the startup operations in Mexico and Nigeria have been established, thereby providing the group with a sound platform for expansion in those regions.
In light of the group’s strong trading performance and the resultant growth in cash on hand, the board approved the declaration of a maiden dividend to shareholders.
David Rivkind, Financial director
Financial director’s report
In maintaining its position as the major distributor of prepaid electronic tokens of value in South Africa, the group once again delivered a robust performance in its trading operations.
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OVERVIEW
2010 R’000
2009 R’000
growth R’000
growth %
Revenue 17 027 696 15 281 449 1 746 247 11
Cost of inventories sold (15 853 472) (14 215 840) (1 637 632) 12
Gross profit 1 174 224 1 065 609 108 615 10
Other income 41 969 22 368 19 601 88
Employee compensation and benefit expenses (299 928) (278 970) (20 958) 8
Other expenses (227 021) (240 940) 13 919 (6)
EBITDA 689 244 568 067 121 177 21
Depreciation, amortisation and impairment charges (119 785) (93 220) (26 565) 28
Operating profit 569 459 474 847 94 612 20
Finance expense (124 314) (112 699) (11 615) 10
Finance income 161 774 205 046 (43 272) (21)
Share of losses from associates (14 982) (27 445) 12 463 (45)
Net profit before taxation 591 937 539 749 52 188 10
Taxation (166 756) (174 784) 8 028 (5)
Net profit for the year 425 181 364 965 60 216 16
Minority interest (60 159) 25 582 (85 741) (335)
Basic earnings 365 022 390 547 (25 525) (7)
Amortisation on intangibles raised through business combinations net of tax 31 623 36 653 (5 030) (14)
Core net profit for the year 396 645 427 200 (30 555) (7)
Earnings per share (cents)
– Basic 48.17 51.13 (6)
– Headline 48.27 51.63 (7)
– Core earnings 52.34 55.93 (6)
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REVENUERevenue increased by R1.7 billion (11%) supported by growth in both the South African and International distribution segments.
GROSS PROFITOn the face of it, although gross profit increased by R109 million (10%), gross profit margins declined from 6.97% to 6.90% at group level and from 5.73% to 5.58% at South African distribution level.
These margins are calculated by accounting for actual trading margins adjusted by the interest element pertaining to debtor and creditor finance in terms of IFRS requirements.
From a pure trading perspective group margins in fact increased from 6.46% to 6.65% and South African distribution gross profit margins increased from 5.21% to 5.47%.
The growth in trading margins was achieved in spite of the negative impact caused by the introduction of RICA legislation. This legislation has had the effect of restricting the maximisation of activations of starter packs. The impact of this requirement manifested itself mainly in the second half of the year.
OPERATING EXPENSESOperating expenses, which encompass employee compensation and benefit expense and other expenses, were contained to a growth of 1%.
EBITDA
EBITDA of R689 million equated to growth of R121 million (21%) on the comparative period.
NET FINANCE INCOME Of the R162 million finance income earned, R84 million was attributable to interest generated from cash resources. Imputed interest receivable on debtor balances in terms of IFRS requirements amounted to R78 million.
Finance income earned in the comparative year was R205 million, of which R47 million related to imputed interest receivable on debtor balances in terms of IFRS requirements and R158 million earned from cash resources.
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The effective decline in finance income, net of the above IFRS adjustments, equated to R74 million, as a direct result of the reduction in interest rates of 550 basis points since November 2008.
Of the R124 million finance expense, R119 million related to imputed interest payable on creditor balances in terms of IFRS requirements. On a comparative basis, R108 million of R113 million was applicable to IFRS adjustments. The net increase of R11 million was directly IFRS related.
DEPRECIATIONImpairments of goodwill and intangibles amounted to R23 million and depreciation on net growth in capital expenditure equated to R4 million.
Share of losses from associates and joint ventures
Associates and joint ventures % holding 2010 R’000
2009 R’000
% growth
Oxigen Services India Pvt Limited 37.22 (7 098) (25 940) 73
Smart Voucher Limited (Ukash) 15.79 (8 079) (2 286) (253)
Other 50 195 781 (75)
Total (14 982) (27 445) 45
Oxigen Services IndiaThe decline in the group’s share of losses in Oxigen India from R26 million to R7 million (73%) was attributed to increased revenues of 25% and reduced overheads of 40%, for their financial year ended 31 March 2010, reported in local currency. The growth in revenue emanated through the expansion of point-of-sale distribution sites and product innovation, which increased the bouquet of services available to consumers.
Smart Voucher Limited t/a UkashThe group’s share of this associate company’s losses was R8 million after the amortisation of intangible assets amounting to R1.4 million. Of these losses, R3.7 million related to the reversal of a deferred tax asset and R4.3 million to trading losses. The comparative share of losses of R2.3 million was for an eight-month period, as equity in Ukash was purchased in October 2008.
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CORE NET PROFIT AFTER TAXATIONCore net profit after tax of R396 million equated to a decline of 7%, thereby impacting negatively on core earnings per share by 3.59 cents (-6%).
SEGMENTAL REPORT
Revenue
% of total
Segments2010
R’0002009
R’0002010 2009 %
growth
South African distribution 15 543 337 14 199 031 91.3 92.9 9
International distribution 1 247 732 724 163 7.3 4.8 72
Value-added services 216 538 335 743 1.3 2.2 (35)
Technology 20 089 22 512 0.1 0.1 (11)
Total 17 027 696 15 281 449 100 100 11
South African distributionThis segment distributes prepaid electronic tokens of value, including airtime, electricity, Ukash payment vouchers, lotto tickets and bus tickets on a national basis.
Commission earned on the distribution of prepaid electricity increased by 143% from R14 million to R34 million. This was achieved through a hybrid of the expansion of consumer demand of this payment facility and the establishment of additional contracts with a wider spectrum of municipalities.
The overall growth of South African distribution of 9% was entirely organic.
International distributionInternational distribution encompasses the group’s operations in Nigeria, Mexico, India and the United Kingdom. Interests in Mozambique and the Democratic Republic of Congo were disposed of in November 2009 and December 2009, respectively.
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Revenue generated by Africa Prepaid Services and Blue Label Mexico increased by R826 million. Trading operations in Cyprus and the United States of America were disposed of in March 2009 and July 2009 respectively. The non-repetition of the comparative revenues of these entities totalled R302 million, resulting in a net growth in International distribution revenue of R524 million (72%).
Africa Prepaid Services Nigeria commenced operations in May 2009 and Blue Label Mexico in June 2008. The latter continued its steady rollout of point-of-sale devices during the year, accumulating its points of presence to in excess of 3 000 at year end.
International revenue does not include the turnover of the associated companies, Oxigen India and Ukash. These operations are equity accounted for, in line with the significant influence held therein.
Value-added servicesThe telemarketing of cellular and financial services products, inbound customer care and technical support are provided by the call centres operated by the group. Revenue generated by these call centres declined by R69 million, primarily due to the negative impact on outbound sales, caused by adverse market conditions. This in turn necessitated the impairment of goodwill of R12.1 million.
A further decline in revenue of R47 million pertained to e-Voucha, a subsidiary company which was disposed of prior to the commencement of the financial year.
TechnologyThe technology segment is the in-house technical support and product development enhancement operation. Its revenue of R20 million related to sales and services to third parties.
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EBITDA
Segments 2010 R’000
2009 R’000
% growth
South African distribution 685 685 624 346 10
International distribution 137 035 6 144 2 130
Value-added services 25 230 75 239 (66)
Total trading operations 847 951 705 729 20
EBITDA margin (%) 4.99 4.63
Technology (76 230) (48 502) (57)
Corporate (82 477) (89 160) 8
Total support (158 707) (137 662) 15
Net total 689 244 568 067 21
EBITDA margin (%) 4.05 3.72
South African distributionEBITDA growth of R61 million was achieved through increased revenues and a reduction in operational expenditure. This growth was achieved in spite of a decline in gross profit margins by 0.15% impacted by the introduction of RICA.
International distributionThe growth of R131 million included a profit of R29 million on the sale of African Prepaid Services Mozambique. The net trading growth of R102 million was primarily contributed by Africa Prepaid Services Nigeria.
Value-added servicesThe decline in EBITDA of R50 million in this segment, was primarily due to the negative performance of the call centres including closure costs of R13 million pertaining to CNS and Blue Label call centre.
Financial director’s report | continued
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Technology and corporateIn-house technical support and managerial skills played an essential role in the contribution to EBITDA growth of R142 million (20%) achieved by the trading operations.
Congruent with an expanding group, ongoing expenditure on technology is required at both maintenance and personnel levels. The need to focus on in-house support resulted in both a reduction in revenue on services provided to third parties and an increase in overheads in the technology segment. The resultant negative contribution to EBITDA was R76 million.
Corporate administrative and managerial costs were contained, resulting in a decline of R7 million.
Core net profit
Segments 2010 R’000
2009 R’000
GrowthR’000
South African distribution 555 161 537 815 17 346
International distribution 20 097 (10 947) 31 044
Value-added services (1 567) 49 497 (51 064)
Total trading operations 573 691 576 365 (2 674)
Technology (93 265) (55 250) (38 015)
Corporate (83 781) (93 915) 10 134
Total support (177 046) (149 165) (27 881)
Net total 396 645 427 200 (30 555)
In computing core earnings per share, basic earnings are augmented by the amortisation of intangible assets amounting to R32 million.
BALANCE SHEET
Assets Total assets have accumulated to R4.45 billion, representing an increase of R568 million (15%).
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Non-current assets• Capital expenditure on property, plant and equipment net of disposals and depreciation increased by
R52 million. The bulk of this expenditure related to the acquisition of point-of-sale devices.• A starter pack base was acquired for R59 million and expenditure on software and development
increased by R31 million. Disposals of R27 million, impairments of intangibles of R9 million, impairments to goodwill of R14 million and amortisation of R64 million, equated to a net decline in intangibles and goodwill of R24 million.
• Investments in associates decreased by R13 million.• Unactivated starter pack assets declined by R37 million.• Deferred tax assets increased by R3 million.
Current assetsTrade and other receivables increased by R89 million, maintaining collections at an average of 21 days. Inventory increased by R176 million equating to an average inventory turn of 13 days.
Cash on hand increased by R296 million and other current assets by R26 million.
CAPITAL AND RESERVES
Capital and reserves increased by the net profit for the year of R365 million and by the increase of R71 million in minorities’ interest. The purchase of treasury shares for R26 million, in line with the group’s share incentive scheme, confined the growth in reserves to R411 million.
LIABILITIES
Trade and other payables increased in tandem with volume growth by R200 million, with creditor terms averaging 40 days. The decline in taxation owing of R7 million, repayment of interest-bearing debt of R18 million and the reduction in deferred taxation of R17 million, equated to a net increase in liabilities of R157 million.
CASH FLOW Cash on hand increased by R298 million for the year.
Net cash flows generated from operations amounted to R623 million. On a comparative basis, this represented a decline of R123 million due to the application of cash to early settlement discounts in lieu of interest receivable at lower rates than the discounts earned.
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The comparative reduction in interest rates and its consequent impact on net interest receivable, resulted in a further decline in comparative cash generation of R75 million, offset by a reduction in taxation paid of R47 million.
Of the resultant net cash flows generated from operating activities of R516 million, R91 million was expended on intangible assets and R104 million on property, plant and equipment.
A further R26 million was applied to the acquisition of the treasury shares. The net generation of cash of R298 million compounded the accumulation of cash resources at year end to R2.0 billion.
DIVIDENDSThe board approved a dividend of 12 cents per ordinary share. The dividend in respect of ordinary shares for the year ended 31 May 2010 of R91 288 072 has not been recognised in the summarised financial information as it was declared after this date.
The salient dates are as follows:Last date to trade cum dividend Friday, 10 September 2010Shares commence trading ex dividend Monday, 13 September 2010Record date Friday, 17 September 2010Payment of dividend Monday, 20 September 2010Share certificates may not be dematerialised or rematerialised between Monday, 13 September 2010 and Friday, 17 September 2010, both days inclusive.
APPRECIATION
I would like to acknowledge the dedication and expedience of the finance team in the preparation of the financial results.
David RivkindFinancial director
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Directors’ responsibility
The directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the financial statements. The auditors are responsible for reporting on the fair presentation of the financial statements. The financial statements have been prepared in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, 1973.
The directors are also responsible for the company’s system of internal financial control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the financial statements, and to adequately safeguard, verify and maintain accountability of the assets, and to prevent and detect misstatement and loss. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.
The financial statements have been prepared on the going-concern basis, since the directors have every reason to believe that the company has adequate resources in place to continue in operation for the foreseeable future.
The financial statements have been audited by the independent auditors, PricewaterhouseCoopers Incorporated, which was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors and committees of the board. The directors believe that all representations made to the independent auditors during their audit are valid and appropriate.
APPROVAL OF THE FINANCIAL STATEMENTSThe financial statements which appear on pages 138 to 258 were approved by the directors on 23 August 2010 and are signed on its behalf.
LM Nestadt DB RivkindNon-executive chairman Financial director
BM Levy MS LevyJoint chief executive officer Joint chief executive officer
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135In terms of section 268G(d) of the South African Companies Act, 1973, as amended (Act), I certify that Blue Label Telecoms Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Act. Further, that such returns are true, correct and up to date.
E ViljoenCompany secretary
Sandton23 August 2010
Declaration of Company Secretary
ANNUAL REPORT 2010
136 TO THE MEMBERS OF BLUE LABEL TELECOMS LIMITED
We have audited the group annual financial statements and annual financial statements of Blue Label Telecoms Limited, which
comprise the consolidated and separate statements of financial position as at 31 May 2010 and the consolidated and separate
statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory notes, and the directors’ report, as set out on pages 138 to 258.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance
with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This
responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
AUDITORS’ RESPONSIBILITY
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independent Auditors’ report | FOR THE YEAR ENDED AT 31 MAY 2010
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137OPINION
In our opinion, the financial statements present fairly, in all material respects, the consolidated and separate financial position of
Blue Label Telecoms Limited as at 31 May 2010, and its consolidated and separate financial performance and its consolidated
and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and in the
manner required by the Companies Act of South Africa.
PricewaterhouseCoopers Inc
Director: EJ Gerryts
Registered Auditor
Johannesburg
23 August 2010
ANNUAL REPORT 2010
138 The directors have pleasure in presenting the annual financial statements of Blue Label Telecoms Limited (Blue Label Telecoms or the company) and its subsidiary, associate and joint venture companies (the group) for the year ended 31 May 2010.
PRINCIPAL ACTIVITIES AND STRATEGYBlue Label Telecoms is a leading distributor of prepaid secure electronic tokens of value and transactional services within emerging and developing economies across its global footprint of touch points. The group’s stated strategy is to extend its local and international footprint of touch points, both organically and acquisitively, to meet the significant demand for the delivery of multiple prepaid products and services through a single distributor, across various delivery mechanisms and via numerous merchants or vendors.
FINANCIAL RESULTSThe financial statements have been prepared on the going-concern basis, since the directors have every reason to believe that Blue Label Telecoms and the group have adequate resources in place to continue in operation for the foreseeable future. The annual financial statements for the year ended 31 May 2010 were approved by the board and signed on its behalf on 23 August 2010.
Full details of the financial position and results of the company, the group and its segments are set out in the annual financial statements, and group annual financial statements.
SUBSIDIARIES, ASSOCIATES AND OTHER INVESTMENTSParticulars of the principal subsidiaries, joint ventures and associates of the Blue Label Telecoms group are provided in note 31 to the annual financial statements.
DISPOSALSAfrica Prepaid Services (Proprietary) Limited (APS), a Blue Label Telecoms subsidiary, disposed of the following investments during the financial year ended 31 May 2010:• Eighty percent of the equity in Africa Prepaid Services RDC sprl (representing its entire interest in that company), at par value,
to two companies, namely Baenga Investissement & Developpement sprl and Mayaka Esongama N-SA Import – Expotty sprl (representing the minority shareholder in the business) as at the end of December 2009
• Ninety percent of the equity in Africa Prepaid Services Mozambique Limitada (representing its entire interest in that company), for US$3.95 million, to AP Capital Limitada (representing the minority shareholder in the company) as at 30 November 2009.
For further details of disposals during the year, refer to note 25 to the annual financial statements.
SHARE CAPITAL Full details of the authorised, issued and unissued capital of the company at 31 May 2010 are contained in note 14 to the financial statements. There were no shares issued during the financial year ended 31 May 2010.
Directors’ report
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139SUBSEQUENT EVENTSDividendsOn 23 August 2010, the board approved a dividend of 12 cents per ordinary share. The dividend in respect of ordinary shares for the year ended 31 May 2010 of R91 288 072 (STC: R9 128 807) has not been recognised in the financial statements as it was declared after this date. The salient dates are as follows:Last date to trade cum dividend Friday, 10 September 2010Shares commence trading ex dividend Monday, 13 September 2010Record date Friday, 17 September 2010Payment of dividend Monday, 20 September 2010
Share certificates may not be dematerialised or rematerialised between Monday, 13 September and Friday, 17 September 2010, both days inclusive.
DIRECTORATE
The following were directors of the company for the year under review:
Name Office Appointment date Date and nature of change
Larry M Nestadt Independent non-executive chairman 5 October 2007 –
Brett M Levy Joint chief executive officer 1 February 2007 –
Mark S Levy Joint chief executive officer 1 February 2007 –
Sidney Ellerine Non-executive director 5 October 2007 Deceased in July 2009
Kevin M Ellerine Non-executive director 8 December 2009 Appointed in December 2009
Gary D Harlow Independent non-executive director 5 October 2007 –
Reitumetse J Huntley Independent non-executive director 5 October 2007 Resigned in November 2009
Neil N Lazarus SC Non-executive director 5 October 2007 –
Peter Mansour Non-executive director 21 May 2008 –
Joe S Mthimunye Independent non-executive director 5 October 2007 –
Mark V Pamensky Chief operating officer 5 October 2007 –
David B Rivkind Financial director 5 October 2007 –
Herbert C Theledi Non-executive director 5 October 2007 Resigned in December 2009
Lucy (Pani) M Tyalimpi Independent non-executive director 5 October 2007
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Directors’ report | continued
DIRECTORS’ INTERESTS
The individual interests declared by directors and officers in the company’s share capital as at 31 May 2010, held directly or indirectly were as follows:
Nature of interest
Direct beneficial Indirect beneficial Direct non-beneficial Indirect non-beneficial
Director 2010 2009 2010 2009 2010 2009 2010 2009
BM Levy 74 340 553 74 340 553 8 272 778 8 272 778 — — — —
MS Levy 66 933 145 66 933 145 8 272 777 8 272 777 — — — —
S Ellerine — — — 15 409 152 — — — 2 222 222
KM Ellerine — — 296 297 — — — 1 925 925 —
HC Theledi — — — 42 959 992 — — — —
JS Mthimunye 20 000 — — — — — — —
MV Pamensky — — 7 565 738 7 565 738 — — — —
LM Nestadt — — 8 204 674 8 204 674 — — — —
GD Harlow — — 3 000 000 3 277 871 — — 14 815 14 815
NN Lazarus 4 803 424 8 204 673 — — — — 177 779 177 779
RJ Huntley — — — 2 140 355 — — — —
DB Rivkind — — 3 431 669 3 431 669 — — — —
The aggregate interest of the current directors in the capital of the company was as follows:
Number of shares
2010 2009
Beneficial 185 141 055 249 013 377
Non-beneficial 2 118 519 2 414 816
The beneficial interest held by directors and officers of the company constitutes 24.47% of the issued share capital of the company and the non-beneficial interest represents 0.28% of the issued share capital.
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141RESOLUTIONSThe company passed and registered a special resolution in November 2009, approving the acquisition of the company’s shares by the company or any of its subsidiaries.
Except for the aforementioned, no other special resolutions, the nature of which might be significant to shareholders in their appreciation of the state of affairs of the group, were passed by the company or its subsidiaries during the period covered by this annual report.
SECRETARYThe company secretary is E Viljoen. The business and postal address of the company secretary appear on page 264.
AUDITORSPricewaterhouseCoopers Incorporated will continue in office in accordance with section 270 (2) of the Companies Act.
Larry NestadtChairman
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Group statement of financial position | AS AT 31 MAY 2010
Note2010R’000
2009R’000
ASSETS
Non-current assets 717 581 736 634
Property, plant and equipment 4 156 888 105 011
Intangible assets 5 194 262 202 830
Goodwill 5 242 562 257 495
Investment in associates and joint ventures 6 96 888 109 837
Starter pack assets 7 16 826 54 096
Deferred taxation assets 8 10 155 7 365
Current assets 3 730 721 3 143 109
Financial assets at fair value through profit and loss 9 150 10
Starter pack assets 7 77 467 67 449
Inventories 10 560 846 384 361
Loans receivable 11 43 617 29 920
Trade and other receivables 12 987 279 898 571
Current tax assets 4 285 2 101
Cash and cash equivalents 13 2 057 077 1 760 697
Total assets 4 448 302 3 879 743
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Note2010R’000
2009R’000
EQUITY AND LIABILITIES
Capital and reserves 2 655 436 2 244 120
Share capital 14 * *
Share premium 4 404 737 4 404 737
Treasury shares (52 120) (25 562)
Restructuring reserve (1 843 912) (1 843 912)
Foreign currency translation reserve (22 841) (13 399)
Non-distributable reserve 10 150 —
Transaction with minority reserve (914 867) (914 399)
Equity compensation benefit reserve 10 511 9 371
Share-based payment reserve 1 526 1 231
Retained earnings 1 000 327 635 305
2 593 511 2 253 372
Minorities interest 61 925 (9 252)
Non-current liabilities 47 696 69 664
Deferred taxation 8 31 616 49 544
Interest-bearing borrowings 15 16 080 20 120
Current liabilities 1 745 170 1 565 959
Trade and other payables 16 1 718 907 1 518 853
Current tax liabilities 21 320 28 039
Bank overdraft 13 2 175 3 891
Current portion of interest-bearing borrowings 15 2 768 15 176
Total equity and liabilities 4 448 302 3 879 743
*Less than R1 000
ANNUAL REPORT 2010
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Group statement of comprehensive income | FOR THE YEAR ENDED 31 MAY 2010
Note2010R’000
2009R’000
Revenue 17 027 696 15 281 449
Other income 41 969 22 368
Changes in inventories of finished goods (15 853 472) (14 215 840)
Employee compensation and benefit expense 17 (299 928) (278 970)
Depreciation, amortisation and impairment charges (119 785) (93 220)
Other expenses (227 021) (240 940)
Operating profit 18 569 459 474 847
Finance costs 19 (124 314) (112 699)
Finance income 19 161 774 205 046
Share of losses from associates 6 (14 982) (27 445)
Net profit before taxation 591 937 539 749
Taxation 20 (166 756) (174 784)
Net profit for the year 425 181 364 965
Other comprehensive income:
Exchange losses on translation of equity loans (2 063) (15 107)
Exchange losses on translation of foreign operations (5 659) 3 460
Foreign currency translation reserve reclassified to profit or loss (1 328) —
Other comprehensive loss for the year, net of tax (9 050) (11 647)
Total comprehensive income for the year 416 131 353 318
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Note2010R’000
2009R’000
Net profit for the period attributable to:
Equity holders of the parent 365 022 390 547
Minorities interest 60 159 (25 582)
Total comprehensive income for the period attributable to:
Equity holders of the parent 355 580 374 596
Minorities interest 60 551 (21 278)
Earnings per share for profit attributable to
Equity holders (cents)
– Basic 21 48.17 51.13
– Diluted 21 47.96 50.96
ANNUAL REPORT 2010
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Group statement of changes in equity | FOR THE YEAR ENDED 31 MAY 2010
Note
Share capitalR’000
Share premium
R’000
TreasurysharesR’000
Retainedearnings
R’000
Balance as at 31 May 2008 * 4 404 737 — 244 758 Net profit for the year — — — 390 547
Comprehensive loss — — — —
Total comprehensive income (loss) — — — 390 547
Treasury shares purchased 14 — — (25 562) —
Asset acquired for shares — — — —
Equity compensation benefit movement — — — —Minorities acquired/(disposed of) during the year — — — —
Balance as at 31 May 2009 * 4 404 737 (25 562) 635 305
Net profit for the year — — — 365 022Comprehensive loss — — — — Total comprehensive income (loss) — — — 365 022Treasury shares purchased 14 — — (26 558) — Asset acquired for shares — — — — Equity compensation benefit movement — — — — Share of equity movement in associates — — — —Dividends — — — — Capital contribution by minorities — — — — Minorities acquired/(disposed of) during the year — — — —
Balance as at 31 May 2010 * 4 404 737 (52 120) 1 000 327
* Less than R1 0001 The restructuring reserve arose as a result of the restatement of group comparatives, as required in terms of the principles of predecessor
accounting. This reserve represents the difference between the fair value of the entities under the group’s control and their respective net asset values, as at the assumed restructure date of 1 June 2006.
2 This relates to the group’s share of the movement in equity reserves in associate companies. (Refer to note 6.)3 The transaction with minority reserve relates to the excess payments over the carrying amounts arising on transactions with minority shareholders
as these are treated as equity participants. (Refer to note 6 and 25.)4 This relates to the group’s movement in equity compensation benefit (refer note 17) as well as the group’s share of the movement in equity
compensation benefit of associate companies (refer note 6).5 The current year movement in the share-based payment reserve relates to a BEE transaction concluded by Cigicell (Proprietary) Limited, a
subsidiary of Blue Label Telecoms. In September 2009 Ventury (Proprietary) Limited sold 26% of its stake in Cigicell (Proprietary) Limited to Sangrilor (Proprietary) Limited. The group has not recognised this disposal and accounts for Cigicell (Proprietary) Limited as a wholly owned subsidiary until the purchase consideration has been settled by Sangrilor (Proprietary) Limited. The purchase consideration will be settled through the declaration of dividends by Cigicell (Proprietary) Limited. There are no specified dates for this.
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Restruc-turing
reserve1
R’000
Foreigncurrency
translationreserveR’000
Non-distri-butable
reserve2
R’000
Transactionwith
minorityreserve3
R’000
Employeecompen-
sationbenefit
reserve4
R’000
Share- based
payment reserve5
R’000
Totalordinary
share-holders
equityR’000
Minority interestR’000
TotalequityR’000
(1 843 912) 2 552 — (898 564) — — 1 909 571 8 373 1 917 944 — — — — — — 390 547 (25 582) 364 965
— (15 951) — — — — (15 951) 4 304 (11 647)
— (15 951) — — — — 374 596 (21 278) 353 318
— — — — — — (25 562) — (25 562)
— — — — — 1 231 1 231 — 1 231
— — — — 9 371 — 9 371 195 9 566 — — — (15 835) — — (15 835) 3 458 (12 377)
(1 843 912) (13 399) — (914 399) 9 371 1 231 2 253 372 (9 252) 2 244 120
— — — — — — 365 022 60 159 425 181 — (9 442) — — — — (9 442) 392 (9 050) — (9 442) — — — — 355 580 60 551 416 131 — — — — — — (26 558) — (26 558) — — — — — 295 295 — 295 — — — — 1 140 — 1 140 (30) 1 110— — 10 150 — — — 10 150 — 10 150
— — — — — — — (2 912) (2 912) — — — — — — — 558 558 — — — (468) — — (468) 13 010 12 542
(1 843 912) (22 841) 10 150 (914 867) 10 511 1 526 2 593 511 61 925 2 655 436
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Group statement of cash flows| FOR THE YEAR ENDED 31 MAY 2010
Note2010R’000
2009R’000
Cash flows from operating activities
Cash received from customers 16 938 988 15 013 566
Cash paid to suppliers and employees (16 315 996) (14 267 551)
Cash generated by operations 22 622 992 746 015
Interest received 19 84 130 158 507
Interest paid 19 (5 131) (4 891)
Taxation paid 23.1 (186 081) (232 637)
Net cash flows from operating activities 515 910 666 994
Cash flows from investing activities
Proceeds on disposal of intangible assets 5 093 —
Acquisition of intangible assets (91 444) (28 716)
Acquisition of financial assets at fair value through profit or loss (140) (10)
Proceeds on disposal of financial assets at fair value through profit or loss — 5 428
Acquisition of associates 23.2 — (52 264)
Acquisition of business combinations net of cash acquired 24 — (50 098)
Disposal of subsidiaries net of cash disposed 25 (2 244) (9 523)
Loans advanced/(repaid) to associates 1 456 (2 321)
Net loans repaid (5 668) —
Dividends paid to minorities (2 912) —
Proceeds on disposal of property, plant and equipment 12 320 5 553
Acquisition of property, plant and equipment (104 373) (74 780)
Net cash flows from investing activities (187 912) (206 731)
Cash flows from financing activities
Interest-bearing borrowings raised 2 155 6 583
Non-interest-bearing borrowings raised — 8 355
Proceeds from issue of shares* 1 120 —
Acquisition of treasury shares (26 558) (25 562)
Net cash flows from financing activities (23 283) (10 624)
Increase in cash and cash equivalents 304 715 449 639
Cash and cash equivalents at the beginning of the year 1 756 806 1 328 294
Translation difference (6 619) (21 127)
Cash and cash equivalents at the end of the year 13 2 054 902 1 756 806 * This relates to shares issued to minorities in a subsidiary company
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Notes to the group annual financial statements | FOR THE YEAR ENDED 31 MAY 2010
Blue Label Telecoms Limited (the company) and its subsidiaries, joint ventures and associates (together referred to as the group) is involved in the procurement, selling and distribution of prepaid products for inter alia fixed and mobile networks and all business ancillary thereto.
The annual financial statements comprise the consolidated financial statements of the group and the stand-alone financial statements of the company and were authorised by the board of directors, as indicated on page 134.
1. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
and its interpretations adopted by the International Accounting Standards Board (IASB) and the Companies Act, No. 61 of 1973, as amended. These financial statements are prepared in accordance with IFRS, issued and effective as at 31 May 2010.
Basis of preparation The annual financial statements and group financial statements are prepared under the historical cost convention, as
modified by the revaluation of certain financial instruments. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 2.
Standards, interpretations and amendments effective in 2010 The following standards and amendments are effective for the first time for the year ended 31 May 2010 and have been
applied when presenting the group’s financial statements: • IAS 1 (Revised) Presentation of Financial Statements • Amendments to IFRS 7 – Financial Instruments Disclosures: Improving Disclosures about Financial Instruments
The following standards, interpretations and amendments are effective for the first time for the year ended 31 May 2010 and have not had an impact on the group’s financial statements:
• IAS 23 (Revised) Borrowing Costs • Amendment to IFRS 2 Share-based Payment – Vesting Conditions and Cancellations
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
150 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Standards, interpretations and amendments effective in 2010 (continued) • Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable
Financial Instruments and Obligations Arising on Liquidation • Amendments to IFRS 1 First-Time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and
Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate • IFRIC 13 Customer Loyalty Programmes • IFRIC 15 Agreements for the Construction of Real Estate • IFRIC 16 Hedges of a Net Investment in a Foreign Operation • IFRIC 18 Transfers of Assets From Customers
Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory
for financial years commencing 1 June 2010, but which the group has not early adopted, are as follows:
Standards, amendments and interpretations not yet effective The group has evaluated the effect of all new standards, amendments and interpretations that have been issued but which
are not yet effective. Based on the evaluation, management does not expect these standards, amendments and interpretations to have a significant impact on the group’s results and disclosures. The expected implications of applicable standards, amendments and interpretations are dealt with below.
IAS 24 Amendment to IAS 24 – Related party disclosures This amendment provides partial relief from the requirement for government-related entities to disclose details of all
transactions with the government and other government-related entities. It also clarifies and simplifies the definition of a related party.
No entities within the group are government-related entities therefore this amendment will have no impact. The group will evaluate the amended definition of related parties and update disclosure accordingly from the effective date. This amendment is effective for the period commencing on 1 January 2011.
IAS 27 (Revised) Consolidated and Separate Financial Statements This standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no
change in control. They will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value and a gain or loss is recognised in profit or loss.
The group already applies the economic entity model in their financial statements and therefore management believe there will be limited effects from the application of IAS 27R.
IAS 27R and IFRS 3R Business Combinations have to be adopted in the same period. Both these standards are effective for the period commencing on 1 July 2009.
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IFRS 1 First time Adoption of International Financial Reporting Standards – Revised The revised standard has an improved structure but does not contain any technical changes. There will be no impact to
the group.
IFRS 3 (Revised) Business Combinations The new standard continues to apply the acquisition method to business combinations, with some significant changes. For
example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently re-measured at fair value through income. Goodwill may be calculated based on the parent’s share of net assets or it may include goodwill related to the minority interest. All transaction costs will be expensed.
This standard is applicable to acquisitions on or after 1 July 2009. No acquisitions have been made post this date so no effect has yet been considered.
IFRS 9 Financial Instruments This IFRS is part of the IASB’s project to replace IAS 39. IFRS 9 addresses classification and measurement of financial
assets and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value.
This statement is effective on 1 January 2013. The group is currently considering the impact on the classification of financial assets, however do not believe the statement will have a significant impact, given the nature of the financial assets held by the group.
Amendments to IFRS 2: Group Cash-settled share-Based Payment Transactions The amendment clarifies the accounting for group cash-settled share-based payment transactions. The entity receiving the
goods or services shall measure the share-based payment transaction as equity-settled only when the awards granted are its own equity instruments, or the entity has no obligation to settle the share-based payment transaction. The entity settling a share-based payment transaction when another entity in the group receives the goods or services recognises the transaction as equity-settled only if it is settled in its own equity instruments. In all other cases, the transaction is accounted for as cash-settled.
This statement is effective on 1 January 2010. There will be no effect on the group’s financial statements as the share-based payment is equity-settled with its own equity instruments. However, there will be an adjustment required on the effected subsidiary and associate financial statements.
Amendments to IAS 32 – Classification of Rights Issues The amendment clarifies the accounting treatment when rights issues are denominated in a currency other than the
functional currency of the issuer. The amendment states that if such rights are issued pro rata to an entity’s existing shareholders for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated.
This statement is effective on 1 February 2010. The group is currently considering the impact of this statement, however do not believe the statement will have a significant impact, given the fact that no such rights issues exist at year end.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
152 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Standards, amendments and interpretations not yet effective (continued) Amendment to IFRS 1 – Limited Exemption from Comparative IFRS 7 Disclosures for First-Time Adopters The amendment to IFRS 1 provides first-time adopters with the same transition provisions as included in the amendment to
IFRS 7. The amendment is effective for annual periods beginning on or after 1 July 2010 with early adoption permitted.
This amendment is not applicable to the group as the group already applies IFRS.
Amendments to IAS 39 Financial Instruments: Recognition and Measurement Exposures Qualifying for Hedge Accounting The amendment makes two significant changes. It prohibits designating inflation as a hedgeable component of a fixed rate
debt. It also prohibits including time value in the one-sided hedged risk when designating options as hedges.
These changes are effective for the financial year commencing on 1 July 2009 and will not have an impact on the group’s financial statements as the group does not apply hedge accounting.
IFRIC 14 Pre-payments of a Minimum Funding Requirement (amendments to IFRIC 14 (AC 447)) This amendment will have a limited impact as it applies only to companies that are required to make minimum funding
contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 (AC 447) related to voluntary pension prepayments when there is a minimum funding requirement.
This interpretation is not applicable to the group.
IFRIC 17 – Distributions of Non-cash Assets to Owners IFRIC 17 applies to the accounting for distributions of non-cash assets (commonly referred to as dividends in specie) to the
owners of the entity. The interpretation clarifies that: a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity; an entity should measure the dividend payable at the fair value of the net assets to be distributed; and an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss.
This interpretation is effective for financial periods commencing on or after 1 July 2009. The group is currently considering the impact of this interpretation.
IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments This IFRIC clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is
extinguished through the debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in the profit and loss account based on the fair value of the equity instruments compared to the carrying amount of the debt.
This interpretation is not applicable to the group.
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153 AC 504: IAS 19 (AC 116) – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction in the South African Pension Fund Environment
The interpretation provides guidance on the application of IFRIC 14 (AC 447) in South Africa in relation to defined benefit pension obligations (governed by the Pension Funds Act, 1956) within the scope of IAS 19 (AC 116).
This interpretation is not applicable to the group.
Annual Improvements Project The IASB decided to initiate an annual improvements project in 2007 as a method of making necessary, but non-urgent,
amendments to IFRS that will not be included as part of another major project. The IASB’s objective was to ease the burden for all concerned.
Improvements to IFRS (Issued April 2009 and May 2010) was issued by the IASB as part the “annual improvements process” resulting in the following amendments to standards issued, but not effective for 31 May 2010 year-ends:
– IFRS 1 First time adoption of International Financial Reporting Standards – Accounting policy changes in the year of adoption – IFRS 1 First time adoption of International Financial Reporting Standards – Revaluation basis as deemed cost – IFRS 1 First time adoption of International Financial Reporting Standards – Previous GAAP carrying amounts as deemed
cost for assets used in operations subject to rate regulations – IFRS 2 Share-based Payment – Scope of IFRS 2 and revised IFRS 3 – IFRS 3 Business Combinations (Revised) – Transition requirements for contingent consideration from a business
combination that occurred before the effective date of the revised IFRS (effective for annual periods beginning on/after 1 July 2010)
– IFRS 3 Business Combinations (Revised) – Measurement of non-controlling interest (effective for annual periods beginning on/after 1 July 2010)
– IFRS 3 Business Combinations (Revised) – Un-replaced and voluntarily replaced share-based payment awards (effective for annual periods beginning on/after 1 July 2010)
– IFRS 5 Non-current Assets Held for Sale – Disclosures of non-current assets (or disposal groups) classified as held for sale or discontinued operations
– IFRS 7 Financial Instruments: Disclosure – Clarifications of disclosures – IFRS 8 Operating Segments – Disclosure of information about segment assets – IAS 1 Presentation of Financial Statements – Current/non-current classification of convertible instruments – IAS 1 Presentation of Financial Statements – Clarification of the statement of changes in equity – IAS 7 Statement of Cash Flows – Classification of expenditures on unrecognised assets – IAS 17 Leases – Classification of leases of land and buildings – IAS 18 Revenue – Determining whether an entity is acting as a principal or as an agent – IAS 27 Consolidated and Separate Financial Statements – Transition requirements for amendments made of IAS 27
(Revised) to IAS 21, IAS 28 and IAS 31 (effective 1 July 2010) – IAS 34 Interim Reporting – Significant events and transactions – IAS 36 Impairment of Assets – Unit of accounting for goodwill impairment test – IAS 38 Intangible Assets – Additional consequential amendments arising from revised IFRS 3 – IAS 38 Intangible Assets – Measuring the fair value of an intangible asset acquired in a business combination – IAS 39 Financial Instruments: Recognition and Measurement – Treating loan prepayment penalties as closely related
embedded derivatives
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
154 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Annual Improvements Project (continued) – IAS 39 Financial Instruments: Recognition and Measurement – Scope exemption for business combination contracts – IAS 39 Financial Instruments: Recognition and Measurement – Cash flow hedge accounting – IFRIC 13 Customer Loyalty Programmes – Fair value of award credits – IFRIC 9 Reassessment of Embedded Derivatives – Scope of IFRIC 9 and revised IFRS 3 – IFRIC 16 Hedges of a Net Investment in a Foreign Operation – Amendment to the restriction on the entity that can hold
hedging instruments
Management are currently considering the effect of the changes.
Basis of consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) in which the group has an interest of more than one half of
the voting rights or otherwise has power to govern the financial and operating policies.
The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the group controls another entity.
Subsidiaries are consolidated from the date on which control is transferred to the group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued, or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.
Transactions in which combining entities are controlled by the same party or parties before and after the transaction, and that control is not transitory, are referred to as common control transactions.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless costs cannot be recovered. The interests of minority shareholders in the consolidated equity and results of the group are shown separately in the consolidated statement of financial position and statement of comprehensive income, respectively. Where the losses attributable to the minority shareholders in a consolidated subsidiary exceed their interest in that subsidiary, the excess, and any further losses attributable to them, are recognised by the group and allocated to those minority interests only to the extent that the minority shareholders have a binding obligation and are able to fund the losses. Where the group previously did not recognise the minority shareholders’ portion of losses and the subsidiary subsequently turns profitable, the group recognises all the profits until the minority shareholders’ share of losses previously absorbed by the group has been recovered.
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Minority interest is stated at the minority’s proportion of the fair values of the identifiable assets and liabilities recognised. The group applies the economic entity method in accounting for transactions with minority shareholders. Minority shareholders are treated as equity participants. Acquisitions of minorities or disposals by the group of its minority interests in subsidiary companies where control is maintained subsequent to the disposal are accounted for as equity transactions with minorities. Consequently, the difference between the purchase price and the book value of a minority interest purchased is recorded in equity. All profits and losses arising as a result of the disposal of interests in subsidiaries to minorities where control is maintained subsequent to the disposal, are also recorded in equity.
When necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the group.
The company financial statements account for subsidiaries at cost less any accumulated impairment.
Associates Associates are all entities over which the group has significant influence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.
The group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of comprehensive income, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payment on behalf of the associate. Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group’s interest in the associate. Unrealised losses are also eliminated to the extent of the group’s interest in the associate unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group.
The company financial statements account for associates at cost less any accumulated impairment.
Dilution gains and losses arising in investments in associates are recognised in the statement of comprehensive income.
A listing of the group’s principal subsidiaries and associates is set out in note 31 to the financial statements. The financial effects of the acquisition and disposal of the subsidiaries and associates are disclosed separately in the notes to the financial statements.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
156 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Joint ventures A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject
to joint control. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial operating decisions relating to the activity require the unanimous consent of the parties sharing control (venturers).
The group’s interest in its joint venture is accounted for under the equity method of accounting whereby an interest in jointly controlled entities is initially recorded at cost and adjusted thereafter for post-acquisition changes in the group’s share of net assets of the joint venture. The statement of comprehensive income reflects the group’s share of the results of operations of the joint venture.
The company financial statements account for joint ventures at cost less any accumulated impairment.
Options to acquire control are not accounted for as derivatives in terms of IAS 39 Financial Instruments.
Foreign currencies(a) Functional and presentation currency Items included in the financial statements of each of the group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in rand, which is the company’s functional and presentation currency.
(b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in equity.
Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the available-for-sale equity reserve.
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157(c) Group companies The results and financial position of associates (none of which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities are translated at the closing rate as at statement of financial position date; • income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation
of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
• all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the statement of comprehensive income as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the foreign entity’s assets and liabilities and are translated at the closing rate.
Financial instruments Financial instruments carried on the statement of financial position include: Financial assets: • financial assets at fair value through profit or loss; • loans receivable; • trade and other receivables; • cash and cash equivalents; Financial liabilities: • borrowings; • trade and other payables; and • bank overdraft.
The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.
The purchases and sales of financial assets that require delivery are recognised on trade date, being the date on which the group commits to purchase or sell the asset.
The group recognises a financial asset or a financial liability on its statement of financial position when, and only when, the group becomes a party to the contractual provisions of the instrument.
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158 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial assets are derecognised when the rights to receive cash flows from the financial asset have expired or have been
transferred and the group has transferred substantially all risks and rewards of ownership. Financial liabilities (or a part of a financial liability) are removed from its statement of financial position when, and only when, they are extinguished – ie when the obligation specified in the contract is discharged or cancelled or expires.
Financial assets The group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans
and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its investments at initial recognition.
(a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held-for-trading, and those designated at fair value through profit or
loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held-for-trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held-for-trading or are expected to be realised within 12 months of the statement of financial position date.
Financial assets at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. These assets are subsequently measured at fair value. All related realised and unrealised gains and losses arising from changes in fair value are recognised in the statement of comprehensive income.
(b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. This category does not include those loans and receivables that the group intends to sell in the short term or that it has designated as at fair value through profit or loss or available-for-sale. These assets are included in current assets, except for maturities greater than 12 months after the statement of financial position date, which are classified as non-current assets.
Financial assets classified as loans and receivables are initially recognised at fair value plus transaction costs. Subsequent to initial recognition, loans and receivables are carried at amortised cost using the effective interest rate method, less any provision for impairment.
Loans and receivables comprise loans receivable and trade and other receivables (excluding prepayments and VAT).
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159(c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of
the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the statement of financial position date.
Financial assets classified as available-for-sale are initially recognised at fair value plus transaction costs. Subsequent to initial recognition, available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from the change in fair value are recognised directly in equity until the financial asset is derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the statement of comprehensive income. Interest and dividend income received on available-for-sale financial assets are recognised in the statement of comprehensive income.
The group did not hold any available-for-sale financial assets at statement of financial position date.
Impairment of financial assets A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount.
(a) Loans and receivables The group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial
assets is impaired. A provision for impairment is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Objective evidence that receivables are impaired includes observable data that comes to the attention of the group about the following events:
• significant financial difficulty of the debtor; • a breach of contract, such as default or delinquency in payments; and • it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.
The amount of the provision is the difference between the carrying amount and the recoverable amount of the assets being the present value of expected cash flows discounted at the original effective interest rate. The amount of the provision is recognised as a charge in the statement of comprehensive income.
When a receivable is uncollectible, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited to the statement of comprehensive income.
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160 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of financial assets (continued)(b) Available-for-sale financial assets The group assesses whether there is objective evidence that a financial asset carried at fair value is impaired at each reporting
date. If any objective evidence of impairment exists for available-for-sale financial assets (for example, a significant or prolonged decline in the fair value of a security below its cost), the cumulative loss, measured as the difference between the acquisition cost and current fair value, less any impairment loss on the financial asset previously recognised in profit or loss, is removed from equity and recognised in the statement of comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the statement of comprehensive income.
Financial liabilities and equity Financial liability and equity instruments issued by the group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Refer to accounting policies on borrowings and trade and other payables for financial liabilities (which exclude employee-related liabilities and VAT), and share capital for equity instruments issued by the group.
Fair value estimation The best evidence of fair value on initial recognition is the transaction price, unless the fair value is evidenced by comparison
with other observable current market transactions in the same instrument or based on discounted cash flow models and option pricing valuation techniques whose variables include only data from observable markets. Subsequent to initial recognition, the fair values of quoted financial assets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the group establishes fair value by using valuation techniques.
These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.
Derivative financial instruments Derivatives are recognised initially at fair value on the date the derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged.
Certain derivative instruments do not qualify for hedge accounting and are accounted for at fair value through profit or loss. Changes in the fair value of these derivative instruments that do not qualify are recognised immediately in the statement of comprehensive income.
The group did not hold any derivative instruments at year end.
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161 Property, plant and equipment Property, plant and equipment are initially recorded at cost, being the purchase cost plus any cost to prepare the assets
for their intended use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.
Property, plant and equipment are subsequently carried at cost less accumulated depreciation and any accumulated impairment losses.
Property, plant and equipment, with the exception of land, are depreciated on the straight-line basis over each asset’s estimated useful life. Land is not depreciated as it is deemed to have an indefinite life.
Depreciation is calculated on the straight-line basis to write off the cost of the assets to their residual values over their estimated useful lives as follows:
Motor vehicles 20% – 25% Furniture and fittings 16.67% – 25% Office equipment 25% Computer equipment 25% – 33.33% Electronic terminals 16.67% Security equipment 20% – 33.33% Terminals and vending machines 16.67% Media equipment 33.33% Plant and machinery 20% Buildings 8.33%
Major leasehold improvements are amortised over the shorter of their respective lease periods and estimated useful life.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised as part of the cost of those assets. No such qualifying assets exist at year end.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate at year end.
Gains and losses on disposal of property, plant and equipment are determined as the difference between the carrying amount and the fair value of the sale proceeds, and are included in operating profit.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
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162 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Intangible assets(a) Computer software development Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software. These costs are amortised over their estimated useful lives (three years).
Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Costs associated with the maintenance of existing computer software programmes are expensed as incurred.
Computer software development costs recognised as assets are amortised over their estimated useful lives (five – ten years).
Costs associated with research activities and the maintenance of existing computer software programmes are expensed as incurred.
(b) Trademarks and licences Trademarks and licences are shown at historical cost. Trademarks and licences have a finite useful life and are subsequently
carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives (ten years).
(c) Databases, customer listings and distribution agreements Databases, customer listings and distribution agreements acquired through business combinations are initially shown at
fair value as determined in accordance with IFRS 3 – Business combinations, and are subsequently carried at the initially determined fair value less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the value of these assets over their estimated useful lives (three – five years).
(d) Research and development Costs incurred on development projects are recognised as intangible assets when the following criteria are fulfilled: • it is technically feasible to complete the intangible asset and that it will be available for use or sale; • management intend to complete the intangible asset and use or sell it; • there is an ability to use or sell the intangible asset; • it can be demonstrated how the intangible asset will generate probable future economic benefits; • adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
are available; and • the expenditure attributable to the intangible asset during its development can be reliably measured.
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Research expenditure is recognised as an expense as incurred. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is available for use (ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management) on a straight-line basis over its useful life (five – ten years).
Direct costs include the product development employee costs and an appropriate portion of relevant overheads. Costs associated with the maintenance of existing products are expensed as incurred.
(e) Purchased starter pack base Purchased starter pack bases represent the right to earn future revenue from starter packs already distributed and are
initially recognised at the cost to the group. Starter pack bases have a finite life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over their estimated useful lives (five years).
(f) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable
assets of the acquired subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is attributable to synergies that the group expects to derive from the transaction. If the cost of acquisition is less than the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income. Goodwill on the acquisition of subsidiaries is included in “goodwill” in the statement of financial position. Goodwill on acquisitions of associates and joint ventures is included in “investments in associates”, and “investments in joint ventures” respectively.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment is recognised.
Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Impairment of non-financial assets The group evaluates the carrying value of assets with finite useful lives when events and circumstances indicate that the
carrying value may not be recoverable. Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Intangible assets not yet available for use are tested annually for impairment.
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164 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of non-financial assets (continued) An impairment loss is recognised in the statement of comprehensive income when the carrying amount of an asset
exceeds its recoverable amount. An asset’s recoverable amount is the higher of the fair value less cost to sell (the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable willing parties), or its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
An impairment loss recognised for an asset, other than goodwill, in prior years is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised and the recoverable amount exceeds the new carrying amount. The reversal of the impairment is limited to the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised in prior years. The reversal of such an impairment loss is recognised in the statement of comprehensive income in the same line item as the original impairment charge.
Leased assets Finance leases Lease agreements that transfer substantially all the risks and rewards of ownership are classified as finance leases at
inception of the lease. The asset is capitalised at the lower of the fair value of the asset or the present value of the minimum lease payments at inception of the lease, with an equivalent amount being stated as a finance lease liability. Finance lease liabilities are classified as non-current or current liabilities, as appropriate. Each lease payment is allocated between the liability and finance charges using the effective interest rate. Finance costs are charged to the statement of comprehensive income over the lease period.
The capitalised asset is depreciated over the shorter of the useful life of the asset or the lease term to its residual value.
Operating leases Leases in which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases.
Payments under operating leases, net of incentives, are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.
Starter pack assets A starter pack is a tool which enables the connection of a mobile device to a mobile network operator, also known as SIM
(subscriber identity module) card.
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The starter pack asset represents starter packs which have been distributed but not yet activated. On activation of the starter pack, the group has a right to receive cash. Starter packs are stated at cost less provision for impairment and are determined by means of the weighted average cost basis. Provision for impairments are made for starter packs distributed not expected to be activated.
Inventories Inventories are stated at the lower of cost or estimated net realisable value. Cost comprises direct materials and, where
applicable, overheads that have been incurred in bringing the inventories to their present location and condition, excluding borrowing costs. The cost of the inventory is determined by means of the weighted average cost basis. Net realisable value is the estimate of the selling price in the ordinary course of business, less selling expenses. Provisions are made for obsolete, unusable and unsaleable inventory and for latent damage first revealed when inventory items are taken into use or offered for sale.
Trade receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of
business. If collection is expected in the normal operating cycle of the business, they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognised in the statement of comprehensive income.
Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments
with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.
Share capital Ordinary shares are classified as equity and the shares are fully paid up.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are shown as a deduction from equity.
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166 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is
more likely than not that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are not recognised for future operating expenses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense.
Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred when the relevant contracts are entered
into. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.
Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after year end.
Normal taxation The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at year end in the
countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred taxation Deferred taxation is provided using the liability method for all temporary differences arising between the tax bases of assets
and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by year end and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on
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investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.
Secondary tax on companies (STC) South African companies are subject to a dual corporate tax system, one part of the tax being levied on the taxable income
and the other, a secondary tax (STC) on distributed income. STC is not a withholding tax on shareholders but a tax on companies.
The STC tax consequence of dividends is recognised when a liability to pay the dividend is recognised. The STC liability is reduced by dividends received during the dividend cycle, and where dividends received exceed dividends declared within a cycle, there is no liability to pay STC. The potential tax benefit related to excess dividends received is carried forward to the next dividend cycle. Deferred tax assets are recognised on unutilised STC credits to the extent that it is probable that the group will declare future dividends to utilise such STC credits.
Where dividends declared exceed the dividends received during a cycle, STC is payable at the current STC rate. STC is a charge against income, and is recognised in the taxation charge in the statement of comprehensive income in the same period as the related dividend is accrued as a liability.
Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business
from suppliers. Accounts payable are classified as current liabilities if payment is due within the normal operating cycle of the business. If not, they are presented as non-current liabilities.
Trade payables are measured initially at fair value and are subsequently measured at amortised cost, using the effective interest rate method.
Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the
ordinary course of the group’s activities. Revenue is shown net of indirect taxes, estimated returns, rebates and discounts and after eliminated sales within the group.
Revenue from the sale of goods and the rendering of services is recognised when it is probable that the economic benefits associated with a transaction will flow to the group and the amount of revenue, and associated costs incurred or to be incurred, can be measured reliably.
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168 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition (continued) The main categories of revenue and the bases of recognition are as follows:(a) Sale of starter packs Revenue is recognised when the significant risks and rewards of ownership are transferred to the customer, and when the
entity no longer retains continuing managerial involvement to the degree usually associated with ownership. This is performed at a point at which reliable information is available.
Activation bonuses received from the networks are recognised when the SIM-card is activated on the relevant cellular phone network. Ongoing revenue and other incentives are recognised once certain criteria have been met. The point of activation is determined by the relevant cellular phone networks.
(b) Sales of prepaid airtime Sales of prepaid airtime are recognised when the group sells the airtime to the customer. Sales are recorded based on
the price specified in the sales contracts, net of discounts at the time of sale.
(c) Sales of services Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion
of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
(d) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is
impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.
(e) Electricity commission Commissions on the sale of prepaid electricity are recognised when the group sells electricity to the customer on behalf
of the utility suppliers. Commissions are recorded based on agreed rates per the contracts.
Employee benefits(a) Equity compensation benefit The group operates an equity-settled forfeitable share incentive plan, under which the entity receives services from
employees as consideration for equity instruments of the group. The fair value of the services received in exchange for the grant of forfeitable shares is recognised as an expense. The total amount to be expensed is determined by the fair value of the forfeitable shares granted. The total amount expensed is recognised over the vesting period, which is the period over which all of the vesting conditions are to be satisfied. At each reporting date, the entity recognises the impact of any
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shares that have been forfeited prior to the end of the vesting period, if any, in the statement of comprehensive income with a corresponding adjustment to equity.
The group views Blue Label Telecoms Limited to be the grantor of the award and therefore in terms of IFRIC 11 – “IFRS 2 Group and treasury share transactions” the awards are also accounted for as equity-settled in the subsidiary
financial statements. An expense is recognised in the company’s statement of comprehensive income with a corresponding increase in equity as a contribution from the parent.
The company has procured the shares in order to settle the award but these are accounted for as a purchase of shares in the holding company and only once the shares vest as the performance conditions are met would the share be derecognised. When shares are derecognised the investment in shares in Blue Label Telecoms Limited will be credited and equity will be debited as a contribution to the shareholder.
(b) Defined contribution plans A defined contribution plan is one under which the group pays a fixed percentage of employees’ remuneration as
contributions into a separate entity (a fund), and will have no further legal or constructive obligations to pay additional contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Contributions to defined contribution plans in respect of services rendered during a period are recognised as an employee benefit expense when they are due. The group does not have any defined benefit plans.
(c) Bonus plans The group recognises a liability and an expense for bonuses. A provision is recognised where the group is contractually
obliged or where there is a past practice that has created a constructive obligation.
(d) Leave pay accrual The group recognises a liability and an expense for leave. The accrued liability is determined by valuing all future leave
expected to be taken and payments expected to be made in respect of benefits.
Dividend distribution Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the
period in which they are approved by the shareholders.
Core net profit Core net profit is a non-IFRS measure used by the group in evaluating the group’s performance. This supplements the IFRS
measures. Core net profit is calculated by adjusting net profit for the year with the amortisation of intangible assets that arise as a consequence of the purchase price allocations completed in terms of IFRS 3: Business Combinations.
Reconciliations of core net profit to relevant IFRS measures are presented in note 21 (core HEPS) and note 29 (segmental summary).
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170 2. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Assessment of goodwill for impairment The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The
recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.
Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing (refer to note 5). The recoverable amount of CGUs has been determined based on value-in-use calculations, which is the higher of fair value less cost to sell and value in use. These calculations use cash flow projections based on financial budgets approved by the board of directors for the forthcoming year and forecasts for up to five years which are based on assumptions of the business, industry and economic growth. Cash flows beyond this period are extrapolated using terminal growth rates, which do not exceed the expected long-term economic growth rate.
The average growth rates applied were between 1.5% and 4.5% (2009: 3% and 5.3%). The weighted average cost of capital used to discount these cash flows ranged between 17% and 27% (2009: 16% and 36%). The discount rates used are pre-tax and reflect specific risks relating to the relevant companies.
The valuation of the goodwill balances resulted in goodwill impairment charges of R13 829 170 for the year (2009: Rnil).
(b) Classification of starter packs assets The group assesses at year end the classification of starter packs assets between current and non-current. This
assessment takes into consideration historical trends and an analysis of the expected period to receipt of the cash. These calculations require the use of estimates and assumptions.
(c) Capitalisation of development cost The group capitalises development costs relating to software development. Costs incurred on development projects of
identifiable and unique products which are controlled by the group are recognised as intangible assets when it is probable that the project will be profitable considering its commercial and technical feasibility, and its costs can be measured reliably. Management makes some estimates on the technical feasibility of project and, based on the estimates and the recognition criteria, cost are capitalised. Refer to note 5 for details of amounts capitalised during the year.
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(d) Contingent consideration for acquisitions Contingent payments for business acquisitions are generally conditional on the future revenue and/or profits achieved by
the acquired business. On acquisition date, estimates are made of the expected future revenue and profit based on forecasts made by management. These estimates are reassessed at each reporting date and adjustments are made to the deferred consideration and related goodwill balances, where necessary. Amounts of deferred consideration payable after one year are discounted using discount rates that reflect the current market assessment of the time value of money and, where appropriate, the risks specific to the acquired business.
(e) Equity compensation benefit In determining the number of forfeitable shares that will vest due to performance conditions being met, management
assesses the attrition rates of staff based on the grades of staff that have been granted awards as well as the historic staff turnover.
All decisions relating to the forfeitable share scheme are made by the group’s Remuneration Committee. Accordingly, BLT is considered to be the grantor of these awards.
(f) Income taxes As with any enterprise, the group faces uncertainties in the markets in which it operates over which it has little or no
control. The group is subject to income tax in numerous jurisdictions and judgement is required in determining the provision for tax.
There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Amounts accrued are based on management’s interpretation of country-specific tax law and the likelihood of settlement. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax provisions in the period in which such determination is made.
Tax benefits are not recognised unless the tax positions are probable of being sustained.
Deferred tax assets are recognised to the extent that it is probable that taxable income will be available in the future against which these can be utilised. Future taxable profits are estimated based on business plans which include estimates and assumptions regarding economic growth, interest rates, inflation and competitive forces.
Changes in the estimates of the consideration could result in the recognition of material adjustments in future periods.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
172 2. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued)(g) Valuation of intangible assets acquired as part of a business combination The fair values of all of the identifiable intangible assets acquired as part of a business combination are determined using
recognised valuation techniques. Such techniques often rely on forecasts of future cash flows and the use of appropriate discount rates that reflect the risk factors associated with the cash flows.
These valuations are based on information at the time of the acquisition and the expectations and assumptions that have been deemed reasonable by the group’s management. The risk exists that the underlying assumptions or events associated with such assets will not occur as projected. For these reasons, among others, the actual cash flows may vary from forecasts of future cash flows.
3. FINANCIAL RISKS In the course of its business, the group is exposed to a number of financial risks: credit risk, liquidity risk and market risk
(including foreign currency, interest rate and other price risks). This note presents the group’s objectives, policies and processes for managing its financial risk and capital.
Credit risk Credit risk arises because a counterparty may fail to meet its obligations to the group. The group is exposed to credit risk
on financial assets mainly in respect of trade receivables, loans receivable and cash and cash equivalents.
Trade receivables consist primarily of invoiced amounts from normal trading activities. The group has a diversified customer base and policies are in place to ensure sales are made to customers with an appropriate credit history and payment history. Individual credit limits are set for each customer and the utilisation of these credit limits is monitored regularly. A customer cannot exceed their set credit limit,without specific senior management approval. Such approval is assessed and granted on a case by case basis. Where necessary, a provision for impairment is made. A portion of the group’s customer base is made up of major retailers, with the balance of the customer base being widely dispersed.
Loans are only granted to holders with an appropriate credit history, taking into account the holder’s financial position and past experience.
The group places cash and cash equivalents with major banking groups and quality institutions that have high credit ratings.
ANNUAL REPORT 2010
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The group has significant concentrations of credit risk with Investec Bank Limited in line with its treasury function.
The group has a R650 million (2009: R550 million) credit facility. The facility bears certain debt covenants.
The group’s maximum credit risk exposure is the carrying amount of all financial assets on the statement of financial position and guarantees provided with the maximum amount the group could have to pay if the guarantees are called on, amounting to R9.8 million (2009: R11.8 million).
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (where available) or to historical information about counterparty default rates:
2010R’000
2009R’000
Loans receivable
Group 1 5 550 —
Group 2 38 067 54 131
43 617 54 131
Trade receivables
Group 1 427 134
Group 2 825 405 701 142
Group 3 22 341 23 363
Total unimpaired trade receivables 848 173 724 639
The effect of discounting of the trade receivables is not taken into account in the above table.
The rating groups for counterparties are categorised as follows:Group 1 – New customers/related parties (less than six months).Group 2 – Existing customers/related parties (more than six months) with no defaults in the past.Group 3 – Existing customers/related parties (more than six months) with some defaults in the past. All defaults were
fully recovered.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
174 3. FINANCIAL RISKS (continued)
Credit risk (continued)
2010R’000
2009R’000
Cash at bank and short-term bank deposits
Credit rating based on latest Fitch local currency long-term issuer default ratings
A 35 820 68 803
A- 21 011 14 276
AA- 18 485 46 916
BBB+ 444 977 268 243
BBB 1 475 813 1 281 391
BBB- 31 046 25 007
Other 17 305 43 248
2 044 457 1 747 884
Liquidity risk Liquidity risk arises when a company encounters difficulties in meeting commitments associated with liabilities and other
payment obligations. The group’s objective is to maintain prudent liquidity risk management by maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the group aims to maintain flexibility in funding by keeping committed credit lines available.
Cash flow forecasting is performed in the operating entities of the group to ensure sufficient cash to meet operational needs while maintaining sufficient headroom to ensure that borrowing limits (where applicable) are not breached.
Surplus cash held by the operating entities over and above the balance required for working capital management is transferred to the group treasury. Group treasury invests surplus cash in interest-bearing accounts, choosing instruments with sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.
ANNUAL REPORT 2010
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The table below analyses the group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Maturity of financial liabilities
Less than 1 month oron demand
R’000
More than 1 month but
not exceeding 1 yearR’000
Payable in:More than
1 year but notexceeding
2 yearsR’000
More than 2 years but
not exceeding 5 yearsR’000
More than 5 yearsR’000
2010
Interest-bearing borrowings — 2 768 3 623 12 457 —
Trade and other payables* 568 936 1 084 106 — — —
Bank overdraft 2 175 — — — —
Total 571 111 1 086 874 3 623 12 457 —
2009
Interest-bearing borrowings 10 434 4 742 4 631 16 755 —
Trade and other payables* 596 783 871 029 — — —
Bank overdraft 3 891 — — — —
Total 611 108 875 771 4 631 16 755 —
*Trade and other payables exclude non-financial instruments being VAT and certain amounts included within accruals and sundry creditors
Market risk The group is exposed to risks from movements in foreign exchange rates and interest rates that affect its assets, liabilities
and anticipated future transactions. The group is not exposed to significant levels of price risk.
All financial assets at fair value through profit and loss are level 3 financial assets.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
176 3. FINANCIAL RISKS (continued) Cash flow and fair value interest rate risk The group’s cash flow interest rate risk arises from loans receivable, cash and cash equivalents and borrowings carrying
interest at variable rates. The group is not exposed to fair value interest rate risk as the group does not have any fixed interest-bearing instruments carried at fair value.
The group’s exposure to interest rate risk is reflected under the respective borrowings, loans receivable and cash and cash
equivalents notes (notes 15, 11 and 13). As part of the process of managing the group’s exposure to interest rate risk, interest rate characteristics of new borrowings and the refinancing of existing borrowings are positioned according to expected movements in interest rates.
Foreign currency risk The group is exposed to foreign currency risk from transactions and translation. Transaction exposure arises because
affiliated companies undertake transactions in currencies other than their functional currency. Translation exposure arises from the consolidation of subsidiaries with a functional currency other than the group’s reporting currency (rand).
The group manages its exposure to foreign currency risk by ensuring that the net foreign currency exposure remains within
acceptable levels. Hedging instruments are used in certain instances to reduce risks arising from foreign currency fluctuations.
The group did not enter into any forward exchange contracts during the period under review.
IFRS 7 Sensitivity analysis The group has used a sensitivity analysis technique that measures the estimated change to the income statement of either
an instantaneous increase or decrease of 1% (100 basis points) in market interest rates or a 10% strengthening or weakening of the rand against all other currencies, from the rates applicable at 31 May 2010, for each class of financial instrument with all other variables remaining constant. This analysis is for illustrative purposes only, as in practice market rates rarely change in isolation.
Interest rate risk The interest rate sensitivity analysis is based on the following assumptions: • Changes in market interest rates affect the interest income or expense of variable interest financial instruments • Changes in market interest rates only affect interest income or expense in relation to financial instruments with fixed
interest rates if these are recognised at fair value.
Under these assumptions, a 1% increase or decrease in market interest rates at 31 May 2010 would increase or decrease profit before tax by R20.7 million (2009: R17.4 million).
ANNUAL REPORT 2010
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Foreign currency risk Financial instruments by currency
ZAR R’000
USDR’000
AUDR’000
EURR’000
MxMR’000
NgNR’000
GBPR’000
TotalR’000
2010
Financial assets
Cash and cash equivalents 1 969 675 21 249 160 — 760 65 233 — 2 057 077
Trade and other receivables* 796 550 24 148 73 — 4 435 139 912 — 965 118
Loans receivable 24 974 18 643 — — — — — 43 617
Financial assets at fair value through profit or loss 150 — — — — — — 150
2 791 349 64 040 233 — 5 195 205 145 — 3 065 962
Financial liabilities
Interest-bearing borrowings 18 848 — — — — — — 18 848
Trade and other payables* 1 496 754 613 189 130 2 496 152 241 619 1 653 042
Bank overdraft 2 175 — — — — — — 2 175
1 517 777 613 189 130 2 496 152 241 619 1 674 065
Net financial position 1 273 572 63 427 44 (130) 2 699 52 904 (619) 1 391 897
*Trade and other receivables, and trade and other payables exclude non-financial instruments
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
178 3. FINANCIAL RISKS (continued)
ZAR R’000
USDR’000
AUDR’000
MxMR’000
NgNR’000
MZNR’000
TotalR’000
2009
Financial assets
Cash and cash equivalents 1 625 586 57 959 95 650 71 932 4 475 1 760 697
Trade and other receivables* 725 645 68 835 18 1 23 022 3 231 820 752
Loans receivable 34 421 19 710 — — — — 54 131
Financial assets at fair value through profit or loss 10 — — — — — 10
2 385 662 146 504 113 651 94 954 7 706 2 635 590
Financial liabilities
Interest-bearing borrowings 18 364 18 198 — — — — 36 562
Trade and other payables* 1 128 684 84 323 128 160 232 752 21 765 1 467 812
Bank overdraft 3 891 — — — — — 3 891
1 150 939 102 521 128 160 232 752 21 765 1 508 265
Net financial position 1 234 723 43 983 (15) 491 (137 798) (14 059) 1 127 325
*Trade and other receivables, and trade and other payables exclude non-financial instruments
Starter packs distributed but not yet activated are no longer disclosed in this note (refer to note 7).
ANNUAL REPORT 2010
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With a 10% strengthening or weakening in the rand against all other currencies, profit before tax would have increased or decreased by R11.8 million respectively.
In the prior year, with a 10% strengthening or weakening in the rand against all other currencies, profit before tax would have decreased or increased by R9.9 million.
Capital risk The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order
to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust this capital structure, the company may issue new shares, adjust the amount of dividends
paid to shareholders, return capital to shareholders or sell assets to reduce debt. The group defines capital as capital and reserves and non-current borrowings. The group is not subject to externally imposed capital requirements. There were no changes to the group’s approach to capital management during the year. Fair value measurement For all short-term financial assets and liabilities, the carrying amount is regarded as an approximation of the fair value. The fair value of all non-current loans receivable and borrowings are calculated using a discounted cash flow model based
on prevailing market interest rates, where applicable.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
180
Computerequipment
R’000
Furniture and fittings
R’000
Motor vehicles
R’000
4. PROPERTY, PLANT AND EQUIPMENT
Year ended 31 May 2010
Opening carrying amount 13 507 9 052 13 446
Additions 10 144 3 359 6 276
Disposals (2 404) (2 410) (3 963)
Depreciation charge (7 276) (1 804) (4 083)
Impairment charges (152) (455) —
Translation differences (335) (101) (541)
Closing carrying amount 13 484 7 641 11 135
At 31 May 2010
Cost 34 387 12 384 17 033
Accumulated depreciation (20 751) (4 288) (5 898)
Accumulated impairments (152) (455) —
Carrying amount 13 484 7 641 11 135
Year ended 31 May 2009
Opening carrying amount 12 088 7 377 9 658
Additions 13 855 4 373 10 580
Disposals (6 094) (748) (2 574)
Depreciation charge (6 471) (2 081) (3 941)
Translation differences 129 131 (277)
Closing carrying amount 13 507 9 052 13 446
At 31 May 2009
Cost 29 544 12 590 19 389
Accumulated depreciation (16 037) (3 538) (5 943)
Carrying amount 13 507 9 052 13 446
* In the prior year this asset category was shown as two separate classes of assets, namely “Terminals” and “Vending Machines”. These two classes are regarded as the same and have therefore been combined in the current year. Comparative figures have been updated to reflect this change.
ANNUAL REPORT 2010
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Officeequipment
R’000
Leaseholdimprovements
R’000
Terminalsand vending
machines*R’000
Media equipment
R’000
Plant andmachinery
R’000Buildings
R’000 Total
R’000
3 697 9 274 49 400 4 093 710 1 832 105 011
1 490 27 317 54 106 — 1 681 — 104 373
(472) (95) (2 359) (2 728) (353) — (14 784)
(1 239) (2 825) (16 784) (1 365) (335) — (35 711)
(420) — — — — — (1 027)
(29) (47) 72 — 7 — (974)
3 027 33 624 84 435 — 1 710 1 832 156 888
6 001 38 274 123 122 — 2 060 1 832 235 093
(2 554) (4 650) (38 687) — (350) — (77 178)
(420) — — — — — (1 027)
3 027 33 624 84 435 — 1 710 1 832 156 888
2 622 2 893 28 196 5 207 587 856 69 484
2 436 8 831 32 858 798 234 976 74 941
(283) (137) (2 913) (202) — — (12 951)
(1 113) (1 964) (8 741) (1 710) (111) — (26 132)
35 (349) — — — — (331)
3 697 9 274 49 400 4 093 710 1 832 105 011
5 584 11 253 72 742 9 083 812 1 832 162 829
(1 887) (1 979) (23 342) (4 990) (102) — (57 818)
3 697 9 274 49 400 4 093 710 1 832 105 011
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
182 4. PROPERTY, PLANT AND EQUIPMENT (continued)
Property, plant and equipment include the following amounts where the group is a lessee under a finance lease:
2010R’000
2009R’000
Motor vehicles
Cost 4 433 2 579
Accumulated depreciation (1 171) (696)
Carrying value at 31 May 3 262 1 883
These assets have been pledged as surety against the liability.
Goodwill R’000
TrademarksR’000
CustomerlistingR’000
Distributionagreement
R’000
5. INTANGIBLE ASSETS
Year ended 31 May 2010
Opening carrying amount 257 495 4 821 18 979 7 440
Additions — 65 — 1 500
Disposals (1 127) — (13 859) —
Amortisation charge* — (765) (1 926) (2 211)
Impairment charges (13 829) — — —
Translation differences 23 — 16 —
Closing carrying amount 242 562 4 121 3 210 6 729
At 31 May 2010
Cost 256 391 9 158 31 788 13 306
Accumulated amortisation — (5 037) (28 578) (6 577)
Accumulated impairments (13 829) — — —
Carrying amount 242 562 4 121 3 210 6 729
* Included in the amortisation charge is an amount of R4.9 million (2009: nil) that gets expensed to the changes in inventories of finished goods line in the statement of comprehensive income.
ANNUAL REPORT 2010
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Computersoftware
R’000
Internallygenerated
software R’000
Franchisefees
R’000
Customerrelationships
R’000
Supplierrelationships
R’000
Purchased starter
pack baseR’000
Total R’000
53 572 22 076 1 780 93 852 310 — 460 325
8 729 22 228 — 150 — 58 772 91 444
(298) (207) — (13 124) — — (28 615)
(14 053) (4 428) (121) (35 144) (310) (4 898)* (63 856)
(6 281) (1 660) — (615) — — (22 385)
(134) 6 — — — — (89)
41 535 38 015 1 659 45 119 — 53 874 436 824
83 907 47 823 2 418 126 673 — 58 772 630 236
(36 091) (8 148) (759) (80 939) — (4 898) (171 027)
(6 281) (1 660) — (615) — — (22 385)
41 535 38 015 1 659 45 119 — 53 874 436 824
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
184 5. INTANGIBLE ASSETS (continued)
Goodwill R’000
TrademarksR’000
CustomerlistingR’000
Distributionagreement
R’000
Year ended 31 May 2009
Opening carrying amount 266 242 5 966 7 721 11 336
Additions 2 489 3 278 21 087 —
Disposals (8 235) — — (1 642)
Amortisation charge — (4 142) (6 264) (2 174)
Translation differences (279) (281) (3 565) (80)
Adjustment* (2 722) — — —
Closing carrying amount 257 495 4 821 18 979 7 440
At 31 May 2009
Cost 257 495 11 598 47 765 11 806
Accumulated amortisation — (6 777) (28 786) (4 366)
Carrying amount 257 495 4 821 18 979 7 440
* Goodwill in respect of Content Connect Africa has been reduced as a result of warranty claims that have materialised
Computer software has been impaired due to the resale capabilities of this software not materialising as previously anticipated.
ANNUAL REPORT 2010
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Computersoftware
R’000
Internallygenerated
software R’000
Franchisefees
R’000
Customerrelationships
R’000
Supplierrelationships
R’000
Purchased starter
pack baseR’000
Total R’000
49 961 11 996 1 901 133 607 1 056 — 489 786
14 817 14 174 — — — — 55 845
(1 345) (929) — — — — (12 151)
(9 497) (3 128) (121) (39 755) (746) — (65 827)
(364) (37) — — — — (4 606)
— — — — — — (2 722)
53 572 22 076 1 780 93 852 310 — 460 325
75 808 25 812 2 418 154 907 1 490 — 589 099
(22 236) (3 736) (638) (61 055) (1 180) — (128 774)
53 572 22 076 1 780 93 852 310 — 460 325
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
186 5. INTANGIBLE ASSETS (continued)
The cash-generating units to which goodwill is allocated are presented below:
2010R’000
2009R’000
Africa Prepaid Services Nigeria Limited 13 296 13 296
Africa Prepaid Services RDC SPRL1 — 1 127
Blue Label Australasia (Proprietary) Limited2 — 1 659
Blue Label Distribution3 36 364 36 364
Comm Express Services SA (Proprietary) Limited 19 372
Virtual Voucher (Proprietary) Limited 11 728
Other South African distribution cash-generating units 5 264
Cellfind (Proprietary) Limited 21 406 21 406
Content Connect Africa (Proprietary) Limited 18 738 18 738
Little River Trading 181 (Proprietary) Limited (trading as Crown Cellular) 62 113 62 113
SharedPhone International (Proprietary) Limited 7 877 7 877
Datacel group4 83 023 95 150
Other cash-generating units5 — 45
Translation differences (255) (279)
242 562 257 495
1 Africa Prepaid Services RDC SPRL was disposed of during the year.2 The goodwill arising on the acquisition of Blue Label Australasia has been impaired in the current year due to the performance of the
business operations being below management’s expectations.3 Subsequent to year end, the majority of the South African distribution companies are being restructured to form one legal entity.
Management has assessed the combined goodwill of this new entity.4 The goodwill allocated to the Datacel group has been impaired in part due to the cessation of business activities in certain of the call centre
operations.5 The goodwill allocated to the other cash-generating units has been impaired in the current year.
ANNUAL REPORT 2010
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2010R’000
2009R’000
6. INVESTMENT IN ASSOCIATES AND JOINT VENTURES
Opening net book value 109 837 81 356
Acquisition of associates and joint ventures * 122 357
Movements through net profit (14 982) (27 445)
Share of results after tax (13 699) (26 105)
Amortisation of intangible asset (1 959) (1 882)
Deferred tax on intangible assets amortisation 549 527
Profit on dilution 127 15
Foreign currency translation reserve (7 141) (7 297)
Equity compensation benefit 1 227 3 544
Transaction with minority reserve — (8 949)
Share premium 10 150 —
Disposal of associate and joint ventures — *
(10 746) 82 210
Movement in loans
Loans granted to associates and joint ventures 451 4 501
Loans repaid by associates (320) (914)
Movement in funding (1 587) (1 266)
Prepayment in prior period for additional interest purchased — (57 000)
Unrealised foreign exchange (loss)/gains on loans to associates (747) 950
(2 203) (53 729)
Closing net book value 96 888 109 837
The directors believe that the carrying value of the shares approximates their fair value.
The loans are neither past due nor impaired with a low risk of default.
Loans to/from associates and joint ventures have no fixed terms of repayment.
Investments in associates and joint ventures include goodwill to the value of R28 million (2009: R31.1 million).
* Less than R1 000
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
188 6. INVESTMENT IN ASSOCIATES AND JOINT VENTURES (continued)
Associates
Shares in associates acquired during the year:
2009
Dateacquired
Effectivepercentage
acquired
Oxigen Services India (Private) Limited 1 June 2008 3.85
Smart Voucher Limited 1 October 2008 17.25
Dual Data (Proprietary) Limited 1 October 2008 50
BLK (Proprietary) Limited 17 December 2008 25
The group’s interest in its principal associates, which are unlisted, is as follows:
Name
Country of incorpo-ration
AssetsR’000
LiabilitiesR’000
RevenuesR’000
LossR’000
Effectivepercentage
interestheld
Net bookvalue
R’000
2010
Oxigen Services India (Private) Limited India 123 070 67 153 1 450 276 (19 069) 37.22 63 117
Smart Voucher LimitedUnited Kingdom 137 234 127 838 87 439 (20 456) 15.79 27 648
Dual Data (Proprietary) Limited
South Africa 117 116 3 954 — 50 —
BLK Risk Services (Proprietary) Limited
South Africa 1 324 429 — — 25 220
ANNUAL REPORT 2010
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Name
Country of incorpo-ration
AssetsR’000
LiabilitiesR’000
RevenuesR’000
Profit/(loss)
R’000
Effectivepercentage
interestheld
Net bookvalue
R’000
2009
Oxigen Services India (Private) Limited India 167 511 92 610 1 434 602 (64 078) 37.22 61 920
Smart Voucher LimitedUnited Kingdom 122 343 110 888 45 112 (12 009) 16.9 40 851
Dual Data (Proprietary) Limited
South Africa 1 341 1 340 3 954 — 50 —
BLK Risk Services (Proprietary) Limited
South Africa 1 324 429 1 247 893 25 220
There are no contingent liabilities relating to the group’s interest in associates. For details on related party transactions refer to note 27.
Joint ventures
Shares in joint ventures acquired during the year:
Dateacquired
Effectivepercentage
acquired
2010
Datacision (Proprietary) Limited 1 December 2009 50
Bela Telephone Company (Proprietary) Limited 26 November 2009 51
2009
Demtrade 11 (Proprietary) Limited 1 June 2008 50
The group disposed of the following interests in joint ventures:
Datedisposed
Effectivepercentage
disposed
2009
The Hub Pretalk (Proprietary) Limited 25 May 2009 40
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
190 6. INVESTMENT IN ASSOCIATES AND JOINT VENTURES (continued)
Joint ventures (continued)
Set out below is the summarised financial information of joint ventures:
Name
Country of incorpo-ration
AssetsR’000
LiabilitiesR’000
RevenuesR’000
Profit/(loss)
R’000
Effectivepercentage
interestheld
Net bookvalue
R’000
2010
Premet Cellular (Proprietary) Limited
South Africa 1 026 6 998 — — 40 *
Demtrade 11 (Proprietary) Limited
South Africa 7 923 6 040 10 780 715 50 5 514
Bela Telephone Company (Proprietary) Limited
South Africa 1 162 1 928 336 (766) 51 159
Datacision (Proprietary) Limited
South Africa 561 104 859 457 50 229
2009
Premet Cellular (Proprietary) Limited
South Africa 1 026 6 998 14 731 (1 061) 40 *
Demtrade 11 (Proprietary) Limited
South Africa 7 554 6 382 9 086 1 121 50 6 846
There are no contingent liabilities relating to the group’s interest in joint ventures.
*Less than R1 000
ANNUAL REPORT 2010
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ILIT
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191
2010R’000
2009R’000
7. STARTER PACK ASSETSBalance at beginning of year 121 545 125 296 Additions 18 033 50 533Impairments* (23 080) (5 267)Disposals (21 757) (49 399)Translation differences (448) 382
At end of year 94 293 121 545Less: Current portion (77 467) (67 449)
16 826 54 096
* These impairments are expensed in the statement of comprehensive income and are included in changes in inventories of finished goods. This impairment represents the value of starter packs that management considers the probability of activation to be low.
During the current year the group changed the name of starter pack assets distributed but not yet activated from “financial assets at amortised cost” to “starter pack assets” as this provides an enhanced description of the assets. The related disclosures in note 3 are not required as the amounts are no longer classified as financial assets. There is no impact on equity, assets, liabilities or profit and loss for the current or prior years.
8. DEFERRED TAXATION
Capitalallowances
R’000
Fair value gains
R’000Provisions
R’000
TaxlossesR’000
Pre-payments
R’000Other
R’000Total
R’000
At 31 May 2008 1 186 55 011 (3 348) (1 732) 151 3 843 55 111 Charge/(credited) to statement of comprehensive income 1 677 (14 544) (427) (9 334) 1 238 6 030 (15 360)Disposal of subsidiary (note 25) — — 68 — — 384 452Acquisition of subsidiary (note 24) — — (99) 77 — 1 998 1 976
At 31 May 2009 2 863 40 467 (3 806) (10 989) 1 389 12 255 42 179 Charge/(credited) to statement of comprehensive income 2 505 (11 948) 1 852 (5 502) (447) (3 477) (17 017)Disposal of subsidiary (note 25) — — — — — (3 882) (3 882)Foreign currency translations — — — 210 — (29) 181
At 31 May 2010 5 368 28 519 (1 954) (16 281) 942 4 867 21 461
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
192 2010R’000
2009R’000
8. DEFERRED TAXATION (continued)
Deferred tax asset comprises:
Capital allowances (2 075) 1 080
Fair value gains 265 1 996
Provisions (2 461) (2 164)
Tax losses (5 472) (10 488)
Prepayments (449) (328)
Other 37 2 539
Total deferred tax asset (10 155) (7 365)
Deferred tax liability comprises:
Capital allowances 7 443 1 784
Fair value gains 28 254 38 472
Provisions 507 (1 642)
Tax losses (10 809) (502)
Prepayments 1 391 1 716
Other 4 830 9 716
Total deferred tax liability 31 616 49 544
Net deferred taxation 21 461 42 179
In the current year, the group’s subsidiary in Nigeria has been granted a five-year company income tax holiday. Furthermore, capital allowances arising on capital expenditure incurred during this five-year period may be carried forward and claimed as deductions against taxable income from the sixth year of operations onwards. A deferred tax asset of R2 million, relating to these deductible temporary differences, has been recognised for the year ended 31 May 2010.
ANNUAL REPORT 2010
OU
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P IN
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IEF
GOVER
NAN
CE
AN
D S
USTA
INAB
ILIT
YFI
NA
NCIA
L STA
TEM
ENTS
193
2010R’000
2009R’000
The analysis of deferred tax assets and deferred tax liabilities is as follows:
Deferred tax assets
Deferred tax assets to be recovered after more than 12 months (17 872) (11 923)
Deferred tax assets to be recovered within 12 months (8 781) (6 544)
(26 653) (18 467)
Deferred tax liabilities
Deferred tax liabilities to be recovered after more than 12 months 25 768 26 352
Deferred tax liabilities to be recovered within 12 months 22 346 34 294
48 114 60 646
Net deferred tax liability 21 461 42 179
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. The group did not recognise deferred income tax assets of R28.2 million (2009: R17.1 million) in respect of losses amounting to R98.9 million (2009: R55 million) that can be carried forward against future taxable income.
Deferred income tax liabilities of R2.1 million were not recognised in the prior year.
Note2010R’000
2009R’000
9. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Balance at beginning of year 10 5 672
Additions 140 10
Disposals — (5 427)
Fair value movements — 32
Translation differences — 28
Disposal of subsidiary 25 — (305)
At end of year 150 10
Changes in the fair value of these assets are recorded in other income.
The fair value of financial assets is based on management’s best estimate.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
194
Note2010R’000
2009R’000
10. INVENTORIES
Airtime and related products 560 846 384 361
560 846 384 361
A general notarial bond is held by Investec Bank Limited over airtime up to R650 million (2009: R550 million).
11. LOANS RECEIVABLE
Interest free 43 617 29 120
Bearing interest at the prime linked interest rate — 800
Loans are unsecured and have no fixed terms of repayment. 43 617 29 920
Of this amount R38 million (2009: R28 million) relates to loans receivable from related parties (refer note 27).
12. TRADE AND OTHER RECEIVABLES
Trade receivables 848 943 725 316
Less: Provision for impairment (1 857) (3 192)
847 086 722 124
Sundry debtors and prepayments 89 619 150 945
VAT 8 846 5 445
Rebates receivable 14 451 17 359
Proceeds due on disposal of subsidiaries* 22 615 1 152
Receivables from related parties (refer to note 27) 4 662 1 546
987 279 898 571
The carrying value of trade and other receivables approximates their fair value.
*This amount is secured by shares held in the purchaser’s personal capacity
ANNUAL REPORT 2010
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NAN
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AN
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INAB
ILIT
YFI
NA
NCIA
L STA
TEM
ENTS
195
GrossR’000
ImpairmentR’000
12. TRADE AND OTHER RECEIVABLES (continued)
The ageing of trade receivables at the reporting date was:
31 May 2010
Fully performing 805 817 25
Past due by 1 to 30 days 32 078 9
Past due by 31 to 60 days 3 351 —
Past due by 61 to 90 days 1 243 —
Past due by more than 90 days 7 541 1 823
850 030 1 857
31 May 2009
Fully performing 682 922 3
Past due by 1 to 30 days 15 101 17
Past due by 31 to 60 days 8 479 1 717
Past due by 61 to 90 days 2 679 12
Past due by more than 90 days 18 650 1 443
727 831 3 192
Receivables in respect of starter packs are included in fully performing debtors above. Ongoing activation revenue due to these debtors is set off against the receivable balance as and when it is earned by them.
The effect of discounting of the trade receivables balance is not taken into account in the above table.
The trade receivables that are neither past due nor impaired relate to a number of independent customers for whom there is no recent history of default.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
196 2010R’000
2009R’000
12. TRADE AND OTHER RECEIVABLES (continued)
Provision for impairment of receivables
At 1 June 3 192 5 299
Allowances made during the year 1 769 2 876
Disposal of subsidiaries (319) —
Amounts used and reversal of unused amounts (2 785) (4 983)
At 31 May 1 857 3 192
Impairment of receivables is determined after assessing the nature of the customer, their geographic location and specific circumstances.
The group believes that the above provision for impairment of receivables sufficiently covers the risk of default.
There is a cession of trade receivables of R794.9 million (2009: R462.1 million) in favour of Investec Bank Limited.
13. CASH AND CASH EQUIVALENTS
Cash at bank 2 046 632 1 751 775
Cash on hand 10 445 8 922
Favourable balances 2 057 077 1 760 697
Bank overdraft (2 175) (3 891)
2 054 902 1 756 806
Cash and cash equivalents of R1.426 million (2009: R1.282 million) are restricted.
ANNUAL REPORT 2010
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NAN
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INAB
ILIT
YFI
NA
NCIA
L STA
TEM
ENTS
197
2010Number
of shares
2009Number
of shares2010R’000
2009R’000
14. SHARE CAPITAL
Authorised
Total authorised share capital of ordinary shares (par value of R0,000001 each) 1 000 000 000 1 000 000 000 1 1
Issued
Balance at the beginning of the year 761 159 181 766 360 894 * *
Shares acquired during the year (4 500 000) (5 201 713) * *
Balance at the end of the year 756 659 181 761 159 181 * *
The company acquired 4 500 000 (2009: 5 201 713) shares on the JSE in order to grant forfeitable shares to employees and directors.
The amount paid to acquire these shares was R26 554 176 (2009: R25 710 333). An amount of R26 557 517 (2009: R25 561 982) has been deducted from shareholders equity. These shares are held as “treasury shares”. (The difference relates to shares held by equity accounted group companies.) See note 30 for details on the forfeitable shares.
The directors of the company have unrestricted authority until the following annual general meeting to allot up to 3% of the number of ordinary shares issued in the company as at 31 May 2009, subject to the provisions of section 221 of the Companies Act, 1973, and the JSE Listings Requirements.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
198 2010R’000
2009R’000
15. INTEREST-BEARING BORROWINGSLiabilities under non-cancellable finance leases 268 206Instalment sale liabilities — 608Bank borrowings — 2 221Other borrowings 18 580 32 261
18 848 35 296Less: Amounts included in current portion of borrowings (2 768) (15 176)
16 080 20 120
Finance lease liabilities – minimum lease payments due: Not later than one year 120 101Later than one year and not later than five years 175 134
295 235Future finance charges on finance leases (27) (29)
Present value of finance lease liabilities 268 206
Instalment sale liabilities – minimum payments due: Not later than one year — 380Later than one year and not later than five years — 306
— 686
Future finance charges on finance leases — (78)
Present value of finance lease liabilities — 608
The group did not default on any loans or finance lease liabilities, or breach any terms of the underlying agreements during the period.
The carrying value of interest bearing borrowings approximates their fair value.
Liabilities under non-cancellable finance leasesLiabilities under capitalised finance leases are payable over periods of one to five years at effective interest rates linked to the prime interest rate per annum. They are secured by the motor vehicles to which they relate.
Instalment sale liabilities All instalment sale liabilities are secured over the plant and equipment to which they relate, are repayable in monthly instalments and are subject to interest at prime linked rates.
Bank borrowingsThe bank borrowings are repayable in 24 fixed monthly instalments. The loan bears interest at 12% per annum. The bank borrowings related to subsidiaries that were disposed of in the current year.
Other borrowings Other borrowings are unsecured and have no fixed terms of repayment. These borrowings bear interest at prime linked rates.
ANNUAL REPORT 2010
OU
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ROU
P IN
BR
IEF
GOVER
NAN
CE
AN
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INAB
ILIT
YFI
NA
NCIA
L STA
TEM
ENTS
199
2010R’000
2009R’000
16. TRADE AND OTHER PAYABLES
Trade payables 1 582 391 1 357 637
Accruals 74 341 58 655
Sundry creditors 31 638 67 628
VAT 16 528 29 767
Payables to related parties (refer to note 27) 14 009 5 166
1 718 907 1 518 853
17. EMPLOYEE COMPENSATION AND BENEFIT EXPENSE
Salaries and wages 261 716 241 536
Bonuses 36 652 29 340
Equity compensation benefit (117) 6 022
Other 1 677 2 073
299 928 278 970
Average number of employees for the year 1 895 1 882
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
200 2010R’000
2009R’000
18. OPERATING PROFIT
The following items have been charged/(credited) in arriving at operating profit:
Audit fees – services as auditors 14 062 11 951
Audit fees – other 1 798 4 434
Bank charges 14 505 5 140
Communication costs 13 944 11 319
Computer-related costs 7 950 7 398
Consulting fees 18 849 14 008
Courier and postage 6 986 7 027
Fair value movements on financial assets at fair value through profit or loss — (32)
Foreign exchange profit – realised (1 265) (7 851)
Foreign exchange profit – unrealised (747) (1 970)
Foreign exchange loss – realised — 6 432
Foreign exchange loss – unrealised 5 182 9 312
Impairment of loans 1 704 1 261
Impairment of trade receivables 9 083 6 090
Insurance 14 616 12 833
IT infrastructure costs 2 005 3 564
Legal fees 4 034 6 261
Local travel 7 612 8 666
ANNUAL REPORT 2010
OU
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ROU
P IN
BR
IEF
GOVER
NAN
CE
AN
D S
USTA
INAB
ILIT
YFI
NA
NCIA
L STA
TEM
ENTS
201
2010R’000
2009R’000
Loss on disposal of intangible asset — 967
Loss on disposal of subsidiaries — 4 933
Management fees paid 3 980 4 614
Management fees received (6 487) (4 089)
Motor vehicle expenses 6 797 8 499
Operating lease rentals – equipment 7 618 6 146
Operating lease rentals – premises 28 355 24 831
Overseas travel 9 604 15 761
Printing and stationery 3 142 3 675
(Profit)/loss on disposal of property, plant and equipment (583) 640
Profit on disposal of subsidiaries (29 554) (352)
Rent and security 3 584 3 883
Repairs and maintenance 3 689 3 996
Share-based payment expense 295 —
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
202 2010R’000
2009R’000
19. FINANCE (INCOME)/COSTS
Interest received
• Bank (83 073) (157 759)
• Loans (481) (333)
• Other (576) (415)
• Discounting of receivables (77 644) (46 539)
(161 774) (205 046)
Interest paid
• Bank 2 183 1 477
• Loans 1 974 2 231
• Finance leases 319 576
• Other 655 607
• Discounting of payables 119 183 107 808
124 314 112 699
Net finance income (37 460) (92 347)
ANNUAL REPORT 2010
OU
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BR
IEF
GOVER
NAN
CE
AN
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USTA
INAB
ILIT
YFI
NA
NCIA
L STA
TEM
ENTS
2032010R’000
2009R’000
20. TAXATION
Current tax 181 838 190 144
Current year 181 822 190 406
Prior year adjustment 16 (262)
Deferred tax (17 017) (15 360)
Current year (17 390) (15 360)
Prior year adjustment 373 —
Withholding tax 1 935 —
166 756 174 784
Profit before tax 591 937 539 749
Tax at 28% 165 742 151 130
Income not subject to tax (37 056) (1 457)
Expenses not deductible for tax purposes 8 078 7 293
Capital gains 3 928 (174)
Donations tax 205 —
Utilisation of previously unrecognised tax losses (109) (1 468)
Tax effect of assessed losses not recognised 21 885 12 944
Share of losses from associates 4 195 7 685
Prior year adjustment 389 (262)
Effect of different tax dispensations (2 436) (907)
Withholding tax 1 935 —
Tax charge 166 756 174 784
The group’s effective tax rate declined to 28,2% from last year’s 32,4%. This variance was predominantly due to the group’s subsidiary in Nigeria being granted pioneer status which allows it a five-year tax holiday.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
204 2010 2009
21. EARNINGS PER SHARE
a) Basic
Basic earnings per share are calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year.
Profit attributable to equity holders of the company (R’000) 365 022 390 547
Weighted average number of ordinary shares in issue (thousands) 757 793 763 834
Basic earnings per share (cents per share) 48.17 51.13
b) Headline
Headline earnings are calculated applying the principles contained in SAICA circular 3/2009. The weighted average number of shares used is as for the basic earnings per share figure discussed above.
2010
Profit beforetax and
minoritiesR’000
TaxR’000
MinoritiesR’000
Headline earnings
R’000
Profit attributable to equity holders of the company 591 937 (166 756) (60 159) 365 022
Profit on disposal of property, plant and equipment (583) 163 — (420)
Profit on disposal of subsidiaries (29 554) 3 768 7 220 (18 566)
Impairment of property, plant and equipment 1 027 (288) — 739
Impairment of intangible asset 8 556 (2 395) — 6 161
Impairment of goodwill 13 829 — — 13 829
Foreign currency translation reserve reclassified to profit or loss (1 328) — 372 (956)
Headline earnings 365 809
Weighted average number of ordinary shares in issue (thousands) 757 793
Headline earnings per share (cents per share) 48.27
ANNUAL REPORT 2010
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NAN
CE
AN
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INAB
ILIT
YFI
NA
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L STA
TEM
ENTS
205
21. EARNINGS PER SHARE (continued)
b) Headline (continued)
2009
Profit beforetax and
minoritiesR’000
TaxR’000
MinoritiesR’000
Headline earnings
R’000
Profit attributable to equity holders of the company 539 749 (174 784) 25 582 390 547
Loss on disposal of property, plant and equipment 640 (179) (5) 456
Loss on disposal of subsidiaries 4 933 (1 237) — 3 696
Profit on disposal of subsidiaries (352) — — (352)
Headline earnings 394 347
Weighted average number of ordinary shares in issue (thousands) 763 834
Headline earnings per share (cents per share) 51.63
c) Diluted – basic and headline
Diluted earnings per share are calculated by adjusting the number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The only dilutive potential ordinary shares that the company has are the forfeitable shares granted. For this calculation an adjustment is made for the number of shares that would be issued on vesting under the forfeitable share plan.
2010 2009
Basic earnings (R’000) 365 022 390 547
Issued number of ordinary shares (thousands) 756 659 761 159
Adjusted for forfeitable shares (thousands) 4 500 5 152
Weighted average number of ordinary shares for dilutive earnings (thousands) 761 159 766 311
Dilutive basic earnings per share (cents) 47.96 50.96
Headline earnings (R’000) 365 809 394 347
Weighted average number of ordinary shares for dilutive headline earnings (thousands) 761 159 766 361
Dilutive headline earnings per share (cents) 48.06 51.46
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
206 2010 2009
21. EARNINGS PER SHARE (continued)
d) CoreCore earnings per share is calculated after adding back the amortisation of intangible assets as a consequence of the purchase price allocations completed in terms of IFRS 3: Business Combinations.Reconciliation between net profit for the period and core net profit for the period:
Net profit for the period 365 022 390 547
Amortisation on intangibles raised through business combinations net of tax and minorities 31 623 36 653
Core net profit for the period 396 645 427 200
Weighted average number of ordinary shares in issue (thousands) 757 793 763 834
Core earnings per share (cents per share) 52.34 55.93
2010R’000
2009R’000
22. CASH GENERATED BY OPERATIONSReconciliation of operating profit to cash generated by operating activities:
Operating profit 569 459 474 847
Adjustments for:
Depreciation of property, plant and equipment 35 711 26 132
Amortisation of intangible assets 58 958 65 827
Impairment of property, plant and equipment 1 027 —
Impairment of intangible assets 8 556 —
Impairment of goodwill 13 829 —
Loss on derecognition of financial asset 645 —
Present value adjustments recognised in revenue 77 644 46 539
Present value adjustments recognised in changes in inventories of finished goods (119 183) (107 808)
Impairment of loan 1 704 1 261
(Profit)/loss on disposal of property, plant and equipment (583) 640
Loss on disposal of intangible assets — 967
Net (profit)/loss on disposal of subsidiaries (29 554) 4 581
Fair value movements on investments — (32)
Share incentive scheme (117) 6 022
Share-based payment 295 —
Net unrealised forex loss 4 435 7 342
ANNUAL REPORT 2010
OU
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BR
IEF
GOVER
NAN
CE
AN
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INAB
ILIT
YFI
NA
NCIA
L STA
TEM
ENTS
207
2010R’000
2009R’000
22. CASH GENERATED BY OPERATIONS (continued)
Changes in working capital (excluding the effects of acquisitions and disposals):
(Increase)/decrease in inventories (187 015) 65 851
Increase in trade and other receivables (180 112) (307 977)
Increase in trade and other payables 354 427 454 907
(Increase)/decrease in loans receivable (10 182) 3 844
Decrease in starter pack assets 23 048 3 072
622 992 746 015
23. NOTES TO GROUP STATEMENT OF CASH FLOWS
23.1 Taxation paid
Balance outstanding at beginning of year 25 938 71 146
Translation differences (285) (2 096)
Taxation charge 183 773 190 144
Disposal of subsidiaries (6 310) (619)
Net payable outstanding at end of year (17 035) (25 938)
186 081 232 637
23.2 Acquisition of associates
Acquisition of associates and joint ventures * 122 357
Cash advanced in the prior year — (70 093)
Cash paid in current year * 52 264* Less than R1 000
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
208 24. BUSINESS COMBINATIONS 24.1 Acquisition of subsidiaries and start-up operations
31 May 2009
Blue Label**Mexico
Blue LabelAustralasia
Answers Direct
Blue Label**Data
SolutionsCelebia**
Holdings
Blue Label**Telecoms USA Inc
Blue Label**USA LLC
Africa Prepaid
ServicesNigeria** Limited
Distributorof prepaid
cellular airtime in
Mexico
CompanydistributesBlue Labelproducts
andservices
in theAustralasian
markets
Call centreoperation
Provider ofdata for
use in call centres
Investmentholding
companysituated in
Cyprus
Investmentholding
companysituated in
the USA
Distributorof prepaid
calling cards in the USA
Distributorof prepaid
cellular airtime and
starter packs in Nigeria
Initial acquisitionDate acquired 18 July
200819 August
20081 August
20081 August
20081 July2008
2 December2008
2 December2008
1 December2008
% acquired 70 50 5 80 81 100 100 50 01 51
R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000Assets 20 534 119 2 120 3 595 35 39 947 119 481 224 401Liabilities 1 358 3 209 1 478 709 1 386 50 948 90 679 233 430
Revenue 292 — 7 037 3 004 — — 134 263 110 713 Profit/(loss) after tax since acquisition (6 098) (3 637) 460 1 625 (101) (1 559) (12 022) (15 972)
Had these acquisitions of subsidiaries been made at the beginning of the financial year they would have contributed R7 037 million to revenue and (R5 036) million loss to net profit after tax. The actual contribution to revenue and net profit after tax for the year was R7 037 million and (R3 177) million loss. (This excludes the effect of start-up operations).
** These represent start-up operations
ANNUAL REPORT 2010
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NA
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209
24 BUSINESS COMBINATIONS (continued)24.1 Acquisition of subsidiaries and start-up operations (continued)
The fair value of the net assets approximated the assets acquired 31 May 2009
Blue Label**MexicoR’000
Blue LabelAustralasia
R’000
Answers DirectR’000
Blue Label**Data
SolutionsR’000
Celebia**Holdings
R’000
Blue Label**Telecoms USA Inc
R’000
Blue Label**USA LLC
R’000
Africa Prepaid
ServicesNigeria** LimitedR’000
TotalR’000
Cash and cash equivalents 30 404 1 109 — — 1 — 149 — 31 663 Property plant and equipment — 11 150 — — — — — 161Intangible assets — 1 964 — — — — 19 856 — 21 820 Goodwill — — 800 — — — — — 800 Inventories — — — — — — 54 — 54 Receivables — 24 — * — * 910 814 1 748Borrowings — (2 511) (800) — — — (19 856) — (23 167)Payables — (68) — — — — (1 234) — (1 302)Fair value of subsidiaries acquired 30 404 529 150 * 1 * (121) 814 31 777Minority interests (9 121) (261) (30) * — — — (399) (9 811)Fair value of net assets acquired 21 283 268 120 * 1 * (121) 415 21 966Goodwill — 1 659 30 — — — — — 1 689Transaction with minorities reserve 5 861 — — — — — 130 — 5 991 Total purchase consideration 27 144 1 927 150 * 1 * 9 415 29 646Subsequent capital contribution — — — — — — 49 630 — 49 630Still to be settled — — — — — — — (415) (415) Settled in cash 27 144 1 927 150 * 1 * 49 639 — 78 861Less cash and cash equivalents in subsidiary (30 404) (1 109) — — (1) — (149) — (31 663)Cash flow on acquisition (3 260) 818 150 * — * 49 490 — 47 198* Less than R1 000** These represent start-up operations
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
210 24. BUSINESS COMBINATIONS (continued)
24.2 Acquisition of minorities’ shareholdings
31 May 2009
CNSCall Centre
Call centreoperations
specialisingin insurancepolicy sales
Initial acquisition
Date acquired 1 October 2008
% acquired 20
R’000
Assets 13 615
Liabilities 2 019
Revenue 26 916
Profit/(loss) after tax since acquisition 1 507
The fair value of the net assets approximated the assets acquired
CNSCall Centre
R’000Total
R’000
Minority interests 2 005 2 005
Fair value of net assets acquired 2 005 2 005
Amounts transferred to transactions with minority reserve 895 895
Total purchase consideration 2 900 2 900
Settled in cash 2 900 2 900
Cash outflow on acquisition 2 900 2 900
ANNUAL REPORT 2010
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NAN
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INAB
ILIT
YFI
NA
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L STA
TEM
ENTS
211
25. DISPOSAL OF SUBSIDIARIES31 May 2010Date disposed 31 July
200930 September
200930 November
2009% disposed 50.01 80 90
Blue LabelUSA, LLC
R’000
Africa PrepaidServices – RDC SPRL*
R’000
Africa PrepaidServices
(Mozambique)Limitada
R’000Total
R’000
The fair value of the net assets disposed of:Cash and cash equivalents 43 880 331 2 329 46 540
Property plant and equipment 6 1 130 2 126 3 262
Intangible assets 13 629 13 124 — 26 753
Inventories 620 699 3 014 4 333
Starter pack assets — 2 018 1 738 3 756
Receivables 56 478 16 708 11 924 85 110
Loan receivable 456 — — 456
Deferred tax — (3 931) 49 (3 882)
Borrowings (21 624) (492) (1 151) (23 267)
Current tax liabilities — (5 815) (495) (6 310)
Payables (65 806) (24 427) (22 376) (112 609)
Fair value of subsidiaries disposed of 27 639 (655) (2 842) 24 142
Minority interests 11 759 172 — 11 931
Goodwill — 1 127 — 1 127
Goodwill equity 130 — — 130
Fair value of net assets disposed of 39 528 644 (2 842) 37 330
(Loss)/profit on disposal of subsidiary (215) — 29 769 29 554
Transfer to available-for-sale investments — (644) — (644)
Total proceeds on disposal 39 313 — 26 927 66 240
To be settled** — — (21 944) (21 944)
Received in cash 39 313 — 4 983 44 296
Less: Cash and cash equivalents in subsidiary (43 880) (331) (2 329) (46 540)
Cash outflow on disposal (4 567) (331) 2 654 (2 244)
* Africa Prepaid Services – RDC SPRL was transferred to available-for-sale investments on 30 September 2009 due to Africa Prepaid Services, a subsidiary of Blue Label Telecoms, no longer exercising control over the entity’s board. This asset was subsequently disposed of as at the end of December 2009.
** At exchange rates prevailing on the effective date of the disposal.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
212 25. DISPOSAL OF SUBSIDIARIES (continued)31 May 2009Date disposed 30 November
200831 October
200831 March
2009% disposed 51 51 50
E-VouchaR’000
iVeriR’000
PolsaR’000
TotalR’000
The fair value of the net assets disposed of:
Cash and cash equivalents 4 1 777 12 376 14 157
Property plant and equipment 535 635 4 611 5 781
Intangible assets 1 140 50 1 759 2 949
Goodwill 2 500 — — 2 500
Investments — — 305 305
Inventories 83 — 12 035 12 118
Receivables 13 145 132 11 886 25 163
Deferred tax 384 68 — 452
Bank overdraft (205) — — (205)
Borrowings (1 923) (300) (20 228) (22 451)
Current tax liabilities — (42) (577) (619)
Payables (16 352) (861) (14 161) (31 374)
Fair value of subsidiaries disposed of (689) 1 459 8 006 8 776
Minority interests 338 (687) (3 999) (4 348)
Goodwill 2 499 2 835 400 5 734
Fair value of net assets disposed of 2 148 3 607 4 407 10 162
Profit/(loss) on disposal of subsidiary 352 (607) (4 326) (4 581)
Total proceeds on disposal 2 500 3 000 81 5 581
To be settled (1 071) — (81) (1 152)
Received in cash 1 429 3 000 — 4 429
Less: Cash and cash equivalents in subsidiary
201 (1 777) (12 376) (13 952)
Cash outflow on disposal 1 630 1 223 (12 376) (9 523)
ANNUAL REPORT 2010
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2010R’000
2009R’000
26. COMMITMENTS
Future operating lease commitments:
The group leases various offices and warehouses under non-cancellable operating lease agreements. The lease terms are between one and five years, and the majority of lease agreements are renewable at the end of the lease period at market rates.
The group also leases various plant and machinery under cancellable operating lease agreements. The group is required to give a six-month notice for the termination of the majority of these agreements. The lease expenditure charged to the statement of comprehensive income during the year is disclosed in note 18.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Premises
Payable within one year 26 878 23 859
Payable in two to five years 67 903 61 399
Payable in greater than five years 60 939 11 175
Equipment
Payable within one year 10 986 10 670
Payable in two to five years 15 455 13 158
Payable in greater than five years 15 15
182 176 120 276
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
214 2010R’000
2009R’000
27. RELATED PARTY TRANSACTIONS
For details of subsidiaries, associates and joint ventures refer to note 31.
For details of the company’s directors, refer to the directors’ report.
ZOK Cellular (Proprietary) Limited, BSC Technologies (Proprietary) Limited, Black Ginger 59 (Proprietary) Limited, Moneyline 311 (Proprietary) Limited, PLL Investments (Proprietary) Limited, Friedshelf 669 (Proprietary) Limited, WBS Holdings (Proprietary) Limited, and Ellerine Bros. (Proprietary) Limited are related parties due to the companies having certain common directorships.
For details of the shareholdings in the company, refer to the directors’ report.
The following transactions were carried out with related parties
Directors’ emoluments (refer to note 28)
Sales to related parties
BSC Technologies (Proprietary) Limited — 965
Dual Data (Proprietary) Limited 1 039 6
Smart Voucher Limited 821 —
The Hub (Proprietary) Limited — 6 601
WBS Holdings (Proprietary) Limited 3 838 —
ZOK Cellular (Proprietary) Limited 4 769 2 475
Purchases from related parties
Bela Telephone Company (Proprietary) Limited 854 —
Black Ginger 59 (Proprietary) Limited 782 —
BSC Technologies (Proprietary) Limited 744 105
Demtrade 11 (Proprietary) Limited 5 351 3 356
Dual Data (Proprietary) Limited 3 879 2 796
Moneyline 311 (Proprietary) Limited 3 302 103
Premet Cellular (Proprietary) Limited — 1 104
Smart Voucher Limited 12 635 204
The Hub (Proprietary) Limited — 91
WBS Holdings (Proprietary) Limited — 18
ZOK Cellular (Proprietary) Limited 73 009 74 875
ANNUAL REPORT 2010
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215
2010R’000
2009R’000
27. RELATED PARTY TRANSACTIONS (continued)
Cost recoveries from related parties
BSC Technologies (Proprietary) Limited 7 —
Demtrade 11 (Proprietary) Limited 112 —
Moneyline 311 (Proprietary) Limited — 3 002
The Hub (Proprietary) Limited — 54
ZOK Cellular (Proprietary) Limited 15 —
Interest paid to related parties
Demtrade 11 (Proprietary) Limited 246 146
Interest received from related parties
Demtrade 11 (Proprietary) Limited 425 249
Management fees received from related parties
Datacision (Proprietary) Limited 105 —
Demtrade 11 (Proprietary) Limited 189 —
Dual Data (Proprietary) Limited 798 —
Smart Voucher Limited 2 293 1 954
ZOK Cellular (Proprietary) Limited 3 208 3 210
Management fees paid to related parties
Demtrade 11 (Proprietary) Limited 1 350 1 200
Rent paid to related parties
Ellerine Bros. (Proprietary) Limited 2 520 1 947
Friedshelf 669 (Proprietary) Limited 216 194
Moneyline 311 (Proprietary) Limited 2 520 3 664
PLL Investments (Proprietary) Limited 2 453 1 810
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
216 2010R’000
2009R’000
27. RELATED PARTY TRANSACTIONS (continued)
Rent received from related parties
Bela Telephone Company (Proprietary) Limited 17 —
Demtrade 11 (Proprietary) Limited 10 —
Smart Voucher Limited 25 —
ZOK Cellular (Proprietary) Limited 16 —
Loans to related parties
Demtrade 11 (Proprietary) Limited 4 402 4 353
Oxigen Services (India) Pvt Limited 18 643 19 710
ZOK Cellular (Proprietary) Limited 38 047 27 866
Loans from related parties
Demtrade 11 (Proprietary) Limited 2 855 1 266
Amounts due from related parties (included in trade receivables)
Bela Telephone Company (Proprietary) Limited 19 —
Demtrade 11 (Proprietary) Limited 98 —
Dual Data (Proprietary) Limited 90 —
Moneyline 311 (Proprietary) Limited 951 282
PLL Investments (Proprietary) Limited — 1 105
Smart Voucher Limited 1 637 159
WBS Holdings (Proprietary) Limited 1 846 —
ZOK Cellular (Proprietary) Limited 21 —
4 662 1 546
ANNUAL REPORT 2010
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217
2010R’000
2009R’000
27. RELATED PARTY TRANSACTIONS (continued)
Amounts due to related parties (included in trade payables)
Bela Telephone Company (Proprietary) Limited 1 500 —
Demtrade 11 (Proprietary) Limited 1 032 310
Dual Data (Proprietary) Limited 83 1 272
Moneyline 311 (Proprietary) Limited 1 431 44
Premet Cellular (Proprietary) Limited — 3 476
Smart Voucher Limited 9 962 64
ZOK Cellular (Proprietary) Limited 1 —
14 009 5 166
Leasehold improvements recovered by related party
Ellerine Bros. (Proprietary) Limited 11 500 —
Basis of transactions
All transactions with related parties are conducted on the same terms as other transactions of a similar nature.
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
218
Services asdirectors ofBlue LabelTelecoms
LimitedR’000
Salary andallowances
R’000
Bonuses andperformance-
relatedpayments
R’000
Otherbenefits
R’000
Sub-total
R’000
28. DIRECTORS’ EMOLUMENTSFor the year ended 31 May 2010Executive directorsLevy, BM — 5 650 — 84 5 734 Levy, MS — 5 657 — 77 5 734 Pamensky, MV — 4 149 — 33 4 182 Rivkind, DB — 2 467 1 000 33 3 500
— 17 923 1 000 227 19 150
Non-executive directorsNestadt, LM 700 — — — 700 Ellerine, S 92 — — — 92 Ellerine, K 65 — — — 65 Harlow, GD 442 — — — 442 Huntley, RJ 127 — — — 127 Lazarus, NN 333 — — — 333 Mansour, P — — — — —Mthimunye, J 265 — — — 265 Theledi, HC 64 — — — 64 Tyalimpi, LM 179 — — — 179
2 267 — — — 2 267 2 267 17 923 1 000 227 21 417
ANNUAL REPORT 2010
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Services asdirectors ofsubsidiaries
of Blue LabelTelecoms
LimitedR’000
Salary andallowances
fromsubsidiaries
R’000
Bonuses andperformance-
relatedpayments
fromsubsidiaries
R’000
Otherbenefits
fromsubsidiaries
R’000
Corporate finance and
legal fees for services
rendered to Blue Label Telecoms
Limited subsidiaries
R’000
Retirementand related
benefitsfrom
subsidiariesR’000
TotalR’000
— — — — — — 5 734 — — — — — — 5 734 — — — — — — 4 182 — — — — — — 3 500— — — — — — 19 150
— — — — — — 700 — — — — — — 92 — — — — — — 65
60 — — — 326 — 828 — — — — — — 127 — — — — 2 649 — 2 982 — — — — — — —— — — — — — 265 — — — — — — 64 — — — — — — 179
60 — — — 2 975 — 5 302 60 — — — 2 975 — 24 452
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
220
Services asdirectors ofBlue LabelTelecoms
LimitedR’000
Salary andallowances
R’000
Bonuses andperformance-
relatedpayments
R’000
Otherbenefits
R’000
Sub-total
R’000
28. DIRECTORS’ EMOLUMENTS (continued)For the year ended 31 May 2009Executive directorsLevy, BM — 5 210 — 75 5 285Levy, MS — 5 215 — 69 5 284Pamensky, MV — 3 824 — 29 3 853Rivkind, DB — 1 953 1 387 29 3 369
— 16 202 1 387 202 17 791
Non-executive directorsNestadt, LM 600 — — — 600Ellerine, S 300 — — — 300Harlow, GD 465 — — — 465Huntley, RJ 315 — — — 315Lazarus, NN 340 — — — 340Mansour, P — — — — —Mthimunye, J 362 — — — 362Theledi, HC 195 — — — 195Tyalimpi, LM 230 — — — 230
2 807 — — — 2 8072 807 16 202 1 387 202 20 598
ANNUAL REPORT 2010
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221
Services asdirectors ofsubsidiaries
of Blue LabelTelecoms
LimitedR’000
Salary andallowances
fromsubsidiaries
R’000
Bonuses andperformance-
relatedpayments
fromsubsidiaries
R’000
Otherbenefits
fromsubsidiaries
R’000
Corporate finance and
legal fees for services
rendered to Blue Label Telecoms
Limited subsidiaries
R’000
Retirementand related
benefitsfrom
subsidiariesR’000
TotalR’000
— — — — — — 5 285— — — — — — 5 284— — — — — — 3 853— — — — — — 3 369— — — — — — 17 791
— — — — — — 600— — — — — — 300— — — — — — 465— — — — — — 315— — — — 1 330 — 1 670— — — — — — —— — — — — — 362— — — — — — 195— — — — — — 230— — — — 1 330 — 4 137— — — — 1 330 — 21 928
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
222 29. SEGMENTAL SUMMARYThe group’s segment reporting follows the organisational structure as reflected in its internal management reporting systems, which are the basis for assessing the financial performance of the business segments and for allocating resources to the business segments. Management’s assessment of the group’s organisational structure takes the geographical location of the segments into account. All reporting segments located outside of South Africa are included in the International distribution segment. Operations included in all other segments are located within South Africa.
Operating segments are reported internally to the chief operating decision-maker in a manner consistent with the financial statements. In addition, the chief operating decision-maker uses core net profit as a non-IFRS measure in evaluating the group performance on a segmental level. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors, who make strategic decisions.
Transactions between reportable segments are conducted on the same terms as other transactions of a similar nature.Total South African distribution
2010R’000
2009R’000
2010R’000
2009R’000
The segment results for the year ended 31 May are as follows:Total segment revenue 28 270 443 25 198 131 26 661 350 24 038 712 Inter-segment revenue (11 242 747) (9 916 682) (11 118 013) (9 839 681)Revenue 17 027 696 15 281 449 15 543 337 14 199 031
Segment resultOperating profit before depreciation, amortisation and impairment charges 689 244 568 067 685 686 624 346 Depreciation and amortisation (94 669) (93 220) (35 422) (31 897)Goodwill impairment (13 829) — — —Impairment of fixed assets (1 027) — — —Impairment of intangible assets (8 556) — (955) —Impairment of loans (1 704) — (21) —Finance costs (124 314) (112 699) (97 721) (98 916)Finance income 161 774 205 046 158 739 195 779 Share of (losses)/profits from associates (14 982) (27 445) (391) —Taxation (166 756) (174 784) (163 874) (163 379)Net profit for the year 425 181 364 965 546 041 525 933 Reconciliation of net profit for the year to core net profit for the year:Net profit for the year 425 181 364 965 546 041 525 933Amortisation on intangibles raised through business combinations net of tax 32 949 38 817 8 608 10 443Core net profit for the year 458 130 403 782 554 649 536 376Core net profit for the year attributable to:Equity holders of parent 396 645 427 200 555 161 537 815Minority interest 61 485 (23 418) (512) (1 439)
The company is domiciled in the Republic of South Africa. The result of its revenue from external customers in South Africa is R15.780 billion (2009: R14.557 billion), and the total of revenue from external customers from other countries is R1.248 billion (2009: R724 million).
ANNUAL REPORT 2010
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At 31 May 2010, the group is managed on the basis of five main business segments:• South African distribution, which includes the distribution of physical and virtual prepaid airtime and electricity of the
South African mobile/fixed-line network operators and utility suppliers, and the distribution of starter packs in South Africa
• International distribution, which includes international distribution of physical and virtual prepaid airtime in India and Africa, and the distribution of starter packs in Africa
• Technology, which includes technological innovation, development and support for the operations of the group• Value added services, which includes other value-added services of the group, leveraging off its existing products and
distribution network as well as the development of new mobile services to take to market• Corporate, which includes head office administration.
International distribution Technology Value added services Corporate2010R’000
2009R’000
2010R’000
2009R’000
2010R’000
2009R’000
2010R’000
2009R’000
1 247 462 725 288 130 657 94 793 230 974 339 338 — — 270 (1 125) (110 568) (72 281) (14 436) (3 595) — —
1 247 732 724 163 20 089 22 512 216 538 335 743 — —
137 035 6 144 (76 230) (48 502) 25 230 75 239 (82 477) (89 160) (11 098) (16 915) (14 544) (8 452) (31 955) (33 601) (1 650) (2 355)
(1 660) — — — (12 127) — (42) —— — — — (1 027) — — —— — (6 576) — (1 025) — — —
(1 001) — — — (377) — (305) — (25 945) (12 569) (455) (658) (142) (349) (51) (207)
2 182 7 486 162 147 414 1 371 277 263 (15 177) (28 226) — — 586 781 — —
(5 747) 3 789 1 416 (657) 982 (12 081) 467 (2 456) 78 589 (40 291) (96 227) (58 122) (19 441) 31 360 (83 781) (93 915)
78 589 (40 291) (96 227) (58 122) (19 441) 31 360 (83 781) (93 915)
4 707 7 712 995 995 18 639 19 667 — —83 296 (32 579) (95 232) (57 127) (802) 51 027 (83 781) (93 915)
20 097 (10 947) (93 265) (55 250) (1 567) 49 497 (83 781) (93 915)63 199 (21 632) (1 967) (1 877) 765 1 530 — —
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
224 29. SEGMENTAL SUMMARY (continued)Total South African distribution
2010R’000
2009R’000
2010R’000
2009R’000
Non-cash itemsExcess of acquirers’ interest in the net fair value over cost — 1 689 — —Net profit/(loss) on sale of subsidiaries 29 554 (4 581) — (607)Fair value adjustment — 32 — 32Discounting of receivables 77 644 46 539 76 504 39 796Discounting of payables (119 183) (107 808) (95 386) (97 347)The segment assets and liabilities at 31 May are as follows:Assets excluding investments in associates and joint ventures 4 351 414 3 769 906 3 612 810 2 227 849Investment in associates and joint ventures 96 888 109 837 160 1Total assets 4 448 302 3 879 743 3 612 970 2 227 850Additions to non-current assetsProperty, plant and equipment 104 373 74 941 50 701 40 936 Intangible assets 91 444 55 845 68 945 4 331 Investment in associates * 119 327 — —Investment in joint ventures * 3 030 * —
Total liabilities 1 792 866 1 635 623 1 513 523 1 159 605* Less than R1 000
The total of non-current assets other than financial instruments and deferred tax assets located in South Africa is R574.6 million (2009: R554.7 million), and the total of these non-current assets located in other countries is R132.8 million (2009: R174.5 million).
ANNUAL REPORT 2010
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International distribution Technology Value added services Corporate
2010R’000
2009R’000
2010R’000
2009R’000
2010R’000
2009R’000
2010R’000
2009R’000
— 1 659 — — — 30 — — 29 554 (4 326) — — — 352 — —
— — — — — — — —1 140 6 588 — — — 155 — —
(23 797) (10 439) — — — (22) — —
426 635 507 285 81 651 60 630 223 968 254 522 6 350 719 62090 765 102 770 — — 5 963 7 066 — —
517 400 610 055 81 651 60 630 229 931 261 588 6 350 719 620
15 996 14 049 6 450 9 340 4 888 6 652 26 338 3 964 887 24 557 17 239 14 112 4 327 8 554 46 4 291
— 119 327 — — * — — —— — — — — 3 030 — —
188 310 373 191 31 747 22 692 39 266 41 861 20 020 38 274
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
226 30. EQUITY COMPENSATION BENEFIT
Forfeitable shares
During the year, 4 567 247 (2009: 5 151 814) forfeitable shares were granted to executive directors and qualifying employees. The participant will forfeit the forfeitable shares if he/she ceases to be an employee of an employer company before the vesting date or if the specified performance condition has not been met, unless otherwise specified by the rules or determined by the board. In the event that the participant is not in the employ of the group, or the performance conditions are not met, then the shares allocated to the participant will be forfeited and will either be sold on the open market by the escrow agent and the proceeds will be returned to the participating employer, or may be retained by the group for future awards.
Dividends declared in respect of these forfeitable shares are held in escrow until such time as the performance conditions are met and the shares have vested. Shares forfeited during the vesting period will forfeit any dividends pertaining to such shares. No dividends have been declared during the year.
The release of forfeitable shares will be subject to the achievement of a specified performance condition. The performance condition for the first award grant of forfeitable shares was:• 30% of shares will vest when the company core HEPS at the end of the performance period, being May 2010, exceeds
the core HEPS per ordinary share as at the beginning of the performance period, being May 2008, by the percentage change in the CPI index over the performance period, plus 20% (threshold performance criteria)
• 100% of shares will vest when the core HEPS at the end of the performance period, being May 2010, exceeds the core HEPS per ordinary shares at the beginning of the performance period, being May 2008, by the percentage change in the CPI index over the performance period, plus 30% (target performance criteria)
• Performance below the threshold performance criteria will result in the forfeitable award not vesting, unless otherwise determined by the board
• Linear vesting of the forfeitable award will occur between threshold performance and target performance stated above.
The performance conditions for the first scheme were not met and therefore all shares were forfeited.
The performance conditions for the second award grant of forfeitable shares vesting on 1 September 2012 are as follows:
• 25% of the shares constituting the allocation are awarded for retention purposes and shall vest if the employee is still employed in the group at the vesting date (1 September 2012);
• 25% of the shares constituting the allocation will vest on the achievement by individual employees of their individual key performance indicators;
• 50% of shares constituting the allocation will vest if the company’s core HEPS is equal to or exceeds the core HEPS per ordinary share at the beginning of the performance period (May 2009), by the percentage change in the CPI over the performance period, plus 15%. There is no linear vesting to this portion of the allocation.
ANNUAL REPORT 2010
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227Movements in the number of forfeitable shares outstanding during the year are as follows:
Grant date Vesting date Number of shares
Fair value of grant
R’000
At 1 June 2008 — —
Granted during the year
First award 28 November 2008 1 September 2010 2 882 000 14 410
First award 26 February 2009 1 September 2010 2 269 814 11 349
Shares forfeited during the year —
Shares vested during the year —
At 31 May 2009 5 151 814 25 759
Granted during the year
Second award 1 September 2009 1 September 2012 3 481 407 20 302
Second award 27 November 2009 1 September 2012 1 085 840 6 352
Shares forfeited during the year (5 644 309) (28 640)
First award (5 151 814) (25 759)
Second award (492 495) (2 881)
Shares vested during the year — —
At 31 May 2010 4 074 752 23 773
First award — —
Second award 4 074 752 23 773
The fair value of the shares is based on the value paid for the shares on the open market at grant date.
The total number of forfeitable shares issued to executive directors during the period is 1 085 840 (2009: 1 148 343).
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
228
Country
Number ofissued ordinary
sharesPercentage
held
31. INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
2010
Subsidiaries
Directly held:
Subsidiaries of Blue Label Telecoms Limited:
Activi Technology Services (Proprietary) Limited RSA 300 100
Africa Prepaid Services (Proprietary) Limited RSA 150 72
Blue Label Australasia (Proprietary) Limited Australia 201 50.5
Blue Label One (Proprietary) Limited RSA 300 100
Blue Label Investments (Proprietary) Limited RSA 1 200 000 100
Blue Label Mexico S.A. de C.V. Mexico 1 100 70
Blue Label Telecoms USA Incorporated USA 100 100
Budding Trade 1170 (Proprietary) Limited RSA 100 100
Celebia Holdings Limited Cyprus 100 100
Cellfind (Proprietary) Limited RSA 1 000 100
Content Connect Africa (Proprietary) Limited RSA 100 100
Datacel Direct (Proprietary) Limited RSA 100 100
House of Business Solutions (Proprietary) Limited RSA 1 000 100
Kwikpay SA (Proprietary) Limited RSA 100 100
Matragon (Proprietary) Limited RSA 100 100
Matrix Investments No 4 (Proprietary) Limited RSA 100 100
SharedPhone International (Proprietary) Limited RSA 500 000 50.1
The Prepaid Company (Proprietary) Limited RSA 10 000 100
The Post Paid Company (Proprietary) Limited RSA 200 75
Uninex (Proprietary) Limited RSA 100 100
Ventury Group (Proprietary) Limited RSA 2 000 100
Virtual Voucher (Proprietary) Limited RSA 200 100
ANNUAL REPORT 2010
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Country
Number ofissued ordinary
sharesPercentage
held
31. INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)
2010
Subsidiaries
Indirectly held:
Subsidiary of Blue Label Investments (Proprietary) Limited:
Gold Label Investments (Proprietary) Limited RSA 1 000 100
Subsidiary of The Prepaid Company (Proprietary) Limited:
Little River Trading 181 (Proprietary) Limited (trading as Crown Cellular) RSA 100 100
Subsidiary of Ventury Group (Proprietary) Limited:
Cigicell (Proprietary) Limited RSA 100 100
Subsidiaries of Matragon (Proprietary) Limited:
Airtime Xpress (Proprietary) Limited RSA 200 100
Comm Express Services SA (Proprietary) Limited RSA 100 100
POS Control Services (Proprietary) Limited RSA 100 52
Subsidiaries of Activi Technology Services (Proprietary) Limited:
Activi Deployment Services (Proprietary) Limited RSA 100 100
Transaction Junction (Proprietary) Limited RSA 120 60
Subsidiary of Africa Prepaid Services (Proprietary) Limited:
Africa Prepaid Services Nigeria Limited Nigeria 10 000 000 51
Subsidiaries of Datacel Direct (Proprietary) Limited:
Blue Label Call Centre (Proprietary) Limited RSA 300 100
CNS Call Centre (Proprietary) Limited RSA 1 000 100
Velociti (Proprietary) Limited RSA 1 000 100
Blue Label Data Solutions (Proprietary) Limited RSA 100 81
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
230
Country
Number ofissued ordinary
sharesPercentage
held
31. INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)
2010
Associates
Indirectly held:
Associates of Gold Label Investments (Proprietary) Limited:
Oxigen Services India (Private) Limited India 14 244 294 37.22
Smart Voucher Limited (trading as Ukash) United Kingdom 46 353 933 15.79*
Associates of Datacel Direct (Proprietary) Limited:
Dual Data (Proprietary) Limited RSA 100 50*
BLK Risk Services (Proprietary) Limited RSA 100 25
Associate of Demtrade 11 (Proprietary) Limited:
Phutuma Procurement (Proprietary) Limited RSA 200 39
* Significant influence is demonstrated by the company as a result of representation on the board of directors
2010
Joint ventures
Joint venture of Blue Label Telecoms Limited:
Demtrade 11 (Proprietary) Limited RSA 160 50
Joint ventures of The Prepaid Company (Proprietary) Limited:
Premet Cellular (Proprietary) Limited RSA 100 40
Bela Telephone Company (Proprietary) Limited RSA 100 51
Joint venture of Datacel Direct (Proprietary) Limited:
Datacision (Proprietary) Limited RSA 100 50
ANNUAL REPORT 2010
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Country
Number ofissued ordinary
sharesPercentage
held
31. INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)
2009
Subsidiaries
Directly held:
Subsidiaries of Blue Label Telecoms Limited:
Activi Technology Services (Proprietary) Limited RSA 300 100
Africa Prepaid Services (Proprietary) Limited RSA 150 72
Blue Label Australasia (Proprietary) Limited Australia 201 50.5
Blue Label One (Proprietary) Limited RSA 300 100
Blue Label Investments (Proprietary) Limited RSA 1 200 000 100
Blue Label Mexico S.A. de C.V. Mexico 1 100 70
Blue Label Telecoms USA Incorporated USA 100 100
Budding Trade 1170 (Proprietary) Limited RSA 100 100
Celebia Holdings Limited Cyprus 100 100
Cellfind (Proprietary) Limited RSA 1 000 100
Content Connect Africa (Proprietary) Limited RSA 100 100
Datacel Direct (Proprietary) Limited RSA 100 100
House of Business Solutions (Proprietary) Limited RSA 1 000 100
Kwikpay SA (Proprietary) Limited RSA 100 100
Matragon (Proprietary) Limited RSA 100 100
Matrix Investments No 4 (Proprietary) Limited RSA 100 100
ANNUAL REPORT 2010 Notes to the group annual financial statements | AS AT 31 MAY 2010 continued
232
Country
Number ofissued ordinary
sharesPercentage
held
31. INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)
2009Subsidiaries of Blue Label Telecoms Limited: (continued)
SharedPhone International (Proprietary) Limited RSA 500 000 50.1
The Prepaid Company (Proprietary) Limited RSA 10 000 100
The Post Paid Company (Proprietary) Limited RSA 200 51
Uninex (Proprietary) Limited RSA 100 100
Ventury Group (Proprietary) Limited RSA 2 000 100
Virtual Voucher (Proprietary) Limited RSA 200 100
Indirectly held:Subsidiary of Blue Label Investments (Proprietary) Limited:Gold Label Investments (Proprietary) Limited RSA 1 000 100
Subsidiary of The Prepaid Company (Proprietary) Limited:Little River Trading 181 (Proprietary) Limited (trading as Crown Cellular) RSA 100 100
Subsidiary of Ventury Group (Proprietary) Limited:Cigicell (Proprietary) Limited RSA 100 100
Subsidiaries of Matragon (Proprietary) Limited:Airtime Xpress (Proprietary) Limited RSA 200 100
Comm Express Services SA (Proprietary) Limited RSA 100 100
POS Control Services (Proprietary) Limited RSA 100 52
Subsidiaries of Activi Technology Services (Proprietary) Limited:Activi Deployment Services (Proprietary) Limited RSA 100 100
IT Experts (Proprietary) Limited RSA 300 100
Transaction Junction (Proprietary) Limited RSA 120 60
Subsidiaries of Africa Prepaid Services (Proprietary) Limited:Africa Prepaid Services (Mozambique) Limitada Mozambique 90
Africa Prepaid Services – RDC SPRL DRC 300 80
Africa Prepaid Services Nigeria Limited Nigeria 10 000 000 51
ANNUAL REPORT 2010
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Country
Number ofissued ordinary
sharesPercentage
held
31. INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES (continued)
2009Subsidiary of Blue Label Telecoms USA IncorporatedBlue Label USA, LLC USA 50.01
Subsidiaries of Datacel Direct (Proprietary) Limited:Blue Label Call Centre (Proprietary) Limited RSA 300 100
CNS Call Centre (Proprietary) Limited RSA 1 000 100
Velociti (Proprietary) Limited RSA 1 000 100
Answers Direct (Proprietary) Limited RSA 1 000 80
Blue Label Data Solutions (Proprietary) Limited RSA 100 81
AssociatesIndirectly held:Associates of Gold Label Investments (Proprietary) Limited:Oxigen Services India (Private) Limited India 14 244 294 37.22
Smart Voucher Limited (trading as Ukash) United Kingdom 46 353 933 16.9*
Associates of Datacel Direct (Proprietary) Limited:Dual Data (Proprietary) Limited RSA 100 50*
BLK Risk Services (Proprietary) Limited RSA 100 25
Associate of Demtrade 11 (Proprietary) Limited:Phutuma Procurement (Proprietary) Limited RSA 200 39
Joint venturesJoint venture of Blue Label Telecoms Limited:Demtrade 11 (Proprietary) Limited RSA 160 50
Joint venture of The Prepaid Company (Proprietary) Limited:Premet Cellular (Proprietary) Limited RSA 100 40
*Significant influence is demonstrated by the company as a result of representation on the board of directors
32. SUBSEQUENT EVENTS
Refer to the directors’ report on page 139 for details on subsequent events.
ANNUAL REPORT 2010
234
Company statement of financial position | AS AT 31 MAY 2010
Note2010R’000
2009R’000
ASSETS
Non-current assets 3 292 224 3 298 627
Property, plant and equipment 3 28 447 3 064
Intangible assets 4 537 5 222
Investment in subsidiaries 6.1 3 260 065 3 287 162
Investment in joint venture 6.2 3 175 3 179
Current assets 962 089 1 160 702
Loans receivable 7 6 695 875
Loans to subsidiaries 6.1 949 063 1 151 391
Trade and other receivables 8 4 944 6 927
Current tax assets 654 800
Cash and cash equivalents 9 733 709
Total assets 4 254 313 4 459 329
EQUITY AND LIABILITIES
Capital and reserves 4 185 358 4 393 111
Share capital 10 * *
Share premium 10 4 404 737 4 404 737
Treasury shares (37 491) (9 567)
4 367 246 4 395 170
Equity compensation benefit 2 250 1 939
Share-based payment reserve 295 -—
Accumulated loss (184 433) (3 998)
Non-current liabilities 1 723 2 826
Deferred taxation liability 5 1 723 2 826
Current liabilities 67 232 63 392
Trade and other payables 12 17 442 14 388
Loans from subsidiaries 6.1 48 000 48 000
Bank overdraft 9 1 790 1 004
Total equity and liabilities 4 254 313 4 459 329
*Less than R1 000
ANNUAL REPORT 2010
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Note2010R’000
2009R’000
Other income 78 145 89 035
Employee compensation and benefit expense 13 (48 606) (51 049)
Depreciation, amortisation and impairment charges (182 207) (2 355)
Other expenses (35 973) (40 805)
Operating loss 14 (188 641) (5 174)
Finance costs 15 (50) (120)
Finance income 15 7 503 5 559
Net (loss)/profit before taxation (181 188) 265
Taxation 16 753 (2 962)
Net loss for the year (180 435) (2 697)
Other comprehensive income for the year, net of tax — —
Total comprehensive loss for the year (180 435) (2 697)
Company statement of comprehensive income| FOR THE YEAR ENDED 31 MAY 2010
ANNUAL REPORT 2010
236
Share capitalR’000
Share premium
R’000
TreasurysharesR’000
Equity-based
compen-sation
reserveR’000
Share-based
paymentreserveR’000
Accu-mulated
lossR’000
TotalequityR’000
Balance as at 31 May 2008 * 4 404 737 — — — (1 301) 4 403 436
Net loss for the year — — — — — (2 697) (2 697)
Comprehensive income — — — — — — —
Total comprehensive loss — — — — — (2 697) (2 697)
Shares purchased during the year — — (9 567) — — — (9 567)
Equity-based compensation movements — — — 1 939 — — 1 939
Balance as at 31 May 2009 * 4 404 737 (9 567) 1 939 — (3 998) 4 393 111
Net loss for the year — — — — — (180 435) (180 435)
Comprehensive income — — — — — — —
Total comprehensive loss — — — — — (180 435) (180 435)
Shares purchased during the year — — (27 924) — — (27 924)
Asset acquired for shares — — — — 295 — 295
Equity-based compensation movements — — — 311 — — 311
Balance as at 31 May 2010 * 4 404 737 (37 491) 2 250 295 (184 433) 4 185 358
*Less than R1 000
Company statement of changes in equity | FOR THE YEAR ENDED 31 MAY 2010
ANNUAL REPORT 2010
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Note2010R’000
2009R’000
Cash flows from operating activities 17 (7 113) 20 796
Finance income 15 7 503 5 559
Finance costs 15 (50) (120)
Taxation paid 18 — (2 014)
Net cash flows from operating activities 340 24 221
Cash flows from investing activities
Acquisition of property, plant and equipment (26 338) (2 988)
Disposal of property, plant and equipment 157 40
Acquisition of intangible assets (46) (4 290)
Disposal of intangible assets 3 866 —
Acquisition of investment in subsidiaries 6 — (28 577)
Disposal of investment in subsidiaries — 1 429
Loans repaid by subsidiaries 49 179 22 053
Acquisition of investment in joint venture — (3 030)
Loans repaid by/(advanced to) joint venture 4 (149)
Net cash flows from investing activities 26 822 (15 512)
Cash flows from financing activities
Proceeds from issue of shares — —
Treasury shares acquired (27 924) (9 567)
Net cash flows from financing activities (27 924) (9 567)
Decrease in cash and cash equivalents (762) (858)
Cash and cash equivalents at the beginning of the period (295) 563
Cash and cash equivalents at the end of the period 9 (1 057) (295)
Company statement of cash flows | FOR THE YEAR ENDED 31 MAY 2010
ANNUAL REPORT 2010
238 1. ACCOUNTING POLICIES The accounting policies applied to the company annual financial statements are consistent with the group accounting
policies as detailed on pages 149 to 172.
2. FINANCIAL RISKS In the course of its business, the company is exposed to a number of financial risks: credit risk, liquidity risk and market
risk (including foreign currency and other price risk). This note presents the company’s objectives, policies and processes for managing its financial risk and capital.
Credit risk Credit risk arises because a counterparty may fail to meet its obligations to the company. The company is exposed to credit
risks on financial instruments such as receivables, loans receivable and cash.
Trade and other receivables consist primarily of invoiced amounts owing from related parties. The recoverability of these amounts are regularly monitored with reference to the counterparties’ financial performance. Where necessary a provision for impairment is made.
The company places cash and cash equivalents with major banking companies and quality institutions that have high credit ratings.
Loans are only granted to holders with an appropriate credit history, taking into account the holder’s financial position and past experience.
The company’s maximum credit risk exposure is the carrying amount of all financial assets on the balance sheet and guarantees provided with the maximum amount the company could have to pay if the guarantees are called on amounting to R654.4 million (2009: R554.7 million).
Notes to the company annual financial statements | AS AT 31 MAY 2010
ANNUAL REPORT 2010
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239The credit quality of financial assets that are neither past due or impaired can be assessed by reference to external credit ratings (where available) or to historical information about counterparty default rates:
2010R’000
2009R’000
Loans receivableGroup 1 — — Group 2 955 758 1 172 557 Group 3 — —
955 758 1 172 557
Trade receivablesCounterparties without external credit rating Group 1 — — Group 2 2 716 1 149 Group 3 — —
Total unimpaired trade receivables 2 716 1 149 The rating groups for counterparties without external credit ratings are categorised as follows:Group 1 New customers/related parties (less than six months).Group 2 Existing customers/related parties (more than six months) with no defaults in the past.Group 3 Existing customers/related parties (more than six months) with some defaults in the
past. All defaults were fully recovered.
Cash at bank and short-term bank deposits
Credit rating based on latest Fitch local currency long-term issuer default ratings.
2010R’000
2009R’000
BBB+ (1 790) (1 004)
BBB 731 697
(1 059) (307)
Liquidity risk Liquidity risk arises when a company encounters difficulties to meet commitments associated with liabilities and other
payment obligations. The company’s objective is to maintain prudent liquidity risk management by maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Company finance monitors rolling forecasts of the company’s liquidity requirements to ensure it has sufficient cash to meet operational needs. Due to the dynamic nature of the underlying businesses, the company aims to maintain flexibility in funding by keeping committed credit lines available.
ANNUAL REPORT 2010
240 Maturity of financial liabilities
Payable in:
2010
Less than 1 month or on demand
(R’000)
More than 1 month but not
exceeding1 year(R’000)
More than 1 year but not
exceeding2 years(R’000)
More than 2 years but not
exceeding 5 years(R’000)
More than 5 years(R’000)
Loans from subsidiaries 48 000 — — — —
Trade and other payables* — 8 426 — — —
Bank overdraft 1 790 — — — —
Total 49 790 8 426 — — —
2009
Loans from subsidiaries 48 000 — — — —
Trade and other payables* 3 145 — — — —
Bank overdraft 1 004 — — — —
Total 52 149 — — — —
*Trade and other payables exclude non-financial instruments being VAT and certain amounts within accruals and sundry creditors
Market risk The company is exposed to risks from movements in foreign exchange rates and interest rates that affect its assets,
liabilities and anticipated future transactions.
Cash flow and fair value interest rate risk The company’s cash flow interest rate risk arises from loans receivable and cash and cash equivalents. The company is
not exposed to fair value interest rate risk as the company does not have any fixed interest-bearing instruments carried at fair value nor any interest-bearing borrowings.
As part of the process of managing the company’s exposure to interest rate risk, interest rate characteristics of new borrowings and the refinancing of existing borrowings are positioned according to expected movements in interest rates.
Foreign currency risk The company is exposed to foreign currency risk from transactions. Transaction exposure arises due to the company
granting loans to affiliated companies in foreign currencies.
The company manages its exposure to foreign currency risk by ensuring that the net foreign currency exposure remains within acceptable levels. Hedging instruments are used in certain instances to reduce risks arising from foreign currency fluctuations. The company did not enter into any forward exchange contracts during the period under review.
Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
ANNUAL REPORT 2010
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241 IFRS 7 Sensitivity analysis The company has used a sensitivity analysis technique that measures the estimated change to the income statement of
either an instantaneous increase or decrease of 1% (100 basis points) in market interest rates or a 10% strengthening or weakening of the rand.
The sensitivity analysis is based on the following assumptions: Interest rate risks The interest rate sensitivity analysis is based on the following assumptions: • Changes in market interest rates affect the interest income or expense of variable interest financial instruments • Changes in market interest rates only affect interest income or expense in relation to financial instruments with fixed
interest rates if these are recognised at fair value.
Under these assumptions, a 1% increase or decrease in market interest rates at 31 May 2010 would increase or decrease profit before tax by R636 281 (2009: R460 195).
Foreign currency risk
Financial instruments by currency
2010 2009
ZAR R’000
EUR R’000
TotalR’000
ZAR R’000
EUR R’000
TotalR’000
Financial assets
Cash 733 — 733 709 — 709
Trade and other receivables* 2 728 — 2 728 5 233 — 5 233
Loans receivable 955 758 — 955 758 1 149 959 2 456 1 152 415
959 219 — 959 219 1 155 901 2 456 1 158 357
Financial liabilities
Non-interest-bearing borrowings 48 000 — 48 000 48 000 — 48 000
Trade and other payables* 8 426 — 8 426 3 145 — 3 145
Bank overdraft 1 790 — 1 790 1 004 — 1 004
58 216 — 58 216 52 149 — 52 149
Net financial position 901 003 — 901 003 1 103 752 2 456 1 106 208
*Trade and other receivables and trade and other payables exclude non-financial instruments
With a 10% strengthening or weakening in the rand against all other currencies, profit before tax would have decreased or increased by R nil (2009: R245 594) respectively.
ANNUAL REPORT 2010
242 Capital risk The company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in
order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust this capital structure, the company may issue new shares, adjust the amount of dividends
paid to shareholders, return capital to shareholders or sell assets to reduce debt.
The company defines capital as capital and reserves and non-current borrowings.
The company is not subject to externally imposed capital requirements.
There were no changes to the company’s approach to capital management during the year.
Fair value measurement For all short-term financial assets and liabilities, the carrying amount is regarded as an approximation of the fair value.
The fair value of all non-current loans receivable and borrowings are calculated using a discounted cash flow model based on prevailing market interest rates where applicable.
Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
ANNUAL REPORT 2010
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243Computerequipment
R’000
Furniture and fittings
R’000
Motor vehicles
R’000
Officeequipment
R’000
Leaseholdimprovements
R’000Total
R’000
3. PROPERTY, PLANT AND EQUIPMENT
Year ended 31 May 2010
Opening carrying amount 324 783 803 385 769 3 064
Additions 131 862 155 290 24 900 26 338
Disposals (2) — (168) — — (170)
Depreciation charge (168) (189) (129) (128) (171) (785)
Closing carrying amount 285 1 456 661 547 25 498 28 447
At 31 May 2010
Cost 591 1 911 850 781 26 131 30 264
Accumulated depreciation (306) (455) (189) (234) (633) (1 817)
Carrying amount 285 1 456 661 547 25 498 28 447
Year ended 31 May 2009
Opening carrying amount 270 484 329 129 — 1 212
Additions 223 564 610 360 1 231 2 988
Disposals (33) — — — — (33)
Depreciation charge (136) (265) (136) (104) (462) (1 103)
Closing carrying amount 324 783 803 385 769 3 064
At 31 May 2009
Cost 462 1 049 959 491 1 231 4 192
Accumulated depreciation (138) (266) (156) (106) (462) (1 128)
Carrying amount 324 783 803 385 769 3 064
ANNUAL REPORT 2010
244
Computersoftware
R’000
Internallydeveloped software
R’000Total
R’000
4. INTANGIBLE ASSETS
Year ended 31 May 2010
Opening carrying amount 1 643 3 579 5 222
Additions 46 — 46
Disposals (287) (3 579) (3 866)
Amortisation charge (865) — (865)
Closing carrying amount 537 — 537
At 31 May 2010
Cost 2 189 — 2 189
Accumulated amortisation (1 652) — (1 652)
Carrying amount 537 — 537
Year ended 31 May 2009
Opening carrying amount 1 671 — 1 671
Additions 711 3 579 4 290
Amortisation charge (739) — (739)
Closing carrying amount 1 643 3 579 5 222
At 31 May 2009
Cost 2 430 3 579 6 009
Accumulated amortisation (787) — (787)
Carrying amount 1 643 3 579 5 222
Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
ANNUAL REPORT 2010
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2452010R’000
2009R’000
5. DEFERRED TAXATIONAt 1 June 2 826 (136)Credited to income statement:– Provisions 136 (153)– Capital allowances (699) 1 015– Equity compensation benefit (259) 2 149– Tax losses 493 (493)– Prepayments 474 474– Other (300) (30)
At 31 May 1 723 2 826 Deferred taxation comprises:– Provisions (134) (270) – Capital allowances 316 1 015– Equity compensation benefit 1 890 2 149– Tax losses — (493) – Prepayments — 474– Other (349) (49)
1 723 2 826The analysis of deferred tax assets and deferred tax liabilities is as follows:Deferred tax assetsDeferred tax assets to be recovered after more than 12 months (206) —Deferred tax assets to be recovered within 12 months (276) (812)
(483) (812)Deferred tax liabilitiesDeferred tax liabilities to be recovered after more than 12 months 1 333 448Deferred tax liabilities to be recovered within 12 months 873 3 190
2 206 3 638
Net deferred tax liability 1 723 2 826
6. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURE6.1 Investments in subsidiaries
Shares at cost less amounts written off 3 260 065 3 287 162 Loans owing by subsidiaries 949 063 1 151 391 Loans owing to subsidiaries (48 000) (48 000)
4 161 128 4 390 553
ANNUAL REPORT 2010
246
Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
Shares at cost lessamounts
written offR’000
Loansowing by
subsidiariesR’000
Loansowing to
subsidiariesR’000
6. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURE (continued)
6.1 Investments in subsidiaries (continued)
Details are reflected below:
2010
Activi Technology Services (Proprietary) Limited 5 000 1 643 —
Africa Prepaid Services (Proprietary) Limited1 61 520 50 896 —
Blue Label Australasia (Proprietary) Limited2 — — —
Blue Label Investments (Proprietary) Limited 108 416 1 193 —
Blue Label Mexico S.A. de C.V. 26 650 545 —
Blue Label One (Proprietary) Limited 40 000 800 —
Blue Label Telecoms USA Incorporated * 50 540 —
Budding Trade (Proprietary) Limited 6 000 — —
Celebia Holdings Limited — — —
Cellfind SA (Proprietary) Limited 290 000 1 131 —
Cigicell (Proprietary) Limited 295 723 —
Content Connect Africa (Proprietary) Limited 27 000 379 —
Datacel Direct (Proprietary) Limited1 150 000 12 933 —
Gold Label Investments (Proprietary) Limited 3 935 — —
Kwikpay SA (Proprietary) Limited 22 500 746 —
Matragon (Proprietary) Limited 194 000 30 377 —
Matrix Investments No 4 (Proprietary) Limited 4 160 — —
SharedPhone International (Proprietary) Limited1 20 000 2 502 —
The Postpaid Company (Proprietary) Limited1 * 758 —
The Prepaid Company (Proprietary) Limited 2 150 214 791 113** —
Uninex (Proprietary) Limited * 976 —
Velociti (Proprietary) Limited 7 185 1 705 —
Ventury Group (Proprietary) Limited 98 406 — (48 000)
Virtual Voucher (Proprietary) Limited 44 784 103 —
3 260 065 949 063 (48 000)
ANNUAL REPORT 2010
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247Shares at cost lessamounts
written offR’000
Loansowing by
subsidiariesR’000
Loansowing to
subsidiariesR’000
6. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURE (continued)
6.1 Investments in subsidiaries (continued)2009Activi Technology Services (Proprietary) Limited 5 000 1 962 —Africa Prepaid Services (Proprietary) Limited1 61 520 35 112 — Blue Label Australasia (Proprietary) Limited2 1 926 2 713 —Blue Label Investments (Proprietary) Limited 108 416 595 —Blue Label Mexico S.A. de C.V. 26 650 — —Blue Label One (Proprietary) Limited 40 000 713 — Blue Label Telecoms USA Incorporated * 50 540 —Budding Trade (Proprietary) Limited 6 000 — — Celebia Holdings Limited 1 38 —Cellfind SA (Proprietary) Limited 290 000 739 — Content Connect Africa (Proprietary) Limited1 27 000 719 — Datacel Direct (Proprietary) Limited1 150 000 6 293 — Gold Label Investments (Proprietary) Limited 29 400 149 315 — Kwikpay SA (Proprietary) Limited 22 500 735 — Matragon (Proprietary) Limited 194 000 32 996 — Matrix Investments No 4 (Proprietary) Limited 4 160 — — SharedPhone International (Proprietary) Limited1 20 000 2 745 — The Postpaid Company (Proprietary) Limited1 * 942 — The Prepaid Company (Proprietary) Limited 2 150 214 861 277** —Uninex (Proprietary) Limited * 976 —Velociti (Proprietary) Limited 7 185 1 806 — Ventury Group (Proprietary) Limited 98 406 1 055 (48 000)Virtual Voucher (Proprietary) Limited 44 784 120 —
3 287 162 1 151 391 (48 000)
* Less than R1 000** This loan to a maximum of R845 million (2009: R750 million) is subordinated in favour of other creditors of The Prepaid Company
(Proprietary) Limited All subsidiaries are based in the Republic of South Africa. For details on percentage held and issued shares refer to note 31 in the group notes The shares in The Prepaid Company (Proprietary) Limited are pledged to Investec Bank Refer to note 14 for details on impairments The carrying value of the loans approximates their fair values1 These loans bear interest at prime plus 2% and have no fixed terms of repayment2 This loan bears interest at prime plus 3% and has no fixed terms of repayment All other loans are interest free and have no fixed terms of repayment
ANNUAL REPORT 2010
248
Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
2010R’000
2009R’000
6. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURE (continued)
6.2 Investments in joint venture
Shares at cost less amounts written off 3 030 3 030
Loans owing by joint venture 145 149
3 175 3 179
Dateacquired
Country ofincorporation
Percentageinterest held
Demtrade 11 (Proprietary) Limited 1 June 08 South Africa 50
AssetsR’000
LiabilitiesR’000
RevenuesR’000
ProfitR’000
2010 7 923 6 040 10 780 715
2009 7 554 6 382 9 086 1 121
2010R’000
2009R’000
7. LOANS RECEIVABLE
Loans to related parties 6 695 859
Other — 16
6 695 875
Loans are unsecured, interest free and have no fixed terms of repayment
8. TRADE AND OTHER RECEIVABLES
Trade receivables 36 87
Sundry debtors and prepayments 1 399 5 778
VAT 829 —
Amounts due from related parties (refer to note 20) 2 680 1 062
4 944 6 927
ANNUAL REPORT 2010
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249GrossR’000
ImpairmentR’000
8. TRADE AND OTHER RECEIVABLES (continued)
The ageing of trade receivables, including amounts due from related parties, at the reporting date was:
31 May 2010
Fully performing 2 709 —
Past due by 1 to 30 days — —
Past due by 31 to 60 days — —
Past due by 61 to 90 days 7 —
Past due by more than 90 days — —
2 716 —
31 May 2009
Fully performing 925 —
Past due by 1 to 30 days 103 —
Past due by 31 to 60 days 71 —
Past due by 61 to 90 days 50 —
Past due by more than 90 days — —
1 149 —
Based on the financial performance of the relevant debtors, management does not consider there to be any indications of potential default in respect of the fully performing book.
9. CASH AND CASH EQUIVALENTS
Cash at bank 731 697
Cash on hand 2 12
Favourable balances 733 709
Bank overdraft (1 790) (1 004)
(1 057) (295)
Cash and cash equivalents of R600 000 are restricted.
ANNUAL REPORT 2010
250
Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
2010Number
of shares
2009Number
of shares2010R’000
2009R’000
10. SHARE CAPITAL
Authorised
Total authorised share capital of ordinary shares (par value of R0,000001 each) 1 000 000 000 1 000 000 000 1 1
Issued
Balance at the beginning of the year 761 159 181 766 360 894 * *
Shares issued during the period — — — —
Shares acquired during the period (4 500 000) (5 201 713) * *
Balance at the end of the year 756 659 181 761 159 181 * *
All issued shares are fully paid up.
The company acquired 4 500 000 (2009: 5 201 713) shares on the JSE in order to grant forfeitable shares to employees and directors of the group.
The cost to the company to acquire the shares held for the benefit of its direct employees of R14 652 974 (2009: R9 566 822) has been deducted from shareholders equity. These shares are held as “treasury shares”. See note 11 for details on the forfeitable shares.
* Less than R1 000
11. EQUITY COMPENSATION BENEFIT
Forfeitable shares
During the year, 1 625 958 (2009: 1 923 037) forfeitable shares were granted to executive directors and qualifying employees. The participant will forfeit the forfeitable shares if he/she ceases to be an employee of an employer company before the vesting date or if the specified performance condition has not been met, unless otherwise specified by the rules or determined by the board. In the event that the participant is not in the employ of the group, or the performance conditions are not met, then the shares allocated to the participant will be forfeited and will be sold on the open market by the escrow agent and the proceeds will be returned to the participating employer or may be retained by the company for future awards.
The release of forfeitable shares will be subject to the achievement of a specified performance condition. The performance condition for the first award grant of forfeitable shares was:• 30% of shares will vest when the company core HEPS at the end of the performance period, being May 2010, exceeds
the core HEPS per ordinary share as at the beginning of the performance period, being May 2008, by the percentage change in the CPI index over the performance period, plus 20% (threshold performance criteria)
• 100% of shares will vest when the core HEPS at the end of the performance period, being May 2010, exceeds the core HEPS per ordinary share as at the beginning of the performance period, being May 2008, by the percentage change in the CPI index over the performance period, plus 30% (target performance criteria)
• Performance below the threshold performance criteria will result in the forfeitable award not vesting, unless otherwise determined by the board.
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25111. EQUITY COMPENSATION BENEFIT (continued)
The performance conditions for the first scheme were not met and therefore all shares were forfeited.
The performance condition for the second award grant vesting at 1 September 2012 of forfeitable shares are as follows:
• 25% of the shares constituting the allocation are awarded for the retention purposes and shall vest if the employee is still employed in the group at the vesting date (1 September 2012);
• 25% of the shares constituting the allocation will vest on the achievement by individual employees of their individual key performance indicators;
• 50% of shares constituting the allocation will vest if the company’s core HEPS is equal to or exceeds the core HEPS per ordinary share at the beginning of the performance period (May 2009), by the percentage change in the CPI over the performance period, plus 15%. There is no linear vesting to this portion of the allocation.
Grantdate
Vesting date
Number ofshares
Fair value of grant
R’000
Movements in the number of forfeitable shares outstanding during the year are as follows:
At 1 June 2008 — —
Granted during the year – First award28 November
20081 September
2010 518 630 2 593
Granted during the year – First award26 February
20091 September
2010 1 404 407 7 022
Shares forfeited during the year — —
Shares vested during the year — —
At 31 May 2009 1 923 037 9 615
Granted during the year – Second award1 September
20091 September
2012 540 118 3 160
Granted during the year – Second award27 November
20091 September
2012 1 085 840 6 352
Shares forfeited during the year (2 010 697) (10 128)
First award (1 923 037) (9 615)
Second award (87 660) (513)
Shares vested during the year — —
At 31 May 2010 1 538 298 8 999
First award — —
Second award 1 538 298 8 999
The fair value of the shares is based on the value paid for the shares on the open market at grant date.
The total number of forfeitable shares issued to executive directors during the period is 1 085 840 (2009: 1 148 343).
ANNUAL REPORT 2010
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Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
2010R’000
2009R’000
12. TRADE AND OTHER PAYABLES
Trade payables 3 032 117
Accruals 11 613 11 666
Sundry creditors 760 1 572
VAT — 991
Amounts due to related parties (refer to note 20) 2 037 42
17 442 14 388
13. EMPLOYEE COMPENSATION AND BENEFIT EXPENSE
Salaries and wages 41 810 40 968
Bonuses 6 185 7 719
Equity compensation benefit 311 1 939
Other 300 423
48 606 51 049
14. OPERATING LOSS
The following items have been charged/(credited), in arriving at operating loss:
Management fees received (77 898) (88 871)
Consulting fees 4 790 9 718
Foreign exchange loss 516 393
Impairment of loans and investments 180 557* 513
Loss/(profit) on disposal of property, plant and equipment 13 (7)
Insurance 1 504 1 716
Legal fees 483 2 644
Operating lease rentals – premises 3 470 1 625
Rental paid 4 481 1625
Rental recovery (1 011) —
Overseas travel 3 919 7 435
Security 85 541
Repairs and maintenance 5 47
Audit fees 6 469 3 403
* An impairment loss of R180.6 million (2009: nil) was recognised in the current year relating to the impairment of related party investments and loans, in line with our stated accounting policies (refer note 20). A weighted average capital of 18% and a growth rate of 5% was used in determining the recoverable value.
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2009R’000
15. FINANCE (INCOME)/COSTS
Interest received
• Bank (40) (130)
• Loans (7 227) (5 429)
• Other (236) —
(7 503) (5 559)
Interest paid
• Bank 50 120
50 120
Net finance income (7 453) (5 439)
16. TAXATION
Current tax 350 —
Current year 350 —
Deferred tax (1 103) 2 962
Current year (1 103) 2 962
(753) 2 962
Tax rate reconciliation
Net profit before tax (181 188) 265
Tax at 28% (50 733) 74
Adjusted for:
• Income not taxable (1 002) —
• Expenditure not deductible 50 982 2 888
(753) 2 962
ANNUAL REPORT 2010
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Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
2010R’000
2009R’000
17. CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of operating profit to cash flows
from operating activities:
Operating loss (188 641) (5 174)
Adjustments for:
Depreciation of property, plant and equipment 785 1 103
Amortisation on intangible assets 865 739
Impairment of loans and investments 180 557 513
Loss/(profit) on disposal of property, plant and equipment 13 (7)
Share incentive scheme expense 311 1 939
Changes in working capital
Decrease in trade and other receivables 1 983 32 022
Increase/(decrease) in trade and other payables 2 850 (9 427)
Increase in loans receivable (5 836) (912)
(7 113) 20 796
18. TAXATION PAID
Balance outstanding at beginning of year (800) 1 214
Taxation charge 350 —
Withholding tax credit (204) —
Balance outstanding at end of year 654 800
— 2 014
19. COMMITMENTS
Future operating lease charges for:
Premises
Payable within one year 9 223 1 392
Payable in two to five years 33 896 666
Payable in more than five years 41 216 —
84 335 2 058
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2552010R’000
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20. RELATED PARTY TRANSACTIONSRelated party relationshipsFor details of subsidiaries, associates and joint ventures refer to note 31 in the group notes.For details of the company’s directors, refer to the directors’ report.ZOK Cellular (Proprietary) Limited, Black Ginger 59 (Proprietary) Limited and Moneyline 311 (Proprietary) Limited are related parties due to the companies having common directorships.For details of the shareholdings in the company, refer to the directors’ report.The following transactions were carried out with related parties:Purchases from related partiesBlack Ginger 59 (Proprietary) Limited 294 —BSC Technologies (Proprietary) Limited 79 —Demtrade 11 (Proprietary) Limited 1 762 28Moneyline 311 (Proprietary) Limited 821 —The Prepaid Company (Proprietary) Limited 147 —Cost recoveries from related partiesSmart Voucher Limited 422 —The Prepaid Company (Proprietary) Limited 79 —Interest received from related partiesAfrica Prepaid Services (Proprietary) Limited 5 062 2 987 Blue Label Australasia (Proprietary) Limited 452 392Content Connect Africa (Proprietary) Limited 83 253Datacel Direct (Proprietary) Limited 1 272 1 261 SharedPhone International (Proprietary) Limited 281 469The Postpaid Company (Proprietary) Limited 77 68Management fees received from related partiesActivi Technology Services (Proprietary) Limited 66 60Africa Prepaid Services (Proprietary) Limited 2 520 324Blue Label Australasia (Proprietary) Limited 459 338Blue Label Mexico S.A. de C.V. 466 814Blue Label USA, LLC — 436Cellfind SA (Proprietary) Limited 2 376 2 160 Cigicell (Proprietary) Limited 2 046 1 395 Comm Express Service SA (Proprietary) Limited — 1 540 Datacel Direct (Proprietary) Limited 330 600E-Voucha (Proprietary) Limited — 90IT Experts (Proprietary) Limited — 60
ANNUAL REPORT 2010
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Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
2010R’000
2009R’000
20. RELATED PARTY TRANSACTIONS (continued)Management fees received from related parties (continued)Kwikpay SA (Proprietary) Limited 1 690 1 536 SharedPhone International (Proprietary) Limited 660 580Smart Voucher Limited 2 293 1 954 The Postpaid Company (Proprietary) Limited — 150The Prepaid Company (Proprietary) Limited 64 560 75 560 Transaction Junction (Proprietary) Limited 66 60Ventury Group (Proprietary) Limited — 465Virtual Voucher (Proprietary) Limited 594 540ZOK Cellular (Proprietary) Limited 208 210Management fees paid to related partiesDemtrade 11 (Proprietary) Limited 1 320 1 200 Rent paid to related partiesEllerine Bros. (Proprietary) Limited 955 —Moneyline 311 (Proprietary) Limited 2 500 1 566 Rent received from related partiesActivi Deployment Services (Proprietary) Limited 27 —Blue Label Data Solutions (Proprietary) Limited 50 —Blue Label One (Proprietary) Limited 93 —Comm Express Service SA (Proprietary) Limited 206 —Demtrade 11 (Proprietary) Limited 10 —Smart Voucher Limited 25 —The Prepaid Company (Proprietary) Limited 230 —ZOK Cellular (Proprietary) Limited 16 —Impairment of related party investments and loansBlue Label Australasia (Proprietary) Limited 5 428 —Celebia Holdings Limited 38 —Oxigen Services India (Private) Limited 175 129 —Loans to related partiesActivi Technology Services (Proprietary) Limited 1 643 1 962 Africa Prepaid Services (Proprietary) Limited 50 896 35 112 Answers Direct (Proprietary) Limited — 120Blue Label Australasia (Proprietary) Limited 379 2 713 Blue Label Call Centre (Proprietary) Limited — 318Blue Label Data Solutions (Proprietary) Limited 292 108Blue Label Investments (Proprietary) Limited 1 193 595
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20. RELATED PARTY TRANSACTIONS (continued)
Loans to related parties (continued)
Blue Label Mexico S.A. de C.V. 545 —Blue Label One (Proprietary) Limited 800 713Blue Label Telecoms USA Incorporated 50 540 50 540 Celebia Holdings Limited — 38Cellfind SA (Proprietary) Limited 1 131 739CNS Call Centre (Proprietary) Limited — 228Comm Express Service SA (Proprietary) Limited 5 990 —Content Connect Africa (Proprietary) Limited 723 719Datacel Direct (Proprietary) Limited 12 933 6 293 Demtrade 11 (Proprietary) Limited 145 149Gold Label Investments (Proprietary) Limited — 149 315 Kwikpay SA (Proprietary) Limited 746 735Little River 181 Trading (Proprietary) Limited — 28Matragon (Proprietary) Limited 30 377 32 996 SharedPhone International (Proprietary) Limited 758 2 745 The Postpaid Company (Proprietary) Limited 2 502 942The Prepaid Company (Proprietary) Limited 791 113 861 277Transaction Junction (Proprietary) Limited 414 57Uninex (Proprietary) Limited 976 976Velociti (Proprietary) Limited 1 705 1 806 Ventury Group (Proprietary) Limited — 1 055 Virtual Voucher (Proprietary) Limited 103 120Loans from related partiesVentury Group (Proprietary) Limited 48 000 48 000 Amounts due from related partiesBlack Ginger 59 (Proprietary) Limited 951 —Blue Label Australasia (Proprietary) Limited 19 338Blue Label USA, LLC — 436Comm Express Service SA (Proprietary) Limited 21 21Datacel Direct (Proprietary) Limited 31 108Smart Voucher Limited 1 637 159ZOK Cellular (Proprietary) Limited 21 —
2 680 1 062
ANNUAL REPORT 2010
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Notes to the company annual financial statements | AS AT 31 MAY 2010 continued
2010R’000
2009R’000
20. RELATED PARTY TRANSACTIONS (continued)
Amounts due to related parties
Black Ginger 59 (Proprietary) Limited 335 —
Blue Label Australasia (Proprietary) Limited 41 —
Blue Label Mexico S.A. de C.V. 203 —
Demtrade 11 (Proprietary) Limited 361 42
Moneyline 311 (Proprietary) Limited 1 096 —
ZOK Cellular (Proprietary) Limited 1 —
2 037 42
Disposal of intangible asset to related party
Comm Express Service SA (Proprietary) Limited 3 579 —
Leasehold improvements recovered by related party
Ellerine Bros. (Proprietary) Limited 11 500 —
Basis of transactions
All transactions with related parties are conducted on the same terms as other transactions of a similar nature.
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Notice of annual general meeting
Notice is hereby given that the third annual general meeting of the shareholders of Blue Label Telecoms Limited will be held in the Boardroom, Blue Label Telecoms Corporate Offices, 75 Grayston Drive, Sandton, on Tuesday, 12 October 2010 at 10:00 to conduct the following business:1. To receive, consider and adopt the annual financial statements of the company and of the Blue Label Telecoms group for
the year ended 31 May 2010, including the directors’ report and auditors’ report thereon.2. To re-elect, each by way of a separate vote, the following directors retiring by rotation, and being eligible, have offered
themselves for re-election: 2.1 Resolved that Mr JS Mthimunye who is required to retire by rotation as a director of the company at this annual
general meeting and who is eligible for re-election and who has offered himself for re-election, be and is hereby reappointed as a director of the company with immediate effect.
2.2 Resolved that Mr LM Nestadt who is required to retire by rotation as a director of the company at this annual general meeting and who is eligible for re-election and who has offered himself for re-election, be and is hereby reappointed as a director of the company with immediate effect.
3. To re-elect Mr KM Ellerine as a director of the company, as he was appointed to the board since the last annual general meeting and who retires in terms of the company’s articles of association and, being eligible, has offered himself for re-election.
An abbreviated curriculum vitae of each director offering himself for re-election is contained on pages 16�to 21 of this report.
4. To re-appoint PricewaterhouseCoopers Inc as independent registered auditors of the company for the ensuing year and to authorise the directors to determine the remuneration of the auditors for the past year’s audit as reflected in note 18 of the annual financial statements. The individual registered auditor who will undertake the audit during the financial year ending 31 May 2011 is Mr EJ Gerryts.
To consider and, if deemed fit, pass with or without modification the following special resolution and ordinary resolutions.
ANNUAL REPORT 2010
260 5. Special resolution number 1 – General authority to repurchase shares Resolved that the company and any of its subsidiaries be and they are hereby authorised, by way of a general approval, to
acquire ordinary shares issued by the company, in terms of section 85 and 89 of the Companies Act, No 61 of 1973, as amended (“or any legislation by which it may be superseded) (“the Companies Act”), and in terms of the JSE Limited (“the JSE”) Listings Requirements, being that:
• any such acquisition of ordinary shares shall be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement with the counterparty;
• this general authority shall be valid until the company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date of passing of this special resolution number 1;
• an announcement will be published as soon as the company or any of its subsidiaries have acquired ordinary shares constituting, on a cumulative basis, 3% of the number of ordinary shares in issue and for each 3% in aggregate of the initial number acquired thereafter, in compliance with paragraph 11.27 of the JSE Listings Requirements;
• acquisition of shares in aggregate in any one financial year may not exceed 20% of the company’s ordinary issued share capital as at the date of passing of this special resolution number 1;
• ordinary shares may not be acquired at a price greater than 10% above the weighted average of the market value at which such ordinary shares are traded on the JSE as determined over the five business days immediately preceding the date of repurchase of such ordinary shares;
• the company has been given authority by its articles of association; • at any point in time, the company and/or its subsidiaries may only appoint one agent to effect any repurchase; • the company and/or its subsidiaries undertaking that they will not enter the market to repurchase the company’s shares
until the company’s sponsor has provided written confirmation to the JSE regarding the adequacy of the company’s working capital in accordance with Schedule 25 of the JSE Listings Requirements; and
• the company and/or its subsidiaries not repurchasing any shares during a prohibited period, as defined in the JSE Listings Requirements unless a repurchase programme is in place, where dates and quantities of shares to be traded during the prohibited period are fixed and full details of the programme have been disclosed in an announcement over the Securities Exchange News Service (SENS) prior to the commencement of the prohibited period.
Before entering the market to effect the general repurchase, the directors, having considered the effects of the repurchase of the maximum number of ordinary shares in terms of the aforegoing general authority, will ensure that for a period of 12 (twelve) months after the date of the notice of annual general meeting:
• the company and the Blue Label Telecoms group will be able, in the ordinary course of business, to pay its debts; • the consolidated assets of the company and the Blue Label Telecoms group, fairly valued in accordance with International
Financial Reporting Standards, will exceed the liabilities of the company and the Blue Label Telecoms group; • the company and the Blue Label Telecoms group’s ordinary share capital, reserves and working capital will be adequate
for ordinary business purposes; and • the working capital of the company and the Blue Label Telecoms group will be adequate for the purposes of the business
of the company and the Blue Label Telecoms group.
Notice of annual general meeting | continued
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261 The following additional information, some of which may appear elsewhere in the annual report of which this notice forms part, is provided in terms of the JSE Listings Requirements for purposes of the general authority:
• directors and management – pages 16 to 23 • major beneficial shareholders – page 103 • directors’ interests in shares – page 140 • share capital of the company – page 197
Litigation statement In terms of paragraph 7.D.11 of the JSE Listings Requirements, the directors, whose names appear on pages 16 to 21�
of this report of which this notice forms part, are not aware of any legal or arbitration proceedings that are pending or threatened, that may have or had in the recent past, being at least the previous 12 (twelve) months, a material effect on the Blue Label Telecoms group’s financial position.
Directors’ responsibility statement The directors, whose names appear on page 139 of this annual report, confirm that to the best of their knowledge and
belief: • the statements made in the report are true and correct; • there are no facts which have been omitted which would make any statements false or misleading, and that all reasonable
enquiries to ascertain such facts have been made; • the report contains all information required by law and the JSE Listings Requirements.
Material change Other than the facts and developments reported on in this report, there have been no material changes in the affairs or
financial position of the company and its subsidiaries since the date of signature of the audit report and up to the date of this notice.
The reason for and effect of this special resolution is to grant the directors of the company or its subsidiaries a general authority in terms of the Companies Act and the JSE Listings Requirements for the repurchase by the company or a subsidiary company of the company, of the company’s shares.
The directors have no specific intention, at present, for the company or its subsidiaries to repurchase any of the company’s shares but consider that such a general authority should be put in place should an opportunity present itself to do so during the year.
ANNUAL REPORT 2010
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Notice of annual general meeting | continued
6. Ordinary resolution number 1 – Control of authorised but unissued shares Resolved that the general authority granted to the directors to allot and issue the unissued ordinary shares of the company
be renewed subject to the following limitations: • the authority shall be valid until the date of the next annual general meeting of the company, provided it shall not extend
beyond 15 (fifteen) months from the date of this annual general meeting; • issues in terms of this authority will not, in any financial year, in aggregate exceed 3% of the number of ordinary shares
in the company’s issued share capital as at 31 May 2010; • issues in terms of this authority shall be subject to the provisions of the Companies Act and the JSE Listings Requirements.
7. Ordinary resolution number 2 – General authority to issue shares for cash Resolved that subject to the general authority proposed in terms of ordinary resolution number 1 above and in terms of
the JSE Listings Requirements, shareholders grant the directors a general authority for the allotment and issue of ordinary shares in the capital of the company for cash as and when suitable situations arise, subject to the following limitations:
• any issue of shares shall be to public shareholders as defined by the JSE Listings Requirements; • this authority shall be valid until the date of the next annual general meeting of the company, provided it shall not extend
beyond 15 (fifteen) months from the date of this annual general meeting; • a paid press announcement giving details, including the impact on net asset value and earnings per shares, will be
published at the time of any such allotment and issue of shares representing, on a cumulative basis within one year, 3% or more of the ordinary number of issued shares prior to any such issues;
• that issues in the aggregate in any one financial year shall not exceed 3% of the ordinary shares in the issued share capital of the company from time to time;
• in determining the price at which an allotment and issue of shares will be made in terms of this authority, the maximum discount permitted will be 10% of the weighted average traded price of the ordinary shares over the 30 days prior to the date that the price of issue is determined or agreed by the directors of the company.
In terms of the JSE Listings Requirements, the approval of 75% majority of the votes cast by shareholders present or represented by proxy at this annual general meeting will be required for ordinary resolution number 2 to become effective.
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2638. Ordinary resolution number 3 – Non-executive directors’ remuneration Resolved that the fees payable to the non-executive directors for the ensuing 12-month period be set as follows:
Current fee per
meeting
Proposed fee per
meeting*
Proposed capped fee per
annum**
Services as directors • chairman of the board1 — — R750 000• board members R32 550 R34 340 R171 700Audit and Risk Management • chairman R45 208 R47 694 R190 778• member R27 125 R28 617 R114 468Remuneration Committee• chairman R36 166 R38 155 R152 621• member R21 700 R22 894 R91 574Investment Committee• chairman R27 125 R28 617 R228 935• member R16 275 R17 170 R137 361Transformation Committee• chairman R27 125 R28 617 R114 468• member R16 275 R17 170 R68 681Ad hoc Committee• chairman R27 125 R28 617 R114 468• member R16 275 R17 170 R68 681
* In the event that there are fewer meetings as envisaged, the member shall receive the fee in respect of the number of meetings attended** In the event that there are more meetings per year than initially planned, directors’ fees will be paid only up to the cap1 The annual fee paid to the chairman in respect of the year ended 31 May 2010 amounted to R700 000
9. Ordinary resolution number 4 – Consulting services for non-executive directors Resolved that non-executive directors may be contracted to render services to the group from time to time, in addition to
their services as non-executive directors to the board of Blue Label Telecoms and in addition to any remuneration so received, non-executive directors shall be entitled to receive an amount of remuneration recommended by the board of the company for the additional non-executive services.
10. Ordinary resolution number 5 – Signature of documents Resolved that any director or the secretary of the company be and is hereby authorised to do all such things and sign all
documents and take all such action as they consider necessary to implement the resolutions set out in the notice convening this annual general meeting at which this ordinary resolution will be considered.
ANNUAL REPORT 2010
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Notice of annual general meeting | continued
VOTING AND PROXIESShareholders may appoint a proxy to attend, speak and, in respect of the applicable resolution(s), vote in their stead. Shareholders holding dematerialised shares but not in their own name must furnish their Central Securities Depository Participant (CSDP) or broker with their instructions for voting at the annual general meeting should they wish to vote. If your CSDP or broker, as the case may be, does not obtain instructions from you, it will be obliged to act in terms of your mandate furnished to it, or if the mandate is silent in this regard, to complete the relevant from of proxy attached. Unless you advise your CSDP or broker, in terms of the agreement between you and your CSDP or broker by the cut-off time stipulated therein, that you wish to attend the annual general meeting or send a proxy to represent you at the annual general meeting, your CSDP or broker will assume you do not wish to attend the annual general meeting or send a proxy. If you wish to attend the annual general meeting or send a proxy, you must request your CSDP or broker to issue the necessary letter of representation to you.
Shareholders holding dematerialised shares in their own name, or who hold shares that are not dematerialised, and who are unable to attend the annual general meeting and wish to be represented thereat, must complete the relevant form of proxy attached in accordance with the instructions therein and lodge it with, or mail it to, the transfer secretaries.
Forms of proxy should be forwarded to reach the company’s transfer secretaries at the address given below by not later than 10:00 on Monday, 11 October 2010. The completion of a form of proxy will not preclude a shareholder from attending the annual general meeting.
By order of the board
E ViljoenGroup company secretary
23 August 2010
Transfer secretaries Registered officeComputershare Investor Services (Proprietary) Limited Blue Label Telecoms Limited70 Marshall Street 75 Grayston Drive, cnr Benmore RoadJohannesburg Morningside Extension 52001 Sandton(PO Box 61051, Marshalltown, 2107) 2196 (PO Box 652261, Benmore 2010) Tel: +2711 523 3000 Fax: +2711 523 3001 [email protected] www.bluelabeltelecoms.com
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Explanatory notes to resolutions for consideration at the annual general meeting
Adoption of annual financial statementsThe directors are required to present to shareholders at the annual general meeting the annual financial statements incorporating the directors’ report and the report of the auditors, for the year ended 31 May 2010. These are contained within the annual report.
Re-election of directorsIn accordance with the articles of association of the company, one third of the directors are required to retire at each annual general meeting and may offer themselves for re-election. Messrs JS Mthimunye and LM Nestadt retire by rotation at the annual general meeting in accordance with article 15.1 of the articles of association of the company, and have offered themselves for re-election. The appointment of any person to fill a casual vacancy on the board of directors, or as an addition thereto is similarly required to retire and is eligible for re-election at the annual general meeting held immediately after the appointment. In addition, the articles of association provides that directors have the power at any time to appoint any person as a director subject to the provisions of article 16.2, which provides that a newly appointed director will retain office only until the next annual general meeting and then retire and be eligible for re-election. In this regard Mr KM Ellerine will retire at the forthcoming annual general meeting and is available for re-election. Abbreviated curriculum vitae in respect of each director offering himself for re-election are contained on pages 16 to 21 of this annual report.
The Blue Label Telecoms board of directors recommends to shareholders the re-election of the directors who retire by rotation.
Re-appointment of independent auditors PricewaterhouseCoopers Inc. has expressed its willingness to continue in office and resolution number 4 proposes the re-appointment of that firm as the company’s auditors until the next annual general meeting. The resolution also gives authority to the directors to fix the remuneration of the auditors, which fee determination will be reviewed and recommended by the Audit, Risk and Compliance Committee.
In accordance with section 270A of the Corporate Laws Amendment Act, the Audit, Risk and Compliance Committee has satisfied itself that the proposed auditor, PricewaterhouseCoopers Inc, is independent of the company as contemplated by the South African Independence laws and the applicable rules of the International Federation of Accountants. The committee nominated the reappointment of PricewaterhouseCoopers Inc. as independent registered auditor of Blue Label Telecoms for the 2011 financial year.
Furthermore the Audit, Risk and Compliance Committee has, in terms of paragraph 2.86 of the JSE Listing Requirements, considered and satisfied itself that PricewaterhouseCoopers Inc., the reporting accountant and individual auditor are accredited to appear on the JSE List of Accredited Auditors, in compliance with section 22 of the JSE Listings Requirements.
Special resolution number 1 – General authority to repurchase sharesThe effect of this special resolution and its rationale is to grant the company and any of its subsidiaries a general authority in terms of the Companies Act 61 of 1973, as amended (“the Companies Act”), for the acquisition by the company and any of its subsidiaries of the company’s shares, which general approval shall be valid until the earlier of such next annual general meeting of the company or its variation or revocation by special resolution at any subsequent general meeting of the company, provided that the general authority shall not extend beyond 15 months from the date of this annual general meeting.
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The directors are of the opinion that the renewal of this general authority is in the best interest of the company as it allows the company and any of its subsidiaries to repurchase the securities issued by the company through the order book of the JSE, should the market conditions and price justify such action.
Ordinary resolutions numbers 1 and 2 – Control of authorised but unissued shares and general authority to issue shares for cashThe existing authorities granted by the shareholders at the previous annual general meeting held on 25 November 2009 expire at the following annual general meeting unless renewed. The authorities granted under these resolutions are subject to the Companies Act and the JSE Listings Requirements and will not, in any financial year, exceed in aggregate 22 990 827 ordinary shares, being 3% of the number of ordinary shares in the company’s issued share capital as at 31 May 2010.
Ordinary resolution numbers 1 and 2 respectively require a 50% and 75% majority of the votes, cast by shareholders present or represented by proxy at the annual general meeting to become effective.
The directors are of the opinion that the granting of this general authority is in the best interests of the company as it allows the company to take advantage of business opportunities that may arise in the future.
Ordinary resolution number 3 – Non-executive directors’ remunerationShareholders are requested to approve the fees payable to the company’s non-executive directors for the period 1 June 2010 to 31 May 2011. Fee increases are only implemented after formal approval by shareholders.
The proposed fees have been reviewed by the Remuneration and Nomination Committee and are recommended by the board of directors. Particulars of the process followed by the Remuneration and Nomination Committee are contained in the Remuneration Policy on page 78 of this annual report.
Ordinary resolution number 4 – Consulting services for non-executive directorsThe company’s articles of association make provision for the payment of fees to non-executive directors, apart from the fees earned in their capacities as directors, for additional services rendered to the company or its subsidiaries. The Remuneration and Nomination Committee recommended that the fees paid to non-executive directors rendering consultancy services to the group be decided by the board and sanctioned by the annual general meeting.
Messrs Harlow and Lazarus provided corporate finance, legal and strategic advice to the company and group for which they received advisory fees. The fees for the 2010 financial year amounted to R3 million in total (2009 financial year amounted to R1.3 million in total).
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Form of proxy
Blue Label Telecoms Limited(Incorporated in the Republic of South Africa)(Registration number 2006/022679/06)Share code: BLU ISIN: ZAE000109088(Blue Label Telecoms or the company)
To be completed by certificated shareholders and dematerialised shareholders with “own name” registration only.
For completion by registered members of Blue Label Telecoms unable to attend the third annual general meeting of the company to be held at 10:00 on Tuesday, 12 October 2010 at the Blue Label Telecoms Corporate Offices, 75 Grayston Drive, Sandton or at any adjournment thereof,
I/We(Please print)of address
being the registered holder(s) of ordinary shares in the capital of the company do hereby appoint
1.
2.
the chairman of the annual general meeting as my/our proxy to act for me/us and on my/our behalf at the third annual general meeting of the company which will be held on Tuesday, 12 October 2010 at 10:00 for the purpose of considering and, if deemed fit, passing, with or without modification, the resolutions to be proposed thereat and at any adjournment thereof, and to vote for and/or against the resolutions and/or abstain from voting in respect of the shares registered in my/our name/s, in accordance with the following instructions:
For Against Abstain1. Adoption of annual financial statements2. Re-election of directors
2.1 JS Mthimunye2.2 LM Nestadt
3. Re-election of KM Ellerine4. Reappointment of independent auditors5. Special resolution: General authority to repurchase shares6. Ordinary resolution number 1: Control of authorised but unissued shares 7. Ordinary resolution number 2: General authority to issue shares for cash8. Ordinary resolution number 3: Approval of non-executive director fees9. Ordinary resolution number 4: Consulting services for non-executive directors
10. Ordinary resolution number 5: Signature of documents
Please indicate with an “X” in the appropriate spaces provided above how you wish your vote to be cast. If no indication is given, the proxy will be entitled to vote or abstain as he/she deems fit.
Signed at on 2010
Signature
Assisted by me (where applicable)
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268 1. A form of proxy is only to be completed by those ordinary shareholders who are: a. holding shares in certificated form; or b. recorded on the sub-register in electronic form as “own name”.
2. Shareholders holding dematerialised shares (without “own name” registrations) who wish to attend the annual general meeting must request their Central Securities Depository Participant (CSDP) or broker to provide them with a letter of representation or, alternatively, instruct their CSDP or broker to vote by proxy on their behalf in terms of the agreement entered into with their CSDP or broker.
3. A shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the space provided and any such proxy needs to be a shareholder of the company. Should a proxy not be specified, this will be exercised by the chairman of the annual general meeting.
4. An ordinary shareholder is entitled to one vote on a show of hands and, on a poll, one vote in respect of each ordinary share held.
5. If a shareholder does not indicate on the form of proxy that his/her proxy is to vote in favour of, against any resolution or to abstain from voting, or should any further resolution(s) or any amendment(s) which may be properly put before the annual general meeting be proposed, the proxy shall be entitled to vote as he/she thinks fit.
6. Documentary evidence establishing the authority of a person signing the proxy form in a representative capacity must be attached to this form, unless previously recorded by the company or waived by the chairman of the annual general meeting.
7. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies.
8. The chairman of the annual general meeting may reject or accept a form of proxy which is completed and/or received other than in accordance with these notes.
9. This proxy form should be completed and returned to the company’s transfer secretaries, Computershare Investor Services (Proprietary) Limited, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), so as to reach them by not later than Monday, 11 October 2010 at 10:00.
Additional forms of proxy are available from the transfer secretaries on request
Notes to proxy form |
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269WORDS DEFINITION
AIDS Acquired Immune Deficiency Syndrome
APS African Prepaid Services
APSN African Prepaid Services Nigeria
ARCC Audit, Risk and Compliance Committee
ARPU Average revenue per user
BBBEE Broad-based Black Economic Empowerment
BBC Born before computers
BEE Black Economic Empowerment
BLI Blue Label Investments (Proprietary) Limited and its subsidiaries, associates and joint ventures
BLT Blue Label Telecoms Limited
Blue Label Telecoms Blue Label Telecoms Limited
BPO Business Process Outsourcing
Bulk printing Printing of virtual PINs or predenominated vouchers in mass quantity
CDMA Code division multiple access network
CES Comm Express Services
Company Blue Label Telecoms Limited
Content aggregator An organisation that gathers web content and applications from different online sources for
reuse and resale
CRM Customer Relationship Management
CSI Corporate Social Investment
CSR Corporate Social Responsibility
Developing economies A term generally used to describe a nation with a low level of material well-being (not to be
confused with third-world countries). Since no single definition of the term “developed country” is
recognised internationally, the levels of development may vary widely within so-called developing
countries, with some developing countries having high average standards of living
Digital native A person for whom digital technologies already exist when they were born, and hence has grown
up with digital technology such as computers, the Internet, mobile phones and MP3s
Glossary of terms
ANNUAL REPORT 2010
270 Digital immigrant A person raised without technology and adopted it later
Disintermediation Eliminating the middle man
Distribution channels For Blue Label, our distribution channels include retail and wholesale outlets, petroleum
forecourts, informal retail outlets, individual merchants/entrepreneurs and corporates
dti Department of Trade and Industry
dti CoGP Department of Trade and Industry’s Code of Good Practice
EBITDA Earnings Before Interest, Taxes, Depreciation and Amortisation
EE Employment Equity
EFT Electronic funds transfer
EIA Environmental Impact Assessment
Emerging economies Nations with social or business activity in the process of rapid growth and industrialisation
ETC Electronic toll collection
e-tokens Electronic tokens – a form of electronic cash used for secure transactions
e-toll Electronic toll – mature technology that allow for electronic payment of highway tolls
Exco Executive Committee
FMCG Fast moving consumer goods
GPRS General packet radio service
GPS Global Positioning System
GRI Global Reporting Initiative
Group Blue Label Telecoms Limited
HIV Human Immunodeficiency Virus
IARCS Internal Audit, Risk and Control Services
IC Investment Committee
ICT Information, Communications and Technology
Intelligent transport Toll roads, bus and train prepaid ticketing
Interconnect fees Charges associated with collecting and delivering calls between two different operators
(networks)
IP Intellectual property
IRCC Internal Risk and Compliance Committee
IT Information technology
ICT Information and communication technologies
Glossary of terms | continued
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271JSE Johannesburg Stock Exchange
King III The King Report on Governance for South Africa 2009
Kiosk An area within a retail outlet which is allocated to transactions for Blue Label products and
services
LBS Location-based services
Microsoft Microsoft Corporation
MMS Multimedia messaging service
Money remittances Money transfers
Neo Ukash voucher converted into a prepaid MasterCard®
Oxigen Oxigen Services India
Oxigen India Oxigen Services India
Physical prepaid airtime Prepaid vouchers that are available as physical items
PIN Personal identity number
Pin-less top-up E-token recharge directly to mobile phone via a POS device
POS Point of sale
PowerPin Voucher Off-line prepaid electricity top-up, consolidates the purchase of prepaid electricity across national
municipalities
R&D Research and development
RICA Regulation of Interception of Communications and Provision of Communication Related
Information Act – requires the registration of personal details of all South African cellphone
subscribers
RNC Remuneration and Nomination Committee
RUIM (or R-UIM) Re-usable Identification Module; removable ID chip for cellular phones extends the GSM SIM card
to CDMA phones and networks
Shop-in-shop An area within a retail outlet which is allocated to transactions for Blue Label products and
services
SIC Strategic Implementation Committee
SIM card Subscriber Identification Module card
SMS Short message service
SSETA Services Sector Education and Training Authorities
Starter packs Sim card for gaining access to network operators
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TC Transformation Committee
Ticketing Bus, train and airline ticketing as well as entertainment
Touch points Devices through which consumers are able to purchase Blue Label products and services
TPC The Prepaid Company
Transactional services Includes money transfers, payments of bills and the like
Unbanked People without bank accounts
Underbanked People with poor access to mainstream financial services, such as banks and therefore rely on
alternative financial services OR alternatively people with bank accounts who do not make
effective use of the broader services offered by the bank – they merely deposit and withdraw
cash from their accounts
USSD Unstructured supplementary service data
Value added Measure of wealth the group has created in its operation by “adding value” to the cost of product
and services
VAS Value Added Services
Virtual distributor Distribution of e-tokens of value in electronic format
Virtual prepaid airtime Airtime top-up in an electronic format
VOIP Voice over internet protocol
WAP Wireless application protocol
WASP Wireless Application Service Provider
White label offerings Non-affiliated products and services
ZOK Zok Cellular (Proprietary) Limited
BASTION GRAPHICS
