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JOINT CHIEF EXECUTIVE OFFICERS’ REPORTMark and Brett Levy – Joint CEOs
South Africa officially entered a recession in mid-2009 resulting in soaring job losses with a consequent decline in consumer affordability. These negative conditions did not have an adverse effect on the performance of the group as a whole. This is attributable to the growing need of consumers to have access to communication in the most affordable and convenient way. A combination of growth in subscribers and the growing need for the group's bouquet of products has resulted in growth in both revenue and profitability at sustained levels of prepaid average revenue per user (ARPU). This manifested itself in revenue growth of 18% equating to an increase in headline earnings per share of 19%. The above growth was achieved through a combination of the following:
International expansion is of primary importance to the strategy and vision of the group. Various initiatives were launched, including the establishment of Blue Label Mexico, Blue Label USA, Africa Prepaid Services Nigeria and an investment in Ukash, a United Kingdom based company. These initiatives augmented our existing presence in India, Australia, Mozambique and the Democratic Republic of Congo. The significance of the group's presence in South Africa, together with its growing international footprint, drives the expansion in the range of products and services so as to allow the group to capitalise on its distribution network. Our future product and service offerings include ticketing solutions, prepaid insurance, a single voucher for multiple prepaid products and services, lotto sales from mobile phones and till points and money remittances. Consumers will be able to transact by means of credit/debit cards, bank accounts, cash or Ukash vouchers at their discretion. MICROSOFT Our relationship with Microsoft is an ongoing strategic imperative. We share the common goal of engaging consumers and profiling them more effectively. Access to cutting-edge technology and products enable efficient delivery to the market. "LiveID" will facilitate inter-operability between cellphones and personal computers, providing substantial flexibility as products and solutions become device agnostic. Over the past 18 months, we have worked with Microsoft to deliver the next generation of mobile services to the mass markets of the developing world. mibliTM powered by Microsoft OneAppTM, a completely integrated mobile "eco-system" was launched in August 2009. This world first embodies three solutions, namely:
mibliTM powered by Microsoft OneAppTM is free to download and incorporates a wide range of interactive features, such as Facebook, Twitter, miLocate and a mobile wallet. An Apps store is scheduled to be released shortly, which will add to the revenue streams of white labelling, advertising and content downloads. Accessed through a single window in the installations menu of mobile phones, mibliTM powered by Microsoft OneAppTM works on nearly every brand and model of phone. GPRS and Java are the only prerequisites from a functionality perspective. Previously, this level of interactivity was only available on top-of-the-range smartphones. The majority of mobile phones used in South Africa are capable of running mibliTM powered by Microsoft OneAppTM. Given the vast number of mobile phones in use, the scale of opportunity to generate additional revenue is substantial in that every user has the ability to access and vend our prepaid products and services through the mobile wallet feature. In addition, mibliTM powered by Microsoft OneAppTM offers social networking platforms, which the majority of consumers were not able to access in the past. NEW PRODUCT DEVELOPMENT The mandate is to create and formalise internal product integration processes and develop an internal set of skills, focused on product development. This involves the identification of products which fit and complement the existing prepaid product range. The PowerPin voucher, which is an off-line prepaid electricity top-up, consolidates the purchase of prepaid electricity across national municipalities. The product offering of Cellfind has been enhanced with the introduction of miTRAFFIC, an MMS report on the status of traffic within a 50km radius of the subscriber. Prepaid insurance is our most recent product to enter a pilot phase. We have partnered with Metropolitan's Cover2Go to offer a range of products, such as funeral and commuter cover. In-country and cross-border remittances will be an important focus in the future. Strategic acquisitions and investments Africa Prepaid Services Nigeria In December 2008 Africa Prepaid Services (Proprietary) Limited (APS) concluded a distribution agreement with Multi-Links Telkom Limited, a subsidiary of Telkom South Africa. This agreement embraces the servicing of the entire distribution channel of Multi-Links in Nigeria. Operations successfully commenced in May 2009 and are gaining momentum on a monthly basis. Blue Label Mexico Blue Label Mexico commenced trading operations in May 2009. The company is growing the number of points-ofpresence and transactions per site. Key agreements have been concluded with both mobile operators and important sales channels. In the forthcoming year the company is targeting points-of-presence which will cover a wide range of distribution channels, spanning multi-lane retailers and petroleum forecourts, convenience outlets and informal sales channels. A public telephony launch, in conjunction with SharedPhone and Telefonica (a network provider in Mexico), is currently in pilot phase over a platform of 2 000 units. Virtual Private Network (VPN) In December 2008, Blue Label USA, a wholly owned subsidiary of the group, entered into a limited partnership agreement with wholesale distributors of physical international calling cards. The limited partnership, namely VPN was established with the objective of converting a captive client base from physical to virtual distribution. In July 2009 Blue Label USA withdrew its capital
investment in the partnership and replaced it with a
technical agreement with Activi, another subsidiary
of Blue Label Telecoms. Blue Label USA was refunded
its full capital investment in the sum of US$5 million.
Ukash The strategic investment holding in Smart Voucher Limited trading as Ukash has provided the group with technology that enables it to supply the end user with prepaid Ukash vouchers which effectively digitises cash. This voucher enables the customer to transact on-line for multiple products and services through a single prepaid voucher. The Ukash initiative has given the group the ability to provide its products and services to a footprint established by Ukash, covering several countries in Europe. The Ukash issuing, redemption and settlement platform facilitates integration with third party devices and technology, ensuring rapid deployment and broad-based coverage. Ukash has concluded a technology deal with MasterCard "RePower" to be the recharge provider for the launch of the prepaid debit cash loading platform in Europe. Our medium/long-term strategy is that Ukash will provide consumers with the means to cash-in, utilise cash and cash-out at their own convenience. This business model is aligned with our over-riding purpose of delivering products and services to communities, where such products and services were previously inaccessible. Prospects We are well positioned to grow our footprint organically and through strategic acquisitions. Our global reach provides access to a wide range of prepaid products and value-added services that are viable additions to our existing offering in South Africa and other emerging markets. It is anticipated that revenue will continue to grow organically, not only through the existing product offering, but also through the additional product offerings that have been developed in-house and which are expected to be rolled out across the group's points-of-presence during the forthcoming year. The Nigerian distribution initiative is expected to contribute to the growth of our international segment. Blue Label Mexico is steadily increasing its pointsof- presence and turnover in accordance with its business plan. There has been an improvement in the financial
performance of Oxigen India which is expected to
persist. Continued growth in outlets supplied and
new initiatives implemented in Oxigen is expected to
contribute towards Oxigen's improvement in the year
ahead.
The Ukash transaction flow is expected to increase with the advent of high-end redemption merchants that have been added to its client portfolio. Its global issuing footprint will continue to expand into new territories which in turn will compound transactional revenue. Technology partnerships will be pursued in line with the model established in the USA. We constantly strive to increase shareholder value through the expansion of the distribution base and product and service offerings. Expense management and stringent asset management will ensure positive cash flow generation and growth in profitability. We anticipate that our investment in technology and strategic acquisitions will enhance our distribution capabilities, enabling the group to strike an equitable balance between organic and acquisitive growth. Appreciation We thank the members of our board for their guidance and leadership. We also express our sincere gratitude to our executive team and employees for their invaluable contribution to the success of Blue Label Telecoms. Mark Levy and Brett Levy
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