Blu Label Unlimited Group Limited (BLU) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to Blue Label's unaudited results for the 6 months ended 30th of November 2020. Our highlights and our key performances, significant investment made into our IT infrastructure, which Mark will touch on more in detail just now, significant investment into our distribution channels, our product development and improved customer service. I know the big question on everyone's mind is the Cell C recap. We can tell you with confidence that the Cell C recap is on track. I know that in the past, we have missed many dates that we have indicated to the market, but we are confident that we are heading in the right direction, and that the Cell C recap will take place in a time frame that will be indicated to the market very shortly. Our gross revenue, if you include PINless, as you know, that we have told you, is up 7% at ZAR 32.4 billion for the 6 months. Our gross profit margin up to 11.87%. And I think something that I'll touch a little bit more on as we go, but the cash generated for the 6 months, just under ZAR 1 billion at ZAR 970 million. Our financial highlights, obviously, excluding PINless, our revenue sits at ZAR 9.6 billion. Our gross profit, ZAR 1.14 billion. Our GP margins, as I indicated, up to 11.87%, up from 10.33%. Interest-bearing borrowings down to ZAR 2.3 billion from approximately ZAR 3.6 billion in the same time period a year before. Our net cash generated of ZAR 970 million, our headline earnings of ZAR 0.4096, and our core headline earnings of ZAR 0.427. Gross airtime and data revenue increased by 2% to ZAR 17.4 billion. Our gross electricity revenue increased 16% to ZAR 13.2 billion. And our EBITDA from continuing operations declined ZAR 148 million from ZAR 749 million. Debt and cash flow, I think I've touched it on, on slides before. But just overall, I think one of the major things that we told you was really a back to basics approach for us as Blue label. I think we have done this on the most really well. We've got our debt, and not that we believed our debt-to-EBITDA ratio is really out of sorts, but we've got it down quite considerably at the peak at around ZAR 4.8 billion, all the way down to around ZAR 2.2 billion, ZAR 2.3 billion, debt-to-EBITDA ratio of ranging between 1.5 to 1.8x, which of course, great for a company generating cash like we are. And then I think the most exciting part for us, along with many other things in a very interesting 6 months and a very interesting news of COVID is, of course, the ZAR 970 million that we accumulated through our cash flow and through free cash, which means we're definitely back to basics is working for us. Moving on to a little touch on the COVID-19, the impact, of course. There's so much to say on this. And in all our different businesses and in all our different companies, we've experienced it in different ways. In our homes, and first and foremost, to each and every one of you, obviously, wishing you and your families only health, and be careful out there. It's not easy. It hasn't been easy for us in many ways and for our kids. So first of all, safety and health to all of us. But I must tell you, under the conditions, Blue Label really had what we think is a strong and resilient 6 months. A lot of things did impact us, as we had told you in our write-offs last year. For example, our retail that we wrote off entirely. Our ticketing side from event ticketing, from game ticketing, it hasn't even reopened, so of course, taking a bit of a battery in there. Transport ticketing, it is getting back. We're probably up to about 60% of capacity on the transport ticketing side. So getting back nicely. So we have had our own impact. You would have seen our ticketing revenue decline 56% to ZAR 143 million. So although we're in a resilient market, there has been a few products of ours in a few sections that are obviously come out of the COVID-19 impact. But for the most of it, of course, as you can see, quite resilient. And I think more exciting is what we have in the pipeline going forward. Moving on to SA Distribution specifically. While our turnover has increased significantly, our margins specifically in a specific area in SA Distribution came under a little bit of pressure, especially on the electricity side with the new Eskom tenders coming out, which we proudly won a new tender, the new tender that came out. Unfortunately, it came out at a bit of lower margins, and Mark will touch on that later. And I think for most of it, it's really just trying to do our most in a market that was under pressure. A lot of the informal market that was closed down at the time, informal trading. And I think if you impute back our PINless and you see where the actual -- the movement has gone to our PINless revenue increased by 21% to ZAR 22.8 billion. Obviously, the adverse economic condition drive, what does it do? It drives innovation. It drives digitization. And all of these becomes fast-tracked. I think if we went back a year or 2 ago, and we said to everyone, you'll be working from home, that things would change, no one would be in office, I'm telling you things you all know, but I'm sure we would never have imagined it. So although the impact comes in so many ways, innovation and digitization takes the front of it. And these are 3 products that we launched during the time period, 3 products that we are watching really carefully. They are products that are doing and will do really well. UniPIN wasn't launched at the time, but I'll touch on that now. RINGAS is a voucher that we mentioned to you that is our neutral voucher across all the networks, very innovative, very unique to what we're doing. It has really gotten onto the market quite strong, and we believe it's a product for the future. BLU VOUCHER is our unique voucher for all of our online products. So all of a sudden, you don't need multiple vouchers for all our online products. And of course, our UniPIN, which is our one voucher for all of the electricity and all the municipalities that we deal with. So a lot of innovation taking place. And by creating 1 voucher that carries on or carries many product lines makes a huge difference to what we're trying to do. Our channel performance. I think if you broke it up into the individual channels, of course, some doing really well. Some of them staying pretty the same. And of course, some coming under a little bit of pressure. What we're finding, though, is the ones that are coming under pressure is just a change of habits, actually, of how people buy. One thing Blue Label has always been quite proud of, and one thing we really did and set out for in the beginning is, we spread across all the different mechanisms of how it is distributed in all the different channels of where it is distributed. So though you might be seeing 1 or 2 channels down, you've seen other channels up. And that is why you've seen, as a whole, our revenue up 7%. So we are watching carefully where the channel movement goes. We're watching carefully, of course, where it's going from a PIN product to a PINless product. And of course, all the time, exploring further opportunities in the online channels itself. Our informal market, small, this is where it will began for us. This is about taking product to the people. We said it from day one. In fact, we used the words, Mark and I, that not only has our vision remained very much the same from 2001, but of course, it's now -- when we were shouting it off the rooftops, no one really understood what we meant. I think when you talk about prepaid now, it rolls off the tongues of everyone. Everyone does understand it. But the informal market is the key to everything. It's taking product to the people. It's taking each and every product that we have to every person in the mass market because there's no reason why no one can have that product. And I think that's what Blue Label has shown. South Africa, that's what Blue Label has shown the world in many ways. And now it's a much easier conversation, but literally, 20 years ago, it wasn't. Our PINned products is still the dominant in the channel of the informal product -- in this informal market rather. And what I mean by that is it's exactly that you cannot have a single product or a single model of technology that works. In the informal market, although you're seeing a mass migration to the PINned world, the informal market still lives in the PINned world. The informal market still lives in the wholesale world. So we've got to make sure that our products are fit for what we are selling them into and are fit for the merchant and for the customer, how they want to purchase. And then I think that's what we do really well and have done for many years. Of course, you're talking about our VAS. You're talking about our ticketing, our financial services and financial inclusion, that's what it's all about. This includes, of course, money transfers, and our products remain a magnet for foot traffic. It's a word that's -- we're trying to make really common to you when we talk to you, and that's what it is. Our products are bought, they're not sold. And the more foot traffic we can create, the more products that can be sold across the board. The COVID-19 has had different impacts, I guess, in this market. At first, the foreign traders were pushed away entirely. They've been slow to come back to the market, unfortunately. And there's been new laws when -- to trade in the informal market, basically securing trading licenses. So this market has had its own challenges through COVID. And of course, people are resilient, merchants are resilient, and everyone's working through the new laws and slowly getting back to work and slowly getting back to full capacity. Comm Equipment Company, or CEC, as you know it, I know there is a lot of questions that people want on this. We try to go through of how we would cover it. I think we'll try and cover it more after the session, just to tell you. And of course, anything after that, as you know, that we'll cover with you on a one-on-one basis. We offer that, of course, to everyone. But what I really wanted to show you is what we've done on our debt here. 31st of May of 2019, our debt was just over ZAR 1.7 billion. The 31st of May 2020, ZAR 716 million. Comparative period, 30th of November, of course, ZAR 806 million. 28th of February, as of today, just under ZAR 600 million. And what we want to point out to you because of a question asked to us at the last presentation is that by the 30th of September, we will have 0 debt in this company. That doesn't mean we are cashing in our book at all. In fact, the reverse. Our book remains extremely resilient. Our book continues to grow, and we remain on track to develop -- to deliver really strong growth in this company. The key factors that have been in the newspaper and of late been asked to us, you would have heard, and you would have read that we concluded a managed services agreement for the back-office services of the Cell C postpaid subscriber base. It will be very good for us into the future. And CEC will be leveraging off the Blue Label data analytics division, i.e., Blue Nova, to augment the Cell C data and improve performance of the base, i.e., customers that we bring in, i.e., the keeping of customers and so on and so forth. So overall, from our perspective, I guess, 2020 was an interesting year for all of us. I say it to you without arrogance. And because last year was a really tough year, and of course, we're still in it. But overall, really proud of what we did in Blue Label in what was a tough 18 months for us, not just a tough 12 months of COVID. I mean you all know where we've come from. And I think really excited for 2021. We're not quite sure what COVID brings, but we are working really nicely in a hybrid method, both from home and both at work. And I used the word cautiously, but actually excited for the year ahead. We have a lot in the pipeline, and we look forward to seeing what we can deliver, seeing how much innovation we can bring through these really interesting time. And of course, how much we can digitize and how much we can change the way people live and work and participate in the world that we live in. So thank you very much, and I now welcome my brother, Mark, to take you through the next half of the presentation.

Thanks, Brett. Good afternoon, all. I trust you are keeping safe and well. Let me open up my presentation with Cigicell. Cigicell, again, put in a strong performance with 16% growth in gross revenue. As you are aware, the industry tends to move slowly given the need to apply for tenders, which are only available on an average 3 years. However, the COVID-19 pandemic has resulted in additional demand for electricity top-ups, given that more people are now working from home. In addition, we have seen a change in buying patterns in that tokens are now purchased in the morning rather than in the traditional early evenings when people used to return home from work. The business has been transitioning itself from originally an electronic token vendor to a company that adds value across the entire electricity vending and distribution ecosystem. We are now further entrenching ourselves into the municipalities through various revenue protection measures. Some of the initiatives we are implementing are as follows: the auditing of large power users, where we're identifying accuracies and inadequacies, for example, the incorrect billing and tariffing in order for them to be corrected on the municipalities platforms; the production of reliable data sets that we use to extend services to communities; a broader participation within the entire municipality revenue chain; and the use of the Internet of Things that bring smart technology to metering, which eliminates the cost of replacing conventional meters. You are aware of our in-house product called UniPIN, which Brett referred to earlier, which is our offline PIN voucher that can be sold through merchants, who don't necessarily have technology vending capability, which can then be redeemed for prepaid electricity. We have also recently launched UniPay, which is an innovative service to receive your bills online and then pay them safely and securely online. In addition, our revenue assurance business is gaining traction. In our large power user audit business segment, we have now deployed over 6,000 online meters. Our field work teams have completed more than 3,000 site visits and installed over 2,200 modems. From a revenue assurance perspective, we provide municipalities with accurate data to prevent theft and lost revenue, and thereafter to ensure that these data sets are managed and maintained. Our Data Solutions division is experiencing challenging and uncertain times due to COVID-19. The latest stats reveal that millions of additional job losses have occurred on our already very high unemployment figure, and that is compounding the negative effects of COVID. This tough economy is also affecting response rates and new business from customers. However, our opt-in database continues to grow. Currently, the database sits at just over 29.3 million people, up from 28 million as at the end of May 2020 and is growing at roughly 200,000 records per month. We are using cellular, credit and loan campaigns to aggressively grow our opt-in database. We are also developing innovative business models to increase the use of remote call center agents for multipronged campaigns. We have added reverse billing data capabilities, which essentially means that mobile users that do not have data are still able to transact and communicate with their respective service providers. Much like when you use your banking app, you don't have to pay for the data needed to operate the application. Data solutions is working closely with our in-house data analytics and decisioning engine, BluNova, which I will cover in the next slide, to actively target new cold calling leads and supply existing customers with behavioral economic proof-of-concepts and to expand the range of services we offer. The POPI Act was signed into effect from the 1st of July 2020. The legislation provided a grace period of 12 months to enable companies to prepare. I'm proud to say that we have been working with POPI experts to ensure full compliance, which we are ready to fully implement. Moving on to BluNova. BluNova is the data consolidation, insights and decisioning arm of Blue Label. It helps business with the wider -- within the wider Blue Label group to digitize, that is to build automated transactional businesses through data analytics and decisioning expertise. It offers services in the categories of strategy and insights, marketing and sales, credit risk decisioning and management and decision automation. BluNova brings together the massive Blue label data assets into a supercomputing cloud platform, where we develop unique data insights and transactional opportunities. We mine and enrich the data to build insight-led business decisioning services. We have over 100 million unique mobile numbers and 34 million ID numbers on record with associate consumer and credit profiles. We have appointed well-respected techpreneurs to help execute on this vision. BluNova has become a leading innovator and distributor of mobile fintech products and services. It is an extension of Blue's vision to develop insights into the segment of the market that has been historically neglected. Most credit providers in fintechs have a common challenge in growing market share and onboarding new customers. However, there is an audience of at least 15 million underserved and marginalized consumers just waiting for their lives to be transformed. This is a very segment that Blue is uniquely entrenched in. BluNova is reinventing the algorithms and models, which were in effect in penetrating without a traditional credit history, and this will enable target marketing and alternative credit profiling. I know that I say this every results presentation, but I want to stress that technology is the lifeblood of Blue Label. It always has been and always will be. We have invested significantly in IT in recent past in order to provide unparalleled service that is difficult for our competitors to match. We continue to transform our infrastructure to defend the core business and enable hosting on modern infrastructure to support digital business models with computational scalability. With regards to our infrastructure investments, we're building out on hybrid cloud infrastructure to allow for modern scalability and redundancy in the flexible consumption-based OpEx model, aligned with the transformation of our data center to public and private cloud on a 3-year road map. The initial phase of active-active infrastructure deployment will be completed by end May 2021, and we are ready for activation across all our subsidiaries in the first half of 2022. Cybersecurity remains a key risk and forms a significant basis of our technology investments. We also continue to transform our core platforms to enable stability, revenue generation and business transformation of our businesses. We are building out our gateway capabilities and then simplify the integrations to enable marketplace business models. We're also simplifying the digital technology stack cost model to gain further competitive advantage in the informal trade with broader ecosystem capabilities. We are launching additional VAS distribution channels on the latest technologies, which deliver accessibility to products through monetizable, popular consumer technology platforms like WhatsApp, Telegram and Signal. With regards to digital transformation, we concentrated on enabling the following: the remote workplace, which requires a shift in focus towards cloud-based software as a service, cloud computing, collaboration technologies and the digitalization of processes, asset service and product delivery within the remote working context. We are applying data-driven decisioning and behavioral insights enabled by an aggressive build-out of BluNova's product sets, scoring and decisioning environments. And of course, ongoing operational stability is always key. The core distribution system stability remains at record highs, averaging above 99%, with electricity stability for the first time exceeding 98% in the history of our group. We are extremely proud of these achievements. Moving on to Cell C. Cell C's 4-pillar turnaround strategy remains in play. The management have been fully focused on the operations of the business. They have made excellent strides in implementing a new network strategy, and Cell C is now a significant wholesale aggregator of network capacity. The network operating model has also come into play, which you'll see the mobile network operator partner with the best-of-breed on services and infrastructure. This ensures a scalable and cost-efficient model. On the recap, this is a complex negotiation with multiple stakeholders. It is however, progressing well, and we will notify the market as soon as term sheets are signed. For the period, revenue decreased due to airtime discounts provided during the period. The ARPU, excluding discounts, increased from ZAR 54 in the prior year, the 6 months average to ZAR 72 in the current period. The decrease in statutory EBITDA is mainly due to once-off and recap costs. Normalized EBITDA is adjusted for once-off and recapitalization costs. The depreciation in the current period includes a net reversal of ZAR 1.4 billion due to the change in the useful lives of the assets. An annual impairment assessment of fixed and intangible assets was concluded, which resulted in an impairment of ZAR 3.2 billion. The decrease in interest and finance cost is mainly due to the reduction of the lease -- of the finance lease liability due to the implementation of the MTN roaming agreement and the forex gain is due to the strengthening of the rand. Cell C will be presenting the full year results in the later part of March, which all your questions regarding Cell C will be answered. Cell C has a strategy to focus on the quality of subscribers rather than the quantity. This slide shows that a positive ARPU has been maintained at the end of 2020, and the total subscriber base is back up to 12.5 million. Thank you very much for your time. I will now hand you over to Dean Suntup to run through the financials.

Good afternoon, ladies and gentlemen. The performance of Blue Label Group remains resilient in an adverse economic environment. In spite of the COVID-19 pandemic, the group has continued to deliver essential services, including electricity, airtime, data and other digital services as well as providing financial transactional services, which have not been negatively impacted. The group's ticketing and call center operations have been negatively impacted as a result of the COVID-19 pandemic. The financial highlights for the year ended to 30 November 2020 were as follows: revenue of ZAR 9.6 billion, an inclusion of the gross amount generated on PINless top-ups, prepaid electricity, ticketing and gaming, the effective increase equated to 7% from ZAR 30.2 billion to ZAR 32.4 billion; gross profit of ZAR 1.14 billion; increase in gross profit margins from 10.33% to 11.87%; EBITDA of ZAR 703 million; net cash generated from operating activities of ZAR 970 million; interest-bearing borrowings reduced from ZAR 2.3 billion from ZAR 3.6 billion in the comparative period; core headline earnings of ZAR 0.3735 per share; and exclusion of nonrecurring income pertaining to foreign exchange gains of ZAR 22 million. Despite the impact of COVID-19 and general economic challenges, core headline earnings for the period ended 30th of November 2020, amounted to ZAR 376 million, equating to core headline earnings per share of ZAR 0.427, of which ZAR 351 million related to continuing operations and ZAR 25 million to discontinued operations. An exclusion of nonrecurring income pertaining to foreign exchange gains of ZAR 22 million, core headline earnings from continued operations amounted to ZAR 329 million, equating to core headline earnings of ZAR 0.3735 per share. Core headline earnings for the comparative period amounted to ZAR 390 million, equating to ZAR 0.4318 per share, of which ZAR 387 million equated -- related to continuing operations and ZAR 3 million to discontinued operations. An exclusion of nonrecurring income of ZAR 1 million, core headline earnings from continued operations amounted to ZAR 386 million, resulting in core headline earnings of ZAR 0.427 per share. Earnings per share and headline earnings per share increased from ZAR 0.3483 and ZAR 0.3998 per share in the comparative period to ZAR 0.4992 and ZAR 0.4096 per share, respectively, in the current period. The increase in basic earnings per share was primarily attributable to the disposal of the group's 47.56% interest in Blue Label Mexico, as well as a positive movement from a negative contribution by the retail division of the WiConnect stores in the comparative period to a partial recoupment of losses in the current period. A decision was made to cease the operations of WiConnect retail stores in the prior financial year. The financial results of WiConnect in the current period of ZAR 25 million, as well as those of Blue Label Mobile, the handset division of 3G mobile and WiConnect totaling ZAR 3 million in the comparative period, are disclosed in core headline earnings from discontinued operations and are not included in the continuing operations revenue, gross profit, EBITDA and net profit after tax. Revenue generated by the continuing operations within the group declined by 15% to ZAR 9.6 billion, as only the gross profit earned on PINless top-ups, prepaid electricity, ticketing and gaming are recognized as revenue. On imputing the gross revenue generated thereon, the effect of growth in revenue equated to 7% from ZAR 30.2 billion to ZAR 32.4 billion. The group continues to increase its market share and bolster its products and services mix in order to defend and expand its position in the market. Gross revenue generated on PINless top-ups increased by ZAR 2.2 billion from 9 -- from ZAR 6.9 billion to ZAR 9 billion. Net commission earned on the distribution of prepaid electricity amounted to ZAR 154 million. Revenue generated on behalf of the utilities increased by 16% from ZAR 11.4 billion to ZAR 13.2 billion. Gross profit declined by 3% from ZAR 1.17 billion to ZAR 1.14 billion, partially limited due to an increase in margins from 10.33% to 11.87%. EBITDA declined by ZAR 45 million from ZAR 749 million in the prior period to ZAR 703 million. The latter amount was inclusive of nonrecurring income of ZAR 101 million, of which ZAR 79 million related to the disposal of the group's interest in Blue Label Mexico and ZAR 22 million pertaining to foreign exchange gains, primarily attributable to the USD 20 million liquidity support provided to SPV2. On exclusion of these amounts, EBITDA for the current period amounted to ZAR 602 million at a margin of 6.28%. The anticipated increase in overhead, including costs attributable to additional headcount and expenditure incurred in order to enhance IT infrastructure, the escalation of the quantum of the distribution channels, enhanced capacity in our customer interaction centers and implementation of VAS and financial services strategies contributed to the decline in EBITDA. The Blue Label Group generated positive cash flow from its trading operations for the period ended 30th of November 2020. Moving to the balance sheet. Total assets increased by ZAR 0.3 billion to ZAR 10.6 billion, of which current assets accounted for ZAR 0.5 billion of the increase, offset by a decrease in noncurrent assets of ZAR 0.2 billion. The net decrease of ZAR 140 million in investments in -- and loans to associates and joint ventures comprised the group's net share of profits totaling ZAR 1.5 million, net loan increases of ZAR 2 million; acquisitions of an associate of ZAR 5.5 million, offset by disposals of ZAR 127 million, primarily relating to the disposal of Blue Label Mexico. Each share of the movement in foreign currency translation reserves amounting to ZAR 8 million. And dividends received of ZAR 14 million. Of the net increase in intangible assets and goodwill of ZAR 6 million, additions to intangible assets amounted to ZAR 81 million, offset by the amortization of ZAR 75 million. The material net increase in current assets included inventory of ZAR 137 million, advances to customers of ZAR 76 million, and increases in cash and cash equivalents of ZAR 619 million. This was offset by a decrease in trade and other receivables of ZAR 366 million. The stock turn from continuing operations equated to 16 days compared to 11 days for the financial year ended 31st of May 2020. The debtors' collection period from continuing operations remained at 57 days. Net profit attributable to equity holders amounted to ZAR 440 million, contributing to an accumulated capital and reserves of ZAR 2.9 billion. Current liabilities declined by ZAR 49 million, comprising a decrease in financial liabilities at fair value of ZAR 350 million and financial guarantee contracts of ZAR 69 million. These declines were offset by an increase in trade and other payables of ZAR 402 million, with average credit terms from continuing operations equating to 94 days compared to 80 days for the financial year ended 31st of May 2020. The decrease in financial liabilities at fair value was due to liquidity support payment of ZAR 331 million to SPV2 and foreign exchange movements of ZAR 19 million thereon. The decrease in financial guarantee contracts of ZAR 69 million was primarily due to a settlement of a corporate guarantee of ZAR 54 million on behalf of Oxigen Services India and a foreign exchange movement of ZAR 6 million thereon. Moving on to the cash flow statement. Cash generated from trading operations totaled ZAR 1.1 billion. The working capital movements comprised a decrease in trade receivables of ZAR 361 million, an increase in trade payables of ZAR 332 million, offset by an increase of ZAR 137 million in inventory, and an increase in advances of -- to customers of ZAR 59 million. After paying out net finance cost and taxation, cash generated from the operating activities amounted to ZAR 970 million. Net cash flows utilized in investing activities amounted to ZAR 207 million, primarily attributable to the liquidity support payment of ZAR 331 million to SPV2, purchases of intangible assets of ZAR 20 million, capital expenditure of ZAR 45 million and net loans granted of ZAR 19 million. This was offset by cash inflows from the proceeds of the disposal of Blue Label Mexico of ZAR 191 million, proceeds on the disposal of capital assets of ZAR 3 million and dividends received from joint ventures of ZAR 14 million. Cash flows utilized in financing activities amounted to ZAR 146 million, of which ZAR 13 million related to dividend payments to noncontrolling assets, ZAR 31 million to lease payments, ZAR 62 million to settlement of financial guarantees and ZAR 44 million to treasury shares acquired, offset by ZAR 5 million from the net increase in borrowings. Cash and cash equivalents accumulated to ZAR 2.6 billion at the 30th of November 2020. No dividends have been declared nor any share repurchase considerations at this stage in light of a decision to preserve cash flows, given the remaining uncertainty of the economic conditions, and the tenure of the COVID-19 pandemic. Although Blue Label is a positive cash generator, a decision to declare dividends and/or to implement a share buyback program will be reviewed by the Board of Directors down the line. We are thankful to the Board of Directors for their continued support and commitment to the group. Thank you. The floor is now open to questions.

Good afternoon, everybody. Welcome, as we said, to Blue Label's half year results presentation for November 2020. I'm going to go straight into the questions that have come through to us thus far. If you have any questions, please send them through. I just want to start with the overriding statement to start with, and that is we are getting a lot of questions on CEC, a lot of them in detail. All of those questions, I think, will be much more useful to handle post this and welcome anyone of this. So please send it through to us or to Dean and his team on the financial side, and of course, anyone who'd like to have, I guess, one-on-one on CEC specifically. So we'll probably not be touching too much on CEC as we go along. Okay. First question is from Richard Cheesman. "Good day. Congratulations for the good results." Thank you, Richard. "Please, can you expand on T3 Telecoms? How much of the company does Blue Label own? Related party sales to T3 increased from ZAR 44 million in FY '20 to ZAR 1.5 billion in these results. This is a 15% of reported group revenue. What accounts for this large increase? And is it sustainable?" So I'll go for that one. So first of all, we own 50% of T3 Telecoms. T3 Telecoms is set up with a very powerful partner of ours, our partner who happens to be -- who happens to be BE. We have created a really formidable BE company, but a strong distribution company in both recharge and SIM packs. A lot of the business is not new business. A lot of the business is actually existing business, trying to flow it and trying to create more business in a different scorecard, in a different, I guess, approach to the market under a BE -- proper BE company, if I can call it and use proper carefully and cautiously. So the ZAR 1.5 billion that you're seeing is comprised of SIM pack sales and recharge sales. As I said here from a recharge point of view, 95% of the sales are existing sales. So that came out of the group already, so not new sales. And the SIM pack sales, that is where there is massive focus on T3, of which 95% of that is actually new business and not existing business. So very excited for T3, is profitable already and will be a nice company to track into the future and where we're going with it. Well, that will answer, obviously, the question that it's 15% of our reported group revenue. I obviously stress to everyone to really impute back the PINless. If you impute back the PINless, as you would have seen in our presentation, more and more of our products are going the PINless route. Our revenue, in our opinion, eventually, over years, reported revenue will almost be 0, and everything will be in the PINless world as all new products are PINless. So we're looking at anything that is comparable to our revenue. You must impute back on this, and you would have seen that our revenue actually grew by 7%, and there was no decline in our revenue at all. And is it sustainable? Absolutely. It is our existing business, so absolutely sustainable. I think a little bit more positive than the sustainable part is the fact that from a SIM pack point of view, growing a nice distribution, which is a more direct distribution, and so far, so good. And as I said, we'll report on it more as we go along. Hope that answers the question to you, Richard. Okay. Moving on to the next question is from [ Paresh Udea ] from Nedbank. "Congrats on the results. Three questions from me, if I may, please. Question number one, it seems around ZAR 631 million of your ZAR 970 million FCF generation for the period came from working capital movements. Debtors went down and credit is going up were the 2 big contributors. Are these once-offs? And unwind -- do they unwind post year-end, i.e., creditors repaid and debt is paid back up? Question number two, gross revenue showed good growth, but reported revenue was down 15%. Has the commission structure material worsened in the period? And lastly, number three, I noticed a small decrease in your weighted average number of shares in issue. Have you done a tiny buyback? And do you plan further buyback -- share buybacks in the future?" Dean, over to you.

Perfect. Thanks. So if we look at the cash flow to start, you know that we've got cash generation from operations of ZAR 970 million. Just to reiterate, the business, as the core business, it remains a cash-generative business, and we continue to focus on being a cash-generative business. So if we look at the ZAR 970 million, you mentioned a figure of approximately ZAR 600 million. The amount of the movement in the working capital is ZAR 496 million, so if you start our operating profits were ZAR 610 million and the discontinued ops was about ZAR 30 million, so that's from ZAR 640 million, and then we got working capital movements of the ZAR 500 million. We do believe now that our working capital movements will remain stable. There isn't many once-off items, this relates specifically to additional turnover that we're doing, focusing on reducing our wholesale book and reducing our accounts receivable. So we do feel that those working capital movements will remain relatively stable going forward. If we look at the second question with regards to the turnover, once again, I think it's important to reiterate that the principal versus agent, certain of our products that we sell, we are either the principal or the agent. The principal is when we take the risk and rewards of the stock, and the agent is when we record the switch fee. So with regards to the revenue, if we're recording ZAR 100 sales, ZAR 90 cost of sales and ZAR 10 GP, under the agent should only record ZAR 10. So you will notice over the past years, our revenue has declined. But overall, it hasn't. And you would see in my slide, I present the revenue, which shows that actually, it grew from ZAR 30.2 billion to ZAR 32.4 billion. So although you see the 15% decline, our gross transactional revenue has increased by 7%. And this is done through the prepaid airtime on the PINless side. Our gaming vouchers continue to grow, and we have seen a slight decline in our -- or a decline, a big decline in our ticketing sales as a result of COVID as it currently stands. So we continue to grow that. With regards to the margins, we wouldn't expect earning lower GP, so you'd see that our margins increased from 10.33% to 11.87%. So although the revenue is going down, the margins are increasing, which will result in the GP coming through on the line. So I think it's important that you follow us also from a GP perspective, and you look at the gross revenue going forward with all the products at a gross transactional level. With regards to the share scheme, this has got nothing to do with any share buybacks. This specifically relates to our share scheme that we have in place. We purchased shares in August of every year for the share scheme, and we waited accordingly. I think over the past 2 years, Blue Label's acquired 27 million shares in order to fulfill the employee share scheme requirements.

27 million.

Yes, 27 million shares.

27 shares, we wouldn't fulfill the shares.

27 million shares. And over the last 2 years, there's been very limited vesting of shares due to the prior performance of the group. So that has resulted in the shares -- the number of weighted shares going from 903 million to 882 million shares in issue.

Thank you, Dean. Moving on to the next question. Three questions from Philip Short. "Question number one, you manage your working capital very well in H1. Can we expect further improvement in H2? Question number one. Question number two, regarding Cell C" -- or let's answer each one, I guess, as we go. So question number one, over to you again, Dean.

Yes. As I previously mentioned, Philip, we believe our working capital will remain very similar currently. So we'll continue to generate cash and be a cash-generative business, and we don't expect any significant movements from these -- out the working capital of the inventory creditors and debtors.

Thank you, Dean. "Question number two, regarding Cell C, what is an appropriate net debt-to-EBITDA multiple post recap? And what sort of range are you considering blue shareholding to be?" First question, over to you, Zaf.

Thank you, Brett. Currently using our statutory EBITDA and our total debt, excluding finance leases, we're about a level of 3x. And what we're trying to do is get that to just over 1 over the next 5 years. Obviously, through the transition, we will exit our finance leases, and obviously, improve our EBITDA. And so that's why it's high now and will reduce over the period. Also important to remember that our CapEx will reduce significantly, even though it's not in the calculation, it will reduce significantly, meaning we will need less funding. Thank you, Brett.

Thank you, Zaf. As part 2 of that question was, the sort of range at Blue Label shareholding will be post the recap. Unfortunately, we can't answer that now. We do ever know the range, but in time we'll indicate that to the market. The last question from Philip is, "At Blue's last results, you guided full year earnings of approximately ZAR 650 million after tax. Are you still on track for that?" I'll answer that. You would have obviously seen that, for the first half, we were tracking, obviously, ZAR 350 million. So we believe that our guidance given to you last year, and we specifically gave this guidance because of the disposals and a bit of confusion in our accounts last year. So we gave the guidance purposely. With COVID and all, I guess you can see that we're tracking ahead of that. And with 3 months to go to our full year-end, we are confident, of course, that we're looking better than the guidance that we had given you. So that's good news. Okay. Moving on to the next question is from Jonathan Kennedy-Good. Question number one, "Please, can you provide color regarding the reasons why the Investec debt facility is being managed lower? And whether Investec will extend the facility on a longer-term basis, post February 2022?" Over to you, Dean.

Thanks, Jon. As we've said, Jon, we've had a great relationship with Investec over the last 15 years. We have never had any problems in extending our facilities. So currently, you would have seen that we extended it out from March 2021 to March 2022 now. And every year, we sit down with them and we negotiate a new deal for the year, and we've extended. So we do expect, every year, the facility to be extended and the relationship remains very strong.

And of course, just on that, by the way, it was managed down, not at the bank's request, but at the Blue Label's, obviously, overall statement to the market of back to basics, managing our balance sheet. So it was done really with the banks across the board of all our facilities and done specifically for specific reasons. So the banks on our side have been really great, I think, and we really work well with them, Jon. So I think that's more of getting our balance sheet into a debt-to-EBITDA position of between 1.5 to 1.8x, which we did, actually got a little bit stronger than we thought. And we'll manage it as we go. We've never been over-geared at all, well, at least from our opinion, and we'll manage it and see where to from here. But obviously, the main focus now is to start generating cash to create a war chest of cash to trade and do what we do well with cash itself. Your second part of the question is a CEC question. And as I said, we're going to hold back on that and not because we want to hold back on it. There will be a few CEC questions that we do touch on, but really would like to give this the time it deserves. And obviously, I know a lot of you want to know a lot of it. And then, of course, it's become such a significant part of our business that we need to give you the answers to the questions you have. And all I ask is that we do it offline and happy to give you all the time that you guys require on it. The next question is from Ben Pooler. "The Cell C recap has been dragging on. When will the term sheets actually be signed? Please provide some sort of guidance. Are we talking weeks, months or years?" I'll answer that. I think it's Blue Label's job to answer all Cell C questions to do with recaptures, by the way, that's why you'll notice we are answering the recap questions. Ben, with confidence, I can tell you that the recap is looking really good. I really don't want to make the same mistake that I have made, which is to put dates to it that we haven't achieved. I think you can appreciate that we've given data that we really believe that we would reach. There are 2 main contracts. The 1 contract is what we call the ICA contract, which is the contract between all the old stakeholders. And the second contract is obviously the term sheet or the new term sheet with the banks. We are really confident that we are really, really close to being where we need to be. It's definitely not years. It's definitely not weeks, and really expecting it to happen in the next couple of months. So that's where we are. And just want to reiterate that we're confident that we're on track and we're really confident what the recap looks like. I think that's also important. It's not just a recap, it's what the recap looks like. Next question is from Jonathan again. "Can you provide us with some color as to how revenue and EBITDA and SA prepaid distribution is derived from Cell C airtime sales, i.e., what is the profit made up in of Cell C in the Blue Label business?"

So Jon, as we previously mentioned, if we look at it, the bottom line net profit after tax, Cell C probably accounts for approximately 25% of that figure, so that still remains.

Yes. I think we've made this very clear to the market. And we want to make it clear to the market because it's been a very sought-after question to us, what does Cell C make of our bottom line, and I think that's a very important answer. It makes up approximately 25%. Okay. Moving on to the next question from [ Nick Riffer ]. "What is your cost of equity? I'm concerned that the cost of equity will be less than the yield on the CEC book." This is obviously to do with CEC. "If this is the case and using equity to fund CEC will destroy value." [ Nick ], I know this is a question that was asked quite a lot last year as well. I really believe when we unpack CEC for everyone, you will see exactly what we are trying to do and what we're trying to achieve here. We are not trying to cost our shareholders in equity for this. We have 2 distinctive books at the moment. One is a book that we fund the coders, and one is a book where we fund postpaid. We do have a third element that is beginning, which we call municipality or electricity revenue assurance. It is a model that has got great legs as well as the postpaid book, which has really, really good legs. So we have some really interesting things happening for us in this company. We have said to you, and I know a bit unfairly, but we have said to you that CEC is one of the companies to really watch for the future. That this is a company where we are focusing on heavily. A question down the line, I think, comes and says, "How much cash do we expect in a normalized earnings for CEC to derive for us on a yearly basis?" The answer of that is between ZAR 600 million and ZAR 800 million of free cash. So in a normalized year, really it really splits out good cash for us. The percentage of our net percentage that we're going to make after costs will increase at the moment, and I want to put it out there so that the question is answered. Normalized for the year will be about 7%, post cost, post tax. So I know it's not as high as people would like it to be, but we definitely are in the right track with what we've done with it. And we are fully, fully confident that from the cash that it will split out in the future and the return that it will give us, will be more than adequate for shareholders and for us, and we're right on track to deliver that. I hope that answers it. I know it's a question that has come through in different ways, quite a few times. The next question is from [ Oswald Koputsa ]. "Hi Brett, can you elaborate on the" -- okay. This is again a CEC. "On the business of CEC, what products, what services, how much revenue and free cash, does it currently contribute to the group on a normalized basis? And how much cash can you see it generating?" I think that I've answered all of that. The only question that's not answered in that is the revenue.

On the CEC side.

On CEC side.

So the revenue that CEC currently did for the 6 months was ZAR 326 million.

Okay. Moving on to the next question is -- sorry, I'm just refreshing. Okay. Next one is from [ Nick Riffer ] again. "Can you speak about the competitive environment? Are the competitors leaving the market? And can Blue benefit from the exodus? There have been some news items on Glocell would indicate their financial health might be -- may be questionable." Okay. I'll answer that. I guess the competitive environment in our industry has always been very competitive. I think that's what makes it really exciting. It's a great sector. It's a great environment. We have people entering our environment and leaving our environment all the time, both in the telcos world and, of course, in what we call the prepaid world, which is everything outside of telcos. It does change continuously, meaning that there's a lot of people that obviously remain. And our main competitors, as you know them, are the likes of FLASH and Pep, SmartCore, the banks themselves, the networks themselves. They all remain formidable competitors to us. I think we all survive in a great competitive environment, and I think it is absolutely healthy for all of us. And of course, absolutely beneficial to the end consumer. So we welcome it. And we concentrate heavily on what we are doing. We obviously keep in mind what our competitors are doing all the time. But at the end of the day, it's what we are doing and how we're doing it. The Glocell question, by the way, is a great question. I'm happy it was asked. This is not the Glocell that we own. There was a Glocell before us. We bought out pieces of that company into a company called Glocell Distribution. That old Glocell has gone. I also read about it, by the way, just like you, so we have nothing to do with it. So I'm not quite sure of where their standing is. But actually, there was another company about a month ago that also went in our industry in the wholesale side and the telco side, quite a big company. So there seems to have been great success in our sector, and there has also been a couple of casualties at the same time. So we'll watch it. We always do the competitive environment of it. And as I said, we welcome it. Mark, do you want to add anything from the other side of that?

I just think the technology platforms that we're building are not comparable to anything else that exist with our competitors. Hence, our large investment in our technology stack, our ability to offer active-active real time, always-on types of transactions is what's enabling us to grow our business and find a lot more customers who know that downtime or loss of revenue costs them money every time. So yes, we've seen a large investment in our technology and we will continue to drive that as that's making a huge differentiator in a commoditized world.

Thank you, Mark. Okay. Next question, just refreshing, sorry, is from Toyosi Oni from Renaissance. "Can you help me understand the difference between Blue Label and Egypt-based [ 4E ]? What are the similarities and differences in your business model?" I have to apologize, I'm not sure who they are. Happy to get some homework on them and for us to do a comparison. But sorry for the short answer, but not sure who they are. Okay. Next question, also from Toyosi. "Also can you speak to if or how Blue Label services were outcompeted by banks who got more digital savvy over time? What happened? How did that affect Blue Label? And how have you responded?" Over to you, Mark.