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

Good afternoon, everyone, and thank you for joining us for the presentation of our unaudited results for the 6 months ended 30th of November 2022. With our group's performance continue to exceed expectations in spite of a global economical difficult and uncertain period, on the local front, the first 6 months of this financial year was characterized by disruptions in energy supply, increase in electricity and fuel prices, rising interest rates and growing inflation. Whilst all of these factors constrained consumer spending, our ability to contain the cost of our services and products, the significant growth in our distribution network, supported by our in-house technology innovation and digitization resulted in increases in gross revenue by 9% and in gross profit by 13%. The effective growth in group revenue amounted to ZAR 3.1 billion. However, it's 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, actual net growth in revenue equated to ZAR 710 million. And while core headline earnings for the period ended 30th of November '22, amounting to ZAR 35 million equated to a core headline earnings of ZAR 0.0394 per share, an exclusion of extraneous contributions of ZAR 421 million in the current period, primarily resulting from the recapitalization of Cell C, and the ZAR 148 million in the prior period, core headline earnings increased by 13% to ZAR 0.5172 per share compared to ZAR 0.4568 per share in the comparative period. As you would note from this graph, revenue generated on PINless top-ups increased by ZAR 423 million, electricity revenue on behalf of the utilities increased by 7%, gross gaming revenue increased by 58% from ZAR 958 million to ZAR 1.5 billion and gross ticketing revenue increased by 152% from ZAR 285 million to ZAR 473 million for the current period. Gross profit increased by 12% from ZAR 1.33 billion to ZAR 1.5 billion, congruent with an increase in margin from 14.8% to 15.46%. EBITDA increased by ZAR 94 million from ZAR 624 million to ZAR 718 million, the composition of which will be expounded upon by Dean Suntup in his financial presentation. Revenue generated by Blue Label distribution increased 7% in spite of the negative impact of load shedding on our customers' ability to trade and vend our products and services without interruptions. Revenue generated from the introduction of additional product offerings over the past few years continued to deliver strong year-on-year growth in line with our diversification strategy. Turning to our channel performance. You would note that financial institutions and aggregator channels continue to show strong and the strongest growth, growing by 10% and 52%, respectively, while growth in formal Retail and petroleum convenience channels remain under pressure due to consumer behavior changes accelerated by COVID-19. They have, however, streamlined our sales and service models to minimize the impact of both load shedding and rising fuel prices in acquiring and servicing their customers. Moving on to BluVoucher. BluVoucher continues to be a star performer, achieving a growth of 351%. This is mainly due to the fact that they continue to list the offering broadly across our distribution network and unlock seamless distribution access to online and digital partners. They continue to evolve BluVoucher's offering to unlock further opportunities for cash consumers to transact digitally in a safe and convenient manner. Merchants who have depleted their available funds can now continue trading due to the digitization of the merchant emergency top-up offering. Our purpose is to drive financial inclusion, and our commitment to the informal market remains a driving motivation behind what we do and influences heavily on how it's been executed. We continue to focus on signing up new and retaining existing merchants to ensure that we grow our footprint and bring down the costs of our product and service. Towards this end, the 19% increase in our trader base is evident. Trade on our VAS, on our VAS products as well as entertainment and lifestyle products continue to increase with 16% being achieved for the current period. Although PIN products remain dominant in the sector, there is continued evidence of a shift to PINless products, which impacts negatively on face value sales. Customer centricity remain key in the sector, and in order to ensure that our traders and customers have continued access to our products and services during load shedding, we have implemented the rollout of solar energy solutions to an initial 100 traders in an effort to limit disruptions at this level of operation. Turning to CEC. Turning now to CEC, you would note that CEC continues to be a major contributor to the group's revenue, and it is evident in the growth in gross profit and bottom line earnings. Churn is trending downwards, and read together with lower renewals, highlights the fact that although customers are not renewing their contracts, they are also not leaving the base. CEC's acquisition drive is starting to show results. The postpaid subscriber base is consistently growing, albeit incrementally. This growth can be attributed to their focused initiatives, such as: increased marketing and brand visibility; deals and promotions, such as Win Big with Cell C and Black Friday; more targeted postpaid-specific marketing and greater OEM collaboration. They will continue to focus on these and other initiatives to drive growth in their base. The Cell C consumer base has been negatively affected by depressed market conditions, high unemployment and a constrained consumer wallet. This has resulted in a year-on-year decline in our prepaid base. The revenue mix in prepaid has continued to evolve with prepaid broadband growing exponentially. The movement is in line with market conditions as voice reduces and data usage increases. With MVNOs expected to double their mobile services market share within the next 3 years, Cell C with around 75% of the MVNO subscriber share, is the market leader and generates solid margins. Capitec Connect launched in September, and the number of subscribers continues to show an upward growth trend month-on-month. The weaker rand resulted in higher financing costs as a result of foreign base loans still on the balance sheet prior to the finalization of the recapitalization. With recapitalization being completed, the funding structure has been simplified, and the business no longer has any more foreign debt. The current debt has been structured with a 2-year interest-free holiday. Load shedding has negatively impacted on top line growth and put gross additions under pressure. It has also resulted in increased operational costs and saw the business losing trading hours in areas that have not fully transitioned. It has become a strategic imperative to accelerate network transition, which not only expands their reach, but also gives Cell C better network quality of service for their customers. It is forecast that the network transition, currently at 79%, would be completed by the end of June this year. The Cell C operating model has been simplified to be able to have the required agility in the business, turnaround initiatives and ensure effective execution on our strategic initiatives. They continue to offer competitive pricing and compelling offerings on top of their improved network coverage. This should ensure that we stabilize and grow our subscriber base. The business continues to invest in strategic initiatives within the digital landscape to support the evolution from a telco to a techco, which will facilitate sustainable growth. I now hand you over to Mark, our joint CEO, who will expand upon the influences of technology, data and innovation on the operations and our future. Thank you.

Thanks, Brett. As the world changes, consumer demands change. These changes are not only finding what kind of services and products they want, but consumer patterns, driven and shaped by COVID-19 and various economic constraints, also influence the way in which consumers expect these services and products: more accessible, quicker and at a reduced cost. Blue Label Telecoms, now in order to stay ahead of our competitors, also have to change and adapt to respond appropriately to both these demands. Innovation, data technology and digitization continue to drive that change internally as we recruit new and diverse skills to foster a culture of innovation and new thinking, create and innovate in the most customer-centric way imaginable, develop market-accretive, in-house products and improve our offering and grow our distribution network. This is evident in the exceptional growth of BluVoucher and the growing popularity of BluAdvances. Blue Label Telecoms has committed itself to a holistic digital transformation journey that will use digital thinking to fuel ways of business innovation that promotes 1 or more of 4 outcomes: unlocking opportunities for profitable, and wherever possible, exponential growth; realizing greater efficiencies and optimization; building brand equity and market reputation; and increasing shareholder value and returns. We achieve this through technology, our people and processes. On technology, we have adopted cloud technology that lead to improved performance, security and reduced processing costs. We have also consolidated all group data, which allows us to drive richer insights into those who transact with us. The adoption of tools, which enable us to make data-driven decisions for early identification of risks and opportunities and the use of machine learning and predictive algorithms as a input to our decisioning engines are also key. Data monetization through businesses, such as BluAdvance and AltBureau, are equally as important. To stay ahead of the game, we invest in ongoing skills development, both within our core team and in the form of BluNOVA Academy, which seeks to relieve the shortage of technical skilled staff from grassroots up. In addition, we reward performance and recognize key contributors while providing people the opportunity to own challenges and results. On process, we ensure that our teams are execution-focused by working according to strategic road maps with monthly milestones and clearly defined targets. And we continue to build on the digitization of processes through automization and self-service, while we remain focused on repeatability and automization to ensure that we effectively scale as a team, requiring fewer resources to produce greater outputs. As we are shifting from a distribution and value-added services company that runs technology to being a digital business that orchestrates distribution and X-tech ecosystems, we have clearly identified leading indicators that are typically input-orientated. This includes technology-led innovation, customer experience, collaboration and optimization. And we have also identified lagging indicators that are typically output-orientated, which include effectiveness, economy and efficiency and resilience. So now that we understand this shift, let us look at what BluNova, our technology division, and Blue Label Data Solutions, Cigicell and Transaction Junction do. During the 6 months ending November 2022, BluNova made significant improvements in data generation. And de-anonymization has been made with telco, electricity and transport, which enables enhancements of alternate credit score, income prediction, right-party contact and first-party data. This continues to attract interest from external parties and inspire the birth of new data-driven digital business models, which are being incubated. BluNova launched the BluAdvance business with the ability to offer electricity advances as a proof of concept through BluNova's unique scoring engine. This has showcased the ability to bring together cross-group functions into a digitally enabled offering. From the inception of this MVP, it has generated evidence of the solution's ability to run profitably and, thus, set to scale. The alternative lending algorithm for telcos had been further enhanced to improve performance across Cell C's postpaid portfolio and has supported the business in acquiring new customers. Following a relook of initially declined applicants, who met certain business risk conditions for SIM-only contracts, they have managed to improve the overall credit approval rate from 58% to 62% as a monthly average. BluNova has deployed substantial effort into the credit operation space where collections and management of the business expected credit loss has been a critical focus area, which inevitably impacted on the profitability of the Cell C postpaid portfolio. Through BluNova's alternative scoring, the Ringas dynamic USSD project and BluAdvance, BluNova has enabled the ability of other companies in our group to reach end consumers more effectively and extensively. The ability to identify customers in the cash economy and offer them fintech services, such as cellphone contracts, electricity advances and targeted digital offering, is a key piece of the mass market that is underserved. Leveraging the group's unique alternative data, together with the management consulting, technological and analytical skill sets of the team, they're set to grow the market through new or enhanced consumer digital and traditional channels. Moving on to Blue Label Data Solutions. Blue Label Data Solutions' opted-in database has shown steady growth over the year, peaking at 31.3 million. But since the enactment of POPI, they had to remove any and all opt outs, with the base sitting at a more credible 30.4 million. Blue Label Data Solutions currently supplies 24 different call centers with approximately 150,000 qualified hot leads on average per month across multiple products and clients. The utilization of automated voice messaging contributes to increased lead supply, and we continue to expand our footprint in credit-related markets as well as retail. Our investment in technology and the recruitment of best skills and expertise continues to enhance our standing and ensure that we are consistently ahead of the game and protected against any cyberattack or information leaks. On ongoing operational stability, governance and cybersecurity, we attained a combined uptime of 99.5% across all transactional and infrastructure platforms and maintain ongoing cybersecurity vigilance with 0% tolerance factors and 0 breaches. In this regard, we are making great strides in the implementation of ISO 27001.2013. We continue to progress on the assessment of our internal controls, including fraud controls within our business applications as well as the implementation of the agile framework. As illustrated in previous slides, we are progressing well with our digital transformation plans and on the implementation of robotic process automization. Through automization and efficiencies, we've been able to save more than 8,600 hours throughout the group. Our platforms will leverage our new hybrid cloud backbone and centralized API gateway architecture. This will enable the group to accelerate our business process model transformation and go to market faster with integrations of the best available technologies. Let me now turn to Cigicell, which is South Africa's leading revenue assurance service provider, and Transaction Junction, our business-enablement transactional platform that delivers digital payment solutions that meet the needs of businesses across diverse markets. Cigicell has traditionally produced strong annual growth of between 15% and 20%. This year, growth has been limited to 2%, directly attributable to the negative impact of load shedding. The business is, however, still in a good financial position and continues to invest resources and time on revenue enhancement through which we assist municipalities to recoup lost or stolen electricity tokens. We have signed up new municipalities, who have demonstrated seriousness about improving their own financial health and the integrity of their revenue collection and insurance systems. We also -- we know that this service offering has the potential to significantly improve finances of municipalities, and we will continue to strengthen our teams and its expertise as well as the technology we deploy to ensure the financial stability of affected municipalities. Reware continues to demonstrate growth in the private, commercial and industrial metering space with prospects of further growth therein. UniPay is the leading bill payments, and as the platform adapts to allow more simply -- municipal accounts and traffic funds. And we will leverage off the existing loyal users and also introduce more commercial clients, whose accounts can now be paid through this comprehensive one-stop shop. Moving on to Transaction Junction. During the 6 months under review, Transaction Junction delivered a 5% increase in overall revenue. This is attributable to a combination of new client acquisitions and growth in the existing, client base, supported by TJ's investment in its proprietary product offering. A 26% increase in merchant acquisition was characterized by strong growth in mid-market retail and the emerging acceptance by large retailers, underscoring TJ's strong competitive positioning, deep relationships with bank and international credit card networks and its scalable technology platform. Additionally, the e-commerce segment experienced an impressive 600% growth in transactions with the onboarding of more than 700 merchants during this period. TJ is capitalizing on its firm foundation to expand into Africa, leveraging its South African consumer-based banking relationships to facilitate access to these markets. The company continues to invest heavily into its core platform and product sets, allowing it to offer customers a payment ecosystem solution as opposed to just payment processing capabilities. With that said, I now introduce you to Dean Suntup, our Financial Director, who will take you through the numbers.

Good afternoon, ladies and gentlemen. The highlights for the interim period ended 30th of November 2022, were as follows: revenue of ZAR 9.8 billion. On inclusion of the gross amount generated on PINless top-ups, prepaid electricity, ticketing and gaming, the effective increase equated to 9% from ZAR 36.2 billion to ZAR 39.3 billion. Gross profit increased by 13% to ZAR 1.54 billion; increase in gross profit margins from 14.93% to 15.67%; successful conclusion of the Cell C recapitalization transaction in September 2022; and core headline earnings for the period was ZAR 0.0394 per share. On exclusion of the extraneous contributions of ZAR 421 million in the current period, primarily resulting from the recapitalization transaction of Cell C, and ZAR 148 million in the prior period, core headline earnings per share increased by 13% from ZAR 0.5172 per share compared to ZAR 0.4868 (sic) [ ZAR 0.4568 ] per share in the prior period. The core businesses of the Blue Label Group continued to generate further growth in revenue, gross profit and core headline earnings per share for the 6-month period ended 30th of November 2022. The predominant extraneous contributions to the November 2022 basic headline and core headline earnings per share emanated primarily from the recapitalization transaction of Cell C. Core headline earnings for the period ended 30th of November 2022, amounted to ZAR 35 million, equating to core headline earnings of ZAR 0.0394 per share. Excluding the extraneous contributions of ZAR 421 million in the current period and nonrecurring income of ZAR 148 million in the prior period, core headline earnings increased by ZAR 55 million, 14%, from ZAR 400 million to ZAR 455 million. Core headline earnings per share increased by 13% from ZAR 0.4568 per share in the prior period to ZAR 0.5172 per share. The extraneous contributions to group earnings in the current year were primarily attributable to the accounting treatment relating to the recapitalization transaction of Cell C emanating from: finance income of ZAR 58 million; finance costs of ZAR 90 million; expected credit losses and fair value movements of ZAR 67 million; loss on modification of financial instrument of ZAR 65 million as a result of the CEC deferral amount of ZAR 1.1 billion owing by Cell C; a partial reversal of ZAR 963 million relating to the initial impairment of ZAR 2.5 billion of Blue Label's investment in Cell C as at the 31st of May 2019, congruent with an improvement in its equity valuation; with recognition of the group's share of Cell C's net accumulated losses amounting to ZAR 2.2 billion for the period 1 June 2019 to 30th of November 2022 limited to the extent of ZAR 1.328 billion, being the aggregate of the partial reversal of the initial impairment of ZAR 963 million of Blue Label's investment in Cell C as well as an additional investments therein amounting to ZAR 366 million; and the accounting implications of the termination of the Airvantage put option obligation for the acquisition of up to 40% of the shares therein, which resulted in a fair value gain of ZAR 22 million. Group revenue increased by ZAR 710 million, 8% to ZAR 9.8 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 thereon, the effect of growth in revenue equated to ZAR 3.1 billion, 9%, from ZAR 36.2 billion to ZAR 39.3 billion. Gross revenue generated on PINless top-ups increased by ZAR 423 million from ZAR 10.3 billion to ZAR 10.7 billion. Gross gaming revenue increased by ZAR 558 million, 58%, from ZAR 956 million to ZAR 1.5 billion, with BluVoucher sales continuing to gain traction. Gross ticketing revenue increased by ZAR 285 million, 152%, to ZAR 473 million, primarily as a result of revenue generated through commuter bus channels. Although electricity revenue generated on behalf of the utilities increased by ZAR 1.13 billion, 7%, from ZAR 15.93 billion to ZAR 17.06 billion, net commissions earned calculated on kilowatt hour usage basis declined by ZAR 11 million, 8%, to ZAR 142 million. NERSA electricity tariffs resulted in an increase in gross electricity revenue. However, the decline in commissions were primarily as a result of a decrease in electricity usage, emanating from higher frequencies of load shedding as well as margin compression. Gross profit increased by ZAR 179 million, 13%, from ZAR 1.36 billion to ZAR 1.54 billion, congruent with an increase in margins from 14.93% to 15.67%. EBITDA increased by ZAR 94 million, 15%, from ZAR 624 million to ZAR 718 million, excluding the extraneous costs of ZAR 109 million in the current period and nonrecurring income of ZAR 278 million in the prior period. The anticipated increase in overheads included costs of ZAR 70 million attributable to learnership initiatives in the current period and ZAR 25 million in the prior period. The benefit thereof is realized by way of income tax savings as a result of section 12H allowances being claimed for such learnerships. On exclusion thereof in both the current and prior period, EBITDA increased by ZAR 139 million, 21%. Moving to the balance sheet. Total assets increased by ZAR 1.5 billion to ZAR 14.9 billion, of which noncurrent assets accounted for ZAR 2.1 billion, offset by a decline in current assets of ZAR 522 million. Noncurrent assets included: increases in loans to associates and joint ventures of ZAR 1.9 billion, investments in associates and joint ventures of ZAR 9 million, advances to customers of ZAR 112 million, deferred taxation assets of ZAR 54 million and capital expenditure net of depreciation of ZAR 46 million. These increases were offset by decreases of ZAR 8 million in right-of-use assets and ZAR 2 million of intangible assets and goodwill. The increase of ZAR 1.9 billion in loans to associates and joint ventures primarily related to the recapitalization of Cell C and comprise the following: debt funding of ZAR 1.03 billion, which was required by Cell C to effect a compromise offer made by it to certain of its secured lenders. Of this amount, ZAR 915 million was accounted for as in a loan to an associate and ZAR 118 million as an investment in Cell C, the latter being congruent with the fair value of an additional 9.53% shareholding acquired as part of the recapitalization. A loan of ZAR 111 million originating from TPC's participation in the reinvestment instrument acquired at nominal value; and the CEC deferral amount, whereby an existing claim of ZAR 1.1 billion by it against Cell C was renegotiated to be repaid by the latter in 60 equal monthly capital installments and was reclassified from trade and other receivables to loans to associates and joint ventures at its initial fair value of ZAR 1.035 billion. Of this amount, ZAR 221 million is accounted for in current assets. The material net decrease in current assets included: decreases in trade and other receivables of ZAR 2 billion, cash and cash equivalents of ZAR 454 million; offset by an increase in inventory of ZAR 1.3 billion, advances to customers of ZAR 388 million, and loans to associates of ZAR 221 million. The decrease in trade and other receivables of ZAR 2 billion predominantly related to the decline in CEC's trade receivable balances from Cell C. This decrease was attributable to the settlement of the obligation owing to CEC down to an amount of ZAR 1.1 billion, which -- with such deferral amount being reclassified to loans to associates and joint ventures. Excluding the trade debtors relating to CEC, the debtor's collection period increased to 35 days compared to 28 days in the -- for the year ended May 2022. The increase in inventory of ZAR 1.3 billion was primarily attributable to the group purchasing ZAR 1.2 billion of Cell C prepaid airtime as part of the recapitalization transaction. This purchase was necessitated in order to assist Cell C with its working capital requirements. The stock turn equated to 55 days. Excluding the inventory purchased to facilitate the recapitalization transaction, stock turn improved to 25 days compared to 28 days for the financial year ended May 2022. Net losses attributable to equity holders amounted to ZAR 77 million resulting in accumulated capital and reserves of ZAR 4.1 billion. Noncurrent liabilities increased by ZAR 2.3 billion comprising an increase in borrowings of ZAR 2.3 billion relating to the airtime sale and repurchase obligation of ZAR 643 million, issuance of Class A preference shares of ZAR 169 million and an increase in the noncurrent portion of working capital facilities of ZAR 1.47 billion, in deferred taxation liabilities of ZAR 62 million and in lease liabilities of ZAR 4 million. Current liabilities decreased by ZAR 709 million comprising a decrease in trade and other payables of ZAR 680 million, borrowings of ZAR 110 million and lease liabilities of ZAR 14 million. This decrease was offset by an increase in financial liabilities at fair value through profit and loss of ZAR 68 million and current tax liabilities of ZAR 27 million. The decrease in trade and other payables of ZAR 680 million predominantly related to the decline in CEC's trade payable balance owing to Cell C, which occurred simultaneously to the decrease in trade receivables attributable to the settlement of the obligation to CEC to the amount of ZAR 1.1 billion. Average credit terms equated to 102 days compared to 124 days for the financial year ended 31st of May 2022. The net decrease of ZAR 110 million in current borrowings related to a decline in the current portion of working capital facilities of ZAR 742 million resulting from the extension of the terms thereof and as such, being accounted for as noncurrent borrowings. This decline was offset by the current portion of the airtime sale and repurchase obligations of ZAR 632 million. The increase in financial liabilities held at fair value through profit and loss of ZAR 68 million related to the issuance of Class B preference shares to the lenders and the recognition of the SPV5 derivative liabilities in terms of the recapitalization transaction. Moving on to the cash flow statement. Cash utilized in trading operations totaled ZAR 155 million. Working capital movements comprised an increase in inventory of ZAR 1.3 billion and advances to customers of ZAR 500 million, offset by a decrease in trade receivables of ZAR 962 million and trade payables of ZAR 181 million. After incurring net finance costs of ZAR 159 million and taxation of ZAR 80 million, net cash utilized in operating activities amounted to ZAR 394 million. The increase in inventory of ZAR 1.3 billion was attributable to the group purchasing ZAR 1.2 billion of Cell C prepaid airtime as part of the recapitalization transaction. Congruent with this acquisition of airtime, Cell C settled amounts owing to CEC, resulting in a significant decrease in trade receivables of ZAR 962 million. On a normalized basis, cash generated from operating activities would have amounted to ZAR 700 million after taking into account ZAR 1.1 billion of extraneous cost and income relating to the recapitalization transaction of Cell C. Net cash flows utilized in investing activities amounted to ZAR 2.2 billion, primarily attributable to the purchase of intangible assets of ZAR 758 million, net loans granted to associates of ZAR 998 million and an increase in the investment in Cell C of ZAR 366 million. Of the ZAR 758 million invested in intangible assets, ZAR 383 million related to the cost borne by the group in terms of the subscription income sharing arrangement and ZAR 343 million to costs borne by the group in terms of subscriber acquisition costs. The net loans granted to associates of ZAR 998 million included net loans of ZAR 993 million relating to Cell C. This amount comprised the ZAR 915 million debt funding and ZAR 111 million originating from TPC's participation in the reinvestment instrument acquired at a nominal value, offset by ZAR 53 million of capital repayments by Cell C. The additional investment of ZAR 366 million comprised ZAR 25 million of notes acquired in SPV1, which are secured by shares in Cell C; a loan of ZAR 223 million provided to SPV4, which is also secured by shares in Cell C; and ZAR 118 million of new money loans attributable to the acquisition of a further 9.53% of the issued share capital of Cell C. Cash flows generated from financing activities amounted to ZAR 2.14 billion, of which ZAR 2.16 billion related to the net increase in borrowings and ZAR 67 million to the issue of Class B preference shares, the proceeds of which were applied to the Cell C recapitalization transaction. These amounts were offset by ZAR 20 million to lease payments and ZAR 66 million to the purchase of treasury shares. Cash and cash equivalents accumulated to ZAR 2.3 billion at the 30th of November 2022. We wish to thank the Board of Directors and staff members for their continued support and commitment to the group. Thank you. The floor is now open to questions.

Good afternoon, everybody, and welcome to Blue Label's unaudited interim results for November '22. I'm going to start with the questions online. So let me point towards online first. Are there any questions online?

There are no questions on the lines at this stage.

Thank you very much. So I'll move on to questions that have come through to us. The first question from Philip Short. I see on Slide 36, you show normalized cash flow of ZAR 700 million for the half. Can one assume ZAR 1.4 billion operating cash flow for the next 12 months and debt to come down by a similar amount plus the monthly payments from Cell C? Which will take us to what debt number in 12 months? I'll pass it over to Dean.

Yes. So Philip, as you would have seen in the slides, we gave a slide of normalized cash generated from operating activities. Based on the Cell C recapitalization transaction, you would have noticed that our movement in working capital would have been negative by approximately ZAR 1 billion. So if we look at the cash-generating activities of minus ZAR 394 million as per the graph, if you add back the stock acquired, the amounts that Cell C were repaid back with regard -- that Cell C paid back to CEC, the net amount normalized would have been ZAR 700 million. It's a fair assumption to make that the normalized cash generation for the 12 months would be approximately or around ZAR 1.4 billion normalized. With regards to the debt levels, -- just to take you back, the debt levels would have increased significantly as a result of the airtime sale and repurchase obligation that we made. We 3 have working capital facilities. The one is African Bank, which is approximately ZAR 1.9 billion. That is ring-fenced for the CEC book. That facility will continue out into the future, together with the normal facility, working capital facility that we have of ZAR 1.4 billion. So the ZAR 3.2 billion would remain going forward. With regards to the additional facility that we took out with regards to the recapitalization, that would have been the amount from the airtime sale and repurchase obligation amounting to ZAR 1.3 billion, and Class A pref shares, which was ZAR 170 million. So we had approximately just over ZAR 1.4 billion at the 30th of November. If we look 12 months out, that amount, as we've said, the amount will reduce over 2 years. After 12 months, it will be approximately just over ZAR 800 million, taking you to the 30th of November '23. By the 30th of November '24, it will be approximately ZAR 200 million. And then ultimately, as we mentioned, 24 months later, it will be down to 0, leaving us with just our working capital facility of ZAR 1.4 billion and the African Bank facility, which is ring-fenced for the CEC book.

Thank you, Dean. Next question also from Philip. Given regulatory approval, what does taking control of Cell C look like? What is the mechanism? And to what shareholding do you go? I'll answer that. So of course, any mechanism that we -- if we choose to take control of Cell C, will obviously need both ICASA and ComCom approval. Obviously, without either or both of them, we obviously cannot do it, so that goes without saying. Taking control can be in the form of a couple of percent of where we are. So there's no set formula to what control is, actually. It would mean us uplifting our shareholding by anything from the 3%, 4% from where we are today to 20% or 30%. So there's no defined mechanism for us yet of what we want to land up with. I think, as I mentioned in the last meeting, is it's definitely our intention to look at this seriously. And as we mentioned this morning, actually, that by the -- our year-end, which is May, to choose a direction of yes or no of either taking control or not taking control. So we are definitely looking at this seriously. If we do, do it, it should happen -- at least our application should happen in the next couple of months. Obviously, after that, you have to go through all the approvals and everything that need be. And the mechanism for us to do it is a number of different ways. But probably, the easiest way for us is to have a look at the SPV vehicles and to see if we should convert any of the equity, the debt into equity in the SPV vehicles. So as we go and as we have more clarity on it, we'll update the market. But there is no intention to raise any money to take more equity in Cell C. I think that's the important part to note. Okay. The next question is -- I'm not quite sure what it means, but I will repeat it anyways. From [ Elaine Montana ]: How does Cell C affect us negatively? So I think I'll hand it over to Dean, but just the summarized version of how we accounted for it and, of course, how it affected the results negatively.

Yes. Thank you. So if we could start just as we've mentioned, there was Blue Label's results as we presented in the presentation. You'll recall that last year, excluding any one sort of extraneous income, we made ZAR 400 million. In the current year, excluding the extraneous contributions, primarily from Cell C, the group would have made ZAR 455 million, which is a ZAR 55 million increase, 14%. With regards to the negative contribution, you would have seen the ZAR 455 million core headline earnings reduced to ZAR 34 million. So this was a decline of approximately ZAR 420 million. This decline was primarily related to the recapitalization of Cell C. These are IFRS accounting treatments that we need to put through. So if I can explain it, there were 2 major items that affected this. One was, if you recall, on the 31st of May 2019, Blue Label impaired its investment in Cell C of the ZAR 5.5 billion. Of the ZAR 5.5 billion impaired, ZAR 2.5 billion related to the impairment of the investment in Cell C and ZAR 3 billion to the equity losses, resulting in us fully impairing our investment. Looking forward now, what you got -- well, the first thing that was needed to be was to do a valuation of Cell C, of which the group's share of the equity value of Cell C amounted to ZAR 963 million. So this was the ZAR 1.5 billion value of the group, and our share amounted to ZAR 963 million. The first step in the reversal is that in terms of IFRS, we are going to reverse the initial impairment of our investment in Cell C. So it was ZAR 2.5 billion, but it's limited to the amount of the group share, which is the ZAR 963 million. So that resulted in an increase in our income statement of ZAR 963 million. The second thing you need to consider is what was the group's share of losses -- previous losses. So this would relate to the period from the 31st of May 2019 up to the 30th of November 2022. So our share of the group's share of net accumulated past losses amounted to ZAR 2.2 billion. In addition, what we also did was when we loaned the SPV1 and SPV4, we raised an additional investment in Cell C of ZAR 366 million. So you now have the reversal of ZAR 963 million and the ZAR 366 million of your additional investment, which is -- amounts to ZAR 1.3 billion. The next thing we do is we have ZAR 2.2 billion of unrecognized losses. So we can now recognize our losses up to the amount of the investment, which is the ZAR 1.328 billion, which will result in income from associate declining by ZAR 1.328 billion. So you'll have the increase of ZAR 962 million and the decline of ZAR 1.328 billion, which leaves you with a negative ZAR 366 million of the ZAR 420 million. So just to reiterate, those were the past unrecognized losses of Cell C that were previously are now being recognized. Currently, we have ZAR 904 million of still unrecognized losses. That would be the ZAR 2.2 billion less the ZAR 1.3 billion, leaving us with future unrecognized losses of ZAR 903 million.

Thank you, Dean. Moving over to the next question. It's from [ Dwight da Silva ]. I think the second part of your first question, I think Dean just answered now. So the first part is -- and it's for Dougie. Douglas will answer this one. Can we talk through how Cell C performed operationally for the period? It appears as if losses increased by 20% for the period, although I understand this will look differently going forward due to the recap. Over to you, Dougie.

I don't want to go into too much of the detail of the numbers because, obviously, we're going to come out with our first set of audited results towards the second or third week of April, which will finally be audited results. I think what needs to be understood is that there has been stability, both in the ARPU of the business and in the subscriber base. And a lot of the portions of the losses are more to do with the decommissioning of sites that have been active as the network has been transitioned over. So those are part of the makeup of that. And then there's obviously a portion of that that's also attributable to an element of depression in the market. But the bulk of it has been mostly related to the transition of the network and the change in the business model that sort of manifests itself in the depreciation and amort line as to that ZAR 2.2 billion.

Thank you, Dougie. The next question is also for you from [ Nick Kreha ]. It does not appear that Capitec are aggressively marketing Capitec Connect. Can you walk us through the promotional strategy for Capitec Connect? Does Cell C contribute towards promotion expense of Capitec Connect? How are Capitec Connect subscriber numbers tracking relative to expectations?

At least it's not a negative balance sheet. So to start with Capitec and how it's moving, Capitec, okay, to answer the first question last or the last question first, definitely tracking on subscriber numbers. Capitec is moving ahead very nicely and on track to what our expectation was, which we will give the full detail of in the -- in our results presentation. Your second part of your question, no, we do not subsidize it in any way. That is part of the beauty of the MVNO model in that it is how you get a difference in the cost and why MVNO is such a strong model to adopt, for us especially. And then thirdly, I'm not sure I agree that Capitec is not pushing it very hard. I think what Capitec is doing is that they are using their branch network, which is very extensive, very specifically. And they are clear on where they want to go, with who they're addressing. So they don't use a distribution model similar to what traditional distribution is, where it's sort of SIM cards everywhere. They actually are marketing it to their customer in-branch, connecting in-branch and putting that process through right there within a matter of 2 minutes or so.

Thank you, Dougie. Just staying with you, Dougie. The next question is from [ Elvie Sillas ]. I note that the Cell C full network migration date accelerated from the 30th of November to the 30th of June 2023, with 79% completion to date, to network availability at 92%. Can you elaborate more on how the future Cell C business will look like, its margins and capital requirements? Have you seen any notable customer responses and certification to its new mobile network being used?

Sure. Good question. Thanks, [ Elvie ]. Okay. The main -- one of the reasons that we wanted to accelerate it is obviously to offset a lot of load shedding as well as revenue opportunity that we believe is on the table by getting the large areas on, specifically [ Karting ] and KZ in. In the areas where we are fully transitioned, we are obviously having the benefit of the superior capital expenditure of the MTN network, which is allowing us sort of 92% availability. That, as also, if you tie it up to the earlier question around the network availability and some of the earnings loss, where we are recognizing the decommission costs, some of those decommissioning costs will come forward into the 2023 year as we do the acceleration of the network. But without a doubt, the customers that are in the areas that are transitioned are clearly seeing a difference in the network quality that we had before as opposed to now.

Thank you, Dougie. Moving to the next one. Sorry, just before I move on to this, is there any online? Let me just check online if there's any questions that have come through online.

No, sir. Not at this stage.

Thank you. So continuing, from [ Dwight da Silva ]. Com earned by Blue Label from electricity declined due to lower usage. How exactly do you earn com? It's obviously not simply a percentage of revenue. If not, can you share the formula? Over to you, Mark.

Yes. I suppose it's not simple. We try to simplify it when we present our results, but we get paid per kilowatt or in, when it's a bill payment, a fixed rand per statement. Now when there are increases in the marketplace, when there are tariff increases, i.e., 100 watts cost ZAR 100. We get paid commission on the 100 watts. When there's a tariff increase, say of 15%, the 100 watts goes to 115. We only still earn commission on the 100 watts. So from our perspective, there's been, over the years, natural erosion of margin every time a tender has been reawarded. What we've found and what we're seeing is that we are increasing the municipalities we have direct contracts with, thus, increasing our turnover. Electricity are very complicated product. It's like doing a financial transaction. So you need proper, sophisticated systems in order to run these because when a transaction fails, that transaction belongs to that municipality, that meter, and you can't just recycle it anywhere. So it's a very sophisticated recon and settlement process, which I think Blue Label does very well. Going forward, well, what we need to do is simple, is increase our muni reach, i.e. go to as many more munis that are available to get directly; and second of all, help these municipalities with recoveries in terms of lost or stolen electricity tokens. By doing that, we can help increase our revenue and increase the municipalities collections. The biggest issue that we're all facing today is load shedding. If you simply do the math, and we're losing 8 hours a day currently. By 30 days, it's 240 hours, 240 hours divided about 24 is 10 whole days, effectively, someone doesn't need electricity. In the past, we believe that most people didn't have sufficient funds to last them a full month, maybe 4 or 5 days. Here, we're talking about 10 days. So you're talking about 5 days that people aren't required to buy electricity, not because they don't want to, because there's no provisioning. And that's where we're seeing a decrease in actual spend on electricity, because they cannot consume what they're spending. We hope that these load shedding issues will come to an end. But I think for the next coming period, I'm not quite sure year or 2, we do believe that the revenue of electricity on the traditional side will come under pressure. Our goal is to find other avenues, which include, as I said, helping them try bill for lost or stolen electricity.

Thank you, Mark. Next question is from [ Elvie ]. What part of your business are you most excited about its growth and profit contribution possibilities? I'll answer that. So [ Elvie ], I think for most of it, we are pretty excited about most parts of our business. Obviously, not ignorant to what's going on in South Africa at the moment, goes without saying. This electricity crisis is really a problem. We've seen it heavily in the SME market, in the mom-and-pop stores, in the spaza shops and shebeens. Of course, everywhere else as well. But it's a tough environment out there. So nothing is going to be easy and nothing is going to be straightforward. There's no doubt about it. But we're in quite a resilient space. And that's not the telco space. By the way, the telcos is really the bread and butter and the core of what we all do. But we've seen tremendous growth, and you would have seen it, for example, in our gaming, we grew over 50% in the comparative period from over ZAR 900 million to over ZAR 1.5 billion. So you're seeing gaming really take off. What's actually happening in this gaming space is quite phenomenal just to watch. Then, of course, you have everything around electricity, not just the token vending, as Mark mentioned, but the revenue assurance and everything that sits around the municipalities. And that opportunity is pretty endless. And then ticketing, sorry, we had a great 6 months or good 6 months, where we basically increased by over 100%, from over ZAR 200 million revenue to over ZAR 400 million revenue. So we're really making some nice inroads in sports ticketing and transport ticketing. And then, of course, what we're doing with the data and the launch of our new [ Nano Advance ], which is electricity advance and airtime advance in one voucher. So I think overall, our products are doing good. Our distribution grew, which we had -- which I mentioned when I spoke, actually. So we've seen a growth in distribution partners. We've seen a growth in merchants. And of course, we've seen a growth in the products that we're doing. Telcos, I guess, the days of seeing double-digit growth are gone forever, for now at least. But it's nice and solid. And our PINless top-ups grew by just over 4%. So a little bit over the revenue that the networks grew at, but that's just because we're a neutral aggregator, of course, and not just for one. And then I guess the elephant in the room is we're really excited about Cell C. And I think these networks as a whole are in a very difficult space. They're fighting a lot of battles that they didn't plan for many years ago. Having a network is not easy today. The cost of diesel generators, inverters, batteries, somehow, I feel sorry for these networks because they really are keeping our networks going. And I know we complain because we drop in a few more calls than we ever did. But my personal belief is these networks are doing a great job. Obviously, in our world, one of the things that management of Cell C got 100% right is the movement away from our own network, where the transition started 3 years ago. So it's not an easy thing to move away from your own network. As you can see, it takes many, many years. We are literally months away, which is unbelievable for us. So we just don't have the same headaches of a normal network as we do in our Cell C network. So really excited to be away from the CapEx side of it literally. And then I think the most exciting thing about Cell C -- and it's not going to be an easy road. The market is not easy at all. Is -- I think for the first time, we know exactly who we are. We know exactly what we are. And most importantly, we know exactly where we want to be. So very different to the first recap where it was this grand job being the #1 or 2 network and having the biggest network and all the wrong things. I think now, management and us know where we're going and know where we want to be. So that's exciting. And as I said, it's not going to be a straight road, and it's going to come with a lot of bumps in the road. But I think that our fight in the market is a little bit different to that of the Vodacoms and the MTNs and the Telkoms. We've taken a lot of pain. Cell C has written off, I would say, an excess of about ZAR 50 billion, ZAR 55 billion to get to this state. So it hasn't come without a lot of blood and pain along the way. But excited for where we're going and looking forward to seeing what actually Cell C does over the next 12 or 24 months. The next question disappeared. Okay. And the next one is -- we've done that one. Sorry. The next one is from [ Shelton ]. Thank you for the presentation. What drove employee and benefit expenses to be up 35%? Handing it over to you, Deanie.

Yes. So if we look at the employee cost, as you mentioned, it went from ZAR 326 million to ZAR 441 million, which was a ZAR 114 million or 35% increase. This was predominantly made up of 2 factors: One, as we've mentioned in the past, we are doing a section 12H learnership initiative where this resulted in an additional ZAR 39 million to the employee cost line. The second was anticipated increase in the overheads and employee costs. This was with regard to headcount. So I guess we hired more people to support the delivery of top line revenue and other strategic objectives, I guess, specifically including IT and fintech products that we're launching into the market or have launched into the market.

Thank you, Deanie. [ Nick ], I note there's a question you have on Capitec again and the pricing, but I think this is more of a question that we would like to just take offline. I mean you just deal with it. It's a lot larger than a question to answer. Yes, it's a positive one, by the way. But if I could ask you just on your next one that Cell C and -- well, it's actually a bit of Blue Label, Cell C together, we just take that question offline. Okay. And the next question is from Philip Short. What is the net profit percentage split among CEC, prepaid airtime and other? Over to you, Dean.

Yes. So if we look at it, CEC contributed ZAR 194 million of the net income after tax. It has become a significant item, a significant company. We have mentioned that it is predominantly going to grow over time. Our airtime sales, as we mentioned, continues to grow from a PINless environment. You would have noticed that the offline, as Brett mentioned in his speech has declined but this is probably as a result of the change in the consumer buying patterns from offline to PINless environment. So yes, it's -- that would probably be the split.

Okay. Thank you. The next question is from Philip Short. Brett, you mentioned on the call that the MVNO market in South Africa will double market share in 3 years. Please expound how do you get there? What I was talking about here was that our opinion is that if you look at MVNO and the revenue share they have of the market today, that we believe that, that amount of market share that is MVNO today will double in the next 3 years. That we are absolutely confident about. There is no doubt about it that the MVNO market as a whole will take more revenue share as a percentage of the market. It will come through, obviously what you've seen already, a number of retailers, a number of banks and so on and so forth. So the mechanism of how it's going to happen is more MVNOs coming into the market. And of course, the ones that are in the market making a greater impact in the market. So as I said in my last presentation, I would watch the MVNO space pretty carefully. I think it's going to play -- I know that MVNO was launched many, many years ago, but I think it's their time. Sometimes certain products and certain things launch before their time. But I really think the next 5 years, the MVNO time is here. And you'll obviously have ones that are very successful. And obviously, you'll have ones that are not successful. But the time is now. Okay. And the next one is from Ben Pooler. Can you walk us through the methodology used by the external valuator to value Cell C? Was there a separate valuation for the frequency, for the spectrum together? And then what is Cell C currently valued at? And do you expect further increases in the valuation? Over to you, Deanie.

Yes. So the valuation methodology was an internal valuation done by management. There are -- we use the value in use, whereby we discount the cash flows back to present value. I think the key there is we need to look -- the valuation methodology is then to look at that Cell C has been a distressed asset over the past years. We need to still be cognizant of the fact that there's significant or there is risk with regards to execution of the business plan. And we believe that as management achieved the milestone, so the valuation will increase over time. You would see in the booklet that currently, they utilize high WACC value because both the cost of debt and cost of equity are high. So taking into considerations, they allocate the probability of distress to the discounted cash flows, which then comes up with a valuation of ZAR 1.5 billion. I think the key here is as we mentioned, they look at past history of Cell C as well as looking forward. And if management achieve -- or when management achieve their business plan going forward, so the valuation of Cell C would increase accordingly.

Thank you, Dean. The next question is from [ Dwight ]. Can you please give us some insights into the excellent growth in gaming and ticketing? It seems like an inflection point. What are the expectations going forward? I hand that over to Mark.

Yes, [ Dwight ], I think it's an amazing growth. And it comes through what we've been trying to reposition Blue Label as -- or the narrative in Blue Label as a fintech company, a technology-agile organization. And with the introduction of our own BluVoucher, which is the ability to digitize cash, allowing a lot more people within the cash universe to start transacting with first-world products in a traditional e-commerce universe. And I think through those types of innovations and those types of technologies and product offering is really opening a world that was previously unattainable or unaccessible -- or inaccessible by a large portion of the masses. So I think we're enabling first-world product to be, as we've always said, to be able to be transacted by a third-world consumer in a manner that he's accustomed to. With regards to ticketing, I think we're scratching the surface. If people just look at traditional ticketing, you would look at a elongated ticket. You would walk in and someone would stamp and so forth. But with technology and with innovation, like we've done, the ability to do home printing, QR ticketing. So we've been going to stadiums, actually changing the access controls, building our own transport solution ticketing for the likes of PUTCO, which allow people then to tap on and tap off, pretty much what we're doing in the -- how train types of environments and modernize ticketing. And by modernizing ticketing, you're able then to engage with that consumer because you understand who the consumer is, what his preferences are, give him a better user experience when he gets to the stadium. You can incentivize him accordingly. You can profile him accordingly. We can get into a stadium and reward him via cashless or using contactless environment in order to reward his behavior. So ticketing for us is a great category. Once again, it's not a commoditized category. You need smartness, you need intelligence. You need technology, you need agility and you need data intelligence to do it all. And I think that's where Blue Label is very well positioned. And what we've been doing for the last couple of years is building towards a digitized economy, a digitized world. Transport ticketing, we believe, is really ripe for some evolution, and we are very well positioned to capture some of that market.

Thank you, Mark. The last question, it's for you, Dougie. It's from [ Elvie ]. Are you happy from a profit/financial perspective when you lose a current traditional prepaid data top-up customer to Capitec Connect? How much and how fast do you expect to ultimately cannibalize your existing business here?

Thanks, [ Elvie ]. Very good question. I'm not actually that concerned to lose my own subscriber to Capitec. The reason being that at margin level, it's very close to equal because I'd lose a considerable amount of costs associated to that customer, which is what makes MVNO so attractive. And so I have a much more simplified cost structure to said customer. And hence, to answer your question, if you look at our current market share of just below 11%, any customers moving over to a Capitec Connect account would not necessarily have a major, if at all, big impact on our earnings as compared to the growth in MVNO in general. And it's not just Capitec. It's FNB as well and any of the other MVNOs that have got product -- profit products that they're offering over an MVNO platform. What the market needs to understand is MVNO is a digital layer and, in essence, becomes a network of an industry. So banking was one of the first and most successful. Following -- the rest will be retail and the others in services that can come into that space as well. So to answer your question, no, we are not concerned about cannibalization having any material impact whatsoever in our MVNO business.

Thank you, Dougie. Sorry, there's a couple of more questions that came in, one from [ Frank ]. [ Frank ], we got your question. Mark said that he'll give you a call afterwards on it and just take you through all of it. And thank you very much for your question and the positiveness around your question. And then another one came through from [ Johannes Jordon ]. Would you consider own share repurchase as an option to return value to shareholders? I'll answer that. The answer is definitely 100% yes. We have obviously been restricted for the last 2.5 years from the banks, as we've explained to the market after the first write-off of Cell C and correctly so, in order to go back to basics and fix our balance sheet, which we did. We were restricted from doing share buybacks or dividends. So although we're generating a lot of cash, it has been used, as we've explained, to fix up our balance sheet. And we are still currently restricted. We do believe that we were on track of -- our balance sheet is fixed, and we're on track of amortizing at ahead of schedule. So yes, we would definitely like to either do share buybacks or dividends or a hybrid of both. And hopefully, our Board obviously always considers it, and hopefully, they will definitely consider it positively at our year-end now. And then, of course, we would have to see where we are with the banks and see if we're allowed to. But in short, yes, it's definitely what this company is about, which is either, as I said, the repurchase of shares or dividends or both. Okay. I think that's it. I think just from Mark, Dean, myself, the rest of management, obviously, a big thank you to our Chairman, Mr. Larry Nestadt, and to the rest of the Board. I think it's been a really tough year in the form of the recapitalization of Cell C. And the unwavering support and backing of our Board has been much appreciated. So thank you, and thank you to all of you. And keep safe and hope to see you soon on our roadshow. Cheers.