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

Good afternoon, everyone. Thank you for joining us at the presentation of our annual financial results for the year ended 31st of May 2024. I would also like to extend a warm welcome to Cell C's CEO, Jorge Mendes and CFO, El Kope, both of whom will be updating the market on Cell C's strategic and operational progress to date. Just by way of proceedings, I will provide you with a short overview of the operating environment and synopsis of the group's results, followed by key highlights of our core subsidiaries. I will then hand over to Jorge and Al to share some insights into Cell C's performance, after which Dean Suntup, our CFO, will take you through our financial results. We will then open the floor to question-and-answer session. The operating environment during the year was challenging. South Africa, like many global developed markets experienced high interest rates and high inflation, which place both business and consumers under significant pressure. Unfortunately, our country also continues to experience record unemployment, which places further pressure on the state and dampens the opportunity to achieve meaningful economic growth. Most of corporate South Africa had anticipated at least 2 interest rate cuts during the last 12 months ahead of the national elections. However, at this stage, none of this came to fruition and the impact thereon on South African consumers was profound. Blue Label is also significantly affected by [ SAB's ] decision to hold rates as our business largely serve the broader population of the country who are most impacted in terms of the cost of living, the inflationary effect and the disposable income. Load shedding. The first 9 months of our financial year were negatively impacted by load shedding. In 2023, South Africa experienced 6,838 hours of load shedding which accounted for 78% of the available hours in the year. This had an unfortunate effect on the ability of many of our vendors to operate and for ordinary consumers to transact. However, we did see an improvement in the last quarter of our financial year, whereby the country experienced just over 60 days without load shedding largely due to sustained generation, performance and without increased usage of open cycle gas turbines. Fortunately, this streak has continued until today. We are also pleased with the outlook from Eskom for the balance of the year in terms of the forecasted energy availability factor and generation performance continues to surpass the winter forecast for the year. This trend bodes well for Blue Label as well for its customers, partners and vendors. A focused and consistent strategy. While our strategy remained largely unchanged during the period under review, we continue to invest in bolstering our in-house platforms and growing our digital footprint in South Africa. We have previously described ourselves as operating the country's largest virtual mall, and we believe that this continues to be the case. Millions of South Africans transact daily either directly through Blue Label's proprietary channels and self-service vendor operators selling our traditional prepaid products such as electricity, gaming vouchers and universal tokens that can be used on a myriad of retail sites or indirectly and often on white label proprietary software platforms through one of our partnerships with South African leading retail banks. As an investment thesis, we are confident in our position as a market-leading distributor of fintech products and services in that there are a few opportunities to invest directly in this burgeoning growth market to which we have immediate and unimpeded access. Blue Label is focused on streamlined and diverse business that is anchored in driving financial inclusion, reaching isolated consumers that have historically been maligned and exclude it from participating in the formal economy. We understand that in a country as diverse and expansive as South Africa, many individuals and communities remain underserved by traditional financial services. Through our subsidiaries and innovative platforms, we've been able to bridge this gap, offering essential products and services that empower ordinary South Africans to manage their financial needs efficiently and securely. In terms of convenience and accessibility, our universal tokens provide a versatile solution for in a variety of products and services. These tokens can be used purchase airtime, data and even household essentials, making everyday transaction seamless and straightforward. By offering such flexible solutions, we are making it possible for people to engage with the digital economy regardless of their location or the economic status. Our commitment to financial inclusion extends to empowering SMEs and small time vendors who are the backbone of our economy. By providing these entrepreneurs with secure and efficient digital payment platform, we assist them in enhancing their customer base and increasing their revenue and contributing to the overall economic growth of our country. We believe that financial inclusion is not just about providing access to financial service. It's about creating opportunities for people to improve their lives and achieve their aspirations. Connecting businesses with consumers to transactions in a more convenient and efficient manner as well as enabling informal business to cost-effective leverage digital platforms is a testament to our commitment to this cause. While Blue Label is essentially a digital distribution company, our people are the core of our business. Our employees design, develop and build our proprietary platform, supporting our on-selling of products and services to the market. In line with this, our focus for the year was investing in our people and culture with a focus on leadership, diversity and talent. This led to the development of our leadership mantra as one we belong, which represents our commitment to fostering an inclusive company culture. The goal is to ensure that the experience of our inclusive culture is consistent across every employee. As a result of this highly collaborative and transparent process, several new cornerstone values emerged, reflective of this leadership mantra in which we have labeled as follows: accountability, collaboration, inclusion, customer centricity and partnership. By investing in these areas, we are fostering a culture of continuous learning, inclusivity and excellence, ensuring a bright future for our organization and our people. Some of the financial highlights. As we reflect on the financial year to the end of May 2024, the financial highlights for the year are as follows: our revenue generated of ZAR 14.6 billion, our gross revenue of ZAR 89.3 billion, up from ZAR 76.8 billion, a gross profit of ZAR 3.3 billion, down from 2023 of ZAR 3.48 billion, and our core headline earnings per share of just over ZAR 0.76. Moving on to our subsidiaries. Com Equipment Company, which I will refer to as CEC, faced a challenging financial year in what was a difficult credit environment with earnings declining by ZAR 188 million. In early 2023, CEC became aware of increased credit defaults in the market, which was indicative of the South African credit environment. Accordingly, it tightened its credit policies and scorecards on a piecemeal basis with effect from May 2023 with further aggressive tightening from 2023 September. This process provided it with significant insights into its customers' behavioral patterns during challenging periods. It enabled management to pinpoint the optimal credit scoring range in order to maximize sales congruent with minimizing risk. It also enabled them to refine their approach to pricing based on risk and to target credit offerings more precisely. Although monthly acquisitions and renewal over the past financial year averaged 16,000 and 16,900 respectively. This combined growth was negated by an average churn of 19,000 per month. This resulted in a net decline in the subscriber base from 875,000 subscribers to 840,000 over the financial year. The average spend per user has remained stable over the year at an average of ZAR 239 excluding an intergroup reseller. CEC and Cell C remain closely aligned, and we have already seen tremendous green shoots emanating from the latter's new strategy. We are enthusiastic of the potential of an embedded Cell C within Blue Label and look forward to further improvements from this business as we seek to unlock additional financial and operating synergies. Blue Label Distribution achieved a strong performance during the year under review. Revenue generated from financial institutions continue to escalate and continues to yield positive results, delivering pleasing growth in Blue voucher sales. It has made significant strides in executing its cost saving and revenue assurance initiatives as well as streamlining its operations. We see further expansion opportunities through the white labeling of its vouchering capabilities for banks and other large well-established brands in South Africa in order to diversify and bolster future revenue streams. With reference to general performance, it is evident that the financial institution segment is maintaining strong growth. The product performance of PIN-less airtime, electricity, ticketing and universal vouchers demonstrated robust results, generating gross revenue of ZAR 71 billion. Cigicell. Cigicell remains a trusted business partner in local government across the country. While the environment is challenging in the 6 months leading up to the elections with notably slower implementation processes, we have had a healthy pipeline and continue to foster relationships coupled with excellent service delivery records, which will stand us in good stead for future opportunities. Electricity vending has performed above expectations, albeit at reduced margins. In this regard, Cigicell continues to diversify and innovate from a product perspective in order to mitigate against margin compression risk, and we are confident in Cigicell's defensive market position. In the year under review, electricity revenue generated by the group on behalf of the utilities increased by ZAR 3.7 billion from ZAR 32.4 billion to ZAR 36.2 billion and net commissions earned increased by ZAR 12 million from ZAR 251 million to ZAR 263 million. Blue Label Data Solutions key strategies to take control of the full data value chain. We have a considerable ambitions for this business to effectively be the most efficient and reliable data provider as well as the #1 lead supply in South Africa, and we aim to achieve this by ensuring that our data leads the market in providing quality, reliability and compliance. Blue Label Data solution prioritizes the integrity and security of data and adherence to regularity frameworks such as POPI. It is our intention to broaden our management services stable offering to include ID verification and the development and distribution of call center software in what we will believe is a burgeoning BPO market. Technology. As a technology company, we recognize the importance of prioritizing uptime. As we know, downtime disrupts our customers' operations and can significantly impact their business. Our prepaid aggregators in municipalities as well as formal distribution channels require us to undergo regular compliance and integration reviews and insist on availability and uptime in excess of 98% on an aggregate basis on a monthly basis. Significant investment has been made by Blue Label to allow for redundancy and high availability of services. This has been achieved via system application, infrastructure and multi-data center redundancy architecture that prevents or mitigates any extended outages. During the year, we retained high system stability, resilience and service levels across all our transactional systems. Going forward, from a group technology perspective, we are reestablishing momentum on our business transformation programs from which we hope to achieve significant cost reductions and revenue opportunities. Blue Label has been successful in developing best-in-class platforms and leveraging these technologies to drive partnerships, arrangements and to expand our product distribution network. In order to achieve this, we have embarked on a recruitment draft for senior critical roles in architecture, development and integration to implement our vision and to align our operating model. Our outlook. The focus for Blue Label in the short to medium term is on execution and leveraging the data and insights we gather to drive selling opportunities. We will continue to focus on our growth strategy and pay special attention to the development of the group's IT architecture. We remain committed to excellence across our various subsidiaries, and I'd like to close by taking this opportunity to thank our valued shareholders, business partners, merchant suppliers and most importantly, our dedicated Blue Label employees for their incredible commitment during the year. Thank you, everyone. I will now call on Cell C CEO, Jorge Mendes; and FD El Kope to update the market on Cell C's performance.

Thank you very much, Brett, and good afternoon, everybody. Thank you for being here and really appreciate the opportunity once again. From a Cell C perspective, we're going to talk about a couple of salient points, the first being the network improvement that's starting to yield amazing positive results. So far, we've shifted from our own infrastructure to a virtual radio access network and we've moved from circa 5,500 base stations of our own to almost 28,000 base stations across the network partnerships that we've got. We've also now moved into the best value positioning, which we've always had, but coupled with best network really puts us in a strong position. So best connectivity, reduced downtime and making sure that we really enhance the customer satisfaction. We've made sure that through independent third-party testing, we now clearly come up strong from a network quality perspective. So full network parity plus the investment that we've put behind really make sure that we're enhancing customer offerings and experience. The second point is around stabilization and turnaround efforts driving top line growth. We've seen top line revenue growth of 2% and 4%, respectively, from service revenue and total revenue. The strong value propositions that are really a strong channel focus, effective marketing strategies and prudent investments in growth drivers or making sure that we've delivered on prepaid mobile revenue 3% up, on prepaid broadband revenue 11% up. Now moving forward around strong performance in wholesale contributing to overall growth. We've seen a strong 20% growth in wholesale business, and that's coupled with 76% in wholesale data traffic. So really good growth taking place there. And we've also used the opportunity to reprice and restructure our total pricing portfolio in the segment, and that's well underway and under place. It will serve us in good stead going forward. Moving on to the fourth, improved operational rigor and governance. Several Initiatives have been launched to improve the operational efficiencies, some really strong, prudent cost management initiatives and structures that have been put in place. And we're making sure that this genuine operational intensity across all lines of business and this will continue to deliver on really key business indicators. If we now move into the management and structures that are now in place. So full ExCos is in place, making sure that we've built really good management capacity. We've now [Technical Difficulty] we've got the right people in all the right places. So circa 70 appointments have been made really enhancing the bench strength and making sure that we have succession planning over time. Another 40 individuals have been promoted within the business. And I'm really, really proud of the fact that 80% of those promotions are females, really ensuring that we're super proud of our diversity and inclusion strategy. And then on the last bullet point around our brand, our brand really remains resilient and resonant with customers. We've spent a huge amount of time over the last year of building strong stakeholder and customer connections to the brand internally and externally. It's been a real strong focus on people. Again, at the core of everything that we do is making sure that the customers and our staff and business partners are at the center of everything we do. So really strong people-focused initiatives. We've embedded a high-performance culture and a culture that is strongly through -- driven through values, and we've got a value system, which is transparency, honesty, integrity and simplicity. We have made sure that we've now relaunched the brand identity and the positioning. That's happened a couple of weeks ago. So now we offer best network quality, best value with a great brand. I think we really have unlocked a campaign, which is switched to Cell C and C. And so the brand remains super strong. We're still in Kantar top 30 brands. So that's really, really a proud moment for us. And then we're also the winner of the Ask Afrika Orange Index for home Internet excellence. So really proud of the team. And now I'll hand over back to El.

Good afternoon, everybody, and thanks again for being with us. Just taking you through some of the key indicators from a Cell C perspective, looking at growth from a revenue perspective. Our top line growth coming in at 2%. This is after months of decline for most of the '23 financial year. But if you look at our service revenue, you do see some growth at 4%, and that is primarily driven by wholesale and prepaid. Looking from the 2 segments, prepaid is up 5%. The mix of that being prepaid mobile at a growth of 3% and wholesale by itself at 20%. Prepaid broadband strategically continues to grow at 11%. The Prepaid broadband is driven by a growth in customers, growing 7% in the year, whereas normal prepaid has remained fairly flat. But if you look at our total customer base, it is currently at 7.7 million. From a traffic perspective, we continue to see the growth post the network transition. And you can see that our traffic is growing 30% on prepaid and 76% on wholesale. The wholesale traffic did not fully translate into revenue growth because of a change in customer base service provisions and also from a price perspective. And the prepaid is just showing the great network that we have that our customers are enjoying. I'll now hand back over to Jorge.

Thank you very much, El. Now looking ahead, I think, firstly, we want to make sure that we leverage our network parity and further invest in enhancing customer offerings and experience. And there, we will make sure that we've got the right funding on our USSD platforms, our app, making sure that the way we show up from a retail perspective has got an amazing digital, seamless experience for customers. So really making sure that on top of the network parity and the great quality of service that we offer on our network that we further make sure that the offerings and experience to customers are fantastic. Secondly, investing in digital platforms for seamless customer experience; I have kind of spoken to that, but that's amplified by the launch of a brand-new retail store. We will be rolling out circa 108 of these over the next while. So really making sure that customers are delighted with the experience that they're getting from Cell C. Thirdly is the operational intensity must continue, will continue across all lines of business, really making sure that we deliver on all the key business indicators, really rigorous driving the governance structures and making sure that always focusing on the operational intensity because that's part of our high-performance culture. Fourthly, people focus initiatives to embed a high performance and value culture. This is the core of everything we're doing. We want to be authentic, people focused internally and externally. As I've said before, continue on our value system, that this is how we do it; transparency, honesty, integrity and simplicity and really love this. And then lastly, on embedding the brand positioning, I think we've got great momentum on the brand positioning. It's not just the new logo. It's a whole positioning of how we do business and how we show up in the market. I think we're carving out a beautiful position for Cell C, giving customers some differentiation, walking into one environment, getting all OEMs, getting the best of the network quality, getting the best of value propositions. And I think our brand is really well positioned going forward. So thank you very much. And I'll now hand over back to Dean.

Good afternoon, ladies and gentlemen. The highlights for the year ended 31 of May 2024 were as follows: Revenue of ZAR 14.6 billion. On inclusion of the gross amount generated on PIN-Less top-ups, prepaid electricity, ticketing and universal vouchers, the effective increase equated to 16% from ZAR 76.8 billion to ZAR 89.3 billion. Gross profit decreased by 5% to ZAR 3.3 billion. Increase in gross profit margin from 18.41% to 22.57%. Core headline earnings for the period was ZAR 0.7608 per share, excluding the positive contributions of ZAR 66 million in the current year and the negative contributions of ZAR 523 million in the prior year, primarily resulting from the recapitalization transaction of Cell C. Core headline earnings per share declined by 34% to ZAR 0.6866 per share compared to ZAR 1.0483 per share in the prior year. Group revenue declined by ZAR 4.3 billion, 23% to ZAR 14.6 billion. However, as only the gross profit earned on PIN-less top-ups, prepaid electricity, ticketing and universal vouchers is recognized as revenue. On imputing the gross revenue generated from these sources, the effective growth in revenue equated to ZAR 12.5 billion 16%, resulting in total revenue of ZAR 89.3 billion compared to the prior year of ZAR 76.8 billion. Gross profit decreased by ZAR 188 million, 5% from ZAR 3.483 billion to ZAR 3.295 billion. The decline was mitigated by an increase in gross profit margins from 18.41% to 22.57%. This increase in margins can be primarily attributable to the growth in PIN-less top-ups, prepaid electricity, ticketing and universal vouchers where only the gross profit earned thereon is recognized as revenue. The group remains vigilant in managing its total overhead costs. EBITDA declined by ZAR 258 million, 18% from ZAR 1.463 billion to ZAR 1.205 billion, excluding the positive contributions of ZAR 20 million in the current year and the negative contributions of ZAR 146 million in the prior year. Of this decline, Comm Equipment Company showed a negative impact of ZAR 368 million while the remaining Group operations contributed an additional ZAR 110 million compared to the previous year. Core headline earnings for the year ended 31st of May 2024, amounted to ZAR 679 million, equating to core headline earnings of ZAR 0.7608 per share. In the comparative year, core headline earnings amounted to ZAR 402 million equating to core headline earnings of ZAR 0.4555 per share. The predominant negative contributions to the May 2023 basic headline and core headline earnings per share are primarily associated with the recapitalization transaction of Cell C. Excluding the positive contributions of ZAR 66 million in the current year and the negative contributions of ZAR 523 million in the prior year Core headline earnings declined by ZAR 312 million, 34% from ZAR 925 million to ZAR 613 million and core headline earnings per share declined by 34% from ZAR 1.0483 per share in the prior year to ZAR 0.6866 per share. This decline in core headline earnings was attributable to a decrease of ZAR 188 million in Com Equipment Company while the remaining entities within the group declined by ZAR 124 million compared to the prior year. The net positive contributions to group earnings in the current year resulting from the recapitalization transaction of Cell C were attributable to deferred finance revenue of ZAR 128 million, which represents the difference between the accelerated deferred interest recognized on the date of sale of the handset receivable book and the expected deferred interest that would have been released had the handset receivable book not being sold. With expected credit loss and negative fair value movements of ZAR 59 million, there was a net loss on modification or derecognition of the financial instruments amounting to ZAR 33 million relating to the sale of the handset receivable book and the Class A preference shares. Finance costs of ZAR 462 million, of which ZAR 301 million resulted from borrowings related to airtime sale and repurchase obligations as well as the issuance of Class A preference shares and ZAR 161 million relating to the finance cost recognized on the date of sale of the handset receivable book calculated using the prime interest rate multiplied by the gross handset value sold and finance income of ZAR 600 million resulting from the loan to Cell C for its debt funding requirements. The decline in CEC's core headline earnings was primarily attributable to a decline in gross profit stemming from a decrease in earnings resulting from the expiry in November 2022 of certain elements of the revenue share agreement, increased expenditure relating to the distribution agreement, and an increase in amortization of handset subsidies. These declines were offset by a reduction in the expected credit loss following a comprehensive base reconciliation at the end of the previous financial year as well as the derecognition of the expected credit loss on the sale of a portion of its handset receivable books. As part of the recapitalization transaction of Cell C, and to further assist with their working capital requirements, the prepaid company is obliged to purchase ZAR 1.2 billion of additional prepaid airtime through 4 quarterly payments of ZAR 300 million each. To fund these working capital requirements for Cell C, CEC sold a portion of its handset receivable book to financial institutions. The funds generated from this transaction are transferred from CEC to the prepaid company and ultimately, to Cell C through the acquisition of airtime. The remaining entities within the group, with particular reference to the prepaid company faced a reduction in core headline earnings due to the cessation of certain rebates and a reduction in discounts from Cell C following its recapitalization. Moving to the balance sheet. Total assets increased by ZAR 419 million to ZAR 15.1 billion, of which current assets accounted for ZAR 788 million, offset by a decrease in noncurrent assets of ZAR 369 million. The decline in current assets included a reduction of ZAR 325 million in the advances to customers, largely due to the partial sale of the handset receivable book, to financial institutions and a decrease of ZAR 118 million in intangible assets, primarily from the amortization of the subscription income sharing arrangement and subscriber acquisition costs in CEC. These declines were partially offset by increases in loans to associates and joint ventures totaling ZAR 54 million. The net growth in current assets includes an increase in inventory of ZAR 1.6 billion. As part of the Cell C recapitalization transactions, and to further support their working capital requirements, the prepaid company purchased an additional ZAR 1.2 billion in prepaid airtime through 4 quarterly payments of ZAR 300 million each. Additionally, there was an increase in trade and other receivables by ZAR 177 million and loans to associates and joint ventures by ZAR 204 million. These increases were partially offset by decreases in advances to customers amounting to ZAR 696 million, primarily due to the partial sale of the handset receivable book and reductions in cash and cash equivalents by ZAR 407 million. In August 2023, CEC concluded a financing transaction with financial institutions, allowing CEC to sell handset receivables to them. From August 2023 to May 2024, CEC sold 3 handset receivable books with a gross value of ZAR 1.4 billion, each negotiated on different terms. CEC's advances to customers decreased by ZAR 1.02 billion from ZAR 2.26 billion on the 31st of May 2023 to ZAR 1.24 billion on the 31st of May 2024. Excluding the disposal of the device receivables, CECs advances to customers increased by ZAR 209 million over that period. The increases of ZAR 258 million in loans to associates and joint ventures is primarily attributable to the interest accrued of ZAR 600 million from the loan extended to Cell C as a component of the debt funding and reinvestment instrument offset against an expected credit loss on these loans amounting to ZAR 121 million. Additionally, ZAR 102 million related to interest accrued on the loan extended on the CEC deferral amount, less payments received thereon of ZAR 332 million. Net profits attributable to equity holders amounted to ZAR 647 million, resulting in accumulated capital and reserves of ZAR 5.1 billion. Noncurrent liabilities increased by ZAR 1.11 billion, comprising an increase in noncurrent borrowings of ZAR 1.07 billion and deferred taxation liability of ZAR 38 million. Current liabilities decreased by ZAR 1.36 billion, primarily due to a reduction in current borrowings of ZAR 1.06 billion and trade and other payables by ZAR 301 million. Moving on to the cash flow statement. Cash generated from trading operations amounted to ZAR 769 million. Working capital movements included an increase in inventory of ZAR 1.6 billion, trade and other receivables of ZAR 77 million and a decrease in trade and other payables of ZAR 270 million. These increases were offset by a decrease in advances to customers of ZAR 943 million. After incurring net finance costs of ZAR 883 million, and taxation of ZAR 187 million, net cash utilized in operating activities amounted to ZAR 301 million. Net cash flow utilized in investing activities amounted to ZAR 61 million, primarily attributable to the purchase of intangible assets amounting to ZAR 282 million and property, plant and equipment amounting to ZAR 88 million. These outflows were partially offset by the net repayments of loans to associates and joint ventures of ZAR 218 million. The repayment of loans receivables carried at fair value of ZAR 45 million, the net repayments of other third-party loans of ZAR 31 million and proceeds from the disposal of property, plant and equipment amounting to ZAR 15 million. Included in net loan repayments by associates and joint ventures of ZAR 219 million, our capital repayments by Cell C of ZAR 230 million, offset by net loans granted to other associates and joint ventures of ZAR 11 million. Cash flows utilized in financing activities amounted to ZAR 45 million, of which ZAR 22 million related to dividends paid to a minority shareholder of a subsidiary company and ZAR 17 million to lease payments and ZAR 6 million to a net decrease in interest-bearing borrowings. Cash and cash equivalents accumulated to ZAR 896 million as at the 31st of May 2024. We would like to extend our gratitude to the Blue Label Board of Directors, the staff, suppliers, customers and business partners for their ongoing support and dedication to the group. Thank you. The floor is now open to questions.

Our year-end results for May 2024. I would like to open up the questions first to the -- anyone online. Is there anybody online? Okay, I'll come back to the line. Let's carry on with questions that have come through. First question, a couple of questions is from Philip Short. Three questions for Brett and one for El. First question, Brett, at your previous results presentation, you said investors should expect a dividend and/or buyback either in August or October this year. October being the date, the Investec, RMB facility is paid up, an update on the dividend or buyback, please? So of course, you would have seen that we never declared a dividend. I think we've done really well this year in getting our debt to the position that we had told the market. In fact, it's a little bit less than what we had anticipated ourselves. So that's a good thing. As you are fully aware, we had the last commitment to put into Cell C of ZAR 1.2 billion, of which currently ZAR 900 million has been put into Cell C, the remaining ZAR 300 million goes in now in the last quarter. So I think it's a prudent approach by the Board. It was a good discussion by the board on both dividends and share buybacks to finish off what we started and then obviously relook at it seriously as we do every year and obviously look at it very seriously for next year. As I said, in both the form of either dividends or share buybacks or a hybrid of both. So hopefully, all being equal, it will be a good discussion at our board for next year. The second question is, does Cell C require any further funding from Blue Label, whether it be working capital or any other form? I think, actually, El, I'll hand it over to you to discuss that.

Thank you, Brett. Hi, Phil, and thank you for the question, and welcome to everyone. So from a requirement of cash, and maybe I'll cover that a little bit looking at Cell C's overall free cash flow position. Where we are right now in line with the recap, the program is still continuing. And previously, I had always stated that it is a 5- to 6-year program. We still then do have another 4.5 years to go. From an operating cash flow, that will always be positive, but that will then be used to then cover the refinance from a recap perspective. So from a free cash flow perspective, you would then not have free cash flow for the next couple of years. However, if there are then other strategic requirements, whether it's a new investment or we're looking at clearing up some of the older debt, there would be some requirements from that perspective, from a [indiscernible] perspective.

Thank you, El. Third question. Hypothetically speaking and assuming Blue Label gets the green light to take control of Cell C. An update on this? Okay. Let me answer that before the second part. So we believe that the date for ICASA has been set down for the 19th of September. And we're hoping that the ComCom will be set for late in October. So hopefully, all things being equal, as we said, no one can never tell what happens at the end of a regulatory process. But -- all things being equal, hopefully by the end of October, we have both ICASA and ComCom approval. Second part of the question is. Does Blue Label's ownership of Cell C and hence a spectrum become a hurdle to potential acquirers of Blue Label as a whole. I think in short, absolutely not. I think there's a bit of confusion all over about us applying full control. In Blue Label, we don't take anything that belongs to Cell C. So we would, in a normal course, have control of Cell C. But Cell C itself, obviously, would still own, run, manage the spectrum, which is obviously from a regularity point of view. So in my opinion, full, no. If anything, I would imagine that it enhances any potential acquirers of Blue Label can only be good. And then your last question is to El. I appreciate forecast can change, but can you please update us on Cell C's free cash... I think you've answered that actually. Perfect. All right. I think that's all to Phil's answered. Let's move on to the next one. The next one is from [indiscernible] from Nedbank. Congrats on the results, 3 questions from me, [indiscernible] from us. First, a question for Cell C, please. Traffic up 30% to 76%, but service revenue up only 2% to 4%. Are you being very aggressive on pricing? And leading on to that, what EBITDA margin did you achieve for the year? Let's start with that one. Jorge, over to you.

Thank you. Good afternoon, everyone, and thank you for having us. I think just on the traffic side, we were specific on prepaid mobile broadband. That's where you're seeing a lot of growth in the prepaid space of the circa 30%. On the wholesale MVNO side is where you saw the traffic growing at 76%. We've been quite deliberate around repricing structures to be a lot more aggressive and competitive in the wholesale and MVNO space. Prepaid is a little bit more stable. I'm talking prepaid normal mobile outside of prepaid mobile broadband. So from a revenue point of view, we're quite happy with what that's reflecting. Remember, this is also on the back of a great quality experience now. So we've kind of unlock capacity, so to speak. And so upload and download speeds are now flying and you've seen some of the headlines that the network is really performing well, and we want to encourage customers to use our network. And then just on EBITDA, I think it was 16% that we landed on for the fiscal.

Okay. Thank you, Jorge. Second part of your question is back on to us, Blue Label. What is driving the prepaid airtime revenue decline? Is it more competitive pressures from network pushing recharges onto their own platform? I think pressure as a whole, I think that airtime and data is pretty consistent. There is a slight decline in it. It's all about different kinds of business that Blue Label is choosing to do and I use the word choosing without arrogance. It's easy to do business for revenue, but it's a bit more difficult for profit. So I think overall, there is a slight decline, but it's more about doing better business. Competition is pretty much the same. So not much change from the own networks platforms on the specific, we've not seen it or feeling it at all. We've obviously seen a massive increase from the banking platforms that we work with very closely. So I guess it would be the banking platforms, as I've mentioned in the past. That's really the competition for the network platforms that are direct. So overall, I think we're pretty happy with it. We obviously see the decline, but it really came from mainly one customer that we were doing more business with that we do in a lot less business with them. But overall, our margins are good and pretty satisfied with the overall performance of it even with the slight decline that it has. The last question is, thirdly, and linked to electricity revenue. Is it fair to say that the increase in electricity revenue is driven by the Eskom price ups versus volume increases? And has your commission rates and electricity recharge declined? So just for clarity, Blue Label does not get any benefit from any single increase -- tariff increase that Eskom makes across the board. We actually work on kilowatts and we translate it into a percentage so that it's easy for the market to understand. So in essence, when you bought ZAR 100 bought you 10 kilowatts, we get a commission on the 10 kilowatts. When they put an increase through and ZAR 110 now gives you 10 kilowatts, we only get a commission on the 10 kilowatts. So we 0 benefit from the increase of the tariff in a toll. On your second part of your question, you are correct. We are seeing revenue increase tremendously, but there's definitely been a margin compression from all of the municipalities, not Eskom itself alone. So Eskom as well as, of course, there are 270-odd municipalities besides Eskom, and we've seen a margin decrease from all of them across the board. So obviously, our increase in our revenue is really good, but we're seeing a much smaller increase in our gross profit because of a margin decrease. Okay. Moving on to the next one. The next one is from David [ Ebero ]. First question is to Blue. Could you discuss the quantum of your external debt position today, not year end? How much is recap related versus asset backed? I'll hand that over to Dean.

Thanks, Dave, and thank you, everyone. If we look at our position where we stand currently, you would notice that from May 2023 to May 2024, our position has remained at ZAR 4 billion in both years. I think if we look at that and we break it up, we've discussed CEC, we have a facility with African Bank, debt facility has remained at ZAR 1.9 billion. And you'll recall in November, we renegotiated it and a large portion of the debt moved from current into noncurrent. With regards to our working capital facility, as you know, over the years, we've declined that from almost in excess of ZAR 2 billion. It is now sitting at ZAR 1.120 billion; from last year up to the current year, it increased slightly and ended at ZAR 1.16 billion, that increase by ZAR 158 million. If we look at Airtime sale and repurchase agreements, all obligations have been met and we have repaid the sales back in excess of ZAR 500 million. Not year-end, year-to-date now. And as it stands currently, we have one more, our last payment will be at the end of -- we've made the payment for this month, and it will be sitting at 0 at the end of the year. End of September, we did take a further airtime selling repurchase obligation. When we purchased the additional 1.2 billion, you'll note that we sold a portion of our handset receivable book. And this facility is sitting at ZAR 216 million currently as of today and will decline by [ ZAR 15 million ] over the next 4 months. I think if we also look, we have short-term facilities that we had at year-end, which amounted to ZAR 350 million, that was as of May, that was a short-term facility that we use for bulk purchase [ powers ] or assist us with our working capital, that is currently has been repaid and sits at 0. So as we stand right now, the facility would probably be closer to ZAR 3.7 billion, but we will utilize a short-term facility for working capital requirements and bulk purchase deals if it facilitates itself.

Thank you, Dean. Second question to Blue. What are the remaining funded covenants regarding dividends and buybacks? When can we expect them to be mute? So I think I've answered the second part of it. From a fund covenant point of view, I believe we're there at the end of September, meaning we've met 100% of all of our obligations, brought our debt down to exactly what we had said to the market and of course, what we had said to the banks. So I would believe that all covenants are met. The third question is now that inventory is becoming unrestricted, could you talk about whether we will start to see positive free cash flow from the core business? It's a much more detailed answer this. In short, the inventory is becoming unrestricted, as you correctly say, at the end of September. Obviously, Blue Label and Cell C work together on this. As you know, we have a huge amount of inventory, approximately ZAR 4 billion that you've seen. So we will move it responsively in line with Cell C. We obviously see it as a form of a facility that we've given them, although it is in -- obviously in the form of stock that we hold. So as we move it, of course, free cash flow does flow into Blue Label, which is 100% correct. But I think I understand that it has to be done responsibly in line with the own operating cash and the own objectives and we will do that. And obviously, as we free it up, it's free cash because it's all fully paid for. The next one is Cell C. Prepaid and wholesale revenue growth was higher than total revenue growth. Could you talk about what dragged the overall total revenue growth down? How has it been addressed?

Thank you so much. So our other revenue lines are mostly FTTH. We've got -- since we are still principal in the postpaid book, we also have a little bit of postpaid. As Brett had mentioned earlier, and I think Dean also mentioned that postpaid and CEC performed slightly lower. So as principal in that arrangement, we're definitely seeing that decline. The other big shift though has been the fact that equipment is no longer showing in our revenue number from a principal perspective, it's not an agency model. So that has been a significant reduction in our revenue and that's more an accounting principle than it is from a business perspective. From a postpaid perspective, we continue to work closely with CEC. We have implemented quite a few operational rigor-type interventions that the market will start seeing now as we continue going forward. And I think that will then come through in our performance next year. And then from owning the home perspective, we're looking at the full portfolio, not just at fiber, and we expect that, that will then recover in due course and will go in line with consumer requirements and needs.

Thank you, El. Last question, I think we've already answered. So I'll move on to the next one. The next one is from Pat C. David from [ All Weather ]. Please -- to Cell C., please give indication of Cell C's EBITDA? It comes through in a few more questions down and down.

Thank you, Pat C. So if you look at the 12-month period to May '24, and please bear in mind that at Cell C [indiscernible] has changed in between. So doing the reporting in line with the Blue Label year-end, our EBITDA is approximately ZAR 1.9 billion. That would have been -- that leads to the 16% EBITDA margin. That's also a 5% EBITDA margin year-on-year. And from that perspective, our EBITDA is mostly split. Most of our operational efficiency initiatives started post September 2023. So you are seeing that momentum come through into 2024. So we do expect that there will continue to be improvements from a margin perspective at an EBITDA level, and they're not fully baked in into May 24 yet.

Thank you, El. The next one is from Myron from [indiscernible]. Thank you for the opportunity. Question number 1 is to Cell C, to do a Cell C debt. What is the gross interest payable debt in Cell C including the current and noncurrent portion of borrowings and leases?

Myron, from a debt perspective, and I'll do mostly the long-term debt in totality. As at the end of May, our current or liabilities -- listed long-term interest-bearing first is sitting just under ZAR 3.8 billion. Our leases coming in at around just under ZAR 2 billion. So we still do have quite a bit of debt left from that perspective, but everything in line with the recap requirements from a payment perspective at the end of May and in line with the requirements from that perspective. If you had to then split that between current and long term, on noncurrent liabilities from an interest-bearing perspective, so our long term is probably around ZAR 4.6 billion of that. And then the balance of the debt is then current. So the current component is less than ZAR 1 billion at the moment, and this will continue to wind down based on the recap requirements.

Thank you. The second one is a breakdown of your question just now on this, can you give us the EBITDA for the second half of the year only?

Looking at EBITDA, if you had to do that breakdown from our perspective, about 60% of the EBITDA of the 1.93 million actually came in, in the second half of the year and the balance 40% came in the first half. So you do see a skew. And as I mentioned, the momentum is then growing into the second half of the year. And hence, you see that slight split plus normal market conditions, we do have a better trading period over December, so you do see some increase over the festive season.

Thank you, El. The third one, again, is similar to the rest, was what was the interest bill for Cell C in the second half in the income statement?

Not necessarily 100% answering that question, but let me try because I don't have the split for the 12-month period. But our interest bill is implicit interest of about ZAR 1.5 billion. And I must be quite honest about it. We do calculate implicit interest on the debt because we don't necessarily have to pay it cash at the moment. If you then had to then normalize that from an implicit perspective and just take what needed to be paid, that interest or financing costs would substantially reduce, it would have been closer to about ZAR 300 million to ZAR 400 million in the financial year.

All right. Thank you, El. Moving on to the next question from Philip Short, I think he wants a little bit of a better explanation from Cell C, on Cell C's guidance on free cash flow over the medium term, 3 to 5 years. And what is the revenue growth and EBITDA margin, that we will take offline when we meet all together. I think instead of answering this again, Philip, because it comes through a lot in -- a lot of questions is -- and I think we've tried to answer it as best as we can is obviously on our roadshow over the next week, where we're meeting with most of you, we can dwell more into the breakdown of it, and we will. So not a matter of not answering it, but I think the more detailed and more explanations need to be given, which we will. And so I'm going to put a pause on that for now and just keep it for when we all sit together. Obviously, what will happen as well, just to put it out so again, is that Cell C will offer a, I mean, meeting one-on-one with them separate to Blue Label, by the way, like we did at the half year-end, and you'll have a chance to interact with Cell C management directly without Blue Label there. Okay. Moving on to the next question is from [ Hahn Shink ] Blue Label doesn't really have much control over the recoding of prepaid meters across the country. But are the -- are the reservations at least in the short term, the prepaid electricity voucher sales might be impacted? Or is Blue Label's consumer base relatively insulated in this regard. Thanks and congrats on the results. So this is -- the question comes for, obviously, what is happening, what we call the Y2K of electricity at the end of November. Obviously, if the municipalities and Eskom never got to all the meters to change what they need to change and they switched off, the impact would be countrywide. It's not a Blue Label thing. I think Blue Label would be the least of the concerns. I think what is happening is moving really quickly. We believe that it will be done and Eskom will meet all its targets for the end of November. And it will -- the compliance will all be put in and all meters will continue on the first of December as they should. So as of now, I think all is good, meters are changing, updates have been made on meters that don't have to change. So I think government will reach its target or Eskom will reach its target of making sure it happens by the end of November. Let me just check if there are any more. Okay. I think that's it for now and that is all. So I'll go back to the line on Chorus Call to see if there's any questions on the line.

We have no questions from the conference call.

Okay. All right. So that wraps it up from Blue Label and our management. We'd like to thank our Board, of course, for their valued support through the year. And all of our staff and employees who have been really unbelievable. Overall, I think we are generally satisfied with the year that we had. Well done to Jorge and El and the Cell C team, a really great massive improvement since Jorge joined us in July of 2023. Things feeling really good. Things feel really positive there. Of course, there's a long way to go. We feel like we just recapped the business again, which we did. And I think there's a nice, calm, steady positive outlook. So good luck to everyone, keep safe and see you all soon. Thank you.