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Edited Transcript of BLU.J earnings conference call or presentation 26-Sep-19 12:00pm GMT

Full Year 2019 Blue Label Telecoms Ltd Earnings Call

ohannesburg Oct 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Blue Label Telecoms Ltd earnings conference call or presentation Thursday, September 26, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brett Marlon Levy

Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director

* Dean Alan Suntup

Blue Label Telecoms Limited - Financial Director & Executive Director

* Douglas Stevenson

Cell C (Pty) Limited - CEO & COO

* Mark Steven Levy

Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director

* Zafar Mahomed

Cell C (Pty) Limited - CFO

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Conference Call Participants

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* Bianca Luna

- Analyst

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Presentation

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [1]

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Good afternoon, everybody, and welcome to Blue Label's Financial Year-end Results for May 2019. After quite a challenging 12 months, I guess there were certain divisions that really performed well inside Blue Label, and there were certain divisions that obviously underperformed, and of course, leading to certain write-offs and decrease in our headline earnings, which obviously I'll touch as we go on.

I think what is really important is where to from here. And that is a clear focus, a clear vision of what we need to do as Blue label. And that is, from a Cell C perspective, obviously, conclude the transactions that are busy going and are progressing well.

From a Blue Label perspective, back to basics of what we really do well, and I'll touch on that in great detail as we go. And then, of course, you might have read the SENS yesterday about the sale of some noncore assets that will not affect our core trading at all but will reduce our debt and increase our overall cash, which will give us ability to trade and do what we do best in Blue Label.

The financial highlights for 2019. Our gross revenue increased by 10% to ZAR 57.8 billion. That includes the impute of all our PINless products. Our gross profit increased from ZAR 2.3 billion to ZAR 2.6 billion. Our gross profit margin, which is a line that we concentrate on heavily, increased to 10.23%. And the impairments contributed to a net profit decrease into a loss of ZAR 6.6 billion; Cell C, ZAR 6.1 billion of it; the SPV and Glocell fair value downward adjustments of ZAR 838 million; Oxigen India we have now written off entirely, ZAR 396 million (sic) [ZAR 398 million]; and Via Media, Blue Label Connect and SupaPesa amounting to ZAR 147 million. Excluding all these once-off in the continuation of our core business, our headline earnings grew by 26% to just over ZAR 900 million after tax.

Concentrating on SA distribution. Our revenue declined by 3% to ZAR 25.4 billion. But you will notice from the first 6 months to the second, we had quite a good catch-up and a much stronger second 6 months in our revenue to our first 6 months. Our GP increased 17% to ZAR 2.4 billion. Our GP margin improved from 7.67% to just on 9.3%. Our wholesale market is declining, which is quite interesting. It's not declining from loss of sales but a change in patterns of how people buy and where people buy, and I will touch on that a bit later in more detail.

And from a prepaid company focused on GP margins, revenue for us is one thing, but GP margins for us, making sure that we sell at the right price and make sure that we grow our direct channel and mainly in the formal side, from a Blue Label Distribution point side, concentrating heavily on the banks, concentrating heavily on our retail market and, of course, where we concentrate heavily on our informal market.

Ticketpro once again had a really good 12 months, not only from a product enhancement point of view but really taking a leap in transport services and our online platforms and launching one of the first white-label products of ticketing along with our NFC technology, which we believe is a game-changer into the future.

And of course, as I said, our reach into the banks and our retailers obviously enhancing as the patterns of people change, making sure that we cover all kinds of distribution so that we do not lose the turnover through the change of patterns.

From our product performance in SA distribution, we've had great growth once again in our top-ups on electricity, and I'll touch on electricity separately.

Our wholesale market continues to decline, but once again, it's a change of pattern, from a GP percentage, increased. And what we have really concentrated on is the growth of our direct channel in our informal market. And what we're doing is as we reduce by selling noncore assets, creating more cash for us going into the future, we obviously have the ability to trade once again, to do bulk buying across the board of all our products and believe that in the future this will play really good for us in what we call bulk buying.

From our channel performance directly, from a Blue Label Distribution point of view, our real concentration here is the informal market, where currently we deployed approximately 17,000 terminals, new terminals, new customers into the market. We have explained to you that into the future that we are looking at doing around about 100,000 new customers into the near future, and that is well on track.

As explained to you in the slide before, this is just more detail on what the informal market does. This is not just about dropping a single terminal. This is not just about a single product. This is about trading, this is about entrepreneurship, this is about jobs, this is about skilling up. This is about making a real big difference in South Africa, a difference to what we believe will be job creation, a difference to teaching people how to fish instead of giving them fish and, of course, growing our distribution and footprint along the way. So extreme focus on the informal market. It is a huge market and a market that we are concentrating heavily on for the next 24 to 36 months.

On to our 3G Mobile and CEC component. This has been really successful since taking over and since buying them approximately 18 months ago. From a handset point of view, we've continued our hardware growth. You would have read in our SENS announcement that we have disposed of the hardware division only. So remember, when we bought 3G, it had 2 components. It had a hardware component, called 3G, and it had a finance component, CEC. What we have disposed of is only the hardware side for an amount of ZAR 544 million. We will go through the process now of the condition precedents, of which mainly will be a cat 1 -- category 1 transaction for us and competition board and whatever other regularity is required. But although very successful, I believe it was prudent for us to get rid of it as it does not affect our core and, of course, helps us in our vision to reduce our debt and to create more cash into our business.

From a CEC point of view, also had a really good 12 months. CEC, what our plan to do is on the next 24 months is to actually wind down this book in a certain element of it. We continue with CEC, we continue with financing, we continue with the vision of what we do in the CEC. And as a company, it will continue. But as a certain part of its book, we will wind it down. And of course, over the next 24 months, bring in a considerable amount of cash to Blue Label.

We will retain all the skills. And of course, as I said, we will continue in the company and future financing in different activities, which I'm happy to go through later with you.

From the sale of Blue Label Mobile. Once again, it's the platform of certain of our companies, such as Via Media, Airvantage, Panacea. And once again, although really good company and a really good group of companies, some of them have been with us since inception. Once again, it's in the vision of not affecting our core trading, bringing in extra cash for us to reduce debt and to, obviously, free up cash for us to trade and make our core stronger and make it more viable.

Cigicell electricity, once again, I know I say this every year, but star performer once again inside Blue Label. Our revenues increased to just under 20% from ZAR 16.8 billion to just over ZAR 20 billion. And I think the best part about this is we see no slowdown in electricity over the next 3 or 4 years as more and more people choose to go prepaid, as more and more companies choose to go prepaid. And of course, the complexities of how to do it, the skill sets of what we do, the exciting part for us here is we believe the growth will continue at a similar level to what we have shown you over the last 3 or 4 years. And of course, as we then take on more municipalities and more products within the municipalities, we believe that there should be no slowdown in this division at all.

On our data side, once again, a division that we have concentrated on heavily, has shown great growth over the last 24 months. We've added a call center into it where we can now do direct selling to consumers. And the reason for that is we believe everything is going to go to big data, and big data is how we are going to transact, how customers are going to transact, how we're going to understand products more, how we're going to understand consumers more. And the verification of what we do, the cleansing of our data and the lead generation, we really are up there.

So what our whole plan in the past was, was to create this data and to onsell it to other companies to use the data. The big change for us is while we still onsell it, we've now created this call center, as I've told you, but now to do direct selling to the consumers of our products, products that we've created, products that we now onsell and has shown tremendous growth for us in the last 12 months and we believe will continue into the future. So a division to watch carefully and one that we are concentrating on heavily.

So just to end with, I guess, where I started is after a really challenging 2 years and a really, really difficult 12 months, it's really back to basics for us from a Blue Label point of view. Go back to what we understand, go back to what we really do well. We understand our market well, we understand the informal market well, we understand our products and distribution. And I guess, it's concentration on them heavily. It's -- there's tremendous growth in what we do, and there's tremendous growth in more and more products of what is out there for us.

And it's back to basics. It's back to focus, it's back to concentration. It's to take it from where it is on the core businesses where you saw growth of just over ZAR 900 million. We believe that there is a lot of legs there, a lot of growth for us. And of course, with the sale of 2 noncore assets that will not affect our main distribution as well as the wind-down of a part of our CEC book, we believe that we will reduce our debt considerably as well as bring in a considerable amount of free cash over the next 24 months and give us the ability to trade again, trade, bulk buy across the board of all our products and make sure that we're once again flexible in the industry and in the market that we understand.

Thank you very much. I'll now hand you over to Dean.

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Dean Alan Suntup, Blue Label Telecoms Limited - Financial Director & Executive Director [2]

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Good afternoon, ladies and gentlemen. Although core headline earnings for the year ended 31st of May 2019 equated to a negative ZAR 3.0477 per share, the core businesses of the Blue Label Group continued to generate growth in profitability.

My presentation to you today will provide you with the detail of the composition of the negative impacts as well as the positive contributions to group core headline earnings from the remaining entities within the Blue Label Group. The financial highlights of the Blue Label Group before accounting for the negative contributions by Cell C, Oxigen Services India, fair value downward adjustments and impairments are illustrated as follows: Revenue increased by 10% to ZAR 57.8 billion, inclusive of the gross amounts generated on PINless top-ups, prepaid electricity and ticketing. Gross profit increased by 16% to ZAR 2.65 billion. Gross profit margins increased from 8.54% to 10.23%. EBITDA increased by 24% to ZAR 1.65 billion. Core headline earnings, the barometer on which we measure the group's performance, increased by 26% to ZAR 904 million. And core headline earnings per share increased by 18% to ZAR 0.9898 post the dilution resulting from the issue of additional shares to facilitate part payments of the acquisition of Cell C and 3G Mobile.

This slide details the negative contributions emanating from the Cell C investment, Oxigen Services India Group, fair value downward adjustments, impairments required as well as the positive contribution from the remaining entities within the group.

Cell C. For the 12 months ended May 2019, Cell C incurred trading losses of ZAR 1.56 billion; impairments of its property, plant and equipment of ZAR 2.2 billion; and the derecognition of its deferred tax asset of ZAR 4.1 billion. The group's 45% share thereof amounted to ZAR 3.6 billion on inclusion of the amortization of intangible assets of ZAR 10 million and an expense of ZAR 65 million relating to equity-settled share-based payment charges that were previously added back in the prior year. As at the 31st of May 2019, no value was attributable to the underlying value of Cell C. And as a consequent thereto, the balance of the carrying value of Blue Label's investment therein amounted to ZAR 2.5 billion was impaired. The resultant group share of losses therein totaled ZAR 6.1 billion, equating to a negative impact on earnings per share of ZAR 6.7133 per share after adding back the headline earnings adjustment relating to the impairments of the investment. And in its property, plant and equipment, negative core headline earnings amounted to ZAR 2.6 billion, which equated to a negative impact on core headline earnings per share of ZAR 2.8651.

Fair value adjustments. The impact of the fair value adjustments of ZAR 838 million on core headline earnings was attributable to the downward adjustment of ZAR 750 million relating to the nonrecoverability of the exposure to SPV1 and SPV2 on -- pertaining to the initial recapitalization of Cell C and ZAR 88 million net of taxation relating to a loan to Glocell. This equated to a negative impact on core headline earnings per share of ZAR 0.9175.

Oxigen Services India. The corporate transaction referred to in the 30th of November 2018 interim results did not materialize, and the resultant lack of funding necessitated Blue Label Telecoms to impair its full investment of ZAR 118 million in the Oxigen Group. The full value of the loans to Oxigen Services India of ZAR 30 million and 2DFine Holdings Mauritius of ZAR 101 million, net of a surety asset raised, were impaired as well as a recognition of a guarantee for ZAR 62 million.

In addition, the group has accounted for its share of losses of ZAR 87 million. The resultant negative contribution to core earnings totaled ZAR 398 million, equating to a negative impact on earnings per share of ZAR 0.4363. After adding back headline earnings adjustments relating to the impairments of the investments, negative core headline earnings amounted to ZAR 233 million, which resulted in a negative impact on core headline earnings per share of ZAR 0.255.

Impairments. The negative contribution of impairments to core earnings amounted to ZAR 147 million, of which ZAR 74 million to a partial impairment of goodwill in Via Media and ZAR 50 million to Blue Label Connect. A further ZAR 22 million was applicable to the partial impairment of an investment in SupaPesa, a joint venture company. The resultant negative contributions to earnings per share equated to ZAR 0.1605 but did not impact on core headline earnings per share in that these impairments are added back in the term -- in the determination thereof.

The remaining entities. Group revenue declined by 3% to ZAR 25.9 billion. As only the gross profits earned on PINless top-ups, prepaid electricity and ticketing are accounted for and imputing the gross revenue generated thereon, the effective growth in revenue equated to 10% from ZAR 52.6 billion to ZAR 57.8 billion.

Net commissions earned on the distribution on prepaid electricity continued to increase, escalating by ZAR 39 million to ZAR 278 million, 17%, and an increase in revenue generated on behalf of the utilities from ZAR 16.9 billion to ZAR 20 billion, a growth of 19%.

Gross profit increased by 16% from ZAR 2.28 billion to ZAR 2.65 billion, underpinned by an increase in margins from 8.54% to 10.23%.

EBITDA increased by 24% from ZAR 1.34 billion to ZAR 1.65 billion at an EBITDA margin of 6.39%. Core headline earnings increased by 26% from ZAR 716 million to ZAR 904 million. After taking into account the increase in the weighted average number of shares in issue, core headline earnings per share increased by 18% from ZAR 0.8365 to ZAR 0.9898.

Moving on to the balance sheet. Total assets decreased by ZAR 5.9 billion to ZAR 12.1 billion, of which noncurrent assets accounted for ZAR 5.9 billion, net of an increase in current assets of ZAR 78 million. Of the net increase of ZAR 205 million in intangible assets and goodwill, ZAR 199 million related to goodwill and ZAR 6 million to intangible assets. Of the goodwill increase, ZAR 219 million pertained to Glocell distribution, ZAR 49 million to AV Technology and ZAR 46 million to Wi-Connect. These increases were offset by partial impairments to goodwill in both Via Media and Blue Label Connect for ZAR 74 million and ZAR 50 million, respectively.

A net decrease of ZAR 7.5 billion in investments in and loans to associates and joint ventures were predominantly attributable to net loan repayments of ZAR 1 billion, impairments of loans in OSI of ZAR 161 million and impairments of investments totaling ZAR 2.7 billion, of which Cell C accounted for ZAR 2.5 billion, OSI for ZAR 118 million and SupaPesa for ZAR 29.5 million. This was compounded by the group's net share of losses in associates, totaling ZAR 3.7 billion, of which Cell C accounted for ZAR 3.6 billion, inclusive of the amortization of applicable intangible assets.

Of the increase in current assets, material movements included increase in inventories of ZAR 917 million and cash resources of ZAR 438 million, offset by a decrease in advances to customers of ZAR 206 million. The stock turn was 24 days compared to 9 days for the financial year ended 31st of May 2018.

The average debtors' collection period remained unchanged at 75 days. Net losses attributable to equity holders of ZAR 6.7 billion resulted in retained earnings declining to ZAR 2.4 billion. Share capital and share premium decreased by ZAR 246 million, congruent with the repurchase of 32.9 million shares at a weighted average price of ZAR 6.78, the purchase of treasury shares amounting to ZAR 42 million less 21 million of shares divested.

Borrowings increased by ZAR 265 million, of which ZAR 155 million was for facilities utilized by CEC for the financing of mobile handsets. Trade and other payables increased by ZAR 283 million, with average creditor terms increasing from 66 days to 87 days.

Proceeds from the sale of the handset division of 3G Mobile and Blue Label Mobile will reduce interest-bearing debt by ZAR 1 billion and will in turn enhance the profile of the group balance sheet.

Turning to the cash flow. Cash available from operations amounted to a negative ZAR 81 million, attributable to an increased inventory of ZAR 864 million, trade receivables of ZAR 434 million, advances to customers of ZAR 22 million, offset by additional creditor's -- credits of ZAR 208 million afforded to the group by its suppliers. The increase in inventory was attributable to bulk purchasing at favorable discounts.

Although this resulted in a temporary increase in inventory holding days, being a highly liquid asset, such excess inventory of approximately ZAR 1.2 billion is capable of reduction within any given month. Of the increase in accounts receivable, ZAR 157 million related to a prepayment to utilities for prepaid electricity, which was replaced by inventory shortly after the reporting period due to timing differences. Further supplier prepayments amounted to ZAR 128 million.

Cash flows received from investing activities totaled ZAR 561 million, mainly attributable to a ZAR 1 billion loan that was repaid by Cell C, offset by funds applied, net of cash required to the acquisition of Airvantage Mauritius amounting to ZAR 19 million, a further ZAR 326 million was granted for the liquidity support to SPV2, ZAR 76 million for the purchase of intangible assets and ZAR 134 million for capital expenditure.

Cash flows applied to financing activities amounted to ZAR 42 million, of which ZAR 224 million related to share buybacks, ZAR 42.4 million to the acquisition of treasury shares and a dividend payment of ZAR 36 million to noncontrolling interests. After additional borrowings of ZAR 260 million, cash at hand at the end of the year amounted to ZAR 1.4 billion.

Thank you. Cell C will now present their results.

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Douglas Stevenson, Cell C (Pty) Limited - CEO & COO [3]

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Good afternoon all, and welcome to the Cell C financial results presentation. As you will see, there is an agenda, starting with the Cell C story to date and going through to a question-and-answer session. I will deal with the turnaround strategy as well as the performance over the last 3 months and the annual financial results from the 1st of June 2018 until the 31st of May 2019, these results tying up with the Blue Label results as at the end of May 2019.

I'd like to start with the Cell C story and how we got to where we are. I think it's important to expand on the story and where we find ourselves today as a company. There are fundamentally 2 significant reasons for this. First of all, we've had an underinvestment in the equity of the business -- well, actually, over the full period of the company's existence over the last 19 years. And we've also had a certain amount of poor operational decisions that have taken us in the past, some of them being issues like the tower deal and a few others that have just been problematic for the organization as well as the fact that we have never made a profit to date, and as such, a lot of risk has been priced into the bulk of the procurement of the organization with risk being factored.

The upside of this actually sits in the Cell C story's opportunity. The good news is that we have significantly valuable assets, and some of them are underused. These assets include our customer base, our channel distribution, our spectrum, our brand and an assessed tax loss of in excess of ZAR 20 billion. We have a customer base of almost 16 million customers, a distribution network of over 240 stores nationwide and a strong brand that has been recognized as one of the top 30 valuable brands in the country. That we have been a challenger brand and a challenger organization to the incumbents is not in denial at any stage, and we find ourselves continually being required to be innovative and get streamlined so that we can compete properly in the market.

With this targeted business strategy and well-capitalized balance sheet, we will lead to better leverage of these assets. And the management team behind me is very much focused on achieving this and making sure that we make our necessary investments both in what we have in our current infrastructure and what we have with regards to the resources in our income statement that we can better apply to being able to generate profitable revenue.

We will look at operational efficiencies. We will look at the restructure of our balance sheet as has been alluded to. We will look at a complete new network strategy in how we manage the network and how we go about getting out of the capital-intensive network and how we manage to leverage on roaming deals. And then, lastly, we will look at improved liquidity with regards to being able to compete on a like-for-like basis, with a balance sheet that can talk to that.

The turnaround strategy. As I've already mentioned in the turnaround strategy, it's focusing on operational efficiencies. The business, we have to admit, has been very weak in organizing its efficiencies. We have been burdened with excessive costs, ill-thought concepts and a number of things that are not being really geared towards building something efficient. The analogy that we will build it and they will come is not going to work in a highly competitive market and the matured market that we have now. So we have to look at making sure that we can get yield out of every single part of our network. And that will again result in a strong working capital situation and overall liquidity. Cell C has a real opportunity to address its historical performance through the focus on operations, and that, we believe, will restore our shareholder value.

We are convinced that our wide-ranging operational initiatives will position Cell C for long-term success. Some of the initial changes include the following: We had a review of the black streaming service. We believe that we will be able to save in excess of ZAR 120 million annually as we resize the investment into the streaming service. We continue to rebalance our traffic and our retail products. We have removed nonprofitable products out of our inventory and have increased the focus on retail pricing and wholesale pricing that makes sense.

It doesn't make sense in the market like we are in today to continue pushing good money after bad and to create loss-making products, as you will have seen that we have done with something like, for example, our wholesale LTE. We have implemented a cost-efficiency program across all expense lines in the organization and currently have a run rate of over ZAR 860 million, with more anticipated savings to be realized in the future results.

We have shifted our service revenue back to growth, and this will be achieved through a more focused approach to our profitable products and reenergizing our distribution channels as we've been able to now get a full national footprint through the extension of the roaming agreements that we have in place.

If I look at our 29 (sic) [2019] quarterly performance, the -- for this last quarter, post our annual reporting period, it shows that our service revenue as well as our customer spend has improved during the last 3 months, leading up to August 2019 at ZAR 3.68 billion service revenue. And then the impact of management's focused approach on operational efficiency has reflected an improved operating margin and stronger normalized EBITDA at circa ZAR 1.023 billion. This is a substantial improvement in the EBITDA and, specifically, the cash-generated EBITDA since the beginning of the year.

Year-on-year, our quarterly service revenue continues to grow and in a very tough economic environment and a very tough competitive environment. And through June to August '18 versus June to August 2019, we grew by 2%. Year-on-year, quarterly gross margin is down. This is largely as a result of the increase in our roaming footprint. And we will make sure that the business and the products can align with that in order for that margin to recover. Our year-on-year quarterly EBITDA is up 18% for the year.

With regards to the financial results up to the 12 months ended May 2019, our service revenue was up by 4% to ZAR 14.2 billion from ZAR 13.5 billion of 2018. I think this is a strong indication that we are still very relevant as a network in the market, and the growth of service revenue is something that is very much a lead indicator into where we are going as an organization.

Our EBITDA, as I explained, had decreased by 19% from ZAR 4.18 billion in 2018 to ZAR 3.39 billion. This was largely due to the expanded network roaming agreement and as we took on a bigger national geography and move towards a 4G -- a full 4G network.

The lower capital intensity of ZAR 1.9 billion or 12% of revenue was due to the reduced network capital expenditure as we moved into the roaming agreements. And so therefore, we only expanded our CapEx footprint over specific areas and over specific platforms.

And then, lastly, with regards to the 2019 financials, we unfortunately have a net loss of ZAR 8 billion, but the bulk of the net loss on the ZAR 8 billion is rather as a result of impairment reversals, specifically on the deferred tax, some of the plants and equipment vis-à-vis the roaming agreement and then, lastly, the black content platform.

The net loss then after tax includes impairments to the value of ZAR 6.275 billion. We have performed an annual impairment test on the carrying value of the property, plant and equipment and intangible assets. As of 31st of May, the impairment was calculated to the higher of the fair value less cost to sell or the value in use. The impairment assumptions were made on the cash flows that were limited to the generation of cash with no regard to new technology, expansionary growth or pending recapitalization.

Transactions. It should be noted that these impairment assessments will be reviewed in future trading periods and that there is a strong possibility of the reversal of these payments. In fact, I'm of the view that once we continue with the trajectory that we have on our first quarter results, the impairment of these assets should be inevitable, especially the deferred tax asset of circa ZAR 4 billion.

Carrying on with the 2019 financial year. We were characterized by a lot of other external issues such as slow growth, a volatile rand against major currencies. We had a lot of service issues relating to load shedding and the continued slowdown of the South African economy. With the resultant decline in GDP in the first quarter of 2019, consumer purchasing power has weakened, which together with a reduced lower disposable income has contributed to lower-than-expected financial performance of the company. Although that said, you have seen the continued growth of service revenue, and we will continue to get the cost base aligned with that service revenue growth. Despite the new regulation and legislative frameworks pertaining to the data expiry and out-of-bundle usage, we are still managing to grow revenue.

If you look at our revenue by subscriber type, our total revenue of ZAR 15.4 billion, plus 1%, has increased year-on-year mainly due to contract at 6%, broadband at circa 20% and wholesale at 14%. Those being the major contributing segments. There was a performance decline in the prepaid revenue of around 1% and a slight decline in the prepaid customer base and a decline in the equipment revenue, which we have made sure that we do not compete entirely on subsidies driven into the market as we believe the subsidization of -- the continued subsidization of handsets into the market and equipment is an absolute loss leader for most of the networks.

When we unpack our subscribers, there is a slight drop in the total subscribers to 15.9 million, while the average revenue per user of the contract customers, which is the highest of our ARPUs, has increased by around 11% to ZAR 253 per customer. This is heartening for us.

We have taken active steps to reduce our focus on pure revenue and subscriber growth to rather focus on profitable long-term prepaid and contract segments that we can understand, the quality of the subscriber that we're getting and making sure that our products are innovative and to our subscriber needs.

Going into operational expenditure, the cost-cutting initiatives were not yet reflected in the past annual period, so direct expenses did increase by 11% mainly as a result of the increase in roaming costs. The roaming agreement that was finalized August 2018 has contributed to 32% of the direct costs incurred. One must understand that this is also a substitution between CapEx and OpEx, and that is why the number looks so high at 32%. The lower-than-expected revenue and the unexpected increase in the roaming cost did have an impact on our annual gross margin and had brought it down by around 5%. This is something that, as I said, is being addressed by our product and by our distribution.

If I look at the income statement key financial performance indicators, although EBITDA was 90% (sic) [19%] lower at ZAR 3.39 billion versus ZAR 4.18 billion in 2018, and the net finance costs were also down by 44% to ZAR 2.15 billion, this was mainly as a result of the lower finance costs on the long-term debt and the reduction in the ForEx losses. Again, I'll go back to the reduction in the EBITDA, bulk of that being related to the roaming, and the roaming needs to be considered in the context of the expansion of the network footprint and a full national network as well as the fact that we have principally a 4G network now.

Looking at our balance sheet. Networks, we believe, will be a utility in the future with 1 or 2 mobile infrastructure providers per country. And therefore, it does not make economic sense for us to overbuild on the basic infrastructure. Against this background, we are in negotiations for an extended roaming agreement, which will enable Cell C to manage its network capacity requirements in a much more scalable and cost-effective manner. This will also provide access to current and future technologies.

Having a look at the breakdown of the balance sheet, our network assets have been reduced to impairment of ZAR 1.7 billion as well as the further impairment of the intangible asset being the black content of another ZAR 346 million. The deferred tax asset has also been impaired to 0 from ZAR 4.09 billion. Loans and borrowings have increased with the capital expenditure related funding and the contract short-term subsidy financing. There is also an increase in the other liabilities and provisions, and this is due to an increase in the deferred payments and the unearned revenue in line with our service revenue growth.

Looking at the debt. Our core debt remains unchanged in the underlying currencies. This last year was particularly difficult with the depreciation in the ZAR, resulting in a revaluation of some of them, but the core underlying currencies remain the same. The net debt, excluding finance leases, is increased from ZAR 7.4 billion to ZAR 8.24 billion and was largely driven by the increased capital expenditure and the working capital drawdown facilities. All said, we remain focused on the restructure of the balance sheet and the optimizing of the business for its long-term competitiveness. And by executing on a focused turnaround plan, we will dramatically improve the financial profile and deliver a streamlined business, and this can be reflected in the Q3 results that we presented earlier.

In closing, we remain focused on the restructuring of our existing balance sheet and the recapitalization process and as well as the optimization of the business for long-term competitiveness and sustainability. By executing on our focused turnaround plan, we believe we will dramatically improve our financial profile, normalize EBITDA margins and deliver a streamlined business.

The focused company strategy and the correctly capitalized balance sheet will lead to better leveraging of the existed asset base within Cell C. We are well understood that the South African mobile market is in a mature phase and that the long-term growth of the industry in general and players such as Cell C, in particular, will be determined by our ability to deliver innovative service offerings while assessing our overinvestment in capital-hungry infrastructure, the rightsizing of our product and our product mixes, the innovation that is required to drive it and the relevance that we will have to our future subscribers and our existing subscriber base.

We believe in Cell C's long-term prosperity, and I'm confident that we will get there. We have a strong customer base of over 16 million subscribers and a distribution network over 240 stores countrywide, a strong brand that has been recognized as 1 of the top 30 valuable brands in the country, and we will continue to make sure that Cell C is competitive and sustainable in the existing market. Thank you very much.

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Mark Steven Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [4]

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All right. Can we check if we have any questions on the conference call?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from [Bianca Luna] of (inaudible).

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Bianca Luna, - Analyst [2]

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I have a question about the Buffet Consortium investment. I wanted to get an update on that. And my second question is due with the -- under the liquidity funding on your turnaround strategy, you mentioned that some local banks have given you a new facility. I was wondering if I could get some more information around that and also if you have any update on your credit bonds -- payable bonds in 2020.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [3]

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Thank you. Zaf?

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Zafar Mahomed, Cell C (Pty) Limited - CFO [4]

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Thank you for the question. In terms of the Buffet transaction, that is on track. We expect to complete substantially the transaction by the end of this year. We are still in negotiations with that transaction. And so hopefully, by the end of this year, we'll be able to get -- give you a better update.

The second question was with respect to the liquidity. We were able to get additional liquidity via our shareholders. This was supported by the local South African banks, and that liquidity was sufficient to allow us enough liquidity to get to the end of the year.

With respect to payments, we are effectively in standstill on payments with our lenders, so we haven't made any interest payments. Any debt payments that are due, the big ones being in January next year, we are in negotiation with our lenders. So we have weekly calls with the lenders. And yes, we continue to update them and negotiate with them.

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Bianca Luna, - Analyst [5]

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And with regard to the Buffet transaction, is there any specific stakes? How big are they looking to buy the company? And then with the liquidity with the shareholders, could you provide how much was provided?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [6]

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Unfortunately, at this stage, we cannot divulge that information. Yes, we're obviously aware of the percentage and the amount. But until the deal is finalized, which has a condition precedent on a part of the deal that Cell C is doing on a different side, we are unable to give that information. But as soon as we can, we will definitely put the information out into the public.

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Bianca Luna, - Analyst [7]

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And I also wanted to ask about the investigation with the competition authority. Is there any update with that?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [8]

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The investigation is from the competition authorities themselves. There is no update from our side. We haven't received anything further from the competition board. And if we do, we will deal with it as and when we have to. But from our side, really nothing there to mention as of now.

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Bianca Luna, - Analyst [9]

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And respect the liquidity from shareholders, is there anything that they received in return like an additional stake in the company?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [10]

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Sorry, can you repeat that question?

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Zafar Mahomed, Cell C (Pty) Limited - CFO [11]

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I think the liquidity, if there's any additional stake.

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Bianca Luna, - Analyst [12]

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So the new funding facility that was supported by the shareholders, was there anything that they received in return, so an increase in the stake in the company, so a debt-for-equity swap sort of deal?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [13]

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No, not at all. Nothing at all.

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Bianca Luna, - Analyst [14]

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Okay. And this is separate to the Buffet Consortium, it's the existing shareholders providing liquidity?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [15]

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Correct. On the liquidity that was supported by the shareholders now, it is not linked to any equity or any additional equity at all.

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Bianca Luna, - Analyst [16]

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Okay. And is it possible to get information as to which shareholders provided the liquidity?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [17]

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Both Blue Label and Net1.

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Bianca Luna, - Analyst [18]

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Okay. I also wanted to ask about the SPV notes because the equity investment around Blue Label and Net1 has been reduced to 0. And what does that mean for the 2022 notes?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [19]

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That is obviously what we are valuing them at as of a date in time, which is the 31st of May. It does absolutely nothing for the notes other than our valuation at a specific time. Those notes become due in August of 2022, if I'm correct of the date. And of course, as time plays itself out, the value of those will be determined as the time goes out. But ours is at a point of time which is Blue Label's valuation as of the 31st of May 2019.

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Bianca Luna, - Analyst [20]

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So hypothetically, if it was 0 at that date, then that would be what it would be worth because it's secured against the stake, correct?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [21]

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Correct. That's why we wrote off it entirely on our side. We wrote off the SPV stake, and we wrote off investment into Cell C.

That doesn't mean that we don't believe there is value to be brought in the future of Cell C and that we do believe that value will be brought, but at a stage in time, that is the value, correct.

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Mark Steven Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [22]

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Can we check if we have any questions on the webcast?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [23]

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Okay. First question from [Pelé from EPSA]. "Where is EBITDA margin currently for Cell C? To May 2019, it was 22%, but they show an uplift in service revenue to August. Has there been an uplift in margins as well?"

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Douglas Stevenson, Cell C (Pty) Limited - CEO & COO [24]

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Yes, there has been. The uplift in margin has been to 28% for the quarter ending August 2019.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [25]

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Okay. Question #2, from Ruan Koch of Laurium. Of the inventory balance at year-end," this is to Blue Label, "how much related to Cell C airtime? And how much Cell C airtime are you currently carrying?"

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Dean Alan Suntup, Blue Label Telecoms Limited - Financial Director & Executive Director [26]

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Thanks for the question. Currently, at the 31st of May, our inventory balance amounted to ZAR 1.5 billion. Of that amount, ZAR 890 million was related to Cell C stock. And to date, we have approximately ZAR 300 million that we still maintain on our service.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [27]

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Again from Ruan. "Can you help us understand the valuation multiples that 3G Mobile and BLM are being sold at?"

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Dean Alan Suntup, Blue Label Telecoms Limited - Financial Director & Executive Director [28]

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So the P/E multiple for 3G Mobile will be 6.8, and for the Blue Label Mobile group, it's approximately 6.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [29]

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Just to make it very clear, on the 3G Mobile sale, it is not the ZAR 1.9 billion that we paid for the group. When Blue Label bought 3G Mobile for ZAR 1.9 billion, it had 2 components to it. One was the 3G handset component. That is the component that we are receiving ZAR 544 million, which is done at a P/E of approximately 6.8x. On the second side is the CEC, which is our finance book. The 3G element makes up around 25% of the entire 3G group. So 75% of the group still remains.

Next question from [Herzl] -- no, sorry, no other questions. Sorry about that. It's an internal.

Next one is from Ruan again. "Cell C, could you give us an update on the MTN roaming arrangement negotiations and time line to completion?"

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Douglas Stevenson, Cell C (Pty) Limited - CEO & COO [30]

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Yes, thank you, Ruan. We're in very far protracted negotiations at the moment and expect to be able to issue something within the next 2 to 3 weeks.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [31]

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Thank you, Dougie. Next question is from Patrick from Perpetua Investment Managers. "Within 3G, can you give us a split of the net profits, i.e., the ZAR 278 million of net profit reported after tax? What is the hardware portion? And what is the CEC portion?"

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Dean Alan Suntup, Blue Label Telecoms Limited - Financial Director & Executive Director [32]

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So of that amount, ZAR 71 million relates to the 3G handset division. The group made in total ZAR 278 million. The remainder of the amount relates to CEC. As Brett mentioned, that equates to approximately 25% of the total company related to the 3G handset division that we are disposing of.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [33]

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Another question from Patrick, a follow-up question on CEC. "What is the Cell C exposure in the ZAR 2.8 billion financing book? And share the debtor's provision in nonperforming loan, i.e., what is the bad debt exposure to CEC?"

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Dean Alan Suntup, Blue Label Telecoms Limited - Financial Director & Executive Director [34]

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Thanks, Patrick. With regards to the book, Cell C have the full undertaking of all the bad debts. Blue Label has no exposure to those bad debts. With regards to the book, we collect the book, which is approximately ZAR 2.9 billion, which is included in our balance sheet, and we can collect the book. As Brett mentioned, the book unwinds as we collect it.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [35]

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What's very important on this book is our valuation on the book is obviously what's outstanding to us, which is the ZAR 2.9 billion. Obviously, the book itself is worth a lot more than the ZAR 2.9 billion.

Over -- a question from Ed Pienaar from Tantalum for Cell C. "Has Cell C's year-end been changed to May?"

I'll answer that. The answer is no.

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Douglas Stevenson, Cell C (Pty) Limited - CEO & COO [36]

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No.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [37]

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What we've tried to do is just align their reporting period with our reporting period. So we had a separate audit to align it with ours.

Next question. "Has the roaming agreement with MTN changed in any way since inception already?"

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Zafar Mahomed, Cell C (Pty) Limited - CFO [38]

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Since inception?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [39]

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Inception, yes. Since Phase 1, yes.

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Zafar Mahomed, Cell C (Pty) Limited - CFO [40]

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Yes, it has.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [41]

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It has?

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Zafar Mahomed, Cell C (Pty) Limited - CFO [42]

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Do you want to know the details?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [43]

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Maybe high level.

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Douglas Stevenson, Cell C (Pty) Limited - CEO & COO [44]

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Yes, there's been a number of issues with regards to that in the renegotiation, and that was due to get a better utilization out of the agreement and to be more balanced with our traffic numbers and understanding how that has moved through it and bill accordingly.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [45]

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"Can you please explain the complexity and reasons for the time taken needed to sign the expanded roaming agreement? And when do you think that this will be done?"

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Douglas Stevenson, Cell C (Pty) Limited - CEO & COO [46]

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I've already alluded to it will be done within the next 2 to 3 weeks. This is a highly complex agreement. And Cell C together with MTN is making sure that everything is covered as this is a substantial way of mitigating costs with us and as a replacement of OpEx to CapEx. So it's not a simple roaming agreement like you would have with a normal network roaming situation. It's very much an integrated roaming situation. So we need to make sure that it's properly costed and understood. It's a large portion of our expenditure.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [47]

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Okay. A question again from Ruan. "Cell C, step 4 in your turnaround strategy is a recapitalization. You mentioned on the relevant slide that the recap is expected to be substantially completed in 2019. When can we expect further announcement of details?"

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Zafar Mahomed, Cell C (Pty) Limited - CFO [48]

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So we are currently in negotiation on the recapitalization. We will expect to update the market as and when significant events happen. So for example, should we sign any deal, we'll announce it. And we're still on track to deliver a recapitalization by the end of the year.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [49]

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Okay. Next question is from [Amit Singh] of Acanthin. "How much cash will the unwinding of the CEC book bring to Blue Label?"

So first of all, I want to just recomment what I did in my speech, which was, from a CEC perspective, it is business as usual. We're obviously retaining the skill set, we're retaining the entire strategy that sits there, that has a book outside of Cell C, which is growing really well and has grown really well over the last 12 months. The unwind of the CEC book will bring us in excess of ZAR 2 billion.

The next question is, "Does Blue intend to participate in the Cell C recapitalization program? If so, how do they intend funding their participation?"

So first of all, on the answer, if we plan on participating or not. We will not comment on that here yet. We would like to see how the MTN deal falls, how the whole recapitalization looks. Once we understand that entirely, we will then meet as a Board and decide on how to participate, where to participate and what to participate in.

From how will we fund that? It's very simple. I said this to you guys in our speeches, my speech as well. The disposals of Blue Label are not fire sales. They have been thought through. They have been thought through long and hard. It is very important to understand we have sold assets, although they are very good assets, they do not affect our core trading at all. They will not affect our core trading going forward. And the money brought in from the unwind of the CEC book as well as the core -- the sale of our core assets -- or sorry, of the 2 assets, we are hoping to eradicate our debt for the most of it and bring in cash to the business. And at that stage, we will worry about where or how we participate in Cell C.

The next question is anonymous. "Blue has lost a lot of money on Cell C. Where did things go wrong? And what lessons have you learned? What is your prognosis for Cell C? Is there any way that some of the initial investment can be recovered?"

Yes. Unfortunately, as of today, we have lost a lot of money on Cell C. Our prognosis for Cell C, however, is positive. We believe that the recapitalization will take place. We believe that a favorable deal of what we call Phase 2 with the networks will be done and that Cell C itself will have a sustainable, strong future. Where that exactly leaves Blue Label in our exact shareholding and where we are, time will tell. And of course, as soon as we have more details on that, we will give it to the market. So we are confident in the successful recapitalization of Cell C as well as the future of Cell C.

The lessons that we have learned, so obviously, to recoup our investment. Of course, we believe that. We will always try to recoup all of our investment. From what did we learn? Well, we learned a lot of things. I guess the most important thing is we went into this deal eyes wide open. We had done a real due diligence and a proper due diligence. We used a company from overseas as well to help us at the time. Unfortunately, it hasn't panned out how we had expected. Number of reasons, and in time, we can go through all of them. But I think the lessons learned are immense. I think first of all, never give up. I think you've got to continue and believe in your strategy, you've got to continue and believe in your vision. And for us, I think the whole 12 months and the whole 24 months, which has been a difficult 24 months, and an exceptionally difficult 12 months for us, is to stick together, believe in what we're doing.

We've kept our core of Blue Label very strong. We've kept our core Blue Label going. And through it all, we want to make it clear that there's a clear separation between Cell C and Blue Label and that Blue Label's existence has never been in question and that we continue to work together as a team, we continue to work together as a Board. And the lessons learned are immense, and we will grow from it, we will get stronger from it, and I guess we will learn a lot from it.

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Mark Steven Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [50]

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Can we check if we have any new calls?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [51]

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Yes, that's it.

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Operator [52]

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We have no further question on the line.

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Mark Steven Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [53]

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Any more questions on the webcast?

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [54]

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Yes, there's still more. Another question from Ed Pienaar. "CompCom, is that the general data inquiry or something Blue/Cell C specific?"

Ed, I'm actually not quite sure of exactly the question around CompCom. I know that there was a CompCom inquiry around Cell C itself. We have actually not received anything from CompCom for a couple of months. So not quite sure of exactly the inquiry or exactly what the problem is. So at this stage, we don't believe there is a problem. And should it come about, we will inform the market, but there's nothing that we can think of why there should be one.

Okay. Next question is from Steve Hurwitz of 36ONE. "Is [CGRC] still providing your suppliers with credit insurance relating to amounts owed by you?"

The answer is yes.

Next question from [John Davies]. "The Cell C CEO's open letter in July wrote about irregular business practices. Has the investigation completed? If not, when do you expect it to? If so, what is the outcome?

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Douglas Stevenson, Cell C (Pty) Limited - CEO & COO [55]

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The investigations are always ongoing. They really pertain to stuff that had come through the whistleblower's line and are in the normal course of business at this particular stage of the game. The open letter was specifically written to bring clarity to a number of questions that were floating around with regards to where Cell C was as an organization and to clear up as many of the issues as I could with addressing all the stakeholders in one go.

The investigations, as I said, at the moment, there is nothing specific that has come up there that's any more than normal course of business that you would find in any organization at this stage of the game.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [56]

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Thank you, Dougie. The next question is for Blue Label. "What was the change in working capital in the cash flow statement? A prior number as well."

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Dean Alan Suntup, Blue Label Telecoms Limited - Financial Director & Executive Director [57]

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Thanks. So if you look at our change in working capital, you would have seen that our -- the big movement would be related to the increase in our inventory balance of over ZAR 860 million. I think it's important to understand this figure. As we've always said with Blue Label, you need to look at both cash and inventory hand in hand. You would have noticed that our cash generation from operation was ZAR 431 million, but you need to take into consideration that the inventory is a highly liquid asset, and we can deplete the inventory over a short period of time.

So as I mentioned, we have ZAR 1.5 billion of inventory in the books. With regard to what we require for our working capital, it's around ZAR 200 million to ZAR 300 million that we need to maintain, thus giving us ZAR 1.2 billion available to convert into cash.

With regards to last year, you'll recall that was the year where we made our Cell C the acquisition. The big movements there was our decrease in our inventory balance of ZAR 1.7 billion. So we would have liquidated our stock at that point and turned it into cash to assist in the investments as well as the trade payables would have increased.

You'll recall that at a point we were paying Cell C in the month for the month. And we elected to utilize our terms, which would have resulted in our trade payables balance increasing by ZAR 1 billion, hence the large movement last year compared to this year.

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Brett Marlon Levy, Blue Label Telecoms Limited - Co-Founder, Joint CEO & Executive Director [58]

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Thank you, Dean. Next question. "It looks like a big improvement in the second half performance for core distribution with airtime revenue growing plus/minus 12% year-on-year and core EBITDA almost plus 40%. Has the trend continued into the new year?"

The answer is yes. From a core perspective, it is business as usual. Our products are growing. Our distribution is growing. And although it is very tough out there, it is not easy by any stretch of the imagination, our core continues to be robust and continues to grow.

The next question is from Philip Short from Old Mutual. "At a Blue Label level, what leverage metrics do you focus on? And what levels are you comfortable with? I'm trying to understand where you'll be post the sale of these 2 businesses."

So just to put it clearly, from a Blue Label perspective, we always saw the CEC debt separately to the main Blue Label debt. The CEC debt, although, of course, it's on our balance sheet, we obviously saw it separately in line with the book that we have not only on Cell C but outside of Cell C. So to answer your question on the Blue Label side, we have had a similar overdraft of ZAR 2.1 billion for many, many years. We have always looked to never gear ourself over 2x EBITDA gearing, which we never have, and we don't plan on doing that into the future.

So from the sale of these businesses, it's not about keeping it in line with what our internal metrics are. It is actually a very different strategy, and that is to eliminate all or most of our debt in the next 24 months and as well as come into cash again.

The next question is actually a follow-on on this question from [Richard Lewis], and it says, "Are there any additional assets that we plan on disposing of other than the ones we have mentioned?"

The answer is no. Outside of what we have now mentioned to you, which is the unwind of our book, which is like a disposal for us, and the 2 that we have done, there are no further disposals that we want to make. There is no further disposals we need to make, and this is it.

I do want to point out that in the 20 years of Blue Label, this is the first time of Blue Label making disposals. We are a company who buys, grows and works on acquisitions. We're not really a company that disposes of it. So I know I'm repeating myself, but these disposals were thought of long and hard, were played through, made sure that they did not affect our core trading and, of course, achieved what we wanted to do, which was to eliminate most of or all of our debt going forward.

The next question is from [Nicolas Defoss] from Acanthin. "With BLT net debt-to-EBITDA at 1x multiple, why did the auditors find it necessary to put ongoing concern statement in the result?"

This is a question we've been asked most this morning. The ongoing -- the going concern is specific to our Investec facility. Our Investec facility expired on the -- or does expire on the 29th of September 2019. It has already been extended to the 29th of November 2019. We are busy talking to the banks. We foresee absolutely no problems in our renegotiations with the banks. It's how the new facility will look, it's what the new facility will be, and we will update the market as soon as we conclude it.

So the going concern on the Blue Label side was absolutely specific to the fact that at the time of signing our audit, we had not extended it. And we are talking to them. And management are extremely confident that we have no problems here, and we will put it into how we actually need it to look going forward.

The next question is from Robin Bortz of Airvantage. "In the sense it is evident that the Airvantage group shows good shareholder value, what was the motivation for including this cash-generative unit in BLM sale to DNI?

As mentioned already, the process -- that is very cash generative, Airvantage. Airvantage comes as a group, where in the Blue Label Mobile group, it's Airvantage, it is Via Media, it is Cellfind, it is Panacea, and it's Simigenix. So those are the companies that make up the Blue Label Mobile group.

And as I said, we thought long and hard. It was not an easy decision for us to dispose of any assets because we believe all our assets are good. But in order not to affect our core and, of course, to achieve what I've mentioned before, that is the reasons behind it. It had nothing to do with the performance. In fact, the performance from the companies that we have -- that we are disposing as groups have been really good and have had a really good 12 months.

Last question is from Ed, and that is, "How is Mexico going?"

Mexico is -- so as we told you about India, first of all, that if we had not -- we had put it as an asset for sale. As we had mentioned to you, if we had not disposed of it by our results, that we would be writing it off. We haven't disposed of it, obviously, and that's why we're writing it off. We are still in the process of negotiations of disposing a whole or part of it. And as soon as we have more in India, we will bring it to the market.

On Mexico, the last 3 months, we have gone on a very aggressive cost-cutting strategy, which has proven to be very fruitful. So our last 3 months have been -- we've ended the quarter to be basically breakeven. We foresee the next 9 months to be a turnaround for us, but a turnaround, unfortunately, for us, is on the cost-cutting side of it, which obviously is a good start, which does turn the business around for us and does hopefully make it profitable for us in the next 12 months, and that's the science to it.

If we can now add on revenue growth to it in the next 9 months, obviously, with the revenue growth as well as the cost cut in, hopefully, for the first time, we will be able to deliver good news and profits from our Mexican operation.

And last question, sorry, is similar to a question before. "And what are the key lessons you have learned from the experience over the last 2 years?"

As I mentioned to you, we have, obviously, learned a lot. The most important is to believe in what you're doing, to never give up, to have a strong team where Blue Label and Cell C's team has been unbelievable throughout this whole thing from myself to my own management team and to Blue Label and, of course, the Blue Label board. And to Cell C, I say thank you.

It hasn't been easy. True colors are always shown when the chips are down -- and the fighting spirit of people. So I guess you mature. You definitely grow in things like this. And as long as you stick to your guns and you believe in what you're doing, I think the most important lesson of it all is when you've got lots of balls in the air to not -- try not catch them all. The only way to get out of these positions is to slowly take one ball at a time. Although it will take longer than you want it to, as long as you take in one ball out at a time and dealing with it, eventually, you will catch all the balls. And eventually, you will bring them all back to the ground.

So a lot of lessons learned, a lot of hard lessons, along with a lot of good lessons. They weren't only hard. And it will only make us stronger for the future.

So thank you all very much. I think we see most of you or a lot of you in the next couple of days in our road show in Cape Town and in Johannesburg. And of course, if there's any follow-up questions on the Blue Label side, of course, to Dean, always welcome, and to Douglas and Zafar on the Cell C side, always welcome. And happy to deal with, of course, any questions that you have out there. Thank you.