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BUSINESS MODEL
AND STRATEGIC
OBJECTIVES
LEADERSHIP
GOVERNANCE
SHAREHOLDERS’
INFORMATION AND
ADMINISTRATION
OPERATING
PERFORMANCE
FINANCIAL
PERFORMANCE
BLUE LABEL INTEGRATED ANNUAL REPORT 2014
13
THREE INCOME
STREAMS
REVENUE
STREAMS
Sales of commodities and/
or products and services
Annuities
Interest income
The Group is a distributor of virtual and physical prepaid airtime on behalf of the network
operators, as well as of electricity on behalf of the utilities. Commodities are purchased and
taken into inventory where they are warehoused until resold at a later stage. The Group
accounts for these sales at their full face value as reflected in the revenue line.
Economic slowdowns have seen many postpaid consumers migrate towards prepaid in
order to enhance their financial flexibility and control spend. In general, prepaid consumers
are purchasing airtime in lower denominations, while also benefiting from price reductions
and variable call discounts introduced by the major mobile networks.
There is an increasing trend for the Group to act as an agent on the sales of certain products and services.
Commissions earned for acting as agent are not included in the revenue line, but are accounted for in gross profit.
The distribution of “PINless top-ups”, as an alternative mechanism for the vending of prepaid airtime,
continues to escalate. This shift in consumer buying patterns impacts the treatment of the revenue
generated, as only the gross profit earned is accounted for. Therefore, the effective growth in Group revenue would
have equated to 6% for the year.
The same approach applies to accounting for electricity sales, where the Group acts as the agent on
behalf of the utilities and not as principal. Only the commissions earned and not the face
value of these sales is included in gross profit.
In our business model, the metrics for measuring growth should be gross profit and gross
margin achieved, as revenue is not necessarily a proxy for the Group’s growth.
The Group’s high volumes, coupled
with its favourable trading terms,
generate significant cash from
operating activities. Interest is earned
on cash balances.
The Group distributes and activates starter packs,
earning a rebate, or activation bonus, on each
successful activation.
Ongoing annuity revenue is earned for the life of
each starter pack. Affinity programmes have been
introduced to mitigate churn on the starter pack base.
Annuity revenues are earned from subscription-based
businesses, where customer retention is a key focus.
Launching additional products and services
to new and existing subscriber bases
enhances annuity revenue.