Blue Label Telecoms has announced its interim results for the half-year ending 30 November 2013. Gross profit increased by 10% to R710-million, with the gross profit margin increasing from 6,80% to 7,82%.
This was achieved through the efficient application of cash resources to inventory purchases at favourable discounts. In spite of a decline in revenue, EBITDA increased by 16% to R431-million, primarily due to an increase in gross profit by R66-million (10%) and the containment of growth in overheads to 3%.
Revenue generated on “pin-less top ups” increased by R310-million. Headline earnings per share of 37, 15 cents equated to a growth of 7%, headline earnings increased by 7% to R246-million and cash flows from operating activities was at R742-million.
“These results are predominantly attributable to exponential growth in commissions earned on the distribution of prepaid electricity, compounding annuity revenue generated from starter packs and escalation of the distribution pin-less top ups, an alternative mechanism for the vending of prepaid airtime,” notes Frost and Sullivan’s Information and Communication Technologies Research Analyst, Ankit Trivedi.
The South African distribution segment established itself as the main contributor to this financial growth, offsetting the effects of deteriorating performance of the call centre operations and compounding losses in Mexico, due to margin compression and significant increase in overheads.
“Blue Label Telecoms is well positioned for growth in South Africa in 2014, due to its partnership with MasterCard and acquisition of Retail Mobile Credit Specialists (RMCS),” says Trivedi.
With MasterCard, the strategy is to roll out point-of-sale (POS) devices to 22 000 small traders and rural shops in South Africa, allowing them to accept card payments for the first time. Blue Label Telecoms already provides thousands of point of sales (POS) terminals in South Africa, which are used to sell prepaid vouchers such as airtime and electricity. In rural areas and underserved settlements, traders have historically operated on a cash-only basis.
Through the partnership with MasterCard, businesses will be introduced to the security and ease of electronic payments, enabling financial inclusion in communities where consumers have largely been unable to use formal payment products.
The acquisition of Retail Mobile Credit Specialists (RMCS), announced on 24 December 2013, for an initial R307-millionand up to an additional R32-millionif earnings targets are achieved, is done by “The Prepaid Company”, a Blue Label Telecoms subsidiary.
This business model aligned acquisition shall facilitate the distribution of prepaid cell phone starter packs, airtime and electricity vouchers.
RMCS is a service provider of cellular products and services engaged in the supply of telecommunications products and services, content, data and allied activities via both physical and virtual mediums. It has physical stores while its virtual offering is an “over the air” cellular application that enables retailers, credit providers and consumers to communicate and transact over mobile devices.
For international operations in India, Mexico and the UK, Oxigen Services (Blue Label Telecoms operations in India) is expected to report profit in the 2014 financial year as the Indian prepaid card market is positioned for growth at a CAGR of around 40%, between now and 2017.
In India, 97% of the transactions are done through cash but debit and credit cards have risen during the past decade due to growing consumer awareness and internet penetration. However, almost half the population of India is un-banked and only 55% of the population have deposit account with banks, which leads to the basic need for prepaid payment channels.
Therefore, in addition to being an appropriate payment tool for these customer segments, prepaid cards have also become a preferred choice for corporate India and the consumers. In Mexico, the business is expected to turn profitable in 2015, due to roll out of 140 000 points of sale points with banking transactional capabilities to grow the financial and prepaid services through the distribution network of Mexican partner Grupo Bimbo, while the UK leg of business continues to be profitable.
“As always, continuity in coming up with local market relevant financial services products to cultivate portfolio and expansion of distribution footprint, by growing organically and through strategic acquisitions, shall be critical for sustainable growth for Blue Label Telecoms. In addition, the organisation has to be more prudent now so that it can avoid legal complications and can invest its resources fully on innovation and growth,” says Trivedi.
