Mark-Levy-and-Brett-Levy — Blue Label founders and co-CEOs, brothers Mark and Brett Levy

JSE-listed telecommunications distribution specialist Blue Label Telecoms generated R795m in cash from operating activities in the six months to 30 November 2011, helping push accumulated cash resources on its balance sheet to R2,3bn and giving the company a war chest for its offshore expansion plans.

In the six-month period, revenues climbed by 7% to R9,2bn, with headline earnings up by 44% to R277,4m, helped by a R79,4m once-off income receipt in its mobile business, the details of which Blue Label co-CEOs Mark and Brett Levy won’t provide because of confidentiality surrounding the settlement.

The strong cash position comes in spite of a range of investments in the six months, including R391m to buy Microsoft’s 12% stake in the company, which the US software maker acquired prior to listing in 2007.

The company has managed to keep gross profit margins steady, despite pricing pressures in the mobile industry. It says it is “on track” to add 450 000 new mobile connections on behalf of the country’s mobile operators on a monthly basis. It’s pushing hard into rural areas, with plans to roll out 60 trucks in rural areas by the end of May selling everything from airtime to maize meal and bread. A hundred “foot soldiers” will be sent into remoter areas where the trucks can’t reach. “They will touch every corner of the country,” says Brett Levy.

Just over half (53%) of Blue Label’s airtime sales come from Vodacom, with MTN (34%), Cell C (10%) and Telkom prepaid (3%) making up most of the rest. Telkom’s 8ta mobile business contributes less than 1% of airtime sales.

Mark Levy says 8ta has “its own challenges” and Telkom has to come up with new ways of increasing demand for the brand among consumers. “They have challenges and it’s not a Blue Label challenge,” he says. “They need to decide what their whole strategy is in terms of distribution: what makes consumers switch to the 8ta brand from one of the well-known brands?”

In prepaid electricity, Blue Label has also performed well, with commissions received rising from R30m a year ago to R41m. With an effective commission margin on sales of 1,6%, total sales were R2,7bn, up from R1,5bn. Because Blue Label acts as an agent, these sales are not reflected on the company’s revenue line.

Though Blue Label has defocused its efforts in the rest of Africa — effectively pulling out of the Nigerian market after the collapse of the Multi-Links contract (now the focus of a multibillion-rand arbitration process) — it is upping its expansion efforts in both India and Mexico.

In Mexico, it has established 20 000 points of presence with its partner, the giant bakery group Grupo Bimbo, which serves more than 850 000 customers with 17 000 trucks. “We leverage off that distribution capability,” says Mark Levy. Blue Label incurred a loss of R8,5m in the six months from its share in the Mexican partnership, but Levy says it’s an important market and will allow Blue Label to expand into Latin America and the US.

“The whole of Mexico is run using the SA platforms,” he says. “Though we replicated the platforms in Mexico, all the research and development is done in SA.”

In India, about half of revenue comes from the airtime business. Levy concedes it’s a complex market but one that offers big growth opportunities because of its sheer size. “We have partnered with the State Bank of India, which has more than 150m customers and 20 000 branches,” he says. “What we have done is deploy no-frills banking kiosks in our environment. People go to the kiosks and can open bank accounts on the fly. We also offer domestic remittances to any bank, which has been well received.” — Duncan McLeod, TechCentral