Blue Label proves resilient

By Candice Jones for Blue Label Telecoms
Johannesburg, 25 Feb 2009

The Blue Label Group will put away enough to cover a possible 4% decrease in interest rates this year.

This is according to Blue Label joint-CEO Brett Levy, speaking at the company's interim results presentation for the six months ended 30 November 2008. It is one of the few ICT businesses so far this year to report strong results.

Levy explains that Blue Label showed some of its strongest results during the initial moments of the global economic meltdown in December and January. However, in the face of a possible South African recession and an expected sharp decline in interest rates, the company has decided to start shoring.

It has budgeted for a 4% decrease in interest rates for the year. The company's business model relies heavily on earning bank interest on cash from prepaid vouchers and has traditionally made low margins off the product.

However, through the year, Levy says the company has boosted its margins through a 0.8% increase in the price of the vouchers. It has also included a number of new products through the year.

It is also preparing a growth buffer for a possibly trying year ahead. Levy explains that part of that was the decision not to declare a dividend. “It was a well thought-out decision and we seriously considered declaring a dividend. However, having the cash to grow the business would provide better scope for shareholders in the long run,” clarifies levy.

Blue Label intends to declare its first dividend in the financial year beginning 1 June 2010.

International expansion

Fast Figures

Blue Label Telecoms interim results:
Revenue increased by R1.4 billion (23%) to R7.6 billion
EBITDA increased by R65 million (28%) to R296 million
EBITDA margin increased from 3.73% to 3.9%
Net profit after tax increased by R33 million (20%) to R198 million
Gross profit percentage increased from 5.94% to 6.92%.
(While the company is required to report in comparison to actual audited results over the last period, it listed only halfway through its financial year in 2007. As a result, it reported pro-forma results at its maidens last year. The above figures are compared to unaudited pro-forma figures from the last interim results.)

While most of the company's operations have been solid, its investment in its Indian business - Oxygen - was less than impressive. However, joint-CEO Mark Levy says the Blue Label Group still believes in the opportunity that India could provide.

He explains that the vast geographical area of India made roll-out of points-of-presence a costly exercise. However, a large deal with the country's metro rail service has shareholders more optimistic about the business's prospects.

The deal will see Blue Label provide a mobile phone ticketing system that is being piloted in Mumbai. The pilot alone will see seven million tickets pass through the system per day. With a country of a billion or more inhabitants, a national roll-out of the system could be a boon for the company.

Blue Label has also signed an exclusive deal with Multilinks, a Telkom-owned business in Nigeria. The deal effectively allows it distribution rights to all of Multilinks' products and services.

The company has also signed an agreement with a US-based business that will see Blue Label transform a physical business to a virtual one. Virtual Pre-Paid Networks already has a vast US presence of 200 000 points-of-presence.

Good news

Frost & Sullivan ICT industry analyst Lindsey Mc Donald says Blue Label's results are positive. “Blue Label is well established, with mature routes to market, strategic alliances and partnerships.”

According to Mc Donald, it is in a strong position to take advantage of the additional growth likely to take place in this market. “The company's early presence in this sector has assured it first-mover advantage. While it does face increased competition on all fronts, the fact that it is more established than its counterparts is expected to stand it in good stead.”

Mc Donald says while the current economic conditions mean consumers may have less disposable income, it also puts people in a position where they want to be in control of their finances. The ability to make use of prepaid services allows them to do just this.