Blue Label wants R3.7bn from Telkom

Blue Label Telecoms is shying away from expanding its business operations on the rest of the continent and is instead casting its nets further afield to reap greater returns in countries like India and Mexico.

The company whose core business is the virtual distribution of “secure electronic tokens of value” – like prepaid airtime and electricity, says that it will rather focus its endeavours on South Africa and other emerging markets, outside of the continent – were greater returns are promised.

This is a 180 degree turn in the company’s growth strategy after it initially announced plans of expanding in Africa in its prelisting statement in 2009.

Blue Label was initially present in Mozambique, the Democratic Republic of Congo and Nigeria but has since pulled out.

In its interim results presentation on Wednesday, Blue Label revealed that it is currently in an arbitration process to claim $481m (R3.7bn *) in lost profits from Telkom’s former Nigerian subsidiary, Multi-Links, after the premature cancellation of a contract between the two companies.

Blue Label, which is headed up by brothers Brett and Mark Levy says the company will instead capitalise on its partnership with Grupo Bimbo in Mexico, where its distribution points have increased fourfold in less than a year.

“Mexico is in a prime position, as it will allow us to go up into America and down into Latin American countries.  We are hoping to duplicate Grupo Bimbo’s footprint as it is present in more than 17 countries,” said Mark Levy, joint CEO of Blue Label Telecoms.

The Mexican arm of its operations however increased its losses, from R5.7m in Nov 2010 to R9.1m in Nov 2011.The company attributes the increased loss to “expansionary expenditure” on the number of sale devices.

Its Indian operations which, are poised for more growth, have suffered losses amounting to R4.4m in the past six months, compared to R1.9m in Nov 2010.

“Although, Africa seems like a logical extension from South Africa, Africa is not core for us right now. We would rather deploy the same amount of resources, time and energy in a place where the rewards are greater.  We would rather become bigger fish in a smaller pond than just another fish in the ocean,” added Mark Levy.

Locally, Blue Label is expanding its footprint particularly in rural areas. It acquired Multiserve which has stores across the country for R14m and will sell vouchers under the brand Quick- Pay.

“The new stores will comprise of self-service terminals that will provide airtime, electricity, ticketing and other prepaid services,” said Brett Levy, joint CEO.

Sim card distribution contributes 7% to its revenue and still sits high on the company’s list of priorities. It plans to introduce 60 new trucks to increase Sim card starter pack distribution.

Whilst this is the primary aspect of Blue Label’s activities, commission earned on the sale of prepaid electricity vouchers now accounts for 37% of its revenue, contributing R41m in November 2011 compared to R30m the previous year.

Blue Label currently distributes electricity vouchers for Eskom, UniPin, The City of Polokwane and the Bela Bela District.

State power utility Eskom recently experienced difficulties with its virtual vouchers system (not being supplied by Blue Label) being off-line, resulting in irate customers. As a result, Blue Label has offered to expand its services to Eskom by allowing it to make use of its platforms for the national distribution of its vouchers.

“Eskom will have to make a decision on this, but we are willing to do whatever it needs us to do to help them better deliver their product to their consumers,” added Mark Levy.

*Rand/Dollar exchange rate at R7.74 at time of publication.

Source: Moneyweb