Blue Label takes a Mexican knock

Blue Label Telecoms saw its earnings for the year ended May 2013, curbed by accelerated losses incurred by its operations in Mexico.

Group revenue from continuing operations was only marginally higher to R18.98 billion, from R18.72 billion in 2012.

Operating profit declined to R645.67 million, from R658.93 million before, while Blue Label reported diluted headline earnings per share of 63.14 cents, from 63.70 cents in the prior period.

However, the company noted that the comparative year included a once-off income receipt of R79.4 million. On exclusion of this income, headline earnings per share increased by 17% to 64.17 cents.

Blue Label declared a dividend of 25 cents per share.

It said that growth in earnings, with South Africa being the main contributor, was achieved in spite of compounding losses in Mexico and a decline in the performance in its call centre operation.

The distribution of pin-less top ups, as an alternative mechanism for the vending of prepaid airtime, continued to escalate during the current year.

Commissions earned on the distribution of prepaid electricity and compounding annuity revenue generated from starter packs continued to grow exponentially, the group said.

Blue Label said that capital and reserves accumulated to R3.2 billion, further solidifying the foundation of group resources.

In June 2013, Blue Label secured a distribution agreement with a leading reseller at a purchase price of R84 million. This is expected to further enhance the group’s prominence in the distribution of prepaid services.

Mexico

Blue Label’s operations in Mexico continued to experience challenges. Having incurred losses of R60 million after the amortisation of intangible assets in 2012 – of which the groups 40% share equated to R24.9 million – losses in BLM escalated to R113 million in 2013, of which the groups share equated to R51.1 million.

And this was in spite of revenue growth of 103% in the current year, it said.

The increase in losses was attributable to margin compression and a significant increase in overheads. Blue Label also increased its shareholding from 40% to 45% during the course of the financial year and, in turn, the group assumed an additional 5% share of these losses.

The group said that the decline in gross profit margins was attributable to a reduction in discounts afforded by Telcel, Mexico’s predominant network operator, which controls approximately 70% of the Mexican market.

Telcel, however, would reinstate the previous margins afforded to BLM, plus additional discounts, on the provision that BLM would contractually agree to become an exclusive distributor on their behalf.

“Accordingly, a contract was concluded between BLM and Telcel on 1 April 2013 giving effect to this new arrangement,” Blue Label said.

Prospects

Looking ahead, Blue Label said that a diverse range of customer engagement initiatives concerning membership and loyalty programmes has been developed.

It said that five year contracts have been concluded with both Cricket SA and The Blue Bulls Rugby Company.

“A ticketing engine has recently been acquired which will enable the end user to acquire tickets for sporting and entertainment events as well as transport services through the groups distribution capabilities and vast points of presence.”

SMS aggregation, meanwhile, is expected to continue to gain further momentum.

For Blue Label Mexico, the group intends to roll out point-of-sale devices incorporating banking transactional capabilities on devices.

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Blue Label takes a Mexican knock