Blue Label Eyes Further Expansion in Africa

Mergers, Acquisitions and Financial Results

Technology and telecoms company Blue Label is getting ever more ambitious in its global expansion plans, by exploring opportunities in Nigeria and Ghana and setting its sights on the huge Chinese market.

It will open a subsidiary in Mexico next month and believes Latin America is also lucrative territory. Yet at the same time Blue Label is striving to reassure investors and analysts that its efforts to conquer India are on track, despite losing money there.

It reported its maiden annual results since listing, presenting convoluted figures showing actual audited results and pro forma unaudited results to May 31. Revenue came in at R12.5bn and net profit touched R207m, creating headline earnings per share of 30.26c.

But chief financial officer David Rivkind said: "I must emphasise that the true earnings of the companies making up our group for the full 12-month period are R371m," referring to pro forma figures showing total earnings for all the group's companies if they were assumed to be subsidiaries for the full year. Calculated that way, pro forma earnings per share were 48.4c.

A handful of acquisitions costing R348m and management bonuses of R57.6m were paid during the year, while financial charges including listing fees whittled R106m off its income. Cash on hand stood at R1.3bn but no dividends would be declared until at least the 2010 financial year.

Blue Label distributes cellular airtime and other electronic services via point-of-sales terminals, cellphones and the internet.

Joint CEO Brett Levy said its ambition was to become the leading global player in value-added transactional services. That translates into selling additional services, including tickets, handling money transfers and allowing cellphones to be used as electronic wallets. Target customers are at the lower end of the economic scale, who are generally unbanked and make their purchases in cash.

At the moment 95% of its revenue comes from telecoms, largely by connecting 200,000 people a month to South Africa's cellular networks.

So far the company and its subsidiaries run 500,000 terminals and other points of presence around the world, and it aims to grow that by 5,000 a month in South Africa alone. Levy said it was crucial to invest in a "land grab" to establish points of presence, and once those were in place every extra service or product sold through its distribution channels was pure profit.

Mark Levy, the other joint CEO, said an immediate goal was to increase the volume of products and services distributed. In other countries that would be done with local partners who understood the market.

Its activities in India are conducted in a joint venture with Oxigen Services, but Blue Label lost R19.6m for the year from that operation. That was expected from a start-up, Levy said, and although it would not make a profit in the coming year that did not reflect its future potential.

One potential cloud for Blue Label is a threat of legal action from a former employee who claims he has not been compensated properly for software he developed, despite being promised a 20% profit share for deals clinched by his work. Mark Levy said the company believed the claim was without merit and was waiting for legal processes to take their course.

Business Day