Takeoff for Blue Label Mexico

22 February 2015 - 02:00 By ASHA SPECKMAN
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Losses that have dogged Blue Label Mexico are set to become a thing of the past soon, much to the relief to the South African prepaid company.

Its parent company, Blue Label Telecoms, is South Africa's largest vendor of prepaid airtime and electricity. While business is pumping in South Africa - it announced a 15% rise in headline earnings for the six months to November - the Mexican business has been a big drag on the company's performance.

Mark Levy, joint CEO along with his brother Brett, said that had the Mexican business broken even, headline earnings would have been up 34%.

In all, Blue Label Mexico, in which Levy's company holds a 40% stake, grew by R14.5-million to R45-million, despite a 20% increase in revenue for sales of prepaid airtime and payment of services.

Sorting out Mexico has remained an overhang on Blue Label's shares - the stock moved up only 1.3% over the last year, compared to an 11.7% gain in the JSE's All Share index over that time - but it seems there is now light at the end of the tunnel. Blue Label touched a three-day high of R8.65 on Wednesday when results were published

The company is expected to get a boost from new rules implemented by Mexico's telecoms regulator, which has attracted a flurry of new wireless competitors. Although this led initially to a steep cut in commission from airtime sales in that country, it could be a blessing in disguise.

Levy said that for the first time outside of South Africa, Blue Label would now be able to distribute more sim cards in Mexico, which would help it create an annuity revenue from a wider distribution network. Previously, Blue Label was limited by the fact that it had been contracted to sell exclusively for billionaire Carlos Slim, owner of Telcel, which had 70% of the mobile telephony market.

Blue Label Mexico owns the largest private network of point-of-sale devices - 75000 - in Mexico.

Blue Label has now signed up several other cellphone companies on whose behalf it will distribute airtime. It intends to grow revenue from these clients from 15% to 30%.

The Mexican business began trading in August 2009. By 2013, it had a combined R113-million in losses - of which Blue Label's share was R51-million.

But Levy's company has plans to branch out in Mexico. In particular, there is also a big market in Mexico for vending food vouchers.

"If our strategy and vision is correct, people must hang in there. That's the game plan."

Back in South Africa, Blue Label's commission from electricity sales grew 18% to R79-million and prepaid airtime vouchers revenue jumped 65% to R1.2-billion. Margins increased too, as pretax profit climbed 17% to R417-million.

In South Africa, the company is pursuing growth in selling prepaid water vouchers, as prepaid water meters are gaining prevalence.

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