JSE-listed Blue Label Telecom’s largest acquisition to date has reached the final hurdle as competition authorities mull the R307-million buy-out of Retail Mobile Credit Specialists (RMCS).

However, Blue Label joint CEO Brett Levy did not foresee a problem in securing the Competition Commission’s approval for the 100% acquisition of the cellular products and services provider.

In December, Blue Label agreed to a purchase consideration – to be funded from existing cash resources of R307-million, with another R32-million due if certain earnings targets were reached.

The deal, expected to be concluded by March, would provide access to new channels for the distribution of both RMCS and Blue Label products and services, while enhancing Blue Label's earnings and product portfolio, said Levy.

RMCS, which had about 500 customers – including an exclusive contract with Edcon – and supplied telecommunication products and services, content, data and allied activities through both physical and virtual mediums, was owned by Pharaoh, the Karoobos Trust, the Rooibos Trust, Adam Greenblatt, Bradley Ivan Kark, Keith Larry Brouze, Michael Roffey, Ran Goldstein, Shaun Hurwitz and Terence Nicholas Lazard.

This acquisition, along with Blue Label’s partnership with MasterCard, had positioned the group for growth in South Africa in 2014, Frost & Sullivan information and communication technologies research analyst Ankit Trivedi commented.

Blue Label last year concluded partnership agreements with MasterCard and Absa in South Africa, and Visa and Banamex in Mexico, which were expected to enable financial inclusion in communities where consumers have historically been unable to use formal payment products.

Blue Label was currently rolling out about 22 000 point-of-sale (POS) devices to small traders and rural shops in South Africa, allowing traders who have historically operated on a cash-only basis to accept card payments for the first time.

“Merchant acquiring has become a reality. This enables consumers to transact at store level through the multitude of POS devices that Blue Label has deployed both locally and internationally,” Levy said.

The group also acquired ticketing provider and partner of premium sporting events in South Africa, Ticketpros, to enhance the product offerings of Blue Label through its extensive merchant base to include transport, entertainment and expos.

“As always, continuity in coming up with local market-relevant financial services products to cultivate [the] portfolio and expansion of [its] distribution footprint by growing organically and through strategic acquisitions, shall be critical for sustainable growth for Blue Label Telecoms,” Trivedi pointed out.

MOBILE PRICE WAR SHIFTS REVENUE SOURCE

Blue Label reported that South Africa’s third-largest mobile operator, Cell C, had continued its growth momentum in the prepaid segment – at the expense of MTN.

During the interim period to November, Cell C accounted for 17% of the prepaid airtime revenue growth per network, compared with the 12% reported in July.

This was expected to continue throughout the year, with Levy noting an estimated monthly growth of 2% to 3% for the group, as it pursued an aggressive pricing strategy.

Blue Label joint CEO Mark Levy added that Cell C had become a “consumer champion”, taking the duopoly on and forcing true competition in the sector for the first time.

MTN and Vodacom combined accounted for about 90% of the market share, based on revenue, with Cell C claiming 9%, including prepaid and contract, and Telkom’s mobile arm, as South Africa’s fourth mobile operator, in the toughest spot with 1% revenue market share.

Prepaid airtime sales to MTN contracted from a share of 36% during the prior financial year to 32% by November 2013, as the larger rival fell behind on the development of innovative products, Brett Levy noted.

Vodacom remained steady during the interim period, reporting a marginal drop from a share of 51% to 50% during the same period, holding its own in a competitive market through the development of several new products.

Telkom maintained 1% of the prepaid airtime sales for the period.

PREPAID ELECTRICITY JUMP

Meanwhile, prepaid electricity sales continued along the projected growth path during the interim period to November, contributing R4.4-billion in utilities revenue to Blue Label’s South African distribution segment – up from the prior corresponding period’s revenue of R3.5-billion and breaching the R700-million-a-month mark.

Prepaid electricity sales, remaining the company’s “star performer”, continued along the projected growth path as commissions earned on the distribution of prepaid electricity jumped 26% to R67-million.

Currently, about nine-million prepaid meters were installed in South Africa. Over the next four to five years, the Levy brothers expected this to rise to 18-million installed units.

INTERIM PERFORMANCE

The South Africa distribution segment, comprising prepaid airtime and electricity, remained the predominant contributor to Blue Label’s earnings for the first half of the year, with revenue reaching R9-billion.

“The South African distribution segment established itself as the main contributor to this financial growth, offsetting the effects of deteriorating performance of call centre operations and compounding losses in Mexico, [owing] to margin compression and significant increases in overheads,” said Trivedi.

Blue Label posted a 7% increase in headline earnings per share to 37.15c during the period under review, with earnings before interest, tax, depreciation and amortisation up 16% to R431-million, despite a 1% drop in revenue.

The group delivered gross profit of R66-million for the six months to November – an increase of 10%.

Oxigen Services India and Blue Label Mexico incurred losses, while Ukash continued to increase profitability.

Cash resources for the period under review came to R1.3-billion.