Blue Label Telecoms diluted earnings up to 63.19c

The company declared a dividend of 25c per share. Revenue rose to R18.984bn from R18.715bn.

The South African distribution segment was the main contributor to the growth in earnings‚ which was achieved in spite of compounding losses in Mexico and a decline in the performance in the group's 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.

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

The group capitalised on its accumulated cash resources by using funds to take advantage of bulk inventory purchase opportunities at favourable discount rates. This resulted in an increase in inventory holding and a commensurate decline in cash resources.

The net asset value at year-end was equivalent to R4.81 a share compared with R4.32 a year earlier.

Customer initiatives

Blue Label says a diverse range of customer initiatives concerning membership and loyalty programmes has been developed and this will enable delivery of turnkey solutions to generate multiple annuity-based revenue streams through supporter engagement programmes. These programmes include communications‚ events‚ access-control‚ ticketing and concessionary services.

It says that five-year contracts have been concluded with both Cricket SA and The Blue Bulls Rugby Company. A ticketing engine has recently been purchased‚ which will enable users to buy tickets for sporting and entertainment events as well as transport services through the group's distribution services.

Blue Label says its financial services products‚ aimed at bringing financial inclusion and transactional value to customers‚ will be implemented. These initiatives include debit and credit card processing through the existing extensive point-of-sale network. These services complement the groups existing prepaid products and enhance the value-proposition to the merchants and their customers.

The recent acquisitions of a post-paid contract base and prepaid starter pack bases is expected to compound the annuity revenue generated from the existing bases within the group.

It says SMS aggregation is expected to continue to gain further momentum following the successful development of technology by Panacea Mobile to support this service.

Consumer awareness of the benefits of prepaid electricity is likely to keep escalating and in turn increase the commissions earned on the distribution of this product. Blue Label Mexico intends to roll out point-of-sale devices incorporating banking transactional capabilities on the devices. It is the intention to aggressively implement this initiative‚ utilising the extensive distribution network of its partner‚ Grupo Bimbo.

In June‚ the group secured a distribution agreement with a leading reseller at a purchase price of R84m. This is expected to further enhance the groups prominence in the distribution of prepaid services.

Dispute and court order

In December 2008 Africa Prepaid Services (APS)‚ a subsidiary of Blue Label‚ concluded an agreement with Multi-Links Telecommunications Limited (MLT)‚ a wholly owned subsidiary of Telkom‚ at the time‚ in terms of which APS was appointed for a period of 10 years to market and distribute a range of products and services for MLT in Nigeria.

In 2009 APS ceded and assigned all its rights and obligations in terms of the agreement to Africa Prepaid Services Nigeria Limited (APSN)‚ a subsidiary of APS and Blue Label. Then in 2010 APSN cancelled the agreement on the basis of MLT's wrongful repudiation of the agreement. In June 2011 APSN launched arbitration proceedings in South Africa against MLT.

APSN claims payment of US$457m against MLT and MLT has counter-claimed for payment of the sum of US$123m.

Telkom sold its shareholding in MLT to Hip Oils Topco Limited in October 2011. In terms of an indemnity contained in the sale and purchase agreement‚ Telkom is liable for all amounts in excess of US$10m in respect of APSN's claim against MLT.

The arbitration was due to start in November last year but was postponed and is due to reconvene in February next year.

Telkom and MLT have instituted an action in the high court against Blue Label‚ APS‚ APSN and certain individuals‚ including a former senior executive of Telkom in the High Court for payment of an aggregate amount of US$724m.

The claim in the action is based on, among other things, an alleged breach of the duty of care and alleged misrepresentations made by Blue Label together with alleged breaches of fiduciary duties on the part of the former senior Telkom executive‚ at the time the agreement was concluded‚ in respect of which it is alleged Blue Label was a party to.

In May this year Telkom and MLT obtained an order without notice to APSN in terms of which APSN's claim against MLT in the arbitration proceedings together with a costs order in APSNs favour were purportedly attached in order to give the high court jurisdiction over APSN in the action.

Telkom and MLT have conceded that there was no basis for the attachment and have abandoned the ex parte order. APSN is seeking a punitive order for costs against Telkom and MLT‚ which was set down for a hearing commencing on 19 August. The high court will simultaneously determine an application that has been launched by MLT to stop the arbitration proceedings‚ which is being opposed by APSN.

The outcome of these proceedings is yet to be pronounced upon by the court.