JSE listed Allied Technologies Limited (Altech) today announced the Group’s interim financial results for the six month period ended 31 August 2012.
While the Group’s revenue increased by 6,8%, operating profit was lower than that of the prior period mainly due to losses incurred in Altech’s operations in East and West Africa.
“As announced at our Annual Results in April, we made a decision to sell our 75% interest in Altech West Africa. Following an intensive negotiation process we have entered into a binding agreement to dispose of our interest in the operation as its products are non-core to the Altech Group. The effective date of the transaction will be the first day of the month following the fulfillment of the conditions precedent. With respect to our East African operations, we have initiated discussions concerning the introduction of partners into these operations and will advise shareholders of progress in this regard, in due course,” said Craig Venter, Altech CEO.
“With respect to another partnership, we recently entered into a long-term Value Added Partner agreement with Huawei, a leading global information and communications technology company. Under the agreement, Altech will provide Huawei Enterprise products and services to customers and offer post-sales professional services and support in countries across Southern and East Africa. We are confident about this partnership and the value it will add to Altech in the future,” he said.
“While most operations within the Group performed to expectations, the imperative for our non-performing operations is to execute on the defined strategy for each operation to ensure that the Group as a whole meets its revenue and growth targets going forward,” Venter added.
Financial highlights for the year ended were as follows:
* Revenue R5.157 billion
* EBITDA before capital items R372 million
* EBITDA margin 7.2%
* Operating profit before capital items R256 million
* Operating profit margin 5%
* Profit before tax (excluding capital items) R590 million
* Loss before tax (due to impairments) R485 million
* Adjusted HEPS 139 cents
* Return on shareholders’ equity 22.6%
* Annuity Income 83%
* Statement of financial position remains strong
* Balance sheet remains strong
* Working capital movement positive
The Telecommunications and Wireless Communications Division, which consists of Altech Autopage Cellular (including Altech Technology Concepts) and Altech Netstar, performed as predicted.
During the period, Altech Autopage Cellular’s operating profit increased by 3,7% while revenue increased only marginally due to the contraction of Global System for Mobile communications (GSM) airtime revenue and slower than expected Internet Service Provider (ISP) revenue growth. This has however, been mitigated by increased prepaid and Value Added Services (VAS) revenues.
GSM data remains strong with 26% subscriber growth on the previous period due to aggressive data pricing propositions in the market and GSM customer churn has been reduced to single digits in the reporting period due to tighter credit management, improved customer service and retention, and a focus on consumer growth in higher value channels.
“Our continued focus on expense management in the business will realise efficiencies and cost savings in the second half of the year to mitigate the pressure on gross margin. Coupled to this, the successful integration of Altech Technology Concepts into Altech Autopage Cellular will allow for further converged product launches across distribution channels to consumer and business customers in the second half of the year,” Venter said.
The Altech Netstar Group grew revenue by 4,0% compared to the prior period with a net growth in subscribers of 14,222, bringing the active base in South Africa to 538,838 vehicles.
According to Venter, potential joint venture partnerships in Africa have been identified and management is optimistic that these businesses can commence in the second half of the financial year. Further inroads into Africa have been made with the signing of two global customers with respective operations in Burkina Faso and Guinea. Altech Netstar has now expanded its customer base to 21 countries in Africa.
Good growth has also been achieved in the government market, with public bodies such as Potchefstroom Municipality, Ladysmith Municipality, the Gauteng Department of Agriculture, and the Tugela Water Board awarding business to Altech Netstar, while the implementation of a tender with a roads agency has commenced whereby Altech Netstar will be a supplier of traffic data to the main contractor.
The Converged Services and Connectivity Division, which consists of Altech Alcom Radio Distributors, Altech Fleetcall, Altech Alcom Matomo, and the East Africa operations presented mixed results.
Within the radio market Altech Fleetcall increased revenue by 8,6% in spite of adverse market conditions experienced in several of the core verticals served, such as freight and logistics, mining and infrastructural projects. Altech Alcom Matomo improved operating profit while Altech Alcom Radio Distributors experienced a tough period with revenue remaining flat largely as a result of difficult trading conditions and an increase in competition in the sector. The business is actively driving to appoint higher tier channel partners in an effort to break into new vertical markets and will continue to focus on digital system sales as this is where significant revenue growth for the future is anticipated,” said Venter.
The network operations in East Africa continue to be challenged; however, there have been some positive improvements with regard to network stability and data centre performance over this period. This has had a material impact on key customer retention and acquisition in Kenya and across the region.
The Multi-media and Electronics Division, which consists of Altech Multimedia and Arrow Altech Distribution, performed as expected for the period, with Arrow Altech Distribution maintaining its 30% market share in a very competitive environment.
At the same time, Altech Multimedia, which includes Altech UEC South Africa, Altech UEC Australia and Altech Multimedia Europe (including Altech SetOne), performed well and continues to make rapid progress in transforming the business from a manufacturing-focused one to a solutions-based business with profitability now reaching best-in-class industry benchmark levels.
Ahead of the implementation of the South African digital migration (DTT) programme, Altech Multimedia’s device business continues to deliver DTT/Free-to-Air STBs into the Australian and European markets. Altech UEC Australia has now delivered 141,000 STBs to the Australian market for digital migration while Altech SetOne, a German-based distribution, logistics, STB repair and service business has deployed more than 1.2m Free-to-Air STBs ahead of the European analogue switch-off. In Turkey, the business with Digiturk continues to strengthen, with over 200,000 HD-PVRs deployed and the next generation HD-Zapper/PVR-Ready project awarded to Altech SetOne.
The Information Technology Division, which consists of Altech ISIS, Altech West Africa, Altech Card Solutions, Altech NuPay and Altech Swisttech, performed as expected, with the South African businesses showing good results, while the West African business continued to underperform, leading to Altech’s decision to dispose of its 75% interest in the operation as indicated previously.
“Altech ISIS delivered a solid performance despite a number of large projects not commencing as anticipated during the reporting period, while Altech Card Solutions again achieved excellent operating results for the reporting period with growth experienced in the sale of EFTPOS terminals and central and instant issuance card personalisation solutions.
Altech NuPay once again exceeded budget for the period with the NuCard product, a prepaid PIN-based product, surpassing all growth targets. It is envisaged to supplement this product with the addition of a mobile payment channel through Altech Eyenza Mobile Money during the next financial year.
Altech Swisttech grew revenue by 15,0% compared to the prior period with a 10,6% increase in operating profit. The operation’s strategy to expand into providing mobile applications has resulted in the award of contracts that are currently being executed. This initiative is expected to contribute substantially going forward with further growth expected from its existing product offering.
“On the whole, our operations in South Africa and some international operations are performing well despite the continuing adverse economic conditions. Of concern are our operations in East Africa and I am confident that we will address these challenges with the major focus going forward being growth of the revenue line while reducing customer churn and managing expenditure,” said Venter.
“Our objectives for the future remain the same – we will continue to defend our revenues and margins in all our businesses; we will continue to transform our business model to capture growth opportunities; we will continue to improve our customer orientation and commercial focus; we will continue to evaluate acquisition and partnership opportunities both locally and internationally,” he added.
“I am fortunate to have an exceptionally skilled and capable management team at both group and operational level, and along with the support and expertise of the Altech Board, I am confident that we will overcome the current challenges and move forward positively,” concluded Venter.