Altech: East Africa operations profits knocked down


South African JSE (Johannesburg Stock Exchange) listed Allied Technologies Limited, Altech today announced the Group’s interim results for the six months ended 31 August 2011.

Craig Venter, Altech CEO (image source: file photo)

“Revenue is R4.8 billion (about US $614 million). We’ve actually seen an increase of 1% in our revenue line compared to last year for the same period for 6 months. Last year for the 6 months ended it was R4.7 billion,” said Craig Venter, Altech CEO.

“We’re holding the revenue line quite well. We’ve met revenue targets. We haven’t been behind on revenue regardless of the economic downturn witnessed over the last 2 to 3 years,”says Venter.

“Operating profit margin is 6.1%, that should be at about 8%, the lack of performance from East Africa, which is the one area in the 6 months results that we actually saw a decline in our profitability and that has translated into a lower margin for the group as a whole.

Venter indicates that all other 33 Altech operating companies performed well out of the 34 operating companies, with Kenya being the exception.

“The real burning issue has been East Africa. That’s where we’ve seen the downside and that has impacted the earnings in the results. We have strong plans on how we will address the problem. We’ve appointed new management, we’ve injected capital into the business and we’ve reduced costs.

“The last 2 years have been unbelievably tough. I do believe had the East African operation broken even, it could have been a 10% growth.”

Overview of the Altech Financial Results:

-Revenue R4.83 billion (about US $ 614 million)

-EBITDA R456 million (about US $ 58.4 million)

-EBITDA margin 9.4%

-Operating profit before capital items R296 million (about US $ 37.8 million)

-Operating profit margin 6.1%

-Profit before tax (PBT) R261 million (about US $ 33.4 million)

-Adjusted HEPS 181 cents

-Return on shareholders’ equity 15.4%

Jeffrey Hedberg, Altech COO responsible for the Altech Group East Africa operations (image source: file photo)

New Management

-Jeffrey Hedberg appointed COO (Chief Operations Officer) effective 1 July 2011

-Willie Oosthuysen has been appointed CTO (Chief Technology Officer) effective 1 June 2011

Tim Ellis appointed Group Executive for Converged Services effective 1 September 2011

“To rectify the East Africa issue, we’ve appointed new management across the board from operational management to executive level. We’ve appointed a new Managing Director (MD) who will run Kenya Data Networks (KDN) and will start on the 15 October 2011,” says Venter.

“The new East Africa management team will be headed up by Jeffrey Hedberg as well as myself to ensure that we actually do get the results we deserve.”

East Africa market

Venter admits that East Africa presented Altech with a number of challenges, including their exposure to foreign exchange currency fluctuations. However, the group has implemented a number of turnaround strategies to correct the underperformance of their operations in the region.

“The market itself has not changed. The opportunity for growth remains, execution is now a critical aspect. About a year and a half ago we made R190 million profit in East Africa,” says Venter.

“It is the growth engine of Altech going forward. I still maintain that it has been a management problem. They have not delivered what I wanted from that particular market, hence it has cost them their jobs and we’ve put in a whole new management team,” says Venter.

Venter gave the assurance that with the new management team, Altech East Africa will get back on full track.

“It’s still a great growth opportunity for the Altech Group.”

East Africa opportunities

Venter is adamant that East Africa offers opportunities for Altech. He says Africa’s data Internet penetration rate is at 2 – 3% right now and in Europe and US, it’s about 60 – 80% respectively.

“The African continent right now has more than enough undersea submarine bandwidth coming in including SEACOM, EASSY and WACS. We have more than enough bandwidth on the African continent.

“Internet is going to grow in Africa exponentially. If Internet traffic grows in Africa, it has to have a network to run on and we own the network in East Africa.

The Information Technology Division, which consists of Altech ISIS, Altech West Africa, Altech Card Solutions and Altech NuPay, showed satisfactory results, with the South African businesses showing good results, while the West African business underperformed due to delayed deliveries and a temporarily overstocked position at a key customer.

“Our focus for West Africa remains on driving cost efficiencies. In addition, we are expanding the division’s product lines to include the supply of initialised and personalised chip-card products to the Nigerian telecommunications network operators and financial service providers. We expect to see an improved performance as we assist in the Nigerian government’s drive to transition the banking and retailing market segments from a cash-based transacting model to a card-based model,” says Venter.

West Africa

Venter says West Africa has delivered over the years.

The Information Technology Division, which consists of Altech ISIS, Altech West Africa, Altech Card Solutions and Altech NuPay, showed satisfactory results, says Venter

“The West African business underperformed due to delayed deliveries and a temporarily overstocked position at a key customer.

“Our focus for West Africa remains on driving cost efficiencies. In addition, we are expanding the division’s product lines to include the supply of initialised and personalised chip-card products to the Nigerian telecommunications network operators and financial service providers.

We expect to see an improved performance as we assist in the Nigerian government’s drive to transition the banking and retailing market segments from a cash-based transacting model to a card-based model,” says Venter.

Corporate Culture

Venter admits that Altech group underestimated the business culture in East Africa.

“Operating in East Africa is very different to South Africa. It has taken us longer to get the culture instilled within the business,” says Venter.

Acquisitions

Altech acquired Eyenza mobile; an e-Wallet based payment system.

“It was a glaring gap we had in terms of the Altech Group’s portfolio. We didn’t have a payment mechanism in a form of an e-Wallet,” says Venter.

“Eyenza is one of the only bank and network operator agnostic e-wallet services – where you don’t want to be totally aligned to a specific bank or one mobile network operator,” says Venter.

Venter highlighted that Intel was the company’s ‘vote of confidence’.

Intel is driving convergence around the world. Intel invested $5 million in Altech initially and they want to increase that investment,” says Venter.

Future outlook

“Altech will continue to pursue globalisation opportunities through acquisition and trading activities. East Africa will be rectified,” concludes Venter.

Bontle Moeng