Review of operations – Altech
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A strong performance has been delivered by the majority of Altech’s operating companies. In particular Altech Netstar, Altech Stream East Africa, Altech Fleetcall and Altech Card Solutions performed well. Altech Chief Executive Officer, Craig Venter, says group operating margin increased to 10.1% from 9.5% in 2009, and adjusted headline earnings per share to 605 cents. Altech Stream East Africa has proven to be a sound investment and already contributes 20% of the Altech group’s total operating profit.
INCOME AND GROWTH
Despite low consumer demand, Altech Autopage Cellular reported a healthy 6.3% increase in revenue due to improved sales in airtime, value-added services and prepaid vouchers. However, operating margins declined slightly as subscriber spending decreased and expenditure on debt collection increased, partially offset by a reduction in cost of sales through tight management controls. Subscribers increased by over 190 000 new connections and Altech Autopage Cellular now has 967 596 active subscribers, comprising 859 015 contract and 108 581 prepaid. Broadband and data subscribers grew to 93 362. Steps are in place to manage credit risk and the rising subscriber churn rate which includes stricter credit scoring, improved collection and special subscriber retention offers. As the fourth largest local least cost routing (LCR) operator, the lower interconnect fees are expected to have an impact and staff reductions and cost rationalisation actions have been taken to counteract this.
Altech Netstar Stolen Vehicle Recovery (SVR) performed well in growing revenue by 7% and maintaining its margins despite the depressed level of new car sales, increasing its subscriber base by 4.1% to 409 000 vehicles. Altech Netstar Fleet Management increased revenue and operating margins as business efficiencies improved. Their expansion included new business in West and East Africa, Iran and Greece. SVR’s market share remained steady at 39%, while Fleet management improved to 20% from 17% in the prior year.
Altech Technology Concepts (ATC), a recently acquired internet service provider (ISP), delivered a significant operating profit growth of 121% compared to the prior year. ATC introduced a number of new managed services during the year under review and is expecting further opportunities from the increased broadband capacity that is driving down connectivity prices. Altech is planning to capitalise on this by lifting ATC from a second-tier into a first-tier ISP with significant local and international connectivity capacity.
Altech Stream East Africa (ASEA), which holds strategic interests in the two East African submarine cables, performed broadly in line with expectations. Significant investment made during the year under review has enabled Altech to continue with the expansion of its network as well as providing value-added services such
as a state-of-the-art data centre. The 8.5% stake in the TEAMS undersea cable provides the East African businesses with significant international bandwidth with which to benefit from this growing market. Altech invested USD39.5 million in Kenya Data Networks to roll out its network to link the new undersea broadband cables to East African countries that include neighbouring states such as Uganda, the DRC, Burundi and Rwanda.
Good results were achieved by the newly acquired Altech Fleetcall, a leading trunking radio network operator in South Africa. Altech Fleetcall boasts an inventory of blue-chip companies as clients and will be contributing to the logistics supporting the 2010 FIFA World Cup. Altech Alcom Matomo recorded a solid performance, despite adverse market conditions. The company experienced positive customer growth in the SADC region with key projects for police services in Angola and Botswana.
Altech UEC experienced a disappointing year, due primarily to a lack of orders from India. This has been offset to some extent by certain significant successes in other export markets. Locally, Multichoice sales continue to be strong. Various delays and reworks, as well as the strength of the rand, have eroded margins. A new chief executive officer, with considerable international experience, has recently been appointed to restore this business to acceptable levels of profitability. Although the long-planned migration of South Africa’s terrestrial signal to a new standard has been delayed, it is anticipated that demand for the higher-end high-definition (HD) and PVR products will pick up in late 2010 and early 2011. Altech UEC has identified and is pursuing strong opportunities in emerging markets and in converged technologies such as Hybrid, HD and IPTV set-top boxes. Arrow Altech Distribution (AAD) remains the market leader in electronic component distribution with a 26% market share. AAD improved operating margins despite pressures on its revenue levels. Its value-added services include buffer stock agreements, stock replenishment solutions, kit management and technical design support as well as a range of wireless products.
| Figures in R millions | % change | |
| Revenue | 9 200 |
0 |
| EBITDA | 1 165 |
9 |
| EBITDA margin | 12.7% |
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| Adjusted diluted headline earnings | 586 |
4 |
| ROE | 26.1% |
Altech Isis stabilised and strengthened its position with existing customers and is well positioned to generate strong revenue and income growth on the back of its innovative real-time converged customer care and billing solution. To support this expansion drive, it has added substantial investment into its project management, business analysis and systems integration capacity to support its position as a reputable supplier of turnkey business support systems.
Altech Card Solutions (ACS) recorded a substantially increased operating profit on the back of its increased sales of EFTPOS terminals and related software and support, as well as e-security products and services. Transaction service provider and switching company, NuPay, acquired in June 2009, has managed to exceed its profit targets, despite the global economic downturn. Exciting projects are under way to launch new reconciliation facilities to a broad market sector, as well as to individuals.
This product will also help other entities to assist their clients with better services and reconciliation mechanisms. Although Altech West Africa recorded an improved performance in local currency terms, due to increased sales to MTN and Etisalat, the strength of the rand resulted in a lower contribution to the group’s results.
PRODUCTS AND SERVICES
Altech Autopage Cellular is licensed to operate a telecommunications network and is presently developing this network as a strategic component in becoming an end-to-end communications company that will offer converged voice, data and video services. Potential synergies with ATC to create a converged voice, broadband and data entity will further enhance their offering.
With six 24-hour control centres around southern Africa, Altech Netstar’s recovery infrastructure includes an extensive network of ground recovery teams, helicopters and airplanes based around southern Africa. ICASA approvals were obtained for the launch of Altech Netstar Traffic and progress has been made towards finalising an agreement to utilise SABC frequencies to transmit RDS TMC messages to navigation devices.
Altech UEC launched the initial personal video recorder (PVR) product in 2003 and has since sold more than two million of these decoders around the world. In 2009, Altech UEC launched high-definition PVRs, which promise to be even more successful than preceding products.
Construction of Kenya Data Network’s data centre in Kenya commenced during the review period and is scheduled for completion in October 2010. This data centre will add new services to ASEA’s operations.
Altech’s product offering has been complemented by the acquisition of Altech Fleetcall with its network services which includes unlimited voice communication as well as data communication for data applications such as fleet management.Currently producing over 100 million prepaid air time vouchers per month, Altech West Africa’s product lines were expanded during the year under review to supply initialised and personalised chip-card products to telecommunications network operators and financial service providers. Further capacity has been added to the company’s professional services enabling the supply, implementation and support of Altech’s e-security products in Nigeria, including the supply and support of the Verisign range of products.
BUSINESS PARTNER RELATIONSHIPS
Altech UEC has participated in a series of digital terrestrial trials with SABC, eTV and MNet in anticipation of the planned migration to an advanced high-definition (HD) standard. This should generate demand of between eight and nine million PVRs within four years. AAD is Africa’s foremost distributor of quality electronic components and wireless modules with more than 40 000 items sourced from over 90 specialist suppliers around the globe. As a joint venture between Altech and Arrow Electronics Incorporated, which is listed on the New York Stock Exchange, it provides customers with an optimal offering of electronic and electromechanical components.
ACS was the first South African EFTPOS vendor to be awarded an EMV Level II Banking application certified by EMVCO. It has also maintained an excellent strategic relationship with Gemalto, a global payment technology company, for which ACS is the exclusive distributor of Gemalto terminals into sub-Saharan Africa. Capitec Bank appointed ACS as its EFTPOS supplier, Standard Bank SA made extensive use of ACS’s e-Security range of products and a project with Edcon continued as scheduled.