Altech bullish on full year

JSE-listed electronics and telecoms company Altech is confident it will show good growth at the end of its financial year, despite a decline in profit during the first half.

The organisation yesterday released its interim results to August and said revenue growth was flat at R4.78 billion from R4.73 billion a year ago. Its operating profit margin also slowed from 9.1% to 7.5%, and net profit declined to R232 million from R322 million.

However, CEO Craig Venter says this was due to specific adverse factors during the half-year that are not expected to recur. He says the company has shown positive growth for the last decade and he does not “intend breaking that record”.

Among the issues that plagued the firm during the first six months of its year were delayed orders at Altech UEC, delayed implementation of its fibre project in Rwanda, and a decline in Vodacom incentives at Altech Autopage, due to a clean up of its client base.

However, Venter says the operating margin should recover to between 9% and 10% by year-end, which is on par with previous years. He points out that Altech's balance sheet is strong, with R318 million in cash on hand, which should grow to between R600 million and R800 million by the end of the year.

Venter says results were impacted by external factors that were outside the company's control, such as two cable breaks in Seacom, in which it has a stake.

In addition, Altech UEC was impacted by government's delay in making a decision about which digital standard to use for SA's migration to digital TV, notes Venter. The country decided to adopt the European DVB-T standard about four years ago, but said in May it was reconsidering this decision and was pondering the use of ISDB-T.

Altech's telecommunications division, which consists of Altech Autopage Cellular, Altech Technology Concepts and Altech Netstar, grew revenue to R3.3 billion from R3.2 billion.

However, operating profit was marginally lower at R104 million from R145 million, as Altech cleaned out inactive Vodacom subscribers and did not reach its Vodacom incentive target. Venter says Altech expects to recover some of these incentives in the rest of the year.

The decrease in interconnect rates impacted the company's least-cost routing business, although this was in line with expectations, says Venter. Autopage will collaborate with Altech Technology Concepts to implement a voice over IP (VOIP) solution to move a large proportion of existing LCR customers to the new VOIP platform, he adds.

Altech Netstar's fleet management business won several new accounts during the period, including the City of Cape Town, SA Blood Service, Sandown Motors and Taxi Choice, which will positively impact the next reporting period.

In the first half, the unit reported stronger revenue at R472 million, from R434 million, but operating profit slowed to R129 million, from R132 million.

Altech Stream East Africa increased revenue, but profit was under pressure due to postponements of some projects at Altech Kenya Data Networks. However, these projects will resume in the second half of the year and Altech expects an improved performance for the full-year.

Altech's IT division, which comprises Altech ISIS, Altech West Africa, Altech Cards Solutions and Altech NuPay, increased revenue from R317 million to R367 million, and was the company's star performer, as operating profit also moved up from R59 million to R63 million.

Venter says the group will continue to diversify its income base through globalisation, mergers and acquisition activity and taking advantage of convergence opportunities. However, for the rest of the financial year, the company will focus on Altech's transition to broadband and the globalisation of Altech Netstar and Altech UEC.

Frost & Sullivan ICT industry analyst Protea Hirschel says “many of Altech's customers, both retail and corporate, continue to feel the impact of last year's poor economic conditions, and this is reflected in Altech's half-yearly result”.