Altron eyes R100m from Microsoft software licensing deal

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 24 Oct 2019
Altron group chief executive Mteto Nyati.
Altron group chief executive Mteto Nyati.

JSE-listed Altron is targeting R100 million from its recently-signed software licensing partnership with Microsoft.

This is according to Altron’s group chief executive, Mteto Nyati, in an interview with ITWeb this morning after the company announced its interim results for the six months ended 31 August.

Earlier this month, Microsoft named Altron as a licensing solution provider in SA.

This agreement comes as Altron positions its recently-acquired subsidiary, Altron Karabina, to be the go-to partner for everything Microsoft, said Nyati when the deal was sealed.

The announcement came after the US-based software giant cancelled its software licensing contact with IT services firm EOH.

Karabina integration

Although Altron says the integration of Altron Karabina, which was acquired during FY19, was slower than expected, this acquisition remains strategically relevant to the group given the unit’s capabilities in the fast-growth cloud and data analytics environment.

“We are very excited with the Microsoft licensing partnership. It is housed in the Altron Karabina stable, a business that we bought last year,” Nyati said in the interview.

“That business today is delivering about R40 million of EBITDA [earnings before interest, tax, depreciation and amortisation] and we would like to see that business growing to about a R100 million worth of EBITDA over the next three years, and that is going to be linked to the licensing agreement we signed with Microsoft.”

Going forward, the company notes, Altron Karabina aims to be one of the leading Microsoft licensing solutions partners.

Altron Karabina picked up three awards at the Microsoft Partner Awards 2019 held last month.

“We are a very strong customer of Microsoft. We are one of the leading companies in regards to the adoption of Microsoft cloud services,” Nyati added.

A lot of activity has, of late, been happening between Altron and Microsoft, where Nyati used to be country manager before his stint at mobile operator MTN, where he served as CEO.

In March, Altron migrated its human resource information systems and payroll to Microsoft Azure. This after the latter opened local data centres.

However, Nyati said Altron will not solely rely on Microsoft cloud services, as more vendors are looking to open shop in SA.

These companies include US-based tech giants Amazon Web Services (AWS) and Oracle, which are looking to establish data centre facilities in SA as early as next year.

According to Nyati, Altron has already made some moves on both AWS and Oracle.

“We have made a conscious decision not to align ourselves to any one cloud provider. If you look at our customers, they typically have multiple cloud providers and we have to align with that. We need to give our customers choice.

“Right now, we have discussions with Oracle and we already have partnership agreements with AWS. That is what our customers will expect of us.”

Five-year goal

In its half-year results, Altron saw the group grow revenue from continuing operations by 8% to R8.5 billion, while EBITDA gained 19% to R803 million.

The company says it remains on track to achieve its five-year goal of doubling EBITDA by 2021.

Headline earnings per share from continuing operations were up 4% and an interim dividend of 29c per share was declared.

“We accelerated the execution of our One Altron Strategy, which focuses on doing more with existing customers, while continuing to win new customers. This has delivered organic growth for our business,” said Nyati.

Several key wins were secured during the first half, including the partnership agreement entered into between Toyota, Netstar and Vodacom, a world-first in terms of in-car WiFi at original equipment manufacturer level, the company says.

The deal will see all future Toyota vehicles in SA enabled with WiFi and telematics solution capabilities.

“Bytes UK continued its stellar performance – growing revenue by 13% and EBITDA by 46%. Offshore revenue now contributes 49% of total Altron Group revenue; this is an increase of five basis points from the previous reporting period,” said Nyati.

Negative impacts

The company notes Altron Bytes Systems Integration has seen a successful turnaround, with EBITDA increasing by 36% through its focus on cloud services, IOT, data analytics and security.

Nonetheless, Nyati noted the first half was not without its challenges. Apart from the sluggish SA economic growth, he said subsidiary Altron Nexus was negatively impacted by the City of Tshwane Broadband Network judgement handed down against Thobela Telecoms as well as the suspension of key executives.

The execs were suspended after a probe revealed “potential deviation from procurement processes, involving an estimated R23 million, and early profit recognition of approximately R20 million in the 2018 financial year”.

The JSE-listed company says Altron Nexus also experienced increased working capital demands as a result of large infrastructure projects and increased business activity.

“Our focus will remain on organic growth, supplemented by acquiring select small to medium-sized businesses in our focus areas, which will lead to enhanced capabilities and expanded geographic footprint,” Nyati concluded.