Allied Technologies (Altech) has shown that diversified interests in a range of electronic, technology and telecommunications applications is a successful strategy to ensure growth in both good and bad economic times.
Altech released half-year results today, revealing a 17% increase in operating profit and a 13% growth in adjusted headline earnings per share over the comparable period last year. The most telling performance came from its stake in Kenya Data Networks, where operating profit nearly doubled, growing from R52-million to R97-million.
"This year it has been interesting to see Altech really direct a key focus on its East African operations," says Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald. "While the East African region has felt the impact of the economic crisis, combined with recent bouts of political uncertainty in the last 18 months, Altech has adopted a pragmatic approach and has prepared for the inevitable recovery."
Altech has taken a greater stake in Kenya Data Networks and now has a controlling share of 60.8%. In addition to this, the group recently announced a strategic partnership with SEACOM that will see the companies provide connectivity. Mc Donald believes this will maximise the opportunity for revenue generation and reduce the investment required to gain greater representation.
"East Africa remains a compelling proposition for the company and it is expected to continue to invest into this region," Mc Donald adds. "Altech will need to ensure that it realises maximum value from its clients and this can be achieved by cross-selling within its large customer base."
Interestingly, the company chose not to invest in infrastructure in South Africa. This has been something of a surprise, given that it campaigned so diligently for the conversion of VANS licenses to ECNS licenses.
"Frost & Sullivan believes that the main reasons for this are the glut of infrastructure investment currently underway in South Africa and the current economic circumstances," Mc Donald states. "It is possible that Altech could re-evaluate this decision in the next 24 months if the South African market shows a sufficient demand for additional infrastructure."
Spending by companies on telecommunications is slightly down as cost saving initiatives take centre stage in this tough economic climate. Competition in the South African market is also intense in the provision of broadband and cellular services. The market has experienced a degree of consolidation in the last two years and this has impacted on the manner in which companies are able to offer their services into the market.
"Altech's main challenges are therefore the high level of competition that it faces in the South African market and the economic uncertainty that could slow the rate of its increased investment into the East African region," Mc Donald says.
Altech CEO Craig Venter announced the group's results today.
"I am particularly pleased with the strong performance that has been delivered by all of Altech’s operating companies," he says.
"What is even more impressive is that we have increased our operating profit margin to 10%. This has resulted in a 17% increase in our profits. Altech East Africa is showing exceptional growth and already contributes 18% of the Altech group’s total operating profit, proving that it has been a very successful and sound investment.
Altech East Africa, which perfectly complements our existing and successful group of companies, should contribute approximately 45% of Altech’s total profit over the next two to three years. It is definitely the growth engine for the Altech group," he adds.
"The results were underscored by various strategic acquisitions and alliances with emphasis particularly on the East African region. Annuity revenue remained a strong focus, increasing to 82%, previously 79%, of total revenue, and providing stability and exceptional profit for the group notwithstanding turbulent markets.
"Working capital management, stringent cost control and improved profit margins resulted in a strong balance sheet and impressive profitability.
Financial highlights for the six-month period are as follows:
* Revenue up to R4,7-billion;
* 82% annuity revenue;
* Operating profit up 17% to R479-million;
* Operating income margin rose to 10% (2008: 9%);
* Profit after tax up 14% to R322-million;
* Adjusted headline earnings per share up 13% to 304 cents per share;
* Cash at R460-million; and
* Return on equity 29% (2008: 26%).
“Although a number of acquisitions were made during the period, Altech’s balance sheet and cash position remain extremely desirable," says Venter. "We conserved cash during the high priced acquisitive boom and have in the past, and are now able in the future, to enter into transactions at much more favorable terms. This strategy has resulted in a competitive market advantage with our group growing to 30 operating entities."
Transactions concluded during the period included the acquisition of the entire share capital of both Fleetcall, South Africa’s leading radio trunking network operator, and internet technology solutions and broad-based IT Company, Technology Concepts. Altech also concluded the purchase of 50% plus 1 share in NuPay, a transaction service provider and switching company.
Two Altech Netstar franchises were acquired by the Altech Netstar subsidiary, namely Nelspruit and Polokwane.
The disposal of Altech NamITech SA to Gemalto NV became effective in April 2009.
Altech increased its economic interest in Kenya Data Networks (KDN) from 51% to 60,8% by subscribing for additional non-voting ordinary shares and acquiring a minority shareholder’s voting ordinary shares.
“Altech was thrilled to increase its stake in KDN as it is our infrastructure pillar and the growth engine of the group," says Venter. "The additional USD39.5 million capital injection will be used to roll out the KDN network, further entrenching KDN as the key provider of broadband in East Africa."
Two East African submarine cables – TEAMS and Seacom – will play a large strategic role at Altech. During the period, KDN acquired an 8,5% overall (10% of the Kenya share) stake in TEAMS, the submarine cable stretching from Kenya to the United Arab Emirates.
Altech also entered into a strategic bandwidth alliance with Seacom, the submarine cable which links South and East African countries to their European and Asian counterparts. The alliance saw Altech procuring two STM-16s from Seacom for 20 years, with the option to upgrade, within three years, to double this capacity, to an STM-64. Seacom in turn, purchased significant bandwidth capacity on the Altech East Africa terrestrial backbone network owned by KDN.
“The equity stake owned by KDN in TEAMS equates to an initial capacity of 10,2Gbps. The addition of the 5Gbps capacity purchased through the Seacom strategic alliance, results in Altech being one of the largest bandwidth suppliers on the continent," says Venter. "Significant bandwidth customers have already been secured with almost 70% of the Seacom capacity already on-sold. We expect the benefits of these transactions to bare fruit in the next six months and beyond."
All businesses in the group delivered solid results, with exceptional performances from Altech Autopage Cellular, Altech Card Solutions, Altech Netstar and Altech Stream East Africa.