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Altron defying SA’s tough economic terrain

Technology firm delivers impressive FY results.

NOMPU SIZIBA: JSE-listed Altron released its annual results today [Thursday] in which it has managed to double its Ebitda growth, ahead of the time it intended by 2022. For the 12 months ended February 2019, the technology firm reported revenue from continuing operations up 7% at R15.7 billion, with Ebitda from continuing operations increasing by 30% to R1.6 billion. Headline earnings per share rose by 50% to 179 cents. Shareholders are set to get a final dividend payout of 44c/share. That’s a total of 72 cents for the whole year.

Well, to give us the back story to the numbers, I’m joined on the line by Mteto Nyati, the CEO at Altron. Mteto, your headline numbers look impressive with your return on capital employed at 20%. And I see that you managed to secure a number of significant long-term contracts in the period under review. Just take us through some of your key contracts that you secured in South Africa, to begin with.

Read more: Altron turnaround gathers steam

MTETO NYATI: In South Africa one of the big contracts secured was with the Gauteng Provincial Government. There we had about a R2.4 billion contract to implement the broadband for the government, which means we are connecting all of the schools, hospitals, clinics and the police stations. To me this is really transformational because we are taking schools that are in rural areas, or also in the townships, helping them to get into the new digital era. That is one if the bigger contracts that we managed to get.

The other contract that we won was with the South African Post Office, Sapo, where we helped them when they were facing challenges around the social grants. We helped them to build capacity and be able to identify the pensioners, the grant recipients. So the technology that is enabling most of that came from us. That is one of the contracts.

The last one here in South Africa I want to mention is the Gautrain, where we are monitoring and managing their whole network infrastructure, protecting them from some cyber issues – crime.

In the UK we also won a deal worth about R2.8 billion with the National Health Service, the NHS, a five-year contract. That again helps us to make sure that we have a very healthy business that has got annuity. Overall our business was sitting at about 59% annuity revenue. It has moved up from the 51% when I joined. So again this is part of our strategy to push up the annuity revenue across our business.

NOMPU SIZIBA: That’s excellent. Despite the problems in the UK, with them facing Brexit and uncertainty around that, being plugged into the NHS – which at the end of the day has to be there, regardless of whether the economy is doing well or not – that’s quite secure for you.

MTETO NYATI: Exactly. On our business in the UK – one might ask what the impact of Brexit would be. Of course, we can never be certain, but our customers almost 99[%] are UK customers, so we are selling to customers who are in the UK, and they are not about to be leaving the UK. So there is no issue there. We have been in that market for the last 15 years. The good thing about that leadership is a family that has been there over the last 15 years, continuously building and growing our business in that operation in that country. So we are very happy there.

We made an acquisition last year there, a company called Phoenix Software, and that business has delivered for us ahead of the acquisition business case, which we are very, very happy about.

NOMPU SIZIBA: When you came on the scene in 2017, I think, you were concerned as CEO that the various divisions of the company were operating in silos; there was very little in the way of cross-selling and marketing of what you guys had to offer. What progress have you made in this regard?

MTETO NYATI: Nompu, you are asking a very good question. A number of people called in to ask me, “How come you are growing 15% in South Africa when the economy and many of the other companies are struggling?” I point to something that we picked up. The important insight that we got two years ago, when I had just joined here, was that we had in South Africa about 20 000 business customers – and to those customers we were selling one or two of our services, when in reality we could be offering those customers over 50 different things from the group.

The reason why we were doing that is because of the way we were engaging those customers. So we made a conscious decision to implement what we call a “One Altron” strategy, where we are engaging these companies and representing the full breadth of Altron in them. And that is helping us to work with our existing customers, engaging wallets from those customers. I can tell you, regardless of what is happening in the market or the economy, for the next three years we feel we will be able to continue to be delivering double-digit capital growth and headline earnings per share. Why? because of this great base of customers that we have. Our penetration is so low in this base, and yet we’ve got great relationships with them.

NOMPU SIZIBA: Mteto, you’ve segmented the company into Digital Transformation, Fintech, Healthtech, Smart Internet of Things and Managed Services. I don’t need you to go through every single one, but I’m quite interested in you telling us about your Fintech and Healthtech businesses, and the kind of growth prospects you see them having here in South Africa.

MTETO NYATI: In the Fintech and Healthtech division what we were doing just before I joined was very strong; we were like the backbone of the private healthcare system of this country. So if we are not there tomorrow, I believe the private healthcare system of this country will fall down, because we are the enabling technology. So what we then decided to do is to say, right, we are doing such great things in the private [space], why don’t we help as well in the public healthcare space? So that is the area where we are going to be growing.

For example, here in Johannesburg we have connected close to 73 clinics in partnership with the City of Johannesburg, whereby citizens can move from one clinic to the next and be recognised. They don’t have to queue; they can connect online and things like that. It is really, really helping good healthcare delivery while at the same time helping with the dignity of the citizens. So that is the drive that we are going to have. You are going to see us implementing those solutions across the country. Right now we have been very successful in Johannesburg.

In the Fintech space, we are working with the small entrepreneurs in the townships, helping them to be digitally included, to be able to accept debit cards, so that they can drive and do selling. So we came up with technology that does that. It’s called the “NuPay Go”, and this technology is where entrepreneurs are able to interact with their customers.

NOMPU SIZIBA: Your debt stands at R1.3 billion from R1.5 billion in the year prior. You are clearly making strides in trying to bring it down, but are you comfortable with these levels?

MTETO NYATI: I am very comfortable, Nompu. In fact, this is going down quicker – which is not a problem – but I would rather be using that to contribute to the drive in acquisitions. We were sitting at the beginning of the financial year with debt of R1.9 billion, and now we’ve come down to R1.3 billion. Our Ebitda revenue is about R1.6 [billion], so we can see that the ratio of the debt to Ebitda is already on around 0.7, when we are targeting a 1.0 ratio. So either we reduce, or we take more and more of our earnings and give that back to our shareholders in the form of dividends. Our preferred way is to continue to drive acquisitions.

NOMPU SIZIBA: Mteto, while your results look good this time round, you do make reference, as have many executives that have come on this platform, to the difficult economic terrain that we all find ourselves in. Once a new government takes the reins in the next few days, what are you hoping they’ll tackle quickly to improve the economic environment you are operating in?

MTETO NYATI: The first thing for me would be that, when we look at ICT, we continue to have a high cost of communication in this country. It’s affecting businesses, it’s affecting consumers, it’s affecting the whole country. And that is directly linked to the fact that the government is not making a decision around the allocation of spectrum to the mobile operators. To me that will be the first priority, because that does not touch just the mobile operators; it’s even the gogos sitting in rural areas who will start to have savings around their communication cost, and they can start to use whatever saving that they are making there to buy other things, thus stimulating the economy.

Think of the agricultural sector that could be benefiting from drones that would be enabled by these technologies. Today those farmers are not able to be competitive – why? Because we are unable to deploy cost-effective technologies. So I really would like our new president to focus on this one area.

The second one would be to continue to drive the corruption agenda, removing corruption in particular state-owned enterprises and in government. It’s very, very important. Those would be the two things from my side.

NOMPU SIZIBA: Many thanks, Mteto, for your time this evening.

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