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Altech Autopage has to evolve – Altron CEO

Robbie Venter on strikes, star performers, turning your TV into a PC and Altron’s outlook.

SIKI MGABADELI: Allied Electronics Corporation, or Altron, out with interims to the end of August today and the group reporting revenue growth of 6% to R14.2bn, from R13.4bn in the previous period. Earnings before interest, tax depreciation and amortisation down by 5% and normalised EBITDA margin was 5.5% compared to the prior year at 6.5%. Robbie Venter is CEO and joins us now. Robbie, thank you so much for your time today.

ROBBIE VENTER:  You’re welcome.

SIKI MGABADELI: Well, growth a bit muted but we had expected it because you did give a guidance to the market about what the numbers would look like but what happened during the six months?

ROBBIE VENTER: I think there were a couple of different factors, if you looked at the two major divisions that we’ve got, Altron TMT, which is the combination of Bytes and Altech, and Altron Power, which is Powertech. Altron TMT actually had a very good six-month period, we saw revenue growth up nicely at about 8% and EBITDA up about 10%. A very good performance of growth coming from Bytes and a single-digit improvement at Altech contributing to that.

Where our challenges really lay were in the Powertech side of the business, Altron Power, and that was impacted by two main factors, the first was a four-week strike that we took in July, not ourselves only but industry, with negotiations with NUMSA that took a little longer than what was anticipated and that had a fairly significant impact on Powertech. The second issue at Powertech was a much more muted level of demand from our public sector customers in the infrastructure rollout. So those were some of the challenges that we faced. In fact, if you looked at the Altron results and you factored out the effect of the strike we would have roughly been flat in performance, so it was a material event.

SIKI MGABADELI: Absolutely.

ROBBIE VENTER:  The good news is that it’s a three-year agreement, so it’s not like we’re going to have to deal with this again in the short term.

SIKI MGABADELI: So there’s a bit of predictability…

ROBBIE VENTER:  There’s a bit more predictability…

SIKI MGABADELI: …which is what we want in business at the end of the day.

ROBBIE VENTER:  Yes.

SIKI MGABADELI: Have you been able to catch up, with that kind of lengthy strike that is unexpected that affects then your manufacturing business, have you been able to catch up?

ROBBIE VENTER:  Well, the strike was the month of July, so we really in terms of our reporting period only had one month to catch up, which was the month of August, and August was a very, very good month, so there was definitely some catch up in that but not to the same degree that we would hope that we’ll be able to get for the year. But there’s two elements to the strike action, one is loss sales and that typically comes back because the orders are there, it just takes a bit longer to, and the customer projects don’t stop, they have just slowed down a little bit, so that we expect to recover. However, the fixed overheads that we have that are unrecoverable are the costs that you can’t recover. So certainly the Powertech results will even at the end of the year will show some recovery of the strike action but not the full amount.

SIKI MGABADELI: Alright, just staying with Powertech and just looking at the public sector demand there, you’ve got obviously the electrical infrastructure and renewable energy projects that you’re looking to be benefitting from but are you seeing demand starting to recover on that front?

ROBBIE VENTER: On the renewal side it’s actually been pretty strong, so they’ve gone through round one and round two of the renewables and we’ve received R300m to R350m worth of orders in those two phases and we’ve invoiced pretty much most of that. Round three is due for financial closure at the end of November, after which orders will flow reasonably quickly.

So we should get a little bit more and we’ve got some fairly large tenders in on the renewable side, we should get a little bit in for the second six months but the first six months of next year will probably show the benefit of the renewables.

SIKI MGABADELI: Alright, let’s talk then about one of your star performers that was Bytes, what was the collaboration there then between Altech and the Bytes businesses, which seemed to help your operations.

ROBBIE VENTER: Ja, so I think the strategic rationale when we bought out the minority shareholders of Altech was really to get collaboration between the Altech and the Bytes businesses who were in some ways even competing in converging markets of IT and telecoms, and I’m pleased to say that we’re very happy with the way that collaboration has gone.

We’ve now combined in Bytes all of the software development businesses that we had previously sitting in Altech and created also from a payment solutions perspective a separate division called Bytes Payment Solutions and that’s also giving us some really good benefits. If you take for example the Altech Node product that’s just been launched, what’s really pleasing for us to see is that that was a collaborative effort involving some eight companies in the TMT fold, so now that we own 100% of all of our subsidiaries we certainly are seeing the benefit of the collaboration coming through.

SIKI MGABADELI: How is Node performing? I know it’s only been since September.

ROBBIE VENTER: Ja, it was just recently born, so it’s very, very early days, obviously we’re going through the initial marketing phases of Node and we’re using a few different channels to market, mostly the retailers but we’re also using our Altech Autopage stores and some of the Cell C stores as well.

SIKI MGABADELI: For consumers this really just says we’ve had one dominant player in this space for such a long time to be able to get the kind of competition for couch potatoes such as myself to have the kind of choice that this would be bringing in.

ROBBIE VENTER: Ja, I think it’s important just to also distinguish…we’re not and don’t have access to the content, live sports and the like, that the DStv or Multichoice offering would have, so we see the Node as a complimentary box to the normal set-top box that sits in people’s houses but it offers a range of additional features such as home automation, home security, CCTV camera surveillance, payment of your electricity bill, your telephone bill, top up of your electricity, top up of your cellphone, which we do through Autopage. So we’re seeing that Node is really being seen as a home console or a gateway to the home…

SIKI MGABADELI: To the connected life, as they call it.

ROBBIE VENTER: The connected life, exactly, exactly and it’s WiFi-enabled, so you can virtually turn your TV into a computer and ja, so we’re hopeful that we’ll get good results out of it.

SIKI MGABADELI: Alright, we’ll watch that one closely. Mobile telecoms, let’s look at that industry, it’s not just an Altech Autopage scenario, it seems to be affecting all of our mobile telecoms operators, what is happening in that space?

ROBBIE VENTER: I think there’s a lot of price deflation going on, the Icasa rulings around mobile termination rates have brought mobile termination rates down significantly and hopefully that flows through to the retailer, who at the end of the day is the goal of Icasa (Independent Communications Authority of South Africa) to benefit the retailer and the consumer in terms of the retail pricing. So there is price deflation going on in that market, it’s become more competitive and I think we’ve always said from our perspective we don’t see Altech Autopage as being in a year or two’s time as being a purely GSM voice business because the pressures on that market are very clear and very evident. That business has to evolve to a more ISP converged services, enterprised-based business, away from their traditional offering.

SIKI MGABADELI: What sort of ISP services would you be looking at?

ROBBIE VENTER: So we could provide connectivity for enterprises around their voice over IP telephone system, their internet connection and that’s all hosted through Autopage, and those are some of the services that we could offer.

SIKI MGABADELI: One that all consumers know about is Altech Netstar, continuing to see growth there?

ROBBIE VENTER: Yes, we’ve been very happy with the performance at Altech Netstar, in particular the fleet management and the telematics side where we’re offering much more than just vehicle recovery, which Netstar has traditionally been known for. The vehicle recovery side is a given but it brings a lot of additional measurements on driver behaviour, if a driver is braking too fast or for a logistics company if he’s using too much petrol or if he strays off his normal route, those are the services that we’re increasingly seeing as being the value-add services that customers are looking for.

SIKI MGABADELI: Alright and expansion outside of South Africa?

ROBBIE VENTER:  We do own all of the IPR in Netstar, so we do obviously have an opportunity and a big opportunity to expand globally. So far we’ve focused our attention more on the Southern African market, so we have entered into a joint venture in Mozambique and that’s kind of where our focus is but we cautiously will look for other opportunities outside of Southern Africa.

SIKI MGABADELI: What’s your outlook, Robbie?

ROBBIE VENTER: I think on the TMT side we expect a steady performance going forward, they’re coming off a high base but particularly out of the Bytes fold we expect a continued run of their current performance. In the Altron Power side I think there are some challenges, particularly with this rollout of the infrastructure, where the strike impact won’t reoccur, so we’ll get the benefit of that but I don’t think the infrastructure rollout all of a sudden…it’s not like turning a light switch on that tomorrow it’s going to just be happening, it’s going to be a more gradual process that will probably occur over the next 12 to 18 months, as opposed to the next three months.

SIKI MGABADELI: And it involves billions of rands as well.

ROBBIE VENTER:  Exactly.

SIKI MGABADELI: Robbie Venter is CEO of Altron. 

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