Goodwill Impairments Weigh on Altech's Results

Once-off costs and goodwill impairments in Altech’s East African businesses compounded the negative impact. Altech has largely been able to confine the impact of a poor first half, as performance in the second half of the financial year has improved somewhat.

Results for the financial year ending 28 February 2011, released today, proved to be disappointing for Altech but not entirely unexpected. Despite an overall increase in revenues from the prior period to R9.65 billion, operating profit before capital items declined by 16% to R787 million and by 42% to R514 million after impairments.

Operating profit in the prior period was R933 million. Profit margins fell to 8.2%, from 10.1% in the previous financial year. Basic earnings per share declined by 60% to 216 cents per share.

Frost & Sullivan ICT Industry Analyst Protea Hirschel explains: “Several of Altech’s businesses have been affected by increasing levels of competition.”

The East African telecommunications market is becoming increasingly competitive. This has resulted in downward pressure on pricing for bandwidth and along the value chain. Hirschel comments: “As a result, initial revenue and profit contributions may have been overestimated.” Outages in the Seacom cable may also have had a negative impact on the profitability of Altech’s East African operations.

The East African region is nonetheless expected to witness continued high growth in mobile telecommunications and broadband. “Given the depth of its product range and network coverage, the company remains well positioned to profit from this growth in the long-term” suggests Hirschel. Enterprise markets will become increasingly important. “Completion of a data centre in Kenya allows the company to extend its position in this segment” says Hirschel.

Altech Autopage has also been affected by a changing competitive landscape in South African mobile telecommunications. Hirschel suggests: “The role of value-added resellers such as Autopage in the mobile market may be changing as increasing pressure on reseller margins by operators are reflected in the results for Autopage.” Greater emphasis on value-added services and fixed mobile converged solutions will stand the company in good stead for future growth. 

“Until now there have not been notable fixed mobile bundle solutions from the telecommunications giants and this has left the market open for Tier III players like Altech to plug that gap in South Africa. With real fixed mobile bundles from the mobile and fixed line providers in South Africa still some time away, Altech can still enjoy sound performance with Autopage,” says Hirchel.

The company has steadily been expanding its offering on the data and broadband side with subsidiaries such as Altech Technology Concepts. It has also made astute acquisitions, for example with Swist Technology Solutions, which strengthens its position as an end-to-end solutions provider for communication  and multimedia solutions.

Hirschel adds: “Altech has been laying the basis for diversified revenue streams in future. Altech will benefit from the experience of Jeffrey Hedberg in meeting these growth objectives.”

Altech has declared a dividend of 356 cents per share, a growth of 5% on the previous dividend.

 

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Goodwill Impairments Weigh on Altech's Results