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Cash flow statement   |   Segmental Analysis   |   Supplementary information
Message to our shareholders

Highlights

·               Revenue ↑ 22%

·               Operating profit ↑17%

·               Headline earnings per share ↑ 23%

·               Dividend ↑ 20%

·               Strong balance sheet

Message to our shareholders 
 

The directors are pleased to report the Altech group’s results for the year ended 29 February 2008.  Headline earnings per 
share improved by 23% to 511 cents, with revenue increasing by 22% to R8.2 billion and operating profit by 17% to R664 
million. Net asset value per share increased from 1 863 cents to 2 026 cents.  Return on shareholders’ equity remained strong 
at 25.4%. A dividend of 288 cents per share was declared, representing an increase of 20%.

OPERATIONAL REVIEWS

TELECOMMUNICATIONS AND WIRELESS COMMUNICATIONS

Altech Autopage Cellular

In a cellular services market that continues to evolve, Altech Autopage Cellular remains the largest independent cellular service provider in South Africa and during the year under review performed well ahead of expectations, exceeding both profitability and cash flow targets. 

The company increased its subscriber base by over 115 000 (a 14% growth in new connections) during the year. The total subscriber base now exceeds 917 000 for post-paid and pre-paid connections, combined. The prepaid subscriber base continues to grow steadily.   

ARPU (average revenue per user) improved on the previous financial year. New connections in the high-end corporate and fixed cellular markets increased satisfactorily. Sales of electronic prepaid vouchers showed continued good growth.  

Sales of mobile data services through add-on data bundles and cellular data connections provided a growing stream of revenue for the company. The broadband and data subscriber base now stands at over 41 000 subscribers. 

Altech Autopage Cellular’s existing channels to market - comprising of 150 franchise stores, the corporate sales force (supported by branches in Durban, Cape Town, Port Elizabeth, Bloemfontein) and premium service provider Altech Supercall - have been supplemented by third-party call centres and distributors for data products.  

Mobile Number Portability continues to generate a steady migration of ‘port customers’ for the company. This removal of a long-standing barrier to open competition for subscribers in the cellular market has resulted in a net gain of 4 172 subscribers for Altech Autopage Cellular.

Altech Netstar 

Altech Netstar has maintained its market share lead, being South Africa’s largest vehicle tracking company in the Stolen Vehicle Recovery (SVR) market.  Its trading results were excellent despite a slow-down in new car sales, increased interest rates and the introduction of the National Credit Act. 

Altech Netstar maintained its on-going commitment to technology development and innovation. The company now manages a subscriber base of 440 000 vehicles for SVR, with the value of the vehicles protected exceeding R51 billion.  

Altech Netstar Fleet Management Services introduced new technologies and services to commercial fleets and vehicle subscribers.  Its subscriber base increased to over 27 000, representing a remarkable growth of over 70% for the year. 

During the financial year, the acquisition of ComTech, a leading operator servicing the commercial transport sector was concluded. ComTech will strengthen the Altech Netstar Fleet Management Services’ business through its complimentary product range and customer base. As a result, Altech Netstar Fleet Management Services has effectively doubled in size, with a combined fleet management market share in excess of 20%.

Altech Alcom Matomo 

Altech Alcom Matomo recorded an excellent performance, enhanced by the completion of the R540 million contract for the SAPS Gauteng TETRA Radio System.  During the year under review the company also exported radio systems into Africa, implemented significant telemetry system sales and supplied specialised telecommunications equipment to South African network operators. 

With its significant engineering and project management experience, this company is well-placed to exploit further opportunities for the provision of similar systems throughout southern Africa and for 2010 World Cup infrastructure projects. 

Altech Alcom Radio Distributors 

Altech Alcom Radio Distributors is a leading distributor of Motorola two-way radio products in southern Africa via a network of authorised dealers. It exceeded both its profitability and its cash flow targets for the financial year and achieved significant sales of the Motorola Canopy broadband range of products which provide robust network Internet Protocol (IP) based digital radio links for digital networks.  

MULTI MEDIA AND ELECTRONICS

Altech UEC

Altech UEC develops, manufactures, services and deploys advanced set-top box products and associated software. The company produced good results for the year, benefiting from its sustained investment in the development of advanced technologies and products, despite consumer spending coming under pressure.

Production of over 1 million decoders was achieved for the financial year. Sales of the ground-breaking dual-view Personal Video Recorder (PVR), developed and supplied by Altech UEC, continued at good levels both in South Africa and in export markets.

The deployment of satellite television services in India has significantly increased demand for pay-television products across that country and Altech UEC is ideally positioned to capitalise on this trend. It has already achieved supply agreements with two major Indian broadcasting network customers. Indications are that the Indian market may exceed the African market within one year, yielding good benefits to Altech UEC, which has concluded arrangements to sub-contract some manufacturing in South East Asia.

Altech UEC has the appropriate technologies for the proposed South African digital migration programme. It introduced high definition compliant products to the market in the third quarter of 2007, whilst IP TV and hybrid products are on track for launching in the second quarter of 2008. The after-sales service division, Altech Global Decoder Logistics, with support and logistics operations in Australia and South Africa, performed well in its third year of operation.  

Arrow Altech Distribution 

Arrow Altech Distribution has enjoyed good growth during the year under review with both its earnings and its sales being above budget. Good year-on-year growth was recorded in all six of its key technology groups.  

Customised demand-creation activities by Arrow Altech Distribution, for which several supplier accolades were received, have resulted in a strong order book. Average unit sales are above the previous year. Several new product suppliers were also added, allowing the offering of new products into new markets. 

INFORMATION TECHNOLOGY

Altech ISIS 

Altech ISIS again performed commendably during the year under review, entrenching its position as a reputable supplier of turn-key business support systems in South Africa and Africa.  

MobiMaster (renamed Altech Isis France), which was acquired in 2006, was fully integrated into the group’s systems during the financial year and product integration is progressing as planned. Existing customers have been retained and new orders have been received. In addition, the team in France is investigating a number of opportunities in the Middle East.

Altech NamITech 

Altech NamITech is Africa’s leading provider of GSM and CDMA cellular SIM cards, pre-paid vouchers, and non-secure and secure cards for retail and banking, including EMV smart cards and Magstripe Cards. The company operates the largest secure bureau in Africa for Master card and VISA accredited cards. 

The South African operation has concluded its rationalisation programme, which consolidated all manufacturing activities into one facility.  This has resulted in significant cost reductions, operational efficiencies and improved economies of scale.  

Growth of Altech NamITech West Africa has proceeded at an astounding pace over the past year. Starting out as a new entrant three years ago, the company has now become Africa’s leading provider of pre-paid vouchers. Sales of pre-paid vouchers in Nigeria, have grown from less than 10 million per month in 2006 to over 100 million per month by the end of 2007. Growth is expected to continue, boosted by product enhancements including cellular sim cards and banking cards that will add further value to its offerings in the financial and telecommunication sectors.

Altech Card Solutions (ACS) 

This business has enjoyed another good year with turnover and profits exceeding expectations. Good growth was experienced in card personalisation solutions and in its switching division. 

During 2007 ACS was awarded the Thales eSecurity distributorship for the supply of cryptographic solutions to the banking and government sectors.  Significant orders received for EFTPOS terminals from the financial sector contributed positively to ACS’s results.

Altech Stream 

In 2007 Altech Stream, in partnership with Samsung Electronics, successfully commissioned its trial network in Gauteng based on the test Wimax 802.16e licence awarded earlier in the year by Icasa. The network is focused on the wireless delivery to triple play services, including video streaming, Internet access and Voice over IP to both PCs as well as new generation handsets.   

As the Wimax 802 standard is now widely expected to emerge as the dominant wireless IP delivery technology, it is expected that this initiative will be exploited to the full in terms of the opportunities presented by media convergence over broadband delivery systems. 

While liberalisation in the South African market is proceeding at a slow pace, opportunities in the rest of Africa are opening up and Altech has moved aggressively towards exploiting these and gaining bridgeheads in key African markets. 

In June 2007 Altech Stream Rwanda was awarded Internet and gateway licenses, as well as a frequency spectrum in the Wimax bands. Already, the company is installing a network in Kigali that will begin distributing IP based services over broadband in the current financial year. This infrastructure had been enabled by a technology and distribution agreement that was signed in April 2007 with USA-based CityNet (now Xiocom), making it possible for it to enter the sub-Saharan market with an IP-based wireless broadband delivery system that has already proved successful in more than 40 cities worldwide. 

A significant achievement, in terms of Altech’s strategy to move up the telecoms value chain and expand its geographic presence in Africa, is the recent acquisition (completed just after the financial year-end) of 51% controlling interests in certain companies within Kenya’s Sameer ICT group. This involved a total outlay of US $ 85.2 million, funded from the cash Altech has been accumulating for such a strategic move.   

This acquisition positions Altech as the largest data operator in Central and East Africa.  Altech has acquired 51% controlling interests in Kenya data Networks Limited (KDN), Swift Global (Kenya) Limited and Infocom Limited (Uganda).  These businesses come with cutting-edge IP data network infrastructure in the region, as well as operating licences for Kenya, Tanzania and Uganda.   

This transaction constitutes a partnership with the Sameer group in which Altech and Sameer can cooperate on many fronts, combining Sameer’s regional expertise, infrastructure and profitable operations, with Altech’s investment and cutting-edge technologies, to exploit the significant convergence and development opportunities in the region.

BUSINESS COMBINATIONS

Acquisition of ComTech (Proprietary) Limited (“ComTech”)

On 1 January 2008 the group acquired 100 % of the interest in ComTech. The acquired company contributed revenue of R16 million and profit after taxation of R1 million for the period 1 January to 29 February 2008. If the acquisition had taken place on 1 March 2007, the acquired company would have contributed revenue of R 90 million and a loss after taxation of R 4 million for the period 1 March 2007 to 29 February 2008. This has been calculated using the group’s accounting policies and after adjusting for amortization charges, net of taxation, assuming that the fair value adjustments had taken place on 1 March 2007. Details of the net assets acquired and goodwill are as follows:

*Discounted present value of future potential payment of a total of R40 million, linked to the achievement of specified profits to 31 August 2009. 

The goodwill represents the excess of the cost of the acquisition of ComTech over the anticipated future economic benefits to be derived from the assets.

Acquisition of the Netstar franchise in Rustenburg

On 1 August 2007 the group acquired 100 % of the Netstar franchise in Rustenburg. The acquired business contributed revenue of R 12.7 million and profit after taxation of R 5.5 million for the period 1 August 2007 to 29 February 2008. If the acquisition had taken place on 1 March 2007, the acquired business would have contributed revenue of R 25.5 million and profit after taxation of R9 million for the period 1 March 2007 to 29 February 2008. This has been calculated using the group’s accounting policies and after adjusting for amortization charges, net of taxation, assuming that the fair value adjustments had taken place on 1 March 2007. Details of the net assets acquired and goodwill are as follows:

Fair value of net assets acquired for business combinations

The assets and liabilities arising on acquisition are as follows:

POST BALANCE SHEET EVENTS

Acquisition of 51% controlling interests in certain Eastern African companies

Altech concluded agreements with Sameer ICT Limited (Sameer) relating to the acquisition of 51 % of the issued share capital on 1 March 2008 of Kenya Data Networks Limited (KDN), Swift Global (Kenya) Limited (Swift) and Infocom Limited (Infocom). The purchase price of U.S. $ 75 million, payable in cash, was allocated as follows:

·         U.S. $ 68 million for the shares in KDN ;

·         U.S. $ 5 million for the shares in Swift ; and

·         U.S $ 2 million for the shares in Infocom. 

Of the total purchase price of U.S. $ 75 million referred to above, an amount of U.S. $ 10 million is held in escrow (plus interest), to be released to the vendors of the shares concerned, against the achievement of an aggregated combined profit after taxation of at least U.S. $ 11.7 million for the twelve months ending 31 December 2008. The escrow amount and interest thereon will be reduced proportionately to any shortfall on the warranted profit after taxation stated above.  

In addition, Altech and Sameer have injected new capital of U.S. $ 20 million into the three companies acquired, of which 51 % was provided by Altech and the remaining 49 % was provided by Sameer. Therefore, Altech’s maximum total cash outflow will amount to U.S. $ 85.2 million, comprising the purchase price of U.S. $ 75 million and the cash injection of U.S. $ 10.2 million. 

The acquiree’s combined balance sheet at the date of acquisition is as follows:

As the acquisition was effective post year end, the purchase price allocation will be done during the 2009 financial year. 

Acquisitions of Bloemfontein and Witbank Netstar Franchises

Altech concluded agreements to acquire 100% of the above franchises subsequent to year-end for R18.3 million. As the acquisitions were effected post year-end, the purchase price allocation will be done during the 2009 financial year.

The acquiree’s combined balance sheet at the date of the acquisition is as follows:

OTHER CORPORATE FINANCE ACTIVITIES

Other salient transactions entered into during the financial year included:

·         a restructuring of the information technology (“IT”) interests of the Altech group under a single sub-holding company, but with the separation of the South African and the wholly-owned international interests, beneath it. Altech’s empowerment partner Pamodzi’s different shareholding interests in Altech NamITech Holdings and Altech Data were restructured into a single shareholding in the overall South African IT entity; and

·         the repurchase of 1 635 094 Altech ordinary shares, through a subsidiary, equivalent to approximately 1.5% of its issued share capital, for an aggregate outlay of R102.6 million. Altech now indirectly holds a total of 8 609 607 Altech ordinary shares, representing approximately 8.19% of its issued share capital, by way of treasury stock, which can be used for future funding purposes.

Following the completion of a due diligence investigation and further discussions with the vendors concerned, it was decided not to proceed with the proposed acquisition of a 50% joint controlling interest in Altech Netstar’s franchisee in Malaysia. This proposed transaction was referred to in Altech’s interim report.

During the past financial year Altech received a proposal from its listed holding company, Allied Electronics Corporation Limited (Altron), relating to a scheme of arrangement in terms of which Altech would be delisted and become wholly-owned by Altron. The relevant documentation was issued to Altech shareholders on 12 November 2007. The proposed scheme of arrangement was not approved by the requisite majority of Altech minority shareholders – consequently the proposal was not implemented and Altech remains a separate listed company, controlled by Altron.

OUTLOOK

We believe real growth in the coming year will be achieved through:

·         further capitalising on the group’s strengths and strong local market positions;

·         continuing to grow exports from the group’s local base in South Africa;

·         capitalising on the position achieved in East Africa broadband and value added services; 

·         strengthening our entry into the South African broadband market;

·         extracting optimum value from the opportunities in India;

·         building on the synergies achieved through the restructuring of the Altech IT division;

·         further globalising Altech;

·         acquiring and maintaining the required human capital skills, supported by the role of the Altech Academy;

·         achieving Altech’s transformation vision by adhering to the BBBEE Codes of Good Practice.

DIRECTORATE  

Ms DC Radley and Mr PL Wilmot resigned from the Altech board with effect from 29 February 2008, and Dr EN Banda with effect from 25 March 2008.  

Mr ZJ Sithole was appointed as an independent non-executive director of the Altech board and chairman of the company’s audit committee on 1 April 2008.  On 7 April 2008, Mr M Sindane was appointed as an independent non-executive director of the Altech board, chairman of the company’s business risk committee as well as member of both the Altech audit committee and remuneration and nomination committee.

DECLARATION OF ORDINARY DIVIDEND NO 65 

Ordinary dividend number 65 of 288 cents per share (2007: 240 cents) for the year ended 29 February 2008 is declared payable on Monday 9 June 2008 to ordinary shareholders recorded in the register at the close of business on Friday 6 June 2008. The timetable for the payment of the dividend is as follows:

Share certificates may not be dematerialised or rematerialised between Monday 2 June 2008 and Friday 6 June 2008, both days inclusive. The certificated register will be closed for this period.

ANNUAL GENERAL MEETING 

The company’s 62^nd annual general meeting will be held in the Boardroom, Altech Corporate Offices, 79 Central Street, Houghton on Tuesday 8 July 2008 at 16:00. Further details on the company’s annual general meeting will be included in Altech’s annual report to be posted to shareholders on or about 31 May 2008. 

On behalf of the board                                                   

Dr John Carstens
(Chief financial officer)

23 April 2008

Directors: 

Dr HK Davies (chairman)#, CG Venter (chief executive officer), Dr JEW Carstens (chief financial officer), PMO Curle*, 
ML Leoka#, R Naidoo#,  Dr HA Serebro#, M Sindane#, ZJ Sithole#, R E Venter#, Dr WP Venter#, 

* British       # Non-executive  

Secretaries: 

Altech Management Services (Pty) Limited 

Sponsor:

Investec Bank Limited