Message to shareholders

•   Revenue of R9.2 billion
•   Operating profit up by 7% to R933 million
•   Adjusted Headline earnings per share grows to 605 cents
•   Dividends increased by 5% to 339 cents per share
•   Strong balance sheet

The directors are pleased to report on positive Altech group results for the year ended 28 February 2010, despite the slow global economic recovery. Adjusted headline earnings per share improved to 605 cents per share. Operating income increased by 7% to R933 million reflecting an operating margin of 10.1% (2009: 9.5%) on revenue of R9.2 billion. Net asset value per share was 2179 cents. Return on shareholders’ equity improved to 26.1%. Cash at year end was R616 million. Dividend of 339 cents per share which represents a 5% increase on prior year has been declared.

OPERATIONAL REVIEWS

TELECOMS & CONVERGED SERVICES

Telecoms and Wireless Communications

Altech Autopage Cellular (AAC)

Despite difficult trading conditions during the financial year, revenues increased by 6.3% compared to the prior year largely due to an increase in airtime revenue, value added services and pre-paid voucher sales. Operating Income remained under pressure for the trading period, recording a marginal decline in operating margin from the prior year.

The three GSM Operators agreed to a reduction in the Mobile Termination Rate from 1 March 2010. Further reductions to mobile retail tariffs are expected during the first 6 months of 2010 which could have an adverse impact on operating margins for the Financial Year ending February 2011. Actions to mitigate this impact have already been taken.

The acquisition of Altech Technology Concepts has provided a platform to develop and market converged voice / data services, on an enhanced basis.

In November 2009, Altech Autopage Cellular commenced a process to achieve significant reductions in overall operating expenditure. The first phase organisational restructure was concluded by January 2010. This process will continue until July 2010 to achieve the planned savings.

The company has shown strong growth of 190,247 gross connections acquired for the period; however, it should be noted that a high percentage of the additional growth was achieved in the low to mid-tier tariff packages. The total Altech Autopage Cellular customer base now stands close to 1 million active subscribers.


Altech Netstar Stolen Vehicle Recovery (SVR)

SVR reached a total of over 409 000 billable subscriber vehicles, an increase of 4.1% for the year, despite the significant reduction in new vehicle sales in South Africa. However, new vehicle sales appear to be improving.

Progress is being made across Africa and the Middle East with a number of licensed operators being established as well as large multinational corporations being signed up as customers. Ongoing discussions are taking place regarding significant opportunities in Brazil.

Altech Netstar Fleet Solutions (ANFS)

ANFS achieved a 9.9% growth in billable subscribers to close the year with a base of in excess of 60 000 subscriber vehicles. Operating income for the year exceeded budget by 5.1%.

Continued strong growth is expected for ANFS for the 2011 financial year.

Altech Netstar Traffic (ANT)

ANT managed to achieve a profit, largely due to a major pilot project awarded to it.

Altech Technology Concepts (ATC)

ATC showed significant growth during the financial year despite connectivity pricing continuing to drop. This drop in pricing is as a result of the additional undersea capacity into South Africa and increased competition.

ATC has invested significantly in additional sales and technical resources to drive additional growth into 2010 / 2011. A plan to move ATC from a second tier into a first tier ISP has been finalised. This will allow ATC to provision and run its own network allowing for increased innovation and new product development. The intention is to be operational by June 2010.


ATC is extending its range of services with a focus on managed services. The most recent product/service additions include Mail Marshal anti-spam and anti-virus, FortiGate firewalls, and a VMware, Dell and Xiotech infrastructure, allowing ATC to provision virtual servers for customers.

CONVERGED SERVICES AND CONNECTIVITY

Altech Alcom Matomo

Altech Alcom Matomo provides a number of specialised mission-critical radio and telemetry products and solutions for various customers. The company again recorded a solid performance, despite the adverse market environment, experiencing positive customer growth in the SADC region with key projects for police services in Angola and Botswana now completed. The confirmed order book had increased to R40 million at year end.

The final stage of the R540-million project for the South African Police Services (SAPS) in Gauteng has been completed. Successful mission-critical radio communications support for the Confederations Cup has also resulted in the award of similar work for the 2010 World Cup Stadium communications. The company has further organised itself to operate in a smaller projects environment and is now implementing a range of projects for police services in neighbouring countries and significantly upgrading the City of Cape Town’s communications network, as well as fulfilling orders for the national power utility and certain municipalities.

Altech Alcom Radio Distributors

Altech Alcom Radio Distributors recorded a positive performance and was again amongst Motorola’s top distributors for Europe, Middle East and Africa, notwithstanding challenging trading conditions.

Digital mobile radio sales expanded positively as the new technology is being assimilated by the market. Software-based radio applications to enhance the productivity of these digital systems are being explored, and these are expected to support further expansion of the product range.

Altech Fleetcall

Altech Fleetcall is a national trunked radio operator, providing airtime services for wireless voice and data communication for Altech Fleetcall is a national trunked radio operator, providing airtime services for wireless voice and data communication for telemetry, dispatching, alarm monitoring, fleet management, security and many more voice and data applications. It has its own national network infrastructure and serves mainly customers operating vehicle fleets. The company was recently selected by Bombela to provide seamless and instantaneous radio communication services for the Gautrain Rapid Rail Link and has continued to grow its subscriber base over the last financial year, resulting in exceptional year-end results.


Altech Stream East Africa

Significant restructuring took place in the portfolio managed by Altech Stream East Africa through further injection of capital into Kenya Data Networks (KDN) and the acquisition of Altech Stream Rwanda by KDN. Altech now owns 60.8% of KDN, which in turn now owns 90% of Altech Stream Rwanda.

Altech Data International was established in Mauritius to house Altech’s Seacom capacity purchase. This is owned 60.8% by Altech and 39.2% by the Sameer Group.

We are proud to report that despite challenges and subsequent project delays, the East African Group plus the new entity in Mauritius have exceeded their budgets.

Kenya Data Networks (KDN) produced good results for the period, mostly attributable to strong growth in the East African ICT sector and further developments in the East African fibre network. This growth is expected to continue, supported by KDN’s strengthened position as the infrastructure provider of choice in Kenya and its expanding network in the neighbouring regions, notably Uganda and Rwanda.

The Seacom undersea data cable went live in the second half of 2009. The group’s East African businesses have benefited from the last quarter of 2009, in excess of the capacities purchased being utilised. KDN also owns 11% in the Kenyan government-led TEAMS undersea fibre cable project. This has gone live and provides additional landing points as network redundancy. KDN is currently building a high security Data Centre in Nairobi, Kenya and this will be operational towards the end of this calendar year.

It has been a year of consolidation and rationalisation for Swift Global (Kenya), across its products and services. The company’s technical platforms have been integrated into the KDN infrastructure framework.

Infocom Uganda is the leading internet service provider (ISP) brand in Uganda and is recognised as a technologically strong services entity. It also holds very attractive telecommunications infrastructure and service licensing rights within Uganda.

In addition to its existing WiFi and WiMax network business, Infocom is starting to generate strong revenue from distributing undersea data cable capacity to Uganda. This also provides the vital link between KDN and Altech Stream Rwanda which has outperformed expectations.

Altech Stream Rwanda is a start-up broadband network and internet service provider (ISP), which was granted the necessary internet and gateway licences in June 2007. By the 2009/2010 financial year end, the business had completed the rollout of an outdoor WiFi network for consumers and a WiMax network for corporate customers, both covering most of Kigali, the capital city. The company is well positioned to achieve market leadership in Rwanda through the distribution of undersea bandwidth capacity and interconnect facilities.


MULTI-MEDIA AND ELECTRONICS

Altech UEC (AUEC)

Despite the global economic slow-down, AUEC has seen the benefits of investment in developing technologies and products for the Digital Pay TV industry. Local demand for set-top-boxes (STB’s) remains firm while exports to Africa, Australia, Middle East, Europe and India are growing steadily.

Additional investments have been made in local manufacturing plant and equipment and a total of 2m STB units were produced in the last 12 months.

Ahead of the South African Digital Migration (DTT) programme, AUEC has developed a terrestrial STB and has been participating in trials with all the potential operators. Coupled with this opportunity AUEC has developed the MediaGate concept which allows movies to be played via an internet protocol STB in the home. This concept will open a new market in the Telco arena, as converged technologies increasingly become a customer requirement in the future.

The Australian Digital Migration project has commenced, and UEC Australia has been contracted to participate and has already supplied 60 000 STB’s into this market.

Australian Digital Migration

The Australian Digital Migration project has commenced, and UEC Australia has been contracted to participate and has already supplied 60 000 STB’s into this market.

Arrow Altech Distribution

Due to global recession and weak demand, the local electronics industry underperformed during 2009. A number of key customers in the electronics manufacturing sector cut back on production and relied on inventories to meet immediate orders.

Recovery of the market is likely to be patchy and relatively weak over the next year, with potentially only one major project envisaged for the 2010 calendar year, namely the DTT rollout.

Management’s pro-active response to the difficult economic conditions, coupled with consistent performance from all the company’s technology groups resulted in solid operational results for the year.

INFORMATION TECHNOLOGY

Altech ISIS

This operation stabilised and strengthened its position at existing customers and is well positioned to generate strong revenue and income growth going forward, with its innovative real-time converged customer care and billing solution offering. To support this expansion drive it has added substantial investment into its project management, business analysis and systems integration capacity to support its position as a reputable supplier of turnkey business support systems.

Altech West Africa

Located in Lagos, Nigeria, the company predominantly manufactures prepaid cellular vouchers for all five major telecommunications operators in the country and is currently producing over 100 million prepaid air time vouchers per month.

During 2009 the company’s product lines have been expanded by adding the capability to supply initialised and personalised chip-card products to telecommunications network operators and financial service providers. Capability and professional services capacity have been added to the company to enable the supply, implementation and support of the Altech group’s e-Security range of products in Nigeria, including supply and support of the Verisign range of products.

Altech Card Solutions

Continuing the trend of recent years, Altech Card Solutions has increased the delivery of Point-of-sale and PIN-pad end-to-end solutions for leading financial service providers and retailers. Growth has surpassed expectations in the supply of electronic security product either as a turnkey project or as a hosted managed service from its fully PCI and EMV compliant seven tier security operation centre. The card personalisation solutions and integrated financial transaction services activities performed better than in the prior financial year.

Altech NuPay

This transaction service provider and switching company, acquired by Altech in June 2009, has managed to exceed its profit targets, despite the global economic downturn. Exciting projects are underway to launch new reconciliation facilities to a broad market sector, as well as to individuals. This will open up a whole new dimension to the business. This product will also help other entities to assist their clients with better services and reconciliation mechanisms.

Corporate Finance Transactions

Salient transactions during the financial year under review were as follows:

Investments into East Africa

Altech’s current major priority growth area is within the East African telecommunications sector. Significant focus has been given to Altech’s East African subsidiaries, particularly in terms of capital injection for the roll-out of additional fibre and obtaining access to undersea cable bandwidth.

Altech’s subsidiary Kenya Data Networks Limited (“KDN”) is the leading data network infrastructure operator in Kenya, with a nationwide fibre optic network. It is extending its coverage to neighbouring landlocked states, such as Uganda and Rwanda, and it is ideally positioned to link the new undersea cables landing at Mombasa, Kenya, to these and other states in the interior of East and Central Africa.

Accordingly, KDN has an extensive roll-out plan over the next few years in order to capitalise on the explosive growth opportunity offered by the expansion of data carrier demand in the region.
To this end, Altech has concluded the following deals:
 

• Altech has increased its economic stake in KDN by investing a further USD 39.5 million into the company. The capital injection will be used to roll out the KDN network, further establishing KDN as the key provider of broadband in East Africa. The additional equity shares in KDN to be subscribed for by Altech will be non-voting, thus preserving the strong minority shareholder local influence in KDN through our strategic partners, the Sameer Group.

• In addition, Altech has acquired a further 1.8% (voting) shareholding in KDN from a KDN minority shareholder, for approximately USD 3.3 million. 50% of the shares will be paid for in cash over two years on the achievement of profit targets. The remaining 50% will be paid in Altech shares which are subject to a phased release process over three years. The combination of this transaction and the equity injection referred to above has increased Altech’s economic interest in KDN from 51% to 60.8%.

• Altech has acquired significant bandwidth capacity on the SEACOM undersea cable system. The agreement sees Altech procuring two STM-16s from SEACOM (equivalent to 5 Gbps), with the option to upgrade, within three years, to double this capacity, to an STM-64. SEACOM has, in turn, purchased in excess of USD 20 million of capacity on the East Africa terrestrial backbone network owned by KDN.

• Altech, through its subsidiary KDN, acquired an 8.5 % overall (10% of Kenya share) stake in The East Africa Marine System Limited (TEAMS) for an amount of USD 11 million. This shareholding gives KDN 10.2 Gbps of bandwidth on the TEAMS undersea cable.

• Altech has established an international office in Mauritius to hold, co-ordinate and manage certain of its international assets. This is due to the increasing importance of the Altech group’s international activities, in particular its African activities.

Other Transactions:

• Altech Altech acquired 50% plus one share in NuPayment Solutions (Pty) Limited (NuPay) with effect from 1 June 2009. NuPay is a payments processing company focused on the automation of electronic debit orders, providing authenticated and non-authenticated managed transactions within the card-based and electronic funds transfer environments. The purchase consideration was R53.5 million in cash.

• Effective 1 March 2009, Altech acquired 100% of the issued capital in Fleetcall (Pty) Limited (Fleetcall). Fleetcall is a national trunked radio operator based in Centurion. The total maximum purchase price was R75 million, of which R35 million is held in escrow to be released to the vendors of Fleetcall on achieving profit warranties, with a reduced payout if these warranties are not met.

• Altech acquired, through its Altech Netstar subsidiary, the Netstar franchisees’ businesses in Nelspruit (effective 1 April 2009) and Polokwane (effective 1 May 2009), as going concerns, for an aggregate maximum purchase consideration of approximately R7.8 million and R15.9 million, respectively.

• Effective 1 April 2009, Altech disposed of the Altech NamITech South Africa and Altech Cardtronics businesses to Gemalto NV for a net consideration of R82.2 million (an increase of R3.7 million on the previously reported amount, based on closing audited adjustments). These businesses comprised all activities relating to the commercialisation, manufacturing and personalisation of secure and non-secure, chip and chipless, cards for the telecommunications, financial services, government, utility, security, and retail markets; recharge vouchers as well as related packaging and fulfillment services.

• Effective 1 March 2009, Altech acquired all the issued share capital of Lateral Technology Concepts (Pty) Limited, an internet services provider for small and medium enterprises, for a maximum total consideration of R45 Million. R7.5 million was paid upfront and R37.5 million is held in escrow to be released to the vendors on achieving various profit warranties, with a reduced payout if these warranties are not met.

• Effective 1 November 2009, Arrow Altech Distribution acquired 100% of the assets of the business of Components and System Design cc (“CSD”), for a cash purchase price of R2.2 million. CSD is a value-added distributor of electronic components, with in-depth expertise in the development of embedded microcontroller/processors and radio frequency designs.

• Effective 1 March 2010, the Altech Netstar sub-group concluded an empowerment deal for 25% plus one share. The deal includes the businesses of ComTech and Altech Netstar Fleet Solutions (“ANFS”), and further the 50% shareholding in Altech Netstar Traffic. Thebe Corporation and Identity Capital Partners were the two empowerment groupings that acquired the stake, with a strong focus on synergies between the various parties.
  
  In order to facilitate the empowerment transaction, Altech disposed all of the shares in Altech Netstar (Pty) Limited to another wholly owned subsidiary, Altech Netstar Group (Pty) Limited, in return for preference shares in that company. The businesses of ComTech and ANFS were sold into Altech Netstar in return for a loan. This resulted in an effective nil net asset value for Altech Netstar Group. The empowerment consortium was thereby enabled to acquire its shareholding in Altech Netstar Group for a nominal consideration. The total value of this overall empowerment transaction was in excess of R1.5 billion. The international business and intellectual property of the Altech Netstar Group has been retained, wholly owned by Altech.

• On 4 January 2010, Altech acquired a further 25.11% shareholding in its subsidiary Altech Alcom Matomo (Pty) Limited (“AAM”) from Platina Venture Holdings R15.2m. AAM is now a wholly-owned subsidiary of Altech. This transaction is a precursor to a proposed broader empowerment transaction which will involve both AAM and its sister subsidiary, Altech Alcom Radio Distributors..

DIRECTORATE

Dr HA Serebro resigned as a non-executive director to the Altech board with effect from 31 July 2009. The board appreciates his valuable contribution to the Group as a director.

ALTECH TRANSFORMATION

The Altech Group is committed to transformation and empowerment through skills enhancement, representative shareholding and widespread development of disadvantaged communities by focusing on areas with the maximum long-term benefit. The Altron’s transformation Vision 2012 sets the guidelines for developing our people and the communities around us through education, training and skills development, health, social welfare and job creation. Altech is proud to confirm that the Group and its operations have all achieved the targets for 2010 as set out in the guidelines of Vision 2012.


THE WAY FORWARD

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

• Capitalising on convergence.

• Continued diversification of Altech’s income base within the TMT sector through globalisation, M&A activity and convergence opportunities.

• Evaluate the expansion of the Altech Data Centre strategy across Africa.

• Continuing the transformation of Altech Technology Concepts up the value chain.

• Focusing and expanding the strong presence that we have in East Africa.

• Continued expansion of annuity revenue businesses (currently 82%).

• Strong focus on margins, cost, working capital and cash flow.

• Participation in the South African and Australian digital migration programs.

DECLARATION OF ORDINARY DIVIDEND NO 67

Ordinary dividend number 67 of 339 cents per share (2009: 323 cents) for the year ended 28 February 2010 is declared payable to ordinary shareholders recorded in the register at the close of business on 28 May 2010. The timetable for the payment of the dividend is as follows:

Share certificates may not be dematerialized or rematerialized between Monday 24 May 2010 and Friday 28 May 2010, both days inclusive. The certificated register will be closed for this period.

ANNUAL GENERAL MEETING

The company’s 64th annual general meeting will be held in the Boardroom, Altech Corporate Offices, 79 Central Street, Houghton on Wednesday, 7 July 2010 at 15h00. Further details on the company’s annual general meeting will be included in Altech’s annual report to be posted to shareholders on or before 31 May 2010.



On behalf of the board
 

19 April 2010

Directors:
Dr HK Davies chairman)( #, CG Venter (chief executive officer), Dr JEW Carstens (chief financial officer), PMO Curle*, ML Leoka#, R Naidoo#, M Sindane#, ZJ Sithole#, AMR Smith*, #RE Venter#, Dr WP Venter#,

* British # Non-executive

Secretaries:
Altech Management Services (Pty) Limited

Sponsor:
Investec Bank Limited