ALLIED Technologies (Altech) chief executive Craig Venter will set aside pursuit of large acquisitions to focus on resolving the recurring challenges that face the company’s east African operations, which resulted in losses during the half year to August.
The company has been working towards an acquisition in Latin America to boost its profitable Altech Netstar vehicle tracking business, but Venter told Business Report last week that he had decided to postpone any large deals until he had fixed Altech East Africa.
“Latin America is still on the table… [but] I would rather resolve the east African issues. I don’t want to become distracted with another deal,” he said.
In July Venter initiated a formal process to search for potential partners in the problematic east African unit and said Altech had attracted interest from cellular network operators.
Venter said the discussions were at an advanced stage.
“If we had to fix it on our own, it would not be a quick fix.
“We underestimated the amount of capital required. It involves big labour and big costs. Then we have to fill the fibre-optic cable with data traffic. That comes with time… We underestimated the risks,” he said.
The unit had been affected by a drop of more than 85 percent in bandwidth prices in Kenya due to multiple undersea cables reaching east Africa.
In addition telecoms prices have dropped after Bharti Airtel launched as a major competitor to Vodafone’s Safaricom in the Kenyan market.
Venter said Altech East Africa’s new management had made headway. “Significant internal remedial measures have been taken. The results are visible operationally but you won’t see it now.”
Lehlohonolo Mokenela, an analyst at Frost & Sullivan, said: “It is no doubt a challenge to turn KDN [Kenya Data Networks] back to profitability. I suspect a major issue right now is containing the high expenditure of the unit. It may take some time to do so, but KDN is a major player in the market with a strong brand. I believe it is a concern, but not yet a big one.”
During the six months to August, group operating profit before capital items declined 13.5 percent to R256 million, due to losses incurred in the east and west African operations, the company said last week.
Headline earnings a share fell 19 percent to R1.27 from R1.56 for the first half last year.
Altech said it accounted for the continued losses in the two subsidiaries and decided to further impair the goodwill and carrying values of certain property, plant and equipment and intangible assets within the operations.
Due to the impairments, Altech suffered a pre-tax loss of R485m for the half year.
Altech also said it had also sold its 75 percent stake in the west African operation, which had been making a loss over the past 18 months, as competition and lack of sufficient demand for its product had an impact the company’s performance. The deal has not yet been finalised.
Other units performed to expectation, Altech said, and decoder manufacturing subsidiary Altech UEC had returned to an acceptable profitability level.
Altech had also entered a strategic deal to sell enterprise products and services on behalf of China’s Huawei, a world-leading network and telecoms equipment provider over the next 10 years.
The pair had received verbal confirmation that they had won a R400m South African project, for which they had jointly tendered.
Venter said Altech would announce the details once written confirmation had been received.
Altech shares rose 2.11 percent to R43.50 on Friday.