investor presentation - welcome to altech group | altech … financial highlights • revenue r5...

Investor presentation for the six months ended 31 August 2012

2

Agenda

Half year in review •  Craig Venter

Divisional reviews •  Tim Ellis •  Johan Klein •  Dr John Carstens

Group financial results •  Dr John Carstens

Altech growth strategy •  Dr Willie Oosthuysen

Future outlook •  Craig Venter

Half year in review Craig Venter

4

Financial highlights

•  Revenue R5 157m

•  EBITDA R372m

•  EBITDA margin 7.2%

•  Operating profit before capital items R256m

•  Operating profit margin 5%

•  Loss before tax (due to impairments) R485m

•  Adjusted HEPS 139 cents

•  Return on shareholders’ equity 22.6%

•  Working capital movement positive

5

Half year in review

•  Despite tough trading conditions, Altech’s local businesses reported good results for the six months

ended 31 August 2012

•  The results continued to be negatively impacted by the performance of Altech East Africa and West

Africa

•  Constitutional Court dismisses the Tracetec appeal application, with costs, in favour of Altech

Netstar

•  Altech shares are currently trading under a cautionary announcement which was published on 19

September 2012

6

Altech West Africa

What went wrong? •  Demand for its paper recharge vouchers for cellular operators declined •  Customer requirements for plastic chip card products delayed •  High turnover at top and senior management levels in Nigeria •  Product technology changes not anticipated timeously •  Losses incurred in the past 18 months •  Loss of import protection in Nigeria •  Pioneer tax status has now expired

How has it been addressed? •  Formal disposal processes initiated in May 2012 •  Sale agreement signed in September 2012 •  Due to the elimination of the losses, this will be earnings enhancing

Greenfield operation started by Altech in 2005 – highly profitable for five years Enjoyed advantageous “Pioneer” tax status and import protection for this period Based on NamITech SA experience, and the technology curve, it was always intended that Altech would exit at some point

7

Altech East Africa

What went wrong? •  Risks involved in entering new geographical area and new area of activity (network operator) •  Capital intensive business •  Altech’s proven controls and governance not rigorously adhered to •  Project management, execution and quality control •  Collapse in international bandwidth selling prices due to several submarine cables landing simultaneously •  Loss of key customers due to poor customer service and network reliability issues •  Failure to adapt strategy, to provide dark fibre services – as a result, competed with some key customers •  Corporate decisions based on incorrect, non-factual information provided by local management •  Interest and exchange rate volatility negatively impacted on cost of funding and financial results

How has it been addressed? •  Significant Altech corporate involvement •  Certain assets now impaired •  International bandwidth also impaired •  Internal remedial measures taken and results already visible operationally, but not yet financially •  Formal process to identify and engage with network operators and related potential partners, initiated in July

2012

Acquisition of 51% by Altech in 2008 – strategy to elevate up the telecoms value chain Profitable each year, for two consecutive years after acquisition

Divisional reviews

Converged Services Tim Ellis

10 10

Converged Services – Local

Altech Fleetcall • Net billable connections increased despite adverse market conditions in freight, logistics, mining and infrastructure sectors

Altech Alcom Matomo • Delays in finalising contracts impacted revenue • Knowledge of, and access to, leading-edge technology ensures market leadership

• Opportunities in traditional and emerging markets in both public and private sectors

Rm 31 August 2012 Unaudited

31 August 2011 Unaudited

Revenue 172 179 Operating profit 26 26 EBITDA 27 26 EBITDA margin 15.7% 14.5%

Altech Alcom Radio Distributors • Increased competition impacted trading conditions and revenue – customers continue to prolong their analogue asset use

• Challenge to migrate customers to superior digital solutions with analogues’ growing commoditisation

• Driving appointment of higher tier channel partners to access new vertical markets and continue to focus on digital system sales

Converged Services | Telecommunications | Information Technology | Multi-media and Electronics

11 11

Converged Services – International

Altech Stream East Africa • Positive improvements to network stability and data centre performance have recently resulted in improved customer services and acquisition

• Regional resource deployment and collaboration has strengthened sales and technical expertise

• KDN network stability recently improved from 83% to current 98% – targeting industry standards of 99.9%

• First floor of data centre sold out and customers are requesting additional capacity



Revenue 140 217 Operating profit (89) 1 EBITDA (53) 42 EBITDA margin (37.9)% 19.4%


Telecommunications Johan Klein

13 13

Altech Autopage Cellular

• Marginal revenue increase due to GSM and ISP revenue contraction, however, prepaid and VAS revenues increased

• Expense management remains a key focus • ARPU down by 12.5% as a result of hybrid tariffs, attractive network price plans and consumer pressure, but profitability maintained due to back office integration, increased data and VAS

• GSM data ›  26% growth in subscribers ›  Significant reduction in customer churn

• Subscribers grew by 38 930



Revenue 3 032 3 024 Operating profit 112 108 EBITDA 122 118 EBITDA margin 4% 3.9%

Altech Technology Concepts (ATC) • Integration into Altech Autopage Cellular complete with fully functional back office and customer-facing touch points

• First converged product successfully launched to Altech Autopage Cellular customer base

• Opportunity for further efficiency and cost savings as well as additional distribution channels post ATC integration


14 14

Altech Netstar

• Good growth in the government market – awarded numerous contracts (Ladysmith and Potchefstroom Municipalities and Gauteng Department of Agriculture, etc.)

• Received contract from a road agency to supply a traffic data system (R17m)

• Agreement with vehicle manufacturer to deploy Altech Netstar Traffic information in vehicle navigation systems

• Low cost GSM/GPS tracking product launched to protect against potential churn in a specific market

• Launched an in-house bureau service




• Numerous fleet management products launched including two new products ›  Remote locking system for cargo transportation ›  In-vehicle video solution

• A TV traffic broadcasting licence acquired and a traffic system will be broadcast during Sept 2012

• Altech Netstar now operating in 21 countries


Information Technology Johan Klein

16 16

Information Technology

Altech ISIS • Operating profit marginally declined due to project commencement delays – currently being addressed

• Innovative solutions have allowed expansion into non-traditional markets

Altech Card Solutions • Good results but slightly down due to exceptional performance in prior period

• Good opportunities exist with the roll out of Altech Eyenza Mobile Money in Q4

Altech Swisttech • Expansion into mobile apps has resulted in new contracts, offsetting margin pressure



Revenue 376 372 Operating profit 14 36 EBITDA 30 51 EBITDA margin 8% 13.7%

Altech NuPay • Key objectives achieved with the NuCard product exceeding all targets

• Opportunity to supplement product through addition of a mobile payment channel through Altech Eyenza

Altech West Africa • Losses continued for this period • Sale agreement signed


Multi-media and Electronics Dr John Carstens

18 18

Arrow Altech Distribution

• Delivered commendable performance in difficult market conditions

• Maintained 30% market share despite competition and volatile exchange rates

• Maximised penetration on bills of material through focused demand creation

• Successfully increased product demand through demand creation strategy



Revenue 172 176 Operating profit 11 15 EBITDA 12 16 EBITDA margin 7% 9.1%

• Distribution agreement concluded with Microsoft Windows Embedded for the Original Equipment Manufacturer (OEM) market

• Opportunity to grow Harness Accessory and Interconnect products in the defence and aerospace markets


19 19

Altech Multimedia





• Good progress made with transforming business from manufacturing focus to a solutions-based business

• Broadband availability has resulted in convergence across multiple devices, including mobile and STBs, for digital media distribution

• Focus on R&D internationally and improved supply chain management through a sourcing centre in Shenzhen, southern China

• DTT RFP submitted on 14 September, Altech UEC well positioned and awaiting decision

• Business regions include African, European and Australian markets ›  Delivered 141 000 STBs to Australian market

(DTT) ›  Deployed 1.2m Free-to-Air STBs in Germany ›  Deployed 200 000 HD-PVRs in Turkey ›  FetchTV (Bharain, Saudi Arabia, Malaysia and

Australia etc.) order being executed to the value of R400 over 3 years

• Opportunity to expand core business with the growth of MultiChoice Dstv and the new GoTV service across Africa

Group financial results Dr John Carstens

21

Revenue

4 533 4 732 4 788 4 828 5 157

4 631 4 468 4 863 5 144

0

2 000

4 000

6 000

8 000

10 000

12 000

2009 2010 2011 2012 2013

Rm

H1 H2 •  Annuity income: 83% •  Local vs foreign revenue at 87%:13%

8 243 9 164 9 200 9 972

22

EBITDA

486 580 507 424 372

580 585

565 495

0

200

400

600

800

1 000

1 200

1 400

2009 2010 2011 2012 2013

Rm

H1 H2

1 066 1 165

1 072

919

23

Segmental financial performance – Revenue

58%

10%

3% 3%

19%

7%

Revenue – August 2012

Telecoms: Altech Autopage Cellular Telecoms: Altech Netstar Converged Services: International Converged Services: Local Multi-media and Electronics Information Technology

61% 10%

4%

4%

13%

8%

Revenue – August 2011

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Segmental financial performance – EBITDA

33%

44%

-14%

8%

21%

8%

EBITDA – August 2012

Telecoms: Altech Autopage Cellular Telecoms: Altech Netstar Converged Services: International Converged Services: Local Multi-media and Electronics Information Technology

26%

35%

9%

6%

13%

11%

EBITDA – August 2011

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Detailed segmental information

Rm Revenue EBITDA

1H2013 1H2012 1H2013 1H2012

Altech Autopage Cellular 3 032 3 024 122 118 Altech Netstar 518 498 160 159 Converged Services – International 140 217 (53) 42 Altech Fleetcall 35 32 12 13 Altech Alcom Matomo 60 69 8 5 Altech Alcom Radio Distributors 77 77 7 8 Altech UEC 803 461 65 42 Arrow Altech Distribution 172 176 12 16 Altech West Africa 44 60 (10) 1 Altech ISIS 71 68 14 16 Altech Card Solutions 170 165 19 28 Altech NuPay 76 68 4 2 Altech Swisttech 14 12 4 4

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Summarised consolidated statements of comprehensive income



Revenue 5 157 4 828 EBITDA 372 456 Depreciation and amortisation (116) (160) Net finance cost (65) (22) EBITDA before Capital Items 191 274 Capital Items (676) (13)

(Loss)/profit before taxation (485) 261 Taxation (101) (89) STC - (35)

(Loss)/profit for the period (586) 137 Non-controlling interest (284) (1)

(Loss)/profit for the period to equity holders (302) 136 Weighted average shares in issue (‘000) 97 549 97 479 HEPS (cents) 127 156 Adjusted HEPS (cents) 139 181

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Summarised consolidated statements of financial position


29 February 2012 Audited

Fixed assets 621 886 Goodwill and intangible assets 421 693 Deferred taxation 44 39 Non-current receivables 182 114 Assets classified as held-for-sale 85 135 Current assets 2 385 2 222 §  Inventories 483 449 §  Trade and other receivables 1 595 1 497 §  Cash and cash equivalents 307 276

Total assets 3 738 4 089 Liabilities classified as held-for-sale (85) (67) Deferred taxation (63) (43) Bank overdraft (423) (292) Other liabilities (2 513) (2 251)

Total equity 654 1 433

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Summarised consolidated statements of cash flows



29 February 2012 Audited

Cash generated by operations 431 423 965 Movements in working capital 105 (90) (416) Net financial expenses (65) (22) (59) Taxation paid (99) (222) (329) Cash from operating activities 372 89 161 Dividends paid (246) (359) (359) Other activities (226) (85) (276) Cash decrease (100) (185) (474) Opening balance (16) 458 458 Closing balance (116) 273 (16)

Altech growth strategy Dr Willie Oosthuysen

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Strategic key areas

Focus on 3 major areas for IT services delivered in the group 1.  Productivity increases 2.  Cost reduction 3.  Risk mitigation

Progress Update •  8 largest operations part of

enterprise network infrastructure

•  Group HR system – first part payroll completed

•  Ready to start implementation of “Project One Cloud”

•  Group shared services roadmap in place

•  Multiple benefits from a converged business model across all operations

•  Long-term objective ›  to optimise utilisation and

monetisation of existing group assets

Progress Update •  Altech Netstar call centre will go

live in November on new group standard

•  Progress made on Altech group wide consolidation of call centres – currently 12. Significant cost savings

•  Majority of operations now billed by Altech Autopage Cellular as service provider – all to be completed by end of February 2013

•  Identify incremental growth areas

Qualification, quantification and prioritisation of 1.  Strategic growth drivers 2.  Assessing potential

investments 3.  Aligning M&A activities

Work Stream 2 “Project Convergence”

Work Stream 1 “Project One Cloud”

Work Stream 3 “Project Cumulus”

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Major sustainable growth areas

Reinforce existing strengths and harness cross-company assets •  Establishment of growth office

completed to govern and oversee: ›  Collaborative projects

leveraging capabilities of multiple units – organic growth

›  Huawei agreement signed – cloud and vertical solutions

›  Transport payment system pilot on the way

•  Creation of an innovation centre to build on future trends efficiently

Accelerate growth momentum •  Engagement in JVs and

acquisitions catalytic to our four major growth platforms – main focus Altech Netstar

•  Commission of cross-company team led by CEO – A major consulting firm was appointed to support and capacitate this team

Professional services

Manufacturing of Next Generation

STBs (DTT) Existing growth

initiatives

Big bets on emerging trends Big bets in adjacent markets and geographies

E-education

Virtual textbooks

Mobile advertising

E-government

E-education

E-health

Cloud computing

Transport payment system

Mobile payments

Telematics services on global scale

M2M industrial applications

Smart mobility

M2M smart grid

M2M home

M2M retail

M2M supply chain Energy

efficiency

Future outlook Craig Venter

33

Future outlook

Group’s increased emphasis is on profitable growth of the top line

Cost control, cost reductions and working capital remain key focus areas

Altech has entered into a Value Added Partner (VAP) agreement with Huawei of China

Altech’s core activities remain strong and Altech is confident that it will return to its normal pattern of growth and profitability

Altech will continue to evaluate acquisition and partnership opportunities

Thank you

Appendix

36

Glossary of terms

ARPU Average Revenue Per User

ATC Altech Technology Concepts

B-BBEE Broad-Based Black Economic Empowerment

CEO Chief Executive Officer

DTT Digital Terrestrial Television

EBITDA Earnings before interest, depreciation & amortisation

HEPS Headline earnings per share

HR Human Resources

ISP Internet Service Provider

KDN Kenya Data Networks

M2M Machine-to-Machine

PVR Personal Video Recorder

STB Set-Top Box

* Not in presentation

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