Altron, a prominent ICT group and the owner of vehicle tracker Netstar reported strong revenue growth for its fiscal year 2023. Despite experiencing earnings pressure as a result of previous legal battles, the company remains confident in its new “customer-centric” growth strategy and the growing demand for digitalization among businesses.
Altron’s group revenue increased by 14% during the fiscal year ending in February, totalling R10.9 billion. However, core profit fell by 4%, reaching approximately R1 billion. The need for an R134 million provision to account for potential nonpayment resulting from a contentious contract with the City of Tshwane was primarily responsible for the decline. In a recent presentation to investors, CEO Werner Kapp emphasised the organization’s commitment to implementing a “customer obsession” approach at all levels. In a world with billions of smartphones, he noted that South African businesses are still racing to embrace digitalization.
Altron, which has a market capitalization of more than R3 billion on the JSE, has traditionally focused on selling hardware and electronic products. The company, on the other hand, has been actively pursuing a transition to professional services, assisting organisations in planning and implementing their technological requirements.
Altron allocated 88% of its R472 million budget to growth initiatives in the fiscal year 2023, according to Kapp, and plans to maintain a similar investment ratio in 2024. To explore cross-selling opportunities, the company is strategically targeting its top 40 customers. Furthermore, as part of its new growth-focused strategy, Altron has improved sales incentives for its employees and implemented metrics to continuously gauge customer satisfaction.
However, Altron suffered a setback as a result of its involvement with the City of Tshwane, which resulted in the provision of R134 million. The Auditor General expressed concerns about the city’s financial stability, questioning its ability to meet its financial obligations. Kapp emphasised that the provision reflects the group’s conservative approach. Following a lengthy legal battle, Altron is still awaiting payment from Tshwane.
In 2015, the City of Tshwane, which was then controlled by the ANC, awarded Altron a contract worth more than R1 billion for the installation of a municipal fibre broadband network. The contract, however, was halted shortly after the DA city government took power, citing procedural irregularities in its awarding. Following that, the case was heard in court, where the Constitutional Court ruled in favour of Altron in May 2021, upholding the validity and enforceability of its broadband agreement with the metro. As a result, Altron was given permission to collect R309 million in contract debt.
Altron clarified that the provision was made solely for accounting purposes and does not imply a waiver or abandonment of its rights and claims against the City of Tshwane.
Altron increased its dividend to 35 cents per share in 2023, up from 30 cents in 2022. However, management acknowledges that the industry will continue to face challenges, such as load shedding, inflationary pressures, and currency fluctuations, which will have an impact on Altron and its customers’ businesses.
While Altron’s stock rose nearly 3% on Monday morning, it has dropped more than 9% in the last year.
In conclusion, despite experiencing earnings pressure as a result of previous legal battles, Altron remains committed to its growth strategy. The company intends to capitalise on the growing demand for digitalization by taking a customer-centric approach, increasing investment in growth initiatives, and focusing on providing superior services. However, challenges remain, including uncertainty about the financial stability of the City of Tshwane and external industry factors affecting Altron and its customers.
