Despite these poor numbers, lots to like about Altron – Node included

It has taken the second generation of Venters years to consolidate the empire which patriarch Bill built. But with the minorities now having been bought out in Bytes and Altech, today there's just a single entry point into the group – and the fruits are starting to show, at least internally. CEO Robbie Venter says the bottom line for the six months to end August was badly hit by the NUMSA strike and the continued delay in Government's promised infrastructure rollout, but he's encouraged by prospects. Specifically those from the reorganisation. The first major project stemming from the consolidation has already been born – the group's video-on-demand Node satellite TV offering. Altron shares are tightly held but at a price:earnings of around 12 are not on a demanding rating. The group is always trying new ideas. A home run cannot be too far away. Perhaps the innovative, collaborative Node is it.  – AH

ALEC HOGG: Welcome back to Power Lunch. Altron's revenue rose six percent to just over 14-billion in the six months to the end of August and the numbers, though (the bottom line) in normalised headlines earnings per share is down by 21 percent. Joining us in the studio to have a look at the numbers is the Chief Executive, Robbie Venter. Robbie, I see the share price is down six percent today. It reminds me that during the info scandal, when a former colleague of mine phoned Louis Luyt, whose share price had dropped 40 percent when the news broke and the reason he wrote in the Rand Daily Mail, was that the price had dropped by R1bn in market cap on the info scandal when there were 100 shares that traded. You're down six percent, but there's R26, 000.00 worth of trade so I suppose this is not too concerning but generally, the numbers won't be too enthusiastic.

ROBBIE VENTER: Yes, Alec. I think we did see some situations in the first six months of this year that were disappointing. The NUMSA strike, which impacted us quite heavily…

ALEC HOGG: How badly?

ROBBIE VENTER: Well, if you adjusted and stripped out the effect of that, we would have been roughly flat with last year. At an EBITDA level, we would have been flat and at headline earnings per share level, I think it's about minus three percent, if you adjust for the impact of the NUMSA strike. That impact was primarily on the Power Tech businesses, which are manufacturing-driven. It was an industry situation, so we were not uniquely singled out or anything like that. The steel and engineering industry across the board was impacted by this and we had a slight impact at UEC as well, although not as big as at Power Tech.

ALEC HOGG: You've worked hard to diversify geographically. It hasn't always worked out but now, I suppose, are you looking at perhaps diversifying geographically, more aggressively, given these labour issues?

ROBBIE VENTER: Yes, I think that as a country, we are in a really challenged environment in the labour part of things, if you look at what's happened over the last 12 months. It's something we all have to work to get right. There has to be a better working relationship between labour and business, going forward.

ALEC HOGG: How are you doing? You can't just sit back and let these strikes knock your profits to nothing.

ROBBIE VENTER: Yes. We obviously engage very closely with the union at our particular sites, build relationships with that area, and try to deal with the issues that we're facing. I think the agreement was signed. It's a three-year agreement, so the good news is that we won't have another wage negotiation for another three years. The agreement is fixed for the next three years.

ALEC HOGG: That's if AMCU doesn't get involved in your industry.

ROBBIE VENTER: Exactly.

ALEC HOGG: Different unions have different rules.

ROBBIE VENTER: Exactly.

ALEC HOGG: It was interesting to see – on the brighter side – your node launch. You've gone big on that one. I didn't quite understand the strategy because you do make Set Top boxes for everybody else, but now it looks as though you're challenging them or taking them on. What exactly is the strategy in that field?

ROBBIE VENTER: We very clearly see it as a separate product to the normal Set Top box, which provides you with live TV and sport etcetera, so all of the content that we have, will not compete with that area at all. The one area it does compete with is the Box Office offering from one of our customers. We've obviously had discussions with them and they've given us commitments that they're going to continue to support us. They've said – publicly – that they don't see it as a big issue. There are a number of other 'video on demand' products that have come out as well in recent times, so the market is moving and we're obviously trying to take advantage of that.

ALEC HOGG: Why not Netflix? Bring them to South Africa because it seems as though you're doing something similar?

ROBBIE VENTER: The main rationale there is that the Netflix offering is an online offering, so it requires significant bandwidth to get the kind of quality that's required. Our product is not dependant on your bandwidth speeds. It's basically, downloading from the satellite so you're able to get High Definition content on a 'push and play' basis, as opposed to buffering it, which would be required for that kind of definition in the online environment.

ALEC HOGG: How has the market reacted?

ROBBIE VENTER: I think we're getting good reviews on the product. Its early days, so we really can't say whether we're being successful or not yet, but we're really comfortable. For me, the nice thing is that it encompasses eight companies in the Altron Group and that would never have been possible in times gone by, before we took out the minorities at Bytes and Altech. Now, owning 100 percent and that collaboration working…everything from the payment system, to the call centre, to the software development, to the manufacturer of the box: those are basically, done in-house. That's very encouraging to see. We own all of the IPR's, so it's really encouraging to see that coming together as part of the original strategy to move Altron to more of an operating company as opposed to an investment holding company.

ALEC HOGG: And this is the first set of numbers that you've actually gotten everybody together in. One would have hoped that you start seeing some benefits, but I guess the NUMSA strike as you've just explained, was one of the reasons why not.

ROBBIE VENTER: Altech was in August of last year, so our February numbers were included, not for a full year but for a half-year period and we saw some nice growth at the full-year period. Obviously, the first six months were impacted by the NUMSA strike as well as a general softness in the public sector infrastructure demand, where we've really seen that that's not happening as quickly as what we would want to see it happening. Obviously, that has to happen. It will happen. In the medium-term that looks good but right now, I think there are many challenges in some of the public sector areas, such as funding etcetera.

ALEC HOGG: Exactly. It will happen if the funding comes forward. We know we have the mini-budget where our poor Finance Minister has been under a bit of a hospital pass, it seems.

Robbie, just to close off with, one of the issues that is now hopefully behind you, is East Africa. Again, that you did mention that there was a write back of R45m repatriation costs, etcetera. Is that it now?

ROBBIE VENTER: That was the prior year, so that occurred in the first six months of last year. That's why, in a comparable period, there was nothing in this period but obviously, we adjusted for that in the prior period so to be consistent, we have to keep that adjustment there for the prior period.

ALEC HOGG: So that's behind you. What I did like, and I'm sure shareholders are going to enjoy the way that your cash management now seems to be – much more focused, working capital, and not sucking as much in as before… Are you looking at dividend distributions growing or are you keeping that cash handy for further acquisitions?

ROBBIE VENTER: No, I think we said at the time of taking on a bit of the additional debt when we acquired the Altech minorities that our dividend policy would remain consistent with what it has been in the past, which is a cover of about two-point-three-times earnings. That's why we didn't declare a dividend at the interim period, but we never do declare at the dividend. We never have. We pay one dividend at the end of the financial year and the Board obviously takes that final decision, but where I stand right now, we're looking to keep our dividend cover consistent with the past.

ALEC HOGG: And write off or try to write down that debt.

ROBBIE VENTER: I think that during the first six months, we looked very carefully at our asset portfolio as well, so we divested quite a few assets in the first six months, but we acquired quite a few assets in the first six months as well. We're continually looking at the portfolio, deciding what's core and what's not core, and then deciding on whether you want to realise some cash in that area. Not selling for the wrong reasons, but for strategically, the right reasons.

ALEC HOGG: Robbie Venter, I hope you have yourself a winner on the Node. It will be interesting to watch how that develops, but it certainly is the sign of entrepreneurial management where they do have a go from time to time. They don't always hit home runs, but who knows when the next home run is going to come?