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Disposal by Altech Autopage Cellular, Trading Statement and Cautionary Announcement
Allied Electronics Corporation Limited
(Registration number 1947/024583/06)
(Incorporated in the Republic of South Africa)
Share code: AEL ISIN: ZAE000191342
Share code: AEN ISIN: ZAE000191359
(“Altron” or “the Company”)
DISPOSAL BY ALTECH AUTOPAGE CELLULAR, A DIVISION OF ALTRON TMT
PROPRIETARY LIMITED (“AUTOPAGE”) OF ITS VODACOM, MTN AND CELL C
SUBSCRIBER BASES, TRADING STATEMENT AND CAUTIONARY ANNOUNCEMENT
1. AUTOPAGE TRANSACTION
INTRODUCTION
Shareholders are referred to the renewal of cautionary announcement released by Altron on the
Stock Exchange News Service (“SENS”) of the JSE Limited (“JSE”) on 5 August 2015 and are
advised that between 22 - 23 September 2015, Autopage entered into formal agreements (“the
Agreements”) with Mobile Telephone Networks (Pty) Ltd (“MTN”), Cell C Service Provider
Company (Pty) Ltd (“Cell C”) and Vodacom (Pty) Ltd ("Vodacom") (collectively “the Purchasers”),
in terms whereby Autopage will, among others, dispose of its GSM subscriber bases to MTN,
Cell C and Vodacom respectively, on terms and conditions more fully set out in the Agreements
and as summarised below (“the Disposal”).
The salient terms and conditions of the Disposal as set out in the Agreements are as follows:
- the closing date of the Disposal will be after the last of the conditions precedent have been
fulfilled or waived, as the case may be, and successful migration of the subscribers from
Autopage to the Purchasers plus bill runs have taken place;
- the purchase price payable by the Purchasers to Autopage and payment dates will be as
described below;
- as the Disposal will constitute a sale of assets for employment law purposes, as opposed
to a sale of a business as a going concern, no Autopage employees will be transferred to
the Purchasers as contemplated in Section 197 of the Labour Relations Act of 1995, as
amended;
- Altron and Autopage will be bound by a 24 month restraint of trade in favour of the
Purchasers, not to compete with them as a cellular service provider in South Africa;
- standard warranties and indemnities against losses and liabilities which the Purchasers
may suffer as a result of warranty breaches and / or third party claims, will be provided by
Autopage;
- disputes pertaining to the Disposal, other than in respect of purchase price adjustments,
will be resolved by binding arbitration; and
- the Agreements will be subject to the law of South Africa.
NATURE OF BUSINESS OF AUTOPAGE
Autopage delivers a range of customised mobile, voice and data solutions to both private and
corporate clients. Autopage is also a provider of internet access, managed VPN/MPLS networks,
managed cloud-based services and website and application development, serving small,
medium and large enterprises.
Autopage is a division of Altron TMT (Pty) Ltd which is a wholly owned subsidiary of Allied
Electronics Corporation Limited, a public company listed on the JSE.
RATIONALE FOR THE DISPOSAL
During September 2014 and following Altron’s announcement on SENS on 26 May 2014
advising that Autopage had entered into a sale agreement with Nashua Mobile (Pty) Ltd
(“Nashua”) to acquire Nashua’s Cell C subscriber base, the Independent Communications
Authority of South Africa (“ICASA”) promulgated certain regulatory changes relating to, inter alia,
mobile termination rate reductions in the GSM industry.
The consequence of these mobile termination rate reductions is that Autopage and the industry
has and will continue at an escalating rate to experience the following increasing pressures,
namely:-
- aggressive market competition to acquire and retain subscribers in a mature market at
much higher costs of acquisition and retention than is currently invested in order to prevent
further customer base and revenue erosion;
- on-going reduction of average revenue per user (ARPU) linked to network bundles at lower
cost to the customer, increased offerings of free voice and free data services, as well as
other free and all inclusive value adds offered by the mobile network operators; and
- rapid growth and migration to cost effective, capped hybrid contracts to the market, at the
expense of uncapped post-paid products, with lower margin prepaid top-up thereby
removing any additional revenue streams through stimulating customer usage.
Accordingly and taking into consideration the impact which, among others, these mobile
termination rate reductions will have on Autopage’s business in the future, the board of
Autopage has, subject to the conditions precedent set out below being fulfilled, agreed to
dispose of its GSM subscriber bases to the Purchasers.
EFFECTIVE DATE OF THE DISPOSAL
The Disposal by Autopage of its MTN, Cell C and Vodacom GSM subscriber bases to MTN, Cell
C and Vodacom respectively will become effective following the fulfilment of the last of the
conditions precedent set out below and in the Agreements.
CONSIDERATION
The cash consideration to be received by Autopage as a result of the Disposal of its MTN, Cell C
and Vodacom GSM subscriber bases to the Purchasers will equal approximately R1 467 million
plus VAT (“the Autopage Disposal Consideration”).
In addition to the Autopage Disposal Consideration payable by the Purchasers to Autopage,
MTN has agreed to purchase Autopage’s handset receivables book pertaining to its subscriber
base for a purchase price of approximately R219 million plus VAT.
Furthermore, Cell C and Vodacom have agreed to the billing and collection of Autopage’s
handset receivables book pertaining to their respective subscriber bases less agreed
administration charges that they may incur.
The Autopage Disposal Consideration will be payable by the Purchasers to Autopage as follows:
1. between 75% (MTN) – 90% (Cell C) on migration of the GSM subscriber bases from
Autopage to the Purchasers, with the balance being payable between 90 – 106 days
thereafter; and
2. any late payments will attract interest thereon at between prime and prime plus 2%.
The Purchasers will be entitled to adjust the Autopage Disposal Consideration in accordance
with an agreed formula as more fully described in the Agreements, which takes into account
various factors including active subscribers, churn and airtime revenues. Any disputes in
respect of adjustments to the Autopage Disposal Consideration will be resolved by an
independent auditing firm acting as an expert and not as an arbitrator.
CONDITIONS PRECEDENT TO THE DISPOSAL
The Disposal is subject to the fulfilment or waiver, as the case may be, of, inter alia, the following
conditions precedent, namely:
- the unconditional approval of the Disposal by the Competition Authorities in terms of the
Competition Act, 1998 as amended, by not later than 120 days from the date of filing;
- the approval of the Disposal by Altron’s shareholders in general meeting and as per the
JSE Listings Requirements, within 60 days from date of signature of the Agreements;
- the approval of the Disposal by the Altron board, within 30 days from the date of signature
of the Agreements; and
- the conclusion of certain service level, prepaid services, handset receivable services and
escrow agreements as more fully described in the Agreements.
APPLICATION OF THE DISPOSAL PROCEEDS
The Autopage Disposal Consideration proceeds and cash realised as a result of the sale of the
handset receivables books will be used to reduce the overall Altron group debt and restore cash
to the Company’s balance sheet.
CATEGORISATION OF THE DISPOSAL AND SHAREHOLDER APPROVAL
In terms of Sections 9.11 to 9.13 of the JSE Listings Requirements the Disposal is classified as
a Category 1 transaction and will require Altron shareholder approval. Accordingly a circular to
shareholders will be posted within 60 days of the date of this announcement containing, inter
alia, a notice of general meeting.
2. TRADING STATEMENT
Shareholders are referred to the Company’s trading statement released on SENS on 22 July
2015 and are advised as follows:
The Altron TMT division (telecommunications, multi-media and IT businesses) has experienced
a decline in profit levels notwithstanding a pleasing performance by its IT businesses, which was
insufficient to offset the deterioration in the telecommunications and multimedia businesses. In
particular:
- the IT businesses continued their consistent performance of delivering better than
anticipated results, with the international operations in particular posting pleasing results;
- the Multimedia division continued to be significantly impacted by a combination of reduced
order intake in its core set top box business in Africa, as well as on-going delays regarding
the roll-out of the South Africa digital terrestrial television migration program. Management
continues to right size this business both locally and globally, as well as explore alternative
manufacturing opportunities for this operation;
- the disappointing retail customer take-up of Altech Node following its launch in September
2014, coupled with the termination of discussions and negotiations with a third party to
acquire this business resulted in management taking the decision to close this business
with effect from the end of October 2015. While the Company will retain and continue to
use this technology within the group in the future, the Altech Node services will be
terminated and active subscribers refunded a portion of the purchase price of their Altech
Node devices as communicated to subscribers; and
- the Autopage business continued to decline, primarily due to substantially higher factoring
costs, while the GSM subscriber bases have been disposed of as per the announcement
in 1. above.
The Altron Power division (Powertech businesses) and in particular Powertech Transformers
continued to experience a marked deterioration in their performance predominantly as a result of
difficult macro-economic conditions and the various challenges created by Eskom’s current
position. More specifically:
- the transformers division experienced an extremely challenging half-year, posting a
substantial loss. This was caused by negligible order inflows from its largest customer,
Eskom, particularly in the large units, which also contributed to poor productivity levels.
The imminent designation of transformers should assist going forward, but the resumption
of normal purchasing patterns from Eskom is critical to the future success of this business;
and
- the local cables operation was negatively affected by the decline in the copper price during
August 2015, as well as by weak demand from the building and construction sector, in
addition to the Eskom challenges referred to above.
The above factors resulted in a number of impairments having to be accounted for, particularly in
respect of the Altech Node closure, as well as reflecting the weak trading environment the
Powertech businesses are operating in and the uncertainty over the timing of a recovery to more
normal activity levels.
Accordingly, shareholders are advised that a reasonable degree of certainty exists that the
Company’s headline earnings per share for the period ended 31 August 2015 is expected to be
a loss of between 60 cents – 70 cents (between 183% and 197%) lower as against the previous
corresponding period (a profit of 72 cents). Basic earnings per share which incorporates various
significant impairments is expected to be a loss of between 148 cents – 158 cents (between
355% and 372%) lower as against the previous corresponding period (a profit of 58 cents).
Altron’s interim financial results for the half-year ended 31 August 2015 are expected to be
announced on or about Wednesday, 7 October 2015.
This trading statement has not been reviewed or reported on by Altron’s external auditor.
3. CAUTIONARY ANNOUNCEMENT
Notwithstanding the renewal of cautionary announcement released on SENS on 5 August 2015
and the subsequent successful conclusion of the negotiations with the mobile network operators
as referred to in the announcement in 1. above, shareholders are advised to continue exercising
caution when dealing in Altron’s securities as the Company remains in further, unrelated
discussions and negotiations, which if successfully concluded, may have a material effect on the
price of Altron’s securities.
By order of the board of the Company
Johannesburg
23 September 2015
Sponsor and Investment Bank
Investec Bank Limited
Date: 23/09/2015 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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