Scary divisional breakdown
IT WAS REALLY GOOD timing by Africa Cellular Towers (ACTowers) to coincide the release of news about a large Eskom contract with the publication of its annual report. Knowing ACTowers has a R64m contract for three Eskom power line projects in the bag makes reading its latest annual report a slightly less ominous exercise. Incidentally, the Eskom contract is the same value as its trading loss in the year to end-February 2010.
What’s clear from the report’s divisional review is that things haven’t gone swimmingly in its main cellular tower and equipment shelter business in Africa. Not only was turnover down by almost half to R227m but additional competition – from China and India, it seems – also saw trading margins pounded. The report reveals that in the year to end-February this year around 72% of business generated by ACTowers was in Africa – most notably, Nigeria (38%), Ghana (11%), Chad (9%), Sudan (9%), Tanzania (8%) and the Democratic Republic of Congo (7%). Not a great geographic spread (SA represented just 9%) when you’re billing in US dollars during a time of rand strength.
Its core cellular tower segment – which serves mostly African countries – endured a horrendous year, with revenue more than halved to R192m and a loss of R47m against a R22m profit the previous year. Its equipment shelter division – which works hand-in-hand with its towers division – fared even worse. Turnover was down from R75m to R14m.
The performance of ACTowers’ “traditional” businesses would make most investors look hopefully at its newer sectors: power lines and fibre optics. Between those two businesses turnover was not much more than R20m, with a combined loss of around R7m. While its power lines business will benefit from its large Eskom contracts, Finweek wonders whether enthusiasm for this year’s prospects shouldn’t be tempered slightly. In the annual report directors note the power line segment remains a competitive market with “immense pressure on margins when tenders are quoted on”.