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The Finance Ghost welcomes Altron CEO Werner Kapp fresh off a standout capital markets day that left a strong impression: this is a business whose growth story isn’t tightly tethered to South Africa’s traditional economic constraints. From FinTech and HealthTech to telematics and IT security, Altron operates a portfolio of platform businesses that quietly underpin everyday life, even if most consumers don’t realise it!

In this conversation, Werner unpacks how these platforms drive resilient, annuity-style revenues, while also leaning into powerful structural tailwinds like digitisation, mobile adoption and the evolution of the payments ecosystem.

The discussion goes deeper into the mechanics of the Altron model. From competitive moats built over decades, to the strategic role of data, AI and capital allocation across a diversified platform base, there’s much to discuss. Werner also explains the thinking behind the group’s AI factory, its disciplined approach to growth vs margins, and why regulatory change in FinTech could unlock meaningful upside.

This is a rare, detailed look inside a South African tech business that touches millions of lives every day.

Topics in this podcast:

• Why Altron’s platform businesses can grow independently of SA GDP constraints
• The difference between platform vs IT services exposure to economic cycles
• Real-world examples of how Altron products are used daily (IDs, payments, healthcare, vehicle tracking)
• South Africa’s digital adoption curve and key structural tailwinds
• The impact of payments modernisation (PayShap, SARB reforms) on FinTech
• Building and defending a moat through data, distribution and embedded systems
• How Altron uses cross-platform data insights to enhance value
• The role and strategy behind the AI factory (and why it’s not a GPU business)
• Managing capital allocation across multiple platforms with a strong annuity base
• Growth vs margin trade-offs in a competitive tech landscape
• Netstar dynamics: OEM channels, Chinese vehicle growth and market shifts
• Fintech upside from potential direct access to payment rails
• Why Altron’s 91% annuity revenue model is central to its investment case

This podcast has been sponsored by Altron. As always, I was allowed to ask whatever I felt is relevant to investors. Please do your own research and treat this as only one part of your research process. Please always speak to a financial advisor before making any investments.

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Transcript:

The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. I must apologise for my voice. I have a cold. So doing my best here.

Someone else who’s certainly been doing their best and doesn’t appear to have a cold is the team at Altron. They are fresh off a very impressive, highly insightful capital markets day. I must say I really, really enjoyed it.

To talk to us here today, we have Werner Kapp. He is the CEO of Altron. He’s going to take us through some of the themes in the group strategy, some of the stuff that came through from the capital markets day, which I must say, I thoroughly enjoyed listening to. I attended online.

I always applaud companies who take the step of a capital markets day and actually make it publicly available. So well done. It’s always so good for the broader investor community to just get a sense of what’s going on.

The key message that I took out from it was that Altron’s growth is not constrained by many of the factors that we are so accustomed to in South Africa. GDP growth, infrastructure investment, all that kind of stuff doesn’t seem to be much of a constraint in your world.

And that’s because the digital world is just so different. It’s got exciting adoption curves; it’s got lots of opportunities linked to data. Very excited to hear more about these things on this podcast. So welcome, Werner. Thank you so much.

And would you say that my key takeout from the day is an accurate view on things?

Werner Kapp: Firstly, thank you very much for having me. I’m a big fan of your show, so it’s really nice to be on it. Glad that you enjoyed the capital markets day. I think it’s a fantastically accurate description.

I think probably the only thing to zone in on would be that I think it’s particularly our platform businesses that are not necessarily constrained by the structural economy.

I think our IT services businesses (so those are the businesses that provide IT services to large public and private sector enterprises) – they are impacted by consumer confidence, business confidence, fixed capital investment. So all the normal structural GDP.

But because of the role that our platform businesses play specifically in digitisation across the economy, but particularly the informal segment, yes, I think it is an accurate description.

That’s obviously why we are delighted to have been able to produce the kind of results that we have and why we are really, really excited about the business going forward.

It’s a great opportunity, not just for us, but for the country as well. And I think digitisation has the opportunity to close that digital divide over time.

The Finance Ghost: Yeah, absolutely. No company is an island, but you do have a very large boat. So it does seem to be quite an encouraging story right now.

So, I think let’s dig into more elements then of what we saw yesterday and just where the business is at the moment.

Something quite interesting – obviously I look at everything across the market, and the JSE remains a market where I think the more traditional sectors like mining and retail, they get a lot of attention.

We just don’t have that tech culture that you’ll see on the NASDAQ and those sort of places. And yet we use technology every single day in just about every single thing that we do.

One of the more powerful messages that you delivered during that capital markets day was the extent to which Altron’s services are so ingrained in our daily lives. I found that very interesting. It’s these platform businesses that you speak of, right? We actually see and touch them all the time. We just don’t realise it.

So perhaps you could give the listeners just an overview of the Altron group. Very high level – people can obviously go read that for themselves. And then perhaps more importantly, those real-world examples of how we actually use your products every day in South Africa.

Werner Kapp: That’s probably one of the things I like the most about Altron and one of the things that really excited me most about the opportunity when I first joined the group.

At corporate level, at a high level we’ve got what we call platform and IT services businesses. Our platform business is Netstar, a well-known consumer brand in stolen vehicle recovery, and in telematics.  

Then we’ve got our FinTech business and our HealthTech business, and our IT services businesses are Altron Document Solutions, which is a managed print business. It’s the Xerox partner for South Africa and a couple of other African countries.

Altron Digital Business, which is a systems integration business, and Altron Security. And then we have a joint venture with a global company called Altron Arrow, which is an electronic sub-component business. That’s the corporate side of it.

I think the cool side of it, that a lot of South Africans probably don’t know about engaging with Altron on a daily basis and how we enable things – I’ll give you four practical examples.

The most practical one is your smart ID card that you carry around with you. There are about 27 million smart ID cards in South Africa in issue, printed by us, and your biometric data is securely encrypted on that card by Altron. So that’s the first one.

If you go to a private practitioner, if you or your family go to a doctor, there’s about a 45% chance that your physician would run our private practice management system. So that appointment is facilitated. About 60% of the healthcare transactions in South Africa gets done on our switch.

So, 60% chance that if you’re on private health care, that the facilitation of that payment, of your appointment by the medical aid or getting your medicine for that cough of yours later today at the local pharmacy: that payment would be facilitated by our switch.

We’ve got about a million people whose safety – both from a vehicle perspective, assets and family – if you’re a Netstar subscriber, we’re tracking what you’re doing – we track about 170 million km on a daily basis of vehicles and assets across the country.

My kids, by the way, they’re writing exams right now. I guess like most kids in the country. It’s a really good chance that the exam papers – we printed about 500 million exam pages last year.

And then probably the last one is – and you can keep an eye out for it, by the way, next time you’re at your local coffee shop, drive through, a number of clothing retailers – that payment system is facilitated by Altron. If you look at your payment device, you may see an Altron logo on it.

I went Christmas shopping a while back in a well-known shopping centre in Joburg. Three or four of the places where we bought Christmas gifts, the payment was done on an Altron card machine.

The Finance Ghost: It is a really, really big business and it touches so many elements of our daily life, which I really enjoy.

And something else that came through in that capital markets day, which then explains just why this is all possible, is that the South African population is actually quite digitally savvy.

And I agree with that. You’re obviously seeing it every day, but I mean, even just my own perception, it does make sense. And that is such a key ingredient for what you are doing. Things like the shift towards a cashless economy, those sorts of trends. Digital IDs as you say, just take us through some of these growth tailwinds in our country, what you mean by comments like South Africans are digitally savvy, and then obviously how the broader Altron Group is actually positioned to maximise the opportunities that flow from this.

Werner Kapp: I think we’re one of the countries with the highest mobile penetration rate. Across the board, you see people, whether they’re standing outside taxi ranks, whether it’s us in corporates in queues, people are forever on their mobile phones, very digitally savvy.

People are listening to podcasts like yourselves on their phones, consuming apps all the time, etc. So, I think just that and the fact that we have a very good connectivity infrastructure in South Africa.

There are world-class data centres, there’s a very good connectivity infrastructure. We’ve got a significant amount of capacity coming from subsea cables across both the east and the western coast of the African continent.

So, I think when you combine those two (which by the way is something you see in emerging markets across the world, but I think it’s particularly prevalent in South Africa), you get this adoption. People are very, very happy to use digital solutions rather than physical solutions.

And what’s happening in South Africa is a couple of things and you’ve touched on it.

One is the Payments Ecosystem Modernisation project, which the South African Reserve Bank launched a while back. I mean you would have seen PayInc and the PayShap rails that were really introduced.

And what that does is really open up some of the payment activities in South Africa, really to stimulate particularly sort of fintechs in that informal economy. Some of the costs can be quite prohibitive for both the consumers of that service and the merchants.

So, we certainly see that as a great opportunity because obviously if you add the deregulation, we certainly intend to apply for some of those payment activities. It’s being gazetted right now. So, we believe that we’ll have the opportunity to do that by the end of this year.

You’ve touched on it, been in the news quite a lot recently: we’ve seen the Minister of Home Affairs talk about a digital national identity. Sunday evening, we saw President Ramaphosa, for example, speak about some of the challenges with illegal immigrant workers in South Africa and the fact that they want to bring the old green ID book and passport to an end. There’s an opportunity for us.

MyMzansi is another example where I think the South African government has also realised that they can improve services to us as citizens through the use of digitisation, which really goes beyond some of the physical constraints and some of the public service constraints that we have in the country.

Certainly they are spaces that we play in. And also, public and private healthcare. Although our HealthTech business primarily plays in private practice. But we do think because of the data records that we have – we’ve got data records of about 15 million people in South Africa – we also think should there be NHI (and NHI will be absolutely dependent, by the way, on electronic data records), we think we’re well positioned for that opportunity as well.

The Finance Ghost: Absolutely. So, you’ve alluded to something there that I wanted to touch on, which is just the extent of the moat in your business, in the world that we now find ourselves in. So, for example, one of the things I picked up yesterday was that the group is roughly 90% annuity revenue. I think it was a little bit higher than that.

You’ve got a bunch of moats. I think that came through really well as well. For example, when the MD of the HealthTech side talked about – just “time in the saddle” was one of the messages that I got. You’ve been out there for decades doing this. That takes time.

Anyone who’s built a business knows you don’t just wake up and displace something that’s already there. I mean, this is year six for me of The Finance Ghost and it’s been an incredible journey that has a very long way to go.

It’s very, very easy to sit with a spreadsheet and talk about this and that. Go build a business and you’ll see how hard it is to actually get that market penetration and hang on to it.

And this is a big part of the bull case, right? You’ve done this in a lot of your businesses. You’ve got the data, as you’ve talked about.

I guess the one thing that an investor might ask, and it did come up in the questions from analysts and at your CMD – stuff like just why this particular group of platforms actually belong together in one place, in one Altron?

For example, does the data from one platform make another platform better? Shared services, synergies?

Maybe just explain to us why Altron looks the way it does. Because as you said at the capital markets day, there isn’t actually another group that someone can directly compare you to.

Werner Kapp: Yeah, it’s a very, very good question. I mean, if I could maybe touch on the moat maybe for two minutes.

You’re 100% right. Our platform businesses are a 30-year overnight success. Right? [Laughs].

And I think a moat is a combination of the software – we’re talking about people consuming services on mobile applications. That experience comes across as very simplistic and very seamless for the consumer. But behind that ecosystem is an incredibly complex embedded ecosystem with high volumes.

When you go to the pharmacy later today to get your cough medicine, you’re presenting your medical aid card and that’s a very seamless, easy process for you, right? Which I think hardly goes wrong.

But the ecosystem that the software has to traverse in the background is really, really complex and it takes years of experience and the software and embeddedness, I think that’s the first thing.

And the second one is the distribution channels that it takes. if you think of the distribution channel that it takes to onboard over a period of time 20,000 doctors, for example, onto your software. What it takes to onboard 5,000 microlenders onto your software, teach them how to use it, how to improve their businesses through it.

If you look at our Netstar business, you deal with the majority of insurance partners, over 150 dealers, etc. And then obviously there’s the data part, which I’ll touch on a little bit later.

I think it’s quite important for people to understand that competitive moat. And listen, we’re also paranoid, we also feel we’ve just begun, right? Nobody has the right to win all the time. So it’s something that we reinvest in all the time.

The businesses, they’re all unique businesses, they’re distinct businesses and we’re very clear about that, right? You would have met or seen online some of the MDs of those businesses and we run them in a federated fashion. The fact that we are multi-platform and in these different vertical industries is part of our strength.

Where the synergies come in, I would say it’s across three things.

The one thing is, particularly when it comes to enterprise customers, our opportunity is to service enterprise customers better when those businesses work together.

To give you just a practical example of that, if you combine consumer data in fintech with movement data in Netstar, to healthcare data in the HealthTech business, and you’re able to get insights from that to, for example, an insurer to really personalise a product offering for you, that’s quite powerful.

The other part is the reason why we’ve invested in the AI factory is really to bring that kind of power locally to South Africa, not necessarily as a standalone money-spinner. We don’t have the intention to become a GPU-as-a-Service company or business in South Africa. We leave that to the large-scale capital operators who want to do that. But we really see that as an enabler of business.

I really think it’s probably a little bit of customer cross-selling, more in the enterprise space than in the consumer. Because as consumers, you’d appreciate that’s a very distinct offering that they get.

The second one really is how we use data across those businesses to really add value to the service offering.

The third one is really how the AI factory underpins that because essentially what it helps us to do is to scale those offerings and also things like servicing our customers, better operational efficiencies within those business, just quicker and at a lower price point.

The Finance Ghost: Let’s take the conversation to that AI factory, because as you’ve quite correctly pointed out, nobody has the right to win all the time. It actually doesn’t matter how long you’ve been at this for.

This AI era feels like we’re all just a big startup now. No one knows, right? Got all these IPOs coming. Anthropic, OpenAI, SpaceX… it’s all happening.

And Claude released a new model literally last night. I see lots of people on my feed talking about how their token usage is now just ridiculous and it’s obliterating their plans. We’re going to start to see some price discovery around tokens and what AI actually needs to cost to be sustainable.

So, lots going on here clearly. And you’ve taken a slightly different route, which is to say we want to at least develop a fair amount of this internally, if I understand it correctly, and you’ll have to forgive me, I’m not a techie. A lot of my listeners are also not techies. So that’s why it’s actually quite helpful because if I am not 100% sure, they probably aren’t either.

So maybe just talk to us about exactly what the AI factory is internally, and also how it competes for capital. Because that was a fun thing that came through at the CMD, I think. The CFO specifically said there’s no blank cheque for this. It competes for capital like any other division in the group.

So, what exactly are you building there and why is it exciting?

Werner Kapp: Great question. Very, very simplistic answer: it’s not AI that we’ve developed. So, the technologies that we’re using are Nvidia, which I’m sure would be well known to most of the listeners. That’s the core hardware and software part of it.

The large language models that we use, we call them curated models, which kind of means, listen, they’ve pre-built that model for specific use cases.

A very simple one, for example, is insurance claim processing at scale. It’s done by AI rather than by human beings, and that’s done at a much quicker efficiency level. They’re, what we can then do for customers, is take that curated model and then you obviously build a specific, what people call “agentic AI”.

You train that model very specifically. The model will discover, okay, this is how the data sets and the rules work in my business. The way Andy Mabaso, our CTO, describes it is essentially what a large language model gives you is 200 PhD students at your fingertips to do this stuff at scale.

What specifically the AI factory is, it’s just a local instance of that. So, SMEs, people are consuming this service from companies from abroad, so subject to exchange rate, et cetera.

Big issue is also data sovereignty for people and security, right? We’re seeing that a heck of a lot more.

So, all that this really is, is a local instance of Nvidia and its models. It’s in a world-class data centre. We partnered with Teraco, it’s just around the corner. It really just gives us the advantage for ourselves and our customers to be quite flexible, quick speed to market.

There are obviously some dollar-based cost components to it, but we own the base infrastructure, if that makes any sense. So, it can scale at a lower cost. And of course, the models (I mean you talk about consumption of tokens), they are subject to whatever the cost structures may be of those providers. But it really just gives us data sovereignty and speed to market.

What it means for us as a business is twofold. And I suppose I’ve touched already on one element of it: significant deployment of that within specifically our platform businesses. Not exclusively, but naturally those kind of businesses, high volumes of transactions on a daily basis, often fielded by humans who are constrained by their capacity, kind of naturally lends itself to the deployment of AI. So, we are deploying that within our business to service our clients better.

Just to give you an example, Netstar receives 505 million data messages a day. And it’s very important for us to interpret those data messages at scale. So, for example, do we get false notifications? If you’re a Netstar customer, you may often get a call saying we’ve received an alert, press one if it’s a real situation, that kind of thing. So the AI factory is helping us with that kind of stuff.

In the fintech business, it’s helping us analyse, for example, things that we call strike date analysis. So, for the microlending software business, it is really quite important. What is the right time of the day, by the way, to the hour, for debit orders (as an example) to be successfully collected. So we’re doing a lot of that stuff.

And then through Altron Digital Business, which is our systems integration business, we have a large data and AI practice. And that data and AI practice really uses not exclusively the AI factory. It could also be using other enterprise AI tools, obviously Copilot for example, if you’ve got a large Microsoft installed base.

There we really help our customers. So, it’s sort of a consulting engagement where we really help our customers. Because a big question on everybody’s lips, and you kind of touched on it early on, right, which is: it’s fantastic, there are these amazing things, but how does that ultimately get deployed within my organisation at scale and improves the bottom line?

So, I hope that makes sense. That’s kind of the two elements to it, internal usage and then really helping our clients deploy AI better.

It competes for capital the same as all of our other businesses really compete for capital. When guys are asking us for capital, we have hurdle rates, we look at what the returns can be, what are the time periods for those returns. So that’s kind of a simplistic process.

Although sometimes, to be honest, you take a bit of a punt sometimes, right?

On the AI business case, that wasn’t that simplistic. When guys compete for capital, for example, in our Netstar business, we deploy a lot of capital into the capital rental devices. That’s the tracking device that enables the service. That’s a no-brainer, right? We understand the payback period of that exceptionally well.

It’s not that clear necessarily what the payback period is going to be for AI factory. So, there’s a simplistic competition for capital, which is really based on your normal kind of capital. What kind of IRR are you going to get in how quick a period of time?

But things like AI, we just felt that it’s really, really important for us as a business to get to know this stuff quickly. And that’s a bit of an explorative journey. I think the commercialisation of that is starting to become obvious to us, as I said, within the businesses.

So now what happens is we have KPIs. Each member of our executive team has a KPI that says I have seen two or three specific use cases for AI in my business. So, we’re starting to see that come through and that’s how we can measure it. And then the other one is obviously revenue, particularly within our Altron Digital Business in that data and AI practice. So, if that means that we’ll deploy more capital as it becomes more successful, we will.

But as I said, the intention of this is not for us to be a provider of hardware and software AI services necessarily at scale. We don’t believe that that’s our focus. We’re a capital-light platform-type business. And this really helps drive that.

The Finance Ghost: No, absolutely. That makes a lot of sense, and I completely agree with you. Obviously sometimes you just need to take a punt, right?

If you’re out there building a business instead of just running it on spreadsheets somewhere, you’ll understand that the only thing we know for sure about forecasts is that they’re wrong. That’s all we know for sure.

We just hope to figure out why they were wrong and maybe “what do you need to believe for this to be true?” and that kind of stuff. But it’s going to be wrong. Especially in tech, I think everything moves so fast, right? What choice you have, you need to not be left behind.

Werner Kapp: I’ve been in tech for 30 odd years now, and I think that’s the exciting part of tech, to be honest. But you do need to have an innovative, entrepreneurial-type spirit to do that, which we encourage in our businesses. And look where we’re really fortunate is that I think you opened up with the 90%/91% annuity revenue.

So that’s really powerful and we think it’s a big part of (a) our competitive moat and (b) our value proposition to investors is that in any given day (and listen, things can go wrong – you could churn some of that revenue, so that’s something we look at), but on any given day, when we open our doors in a financial year, 90% of our revenue is pre-booked.

So, it makes our earnings quite predictable. It’s highly cash generative also and that means that I think it gives us a little bit more flexibility around capital allocation and making those longer term bets because hopefully it goes without saying that as much as of course you always have to try and deliver short term numbers and earnings, we’re here to build a sustainable business, right?

We’ve been around for 61 years and that’s maybe when you asked the earlier question around, what are those synergies between those businesses? The other synergy, it’s maybe slightly more boring than data, but it is capital allocation.

People have often asked us as an example, why don’t we list the Netstar business?

And the answer is, well, we don’t need to do right now a capital raise to be able to grow that business going forward. Because we’ve got this combination of highly cash generative businesses and that gives us an ability to be able to be selective.

Our competitors play in one space. They can only allocate capital. They don’t have all businesses that are competing for capital, and you can deploy it where you see the best return and the best opportunity to build out your moat over time.

The Finance Ghost: When you’re innovating off that level of annuity revenue, it’s like working hard all week and then having a good time on a Friday night. You know, you’ve earned that right. You’ve got the base done. It’s when you don’t have any of the annuity revenue and you are out on the jol on a Monday at lunchtime, that’s a problem. You know your week’s going to be bad. It’s a great position to be in.

Werner Kapp: I just wanted to mention about the annuity. Firstly, you can never take that for granted because my annuity is someone like yourself who has entrusted us with a service to protect their assets or your car or your family, right? So I think that’s the first part.

And then the other part is there are parts of our business, your IT services business. You talk about working hard during the week and going on a jol over the weekend. You know, there our annuity business is about 50%/51%. So that’s a different ball game. Margins are a lot lower and you literally work on this kind of three-month billing cycle.

So, every Monday there, to use your analogy, you go to work with a hangover, but you’ve got to pitch up and you’ve got to be out there and you’ve got to do new deals. It’s not that we don’t love that business. And that’s the world that I come from. And that’s probably, by the way, why I appreciate that annuity business more than anybody else, because I’ve spent 25 years in businesses where we always used to say, “Right, it’s the new month, we’re back to zero, let’s go back and fill up that pipeline”.

And I think if you get that combination right, almost fanatical, if that’s the right word, attitude towards servicing your current customers.

Like I said, I come from a world where can you imagine losing part of that 51% base? So I think if you can get that combination right and then be really, really focused around acquiring new customers or new subscribers, which, touch wood, we seem to have done reasonably well over the last four years, then you’ve got a great business.

The Finance Ghost: Yeah, absolutely. Look, it’s your fault that I’m using these jolling analogies because your capital markets day had this wonderful EDM music playing in between. And honestly, the management team strike me as just great people to have at a braai, especially your CTO. Thoroughly enjoyed him. So just a cool culture. I can see it across the group.

Let’s maybe move on from that then and talk a little bit more about the financial stuff. So, tech companies unfortunately have a little bit of a reputation of being willing to chase revenue at almost any cost. More the international players, but still. Stuff like margin, cash flow, this sometimes takes a backseat in pursuit of growth.

I don’t get that sense at Altron, which is great and I’m very happy to see it, but that doesn’t mean that you don’t have some sources of margin pressures. So, one of the things that came through at the CMD, for example, is the marketing spend at Altron.  

Obviously your big listed competitor, we’ve seen their margins do a little bit of this (for people who can’t see me, obviously, which is everyone, up and down, up and down based on marketing spend and investing ahead of growth and that kind of thing). So that seems to be a feature of that market.

Fintech platform – also vulnerable to fee compression, especially as you see competition in verticals like informal merchants really heating up. Everyone’s talking about that Kasi economy now. I saw you reference GG Alcock on the day. That guy is getting all over the place at the moment because everyone is so interested in the space. Well done to him.

Perhaps you can just take us through your group’s overall approach to market share versus managing margin, how you prioritise these things and just how you think about keeping the income statement in one piece in what is essentially a very exciting world.

Werner Kapp: That is a heck of a good question, firstly. We’re not a tech company that chases revenue at all costs. And the reason why I say that is, tech companies who kind of chase revenue at all costs are companies where, because the world is evolving so rapidly, the reality is to be a successful global tech company, you’ve got to be first to market and you’ve got to sew up that market and that ecosystem as quickly as you can.

And there’s multiple examples of that. So, we’re not that tech company. We deliver digital services and we’ve discussed the fact that we’ve been around for a while.

Having said that, the struggle is real. Absolutely.  The balance between revenue and margin is real. Again, where we are quite lucky in the platform businesses is the unit economics, obviously. Your fixed cost base is fairly stagnant and as long as you’re adding subscribers to that base, you get a margin uplift.

Having said that, it is a blend. You’ve got to get both right. Because in any given year, we can switch off our cost base and make a heck of a lot more profit. But what are you going to do over the next two or three years?

To touch on that, certainly at Netstar, (which is what you referenced), we have doubled our marketing budget there, particularly in consumer.

I don’t think I have a simple answer for you. There is margin compression risk. We were quite clear to the market in our capital markets day. People were asking us around our margin guidance in the platform segment. They asked, “Why is it so conservative?” And we said, “if we have to defend our territory and that means short term margin compression, we will. But also, if we want to invest now for growth that we think is going to pay off three years from now, we’ll do the same”.

Not a clear answer, but it has been a big focus of ours. If you’ve looked at any of our results presentations, we talk about growing revenue whilst improving operating leverage.

At the same time, we’re quite fastidious about cost management. Wasted costs. When we did our property consolidation, we reinvested about 80% of those savings in our ability to service our customers in sales and people and in leadership. But I also find that corporates can waste a lot of money if you don’t keep an eye on it.

It’s kind of the normal business triangle: revenue, margin and cost. But we would not like revenue at all costs. I suppose that’s the simple answer. We wouldn’t like to have revenue at all costs. But if somebody’s going to come in and go after that 91% annuity base of yours, and you’ve got to take short term measures to defend that base, then we’ll do that.

The Finance Ghost: I would imagine that’s also one of the benefits of just having these platforms all together in one group, is they’re going to be at different stages in their life cycle. This one might need more capital right now, that might hurt margins for a little bit, while that one’s reaping what they’ve sown and their time will come.

This gets to then just come through in the wash because that’s the reality – people will always ask you for more specific guidance and especially institutional analysts will always try and really dig down – but there’s only so much you can share publicly because your competitors are also listening, absolutely, and are trying to figure out what you’re doing.

So that’s also the nice thing with having all these different platforms, right? By the time it all rolls up, it’s a number. But there’s a million underlying business decisions that have led to that.

Werner Kapp: That is why I specifically spoke about the fact that we believe this is unique and we believe that this is our differentiator. You’re 100% right. We’re across vertical industries. That means that you could not cross-subsidise, as I said earlier on, the cash generated.

You can make the right decisions in business and you can say, “Look, this business is not going to have the greatest year necessarily from a revenue growth perspective, but that’s fine”. The other one is going to.

We really, really believe that is a unique advantage that we have. And as to guidance and disclosure, our guidance and disclosure are very good. We’ve certainly taken the market through a lot of detail, and all this stuff is available. But yeah, you do walk quite a fine line between disclosure and competitive information.

And ultimately, we’ve got to build the best business that we can, and we’ve got to deliver to our customers and our shareholders. And if we do that, I think sustainable earnings growth is something that comes along with it, over a period of time.

The Finance Ghost: Yeah, I agree with that fully. I’ve got two more questions for you, just based on some of the specific verticals in the business.

So, the first one is Netstar. One of the opportunities that came through very strongly from your managing director in that space was the benefit of working with the OEMs (Toyota was the specific example) vs. just relying on, for example, someone goes and buys a used car, and they then contact you or whatever.

Now, obviously your cost of acquiring a customer must be much better if you’re grabbing them at OEM stage. The car just comes with this thing, which is a very different world, obviously, so I can see the appeal of that.

But a lot is changing in the South African automotive landscape around the Chinese brands and local manufacturing. Maybe it’s a very simple answer. Maybe the answer is you’re not really seeing an impact. But the shape of our roads has just changed completely. The brands, et cetera, et cetera.

Are you seeing any kind of impact in Netstar from, for example, the shift from used vehicles to now these more affordable new vehicles? Or is the business just kind of carrying on regardless of what asset you’re protecting?

Werner Kapp: There definitely is an impact. Maybe just to give a little bit context to that, Netstar essentially has three channels to market. One is direct. Somebody essentially calls you or contacts you and asks you if you want a Netstar subscription. The other one is through the insurance channel, and then the other one is through the dealership directly.

The ratio between new cars and used cars in South Africa has shifted. The attractiveness of price point of the Chinese cars and then probably some tailwinds from an interest rate perspective as well. But I think the price point attractiveness of the Chinese cars certainly the big reason.

But for us, remember we got these kind of multiple channels. So, firstly we’re very proud to be the exclusive tracking partner to WeBuyCars. So that gives us access to a broad range of vehicles, and you might have heard them also speak about what they see as the impact of Chinese cars to their business, and how they’re going to deal with that in the longer term.

Obviously, we are also onboarding the dealerships of the Chinese cars, so it’s a bit of a swings and roundabouts for us. We’re agnostic from providing a service to a consumer perspective of what exactly the brand of car is. And obviously we provide those services to used cars, new cars and large fleets in rental companies.

So really, we don’t see it as an existential threat. We see it more as an opportunity and ultimately it comes down to making sure that we get the execution right of our sales and service channel. Particularly in the dealership channel, which we’re working very hard on.

The Finance Ghost: For listeners who are interested, if you go back actually just a few weeks, you’ll find a podcast with the WeBuyCars management team where they did talk a lot about the Chinese cars. It is very interesting. So go and give that a listen.  

Last question while I still have any voice left at all. I’m going to talk about the fintech business now, and this major regulatory overhaul that could give the non-bank fintechs direct access to the national payment system as I understand it (again not an area of expertise for me, but that’s as much as I understand).

That could do wonders for the cost of sales in your fintech business. That’s something that I picked up from the CMD. Just give us an idea of the opportunity here and what this means for fintechs like you?

Werner Kapp: There’s a number of opportunities. It creates new avenues for new services, that traditionally only banks could render, that the fintechs could render.

But probably the biggest short-term opportunity for us is that today – I don’t necessarily know that that will fundamentally change in the longer term, I think there could just be cost compression – but we need a sponsor bank to be able to access the payment rails. And that is close to about 80% of our cost of sales in our fintech business.

If you don’t need that sponsor bank, which like I said, I don’t think will completely disappear. And remember, there’s a cost associated with actually buying these payment activities. But ultimately for us there is a significant margin uplift opportunity in the medium to long term.

The Finance Ghost: So maybe as a parting comment then, Werner, and thank you so much for your time today. Why do you believe investors should be paying attention to Altron as you enter this phase of your growth story now?

Werner Kapp: We’re exceptionally well positioned, I think, in this burgeoning digital economy of South Africa. We’re exceptionally well positioned in both the formal and the informal market.

The second one is the multi-platform businesses that we have. We get a little bit of a diversification across a number of vertical industries. And then of course, the 91% annuity revenue.

And then we have a very strong balance sheet. Our balance sheet is ungeared. So that gives us a lot of flexibility to invest ahead of the curve and do acquisitions should we have to. We haven’t seen the need to do that yet.

And last, but certainly I don’t think least: it’s a little bit of an intangible. But I’m a big believer in leadership and culture. We’ve got an exceptionally committed, experienced leadership team with a proven track record.

They’re very proud of what we’ve achieved, but even more excited about the next phase of the journey and we certainly love investors to come along for the ride.

The Finance Ghost: Well, congratulations to you and the team on what I think is a pretty exciting South African growth story and from my side as well, just well done on doing a capital markets day.

And this is a challenge that I’ll throw out to corporate South Africa is: do more of these things, because it’s a wonderful opportunity to bring your story to the market and to actually let people see your divisional execs. Because we don’t often get that experience.

Very, very well done. Congrats, all the best on this.

And to the listeners, obviously make sure you go and do your own research. This should just be part of your process of learning about Altron and figuring out if this is perhaps for you.

And either way, Werner, thank you so much for your time. It’s really, really cool. I hope we’ll do another one of these at some point. All the best with the strategy.

Werner Kapp: I’d love to. Thank you very much. Thanks for your time, really enjoyed it.