AFRICA ONLINE GOES INTO PROFIT BUT ITS HOLDING GROUP IS NOT YET OUT OF THE WOODS

Top Story

The annual financial results for the African Lakes Corporation plc (owner of Africa Online) have just come out (for the year ending September 2003) and they provide a useful dipstick for the state of the internet on the continent. Africa Online is only one of two pan-continental players, the other being Naspers' MWeb, which has this week consolidated its grip on its home market by agreeing to buy Tiscali's South African operation. However unlike Mweb, Africa Online has now moved into operating profit and says that this year's revenue figures are 8-9% up on last year at the same point. Russell Southwood looks at what stories the figures tell.

The headline story in the financial results is the financial success of Africa Online which "has had a good year, both in terms of operating profit and in the generation of positive cashflow...EDBIDTA was £1.9 million, an improvement from the breakeven position recorded in 2002."

Africa Online has pursued what it calls a "premium provider strategy" where it has sought to target customers at a retail level who can afford to pay a premium for a better service and more reliable, quality bandwidth. The aim is not to acquire market share at any cost.

The other leg of its strategy has been to go after corporate customers in those countries where it does not have a joint venture with UUNet. As a result 30% of its turnover in 2003 came from this source, an increase of 56% on the previous year.

Africa Online has a joint venture with UUNet that was originally intended to be rolled out to twelve African countries. Targeted at corporate customers, It was originally entered into on the basis that Africa Online would concentrate on the retail space. Africa Online's share of the turnover of the joint venture is shown in the financial results as being worth £1.66m. If as is believed that their share is around 40%, this would give a total turnover for the joint venture of over £4m.

Africa Online is now a sub-Saharan operation, having sold the loss-making Egyptian ISP MenaNet Communications, which was part owner of satellite operation GDBC. The company was sold for a token sum after its Egyptian buyer (faced with a large pressing bill from Telecom Egypt) was unable to find the capital to complete the transaction.

One consequence of the sale is that the company has changed its bandwidth providers and is now using a combination of IP Planet and SkyVision. It has also made what it describes as "targeted capital expenditure" in its network, including installing a new wireless broadband network in Tanzania.

So what's the bad news? Overall the holding company African Lakes made a loss of £3.26m down from £5.45m in the previous year. Disposals of the very mixed collection of companies continues apace but is still taking longer than everyone would have liked. Nevertheless the staffing bill for the group has come down from £5.97m to £2.82m in the current year, with 25 staff lost in the internet part of the business.

Meanwhile its only pan-continental rival Mweb has agreed to buy Tiscali's South African subsidiary for R320m. It has not bought its cellular business which is expected to be sold separately by the end of this year.