Wrap Text
Unaudited results for the 6 months ended 31 August 2012
ALLIED ELECTRONICS CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1947/024583/06)
Share code: ATN ISIN: ZAE000029658
Share code: ATNP ISIN: ZAE000029666
UNAUDITED CONSOLIDATED INTERIM RESULTS
FOR THE SIX MONTHS ENDED
31 AUGUST 2012
Condensed consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
31 August 31 August 29 February
% 2012 2011 2012
R millions Change (Unaudited) (Unaudited) (Audited)
Revenue 11 12 802 11 513 23 563
Earnings before interest, tax, depreciation and
amortisation (EBITDA) (9) 852 932 1 946
Depreciation and amortisation (266) (305) (562)
Operating profit before capital items (7) 586 627 1 384
Capital items (Note 1) (677) (37) (900)
Result from operating activities (91) 590 484
Finance income 31 35 71
Finance expense (108) (64) (156)
Share of profit/(loss) from associates 1 (1)
(Loss)/profit before taxation (167) 561 398
Taxation (189) (190) (424)
STC (16) (50) (53)
(Loss)/profit for the period (372) 321 (79)
Other comprehensive income/(loss)
Foreign currency translation differences in respect
of foreign operations 79 (102) 95
Other comprehensive income/(loss) for the period 79 (102) 95
Total comprehensive (loss)/income for the period (293) 219 16
(Loss)/profit attributable to:
Non-controlling interests (364) 87 (253)
Altron equity holders (8) 234 174
(Loss)/profit for the period (372) 321 (79)
Total comprehensive (loss)/income attributable to:
Non-controlling interests (338) 20 (212)
Altron equity holders 45 199 228
Total comprehensive (loss)/income for the period (293) 219 16
Basic (loss)/earnings per share (cents) (103) (3) 74 55
Diluted basic (loss)/earnings per share (cents) (106) (4) 73 54
Condensed consolidated balance sheet
31 August 31 August 29 February
2012 2011 2012
R millions (Unaudited) (Unaudited) (Audited)
Assets
Non-current assets 4 251 5 259 4 695
Property, plant and equipment 2 054 2 370 2 300
Intangible assets including goodwill 1 544 2 229 1 732
Associates 83 9 74
Other investments 191 232 233
Rental finance advances 56 73 67
Loans receivable 183 137 150
Deferred taxation 140 209 139
Current assets 8 208 7 019 7 585
Inventories 2 718 2 386 2 475
Trade and other receivables 4 271 3 626 3 872
Assets classified as held-for-sale 85 135
Cash and cash equivalents 1 134 1 007 1 103
Total assets 12 459 12 278 12 280
Equity and liabilities
Total equity 5 114 6 011 5 813
Non-current liabilities 1 039 1 215 936
Loans 818 968 707
Empowerment funding obligation 33 60 47
Provisions 6 15 20
Deferred income 55 47 51
Deferred taxation 127 125 111
Current liabilities 6 306 5 052 5 531
Loans 730 410 613
Empowerment funding obligation 27 21 24
Bank overdraft 825 390 550
Trade and other payables 4 410 3 961 4 079
Provisions 121 186 118
Liabilities classified as held-for-sale 85 67
Taxation payable 108 84 80
Total equity and liabilities 12 459 12 278 12 280
Net asset value per share (cents) 1 509 1 590 1 583
Condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2012 2011 2012
R millions (Unaudited) (Unaudited) (Audited)
Cash flows (utilised in)/from operating activities (73) (435) 1
Cash generated by operations 851 926 1 955
Changes in working capital (238) (394) (725)
Net finance expense (77) (29) (86)
Taxation paid (183) (415) (612)
Cash available from operating activities 353 88 532
Dividends paid, including to non-controlling interests (426) (523) (531)
Cash flows utilised in investing activities (461) (310) (768)
Cash flows from financing activities 256 113 37
Net decrease in cash and cash equivalents (278) (632) (730)
Net cash and cash equivalents at the beginning of the period 553 1 253 1 253
Effect of exchange rate fluctuations on cash held 20 (4) 19
Cash classified as held-for-sale 14 11
Net cash and cash equivalents at the end of the period 309 617 553
Operational contribution
Six months Six months Year
ended ended ended
31 August 31 August 29 Frebruary
% 2012 % 2011 % 2012 %
R millions Change (Unaudited) (Unaudited) (Audited)
Revenue:
Altech 7 5 157 40 4 828 42 9 972 42
Bytes 19 3 511 27 2 961 26 6 094 26
Powertech 11 4 155 33 3 732 32 7 522 32
Corporate, financial
services and
eliminations (21) (8) (25)
11 12 802 100 11 513 100 23 563 100
Operating profit*
Altech (14) 256 44 296 47 649 47
Bytes (4) 189 32 196 31 424 31
Powertech 9 153 26 140 22 314 22
Corporate and
financial services (12) (2) (5) (3)
(7) 586 100 627 100 1 384 100
% held at % held at % held at
31 August 31 August 29 February
2012 2011 2012
Headline earnings
Altech 61.4 (18) 76 30 61.5 93 36 61.5 208 34
Bytes 100.0 7 117 46 100.0 109 42 100.0 253 42
Powertech 100.0 11 60 23 100.0 54 20 100.0 125 21
Corporate and
financial services 100.0 3 1 100.0 5 2 100.0 17 3
(2) 256 100 261 100 603 100
* Operating profit is stated before capital items
Supplementary information
31 August 31 August 29 February
2012 2011 2012
R millions (Unaudited) (Unaudited) (Audited)
Borrowings 1 608 1 459 1 391
interest bearing 1 316 1 111 1 076
non-interest bearing 232 267 244
B-BBEE funding obligation 60 81 71
Depreciation 184 188 396
Amortisation 82 117 166
Net foreign exchange profits/(losses) 28 (8) (21)
Capital expenditure 230 259 687
Capital commitments 187 156 161
Lease commitments 944 794 797
Payable within the next 12 months: 229 196 189
Payable thereafter: 715 598 608
Weighted average number of shares (millions) 316 316 316
Diluted average number of shares (millions) 318 317 318
Shares in issue at the end of the period (millions) 316 316 316
Ratios
EBITDA margin (%) 6.7 8.1 8.3
ROCE (%) 17.4* 16.8* 19.2
ROE (%) 10.5* 9.9* 11.6
ROA (%) 10.9* 11.7* 13.2
RONA (%) 17.3* 16.8* 19.1
Borrowings ratio 31.4 24.3 23.9
Current ratio 1.3:1 1.4:1 1.4:1
Acid test ratio 0.9:1 0.9:1 0.9:1
* Annualised
Condensed consolidated statement of changes in equity
Attributable to Altron equity holders
Share Non-
capital and Treasury Retained controlling Total
R millions premium shares Reserves earnings Total interests equity
Balance at 28 February 2011 (audited) 2 241 (299) (1 192) 4 325 5 075 1 239 6 314
Total comprehensive income for the period
Profit for the period 234 234 87 321
Other comprehensive income/(loss)
Foreign currency translation differences in respect of foreign operations (35) (35) (67) (102)
Total other comprehensive income (35) (35) (67) (102)
Total comprehensive income for the period (35) 234 199 20 219
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders (341) (341) (182) (523)
Issue of share capital 2 2 1 3
Share-based payment transactions 10 10 3 13
IFRS 2 charge on B-BBEE transactions 3 3 1 4
Total contributions by and distributions to owners 2 13 (341) (326) (177) (503)
Changes in ownership interests in subsidiaries
Introduction of non-controlling interests 63 63 (63)
Buy-back of non-controlling interest 11 11 (30) (19)
Total changes in ownership interests in subsidiaries 74 74 (93) (19)
Total transactions with owners 2 87 (341) (252) (270) (522)
Balance at 31 August 2011 (unaudited) 2 243 (299) (1 140) 4 218 5 022 989 6 011
Total comprehensive income for the period
Loss for the period (60) (60) (340) (400)
Other comprehensive income
Foreign currency translation differences in respect of foreign operations 89 89 108 197
Total other comprehensive income 89 89 108 197
Total comprehensive income/(loss) for the period 89 (60) 29 (232) (203)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders (8) (8)
Issue of share capital 1 1 (1)
Share-based payment transactions 14 14 2 16
Total contributions by and distributions to owners 1 14 15 (7) 8
Changes in ownership interests in subsidiaries
Introduction of non-controlling interests (63) (63) 60 (3)
Total changes in ownership interests in subsidiaries (63) (63) 60 (3)
Total transactions with owners 1 (49) (48) 53 5
Balance at 29 February 2012 (audited) 2 244 (299) (1 100) 4 158 5 003 810 5 813
Total comprehensive income for the period
Loss for the period (8) (8) (364) (372)
Other comprehensive income
Foreign currency translation differences in respect of foreign operations 53 53 26 79
Total other comprehensive income 53 53 26 79
Total comprehensive income/(loss) for the period 53 (8) 45 (338) (293)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders (291) (291) (135) (426)
Issue of share capital 1 1 1
Share-based payment transactions 12 12 3 15
Total contributions by and distributions to owners 1 12 (291) (278) (132) (410)
Changes in ownership interests in subsidiaries
Change in shareholding of subsidiaries 1 1 3 4
Total changes in ownership interests in subsidiaries 1 1 3 4
Total transactions with owners 1 13 (291) (277) (129) (406)
Balance at 31 August 2012 (unaudited) 2 245 (299) (1 034) 3 859 4 771 343 5 114
Segment analysis
The segment information has been prepared in accordance with IFRS 8 Operating Segments, which defines the requirements for the disclosure of financial information of an entity's operating segments.
The standard requires segmentation based on the group's internal organisation and reporting of revenue and EBITDA based upon internal accounting presentation.
Effective 1 March 2011 Altech Autopage Cellular (APC) purchased the business of Altech Technology Concepts (ATC). APC's revenue and EBITDA thus includes the results of ATC.
APC's revenue and EBITDA for the prior year have therefore been restated.
The segment revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) generated by each of the group's reportable segments are summarised as follows:
Revenue EBITDA Operating profit
Six months to Six months to 12 months to Six months to Six months to 12 months to Six months to Six months to 12 months to
31 August 31 August 29 February 31 August 31 August 29 February 31 August 31 August 29 February
R millions 2012 2011 2012 2012 2011 2012 2012 2011 2012
Powertech Cables Group 2 538 2 026 4 364 78 26 104 39 (9) 33
Powertech Transformers Group 824 796 1 446 94 110 216 79 98 190
Other Powertech Segments 793 910 1 712 75 97 180 35 51 91
Powertech Group 4 155 3 732 7 522 247 233 500 153 140 314
Bytes Technology Group UK Software 878 553 1 168 30 22 37 29 21 35
Bytes Document Solutions Group 1 064 1 007 2 088 70 92 188 54 75 155
Other Bytes IT Segments 1 569 1 401 2 838 144 132 302 106 100 234
Bytes Group 3 511 2 961 6 094 244 246 527 189 196 424
Altech Autopage Cellular 3 032 3 024 6 069 122 118 266 112 108 244
Altech UEC Group 803 461 1 187 62 44 126 26 7 53
Altech Netstar Group 518 498 1 008 160 191 335 149 146 311
Altech Converged Services (International) 140 173 396 (33) 20 27 (69) (22) (67)
Other Altech Segments 664 672 1 312 61 83 165 38 57 108
Altech Group 5 157 4 828 9 972 372 456 919 256 296 649
Corporate and financial services 14 28 32 (11) (3) (12) (5) (3)
Inter-segment revenue (35) (36) (57)
Altron Group 12 802 11 513 23 563 852 932 1 946 586 627 1 384
Segment EBITDA can be reconciled to group operating Six months to Six months to 12 months to
profit before capital items as follows: 31 August 31 August 29 February
R millions 2012 2011 2012
Segment EBITDA 852 932 1 946
Reconciling items:
Depreciation (184) (188) (396)
Amortisation (82) (117) (166)
Group operating profit before capital items 586 627 1 384
Notes
Six months Six months Year
ended ended ended
31 August 31 August 29 February
% 2012 2011 2012
Change (Unaudited) (Unaudited) (Audited)
Headline earnings per share (cents) (2) 81 83 191
Adjusted headline earnings per share (cents) (4) 90 93 210
Diluted headline earnings per share (cents) (4) 78 82 187
Adjusted diluted headline earnings
per share (cents) (5) 87 92 206
Basis of preparation
The unaudited consolidated interim financial results have been prepared in accordance with IAS 34 Interim Financial Reporting, the AC 500 series
issued by the Accounting Practices Board and the JSE Listings Requirements. The accounting policies used in the preparation of these interim
results are consistent with those used in the annual financial statements for the year ended 29 February 2012. This report was compiled under
supervision of Mr Alex Smith CA, Chief Financial Officer and Mr Arno Geldenhuys CA(SA), Group Financial Manager.
R millions
1. Capital items
Net gain on disposal of property, plant and equipment 1 37 36
Impairment of property, plant and equipment (308) (235)
Impairment of goodwill (13) (74) (412)
Impairment of intangible assets (293) (300)
Net (loss)/profit on disposal of subsidiary (2) 14
Impairment of investment (3)
Impairment of held-for-sale disposal group assets (62)
(677) (37) (900)
Impairment of property, plant and equipment
and intangible assets
Impairment tests were conducted on the carrying values
of property, plant and equipment and intangible assets
and the carrying values were written down to current
estimates of realisable values.
Impairment of held-for-sale disposal group assets
Impairment tests were conducted on the carrying
values of held-for-sale disposal group assets which
were written down to current estimates of
realisable value.
2. Reconciliation between attributable earnings
and headline earnings
Attributable to Altron equity holders (8) 234 174
Capital items gross 677 37 900
Tax effect of capital items 3 (10)
Non-controlling interests in capital items (413) (13) (461)
Headline earnings 256 261 603
3. Reconciliation between attributable earnings
and diluted earnings
Attributable to Altron equity holders (8) 234 174
Dilutive earnings attributable to B-BBEE non-controlling interests
in subsidiaries (5) (4)
Dilutive earnings attributable to dilutive options
at subsidiary level (2)
Diluted earnings (13) 232 170
4. Reconciliation between headline earnings
and diluted headline earnings
Headline earnings 256 261 603
Dilutive earnings attributable to B-BBEE non-controlling interests
in subsidiaries (5) (4)
Dilutive earnings attributable to dilutive options
at subsidiary level (3) (2) (10)
Non-controlling interests in adjustments 1 4
Diluted headline earnings 249 259 593
5. Reconciliation between headline earnings
and adjusted headline earnings
Adjusted headline earnings have been presented to
demonstrate the impact of some accounting charges
and once-off costs arising on B-BBEE transactions
and business combinations on the headline earnings
of the group. Headline earnings are reconciled to
adjusted headline earnings as follows:
Headline earnings 256 261 603
Amortisation of intangibles arising on
business combinations 47 45 94
Expenses associated with B-BBEE transactions 6 6
IFRS 2 charge on B-BBEE transactions 4 5
Tax effect of adjustments (13) (11) (24)
Non-controlling interests in adjustments (7) (12) (20)
Adjusted headline earnings 283 293 664
6. Reconciliation between diluted headline earnings
and adjusted diluted headline earnings
Diluted headline earnings 249 259 593
Amortisation of intangibles arising on
business combinations 47 45 94
Expenses associated with B-BBEE transactions 6 6
IFRS 2 charge on B-BBEE transactions 4 5
Tax effect of adjustments (13) (11) (24)
Non-controlling interests in adjustments (7) (12) (20)
Adjusted diluted headline earnings 276 291 654
Fully diluted earnings, diluted headline earnings and adjusted diluted headline earnings have been calculated in accordance with
IAS 33 Earnings per Share, on the basis that:
The recognition of the deferred sale of a 30% interest in Aberdare Cables to the Izingwe Consortium based on the assumption that the
outstanding purchase price will be settled in cash for R60 million, adjusted for the dilutive effect of the option price at the Aberdare level
and after taking into account the 16.67% investment in the Izingwe Consortium by Power Technologies (Pty) Limited.
The earnings effect of dilutive options at the Allied Technologies Limited level.
7. Acquisition of subsidiary
During the six-month period, the Bytes Group acquired 100% of the issued share capital of Unisys Africa Proprietary Limited ("Unisys Africa")
for a total consideration of R89 million. This included compensation for excess working capital of R19 million.
Unisys Africa provides IT services and technology offerings to customers in sub-Saharan Africa with a core South African client base in both
the public and private sectors. The full issued share capital was acquired effective 31 March 2012.
The acquired business contributed revenues of R112 million and net profit after tax of R5 million to the Group for the period under
review. If the acquisition had occurred on 1 March 2012, group revenue and net profit after tax would have increased by R302 million and
R22 million, respectively. These amounts have been calculated using the group's accounting policies.
The acquiree balance sheet at the date of acquisition was as follows:
Recognised Fair value Carrying
values adjustments amount
Non-current assets 12 25 37
Current assets 210 210
Current liabilities (218) (9) (227)
Net identifiable assets and liabilities 4 16 20
Goodwill arising on acquisition 69
Total consideration 89
Less cash and cash equivalents in subsidiary acquired (28)
Cash outflow from the group on acquisition 61
8. Assets and liabilities classified as held-for-sale
On 14 February 2012 the decision was taken to sell Altech West Africa Limited and the operation was subsequently classified as held-for-sale.
As at the reporting date Altech West Africa Limited was not yet sold however the requirements for classification as held-for-sale were
still met.
The operation did not constitute a discontinued operation.
9. Post-balance sheet events
Subsequent to the period under review, Altech has entered into a binding agreement to dispose of its 75% interest in Altech West Africa.
The effective date will be the first day of the month following the fulfilment of the conditions precedent.
Message to shareholders
The Altron financial results for the six months ended 31 August 2012 are reported in an integrated manner in accordance with the
G3 Guidelines of the Global Reporting Initiative (GRI) as recommended by King III, reflecting those issues that are applicable and which
materially affect or contribute to the sustainable development of Altron in terms of its financial and non-financial performance.
The group has achieved good revenue growth, particularly at Bytes and Powertech, but has also experienced margin pressure,
compounded by the ongoing operating losses at Altech's East and West African operations. Powertech's revenue growth was led by
the cables group, with the local cable operations achieving an increase in volumes. Bytes continued to perform in line with expectations,
coming off a high base, with the UK businesses contributing significantly, and inroads being made into African markets. Altech's overall
results continue to be negatively impacted by the aforesaid African operations, while the South African businesses performed in line with
expectations.
Altron's revenue increased by 11% to R12.8 billion. However, earnings before interest, tax, depreciation and amortisation (EBITDA)
decreased by 9% to R852 million, while operating profit before capital items was 7% lower. Altron reported a 5% decline in adjusted
diluted headline earnings per share for the six months with headline earnings per share reducing by 2%.
External factors
The macro-economic environment remains challenging and highly volatile. While there is growth in the local economy, there remains
uncertainty around the future, with much of this uncertainty attributable to international markets, particularly the Eurozone. Emerging
market currencies, particularly the Rand, weakened and this will assist exports by providing some protection against foreign direct
imports.
Despite interest rates remaining low during the period under review, the building and construction sector continued to show no real signs
of recovery. However, demand in the electrical infrastructure market remained strong, led by spending from Eskom and certain of the
larger municipalities. Parastatals, in particular, provided encouraging support to locally-based manufacturing operations.
The telecommunications sector is seeing price deflation, particularly on the voice side, as various operators seek to grow or protect
market share. The main growth area remains the data market although margins have been under pressure with rapid declines in data
package pricing in both the mobile and ISP spaces. Data volumes are increasingly being driven by the rapid uptake of smartphones and
the inadequacies of the fixed line network.
The migration to digital terrestrial television in South Africa continues to progress at a very slow pace. Nevertheless it is on an inevitable
path and, as TV set top boxes have been classified as designated products, local manufacturers should benefit.
The South African information technology (IT) market has shown strong growth in the first half of the year as businesses continue to invest
in new technologies. Nevertheless, margins are under pressure due to the highly competitive nature of the sector, deflationary forces and
the increasing commoditisation of IT products. Cloud computing is becoming an increasingly important feature of the IT sector which will
present both opportunities and some threats to the Altron group.
Financial overview
Income
While Altron's revenue increased by 11% to R12.8 billion from R11.5 billion in the comparative period, EBITDA declined by 9% to
R852 million from R932 million, reflecting an EBITDA margin of 6.7%, down from the previous 8.1%. Headline earnings per share was
down by 2% at 81 cents, while adjusted diluted headline earnings per share declined by 5% to 87 cents.
Net finance expenses increased to R77 million from R29 million in the prior year as a result of increased borrowing levels on a high
investment in working capital as well as higher interest rates on the loan funding into Altech East Africa. Capital items have increased
significantly to R677 million due to further impairment of asset carrying values at Altech East and West Africa. The net effect of the
aforementioned resulted in a consolidated loss before tax of R167 million.
Due to the substantial impairments, the group incurred a loss after tax of R372 million. This was also impacted by a significant increase
in the effective tax rate as a result of the non-recognition of various deferred tax assets on losses in the underperforming operations. The
effective tax rate, excluding STC and the impact of capital items, increased to 37.0% from 31.8% in the prior period.
Cash management
Cash generated by operations of R851 million is lower than in the prior year as a result of the reduced profitability levels, while we have
also seen a disappointing increase in working capital of R238 million. This working capital absorption is partly due to higher activity levels,
but also due to a more normalised creditors position. Both debtors days and inventories have remained at higher than targeted levels.
Cash outflows on taxation have normalised after the double payment in the comparative period, and cash was positively influenced by
reduced dividends.
Investing activities increased to R461 million, although capital expenditure reduced. The increase was due to capitalised subscriber
acquisition costs of R214 million in the Altech group, which are recovered over the term of their contracts. During the period, Altech
significantly reduced its capital expenditure, primarily in respect of its East African business, while Powertech incurred R108 million of
capital expenditure primarily in the Transformers and Cables operations.
The R256 million of cash derived from financing activities was predominantly due to new borrowings in Altech to fund certain of the
operating losses in East Africa and in Bytes where overnight borrowings were moved into a term facility.
Subsidiary review
Subsidiary income and growth
Altech increased revenue by 7% to R5.2 billion from prior year levels while EBITDA declined by 18% to R372 million with the EBITDA
margin reducing from 9.5% to 7.2%. Headline earnings per share declined by 19%, while diluted adjusted headline earnings per share
declined by 24%. Altech experienced an inflated effective tax rate of 53% caused by the non-recognition of deferred tax assets on the
losses in East and West Africa. The extremely disappointing performances in the Altech East African and West African operations were
partly offset by the majority of the remaining business units performing satisfactorily.
Revenue at Altech Autopage Cellular was flat despite deflation in the voice environment, and the business achieved a 3% increase in
EBITDA. A focus on service levels and customer retention has seen churn rates drop to below 10% for the current period and is helping
to increase the subscriber base which now stands at 1.06 million. The integration of the business with Altech Technology Concepts has
progressed well and will enable the entity to offer bundled services such as converged voice and data to its large client base in the future.
The Altech Netstar group achieved revenue growth of 4% despite low growth in the Stolen Vehicle Recovery (SVR) subscriber base.
EBITDA declined as a result of the reclassification of certain expenses, while operating profit was flat. The limited growth primarily came
from rate increases and a 2.5% growth in the subscriber bases at both SVR and Fleet Management. International expansion and
partnerships remain key strategic objectives for Altech Netstar in the medium term.
Altech Multimedia had an excellent first half, with revenue increasing by 74%, and EBITDA by a pleasing 42%. This significant
improvement in performance can be attributed to improved manufacturing efficiencies as well as greater emphasis on the provision of
services and strong demand from its major client, MultiChoice. The continued international diversification of the customer base has led
to an improvement in the product mix with an increasing number of higher value add set top boxes being produced. The SetOne GmbH
acquisition in Germany has also contributed positively.
The Altech Technology group experienced a difficult six months with revenue flat and EBITDA declining by 35% primarily as a result of the
underperformance of its West African business which was affected by low margins on paper pre-paid recharge vouchers as well as slow
orders for the supply of plastic chip card products to financial institutions. An agreement, subject to certain conditions precedent, has
been signed for the disposal of this operation. The remainder of the Altech Technology group performed satisfactorily, though margins
were generally under pressure. Recent acquisitions, Altech Swisttech and Altech NuPay, both contributed positively.
The Altech Converged Services International group (Altech East Africa) reported disappointing results with revenue declining by 19% and
an EBITDA loss of R33 million. Management is considering, and has progressed, various partnership initiatives regarding this investment.
There is increasing focus on network reliability and meeting client requirements which have both improved. This should help to drive
revenue growth which is required to improve the results.
Altech's return on equity was 22.6% despite the reduced profitability of the group due to significant impairments and return on capital
employed was 37%.
The Altech group's prospects will be significantly influenced by its ability to improve the results out of East Africa and the disposal of the
West African operation. The South African businesses remain solid.
Bytes reported an increase of 19% in revenue to R3.5 billion although EBITDA declined by 1% to R244 million as margins came under
pressure. The EBITDA margin declined from 8.3% to 6.9%. Headline earnings for the Bytes group improved by 7% to R117 million with
the majority of operations performing commendably.
Bytes Document Solutions' South African operations reported an increase of 5% in revenue but a decrease of 28% in EBITDA. The Xerox
business experienced the loss of a large customer and severe margin pressure while both Lasercom and Nor Paper recovered from their
poor performances of the previous period.
Bytes Managed Solutions experienced an expected decrease of 2% in revenue and 14% in EBITDA. The comparative period in the
prior year contained substantial NCR equipment sales into the retail sector that were unlikely to be repeated. The core services business
continues to perform well. The performance of the Retail ATM business continues to improve and compares favourably with industry
benchmarks.
Bytes Systems Integration reported a decrease of 3% in revenue and 13% in EBITDA as a result of slower market activity than in the
comparative period. It is anticipated that the acquisition of Alliance Business Solutions (effective in the second half of the financial year)
will significantly leverage synergistic Oracle capabilities and position the company as the Partner of Choice for Oracle end-to-end offerings
and cloud-based solutions to customers.
Bytes Connect reported a 6% increase in revenue and a 16% increase in EBITDA. The business experienced a significant improvement
in its EBITDA margins as it continues to realise the benefits of the rationalisation of three operations into one.
Bytes Healthcare Solutions performed extremely well, increasing revenue by 10% and EBITDA by 16%. This was achieved through strong
cost control and higher transaction volumes. A number of new initiatives are under way to diversify the revenue streams of this business.
Bytes Universal Systems, a new division formed in April 2012 as a result of the acquisition of Unisys Africa, is contributing positively
towards the group particularly through strong representation in the petroleum and public sectors.
The Bytes UK operations produced excellent results, increasing revenue by 58% and EBITDA by 66%. The Software Services side of the
business, which is predominantly a Microsoft reseller, was assisted by incentives ahead of Microsoft's June year-end as well as a number
of customers bringing forward their renewals ahead of Microsoft's price increases. Bytes Document Solutions UK continued to perform
well, with strong, double digit growth rates despite the weakness in the UK economy. Profitability was also assisted by the inclusion for the
full six months of Security Partnerships Limited which was acquired on 1 August 2011. This business is performing ahead of expectations,
with attractive operating margins.
Bytes' return on equity was 20.7%, while return on capital employed was 21.4%.
Bytes' prospects are viewed as positive as it builds on the momentum created over the last two years and consolidates its position as the
largest South African-owned IT group. However, margin pressure is expected to continue as IT offerings become more commoditised.
Bytes continues to expand, together with some of its current clients, into Africa and also into the public sector through its government
sales team and its recent acquisition, Unisys Africa (now Bytes Universal Systems). The group is actively pursuing various niche bolt-on
acquisition opportunities that will complement its current businesses.
Powertech revenue increased by 11% to R4.2 billion, while EBITDA improved by 6% to R247 million with the EBITDA margin declining
from 6.2% to 6.0%. Headline earnings for the Powertech group increased by 11% to R60 million. These results were positively influenced
by a much improved performance by the Powertech Cables group on more sustained volume levels, though this was offset by reduced
contributions from the Powertech Transformers group and Powertech System Integrators.
The Powertech Cables group improved revenue by 28% and EBITDA by 132%. Growth was attributable to higher and more stable
demand for product. The international cable operations in Iberia are operating in a challenging environment, but progress is being made
in addressing these issues. The Portuguese operation achieved a good turnaround, delivering profits in the first half.
The Powertech Transformers group improved revenue by 3% while EBITDA decreased by 15%. The distribution transformer facility in
Johannesburg experienced some operational issues which are being addressed, while both the power transformer factory in Pretoria
West and the distribution transformer factory in Cape Town performed in line with expectations. The new Switchgear division contributed
significantly towards the Transformers group.
Revenue decreased by 27% in the Powertech Batteries group while EBITDA declined by 7%. This decline is largely attributable to 50.1%
of the industrial side of the business having been sold to Enersys in October 2011 which has resulted in that part of the business being
equity accounted. The remaining automotive business performed well particularly in the after-market. Efforts are underway to further
penetrate the South African OEM market.
Powertech System Integrators increased revenue by 9% over the prior period but EBITDA declined by 16%. IST Otokon and Strike were
the top performers within the division, benefitting from a number of Demand Side Management projects while TIS and some of the other
IST divisions underperformed. Emphasis is being placed on developing this services division' of Powertech to exploit the need for turnkey
solutions and specialised skills both in South Africa and sub-Saharan Africa.
Powertech recently created an Africa division which is focused on providing an integrated power technologies solution into Africa.
A number of substantial infrastructure projects are being investigated and may present opportunities for the division to supply a broad
spectrum of products and services from across Powertech.
Powertech's return on equity was 4.7% while return on capital employed was 11.0%.
Powertech's prospects appear promising considering that there is continued emphasis on infrastructure spend in the country and support
from State-owned entities for local manufacturing operations. New opportunities exist in the service and supply of renewable energy
solutions as well as the increased demand from the transport sector. The Iberian cable operations have been restructured and should
improve their profitability. A number of initiatives are underway to balance the group's exposure to the building and construction sector
and reduce reliance on pure manufacturing operations.
Corporate activity
The following transactions were concluded during the period under review:
- With effect from 31 March 2012, Bytes South Africa acquired 100% of the issued share capital of Unisys Africa, from Unisys
Corporation and a local empowerment company CyberKnowledge Systems Investments, for a purchase price of R89 million.
The acquisition will provide the possibility for synergies and economies of scale between Unisys Africa's operations and the greater
Bytes group.
Transactions after 31 August 2012:
- Bytes, through Bytes Systems Integration, acquired Alliance Business Solutions, a leader in the South African ERP space and an
Oracle Platinum Partner. The acquisition seeks to leverage synergistic Oracle capabilities and cloud-based solutions to the combined
customer base.
- Altech has reached agreement in principle to dispose of its 75% stake in Altech West Africa, a secure recharge voucher and plastic
card manufacturer. This transaction is subject to the fulfilment of certain conditions precedent.
Transformation
Altron's progress in terms of its broad-based black economic empowerment targets is ahead of schedule with the Altron group
having achieved its Transformation Vision 2012 targets. The most recent verifications provided by rating agencies confirmed Bytes as a
level 2 contributor and both Powertech and Altech as level 3 contributors, with Altron achieving a level 3 rating overall. The group has
recently launched a new human capital group-wide strategy, known as "Beyond 2012", which is more focused on the development,
empowerment and retention of diverse employees, with a strong emphasis on previously disadvantaged people.
Our sustainability journey
During the preparation of our 2012 Integrated Annual Report, Altron identified four new core objectives which will be focused on over
the short to medium term. These objectives are to: Improve profitable revenue growth, Invest in our people, Lead through innovation and
Build and maintain strategic alliances. Altron is in the process of finalising the group's sustainability strategy and roll-out plan which will
see an increased focus on these core objectives.
As part of its on-going commitment, Altron has finalised revised water, waste and carbon reduction targets for the next three years.
These targets will be monitored on a regular basis using the new electronic data capturing system implemented in 2011. The group again
participated in the Carbon Disclosure Programme (CDP) as well as the 2012 Water CDP project.
Corporate governance
The Altron group continues to embrace the recommendations of King III and strives to ensure that all disclosures to shareholders are
timely, accurate, relevant and consistent.
Further to our SENS announcement published in May 2010, we continue to co-operate with the Competition Authorities regarding their
investigations into alleged prohibited practices by Aberdare Cables and other competitors in the power cable market.
Outlook
A number of significant initiatives are in progress to mitigate the challenges that the group currently faces, the benefits of which will likely
only materialise in the new financial year. In this context focus will remain on bringing these initiatives to a conclusion, generating profitable
revenue growth, maintaining strict cost control as well as improving working capital management. The current labour unrest in South
Africa is severely impacting on the economy and will hamper our business.
Significant business opportunities in the short to medium term include the convergence of various technologies within Altech, Bytes'
acquisition strategy, and opportunities for Powertech within the electrical services and renewable energy sectors. Opportunities also exist,
for all of the group companies within Africa, although a conservative approach will be adopted for expansion into this region.
Directorate
On 19 May 2012, Mr Peter Curle retired as a non-executive director of the company after 18 years of service on the board. Notwithstanding
Peter's retirement from the Altron board, he continues to serve as a non-executive director on the Allied Technologies Limited
(Altech) board and consults to the wider Altron group on corporate finance-related matters.
Following 16 years of loyal service to the Altron group, seven of which was as an executive director of Altron, Mr Norbert Claussen,
Chief Executive Officer of Powertech, resigned from his position at Powertech and as an executive director of Altron with effect from
30 June 2012 to take up an opportunity to become a shareholder in a business unrelated to Altron.
Mr Peter Wilmot retired from the Altron board effective 20 July 2012. Peter joined the Altron board in 2001 in the capacity of independent,
non-executive director. He served with distinction as Chairman of Altron's audit committee and was a member of the remuneration
committee and the risk management committee.
On 1 June 2012, Mr Grant Gelink joined the Altron board as an independent non-executive director. Grant was previously the Chief
Executive of Deloitte & Touche Southern Africa from where he retired on 31 May 2012. In addition to serving on the Altron risk management
committee, Grant was appointed as the Chairman of the Altron audit committee with effect from 21 July 2012.
Pursuant to the half-year, Ms Barbara Masekela, an independent non-executive director of Altron, retired from the board with effect from
2 October 2012. Barbara joined the company in 2008 and was also a member of its nomination committee.
The board wishes to express its gratitude to Messrs Curle, Claussen and Wilmot and Ms Masekela for their many years of devoted service
and commitment towards the Altron group and welcomes Mr Gelink to the board.
Acknowledgements
The board would like to express its appreciation to all of its customers, staff, business partners, shareholders and other stakeholders for
their support during the past six months and for their continued belief in the future sustainability of the group and its strong underlying
businesses.
On behalf of the board
Dr Bill Venter Robert Venter Alex Smith
Chairman Chief Executive Chief Financial Officer
9 October 2012
Board of directors
Independent non-executive:
Mr NJ Adami
Mr GG Gelink
Mr MJ Leeming
Dr PM Maduna
Ms DNM Mokhobo
Mr JRD Modise
Mr SN Susman
Non-executive:
Dr WP Venter (Chairman)
Mr MC Berzack
Executive:
Mr RE Venter (Chief Executive)
Mr RJ Abraham
Mr AMR Smith*
Mr CG Venter
* British
Secretaries:
Altron Management Services (Pty) Ltd Mr AG Johnston
(Group Company Secretary)
Sponsor:
Investec Bank
The unaudited consolidated interim results are available at www.altron.com
Date: 09/10/2012 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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