Wrap Text
Unaudited consolidated interim results for the six months ended 31 August 2014
ALLIED ELECTRONICS CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1947/024583/06)
Share code: AEL ISIN: ZAE000191342
Share code: AEN ISIN: ZAE000191359
UNAUDITED CONSOLIDATED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2014
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2014 2013 2014
R millions change (Unaudited) (Unaudited) (Audited)
CONTINUING OPERATIONS
Revenue 6 14 220 13 443 27 772
Earnings before interest, tax, depreciation and amortisation (EBITDA) (5) 784 826 1 788
Depreciation and amortisation (259) (212) (446)
Operating profit before capital items (14) 525 614 1 342
Capital items (Note 1) (48) 1 (38)
Result from operating activities 477 615 1 304
Finance income 76 31 103
Finance expense (256) (132) (363)
Share of profit of equity accounted investees, net of taxation 4 9 14
Profit before taxation 301 523 1 058
Taxation (100) (182) (326)
Profit for the period from continuing operations 201 341 732
DISCONTINUED OPERATIONS
Profit for the period from discontinued operations – – 43
Net profit for the period 201 341 775
Other comprehensive income
Items that will never be reclassified to profit or loss
Remeasurement of net defined benefit asset/obligation – 2 192
Taxation on items that will never be reclassified to profit or loss – – (3)
Items that are or may be reclassified subsequently to profit or loss
Foreign currency translation differences in respect of foreign
operations (4) 94 164
Realisation of foreign currency translation reserve on disposal (2) – –
Fair value adjustment on available-for-sale investments – 62 13
Taxation on items that are or may be reclassified subsequently
to profit or loss – (11) –
Other comprehensive income for the period, net of taxation (6) 147 366
Total comprehensive income for the period 195 488 1 141
Net profit attributable to:
Non-controlling interests 12 81 160
Altron equity holders 189 260 615
Altron equity holders from continuing operations 189 260 572
Altron equity holders from discontinued operations – – 43
Net profit for the period 201 341 775
Total comprehensive income attributable to:
Non-controlling interests 12 96 174
Altron equity holders 183 392 967
Altron equity holders from continuing operations 183 392 924
Altron equity holders from discontinued operations – – 43
Total comprehensive income for the period 195 488 1 141
Basic earnings per share from total operations (cents) 58 82 192
Diluted basic earnings per share from total operations (cents) 57 81 188
NOTES
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2014 2013 2014
change (Unaudited) (Unaudited) (Audited)
Headline earnings per share (cents) (12) 72 82 188
Normalised headline earnings per share (cents) (20) 72 91 206
Diluted headline earnings per share (cents) (12) 71 81 185
Normalised diluted headline earnings per share (cents) (21) 71 90 202
Basis of preparation
The condensed consolidated unaudited interim financial results have been prepared in accordance with the International Financial
Reporting Standard (IAS) 34 – Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements
of the Companies Act of South Africa. The accounting policies applied in the preparation of these interim results are consistent with
those used in the annual financial statements for the year ended 28 February 2014. This report was compiled under the supervision
of Mr Alex Smith CA, Altron finance director.
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2014 2013 2014
R millions (Unaudited) (Unaudited) (Audited)
1. Capital items
CONTINUING OPERATIONS
Net gain on disposal of property, plant and equipment 54 1 38
Impairment of property, plant and equipment (17) – (2)
Impairment of goodwill (65) – (27)
Impairment of intangible assets (25) – (6)
Net gain on disposal of businesses and investments 5 – 3
Impairment of investment – – (44)
(48) 1 (38)
DISCONTINUED OPERATIONS
Profit on disposal of discontinued operations – – 43
– – 43
Total (48) 1 5
2. Reconciliation between attributable earnings and headline earnings
Attributable to Altron equity holders 189 260 615
Capital items – gross 48 (1) (5)
Tax effect of capital items 7 – (2)
Non-controlling interest in capital items (7) 1 (5)
Headline earnings 237 260 603
3. Reconciliation between attributable earnings and diluted earnings
Attributable to Altron equity holders 189 260 615
Dilutive earnings attributable to B-BBEE non-controlling
interests in subsidiaries – – (3)
Diluted earnings 189 260 612
4. Reconciliation between headline earnings and diluted headline earnings
Headline earnings 237 260 603
Dilutive earnings attributable to B-BBEE non-controlling
interests in subsidiaries – – (2)
Diluted headline earnings 237 260 601
5. Reconciliation between headline earnings and
normalised headline earnings
Normalised headline earnings have been presented to demonstrate the
impact of material, non-operational once-off costs associated with accessing
benefits that will only be realised in subsequent reporting periods, as well as
certain restructuring costs on the headline earnings of the group.
The presentation of normalised headline earnings is not an IFRS requirement.
Headline earnings are reconciled to normalised headline earnings as follows:
Headline earnings 237 260 603
Foreign currency losses on transaction funding – 40 40
Breakage costs on transaction funding – 5 5
Restructuring costs – – 39
Tax effect of adjustments – – (7)
Non-controlling interest in adjustments – (17) (20)
Normalised headline earnings 237 288 660
6. Reconciliation between diluted headline earnings and
normalised diluted headline earnings
Diluted headline earnings 237 260 601
Foreign currency losses on transaction funding – 40 40
Breakage costs on transaction funding – 5 5
Restructuring costs – – 39
Tax effect of adjustments – – (7)
Non-controlling interest in adjustments – (17) (20)
Normalised diluted headline earnings 237 288 658
7. Repurchase of non-controlling interest in Bytes SA
On 9 May 2014, the group entered into an agreement to acquire the 27% of Bytes SA that it does not already own from the
Kagiso Tiso Holdings group of companies for R669 million. The transaction was effective 30 June 2014. R210 million of the
purchase price was settled via the issue of Altron N ordinary (previously participating preference) shares by way of a vendor
placement, with the balance being settled from cash resources.
8. Nupay
Effective 1 May 2014, Altech acquired the remaining 50% less one share equity interest in Altech NuPay Proprietary Limited,
which Altech did not already own for a purchase price of R80 million. The purchase price was settled via the issue of Altron N
ordinary (previously participating preference) shares by way of a vendor placement.
9. Disposal of BDS UK
Effective 1 May 2014, Bytes UK disposed of 100% of its equity interest in Bytes Document Solutions operation in the UK to
Xeratec Group Holdings Limited for a purchase price of R96 million.
10. Aberdare Izingwe
Effective 31 March 2014, the Powertech group recognised the deferred sale of an interest in Aberdare Cables to the Izingwe
Consortium. The obligation to repay the funding has been fully transferred to Izingwe and thus the Powertech group has
recognised the non-controlling interest in Aberdare Cables from 1 April 2014.
11. Nashua Cell C
On 26 May 2014, Altech Autopage entered into a sale agreement with Nashua Mobile, whereby Nashua Mobile disposed
of its Cell C subscriber base comprising of approximately 65 000 subscribers for a purchase consideration not exceeding
R95,8 million. The transaction was approved unconditionally by the Competition Tribunal on 29 September 2014.
12. Related party transactions
The group entered into various sale and purchase transactions with related parties in the ordinary course of business, on an
arm's length basis. The nature of related party transactions is consistent with those reported previously.
13. Financial instruments' fair value
The group measures a preference share investment and its derivative foreign exchange contracts used for hedging at
fair value.
The preference share investments is disclosed as a Level 3 financial asset in terms of the fair value hierarchy with fair
valuation inputs which are not based on observable market data (unobservable inputs). A discounted cash flow valuation
model is used to determine fair value.
The derivative foreign exchange contracts used for hedging are disclosed as Level 2 financial instruments in terms of the
fair value hierarchy with fair valuation inputs (other than quoted prices) that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). A market comparison technique is used to determine fair value.
There were no transfers between Levels 1, 2 or 3 of the fair value hierarchy for the period ended 31 August 2014.
CONDENSED CONSOLIDATED BALANCE SHEET
31 August 31 August 28 February
2014 2013 2014
R millions (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current assets 5 449 5 236 5 496
Property, plant and equipment 1 939 1 890 2 028
Intangible assets including goodwill 1 707 1 694 1 725
Equity accounted investments 210 256 243
Other investments 216 731 181
Rental finance advances 66 40 68
Non-current receivables and other assets 1 014 521 921
Defined benefit asset 180 – 180
Deferred taxation 117 104 150
Current assets 9 369 9 233 10 620
Inventories 3 182 2 885 3 116
Trade and other receivables, including derivatives 5 127 5 054 5 805
Assets classified as held-for-sale – – 214
Taxation receivable 37 – 74
Cash and cash equivalents 1 023 1 294 1 411
Total assets 14 818 14 469 16 116
EQUITY AND LIABILITIES
Total equity 4 023 3 868 4 514
Non-current liabilities 3 125 2 030 495
Loans 2 985 1 878 283
Provisions 6 5 36
Deferred taxation 134 147 176
Current liabilities 7 670 8 571 11 107
Loans 1 128 1 743 2 649
Empowerment funding obligation – 32 17
Bank overdraft 536 976 1 777
Trade and other payables, including derivatives 5 802 5 709 6 374
Provisions 72 70 59
Liabilities classified as held-for-sale – – 84
Taxation payable 132 41 147
Total equity and liabilities 14 818 14 469 16 116
Net asset value per share (cents) 1 141 1 131 1 311
SEGMENTAL REPORT
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.
During the year the Altron TMT Group implemented a business rationalisation programme and divisionalised a number of
subsidiaries in order to align business offerings.
The Altech Group now represents the telecommunications and multimedia divisions of Altron TMT and consists mainly of the
previous Altech businesses plus Bytes Systems Integration. The IT assets (Altech Isis, Altech NuPay and parts of Altech Card
Solutions) formerly within Altech have been moved to Bytes.
The Bytes Group now represents the technology division of Altron TMT and consists mainly of the previous Bytes businesses
(other than Bytes Systems Integration) and the IT assets that were previously within Altech.
Bytes Universal Systems now includes Altech Isis and comprises all of the software development businesses.
Bytes Secure Transaction Solutions includes Bytes Healthcare Solutions, Altech NuPay and parts of Altech Card Solutions.
The business management oversight responsibilities were transferred on 1 March 2014.
Crabtree was moved from the Powertech Cables group during the period under review and now reports under Other Powertech
Segments.
Revenue and EBITDA for the prior periods have therefore been restated to reflect the changes mentioned above.
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 Normalised EBITDA
6 months to 6 months to 12 months to 6 months to 6 months to 12 months to
R millions 31 Aug 2014 31 Aug 2013 28 Feb 2014 31 Aug 2014 31 Aug 2013 28 Feb 2014
Altech Autopage Group 2 712 2 922 5 541 90 140 281
Altech Multimedia Group 1 187 966 2 674 101 83 169
Altech Netstar Group 569 538 1 079 156 143 317
Systems Integration Group 900 780 1 635 46 41 113
Other Altech Segments 491 373 657 22 10 10
Altech Group 5 859 5 579 11 586 415 417 890
Bytes Technology Group UK Software 1 358 1 041 2 066 66 47 76
Bytes Document Solutions Group 1 131 1 167 2 471 45 52 124
Bytes Managed Solutions 792 644 1 630 59 74 175
Bytes Secure Transaction Solutions 339 343 747 64 55 141
Bytes Universal Systems 458 340 641 57 51 99
Other Bytes Segments 175 183 390 (4) (15) (5)
Bytes Group 4 253 3 718 7 945 287 264 610
Inter-segment revenue (77) (23) (75)
Altron TMT 10 035 9 274 19 456 702 681 1 500
Powertech Cables Group 2 622 2 559 5 232 74 41 116
Powertech Transformers Group 638 835 1 609 (7) 84 160
Powertech Battery Group 458 401 775 39 47 82
Powertech Services Group 422 430 845 (3) 16 27
Other Powertech Segments 55 (29) (82) (1) 5 1
Powertech Group 4 195 4 196 8 379 102 193 386
Corporate and financial services 2 3 6 (20) (3) (14)
Inter-segment revenue (12) (30) (69)
Altron Group 14 220 13 443 27 772 784 871 1 872
Segment normalised EBITDA can be reconciled to group operating profit before capital items as follows:
6 months to 6 months to 12 months to
R millions 31 Aug 2014 31 Aug 2013 28 Feb 2014
Segment EBITDA 784 871 1 872
Reconciling items:
Depreciation (184) (161) (326)
Amortisation (75) (51) (120)
Foreign currency losses on transaction
funding – (40) (40)
Breakage costs on transaction funding – (5) (5)
Restructuring costs – – (39)
Group operating profit before
capital items 525 614 1 342
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2014 2013 2014
R millions (Unaudited) (Unaudited) (Audited)
Continuing operations
Cash flows from operating activities 278 200 762
Cash generated by operations 997 959 2 019
Changes in working capital (176) (279) (513)
Net finance expense (178) (101) (242)
Taxation paid (89) (160) (270)
Cash available from operating activities 554 419 994
Dividends paid, including to non-controlling interests (276) (219) (232)
Cash flows utilised in investing activities (1 054) (2 484) (2 866)
Cash flows from financing activities 1 614 1 694 989
Cash flows utilised in discontinued operations – – (63)
Net increase/(decrease) in cash and cash equivalents 838 (590) (1 178)
Net cash and cash equivalents at the beginning of the period (366) 890 840
Effect of exchange rate fluctuations on cash held 15 18 24
Cash classified as held-for-sale – – (52)
Net cash and cash equivalents at the end of the period 487 318 (366)
OPERATIONAL CONTRIBUTION
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2014 2013 2014
R millions change (Unaudited) % (Unaudited) % (Audited) %
Revenue
Altech 5 5 859 40 5 579 41 11 586 42
Bytes 14 4 253 30 3 718 28 7 945 29
TMT corporate and eliminations (77) (23) (75)
Altron TMT 8 10 035 9 274 19 456
Powertech – 4 195 30 4 196 31 8 379 29
Corporate and eliminations (10) (27) (63)
Altron 6 14 220 100 13 443 100 27 772 100
Normalised EBITDA *
Altech – 415 53 417 48 890 48
Bytes 9 287 37 264 30 610 33
Altron TMT 3 702 681 1 500
Powertech (47) 102 13 193 22 386 20
Corporate and eliminations (20) (3) (3) – (14) (1)
Altron (10) 784 100 871 100 1 872 100
Normalised headline earnings **
Altech 26 144 61 114 40 299 45
Bytes 27 169 71 133 46 310 47
Powertech (148) (16) (7) 33 11 77 12
Corporate and eliminations (60) (25) 8 3 (26) (4)
Altron (18) 237 100 288 100 660 100
* Normalised EBITDA is stated before capital items and non-operational once-off costs relating to foreign exchange losses and
breakage costs on transaction funding as well as certain restructuring costs.
** Normalised headline earnings is stated for total operations and before non-operational once-off costs relating to foreign
exchange losses and breakage costs on transaction funding as well as certain restructuring costs.
SUPPLEMENTARY INFORMATION – TOTAL OPERATIONS
31 August 31 August 28 February
2014 2013 2014
R millions (Unaudited) (Unaudited) (Audited)
Depreciation 184 161 326
Amortisation 75 51 120
Net foreign exchange (losses)/profits (28) (24) 3
Cash flow movements
Capital expenditure (including intangibles) 237 356 759
Net additions to contract fulfilment costs 24 81 186
Additions to contract fulfilment costs 224 197 478
Net expensing of contract fulfilment costs during the year (188) (109) (266)
Terminations of contract fulfilment costs (12) (7) (26)
Capital commitments 76 77 109
Lease commitments 877 845 878
Payable within the next 12 months 223 233 256
Payable thereafter 654 612 622
Weighted average number of shares (millions) 328 318 321
Diluted average number of shares (millions) 333 322 325
Shares in issue at end of period (millions) 336 324 325
Ratios
EBITDA margin (%) 5,5 6,1 6,4
Normalised EBITDA margin (%) 5,5 6,5 6,7
ROCE (%) 12,9* 16,3* 17,1
ROE (%) 13,4* 15,1* 15,2
ROA (%) 8,1* 10,2* 9,8
RONA (%) 12,2* 14,6* 14,6
Current ratio 1,2:1 1,1:1 1:1
Acid test ratio 0,8:1 0,7:1 0,7:1
Net debt/EBITDA 2,3* 2,0* 1,9
* Annualised
Definitions:
Contract fulfilment costs
Contract fulfilment costs include hardware, fitment, commissions and other costs directly attributable to the negotiation and
conclusion of customer service contracts. These costs are expensed over the expected period of the customer service contract.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to Altron equity holders
Share
capital Non-
and Treasury Retained controlling Total
R millions premium shares Reserves earnings Total interests equity
Balance at 28 February 2013 (Audited) 2 254 (299) (770) 3 555 4 740 489 5 229
Total comprehensive income for the
period
Profit for the period – – – 260 260 81 341
Other comprehensive income
Foreign currency translation differences
in respect of foreign operations – – 92 – 92 2 94
Remeasurement of defined benefit
obligation – – 2 – 2 – 2
Fair value adjustment on available-for-
sale investments – – 38 – 38 13 51
Total other comprehensive income – – 132 – 132 15 147
Total comprehensive income for the
period – – 132 260 392 96 488
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends to equity holders – – – (190) (190) (29) (219)
Share-based payment transactions – – 13 – 13 3 16
Total contributions by and distributions
to owners – – 13 (190) (177) (26) (203)
Changes in ownership interests in
subsidiaries
Buy-back of non-controlling interest 158 – (1 449) – (1 291) (355) (1 646)
Total changes in ownership interests
in subsidiaries 158 – (1 449) – (1 291) (355) (1 646)
Total transactions with owners 158 – (1 436) (190) (1 468) (381) (1 849)
Balance at 31 August 2013 (Unaudited) 2 412 (299) (2 074) 3 625 3 664 204 3 868
Total comprehensive income for the
period
Profit for the period – – – 355 355 79 434
Other comprehensive income
Foreign currency translation differences
in respect of foreign operations – – 71 – 71 (1) 70
Fair value adjustment on available-for-
sale investments – – (38) – (38) – (38)
Remeasurement of defined benefit
obligation – – 187 – 187 – 187
Total other comprehensive income – – 220 – 220 (1) 219
Total comprehensive income for the
period – – 220 355 575 78 653
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends to equity holders – – – – – (13) (13)
Issue of share capital 15 – (15) – – – –
Share-based payment transactions – – 17 – 17 – 17
Total contributions by and distributions
to owners 15 – 2 – 17 (13) 4
Changes in ownership interests in
subsidiaries
Disposal of subsidiary – – – – – (11) (11)
Total changes in ownership interests in
subsidiaries – – – – – (11) (11)
Total transactions with owners 15 – 2 – 17 (24) (7)
Balance at 28 February 2014 (Audited) 2 427 (299) (1 852) 3 980 4 256 258 4 514
Attributable to Altron equity holders
Share
capital Non-
and Treasury Retained controlling Total
R millions premium shares Reserves earnings Total interests equity
Total comprehensive income for the
period
Profit for the period – – – 189 189 12 201
Other comprehensive income
Foreign currency translation differences
in respect of foreign operations – – (4) – (4) – (4)
Realisation of foreign currency
translation reserve on disposal – – (2) – (2) – (2)
Total other comprehensive income – – (6) – (6) – (6)
Total comprehensive income for the
period – – (6) 189 183 12 195
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends to equity holders – – – (263) (263) (13) (276)
Issue of share capital 294 – – – 294 – 294
Share-based payment transactions – – 22 – 22 – 22
Total contributions by and distributions
to owners 294 – 22 (263) 53 (13) 40
Changes in ownership interests in
subsidiaries
Introduction of non-controlling interest – – (261) – (261) 284 23
Buy-back of non-controlling interest – – (393) – (393) (356) (749)
Total changes in ownership interests in
subsidiaries – – (654) – (654) (72) (726)
Total transactions with owners 294 – (632) (263) (601) (85) (686)
Balance at 31 August 2014 (Unaudited) 2 721 (299) (2 490) 3 906 3 838 185 4 023
MESSAGE TO SHAREHOLDERS
The Altron financial results for the six month period ended 31 August 2014 are reported in an integrated manner in accordance
with the G4 Guidelines prepared by the Global Reporting Initiative (GRI) and the recently published Integrated Reporting (IR)
Framework (Version 1) developed by the International Integrated Reporting Council (IIRC), 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.
During the period under review, Altron increased revenue by 6% to R14.2 billion. Revenue growth came from the Altron TMT
division while at Altron Power revenue remained flat. Headline earnings per share (HEPS) declined by 12% to 72 cents and
normalised headline earnings per share (normalised HEPS) declined by 20% to 72 cents. The benefits of the integration process,
arising as a result of the acquisition of the Altech minority interests were negated by challenging market conditions, particularly
in Powertech. The impact of the NUMSA strike during July 2014 also accounted for a significant portion of the decline in earnings.
FINANCIAL OVERVIEW
Income
In certain cases reference is made to normalised results which exclude the once-off non-operational forex and breakage costs of
R45 million associated with the repatriation of the East Africa loan in the prior period.
Altron's revenue increased by 6% to R14.2 billion from R13.4 billion during the previous corresponding period, while earnings
before interest, tax, depreciation and amortisation (EBITDA) declined by 5% from R826 million to R784 million. Normalised
EBITDA also amounted to R784 million, a decrease of 10% from R871 million which excludes the effect of the once-off, non-
operational costs referred to above. The normalised EBITDA margin was 5.5% compared to the prior year's 6.5%. The impact of
the four week NUMSA strike cost the Altron group an estimated R82 million at the EBITDA level.
Capital items have increased from the prior period due to impairments, partially offset by the profit on disposal of our document
solutions business in the UK and the Absa branded retail ATM assets. Depreciation and amortisation has increased, reflecting the
investment made in previous periods. This resulted in a profit of R477 million from operating activities, 22% lower than last year's
R615 million. Net finance costs have increased from R101 million to R180 million as average borrowings have increased significantly
due to the additional debt taken on to acquire the non-controlling interest in Altech during August 2013, as well as a higher average
borrowing cost following the refinance of the group's debt into longer term borrowings and the rise in the repo rate.
The effective tax rate has declined to 28.7% from 34.8% in the prior year, after adjusting for the effects of the capital items. This
continues to run slightly above the statutory tax rate due to the non-recognition of deferred tax assets in certain operations.
Earnings per share declined by 29% to 58 cents, while HEPS declined by 12% to 72 cents. Normalised HEPS declined by 20%
to 72 cents. Return on equity equalled 13.4 %.
Cash management
Cash generated by operations of R997 million was up 4% on the prior year, while the amount absorbed into working capital
reduced to R176 million, broadly in line with the growth in revenue. While Altron has reduced its investment in both inventories
and receivables since year end, these cash flows have been used to repay creditors. A significant reduction in tax paid was
offset by higher finance charges and an increased dividend, resulting in R278 million of cash flow being generated from
operating activities.
Investing activities reduced to R1 054 million, with a significant portion of this being utilised in acquiring the non-controlling
interest in Bytes South Africa and Altech NuPay. While there was further investment into Altech Autopage's subscribers, this is
stabilising on a net basis and should start reducing in the next six months. Capital expenditure amounted to R237 million in both
property, plant and equipment and intangible assets, with the latter reflecting the group's continued focus on generating its own
intellectual property.
Cash flows from financing activities of R1.6 billion represents the raising of approximately R292 million from the issue of shares,
with the balance being loan funding raised following the completion of the refinance in early March 2014, R780 million of which
was in overdrafts at the year end.
SUBSIDIARY REVIEW
Subsidiary income and growth
Altron TMT
This division, established one year ago following the acquisition of the non-controlling interest in Altech, has performed well with
many integration benefits already being realised. Significant cross sell successes have been achieved as a result of collaboration
between the Altech and Bytes businesses such as the Gauteng Broadband Network tender and the launch of the new Altech
Node smart home console which integrates the capabilities of eight different Altron group businesses. The integration process is
operating through five different workstreams, and is expected to be completed by the end of the 2016 financial year.
On a consolidated total operations level, Altron TMT increased revenue by 8% from R9.3 billion to R10.0 billion and normalised
EBITDA by 3% from R681 million to R702 million. The normalised EBITDA margin declined from 7.3% to 7.0%. Normalised
headline earnings improved by 17% to R313 million.
Telecommunications
Revenue and EBITDA declined at Altech Autopage by 7%, and 36% respectively, predominantly as a result of continued pressures
on the consumer and deflation of voice charges. This result was also impacted by the external funding of our handset receivables,
which has reduced margins on handset sales. The Average Revenue Per User (ARPU) has continued to decline while churn is
being maintained. The business is in the process of repositioning itself to offer increased ISP services targeted at enterprise
clients. All network agreements have now been negotiated in line with expectations.
The Altech Netstar group performed well posting revenue growth of 6%, while EBITDA increased by 9% with margins enhanced
as a result of a number of important contract wins in the fleet management side of the business. The business has also launched
several enhanced products into the market from which we are starting to realise benefits.
Bytes Systems Integration achieved 15% revenue growth and 13% EBITDA growth with strong demand particularly in the
South African side of the business. The international business, primarily in Africa, continues to make progress, albeit at a
slower rate.
Altech Node, which was successfully launched on 18 September 2014, incurred approximately R17 million of EBITDA losses for
the six month period, representing the costs of bringing the product to market. This cost is likely to increase in the second half
due to the commercial launch and the associated marketing spend.
Multimedia
Altech Multimedia posted a 23% increase in revenue and 22% increase in EBITDA. The performance of SetOne in Germany was
also much improved, returning to profitability. The Altech UEC business has been actively involved in the development of new
intellectual property for the Altech Node smart home console, as well as the manufacture of initial volumes of this product.
However, the results were negatively impacted by the NUMSA strike in July, which reduced EBITDA by approximately R15 million.
Technology (IT)
The technology division of Altron TMT consists mainly of the previous Bytes businesses (other than Bytes Systems Integration)
and the IT assets that were previously housed within Altech.
Bytes Document Solutions South Africa increased revenue by 4% but saw EBITDA decline by 3%. Margins at this business remain
under pressure as a result of the depreciation of the Rand and a resultant increase in costs that is difficult to pass on to the
customer. The Document Solutions business in the UK, which was a Xerox concessionaire, was disposed of effective 1 May 2014.
Bytes Managed Solutions improved revenue by 23% but EBITDA declined by 20%. The increase in revenue, but decline in earnings,
was as a result of foreign exchange losses and higher hardware sales that attracted significantly lower margins compared to the
services side of the business. The business however continues to perform well. The Absa branded ATMs forming part of the Retail
ATM division of this business were disposed of effective 1 August 2014.
Bytes Universal Systems, which now also includes Altech Isis and includes all of the software development businesses increased
revenue by 35% and EBITDA by 12% off the back of good orders. The business performed particularly well in the public sector, an
area which Bytes has specifically targeted for growth.
Bytes Secure Transaction Solutions which includes Bytes Healthcare Solutions, Altech NuPay and parts of Altech Card Solutions
performed well. The remaining 50% of Altech NuPay was acquired during the period under review to enable the smooth
integration of the transaction solutions businesses. The collective revenue of Bytes Secure Transaction Solutions declined by 1%
while EBITDA increased by 16%.
Bytes' Software Services, based in the UK, posted a 30% increase in revenue and an extremely pleasing 40% increase in EBITDA
as this business continued to diversify and leverage its market leading position in the UK. The results were assisted by the 21%
depreciation of the Rand.
Altron Power
Altron Power's revenue remained flat at R4.2 billion, while EBITDA declined by 47% to R102 million. Headline earnings for Altron
Power declined from a profit of R33 million in the previous corresponding period to a loss of R16 million. The four week NUMSA
strike in July severely impacted the business, particularly the cables and transformers operations, and this was exacerbated by the
preceding mining sector strike which impacted Powertech's clients and had an indirect effect on its performance. The approximate
losses as a direct result of the NUMSA strike amounted to R67 million at an operating profit level and R41 million at a headline
earnings level. The group was also impacted by a significant decline in demand from a major customer in the public sector.
The Powertech Cables group continued to demonstrate positive progress, with a good recovery achieved during the period.
Revenue increased by 2% and EBITDA by 80%. The local operations saw revenue decline by 1%, while its Iberian operations
increased revenue by 23%, indicating signs of a recovery in the Spanish and Portuguese markets. In the local operations, market
share was gained in the informal sector and although margins are tight, larger volumes were achieved which improved the
recovery of fixed costs. Crabtree was transferred out of the Powertech Cables group during the period under review and now
reports as a separate entity.
The Powertech Transformers group has experienced a difficult first six months. The group has been affected by three factors
namely: the impact of the month long strike referred to above; a deterioration in productivity at both its Booysens and Pretoria
West plants; and reduced demand from its largest customer in the public sector. Revenue decreased by 24% and EBITDA by
108%. Corrective action is being taken by management on the internal aspects, but there is also concern over reduced demand
levels from the public sector as a result of funding constraints.
In the Powertech Batteries group, revenue increased by 14% while EBITDA decreased by 17%. Although the business is
performing satisfactorily, margins are under pressure due to an increasing lead price which cannot be passed on to customers as
well as ongoing competition from imports despite the weak Rand.
Powertech System Integrators' performance was disappointing although new management is in place and exciting initiatives
are under way to grow the business and collaborate with certain businesses within Altron TMT. Revenue decreased by 2% and
EBITDA declined by 119%. Much of the decline occurred in the old IST business, while Powertech QuadPro had an improved six
months and has built a significant order book for turnkey electrical substations which bodes well for the future profitability of
this business.
Corporate activity
The following transactions were concluded during the review period and post the balance sheet date:
- From 1 April 2014, the 25% non-controlling interest in Aberdare has been fully recognised following the repayment of the
external funding structure.
- Effective 1 May 2014, Bytes UK disposed of 100% of its equity interest in Bytes Document Solutions' operation in the UK to
Xeratec Group Holdings Limited for a purchase price of £5.4 million.
- Effective 1 May 2014, Altech acquired the remaining 50% less one share equity interest in Altech NuPay Proprietary Limited,
which Altech did not already own for a purchase price of R80 million. The purchase price was settled via the issue of
Altron N ordinary (previously participating preference) shares by way of a vendor placement.
- On 30 June 2014, Bytes SA acquired Kagiso Strategic Investments' and Venopt's 27% equity interest in Bytes SA for a
purchase price of R669 million. R210 million of the purchase price was settled via the issue of Altron N ordinary shares by
way of a vendor placement, with the balance being settled from cash resources.
- On 26 May 2014, Altech Autopage entered into a sale agreement with Nashua Mobile, whereby Nashua Mobile disposed
of its Cell C subscriber base comprising of approximately 65,000 subscribers for a purchase consideration not exceeding
R95,8 million. This transaction was approved unconditionally by the Competition Tribunal on 29 September 2014 and the
subscribers will be transferred to Altech Autopage during October 2014.
- With effect from 1 August 2014, Absa Bank Limited acquired 850 retail ATMs from Bytes Managed Solutions for a purchase
price of R104.6 million.
- Effective 1 September 2014, Altech Netstar acquired the entire issued share capital of Fleetpro (Pty) Ltd for a purchase price
not exceeding R16.5 million.
HUMAN CAPITAL
Altron has been rated as a Level 2 Broad-Based Black Economic Empowerment contributor for the 2015 financial year. This
has been as a result of a well-executed strategic intent to transcend from a compliance driven process to a more transformative
process.
Training of Altron group employees is a priority and is managed through the recently established Bill Venter Academy.
SUSTAINABILITY
Altron's sustainable business strategy remains the driving force in achieving its targets and objectives. The four key value drivers
for sustainable development remain Financial Capital, Human Capital, Products and Services and External Relationships.
CORPORATE GOVERNANCE
The Altron group continues to embrace and implement the recommendations of the King Report on Governance for South Africa,
2009, as well as the King Code of Governance Principles for South Africa 2009 (the Code) and has satisfied itself that Altron has
complied throughout the review period in all material respects with the Code and the Listings Requirements of the JSE.
OUTLOOK
Management is pleased with the progress and successes achieved at Altron TMT. The business is in the process of implementing
a key accounts management system as well as a shared services structure which will help service customers better, save costs
and assist with cross and upsell of its products and services. Altron TMT will continue to focus on developing its own intellectual
property through new convergence products, such as the recently launched Altech Node.
Altron Power stands to benefit from the eventual refurbishment of South Africa's electrical infrastructure. The business also
stands to benefit from the renewable energy projects that are underway and the electrification of Africa where Powertech is
making inroads. Designated product status for transformers was announced during the period which will significantly benefit
Powertech once demand returns.
While the medium term prospects for both Altron TMT and Altron Power are strong, the next six months are likely to be
challenging. In particular the current challenges being experienced by public sector organisations in South Africa will affect
Altron Power in the second half. A decision in principle has been taken to consider closing the transformer operation in Booysens,
Johannesburg. Altron TMT's results are likely to be constrained in this period as a result of the start-up of Altech Node and the
investment into the commercial launch of this exciting new product.
On behalf of the board
Dr Bill Venter Robert Venter Alex Smith
Non-Executive Chairman Chief Executive Chief Financial Officer
7 October 2014
COMPANY INFORMATION
Board of directors
Independent non-executive
Mr NJ Adami
Mr GG Gelink
Mr MJ Leeming
Ms SN Mabaso-Koyana
Dr PM Maduna
Ms DNM Mokhobo
Mr JRD Modise
Mr RS Ntuli
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 Proprietary Limited – Mr AG Johnston (Group Company Secretary)
Sponsor
Investec Bank
www.altron.com
Date: 08/10/2014 07:15:00 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,
information disseminated through SENS.
Sharenet Sites 
