Wrap Text
Unaudited consolidated interim results for the six months ended 31 August 2015
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 2015
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2015 2014 2015
R millions Change (Unaudited) (Unaudited) (Audited)*
CONTINUING OPERATIONS
Revenue (8) 10 508 11 426 21 732
Earnings before interest, tax, depreciation and amortisation
(EBITDA) (53) 340 730 1 449
Depreciation and amortisation (210) (211) (435)
Operating profit before capital items (75) 130 519 1 014
Capital items (Note 1) (197) (48) (366)
Result from operating activities (67) 471 648
Finance income 88 75 108
Finance expense (207) (203) (353)
Share of profit of equity accounted investees, net of taxation 7 4 15
(Loss)/profit before taxation (179) 347 418
Taxation (61) (112) (208)
(Loss)/profit for the period from continuing operations (240) 235 210
DISCONTINUED OPERATIONS
Revenue 2 784 2 794 5 891
Earnings before interest, tax, depreciation and amortisation
(EBITDA) (99) 54 (66)
Depreciation and amortisation (55) (48) (121)
Operating (loss)/profit before capital items (154) 6 (187)
Capital items (Note 1) (166) – (34)
Result from operating activities (320) 6 (221)
Finance income 7 1 6
Finance expense (134) (53) (159)
Loss before taxation (447) (46) (374)
Taxation 69 12 104
Loss for the period from discontinued operations (378) (34) (270)
(Loss)/profit for the period from total operations (618) 201 (60)
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Foreign currency translation differences in respect of foreign
operations 46 (4) (10)
Realisation of foreign currency translation reserve on disposal – (2) (3)
Effective portion of changes in the fair value of cash flow hedges 3 – (3)
Other comprehensive income for the period, net of taxation 49 (6) (16)
Total comprehensive income for the period (569) 195 (76)
Net (loss)/profit attributable to:
Non-controlling interests (108) 12 (51)
Altron equity holders (510) 189 (9)
Altron equity holders from continuing operations (161) 217 241
Altron equity holders from discontinued operations (349) (28) (250)
Net (loss)/profit for the period (618) 201 (60)
Total comprehensive income attributable to:
Non-controlling interest (110) 12 (51)
Altron equity holders (459) 178 (30)
Altron equity holders from continuing operations (110) 206 220
Altron equity holders from discontinued operations (349) (28) (250)
Total comprehensive income for the period (569) 190 (81)
Basic (loss)/earnings per share from continuing
operations (cents) (48) 66 72
Diluted basic (loss)/earnings per share from continuing
operations (cents) (47) 65 72
Basic loss per share from discontinued operations (cents) (104) (9) (75)
Diluted basic loss per share from discontinued operations (cents) (102) (8) (74)
Basic (loss)/earnings per share from total operations (cents) (151) 58 (3)
Diluted basic (loss)/earnings per share from total
operations (cents) (149) 57 (3)
* The audited results have been represented for the effect of the discontinued operations as required by IFRS 5. This representation has not been audited.
NOTES
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2015 2014 2015
Change (Unaudited) (Unaudited) (Audited)*
Headline (loss)/earnings per share (cents) (189) (64) 72 94
Normalised headline (loss)/earnings per share (cents) (130) (21) 72 100
Diluted headline (loss)/earnings per share (cents) (189) (64) 71 93
Normalised diluted headline (loss)/earnings
per share (cents) (130) (21) 71 99
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 in terms of International Financial Reporting Standards and are consistent with those used in the annual financial
statements for the year ended 28 February 2015. This report was compiled under the supervision of Mr Alex Smith CA, Chief
Financial Officer. The condensed consolidated interim financial results have not been audited or reviewed by the company's
auditor, KPMG Inc.
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2015 2014 2015
R millions (Unaudited) (Unaudited) (Audited)*
1. CAPITAL ITEMS
CONTINUING OPERATIONS
Net gain on disposal of property, plant and equipment 1 54 –
Impairment of property, plant and equipment – (17) (17)
Impairment of goodwill (152) (65) (343)
Impairment of intangible assets (50) (25) (67)
Profit on disposal of subsidiary and businesses 4 5 61
(197) (48) (366)
DISCONTINUED OPERATIONS
Impairment of property, plant and equipment (65) – (1)
Impairment of intangible assets (32) – (33)
Impairment of goodwill (69) – –
(166) – (34)
Total (363) (48) (400)
EVENTS AND CIRCUMSTANCES LEADING TO THE RECOGNITION OF SIGNIFICANT IMPAIRMENT LOSSES
Goodwill
The total goodwill impairment resulted from external market conditions putting sustained pressure on operating results
and a corresponding decline in management's expectations of forecast future cash flows due to the lower than anticipated
activity levels without an envisaged material improvement in the short to medium term.
The carrying amount of the Powertech Systems Integrators, Powertech Transformers, Alliance Business Solutions and
Isis France cash-generating units were determined to be higher than their recoverable amounts, based on value in use.
Impairment losses of R100 million, R69 million, R49 million and R3 million respectively were recognised and allocated to
goodwill. The impairments are included in the Powertech System Integrators, Powertech Transformers, Bytes Universal
Systems and Other Bytes operating segments respectively.
Intangible assets
R15 million of development costs capitalised were impaired due to insufficient forecast contributory cash flows from the
underlying products to support the carrying values of these intangible assets.
During the period intangible assets amounting to R44 million were fully impaired, related to the closure of the Altech Node
and intangible assets amounting to R22 million were impaired in the ISIS France cash-generating unit.
Property, plant and equipment
Impairment tests were conducted on the carrying values of property, plant and equipment in the Powertech Transformers
operation and based on the fair value less cost to sell, R65 million was impaired.
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2015 2014 2015
(Unaudited) (Unaudited) (Audited)*
2. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS
AND HEADLINE EARNINGS
Attributable to Altron equity holders (510) 189 (9)
Capital items – gross 363 48 400
Tax effect of capital items (34) 7 (9)
Non-controlling interest in capital items (36) (7) (70)
Headline earnings (217) 237 312
3. RECONCILIATION BETWEEN HEADLINE EARNINGS AND
NORMALISED HEADLINE EARNINGS
Normalised headline earnings have been presented to demonstrate
the impact of material, once-off costs, 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 (217) 237 312
Restructuring costs 34 – 33
Multimedia Stock Obsolescence Provision 108 – –
Closure costs 49 – –
Tax effect of adjustments (18) – (8)
Non-controlling interest in adjustments (28) – (5)
Normalised headline earnings (72) 237 332
4. ACQUISITION OF SUBSIDIARIES AND BUSINESS
Acquisition of Health-Soft
On 1 March 2015, Med-E-Mass, part of the Altron TMT group of companies, acquired the assets of Health-Soft, a leading
provider of ground-breaking technology services to the South African healthcare industry, for a purchase price not
exceeding R10 million.
Acquisition of Pinpoint Communications
Effective 1 March 2015, Altech Netstar acquired the shares of Pinpoint Communications Pty Ltd.
The maximum purchase price is Australian Dollars 8.3 million, payable in cash. The purchase price is payable as follows:
- first tranche: Australian Dollars 3,2 million (paid in March 2015)
- second tranche: Australian Dollars 1,4 million (payable April 2016)
- third tranche: Australian Dollars 2,0 million (payable April 2017)
- fourth tranche: Australian Dollars 1,7 million (payable April 2017)
The second and third tranches will be paid in terms of an earn-out mechanism over two years based on after-tax profit
targets for the financial years ending February 2016 and 2017 being achieved. The fourth tranche will be payable based on
stretch after-tax profit targets being achieved.
Pinpoint allows Altech Netstar to gain access to new fleet and asset management markets in Australia.
Acquisition of Inter-Active Technologies
Effective 3 March 2015, the Competition Tribunal approved the acquisition by Bytes People Solutions, a division of Bytes
Technology Group, of the assets of Inter-Active Technologies for a nominal consideration. Inter-Active Technologies is a
specialist customer interaction management business and provides further scale to the existing business outsourcing
division of Altron TMT.
The acquired businesses contributed revenue of R125 million and a net profit after tax of R5 million to the group.
Recognised Fair value Carrying
R millions values adjustments amount
The acquired balances at the effective date were as follows:
Non-current assets 12 27 39
Current assets 36 – 36
Non-current liabilities (17) (6) (23)
Current liabilities (49) – (49)
Total net assets on acquisition (18) 21 3
Goodwill on acquisition 79
Total consideration 82
Cash and cash equivalents in subsidiary acquired (8)
Less: Amounts due to vendors (45)
Net cash outflow on acquisition 29
5. DISCONTINUED OPERATIONS
During the previous financial year, the decision was taken to dispose of the majority of the Altech Autopage operation and,
as a result, this business was classified as a discontinued operation. On 23 September 2015 the group announced the sale
of the subscriber bases, subject to regulatory approval and various other conditions precedent. The decision to dispose of
these subscriber bases has been based on, among others, the impact of the ongoing mobile termination rate reductions,
as well as continued industry and consumer deflationary pressures. The Altech Autopage business was classified as
held-for-sale and as a discontinued operation in the prior year and is included in the Altech Autopage operating segment.
During the reporting period a decision was taken to sell Powertech Transformers and the operation was subsequently
classified as held-for-sale and as a discontinued operation. As at the reporting date Powertech Transformers was not yet
sold, however, the requirements for classification as held-for-sale were met. In the light of challenging market conditions
the board felt the business would be better placed within a global industry player to benefit from less dependency on the
South African market and exposure to global best practices. The operation is expected to be disposed of through a sale of
shares in the next 12 months. The operation is included in the Powertech Transformers' operating segment.
On 31 August 2015 the decision was taken to close the Altech Node operation and it was classified as a
discontinued operation. As at the reporting date the Altech Node operation to be closed meets the criteria under IFRS 5 of
a discontinued operation. Unfavourable market conditions, such as the current economic environment creating pressure
on the consumer, together with increased competition in the video-on-demand (VOD) environment resulted in insufficient
subscribers for the business to be viable. The operation is included in the Altech Node operating segment.
Net assets of businesses held-for-sale:
R millions
Property, plant and equipment 216
Intangible assets including goodwill 144
Non-current receivables and other assets 886
Non-current assets 1 246
Inventories 380
Trade and other receivables, including derivatives 539
Taxation receivable 33
Cash and cash equivalents 28
Current assets 980
Assets classified as held-for-sale 2 226
Loans 33
Non-current liabilities 33
Loans 7
Trade and other payables, including derivatives 704
Provisions 42
Current liabilities 753
Liabilities classified as held-for-sale 786
Six months Six months Year
ended ended ended
31 Aug 2015 31 Aug 2014 28 Feb 2015
(Unaudited) (Unaudited) (Audited)
Cash flows utilised in discontinued operations: R millions R millions R millions
Net cash generated from operating activities 158 81 198
Net cash utilised in investing activities (258) (173) (544)
Net cash generated from financing activities 6 34 180
Net cash flow for the year (94) (58) (166)
RE-PRESENTED COMPARATIVE INFORMATION
The Altech Node and Powertech Transformers operations have been classified as discontinued operations in the current
period. The comparative consolidated statement of comprehensive income has been re-presented. This re-presentation
has not been audited.
6. 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.
7. FINANCIAL INSTRUMENTS' FAIR VALUE
The group measures a preference share investment, its derivative foreign exchange contracts used for hedging and
contingent purchase considerations at fair value.
The preference share investment and contingent purchase considerations are disclosed as Level 3 financial assets 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 (ie as prices) or
indirectly (ie 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 2015.
CONDENSED CONSOLIDATED BALANCE SHEET
31 August 31 August 28 February
2015 2014 2015
R millions (Unaudited) (Unaudited) (Audited)*
ASSETS
Non-current assets 4 072 5 449 4 496
Property, plant and equipment 1 621 1 939 1 888
Intangible assets including goodwill 1 083 1 707 1 405
Equity accounted investments 223 210 229
Other investments 194 216 183
Rental finance advances 95 66 93
Non-current receivables and other assets 416 1 014 303
Defined benefit asset 178 180 190
Deferred taxation 262 117 205
Current assets 10 475 9 369 10 686
Inventories 2 659 3 182 2 920
Trade and other receivables, including derivatives 4 381 5 127 5 222
Assets classified as held-for-sale 2 226 – 1 149
Taxation receivable 33 37 54
Cash and cash equivalents 1 176 1 023 1 341
Total assets 14 547 14 818 15 182
EQUITY AND LIABILITIES
Total equity 3 110 4 023 3 762
Non-current liabilities 2 806 3 125 3 260
Loans 2 752 2 985 3 191
Provisions 21 6 29
Deferred taxation 33 134 40
Current liabilities 8 631 7 670 8 160
Loans 863 1 128 634
Bank overdraft 1 397 536 1 050
Trade and other payables, including derivatives 5 376 5 802 5 638
Provisions 22 72 51
Liabilities classified as held-for-sale 786 - 608
Taxation payable 187 132 179
Total equity and liabilities 14 547 14 818 15 182
Net asset value per share (cents) 919 1 141 1 080
SUMMARISED 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.
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
6 months 6 months 12 months 6 months 6 months 12 months
to 31 Aug to 31 Aug to 28 Feb to 31 Aug to 31 Aug to 28 Feb
R millions 2015 2014 2015 2015 2014 2015
Altech Autopage Group* 2 810 2 712 5 650 32 90 137
Altech Multimedia Group 418 1 187 1 821 (158) 101 61
Altech Netstar Group 576 569 1 121 140 156 310
Systems Integration Group 733 900 1 680 30 46 134
Altech Radio Holdings Group 519 349 726 36 25 66
Altech Node* 1 – 19 (75) (18) (114)
Other Altech Segments 163 142 138 (45) 15 (22)
Altech Group 5 220 5 859 11 155 (40) 415 572
Bytes Technology Group UK Software 1 644 1 358 2 644 74 66 106
Bytes Document Solutions Group 1 037 1 131 2 212 38 45 115
Bytes Managed Solutions 681 792 1 520 45 59 136
Bytes Secure Transaction Solutions 371 339 695 78 64 157
Bytes Universal Systems 334 458 856 23 57 107
Other Bytes Segments 337 175 399 27 (4) (7)
Bytes Group 4 404 4 253 8 326 285 287 614
Inter-segment revenue (63) (77) (125)
Altron TMT 9 561 10 035 19 356 245 702 1 186
Powertech Cables Group 2 119 2 622 5 117 27 74 202
Powertech Transformers Group* 553 638 1 330 (45) (7) (66)
Powertech Battery Group 493 458 899 41 39 76
Powertech System integrators 391 422 820 (10) (3) 3
Other Powertech Segments 199 55 122 2 (1) 5
Powertech Group 3 755 4 195 8 288 15 102 220
Corporate and financial services 2 2 4 (19) (20) (23)
Inter-segment revenue (26) (12) (25)
Altron Group 13 292 14 220 27 623 241 784 1 383
* The majority of these segments formed the discontinued operations.
Segment normalised EBITDA can be reconciled to group operating profit before capital items as follows:
Six months Six months 12 months
to 31 Aug to 31 Aug to 28 Feb
R millions 2015 2014 2015
Segment EBITDA 241 784 1 383
Reconciling items:
Depreciation (186) (184) (377)
Amortisation (79) (75) (179)
Group operating profit before capital items (24) 525 827
CONDESED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2015 2014 2015
R millions (Unaudited) (Unaudited) (Audited)*
Continuing operations
Cash flows from operating activities 284 278 1 169
Cash generated by operations 528 997 1 703
Changes in working capital 169 (176) 330
Net finance expense (246) (178) (335)
Taxation paid (59) (89) (253)
Cash available from operating activities 392 554 1 445
Dividends paid, including to non-controlling interests (108) (276) (276)
Cash flows utilised in investing activities (637) (437) (1 018)
Cash flows (utilised in)/from financing activities (139) 945 453
Net (decrease)/increase in cash and cash equivalents (492) 786 604
Net cash and cash equivalents at the beginning of the period 291 (314) (314)
Cash and cash equivalents at the beginning of the period 291 (366) (366)
Cash previously classified as held-for-sale – 52 52
Effect of exchange rate fluctuations on cash held 8 15 1
Net cash and cash equivalents (193) 487 291
Cash classified as held-for-sale (28) – –
Net cash and cash equivalents at the end of the period (221) 487 291
OPERATIONAL CONTRIBUTION FROM
TOTAL OPERATIONS
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2015 2014 2015
R millions change (Unaudited) % (Unaudited) % (Audited)* %
Revenue
Altron TMT (5) 9 561 72 10 035 71 19 356 70
Powertech (10) 3 755 28 4 195 29 8 288 30
Corporate and eliminations (24) (10) (21)
Altron (7) 13 292 100 14 220 100 27 623 100
Normalised EBITDA**
Altron TMT (38) 435 101 702 90 1 197 84
Powertech (85) 15 3 102 13 243 18
Corporate and eliminations (18) (4) (20) (3) (23) (2)
Altron (45) 432 100 784 100 1 417 100
Normalised headline earnings***
Altron TMT 77 313 132 468 141
Powertech (112) (16) (7) 4 1
Corporate and eliminations (37) (60) (25) (140) (42)
Altron (130) (72) 237 100 332 100
** Normalised EBITDA is stated for total operations before capital items and material once-off costs as well as certain restructuring
costs.
*** Normalised headline earnings is stated for total operations and before material once-off costs as well as certain restructuring
costs.
SUPPLEMENTARY INFORMATION (TOTAL OPERATIONS)
31 August 31 August 28 February
2015 2014 2015
R millions (Unaudited) (Unaudited) (Audited)*
Depreciation 186 184 377
Amortisation 79 75 179
Net foreign exchange losses (5) (28) (64)
Cash flow movements
Capital expenditure (including intangibles) 241 237 650
Net additions to contract fulfilment costs 241 24 148
Additions to contract fulfilment costs 321 224 486
Net expensing of contract fulfilment costs during the year (79) (188) (327)
Terminations of contract fulfilment costs (1) (12) (11)
Capital commitments 70 76 71
Lease commitments 897 877 927
Payable within the next 12 months: 242 223 244
Payable thereafter 655 654 683
Weighted average number of shares (millions) 337 328 333
Diluted average number of shares (millions) 341 333 337
Shares in issue at end of period (millions) 337 336 337
Ratios
EBITDA margin 1,8% 5,5% 5,0%
Normalised EBITDA margin 1,8% 5,5% 5,1%
ROCE (0,7%)** 12,9%** 10,9%
ROE (15,7%)** 13,4%** 9,3%
ROA (0,4%)** 8,1%** 6,4%
RONA (0,4%)** 12,2%** 9,9%
Current ratio 1,2:1 1,2:1 1,3:1
Acid test ratio 0,9:1 0,8:1 1:1
** 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 Non-
capital and Treasury Retained controlling Total
R millions premium shares Reserves earnings Total interests equity
Balance at 28 February 2014 (audited) 2 427 (299) (1 852) 3 980 4 256 258 4 514
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)
Share-based payment transactions – – 22 – 22 – 22
Issue of share capital 3 – – – 3 – 3
Total contributions by and distributions
to owners 3 – 22 (263) (238) (13) (251)
Changes in ownership interests in
subsidiaries
Introduction of non-controlling interest – – (261) – (261) 284 23
Buy-back of non-controlling interest 291 – (393) – (102) (356) (458)
Total changes in ownership interests in
subsidiaries 291 – (654) – (363) (72) (435)
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
Total comprehensive income for the
period
Loss for the period – – – (198) (198) (63) (261)
Other comprehensive income
Foreign currency translation differences in
respect of foreign operations – – (6) – (6) – (6)
Realisation of foreign currency translation
reserve on disposal – – (1) – (1) – (1)
Effective portion of changes in the fair
value of cash flow hedges – – (3) – (3) – (3)
Total other comprehensive income – – (10) – (10) – (10)
Total comprehensive income for the period – – (10) (198) (208) (63) (271)
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Issue of share capital 14 – (17) – (3) – (3)
Share-based payment transactions – – 12 – 12 1 13
Total contributions by and distributions
to owners 14 – (5) – 9 1 10
Total transactions with owners 14 – (5) – 9 1 10
Balance at 28 February 2015 (audited) 2 735 (299) (2 505) 3 708 3 639 123 3 762
Attributable to Altron equity holders
Share Non-
capital and Treasury Retained controlling Total
R millions premium shares Reserves earnings Total interests equity
Total comprehensive income for the
period
Loss for the period – – – (510) (510) (108) (618)
Other comprehensive income
Foreign currency translation differences in
respect of foreign operations – – 48 – 48 (2) 46
Effective portion of changes in the fair
value of cash flow hedges – – 3 – 3 – 3
Total other comprehensive income – – 51 – 51 (2) 49
Total comprehensive income for the period – – 51 (510) (459) (110) (569)
Transactions with owners, recorded
directly in equity
Contributions by and distributions to
owners
Dividends to equity holders – – – (108) (108) – (108)
Share-based payment transactions – – 24 – 24 1 25
Total contributions by and distributions
to owners – – 24 (108) (84) 1 (83)
Total transactions with owners – – 24 (108) (84) 1 (83)
Balance at 31 August 2015 (unaudited) 2 735 (299) (2 430) 3 090 3 096 14 3 110
MESSAGE TO SHAREHOLDERS
The Altron financial results for the six-month period ended 31 August 2015 are once again reported in an integrated manner
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 this period, Altron continued to experience adverse effects from four areas of the business, namely: Powertech
Transformers which saw a further decline in orders from Eskom; Altech Multimedia, which was negatively affected by the delay
in African Digital Terrestrial Television Migration (DTT); operating losses in the Altech Node business; and, Altech Autopage
which operated in a difficult and challenging market while the sale of its subscribers was being finalised. The IT businesses,
however, continued to perform well on a comparable basis. The recent announcements regarding the signing of the Altech
Autopage sale agreements with three mobile network operators and the closure of the Altech Node business, address two of
these areas, while work continues on the remaining areas of concern.
From a total operations perspective, Altron's revenue for the period decreased by 7% to R13.3 billion and earnings before
interest, tax, depreciation and amortisation (EBITDA) by 69% to R241 million. Basic earnings per share (EPS) reduced to a
loss of 151 cents versus the profit of 58 cents reported in the prior corresponding period. Headline earnings per share (HEPS)
declined to a loss of 64 cents from the profit of 72 cents posted in the prior corresponding period.
FINANCIAL OVERVIEW
INCOME
During the period under review, decisions were taken to dispose of Powertech Transformers and to close the Altech Node
business. Both of these businesses, as well as the Altech Autopage GSM subscriber bases, were consequently classified as
discontinued operations. In certain cases reference is made to normalised results which exclude various restructuring costs
and significant once-off costs incurred in each period.
Continuing operations
Revenue decreased by 8% to R10.5 billion from R11.4 billion in the prior year, while EBITDA declined by 53% from R730 million
to R340 million. The EBITDA margin was 3.2% compared to the prior year's 6.4%.
Capital items have increased significantly from the prior year primarily due to R152 million of goodwill impairments and
R50 million of impairments of intangible assets. This resulted in a loss of R67 million from operating activities, significantly
lower than last year's profit of R471 million. Net finance costs have decreased from R128 million to R119 million as average
borrowings have decreased due to stringent control of working capital levels.
The effective tax rate is very high in this period due to tax charges incurred in the profit-making business units, while we are
unable to recognise deferred tax assets in a number of loss-making operations due to the uncertainty around recoverability
given the current outlook. Furthermore, several deferred tax assets had to be reversed during the current reporting period.
These factors resulted in a loss from continuing operations for the period of R240 million compared to a profit of R235 million
in the previous corresponding period.
Discontinued operations
The results of the discontinued operations, namely Altech Autopage, Altech Node and Powertech Transformers showed a
significant decline from the previous corresponding period with EBITDA dropping from a profit of R54 million to a loss of
R99 million. This reflects the significant challenges each of these operations faced during the current reporting period.
The substantial capital items are related to the closure of the Altech Node business and the impairment of goodwill as well
as property, plant and equipment at Powertech Transformers caused by the lack of orders in that business. Net finance costs
have also increased significantly, primarily due to a significant increase in the factoring costs associated with the Altech
Autopage handset receivables.
These factors resulted in a loss from discontinued operations of R378 million compared to a loss of R34 million in the previous
corresponding period.
CASH MANAGEMENT
Total operations
Cash generated by operations of R528 million was 47% down on the prior year, while R169 million was released from working
capital, which represented a significant improvement on the R176 million absorption in the prior corresponding period.
The significant increase in the net finance expense was more than offset by reduced tax payments as well as a significantly
lower dividend. These factors resulted in cash flows from operating activities being broadly in line with the previous period.
Investing activities increased to R637 million. Capital expenditure relating to property, plant and equipment as well as intangible
assets amounted to R241 million, which was in line with the prior period. However, the investment in contract fulfilment costs
increased to R321 million as we continued to focus on preserving our subscriber base at Altech Autopage, and to a lesser
extent, Altech Netstar.
Cash flows utilised in financing activities of R139 million represents the repayment of some of the group's debt.
Given the current cash flow position of the group, the focus remains on reducing the amount of debt on the balance sheet.
To this end, the proceeds from the disposal of the Altech Autopage subscribers, as well as other potential disposals, will be
used to reduce the group's debt.
SUBSIDIARY REVIEW
SUBSIDIARY INCOME AND GROWTH
The following commentary is provided on a total operations basis.
Altron TMT
On a consolidated total operations level, Altron TMT (telecommunications, multi-media and IT businesses) revenue declined
by 5% to R9.6 billion while EBITDA declined by 65% from R702 million to R245 million compared to the prior corresponding
period. Headline earnings declined to a loss of R68 million for the period under review.
Telecommunications
Despite Altech Autopage's core subscriber base and ARPUs remaining stable, profitability declined as a result of continued
industry and consumer deflationary pressures. All contracts in respect of the disposal of the post-paid subscribers have been
concluded with the mobile network operators. The sale and regulatory approvals are expected to be complete by year-end.
Altech Netstar reported a marginal increase in revenue but posted a 10% decline in EBITDA. The company saw some pressure
in the stolen vehicle recovery side of the business with increased churn and bad debt expense as consumers came under
pressure. However, fleet management continues to see favourable growth as a result of several contract wins. A number of
small acquisitions were concluded during the second half of the previous year and should enhance the results going forward.
Bytes Systems Integration saw a decline in both revenue and EBITDA. Although the international side of the business
performed well off the back of successful projects in Africa, the local business declined with the non-recurrence of some large
sales during the prior period.
Altech Radio Holdings performed exceptionally well, growing revenue and EBITDA by almost 50%, as a result of the Gauteng
Broadband Network project which is running on schedule with the scope being enhanced in the process. There are some
encouraging and significant projects in the pipeline.
Altron has made the decision to close the Altech Node business and cease services to subscribers with effect from 31 October
2015. Although the technology will remain within the group, no further operational costs, including the cost of content will
continue from that date. All of the closure costs have been provided for in these interim results.
Multimedia
Altech Multimedia was significantly impacted by reduced order intake in its core set-top box business in Africa as a result of
delays in the roll-out of various African DTT programmes. Although demand in South Africa remains at reasonable levels, the
reduction in orders from Africa and the loss of the Samsung TV assembly contract resulted in under recoveries in the factory.
This has also resulted in a significant inventory obsolescence provision in the current reporting period. Action has been taken
to right size this business with the headcount reducing by approximately 60% and consolidation of the international operations
in order to reduce the monthly operating losses.
Technology (IT)
Bytes UK again performed well. While the results were enhanced by the depreciation of the Rand, the local currency results
exceeded expectations as the business expanded its higher margin operations.
The core Xerox business of Bytes Document Solutions showed a good recovery as the benefits of some new business wins in
the last financial year started to feed into the operating results. The Nor Paper business has also improved following some
restructuring and cost cutting during the prior year.
Bytes Managed Solutions performed well despite a reduction in revenue and EBITDA, which was expected given the total
technology refresh that occurred in the prior period at one of its major customers. The business was, however, affected by
foreign exchange losses and the disposal of the retail ATM business in August 2014.
Bytes Secure Transaction Solutions performed well, though it saw a decline in revenue as a result of reduced sales of POS
terminals by Altech Card Solutions, but strong performances from the healthcare businesses and Altech NuPay resulted in a
pleasing increase in EBITDA.
Bytes Universal Systems saw an expected reduction in revenue and EBITDA primarily as a result of a large public sector
contract which came to an end during the prior financial year.
Revenue doubled at Bytes People Solutions and EBITDA also increased substantially as its acquisition of Inter-Active
Technologies, a call centre business, bears fruit.
Altron Power
Altron Power's revenue reduced from R4.2 billion in the previous period to R3.8 billion, while EBITDA declined by 85% to
R15 million. Headline earnings for Altron Power declined from a loss of R16 million in the prior period to a loss of R112 million.
Powertech Cables achieved excellent growth at its international operations in Spain and Portugal but its local operations
struggled as a result of a decline in demand from Eskom, margin pressure and reduced demand from wholesalers as well as
a slump in the copper price which affected inventory values.
At Powertech Transformers, an absence of orders from Eskom for large power transformers led to an unfavourable product
mix and a significant under recovery at the Pretoria-West factory which is in the process of being significantly downscaled.
Recognition by Treasury of transformers as a Designated Product is essential to assist future prospects for this business,
provided Eskom returns to more usual buying patterns. Altron is in the process of disposing of this business and as a result
has categorised it as a discontinued operation.
Powertech Batteries performed satisfactorily given that margins were under pressure due to an increasing Rand lead price as
well as ongoing competition from imports despite the weak Rand and an increase in import duties.
Powertech System Integrators' performance was disappointing although a number of initiatives are currently underway in
Africa. Powertech Quadpro, the turnkey substation business, is waiting for the approval of a number of new projects in Africa,
with its business in South Africa having slowed significantly.
HUMAN CAPITAL
Altron has been rated as a Level 2 Broad-Based Black Economic Empowerment contributor for the 2015/2016 financial
year. This can be attributed to a well-executed strategic intent to transcend from a compliance driven process to a more
transformative process.
Training of Altron group employees remains a priority and is managed through the Bill Venter Academy.
SUSTAINABILITY
Altron's sustainable business strategy remains the driving force in terms of achieving its targets and objectives. The four
key value drivers for sustainable development are 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.
OUTLOOK
Altron's board has identified certain material assets, particularly in the group's manufacturing operations, where equity
partnerships with global industry players, outright disposal or closure is being considered. This, along with the steps already
taken, will reduce or eliminate many of the entities that are currently detracting from the solid performance of the core
IT assets.
The proceeds from the sale of the aforementioned assets as well as the Altech Autopage subscribers will be applied towards
reducing the group's borrowings which were raised predominantly during the acquisition of the minority shareholders' shares
in Altech, and the exit from Altech East Africa.
Furthermore, particular emphasis is being placed on the need to significantly reduce head office costs. In this regard, the
group's three head offices will be consolidated into one by year-end and its shared services initiative will be expanded.
For the remainder of the year conditions are expected to remain challenging, as some of the macro-economic factors that
impacted the group remain in place, namely low economic growth, unfavourable manufacturing conditions and limited orders
from Eskom. Furthermore, the benefits of the various restructuring initiatives, which are well advanced, are only likely to
manifest themselves in the following financial year.
On behalf of the board
Dr Bill Venter Robert Venter Alex Smith
Non-Executive Chairman Chief Executive Chief Financial Officer
6 October 2015
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*
* British
SECRETARIES
Altron Management Services Proprietary Limited – Mr AG Johnston (Group Company Secretary)
SPONSOR
Investec Bank
www.altron.com
Date: 07/10/2015 07:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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