Wrap Text
Unaudited consolidated interim results for the six months ended 31 August 2016
ALLIED ELECTRONICS CORPORATION LIMITED
(Registration number 1947/024583/06)
(Incorporated in the Republic of South Africa)
Share Code: AEL ISIN: ZAE000191342
Share Code: AEN ISIN: ZAE000191359
UNAUDITED
CONSOLIDATED
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2016
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Six months Six months Year
ended ended ended
31 August 31 August 29 February
% 2016 2015 2016
R millions change (Unaudited) (Unaudited)* (Audited)
CONTINUING OPERATIONS
Revenue 10 7 537 6 847 14 357
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 18 445 378 888
Depreciation and amortisation (108) (87) (186)
Operating profit before capital items 16 337 291 702
Capital items (note 1) (1) (69) (69)
Result from operating activities 336 222 633
Finance income 111 74 149
Finance expense (194) (170) (310)
Share of profit of equity accounted investees, net of
taxation - - 2
Profit before taxation 253 126 474
Taxation (66) (23) (114)
Profit for the period from continuing operations 187 103 360
DISCONTINUED OPERATIONS
Revenue 3 890 6 445 12 235
Earnings before interest, tax, depreciation and
amortisation (EBITDA) (65) (137) (512)
Depreciation and amortisation - (178) (264)
Operating loss before capital items (65) (315) (776)
Capital items (note 1) (107) (294) (439)
Result from operating activities (172) (609) (1 215)
Finance income 9 21 44
Finance expense (96) (171) (375)
Share of profit of equity accounted investees, net of
taxation 17 7 16
Loss before taxation (242) (752) (1 530)
Taxation 18 31 70
Loss for the period from discontinued operations (224) (721) (1 460)
Loss for the period from total operations (37) (618) (1 100)
Other comprehensive income
Items that will never be reclassified to profit or loss
Remeasurement of net defined benefit asset/obligation - - 60
Items that are or may be reclassified subsequently
to profit or loss
Foreign currency translation differences in respect of
foreign operations (28) 46 100
Realisation of foreign currency translation reserve on
disposal (132) - (13)
Effective portion of changes in the fair value of cash
flow hedges - 3 4
Other comprehensive income for the period, net of
taxation (160) 49 151
Total comprehensive income for the period (197) (569) (949)
Net loss attributable to:
Non-controlling interests (57) (108) (227)
Non-controlling interests from continuing
operations 5 9 6
Non-controlling interests from discontinued
operations (62) (117) (233)
Altron equity holders 20 (510) (873)
Altron equity holders from continuing operations 182 94 354
Altron equity holders from discontinued operations (162) (604) (1 227)
Net loss for the period (37) (618) (1 100)
Total comprehensive income attributable to:
Non-controlling interests (56) (110) (229)
Non-controlling interests from continuing
operations 5 9 6
Non-controlling interests from discontinued
operations (61) (119) (235)
Altron equity holders (141) (459) (720)
Altron equity holders from continuing operations 141 123 469
Altron equity holders from discontinued operations (282) (582) (1 189)
Total comprehensive income for the period (197) (569) (949)
Basic earnings per share from continuing
operations (cents) 54 28 105
Diluted basic earnings per share from continuing
operations (cents) 53 28 104
Basic loss per share from discontinued operations
(cents) (48) (179) (364)
Diluted basic loss per share from discontinued
operations (cents) (47) (177) (359)
Basic earnings/(loss) per share from total
operations (cents) 6 (151) (259)
Diluted basic earnings/(loss) per share from total
operations (cents) 6 (149) (256)
*The unaudited results for the six months ended 31 August 2015 have been re-presented for the effect of the discontinued
operations as required by IFRS 5.
This re-presentation has not been audited.
Condensed consolidated
balance sheet
31 August 31 August 29 February
2016 2015 2016
R millions (Unaudited) (Unaudited) (Audited)
Assets
Non-current assets 2 907 4 072 2 804
Property, plant and equipment 591 1 621 618
Intangible assets including goodwill 1 055 1 083 1 042
Equity-accounted investments 5 223 4
Other investments 321 194 199
Rental finance advances 128 95 129
Non-current receivables and other assets 383 416 345
Defined benefit asset 192 178 211
Deferred taxation 232 262 256
Current assets 7 624 10 475 11 643
Inventories 899 2 659 1 152
Trade and other receivables, including derivatives 2 874 4 381 4 004
Assets classified as held for sale 2 399 2 226 4 996
Taxation receivable 3 33 -
Cash and cash equivalents 1 449 1 176 1 491
Total assets 10 531 14 547 14 447
Equity and liabilities
Total equity 2 352 3 111 2 736
Equity holders of Altron 2 729 3 100 2 847
Non-controlling interests (377) 11 (111)
Non-current liabilities 198 2 806 2 714
Loans 159 2 752 2 675
Provisions 5 21 5
Deferred taxation 34 33 34
Current liabilities 7 981 8 630 8 997
Loans 2 017 863 1 003
Bank overdraft 1 217 1 397 1 285
Trade and other payables, including derivatives 3 426 5 375 4 504
Provisions 7 22 2
Liabilities classified as held for sale 1 189 786 2 058
Taxation payable 125 187 145
Total equity and liabilities 10 531 14 547 14 447
Net asset value per share (cents) 807 919 845
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 2015 (Audited) 2 735 (299) (2 505) 3 708 3 639 123 3 762
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 - - - (104) (104) (3) (107)
Share-based payment transactions - - 24 - 24 1 25
Total contributions by and distributions to
owners - - 24 (104) (80) (2) (82)
Total transactions with owners - - 24 (104) (80) (2) (82)
Balance at 31 August 2015 (unaudited) 2 735 (299) (2 430) 3 094 3 100 11 3 111
Total comprehensive income for the period
Loss for the period - - - (363) (363) (119) (482)
Other comprehensive income
Foreign currency translation differences in
respect of foreign operations - - 54 - 54 - 54
Remeasurement of defined benefit
obligation - - 60 - 60 - 60
Realisation of foreign currency translation
reserve on disposal - - (13) - (13) - (13)
Effective portion of changes in the fair value
of cash flow hedges - - 1 - 1 - 1
Total other comprehensive income - - 102 - 102 - 102
Total comprehensive income for the period - - 102 (363) (261) (119) (380)
Transactions with owners, recorded
directly in equity
Contributions by and distributions to owners
Share-based payment transactions - - 8 - 8 - 8
Total contributions by and distributions to
owners - - 8 - 8 - 8
Changes in ownership interests in
subsidiaries
Buy-back of non-controlling interest - - - - - (3) (3)
Total changes in ownership interests in
subsidiaries - - - - - (3) (3)
Total transactions with owners - - 8 - 8 (3) 5
Balance at 29 February 2016 (Audited) 2 735 (299) (2 320) 2 731 2 847 (111) 2 736
Total comprehensive income for the period
Profit for the period - - - 20 20 (57) (37)
Other comprehensive income
Foreign currency translation differences in
respect of foreign operations - - (29) - (29) 1 (28)
Realisation of foreign currency translation
reserve on disposal - - (132) - (132) - (132)
Transfer between reserves - - 190 (190) - - -
Total other comprehensive income - - 29 (190) (161) 1 (160)
Total comprehensive income for the period - - 29 (170) (141) (56) (197)
Transactions with owners, recorded
directly in equity
Contributions by and distributions to owners
Dividends to equity holders - - - - - (4) (4)
Share-based payment transactions - - 16 - 16 1 17
Issue of share capital 7 - - - 7 - 7
Disposal of non-controlling interest - - - - - (207) (207)
Total contributions by and distributions to
owners 7 - 16 - 23 (210) (187)
Total transactions with owners 7 - 16 - 23 (210) (187)
Balance at 31 August 2016 (unaudited) 2 742 (299) (2 275) 2 561 2 729 (377) 2 352
Condensed consolidated statement
of cash flows
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2016 2015 2016
R millions (Unaudited) (Unaudited) (Audited)
Cash flows (utilised in)/from operating activities (279) 284 1 253
Cash generated by operations 569 528 528
Changes in working capital (646) 168 1 443
Net finance expense (144) (246) (459)
Taxation paid (54) (59) (152)
Cash available from operating activities (275) 391 1 360
Dividends paid, including to non-controlling interests (4) (107) (107)
Cash flows from/(utilised in) investing activities 1 773 (637) (1 121)
Cash flows utilised in financing activities (1 594) (139) (117)
Net (decrease)/increase in cash and cash equivalents (100) (492) 15
Net cash and cash equivalents at the beginning of the period 326 291 291
Cash and cash equivalents at the beginning of the period 206 291 291
Cash previously classified as held for sale 120 - -
Effect of exchange rate fluctuations on cash held (50) 8 20
Cash classified as held for sale 56 (28) (120)
Net cash and cash equivalents at the end of the period 232 (221) 206
NOTES
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2016 2015 2016
(Unaudited) (Unaudited)* (Audited)
Headline earnings per share from continuing
operations (cents) 10% 54 49 126
Headline loss per share from discontinued
operations (cents) 80% (23) (113) (271)
Headline earnings/(loss) per share from total
operations (cents) 148% 31 (64) (145)
Diluted headline earnings/(loss) per share from total
operations (cents) 148% 31 (64) (143)
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
29 February 2016. 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.
R millions
1. Capital items
CONTINUING OPERATIONS
Net loss on disposal of property, plant and
equipment - - (5)
Impairment of property, plant and equipment (3) - -
Impairment of goodwill - (51) (51)
Impairment of intangible assets - (22) (22)
Profit on disposal of subsidiary and businesses 2 4 9
(1) (69) (69)
DISCONTINUED OPERATIONS
Impairment of property, plant and equipment (38) (65) (408)
Impairment of intangible assets (101) (60) (115)
Impairment of goodwill - (169) (179)
Profit on disposal of discontinued operation 26 - 309
Net gain on disposal of property, plant and
equipment 6 - 5
Impairment of equity-accounted investment - - (51)
(107) (294) (439)
Total (108) (363) (508)
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2016 2015 2016
R millions (Unaudited) (Unaudited)* (Audited)
2. Reconciliation between
attributable earnings and
headline earnings
Attributable to Altron equity holders 20 (510) (873)
Capital items - gross 108 363 508
Tax effect of capital items - (34) (52)
Non-controlling interest in capital items (23) (36) (71)
Headline earnings 105 (217) (488)
3. Reconciliation between
attributable earnings and
headline earnings from
continuing operations
Attributable to Altron equity holders 182 94 354
Capital items - gross 1 69 69
Tax effect of capital items - 1 2
Headline earnings 183 164 425
4. Reconciliation between
attributable earnings and
headline earnings from
discontinued operations
Attributable to Altron equity holders (162) (604) (1 227)
Capital items - gross 107 294 439
Tax effect of capital items - (35) (54)
Non-controlling interest in capital items (23) (36) (71)
Headline earnings (78) (381) (913)
5. Reconciliation between
attributable earnings and
diluted earnings
There were no reconciling items between
attributable earnings and diluted earnings
6. Disposal of subsidiaries and businesses
Disposal of the Aberdare group
Effective 30 June 2016, Power Technologies disposed of 75% of its 70% equity interest in Aberdare Cables.
Aberdare International also disposed of 100% of its equity interest in Aberdare Europe. This operation formed part
of the Powertech group, which has been disclosed as a discontinued operation. The disposal did not include the
group's 50% shareholding in the CBI Telecom Cables joint venture. As part of the transaction the group has a put
option to the acquirer of the Aberdare group. This put option is fixed at the same value as the initial transaction
and can be exercised two years after the conclusion of a new BBBEE structure. The remaining interest in the
Aberdare group is included in other investments and is classified as an available for sale financial asset.
Net assets disposed are as follows:
R millions
Non-current assets 410
Current assets 1 912
Non-current liabilities (16)
Current liabilities (1 209)
Disposal value 1 097
Less: Non-controlling interest derecognised (207)
Less: Investment in Aberdare Cables (17.5%) (94)
Less: Investment in Izingwe Aberdare Cables (16.67%) (21)
Profit on disposal of subsidiaries 33
Realisation of foreign currency translation surplus on disposal (132)
Bank overdraft disposed 151
Loans settled 85
Expected purchase price adjustment 34
Proceeds received on disposal 946
7. Discontinued operations
During the previous financial year, Altech Autopage, Altech Node, Altech Multimedia group and the Powertech
group were presented as discontinued operations and assets classified as held for sale.
Management has commmited to a plan to sell these operations in the next 12 months, following a strategic
decision to focus the group in certain areas where the board believes the group has the resources, competence
and skills to leverage a competitive advantage. There has been no change to the composition of the discontinued
operations since year-end.
The comparative held-for-sale operations at 31 August 2015 related to the Altech Autopage, Altech Node and
Powertech Transformers businesses.
31 august 31 August 29 february
2016 2015 2016
Net assets of disposal groups held for sale: R millions R millions R millions
assets classified as held for sale 2 399 2 226 4 996
Non-current assets 815 1 246 1 320
Current assets 1 584 980 3 676
liabilities classified as held for sale (1 189) (786) (2 058)
Non-current liabilities (36) (33) (56)
Current liabilities (1 153) (753) (2 002)
six months Six months
ended ended Year ended
31 august 31 August 29 february
2016 2015 2016
cash flows utilised in discontinued operations R millions R millions R millions
Net cash (utilised in)/generated from operating activities (2) 158 424
Net cash generated from/(utilised in) investing activities 921 (258) (509)
Net cash (utilised in)/generated from financing activities (793) 6 (75)
Net cash flow for the period 126 (94) (160)
8. Fair value of financial instruments
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 (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 2016.
The carrying values of all other financial assets and liabilities approximate their fair values based on the nature
or maturity period for the financial instruments.
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
Six Six Twelve Six Six Twelve
months to months to months to months to months to months to
31 August 31 August 29 February 31 August 31 August 29 February
R millions 2016 2015 2016 2016 2015 2016
Altech Autopage Group *** 316 2 810 5 188 (46) 32 (209)
Altech Multimedia Group * 566 418 1 030 9 (158) (160)
Altech Netstar Group 597 576 1 161 126 140 252
Systems Integration Group 848 733 1 497 9 30 65
Altech Radio Holdings Group 455 519 953 27 36 75
Other Altech Segments 308 163 419 24 11 32
Telecoms and Multimedia 3 090 5 219 10 248 149 91 55
Bytes Technology Group UK
Software 2 287 1 644 3 554 94 74 132
Bytes Document Solutions
Group 951 1 037 2 117 35 38 84
Bytes Managed Solutions 670 681 1 528 32 45 135
Bytes Secure Transaction
Solutions 465 371 837 95 78 192
Bytes Universal Systems 362 334 703 28 23 73
Other Bytes Segments 422 337 741 39 27 54
Information Technology 5 157 4 404 9 480 323 285 670
Powertech Cables Group ** 1 721 2 248 4 370 39 36 (3)
Powertech Transformers Group 681 553 957 (38) (45) (146)
Powertech Battery Group 481 493 984 31 41 74
Powertech System integrators 341 391 770 (57) (10) (5)
Other Powertech Segments 100 70 104 (17) (7) (76)
Altron Power Group * 3 324 3 755 7 185 (42) 15 (156)
Corporate, consolidation and
financial services (144) (86) (321) (50) (150) (193)
Altron Group 11 427 13 292 26 592 380 241 376
* The majority of these segments formed the discontinued operations
** Aberdare Cables Group disposed 30 June 2016
*** Altech Autopage Group disposed 29 February 2016
Six Six Twelve
months to months to months to
31 August 31 August 29 February
2016 2015 2016
Segment EBITDA can be reconciled to group operating profit before
capital items as follows:
Segment EBITDA 380 241 376
Reconciling items:
Depreciation (65) (186) (285)
Amortisation (43) (79) (165)
Group operating profit before capital items 272 (24) (74)
SUPPLEMENTARY INFORMATION -
TOTAL OPERATIONS
31 August 31 August 31 August
2016 2015 2016
R millions (Unaudited) (Unaudited) (Audited)
Depreciation 65 186 285
Amortisation 43 79 165
Net foreign exchange losses/(profit) 104 (5) (41)
Cash flow movements
Capital expenditure (including intangibles) 156 241 468
Net additions to contract fulfilment costs 8 241 383
Additions to contract fulfilment costs 101 321 634
Net expensing of contract fulfilment costs during the year (89) (79) (167)
Terminations of contract fulfilment costs (4) (1) (84)
Capital commitments 36 70 55
Lease commitments 443 897 604
Payable within the next 12 months 165 242 241
Payable thereafter 278 655 363
Weighted average number of shares (millions) 338 337 337
Diluted average number of shares (millions) 342 341 341
Shares in issue at end of period (millions) 338 337 337
Ratios
EBITDA margin (%) 3,3 1,8 1,4
ROCE (%) 12,0* (0,7)* (1,2)
ROE (%) 8,4* (15,7)* (19,8)
ROA (%) 6,5* (0,4)* (0,6)
RONA (%) 10,4* (0,4)* (0,7)
Current ratio 1:1 1,2:1 1,3:1
Acid test ratio 0,8:1 0,9:1 1,2:1
* 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.
MESSAGE TO SHAREHOLDERS
During the past year, Altron has continued to make good progress on the strategic repositioning of
the Altron group by, among others, reducing its exposure to the manufacturing sector and divesting
of non-core assets. As a result thereof, the group is a markedly different entity from what it was 18
months ago.
During the review period the group's core IT and Telecommunications businesses have produced a
pleasing performance in what remains challenging macroeconomic conditions. Altron's non-core
businesses, which predominantly operate in the manufacturing sector, have continued to experience
difficult trading conditions, although we have seen the benefit of the restructuring that occurred last
year in several of these operations. These factors have resulted in a significant reduction in the
losses generated from the discontinued operations.
Good progress has been achieved in concluding and receiving the proceeds of the disposal of Altech
Autopage and Aberdare Cables during this period, with those proceeds being used to reduce debt
levels by approximately R1.5 billion since our year end in February. In addition, the group has also
concluded the sale of Strike Technologies, which was effective 30 June 2016; the sale of a property
in Menlyn; and has signed a binding agreement for the sale of Powertech System Integrators and is
close to concluding a binding offer for the Powertech Batteries Group. Cumulative proceeds of
approximately R340 million are expected on the closing dates of these transactions with a further
R145 million to be realised on a deferred basis. We continue to make progress on the disposal of the
remaining non-core assets. It is also pleasing to see the benefits of the head office rationalisation
coming through in line with expectations.
From a total operations perspective, Altron's revenue for the period decreased by 14% to
R11.4 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 58% to
R380 million. Basic earnings per share (EPS) increased to 6 cents versus the loss of 151 cents
reported in the prior corresponding period. Headline earnings per share (HEPS) improved to 31 cents
from the loss of 64 cents posted in the prior corresponding period.
Financial Overview
Income
Continuing operations
Revenue for the core operations increased by 10% to R7.5 billion from R6.8 billion in the prior year,
while EBITDA increased by a pleasing 18% from R378 million to R445 million. The EBITDA margin
improved to 5.9% compared to the prior period's 5.5%. Revenue growth was primarily driven out of
the UK operations, while the margin uplift was mainly achieved through the anticipated reduction in
corporate and back office costs.
Despite depreciation and amortisation charges increasing to R108 million, operating profit improved
by 16%. Capital items were negligible during the current period, compared to the R69 million loss in
the prior period. Net interest costs in the continuing operations reduced from R96 million to
R83 million, reflecting an improvement in the cash positions of these businesses during the period and in
spite of higher interest rates.
The net effect is that the continuing operations generated a profit before tax of R253 million, double
the profits of R126 million posted in the prior corresponding period. An increase in the effective tax
rate, to a level more in line with the statutory rate, resulted in profit after tax of R187 million.
Headline earnings from continuing operations improved to R183 million from R164 million, resulting
in a 10% increase in headline earnings per share to 54 cents.
Discontinued operations
The results of the discontinued operations showed a significant improvement from the previous
period. Revenue declined as a result of the sale of the Altech Autopage business at the end of the
last financial year and the disposal of Aberdare Cables which was effective from 30 June 2016.
EBITDA losses decreased from R137 million in the prior period to R65 million in the current period.
The main improvement came out of the Altech Multimedia business which is now generating
positive EBITDA, while the Powertech businesses saw a marked decline from the prior corresponding
period.
In addition to the operational performance, a significant reduction in capital items and a lower
interest charge following the disposals resulted in the loss from discontinued operations reducing
significantly from R721 million to R224 million.
Cash management
Total operations
The overall net debt position has improved markedly as a result of the receipt of the Altech
Autopage and Aberdare Cables proceeds, the positive performance of the continuing operations,
and a reduction in the cash losses of the discontinued operations.
Cash generated by operations is broadly in line with the prior period, but cash available from
operating activities was affected by an absorption into working capital. Most of this absorption
related to the disposal of the Altech Autopage business (once off in nature), with the continuing
operations not experiencing any significant movement in working capital.
Cash generated from investing activities relates primarily to the disposals of Altech Autopage and
Aberdare Cables, which generated net cash inflows of approximately R1.5 billion during the period.
Capital expenditure (including investment in intangibles) was significantly lower, reducing to
R156 million from R241 million in the prior year. Investment into contract fulfilment costs was also
significantly reduced following the disposal of Altech Autopage.
The R1.6 billion of cash utilised in financing activities is predominantly due to the application of the
disposal proceeds against the group's borrowings, reducing term funding to approximately
R1.3 billion.
Subsidiary Review
Subsidiary income and growth
Continuing operations
Telecommunications
Telecommunications revenue is down 4% to R2.2 billion, with EBITDA reducing by 21% to
R165 million. As a result, the EBITDA margin has decreased from 9.1% to 7.4%. Much of this decline was
caused by the timing of contracts, which is expected to normalise on a full year basis.
Altech Netstar reported a 4% increase in revenue but saw EBITDA decline by 10% over the prior
corresponding period. However, on a six-month sequential basis, Altech Netstar grew revenue by 2%
and EBITDA by 12.5% and the business will look to improve further on this in the second half.
Subscribers have shown some growth over the last six months as a result of improved churn
management and there is a strong fleet pipeline of orders which should start contributing in the
second half.
Altech Radio Holdings has seen revenue decline by 12% and EBITDA by 25% compared to the prior
period, but this decline was expected given the progress on the Gauteng Broadband Network and
we expect to see this business pick up in the second half of the year as the City of Tshwane project
commences.
Bytes Systems Integration has had a difficult six months with EBITDA reducing to R9 million, despite
revenue being up 16%, as margins remain under pressure. The business was significantly impacted
by unrealised foreign exchange losses due to the strengthening of the Rand, but would still have
reported a decline in EBITDA without that effect.
Multimedia
Arrow Altech Distribution posted excellent results for the six months under review, with revenue up
44%, and stable gross margins and EBITDA up 100%. The business has improved its market share and
expanded into new areas in collaboration with our partner at Arrow and is seeing the benefit of the
improved scale and some new, higher margin business.
Technology (IT)
The technology division continues to deliver and performed ahead of expectations with a 17% uplift
in revenue to R5.2 billion, with much of the growth coming from the UK operations, although Bytes
Secure Transaction Solutions also achieved good growth in the domestic market. EBITDA increased
by 13% to R323 million.
The South African operations increased revenue by 3% and EBITDA increased by 8%, resulting in the
EBITDA margin improving to 8%. Bytes' international operations again produced excellent results
with a 38% increase in revenue and a 25% improvement in EBITDA, assisted by the favourable
exchange rate for most of this period.
Bytes Document Solutions is performing in line with expectations with its revenue decline affected
by the closure of the NOR Papers business at the end of May. EBITDA reduced by 8%, primarily due
to margin pressures from the weakness of the Rand against the British Pound for most of this period.
Bytes Managed Solutions had a challenging first half of the year following the loss of some significant
contracts at the end of the last financial year, which resulted in revenue being marginally down but
EBITDA declining by 29%, although this was in line with expectations. Progress is being made on
expanding this business into the retail and hospitality sectors to reduce its dependency on financial
services.
Bytes Universal Systems, which includes the operations of Alliance, BUS Telecoms (formerly Altech
Isis) and the old Bytes Universal Systems, has delivered an improved performance. Revenue is up 8%
while EBITDA increased by 22%.
Bytes Secure Transaction Solutions continues to perform well, growing revenue by 25% and profits
by 22%. All components of this business performed well, with Altech NuPay performing particularly
well having successfully integrated the Delter IT acquisition concluded towards the end of the last
financial year.
Bytes People Solutions also continues to perform well, delivering revenue growth of 7% and EBITDA
growth of 17% as it continues to benefit from the scale introduced following last year's acquisition of
the call centre business.
The Bytes UK operations had an exceptional six months, growing revenue by 27% in local currency
terms and EBITDA by 14%. Some of the margin dilution came from a large public sector contract that
should generate better margins as the contract progresses.
Discontinued operations
Multimedia
Altech UEC delivered a much improved performance, generating R9 million of EBITDA compared to
the R158 million of losses in the prior period. This result is despite incurring unrealised foreign
exchange losses of R55 million due to the strengthening of the Rand. This improved performance is a
reflection of the right-sizing process that was undertaken last year and the business continues to
make good progress in securing orders in adjacent manufacturing areas.
Powertech
Powertech continues to face significant challenges and has seen revenue decline by 11% and EBITDA
move from a profit of R15 million in the prior period to a loss of R42 million in the current period
albeit this included significant once off charges in the period under review. The revenue decline has
been primarily caused by the inclusion of the Powertech Cables business for only four months
following its disposal on 30 June 2016. However, most operations saw a deterioration in profitability
in difficult markets.
The Powertech Cables group traded well for the four months prior to its disposal, generating
R1.7 billion of revenue and R39 million of EBITDA. Altron retains a 17.5% stake in the local business
following the transaction, but this is accounted for purely as an investment.
Powertech Transformers continues to face difficult market conditions, although revenue increased
by 23%. This enabled the operation to report reduced losses, however it continues to suffer from a
lack of orders for large power transformers and the poor margins realised on the work in progress or
completed. On the positive side, Eskom has released tenders to the value of R5.3 billion for various
classes of transformers and National Treasury recently classified all transformers as designated
products with stringent local content requirements. These two factors significantly improve the
outlook for the business in the medium term.
Powertech Batteries saw a marginal decline in revenue compared to the prior period, but EBITDA
reduced by 24% as a result of a production issue during May that resulted in the scrapping of
batteries worth R10 million. Corrective action has been taken and the business has returned to
normal trading since the incident.
The Powertech System Integrators group has had another disappointing period, with revenue
decreasing by 13% and reporting an EBITDA loss of R57 million. Part of the decline was due to the
disposal of Strike Technologies on 30 June 2016, but the remaining businesses are under performing.
As a result, a major cost reduction exercise was initiated in the business, the costs of which were
accounted for in this period. Once off costs in this period amount to R28 million.
The remaining Powertech businesses have produced mixed results, with a poor performance from
Crabtree offsetting profitable contributions from Powertech Switchgear and Swanib Cables.
DIRECTORATE AND COMPANY SECRETARY
On 31 May 2016, Mr NJ Adami resigned as a non-executive director of Altron in order to, among
others, focus on his business interests outside of the Altron group.
Shareholders are referred to the SENS announcement published by Altron on 15 June 2016 advising
that with effect from 13 June 2016, Ms SN Mabaso-Koyana had resigned as a non-executive director
from the Altron board.
On 30 August 2016, Altron released an announcement on SENS advising that Mr AG Johnston had
resigned as the group company secretary of Altron with effect from 15 November 2016. Further
information regarding his successor will be announced in due course.
The board wishes to express its gratitude to Ms Mabaso-Koyana and Messrs Adami and Johnston for
their many years of service and commitment to the Altron group.
Outlook
We have made good progress in refocusing the Altron group in line with our stated strategy over the
last six months and as a result have been able to significantly reduce the debt levels of the group to
sustainable levels. Nevertheless, the disposal of the remaining non-core assets remains the group's
main priority in order to release capital to further strengthen the balance sheet and enable further
investment into the core businesses.
The results in the core businesses have been pleasing, particularly in the context of difficult and
uncertain local economic conditions. We do not anticipate any significant change in the local
environment, with conditions likely to remain challenging, but our core businesses have shown their
resilience over the past two years. Our main offshore presence in the UK faces its own economic
challenges given the recent Brexit decision. While this may dampen economic confidence in the
region, it is not expected to have a material impact on these businesses, although the weaker Pound
will impact the contribution from these operations to the group's results.
As the group reduces in size we will continue with the process of rationalising head office and
corporate costs.
Importantly, the Altron group has announced that it will transition from a family managed business
to an independent management structure in the short- to medium-term as the transition to the core
IT and telecommunications business is progressed and completed.
On behalf of the board
Dr Bill Venter
Non-Executive Chairman
Robert Venter
Chief Executive
Alex Smith
Chief Financial Officer
18 October 2016
Board of directors
Independent non-executive:
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 AMR Smith*
* British
Secretaries:
Altron Management Services Proprietary Limited - Mr AG Johnston (Group Company Secretary)
Sponsor:
Investec Bank
Date: 19/10/2016 08:00:00 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 
