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Unaudited Consolidated Interim Results for the six months ended 31 August 2020 and interim dividend announcement
ALLIED ELECTRONICS CORPORATION LIMITED
(Registration number 1947/024583/06)
(Incorporated in the Republic of South Africa)
Share code: AEL ISIN: ZAE000191342
("Altron" or "company")
Unaudited Consolidated Interim Results for the six months ended 31 August 2020 and interim dividend announcement
HIGHLIGHTS
- Earnings before interest tax and depreciation ("EBITDA") for Total Operations and Continuing Operations up 1% and
17%, respectively.
- Bytes UK delivered strong performance with EBITDA of R459m, up 51%. (Constant currency 27%).
- Interim dividend declaration of 33 cents per share, up 14%.
Total Operations Six months ended 31 August % change
R'millions 2020 2019*
Revenue 9 125 8 531 7
EBITDA 836 827 1
Operating Profit before capital items 432 460 (6)
Net Profit after tax 249 266 (6)
Cash generated from operations 294 168 75
Earnings per share 69 74 (7)
Headline earnings per share 67 73 (8)
The Executive Committee regularly evaluates the various operations against its stated purpose and vision and during the
reporting period, it became evident that some of our current offerings do not fit the ICT mould of the future Altron. These
operations include our Document and People Solutions businesses as well as the Altron Arrow electronic component
distribution operation. These businesses are exciting businesses in their own right, but they do not fit the refined vision
of a future Altron which speaks to a highly differentiated technology solutions provider. Consequently, the Board has
taken the decision to treat these businesses as held-for-sale and management is exploring opportunities to exit the
aforementioned businesses. The above-mentioned operations are disclosed as discontinued operations and held-for-sale at the
reporting date.
Continuing Operations Six months ended 31 August % change
R'millions 2020 2019*
Revenue 8 354 7 320 14
EBITDA 883 755 17
Operating profit before capital items 508 410 24
Net profit after tax 309 238 30
Earnings per share 85 67 27
Headline earnings per share 83 65 28
Interim dividend per share 33 29 14
* Comparatives for the continued operations have been re-presented to give effect to the additional discontinued operations as
outlined below. For total operations and continued operations, previously reported results as at 29 February 2020 included the
first-time adoption of IFRS16, Leases. In the initial review, operating lease agreements relating to the leasing of fibre cables were
erroneously assessed to not meet the definition of a lease in terms of IFRS16. Consequently, these contracts had an impact on the
presentation and disclosure of the prior year comparatives as at 31 August 2019. Only the comparatives require restatement as the
lease was correctly classified and accounted for at 29 February 2020.
ALTRON GROUP CHIEF EXECUTIVE COMMENTED:
Mteto Nyati
As communicated before, we have a well laid out five-year roadmap. However, the theme of our H1 results has been
dominated by the impact of COVID-19, which coincided with the start of our financial year. Management was well
prepared for aspects such as remote working, liquidity management and was proactive in managing the cost base.
- 80% of Altron's systems are cloud-based, which enabled a smooth transition from office working to working from home.
- To address liquidity risk, management immediately reviewed all of our non-essential capital expenditure, deferred
and reduced executive bonus payments relating to the prior year.
- Early discussions were held to secure additional liquidity as a precaution under the volatile economic environment.
- To manage the cost base, Altron proactively took the difficult decision to roll back salary increases, in addition to
reducing all non-essential expenditure.
Unfortunately, as the period of lockdown extended beyond the initial three weeks, it became clear that our initial cost
interventions were not adequate. Consequently, additional cost reduction measures were required, which led to 600
staff members being impacted across our South African operations.
Our operations collectively proved to be highly resilient during the reporting period, which bore the brunt of lockdown
levels 5 to 3. This is evident in overall EBITDA being slightly up from the prior year, assisted by positive currency
translation impacts. However, within our various operations, some benefited from the pandemic, while others were
negatively impacted. Examples of our operations which benefited over the financial period:
- Bytes UK operations were net beneficiaries of an elevated need for remote connectivity.
- Altron Karabina ("Karabina"), also benefited from accelerated cloud adoption as customers transitioned from on-
premise data centres to cloud hosting and computing.
- Altron Security, comprising of the new Altron Ubusha ("Ubusha") acquisition, assisted customers in addressing the
increased security vulnerabilities as a result of elevated remote working.
With a peak protracted economic environment and a record low in business confidence, we have seen major capex
expenditure projects placed on hold or delayed, which widely impacted hardware sales across the group. A number of
our operations were unfortunately negatively impacted during the period under review.
Revenue growth and improved profitability are key aspects of the Altron strategy. Despite the challenges brought on
by COVID-19 and the weak and uncertain economic environment, the group delivered gross invoiced income growth of
34.9%, revenue growth of 7.0% and EBITDA of 1.1% against the prior period.
As part of management's focus on profitability, expense management has played a significant part and will continue to
do so for the foreseeable future. The impact of the initiatives to reduce headcount and right-size certain operations in
line with their contracted revenues resulted in the following once-off costs which have been absorbed in the first half of
our financial results.
CONTINUING OPERATIONS
Revenue increased by 14% to R8.4bn on a statutory basis. However, the impact of IFRS 15 on cloud-based sales in our UK
operations is material, in addition to the impact on licence revenue in Karabina and Ubusha. Given that these
transactions are treated as agency revenue, only the margin is recognised as revenue. Taking gross invoiced income
into account, continued operations grew by 43% against the prior year of which 98% of this growth was organic in nature.
EBITDA increased by 17% to R883m, of which 3% of this increase relates to the acquisition of Ubusha. EBITDA has been
negatively impacted by the restructuring cost of R3.9m, two months of salary increases prior to the reversal, R13m, as
well as forex losses of R35m.
The continued operations' EBITDA margin on statutory revenue increased to 10.6% compared to 10.3% in the prior year.
61% of its revenue is generated from the private sector and 39% from the public sector and within the South African
context, revenue from the private sector is 83% and 17% from the public sector.
INTERIM DIVIDEND
The Board remains committed to maintaining the group's dividend cover of 2.5 times on headline earnings relating
to continuing operations and accordingly made the decision to declare a gross interim cash dividend of 33 cents
per share (26.4 cents net of 20% dividend withholding tax) for the financial half-year ended 31 August 2020, payable to
shareholders recorded in the register of the company at the close of business on the record date appearing below.
The Board has confirmed by resolution that the solvency and liquidity test as contemplated by the Companies Act,
No. 71 of 2008, as amended, has been duly considered, applied and satisfied. This is a dividend as defined in the Income
Tax Act, No. 58 of 1962 and is payable from income reserves. The income tax number of the company is 9725149711.
The number of ordinary shares in issue at the date of this declaration is 401 321 820, including 32 287 469 treasury shares.
The salient dates applicable to the dividend are as follows:
DIVIDEND DATES
Last day to trade cum dividend Tuesday, 10 November 2020
Commence trading ex dividend Wednesday, 11 November 2020
Record date Friday, 13 November 2020
Payment date Monday, 16 November 2020
Share certificates may not be dematerialised or rematerialised between Wednesday, 11 November 2020 and Friday,
13 November 2020.
DIRECTORATE
During the financial half-year, our Board continued to provide valuable input to the group in realising Altron's vision and
mission through the steadfast implementation of the One Altron strategy. There were no changes to the composition of
the Altron Board during the past six months.
OUTLOOK
The global and local economic environments deteriorated significantly during the reporting period and Altron took
painful decisions to ensure future sustainability and limit the impact of revenue reduction. Consequently, we can look
forward to a very different second half, which will yield the benefits of our extensive cost reduction initiatives and less
restrictive lockdown levels. We are also eager to get our City of Tshwane broadband project back on track. In addition,
we continue to be excited about the benefits that will flow from the Bytes UK demerger whereafter Altron's Head Office
will be right-sized in accordance with the reduced operations.
In preparation of Altron 2.0 for the future, the focus will be on concluding the exit of identified non-core assets in order
to reduce working capital and debt levels with the commensurate increase in profitability metrics.
Looking further ahead, Altron remains vigilant of a possible second COVID-19 wave and the potential impact thereof
on the economy and our people. Nevertheless, our focus will shift to the exciting growth opportunities available to us.
These would include:
- Expanding our security offering and building on the solid performance of our most recent acquisition.
- Deepening our relationships with Microsoft and Amazon Web Services in sub-Saharan Africa to capture
opportunities in the fast-growing Cloud Computing space.
- Scaling up our own, high margin, IP platforms in Healthtech and Fintech as well as vehicle Telematics in Netstar.
- Growing our Custom Application Development capabilities to assist customers maximising benefits from their
investments in large-scale ERP systems.
Altron enjoyed excellent success in the execution of its current five-year strategy and will deliver on its objectives,
COVID-19 notwithstanding. Consequently, management is developing a new medium-term plan focusing on
differentiation based on high-value offerings and exceptional customer experience. This new medium-term plan will
continue to have "Delivering Innovation that Matters" as its core guiding purpose and will include carefully selective
acquisitions which are aligned to the mentioned growth areas in local as well as international geographies. Margin
expansion and a high annuity base will be core objectives.
FURTHER INFORMATION
This short-form announcement is the responsibility of the directors. It is only a summary of
the information contained in the full announcement and does not contain full or complete
details Any investment decision should be based in the full announcement which is
available at:
https://senspdf.jse.co.za/documents/2020/jse/isse/aele/h1fy21.pdf and which is also
available on our website at:
https://www.altron.com/wp-content/uploads/2020/10/altronHY21.pdf
Copies of the full announcement may also be requested from: wkgroenewald@altron.com
For and on behalf of the Board.
MJ Leeming M Nyati C Miller
Chairman Chief Executive Chief Financial Officer
Registered office
Altron House, 4 Sherborne Road, Parktown, 2193
Sponsor
Investec Bank Limited
Transfer secretaries
Computershare Investor Services Proprietary Limited, 1st Floor, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
Directors
MJ Leeming (Chairman), M Nyati (Chief Executive)*, C Miller (Chief Financial Officer)*, AC Ball, BW Dawson, BJ Francis,
GG Gelink, P Mnganga, S Sithole (Zimbabwean), SW van Graan, RE Venter
* Executive
Group Company Secretary
WK Groenewald
22 October 2020
Date: 22-10-2020 07:30:00
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