Wrap Text
Unaudited Consolidated Interim Results for the six months ended 31 August 2018 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 "the company")
2018 UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED
31 AUGUST 2018 AND INTERIM DIVIDEND ANNOUNCEMENT
HIGH LEVEL OVERVIEW
During the past financial half year Altron delivered substantially on executing its One Altron
strategy anchored in four strategic pillars, namely improve revenue growth, improve profitability,
transform the customer experience and employee excellence.
Key Results Highlights on a normalised (adjusted for restructuring costs during the period)
basis:
- Revenue from continuing operations increased by 44% to R9.8 billion
- EBITDA from continuing operations increased by 16% to R686 million
- HEPS from continuing operations increased by 25% to 71 cents
- Adjusted net debt reduced to R991 million
- Free cash flow increased by 220% to R295 million
- Interim dividend declared of 28 cents per share
The Altron group ("the Group") has made considerable progress in expanding its operations in
various jurisdictions, successfully integrating three acquisitions. 57% of the Group's revenue is
generated offshore, with Altron being the number one Microsoft licensing partner in the UK. 70%
of the Group's operations have net promotor scores above industry average. During the period
the company has further lowered debt levels and completed the divestment of non-core assets.
The Group has again delivered on the stated goal of consistent double-digit growth at an
EBITDA level despite the ongoing difficult local South African economy.
As announced through SENS on 29 September 2018, the Group completed the acquisition of
the iS Partners group, including its primary subsidiaries Karabina Solutions and Zetta Business
Solutions. iS Partners group adds to Altron's existing Microsoft business offerings and will be
integrated into the Group in building a cloud and data analytics business of scale.
An element of the Group's strategy was the disposal of the remaining non-core assets. This has
now been materially concluded. Powertech Transformers was disposed of with effect from 31
July 2018. As communicated to shareholders on SENS on 25 September 2018, agreement has
been reached to dispose of Altech UEC/Multimedia, the Group's last non-core control asset.
The final conditions precedent to this transaction, including Competition Commission approval,
are expected to be concluded by the end of November 2018.
As previously communicated at the Group's last results announcement, the Board has approved
a resumption in dividends payment to shareholders at 2.5 times cover ratio. This is a result of
the Group's much improved performance over the last eighteen months, which has resulted in
strengthening of the management and leadership team, driving top line growth, improved
profitability, better working capital management, selective bolt-on acquisitions in strategic areas,
as well as a much-improved balance sheet and cash generation for the Group, and has resulted
in the first dividend paid to shareholders since the financial year-ended February 2016.
FINANCIAL OVERVIEW
Due to the inclusion of non-core operations in the total results for the first six months, the
continuing operations' results provide stakeholders with an accurate measure of the core
sustainable earnings of Altron.
Continuing operations
Revenue for the continuing operations grew by 44% to R9.8 billion, while EBITDA increased by
16% to R686 million on a normalised basis. Organic EBITDA growth for the period was 10%,
(excluding Altron ARH' ("ARH") 5% negative growth - see further comments
below) supported by acquisitive growth of 11%. The normalised EBITDA margin decreased to
7% compared to the prior period's 8.7%. The lower increase in EBITDA compared to revenue
increase, as well as the lower EBITDA margin for the current period, are both largely due to
some deliberate actions in the UK business. The Phoenix Software acquisition in the UK in
September 2017, which has more than doubled the profitability of our UK operations, is a high
volume but lower margin business due to its public sector focus. We are also pleased to report
that the borrowings relating to the purchase price for Phoenix Software were fully paid off. Bytes
UK also made a strategic decision to win the National Health Service ("NHS") contract at initially
much lower margins in return for future strategic trade-offs. Another less significant contributor
to the current period's lower margin were some delays experienced in some of the public sector
contracts for ARH. The latter's order book for the second half of the
year is satisfactory.
Normalised headline earnings increased by 26% from R210 million to R264 million while
normalised headline earnings per share grew by 25% to 71 cents against the prior period of 57
cents.
Discontinued operations
The results of the discontinued operations continued to show a significant improvement from
the previous financial half year. EBITDA improved to a profit of R65 million compared to a prior
period loss of R9 million. The main improvement came out of the Powertech Transformers and
Altech UEC/Multimedia businesses that delivered a strong EBITDA turnaround.
CASH MANAGEMENT
The overall net debt of R1.4 billion (R991 million when adjusted for disposal of group assets
and deferred receipts balances) showed a meaningful improvement on the 28 February 2018
year-end position of R1.9 billion due to increased cash generated from operations (R720 million
compared to R598 million for the prior period), as well as better working capital management.
This resulted in a 220% increase in free cash flow to R295 million, which enabled the Group to
allocate R249 million towards repaying its long-term loans during the period.
BUSINESS UNITS REVIEW
Bytes UK had another strong half year, growing revenue by 109% and EBITDA by 90% to R207
million. The performance of the business was positively impacted by the acquisition of Phoenix
Software in the second half of the previous financial year, which added scale to Bytes UK,
making it a significant player in the UK software market. Bytes UK further secured a five-year
GBP150 million contract with the NHS. The cross-selling of Altron's South
African CyberTech offering in the UK market is gaining traction.
Altron Bytes Secure Transaction Solutions ("BSTS") continued to perform well, growing revenue
by 15% and EBITDA by 22% to R134 million, driven by profit margins of 23% and a number of
new contracts secured during the period. BSTS maintains its status as a key growth focus for
the Group. All components of this business performed well, with the NuPay division again being
the outstanding performer. The HealthTech side of the business continues to grow its ecosystems
and platforms to deliver higher value services to health care professionals as well as
the public health sector. FinTech is advancing its new product offerings into the unbanked
environment, which presents a significant growth opportunity for this division. The CyberTech
division is seeing gains from the completion of its technology centre to provide security for
customer networks.
ARH experienced a challenging first half of the financial year, with a number of delays in public
sector contracts. Despite this, the business continues to win and deliver on current broadband
network opportunities, such as the Phase 2 Gauteng broadband network contract, valued at
R2.8 billion over three years, building on its momentum of evolving into the preferred safe city
solution provider for the smart city evolution.
Altron Bytes Document Solutions ("BDS") has seen revenue improve by 9% to R720 million and
EBITDA increase by 28% compared to the prior period, supported by improved margins in the
production systems division. Strategically, the business remains focused on selected growth
areas, including managed print services and the high-end production environment. BDS' growth
strategy into the rest of Africa remains on course, with the business driving cross-selling of
Altron's other offerings into its extensive base of more than 4 500 customers.
Altron Bytes Managed Solutions ("BMS") reported revenue and EBITDA largely in line with the
prior year. The performance of this business is being improved through a conversion of the
traditional retail sector with new technologies such as self-service checkouts and an expansion
of managed services to incorporate Internet of Things ("IoT") solutions. Further improvement in the
performance of BMS will be driven by the ongoing diversification of its offerings, such as the
current launch of cloud-based retail solutions for the hospitality and restaurant sectors.
Altron Bytes Systems Integration ("BSI") produced strong EBITDA results through margin
increase and benefitting from some integration gains. EBITDA increased by 24% and revenue
by 12% against the prior year. Management is taking additional steps to improve EBITDA
margin by, inter alia, focusing the business on high-growth areas and reducing overhead costs.
BSI continues to refine its operating model through the streamlining of the business and driving
the Group's initiatives into IoT, Security, Big Data and Cloud solutions.
Altron Bytes People Solutions("BPS") grew revenue by 8%, with EBITDA improving by 21% against the
prior year, the latter as a result of efficiencies in the call centre business and a focus on outbound
sales campaigns. The business also saw the appointment of a new managing director, Mr
Igshaan Soules, during the reporting period. The business is set to grow through a broadening
of skills development offerings beyond ICT sector training, and driving efficiencies in the
Business Process Outsourcing environment by focusing on enabling technologies, including
robotic processes and multi-channels.
Under new leadership, Netstar is driving customer centricity and cost reductions, backed by
strong revenue and EBITDA growth at an organic level. The business in total reported an 11% increase
in revenue and a 14% improvement in EBITDA against the prior year. Netstar improved the
growth in its subscriber base, particularly in stolen vehicle recovery, with churn and retentions
under close control. Its most recent Australian acquisition, EZY2C, is performing well ahead of
prior year, with Altron's total market share in Australia now at 9%.
Altron Arrow's revenue was largely in line with the prior year, while EBITDA declined by 29%.
The reduction in EBITDA was primarily as a result of lower gross margin levels and overall
market pricing pressures, together with exchange rate fluctuations and supply chain delays. In
challenging economic conditions, the business maintained its leading component distributor
position in this market. Altron Arrow continues to work on key new lines of business, including
driving its eCommerce solutions. It is well placed to deliver in the second half of the financial
year through a strong order book on hand and sizeable new business opportunities.
DIVIDEND
Notice is hereby given that an interim gross cash dividend of 28 cents per share (22.4 cents net
of 20% dividend withholding tax) for the six months ended 30 August 2018 has been declared,
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 399 186 510, including 28 180 080 treasury shares. The salient dates applicable to the interim
dividend are as follows:
Dividend dates:
Last day to trade cum interim dividend Tuesday, 13 November 2018
Commence trading ex interim dividend Wednesday, 14 November 2018
Record date Friday, 16 November 2018
Payment date Monday, 19 November 2018
Share certificates may not be dematerialised or rematerialised between Wednesday,
14 November 2018 and Friday, 16 November 2018.
DIRECTORATE
During the past financial half-year, our Board took further steps to ensure alignment to our new
ICT focused strategy and implementing its diversity policy at board level. As part of this process,
Ms Berenice Francis was appointed as an independent non-executive director on the Board
with effect from 21 June 2018. Shareholders also approved the appointment of Ms Francis as
a member of the Altron Audit Committee on 1 August 2018.
The Board further announced that Dr WP Venter, Chairman Emeritus and the founder of Altron
53 years ago, retired as non-executive director of the Board, with effect from 31 July 2018.
Mr Tim Jacobs resigned as acting Chief Financial Officer ("CFO"), with effect from 19 October
2018. Mr Andrew Holden, the current Chief Operating Officer ("COO") of Altron, was appointed
in the joint role of COO and acting CFO on 19 October 2018. As previously communicated, the
recruitment process of identifying a permanent CFO remains ongoing.
OUTLOOK
Altron remains well-positioned for continued growth and execution of its One Altron strategy of
offering end-to-end solutions to its extensive customer base. We continue to focus on organic
growth, supplemented by selective acquisitions. In particular, we will:
- fully integrate Altron Karabina;
- build stronger Cloud and Data Analytics capabilities;
- operationalise the Huawei and Altron Internet of Things partnership;
- establish a presence in India through Netstar; and
- conclude a debt refinancing package.
This information is the responsibility of the directors and has not been reviewed or audited
by the auditors.
Johannesburg
25 October 2018
Sponsor
Investec Bank Limited
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2018 2017* 2018*
R millions change (Unaudited) (Unaudited) (Audited)
Continuing operations
Revenue 44 9 779 6 792 14 743
Operating costs before capital items** (9 102) (6 248) (13 518)
Earnings before interest, tax, depreciation and amortisation
and capital items (EBITDA before capital items)** 24 677 544 1 225
Depreciation and amortisation** (256) (210) (442)
Operating profit before capital items 26 421 334 783
Capital items (note 1) 16 (16) (38)
Result from operating activities 437 318 745
Finance income 72 85 164
Finance expense (162) (172) (342)
Share of profit of equity accounted investees, net of taxation - (1) (1)
Profit before taxation 347 230 566
Taxation (78) (60) (145)
Profit for the period from continuing operations 269 170 421
Discontinued operations
Revenue 921 1 905 2 938
Operating costs before capital items (856) (1 914) (2 930)
Earnings before interest, tax, depreciation and amortisation
and capital items (EBITDA before capital items) 65 (9) 8
Depreciation and amortisation - - -
Operating profit/(loss) before capital items 65 (9) 8
Capital items (note 1) (48) (63) (271)
Result from operating activities 17 (72) (263)
Finance income 13 25 56
Finance expense (14) (42) (77)
Profit/(loss) before taxation 16 (89) (284)
Taxation 4 (6) 31
Profit/(loss) for the period from discontinued
operations 20 (95) (253)
Profit for the period from total operations 289 75 168
Other comprehensive income
Items that will never be reclassified to profit or loss
Remeasurement of net defined benefit asset/obligation - - (5)
Items that are or may be reclassified subsequently
to profit or loss
Foreign currency translation differences in respect
of foreign operations 165 5 (62)
Transfer to reserves - - (3)
Effective portion of changes in the fair value of cash flow hedges 12 5 2
Other comprehensive income for the period, net of taxation 177 10 (68)
Total comprehensive income for the period 466 85 100
Net profit/(loss) attributable to:
Non-controlling interests (3) (12) (19)
Non-controlling interests from continuing operations - 7 17
Non-controlling interests from discontinued operations (3) (19) (36)
Altron equity holders 292 87 187
Altron equity holders from continuing operations 269 163 404
Altron equity holders from discontinued operations 23 (76) (217)
Net profit for the period 289 75 168
Total comprehensive income attributable to:
Non-controlling interests - (11) (18)
Non-controlling interests from continuing operations - 7 17
Non-controlling interests from discontinued operations - (18) (35)
Altron equity holders 466 96 118
Altron equity holders from continuing operations 434 178 356
Altron equity holders from discontinued operations 32 (82) (238)
Total comprehensive income for the period 466 85 100
Basic earnings per share from
continuing operations (cents) 66 73 44 109
Diluted basic earnings per share from
continuing operations (cents) 64 72 44 108
Basic profit/(loss) per share from
discontinued operations (cents) 129 6 (21) (58)
Diluted basic profit/(loss) per share from
discontinued operations (cents) 129 6 (21) (58)
Basic earnings per share from total operations (cents) 229 79 24 51
Diluted basic earnings per share from
total operations (cents) 239 78 23 50
* The group has initially applied IFRS 15 using the modified retrospective method. Under this method, the comparative information is not
restated. During the current year, the group has also adopted IFRS 9 and, in accordance with the standard, comparative information has not
been restated. See note 12.
** Contract fulfilment costs relating to hardware and fitment have been reclassified to depreciation. These expenses were previously included
in operating costs before capital items.
CONDENSED CONSOLIDATED BALANCE SHEET
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2018 2017* 2018*
R millions (Unaudited) (Unaudited) (Audited)
Non-current assets 3 787 3 187 3 709
Property, plant and equipment 618 570 615
Intangible assets including goodwill 1 761 1 193 1 669
Equity-accounted investments 20 23 20
Other investments 463 503 468
Rental finance advances 88 95 98
Contract fulfilment costs and other 448 432 461
Defined benefit asset 170 162 164
Deferred taxation 219 209 214
Current assets 6 169 5 626 5 749
Inventories 1 002 931 993
Trade and other receivables 3 343 2 605 3 270
Financial assets at fair value through profit and loss 83 - -
Contract assets 226 - -
Assets classified as held for sale 274 1 013 714
Taxation receivable 4 5 4
Cash and cash equivalents 1 237 1 072 768
Total assets 9 956 8 813 9 458
Equity and liabilities
Total equity 3 062 2 523 2 545
Equity holders of Altron 3 264 2 760 2 790
Non-controlling interests (202) (237) (245)
Non-current liabilities 1 192 1 694 1 491
Loans 1 128 1 633 1 413
Provisions 5 4 5
Deferred taxation 59 57 73
Current liabilities 5 702 4 596 5 422
Loans 354 323 314
Bank overdraft 1 187 808 972
Trade and other payables 3 014 2 654 3 582
Financial liabilities at fair value through profit and loss 20 - -
Contract liabilities 762 - -
Provisions 52 19 20
Liabilities classified as held for sale 196 739 465
Taxation payable 117 53 69
Total equity and liabilities 9 956 8 813 9 458
Net asset value per share (cents) 880 744 752
* The group has initially applied IFRS 15 using the modified retrospective method. Under this method, the comparative information is not
restated. During the current year, the group has also adopted IFRS 9 and, in accordance with the standard, comparative information has not
been restated. See note 12.
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
2017 (Audited)* 2 747 (299) (2 536) 2 356 2 268 (240) 2 028
Total comprehensive
income for the period
Profit for the period - - - 87 87 (12) 75
Other comprehensive
income
Foreign currency translation
differences in respect of
foreign operations - - 5 - 5 - 5
Effective portion of changes
in the fair value of cash flow
hedges - - 4 - 4 1 5
Total other comprehensive
income - - 9 - 9 1 10
Total comprehensive income
for the period - - 9 87 96 (11) 85
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Dividends to equity holders - - - - - (5) (5)
Issue of share capital 410 - (10) - 400 - 400
Share-based payment
transactions - - 13 - 13 - 13
Total contributions by and
distributions to owners 410 - 3 - 413 (5) 408
Changes in ownership
interests in subsidiaries
Acquisition of subsidiary - - - - - 2 2
Buy-back of non-controlling
interest - - (17) - (17) 17 -
Total changes in
ownership interests in
subsidiaries - - (17) - (17) 19 2
Total transactions with
owners 410 - (14) - 396 14 410
Balance at 31 August 2017
(unaudited)* 3 157 (299) (2 541) 2 443 2 760 (237) 2 523
Total comprehensive
income for the period
Profit for the period - - - 100 100 (7) 93
Other comprehensive
income
Foreign currency translation
differences in respect of
foreign operations - - (67) - (67) - (67)
Remeasurement on net
defined benefit asset - - (5) - (5) - (5)
Transfer to reserves - - (3) - (3) - (3)
Effective portion of changes
in the fair value of cash flow
hedges - - (3) - (3) - (3)
Total other comprehensive
income - - (78) - (78) - (78)
Total comprehensive income
for the period - - (78) 100 22 (7) 15
* The group has initially applied IFRS 15 using the modified retrospective method. Under this method, the comparative information is not
restated. During the current year, the group has also adopted IFRS 9 and, in accordance with the standard, comparative information has not
been restated. See note 12.
Attributable to Altron equity holders
Share Non-
capital and Treasury Retained controlling Total
R millions premium shares Reserves earnings Total interests equity
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share-based payment
transactions - - 7 - 7 - 7
Issue of share capital 3 - (3) - - - -
Total contributions by and
distributions to owners 3 - 4 - 7 - 7
Changes in ownership
interests in subsidiaries
Buy-back of non-controlling
interest - - 1 - 1 (1) -
Total changes in ownership
interests in subsidiaries - - 1 - 1 (1) -
Total transactions with
owners 3 - 5 - 8 (1) 7
Balance at 28 February
2018 (Audited)* 3 160 (299) (2 614) 2 543 2 790 (245) 2 545
Impact of change in
accounting policy (note 12) - - - (4) (4) - (4)
Restated total equity
at the beginning of the
financial year 3 160 (299) (2 614) 2 539 2 786 (245) 2 541
Total comprehensive
income for the period
Profit for the period - - - 292 292 (3) 289
Other comprehensive
income
Foreign currency translation
differences in respect of
foreign operations - - 165 - 165 - 165
Effective portion of changes
in the fair value of cash flow
hedges - - 9 - 9 3 12
Total other comprehensive
income - - 174 - 174 3 177
Total comprehensive income
for the period - - 174 292 466 - 466
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Dividends to equity holders - - - - - (6) (6)
Share-based payment
transactions - - 12 - 12 - 12
Issue of share capital 1 - (1) - - - -
Total contributions by and
distributions to owners 1 - 11 - 12 (6) 6
Changes in ownership
interests in subsidiaries
Non-controlling interest
disposed - - - - - 49 49
Total changes in ownership
interests in subsidiaries - - - - - 49 49
Total transactions with
owners 1 - 11 - 12 43 55
Balance at 31 August 2018
(unaudited) 3 161 (299) (2 429) 2 831 3 264 (202) 3 062
* The group has initially applied IFRS 15 using the modified retrospective method. Under this method, the comparative information is not
restated. During the current year, the group has also adopted IFRS 9 and, in accordance with the standard, comparative information has not
been restated. See note 12.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R millions (Unaudited) (Unaudited) (Audited)
Cash flows from operating activities 486 15 582
Cash generated by operations 720 598 1 234
Interest received 77 86 178
Interest paid (177) (214) (417)
Dividends received from equity accounted investees
and other investments 4 1 32
Changes in working capital (90) (363) (298)
Taxation paid (48) (90) (141)
Cash available from operating activities 486 18 588
Dividends paid, including to non-controlling interests - (3) (6)
Cash flows utilised in investing activities (65) (296) (971)
Proceeds on the disposal of subsidiaries and businesses net of cash 73 117 233
Acquisition of subsidiaries, net of cash acquired - (86) (698)
Acquisition of intangible assets (24) (43) (84)
Acquisition of property, plant and equipment (72) (99) (194)
Investment in contract fulfilment costs (95) (118) (257)
Other investing activities 53 (67) 29
Cash flows (utilised in)/from financing activities (249) 73 (160)
Loans repaid (251) (335) (627)
Proceeds from share issue - 400 400
Loans advanced - - 67
Other financing activities 2 8 -
Net increase/(decrease) in cash and cash equivalents 172 (208) (549)
Net cash and cash equivalents at the beginning of the period (204) 329 329
Cash and cash equivalents at the beginning of the period (204) 417 417
Cash previously classified as held for sale - (88) (88)
Effect of exchange rate fluctuations on cash held 82 20 16
Bank overdraft classified as held for sale - 123 -
Net cash and cash equivalents at the end of the period 50 264 (204)
NOTES
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2018 2017 2018*
Cents change (Unaudited) (Unaudited) (Audited)
Headline earnings per share from continuing operations 49 70 47 119
Normalised headline earnings per share from
continuing operations 25 71 57 135
Headline earnings/(loss) per share from
discontinued operations 286 13 (7) 2
Headline earnings per share from total operations 108 83 40 121
Diluted headline earnings per share from total operations 95 78 40 120
* The group has initially applied IFRS 15 using the modified retrospective method. Under this method, the comparative information is not
restated during the current year. The group has also adopted IFRS 9 and, in accordance with the standard, comparative information has not
been restated. See note 12.
BASIS OF PREPARATION
The condensed consolidated interim financial statements for the six months ended 31 August 2018 are prepared in
accordance with International Financial Reporting Standard, (IAS) 34 Interim Financial Reporting, SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee (APC), Financial Pronouncements as issued by
the Financial Reporting Standards Council (FRSC), and the requirements of the Companies Act of South Africa.
The condensed consolidated interim financial statements should be read in conjunction with the annual financial
statements for the year ended 28 February 2018, which have been prepared in accordance with International
Financial Reporting Standards (IFRS).
This report was compiled under the supervision of Mr Tim Jacobs CA(SA), acting Chief Financial Officer. The
condensed consolidated interim financial results have not been audited or reviewed by the company's auditor,
PricewaterhouseCoopers Inc.
Principal accounting policies
The group has adopted all the new, revised or amended accounting pronouncements as issued by the International
Accounting Standards Board (IASB) which were effective for the group from 1 March 2018. The following standards
had an impact on the group:
- IFRS 9 Financial instruments (IFRS 9), and
- IFRS 15 Revenue from Contracts with Customers (IFRS 15).
The accounting policies applied in the preparation of the condensed consolidated interim financial statements
are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous
consolidated annual financial statements except for the adoption of the accounting standards as stated above.
Refer to note 12 for details.
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R millions (Unaudited) (Unaudited) (Audited)
1. CAPITAL ITEMS
Continuing operations
Net profit on disposal of property, plant and equipment 16 1 1
Impairment of property, plant and equipment - - (17)
Impairment of intangible assets - (17) -
Impairment of goodwill - - (30)
Reversal of provision related to East Africa disposal - - 10
Impairment of historic proceeds receivable - - (2)
16 (16) (38)
Discontinued operations
Impairment of property, plant and equipment (6) - -
Impairment of intangible assets (22) - (6)
Impairment of held-for-sale disposal groups (53) (48) (175)
Profit/(loss) on disposal of discontinued operations 30 (15) (90)
Net profit on disposal of property, plant and equipment 3 - -
(48) (63) (271)
Total (32) (79) (309)
2. RECONCILIATION BETWEEN ATTRIBUTABLE
EARNINGS AND HEADLINE EARNINGS
Attributable to Altron equity holders 292 87 187
Capital items 32 79 309
Tax effect of capital items 2 (12) (22)
Non-controlling interest in capital items (18) (5) (26)
Headline earnings 308 149 448
3. RECONCILIATION BETWEEN ATTRIBUTABLE
EARNINGS AND HEADLINE EARNINGS FROM
CONTINUING OPERATIONS
Attributable to Altron equity holders 269 163 404
Capital items (16) 16 38
Tax effect of capital items 5 (5) (1)
Headline earnings 258 174 441
4. RECONCILIATION BETWEEN ATTRIBUTABLE
EARNINGS AND HEADLINE EARNINGS FROM
DISCONTINUED OPERATIONS
Attributable to Altron equity holders 23 (76) (217)
Capital items 48 63 271
Tax effect of capital items (3) (7) (21)
Non-controlling interest in capital items (18) (5) (26)
Headline earnings 50 (25) 7
5. RECONCILIATION BETWEEN HEADLINE EARNINGS
AND NORMALISED HEADLINE EARNINGS FROM
CONTINUING OPERATIONS
Normalised headline earnings from continuing operations have
been presented to demonstrate the impact of material one-off
costs on the headline earnings of the continuing operations.
The presentation of normalised headline earnings is not
an IFRS requirement.
Headline earnings are reconciled to normalised headline earnings
as follows:
Headline earnings 258 174 441
Foreign currency losses on transaction funding/gains on deferred - 2 (6)
acquisition liability
Retrenchment and restructuring costs 9 47 77
Acquisition related costs - - 8
Tax effect of adjustments (3) (13) (20)
Normalised headline earnings 264 210 500
6. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS AND DILUTED EARNINGS
There were no reconciling items between attributable earnings and diluted earnings.
7. DISPOSAL OF SUBSIDIARIES AND BUSINESSES
Disposal of 80% interest in Powertech Transformers Proprietary Limited ("Powertech
Transformers")
Effective 31 July 2018, Powertech disposed of its collective 80% equity interest in Powertech Transformers for
R250 million.
This operation formed part of the Powertech group, which has been disclosed as a discontinued operation.
R millions
Net assets of the above operations disposed are as follows:
Non-current assets 2
Current assets 493
NCI 49
Current liabilities (285)
Disposal value 259
Profit on disposal of subsidiaries 30
Cash and cash equivalents disposed (39)
Proceeds receivable (189)
Proceeds received on disposal 61
8. DISCONTINUED OPERATIONS
Impairment of held-for-sale disposal groups
Previously, the decision was taken to dispose of the Powertech group and the Multimedia group and, as a result,
these businesses have been classified as discontinued operations. The relevant requirements of IFRS 5 have
been met for this classification.
The disposal groups are stated at fair value less costs to sell. The non-recurring fair value measurement of
the disposal groups was determined with reference to amongst other things indicative offers from prospective
buyers and any shortfall to the carrying value was then impaired.
The impairments charged in the current period reflect a decline in expected proceeds due to the prolonged
disposal processes and the performance of the operations.
Powertech Transformers was disposed of in the current period (note 7).
Management believes that the conclusion of the remaining disposals will be effected within the next 12 months.
The Powertech and Mutimedia group businesses were previously classified as held-for-sale as well as
discontinued operations.
31 August 31 August 28 February
R millions 2018 2017 2018
Net assets of disposal groups held for sale:
Assets classified as held for sale 274 1 013 714
Non-current assets 75 256 129
Current assets 199 757 585
Liabilities classified as held for sale (196) (739) (465)
Non-current liabilities - (9) (5)
Current liabilities (196) (730) (460)
31 August 31 August 31 August
2018 2018 2018
Multimedia
R millions group Other Total
Breakdown of disposal groups held for sale:
Assets classified as held for sale 233 128 361
Non-current assets 34 128 162
Current assets 199 - 199
Impairment of held for sale disposal group (87)
274
Liabilities classified as held for sale (196) - (196)
Non-current liabilities - -
Current liabilities (196) (196)
28 February 28 February 28 February 28 February
2018 2018 2018 2018
Powertech Multimedia
R millions Transformers group Other Total
Breakdown of disposal groups held for sale:
670 228 138 1 036
Non-current assets 224 60 5 289
Current assets 446 168 133 747
Impairment of held for sale disposal group (322)
Assets classified as held for sale 714
Liabilities classified as held for sale (263) (160) (42) (465)
Non-current liabilities - (5) - (5)
Current liabilities (263) (155) (42) (460)
Six months Six months Year
ended ended ended
31 August 31 August 28 February
R millions 2018 2017 2018
Cash flows utilised in discontinued operations
Net cash utilised in operating activities 110 (6) (178)
Net cash generated from investing activities 62 84 186
Net cash utilised in financing activities - (1) (9)
Net cash flow for the period 172 77 (1)
9. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
The group measures two preference share investments, its derivative foreign exchange contracts used for
hedging and contingent purchase considerations at fair value.
Accounting classifications and fair values
The following table shows the carrying amounts and fair values of financial assets and liabilities, including their
levels in the fair value hierarchy. It does not include fair value information for financial assets and financial
liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
31 August 2018 Carrying amount Fair value
Financial
assets at
fair value
through
other
compre-
Designated Fair value hensive
at fair hedging income
R millions value instruments (FVOCI) Total Level 1 Level 2 Level 3 Total
Financial assets
measured at
fair value
Equity investments - - 198 198 - - 198 198
Derivative assets at fair
value: used for hedging - 83 - 83 - 83 - 83
- 83 198 281 - 83 198 281
Financial liabilities
measured at
fair value
Derivative liabilities
at fair value:
used for hedging - (20) - (20) - (20) - (20)
Deferred purchase
considerations (64) - - (64) - - (64) (64)
(64) (20) - (84) - (20) (64) (84)
28 February 2018 Carrying amount Fair value
Designated Fair value
at fair hedging Available
R millions value instruments for sale* Total Level 1 Level 2 Level 3 Total
Financial assets
measured at
fair value
Equity investments - - 206 206 - - 206 206
Derivative assets at fair
value: used for hedging - 30 - 30 - 30 - 30
- 30 206 236 - 30 206 236
Financial liabilities
measured at
fair value
Derivative liabilities
at fair value:
used for hedging - (96) - (96) - (96) - (96)
Deferred purchase
considerations (66) - - (66) - - (66) (66)
(66) (96) - (162) - (96) (66) (162)
* See note 12.8 for details regarding the restatement as a result of change in accounting policy.
Financial assets that are not subsequently measured at fair value namely; rental finance advances, trade
and other receivables, cash and cash equivalents and non-current receivables are categorised as financial
assets at amortised cost (refer to note 12.6). It has been concluded that the carrying amount of these assets
approximates their fair value.
Financial liabilities that are not subsequently measured at fair value namely; loans, bank overdrafts and trade
and other payables are categorised as other financial liabilities. It has been concluded that the carrying
amount of these liabilities approximates their fair value.
The different levels as disclosed in the table above have been defined as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 Inputs for the asset or liability that are not based on observable market date (unobservable inputs).
Measurement of fair values
Valuation techniques and significant unobservable inputs
The following tables show the valuation techniques used in measuring Level 2 and Level 3 fair values, as well as
the significant unobservable inputs used.
Financial instruments measured at fair value
Inter-relationship
between significant
Significant unobservable inputs and
Type Valuation technique unobservable inputs fair value measurements
Derivative Market comparison technique: Not applicable Not applicable
assets and The fair value of foreign currency
liabilities at fair and commodity contracts (used for
value: used for hedging) are marked-to-market by
hedging comparing the contracted forward
rate to the present value of the
current forward rate of an equivalent
contract with the same maturity
date.
Preference The discounted cash flow method Discount rate of 13.50% The estimated fair value
share was used to present value the (February 2018: 13.50%) would increase (decrease)
in Technologies forecasted income from the if:
Acceptances preference share investment over Forecast annual perpetuity - the discount rate were
Receivables a 10-year (February 2018: 10-year) growth 3% (February 2018: lower (higher);
Proprietary period. The directors' valuation is 3%) - the annual revenue
Limited equal to the fair value. growth rate were higher
(lower).
Deferred Discounted cash flows: Forecast annual revenue The estimated fair value
purchase The valuation model considers growth rate 8% to 12% would increase (decrease)
consideration the present value of the expected (February 2018: 8% to if:
payment, discounted using a 12%) - the annual
risk adjusted discount rate. The - Forecast adjusted Profit revenue growth rate were
expected payment is determined by after tax margin 20% higher (lower)
considering the possible scenarios to 30% (February 2018: - the adjusted PAT margin
of forecast adjusted profit after tax, 39% to 72%) were higher (lower); or
the amount to be paid under each - Risk-adjusted discount - the risk-adjusted discount
scenario and the probability of rate 15% (February rate were lower (higher).
each scenario. 2018: 15%)
Transfers
There were no transfers between levels 1, 2 or 3 of the fair value hierarchy for the period ended 31 August
2018 and the year ended 28 February 2018.
R millions
Reconciliation of deferred purchase consideration
Balance at 28 February 2018 66
Released during the year (10)
Unwinding of interest (1)
Foreign exchange 9
Balance at 31 August 2018 64
10. POST-BALANCE SHEET EVENTS
Post the reporting period, Altron TMT SA Group Proprietary Limited concluded a share sale agreement to
acquire the entire issued share capital of iS Partners Proprietary Limited ("iS Partners"), including its primary
subsidiaries, Karabina Solutions Proprietary Limited ("Karabina") and Zetta Business Solutions Proprietary
Limited ("Zetta"), effective 3 September 2018.
Karabina (previously known as iS Partners) provides business technology services with expertise across
multiple industries.
The business focuses on the implementation, customisation, integration as well as core application
development on the Microsoft platform for Business Intelligence ("BI"), Customer Relationship Management
("CRM"), Knowledge Management ("KM") and Corporate Performance Management ("CPM") solutions.
The maximum purchase price of approximately R225 million, of which R162 million was paid upfront and the
remainder is payable over two years.
Management is still finalising the full purchase price allocation and related Goodwill. Management is still in the
process of determining the effect on revenue and net profit after tax if the company was acquired on 1 March 2018.
Dividends declared
Dividends declared at the board meeting held on 24 October 2018 amounted to 28 cents per share.
11. RELATED PARTY TRANSACTIONS
The group entered into various sale and purchase transactions with related parties in the ordinary course of
business.
The nature of related party transactions is consistent with those reported previously.
12. NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP
The group has adopted the following new accounting pronouncements as issued by the IASB, which were
effective for the group from 1 March 2018:
- IFRS 15 Revenue from Contracts with Customers (IFRS 15), and
- IFRS 9 Financial instruments (IFRS 9).
12.1 Transition to IFRS 15
The group has applied IFRS 15 using the modified retrospective method, by recognising the cumulative effect
of initially applying IFRS 15 as an adjustment to the opening balance of equity at 1 March 2018.
The comparative information has not been restated and continues to be reported under IAS 18 and IAS 11.
The details of the significant changes and quantitative impact of the changes are set out below.
The group applied the following practical expedients when applying IFRS 15 using the modified retrospective
method:
- The group did not quantify the effect on opening retained income for contracts that were completed
contracts at 1 March 2017.
- The group did not quantify the effect on opening retained income for contracts that began and ended in the
same annual reporting period.
- For modified contracts, the group used the contractual terms that existed at 1 March 2017.
- The group does not adjust the promised amount of consideration for the effects of a significant financing
component if the group expects, at contract inception, that the period between when the group transfers
a promised good or service to a customer and when the customer pays for that good or service will be one
year or less.
12.2 Adoption of IFRS 15
The group principally generates revenue from providing the following products and services:
- Project related revenue
- Rental of hardware and related services
- Maintenance and support
- Training and skills development
- Outsource services
- Sale of hardware
- Software and related licenses - once off
- Software and related licences - recurring
- Software application and development
- Switching services and other transactional services
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is
recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under
IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be
entitled for transferring goods or services to a customer.
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts
collected on behalf of third parties. The group recognises revenue when it transfers control over a product or
service to a customer.
For bundled packages of products and services, the group accounts for individual products and services
separately if they are distinct, i.e. if a product or service is separately identifiable from other items in the
bundled package and if a customer can benefit from it. The consideration is allocated between separate
products and services in a bundle based on their standalone selling prices. The standalone selling prices are
determined based on the list prices at which the company sells its products and services separately.
In the comparative period, revenue was measured at the fair value of the consideration received or receivable.
Revenue from the sale of goods was recognised when the significant risks and rewards of ownership had been
transferred to the customer, recovery of the consideration was probable, the associated costs and possible
return of goods could be estimated reliably, there was no continuing management involvement with the goods
and the amount of revenue could be measured reliably. Revenue from rendering of services was recognised in
proportion to the stage of completion of the work performed at the reporting date. The stage of completion is
time based and dependent on the terms of the contract.
Revenue from operating lease arrangements is recognised in profit and loss on a straight-line basis over the
term of the lease.
On adoption of IFRS 15, by applying the modified retrospective method, the opening balance of equity at
1 March 2018 was restated as follows:
R millions
Retained earnings at 1 March 2018 as previously reported 2 543
Deferral of perpetual licence sales (refer below) (4)
Opening retained earnings 1 March 2018 restated 2 539
The following tables show the adjustments recognised for each individual line item. Line items that were not
affected by the changes have not been included. As a result, the sub-totals disclosed cannot be recalculated
from the numbers provided. The adjustments are explained in more detail below.
12.3 Impact on financial statements
Impact of changes in accounting policies
Balances
Balance sheet (extract) Adjustments without
31 August 2018 As to IFRS 15 adoption of
R millions reported (12.1.4) IFRS 15
Current assets
Trade and other receivables, including derivatives 3 343 149 3 492
Inventories 1 002 77 1 079
Contract assets 226 (226) -
Total assets 4 571 - 4 571
Current liabilities
Trade and other payables, including derivatives 3 014 752 3 766
Taxation payable 117 1 118
Contract liabilities 762 (762) -
Total liabilities 3 893 (9) 3 884
Total equity attributable to holders of Altron 2 831 9 2 840
Impact of changes in accounting policies
Balances
Consolidated statement of comprehensive income (extract) Adjustments without
Six months to 31 August 2018 As to IFRS 15 adoption of
R millions reported (12.1.4) IFRS 15
Revenue 9 779 27 9 806
Operating costs before capital items (9 102) (21) (9 123)
Earnings before interest, tax, depreciation and amortisation and
capital items (EBITDA before capital items) 677 6 683
Operating profit before capital items 421 6 427
Results from operating activities 437 6 443
Profit before taxation 347 6 353
Taxation (78) (1) (79)
Profit for the period from continuing operations 269 5 274
Profit for the period from discontinued operations 20 20
Profit for the period from total operations 289 5 294
Profit is attributable to:
Non-controlling interests (3) - (3)
Altron equity holders 292 5 297
289 5 294
Total comprehensive income for the period 466 5 471
Total comprehensive income attributable to:
Non-controlling interests - - -
Altron equity holders 466 5 471
466 5 471
Basic earnings per share from continuing operations (cents) 73 1 74
Diluted basic earnings per share from
continuing operations (cents) 72 1 73
Basic earnings per share from total operations (cents) 79 1 80
Diluted basic earnings per share from
total operations (cents) 78 1 80
Headline earnings per share (cents) 70 1 71
12.4 Nature of changes in the accounting policies
The nature of the changes in the accounting policies were as follows:
Products Nature, timing of satisfaction of performance Nature of change in
and services obligations and significant payment terms accounting policy Impact
Maintenance, Software asset management services (including Under IFRS 15, This has resulted
consumables platform hosting) - perpetual licence sales the licence and the in revenue from
and other service cannot be perpetual licences
support Bytes UK provides Software Asset Management separated and should being deferred and
services Services. Certain management service contracts therefore be classified recognised over
are sold together with a perpetual licence. as one performance the contract term
obligation. The timing and an increase in
The majority of these contracts are paid for up of revenue recognition income received
front. Under IAS 18, the service together with has therefore changed in advance
the licence was accounted for as two separate and licence sales (reclassified to
revenue streams. Revenue from the licence was should be deferred contract liabilities).
recognised upfront, on the transfer of risks and over the contract term.
rewards, while revenue from the service was
recognised over the contract term.
12.5 Presentation of assets and liabilities related to contracts with customers
Reclassification of Inventory Work in Progress to contract assets
Altech Radio Holdings enters into government contracts mainly to build, operate and transfer Broadband
Networks. The supply of equipment and build of the network is recognised as milestones are achieved per the
agreement. Work has been completed but not billed, therefore the entitlement to consideration is recognised as
a contract asset. This was previously recognised in inventory work in progress. The current period adjustment
amounted to R77 million.
Reclassification of other unbilled revenue to contract assets
R149 million of unbilled revenue from contracts with customers was reclassified from trade and other
receivables, including derivatives to contract assets.
These contract assets relate to the group's rights to consideration for work completed but not billed at the
reporting date.
Reclassification of consideration received in advance to contract liabilities
Income received in advance amounting to R561 million was reclassified to contract liabilities. This includes
an adjustment for preventative maintenance on contracts amounting to R20 million for which revenue was
previously deferred.
Revenue continues to be deferred under IFRS 15, however, a contract liability is raised instead of a provision.
Revenue will be recognised as the maintenance services are performed.
12.6 Adoption of IFRS 9
The adoption of IFRS 9 had the following impact on the group:
- Change from IAS 39 incurred loss model to the expected credit loss (ECL) model to calculate impairments of
financial instruments.
- Change in classification of the measurement categories for financial instruments.
12.7 Impairment
Before the adoption of IFRS 9, the group calculated the allowance for credit losses using the incurred loss
model. Under the incurred loss model, the group assessed whether there was any objective evidence of
impairment at the end of each reporting period. If such evidence existed the allowance for credit losses in
respect of financial assets at amortised cost was calculated as the difference between the asset's carrying
amount and the present value of the estimated future cash flows discounted at the asset's original effective
interest rate.
Under IFRS 9 the group calculates allowance for credit losses as ECLs for financial assets measured at
amortised cost or at fair value through other comprehensive income (FVOCI) (except for investments in equity
instruments) and to contract assets.
ECLs are a probability weighted estimate of credit losses. Credit losses are measured as the present value of all
cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and
cash flows that the group expects to receive). ECLs are discounted at the original effective interest rate of the
financial asset.
The group applies the simplified approach to determine the ECL for trade receivables and contract assets.
This results in calculating lifetime expected credit losses for these trade receivables.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on
shared credit risk characteristics and the days past due. The contract assets relate to unbilled work completed
and have substantially the same risk categories as the trade receivables.
The group has therefore concluded that the expected loss rates for trade receivables are a reasonable
approximation of the loss rates for the contract assets. ECL for trade receivables is calculated using a provision
matrix where there is sufficient historical credit loss information. Where applicable, specific provisions are also
considered.
For contract assets and trade receivables with low default portfolios with insufficient historic annual internal
defaults, ECLs are determined using a simplified PD/LGD/EAD approach.
Provision matrix
ECLs are calculated by applying a loss ratio to the aged balance of trade receivables at each reporting date.
The loss ratio is calculated according to the ageing/payment profile of sales by applying historic write-offs to
the payment profile of the sales population.
Trade receivable balances have been grouped so that the ECL calculation is performed on groups of receivables
with similar risk characteristics and historical loss patterns. The historic loss ratio is then adjusted for forward
looking information to determine the ECL for the portfolio of trade receivables at the reporting period to the
extent that there is a strong correlation between the forward-looking information and the ECL.
Specific provision
Specific provisions are applied when:
- evidence is available for a specific trade receivable which provides a more reliable loss estimate; and
- outlier trade receivables are identified. This would include trade receivables with significant exposures and
or clearly different credit risk characteristics. The estimated ECL percentage is applied with adjustments
using managements assessments and professional judgement.
Simplified PD/LGD/EAD approach
For low default portfolios with insufficient historic annual internal defaults, the ECL is calculated using a formula
incorporating the following parameters: exposure at default (EAD), probability of default (PD), loss given
default (LGD) (i.e. PD x LGD x EAD = ECL). Exposures are mainly segmented by customer type (e.g. sovereign/
government, banks and corporates). Under this approach, external sources of information are considered for a
representative of the company's trade receivables' exposure.
12.8 Classification, initial recognition and subsequent measurement
IFRS 9 introduces new measurement categories for financial assets. The measurement categories of IFRS 9
and IAS 39 are illustrated in the table below.
From 1 March 2018, the group classifies financial assets in each of the IFRS 9 measurement categories based
on the group's business model for managing the financial asset and the cash flow characteristics of the financial
asset. There was no impact on the accounting for trade receivables, loans, FECs and share linked incentives
("SLI") hedges that are managed on a fair value basis.
IAS 39 category IFRS 9 Category
Financial assets at fair value through Financial assets at FVTPL
profit or loss (FVTPL) Financial assets at amortised cost
Loans and receivables Instruments at fair value through other
Available for sale comprehensive income (FVOCI)*
* This includes both debt and equity instruments. The biggest change is that on derecognition of equity instruments gains and losses
accumulated in OCI are not reclassified to profit or loss.
The following investments held for long-term strategic purposes, were classified as available for sale at
28 February 2018.
Under IFRS 9, the group has designated these investments as measured at FVOCI. Consequently, all fair value
gains and losses will be reported in OCI, no impairment losses will be recognised in profit or loss and no gains
or losses will be reclassified to profit or loss on disposal.
Carrying Carrying
value value
31 August 28 February
2018 2018
R millions Note 9 Note 9
Preference share investment in Technologies Acceptances Receivables
Proprietary Limited ("TAR") 21 21
Investment in Aberdare Cables Proprietary Limited 94 94
Preference share investment in Auto X Proprietary Limited 83 91
198 206
The carrying value of the above investments approximate the fair value, therefore no adjustments were made
to OCI in the current reporting period.
Reclassification of derivative assets included in trade and other receivables to financial assets at fair value
through profit and loss
Previously the group included derivative assets at fair value in trade and other receivables. Derivative assets
relate to the fair value of foreign currency contracts used for hedging and represent a separate measurement
category under IFRS 9. For this reason, derivative assets amounting to R83 million have been reclassified and
separately disclosed as financial assets at fair value through profit and loss.
Reclassification of derivative liabilities included in trade and other payables to financial liabilities at fair value
through profit and loss
Previously the group included derivative liabilities at fair value in trade and other payables. Derivative assets
relate to the fair value of foreign currency contracts used for hedging and represent a separate measurement
category under IFRS 9. For this reason, derivative liabilities amounting to R20 million have been reclassified
and separately disclosed as financial liabilities at fair value through profit and loss.
12.9 Transition to IFRS 9
The group has applied IFRS 9 using the modified retrospective method, by recognising the cumulative effect of
initially applying IFRS 9 as an adjustment to the opening balance of equity at 1 March 2018. The comparative
information has not been restated and continues to be reported under IAS 39. There were no material
adjustments to opening retained earnings.
Hedge accounting
The group uses forward foreign exchange contracts to hedge the variability in cash flows arising from changes
in foreign exchange rates relating to foreign currency payables, receivables, sales and inventory purchases.
Under IAS 39, the change in fair value of the forward element of the forward exchange contracts ('forward
points') is recognised immediately in profit or loss.
The group has elected not to adopt the hedge accounting requirements of IFRS 9, but to continue applying the
hedge accounting requirements of IAS 39.
13. STANDARDS ISSUED BUT NOT YET EFFECTIVE
IFRS 16 Leases
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an
Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or
after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial
application of IFRS 16.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-
of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to
make lease payments. There are recognition exemptions for short-term leases and leases of low-value items.
Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as finance or
operating leases. The group has completed an initial assessment of the potential impact on its consolidated
financial statements but has not yet completed its detailed assessment. The actual impact of applying IFRS
16 on the financial statements in the period of initial application will depend on future economic conditions,
including the group's borrowing rate at 1 March 2019, the composition of the group's lease portfolio at that
date, the group's latest assessment of whether it will exercise any lease renewal options and the extent to
which the group chooses to use practical expedients and recognition exemptions.
In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces the straight-
line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease
liabilities.
i. Determining whether an arrangement contains a lease
The group plans to apply the practical expedient to grandfather the definition of a lease on transition.
This means that it will apply IFRS 16 to all contracts entered into before 1 March 2019 and identified as
leases in accordance with IAS 17 and IFRIC 4.
ii. Transition
As a lessee, the group will apply the standard using the modified retrospective approach with optional
practical expedients. The lessee applies the election consistently to all of its leases. The group plans
to apply IFRS 16 initially on 1 March 2019, using the modified retrospective approach. Therefore, the
cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained
earnings at 1 March 2019, with no restatement of comparative information.
When applying the modified retrospective approach to leases previously classified as operating leases under
IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on
transition. The group is assessing the potential impact of using these practical expedients. The group is not
required to make any adjustments for leases in which it is a lessor except where it is an intermediate lessor
in a sub-lease.
REVENUE INFORMATION AND DISAGGREGATION
The Altron group is a diversified group which derives its revenues and profits from a variety of sources.
Segmentation is based on the group's internal organisation and reporting of revenue and EBITDA based upon
internal accounting presentation (refer to summary of segment information).
Revenue by reportable segment is disaggregated by major product/service and geographic region below.
The analysis excludes Discontinued operations and Corporate and Cons and financial services.
Altron ICT South African operations Altron ICT South African operations Altron ICT International operations
Altron Bytes
Altron Bytes Altron Bytes Altron Bytes Secure Altron Bytes Altron ICT Bytes Altron ICT
31 August 2018 Document Managed People Transaction Systems South African Technology Altron International Altron
R millions Altron ARH Solutions Solutions Solutions Solutions Integration operations group UK Rest of Africa operations Arrow Netstar
Revenue by product
Project related revenue 256 - 60 - 2 136 454 115 - 115 - -
Rental of hardware and related services 21 11 - - 4 29 65 - - - - 732
Maintenance and support 130 135 308 - 36 80 689 318 32 350 - 10
Training and skills development - - - 40 - - 40 16 - 16 - -
Outsource services - 151 - 172 3 264 590 - - - - -
Sale of hardware 89 423 149 - 130 382 1 173 63 98 161 287 -
Software and related licenses - one off - - - 25 97 - 122 1 963 - 1 963 - -
Software and related licenses - recurring - - - - - - - 2 813 - 2 813 - -
Software application and development - - - - - 137 137 - - - - -
Switching services and other transactional services - - - - 308 - 308 - - - - -
Total revenue 496 720 517 237 580 1 028 3 578 5 288 130 5 418 287 742
Revenue by geographic region
Rest of Africa 37 71 59 - 10 56 233 - 130 130 - 2
South Africa 459 649 458 237 570 972 3 345 - - - 287 630
Total Africa 496 720 517 237 580 1 028 3 578 - 130 130 287 632
United Kingdom - - - - - - - 5 075 - 5 075 - -
Australia - - - - - - - - - - - 110
Other - - - - - - - 213 - 213 - -
Total international - - - - - - - 5 288 - 5 288 - 110
Total revenue 496 720 517 237 580 1 028 3 578 5 288 130 5 418 287 742
Altron ICT South African operations Altron ICT South African operations Altron ICT International operations
Altron
Altron Bytes Altron ICT
Altron Bytes Altron Bytes Altron Bytes Secure Altron Bytes ICT South Bytes Inter-
31 August 2017* Document Managed People Transaction Systems African Technology Altron national Altron
R millions Altron ARH Solutions Solutions Solutions Solutions Integration operations Group UK Rest of Africa operations Arrow Netstar
Revenue by product
Project related revenue 334 - 74 - 1 122 531 10 - 10 - -
Rental of hardware and related services 22 11 - - 2 26 61 - - - - 651
Maintenance and support 160 131 303 - 40 72 706 232 31 263 - 17
Training and skills development - - - 73 - - 73 13 - 13 - -
Outsource services - 149 - 127 1 236 513 - - - - -
Sale of hardware 70 369 140 - 108 342 1 029 42 83 125 291 -
Software and related licenses - one off - - - 20 77 - 97 916 - 916 - -
Software and related licenses - recurring - - - - - - - 1 312 - 1 312 - -
Software application and development - - - - - 123 123 - - - - -
Switching services and other transactional services - - - - 275 - 275 - - - - -
Total revenue 586 660 517 220 504 921 3 408 2 525 114 2 639 291 668
Revenue by geographic region
Rest of Africa 17 75 46 - 5 50 193 - 114 114 - -
South Africa 569 585 471 220 496 871 3 212 - - - 291 593
Total Africa 586 660 517 220 501 921 3 405 - 114 114 291 593
United Kingdom - - - - - - - 2 374 - 2 374 - -
Australia - - - - - - - - - - - 75
Other - - - - 3 - 3 151 - 151 - -
Total international - - - - 3 - 3 2 525 - 2 525 - 75
Total revenue 586 660 517 220 504 921 3 408 2 525 114 2 639 291 668
* The group has initially applied IFRS 15 using the cumulative effect method. Under this method, the comparative information is not restated. See note 12.
SEGMENT SUMMARY
The group has identified reportable segments that are used by the group executive committee (chief operating
decision maker (CODM)) to make key operating decisions, allocate resources and assess performance. The
reportable segments are grouped according to 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 and capital items (EBITDA)
generated by each of the group's reportable segments are summarised as follows:
Revenue EBITDA
August August February August August February
R millions 2018 2017* 2018* 2018 2017* 2018*
Altron ARH 496 586 1 155 0 32 80
Altron Bytes Document Solutions 720 660 1 353 32 25 70
Altron Bytes Managed Solutions 517 517 1 027 30 32 74
Altron Bytes People Solutions 237 220 438 23 19 29
Altron Bytes Secure Transaction
Solutions 580 504 1 073 134 110 253
Altron Bytes Systems Integration** 1 028 921 1 897 36 29 123
Altron ICT
South African operations 3 578 3 408 6 943 255 247 629
Bytes Technology Group UK 5 288 2 525 6 088 207 109 206
Altron Rest of Africa 130 114 244 14 12 16
Altron ICT
International operations 5 418 2 639 6 332 221 121 222
Shared Services, Corporate and cons - - - 7 8 33
Altron ICT 8 996 6 047 13 275 483 376 884
Netstar**** 742 668 1 378 258 227 481
Altron Arrow 287 291 560 15 21 33
Corporate and con and financial
services (246) (214) (470) (70) (31) (94)
Normalised continuing operations 9 779 6 792 14 743 686 593 1 304
Foreign currency gains or deferred
acquisition liability - - - - (2) 6
Retrenchment and restructuring costs - - - (9) (47) (77)
Acquisition related costs - - - - - (8)
Continuing operations
as reported 9 779 6 792 14 743 677 544 1 225
Altech Multimedia group 494 599 974 33 47 44
Altech Autopage group - - - (4) (7) (23)
Powertech Cables - 103 103 - 5 5
Powertech Transformers group*** 427 522 1 015 39 (51) (28)
Powertech Battery - 344 344 - 33 33
Powertech System integrators - 214 241 - (12) (11)
Other Powertech Segments - 123 261 (3) (24) (12)
Powertech group 427 1 306 1 964 36 (49) (13)
Discontinued operations 921 1 905 2 938 65 (9) 8
Altron group 10 700 8 697 17 681 742 535 1 233
* The group has initially applied IFRS 15 using the modified retrospective method. Under this method, the comparative information is not
restated. See note 12.
** Bytes Systems Integration and Bytes Universal Systems were merged into one segment effective 1 October 2017.
*** Powertech Transformers group was disposed of 31 July 2018 (refer to note 7).
**** Contract fulfilment costs relating to hardware and fitment have been reclassified to depreciation. These expenses were previously
included in operating costs before capital items.
August August February
R millions 2018 2017* 2018*
Segment EBITDA can be reconciled to group operating profit before
capital items as follows:
Segment EBITDA 742 535 1 233
Reconciling items:
Depreciation**** (192) (163) (339)
Amortisation (64) (47) (103)
Group operating profit before capital items 486 325 791
Capital items (32) (79) (309)
Results from operating activities 454 246 482
Finance income 85 110 220
Finance expense (176) (214) (419)
Share of profit of equity accounted investees, net of taxation - (1) (1)
Profit before taxation 363 141 282
* The group has initially applied IFRS 15 using the modified retrospective method. Under this method, the comparative information is not
restated. See note 12.
SUPPLEMENTARY INFORMATION
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2018 2017* 2018*
R millions (Unaudited) (Unaudited) (Audited)
Total operations
Depreciation*** 192 163 339
Amortisation 64 47 103
Net foreign exchange (profit)/losses (31) 4 44
Cashflow movements
Capital expenditure (including intangibles) 96 142 278
Net additions to contract fulfilment costs (12) 26 58
Additions to contract fulfilment costs 95 118 257
Depreciation of hardware and fitment*** (107) (92) (199)
Capital commitments 16 5 -
Contingent liabilities
There were no contingent liabilities identified as at 31 August 2018
Lease commitments 452 410 513
Payable within the next 12 months: 176 166 180
Payable thereafter: 276 244 333
Weighted average number of shares (millions) 371 369 370
Diluted average number of shares (millions) 373 371 372
Shares in issue at end of period (millions) 371 371 371
Ratios (total operations)
EBITDA margin (%) 6.9 5.1 5.9
ROCE (%) 21.4^ 14.5^ 18.5
ROE (%) 19.5^ 11.5^ 16.7
ROA (%) 12.9^ 9.5^ 10.2
RONA (%) 17.4^ 12.6^ 15.5
Current ratio 1.1:1 1.2:1 1.1:1
Acid test ratio 0.9:1 1:1 0.9:1
* The group has initially applied IFRS 15 using the modified retrospective method. Under this method, the comparative information is not
restated. During the current year, the group has also adopted IFRS 9 and, in accordance with the standard, comparative information has
not been restated. See note 12
^ Annualised
*** Contract fulfilment costs:
Contract fulfilment costs include hardware, fitment, commissions and other costs directly attributable to the negotiation and conclusion of
customer service contracts.
Contract fulfilment costs relating to hardware and fitment have been reclassified to depreciation. These expenses were previously included
in operating costs.
Altron House
4 Sherborne Road, Parktown 2193
Gauteng SOUTH AFRICA
POSTAL
PO Box 981, Houghton 2041
Gauteng SOUTH AFRICA
www.altron.com
Date: 25/10/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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