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ATN ATNP
ATN
ATN / ATNP - Allied Electronics Corporation - Unaudited Consolidated Interim
Results For The Six Months Ended 31 August 2007
ALLIED ELECTRONICS CORPORATION LIMITED
(Registration number 1947/024583/06)
(Incorporated in the Republic of South Africa)
Share code: ATN & ISIN: ZAE000029658
Share code: ATNP & ISIN: ZAE000029666
Unaudited Consolidated Interim Results for the six months ended 31 August 2007
HIGHLIGHTS
- Revenue up 32%
- Operating profit up 27%
- Headline earnings per share up 38%
- Return on capital employed increases to 35%
Income statements
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2007 2006 2007
Figures in R millions Change (Unaudited) (Unaudited) (Audited)
Revenue 32 11 044 8 339 17 126
Operating profit before 27 902 711 1 528
capital items
Capital items (51) 6 (38)
(Note 1)
Operating profit 851 717 1 490
Finance income 105 66 132
Finance expense (48) (23) (56)
Share of profit from 2 2 4
associates
Profit before taxation 910 762 1 570
Taxation - normal (273) (228) (432)
- STC (51) (38) (49)
Profit for the period 18 586 496 1 089
Attributable to 136 143 284
minority interest
Attributable to Altron 27 450 353 805
equity holders
Basic earnings per 28 161 125 287
share (cents)
Diluted basic earnings 28 143 111# 250
per share (cents)
# Restated to reflect consistency in basis of calculation used in the current
period
Notes
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2007 2006 2007
Figures in R millions Change (Unaudited) (Unaudited) (Audited)
Headline earnings per 38 171 124 283*
share (cents)
Diluted headline 39 152 110# 247*
earnings per share
(cents)
* Restated in accordance with Circular 08/2007 - Headline Earnings
(refer note 2)
# Restated to reflect consistency in basis of calculation used in current period
Basis of preparation
The unaudited interim financial results have been prepared in accordance with
the measurement criteria of International Financial Reporting Standards (IFRS)
and the presentation as well as the disclosure requirements of IAS 34 - Interim
Financial Reporting in compliance with the listing requirements of the JSE
Limited.
The accounting policies followed are consistent with those used in the annual
financial statements for the year ended 28 February 2007.
1. Capital items
Net gain on disposal of 1 2 33
property, plant and
equipment
Net gain on disposal of 1 4 9
businesses and
investments
Foreign currency (6) - -
translation reserve
realised on disposal
Impairment charges (47) - (61)
Goodwill adjustment on - - (19)
utilisation of at
acquisition tax losses
(51) 6 (38)
2. Reconciliation between attributable earnings and headline earnings
Attributable to Altron 450 353 805
equity holders
Capital items - gross 51 (6) 38
Deferred tax assets - - (16)
raised on at
acquisition tax losses
Tax effect of above - 1 (5)
adjustments
Minority interest in (23) 1 (29)
adjustments
Headline earnings 478 349 793
The determination of headline earnings for the year ended 28 February 2007 has
been restated following the issue of Circular 08/2007 on Headline Earnings. The
income statement impact of the deferred taxation asset subsequently raised on
tax losses not previously recognised in business combinations has now been
excluded from headline earnings in accordance with the new circular.
3. Reconciliation between attributable earnings and diluted earnings
Attributable to Altron 450 353 805
equity holders
Additional earnings (44) (40) (87)
attributable to BEE
minorities in
subsidiaries
Minority interest in 6 6 11
adjustments
Dilution in earnings of (5) (4) (12)
subsidiary dilutive
options
Diluted earnings 407 315 717
4. Reconciliation between headline earnings and diluted headline earnings
Headline earnings 478 349 793
Additional earnings (44) (40) (82)
attributable to BEE
minorities in
subsidiaries
Minority interest in 6 6 13
adjustments
Dilution in earnings (6) (4) (15)
of subsidiary dilutive
options
Diluted headline 434 311 709
earnings
Fully diluted earnings and diluted headline earnings have been calculated in
accordance with IAS 33 - Earnings per share on the basis that:
- Kagiso Strategic Investments (Pty) Limited exercised its full option on 22%
of the shares in Bytes Technology Group South Africa (Pty) Limited adjusted
for the dilutive effect of the option price at the BTG SA level.
- The recognition of the deferred sale of 30% interest of the Izingwe
Consortium in Aberdare Cables based on the assumption that a portion of the
purchase price will be settled in cash of R152 million, adjusted for the
dilutive effect of the option price at the Aberdare level and taking into
account the 10% investment in the Izingwe Consortium by Power Technologies
(Pty) Limited.
- The earnings effect of dilutive options at Bytes Technology Group Limited
and Allied Technologies Limited subsidiary level.
The basis of calculation for the comparative period has been restated to be
consistent with the basis used in the current period.
5. Acquisitions
During the period the group acquired a 50% interest in the East Rand Document
Solutions operations for R6 million effective 1 March 2007, 100% of the Mailing
Facilities operation for R8 million effective 1 June 2007, 100% of Mastermed for
R8 million effective 1 March 2007 and 100% of Swanib Cables for R25 million with
effect from 1 March 2007.
In the six months to 31 August 2007 these acquisitions contributed R93 million
to revenue and R9 million to the consolidated profit before tax.
Recognised Fair value Carrying
values adjustments amount
Non-current assets 2 9 11
Current assets 44 - 44
Cash and cash equivalents 8 - 8
Current liabilities (51) - (51)
Net identifiable assets and 3 9 12
liabilities
Goodwill on acquisition 40
Total consideration 52
Less deferred purchase (5)
consideration
Consideration paid in cash 47
6. Dividends
It is group policy for dividends to be declared after the end of the financial
year.
Balance sheets
31 August 31 August 28 February
2007 2006 2007
Figures in R millions (Unaudited) (Unaudited) (Audited)
Assets
Non-current assets 2 409 2 181 2 311
Property, plant and 1 026 912 954
equipment
Intangible assets 825 834 844
Associates 29 13 15
Other investments 271 220 239
Rental finance advances 96 70 77
Deferred taxation 162 132 182
Current assets 7 000 6 040 6 139
Inventories 2 128 1 681 2 013
Trade and other 3 113 2 843 2 494
receivables
Assets classified as held- - - 19
for-sale
Cash and cash equivalents 1 759 1 516 1 613
Total assets 9 409 8 221 8 450
Equity and liabilities
Total equity 4 694 4 158 4 746
Non-current liabilities 430 366 389
Loans 210 147 149
Empowerment funding 152 173 172
obligation
Provisions 51 25 38
Deferred taxation 17 21 30
Current liabilities 4 285 3 697 3 315
Loans 118 53 65
Trade and other payables 3 677 3 293 2 940
Provisions 78 88 66
Liabilities classified as - - 15
held-for-sale
Taxation payable 412 263 205
Bank overdraft - - 24
Total equity and 9 409 8 221 8 450
liabilities
Net asset value per share 1 276 1 085 1 261
(cents)
Cash flow statements
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2007 2006 2007
Figures in R millions (Unaudited) (Unaudited) (Audited)
Cash flows from operating 480 (212) 10
activities
Cash generated by operations 1 048 874 1 797
Changes in working capital (3) (602) (998)
Net investment income 50 74 131
Taxation paid (117) (212) (531)
Cash available from operating 978 134 399
activities
Dividends paid, including to (498) (346) (389)
minority shareholders
Cash flows applied in (424) (258) (467)
investing activities
Cash flows from financing 106 (172) (120)
activities
Net increase/(decrease) in 162 (642) (577)
cash and cash equivalents
Cash and cash equivalents at 1 589 2 152 2 152
the beginning of the period
Effect of foreign exchange 8 6 14
translation on cash balances
Cash and cash equivalents at 1 759 1 516 1 589
the end of the period
Segmental analysis
Six months Six months Year
ended ended ended
31 August 31 August 28
February
2007 2006 2007
Figures in R (Unaudited) % (Unaudited) % (Audited) %
millions
Revenue:
Telecommunica- 3 633 33 2 862 34 5 932 35
tions
Power electronics 4 298 39 3 254 39 6 574 38
and multi-media
Information 3 176 29 2 260 27 4 741 28
technology
Corporate, (63) (1) (37) - (121) (1)
financial
services and
eliminations
11 044 100 8 339 100 17 126 100
Operating
profit *
Telecommunica- 292 32 265 37 539 35
tions
Power electronics 425 47 302 43 651 43
and multi-media
Information 186 21 152 21 350 23
technology
Corporate and (1) - (8) (1) (12) (1)
financial
services
902 100 711 100 1 528 100
* Operating profit is stated before capital items
Supplementary information
31 August 31 August 28 February
2007 2006 2007
Figures in R millions (Unaudited) (Unaudited) (Audited)
Borrowings 480 373 386
- interest bearing 306 198 182
- non-interest bearing 22 2 32
- BEE funding obligation 152 173 172
Depreciation 97 111 216
Amortisation 13 6 19
Net foreign exchange gains 16 55 65
Capital expenditure 162 101 240
Contingent liabilities 5 - 6
Capital commitments 433 82 61
Lease commitments 574 575 590
Payable within the next 12 124 112 131
months:
- property 97 88 96
- plant, equipment and 27 24 35
vehicles
Payable thereafter: 450 463 459
- property 418 440 437
- plant, equipment and 32 23 22
vehicles
Unlisted investments
(including Associates)
- Carrying amount 300 233 254
- Directors` valuation 307 245 264
Weighted average number of 280 281 280
shares (millions)
- Ordinary shares 94 94 94
- Participating preference 186 187 186
shares
Diluted average number of 286 284 287
shares (millions)
Shares in issue at end of 281 279 280
period (millions)
- Ordinary shares 94 94 94
- Participating preference 187 185 186
shares
Ratios and financial
information
EBITDA 1 012 828 1 763
Operating margin (%) 8,2 8,5 8,9
ROCE (%) 34,9 31,4 29,8
ROE (%) 27,3 23,5 23,0
ROA (%) 25,1 22,4 23,9
RONA (%) 35,6 32,1 30,5
Borrowings ratio (%) 10,2 9,0 8,1
Current ratio 1.6:1 1.6:1 1.9:1
Acid test ratio 1.1:1 1.2:1 1.2:1
Operational contribution
Six months Six months Year
ended ended ended
31 August 31 August 28
February
2007 2006 2007
Figures in R (Unaudited) % (Unaudited) % (Audited) %
millions
Revenue:
Altech 3 994 36 3 321 40 6 780 39
Bytes 2 836 26 1 963 23 4 088 24
Powertech 4 211 38 3 046 37 6 289 37
Corporate, 3 - 9 - (31) -
financial
services and
eliminations
11 044 100 8 339 100 17 126 100
Operating
profit *
Altech 306 34 289 41 573 38
Bytes 170 19 157 22 325 21
Powertech 429 47 272 38 638 42
Corporate and (3) - (7) (1) (8) (1)
financial
services
902 100 711 100 1 528 100
% held
at
Headline 31 August
2007
earnings:
Altech 58.5 124 26 111 32 236 30
Bytes 57.8 64 13 55 16 116 15
Powertech 100.0 275 58 170 49 415 52
Corporate 100.0 15 3 13 3 26 3
and
financial
services
478 100 349 100 793 100
* Operating profit is stated before capital items
Statements of changes in equity
Share Treasury Retained
capital
Figures in R millions and premium shares Reserves earnings
Balance at 28 February 827 (222) (31) 2 357
2006 (audited)
Recognised income and
expenditure
Profit for the period - - - 353
Foreign currency - - 41 -
translation differences
Cash flow hedging - - 2 -
reserve
Transactions with
shareholders
Dividends - - - (221)
Issue of share capital 1 - - -
Share-based payments - - 4 -
Change in shareholding - - (9) -
of subsidiaries
Acquisition of treasury - (77) - -
shares
Balance at 31 August 828 (299) 7 2 489
2006 (unaudited)
Recognised income and
expenditure
Profit for the period - - - 452
Foreign currency - - 15 -
translation differences
Cash flow hedging - - 1 -
reserve
Fair value of - - 1 -
investments
Transactions with
shareholders
Dividends - - - 5
Issue of share capital 7 - - -
Share-based payments - - 14 -
Change in shareholding - - 8 -
of subsidiaries
Balance at 28 February 835 (299) 46 2 946
2007 (audited)
Recognised income and
expenditure
Profit for the period - - - 450
Foreign currency - - 5 -
translation differences
Release of foreign - - 4 -
currency translation
deficits on disposal
Transactions with
shareholders
Dividends - - - (331)
Issue of share capital 7 - - -
Share-based payments - - 8 -
Change in shareholding - - (87) -
of subsidiaries
Balance at 31 August 842 (299) (24) 3 065
2007 (unaudited)
Shareholders` Minority Total
Figures in R millions equity interest equity
Balance at 28 February 2 931 1 103 4 034
2006 (audited)
Recognised income and
expenditure
Profit for the period 353 143 496
Foreign currency 41 8 49
translation differences
Cash flow hedging 2 2 4
reserve
Transactions with
shareholders
Dividends (221) (125) (346)
Issue of share capital 1 - 1
Share-based payments 4 1 5
Change in shareholding (9) 1 (8)
of subsidiaries
Acquisition of treasury (77) - (77)
shares
Balance at 31 August 3 025 1 133 4 158
2006 (unaudited)
Recognised income and
expenditure
Profit for the period 452 141 593
Foreign currency 15 7 22
translation differences
Cash flow hedging 1 - 1
reserve
Fair value of 1 1 2
investments
Transactions with
shareholders
Dividends 5 (48) (43)
Issue of share capital 7 - 7
Share-based payments 14 4 18
Change in shareholding 8 (20) (12)
of subsidiaries
Balance at 28 February 3 528 1 218 4 746
2007 (audited)
Recognised income and
expenditure
Profit for the period 450 136 586
Foreign currency 5 3 8
translation differences
Release of foreign 4 2 6
currency translation
deficits on disposal
Transactions with
shareholders
Dividends (331) (167) (498)
Issue of share capital 7 - 7
Share-based payments 8 3 11
Change in shareholding (87) (85) (172)
of subsidiaries
Balance at 31 August 3 584 1 110 4 694
2007 (unaudited)
Message to shareholders
Your directors are pleased to report that the Altron group has posted continuing
strong results for the six months ended 31 August 2007 with revenue increasing
by 32% and headline earnings per share by 38%.
Business environment
Demand from infrastructure development is continuing at the expected pace in
both the public and private sectors. The building and construction industry is
maintaining good overall growth levels and infrastructure spend from state-owned
enterprises and local authorities is gaining momentum. The impact of interest
rate increases on consumers is, however, becoming evident in a decline in the
growth rate of residential housing plans passed, housing prices, motor vehicle
sales and retail credit sales.
The continuing deregulation of the telecommunications sector in terms of broad
band wireless services is expected to facilitate many new entrants into the
telecoms market. Telkom`s capital expenditure programme, the launch of the
second network operator, Neotel, government`s plans for Infraco as well as the
decision made by mobile operators to "self provide" their own networks are
stimulating demand for telecom products and services provided by our group.
Conditions in the power electronics sector remain buoyant on the back of recent
announcements of further spend on infrastructure by both government and Eskom,
the Gautrain project, preparations for the Soccer World Cup event, municipal
tenders as well as significant commercial sector developments. Global
competition continues to be of concern as our market becomes more globally
attractive and the rand remains relatively strong. In the Multi-media sector the
allocation of licences in satellite television broadcast is opening up the
market and substantial investment in the broadcasting sector is expected to
stimulate growth of the pay television market and provide consumers with more
choice and diversity of content. We are well positioned to participate in this
new challenge.
Margin pressures are pervasive in the information technology sector due to
commoditisation and increased competition. IT broad band opportunities are,
however, growing and the local market is benefiting from increased demand from
the public sector as well as opportunities in the infrastructure management and
software application hosting industry.
Financial overview
During the first six months ended 31 August 2007 the Altron group posted good
results driven by exceptional growth in the Powertech businesses and
satisfactory performances from Altech and Bytes, resulting in a 38% increase in
headline earnings per share.
Revenue increased by 32% from R8.3 billion to R11.0 billion, with operating
profit increasing by 27% from R711 million to R902 million, which reflects a
slight operating margin decline to 8.2% from 8.5% in the prior year. This margin
decline was caused by a reduction in margins at Altech and Bytes, while
Powertech continued to increase its operating margin. The margin decline at
Bytes from 8.0% to 6.0% was as a result of the significant increase in the
contribution from the lower margin UK businesses as well as some margin pressure
in the competitive South African market.
The group`s investment in working capital has decreased but still remains high
due to a combination of higher trading volumes and increased raw material
prices. Altron`s annualised return on equity improved to 27.3% with return on
net assets and return on capital employed improving to 35.6% and 34.9%,
respectively. Cash generation has been positive with over R1 billion generated
from operations and the balance sheet remains strong with cash of R1.8 billion.
Altech delivered a satisfactory set of results for the six months ended 31
August 2007, with headline earnings per share growth of 11% to 220 cents.
Revenue increased by 20% to R4.0 billion from R3.3 billion in the prior period,
with operating profit up 6% at R306 million. The operating margin declined from
8.7% to 7.7% primarily due to the slower than expected turnaround of Altech
NamITech`s South African operations.
Given the slower turnaround, R47 million of the remaining goodwill arising on
the Altech NamITech South Africa operation was impaired.
Altech`s balance sheet remains strong with a net asset value of 1,734 cents per
share and cash of R1.2 billion. Strong operating cash flows have been utilised
in the repurchase by Altech of Altech ordinary shares as well as the payment of
increased dividends. Annualised return on shareholder`s equity is currently 26%.
Bytes increased headline earnings per share by 12% to 65 cents per share off a
high base following an exceptionally strong first six months in the previous
financial year. Bytes reported an increase in revenue of 44% to R2.8 billion
predominantly due to growth from the international operations where a
significant three-year Microsoft licensing contract was obtained from National
Health Services (NHS). Bytes` operating profit increased but at a reduced
operating margin of 6% as compared to 8% in the prior period. However, when
adjusting this figure for the NHS contract obtained in the UK, the Bytes margin
percentage rises to 7.6%.
Bytes saw a slight decline in its net cash position from R149 million at the
previous year end to R137 million at 31 August 2007 due to the payment of
increased dividends and the conclusion of a number of small acquisitions. New
product financing is facilitated through the Technologies Acceptances
Receivables warehouse structure owned by Bytes which continues to grow in line
with expectations. Return on equity was a healthy 31%.
Powertech`s robust growth has continued with a substantial increase in revenue
of 38% to R4.2 billion primarily as a result of increased orders coming through
from government`s power infrastructure spend as well as the continuing demand
from the building and construction industry during the first six months.
Operating profit increased by 58% from R272 million in the prior year to R429
million, with operating margin increasing from 8.9% to 10.2%. This improvement
in the operating margin is predominantly due to improved trading conditions,
operating leverage, a favourable currency and commodity environment as well as a
focus on the reduction of expenses.
Aberdare Cables` local operations benefited from the current conditions, with
revenue growth of 47% and further improvements in their operating margin being
augmented by a successful first six months experienced by the telecoms joint
venture, CBi Electric Aberdare ATC Telecom Cables. Aberdare Cables`
international operations, based in the Iberian Peninsula, produced very pleasing
results, increasing revenue by 35% and doubling operating profit in rand terms.
ABB Powertech Transformers reported a strong performance with increasing demand
from infrastructure projects, although its operating margin was depressed by
industrial relations issues that affected the first few months of the period
under review.
The Battery group produced good results, increasing revenue in real terms and
improving its operating margin in a tough competitive environment. The
Industrial group experienced difficult trading conditions during the first six
months as low cost imports continued to exert pressure on its margin. A
rationalisation exercise has been implemented to ensure that the business can
continue to produce acceptable returns and certain of the manufacturing
operations have been relocated to Lesotho, thereby providing a lower cost base.
Notwithstanding good working capital management, Powertech`s balance sheet
reflects a substantial investment in working capital over the past 18 months
primarily as a result of an increase in trading levels. Nevertheless, Powertech
is generating sufficient cash flows to fund most of the significant capital
expenditure programmes planned to take advantage of the current high market
demand.
Corporate activity
During the period under review the following transactions and developments took
place:
- Approval from the Competition Tribunal for Altron to purchase the
electrical engineering operations of the IST group for R550 million, with
an effective date of 1 September 2007.
- The purchase of the remaining 25% issued share capital of Aberdare Cables`
Spanish subsidiary Cables de Comunicaciones for e8.6 million (R81 million),
with an effective date of 1 August 2007.
- The acquisition by Powertech of Swanib Cables, the largest cable
distributor in Namibia for R40 million, effective 1 March 2007.
- Agreements have been signed for Powertech to acquire the 50% shareholding
owned by ABB in the transformer joint venture, ABB Powertech Transformers,
for a consideration totalling R320 million. This was to facilitate the
introduction of a 25% empowerment shareholder into the business. A long-
term technology agreement and exclusive marketing arrangement has been
signed with ABB thereby securing leading edge transformer technology. This
transaction is subject to approval by the Competition authorities.
- Altech signed an agreement to purchase Comtech (Pty) Limited, a vehicle
fleet management services company for a maximum amount of R90 million,
payable in cash. This transaction is expected to be completed in the second
half of the current financial year and is subject to approval from the
Competition authorities.
- Altech has signed heads of agreement with the Sameer ICT group of Kenya to
acquire a 51% controlling interest in Kenya Data Networks Limited (KDN),
Swift Global (Kenya) Limited and Infocom Limited, subject to the fulfilment
of various conditions precedent.
- Altech has also signed heads of agreement for the proposed acquisition of a
50% joint controlling interest in a new company which will hold 60% of
Netstar Advanced Systems Sdn Bhd (Netstar Malaysia), Altech Netstar`s
franchisee in Malaysia.
- Altech acquired the Altech Netstar franchisee in North-West province
(Netstar Rustenburg), involving a cash outlay of R10.96 million.
- The repurchase by Altech of 1 635 094 Altech ordinary shares, equivalent to
1.54% of its current issued share capital for an aggregate outlay of R103
million.
- Bytes concluded various smaller acquisitions totalling R22 million.
Outlook
The outlook for Altech, Bytes and Powertech during the second half of the
financial year remains favourable although it is unlikely that the group`s
growth rate for the full year will be maintained at the current high levels.
This is primarily due to the high base of earnings which the group has achieved
in the first half of the year, particularly at Powertech.
Acknowledgements
The board would like to express its appreciation to all of its stakeholders,
customers, staff, business partners and shareholders, for their contributions
and continued support towards the growth of our group as one of the leading ICT
and power electronics groups in Africa.
On behalf of the board
Dr Bill Venter Robert Venter Diane Radley
Chairman Chief Executive Chief Financial
Officer
8 October 2007
Board of directors
Independent non-executive
Mr MJ Lamberti, Mr MJ Leeming, Dr PM Maduna, Mr JRD Modise, Mr PL Wilmot
Non-executive
Mr MC Berzack
Executive
Dr WP Venter (Chairman), Mr RE Venter (Chief Executive), Mr N Claussen, Mr PMO
Curle*, Ms DC Radley, Mr PD Redshaw*,
Dr HA Serebro, Mr CG Venter
* British
Secretaries
Altron Management Services (Pty) Limited - AG Johnston (Group Company Secretary)
Sponsor
Investec Bank
The interim financial results are also available on the internet at
www.altron.co.za
Date: 09/10/2007 08:00:10 Produced by the JSE SENS Department.
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