| Tue 7 Oct 2008, 8:00 | | ATN / ATNP - Allied Electronics Corporation - Abridged unaudited consolidated |
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ATN / ATNP - Allied Electronics Corporation - Abridged unaudited consolidated
interim financial results for the six months ended 31 August 2008
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
Abridged unaudited consolidated interim financial results for the six months
ended 31 August 2008
HIGHLIGHTS
- Revenue up 19%
- EBITDA up 30%
- Diluted adjusted headline earnings per share up 16%
- Return on equity 27%
Abridged income statement
Six months Six months Year
ended ended ended
31 August 31 August 29 February
% 2008 2007 2008
R millions Change (Unaudited) (Unaudited) (Audited)
Revenue 19 13 169 11 044 21 431
Operating profit 25 1 123 902 1 937
before capital
items
Capital items 57 (51) (90)
(Note 1)
Result from 1 180 851 1 847
operating
activities
Finance income 122 105 182
Finance expense (160) (48) (89)
Share of profit 2 2 4
from associates
Profit before 1 144 910 1 944
taxation
Taxation (292) (273) (569)
STC (52) (51) (56)
Profit for the 37 800 586 1 319
period
Attributable to 146 136 300
minority interest
Attributable to 45 654 450 1 019
Altron equity
holders
Basic earnings per 30 209 161 357
share (cents)
Diluted basic 32 188 143 310
earnings per share
(cents)
Notes
Six months Six months Year
ended ended ended
31 August 31 August 29 February
% 2008 2007 2008
R millions Change (Unaudited) (Unaudited) (Audited)
Headline earnings 12 192 171 375
per share (cents)
Adjusted headline 15 200 173 387
earnings per share
(cents)
Diluted headline 12 171 152 327
earnings per share
(cents)
Adjusted diluted 16 179 154 339
headline earnings
per share (cents)
Basis of preparation
The unaudited interim financial results have been prepared in accordance with
the recognition and measurement criteria of International Financial Reporting
Standards (IFRS) and its interpretations adopted by the International Accounting
Standards Board (IASB) in issue and effective at 31 August 2008, the disclosure
requirements of IAS34, Interim Financial Reporting and in compliance with the
Listings Requirements of the JSE Limited.
The accounting policies used in the preparation of these interim results are
consistent with those used in the annual financial statements for the year ended
29 February 2008.
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2008 2007 2008
R millions (Unaudited) (Unaudited) (Audited)
1. Capital items
Net (loss)/gain on disposal of (1) 1 2
property, plant and equipment
Impairment charges - (47) (86)
Goodwill adjustment on - - 2
reversal of at acquisition tax
losses
Net gain/(loss) on disposal of 58 1 (1)
businesses and investments
Foreign currency translation - (6) (7)
reserve released on disposal
57 (51) (90)
2. Reconciliation between
attributable earnings and
headline earnings
Attributable to Altron equity 654 450 1 019
holders
Capital items - gross (57) 51 90
Tax effect of capital items 2 - -
Deferred tax assets reversed - - 2
on at acquisition tax losses
Minority interest in capital 1 (23) (39)
items
Headline earnings 600 478 1 072
3. Reconciliation between
attributable earnings and
diluted earnings
Attributable to Altron equity 654 450 1 019
holders
Additional earnings (56) (44) (118)
attributable to BBBEE
minorities in subsidiaries
Minority interest in 1 6 7
adjustments
Additional earnings (5) (5) (14)
attributable to dilutive
options at subsidiary level
Diluted earnings 594 407 894
4. Reconciliation between
headline earnings and diluted
headline earnings
Headline earnings 600 478 1 072
Additional earnings (56) (44) (118)
attributable to BBBEE
minorities in subsidiaries
Minority interest in 1 6 8
adjustments
Additional earnings (5) (6) (17)
attributable to dilutive
options at subsidiary level
Diluted headline earnings 540 434 945
5. Reconciliation between
headline earnings and
adjusted headline earnings
Adjusted headline earnings
have been presented to
demonstrate the impact of
some once off events and
accounting charges on the
headline earnings of the
group. Headline earnings are
reconciled to adjusted
headline earnings as follows:
Headline earnings 600 478 1 072
Amortisation of intangibles 42 13 40
IFRS 2 charge on BBBEE - - 3
transactions
Costs associated with - - 13
proposed purchase of
minorities in subsidiaries
Tax effect of adjustments (13) (4) (14)
Minority interest in (3) (2) (8)
adjustments
Adjusted headline earnings 626 485 1 106
6. Reconciliation between
diluted headline earnings and
adjusted diluted headline
earnings
Diluted headline earnings 540 434 945
Amortisation of intangibles 42 13 40
IFRS 2 charge on BBBEE - - 3
transactions
Costs associated with - - 13
proposed purchase of
minorities in subsidiaries
Tax effect of adjustments (13) (4) (14)
Minority interest in (3) (2) (8)
adjustments
Adjusted diluted headline 566 441 979
earnings
Fully diluted earnings, diluted headline earnings and adjusted 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 Bytes Technology Group SA level
for the four months prior to the exercise of the said option effective 1 July
2008.
- The recognition of the deferred sale of a 30% interest to the Izingwe
Consortium in Aberdare Cables based on the assumption that the outstanding
purchase price will be settled in cash for R103 million (comprising the
empowerment funding obligation net of excess cash deposits of R12 million),
adjusted for the dilutive effect of the option price at the Aberdare level and
after taking into account the 10% investment in the Izingwe Consortium by Power
Technologies (Pty) Limited.
- The earnings effect of dilutive options at Allied Technologies Limited level.
7. Acquisitions
Bytes group
During the period the Bytes group acquired a number of operations, namely
Planflow, Intelleca and Nor Paper for an aggregate consideration of R298
million, of which R45 million is deferred.
In the six months to 31 August 2008 these acquisitions contributed R95 million
to revenue and R4 million to the consolidated profit after tax.
Recognised Fair value Carrying
values adjustments amount
Non-current assets 14 90 104
Current assets 151 - 151
Non-current liabilities (1) (25) (26)
Current liabilities (60) - (60)
Net identifiable assets and 104 65 169
liabilities
Goodwill arising on acquisition 129
Total consideration 298
Less deferred purchase (45)
consideration
Consideration paid in cash 253
Powertech group
During the period the Powertech group acquired the remaining 50% of ABB
Powertech Transformers (Pty) Limited that it had not previously owned for a
consideration of R320 million.
In the six months to 31 August 2008 this acquisition contributed R363 million to
revenue and R26 million to the consolidated profit after tax.
The purchase price allocation is in the process of being finalised.
Recognised Fair value Carrying
values adjustments amount
Non-current assets 110 127 237
Current assets 892 15 907
Non-current liabilities (2) (40) (42)
Current liabilities (562) - (562)
Net identifiable assets and 438 102 540
liabilities
Attributable to minorities (42) (21) (63)
Net attributable assets and 396 81 477
liabilities
Goodwill arising on acquisition 82
559
Fair value of existing joint (239)
venture interest applied to
business combination
Consideration paid in cash 320
Altech group
On 1 March 2008, the Altech group acquired from Sameer ICT Limited (Sameer) 51%
of the issued share capital of Kenya Data Networks Limited (KDN), Swift Global
(Kenya) Limited (Swift) and Infocom Limited (Infocom). The purchase price of
US$75 million was allocated as follows:
- US$68 million for the shares in KDN.
- US$5 million for the shares in Swift.
- US$2 million for the shares in Infocom.
Of the total purchase price of US$75 million referred to above, an amount of
US$10 million will be held in escrow, to be released to the vendors of the
shares concerned, against the achievement of an aggregated combined profit after
taxation of at least US$11,7 million for the 12 months ending 28 February 2009.
The escrow amount and interest thereon will be reduced proportionately to any
shortfall on the warranted profit after taxation stated above.
In addition the Altech group and Sameer injected new capital of US$20 million
into the three companies acquired, of which 51% was provided by the Altech group
and the remaining 49% was provided by Sameer. Therefore, the Altech group`s
maximum total investment was US$85,2 million, comprising the purchase price of
US$75 million and the cash injection of US$10,2 million. The purchase price
allocation is in the process of being compiled.
During the period under review the Altech group also acquired 100% of the Altech
Netstar franchisees in Witbank and Bloemfontein.
Carrying
amount
Non-current assets 323
Current assets 111
Non-current liabilities (139)
Current liabilities (173)
Net identifiable assets and liabilities (before capital 122
injected)
Attributable to minorities (51)
Net attributable assets and liabilities 71
Allocated to Intangibles and goodwill 544
Total consideration 615
In the six months to 31 August 2008 these acquisitions contributed R173 million
to revenue and R22 million to the consolidated profit after tax.
8. Dividends
It is group policy for dividends to be declared after the end of the financial
year.
Abridged balance sheet
31 August 31 August 29 February
2008 2007 2008
R millions (Unaudited) (Unaudited) (Audited)
Assets
Non-current assets 4 783 2 409 3 362
Property, plant and 1 723 1 026 1 264
equipment
Intangible assets including 2 457 825 1 502
goodwill
Associates 10 29 20
Other investments 302 271 294
Rental finance advances 88 96 86
Deferred taxation 203 162 196
Current assets 7 460 7 000 7 617
Inventories 2 818 2 128 2 130
Trade and other receivables 4 027 3 113 3 371
Cash and cash equivalents 615 1 759 2 116
Total assets 12 243 9 409 10 979
Equity and liabilities
Total equity 5 821 4 694 5 346
Non-current liabilities 1 107 430 1 047
Loans 860 210 784
Empowerment funding 97 152 156
obligation
Provisions 18 51 24
Deferred taxation 132 17 83
Current liabilities 5 315 4 285 4 586
Loans 162 118 213
Empowerment funding 18 - 16
obligation
Bank overdraft 148 - 33
Trade and other payables 4 445 3 677 3 903
Provisions 138 78 81
Taxation payable 404 412 340
Total equity and liabilities 12 243 9 409 10 979
Net asset value per share 1 476 1 276 1 431
(cents)
Abridged statement of changes in equity
Attributable to Altron equity
holders
Share Treasury
capital
R millions and premium shares Reserves
Balance at 28 February 2007 835 (299) 46
(audited)
Recognised income and expenditure
Profit for the period - - -
Foreign currency translation - - 5
differences
Release of translation differences - - 4
on disposal
Transactions with shareholders
Dividends - - -
Issue of share capital 7 - -
Share-based payments - - 8
Change in shareholding of - - (87)
subsidiaries
Balance at 31 August 2007 842 (299) (24)
(unaudited)
Recognised income and expenditure
Profit for the period - - -
Foreign currency translation - - 101
differences
Release of translation differences - - -
on disposal
Cash flow hedging reserve - - (1)
Fair value adjustments - - 8
Transactions with shareholders
Dividends - - -
Issue of share capital 1 368 - -
Share-based payments - - 15
Change in shareholding of - - (1 175)
subsidiaries
Balance at 29 February 2008 2 210 (299) (1 076)
(audited)
Recognised income and expenditure
Profit for the period - - -
Foreign currency translation - - (51)
differences
Cash flow hedging reserve - - 2
Fair value adjustment of joint - - 41
venture on step acquisition
Transactions with shareholders
Dividends - - -
Issue of share capital 12 - -
Share-based payments - - 15
Disposal of 22% interest in Bytes - - (16)
SA
Acquisition of subsidiaries - -
Balance at 31 August 2008 2 222 (299) (1 085)
(unaudited)
Abridged statement of changes in equity
Attributable to Altron equity
holders
Retained
R millions earnings Total
Balance at 28 February 2007 2 946 3 528
(audited)
Recognised income and expenditure
Profit for the period 450 450
Foreign currency translation - 5
differences
Release of translation differences - 4
on disposal
Transactions with shareholders
Dividends (331) (331)
Issue of share capital - 7
Share-based payments - 8
Change in shareholding of - (87)
subsidiaries
Balance at 31 August 2007 3 065 3 584
(unaudited)
Recognised income and expenditure
Profit for the period 569 569
Foreign currency translation - 101
differences
Release of translation differences - -
on disposal
Cash flow hedging reserve - (1)
Fair value adjustments - 8
Transactions with shareholders
Dividends - -
Issue of share capital - 1 368
Share-based payments - 15
Change in shareholding of - (1 175)
subsidiaries
Balance at 29 February 2008 3 634 4 469
(audited)
Recognised income and expenditure
Profit for the period 654 654
Foreign currency translation - (51)
differences
Cash flow hedging reserve - 2
Fair value adjustment of joint - 41
venture on step acquisition
Transactions with shareholders
Dividends (490) (490)
Issue of share capital - 12
Share-based payments - 15
Disposal of 22% interest in Bytes - (16)
SA
Acquisition of subsidiaries - -
Balance at 31 August 2008 3 798 4 636
(unaudited)
Abridged statement of changes in equity
Minority Total
R millions interest equity
Balance at 28 February 2007 1 218 4 746
(audited)
Recognised income and expenditure
Profit for the period 136 586
Foreign currency translation 3 8
differences
Release of translation differences 2 6
on disposal
Transactions with shareholders
Dividends (167) (498)
Issue of share capital - 7
Share-based payments 3 11
Change in shareholding of (85) (172)
subsidiaries
Balance at 31 August 2007 1 110 4 694
(unaudited)
Recognised income and expenditure
Profit for the period 164 733
Foreign currency translation 24 125
differences
Release of translation differences 1 1
on disposal
Cash flow hedging reserve - (1)
Fair value adjustments - 8
Transactions with shareholders
Dividends 3 3
Issue of share capital - 1 368
Share-based payments 2 17
Change in shareholding of (427) (1 602)
subsidiaries
Balance at 29 February 2008 877 5 346
(audited)
Recognised income and expenditure
Profit for the period 146 800
Foreign currency translation (34) (85)
differences
Cash flow hedging reserve (1) 1
Fair value adjustment of joint - 41
venture on step acquisition
Transactions with shareholders
Dividends (141) (631)
Issue of share capital - 12
Share-based payments - 15
Disposal of 22% interest in Bytes 168 152
SA
Acquisition of subsidiaries 170 170
Balance at 31 August 2008 1 185 5 821
(unaudited)
Abridged cash flow statement
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2008 2007 2008
R millions (Unaudited) (Unaudited) (Audited)
Cash flows (utilised in)/from (258) 480 1 304
operating activities
Cash generated by operations 1 345 1 048 2 224
Changes in working capital (617) (3) (4)
Net finance (expense)/income (38) 50 116
Taxation paid (317) (117) (537)
Cash available from operating 373 978 1 799
activities
Dividends paid, including to (631) (498) (495)
minority shareholders
Cash flows applied in (1 391) (424) (1 532)
investing activities
Cash flows from financing 23 106 704
activities
Net (decrease)/increase in (1 626) 162 476
cash and cash equivalents
Cash and cash equivalents at 2 083 1 589 1 589
the beginning of the period
Translation differences on 10 8 18
foreign cash
Cash and cash equivalents at 467 1 759 2 083
the end of the period
Segmental analysis
Six months
ended
31 August
% 2008
R millions change (Unaudited) %
Revenue
Telecommunications 17 4 256 32
Power electronics and 24 5 319 40
multi-media
Information technology 15 3 650 28
Corporate, financial (56) -
services and eliminations
19 13 169 100
Operating profit*
Telecommunications 30 379 34
Power electronics and 26 536 48
multi-media
Information technology 11 207 18
Corporate and financial 1 -
services
25 1 123 100
* Operating profit is stated before capital items
Six months Year
ended ended
31 August 29 February
2007 2008
R millions (Unaudited) % (Audited) %
Revenue
Telecommunications 3 633 33 7 462 35
Power electronics and 4 298 39 8 159 38
multi-media
Information technology 3 176 29 5 917 27
Corporate, financial (63) (1) (107) -
services and eliminations
11 044 100 21 431 100
Operating profit*
Telecommunications 292 32 641 33
Power electronics and 425 47 887 46
multi-media
Information technology 186 21 418 22
Corporate and financial (1) - (9) (1)
services
902 100 1 937 100
* Operating profit is stated before capital items
Operational contribution
Six months
ended
31 August
% 2008
R millions change (Unaudited) %
Revenue
Altech 14 4 537 34
Bytes 16 3 279 25
Powertech 27 5 363 41
Corporate, financial (10) -
services and eliminations
19 13 169 100
Operating profit*
Altech 34 409 36
Bytes 4 177 16
Powertech 26 542 48
Corporate and financial (5) -
services
25 1 123 100
% held
at
31 August
Headline earnings 2008
Altech 62.0 26 156 26
Bytes** 100.0 77 113 19
Powertech 100.0 18 324 55
Corporate and financial 100.0 7 -
services
26 600 100
Six months Year
ended ended
31 August 29 February
2007 2008
R millions (Unaudited) % (Audited) %
Revenue
Altech 3 994 36 8 242 38
Bytes 2 836 26 5 186 24
Powertech 4 211 38 8 016 38
Corporate, financial 3 - (13) -
services and eliminations
11 044 100 21 431 100
Operating profit*
Altech 306 34 664 34
Bytes 170 19 365 19
Powertech 429 47 914 47
Corporate and financial (3) - (6) -
services
902 100 1 937 100
Headline earnings
Altech 124 26 288 27
Bytes** 64 13 170 16
Powertech 275 58 577 54
Corporate and financial 15 3 37 3
services
478 100 1 072 100
* Operating profit is stated before capital items
** In the comparative period, the group accounted for 58% of Bytes` earnings.
Supplementary information
31 August 31 August 29 February
2008 2007 2008
Figures in R millions (Unaudited) (Unaudited) (Audited)
Borrowings 1 137 480 1 169
- interest bearing 1 022 306 983
- non-interest bearing - 22 14
- BBBEE funding obligation 115 152 172
Depreciation 152 97 232
Amortisation 42 13 40
Net foreign exchange gains 36 16 64
Capital expenditure 280 162 479
Contingent liabilities - 5 -
Capital commitments 299 433 111
Lease commitments 566 574 625
Payable within the next 12 153 124 171
months:
- property 111 97 117
- plant, equipment and 42 27 54
vehicles
Payable thereafter: 413 450 454
- property 400 418 428
- plant, equipment and 13 32 26
vehicles
Unlisted investments
(including Associates)
- Carrying amount 312 300 314
- Directors` valuation 313 307 317
Weighted average number of 313 280 286
shares (millions)
- Ordinary shares 102 94 95
- Participating preference 211 186 191
shares
Diluted average number of 317 286 289
shares (millions)
Shares in issue at end of 314 281 312
period (millions)
- Ordinary shares 102 94 102
- Participating preference 212 187 210
shares
Ratios
EBITDA 1 317 1 012 2 209
Operating margin (%) 8.5 8.2 9.0
ROCE (%) 32.3 34.9 29.7
ROE (%) 26.6 27.3 24.7
ROA (%) 20.2 25.1 23.2
RONA (%) 32.6 35.6 30.3
Borrowings ratio (%) 19.5 10.2 21.9
Current ratio 1.4:1 1.6:1 1.7:1
Acid test ratio 0.9:1 1.1:1 1.2:1
Message to shareholders
Your directors are pleased to report that the Altron group has posted strong
results for the six months ended 31 August 2008. Notwithstanding the high base
established in the prior period, revenue increased by 19% to R13.2 billion and
operating profit increased by 25% to R1.1 billion reflecting the results of both
organic and acquisition related growth. Headline earnings per share grew by 12%,
while adjusted headline earnings per share increased by 15% after removing the
effect of the amortisation of intangibles arising from the group`s recent and
prior acquisitions.
Despite tightening economic conditions, the period has been characterised by
good revenue and profit growth in our Altech and Powertech operations with
Altech recording a pleasing increase in operating margin. The Bytes operations
also achieved good revenue growth, but experienced margin pressure primarily in
the Bytes Systems Integration business.
Business environment
A key development in the Telecommunications sector during the period under
review was the ruling of the Pretoria High Court in favour of Altech Autopage
Cellular permitting the company to convert its value added network service
licence (VANS) into an individual electronic communications network service
licence (I-ECNS). Subsequent to the end of the reporting period, the Minister of
Communications has brought an application to appeal the ruling, which Altech
will be opposing.
The mobile telecoms and data services market in Africa is expected to show
strong growth over the next two years and Altron is well positioned to
capitalise on this market through Altech`s recent acquisition of 51% of certain
of the Sameer ICT businesses in Kenya and Uganda. These businesses will also
invest in an international undersea bandwidth cable that will link Kenya to the
Middle East and which will substantially reduce the cost of international
connectivity.
The continued expansion in the mobile arena, particularly in Africa, provides
opportunity for the group`s telecom infrastructure focused companies, including
Battery Technologies (Battech), Altech NamITech in respect of vouchers and SIM
cards, Altech Isis for business support systems software and our joint venture
telecoms cable operation, CBI-electric Aberdare ATC Telecom Cables. Battech has
established an operating presence in both Nigeria and Tanzania and has signed a
framework agreement with a Pan African cellular operator for standby power base
station solutions. Demand for optical fibre cable has increased as Telkom,
Neotel, MTN and Vodacom, as well as other African operators, roll out fibre
networks.
In the Power Electronics sector, infrastructure spend is continuing with Eskom`s
investment in the upgrading of generation, transmission and distribution
networks benefiting the majority of Powertech`s operations. This is expected to
remain strong for the medium term, with significant impetus on the immediate
provision of additional generating capacity. Municipal contracts and orders
continue to flow for cables and transformers as the country builds its basic
infrastructure after a sustained period of under investment.
The building and construction industry has, however, experienced a significant
slow down in demand for electrical products, particularly in the residential
housing sector and to a lesser extent in the commercial property sector. This
became evident towards the end of the period under review and is attributed to
rising interest rates, the reduction of available credit as well as delayed
project approvals related to power shortages. It is expected that these
conditions will impact on the low voltage cable and distribution transformer
businesses in the second six months of this financial year.
In the Multi-media sector, strong demand for set top boxes in the local market
has continued and is expected to be sustained over the short to medium term,
particularly with the launch of high definition programming and the Digital
Migration Programme, scheduled to be launched in November 2008. A pilot project,
facilitated by the SABC and in which Altech UEC is a participant, has been set
up for a period of six months while commercial deployments are anticipated for
mid 2009. Indian markets have responded well to Altech UEC`s establishment of a
local presence. Chinese and Thai sub contract manufacturing facilities will
support the large volumes that have been negotiated with Indian broadcasters
such as Reliance Communications.
The Information Technology market continues to operate in an environment where
there is strong competition and pressure on margins. Customers within the
financial services sector, in particular, are either deferring or cancelling IT
spending in order to reduce costs. The situation is exacerbated by the skills
shortage which is driving up personnel costs, a substantial element of the cost
base. Bytes has recently concluded two strategic acquisitions, namely Intelleca,
offering contact centre solutions and Nor Paper, a specialised paper supplier.
Both businesses operate in niche areas attracting high operating margins.
Financial overview
The Altron group`s results for the six months ended 31 August 2008 have shown
solid growth with a 12% increase in headline earnings per share. However, the
growth has been significantly impacted by the amortisation of intangibles that
have arisen on the various acquisitions that have been concluded in the last 12
- 18 months. Excluding the amortisation charge, the adjusted headline earnings
per share growth was 15%, which presents a more meaningful picture of the
underlying trading performance.
Revenue increased by 19% from R11.0 billion in the prior six months to R13.2
billion, with operating profit increasing by 25% from R902 million to R1 123
million. The group has increased its operating margin to 8.5% from 8.2% despite
subsidiary companies experiencing diverse operating margin movements. Altech
significantly improved its operating margin, moving from 7.7% to 9.0%, Powertech
maintained its margin at 10.1%, broadly in line with prior year levels, while
Bytes experienced margin pressures, reducing its operating margin to 5.4% from
6.0%.
There has been an increased investment in working capital in the first six
months of the year, partly due to the growth in the business and the
incorporation of acquisitions, but also due to an increase in inventory days due
to strategic purchases and a lower demand in certain operations. Overall, there
has been an outflow of some R1.6 billion of cash since the year end, R1.2
billion of which relates to the substantial acquisition investments made by the
group in the past six months. Cash generated by operations grew strongly, but
was offset by the investment in working capital, a significant increase in tax
paid as well as higher dividends paid.
The improved profitability has seen annualised return on equity improving from
24.7% at 29 February 2008 to 26.6% with return on net assets and return on
capital employed improving to 32.6% and 32.3%, respectively.
Subsidiary review
Altech posted good results for the first six months, achieving revenue growth of
14% and significantly increasing operating profit by 34%. The majority of the
operations are performing well, with particularly strong performances coming
from Altech Autopage Cellular and Altech Netstar Fleet Management as well as the
NamITech West Africa business. Altech NamITech`s SA operations continued to
experience selling price and margin pressures in a highly commoditised market.
Consequently, trading losses have been recorded at this operation albeit at
lower levels compared to the prior period. Operating margins improved from 7.7%
to 9.0%, largely driven by the performances of the aforementioned businesses and
the inclusion of the higher margin Sameer ICT Group operations in Kenya.
Profit before tax rose by 40% to R413 million as the prior year included the
impairment of goodwill, while attributable profit increased by 51%, assisted by
a lower effective tax rate. Headline earnings per share increased by 19%, while
adjusted headline earnings per share grew by 23% which is considered to be a
better reflection of the underlying trading performance.
Altech Autopage Cellular has performed well in an increasingly challenging
market and during August 2008, an anchor partnership was created with Neotel
which will allow Altech Autopage Cellular to market and sell Neotel`s entire
consumer product range.
Altech Netstar has seen limited revenue growth in the stolen vehicle recovery
market due to declining new car sales, but the fleet management business has
performed exceptionally well reaching an estimated 20% market share level.
Altech UEC continues to produce strong revenue and volume growth. It has,
however, seen a shift away from its top end products towards more entry level
products, particularly due to demand from India, which has impacted on operating
margins.
Overall, the Sameer ICT businesses have performed in line with expectations with
Kenya Data Networks exceeding expectations. These operations are pursuing
exciting business opportunities in East and Central Africa.
Despite significant investments in the last six months, Altech`s balance sheet
remains strong with some R595 million of cash and a net asset value of 1 974
cents per share.
Bytes has achieved revenue growth of 16% from R2.8 billion to R3.3 billion and
operating profit growth of 4% from R170 million to R177 million compared to the
prior period. The decline in the operating margin was impacted primarily by
margin pressure in the South African businesses and a weak performance by our
African operations. Headline earnings attributable to Altron are up 3%,
notwithstanding the impact of our empowerment partner, Kagiso, which exercised
its option to acquire a further 22% equity interest in Bytes SA with effect from
1 July 2008, taking their overall stake to 27%. On a diluted headline earnings
per share basis, Bytes reported headline earnings growth of 10%.
The South African operations have seen revenue increasing by 17% with the
operating margin declining from 8.6% to 7.8%. Conditions have been challenging
for most of the businesses, particularly in Bytes Systems Integration. A good
performance was recorded by Bytes Document Solutions which secured new accounts
and renewed existing large customer contracts. The acquisitions of Intelleca and
Nor Paper, effective 1 April 2008 and 1 July 2008 respectively, both assisted
revenue growth levels.
The UK operations have seen good revenue growth with revenue increasing by 16%
following last year`s exceptional growth. The Xerox businesses in the UK are
performing below expectations due to the impact of tighter economic conditions
resulting in lower demand. Remedial action plans have been implemented by
management to improve operating performance.
Powertech experienced a strong first half with revenue increasing by 27% to R5.4
billion compared to R4.2 billion. The operating margin which declined slightly
from 10.2% to 10.1%, compared to the prior period, was impacted by the
amortisation of intangibles arising from the Powertech Transformers and
Powertech IST acquisitions. This resulted in a 26% increase in operating profit
from R429 million to R542 million. Notwithstanding the higher amortisation
charge, headline earnings have increased by 18%. Adjusted headline earnings have
increased by 21% to R338 million.
Aberdare Cables has grown its revenue and profits. This growth has been achieved
off the very high base achieved during the prior comparative period. Aberdare
Cables` South African based business performed well despite increasing signs of
a slow down in demand from the building and construction sector in the latter
part of the period under review. Aberdare International experienced difficult
trading conditions due to the Spanish economy having weakened dramatically.
While revenue levels have increased slightly, margins have come under pressure
and operating profit in the international operations is significantly down
compared to the prior period.
Powertech Transformers has been a major contributor to Powertech`s growth for
the half year following the acquisition by Powertech of ABB`s 50% stake in the
business with effect from 1 April 2008 which has boosted revenue and operating
profit significantly. The company was also awarded a 5-year framework agreement
valued at R1.4 billion to supply Eskom with a range of products.
Powertech Batteries recorded an excellent first half, with both revenue and
operating margins increasing significantly, resulting in a healthy increase in
operating profit. This can be attributed to strong demand in the automotive
market as the effects of the increased pool of cars start to make an impact on
demand for replacement batteries, as well as in the industrial business where
there has been rising demand from the mining industry.
Powertech Industrial has, notwithstanding difficult trading conditions, improved
its performance. Revenue growth has remained flat, but last year`s corrective
actions have resulted in an improvement in operating margin. The Powertech
Energy Services Group has generated satisfactory revenue and operating profit.
The business has a good order book and is benefitting from projects related to
the electricity supply crisis.
Powertech System Integrators which includes the business of Powertech IST,
performed in line with expectations during the first six months. As anticipated,
earnings for these businesses will improve in the second half due to an
increased order book.
Corporate
Profits in this area are principally derived from FR1, Altron`s original
securitisation vehicle. This has been in run off for some time and is now
approaching the end of its life though it is still showing excellent returns
from secondary rentals. The contribution from corporate at a headline earnings
level is well down on the prior year as a result of FR1`s diminishing return and
a high STC charge borne at the centre following the utilisation of the group`s
STC credits.
Corporate activity
The following significant transactions and corporate actions have taken place:
- The acquisition by Altech of 51% controlling interests in certain digital
network operations of the Sameer ICT group in Kenya for a maximum consideration
of US$75 million, effective 1 March 2008
- The acquisition by Powertech of the 50% equity interest it did not already
own in ABB Powertech Transformers from ABB for R320 million, effective 1 April
2008
- The disposal by Powertech of Yelland Control to Omron Europe B.V. for R65
million, effective 1 April 2008
- The acquisition by Bytes of Intelleca for R120 million, effective 1 April
2008
- The acquisition by Bytes of Nor Paper for R160 million, effective 1 July 2008
- The acquisition by Kagiso, of a further 22% equity interest in Bytes SA, for
an amount of R198 million, effective 1 July 2008
Black Economic Empowerment:
Altron`s Transformation Vision 2012, the Altron internal roadmap with guidelines
on how the group`s companies will meet the targets set out in the dti`s Broad-
based Black Economic Empowerment (BBBEE) Codes of Good Practice, was launched in
August this year. After exercising its option to acquire a further 22% of Bytes
SA, Kagiso now holds a 27% equity interest in Bytes SA, as stipulated in the
shareholders` agreement signed in 2004.
Outlook
The core infrastructural spend programme of the country which remains on track
will continue to benefit the group. However, as a result of the recent slow down
in the building and construction sector, particularly the residential segment of
the market, certain key businesses within the Powertech group are being
affected. This, combined with the global financial market turmoil, as well as
potential pressures locally, has created further uncertainty around future
trading conditions. Consequently, the group has in recent months shifted its
focus to one of consolidation. The past 12 months has seen the group concluding
substantial acquisitions and we will use the next six months to continue to
extract the anticipated synergies and returns. With a focus on cost control and
working capital management we will look to build on the solid foundation
established over the prior years.
Directorate
Shareholders are referred to the SENS announcement published by Altron on 21
July 2008 advising that Mr AMR Smith had been appointed as an executive director
and the Chief Financial Officer of Altron, with effect from 01 August 2008. Mr
Smith was previously the Altron Group Financial Manager, having joined Altron in
January 2006.
Furthermore shareholders are referred to the same announcement advising that Mr
MJ Lamberti had resigned from the Altron board as an independent non-executive
director with effect from 18 July 2008, to pursue personal interests.
Acknowledgements
The board of Altron wishes to acknowledge its appreciation to its many
stakeholders for their continuing loyalty and support of the group which
continues to consolidate its position as a leader in its chosen fields of
operation.
On behalf of the board
Dr Bill Venter Robert Venter Alex Smith
Chairman Chief Executive Chief Financial Officer
7 October 2008
Board of directors
Independent non-executive: Mr MJ Leeming, Dr PM Maduna, Ms BJM Masekela, 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*, Mr PD Redshaw*, Dr HA Serebro, Mr AMR Smith*, Mr CG
Venter * British
Secretaries: Altron Management Services (Pty) Limited - AG Johnston (Group
Company Secretary)
Sponsor: Investec Bank
Date: 07/10/2008 08:00:03 Produced by the JSE SENS Department.
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