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ATN ATNP
ATN
ATN/ATNP - Allied Electronics Corporation Limited - Unaudited
consolidated interim results for the six months ended 31 August 2009
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
2009
Condensed consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2009 2008 2009
R million Change (Unaudited) (Unaudited) (Audited)
Revenue (8) 12 055 13 169 24 768
Operating profit (35) 731 1 123 1 799
before capital items
Capital items (50) 57 (21)
(Note 1)
Results from 681 1 180 1 778
operating activities
Finance income 78 122 184
Finance costs (121) (160) (292)
Share of profit of 1 2 3
equity accounted
investments
Profit before 639 1 144 1 673
taxation
Taxation (183) (292) (466)
STC (51) (52) (58)
Profit for the (49) 405 800 1 149
period
Other comprehensive
income
Foreign currency (351) (85) 38
translation
differences for
foreign operations
Fair value - 41 54
adjustment of joint
venture on step
acquisition
Effective portion of - 1 (21)
changes in fair
value of cash flow
hedges
Fair value - - (21)
adjustment on
available-for-sale
investments
Income tax on - - 9
comprehensive income
Other comprehensive (351) (43) 59
income for the
period, net of
income tax
Total comprehensive 54 757 1 208
income for the
period
Profit attributable
to:
Minority interest 162 146 314
Altron equity 243 654 835
holders
Profit for the 405 800 1 149
period
Total comprehensive
income attributable
to:
Minority interest 24 111 318
Altron equity 30 646 890
holders
Total comprehensive 54 757 1 208
income for the
period
Basic earnings per (63) 77 209 266
share (cents)
Diluted basic (60) 75 188 248
earnings per share
(cents)
Notes
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2009 2008 2009
Change (Unaudited) (Unaudited) (Audited)
Headline earnings (51) 93 192 275
per share (cents)
Adjusted headline (49) 103 200 295
earnings per share
(cents)
Diluted headline (47) 91 171 257
earnings per share
(cents)
Adjusted diluted (44) 100 179 277
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 2009, the disclosure requirements of IAS 34 - 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 28 February 2009.
R million
1. Capital items
Net gain/(loss) on disposal 1 (1) 23
of property, plant and
equipment
Impairment of goodwill (51) - (90)
Impairment of property, - - (12)
plant and equipment
Net gain on disposal of - 58 58
businesses and investments
(50) 57 (21)
2. Reconciliation between
attributable earnings and
headline earnings
Attributable to Altron 243 654 835
equity holders
Capital items - gross 50 (57) 21
Tax effect of capital items - 2 8
Minority interest in - 1 (3)
capital items
Headline earnings 293 600 861
3. Reconciliation between
attributable earnings and
diluted earnings
Attributable to Altron 243 654 835
equity holders
Additional earnings (3) (56) (44)
attributable to BBBEE
minorities in subsidiaries
Minority interest in 1 1 8
adjustments
Additional earnings (4) (5) (17)
attributable to dilutive
options at subsidiary level
Diluted earnings 237 594 782
4. Reconciliation between
headline earnings and
diluted headline earnings
Headline earnings 293 600 861
Additional earnings (3) (56) (41)
attributable to BBBEE
minorities in subsidiaries
Minority interest in 1 1 8
adjustments
Additional earnings (4) (5) (17)
attributable to dilutive
options at subsidiary level
Diluted headline earnings 287 540 811
5. Reconciliation between headline earnings and adjusted headline
earnings
Adjusted headline earnings have been presented to demonstrate the impact
of some accounting charges arising on acquisitions on the headline
earnings of the group. Headline earnings are reconciled to adjusted
headline earnings as follows:
Headline earnings 293 600 861
Amortisation of intangibles 50 42 104
arising on business
acquisitions
Tax effect of adjustments (12) (13) (29)
Minority interest in (7) (3) (12)
adjustments
Adjusted headline earnings 324 626 924
6. Reconciliation between
diluted headline earnings
and adjusted diluted
headline earnings
Diluted headline earnings 287 540 811
Amortisation of intangibles 50 42 104
arising on business
acquisitions
Tax effect of adjustments (12) (13) (29)
Minority interest in (7) (3) (12)
adjustments
Adjusted diluted headline 318 566 874
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:
- The recognition of the deferred sale of a 30% interest in Aberdare
Cables to the Izingwe Consortium based on the assumption that the
outstanding purchase price will be settled in cash for R80 million
(comprising the empowerment funding obligation net of excess cash
deposits of R27 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 recognition of the deferred sale of a 30% interest to Platina
Venture Holdings (Pty) Limited in Altech Alcom Matomo based on the
assumption that the internally financed purchase price will be
settled in cash of R13 million, adjusted for the dilutive effect of
the option at the Altech Alcom Matomo level.
- The earnings effect of dilutive options at Allied Technologies
Limited level.
7. Acquisitions of subsidiaries
During the period the Altech group acquired a number of operations,
namely 1 March 2009 - Fleetcall - the largest trunk two-way radio
operator in South Africa, 1 March 2009 - Technology Concepts - an
established internet technology services business and corporate internet
service provider, 1 June 2009 - NuPay - a transaction service provider
and switching company and 100% of the Altech Netstar franchisees in
Nelspruit and Polokwane for an aggregate consideration of R190 million,
of which R54 million is deferred.
The acquired businesses contributed revenue of R73 million and net profit
after tax of R13 million to the group for the period ended 31 August
2009.
If the acquisitions had occurred on 1 March 2009, group revenue and net
profit after tax before allocations would have increased by R24 million
and R3 million respectively.These amounts have been calculated using the
group`s accounting policies and where purchase price allocations have
been completed by, adjusting the results of the subsidiaries to reflect
amortisation on the fair value adjustments to intangible assets from 1
March 2009, together with the consequential tax effects.
The purchase price allocations of Fleetcall, Technology Concepts and
NuPay are in the process of being finalised.
Recognised Fair value Carrying
values adjustments amount
Non-current assets 32 23 55
Current assets 28 - 28
Current liabilities (27) - (27)
Net identifiable assets and 33 23 56
liabilities
Excess of consideration to 134
balance sheets before fair
value adjustments
Total consideration 190
less attributable to (2)
minorities
less cash and cash (7)
equivalents in subsidiaries
acquired
less deferred purchase (54)
consideration
Cash outflow from the group on 127
acquisition
8. Disposal of Namitech South Africa, a division of Altech Information
Technologies (Proprietary) Limited
On 1 April 2009 the group disposed of the net assets of the Namitech
South Africa division for R82,2 million to Gemalto. The net assets were
shown as held for sale at 28 February 2009.
9. Post-balance sheet events
Altech together with its partner, Sameer has acquired significant
bandwith capacity on the Seacom undersea cable system. Altech/Sameer has
procured two STM-16s from Seacom (equivalent to 5 Gbps), for US$69,3
million payable by Altech and Sameer according to their 60%/40%
shareholding over a number of years, with the option to upgrade within
three years to double this capacity.
Seacom has, in return, invested in excess of US$20 million in capacity on
the terrestrial fibre network of Kenya Data Networks, a subsidiary of the
Altech group.
Condensed consolidated balance sheets
31 August 31 August 28 February
2009 2008 2009
R million (Unaudited) (Unaudited) (Audited)
Assets
Non-current assets 5 235 4 783 5 239
Property, plant and 2 326 1 723 2 221
equipment
Intangible assets 2 341 2 457 2 437
including goodwill
Associates 11 10 11
Other investments 285 302 267
Rental finance advances 57 88 73
Deferred taxation 215 203 230
Current assets 7 156 7 460 8 342
Inventories 2 037 2 818 2 364
Trade and other 3 781 4 027 3 763
receivables
Assets classified as held- - - 107
for-sale
Cash and cash equivalents 1 338 615 2 108
TOTAL ASSETS 12 391 12 243 13 581
Equity and liabilities
Total equity 5 890 5 821 6 300
Non-current liabilities 1 305 1 107 1 346
Loans 1 054 860 1 056
Empowerment funding 96 97 101
obligation
Provisions 14 18 25
Deferred taxation 141 132 164
Current liabilities 5 196 5 315 5 935
Loans 314 162 404
Empowerment funding 11 18 11
obligation
Bank overdraft 367 148 928
Trade and other payables 4 034 4 445 4 138
Provisions 181 138 160
Taxation payable 289 404 266
Liabilities classified as - - 28
held-for-sale
TOTAL EQUITY AND 12 391 12 243 13 581
LIABILITIES
Net asset value per share 1 430 1 476 1 550
(cents)
Condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2009 2008 2009
R million (Unaudited) (Unaudited) (Audited)
Cash flows from/(utilised 280 (258) 646
in) operating activities
Cash generated by 956 1 345 2 278
operations
Changes in working capital 127 (617) (232)
Net finance costs (43) (38) (89)
Taxation paid (227) (317) (666)
Cash available from 813 373 1 291
operating activities
Dividends paid, including (533) (631) (645)
to minority shareholders
Cash flows applied in (574) (1 391) (1 904)
investing activities
Cash flows from financing 97 23 345
activities
Net decrease in cash and (197) (1 626) (913)
cash equivalents
Cash and cash equivalents 1 180 2 083 2 083
at the beginning of the
period
Effect of exchange rate (12) 10 10
fluctuations on cash held
Cash and cash equivalents 971 467 1 180
at the end of the period
Supplementary information
31 August 31 August 28 February
2009 2008 2009
R million (Unaudited) (Unaudited) (Audited)
Borrowings 1 475 1 137 1 572
- interest bearing 1 314 1 022 1 434
- non-interest bearing 54 - 26
- BBBEE funding 107 115 112
obligation
Depreciation 157 152 298
Amortisation 63 42 140
Net foreign exchange (96) 36 53
(losses)/gains
Capital expenditure 330 280 1 008
Capital commitments 507 299 515
(excluding Seacom see Post-
balance sheet events note)
Lease commitments 737 566 609
Payable within the next 12 156 153 171
months:
- property 106 111 123
- plant, equipment and 50 42 48
vehicles
Payable thereafter: 581 413 438
- property 530 400 380
- plant, equipment and 51 13 58
vehicles
Unlisted investments
(including Associates)
- Carrying amount 296 312 278
- Directors` valuation 296 313 279
Weighted average number of 315 313 314
shares (millions)
-Ordinary shares 102 102 102
-Participating preference 213 211 212
shares
Diluted average number of 317 317 316
shares (millions)
Shares in issue at end of 315 314 314
period (millions)
- ordinary shares 102 102 102
- participating 213 212 212
preference shares
Ratios
EBITA (Excluding capital 794 1 165 1 939
items)
EBITDA (Excluding capital 951 1 317 2 237
items)
EBITDA margin (%) 7,9% 10,0% 9,0%
ROCE 19,9% 32,3% 22,9%
ROE 13,0% 27,2% 18,3%
ROA 13,9% 20,2% 16,6%
RONA 20,0% 32,6% 23,0%
Borrowings ratio 25,0% 19,5% 25,0%
Current ratio 1.4:1 1.4:1 1.4:1
Acid test ratio 1:1 0.9:1 1:1
Segment analysis
The segment information has been prepared in accordance with IFRS 8 -
Operating Segments (IFRS 8) which defines the requirements for the
disclosure of financial information of an entity`s operating segments.
IFRS 8 replaces IAS 14 - Segment Reporting. The standard requires
segmentation based on the group`s internal organisation and reporting of
revenue and operating income based upon internal accounting presentation.
The segment revenues and operating profit generated by each of the
Group`s reportable segments are summarised as follows:
Revenue
Six months Six months 12 months
to to to
31 August 31 August 28 February
2009 2008 2009
R million
Powertech Cables Group 1 913 3 513 5 692
Powertech Transformers Group 1 071 835 1 736
Other Powertech Segments 997 1 015 2 165
Powertech Group 3 981 5 363 9 593
Bytes Technology Group UK 1 260 1 293 1 780
Software
Bytes Document Solutions Group 1 034 967 2 160
Other Bytes Segments 1 080 1 019 2 098
Bytes Group 3 374 3 279 6 038
Altech Autopage Cellular 2 796 2 573 5 264
Altech UEC Group 597 696 1 324
Altech Netstar Group 434 410 829
Kenya Data Networks 215 131 334
Other Altech Segments 690 723 1 413
Altech Group 4 732 4 533 9 164
Corporate and financial 6 7 21
services
Inter segment revenue (38) (13) (48)
Altron Group 12 055 13 169 24 768
Operating profit
Six months Six months 12 months
to to to
31 August 31 August 28 February
2009 2008 2009
R million
Powertech Cables Group 29 379 290
Powertech Transformers Group 71 99 166
Other Powertech Segments 58 84 162
Powertech Group 158 562 618
Bytes Technology Group UK 36 43 55
Software
Bytes Document Solutions Group 74 84 197
Other Bytes Segments 24 62 129
Bytes Group 134 189 381
Altech Autopage Cellular 145 136 296
Altech UEC Group 18 33 33
Altech Netstar Group 138 120 251
Kenya Data Networks 97 52 158
Other Altech Segments 95 77 162
Altech Group 493 418 900
Corporate and financial (4) (4) 4
services
Inter segment revenue
Altron Group 781 1 165 1 903
Segment operating profit can be reconciled to Group operating profit
before capital items as follows:
Six months Six months 12 months
to to to
31 August 31 August 28 February
2009 2008 2009
R million
Segment operating profit 781 1 165 1 903
Reconciling items:
Amortisation of intangibles (50) (42) (104)
raised on acquisitions
Group operating profit before 731 1 123 1 799
capital items
Condensed consolidated statement of changes in equity
Attributable to Altron equity holders
Share Treasury Retained
capital
R million and premium shares Reserves earnings
Balance at 29 February 2 210 (299) (1 076) 3 634
2008 (audited)
Total comprehensive
income for the period
Profit for the period - - - 654
Other comprehensive
income
Foreign currency - - (51) -
translation differences
for foreign operations
Effective portion of - - 2 -
changes in fair value
of cash flow hedges
Fair value adjustment - - 41 -
of joint venture on
step acquisition
Total other - - (8) -
comprehensive income
Total comprehensive - - (8) 654
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to owners
Dividends to equity - - - (490)
holders
Issue of share capital 12 - - -
Share-based payment - - 15 -
transactions
Total contributions by 12 - 15 (490)
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Net subscription for - - (16) -
22% minority interest
in Bytes SA
Minority interest on - - - -
acquisition of
subsidiaries
Total changes in - - (16) -
ownership interests in
subsidiaries
Total transactions with 12 - (1) (490)
owners
Balance at 31 August 2 222 (299) (1 085) 3 798
2008 (unaudited)
Total comprehensive
income for the period
Profit for the period - - - 181
Other comprehensive
income
Foreign currency - - 84 -
translation differences
for foreign operations
Fair value adjustment - - 13 -
of joint venture on
step acquisition
Effective portion of - - (16) -
changes in fair value
of cash flow hedges
Statutory reserves of - - 59 (59)
foreign subsidiaries
Fair value adjustment - - (18) -
on available-for-sale
investments
Total other - - 122 (59)
comprehensive income
Total comprehensive - - 122 122
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to owners
Dividends to equity - - - -
holders
Issue of share capital 6 - - -
Share-based payment - - (1) -
transactions
Total contributions by 6 - (1) -
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Subscription by - - - -
minority shareholders
on acquisition of
subsidiary
Minority interest on - - - -
acquisition of
subsidiaries
Change in shareholding - - (12) -
of subsidiaries
Total changes in - - (12) -
ownership interests in
subsidiaries
Total transactions with 6 - (13) -
owners
Balance at 28 February 2 228 (299) (976) 3 920
2009 (audited)
Total comprehensive
income for the period
Profit for the period - - - 243
Other comprehensive
income
Foreign currency - - (213) -
translation differences
for foreign operations
Total other - - (213) -
comprehensive income
Total comprehensive - - (213) 243
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to owners
Dividends to equity - - - (375)
holders
Issue of share capital 7 - - -
Share-based payment - - 10 -
transactions
Total contributions by 7 - 10 (375)
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Change in shareholding - - (39) -
of subsidiaries
Total changes in - - (39) -
ownership interests in
subsidiaries
Total transactions with 7 - (29) (375)
owners
Balance at 31 August 2 235 (299) (1 218) 3 788
2009 (unaudited)
Attributable to
Altron equity
holders
Minority Total
R million Total interest equity
Balance at 29 February 4 469 877 5 346
2008 (audited)
Total comprehensive
income for the period
Profit for the period 654 146 800
Other comprehensive
income
Foreign currency (51) (34) (85)
translation
differences for
foreign operations
Effective portion of 2 (1) 1
changes in fair value
of cash flow hedges
Fair value adjustment 41 - 41
of joint venture on
step acquisition
Total other (8) (35) (43)
comprehensive income
Total comprehensive 646 111 757
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Dividends to equity (490) (141) (631)
holders
Issue of share capital 12 - 12
Share-based payment 15 - 15
transactions
Total contributions by (463) (141) (604)
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Net subscription for (16) 168 152
22% minority interest
in Bytes SA
Minority interest on - 170 170
acquisition of
subsidiaries
Total changes in (16) 338 322
ownership interests in
subsidiaries
Total transactions (479) 197 (282)
with owners
Balance at 31 August 4 636 1 185 5 821
2008 (unaudited)
Total comprehensive
income for the period
Profit for the period 181 168 349
Other comprehensive
income
Foreign currency 84 39 123
translation
differences for
foreign operations
Fair value adjustment 13 - 13
of joint venture on
step acquisition
Effective portion of (16) - (16)
changes in fair value
of cash flow hedges
Statutory reserves of - - -
foreign subsidiaries
Fair value adjustment (18) - (18)
on available-for-sale
investments
Total other 63 39 102
comprehensive income
Total comprehensive 244 207 451
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Dividends to equity - (14) (14)
holders
Issue of share capital 6 1 7
Share-based payment (1) 3 2
transactions
Total contributions by 5 (10) (5)
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Subscription by - 79 79
minority shareholders
on acquisition of
subsidiary
Minority interest on - (28) (28)
acquisition of
subsidiaries
Change in shareholding (12) (6) (18)
of subsidiaries
Total changes in (12) 45 33
ownership interests in
subsidiaries
Total transactions (7) 35 28
with owners
Balance at 28 February 4 873 1 427 6 300
2009 (audited)
Total comprehensive
income for the period
Profit for the period 243 162 405
Other comprehensive
income
Foreign currency (213) (138) (351)
translation
differences for
foreign operations
Total other (213) (138) (351)
comprehensive income
Total comprehensive 30 24 54
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Dividends to equity (375) (158) (533)
holders
Issue of share capital 7 - 7
Share-based payment 10 3 13
transactions
Total contributions by (358) (155) (513)
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Change in shareholding (39) 88 49
of subsidiaries
Total changes in (39) 88 49
ownership interests in
subsidiaries
Total transactions (397) (67) (464)
with owners
Balance at 31 August 4 506 1 384 5 890
2009 (unaudited)
Message to our shareholders
Following a challenging six months, Altron reported interim financial
results for the half year ended 31 August 2009 which reflect a decline in
revenue of 8% from R13.2 billion to R12.1 billion compared to the prior
period. EBITDA declined by 28% with EBITDA margins declining from 10.0%
to 7.9%. As a result of lower finance income and greater earnings
attributable to minorities due to the increased contribution from Altech
East Africa as well as the Powertech Transformers BBBEE transaction -
adjusted diluted headline earnings per share declined by 44%. This level
of decline represents the comparison between what Altron believes is the
bottom of the cycle and the peak that we saw in the first half of last
year.
Business environment
During the first calendar quarter of 2009, the South African economy
moved into an official recession for the first time since the early
1990s. While the easing of monetary policy has seen progressive interest
rate cuts since December 2008, the impact of the interest rate cycle`s
lag effect of between twelve and eighteen months has meant that property
prices remained subdued, building and construction activity continued to
decrease while consumer demand was weak.
The slowdown in demand in the building and construction industry has been
particularly evident in the residential sector and to a lesser degree in
the commercial sector. The increase in the US$ copper price since March
has been offset to a degree by the appreciation of the rand, while
supply in the local power cables market currently exceeds demand,
creating substantial pricing pressures in that market.
The traditional infrastructure market has continued to generate good
sales, and while this market is expected to remain robust in the medium
term, certain parastatal customers are facing funding constraints and
this may well have a detrimental effect on either the timing or quantum
of capital expenditure programmes. There has also been a marked reduction
in demand from the mining sector following lower commodity prices and
funding constraints, resulting in mining capital expenditure being
curtailed. As has been mentioned previously, our focus in operating in
these challenging market sectors has been on internally driven programmes
of cost reduction, working capital management and a cautious approach to
further capital expenditure and acquisitions. Significant progress has
been made vis a vis these initiatives which will strongly position
Powertech when markets recover.
Local financial and retail institutions continue to trade under difficult
conditions. Consequently the information technology market is operating
in an environment where there is strong competition and heightened
pressure on margins which is reflected in the Bytes results.
Notwithstanding the above, certain markets that we serve, particularly
through Altech, remain robust and provide good opportunity for those
companies with a competitive strategic position. It is anticipated that
the further development of broadband technologies will open up new
opportunities for the Altron group. The landing of the submarine cable
along the East African coast and Altech`s recently announced strategic
alliance with Seacom and investment in TEAMS has opened up exciting
opportunities for Altech`s East African investments and should facilitate
a significant increase in internet penetration in that region.
Financial overview
The Altron group`s results for the half year ended 31 August 2009 reflect
the slowdown in the markets served by Powertech and the margin pressure
at Bytes, partially offset by a strong performance from Altech. Revenue
decreased by 8% to R12.1 billion from R13.2 billion following a 26%
decline in Powertech`s revenue, offset by small increases in both Bytes`
and Altech`s revenues. The decline in EBITDA of 28% from R1 317 million
to R951 million and the EBITDA margin decrease from 10.0% in the prior
year to 7.9%, reflects divergent performances in the three underlying
groups. Altech achieved a significant improvement in its EBITDA on the
back of a strong annuity income base and the higher profitability levels
achieved from recent acquisitions. Bytes` EBITDA was down 25% due to
margin pressure in its markets and Powertech`s EBITDA fell by 65% as a
result of substantially lower demand levels and severe pricing pressures.
All operations were negatively affected by the appreciation of the rand,
resulting in a R96 million foreign exchange loss for the group compared
to a gain of R36 million in the comparable prior period. Powertech was
particularly impacted as R55 million of this loss was applicable to its
operations.
The decline in EBITDA margins combined with the change in net finance
expenses and an increased profit attributable to minorities resulted in
headline earnings per share declining by 51% to 93 cents, while adjusted
diluted headline earnings per share, regarded by management as the most
meaningful assessment of the underlying performance, decreased by 44% to
100 cents. Following disappointing performances in the first half of the
year by Powertech Calidus and the Bytes UK Xerox operations, goodwill
balances have been impaired by R21 million and R30 million, respectively.
This impairment led to earnings per share declining by 63% to 77 cents.
Focus on working capital management continued during the review period,
particularly at Powertech where the cables operation released
approximately R250 million from its investment in working capital. The
group`s overall net working capital days decreased to 19 days from 21
days at the end of the prior year, releasing R127 million on a
consolidated basis. The cash position at the half year was R971 million
with a net debt position of R504 million. The group`s return on equity
for the six months was 13.0% and return on capital employed was 19.9%.
Subsidiary reviews
Altech reported good results for the first six months of the year despite
a recessionary economy. Revenue increased by 4% to R4.7 billion.
Operating margins increased from 9.0% to 10.1%, reflecting good
profitability levels at most of its operations, a higher profit margin
achieved by its recent acquisitions, and the elimination of the Altech
NamiTech South Africa losses following its disposal on 1 April 2009.
Operating profit and EBITDA rose by 17% and 19%, respectively. Headline
earnings per share increased by 12% and adjusted headline earnings per
share increased by 13%.
Altech Autopage Cellular performed well showing increases in both revenue
and operating profit. Operating margins have been maintained due to
careful cost controls and a well controlled debtors` book.
Altech Netstar achieved revenue growth and further improved its operating
margin despite the decline in new car sales associated with the economic
recession. The fleet management business has also seen an improvement in
operating margins, following the consolidation of the Altech Netstar and
ComTech fleet management businesses.
Altech UEC produced somewhat disappointing results largely as a result of
ongoing pressures on revenue and profits due to the slower than expected
deployment of decoders in the Indian market, as well as the strengthening
of the rand. Revenue decreased by 14% compared to the prior period, but
prospects for the second half of the year remain positive.
Altech East Africa continues to perform in line with expectations and is
a key focus area for management. During the review period Altech
increased its stake in Kenya Data Networks (KDN) from 51% to 61% as a
result of providing a greater proportion of funding required for capital
expenditure than its partner, Sameer ICT, as well as the acquisition of
certain additional shares in KDN from a minority shareholder. After the
balance sheet date, Altech has also entered into a strategic alliance
with Seacom for the acquisition of bandwidth capacity on each other`s
cable systems. The agreement has resulted in Altech purchasing two STM-
16s from Seacom (equivalent to 5Gbps), which in turn has purchased $20
million of capacity on the terrestrial fibre backbone network owned by
KDN, a subsidiary of Altech.
Altech`s recent acquisitions of Technology Concepts, NuPay and Fleetcall
are providing better than expected returns, based not only on
performance, but also on the fact that these acquisitions were completed
at reduced valuations reflecting the current challenging economic times.
The Bytes group achieved revenue growth of some 3%, despite the negative
impact the stronger rand had on the translation of results from its
international operations. Continuing margin pressures in this highly
competitive market as well as a poor performance at Bytes Specialised
Solutions did, however, reduce profitability. The operating margin has
reduced from 5.4% to 3.5% resulting in a 32% decline in operating profit
and a decrease in EBITDA of 25%. Adjusted diluted headline earnings
reduced by 38% due to increased net financing costs and a higher
effective tax rate.
The South African operations have seen revenue increase by 8% to nearly
R2 billion, while operating profit reduced by 30%. Bytes Document
Solutions (BDS), the largest operation within the Bytes group achieved
good results during the review period despite some market pressure. BDS`s
performance was assisted by the recently acquired NOR Paper which
contributed meaningfully to BDS`s revenue and profits. There were also
good performances from Bytes Managed Services and Bytes Healthcare
Solutions as well as improved performances from Intelleca and Bytes
Systems Integration. Bytes Specialised Solutions`performance was
disappointing and management is currently reviewing its Retail ATM
business model.
The strengthening of the rand impacted the Bytes UK operations in terms
of revenue and profits. The Software Services business continues to
perform extremely well in a difficult economic environment, but the UK
Xerox businesses came under pressure as access to funding required to
lease equipment in the UK remains tight. Extensive remedial action has
been taken in these businesses, which includes the rationalisation of the
back-office functions to improve cost efficiencies as well as a
substantial headcount reduction.
Powertech experienced a disappointing six months, primarily due to lower
market demand and pricing pressures on its cables operation. The
recession has also impacted the other operational performances when
compared to the high base in the prior period which represented the peak
of the economic cycle. Since the fourth quarter of the prior financial
year, there has been a fundamental shift in demand levels in the main
industries that Powertech serves, necessitating ongoing efforts to
rightsize the businesses to much reduced demand levels. The impact of the
contraction in volumes and the reduction in the copper price is evident
in the 26% reduction in revenue and more dramatically in the operating
profit line, which has declined by 75%, with the operating margin
reducing from 10.1% to 3.4% which includes the forex loss referred to
above of R55 million. Adjusted diluted headline earnings have declined by
79% to R60 million against a prior year`s peak performance of R292
million.
The Powertech Cables Group has seen a 46% reduction in revenue through a
combination of the lower copper price and much reduced demand. Volumes in
the local cable market have been in line with expectations (albeit at
significantly lower levels), but profitability has been impacted by
pricing pressures due to excess capacity to supply the market.
Substantial cost reduction exercises have been implemented to address the
situation, the benefits of which will be seen during the second half of
the year. The telecom cable joint venture and the international cables
operations performed satisfactorily.
The Powertech Transformers group achieved good revenue growth, but
operating profit declined due to margin pressures in both businesses, as
well as the strengthening of the rand. The Power Transformers business
has been the main driver of the revenue growth, while the Distribution
Transformers business experienced greater margin pressure from increased
competition and the slowdown in the building and construction industry.
Within the Powertech Battery Group the automotive side of the business
has held up well while the industrial battery side has been significantly
impacted by reduced activity from the mining sector. Battery Technologies
also experienced a slow start to the year, although it has some
interesting prospects in the mobile telecommunications sector in Africa.
The Powertech Services Group (which is made up of IST and TIS) continues
to be affected by public/private sector project delays and cancellations.
There are, however, signs of improvement with good prospects going
forward, particularly at IST.
Corporate activity
The following significant transactions and corporate developments have
taken place during the review period:
- The acquisition by Altech of Fleetcall, for a maximum purchase price
of R75 million of which R35 million is held in escrow to be released
to the vendors on Fleetcall achieving various profit warranties,
with a reduced payout if these warranties are not met, effective 1
March 2009;
- The acquisition by Altech of a further 9.8% of KDN as a result of
Altech funding the majority of the capital expenditure in that
business in the current year and through acquiring an additional
1.8% of equity from a KDN minority for US$3.3 million;
- The disposal by Altech of Altech NamiTech`s South African operations
to Gemalto for approximately R82 million, effective 1 April 2009;
- The acquisition by Altech of Technology Concepts for a maximum total
consideration of R45 million of which R7.5 million was paid upfront
and R37.5 million is held in escrow to be released to the vendors on
achieving various profit warranties, with a reduced payout if these
warranties are not met, effective 1 March 2009;
- The acquisition by Altech of a 50% plus 1 share interest in NuPay
for R53.5 million, effective 1 June 2009;
- Altech, through its subsidiary KDN, acquired a 8.5% stake in The
East Africa Marine System Limited (TEAMS) cable for an amount of
US$11 million. This investment gives KDN a 10% voting right in
TEAMS; and
- Powertech converted Power Matla`s 25% holding in Desta Power Matla
into a 20% holding in the combined Powertech Transformers and Desta
Power Matla operations, effective 1 March 2009.
After the balance sheet date, Altech formed a strategic alliance with
Seacom for the acquisition of bandwidth capacity on each other`s cable
systems in East Africa.
Outlook
Recent economic data indicates that the bottom of the economic cycle may
have been reached and there are tentative signs of recovery. This is
consistent with the trends we have seen in our businesses, many of which
have reported improved results over the last couple of months.
Nevertheless, demand levels in the economy remain weak compared to those
seen at the peak of the cycle and any recovery is expected to be gradual.
Visibility going forward continues to be limited and the strength of the
rand is of serious concern given the impact this has on the translation
of results from foreign operations, export markets and competition from
foreign imports.
Compared to the first half, it is expected that the second six months
should provide an improved performance reflecting better trading
conditions and realising the benefits of the rationalisation programmes
undertaken during the period under review.
Directorate
Shareholders are referred to the SENS announcements published by Altron
on 3 March 2009 and 5 August 2009, advising that with effect from 1 March
2009 Altron Chairman, Dr WP Venter had assumed the role of non-executive
chairman of the company and that Mr MJ Leeming had been appointed as lead
independent director of Altron with effect from 3 August 2009,
respectively.
Furthermore, shareholders are referred to the SENS announcement published
by Altron on 3 August 2009, advising that Dr HA Serebro had retired from
the Altron board as an executive director with effect from 1 August 2009.
The board expresses its appreciation to Dr Serebro for his significant
contribution over the years.
Acknowledgements
In these difficult times management and the board would like to thank
their loyal customers, and business partners, staff, shareholders and
other stakeholders for their ongoing support of the group and its
operational companies.
On behalf of the board
Dr Bill Venter Robert Venter Alex Smith
Non-executive Chief Executive Chief Financial
Chairman Officer
5 October 2009
CORPORATE INFORMATION
Board of directors
Independent non-executive:
Mr NJ Adami
Mr MJ Leeming
Dr PM Maduna
Ms BJM Masekela
Mr JRD Modise
Ms DNM Mokhobo
Mr PL Wilmot
Non-executive:
Dr WP Venter (Chairman)
Mr MC Berzack
Executives:
Mr RE Venter (Chief Executive)
Mr N Claussen
Mr PMO Curle*
Mr PD Redshaw*
Mr AMR Smith*
Mr CG Venter
*British
Sponsor:
Investec Bank
Date: 05/10/2009 17:30:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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