| Tue 4 May 2010, 8:00 | | ATN/ATNP - Allied Electronics Corporation Limited - Summarised audited |
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ATN ATNP
ATN
ATN/ATNP - Allied Electronics Corporation Limited - Summarised audited
consolidated financial statements for the year ended 28 February 2010
ALLIED ELECTRONICS CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1947/024583/06)
Share code: ATN ISIN: ZAE000029658
Share code: ATNP ISIN: ZAE000029666
SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 28 February 2010
Summarised consolidated statement of comprehensive income
% 2010 2009
R millions change (Audited) (Audited)
Revenue (10) 22 336 24 768
Operating profit before capital items (18) 1 477 1 799
Capital items (Note 1) (105) (21)
Result from operating activities 1 372 1 778
Finance income 87 184
Finance expense (163) (292)
Share of profit from associates 2 3
Profit before taxation 1 298 1 673
Taxation (457) (524)
Profit for the year (27) 841 1 149
Other comprehensive income
Foreign currency translation differences (432) 38
for foreign operations
Fair value adjustment of joint venture on - 54
step acquisition
Effective portion of changes in fair 10 (21)
value of cash flow hedges
Release of foreign currency translation (3) -
surplus on disposal
Fair value adjustment on available-for- (2) (21)
sale investments
Income tax on other comprehensive income (2) 9
Other comprehensive income for the year, (429) 59
net of income tax
Total comprehensive income for the year 412 1 208
Profit attributable to:
Minority interest 298 314
Altron equity holders 543 835
Profit for the year 841 1 149
Total comprehensive income attributable
to:
Minority interest 137 318
Altron equity holders 275 890
Total comprehensive income for the year 412 1 208
Basic earnings per share (cents) (35) 172 266
Diluted basic earnings per share (cents) (32) 169 248
Dividends per share paid (cents) 119 156
Dividends per share declared (cents) 90 119
Headline earnings per share (cents) (28) 198 275
Diluted headline earnings per share (24) 196 257
(cents)
Notes
Basis of preparation
The summarised consolidated financial statements have been prepared in
accordance with the recognition and measurement criteria of International
Financial Reporting Standards (IFRS), its interpretations adopted by the
International Accounting Standards Board (IASB), the presentation and disclosure
requirements of IAS 34, Interim Financial Reporting and in compliance with the
Listings Requirements of the JSE Limited and the requirements of the South
African Companies Act.
The accounting policies followed are consistent with those used in the prior
year.
Report of the independent auditors
The unmodified audit reports of KPMG Inc., the independent auditors, on the
annual financial statements and the summarised financial statements contained
herein for the year ended 28 February 2010, dated 3 May 2010, are available for
inspection at the registered office of the company.
% 2010 2009
R millions change (Audited) (Audited)
Headline earnings per share (cents) (28) 198 275
Diluted headline earnings per share (24) 196 257
(cents)
Adjusted headline earnings per share (25) 220 295
(cents)
Adjusted diluted headline earnings per (22) 217 277
share (cents)
1. Capital items
Net gain on disposal of property, plant and 12 23
equipment
Gain on disposal of intangibles 23 -
Impairment of property, plant and equipment - (12)
Impairment of goodwill (75) (90)
Impairment of intangibles (66) -
Net (loss)/gain on disposal of businesses and (2) 58
investments
Foreign currency translation reserve released on 3 -
disposal
(105) (21)
2. Reconciliation between attributable earnings
and headline earnings
Attributable to Altron equity holders 543 835
Capital items - gross 105 21
Tax effect of capital items (18) 8
Minority interest in capital items (5) (3)
Headline earnings 625 861
3. Reconciliation between attributable earnings
and diluted earnings
Attributable to Altron equity holders 543 835
Dilutive earnings attributable to BBBEE minorities (5) (44)
in subsidiaries
Dilutive earnings attributable to dilutive options (8) (17)
at subsidiary level
Minority interest in adjustments 3 8
Diluted earnings 533 782
4. Reconciliation between headline earnings and
diluted headline earnings
Headline earnings 625 861
Dilutive earnings attributable to BBBEE minorities (3) (41)
in subsidiaries
Dilutive earnings attributable to dilutive options (8) (17)
at subsidiary level
Minority interest in adjustments 3 8
Diluted headline earnings 617 811
5. Reconciliation between headline earnings and
adjusted headline earnings
Adjusted headline earnings have been presented to
demonstrate the impact of accounting charges on
the headline earnings of the group. Headline
earnings are reconciled to adjusted headline
earnings as follows:
Headline earnings 625 861
Amortisation of intangibles arising on business 111 104
combinations
Tax effect of adjustments (26) (29)
Minority interest in adjustments (17) (12)
693 924
6. Reconciliation between diluted headline
earnings and adjusted diluted headline earnings
Diluted headline earnings 617 811
Amortisation of intangibles arising on business 111 104
combinations
Tax effect of adjustments (26) (29)
Minority interest in adjustments (17) (12)
685 874
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 R82 million (comprising the empowerment
funding obligation net of excess cash deposits of R19 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 of subsidiaries
During the year 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 - Lateral Technology Concepts- an established internet technology
services business and corporate internet service provider, 1 June 2009 - 50% of
NuPay - a transaction service provider and switching company and 100% of the
Altech Netstar franchisees in Nelspruit and Polokwane for an aggregate
consideration of R192 million, of which R54 million is deferred.
The acquired businesses contributed revenue of R167 million and net profit after
tax of R26 million to the group for the period ended 28 February 2010.
If the acquisitions had occurred on 1 March 2009, group revenue and net profit
after tax before allocations would have increased by a further R25 million and
R2 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.
Recognised Fair value Carrying
values adjustments amount
Non-current assets 37 62 99
Current assets 27 - 27
Non-current liabilities (11) (10) (21)
Current liabilities (21) - (21)
Net identifiable assets and 32 52 84
liabilities
Attributable to minorities - - (1)
Net attributable assets and 32 52 83
liabilities
Goodwill arising on acquisition 109
Total consideration 192
8. Disposal of NamITech South Africa, a division of Altech Information
Technologies (Proprietary) Limited
On 1 April 2009 the Altech group disposed of the net assets of its 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
The Altech group has signed agreements to sell 25% plus 1 share of its` interest
in the Altech Netstar group to Thebe Investment Corporation (Proprietary)
Limited and Identity Capital Partners (Proprietary) Limited, effective 1 March
2010.
Summarised balance sheet
2010 2009
R millions (Audited) (Audited)
Assets
Non-current assets 5 839 5 239
Property, plant and equipment 2 436 2 221
Intangible assets including goodwill 2 754 2 437
Associates 10 11
Other investments 265 267
Rental finance advances 44 73
Loans receivable 130 -
Deferred taxation 200 230
Current assets 6 688 8 342
Inventories 1 998 2 364
Trade and other receivables 3 435 3 763
Assets classified as held-for-sale - 107
Cash and cash equivalents 1 255 2 108
Total assets 12 527 13 581
Equity and liabilities
Total equity 6 355 6 300
Non-current liabilities 994 1 346
Loans 600 1 056
Empowerment funding obligation 89 101
Provisions 34 25
Deferred income 96 -
Deferred taxation 175 164
Current liabilities 5 178 5 935
Loans 937 404
Empowerment funding obligation 12 11
Bank overdraft 81 928
Trade and other payables 3 808 4 138
Provisions 166 160
Liabilities classified as held-for-sale - 28
Taxation payable 174 266
Total equity and liabilities 12 527 13 581
Net asset value per share (cents) 1 504 1 550
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 IAS14 - Segment Reporting. The standard requires segmentation
based on the group`s internal organisation and reporting of revenue and
operating profit 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 Operating profit
Growth Growth
R millions 2010 2009 Cur/Pyr 2010 2009 Cur/Pyr
Powertech Cables 3 546 5 692 (38) 54 290 (81)
Group
Powertech 1 779 1 736 2 131 166 (21)
Transformers Group
Other Powertech 1 908 2 165 (12) 114 162 (30)
Segments
Powertech Group 7 233 9 593 (25) 299 618 (52)
Bytes Technology 1 645 1 780 (8) 46 55 (17)
Group UK Software
Bytes Document 2 065 2 160 (4) 155 197 (21)
Solutions Group
Other Bytes 2 242 2 098 7 110 129 (15)
Segments
Bytes Group 5 952 6 038 (1) 311 381 (18)
Altech Autopage 5 597 5 264 6 296 296 -
Cellular
Altech UEC Group 1 079 1 324 (19) 5 33 (85)
Altech Netstar 880 829 6 269 251 7
Kenya Data Networks 401 334 20 158 158 -
Other Altech 1 243 1 413 (12) 245 162 51
Segments
Altech Group 9 200 9 164 - 973 900 8
Corporate and 36 21 5 4
financial services
Inter segment (85) (48)
revenue
Altron Group 22 336 24 768 (10) 1 588 1 903 (17)
12 12
months months
to to
28 28
February February
2010 2009
Segment operating
profit can be
reconciled to group
operating profit
before capital
items as follows:
Segment operating 1 588 1 903
profit
Reconciling items:
Amortisation of (111) (104)
intangibles raised
on acquisitions
Group operating 1 477 1 799
profit before
capital items
Summarised consolidated statement of cash flows
2010 2009
R millions (Audited) (Audited)
Cash flows from operating activities 1 290 646
Cash generated by operations 2 033 2 278
Net finance expense (67) (89)
Changes in working capital 384 (232)
Taxation paid (522) (666)
Cash available from operating activities 1 828 1 291
Dividends paid, including to minority (538) (645)
shareholders
Cash flows applied in investing activities (1 239) (1 904)
Cash flows from financing activities (18) 345
Net increase/(decrease) in cash and cash 33 (913)
equivalents
Net cash and cash equivalents at the beginning of 1 180 2 083
year
Effect of exchange rate fluctuations on cash held (39) 10
Net cash and cash equivalents at the end of year 1 174 1 180
Operational contribution
% 2010 % 2009 %
R millions Change (Audited) (Audited)
Revenue
Altech - 9 200 41 9 164 37
Bytes (1) 5 952 27 6 038 24
Powertech (25) 7 233 32 9 593 39
Corporate, (49) - (27) -
financial
services and
eliminations
(10) 22 336 100 24 768 100
Operating
profit*
Altech 7 932 64 874 49
Bytes (19) 285 19 351 19
Powertech (55) 255 17 570 32
Corporate, 5 - 4 -
financial
services and
eliminations
(18) 1 477 100 1 799 100
% held at % held at
Attributable 28 28
headline February February
earnings: 2010 2009
Altech 61,5 62,0 342 55 342 40
Bytes 100,0 100,0 (24) 157 25 207 24
Powertech 100,0 100,0 (64) 97 16 266 31
Corporate, 100,0 100,0 29 4 46 5
financial
services and
eliminations
(27) 625 100 861 100
* Operating profit is stated before capital items and after amortisation of
intangibles arising on business combinations.
Supplementary information
2010 2009
R millions (Audited) (Audited)
Borrowings 1 638 1 572
- interest bearing 1 174 1 434
- non-interest bearing 363 26
- BBBEE funding obligation 101 112
Depreciation 346 298
Amortisation 164 140
Net foreign exchange losses/(gains) 91 (53)
Capital expenditure 1 106 1 008
Capital commitments 330 515
Lease commitments 783 609
Payable within the next 12 months: 190 171
- property 131 123
- plant, equipment and vehicles 59 48
Payable thereafter: 593 438
- property 511 380
- plant, equipment and vehicles 82 58
Unlisted investments (including Associates)
- Carrying amount 275 278
- Directors` valuation 276 279
Weighted average number of shares (millions) 315 314
- Ordinary shares 102 102
- Participating preference shares 213 212
Diluted average number of shares (millions) 316 316
Shares in issue at end of year (millions) 315 314
- ordinary shares 102 102
- participating preference shares 213 212
EBITA (Rm) 1 641 1 939
EBITDA (Rm) 1 987 2 237
Ratios EBITDA margin % 8,9 9,0
ROCE % 18,5 22,9
ROE % 13,0 18,3
ROA % 13,8 16,6
RONA % 18,3 23,0
Borrowings ratio % 25,8 25,0
Current ratio 1.3:1 1.4:1
Acid test ratio 0.9:1 1:1
Summarised statement of changes in equity
R millions Attributable to Altron equity
holders
Share Treasury
capital
and premium shares Reserves
Balance at 29 February 2008 2 210 (299) (1 076)
(audited)
Total comprehensive income for the
year
Profit for the year - - -
Other comprehensive income
Foreign currency translation - - 33
differences for foreign operations
Effective portion of changes in - - (14)
fair value of cash flow hedges
Fair value adjustment of joint - - 54
venture on step acquisition
Statutory reserves of foreign - - 59
subsidiaries
Fair value adjustment on available- - - (18)
for-sale investments
Total other comprehensive income - - 114
Total comprehensive income for the - - 114
year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends to equity holders - - -
Issue of share capital 18 - -
Share-based payment transactions - - 14
Total contributions by and 18 - 14
distributions to owners
Changes in ownership interests in
subsidiaries
Net subscription for 22% minority - - (16)
interest in Bytes SA
Subscription by minority - - -
shareholders on acquisition of
subsidiary
Minority interest on acquisition of - - -
subsidiaries
Change in shareholding of - - (12)
subsidiaries
Total changes in ownership - - (28)
interests in subsidiaries
Total transactions with owners 18 - (14)
Balance at 28 February 2009 2 228 (299) (976)
(audited)
Total comprehensive income for the
year
Profit for the year - - -
Other comprehensive income
Foreign currency translation - - (271)
differences for foreign operations
Effective portion of changes in - - 8
fair value of cash flow hedges
Release of foreign currency - - (3)
translation surplus on disposal
Statutory reserves of foreign - - 24
subsidiaries
Fair value adjustment on available- - - (2)
for-sale investments
Total other comprehensive income - - (244)
Total comprehensive income for the - - (244)
year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Issue of share capital 8 - 12
Dividends to equity holders - - -
Share-based payment transactions - - 20
Total contributions by and 8 - 32
distributions to owners
Changes in ownership interests in
subsidiaries
Change in ownership following
subscription
for additional share capital and - - (67)
dilutions
Acquisition of minority interests - - (4)
Minority interest disposed - - -
Minority interest on acquisition of - - -
subsidiaries
Total changes in ownership - - (71)
interests in subsidiaries
Total transactions with owners 8 - (39)
Balance at 28 February 2010 2 236 (299) (1 259)
(audited)
R millions Attributable to
Altron equity
holders
Retained Minority Total
earnings Total interest equity
Balance at 29 February 2008 3 634 4 469 877 5 346
(audited)
Total comprehensive income for the
year
Profit for the year 835 835 314 1 149
Other comprehensive income
Foreign currency translation - 33 5 38
differences for foreign operations
Effective portion of changes in - (14) (1) (15)
fair value of cash flow hedges
Fair value adjustment of joint - 54 - 54
venture on step acquisition
Statutory reserves of foreign (59) - - -
subsidiaries
Fair value adjustment on available- - (18) - (18)
for-sale investments
Total other comprehensive income (59) 55 4 59
Total comprehensive income for the 776 890 318 1 208
year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends to equity holders (490) (490) (155) (645)
Issue of share capital - 18 1 19
Share-based payment transactions - 14 3 17
Total contributions by and (490) (458) (151) (609)
distributions to owners
Changes in ownership interests in
subsidiaries
Net subscription for 22% minority - (16) 168 152
interest in Bytes SA
Subscription by minority - - 79 79
shareholders on acquisition of
subsidiary
Minority interest on acquisition of - - 142 142
subsidiaries
Change in shareholding of - (12) (6) (18)
subsidiaries
Total changes in ownership - (28) 383 355
interests in subsidiaries
Total transactions with owners (490) (486) 232 (254)
Balance at 28 February 2009 3 920 4 873 1 427 6 300
(audited)
Total comprehensive income for the
year
Profit for the year 543 543 298 841
Other comprehensive income
Foreign currency translation - (271) (161) (432)
differences for foreign operations
Effective portion of changes in - 8 - 8
fair value of cash flow hedges
Release of foreign currency - (3) - (3)
translation surplus on disposal
Statutory reserves of foreign (24) - - -
subsidiaries
Fair value adjustment on available- - (2) - (2)
for-sale investments
Total other comprehensive income (24) (268) (161) (429)
Total comprehensive income for the 519 275 137 412
year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Issue of share capital - 20 26 46
Dividends to equity holders (372) (372) (166) (538)
Share-based payment transactions - 20 3 23
Total contributions by and (372) (332) (137) (469)
distributions to owners
Changes in ownership interests in
subsidiaries
Change in ownership following
subscription
for additional share capital and - (67) 185 118
dilutions
Acquisition of minority interests - (4) (2) (6)
Minority interest disposed - - (1) (1)
Minority interest on acquisition of - - 1 1
subsidiaries
Total changes in ownership - (71) 183 112
interests in subsidiaries
Total transactions with owners (372) (403) 46 (357)
Balance at 28 February 2010 4 067 4 745 1 610 6 355
(audited)
Message to shareholders
The Altron financial results for the year ended 28 February 2010 closely reflect
the board`s expected financial performance as outlined in its trading statement
issued in February this year.
In reviewing the performance of the past year, the benefits of a diversified
portfolio of operations were realised with the strength of the Altech annuity
businesses partially shielding the group`s results from the challenges faced by
Powertech, and to a lesser extent, Bytes. As previously indicated, the year
under review required stringent focus by management on cost controls, scaling
our businesses appropriately for the new environment, managing working capital
and extracting value from recent acquisitions. We are pleased to be able to
report that significant progress has been made on each of these elements and
while this will remain important, our primary focus will now shift towards
growth opportunities.
Overall, our group results reflect a pleasing performance by Altech, maintaining
its revenue and enhancing its profitability. Bytes also managed to achieve
revenue at prior year levels, but experienced margin pressure with some
operational issues reducing its profitability. Powertech continued to face
challenging market conditions and weak demand. The combination of these broad
drivers resulted in Altron`s revenue declining by 10% from R24.8 billion to
R22.3 billion and EBITDA reducing by 11% from R2.2 billion to R2.0 billion.
After taking into account the additional depreciation charges on recent capital
expenditure, a net interest paid position and dilution from our BBBEE
minorities, Altron reported a 22% reduction in adjusted diluted headline
earnings per share. The adjustment to earnings excludes the effect of the
amortisation of intangibles arising from recent acquisitions, since management
considers this to be the measure most representative of the group`s operational
performance. The group broadly maintained its dividend cover at 2.5 times based
on adjusted headline earnings per share, declaring a dividend of 90 cents per
share.
Business environment
The much speculated economic recovery, which only really started to materialise
in the fourth quarter of 2009 has been slow with fairly muted growth driven by
commodity price increases and has been restricted to certain sectors of the
economy. The signs of `green shoots` at the half year were premature as the
second half proved to be just as challenging as the first half. However, in the
first couple of months of 2010 we have seen some positive signs of growth which
appear to be more sustainable. The strengthening of the rand and its ability to
hold these gains has had a pronounced negative effect on the group in terms of
the competitiveness of our exports and foreign imports in the local market.
The impact of the interest rate cycle, which has had a longer than usual lag
effect, is reflected in subdued property prices, a significantly lower level of
residential and commercial building plans being passed and reduced consumer
demand.
The recent increase in the copper price provided some assistance to an otherwise
depressed market and despite a marked slowdown in orders in the power
infrastructure businesses, the market is expected to remain robust over the
medium term. The significant reduction in demand from the mining industry also
continued to affect our power cables and industrial battery businesses while
increased import competition in certain key areas of the market further
challenged market conditions.
Focus on the development of broadband technologies and the adoption thereof by
consumers, will open up new opportunities for the group. The continued expansion
in the mobile arena, particularly in Africa, provides growth opportunities for
Altech as well as Powertech`s mobile infrastructure focused companies.
The information technology market continues to operate in an environment where
there is strong competition and pressure on margins. During the review period
several large corporate customers delayed IT projects, but this practice is
unsustainable in the long term and we are starting to see companies re-initiate
these projects.
Financial overview
The Altron group`s results for the year ended 28 February 2010 reflect a
decrease in revenue of 10% from R24.8 billion to R22.3 billion. EBITDA declined
by 11% from R2.2 billion to R2.0 billion with the EBITDA margin declining from
9.0% in the prior year to 8.9%. The three principal subsidiaries within the
Altron group reflected divergent trading performances dependent on their
sectoral exposure and level of recurring income. Altech continued its positive
performance in a tough environment, maintaining revenue at prior year levels.
Pleasingly, EBITDA grew by 9.4% and the EBITDA margin improved to 12.7% from
11.6%. This was achieved as a result of the increased contribution from the data
infrastructure businesses and the strong contribution from recent acquisitions.
Bytes saw a marginal decrease in revenue of 1% on the prior year, but EBITDA
fell 8% on declining margins in a tough trading environment and as a result of
non-recurring charges in our Retail ATM business. Powertech endured a difficult
period with revenue down 25% and EBITDA down 43% while EBITDA margins reduced
from 7.7% to 5.9%. The weakness has largely been in the energy cables business,
where volumes have remained subdued and there has been considerable pricing
pressure in some of its key products.
The group`s investment in working capital decreased by R384 million, as a result
of good working capital management and lower activity levels. Overall net
working capital days improved from 21 days to 18 days. The group`s cash position
improved in the second half to R1.2 billion, broadly in line with prior year
levels despite the R1.2 billion invested into the future growth of the group
through acquisitions and capital expenditure. Group balance sheet ratios
declined somewhat as a result of lower profitability, with return on equity at
13% and return on capital employed at 18.5%.
Subsidiary review
Altech delivered pleasing results for the financial year ended 28 February 2010,
with adjusted headline earnings per share growing by 2% to 605 cents per share.
Revenue at R9.2 billion was consistent with the prior year level. EBITDA
improved by 9.4% to R1 165 million from R1 065 million with an improved EBITDA
margin of 12.7%. The return on shareholders` equity remained strong at 26.1%. A
dividend of 339 cents per share was declared, representing an increase of 5%.
Altech Autopage Cellular saw revenue increase by 6% as a result of the growth in
their subscriber base, while operating profits were at the same levels as the
prior year. The subscriber base has continued to grow, although at a slower rate
and there has been some decline in ARPU. The business was restructured in
November 2009 in order to reduce costs to mitigate the potential impact flowing
from the reduction in interconnect rates. The full benefit of the 25% headcount
reduction with significant savings should be realised in the next financial
year.
Altech Netstar Stolen Vehicle Recovery performed well in growing revenue by 7%
and maintaining its margins despite the depressed level of new car sales. Altech
Netstar Fleet Management saw revenue growth and an excellent improvement in
margins as business efficiencies were achieved.
Altech UEC had a disappointing year, due primarily to a lack of orders from
India. This has been offset to some extent by certain significant successes in
other export markets. Locally, Multichoice sales continue to be strong. Various
delays and reworks, as well as the strength of the rand have eroded margins. A
new chief executive officer, with considerable international experience, has
recently been appointed. It is anticipated that he will restore this business to
acceptable levels of profitability.
Altech`s East African operations are performing broadly in line with
expectations. Significant investment has enabled Altech to continue with the
expansion of its network as well as providing value-added services, such as a
state-of-the-art data centre. The business has been enhanced by the purchase of
a significant amount of bandwidth on the Seacom undersea cable, which has
replaced expensive international satellite connectivity. This combined with the
10% stake in the TEAMS undersea cable provide the East African businesses with
significant international bandwidth with which to benefit from this growing
market.
Altech IT posted exceptionally pleasing results in the year under review and
Altech`s acquisitions during the year of Fleetcall, Technology Concepts and
NuPay are operating profitably. They are either matching or exceeding initial
expectations and together have made a significant contribution towards Altech`s
operating profit and its enhanced profitability.
Despite tough trading conditions and heightened competition, Bytes saw its
revenue hold up well, but reported a disappointing performance in terms of
profitability. Revenue was down 1% at just under R6 billion and EBITDA reduced
8% to R393 million. The South African operations grew revenue 4% in challenging
conditions. However, local EBITDA margins declined from 10.2% to 8.9% as a
result of margin pressure, particularly in the Document Solutions business and
problems experienced in our Retail ATM business within Bytes Specialised
Solutions (BSS). The latter business came under pressure and required
significant restructuring and management changes. After a comprehensive review
of the business model and appropriate remedial action we believe that this
business is now well placed to show a strong recovery.
Bytes Document Solutions (BDS) in South Africa has performed well in difficult
market conditions marked by a decline in paper and equipment prices over the
past year. However, industry research indicates that the business has gained
further market share during the year, confirming the strength of their service
offering. The paper side of the business continues to perform well,
notwithstanding a decline in margins.
Both Bytes Systems Integration and Intelleca reported good results,
significantly turning around their performances from the prior year. Bytes
Managed Services (BMS), Bytes Outsource Services (BOS) and Bytes Healthcare
Solutions (BHS) all produced excellent results with the latter, in particular,
producing real growth in a mature market.
The international operations saw a contraction in revenue of 11%, primarily on
the back of a stronger rand. EBITDA margins declined as a result of a poor
performance from the Bytes UK Document Solutions businesses. Significant
restructuring as well as a change in senior management has occurred and the
business is now well placed to take advantage of improving conditions in that
economy. These results were partially offset by another good year from the
software business in the UK, producing its best ever results in local currency
terms. However, its contribution to the group`s results reduced as a result of
the 16% appreciation of the rand against sterling.
Following the retirement of David Redshaw as chief executive officer of Bytes,
Rob Abraham, previously managing director (MD) of BDS, was appointed to this
position on 1 March 2010 which resulted in further restructuring and
streamlining of Bytes SA. Hennie du Plessis, previously MD of BHS, now heads up
BDS and Douglas Ramaphosa, previously MD of BSS, took over the reins at BHS. BSS
and BMS were merged under Deidre Le Hanie, who was previously responsible for
BMS. Bytes Communication Systems, BOS and Intelleca were merged into one entity
under Andrew Holden.
Powertech experienced a difficult year, facing significant challenges in a
number of its businesses and this is reflected in its results. Revenue fell by
nearly 25%, from R9.6 billion to R7.2 billion as volumes remained subdued and
pricing pressures were experienced as a result of surplus capacity in the
market. This in turn led to a substantial drop in EBITDA of 43% from R741
million to R424 million, reflecting the pronounced impact lower volumes have had
on a business with high fixed costs. The last year has seen a focus on changing
the cost structure of the various businesses to suit the new demand levels and
we have had to reduce overall headcount by over 20%. This has clearly involved
various once-off costs, the benefits of which are expected to be fully realised
in the coming year.
Aberdare Cables has endured one of its most challenging years, but much has been
achieved. Sales volumes were broadly in line with our expectations, but down
some 30% to 40% from the peak seen 24 months ago. Results have been primarily
impacted by severe pricing pressures experienced in some of our key product
areas that have eroded gross margins.
Consistent with previous communications, the current year has seen a significant
reduction in both the cost base and the working capital invested in Aberdare
Cables. Manufacturing efficiencies have been enhanced through rationalisation -
an ongoing project - which will stand the business in good stead going forward.
The 70% rise in the rand copper price over the year has assisted results, but
the benefits have been fairly muted as a result of a substantial reduction in
inventory levels where stock turns have virtually doubled.
There has been an improvement in pricing in the market in the last quarter of
the year, which we expect to be sustained into the following financial year. The
international cable operations in Iberia have performed above expectations and
delivered a commendable set of results after achieving significant project wins
in the Spanish high speed train roll-out.
Powertech Transformers experienced contrasting conditions in each of its power
and distribution divisions. The power division continues to build on its strong
performance of recent years, growing revenue and improving its operating margin.
The distribution business has, however, experienced a dramatic drop in demand in
the second half of the year, reflecting the state of the local building and
construction industry as well as significant international competition. As a
result, the business is undergoing down-sizing involving the closure of one
facility and a reduction in headcount.
Powertech Batteries also experienced divergent conditions in its areas of
operation. The automotive side of the business performed very well, growing
revenue and margins on increased market share and realising the benefits of
automating the production lines. However, the industrial side of the business
saw a significant decline in volumes as a number of industries, but particularly
mining, cut back on expenditure in this area. As a result, the industrial
battery manufacturing facility has also had to be scaled down with commensurate
headcount reductions. Battery Technologies also experienced difficult trading
conditions as mobile operators reduced capital expenditure plans.
Powertech IST has performed adequately given the continued constraints on large
capital expenditure projects. IST saw a slight decline in profitability, but saw
an improved performance out of the Telecoms business. It is well positioned for
when capital expenditure picks up again, having the largest project pipeline in
its history. The Powertech Industrial group performed relatively well in a
difficult environment based on extensive cost reduction initiatives and a good
performance from Strike Technologies.
Corporate activity
The following significant transactions and corporate developments took place
during the year under review:
- the acquisition by Altech of Fleetcall effective 1 March 2009, 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 certain profit warranties, with a
reduced payout if these warranties are not met;
- 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, effective 1 March 2009, 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 certain profit warranties, with a reduced payout if these warranties
are not met;
- the acquisition by Altech of a 50% plus 1 share interest in NuPay for R53.5
million, effective 1 June 2009;
- the acquisition by Altech, through its subsidiary KDN, of an 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;
- Power Matla`s 25% holding in the Desta Power Matla distribution transformer
business was converted, together with a capital contribution of R25 million,
into a 20% holding in the combined Powertech Transformers and Desta Power Matla
operations, effective 1 March 2009; and
- Altech entered into a strategic alliance with Seacom, for the acquisition of
bandwidth capacity on each other`s cable systems in East Africa.
Outlook
The South African economy is clearly in the early stages of recovery, though
much of the growth recorded to date has only occurred in certain sectors and we
have yet to see any meaningful recovery in the mining and building and
construction sectors. A successful World Cup will boost the nation`s confidence
which should enhance consumer confidence, but it is unclear what effect it will
have on industry both during and after the event. Certain key customers have
announced technology freezes for the duration of the World Cup so as to minimize
the risk of disruption of key services.
It is the board`s view that the recovery should continue through the year and a
sustained period of low interest rates is expected to filter through into the
sectors of the economy that we service. Following rationalising actions during
the past year in terms of restructuring and right-sizing of operations, the
board believes the group is well positioned to capitalise on what is likely to
be a gradual recovery and enters the new financial year with positive
expectations of performance in the years ahead.
Acknowledgements
The board would like to express its appreciation to all of its customers, staff,
business partners, shareholders and other stakeholders for their support during
an extremely difficult period and for their continued belief in the future
sustainability of the group and its strong underlying businesses.
Integrated reporting as per King III
On 1 March 2010, the 2009 King Report on Governance for South Africa (King III)
came into force and effect, guiding the board in further maturing its approach
to the governance of Altron. King III requires that long-term social,
environmental and economic interests are balanced with the primary need to
maximise the profits of the company. The integrated annual report for the
current financial year will therefore be integrating all issues that affect or
contribute to the sustainable development of Altron, by applying the G3
guidelines of the Global Reporting Initiative (GRI), as recommended by King III.
Directorate
Shareholders are referred to the SENS announcement published by Altron on 26
February 2010 advising that with effect from 1 March 2010, Mr David Redshaw
would be retiring from the Bytes group as chief executive officer, but would
remain on the Altron board as a non-executive director. We would like to thank
David for his significant contribution to the Altron group over the past 22
years and particularly for his contribution in building Bytes into the leading
technology company it is today.
Dividend
The following dividends are hereby declared for the year ended 28 February 2010:
- ordinary dividend No. 62 of 90 cents per share (2009: 119 cents); and
- participating preference dividend No. 16 of 90 cents per share (2009: 119
cents).
The above dividends are payable as follows:
Last day of trading to qualify for and Friday, 25 June 2010
participate in the dividend (cum dividend)
Trading ex dividend commences Monday, 28 June 2010
Record date Friday, 2 July 2010
Dividend payment date (electronic and Monday, 5 July 2010
certificated)
Dividend cheques in payment of these dividends to certificated shareholders will
be posted to shareholders on or about Monday, 5 July 2010. Electronic payment to
certificated shareholders will be undertaken simultaneously.
Shareholders who have dematerialised their share certificates will have their
accounts at their central securities depository participant or broker credited
on Monday, 5 July 2010.
In the case of certificated shareholders, notice of any change of address of
shareholders must reach the transfer secretaries, Computershare Investor
Services (Pty) Limited, on or before Friday, 25 June 2010. Share certificates
may not be dematerialised or rematerialised from Monday, 28 June 2010 to Friday,
2 July 2010, both days inclusive.
Annual general meeting
Altron`s 64th annual general meeting will be held in the Altron Boardroom, 5
Winchester Road, Parktown, Johannesburg on Wednesday, 14 July 2010 at 09:30.
Further details on the company`s annual general meeting will be contained in
Altron`s integrated annual report to be posted to shareholders on or about 31
May 2010.
On behalf of the board
Dr Bill Venter Robert Venter Alex Smith
Chairman Chief Executive Chief Financial Officer
3 May 2010
Board of directors
Independent non-executive:
Mr NJ Adami, Mr MJ Leeming(Lead Independent director), Dr PM Maduna, Ms BJM
Masekela, Ms DNM Mokhobo, Mr JRD Modise, Mr PL Wilmot
Non-executive:
Dr WP Venter (Chairman), Mr MC Berzack, Mr PD Redshaw*
Executive: Mr RE Venter (Chief Executive), Mr N Claussen, Mr PMO Curle*, Mr
AMR?Smith*, Mr CG Venter
* British
Secretaries:
Altron Management Services (Pty) Limited -
AG Johnston (Group Company Secretary)
Sponsor:
Investec Bank
The preliminary financial results are also available on the internet at
www.altron.com
Date: 04/05/2010 08:00:10 Produced by the JSE SENS Department.
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