| Tue 5 Oct 2010, 7:19 | | ATN / ATNP - Allied Electronics Corporation Limited - Unaudited Consolidated |
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ATN / ATNP - Allied Electronics Corporation Limited - Unaudited Consolidated
Interim Results For the six months ended 31 August 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
Unaudited Consolidated Interim Results
For the six months ended 31 August 2010
EBITDA up 4%
Basic headline earnings up 21%
Adjusted diluted headline earnings per share up 5%
Good working capital management
Condensed consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2010 2009 2010
R millions change (Unaudited) (Unaudited) (Audited)
Revenue (3) 11 724 12 055 22 336
Operating profit before (5) 691 731 1 477
capital items
Capital items (Note 1) (24) (50) (105)
Result from operating 667 681 1 372
activities
Finance income 37 78 87
Finance expense (72) (121) (163)
Share of profit from 1 1 2
associates
Profit before taxation 633 639 1 298
Taxation (171) (183) (401)
STC (45) (51) (56)
Profit for the period 3 417 405 841
Other comprehensive
income
Foreign currency (267) (351) (432)
translation differences
for foreign operations
Effective portion of 8 - 10
changes in fair value of
cash flow hedges
Release of foreign - - (3)
currency translation
surplus on disposal
Fair value adjustment on - - (2)
available-for-sale
investments
Income tax on other (2) - (2)
comprehensive income
Other comprehensive (261) (351) (429)
income for the period,
net of income tax
Total comprehensive 156 54 412
income for the period
Profit attributable to:
Non-controlling 123 162 298
interest
Altron equity holders 294 243 543
Profit for the period 417 405 841
Total comprehensive
income attributable to:
Non-controlling (32) 24 137
interest
Altron equity holders 188 30 275
Total comprehensive 156 54 412
income for the period
Basic earnings per share 21 93 77 172
(cents)
Diluted basic earnings 20 90 75 169
per share (cents)
Notes
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2010 2009 2010
R millions change (Unaudited) (Unaudited) (Audited)
Headline earnings per 6 99 93 198
share (cents)
Adjusted headline 6 109 103 220
earnings per share
(cents)
Diluted headline 5 96 91 196
earnings per share
(cents)
Adjusted diluted 5 105 100 217
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 the AC 500 series, the
International Financial Reporting Standards (IFRS), its interpretations
adopted by the International Accounting Standards Board (IASB) in issue and
effective at 31 August 2010, the 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 used in the preparation of these interim results are
consistent with those used in the annual financial statements for the year
ended 28 February 2010, except for the adoption of IFRS 3 Business Combinations
2008 and IAS 27 Consolidated and Separate Financial Statements 2008. All
business combinations occurring on or after 1 March 2010 will be accounted
for applying the acquisition method. The changes in accounting policies are
applied prospectively and had no material application in the current period.
1. Capital items
Net gain on disposal of 2 1 12
property, plant and equipment
Gain on disposal of intangibles - - 23
Impairment of goodwill (26) (51) (75)
Impairment of intangibles - - (66)
Net loss on disposal of - - (2)
businesses and investments
Foreign currency translation - - 3
reserve released on disposal
(24) (50) (105)
2. Reconciliation between
attributable earnings and
headline earnings
Attributable to Altron equity 294 243 543
holders
Capital items - gross 24 50 105
Tax effect of capital items 1 - (18)
Non-controlling interest in (7) - (5)
capital items
Headline earnings 312 293 625
3. Reconciliation between
attributable earnings and
diluted earnings
Attributable to Altron equity 294 243 543
holders
Dilutive earnings attributable (8) (3) (5)
to B-BBEE minorities in
subsidiaries
Non-controlling interest in - 1 3
adjustments
Dilutive earnings attributable (2) (4) (8)
to dilutive options at
subsidiary level
Diluted earnings 284 237 533
4. Reconciliation between
headline earnings and diluted
headline earnings
Headline earnings 312 293 625
Dilutive earnings attributable (8) (3) (3)
to B-BBEE minorities in
subsidiaries
Non-controlling interest in - 1 3
adjustments
Dilutive earnings attributable (2) (4) (8)
to dilutive options at
subsidiary level
Diluted headline earnings 302 287 617
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 312 293 625
Amortisation of intangibles 52 50 111
arising on business acquisitions
Tax effect of adjustments (12) (12) (26)
Non-controlling interest in (9) (7) (17)
adjustments
Adjusted headline earnings 343 324 693
6. Reconciliation between
diluted headline earnings and
adjusted diluted headline
earnings
Diluted headline earnings 302 287 617
Amortisation of intangibles 52 50 111
arising on business acquisitions
Tax effect of adjustments (12) (12) (26)
Non-controlling interest in (9) (7) (17)
adjustments
Adjusted diluted headline 333 318 685
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 R83 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 the Allied Technologies Limited
level.
Condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R millions (Unaudited) (Unaudited) (Audited)
Cash flows from operating 320 280 1 290
activities
Cash generated by operations 1 013 956 2 033
Changes in working capital 31 127 384
Net finance expense (45) (43) (67)
Taxation paid (230) (227) (522)
Cash available from operating 769 813 1 828
activities
Dividends paid, including to non- (449) (533) (538)
controlling shareholders
Cash flows applied in investing (395) (574) (1 239)
activities
Cash flows (applied in)/from (108) 97 (18)
financing activities
Net (decrease)/increase in cash (183) (197) 33
and cash equivalents
Net cash and cash equivalents at 1 174 1 180 1 180
the beginning of the period
Effect of exchange rate (17) (12) (39)
fluctuations on cash held
Net cash and cash equivalents at 974 971 1 174
the end of the period
Condensed consolidated balance sheet
31 August 31 August 28 February
2010 2009 2010
R millions (Unaudited) (Unaudited) (Audited)
Assets
Non-current assets 5 719 5 235 5 839
Property, plant and equipment 2 466 2 326 2 436
Intangible assets including 2 606 2 341 2 754
goodwill
Associates 10 11 10
Other investments 254 285 265
Rental finance advances 48 57 44
Loans receivable 130 - 130
Deferred taxation 205 215 200
Current assets 6 647 7 156 6 688
Inventories 2 098 2 037 1 998
Trade and other receivables 3 276 3 781 3 435
Cash and cash equivalents 1 273 1 338 1 255
Total assets 12 366 12 391 12 527
Equity and liabilities
Total equity 6 078 5 890 6 355
Non-current liabilities 908 1 305 994
Loans 541 1 054 600
Empowerment funding obligation 82 96 89
Provisions 13 14 34
Deferred income 96 - 96
Deferred taxation 176 141 175
Current liabilities 5 380 5 196 5 178
Loans 813 314 937
Empowerment funding obligation 13 11 12
Bank overdraft 299 367 81
Trade and other payables 3 886 4 034 3 808
Provisions 184 181 166
Taxation payable 185 289 174
Total equity and liabilities 12 366 12 391 12 527
Net asset value per share 1 477 1 430 1 504
(cents)
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.
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 (before amortisation charges relating
to acquisitions) generated by each of the group`s reportable segments are
summarised as follows:
Revenue Operating profit
Six Six 12 months Six Six 12
months months months months months
to to to to to to
31 August 31 August 28 February 31 August 31 28
August February
R millions 2010 2009 2010 2010 2009 2010
Powertech 2 072 1 913 3 546 69 29 54
Cables Group
Powertech 726 1 071 1 779 71 71 131
Transformers
Group
Other 999 997 1 908 55 58 114
Powertech
Segments
Powertech 3 797 3 981 7 233 195 158 299
Group
Bytes 997 1 260 1 645 32 36 46
Technology
Group UK
Software
Bytes Document 1 017 1 034 2 065 79 74 155
Solutions
Group
Other Bytes 1 132 1 080 2 242 57 24 111
Segments
Bytes Group 3 146 3 374 5 952 168 134 312
Altech 2 819 2 796 5 597 104 145 296
Autopage
Cellular
Altech UEC 544 597 1 079 (9) 18 5
Group
Altech Netstar 473 434 880 137 139 269
Group
Kenya Data 217 215 401 19 97 158
Networks
Altech 56 - 61 39 - 45
International
(Bandwidth)
Other Altech 679 690 1 182 91 94 200
Segments
Altech Group 4 788 4 732 9 200 381 493 973
Corporate and 30 6 36 (1) (4) 4
financial
services
Inter segment (37) (38) (85)
revenue
Altron Group 11 724 12 055 22 336 743 781 1 588
Six months Six months 12 months
to to to
31 August 31 August 28 February
R millions 2010 2009 2010
Segment operating profit can be
reconciled to group operating
profit before capital items as
follows:
Segment operating profit 743 781 1 588
Reconciling items:
Amortisation of intangibles (52) (50) (111)
raised on acquisitions
Group operating profit before 691 731 1 477
capital items
Condensed consolidated statement of changes in equity
R millions Attributable to Altron equity holders
Share capital Treasury Retained
and premium shares Reserves earnings
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 comprehensive - - (213) -
income
Total comprehensive income - - (213) 243
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 and 7 - 10 (375)
distributions to owners
Changes in ownership
interests in subsidiaries
Change in shareholding of - - (39) -
subsidiaries
Total changes in ownership - - (39) -
interests in subsidiaries
Total transactions with 7 - (29) (375)
owners
Balance at 31 August 2009 2 235 (299) (1 218) 3 788
(unaudited)
Total comprehensive income
for the period
Profit for the period - - - 300
Other comprehensive income
Foreign currency - - (58) -
translation differences
for foreign operations
Effective portion of - - 8 -
changes in fair value of
cash flow hedges
Release of foreign - - (3) -
currency translation
surplus on disposal
Statutory reserves of - - 24 (24)
foreign subsidiaries
Fair value adjustment on - - (2) -
available-for-sale
investments
Total other comprehensive - - (31) (24)
income
Total comprehensive income - - (31) 276
for the period
Transactions with owners,
recorded directly in
equity
Contributions by and
distributions to owners
Dividends to equity - - - 3
holders
Issue of share capital 1 - 12 -
Share-based payment - - 10 -
transactions
Total contributions by and 1 - 22 3
distributions to owners
Changes in ownership
interests in subsidiaries
Change in ownership - - (28) -
following subscription for
additional share capital
and dilutions
Acquisition of non- - - (4) -
controlling interests
Non-controlling interest - - - -
on acquisition of
subsidiaries
Non-controlling interest - - - -
disposed
Total changes in ownership - - (32) -
interests in subsidiaries
Total transactions with 1 - (10) 3
owners
Balance at 28 February 2 236 (299) (1 259) 4 067
2010 (audited)
Total comprehensive income
for the period
Profit for the period - - - 294
Other comprehensive income
Foreign currency - - (112) -
translation differences
for foreign operations
Effective portion of - - 6 -
changes in fair value of
cash flow hedges
Total other comprehensive - - (106) -
income
Total comprehensive income - - (106) 294
for the period
Transactions with owners,
recorded directly in
equity
Contributions by and
distributions to owners
Dividends to equity - - - (284)
holders
Issue of share capital 3 - - -
Share-based payment - - 12 -
transactions
Total contributions by and 3 - 12 (284)
distributions to owners
Total transactions with 3 - 12 (284)
owners
Balance at 31 August 2010 2 239 (299) (1 353) 4 077
(unaudited)
R millions
Non-controlling Total
Total interest equity
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 comprehensive (213) (138) (351)
income
Total comprehensive income 30 24 54
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 and (358) (155) (513)
distributions to owners
Changes in ownership
interests in subsidiaries
Change in shareholding of (39) 88 49
subsidiaries
Total changes in ownership (39) 88 49
interests in subsidiaries
Total transactions with (397) (67) (464)
owners
Balance at 31 August 2009 4 506 1 384 5 890
(unaudited)
Total comprehensive income
for the period
Profit for the period 300 136 436
Other comprehensive income
Foreign currency (58) (23) (81)
translation differences
for foreign operations
Effective portion of 8 - 8
changes in fair value of
cash flow hedges
Release of foreign (3) - (3)
currency translation
surplus on disposal
Statutory reserves of - - -
foreign subsidiaries
Fair value adjustment on (2) - (2)
available-for-sale
investments
Total other comprehensive (55) (23) (78)
income
Total comprehensive income 245 113 358
for the period
Transactions with owners,
recorded directly in
equity
Contributions by and
distributions to owners
Dividends to equity 3 (8) (5)
holders
Issue of share capital 13 26 39
Share-based payment 10 - 10
transactions
Total contributions by and 26 18 44
distributions to owners
Changes in ownership
interests in subsidiaries
Change in ownership (28) 97 69
following subscription for
additional share capital
and dilutions
Acquisition of non- (4) (2) (6)
controlling interests
Non-controlling interest - 1 1
on acquisition of
subsidiaries
Non-controlling interest - (1) (1)
disposed
Total changes in ownership (32) 95 63
interests in subsidiaries
Total transactions with (6) 113 107
owners
Balance at 28 February 4 745 1 610 6 355
2010 (audited)
Total comprehensive income
for the period
Profit for the period 294 123 417
Other comprehensive income
Foreign currency (112) (155) (267)
translation differences
for foreign operations
Effective portion of 6 - 6
changes in fair value of
cash flow hedges
Total other comprehensive (106) (155) (261)
income
Total comprehensive income 188 (32) 156
for the period
Transactions with owners,
recorded directly in
equity
Contributions by and
distributions to owners
Dividends to equity (284) (165) (449)
holders
Issue of share capital 3 - 3
Share-based payment 12 1 13
transactions
Total contributions by and (269) (164) (433)
distributions to owners
Total transactions with (269) (164) (433)
owners
Balance at 31 August 2010 4 664 1 414 6 078
(unaudited)
Operational contribution
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2010 % 2009 % 2010 %
R millions change (Unaudited) (Unaudited) (Audited)
Revenue
Altech 1 4 788 41 4 732 39 9 200 41
Bytes (7) 3 146 27 3 374 28 5 952 27
Powertech (5) 3 797 32 3 981 33 7 233 32
Corporate, (7) - (32) - (49) -
financialservices
and eliminations
(3) 11 724 100 12 055 100 22 336 100
Operating profit*
Altech (25) 361 52 479 66 933 64
Bytes 32 158 23 120 16 285 19
Powertech 27 173 25 136 19 255 17
Corporate and (1) - (4) (1) 4 -
financial services
(5) 691 100 731 100 1 477 100
% held % held % held
At 31 at 31 At 28
August August February
2010 2009 2010
Headline
earnings:
Altech 61,5 (30) 123 39 61,9 175 60 61,5 342 55
Bytes 100,0 39 85 27 100,0 61 21 100,0 157 25
Powertech 100,0 102 91 30 100,0 45 15 100,0 97 16
Corporate 100,0 13 4 100,0 12 4 100,0 29 4
and
financial
services
6 312 100 293 100 625 100
* Operating profit is stated before capital items
Supplementary information
31 August 31 August 28 February
2010 2009 2010
R millions (Unaudited) (Unaudited) (Audited)
Borrowings 1 449 1 475 1 638
- interest bearing 1 007 1 314 1 174
- non-interest bearing 347 54 363
- B-BBEE funding obligation 95 107 101
Depreciation 197 157 346
Amortisation 100 63 164
Net foreign exchange losses (27) (96) (91)
Capital expenditure 361 330 1 106
Capital commitments 137 507 330
Lease commitments 681 737 783
Payable within the next 12 months: 185 156 190
- property 136 106 131
- plant, equipment and vehicles 49 50 59
Payable thereafter: 496 581 593
- property 449 530 511
- plant, equipment and vehicles 47 51 82
Unlisted investments (including
associates)
- Carrying amount 264 296 275
- Directors` valuation 267 296 276
Weighted average number of shares 316 315 315
(millions)
- Ordinary shares 102 102 102
- Participating preference shares 214 213 213
Diluted average number of shares 316 317 316
(millions)
Shares in issue at end of period 316 315 315
(millions)
- Ordinary shares 102 102 102
- Participating preference shares 214 213 213
EBITA (Excluding capital items) 791 794 1 641
EBITDA (Excluding capital items) 988 951 1 987
Ratios
EBITDA margin % 8,4 7,9 8,9
ROCE % 18,4* 19,9* 18,5
ROE % 12,9* 13,0* 13,0
ROA % 13,2* 13,9* 13,8
RONA % 18,2* 20,0* 18,3
Borrowings ratio % 23,8 25,0 25,8
Current ratio 1.2:1 1.4:1 1.3:1
Acid test ratio 0.8:1 1:1 0.9:1
* Annualised
Message to shareholders
The Altron group`s interim financial results for the half year ended 31 August
2010 are presented in an integrated manner in accordance with the G3 guidelines
of the Global Reporting Initiative (GRI) as recommended by King III, reflecting
those issues that are applicable and that affect or contribute to the
sustainable development of Altron in terms of its financial and non-financial
performance.
The group`s results reflect reduced activity levels, but, notwithstanding the
challenging market conditions, showed an improvement in headline earnings per
share primarily as a result of the improved contributions from our 100% owned
subsidiaries, Bytes and Powertech. Revenue decreased by 3% from R12.1 billion to
R11.7 billion compared to the prior corresponding period while EBITDA increased
by 4% to R988 million. Adjusted diluted headline earnings per share increased by
5% and headline earnings per share by 6%.
External factors
Market conditions during the second quarter of the year reflected a broad-based
recovery albeit at relatively muted and inconsistent levels. While the economy
is expected to continue to grow, there is a consensus that the growth rate will
be slower than originally anticipated given the deterioration of certain lead
indicators and worrying signs in the economies of some of South Africa`s key
trading partners, most notably Europe.
The ongoing strength of the rand continues to affect the group and presents a
number of threats, primarily around the competitiveness of exports and from
increasing imports into the local market. Contributions to the group from
foreign operations are also impacted as their earnings are translated at a lower
rand rate. The building and construction industry remains subdued with no real
recovery expected before the middle of 2011 despite the recently announced cut
in the repo rate. The industry has experienced a significant slowdown in demand
and while the residential sector is showing signs of recovery, the commercial
sector remains weak. The copper price remained relatively strong in rand terms
but has been fairly volatile, which has resulted in wholesalers continuing with
conservative inventory management policies.
The power infrastructure market remains fairly robust, but has experienced
increased international competition and although Eskom appears to have greater
funding certainty in the short term, the funding requirements over the medium
term remain less certain and will affect the quantum and timing of its capital
expenditure programmes. The mining industry showed some recovery in terms of
demand for both cables and industrial batteries. Pricing in the local power
cables market has improved compared to the prior period, though margins remain
under pressure. Volumes have not improved as supply continues to exceed demand,
a situation that has been exacerbated by increased international competition.
Among the challenges in the mobile communications industry are the reduction in
interconnect fees and the uncertainty over what ICASA will ultimately prescribe.
Focus on the further development of broadband technologies is expected to open
up new opportunities for the group. The development of the East and West African
economies is presenting substantial opportunities for Altech particularly in the
area of financial services and telecommunications.
The information technology market showed improvement as customers started
returning to more normal purchasing patterns although strong competition remains
which continues to impact margins. There has, however, been a sustained pick-up
in activity among corporate clients, with a resumption of IT projects and this
should continue to create opportunities for the group.
Group financial overview
Group income and growth
The Altron group`s results for the six months ended 31 August 2010 reflect the
contrasting performances of the group`s three operating entities reflecting
their respective positions in the economic cycle.
Overall, revenue has decreased by 3% to R11.7 billion from R12.1 billion while
EBITDA increased by 4% from R951 million to R988 million due to much improved
results from Bytes and Powertech offset by a reduced performance by Altech.
Bytes achieved a 31% improvement in EBITDA with good performances by a number of
its operations, as well as the non-recurrence of certain once-off costs in the
Retail ATM business during the prior corresponding period. Powertech has also
seen a significant improvement across its businesses with an increase in EBITDA
of 23% compared to the prior corresponding period. Altech has experienced a
difficult six months with a 12% decline in EBITDA, despite holding revenue
levels. This pressure has been felt most noticeably in its East African
businesses and Altech UEC.
Diluted adjusted headline earnings per share, the ratio which we have used to
guide investors over the last couple of years, has increased by 5%. This
slightly lower rate of increase compared to the headline earnings per share
increase of 6% is as a result of the stable amortisation charges and a higher
earnings dilution, principally derived from improved performance out of Aberdare
Cables.
Group costs and cash management
The group has continued to make progress on the management of costs during the
period under review with the benefits being reflected in the improved
profitability and EBITDA margin levels at Bytes and Powertech. Tight cost
management remains a key focus area given the continued subdued activity levels
in many of our businesses.
The group`s overall working capital investment has improved since year end, with
net working capital days decreasing from 18 days to 14 days. This decrease was
driven by a strong focus on the collection of debtors across the group which saw
debtors` days reduce from 56 to 51, but was partially offset by higher inventory
levels. The cash position at the half year was marginally higher at R974 million
(2009: R971 million) and the group`s return on capital employed for the six
months was 18.4% (2009: 19.9%).
Investing activities have been substantial albeit at a lower level than last
year and related primarily to capital expenditure. Since year end, Altech
operations have incurred capital expenditure of R231 million, while there was a
further R93 million of capital expenditure within the Powertech group.
Subsidiary review
Subsidiary income, growth and cash management
Altech experienced challenging market conditions during the first half. While
revenue increased by 1% to R4.8 billion from R4.7 billion, EBITDA levels
declined by 12% to R507 million reflecting an EBITDA margin of 10.6% compared to
12.2% in the prior corresponding period. Adjusted diluted headline earnings
consequently decreased by 25%.
Altech Autopage Cellular has broadly maintained revenue, but has seen a decline
in EBITDA due to once-off disconnection fees. As a result of the disconnections
the total subscriber base has dropped marginally to 964 000. However ARPU
remained at the same levels as the prior year. Growth of the data subscriber
base is a key focus area for the business and continues at acceptable levels.
Bad debt risk continues to receive a significant amount of attention and the
debtors` book is regarded as being under control.
The Altech Netstar group achieved good revenue growth and stable profits
primarily as a result of improved new vehicle sales as well as new accounts
gained in the Fleet Management side of the business. Operating margins have
reduced from prior year levels due to competitive pressure as well as the
increased contribution from the lower margin Fleet Management business.
Altech UEC continues to underperform due to delays in the digital migration
project, the continued strength of the rand, as well as the mix of products.
However, volumes with Multichoice have increased due to the supply of HD PVR
products, while Altech UEC is also the sole manufacturer for Top TV - the new
satellite TV entrant in South Africa.
Altech East Africa faced a number of challenges during the first six months,
many of which were once off in nature and will not recur. The performance in the
period was affected by the slower than expected sale of the remaining Seacom
capacity - which has now been sold - as well as delays in terminating the
expensive satellite connectivity previously used by the business. More
fundamentally, there have been pricing pressures following the activation of the
TEAMS and EASSY undersea cables in Kenya as well as disruptions caused by the
Seacom cable break. However, work continues on expanding the network, as well as
providing value added services, such as a data centre, and the medium-term
opportunities are still seen as offering substantial growth potential.
Altech`s Information Technology group continues to perform well with both
revenue and profits increasing. Altech Card Solutions produced an excellent
performance as a result of higher sales of EFTPOS terminals and the continued
growth of the e-Security range of products, as well as growth in its transaction
switching business into the local banking sector. The West African operation
continues to perform satisfactorily and has expanded its product range which now
also includes the servicing of the financial services market in Nigeria.
Altech`s cash outflow reflects the dividends paid and the investment into
expanding the business, mainly in East Africa. Working capital levels are
broadly in line with those seen at year end. Altech believes that the second six
months` performance will be much improved on its first half year as certain
adverse factors which were specific to the first half year will not recur.
Bytes reported significantly increased profits despite reduced revenue which was
primarily caused by the lower levels of revenue experienced by the Bytes UK
operations. This was as a result of the National Health Service (NHS) Microsoft
contract coming to an end as well as the stronger rand affecting translation.
EBITDA increased by 31% to R208 million from R159 million in the prior
corresponding period while the EBITDA margin improved from 4.7% to 6.6% due,
predominantly, to improved performances by Bytes Systems Integration, Bytes UK
and Bytes Document Solutions and the non-recurrence of once-off costs in Bytes
Managed Solutions. The South African operations performed satisfactorily with
both revenue and EBITDA improving by 3% and 41%, respectively.
Bytes Document Solutions has achieved good profit growth and improved its market
share in South Africa in respect of office automation equipment. However, the
paper side of the business reported reduced revenue and profitability levels,
impacted by disruptions caused by the Transnet port strikes. Bytes Managed
Solutions has experienced tough market conditions due to pricing pressure from
its customers but nonetheless recorded an improvement in profits. It is also
benefitting from the turnaround of the Retail ATM business which is now
operating profitably. Bytes Systems Integration had an excellent first half as a
result of the signing of a number of large projects which indicated increased IT
spending by corporate South Africa. Bytes Healthcare Solutions continued its
good performance and maintained its growth profile despite the muted growth in
insured lives. This was principally due to the effects of the additional
transaction switching volumes of pharmacy claims, a contract that was not in
place in the prior corresponding period.
The Bytes UK operations reported declines in revenue but have shown growth in
EBITDA levels, despite the impact of the stronger rand. Half year results were
significantly boosted by an unexpected "true-up order" from the NHS in the
Microsoft licensing business although the revenue generated from this was lower
than that of the contract in the prior period. The Bytes UK Software business
continues to grow and perform well while Bytes Document Solutions in the UK is
showing signs of recovery following management changes and is expected to
deliver an improved performance in the second half.
Despite the payments of dividends, the Bytes` net debt position has improved
significantly since year end due to good working capital management.
Powertech reported significant improvements in profitability despite a reduction
in revenue compared to the prior corresponding period, primarily due to the non-
recurrence of certain imported product revenue within the transformers
operation, accentuated by the continued low demand in the building and
construction industry. EBITDA improved from R219 million to R270 million,
primarily due to the increase in profitability in the Cables group, where the
benefits of some enhanced pricing levels as well as the effects of the cost
reduction programmes that were implemented during the prior year, have been
realised. This has increased the overall EBITDA margin from 5.5% to 7.1% with
adjusted diluted headline earnings improving by 63% from R60 million in the
prior period to R98 million.
The Powertech Cables group reported increased revenue due to higher copper
prices and has improved its EBITDA margins markedly based on improved pricing in
the local power cables market and the benefits of its cost cutting exercises, as
well as an excellent profit performance out of Spain and Swanib Cables in
Namibia. Despite the improved performance, volumes in the local power cable
market remain subdued and no sustained signs of recovery have been evident.
The decline in revenue in the Powertech Transformers group was due to the non-
recurrence of a sale of around R300 million of imported low margin product in
the prior corresponding period. The underlying business performed well,
reflecting a significant improvement in EBITDA margins due to a strong
performance by the power transformers business and improved results from the
distribution division. There are expectations of activity levels in the
distribution business returning to acceptable levels early in the second half,
while order books on the power side of the business remain strong.
The Powertech Battery group has seen a marginal increase in revenue and a
significant improvement in profitability. Automotive batteries reported higher
margins based on increased efficiencies resulting from the capital expenditure
investment over the last two years. The industrial batteries division has
returned to profitability as a result of the previous year`s cost cutting
efforts as well as improved demand in maintenance expenditure from the mining
industry. Battery Technologies, however, continues to underperform, particularly
as the mobile telecommunications sector becomes more cost conscious given the
pressures it currently faces.
The Powertech Industrial group produced acceptable results under difficult
conditions while the Powertech Services group, operating through Powertech IST,
grew revenue due to enhanced performances from its underlying business units. It
has a strong order and prospects book going forward. The turnkey solutions
provider, TIS, was restructured during the period under review and with the
appointment of a new managing director has achieved acceptable levels of
profitability.
Powertech has seen little movement in its net debt position since the year end
despite its improved profitability. This is predominantly as a result of an
increased investment into working capital. Inventory levels at Aberdare Cables
were strategically increased to prevent losing orders due to the non-
availability of certain products. This increase is being managed in line with
market demand and should normalise prior to the end of the financial year.
Transformation
Altron`s progress in terms of meeting its B-BBEE Vision 2012 targets has been
published in its Vision 2012 Progress Report which was recently published and is
also available on the Altron website at www.altron.com. Recent Empowerdex
ratings confirmed Bytes` position as the number one empowered ICT company in
South Africa. The Bytes group has obtained an average B-BBEE score of 90.98
points, giving it an average Level 2 contributor on the DTI scorecard for 2010.
The Level 2 AAA with value-add B-BBEE rating allows customers to claim 156.25%
of their spend as Preferential Procurement. Altech`s consolidated verification
certificate reflected that the group has achieved a Level 3 contributor rating
with 76.14 points. Powertech`s major operations have been rated and reflect
Level 3 contributor ratings.
The environment
During the period under review Altron launched its internal environmental
awareness programme, Altron Envirowatch. Altron`s carbon footprint report
improved in accuracy and inclusiveness (now including business road travel and
commuting in private vehicles). Altron was also one of the first publicly listed
companies in South Africa to publish an integrated annual report.
Corporate governance
The Altron group has continued to enhance its governance structures in
accordance with best practice and the requirements of King III. Further to our
SENS announcement published in May 2010, we continue to co-operate with the
Competition Authorities regarding their investigations into alleged prohibited
practices by Aberdare Cables and other competitors in the power cable market.
Outlook
Despite indications of a slower economic recovery which has been consistent with
the trends we experienced throughout our businesses during the first half, we
expect the prospects for the second half of the year to be positive given an
expected turnaround in Altech`s performance and continued recovery from both
Bytes and Powertech. However, the benefit of Powertech`s cost cutting
initiatives will begin to diminish which will require enhanced demand levels to
drive the future growth in its businesses.
Visibility going forward continues to be limited. The strength of the rand is of
serious concern given the impact this has on the translation of results of
foreign operations, reduced export opportunities and competition from imports.
Notwithstanding these concerns, the board remains optimistic that the group is
well positioned to capitalise on future growth opportunities as continued
internal investment and the progress made on profitability improvements has not
compromised its growth potential.
Acknowledgements
The board would like to thank the group`s 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 Officer
Chairman
5 October 2010
Corporate information
Board of directors
Independent non-executive:
Mr NJ Adami
Mr MJ Leeming (Lead Independent Director)
Dr PM Maduna
Ms BJM Masekela
Mr JRD Modise
Ms DNM Mokhobo
Mr PL Wilmot
Non-executive:
Dr WP Venter (Chairman)
Mr MC Berzack
Mr PD Redshaw*
* British
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
Sponsor:
Investec Bank
Date: 05/10/2010 07:19:01 Produced by the JSE SENS Department.
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