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ATN/ATNP - Allied Electronics Corporation Limited - Summarised Audited
Consolidated Financial Statements for the year ended 28 February 2011
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 2011
Highlights
- Revenue growth to R22,8 billion
- HEPS up 15%
- Adjusted diluted HEPS up 12%
- Net borrowings reduced to R75 million
- Dividend growth of 20% to 108 cents per share
Summarised consolidated statement of comprehensive income
% 2011 2010
R millions change (Audited) (Audited)
Revenue 2 22 810 22 336
Earnings before interest, tax, 6 2 099 1 987
depreciation and amortisation
(EBITDA)
Depreciation and amortisation (575) (510)
Operating profit before capital 3 1 524 1 477
items
Capital items (Note 1) (291) (105)
Result from operating activities 1 233 1 372
Finance income 64 87
Finance expense (163) (163)
Share of profit from associates 2 2
Profit before taxation 1 136 1 298
Taxation (437) (457)
Profit for the year (17) 699 841
Other comprehensive income
Foreign currency translation (312) (432)
differences in respect of foreign
operations
Effective portion of changes in 9 10
the fair value of cash flow hedges
Release of foreign currency - (3)
translation surplus on disposal
Fair value adjustment on available- - (2)
for-sale investments
Income tax on other comprehensive (2) (2)
income
Other comprehensive income for the (305) (429)
year, net of taxation
Total comprehensive income for the 394 412
year
Profit attributable to:
Non-controlling interest 157 298
Altron equity holders 542 543
Profit for the year 699 841
Total comprehensive income
attributable to:
Non-controlling interest 13 137
Altron equity holders 381 275
Total comprehensive income for the 394 412
year
Basic earnings per share (cents) 172 172
Diluted basic earnings per share (1) 168 169
(cents)
Dividends per share paid (cents) 90 119
Dividends per share declared 20 108 90
(cents)
Notes
Basis of preparation
The summarised consolidated financial statements 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 28 February 2011, 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 used
in the preparation of these 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. All business combinations occurring on or
after 1 March 2010 have been accounted for applying the acquisition method.
The change in accounting policies are applied prospectively and had no
material application in the current 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 2011, dated 3 May 2011, are available
for inspection at the registered office of the company.
% 2011 2010
change (Audited) (Audited)
Headline earnings per share 15 228 198
(cents)
Diluted headline earnings per 14 223 196
share (cents)
Adjusted headline earnings per 13 248 220
share (cents)
Adjusted diluted headline 12 243 217
earnings per share (cents)
1. Capital items
Net gain on disposal of property, plant 10 12
and equipment
Gain on disposal of intangibles - 23
Impairment of property, plant and (14) -
equipment
Impairment of goodwill (276) (75)
Impairment of intangibles (11) (66)
Net loss on disposal of businesses and - (2)
investments
Foreign currency translation reserve - 3
released on disposal
(291) (105)
2. Reconciliation between attributable earnings and headline earnings
Attributable to Altron equity holders 542 543
Capital items - gross 291 105
Tax effect of capital items - (18)
Non-controlling interest in capital items (114) (5)
Headline earnings 719 625
3. Reconciliation between attributable earnings and diluted earnings
Attributable to Altron equity holders 542 543
Dilutive earnings attributable to B-BBEE (9) (5)
non-controlling interest in subsidiaries
Dilutive earnings attributable to (3) (8)
dilutive options at subsidiary level
Non-controlling interest in adjustments 1 3
Diluted earnings 531 533
4. Reconciliation between headline earnings and diluted headline earnings
Headline earnings 719 625
Dilutive earnings attributable to B-BBEE (9) (3)
non-controlling interest in subsidiaries
Dilutive earnings attributable to (6) (8)
dilutive options at subsidiary level
Non-controlling interest in adjustments 2 3
Diluted headline earnings 706 617
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 719 625
Amortisation of intangibles arising on 102 111
business combinations
Expenses associated with B-BBEE 4 -
transaction
IFRS 2 charge on B-BBEE transactions 7 -
Tax effect of adjustments (27) (26)
Non-controlling interest in adjustments (22) (17)
783 693
6. Reconciliation between diluted headline earnings and adjusted diluted
headline earnings
Diluted headline earnings 706 617
Amortisation of intangibles arising on 102 111
business combinations
Expenses associated with B-BBEE 4 -
transaction
IFRS 2 charge on B-BBEE transactions 7 -
Tax effect of adjustments (27) (26)
Non-controlling interest in adjustments (22) (17)
770 685
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 R87 million (comprising the
empowerment funding obligation net of excess cash deposits of R2 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
Acquisition of 100% interest in Swist Technology Solutions (Pty) Limited
("Swisttech")
The Altech group acquired 100% of the issued share capital of Swist
Technology Solutions (Pty) Limited with effect from 1 January 2011. The
maximum purchase price is R52 million, payable in cash. The purchase price is
payable as follows:
- first tranche: R30 million (Paid in December 2010)
- second tranche: R10 million
- third tranche: R2 million
- fourth tranche: R10 million
The second, third and fourth tranches will be paid in terms of an earn-out
mechanism over three years based on after-tax profit targets for the
financial years ending February 2011, 2012 and 2013 being achieved.
The acquired business contributed revenues of R4 million and net profit after
tax of R1 million to the Group.
If the acquisition had occurred on 1 March 2010, group revenue and net profit
after tax before allocations would have increased by R19 million and R6
million respectively.
These amounts have been calculated using the group`s accounting policies.
Swisttech is an Independent Software Vendor focusing on infrastructure and
integration services, mobile services and software development and is a major
billing software vendor in the South African market.
Recognised Fair value Carrying
values adjustments amount
Current assets 14 - 14
Current liabilities (2) - (2)
Net identifiable assets and 12 - 12
liabilities
Goodwill arising on 38
acquisition
Interest on deferred payment 2
terms
Total purchase consideration 52
The purchase price allocations for this acquisition will be performed during
the 2012 financial year, which will identify any separately identifiable
intangible assets and determine the quantum of any goodwill.
8. Post balance sheet events
The Altech group has signed agreements to sell 25% plus 1 share of its
interest in Altech Alcom Matomo (Pty) Limited, Altech Alcom Radio
Distributors (Pty) Limited and Altech Fleetcall (Pty) Limited to Southern
Palace Group of Companies (Pty) Limited effective 1 March 2011.
The Altech group has signed agreements to sell 25% plus 1 share of its
interest in Altech UEC`s South African entities to Power Matla (Pty) Limited,
Empower a Thousand (Pty) Limited and Epiworx Investment (Pty) Limited
effective 1 March 2011.
Summarised consolidated balance sheet
2011 2010
R millions (Audited) (Audited)
Assets
Non-current assets 5 329 5 839
Property, plant and equipment 2 413 2 436
Intangible assets, including goodwill 2 274 2 754
Associates 10 10
Other investments 235 265
Rental finance advances 61 44
Loans receivable 134 130
Deferred taxation 202 200
Current assets 7 090 6 688
Inventories 2 336 1 998
Trade and other receivables, including 3 373 3 435
derivatives
Cash and cash equivalents 1 381 1 255
Total assets 12 419 12 527
Equity and liabilities
Total equity 6 314 6 355
Non-current liabilities 1 020 994
Loans 758 600
Empowerment funding obligation 72 89
Provisions 23 34
Deferred income 46 96
Deferred taxation 121 175
Current liabilities 5 085 5 178
Loans 481 937
Empowerment funding obligation 17 12
Bank overdraft 128 81
Trade and other payables, including derivatives 4 049 3 808
Provisions 164 166
Taxation payable 246 174
Total equity and liabilities 12 419 12 527
Net asset value per share (cents) 1 607 1 504
Segment analysis
The segment information has been prepared in accordance with IFRS 8,
Operating Segments 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
Growth Growth
R millions 2011 2010 Cur/Pyr 2011 2010 Cur/Pyr
Powertech Cables 3 904 3 546 10 88 54 63
Group
Powertech 1 305 1 779 (27) 190 131 45
Transformers Group
Other Powertech 1 905 1 908 - 114 114 -
Segments
Powertech Group 7 114 7 233 (2) 392 299 31
Bytes Technology 1 664 1 645 1 45 46 (2)
Group UK Software
Bytes Document 2 036 2 065 (1) 178 155 15
Solutions Group
Other Bytes 2 367 2 242 6 174 110 58
Segments
Bytes Group 6 067 5 952 2 397 311 28
Altech Autopage 5 855 5 597 5 280 296 (5)
Cellular
Altech UEC Group 1 145 1 079 6 - 5 (100)
Altech Netstar 944 880 7 289 269 7
Group
Converged Services 426 488 (13) 32 154 (79)
(International)
Other Altech 1 281 1 156 11 225 249 (10)
Segments
Altech Group 9 651 9 200 5 826 973 (15)
Corporate and 46 36 28 11 5
financial services
Inter segment (68) (85)
revenue
Altron Group 22 810 22 336 2 1 626 1 588 2
12 months to 12 months to
28 February 28 February
2011 2010
Segment operating profit can be
reconciled to group operating profit
before capital items as follows:
Segment operating profit 1 626 1 588
Reconciling items:
Amortisation of intangibles raised on (102) (111)
acquisitions
Group operating profit before capital 1 524 1 477
items
Summarised consolidated statement of cash flows
2011 2010
R millions (Audited) (Audited)
Cash flows from operating activities 1 077 1 290
Cash generated by operations 2 114 2 033
Net finance expense (96) (67)
Changes in working capital (57) 384
Taxation paid (419) (522)
Cash available from operating activities 1 542 1 828
Dividends paid, including to non- (465) (538)
controlling interests
Cash flows utilised in investing (686) (1 239)
activities
Cash flows utilised in financing (307) (18)
activities
Net increase in cash and cash equivalents 84 33
Net cash and cash equivalents at the 1 174 1 180
beginning of the year
Effect of exchange rate fluctuations on (5) (39)
cash held
Net cash and cash equivalents at the end 1 253 1 174
of the year
Operational contribution
% 2011 2010
R millions Change (Audited) % (Audited) %
Revenue:
Altech 5 9 651 42 9 200 41
Bytes 2 6 067 27 5 952 27
Powertech (2) 7 114 31 7 233 32
Corporate (22) - (49) -
and
eliminations
2 22 810 100 22 336 100
EBITDA
Altech (8) 1 072 51 1 165 59
Bytes 21 474 23 393 20
Powertech 27 539 26 424 21
Corporate 14 - 5 -
and
eliminations
6 2 099 100 1 987 100
% held % held
at at
Attributable 28 28
headline February February
earnings: 2011 2010
Altech 61,5 61,5 (15) 292 41 342 55
Bytes 100,0 100,0 32 208 29 157 25
Powertech 100,0 100,0 93 187 26 97 16
Corporate 100,0 100,0 32 4 29 4
and
eliminations
15 719 100 625 100
Supplementary information
2011 2010
R millions (Audited) (Audited)
Borrowings 1 328 1 638
- interest bearing 970 1 174
- non-interest bearing 269 363
- B-BBEE funding obligation 89 101
Depreciation 385 346
Amortisation 190 164
Net foreign exchange losses 36 91
Capital expenditure 648 1 106
Capital commitments 163 330
Lease commitments 777 783
Payable within the next 12 months: 217 190
- property 156 131
- plant, equipment and vehicles 61 59
Payable thereafter: 560 593
- property 456 511
- plant, equipment and vehicles 104 82
Unlisted investments (including
Associates)
- Carrying amount 245 275
- Directors` valuation 246 276
Weighted average number of shares 316 315
(millions)
- Ordinary shares 102 102
- Participating preference shares 214 213
Diluted average number of shares 317 316
(millions)
Shares in issue at the end of the year 316 315
(millions)
- Ordinary shares 102 102
- Participating preference shares 214 213
Ratios
EBITDA margin % 9,2 8,9
ROCE % 19,9 18,5
ROE % 13,6 13,0
ROA % 14,6 13,8
RONA % 20,0 18,3
Borrowings ratio 21,0 25,8
Current ratio 1,4:1 1,3:1
Acid test ratio 0,9:1 0,9:1
Summarised consolidated statement of changes in equity
R millions Attributable to Altron equity holders
Share
capital and Treasury Retained
premium shares Reserves earnings Total
Balance at 28 2 228 (299) (976) 3 920 4 873
February 2009
(audited)
Total
comprehensive
income for the
year
Profit for the - - - 543 543
year
Other
comprehensive
income
Foreign currency - - (271) - (271)
translation
differences in
respect of foreign
operations
Effective portion - - 8 - 8
of changes in the
fair value of cash
flow hedges
Release of foreign - - (3) - (3)
currency
translation
surplus on
disposal
Change in - - 24 (24) -
statutory reserves
of foreign
subsidiaries
Fair value - - (2) - (2)
adjustment on
available-for-sale
investments
Total other - - (244) (24) (268)
comprehensive
income
Total - - (244) 519 275
comprehensive
income for the
year
Transactions with
owners, recorded
directly in equity
Contributions by
and distributions
to owners
Dividends to - - - (372) (372)
equity holders
Issue of share 8 - 12 - 20
capital
Share-based - - 20 - 20
payment
transactions
Total 8 - 32 (372) (332)
contributions by
and distributions
to owners
Changes in
ownership
interests in
subsidiaries
Change in
ownership
following
subscription
for additional - - (67) - (67)
share capital and
dilutions
Acquisition of non- - - (4) - (4)
controlling
interests
Non-controlling - - - - -
interest disposed
of
Non-controlling - - - - -
interest on
acquisition of
subsidiaries
Total changes in - - (71) - (71)
ownership
interests in
subsidiaries
Total transactions 8 - (39) (372) (403)
with owners
Balance at 28 2 236 (299) (1 259) 4 067 4 745
February 2010
(audited)
Total
comprehensive
income for the
year
Profit for the - - - 542 542
year
Other
comprehensive
income
Foreign currency - - (168) - (168)
translation
differences in
respect of foreign
operations
Effective portion - - 7 - 7
of changes in the
fair value of cash
flow hedges
Total other - - (161) - (161)
comprehensive
income
Total - - (161) 542 381
comprehensive
income for the
year
Transactions with
owners, recorded
directly in equity
Contributions by
and distributions
to owners
Issue of share 5 - - - 5
capital
Dividends to - - - (284) (284)
equity holders
Share-based - - 14 - 14
payment
transactions
Total 5 - 14 (284) (265)
contributions by
and distributions
to owners
Changes in
ownership
interests in
subsidiaries
Introduction of - - 214 - 214
non-controlling
interests
Total changes in - - 214 - 214
ownership
interests in
subsidiaries
Total transactions 5 - 228 (284) (51)
with owners
Balance at 28 2 241 (299) (1 192) 4 325 5 075
February 2011
(Audited)
R millions
Non-controlling Total
interest equity
Balance at 28 1 427 6 300
February 2009
(audited)
Total
comprehensive
income for the
year
Profit for the 298 841
year
Other
comprehensive
income
Foreign currency (161) (432)
translation
differences in
respect of
foreign
operations
Effective portion - 8
of changes in the
fair value of
cash flow hedges
Release of - (3)
foreign currency
translation
surplus on
disposal
Change in - -
statutory
reserves of
foreign
subsidiaries
Fair value - (2)
adjustment on
available-for-
sale investments
Total other (161) (429)
comprehensive
income
Total 137 412
comprehensive
income for the
year
Transactions with
owners, recorded
directly in
equity
Contributions by
and distributions
to owners
Dividends to (166) (538)
equity holders
Issue of share 26 46
capital
Share-based 3 23
payment
transactions
Total (137) (469)
contributions by
and distributions
to owners
Changes in
ownership
interests in
subsidiaries
Change in
ownership
following
subscription
for additional 185 118
share capital and
dilutions
Acquisition of (2) (6)
non-controlling
interests
Non-controlling (1) (1)
interest disposed
of
Non-controlling 1 1
interest on
acquisition of
subsidiaries
Total changes in 183 112
ownership
interests in
subsidiaries
Total 46 (357)
transactions with
owners
Balance at 28 1 610 6 355
February 2010
(audited)
Total
comprehensive
income for the
year
Profit for the 157 699
year
Other
comprehensive
income
Foreign currency (144) (312)
translation
differences in
respect of
foreign
operations
Effective portion - 7
of changes in the
fair value of
cash flow hedges
Total other (144) (305)
comprehensive
income
Total 13 394
comprehensive
income for the
year
Transactions with
owners, recorded
directly in
equity
Contributions by
and distributions
to owners
Issue of share 4 9
capital
Dividends to (181) (465)
equity holders
Share-based 7 21
payment
transactions
Total (170) (435)
contributions by
and distributions
to owners
Changes in
ownership
interests in
subsidiaries
Introduction of (214) -
non-controlling
interests
Total changes in (214) -
ownership
interests in
subsidiaries
Total (384) (435)
transactions with
owners
Balance at 28 1 239 6 314
February 2011
(Audited)
Message to shareholders
The Altron financial results for the year ended 28 February 2011 are reported
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 which materially affect or contribute to the
sustainable development of Altron in terms of its financial and non-financial
performance.
The directors are pleased to report that the results for the group showed
good earnings growth as a result of an excellent performance from Bytes, and
good recovery off a low base at Powertech. This double digit earnings growth
was achieved despite a reduced contribution from Altech. Although conditions
remain challenging in a number of our key markets, the group`s results for
the year reflect the significant work that has been done in right-sizing our
businesses for current market conditions, resulting in substantially enhanced
profitability at the Bytes and Powertech operations. Altron`s revenue
increased by 2% to R22.8 billion and EBITDA increased by 6% to R2.1 billion
from R2.0 billion. As a result of the greater growth from its 100% owned
subsidiaries, Altron reported a 15% increase in headline earnings per share
and a 12% increase in adjusted diluted headline earnings per share.
External factors
While the economy has grown during the past financial year, it was evident
that for much of this period, little of this growth occurred in many of the
sectors which we service as a group. During the last quarter of 2010, the
macroeconomic data indicated that the recovery was becoming more broad-based
which should be beneficial to the group. However, the building and
construction sector remains under pressure due to a combination of delays in
government spending on its much vaunted infrastructure programme as well as
weak consumer spending as households continue to deleverage and property
prices stagnate. The expected positive impact on the Building and
Construction industry, of lower interest rates, has not yet materialised
although there are signs that the bottom of the market has been reached.
Commodity prices have increased steadily through the year with copper
reaching record levels in US dollar terms. The ongoing strength of the rand
has, however, offset some of this increase and continues to negatively affect
the group in terms of the contribution from foreign operations, the
competitiveness of the group`s exports and the resulting increased
competition from foreign imports into the local market.
The information technology market continues to operate in an environment
where there is strong competition and high pressure on margins. Within this
context, the improvement in the EBITDA margin at Bytes is particularly
pleasing. There has, however, been a sustained improvement in activity from
corporate clients, particularly those in the retail and financial services
sectors, with a resumption of IT projects which has opened up opportunities
for the group.
The power infrastructure market remains active and Eskom`s increased funding
certainty is expected to translate into a more vigorous roll-out of their
capital expenditure programmes. The mining industry has been recovering
steadily due to increased commodity pricing and this, together with required
repurchasing, has increased demand for cables and industrial batteries.
The local power cables market continues to be extremely price sensitive
resulting in margins remaining under pressure due to oversupply in the
market, increased involvement of international competitors and a trend
towards using turnkey solution providers rather than purchasing through
established contracts in the formal sector. The increased demand for fibre
optic cables in South Africa and the rest of Africa offers growth potential
for the group`s telecom cables joint venture.
The telecommunications industry continues to develop at a rapid pace creating
significant opportunities and some challenges. In South Africa, the reduction
in interconnect fees has affected the least cost router industry with some
anticipated longer-term impact on voice business. The increasing importance
of data and the further development and adoption of broadband technologies
is, however, expected to open up new opportunities for the group.
The East African telecommunications industry is even more dynamic than the
South African market due to its liberalised regulatory environment. This,
along with the arrival of Bharti Airtel in East Africa, has resulted in a
highly competitive environment, which has seen pricing drop more rapidly and
to a greater degree than had been anticipated which bodes well for increased
traffic which will benefit Altech East Africa.
New car sales have improved markedly during the year which will be beneficial
to our businesses servicing the automotive sector. The continuing low
interest rate environment is also expected to provide further support to
vehicle sales.
The recent decision by government to opt for the DVB-T2 technology in the
roll-out of Digital Terrestrial Television (DTT) bodes well for the South
African set-top box industry. Government is still in the process of
finalising the specifications and delivery of finished products is unlikely
to occur before early 2012. Once finalised, South Africa has a potential
market of approximately nine million units while Africa has over 100 million
television households presenting a significant new market opportunity for the
group.
Financial overview
Income and growth
Altron`s revenue increased by 2% to R22.8 billion from R22.3 billion with
EBITDA increasing by 6% from R2.0 billion to R2.1 billion reflecting an
EBITDA margin of 9.2% up from the prior year of 8.9%. Headline earnings per
share increased by 15% to 228 cents, while adjusted diluted headline earnings
per share increased by 12% to 243 cents. Bytes reported a 21% improvement in
EBITDA, due to a significantly improved performance by all its underlying
businesses, including the successful turnaround of the business units that
had underperformed in the prior year. Powertech has seen a 27% improvement in
EBITDA which includes a record performance by the power transformer business
and an improvement in the performance of the power cables business based on
higher copper prices and the benefits of cost reductions. The remainder of
the Powertech businesses performed on the whole, at or above expected levels
of profitability. Altech`s results came under pressure due to the
difficulties experienced in the East African business which was the primary
reason for the decline of 8% in EBITDA for the year. Most of the other Altech
businesses performed in line with, or ahead of, expectations.
Net interest costs have increased from R76 million to R99 million as a result
of increased working capital requirements through the year, though these had
largely normalised by year end. Capital expense items have increased mainly
due to the R250 million impairment of goodwill in Altech`s East African
operation, Kenya Data Networks, caused by the challenges faced in that
business and a more gradual increase in its profitability going forward.
This, as well as a lower level of non-controlling interests, resulted in
group profit after tax decreasing by 17% year on year.
Cash management
Cash generated by operations at R21 billion increased marginally compared to
the prior year as a result of the higher profitability levels. A small
investment into working capital made this year compared with the cash
extracted from working capital in the prior year as the balance sheet was
right-sized. The total investment in working capital amounted to R1.7 billion
which was similar to that of the previous year end.
The investing activities of R686 million principally related to capital
expenditure. Altech, predominantly through its East African operations, has
incurred capital expenditure of R391 million, while there was a further R167
million of capital expenditure within the Powertech group. A significant
amount of cash has been used to reduce borrowings in the last year, with some
R316 million of debt having been repaid.
Debtors have been particularly well managed across the group, with debtors`
days reducing from 56 days to 54 days reflecting an improvement in each
subsidiary group. A higher inventory position, primarily driven by increases
at Aberdare Cables and Bytes Document Solutions, has been offset by higher
creditor balances.
Subsidiary review
Subsidiary income, growth and cash management
Altech experienced challenging market conditions in certain of its businesses
and although revenue increased, profitability came under pressure. This has
resulted in EBITDA declining by 8% to R1.1 billion with the EBITDA margin
reducing from 12.7% to 11.1%. Consequently, headline earnings per share
reduced by 15% and adjusted diluted headline earnings per share by 12%.
Altech Autopage Cellular`s revenue increased although EBITDA declined,
principally as a result of the reduction of mobile termination rates
(although the impact was less than anticipated) and the disconnection of
various dormant and high risk subscribers. Following the disconnections and
reasonable sales levels, the total subscriber base now stands at 990 000 with
ARPUs increasing by 3.2% on the previous year. The increase in revenue
occurred largely as a result of growth in supply of value-added services and
prepaid airtime vouchers. The data subscriber base continues to grow at
acceptable levels and now exceeds 100 000.
The Altech Netstar group achieved increased revenue growth and 12.5% EBITDA
growth reflecting some benefits coming from improved new vehicle sales as
well as new business acquired by the Fleet Management business. In addition,
improved productivity initiatives have been achieved including a reduction in
headcount of 13%.
Altech UEC experienced a difficult year, but improved its performance during
the second half of the year. Revenue increased on the prior year as a result
of strong sales into the South African and Australian markets, while
profitability declined due to a higher proportion of low-end product sales as
well as some once-off costs associated with the previous year`s Indian
business. The new management team is making good progress on moving the
business into the higher value-add product ranges and the finalisation of the
standard for DTT set-top boxes in South Africa bodes well for the operation.
Arrow Altech continues to perform well, increasing its revenue and EBITDA
despite the impact of the strong rand on imported components. Volumes
increased by some 30% and the gross profit margin also improved.
Altech IT increased revenues but saw EBITDA decline overall. Altech Isis
strengthened its position with existing customers and Altech Card Solutions
performed well predominantly due to higher sales of EFTPOS terminals and the
continued growth of its e-Security range of products. The West African
operation experienced some challenges as a result of currency effects, delays
in customers placing orders and late delivery and commissioning of equipment.
It is expected that order flow will normalise going forward. However, its
product range has been expanded to reduce its dependency on paper products
and future prospects look encouraging in the new product areas.
Altech East Africa experienced a difficult year with the Kenyan operations
under performing as a result of foreign exchange losses, increased
competition within the telecommunications sector compounded by the
introduction of cheaper large volume international submarine connectivity in
East Africa, as well as some local network issues. Delays in completing a
number of networks have now been resolved by providing additional funding to
the business which will bear fruit in the future. Recent months have seen a
stabilisation of bandwidth pricing, the completion of the data centre and
some significant new contracts being signed with, among others, Bharti
Airtel. These factors, along with remedial actions and the non-recurrence of
various once-off costs, are expected to significantly improve the results
going forward.
In the short term, Altech`s focus will be on improving its East African
business, with most of its other operations performing in line with
expectations. These businesses are operating in a fast evolving industry and
environment and much effort and management time has been invested in
addressing the issues that have arisen during the year under review.
Bytes reported excellent results and despite revenue pressure and the effects
of the strong rand, EBITDA improved by 21% from R393 million to R474 million
with the EBITDA margin improving from 6.6% to 7.8%. The improved
profitability is the result of good performances across the group, with
record performances by Bytes Systems Integration, Bytes Software Services in
the UK, Bytes Managed Solutions and Bytes Healthcare Solutions. Both the
Retail ATM business within Bytes Managed Solutions and Bytes Document
Solutions UK were returned to profitability. These factors resulted in
headline earnings for the Bytes Group improving by 32%.
Bytes Document Solutions` (BDS) revenue and EBITDA in South Africa improved
despite the price deflation caused by the strong rand. Recent market surveys
indicate that BDS continues to improve its market share in South Africa with
the traditional Xerox side of the business performing extremely well.
Furthermore, BDS recently renewed its exclusive distribution agreement with
Xerox, covering South Africa and 25 other African countries for a further ten
years. Nor Paper and LaserCom have both underperformed due to supply
problems, management changes and some loss of market share. Both of these
businesses have been refocused in recent months.
Bytes Managed Solutions reported significantly improved EBITDA due to strong
sales into the financial services sector as well as the return to
profitability of the Retail ATM business. The business continues to perform
well despite being under constant revenue and margin pressure from customers
and has won some good long-term contracts for its NCR products, particularly
in the retail space.
Bytes Systems Integration delivered good results with significant increases
in both revenue and EBITDA as corporate IT spending recovered. In particular,
it recently won some major networking contracts, thereby improving its market
share. Bytes Healthcare Solutions continues to perform ahead of expectations
with double digit increases in revenue and EBITDA, benefitting from the
additional revenue from the Discovery Health pharmacy business.
The contribution from the Bytes UK operations was impacted by the strength of
the rand but its improved performance was based on the return to
profitability of the BDS business and a record performance from the Software
Services business. Revenue was positively impacted by GBP55 million based on
once off `true-up` orders from the National Health Services for the Microsoft
licensing business. The remainder of the business continues to grow and
perform well and is focused on diversifying away from its dependence on
Microsoft. This aspect has become more critical due to proposed changes in
Microsoft`s rebate structures which are expected to have adverse effects on
the business. BDS in the UK continues to face challenging trading conditions,
but there are encouraging signs of an increase in sales. A new management
team has revitalised the business and following extensive cost reductions has
returned the business to profit.
In 2011, Bytes is expected to continue building on its improved performance,
based on a continued strong customer focus enabling the group to exploit
opportunities arising from the strength of the currency and the increase in
corporate IT spend.
Powertech achieved improved profitability despite a reduction in revenue
levels compared to the prior year. The 2% reduction in revenue is
predominantly due to continued low demand levels and the non-recurrence of
certain imported and traded product revenue in the transformers business. An
excellent performance from the power transformers business, as well as
improved profitability in the cables and battery businesses due to cost
reduction efforts, resulted in an improvement in EBITDA from R424 million to
R539 million resulting in the Powertech EBITDA margin increasing from 5.9% to
7.6%. Headline earnings improved by 93% from R97 million in the prior year to
R187 million - further enhanced by lower interest and amortisation costs as
well as a lower effective tax rate.
The Powertech Cables Group has seen a 10% increase in revenue for the year
ended February 2011. This increase is primarily due to the higher copper
price, while volumes have remained static and strong competition in the
market continues to impact the business. EBITDA improved by 43% from R113
million to R162 million. The Powertech Transformers group experienced a
decrease in revenue, primarily due to the non-recurrence of the imported
product revenue referred to above, but EBITDA increased to R211 million due
to efficiency gains and a favourable product mix. The performance of the
power transformer division continues to be strong while the distribution
transformer division has improved as activity levels in this sector are
increasing.
The Powertech Battery Group reported a reasonable increase in revenue and
EBITDA levels. Automotive batteries recorded good results with margins
continuing to improve as productivity increased on the production side, and
sales were strong in the replacement market. Management is now focusing on
increasing its share of the OEM market. Industrial batteries returned to
profitability as a result of cost cutting efforts as well as improved demand
from the mining and materials handling industries. Battery Technologies
remains under pressure, particularly due to reduced spending by operators in
the telecommunications market.
The Powertech Industrial Group experienced lower revenue and EBITDA levels
compared to the prior year, principally due to a significant decline in the
back-up power market as the spectre of power blackouts receded. The core
businesses of Strike Technologies and Crabtree improved their performance in
terms of both revenue and profitability compared to the prior year.
The Powertech System Integrators Group has seen an encouraging increase in
both revenue and EBITDA, reflecting improved performances by both IST and
Technology Integrated Solutions (TIS), principally due to sizeable contracts
obtained, most notably a contract in excess of R220 million in the mobile
computing space to supply and support software and hardware for mobile
workforces. TIS has been restructured under the guidance of a new managing
director and has returned to profitability. The improvement in the System
Integrators group`s results reflect the renewed confidence in the economy as
more capital projects are now under consideration and this bodes well for the
coming years.
In looking forward for Powertech, visibility remains poor in terms of any
recovery in the building and construction sector, one of the most important
fundamentals impacting performance. Demand outlook in the formal
infrastructure market looks more encouraging. The Powertech group`s
operational focus remains on improving its manufacturing efficiency and
developing new products.
Corporate activity
Corporate activity was much reduced in the year due to the group`s internal
focus on its current portfolio of businesses. However, the following
transactions were concluded:
- Altech acquired 100% of Swist Technology Solutions (Swisttech) with effect
from 1 January 2011, for a maximum purchase consideration of R52 million, of
which R30 million was paid up front with the balance being paid over three
years. Swisttech is an independent software vendor, primarily servicing the
telecommunications industry; and
- Altech completed its B-BBEE transaction to dispose of 25.1% of Netstar`s
South African operations to a consortium of Thebe Investment Corporation and
Identity Capital Partners, with an effective date of 1 December 2010. The
total value of the assets involved in this transaction equalled R1.5 billion.
Subsequent to the financial year end, agreement has been reached on the
following transactions:
- the conclusion of a 25% plus one share B-BBEE transaction between Altech
and the Southern Palace Group involving Altech Alcom Matomo, Altech Alcom
Radio Distributors and Altech Fleetcall. The total value of the assets
involved in this transaction equalled R405 million.
- Altech UEC entered into an agreement with a B-BBEE consortium led by Power
Matla for a 25% plus one share equity holding of the Altech UEC sub-group`s
African operations. The total value of the assets involved in this
transaction equalled R509 million.
- Altech has agreed to acquire the 25% plus one share equity holding of
Pamodzi Investment Holdings in Altech Information Technologies for R37.5
million with an effective date still to be determined. Altech will then look
to conclude a transaction with an alternative B-BBEE partner.
Transformation
Altron`s progress in terms of its Broad-Based Black Economic Empowerment
targets is ahead of schedule with the Altron group having achieved its
Transformation Vision 2012 objectives a year in advance. The recent
verifications provided by rating agencies confirmed Bytes as a level 2
contributor and both Powertech and Altech as level 3 contributors, resulting
in a consolidated scorecard for Altron as a level 3 contributor. The group`s
strategy in terms of transformation beyond 2012 is currently being
formulated. The focus will be on the nurturing and developing of its
employees in order to create a sustainable workforce and leadership more
representative of the demographics of South Africa.
The environment
During the year under review Altron continued to expand and build on its
internal environmental awareness programme, Altron Envirowatch, and in
November 2010, launched a group-wide "green initiative" to promote and create
awareness around Altron`s commitment to the environment. This initiative
included more than 13 000 employees pledging their support to the environment
by signing on the "green line".
Altron has continued to refine its measurement of its carbon footprint due
to, among others, the inclusion of certain of its foreign operations, more
accurate reporting and an increase in scope. In January 2011, the group
identified and committed to specific carbon reduction targets for the
following three years. Altron was also awarded a Gold Certificate by the
Carbon Disclosure Project (CDP) in recognition of its high rating on the
Carbon Disclosure Leadership Index for 2010. Winning the most "improved
sustainability report" by ACCA South Africa in 2010 and the establishment of
a dedicated sustainability department headed up by a Group Sustainability
Manager further re-enforces the Altron group`s commitment in this regard.
Corporate Governance
The Altron group continues to enhance its governance structures and processes
in accordance with international best practice and the recommendations set
out in King III. In 2010, Altron was the first public listed company in South
Africa to be independently accredited and awarded a platinum certificate by
Corporate Governance Accreditation in recognition of its commitment towards
best corporate governance practices. 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
Economic conditions are more conducive to growth now than at any time in the
previous few years and the board believes that the group is well positioned
to exploit the resulting opportunities. Nevertheless, there are threats to
the macroeconomic environment in the form of looming inflationary pressures,
the effects of the Japanese tsunami, the strength of the rand and the rising
oil price.
Given the performance over the past year, the focus at Altech will be on
returning the East African operations to previous growth patterns and
enhancing the performance of the strong South African operations. Bytes is
well placed to further benefit from the expanding corporate IT spend and its
recent market share gains in order to build on the strong base created during
the year under review. Powertech`s prospects are perhaps the most challenging
as the benefits of the various cost reduction programmes have been largely
realised during the year under review and its ability to grow depends
significantly on a recovery in the building and construction industry.
Following the solid growth of the prior year and the work that has been done
on reducing the cost base, the group`s focus will be on top-line growth and
increasing profitability through a combination of local market conditions,
efforts to expand into the African markets and exploring potential
acquisition opportunities.
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 the past year 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
will therefore continue integrating all issues that materially 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.
Dividend
The following dividends are hereby declared for the year ended 28 February
2011:
- Ordinary dividend number 63 of 108 cents per share (2010: 90 cents).
- Participating preference dividend number 17 of 108 cents per share (2010:
90 cents).
The above dividends are payable as follows:
Last day of trading to qualify for and Friday, 24 June 2011
participate in the dividend (cum dividend):
Trading ex dividend commences Monday, 27 June 2011
Record date Friday, 1 July 2011
Dividend payment date (electronic and Monday, 4 July 2011
certificated)
Dividend cheques in payment of these dividends to certificated shareholders
will be posted to shareholders on or about Monday, 4 July 2011. 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, 4 July 2011.
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, 24 June 2011. Share certificates
may not be dematerialised or rematerialised from Monday, 27 June 2011 to
Friday, 1 July 2011, both days inclusive.
Annual General Meeting
Altron`s 65th annual general meeting will be held in The Altron Boardroom, 5
Winchester Road, Parktown, Johannesburg on Friday, 15 July 2011 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 2011.
On behalf of the board
Dr Bill Venter Robert Venter Alex Smith
Chairman Chief Executive Chief Financial Officer
3 May 2011
Board of directors
Independent non-executive:
Mr NJ Adami
Mr MJ Leeming
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 summarized audited consolidated financial results are also available on
the internet at www.altron.com
Date: 04/05/2011 08:00:06 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.
