| Tue 4 Oct 2011, 8:00 | | ATN/ATNP - Allied Electronics Corporation Limited - Unaudited consolidated |
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ATN ATNP
ATN
ATN/ATNP - Allied Electronics Corporation Limited - Unaudited consolidated
interim results for the six months ended 31 August 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
UNAUDITED CONSOLIDATED INTERIM RESULTS
for the six months ended 31 August 2011
Condensed consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2011 2010 2011
R millions change (Unaudited) (Unaudited) (Audited)
Revenue (2) 11 513 11 724 22 810
Earnings before interest, (6) 932 988 2 099
tax, depreciation and
amortisation (EBITDA)
Depreciation and (305) (297) (575)
amortisation
Operating profit before (9) 627 691 1 524
capital items
Capital items (Note 1) (37) (24) (291)
Result from operating 590 667 1 233
activities
Finance income 35 37 64
Finance expense (64) (72) (163)
Share of profit from - 1 2
associates
Profit before taxation (11) 561 633 1 136
Taxation (190) (171) (390)
STC (50) (45) (47)
Profit for the period (23) 321 417 699
Other comprehensive income
Foreign currency (102) (267) (312)
translation differences in
respect of foreign
operations
Effective portion of - 8 9
changes in fair value of
cash flow hedges
Income tax on other - (2) (2)
comprehensive income
Other comprehensive income (102) (261) (305)
for the period, net of
taxation
Total comprehensive income 219 156 394
for the period
Profit attributable to:
Non-controlling interest 87 123 157
Altron equity holders 234 294 542
Profit for the period 321 417 699
Total comprehensive income
attributable to:
Non-controlling interest 20 (32) 13
Altron equity holders 199 188 381
Total comprehensive income 219 156 394
for the period
Basic earnings per share (20) 74 93 172
(cents)
Diluted basic earnings per (19) 73 90 168
share (cents)
Notes
Six months Six months Year
ended ended ended
31 August 31 August 28 February
% 2011 2010 2011
R millions change (Unaudited) (Unaudited) (Audited)
Headline earnings per share (16) 83 99 228
(cents)
Adjusted headline earnings (15) 93 109 248
per share (cents)
Diluted headline earnings (15) 82 96 223
per share (cents)
Adjusted diluted headline (13) 92 105 243
earnings per share (cents)
Basis of preparation
The unaudited interim financial results have been prepared in accordance
with IAS 34 Interim Financial Reporting, the AC 500 series issued by the
Accounting Practices Board and the JSE Listings Requirements. 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 2011.
1. Capital items
Net gain on disposal of property, plant and 37 2 10
equipment
Impairment of property, plant and equipment - - (14)
Impairment of goodwill (74) (26) (276)
Impairment of intangibles - - (11)
(37) (24) (291)
2. Reconciliation between attributable earnings
and headline earnings
Attributable to Altron equity holders 234 294 542
Capital items - gross 37 24 291
Tax effect of capital items 3 1 -
Non-controlling interest in capital items (13) (7) (114)
Headline earnings 261 312 719
3. Reconciliation between attributable earnings
and diluted earnings
Attributable to Altron equity holders 234 294 542
Dilutive earnings attributable to B-BBEE non- - (8) (9)
controlling interest in subsidiaries
Dilutive earnings attributable to dilutive (2) (2) (3)
options at subsidiary level
Non-controlling interest in adjustments - - 1
Diluted earnings 232 284 531
4. Reconciliation between headline earnings and
diluted headline earnings
Headline earnings 261 312 719
Dilutive earnings attributable to B-BBEE non- - (8) (9)
controlling interest in subsidiaries
Dilutive earnings attributable to dilutive (2) (2) (6)
options at subsidiary level
Non-controlling interest in adjustments - - 2
Diluted headline earnings 259 302 706
5. Reconciliation between headline earnings and
adjusted headline earnings
Adjusted headline earnings have been presented
to demonstrate the impact of some accounting
charges and once-off costs arising on B-BBEE
transactions and business combinations on the
headline earnings of the group. Headline
earnings are reconciled to adjusted headline
earnings as follows:
Headline earnings 261 312 719
Amortisation of intangibles arising on business 45 52 102
combinations
Expenses associated with B-BBEE transactions 6 - 4
IFRS 2 charge on B-BBEE transactions 4 - 7
Tax effect of adjustments (11) (12) (27)
Non-controlling interest in adjustments (12) (9) (22)
Adjusted headline earnings 293 343 783
6. Reconciliation between diluted headline
earnings and adjusted diluted headline earnings
Diluted headline earnings 259 302 706
Amortisation of intangibles arising on business 45 52 102
combinations
Expenses associated with B-BBEE transactions 6 - 4
IFRS 2 charge on B-BBEE transactions 4 - 7
Tax effect of adjustments (11) (12) (27)
Non-controlling interest in adjustments (12) (9) (22)
Adjusted diluted headline earnings 291 333 770
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 R81 million (comprising the
empowerment funding obligation), 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.
7. Acquisitions of subsidiaries
During the period the Bytes group acquired two operations, namely Security
Partnerships Limited and HealthOne for an aggregate consideration of R96
million, of which R28 million is deferred.
Security Partnerships Limited is a UK-based IT security specialist
providing secure IT solutions and related managed services to corporate and
public sector organisations. The full issued share capital was acquired
effective 1 August 2011. HealthOne is an interactive clinical record system
that improves practice efficiency and profitability and allows for smooth
interoperability and exchange of information within a secure, non-intrusive
environment. The operations of HealthOne were acquired effective 31 May
2011.
The acquired businesses contributed revenue of R10 million and profit for
the period of R1 million to the group for the period ended 31 August 2011.
If the acquisitions had occurred on 1 March 2011, group revenue and profit
for the period would have increased by R49 million and R2,4 million
respectively. These amounts have been calculated using the group`s
accounting policies.
Recognised Fair value Carrying
values adjustments amount
Non-current assets - 30 30
Current assets 30 - 30
Non-current liabilities - (8) (8)
Current liabilities (16) - (16)
Net identifiable assets and 14 22 36
liabilities
Goodwill arising on acquisition 60
Total consideration 96
less cash and cash equivalents in (16)
subsidiaries acquired
less deferred purchase consideration (25)
Cash outflow from the group on 55
acquisition
8. Acquisition of 25% shareholding of Pamodzi Investments Holdings (Pty)
Limited in Altech Information Technologies (Pty) Limited
Effective 1 July 2011 the Altech group acquired the 25% shareholding of
Pamodzi Investments Holdings (Pty) Limited in Altech Information
Technologies (Pty) Limited, the holding company for the Altech group`s
information technology sub-group, for R37,5 million in cash.
This transaction will be followed shortly by a further vendor-financed
empowerment transaction involving Altech IT and will include the recently
acquired Swisttech operation.
9. Strategic collaboration with Intel Capital to accelerate the adoption of
broadband services in Africa in the telecommunications, multimedia and IT
sectors
As approved by Altech shareholders in a general meeting in July 2011,
Altech entered into a strategic collaboration with Intel Capital to
accelerate the adoption of broadband services in Africa in the
telecommunications, multimedia and IT sectors. The transaction includes the
investment by Intel Capital of US$5 million by way of a convertible loan at
a fixed interest rate, convertible into Altech ordinary shares, at Intel
Capital`s election, after the first anniversary thereof.
10. Disposal of 25% plus 1 share shareholding of the Altech group`s
interest in Altech Alcom Motomo (Pty) Limited, Altech Alcom Radio
Distributors (Pty) Limited and Altech Fleetcall (Pty) Limited
The Altech group entered into an empowerment transaction by selling 25%
plus 1 share of its interest in Altech Alcom Motomo (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 empowerment consortium acquired its shareholding for a nominal
consideration.
11. Post balance sheet events
The Altech group has signed agreements to sell 25% plus 1 share of its
interest in UEC`s African business to Power Matla (Pty) Limited, Empower a
Thousand (Pty) Limited and Epiworx Investment (Pty) Limited. This
transaction became effective from 1 September 2011.
The empowerment consortium acquired its shareholding in UEC`s African
business for a nominal consideration.
Effective 1 September 2011 the Altech group acquired 100% of the issued
share capital of Eyenza Mobile Money (Pty) Limited (Eyenza) for a nominal
amount. Eyenza is a wallet based, mobile money payments system that is
targeted at the unbanked population of South Africa and Africa.
The Altech group signed agreements with SetOne GmbH in August 2011 to
acquire 80% of the shares in the company for a maximum purchase price of
Euro3,96 million. Euro2,0 million is payable in cash upon fulfilment of the
conditions precedent, which at reporting date were still outstanding, and
the balance of Euro1,96 million is payable in terms of an earn-out over
three years. Subsequently, the Altech Board approved the exercise of a call
option to purchase the remaining 20% of the shares on the same basis as the
initial 80%. The total maximum purchase price for 100% of the shares in the
company is Euro4,95 million. SetOne specialises in the manufacturing,
repair and servicing of digital video broadcasting set-top box receivers.
The Powertech group entered into a JV with EnerSys, the global leader in
stored energy solutions for industrial applications, by selling 50,1% of
its industrial battery business incorporating Battery Technologies, Rentech
and Willard Industrial Division to EnerSys. The transaction was effective
on 3 October 2011.
Condensed consolidated balance sheet
31 August 31 August 28 February
2011 2010 2011
R millions (Unaudited) (Unaudited) (Audited)
Assets
Non-current assets 5 259 5 719 5 329
Property, plant and equipment 2 370 2 466 2 413
Intangible assets including 2 229 2 606 2 274
goodwill
Associates 9 10 10
Other investments 232 254 235
Rental finance advances 73 48 61
Loans receivable 137 130 134
Deferred taxation 209 205 202
Current assets 7 019 6 647 7 090
Inventories 2 386 2 098 2 336
Trade and other receivables 3 626 3 276 3 373
Cash and cash equivalents 1 007 1 273 1 381
Total assets 12 278 12 366 12 419
Equity and liabilities
Total equity 6 011 6 078 6 314
Non-current liabilities 1 215 908 1 020
Loans 968 541 758
Empowerment funding obligation 60 82 72
Provisions 15 13 23
Deferred income 47 96 46
Deferred taxation 125 176 121
Current liabilities 5 052 5 380 5 085
Loans 410 813 481
Empowerment funding obligation 21 13 17
Bank overdraft 390 299 128
Trade and other payables 3 961 3 886 4 049
Provisions 186 184 164
Taxation payable 84 185 246
Total equity and liabilities 12 278 12 366 12 419
Net asset value per share (cents) 1 590 1 477 1 607
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 income based upon
internal accounting presentation.
The segment revenues and earnings before interest, tax, depreciation and
amortisation (EBITDA) generated by each of the group`s reportable segments
are summarised as follows:
Revenue
Six months to Six months to 12 months to
31 August 31 August 28 February
R millions 2011 2010 2011
Powertech Cables group 2 026 2 072 3 904
Powertech Transformers group 796 726 1 305
Other Powertech segments 910 999 1 905
Powertech group 3 732 3 797 7 114
Bytes Technology group UK 553 997 1 664
Software
Bytes Document Solutions 1 007 1 017 2 036
group
Other Bytes segments 1 401 1 132 2 367
Bytes group 2 961 3 146 6 067
Altech Autopage Cellular 2 997 2 819 5 855
Altech UEC group 461 544 1 145
Altech Netstar group 498 473 944
Altech Converged Services 173 258 426
(International)
Other Altech segments 699 694 1 281
Altech group 4 828 4 788 9 651
Corporate and financial 28 30 46
services
Inter segment revenue (36) (37) (68)
Altron group 11 513 11 724 22 810
EBITDA
Six months to Six months to 12 months to
31 August 31 August 28 February
R millions 2011 2010 2011
Powertech Cables group 26 105 162
Powertech Transformers group 110 82 212
Other Powertech segments 97 80 165
Powertech group 233 267 539
Bytes Technology Group UK 22 34 47
Software
Bytes Document Solutions 92 90 201
group
Other Bytes segments 132 83 226
Bytes group 246 207 474
Altech Autopage Cellular 130 112 296
Altech UEC group 44 37 82
Altech Netstar group 191 163 331
Altech Converged Services 20 101 131
(International)
Other Altech segments 71 94 232
Altech group 456 507 1 072
Corporate and financial (3) 7 14
services
Inter segment revenue
Altron group 932 988 2 099
Six months to Six months to 12 months to
31 August 31 August 28 February
2011 2010 2011
Segment EBITDA can be
reconciled to group
operating profit before
capital items as follows:
Segment EBITDA 932 988 2 099
Reconciling items:
Depreciation (188) (197) (385)
Amortisation (117) (100) (190)
Group operating profit 627 691 1 524
before capital items
Condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2011 2010 2011
R millions (Unaudited) (Unaudited) (Audited)
Cash flows (utilised (435) 320 1 077
in)/from operating
activities
Cash generated by operations 926 1 013 2 114
Changes in working capital (394) 31 (57)
Net finance expense (29) (45) (96)
Taxation paid (415) (230) (419)
Cash available from 88 769 1 542
operating activities
Dividends paid, including to (523) (449) (465)
non-controlling interests
Cash flows utilised in (310) (395) (686)
investing activities
Cash flows from/(utilised 113 (108) (307)
in) financing activities
Net (decrease)/increase in (632) (183) 84
cash and cash equivalents
Net cash and cash 1 253 1 174 1 174
equivalents at the beginning
of the period
Effect of exchange rate (4) (17) (5)
fluctuations on cash held
Net cash and cash 617 974 1 253
equivalents at the end of
the period
Operational contribution
Six months
ended
% 31 August
change 2011 %
R millions (Unaudited)
Revenue
Altech 1 4 828 42
Bytes (6) 2 961 26
Powertech (2) 3 732 32
Corporate, financial services (8) -
and eliminations
(2) 11 513 100
Operating profit*
Altech (18) 296 47
Bytes 24 196 31
Powertech (19) 140 22
Corporate and financial services (5) -
(9) 627 100
% held at
Headline 31 August
earnings 2011
Altech 61.5 (24) 93 36
Bytes 100.0 28 109 42
Powertech 100.0 (41) 54 20
Corporate and financial services 100.0 5 2
(16) 261 100
Six months
ended
31 August
2010 %
R millions (Unaudited)
Revenue
Altech 4 788 41
Bytes 3 146 27
Powertech 3 797 32
Corporate, financial services (7) -
and eliminations
11 724 100
Operating profit*
Altech 361 52
Bytes 158 23
Powertech 173 25
Corporate and financial services (1) -
691 100
% held at
Headline 31 August
earnings 2010
Altech 61.5 123 39
Bytes 100.0 85 27
Powertech 100.0 91 30
Corporate and financial services 100.0 13 4
312 100
Year ended
ended
28 February
2011 %
R millions Unaudited
Revenue
Altech 9 651 42
Bytes 6 067 27
Powertech 7 114 31
Corporate, financial services (22) -
and eliminations
22 810 100
Operating profit*
Altech 787 52
Bytes 378 25
Powertech 348 23
Corporate and financial services 11 -
1 524 100
% held at
Headline 28 February
earnings 2011
Altech 61.5 292 41
Bytes 100.0 208 29
Powertech 100.0 187 26
Corporate and financial services 100.0 32 4
719 100
* Operating profit is stated before capital items
Supplementary information
31 August 31 August 28 February
2011 2010 2011
R millions (Unaudited) (Unaudited) (Audited)
Borrowings 1 459 1 449 1 328
- interest bearing 1 111 1 007 970
- non-interest bearing 267 347 269
- B-BBEE funding obligation 81 95 89
Depreciation 188 197 385
Amortisation 117 100 190
Net foreign exchange losses 8 27 36
Capital expenditure 259 361 648
Capital commitments 156 137 163
Lease commitments 794 681 777
Payable within the next 12 196 185 217
months:
- property 151 136 156
- plant, equipment and vehicles 45 49 61
Payable thereafter: 598 496 560
- property 551 449 456
- plant, equipment and vehicles 47 47 104
Unlisted investments (including
associates)
- Carrying amount 241 264 245
- Directors` valuation 241 267 246
Weighted average number of shares 316 316 316
(millions)
- Ordinary shares 102 102 102
- Participating preference shares 214 214 214
Diluted average number of shares 317 316 317
(millions)
Shares in issue at end of period 316 316 316
(millions)
- Ordinary shares 102 102 102
- Participating preference shares 214 214 214
Ratios
EBITDA margin % 8.1 8.4 9.2
ROCE % 16.8* 18.4* 19.9
ROE % 9.9* 12.9* 13.6
ROA % 11.7* 13.2* 14.6
RONA % 16.8* 18.2* 20.0
Borrowings ratio 24.3 23.8 21.0
Current ratio 1.4:1 1.2:1 1.4:1
Acid test ratio 0.9:1 0.8:1 0.9:1
* Annualised
Condensed consolidated statement of changes in equity
R millions Attributable to Altron equity holders
Share capital and Treasury Retained
premium shares Reserves earnings
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 in respect
of foreign operations
Effective portion of - - 6 -
changes in fair value
of cash flow hedges
Total other - - (106) -
comprehensive income
Total comprehensive - - (106) 294
income 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 3 - 12 (284)
and distributions to
owners
Total transactions 3 - 12 (284)
with owners
Balance at 31 August 2 239 (299) (1 353) 4 077
2010 (unaudited)
Total comprehensive
income for the period
Profit for the period - - - 248
Other comprehensive
income
Foreign currency - - (56) -
translation
differences in respect
of foreign operations
Effective portion of - - 1 -
changes in fair value
of cash flow hedges
Total other - - (55) -
comprehensive income
Total comprehensive - - (55) 248
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Dividends to equity - - - -
holders
Issue of share capital 2 - - -
Share-based payment - - 2 -
transactions
Total contributions by 2 - 2 -
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Introduction of non- - - 214 -
controlling interests
Total changes in - - 214 -
ownership interests in
subsidiaries
Total transactions 2 - 216 -
with owners
Balance at 28 February 2 241 (299) (1 192) 4 325
2011 (audited)
Total comprehensive
income for the period
Profit for the period - - - 234
Other comprehensive
income
Foreign currency - - (35) -
translation
differences in respect
of foreign operations
Total other - - (35) -
comprehensive income
Total comprehensive - - (35) 234
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Dividends to equity - - - (341)
holders
Issue of share capital 2 - - -
IFRS 2 charge on B- - - 3 -
BBEE transactions
Share-based payment - - 10 -
transactions
Total contributions by 2 - 13 (341)
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Introduction of non- - - 63 -
controlling interest
Buy-back of non- - - 11 -
controlling interest
Total changes in - - 74 -
ownership interests in
subsidiaries
Total transactions 2 - 87 (341)
with owners
Balance at 31 August 2 243 (299) (1 140) 4 218
2011 (unaudited)
R millions
Non-controlling Total
Total interest equity
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 in respect
of foreign operations
Effective portion of 6 - 6
changes in fair value
of cash flow hedges
Total other (106) (155) (261)
comprehensive income
Total comprehensive 188 (32) 156
income 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 (269) (164) (433)
and distributions to
owners
Total transactions (269) (164) (433)
with owners
Balance at 31 August 4 664 1 414 6 078
2010 (unaudited)
Total comprehensive
income for the period
Profit for the period 248 34 282
Other comprehensive
income
Foreign currency (56) 11 (45)
translation
differences in respect
of foreign operations
Effective portion of 1 - 1
changes in fair value
of cash flow hedges
Total other (55) 11 (44)
comprehensive income
Total comprehensive 193 45 238
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Dividends to equity - (16) (16)
holders
Issue of share capital 2 4 6
Share-based payment 2 6 8
transactions
Total contributions by 4 (6) (2)
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Introduction of non- 214 (214) -
controlling interests
Total changes in 214 (214) -
ownership interests in
subsidiaries
Total transactions 218 (220) (2)
with owners
Balance at 28 February 5 075 1 239 6 314
2011 (audited)
Total comprehensive
income for the period
Profit for the period 234 87 321
Other comprehensive
income
Foreign currency (35) (67) (102)
translation
differences in respect
of foreign operations
Total other (35) (67) (102)
comprehensive income
Total comprehensive 199 20 219
income for the period
Transactions with
owners, recorded
directly in equity
Contributions by and
distributions to
owners
Dividends to equity (341) (182) (523)
holders
Issue of share capital 2 1 3
IFRS 2 charge on B- 3 1 4
BBEE transactions
Share-based payment 10 3 13
transactions
Total contributions by (326) (177) (503)
and distributions to
owners
Changes in ownership
interests in
subsidiaries
Introduction of non- 63 (63) -
controlling interest
Buy-back of non- 11 (30) (19)
controlling interest
Total changes in 74 (93) (19)
ownership interests in
subsidiaries
Total transactions (252) (270) (522)
with owners
Balance at 31 August 5 022 989 6 011
2011 (unaudited)
Message to shareholders
The Altron financial results for the six months ended 31 August 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 results of the group for the interim period ended 31 August 2011 are a
reflection of the challenging environment in which many South African
businesses are currently operating. Altron`s revenue declined marginally
when compared to the previous interim period, decreasing by 2% to R11.5
billion. Earnings before interest, tax, depreciation and amortisation
(EBITDA) decreased by 6% to R932 million compared to the corresponding
period in August 2010. Within the group, Bytes delivered a strong
performance with most of its operations achieving good growth, while both
Altech and Powertech experienced more challenging conditions. Consequently,
Altron reported a 13% decrease in adjusted diluted headline earnings per
share.
External factors
While the South African economy started the year positively, recording
healthy growth rates in the first quarter, there was a marked slowdown in
the growth rate in the second quarter which looks set to continue into the
third quarter. Since the start of the third quarter there has been a great
deal of volatility in the financial markets, making it very difficult to
forecast economic prospects. It is evident that the performance of the
South African economy remains closely linked to that of the global economy.
In addition to the macroeconomic factors, trading conditions were also
impacted by the higher than normal number of public holidays in April as
well as the recent strike action. The group was directly impacted by the
two week Metalworkers strike at many of the Powertech operations and
certain of the Bytes and Altech businesses.
Despite interest rates remaining at multi-year lows during the period under
review, the building and construction sector continued to show no signs of
recovery. However, demand in the electrical infrastructure market remained
relatively strong, led by spending by Eskom and certain municipalities.
Parastatals, in particular, are providing encouraging support to locally
based manufacturing operations. During this period, commodity prices
remained firm, though the Rand/copper price fell slightly from its February
highs. Post the reporting period there was significant volatility.
The telecommunications sector in South Africa continues to evolve slowly,
with voice showing a degree of resilience (but the real growth area being
the data market). However, pricing in the data market was under pressure
over the last year with rapid declines in data package pricing in both the
mobile and ISP spaces. The telecommunications market in East Africa saw
prices stabilise following an eighteen month period of rapid price drops.
Nevertheless, it remains a highly competitive space and a fast changing
environment, but with good medium- to long-term prospects.
The set top box industry has received a draft specification for the digital
terrestrial television set top box (STB) from government, with the first
orders expected in early 2012. Nevertheless, the analogue signal will be
switched off in 2013 and the South African market of nine million
households will have to be upgraded at or before that time.
The information technology market continued to show good growth,
particularly in the retail and financial services sectors with both of
these sectors undergoing significant technology refresh programmes which
presents business opportunities, although the competition for these is
intense.
Throughout the period under review the Rand traded within a relatively
stable band, which provided businesses with a greater degree of certainty.
At levels of R7 to the US Dollar the Rand provided challenges to South
African industry in terms of export markets as well as opening up local
markets to international competition. However, post the reporting period
the local currency became significantly more volatile and weakened
substantially.
Financial overview
Income
As indicated, Altron`s revenue decreased marginally by 2% to R11.5 billion
from R11.7 billion, with EBITDA decreasing by 6% to R932 million from R988
million reflecting an EBITDA margin of 8.1%, down from the previous 8.4%.
Headline earnings per share decreased by 16% to 83 cents, while adjusted
diluted headline earnings per share decreased by 13% to 92 cents.
Net interest costs decreased to R29 million from R35 million in the
previous period as a result of lower average borrowings throughout the
period. Capital items increased due to the impairment of goodwill at Altech
East Africa and Bytes` Nor Paper, partially offset by a R37 million profit
realised on the sale of an Altech property. The net effect of the
aforementioned resulted in the consolidated profit before tax reducing by
11% to R561 million.
Profit after tax decreased by 23% to R321 million compared to the previous
period as a result of a higher effective tax rate and an increased STC
charge on the higher dividends paid. This translated into a 16% decrease in
headline earnings per share given the impact of the capital items as well
as a proportionately lower allocation to non-controlling interests,
primarily due to the reduced performance out of the Altech group.
Diluted adjusted headline earnings per share decreased by 13% with the
difference between this line item and headline earnings per share being
attributable to various once off transaction costs and the reduced dilutive
effect of the B-BBEE structure at Aberdare Cables.
Cash management
Cash generated by operations of R926 million is slightly down on the
comparative period as a result of the lower profitability levels. However,
our investment in working capital since the year end increased by R394
million due to higher levels of receivables, primarily on stronger August
sales, as well as continued high inventory levels at a number of operations
within Powertech and Bytes. Cash outflows on taxation were considerably
higher than in previous periods as a result of timing differences on the
payment of provisional taxes.
Investing activities, which principally related to capital expenditure,
were down on the prior year at R310 million. Since 1 March 2011, Altech,
predominantly through East Africa, incurred capital expenditure of R87
million, while there was a further R78 million of capital expenditure
within the Powertech group related to the rationalisation of the Aberdare
Cables operations as well as the capital expenditure programme at Powertech
Transformers.
The R113 million of cash raised from financing activities is predominantly
due to the new local financing in Altech East Africa, offset by some
repayments in the Bytes group.
Subsidiary review
Subsidiary income and growth
Altech revenue increased by 1% to R4.8 billion on prior year levels and
EBITDA declined by 10% to R456 million with the EBITDA margin reducing from
10.6% to 9.4%. Headline earnings per share reduced by 24%, while diluted
adjusted headline earnings per share reduced by 20%. This decline was
driven by disappointing performances out of Altech East Africa, Altech West
Africa and Altech Technology Concepts, off-set to an extent by the majority
of the remaining business units performing well.
Altech Autopage Cellular increased revenue by 6%, and saw a pleasing 16%
increase in EBITDA compared to the prior period. The increase in revenue
was due to higher Value Added Services (VAS) fees and prepaid voucher
sales, while the improved margins emanated from the non-recurrence of the
subscriber clean-up of last year. The total subscriber base is marginally
in excess of 1 million with the data subscriber base now exceeding 100,000
with revenue from data services growing by 21%. Average revenue per user
(ARPU) has reduced to R372 from R389 in the prior year due to new products
being released by the networks at lower prices as well as discounted
tariffs on data in an increasingly competitive market.
Altech Technology Concepts experienced a challenging first six months of
the year as revenue growth took longer than anticipated to materialise and
lower local bandwidth prices compounded this. Nevertheless, Altech
Technology Concepts is making good progress in increasing annuity revenue
streams and is aligning itself to Altech Autopage Cellular to exploit
opportunities in its customer base.
The Altech Netstar group achieved revenue growth of 5%, primarily due to an
increase in the subscriber base at the fleet management business. EBITDA
increased by 17% over the prior period as a result of cost saving measures
put in place at the end of the last financial year as well as improved
profitability in the fleet management business. The stolen vehicle recovery
business continued to perform well and is looking to expand its product
range into insurance telematics through its partnership with Octo
Telematics.
Altech UEC`s revenue decreased by 15% but EBITDA increased by 19% compared
to the prior period as a result of production efficiencies and an improved
product mix in the latter part of the reporting period. The GDL (repairs)
business continued to perform well, both locally and in Australia, while
the MediaVerge side of the business, which is focused on software design
and development, showed improved results.
Arrow Altech continued to perform exceptionally well, increasing revenue by
24% and EBITDA by 22% predominantly as a result of increasing market share.
The Altech IT group marginally improved revenue by 1% but EBITDA declined
by 30% primarily as a result of the under performance of the West African
business which was affected by low demand of pre-paid vouchers resulting
from the continued over stocking by a large customer, and changes in the
Nigerian regulatory model which delayed its diversification into bank card
production. Altech Isis grew revenue and profit, and much focus is going
into further diversifying its customer base. Altech Card Solutions
continues to perform well on the back of good EFTPOS terminal sales, as
well as good progress on the e-Security product ranges. The recent
acquisition of Eyenza, a mobile money transacting technology platform, will
broaden the business`s financial transacting product offering to its
customer base. Altech Swisttech, a new acquisition, made a positive
contribution and has a number of good opportunities outside of its
traditional customer base.
The Altech Converged Services International group experienced a difficult
first half of the year, with revenue declining by 33% and EBITDA by 80%. A
fast changing operating environment resulted in a rapid decline in
bandwidth prices which stabilised during the reporting period at
significantly lower levels than the comparative period. An extremely
disappointing operational performance was further hampered by foreign
exchange losses due to the Kenyan Shilling`s 11% depreciation against the
US Dollar during the period. The business suffered from delays in network
roll-out projects and there was insufficient focus on the quality and
revenue generating capability in the selection of those projects. A new
management team has been appointed to simplify the business and focus on
network quality and roll-out in order to drive the top line of the
business.
Bytes reported good results despite revenue decreasing by 6% to just under
R3 billion. EBITDA improved by 19% to R246 million with the EBITDA margin
improving from 6.6% to 8.3%. If the impact of the prior year`s National
Health Services (NHS) contract in the UK business is removed, revenue
increased by 9% and EBITDA by 26%. Headline earnings for the Bytes group
improved by 28% to R109 million.
Bytes Document Solutions` South African operations saw revenue marginally
down by 2% on the prior year with EBITDA down 4%. The core Xerox business
continued to perform well, maintaining its market leadership position in
its key focus areas. However, Nor Paper and LaserCom both underperformed
due to high inventory levels, management changes and some loss of market
share. Both businesses are the subject of turnaround plans to return them
to acceptable profitability levels.
Bytes Managed Solutions produced an exceptional performance with
significantly higher NCR equipment sales positively influencing revenue and
EBITDA which both increased by 42% from the prior period. The business was
also assisted by the improved performance of the Retail ATM business as
well as some key wins in the retail industry at the beginning of the year.
Bytes Systems Integration increased revenue by 13% and EBITDA by 23%,
benefiting from the pipeline that was evident at the end of the previous
financial year, as well as some new contracts in the networking environment
with Mondi and SAB Limited.
Bytes Connect increased revenue by 2% and EBITDA by 24% reflecting a strong
outsource business and stable networking and contact centre businesses,
with the legacy Intelleca business showing a much improved performance.
Bytes Healthcare Solutions increased revenue by 3% and EBITDA by 2%,
preserving its strong operating margins and benefiting from the additional
revenue from the Discovery Health pharmacy business.
The Bytes UK operations saw an expected 38% decline in revenue and 17%
decline of EBITDA due to the conclusion of the NHS contract in the
Microsoft licensing business. If these effects are removed, revenue
increased by 2% and EBITDA by 43%. The Document Solutions side of the
business returned to profitability with a strong first half, and the
Software Services business continued to perform well, while remaining
focused on diversifying away from its dependence on Microsoft. On 1 August
2011, Bytes UK concluded an acquisition of Security Partnerships Limited, a
business that distributes security software that will work closely with the
existing Software Services business.
Powertech revenue declined marginally by 2% to R3.7 billion. EBITDA
however reduced by 13% to R233 million with the EBITDA margin reducing from
7.1% to 6.2%. Headline earnings for the Powertech group declined by 41% due
to a significantly increased effective tax rate as well as a
proportionately higher minority interest. The decline in profitability of
the Powertech group can predominantly be attributed to the performance of
the Powertech Cables group which was negatively impacted by the difficult
market conditions in Iberia, the continued subdued state of the building
and construction industry and the two week Metalworkers strike in July
2011. As a result of these factors, the Powertech Cables group experienced
a 2% contraction in revenue and a 76% decrease in EBITDA. Pricing in the
local power cables market continued to be a challenge, but progress was
made in stabilising prices at higher levels during the period. The
performance in Iberia, which had a significant impact on profitability
during the period, is expected to improve in the second half as activity
picks up on the British Telecom contract that was secured last year.
Powertech Transformers produced a pleasing 10% increase in revenue and an
exceptional 36% growth in EBITDA on the back of increased capital
expenditure by Eskom and the award of certain municipal tenders. While the
power division performed extremely well during the period, the business
also saw a marked pick-up in activity in the distribution division,
returning that division to more acceptable profitability levels.
The Powertech Batteries group increased revenue by 5% and EBITDA by 13%
compared to the prior period. Automotive batteries experienced high demand
over the winter months and also benefited from a key competitor`s inability
to supply the market for a number of months. Profitability continued to
improve as the factory benefited from the increased levels of automation.
The Industrial Battery division saw some recovery but further improvement,
particularly in the telecoms and mining industries, is expected as they
enter a new replacement cycle. Battery Technologies remained under pressure
during the period. The Batteries group entered into a joint venture with
EnerSys, a global leader in stored energy solutions for industrial
applications, by selling 50.1% of the Industrial Battery business,
incorporating Battery Technologies, Rentech and Willard Industrial Division
to EnerSys. The transaction was effective post the reporting period, on 3
October 2011.
The Powertech Industrial group saw a 35% reduction in revenue and 29%
reduction in EBITDA driven by the continued low building activity which
resulted in poor demand for wiring accessories and a significant decline in
the stand-by power market.
Powertech System Integrators experienced an encouraging 26% increase in
revenue over the prior year and doubling of EBITDA, primarily reflecting an
upturn in the performance of Powertech IST. IST benefited from the
continued delivery of a large Mobility contract, which in total was worth
some R250 million as well as good performances out of the Otokon (energy
management) and Energy businesses. This projects-based business benefited
from a pick-up in fixed investment.
Corporate activity
The following transactions were concluded during the six month period under
review:
- With effect from 1 March 2011, Altech entered into an agreement in
respect of a broad-based black economic empowerment transaction whereby the
Southern Palace Group of Companies acquired an effective 25% plus one
equity shareholding in a new company which had been incorporated as the
holding company of the South African operations of Altech Alcom Matomo,
Altech Alcom Radio Distributors and Altech Fleetcall.
- Altech acquired the 25% equity interest of Pamodzi Investment Holdings
(Pty) Limited in Altech Information Technologies (Pty) Limited, the holding
company for Altech`s information technology sub-group, effective 1 July
2011. The purchase price for the interest concerned was R37.5 million,
payable in cash and the shares were acquired ex the dividend for the last
financial year. Negotiations are currently underway for a further vendor-
financed empowerment transaction, for this sub-group.
- As approved by Altech shareholders in a general meeting in July 2011,
Altech entered into a strategic collaboration with Intel Capital to
accelerate the adoption of broadband services in Africa in the
telecommunications, multimedia and IT sectors. The transaction includes the
investment of Intel Capital of US$5 million by way of a convertible loan at
a fixed interest rate, convertible into Altech ordinary shares, at Intel
Capital`s election, after the first anniversary thereof.
- With effect from 1 August 2011, Bytes Software Services in the UK
acquired 100% of the issued share capital of Security Partnership Limited,
a company involved in the distribution of security software, for an upfront
payment of GBP5 million, with the balance of GBP2 million being paid on
achievement of certain earn-outs over the next two years.
Subsequent to the six month reporting period, agreement has been reached on
the following transactions:
- Altech acquired 100% of the equity in Eyenza Mobile Money (Pty) Limited,
an e-wallet based payments system, for a nominal amount. The transaction is
effective 1 September 2011.
- With effect from 1 September 2011, Altech entered into an agreement in
respect of a broad-based black economic empowerment transaction whereby a
consortium led by Power Matla acquired an effective 25% plus one share
equity holding in Altech UEC`s African operations. The total value of the
assets involved in this transaction was R509 million. Altech UEC`s
international business and intellectual property rights have been wholly
retained by Altech.
- Powertech entered into a JV with EnerSys, by selling 50.1% of its
industrial battery business incorporating Battery Technologies, Rentech and
Willard Industrial Division to EnerSys. The transaction was effective on 3
October 2011.
- Altech acquired 100% of SetOne GmbH, a Germany-based supplier of digital
video broadcasting (DVB) based products and solutions company. The
acquisition involves an immediate cash outlay of approximately Euro2.52
million, followed by three annual payments totalling a maximum of
approximately Euro2.43 million, linked to the achievement of specified
profit levels by SetOne. The transaction is expected to be finalised in
October 2011.
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 targets 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, with the focus being on, among others, the nurturing and
development of its leadership and employees in order to create a
sustainable workforce representative of the demographics of South Africa.
The environment
Altron continued to expand and build on its various environmental and
sustainability initiatives, which were co-ordinated and championed by the
recently established sustainability department led by a group
sustainability manager.
During the period, Altron participated in two global environmental
initiatives namely the Carbon Disclosure Project (CDP) and the CDP Water
Disclosure Project. It also compiled a sustainability reference manual
containing, among others, environmental guidelines for the group.
A workshop was held for the group`s senior management and executives to
identify initiatives in order to reduce Altron`s water and waste footprint
and set its three year reduction targets for waste and water. In addition,
the workshop also assessed the group`s progress in terms of achieving its
carbon reduction targets set in January 2011.
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. During the review period, the board
was further strengthened by the appointment of additional non-executive
directors. Aside from having a non-executive chairman and lead independent
director, 11 of the 16 directors on the Altron board are non-executive
directors of whom eight are classified as independent directors. 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
In this difficult environment, the group will continue to concentrate on
the basics of cost control and working capital management. The group`s
increasing emphasis is on growing the top line which is a prerequisite for
a return to profitable growth after having effected significant cost
reductions in the business over the previous two years.
Altech will continue to focus on the recovery of its East African
operations and enhancing the performance of its strong South African
operations. Bytes is well placed to further benefit from the expanding
corporate IT spend and to build on the strong base created during the
previous financial year. Powertech, having undertaken numerous cost
reduction programmes, is well poised to benefit from a recovery in the
building and construction industry. However, the timing of this recovery
is uncertain. In the meantime, it will continue to focus on improving
operational efficiencies and increasing tendering activity into Africa.
The group will seek to grow revenue and profitability through a combination
of local organic growth, expansion into African markets and exploring
potential acquisition opportunities. A decline in the global economy could,
however, have an effect on the group`s growth.
Directorate
On Friday, 15 July 2011, Mr David Redshaw, a non-executive director of
Altron and the past chief executive officer of the Bytes group, passed away
tragically, following a short illness.
After 17 years of service as an executive director of Altron, Mr Peter
Curle retired as an executive director of the company and was appointed as
a non-executive director of Altron with effect from 21 July 2011.
Shareholders are referred to the SENS announcement published by Altron on 2
August 2011 advising that with effect from 1 August 2011, Mr Simon Susman
and Mr Rob Abraham had been appointed as an independent non-executive
director and executive director of Altron respectively. Simon is currently
the non-executive deputy chairman of Woolworths South Africa and Rob is the
present chief executive officer of the Bytes group.
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.
On behalf of the board
Dr Bill Venter Robert Venter Alex Smith
Chairman Chief Executive Chief Financial Officer
4 October 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 SN Susman
Mr PL Wilmot
Non-executive:
Dr WP Venter (Chairman)
Mr MC Berzack
Mr PMO Curle*
Executive:
Mr RE Venter (Chief Executive)
Mr RJ Abraham
Mr N Claussen
Mr AMR Smith*
Mr CG Venter
*British
Secretaries:
Altron Management Services (Pty) Limited -
Mr AG Johnston (Group Company Secretary)
Sponsor:
Investec Bank
The unaudited consolidated interim results are also available on the
internet at www.altron.com
Date: 04/10/2011 08:00:25 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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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.
