| Mon 11 Oct 2004, 16:16 | | RESULTS FOR THE SIX MONTHS ENDED 31 AUG 04 |
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ALTRON - ABRIDGED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS
ENDED 31 AUGUST 2004
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
ABRIDGED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31
AUGUST 2004
- REVENUE UP 18%
- OPERATING INCOME UP 35%
- HEPS UP 10%
- SUCCESSFUL INTEGRATION OF ACQUISITIONS
INCOME STATEMENT
Six months Six months Year
ended ended ended
Figures in % 31.8.04 31.8.03 29.2.04
R million Change (Unaudited) (Unaudited) (Audited)
Revenue 18 5 959 5 064 10 045
Operating income 35 443 329 718
Investment income 51 83 145
Finance costs (17) (15) (26)
Income from 6 4 9
associates
Income before 20 483 401 846
goodwill
amortisation and
capital items
Goodwill amortised (177) (68) (134)
and impaired
Capital items 9 38 34
(Note 1)
Income before 315 371 746
taxation
Taxation (178) (126) (255)
Income after 137 245 491
taxation
Attributable to (48) (78) (151)
outside
shareholders
Attributable 89 167 340
earnings
Basic earnings per (48) 32 61 125
share (cents)
Headline earnings 10 69 63 138
per share (cents)
Weighted average
number of shares
in issue
(millions)
- ordinary shares 94 94 94
- participating 181 178 179
preference shares
Notes:
1. Capital items
Net gain on 8 4 43
disposal of
interests in
subsidiaries
Net gain on - 33 -
disposal of
investments
Impairment losses - - (10)
Net gain on 1 1 1
disposal of
property, plant
and equipment
9 38 34
2. Reconciliation
between earnings
and headline
earnings
Attributable 89 167 340
earnings
Goodwill amortised 177 68 134
and impaired
Share of 1 - 1
associates`
capital items and
goodwill
Capital items - (9) (38) (34)
gross
258 197 441
Tax effect of - 1 (1)
above adjustments
Outside (67) (27) (63)
shareholders`
interest
Headline earnings 191 171 377
3. Accounting policies
The unaudited interim financial results have been prepared in accordance with
South African Statements of Generally Accepted Accounting Practice. The
accounting policies used in the preparation of the unaudited interim financial
results are consistent with those used in the annual financial statements for
the year ended 29 February 2004, except for the following:
The adoption of AC501 - Accounting for Secondary Tax on Companies (STC).
In terms of the statement a deferred tax asset should be recognised on the
unused STC credits when it is probable that such unused STC credits will be
utilised in the future.
The comparative amounts have been appropriately restated. The effect of this
change is as follows:
Six months Year Six months Year
ended ended ended ended
31.8.04 29.2.04 31.8.03 29.2.03
Effect on deferred (3) (3) (4) 17
taxation
Outside shareholders` 1 1 (1)
interest
Net effect (3) (2) (3) 16
Open distributable 1 762 1 550 1 514
reserves as previously
stated
Net change 14 13 16
Opening distributable 1 776 1 563 1 530
reserves restated
Increase/(decrease) in (1.1) (0.8) (1.1) 5.9
EPS and HEPS (cps)
4. Diluted earnings per share and diluted headline earnings per share are not
materially different from basic earnings per share and headline earnings per
share respectively.
5. It is group policy for a dividend to be declared after the end of the
financial year.
BALANCE SHEET
31.8.04 31.8.03 29.2.04
Figures in R million (Unaudited) (Unaudited) (Audited)
Assets
Non-current assets 1 808 1 663 1 618
Property, plant and 802 628 678
equipment
Goodwill 674 514 455
Rental finance advances 128 216 189
Associates and other 110 200 183
investments
Deferred taxation 94 105 113
Current assets 4 397 4 411 4 451
Inventories 1 165 1 005 905
Accounts receivable 1 822 1 769 1 542
Cash and cash equivalents 1 410 1 637 2 004
Total assets 6 205 6 074 6 069
Equity and liabilities
Ordinary shareholders` 2 337 2 313 2 489
interest
- Share capital, premium 2 575 2 551 2 727
and reserves
- Own shares acquired (238) (238) (238)
Outside shareholders` 1 056 1 038 1 082
interest
Borrowings 530 502 524
Deferred taxation 30 20 31
Current liabilities 2 252 2 201 1 943
- Accounts payable 2 113 2 025 1 827
- Taxation payable 139 176 116
Total equity and 6 205 6 074 6 069
liabilities
Net asset value per share 848 845 907
(cents)
Shares in issue at end of
period (millions)
- ordinary shares 94 94 94
- participating preference 182 180 180
shares
SUPPLEMENTARY INFORMATION
Six months Six months Year
ended ended ended
31.8.04 31.8.03 29.2.04
Figures in R million (Unaudited) (Unaudited) (Audited)
Borrowings 530 502 524
- Long-term 419 218 277
- Short-term 111 284 247
Capital commitments 34 49 80
Capital expenditure 137 63 221
Contingent liabilities 27 - 27
Depreciation 91 63 129
Net foreign exchange losses 7 10 3
Lease commitments 270 243 292
Unlisted investments
- carrying amount 110 200 183
- directors` valuation 187 200 287
CASH FLOW STATEMENT
Six months Six months Year
ended ended ended
31.8.04 31.8.03 29.2.04
Figures in R million (Unaudited) (Unaudited) (Audited)
Operating activities 49 337 795
Cash generated by 523 368 795
operations
Net investment income 34 64 106
Changes in working capital (154) 194 387
Taxation paid (136) (96) (295)
Cash available from 267 530 993
operating activities
Dividends paid, including (218) (193) (198)
to outside shareholders
Investing activities (657) (196) (327)
Financing activities 16 35 68
Net funds (592) 176 536
(utilised)/generated
Cash and cash equivalents
- beginning of period 2 004 1 510 1 510
Translation of foreign cash (2) (11) (4)
Effect on cash of adopting
proportionate
consolidation - (38) (38)
Cash and cash equivalents
- end of period 1 410 1 637 2 004
STATEMENT OF CHANGES IN EQUITY
Non-
Share distributable Distri-
Figures in capital and and other butable
R million premium reserves reserves Total
Balance at 28 770 221 1 514 2 505
February 2003
(audited)
Change in 16 16
accounting policy
(note 3)
Balance at 28 770 221 1 530 2 521
February 2003
(restated)
Opening AC133 fair (17) (17)
value adjustment
Attributable 167 167
earnings
Dividends (117) (117)
Foreign currency (17) (17)
translation
differences
Issue of share 14 14
capital
Balance at 31 784 204 1 563 2 551
August 2003
(unaudited and
restated)
Attributable 173 173
earnings
Foreign currency (1) (1)
translation
differences
Cash flow hedging (1) (1)
reserves
Issue of share 5 5
capital
Transfer between (40) 40 -
reserves
Balance at 29 789 162 1 776 2 727
February 2004
(audited and
restated)
Attributable 89 89
earnings
Dividends (143) (143)
Foreign currency (29) (29)
translation
differences
Cash flow hedging 2 2
reserves
Issue of share 7 7
capital
Transfer between (22) 22 -
reserves
Net premium (78) - (78)
arising on change
of holdings in
subsidiaries
Balance at 31 796 35 1 744 2 575
August 2004
(unaudited)
OPERATIONAL CONTRIBUTION
Six months Six months Year
Figures ended ended ended
in 31.8.04 % 31.8.03 % 29.2.04 %
R million (Unaudited) (Unaudited) (Audited)
Revenue:
Altech 2 653 44 1 961 39 4 143 41
Powertech 1 888 32 1 763 35 3 333 33
BTG 1 418 24 1 323 26 2 607 26
Corporate - - 17 - (38) -
and
Financial
Services
5 959 100 5 064 100 10 045 100
Operating
income:
Altech 249 56 159 48 333 46
Powertech 102 23 100 31 206 29
BTG 97 22 77 23 185 26
Corporate (5) (1) (7) (2) (6) (1)
and
Financial
Services
443 100 329 100 718 100
% held
at
31.8.04
Headline
earnings:
Altech 57,6 96 50 81 47 170 45
Powertech 100,0 55 29 71 42 144 38
BTG 54,6 31 16 21 12 56 15
Corporate 9 5 (2) (1) 7 2
and
Financial
Services
191 100 171 100 377 100
SEGMENTAL ANALYSIS
Six months Six months Year
ended ended ended
Figures in 31.8.04 % 31.8.03 % 29.2.04 %
R million (Unaudited) (Unaudited) (Audited)
Revenue:
Telecommunications 2 169 36 1 782 35 3 756 38
Power Electronics 1 965 33 1 825 36 3 604 36
and Multimedia
Information 1 876 32 1 443 29 2 848 28
Technology
Corporate and (51) (1) 14 - (163) (2)
Financial Services
5 959 100 5 064 100 10 045 100
Operating income:
Telecommunications 156 35 99 30 253 35
Power Electronics 109 25 151 46 229 32
and Multimedia
Information 185 42 86 26 216 30
Technology
Corporate and (7) (2) (7) (2) 20 3
Financial Services
443 100 329 100 718 100
MESSAGE TO OUR SHAREHOLDERS
`Notwithstanding challenging conditions in some of its market sectors, the group
recorded satisfactory results with substantial growth in revenue, operating
income and headline earnings per share.` Robert Venter, Chief Executive
OPERATING ENVIRONMENT
Within the Telecoms arena, the group is well-positioned to take advantage of
opportunities arising as a result of the recently announced liberalisation of
the market in South Africa and, in particular, those sectors pertaining to
opportunities now available related to voice-over-internet-protocol (VOIP). Our
group`s increasing exposure to the mobile telecoms market, both in South Africa
and the rest of Africa, provides a good platform for future expansion in one of
the world`s fastest growing markets.
In the Power Electronics and Multi-Media sector, the medium-term outlook for
power electronics remains positive on the back of increased infrastructural
spend by Eskom and local municipalities, as well as the robust property
development market. The multi-media sector is experiencing a world-wide increase
in demand for higher-end and more complex products such as the personal video
recorder (PVR) and high definition digital television products, which is
stimulating new business as well as the replacement of existing products.
Although conditions in the Information Technology sector remain challenging,
profitable growth areas exist. This is particularly applicable in the card
related business where the group is currently benefiting from opportunities in
terms of the conversion to the Europay Mastercard Visa (EMV) standard. The IT
industry in the United Kingdom remains a concern, but is expected to improve
further over the next 12 months. As predicted last year, results in the United
Kingdom have shown a marked improvement in the period under review when compared
to the comparable prior period, albeit at a slower rate than expected. IT sales
in the South African industry, on the other hand, reflected increased activity
in both the corporate and parastatal sectors during the last six months.
FINANCIAL OVERVIEW
The Altron group recorded satisfactory results for the half year ended 31 August
2004. Revenue increased by 18% from R5 billion to R6 billion based on strong
organic growth as well as the contribution from Altech`s recently acquired
NamITech business. Operating income showed an increase of 35% from R329 million
to R443 million resulting from operating margins which improved from 6.5% to
7.4% and the inclusion of the NamITech acquisition. The group`s tax rate was
higher at 38% than the prior period (33%) due to STC charges on the higher level
of dividends paid. Headline earnings per share increased by 10% from 63 cents to
69 cents. Based on the slower than anticipated recovery in the UK market it was
considered prudent to impair goodwill related to BTG`s acquisition of Plato by
an amount of R100 million, consequently attributable earnings after the goodwill
amortisation and impairment declined by 47%.
The group`s balance sheet remains strong with cash and cash equivalents at R1.4
billion down from R2 billion at the last year end. This was primarily as a
result of the acquisition of NamITech and the Altech share buy back which was
partially offset by strong operating cash flows and cash proceeds from the BEE
equity transactions. Working capital remained satisfactory with overall net
working capital days improving from 24 days to 22 days.
Altech`s operations delivered strong financial results, with some excellent
individual company performances, resulting in a 10% growth in headline earnings
per share. Revenue and operating income increased by 35% and 57% to R2.7 billion
and R249 million, respectively.
BTG`s operating income improved by 26% to R97 million which, coupled with a
reduction of 27% in finance costs, enabled BTG to post headline earnings per
share of 37 cents, an improvement of 48% over the corresponding prior period.
Altron`s wholly-owned subsidiary, Powertech, posted satisfactory results despite
the continued downturn in the telecoms infrastructural sector which was more
than offset by strong performance in the power electronics sector. Revenue
increased by 7% and headline earnings of R55 million was achieved after
accounting for an additional STC charge of R8.8 million (which partially
reversed at the Altron level) as a consequence of accounting changes. The
headline earnings were also impacted by the reduced contribution at the 70%
level for Aberdare Cables following the conclusion of the empowerment
transaction with the Izingwe Consortium. On an adjusted basis, headline earnings
per share were up by 8%.
Financial services, through the Fintech operations, reported similar results
when compared to the prior period.
Acquisitions and Corporate Finance activities
The successful integration of the NamITech business into Altech during the
interim period has contributed significantly to earnings. Altech has also
concluded two further black economic empowerment (BEE) transactions, namely the
disposal of 28% of NamITech and 25.01% of Altech Data both to Pamodzi Investment
Holdings.
Altech also entered into a binding heads of agreement to establish a jointly-
controlled South African telecommunications investment holding company,
incorporating certain of the operations of the Econet Wireless Group. The Econet
transaction, which is awaiting South African Reserve Bank approval, as well as
the Papua New Guinea (PNG) government approval for the acquisition by Econet of
the announced majority interest in Telikom PNG. This transaction, at current
exchange rates, will involve an outlay by Altech of approximately R460 million.
This will be funded from existing cash resources. The deal signifies Altech`s
entry into the international cellular telecommunications network operator market
and provides significant growth opportunities.
BTG has announced its intention to acquire the entire issued share capital of CS
Holdings. This transaction is subject to the approval of the Competition
authorities and final acceptance of the offer by CS Holdings shareholders. It is
anticipated that the transaction will be completed by the end of October. BTG is
satisfied that the business of CS Holdings is sustainable under normal operating
conditions and anticipates that the acquisition will, in due course, generate
significant benefits for BTG.
Altech effected a buy-back of 7.6% of its issued share capital during the six
month period at a cost of R257 million. This is earnings enhancing for Altech.
As a result, Altron`s effective ownership in Altech has increased to 57.6%.
As previously announced, BTG completed the sale of 27% of Bytes SA to Kagiso,
effective 1 March 2004.
In line with its BEE equity objectives, Powertech disposed of 30% of its
shareholding in Aberdare Cables to the Izingwe Consortium on 1 March 2004.
BUSINESS ACTIVITIES
Telecommunications
Altron`s telecommunications interests represented 35% of total group operating
income at R156 million for the half year under review compared to 30% or R99
million for the same period in the previous year. Revenue contribution was R2.2
billion which represents 36% of the group`s total revenue compared to 35% for
the comparable period last year.
Autopage Cellular performed well ahead of expectations, increasing its
subscriber base by more than 30 000 subscribers to a total exceeding 615 000.
High-end connections through corporate least-cost routing and commercial
payphone operators assisted in increasing ARPU levels. Overall churn percentage
was just over 10% on an annualised basis. Negotiations with Sentech have been
concluded to distribute the `My Wireless` broadband service through Autopage
Cellular and this offers exciting opportunities.
Netstar maintained its leading share of the market with profit growth ahead of
expectations. The strong growth in Netstar`s subscriber base continued during
the reporting period and the company now offers recovery services in respect of
320 000 vehicles.
Alcom Matomo has performed well for the half year, with business generated by
the award in February 2004 of the R500 million SAPS Gauteng Digital Trunked
Radio Network. Additional tenders have been submitted for similar communications
systems during the period.
Business conditions in the telecommunication cable industry remain difficult.
Increased demand has, however, been experienced in respect of copper
telecommunications cable both in the local market, and international markets.
The growing requirements for industrial and instrumentation cable for the
petrochemical and process industries in South Africa, and the rest of Africa and
the Middle East offer growth potential. The fibre optic cable business, however,
remains depressed locally and projects in the rest of Africa are offering
unattractive margins.
Battery Technologies experienced fairly buoyant conditions during the period
under review, reporting satisfactory results.
Power Electronics and Multi-Media
Altron`s power electronics and multi-media sector has contributed R109 million
or 25% to the group`s total operating income compared to the 46% or R151 million
for the previous period. The revenue contribution from this sector was 33% or
R2.0 billion for the period under review compared to 36% or R1.8 billion for the
prior period.
During the first three months of the year, Aberdare Cables was impacted by
copper shortages, resulting in a loss of production and delivery delays.
However, demand for both medium and low voltage cables remains strong as a
result of increased infrastructural spend and buoyant conditions in the building
and construction industry.
ABB Powertech Transformers experienced improved conditions in the local market
for large power transformers during the current period. Eskom`s recent
requirement for a large number of transmission transformers increased the
company`s order intake providing good factory loadings for the next 12 months.
Exports, however, remained static due to the impact of the strong rand on the
company`s global competitiveness.
With regard to distribution transformers, Desta Power Matla experienced a slow
start to the year, but orders from Eskom and other major customers increased
during the period under review. The Powertech Battery Group produced
satisfactory results with Autotech delivering a good performance and maintaining
its market share despite increased competition in the local market. Willard DC
Power experienced low demand in the mining sector, which was offset by the
strong demand for products in the OE material-handling sector. The UK-based
operation, Dynamic Battery Services, produced an excellent performance.
The building industry has remained buoyant, enabling Crabtree Electrical
Accessories to show a 20% growth in revenue. However, margins are under pressure
due to the increasing competitive environment.
In the Multi-Media sector, UEC Technologies (UEC) posted an increased revenue
performance in the first six months. UEC`s introduction of five new high-end
products last year, significantly enhanced its product mix and has resulted in
the average price per product improving by 24% in US dollar terms and 4% in SA
rand terms. The new product mix has also resulted in new customer and territory
gains which include Brazil, Mexico, Israel, Cyprus and India. Arrow Altech
Distribution, through tight cost controls and good working capital management
remains profitable despite the strong rand and low dollar based electronic
component prices.
Information Technology
Information technology (IT) contributed 42% to total operating income or R185
million for the half year under review compared to 26% or R86 million in the
previous period. It also contributed 32% or R1.9 billion to Altron`s total
revenue, compared to 29% or R1.4 billion for the comparable reporting period
last year. This performance was underpinned by the inclusion of NamITech for the
first time and a good operating performance from BTG.
Factors materially affecting the performance of BTG relate to the inclusion of
the remaining 50% shareholding in the Xerox operation for the full six months
period (3 months in the prior period) and a turnaround in the results reported
by Bytes UK and Plato. In the light of the slow upturn in the IT markets and the
relatively strong rand which continues to depress revenue levels, the 8%
improvement in revenue generated by BTG is satisfactory.
NamITech performed above expectations and its Mobile Solutions division
continued to be the pre-eminent supplier of SIM cards and prepaid vouchers to
mobile networks in Africa. Through its Banking Solutions division chip-card
contracts for transition to the Europay Mastercard Visa (EMV) standard have been
signed with several South African banks. As part of its Pan African focus,
NamITech is in the process of setting up a pre-paid voucher facility in Nigeria
after being awarded a licence to manufacture vouchers in that country by the
Nigerian Communications Commission. The Nigerian prepaid market is substantial
and offers significant growth opportunities in all of NamITech`s products and
solutions. Altech Card Solutions continues to perform to expectations. ISIS
Information Systems has been successfully restructured and has delivered
pleasing results for the period. The company has now positioned itself as one of
the country`s leading system integrators and suppliers of software solutions to
the telecoms operator sector.
CORPORATE AND FINANCIAL SERVICES
The office automation leasing market improved over the previous comparable
period, as a result of lower interest rates, with new capital financed 47%
higher. Fintech Receivables 1, the asset-based financing securitisation vehicle,
performed in line with its rating performance parameters.
The net debt position at the Altron corporate level was eliminated in the six
month period through the utilisation of cash received from Powertech which
resulted in lower interest charges for the period.
OUTLOOK
Given that the strong market conditions continue in the mobile sector of the
African telecoms market and coupled with a healthy order book, Altech is
expected to show real growth in the second period of the year. Trading results
at BTG are expected to improve for the full year, albeit at a rate lower than
that recorded at the half year as a result of an improved performance in the UK
and continued growth in the local IT businesses. Within Powertech, the telecoms
sector remains challenging but ongoing increases in infrastructural spend
coupled with buoyant conditions in the building and construction sector should
result in a consistent performance.
In light of the above, the group`s performance is expected to reflect increased
earnings for the 12 month period ending February 2005.
On behalf of the board
Dr Bill Venter Robert Venter Diane Radley
Chairman Chief Executive Chief Financial Officer
11 October 2004
Directors:
Dr WP Venter (Chairman) RE Venter (Chief Executive) IM Ayob MC Berzack PMO
Curle* DA Hawton MJ Leeming JRD Modise DC Mpofu DC Radley PD Redshaw* Dr HA
Serebro CG Venter PL Wilmot *British
Secretaries:
Altron Management Services (Pty) Limited -
Ms SF Linford (Group Secretary)
The interim financial results are also available on the Internet at
www.altron.co.za
Date: 11/10/2004 04:11:51 PM
Produced by the JSE SENS Department
