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Altron to restructure to boost performance

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Allied Electronics (Altron) will look to restructure and refocus its business as the group’s performance continues to lag. This could include selling off parts of the business and diversifying into new markets.
The group reports that, for the year ended 28 February 2015, revenue decreased by 1% to R27,6-billion and earnings before interest, tax, depreciation and amortisation (EBITDA) by 23% to R1,4-billion. Headline earnings per share (HEPS) declined by 50% to 94 cents.

“We have a mix of macro-economic and operational issues that impacted our results this year,” says Altron chief executive Robert Venter.

Profitability in the Altron Power division was adversely affected by a marked decline in orders from Eskom, while strike action impacted the manufacturing businesses.

In Altron Power, the Cables group made a good recovery after gaining traction in new markets but this was countered by a significant decline in the Transformers group which experienced some operational issues, very low demand for its large power transformers and incurred once-off costs to close its Booysens plant in Johannesburg.

Powertech Batteries performed satisfactorily given margins were under pressure due to an increasing lead price as well as on-going competition from imports while the System Integrators business struggled with delays in the start of various previously awarded projects coupled with weak order inflow. However, Powertech Quadpro, the turnkey substation business, made good inroads into Africa, particularly Zambia.

“In Altron TMT, Altech Autopage experienced a tough market and ongoing mobile termination rate reductions which compelled us to make the decision in principal to dispose of the GSM subscriber base,” says Venter. “Discussions are at an advanced stage to sell these subscribers and the non-GSM part of the business will be retained and housed within other operations.”

Other businesses within the telecommunications division of Altron TMT like Altech Netstar have performed well and have developed new telematics and fleet products; Bytes Systems Integration has expanded its biometrics offering; and Altech Radio Holding performed well off the back of the Gauteng Broadband Network contract.

“Although we acknowledge it is a start-up business which still has the potential gain traction, initial sales of the Altech Node to the retail market were below expectation. Altron TMT is well advanced in exploring alternative opportunities and routes to market for this product,” says Venter.

Besides the effect of the NUMSA strike, the multimedia businesses in Altron TMT were also affected by lower international orders as a result of a delay in African Digital Terrestrial Television Migration (DTT). The business’s order book however strengthened significantly after year-end and the South African DTT rollout made progress.

The group’s IT assets (which consists mainly of the previous Bytes businesses) continued to perform well, exceeding expectations. In particular Bytes UK, a Microsoft licensing and online security business, Bytes Universal Systems, a software business, and Bytes Secure Transaction Solutions stood out. The Xerox business in Bytes Document Solutions made a good recovery and Bytes Managed Solutions produced solid results despite some foreign exchange losses.

Going forward, Venter says tough decisions need to be made to improve Altron’s performance. “We need to focus and streamline our group which will mean selling off some non-core assets and adapting our offering to our customers. We are certain that these steps, which will be taken in the near future, will benefit our stakeholders.”