Revenue for Allied Electronics (Altron) declined by 4% to R26,6-billion for the year ended 29 February 2016.
Earnings before interest, tax, depreciation and amortisation (EBITDA) reduced by 73% to R376-million, and headline earnings per share (HEPS) declined to a loss of 145 cents from the profit of 94 cents posted in the prior year.
As part of Altron’s strategy to refocus the group on its core performing telecommunications and information technology assets and to provide shareholders with insight into the performance of core and non-core operations within the Altron group, the financial results have been split between continuing and discontinued operations.
As such, the Powertech group, Altech Autopage, Altech Multimedia and Altech Node have all been classified as discontinued or non-core operations while the continuing (core) operations comprise the information technology and telecommunications businesses of the group.
“We produced a strong performance from our core IT businesses, but this was insufficient to offset the decline in profit levels and losses incurred at Altech Autopage, Altech Multimedia and the Powertech businesses,” says Robert Venter, chief executive of Altron.
“Many of these businesses were affected by difficult macro-economic conditions, namely the worsened situation in the South African economy and the on-going challenges created by a lack of demand from Eskom and other large power users.
“While our results were impacted by these difficult trading conditions, we have begun realising the benefits of our new strategic direction by focusing the group and leveraging the competitive advantage that we have in the telecommunications and information technology space and limiting our exposure to the manufacturing sector.
“This has included finalising certain key disposals, realising cash to reduce the Altron group’s borrowings, transitioning from a family managed business to an independent management structure and continuing to focus on the remaining disposals of identified non-core manufacturing businesses,” he adds.
“We have made good progress in this regard with the sale of two significant assets, namely Altech Autopage and Aberdare Cables. There are further initiatives under way to refocus the group as a smaller but more agile company focused on the telecommunications and information technology space – areas where we have a demonstrated market leadership position.”
The core operations delivered satisfactory results, with the IT operations generally posting results ahead of expectations.
Bytes UK again produced excellent results with a 36% increase in revenue and a 32% improvement in EBITDA, although approximately 15% of this growth can be attributed to the depreciation of the rand against the British pound.
Bytes Secure Transaction Solutions, which includes the businesses of Bytes Healthcare Solutions, Altech NuPay and Altech Card Solutions, continued to perform exceptionally well. The top performer was Altech NuPay which achieved good revenue and profit growth, assisted by the Delter IT acquisition in December 2015.
Revenue doubled at Bytes People Solutions, and EBITDA also increased substantially following the acquisition of Inter-Active Technologies, a call centre business. While this has reduced margins in the operation, it has resulted in the achievement of critical mass in the call centre business, opening up new opportunities.
Altech Radio Holdings performed well, growing revenue by 31% and EBITDA by 14%, primarily as a result of the Gauteng Broadband Network project which is being implemented on schedule and with an enhanced scope.
Altech Netstar was impacted by a decline in profitability primarily as a result of the increased cost of acquiring subscribers, in addition to certain restructuring costs associated with right-sizing the corporate overheads. The focus going forward will entail a stabilisation of the stolen vehicle recovery (SVR) business while growing opportunities for the fleet management business which continues to see favourable growth as a result of several contract wins and now represents some 35% of the business.
Arrow Altech Distribution also performed well. While revenue is up 13%, margins have remained stable and EBITDA is also up 13%. The business has successfully increased its market penetration, which has also reduced its dependency on intra-group business.
In terms of non-core opertions, Altech Autopage experienced an extremely difficult last six months as it protected its subscriber bases ahead of the disposal to the network operators in the face of on-going delays. Its results were also affected by some of the costs of disposing of the business.
Following the disposal of Altech Autopage, approximately R1-billion of the R1,3-billion gross proceeds was received in March 2016 with the balance expected by the end of June 2016.
Altech Multimedia was significantly impacted by reduced order intake in its core set-top box business in Africa as a result of delays in the roll-out of various African DTT programs. Action has been taken to right-size the business with headcount reductions and the closure of the international operations. Factory overheads have also been significantly reduced, halving the break-even point from a volume perspective.
The Powertech businesses, with the exception of Powertech Batteries, continued to experience a deterioration in their performance resulting in losses. Most of the businesses were affected by difficult macro-economic conditions.
The current financial year has seen Powertech revenue decreasing by 13% with a substantial 171% decrease in EBITDA levels compared to the prior year, with EBITDA margins slipping from 2,7% to negative 2,2%.
The decline in revenue in the local operations is driven by weak demand in both the informal (primarily building and construction) and formal (Eskom, municipalities and other large power users) sectors and the resultant margin pressure.
However, the international operations had a good year, benefitting from increased infrastructure spend, particularly in Spain.
At Powertech Transformers, the continued absence of orders from Eskom for large power transformers led to an unfavourable product mix and a significant under recovery at the Pretoria-West factory which has been significantly downscaled.
The distribution transformer side of the business also had a difficult year, but has seen a recent improvement in order flow from both renewable projects and export markets.
Powertech Batteries performed satisfactorily given that margins were under pressure due to an increasing Rand lead price as well as on-going competition from imports despite the weak rand and an increase in import duties.
Powertech System Integrators’ performance continues to disappoint as its reliance on capital projects continues to impact performance. Aggressive expansion into Africa is required to improve its outlook.
Powertech has entered into legal agreements with a leading global cable manufacturer, Hengtong Optic-electric, to dispose of its majority equity interest in Aberdare Cables. Hengtong is the fourth largest cable company in China. This transaction was approved by Altron shareholders on 22 April 2016, and significant progress has been made in satisfying the conditions precedent. Proceeds are expected before 31 August, 2016.