The Altron group has posted strong results for the six months ended 31 August 2008, notwithstanding the high base established in the first six months of last year. Revenue has increased by 19% to R13,2-billion and operating profit by 25% to R1,1-billion.
Altron's headline earnings per share grew by 12%, while adjusted headline earnings per share increased by 15% – removing the effect the amortisation of intangibles arising from the group's recent acquisitions thereby providing a more meaningful picture of the underlying trading performance.
Robert Venter, chief executive of Altron, comments: "Despite tightening economic conditions, our Altech and Powertech operations showed increased revenue and profit growth with Altech recording a pleasing increase in operating margin. The Bytes operations also achieved good revenue growth, but experienced margin pressure primarily in its Bytes Systems Integration business."
According to Venter, Altron increased its operating margin to 8,5% from 8,2% despite subsidiary companies experiencing diverse operating margin movements. Altech significantly improved its operating margin, moving from 7,7% to 9%, Powertech broadly maintained its margin at 10,1%, while Bytes' margin pressures reduced its operating margin to 5,4% from 6%.
"Overall there has been an outflow of some R1,6-billion of cash since the year end, of which R1,2-billion relates to the substantial acquisitions made in the first half of the year. Although the cash generated by operations grew impressively, this was offset by the investment in working capital, a significant increase in tax paid as well as the increase in dividends paid," says Venter.
Improved profitability has seen annualised return on equity improving from 24,7% at 29 February 2008 to 26,6% with return on net assets and return on capital employed improving to 32,6% and 32,3%, respectively.
Referring to the performance of the Altron subsidiary companies, Venter says that Altech performed well, achieving revenue growth of 14% and significantly increasing operating profit by 34%. He says Altech's profit before tax rose by 40% to R413-million as the prior year included the impairment of goodwill, while attributable profit increased by 51%, assisted by a lower effective tax rate.
Altech increased headline earnings per share by 19%, while adjusted headline earnings per share grew by 23% – which Venter believes provides a better indication of the underlying trading performance.
"Despite significant investments made by Altech over the last few months, their balance sheet remains strong with some R595-million of cash and a net asset value of 1 974 cents per share," says Venter.
In terms of the 100%-owned Bytes, Venter says he is satisfied with the growth in revenue of 16% from R2,8-billion to R3,3-billion. Operating profit improved by 4% from R170-million to R177-million compared to the prior period. This decline in the operating margin was impacted primarily by margin pressure in the South African businesses and a weak performance by the Bytes African operations.
"The headline earnings attributable to Altron were up 3%, notwithstanding the impact of our empowerment partner, Kagiso, which exercised its option to acquire a further 22% equity interest in Bytes SA with effect from 1 July 2008 taking their overall stake to 27%. On a diluted headline earnings basis, Bytes reported growth of 10%," he says.
Venter points out that despite challenging conditions for all the South African operations, revenue for Bytes SA increased by 17% with a good performance by Bytes Document Solutions which secured new accounts and renewed existing large customer contracts.
"We believe that the acquisitions of Intelleca and Nor Paper by Bytes, which became effective during the first half, contributed to the growth in revenue," comments Venter.
"Our Powertech businesses showed strong growth in revenue of 27% to R5,4-billion compared to R4,2-billion in the previous period. The operating margin declined slightly from 10,2% to 10,1% due to the amortisation of intangibles arising from the Powertech Transformers and Powertech IST acquisitions. However, these acquisitions contributed to the 26% increase in operating profit from R429-million to R542-million. Notwithstanding the higher amortisation charge, Powertech's headline earnings increased by 18% while the adjusted headline earnings showed a 21% increase to R338-million."
Venter says that Aberdare Cables' South African based business performed well despite increasing signs of a slow down in demand from the building and construction sector in the latter part of the first half of the year while Aberdare International experienced difficult trading conditions due to a dramatic slow down in the Spanish economy.
"Powertech Transformers has been a major contributor to Powertech's growth following the acquisition by Powertech of ABB's 50% stake in the business,
which has boosted revenue and operating profit significantly. The company was also awarded a five-year framework agreement valued at R1,4-billion to supply Eskom with a broad range of products," he says.
Referring to the other Powertech businesses, Venter says he was satisfied with the overall performance, particularly with the healthy increase in the Powertech Batteries' operating profit which he attributes to strong demand in the automotive market where the increased pool of cars started to impact demand for replacement batteries. He also expects an improved second half from newly acquired Powertech IST, based on an increased order book.
In terms of the prospects for the full year, Venter says the core infrastructural spend programme of the country remains on track and continues to benefit the group. However, he points out that the recent slow down in the building and construction sector, particularly the residential segment of the market, has affected certain key businesses within the Powertech group.
According to Venter, this slowdown in demand, combined with both global financial and local potential pressures create uncertainty in terms of future trading conditions.
"We have concluded substantial acquisitions over the last year and we will use the next six months to extract synergies and returns from these investments. With a focus on cost control and working capital management we look to build on the solid foundation established over the prior years," Venter says.