Challenging market conditions and margin pressures had a significant impact on the fortunes of Altron over the last year. Of its subsidiaries, only Altech managed to grow profits, shielding the group somewhat from the difficulties faced by Powertech and Bytes.
Altron released annual results today, revealing a 10% decline in revenues to R22,34-billion and a 27% drop in profit for the year, from R1,15-billion in 2009 to R841-million for the current year. Headline earnings per share were 28% lower at 198 cents.
Of Altron's subsidiaries, the Powertech Group returned the weakest performance, with revenues declining by 25% and operating profit coming in 52% lower. Operating profit for the Bytes Group was 18% lower, while the Altech Group grew operating profits by 8% over the previous year.
"The results from the first half of the year weighed on Altron's final results, with both revenues and profit margins remaining under pressure," says Frost & Sullivan ICT industry analyst Protea Hirschel. "Altech is however well placed to continue to generate value for investors in future, and remains the star in the Altron stable."
Altech's results showed stable revenues and growth in operating profit. A high proportion of annuity income has also buffered Altech from the full impact of the recessionary environment.
"The company is also well positioned in East Africa, where it is the largest data network provider with significant investments in two undersea cables," Hirschel adds. "Frost & Sullivan projects double-digit growth in both the mobile and broadband markets in East Africa for the next few years, and Altech will benefit from this."
Altron's cabling and electrical subsidiary, Powertech, has been impacted significantly by the recessionary environment over the last 18 months. In particular, the dramatic slowdown in demand from the construction and mining sectors during this period affected its pipeline. Volatility in raw material prices in 2008 in combination with the destocking of the distribution channel has had a longer lasting negative influence on Powertech's results.
Competition in the cabling sector, particularly from cheap Indian, Chinese and Zambian imports, is also a factor in the markets where Powertech operates.
"Powertech has been placing emphasis on improving working capital and inventory management along with cost-cutting measures," Hirschel says. "These have filtered through to the bottom line in the second half of the financial year. With increased certainty around Eskom's power construction plans as well as slow recovery in the construction and mining sectors, this will stand Powertech in good stead for recovery going forward."
IT subsidiary Bytes has also focused internally on optimising its cost structures in the past year. However, Hirschel believes that the company's business units are fragmented and synergies between different units do not appear to be effectively leveraged for the good of the group.
"The diversity of Bytes' product and service offering represents a competitive offering if these synergies are exploited," Hirschel says.
She does however caution that although there are indications of increased spending on IT by South African corporates, margins remain under pressure. Bytes also has a large exposure to the UK market and has been impacted by that country's poor economic outlook. This is compounded by continuing Rand strength.
Hirschel believes that Altron will continue to benefit from Altech's presence in East Africa in the medium-term as cheaper bandwidth prices drive the broadband market. Growth areas for the company in South Africa are likely to come from a focus on niche areas.
"For Powertech, the power pool agreements between countries in sub-Saharan Africa could represent a significant growth area for its cabling division," she says. "Frost & Sullivan expects increased capital expenditure in countries north of South Africa where Altron subsidiaries already have a presence. Independent power producers are also expected to contribute to growth as new build programmes are currently being investigated throughout the continent."
Frost & Sullivan believes that the Middle East and North Africa are expected to show the most growth in power project infrastructure development with a focus on renewables and nuclear energy.
Altron noted that the first few months of 2010 have shown signs of growth which the group hopes will be sustainable. However it warned that continued Rand strength would weight on the competitiveness of its exports.
Altron announced an ordinary dividend of 90 cents per share and a participating preference dividend of 90 cents per share. Both of these are down from 119 cents last year.