Allied Electronics (Altron) has reported improved financial results for the year ended 28 February 2019.
Revenue from continuing operations increased by 7% to R15,7-billion; EBITDA from continuing operations increased by 30% to R1,6-billion; HEPS from continuing operations increased by 50% to 179 cents; ROCE from continuing operations was at 20%; and a final dividend of 44 cents per share was declared, with total dividend for the year of 72 cents per share.
In the financial year under review, the group secured key wins in both the private and public sector. These included, among others, the Gauteng Broadband Network Phase 2 contract, secured by Altron Nexus. Altron CyberTech was
awarded the Gautrain management agency tender, through which we provide a secure and protected technology network. Altron Bytes Systems Integration was awarded a data and analytics contract by FNB, Netstar won a three-year contract from the eThekwini Municipality for the supply, integration and maintenance of a vehicle tracking technology solution for 7 000 vehicles, as well as Bytes UK being awarded a five-year 155-million pounds (R2,7-billion) Windows 10 contract with the UK NHS, as reported at the financial half-year. Netstar Australia Group was awarded a fleet management contract by Ausgrid.
The disposal of the remaining material non-core businesses and assets of the group has been successfully concluded. Powertech Transformers was disposed of with effect from 31 July 2018. The disposal of Altech UEC/Multimedia, being the last non-core control asset, was concluded during the financial year.
Operations have been grouped into Digital Transformation, Fintech/Healthtech, Smart IoT and Managed Services segments. Operating companies are also presented to the market under one identity following the introduction of a new Altron brand in FY19.
For the year, gross revenue increased by 30% to R19,2-billion, however, the impact of adopting IFRS 15 Revenue from Contracts with Customers resulted in reported revenue from the continuing operations increasing by 7% from R14,7-billion to R15,7-billion, while normalised EBITDA increased by 24% to R1,6-billion, with strong year-on-year EBITDA growth of 79% from Bytes UK.
The group’s normalised EBITDA margin on reported revenue increased to 10.4% compared to 8.9% in the prior year.
Free cash flow increased significantly to R425-million. Within a South African context, the group generates 83% of its revenue from the private sector and 17% from the public sector. Organic EBITDA growth for the year was 18%, with 6% growth attributable through acquisitions.
The results of the discontinued operations continue to show a significant improvement from the previous financial year. EBITDA improved to R54-million compared to a prior year of R8-million. This was mainly due to the operational improvement of the Powertech Transformers and Altech UEC/Multimedia businesses, which maintained their momentum in delivering strong EBITDA turnaround.
Profit after-tax improved significantly from a loss of R253-million in the prior year to a profit of R70-million. This is mainly due to the improved operational performance, profits on disposals realised in the current year and a further reduction in the interest expense as proceeds from disposals have been used to reduce debt. Furthermore, impairments processed in the prior year were not needed in the current year.
In the Digital Transformion segment, Bytes UK had another strong year, growing revenue by 5% and EBITDA by 79% to R368-million. The performance of the business was positively impacted by the inclusion of Phoenix Software for the full year (acquired in the second half of the previous financial year). The business is set to grow further, following the five-year, 155-million pounds (about R2,7-billion) NHS contract, secured during the year.
The mandatory adoption of IFRS 15 in the current year impacted the revenue recognition of Bytes UK. The business changed from a principal to an agent in a major part of its cloud-based business resulting in an adverse impact of GBP200 million on revenue during the year, although EBITDA remained unaffected.
Altron Bytes Systems Integration (BSI) refined its operating model which resulted in revenue increasing by 7%, while EBITDA decreased by 3%. The newly adopted operating model has already started to yield a significant increase in pipeline opportunities. BSI continues to streamline the business and drives large group initiatives in Cloud Services, IoT, Data Analytics and Security.
Altron Nexus produced positive results for the year, with revenue largely in line with the prior year, while growing EBITDA by 54% to R123-million. The business responded to a disappointing first half of the year, with a strong performance in the second half, due to delays in the award and implementation of large projects which have since been realised. The roll-out of the Gauteng broadband network phase 2 project, together with the closing out of historic projects have resulted in a significant improvement in EBITDA for the year.
As at the date of the release of this announcement, the challenges relating to the City of Tshwane broadband network contract remain unresolved. While the parties still await the release of the court judgement, meaningful progress has been made in the group’s negotiations with Tshwane. Management remains positive regarding the outcome of this matter. The business continues to win and deliver on current broadband network opportunities, further building on its momentum of evolving into the preferred safe city solution provider for the smart city evolution.
Altron Karabina was acquired effective 1 September 2018 in response to our strategy to extend Altron’s capabilities in Cloud Services and Data Analytics. The results for the five months of the financial year were in line with our expectations for the business. We are excited by the enhanced skills introduced to the group by Altron Karabina, with the team contributing to cross- and up-sell initiatives into our larger customers.
In the Fintech/Healthtech segment, Altron Bytes Secure Transaction Solutions (BSTS) continues to perform well, growing revenue by 6% and EBITDA by 14% to R289-million, driven by further improved EBITDA margins of 25% and a number of new contracts secured during the year. BSTS maintains its status as a key growth focus for the group. All components of this business performed well, with the NuPay division again being the outstanding performer.
The Healthtech side of the business continues to focus its attention in the healthcare space delivering higher value services to healthcare professionals, as well as within the public health sector. Looking forward, it is also assessing opportunities in the Altron Rest of Africa markets.
Fintech is expanding its product offerings further into the unsecured lending environment, which presents significant growth opportunity for this division, while the CyberTech division is seeing gains through its cyber security operations centre to provide security for customer networks, such as being awarded the Gautrain management agency tender.
In the Smart IoT segment, Netstar, inclusive of its Australian operations, showed continued improvements in its performance. The business reported a 10% increase in revenue and 19% improvement in EBITDA to R582-million against the prior year. Netstar further improved the growth in its subscriber base, particularly in stolen vehicle recovery, with churn and retentions under close control, improving by 6%.
During the second half of the year, Netstar re-evaluated its ground recovery suppliers in secure vehicle recovery. Through a formal process, managed by Deloitte, Netstar effected a change in its service providers in this space to ensure enhanced services, while having a lower cost of delivery going into FY20.
During the year, the business consolidated its Australian operations, Pinpoint and EZY2C. These are now driven through a single Netstar Australia brand.
In the Managed Services segment, Altron Bytes Document Solutions (BDS) has seen revenue improve by 11% and EBITDA increase by 10% to R77-million compared to the prior year.
Strategically, the business remains focused on selected growth areas, including managed print services and the high-end production environment. BDS’ growth strategy of driving cross-selling of Altron’s various offerings into its extensive base of more than 4 500 customers remains on course.
Altron Bytes Managed Solutions (BMS) reported revenue and EBITDA increase of 14% and 5% year-on-year, respectively. In a highly competitive market, BMS is focused on quality of service while closely managing its cost base and maintaining its drive to enhance annuity income. Further improvement in the performance of BMS are being driven by the ongoing diversification of its offerings, including a focus on growing into retail and end-user computing.
Altron Bytes People Solutions (BPS) grew revenue by 5% for the year, with EBITDA in line with the prior year. As BPS’ customer base continues to digitally transform their businesses and finding new and innovative ways to service their customers, it results in declining call volumes through BPS’ call centre environments. This has necessitated an internal drive by the business to reduce costs in line with declining call volumes. BPS is furthermore focusing on growing its enabling technologies, including robotic processes, in order to diversify its offerings from traditional call centres, to providing digitally transformed customer experiences.
Altron Arrow experienced a challenging year, given the problems faced in the South African contract manufacture space, whereby the demand for the delivery of components have been curtailed. This resulted in revenue and EBITDA for the year declining by 11% and 12%, respectively. In challenging economic conditions, the business maintained its leading component distributor position, with a market share of 27%. Altron Arrow continues to drive market share expansion in a declining market by leveraging their established global brand.