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Income statement
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Balance sheet
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Statement
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Cash flow statement
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Message to shareholders The Altron financial results for the year ended 28 February 2009 closely reflect the board’s expected financial performance as outlined in the trading statement issued in February this year. Despite challenging market conditions, revenue increased by 16% to R24.8 billion on the back of strong sales from all three of our subsidiary companies – Altech, Bytes and Powertech. However, primarily as a result of the downturn in the building and construction industry and the unprecedented decrease in the copper price during the latter part of the year under review, margins and volumes in our energy cables business within Powertech were impacted resulting in the group’s EBITDA increasing by 1% from R2.21 billion in the prior year to R2.24 billion. After taking into account the additional shares in issue resulting from the purchase of the Bytes minorities in January 2008 and finance charges relating to recent acquisitions, Altron reported an 18% reduction in adjusted diluted headline earnings per share. The adjustment to earnings excludes the effect of the amortisation of intangibles arising out of recent acquisitions, since management considers this to be the measure most representative of the group’s operational performance. The group maintained its dividend cover at 2.5 times based on adjusted headline earnings per share, declaring a dividend of 119 cents per share. Business environment The recent global credit environment has negatively impacted the economic situation resulting in a significant decline of stock market valuations and commodity prices, worldwide recessionary conditions, and a global liquidity crisis. The fall in commodity prices has negatively affected mining companies’ spend, primarily through the deferral of projects, while the global recession has led to tougher operating conditions in the Iberian and UK markets which we serve. At the same time, the financial crisis affected local financial institutions’ spend on IT related products which resulted in large projects being either deferred or cancelled. Local economic conditions were characterised by high inflation and interest rates which impacted on market sentiment and consumer confidence. The result of the interest rate cycle is reflected in declining property prices, a significantly lower level of residential building plans being passed and a consequent slow-down in the building and construction industry. The easing of interest rates in recent months is encouraging, but is likely to have a positive impact on market conditions only in the latter part of the current financial year. Financial overview The Altron group’s results for the year ended 28 February 2009 reflected an increase in revenue of 16% from R21.4 billion in the prior year to R24.8 billion. EBITDA increased by only 1% from R2.21 billion to R2.24 billion with the EBITDA margin declining from 10.3% in the prior year to 9.0%. This decline was predominantly due to the challenges faced by the energy cables business within Powertech, which resulted in Powertech’s EBITDA margin declining from 12.8% to a disappointing 7.7%. The remainder of the Powertech operations produced satisfactory results showing growth on the prior year. Bytes also experienced a drop in EBITDA margin, as its local operations faced margin pressure. Bytes generates a substantial portion of its revenue from the financial and retail sectors, both of which are pressurising its suppliers, thereby reducing margins in a very competitive space. However, Altech significantly enhanced its EBITDA margins from 9.2% to 11.6% as a result of the high profitability in the newly acquired East African operations, as well as good margin performances from its larger operations, namely Altech Netstar and Altech Autopage Cellular. The group’s investment in working capital increased by R232 million, primarily as a result of the higher activity levels. Our overall net working capital days moved out from 17 to 21 days. Our cash position improved strongly in the second half to R1.2 billion, although this is some R913 million down on last year as a result of the R1.9 billion invested into the future growth of the group through acquisitions and capital expenditure. Group balance sheet ratios declined as a result of the lower profitability of the group, with return on equity at 18.3% and return on capital employed at 22.9%. Subsidiary review Altech delivered a strong set of results for the financial year ended 28 February 2009, with adjusted headline earnings per share growing by 15% to 592 cents per share. Revenue increased by 11% to R9.2 billion from R8.2 billion in the prior year. Operating profit improved by 32% to R874 million with a significantly improved operating margin of 9.5%. Net asset value per share increased by 15% from 2 026 cents to 2 328 cents while return on shareholders’ equity remained strong at 24%. A dividend of 323 cents per share was declared, representing an increase of 12%. Annuity revenue increased to 79% of the total revenue in 2009 and foreign and export revenue increased by 56% from R1 billion in 2008 to R1.6 billion. Altech concluded the year with a strong balance sheet reflecting net cash of R911 million, notwithstanding substantial acquisition and investing activity totalling in excess of R1 billion. Altech Autopage Cellular produced higher than expected margin levels and good revenue growth. Although consumer demand is still evident at Altech Autopage Cellular, it is showing signs of maturation and focus has been directed towards the growth of the data side of the business where subscribers have increased to 74,000 out of a total base that now exceeds one million subscribers. Altech Netstar Fleet Management and ComTech are performing well ahead of expectations both in terms of revenue growth and profitability. Although Altech Netstar Stolen Vehicle Recovery (SVR) has been impacted by the dramatic decline in new car sales and the potential credit risk of its consumer customer base, the SVR business is performing satisfactorily under tough conditions and showed growth on the prior year. Altech UEC experienced revenue growth, however margins came under pressure, predominantly due to a change in the mix towards lower margin products. Significant progress has been made in penetrating new markets, particularly India. Focus on the further development of broadband technologies and the adoption thereof by consumers, will open up new opportunities for Altech. Broadband opportunities are being reviewed by Altech to enhance its convergence efforts. The investment by Altech Stream East Africa in the Sameer ICT businesses in East Africa is performing above expectations with good profit margins enhancing Altech’s overall profitability and offering a number of exciting opportunities for future growth. Among others, Altech is looking at investment opportunities in international undersea bandwidth cables that will service the East Coast of Africa and will substantially reduce the cost of international connectivity of businesses in this region. Bytes’ results came under pressure, particularly due to the impact of the international financial crisis on its financial services and retail customers. Although revenue grew by 16% to R6 billion, EBITDA showed growth of only 3% to R427 million reflecting the current pricing environment in the IT market. Adjusted diluted headline earnings were in line with those reported last year, however, at headline earnings and attributable profit level the contribution from Bytes SA to Altron has reduced following the exercise of Kagiso’s option to acquire a further 22% equity interest in that business with effect from 1 July 2008. Bytes Document Solutions (BDS) performed particularly well over the past year reflecting not only increased machine placements, but also the improving level of added value document services which now constitutes the major part of its business. The acquisition of NOR Paper, which has produced excellent results, augurs well for the coming year. Despite the impact of delayed projects in the financial sector on a number of Bytes’ local businesses, Bytes Managed Services, Outsource Services and Health Services all delivered good results. The pressure was most acutely felt in the Systems Integration and Specialised Solutions divisions. The newly acquired Intelleca business had a difficult year due to similar factors, producing a break-even performance which occasioned a R50 million impairment of the goodwill in this business. As the economy improves, we anticipate that this investment will meet expectations. In the UK, the Bytes software business performed exceptionally well, despite the tough economic conditions in that market. The Xerox businesses in the UK under performed due to both the deterioration of the UK economy and internal management issues which have now been rectified. It has also been negatively impacted by the credit crisis, which has limited many of their customers’ ability to finance hardware. We are currently consolidating the back office functions of the various Xerox businesses to optimise cost efficiency. Powertech produced disappointing results, predominantly due to the challenges experienced by its major contributor, Aberdare Cables. While most of the remaining Powertech businesses continued to perform well, the impact on Aberdare Cables of the significant slow down in the building and construction industry as a whole, coupled with the sudden fall in copper prices during the second half led to a significant drop in EBITDA at Powertech. Revenue grew strongly by 20% to R9.6 billion from R8 billion in the prior year. However, EBITDA declined by 28% from R1 029 million to R738 million. EBITDA margins reduced to 7.7% from the 12.8% achieved last year, partly as a result of once-off non-recurring charges relating to inventory write downs due to the dramatic fall in copper prices, and restructuring costs. Although Aberdare Cables experienced a strong first half of the year, the fall in demand that we anticipated in our interim outlook statement was more severe than expected. In effect, Aberdare Cables’ energy cables business was struck by a confluence of three negative factors. Firstly, there was a significant contraction in the building and construction industry, which comprises approximately 50% of Aberdare Cables’ revenue. Secondly, there was a destocking of the electrical wholesaler distribution channel, which further restricted demand. Thirdly, the unprecedented fall in the copper price from around $9,000 per ton to $3,000 per ton compounded the first two factors as well as leading to inventory write downs on our stock holdings. Each of these factors negatively impacted gross margins, but the business also suffered from lower production volumes, resulting in factory under recoveries, negatively impacting the operating margins. This resulted in Aberdare Cables taking drastic action in order to right size the business for the new demand environment. These included a reduction in production time, extended shut downs over holiday periods and rationalisation of the operations. Our focus over the last six months has been on reducing working capital and controlling costs and we believe that we are now well positioned to take advantage of an upturn in demand and business opportunities as they arise. Powertech Transformers and Desta Power Matla performed above expectations. Government’s focus on infrastructure spend to create GDP growth and employment as well as deliver on election promises, continues to create an environment conducive to demand for Powertech products. This is expected to remain robust in the medium term. The knock-on effect of job creation should contribute to consumer demand, though this will be tempered by the current economic environment. Powertech Batteries experienced an exceptional year with good revenue growth and enhanced profitability following recent capital expenditure. It continues to benefit from the expanded pool of vehicles created by the previous years’ increased car sales. Battery Technologies has established a presence in both Nigeria and Tanzania and has signed a framework agreement with a major telecoms operator for standby power solutions across Africa. Powertech IST continues to perform broadly in line with expectations, with over-performance in the Industrial, Data and Energy divisions being offset by a disappointing performance from the Telecoms division. This has resulted in a R40 million goodwill impairment in respect of the IST Telecoms division although if the goodwill impairment assessment had been done at an IST group level, there would have been no impairment required. Powertech Industrial Group improved its performance and benefitted from a large standby power project recently completed for a major mining industry customer.
Corporate activity The following significant transactions and corporate developments have taken place: During the year under review:
Post year end:
Outlook The challenging economic environment is expected to continue over the short to medium term as market confidence remains weak and uncertainty continues. These times call for a period of consolidation, focus on cash flow generation, strict working capital management as well as internal cost efficiencies. Various opportunities for growth in East Africa, coupled with continued demand for infrastructure, and our strong base of annuity income is expected to drive an improved performance in the year ahead. Conditions for the first half of the new financial year will be challenging, especially given the high base of the comparative period in the prior year. However, the board is confident that the Altron group is well positioned to take advantage of any improvement in the current economic environment given the remedial actions that have been put in place.
Acknowledgements The board would like to express its appreciation to all of its customers, staff, business partners, shareholders and other stakeholders for their support during an extremely difficult period and for their continued belief in the future sustainability of the group and its strong underlying businesses.
Directorate Shareholders are referred to the SENS announcement published by Altron on 4 November 2008 advising that Ms Dawn Mokhobo and Mr Norman Adami had been appointed as independent non-executive directors to the board of the company, with effect from 3 November 2008.
Dividend The following dividends are hereby declared for the year ended 28 February 2009:
The above dividends are payable as follows:
Dividend cheques in payment of these dividends to certificated shareholders will be posted to shareholders on or about Monday, 6 July 2009. Electronic payment to certificated shareholders will be undertaken simultaneously. Shareholders who have dematerialised their share certificates will have their accounts at their central securities depository participant or broker credited on Monday, 6 July 2009. In the case of certificated shareholders, notice of any change of address of shareholders must reach the transfer secretaries, Computershare Investor Services (Pty) Limited, on or before Friday, 26 June 2009. Share certificates may not be dematerialised or rematerialised from Monday, 29 June 2009 to Friday, 3 July 2009, both days inclusive.
Annual General Meeting Altron’s 63rd annual general meeting will be held in the Altron Boardroom, 5 Winchester Road, Parktown, Johannesburg on Tuesday, 14 July 2009 at 09:30. Further details on the company’s annual general meeting will be contained in Altron’s annual report to be posted to shareholders on or about 31 May 2009.
On behalf of the board
4 May 2009
Board of directors Independent non-executive:
Mr NJ Adami, Mr MJ
Leeming, Dr PM Maduna, Ms BJM Masekela
Non-executive: Dr WP Venter (Chairman), Mr MC Berzack
Executive: Mr RE Venter (Chief Executive), Mr N Claussen, Mr PMO Curle* Mr PD Redshaw*, Dr HA Serebro, Mr AMR Smith*, Mr CG Venter * British
Secretaries:
Altron Management
Services (Pty) Limited
Sponsor: Investec Bank
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