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Home » Altron’s turnaround strategy bearing fruit

Altron’s turnaround strategy bearing fruit

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Thursday, May 11, 2017

News Highlights
- Headline Earnings Per Share (HEPS) swings to a profit of 71c
- Basic Earnings Per Share (EPS) reduced to a loss of 54c
- 123% EBITDA growth to R840 million
- Group continues to focus on the disposal of non-core operations as going concerns
- Appointment of new Chief Executive and move to independent management and change in contol structure completed
- R400m capital investment will accelerate growth initiatives within core operations
- Streamlining and simplification of corporate and executive structures continues with increased focus on customer engagement

JSE listed Allied Electronics Corporation Limited (Altron) today announced its annual results for the year ended 28 February 2017.

While challenging trading conditions impacted the group’s performance, the group has made good progress in divesting of its non-core assets and has significantly reduced losses from these operations. In particular, the group expects to complete a number of these disposals in the new financial year, with continued focus being placed on the disposal of Powertech Transformers and Altech Multimedia.

From a total operations perspective, Altron’s revenue for the year under review declined by 26% to R19.7 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 123% to R840 million. Basic earnings per share (EPS) reduced to a loss of 54 cents from the loss of 259 cents reported in the prior year. Headline earnings per share (HEPS) improved to a profit of 71 cents from the loss of 145 cents posted in the prior year.

“Our core businesses delivered a credible performance in a challenging economic environment, with the telecommunications operations displaying growth on the back of strategic contract wins in the public sector space, most notably the City of Tshwane municipal broadband network, the eThekwini Municipality digital radio network for municipal public safety and utility services, and the Passenger Rail Agency of South Africa signaling and communication network. The performance of the non-core assets, which predominantly operate in the manufacturing sector, were much improved from the prior year, but remain loss making and traded below expectations,” said Mteto Nyati, Chief Executive of Altron.

“As a group, we continue to focus on building intellectual property in our identified strategic growth areas of safety and security, healthcare management, financial services, and training and development. This intellectual capital, combined with our global alliances with leading international original equipment manufacturers, positions Altron as a digital transformation partner to business and government,” he added.

“Furthermore, we will continue to aggressively drive cost efficiencies; recruit, develop and retain top talent; build a trusted ICT brand; and accelerate growth. As we move into the new financial year there will be an increased focus on customer engagement which will be driven by collaboration between Altron businesses to identify synergies in order to move our business operating model from a point-solutions provider to an end-to-end solutions provider,” he concluded.

Financial overview
In order to provide shareholders with a clearer understanding of the impact of the discontinued operations on the group, the financial results have been split between continuing and discontinued operations. The continuing operations comprise the information technology and telecommunications businesses of the group, while discontinued operations include the whole of Powertech, Altech Autopage, Altech Multimedia and Altech Node.

Core operations
The core operations delivered a credible performance at an operating level.

Altech Netstar reported a 5% increase in revenue due to marginal increases in both subscriber numbers and average revenue per user. Subscriber churn has been reduced following various interventions, although the significant reduction in new vehicle sales has impacted new subscriptions. EBITDA increased by 6% compared to the prior year with a small increase in EBITDA margins.

Altech Radio Holdings’ delivered pleasing results with revenue up by 18% and EBITDA up by 12%. The increase in activity levels is primarily attributable to the commencement of the City of Tshwane broadband project in December 2016, the build phase of which will continue for three years.

Bytes Systems Integration delivered results below expectations with revenue up only 3%, but EBITDA down by 3% compared to the prior year. As a business that is dependent on large IT projects, it continues to face challenges as a result of the ongoing project award delays.
Arrow Altech Distribution posted excellent results with revenue up 44% and EBITDA up by 54%. The business has successfully grown market share and expanded into new areas aligned to the global Arrow Inc business model.

Bytes Document Solutions performed in line with expectations with its revenue decline affected by the closure of the NOR Paper business in June 2016. Excluding the effect of NOR Paper, the core Xerox business saw revenue decrease by 4%. The reduction in EBITDA was largely due to the loss of contracts at the end of the prior year, but also affected by the weakness of the Rand in the first half of the year.
The Bytes Managed Solutions’ revenue and EBITDA decline was due to the loss of several large contracts at the end of the prior financial year. However, progress is being made on replacing this business in other market segments.

Bytes Universal Systems, which includes the operations of Alliance, BUS Telecoms (formerly Altech Isis) and the old Bytes Universal Systems, had a challenging second half due to various project delays, resulting in a 5% decline in revenue and a 14% decline in EBITDA.

Bytes Secure Transaction Solutions, which includes the businesses of Bytes Healthcare Solutions, Altech NuPay and Altech Card Solutions, continued to perform exceptionally well, growing revenue by 19% and EBITDA by 10%. Altech NuPay had a particularly strong year, growing EBITDA by almost 40%.

The Bytes UK operations reported a 14% increase in revenue and a 4% improvement in EBITDA despite the strength of the Rand in the second half of the financial year.

Bytes People Solutions maintained revenue and EBITDA at prior year levels following the successful expansion of the previous year. While some headwinds were faced, the operation is growing its presence in key customers.

Non-core operations
The non-core operations, while presenting an improved result from the prior year, remain loss making.

Altech UEC delivered a much improved performance with revenue up 19% to R1.2 billion and EBITDA recovering to R3 million compared to the R160 million loss for the prior year. The business continues to make positive progress having significantly reduced its cost base and has won several contracts in adjacent manufacturing areas.

Powertech’s results were significantly affected by the disposal of its Powertech Cables operation on 30 June 2016, with a number of its other operations reporting improved results despite challenging economic conditions. Revenue reduced by 36% to R4.6 billion while EBITDA losses reduced from R156 million to R67 million.

Powertech Transformers had another difficult year but managed to increase revenue and reduce EBITDA losses. The recent increase in demand from Eskom, albeit in smaller units, raises expectations of a recovery in the local industry.

The Powertech Batteries group performed well during the year in challenging market conditions, growing revenue by 1% and EBITDA by 3%. This was assisted by lower input costs on the strength of the Rand in the second half of the year.

Powertech System Integrators had a challenging year as it disposed of various businesses. Strike Technologies was sold in June 2016, with Technology Integrated Solutions (TIS) sold in November 2016. The sale of Powertech IST is expected to be concluded in the coming months. The operation went through a significant cost reduction exercise ahead of the disposals due to reduced revenue levels and these factors resulted in a 24% decline in revenue and a R53 million EBITDA loss for the year.

The remaining Powertech businesses recorded mixed results. Switchgear had a disappointing year due to tender delays, while there was an improved result from Crabtree, with Swanib Cables being affected by economic conditions in Namibia linked to the drought.

-ENDS-

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