Mteto Nyati, Chief Executive | Mike Leeming, Chairman
FY2017 was the year in which we started to fundamentally change the structure of the group. In FY2016 Altron committed to rationalising and refocusing its business in order to reduce overhead costs, streamline management and ultimately reduce its debt burden. We believe that we are well on our way to achieving those goals. Now, as we start to emerge from a challenging period of change in the group, with the benefit of additional equity capital and a new leadership, we will start to enter a new phase of growth in our chosen areas of business.
We have almost completed the process of divesting our non-core assets in the manufacturing sector and the group is successfully repositioning itself as a smaller, leaner, ICT-focused business. We are confident that our new ICT-focused strategy is sound. Our improved approach to capital allocation has stabilised the business, reduced our risk and freed up capital for prudent investments, which will enable the new phase of growth. In addition, as the restructuring of the group has taken place, there has been a positive shift in management energy and we have been able to significantly increase management time spent on growing and moving forward to achieve improved performance in our core businesses.
This upturn in energy and confidence has started to be reflected in our FY2017 results. Despite a challenging economic and political environment, there has been a satisfactory improvement in the group’s overall performance. There has been a marginal decline in the group’s core revenue and headline earnings, primarily as a result of the closure of NOR Paper and the loss of Altech Autopage’s prepaid airtime business which was initially retained as part of the Altech Autopage divestment. These factors reduced revenue in the core part of the business by R1,3 billion. Normalised revenue growth in the core operations was R1 billion or approximately 6,5%. Our earnings before interest, taxes, depreciation and amortisation (EBITDA) improved by 4,3%. In our non‑core operations, improved operational performance resulted in significantly lower operating losses.
During the year we received the balance of the proceeds from the sale of Altech Autopage and we sold a majority equity interest in Aberdare Cables. Using the cash generated by these and other smaller disposals, we have reduced our debt by approximately R1,5 billion (42%). With the proceeds from the further disposals we expect even further debt reductions over the next few months. Within the resulting leaner operation we have started to redeploy our people and capital more efficiently towards the opportunities presented in the technology field.
More broadly, our industry experience remains unsurpassed and our core is stronger than ever as we offer increasingly adaptive, innovative suites of products and services, and end-to-end solutions to a more focused customer base. We are operating in a market that is shifting from products to solution sets, such as cloud and software services. To thrive we need to design, develop and commercialise new products and services; to become disruptors rather than being disrupted.
A number of innovative highlights took place during this year, spanning the healthcare, financial services, safety and security, and training and development industries within our group. For example, the launch of the Jamming Resist™ technology by Altech Netstar, which has solidified our position as market leader in the technology space of vehicle tracking and fleet management, the roll-out of the eHealth platform within the City of Johannesburg to improve healthcare delivery by Med-e-Mass, and digital real-time training through Bytes People Solutions.
We made a number of large strategic client wins and we have entered into exciting new strategic international partnerships – most notably with Nokia and British Telecoms. These partnerships will enable Altron to offer its customers significant experience and knowledge in network solutions, and improve the extent and robustness of our technology and solutions portfolio.
In line with our announcement last year, as the group’s transition to a core ICT business nears completion, Altron has now also completed the shift from a family-run business to an independent management structure.
In December 2016 we finalised negotiations with Value Capital Partners (VCP), an investment firm that deploys the best of private equity principles in the listed equity space. Its philosophy is to invest in businesses with an attractive business model trading significantly below intrinsic value that lend themselves to material value unlock. The negotiations included VCP’s injection of R400 million of capital into Altron, through a cash subscription for shares arrangement. This additional capital will be used to accelerate Altron´s growth initiatives in its core IT operations. The founding members of VCP have also joined the board and bring with them many years of successful involvement in helping South African businesses to grow their performance. The interests of VCP are fully aligned with the interests of all of our shareholders.
The investment by VCP into Altron, which was concluded after this reporting period, started a number of actions as set out during the negotiations, namely:
From the board’s perspective, the group’s founder, Dr Bill Venter, retired as non-executive chairman at the end of February 2017 but remains on the board as both a non-executive director of the group and as the Altron chairman emeritus. There are no words adequate to thank Dr Venter for the foresight and vision he showed some 52 years ago in leaving the employ of Standard Telephones and Cables to establish his own small company, Allied Electric, with just a handful of equally dedicated and courageous colleagues. In five decades Dr Venter’s leadership helped to build the group into one of the largest of its kind on the African continent and a cornerstone of the South African economy.
Dr Venter has been replaced by Mr Mike Leeming, an independent non-executive director of Altron since 2002. Mike has extensive experience in the banking sector and has served as a non-executive director on the boards of a number of listed and private companies, and so the leadership of the board is in capable hands.
Post year-end, Mr Robbie Venter announced his stepping down as Altron’s chief executive after 27 years of service with the group, 16 of which were served as chief executive. Robbie will assume a non-executive director role in the group. The board wishes to acknowledge Robbie’s contribution to Altron and wishes him well for the future. Robbie’s role as chief executive has been filled from 1 April 2017 by Mr Mteto Nyati, previously of MTN but with a strong ICT background, having held senior positions at both IBM and Microsoft for many years.
We would like to thank Mr Norman Adami and Ms Sindi Mabaso-Koyana, who resigned from the board as non‑executive directors during 2016, and Mr Andrew Johnston, who resigned as company secretary, for their service to the group. We welcome Mr WK Groenewald to the position of company secretary.
Subsequent to our year-end we have also announced the retirement from the board of Messrs Myron Berzack, Jacob Modise and Simon Susman, who have been long-standing and loyal directors. We would particularly like to thank them for their significant role in the restructuring of the group over the past year.
We have also announced the appointment of Messrs Brett Dawson – the previous CEO of DiData – and Stewart van Graan – the previous MD of Dell Computers, South Africa and Dell Africa, but with extensive IBM experience – as non-executive directors with effect 1 June 2017. In addition to his role as a non-independent non-executive director Brett has agreed to assist the group as a consultant and will work closely with Mteto and the executive team to assist in achieving the significant goals that are being set.
As always, we thank the more than 10 000 employees of the group who, despite another challenging year, have remained loyal and dedicated to the business. We presented over 200 long-service awards this year, five of which were to individuals who had been with Altron for 40 years. Our appreciation is also extended to our many customers, suppliers and financiers who have remained with us over the very difficult period we have gone through.
Looking ahead to 2018, the group’s focus will be organic and acquisitive growth. In South Africa we plan to build a country-centred operating model that will in time be replicated in other countries through geographic expansion. We expect to soon complete the remaining non-core asset disposals to effect the group’s transition to its core ICT business and will continue to drive our acquisition of the skills and resources to support and execute our new growth strategy.