Income statement  |  Balance sheet  |  Statement of changes in equity  |  Cash flow statement  |  Notes
Segmental analysis  |  Operational contribution  |  Supplementary information | Message to shareholders

Message to our shareholders

Your directors are pleased to report that the Altron group has posted good results for the year ended 28 February 2005, which also marks the 40^th anniversary of the group.

Business Environment 

Economic confidence in South Africa is strong, driven by declining interest rates, a stable inflationary environment and accelerating GDP growth.  We anticipate that these conditions will continue in the forthcoming financial year. This has resulted in buoyant local trading conditions. The continued strengthening of the rand has impacted exports, but this was more than offset by strong performances in the South African market.  Investment in the infrastructure and in the building and construction sectors, primarily due to government expansion programmes and low interest rates, has continued to be beneficial to the group and, in particular, to Power Technologies (Pty) Limited which operates in the power electronics sector.  

In the telecoms sector, opportunities continue to arise due to the announced liberalisation of the telecoms market in South Africa.  Altech’s recent investments have increased our exposure to the mobile telecoms market, both in South Africa and the rest of Africa and should provide excellent opportunities for growth in this sector.  

Conditions in the information technology sector are improving with profitable growth opportunities in niche technology areas. Our subsidiaries, Altech and BTG, are currently benefiting from opportunities related to the conversion within the banking industry to the Europay Mastercard Visa (“EMV”) standard through NamITech, Altech Card Solutions and Bytes Specialised Services (previously known as National Data Systems). Consolidation continues within the local IT market and BTG’s acquisition and integration of CS Holdings is progressing in line with expectations.

Financial overview

Altron’s revenue increased by 22% to R12.2 billion compared to R10.0 billion in the prior year based on strong organic growth as well as the contribution from recent acquisitions in the form of NamITech, Altech Econet Wireless (“a|e|w”) (previously known as Econet Wireless Global) and CS Holdings.   The effect of these acquisitions combined with improved operating margins resulted in operating income increasing by 35% from R718 million to R968 million.  Operating margins showed an overall improvement from 7.1% to 7.9%. Headline earnings per share increased by 17% from 138 cents to 161 cents, notwithstanding an increased effective tax rate up from 36% to 40%.  This was mainly due to increased goodwill amortisation and impairment charges and higher STC payments.

The group’s balance sheet remains strong with cash and cash equivalents at R1.5 billion down from R2 billion at the end of the last year notwithstanding that in excess of R1.2 billion was invested during the year in related investments. These included Altech’s acquisition of  85% of NamITech, 50% plus one share of Econet Wireless Global and the purchase by Altech of 7.6% of its issued shares from Altron which are currently held as treasury stock. BTG, in addition, acquired CS Holdings effective 17 November 2004. These outflows were partially offset by strong operating cash flows, improved cash flow from working capital management and cash proceeds from the BEE equity partners. 

Altech once again delivered pleasing results for the year ended 28 February 2005. Outstanding performances were achieved by Autopage Cellular, Netstar, NamITech, Isis, Alcom Matomo and Alcom Radio Distributors. With all export customers requiring dollar denominated pricing, the volatility and  strengthening of the rand created pressure on the results of UEC Multi-Media (“UEC”) despite an 8% increase in unit volumes over the previous year. Altech’s revenue increased by 34% to R5.6 billion, with operating income increasing by 48% to R493 million, with NamITech being included for the first time. Headline earnings per share increased by 12% to 339 cents.   Return on shareholder’s equity remains in excess of 20%, with cash on hand of R812 million after investments in acquisitions in excess of R960 million and the share buy-back of R257 million. The dividend increased by 21% to 174 cents per share. 

BTG performed above expectations with revenues increasing 11% of which approximately half the increase was related to the inclusion and successful integration of CS Holdings for the last four months of the year.  Operating income rose by 22% to R226 million from R185 million for the prior year while net financing costs decreased by 40% to R15 million from R25 million. Improved efficiencies in most of BTG’s operations enabled the operating profit margin to improve from 7.1% to 7.7%. This resulted in headline earnings per share increasing by 32% to 89.7 cents.  BTG declared a dividend per ordinary share of 32 cents which represents an increase of 45% over that of the previous year. 

Powertech reported a healthy increase in revenue of 12% to R3.7 billion despite the impact of the stronger rand on certain of its businesses and the resultant competition from foreign imports. Operating income increased by 18% to R245 million from R207 million the previous year. The operating margin has improved to 6.5% from 6.2% despite substantial price increases in raw materials such as copper, aluminium and lead which was driven by increased global demand.                                                          

Fintech experienced a relatively slow start to this financial year, but during the second six months record levels of new business have been written.  As a result, new business written for the 12 months of R493 million is up some 55% on the prior year of R317 million. The purchase by BTG of the TAR warehouse from Altron, the vehicle in which all new originating business from BTG operations is financed, was concluded and was effective from 1 March 2005.

Black Economic Empowerment

The launch of the Altron Transformation Vision 2010 document, which is essentially a group internal charter and scorecard, took place towards the end of the year and reflected Altron’s commitment to preparing its companies for the implementation of the ICT and other relevant Charters applicable to the group's operations once they have been finalised.

In line with the Altron Transformation Vision 2010 targets, the group has made significant progress with regard to equity deals with Black Economic Empowered broad-based partners at either holding company or operating company level throughout the group. These include agreements entered into in respect of:

• The sale of 27% of BTG SA to Kagiso
• The sale of 30% of Aberdare Cables to Izingwe
• The sale of 28% of NamITech to Pamodzi
• The sale of 25.01% of Altech Data to Pamodzi.

With regard to our equity partners we are now focusing on creating “anchor” partners in our three main operating companies, being Kagiso within BTG SA, Izingwe within Powertech, and Pamodzi within Altech. Through these partnerships, significant value is added in terms of commercial input and in meeting the various Altron Vision 2010 targets with regard to the broader BEE indicators, namely: skills development, employment equity, affirmative procurement, enterprise development and corporate social investment. 

Activity highlights 

• Altech’s acquisition of 50% plus one share of Econet Wireless Group Limited (“EWG”) to become a joint controlling partner in a|e|w, a newly branded company for global mobile and satellite telecommunications networks based primarily in Africa, became effective during December 2004. Altech disbursed US$70 million in cash relating to its investment in a|e|w, of which US$30 million is held in escrow with the interest thereon accruing to Altech. This cash is earmarked for future investments in the telecoms market, in Africa and elsewhere.

• The successful integration of the NamITech business into Altech has contributed meaningfully to its earnings during the year under review. NamITech has achieved market leader positions in numerous areas of its business, including cellular cards (“SIM’s”), cellular prepaid vouchers, Europay/MasterCard/Visa (“EMV”) credit/debit cards and cheque printing. The NamITech manufacturing facilities situated in South Africa were upgraded during the past year in expectation of increased volumes of products for the banking and mobile markets.

• Altech has, through its secure technology business NamITech Holdings Limited, established a 75% held GSM prepaid voucher manufacturing subsidiary, NamITech West Africa Limited, based in Lagos, Nigeria.    The venture is partially owned by Nigerian-based investors, thereby enhancing the envisaged prospects for the company.
• BTG’s acquisition of CS Holdings obtained approval from the Competition authorities in November 2004, for a consideration of R45 million. This acquisition provided BTG with critical mass within certain operations and increases BTG’s service offerings and market coverage.
• Altech effected an earnings enhancing buy-back of 7.6% of its issued share capital during the first six months of the year.
• BTG’s purchase of Altron’s interest in the lease financing business relating to products marketed by operations within BTG, became effective on 1 March 2005 for a consideration of R43 million.
• BTG SA acquired a further 60.87% interest in Digital Healthcare Solutions (“DHS”) from Business Connexion, Netcare and USAP, and BTG sold its 39.13% interest in DHS to BTG SA, effective 1 March 2004.  Following the acquisition and restructure, BTG SA will hold a 100% interest in DHS.

Outlook

Based on recent positive developments in the sectors in which the group operates, the directors remain confident about the prospects of the group for the forthcoming financial year.   With the strength of the balance sheet, the group is well-positioned to take advantage of further investment opportunities that may arise.  The outlook for the South African economy over the medium-term remains positive.  The significant restructuring and enhanced operating efficiencies that were implemented during the past year should provide an improved performance from the group’s operations.  As a result, continued growth is expected for the year ahead.    

Acknowledgements 

The board remains indebted to all of the stakeholders of the group – staff, customers, business partners and shareholders - for their support, which has enabled the group to become one of the more successful ICT and power electronics organisations in South Africa.

Dividends 

The following dividends are hereby declared in respect of the year ended 28 February 2005 

-           ordinary dividend No. 57 of 63 cents per share  (2004: 52.0 cents); and

-           participating preference dividend No. 11 of 63 cents per share (2004: 52.0 cents). 

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, 4 July 2005.  Electronic payment to certificated shareholders will be undertaken simultaneously. 

Shareholders who have dematerialised their share certificates will have their accounts at their CSDP or broker credited on Monday, 4 July 2005. 

In the case of certificated shareholders, notice of any change of address of shareholders must reach the transfer secretaries, Computershare Investor Services 2004 (Pty) Limited, on or before Friday 24, June 2005.  Share certificates may not be dematerialised or rematerialised from Monday, 27 June 2005 to Friday, 1 July 2005, both days inclusive.           

On behalf of the board

10 May 2005