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AEL: ALLIED ELECTRONICS CORPORATION LIMITED - Preliminary summarised audited consolidated financial statements for the year ended 28 February 2017 Preliminary summarised audited consolidated financial statements for the year ended 28 February 2017 ALLIED ELECTRONICS CORPORATION LIMITED (Registration number 1947/024583/06) (Incorporated in the Republic of South Africa) Share code: AEL ISIN: ZAE000191342 PRELIMINARY SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2017 SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 28 February 2017 Audited Audited R million % change 2017 2016 CONTINUING OPERATIONS Revenue (3) 13 892 14 357 Earnings before interest, tax, depreciation, amortisation and capital items (EBITDA before capital items) 7 950 888 Depreciation and amortisation (222) (186) Operating profit before capital items 4 728 702 Capital items (note 1) 8 (69) Result from operating activities 16 736 633 Finance income 218 149 Finance expense (441) (310) Share of profit of equity-accounted investees, net of taxation - 2 Profit before taxation 8 513 474 Taxation (98) (114) Profit for the year from continuing operations 15 415 360 DISCONTINUED OPERATIONS Revenue 5 825 12 235 EBITDA before capital items (110) (512) Depreciation and amortisation - (264) Operating loss before capital items 86 (110) (776) Capital items (note 1) (496) (439) Result from operating activities (606) (1 215) Finance income 45 44 Finance expense (117) (375) Share of profit of equity-accounted investees, net of taxation - 16 Loss before taxation (678) (1 530) Taxation (39) 70 Loss for the year from discontinued operations (717) (1 460) Loss for the year from total operations (302) (1 100) Audited Audited R million 2017 2016 Other comprehensive income Items that will never be reclassified to profit or loss Remeasurement of net defined benefit asset 26 60 Items that are or may be reclassified subsequently to profit or loss Foreign currency translation differences in respect of foreign operations (60) 100 Realisation of foreign currency translation reserve on disposal and closure of subsidiaries (153) (13) Effective portion of changes in the fair value of cash flow hedges (7) 4 Other comprehensive income for the year, net of taxation (194) 151 Total comprehensive income for the year (496) (949) Loss attributable to: Non-controlling interests (117) (227) Non-controlling interests from continuing operations 20 6 Non-controlling interests from discontinued operations (137) (233) Altron equity holders (185) (873) Altron equity holders from continuing operations 395 354 Altron equity holders from discontinued operations (580) (1 227) Loss for the year from total operations (302) (1 100) Total comprehensive income attributable to: Non-controlling interests (118) (229) Non-controlling interests from continuing operations 20 6 Non-controlling interests from discontinued operations (138) (235) Altron equity holders (378) (720) Altron equity holders from continuing operations 341 469 Altron equity holders from discontinued operations (719) (1 189) Total comprehensive income for the year (496) (949) Basic earnings per share from continuing operations (cents) 117 105 Diluted basic earnings per share from continuing operations (cents) 116 104 Basic loss per share from discontinued operations (cents) (171) (364) Diluted basic loss per share from discontinued operations (cents) (171) (359) Basic loss per share from total operations (cents) (54) (259) Diluted basic loss per share from total operations (cents) (55) (256) SUMMARISED CONSOLIDATED BALANCE SHEET at 28 February 2017 Audited Audited R million 2017 2016 Assets Non-current assets 2 816 2 804 Property, plant and equipment 569 618 Intangible assets, including goodwill 1 029 1 042 Equity-accounted investments 23 4 Other investments 302 199 Rental finance advances 113 129 Non-current receivables and other assets 404 345 Defined benefit asset 178 211 Deferred taxation 198 256 Current assets 6 735 11 643 Inventories 1 046 1 152 Trade and other receivables, including derivatives 2 669 4 004 Assets classified as held-for-sale 1 644 4 996 Taxation receivable 3 - Cash and cash equivalents 1 373 1 491 Total assets 9 551 14 447 Equity and liabilities Total equity 2 028 2 736 Non-current liabilities 1 971 2 714 Loans 1 923 2 675 Provisions 5 5 Deferred taxation 43 34 Current liabilities 5 552 8 997 Loans 312 1 003 Bank overdraft 956 1 285 Trade and other payables, including derivatives 3 177 4 504 Provisions 16 2 Liabilities classified as held-for-sale 1 024 2 058 Taxation payable 67 145 Total equity and liabilities 9 551 14 447 Net asset value per share (cents) 669 845 SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 28 February 2017 Attributable to Altron equity holders Share Non- capital and Treasury Retained controlling Total R million premium shares Reserves earnings Total interests equity Balance at 28 February 2015 (Audited) 2 735 (299) (2 505) 3 708 3 639 123 3 762 Total comprehensive income for the year Loss for the year - - - (873) (873) (227) (1 100) Other comprehensive income Foreign currency translation differences in respect of foreign operations - - 102 - 102 (2) 100 Realisation of foreign currency translation reserve on disposal of subsidiary - - (13) - (13) - (13) Remeasurement of net defined benefit asset - - 60 - 60 - 60 Effective portion of changes in the fair value of cash flow hedges - - 4 - 4 4 Total other comprehensive income - - 153 - 153 (2) 151 Total comprehensive income for the year - - 153 (873) (720) (229) (949) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Dividends to equity holders - - - (104) (104) (3) (107) Share-based payment transactions - - 32 - 32 1 33 Total contributions by and distributions to owners - - 32 (104) (72) (2) (74) Changes in ownership interests in subsidiaries Buy-back of non-controlling interest - - - - - (3) (3) Total changes in ownership interests in subsidiaries - - - - - (3) (3) Total transactions with owners - - 32 (104) (72) (5) (77) Balance at 29 February 2016 (Audited) 2 735 (299) (2 320) 2 731 2 847 (111) 2 736 Total comprehensive income for the year Loss for the year - - - (185) (185) (117) (302) Other comprehensive income Foreign currency translation differences in respect of foreign operations - - (60) - (60) - (60) Realisation of foreign currency translation reserve on disposal of subsidiaries - - (153) - (153) - (153) Remeasurement of net defined benefit asset - - 26 - 26 - 26 Effective portion of changes in the fair value of cash flow hedges - - (6) - (6) (1) (7) Reclassification of statutory reserves on disposal - - 190 (190) - - - Total other comprehensive income - - (3) (190) (193) (1) (194) Total comprehensive income for the year - - (3) (375) (378) (118) (496) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Dividends to equity holders - - - - - (4) (4) Issue of share capital 12 - - - 12 - 12 Share-based payment transactions - - (1) - (1) 1 - Total contributions by and distributions to owners 12 - (1) - 11 (3) 8 Changes in ownership interests in subsidiaries Buy-back of non-controlling interest - - (212) - (212) 200 (12) Non-controlling interests of subsidiaries disposed - - - - - (208) (208) Total changes in ownership interests in subsidiaries - - (212) - (212) (8) (220) Total transactions with owners 12 - (213) - (201) (11) (212) Balance at 28 February 2017 (Audited) 2 747 (299) (2 536) 2 356 2 268 (240) 2 028 SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 28 February 2017 Audited Audited R million 2017 2016 Cash flows from operating activities 94 1 253 Cash generated by operations 1 308 528 Interest received 241 180 Interest paid (557) (678) Dividends received from equity accounted investees and other investments 23 39 Changes in working capital (821) 1 443 Taxation paid (96) (152) Cash available from operating activities 98 1 360 Dividends paid, including to non-controlling interests (4) (107) Cash flows from/(utilised in) investing activities 1 580 (1 121) Proceeds on the disposal of subsidiaries, associate and businesses net of cash disposed of 2 060 49 Additions to intangible assets (123) (131) Additions to property, plant and equipment (191) (338) Other investing activities (166) (701) Cash flows utilised in financing activities (1 479) (117) Loans repaid (3 532) (253) Loans advanced 2 065 136 Other financing activities (12) - Net increase in cash and cash equivalents 195 15 Net cash and cash equivalents at the beginning of the year 326 291 Cash and cash equivalents at the beginning of the year 206 - Cash previously classified as held-for-sale 120 - Effect of exchange rate fluctuations on cash held (192) 20 Cash classified as held-for-sale 88 (120) Net cash and cash equivalents at the end of the year 417 206 NOTES Basis of preparation The preliminary summarised consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, and the requirements of the Companies Act of South Africa applicable to summary financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 - Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements from which the preliminary summarised financial statements were derived are in terms of International Financial Reporting Standards and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements. This report was compiled under the supervision of Mr Alex Smith CA, Chief Financial Officer. Report of the independent auditors These preliminary summarised financial statements for the year ended 28 February 2017 have been audited by KPMG Inc., the independent auditors, who expressed an unmodified opinion thereon. The auditor also expressed an unmodified opinion on the annual consolidated financial statements from which these preliminary summarised consolidated financial statements were derived. A copy of the auditor's report on the preliminary summarised consolidated financial statements and of the auditor's report on the annual consolidated financial statements are available for inspection at the company's registered office, together with the financial statements identified in the respective auditor's report. The auditor's report does not necessarily report on all of the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's report together with the accompanying financial information from the issuer's registered office. % Movement Audited Audited R million year on year 2017 2016 Headline earnings per share from continuing operations (cents) (10) 114 126 Headline loss per share from discontinued operations (cents) 84 (43) (271) Headline earnings/(loss) per share from total operations (cents) 149 71 (145) Diluted headline earnings/(loss) per share from total operations (cents) 149 71 (143) Audited Audited R million 2017 2016 1. Capital items CONTINUING OPERATIONS Net profit/(loss) on disposal of property, plant and equipment 1 (5) Reversal of impairment 10 - Impairment of property, plant and equipment (3) - Impairment of goodwill - (51) Impairment of intangible assets - (22) Profit on disposal of subsidiary and businesses 2 9 Impairment of equity-accounted investment (2) - 8 (69) DISCONTINUED OPERATIONS Profit on disposal of discontinued operations 22 309 Impairment of property, plant and equipment - (60) Impairment of intangible assets (16) (78) Net profit on disposal of property, plant and equipment 12 5 Release of foreign currency translation surplus 22 - Release of discontinuance provision 12 - Impairment of held-for-sale disposal groups (548) (385) Impairment of equity-accounted investment - (51) Impairment of goodwill - (179) (496) (439) Total (488) (508) 2. Reconciliation between attributable earnings and headline earnings Attributable to Altron equity holders (185) (873) Capital items - gross 488 508 Tax effect of capital items 11 (52) Non-controlling interests in capital items (74) (71) Headline earnings 240 (488) 3. Reconciliation between attributable earnings and headline earnings from continuing operations Attributable to Altron equity holders 395 354 Capital items - gross (8) 69 Tax effect of capital items - 2 Headline earnings 387 425 4. Reconciliation between attributable earnings and headline earnings from discontinued operations Attributable to Altron equity holders (580) (1 227) Capital items - gross 496 439 Tax effect of capital items 11 (54) Non-controlling interests in capital items (74) (71) Headline earnings (147) (913) 5. Reconciliation between attributable earnings and diluted earnings There were no reconciling items between attributable earnings and diluted earnings 6. Disposal of subsidiaries and businesses Disposal of the Aberdare group Effective 30 June 2016, Power Technologies disposed of 75% of its 70% equity interest in Aberdare Cables. Aberdare International also disposed of 100% of its equity interest in Aberdare Europe. These operations formed part of the Powertech group, which has been disclosed as a discontinued operation. The disposal did not include the group's 50% shareholding in the CBI Telecom Cables joint venture. As part of the transaction the group has the option to dispose of its remaining 17.5% investment in Aberdare Cables to the acquiror at the same value as the initial transaction two years after the conclusion of a new B-BBEE structure which occurred on 28 February 2017. The remaining interest in the Aberdare group is included in other investments on the group balance sheet. Proceeds received on disposal are as follows: R million 2017 Non-current assets 410 Property, plant and equipment 386 Other 24 Current assets 1 919 Inventories 920 Trade and other receivables, including derivatives 988 Other 11 Non-current liabilities (16) Loans (10) Other (6) Current liabilities (1 216) Bank overdraft (160) Trade and other payables, including derivatives (1 031) Other (25) Disposal value 1 097 Less: Non-controlling interest de-recognised (208) Less: Investment in Aberdare Cables (17.5%) (94) Less: Proceeds receivable (7) Profit on disposal of subsidiaries 36 Realisation of foreign currency translation surplus on disposal (132) Net cash disposed 151 Loans settled 85 Proceeds received on disposal 928 Disposal of Strike Technologies, a division of Powertech System Integrators (Pty) Ltd Effective 30 June 2016, Powertech System Integrators disposed of its Strike Technologies division for R16 million. This operation formed part of the Powertech group, which has been disclosed as a discontinued operation. Disposal of Technology Integrated Solutions ("TIS"), a division of Powertech System Integrators (Pty) Ltd Effective 30 November 2016, Powertech System Integrators disposed of its TIS division for R27 million. This operation formed part of the Powertech group, which has been disclosed as a discontinued operation. R million 2017 Proceeds received on the disposals are as follows: Non-current assets 11 Current assets 51 Current liabilities (5) Disposal value 57 Loss on disposal of subsidiaries and businesses (14) Proceeds receivable (21) Proceeds received on disposals 22 Proceeds on disposal of Altech Autopage Proceeds amounting to R1.3 billion were received in the current year for the Altech Autopage disposal that was effective in the prior year. 7. Discontinued operations Impairment of held-for-sale disposal groups The carrying value of each distinct operation was compared to the latest offer from prospective buyers and any shortfall to the carrying value was then impaired. The impairments reflect a decline in expected proceeds due to the prolonged disposal processes, the performance of the operations and the uncertainties in the local macro-economic environment. During the previous financial year, the decision was taken to dispose of the Powertech group and the UEC group and, as a result, these businesses have been classified as discontinued operations. The relevant requirements of IFRS 5 have been met for this classification. Management believe that the conclusion of the remaining disposals will be effected in the 2018 financial year. The Powertech and UEC businesses were previously classified as held-for-sale as well as discontinued operations. The comparative held-for-sale information also included the Altech Autopage business which was disposed of in the previous financial year. Net assets of disposal groups held-for-sale: R million 2017 2016 Assets classified as held-for-sale 1 644 4 996 Non-current assets 392 1 320 Current assets 1 252 3 676 Liabilities classified as held-for-sale (1 024) (2 058) Non-current liabilities (16) (56) Current liabilities (1 008) (2 002) Breakdown of disposal groups held-for-sale: 2017 2017 2017 2017 2017 2017 Powertech Powertech Powertech Battery Multimedia System R million Transformers Group Group integrators Other Total 805 498 348 182 359 2 192 Non-current assets 307 164 141 25 216 853 Current assets 498 334 207 157 143 1 339 Impairment of held-for-sale disposal groups (548) Assets classified as held-for-sale 1 644 Liabilities classified as held-for-sale (276) (124) (290) (109) (225) (1 024) Non-current liabilities (5) - (9) - (2) (16) Current liabilities (271) (124) (281) (109) (223) (1 008) R million 2017 2016 Cash flows of discontinued operations: Net cash (utilised in)/generated from operating activities (21) 424 Net cash generated from/(utilised in) investing activities 878 (509) Net cash utilised in financing activities (20) (75) Net cash flow for the year 837 (160) 8. Post balance sheet events Post year end and in accordance with the circular issued to shareholders on or about 9 February 2017, the Altron group bought back all of the issued N shares in exchange for the issue of new A shares. All of the N shares were then cancelled. Following the implementation of this transaction the total number of shares in issue reduced from 370 million to 319 million. As part of the transaction Value Capital Partners then injected R400 million of equity funding in exchange for 54 million A shares. Following the implementation of the transaction the number of shares in issue has increased to 373 million in total and 345 million net of treasury shares. 9. Related party transactions The group entered into various sale and purchase transactions with related parties in the ordinary course of business. The nature of related party transactions is consistent with those reported previously. 10. Financial Instruments at fair value The group measures a preference share investment, its derivative foreign exchange contracts used for hedging and contingent purchase considerations at fair value. The preference share investment is disclosed as a Level 3 financial asset in terms of the fair value hierarchy with fair valuation inputs which are not based on observable market data (unobservable inputs). A discounted cash flow valuation model is used to determine fair value with key inputs being discount and perpetuity growth rates as well as revenue growth rates. The fair value of the preference share investment was revalued in the current year and resulted in no profit or loss on remeasurement. The fair value of the preference share investment remained at R21 million at year-end. The contingent purchase considerations are disclosed as Level 3 financial liabilities in terms of the fair value hierarchy with fair valuation inputs which are not based on observable market data (unobservable inputs). A discounted cash flow valuation model is used to determine fair value with key inputs being forecast revenue growth rates, forecast profit margins and discount rates. The fair value of the contingent purchase consideration was assessed as R29 million at year-end which resulted in a remeasurement profit of R5 million during the year. The derivative foreign exchange contracts used for hedging are disclosed as Level 2 financial instruments in terms of the fair value hierarchy with fair valuation inputs (other than quoted prices) that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices) as well as foreign exchange. The fair value of the derivative foreign exchange contracts was assessed at R75 million (liability) at year-end which resulted in a remeasurement loss of R65 million. A market comparison technique is used to determine fair value. There were no transfers between Levels 1, 2 or 3 of the fair value hierarchy for the year-ended 28 February 2017. This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34. The full preliminary report is available on the issuers website, at the issuers registered office and upon request. 11. Standards issued but not yet effective Management is in the process of assessing the possible impact of the application of IFRS 9, 15 and 16 that is not yet effective at year-end. SEGMENTAL REPORT Segment analysis The segment information has been prepared in accordance with IFRS 8 - Operating Segments which defines the requirements for the disclosure of financial information of an entity's operating segments. The standard requires segmentation based on the group's internal organisation and reporting of revenue and EBITDA based upon internal accounting presentation. Revenue EBITDA February February % February February % R million 2017 2016 Growth 2017 2016 Growth Altech Autopage Group* 316 5 188 (94) (75) (209) 64 Altech Multimedia Group** 1 225 1 030 19 3 (160) 102 Altech Netstar Group 1 224 1 161 5 266 252 6 Systems Integration Group 1 545 1 497 3 63 65 (3) Radio Holdings Group 1 127 953 18 84 75 12 Other Altech Segments 602 419 44 40 32 25 Altech Group 6 039 10 248 (41) 381 55 593 Bytes Technology Group UK Software 4 084 3 554 15 136 132 3 Bytes Document Solutions Group 1 636 2 117 (23) 48 84 (43) Bytes Managed Solutions 1 321 1 528 (14) 89 135 (34) Bytes Secure Transaction Solutions 992 837 19 212 192 10 Bytes Universal Systems 669 703 (5) 63 73 (14) Other Bytes Segments 864 741 17 89 54 65 Bytes Group 9 566 9 480 1 637 670 (5) Powertech Cables Group 1 836 4 370 (58) 42 (3) 1 500 Powertech Transformers Group 1 041 881 18 (75) (156) 52 Powertech Battery Group 944 931 1 76 74 3 Powertech System integrators 583 770 (24) (53) (9) (489) Other Powertech Segments 197 233 (15) (57) (62) 8 Powertech Group** 4 601 7 185 (36) (67) (156) 57 Corporate, consolidation and financial services (489) (321) (111) (193) 42 Altron Group 19 717 26 592 (26) 840 376 123 * In the prior year the majority of this segment was included in the discontinued operations. ** These segments formed part of the discontinued operations. Segment EBITDA can be reconciled to operating profit before capital items as follows: R million 2017 2016 EBITDA 840 376 Reconciling items: Depreciation (136) (285) Amortisation (86) (165) Total operating profit/(loss) before capital items 618 (74) Discontinued operations operating loss before capital items 110 776 Continuing operations operating profit before capital items 728 702 SUPPLEMENTARY INFORMATION Total operations Audited Audited R million 2017 2016 Depreciation 136 285 Amortisation 86 165 Net foreign exchange losses/(profit) 226 (41) Cash flow movements Capital expenditure (including intangibles) 314 468 Net additions to contract fulfilment costs 20 383 Additions to contract fulfilment costs 237 634 Net expensing of contract fulfilment costs during the year (216) (167) Terminations of contract fulfilment costs (1) (84) Capital commitments 21 55 Lease commitments 465 604 Payable within the next 12 months 147 241 Payable thereafter 318 363 Weighted average number of shares (millions) 338 337 Diluted average number of shares (millions) 340 341 Shares in issue at the end of the year (millions) 339 337 Ratios EBITDA margin (%) 4,3 1,4 Normalised EBITDA margin (%) 4,3 2,5 ROCE (%) 14,5 (1,2) ROE (%) 11,4 (19,8) ROA (%) 8,3 (0,6) RONA (%) 12,2 (0,7) Current ratio 1,2:1 1,3:1 Acid test ratio 1:1 1,2:1 Definitions: Contract fulfilment costs Contract fulfilment costs include hardware, fitment, commissions and other costs directly attributable to the negotiation and conclusion of customer service contracts. These costs are expensed over the expected period of the customer service contract. MESSAGE TO SHAREHOLDERES - EBITDA of total operations increased to R840 million from R376 million - Net debt reduced by 42% to R1.9 billion - Remaining held-for-sale operations carrying value reduced to R620 million - Credible performance from the continuing operations lifting EBITDA to R950 million The Altron annual results for the year ended 28 February 2017 are reported in an integrated manner in accordance with the G4 Guidelines prepared by the Global Reporting Initiative (GRI) and the Integrated Reporting
Framework (Version 1) developed by the International Integrated Reporting Council (IIRC), reflecting those issues that are applicable and which materially affect or contribute to the sustainable development of Altron in terms of its financial and non-financial performance. Altron has made good progress over the last year on its stated aim of repositioning the group in the information technology and telecommunications space, reducing its exposure to the manufacturing sector, and divesting of non-core assets. Following the recent appointment of Mr Mteto Nyati as Chief Executive and the repurchase of the low voting N shares, the group has moved from a family controlled and managed business to an independent management structure. While overall trading conditions remained challenging, which impacted the group's performance, the group has made meaningful progress on divesting of its non-core assets and has significantly reduced losses from these operations. In further advancing this process, the group expects to complete a number of these disposals in the first half of the new financial year, with continued focus being placed on disposal of Powertech Transformers and Altech Multimedia. The R400 million capital injection post year-end, following the introduction of Value Capital Partners as a new strategic partner, will be a catalyst in driving shareholder value creation by enabling the acceleration of Altron's growth initiatives within its core information technology and telecommunications businesses. 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. In order to provide shareholders with a clearer understanding of the impact of the discontinued operations on the group, the income statement is 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 (only in the prior year) in accordance with the requirements of IFRS. FINANCIAL OVERVIEW INCOME Continuing operations Despite the challenging economic environment, particularly in South Africa, the continuing operations delivered a credible performance at an operating level. The telecommunications operations generally showed growth, with one exception, while the information technology operations declined compared to the prior year as a result of some major contract losses at the end of the prior financial year. Corporate costs declined in line with expectations. Revenue declined by 3% to R13.9 billion from R14.4 billion in the prior year, while EBITDA increased by 7% from R888 million to R950 million. The EBITDA margin improved to 6.8% compared to the prior year's 6.2%. However, depreciation and amortisation charges increased to R222 million from R186 million, resulting in an operating profit improvement of 4% to R728 million. Operating margins improved from 4.9% to 5.2%. Capital items were positive for the financial year compared to the R69 million in costs for the prior year. This contributed to a 16% increase in operating activities to R736 million. However, net finance costs increased significantly from R161 million to R223 million as a result of higher borrowing rates during the past 12 months as well as reduced expectations of proceeds from non-core disposals, which increased the allocation of interest to the continuing operations. The effective tax rate of 19% reflects some prior year adjustments, the benefits of lower tax rates in some of the international operations, and some utilisation of assessed losses. These factors resulted in a profit of R415 million from continuing operations for the year compared to a profit of R360 million during the prior year. Headline earnings amounted to R387 million compared to the R425 million generated in the prior year. Discontinued operations The non-core operations, which predominantly operate in the manufacturing sector, are much improved from the prior year, but remain loss making and traded below expectations. Revenue for the non-core operations reduced to approximately R5.8 billion following the disposal of Altech Autopage at the end of the last financial year and the sale of Aberdare Cables with effect from 30 June 2016. At an EBITDA level, losses were significantly reduced from R512 million in the prior year to R110 million in the current year. This was due to a return to profitability in Altech Multimedia, reduced losses out of Powertech and the reduction in ongoing costs related to Altech Autopage. Capital items remain substantial at R496 million for the year due to a reduction in the expected disposal proceeds from several of the discontinued operations. The majority of this relates to the Powertech Transformers business where repeated delays in tender awards have adversely impacted the future prospects of the business. Net finance costs decreased from R331 million in the prior year to R72 million in the current financial year as a result of the proceeds received on the various disposals, as well as an increased allocation of interest into the continuing operations as discussed above. These factors resulted in a significant reduction in the loss after tax in the discontinued operations to R717 million from the R1.5 billion loss incurred in the prior year. The group believes there is a high probability of concluding the disposal of the remaining operations classified as discontinued in the 2017/2018 financial year. CASH MANAGEMENT Total operations The overall net debt position has reduced to R1932 million from R3435 million in the prior year due to the disposals and resulting repayment of debt. From an operational cash flow perspective, there has been a marked reduction due to a significant increase in working capital, although a good portion of this is a once-off permanent outflow related to the disposals, particularly Altech Autopage, and reflects a partial reversal of the exceptional release achieved last year. Cash generated by operations is significantly up on the prior year due to the slightly stronger performance in the continuing operations and the significant reduction in operating losses in the discontinued operations. Net finance expense is well down on the prior year due to the non-recurrence of the Altech Autopage factoring and the reduction in debt. Investing activities relate primarily to the disposal of Altech Autopage and Aberdare, which generated cash inflows of approximately R2.1 billion during the period. Capital expenditure was significantly lower, reducing to R551 million from over R1.1 billion (including investment in contract fulfilment costs) in the prior year. Included in this is a much reduced investment into subscribers due to the sale of the Altech Autopage business. Altech Netstar continues to invest in subscribers but at levels broadly similar to the prior year. The R1.5 billion of cash utilised in financing activities is predominantly due to the repayment of borrowings from the proceeds of disposals. All of the group's remaining term debt was refinanced in February 2017. SUBSIDIARY REVIEW SUBSIDIARY INCOME AND GROWTH Continuing operations Telecommunications Telecommunications revenue was down 12% to R4.2 billion, with an EBITDA increase of 12% on the prior year. The results were impacted by the loss of the high revenue, low margin airtime business that was initially retained from the Altech Autopage disposal. Excluding this effect, revenue was up 8% to R3.9 billion and EBITDA up 4% to R413 million. Altech Netstar reported a 5% increase in revenue due to marginal increases in both subscriber numbers and average revenue per user. We have seen the benefits of reduced churn in the subscriber base following various interventions, although the business has faced headwinds from the significant reduction in new vehicle sales. EBITDA increased by 6% compared to the prior year with a small increase in EBITDA margins. The business continues to improve its six monthly sequential results since the low point of the second half of the last financial year. Altech Radio Holdings has seen revenue increase by 18% and EBITDA by 12% compared to the prior year. 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. Operating margins were reduced due to a change in mix within the business and the increased contribution from mega projects. 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 delays in the award of various significant projects. Multimedia Arrow Altech Distribution posted excellent results with revenue up 44% and EBITDA up 54%. While gross margins are slightly lower than the prior year, operational leverage has resulted in some EBITDA margin expansion. The business has successfully grown market share and expanded into new areas aligned to the global Arrow Inc., business model. Technology (IT) The technology division reported a more muted performance against a very strong second half in the prior year. As a result, revenue increased by 1% to R9.6 billion, while EBITDA declined by 4% to R644 million. The South African operations reported a decline of 9% in revenue and a decline of 8% in EBITDA, resulting in a small improvement in margins to 9.4%. The international operations generated strong revenue growth of 14%, however, the EBITDA increase was only 3% due to a change in revenue mix in the UK operations. Bytes Document Solutions reported lower revenue, primarily due to 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 marked 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 as previously communicated. Progress is being made on replacing this business in other market segments, but sales cycles are relatively long. 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%, while the other main operations recorded more muted EBITDA growth. The Bytes UK operations reported a 14% increase in revenue and a 4% improvement in EBITDA despite the strength of the Rand working against them in the second half. The margin erosion was predominantly the result of a substantial increase in low margin public sector business in the UK. The average exchange rate for the year amounted to R18.93 to the UK pound compared to R20.43 in the prior year. Local currency results were therefore extremely strong. 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. Discontinued operations Multimedia 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 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. Much of the revenue growth was achieved at the expense of margins in a very competitive environment, but new business is now being obtained at more appropriate margins. 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% despite some issues in the first half of the year. 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 the business recording 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 challenging economic conditions linked to the drought in Namibia. Human capital Altron and Altron TMT were rated as Level 2 Broad-Based Black Economic Empowerment contributors for the 2016/2017 financial year. This can be attributed to a well-executed strategic intent to transcend from a compliance driven process to a more transformative process. Training of Altron group employees remains a priority and is managed through the Bill Venter Academy. Sustainability Altron's sustainable business strategy remains the driving force in terms of achieving its targets and objectives. The four key value drivers for sustainable development remain Financial Capital, Human Capital, Products and Services, and External Relationships. Corporate governance To ensure that good corporate governance is effectively practised throughout the Altron group, the Altron board materially applies the principles of King III and the JSE Listings Requirements. On 1 November 2016, the Institute of Directors of Southern Africa (IODSA) and the King Committee released the King IV Report on Corporate Governance in South Africa ("King IV"). King IV became effective for organisations with a financial year that starts on, or after, 1 April 2017. Altron will take appropriate steps during the current year in order to commence with the implementation of the required principles of King IV which will be wholly embraced and reported on by the group as from 1 March 2018. Directorate On 23 February 2017, shareholders were advised that Dr WP Venter, the founder of Altron, had decided to retire as non- executive chairman of the Altron board with effect from 28 February 2017.