Operational Update and Trading Statement

ALTRON LIMITED
(Registration number 1947/024583/06)
(Incorporated in the Republic of South Africa)
Share Code: AEL ISIN: ZAE000191342
(“Altron” or “Company” or “Group”)

OPERATIONAL UPDATE AND TRADING STATEMENT

In terms of the JSE Limited Listings Requirements, a listed company must publish a trading statement once
it is satisfied that a reasonable degree of certainty exists that its financial results for the period to be reported
on next, will differ by at least 20% from the reported financial results for the previous corresponding period.

Accordingly, shareholders are hereby advised that a reasonable degree of certainty exists that the financial
results for the six months ended 31 August 2023 (“Reporting Period”) will differ by at least 20% from the
comparative six months ended 31 August 2022 (“Comparative Period”), as set out below:

– Headline earnings per share (“HEPS”) from continuing operations is estimated to be between 43
cents and 51 cents, representing an increase of between 5% and 24% compared to HEPS from
continuing operations of 41 cents reported for the Comparative Period;
– Group HEPS is estimated to be between (64) cents and (57) cents, representing a decrease of
between 288% and 268% compared to Group HEPS of 34 cents reported for the Comparative
Period;
– Earnings per share (“EPS”) from continuing operations is estimated to be between 33 cents and
40 cents, representing a range of an 11% decrease and an 8% increase compared to EPS from
continuing operations of 37 cents reported for the Comparative Period; and
– Group EPS is estimated to be between (86) cents and (81) cents, representing a decrease of
between 457% and 437% compared to Group EPS of 24 cents reported for the Comparative
Period.

As announced at the year-end February 2023 (“Year End”) presentation of results, management were in
the process of undertaking a detailed business review of all operations, both continuing and discontinuing.

Continuing operations

The purpose of the reviews on continuing operations was to ensure each operation is aligned to the Group’s
new strategy and has performance optimisation plans in place to grow revenue and improve operating
leverage. Pursuant to these business reviews, targeted operating models are being executed in each
operation, with early leading indicators highlighting strong year-to-date performance, with all operations on
track to achieve their growth objectives.

The profit improvement strategies are starting to show meaningful benefits, particularly in Netstar and Altron
Systems Integration, the largest businesses in the Group. Netstar’s profit improvement strategy is
progressing well, with benefits already flowing from enhanced operational efficiencies and growing Software
as a Service. The conversion rates on pre-fitments have increased from 32% at Year End to 63%, and the
fulfillment rate on contracts has improved to 93% from 72% at Year End. Churn has decreased from 21%
at Year End to the targeted level of 17%. Altron Systems Integration’s profit improvement strategy is
progressing well, with the team securing the largest outsourcing contract in its history. The Group continues
to remain strongly cash generative and is sufficiently capitalised, providing a solid platform to execute its
immediate strategic initiatives.

Discontinuing operations

Following recent developments during the Reporting Period, the Group has undertaken material and
decisive actions to streamline two non-core operations, which will adversely impact the overall Group
financial performance.

Results for the Reporting Period will be negatively impacted by provisions raised within two non-core
subsidiaries namely, Altron Nexus of R336 million and Altron Document Solutions of R95 million, together
with a provision raised at a Group level of R33 million in relation to goodwill held on the Group balance
sheet for Altron Nexus.

Altron Nexus and Altron Document Solutions will be classified as held-for-sale and will be reported in
discontinued operations. These two entities contributed 21% to the Group’s revenue at Year End however
both subsidiaries were loss-making and therefore did not contribute to the Group’s profit.

Further information on the provisions raised is detailed below:

Altron Nexus:

1. Gauteng Broadband Network (“GBN”) contract
– In May 2023 the extension of the GBN contract for phase 2 came to an end. Altron Nexus
was not awarded the contract for GBN phase 3 as reported at Year End. The GBN contract
for phase 2 accounted for a material portion of Altron Nexus’ revenue and profits. As the
incumbent service provider for GBN phase 1 and 2, the relevant personnel and infrastructure
had been kept in place to enable Altron Nexus to seamlessly deliver on GBN phase 3, in the
event that the contract for GBN phase 3 was awarded. The fact that GBN phase 3 was not
awarded to Altron Nexus has necessitated the conducting of a full business review, including
the associated operating model of Altron Nexus’ three focus areas, namely Critical
Communications; Huawei Enterprise Networking and Broadband Network Services. Pursuant
to this review, the following process has been initiated to restructure the business:
– A section 189A process has commenced which, it is anticipated, will be finalised in
September 2023.
– The public sector Broadband Network Services business, which was underpinned by
the GBN contract for phase 1 and 2, has been wound down.
– As both Altron Systems Integration and Altron Nexus hold enterprise networking
capabilities and key relationships with Huawei, it has been decided to rationalise and
consolidate the Huawei Enterprise Networking operations. All future enterprise
networking will be conducted by Altron Systems Integration in a manner that ensures
the retention of key skills.
– Following the restructuring, the remaining business of Altron Nexus will focus on non-
core Critical Communications services. Altron will actively pursue opportunities to sell
the remaining Altron Nexus business.
– Pursuant to the detailed business review, provisions totalling c.R135 million were
raised, including:
– R34 million relating to accounts receivable;
– R30 million relating to property, plant and equipment; and
– R71 million relating to inventory.
– The once-off restructuring costs are estimated to be R11 million which will negatively
impact the Reporting Period.

2. City of Tshwane (“CoT”) contract
– In January 2023, the Auditor General released a report recording that there are material
uncertainties in the CoT 2022 financial statements relating to a going concern. Subsequent
to Altron’s year-end, there have been several recent media reports regarding the CoT’s
growing debt burden, with substantial debts owed to entities such as Eskom and Rand Water
having been recently reported. This is estimated to have a further material impact on the
going concern status of the CoT. Given these developments highlighting the invidious
financial position of the CoT, Altron, in accordance with auditing, accounting and reporting
principles, has decided to raise an additional provision of R201 million in order to provide for
Altron Nexus’ indirect full exposure to CoT (the “CoT Provision”). The main contractor is
Thobela Telecoms (RF) (Pty) Ltd (“TT”) and Altron Nexus is the EPC contractor. Recoveries
by Altron Nexus are dependent upon TT being paid by the CoT.
– The raising of the CoT Provision is purely for accounting purposes and does not impact on
the arbitration proceedings by TT against the CoT, which are progressing well but will take
some time, possibly several years, to finalise. These proceedings are, by their nature,
confidential. Even if the arbitration proceedings are finally determined against CoT, there is
no certainty as to whether CoT will be able to discharge an adverse arbitral award, and
current indications are to the contrary.

3. Litigation with Aeonova 360 Management Services (Pty) Limited (“Aeonova”)
– Several years ago, arbitration proceedings were instituted against Altron Nexus by Aeonova,
an erstwhile sub-contractor for the GBN contract. These proceedings are, by their nature,
confidential. Legal advice received during the period prior to May 2023 was that the
prospects of Aeonova succeeding in the arbitration were remote. Following certain adverse
interim awards and judgments, it was resolved to brief Werksmans to conduct an
independent assessment of the matter. Werksmans has since been retained to represent
Altron Nexus in the arbitration proceedings, and a number of related High Court proceedings,
both pending and contemplated, that may impact the progression of this arbitration.
Werksmans has advised that given what has recently transpired in the arbitration and related
court proceedings, and the vagaries of litigation, the historic legal opinion as to the prospects
of success should be revised. Given what is set out above, it is premature to raise any
provision.

4. Change in accounting treatment of Altron Nexus
– The Altron board does not regard the restructured Altron Nexus business as core to its
operations and strategy and will actively explore opportunities to sell the business. Several
third-party expressions of interest in Altron Nexus have been received in the past. With the
cessation of the Broadband Network Services business and the consolidation of the Enterprise
Networking business into Altron Systems Integration, Altron Nexus will remain with only non-
core Critical Communications operations, which are expected to be saleable on a standalone
basis. Consequently, Altron Nexus will be reclassified as held-for-sale and accounted for in
discontinued operations going forward.

5. Summary of the impact of the provisions raised in relation to Altron Nexus
– The total provisions raised in Altron Nexus as detailed above, totalling R336 million, together
with restructuring costs of R11 million, will negatively impact the Reporting Period in
discontinuing operations.
– Considering the provisions detailed above, an additional provision was raised against
goodwill accounted for on the Group balance sheet, in relation to Altron Nexus of R33 million,
which will negatively impact EPS from continuing operations for the Reporting Period but will
not impact HEPS from continuing operations.

Altron Document Solutions:

– The Group continues to regard Altron Document Solutions as non-core to its operations and
strategy and has actively engaged with multiple potential bidders who have expressed interest
in acquiring Altron Document Solutions.
– Following the unsuccessful sale of Altron Document Solutions to Bi-Africa Investment Holdings
Proprietary Limited, Altron Document Solutions appointed Warren Mande, the previous
managing director of Altron Managed Solutions, to restructure the business with a focus on
cost optimisation, cash generation and working capital management.
– However, an assessment of all the assets of Altron Document Solutions post the unsuccessful
sale, together with challenging market conditions that led to two large customers facing
financial difficulties, has culminated in the following provisions which will negatively impact the
Reporting Period in discontinuing operations:
– R15m relating to accounts receivable;
– R68m relating to finance lease assets; and
– R12m relating to inventory.
– As an active sale process continues, the business will be managed for value and remains
accounted for as held-for-sale and reported as a discontinued operation.

Quote by Werner Kapp

“As communicated at the Group’s results for the year-end 2023, we are actively focussed on ensuring once-
off adjustments do not recur. Since joining the Group, I have worked with the management teams in
scrutinising all operations to ensure they are strategically aligned and have performance optimisation plans
in place. Unfortunately, this process together with recent market developments, has resulted in further
provisions in Altron Nexus and Altron Document Solutions, which are accounted for in discontinuing
operations. However, I am confident we are now at a point where we have a stable base for the Altron
Group to grow from. The Group maintains a very healthy balance sheet, remains strongly cash generative
and is committed to maintaining its dividend policy. Our continuing operations are delivering a strong year-
to-date performance and I am looking forward to presenting our delivery against our strategy at the half-
year results in October.”

Shareholders are advised that the information provided in this trading statement has not been reviewed
and reported on by the Group’s external auditors.

Johannesburg

26 July 2023

Sponsor
Investec Bank Limited

Date: 26-07-2023 07:05:00
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