AEL: ALLIED ELECTRONICS CORPORATION LIMITED - 2018 Preliminary Audited Summarised Consolidated Financial Statements for the year ended 28 February 2018
2018 Preliminary Audited Summarised Consolidated Financial Statements for the year ended 28 February 2018
ALLIED ELECTRONICS CORPORATION LIMITED
(Registration number 1947/024583/06)
(Incorporated in the Republic of South Africa)
Share code: AEL
ISIN: ZAE000191342
2018 PRELIMINARY AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28 FEBRUARY 2018
FINANCIAL COMMENTARY
During the past financial year Altron delivered substantially on its commitment to reposition the company for
growth in the ICT sector. This entailed delivering on a clearly defined One Altron strategy anchored in four
strategic pillars, namely improve revenue growth; improve profitability; transform the customer experience; and
employee excellence.
We have made considerable progress in the continued divestment of non-core assets, lowering debt levels
and reducing our exposure to the manufacturing sector. Of equal importance was turning the company into
a streamlined organisation with the leaders of our business operations joining the Altron Group Executive
Committee. We have appointed new managing directors in a number of our core businesses, including Bytes
Systems Integration, Bytes Managed Solutions and Altech Netstar to drive the restructuring of these operations.
We created a much leaner head office structure with 36% fewer employees, which has significantly reduced our
corporate cost base.
We have successfully delivered on our stated aim of consistent double digit growth at an earnings before interest,
tax, depreciation and amortisation ("EBITDA") level.
During the period the group's financial performance improved significantly on a normalised and constant
currency basis. The numbers presented in this commentary are shown on this basis.
- Revenue from continuing operations increased by 14% to R14,7 billion
- EBITDA from continuing operations increased by 19% to R1,1 billion
- HEPS from continuing operations increased by 19% to 135 cents
- ROCE from continuing operations 21%
As announced through SENS on 29 September 2017 we completed the acquisition of IT solutions provider Phoenix
Software in the UK. This has enhanced our international footprint, one of our key drivers for future growth.
Altron's strength lies in our diverse customer base of some 20 000 individual businesses which span both private
and public sectors. In order to solidify and reduce the complexity of the customer relationship we embarked on a
comprehensive "One Altron One Customer" sales programme whereby we invested in multi-skilling our sales team
so as to enable them to add value to our customers through the provision of our full suite of end-to-end products
and service offerings.
An element of our strategy was the disposal of the remaining assets no longer core to the business. As
communicated to shareholders on SENS on 4 April 2018 the last of the conditions precedent with regards to the
disposal of Powertech Transformers is expected to be fulfilled by 31 May 2018. Altron anticipates to complete the
disposal of the remaining discontinued operations, CBI Telecom Cables and Altech UEC/Multimedia, in the current
financial year. These residual operations traded profitably during the financial year at an EBITDA level.
During the review period the group's core operations had a satisfactory performance despite the difficult local
economy, a strengthening currency and the one-off costs associated with the various restructuring processes.
Due to the current restructure and right-sizing of the business, as well as the disposal or closure of non-core
operations, the normalised continuing operations' results provide stakeholders with an accurate measure of the
core sustainable earnings of Altron going forward. We have also made adjustments to show the results on a
constant currency basis to remove the impact of the strengthening of the Rand in respect of our UK operations.
The constant currency financial information has been compiled by the directors to illustrate the performance
of the group before the impact of foreign currency movements on Altron's reported financial performance for
the year ended 28 February 2018 for informational purposes only. This information is the responsibility of the
directors and has not been reviewed or audited by the auditors.
FINANCIAL OVERVIEW
INCOME
Continuing operations
Revenue for the continuing operations grew by 14% to R14.7 billion, while EBITDA increased by 19% to
R1.1 billion on a normalised and constant currency basis. The normalised EBITDA margin in turn improved to
7.6% compared to the prior period's 7.3%. Organic EBITDA growth was 13.3%, while the inclusion of Phoenix
Software in the second half of the year delivered acquisitive growth of 5.5%.
Depreciation and amortisation charges increased to R252 million from R222 million in the prior year, while capital
items were a loss of R38 million during the year, mostly as a result of the partial impairment of goodwill at Bytes
Document Solutions. Net interest costs in the continuing operations decreased from R223 million to R178 million.
This decrease is as a result of the repayment of a portion of our loans during the current financial year, together
with the positive interest effect of the equity injection in April 2017.
Normalised and constant currency headline earnings increased by 31% from R382 million to R500 million.
Normalised and constant currency headline earnings per share grew by 19% to 135 cents against the prior year of
113 cents after taking into account the specific issue of shares for cash to Value Capital Partners during the year.
Discontinued operations
The results of the discontinued operations continued to show a significant improvement from the previous year.
EBITDA in the current year improved to a profit of R8 million compared to a prior period loss of R110 million.
The main improvement came out of the Powertech Transformers and Altech UEC/Multimedia businesses which
generated strong EBITDA growth. The results were further assisted by the reduced costs associated with the
closure of the majority of the Powertech group operations.
Similarly, the after tax loss improved significantly from R717 million to R253 million, as a result of a combination
of improved operational performance and a reduction in the interest expense as proceeds from disposals have
been used to reduce debt.
CASH MANAGEMENT
Total operations
The overall net debt of R1.9 billion remained constant compared to the prior year. Cash generated from operations
totalled R1.2 billion for the year. Net working capital increased by R298 million and included the City of Tshwane
debtor in Altech Radio Holdings and the impact of acquisitions. Net finance expenses reduced from the prior year
to R239 million, while tax paid amounted to R141 million.
The group invested R970 million in investment activates for the year, primarily funded out of internally generated
cash. Included in this amount was R698 million relating to the acquisition of Phoenix Software and EZY2C,
R257 million of contract fulfilment costs mainly in Altech Netstar that reflects improved growth in the subscriber
base, investment in property, plant and equipment of R193 million which is roughly in line with the depreciation
charge and broadly maintains the existing capital base, as well as R84 million relating to additions to intangibles
as R&D was capitalised through the year. Also included in investing activities are inflows of R233 million relating to
proceeds on the disposal of non-core businesses.
The R160 million of cash utilised in financing activities is predominantly the net result of the R400 million equity
received from Value Capital Partners and the repayment of term loans of R627 million.
SUBSIDIARY REVIEW
SUBSIDIARY INCOME AND GROWTH
Continuing operations
ICT Operations
After normalising for the factors referred to above, revenue from the group's ICT businesses is up 15% to
R13 billion, with EBITDA increasing by 14% to R884 million and EBITDA margin remaining constant at 6.7%.
This growth was mainly driven by the performance of the international operations.
Bytes UK had another exceptional year, growing revenue by 49% in local currency terms and EBITDA by 29%.
The business benefited from increased market share as well as price increases linked to the weaker British Pound.
The acquisition of Phoenix Software, effective October 2017, added scale to Bytes UK, making it a significant
player in the UK software market and operating in a space with good revenue growth prospects.
On a normalised basis the South African ICT operations saw a 3% decrease in revenue to R6.9 billion but
achieved an 8% increase in EBITDA to R629 million, with the EBITDA margin improving to 9% from 8% in
the prior year. The revenue decline was mostly in Bytes Managed Solutions due to a lack of spend from the
financial sector.
Bytes Secure Transaction Solutions continued to perform well, growing revenue by 8% and EBITDA by 19%,
reaffirming its status as a key growth focus for the group. All components of this business performed well, with
the NuPay division being the outstanding performer. The healthcare side of the business has been successful
in moving into new adjacencies, such as public health records and administration outsource services, thereby
achieving growth in an otherwise stagnant market.
Altech Radio Holdings has seen revenue improve by 2% and EBITDA down by 5% compared to the prior period.
The strategy of diversifying the businesses' product suite to include broadband products and services continues
to yield significant opportunities. In particular a number of broadband network contracts were won during the year under
review, leaving the business well positioned for growth. The results of this business were adversely impacted by
the challenges relating to the City of Tshwane broadband network contract. The court date for the hearing of this
matter has been set down for 22 May 2018, and we remain confident of reaching a settlement prior to this date.
Bytes Document Solutions experienced a challenging year after it reset its cost base through a restructuring
process. On a normalised basis the business achieved a 23% improvement in EBITDA.
Bytes Managed Solutions experienced sharp revenue and EBITDA declines. This was as a result of lower spend
from financial institutions. The business continues to diversify its offerings into retail and hospitality to avoid
future segmental dependency and to return to profitable growth.
Bytes Universal Systems has been merged into Bytes Systems Integration. Despite a year of change, revenues
remained relatively flat while EBITDA in the combined businesses improved slightly based on early integration
efficiencies. The combined business is expected to yield more efficiencies and a better customer experience.
Altech Netstar
Altech Netstar had a strong performance, reporting a 13% increase in revenue and 9% improvement in EBITDA
against the prior year. The business continued to make strides though a number of significant innovation
initiatives including a collision avoidance proximity system, remote jamming detection and jamming resistant
units, together with strong growth into the insurance telematics market. Altech Netstar's acquisition of EZY2C
in Australia during the year, together with its acquisition of Pinpoint in the previous year, produced satisfactory
results in line with the Altron strategy to diversify its off-shore earnings.
Arrow Altech Distribution
Arrow Altech Distribution's revenue was down 7% and EBITDA 18%, both impacted by the stronger rand and
weak demand from the defence industry. In challenging economic conditions, the business maintained its leading
component distributor position in this market, holding onto the significant gains in the market made in the prior
year. The business continues to strategically align itself with its international partner, Arrow Electronics Inc, in
introducing new initiatives to diversify revenue streams.
Discontinued operations
Altech UEC/Multimedia
Altech UEC delivered a mixed performance, decreasing revenue by 20% but generating R44 million EBITDA
compared to the R21 million in the prior year. Subsequent to year-end, the business has been further rationalised
to decrease its cost base. Following the dawn raid by the Competition Commission at, among others, Altech UEC
in November 2017, the potential acquirer at the time withdrew from discussions. Shareholders are referred to
the announcement by Altron on 15 December 2017, with an updated announcement on 22 February 2018 on
the outcome of the independent enquiry conducted by external legal firm, Bowmans. This confirmed Altron's
adherence to due process on 22 February 2018 and cleared the business of any wrongdoing. A new potential
acquirer for this business has since been identified, with these negotiations at an early stage.
Powertech
Significant progress has been made with regard to the disposal of the remaining Powertech businesses. Powertech
Batteries was disposed of effective from 1 July 2017, whilst Powertech System Integrators was sold effective
1 August 2017. Swanib Cables was sold 1 September 2017, while the effective date of the disposals of Powertech
Quadpro and Powertech Switchgear was 31 October 2017. Crabtree was sold effective 1 February 2018.
Together with CBI Telecom Cable Powertech Transformers are the last remaining businesses in the Powertech
stable still to be disposed of.
We expect to finalise the disposal of the three remaining non-core assets within the current year.
DIVIDEND
The board has considered it's dividend policy and intends adopting a 2,5 times cover going forward. An interim
dividend will be declared for the period ending 31 August 2018.
DIRECTORATE
During the past financial year, our board went through a number of changes to ensure alignment to our new
ICT-focused strategy. As part of this process, Mr Mike Leeming was appointed as chairman with effect from
1 March 2017, with Mr Mteto Nyati appointed as Altron Chief Executive with effect from 1 April 2017.
Dr WP Venter was appointed as Chairman Emeritus and non-executive director on 28 February 2017. Mr RE Venter
retired as Chief Executive and assumed a non-executive director position on the Altron board, with effect
from 1 April 2017. The board also appointed Messrs Antony Ball and Sam Sithole as non-executive directors,
with effect from 9 March 2017, and Messrs Brett Dawson and Stewart van Graan as non-executive directors, with
effect from 1 June 2017. Messrs Myron Berzack, Jacob Modise and Simon Susman retired as non-executive directors
of Altron with effect from 31 May 2017.
We also announced the resignation of Mr Alex Smith as Chief Financial Officer ("CFO") and executive director,
with effect from 28 February 2018. Mr Tim Jacobs has been appointed as Acting CFO for a six-month period until
31 August 2018.
As a collective, the board assumes responsibility for organisational performance and brings a wealth of industry
expertise and experience to the group by steering and setting the direction for the realisation of Altron's core
purpose and values through its strategy.
OUTLOOK
Altron is now well-positioned for growth and to execute on its One Altron strategy of offering end-to-end solutions
to its vast customer base. We continue to focus on organic growth, supplemented by selective acquisitions. In
particular:
- Altech Netstar will make a step change in fleet management and telematics growth on the back of
breakthroughs in our routes-to-market;
- we are building a Microsoft practice focusing on cloud computing, data analytics and security. These fourth
industrial revolution capabilities are being built organically and through acquisitions;
- we have developed a Smart City blueprint in collaboration with key players in the local government space. This
blueprint has a strong bias towards safety, security and healthcare. The broadband infrastructure being rolled
out by Altech Radio Holdings is a key enabler;
- we will accelerate our cybertech offering, leveraging our competitive advantage where Altron has already had
wins both in the SA and UK markets; and
- where we have a presence in African countries we will add to our range of activities to include the full suite of
Altron's solutions for our customers.
We remain committed to our stated target of delivering double digit EBITDA growth.
SUMMARISED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
2018 2017
% (Audited) (Audited)
Change R millions R millions
CONTINUING OPERATIONS
Revenue 6 14 743 13 892
Operating costs before capital items (13 708) (12 942)
Earnings before interest, tax, depreciation, amortisation and
capital items (EBITDA before capital items) 9 1 035 950
Depreciation and amortisation (252) (222)
Operating profit before capital items 8 783 728
Capital items (Note 1) (38) 8
Result from operating activities 1 745 736
Finance income 164 218
Finance expense (342) (441)
Share of profit of equity-accounted investees, net of taxation (1) -
Profit before taxation 10 566 513
Taxation (145) (98)
Profit for the year from continuing operations 1 421 415
DISCONTINUED OPERATIONS
Revenue 2 938 5 825
Operating costs before capital items (2 930) (5 935)
EBITDA before capital items 8 (110)
Depreciation and amortisation - -
Operating profit/(loss) before capital items 107 8 (110)
Capital items (Note 1) (271) (496)
Result from operating activities (263) (606)
Finance income 56 45
Finance expense (77) (117)
Loss before taxation (284) (678)
Taxation 31 (39)
Loss for the year from discontinued operations (253) (717)
Profit/(loss) for the year from total operations 168 (302)
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurement of net defined benefit asset (5) 26
Items that are or may be reclassified subsequently to profit or loss
Foreign currency translation differences in respect of foreign operations (62) (59)
Realisation of foreign currency translation reserve on disposal of subsidiaries - (154)
Effective portion of changes in the fair value of cash flow hedges 2 (7)
Transfer to reserves (3) -
Other comprehensive income for the year, net of taxation (68) (194)
Total comprehensive income for the year 100 (496)
Profit/(loss) attributable to:
Non-controlling interests (19) (117)
Non-controlling interests from continuing operations 17 20
Non-controlling interests from discontinued operations (36) (137)
Altron equity holders 187 (185)
Altron equity holders from continuing operations 404 395
Altron equity holders from discontinued operations (217) (580)
Profit/(loss) for the year from total operations 168 (302)
Total comprehensive income attributable to:
Non-controlling interests (18) (118)
Non-controlling interests from continuing operations 17 20
Non-controlling interests from discontinued operations (35) (138)
Altron equity holders 118 (378)
Altron equity holders from continuing operations 356 341
Altron equity holders from discontinued operations (238) (719)
Total comprehensive income for the year 100 (496)
Basic earnings per share from continuing operations (cents) (7) 109 117
Diluted earnings per share from continuing operations (cents) (7) 108 116
Basic loss per share from discontinued operations (cents) 66 (58) (171)
Diluted loss per share from discontinued operations (cents) 66 (58) (171)
Basic earnings/(loss) per share from total operations (cents) 194 51 (54)
Diluted earnings/(loss) per share from total operations (cents) 191 50 (55)
SUMMARISED CONSOLIDATED
BALANCE SHEET
2018 2017
(Audited) (Audited)
R millions R millions
Assets
Non-current assets 3 709 2 816
Property, plant and equipment 615 569
Intangible assets, including goodwill 1 669 1 029
Equity-accounted investments 20 23
Other investments 468 302
Rental finance advances 98 113
Non current receivables and other assets 461 404
Defined benefit asset 164 178
Deferred taxation 214 198
Current assets 5 749 6 735
Inventories 993 1 046
Trade and other receivables, including derivatives 3 270 2 669
Assets classified as held-for-sale 714 1 644
Taxation receivable 4 3
Cash and cash equivalents 768 1 373
Total assets 9 458 9 551
Equity and liabilities
Total equity 2 545 2 028
Non-current liabilities 1 491 1 971
Loans 1 413 1 923
Provisions 5 5
Deferred taxation 73 43
Current liabilities 5 422 5 552
Loans 314 312
Bank overdraft 972 956
Trade and other payables, including derivatives 3 582 3 177
Provisions 20 16
Liabilities classified as held-for-sale 465 1 024
Taxation payable 69 67
Total equity and liabilities 9 458 9 551
Net asset value per share (cents) 752 669
SUMMARISED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
Attributable to Altron equity holders
Share
capital Non-
and Treasury Retained controlling Total
premium shares Reserves earnings Total interests equity
R millions R millions R millions R millions R millions R millions R millions
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) - - - -
Share-based payment transactions - - 11 - 11 1 12
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
Total comprehensive income for the year
Profit for the year - - - 187 187 (19) 168
Other comprehensive income
Foreign currency translation differences in respect of
foreign operations - - (62) - (62) - (62)
Remeasurement of net defined benefit asset - - (5) - (5) - (5)
Effective portion of changes in the fair value of cash
flow hedges - - 1 - 1 1 2
Transfer to reserves - - (3) (3) - (3)
Total other comprehensive income - - (69) - (69) 1 (68)
Total comprehensive income for the year - - (69) 187 118 (18) 100
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders - - - - - (5) (5)
Issue of share capital 413 - (13) - 400 - 400
Share-based payment transactions - - 20 - 20 - 20
Total contributions by and distributions to owners 413 - 7 - 420 (5) 415
Changes in ownership interests in subsidiaries
Buy-back of non-controlling interest - - (16) - (16) 16 -
Acquisition of subsidiary - - - - - 2 2
Total changes in ownership interests in subsidiaries - - (16) - (16) 18 2
Total transactions with owners 413 - (9) - 404 13 417
Balance at 28 February 2018 (Audited) 3 160 (299) (2 614) 2 543 2 790 (245) 2 545
Dividends per share declared (cents) - nil (2017: nil)
SUMMARISED CONSOLIDATED
STATEMENT OF CASH FLOWS
2018 2017
(Audited) (Audited)
R millions R millions
Cash flows from operating activities 581 94
Cash generated by operations 1 233 1 308
Interest received 178 241
Interest paid (417) (557)
Dividends received from equity accounted investees and other investments 32 23
Changes in working capital (298) (821)
Taxation paid (141) (96)
Dividends paid, including to non-controlling interests (6) (4)
Cash flows (utilised in)/generated from investing activities (970) 1 580
Proceeds on the disposal of subsidiaries and businesses net of cash 233 2 060
Acquisition of subsidiaries, net of cash (698) -
Additions to intangible assets (84) (123)
Additions to property, plant and equipment (193) (191)
Investment in contract fulfilment costs (257) (237)
Other investing activities 29 71
Cash flows utilised in financing activities (160) (1 479)
Loans repaid (627) (3 532)
Proceeds from share issue 400 -
Loans advanced 67 2 065
Other financing activities - (12)
Net (decrease)/increase in cash and cash equivalents (549) 195
Net cash and cash equivalents at the beginning of the year 329 326
Cash and cash equivalents at the beginning of the year 417 206
Cash previously classified as held-for-sale (88) 120
Effect of exchange rate fluctuations on cash held 16 (192)
Cash classified as held-for-sale - 88
Net cash and cash equivalents at the end of the year (204) 417
NOTES
BASIS OF PREPARATION
The 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
summarised consolidated 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 financial statements.
This report was compiled under the supervision of Mr Tim Jacobs CA (SA), Acting Chief Financial Officer.
REPORT OF THE INDEPENDENT AUDITORS
These summarised consolidated financial statements for the year ended 28 February 2018 have been audited
by KPMG Inc., who expressed an unmodified opinion thereon. The auditor also expressed an unmodified opinion
on the consolidated financial statements from which these summarised consolidated financial statements were
derived. A copy of the auditor's report on the summarised consolidated financial statements and of the auditor's
report on the 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.
2018 2017
Movement
year on year (Audited) (Audited)
Headline earnings per share from continuing operations (cents) 4% 119 114
Normalised headline earnings per share from continuing operations
(cents) 16% 135 116
Headline earnings/(loss) per share from discontinued operations
(cents) 105% 2 (43)
Headline earnings per share from total operations (cents) 70% 121 71
Diluted headline earnings per share from total operations (cents) 69% 120 71
1. CAPITAL ITEMS
CONTINUING OPERATIONS
Net profit on disposal of property, plant and equipment 1 1
Reversal of impairment - 10
Impairment of property, plant and equipment (17) (3)
Impairment of goodwill (30) -
Profit on disposal of subsidiary and businesses - 2
Reversal of provision related to East Africa disposal 10 -
Impairment of historic proceeds receivable (2) -
Impairment of equity-accounted investment - (2)
(38) 8
DISCONTINUED OPERATIONS
(Loss)/profit on disposal of discontinued operations (90) 22
Impairment of intangible assets (6) (16)
Net profit on disposal of property, plant and equipment - 12
Release of foreign currency translation surplus - 22
Release of discontinuance provision - 12
Impairment of held-for-sale disposal groups (175) (548)
(271) (496)
TOTAL (309) (488)
2. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS
AND HEADLINE EARNINGS
Attributable to Altron equity holders 187 (185)
Capital items - gross 309 488
Tax effect of capital items (22) 11
Non-controlling interests in capital items (26) (74)
Headline earnings 448 240
3. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS
AND HEADLINE EARNINGS FROM CONTINUING
OPERATIONS
Attributable to Altron equity holders 404 395
Capital items - gross 38 (8)
Tax effect of capital items (1) -
Headline earnings 441 387
4. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS
AND HEADLINE EARNINGS FROM DISCONTINUED
OPERATIONS
Attributable to Altron equity holders (217) (580)
Capital items - gross 271 496
Tax effect of capital items (21) 11
Non-controlling interests in capital items (26) (74)
Headline earnings 7 (147)
5. RECONCILIATION BETWEEN HEADLINE EARNINGS AND
NORMALISED HEADLINE EARNINGS
Normalised headline earnings from continuing operations have been
presented to demonstrate the impact of material once-off costs on
the headline earnings of the group.
The presentation of normalised headline earnings is not
an IFRS requirement.
Headline earnings from continuing operations 441 387
Foreign currency gains on deferred acquisition liability (6) -
Retrenchment and restructuring costs 77 -
Acquisition related costs 8 -
Contribution from closed businesses - 6
Tax effect of adjustments (20) (2)
500 391
6. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS AND
DILUTED EARNINGS
There were no reconciling items between attributable earnings and diluted earnings
7. ACQUISITION OF SUBSIDIARIES AND BUSINESS
Acquisition of Fleet Logistics (Pty) Limited ("EZY2C")
Effective 1 July 2017, Altech Netstar acquired 100% of the issued share capital of EZY2C in Australia,
a provider of fleet and asset management solutions, for a purchase price of A$15,9 million, of which
A$8,7 million was paid upfront and the remainder is payable and determined on the achievement of certain
earn-out targets over the next two years. The acquisition contributed revenue of R54 million and a net
profit after tax of R16 million to the group. If the company was acquired on 1 March 2017, the contributed
revenue would have been R75 million and the net profit after tax would have been R18 million. Goodwill of
R140 million was recognised and relates to a premium paid to increase our footprint in Australia.
These amounts as indicated above have been calculated using the group's accounting policies:
Carrying Fair value Recognised
amount adjustments values
The following table summarises the recognised amounts of
assets acquired and liabilities assumed at the date of acquisition
and a reconciliation of the cash outflow for the acquisition: R millions R millions R millions
Non-current assets 1 17 18
Current assets 11 - 11
Non-current liabilities - (5) (5)
Current liabilities (5) - (5)
Total net assets on acquisition 7 12 19
Goodwill on acquisition 140
Total purchase consideration 159
Less: Cash and cash equivalents in subsidiaries and businesses
acquired (2)
Less: Deferred purchase consideration (70)
Net cash outflow on acquisitions 87
Acquisition of Blenheim Group Limited ("Phoenix")
On 1 October 2017, Bytes Technology Group Limited (Bytes UK) acquired 100% of the issued share capital
of Blenheim Group Limited.
Blenheim is the holding company of Phoenix Software Limited, a business focused on the resale of software
products and associated services.
The purchase consideration paid of GBP35,9 million was funded from a combination of cash resources in
Bytes UK, existing group facilities and a new trade finance facility in Bytes UK. The acquisition contributed
revenue of R843 million and a net profit after tax of R18 million to the group.
If the company was acquired on 1 March 2017, the contributed revenue would have been R2,283 million
and the net profit after tax would have been R59 million.
Goodwill of R415 million was recognised and relates to a premium paid to increase our footprint in the
United Kingdom.
These amounts as indicated above have been calculated using the group's accounting policies:
Carrying Fair value Recognised
amount adjustments values
The following table summarises the recognised amounts of
assets acquired and liabilities assumed at the date of acquisition R millions R millions R millions
and a reconciliation of the cash outflow for the acquisition:
Non-current assets 24 241 265
Current assets 320 - 320
Non-current liabilities (2) (41) (43)
Current liabilities (305) - (305)
Total net assets on acquisition 37 200 237
Goodwill on acquisition 415
Total purchase consideration 652
Less: Cash and cash equivalents in subsidiaries and businesses
acquired (72)
Net cash outflow on acquisitions 580
8. DISPOSAL OF SUBSIDIARIES AND BUSINESSES
All the operations listed below formed part of the Powertech group, which has been disclosed as a
discontinued operation. These disposals were completed as part of the group's stated intention of reducing
its exposure to the manufacturing sector.
DISPOSAL OF 100% INTEREST IN THE AUTO X (PTY) LTD GROUP (POWERTECH BATTERY GROUP)
Effective 1 July 2017, Powertech Industries (Pty) Ltd disposed of 100% of its equity interest in the Auto X
group for R324 million.
R188 million was received on the effective date, while the balance of the proceeds will be settled out of
actual receipts received by Auto X from the Automotive Production Development Programme.
This receivable is in the form of a preference share, with a carrying value of R91 million at 28 February
2018. The preference share receivable in Auto X is included in other investments on the group's balance
sheet.
DISPOSAL OF 100% INTEREST IN WEBROY (PTY) LTD
Effective 1 March 2017, Powertech Industries disposed of 100% of its equity interest in Webroy for
R11 million.
DISPOSAL OF 100% INTEREST IN POWERTECH SYSTEM INTEGRATORS (PTY) LTD ("PTSI")
Effective 1 August 2017, Power Technologies (Pty) Ltd disposed of 100% of its equity interest in PTSI for
R20 million.
DISPOSAL OF QUADPRO SOUTH AFRICA (PTY) LTD ("QUADPRO")
Effective 31 October 2017, Power Technologies (Pty) Ltd disposed of 100% of its equity interest in Quadpro
for R10 million.
DISPOSAL OF SWANIB CABLES (PTY) LTD
Effective 1 September 2017, Power Technologies International Holdings (Pty) Ltd disposed of 100% of its
equity interest in Swanib for R56 million.
DISPOSAL OF CRABTREE, A DIVISION OF POWERTECH INDUSTRIES (PTY) LTD
Effective 1 February 2018, Powertech Industries disposed of its Crabtree division for R40 million.
The table below summarises the assets and liabilities of the operations disposed during the
year and a reconciliation of the cash proceeds received on disposal:
R million
Non-current assets 126
Current assets 680
Non-current liabilities (1)
Current liabilities (289)
Disposal value 516
Less: Preference share receivable (80)
Less: Proceeds receivable (16)
Loss on disposal of subsidiaries and businesses (88)
Cash and cash equivalents disposed (116)
Proceeds received on disposal 216
9. DISCONTINUED OPERATIONS
IMPAIRMENT OF HELD-FOR-SALE DISPOSAL GROUPS
Previously, the decision was taken to dispose of the Powertech group and the Multimedia 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.
The disposal groups are stated at fair value less costs to sell. The non-recurring fair value measurement
of the disposal groups was determined with reference to amongst other things indicative offers 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.
Management believe that the conclusion of the remaining disposals will be effected within the next
12 months.
The Powertech and Mutimedia group businesses were previously classified as held-for-sale as well as
discontinued operations.
Net assets of disposal group held-for-sale:
2018 2017
R millions R millions
Total Total
Assets classified as held-for-sale 714 1 644
Non-current assets 129 392
Current assets 585 1 252
Liabilities classified as held-for-sale (465) (1 024)
Non-current liabilities (5) (16)
Current liabilities (460) (1 008)
Breakdown of disposal groups held-for-sale:
Breakdown of disposal groups held-for-sale:
2018 2018 2018 2018
R millions R millions R millions R millions
Powertech Multimedia
Transformers Group Other Total
670 228 138 1 036
Non-current assets 224 60 5 289
Current assets 446 168 133 747
Impairment of held for sale disposal group (322)
Assets classified as held-for-sale 714
Liabilities classified as held-for-sale (263) (160) (42) (465)
Non-current liabilities - (5) - (5)
Current liabilities (263) (155) (42) (460)
Breakdown of disposal groups held-for-sale:
2017 2017 2017 2017 2017 2017
R millions R millions R millions R millions R millions R millions
Powertech Powertech
System Battery Powertech Multimedia
Integrators Group Transformers Group Other Total
182 498 805 348 359 2 192
Non-current assets 25 164 307 141 216 853
Current assets 157 334 498 207 143 1 339
Impairment of held
for sale disposal group (548)
Assets classified as held-for-sale 1 644
Liabilities classified
as held-for-sale (109) (124) (276) (290) (225) (1 024)
Non-current liabilities - - (5) (9) (2) (16)
Current liabilities (109) (124) (271) (281) (223) (1 008)
Cash flows of discontinued operations:
2018 2017
R millions R millions
Net cash utilised in operating activities (178) (21)
Net cash generated from investing activities 186 878
Net cash utilised in financing activities (9) (20)
Net cash flow for the year (1) 837
10. POST BALANCE SHEET EVENTS
Meaningful progress has been made with regards to the fulfilment of the conditions precedent to the
Powertech Transformers transaction. The last of the conditions precedent is expected to be fulfilled by
31 May 2018.
11. RELATED PARTY TRANSACTIONS
The group entered into various sale and purchase transactions with related parties in the ordinary course
of business.
Exposure to Credit Risk: Gross trade receivable with Thobela Telecoms ("TT")
Altech Radio Holdings ("ARH") holds a jointly controlled interest in TT. TT is the vehicle through which the
City of Tshwane ("CoT") has contracted for the procurement and installation of a fibre broadband network
("CoT project"). ARH has in turn been contracted by TT to complete implementation of the CoT project.
In the current year, CoT initiated legal proceedings to halt progress on the project combined with a review
of the tender given concerns over internal CoT irregularities related to the tender process.
As at year end a balance of R265 million remains outstanding from TT.
Internal legal counsel as well as management's external legal representatives have been continuously
involved in the legal dispute with CoT on behalf of ARH, TT and the other partners.
There are currently settlement discussions between CoT, TT and ARH in an attempt to reach a conclusion on
the matter and recover the outstanding balance. Should the settlement discussions not succeed CoT's court
review application will be heard during May 2018. Management believe the possibility of CoT's review application
succeeding is remote.
As at year-end management has not raised a provision in respect of the outstanding balance of R265 million from TT.
The nature of all other related party transactions is consistent with those reported previously.
12. FINANCIAL INSTRUMENTS AT FAIR VALUE
The group measures two preference share investments, its derivative foreign exchange contracts used for
hedging and contingent purchase considerations at fair value.
The TAR ("Technology Acceptance Receivable") 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 (earn-out on acquisitions) 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 considerations was assessed as R66 million at year end which resulted in
a remeasurement loss of R2 million.
The derivative foreign exchange contracts used for hedging working capital exposures 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.
A market comparison technique is used to determine fair value. The fair value of the derivative foreign
exchange contracts was assessed as R72 million (liability) at year end which resulted in a remeasurement
loss of R41 million.
The preference share investment in Auto X is disclosed as a level 3 financial assets 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 rates and the estimated timing and quantum of anticipated cash flows from the Automotive
Production Development Programme.
There were no transfers between Levels 1, 2 or 3 of the fair value hierarchy for the year ended
28 February 2018.
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.
13. STANDARDS ISSUED BUT NOT YET EFFECTIVE
The group is required to adopt IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with
Customers from 1 March 2018, and IFRS 16 Leases from 1 March 2019. The group has made an initial
assessment of the impact that the standards will have on its financial statements and is in the process of
quantifying the impact on equity as at 1 March 2018 and 1 March 2019. Further the group is in the process
of implementing changes to its processes relating to revenue, financial instruments and leases.
IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS (SALE OF GOODS, SERVICES)
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue
is recognised.
