Operational Update and Trading Statement

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

Altron is currently finalising its financial results for the year ended 28 February 2023 (the “period”) which
results are expected to be released on the Stock Exchange News Service on or about 15 May 2023.

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 the 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, a review by management of the financial results for the period has indicated that Altron’s results
will differ by at least 20% from the prior year as set out below.

OPERATIONAL UPDATE

Group Overview

Notwithstanding the increasingly tough trading conditions, the Group’s continuing operations have
pleasingly delivered robust double-digit revenue growth year-on-year (“YoY”), evidencing Altron’s resilient
high annuity base. Normalising for the Once-off Adjustments referred to below, EBITDA across continuing
operations delivered robust growth YoY. The variance between the increase in revenue growth and the
lower EBITDA growth, is largely due to margin pressures in two of Altron’s largest revenue contributing
businesses, Netstar and Altron Systems Integration (“ASI”). Both businesses are implementing their
accelerated performance improvement strategies, which are gaining positive momentum in FY24. The
Group continues to remain strongly cash generative and is sufficiently capitalised, providing a solid platform
to execute the immediate strategic initiatives.

Group results for the period were positively impacted by several factors, including:

– Positive momentum from Altron Karabina’s profit improvement strategy, driving an improvement in
operating leverage;
– Improved hardware sales in Altron FinTech (“FinTech”), Altron Managed Solutions (“AMS”) and
Altron Arrow as product demand intensified;
– Altron Security delivered a strong performance, underpinned by increased demand and the
acquisition of LawTrust; and
– Disciplined cost management and process efficiencies produced solid performance within AMS.

However, margin pressures experienced by ASI and Netstar, which are currently the subject of
accelerated performance improvement strategies; together with the following once-off non-cash
adjustments (“Once-Off Adjustments”), had a negative impact on Group earnings:

– Following reports released in January 2023, that the Auditor General had identified material
uncertainties in the City of Tshwane’s (“CoT”) 2022 financial statements relating to going concern,
management in accordance with auditing, accounting and reporting principles, decided to follow a
conservative approach and provide R134 million in respect of part of Altron Nexus’ (“Nexus”)
exposure to CoT. This provision is raised for Altron’s accounting purposes and does not constitute
any waiver, nor does it mean that Altron is abandoning its rights and claim. On a successful
outcome of recovery greater than the carrying amount, the respective provision will be reversed in
the relevant financial results. Despite the raising of this provision, significant progress has been
made on the matter, with the Constitutional Court ruling the contract valid and binding on 19 May
2021, CoT embarking on a section 116(3) of the Municipal Finance Management Act process in
October 2022, the parties signing an arbitration agreement on 5 April 2023, and the arbitration
process having commenced on 12 April 2023 in parallel with the aforesaid section 116(3)
process.
– The extension of the Gauteng Broadband Network contract, for phase 2 (“GBN2”) came to an end
on 8 March 2023. The rollout of the project experienced delays outside of Altron’s control,
resulting in fewer sites being deployed than initially scoped for in the original tender awarded. An
assessment was performed over the inventory pertaining to this project, resulting in an
impairment of R31 million in Nexus.
– As announced on 28th February 2023, the sale of Altron Document Solutions to Bi-Africa
Investment Holdings Proprietary Limited (“Bi-Africa“) was terminated. While all regulatory approvals
were received, Bi-Africa and the Original Equipment Manufacturer could not conclude a distribution
agreement satisfactory to both parties, a condition precedent, resulting in the termination of the
transaction. An assessment of Altron’s assets held for sale resulted in a provision on inventory held
of R74 million and an impairment of R30 million on an outstanding receivable.

Digital Transformation

The Digital Transformation segment achieved double-digit growth in both revenue and EBITDA YoY.
Altron Security recorded exceptionally strong growth YoY, more than doubling both revenue and EBITDA,
boosted by the inclusion of its latest acquisition, LawTrust, for the full 12 months. Excluding the impact of
LawTrust, the operation still delivered solid double-digit YoY organic growth in EBITDA, through growing its
customer base and rigorous cost control. Altron Security is experiencing increasing demand and is perfectly
positioned to solve for Cyber Security threats, which are front and center for Altron’s clients.

Altron Karabina continues to deliver robust growth in revenue and double-digit growth in EBITDA YoY, since
its profit improvement strategy which commenced in FY22. Growth in revenue was underpinned by gaining
market share in the licensing business unit, which grew revenues by over 50% YoY. Growth in EBITDA
was supported by a strong focus on cost reduction to improve operational leverage. The total contract value
signed in the year remains in line with the prior year, with backlog orders increasing by R30 million against
the comparative period, positioning the business for further growth.

ASI continued to face challenges as flagged at the Group’s interim results presentation, with double-digit
growth in revenue YoY, but a disappointing EBITDA performance for the year. ASI’s profit improvement
strategy focuses on increasing sales and rightsizing the cost base. A new head of sales was appointed for
the Digital Transformation segment, with a focused strategy on industry segmentation and collaboration
across the Group. The costs associated with closing down and reorganizing business units have negatively
impacted on the already subdued performance for the year.

Own Platforms

The Own Platforms segment achieved double-digit growth in revenue and single-digit growth in EBITDA
YoY. Growth in EBITDA was impacted by margin pressures experienced in Netstar.

Netstar continued to face the headwinds highlighted during Altron’s interim results and despite double-digit
growth in revenue YoY, growth in EBITDA was disappointingly flat YoY. Effective 1 January 2023, we
announced the appointment of Grant Fraser as the new Managing Director of Netstar. Grant was formerly
the CEO of an integrated security solutions business, following which he took up the role as COO of a
stolen vehicle recovery and fleet focused telematics business. He has extensive experience in fleet
management telematics solutions and is implementing Netstar’s profit improvement strategy for FY24. The
benefits of this strategy are gaining positive momentum, with an over 48% increase in our lead to fitment
ratio and the repositioning of Netstar’s fleet business for growth, which has already resulted in the sign up
of key new fleet customers for FY24. Netstar is an exciting business for the Group and the refocus will open
key opportunities in the Big Data space, as it continues to digitalize mobile assets for its customers.

FinTech achieved double-digit growth YoY in both revenue and EBITDA. FinTech’s performance was
underpinned by higher hardware sales, which benefited from a combination of migration from Linux to
Android operating system terminals and a cycle of compliance-drive-refreshes of payment card industry
equipment by the majority of South Africa’s top-tier banks. In addition, both the volume and value of
transactions processed through its financial switch increased.

Altron HealthTech delivered single-digit growth YoY in both revenue and EBITDA. Patient transactions were
negatively impacted by medical aid patients running out of their medical aid benefits earlier in the year, as
well as loadshedding which continues to disrupt patient visits to their medical practitioners. EBITDA was
impacted by R11.7 million of investment which was fully expensed in the year. This investment relates to
transforming the business to a cloud-based platform business model, to drive new sources of future
revenue. This will enable Altron HealthTech to partner globally; build innovative solutions and scale the
business.

Managed Services

The Managed Services segment achieved double-digit revenue growth YoY, however EBITDA was
negatively impacted by once-off provisions.

AMS delivered single-digit growth in revenue and strong double-digit growth in EBITDA YoY, demonstrating
the improved delivery on operational leverage. In the first half of FY23, external cost pressures negatively
impacted margins in the IT Services & Retail Support division. In the second half of FY23, operational
efficiencies were implemented to re-align the cost base, resulting in improved margins and positioning the
business for growth within the retail and IT services segment.

Nexus achieved double-digit growth in revenue YoY, however EBITDA was negatively impacted by the
provisions raised for CoT and GBN2 inventory. Normalizing for the impact of these two provisions, the core
Nexus business achieved over 100% growth in EBITDA, as it continues to de-gear its exposure to the public
sector and focus on its strengths in the higher margin critical communications solutions, which it overlays
with enterprise networking solutions.

Altron Arrow

Altron Arrow continues to outperform expectations against prior years, achieving double-digit growth YoY
in revenue and more than doubling EBITDA. The business signed on key new contracts during the year for
component parts, as demand continues to increase. Altron Arrow is also successfully diversifying its offering
into Enterprise Computing Solutions, with a core focus on Cyber Security software sales. Reduction of
operating costs and streamlining business processes using artificial intelligence and technology, achieved
improved operating leverage across the business.
Projected Ranges

Despite margin pressures in Netstar and ASI, Altron continues to deliver strong results. Normalizing for the
Once-off Adjustments noted above, the Group is expected to deliver normalized earnings from continuing
operations in the range of:

Normalized Projected range 28 February 2022(2) Percentage range

continuing operations 28 February 2023(1)

Revenue R9,04 billion to R9,83 R7,93 billion 14% to 24% higher
billion

EBITDA R1,21 billion to R1,45 R1,19 billion 1% to 21% higher
billion

Earnings per share 73 cents per share to 43 cents 70% to 88% higher
(“EPS”) 81 cents per share

Headline earnings per 81 cents per share to 75 cents 8% to 28% higher
share (“HEPS”) 96 cents per share

Note 1:
FY 23 was adjusted by a total amount of 44 cents to reverse the impact of the provision raised against the CoT exposure and the
inventory provision pertaining to the GBN2 project within Nexus.

Note 2:
FY 22 was adjusted by a total amount of 24 cents, to reverse the impact of the IFRS 2 charge which relates to the modification of
share-based payments because of the Bytes UK demerger, AIMS vendor financing loan impairment, and severance costs.

At a Group level actual numbers are expected to be:

Altron Group Projected range Actual Percentage range
28 February 2023 28 February 2022

Revenue R10,38 billion to R11,33 R9,52 billion 9% to 19% higher
billion

EBITDA R0,99 billion to R1,10 R1,1 billion (10%) lower to 0%
billion
EPS (4) cents per share to 0 (28) cents 86% to 100% higher
cents per share

HEPS 25 cents per share to 37 cents (32%) to (14%) lower
32 cents per share

Year End Results Presentation

The Group’s financial results for the year ended 28 February 2023 will be published on www.altron.com at
07:05 CAT on Monday, 15 May 2023, with the investor presentation hosted virtually via webcast at 09:30
CAT on the same day. Registration to attend the webcast can be accessed via the following link: Click here

(https://event-rsvp.com/AltronFinancialResults2023/l/E2PLLVZFV3).

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
17 April 2023

Sponsor
Investec Bank Limited

Date: 17-04-2023 07:05:00
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