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AEL: ALLIED ELECTRONICS CORPORATION LIMITED - 2017 Unaudited Consolidated Interim Results for the six months ended 31 August 2017
25 October, 2017
AEL: ALLIED ELECTRONICS CORPORATION LIMITED - 2017 Unaudited Consolidated Interim Results for the six months ended 31 August 2017
2017 Unaudited Consolidated Interim Results for the six months ended 31 August 2017
ALLIED ELECTRONICS
CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1947/024583/06)
Share code: AEL ISIN: ZAE000191342
2017
UNAUDITED CONSOLIDATED
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2017
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year
ended ended ended
% 31.08.17 31.08.16 28.02.17
R million change (Unaudited) (Unaudited) (Audited)
CONTINUING OPERATIONS
Revenue (10) 6 792 7 537 13 892
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 2 452 445 950
Depreciation and amortisation (118) (108) (222)
Operating profit before capital items (1) 334 337 728
Capital items (note 1) (16) (1) 8
Result from operating activities 318 336 736
Finance income 85 111 218
Finance expense (172) (194) (441)
Share of profit of equity-accounted investees,
net of taxation (1) - -
Profit before taxation 230 253 513
Taxation (60) (66) (98)
Profit for the period from continuing operations 170 187 415
DISCONTINUED OPERATIONS
Revenue 1 905 3 890 5 825
Earnings before interest, tax, depreciation and
amortisation (EBITDA) (9) (65) (110)
Depreciation and amortisation - - -
Operating loss before capital items (9) (65) (110)
Capital items (note 1) (63) (107) (496)
Result from operating activities (72) (172) (606)
Finance income 25 9 45
Finance expense (42) (96) (117)
Share of profit of equity-accounted investees,
net of taxation - 17 -
Loss before taxation (89) (242) (678)
Taxation (6) 18 (39)
Loss for the period from discontinued operations (95) (224) (717)
Profit/(loss) for the period from total operations 75 (37) (302)
Other comprehensive income
Items that will never be reclassified to profit or loss
Remeasurement of net defined benefit asset/obligation - - 26
Items that are or may be reclassified subsequently to
profit or loss
Foreign currency translation differences in respect of
foreign operations 5 (28) (59)
Realisation of foreign currency translation reserve on
disposal - (132) (154)
Effective portion of changes in the fair value of cash flow
hedges 5 - (7)
Other comprehensive income for the period, net of
taxation 10 (160) (194)
Total comprehensive income for the period 85 (197) (496)
Six months Six months Year
ended ended ended
% 31.08.17 31.08.16 28.02.17
R million change (Unaudited) (Unaudited) (Audited)
Net profit/(loss) attributable to:
Non-controlling interests (12) (57) (117)
Non-controlling interests from continuing operations 7 5 20
Non-controlling interests from discontinued operations (19) (62) (137)
Altron equity holders 87 20 (185)
Altron equity holders from continuing operations 163 182 395
Altron equity holders from discontinued operations (76) (162) (580)
Net profit/(loss) for the period 75 (37) (302)
Total comprehensive income attributable to:
Non-controlling interests (11) (56) (118)
Non-controlling interests from continuing operations 7 5 20
Non-controlling interests from discontinued operations (18) (61) (138)
Altron equity holders 96 (141) (378)
Altron equity holders from continuing operations 178 141 341
Altron equity holders from discontinued operations (82) (282) (719)
Total comprehensive income for the period 85 (197) (496)
Basic earnings per share from continuing
operations (cents) 44 54 117
Diluted basic earnings per share from continuing
operations (cents) 44 53 116
Basic loss per share from discontinued
operations (cents) (21) (48) (171)
Diluted basic loss per share from discontinued
operations (cents) (21) (47) (171)
Basic earnings/(loss) per share from total
operations (cents) 23 6 (54)
Diluted basic earnings/(loss) per share from total
operations (cents) 23 6 (55)
CONDENSED CONSOLIDATED BALANCE SHEET
31.08.17 31.08.16 28.02.17
R million (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current assets 3 187 2 907 2 816
Property, plant and equipment 570 591 569
Intangible assets including goodwill 1 193 1 055 1 029
Equity-accounted investments 23 5 23
Other investments 503 321 302
Rental finance advances 95 128 113
Non-current receivables and other assets 432 383 404
Defined benefit asset 162 192 178
Deferred taxation 209 232 198
Current assets 5 626 7 624 6 735
Inventories 931 899 1 046
Trade and other receivables, including derivatives 2 605 2 874 2 669
Assets classified as held-for-sale 1 013 2 399 1 644
Taxation receivable 5 3 3
Cash and cash equivalents 1 072 1 449 1 373
Total assets 8 813 10 531 9 551
EQUITY AND LIABILITIES
Total equity 2 523 2 352 2 028
Equity holders of Altron 2 760 2 729 2 268
Non-controlling interests (237) (377) (240)
Non-current liabilities 1 694 198 1 971
Loans 1 633 159 1 923
Provisions 4 5 5
Deferred taxation 57 34 43
Current liabilities 4 596 7 981 5 552
Loans 323 2 017 312
Bank overdraft 808 1 217 956
Trade and other payables, including derivatives 2 654 3 426 3 177
Provisions 19 7 16
Liabilities classified as held-for-sale 739 1 189 1 024
Taxation payable 53 125 67
Total equity and liabilities 8 813 10 531 9 551
Net asset value per share (cents) 744 807 669
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to Altron equity holders
Share
capital Non-
and Treasury Retained controlling Total
R million premium shares Reserves earnings Total interests equity
Balance at 29 February 2016
(Audited) 2 735 (299) (2 320) 2 731 2 847 (111) 2 736
Total comprehensive income for the
period
Profit for the period - - - 20 20 (57) (37)
Other comprehensive income
Foreign currency translation
differences in respect of foreign
operations - - (29) - (29) 1 (28)
Realisation of foreign currency
translation reserve on disposal of
subsidiaries - - (132) - (132) - (132)
Transfer between reserves - - 190 (190) - - -
Total other comprehensive income - - 29 (190) (161) 1 (160)
Total comprehensive income for the
period - - 29 (170) (141) (56) (197)
Transactions with owners,
recorded directly in equity
Contributions by and distributions
to owners
Dividends to equity holders - - - - - (4) (4)
Issue of share capital 7 - - - 7 - 7
Disposal of non-controlling interest - - - - - (207) (207)
Share-based payment transactions - - 16 - 16 1 17
Total contributions by and
distributions to owners 7 - 16 - 23 (210) (187)
Total transactions with owners 7 - 16 - 23 (210) (187)
Balance at 31 August 2016
(Unaudited) 2 742 (299) (2 275) 2 561 2 729 (377) 2 352
Total comprehensive income for the
period
Loss for the period - - - (205) (205) (60) (265)
Other comprehensive income
Foreign currency translation
differences in respect of foreign
operations - - (30) - (30) (1) (31)
Remeasurement of defined benefit
obligation - - 26 - 26 - 26
Realisation of foreign currency
translation reserve on closure of
held for sale group - - (22) - (22) - (22)
Effective portion of changes in the
fair value of cash flow hedges - - (6) - (6) (1) (7)
Total other comprehensive income - - (32) - (32) (2) (34)
Total comprehensive income for the
period - - (32) (205) (237) (62) (299)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to Altron equity holders
Share
capital Non-
and Treasury Retained controlling Total
R million premium shares Reserves earnings Total interests equity
Transactions with owners,
recorded directly in equity
Contributions by and distributions
to owners
Share-based payment transactions - - (5) - (5) - (5)
Issue of share capital 5 - (12) - (7) - (7)
Disposal of non-controlling interest - - - - - (1) (1)
Total contributions by and
distributions to owners 5 - (17) - (12) (1) (13)
Changes in ownership interests in
subsidiaries
Buy-back of non-controlling interest - - (212) - (212) 200 (12)
Total changes in ownership
interests in subsidiaries - - (212) - (212) 200 (12)
Total transactions with owners 5 - (229) - (224) 199 (25)
Balance at 28 February 2017
(Audited) 2 747 (299) (2 536) 2 356 2 268 (240) 2 028
Total comprehensive income for the
period
Profit for the period - - - 87 87 (12) 75
Other comprehensive income
Foreign currency translation
differences in respect of foreign
operations - - 5 - 5 - 5
Effective portion of changes in the
fair value of cash flow hedges - - 4 - 4 1 5
Total other comprehensive income - - 9 - 9 1 10
Total comprehensive income for the
period - - 9 87 96 (11) 85
Transactions with owners,
recorded directly in equity
Contributions by and distributions
to owners
Dividends to equity holders - - - - - (5) (5)
Share-based payment transactions - - 13 - 13 - 13
Issue of share capital 410 - (10) - 400 - 400
Total contributions by and
distributions to owners 410 - 3 - 413 (5) 408
Changes in ownership interests in
subsidiaries
Acquisition of subsidiary - - - - - 2 2
Buy-back of non-controlling interest - - (17) - (17) 17 -
Total changes in ownership
interests in subsidiaries - - (17) - (17) 19 2
Total transactions with owners 410 - (14) - 396 14 410
Balance at 31 August 2017
(unaudited) 3 157 (299) (2 541) 2 443 2 760 (237) 2 523
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Year
ended ended ended
31.08.17 31.08.16 28.02.17
R million (Unaudited) (Unaudited) (Audited)
Cash flows generated from/(utilised in) operating activities 15 (279) 94
Cash generated by operations 598 569 1 308
Interest received 86 113 241
Interest paid (214) (284) (557)
Dividends received from equity-accounted investees and other
investments 1 27 23
Changes in working capital (363) (646) (821)
Taxation paid (90) (54) (96)
Cash available from operating activities 18 (275) 98
Dividends paid, including to non-controlling interests (3) (4) (4)
Cash flows (utilised in)/from investing activities (296) 1 773 1 580
Proceeds on the disposal of subsidiaries, associate and businesses
net of cash disposed 117 2 060 2 060
Acquisition of subsidiaries, net of cash acquired (86) - -
Additions to intangible assets (43) (70) (123)
Additions to property, plant and equipment (99) (86) (191)
Other investing activities (185) (131) (166)
Cash flows from/(utilised in) financing activities 73 (1 594) (1 479)
Loans repaid (335) (1 592) (3 532)
Proceeds from share issue 400 - -
Loans advanced - 9 2 065
Other financing activities 8 (11) (12)
Net (decrease)/increase in cash and cash equivalents (208) (100) 195
Net cash and cash equivalents at the beginning of the period 329 326 326
Cash and cash equivalents at the beginning of the period 417 206 206
Cash previously classified as held-for-sale (88) 120 120
Effect of exchange rate fluctuations on cash held 20 (50) (192)
Bank overdraft classified as held-for-sale 123 56 88
Net cash and cash equivalents at the end of the period 264 232 417
NOTES
Six months Six months Year
ended ended ended
% 31.08.17 31.08.16 28.02.17
R millions Change (Unaudited) (Unaudited) (Audited)
Headline earnings per share from continuing
operations (cents) (13) 47 54 114
Normalised headline earnings per share from
continuing operations (cents) 8 57 53 116
Headline loss per share from discontinued
operations (cents) 70 (7) (23) (43)
Headline earnings per share from total
operations (cents) 29 40 31 71
Diluted headline earnings per share from total
operations (cents) 29 40 31 71
BASIS OF PREPARATION
The condensed consolidated unaudited interim financial results have been prepared in accordance with the International
Financial Reporting Standard (IAS) 34 - Interim Financial Reporting, the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards
Council and the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation
of these interim results are in terms of International Financial Reporting Standards and are consistent with those
used in the annual financial statements for the year ended 28 February 2017. This report was compiled under the
supervision of Mr Alex Smith CA, Chief Financial Officer. The condensed consolidated interim financial results have not
been audited or reviewed by the company's auditor, KPMG Inc.
Six months Six months Year
ended ended ended
31.08.17 31.08.16 28.02.17
R millions (Unaudited) (Unaudited) (Audited)
1. CAPITAL ITEMS
CONTINUING OPERATIONS
Net profit on disposal of property, plant and equipment 1 - 1
Impairment of property, plant and equipment - (3) (3)
Impairment of equity-accounted investment - - (2)
Impairment of intangible assets (17) - -
Reversal of impairment - - 10
Profit on disposal of subsidiary and businesses - 2 2
(16) (1) 8
DISCONTINUED OPERATIONS
Impairment of intangible assets - - (16)
Impairment of held-for-sale disposal groups (48) (139) (548)
(Loss)/profit on disposal of discontinued operations (15) 26 22
Release of foreign currency translation surplus - - 22
Release of discontinuance provision - - 12
Net profit on disposal of property, plant and equipment - 6 12
(63) (107) (496)
Total (79) (108) (488)
2 RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS
AND HEADLINE EARNINGS
Attributable to Altron equity holders 87 20 (185)
Capital items - gross 79 108 488
Tax effect of capital items (12) - 11
Non-controlling interest in capital items (5) (23) (74)
Headline earnings 149 105 240
Six months Six months Year
ended ended ended
31.08.17 31.08.16 28.02.17
R millions (Unaudited) (Unaudited) (Audited)
3. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS AND
HEADLINE EARNINGS FROM CONTINUING OPERATIONS
Attributable to Altron equity holders 163 182 395
Capital items - gross 16 1 (8)
Tax effect of capital items (5) - -
Headline earnings 174 183 387
4. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS AND
HEADLINE EARNINGS FROM DISCONTINUED OPERATIONS
Attributable to Altron equity holders (76) (162) (580)
Capital items - gross 63 107 496
Tax effect of capital items (7) - 11
Non-controlling interest in capital items (5) (23) (74)
Headline earnings (25) (78) (147)
5. RECONCILIATION BETWEEN HEADLINE EARNINGS AND
NORMALISED HEADLINE EARNINGS FROM CONTINUING
OPERATIONS
Normalised headline earnings from continuing operations have
been presented to demonstrate the impact of material once-off
costs on the headline earnings of the continuing operations.
The presentation of normalised headline earnings is not
an IFRS requirement.
Headline earnings are reconciled to normalised headline earnings
as follows:
Headline earnings 174 183 387
Foreign currency losses on transaction funding 2 - -
Restructuring costs 47 - -
Contribution from closed businesses - (4) 6
Tax effect of adjustments (13) 1 (2)
Normalised headline earnings 210 180 391
6. RECONCILIATION BETWEEN ATTRIBUTABLE EARNINGS AND DILUTED EARNINGS
There were no reconciling items between attributable earnings and diluted earnings.
7. ACQUISITION OF SUBSIDIARY
Acquisition of Fleet Logistics (Pty) Limited ("EZY2C") in Australia
Effective 1 July 2017, Altech Netstar acquired the issued share capital of EZY2C in Australia, a provider of fleet
and asset management solutions, for a maximum purchase price of A$15,9 million, of which A$8,7 million was
paid upfront and the remainder is payable on the achievement of certain earn-out targets over the next two years.
The acquisition contributed revenue of R15 million and a net profit after tax of R 5 million to the group. Management
is still finalising the full purchase price allocation - the initial assessment is presented below. If the company was
acquired on 1 March 2017, the contributed revenue would have been R37 million and the net profit after tax would
have been R6 million.
R million Recognised Fair value Carrying
The acquired balances at the effective date were as follows: values adjustments amount
Non-current assets 1 17 18
Current assets 12 - 12
Non-current liabilities - (5) (5)
Current liabilities (6) - (6)
Total net assets on acquisition 7 12 19
Goodwill on acquisition 142
Total consideration 161
Less: Cash and cash equivalents in subsidiary acquired (3)
Less: Deferred purchase consideration (72)
Net cash outflow on acquisition 86
8. DISPOSAL OF SUBSIDIARIES AND BUSINESSES
Disposal of 100% interest in the Auto X (Pty) Limited group (Powertech Battery Group)
Effective 1 July 2017, Powertech Industries (Pty) Limited disposed of 100% of its equity interest in the Auto X group
for R324 million. This operation formed part of the Powertech group, which has been disclosed as a discontinued
operation. 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 R131 million at 31 August 2017. 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) Limited
Effective 1 March 2017, Powertech Industries disposed of 100% of its equity interest in Webroy for R11 million. This
operation formed part of the Powertech group, which has been disclosed as a discontinued operation.
Disposal of 100% interest in Powertech System Integrators (Pty) Limited ("PTSI")
Effective 1 August 2017, Power Technologies (Pty) Limited disposed of 100% of its equity interest in PTSI for R30
million. This operation formed part of the Powertech group, which has been disclosed as a discontinued operation.
Net assets of the above operations disposed are as follows:
R million
Non-current assets 123
Current assets 484
Non-current liabilities (1)
Current liabilities (226)
Disposal value 380
Loss on disposal of subsidiaries (15)
Cash and cash equivalents disposed (94)
Proceeds receivable (PTSI) (30)
Preference share receivable (131)
Proceeds received on disposal 110
9. 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 2016 financial year, 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.
Management believe that the conclusion of the remaining disposals will be effected within the next 12 months.
The Powertech and Multimedia Group businesses were previously classified as held-for-sale as well as discontinued operations.
Net assets of disposal groups held-for-sale:
R million 31.08.2017 31.08.2016 28.02.2017
Assets classified as held-for-sale 1 013 2 399 1 644
Non-current assets 256 815 392
Current assets 757 1 584 1 252
Liabilities classified as held-for-sale (739) (1 189) (1 024)
Non-current liabilities (9) (36) (16)
Current liabilities (730) (1 153) (1 008)
Breakdown of disposal groups held-for-sale:
31.08.2017 31.08.2017 31.08.2017 31.08.2017
Powertech Multimedia
R million Transformers Group Other Total
812 310 400 1 522
Non-current assets 308 158 215 681
Current assets 504 152 185 841
Impairment of held for sale disposal group (509)
Assets classified as held-for-sale 1 013
Liabilities classified as held-for-sale (355) (243) (141) (739)
Non-current liabilities - (9) - (9)
Current liabilities (355) (234) (141) (730)
Breakdown of disposal groups held-for-sale:
28.02.2017 28.02.2017 28.02.2017 28.02.2017 28.02.2017 28.02.2017
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
group (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)
Six months Six months
ended ended Year ended
R million 31.08.2017 31.08.2016 28.02.2017
Cash flows utilised in discontinued operations:
Net cash utilised in operating activities (6) (2) (21)
Net cash generated from investing activities 84 921 878
Net cash utilised in financing activities (1) (793) (20)
Net cash flow for the period 77 126 837
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
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 remained at R21 million for the period.
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 considerations was assessed as R75 million at
the reporting period which resulted in a remeasurement loss of R2 million.
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. A market comparison technique is used to
determine fair value. The fair value of the derivative foreign exchange contracts was assessed as R28 million (liability)
at the reporting period which resulted in a remeasurement loss of R20 million.
The derivative total equity return swap used for hedging the share linked incentive expense is disclosed as Level 2
financial instruments in terms of the fair value hierarchy with fair valuation inputs determined from quoted prices
(unadjusted) in active markets for identical assets or liabilities. The fair value of the total equity return swap entered
into in the current year was assessed at R4 million (asset) at the reporting period which resulted in an equal gain of
R4 million being recognised.
There were no transfers between Levels 1, 2 or 3 of the fair value hierarchy for the period ended 31 August 2017.
11. POST-BALANCE SHEET EVENTS
Post the reporting period, Bytes Technology Group Limited UK acquired 100% of the issued share capital of Blenheim
for a consideration of GBP35,9 million.
Blenheim is the holding company of Phoenix Software Limited, a business focused on the resale of software products
and associated services.
The transaction was effective on 1 October 2017. The transaction was funded from a combination of cash resources in
Bytes UK, existing group facilities and a new trade finance facility in Bytes UK.
12. 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.
SEGMENTAL 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.
The segment revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) generated by each of the
group's reportable segments are summarised as follows:
Revenue EBITDA
Aug 2017 Aug 2016 Feb 2017 Aug 2017 Aug 2016 Feb 2017
Continuing operations
Altech Radio Holdings Group 586 455 1 127 32 27 84
Bytes Document Solutions Group 660 951 1 636 25 35 48
Bytes Managed Solutions 517 670 1 321 29 32 89
Bytes People Solutions 220 219 426 19 21 41
Bytes Secure Transaction Solutions 504 465 992 110 95 212
Bytes Systems Integration SA Group 625 647 1 274 7 2 39
Bytes Universal Systems 296 362 669 16 28 63
Altron ICT South African operations 3 408 3 769 7 445 238 240 576
Bytes Technology Group UK 2 525 2 479 4 504 109 110 171
Other International operations 114 208 284 12 6 20
Altron ICT International operations 2 639 2 687 4 788 121 116 191
Shared Services, Corporate and cons - 4 5 6 3 17
Altron ICT 6 047 6 460 12 238 365 359 784
Altech Autopage Group - 316 316 - 3 3
Altech Netstar Group 668 597 1 224 133 126 266
Arrow Altech Distribution 291 308 602 21 24 40
Corporate and Cons and financial services (214) (144) (488) (67) (67) (143)
Continuing operations 6 792 7 537 13 892 452 445 950
Discontinued operations
Altech Multimedia Group 599 566 1 225 47 17 21
Altech Autopage Group - - - (7) (49) (78)
Powertech Cables Group* 103 1 721 1 836 5 42 46
Powertech Transformers Group 522 630 1 041 (51) (38) (73)
Powertech Battery Group** 344 481 944 33 32 78
Powertech System Integrators*** 214 341 583 (12) (56) (52)
Other Powertech Segments 123 151 196 (24) (13) (52)
Powertech Group 1 306 3 324 4 600 (49) (33) (53)
Discontinued operations 1 905 3 890 5 825 (9) (65) (110)
Altron Group 8 697 11 427 19 717 443 380 840
* Powertech Cables Group for the half year ended 31 August 2017 consists of Swanib Cables, prior year comparatives include Aberdare
Cables Group which was disposed effective 30 June 2016.
** Powertech Battery Group disposed of 1 July 2017 (refer to note 8), this segment also includes Webroy which was disposed 1 March 2017.
*** Powertech System Integrators disposed of 1 August 2017. System Integrators segmental includes QuadPro, which has not been disposed
of as at 31 August 2017.
Segment EBITDA can be reconciled to group operating profit before
capital items as follows: Aug 2017 Aug 2016 Feb 2017
Segment EBITDA 443 380 840
Reconciling items:
Depreciation (71) (65) (136)
Amortisation (47) (43) (86)
Group operating profit before capital items 325 272 618
SUPPLEMENTARY INFORMATION - TOTAL OPERATIONS
31.08.17 31.08.16 28.02.17
R million (Unaudited) (Unaudited) (Audited)
Depreciation 71 65 136
Amortisation 47 43 86
Net foreign exchange losses 4 104 226
Cash flow movements
Capital expenditure (including intangibles) 142 156 314
Net additions to contract fulfilment costs 26 8 20
Additions to contract fulfilment costs 118 101 237
Net expensing of contract fulfilment costs during the year (92) (89) (216)
Terminations of contract fulfilment costs - (4) (1)
Capital commitments 5 36 21
Lease commitments 410 443 465
Payable within the next 12 months 166 165 147
Payable thereafter 244 278 318
Weighted average number of shares (millions) 369 338 338
Diluted average number of shares (millions) 371 342 340
Shares in issue at end of period (millions) 371 338 339
Ratios (total operations)
EBITDA margin % 5,1 3,3 4,3
ROCE % 14,5* 12,0* 14,5
ROE % 11,5* 8,4* 11,4
ROA % 9,5* 6,5* 8,3
RONA % 12,6* 10,4* 12,2
Current ratio 1.2:1 1:1 1.2:1
Acid test ratio 1:1 0.8:1 1:1
* Annualised.
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 SHAREHOLDERS
During the past six months, Altron has continued to make good progress on delivering on its strategy of repositioning
the group in the ICT space, divesting of non-core assets, lowering debt levels and reducing its exposure to the manufacturing
sector. Two key acquisitions have been completed and the group's financial performance has improved significantly on a
normalised and constant currency basis:
- EBITDA from continuing operations increased by 19%* to R501 million
- HEPS from continuing operations increased by 16%* to 57 cents
- Net debt expected to reduce to R1.1 billion on conclusion of disposals
*Constant currency information.
The board identified the current financial year as the one in which the business is to be repositioned for growth in
order to deliver on Altron's intention of producing consistent, double digit growth at the earnings before interest,
tax, depreciation and amortisation (EBITDA) level. To this end, good progress has been made in the right-sizing of
the corporate cost base, the simplification of reporting lines, regrouping the operations in a more customer-centric
manner, and improving the sales efficiencies across the group with a strong focus on customer marketing around One
Altron. This process will be largely completed in the current financial year, and will accelerate our focus on delivering
superior growth.
An important aspect of this process is to close out the disposal of the remaining discontinued operations. Since the
last report to shareholders, the group has successfully concluded the disposal of Powertech Batteries, Swanib Cables,
Powertech IST, Powertech Quadpro and Powertech Switchgear, with all proceeds being used to repay borrowings.
The disposal of Crabtree is awaiting Competition Commission approvals in neighbouring countries, while we continue
to work on the disposal of Altech Multimedia and Powertech Transformers.
During the review period the group's continuing operations have delivered results in line with expectations, despite
the difficult local economy, a strengthening currency, and the once-off costs associated with the various restructuring
processes. In order to give a clearer view of the underlying performance, we have disclosed normalised information for
the continuing operations in our interim reporting. In this message we have also made adjustments to show the results
on a constant currency basis to remove the significant 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 impact
of foreign currency movements on Altron's reported financial performance for the six months ended 31 August 2017 for
illustrative 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 approximately 5%* to R6.8 billion, while EBITDA increased by 19%* to
R501 million on a normalised and constant currency basis. The normalised EBITDA margin improved to 7.4% compared
to the prior period's 6.5%*. Much of this growth came from the international operations as local trading conditions
remain challenging.
Depreciation and amortisation charges increased to R118 million, while capital items were a loss of R16 million during
the current period compared to a negligible loss in the prior period. Net interest costs in the continuing operations
marginally increased from R83 million to R87 million. This increase reflects a combination of higher borrowing costs
as well as an increased allocation of debt to the continuing operations as a result of the reduced expectations around proceeds
from the sale of the discontinued operations compared to those in August 2016, although some of this was offset by the
benefits of the equity injection in April 2017.
Normalised and constant currency headline earnings increased by 27%* from R165 million* to R209 million.
Normalised and constant currency headline earnings per share grew by 16%* to 57 cents against the prior year
of 49 cents* following the specific issue of shares for cash to Value Capital Partners in May 2017.
Discontinued operations
The results of the discontinued operations showed a significant improvement from the previous period. EBITDA
losses in the current period improved to a loss of R9 million compared to a prior period loss of R65 million. The main
improvement came out of the Altech Multimedia business which generated strong EBITDA growth, while the Powertech
businesses saw a 48% deterioration from the prior corresponding period. The results were further assisted by the
reduced costs associated with the closure of the Altech Autopage business.
The substantial improvements in the discontinued operations, with the loss from these operations again reducing
significantly from R224 million to R95 million, are a combination of improved operational performance, progress on the
disposals and the resultant decline in the interest expense.
CASH MANAGEMENT
Total operations
The overall net debt position continues to improve. Cash generated by operations was higher than the prior period on the
improved EBITDA performance, but cash available from operating activities was affected by an absorption into working capital.
Much of this is cyclical, which is expected to reverse into the year-end.
Cash utilised in investing activities relates primarily to capital expenditure, the normal investment into contract
fulfilments costs at Altech Netstar and the Australian acquisition completed by Altech Netstar. These were partly
offset by the proceeds on the various Powertech disposals completed during the period. Capital expenditure in the
continuing operations is broadly in line with the depreciation charge, while the net investment into contract fulfilment
costs amounted to R26 million.
The R73 million of cash flow from financing activities is predominantly due to the R400 million from Value Capital
Partners, offset by the repayment of loans of R335 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 5%* to R6 billion,
with EBITDA increasing by 12%* to R376 million and EBITDA margin improving to 6.2% from 5.9%*. This growth was
driven by the performance of the international operations.
The Bytes UK operations had another exceptional six months, growing revenue by 25% in local currency terms and
EBITDA by 21%, with the business benefiting from increased market share as well as price increases linked to the
weaker British Pound. The acquisition of the Blenheim Group and its largest subsidiary Phoenix Software, as announced
to shareholder on SENS on 29 September 2017, will add further 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 R3.4 billion, but achieved
a 6% increase in EBITDA to R254 million, with the EBITDA margin improving to 7.4% from 6.8%. The revenue decline
is indicative of the challenging local economic environment, while the margin expansion arose from the increased
contribution of the higher margin businesses, particularly Bytes Secure Transaction Solutions.
Bytes Secure Transaction Solutions continues to perform well, growing revenue by 8% and EBITDA by 16%,
reaffirming its status as a key growth focus for the group. Most components of this business performed well, with the
NuPay division continuing to deliver strong growth. The healthcare side of the business has been successful in moving
into new adjacencies, thereby achieving growth in an otherwise stagnant market.
Altech Radio Holdings has seen revenue improve by 29% and EBITDA by 19% compared to the prior period. The strategy
of diversifying the businesses' product suite to include broadband products and services continues to result in
significant growth for the business compared to the previous period, despite challenges around the City of Tshwane
broadband contract. There remain significant opportunities in this market segment that the business is well placed
to exploit.
Bytes Document Solutions and Bytes Managed Solutions, experienced both revenue and EBITDA declines.