MESSAGE TO SHAREHOLDERS
Transcription
MESSAGE TO SHAREHOLDERS
ALTRON UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014 31 MESSAGE TO SHAREHOLDERS The Altron financial results for the six month period ended 31 August 2014 are reported in an integrated manner in accordance with the G4 Guidelines prepared by the Global Reporting Initiative (GRI) and the recently published Integrated Reporting (IR) Framework (Version 1) developed by the International Integrated Reporting Council (IIRC), reflecting those issues that are applicable and which materially affect or contribute to the sustainable development of Altron in terms of its financial and non-financial performance. During the period under review, Altron increased revenue by 6% to R14.2 billion. Revenue growth came from the Altron TMT division while at Altron Power revenue remained flat. Headline earnings per share (HEPS) declined by 12% to 72 cents and normalised headline earnings per share (normalised HEPS) declined by 20% to 72 cents. The benefits of the integration process, arising as a result of the acquisition of the Altech minority interests were negated by challenging market conditions, particularly in Powertech. The impact of the NUMSA strike during July 2014 also accounted for a significant portion of the decline in earnings. FINANCIAL OVERVIEW Income In certain cases reference is made to normalised results which exclude the once-off non-operational forex and breakage costs of R45 million associated with the repatriation of the East Africa loan in the prior period. Altron’s revenue increased by 6% to R14.2 billion from R13.4 billion during the previous corresponding period, while earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 5% from R826 million to R784 million. Normalised EBITDA also amounted to R784 million, a decrease of 10% from R871 million which excludes the effect of the once-off, nonoperational costs referred to above. The normalised EBITDA margin was 5.5% compared to the prior year’s 6.5%. The impact of the four week NUMSA strike cost the Altron group an estimated R82 million at the EBITDA level. Capital items have increased from the prior period due to impairments, partially offset by the profit on disposal of our document solutions business in the UK and the Absa branded retail ATM assets. Depreciation and amortisation has increased, reflecting the investment made in previous periods. This resulted in a profit of R477 million from operating activities, 22% lower than last year’s R615 million. Net finance costs have increased from R101 million to R180 million as average borrowings have increased significantly due to the additional debt taken on to acquire the non-controlling interest in Altech during August 2013, as well as a higher average borrowing cost following the refinance of the group’s debt into longer term borrowings and the rise in the repo rate. The effective tax rate has declined to 28.7% from 34.8% in the prior year, after adjusting for the effects of the capital items. This continues to run slightly above the statutory tax rate due to the non-recognition of deferred tax assets in certain operations. Earnings per share declined by 29% to 58 cents, while HEPS declined by 12% to 72 cents. Normalised HEPS declined by 20% to 72 cents. Return on equity equalled 13.4 %. Cash management Cash generated by operations of R997 million was up 4% on the prior year, while the amount absorbed into working capital reduced to R176 million, broadly in line with the growth in revenue. While Altron has reduced its investment in both inventories and receivables since year end, these cash flows have been used to repay creditors. A significant reduction in tax paid was offset by higher finance charges and an increased dividend, resulting in R278 million of cash flow being generated from operating activities. Investing activities reduced to R1 054 million, with a significant portion of this being utilised in acquiring the non-controlling interest in Bytes South Africa and Altech NuPay. While there was further investment into Altech Autopage’s subscribers, this is stabilising on a net basis and should start reducing in the next six months. Capital expenditure amounted to R237 million in both property, plant and equipment and intangible assets, with the latter reflecting the group’s continued focus on generating its own intellectual property. Cash flows from financing activities of R1.6 billion represents the raising of approximately R292 million from the issue of shares, with the balance being loan funding raised following the completion of the refinance in early March 2014, R780 million of which was in overdrafts at the year end. SUBSIDIARY REVIEW Subsidiary income and growth Altron TMT This division, established one year ago following the acquisition of the non-controlling interest in Altech, has performed well with many integration benefits already being realised. Significant cross sell successes have been achieved as a result of collaboration between the Altech and Bytes businesses such as the Gauteng Broadband Network tender and the launch of the new Altech Node smart home console which integrates the capabilities of eight different Altron group businesses. The integration process is operating through five different workstreams, and is expected to be completed by the end of the 2016 financial year. On a consolidated total operations level, Altron TMT increased revenue by 8% from R9.3 billion to R10.0 billion and normalised EBITDA by 3% from R681 million to R702 million. The normalised EBITDA margin declined from 7.3% to 7.0%. Normalised headline earnings improved by 17% to R313 million. Telecommunications Revenue and EBITDA declined at Altech Autopage by 7%, and 36% respectively, predominantly as a result of continued pressures on the consumer and deflation of voice charges. This result was also impacted by the external funding of our handset receivables, which has reduced margins on handset sales. The Average Revenue Per User (ARPU) has continued to decline while churn is being maintained. The business is in the process of repositioning itself to offer increased ISP services targeted at enterprise clients. All network agreements have now been negotiated in line with expectations. The Altech Netstar group performed well posting revenue growth of 6%, while EBITDA increased by 9% with margins enhanced as a result of a number of important contract wins in the fleet management side of the business. The business has also launched several enhanced products into the market from which we are starting to realise benefits. ALTRON UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014 32 MESSAGE TO SHAREHOLDERS continued Bytes Systems Integration achieved 15% revenue growth and 13% EBITDA growth with strong demand particularly in the South African side of the business. The international business, primarily in Africa, continues to make progress, albeit at a slower rate. Altech Node, which was successfully launched on 18 September 2014, incurred approximately R17 million of EBITDA losses for the six month period, representing the costs of bringing the product to market. This cost is likely to increase in the second half due to the commercial launch and the associated marketing spend. Multimedia Altech Multimedia posted a 23% increase in revenue and 22% increase in EBITDA. The performance of SetOne in Germany was also much improved, returning to profitability. The Altech UEC business has been actively involved in the development of new intellectual property for the Altech Node smart home console, as well as the manufacture of initial volumes of this product. However, the results were negatively impacted by the NUMSA strike in July, which reduced EBITDA by approximately R15 million. Technology (IT) The technology division of Altron TMT consists mainly of the previous Bytes businesses (other than Bytes Systems Integration) and the IT assets that were previously housed within Altech. Bytes Document Solutions South Africa increased revenue by 4% but saw EBITDA decline by 3%. Margins at this business remain under pressure as a result of the depreciation of the Rand and a resultant increase in costs that is difficult to pass on to the customer. The Document Solutions business in the UK, which was a Xerox concessionaire, was disposed of effective 1 May 2014. Bytes Managed Solutions improved revenue by 23% but EBITDA declined by 20%. The increase in revenue, but decline in earnings, was as a result of foreign exchange losses and higher hardware sales that attracted significantly lower margins compared to the services side of the business. The business however continues to perform well. The Absa branded ATMs forming part of the Retail ATM division of this business were disposed of effective 1 August 2014. Bytes Universal Systems, which now also includes Altech Isis and includes all of the software development businesses increased revenue by 35% and EBITDA by 12% off the back of good orders. The business performed particularly well in the public sector, an area which Bytes has specifically targeted for growth. Bytes Secure Transaction Solutions which includes Bytes Healthcare Solutions, Altech NuPay and parts of Altech Card Solutions performed well. The remaining 50% of Altech NuPay was acquired during the period under review to enable the smooth integration of the transaction solutions businesses. The collective revenue of Bytes Secure Transaction Solutions declined by 1% while EBITDA increased by 16%. Bytes’ Software Services, based in the UK, posted a 30% increase in revenue and an extremely pleasing 40% increase in EBITDA as this business continued to diversify and leverage its market leading position in the UK. The results were assisted by the 21% depreciation of the Rand. Altron Power Altron Power’s revenue remained flat at R4.2 billion, while EBITDA declined by 47% to R102 million. Headline earnings for Altron Power declined from a profit of R33 million in the previous corresponding period to a loss of R16 million. The four week NUMSA strike in July severely impacted the business, particularly the cables and transformers operations, and this was exacerbated by the preceding mining sector strike which impacted Powertech’s clients and had an indirect effect on its performance. The approximate losses as a direct result of the NUMSA strike amounted to R67 million at an operating profit level and R41 million at a headline earnings level. The group was also impacted by a significant decline in demand from a major customer in the public sector. The Powertech Cables group continued to demonstrate positive progress, with a good recovery achieved during the period. Revenue increased by 2% and EBITDA by 80%. The local operations saw revenue decline by 1%, while its Iberian operations increased revenue by 23%, indicating signs of a recovery in the Spanish and Portuguese markets. In the local operations, market share was gained in the informal sector and although margins are tight, larger volumes were achieved which improved the recovery of fixed costs. Crabtree was transferred out of the Powertech Cables group during the period under review and now reports as a separate entity. The Powertech Transformers group has experienced a difficult first six months. The group has been affected by three factors namely: the impact of the month long strike referred to above; a deterioration in productivity at both its Booysens and Pretoria West plants; and reduced demand from its largest customer in the public sector. Revenue decreased by 24% and EBITDA by 108%. Corrective action is being taken by management on the internal aspects, but there is also concern over reduced demand levels from the public sector as a result of funding constraints. In the Powertech Batteries group, revenue increased by 14% while EBITDA decreased by 17%. Although the business is performing satisfactorily, margins are under pressure due to an increasing lead price which cannot be passed on to customers as well as ongoing competition from imports despite the weak Rand. Powertech System Integrators’ performance was disappointing although new management is in place and exciting initiatives are under way to grow the business and collaborate with certain businesses within Altron TMT. Revenue decreased by 2% and EBITDA declined by 119%. Much of the decline occurred in the old IST business, while Powertech QuadPro had an improved six months and has built a significant order book for turnkey electrical substations which bodes well for the future profitability of this business. Corporate activity The following transactions were concluded during the review period and post the balance sheet date: • From 1 April 2014, the 25% non-controlling interest in Aberdare has been fully recognised following the repayment of the external funding structure. • Effective 1 May 2014, Bytes UK disposed of 100% of its equity interest in Bytes Document Solutions’ operation in the UK to Xeratec Group Holdings Limited for a purchase price of £5.4 million. ALTRON UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014 33 MESSAGE TO SHAREHOLDERS continued • Effective 1 May 2014, Altech acquired the remaining 50% less one share equity interest in Altech NuPay Proprietary Limited, which Altech did not already own for a purchase price of R80 million. The purchase price was settled via the issue of Altron N ordinary (previously participating preference) shares by way of a vendor placement. • On 30 June 2014, Bytes SA acquired Kagiso Strategic Investments’ and Venopt’s 27% equity interest in Bytes SA for a purchase price of R669 million. R210 million of the purchase price was settled via the issue of Altron N ordinary shares by way of a vendor placement, with the balance being settled from cash resources. • On 26 May 2014, Altech Autopage entered into a sale agreement with Nashua Mobile, whereby Nashua Mobile disposed of its Cell C subscriber base comprising of approximately 65,000 subscribers for a purchase consideration not exceeding R95,8 million. This transaction was approved unconditionally by the Competition Tribunal on 29 September 2014 and the subscribers will be transferred to Altech Autopage during October 2014. • With effect from 1 August 2014, Absa Bank Limited acquired 850 retail ATMs from Bytes Managed Solutions for a purchase price of R104.6 million. • Effective 1 September 2014, Altech Netstar acquired the entire issued share capital of Fleetpro (Pty) Ltd for a purchase price not exceeding R16.5 million. HUMAN CAPITAL Altron has been rated as a Level 2 Broad-Based Black Economic Empowerment contributor for the 2015 financial year. This has been as a result of a well-executed strategic intent to transcend from a compliance driven process to a more transformative process. Training of Altron group employees is a priority and is managed through the recently established Bill Venter Academy. SUSTAINABILITY Altron’s sustainable business strategy remains the driving force in achieving its targets and objectives. The four key value drivers for sustainable development remain Financial Capital, Human Capital, Products and Services and External Relationships. CORPORATE GOVERNANCE The Altron group continues to embrace and implement the recommendations of the King Report on Governance for South Africa, 2009, as well as the King Code of Governance Principles for South Africa 2009 (the Code) and has satisfied itself that Altron has complied throughout the review period in all material respects with the Code and the Listings Requirements of the JSE. OUTLOOK Management is pleased with the progress and successes achieved at Altron TMT. The business is in the process of implementing a key accounts management system as well as a shared services structure which will help service customers better, save costs and assist with cross and upsell of its products and services. Altron TMT will continue to focus on developing its own intellectual property through new convergence products, such as the recently launched Altech Node. Altron Power stands to benefit from the eventual refurbishment of South Africa’s electrical infrastructure. The business also stands to benefit from the renewable energy projects that are underway and the electrification of Africa where Powertech is making inroads. Designated product status for transformers was announced during the period which will significantly benefit Powertech once demand returns. While the medium term prospects for both Altron TMT and Altron Power are strong, the next six months are likely to be challenging. In particular the current challenges being experienced by public sector organisations in South Africa will affect Altron Power in the second half. A decision in principle has been taken to consider closing the transformer operation in Booysens, Johannesburg. Altron TMT’s results are likely to be constrained in this period as a result of the start-up of Altech Node and the investment into the commercial launch of this exciting new product. On behalf of the board Dr Bill Venter Non-Executive Chairman 7 October 2014 Robert Venter Chief Executive Alex Smith Chief Financial Officer