summarised audited consolidated financial statements - Altron

Altron Summarised Audited Consolidated Financial Statements for the year ended 28 February 2013
MESSAGE TO SHAREHOLDERS
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The Altron financial results for the year ended 28 February 2013 are reported in an integrated manner in accordance with the G3 Guidelines of the Global
Reporting Initiative (GRI) as recommended by King III, 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.
The group has achieved revenue growth, but has experienced margin pressure across most operations. Powertech experienced revenue growth primarily
out of the cables group on higher copper prices. Bytes continued to perform in line with expectations, with the UK businesses contributing significantly,
and positive inroads being made into African markets. Altech’s overall results were negatively impacted by impairments, a loss on disposal and operating
losses of its East and West African operations. The group is encouraged that the significant operating losses of R205 million incurred by these disposed
operations will not recur. Altech’s remaining businesses performed in line with expectations.
External factors
The macro-economic environment remains challenging and highly volatile. While there is growth in the local economy, there remains uncertainty around
the future, due to a combination of global factors as well as the policy uncertainties in the local environment. Emerging market currencies, particularly
the Rand, weakened and this will assist exports and provide some protection against direct foreign imports.
Despite interest rates remaining low during the period under review, the building and construction sector continued to show no real signs of recovery.
Demand in the electrical infrastructure market was strong in the first half of the year, led by spending from Eskom and certain of the larger municipalities,
but we saw a notable decline in the second half, particularly in the electric cables business. However, parastatals have generally provided encouraging
support to locally-based manufacturing operations.
The telecommunications sector is seeing price deflation, particularly on the voice side, as various operators seek to grow or protect market share. The main
growth area remains the data market, although margins have been under pressure with rapid declines in data package pricing in both the mobile and Internet
Service Provider (ISP) spaces. Data volumes are increasingly being driven by the rapid uptake of smartphones and the inadequacies of the fixed line network.
The migration to digital terrestrial television in South Africa continues to progress at a very slow pace. Nevertheless it is on an inevitable path and, as TV set-top
boxes have been classified as designated products, local manufacturers should benefit.
The South African information technology (IT) market has shown good growth as businesses continue to invest in new technologies. However, margins are
under pressure due to the highly competitive nature of the sector, deflationary forces and the increasing commoditisation of IT products. Cloud computing
is becoming an increasingly important feature of the IT sector, which will present both opportunities and some risks to the Altron group.
Financial overview
Income
While Altron’s revenue increased by 6% to R25 billion from R23.6 billion in the comparative period, EBITDA declined by 19% from R1.9 billion to
R1.6 billion, reflecting an EBITDA margin of 6.3%, down from the previous 8.3%. Headline earnings per share was down by 29% at 136 cents.
The statement of comprehensive income has been split into continuing and discontinued operations in the current period, with the East African
operations classified as discontinued. It should be noted that the West African operations are included in continuing operations in accordance
with accounting standards.
Continuing operations
The group’s revenue from continuing operations increased by 7% in the current year to R24.8 billion, though EBITDA declined to R1.7 billion, a 12% decrease
and representing a 6.8% EBITDA margin, as against the 8.3% in the prior year.
Capital items were significantly reduced to R78 million, of which R71 million related to Altech West Africa. This, combined with an increased finance expense
on higher borrowing levels, resulted in profit before taxation being consistent with the prior year. The reduction in the tax charge primarily reflects the lower
STC expense, though the effective tax rate, after STC and capital items actually increased from 29.2% to 30.9%. These factors resulted in a 12% increase
in profit for the year from continuing operations.
Discontinued operations
The operating results for the year showed the continued decline of the East African businesses, while the significant increase in capital items reflects the
further impairments and ultimate loss that was taken on the disposal of these businesses.
Cash management
The cash flow statement has also been aligned with the split between continuing and discontinued operations, with the cash cost to the group of the
East African business being a net outflow of R687 million.
In the continuing operations, cash generated by operations of R1.9 billion is down around 7% on the prior year, while we have seen some R174 million
released from working capital. There has been considerable focus on improving working capital levels, and working capital days are lower across the group
at year-end. Cash outflows on taxation have normalised after the additional payment in the comparative period, and cash was positively influenced by reduced
dividends, though some of this has been offset by the near doubling of the finance cost.
Investing activities increased to R1.1 billion. A significant portion of the increase was due to capitalised subscriber acquisition costs of R430 million
in the Altech group, which are recovered over the term of their contracts. Capital expenditure in continuing operations was also higher in both property,
plant and equipment and capitalised research and developments costs, the latter reflecting the group’s focus on generating its own intellectual property.
Powertech incurred R280 million of capital expenditure primarily in the transformers and cables operations.
The R1 billion of cash derived from financing activities was predominantly due to new borrowings in Altech to fund the operating losses in East Africa
as well as to meet some funding obligations associated with the disposal of its East and West African operations.