The performance of IT services group Bytes was the only bright spot in an otherwise poor set of annual financial results from JSE-listed conglomerate Altron, whose numbers were dragged down by subsidiaries Altech and Powertech.
Group headline earnings per share declined by 29% to R1,36, from R1,91 in the 2012 financial year. Altron turned in a net loss from the year to February 2013 of R929m, from R79m previously, hurt by losses from discontinued operations of R1,6bn, mainly from Altech’s troubled East Africa operations, the sale of which resulted in the capital loss of R730m.
Both Altron and Altech, in which the former holds 61,4%, are trading under cautionary notices, with many speculating that Altron plans to make its second attempt in six years at buying out minority shareholders in Altech and delisting the company. It attempted to buy out both Altech and Bytes minorities six years ago, but was successful only in concluding the latter transaction after the Public Investment Corp and other shareholders blocked the former.
Despite the tough trading environment, Altron managed to increase its revenue for the 2013 financial year, growing it by 7% to R24,8bn from R23,2bn before. It reported a profit from continuing operations of R707m, from R629m previously.
Altron CEO Robbie Venter tells TechCentral that the disposal of Altech’s East African assets — in a complex deal to Liquid Telecom — will be a “game changer” for the group. “There were operating losses incurred of R205m in East and West Africa that will not recur this year,” Venter says. “That translates to Ebitda of R151m. This should immediately give us the opportunity to see a much improved performance coming through.”
Ebitda is a measure of a company’s operating profitability with interest, taxes, depreciation and amortisation excluded.
Powertech also had a difficult year, with headline earnings plummeting by 99% to just R1m, despite a 2% increase in revenue. Powertech’s cables business grew revenue by 5%, but margins collapsed by more than 50%.
“In the second half, it experienced significantly reduced demand from the formal sector and , while much of the revenue was replaced with informal sector business, this was at significantly lower margins, particularly in the last quarter,” Altron says. “Decreased profitability was exacerbated by the transport strike in September 2012, which had a ripple effect on the entire supply chain.”
Venter says Powertech will reduce costs in the cable business to address the problems.
“Powertech is a player in the recovery of the infrastructure and building and construction markets. Both of those markets have been challenged in the past few years, but are starting to show first green shoots of recovery,” he says.
Unlike Altech and Powertech, Bytes turned in a reasonable performance for the 2013 financial year, lifting revenues by 15% to R7bn, although margin pressure meant Ebitda rose by just 1% to R531m. Headline earnings were flat at R253m.
“Bytes is doing okay and outperforming some of its big competitors in the IT field,” says Venter.
Bytes Document Solutions, which represents Xerox in South Africa, grew sales by 6%, but Ebitda declined by 24% due to “difficult market conditions, accentuated by the volatility in the rand.”
A new division, Bytes Universal Systems, created through the acquisition last year of Unisys Africa, contributed revenue of R231m and Ebitda of R18m over an 11-month period and “performed particularly well in the petroleum and public sectors”.
Though Venter says there are financially troubled rivals to Bytes — some of them listed on the JSE — it’s difficult to buy listed companies, “especially troubled ones”.
“The ability to buy a business, where you can feel comfortable that the downsides are protected, is limited. You really have to be sure what you’re purchasing has no gremlins in the closet. You can do a due diligence, but we’ve learnt the hard way that due diligences don’t tell you everything about a company. We will not shy away from opportunities, but the risks are much higher in the public space than the private space.” — (c) 2013 NewsCentral Media