JSE-listed technology group Allied Electronics (Altron) expected to see improved results in the second half of the 2010 financial year, after its net profit nearly halved to R405-million in the first half of the year, compared with a net profit of R800-million the previous year.

The group, led by CEO Robert Venter, on Tuesday reported a 60% drop in its diluted earnings a share to 75c a share in the six months ended August 31, 2009, compared with 188c a share the year before. Revenues fell 8% to R12-billion, compared with R13,2-billion the year before.

"Our group interim results came under pressure predominantly due to Powertech being impacted [on] by lower demand levels and strong pricing pressures compared to the peak levels they experienced during the first half of last year," Venter noted.

Powertech's revenues declined by 26%, while its earnings before interest, taxation, depreciation and amortisation (ebitda) fell by 65%.

The Powertech Cables operation had seen a 46% drop in revenues, owing to lower copper prices and lower demand.

Powertech CEO Norbert Claussen told investors there had been significant attrition in volumes, with its copper cables finished goods volumes dropping to 2 000 t this year, compared with 5 000 t the year before.

The transformers operations had achieved good revenue growth, but operating profit declined owing to margin pressures and the strengthening of the rand.

Powertech's Battery Technologies business had had a slow start to the year, despite there being a number of prospects in the mobile telecommunications sector in Africa, said the group.

The Powertech Battery operations had "held up well" on the automotive side, while the industrial battery business had been impacted on by reduced activity from the mining sector.

Venter noted that Powertech had undertaken significant cost savings and rationalisation programme, which saw R350-million in working capital being generated through a nearly 50% reduction in inventories.

The subsidiary had also reduced its head count by about 16%, or 800 people, of whom on-half had been at the cables business.

Claussen said that he expected market conditions for the Powertech group to remain challenging in the six months ahead, as lower demand in the building and construction and mining industries continue and as parastatals continue to struggle with funding constraints, which could lead to a reduction in capital expenditure projects.

Powertech, which had always been the biggest contributor to the Altron group's overall revenues and earnings, had now moved to the second-largest contributor.

It had contributed 41% of Altron's revenues, 48% of Altron's operating profit and 54% of Altron's headline earnings in the first half of the 2009 financial year. In the first six months of the 2010 financial year, it had contributed only 33% to Altron's revenues, 19% of its operating profit and 15% of its headline earnings.

The information communications technology group Allied Technologies (Altech) had now become the biggest contributor, contributing 39% of Altron's revenues, 65% of its operating profit and 60% of its headline earnings.

OTHER OPERATIONS

Venter noted that the group's Bytes subsidiary's ebitda also fell 25% owing to margin pressure, with operating margins dropping to 3,5%, compared with 5,4% the previous year. The division had, however, seen a 3% growth in revenues.

Bytes CEO David Redshaw said that the group generally performed better in the second half of the year.

Meanwhile, a strong performance from Altech had offset the performances of Powertech and Bytes to some extent, with ebitda improving significantly on the back of a strong annuity income base and higher profitability levels as a result of recent acquisitions, the group added.

“Despite the general economic slowdown, Altron has taken advantage of its diversified product portfolio delivered through its subsidiaries, Powertech, Altron and Bytes. This has proved to be a successful strategy, as the decline in revenues from Powertech and slowdown in revenue growth rates from Bytes have been somewhat offset by the consistently good performance by Altech,” Frost & Sullivan information and communication technology analyst Mpho Moyo commented.

The subsidiary's revenues grew by 4% and its ebitda by 19% in the first six months of the year.

Altech CEO Craig Venter said that its focus on annuity-based businesses, as well as the fact that it owned intellectual property within its businesses, was a business plan that helped it to be defensive during difficult economic times.

Its annuity-based revenues, which accounted for 79% of its total revenues by the end of the 2009 financial year, had now increased to 82% of overall revenues by the end of the first half of the 2010 financial year. This was expected to increase to 85% at the end of the 2010 financial year.

FOREX LOSS

The appreciation of the rand had negatively impacted on all operations, resulting in a R96-million foreign exchange (forex) loss for the group. About R55-million of this forex loss was attributable to Powertech's operations.

Improved trading conditions and the realisation of benefits of a rationalisation programme undertaken in the past six months, were expected to result in a better performance for Altron in the second half of the year, it noted.

The group had implemented cost reduction programmes, working capital management programmes and a cautious approach to further capital expenditure and acquisitions, said Venter.

"In this regard, we have progressed significantly in terms of our initiatives to streamline the Powertech operations to excel when markets recover," he added.

Despite seeing a gradual improvement in the group's businesses in the second quarter of the year, Venter said that he expected demand levels to remain depressed compared with those seen at the peak of the cycle.

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