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Telecommunications, multimedia, information technology (IT) and power electronics group Allied Electronics Corporation (Altron) has experienced a decline in profit levels across all its major businesses for the year ended February 28, cautioning the market to expect an up to 55% drop in headline earnings a share (HEPS) for the period to 103c, from 188c in the prior twelve months.
Similarly, basic earnings a share, which incorporated various impairments, were expected to be between 95% and 110% lower, coming in at between 10c and a loss of 19c against the previous year’s 192c.
Shareholders were further advised in a trading update on Friday that Altron’s normalised HEPS were expected to drop by between 45% and 55% to between 93c and 113c for the period.
TELECOMMUNICATIONS
The group outlined that its telecommunications, multimedia and IT businesses had
experienced a decline in profit levels over the period, notwithstanding the strong performance of the IT businesses, which was insufficient to offset the deterioration in the telecommunications and multimedia businesses.
In particular, the multimedia division was significantly impacted by a combination of reduced order intake in its core set-top box business in Africa, the loss of the Samsung television assembly contract and the impact of the National Union of Metalworkers of South Africa strike in July.
“[However], the business, which has already undergone a significant rightsizing process, has seen its order book improve in recent months and has an encouraging pipeline of local and international prospects, including the South Africa digital migration programme,” the company stated.
Further depressing divisional performance, Altron said the recently launched Altech Node had performed below expectations, with regard to retail customer take-up.
“Altron is well advanced in terms of exploring alternative opportunities for this business,” it noted.
In addition, the anticipated recovery in the performance of Altech Autopage did not materialise in the second half, as market saturation and price deflation offset cost-saving gains.
POWER
The Altron Power division, or Powertech, also experienced a deterioration in its yearly performance, resulting in a break-even position at headline earnings level.
“Most of the businesses were affected by challenging macroeconomic conditions, namely the four-week strike in July, weak economic growth and the various challenges created by [energy utility] Eskom’s current position,” it held.
More specifically, the transformers division experienced an “extremely challenging” year, posting a substantial loss caused by poor order inflows from its largest customer, Eskom, poor productivity levels and the nonrecurring costs incurred to close its Johannesburg manufacturing facility.
The company believed the imminent designation of transformers should, however, assist going forward, but the resumption of normal buying patterns from Eskom was critical to the future success of this business.
“Encouragingly, the cables division posted much improved results, despite the strike, following the restructure of a number of its factories and production lines in previous
years.
“The South African operations expanded into new markets and territories to compensate for the downturn in Eskom’s demand and benefited from more stable pricing and margins, while the Iberian cables businesses have returned to profitability and the Namibian cables business performed well,” Altron outlined.
CORPORATE
Altron Corporate also recorded a marked decline in earnings over the year, primarily as a result of the increased interest cost associated with the borrowings taken on to delist Altech in the last financial year.
The group added that its balance sheet remained resilient and it continued to be well within its debt covenants.
However, as highlighted in its trading statement of March 31, the board had undertaken a fundamental review of its business strategy, resulting in the development of a plan to focus on certain areas in which the group had the resources, competency and skills to leverage a competitive advantage.
In the process, certain material noncore assets had been identified for disposal and the group was currently exploring strategic equity and technology partnerships with global industry players in other areas of the business.
Further, particular emphasis was being placed on the need to significantly reduce central costs by creating a leaner management structure.
“The group is currently addressing each of these initiatives, which are at different stages of completion,” Altron outlined.
Altron expected to release its 2015 financial year results on May 13.