Altron to focus on profitability, growth in the next year

15th May 2023

By: Schalk Burger

Creamer Media Senior Deputy Editor


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JSE-listed information technology (IT) and digital services multinational Altron Group CE Werner Kapp says the company's focus in the current financial year will be on executing its profitability improvement strategy to grow revenue and drive operating leverage while investing in its growth businesses.

For the financial year ended February 28, Altron increased revenue by 14% to R10.9-billion and earnings before interest, taxes, depreciation and amortisation (Ebitda) fell by 4% to R1.1-billion.

Operating income declined by 7% to R462-million, but the group increased its cash balance by 14% to R681-million.

The group's performance was negatively impacted by non-cash adjustments, namely the R134-million provision Altron raised for its exposure to the City of Tshwane and a R31-million provision raised for excess inventory held as a result of the Gauteng Broadband Network contract that was not renewed, he noted.

Further, earnings a share improved by 96% to a loss of 1c a share, while headline earnings a share decreased by 22% to 29c a share. Dividend a share increased by 17% to 35c a share.

The group declared a final dividend of 19c a share, bringing the total dividend for the year to end February 2023 to 35c a share.

Free cash flow increased by R163-million to R412-million and the net debt to Ebitda ratio dropped to 0.22 times, down from 0.36 times during the 2022 financial year, he said.

However, in terms of Altron's continuing operations, revenue grew by 19% to R9.5-billion, with all segments growing revenue, while Ebitda for continuing operations grew 2% to R1.2-billion, Kapp said.

"Profit improvement strategies have been implemented in Altron Systems Integration and Netstar, with early leading indicators in both businesses showing positive momentum and the repositioning of both businesses for growth.

"Altron's revenue growth demonstrates our resilience in the face of extremely tough economic conditions. We are executing a clear growth strategy and are already seeing the positive results of our profit improvement strategy in our two biggest businesses, namely Netstar and Altron Systems Integration," Kapp said.

Altron has received approval from the Botswana, eSwatini, Namibia and South Africa competition authorities for the disposal of the banking business in Altron Managed Solutions to enterprise IT services provider NCR Corporation.

The exit of the group from noncore assets in its rest of Africa operations is continuing, with it having exited Kenya post year-end on April 1. The Namibia sale agreement has been signed, with its exit targeted to be concluded in the current financial year.

Meanwhile, Altron had invested R57-million in Netstar and R11.7-million in Altron HealthTech's platform businesses to grow and drive its Big Data-as-a-Service offerings, noted Kapp.

"Grant Fraser has been appointed as Netstar MD and Collin Govender has been appointed as Altron Systems Integration MD to drive the profit improvement strategies in each business."

The turnaround of Altron Karabina and Altron Managed Solutions continued to show positive results, he added.

"Our strategy is enabled by efficient allocation of capital, differentiating and accelerating our client offerings and embedding a high-performance culture in our companies. The short-term focus is on improving Netstar and Altron Systems Integration.

"We remain committed to tripling our 2021 financial year operating income by 2026 while our long-term strategy is on creating sustainable value and being a trusted IT services and platform business in all our markets," Kapp said.

With net debt at R563-million, or 0.22 times Ebitda, Altron had sufficient headroom to execute its strategy. Its covenant ratios remained in good shape, despite interest rate increases, said outgoing Altron group CFO Nicholas Bofilatos.

"We have a strong and healthy balance sheet, and we have stringent capital allocation processes to ensure that our allocations are value accretive to maximise returns to investors. We are also well positioned for any potential investments that meet and fit in with our capital allocation structure," he said.

Altron will look to pursue organic growth and bolt-on acquisitions, rather than transformative acquisitions, noted Kapp.

Meanwhile, Carel Snyman has been appointed as the new Altron group CFO.

The Altron Own Platforms segment grew revenue by 14% to R3.25-billion, with Ebitda growing by 5% to R1-billion and operating profit decreasing by 5% to R521-million.

"Margin pressures have been experienced in Netstar, which negatively impacted the performance of the segment," said Bofilatos.

Additionally, the group's Digital Transformation segment grew revenue by 26% to R2.79-billion, supported by revenue growth in Altron Karabina, Altron Security and Altron Systems Integration.

Ebitda for the segment improved by 17% to R152-million and operating profit increased by 57% to R77-million, driven largely by a strong performance by Altron Karabina and by Altron Security and the inclusion of digital security company Lawtrust for the past 12 months.

"However, margin pressures within Altron Systems Integration negatively impacted the performance of the Digital Transformation segment.

"Excluding Lawtrust's performance, Digital Transformation revenue of R2.47-billion was down 17% against the prior year with Ebitda of R76-million down 31% and operating profit of R19-million down 47%," he said.

Meanwhile, Altron's Managed Services segment revenue of R2.9-billion increased by 14%, with Ebitda decreasing 70% to R36-million and an operating loss of R62-million.

However, adjusting for the impact of the two non-cash adjustment provisions, Ebitda of the Digital Transformation segment grew 66% to R201-million, and operating income improved to R103-million, up from R6-million in the previous financial year, Bofilatos said.

Further, Altron Arrow grew revenue by 34% to R679-million and Ebitda by 108% to R52-million. Operating profit grew by 117% to R50-million, he added.

"The core of our profitability improvement strategy is customer obsession. This will ensure outstanding services, enable us to reclaim market share in the consumer market and grow our enterprise market, as well as our enterprise fleet services and Big Data offerings. This will be done alongside addressing cost inefficiencies in the business," said Kapp.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online



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