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Altron to report decrease in interim group earnings

26th July 2023

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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JSE-listed Altron on Wednesday said that it expects a double-digit decline in group earnings during the six months ended August 31, 2023, as it streamlines two noncore operations.

In an operational update and trading statement, Altron outlines an anticipated overall headline loss per share of between 57c and 64c, a 268% to 288% decline on the headlines earnings per share (HEPS) of 34c reported in the corresponding period last year.

HEPS from continuing operations, however, are expected to increase between 5% and 24% to reach 43c to 51c, compared with the HEPS from continuing operations of 41c reported for the comparative period.

Altron’s group loss per share is estimated to be between 81c and 86c, which is a 437% to 457% decrease compared with group earnings per share (EPS) of 24c reported in the corresponding period last year.

EPS from continuing operations is estimated to be between 33c and 40c, representing a range of an 11% decrease and an 8% increase compared with EPS from continuing operations of 37c in the six months to August 2022.

This follows the announcement during the year ended February 28, 2023, that the company is in the process of undertaking a detailed business review of all operations, both continuing and discontinuing.

“As communicated at the group’s results for the year-end 2023, we are actively focussed on ensuring one-off adjustments do not recur. Since joining the group, I have worked with the management teams in scrutinising all operations to ensure they are strategically aligned and have performance optimisation plans in place,” explained CEO Werner Kapp.

“Unfortunately, this process, together with recent market developments, has resulted in further provisions in Altron Nexus and Altron Document Solutions, which are accounted for in discontinuing operations.”

The reviews on continuing operations aimed to ensure that each operation is aligned to the group’s new strategy and has performance optimisation plans in place to grow revenue and improve operating leverage.

According to the company, targeted operating models are being executed in each operation, with early leading indicators highlighting strong year-to-date performance, with all operations on track to achieve their growth objectives, particularly in Netstar and Altron Systems Integration, the largest businesses in the group.

Meanwhile, Altron is working to streamline two noncore operations, which will adversely impact the overall group financial performance.

“Results for the reporting period will be negatively impacted by provisions raised within two noncore subsidiaries, namely Altron Nexus of R336-million and Altron Document Solutions of R95-million, together with a provision raised at a group level of R33-million in relation to goodwill held on the Group balance sheet for Altron Nexus.”

While Altron Nexus and Altron Document Solutions contributed 21% to the group’s revenue at year-end, both subsidiaries were lossmaking and did not contribute to the group’s profit.

Both entities will be classified as held-for-sale and will be reported in discontinued operations.

Altron Nexus was the incumbent service provider for the Gauteng Broadband Network (GBN) phase 1 and 2; however, the extension of the GBN contract for phase 2 came to an end in May 2023 and Altron Nexus was not awarded the contract for GBN phase 3.

The relevant personnel and infrastructure had been kept in place to enable Altron Nexus to seamlessly deliver on GBN phase 3, should the company secure the contract.

“The fact that GBN phase 3 was not awarded to Altron Nexus has necessitated the conducting of a full business review, including the associated operating model of Altron Nexus’ three focus areas, namely Critical Communications, Huawei Enterprise Networking and Broadband Network Services.”

Altron Nexus started a Section 189A process, which will be finalised in September 2023, and the public sector Broadband Network Services business, which was underpinned by the GBN contract for phases 1 and 2, has been wound down.

“As both Altron Systems Integration and Altron Nexus hold enterprise networking capabilities and key relationships with Huawei, it has been decided to rationalise and consolidate the Huawei Enterprise Networking operations. All future enterprise networking will be conducted by Altron Systems Integration in a manner that ensures the retention of key skills,” Altron commented.

Following the restructuring, the remaining business of Altron Nexus will focus on noncore Critical Communications services. Altron will actively pursue opportunities to sell the remaining Altron Nexus business.

Following the detailed business review, provisions totalling about R135-million were raised.

Meanwhile, Altron, in accordance with auditing, accounting and reporting principles, has decided to raise an additional provision of R201-million in order to provide for Altron Nexus' indirect full exposure to the City of Tshwane (CoT) following an Auditor-General report in January 2023 outlining material uncertainties in the city’s 2022 financial statements relating to a going concern.

“Subsequent to Altron's year-end, there have been several recent media reports regarding the CoT's growing debt burden, with substantial debts owed to entities such as Eskom and Rand Water having been recently reported. This is estimated to have a further material impact on the going concern status of the CoT,” Altron said.

The main contractor is Thobela Telecoms (TT) and Altron Nexus is the EPC contractor. Recoveries by Altron Nexus are dependent upon TT being paid by the CoT.

“The raising of the CoT Provision is purely for accounting purposes and does not impact on the arbitration proceedings by TT against the CoT, which are progressing well but will take some time, possibly several years, to finalise.

“These proceedings are, by their nature, confidential. Even if the arbitration proceedings are finally determined against CoT, there is no certainty as to whether CoT will be able to discharge an adverse arbitral award, and current indications are to the contrary.”

The total provisions raised in Altron Nexus, totalling R336-million, together with restructuring costs of R11-million, will negatively impact the reporting period in discontinuing operations.

“I am confident we are now at a point where we have a stable base for the Altron Group to grow from. The group maintains a very healthy balance sheet, remains strongly cash generative and is committed to maintaining its dividend policy. Our continuing operations are delivering a strong year-to-date performance and I am looking forward to presenting our delivery against our strategy at the half-year results in October,” Kapp concluded.

Edited by Creamer Media Reporter

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