JSE-listed Allied Electronics (Altron) will come out of the Covid-19 crisis stronger and leaner, with a strategy that has proven to be the right one, Altron Group CEO Mteto Nyati tells Engineering News & Mining Weekly.

While some of its units are set to experience dips, the company is well positioned to ride out much of the storm of the nationwide lockdown and Covid-19 pandemic with a strategy that is working.

“We have every intention of emerging out of this a leaner, much stronger organisation,” he says, as the company reports good progress on its five-year One Altron strategy roadmap to double its earnings before interest, taxes and depreciation (Ebitda).

Led by Nyati and his management team, three years ago, Altron ago embarked on a five-year roadmap that prioritised revenue growth, improving profitability, customer experience transformation and employee excellence, with collaboration at its core.

Through this strategy, he says, the group has been strengthened through the disposal of noncore assets, the rationalisation of operations and the execution of targeted acquisitions in high-growth areas.

Over the same period, Altron delivered a compound annual growth rate (CAGR) in gross invoiced income of 25.8%, revenue CAGR of 6.5% and Ebitda CAGR of 21.9%.

Altron’s medium-term guidance to double its five-year Ebitda by 2022 remains unchanged.

“With the impact of Covid-19 affecting businesses across the globe, the need for a fully digitised remote workplace is becoming more important,” Nyati comments, pointing to the core of its strategy: cloud computing, security, data analytics and the Internet of Things.

“You cannot talk about digital transformation without these four things, so our strategy will not change. In fact, we are going to double down on the strategy,” he explains during an interview with Engineering News & Mining Weekly.

Recently, customers have been investing heavily in digital transformation, increased security requirements, resilient remote home working capabilities and hybrid data centres in the wake of the Covid-19 lockdown.

“We have seen an increase in interest from customers for more resilience in their remote information technology capabilities,” Nyati says, noting that this is expected to further accelerate the expansion of Altron’s growth areas, as it tailors products to meet the needs of its customers.

This, combined with a revenue base that comprises 62% annuity income, will provide a defensive platform to weather the Covid-19 storm.

“If anything, what the Covid-19 crisis has shown is that our strategy is the right one.”

However, despite the resilience of its base, the situation with the Covid-19 pandemic is expected to have a negative impact on the year ahead.

Calculated as a percentage of the 2020 financial year revenue, Altron expects a mid-single-digit reduction in revenue.

“To limit the impact on our profitability, we have implemented a number of cost- saving initiatives for the 2021 financial year, which include reversing all 2020 salary increases for South African employees. Combined, our cost-saving initiatives are estimated to save in the region of R500-million,” Nyati adds.

Over the next financial year, Altron will focus on assessing prevailing market conditions to forge ahead with the potential Bytes UK demerger and separate listing on the London Stock Exchange at a more opportune time; converting the cloud computing pipeline projects of Altron Karabina into revenue in South Africa; and improving the profitability of Altron Nexus.

Also in focus is the integration of the newly acquired Ubusha Technologies into the group and capitalising on the digital transformation agenda to meet customer needs by offering a One Altron solution.

Further, there is an opportunity to leverage the digital transformation of its customers.

This is seen in the operations that are improving during the lockdown, including Bytes UK, Altron Nexus, Altron Karabina and Ubasha.

The four operations are uniquely positioned to bolster Altron’s overall digital transformation agenda during the unprecedented lockdown and Covid-19-dictacted restrictions, Nyati points out.

In particular, Ubusha and Altron Karabina are benefiting as companies migrate to the cloud and employees work from home.

“The acquisition of Karabina was a good move. The company is sitting in a space that is growing. We are helping clients move into the cloud, with a huge demand for that now.

“Looking at the pipeline, it is a very strong business and it is relevant for this time.”

Post year-end, Altron entered into a R360-million deal to buy identity security provider Ubusha, which will position Altron to further capitalise on opportunities in the security space.

Ubusha enables dynamic authentication and authorisation, identity management and governance and privileged account security for local and international banking, financial services, insurance, telecommunications and retail customers.

However, there are three areas in which Altron expects negative impacts, namely Altron Arrow, Altron Bytes Document Solutions and Altron Bytes People Solutions.

Altron Bytes Document Solutions is Altron’s hardest hit unit, as the bulk of the revenue and services from its model of managed printer services is cut by 50%.

Post Covid-19, it is likely that the business will achieve only 70% of its previous volumes in a document solutions market that was already in decline before the lockdown, with expectations that the business will need to undergo rightsizing for a new future.

As the digital adoption, learning solutions and seamless customer engagement solutions business, Altron Bytes People Solutions has also taken a knock as its conference centre-based learning services are scaled back significantly and are unlikely to resume profitability over the next 18 to 24 months, owing to physical distancing protocols.

Altron Arrow, which supplies electronic components, has also been impacted on, owing to the shutdown of manufacturing facilities.