Directors’ report
To the members of Allied Electronics Corporation Limited (“Altron” or “the company”)
The directors have pleasure in submitting the annual financial statements of the Altron group for the year ended 28 February 2010.
NATURE OF BUSINESS
Altron is an investment holding company. Its principal subsidiaries, Allied Technologies Limited (Altech), Power Technologies (Pty) Limited (Powertech) and Bytes Technology Group (Pty) Limited (Bytes), are invested in the power electronics, telecommunications, multi-media and information technology industries.FINANCIAL RESULTS
Group attributable earnings for the year ended 28 February 2010 were R543 million (2009: R835 million), representing earnings per share of 172 cents (2009: 266 cents). Headline earnings per share were at 198 cents (2009: 275 cents).Full details of the financial position and results of the Altron group are set out in these financial statements.
DIVIDENDS
The following dividends were declared in respect of the year ended 28 February 2010:- Ordinary dividend No 62 of 90 cents per share (2009: 119 cents).
- Participating preference dividend No 16 of 90 cents per share (2009: 119 cents).
It remains Altron’s policy to declare dividends annually at the time of announcing the group’s results in May of each year.
SUBSIDIARIES, ASSOCIATE COMPANIES AND OTHER INVESTMENTS
Particulars of the principal subsidiaries of the Altron group are given on here, whilst particulars of the associate companies, joint ventures and other investments are provided in Annexure 1.The attributable interest of the group in the profits and losses of its subsidiaries for the year ended 28 February 2010 is:
2010 |
2009 | |
Rm |
Rm | |
 |
|
|
| Aggregate amount of profit after taxation | 1 079 |
1 284 |
| Aggregate amount of losses after taxation | 238 |
132 |
CORPORATE ACTIVITY DURING THE YEAR
Fleetcall
On 1 March 2009, Altech acquired 100% of the issued share capital of Fleetcall (Pty) Limited (Fleetcall). Fleetcall is a national trunked radio operator based in Centurion. The total maximum purchase price was R75 million, of which R35 million is held in escrow to be released to the vendors on Fleetcall achieving certain profit warranties, with a reduced payout if these warranties are not met.Altech NamITech South Africa
Effective 1 April 2009, Altech disposed of the Altech NamITech South Africa and Altech Cardtronics businesses to Gemalto NV for a net consideration of R82.2 million (an increase of R3.7 million on the initially reported amount, based on closing audit adjustments). These businesses comprised all activities relating to the commercialisation, manufacturing and personalisation of secure and non-secure, chip and chipless, cards for the telecommunications, financial services, government, utility, security and retail markets, recharge vouchers as well as related packaging and fulfilment services in South Africa.Lateral Technology Concepts
Effective 1 March 2009, Altech acquired the entire issued share capital of Lateral Technology Concepts (Pty) Limited, an internet services provider for small and medium enterprises, for a maximum total consideration of R45 million. Altogether R7.5 million was paid upfront and R37.5 million is held in escrow to be released to the vendors on achieving certain profit warranties, with a reduced payout if these warranties are not met.Altech NuPay
Altech acquired 50% plus one share in NuPayment Solutions (Pty) Limited (NuPay) with effect from 1 June 2009. NuPay is a payments processing company focused on the automation of electronic debit orders, providing authenticated and non-authenticated managed transactions within the card-based and electronic funds transfer environments. The purchase consideration was R53.5 million in cash.Kenya Data Networks
Altech has increased its economic stake in Kenya Data Networks Limited (KDN) by investing a further USD39.5 million in the company. The capital injection will be used to roll out the KDN network, further establishing KDN as the key provider of broadband in East Africa. The additional equity shares in KDN subscribed for by Altech are non-voting, thus preserving the strong minority shareholder local influence in KDN through Altech’s strategic partner in KDN, the Sameer group.In addition, Altech has acquired a further 1.8% (voting) shareholding in KDN from a KDN minority shareholder, for approximately USD3.3 million.
50% of the shares will be paid for in cash over two years on the achievement of certain profit targets. The remaining 50% will be paid in Altech shares which are subject to a phased release process over three years. The combination of this transaction and the equity injection referred to above has increased Altech’s economic interest in KDN from 51% to 60.8%.
Altech Alcom Matomo
Effective 4 January 2010, Altech acquired a further 25.11% shareholding in its subsidiary Altech Alcom Matomo (Pty) Limited (AAM) from Platina Venture Holdings for R15.2 million. AAM is now a wholly owned subsidiary of Altech. This transaction is a precursor to a proposed broader empowerment transaction which will involve both AAM and its sister subsidiary, Altech Alcom Radio Distributors.Powertech Transformers
Power Matla (Pty) Limited exchanged its 25.05% shareholding in Desta Power Matla (Pty) Limited for a 16.77% shareholding in the combined Powertech Transformer (Pty) Limited business, and purchased an additional 3.23% for a consideration of R24.9 million. The effective date of these transactions was 1 March 2009. Power Matla (Pty) Limited therefore holds 20% of the Powertech Transformers group.Seacom
Altech has acquired significant bandwidth capacity on the Seacom undersea cable system. The agreement results in Altech procuring two STM-16s from Seacom (equivalent to 5 Gbps), with the option to upgrade, within three years, to double this capacity, to an STM-64. Seacom has, in turn, purchased capacity on the East Africa terrestrial backbone network owned by KDN, for USD20 million.TEAMS
Altech, through its subsidiary KDN, acquired an 8.5% overall stake in The East Africa Marine System Limited (TEAMS) for an amount of USD11 million. This shareholding gives KDN 10.2 Gbps of bandwidth on the TEAMS undersea cable.CORPORATE ACTIVITY AFTER BALANCE SHEET DATE
Altech Netstar
Effective 1 March 2010, the Altech Netstar group concluded an empowerment deal for 25% plus one share of its issued share capital. The deal includes the businesses of ComTech and Altech Netstar Fleet Solutions (ANFS), and the 50% shareholding in Altech Netstar Traffic. Thebe Investment Corporation and Identity Capital Partners are the two empowerment groupings that have acquired the relevant shareholding in Netstar’s South African operations, with a strong focus on synergies between the various parties.In order to facilitate the empowerment transaction, Altech disposed of all of the shares in Altech Netstar (Pty) Limited to another wholly owned subsidiary, Altech Netstar Group (Pty) Limited, in return for preference shares in that company. The businesses of ComTech and ANFS were sold into Altech Netstar in return for a loan. This resulted in an effective nil net asset value for the Altech Netstar Group. The empowerment consortium thereby acquired its shareholding in the Altech Netstar Group for a nominal consideration. The international business and intellectual property rights of the Altech Netstar Group remain the sole property of Altech.
SHARE CAPITAL
Full details of the authorised, issued and unissued share capital of the company at 28 February 2010 are contained in note 10 to the financial statements.Share schemes
Particulars relating to the Altron Group Share Incentive Trust, the Allied Electronics Corporation Limited Share Trust and the Altron 2009 Share Plan are set out in note 10 to the financial statements.At the date of this report, a total of 4 847 855 ordinary shares and 26 164 088 participating preference shares remain reserved for the purposes of the company’s various employee share incentive schemes.
General authority to issue shares
The remaining unissued ordinary shares and participating preference shares are the subject of a general authority granted to the directors in terms of section 221 of the Companies Act, 1973, as amended, and which authority remains valid only until the next annual general meeting which will be held on Wednesday,14 July 2010. At that meeting, shareholders will be asked to place 5% of the unissued ordinary and participating preference shares under the control of the directors. Shareholders will also be asked to waive their pre-emptive rights in favour of the directors to allot and issue ordinary and/or participating preference shares for cash as and when suitable circumstances arise.
DIRECTORATE
Appointments
NoneRetirements
1 August 2009 Dr HA SerebroWith effect from 3 August 2009, Mr MJ Leeming, an independent non-executive director, was appointed as the lead independent non-executive director of Altron. Mr PD Redshaw’s status changed from being an executive director to a non-executive director on the Altron board with effect from 1 March 2010.
In terms of the company’s articles of association, Dr WP Venter and Messrs MJ Leeming, JRD Modise, PD Redshaw and PL Wilmot retire by rotation. All the retiring directors are eligible and available for re-election. Their profiles appear here.
SECRETARIES
Altron Management Services (Pty) Limited act as secretaries to the company. The secretaries’ business and postal addresses appear here.SEGMENTAL REPORTING
Segmental information is included in this integrated annual report as part of the operational reviews and shareholders are referred to annexure 2 on page 180 to 183.Attributable headline earnings contributions to Altron are as follows:
2010 |
2009 | |
Rm |
Rm | |
|
|
|
| Altech | 342 |
342 |
| Bytes | 157 |
207 |
| Powertech | 97 |
266 |
| Corporate, financial services and eliminations | 29 |
46 |
DIRECTORS’ INTERESTS
At 28 February 2010, the directors of the company during the year held direct and indirect interests, including family interests, in 59 981 054 of the company’s issued ordinary shares (2009: 59 981 054) and 6 577 191 of the company’s issued participating preference shares (2009: 16 813 839). Details of shares held per individual director are listed below. A total of3 184 452 participating preference share options, conditional rights, share appreciation rights, performance shares and bonus shares are allocated to directors in terms of the company’s various employee share incentive schemes.
2010 |
Direct beneficial |
Direct non-beneficial |
||
Participating |
Participating |
|||
Name of director |
Ordinary shares |
preference shares |
Ordinary shares |
preference shares |
|
|
|||
| Dr WP Venter | 8 694 070 |
– |
– |
– |
| RE Venter | – |
90 732 |
– |
– |
| MC Berzack | – |
232 690 |
– |
– |
| PD Redshaw | – |
8 713 |
– |
– |
| Dr HA Serebro | 627 600 |
1 555 |
– |
– |
| MJ Leeming | 2 500 |
– |
– |
– |
| PL Wilmot | – |
3 971 |
– |
– |
Indirect beneficial |
Indirect non-beneficial |
|||
Participating |
Participating |
|||
Name of director |
Ordinary shares |
preference shares |
Ordinary shares |
preference shares |
|
|
|||
| Dr WP Venter | 31 263 527 |
34 055 |
19 367 000* |
6 197 129* |
| Dr HA Serebro | 22 500 |
1 010 |
– |
– |
| MJ Leeming | 2 500 |
1 307 |
– |
– |
| PL Wilmot | – |
6 029 |
– |
– |
| MC Berzack | 1 357 |
– |
– |
– |
* Non-executive chairman and director, Dr WP Venter, and his family and related trusts, are the controlling shareholders of the company.
At the date of this report, these interests remain unchanged.
2009 |
Direct beneficial |
Direct non-beneficial |
||
| Participating | Participating | |||
Name of director |
Ordinary shares | preference shares | Ordinary shares | preference shares |
|
|
|||
| Dr WP Venter | 8 694 070 | 5 241 731 | – | – |
| RE Venter | – | 90 732 | – | – |
| MC Berzack | – | 302 690 | – | – |
| PD Redshaw | – | 8 713 | – | – |
| Dr HA Serebro | 627 600 | 1 555 | – | – |
| MJ Leeming | 2 500 | – | – | – |
Indirect beneficial |
Indirect non-beneficial |
|||
| Participating | Participating | |||
Name of director |
Ordinary shares | preference shares | Ordinary shares | preference shares |
|
|
|||
| Dr WP Venter | 31 263 527 | 34 055 | 19 367 000* | 11 122 046* |
| Dr HA Serebro | 22 500 | 1 010 | – | – |
| MJ Leeming | 2 500 | 1 307 | – | – |
| PL Wilmot | – | 10 000 | – | – |
| MC Berzack | 1 357 | – | – | – |
* Chairman and director, Dr WP Venter, and his family and related trusts, are the controlling shareholders of the company.
PUBLIC AND NON-PUBLIC SHAREHOLDERS |
||||
No of |
No of |
|||
Ordinary shares |
shareholdings |
% |
shares |
% |
|
|
|||
| Non-public shareholders | 6 | 0.16 | 63 227 523 | 59.83 |
| Directors and associates of the company | 5 | 0.14 | 59 981 054 | 56.76 |
| Repurchased shares | 1 | 0.02 | 3 246 469 | 3.07 |
| Public shareholders | 3 641 | 99.84 | 42 441 608 | 40.17 |
Totals |
3 647 | 100.0 | 105 669 131 | 100.00 |
No of |
No of |
|||
Participating preference shares |
shareholdings |
% |
shares |
% |
|
|
|||
| Non-public shareholders | 13 | 0.19 | 34 281 204 | 14.24 |
| Directors and associates of the company | 11 | 0.16 | 6 577 191 | 2.73 |
| Repurchased shares | 2 | 0.03 | 27 704 013 | 11.51 |
| Public shareholders | 7 068 | 99.81 | 206 413 475 | 85.76 |
Totals |
7 081 | 100.0 | 240 694 679 | 100.00 |
SPECIAL RESOLUTIONS
The company passed and registered one special resolution on 11 May 2009, adopting new articles of association.Notwithstanding that shareholders voted in favour of Altron passing a special resolution at its 2009 annual general meeting, granting the company a general authority to repurchase its shares, given the economic climate and the fact that no share repurchase programme was envisaged, a decision was taken not to register this special resolution pursuant to the previous annual general meeting.
At subsidiary level, Altech passed and registered one special resolution on 24 August 2009, approving the acquisition by Altech or any of its subsidiaries of Altech’s shares.
Except for the above, no other special resolutions, the nature of which might be significant to shareholders in their appreciation of the state of affairs of the Altron group, were passed by the company or its subsidiaries during the period covered by this integrated annual report.
CORPORATE GOVERNANCE
The board has previously endorsed the Code of Good Corporate Practices and Conduct as contained in the King II Report on Corporate Governance (the Code) and endorses the contents of the King Report on Governance for South Africa, 2009 (King III), as well as the King Code of Governance Principles for South Africa, 2009, and has satisfied itself that Altron has complied throughout the period in all material aspects with the Code as well as the Listings Requirements of the JSE. The abridged corporate governance report is set out here.BORROWING POWERS
In terms of its articles of association, Altron has unlimited borrowing powers. At 28 February 2010 Altron had borrowing facilities of R2 827 million (2009: R2 336 million).APPROVAL OF THE ANNUAL FINANCIAL STATEMENTS
The annual financial statements set out in this integrated annual report have been prepared in accordance with International Financial Reporting Standards and are based on appropriate accounting policies, which are supported by reasonable and prudent judgements and estimates.The directors of the company are responsible for the preparation of the annual financial statements and related financial information that fairly present the state of affairs and the results of the company and the Altron group.
The directors’ responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of these financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The directors’ responsibilities also include maintaining adequate accounting records and an effective system of risk management.
These financial statements have been prepared on the going-concern basis, since the directors have every reason to believe that the company and the Altron group have adequate resources in place to continue in operation for the foreseeable future.
The auditors are responsible for reporting on whether the group annual financial statements and separate parent annual financial statements are fairly presented in accordance with the applicable financial reporting framework.
The annual financial statements for the year ended 28 February 2010 of this integrated annual report were approved by the board and signed on its behalf on 3 May 2010.
For: Allied Electronics Corporation Limited
Dr WP Venter – Chairman
RE Venter – Chief Executive
Alex Smith – Chief Financial Officer
3 May 2010