Message to our shareholders
Financial overview
As indicated at year-end, the first six
months of the year were anticipated to be difficult. However, notwithstanding difficult
trading conditions experienced by certain operating companies within the group, your
directors are pleased to report satisfactory results for the half-year ended 31 August
2000.
Turnover improved by 14% from R3,5
billion to R4 billion while operating income rose by 8% from R281 million to R303
million. Attributable earnings increased by 77% from R117,7 million to R208,4 million
with basic earnings per share at 72,4 cents. Headline earnings per share rose by a
credible 11% from 41,4 cents to 45,8 cents.
The balance sheet continues to remain
strong with cash and cash equivalents at R1 billion. Offshore cash holdings of R245
million have been consolidated into the group balance sheet as a result of the unbundling
of the offshore assets which had previously been equity accounted. Net asset value per
share increased from 546,9 cents to 566,0 cents.
Business activities
Altech
Altech recorded excellent results for the
period under review and reported headline earnings per share of 91,9 cents from 64,1
cents, an increase of 43,3%. Altech's strategies of capitilising on the worldwide
convergence of the technologies of telecommunications, multimedia and information
technology ("TMT") sectors, has paid dividends.
Alcatel Altech Telecoms
("AAT") achieved satisfactory results for the first six months despite the slow
down in the general telecommunication market. AAT has been selected as a supplier to
Vodacom for its Wireless Application Protocol ("WAP") platform which provides
significant opportunities for the success of the newly established Network Application
Division. Telkom has placed an initial order for the latest generation of ADSL
("Asynchronous Digital Subscriber Line"). This technology is considered to be
one of the fastest growing sectors of the telecoms market.
Autopage Cellular delivered a
strong performance and together with Mobile Direct and Supercall Cellular, Autopage
Cellular has positioned itself as the leading independent cellular service provider in
South Africa. The group’s cellular subscriber base is now some 400 000 subscribers,
many of whom are corporates.
Arrow Altech Distribution, the
group's electronic components distribution arm, reported a good performance. The
restructuring of certain divisions coupled with the disposal of the Test & Measurement
division, has resulted in the company achieving a much greater degree of focus and a
return to profitability. The Intel franchise holds promise for the future.
UEC Technologies
("UEC"), Altech’s multimedia subsidiary, performed exceptionally well
during the period under review and exceeded its budgeted operating profit handsomely
despite worldwide component availability problems. It enters the second half of the
current year with an excellent order book in excess of R300 million. 55% of UEC's turnover
is already offshore related.
Altech Smart Card Technologies
("ASCT") successfully leveraged off its market position to engage in several
local smart card solution problems, particularly in the identification, biometrics,
health, e-ticketing and leisure markets.
Isis, a leading IT solutions
company, continues to deliver value added software solutions to its clients and the novel
iCAP system developed for Vodacom, is a state-of-the-art solution to the problem of
providing a seamless view of a subscriber, while coping with the reality of a number of
disparate legacy systems.
Altech is confident that it will continue
to show significant growth for the remainder of the year. Altech will continue to pursue
its globalisation strategy by actively evaluating strategic acquisitions and exports.
Powertech
Powertech produced better than expected
results with headline earnings per share declining by only 8% to 20,7 cents per share.
This was mainly as a result of difficult market conditions together with pressure on
margins and reduced interest income.
The downturn in the local market for
fibre optic cable lead to highly successful export drive resulting in Powertech being
qualified as a supplier to telecom operators in Europe, United Kingdom and Africa.
Significant orders have already been secured from blue chip customers including Corning,
British Telecom, Cable & Wireless, and others. The benefit of this will be evident in
the second half of the year. Lambda Cables, the country's largest data cable group
produced excellent results. The power systems group headed by Willard Batteries
performed well especially in the solar systems and telecom supply markets.
ABB Powertech Transformers
recorded another exceptional half-year with its factory fully loaded for the remainder of
the year of which a large percentage of the orders on hand are for export to the
USA/Mexico and the UK. The Power Cable and Electric Accessories businesses
continued to experience difficult local market conditions and while turnover was in line
with the previous half-year, margins were eroded somewhat. The metallic telecoms cable
activities is expected to benefit by the roll-out of ADSL technology.
Just after the period under review,
Powertech acquired a majority stake in Cables de Communicaciones in Zaragoza,
Spain's leading metallic telecommunication and data cable group. This company, with an
annual turnover in excess of R400 million and 340 employees, is an important
supplier to Spanish telecommunications providers and has a strong export presence in
Europe and South America. The acquisition well positions Powertech to serve fast growing
telecommunication market world-wide.
During the period under review Powertech
repurchased 2,9% of its issued shares at a cost of R23 million.
Fintech
Fintech's results were regrettably
below expectations mainly as a result of the reduction in turnover and operating income
recorded by Fintech’s Information Technology and Communications division which
resulted in Fintech reporting a decline in headline earnings per share of 19,8% from 39,9
cents to 32,0 cents. However, notwithstanding the difficult conditions experienced by this
division, the Financial Services division, through Technologies Acceptances, again
improved its market share and achieved an impressive growth in capital financed of 39%
while its operating income improved by 11%. A continuing high rate of growth of capital
financed is expected to continue for the remainder of the year. The Document Management
division, through Xerox South Africa, recorded excellent results with revenues,
margins and operating profit up by some 21%. This growth is attributable to improvements
in all operating units including document processing products, outsourcing and services
coupled to increased market share and strict expense controls.
As expected the Information Technology
and Communication division was impacted by the continued rationalisation within the branch
network of retail banks, traditionally the largest customer of this division.
While solid performances are expected
from both the Document Management and Financial divisions, Fintech is not expecting a
rapid turnaround from its Information Technology and Communications division. As a result,
the level of last year’s earnings may not be maintained for the full year.
USKO
The 19,7% direct equity stake in USKO did
not impact group earnings during the period under review. Subsequent to the current
reporting date and as a result of Fintech underwriting the recent USKO rights offer,
Fintech acquired a 34,9% stake in USKO, which has resulted in the group interest in USKO
increasing from 19,7% to 54,6%. The Altron Group shareholding in USKO is being reviewed as
part of the group restructuring initiative and it is anticipated that Altron will
consolidate the second six months' earnings of USKO to 28 February 2001.
A strategic review of USKO’s
activities has been undertaken with corrective action implemented. A considerable amount
of restructuring effort has been devoted to this group and good progress has been made
especially with the Medeswitch group and USKO's offshore operations. Shareholders are
advised to refer to the USKO interim results announcement which is scheduled to be
published in the Press on Friday 13 October 2000.
Group Restructuring
On Friday 7 July 2000, Altron announced
the commencement of a process, which will culminate in a restructured group. The
restructure, together with certain management changes, will achieve business focus within
the operations, reduce the entry points for investors and unlock shareholder value. To
date, certain non-core assets have been disposed of, the Autopage Group has been delisted
and the listed pyramid holding company, Ventron Corporation Limited unbundled following
the purchase of Anglo American’s 29% shareholding by the Venter family led
consortium.
Outlook
Ongoing emphasis will be placed on the
restructuring the group’s operations especially with regard to core activities,
efficiency improvement and stricter focus. Corrective action has been taken with
underperforming assets and every endeavour is being made to exploit and improve market
share, globalisation and margins. Clearly we will reduce our dependency on local markets
and our foreign earned revenue which reached R532 million for the period. Furthermore, it
is expected that our exports will reach R1 billion by year end.
Market conditions in the domestic economy
are expected to remain difficult but the group is well positioned to benefit from its
increased export drive and globalisation activities. We expect earnings growth for the
full year.
On behalf of the board
