Altron: Environment challenging

Johannesburg - Allied Electronics Corporation (Altron) said on Friday that the economic environment remains challenging and unpredictable.

It added that Powertech and Bytes were trading below expectations.

At the time of its year-end results in February, Altron cautioned that the existing economic environment was expected to continue over the short to medium term. Market confidence remained weak, uncertainty continued and conditions for the first half of the current financial year would be challenging, especially given the high base of the comparative period in the prior year.

"These concerns have been borne out in the first four months of this financial year," Altron said.

It added that Powertech has continued to experience difficult trading conditions. This was caused by the slowdown in the building and construction sector, arising from the recent high interest rate environment and the global liquidity crisis.

In addition, it has seen a slowdown in demand from certain parastatal and mining clients as a result of funding issues.

It is evident from recent economic data released that these key industries continue to face highly challenging times, with conditions having further deteriorated in the last quarter and few signs of recovery being seen.

"This has had a negative impact on our power cables, distribution transformers and industrial battery businesses. Further corrective action has been required in order to align the cost base with the lower demand levels," it said.

While the recent strength of the rand has had a negative impacted on many of the Altron group operations, the effect has been particularly pronounced within Powertech.

"Our power cables business has also suffered from pricing pressures in the market as a result of an excess of supply over demand, which has depressed operating margins.

"As a result of these factors, Powertech is trading well below our expectations," it said.

Bytes continues to operate in challenging market conditions, it said.

Rigorous cost control is being applied by most businesses in the present economic climate which has resulted in the deferral and, in certain circumstances, the cancellation of orders for IT equipment and related services.

In addition, increasing pricing pressures are being experienced for those projects that are proceeding. "Consequently, Bytes is also trading below our expectations," it said.

Altech continues to deliver strong performance in what is a tough trading environment, benefiting from its high proportion of annuity income. Revenue and operating profits have increased as a result of continued good performance from operations combined with the benefit of recent acquisitions. Various opportunities for growth in East Africa are expected to add to Altech's solid performance going forward, Altron said.

Looking ahead, the company said leading indicators show few signs of short-term recovery in local market conditions and while there is much talk of "green shoots" in developed markets, it is unclear when these developments will be replicated in South Africa.

- I-Net Bridge