Johannesburg - Diversified industrial group Allied Electronics (Altron) has reported a 20% rise in revenue for the six months to end-August, despite the general economic slowdown.
But CEO Robbie Venter admitted that the global financial crisis and its impact was top of mind for the group, and that it would adopt a "batten down the hatches" approach to running the business for at least the next six to 12 months to ensure it was able to weather the storm.
This would include a focus on controlling expenses, working capital management and internal consolidation.
Venter said the global financial system had entered uncharted waters, and this added a tremendous amount of complexity and uncertainty to running a business in terms of the impact on exchange rates, the general state of the economy, demand, and the ability of the major corporates to fund their capital expenditure: "It would be naïve to expect that South Africa avoids the impact of the global turmoil."
Altron previously tried to buy out the minority shareholders of both Bytes Technology Group and Allied Technologies (Altech), but only got shareholders' approval for the Bytes deal. It hadn't closed off the possibility of restructuring the Altech transaction. But Venter says with all that had transpired in global markets since then, any "corporate action is not high up on the agenda".
The group would, however, continue to look at small, synergistic purchases, Venter said.
Over the last 18 months, Altron has spent more than R3bn on acquisitions, if one includes the Bytes minority buy-out. So Venter said it had successfully taken advantage of its strong balance sheet, and could continue to do so if the right opportunities presented themselves.
Altron generated R1.3bn in cash from operations during the six months, and had R467m left in cash and cash equivalents at the end of the period.
The group reported 19% growth in first half revenues, to 13.2bn. Venter said 11% of this had been organic, and 8% from acquisitions.
The group reported growth in operating profit before capital items of 25% to R1.2bn, giving it a margin of 8.5% compared with 8.2% previously.
Altech contributed positively to margin improvements (9% from 7.7%), while Powertech's operating margins were slightly lower (10.1% from 10.2%) and Bytes' margins continued to feel pressure (down to 5.4% from 6% previously).
Venter said the latter related partly to the lower margin National Health Services contract, but the SA operations also operated in a challenging environment. The financial institutions are Bytes SA's biggest customers.
Building sector slowdown
In the UK, although the performance of Bytes' software and services business had been good, the Xerox business had been under pressure with the tough economic conditions.
Venter said he did not foresee a huge improvement in Bytes' margins, but he hoped these would get back towards the 6% mark in the second half.
Powertech derives about half of its revenue from infrastructure spending, and the other half from the building and construction sector.
Venter said while spending by Eskom and other parastatals as well as mining companies should continue (barring any concern on the impact of a weaker currency making such projects less affordable), the building and construction sector had seen a slowdown. The residential side had been worst hit, while the commercial sector was relatively more protected.
Venter said he did not expect residential property conditions to improve until interest rates turned.
Group headline earnings a share rose by 12% to 192c a share, putting Altron on a forward multiple (on annualised earnings) of around eight times.