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Can Altron regain its spark?

For a time it looked like Allied Electronics (Altron) could do no wrong. Founded by Bill Venter as an electronic component maker in 1965, the group grew into a powerhouse on the JSE that employs over 12 000 people and operates on three continents.  

Over the years, Altron’s three major subsidiaries – software group Bytes Technology Group, ICT firm Allied Technologies (Altech) and its energy specialist Powertech – had grown into sizable operations, with Bytes and Altech for a time even being listed companies in their own right.  

Although Altron is a listed company, the Venters’ hold over it is close to absolute. Bill (81) stepped down as its chief executive in 2001 and remains the group’s non-executive chairman, while his son Robbie is Altron’s CEO. Craig, Bill’s other son, served as CEO of Altech until last year, when he stepped down after 27 years at the group. The Venters own the controlling stake in Altron.  

Over the years the Venters had garnered a reputation for being tough but prudent business people. But just as they looked like they were about to embark on a new growth streak, the Venters’ golden touch deserted them and they ended up making some costly blunders.  
The end result is that Altron is going through a tricky and radical restructuring that will eventually also leave the Venters a step removed from the group.

Altron’s new structure sees it becoming a very different organisation. Where it was once a broad-ranging technology group that made everything from car batteries to software, it will eventually be made up of Altron Telecommunications, Multimedia and Information Technology (TMT), which includes Altech and Bytes, and some remaining elements of its power division.

The plan also includes moving away from a family-managed business to an independent management structure. However, it remains unclear when this process will be finalised and when Robbie Venter will step down as CEO, and when, or if, Bill Venter plans to vacate his position as chairman. The family will retain its majority holding in the group.   

What went wrong?

The Venters are no fools, so how could there be so many huge losses under their watch in such a short time?  

To the group’s credit it did an internal assessment. Robbie Venter says this eventually led to it making “structural decisions” giving it “greater discipline over capital allocations”.

This includes the decision to collapse the Altron TMT structure into Altron, with the heads of IT and telecoms reporting directly to the Altron chief executive. This changed the reporting lines to create a more streamlined structure, and moving the Woodmead Altron TMT head office to the Altron head office in Parktown. Robbie Venter did not say it in so many words, but basically Craig’s position as CEO of Altron TMT had been ?made redundant.  

The new set-up means that head office can act a lot faster when things go wrong. Before, the group’s companies acted independently from one another, but now its executives have more control.

“We now have a flatter and leaner management structure that is able to make quick decisions and apply scrutiny to all capital allocations. This had the added benefit of substantial cost savings. Decisions have also been made and implemented to exit the problem areas,” Robbie says.  

The group plans to remain listed, but the Venters’ hold over it has led many to see it not as a listed company but as a family-owned enterprise with minority shareholders. When asked if he shared this view, Robbie says: “We have a strong and highly regarded shareholder base outside of the family. There are many examples of successful listed family businesses with a strong founding family influence.”  

He did however stress that the group took the views of minority shareholders very seriously: “We engage with our significant minority shareholders on a regular basis to keep them abreast of our plans and strategies. All minority shareholders have the normal protections afforded to shareholders of listed entities and our governance procedures are extremely important to the group.”

Selling assets

The days of Altron being everything to everyone are clearly over. “We reviewed our business strategy so as to focus Altron in areas where we have the resources, competence and skills to leverage our competitive advantage. The outcome of this review has to focus on our core IT and telecoms businesses and to significantly reduce our exposure to manufacturing,” Robbie explains.  

This has seen it selling off some assets like Altech Autopage and Aberdare Cables, and several smaller assets and properties within Altron Power.  

These moves are paying off. “This has realised approximately R2bn in cash, which will be applied to reduce debt and provide the foundation to grow the core ICT business,” he explains.  

These moves are steps in the right direction, but the company still has to box cleverly because it still has to find a buyer for its power transformers business and has to sew up some other loose ends.  

Irnest Kaplan of Kaplan Equity Analysts says the restructuring comes with some risk, as the group is both under pressure to dispose of its non-core businesses on favourable terms, but also to get rid of them quickly because they are a drain on its bottom line.  

AlphaWealth fund manager Keith McLachlan agrees. “Their turnaround is messy and far from complete. The jury is still out on whether they can pull it off.”   

Kaplan is however encouraged by the new structure. Bytes has been an outstanding performer over the past few years and some elements of Altech, like vehicle tracking group Altech Netstar, have a solid track record, ?he says.  

When all the discontinued businesses are not counted, what is left looks like a rather solid operation. In the year to end February, revenue from continuing operations increased 20% to R14.4bn and though there was an 11% drop in earnings before interest, taxation, depreciation, and amortisation (ebitda) to R888m, is is far better than the R376m when the discontinued operations are included.  

Kaplan says it is a hard call to make on whether the group is a buy or not. The new structure looks promising but it still carries some risk until it disposes of its non-core businesses.  

Getting the sell-offs right will boost the group in two ways, Kaplan says. Firstly, once they are done it will free up management’s time to focus on remaining operations. And secondly, it will help to pay down its debt of R2.7bn.

This article originally appeared in the 9 June 2016 edition of finweek. Buy and download the magazine here.

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