Listed electronics company Allied Electronics Corporation (Altron) has warned that the strength of the rand presents a number of threats and will weigh on exports, while encouraging more imports into the local market.
The company this morning reported its half-year results to August and said revenue declined 3%, to R11.7 billion, as the weaker performance of subsidiary Altech weighed on growth.
However, despite the lower turnover, net profit improved 3%, to R417 million, and basic earnings per share jumped 21%, to 93c. Headline earnings per share grew 6%, to 99c, mostly as a result of the improved contributions from its 100%-owned subsidiaries Bytes and Powertech.
Altron said in its results commentary that the second quarter of the reporting period showed a broad-based recovery in market conditions, although this was at “relatively muted and inconsistent levels”.
“We expect the recovery in the economy to be slower than originally anticipated, due to the deterioration of certain lead indicators and worrying signs we are seeing in the economies of some of SA's key trading partners, most notably in Europe,” says CEO Robert Venter.
Venter adds that the ongoing strength of the rand also continues to affect the group and presents a number of threats, mostly around the competitiveness of exports and from increasing imports into the local market. In addition, revenue contributions from foreign operations are impacted, because earnings are lower when converted into rands.
Mixed improvements ahead
Venter says prospects for the second half of the year are positive as the company expects Altech's performance to improve, and the recovery in both Bytes and Powertech is expected to continue.
customer demand to drive growth.
Bytes achieved a 31% improvement in earnings before interest, tax, depreciation and amortisation, due to good performances from a number of its operations. Powertech has also seen a significant improvement across its businesses, with an increase in earnings before interest, tax, depreciation and amortisation of 23%.
However, Altech was hit with several external factors, which led to a 12% decline in earnings before interest, tax, depreciation and amortisation, mostly in its East African businesses and Altech UEC.
Altron says the building and construction industry is still subdued and is not expected to recover before the middle of next year, despite recent interest rate cuts. In addition, while the power infrastructure market is strong, there is increased international competition.
The mining industry showed some recovery for cables and batteries and, while pricing in the local cable market has improved, margins are still under pressure, says Altron.
The company adds that the IT market has showed improvement as customers are returning to more normal purchasing patterns. However, the sector is characterised by strong competition, which is putting pressure on margins.
It has continued to invest in capital items, although the levels of investment were lower than a year ago. Since year-end, Altech invested R231 million in capital, and Powertech spent R93 million.
Slower growth
Chris Gilmour, Absa Investments analyst, says the rand is expected to remain at its current strong level of around R7 to the dollar well into next year.
He explains that, while SA has recently seen several interest rate cuts, the country still offers a higher return for investors than many other markets. As a result, says Gilmour, money is coming into the country, which is expected to keep the rand at current levels.
Gilmour anticipates that the local market will remain attractive to foreign investors until international concerns about a potential double dip go away, and developed economies start seeing better levels of growth.
Although the economy is in a much better position that it was during 2009, Gilmour expects local growth to be around 3% this year, and 4% next year.
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