Altron to dispose of two subsidiaries amid looming job cuts

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 26 Jul 2023
Werner Kapp, Altron group CEO.
Werner Kapp, Altron group CEO.

JSE-listed technology services group Altron is looking to dispose of two loss-making business units that it deems non-core, with retrenchments looming at the subsidiaries.

Altron today issued an operational update and trading statement, saying it is expecting a massive knock on its earnings, as it reviews its business operations.

The company has identified business units Altron Nexus and Altron Document Solutions as non-core to its operations. These units will be classified as held-for-sale and will be reported in discontinued operations.

According to the firm, results for the reporting period will be negatively impacted by provisions raised within these non-core subsidiaries: Altron Nexus at R336 million and Altron Document Solutions at R95 million. There will also be a provision raised at group level of R33 million in relation to goodwill held on the group balance sheet for Altron Nexus.

These entities contributed 21% to the group’s revenue at year-end. However, Altron says both subsidiaries were loss-making and, therefore, did not contribute to the group’s profit.

Over the years, Altron has been disposing of its non-core businesses. These include Altron People Solutions and Altron Arrow, which were sold when former CEO Mteto Nyati was still at the helm.

The company also sold its ATM Hardware and Support Business to US software, consulting and technology company NCR Corporation in a R180 million deal.

In 2020, Altron completed the demerger of its unit Bytes group, with shareholders raking in R10.9 billion.

In January, it sold its businesses in Botswana and Mozambique to Zimbabwe’s Tano Digital Solutions.

Huge contract loss

Altron Nexus has found the going tough after losing the multibillion-rand Gauteng Broadband Network (GBN) contract, which had been the unit’s cash cow over the years.

In May, the extension of the GBN contract for phase two came to an end, and Altron Nexus was not awarded the contract for GBN phase three.

The GBN contract for phase two accounted for a material portion of Altron Nexus’s revenue and profits.

The company says as the incumbent service provider for GBN phase one and two, the relevant personnel and infrastructure had been kept in place to enable Altron Nexus to seamlessly deliver on GBN phase three, in the event that the contract for GBN phase three was awarded.

“The fact that GBN phase three was not awarded to Altron Nexus has necessitated the conducting of a full business review, including the associated operating model of Altron Nexus’s three focus areas; namely critical communications, Huawei Enterprise Networking and Broadband Network Services,” says the group.

Pursuant to this review, a section 189A process has commenced which, it is anticipated, will be finalised in September.

The public sector Broadband Network Services business, which was underpinned by the GBN contract for phase one and two, has been wound down, Altron adds.

As Altron Systems Integration and Altron Nexus hold enterprise networking capabilities and key relationships with Huawei, it has been decided to rationalise and consolidate the Huawei Enterprise Networking operations.

It notes that all future enterprise networking will be conducted by Altron Systems Integration in a manner that ensures the retention of key skills.

Following the restructuring, it says the remaining business of Altron Nexus will focus on non-core critical communications services. Altron points out that it will actively pursue opportunities to sell the remaining Altron Nexus business.

“Pursuant to the detailed business review, provisions totalling R135 million were raised, including R34 million relating to accounts receivable; R30 million relating to property, plant and equipment; and R71 million relating to inventory.

“The once-off restructuring costs are estimated to be R11 million, which will negatively impact the reporting period,” says the company.

Unsuccessful sale

On Altron Document Solutions, the firm says it continues to regard the unit as non-core to its operations and strategy, and has actively engaged with multiple potential bidders that have expressed interest in acquiring the business.

It explains that following the unsuccessful sale of Altron Document Solutions to Bi-Africa Investment Holdings, Altron Document Solutions appointed Warren Mande, the previous managing director of Altron Managed Solutions, to restructure the business with a focus on cost optimisation, cash generation and working capital management.

However, it adds, an assessment of all the assets of Altron Document Solutions post the unsuccessful sale, together with challenging market conditions that led to two large customers facing financial difficulties, culminated in the following provisions which will negatively impact the reporting period in discontinuing operations: R15 million relating to accounts receivable, R68 million relating to finance lease assets and R12 million relating to inventory.

As an active sale process continues, Altron says the business will be managed for value and remains accounted for as held-for-sale and reported as a discontinued operation.

“As communicated at the group’s results for year-end 2023, we are actively focused on ensuring once-off adjustments do not recur,” says Werner Kapp, Altron group CEO.

“Since joining the group, I have worked with the management teams in scrutinising all operations to ensure they are strategically aligned and have performance optimisation plans in place. Unfortunately, this process, together with recent market developments, resulted in further provisions in Altron Nexus and Altron Document Solutions, which are accounted for in discontinuing operations.

“However, I am confident we are now at a point where we have a stable base for the Altron Group to grow from. The group maintains a very healthy balance sheet, remains strongly cash-generative and is committed to maintaining its dividend policy. Our continuing operations are delivering a strong year-to-date performance and I am looking forward to presenting our delivery against our strategy at the half-year results in October.”

HEPS plummet

Headline earnings per share (HEPS) from continuing operations is estimated to be between 43c and 51c, representing an increase of between 5% and 24% compared to HEPS from continuing operations of 41c reported for the comparative period.

Group HEPS is estimated to be between -64c and -57c, representing a decrease of between 288% and 268% compared to group HEPS of 34c reported for the comparative period.

Earnings per share (EPS) from continuing operations is estimated to be between 33c and 40c, representing a range of an 11% decrease and an 8% increase compared to EPS from continuing operations of 37c reported for the comparative period; and group EPS is estimated to be between -86c and -81c, representing a decrease of between 457% and 437% compared to group EPS of 24c reported for the comparative period.

Meanwhile, on continuing operations, Altron says the profit improvement strategies are starting to show meaningful benefits, particularly in Netstar and Altron Systems Integration, the largest businesses in the group.

According to the company, Netstar’s profit improvement strategy is progressing well, with benefits already flowing from enhanced operational efficiencies and growing software-as-a-service.

The conversion rates on pre-fitments have increased from 32% at year-end to 63%, and the fulfilment rate on contracts has improved to 93% from 72% at year-end.

It adds that churn has decreased from 21% at year-end to the targeted level of 17%. Altron Systems Integration’s profit improvement strategy is progressing well, with the team securing the largest outsourcing contract in its history.

“The group continues to remain strongly cash-generative and is sufficiently capitalised, providing a solid platform to execute its immediate strategic initiatives,” it concludes.