Having achieved the goals set out in the ‘One Altron’ strategy, they have moved on to ‘Altron 2.0’.
On 17 May, Altron announced its financial results for the year ended February 2021, which showed an 18 percent decline in headline earnings per share to 31 cents per share, and a decrease of eight percent in EBITDA to R1 billion. On the plus side, however, cash generated from operations was up 31 percent to R2.2 billion.
In the wake of this mixed bag of results, CFO South Africa chatted to outgoing CFO Cedric Miller, who is leaving Altron feeling satisfied about the financial journey the company has been on during his tenure.
“Certainly we are very pleased with our results,” he says. “Would we have liked them to have been better? Absolutely. But they are satisfactory given Covid-19 and the broader impact on the economy. We didn’t treat 2020 as a ‘business as usual’ year. We had a clear focus on how we were going to survive the storm, and manage ourselves and Altron through it. And we’re very excited about the shareholder value unlock we’ve had.”
The beginning of a new era
A significant angle of the last year’s focus has been transitioning from the One Altron strategy to the Altron 2.0 strategy, and through this, communicating to the market where the technology company is headed.
He explains that the One Altron strategy was a turnaround strategy and that it was well ventilated and understood. One of its aims was doubling EBITDA in five years, which was achieved in three.
The second aim was around unlocking value for shareholders and Cedric believes that this is certainly what has been done. “If you think that we took the market capitalisation for Altron from February 2017 and fast forward four years, with combining Altron and the Bytes business demerged, we’re looking at a growth of just under 600 percent. So we’ve ticked those.”
This heralded the time for the move to Altron 2.0, which replaced the turnaround strategy with an evolution strategy.
“It encapsulates a couple of things – essentially talking to ‘What is the company that we are trying to build?’” Cedric explains.
Some of the focus areas of the new strategy include building a capital-light business, one that has a high annuity revenue and one that contains its own IP. “The margins are much richer on selling our own IP than selling someone else’s IP,” he says.
The growth areas within the new strategy are cloud services, data security and automation.
In the wake of the Bytes demerger, Cedric says that Altron often gets questions on its strategy regarding geographical growth. “The short answer is that the demerger was purely a value-unlock exercise. Clearly we would like to get back into the UK, into an operation that gives us hard currency revenue going forward, because that is the type of business we are trying to build.”
One of the stretch objectives of the new strategy is to triple EBIT in five years (a shift in focus from EBITDA, as a result of the difference in lease treatment under IFRS 16).
Targeting growth
“Altron has a very strong focus on growing organically, because we have around 20,000 enterprise customers and they present a significant competitive advantage and opportunity. In the past, all of our 10 operating divisions had a strong go-to-market strategy focusing on their own services and targeting their own customer base. One Altron brought all these companies together, which then benefits the single customers.”
He provides the example of one of South Africa’s big banks, for which Altron had a contract to deliver end-user computing services. Once Altron was able to show up as a unified team, they were able to deliver a security offering, systems integration and document solutions.
“By bringing all of that together, the client now feels that they only speak to one organisation, whereas in the past, we fell foul of showing up as different operating divisions with no clear service offering to the customer. That’s something we will perpetuate under Altron 2.0. It will remain a competitive advantage.”
Despite this organic growth potential, Cedric says that to triple EBIT in five years, the company will have to focus on acquisitions. “We are very confident of making those acquisitions. We have already made a couple in the last three years. We have a strong balance sheet with very low levels of debt. We are in an enviable position.”
He provides the example of the recent Lawtrust acquisition process, which is awaiting Competition Commission approval. “That kind of business fits the profile of the Altron that we are trying to build. It has high levels of IP and annuity revenue, and it’s a fairly capital-light business. It is in our growth area of security. It has all the hallmarks of an acquisition that we will pursue now and in future.”
Personal growth
Cedric describes the last year as “challenging and exhilarating” on a personal level.
“The first case of Covid-19 was reported in South Africa on 5 March last year. In the midst of this uncertainty, the board announced we were going to investigate a demerger on 2 April. Many investors said, should we not rather wait and ride out the storm? All kudos to our board, they were adamant we’d done the homework and seen the valuation discrepancy, and that the market would understand the rationale for this transaction.”
While this was a positive step, in the midst of all of this, Cedric says they had to take the painful decision to exit 650 people from the business to ensure sustainability. “It was a year of contrasts – exciting because of the demerger, but painful because it was necessary to exit those people.”
He adds that he felt very fortunate that going into the Covid-19 lockdowns already cloud enabled made it possible for the workforce to seamlessly adopt remote working methods.
“The real focus for Altron is that there’s an exciting future ahead. The one thing that Covid-19 taught us is that there’s a demand for the services we already offer. Many organisations are not cloud ready, and had to adopt solutions very fast, which plays into our cloud strategy. The post-Covid-19 environment plays into the hands of Altron’s core offering, so it’s difficult to not be excited about the future. Combined with low levels of debt, all of these things bode well for the business.”
Cedric clearly feels positive about the future of Altron, which is why the announcement of his resignation came as a surprise to the market. But, he says, the time is right.
“With Altron having successfully concluded the Bytes UK demerger, together with great prospects on the horizon under Altron 2.0, I considered it a good time to exit the corporate world for a while to pursue other personal interests.”
