Recent restructuring at the multi-billion rand Allied Electronics Corporation Limited (Altron) Group has provided a major boost to the company. It has also propelled the group forward and enabled it to streamline operations while bringing added improvements to the business.

‘Without doubt, the single-biggest event of the past financial year was the acquisition of the minorities in Altech and its subsequent delisting from the JSE,’ says Altron CFO Alex Smith.

The restructuring that followed was the culmination of a ten-year journey to reduce the listed entry points to one. The goal was to create a more streamlined group operating in the telecoms, multimedia, power electronics and IT industries.

In July last year, the minority shareholders of Allied Technologies Limited (Altech) voted in favour of a transaction where Altron would buy the remaining shares in Altech.

Altron, which owned 61% of Altech, bought the remaining shares from its minority shareholders for R1.8 billion. Altech was then delisted from the Johannesburg Stock Exchange on 20 August 2013.

The group has been reorganised and rebranded into two simplified operational areas. Altron TMT is a combination of the Altech and Bytes businesses and Altron Power consists of the company’s Powertech businesses. The convergence of the group, which employs more than 12 500 people globally, has ushered in a new era.

‘We are making a fundamental shift from an investment holding company to a more operational approach, looking at our portfolio of businesses and how we can get them working together to better exploit opportunities in the market,’ says Smith.

The group funded the acquisition of the Altech minorities through a 12-month bridge loan. When the acquisition was concluded, and given that the group’s debt was sitting with short maturities, Altron took the opportunity to refinance the group’s term debt. ‘With the refinancing, which went through on 10 March 2014, we’ve streamlined to create a more efficient structure. We’ve received a pricing benefit from centralising and it’s given us certainty around funding,’ says Smith.

‘We also have one set of standard terms that applies to all our debt in the group. We can now demonstrate a very solid balance sheet, while also showing our commitment to pay off debt.’

Smith says cash flow will be used to repay this debt and this will ultimately improve returns for shareholders.

‘We are using the refinancing and the takeout of the Altech minorities as a catalyst to get a greater degree of centralisation. On the funding side, we believe we’re going to see some excellent benefits coming out of a very simple approach. With centralisation we can access set-off arrangements. By using cash to offset borrowings, it will save on interest,’ he says.

‘We believe shared services will generate good cost-based savings and enable us to remain competitive’

Refinancing significantly decreases Altron’s liquidity risk but allows the company the flexibility to repay debt as cash flows permit. Centralisation is also expected to improve the company’s level of oversight and tighten control over cash flow.

This will, in turn, lead to a higher degree of control over capital allocation and create a more efficient business. With a tighter unit, the group sees opportunity for more organic growth as well as cost savings. ‘Moving from many different business units will remove the duplication. We believe shared services will generate good cost-based savings and enable us to remain competitive globally,’ says Smith.

All debt and working capital facilities have now been centralised within Altron, and all local cash flow will ultimately pass through a centralised system. This will take 18 months to two years to implement.

On the customer front, Smith is upbeat about the greater synergy the restructuring has created.

‘Our key theme is to become a lot more customer-centric. We are moving from silos to collective positions, making ourselves relevant to the customer – adding value and at the same time being very cost competitive. We want to match the needs of each customer,’ he says.

The group can sell many products through one contact point, offering excellent service through a key account manager instead of several people.

The overlap in customer bases also offers the group a great opportunity to increase penetration into its customer markets as this was largely untapped under the previous operating model.

Smith said the synergy was demonstrated when people worked together to win a R1.2 billion tender to provide a broadband network to the Gauteng provincial government.

‘We had five business units collaborating to put the tender together. It was an excellent example of pulling our businesses into one portfolio. The customer deals with Altron TMT, but accesses the specialist skills of five different operations.’

It’s this kind of synergy that will drive the Altron Group forward as it embarks on an exciting new period

Altron
Altron House, 4 Sherborne Road,
Parktown 2193, Gauteng, SA
Tel: +27 (0)11 645 3600
Telefax: +27 (0)11 726 5778 /+27 (0)11 726 3009
Email: [email protected]
www.altron.co.za