Platforms: Already above medium-term margin target
The Platforms business generated an operating margin of 20.2% in FY25, up 2.9pp y-o-y
and above the company’s medium-term target of at least 19%, due to the strong performance
of the HealthTech and FinTech businesses.
Netstar: Good profit growth, but slower H2 than hoped for
Netstar generated revenue growth of 9.8% in FY25, with EBITDA growth of 17.3% and
operating profit growth of 14.9%. The operating margin increased 0.5pp y-o-y to 11.2%.
Growth in H225 was below our expectations (see discussion of Australian operations
below) leading to revenue and profit below our forecasts. The business continued to
drive subscriber growth, closing the year with 2.02m subscribers, up 16% y-o-y and
6% h-o-h. Consumer subscribers increased by 10% y-o-y, enterprise subscribers by 13%
and OEM subscribers by 21%. The retention rate remained above 90% although churn increased
to 19% (FY24: 16%) due to issues in the Australian business. The business has grown
its network of fitment centre partnerships to more than 70 and has maintained a contract
fulfilment rate above 90%. Pre-fitment rates also remained above the targeted 60%
level. While performance in the South African business has been strong, in Australia
the company saw a negative effect from the transition from 3G to 4G. This meant that
customers needed to replace the devices in their cars, and this caused an elevated
level of churn related to the availability of fitment services. The Australian business
generated a ZAR16m operating loss for FY25. Management is focused on stabilising this
business and returning it to growth, and has already improved access to fitment centres.
FinTech: An outstanding year
The FinTech business generated revenue growth of 16.7% in FY25, with EBITDA growth
of 38.5% and operating profit growth of 46.4%. The operating margin increased 6.7pp
y-o-y to 33.0%. Annuity revenue increased to 84% from 74% in FY24. The Collection
and Payment Solutions business continues to be the main driver of growth, making up
73% of divisional revenue and growing 33% y-o-y. The business increased the value
of debit orders processed in the year by 19% after expanding its service to the SME
market. Credit Management Solutions (6% of revenue) saw 15% revenue growth in the
year as the value of loans processed increased 16% and subscriptions increased 13%.
Both Integrated Transaction Solutions (12% of revenue) and Card Personalisation and
Issuance (9% of revenue) saw revenue declines, 28% and 2% respectively, mainly due
to the shift from buying hardware to renting it.
HealthTech: Steady revenue and profit growth
The HealthTech business generated revenue growth of 6.1% in FY25, with EBITDA growth
of 15.1% and operating profit growth of 17.6%. The operating margin increased 3pp
y-o-y to 30.2%. Annuity revenue of 93% was marginally lower than the 95% reported
in FY24. While the precise revenue split was not disclosed, revenue from practice
management increased 3% y-o-y (862 net new practices signed up with 1.6x acquisition-to-churn
ratio) while revenue from corporate customers increased 17% y-o-y (22 new corporates
signed up). The business processed switching value of ZAR117bn, up 9% y-o-y. The business
sees growth opportunities from its data-led partnerships with healthcare companies,
banks, insurers and retailers, and its oncology platform, where it added 22 practices
in the year.
IT Services: A mixed year
Altron Digital Business (ADB): Pressured by weak trading environment
FY25 revenue declined 8.9%; once normalised for the ATM disposal, revenue was flat
year-on-year. H225 revenue was flat versus H125 and annuity revenue was maintained
at 50%. The business has suffered from the effects of economic and political uncertainty,
which has resulted in enterprise customers delaying IT investment. Two projects were
delayed and moved into FY26 and two large customers have reduced their spend. The
business also incurred non-recurring costs on some legacy projects. Despite the difficult
trading environment, the foundational work on integrating the three IT services businesses
is largely complete, positioning the business well to respond when the environment
improves. As a result of the weaker than expected revenue performance, EBITDA declined
43.5% and operating profit declined 46.8%, resulting in a 1.8pp operating margin decline
to 2.6%.
Altron Security: Operational efficiencies drive margin growth
The business had previously reported that capex constraints at one large customer
had affected revenue, as had the increasing proportion of revenue treated on an agency
rather than principal basis (ie net revenue accounted). The business took corrective
action during the year, optimising the cost base and realigning its go-to-market activities
into four pillars: identity security, data and crypto, certificate services and signing.
While revenue declined 11.6% y-o-y, EBITDA increased 12.9% and operating profit increased
19.4%, resulting in 5.6pp operating margin expansion to 21.7%.
Altron Document Solutions (ADS): Underlying profit improvement
Brought back into continuing operations in 2024, ADS generated a small revenue increase
of 1.4% but managed to turn an operating loss of ZAR97m in FY24 into operating profit
of ZAR61m in FY25. In FY24, the operating loss included provisions totalling ZAR95m
against obsolete stock, and trade and finance lease receivables. Stripping this out,
the underlying loss in FY24 was ZAR2m. Annuity revenue increased from 36% to 44%.
The business is focused on delivering an improved offering for the A4 printer market,
AI-enabled intelligent document processing digital solutions, and flexible print infrastructure
with ESG benefits.
Distribution: Altron Arrow margins up despite revenue decline
Management had expected a revenue decline in FY25 due to the current downturn in the
electronics distribution market but had targeted to maintain operating margins. Revenue
declined 16.6% in FY25 while operating profit was flat, resulting in the operating
margin expanding from 8.4% in FY24 to 10.0% in FY25. This was achieved partly through
disciplined cost control (opex was down 20%) but also through the focus on innovation,
which creates a stickier product. Altron Arrow recently signed a partnership via Asus
to provide Nvidia-powered solutions. Management estimates that the industry could
be approaching the bottom of the downturn.
Discontinued operations: Management buyout proposed for Nexus
Nexus is the only remaining business in discontinued operations. Revenue declined
52% in FY25, with Nexus down 48% on an underlying basis (FY24 included a contribution
from since sold Altron Rest of Africa). The EBITDA loss reduced from ZAR451m to ZAR155m,
reflecting the high level of provisions taken in FY24. The net loss from discontinued
operations reduced from ZAR534m to ZAR201m, although was larger than our ZAR106m forecast.
Post year-end, the company announced that it agreed a management buyout of Nexus.
The acquirers will assume all company-related debt and any potential recoveries from
the City of Tshwane legal process will remain with Altron. Other than the repayment
of intercompany loans, the transaction is not expected to generate any proceeds for
Altron. The transaction is subject to the fulfilment of conditions precedent, with
a target of these being met by 30 June 2025.
