Alaris Holdings Limited
FINANCIAL YEAR END RESULTS – 30 June 2020
22 September 2020
Agenda
1. Welcome and Introduction
2. Financials
3. Technology & Innovation
4. Group Overview
5. Strategy Round-up
6. Q&A
2
FINANCIALS
COVID-19
4
South Africa
• Lost up to 6 weeks of production• Challenges experienced after start
of hard lockdown from 27 March 2020
• Production impacts:• Supply chain challenges• Issuing of export permits, • Limited flights to export goods
Finland
• No hard lockdown• Work from home• Reduced testing services rendered• Delays in decision making at
customers• USA policies implemented led to
delays in orders
USA
• No hard lockdown• Work from home• Delayed customer decision making • Defense seen as essential services
from day 1• Suppliers located around New York
delayed deliveries
Group
• Employee safety is first priority• Only 1 employee was infected
worldwide• Revenue deferred from FY2020 to
FY2021
5
Summary
Revenue flat
Headline earnings per share
Strong cash position –
up by R68m
24%
R110m
R243m
Impact of COVID-19 on Group Revenue
6
36
85 103
85
136 96
75
84 160
106
-
50
100
150
200
250
300
2016 2017 2018 2019 2020
Mill
ion
s
Revenue
Half 1 Half 2 COVID-19 effect
7
3
13
22
6
23
2
10
11 35
8
-
5
10
15
20
25
30
35
40
45
50
2016 2017 2018 2019 2020
Mill
ion
s
Profit after tax
Half 1 Half 2 COVID-19 effect
Impact of COVID-19 on Group PAT
Group operating cashflow and PAT
8
-
10
20
30
40
50
60
70
80
2016 2017 2018 2019 2020
Mill
ion
s
Group operating cashflow and PAT
PAT Operating cashflow
Cash reserves
9
USD40%
EUR33%
ZAR27%
2020USD9%
EUR49%
ZAR42%
2019
• Total cash increased from R41.8m to R110.3m
• ZAR contribution reduced from prior year to current year
• Increased hard currency contribution from 58% to 73% during the 2020 year
Segment
Reporting
10
11
Segment – Alaris Antennas
12
REVENUE3%
EBITDA16%
PAT22%
• ROE of 32% for the 2020 FY• Was forecast to achieve strong results until COVID-19 hard lockdown was implemented.
• Lost up to 6 weeks of production• Challenges experienced after start of hard lockdown from 27 March 2020• Production impacts:
• Supply chain challenges• Issuing of export permits, • Limited flights to export goods
36 68 63 54
67
81
56 61 76 59
-
20
40
60
80
100
120
140
160
180
2016 2017 2018 2019 2020
Millions
Revenue
Half 1 Half 2 COVID-19 effect
6
21 15
9 14
28
14
17
20 9
-
5
10
15
20
25
30
35
40
2016 2017 2018 2019 2020
Millions
PAT
Half 1 Half 2 COVID-19 effect
13
Segment – COJOT
14
• ROE of 55% for the 2020 year• COJOT was on growth path until COVID-19 hit• Good order intake in the first couple of months of new FY• Deferred revenue – large order from European customer and from USA policies• Reduced testing • Effect of COVID-19 not as measurable as Alaris Antennas
18
40
23
44
15
19
26 63 32
-
10
20
30
40
50
60
70
80
90
2016 2017 2018 2019 2020
Millions
Total Revenue
Half 1 Half 2
2
12
4
12
5 1
3 20 4
-
5
10
15
20
25
2016 2017 2018 2019 2020
Millions
PAT
Half 1 Half 2
REVENUE11%
EBITDA PAT30% 32%
15
Segment – mWAVE
16
-
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
2019 2020
Thousands
Revenue
-
500
1 000
1 500
2 000
2 500
3 000
3 500
2019 2020
Thousands
PAT
• R18.8 million cross-selling included at lower margins• ROE of 11% for 2020• New MD appointed in June 2020 - focus on growth of Revenue and PAT• Focus will remain on improving product margins• Suppliers located around New York delayed deliveries due to COVID-19• Investments made for the future: ERP system, construction (offices added), restructuring
REVENUE EBITDA PAT
115% 15% 14%
* 2019: only 9 months
* *
Corporate
&
Consolidation
17
Segment – Corporate and Consolidation
18
R'000 2020 2019 % change
Net foreign exchange gains (1 250) (418) 199%
Employee costs and bonuses 5 947 8 305 -28%
Share-based payments 2 615 1 729 51%
Board fees 1 021 819 25%
Legal, consulting fees and costs to be listed 2 307 3 469 -34%
Net Other costs 392 1 621 -76%
11 032 15 525 -29%
• Corporate saved R4.5 million during the year• No bonuses were paid during the current year across the Group• Non-cash IFRS 2 Share-based payment expense is based on making
targets over 3 years. Should targets not be achieved, the expense would be reversed
Overview of
summarized
financials
19
Statement of profit and loss
20
• COVID-19 impacted revenue
and profits
• Gross profit margin down 1%
• mWAVE contributed for a full
year (vs 9 months in 2019)
• Operating expenses include
R7.5 million share-based
payments for senior
management – if targets are
not met, the expense will be
reversed in future years
• The cash in SA is generating
more interest income
R’000 Audited Audited
Jun-20 Jun-19
Revenue 242 753 245 184
Cost of sales (79 876) (77 871)
Gross profit 162 877 167 313
GP margin 67% 68%
Other income 1 689 1 111
Operating expenses (125 031) (114 299)
Trading operating profit 39 535 54 125
Finance income 1 802 430
Finance costs (558) (174)
Profit before taxation 40 779 54 381
Taxation (9 794) (13 300)
Profit for the period 30 985 41 081
Weighted average number of ordinary shares in issue
119 734 262 119 810 497
Headline earnings per ordinary share (cents)
25.89 34.29
Statement of financial position
21
R’000 Audited Audited
Jun-20 Jun-19
Assets
Non-Current Assets
Plant and equipment 9 376 7 242
Right-of-use-asset 13 250 -
Goodwill 50 289 42 034
Intangible assets 14 559 15 945
Deferred tax assets 12 850 11 229
100 324 76 450
Current Assets
Inventories 30 681 19 080
Current tax receivable 1 426 94
Trade and other receivables 40 689 80 935
Cash and cash equivalents 110 268 41 836
183 064 141 945
Total Assets 283 388 218 395
Total Equity 221 110 165 182
Current Liabilities 43 414 49 472
Total Liabilities 62 278 53 213
Total Equity and Liabilities 283 388 218 395
Net asset value per ordinary share 185.27 137.87
• IFRS 16 implemented this year
• Right-of-use asset
• Lease liabilities
• Higher inventory due to shipment delays
• Trade receivables lower due to staggering revenue equally as well as delays in shipments.
• Strong cash balance to weather the storm and will continue to support the Group’s intention to expand the global footprint through suitable acquisitions
• Healthy liquidity – current ratio of 4.2:1 and quick ratio of 3.5:1
Cash flow
22
R’000 Audited Audited
Jun-20 Jun-19
Profit before taxation 40 779 54 381
Adjusted for non-cash items 28 663 9 765
Working capital changes 20 558 (31 143)
Cash generated from operations 90 000 33 003
Net finance income 1 602 213
Taxation paid (16 637) (7 284)
Net cash from/ (used in) operating activities
74 965 25 932
Net cash used in investing activities
(6 193) (32 734)
Net cash used in financing activities
(445) (3 000)
Net increase/(decrease) in cash and cash equivalents for the period
68 327 (9 802)
Cash and cash equivalents at the beginning of the year
41 836 51 679
Effect of exchange rate movement on cash balances
105 (41)
Total cash and cash equivalents at end of the half year
110 268 41 836
• Non-cash items include
depreciation and amortization of
R11 million and Foreign
Currency Translation Reserve of
another R11 million.
• Late invoicing in Jun 2019
resulted recovery of funds from
debtors. This is the main
contributor to cash inflow from
working capital
• mWAVE acquisition partly paid in
cash of R30m in previous year
• ALH liquid company – operating
cashflow covers the current
liabilities
TECHNOLOGY & INNOVATION
23
24
Driving Innovation from the Centre
FY 2020 focussed on how the Centre can drive Innovation and Technical Excellence
• Alaris Holdings Technical Committee
• Oversight of subsidiary Technology and Product Roadmaps
– Avoid duplication of effort
• Fostering collaboration and support between the subsidiaries
• Platforms for Group-wide technical discussions and coordination
• A Group-wide, consistent, technical strategy
– Supports growth
– Informs acquisitions
Vision
RF Technology Group Solutions provider
Trusted expert partnerGlobal
Own productsInnovation
FY 2021 forwards, with Group CTO role, will be about implementation and refinement
Focus Areas
Optimise Coordinate Cross-pollinate StimulateCollaborate
25
Antennas merging with Electronics
Technological change drivers
• 5G, Multi-Input Multi-Output (MIMO)
• Low Earth Orbit Satellites
• Spectral efficiency / higher frequencies
• Low SWAP*/visual signature
• Logistical streamlining
• Unmanned systems, robotic agents
• Networked battlespaces
• AI (to manage big data from sensors)
Antenna Systems
• A conscious merging of Antennas and RF electronics and controls into a single logistical unit
• Will dominate our technological output in the next 10 years
An ongoing trend (we are following it)…
• 2009 Alaris Antennas first integrates own RF electronics modules into DF antenna arrays
• Largest revenue now from integrated antenna systems
• Continue to push integration/performance with low SWAP DF arrays
• 2012 COJOT started ‘MIDAS’ technology for actively matched antennas
• From 2018 Switched Beam Antennas are most promising growth area for COJOT
• Trend is increasing development of electronics and RF electronics with antennas
Demand
Increased integration and compactness
Multi-role, reconfigurable systems
More advanced antennas and better RF performance
ANTENNA SYSTEMS
* SWAP = Size, weight and power
Basic antennas / components
Specialised Antenna arrays (DF)
Collocated radiators (C-RCIED)
Electronically reconfigurable antennas (MIDAS)
Switched beam antennas
Phased arrays
Multi-role shared aperture systems
Digital Beamforming Antenna systems
Low probability of detection Comms/Jam antennas
~2
00
6
~2
01
1
Electronically enhanced antennas
DF Antennas with integrated RF subsystems
~2
01
7
Ne
ar
futu
re
Switchable channel antennas
Fully integrated Antenna / RF
Electronics systems
Wideband jamming
antennas
Superlow SWAP integrated Antenna Systems and Sensors
RF E
lec
tro
nic
s
be
co
me
s c
ritic
al
Antenna Systems – Technological roadmap
GROUP OVERVIEW
27
Alaris Holdings Group structure
28
ALARIS INVESTMENT
HOLDINGS (UK)
Gauteng, South Africa Helsinki, Finland Portland, Maine, USA
South AfricaJSE ALTX listed since 2008
Revenue: ZAR 243mPAT: ZAR 31m
*DBA
Strategic Technology Holdings Company
• Radio Frequency (RF) Technology
• Design and Manufacturing: own IP, own products
• Approach: customer intimate, competent trusted advisor
• Customer base: B2B - global, strongest in US, Europe
Where do we operate?
29
Group
Sales
And
Marketing
30
31
Group market segments and applications
Defense, Military & Homeland Security
Spectrum Management
Test & MeasurementScience and Exploration
Financial Services, Telecoms & Utilities
• Military Commso Secure Commso HF/VHF/UHF Comms
• Electronic counter-measureso Counter RCIEDo Comms jamming
• Signals Intelligenceo COMINT - DF/Monitoringo ELINT - DF
• Spectrum monitoring• Direction Finding (DF)
• Probes• Test antennas• Test equipment
• Remote sensing • Sat comms• Monitoring
• High speed data • M2M• Voice comms
Design and manufacture antennas and related radio frequency (RF) products
Alaris Group Revenue
32
Americas32%
Asia, Middle East and Australia
23%
Europe and UK
38%
South Africa7%
2020
Americas21%
Asia, Middle
East and Australia
19%
Europe and UK
48%
South Africa12%
2019
• Revenue contribution from the USA increased by 11%
• Revenue contribution from South Africa decreased by 5%
• Revenue from cross-selling increased from R2.2m to R28m
33
Roles of the Centre: Marketing
• The role of the centre is of architectural and strategic nature.
• A Group Marketing Officer has been appointed
• The Marketing function is centralised with specific objectives:
o Branding
o Communications (customers, public relation and investor relation)
o Market segmentation
o Channel optimisation
o Customer experience
o Lead generation
o Etc.
Strategy
Round-up
34
35
Strategy
Role of the Centre• Strategic coordination• Marketing• Financial control• Technical oversight• HR (Executive)
Sustainable Organic Growth
Focussed, not opportunistic
Model for selling at a premium
Targeted Revenue & PAT growth 20% in subsidiaries
Listed → Good governance
Growth oriented MDs
Strong innovative core
Increase diversity and size
Acquisitive Growth
Gets us closer to the customers
Complementary technologies
Add RF capabilities /offerings
Similar business models
Similar kinds of customers
Cultural fit, similar values
Towards becoming an ANTENNA SYSTEMS COMPANY
Increase size
Niche domainSpeed and
Responsive-ness
Client Centric
Willing to customise(design-in)
Expert knowledge and advice
Global Own IP
Acquisition Strategy
RF Technology
Components &
Subsystems
Increase relevance in USA
36
Acquisitions - RF Electronics Capability
• Key drivers:
• Strategic move towards ANTENNA SYSTEMS
• Need to diversify from existing antenna product base
• Increase product offerings and portfolio
• Increase size
• Critical: Remain relevant to our customers
• Shore up RF electronics design and manufacture
37
Acquisitions – Overview of Activity
• Acquisitions – this is a top priority topic at Alaris Holdings
• Discussions with multiple identified targets in various stages
• COVID-19 restricted travel, resulting in a lack of face-to-face engagements with typically owner-managed companies.
38
Outlook
• Despite COVID challenges the outlook remains positive
• Holdings structure allows for easier integration of acquisitions
• Subsidiaries
o Orders deferred from FY20 to FY21
o Healthy order book and outlook
• Focus on innovation and technology across subsidiaries
• Focus on future acquisitions
o Design and manufacture capability for RF / Microwave Electronics
• Future trends point towards good growth in the RF space
39
Investment Attributes
• Export: more than 90% revenue is hard currency denominated
• Healthy gross margin of about 70%
• Inhouse technical expertise, own IP and registered patents
• Competes successfully in a first world environment with unique, technologically advanced products
• Niche player in large global market with good growth potential
• 19-year track record selling to blue chip western defense companies
• Listed on JSE AltX for 12 years.
Questions & Answers
THANK YOU