Diversified digital technology group, Ansys Limited (Share Code: ANS), has released its interim results for the six-month period ending 30 September 2017.
The group’s revenues have shown significant growth since 2015, with a compound annual growth rate of 57%. The 2017 interim period alone reported a growth of more than 160%. This was partly due to exceptional orders, valued in excess of R150 million, in its defence and telecommunications segments. Constrained trading conditions during the current interim period have, however, seen a reduction in revenue of 23.1% from R408.6 million to R314.2 million. As a result, EBITDA slowed by 17.3% from R57.2million to R47.3 million.
The gross profit margin nevertheless increased from 24.9% to 31.7%, attributable to improved supply chain measures. Profit after tax decreased by 19.7% to R28 million R34.9 million. A reduction in foreign exchange gains, as well as a 1.9% increase in operating costs related to investments, also contributed to a decrease in profit after tax.
Headline earnings slowed by 19.3% to R28.2 million from R34.9 million in the previous interim period, translating into a parallel decrease of 19.3% in headline earnings per share from 7.57 cents to 6.11 cents.
In contrast, net asset value per share increased by 25.8% from 51.2 cents per share to 64.4 cents per share, while tangible net asset value per share increased by 51.3% from 25.6 cents per share to 38.8 cents per share. These increases were due to continued operating profits generated by the group during the reporting period.
Group CEO, Teddy Daka, says the interim results reflect muted market conditions, especially in sectors such as rail. Ansys is, however, actively repositioning for future growth, which is expected to arise from the digitisation of operations in all of the sectors in which the group operates. It has made considerable investments in human capital and new IP, which will contribute towards this. While these investments have had a negative impact of profits in the short term, they support the group’s strategic objective of creating a more sustainable business capable of exploiting additional market segments and the opportunities presented by digitation.
Over the course of the past year, Ansys has repositioned itself as a digital technology provider, leveraging off existing technologies, capabilities and processes in order to offer solutions that go beyond its existing areas of focus. By leveraging off its own IP and that of its partners, the group develops, produces, distributes and integrates technology solutions to enhance customer and consumer safety and productivity, connectivity, cyber security and digital defence.
At segment level, the telecommunications segment experienced an upsurge throughout the course of the 2017 financial year, with high growth driven by the roll-out of FTTH (fibre-to-the-home). A subsequent slowdown by some of the network operators in rolling out FTTH has impacted negatively on revenue in this segment during the current interim period, resulting in a 6% decrease in revenue from R182 million in the previous interim period to R171.7 million in the current period. Segment profit decreased by 1.8% from R29.3 million to R28.8 million.
In the defence and cyber security segment, exports to international markets account for 67% of revenue. With large component orders not reaching the same levels as in the previous interim period, revenue decreased by 49.4% from R115.2 million to R58.3 million. Segment profit consequently went down by 38.2%, although margins showed an improvement to 14.5% (R8.4 million) if compared to 11.8% (R13.6 million) in the previous interim period.
Similarly, local expenditure in defence remained subdued throughout the reporting period, prompting the defence industry to intensify its exports to international markets, where defence-related investment remains high. The segment was therefore able to leverage off ODM (original design manufacturing) services for local companies with export contracts, and to increase direct exports of cyber security products and ODM services.
Finally, revenue in the mining and industrial segment increased marginally by 5.2% from R45.2 million to R47.5 million, despite the country’s mining and industrial sectors both being under pressure. This was due mainly to the effect of more stringent adherence to high safety standards and the move towards the digitisation of operations.
Profit also increased by 27% to R7.7 million, with margins going up to 16.2%. This was attributable to a growth in sales of own IP, which had a positive impact on overall margins.
In rail, as was predicted in the previous financial year, revenues decreased due to delays in orders. This had a negative impact on the mid-year revenue for the segment, which dropped 43.8% from R65.5 million in the interim period last year to R36.8 million in the comparative period this year. Margins were also under pressure and profits therefore dropped from R6.9 million in the comparable period last year to a loss of R0.5 million this year.
“Our strategic focus is on repositioning Ansys to meet future needs and demands; something we believe will be of long-term benefit to our customers, shareholders and other stakeholders,” says Daka. “Continued investment in a digitised future, as well an on-going financial strategy of optimising margins, managing operational expenditure and improving cash reserves, places the group on solid ground.
“This is particularly true as we are seeing a significant increase in demand for our products, services and solutions in areas such as cyber security, defence and telecommunications. In telecommunications we have made investments in expanding our offering beyond passive connectivity to include active equipment, which is expected to improve earnings. Demand related to making mining operations safer is expected to continue with the introduction of stricter regulations, which augurs well for the group.
“The current exchange rate also allows us to be more competitive in terms of our ODM offering, and investments made in growing the group’s cyber security solutions are envisaged to provide real opportunities for growth.”