Greetings, everyone, and welcome to Altron's half-year results for the period ended 31st August 2026. I'm sure you're all asking yourselves, "Who's this young lady standing in front of you?" Well, my name is Lerato Magatha, a second-year student at Richfield College, currently pursuing a diploma in information technology and a proud beneficiary of the Altron Ascent Bursary. Before I begin, I'd like to share a quote by Joseph Campbell that I believe perfectly describes my journey. "The cave you fear to enter holds the treasures you seek." "The cave you fear to enter holds the treasures you seek." Before joining Altron, I suffered from imposter syndrome.
With a commerce background and very little computer experience, I remember when I started off in Richfield, I asked myself, "Do I have what it takes to succeed in IT?" When I applied for the Altron Ascent Bursary, I did not know what to expect. I walked into that interview nervous, but determined to put myself out there. Sometimes you have to take the first step for people to see what you are capable of, and I am so glad that I did. The bursary has changed my life in ways where it eased the financial difficulties on my studies, and I was able to contribute to my family, and I was closer to financial independence.
Altron gave me the opportunity to learn outside of the classroom, and through the CSMs, I was able to explore a different side of cybersecurity, and it is a lot bigger and more amazing. I am grateful to Mr. Andre and his team for welcoming me and sharing their knowledge. A special thank you to Ms. Saji for her ongoing support. Altron did not only give me financial support, but gave me the opportunity to grow, learn, and most importantly, believe in myself. Thank you, Altron, for seeing the potential in your beneficiaries and investing in opportunities that make a big difference. With me today is Altron CEO Werner Kapp and CFO Carel Snyman. Today's call is being webcast and recorded. You can ask a question by posting in the chat box.
Aligned with our values of inclusion, you will see that our results are being interpreted on behalf of the deaf community. As a reminder, during the call, we will be making forward-looking statements. Please look at the cautionary language contained in our presentation regarding the risks and uncertainties associated with forward-looking statements. Unless otherwise noted, all growth comparisons we make on the call today relate to the corresponding period of last year. With that, I will be handing over to Mr. Werner Kapp to take you through the results. Thank you.
Sure. Thanks, Lerato. Well done. The future is very, very bright, and we are very proud to be associated with you, and best of luck for your future studies. Morning, everybody. Welcome to the interim financial presentation for six months ended August 2026, or H1 of our FY 2027. As always, thanks to Investec, our sponsors, for hosting us in this venue that has the most spectacular TV screens that I have ever seen in my life. Thanks to our board, members of shareholders, members of the financial community, and my Exco team for attending these results. We spoke at length in our Capital Markets Day, I think it was in June, about how we are transforming Altron into this multi-platform business that plays a key role in South Africa's digital economy, as a B2B2C player.
In line with the evolution and the transformation of the business, we are also evolving our brand identity a little bit, and we thought that we would give you a first little teaser. It is not quite the final product, but a little bit of a view of what that is going to look like.
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That's just a little taste and a start of what we call the Altron love story. I mean, well done to Leani and Marisa and team. Incredible example, by the way, this of what happens when humans partner with AI. Marisa can tell you better than I can, but I think in the old days, I reckon it would have taken us six to nine months, a couple of million rand to be able to get a prototype like this out. I think it took us four weeks, three weeks, significantly less than ZAR 1 million, and I don't think we've lost the human touch. There's a little bit of work that we still want to do around that, but really excited about seeing where the Altron love story takes us.
If we move from love stories into financial highlights, I mean, just to start off with the key takeaways, probably for us as a leadership team, the most important thing here is that over the last four years, we've fundamentally transformed the earnings and the cash generation profile of this business. We've given you a bit of a snapshot from first half 2024 to first half 2027. Annuity revenue, very important to us, up to 68% now of the group's overall earnings. Annuity revenue, our platform businesses, 92%. What this really allows us to do is to generate cash at significant levels, 32% cash generation. What this platform business does and the diversified portfolio that we have is it also allows us to be able to invest in businesses for future growth, moving capital between particularly our platform businesses where we see appropriate.
I mean, Netstar, when I take you through their results, good example of big investments we're making now for the next three to five years while still delivering these type of earnings. Exceptionally strong balance sheet. We paid out a dividend of ZAR 755 million just a couple of months ago. We already have ZAR 800 million worth of cash on our balance sheet. 92% conversion of EBITDA to operating cash flow, over ZAR 1 billion worth of cash generated overall, and we delivered ZAR 1.1 billion worth of EBITDA in the first half of the financial year.
If we just go into the earnings a little bit, really pleasing for us, 5% revenue growth. That's the highest revenue growth we've delivered over the last three years, and that still is considering that there were some revenue recognition issues in our security business. EBITDA up 16% to ZAR 1.1 billion.
Operating profit up 13% to ZAR 622 million. Headline earnings per share up 14% to ZAR 1.09 per share. Earnings per share up 14% to ZAR 0.96. As I mentioned, cash generated from operations up by 32%. What is probably worth reflecting on is in my first, I think I was at Altron for five months when we delivered FY 2023 results. I do not have the exact number. I have got it more or less right.
We delivered ZAR 490 million worth of operating profit in FY 2023 on a portfolio that included three more companies than we have today. ZAR 622 million profit in H1 at operating margins of about 12%, whereas our operating margins in FY 2023 was around the 5% mark. Really starting to see that sort of change in our earnings structure coming through in the business over the last couple of years.
Those earnings have really converted into shareholder returns whilst, as I said, we retain the strategic flexibility to be able to deploy capital in long-term opportunities where we see fit. HEPS growing from ZAR 0.28 to ZAR 1.09. Cash generated from operations from ZAR 559 million to just over ZAR 1 billion in H1, and the same thing with our dividend payout, pretty much the ordinary dividend pretty much paying, doubling over the last three years.
What is really pleasing for us is kind of this relationship between revenue growth, profit growth, and cash. 5% revenue growth, 13% profit growth, 33% cash growth. That is really the kind of operating leverage that you want to see in any businesses, and particularly a platform business that really has annuity revenue and enhanced cash conversion. This really takes you through, this is a bit of a strategic snapshot of the business.
As I said, we took a number of you were there, took you through a lot of detail at our Capital Markets Day, unpacked the individual businesses. Really what we have got now is a diversified earnings base that is underpinned by our platform businesses. As a 62-year-old technology business, we have technology platforms, technology services businesses, and technology enablement businesses that are really B2B2C, servicing public sector, large-scale enterprises in South Africa, and the growing informal economy. We have got mobility and payments businesses, as you can see there, at significant scale. If I just give you a bit of a sense of what the business is looking at from a strategic perspective, I mean, we are very clear and we have defined our role in South Africa's digital economy. We think South Africa is at a real inflection point from a digitalization perspective.
There are some regulatory tailwinds, which we will talk about a little bit, and we think we are really ideally positioned to be able to enable enterprises to improve their growth. We are able to help government really service its citizens better and also provide for financial inclusion in the country. We also think that we can really help that informal segment to grow their businesses and ultimately improve the quality of their lives and the lives of their family.
Why do I think we are perfectly positioned to execute on this? Firstly, as I said, South Africa's digitalization is at a real inflection point. We have, I think, one of the highest mobile-first, mobile penetrations on the continent. Really, the use of smartphones or mobile phones in general is something which is In fact, I am astonished because when you look at a lot of informal traders, they actually have two phones.
We've got fantastic connectivity, also the best connectivity on the continent, and a very, very savvy population that are starting to go more and more digital-first before they go to traditional services. Because digital-first is a lot easier, right? For example, if you were to look at the efforts that Home Affairs have got around the discontinuation of the physical ID, the walk-in centers, and ultimately moving to a digital ID, because that's a heck of a lot easier to be able to get that at the click of a button than to have to go queue for a day, give up your wages, opportunity cost, just as an example. We're in high-growth markets, if you look at some of the numbers there, and we also have some regulatory tailwinds.
If we kind of look at what's happening in South Africa, I've already spoken about some of the plans that the Department of Home Affairs have. We've seen government wanting to really, really improve services also to its citizens through the MyMzansi portal, really embracing digitalization. I'm sure you would have read quite a lot about the Payments Ecosystem Modernisation project in South Africa, where there's quite a lot of deregulation, opening up the payment rails in the economy. And then what we're also seeing is some interesting trends overall in those markets. In South Africa, for example, whilst thankfully and hopefully we're playing a role in it, stolen vehicles are down about 20% year to date. Unfortunately, kidnapping and hijacking, which is much more invasive to personal security than asset security, is actually on the rise.
The informal economy in South Africa, most research indicates it's about ZAR 900 billion, I think about 12% of overall GDP, is projected to grow about 20% versus 2% of the structural economy. And we think that really only Altron has the capabilities in Netstar, in our FinTech business, our Digital Business, our Document Solutions business, and in Arrow, our technology enablement business, to really, really support, as I said, both government in its efforts, our enterprise customers in navigating this world and finding growth for themselves, and then also the informal segment.
And of course, our AI Factory, which is now just over a year old, and we'll talk about that a little bit, really gives us the AI-powered automation and analytics capability both to our customers, and which is quite interesting for us, we found that the internal uptake is actually exceeding our customer uptake, which is actually really, really pleasing because that means that we can deploy AI much, much quicker to run our own business better and to service our customers better. And there, sorry, if I can just go one back. Yeah, as I said, just about a year ago, that we launched our AI Factory, and quite frankly, it's exceeded our expectations.
Not necessarily from a revenue growth perspective, because remember, the AI Factory was never really a revenue spinner for us, but from the way it's really Firstly, some of the solutions that our customers are already using and what it's doing for their business. Secondly, as a significant differentiator, particularly in our IT services business and Altron Digital Business. Then the internal uptake has been absolutely stunning. I think Andy can correct me where I'm wrong. I think over 500 people that are certified. I mean, we measure the token usage. It's amazing to see. There's about 100 tools deployed within our organization, and we can take you through some of the amazing case studies, some of the self-coding that people are doing in our managed services organization and Altron Digital Business, how we're really, really using that to significantly improve service delivery to our customers.
It improves our gross margins, and it restores a bit of work-life balance for our people that are really working 24/7 to be able to support our large enterprise customers. Let's dive into the numbers. We'll start first with the platform business. Netstar, as I mentioned, a business where we're making real investments for long-term growth. We've got some ambitious plans for this business over the next three to five years. We hopefully, I don't know if some of you have seen, those of you that live in Johannesburg, I assume most people certainly that are here live, if not listening to the web link, would have also seen our brand campaign starting to come through. We're making significant investments within the business to be able to run that business better and to service our customers.
This business has run really, really hard through the successful profit improvement strategy that we drove from FY 2024 to FY 2026. We got some exciting We already announced our technology partnership with the Sunshine Tour. We've got some more exciting stuff coming up, and you'll also see a little bit of a pivot in this business over the next couple of years, moving away from Not that the core of traditional SVR and telematics won't always be important to us, but a little bit of a pivot into a broader mobility business. So, in the light of that, and if you consider the fact that our distribution agreement in Malaysia came to an end this year, I think it was about a 12-year agreement that came to an end.
You'll see a slight revenue drop-off because of that, I think, Carel, over the next three years as that annuity book runs out. Our Australian business, we got our subscribers back up. We're up to about 72,000 subscribers now in Australia. That business is no longer a drag on our profitability, and some really good growth in our focus business really, which is South Africa. As you can see there, our South African subscribers, excluding OEM, up by 11%, 9% growth in a very competitive consumer segment, and really pleasing to see 17% growth in that key enterprise segment for us. And we've done that whilst managing to improve, as you can see there, from 44% to 48%, our EBITDA margin. So, well done, Warren.
I think it's his first half in the Netstar business, so well done to you and the team for what has been a fairly seamless leadership transition. Altron FinTech, amazing business. The momentum in this business really, really continues for us. 14% revenue growth. That key payment and collection business, very healthy performance. In fact, really pleased to see, chatting to you on October, we had a record volumes month and a payout month. 87% annuity revenue, so significantly repositioning the annuity in this business. Again, managing all of that whilst continuing to invest in the future, and we're seeing some EBITDA margin expansion, and that's really because of the scale and the operating leverage that we get in our payments ecosystem.
We believe that this is a business that's not only performing well today, but we think it's really well positioned for the Payments Ecosystem Modernisation in South Africa, as well as the continued digitalization of SMEs and informal economies. I mean, if you want to talk about transformative growth, I looked at some of the numbers. Again, this business in FY 2024, in totality, delivered ZAR 231 million of operating profit. In fact, in FY 2021, it delivered ZAR 122 million. It's delivered ZAR 324 million worth of operating profit in H1. So, really well done to you, Alan, the Altron FinTech team. Really good momentum in the market and a business that's exceptionally passionate about the role it plays in financial inclusion, and delivering value to their customers. Altron HealthTech, another period of solid profit and cash generation.
98% annuity revenue, 37% EBITDA margin, ZAR 76 million worth of EBITDA, and excellent cash conversion rates. This is a business at scale, and we're continuing to claim market share in what is a competitive core private practice management business. You may recall, like the IT services business had in the enterprise segment, we had some challenges in our corporate business, so good to see that also starting to come back. As you can see, five new corporate logos, just over 1,000 new private practices added, and very important for us is the measurement of acquisition to churn. So, really, really solid performance by the Altron HealthTech business. Collin has taken over that business, also done a succession planning, so Lerato, I'm sorry that we took Collin away from the Ascent program, but you're in really good hands with Saji.
Collin's had a long history in the Altron Group, drove a very successful profit improvement stage in Karabina, in Altron Systems Integration before we merged that into Altron Digital Business. Over the last two and a half years, done an incredible job for us as COO, really focusing on leadership development, people, BEE, some of our operational efficiencies, and really very much driving out some of the talent and investing in people like Lerato. So, Collin, good luck to you and the team in the Altron HealthTech business. Turning to IT services, Altron Digital Business, really good performance by this business. Significant turnaround over the last year, and probably the thing that delights me the most is the 8% revenue growth.
That is in a market overall that is still structurally not that attractive, challenging, very, very much constrained by formal GDP growth, which is kind of between 1% and 2%, to be growing at double the market size. I think that is also about double the revenue growth if I kind of look at certainly our listed competitors that we have access to information. Very importantly, back to profitability. I mean, that is a significant swing in profitability, right? About a ZAR 64 million swing, 50/50 . I think what is really important here is that we are starting to see. We had a bit of a speed bump last year.
I think what really distinguishes our leadership teams is when those things happen, they roll up their sleeves, they make it happen, but what they have not done is taken their eye off the ball of the original hypothesis as to why this business was put together, which is to have an IT services business at scale that can better cross-sell and most importantly, deliver better to our customers. Really pleased to see that we are starting to win in the market. Craig, to you and the leadership team, and the people of Altron Digital Business, well done on a very good H1. Altron Security, do not panic about this, folks. It looks like everything is heading in the wrong direction. This is a revenue recognition issue.
Basically, we have a large customer. I mean, Carel can maybe take you through some of the details, that normally renews a contract in H1. They have renewed that contract in H2. It has been renewed, and as you know, you can only recognize that revenue from an accounting perspective once it hits the books. You will see that rectify itself in H2. Strong annuity revenue there, as you can see, still 80% annuity revenue. Something that we are particularly pleased about, you may have seen, we went live there recently, some of our market announcements, is that we actually helped Zambia to deploy their national PKI, which is a public key infrastructure. We see significant opportunities for us in this business in national digital identity, PKI, and digital signing, as we are really starting to see also the acceleration of digitalization in this space.
Well done to Andrew and the team. I think some of the work we have done in Zambia is groundbreaking on the continent, if not globally. Apologies. ADS, again, fantastic to see this continued momentum. 4% revenue growth in a market that is not growing by that much. We continue to see margin expansion just by operational discipline, good cost management, and also really managing the margin mix in that business. In fact, the case study we are going to show you just after this actually talks to the Document Solutions business and how you can see real transformative growth with our customers and with ourselves in a business that you would say, "Well, this is a traditional business.
There's no transformative growth to be had in this business. As you can see there, really expanding revenues through managed services, digital workflow, and interestingly enough, here's some of the interesting things that surprises you sometimes. Number one customer adoption of AI Factory is in the Altron Document Solutions business. As you see, that shift from physical printing to more digitally enabled printing, and of course, really, the key thing is not the printing or the storing, it is the ability to process that information at scale. I mean, how many of you spend so much time, never mind looking for papers or looking for the information? It's really been amazing to see what this business has done. As you can see there, again, 4% growth in revenue, 30% growth in EBITDA, and continued improvement.
This is a business that lost, I think it was ZAR 300 million, if I recall correctly, in FY 2024, to now being a real profitable contributor towards the Altron Group. So really to also another case, I think, of where we've had fantastic succession. Yolande was in the business, took over from Warren when we moved Warren into Netstar, and really well done to Yolande and the ADS team for continued momentum and good results in that business.
Last and certainly not least, our technology enablement business, Altron Arrow. We said at full year last year that we're seeing that we've pretty much gone through the cycle now in this business, and now you're starting to see the results of that. The order book is now growing. We have a positive book-to-bill ratio, which is the key ratio in that business for the first time in two years.
And you can see the results there, 35% revenue growth, EBITDA up by 37%, and our EBITDA margins kind of holding steady. This is a very efficient and lean business. I've said that before, the fact that we can deliver good margins in a downturn, and now we're starting to see a fantastic improvement in EBITDA and in revenue. It was also key, it's a key business really in securing the NVIDIA infrastructure that we have for our AI Factory. So before I hand over to Carel to do a little bit of a deeper dive, we're going to show you a case study. As I said, for me, this is an incredible case study of actually seeing transformative growth in a business that you would describe as an old-school, old-fashioned business.
Let's play the video, and then, Carel, I'm going to hand over to you to go through the numbers in a bit more detail.
Sea Harvest has been existent in Saldanha Bay since 1964. That is over 60 years. It is iconic brand that is born out of Saldanha Bay region. As you can imagine, we have employed thousands of people over the years.
At Sea Harvest, we have multiple sites across the country, but also internationally.
One of the core objectives for us was to reduce the amount of paper that we use in our document approval processes.
Processes in the office were really paper-heavy and also time-consuming.
I mean, our staff, they come up with ideas, and they were telling us continually, "We need to change, go to paperless. The world is moving forward.
Heavy paper usage is not aligned with our sustainability goals. The reduction of waste is better than recycling or diverting waste from landfill.
At Sea Harvest, operational excellence and environmental responsibility go hand in hand. They are really synonymous with each other. Most important is that you want to reduce the inputs. You want to ensure that you have less rework.
A Xerox device is much more than just a printing peripheral. It is an intelligent document management solution. The implementation of a digital signature solution assisted greatly by eliminating the printing, signing, scanning of documents.
The benefits of Altron Document Solutions is not just contained within the organization.
Everyone who you come in contact with in this municipal region has some association to the business. Pristine water conditions are required for the production of these oysters and mussels.
When you are environmentally responsible in the workplace, you're also then teaching people how to operate in their homes and in their home environment.
Traditionally, IT is seen mostly as a cost center in a lot of businesses. It's quite a proud moment to be able to say that IT has contributed to our environmental and sustainability targets.
We play a huge role in our community, as a responsible employer, but also to our environment itself.
Perfect, and it is on.
Let us check, is this thing on? Can you hear me? No, not yet?
Yes. Yeah.
Good morning, everybody. Maybe just before we get started, I spent three years of my life in Saldanha.
My wife is from Saldanha, and I just want to congratulate the marketing department on that video, because in reality, it sometimes doesn't look like that. Well done. Werner has touched on the business, and I think what is very pleasing for us is to finally see the results of the last four years coming through on this transformative journey that we're on at the moment. For me, what is critically important is top-line growth. In the last four years, we have fixed the business. We have gotten the profitability back up, sorted out a balance sheet that was inefficient, got cash generation up. I think everybody knows that only gets you to a certain point in time, and if you don't get the top line to start growing after that, you've got a problem.
For me, to show results with 5% top-line growth for this half year is very pleasing. I'll unpack the revenue growth in a little bit more detail between our different businesses. What this also shows you is that even with our 5% top-line growth, profits are still expanding significantly faster than that, as well as margins. That points towards the contribution of the higher profitability businesses, mainly the platform businesses, to our results. You will see there EBITDA of more than ZAR 1 billion, with margins expanding to 21.5%. Operating profit, 13% up, margins expanding as well to 12.3%. Just to point out that these are now a clean set of numbers. You will have recalled in last year, there were changes to depreciation periods, and that's all in the system now. So, there's no normalization that needs to happen to the numbers.
They are what they are. When you look at this is the shape of the business, and hopefully we will continue to be able to improve on margins going forward, because to us, that is still critically important. Finance expense down, and maybe just to point out the strength of the balance sheet, this is despite us investing in our businesses. We have the luxury to invest out of operating cash flows. We don't have to incur debt to invest in our businesses, which is a very fortunate position to be in. Even when you look at the amount of capital that we've returned to shareholders over the past three years, our balance sheet is still very strong. So that, to me, is quite pleasing. Headline earnings then up 15%. Just to point out, and I've said this before, our tax is normalizing.
We do not have the benefit of assessed losses from prior years, so you need to expect that our tax rate will be close to statutory rates for the full year. Based on these results, and in line with our dividend payout policy of 50% of headline earnings from continuing operations, the board declared an interim dividend of ZAR 0.55 a share, which is 15% up on the prior period. All in all, if you look at the income statement, the shape that it is in, quite pleasing, and a good base for us to work from. On this slide, I really want to focus a little bit on revenue and how it translates into profits. We have said this before as well. We do not want revenue just for the sake of revenue.
We want profitable revenue, because otherwise, you have this great idea of a top line that is growing significantly, and then it disappears. You do not see the profits, you do not see the cash flows, and that directly points out the quality of your revenue. If you cannot convert your revenue to cash flows, there is a problem in the quality of your revenue. Platform revenue is up 8%, but more importantly, within platforms, our annuity revenue is up 11% to ZAR 2.2 billion, and that is now 92% of platform revenues, compared to 82% in HY 2024.
Not only is the platform businesses contributing more to the group, but the annuity revenues within the platform businesses are also contributing more. IT services revenue up 4%. This is the first growth after two years of restructuring. Very pleasing to see that. Werner pointed out ADB growing 8%, ADS 4%.
Werner made mention to Altron Security. That is purely a timing issue. In H2, we will show those results. We have the purchase order in hand. Distribution revenue, great growth. Renato and the team had a tough year last year and the year before, but this is a business that is exposed to economic cycles. For him and his team to be able to continue focusing on cost containment in a down cycle, manage their working capital, that set them up for what we are seeing here now. A really good performance from Arrow. If you then move to the right and you look at operating profits, and this is once again like a stuck record. When you have the right revenue profile and you manage your costs, this is where you end up. Platforms, very strong operating profit.
This is now more than 95% of the group's profits, and it continues to show that trajectory. IT services, 62% up on the back of the turnaround in ADB, and then I have spoken about Renato's business. I think when we look at this, transformative growth for us is not purely corporate action, M&A-related, and I think we have had this question in the past. What you see here is the result of transformative growth. The business has been transformed. We continue to invest in our current businesses where we see opportunities for growth. Those opportunities are the highest conviction opportunities for us. We know those businesses, we understand the markets that they are in, we know the management teams driving them, and for us, that is a first-class opportunity to invest our capital.
And I think this is then testament to our capital allocation strategy and what we have said we want to do with this business. This slide you would have seen before, how we look at operating leverage. Gross margin is our ability to execute better than our competitors. Then obviously, our operating expenses, we want to make sure that we keep those under control. But the thing that is important to point out on this slide is, this is despite an investment year that we are in. And our investments are discretionary investments, but they are all focused behind growth, which you will see when I get to our CapEx and where we spend our money. Our OpEx grew by 1% despite the investments in Netstar, despite AI Factory, our investments in FinTech. And as a percentage of revenue, OpEx is actually down to 30%.
So, if we have the ability to invest in the business and still be able to show this operating leverage, I think that points to the strength of the businesses overall. We will never take our eye off operating costs. It is easy when things are going well and top line is growing, to start slacking off. That is something that we do not do, because then you end up two years from now in the same situation that you were five years ago.
So, that is all I wanted to show on this slide. Then here, I am going to take you just quickly through how our businesses contributed to the operating profit change in the business. If you look at this ZAR 549 million to ZAR 622 million, platforms added ZAR 72 million to that. And once again, that is after we have made discretionary investments in our businesses.
And now, just to point out for platforms, those are mainly in FinTech and Netstar, and those are really behind the devices that we put into the business. So, when we talk about operating profit, or I refer to operating profit, Werner talks to EBITDA, what you see here is also inclusive of depreciation on those multi-year contracts. IT services, the turnaround in ADB is very pleasing to see.
From an operating profit perspective, that is a ZAR 64 million turnaround from last year when they had a profit of ZAR 22 million, or a loss of ZAR 42 million, moving to ZAR 22 million. So, a great performance there. I have spoken about the security business. The impact of timing on that contract is obviously reflected in the operating profit. I maybe just want to quickly point out in other, what we put in here are basically three things.
So first things, this is where we book our investment in AI Factory. Secondly, probably about two years ago, Renato, you started to provide Netstar. And we did that because we like to keep things within the group, especially if there is also benefits in pricing that we can offer between companies. But from a consolidation point of view, you have to eliminate those intercompany profits. That sits in other as well. And then I think finally, just to mention in this, from a head office cost perspective, that has continuously come down since three years ago. We do not want to spend money on a bloated head office. We have made that clear many times in the past. The services that we provide as a parent to the operating companies is limited to what they cannot do themselves.
If they can do it themselves, it needs to be within the operating company. We are not going to involve ourselves in activities that should actually be run within the OpCos. One of the most recent changes, as a practical example, Lauren has moved all of our legal people back into the OpCos. So, that legal person in FinTech sits next to the MD. They negotiate contracts right there. We provide overall governance and support, but everything else is in the operations. So, that is then the contribution to the operating profit. Working capital, this, I am very happy with this. Maybe just to point out distribution, that would be higher than what you normally see. It is on the back of the order book growth that Renato has seen.
Renato has very cleverly taken advantage of shortage in supply of memory, and he has stocked up, and he is now changing the price upwards on a weekly basis. So, a very smart move from him. But that you would see is the impact in distribution. In IT services, we always keep a close eye on our working capital in IT services, and then platforms is mainly behind our investment that we make in FinTech and Netstar. I am going to shift to where we are putting our money from a CapEx perspective. This is the same picture as you would have seen from prior periods. Out of our ZAR 447 million capital expenditure, the vast bulk of this goes into our growth CapEx, and that goes into our platforms. So, none of this has changed. We are not spending money on nice-to-haves.
We are investing behind growth, and that is the POS rental devices within FinTech, as well as the rental devices in Netstar. Both of those are backed by multi-year revenue contracts. So for us, key there would be to try and get the cost of that hardware down to as much as we can, so that we can get even more benefit out of it. So, that is where our growth CapEx has gone to, and then you will see the rest of it, about ZAR 70 million , is what we invest behind strengthening our distribution and our systems. Werner pointed out earlier that Netstar has been running at quite a pace, and it is time for us to modernize that business. We did say that we were going to do that, and we are currently investing that money.
We have high conviction that that is the right way to deploy our capital. The last point I want to make on this slide, and I have mentioned this before, is this is all funded from operating cash flows. There is no debt that we need to raise to be able to do this, which is an extremely fortunate position we find ourselves in, and not one we take lightly. If we then step onto group cash flows, here you will see that we generated just north of ZAR 1 billion in cash. I just want to make a point on this. You will have seen a significant jump in our cash generation from prior periods. Most of it is driven by platforms, but there is also an element in there on the turnaround that we have seen out of ADB.
I just want to make sure that the modeling doesn't model 30% forever and a day. Our taxes increased to ZAR 152 million. We are now fully tax payable, and on the increase in net profit before tax and the fact that we don't have cover from assessed losses, this is going to be a bigger charge for us. Then maintenance CapEx, you will see we keep that to an absolute minimum as far as we can. We want to put everything into growth CapEx, as per my previous discussion. And then what that left us with is about ZAR 1.6 billion. We declared a special dividend last year together with our ordinary dividends, and after paying out the ZAR 755 million, the business has been able to, again, within the six months, get itself back up to north of ZAR 800 million of cash.
When you look at the cash-generating ability of the business now and the engine firing behind this is just a testament to everything we've said before. Because once again, you can have revenue, you can have profits, you can have all kinds of things. The truth is revealed when you get to your cash flow statement. This gives us a lot of flexibility for us to be able to look at where do we deploy this. We are not constrained. Werner has said this in the past. We are not opportunity-constrained, but when we look at opportunities, we are very careful about where you deploy capital, because we want to have the conviction that we can get that capital back, plus extra. I think then just moving into our capital allocation framework, and this has not changed.
This is just a reminder of how we look at capital allocation. Start off with a foundation here. This is the cash being generated, and the conversion of profits to operating cash is proof, again, of the quality of what comes through the system. We then look at organic investment first. This is our growth CapEx behind the businesses that we understand and where we see the opportunity. We want to be able to pay shareholders a consistent dividend. It's important to us for the support that shareholders give us. It's a good discipline to have, and that's why we keep our policy at 50%. Last year, we had surplus cash. We returned it to shareholders, as we had no other opportunity to use it. And should that happen sometime in the future, we will return it to shareholders again in whatever shape or form that takes.
Our flexibility, where we are, we've got ZAR 800 million of cash. We have committed debt facilities of ZAR 2 billion and more facilities that we can activate. Our current debt covenant limit is about 2x , less than 2x of EBITDA, but we don't have debt at the moment. And then just finally on horizon three, we are M&A-ready. We have said this in the past. We are targeting the platform segment for growth opportunities. First things first, they must make strategic sense to us. We are not going to be buying earnings or buying more of the same. Then we would much rather out-compete. It needs to be strategically important to us and create long-term value. And this last point with financial discipline, we have a very high return on invested capital for our group.
We understand that when we do an acquisition, that is not going to add value from day one, but it makes it more difficult to find something that really gives us the conviction that we can make a return on. If our return on invested capital was 10%, that would have been a different story, but north of 20%, that makes it more difficult. We will continue to look out for opportunities, but we are under no pressure to deploy capital on M&A. I think that is it from my side for the numbers, Werner is going to take you through the outlook.
Thanks, Carel. Am I using my backup mic? Perfect. Before we go over to what we refer to as the grilling from Bronwyn and the audience, just to reiterate our outlook again, nothing has changed here really for us. Medium term in our platforms business, we are targeting north of 26% operating profit margins. In our IT services business, targeting north of 7% in the medium term.
We still expect the operating environment to remain constrained, and this may continue to impact our IT services growth, although I did say very pleasing to see the kind of revenue growth we are getting. I think Carel has taken you through our capital allocation, and we have once again maintained our dividend policy of paying out at least 50% of headline earnings per share from continuing operations. We are really, really excited about kind of where we are in our transformative growth strategy.
We are really excited about the opportunities to add value to the economy, to our customers, and to our people. We thank you for walking this road with us, and I just want to close off before we go to Q&A. I just want to take this opportunity to thank our board, our shareholders, my leadership team who worked tirelessly to deliver these results. Probably most importantly, the people of Altron.
It is a privilege to be able to come here and present these kind of results, but those really are the over 4,000 people that are out there every day, kind of walking the streets, and keeping our customers happy. Last but not least, just a shout-out to my family for all of their support. I will not see you for the rest of the week, as we will be on tour, and good luck with exams. Thank you very much.
Bronwyn, shall we hand over to you?
When everything's going in the right direction. Bronwyn, you were enthusiastic about Netstar, and I see a 6% revenue growth there. Are you satisfied with that 6% revenue growth? Were you overexcited when you presented it, in other words?
Bronwyn, I'm happy, but never satisfied, as I'm sure my team will tell you. I think in the context of the and I think that revenue drop-off, you must correct me if I'm wrong, will happen, will continue over the next three years. I mean, it's not significant, but the Malaysian business as that runs out, growing the subscriber base in South Africa by 11%, consumers 9%, enterprise, I think it's around 18%, particularly considering the investment, some really cool stuff coming up in that business. So yeah, happy, but not satisfied.
You need to give us a little bit of detail around Australia and whether that is still core to the overall business.
Yeah, the Australian business, as I said, I think we were when we kind of went through the 3G to 5G migration, I think we dropped to about 44,000 subscribers, if I'm correct, at one point. We got that back to 75,000. It's no longer a drag on the group profitability. Bronwyn, you know, I get this question a lot about a lot of our businesses. Whilst we hold businesses, we manage them. I think we've proven that we manage them to the best of our abilities. Then as part of our strategic review every year, we kind of look at where we want to take businesses. I mean, the majority of we got a good self-contained leadership team in Australia, and the majority of Warren and the rest of the team's time is really focusing on building out our South African business.
The hardware sales in Netstar, downward trajectory, is that going to continue? Maybe just elaborate. I know you did touch on it in the presentation.
Bronwyn, yeah. Maybe just if I just focus on Malaysia for a little bit, just the detail around this. The distribution agreement has come to an end, so the hardware sales drop off immediately. The annuity part of the revenue runs out over the three-year period of the contract. When you look at the drop in hardware sales in this period, a lot of it is related to the fact that we are not selling hardware in Malaysia anymore. I think we've had a 13-year relationship, it's come to an end, we look for other opportunities now. Key to all of this in Netstar, annuity revenue is the one that we're looking for. Annuity revenue needs to show us that double-digit growth that we're aiming for going forward.
Hardware will come and go, as long as our annuity revenue is strong, that's what we're after.
Just to all our online viewers, remember, if you want to ask questions, please put them into the chat box, I will put them either to Carel or to Werner. The security aspect, let's focus on that. I see some headlines out there, perhaps misconstruing what exactly is happening in the security business. You talk about a revenue recognition timing aspect. I know, Carel, you want to add as well, perhaps, Werner, you start, then we'll get the accountant.
Always a bit scary to ask a. It is always a bit scary to ask a tech guy about revenue recognition. I think it is as simplistic as that. It is significant annuity business. You can only recognize the revenue once you have the commercial agreement with a customer. Historically, that happened H1. It shifted for a variety of reasons into H2. We have got that business, we are delivering that business, and we will now recognize the revenue in H2. You will see it. I think you must judge the Security business as a result by the end of the year, not by the H1 results.
As a former journalist, you did say you had the purchase order in hand.
We do.
So there, it is a fait accompli.
This is only Werner's point is right. You will see the results for the business in the full year, and they will be back to what we expect them to be.
Cash conversion looking very, very strong. Talk to us a little bit about the mechanics there, Carel.
Bronwyn, yeah. The platform side is easier to explain because it is more predictable, which is what we have been after. I remember when I started here and Werner explained to me how IT services make money, I nearly had a heart attack because you do not know until the last day of the year. I come from an annuity business where, after the first quarter, you must have a very good idea where you are going to end. That we see coming through the numbers now. So it is normally CapEx- light, it is working capital- light, and so those businesses should generate more cash going forward. Netstar, we are specifically investing in growth, which does affect the cash flow in the business, but that is part of our transformative growth, and it is part of our capital allocation.
IT services has had a great comeback in the year, Craig's business in ADB, strong cash collection, but that will normalize again. You are coming off a business that made a loss last year back into profitability this year. So for them, it is really keeping an eye on working capital and keeping an eye on their balance sheet. But very pleasing for us.
This question, Werner, we always ask about the portfolio itself and if there are any businesses that don't actually conform to your platform strategy. We know that Altron Digital Business, Altron Arrow to a certain extent. How do you look at these businesses with regularity when you adjust or think about adjusting your portfolio?
Look, I think Oops, sorry, I keep on forgetting it. I got to use this one now. Look, I think firstly, this year in particular, or this half in particular, has shown you the strength of the diversified base, right? I think we've probably overemphasized this, but the ability to be able to invest in businesses because you're getting good earnings in other businesses and still deliver good results. But overall, Bronwyn, I'm- You know, stock record alert.
We review, Altron's been a portfolio transformation going on 10 years now, you know. Originally getting out of the industrial assets, we combined three businesses, we got out of Nexus, you know. Our strategic intent will always guide what our portfolio transformation is over time. We don't see any reason to necessarily dispose of businesses if they are good businesses and if we're adding value to them, as a parent.
But it's something that evolves. It's something that we discuss with the board in our strategic review on an annual basis.
You mentioned the word normalizing. Let's talk a bit about Altron FinTech. I think prior period for the full year, 20% revenue growth, this half, 14%. Is that normalizing?
Bronwyn, no. I think, once again, when you look through the different parts of the FinTech business, as I mentioned earlier, the annuity revenue, Netstar is the one that's critical for us. On the FinTech side, it's payments and collections, because that's also the engine that generates the cash, which is doing extremely well. But then again, hardware sales are, when they come through, it's great. When they don't, timing is not always the same. I think looking at the overall revenue as a slowdown is not an accurate reflection of the business. Our payments and collections are continuing to show record month after record month, and when the hardware sales come through, we'll take it.
It's also your base, right? That you're growing off. I mean, if you look at the profit growth in FinTech, like I mentioned earlier on, I mean, what would I rather take? 20% profit growth off a ZAR 260 million base or 30% profit growth off ZAR 122 million base? I mean, there's definitely the annuity and the shift components, but I mean, also ultimately, as your business grows bigger, you've got to see your revenue and your profit growth within that context. Yep, it's a great business, long may it last, and we see a lot of opportunity still in that business for us.
Any questions from our audience? Thank you so much. If we can just get a roving mic to the back there.
Good morning. It's Anthony Geard from Investec. Can I ask a few more questions about Netstar? Bronwyn, you've already covered, I think, the hardware. We've spoken about Malaysia. But the enterprise business up 17%, surely that's the part of Netstar that you're most excited about, and that's the aspect that you're most pleased about. Then 11% growth in S.A. This industry just continues to grow at a double-digit pace. Perhaps you can give us a little bit more color on that. Then mix to that, obviously, you're selling less hardware, that's much lower margin, so that's going to account for some of your very impressive EBITDA margin step-up in the half.
Can you just talk qualitatively, I don't expect you to break this down from a number point of view, to what extent is it the mix change that is driving the margin improvement, and how much is coming from the scale benefits? One last question on Netstar. The EBITDA, so the depreciation and amort grew at 20%, so your operating profit growth has lagged your EBITDA growth. Can you just talk to why the depreciation has stepped up so much? Thank you.
Shall I maybe start with your last question, and then we go back into the business? We changed the depreciation period from three to five years. But what that does is, your opening base, some of those devices would have been fully depreciated under three years, where you now have an additional two years of depreciation that has to flow through the system. Because you start at a point in time, it's not a retrospective application, it's a prospective application. What will happen then, as that tail of the opening base runs out, your depreciation will normalize again.
You asked a heck of a lot of questions there, so I'm trying to remember them. I think margin mix, absolutely. I mean, like in any business, if your hardware goes, and your annuity rises, the margin mix will change. The margin mix in Netstar specifically, but all the platform business also, obviously a function of what is investments that you make in the year. I think we're signaling clearly that we're making some investments. They're not just CapEx investments, by the way. Like our brand campaign, better go-to-market investments, those will be operating expenses sometimes. Overall, yeah, I think it's a really good market to be in. I think we were quite clear for the last two, three years that we're not just going looking for geographic opportunities, because we think there's opportunity in the South African market. The enterprise business-
Was up 17%, which was-
Enterprise business up 17%. Again, that is something that Grant started that journey about three and a half years ago. We invested in the Global Fleet Bureau. Consumer, by the way, I just want to be clear, is also very important to us, and that is why I think you will see a lot of work going into the consumer business. We are still very excited about the prospects, not just of that business, but I think that overall market. I do not want to talk about it too much, because we do not want to give all of our secrets away, but I think there is lots of pivots that you can still do, and lots of trends we are seeing in that market, just outside of traditional stolen vehicle recovery and telematics.
It was the 11% up on subscribers, Anthony?
Overall, you said, growth.
Correct.
Yeah. An exciting story overall.
Yeah, I think so. Yeah.
Let's talk now a little bit about M&A. I love it. You're M&A ready. It's there. Are there opportunities that you're surveying? Are there opportunities coming, knocking on the door, and you're just turning them away at this stage?
Yeah, all the time. We've had probably three or four serious opportunities, but weekly, Werner will forward me an email that he's gotten saying, "Have you seen this?" or "Have you come across this?" People are approaching him all the time. It is just for us to be able to do M&A that ticks all the boxes that we want, that is difficult to find. Strategically, it must fit in. It must give us the technology that we don't have, a quicker market to go to that we're not in. It must be something that we understand. We're not going to go into something we don't understand at all. It must be in a market that we have a good idea of how things work. Going into a market with a seven-hour time difference and you don't speak the language is looking for trouble.
When you get to all of the criteria that we want, there's very few opportunities that fall out the bottom, but we look at it all the time.
Any other questions from the floor? Thank you. If we could get a microphone here.
Hi, guys. It's Michael from Effectus Capital Management. I just wanted to ask you guys, or rather get an update on the FinTech segment. Within the FinTech segment, you guys have the SMEs that I saw that grew quite nicely, but you also have the Kasi Squad that you guys have been trying to grow within the townships, and you also have the larger corporates that you are trying to penetrate. I just wanted to know what the growth rates are in that and how has that been doing over the past six months?
Yeah, I think the growth rates are good for us in all the segments. I think in the appendix, we show the growth rates in the individual segments, but across the board, they have grown, right? So the enterprise business, the merchant acquiring business, and particularly the annuity component of that, the rental devices, that is growing quite nicely.
The informal.
The informal, I mean, from a leading indicator perspective, we track on a monthly basis how many new SMEs and what we call Kasi Squad customers we are signing up. I mean, touch wood, so far, we continue to hit those numbers. I think pretty much across the board, we are seeing good growth in all those segments.
Just a final question from my side. Six months into the transformative journey, the next six months, what is your priority, Werner, and Carel, your priority?
Look, we have touched on it. We are in a growth investment cycle for Netstar to position that. By the way, I think that is going to extend beyond six months. I mean, our view is always kind of three to five years ahead, and that might take 12- 18 months to invest, continue the momentum in our current businesses, continue to invest in our people, and really continue to focus and leverage AI positively, which obviously is starting to become quite a big debate globally. But for us, continue to focus on the responsible use of AI within the business.
Sorry, now I am changing my trajectory here. We have got a couple of online questions. Andiswa, could you give us an overview of working capital requirements performance over the coming period?
Yeah, Bronwyn, I think maybe if we just go back to where we see working capital needs. Working capital needs are really behind the investments we make in Altron FinTech and Netstar. We look at working capital at all times. I don't mind if working capital rises. I do mind if it rise for the wrong reason. When we are seeing growth in businesses and working capital corresponds to that growth, and there's opportunity for more, happy to invest the money. I think it's difficult to give a standard answer for each of our businesses. They're different. We're just very focused on working capital. It's part of my monthly reviews with all the FDs in the group. It's not something that we want to lose control of, because it takes a long time to get it back to normalized levels again.
There's a long question coming in from Jonathan Tullett from the IDC. I'm going to summarize here. First of all, congratulations on ADB's return to positive IT services margin. The ADB revenue growth is mostly in infrastructure revenue. What's driven that specifically, and what strategies are being explored to improve SI and outsource contributions?
I don't think there's a specific market trend necessarily that has led to that. I just think it has been real credit to the teams, better sales execution, as I said, better service to customers, because nothing sells better than delivering fantastic service to your current customers. What you absolutely would expect is that over time, your services will grow in line with your hardware sales. You get less attachment to hardware and services these days than what you used to get, just because of the way that market has changed, much more self-service capabilities. We've done quite well in the outsourcing space, so we can certainly expect that to improve in the future.
Still on ADB, FNB Wealth and Investments, Kumo coming through with a question. Just to understand what is driving your outperformance relative to your peers. Perhaps you can weigh in there.
I am not giving away any of our data. I do not think there is any secret. Again, I sound like a bit of a stuck record. I just think, look, I think we have built a really good brand, a really good ability to deliver, and a really, really good leadership team, both at a senior level, and that is a trust business. IT services is a business of trust. Customers have to trust you. These are big decisions for customers, right? I mean, large-scale capital deployment, projects that are really, really key to their business. I think we have built a team and a competence, and we built good, deepened our partnerships with a lot of leading infrastructure technology players globally. There is no secret formula to it. I think it is really just the culmination.
By the way, we have a saying that says, "We have not won anything yet." It is early days, and that business is very focused to make sure that we continue to deliver to shareholders and to our customers, because credibility takes 10 years to build and one bad project to lose. I do not think it is a secret formula. I think it is just a really good team, hard graft, and making sure we deliver on our commitments to clients, which is not always easy, but we never walk away from what we committed to delivering.
Carel, coming back to the question on the focus for the six months from the financial perspective, as I alluded to earlier, before we had that intervention from the audience online.
Bronwyn, I think it is twofold. We are looking for opportunities where we can add incremental value to the business. For me, coming back to execute it with financial discipline is critical. It is very easy to take your eye off the ball on the businesses that you have under your control, chasing other things and other projects, and then you can get yourself in trouble. My job is to make sure that financial discipline stays in the group.
Thank you very much to Werner Kapp, Carel Snyman. Appreciate it, gentlemen. Good luck with your roadshow, and I am sure you will be updating both the executive team and a number of the analysts on the local front when you get back.
Thank you. Thanks for your time.
Thanks very much.
Thank you.