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