Bytes reports strong performance despite industry margin pressure

Bytes Technology Group, a wholly-owned subsidiary of the Altron Group, was the strongest performer and the largest earnings contributor to the Altron group for the year ended 28 February 2013. Its overall revenue increase of 15% to R7 billion confirms Bytes as the largest South African-owned information technology group on the continent.

Bytes reported a strong performance despite margins pressure, commoditisation and globalisation resulting in EBITDA only increasing by 1% to R531 million and the EBITDA margin declining from 8.6% to 7.6%. Rob Abraham, Chief Executive Officer, said: “I am confident that our growth strategy based on improving sales into Africa and targeting the government sector will continue to pay off. I am satisfied with our delivery on this strategy during the year under review. We have grown our share of local government business significantly and extended our footprint in Africa, showing excellent results in countries such as Mozambique, Botswana and Namibia and forming successful joint ventures in Zimbabwe and Zambia.”

Commenting on market conditions in the information technology (IT) market, Abraham said: “The South African IT market has shown good growth as businesses continue to invest in new technologies. However, margins remain under pressure due to the highly competitive nature of the sector, deflationary forces and the increasing commoditisation of IT products. Cloud computing is becoming an increasingly important feature of the IT sector which will present both opportunities and some risks to our group.”

He said Bytes has focused on growing its share of government business and he is satisfied that this strategy already resulted in many large long-term contracts that will contribute to the group’s annuity income stream targets. Bytes Universal Systems, a new division formed in April 2012 as a result of the acquisition of Unisys Africa, contributed revenue of R231 million and EBITDA of R18 million towards the group over the past 11 months through a strong performance in the petroleum and public sectors.

“We have also acquired the Alliance business during the year as well as various products, solutions and services and expect growth to be further driven by more selected ‘bolt-on’ acquisitions that will support our move towards margin-rich service-based solutions,” Abraham said.

“Our Bytes UK operations returned excellent results, increasing revenue by 33% and EBITDA by 34% in rand terms on the back of favourable conditions in our customer base. The Software Services side of the business performed well although margins remain under pressure since the change in the Microsoft rebate structure. Bytes Document Solutions UK, the number one reseller in the UK market, performed to expectation, improving both revenue and margins. The successful marketing of the group’s new managed print services offering further enhanced their performance,” said Abraham.

Abraham further ascribes the overall profitability of the UK business to the inclusion of a full year of Security Partnerships Limited which was acquired on 1 August 2011 and which has performed ahead of expectation.

He said the market for printing devices dropped some 20% during the year and although the Bytes Document Solutions’ (BDS) business showed some improvement on the previous year, with a 6% increase in revenue, EBITDA decreased 28%. “Even so, BDS still made a considerable profit for the year under review and remains the biggest contributor to our group. Going forward, the business will focus on increasing its managed print services business and a higher margin annuity based offering which will ensure less dependence on hardware sales, where margins are under pressure,” said Abraham.

Commenting on the overall performance of the South African companies, Abraham said that most of the businesses within the Bytes group performed well with the exception of the Xerox division of Bytes Document Solutions which experienced difficult trading conditions. It did, however, see an improved performance in the second half of the year. Solid growth performances were recorded by Bytes Managed Solutions, Bytes Healthcare Solutions and Bytes People Solutions.

Abraham said the first two months after year end have proved to be very good months for the whole group and based on this Abraham remains positive about Bytes’ prospects for the year ahead as it builds on the momentum created over the last few years. He nevertheless cautions that margin pressure will continue and in order to remain competitive in the market, Bytes SA’ business units are being realigned and a system of shared services is being introduced to further enhance the group’s customer service, market reach and reduction in administration costs.