Bytes Technology Group (BTG) announced an improved performance for the year ended 28 February 2005 with headline earnings per share increasing by 32% to 89.7c following on comparable increases of 27% and 33% in the 2004 and 2003 financial years respectively.
In light of the group`s strong cash generation during the year under review and expectation that the coming year will produce similar flows from operations, BTG declared a dividend per ordinary share of 32c which represents an increase of 45% over that of the previous year.
BTG also announced that its net interest bearing debt moved from R147 million to an in funds position of R61 million during the period under review which represents an improvement of R208 million. Notwithstanding the cash outflows which occurred after its year-end with regards to acquisitions and the increased level of dividend distribution, the group anticipates to return to a positive cash position by the third quarter of the current financial year.
David Redshaw, Chief Executive Officer, said: "Our South African operations all produced acceptable results in a market that continues to produce many challenges, but the performance by our UK operations were disappointing despite the fact that we moved from an operating loss of R5 million the previous year to a small operating profit for the last year."
Redshaw added that BTG`s revenues grew by 11%, of which approximately half related to the inclusion of CS Holdings for the last four months of the year. Operating income rose by 22% to R226 million compared to R185 million for the prior year while net financing costs decreased by 40% to R15 million from R25 million. Headline earnings rose by 34% to R139 million from R104 million for the previous year to produce a 32% improvement in headline earnings per share.
He further advised that, as reported and accounted for at the half year, it was decided by the board that, in the light of the poor performance of the group`s Plato operation in the United Kingdom, to impair the goodwill associated with that company by R100 million. "We are disappointed that such a step was deemed necessary but is in line with the group`s conservative financial policies," said Redshaw.
Redshaw commented that the aggregate goodwill impairment and amortisation reduced the earnings attributable to ordinary shareholders by R254 million (2004: R134 million) resulting in negative attributable earnings for the year of R87 million (2004: R38 million).
"The changes in accounting standards in terms of which goodwill amortisation will no longer be permitted from the commencement of the 2006 financial year will ensure that attributable earnings and earnings per share improve substantially in the future. Headline earnings, a much more meaningful measure of performance, will be unaffected by this accounting change," said Redshaw.
He indicated that acquisitions in the IT sector inevitably result in the recognition of substantial amounts of goodwill as knowledge and know-how are not usually recognised as assets in terms of accounting standards.
"Improved efficiencies in most operations enabled the group to improve its operating profit margin from 7.1%, for the previous year to 7.7%. Document Solutions, Specialised Solutions and Communication Systems businesses performed particularly well and the Networking and Software businesses produced acceptable performances in what remain difficult markets. Digital Healthcare Solutions, BTG`s healthcare IT company, had another very successful year," Redshaw commented.
He further added that: "During the last half year, and following the approval of the competition authorities, we merged the operations of CS Holdings into our group. This process, which will be ongoing for some time, has been satisfactory and contributed positively to our earnings, both at operating and attributable levels during the past four months."
"Agreement was reached to purchase the shareholdings which Business Connexion and Netcare hold in Digital Healthcare Solutions (DHS). We received approval from the Competition authorities on Tuesday, 26 April 2005 for DHS to become a majority-held operation of our group," Redshaw said.
He advised that: "Together with our agreement with the our controlling shareholder, Altron, to purchase Altron`s interest in the lease financing business relating to product marketed by operations within BTG, these transactions entail in aggregate a cash outflow to the group of some R130 million."
With reference to BTG`s BEE partner, Kagiso, which holds a 27% interest in BTG`s South African operations, Redshaw said their multi-faceted assistance to all of the operations were outstanding.
Looking ahead, Redshaw said the BTG board expected the UK operations to improve and that this, together with the benefits from the acquisitions of CS Holding and DHS, as well as the advantages to be gained from re-involvement in asset financing, will assist the group in producing acceptable results for the future. He added that the strong and continuously improving balance sheet, coupled with excellent cash flows, ensures the group will also be ready to take advantage of any business opportunities which may arise.
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