Bytes expects consolidation

By Nicola Mawson for Bytes Technology Group

Johannesburg, 05 Oct 2006

Recent acquisitions have aided its bottom line and it expects further consolidation in the industry, says Bytes Technology Group.

The company, which yesterday reported its interim figures for the year to end-August, says the revenue increase of 15% to R1.9 billion was acceptable. Of this increase, acquisitions accounted for almost four percentage points.

The current IT environment is a challenging one, it says, making consolidation inevitable in order to reach economies of scale. As such, Bytes continues to "pursue an ongoing acquisition strategy". The company adds, however, that IFRS accounting standards in this regard would "continue to adversely affect earnings".

Bytes says the industry is in a period in which inflation is low, margins are pressurised and the rand is acting against it. However, it feels an organic increase of over 11% is "encouraging", and double-digit growth would be challenging to achieve going forward.

Bytes reports that operating profit improved by 23% from R128 million to R157 million with the margin moving from 7.3% to 8%. This is "largely due to rationalisation of operating expenses".

Bytes, which saw net interest charges reduced to "a negligible amount", expects the trend of lower borrowings and higher investment income to continue. At half-year, it had a net borrowing position of R83 million, which was an R88 million improvement on the previous corresponding period.

Headline earnings per share were 58.1c, a 25% improvement, and basic earnings per share went up 30% to 58.1c.

While most of Bytes` operations showed improved results, UK-based IT Solutions (Plato) was "very disappointing". The company put this down to "several factors, some controllable and others not".

"A further radical restructuring of this business has been implemented, incurring one-off costs of over R2 million," it told shareholders.

The other UK operations ensured overall operating profit improved 33% to R12 million. However, the completion of a large but once-off contract in Botswana meant operating profit from the rest of Africa was relatively flat for this half.

"The income now being achieved is of a sustainable nature. Distribution of Xerox and Alcatel products in many African countries yielded profits of some R10 million in aggregate."

During the year, the company spent about R50 million on acquisitions. Most of this was the purchase of Xclusive Solutions, a Xerox dealer in the UK. After the half-year cut-off date, a further Xerox company in the UK, Vantage Business Systems, was acquired for lb1.5 million.

The company`s shares closed unchanged at R13.50 yesterday, after a day devoid of trading. Its 12-month high is R14.40 and its 12-month low is R9.30.