Mergers, Acquisitions and Financial Results

Bytes Technology Group (BTG) announced its interim results for the six months ended 31 August 2006 with improved performances by all its operations compared to the prior period.

Headline earnings improved by 25% per share at 58.1 cents compared to the comparable period’s figure of 46.5 cents. Basic earnings per share moved from 44.7 cents to 58.1 cents, which represents an increase of 30%. Operating profit increased by 23% from R128 million to R157 million. The margin movement from 7.3% to 8.0% was largely due to rationalisation of operating expenses.

“Overall revenues increased by 15% and in the light of continuing low inflation and margin pressures, combined with a relatively strong rand during the period under review, an organic increase of over 11% is encouraging,” said Chief Executive Officer, David Redshaw.

“Our net borrowing position at the half year was R83 million, which is R88 million lower than that of a year ago. However, during the period under review, significant cash of outlays were incurred on dividend and tax payments, increased working capital requirements and acquisitions. We expect the second half will, as usual, show a much improved position,” said Redshaw.

He warned that the Information Technology market continues to present many challenges and said that further consolidation in the sector is essential if economies of scale are to be accessed.

Redshaw commented on the BTG’s United Kingdom (UK) operations and said that the disappointing results from IT Solutions (Plato) operation required the implementation of a further radical restructuring of this business incurring one-off costs of over R2 million. “In contrast, our other two UK operations produced excellent results to improve the overall operating income from these operations by 33% to R12 million.

Operating profit from the rest of Africa is now sustainable although the completion of a large, non-recurring contract in Botswana impacted operating profit when compared to the prior period. “Distribution of Xerox and Alcatel products in many African countries yielded profits of some R10 million in aggregate,” he said.

”Our acquisitions during the first half of the year amounted to approximately R50 million. The major portion of this expenditure was the purchase of Xclusive Solutions Limited, a Xerox dealer in the UK, for £3.16 million. Further payments of up to R2.5 million locally and £1.24 million in the UK may be incurred on these acquisitions if certain earn out targets are achieved,” said Redshaw.

Other acquisitions included a further “Xerox” business in the UK, Vantage Business Systems Limited, which was acquired for an effective £1.5 million.

Redshaw indicated that BTG continues to pursue an ongoing acquisition strategy but warned that the requirement to amortise intangible assets, which in the IT industry are an essential part of the business value being acquired, will however continue to adversely affect earnings.

In looking ahead, he said he is confident that a satisfactory level of headline earnings will be achieved in the second half, ensuring an acceptable overall increase for the full year but cautioned that an environment of increasing interest rates along with increasing competition in many areas will progressively challenge double digit organic growth.