Review of operations – Bytes
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Given the challenging market conditions the majority of our specialised business units delivered pleasing results, confirming our marketing strategy of delivering products and services to large- and medium-sized companies through focused and independent business units. According to Rob Abraham, Bytes Chief Executive Officer, two of the businesses underperformed, namely Bytes Document Solutions UK and Bytes Specialised Solutions. In both cases remedial action has been taken and improvements are already evident. The strengthening of the rand in the last year had a material impact on the results, with Bytes experiencing a R25 million foreign exchange loss and a reduced contribution from its foreign operations. The group’s focused attention to cash management resulted in an improvement of its cash position from operating activities and working capital.
INCOME AND GROWTH
Bytes SA
Despite tough trading conditions in a difficult economic climate, Bytes Document Solutions managed to retain and marginally grow its revenue base. Most of the markets in which it operates were affected – hardware sales decreasing by more than 30%, paper consumption declining by around 20% and envelope consumption dropping by 10%. In an effort to gear the business for an anticipated resurgence in the market, a restructuring exercise was completed along the three primary business lines, namely paper, digital printing and document solutions. LaserCom experienced good growth despite the recession impacting its high-end business and acquired several large new accounts. NOR Paper has proved to be a profitable acquisition for the group. The operation produced good profits for the year despite a 25% decline in pulp prices and a year-on-year decline in volumes of 5%. It successfully grew its market share to 12% while expanding its footprint into nine other regions in South Africa and several other African countries.Bytes Outsource improved on its prior year performance despite difficult economic conditions. A reduction in project work as well as margin pressures on annual increases has been overcome through additional new contracts and a focus on cost management.
Annuity-based contracts, built on sound client relationships, now account for more than 95% of revenue and provide a stable base for continued sustainable growth. Effective 1 March 2010, Bytes Outsource, Bytes Communications and Bytes Intelleca have been restructured and grouped as one business entity under the management of Andrew Holden. Despite the difficult operating environment, Bytes Communications performed well, benefiting from infrastructure spend and winning contracts for King Shaka Airport – Cargo division, Gautrain and Mbombela Stadium. Based on further successes in the hospitality industry, annuity income was increased. Prospects look promising with its Alcatel Lucent solutions designed to make it easier for businesses to share multimedia information through sophisticated offerings such as unified communications and contact centres, IP address and performance management software, and security solutions. Focus this year will be on increasing operational efficiency and expense reduction while increasing market penetration.
Bytes Intelleca successfully navigated its way through the economic downturn and delivered strong growth locally, while also expanding into East Africa. This performance was made possible by curbing costs, excellent project delivery and focused business development efforts. With continued advances in technology, interaction management has extended beyond the typical front office contact centre environment and now incorporates the full range of media interactions which increases Bytes Intelleca’s market size.
Bytes Healthcare Solutions’ revenue grew by 12% despite a large number of scheme members buying down in terms of their cover. Digital Healthcare Switch secured the pharmacy medicine script business for Discovery Health in 2009, accounting for a significant proportion of the growth. Medical claims volumes processed by the company grew by about 19% over the previous period and averaged six million transactions per month.
Bytes Systems Integration (BSI) maintained revenue and grew operational profit by 78% year on year despite adverse market conditions. Costs were reduced due to aggressive rationalisation measures being instituted. BytesNet, specialising in the convergence of voice, video, data and mobile services to help people communicate and share information, continued to grow and has become a firm annuity income contributor to Bytes.
The difficult conditions experienced by Bytes People Solutions (BPS) were largely due to the reduction in the training budgets of a number of key customers. While revenue remained fairly flat during the first half of the year, the second half ended stronger. From an empowerment perspective BPS progressed from a level 3 to a Level 2 contributor in line with the Altron 2012 vision. Despite margin pressures and the challenge to deliver measurable value to customers and stakeholders, Bytes Managed Services recorded an exceptionally good performance. It is the company’s strategy to increase its market share within its current support offering while at the same time expanding its business to include new and complementary services to both existing and new customers. With the recent consolidation of Bytes Managed Services and Bytes Specialised Solutions into the newly formed Bytes Managed Solutions, the business is well positioned to leverage its combined value proposition which in turn will deliver tangible benefits to its current customers and opportunities in new markets.
| Figures in R millions | % change | |
| Revenue | 5 952 |
(1) |
| EBITDA | 393 |
(8) |
| EBITDA margin | 6.6% |
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| Adjusted diluted headline earnings | 173 |
(21) |
| ROE | 18.3% |
Bytes UK
Notwithstanding difficult economic conditions experienced in the UK market, Bytes UK Software Services delivered a better than expected performance with increased revenue and profits. Poor trading conditions due to a recessionary economy and significant debtor issues seriously impacted Bytes Document Solutions UK (BDS UK) during the year under review. The three Xerox resellers in the Bytes UK group were merged and their integration proved to be a more challenging process than anticipated. This, coupled with the lack of financing in the copier market, contributed to losses during the period under review. Necessary action was taken in the second half to reduce overheads by 30% and through retrenchments and reductions in other expense items. The management of the company was replaced and it is expected that the new team, further assisted by new control systems and signs of improvement in the UK economy, should lead to a turnaround during the year ahead.PRODUCTS AND SERVICES
BDS launched new Xerox products and technologies which assisted in increasing its equipment market share. New business was significantly assisted by the sale and installation of the first large-scale production IGEN 4 machine as well as the sale of many production systems, including continuous-feed and colour printers. A specific highlight was the launch of ColorQube, a revolutionary new colour multifunction device that utilises cartridge-free solid ink technology. The Xerox software and business process outsource business, a relatively new initiative, showed good revenue growth of over R17 million for the year.
During the year under review, Bytes Intelleca delivered a dynamic contact centre solution for South Africa’s leading healthcare insurance provider and secured the business of both Safaricom in Kenya and Kenya Data Networks. In co-operation with Telkom, Bytes Intelleca also successfully launched and expanded the Telkom Hosted Contact Centre offering. Bytes Healthcare Solutions will be focusing on customer growth, retention and improving its visibility with National Health Insurance decisionmakers. Its entry into Saudi Arabia has resulted in the implementation of pilot sites which are now working while its expansion will include marketing of its products and service delivery into neighbouring markets.
BSI continued to experience challenges as a result of the increasing skills shortage in its fields of expertise, particularly at the high-end of the software consulting market. Focus will remain on costs and developing a unique marketing strategy to leverage the “System Integration” skill sets within BSI. BPS is an internationally accredited education, training, skills development and people consulting company. As an industry leader, BPS has built a credible track record over the past 15 years by providing innovative human capital resource solutions and services to a large number of blue-chip companies throughout southern Africa. Skills development continues to be a strong offering and BPS has produced more than 500 successful learners. The ISETT SETA accreditation as well as registration with Umalusi has assisted with this performance. As a focused workspace management and IT equipment maintenance business, Bytes Managed Solutions leverages off its 95 service points and 1 100 service focused staff throughout southern Africa, supporting over 600 000 OEM devices under warranty and over 350 000 devices through maintenance contracts.
BUSINESS PARTNERSHIPS
BDS added a number of new corporate customers to its portfolio, including SASOL, University of Pretoria and North-West Province Department of Education. A tender at UNISA awarded to BDS represents the biggest single order ever placed on the company. During the year under review Bytes Outsource secured a contract with Neotel (June 2009) to manage and operate their customer care call centre which has required a fairly significant capital investment and provides a solid platform for future growth.
As a Cisco Gold Partner, BSI was successful in securing large orders from corporate customers and as an exclusive Kronos workforce management solution provider, BSI managed to grow its market share. Its Netapp Platinum partnership resulted in a solid performance, establishing BSI as a market leader. The company is also implementing a fleet-wide Online Condition Monitoring solution for one of South Africa’s largest utility companies which contributed to operational profits.
Bytes Communications is an accredited premier Alcatel Lucent partner in South Africa for the distribution, implementation and servicing of voice and data communication products and solutions in 13 sub-Saharan countries. Alcatel Lucent is a leading international supplier in fixed, mobile and converged broadband networking, IP and optics technologies.
BPS’s’ IT Learning business unit expanded its offering to include a number of new technologies and were recently appointed as an Oracle Approved Education Centre. This unit was selected as a finalist in the Microsoft Learning Solutions partner of the Year for the fourth consecutive year. The On-line (eLearning) business unit was appointed a Tier 1 reseller by Microsoft for their e-learning products.
BDS UK is a Xerox reseller business which relies heavily on Xerox for commission and rebates and was consequently negatively impacted by Xerox’s worst UK performance in 30 years. At the same time, Bytes UK Software Services became Microsoft’s largest UK partner by revenue, with 17% of the UK market supplied by Bytes. This achievement further cements the already solid relationship between the two companies. Bytes UK Software Services continued to focus on supplying the public sector, corporate and SME organisations and grew its share of Oracle, Symantec, Citrix and Adobe sales to record levels, consolidating its reputation as a leading software services company. The company successfully retendered for the global software requirements of Tesco Plc, using the web-based portal as a key service offering in differentiating it from the myriad of competitors fighting for this flagship client.
The three-year contract with the UK National Health Service comes to an end in the year ahead and while the loss of this contract will significantly reduce revenue, operating margins will improve. In the face of this risk, the company is focusing on increased customer acquisition.