Bring it on

Al­tron and the new mar­ket

Finweek English Edition - - COMPANIES & MARKETS - SI­MON DIN­GLE si­mond@fin­

SOUTH AFRICA’S tech­nol­ogy sec­tor is in a dif­fer­ent di­men­sion than it was five years ago. The way the mar­ket views, uses and thinks about tech­nol­ogy has shifted. We’ve seen what hap­pened to com­pa­nies – such as Faritec – that didn’t fit into the new sta­tus quo, while oth­ers, such as Datatec, were geared for the road ahead and have come out of the re­ces­sion on top of their game. As Rob Abra­hams, CEO of Al­tron’s Bytes Tech­nol­ogy Group sub­sidiary puts it: “The mys­tique of IT is gone.”

Be­cause Al­ton is a large group of com­pa­nies, analysing how it fits into the new par­a­digm de­pends on which part of the whole you’re in­spect­ing. Its Al­tech sub­sidiary – in it­self a listed group of 25 com­pa­nies with a mar­ket cap of R6,13bn – has fared well. Al­tron holds 62% of Al­tech. But Bytes, which used to be listed it­self but is now wholly owned and ab­sorbed into Al­tron, has had its work cut out.

Al­tron re­ported en­cour­ag­ing re­sults for the year to end-Fe­bru­ary 2011, with rev­enues up 2% to R22,8bn and an EBITDA in­crease of 6% to R2,1bn against its pre­vi­ous year. Earn­ings per share jumped by 15%.

With the pay­off line “Fit for the fu­ture”, Bytes is prov­ing it has what it takes to main­tain rel­e­vance in the mar­ket de­spite ex­pe­ri­enc­ing tough con­di­tions in 2009 and much of last year. Abra­hams says the group is now look­ing for growth and find­ing po­ten­tial in new tech­nol­ogy trends. Build­ing on his state­ment of tech­nol­ogy los­ing its mys­tique, Abra­hams says it’s be­come “just an­other cog in the wheel”.

But that doesn’t mean it’s bor­ing, with in­no­va­tion still where tech­nol­ogy com­pa­nies will dif­fer­en­ti­ate. Among the myr­iad of prod­ucts and ser­vices Bytes of­fers via its sub­sidiaries, Abra­hams says cloud so­lu­tions is one area worth not­ing. “For us… the fo­cus is on de­liv­er­ing self­ser­vice ap­pli­ca­tions from the cloud. For ex­am­ple, take the lat­est strate­gic al­liance be­tween Cisco and Xerox – cloud print­ing ser­vices. For me it’s in­creas­ingly about the pri­vate cloud more than ev­ery­body – but cer­tainly cloud com­put­ing is gain­ing mo­men­tum and for us is an op­por­tu­nity.”

Abra­hams says in the world of tech­nol­ogy there’s a trend to­wards com­modi­ti­sa­tion, which means com­pa­nies such as Bytes have to be very good at main­tain­ing mar­gins and con­trol­ling costs. “Our cost to in­come ra­tios are way be­low 20%,” says Abra­hams. “It’s all about do­ing it at the right price. To us it’s about re­duc­ing costs and im­prov­ing op­er­a­tional ef­fi­ciency. The mar­ket is tough but we’re grow­ing.”

He says an­other dif­fer­en­tia­tor is that Bytes rep­re­sents lead­ing brands, such as Microsoft and Xerox, and de­liv­ers those to the mar­kets where it op­er­ates with a level of ser­vice it be­lieves to be un­matched by com­peti­tors.

Bytes has more Microsoft cer­ti­fied pro­fes­sion­als (MCPs) work­ing for it than any Microsoft re­seller in Bri­tain. It has also been recog­nised as Microsoft’s “most op­er­a­tionally efficient LAR across Europe, Mid­dle East and Africa” and last year was recog­nised as Microsoft’s “Part­ner of the year”.

“So we say bring it on,” says Abra­hams. “We can de­liver a ser­vice to a large SA com­pany from Port Nol­loth to Beit­bridge.” And Bytes has fol­lowed its clients be­yond SA and into Africa. Stan­dard Bank and Shoprite are two ex­am­ples of large cus­tomers Al­tron has strate­gi­cally fol­lowed north of our borders.

Al­tron group CEO Rob­bie Ven­ter says he’s happy with the way 2010 turned out for the com­pany. Re­tail and bank­ing, as hinted at above, are where many of the group’s most sig­nif­i­cant clients sit. Those were sec­tors hit hard by the re­ces­sion, but Al­tron man­aged to stay on the radar.

“You have to keep spend­ing for the fu­ture,” says Ven­ter. “As do your com­peti­tors. We’ve seen that in bank­ing with ATMs, for ex­am­ple. First Na­tional Bank was the first one to move on the new in­tel­li­gent de­posit ma­chines in their net­work and other banks had to fol­low,” he says. Bytes’ Man­aged So­lu­tions sub­sidiary pro­vides NCR ATM prod­ucts.

Sell­ing hard­ware is about pro­vid­ing ser­vices be­yond the de­liv­ery of prod­ucts, says Ven­ter, which carry sin­gle-digit mar­gins for distrib­u­tors. So Bytes has de­vel­oped ways to play a role be­yond that dis­tri­bu­tion el­e­ment.

But the com­pany has also de­vel­oped its own IP in ar­eas. Says Ven­ter: “We’ve got pock­ets where our IP is 100% owned. We have a big soft­ware busi­ness in Cape Town. And Bytes Health­care Ser­vices, for ex­am­ple, ef­fec­tively has its own prac­tice man­age­ment soft­ware for med­i­cal doc­tors with 80% mar­ket share… about 10 000 doc­tors use our soft­ware.

“But we take it fur­ther. With the elec­tron­ics that switches that trans­ac­tion from the provider to the med­i­cal aid, we’ve got 60% to 70% mar­ket share in that and that whole layer of IP is owned by us.”

Abra­hams says that sys­tem alone switches around 80m trans­ac­tions/year and Al­tron is able to op­er­ate with a 30% mar­gin on those trans­ac­tions be­cause of its in­vest­ment in IP.


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