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BCX
BCX
BCX - Business Connexion - Reviewed group results for the year ended 31 May 2007
BUSINESS CONNEXION GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1988/005282/06)
Share code: BCX
ISIN: ZAE000054631
("Business Connexion" or "the Group")
Reviewed Group Results for the year ended 31 May 2007
Highlights
- Growth in revenue
- Telkom uncertainty resolved
- Further investment in and development of the data centre
- Dividend maintained
Condensed group balance sheet
Reviewed Audited
31 May 31 May
R million 2007 2006
ASSETS
Non-current assets
Property, furniture and fittings, equipment
and vehicles 218,7 218,5
Investment property 19,1 10,5
Capitalised leased assets 43,8 9,1
Rental assets 2,6 2,4
Goodwill 112,5 113,5
Other intangible assets 97,3 91,1
Other long-term investments 131,0 130,4
Long-term loans and advances 2,4 2,9
Deferred tax assets 49,8 35,4
677,2 613,8
Current assets
Inventories 95,1 49,6
Trade accounts receivable 746,9 544,6
Other accounts receivable 110,8 106,3
Prepayments 61,6 51,3
Tax prepaid 0,5 1,6
Bank balances and cash 585,8 743,3
Non-current assets held for sale 31,9 279,2
1 632,6 1 775,9
TOTAL ASSETS 2 309,8 2 389,7
EQUITY AND LIABILITIES
Equity attributable to parent shareholders 1 343,7 1 231,4
Minority interests 116,4 85,7
Total shareholders` equity 1 460,1 1 317,1
Non-current liabilities
Interest-bearing long-term liabilities 26,0 6,0
Interest free long-term liabilities 121,0 133,9
Post-retirement obligations 8,6 9,7
Provisions 0,9 5,6
Deferred tax liabilities 0,5 0,2
157,0 155,4
Current liabilities
Short-term borrowings and bank overdrafts 22,8 22,1
Trade accounts payable 311,1 217,6
Other accounts payable 338,0 468,9
Provisions 1,5 0,6
Tax 4,3
Non-current liabilities held for sale 19,3 203,7
692,7 917,2
TOTAL EQUITY AND LIABILITIES 2 309,8 2 389,7
Condensed group income statement
Reviewed Audited
Year ended Year
ended
31 May 31 May
R million 2007 2006
Revenue 3 551,1 3 207,7
Cost of sales 2 536,4 2 229,4
Gross profit 1 014,7 978,3
Operating expenses 793,5 767,3
Foreign exchange and derivative gains 3,3
Operational exceptional (losses)/gains (2,7) 0,1
Operating profit before depreciation and
amortisation 218,5 214,4
Depreciation and amortisation 110,0 70,6
Operating profit 108,5 143,8
Investment income 59,3 56,0
Profit before interest paid 167,8 199,8
Interest paid 26,0 34,0
Profit before exceptional items 141,8 165,8
Exceptional gains 59,7 18,3
Profit before tax 201,5 184,1
Tax 34,2 46,1
Profit for the year 167,3 138,0
Profit attributable to equity holders of the
parent 136,9 116,4
Profit attributable to minority interests 30,4 21,6
Profit for the year 167,3 138,0
Earnings per share (cents) 54,4 46,9
Diluted earnings per share (cents) 52,6 44,6
Dividend per share (cents) 15,0 17,0
Special dividend per share (cents) 20,0
Calculation of headline earnings (R million)
Profit attributable to equity holders of the
parent 136,9 116,4
Loss on sale of property, furniture and
fittings, equipment and vehicles 0,4
Profit on sale of land and buildings (48,0)
Fair value adjustment of investment property (8,6) (5,0)
Tax effect on sale of land and buildings 6,7
Minority effect of headline earnings 13,2 1,1
adjustments
Headline earnings 100,2 112,9
Weighted average number of shares in issue 251 601 247 867
(000s)
Headline earnings per share (cents) 39,8 45,6
Diluted weighted average number of shares in 260 327 260 758
issue (000s)
Diluted headline earnings per share (cents) 38,5 43,3
Condensed group statement of changes in equity
Foreign
Share currency
capital translation Distributable
and
R million premium reserve reserves
Balance at 31 May 2005 -
audited 321,9 (0,7) 885,3
Net movement not recognised
through the income statement (1,7) 7,4
Foreign exchange loss arising
on consolidation (2,6)
Treasury shares and related
reserves held by a subsidiary
and share purchase trusts 4,2
IFRS share based payments 3,2
Minority interest on foreign
exchange loss 0,9
Net movement recognised
through the income statement
Attributable profit per the
income statement 116,4
Dividend paid (97,2)
Balance at 31 May 2006 -
audited 321,9 (2,4) 911,9
Net movement not recognised
through the income statement 3,9 9,1
Foreign exchange loss arising
on consolidation 5,2
Treasury shares and related
reserves held by a subsidiary
and share purchase trusts 5,3
IFRS share based payments 3,8
Minority interest on foreign
exchange loss (1,3)
Minority interest on
dividends
received from subsidiaries
Net movement recognised
through the income statement
Attributable profit per the
income statement 136,9
Dividend paid (37,6)
Balance at 31 May 2007 -
income reviewed 321,9 1,5 1 020,3
Condensed group statement of changes in equity
Equity Total
attributable share-
to parent Minority holders`
R million shareholders interest equity
Balance at 31 May 2005 - audited 1 206,5 65,0 1 271,5
Net movement not recognised
through the income statement 5,7 (0,9) 4,8
Foreign exchange loss arising on
consolidation (2,6) (2,6)
Treasury shares and related
reserves held by a subsidiary and
share purchase trusts 4,2 4,2
IFRS share based payments 3,2 3,2
Minority interest on foreign
exchange loss 0,9 (0,9)
Net movement recognised through
the income statement
Attributable profit per the
income statement 116,4 21,6 138,0
Dividend paid (97,2) (97,2)
Balance at 31 May 2006 - audited 1 231,4 85,7 1 317,1
Net movement not recognised
through the income statement 13,0 0,3 13,3
Foreign exchange loss arising on
consolidation 5,2 5,2
Treasury shares and related
reserves held by a subsidiary and
share purchase trusts 5,3 5,3
IFRS share based payments 3,8 3,8
Minority interest on foreign
exchange loss (1,3) 1,3
Minority interest on dividends
received from subsidiaries (1,0) (1,0)
Net movement recognised through
the income statement
Attributable profit per the income
statement 136,9 30,4 167,3
Dividend paid (37,6) (37,6)
Balance at 31 May 2007 - reviewed 1 343,7 116,4 1 460,1
Group segmental analysis
Reviewed Audited
Year Year
ended ended
31 May 31 May
R million 2007 2006
BUSINESS GROUPINGS ANALYSIS
Revenue
Services 1 819,9 1 743,1
Business applications 447,6 425,9
Technology infrastructure 1 228,2 1 002,0
Communications 55,4 36,7
3 551,1 3 207,7
Operating profit
Services 148,6 182,0
Business applications 17,7 (9,0)
Technology infrastructure 9,4 (10,9)
Communications (24,3) (4,7)
Central functions (42,9) (13,6)
108,5 143,8
GEOGRAPHICAL SEGMENTAL ANALYSIS
Revenue
South Africa 3 288,5 2 987,1
Rest of Africa 226,3 185,6
United Kingdom 36,3 35,0
3 551,1 3 207,7
Operating profit
South Africa 95,4 159,8
Rest of Africa 13,6 (18,0)
United Kingdom (0,5) 2,0
108,5 143,8
Condensed group cash flow statement
Reviewed Audited
Year Year
ended ended
31 May 31 May
R million 2007 2006
Net cash flow (utilised in)/from
operating activities (135,1) 106,3
Net cash flow from/(utilised in)
investing activities 154,8 (140,7)
Net cash flow (utilised in)/from
financing activities (176,9) 1,1
Net changes in cash and cash equivalents (157,2) (33,3)
Cash and cash equivalents at beginning
of the year 743,0 776,3
Cash and cash equivalents at end
of the year 585,8 743,0
Other group salient information
Reviewed Audited
31 May 31 May
2007 2006
Number of shares in issue (000s) 262 637 262 637
Less: shares held in share purchase trust
and a subsidiary as treasury shares 9 674 12 235
252 963 250 402
Number of options in issue (000s) 14 594 17 254
Number of dilutive options (000s) 8 726 8 773
Net asset value per share (cents) 555,9 501,5
(Total shareholders` equity divided by
number of shares in issue)
R million R million
Contingent liabilities
Performance guarantees 10,7 34,7
Asset Finance recourse deals 22,5
Other 9,5 9,6
Guarantee provided to a funder of
Gadlex (Proprietary) Limited, secured by
Gadlex`s shareholding in Business
Connexion (Proprietary) Limited 70,9 67,0
Capital commitments
Capital 79,1 79,4
Operating lease 220,6 121,4
The group results are prepared in accordance with IAS 34, Interim Financial
Reporting. The accounting policies used in the preparation of these financial
statements are consistent with those used in the annual financial statements for
the year ended 31 May 2006, which comply with International Financial Reporting
Standards and the manner required by the Companies Act, 1973 as amended.
Review by the independent auditors
The Group`s auditors Deloitte and Touche have reviewed these year-end results.
Their unmodified review report is available for inspection at the Group`s
registered offices during normal office hours.
Commentary
For the entire period under review, Business Connexion has operated with
uncertainty regarding its future ownership. The impact on the business of Telkom
SA`s offer to shareholders to acquire the entire issued share capital of
Business Connexion and the subsequent delays in obtaining a decision from the
Competition Authorities cannot be underestimated. Finally on 28 June 2007 the
Competition Tribunal announced its decision to prohibit the transaction and the
group can now refocus on growing the business. The effect of the delay in
obtaining a decision is impossible to quantify in monetary terms. The Board of
directors is pleased that the matter has been finalised irrespective of the
outcome.
Operating results
The group has achieved a 10,7% increase in revenue due to a good second half.
The growth has mainly occurred in the Technology Infrastructure competencies.
The Services businesses have suffered during the period of uncertainty and
limited growth has been reported. In addition key Outsource clients have been in
a renewal phase, which has limited the awarding of secondary spin-off business.
The group is pleased to report that no existing Outsource contracts have been
lost during the year. The group has been successful in winning new business with
Government, particularly SITA and the local authorities.
Business conducted in the rest of Africa has grown by 21,9% and the region has
been restored to profitability. The group is currently investigating the
establishment of an operation in Nigeria to pursue opportunities identified in
that area.
Due to the Telkom SA transaction, the group has been unable to grow the business
of BCX Communications, which was acquired in the middle of the previous
financial year, and has sustained significant losses during the year.
Gross margins continue to be under pressure amongst other factors, the cost of
scarce IT skills growing at a greater rate than the group is able to recover
from clients. In addition R24 million of costs, which previously would have been
reported as operating expenses, have been reallocated to cost of sales. The
group has been able to grow EBITDA by 1,9% to R218,5 million, but due to higher
depreciation and amortisation, operating profit reduced from R143,8 million in
the previous financial year to R108,5 million. The group has invested
substantially in the past financial year in its new data centre, a "next
generation network" at BCX Communications and the implementation of a SAP ERP
system. All of these investments have been completed and are operating
successfully. It is too soon to realise any significant returns from these
projects to offset the higher depreciation cost.
Headline earnings of 39,8 cents per share, showed some improvement in the second
half of the financial year, but were 12,7% lower than the previous financial
year. Earnings per share improved to 54,4 cents per share (2006 - 46,9 cents per
share) due to the R48,0 million gain realised on the sale and leaseback
transaction of the group`s properties with Growthpoint.
The group retains a strong balance sheet, although the introduction of the new
SAP system has had a material adverse impact on the collection of trade debtors
which had not been rectified by year-end. Action plans are in place to reduce
debtors to acceptable levels. The group had R585,8 million of cash available at
year-end.
Corporate activity
The group disposed of 7 of its 8 commercial properties to Growthpoint Properties
Limited during the year, details of the transaction were disclosed in the
group`s interim results published on
20 February 2007. The sale of the remaining property remained outstanding at
year-end.
With effect from 1 July 2007, the group acquired the business of SiloFX
Enterprise Integrators for a consideration of R19 million. This business has
niche expertise in integration methodologies primarily in the power utility
sector.
Prospects
The new year will be focused on growing revenue, improving gross margins and
realising cost savings.
The demand for infrastructure management and hosting space in the data centres
is significant. This demand will see the new data centres reaching their optimal
capacity by March 2008 and therefore the Board has committed a further R45
million investment. Returns on the original investment will begin to be realised
in the 2008 financial year.
Further growth in the rest of Africa is expected and increased ICT spending is
anticipated as an enabler of Government`s renewed focus on service delivery.
Dividend
Notice is hereby given that the Board has declared a normal dividend number 3 of
15 cents per share. The salient dates are as follows:
Last date to trade Friday 14 September 2007
Securities start trading ex dividend Monday 17 September 2007
Record date Friday 21 September 2007
Payment date Tuesday 25 September 2007
Share certificates may not be dematerialised or rematerialised between Monday 17
September 2007 and Friday 21 September 2007, both dates inclusive.
Executive directors: LB Mophatlane (Chief Executive Officer), PA Watt, MW
Schoeman (Financial Director)* and AC Farthing (British)**
*MW Schoeman was appointed on 1 August 2007
** AC Farthing resigned on 1 August 2007
Non-executive directors: RS Berkowitz (Chairman), DM Nurek***
(Deputy Chairman), JF Buchanan and NN Kekana
*** DM Nurek resigned on 15 December 2006
Registered office: Business Connexion Park North, 789 16th Road, Randjespark,
Midrand, 1685
Postal address: Private Bag X48, Halfway House, 1685
Internet address: http://www.bcx.co.za
Transfer office and transfer secretaries: Link Market Services SA (Pty) Limited,
11 Diagonal Street, Johannesburg, 2001
Sponsor: Rand Merchant Bank, A division of FirstRand Bank Limited,
1 Merchant Place, Cnr Fredman Drive and
Rivonia Road, Sandton, 2196
Date: 23/08/2007 07:00:09 Produced by the JSE SENS Department.
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