| Tue 26 Aug 2008, 8:00 | | BCX - Business Connexion Group Limited - Reviewed preliminary financial results |
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BCX
BCX
BCX - Business Connexion Group Limited - Reviewed preliminary financial results
for the year ended 31 May 2008, cash dividend and special dividend declaration
REVIEWED PRELIMINARY FINANCIAL RESULTS
FOR THE YEAR ENDED 31 MAY 2008, CASH DIVIDEND AND SPECIAL DIVIDEND DECLARATION
BUSINESS CONNEXION GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1988/005282/06)
(Share code: BCX ISIN: ZAE000054631)
("BCX" or "the company" or "the group")
HIGHLIGHTS
- Revenue grew by 16,0% to R4,1 billion
- Operating profit improved by 51%
- Total expenses well managed to 9,7% growth
- R200 million returned to shareholders as dividends
- Balance sheet strong
- Revitalisation plan progressing well
CONDENSED GROUP BALANCE SHEET
Reviewed Audited
31 May 31 May
R million 2008 2007
ASSETS
Non-current assets
Property, furniture and fittings, 324,1 218,7
equipment and vehicles
Investment property 15,6 19,1
Capitalised leased assets 32,9 43,8
Rental assets 0,9 2,6
Goodwill 154,1 112,5
Other intangible assets 103,7 97,3
Other long-term investments 205,5 131,0
Long-term loans and advances 2,4
Deferred tax assets 50,6 49,8
887,4 677,2
Current assets
Inventories 110,2 95,1
Trade accounts receivable 840,2 746,9
Other accounts receivable 118,9 110,8
Prepayments 63,8 61,6
Tax prepaid 0,5
Bank balances and cash 524,3 585,8
Non-current assets held for sale 31,9 31,9
1 689,3 1 632,6
TOTAL ASSETS 2 576,7 2 309,8
EQUITY AND LIABILITIES
Equity attributable to equity holders 1 421,8 1 343,7
of the parent
Minority interests 105,0 116,4
Total shareholders` equity 1 526,8 1 460,1
Non-current liabilities
Interest-bearing long-term liabilities 23,0 26,0
Interest-free long-term liabilities 84,1 121,0
Post-retirement obligations 9,5 8,6
Provisions 0,5 0,9
Deferred tax liabilities 0,8 0,5
117,9 157,0
Current liabilities
Short-term borrowings 22,5 22,8
Trade accounts payable 349,6 311,1
Other accounts payable 491,9 338,0
Provisions 2,0 1,5
Tax 51,3
Non-current liabilities held for sale 14,7 19,3
932,0 692,7
TOTAL EQUITY AND LIABILITIES 2 576,7 2 309,8
CONDENSED GROUP INCOME STATEMENT
Reviewed Audited
Year ended Year ended
31 May 31 May
R million 2008 2007
Revenue 4 118,5 3 551,1
Cost of sales 2 960,4 2 536,4
Gross profit 1 158,1 1 014,7
Operating expenses 889,3 796,2
Operating profit before depreciation 268,8 218,5
and amortisation
Depreciation and amortisation 104,6 110,0
Operating profit 164,2 108,5
Investment income 58,7 59,3
Profit before interest paid 222,9 167,8
Interest paid 9,8 26,0
Profit before exceptional items 213,1 141,8
Exceptional (losses)/gains (0,2) 59,7
Profit before tax 212,9 201,5
Tax 84,8 34,2
Profit for the year 128,1 167,3
Other comprehensive income
Exchange (losses)/gains on translating (8,0) 5,2
foreign operations
Total comprehensive income for the 120,1 172,5
year
Profit attributable to:
Equity holders of the parent 114,7 136,9
Minority interest 13,4 30,4
Profit for the year 128,1 167,3
Total comprehensive income
attributable to:
Equity holders of the parent 108,5 140,8
Minority interest 11,6 31,7
Total comprehensive income for the 120,1 172,5
year
Earnings per share (cents) 45,0 54,4
Diluted earnings per share (cents) 44,2 52,6
Calculation of headline earnings Restated
Profit attributable to equity holders 114,7 136,9
of the parent
Reversal of impairment of loans and (5,6) (3,1)
investments
Loss on sale of furniture and 2,3
fittings, equipment and vehicles
Profit on sale of land and buildings (48,0)
Fair value adjustment of investment 3,5 (8,6)
property
Tax effect on sale of land and 6,7
buildings
Minority effect of headline earnings 13,8
adjustments
Headline earnings 114,9 97,7
Weighted average number of shares in 254 806 251 601
issue (000s)
Headline earnings per share (cents) 45,1 38,8
Diluted weighted average number of 259 577 260 327
shares in issue (000s)
Diluted headline earnings per share 44,3 37,5
(cents)
Headline earnings per share and diluted headline earnings per share, both in the
current year and prior years, have been adjusted for the requirements of
Circular 8 of 2007 (CC 08/07). The reduction in headline earnings per share was
a decrease of 1,8 cent (2007: 1,0 cent) and diluted headline earnings per share
1,7 cent (2007: 1,0 cent).
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
R million Share Foreign Distribu- Equity Minority Total
capital currency table attribut- interests share-
and trans- reserves able to holders
premium lation equity equity
holders
of the
parent
Balance at 31 321,9 (2,4) 911,9 1 231,4 85,7 1 317,1
May 2006 -
audited
Changes in 3,9 108,4 112,3 30,7 143,0
equity for
2007
Treasury 5,3 5,3 5,3
shares and
related
reserves held
by a
subsidiary and
share purchase
trusts
IFRS share- 3,8 3,8 3,8
based payments
Minority (1,0) (1,0)
interest on
dividends
received from
subsidiaries
Total 3,9 136,9 140,8 31,7 172,5
comprehensive
income for the
year
Dividend paid (37,6) (37,6) (37,6)
Balance at 31 321,9 1,5 1 020,3 1 343,7 116,4 1 460,1
May 2007 -
audited
Changes in 0,1 (6,2) 84,2 78,1 (11,4) 66,7
equity for
2008
Treasuy shares 0,1 5,2 5,3 5,3
and related
reserves held
by a
subsidiary and
share purchase
trusts
IFRS share- 2,4 2,4 2,4
based payments
Minority
interest
reduction due
to the
sale of shares (22,0) (22,0)
Minority (1,0) (1,0)
interest on
dividends
received from
subsidiaries
Total (6,2) 114,7 108,5 11,6 120,1
comprehensive
income for the
year
Dividend paid (38,1) (38,1) (38,1)
Balance at 31 322,0 (4,7) 1 104,5 1 421,8 105,0 1 526,8
May 2008 -
reviewed
Reviewed Audited
Year ended Year ended
31 May 31 May
2008 2007
Dividend per share (cents) 15,0 15,0
GROUP SEGMENTAL ANALYSIS
Reviewed Audited
Year ended Year ended
31 May 31 May
R million 2008 2007
BUSINESS GROUPINGS ANALYSIS
Revenue
Services 2 004,4 1 875,3
Business applications 511,3 447,6
Technology infrastructure 1 602,8 1 228,2
4 118,5 3 551,1
Operating profit
Services 135,0 124,3
Business applications 25,9 17,7
Technology infrastructure 97,6 9,4
Central functions (94,3) (42,9)
164,2 108,5
GEOGRAPHICAL SEGMENTAL ANALYSIS
Revenue
South Africa 3 767,5 3 288,5
Rest of Africa 298,3 226,3
United Kingdom 52,7 36,3
4 118,5 3 551,1
Operating profit
South Africa 140,4 95,4
Rest of Africa 19,8 13,6
United Kingdom 4,0 (0,5)
164,2 108,5
CONDENSED GROUP CASH FLOW STATEMENT
Reviewed Audited
Year ended Year ended
31 May 31 May
R million 2008 2007
Net cash flow from/(utilised in) operating 315,7 (135,1)
activities
Net cash flow (utilised in)/from investing (349,9) 154,8
activities
Net cash flow utilised in financing (27,3) (176,9)
activities
Net changes in cash and cash equivalents (61,5) (157,2)
Cash and cash equivalents at beginning of 585,8 743,0
the year
Cash and cash equivalents at end of the 524,3 585,8
year
OTHER GROUP SALIENT INFORMATION
Reviewed Audited
31 May 31 May
2008 2007
Number of shares in issue (000s) 262 637 262 637
Less: Shares held in share purchase trust 5 832 9 674
and subsidiary as treasury shares
256 805 252 963
Number of options in issue (000s) 9 647 14 594
Number of dilutive options (000s) 4 771 8 726
Net asset value per share (cents)
(Total shareholders` equity divided by 581,3 555,9
number of shares in issue)
R million R million
Contingent liabilities
Performance guarantees 85,4 10,7
Asset finance recourse deals 18,1 22,5
Other 2,3 9,5
Guarantee provided to a funder of Gadlex`s 70,9
(Pty) Limited, secured by Gadlex`s
shareholding in Business Connexion (Pty)
Limited
Capital commitments
Capital 25,0 79,1
Operating lease 337,1 220,6
ACCOUNTING POLICIES
The group results are prepared in accordance with IAS 34 - Interim Financial
Reporting. IAS 34 has been amended following the revision of IAS 1 -
Presentation of Financial Statements. These amendments have been early adopted.
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 2007, which comply with International Financial Reporting Standards
and the manner required by the Companies Act, 1973, as amended. In the current
year the group adopted IFRS 7 - Financial Instruments: Disclosures, which is
effective for annual reporting periods beginning on or after 1 January 2007, and
the consequential amendments to IAS 1 - Presentation of Financial Statements.
The impact of the adoption of IFRS 7 and the changes to IAS 1 will be to expand
the disclosures provided in the financial statements for the year ending 31 May
2008 regarding the group`s financial instruments and management of capital. The
adoption of other interpretations as issued by the International Financial
Reporting Interpretations Committee, which are effective for the current year,
has not led to any changes in the group`s accounting policies.
COMMENTARY
"We are pleased with the progress in the second six months of the year. The
revitalisation programme announced in February 2008 has had a positive influence
on the business and its performance. The operating margin and resultant headline
earnings have been positively impacted by improved trading during the second
half of the year and disciplined cost management. These trends in trading and
cost containment have continued into the new financial year.
The strong trading confirms that Business Connexion (BCX) is a robust business
with a strong and loyal client base. We continue to focus on delivering a
premium service to our clients."
LB Mophatlane
Chief Executive Officer
OPERATING PERFORMANCE
BCX showed robust revenue growth of 16,0%, increasing from R3 551,1 million in
2007 to R4 118,5 million for the current financial year. Gross margins remained
under pressure, mainly from the competitive nature of the business and the
ongoing changes to the product mix, declining from 28,6% to 28,1%. However, the
group`s operating margin increased from 3,1% in 2007 to 4,0% in 2008, aided by
tight cost management which saw the growth in expenses limited to 9,7%. The
group is committed to achieving an operating margin of 8% by 2011.
The group retained a loyal client base and attracted several new clients in the
corporate and public sector, while not losing any major clients during the
period.
SiloFX Enterprise Integrators, which was acquired in July 2007, has been
successfully integrated into the group and is now the Business Integration unit
within the professional services division. The business has exceeded revenue
expectations in its first year of operation.
The Midrand data centres achieved an improvement in capacity utilisation and a
satisfactory return on investment. Capacity is being expanded and this
utilisation should improve even further as the cost of telecommunications in
South Africa comes down.
Business Connexion continues to grow its African business, and remains committed
to support its South African clients into Africa. It has a presence in Tanzania,
Mozambique, Zambia and Namibia and a Nigerian operation has been established.
Revenue from Africa, predominantly product-based, though small, is increasing.
Working capital management remains key and a reduction in working capital
generated R87,0 million for the group during the year. Improved and more
stringent collections processes and follow up reduced overdue out-of-term
debtors from 41% down to 27%, although this remains high and is an ongoing focus
for the group.
FINANCIAL PERFORMANCE
Headline earnings increased by 17,6% to R114,9 million. Basic earnings reduced
from R136,9 million in 2007 to R114,7 million, with 2007 earnings benefiting
from the profit on sale of land and buildings and positive fair value
adjustments to investment property.
Headline earnings per share (EPS) increased by 16,2% to 45,1 cents (2007: 38,8
cents). Diluted headline EPS increased by 18,1% from 37,5 cents to 44,3 cents.
Basic EPS reduced from 54,4 cents to 45,0 cents and diluted basic EPS from 52,6
cents to 44,2 cents.
The group`s return on average ordinary shareholders` equity (ROE) improved from
6,9% to 7,5% for the year, but remains too low. The group aims to improve its
ROE through enhancing the operating margin and improving the efficiency of the
group`s balance sheet.
Revenue and gross profit margin
The revenue growth of 16,0% was driven mainly by strong growth in the Technology
Infrastructure division of 30,5% to R1 602,8 million, with the Business
Applications division showing robust growth of 14,2% to R511,3 million. This was
offset by modest growth of 6,9% to R2 004,4 million by the Services division.
Revenue growth was assisted by:
- improved client billing procedures;
- the acquisition of SiloFX Integrators which added R17,7 million of revenue and
was included for 11 months during the 2008 financial year;
- services revenue growth in the public sector business grew mainly due to
robust growth in the local and provincial government areas and Q Link (an
electronic deduction solution for payrolls developed by BCX); and
- the Technology Infrastructure division revenue grew mainly from contributions
across a number of existing key clients, both in the private and public sector.
Revenue in the Services business remains under pressure due to longer sales
cycles and margin pressure when renegotiating current contracts. This continues
to be addressed by implementing on-demand and standardised solutions, but it
will take time to see the full benefits of this. In addition, revenue in this
area was negatively impacted following the closure of the NATIS project which
was successfully completed.
These trends and shift in business mix and the completion of the NATIS project
resulted in the gross profit margin reducing from 28,6% in 2007 to 28,1% in
2008. The margin dropped from 28,2% in the first half to 28,0% in the second
half.
Expenses
The group`s operating expenses increased by 11,7% to R889,3 million and
depreciation reduced by 4,9% to R104,6 million, resulting in total expenses
increasing by 9,7%.
The lower overall expense growth arose mainly from a focus on costs and a
reduction in discretionary spend mainly in the second half. Expenses in 2008
include property rental following the sale of the group`s properties to
Growthpoint. In 2007 the properties were owned through a finance lease with an
amount of R13,8 million being reflected as interest paid. Expenses also
benefited from a reduction in depreciation of R14,1 million due to the change in
the useful life of the SAP system (increase from five to ten years) and the data
centre equipment with varying periods of useful life. Expenses in 2008 include
management restructure costs of R12,8 million.
Operating margin
With revenue growth exceeding expense growth operating margin improved from 3,1%
to 4,0% in line with the group`s target for the 2008 financial year. Operating
profit increased to R164,2 million (up 51,3%).
Net investment income
Net investment income increased by 46,9% to R48,9 million, in spite of lower
cash balances, predominantly from the higher interest rate environment.
Taxation
The taxation charge increased from R34,2 million in 2007 to R84,8 million in
2008. The group`s effective taxation rate was 39,8% and excluding secondary tax
on companies and withholding taxes this rate was 36.9%. This rate is higher than
the corporate taxation rate mainly as a result of deferred taxation assets on
current losses not being raised in Business Connexion Communications (Pty)
Limited and some of the African subsidiaries.
Minorities` interest
Profit attributable to minorities reduced following the purchase of a 5% holding
in Business Connexion (Pty) Limited from Gadlex (Pty) Limited reported on
previously.
Balance sheet structure
During the year the group has been simplifying its corporate structure and
reducing the number of companies in the group. The group continues to have a
strong balance sheet.
The group will assess the capital required for growth and the optimal capital
structure which will improve the group`s ROE.
Post-balance sheet events
The group successfully concluded the sale of the Faerie Glen property for an
amount of R53,5 million resulting in a profit of R21,6 million before
commission, legal and related sales costs.
With effect from 1 July 2008, BCX acquired a 35% stake in Hawkstone iSolutions
(Pty) Limited (Hawkstone) for an amount of R6 million. Hawkstone develops,
manufactures and supports ICT solutions with the objective of increasing access
to ICT services in Africa.
REVITALISATION PROGRAMME
The group identified five broad categories in its revitalisation programme to
improve operating margin and returns to shareholders. These categories are:
1. Aligning the group for the future.
2. Improving the quality of earnings.
3. Ensuring performance excellence.
4. Attracting and retaining the right people.
5. Ensuring absolute accountability.
TARGET
The group has set itself a target of achieving an operating margin of 8% for the
2011 financial year. In order to achieve this, the group plans:
- to focus on quality of revenue and not necessarily revenue growth by
concentrating its efforts on growth clients; growth industries; new
opportunities; new offerings; and completing its revenue leakage project which
is estimated, could potentially yield between R12 million and R26 million,
additional revenue;
- efficiency and cost control by consolidating services into a shared services
unit and focusing on reducing both operating expenditure and cost of sales
through tight cost control and other interventions. The consolidation of shared
services is targeted to save the group R33 million on an annualised basis with
further savings being sought out of cost of sales.
CONCLUSION AND PROSPECTS
Further benefits from the revitalisation programme, a clear financial focus and
a commitment to achieve an operating margin of 8% by 2011 should lead to the
group unlocking further value for shareholders.
For the 2009 financial year the group expects a further improvement in the
operating margin. This will be achieved through:
- modest revenue growth, but an improvement in the quality of revenue;
- gross profit margins being maintained at near the current levels; and
- ongoing tight control over costs. This will be partially offset by costs
incurred on the implementation of the revitalisation programme.
AUDITOR"S REPORT
The reviewed preliminary financial results have been reviewed by Deloitte and
their unqualified auditor`s report is available for inspection at the registered
office of the company.
ORDINARY CASH DIVIDEND AND SPECIAL DIVIDEND DECLARATION
Notice is hereby given that an ordinary cash dividend of 18 cents per ordinary
share (2007: 15 cents) has been declared, payable to shareholders for the year
ended 31 May 2008. Notice is also hereby given that a special dividend of 60
cents per ordinary share has been declared, payable to shareholders for the year
ended 31 May 2008. In accordance with the provisions of Strate, the electronic
settlement and custody system used by JSE Limited, the relevant dates for the
dividends are as follows:
Event Date
Last day to trade (cum dividend) Friday, 12 September 2008
Shares commence trading (ex dividend) Monday, 15 September 2008
Record date (date shareholders recorded Friday, 19 September 2008
in books)
Payment date Monday, 22 September 2008
Shares may not be dematerialised or rematerialised between Monday, 15 September
2008, and Friday, 19 September 2008, both days inclusive.
On Monday, 22 September 2008, the dividends will be electronically transferred
to the bank accounts of all certificated shareholders where this facility is
available. Where electronic funds transfer is either not available or not
elected by the shareholder, cheques dated Monday, 22 September 2008, will be
posted on that date.
Holders of dematerialised shares will have their accounts credited at their
participant or broker on Monday, 22 September 2008.
The above dates and times are subject to change. Any changes will be published
on the Securities Exchange News Service (SENS) and in the press.
For and on behalf of the board
AC Ruiters LB Mophatlane
Chairman Chief Executive Officer
Midrand
26 August 2008
Executive directors
LB Mophatlane (Chief Executive Officer), MW Schoeman (Chief Financial Officer)
Non-executive directors
AC Ruiters*# (Chairman), JF Buchanan#, NN Kekana, PA Watt** and FL Sekha***#
*AC Ruiters was appointed on 21 September 2007.
**PA Watt - a non-executive director from 1 January 2008.
***FL Sekha was appointed on 30 November 2007.
#Non-executive director acting in an independent capacity.
REGISTERED OFFICE
Business Connexion Park North, 789 16th Road, Midrand, 1685
POSTAL ADDRESS
Private Bag X48, Halfway House, 1685
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,
Corner Fredman Drive and Rivonia Road, Sandton, 2196
www.bcx.co.za
Date: 26/08/2008 08:00:10 Produced by the JSE SENS Department.
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