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BCX
BCX
BCX - Business Connexion Group - Unaudited financial results for the six months
ended 30 November 2008
BUSINESS CONNEXION GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1988/005282/06)
(Share code: BCX ISIN: ZAE000054631)
UNAUDITED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2008
Highlights
* Revenue grew by 10,3% to R2,2 billion
* Operating profit improved by 16,2%
* Balance sheet remains strong
* Revitalisation plan is on track
Condensed group balance sheet
Unaudited Unaudited Audited
30 November 30 November 31 May
R million 2008 2007 2008
ASSETS
Non-current assets
Property, furniture and 318,7 268,7 324,1
fittings, equipment and
vehicles
Investment property 15,6 19,1 15,6
Capitalised leased assets 21,1 27,2 32,9
Rental assets 1,3 1,6 0,9
Goodwill 154,1 125,8 154,1
Other intangible assets 96,1 98,5 103,7
Investment in associates 3,0
Other long-term investments 205,4 133,8 205,5
Long-term loans and 0,4
advances
Deferred tax assets 43,4 60,2 50,6
858,7 735,3 887,4
Current assets
Inventories 157,8 139,7 110,2
Trade accounts receivable 877,5 754,5 840,2
Other accounts receivable 116,1 97,1 118,9
Prepayments 93,5 107,3 63,8
Tax prepaid
Bank balances and cash 313,1 526,3 524,3
Non-current assets held for 31,9 31,9
sale
1 558,0 1 656,8 1 689,3
TOTAL ASSETS 2 416,7 2 392,1 2 576,7
EQUITY AND LIABILITIES
Equity attributable to 1 260,7 1 342,5 1 421,8
equity holders of the
parent
Minority interests 108,7 120,5 105,0
Total shareholders` equity 1 369,4 1 463,0 1 526,8
Non-current liabilities
Interest bearing long-term 16,4 7,4 23,0
liabilities
Interest free long-term 68,5 105,1 84,1
liabilities
Post retirement obligations 9,5 8,8 9,5
Provisions 2,4 0,8 0,5
Deferred tax liabilities 1,3 1,3 0,8
98,1 123,4 117,9
Current liabilities
Short-term borrowings 22,0 39,1 22,5
Trade accounts payable 413,1 194,7 349,6
Other accounts payable 504,7 537,1 491,9
Provisions 0,8 1,8 2,0
Tax 8,6 15,9 51,3
Non-current liabilities 17,1 14,7
held for sale
949,2 805,7 932,0
TOTAL EQUITY AND 2 416,7 2 392,1 2 576,7
LIABILITIES
Condensed group income statement
Unaudited Unaudited Audited
% Six months Six months Year
Change ended ended ended
(Nov on 30 November 30 November 31 May
Nov)
R million 2008 2007 2008
Restated Restated
Revenue 10 2 210,0 2 004,2 4 118,5
Cost of sales 11 1 640,8 1 474,8 3 030,5
Gross profit 8 569,2 529,4 1 088,0
Operating expenses 7 520,5 487,5 923,8
Operating profit 16 48,7 41,9 164,2
Investment income 5 30,7 29,3 58,7
Profit before 12 79,4 71,2 222,9
interest paid
Interest paid (16) 3,6 4,3 9,8
Profit before 13 75,8 66,9 213,1
exceptional items
Exceptional 631 21,2 2,9 (0,2)
gains/(losses)
Profit before tax 39 97,0 69,8 212,9
Tax 95 52,3 26,8 84,8
Profit for the 4 44,7 43,0 128,1
period
Profit
attributable to:
Equity holders of 7 39,3 36,7 114,7
the parent
Minority interest (14) 5,4 6,3 13,4
4 44,7 43,0 128,1
Other
comprehensive
income:
Exchange losses on (31) (3,5) (5,1) (8,0)
translation of
foreign operations
Total 9 41,2 37,9 120,1
comprehensive
income for the
period
Total
comprehensive
income
attributable to:
Equity holders of 11 36,5 32,9 108,5
the parent
Minority interest (6) 4,7 5,0 11,6
9 41,2 37,9 120,1
Earnings per share 6 15,3 14,5 45,0
(cents)
Diluted earnings 7 15,1 14,1 44,2
per share (cents)
Normal dividend 20 18,0 15,0 15,0
per share (cents)
Special dividend 60,0
per share (cents)
Calculation of headline earnings
Unaudited Unaudited Audited
% Six months Six months Year
Change ended ended ended
(Nov on 30 November 30 November 31 May
Nov)
R million 2008 2007 2008
Profit 39,3 36,7 114,7
attributable to
equity holders of
the parent
Reversal of 0,1 (5,6)
impairment of
loans and
investments
(Profit)/loss on (0,3) 1,1 2,3
sale of furniture
and fittings,
equipment and
vehicles
Profit on sale of (21,0)
land and buildings
Fair value 3,5
adjustment of
investment
property
Tax effect on sale 2,9
of land and
buildings
Minority effect of 3,6 (0,3)
headline earnings
adjustments
Headline earnings (34) 24,6 37,5 114,9
Weighted average 257 071 253 733 254 806
number of shares
in issue (000s)
Headline earnings (35) 9,6 14,8 45,1
per share (cents)
Diluted weighted 260 839 259 911 259 577
average number of
shares in issue
(000s)
Diluted headline (35) 9,4 14,4 44,3
earnings per share
(cents)
Condensed group cash flow statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 November 30 November 31 May
R million 2008 2007 2008
Operating cash flows 117,6 88,9 261,0
Working capital changes (35,7) 5,1 79,5
Net investment income 30,3 28,4 46,8
Dividend paid (200,7) (38,1) (38,1)
Tax paid (87,5) (20,0) (33,5)
Cash (utilised (176,0) 64,3 315,7
in)/generated from
operating activities
Net cash flow 5,5 (103,2) (349,9)
from/(utilised in)
investing activities
Net cash flow utilised in (40,7) (20,6) (27,3)
financing activities
Net changes in cash and (211,2) (59,5) (61,5)
cash equivalents
Cash and cash equivalents 524,3 585,8 585,8
at beginning of the period
Cash and cash equivalents 313,1 526,3 524,3
at end of the period
Condensed group statement of changes in equity
Share Foreign Distributable
capital currency
R million and premium translation reserves
reserve
Balance at 31 May 2007 - 321,9 1.5 1 020,3
audited
Changes in equity for
the six months ended 30
November 2007
Treasury shares and 0,1 3,3
related reserves held by
a subsidiary and share
purchase trusts
IFRS share-based 0,6
payments
Minority interest on
dividends received from
subsidiaries
Total comprehensive (3,8) 36,7
income for the period
Dividend paid (38,1)
Balance at 30 November 322,0 (2,3) 1 022,8
2007 - unaudited
Changes in equity for
the six months ended 31
May 2008
Treasury shares and 1,9
related reserves held by
a subsidiary and share
purchase trusts
IFRS share-based 1,8
payments
Minority interest
reduction due to sale of
shares
Minority interest on
dividends received from
subsidiaries
Total comprehensive (2,4) 78,0
income for the period
Balance at 31 May 2008 - 322,0 (4,7) 1 104,5
audited
Changes in equity for
the six months ended 30
November 2008
Treasury shares and 2,6
related reserves held by
a subsidiary and share
purchase trusts
IFRS share-based 0,5
payments
Minority interest on
dividends received from
subsidiaries
Total comprehensive (2,8) 39,3
income for the period
Dividend paid (200,7)
Balance at 30 November 322,0 (7,5) 946,2
2008 - unaudited
Equity Total
attributable
to equity Minority shareholders`
holders
R million of the interests equity
parent
Balance at 31 May 2007 - 1 343,7 116,4 1 460,1
audited
Changes in equity for
the six months ended 30
November 2007
Treasury shares and 3,4 3,4
related reserves held by
a subsidiary and share
purchase trusts
IFRS share-based 0,6 0,6
payments
Minority interest on (0,9) (0,9)
dividends received from
subsidiaries
Total comprehensive 32,9 5,0 37,9
income for the period
Dividend paid (38,1) (38,1)
Balance at 30 November 1 342,5 120,5 1 463,0
2007 - unaudited
Changes in equity for
the six months ended 31
May 2008
Treasury shares and 1,9 1,9
related reserves held by
a subsidiary and share
purchase trusts
IFRS share-based 1,8 1,8
payments
Minority interest (22,0) (22,0)
reduction due to sale of
shares
Minority interest on (0,1) (0,1)
dividends received from
subsidiaries
Total comprehensive 75,6 6,6 82,2
income for the period
Balance at 31 May 2008 - 1 421,8 105,0 1 526,8
audited
Changes in equity for
the six months ended 30
November 2008
Treasury shares and 2,6 2,6
related reserves held by
a subsidiary and share
purchase trusts
IFRS share-based 0,5 0,5
payments
Minority interest on (1,0) (1,0)
dividends received from
subsidiaries
Total comprehensive 36,5 4,7 41,2
income for the period
Dividend paid (200,7) (200,7)
Balance at 30 November 1 260,7 108,7 1 369,4
2008 - unaudited
Group segmental analysis
Unaudited Restated Restated
Six months Six months Year
ended ended ended
30 November 30 November 31 May
R million 2008 2007 2008
BUSINESS GROUPINGS ANALYSIS
Revenue
Services Group 1 104,1 999,8 2 025,2
Technology Group 931,0 845,6 1 742,3
Africa and United Kingdom 174,9 158,8 351,0
2 210,0 2 004,2 4 118,5
Operating profit
Services Group 61,7 37,3 127,7
Technology Group (3,2) 2,3 24,0
Africa and United Kingdom (9,8) 2,3 12,5
48,7 41,9 164,2
Other group salient information
Unaudited Unaudited Audited
30 November 30 November 31 May
2008 2007 2008
Number of shares in issue 262 637 262 637 262 637
(000s)
Less: shares held in share 5 343 7 068 5 832
purchase trust and fellow
subsidiary as treasury
shares
Less: weighting of options 223 1 836 1 999
exercised during the period
that would have been
treasury shares
257 071 253 733 254 806
Dilutive options 3 584 5 506 4 099
Options exercised during 184 672 672
the period that were
dilutive for a portion of
the period
260 839 259 911 259 577
Number of options in issue 8 391 11 550 9 647
(000s)
Key ratios and statistics
Net asset value per share 521,4 557,0 581,3
(cents)
Operating margin (%) 2,2 2,1 4,0
Current ratio 1,6 2,1 1,8
Average debtors days 64,2 52,1 63,5
Depreciation and 66,1 64,5 104,6
amortisation (R million)
R million R million R million
Contingent liabilities
Performance guarantees 83,3 22,9 85,4
Asset Finance recourse 15,6 24,5 18,1
deals
Other 2,3 9,5 2,3
Guarantee provided to a 78,9
funder of Gadlex
(Proprietary) Limited,
secured by Gadlex`s
shareholding in Business
Connexion (Proprietary)
Limited
Capital commitments
Capital 54,7 70,5 25,0
Operating lease 304,1 212,3 337,1
The group results are prepared in accordance with IAS 34, Interim Financial
Reporting. The format of the interim financial results has been revised to bring
it in line with the amendments to 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 2008, which
comply with International Financial Reporting Standards and the manner required
by the Companies Act, 1973 as amended. The adoption of 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.
The results to 30 November 2007 and 31 May 2008 have been restated for the
allocation of depreciation and amortisation to cost of sales.
Commentary
OPERATING PERFORMANCE
Business Connexion continued to show satisfactory growth in a challenging
trading environment, increasing revenue by 10,3% to R2 210 million (R2 004
million). Growth in the Services Group was 10,4% and 10,1% in the Technology
Group, with revenue increasing 10,1% in the African and United Kingdom
businesses.
Gross margins declined from 26,4% in 2007 to 25,8% in 2008 and remain under
pressure, due mainly to the competitive nature of the business and ongoing
changes in the product mix, with the Technology Group securing two large
contracts at narrower margins. The group`s operating margin increased from 2,1%
for the first half of the 2008 financial year to 2,2% for this interim reporting
period. Operating margin was also negatively impacted by the one-off costs of
R24,0 million (R13,8 million after tax and minority interest) relating to the
revitalisation programme. When these costs are excluded, the operating margin
increases to 3,3%.
The Services Group showed growth in all businesses, with a 65,4% improvement in
operating profit from R37,3 million in 2007 to R61,7 million, despite
restructuring and revitalisation costs. This resulted in an operating margin of
5,6%.
Revenue growth of 10,1% in the Technology Group was underpinned by consistent
business from the current loyal client base and boosted by the signing of large
new projects. While the gross profit percentage for this period declined it is
expected to improve in the second half.
The Midrand data centres continue to increase capacity utilisation. Capacity has
been expanded by 60% and this project was completed in June 2008. Utilisation is
expected to continue growing as the cost of telecommunications in South Africa
declines.
Business Connexion Communications has now been successfully integrated into the
Services Group and is a fundamental part of Business Connexion`s services on-
demand offering.
At the end of the previous financial year the group expanded its African
operations with the establishment of a business in Nigeria. The investment in
this business will position Business Connexion to become a meaningful
participant in the rapidly expanding ICT sector in that country.
FINANCIAL PERFORMANCE
Headline earnings were impacted by a payment of R15,8 million secondary tax on
companies (STC) in the period on the special dividend of 60 cents per share
declared for the year ended 31 May 2008, as well as the one-off costs of R24,0
million (R13,8 million after tax and minority interest) relating to the group`s
revitalisation programme. This contributed to a 34,4% decrease in headline
earnings to R24,6 million. Basic earnings increased from R36,7 million in 2007
to R39,3 million, with 2008 earnings benefiting from the profit on sale of the
Faerie Glen property of R14,4 million (after tax and minority interest).
Headline earnings have been adjusted in the table below to show a like-for-like
comparison:
Rm November 2008 November 2007
Headline earnings 24,6 37,5
Revitalisation programme costs 24,0 6,8
Depreciation useful life and 11,7
other adjustments
Inventory adjustment (19,5)
Tax effect on above adjustments (6,7) 0,3
Minority effect on above (3,5) 0,1
adjustments
STC on special dividend 15,8
Comparable headline earnings 54,2 36,9
Diluted headline earnings per share decreased by 34,7% from 14,4 cents to 9,4
cents. Diluted basic earnings per share increased from 14,1 cents to 15,1 cents.
As previously reported, Business Connexion acquired a 35% stake in Hawkstone
iSolutions (Pty) Limited (Hawkstone) for R6 million, with effect from 1 July
2008. Hawkstone develops, manufactures and supports ICT solutions with the
objective of increasing access to ICT services in Africa.
REVITALISATION PROGRAMME
The group`s revitalisation programme, which is aimed at improving operating
margin and returns to shareholders, has focused on the implementation of the
group`s new business model. This included consolidating support functions
conducted in individual business units into a central support services business.
The new business model also introduced a segmentation of the customer base and
this has enabled greater focus and consolidation in servicing our client base.
These processes were largely completed during the first six months of the 2009
financial year and the cost savings and benefits are expected to be realised in
the next 12 to 18 months. The group expects to incur further costs of between
R15 million and R25 million in the current financial year in implementing these
changes.
Early cost savings were generated from the consolidation of leadership
structures, combining businesses in the Technology Group, incorporating the SAP
and Communications businesses into the Services Group and rationalising support
functions in the previous regional structures.
Consolidation and improved efficiencies in facilities management are expected to
create rental and facilities savings. The savings from the outsourcing of the
facilities management function should materialise in the next 12 months.
Improving the quality of earnings remains a focus of the revitalisation
programme.
TARGET
The group remains committed to achieving its target of an operating margin of 8%
for the 2011 financial year.
FINANCIAL YEAR END
The group proposes to change its financial year end from 31 May to 31 August,
subject to shareholder approval.
PROSPECTS
Business Connexion has a strong and experienced leadership team, healthy annuity
revenue flows from its loyal customer base and expects to generate further
benefits from the revitalisation programme. These factors, together with
increased public sector spending, mean that the group is well positioned for
improved performance in the second half of the year.
For and on behalf of the board
AC Ruiters LB Mophatlane
Chairman Chief Executive Officer
Midrand
12 February 2009
Executive directors:
LB Mophatlane (Chief Executive Officer),
MW Schoeman (Chief Financial Officer)
Non-executive directors:
AC Ruiters (Chairman)*,
JF Buchanan*,
NN Kekana and FL Sekha*
(PA Watt resigned effective 22 October 2008)
* Non-executive director acting in an independent capacity
Group Company Secretary:
J de Koker
(J de Koker has been appointed as Group Company Secretary effective 28 November
2008, a function previously fulfilled by Business Connection Management Services
(Pty) Ltd)
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
For more information please visit our investor
relations website at www.bcx.co.za/investorcenter
Date: 12/02/2009 08:30:02 Produced by the JSE SENS Department.
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