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BCX
BCX
BCX - Business Connexion - Audited financial results for the year ended
31 August 2010, cash dividend declaration and renewal of cautionary announcement
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 company" or "the group")
AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 AUGUST 2010, CASH DIVIDEND
DECLARATION AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
Key features
- Challenging environment - revenue down in the Technology and Innovation
divisions.
- Continued improvement of gross profit margins in the Services division.
- Diluted headline earnings per share of 40,3 cents.
- Dividend per ordinary share of 23,0 cents.
- New strategic business initiatives implemented.
Summarised consolidated statement of financial position
Audited Audited
31 August 31 August
R million 2010 2009
ASSETS
Non-current assets
Property, plant and equipment 349,8 361,2
Goodwill 145,6 145,6
Intangible assets 107,9 90,2
Investment in associates and jointly 7,9 14,9
controlled entities
Other investments 204,9 205,7
Deferred tax assets 25,9 45,6
842,0 863,2
Current assets
Inventories 138,2 189,6
Trade receivables 771,4 686,3
Other receivables 242,3 166,7
Prepayments 74,1 87,3
Taxation prepaid 20,7 11,5
Cash and cash equivalents 358,8 333,4
Asset held for sale 9,6
1 615,1 1 474,8
TOTAL ASSETS 2 457,1 2 338,0
EQUITY AND LIABILITIES
Shareholders` equity 1 544,3 1 316,3
Non-controlling interests 6,4 102,1
Total equity 1 550,7 1 418,4
Non-current liabilities
Interest bearing long-term liabilities 26,7 26,4
Post-retirement benefit obligations 12,1 11,5
and long-term provisions
Deferred tax liabilities 2,0 3,5
40,8 41,4
Current liabilities
Short-term liabilities 66,1 76,7
Trade payables 318,2 231,2
Other payables 478,9 564,8
Provisions 2,3 5,5
Taxation payable 0,1
865,6 878,2
TOTAL EQUITY AND LIABILITIES 2 457,1 2 338,0
Summarised consolidated statement of comprehensive income
Audited Audited
12 months 15 months
ended ended
31 August 31 August
R million 2010 2009
Revenue 4 060,0 5 496,1
Cost of sales 2 899,9 4 036,7
Gross profit 1 160,1 1 459,4
Operating expenses 962,8 1 326,8
Operating profit 197,3 132,6
Share of losses from associates (2,2)
Operating profit before investment 195,1 132,6
income
Investment income 30,5 59,9
Profit before finance costs 225,6 192,5
Finance costs 3,4 7,5
Profit before tax 222,2 185,0
Taxation 76,1 80,3
Profit for the period 146,1 104,7
Profit attributable to:
Equity holders 123,3 106,9
Non-controlling interests 22,8 (2,2)
146,1 104,7
Other comprehensive income:
Translation of foreign operations (7,5) (14,3)
Total comprehensive income for the 138,6 90,4
period
Total comprehensive income
attributable to:
Equity holders 115,8 91,5
Non-controlling interests 22,8 (1,1)
138,6 90,4
Basic earnings per share (cents) 47,2 41,6
Diluted earnings per share (cents) 40,1 41,0
Calculation of headline earnings (R
million)
Profit attributable to equity holders 123,3 106,9
Reversal of impairment of loans and (4,0)
investments
Impairment of goodwill 8,6
Loss/(profit) on sale of property, 1,6 (21,1)
plant and equipment
Fair value adjustment to investment (0,3) (1,9)
property
Tax effect of headline earnings (0,2) 5,2
adjustments
Non-controlling interest in headline (0,2) 2,7
earnings adjustments
Headline earnings 124,2 96,4
Weighted average number of shares in 260 854 257 300
issue (000`s)
Diluted weighted average number of 307 636 261 082
shares in issue (000`s)
Headline earnings per share (cents) 47,6 37,5
Diluted headline earnings per share 40,3 36,9
(cents)
Summarised consolidated statement of cash flows
Audited Audited
12 months 15 months
ended ended
31 August 31 August
R million 2010 2009
Operating cash flows 315,2 248,1
Working capital changes (70,0) (29,2)
Net investment income 37,2 36,9
Dividends paid (46,8) (200,7)
Taxation paid (66,9) (135,5)
Cash generated from/(utilised in) 168,7 (80,4)
operating activities
Net cash flows utilised in investing (133,9) (75,3)
activities
Net cash flows utilised in financing (9,4) (35,2)
activities
Net changes in cash and cash 25,4 (190,9)
equivalents
Cash and cash equivalents at beginning 333,4 524,3
of period
Cash and cash equivalents at end of 358,8 333,4
period
Summarised segmental analysis
Audited Audited
12 months 15 months
ended ended
31 August 31 August
2010 2009
R million Restated
Segment revenue
Services division 1 840,2 2 288,8
Technology division 1 473,9 2 177,9
Innovation division 395,4 608,7
International division 350,5 420,7
4 060,0 5 496,1
Segment operating profit
Services division 198,3 180,5
Technology division 52,6 21,5
Innovation division 66,2 114,7
International division (4,4) (55,1)
Investment division (0,7)
Corporate office (114,7) (129,0)
197,3 132,6
Other group salient information
Audited Audited
31 August 31 August
R million 2010 2009
Number of shares in issue (000`s) 262 637 262 637
Less: shares held in share purchase 623 2 370
trusts as treasury shares
Less: weighting of options exercised 1 160 2 967
during the period that were treasury
shares
260 854 257 300
Dilutive options 7 532 1 140
Net shares issued to Gadlex 38 600
(Proprietary) Limited in terms of BEE
transaction
Options exercised during the period 650 2 642
that were dilutive for a portion of
the period
307 636 261 082
Number of options in issue (000`s) 11 192 28 994
Key ratios and statistics
Net asset value per share (cents) 508,4 501,2*
Tangible net asset value per share 460,1 444,7*
(excluding goodwill and fair value of
contracts) (cents)
Operating margin (%) 4,9 2,4
Return on total equity (%) 8,0 6,5*
Return on total assets (%) (excluding 10,4 5,9*
cash and preference share investments)
Current ratio 1,9 1,7
Average debtors` days 58,6 57,3
Depreciation and amortisation 112,9 149,9
Cost of sales 71,7 99,1
Operating expenses 41,2 50,8
R million
Contingent liabilities
Performance guarantees 71,8 70,6
Asset finance recourse deals 5,1 11,4
Other 14,5 6,1
Capital commitments
Capital 32,1 64,6
Operating leases 259,8 281,4
The summarised consolidated financial statements are prepared in terms of the
recognition and measurement principles of International Financial Reporting
Standards ("IFRS") and the presentation and disclosure requirements of IAS 34:
Interim Financial Reporting, the Listings Requirements of the JSE Limited and
the South African Companies Act, Act 61 of 1973, as amended and the A500 series
issued by the Accounting Practices Board ("APB"). There were no changes in the
accounting policies (as published in the previous annual report), except for the
adoption of the revised IFRS 3: Business Combinations and the amendment to IAS
27: Consolidated and Separate Financial Statements, which are to be applied
prospectively and had no impact in the current year.
The restructured business divisions and leadership teams will enable the group
to be more responsive to customer needs, to adapt to shifting market conditions
and to exploit its own intellectual capital. BCX has created a shared services
division and five operating divisions. The five operating divisions are
services, technology, innovation, international and investments. The group has
restated its segment reporting in line with the above.
* Annualised and restated for change in formulas.
Summarised consolidated statement of changes in equity
Foreign Share-
Share currency based
capital and translation Retained payment
R million premium reserve earnings reserve
Balance at 31 322,0 (4,7) 1 092,2 12,3
May 2008 -
audited
Changes in
equity for the
15 months ended
31 August 2009:
Movement in 1,3
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 2,4
payments
Non-controlling
interest in
dividends
received from
subsidiaries
Total (15,4) 106,9
comprehensive
income for the
period
Dividends paid (200,7)
Balance at 31 322,0 (20,1) 999,7 14,7
August 2009 -
audited
Changes in
equity for the
year ended 31
August 2010:
Movement in 4,0
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 50,9
payments
Issue of new 223,1 (119,0)
shares and
acquisition of
non-controlling
interest
Total (7,5) 123,3
comprehensive
income for the
year
Dividends paid (46,8)
Balance at 31 545,1 (27,6) 961,2 65,6
August 2010 -
audited
Share- Non-
holders` controlling Total
R million equity interests equity
Balance at 31 1 421,8 105,0 1 526,8
May 2008 -
audited
Changes in
equity for the
15 months ended
31 August 2009:
Movement in 1,3 1,3
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 2,4 2,4
payments
Non-controlling (1,8) (1,8)
interest in
dividends
received from
subsidiaries
Total 91,5 (1,1) 90,4
comprehensive
income for the
period
Dividends paid (200,7) (200,7)
Balance at 31 1 316,3 102,1 1 418,4
August 2009 -
audited
Changes in
equity for the
year ended 31
August 2010:
Movement in 4,0 4,0
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 50,9 50,9
payments
Issue of new 104,1 (118,5) (14,4)
shares and
acquisition of
non-controlling
interest
Total 115,8 22,8 138,6
comprehensive
income for the
year
Dividends paid (46,8) (46,8)
Balance at 31 1 544,3 6,4 1 550,7
August 2010 -
audited
Audited Audited
12 months ended 15 months ended
31 August 31 August
2010 2009
Normal dividend paid per 18,0 18,0
share (cents)
Special dividend paid per 60,0
share (cents)
Commentary
Overview
These results reflect the benefits from the successful completion of the
revitalisation programme undertaken by the group over the past two years, the
Black Economic Empowerment ("BEE") transaction and new strategic business
initiatives.
Black Economic Empowerment
The successful conclusion of the recent BEE transaction marks a new era for
Business Connexion. The transaction, which results in a 30% BEE shareholding in
Business Connexion Group Limited, was approved by shareholders on 8 September
2010 and is effective 31 August 2010.
The sustainability of the group`s BEE ownership profile has been extended with
Gadlex, its anchor BEE partner since 2004, committing to a further five years in
the business. The ICT industry is faced with significant skills shortages and it
is with this in mind that the Management "A" Share Trust was established, the
objective of which is to promote economic empowerment within the group as well
as to encourage employees to drive growth and profitability within the group.
The implementation of the BEE deal also assists the group in its objective of
corporate social responsibility, with the issue of shares to developmental
organisations, involved in programmes that concentrate on poverty alleviation
and social development in South Africa. The transaction was also extended to
include previously disadvantaged black women and a group of black women with ICT
experience. The total cost of the new BEE transaction was R51,8 million,
including a non-cash flow IFRS 2 charge of R46,5 million.
Change in financial year end
As previously communicated to shareholders, the group`s financial year end was
changed from 31 May to 31 August. These results reflect the performance for the
year to 31 August 2010 compared to the fifteen months to 31 August 2009.
Financial and operating performance
The Services division`s revenue grew on the back of capacity in the data centre
providing further opportunity for cost effective, high performance solutions to
customers.
Revenue for the year in both the Technology and Innovation divisions remained
subdued, being impacted by budget curtailment in the public sector, delays in
the adjudication of tenders by SITA and muted market conditions in the private
sector.
The group`s gross profit margin improved to 28,6% (2009 15 month period: 26,6%)
on the back of greater efficiencies from the Services division`s focus on its
service catalogue and costing methodologies.
The group achieved an operating profit of R197,3 million for the year (2009 15
month period: R132,6 million), including BEE related costs. The increase in the
operating profit margin results from the improvement in gross profit margins and
the savings in operating costs from the revitalisation programme.
The Services division remains the largest contributor to the group`s revenue at
45,3% (2009 15 month period: 41,6%). The group`s services catalogue resulted in
standardised costing methodologies leading to greater efficiencies. In addition
the successful rollout of the group`s cloud computing capability to provide
infrastructure, platform and software as services has enhanced retention of
existing customers and has created additional market opportunities. The
contribution from the four large new outsourcing deals awarded to the group in
the previous financial period have contributed to greater diversification of
revenue from the group`s large outsource customers.
The Technology division continues to be impacted by the financial downturn and
contributed 36,3% (2009 15 month period: 39,6%) of the group`s revenue. The
decline reflects reduced private sector spend as customers reprioritised
information technology projects and cut budgets. Very few tenders are currently
being awarded in the public sector leading to sluggish revenue from this sector.
The Innovation division enables the group to maximise its own intellectual
property and contributed 9,7% (2009 15 month period: 11,1%) of the group`s
revenue. The division was impacted by a decline in government spending with
pressure on the government to curtail expenditure following the 2010 FIFA Soccer
World Cup and above inflation wage demands from government employees.
With the challenging economic climate and several of the countries still not
having achieved critical mass, the International division`s results continue to
be disappointing. However, the medium to long term prospects for the division
remain positive as the businesses are well positioned in most of the geographies
in which they operate. Nigeria is showing substantial growth on the back of the
CISCO gold certification obtained in the latter part of the 2010 financial year
and both Mozambique and Namibia are showing healthy growth on the back of new
customers. The United Kingdom is showing growth despite the adverse economic
environment.
Operating expenses reflect tight expense control. Total planned savings and
actual savings achieved from the revitalisation programme are reflected in the
table below:
R million Planned Actual
Total cost to company savings 67,1 69,1
Contract negotiations savings 12,3 16,2
Outsourcing and related savings 27,1 29,2
Total savings 106,5 114,5
The group generated diluted earnings per share ("EPS") of 40,1 cents for the
year (2009 15 month period: 41,0 cents). Diluted headline EPS for the period was
40,3 cents (2009 15 month period: 36,9 cents).
Working capital management has improved significantly. The year-end working
capital position does not do justice to this due to the increased activity in
the Technology division in the last quarter of the year.
Return on equity at 8,0% has increased from 6,5% for the 2009 reporting period
on the back of the increased profitability.
Corporate activity
Effective 1 June 2010 the group completed an internal restructure whereby it
sold Nanoteq (Proprietary) Limited and the two data centre buildings (NDC1 and
NDC2) from Business Connexion Technology Holdings (Proprietary) Limited to
Business Connexion (Proprietary) Limited.
As part of the group`s growth strategy a number of new strategic business
initiatives were started during the year. The first being Managed Print
Solutions, an exclusive operating arrangement between Business Connexion and
Canon SOS (Smart Office Service). This new initiative serves to establish the
largest, brand-independent managed print services organisation in Africa. This
uniquely positions the group to deliver cost effective, intelligently
integrated, print and ICT services in one holistic managed approach. This
initiative brings fixed committed costs, a new combined client base and a new
product set.
Another new initiative is the exciting partnership between Business Connexion
and Limelight NetworksRegistered. This initiative brings content distribution
and related internet based services to all users in South Africa, increasing
access speeds and decreasing costs. The group`s position as a leader in
providing cloud computing was the biggest factor in making this exclusive
partnership a reality.
Business Connexion and Information Bearing Signals (IBS) (which forms part of
the internationally backed Kai Group of telecommunications companies with
interests in broadband capacity and internet protocol services) now have an 80%
and 20% interest in Business Connexion Communications respectively. IBS has
purchased bandwidth capacity on the SEA System which forms part of this
initiative. Business Connexion Communications now provides wholesale
metropolitan, national and international bandwidth and/or content distribution
network services.
Renewal of cautionary announcement
Shareholders are referred to the cautionary announcement released by Business
Connexion Group Limited on 30 September 2010, in which shareholders were
informed that the group has entered into negotiations which, if successfully
concluded may have a material effect on the price of the company`s securities.
The negotiations are ongoing and accordingly, shareholders are advised to
continue to exercise caution when dealing in Business Connexion Group Limited
securities until a further announcement is made.
Prospects
Business Connexion has not only weathered the challenging economic conditions,
but is in a leading position in South Africa with its Tier IV data centres and
its strategically positioned cloud computing capability.
The diversity of the Business Connexion customer base, product and services
offerings, the skills base and commitment of its staff as well as the strength
of the group`s balance sheet, have all contributed to sustaining the business.
The new strategic initiatives significantly enhance Business Connexion`s
strategy to create a one stop cloud computing platform.
These differentiating factors also provide a solid platform from which the group
can seek out opportunities for acquisitions and further growth through adding
new services and solutions to its portfolio and growing its service offering and
market share in Africa.
Auditor`s report
The financial results have been audited by KPMG Inc. and their unmodified audit
report is available for inspection at the registered office of the company.
Appreciation
The board extends its appreciation to management and staff for their dedication
and valued efforts. It also thanks its customers, suppliers and shareholders for
their continuing belief in and support of Business Connexion.
Notice of the annual general meeting
Shareholders are advised that the annual general meeting will be held at the
Fundi Auditorium, Business Connexion Park North, 789 Sixteenth Road,
Randjespark, Midrand at 11:00 on 13 January 2011.
Dividend declaration
Notice is hereby given that a normal cash dividend of 23,0 cents per ordinary
share (2009: 18,0 cents) has been declared, payable to shareholders for the year
ended 31 August 2010. The group`s strong cash performance and its desire to
improve balance sheet efficiencies is the basis for the board`s decision to
declare a dividend of 23,0 cents per ordinary share. In accordance with the
provisions of Strate, the electronic settlement and custody system used by JSE
Limited, the relevant dates for the dividend are as follows:
Event date
Last day to trade (cum dividend) Friday, 7 January 2011
Shares commence trading (ex dividend) Monday, 10 January 2011
Record date (date shareholders Friday, 14 January 2011
recorded in books)
Payment date Monday, 17 January 2011
Share certificates may not be dematerialised or rematerialised between Monday,
10 January 2011 and Friday, 14 January 2011, both days inclusive.
On Monday, 17 January 2011, the dividends will be electronically transferred to
the bank accounts of all certificated shareholders where this facility is
available. Where electronic funds transfers are either not available or not
elected by the shareholder, cheques dated Monday, 17 January 2011 will be posted
on that date.
Holders of dematerialised shares will have their accounts credited at their
participant or broker on Monday, 17 January 2011.
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
9 November 2010
Executive directors
LB Mophatlane (Chief Executive Officer)
V Olver (Chief Financial Officer)
Non-executive directors
AC Ruiters (Chairman)*
JF Buchanan*
NN Kekana
FL Sekha
JM Poluta*
J John*#
M Lehobye*#
* Independant non-executive directors
# Appointed 1 May 2010
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
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001
JSE 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
Date: 10/11/2010 08:30:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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