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BCX
BCX
BCX - Business Connexion Group Limited - Reviewed condensed group financial
results for the six months ended 28 February 2011
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")
REVIEWED CONDENSED GROUP FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY
2011
Key features
- Successful completion of the UCS transaction
- Group revenue under pressure
- Key clients retained and annuity revenue base intact
- Increasing focus on acquisitions and African expansion
Condensed consolidated statement of financial position
Reviewed Reviewed Audited
28 February 28 February 31 August
R million 2011 2010 2010
ASSETS
Non-current assets
Property, plant and equipment 400,8 338,2 349,8
Goodwill 145,6 145,6 145,6
Intangible assets 133,0 107,4 107,9
Investments in associates and 9,0 9,3 7,9
jointly controlled entities
Other investments 214,7 204,9 204,9
Deferred tax assets 23,3 25,0 25,9
926,4 830,4 842,0
Current assets
Inventories 94,1 121,9 138,2
Trade receivables 713,2 727,1 771,4
Other receivables 210,1 141,8 242,3
Prepayments 84,9 90,8 74,1
Taxation prepaid 8,1 29,5 20,7
Cash and cash equivalents 174,0 266,9 358,8
Asset held for sale 9,6 9,6
1 294,0 1 378,0 1 615,1
TOTAL ASSETS 2 220,4 2 208,4 2 457,1
EQUITY AND LIABILITIES
Shareholders` equity 1 517,0 1 346,9 1 544,3
Non-controlling interests 5,3 118,2 6,4
Total equity 1 522,3 1 465,1 1 550,7
Non-current liabilities
Interest bearing long-term 25,0 25,9 26,7
liabilities
Post-retirement benefit 12,1 12,0 12,1
obligations and long-term
provisions
Deferred tax liabilities 1,8 3,2 2,0
38,9 41,1 40,8
Current liabilities
Short-term liabilities 16,9 48,8 66,1
Trade payables 249,5 214,4 318,2
Other payables 387,3 432,9 478,9
Provisions 2,1 2,6 2,3
Taxation payable 3,4 3,5 0,1
659,2 702,2 865,6
TOTAL EQUITY AND LIABILITIES 2 220,4 2 208,4 2 457,1
Condensed consolidated statement of comprehensive income
Reviewed Reviewed Audited
six months six months twelve months
ended ended ended
28 February 28 February 31 August
R million 2011 2010 2010
Revenue 1 875,4 2 009,7 4 060,0
Cost of sales 1 334,6 1 418,4 2 899,9
Gross profit 540,8 591,3 1 160,1
Operating expenses 500,6 469,3 962,8
Operating profit 40,2 122,0 197,3
Share of losses from (0,1) (2,2)
associates and jointly
controlled entities
Operating profit before 40,1 122,0 195,1
investment income
Investment income 13,9 14,3 30,5
Profit before finance costs 54,0 136,3 225,6
Finance costs 2,6 0,9 3,4
Profit before tax 51,4 135,4 222,2
Taxation 22,2 45,2 76,1
Profit for the period 29,2 90,2 146,1
Other comprehensive income:
Translation of foreign 2,9 1,0 (7,5)
operations
Other comprehensive income 2,9 1,0 (7,5)
for the period
Total comprehensive income 32,1 91,2 138,6
for the period
Profit attributable to:
Equity holders 28,5 74,3 123,3
Non-controlling interests 0,7 15,9 22,8
29,2 90,2 146,1
Total comprehensive income
attributable to:
Equity holders 31,4 75,1 115,8
Non-controlling interests 0,7 16,1 22,8
32,1 91,2 138,6
Basic earnings per share 9,5 28,5 47,2
(cents)
Diluted earnings per share 9,3 27,8 40,1
(cents)
Calculation of headline
earnings (R million)
Profit attributable to equity 28,5 74,3 123,3
holders
(Profit)/loss on sale of (0,1) (1,6) 1,6
property, plant and equipment
Fair value adjustment to (0,3)
investment property
Tax effect of headline 0,2 (0,2)
earnings adjustments
Non-controlling interest in 0,3 (0,2)
headline earnings adjustments
Headline earnings 28,4 73,2 124,2
Weighted average number of 300 999 260 360 260 854
shares in issue (000`s)
Diluted weighted average 305 824 267 778 307 636
number of shares in issue
(000`s)
Headline earnings per share 9,4 28,1 47,6
(cents)
Diluted headline earnings per 9,3 27,3 40,3
share (cents)
Condensed consolidated statement of cash flows
Reviewed Reviewed Audited
six months six months twelve months
ended ended ended
28 February 28 February 31 August
R million 2011 2010 2010
Operating cash flows 116,6 174,8 315,2
Working capital changes (28,1) (105,7) (70,0)
Net investment income 3,7 33,0 37,2
Dividends paid (69,3) (47,3) (46,8)
Taxation paid (4,1) (39,3) (66,9)
Cash generated from operating 18,8 15,5 168,7
activities
Net cash flows utilised in (153,1) (52,0) (133,9)
investing activities
Net cash flows utilised in (50,5) (30,0) (9,4)
financing activities
Net changes in cash and cash (184,8) (66,5) 25,4
equivalents
Cash and cash equivalents at 358,8 333,4 333,4
beginning of the period
Cash and cash equivalents at 174,0 266,9 358,8
end of the period
Condensed segmental analysis
Reviewed Reviewed Audited
six months six months twelve months
ended ended ended
28 February 28 February 31 August
R million 2011 2010 2010
Segment revenue
Services division 887,1 947,8 1 840,2
Technology division 602,0 720,5 1 473,9
Innovation division 214,0 188,8 395,4
International division 169,0 152,6 350,5
Corporate office 3,3
1 875,4 2 009,7 4 060,0
Segment operating profit*
Services division 88,1 107,8 198,3
Technology division (1,5) 20,7 52,6
Innovation division 18,0 28,8 66,2
International division (3,0) 1,9 (4,4)
Investment division (2,4) (0,7)
Corporate office (59,0) (37,2) (114,7)
40,2 122,0 197,3
* A revised corporate cost allocation model has increased the Innovation and
International division`s cost base.
Other group salient information
Reviewed Reviewed Audited
28 February 28 February 31 August
R million 2011 2010 2010
Number of shares in issue 303 729 262 637 262 637
(000`s)
Less: shares held in share 2 612 2 007 623
purchase trusts as treasury
shares
Less: weighting of options 118 270 1 160
exercised during the period
that would have been treasury
shares
300 999 260 360 260 854
Dilutive options 4 796 7 179 7 532
Net shares issued to Gadlex 38 600
(Proprietary) Limited in
terms of BEE transaction
Options exercised during the 29 239 650
period that were dilutive for
a portion of the period
305 824 267 778 307 636
Number of options in issue 24 143 30 261 11 192
(000`s)
Key ratios and statistics
Net asset value per share 499,5 512,8 508,4
(cents)
Tangible net asset value per 451,4 456,6 460,1
share (cents)
Operating margin (%) 2,1 6,1 4,9
Return on total equity (%) 3,7 10,1 8,0
Return on total assets (%) 4,4 14,0 10,4
(excluding cash and
preference share investments)
Current ratio 2,0 2,0 1,9
Average debtors days 64,3 56,9 58,6
Depreciation and amortisation 65,4 57,8 112,9
Cost of sales 43,8 37,7 71,7
Operating expenses 21,6 20,1 41,2
R million
Contingent liabilities
(R million)
Performance guarantees 67,6 68,8 71,8
Asset finance recourse deals 18,5 8,3 5,1
Other 2,5 6,1 14,5
Capital commitments
(R million)
Capital 25,7 44,6 32,1
Operating leases 231,1 227,8 259,8
Basis of preparation:
The condensed consolidated financial statements are prepared in terms of the
recognition and measurement principles of International Financial Reporting
Standards ("IFRS") and in terms of IAS 34: Interim Financial Reporting as well
as the AC 500 standards as issued by the Accounting Practices Board and the
South African Companies Act, Act 61 of 1973, as amended. There were no changes
in the accounting policies as published in the most recent annual report.
Condensed 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 August 322,0 (20,1) 999,7 14,7
2009 - audited
Changes in equity for
the six months ended 28
February 2010
Movement in treasury 0,1
shares and related
reserves held by share
purchase trusts
Share-based payments 2,2
Total comprehensive 0,8 74,3
income for the period
Dividends paid (46,8)
Balance at 28 February 322,0 (19,3) 1 027,3 16,9
2010 - reviewed
Changes in equity for
the six months ended 31
August 2010
Movement in treasury 3,9
shares and related
reserves held by share
purchase trusts
Share-based payments 48,7
Issue of new shares and 223,1 (119,0)
acquisition of non-
controlling interest
Total comprehensive (8,3) 49,0
income for the period
Balance at 31 August 545,1 (27,6) 961,2 65,6
2010 - audited
Changes in equity for
the six months ended 28
February 2011
Movement in treasury 2,4
shares and
relatedreserves held by
share purchase trusts
Share-based payments 8,2
Non-controlling
interest in dividends
received from
subsidiaries
Total comprehensive 2,9 28,5
income for the period
Dividends paid (69,3)
Balance at 28 February 545,1 (24,7) 922,8 73,8
2011 - reviewed
Share- Non-
holders` controlling Total
R million equity interests equity
Balance at 31 August 1 316,3 102,1 1 418,4
2009 - audited
Changes in equity for
the six months ended 28
February 2010
Movement in treasury 0,1 0,1
shares and related
reserves held by share
purchase trusts
Share-based payments 2,2 2,2
Total comprehensive 75,1 16,1 91,2
income for the period
Dividends paid (46,8) (46,8)
Balance at 28 February 1 346,9 118,2 1 465,1
2010 - reviewed
Changes in equity for
the six months ended 31
August 2010
Movement in treasury 3,9 3,9
shares and related
reserves held by share
purchase trusts
Share-based payments 48,7 48,7
Issue of new shares and 104,1 (118,5) (14,4)
acquisition of non-
controlling interest
Total comprehensive 40,7 6,7 47,4
income for the period
Balance at 31 August 1 544,3 6,4 1 550,7
2010 - audited
Changes in equity for
the six months ended 28
February 2011
Movement in treasury 2,4 2,4
shares and
relatedreserves held by
share purchase trusts
Share-based payments 8,2 8,2
Non-controlling (1,8) (1,8)
interest in dividends
received from
subsidiaries
Total comprehensive 31,4 0,7 32,1
income for the period
Dividends paid (69,3) (69,3)
Balance at 28 February 1 517,0 5,3 1 522,3
2011 - reviewed
Reviewed Reviewed Audited
six months six months twelve months
ended ended ended
28 February 28 February 31 August
2011 2010 2010
Normal dividend per share 23,0 18,0 18,0
(cents)
Commentary
Overview
Financial and operating performance
Trading conditions during the period remained tough with limited success in
tender opportunities particularly in the public sector. Revenue decreased to R1
875,4 million (2010: R2 009,7 million).
Gross margin for the six months to 28 February 2011 of 28,8% remains solid
relative to the 29,4% reported in February 2010. In particular, margin within
the Technology division is under pressure.
Operating expenses continue to be tightly managed and increased 6,7% in the
period to 28 February 2011. Operating expenses include costs associated with the
acquisition of UCS and other opportunities totalling R10,6 million and an IFRS2
charge totalling R6,1 million in respect of the "A" Share Option Scheme which
was introduced to increase the BEE equity ownership of the group to 30%.
Excluding these two items, operating cost increases were contained to 3,0%.
The group recorded an operating profit margin of 2,1% (2010: 6,1%). This
decrease was exacerbated by the decrease in revenue and resultant loss in the
Technology division. Management expects a recovery in margins from existing
operations and a further enhancement from strategic growth initiatives.
Cloud Computing remains an exciting driver to the Services division. With
revenue at R887,1 million the Services division is the largest contributor to
group revenue, however, this is down from the prior period of R947,8 million.
The Services division has modified incentives and refined its offering to
increase its competitiveness and relevance in the market place.
The Technology division achieved revenue of R602,0 million (2010: R720,5
million). Approved orders of R128,5 million were not recognised in the current
reporting period due to supply chain lead times in getting the equipment into
the country.
The Innovation division achieved revenue of R214,0 million (2010: R188,8
million). All business units within the Innovation division have shown growth on
the prior period.
All countries in the International division are profitable. Encouraging progress
has been made in several operations, particularly Mozambique and Tanzania.
Business Connexion`s content distribution infrastructure initiative with
Limelight Networks (branded Content Distribution Solutions (CDS)) is now live.
CDS is in proof of concept phase with Internet Service Providers and major
content producers.
CDS is able to deliver all forms of data using our infrastructure, at a reduced
cost and greater speed, significantly improving the internet users` experience
in Sub Saharan Africa.
The Managed Print Solutions joint venture is showing encouraging prospects and
is increasingly being considered as a strategic competency within Business
Connexion`s offering.
The group generated diluted earnings per share ("EPS") of 9,3 cents for the
period (2010: 27,8 cents). Diluted headline EPS for the period was 9,3 cents
(2010: 27,3 cents). Return on equity at 3,7% has decreased from 8,0% at 31
August 2010 on the back of the reduced profitability.
While these results are below the group`s expectations, the underlying
businesses remain profitable and cash generative. Annuity revenue from key
clients is stable. The Services division has an industry leading position in
outsourcing IT services with a stable 25% market share (BMI TechKnowledge Group,
2010). The Innovation and International divisions had a good first half and look
forward to public sector opportunities materialising in the second half. Margins
in the Technology division remain under pressure.
Financial position
The group continues to focus on working capital management. Surplus cash has
been utilised through dividend payments, optimising the group structure, capital
investment in strategic initiatives and a shift in focus to growth through
acquisition.
The net cash flow utilised in investing activities is up to R153,1 million from
R52,0 million in the prior period, largely due to investment in cloud computing
software and infrastructure and office space optimisation.
A R250 million medium term facility has been secured to be used for potential
acquisition opportunities.
Corporate activity
Shareholders approved the acquisition by Business Connexion of certain target
companies from UCS Group Limited on 31 March 2011. This should result in the
following benefits to the group:
- Secure Business Connexion as the market leader within the retail IT services
sector;
- Complement the group`s African expansion strategy as the UCS solutions are
suitable for any retail market and require little localisation; and
- Increase margins which will contribute positively to the group.
Further details of this transaction are included in the circular to shareholders
dated 9 March 2011 and the SENS announcement dated 29 March 2011.
Prospects
The diversity of the Business Connexion`s customer base, product and services
offerings, the skills base and commitment of its employees as well as the
strength of the group`s balance sheet, provide a solid platform from which the
group can seek out further opportunities for acquisitions and grow its service
offering and market share.
Auditor`s report
The financial results have been reviewed by KPMG Inc and their unmodified review
report is available for inspection at the registered office of the company.
Appreciation
The board extends its appreciation to management and employees for their
dedication and valued efforts. It also thanks its customers, suppliers and
shareholders for their continuing belief in, and support of, Business Connexion.
For and on behalf of the board
AC Ruiters LB Mophatlane
Chairman Chief Executive Officer
Midrand
14 April 2011
Executive directors
LB Mophatlane (Chief Executive Officer)
V Olver (Chief Financial Officer)
Non-executive directors
AC Ruiters (Chairman)*
NN Kekana
FL Sekha
JM Poluta*
J John*
M Lehobye*
* Independent non-executive directors
# JF Buchanan retired on 13 January 2011
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: 14/04/2011 08:00:03 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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