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BCX
BCX
BCX - Business Connexion Group Limited - Audited financial results for the year
ended 31 August 2011 and cash 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)
("Business Connexion" or "the company" or "the group")
AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 AUGUST 2011 AND CASH AND SPECIAL
DIVIDEND DECLARATION
Key features
- Two strategic acquisitions - UCS assets and Canoa Group
- Cash proceeds on the sale of Destiny R192,5 million
- Gross margin improved from 28,6% to 30,9%
- Diluted headline earnings per share of 17,2 cents
- Total dividend per ordinary share of 54,0 (special dividend of 40,0) cents
Summarised consolidated statement of financial position
Audited Audited
31 August 31 August
R million 2011 2010
ASSETS
Non-current assets
Property, plant and equipment 453,9 349,8
Goodwill 555,3 145,6
Intangible assets 378,7 107,9
Investment in associates and jointly 5,5 7,9
controlled entities
Other investments 215,3 204,9
Deferred tax assets 53,1 25,9
1 661,8 842,0
Current assets
Inventories 178,9 138,2
Trade receivables 970,1 771,4
Other receivables 250,6 242,3
Prepayments 77,7 74,1
Taxation prepaid 7,4 20,7
Cash and cash equivalents 518,3 358,8
Assets held for sale 18,0 9,6
2 021,0 1 615,1
TOTAL ASSETS 3 682,8 2 457,1
EQUITY AND LIABILITIES
Shareholders` equity 2 144,6 1 544,3
Non-controlling interests 48,5 6,4
Total equity 2 193,1 1 550,7
Non-current liabilities
Interest bearing long-term liabilities 250,7 26,7
Post-retirement benefit obligations 7,9 12,1
Deferred tax liabilities 60,9 2,0
319,5 40,8
Current liabilities
Short-term liabilities 77,2 66,1
Trade payables 457,1 318,2
Other payables 622,3 478,9
Provisions 0,9 2,3
Taxation payable 12,7 0,1
1 170,2 865,6
TOTAL EQUITY AND LIABILITIES 3 682,8 2 457,1
Summarised consolidated statement of comprehensive income
Audited Audited
twelve months twelve months
ended ended
31 August 31 August
R million 2011 2010
Revenue 4 314,2 4 060,0
Cost of sales 2 979,1 2 899,9
Gross profit 1 335,1 1 160,1
Operating expenses 1 177,4 962,8
Operating profit 157,7 197,3
Share of losses from associates and (0,2) (2,2)
jointly controlled entities
Profit before investment income 157,5 195,1
Investment income 27,3 30,5
Profit before finance costs 184,8 225,6
Finance costs 18,1 3,4
Profit before tax 166,7 222,2
Taxation 64,4 76,1
Profit for the year 102,3 146,1
Profit attributable to:
Equity holders 92,6 123,3
Non-controlling interests 9,7 22,8
102,3 146,1
Other comprehensive income:
Translation of foreign operations (0,2) (7,5)
Total comprehensive income for the year 102,1 138,6
Total comprehensive income attributable
to:
Equity holders 92,4 115,8
Non-controlling interests 9,7 22,8
102,1 138,6
Basic earnings per share (cents) 27,9 47,2
Diluted earnings per share (cents) 27,6 40,1
Calculation of headline earnings
(R million)
Profit attributable to equity holders 92,6 123,3
Profit on sale of business (68,7)
Loss on sale of property, plant and 1,5 1,6
equipment
Reversal of impairment on investments 2,5
Fair value adjustment to investment (0,2) (0,3)
property
Tax effect of headline earnings 29,8 (0,2)
adjustments
Non-controlling interest in headline (0,2)
earnings adjustments
Headline earnings 57,5 124,2
Weighted average number of shares in 331 689 260 854
issue (000`s)
Diluted weighted average number of shares 335 172 307 636
in issue (000`s)
Headline earnings per share (cents) 17,3 47,6
Diluted headline earnings per share 17,2 40,3
(cents)
Summarised consolidated cash flow statement
Audited Audited
twelve months twelve months
ended ended
31 August 31 August
R million 2011 2010
Operating cash flows 258,5 315,2
Working capital changes 162,9 (70,0)
Net investment income 5,7 37,2
Dividends paid (71,0) (46,8)
Taxation paid (59,3) (66,9)
Cash generated from operating activities 296,7 168,7
Net cash flows utilised in investing (325,9) (133,9)
activities
Net cash flows generated from/(utilised 188,7 (9,4)
in) financing activities
Net changes in cash and cash equivalents 159,5 25,4
Cash and cash equivalents at beginning of 358,8 333,4
the period
Cash and cash equivalents at end of the 518,3 358,8
period
Summarised segmental analysis
Audited Audited
twelve months twelve months
ended ended
31 August 31 August
R million 2011 2010
Segment revenue
Services division 1 806,9 1 840,2
Technology division 1 230,9 1 473,9
Innovation division 417,1 395,4
International division 368,5 350,5
Investment division 490,8
4 314,2 4 060,0
Segment operating profit
Services division 177,2 198,3
Technology division (9,0) 52,6
Innovation division 20,0 66,2
International division (7,8) (4,4)
Investment division 59,0 (0,7)
Corporate office (81,7) (114,7)
157,7 197,3
Other group salient information
Audited Audited
31 August 31 August
R million 2011 2010
Number of shares in issue (000`s) 404 972 262 637
Less: weighted shares held in share 2 976 623
purchase trusts and a subsidiary as
treasury shares
Less: weighting of shares issued during 70 177
the year
Less: weighting of options exercised 130 1 160
during the period that would have been
treasury shares
331 689 260 854
Dilutive options 3 452 7 532
Net shares issued to Gadlex Proprietary 38 600
Limited in terms of BEE transaction
Options exercised during the period that 31 650
were dilutive for a portion of the period
335 172 307 636
Number of options in issue (000`s) 21 831 11 192
Key ratios and statistics
Net asset value per share (cents) 529,6 508,4
Tangible net asset value per share 336,4 460,1
(excluding goodwill and fair value of
contracts) (cents)
Operating margin (%) 3,7 4,9
Return on total equity (%) 4,3 8,0
Return on total assets (%) 5,3 10,4
Current ratio 1,7 1,9
Average debtors days 65,5 61,5
Depreciation and amortisation 163,0 112,9
Cost of sales 89,9 71,7
Operating expenses 73,1 41,2
Contingent liabilities
(R million)
Performance guarantees 39,6 71,8
Asset finance recourse deals 38,4 5,1
Other 35,5 14,5
Capital commitments
(R million)
Capital 147.7 32,1
Operating leases 254,1 259,8
The summarised consolidated financial statements have been prepared in
accordance with the recognition and measurement criteria of IFRS, its
interpretations adopted by the International Accounting Standards Board (IASB),
the presentation and the disclosure requirements of IAS 34 Interim Financial
Reporting, South African Statements and Interpretations of Statements of
Generally Accepted Accounting Practice (AC500 series), the Listing Requirements
of the JSE Limited and the requirements of the South African Companies Act.
There were no changes to the accounting policies as previously reported.
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 August 322,0 (20,1) 999,7 14,7
2009 - audited
Changes in equity for
the twelve months
ended 31 August 2010
Movement in treasury 4,0
shares and related
reserves held by
share purchase trusts
Share-based payments 50,9
Issue of new shares 223,1 (119,0)
and acquisition of
non-controlling
interest
Total comprehensive (7,5) 123,3
income for the twelve
months
Dividends paid (46,8)
Balance at 31 August 545,1 (27,6) 961,2 65,6
2010 - audited
Changes in equity for
the twelve months
ended 31 August 2011
Movement in treasury (20,6)
shares and related
reserves held by
share purchase trusts
Share-based payments 15,9
Transfer of share- 13,7 (13,7)
based payment reserve
to retained earnings
Non-controlling
interest on dividends
received
Issue of new shares 584,1
Total comprehensive (0,2) 92,6
income for the twelve
months
Minority share of (2,2)
foreign currency
translation reserve
Sale of stake in
business to
management
Dividends paid (69,3)
Balance at 31 August 1 129,2 (27,8) 975,4 67,8
2011 - audited
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 twelve months
ended 31 August 2010
Movement in treasury 4,0 4,0
shares and related
reserves held by
share purchase trusts
Share-based payments 50,9 50,9
Issue of new shares 104,1 (118,5) (14,4)
and acquisition of
non-controlling
interest
Total comprehensive 115,8 22,8 138,6
income for the twelve
months
Dividends paid (46,8) (46,8)
Balance at 31 August 1 544,3 6,4 1 550,7
2010 - audited
Changes in equity for
the twelve months
ended 31 August 2011
Movement in treasury (20,6) (20,6)
shares and related
reserves held by
share purchase trusts
Share-based payments 15,9 15,9
Transfer of share-
based payment reserve
to retained earnings
Non-controlling (1,8) (1,8)
interest on dividends
received
Issue of new shares 584,1 584,1
Total comprehensive 92,4 9,7 102,1
income for the twelve
months
Minority share of (2,2) 2,2
foreign currency
translation reserve
Sale of stake in 32,0 32,0
business to
management
Dividends paid (69,3) (69,3)
Balance at 31 August 2 144,6 48,5 2 193,1
2011 - audited
Audited Audited
twelve months twelve months
ended ended
31 August 31 August
2011 2010
Normal dividend per share (cents) 23,0 18,0
Commentary
Business overview
The South African economy remained challenging throughout the period under
review with gross domestic product growth now expected to be just over 3% for
the 2011 calendar year. South African corporates remain cautious in these
uncertain times with limited spend on capital projects including information
technology.
The Group invested R873,2 million in certain underlying subsidiaries of UCS
Group Limited (UCS assets) and 50% plus one share in the Canoa Group. These
assets contributed revenues of R322,6 million for the four months and R136,1
million for the three months respectively, in the current reporting period. To
date management is pleased with the performance of these assets which
contributed R37,8 million and R18,0 million to operating profit. The integration
into the greater group has been seamless and trading synergies are being
realised.
Ordinary shares in issue increased from 303,7 million to 404,9 million during
the year, mainly as a consequence of the UCS transaction. In addition 25,0
million "A" shares were issued in terms of the UCS transaction.
With revenue at R1 806,9 million (2010: R1 840,2 million) the Services division
remains the largest contributor to group revenue. Annuity revenue increased by
4% to R1 608,7 million notwithstanding more clients now opting to move to the
cloud environment.
The Technology division has been hardest hit with clients delaying spend on
technology and achieved revenue of R1 230,9 million (2010: R1 473,9 million).
The division has increased its focus to concentrate on leveraging strategic
vendor relationships to enhance profits and improve sustainability. The senior
management team has been changed.
The Innovation division achieved revenue of R417,1 million (2010: R395,4
million). Q Data DynamiQue, the payroll and timekeeper business, underperformed
and underwent a substantial restructuring in order to make it more competitive
in the market. Nanoteq suffered from delays in several orders from the public
sector.
Financial and operating performance
Revenue increased to R4 314,2 million (2010: R4 060,0 million) mainly as a
result of the acquisition of the UCS assets and the Canoa Group which together
contributed R458,7 million in revenue.
Gross margin increased from 28,6% for the 2010 year to 30,9% for the year to 31
August 2011. The increase in gross margin arose largely because of the higher
margins from the acquired assets with the gross margins in the other divisions
falling marginally from 28,6% to 28,0%.
Operating expenses continue to be tightly managed and decreased on a like-for-
like basis (excluding the items listed below and the expenses brought in with
the acquisition of the UCS assets and the Canoa Group), by 0,2% in the year to
31 August 2011.
The group recorded an operating profit margin of 3,7% (2010: 4,9%). The table
below demonstrates a normalised operating profit margin of 4,6% (2010: 5,7%)
after excluding once-off costs and unusual items.
2011 2010
R`000 % R`000 %
Operating profit as reported 157,7 3,7 197,3 4,9
Cost of restructuring 47,2
Amortisation of intangible assets 15,5
relating to the UCS assets and Canoa
Group
Impairment of Hawkstone 2,5
Merger and acquisition costs 31,2 5,3
IFRS2 charge - BEE transaction 12,1 46,5
Sale of Destiny to Verifone (74,3)
Lease penalty due to early exit of 6,1
Rivonia building lease
Fair value of liability (30,7)
Other 12,9
Normalised operating profit 198,0 4,6 231,3 5,7
In this challenging environment, and after including certain once-off costs and
unusual items, the group recorded a decrease in headline earnings from R124,2
million to R57,5 million. In line with the trading statement released last week,
the group generated diluted earnings per share (EPS) of 27,6 cents for the
period (2010: 40,1 cents). Diluted headline EPS for the year was 17,2 cents
(2010: 40,3 cents). Return on equity at 4,3% decreased from the 8,0% achieved at
31 August 2010.
While these results remain below expectations, the underlying businesses remain
profitable and cash generative. Annuity revenue from key clients remains stable.
Outlook
In order to address the underperformance in parts of the Business Connexion
Group and given the significant growth of the Group arising from the acquisition
of the UCS assets and the Group`s investment in the Canoa Group, it has become
even more important to ensure that the Group optimises its structure to unlock
the collective strengths of the new enlarged group.
Vanessa Olver has assumed the role of Deputy Chief Executive Officer (Deputy
CEO) and has assumed responsibility for the Services division. Lawrence Weitzman
replaces Vanessa as Chief Financial Officer (CFO).
Business Connexion has benefited from new talent as a consequence of its
acquisitions. In particular the Group has gained new skills which will be put to
use to address the issues in the Technology division. The Group Executive
Committee has been bolstered to address new business development with specific
appointments to focus on both private and public sector opportunities. John
Jenkins has been appointed to the group board with ultimate responsibility for
business development. Decisive action has been taken in divisions that performed
poorly.
Acquisitions and disposals
UCS Assets
During the year, the Business Connexion Group concluded the acquisition of five
target companies, including Destiny Electronic Commerce Proprietary Limited from
UCS Group Limited. The terms of this transaction were set out in several SENS
announcements with the fulfilment announcement being published on 30 June 2011.
Financial results for the UCS assets have been in line with pre-acquisition
expectations.
Destiny Electronic Commerce Proprietary Limited
As announced on SENS on 24 May 2011, the Group entered into a sale agreement
with Verifone Singapore PTE, a subsidiary of the NYSE listed Verifone Systems
Inc., for the disposal of the group`s 70% shareholding in Destiny Electronic
Commerce (Proprietary) Limited.
On 1 June 2011, the Group acquired a 50% plus one share in the Canoa Group. The
full details relating to the acquisition were disclosed on SENS on 6 June 2011.
UCS assets Canoa Total
Non-current assets
Property, plant and equipment 380,5 43,7 424,2
Goodwill 227,5 159,9 387,4
Other investments 0,1 1,8 1,9
Current assets
Inventories 42,1 23,1 65,2
Trade and other receivables 211,8 72,5 284,3
Cash and cash equivalents 59,5 14,3 73,8
Non-current liabilities
Interest-bearing long-term liabilities (49,4) (1,7) (51,1)
Current liabilities
Trade and other payables (238,9) (73,6) (312,5)
Total purchase price 633,2 240,0 873,2
Less cash purchased (10,0) (10,0)
Share issued - ordinary shares (584,1) (584,1)
Shares issue "A" - ordinary shares (19,1) (19,1)
Provisions (20,0) (20,0)
Settled in cash 240,0 240,0
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 Group.
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 19 January 2012.
Dividend declaration
Notice is hereby given that an ordinary cash dividend of 14,0 cents per ordinary
share (2010: 23,0 cents) has been declared, payable to shareholders for the year
ended 31 August 2011. A special dividend of 40,0 cents per ordinary share has
also been declared, thereby returning to shareholders the proceeds on the sale
of Destiny Electronic Commerce Proprietary Limited. The Group`s strong cash
performance and its desire to improve balance sheet efficiencies is the basis
for the board`s decision to declare these dividends. The special dividend is
subject to approval by the Exchange Control Department of the South African
Reserve Bank. A finalisation announcement confirming receipt of SARB approval
will be released on SENS by no later than Friday, 30 December 2011. 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 date to trade (cum dividend) Friday, 6 January 2012
Shares commence trading (ex dividend) Monday, 9 January 2012
Record date (date shareholders recorded in Friday, 13 January 2012
books)
Payment date Monday, 16 January 2012
Share certificates may not be dematerialised or rematerialised between Monday, 9
January 2012 and Friday, 13 January 2012, both days inclusive.
On Monday, 16 January 2012, 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, 16 January 2012 will be posted
on that date.
Holders of dematerialised shares will have their accounts credited at their
participant or broker on Monday, 16 January 2012.
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.
Cautionary
Shareholders are reminded that the Group continues to trade under cautionary.
For and on behalf of the board
AC Ruiters LB Mophatlane
Chairman Chief Executive Officer
Midrand
9 November 2011
Executive directors
LB Mophatlane (Chief Executive Officer)
V Olver (Deputy Chief Executive Officer)
LN Weitzman (Chief Financial Officer)#
JR Jenkins@
Non-executive directors
AC Ruiters (Chairman)*
NN Kekana
FL Sekha
JM Poluta
J John*
M Lehobye*
DC Sparrow$
* Independent non-executive directors $ Appointed 11 May 2011 @ Appointed 31
August 2011 # Appointed 1 September 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: 10/11/2011 08:07:57 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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