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BCX
BCX
BCX - Business Connexion Group Limited - Reviewed condensed consolidated
interim financial information for the six months ended 29 February 2012 and
trading statement
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 CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE SIX
MONTHS ENDED 29 FEBRUARY 2012 AND TRADING STATEMENT
Key features
- Revenue increased by 43,5%
- Gross profit margin improved from 28,8% to 34,9%
- Operating profit increased from R40,2 million to R130,8 million
- Cash generated by operations increased from R116,6 million to R265,2
million
- Diluted headline earnings per share increased from 9,3 cents to 22,1 cents
- 2011 acquisitions enhanced group competencies and reduce earnings
volatility
Condensed consolidated statement of financial position
Reviewed Reviewed Audited
29 February 28 February 31 August
R million 2012 2011 2011
ASSETS
Non-current assets
Property, plant and 439,7 400,8 453,9
equipment
Goodwill 552,9 145,6 555,3
Intangible assets 373,5 133,0 378,7
Investments in associate 9,0 5,5
and jointly contolled
entity
Other investments 242,5 214,7 215,3
Deferred tax assets 55,7 23,3 53,1
1 664,3 926,4 1 661,8
Current assets
Inventories 214,9 94,1 178,9
Trade receivables 984,2 713,2 970,1
Other receivables 164,0 210,1 250,6
Pre-payments 87,3 84,9 77,7
Taxation prepaid 3,3 8,1 7,4
Cash and cash equivalents 298,6 174,0 518,3
Assets held for sale 18,0 9,6 18,0
1 770,3 1 294,0 2 021,0
TOTAL ASSETS 3 434,6 2 220,4 3 682,8
EQUITY AND LIABILITIES
Shareholders` equity 2 018,0 1 517,0 2 144,6
Non-controlling interests 67,1 5,3 48,5
Total equity 2 085,1 1 522,3 2 193,1
Non-current liabilities
Interest-bearing long-term 226,4 25,0 250,7
liabilities
Post-retirement benefit 8,1 12,1 7,9
obligations
Deferred tax liabilities 58,6 1,8 60,9
293,1 38,9 319,5
Current liabilities
Short-term liabilities 75,9 16,9 77,2
Trade payables 412,1 249,5 457,1
Other payables 550,0 387,3 622,3
Provisions 1,5 2,1 0,9
Taxation payable 16,9 3,4 12,7
1 056,4 659,2 1 170,2
TOTAL EQUITY AND 3 434,6 2 220,4 3 682,8
LIABILITIES
Condensed consolidated statement of comprehensive income
Reviewed Reviewed Audited
six months six months 12 months
ended ended ended
29 February 28 February 31 August
R million 2012 2011 2011
Revenue 2 691,3 1 875,4 4 314,2
Cost of sales 1 753,2 1 334,6 2 979,1
Gross profit 938,1 540,8 1 335,1
Operating expenses 807,3 500,6 1 177,4
Operating profit 130,8 40,2 157,7
Share of losses from (1,0) (0,1) (0,2)
associate and jointly
controlled entity
Operating profit before 129,8 40,1 157,5
investment income
Investment income 18,3 13,9 27,3
Profit before finance 148,1 54,0 184,8
costs
Finance costs 17,1 2,6 18,1
Profit before tax 131,0 51,4 166,7
Taxation 30,2 22,2 64,4
Profit for the period 100,8 29,2 102,3
Profit attributable to:
Equity holders 80,7 28,5 92,6
Non-controlling interests 20,1 0,7 9,7
100,8 29,2 102,3
Other comprehensive
income:
Translation of foreign 0,1 2,9 (0,2)
operations
Total comprehensive income 100,9 32,1 102,1
for the period
Total comprehensive income
attributable to:
Equity holders 80,8 31,4 92,4
Non-controlling interests 20,1 0,7 9,7
100,9 32,1 102,1
Basic earnings per share 20,3 9,5 27,9
(cents)
Diluted earnings per share 20,1 9,3 27,6
(cents)
Calculation of headline
earnings
R million
Profit attributable to 80,7 28,5 92,6
equity holders
Profit on sale of business (68,7)
(Profit)/Loss on sale of (0,3) (0,1) 1,5
property, plant and
equipment
Impairment of investments 6,0 2,5
Impairment of goodwill 2,4
Fair value adjustment to (0,2)
investment property
Tax effect of headline 29,8
earnings adjustments
Headline earnings 88,8 28,4 57,5
Weighted average number of 398 347 300 999 331 689
shares in issue (000`s)
Diluted weighted average 400 903 305 824 335 172
number of shares in issue
(000`s)
Headline earnings per 22,3 9,4 17,3
share (cents)
Diluted headline earnings 22,1 9,3 17,2
per share (cents)
Condensed consolidated statement of cash flows
Reviewed Reviewed Audited
six months six months 12 months
ended ended ended
29 February 28 February 31 August
R million 2012 2011 2011
Operating cash flows 265,2 116,6 258,5
Working capital changes (152,3) (28,1) 162,9
Investment income 17,8 6,3 12,0
Finance costs paid (3,4) (2,6) (6,3)
Dividends paid (215,2) (69,3) (71,0)
Taxation refunded/(paid) 4,5 (4,1) (59,4)
Cash (utilised (83,4) 18,8 296,7
by)/generated from
operating activities
Net cash flows utilised in (108,3) (153,1) (325,9)
investing activities
Net cash flows (utilised (28,0) (50,5) 188,7
in)/generated from
financing activities
Net changes in cash and (219,7) (184,8) 159,5
cash equivalents
Cash and cash equivalents 518,3 358,8 358,8
at beginning of the period
Cash and cash equivalents 298,6 174,0 518,3
at end of the period
Condensed segmental analysis
Reviewed Reviewed Audited
six months six months 12 months
ended ended ended
29 February 28 February 31 August
R million 2012 2011 2011
Segment revenue
Services division 949,7 887,1 1 806,9
UCS division 503,4 353,2
Technology division 429,0 602,0 1 230,9
Canoa division 344,0 136,1
Innovation division 243,4 214,0 417,1
International division 213,9 169,0 368,5
Investment division 8,3 1,5
Corporate office (0,4) 3,3
2 691,3 1 875,4 4 314,2
Segment operating profit
Services division 107,2 88,1 177,2
UCS division 49,0 40,1
Technology division (7,7) (1,5) (9,0)
Canoa division 42,0 18,0
Innovation division 34,6 18,0 20,0
International division 5,3 (3,0) (7,8)
Investment division (14,3) (2,4) 0,9
Corporate office (85,3) (59,0) (81,7)
130,8 40,2 157,7
Other group salient information
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
Number of shares in issue 404 972 303 729 404 972
(000`s)
Less: Shares held in share 6 424 2 612 2 976
purchase trusts as
treasury shares
Less: Weighting of shares 70 177
issued during the period
Less: Weighting of options 201 118 130
exercised during the
period that would have
been treasury shares
398 347 300 999 331 689
Dilutive options 2 538 4 796 3 452
Options excercised during 18 29 31
the period that were
dilutive for a portion of
the period
400 903 305 824 335 172
Number of options in issue 27 186 24 143 21 831
(000`s)
Key ratios and statistics
Net asset value per share 498,3 499,5 529,6
(cents)
Tangible net asset value 311,8 451,4 336,4
per share (cents)
Operating margin (%) 4,9 2,1 3,7
Return on equity (%) 8,0 3,7 4,3
Return on total assets 9,0 4,4 5,3
(excluding cash and
preference share
investments) (%)
Current ratio 1,7 2,0 1,7
Average debtors` days 59,0 64,3 65,5
Depreciation and 118,2 65,4 163,0
amortisation (R million)
Cost of sales 53,9 43,8 89,9
Operating expenses 64,3 21,6 73,1
R million
Contingent liabilities
Performance guarantees 52,3 67,7 39,6
Asset finance recourse 13,2 18,5 38,4
deals
Other 14,8 2,5 35,5
Capital commitments
Capital 27,6 25,7 147,7
Operating leases 236,9 231,1 254,1
The reviewed condensed consolidated interim financial information for the six
months ended 29 February 2012 has been prepared in accordance with the
recognition and measurement criteria of IFRS (International Financial
Reporting Statements), the requirements of International Accounting Standards
("IAS") 34 Interim Financial Reporting, the AC 500 series issued by the
Accounting Practices Board, the Listings Requirements of the JSE Limited and
the South African Companies Act, 2008.
The accounting policies applied in the presentation of the condensed
consolidated interim financial information are consistent with those applied
for the year ended 31 August 2011, except for new standards and
interpretations that became effective on 1 September 2011, the adopting of
these standards has had no material effect on the results for the period, nor
has it required the restatement of any prior year figures. The condensed
consolidated interim financial information has been prepared on the historic
cost basis and is presented in Rands rounded to the nearest million, which is
Business Connexion`s functional and presentation currency.
The interim report should be read in conjunction with the annual financial
statements for the year ended 31 August 2011.
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 31 545,1 (27,6) 961,2 65,6
August 2010 -
audited
Changes in equity
for the six months
ended 28 February
2011
Movement in 2,4
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 8,2
payments
Non-controlling
interest in
dividends received
Total 2,9 28,5
comprehensive
income for the
period
Dividends paid (69,3)
Balance at 28 545,1 (24,7) 922,8 73,8
February 2011 -
reviewed
Changes in equity
for the six months
ended 31 August
2011
Movement in (23,0)
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 7,7
payments
Transfer share- 13,7 (13,7)
based payment
reserve to
retained earnings
Issue of new 584,1
shares
Total (3,1) 64,1
comprehensive
income for the
period
Non-controlling (2,2)
share of foreign
currency
translation
reserve
Sale of stake in
business to
management
Balance at 31 1 129,2 (27,8) 975,4 67,8
August 2011 -
audited
Changes in equity
for the six months
ended 29 February
2012
Movement in (0,7)
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 8,3
payments
Non-controlling
interest in
dividends received
Total 0,1 80,7
comprehensive
income for the
period
Non-controlling 0,2
share of foreign
currency
translation
reserve
Dividends paid (215,2)
Balance at 29 1 129,2 (27,7) 840,4 76,1
February 2012 -
reviewed
Share- Non-
holders` controlling Total
R million equity interests equity
Balance at 31 1 544,3 6,4 1 550,7
August 2010 -
audited
Changes in equity
for the six months
ended 28 February
2011
Movement in 2,4 2,4
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 8,2 8,2
payments
Non-controlling (1,8) (1,8)
interest in
dividends received
Total 31,4 0,7 32,1
comprehensive
income for the
period
Dividends paid (69,3) (69,3)
Balance at 28 1 517,0 5,3 1 522,3
February 2011 -
reviewed
Changes in equity
for the six months
ended 31 August
2011
Movement in (23,0) (23,0)
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 7,7 7,7
payments
Transfer share-
based payment
reserve to
retained earnings
Issue of new 584,1 584,1
shares
Total 61,0 9,0 70,0
comprehensive
income for the
period
Non-controlling (2,2) 2,2
share of foreign
currency
translation
reserve
Sale of stake in 32,0 32,0
business to
management
Balance at 31 2 144,6 48,5 2 193,1
August 2011 -
audited
Changes in equity
for the six months
ended 29 February
2012
Movement in (0,7) (0,7)
treasury shares
and related
reserves held by
share purchase
trusts
Share-based 8,3 8,3
payments
Non-controlling (1,3) (1,3)
interest in
dividends received
Total 80,8 20,1 100,9
comprehensive
income for the
period
Non-controlling 0,2 (0,2)
share of foreign
currency
translation
reserve
Dividends paid (215,2) (215,2)
Balance at 29 2 018,0 67,1 2 085,1
February 2012 -
reviewed
Reviewed Reviewed Audited
six months six months 12 months
ended ended ended
29 February 28 February 31 August
2012 2011 2011
Normal dividend per share 14,0 23,0 23,0
(cents)
Special dividend per 40,0
share (cents)
Commentary
Introduction
Business Connexion Group is benefiting from an enhanced and more diversified
product and services offering. Acquisitions in the previous financial year
have resulted in the realisation of cross selling opportunities and reduced
earnings volatility.
Review of operations
The group`s Services division delivered robust results, a large portion of
which is annuity based. Results for the reporting period saw revenue grow by
7,1% to R949,7 million with process efficiencies driving an improvement in
operating profits to R107,2 million.
The Services division has maintained a dominant market share in data centres.
Recent research by Frost & Sullivan indicates Business Connexion Group`s
share at 27% making it the country`s leading provider of cloud-based
services. Furthermore, BMI-T named the group as the number one custom
application development company in South Africa.
The group is pleased with the performance of the acquired UCS assets and
Canoa Group. Both have performed in line with, and in some areas, exceeded
expectations. Cross selling opportunities have materialised with the group
being awarded managed printing contracts at a number of its enterprise
clients. The acquisitions have been successfully integrated into the group
and are now reported separately as the UCS division and Canoa division.
Under the new leadership of Doug Woolley the Technology division is refining
its product offering to improve sourcing and enhance vendor relationships.
Strategic and exclusive relationships may be pursued to achieve this. The
group believes that technology infrastructure design and implementation is an
essential part of a complete ICT offering. Increasingly, a focused product
offering should differentiate Business Connexion Group in the market place
and the business is becoming increasingly relevant in African markets which
lag South Africa in terms of their sophistication and stage of development.
The International division has further solidified its presence on the African
continent with offices in six countries. More than ever, Africa presents a
significant opportunity for Business Connexion Group and accessing these
markets will be a key focus area in the coming years.
The Innovation division has shown improved performance within all business
units with specific success in Q-Data Dynamique following corrective action
reported on in the prior financial year. Previous challenges reported on
within Nanoteq have also been successfully addressed.
Content Distribution Solutions (CDS) is the only entity housed within the
Investment division. To date the focus for CDS has been on establishing a
carrier grade delivery platform. Going forward the focus will shift to
achieving critical mass.
Financial and operating performance
In line with the trading statement released on 5 April 2012, the group
generated diluted earnings per share (EPS) of 20,1 cents for the period
(2011: 9,3 cents). Diluted headline EPS for the period is 22,1 cents (2011:
9,3 cents).
Return on equity at 8,0% increased from 3,7% at 28 February 2011 and return
on total assets increased to 9,0% from 4,4% at 28 February 2011 on the back
of the improved profitability.
Revenue grew by 43,5% to R2 691,3 million for the period bolstered by the
acquisitions of the UCS assets and Canoa Group during the previous financial
year.
Gross profit margins increased to 34,9% from 28,8% in the 2011 period,
primarily as a result of higher margin business of the acquired UCS assets
and Canoa Group.
Operating expenses continue to be tightly managed and increased on a like-for-
like basis by 2,9% to R489,7 million in the period (2011: R475,8 million)
(excluding the items listed below and the expenses brought in with the
acquisitions of the UCS assets and Canoa Group).
The group recorded an operating profit margin of 4,9% (2011: 2,1%). The
acquisition of the UCS assets and Canoa Group resulted in the creation of
intangible assets which are amortised over their useful lives ranging between
four and ten years. This resulted in an amortisation charge of R24,6 million
for the period. Adjusting for this and for the impairment of the group`s
remaining investment in its associate, Hawkstone iSolutions Proprietary
Limited, the group achieved a sustainable operating profit margin of 6,0%
(2011:3,5%).
2012 2011
R`000 % R`000 %
Operating profit as reported 130,8 4,9 40,2 2,1
Amortisation of intangible assets 24,6
relating to the UCS assets and
Canoa Group
Impairment of Hawkstone 6,0
iSolutions
Merger and acquisition costs 10,6
Other 14,2
Sustainable operating profit 161,4 6,0 65,0 3,5
The Services division`s revenue for the period was R949,7 million compared to
R887,1 million for the comparative period. The growth in revenue is a
consequence of the division`s ability to grow its cloud service offering and
professional services business specifically in the application development
business. Both these business units have showed good growth.
The UCS division contributed R503,4 million to turnover with an operating
profit of R49,0 million while the Canoa division contributed R344,0 million
in revenue and R42,0 in operating profit.
Revenue in the Technology division at R429,0 million is 28,7% down on the
comparative period. Significant steps have been taken to restructure and
right size the Technology division in line with current market trends in an
effort to limit the negative impact on future group profitability while still
retaining the division as a strategic component of the group`s offering.
The Innovation division has increased revenue by 13,7% to R243,4 million
following the restructure previously reported in Q Data DynamiQue and the
inclusion of Accsys, the payroll business that formed part of the UCS assets,
in the Innovation division.
The International division has seen revenue growth of 26,6% to R213,9 million
for the period as it continues to extend its reach onto the continent.
The group continued to generate strong cash flows. After adding back
depreciation and amortisation of R118,2 million, cash generated from
operations amounted to R265,2 million.
The tax charge includes STC on the dividend paid in January 2012 of R21,9
million, of which R16,2 million relates to the special dividend. This is
offset by an overprovision for capital gains tax in the previous financial
year of R30,3 million resulting from the sale of Destiny Electronic Commerce
Proprietary Limited.
Acquisitions and disposals
Effective 1 April 2012, the group concluded a transaction to sell its Avaya
business to ATIO Proprietary Limited (ATIO). ATIO will become the exclusive
partner to Business Connexion Group for all Avaya business in Africa. This
forms part of the realignment of the group`s Technology division.
Also effective 1 April 2012, Business Connexion Group, through the Services
division, acquired 100% of the issued share capital of Quad Automation
Proprietary Limited (Quad). Quad is an automation systems integration company
offering its clients a single-source solution for fully integrated and
advanced computer-based control systems in many industrial sectors. This
acquisition will strengthen the Business Connexion Industrial Solutions
business making it one of the largest in South Africa.
Outlook
The changes to the management structure announced on 31 August 2011 have
started unlocking the collective strengths of the enlarged group and are
anticipated to continue to enhance the performance going forward.
The group anticipates continuing to grow its annuity revenue base. The on-
going investment in its intellectual property is proving a differentiator.
Business Connexion`s enhanced product and services offering, together with
its strong cash generation and healthy balance sheet, positions the group
extremely well to continue its current growth trajectory across the
continent.
Trading statement
Based on the strong growth for the first half and the expected earnings in
the second half of the current financial year the group is reasonably certain
that its full year results for the year ending 31 August 2012 will reflect an
increase in diluted headline EPS and diluted EPS of greater than 20% when
compared to the previous corresponding period.
Shareholders are advised that the financial information on which this trading
statement is based has not been reviewed and reported on by the group`s
external auditors.
Auditor`s report
The financial results have been reviewed by KPMG Inc. and its unmodified
review 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 clients, suppliers and
shareholders for their continuing belief in and support of Business Connexion
Group.
For and on behalf of the board
AC Ruiters LB Mophatlane
Chairman Chief Executive Officer
Midrand
19 April 2012
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
JM Poluta*
J John*
M Lehobye*
DC Sparrow
* Independent non-executive directors
FL Sekha resigned effective 19 January 2012.
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, corner Fredman Drive and Rivonia Road, Sandton, 2196
Responsibility for financial statement preparation:
Mr LN Weitzman, CA(SA), the chief financial officer is responsible for the
financial statements and has supervised the preparation thereof in
conjunction with the group financial manager: group finance Mr JW van den
Handel, CA(SA).
For more information please visit our investor relations website at:
www.bcx.co.za
Date: 19/04/2012 08:00:04 Produced by the JSE SENS Department.
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