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Business Connexion Group Limited - Reviewed Group Results for the year ended 31
May 2004
BUSINESS CONNEXION GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1988/005282/06)
(Share code: BCX ISIN: ZAE000054631)
REVIEWED GROUP RESULTS
for the year ended 31 May 2004
- Strong balance sheet
- Empowerment and restructuring completed
- Positive cash flow of R101 million
GROUP BALANCE SHEET
31 May 31 May
2004 2003
R million Reviewed Audited
ASSETS
Non-current assets
Furniture and fittings,equipment
and vehicles 134,7 96,3
Capitalised leased assets 181,9 185,7
Rental assets 0,1 0,3
Intangible assets 104,0
Long-term loans, investments and associates
214,0 387,8
Deferred tax assets 1,3 0,5
636,0 670,6
Current assets
Inventories 42,7 52,5
Trade accounts receivable 438,6 393,6
Other accounts receivable and prepayments 167,7 128,9
Cash and bank balances 782,4 154,8
1 431,4 729,8
TOTAL ASSETS 2 067,4 1 400,4
EQUITY AND LIABILITIES
Ordinary shareholders` funds 916,5 553,9
Minority interests 49,4 1,9
965,9 555,8
Non-current liabilities
Interest bearing liabilities 226,7 240,0
Interest free liabilities 124,5
Post retirement obligations 6,2 1,2
Deferred tax liabilities 0,4 0,4
357,8 241,6
Current liabilities
Short-term borrowings 67,2 34,0
Trade and other payables 627,0 536,1
Provisions 38,6 31,0
Tax 10,9 1,9
743,7 603,0
TOTAL EQUITY AND LIABILITIES 2 067,4 1 400,4
GROUP INCOME STATEMENT
Year ended Year ended
31 May 31 May
2004 2003
R million Reviewed Audited
Revenue 2 811,8 2 701,4
Cost of sales 1 992,2 1 914,3
Margin 819,6 787,1
Administrative expenses 598,3 572,7
Foreign exchange and derivative
losses 24,8 2,5
Operating exceptional losses 4,9 20,6
Operating profit before depreciation 191,6 191,3
Depreciation 65,8 49,2
Operating profit 125,8 142,1
Investment income 45,0 35,5
Associates` share of profits 8,1 8,2
Profit before interest paid 178,9 185,8
Interest paid 42,7 42,1
Profit before exceptional items 136,2 143,7
Exceptional gains/(losses) 37,4 (8,5)
Profit before tax 173,6 135,2
Tax 45,6 27,6
Profit after tax 128,0 107,6
Minorities 7,5 1,0
Profit attributable to shareholders 120,5 106,6
Weighted average number of shares
in issue (000`s) 253 551 253 425
Earnings per share (cents) 47,5 42,0
Calculation of headline earnings:
(R million)
Profit attributable to shareholders 120,5 106,6
Impairment of assets and investments 4,1
Goodwill impairment and amortisation 9,8 1,9
Profit on sale of fixed assets (1,1) (0,9)
Profit on sale of businesses (6,5) (0,5)
Release of negative goodwill (35,0)
Associates` adjustment 1,3 0,2
Tax effect of headline earnings
adjustments 0,4
Minorities` share of headline
earnings adjustments (2,7)
Headline earnings 86,7 111,4
Weighted average number of shares
in issue (000`s) 253 551 253 425
Headline earnings per share (cents) 34,2 44,0
DETAILS OF EXCEPTIONAL ITEMS
Year ended Year ended
31 May 31 May
2004 2003
R million Reviewed Audited
Operating exceptional losses
Rebranding costs (9,5)
Provisions released/(raised) 4,6 (21,2)
Restructuring costs 0,6
(4,9) (20,6)
Other exceptional items
Profit on sale of businesses 6,5 0,5
Impairment of assets and investments (4,1) (7,1)
Release of negative goodwill/
(impairment of goodwill) 35,0 (1,9)
37,4 (8,5)
32,5 (29,1)
GROUP CASH FLOW STATEMENT
Year ended Year ended
31 May 31 May
2004 2003
R million Reviewed Audited
Cash generated from operations 123,9 284,5
Net interest paid (0,8) (4,0)
Dividends paid (0,7) (0,5)
Tax paid (21,5) (1,9)
Net cash flow from operating
activities 100,9 278,1
Cash flows from investing activities
Net movements in investments and
loans 563,4 22,5
Net movement in furniture and
fitting, equipment and vehicles,
rental, leased and intangible assets (86,4) (69,5)
Net cash flow from investing
activities 477,0 (47,0)
Cash flows from financing activities
Proceeds from issue of share capital 36,9
Movement in long-term loans and
advances 12,8 (164,7)
Net cash flow from financing
activities 49,7 (164,7)
Net changes in cash and cash
equivalents 627,6 66,4
Cash at beginning of year 154,8 88,4
Cash at end of year 782,4 154,8
GROUP SEGMENTAL ANALYSIS
Year ended Year ended
31 May 31 May
2004 2003
R million Reviewed Audited
Business segments
Revenue
Services 1 726,1 1 782,8
Technology infrastructure 816,7 751,3
Business applications 269,0 167,3
2 811,8 2 701,4
Operating profit
Services 154,6 118,9
Technology infrastructure 14,7 30,3
Business applications (2,9) 21,9
Central functions (40,6) (29,0)
125,8 142,1
Geographical
Revenue
South Africa 2 408,4 2 425,9
Rest of Africa 349,8 169,3
Rest of world, principally United
Kingdom 53,6 106,2
2 811,8 2 701,4
Operating profit
South Africa 99,2 130,5
Rest of Africa 26,2 14,9
Rest of world, principally United
Kingdom 0,4 (3,3)
125,8 142,1
OTHER GROUP SALIENT INFORMATION
31 May 31 May
2004 2003
Reviewed Audited
Balance Sheet Ratios
Number of shares in issue (000`s) 262 637 253 424
Less shares held in share purchase
trust 19 827
242 810 253 424
Net asset value per share (cents) 397,8 219,3
At 31 May 2004 there were 30,5 million
options in issue.
R million R million
Contingent liabilities
Performance guarantees 85,7 12,2
Other 3,9
Commitments
- Capital 4,6
- Lease 189,6 319,7
These group results are prepared in accordance with the South African Statements
of Generally Accepted Accounting Practice applicable to interim financial
reporting. 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 2003, with the exception of the adoption of AC133
Financial Instruments - Recognition and Measurement, by the group. The adoption
of this accounting standard has resulted in the following adjustments been made
to the results:
Opening Current
entry period effect
Other receivables 28,9 25,9
Other payables (32,1) (26,1)
Derivative losses 3,2 32,1
Revenue (37,7)
Cost of sales 5,8
The above results have been reviewed by the group`s auditors Deloitte & Touche
and a copy of their unqualified review report is available for inspection at the
company`s registered offices.
GROUP STATEMENT OF CHANGES IN EQUITY
Share Trademark
capital tax Foreign Distri-
and benefit exchange butable
R million premium reserves reserve reserves Total
Balance at 31
May 2002 -
audited 285,1 32,4 3,4 96,4 417,3
Attributable
profit per the
income 106,5 106,5
statement
Foreign
exchange loss
arising on (0,8) (0,8)
consolidation
Transfer in
respect of
deferred tax 30,9 30,9
Balance at 31
May 2003 -
audited 285,1 63,3 2,6 202,9 553,9
Adoption of
AC133 opening
adjustment (3,2) (3,2)
Re-stated
opening balance
at 31 May 2003 285,1 63,3 2,6 199,7 550,7
Share capital
issued 37,0 37,0
Issue costs (0,1) (0,1)
Treasury shares (71,4) (71,4)
held by share
purchase trust
Reserves of
share purchase
trusts 251,7 251,7
Foreign
exchange loss
arising on (2,8) (2,8)
consolidation
Transfer in
respect of
deferred tax 30,9 30,9
Attributable
profit per the
income 120,5 120,5
statement
Balance at 31
May 2004 -
reviewed 250,6 94,2 (0,2) 571,9 916,5
COMMENTS
Corporate activity
The past year has been highlighted by the black empowerment transaction
concluded with the former Business Connexion Investments group, and the
restructuring of Comparex Holdings Limited (Comparex) which resulted in the
liquidation of that entity and the return of R1,57 billion (R6,50 per share) of
the surplus cash to shareholders.
Following receipt of the unconditional approval of the Competition Authorities,
the proposed merger between Comparex Africa and Business Connexion Solution
Holdings was concluded with an effective date of 2 January 2004. The merger has
been well received by all stakeholders.
Concurrently with the restructuring of Comparex, it was announced that Comparex
Africa would adopt the brand of its Black Economic Empowerment (BEE) partner,
and the group was re-branded as Business Connexion Group Limited (BCX) during
May 2004. The BEE partner has re-named its investment holding company as Gadlex
Investments (Proprietary) Limited (Gadlex).
The restructuring of Comparex was approved by shareholders on 30 April 2004.
Since that date Comparex has:
- Declared and paid a further dividend in anticipation of liquidation.
- Transferred the remaining assets of Comparex to BCX, namely Business
Connexion Technology Holdings (BCTH), which owns the interests in Mosaic,
Perago, Corp Invest 40 and Nanoteq.
Increased the number of issued shares in BCX to facilitate a one for one
distribution of BCX shares to shareholders of Comparex. This was achieved by the
conversion of preference shares, a share split and a subscription for new shares
by Comparex.
- Distributed as a dividend in specie the shares in BCX to shareholders of
Comparex.
- Listed BCX in the `Information Technology - Software and Computer services`
sector of the JSE Securities Exchange South Africa.
- Delisted and liquidated Comparex.
Due to the restructuring, the results of BCX are not comparable with the results
of Comparex for the previous year. Interest earned on the surplus cash prior to
its distribution, as well as the results of Mosaic, Perago and Nanoteq for the
11 months prior to their acquisition by BCX, formed part of the results of
Comparex and not of BCX.
The group has disposed of its interests in Q Data USA, The Smart Shed and
Phambili Information Technologies
Operating results
BCX reported a 4,1% increase in revenue which is due to the expansion into
Africa, the merger with Business Connexion Solution Holdings and adoption of
AC133. The group`s strategy of growth into Africa has been successful with
revenue growth of 107% during the period. This was largely due to contracts
secured in Ethiopia for the supply and installation of equipment. The revenue
gained in Africa mitigated declining revenue in the depressed South African
market. BCX`s revenue in the South African Market has been impacted by the
strengthening of the Rand versus the US Dollar. Imported products were landed at
reduced prices and this benefit was passed on to clients. In addition clients
who are dependent on US Dollar based revenues have cut back on their local
spending.
The expansion into Africa has had a dilutionary effect on operating margins as
the profit earned is shared with local partners in the countries where the
business is conducted. Operating costs were satisfactorily contained
notwithstanding increased spending on training and accreditation programs,
strengthening corporate governance and the re-branding of BCX. Operating profit
reduced to R125,8 million from R142,1 million in the previous year for the above
reasons.
Depreciation increased due to amortisation of goodwill arising on the
acquisition of Business Connexion Solutions Holdings. This amounted to R9,1
million for the 5 months since the acquisition.
To ensure that shareholders received a final dividend of R1,00 per share from
the liquidation of Comparex, the selling price of BCTH was determined by
Comparex prior to the publication of its circular regarding the restructuring of
Comparex. This resulted in BCX acquiring BCTH for a value which was R35,0
million less than its net asset value. This amount has been included as an
exceptional item and excluded from headline earnings.
The significant increase in the taxation charge is mainly due to Digital
Healthcare Solutions recognising a deferred tax asset in respect of its assessed
loss in 2003, thereby reducing the taxation charge in that year.
Headline earnings per share of 34,2 cents were achieved for the year. (2003 :
44,0 cents) The reduction is due to lower operating profit as referred to above,
increased taxation and an increase in the minority.
BCX`s balance sheet has remained strong with R782 million of cash resources.
Cash flow for the year was positive with R100,9 million generated from
operations. Included in BCX`s balance sheet is:
- Intangible assets representing goodwill less amortisation on the
acquisition of Business Connexion Solution Holdings in the BEE transaction: R100
million.
- Long term loans and investments include the preference shares subscribed
for in Gadlex to fund their purchase of a portion of Business Connexion
(Proprietary) Limited: R133 million.
- Long term loans and investments include the group`s interests in Mosaic,
Perago and Corp Invest 40 that were previously owned by a subsidiary of
Comparex: R52 million.
- The cash held by the share trusts.
- The retained income of the share trusts.
- Interest free liabilities representing Gadlex`s shareholders loan: R124
million.
Long term loans and investments in 2003 represented the advance made to Comparex
International Trading, the treasury company of Comparex. This would have been
represented as cash by Comparex and is now represented in the cash balance of
BCX in 2004.
With effect from 28 May 2004 BCX included the share purchase trusts in the
consolidated results, as the trusts are now effectively controlled by the group.
The 19,8 million shares in BCX held by the trusts have been treated as treasury
stock.
BCX has experienced a substantial increase in the value of performance
guarantees issued during the past year. These relate mainly to the contracts
awarded in Ethiopia and will terminate upon conclusion of the contracts.
Contracts generally do not extend beyond one year.
Taxation issues
The significant matter relating to the claiming of trademark deductions by a
subsidiary has not been resolved. The hearing of the matter in the Appeal Court
has again been postponed and a new date is yet to be scheduled. Based on the
opinion of Senior Counsel the directors believe that the deductions will
ultimately be allowed. The subsidiary involved has claimed deductions of R889,4
million resulting in a tax reduction of R277 million to 31 May 2004. Any amounts
required to be paid to the South African Revenue Services will be interest
bearing.
Dividends
No further dividend will be declared in respect of the past financial year. The
board`s intention is to implement a dividend policy for the future.
Prospects
The board of BCX believes that the benefits of the group`s ability to deliver
high quality services and innovative solutions, together with its black
empowered status, have not yet been fully reflected in the results of BCX. The
general sentiment in the Information Communication and Technology (ICT) sector
continues to indicate that a turnaround is on the horizon, and BCX has expended
considerable time and energy in optimising the operating structure, enhancing
the abilities of its employees through training and accreditation, as well as
improving corporate governance through education and awareness programs. BCX is
well positioned to participate in the anticipated upturn in the ICT sector.
On behalf of the board
RS Berkowitz PA Watt AC Farthing
Chairman Chief Executive Officer Financial Director
Midrand
12 August 2004
Directors: RS Berkowitz (Chairman)#, DM Nurek (Deputy Chairman)#, PA Watt (Chief
Executive Officer), JF Buchanan#
AC Farthing (British), LB Mophatlane, FJ van der Merwe# #Non-executive Director
Registered office: Business Connexion Park North, 789 16 Road, Randjespark,
Midrand 1685
Postal: Private Bag X48, Halfway House, 1685
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 9th
Floor, 70 Marshall Street, Johannesburg 2001
Postal: PO Box 61051, Marshalltown 2107
Sponsor: Rand Merchant Bank, a division of First Rand Bank Limited Corporate
Finance, 1 Merchant Place, Cnr Fredman Drive and Rivonia Road, Sandton 2196
Internet address: http://www.bcx.co.za
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