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BCX - Reviewed group results for the six months ended 30 November 2004
BUSINESS CONNEXION GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1988/005282/06)
Share code: BCX ISIN: ZAE000054631
(`BCX`)
Reviewed group results of Business Connexion Group Limited for the six months
ended 30 November 2004
IMPROVED MARGINS
HEPS GROWTH
POSITIVE OPERATING CASH FLOW
Group balance sheet
Reviewed Reviewed Audited
30 November 30 November 31 May
R million 2004 2003 2004
ASSETS
Non-current assets
Furniture and fittings, equipment and 132,3 106,4 134,7
vehicles
Capitalised leased assets 174,8 183,5 181,9
Intangible assets - goodwill 104,0 104,0
Investment in associates and other 186,7 13,6 196,8
long-term investments
Long-term loans and advances 13,5 361,5 17,2
Deferred tax assets 4,9 0,1 1,3
616,2 665,1 635,9
Current assets
Inventories 49,7 55,2 42,7
Trade accounts receivable 449,7 494,0 438,6
Other accounts receivable 119,9 98,7 77,7
Derivative and embedded derivative 42,0 27,9 25,9
assets
Prepayments 68,0 77,9 59,8
Tax prepaid 4,4 0,5 4,4
Bank and cash balances 812,0 88,8 782,4
1 545,7 843,0 1 431,5
TOTAL ASSETS 2 161,9 1 508,1 2 067,4
EQUITY AND LIABILITIES
Shareholders` equity 1 067,3 604,1 916,5
Minority interests 54,5 2,4 49,4
Non-current liabilities
Interest bearing long-term 218,7 234,2 226,7
liabilities
Interest free long-term liabilities 124,5 124,5
Post retirement obligations 6,2 1,2 6,2
Deferred tax liabilities 0,4 0,4 0,4
349,8 235,8 357,8
Current liabilities
Short-term borrowings 23,5 33,0 67,2
Trade accounts payable 184,3 238,7 181,6
Other accounts payable 418,3 323,5 419,3
Provisions 32,2 24,9 38,6
Embedded derivative liabilities 27,2 44,1 26,1
Tax 4,8 1,6 10,9
690,3 665,8 743,7
TOTAL EQUITY AND LIABILITIES 2 161,9 1 508,1 2 067,4
Group income statement
Reviewed Reviewed Audited
Six months Six months Year ended
ended ended
30 November 30 November 31 May
R million 2004 2003 2004
Revenue 1 362,8 1 417,4 2 811,8
Cost of sales 922,1 995,0 1 992,2
Gross profit 440,7 422,4 819,6
Operational expenses 347,3 303,2 598,3
Foreign exchange and derivative losses (37,1) (24,8)
Operational exceptional gains/(losses) 1,6 4,9 (4,9)
Operating profit before depreciation 95,0 87,0 191,6
Depreciation 32,2 27,7 65,8
Operating profit 62,8 59,3 125,8
Investment income 35,4 22,2 45,0
Associate`s share of profits 6,4 3,0 8,1
Profit before interest paid 104,6 84,5 178,9
Interest paid 18,4 22,3 42,7
Profit before exceptional items 86,2 62,2 136,2
Exceptional gains 78,3 0,8 37,4
Profit before tax 164,5 63,0 173,6
Tax 23,0 21,4 45,6
Profit after tax 141,5 41,6 128,0
Minorities 11,1 0,4 7,5
Profit attributable to shareholders 130,4 41,2 120,5
Weighted average number of shares in 244 361 253 425 253 551
issue (000`s)
Earnings per share (cents) 53,4 16,3 47,5
Fully diluted weighted average number 261 386
of shares in issue (000`s)
Fully diluted earnings per share 49,9
(cents)
Calculation of headline earnings (R
million)
Profit attributable to shareholders 130,4 41,2 120,5
Reversal of impairment of assets, 0,1
loans and investments
Goodwill impairments and amortisation 0,1 9,8
Profit on sale of furniture and (1,3)
fittings, and vehicles
Profit on sale of businesses (73,7) (2,0) (6,5)
Recognition of negative goodwill (35,0)
Associate adjustment 1,1 1,3
Tax effect on disposal of investment 0,4
Minority effect of headline (2,7)
adjustments
Headline earnings 56,7 40,4 86,6
Weighted average number of shares in 244 361 253 425 253 551
issue (000`s)
Headline earnings per share (cents) 23,2 15,9 34,2
Fully diluted weighted average number 261 386
shares in issue (000`s)
Fully diluted headline earnings per 21,7
share (cents)
Group cash flow statement
Reviewed Reviewed Audited
Six months Six months Year ended
ended ended
30 November 30 November 31
May
R million 2004 2003 2004
Cash flow from operating activities
Cash generated from/(utilised in) 47,6 (31,0) 123,9
operations
Net interest received/(paid) 10,2 0,9 (0,9)
Net dividends paid (5,6) (0,1) (0,6)
Tax paid (15,3) (4,7) (21,6)
Net cash flow from operating 36,9 (34,9) 100,8
activities
Cash flow from investing activities
Net movement in investments 62,7 (0,3) 644,4
Advances to previous group companies (81,0)
Additions to furniture and fittings, (23,1) (38,1) (88,7)
equipment and vehicles
Proceeds on sale of furniture and 0,5 2,7 2,4
fittings, and vehicles
Net movement in rental, leased and (0,1) (0,1)
intangible assets
Net cash flow from investing 40,1 (35,8) 477,0
activities
Cash flow from financing activities
Proceeds from share capital 36,9
Net movement in long-term loans and (47,4) 4,7 12,9
advances and share options exercised
Net cash flow from financing (47,4) 4,7 49,8
activities
Net changes in cash and cash 29,6 (66,0) 627,6
equivalents
Cash and cash equivalents at beginning 782,4 154,8 154,8
of the period
Cash and cash equivalents at end of 812,0 88,8 782,4
the period
Details of exceptional items
Reviewed Reviewed Audited
Six months Six months Year ended
ended ended
30 November 30 November 31
May
R million 2004 2003 2004
Operational exceptional gains/(losses)
Re-branding costs (1,1) (9,5)
Provisions released 4,9 4,6
Reversal of restructure costs 2,7
1,6 4,9 (4,9)
Exceptional gains
Reversal of impairment/(impairment) of 0,2 (1,2) (1,7)
assets and loans
Fair value adjustments to investments 4,4 (2,4)
Profit on sale of businesses 73,7 2,0 6,5
Recognition of negative goodwill 35,0
78,3 0,8 37,4
Group segmental analysis
Reviewed Reviewed Audited
Six months Six months Year ended
ended ended
30 November 30 November 31 May
R million 2004 2003 2004
BUSINESS GROUPINGS ANALYSIS
Revenue
Services 890,9 870,6 1 726,1
Technology infrastructure 313,7 427,9 816,7
Business applications 158,2 118,9 269,0
1 362,8 1 417,4 2 811,8
Operating profit
Services 80,9 65,0 154,6
Technology infrastructure (1,4) 9,2 14,7
Business applications (11,7) (2,9)
Central functions (16,7) (3,2) (40,6)
62,8 59,3 125,8
GEOGRAPHICAL SEGMENTAL ANALYSIS
Revenue
South Africa 1 276,4 1 191,7 2 408,4
Rest of Africa 66,8 193,6 349,8
Other, principally the United Kingdom 19,6 32,1 53,6
1 362,8 1 417,4 2 811,8
Operating profit
South Africa 72,7 37,2 99,2
Rest of Africa (10,2) 22,2 26,2
Other, principally the United Kingdom 0,3 (0,1) 0,4
62,8 59,3 125,8
Group statement of changes in equity
Share Trademark Foreign
capital and tax benefit exchange Distributable
R million premium reserve reserve reserves Total
Balance at 31 May 285,1 63,3 2,6 202,9 553,9
2003 - audited
Adoption of AC 133 (3,2) (3,2)
Restated balance at 285,1 63,3 2,6 199,7 550,7
31 May 2003
Deferred tax 15,4 15,4
transferred as a
result deductions
in respect of
trademarks
Foreign exchange (1,6) (1,6)
loss arising on
consolidation
Foreign exchange (1,6) (1,6)
reserve released on
disposal of
subsidiary
Attributable profit 41,2 41,2
per the income
statement
Balance at 30 285,1 78,7 (0,6) 240,9 604,1
November 2003 -
reviewed
Share capital 37,0 37,0
issued
Issue costs (0,1) (0,1)
Treasury shares (71,4) (71,4)
held by share
purchase trust
Deferred tax 15,5 15,5
transferred as a
result of
deductions in
respect of
trademarks
Foreign exchange 0,4 0,4
gain arising on
consolidation
Reserves of share 251,7 251,7
purchase trusts
Attributable profit 79,3 79,3
per the income
statement
Balance at 31 May 250,6 94,2 (0,2) 571,9 916,5
2004 - audited
Adoption of AC 501 4,3 4,3
Adoption of AC 140 0,4 0,4
Restated balance at 250,6 94,2 (0,2) 576,6 921,2
31 May 2004
Treasury shares (1,1) (1,1)
held by share
purchase trusts
Deferred tax 11,5 11,5
transferred as a
result of
deductions in
respect of
trademarks
Foreign exchange (0,4) (0,4)
loss arising on
consolidation
Reserves of share 5,7 5,7
purchase trusts
Attributable profit 130,4 130,4
per the income
statement
Balance at 30 249,5 105,7 (0,6) 712,7 1 067,3
November 2004 -
reviewed
Other group salient information
Reviewed Reviewed Audited
30 November 30 November 31
May
2004 2003 2004
Number of shares in issue (000`s) 262 637 149 521 262 637
Less shares held in share purchase 14 602 19 827
trust as treasury shares
248 035 149 521 242 810
Number of options in issue (000`s) 25 123 30 562
Number of fully dilutive options 17 852
(000`s)
Net asset value per share (cents) 459,1 239,3 380,9
(Shareholders` equity and minority
interests divided by weighted average
number of shares in issue)
R million R million R million
Related party transactions with
associates
Sale of services and goods 0,2 0,5
Purchases of services and goods 0,1
Net amounts due by related parties 0,1 0,1 0,1
Contingent assets
Contingent profit on sale of businesses 4,7
Contingent liabilities
Performance guarantees 37,6 79,4 84,2
Other 1,9 0,7 1,5
Capital commitments
Capital 0,6 1,2 4,6
Lease 171,9 248,3 215,6
These group results are prepared in accordance with South African Statements of
Generally Accepted Accounting Practice applicable to interim financial
reporting. The accounting policies used in preparation of these financial
statements are consistent with those used in the annual financial statements for
the year ended 31 May 2004, with the exception of the adoption by the group of
new statements; AC 140, Business Combinations, and AC 501, Accounting for
`Secondary Tax on Companies (STC)`. The adoption of these accounting standards
has resulted in the following adjustments being made to the results:
Current
Opening period
adjustment effect
Adoption of AC 140
Investment in associates 0,4
Associate`s share of profits (0,4)
Adoption of AC 501
Deferred tax assets 4,3 0,5
Tax (4,3) (0,5)
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.
Comments
General comment
The information communication and technology (ICT) market has shown minimal
growth during the past six months; however there are positive indications that
the market will show greater activity in the near future. The group has fully
integrated the businesses of its BEE partner and efforts are now focused on
driving forward the other strategies of the group. Successes include two new
significant outsourcing clients, which will realise benefits in future reporting
periods.
Corporate activity
During November 2004 the group disposed of its interest in Mosaic Software
Holdings Limited to S1 Corporation, a company listed on the Nasdaq stock market.
A profit on disposal of the investment of R73,8 million has been recognised on a
fair value basis at the reporting date. $10,5 million of the purchase
consideration has been received to date.
The group has concluded the acquisition of the business of Intrinsic Technology
(Pty) Limited (Intrinsic). The effective date of the transaction was 1 December
2004; therefore this transaction was not accounted for during the reporting
period. The Intrinsic acquisition enhances the group`s offerings in South Africa
and provides a channel for business in Africa through its subsidiaries in
Angola, Tanzania and Zambia.
Operating results
The group`s revenue declined during the period by 3,9%, primarily due to fewer
contracts being awarded in Africa and delays in respect of those contracts that
were awarded. Revenue growth was experienced in the local market due to new
business and the inclusion of Business Connexion Solution Holdings` revenue,
following the merger in January 2004. The group`s gross margin improved due to a
better mix of business. A stable rand/dollar exchange rate and less revenue from
Africa has resulted in minimal foreign exchange and derivative losses compared
to the previous year when AC 133 was introduced and the rand was strengthening.
Operating profit increased by 5,9% to R62,8 million, representing 4,6% of
revenue.
Headline earnings per share (HEPS) amounts to 23,2 cents which is an 18,4%
improvement compared to the amount disclosed in the circular to shareholders
regarding the restructure of Comparex Holdings Limited. The circular reported
that the effect of the cash distributions on Comparex Holdings Limited HEPS for
November 2003 would be a reduction of 24,6 cents per share to 19,6 cents per
share.
The group has adopted AC 140 and AC 501 during the current period. In terms of
AC 140 goodwill has been reviewed for impairment and no impairment is considered
necessary.
The group raised a deferred tax asset in terms of AC 501 in respect of STC
credits held on dividends received by the group to the extent of possible
distributions. The impact is highlighted above in `other group salient
information`.
The group`s balance sheet remains strong with cash reserves of R812 million.
Cash generated from operations amounted to R36,9 million.
Taxation issue
The significant matter relating to the claiming of trademark deductions by a
subsidiary has not been resolved. The hearing of the matter in respect of the
Persetel trademark in the appeal court has yet to be scheduled. The subsidiary
involved has claimed deductions of R865 million in respect of all trademarks,
resulting in a tax reduction of R289 million to 30 November 2004. If any amount
is required to be paid to SARS it will be interest bearing.
Dividends
The board has resolved to pay an annual dividend, details of which will be
announced with the publication of the full year results.
Prospects
Business Connexion`s black empowered status and innovative solution approach
will yield benefits in the anticipated upturn in the ICT sector. The board
believes management`s focus on superior service delivery, maintaining a
substantial annuity income base, cost containment and positive cash flow, will
continue to enhance stakeholder value.
On behalf of the board
RS Berkowitz PA Watt AC Farthing
Chairman Chief Executive Financial Director
Officer
Midrand, 10 February 2005
Executive directors:
PA Watt (Chief Executive Officer),
LB Mophatlane (Deputy Chief Executive Officer) and
AC Farthing (British) (Financial Director)
Non-executive directors:
RS Berkowitz (Chairman),
DM Nurek (Deputy Chairman),
JF Buchanan and
FJ van der Merwe
Business Connexion Group Limited:
(Incorporated in the Republic of South Africa)
Group Limited: (Registration number: 1988/005282/06)
(Share code: BCX ISIN: ZAE000054631)
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 2004 (Pty) Limited
9th Floor, 70 Marshall Street
Johannesburg, 2001
Postal address:
PO Box 61051
Marshalltown
2107
Telephone: (+27 11) 496 2222
Fax: (+27 11) 496 1244
Sponsor:
Rand Merchant Bank
A division of FirstRand Bank Limited
1 Merchant Place,
Cnr Fredman Drive and Rivonia Road
Sandton, 2196
Date: 14/02/2005 07:49:12 AM
Produced by the JSE SENS Department
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