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Business Connexion Group Limited - Reviewed Group Results Of Business Connexion
Group Limited For The Year Ended 31 May 2005
BUSINESS CONNEXION GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1988/005282/06)
Share code: BCX ISIN: ZAE000054631
Reviewed Group Results of Business Connexion Group Limited
for the year ended 31 May 2005
* UNDERLYING HEPS GROWTH OF 76%
* POSITIVE OPERATING CASH FLOW
* NON-CORE ASSETS DISPOSED OF
* SARS DISPUTE SETTLED
Group balance sheet
Reviewed Audited
31 May 31 May
R million 2005 2004
ASSETS
Non-current assets
Property, furniture and fittings, 145,7 134,7
equipment and vehicles
Capitalised leased assets 173,1 181,9
Intangible assets - goodwill and 104,7 104,0
other
Investment in associates and other 178,0 196,8
long-term investments
Long-term loans and advances 10,1 17,2
Deferred tax assets 75,3 1,3
686,9 635,9
Current assets
Inventories 52,6 42,7
Trade accounts receivable 534,6 438,6
Other accounts receivable 122,9 77,7
Derivative and embedded derivative 60,9 25,9
assets
Prepayments 49,4 59,8
Tax prepaid 4,3 4,4
Bank balances and cash 776,3 782,4
1 601,0 1 431,5
TOTAL ASSETS 2 287,9 2 067,4
EQUITY AND LIABILITIES
Shareholders` equity 1 130,6 916,5
Minority interests 40,4 49,4
Non-current liabilities
Interest-bearing long-term 209,6 226,7
liabilities
Interest-free long-term liabilities 150,8 124,5
Post retirement obligations 8,3 6,2
Deferred tax liabilities 0,7 0,4
369,4 357,8
Current liabilities
Short-term borrowings 27,1 67,2
Trade accounts payable 210,4 181,6
Other accounts payable 450,0 419,3
Provisions 15,6 38,6
Embedded derivative liabilities 26,9 26,1
Tax 17,5 10,9
747,5 743,7
TOTAL EQUITY AND LIABILITIES 2 287,9 2 067,4
Group income statement
Reviewed Audited
Year ended Year ended
31 May 31 May
R million 2005 2004
Revenue 2 816,1 2 811,8
Cost of sales 1 928,4 1 992,2
Gross profit 887,7 819,6
Operating expenses 660,6 598,3
Foreign exchange and derivative 6,3 (24,8)
gains/(losses)
Operational exceptional 15,4 (4,9)
gains/(losses)
Operating profit before 248,8 191,6
depreciation and amortisation
Depreciation and amortisation 68,4 65,8
Operating profit 180,4 125,8
Investment income 70,2 45,0
Share of associate`s profits 10,5 8,1
Profit before interest paid 261,1 178,9
Interest paid 52,3 42,7
Profit before exceptional items 208,8 136,2
Exceptional gains 146,9 37,4
Profit before tax 355,7 173,6
Tax 68,1 45,6
Profit after tax 287,6 128,0
Minorities (3,0) 7,5
Profit attributable to shareholders 290,6 120,5
Weighted average number of shares 246 445 253 551
in issue (000`s)
Earnings per share (cents) 117,9 47,5
Fully diluted weighted average 262 801 253 551
number of shares in issue (000`s)
Fully diluted earnings per share 110,6 47,5
(cents)
Calculation of headline earnings
Profit attributable to shareholders 290,6 120,5
Reversal of impairment of assets, 0,7 0,1
loans and investments
Goodwill impairments and 7,9 9,8
amortisation
Profit on sale of property, (0,2) (1,3)
furniture and fittings, equipment
and vehicles
Profit on sale of businesses and (116,9) (6,5)
associates
Recognition of negative goodwill (35,0)
Associate adjustment 1,3
Tax effect on disposal of 4,5 0,4
businesses and associates
Minority effect of headline (2,1) (2,7)
adjustments
Headline earnings 184,5 86,6
Weighted average number of shares 246 445 253 551
in issue (000`s)
Headline earnings per share 74,9 34,2
(cents)
Fully diluted weighted average 262 801 253 551
number of shares in issue (000`s)
Fully diluted headline earnings 70,2 34,2
per share (cents)
Group cash flow statement
Reviewed Audited
Year ended Year ended
31 May 31 May
R million 2005 2004
Cash flow from operating activities
Cash generated from operations 156,1 123,9
Net interest received/(paid) 1,2 (0,9)
Net dividends paid (0,7) (0,6)
Tax paid (187,4) (21,6)
Net cash flow (utilised in)/from (30,8) 100,8
operating activities
Cash flow from investing activities
Net movement in investments 110,8 644,4
Advances to previous group (81,0)
companies
Additions to property, furniture (69,4) (88,7)
and fittings, equipment and
vehicles
Proceeds on sale of property, 1,5 2,4
furniture and fittings, equipment
and vehicles
Net movement in rental, leased and (0,1)
intangible assets
Net cash flow from investing 42,9 477,0
activities
Cash flow from financing activities
Proceeds from share capital 36,9
Net movement in long-term loans and (18,2) 12,9
advances and share options
exercised
Net cash flow (utilised in)/from (18,2) 49,8
financing activities
Net changes in cash and cash (6,1) 627,6
equivalents
Cash and cash equivalents at 782,4 154,8
beginning of year
Cash and cash equivalents at end of 776,3 782,4
year
Details of exceptional items
Reviewed Audited
Year ended Year ended
31 May 31 May
R million 2005 2004
Operational exceptional
gains/(losses)
Re-branding costs (1,3) (9,5)
Provisions released 14,0 4,6
Reversal of restructure costs 2,7
15,4 (4,9)
Exceptional gains
Reversal of impairment/(impairment) 7,7 (1,7)
of loans and advances
Fair value adjustments to 10,0 (2,4)
investments
Profit on sale of businesses and 116,9 6,5
associates
Fair value adjustment of Mosaic 20,2
derivative asset
Impairment of goodwill (7,9)
Recognition of negative goodwill 35,0
146,9 37,4
Group segmental analysis
Reviewed Audited
Year ended Year ended
31 May 31 May
R million 2005 2004
BUSINESS GROUPINGS ANALYSIS
Revenue
Services 1 826,0 1 726,1
Technology infrastructure 689,2 816,7
Business applications 300,9 269,0
2 816,1 2 811,8
Operating profit
Services 174,9 154,6
Technology infrastructure 18,5 14,7
Business applications 13,9 (2,9)
Central functions (26,9) (40,6)
180,4 125,8
GEOGRAPHICAL SEGMENTAL ANALYSIS
Revenue
South Africa 2 623,1 2 408.4
Rest of Africa 154,6 349,8
Other, principally the United 38,4 53,6
Kingdom
2 816,1 2 811,8
Operating profit
South Africa 193,0 99,2
Rest of Africa (13,3) 26,2
Other, principally the United 0,7 0,4
Kingdom
180,4 125,8
Group statement of changes in equity
Share Trademark Foreign
capital tax exchange Distri-
and benefit butable
R million premium reserve reserve reserves Total
Balance at 31 285,1 63,3 2,6 202,9 553,9
May 2003 -
audited
Adoption of (3,2) (3,2)
AC 133
Restated 285,1 63,3 2,6 199,7 550,7
balance at 31
May 2003
Share capital 37,0 37,0
issued
Issue costs (0,1) (0,1)
Treasury (71,4) (71,4)
shares held
by share
purchase
trust
Deferred tax 30,9 30,9
transferred
as a result
of deductions
in respect of
trademarks
Foreign (1,2) (1,2)
exchange loss
arising on
consolidation
Foreign (1,6) (1,6)
exchange
reserve
released on
disposal of
subsidiary
Reserves of 251,7 251,7
share
purchase
trusts
Attributable 120,5 120,5
profit per
the income
statement
Balance at 31 250,6 94,2 (0,2) 571,9 916,5
May 2004 -
audited
Adoption of 4,3 4,3
AC 501
Adoption of 0,4 0,4
AC 140
Treasury 71,4 (71,4)
shares held
by share
purchase
trust
Restated 322,0 94,2 (0,2) 505,2 921,2
balance at 31
May 2004
Treasury (0,1) (28,7) (28,8)
shares held
by a
subsidiary
and share
purchase
trusts
Deferred tax 11,5 11,5
transferred
as a result
of deductions
in respect of
trademarks to
30 November
2004
Change in (107,1) (107,1)
estimate of
trademark tax
benefit
reserve
Charge to 36,6 36,6
deferred tax
for trademark
settlement
Transfer of 1,4 (1,4)
reserves
Foreign (0,7) (0,7)
exchange loss
arising on
consolidation
Reserves of 7,3 7,3
share
purchase
trusts
Attributable 290,6 290,6
profit per
the income
statement
Balance at 31 321,9 (0,9) 809,6 1 130,6
May 2005 -
reviewed
Other group salient information
Reviewed Audited
31 May 31 May
2005 2004
Number of shares in issue (000`s) 262 637 262 637
Less: shares held in share purchase 18 977 19 827
trust and subsidiary as treasury
shares
243 660 242 810
Number of options in issue (000`s) 22 759 30 562
Number of fully dilutive options 13 897
(000`s)
Net asset value per share (cents) 445,9 367,8
(Shareholders` equity and minority interests divided by number of shares in
issue)
R million R million
Related party transactions with
associates
Sale of services and goods 0,1 0,5
Purchases of services and goods 0,1
Net amounts due by related parties 0,1
Contingent liabilities
Performance guarantees 48,0 84,2
Other 3,3 1,5
Capital commitments
Capital 149,6 4,6
Lease 101,5 215,6
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 of AC 140,
Business Combinations, and AC 501, Accounting for Secondary Tax on Companies
(STC), by the group. The adoption of these accounting standards has resulted in
the following adjustments being made to the results:
Other group salient information (continued)
Attributable
Retained profit per
R million income income statement
Adoption of AC 140 - Gross 0,4 (7,9)
Minority effect 0,0 2,0
Net effect on shareholders 0,4 (5,9)
Adoption of AC 501 - Gross 4,3 1,7
Minority effect 0,0 0,0
Net effect on shareholders 4,3 1,7
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 board of directors of Business Connexion Group Limited (BCX) is pleased to
report an improvement in the performance of the group during the past financial
year. Our client-centric model together with a determination to deliver
exceptional service has enabled the group to participate in a greater number of
opportunities in the Information Communication and Technology (ICT) market.
Revenue in the South African market increased by 9%, mainly in service offerings
provided to clients. Operating margins have improved with a corresponding
increase in headline earnings per share. In addition, the long standing dispute
with South African Revenue Services (SARS) in respect of trademarks was settled
in March 2005. This settlement together with the disposal of a number of non-
core investments has allowed management to concentrate on the core activities of
the group.
Disposal of non-core interests
During November 2004 the group disposed of its investment in Mosaic Software
Holdings Limited which realised a profit on disposal of R73,8 million. Since the
interim results we have been advised by Mosaic that the maximum earn-out payment
in terms of the sale agreement will be achieved. In November 2004 the earn-out
portion of the selling price was fair valued as a derivative, and consequently
the balance of the earn-out amounting to R20,2 million is considered to be a
derivative gain and therefore included in headline earnings.
The group also disposed of its 39,13% interest in Digital Healthcare Solutions
(Pty) Limited and its 25% interest in Perago Financial Systems Enablers (Pty)
Limited.
Acquisitions
On 1 December 2004 the group acquired the business of Intrinsic Technology (Pty)
Limited (Intrinsic) which included its investment in subsidiaries in Mauritius,
Tanzania and Zambia. This acquisition enhances the group`s offerings in South
Africa and expands the presence in the rest of Africa.
Operating results
Overall revenue remained static during the period, notwithstanding revenue in
South Africa increasing by 9%. The strategy of expansion in Africa suffered
during the year as fewer substantial contacts were available; this resulted in a
reduction of 56% in revenue from this region. The overall gross margin improved
due to a more favourable mix of higher margin services than products. This
together with tight control over expenses and a reduction in embedded derivative
losses saw the operating profit increase by 43% to R180,4 million, representing
6,4% of revenue.
The group adopted AC140 and AC501 during the current period. In terms of AC140
goodwill has been reviewed for impairment. Due to the poor performance in the
rest of Africa it was considered appropriate to impair the goodwill arising on
the Intrinsic transaction. No other impairments were required.
The group raised a deferred tax asset in terms of AC501 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`.
Headline earnings per share (HEPS) amounts to 74,9 cents, an improvement of 119%
compared to the previous financial year. This includes earnings related to
transactions that will not recur as detailed below:
Rm Cents
per
share
Reported headline earnings 184,5 74,9
Less: derivative gain on sale of Mosaic (20,2) (8,2)
Less: fair value adjustment to Corp 40 (10,0) (4,1)
Add: net effect of SARS settlement in 35,5 14,4
respect of trademarks
Less: deferred tax asset raised (33,7) (13,7)
Less: share of associate`s profits (7,5) (3,0)
Underlying headline earnings 148,6 60,3
The underlying headline earnings represents an improvement of 76% compared to
the previous financial year.
The group`s balance sheet remains strong with cash reserves of R776,3 million,
notwithstanding the trademark settlement payment to SARS of R159 million. Cash
generated from operations excluding the settlement payment amounted to R128,2
million.
Taxation issue
Business Connexion (Proprietary) Limited, the major operating subsidiary of BCX,
reached agreement with SARS on the value of trademarks (the Persetel and Q Data
trademarks) claimed as a deduction from its taxable income for the financial
years 1995 to 2004. Business Connexion (Proprietary) Limited, following the
conclusion of an agreement with SARS, paid an amount of R159 million to SARS in
full settlement of its taxation liabilities relating to the trademark deductions
up to 31 May 2004.
The settlement with SARS extinguished the computed tax loss that the group
previously reported; consequently the group is now in a tax paying position.
Historically the uncertainty arising from the trademark dispute which gave rise
to the assessed loss resulted in the group not recognising a deferred tax asset
on its tax base. This uncertainty has now been removed and a deferred tax asset
of R45 million has been recognised in Business Connexion (Pty) Limited.
Post-balance sheet events
The Preference Share investment in Corp Invest 40 Limited, that facilitated the
NITAC empowerment structure in Persetel Q Data Africa Holdings Limited, was
redeemed during July 2005. The group received a cash payment of R22 million and
a dividend in specie of 3,23 million BCX shares and 1,59 million Dimension Data
Plc shares. The Dimension Data shares have subsequently been sold.
International financial reporting standards (IFRS)
With effect from 1 June 2005, BCX will prepare its financial statements in terms
of IFRS. The group has undertaken an extensive project to determine the impact
of IFRS and the necessary restatement of comparatives has been determined.
Dividends
Notice is hereby given that the board has declared a normal dividend number 1 of
20 cents per share and a special dividend of 17 cents per share. The salient
dates are as follows:
Last date to trade Friday, 2
September 2005
Securities start trading ex dividend Monday, 5
September 2005
Record date Friday, 9
September 2005
Payment date Monday , 12
September 2005
Share certificates may not be dematerialised or rematerialised between Monday, 5
September 2005 and Friday, 9 September 2005, both dates inclusive.
Prospects
Business Connexion`s black empowered status and innovative `solutions` approach
will continue to yield benefits for shareholders. The ICT sector in general, is
still in a recovery phase. Notwithstanding, we have seen an increasing interest
in certain offerings, particularly in infrastructure and professional services
outsourcing where the group`s strengths are well recognised. The board has
approved the development of a new Data Centre facility which will enhance the
group`s long-term leadership in the infrastructure-outsourcing market.
Despite the difficulties experienced in the rest of Africa in the past year, it
is still a focus area that management believes will generate future returns.
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 Officer Financial Director
Midrand
11 August 2005
Executive directors:
PA Watt (Chief Executive Officer), LB Mophatlane,
AC Farthing (British)
Non-executive directors:
RS Berkowitz (Chairman), DM Nurek (Deputy Chairman),
JF Buchanan, FJ van der Merwe
Business Connexion Group Limited:
(Incorporated in the Republic of South Africa)
(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:
Ultra Registars (Pty) Limited
11 Diagonal Street, Johannesburg, 2001
Sponsor:
Rand Merchant Bank
A division of FirstRand Bank Limited
1 Merchant Place,
Corner Fredman Drive and Rivonia Road, Sandton, 2196
Date: 16/08/2005 07:05:18 AM
Produced by the JSE SENS Department
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