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BCX
BCX
BCX - Audited Group Results for the year ended 31 May 2006
Business Connexion Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1988/005282/06)
Share code: BCX ISIN: ZAE000054631
("BCX" or "the company")
Audited Group Results for the year ended 31 May 2006
Revenue growth of 14%
Cash positive
Platform for continued growth
Group balance sheet
Reviewed
Audited Restated
31 May 31 May
R million 2006 2005
ASSETS
Non-current assets
Property, furniture and fittings, equipment and
vehicles 218,5 118,6
Investment property 10,5 5,5
Capitalised leased assets 9,1 274,2
Rental assets 2,4
Goodwill 113,5 103,9
Other intangible assets 91,1 42,4
Other long-term investments 130,4 177,9
Long-term loans and advances 2,9 10,1
Deferred tax assets 35,4 56,7
613,8 789,3
Current assets
Inventories 49,6 50,9
Trade accounts receivable 544,6 534,6
Other accounts receivable 106,3 122,9
Derivative and embedded derivative assets 60,9
Prepayments 51,3 49,4
Tax prepaid 1,6 4,3
Non-current assets held for sale 279,2
Bank balances and cash 743,3 776,3
1 775,9 1 599,3
TOTAL ASSETS 2 389,7 2 388,6
EQUITY AND LIABILITIES
Equity attributable to parent shareholders 1 231,4 1 204,4
Minority interests 85,7 64,2
Total shareholders" equity 1 317,1 1 268,6
Non-current liabilities
Interest-bearing long-term liabilities 6,0 209,6
Interest free long-term liabilities 133,9 150,8
Post-retirement obligations 9,7 8,3
Provisions 5,6
Deferred tax liabilities 0,2 0,7
155,4 369,4
Current liabilities
Short-term borrowings and bank overdrafts 22,1 27,1
Non-current liabilities related to held for sale
assets 203,7
Trade accounts payable 217,6 210,4
Other accounts payable 468,9 451,1
Provisions 0,6 17,6
Embedded derivative liabilities 26,9
Tax 4,3 17,5
917,2 750,6
TOTAL EQUITY AND LIABILITIES 2 389,7 2 388,6
Group income statement
Reviewed
Audited Restated
Year Year
ended ended
31 May 31 May
R million 2006 2005
Revenue 3 207,7 2 816,1
Cost of sales 2 229,4 1 928,4
Gross profit 978,3 887,7
Operating expenses 767,3 663,4
Foreign exchange and derivative gains 3,3 6,3
Operational exceptional gains 0,1 15,4
Operating profit before depreciation and 214,4 246,0
amortisation
Depreciation and amortisation 70,6 60,9
Operating profit 143,8 185,1
Investment income 56,0 70,2
Share of associates" profits 10,5
Profit before interest paid 199,8 265,8
Interest paid 34,0 52,3
Profit before exceptional items 165,8 213,5
Exceptional gains 18,3 146,9
Profit before tax 184,1 360,4
Tax 46,1 86,7
Profit for the year 138,0 273,7
Profit attributable to parent shareholders 116,4 280,0
Profit attributable to minority interests 21,6 (6,3)
Profit for the year 138,0 273,7
Dividend per share (cents) 37,0
Earnings per share (cents) 46,9 113,6
Diluted earnings per share (cents) 44,6 106,6
Calculation of headline earnings
Reviewed
Audited Restated
Year Year
ended ended
31 May 31 May
R million 2006 2005
Profit attributable to parent shareholders 116,4 280,0
Impairment of assets, loans and investments 0,7
Goodwill impairments 7,9
Loss/(profit) on sale of property, furniture and
fittings, equipment and vehicles 0,4 (0,2)
Fair value adjustment of investment property (5,0)
Profit on sale of businesses and associates (116,9)
Tax effect on disposal of businesses and associates 4,5
Minority effect of headline earnings adjustments 1,1 (2,1)
Headline earnings 112,9 173,9
Weighted average number of shares in issue (000s) 247 867 246 445
Headline earnings per share (cents) 45,6 70,6
Diluted weighted average number of shares in issue
(000s) 260 758 262 801
Diluted headline earnings per share (cents) 43,3 66,2
Reconciliation of total shareholders" equity
from SA GAAP to IFRS
Year Year
ended ended
31 May 31 May
R million 2005 2004
Balance previously reported 1 130,6 916,5
Effect of adoption of accounting policies 4,7
1 130,6 921,2
Minority interests 40,4 49,4
IFRS adjustments directly to reserves
- Property, furniture and fittings, equipment and 18,2 14,0
vehicles
- Capitalised leased assets 101,1 97,8
- Deferred tax (18,6)
Other adjustments directly to reserves
- Operating leases (4,4) (4,1)
- Provisions 1,3 1,6
1 268,6 1 079,9
Condensed group cash flow statement
Reviewed
Audited Restated
Year Year
ended ended
31 May 31 May
R million 2006 2005
Net cash flow from/(utilised in) operating 106,3 (30,8)
activities
Net cash flow (utilised in)/from investing (140,7) 42,9
activities
Net cash flow from/(utilised) in financing 1,1 (18,2)
activities
Net changes in cash and cash equivalents (33,3) (6,1)
Cash and cash equivalents at beginning of the year 776,3 782,4
Cash and cash equivalents at end of the year 743,0 776,3
There is no cash flow impact with the adoption of IFRS
Group segmental analysis
Reviewed
Audited Restated
Year Year
ended ended
31 May 31 May
R million 2006 2005
BUSINESS GROUPINGS ANALYSIS
Revenue
Services 1 743,1 1 826,0
Business applications 425,9 300,9
Technology infrastructure 1 002,0 689,2
Communications 36,7
3 207,7 2 816,1
Operating profit
Services 182,0 180,0
Business applications (9,0) 13,7
Technology infrastructure (10,9) 16,8
Communications (4,7)
Central functions (13,6) (25,4)
143,8 185,1
GEOGRAPHICAL SEGMENTAL ANALYSIS
Revenue
South Africa 2 987,1 2 623,1
Rest of Africa 185,6 154,6
United Kingdom 35,0 38,4
3 207,7 2 816,1
Operating profit
South Africa 159,8 197,6
Rest of Africa (18,0) (13,2)
United Kingdom 2,0 0,7
143,8 185,1
Group statement of changes in equity
Share Trademark Foreign
capital tax currency
and benefit translation Distributable
R million premium reserve reserve reserves
Balance at 31 May 2004 -
audited 250,6 94,2 (0,2) 571,9
Effect of adoption of
accounting policies 4,7
Net movement not
recognised through the
income statement 71,4 0,2 10,6
Treasury shares held by
share purchase trust
reallocated from share
premium to distributable
reserves 71,4 (71,4)
IFRS and other adjustments
directly to reserves 0,2 82,0
Restated balance at 31 May
2004 - reviewed 322,0 94,2 587,2
Net movement not
recognised through the
income statement (0,1) (94,2) (0,7) 16,0
Treasury shares and
related reserves held by a
subsidiary and share
purchase trusts (0,1) (21,4)
Change in estimate of
trademark tax benefit
reserve (107,1)
Deferred tax transferred
as a result of deductions
in respect of trademarks 11,5
Charge to deferred tax for
trademark settlement 36,6
Transfer of reserves 1,4 (1,4)
Foreign exchange loss
arising on consolidation (0,7)
Minority interest in
subsidiary dividends
IFRS and other
adjustments directly to
reserves 2,2
Net movement recognised
through the income
statement 280,0
Attributable profit per
the income statement as
previously reported 290,6
IFRS and other adjustments
to the income statement (10,6)
Restated balance at 31 May
2005 - reviewed 321,9 (0,7) 883,2
Adoption of IAS 39 2,1
Net movement not
recognised through the
income statement (1,7) 7,4
Foreign exchange loss
arising on consolidation (2,6)
Treasury shares and
related reserves held by a
subsidiary and share
purchase trusts 4,2
IFRS share-based payments 3,2
Minority interest on
foreign exchange loss 0,9
Net movement recognised
through the income
statement
Attributable profit per
the income statement 116,4
Dividend declared (97,2)
Balance at 31 May 2006 -
audited 321,9 (2,4) 911,9
Group statement of changes in equity
Equity
attributable Total
to parent Minority shareholders"
R million shareholders interests equity
Balance at 31 May 2004 - audited 916,5 49,4 965,9
Effect of adoption of accounting
policies 4,7 4,7
Net movement not recognised
through the income statement 82,2 27,1 109,3
Treasury shares held by share
purchase trust reallocated from
share premium to distributable
reserves
IFRS and other adjustments
directly to reserves 82,2 27,1 109,3
Restated balance at 31 May 2004 -
reviewed 1 003,4 76,5 1 079,9
Net movement not recognised
through the income statement (79,0) (6,0) (85,0)
Treasury shares and related
reserves held by a subsidiary and
share purchase trusts (21,5) (21,5)
Change in estimate of trademark
tax benefit reserve (107,1) (107,1)
Deferred tax transferred as a
result of deductions in respect
of trademarks 11,5 11,5
Charge to deferred tax for
trademark settlement 36,6 36,6
Transfer of reserves 1,4 (1,4)
Foreign exchange loss arising on
consolidation (0,7) (0,7)
Minority interest in subsidiary
dividends (6,0) (6,0)
IFRS and other adjustments
directly to reserves 2,2 2,2
Net movement recognised through
the income statement 280,0 (6,3) 273,7
Attributable profit per the
income statement as previously
reported 290,6 (3,0) 287,6
IFRS and other adjustments to the
income statement (10,6) (3,3) (13,9)
Restated balance at 31 May 2005 -
reviewed 1 204,4 64,2 1 268,6
Adoption of IAS 39 2,1 0,8 2,9
Net movement not recognised
through the income statement 5,7 (0,9) 4,8
Foreign exchange loss arising on
consolidation (2,6) (2,6)
Treasury shares and related
reserves held by a subsidiary and
share purchase trusts 4,2 4,2
IFRS share-based payments 3,2 3,2
Minority interest on foreign
exchange loss 0,9 (0,9)
Net movement recognised through
the income statement
Attributable profit per the
income statement 116,4 21,6 138,0
Dividend declared (97,2) (97,2)
Balance at 31 May 2006 - audited 1 231,4 85,7 1 317,1
Reconciliation of group income statement from SA GAAP to IFRS
Previously
reported Adjustments Restated
Audited Reviewed Reviewed
Year ended Year ended Year ended
31 May 31 May 31 May
R million 2005 2005 2006
Revenue 2 816,1 2 816,1
Cost of sales 1 928,4 1 928,4
Gross profit 887,7 887,7
Operating expenses 660,6 2,8 663,4
Foreign exchange and derivative
gains 6,3 6,3
Operational exceptional gains 15,4 15,4
Operating profit before
depreciation and amortisation 248,8 (2,8) 246,0
Depreciation and amortisation 68,4 (7,5) 60,9
Operating profit 180,4 4,7 185,1
Investment income 70,2 70,2
Share of associates" profits 10,5 10,5
Profit before interest paid 261,1 4,7 265,8
Interest paid 52,3 52,3
Profit before exceptional items 208,8 4,7 213,5
Exceptional gains 146,9 146,9
Profit before tax 355,7 4,7 360,4
Tax 68,1 18,6 86,7
Profit for the year 287,6 (13,9) 273,7
Profit attributable to parent
shareholders 290,6 (10,6) 280,0
Profit attributable to minority
interests (3,0) (3,3) (6,3)
Profit for the year 287,6 (13,9) 273,7
Earnings per share (cents) 117,9 (4,3) 113,6
Diluted earnings per share (cents) 110,6 (4,0) 106,6
Other group salient information
Restated
Audited Reviewed
31 May 31 May
2006 2005
Number of shares in issue (000s) 262 637 262 637
Less: shares held in share purchase trust and
fellow subsidiary as treasury shares (000s) 12 235 18 977
250 402 243 660
Number of options in issue (000s) 17 254 22 759
Number of dilutive options (000s) 8 773 13 897
Net asset value per share (cents) 501,5 483,0
(Total shareholders" equity divided by number of
shares in issue)
R million R million
Related party transactions with associates
Sale of services and goods 0,1
Contingent liabilities
Performance guarantees 34,7 48,0
Other 9,6 3,3
Guarantee provided to a funder of Gadlex (Pty)
Limited, secured by Gadlex"s shareholding in
Business Connexion (Pty) Limited 67,0
Capital commitments
Capital 79,4 149,6
Operating lease 121,4 101,5
First time adoption of International Financial Reporting Standards ("IFRS")
The group is reporting under the IFRS for the first time for the year ended 31
May 2006 and, accordingly, comparatives have been restated where required. The
transition date for IFRS is 1 June 2004. The audited results for the year ended
31 May 2006 have been prepared in accordance with the group"s accounting
policies, which comply with IFRS. The disclosures required under IFRS 1, First-
time adoption of International Reporting Standards, have been included in the
above results. The following IFRSs have impacted the group"s accounting
policies:
Property, furniture and fittings, equipment and vehicles
The residual values and useful lives of major fixed assets have been assessed
and where applicable depreciation has been adjusted as per IAS 16, Property,
plant and equipment. In addition software has been moved from the category of
equipment in property, furniture and fittings and vehicles to other intangible
assets. This has been applied retrospectively.
Capitalised leased assets
The group has elected to adjust the property leases capitalised to fair value in
accordance with the deemed cost exemption in IFRS 1 where an entity may elect to
measure an item at fair value at the date of transition. The residual values and
useful lives of major capitalised leased assets have been assessed and, where
applicable, depreciation has been adjusted accordingly.
Share-based payments
The fair value of equity-settled share-based payment transactions is charged to
the income statement and the reciprocal credit is shown in distributable
reserves in the balance sheet as per IFRS 2, Share-based payments.
Foreign currency translation reserve
The group has elected to apply the exemption afforded in IFRS 1 whereby the
balance of the foreign currency translation reserve is deemed to be zero at the
date of transition.
Embedded derivative asset and liability
Amendments made to IAS 39, Financial Instruments: Recognition and Measurement,
in respect of foreign currency derivatives embedded in a non-financial host
contract has been adjusted for at 1 June 2005. Comparatives have not been
restated. Embedded derivatives raised due to a transaction concluded in a third
currency have been reversed as the goods or services that are acquired or
delivered are routinely denominated in the third currency and as such no
embedded derivative exists.
Deferred tax
Deferred tax has been adjusted for the changes made to the carrying value of
assets and liabilities.
Minority interests
Minority interest has been adjusted on the changes made to assets and
liabilities because of the adoption of IFRS.
IFRS 4, Insurance contracts
IFRS 4 has been applied from 1 June 2005. Comparatives have not been restated.
IFRS 5, Non-current assets held for sale and discontinued operations
IFRS 5 has been applied from 1 June 2005. Comparatives have not been restated.
Other adjustments
Operating leases
The accounting treatment of lease rentals has been modified to comply with the
international interpretation of the requirements of IAS 17, Leases. Escalations
in operating leases are no longer recognised in the periods they are actually
incurred, but charged to the income statement on a straight-line basis over the
term of the lease.
Provisions
Amounts included in other accounts payable have been reclassified to provisions
and provisions have been present valued at an appropriate discount rate.
The above results have been audited by the group"s auditors Deloitte & Touche
and a copy of their audit report is available for inspection at the company"s
registered office.
Comments
Operating results
Revenue growth in the second half of the year was lower compared to the first
half; however revenue growth year on year was 14%. The group has experienced a
significant increase in cost levels, both operating costs and those included in
cost of sales. In addition margins have been diluted by pricing pressure from
clients. The reduction in operating profit (excluding exceptional items) of 15%
is a result of the high cost of tendering for long term contracts and costs
associated with internally focused projects, which include internal
restructuring, the implementation of SAP and the construction of the new data
centres. Certain of the costs incurred are not expected to be repeated in
future.
Revenue from the "Rest of Africa" increased by 20% but the various operations
collectively remained unprofitable. Cost savings were identified and implemented
at year end, which will have a beneficial effect in the new year.
The new data centres were completed on time and the transition from the old data
centre to the new buildings is underway. The first transition of clients"
infrastructure has been successfully concluded with minimal disruption and the
project will be completed by October 2006. The new facilities encompass the
latest technology in data centre design.
Headline earnings per share (HEPS) of 45,6 cents have decreased by 35%; however
this is influenced by several factors including the sale of investments in the
prior year which reduced the income from associates, the settlement with SARS in
the prior year in respect of the trademark dispute and payment of STC on the
group"s maiden dividend in the current year. On a comparable basis HEPS
decreased by 11%.
The group remained cash positive with cash generated from operations amounting
to R106 million.
As a result the group"s balance sheet remains robust with cash reserves of R743
million. Capital expenditure amounted to R196 million, which included R109
million in respect of the data centres and R34 million for the implementation of
SAP.
Corporate activity
During November 2005 the group acquired the business of Bidvest Network
Solutions from Bidvest. This significantly expands the group"s ability to offer
value added network services to the client base. The group has committed further
funds to expand this network to meet client requirements. The business has been
renamed "Business Connexion Communications".
The preference share investment in Corp Invest 40 was redeemed during July 2005
realising R45 million. The group also received the final proceeds of R66 million
in respect of the sale of Perago Financial System Enablers (Proprietary) Limited
and Mosaic Software Holdings Limited.
Post Balance Sheet Event
The board has decided to dispose of its office property portfolio to Growthpoint
Properties Limited.
The transaction provides the group with an opportunity to restructure finance
lease commitments on more commercially favourable terms. The group will retain
occupation of the properties as tenants. The transaction will realise immediate
cash savings on an annual basis and a once off profit of approximately R130
million. Approval of the transaction by the Competition Tribunal was received in
July 2006.
At year end the assets and the associated liabilities have been reclassified as
"held for sale" assets and liabilities.
Telkom
The scheme of arrangement in terms of section 311 of the Companies Act, Act 61
of 1973, as amended, proposed by Telkom between Business Connexion and its
shareholders was sanctioned by the High Court of South Africa (Witwatersrand
Local Division) on 20 June 2006. The scheme is still subject to the fulfilment
of conditions precedent, which includes the approval of the Competition
Authorities of the proposed acquisition.
Dividend
Notice is hereby given that the board has declared a normal dividend number 2 of
15 cents per share.
The salient dates are as follows:
Last day to trade Friday, 1 September 2006
Securities start trading ex dividend Monday, 4 September 2006
Record Date Friday, 8 September 2006
Payment Date Monday, 11 September 2006
Share certificates may not be dematerialised or rematerialised between Monday 4
September 2006 and Friday 8 September 2006, both dates inclusive.
Prospects
The completion of the new data centre facility and the expansion of Business
Connexion Communications network allows the group to aggressively pursue new
revenue opportunities. The implementation of SAP will provide management with
meaningful management information to sustain the growth and to identify cost
saving opportunities.
The group is well placed to take advantage of the new legal and regulatory
environment and globalisation in the ICT sector, which will increase the
prospects for future growth especially in regard to "on demand" services.
On behalf of the board
RS Berkowitz PA Watt AC Farthing
Chairman Chief Executive Officer Financial Director
Midrand
10 August 2006
Executive directors: PA Watt (Chief Executive Officer), LB Mophatlane and AC
Farthing (British) (Financial Director)
Non-executive directors: RS Berkowitz (Chairman). DM Nurek (Deputy Chairman), JF
Buchanan and NN Kekana
Business Connexion 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 Link Market Services SA (Pty) Limited
transfer secretaries: 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: 16/08/2006 07:00:25 AM Produced by the JSE SENS Department
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