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BUSINESS CONNEXION GROUP LIMITED - Reviewed condensed consolidated interim financial information and cautionary announcement

Release Date: 15/04/2014 08:00
Code(s): BCX     PDF:  
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Reviewed condensed consolidated interim financial information and cautionary announcement

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 28 FEBRUARY 2014 
AND CAUTIONARY ANNOUNCEMENT

Revenue
increased by 5,5% to
R3 067,0 million

EBITDA
increased by 61,8% to
R421,8 million

Operating profit
increased by 107,0% to
R300,3 million

Cash generated
from operations
increased to
R261,7 million

Normalised diluted
headline earnings
earnings per share of 20,7 cents
(2013: 21,3 cents)

Condensed consolidated statement of financial position

                                           Reviewed      Reviewed      Audited
                                        28 February   28 February    31 August
R million                                      2014          2013         2013
ASSETS
Non-current assets
Property, plant and equipment                 479,0         480,4        480,6
Goodwill                                      629,5         662,8        631,9
Intangible assets                             359,6         374,6        411,9
Investment in associate                        92,5                       94,6
Long-term loans and receivables                 6,2          30,5         31,6
Other investments                             231,3         222,5        223,7
Deferred tax assets                            35,1          45,0         44,5
                                            1 833,2       1 815,8      1 918,8
Current assets
Inventories                                   209,5         221,4        192,0
Trade receivables                           1 077,6         955,0      1 189,8
Other receivables                             290,0         289,7        297,9
Prepayments                                   147,5         106,4        126,7
Taxation prepaid                                5,1           1,3          3,4
Cash and cash equivalents                     204,6         158,1        196,8
Assets held for sale                                                      13,9
                                            1 934,3       1 731,9      2 020,5
TOTAL ASSETS                                3 767,5       3 547,7      3 939,3
EQUITY AND LIABILITIES
Shareholders' equity                        2 256,1       2 112,2      2 232,2
Non-controlling interests                     125,6         115,1        168,6
Total equity                                2 381,7       2 227,3      2 400,8
Non-current liabilities
Interest bearing long-term liabilities        131,4         177,9        156,2
Interest free long-term liabilities            21,9                       21,9
Post-retirement benefit obligations            15,6          10,6         14,9
Contigent consideration                        63,3                       63,3
Deferred tax liabilities                       43,1          44,2         49,8
                                              275,3         232,7        306,1
Current liabilities
Short-term liabilities                        190,1          73,7         75,2
Trade payables                                394,9         404,5        554,2
Other payables                                490,3         596,0        580,1
Provisions                                      1,1           4,5          1,1
Taxation payable                               34,1           9,0         17,0
Liabilities held for sale                                                  4,8
                                            1 110,5       1 087,7      1 232,4
TOTAL EQUITY AND LIABILITIES                3 767,5       3 547,7      3 939,3

Condensed consolidated statement of comprehensive income

                                                   Reviewed      Reviewed           Audited
                                                 six months    six months     twelve months
                                                      ended         ended             ended
                                                28 February   28 February         31 August
R million                                              2014          2013              2013
Revenue                                             3 067,0       2 907,3           6 173,3
– Continuing operations                             3 067,0       2 859,4           6 074,1
– Discontinued operations                                            47,9              99,2
Cost of sales                                       2 146,1       2 031,3           4 305,1
– Continuing operations                             2 146,1       2 012,0           4 263,8
– Discontinued operations                                            19,3              41,3
Gross profit                                          920,9         876,0           1 868,2
Operating expenses                                    620,6         730,9           1 545,6
– Continuing operations                               620,6         722,5           1 529,5
– Discontinued operations                                             8,4              16,1

Operating profit                                      300,3         145,1             322,6
Share of (losses)/profits from associate              (2,1)                             1,6
Operating profit before
 investment income                                    298,2         145,1             324,2
Investment income                                      17,2          14,4              27,6
Profit before finance costs                           315,4         159,5             351,8
Finance costs                                          17,7           9,7              25,5
Profit before tax                                     297,7         149,8             326,3
Taxation                                               73,3          48,4              93,3
Profit for the period                                 224,4         101,4             233,0
Profit attributable to:
Equity holders
Profit from continuing operations                     203,1          58,2             149,1
Profit from discontinued operations                                  20,2              30,0
                                                      203,1          78,4             179,1
Non-controlling interests
Profit from continuing operations                      21,3          23,0              53,9
                                                       21,3          23,0              53,9
Total attributable
Profit from continuing operations                     224,4          81,2             203,0
Profit from discontinued operations                                  20,2              30,0
                                                      224,4         101,4             233,0
Other comprehensive income:
Translation of foreign operations                       1,4           1,3              13,1
                                                      225,8         102,7             246,1
Total comprehensive income
attributable to:
Equity holders                                        204,2          79,7             191,4
Non-controlling interests                              21,6          23,0              54,7
                                                      225,8         102,7             246,1
Earnings per share
From continuing and discontinued
operations
Basic earnings per share (cents)                       52,2          19,6              44,7
Diluted earnings per share (cents)                     52,0          19,5              44,5

Calculation of headline earnings
R million
Profit attributable to equity holders                 203,1          78,4             179,1
Profit on sale of business                          (171,8)                          (84,0)
Loss on sale of property, plant and equipment           0,5                             2,4
Reversal of impairment on investment                                (4,2)
Impairment of goodwill                                  2,4           2,4              40,1
Bargain purchase on acquisition of subsidiary                                         (0,1)
Tax effect of headline earnings adjustments            26,8                           (0,3)
Headline earnings                                      61,0          76,6             137,2
Weighted average number of shares
 in issue (000's)                                   388 873       400 446           400 570
Diluted weighted average number of shares
 in issue (000's)                                   390 815       402 660           402 602
Headline earnings per share (cents)                    15,7          19,1              34,3
Diluted headline earnings per share (cents)            15,6          19,0              34,1

Condensed consolidated statement of cash flows
                                                     Reviewed       Reviewed          Audited
                                                   six months     six months    twelve months
                                                        ended          ended            ended
                                                  28 February    28 February        31 August
R million                                                2014           2013             2013
Operating cash flows                                    261,7          250,0            527,7
Working capital changes                               (162,5)        (181,0)          (220,0)
Investment income                                         9,4           21,1             18,1
Finance costs                                          (17,7)          (9,7)           (25,5)
Dividends paid                                        (121,6)         (80,1)           (80,1)
Taxation paid                                          (55,6)         (43,9)           (89,6)
Cash (utilised in)/generated from
 operating activities                                  (86,3)         (43,6)            130,6
Net cash flows utilised in investing activities         107,9        (222,8)          (339,8)
Net cash flows generated from/(utilised in)
 financing activities                                  (13,8)         (19,4)           (37,9)
Net changes in cash
 and cash equivalents                                    7,8         (285,8)          (247,1)
Cash and cash equivalents
 at beginning of the period                            196,8           443,9            443,9
Cash and cash equivalents
 at end of the period                                  204,6           158,1            196,8

Condensed segmental analysis
                                  Reviewed      Reviewed          Audited
                                six months    six months    twelve months
                                     ended         ended            ended
                               28 February   28 February        31 August
R million                             2014          2013             2013
Segment revenue
Services division                  1 103,0         988,9          2 149,3
UCS division                         610,9         560,1          1 170,9
Canoa division                       522,7         514,9          1 117,5
Technology division                  356,6         359,5            694,7
International division               314,0         239,8            532,2
Innovation division                  159,8         244,1            508,7
                                   3 067,0       2 907,3          6 173,3
Segment operating profit
Services division                    101,0          68,1            157,6
UCS division                          50,2          47,0            100,4
Canoa division                        47,6          56,9            116,1
Technology division                   16,3          13,1             26,5
International division              (12,7)           5,7             11,1
Innovation division                   19,2          37,8             93,6
Corporate office                      78,7        (83,5)          (182,7)
                                     300,3         145,1            322,6

Other group salient information
                                                Reviewed      Reviewed     Audited
                                             28 February   29 February   31 August
                                                    2014          2013        2013
Number of shares in issue (000's)                404 972       404 972     404 972
Less: weighted shares held in share
      purchase trusts and a subsidiary
      as treasury shares                          16 039         4 307       3 415
Less: weighting of options exercised during
      the period that would have been
      treasury shares                                 60           219         987
                                                 388 873       400 446     400 570
Dilutive options                                   1 942         2 151       1 591
Options excercised during the period
 that were dilutive for a portion
of the period                                                       63         441
                                                 390 815       402 660     402 602
Number of options in issue (000's)                25 149        18 989      15 983
Key ratios and statistics
Net asset value per share (cents)                  557,1         521,6       551,2
Tangible net asset value per share (cents)
 (excluding goodwill and fair value
 of contracts)                                     365,9         319,3       354,7
Operating margin (%)                                 9,8           5,0         5,2
Return on total equity (%)                          18,0           7,5         8,0
Tangible return on equity (%)                       30,4          15,4        17,9
Return on total assets (%)
 (excluding cash and preference share
 investments)                                       18,0           9,2         9,2
Current ratio                                        1,7           1,6         1,6
Average debtors days                                60,0          54,1        57,5
Depreciation and amortisation                      121,5         115,6       237,9
Cost of sales                                       48,6          49,0        97,9
Operating expenses                                  72,9          66,6       140,0
Contingent liabilities (R million)
Performance guarantees                              30,3          72,2        60,8
Asset finance recourse deals                        37,7          67,0         3,2
Other                                              110,7          36,2        33,3
Capital commitments (R million)
Capital                                             19,7          23,0        49,8
Operating lease                                    206,5         297,5       292,5

Basis of preparation and accounting policies
The condensed consolidated interim financial statements for the six months ended 28 February 2014 have been
prepared in accordance with IAS 34: Interim Financial Reporting, the Listings Requirements of the JSE Limited,
the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial
Reporting Pronouncements as issued by the Financial Reporting Standards Council, as well as the South African
Companies Act, 2008.

The accounting policies applied are consistent with those applied for the year ended 31 August 2013, except for
new standards that became effective 1 September 2013. The adoption of these standards did not have a material
effect on the results for the period, nor have they required the restatement of any prior year figures.

The condensed consolidated interim financial statements have been prepared on the historic cost convention,
as modified by the valuation of certain financial instruments, and are presented in Rands rounded to the
nearest million, which is Business Connexion's functional and presentation currency.

Condensed consolidated statement of changes in equity
                                                                                              Foreign currency                     Share-based                          Non-
                                                                            Share capital          translation         Retained        payment    Shareholders'  controlling       Total
R million                                                                     and premium              reserve         earnings        reserve          equity     interests      equity
Balance at 31 August 2013 – audited                                               1 129,2               (21,2)            916,2           81,5         2 105,7          95,8     2 201,5
Changes in equity for the six months ended 28 February 2013
 Movement in treasury shares and related reserves held by
  share purchase trust                                                                                                      2,1                            2,1                       2,1
 Share-based payments                                                                                                                      5,0             5,0                       5,0
 Non-controlling interest in dividends received                                                                                                                        (3,9)       (3,9)
 Total comprehensive income for the period                                                                 1,3             78,4                           79,7          23,0       102,7
 Non-controlling interests' share of foreign currency translations reserve                                                (0,2)                          (0,2)           0,2
 Dividends paid                                                                                                          (80,1)                         (80,1)                    (80,1)
Balance at 28 February 2013 – reviewed                                            1 129,2               (19,9)            916,4           86,5         2 112,2         115,1     2 227,3
Changes in equity for the six months ended 31 August 2013
 Movement in treasury shares and related reserves held by
  share purchase trust                                                                                                      2,0                            2,0                       2,0
 Share-based payments                                                                                                                      6,2             6,2                       6,2
 Total comprehensive income for the period                                                                10,9            100,9                          111,8          31,6       143,4
  Profit for the period                                                                                                   100,7                          100,7          30,8       131,5
  Movement in translation of foreign operations                                                           10,9              0,2                           11,1           0,8        11,9
 Non-controlling interests' share of reserves of acquired entity                                                                                                        21,9        21,9
Balance at 31 August 2014 – audited                                               1 129,2                (9,0)          1 019,3           92,7         2 232,2         168,6     2 400,8
Changes in equity for the six months ended 28 February 2013
 Movement in treasury shares and related reserves held by
  share purchase trust                                                             (72,9)                                 (1,3)                         (74,2)                    (74,2)
 Share-based payments                                                                                                                      5,3             5,3                       5,3
 Acquisition of minority interest without change of control                                                              (30,4)                         (30,4)        (24,0)      (54,4)
 Total comprehensive income for the period                                                                 1,1            203,1                          204,2          21,6       225,8
  Profit for the period                                                                                                   203,1                          203,1          21,3       224,4
  Movement in translation of foreign operations                                                            1,1                                             1,1           0,3         1,4
 Dividends paid                                                                                                          (81,0)                         (81,0)        (40,6)     (121,6)
Balance at 28 February 2014 – reviewed                                            1 056,3                (7,9)          1 109,7           98,0         2 256,1         125,6     2 381,7

                                                                                 Reviewed             Reviewed          Audited
                                                                               six months           six months    twelve months
                                                                                    ended                ended            ended
                                                                              28 February          28 February        31 August
                                                                                     2014                 2013             2013
Normal dividend per share (cents)                                                    20,0                 20,0             20,0

Commentary

Financial performance
Revenue increased by 5,5% to R3 067,0 million for the period ended 28 February 2014. Excluding
the sale of Qlink, revenue increased by 6,3% which was attributable to new business won during
the period.

Gross profit margins remained stable at 30,0% despite continuous market pressure.

Operating expenses continue to be a focus area with normalised operating expenses increasing by
6,1% excluding the adjustments related to the sale of Qlink.

The group recorded a normalised operating profit margin of 5,1% (2013: 5,2%).

                                              2014            2013
                                             R'000       %   R'000      %
Operating profit as reported                 300,3     9,8   145,1    5,0
Amortisation of intangible assets relating
 to the UCS assets, Canoa Group and
 Integr8 IT                                   27,7            25,3
Profit on sale of business – Qlink         (171,8)
Discontinued operations – Qlink                             (20,2)
Normalised operating profit                  156,2     5,1   150,2    5,2

The tax charge increased as a result of capital gains tax of R26,9 million on the sale of Qlink.

The group generated diluted earnings per share (EPS) of 52,0 cents for the six months (2013:
19,5 cents) and diluted headline EPS for the six months of 15,6 cents (2013: 19,0 cents). On a normalised
basis, excluding the items listed above, diluted headline EPS is 20,7 cents (2013: 21,3 cents).

The increase in return on total equity to 18,0% (2013: 7,5%) and the return on total assets at
18,0% (2013: 9,2%) are largely due to the sale of Qlink and the share buy-back programme initiated
in November 2013. BCX is committed to reach a sustainable return on total equity of 17% over
the medium term through a combination of divisional profitability improvements, dividend cover
maintenance, a more efficient debt profile, share buy-back, M&A activity and African expansion.

The group continued to generate healthy cash flows with cash from operations of R261,7 million
before working capital changes as well as a cash realisation of R187,5 million from the sale of the
Qlink business.

Divisional performance
Services division
The Services division offers a full range of ICT infrastructure services and value added business
solutions, including cloud services through state of the art data centres.

Divisional revenue grew by 11,5% to R1 103,0 million (2013: R988,9 million). The revenue growth
relates to new business won in the latter part of the prior year. These new client wins contributed to
a recovery in operating profit growing 48,3% to R101,0 million (2013: R68,1 million).

UCS division
The UCS division offers a full range of ICT infrastructure services targeted at the retail industry.
Through the strategic acquisition of Integr8 IT BCX has been able to target the mid-tier market
segment allowing the group to diversify its service offering.

Revenue increased 9,1% to R610,9 million (2013: R560,1 million) and operating profit improved to
R50,2 million (2013: R47,0 million). Despite difficult trading conditions within the retail industry, the
division continues to show pleasing growth.

Canoa division
The Canoa division offers Managed Print Solutions (MPS) and office automation. The division has the
exclusive distribution rights for Canon copy, print and imaging solutions in Southern Africa.

BCX's entry into the Nigerian MPS market during the period offers very exciting prospects for the
group.

Revenue remained stable at R522,7 million (2013: R514,9 million) whilst operating profit decreased
to R47,6 million (2013: R56,9 million) as a result of lower margin product business during the
period.

Technology division
The Technology division delivers innovative technology solutions to both the private and the public
sector in conjunction with the world's leading vendors and partners.

Positive results were achieved with revenue of R356,6 million and a contribution of R16,3 million to
operating profit for the year (2013: R13,1 million).

International division
The International division is responsible for capturing growth in West Africa, East Africa and Southern
Africa (excluding South Africa).

Revenue in the International division grew 30,9% to R314,0 million (2013: R239,8 million) supported
by a growing presence in Nigeria.

A once off project in Ghana in the previous financial year and timing issues on stock deliveries in
Nigeria contributed to the operating loss of R12,7 million for the period. The issues in Nigeria have
been addressed and the group expects the division to return to profitability in the second half of
the year.

Innovation division
The Innovation division is responsible for the group's own intellectual property. During the period
the group secured new business in Kenya and will implement its ERP system in various local
municipalities.

The division's decreased revenue of R159,8 million (2013: R244,1 million) relates solely to the sale
of Qlink and the joint venture transaction with NorthgateArinso.

Corporate activity
With effect from 1 March 2014, the group:

- concluded a transaction to acquire the assets and contracts of Panabiz Nigeria. Panabiz Nigeria is
  a Managed Print Services (MPS) company and a well-established Canon distributor operating in
  West Africa;
- concluded a transaction to acquire 100% of the shareholding in Ultimate Solutions Proprietary
  Limited. Ultimate Solutions is Botswana's market leader in Point of Sale solutions with branches
  in Gaborone, Maun and Francistown and a retail customer base of over 800 stores across the
  country; and
- the group entered into an agreement to acquire a 30% stake in African Arete Proprietary Limited,
  a services solutions business focussed on the SME market which will complement BCX's existing
  portfolio in KwaZulu-Natal.

Outlook
The group is clustering all its delivery entities into three centres of excellence – Converged
infrastructure solutions, Business solutions, and Investments and Alliances. This is expected to
enable the group's significant capabilities to be deployed across Africa to support the emerging
growth opportunities.

The newly created customer advocacy function will ensure that the group remains agile and will
enable the group to deliver services and solutions that address the evolving needs of its customers
wherever required.

The group remains confident that the benefits from group-wide cross-selling combined with an
improved performance from Nigeria, will result in the group achieving its targets for the full year.

Aside from the transactions referred to under the Corporate activity heading and Cautionary
announcement which follows there have been no other significant subsequent events.

Independent review by the auditors
The condensed consolidated interim financial statements for the six months ended 28 February 2014
have been reviewed by KPMG Inc. and their unmodified review report is available for inspection at
the registered office of the company.

Cautionary announcement
BCX shareholders are advised that the board of directors of the company has entered into discussions,
which, if successfully concluded, may have a material effect on the price at which BCX's securities
trade on the JSE.

Accordingly, BCX shareholders are advised to exercise caution when dealing in BCX's securities until
a further announcement is made.

Appreciation
The board extends its appreciation to all employees and management for their dedication and valued
efforts. It also thanks its clients, suppliers and shareholders for their continuing support of BCX.
For and on behalf of the board

AC Ruiters                                       LB Mophatlane
Chairman                                         Chief Executive Officer

Midrand
15 April 2014

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)*, JA Bester*, A Darko*#, M Ettling*^, NN Kekana, J John*, M Lehobye*, D Sparrow
*Independant non-executive directors # Ghanain ^ British

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:
One Capital, 17 Fricker Road, Illovo, 2196

Responsibility for financial statement preparation:
Mr. Lawrence Weitzman CA(SA), the chief financial officer is responsible for the condensed consolidated
interim financial information and has supervised the preparation thereof.

For more information please visit our investor relations website at www.bcx.co.za
Issue date: 15 April 2014
Date: 15/04/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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