Wrap Text
Audited preliminary results for the year ended 31 August 2014 and declaration of special cash dividend
Business Connexion Group Limited
(Incorporated in the Republic of South Africa)
("Business Connexion" or "the company" of "the group")
Registration number: 1998/005282/06
Share code: BCX ISIN: ZAE000054631
AUDITED PRELIMINARY SUMMARISED CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEAR ENDED 31 AUGUST 2014 AND DECLARATION OF SPECIAL CASH DIVIDEND
Organic revenue
growth of 7,2%
EBITDA up by 17,8%
to R660,3 million
Operating profit
increased by 30,4%
to R420,8 million
Great momentum
in new enterprise
client wins
Healthy cash
generation from
operations of
R397,1 million
(2013: R307,7 million)
Continued investment
in the group Cloud
strategy with 56,0%
increase in revenue
Normalised diluted
headline earnings
per share of
39,8 cents per share
(2013: 45,1 cents)
Preliminary summarised consolidated statement of financial position
Audited Audited
31 August 31 August
R million 2014 2013
ASSETS
Non-current assets
Property, plant and equipment 479,4 480,6
Goodwill 667,8 631,9
Intangible assets 361,2 411,9
Investment in equity accounted joint venture and associates 118,0 94,6
Long-term loans receivable 4,9 31,6
Other investments 223,7
Deferred tax assets 50,8 44,5
1 682,1 1 918,8
Current assets
Other investments 231,3
Inventories 220,3 192,0
Trade receivables 1 184,9 1 189,8
Other receivables 304,7 297,9
Prepayments 151,6 126,7
Taxation prepaid 3,7 3,4
Cash and cash equivalents 222,9 196,8
Asset held for sale 13,9
2 319,4 2 020,5
TOTAL ASSETS 4 001,5 3 939,3
EQUITY AND LIABILITIES
Shareholders' equity 2 267,7 2 232,3
Non-controlling interests 124,8 168,6
Total equity 2 392,5 2 400,8
Non-current liabilities
Interest-bearing long-term liabilities 108,0 156,2
Interest-free long-term liabilities 0,8 21,9
Contingent consideration 46,6 63,3
Post-retirement benefit obligations 15,5 14,9
Deferred tax liabilities 36,1 49,8
207,0 306,1
Current liabilities
Short-term liabilities 274,6 75,2
Trade payables 501,3 554,2
Other payables 604,7 580,1
Provisions 0,9 1,1
Taxation payable 20,5 17,0
Liabilities held for sale 4,8
1 402,0 1 232,4
TOTAL EQUITY AND LIABILITIES 4 001,5 3 939,3
Preliminary summarised consolidated statement of comprehensive income
Audited Audited
year ended year ended
31 August 31 August
R million 2014 2013
Revenue 6 512,3 6 173,3
– Continuing operations 6 512,3 6 074,1
– Discontinued operations 99,2
Cost of sales 4 624,3 4 305,1
– Continuing operations 4 624,3 4 263,8
– Discontinued operations 41,3
Gross profit 1 888,0 1 868,2
Operating expenses 1 467,2 1 545,6
– Continuing operations 1 467,2 1 529,5
– Discontinued operations 16,1
Operating profit 420,8 322,6
Share of (losses)/profits from equity accounted joint venture and
associates (0,5) 1,6
Operating profit before investment income 420,3 324,2
Investment income 26,8 27,6
Profit before finance costs 447,1 351,8
Finance costs 36,5 25,5
Profit before tax 410,6 326,3
Taxation 109,6 93,3
Profit for the year 301,0 233,0
Profit attributable to:
Equity holders
Profit from continuing operations 245,3 149,1
Profit from discontinued operations 30,0
245,3 179,1
Non-controlling interests
Profit from continuing operations 55,7 53,9
Profit from discontinued operations
55,7 53,9
Total attributable
Profit from continuing operations 301,0 203,0
Profit from discontinued operations 30,0
301,0 233,0
Other comprehensive income:
Translation of foreign operations 2,8 13,1
Remeasurement on post-retirement obligations 3,2
Total comprehensive income for the year 307,0 246,1
Total comprehensive income attributable to:
Equity holders 251,3 191,4
Non-controlling interests 55,7 54,7
307,0 246,1
Basic earnings per share (cents) 64,8 44,7
Diluted earnings per share (cents) 64,5 44,5
Calculation of headline earnings (R million)
Profit attributable to equity holders 245,3 179,1
Profit on sale of business (171,9) (84,0)
(Profit)/loss on sale of property, plant and equipment, capitalised
leased assets and other intangible assets (6,9) 2,4
Impairment of goodwill 4,9 40,1
Bargain purchase (8,5) (0,1)
Tax effect of headline earnings adjustments 27,1 (0,3)
Headline earnings 90,0 137,2
Weighted average number of shares in issue (000s) 378 759 400 570
Diluted weighted average number of shares in issue (000s) 380 686 402 602
Headline earnings per share (cents) 23,8 34,2
Diluted headline earnings per share (cents) 23,6 34,1
Preliminary summarised consolidated statement of cash flows
Audited Audited
year ended year ended
31 August 31 August
R million 2014 2013
Operating cash flows 446,1 527,7
Working capital changes (49,0) (220,0)
Investment income 11,7 18,1
Finance costs (22,6) (25,5)
Dividends paid (78,3) (80,1)
Dividends paid non-controlling interest (51,7)
Taxation paid (126,4) (89,6)
Cash generated from operating activities 129,8 130,6
Net cash flows utilised in investing activities (49,5) (339,8)
Net cash flows utilised in financing activities (54,2) (37,9)
Net changes in cash and cash equivalents 26,1 (247,1)
Cash and cash equivalents at beginning of year 196,8 443,9
Cash and cash equivalents at end of year 222,9 196,8
Preliminary summarised segmental analysis
Audited Audited
year ended year ended
31 August 31 August
R million 2014 2013
Segment revenue
Services division 2 287,8 2 149,3
UCS division 1 283,6 1 170,9
Canoa division 1 082,0 1 117,5
Technology division 826,4 694,7
Innovation division 347,0 508,7
International division 685,5 532,2
6 512,3 6 173,3
Segment operating profit
Services division 202,4 157,6
UCS division 108,2 100,4
Canoa division 99,2 116,1
Technology division 34,4 26,5
Innovation division 55,2 93,6
International division (27,6) 11,1
Corporate office (51,0) (182,7)
420,8 322,6
Other group salient information
Audited Audited
31 August 31 August
2014 2013
Number of shares in issue (000s) 404 972 404 972
Less: Weighted shares held in share purchase trusts and a
subsidiary as treasury shares 25 696 3 415
Less: Weighting of options exercised during the year that would
have been treasury shares 517 987
378 759 400 570
Dilutive options 1 681 1 591
Options excercised during the period that were dilutive for a
portion of the year 246 441
380 686 402 602
Number of share appreciation rights in issue (000s) 16 356 15 983
Number of forfeitable shares in issue (000s) 7 131
Key ratios and statistics
Net asset value per share (cents) 560,0 551,2
Tangible net asset value per share (cents) (excluding goodwill
and fair value of contracts) 365,0 354,7
Operating margin (%) 6,5 5,2
Return on total equity (%) 10,8 8,0
Return on total assets (%) (excluding cash and preference share
investments) 11,9 9,2
Current ratio 1,7 1,6
Average debtors days 60,2 57,5
Depreciation and amortisation (R million) 239,5 237,9
Cost of sales 101,2 98,7
Operating expenses 138,3 139,2
Contingent liabilities (R million)
Performance guarantees 87,7 60,8
Asset finance recourse deals 23,7 53,2
Other 4,0 33,3
Capital commitments (R million)
Capital 54,9 49,8
Operating lease 314,8 292,5
Preliminary summarised 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 2012 – audited 1 129,2 (21,2) 916,2 81,5 2 105,7 95,8 2 201,5
Profit for the year 179,1 179,1 53,9 233,0
Other comprehensive income 12,2 12,2 0,9 13,1
Movement in treasury shares and related reserves held by share purchase trust 4,1 4,1 4,1
Share-based payment expense 11,2 11,2 11,2
Non-controlling interest in dividends received from subsidiaries (3,9) (3,9)
Non-controlling interest on purchase of subsidiary 21,9 21,9
Dividends paid (80,1) (80,1) (80,1)
Balance at 31 August 2013 – audited 1 129,2 (9,0) 1 019,3 92,7 2 232,2 168,6 2 400,8
Profit for the year 245,3 245,3 55,7 301,0
Other comprehensive income 2,8 3,2 6,0 0,3 6,3
Movement in treasury shares and related reserves (131,1) (6,4) (137,5) (137,5)
Share-based payment expense 13,8 13,8 13,8
Acquisition of non-controlling interest without change of control (13,8) (13,8) (48,1) (61,9)
Non-controlling interest in dividends received from subsidiaries (51,7) (51,7)
Dividends paid (78,3) (78,3) (78,3)
Balance at 31 August 2014 – audited 998,1 (6,2) 1 169,3 106,5 2 267,7 124,8 2 392,5
Audited Audited
year year
31 August 31 August
2014 2013
Normal dividend per share (cents) 20,0 20,0
Basis of preparation and statement of compliance
The preliminary summarised consolidated financial statements for the year ended 31 August 2014 are prepared
in accordance with the JSE Limited Listings Requirements for preliminary reports, and the requirements of the
Company's Act applicable to summarised financial statements. The Listings Requirements require preliminary reports
to be prepared in accordance with the framework concepts and the measurement and recognition requirements
of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council
and to also, as a minimum, contain the information required by IAS 34, Interim Financial Reporting. The preliminary
summarised consolidated financial statements exclude the fair value disclosure as required by IAS 34.16A(j).
The accounting policies applied in the preparation of the consolidated financial statements from which the preliminary
summarised consolidated financial statements were derived are in terms of IFRS and are consistent with those
accounting policies applied in the preparation of the previous consolidated annual financial statements, except for the
following standards and amendments which are effective for the first time in Business Connexion Group Limited's year
ended 31 August 2014:
- The consolidation suite of standards, namely IFRS 10, Consolidated Financial Statements, IFRS 11, Joint
Arrangements and IFRS 12, Disclosure of Interests in Other Entities
- IFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities
- IAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities
- IFRS 10, Consolidated Financial Statements (as amended)
- IFRS 11, Joint Arrangements (as amended)
- IFRS 12, Disclosure of Interests in Other Entities (as amended)
- IAS 27 (Amendment), Separate Financial Statements
- IAS 28 (Amendment), Investments in Associates and Joint Ventures
- IFRS 13, Fair Value Measurement
- IAS 19, Employee Benefits
- IAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets
- Annual improvements (2009-2011)
- Annual improvements (2011-2013)
- Annual improvements (2010-2012)
Accordingly, the company adopted these new accounting standards and amendments to existing standards on
1 September 2013.These newly adopted standards and amendments did not significantly impact our financial results.
The preliminary summarised consolidated financial results do not include all the disclosure required for complete
annual financial statements prepared in accordance with IFRS.
These preliminary summarised consolidated financial results have been prepared in accordance with the historic cost
convention except that certain items, including derivative instruments and financial assets at fair value through profit
or loss, are stated at fair value.
The preliminary summarised consolidated financial results are presented in South African rand, which is Business
Connexion Group Limited functional and presentation currency.
The preliminary summarised consolidated financial results appearing in this announcement are the responsibility of
the directors. The directors take full responsibility for the preparation of the preliminary summarised consolidated
financial results and that the financial information has been correctly extracted from the underlying audited annual
financial statements.
Commentary
Introduction
The world is fast moving towards a place where every "thing" is connected and intelligent, otherwise known as "The
Internet of Things". The boundaries between traditional information and communications technology (ICT) markets and
other industries are rapidly disappearing.
Demonstrating Business Connexion's thought leadership within this changing world the Group launched the inaugural My
World of Tomorrow Africa (MWOT) Expo and conference. Over a thousand delegates representing many of Africa's leading
organisations, governments, entrepreneurs, technology specialists, thought leaders and youth attended. MWOT presented
over 28 world-renowned speakers and showcased a vast display of technologies of the future over three exciting days.
Building on its heritage as a leading ICT service provider and using its industry expertise, Business Connexion is well
positioned to play an integration role in "The Internet of Things", across multiple markets and diverse technology domains.
Financial performance
Organic revenue increased by 7,2% from new enterprise client wins. This reflects the return from the Group's focus on
an improved sales culture and cross-selling. Reported revenue grew by 5,5% to R6 512,3 million.
Normalised gross profit margins remain largely unchanged at 29,0% (2013: 29,6%) despite tough economic conditions
and continuing market pricing pressure.
Operating expenses continue to be a focus area, with normalised operating expenses increasing by 5,2%, which is below
inflation.
The Group recorded a normalised operating profit margin of 4,9% (2013: 5,2%).
2014 2013
R million % R million %
Operating profit as reported 420,8 6,5 322,6 5,2
Profit on sale of business (171,9) (84,0)
Amortisation of intangible assets 52.8 52,6
Impairment of goodwill 4,9 40,1
Telkom transaction costs 9,9
Provision for doubtful debt 13,7
Bargain purchase price – Panabiz (8,5)
Fair value adjustment – Canoa 26,2
Fair value adjustment – "A" share buy-back 4,3
Discontinued operation – QLink (41,8)
Normalised operating profit 320,6 4,9 320,0 5,2
The tax charge includes the provision for capital gains tax on the sale of QLink of R25,7 million.
The Group generated diluted earnings per share (EPS) of 64,5 cents for the year (2013: 44,5 cents) and diluted headline
EPS for the year of 23,6 cents (2013: 34,1 cents). On a normalised basis, excluding primarily the sale of QLink and the
impact of the amortisation of intangible assets, diluted headline EPS is 39,8 cents (2013: 45,1 cents).
Return on equity was 10,8% (2013:8,0%) and the return on total assets was 11,9% (2013: 9,2%). This remains a key
focus area and Business Connexion is committed to reach a sustainable return on equity level of 17% over the medium
term through a combination of divisional profitability improvements, dividend cover maintenance, an enhanced debt
profile, share buy-backs, further acquisitions and continued activity in the rest of Africa.
The Group continued to generate strong cash flows with cash from operations of R397,1 million.
Divisional performance
Services division
The Services division offers a full range of ICT infrastructure services and value added business solutions, including cloud
services through its state of the art data centres.
Divisional revenue grew organically by 6,4% to R2 287,8 million (2013:R2 149,3 million). The increase in revenue within
the Services division is due to new business won and further client renewals. Gross profit margins have been maintained,
despite the tough economic environment. Operating profit margin at 8,8% is up from the 7,3% in the prior year.
UCS division
The UCS division offers end-to- end solutions targeted at the retail industry. Through the strategic acquisition of Integr8
IT, the group has been able to diversify its service offering by targeting the mid-tier market segment more effectively.
Revenue increased 9,6% to R1 283,6 million (2013:R1 170,9 million) and operating profit improved to R108,2 million
(2013: R100,4 million). 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.
The Panabiz acquisition in Nigeria enables Business Connexion to expand its offering into the MPS market across the
wider continent, in line with the Group's growth strategy.
Revenue decreased by 3,2% to R1 082,0 million (2013: R1 117,5 million) and operating profit decreased to R99,2 million
(2013: R116,1 million). Despite a number of key client wins in the managed printing space, the results were impacted
by weaker performance from the hardware business coupled with lower margins.
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.
The Technology division achieved strong organic revenue growth of 19,0% to R826,4 million (2013: R694,7 million) and
a contribution of R34,4 million (2013: R26,5 million) to operating profit for the year.
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 28,8% to R685,5 million (2013: R532,2 million), representing strong revenue
growth in the African countries where Business Connexion has a presence.
In spite of this, the division delivered an operating loss of R27,6 million (2013: R11,1 million profit) for the year due to a
poor performance in the Nigerian operations. The operational challenges in Nigeria are being addressed.
Innovation division
The Innovation division is responsible for the Group's own intellectual property. During the period the Group secured new
business in Kenya, where it will implement its enterprise resource planning (ERP) system in various local authorities.
The division's revenue decreased to R347,0 million (2013:R508,7 million) solely as a result of the sale of QLink and the
joint venture transaction with Northgate Arinso.
Corporate activity
In support of the Group's geographical expansion strategy the following acquisitions were made:
- Effective 1 March 2014, the Group concluded a transaction to acquire the assets and contracts of Panabiz Nigeria,
a Managed Print Services company with well-established operations in West Africa.
- Effective 1 March 2014, the Group concluded a transaction to acquire 100% of the shareholding in Ultimate Software
(Botswana) (Proprietary) Limited, trading as Ultimate Solutions. 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.
- Effective 1 May 2014, the Group acquired an initial 21% stake in Appzone Limited. Appzone is an information
technology services provider based in Lagos, Nigeria.
In support of our South African industry strategy the following acquisitions were made:
- Effective 1 March 2014, 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 Business Connexion's
existing portfolio in KwaZulu-Natal.
- Effective 29 August 2014, the Group entered into an agreement to acquire the small to medium enterprise business
applications division (SME Division) of Argility Proprietary Limited.
- Effective 29 August 2014, the Group entered into an agreement to acquire the remaining shareholding of 49,75%
in Netcampus Proprietary Limited.
Goodwill increased by R40,8 million as a result of the Ultimate Solutions and Argility acquisitions.
Update on the Telkom transaction
At a shareholders meeting on 11 August 2014, shareholders voted in favour of the offer by Telkom SA SOC Limited to
acquire the entire share capital of Business Connexion Group Limited by way of schemes of arrangement. The proposed
transaction is now awaiting the following approvals:
- Approval from the Competition Commission of South Africa;
- Approval from the Common Market for Eastern and Southern Africa (COMESA) Commission; and
- The Independent Communications Authority of South Africa (ICASA).
Upon receipt of the above approvals, final approval will be sought from the Takeover Regulations Panel (TRP) and the
Johannesburg Stock Exchange (JSE). Unconditional approvals have been obtained from the following regulatory bodies:
- The Namibian Competition Commission on 8 October 2014;
- The Tanzania Fair Competition Commission on 13 October 2014; and
- The Competition Authority in Botswana on 4 November 2014.
Outlook
The industry dynamics are set to change significantly in coming years driven by continuing market consolidation and a
fundamental shift to the cloud and the "Internet of Things". This will present new and exciting opportunities for Business
Connexion. The Group will continue to actively position itself to create value for its clients through innovative and
industry-specific solutions.
Business Connexion has also taken a proactive look internally to ensure agility and organisational efficiency. Following
the successful focus on sales effectiveness and growth, the Group is now embarking on a number of initiatives focussing
on increasing margins through operational efficiency.
The mergers and acquisitions strategy will continue to focus on opportunities in the rest of Africa and acquire innovative
solutions to enable the Group to play a leading integration role in "The Internet of Things".
Independent audit by the auditors
These preliminary summarised consolidated financial results for the year ended 31 August 2014 have been derived from
the audited consolidated financial statements of Business Connexion Group Limited for the year ended 31 August 2014,
on which the auditors, KPMG Inc., have expressed an unmodified audit opinion. The individual auditor assigned to perform
the audit is Mr LP Fourie. KPMG Inc. has also issued an unmodified audit report on these preliminary summarised financial
statements, stating that these preliminary summarised financial statements are consistent, in all material respects, with
those financial statements. The auditor's report does not necessarily report on all of the information contained in this
announcement. Shareholders are therefore advised that in order to obtain a full understanding of the of the nature of
the auditor's assessment, they should obtain a copy of the auditor's report, together with the accompanying financial
information from the issuer's registered office. The auditor's reports and the audited consolidated financial statements,
which have been summarised in this report, are available for inspection at the registered office of the company.
Appreciation
The Board extends its appreciation to management and employees for their dedication and valued efforts. It also thanks
its clients for the trust they place in Business Connexion and its suppliers and shareholders for their continuing support of
Business Connexion. The Board also recognises the contribution of its late Chief Executive Officer, Benjamin Mophatlane.
Notice of the annual general meeting
Shareholders are advised that the annual general meeting will be held at the Fundi Auditorium, Business Connexion Park
North, 789 Sixteenth Road, Randjespark, Midrand at 11:00 on 22 January 2015.
Dividend declaration
The Group declared a special gross cash dividend of 20 cents per share on 7 August 2014. There are no Secondary Tax
on Companies (STC) credits available per share.
Notice is hereby given that in accordance with the provisions of Strate, the electronic settlement and custody system
used by JSE Limited, the relevant dates for the dividend are as follows:
Event date last date to trade (cum dividend) Friday, 9 January 2015
Shares commence trading (ex-dividend) Monday, 12 January 2015
Record date (date shareholders recorded in books) Friday, 16 January 2015
Payment date Monday, 19 January 2015
Share certificates may not be dematerialised or rematerialised between Monday, 12 January 2015 and Friday, 16 January
2015, both days inclusive.
On Monday, 19 January 2015, the dividends will be electronically transferred to the bank accounts of all certificated
shareholders where this facility is available. Where electronic funds transfers are either not available or not elected by the
shareholder, cheques dated Monday, 19 January 2015 will be posted on that date. Holders of dematerialised shares will
have their accounts credited at their participant or broker on Monday, 19 January 2015.
The above dates and times are subject to change. Any changes will be published on the Securities Exchange News
Service (SENS) and in the press. The issued share capital is currently 404 972 468.
For and on behalf of the Board
A C Ruiters L I Mophatlane
Chairman Chief Executive Officer
Midrand
18 November 2014
Executive directors:
LI Mophatlane^ (Chief Executive Officer), V Olver (Deputy Chief Executive Officer), LN Weitzman (Chief Financial Officer), JR Jenkins
^Appointed as Chief Executive Officer and executive director with effect 1 August 2014
LB Mophatlane (Chief Executive Officer and executive director) passed away on 11 June 2014
Non-executive directors:
AC Ruiters (Chairman)*, JA Bester*, AB Darko*#, ME Ettling*†, NN Kekana, J John*, M Lehobye*, DC Sparrow*
Independent non-executive directors # Ghanaian † British
Registered office:
Business Connexion Park North, 789 Sixteenth Road, Randjespark, Midrand, 1685
Postal address:
Private Bag X48, Halfway House, 1685
Internet address:
http://www.bcx.co.za
Transfer secretaries
Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg, 2001
JSE Sponsor:
One Capital Proprietary Limited, 17 Fricker Road, Illovo, 2196
Responsibility for financial statement preparation:
Mr. Lawrence Weitzman CA (SA), the chief financial officer, is responsible for the preliminary summarised consolidated financial information
and has supervised the preparation thereof.
For more information, please visit our investor relations website at www.bcx.co.za
Issue date 18 November 2014
Date: 18/11/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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