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BUSINESS CONNEXION GROUP LIMITED - Reviewed condensed consolidated interim financial statements for the six months ended 28 February 2015

Release Date: 16/04/2015 07:05
Code(s): BCX     PDF:  
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Reviewed condensed consolidated interim financial statements for the six months ended 28 February 2015

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

REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2015

Revenue     EBITDA of        Normalised         Normalised         Operating
growth of   R270,8 million   operating profit   diluted headline   cash flows of
16,0%                        increased by       earnings per       R282,0 million
                             25,7% to           share of           (2014:
                             R199,4 million     25,9 cents         R259,0 million)
                                                per share
                                                (2014:
                                                20,7 cents)

Condensed consolidated statement of financial position

                                                                Reviewed       Reviewed      Audited
                                                             28 February    28 February    31 August
R million                                                           2015           2014         2014
ASSETS
Non-current assets
Property, plant and equipment                                      450,1          479,0        479,4
Goodwill                                                           667,8          629,5        667,8
Intangible assets                                                  341,3          359,6        361,2
Investment in equity accounted joint venture and associates        113,4           92,5        118,0
Long-term loans receivable                                           3,9            6,2          4,9
Other investments                                                                 231,3
Deferred tax assets                                                 43,0           35,1         50,8
                                                                 1 619,5        1 833,2      1 682,1
Current assets
Other investments                                                  241,4                       231,3
Inventories                                                        219,3          209,5        220,3
Trade receivables                                                1 263,3        1 077,6      1 184,9
Other receivables                                                  413,6          290,0        304,7
Prepayments                                                        129,8          147,5        151,6
Taxation prepaid                                                     4,4            5,1          3,7
Cash and cash equivalents                                          189,3          204,6        222,9
                                                                 2 461,1        1 934,3      2 319,4
TOTAL ASSETS                                                     4 080,6        3 767,5      4 001,5
EQUITY AND LIABILITIES
Shareholders' equity                                             2 247,2        2 256,1      2 267,7
Non-controlling interests                                          132,2          125,6        124,8
Total equity                                                     2 379,4        2 381,7      2 392,5
Non-current liabilities
Interest-bearing long-term liabilities                              90,5          131,4        108,0
Interest-free long-term liabilities                                                21,9          0,8
Contingent consideration                                                           63,3         46,6
Post-retirement benefit obligations                                 12,0           15,6         15,5
Deferred tax liabilities                                            31,1           43,1         36,1
                                                                   133,6          275,3        207,0
Current liabilities
Short-term liabilities                                             497,2          190,1        274,6
Trade payables                                                     454,2          394,9        501,3
Contingent consideration                                            50,7                        15,4
Other payables                                                     549,7          490,3        589,3
Provisions                                                           1,2            1,1          0,9
Taxation payable                                                    14,6           34,1         20,5
                                                                 1 567,6        1 110,5      1 402,0
TOTAL EQUITY AND LIABILITIES                                     4 080,6        3 767,5      4 001,5

Condensed consolidated statement of comprehensive income

                                                                Reviewed       Reviewed      Audited
                                                              six months     six months         year
                                                                   ended          ended        ended
                                                             28 February    28 February    31 August
R million                                                           2015           2014         2014
Revenue                                                          3 556,9        3 067,0      6 512,3
Cost of sales                                                    2 582,7        2 146,1      4 624,3
Gross profit                                                       974,2          920,9      1 888,0
Operating expenses                                                 812,4          620,6      1 467,2
Operating profit                                                   161,8          300,3        420,8
Share of losses from equity accounted joint venture
and associates                                                     (4,7)          (2,1)        (0,5)
Operating profit before investment income                          157,1          298,2        420,3
Investment income                                                   16,8           17,2         26,8
Profit before finance costs                                        173,9          315,4        447,1
Finance costs                                                       26,2           17,7         36,5
Profit before tax                                                  147,7          297,7        410,6
Taxation                                                            54,5           73,3        109,6
Profit for the period                                               93,2          224,4        301,0
Profit attributable to:
Equity holders                                                      67,5          203,1        245,3
Non-controlling interests                                           25,7           21,3         55,7
Total attributable profit                                           93,2          224,4        301,0
Other comprehensive income:
Translation of foreign operations                                 (25,1)            1,4          2,8
Remeasurement on post-retirement obligations                                                     3,2
Total comprehensive income for the period                           68,1          225,8        307,0
Total comprehensive income attributable to:
Equity holders                                                      43,0          204,2        251,3
Non-controlling interests                                           25,1           21,6         55,7
                                                                    68,1          225,8        307,0
Basic earnings per share (cents)                                    17,8           52,2         64,8
Diluted earnings per share (cents)                                  17,6           52,0         64,5
Calculation of headline earnings (R million)
Profit attributable to equity holders                               67,5          203,1        245,3
Profit on sale of business                                                      (171,8)      (171,9)
Loss/(profit) on sale of property, plant and equipment,
capitalised leased assets and other intangible assets                0,2            0,5        (6,9)
Impairment of goodwill                                                              2,4          4,9
Bargain purchase                                                                               (8,5)
Tax effect of headline earnings adjustments                                        26,8         27,1
Headline earnings                                                   67,7         (61,0)         90,0
Weighted average number of shares in issue (000s)                379 252        388 873      378 759
Diluted weighted average number of shares in issue (000s)        383 135        390 815      380 686
Headline earnings per share (cents)                                 17,9           15,7         23,8
Diluted headline earnings per share (cents)                         17,7           15,6         23,6

Condensed consolidated statement of changes in equity

                                         Share      Foreign                 Share-
                                       capital     currency                  based      Share-           Non-
                                           and  translation    Retained    payment      holders'  controlling          Total
R million                              premium      reserve    earnings    reserve      equity      interests         equity
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 period                                             203,1                   203,1          21,3          224,4
Other comprehensive income                              1,1                                 1,1           0,3            1,4
Movement in treasury shares
and related reserves                    (72,9)                    (1,3)                  (74,2)                       (74,2)
Share-based payment expense                                                    5,3          5,3                          5,3
Acquisition of non-controlling
interest without change of control                               (30,4)                  (30,4)        (24,0)         (54,4)
Non-controlling interest in
dividends received from
subsidiaries                                                                                           (40,6)         (40,6)
Dividends paid                                                   (78,3)                  (78,3)                       (78,3)
Balance at 28 February 2014
– reviewed                             1 056,3        (7,9)     1 112,4       98,0      2 258,8         125,6        2 384,4
Profit for the period                                              42,2                    42,2          34,4           76,6
Other comprehensive income                             1,7          3,2                     4,9           0,0            4,9
Movement in treasury shares
and related reserves                    (58,2)                    (5,1)                  (63,3)                       (63,3)
Share-based payment expense                                                    8,5          8,5                          8,5
Acquisition of non-controlling
interest without change of control                                 16,6                    16,6        (24,1)          (7,5)
Non-controlling interest in
dividends received from
subsidiaries                                                                                           (11,1)         (11,1)
Dividends paid                                                      0,0                     0,0                          0,0
Balance at 31 August 2014
– audited                                998,1        (6,2)     1 169,3      106,5      2 267,7         124,8        2 392,5
Profit for the period                                              67,5                    67,5          25,7           93,2
Other comprehensive income                           (24,5)                              (24,5)         (0,6)         (25,1)
Share-based payment expense                                                   13,8         13,8                         13,8
Non-controlling interest in
dividends received from
subsidiaries                                                                                           (17,7)         (17,7)
Dividends paid                                                   (77,3)                  (77,3)                       (77,3)
Balance at 28 February 2015
– reviewed                               998,1       (30,7)     1 159,5      120,3     2 247,2          132,2        2 379,4


                                                                    Reviewed         Reviewed
                                                                         six              six        Audited
                                                                      months           months           year
                                                                       ended            ended          ended
                                                                 28 February      28 February      31 August
                                                                        2015             2014           2014
Normal dividend per share (cents)                                       20,0             20,0           20,0

Condensed consolidated statement of cash flows
     
                                                                    Reviewed         Reviewed
                                                                  six months       six months
                                                                       ended            ended
                                                                 28 February      28 February
R million                                                               2015             2014
Operating cash flows                                                   282,0            259,0
Working capital changes                                              (274,7)          (162,5)
Investment income                                                        8,0              9,4
Finance costs                                                          (9,0)           (17,7)
Dividends paid                                                        (77,3)           (78,3)
Dividends paid non-controlling interest                               (17,7)           (40,6)
Taxation paid                                                         (56,8)           (55,6)
Cash (utilised in)/generated from operating activities               (145,5)           (86,3)
Net cash flows utilised in investing activities                       (77,4)            107,9
Net cash flows utilised in financing activities                        189,3           (13,8)
Net changes in cash and cash equivalents                              (33,6)              7,8
Cash and cash equivalents at beginning of period                       222,9            196,8
Cash and cash equivalents at end of period                             189,3            204,6
     



Condensed consolidated segmental analysis
                                                                   Reviewed          Reviewed        Audited
                                                                 six months        six months           year
                                                                      ended             ended          ended
                                                                28 February       28 February      31 August
R million                                                              2015             2014*          2014*
Segment revenue
Solutions and service delivery                                      2 073,0           1 955,9        4 091,7
Technology and sourcing                                             1 438,3           1 081,8        2 348,9
Investments                                                            45,6              29,3           71,7
                                                                    3 556,9           3 067,0        6 512,3
Segment operating profit  
Solutions and service delivery                                        182,4             178,5          364,5
Technology and sourcing                                                53,1              42,0           95,2
Investments                                                            12,3               3,2           11,8
Corporate services                                                   (86,0)              76,6         (50,7)
                                                                      161,8             300,3          420,8
* Reportable segments have been restated to reflect the change in the operating model.

Other group salient information

                                                                   Reviewed          Reviewed        Audited
                                                                28 February       28 February      31 August
                                                                       2015              2014           2014
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                                  25 596            16 039         25 696
Less: Weighting of options exercised during the period
that would have been treasury shares                                    124                60            517
                                                                    379 252           388 873        378 759
Dilutive options
                                                                      3 855             1 942          1 681
Options excercised during the period that were dilutive
for a portion of the year                                                28                              246
                                                                    383 135           390 815        380 686
Number of share appreciation rights in issue (000's)                 16 307            25 149         16 356
Number of forfeitable shares in issue (000's)                         5 819                            7 131
Key ratios and statistics
Net asset value per share (cents)                                     554,9             557,1          560,0
Tangible net asset value per share
(excluding goodwill and fair value of contracts) (cents)              364,5             365,9          365,0
Operating margin (%)                                                    4,6               9,8            6,5
Return on total equity (%)                                              6,1              18,0           10,8
Return on total assets   
(excluding cash and preference share investments)(%)                    8,9              18,0           11,9
Current ratio                                                           1,6               1,7            1,7
Average debtors days                                                   56,0              60,0           60,2
Depreciation and amortisation (R million)                             108,9             121,5          239,5
Cost of sales                                                          52,6              48,6          101,2
Operating expenses                                                     56,3              72,9          138,3
Contingent liabilities (R million)   
Performance guarantees                                                124,9             141,0           91,7
Asset finance recourse deals                                           13,4              37,7           23,7
Capital commitments (R million)   
Capital                                                                71,1              19,7           54,9
Operating lease                                                       290,8             206,5          314,8

Basis of preparation and statement of compliance
The condensed consolidated interim financial statements for the six months ended 28 February 2015 are prepared
in accordance with the JSE Listings Requirements for interim reports, and the requirements of the Company's Act
applicable to summarised financial statements. The Listings Requirements require interim 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 has
been prepared in accordance with IAS 34, Interim Financial Reporting. The condensed consolidated interim financial
statements exclude the fair value disclosure as required by IAS 34.16A(j).

The accounting policies applied in the preparation of the condensed consolidated interim financial statements
are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous
consolidated annual financial statements.

The condensed consolidated interim financial statements do not include all the disclosure required for complete
annual financial statements prepared in accordance with IFRS.

These condensed consolidated interim financial statements 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 condensed consolidated interim financial statements are presented in South African rand, which is Business
Connexion Group Limited functional and presentation currency.

The condensed consolidated interim financial statements appearing in this announcement are the responsibility of
the directors. The directors take full responsibility for the preparation of the condensed consolidated interim 
financial statements. Mr LN Weitzman CA(SA), the Chief Financial Officer, is responsible for the condensed 
consolidated interim financial statements and supervised the preparation thereof in conjunction with 
Ms SA Barnfather CA(SA), the Group Financial Manager.

Commentary
Introduction
The global trend of Information Technology (IT) and Telecoms convergence continues as demonstrated by many
traditional IT companies merging with Telecoms companies. This is driving the development of new products and
services.

Furthermore, enterprise clients are focussing on innovation, customer experience and productivity enhancements,
which is driving the need for automation and analytics across industries.

Business Connexion is well positioned, as a leading IT service provider with broad industry expertise, to continue
playing a leading role in the "Internet of Things", across industry verticals and diverse business domains.

Financial performance
Revenue grew by 16,0% to R3 556,9 million compared to the prior period. This growth was underpinned by organic
revenue growth of 15,1% resulting from new client wins. This trend continues to reflect the Group's focus on an
improved sales culture and cross-selling.

Gross profit margins at 27,4% (2014: 30,0%) remain largely unchanged despite continuing tough economic
conditions as well as market and client pricing pressures.

The focus on operating expenses and balance sheet management continues, with normalised operating expenses
remaining flat and reduced capital expenditure.

The Group recorded a normalised operating profit margin of 5,6% (2014: 5,2%).

                                                 2015    2015      2014     2014
                                                   Rm       %        Rm        %

Operating profit as reported                    161,8     4,6     300,3      9,8
Profit on sale of business                                      (171,8)
Amortisation of intangible assets                20,6              27,7
Impairment of goodwill                                              2,4
Telkom transaction costs                          7,7
Net cost from restructuring                       9,3

Normalised operating profit                     199,4     5,6     158,7      5,2

The tax charge in the prior period included the provision for capital gains tax on the sale of QLink of
R25,7 million. 

The Group generated diluted earnings per share (EPS) of 17,6 cents for the period (2014: 52,0 cents)
and diluted headline EPS for the period of 17,7 cents (2014: 15,6 cents). On a normalised basis, excluding
primarily the profit on the sale of QLink and the impact of the amortisation of intangibles, diluted headline EPS is
25,9 cents (2014: 20,7 cents). 

The Group continued to generate strong operating cash flows of R282,0 million (2014: R259,0 million).

Change in segmental reporting
In order to respond to the changing business environment, the operating model has been aligned to better support
and deliver value to its clients. This operating model simplifies the business and enables improved decision making
across the Group's geographical footprint.

Effective 1 September 2014, the operating model comprises:
  
- The Solutions and Service Delivery division, which includes what was previously known as Services, 
  UCS and Innovation

- The Technology and Sourcing division comprising the Technology and Canoa businesses
  
- The Investments division, which is made up of the Group's strategic investments, including its investments in 
  Nanoteq, African Arête, Appzone and Northgate Arinso

- The results of the International division have been incorporated into the above divisions

To reflect the new operating model, reportable segments have been restated accordingly.

Divisional performance
Solutions and Service Delivery division
The Solutions and Service Delivery division offers a full range of infrastructure services, application services and
value added business solutions. Along with the end-to-end solutions targeted at the retail industry, this division has
been able to "verticalise" its service offerings more effectively. Through its state of the art data centres, Business
Connexion is the leading cloud services provider in Africa.

Divisional revenue grew organically by 6,0% to R2 073,0 million (2014: R1 955,9 million). The increase in revenue
within the division is due to new business won, further client renewals and increased consulting and application
development business. Gross profit margins were maintained despite the tough economic environment. Operating
profit margin at 8,8% is in line with the prior period.

Technology and Sourcing division
The Technology and Sourcing division delivers innovative technology solutions to both the private and the public
sector in conjunction with the world's leading vendors and partners. This division also offers Managed Print Solutions
and office automation through its exclusive distribution rights for Canon print and imaging solutions in 
Southern Africa.

Revenue increased by 33,0% to R1 438,3 million (2014: R1 081,8 million) due to the award of new business during
the period. Operating profit increased by 26,4% to R53,1 million (2014: R42,0 million).

Investments division
The Investments division consists of the Group's strategic investments.

Revenue increased by 55,6% to R45,6 million (2014: R29,3 million), supported by strong revenue growth from the
Middle East. The nearly threefold increase in operating profit to R12,3 million (2014: R3,2 million) was underpinned
by the growth in revenue from this division.

Corporate activity
Subsequent to 28 February 2015, and in line with the Group's strategic intent, the following transactions were
entered into:

- The Group entered into an agreement to dispose of a 15% interest in Nanoteq Proprietary Limited, to a black
  economic empowerment consortium. Nanoteq is the Group's encryption technology service provider. Following
  the transaction, the Group will retain a controlling interest of 60%. The transaction is subject to the fulfilment
  of certain conditions precedent.
  
- Effective 1 March 2015, the Group entered into an agreement to acquire 100% of Joint Venture Pump Services
  Proprietary Limited (JVPS). JVPS's comprehensive portfolio includes fuel dispensing and forecourt automation
  equipment, an environmental management solution for the forecourt, all of which allows the Solutions and
  Services Delivery division to provide leading technology capable of enabling the "Internet of Things".

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 issued share capital of Business Connexion Group Limited by way of schemes of arrangement.

The implementation agreement entered into on 21 May 2014, was amended on 31 March 2015 to extend the Long
Stop Date from 31 March 2015 to 30 April 2015. This was to cater for the regulatory approval from the Competition
Commission of South Africa and ICASA if necessary.

Approval from the Common Market for Eastern and Southern Africa (COMESA) Commission was received on
16 March 2015.

Upon receipt of the above approvals, final approval will be sought from the Takeover Regulations Panel (TRP)
and the JSE Limited (JSE).

Outlook
As industry dynamics continue to evolve in the coming years, underpinned by market consolidation, there will be
a fundamental shift to the cloud and the "Internet of Things". This, together with the requirement for analytics,
mobility and security will present opportunities for the Group.

The mergers and acquisitions strategy focussing on the rest of Africa and the acquisition of innovative solutions will
ensure that Business Connexion is positioned to play a leading integration role in the "Internet of Things".
The performance of the core business and the strategy execution is reflected in the record first half revenue growth
rate which the Group anticipates to continue for the year.

Independent review by the auditors
These condensed consolidated interim financial statements for the six months ended 28 February 2015 have been
reviewed by the auditors, KPMG Inc. The individual auditor assigned to perform the review is Mr LP Fourie. KPMG
Inc. has issued an unmodified review report on the condensed consolidated interim financial statements. The
auditor's report is 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.

For and on behalf of the Board
A C Ruiters                                 L I Mophatlane
Chairman                                   Chief Executive Officer
Midrand
14 April 2015

Administration
Executive directors
LI 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*, 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 Sponsor Services Proprietary Limited, 17 Fricker Road, Illovo, 2196

For more information, please visit our investor relations website at www.bcx.co.za

Issue date 14 April 2015



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