Business Connexion has continued to grow its African footprint with acquisitions in Nigeria and Botswana, new contract wins and existing client contract renewals which offset the impact of operating conditions in other sectors.
The company today released its interim results for the six months ended 28 February 2014.
The period under review presented difficult local operating conditions marked by on-going issues in a number of key sectors in which the group operates. These include the retail, mining and manufacturing sectors. Furthermore, increased pressure from new entrants in the IT services market was also experienced.
Benjamin Mophatlane, CEO of Business Connexion, comments: “Operationally, the period was marked by contrasting performances with the Services division delivering a strong recovery as a result of new contract wins, whilst our Nigerian operations were impacted by short term stock delivery issues impacting profitability.”
Revenue grew by 5,5% to R3,067-billion for the period with normalised revenue growing by 6,3%, supported by a pleasing performance from the services division, which secured new contracts but also renewed and expanded existing key ones.
The group generated diluted earnings per share (EPS) of 52 cents (H1 2013: 19,5 cents) and diluted headline EPS of 15,6 cents (H1 2013: 19,0 cents). These results were impacted by the disposal of QLink during 2013 as it no longer formed part of Business Connexion’s core business strategy. On a normalised basis, excluding the effects of the sale of QLink for R187,5-million, diluted headline EPS was flat at 20,7 cents (2013: 21,3 cents).
Return on equity was 18% (H1 2013: 7,5%) on the back of the profit on sale of QLink and the share buy-back programme initiated in November 2013. Normalised return on equity was 7,6% for the period under review.
“We remain focused on attaining a sustainable return on equity level of 17% through a combination of divisional profitability improvements, dividend cover maintenance, an enhanced debt profile, share buy-backs and consistent activity in Africa. We are happy with the achievements during the period,” Mophatlane adds.
Gross profit margins remained stable at 30% despite continuous market pressure.
Costs management remains a focus area and normalised operating expenses increased by 6,1% after adjusting for the sale of QLink.
The group continued to generate healthy cash flows with cash from operations of R261,7-million before working capital changes.
The Services division, which is the largest contributor to the group, grew by 11,5 % to R1,103-billion (H1 2013: R988,9-million). The growth came on the back of new client wins which also drove operating profit growth of 48,3 % to R101-million (H1 2013: R68,1-million).
Although trading conditions have been difficult, the UCS Division continued to demonstrate satisfactory growth, achieving a 9,1 % increase in revenue to R610,9-million (H1 2013: R560,1-million) and an operating profit of R50,2-million (H1 2013: R47-million).
Mophatlane comments: “We are pleased by the recovery of the Services division, which is driving our cloud based offerings through state of the art data centres. New key contract wins in Retail, Food and Beverage and Public Sector verticals were also strong features in the past six months, both locally and on the rest of the continent.”
The Canoa revenue remained stable at R522,7-million (2013: R514,9-million) while operating profit decreased to R47,6-million (2013: R56,9-million) as a result of lower margin product business during the period.
The Technology division showed good improvement in profitability with profits up 24,4% to R16,3-million on flat revenue of R356,6-million.
The International division grew revenue by 30,9 % to R314-million (H1 2013: R239,8-million) with revenue growth coming from Mozambique, Zambia and Tanzania. Conversely, there was an operating loss of R12,7-million during the period due to the sizeable once-off project in Ghana in the prior corresponding period and timing issues with stock in Nigeria. The timing issues relating to stock deliveries in Nigeria have now been addressed and resolved. The Nigerian Managed Print Solutions (MPS) acquisition effective 1 March 2014 provides the group with exciting prospects.
The Innovation division was impacted by the QLink sale referred to above as well as the joint venture transaction with NorthgateArinso which resulted in a revenue decrease to R159, 8-million (2013: R244,1-million) and profit reduction of 49,2% to R19,2-million.
Post the reporting period, Business Connexion acquired Ultimate Solutions Propriety Limited, a company in Botswana that specialises in point of sale solutions and completed a managed print services contract transaction with Nigerian based company, Panabiz International Limited.
In March 2014, Business Connexion announced a reorganisation that will see the creation of a new group structure to support the delivery of sustainable growth and to accelerate the group’s positioning as a global player.
Over the coming months, the current business units will be organised into agile entities, clustered into three divisions: Converged Infrastructure Solutions; Business Solutions; and Investments and Alliances.
Commenting on the reorganisation, Mophatlane says: “The new structure will provide the platform to put our customers at the centre of everything we do by clustering associated services, improving efficiencies and enabling the group to grow key regions across the continent.”
The transition into the new structure is expected to be completed in the last quarter of the financial year and teams of senior executives have been put in place to ensure business continuity and the delivery of current targets.
“We anticipate conditions to remain difficult but are confident that the benefits from tight capital allocation management and cross-selling initiatives combined with continued improvements in the Services division and a recovery from Nigeria, will result in the group achieving its targets for the full year,” Mophatlane adds.