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Frost & Sullivan cautions BCX on Africa

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Following its annual results today, consulting group Frost & Sullivan says that Business Connexion (BCX) needs to carefully manage its plans for expansion in Africa if it is to reach its target of increasing operating margins to 8% by 2011.

In its announcement, BCX made special mention of the fact that the African region continues to offer opportunities for business.
BCX recorded revenues of R298,3-million from its operations in Africa outside of South Africa, representing 7,9% of total revenue. This is up from 6,9% for the previous 12 month period. However, these operations only secured 12,1% of the group’s total operating profit in the reporting period, down from 12,5% in 2007. This is mainly due to the significant increase in operating profit earned in South Africa.
“The rest of Africa still presents large revenue potential, but BCX needs to tread carefully because all of its competitors are pursuing a similar strategy,” says Frost & Sullivan ICT analyst, Spiwe Chireka. “BCX may have to target niche operators and clients if they are to achieve higher revenue success in the region.”
Chireka says that BCX has also joined the trend of ICT companies looking for growth through mergers and acquisitions, as seen by the company’s acquisition of SiloFX. It is, however, unlikely that BCX will engage in the size of takeovers seen from companies such as DiData and Datacentrix. Given BCX’s relatively smaller cash reserves, if the company is going to pursue this strategy, its acquisitions will be on a much smaller scale.
Spiwe adds that while BCX has enjoyed good results from focusing on its existing customers, it is perhaps not doing enough to attract new customers. This is particularly important for increasing revenues from its business services.
“The purchase of an application is usually a once-off cost, and therefore the rest of the earnings will come from services such as upgrades and maintenance,” Chireka notes. “Therefore, new customers will be vital for growth in this area.”