Business Connexion (BCX) has been proactive in adopting strategies to mitigate the effects of the economic slowdown. Its revitalisation programme, which began in February 2008, and its increased focus on securing projects in the public sector have ensured that its margins have remained strong through a difficult period.
BCX released results for the past 15 months today, having moved its financial year end from 31 May to 31 August. Normalised operating profit margins were at 4.0% for the period, up from 3,6% for the year to May 2008, and gross profit was marginally higher at 26,6% of revenue. Headline earnings per share however dropped to 37.5 cents.
"Customers have become increasingly price sensitive due to the economic slowdown," says Frost & Sullivan ICT analyst Mpho Moyo. "IT infrastructure spend has declined and investment decisions have been deferred, which has impacted on the local ICT market."
Moyo adds that, historically, less than 10% of BCX's clients have accounted for around 60% of its revenue. This is likely to be a key risk factor as any slowdown in spend by the companies in this small group will definitely have an impact on BCX's bottom line.
"BCX has however streamlined its business through the revitalisation programme initiated in 2008," Moyo says. "This was a pre-emptive move to ensure cost-optimisation during the economic crisis."
The group expects the programme to deliver annualised savings of approximately R100-million.
Its strong performance in winning projects in the public sector is also an important growth factor for BCX. The revenues generated from these projects have mitigated the slowdown in spending in the private sector.
"In addition, BCX has taken advantage of the increase good performance of the services group within its business," Moyo says. "This has offset the decline in demand for IT infrastructure."
The Services Group remained the largest contributor to BCX's revenue, accounting for 48,6% of the total.
Although the group expects market conditions to remain tough in the coming year, it intends growing revenue streams in the mid-tier corporate and public sectors.