Trading conditions for Business Connexion remained tough during the six months ended 28 February, with limited success tender opportunities particularly in the public sector. Revenue decreased to R1 875,4-million from R2 009,7-million for the same period last year.
Gross margin for the six months to 28 February 2011 of 28,8% remains solid relative to the 29,4% reported in February 2010. In particular, margin within the technology division is under pressure.
Operating expenses continue to be tightly managed and increased 6,7% in the period to 28 February 2011. Operating expenses include costs associated with the acquisition of UCS and other opportunities totalling R10,6-million and an IFRS2 charge totalling R6,1-million in respect of the "A" Share Option Scheme which was introduced to increase the BEE equity ownership of the group to 30%. Excluding these two items, operating cost increases were contained to 3%.
The group recorded an operating profit margin of 2,1%, compared to 6,1% in 2010. This decrease was exacerbated by the decrease in revenue and resultant loss in the technology division. Management expects a recovery in margins from existing operations and a further enhancement from strategic growth initiatives.
Cloud computing remains an exciting driver in the eervices division. With revenue at R887,1-million the services division is the largest contributor to group revenue. However, this is down from the prior period of R947,8-million.
The services division has modified incentives and refined its offering to increase its competitiveness and relevance in the market place.
The technology division achieved revenue of R602-million, compared to R720,5-million in 2010. Approved orders of R128,5-million were not recognised in the current reporting period due to supply chain lead times in getting the equipment into the country.
The innovation division achieved revenue of R214-million, up from R188,8-million in 2010. All business units within the innovation division have shown growth on
the prior period.
In addition, all countries in the international division are profitable. Encouraging progress has been made in several operations, particularly Mozambique and Tanzania.
Business Connexion’s content distribution infrastructure initiative with Limelight Networks (branded Content Distribution Solutions (CDS)) is now live. CDS is in proof of concept phase with Internet Service Providers and major content producers.
CDS is able to deliver all forms of data using BCX’s infrastructure, at a reduced cost and greater speed, significantly improving the internet users’ experience in sub-Saharan Africa.
The managed print solutions joint venture is showing encouraging prospects and is increasingly being considered as a strategic competency within BCX’s offering.
The group generated diluted earnings per share (EPS) of 9,3 cents for the period, compared to 27,8 cents last year. Diluted headline EPS for the period was 9,3 cents, down from 27,3 cents in 2010. Return on equity at 3,7% has decreased from 8% at 31 August 2010 on the back of the reduced profitability.