BCX: In search of new markets

May 19, 2011 • People

Vanessa Olver, CFO, Business Connexion (Image: File photo)

In an interview with, Vanessa Olver, CFO Business Connexion, discusses the group’s declining financial results, the challenging road ahead and a much more extended focus on SMEs and external African markets. Business Connexion has released their interim financial results for 2011 last month (April), showing an expected decline in earnings compared to 2010. What contributed to this decline?

Vanessa Olver: The interim results are not what management expected, however Business Connexion remains committed to achieving a sustainable operating profit. The biggest reason for this decrease in operating profit was revenue. The decline in revenue was a direct result of R128.5 million of orders received late for the technology division in the first half and the long sales cycles especially in the public sector. As an example, we received a SAPS order on 27 February 2011 and could not get all the goods into the country.

Also, there are numerous challenges in getting tenders finalized in the public sector at the moment. Professional services were negatively affected by the slow economic recovery and the fact that corporates were holding back on discretionary spend. The good news is that the group has retained all its key clients and their annuity income streams. However, it is crucial the group wins a new big client. We will also target the medium and smaller business sector – also an important segment. BCX needs to understand the market, match its offering to exactly what clients want and not to always try and sell the ‘Rolls Royce”.

As with the operating expenses, these are well contained and we target to get back to around 6% in operating margins for the full year. What is expected for 2012 in terms of estimated financial results and the company’s overall strategy?

Vanessa Olver: We cannot discuss financial forecasts, however the overall strategy continues to focus around the growth in core annuity revenue, optimizing costs and entering new markets through strategic initiatives and select acquisitions. Having achieved the targets set for sustainable cost efficiency, the focus now shifts to growth, as stated in the group’s strategy. At the recent interim results announcement, Mr. Mophatlane, CEO Business Connexion, confirmed a strong shift towards cloud services. How much will these services account in the group’s revenue by the end of 2011 and how will this cloud uptake progress in the following year?

Vanessa Olver: We cannot disclose the split within the services business – namely what is cloud computing versus professional services – however we can affirm that cloud is a larger contributor within the services division. How much is BCX investing in infrastructure to facilitate the move towards cloud computing services?

Vanessa Olver: Most of our annual capex is invested in our data centres. Annually we spend R120-R150m of which 60-80% will be in respect of the data centres. Are the recent acquisitions of UCS’s service units benefiting the move to cloud computing? What financial gains do you see on long term as a result of these acquisitions?

Vanessa Olver: The stated BCX vision has three core components namely the Connexion Zone; Simplify Workspace, and enabling the African Web of Life. Core to our vision is the BCX “Connexion Zone” where we aim to leverage our existing infrastructure (data centre and networking assets) to become the leaders in providing on demand XAAS (Cloud-based) services. This more transaction oriented, demand – based consumption model, is highly suited to the needs of the retail industry. This industry is transaction based and therefore annuity based in nature. Consequently it represents a strong target market for BCX’s cloud offerings.

Furthermore the nature of the business is such that it secures BCX as a market leader in the Retail services sector, allows for significant cross selling opportunities between current BCX and UCS clients and supports the cloud strategy. The acquisitions complement BCX’s African expansion strategy, since the UCS solutions are suitable to any retail market. This allows BCX to  provide high margin solution offerings out of the UCS target companies and world class services on the African continent.

We are bringing UCS into our numbers for the first time this month of May 2011 and they have warranted a R78 million operating profit for 12 months ended 31 September 2011. What is the company’s M&A strategy in the following months? Should we expect more acquisitions, investments or partnerships in the near future, such as the partnership with Arc Software?

Vanessa Olver: Where opportunities present themselves, we will review these along with further data centre build. We are more externally focused now than in the past. Last year BCX expanded into Kenya. How are the current BCX international markets performing in terms of group revenue and what is the strategy going forward in the African markets for 2012? Are there any current discussions or plans for future expansions in other African countries?

Vanessa Olver: Importantly, all the entities in countries in the rest of Africa are now profitable and growing. However, the division in total was not profitable, purely because of the central office which is being reduced as the countries can now stand on their own. From our analysis, Mozambique is the star performer, Namibia continues as the solid largest business despite its tough trading conditions, Nigeria has a new MD and a good pipeline of work and Tanzania and Zambia have just become profitable, the latter assisted by improved copper prices.

We are expecting a break-even this year and we will review other M&A opportunities on the continent where they present themselves.

by Denisa Oosthuizen



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