Business Connexion, Africa’s largest black-owned Information and Communication Technology (ICT) services provider, has released its interim financial results for the six months ended 28 February 2015.
ICT consolidation is accelerating both locally and globally and business require an increased focus on cost efficiencies and productivity enhancements. Building on Business Connexion’s legacy as a leading ICT integrator, and using its vertical expertise, the company has introduced a new vision; “The leading enabler of the Internet of things”.
Isaac Mophatlane, Business Connexion CEO commented: “Consolidation is driving the need for automation and analytics across industries, underpinning the global move towards the Internet of Things. Business Connexion has a number of the building blocks and is therefore well positioned to play a leading role in the Internet of Things across multiple markets and diverse technology domains.
In March 2015, the Group acquired 100% of Joint Venture Pump Services Proprietary Limited (JVPS). JVPS’s comprehensive portfolio includes fuel dispensing and forecourt automation equipment, an environmental management solution for the forecourt, all of which allows the Solutions and Services Delivery division to provide leading technology capable of enabling the “Internet of Things”.
Financial performance
Revenue grew by 16,0% to R3 556,9 million compared to the prior period. This growth was underpinned by organic revenue growth of 15,1% resulting from new client wins. This trend continues to reflect the Group’s focus on an improved sales culture and cross-selling.
Gross profit margins at 27,4% (2014: 30,0%) remain largely unchanged despite continuing tough economic conditions as well as market and client pricing pressures.
The focus on operating expenses and balance sheet management continues, with normalised operating expenses remaining flat and reduced capital expenditure.
The Group recorded a normalised operating profit margin of 5,6% (2014: 5,2%). The tax charge in the prior period included the provision for capital gains tax on the sale of QLink of R25,7 million.
The Group generated diluted earnings per share (EPS) of 17,6 cents for the period (2014: 52,0 cents) and diluted headline EPS for the period of 17,7 cents (2014: 15,6 cents). On a normalised basis, excluding primarily the profit on the sale of QLink and the impact of the amortisation of intangibles, diluted headline EPS is 25,9 cents (2014: 20,7 cents).
The Group continued to generate strong operating cash flows of R282,0 million (2014: R259,0 million).
New operating model
In order to respond to the changing business environment, the operating model has been aligned to better support and deliver value to its clients. The operating model simplifies the business and enables improved decision making across the Group’s geographical footprint.
Effective 1 September 2014, the new operating model comprises:
– The Solutions and Service Delivery division, which includes what was previously known as Services, UCS and Innovation.
– The Technology and Sourcing division comprising the Technology and Canoa businesses.
– The Investments division, which is made up of the Group’s strategic investments and partnerships, including its investments in Nanoteq, African Arête, Appzone and Northgate Arinso.
– The results of the International division have been incorporated into the above divisions.
– To reflect the new operating model, reportable segments have been restated accordingly.
Divisional performance
The Solutions and Service Delivery division offers a full range of infrastructure services, application services and value added business solutions. Along with the end-to-end solutions targeted at the retail industry, this division has been able to “verticalise” its service offerings more effectively. Through its state of the art data centres, Business Connexion is the leading cloud services provider in Africa.
Divisional revenue grew organically by 6,0% to R2 073,0 million (2014: R1 955,9 million). The increase in revenue within the division is due to new business won, further client renewals and increased consulting and application development business. Gross profit margins were maintained despite the tough economic environment. Operating profit margin at 8,8% is in line with the prior period.
The Technology and Sourcing division delivers innovative technology solutions to both the private and the public sector in conjunction with the world’s leading vendors and partners. This division also offers Managed Print Solutions and office automation through its exclusive distribution rights for Canon print and imaging solutions in Southern Africa.
Revenue increased by 33,0% to R1 438,3 million (2014: R1 081,8 million) due to the award of new business during the period. Operating profit increased by 26,4% to R53,1 million (2014: R42,0 million).
The Investments division consists of the Group’s strategic investments. Revenue increased by 55,6% to R45,6 million (2014: R29,3 million), supported by strong revenue growth from the Middle East. The nearly threefold increase in operating profit to R12,3 million (2014: R3,2 million) was underpinned by the growth in revenue from this division.
Commenting on the Solutions and Service Delivery division, Mophatlane said: “Business Connexion offers a full range of ICT infrastructure services, including Cloud services through its state-of-the-art data centres. Coupled with the end-to-end solutions, the Group has been able to diversify its service offerings more effectively.”
Corporate activity
During the six months ended 28 February 2015, Business Connexion entered into an agreement to dispose of a 15% interest in Nanoteq Proprietary Limited, to a black economic empowerment consortium. Nanoteq is the Group’s encryption technology service provider. Following the transaction, the Group will retain a controlling interest of 60%. The transaction is subject to the fulfilment of certain conditions precedent.
Effective 1 March 2015, the Group entered into an agreement to acquire 100% of Joint Venture Pump Services (JVPS) as discussed earlier.
Telkom transaction
On 11 August 2014, shareholders voted in favour of the offer by Telkom to acquire the entire share capital of Business Connexion. The proposed transaction is now awaiting a recommendation from the Competition Commission of South Africa to the Competition Tribunal and therefore the Long Stop date was extended from 31 March 2015 to 30 April 2015 to cater for this regulatory approval and ICASA if applicable.
Commenting on the transaction, Mophatlane said: “The regulatory approval of the Telkom transaction will mark the beginning of a new chapter for Business Connexion and provide the platform for further strengthening of its offerings and new strategic partnerships.”
Approval from the Common Market for Eastern and Southern Africa (COMESA) Commission was received on 16 March 2015.
Upon receipt of the above approval, final approval will be sought from the Takeover Regulations Panel (TRP) and the Johannesburg Stock Exchange (JSE).
Outlook
The industry dynamics will continue to evolve in the coming years, underpinned by market consolidation and a fundamental shift to the cloud and the Internet of Things. This, together with the requirement for analytics, mobility and security will present significant opportunities for the Group.
“Our new operating model combined with a mergers and acquisitions strategy focusing on the rest of Africa and the acquisition of innovative solutions ensures that Business Connexion is positioned to play a leading role in the ‘Internet of Things’ and remain relevant,” Mophatlane concluded.
Staff Writer
