BCX down, but not out

Listed outsourcing company Business Connexion (BCX) is focusing on garnering new clients and growing its African business during the year ahead.

In the year to August, BCX grew revenue 25%, to R5.5 billion, and reported headline earnings per share down 20%, to 37.5c. This is an improvement on its results to May, when headline earnings per share for the 12 months lost 40%.

The company's results, released this morning, include an additional three months as it moved its year-end from May to August, so a year-on-year view is not directly comparable.

CFO Vanessa Olver says the company has managed to halt the slide in earnings per share due to a better gross and operating margin. Its gross profit for the period was 26.6%, a slight improvement on last year's 26.4%.

Its operating profit was slightly down, to R132.6 million for the 15 months, compared to May last year's R164 million. However, this was mostly due to its revitalisation plan, which cost R98.3 million. This cost was partially offset by the profit on the sale of its Faerie Glen property.

Stripping these items out, BCX would have made an operating profit of R217 million.

CEO Benjamin Mophatlane says the company expects to start saving R100 million in costs from next year as it has concluded its restructuring.

Olver says the company has also won R560 million in new business in the past two-and-a-half months, including a Sanlam outsourcing deal.

In addition, despite its biggest customer, Sasol, going out to tender on the outsourcing contracts that BCX has held for the past decade, the IT group was awarded 70% of the business.

Jacqui O'Sullivan, Sasol group communication manager, says Sasol's IT department - Sasol Information Management (IM) - undertook a review of its strategy at the same time as the BCX contract was due to expire.

As a result, Sasol offered potential service providers the opportunity to propose IM service solutions, which are managed through its procurement processes, she says.

Mophatlane says BCX will continue to provide strategic services such as Sasol's data centre, storage and networking requirements. He explains that the Sasol deal was built up over a decade, starting with a networking contract, and being added to over time.

BCX's Nigerian business, which has been in operation for a year, delivered good revenue and is expected to be profitable in the next financial year. “Nigeria is very exciting; we've put a lot of money into it and over the next six months will grow the business,” says Mophatlane.

The company also has operations in Namibia, Tanzania, Mozambique and Zambia. Mophatlane says once the Nigerian business is bedded down, the company will look to open operations in Kenya and Ghana.

BCX expects to have between 16% and 20% of its earnings coming from its African units in the next three to four years, he notes. This will include revenue earned from following clients north.

BCX says market conditions will remain tough during the coming year, and it will focus on growing revenue streams in its existing customer base. The company also aims to grow market share in the mid-tier corporate sector and public sectors.

Mophatlane adds that the IT company will continue to develop its own intellectual property in software and will use this to enhance annuity-based revenue streams.

Frost & Sullivan says BCX has been proactive in adopting strategies to mitigate the effects of the economic slowdown. ICT analyst Mpho Moyo says: “BCX has streamlined its business through the revitalisation programme initiated in 2008. This was a pre-emptive move to ensure cost-optimisation during the economic crisis.”

Moyo says, 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.

The BCX share opened this morning at 499c, and was trading 2.04% up at 500c by midday.