BCX expects to do better

By Iain Scott, ITWeb group consulting editor

Johannesburg, 14 Feb 2006

Business Connexion (BCX) is expecting a better second half of its financial year after reporting a 60% attributable profit decline in the first half.

Attributable profit fell to R52.3 million in the six months to November, compared with R131.8 million for the same period a year earlier. This translates to a decline in earnings per share (EPS) from 54c to 21.5c.

Headline earnings fell from 23.8c a share to 21.6c a share.

However, CEO Peter Watt points out that the HEPS decline resulted from the reduction in associate income after the sale of non-core investments in the previous period as well as the payment of R10.2 million in secondary tax on companies relating to the group`s maiden dividend.

On a comparable basis, HEPS grew 14%.

Watt says the 25.2% increase in revenue from R1.36 billion to R1.71 billion is pleasing, given that revenue was static in the three previous financial years.

He says the group invested significant resources and sacrificed margin to win long-term contracts, grow revenue and create a platform for further expansion in the outsource market.

"There is a limit to how much cost-cutting you can do. If a company doesn`t grow revenue, it gets to the point where it starts going backwards."

Radar screen

Watt says the focus on revenue will continue for now. "It`s probably one of those things where we grow new business, stabilise, and grow again."

Operating profit for the period rose 12.2% from R64.7 million to R72.6 million.

Watt says the second half of the financial year is normally better than the first, and there is a large number of orders in the pipeline. "In fact the order book is quite healthy," he adds. He says although he does "not like to get into the forecasting business", he is anticipating that full-year HEPS will be equal to that of the previous financial year.

Cash generated by operations amounted to R56.3 million, resulting in cash reserves of R656.9 million on the balance sheet.

Watt says he is comfortable with the high ratio of current assets (R1.47 billion) to current liabilities (R688 million) on the balance sheet. "There is a lot of corporate activity in the ICT sector right now. If something does arise, we want to be in a position to take advantage of that.

"There is a lot of opportunity as a result of the Convergence Bill, telecoms liberalisation and so on," he adds.

Commenting on last year`s talks with Telkom and Bytes Technology Group, Watt says BCX is on the radar screen of many companies. "We have put the company into the sweet spot of where ICT is going. And it`s not a matter of us going there - we have done it already."

He says while the previous potential bidders did not take into account the future value of the group, if an offer arose that did make sense, BCX management would have to take it to its shareholders.

The BCX share was trading unchanged at 740c on the JSE this morning, after losing 10.8% in the past two trading days in the wake of a trading update relating to the HEPS and EPS decline.