Listed outsourcing company Business Connexion (BCX) is in talks around a potential acquisition, in a bid to drive revenue growth, which it expects to bolster operating profit.
The company this morning released its results for the year to August, and reiterated a previous cautionary announcement. No clarity about the talks was provided in the cautionary, except that they were ongoing.
BCX CEO Benjamin Mophatlane says the discussions are in line with the company's long-term growth plans and he can see a “great fit”. He adds that the talks are still in early days, but any deal BCX enters into must enhance earnings.
Mophatlane says the company's revitalisation programme has paid off, but it still faces challenges and needs to find new sources of revenue that will aid it in growing its operating profit margin.
New alliances
BCX is now in a position to enter a merger and acquisition (M&A) phase, as well as look for new markets to enter, says Mophatlane.
Matthew Blewett, who headed up the revitalisation programme, has now been put in charge of developing strategic alliances and finding M&A opportunities.
BCX has created BCX Communications, in which Information Bearing Signals, part of the Kai Group, has a 20% stake. The deal gives BCX access to bandwidth on the Eassy undersea cable, which Mophatlane says will drive growth of its cloud computing services.
Delayed spend
However, delayed technology investments by both the public and private sector weighed on revenue during the year. Turnover declined from R4.4 billion in the year to May 2009, to R4 billion in the 2010 year.
The company's results for the year to August are not directly comparable with its last full year, as it moved year-ends from May to August.
Despite the lower revenue, BCX strengthened its operating profit margin during the year, taking it from 2.6% in its last full year, to 4.9% in the year to August.
The improvement in operating profit margin came on the back of higher operating profit, up to R197.3 million from May 2009's R114.9 million. Net earnings almost doubled, improving from R69.1 million to R124.2 million.
The company also trimmed operating expenses from R1 billion last May to R962.8 million. Most of the reduction in operating spend was due to the revitalisation programme, which cut out R114.5 million in costs.
BCX's operating profit target is to reach 8% next year; however, Mophatlane concedes this will be a tall order and the company won't kill itself to meet this target. Stripping out once-off items in its 2010 figures, BCX would have reached an operating profit margin of 5.7%.
The firm generated R315.2 million in cash during the year and had R358.8 million on hand at the end of the period. It also trimmed debt and secured a medium-term loan facility of R250 million.
Frost & Sullivan's ICT Research Analyst for Africa, Jiaqi Sun, says BCX has realised the benefits of the revitalisation programme it implemented over the past two years.
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