Listed outsourcing firm Business Connexion (BCX) has put plans in place to make sure revenue grows in the second half of the year.
BCX expects future revenue growth to come from its purchase of five UCS units, and its drive towards cloud computing. However, the company's push towards cloud computing will result in some short-term pain, as it starts to bulk up the number of clients it needs to achieve the right volumes.
CEO Benjamin Mophatlane, addressing analysts yesterday at BCX's results presentation for the six months to February, said management is not happy with the first-half performance, but the company's strategy is intact.
Mophatlane notes the global downturn still presents challenges for every company in the ICT sector. According to Gartner, global IT spending is set to grow at 3.5% this year, because of a “stuttering” global economic recovery, he comments.
CFO Vanessa Olver says revenue is a key focus for BCX, and it is now addressing turnover growth. During the first half of the year, revenue slumped from R2 billion a year ago to R1.88 billion, as public sector spending was delayed, and the corporate sector held off on discretionary projects.
Adding profit
A key driver of future growth will come from BCX's purchase of several UCS units. In December, BCX said it was buying the bulk of UCS's business in a deal worth R614.2 million.
BCX's buyout of several of UCS's units is the first large purchase the company has made since its merger with Comparex in 2004, which led to the creation of Business Connexion. UCS will add four months' turnover to BCX's full-year figures, and is expected to contribute R1 billion in revenue on an annualised basis.
Olver explains buying out UCS will fast-track growth of its operating profit as UCS has high-margin service operations. BCX had planned on reaching 8% by the end of the current financial year.
The CFO says the company still wants to get to an 8% operating target, but this is now a medium-term aim. In the first half, BCX reported an operating profit of 2.1%. Stripping out once-off charges, this margin is 3.8%, lower than the normalised margin of 5.7% reported at year-end.
Mophatlane adds UCS will boost BCX's position in the market, and offers extensive cross-selling opportunities. In addition, he says, there are opportunities to drive UCS's offerings into Africa, where BCX has a presence in Namibia, Nigeria, Mozambique, Tanzania, Zambia and Kenya.
Into the cloud
BCX also sees future growth coming from cloud computing, an area into which it will invest through building data centre capacity.
However, Mophatlane says the move to the cloud will result in short-term sacrifices until the business model picks up.
Mophatlane says cloud computing is a volume gain, but once the unit has enough scale, it will aid operating margin growth. However, it will result in some substitution of its traditional outsourcing business into the cloud, he explains.
Olver says the company spent about R60 million on infrastructure in the first half, and will invest around the same amount in the second half.
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