BCX returns to form

By Leon Engelbrecht, ITWeb senior writer

Johannesburg, 27 Aug 2008

New business and aggressive cost containment in the six months to 31 May reversed the gloom that marred JSE-listed IT services and solutions group Business Connexion's (BCX's) interim results late last year.

BCX CE Benjamin Mophatlane yesterday told shareholders, analysts and journalists that he has never been more confident in the company's future.

Operating profit at 31 May 2008 was R164.2 million, a 51.3% increase on the previous six-month period, CFO Marius Schoeman reported.

The result is a special dividend of 60c per share, as well as an ordinary dividend of 18c per share (2007: 15c), bringing the total amount returned to shareholders to R200 million.

Things were different in November last year, when actual operating profit was down to R41.9 million, from R108.5 million in May that year. The year before, in May 2006, the company had an operating profit of R143.8 million.

Schoeman added the strong second half performance boosted headline earnings per share by 18.1%, from 37.5c to 44.3c; and increased revenue by 16%, to R4.119 billion (from R3.551 billion) as the group attracted new business in the corporate and public sectors.

Gross margins remain under pressure, declining from 28.6% to 28.1%, Schoeman said. This is mainly from the competitive nature of the business and the ongoing changes to the product mix.

Growth in total expenses was held at 9.7% and this drove the group's operating margin increase from 3.1% to 4%.

After reporting a 2.1% operating margin for the first half, the group came back strongly with an operating margin of 5.8% in the second half.

Renewed vigour

Mophatlane said his revitalisation programme, which started in February, had positively impacted revenue growth and cost management in the second six months, translating into improved operating margins.

"The revitalisation programme covers five strategic areas of our business and is aimed at improving operating margin and returns to shareholders. We are committed to achieving an operating margin of 8% by 2011."

He noted that recent acquisition SiloFX had been successfully integrated into the group and was now the business integration unit within the professional services division.

The business exceeded revenue expectations in its first year of operation, Mophatlane added.

BCX has also grown its African footprint by opening an office in Nigeria during the year. The group already has a presence in Tanzania, Mozambique, Zambia and Namibia.

Fair warning

Analyst firm Frost & Sullivan cautions BCX to "carefully manage its plans" for Africa if it is to reach its 8% operating margin target by 2011.

Frost & Sullivan ICT analyst Spiwe Chireka notes that BCX recorded revenue of R298.3 million elsewhere in Africa, representing 7.9% of total revenue.

This is up from 6.9% for the previous 12-month period, she says. However, these operations only secured 12.1% of the group's total operating profit in the reporting period, down from 12.5% in 2007. This is mainly due to the significant increase in operating profit earned in SA.

"The rest of Africa still presents large revenue potential, but BCX needs to tread carefully because all of its competitors are pursuing a similar strategy. BCX may have to target niche operators and clients if they are to achieve higher revenue success in the region."

Chireka adds that, while BCX has enjoyed good results from focusing on its existing customers, it is perhaps not doing enough to attract new customers. This is particularly important for increasing revenue from its business services.

"The purchase of an application is usually a once-off cost and, therefore, the rest of the earnings will come from services such as upgrades and maintenance. Therefore, new customers will be vital for the growth in this area."