Downturn hammers BCX

Johannesburg, 18 Aug 2009

Although listed IT company Business Connexion (BCX) grew revenue 7.9%, to R4.4 billion, headline earnings dropped in the 12 months to May.

Headline earnings per share, a key measure of performance, fell 40%, to 26.9c, as the economic slowdown bit harder and the company spent on its revitalisation programme. In February, BCX said its profits were expected to be down by between 30% and 40%.

The group has moved its year-end from May to August. It says audited results for the year, for 15 months of business, will be released around 25 November.

In a Stock Exchange News Service announcement, the group says the economic downturn was more noticeable in the second half, with revenue growth slowing. It says income growth was 5.7% in the second half, compared with 10.3% in the first half.

BCX managed to bolster its gross margin to 26.8%, from last year`s 26.4%, although the margin is still under pressure, it says. "Margins decreased as a result of the economic slowdown, with customers becoming increasingly price-sensitive."

Operating profit was down 30%, to R114.9 million, from R164 million. BCX explains this is due to spend on the revitalisation programme and foreign exchange movements, which were partially offset by the sale of property. Stripping out these factors, operating profit would have grown 15.9%, it says.

The revitalisation programme started last February with the aim of centralising, consolidating, standardising and optimising non-core and certain business functions. The restructuring phase of the programme should be complete by the end of this month.

So far, BCX has spent R46.1 million on the scheme, with another R48.4 million to be spent. Future savings are expected to be about R100 million a year, although savings so far have been small.

On hold

BCX says project spend in the retail and banking sectors slowed, which impacted its services group`s revenue. The unit, however, grew revenue 6.4% and is still the largest contributor of income, at 48.5%, although this is down from a year ago when the group provided 49.2% of revenue.

Its technology group grew income throughout the year, with revenue up 10.2% due to public sector contracts, although these contracts were at lower margins. The unit increased its contribution to BCX`s revenue to 43.2%, from 42.3% a year ago.

The international group`s revenue increased 5.7%, as its Nigerian investment delivered "good" results during the 12 months. "However, margins decreased as a result of the economic slowdown, with customers becoming increasingly price-sensitive," BCX says.

In addition, the company lost R19.1 million in foreign exchange during the 12 months due to the fluctuating rand.

BCX has targeted an operating margin of 8% for the 2011 financial year.