Business Connexion, Africa’s largest black-owned ICT services provider, today released its annual results for the year ended 31 August 2014.
The highly disruptive labour environment which prevailed in the past year in South Africa impacted a number of key sectors where the Group operates, namely retail, mining and manufacturing, which placed pressure on margins. Furthermore, new entrants in the IT services market continued to increase.
Against this backdrop, Business Connexion’s strategy remains to consolidate its footprint on the continent where significant opportunities exist to build on its current presence, which includes seven countries outside of South Africa.
Isaac Mophatlane, CEO of Business Connexion, commented: “We produced contrasting performances across the Group with the Services and Technology divisions delivering strong results driven by new contract wins and major renewals whilst internationally, stock delivery issues and a slow conversion in the Nigerian’s new business pipeline impacted profitability.”
Revenue grew by 7,2% to R6,51 billion on an organic basis for the year on the back of a very good performance from the Services and Technology divisions supported by a number of key contract wins and renewals during the period. However, the performance in Nigeria impacted these results.
Normalised gross profit margins remained stable at 29,0% (2013: 29,6%) despite tough economic conditions and continuing market pressure.
Normalised operating expenses continue to be a focus area, with normalised operating expenses increasing by 5,2%.
Diluted earnings per share (EPS) were 64,5 cents (2013: 44,5 cents) and diluted headline EPS 23,6 cents (2013: 34,1 cents) for the period. Return on equity improved to 10,8% compared to 8,0% at 31 August 2013. Cash from operations remained healthy, closing at R397,1-million for the year (2013: R307,7-million)
The Services division’s revenue increased by 6,4% for the year to R2 287,8-million due primarily to new business won and further client renewals. Gross profit margins have been maintained, despite the tough economic environment. The Services division remains the largest contributor to Group revenue at 35,1% of Group revenue.
The UCS division contributed R1 283,6-million to Group revenue with an operating profit of R108,2-million. In the current year, the UCS division benefited from a full year of results for the Integr8 IT business.
The Canoa division’s revenue decreased by 3,2% compared to the prior year. The division contributed R1 082-million in revenue and R99,2-million in operating profit. Despite a number of key client wins in the managed printing space, the results were impacted by weaker performance from the hardware business coupled with lower margins.
The Technology division contributed R34,4-million to operating profit for the year. This represents an increase of 29,9% compared to the prior year.
The EMEA division delivered strong revenue growth of 28,8% to R685,5-million. In spite of this, the division incurred an operating loss of R27,6-million for the year due to a poor performance in the Nigerian operations, where the conversion of new opportunities in the pipeline did not materialise.
Commenting on the EMEA division, Mophatlane says: “We are delivering solid revenue growth in the countries where we have a presence. Our operations in Mozambique, Tanzania and Zambia performed well and we have secured a number of contracts from international organisations operating in these regions.
“The issues in Nigeria have been addressed and we expect the EMEA division to return to profitability.”
The Innovation division reported decreased revenue to R347-million solely as a result of the sale of QLink and the joint venture transaction with NorthgateArinso. The division’s other business units are performing well.
Corporate activity
Mergers and acquisitions focussed on niche offerings remain a priority as a way to ensure that Business Connexion creates value for clients through specialised industry solutions across their chosen geographies.
During the year, Business Connexion acquired Ultimate Solutions Propriety Limited, a company in Botswana specialising in Point of Sales solutions, and Argility SME Unit
a software development business focusing on point-of-sale in the Retail sector.
The Group also entered into agreements to acquire stakes in African Arête, a services solutions business focussed on the SME market which will complement its existing portfolio in KwaZulu-Natal and a strategic investment in Appzone Limited, a Cloud solutions provider focussing on the financial services sector based in Lagos, Nigeria. Panabiz International Limited was another acquisition relating to a Managed Print Services company operating in West Africa.
On 22 May 2014, Business Connexion announced that Telkom had made an offer to acquire the entire share capital of Business Connexion. The proposed transaction was approved by Business Connexion shareholders on 11 August 2014, validating a common view that the transaction is a significant step forward for Business Connexion as part of its own Convergence strategy.
Commenting on the proposed transaction, Mophatlane says: “The transaction is line with our Convergence strategy and will see both parties better able to provide end to end solutions to clients. Deal synergies have been reviewed and we are now awaiting various regulatory approvals before any implementation can take place.”
A number of conditions have been fulfilled including the unconditional approvals from the competition authorities in Botswana, Namibia and Tanzania whilst the feedback from the Competition Commission of South Africa, the COMESA Commission and ICASA are outstanding. Upon receipt of these, final approval will be sought from the Takeover Regulations Panel and the JSE.
In March 2014, Business Connexion announced a reorganisation to advance its positioning as a global player and support its African expansion ambitions, through a new model that will drive collaboration, build a culture of continuous improvement and a standard approach to Business Performance Management. This includes a change in the Group’s executive leadership team and the creation of a new Group structure comprising of three agile entities supported by a centralised corporate services function. The entities are:
* Solutions and Service Delivery;
* Technology and Sourcing; and
* Investments.
Effective 1 September 2014, Business Connexion will be reporting its operational and financial results according to the new structure.
Outlook
“The global trend of telecoms sector consolidation is accelerating in South Africa as demonstrated by a number of high profile deals being announced and which, if consumed, will radically change the local operating landscape.
Furthermore, the world is fast moving towards a place where every “thing” is connected and intelligent, otherwise known as “The Internet of Things”. The boundaries between traditional Information and Communications Technology (ICT) markets and other industries are rapidly disappearing.
“By building on our legacy as a leading ICT integrator and using our vertical expertise, we are well positioned to provide an integration role in the “Internet of Things”, across multiple markets and diverse technology domains,” Mophatlane concludes.
