Attract – Connect – AmplifyUCS >100 1 093,2 353,2 Technology (25,6) 916,0 1 230,9 Canoa >100...
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Transcript of Attract – Connect – AmplifyUCS >100 1 093,2 353,2 Technology (25,6) 916,0 1 230,9 Canoa >100...
When one entity is attracted to another and they join, a compelling connection occurs and the effect is extraordinary. Something new is created and possibilities grow endless. This is the amplifying power of Connective Intelligence™.
Attract, attracting, attraction is the essence of mapping the magnetic field of an object which is simple in principle, but requires a lot of planning, similar to our company’s business strategy, it’s a roadmap that provides direction to our business, it defines our future, it identifies our core fields and strengths for a specific period.
Measuring the strength and direction of the magnetic field is done in business by focusing and developing our core strengths and growing these areas of development through identifying the resources needed. Once this has been done a number of connections are created and by focusing on these connections made, we amplify the direction of the magnetic field, therefore amplifying its magnetic influence of our business.
Giving our business a global direction, making its future extraordinary… showcasing our strength and innovative approach to business solutions and connecting Africa and the world.
Attract – Connect – Amplify
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TAble of ConTenTs
Key features 1
Analyst presentation 2
Summarised consolidated statement of financial position 28
Summarised consolidated statement of comprehensive income 29
Summarised consolidated statement of cash flows 30
Summarised segmental analysis 30
Other group salient information 31
Summarised consolidated statement of changes in equity 32
Commentary 34
Administration IBC
Key feATures
Revenue increased by 35,1%
to r5 829,6 million
Gross margin improved from 30,9%
to 31,5%
EBITDA increased by 59,6%
to r511,9 million
Sustainable diluted headline earnings
per share of 54,3 cents
Dividend of 20,0 cents per share
delivering a 3,9% dividend yield
For more information please visit our investor relations website at: www.bcx.co.za
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Audited annual financial results Year ended 31 August 2012
Introduction
Financial performance
Our strategy
Summary and outlook
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2012 overview
• Strength of our refocused organisation evident
• BCX now in the strongest position in the last eight years
• Investments exceeded initial expectations
• Despite fragile global economy and uncertainty ...
• ... results demonstrate the ability to meet the challenges
… well positioned for future growth
Introduction
Benjamin Mophatlane
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Building upon the BCX foundation (continued)
Market dominance in key African industry verticals
Large distributed ICT support services
Key strategic partners
Market leading applications development skills
Proprietary niche ICT solutions
Building upon the BCX foundation
Established presence in Africa
Largest employer of ICT skills in Africa
African leader in cloud services & data centre management
Strong annuity based revenue
Largest IT outsourcer
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ICT outsourcing – market share analysis
Outsourcing IT Services – Sub-Saharan Africa Outsourcing IT Services – South Africa
* source: BMI-T / Gartner
* source: BMI-T / Gartner 7
Market size – Sub-Saharan Africa IT services
South African IT Service Vendors – 2011 Market Share
Sub-Saharan Africa IT Service Vendors – 2011 Market Share
Sub-Saharan Africa Manufacturing & Resources Vertical – 2011 Sub-Saharan Africa Retail Vertical – 2011
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Financial performance
Lawrence Weitzman
• BCX positioned to counter volatile market • Robust annuity revenue • Improved margins • Acquisitions meeting and exceeding expectations • Technology division profitable • Performance of Innovation and International • Strong balance sheet and operational cash generation • Balanced business portfolio
Our year in summary
… executive structure and acquisitions unlocking value
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Rm Aug 2012 Aug 2011
Revenue 5 829,6 4 314,2
Gross profit 1 833,5 1 335,1
Gross profit margin (%) 31,5 30,9
Operating expenses 1 558,5 1 177,4
Operating profit 275,0 157,7
Operating profit margin (%) 4,7 3,7
Associates + net inv. income 6,7 9,0
Profit before tax 281,7 166,7
Taxation 85,6 64,4
Non-controlling interests 46,8 9,7
Attributable earnings 149,3 92,6
Headline earnings 155,4 57,5
Statement of comprehensive income
Revenue up 35,1%
Gross profit margin improved to 31,5%
Operating expenses well managed
Normalised operating profit margin up to 6,3%
Diluted HEPS up by 125,8% (normalised up 23,3%)
ROE improvement, still lower than cost of equity
Performance overview
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Segmental revenue analysis
Rm Growth
%
Aug
2012
Aug
2011
Services 9,7 1 982,6 1 806,9
UCS >100 1 093,2 353,2
Technology (25,6) 916,0 1 230,9
Canoa >100 860,5 136,1
Innovation 19,0 496,5 417,1
International 26,8 467,2 368,5
Investments >100 13,6 1,5
35,1 5 829,6 4 314,2
Cents Aug 2012 Aug 2011
HEPS 39,0 17,3
Diluted HEPS 38,8 17,2
Normalised diluted HEPS 54,3 44,0
NAV per share 520,0 529,6
Tangible NAV per share* 339,9 336,4
ROE (%) 7,1 4,3
Tangible ROE (%)* 13,8 7,5
ROA (%) 9,3 5,3
* Excluding goodwill, fair value of contracts, brand
Key statistics
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Operating expense analysis
Rm % change
Aug 2012
Aug 2011
Manpower 854,5 797,4
Facilities 238,2 164,8
Depreciation 81,8 57,6
Amortisation of intangibles 49,2 15,5
Other 334,8 142,1
32,4 1 558,5 1 177,4
Like-for-like operating expenses 7,8 992,1 920,2
Rm Aug 2012 Aug 2011
Operating profit 275,0 157,7
Amortisation of intangibles 49,2 15,5
Fair value adjustment on Canoa earn-out 26,2
Impairment of Hawkstone 6,0 2,5
Sale of businesses (4,6) (74,3)
Cost of restructuring 47,2
M&A costs 14,9 31,2
Other 3,4 6,1
Normalised operating profit 370,1 185,9
Normalised operating margin (%) 6,3 4,3
Normalised operating profit and margin
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Rm Aug 2012 Aug 2011
% %
Profit before tax 281,7 166,7
Income tax 111,8 46,6
Deferred tax (19,9) (20,8)
Tax charge 91,9 32,6 25,8 15,5
CGT (31,5) (11,2) 31,4 18,8
STC 21,9 7,8 5,3 3,2
Ordinary dividend 5,7 2,0 5,3 3,2
Special dividend 16,2 5,8
Withholding tax 3,3 1,2 1,9 1,1
85,6 30,4 64,4 38,6
Taxation
Segmental operating profit
Rm Aug 2012 Aug 2011
% %
Services 219,3 11,1 177,2 9,8
UCS 116,9 10,7 40,1 11,4
Technology 3,3 0,4 (9,0) (0,7)
Canoa 106,5 12,4 18,0 13,2
Innovation 67,6 13,6 20,0 4,8
International 11,7 2,5 (7,8) (2,1)
Investments (28,3) 0,9 60,0
Corporate office (222,0) (81,7)
275,0 4,7 157,7 3,7
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Rm Aug 2012 Aug 2011
Goodwill 566,9 555,3
BCX 163,0 167,9
UCS assets 227,5 227,5
Canoa Group 159,9 159,9
Quad 16,5
Intangible assets 363,3 378,7
Brand 31,9 35,6
Fair value of contracts 123,1 165,9
PeopleWare 7,2 9,9
Computer software 201,1 167,3
Total 930,2 934,0
Goodwill and intangibles
Rm Aug 2012 Aug 2011
Property, plant and equipment 442,0 453,9
Goodwill and intangibles 930,2 934,0
Other non-current assets 306,0 273,9
Current assets (excluding cash) 1 493,4 1 502,7
Cash 443,9 518,3
Total assets 3 615,5 3 682,8
Shareholders’ equity 2 105,7 2 144,6
Non-controlling interests 95,8 48,5
Non-current liabilities 237,7 319,5
Current liabilities 1 176,3 1 170,2
Total equity and liabilities 3 615,5 3 682,8
Statement of financial position
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Rm Aug 2012 Aug 2011
Inventories 197,9 178,9
Trade receivables 971,3 970,1
Other receivables 239,0 250,6
Prepayments 81,6 77,7
Taxation prepaid 3,6 7,4
Current assets held for sale 18,0
1 493,4 1 502,7
Current assets excluding cash
Trading receivables profile
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Year ended (Rm) Aug 2012
Cash generated from operations 520,8
Working capital changes (30,5)
Capital expenditure (205,6)
Acquisition of Quad (10,8)
Other (31,7)
242,2
Tax paid (101,4)
Dividend paid – ordinary (55,8)
Increase in cash before special dividend 85,0
Dividend paid – special (159,4)
Decrease in cash (74,4)
Cash flow
Rm Aug 2012 Aug 2011
Short-term liabilities 89,2 77,2
Term loan 60,4 42,0
Other 28,8 35,2
Trade payables 425,3 457,1
Other payables 647,6 622,3
Provisions 1,3 0,9
Taxation payable 12,9 12,7
1 176,3 1 170,2
Current liabilities
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Our strategy
Benjamin Mophatlane
• BCX positioned well – Balanced business portfolio – Well structured product and services offering – Strong cash generation – Healthy balance sheet
• Share buy-back plan under consideration • Updating the group’s share incentive scheme • Dividend yield of 3,9%
Prospects
… 2013 a year full of expectations
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Our People
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Our clients
• New and renewed annuity contracts
• Rest of Africa
– New: Ghana - data centre services
– Renewal: financial switch (Umoja)
• Market leading position
– Sub-Saharan Africa IT Services: manufacturing & natural resources, retail and insurance (Gartner: 2012)
– Middle-East & Africa IT services market share, 10% (Ovum 2012)
– SA data centre market, 27% (Frost & Sullivan: Nov 2011)
– SA application development market, 20% (BMI:Dec 2011)
Key strategic developments
Group strategy
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• Largest African presence
• Global capability
• Vertical industry focus: •Retail and supply chain •Mining •Financial services •Oil and Gas •Public sector
• Flexible organisation structure to achieve growth strategy
• Premium Connexion Zone- Convergence portfolio
• Innovation Zone- Own intellectual property
Our People
• Attract, retain and develop talent
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Our People
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Our organisation
• Operating model changes in Technology division
• Vendor alignment
• Regional sales force optimisation
• Rest of Africa capacity building
Key strategic developments (continued)
Our People
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Our offerings expanded
• Cloud offerings:
– Private & public IaaS
– Rackspace partnership
• Data centre services – Nigeria & Kenya
• Industrial solutions – Quad Automation
• Mid-market corporate infrastructure services – Integr8
• Own intellectual property
– Local authority solution – SOLAR
– Mobile apps portfolio
– Payroll - white-label offering
Key strategic developments (continued)
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Rest of Africa focus areas
Financial services and mobility
Outsourcing
Data centre services
Application services and Innovation division
Content distribution
Web based ERP Retail vertical solutions
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• A company that attracts, retains and develops great talent
• Unlocks potential through empowerment
• Recognises performance, develops talent and celebrates innovation
• Interns
– 650 trained in last 5 years
– 142 in 2012
– > 70% intern employment rate 2012
• 2 new leadership development programmes
– 101 leaders to date
• Successfully embracing diversity through various campaigns
Our people: other key initiatives
Our People
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Why Kenya and Nigeria
• Core to group strategy and a major strength • Time is now • Enhance group value proposition-Technology to Services • New market opportunities • Access to new clients
Africa data centre investments
… confirmed contracts and strong pipeline
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Summary of the Deal
Acquisition • 100% acquired through UCS Solutions • Maximum purchase price – R126,0 million • Upfront payment - R56,0 million • R70,0 million in earn-out payments to 2015 • Key executive management retained • Cash funded
Rationale • Supports Connexion Zone Vision • Enhance and extend data centre and leveraged managed services
offerings • Extends competitive advantage into mid-market corporates • Extension of UCS Solutions’ managed services offering to client base
Nigeria and Kenya Market
Frost & Sullivan (2012)
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Summary and outlook
Benjamin Mophatlane
INTEGR8 IT – Quick Facts
• Founded in 2001 • 550 highly skilled and experience • Built from the ground up • Strong balance of entrepreneurial innovation and corporatization • One of the largest privately owned ICT infrastructure managed
services companies • Founder, owner and operator of the Nerve Centre®, a digital hub of
people, process and innovative technology that is used to remotely monitor, manage and regulate the technology infrastructure of leading companies across the globe
• A leader of infrastructure managed services into the mid-market corporates
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• Diversity in business – Portfolio mix – Geographical presence – Vertical markets – 33 year history
• Diversity of people and skills • Annuity revenue • Established cloud services offerings
• Innovation and intellectual property • Embraced GreenIT • New markets • Community upliftment
Sustainable business
Positive outlook for the ICT Sector
Frost & Sullivan (2012)
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Passion
live with heart
Innovation
live to inspire
Trust
live your truth
Integrity
live your word
Make a Difference
live with
compassion
Excellence
live to accomplish
Teamwork
live to collaborate
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Our values
• BCX poised for further growth
– New markets and refined service offerings
• ICT industry is in the midst of rapid change and consolidation
• With growing African footprint, broad client base and reputation
for service delivery …
– BCX in a position to take full advantage
• Strategic initiatives in place to develop …
– Skills
– Infrastructure and
– Targeted offerings in chosen markets
• Africa - poised to drive the global economy
– BCX well placed to continue to play a leading role
Summary
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Booklet slides
Business Connexion Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities legislation.
Forward-looking statements may be identified by words such as 'believe', 'anticipate', 'expect', 'plan', 'estimate', 'intend', 'project', 'target', 'predict' and 'hope‘.
Forward-looking statements are not statements of fact, but statements by the management of Business Connexion Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the group's future performance.
No assurance can be given that forward-looking statements will prove to be correct and undue reliance should not be placed on such statements.
The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation.
Business Connexion Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage whatsoever and howsoever arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential loss or damage
Disclaimer
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Building upon the BCX foundation (continued)
Market dominance in key African industry verticals • BCX has a strategic focus on key industry verticals – wholesale & retail, manufacturing &
resources, mining & natural resources, public sector, petrochemical and financial • Major dominance in retail industry sector subsequent to merger with UCS • Acquisition of Quad Automation
Large distributed ICT support services • Arising from merger with UCS and Canoa, BCX has largest ICT support services footprint
in excess of 1000 skilled engineers • Based in multiple locations across Africa
Key strategic partners • Exclusive partnerships – Canon, Rackspace • Strategic partnerships – Argility, IBM, Cisco, Microsoft, EMC, HP, SAP, Oracle, Northgate
Arinso
Market leading applications development skills • Strong Application development team • Multi-platform and device development expertise • #1 market share in application development, 20% of the market (BMI-T 2010,
December 2011)
Proprietary niche ICT solutions • Own IP solutions within Innovation, Services and UCS divisions • Include payroll, HR, municipal management, retail management and financial switching • These solutions can be leveraged in the public sector throughout Africa
Building upon the BCX foundation
Established presence in Africa • One of largest ICT groups in Southern Africa – RSA, Namibia, Mozambique, Zambia &
Botswana • Strong presence in East Africa – Tanzania, Kenya • Established presence in West Africa – Nigeria
Largest employer of ICT skills in Africa • Over 6 500 ICT skilled workforce across Group • Multi-disciplined skill set • Vast experience in delivering large projects throughout Africa
African leader in cloud services offerings • Leader in SA market for data centre services, 27% market share (Frost and Sullivan
2011) • Tier IV certified data centre with multiple data centres throughout RSA & Tanzania
Strong annuity based revenue • Long-term outsourcing and support contracts • 61% of group revenue is annuity based • Robust blue-chip client base
Largest IT outsourcer • Over 33 years as leading full-service ICT outsourcer • Leader in Sub-Saharan Africa outsourcing market with 15% market share (Gartner) • Large multi-term contracts with global customers across multiple industries
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Rm Aug 2012 Aug 2011
Investment in associates 5,5
Long-term loans receivable 32,4
Other investments 213,4 215,3
Deferred tax assets 60,2 53,1
306,0 273,9
Non-current assets
PPE and intangible assets
Rm CoS
assets Opex
assets Total
Aug 2012
PPE 312,5 129,5 442,0
Intangible assets 130,9 232,4 363,3
443,4 361,9 805,3
Depreciation 87,5 139,5 227,0
Aug 2011
PPE 331,0 122,9 453,9
Intangible assets 99,8 278,9 378,7
430,8 401,8 832,6
Depreciation 89,9 73,1 163,0
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Rm Aug 2012 Aug 2011
Accruals 182,2 179,3
Income received in advance 83,1 92,0
Leave pay accrual 101,7 93,1
Payroll accrual 87,4 97,4
VAT 52,0 51,2
Other 141,2 109,3
647,6 622,3
Other payables
Rm Aug 2012 Aug 2011
Provision for uninvoiced income 114,4 131,2
Preference dividend accrual 15,3 15,4
Payroll debtors 7,7 4,4
Other 101,6 99,6
239,0 250,6
Other receivables
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Lawrence Weitzman Chief financial officer
011 266 6637
Contact
Rest of Africa focus areas
Financial services and mobility
Evolution of electronic payments landscape, incl. transactional
switching, mobile banking etc. also leveraging Qlink and Umoja
switch capabilities
Outsourcing Specifically in the mining vertical
driven by African natural resource activity
Data centre services Driven by demand and enhanced connectivity on the African continent
Application services and Innovation division Demand for pervasive mobility functionality following significant mobile uptake
Content distribution Growing commercially active consumer base requiring content
Web based ERP Local government (LARA), SAP ERP
solutions and Human Capital Management Solutions (QData
Dynamique, Persal, Accsys)
Retail vertical solutions Following our clients as they expand across the continent and require IT services
Summarised consolidated statement of financial position
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Audited Audited31 August 31 August
R million 2012 2011
ASSETSNon-current assetsProperty, plant and equipment 442,0 453,9Goodwill 566,9 555,3Intangible assets 363,3 378,7Investment in associates 5,5Long-term loans receivable 32,4Other investments 213,4 215,3Deferred tax assets 60,2 53,1
1 678,2 1 661,8
Current assetsInventories 197,9 178,9Trade receivables 971,3 970,1Other receivables 239,0 250,6Prepayments 81,6 77,7Taxation prepaid 3,6 7,4Cash and cash equivalents 443,9 518,3Assets held for sale 18,0
1 937,3 2 021,0
TOTAL ASSETS 3 615,5 3 682,8
EQUITY AND LIABILITIESShareholders’ equity 2 105,7 2 144,6Non-controlling interests 95,8 48,5
Total equity 2 201,5 2 193,1
Non-current liabilitiesInterest bearing long-term liabilities 179,5 250,7Post-retirement benefit obligations 10,6 7,9Deferred tax liabilities 47,6 60,9
237,7 319,5
Current liabilitiesShort-term liabilities 89,2 77,2Trade payables 425,3 457,1Other payables 647,6 622,3Provisions 1,3 0,9Taxation payable 12,9 12,7
1 176,3 1 170,2
TOTAL EQUITY AND LIABILITIES 3 615,5 3 682,8
Summarised consolidated statement of comprehensive income
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Audited Auditedyear ended year ended31 August 31 August
R million 2012 2011
Revenue 5 829,6 4 314,2Cost of sales 3 996,1 2 979,1
Gross profit 1 833,5 1 335,1Operating expenses 1 558,5 1 177,4
Operating profit 275,0 157,7Share of losses from associates (0,5) (0,2)
Operating profit before investment income 274,5 157,5Investment income 34,7 27,3
Profit before finance costs 309,2 184,8Finance costs 27,5 18,1
Profit before tax 281,7 166,7Taxation 85,6 64,4
Profit for the year 196,1 102,3
Profit attributable to:Equity holders 149,3 92,6Non-controlling interests 46,8 9,7
196,1 102,3Other comprehensive income:Translation of foreign operations 5,9 (0,2)
Total comprehensive income for the year 202,0 102,1
Total comprehensive income attributable to:Equity holders 155,2 92,4Non-controlling interests 46,8 9,7
202,0 102,1
Basic earnings per share (cents) 37,5 27,9Diluted earnings per share (cents) 37,2 27,6
Calculation of headline earnings R million
Profit attributable to equity holders 149,3 92,6Profit on sale of businesses (4,6) (68,7)Loss on sale of property, plant and equipment 0,7 1,5Impairment of investments 4,6 2,5Impairment of goodwill 4,9Fair value adjustment to investment property (0,2)Tax effect of headline earnings adjustments 0,5 29,8
Headline earnings 155,4 57,5
Weighted average number of shares in issue (000’s) 398 550 331 689Diluted weighted average number of shares in issue (000’s) 401 097 335 172Headline earnings per share (cents) 39,0 17,3Diluted headline earnings per share (cents) 38,8 17,2
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Summarised consolidated statement of cash flows
Audited Auditedyear ended year ended31 August 31 August
R million 2012 2011
Operating cash flows 520,8 258,5Working capital changes (30,5) 162,9Investment income 34,6 12,0Finance costs (22,3) (6,3)Dividends paid (215,2) (71,0)Taxation paid (101,4) (59,4)
Cash generated from operating activities 186,0 296,7Net cash flows utilised in investing activities (203,5) (325,9)Net cash flows (utilised in)/generated from financing activities (56,9) 188,7
Net changes in cash and cash equivalents (74,4) 159,5Cash and cash equivalents at beginning of the year 518,3 358,8
Cash and cash equivalents at end of the year 443,9 518,3
Summarised segmental analysisAudited Audited
year ended year ended31 August 31 August
2012 2011R million Restated
Segment revenueServices division 1 982,6 1 806,9UCS division 1 093,2 353,2Technology division 916,0 1 230,9Canoa division 860,5 136,1Innovation division 496,5 417,1International division 467,2 368,5Investment division 13,6 1,5
5 829,6 4 314,2
Segment operating profitServices division 219,3 177,2UCS division 116,9 40,1Technology division 3,3 (9,0)Canoa division 106,5 18,0Innovation division 67,6 20,0International division 11,7 (7,8)Investment division (28,3) 0,9Corporate office (222,0) (81,7)
275,0 157,7
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Other group salient information
Audited Audited31 August 31 August
2012 2011
Number of shares in issue (000’s) 404 972 404 972Less: Shares held as treasury shares 5 125 2 976Less: Weighting of shares issued during the year 70 177Less: Weighting of options exercised during the year that would
have been treasury shares 1 297 130
398 550 331 689Dilutive options 2 059 3 452Options excercised during the year that were dilutive for a portion of the year 488 31
401 097 335 172
Number of options in issue (000’s) 24 174 21 831Key ratios and statisticsNet asset value per share (cents) 520,0 529,6Tangible net asset value per share (cents) 339,9 336,4Operating margin (%) 4,7 3,7Return on total equity (%) 7,1 4,3Return on total assets (excluding cash and preference share investments) (%) 9,3 5,3Current ratio 1,6 1,7Average debtors days 54,6 65,5Depreciation and amortisation (R million) 236,9 163,0
Cost of sales 105,9 89,9Operating expenses 131,0 73,1
Contingent liabilities (R million)Performance guarantees 91,8 39,6Asset finance recourse deals 16,0 38,4Other 34,9 35,5Capital commitments authorised (R million)Capital 17,1 147,7Operating lease 300,7 254,1
The preliminary summarised consolidated financial information has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Statements (IFRS), the requirements of International Accounting Standards (IAS) 34 Interim Financial Reporting, the AC 500 series issued by the Accounting Practices Board, or its successor, the Listings Requirements of the JSE Limited and the requirements of the South African Companies Act, 2008. The accounting policies applied in the presentation of the summarised financial information are consistent with those applied for the year ended 31 August 2011, except for new standards that became effective on or after 1 September 2011. The adoption of these standards has had no material effect on the results for the year, nor have they required the restatement of any prior year figures. The preliminary summarised consolidated financial information has been prepared on the historic cost convention as modified by the valuation of certain financial instruments and is presented in Rands rounded to the nearest million, which is Business Connexion’s functional and presentation currency.
Due to the significant size of the UCS and Canoa divisions they are now managed separately and no longer form part of the Investment division. The group has restated its segment report in line with the above.
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Summarised consolidated statement of changes in equity
ForeignShare currency Share-based
capital and translation Retained payment R million premium reserve earnings reserve
Balance at 31 August 2010 – audited 545,1 (27,6) 961,2 65,6Movement in treasury shares and related
reserves held by share purchase trust (20,6)Share-based payments 15,9Transfer of share-based payment reserve
to retained earnings 13,7 (13,7)Non-controlling interest in dividends
received Issue of new shares 584,1Total comprehensive income for the year (0,2) 92,6Non-controlling interests’ share of foreign
currency translation reserve (2,2)Sale of interest in subsidiaryDividends paid (69,3)
Balance at 31 August 2011 – audited 1 129,2 (27,8) 975,4 67,8Movement in treasury shares and related reserves held by share purchase trust 6,7Share-based payments 13,7Non-controlling interest in dividends received Total comprehensive income for the year 5,9 149,3Non-controlling interests’ share of foreign currency translation reserve 0,7Sale of interest in subsidiaryDividends paid (215,2)
Balance at 31 August 2012 – audited 1 129,2 (21,2) 916,2 81,5
Audited Auditedyear year
ended ended31 August 31 August
2012 2011
Normal dividend per share (cents) 14,0 23,0Special dividend per share (cents) 40,0
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Summarised consolidated statement of changes in equity (continued)
Non-Shareholders’ controlling Total
R million equity interests equity
Balance at 31 August 2010 – audited 1 544,3 6,4 1 550,7Movement in treasury shares and related
reserves held by share purchase trust (20,6) (20,6)Share-based payments 15,9 15,9Transfer of share-based payment reserve
to retained earningsNon-controlling interest in dividends
received (1,8) (1,8)Issue of new shares 584,1 584,1Total comprehensive income for the year 92,4 9,7 102,1Non-controlling interests’ share of foreign
currency translation reserve (2,2) 2,2Sale of interest in subsidiary 32,0 32,0Dividends paid (69,3) (69,3)
Balance at 31 August 2011 – audited 2 144,6 48,5 2 193,1Movement in treasury shares and related
reserves held by share purchase trust 6,7 6,7Share-based payments 13,7 13,7Non-controlling interest in dividends
received (1,3) (1,3)Total comprehensive income for the year 155,2 46,8 202,0Non-controlling interests’ share of foreign
currency translation reserve 0,7 (0,7)Sale of interest in subsidiary 2,5 2,5Dividends paid (215,2) (215,2)
Balance at 31 August 2012 – audited 2 105,7 95,8 2 201,5
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Commentary
IntroductionBusiness Connexion Group Limited (BCX) has enjoyed an excellent year in difficult economic trading conditions. The strong growth in key financial metrics is a direct result of the group’s seven-year growth strategy to 2016, which focuses on its cloud services offerings, vertical sector solutions, application development and African expansion.
The strategic acquisitions over the past two years have been successfully integrated and made significant contributions to the group’s results.
BCX employs more than 6 500 employees on the African continent. With revenue in excess of R5,8 billion, the group is positioned as the largest listed ICT services business in Africa. BCX holds the number one position in ICT Outsourcing in sub-Saharan Africa (Gartner 2011, March 2012) and is the leading South African cloud-based services provider (Frost and Sullivan, 2011). BCX was also recognised as the largest application development company in South Africa with a 20% market share (BMI-T 2010, December 2011).
As a values driven and high performance organisation, the group’s ability to attract, retain and develop talent is a key differentiator in maintaining competitive advantage. 2012 was another significant year with regards to the investment in people through our talent management initiatives, succession planning, internship programme and launching two new leadership development programmes to enhance leadership capabilities.
More than ever, African expansion presents a significant opportunity for BCX and accessing these markets remains a key strategic focus. The continued progress in Africa is pleasing with the group’s operations across the continent maturing. This has translated into an improved, and less volatile, financial performance with the group taking market leading positions in some key, high growth African economies.
BCX is busy rolling out the platform to launch its cloud-based services offerings throughout the rest of Africa. With a significant share of the platform as a service market in South Africa it is poised to dominate this part of the next IT revolution, as peers may still need to develop and build their infrastructure. BCX is deploying this infrastructure across the continent and can therefore comply with the in-country data protection laws that form a barrier to entry for many other players. Cloud services are changing the future of IT and BCX is optimally positioned with its consolidated approach to data centres, network infrastructure and applications.
Financial performanceThe group continues to pursue its objectives of growing sustainable earnings and in line with the trading statement released on 25 October 2012, the group generated diluted earnings per share (EPS) of 37,2 cents for the financial year (2011: 27,6 cents) and diluted headline EPS for the year of 38,8 cents (2011: 17,2 cents). On a normalised basis (excluding earn-out payments for acquisitions and amortisation of intangibles) diluted headline EPS would be 54,3 cents (2011: 44,0 cents).
On the back of the improved profitability, return on equity increased to 7,1% (2011: 4,3%) and return on total assets increased to 9,3% (2011: 5,3%). Tangible return on equity was 13,8% (2011: 7,5%).
Revenue grew by 35,1% to R5 829,6 million for the year, bolstered by the acquisitions of the UCS assets and Canoa Group during the previous financial year and good growth from other divisions.
Gross profit margins increased to 31,5% from 30,9%, primarily as a result of higher margin business of the acquired UCS assets and Canoa Group but also from improvements across other divisions.
Operating expenses continue to be well managed and increased on a like-for-like basis (excluding the items listed below and the expenses brought in with the acquisitions of the UCS assets and Canoa Group) by 7,8% to R992,1 million for the year (2011: R920,2 million).
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Commentary (continued)
The group recorded a normalised operating profit margin of 6,3% (2011: 4,3%) adjusting for a number of items shown in the table below:
2012 2011R’000 % R’000 %
Operating profit as reported 275,0 4,7 157,7 3,7Amortisation of intangible assets relating to the UCS assets and Canoa Group 49,2 15,5Fair value adjustment on Canoa Group earn-out payment 26,2Impairment of Hawkstone iSolutions 6,0 2,5Profit on sale of businesses (4,6) (74,3)Merger and acquisition costs 14,9 31,2Cost of restructuring 47,2
Other 3,4 6,1
Normalised operating profit 370,1 6,3 185,9 4,3
The key adjustments for 2012 listed above comprise:
• IntangibleassetscreatedasaresultoftheacquisitionoftheUCSassetsandCanoaGroup,areamortisedover their useful lives, resulting in an amortisation charge of R49,2 million for the year (2011: R15,5 million).
• CanoaGroupexceededtheirprofittargetsandasaresultBCXwasrequiredtomakeanadditionalearn-out payment of R26,2 million. In terms of IFRS 3 this payment is deemed to be a fair value adjustment of a liability and is recorded through the statement of comprehensive income. A further earn-out payment of R26,2 million will be made in 2013 contingent on the profit target for the year ending 31 August 2013 being achieved.
• BusinessConnexionalsoimpaireditsremaininginvestmentinitsassociate,HawkstoneiSolutionsProprietaryLimited.
The tax charge includes STC on the dividend paid in January 2012 of R21,9 million, of which R16,2 million relates to the special dividend. This is offset by an overprovision for capital gains tax in the previous financial year of R30,3 million resulting from the sale of Destiny Electronic Commerce Proprietary Limited.
The group continued to generate strong cash flows with cash generated from operations amounting to R520,8 million.
The Services division’s revenue grew by 9,7% for the year to R1 982,6 million, compared to R1 806,9 million for the previous year. The growth in revenue is a consequence of the division’s dominant cloud services offering and its professional services business, specifically in the application development business which is developing innovative, fit for purpose services and solutions for clients. The Services division remains committed to developing unique and innovative solutions which will drive client business value.
The UCS division contributed R1 093,2 million to group revenue with an operating profit of R116,9 million while the Canoa division contributed R860,5 million in revenue and R106,5 million in operating profit. Both these performances are ahead of targeted forecasts on acquisition and demonstrate the synergistic benefits of the divisions within the group.
The refocus within the Technology division during the previous financial year has generated positive results with the division returning to profitability and contributing R3,3 million to operating profit for the year. The division
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Commentary (continued)
achieved an operating profit of R11,0 million in the second half of the year reflecting the ongoing improvement in earnings.
The Innovation division increased revenue by 19,0% to R496,5 million following the restructure previously reported in Q Data DynamiQue (QDD) and the inclusion of Accsys, the payroll business that formed part of the acquired UCS assets. All business units within the Innovation division have performed according to expectations with QLINK continuing to perform in tough market conditions. Nanoteq’s improved performance is attributable to their international expansion.
The International division has seen revenue growth of 26,8% to R467,2 million for the year, demonstrating the exciting growth potential in Africa. With approved investments for setting up data centres in Nigeria and Kenya the group is well positioned to extend its cloud services offerings to the rest of the African continent.
BCX established Content Distribution Solutions (CDS) to deliver the group’s local and international connectivity requirements, as well as to enable the delivery of Limelight Networks content services in sub-Sahara Africa, the primary market being South Africa. Although the results are not what was expected, CDS enables BCX’s cloud strategy.
Corporate activity BCX entered into a sale of shares, repurchase and subscription agreement with Integr8 IT Proprietary Limited (“Integr8 IT”) in terms of which it will purchase 100% of the issued share capital of Integr8 IT.
BCX’s current strategy around developing the Connexion Zone is primarily focused at the enterprise market. This acquisition enhances our competitive advantage in the mid-market corporates, creating a complementary platform of services and broadens UCS Solutions’ historic retail focused infrastructure services.
Integr8 IT is one of the largest privately owned ICT managed services companies. It was established in 2001 and is a leader of annuity-based infrastructure management and managed services to the mid-market corporates throughout South Africa. The company owns and operates the Nerve Centre, a digital hub of people, technology and process, that regulates, monitors and maintains the technology infrastructure for many leading corporations.
The consideration payable by BCX is up to R126,0 million in cash, and will be settled through an initial payment of R56,0 million payable on the closing date and three potential earn-out payments of up to a maximum of R70,0 million payable on 15 October 2013, 15 October 2014 and 15 October 2015.
Lifting of cautionary announcement Shareholders are referred to the cautionary announcement dated 8 October 2012 and are advised that caution is no longer required to be exercised by shareholders when dealing in BCX securities.
Outlook BCX is benefiting from being a larger and more diversified enterprise with an expanded customer base. Cross selling opportunities and synergies should contribute positively to future results.
With its growing African footprint, broad client base, reputation and proven abilities, BCX is poised to meet the challenges posed by the rapid changes and consolidation in the ICT industry and take full advantage of its market position.
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Commentary (continued)
A report of the independent auditorThe unmodified audit reports of KPMG Inc. on the annual financial statements and the preliminary summarised financial statements for the year ended 31 August 2012, dated 2 November 2012, are available for inspection at the registered office of the company.
AppreciationThe board extends its appreciation to all employees and management for their dedication and valued efforts. It also thanks clients, suppliers and shareholders for their continuing belief in and support of BCX.
Notice of the annual general meetingShareholders are advised that the annual general meeting will be held at the Fundi Auditorium, Business Connexion Park North, 789 Sixteenth Road, Randjespark, Midrand at 11:00 on Monday, 14 January 2013.
Dividend declarationIn line with its dividend policy, the group has increased its dividend per share by 42,9% to 20,0 cents per share from 14,0 cents per share in the previous financial year. This represents a 3,9% dividend yield based on BCX’s 30-day volume weighted average share price.
Notice is hereby given that a normal gross cash dividend of 20,0 cents per ordinary share (2011: 14,0 cents) has been declared from income reserves, payable to shareholders for the year ended 31 August 2012. There are 4,4 cents STC credits available per share. Shareholders who are subject to 15% withholding tax will therefore receive a net cash dividend of 17,66 cents per share. In accordance with the provisions of Strate, the electronic settlement and custody system used by JSE Limited, the relevant dates for the dividend are as follows:
Event date Last date to trade (cum dividend) Friday, 11 January 2013Shares commence trading (ex dividend) Monday, 14 January 2013Record date (date shareholders recorded in books) Friday, 18 January 2013Payment date Monday, 21 January 2013
Share certificates may not be dematerialised or rematerialised between Monday, 14 January 2013 and Friday, 18 January 2013, both days inclusive.
On Monday, 21 January 2013, the dividends will be electronically transferred to the bank accounts of all certificated shareholders where this facility is available. Where electronic funds transfers are either not available or not elected by the shareholder, cheques dated Monday, 21 January 2013 will be posted on that date.
Holders of dematerialised shares will have their accounts credited at their participant or broker on Monday, 21 January 2013.
The above dates and times are subject to change. Any changes will be released on the Securities Exchange News Service (SENS) and published in the press. The issued share capital is currently 404 972 468 shares.
For and on behalf of the board
AC Ruiters LB Mophatlane
Chairman Chief Executive OfficerMidrand2 November 2012
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Notes
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Executive directors
LB Mophatlane (Chief Executive Officer)V Olver (Deputy Chief Executive Officer)LN Weitzman (Chief Financial Officer)JR Jenkins
Non-executive directors
AC Ruiters (Chairman)*NN Kekana
JM Poluta*
J John*
M Lehobye*
DC Sparrow
* Independent non-executive directors FL Sekha resigned effective 19 January 2012
Registered office
Business Connexion Park North, 789 – 16th Road, Randjespark, Midrand, 1685
Postal address
Private Bag X48, Halfway House, 1685
Internet address
http://www.bcx.co.za
Transfer office and transfer secretaries
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
JSE Sponsor
One Capital
17 Fricker Road, Illovo, 2196
Responsibility for financial statement preparation
Mr LN Weitzman, CA(SA), the Chief Financial Officer is responsible for the financial statements and has supervised the preparation thereof in conjunction with the Group Financial manager: Group Finance Mr JW van den Handel, CA(SA).
AdminisTrATion
business ConneXion GrouP limiTed
(Incorporated in the Republic of South Africa)
(Registration number: 1988/005282/06) (Share code: BCX) (ISIN: ZAE000054631)
(”A” Share code: BCA) (ISIN: ZAE000156154)
Income Tax number: 9200108711
(“Business Connexion” or “the company” or “the group”)
For more information please visit our investor relations website at: www.bcx.co.za
Issue date: 5 November 2012
B
