Despite a 9% slump in revenue, JSE-listed IT group Business Connexion (BCX) has lifted its profit by 102% in the six months to 28 February 2010 as the benefits of a restructuring programme begin to bear fruit.
The improvement in profits — the six months ended 30 November 2008 is the comparable period due to a change in financial year-end — has resulted in operating margin nearly doubling to 6,1%, from 3,2% in the prior period.
CEO Benjamin Mophatlane (pictured above) — in a leg cast at the results presentation in Midrand on Thursday after being in a car accident recently — says the results have been boosted by the successful conclusion of the “revitalisation” programme and four significant outsourcing deals it won.
Benefits of the group restructuring, which included staff retrenchments, are evident in the latest results: operating expenses are down from R499,3m in the November 2008 six-month period to R469,3m now.
The group’s services division performed relatively well, though the technology division — consisting of low-margin product sales — disappointed as a result of the weak economy.
Operating profit margin in the services division rose sharply, to 11,4% from 4,3% previously, helped by strong annuity revenue.
However, margin in the technology division, which makes up 35,9% of group sales, fell from 4,2% to just 2,9%. Good news is that inventories have declined from R189,6m to R121,9m.
Mophatlane says BCX is on track to achieve an operating margin of 8% in the 2011 financial year.
Analysts have expressed concern over the decline in the group’s revenue line, and have asked whether the group has lost market share to its rivals. But Mophatlane says that in the important services area, BCX has gained market share.
Chief financial officer Vanessa Olver says the decline in revenue was due to a slowdown in public-sector spending and a “reprioritisation” of IT spend among smaller corporate clients. BCX expects government spending, which makes up 15% of group revenue, to increase in the second half of the financial year. — Duncan McLeod, TechCentral