Profit margins at IT group Business Connexion have crashed in the six months to 28 February, making it look highly unlikely it will meet an earlier target management set of achieving an 8% operating margin in the 2011 financial year.
Normalised operating profit margin fell to 3,8% from a full-year 2010 margin of 5,7%.
“The results for this period are not what management expected,” says chief financial officer Vanessa Olver.
She says Business Connexion is undertaking an “action plan” to deal with the decline.
This, coupled with its acquisition of another JSE-listed IT business, the UCS Group, should help it get operating profit margins back up to a more acceptable level, says CEO Benjamin Mophatlane. The UCS transaction, to be funded in part through the issue of new shares, was concluded after the latest reporting period.
Revenues at Business Connexion also fell in the six-month period, in part because of problems related to importing equipment from overseas to fulfil customer orders, a lack of tenders, especially from government, and weak economic conditions generally.
The services division, the group’s biggest revenue contributor, felt the impact of corporate clients not spending as much on discretionary projects.
Group revenue declined from R2,01bn to R1,87bn. Headline earnings per share collapsed from 28,1c to 9,4c as a result of pressure on attributable earnings and the dilutionary effect of a new black economic empowerment deal concluded last year.
By mid-morning on Thursday, Business Connexion’s share price was trading down 1%. The counter has fallen 21,5% in the past three months. — Staff reporter, TechCentral
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