Refocused, restructured BCX now ready to start flying – CEO


BCX shares have moved little in the past year, a reflection of investor concern at what comes next after the company sold its QLink operation a year ago. In our CNBC Africa Power Lunch interview today CEO Benjamin Mophatlane suggested the hiatus could be over as BCX’s investments into other parts of Africa get to grips with challenges of slow payers and red tape. Results for the half year to end February, released today, reflect strong cash flows and a widening of margins. It has been a long road, but BCX shareholders could be on the verge of reaping some reward for their patience. – AH 

GUGULETHU MFUPHI:  Business Connexion reported interim earnings today.  The company’s CEO, Benjamin Mophatlane joins us now for a closer look at their numbers.  These are muted results today but clearly, the focus today is also on the sale of Q-link.  What led to that?

BENJAMIN MOPHATLANE:  Look, I think we’ve had Q-link for 15 years, so when it became quite clear that we’re the dominant player and the only player dealing with those deductions.  What Q-link is, is a piece that allows deductions for payroll on behalf of life assurance and as Business Connexion, we had that contract for 15 years.  It’s purely a more financial services player as opposed to an IT player, so when we received an offer last year, the board looked at it.  We looked at the risks of another player being introduced, which would obviously mean we wouldn’t be able to see the earnings in the future.

GUGULETHU MFUPHI:  How come, though?  One would think there would be an opportunity for a lot of consolidation.  We just had Stafford Masie here describing a new system for payment, so quite clearly; innovation is what you need in the technology gap.

BENJAMIN MOPHATLANE:  It is, but type of innovation.  If you look at what Stafford is doing, it’s around our space.  In fact, as he walked out we were just talking about the fact that if you took pebble, you’d have to integrate it with the point of sale.  We are very dominant in that space with UCS (one of the companies we bought), so it opens up many opportunities for us.

GUGULETHU MFUPHI:  Are you looking to work with Stafford in the future?


ALEC HOGG:  There we go.  Are you going to take a cut on that one…a little bit of commission there, Gugu?  It’s your first deal.

GUGULETHU MFUPHI:  Yes, I have my first deal.  I coordinated this.

ALEC HOGG:  How about Africa?  You guys are doing interesting stuff there.  It seems to be the area where you are making the biggest returns and the quickest growth, but with some patchy areas – not as good.

BENJAMIN MOPHATLANE:  Alec, with Africa I think it’s also very important to be cautious.  At year-end for example, in Nigeria, which had a great year last year in our financials, we had R100m worth of debtors’ exposure.  We were able to bring that down quite significantly.  For us, the important part with Africa is to manage risk.  We’re not the size of an MTN or a Standard Bank, for that matter.  If we start having R500m worth of debtors, I can assure you I’m not going to sleep very well and my shareholders definitely won’t be able to either.  In those six months, we just had a hiccup of stock delays.  The red tape is one of the issues, which, from an African perspective, one has to look at.  The World Economic Forum is coming up in Abuja.  I saw the article this morning.  The big issue is the red tape and the ability for inflow and outflow of capital.  If you’re unable to allow that to happen, it can actually have an impact on us.

ALEC HOGG:  Are you going to Abuja?

BENJAMIN MOPHATLANE:  Alec, I’ll just have to consult with my board again but certainly, it does make for a very interesting…for what is possibly the premier event on the African continent on an annual basis, is the certainty around the security.  Hopefully, they’ll be able to resolve it as it’s certainly one conference that I look forward to.

ALEC HOGG:  We were hoping you’d say ‘yes, of course I’m going to Abuja’, you and Colin Coleman.  At least we’ll have two people.

GUGULETHU MFUPHI:  Does it have an influence though, from an investor’s perspective – the security concerns?

BENJAMIN MOPHATLANE:  It does to a point.  If you look at a country like Mozambique, where we, as Business Connexion, have a very successful operation and part of the reason is that there’s been stability and peace in Mozambique in the last ten years.  You’ve seen the growth in the resources sector.  You’ve seen the infrastructure coming into play, but any form of instability weighs on people’s minds.  Our ability to move people…  It’s quite a difficult discussion when I start saying ‘I want you to ship it to Nigeria’ because we have to deal with the issues, so that itself does weigh on people’s minds.  It does affect investment decisions, and it does affect the flow of capital.

ALEC HOGG:  It’s interesting to say you are the one who says ‘I want to ship you to Nigeria’ to someone else.  It’s not Benjamin Mophatlane going to Nigeria.  If you were to be relocated there by your board, would you resign or would you stick with it?

BENJAMIN MOPHATLANE:  I’d stick with it.  We believe in it.  I go there quite often and it’s one area…  Nigeria is possibly, where China was 20 years ago.  Many times, people looked at some of the global banks, for example Goldman Sachs, who spent quite an incredible amount of time going up and down to China, and Nigeria’s there.  It’s at the tipping point.  I think that its ability to go to the next phase is certainly there, but there’s quite a lot of infrastructure that needs to be in place.  That is why business like Business Connexions, from an IT infrastructure, are well positioned.

ALEC HOGG:  A great business opportunity, but the security has to worry you.


ALEC HOGG:  We saw 75 people dead now…130 injured in the bomb blast yesterday – the biggest ever, in Abuja – and you’re going there for the World Economic Forum.  You’re a brave man, Ben.

BENJAMIN MOPHATLANE:  Well, it’s a very difficult discussion because there’s no doubt your spouse, your loved ones and everybody else will say ‘where are you going to’.  Even my own mother will be saying ‘are you sure that’s where you’re going’, but the reality of it is that’s the world we’re in, but they have to improve the security situation for everybody else.

ALEC HOGG:  Just quickly, the management changes you had at BSX…

BENJAMIN MOPHATLANE:  We’re in the middle of a reorganisation and really, that organisation is to consolidate.  If you look at the last 18 to 24 months, we did many acquisitions.  We bought Integrate.  We bought UCS.  We bought into Canon, and some of them we’ve seen, are duplications in the offerings we have.  We’re getting them all together, to have a regional focus and to have the client as the voice of the customer.  Going forward, we made sure there’s a West Africa hub, there’s an East Africa hub, and a Southern African hub.  From my perspective, it also allows me to spend more time in those countries, for example Nigeria and Kenya, so that the management is not strange.

GUGULETHU MFUPHI:  What’s interesting is that you’re not saying much about South Africa.  How difficult is the environment here?

BENJAMIN MOPHATLANE:  It has, absolutely.  It has been difficult.  Business Connexion is exposed to most of the mining companies.  What has obviously happened since the strikes and the unrest etcetera is that the mining companies were unable to go into new projects and part of our business is that not only do you offer the base contract, but also we’re able to use new projects.  If the margins for new projects such as professional services is taken out of our business, it is unable to interact and feed off that.  We’ve seen none of that business and you can see, as we’re exposed to a number of private sector clients, we can gauge and tell you where the economy is going or whether the retailers are battling.  Certainly, the mining sector had an impact even on a small business such as Business Connexion, because we’re exposed to most of them, if not all of them.

ALEC HOGG:  Share price: two percent…two-and-a-half percent in the past year and hopefully, a lot better in the year to come.

BENJAMIN MOPHATLANE:  I think that the stability, the earning streams…  Last year was a big disappointment.  If you saw in the first six months, it was the services part, which is a large part of our business.  That made a full recovery.  Last year, the operating profit at this stage was at 68.  It went to 101, but that’s on the back of new clients.  Again, not necessarily in the mining sector, so we’ve been able to get new clients, for example Pioneer Foods and Tiger Brands, which was able to help us as a business.  Certainly, that’s a part of our business, which has to be at operating margins of ten to eleven percent.

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