BCX revenue is stable, supported by strong performance in the IT hardware and software business.
Key strategic
focus areasMigration of clients to nextgeneration technologies
Shift to higher margin IT business
Improve the service/product sales mix
Strategic achievementsInternational business revenue has reached R1 billion
Next-generation revenue up to 52.4%, from 42.9% in FY2023
6.6% growth in high-margin IT services revenue
Growth in Cybersecurity revenue of 14.0%
9.0% growth in artificial intelligence for IT operations (AIOps)
ChallengesProduct mix impacting EBITDA performance
High levels of trade receivable impairments
BCX operated in a challenging trading environment marked by increased competition, continued enterprise migration from legacy systems, volatile exchange rates and declining voice connectivity subscribers. Despite these challenges, our business strategy has begun to bear fruit. Revenue growth in the Information Technology business increased by 11.4%, bolstered by double-digit growth in hardware and software sales. This includes International business revenue, which exceeded R1 billion for the first time and now provides a solid base to start introducing higher‑margin services in these markets.
BCX continued to focus on enhancing the quality and sustainability of its client base, with key metrics being new business growth and growth in the total contract value (TCV) of our top clients. New business outside of hardware and software sales grew by 12.9%, and the in‑year TCV of our top 50 clients improved by 13.4%. This countered the effects of continued legacy churn, with the net impact being that total revenue1 managed by BCX decreased by 0.6% to R14 169 million.
1 Includes R1 254 million revenue that classifies as IFRS 15 agent revenue.
Reported revenue of R12 915 million was down 2.3%. The difference between managed and reported revenue largely relates to the accounting of certain classes of revenue as agent versus principal, especially in the hardware and software business to the extent of R1 137 million, being 90.6% of the total R1 254 million adjustment. The impact of the adjustment is that revenue from contracts with customers where BCX is seen as a third party (reseller) is recognised net of related costs. This adjustment has no impact on EBITDA, cash generated by the business, or management of working capital.
Further, the quantum of the adjustment will vary each year as it is dependent on the nature of the contracted performance obligation for new business. BCX will continue to track both gross revenue (a reflection of the total managed revenue base) and reported revenue. The performance commentary from hereon is based on the total managed revenue.
BCX’s performance is segmented into two main business areas: IT and Converged Communications.
– IT comprises two broad business areas offering:
IT Services, including technology-related services, products, and platforms that provide system integration, infrastructure-as-a-service (iaas), PaaS and software-as-a-service solutions that support our clients with their digital and cloud transformation journeys
IT hardware and software segment that operates through our Integrated Solution Sales (ITSS) division in South Africa, and our International division operating in five markets outside of South Africa
– Converged Communications provides connectivity to clients and consists of both legacy and next-generation data and voice solutions.
Overall IT business revenue increased by 11.4% (9.9% reported) to R8 516 million (R7 262 million reported), largely driven by the strong hardware and software business performance. BCX achieved 17.1% (16.8% reported) revenue growth in the hardware and software business across all our markets, primarily driven by new product deals, existing software contract renewals, and the clearing of the prior year backlog in the International, Cisco, and Technology Integration businesses.
This expansion gives us more opportunities to serve different clients, albeit at lower average margins, hence the focus on complementing the hardware and software sales with higher-margin IT Services revenue. IT Services revenue saw growth of 7.5% (6.6% reported) to R4 906 million (R4 789 million reported), supported by strong cybersecurity growth and steady growth in the Data Centre and Infrastructure Solutions business.
BCX saw a 14.5% drop in Converged Communications business revenue to R5 653 million as we keep moving customers to newer technologies. The legacy fixed-voice business has seen a decline in the number of lines, usage, and average revenue per client due to the impact of migration as we continue to migrate to next-generation technologies. We have managed to migrate 11.8% of our legacy lines and increase the next‑generation lines by 12.1%, which bodes well for BCX’s competitive positioning within the connectivity sector. Revenue from next‑generation services grew by 28.7%.
BCX reduced operating costs by R76 million in FY2024, including cost reductions from lower indirect employee expenses (down 6.1%) and shared services costs (down 0.5%). However, these were not sufficient to offset the combined effects of the lower margin impact due to the revenue mix, the decline in higher-margin legacy revenue, and higher expected credit losses on trade receivables. As a result, EBITDA decreased by 28.4% to R1 294 million despite stable revenue performance, while the EBITDA margin declined by 3.7 ppts to 9.1% (10.0% reported).
BCX management has accelerated the comprehensive margin improvement programme, which aims to win higher‑margin IT Services revenue and re-base the cost structure of the business over the next two years. The programme is helping to change sales skills in the business unit to improve our solutions portfolio and programme delivery efficiency. It is also helping to adjust the business’s operating model to ensure the right attention to client needs and remove redundancies and wastefulness in process, structures and technology.
The IT Business segment houses business units that provide solutions to enable the digital and cloud journeys of our clients. BCX is amplifying its use of XaaS to manage a spectrum of offerings that address customers’ needs aligned to their position in their digital transformation journey. IaaS entails on-demand access to cloud-hosted computing infrastructure, storage capacity, and networking resources that customers can provision, configure and use. Dotcom, Enterprise Infrastructure Solutions (incorporating BCX One Cloud together with our partnerships with the large hyperscalers), Alibaba, Cloud Consulting, and Digital Workspace Management business units are included in IaaS. PaaS entails a cloud-based platform for developing, running and managing applications. Enterprise Application Solutions (incorporating SAP and our various owned intellectual property solutions), Business and Digital Advisory, and IoT business units are included in PaaS.
The revenue increase of 11.0% from IaaS was boosted by increased revenue from the Data Centre and Infrastructure Solutions business, Dotcom, and the Alibaba partnership. Data Centre and Infrastructure Solutions maintained steady growth of 2.2% as the demand for storage and cloud computing continued to grow.
Dotcom, a Microsoft Azure solutions company that we acquired in FY2023, supported revenue growth from Microsoft Solutions of 77.0% and enabled this business to become more profitable. This strategic acquisition, along with our existing partnerships with other hyperscalers, the BCX One Cloud solution and the Alibaba partnership, has allowed us to expand our portfolio of offerings and provide comprehensive solutions to clients who want to leverage the power of cloud technology.
The strategic partnership BCX signed with Alibaba resulted in the official launch of the Africa Local Public (ALP) cloud in South Africa in October 2023. The Mozambique launch is now expected in the first half of FY2025. The partnership enables BCX to be the sole Alibaba Cloud distributor for South Africa and in African countries where the organisation has a presence. It provides a local public cloud offering that enables client requirements for data sovereignty – an increasing focus of financial services organisations and government departments across the continent. It enables billing in local currency, thus providing a natural currency hedge for our clients and providing access to local operational support.
Alibaba supplies several industry solutions and best practices to support organisations in financial services, retail, gaming and media. It also provides access to technologies such as generative AI. BCX and Alibaba have launched a training academy, and the first batch of BCX‑Alibaba Cloud students have graduated. Alibaba is also helping BCX to offer different delivery models to our clients based on their consumption. By March 2024, BCX had started five proof-of-concept initiatives with key clients who are interested in using the technology in their environments. The revenue from Alibaba depends on the consumption level, which means that it will grow relatively slower than our current project-based contracts, but it also has more retention potential.
In addition to strengthening our cloud offerings, we have made significant progress in modernising our own intellectual property solutions with the help of skills from Dotcom. This initiative has not only enhanced the efficiency of our operations but also positions us as leaders in delivering cutting-edge solutions tailored to the unique needs of clients in the retail, pharmaceutical, energy and municipal sectors.
Cybersecurity business revenue increased by 14.0% due to the demand for security advisory services, managed detection, and threat response services. Our new market offering, the Threat Defence Centre (TDC), which we launched in the fourth quarter of FY2024, responds well to the growing trend of malicious activities, as evidenced by the higher number of Security Incident Response services carried out in the year.
Revenue from PaaS decreased by 1.4% due to a decline in the IoT business and the Enterprise Application Solutions business remaining flat. The IoT business saw a 12.9% drop in revenue, mostly because of big projects that finished at the beginning of the year. New business continues to grow, albeit at a slower pace due to significant pressure on customer spend in the industrial space, which has caused project delays and scope reductions.
While Integrated Solutions Sales revenue declined by 3.0%, the size of this business provides BCX with access to a large network of clients. The strong partnership with original equipment manufacturers (OEMs) also gives us a strong competitive position and enables the growing demand we are seeing in the market for integrated solutions that combine hardware, software and IT services.
Gross revenue from the International business is mainly derived from hardware and software sales and grew by 34.6% to R1 027 million. The scale enables us to focus on the next stage of growth in these markets with the introduction of IT services-related solutions.
BCX continues to leverage the profitable legacy business as a source of funding for its increased investments in the IT sector. As a result, the previously expected five-year transition period for Converged Communications’ legacy migration will be longer and match the migration pace of our key clients, especially for voice solutions. The success of the legacy migration strategy depends on BCX’s ability to retain clients as we move them to newer technologies and then cross-sell the higher‑margin IT services.
As we continue to migrate customers from legacy systems to next-generation technologies, we have witnessed an increased demand for newer voice services. Revenue from legacy voice systems fell to 68.8% of the Unified Communications revenue, from 85.2% in the previous year. Legacy telephone lines have decreased by 25.2% year‑on-year. Data services, which make up 46.0% of Converged Communications revenue, have reached an inflection point, with 77.1% of Data Access revenue now coming from next-generation services.
Converged Communications’ priority remains the standardisation of newer products and services and cost optimisation to lower the cost to serve, with the continued focus on legacy to next‑generation migration. Products such as UCaaS (unified‑communications-as-a-service) and CCaaS (contact‑centre-as-a-service) will facilitate the transition to next-generation services.
Customer experience management in BCX is measured in three ways to ensure that we get an accurate picture of how our clients perceive the experience that we deliver. We firstly measure net promoter score (NPS) which we use to benchmark BCX against competitors. Secondly, we measure BCX Voice of Client (VoC) as a target in all employees’ performance contracts to drive client centricity. Thirdly, we measure the Quality of Service (QoS) which tends to flag us proactively to client pain points that may cause a decline in NPS.
Deliberate enhancements in client experience measuring and tracking enabled a significant improvement in the number of participants (an increase of 68%) and the NPS score, which improved by 56%. This trend forms another milestone in our journey of consistently improving client experience and brings BCX closer to our competitors.
Several client experience improvements have been identified and are at different stages of implementation. In response to our clients indicating that we can improve responsiveness and communications, BCX is developing a self-service portal for our clients with a phased client rollout that is imminent. BCX is also developing a pricing centre of excellence to ensure we improve our price competitiveness, which clients highlighted as a pain point. Clients indicated that they don’t associate the BCX brand as innovative. In response, BCX began developing an annual digital innovation index where corporates are mapped on digital innovation excellence. The annual Digital Innovation awards project further builds the BCX brand association with digital innovation.
IoT devices deployed by 2025:
As of FY2024, we have successfully deployed 73 679 IoT devices, surpassing our goal and demonstrating our commitment to leveraging technology for sustainable development.
We also initiated several key measures aimed at enhancing the monitoring of utilities, including electricity, gas, steam, and water, as well as environmental conditions. By implementing advanced monitoring systems, we aim to achieve greater transparency and efficiency in our utility consumption. This initiative is designed to help us identify and address inefficiencies, reduce our carbon footprint, and more effectively conserve natural resources.
In FY2024, BCX launched two
Alibaba Availability Zones in South Africa, significantly
enhancing our IaaS capabilities and cloud
offerings.
This initiative aligns with BCX’s
XaaS strategy, delivering scalable, reliable, and secure cloud solutions
tailored to the
local market, and enabling businesses to leverage advanced technologies
such as AI,
machine learning, and big data analytics for improved performance and
efficiency, all
billed in local currency. The local presence addresses regulatory
compliance and data
sovereignty concerns, benefiting industries with stringent data
protection requirements.
It also supports digital transformation by providing businesses with the
tools to innovate,
optimise operations, and enhance customer experiences, thereby
reinforcing BCX’s
position as a leader in driving digital transformation and innovation in
South Africa.
We aim to continue to transition our existing customers from outdated legacy systems to a diverse range of next-generation solutions, leveraging cutting-edge technologies. We will continue to migrate our clients in line with our migration strategy and our clients’ pace.
With the Alibaba services launched in South Africa during FY2024 and the Mozambique launch expected in the first half of FY2025, we expect the Alibaba partnership to begin yielding results in FY2025, and we will increase our sales capabilities to support growth.
We have analysed our cost structure and have identified potential opportunities in various areas of the business to save costs. In FY2025, we will focus on reducing these costs to improve our bottom line.