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Losses and gains balance out for Gijima

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The loss of the South African Police Services (SAPS) contract during the financial year ended 30 June has impacted Gijima’s revenues and profits – but the company has completed its restructuring to a more client-centric business model.

These are some of the details in a trading statement released by Gijima yesterday, drawing shareholders’ attention to significant events over the financial year and reminding them about a cautionary announcement issued on 25 April and renewed on 8 June.

According to the statement, Gijima has completed the implementation of its new structure and its business model has been altered to reflect an organisation where client-centricity is the primary focus.

It believes this positioning will allow for improved industry and client understanding to better translate solutions that differentiate it from its peers.

As part of the reorganisation, Gijima has appointed several senior leading IT industry executives to drive the various client centric initiatives.

The results for the twelve months ending 30 June 2012 will reflect the cost of establishing the client centric business model and, in particular, recruitment fees, retrenchment costs and the cost of external advisory teams.

It also states that a significant contract was lost and a material portion of another contract was insourced during the 12 months ending 30 June 2012, significantly impacting on the company’s revenue and profit.

Gijima had been rendering hardware break-fix services to the South African Police Services (SAPS) since 2002. Following the expiry of the latest three-year term of the SITA 433 Contract in 2009, Gijima and SITA entered into several short-term extensions thereof, culminating in a month-to-month agreement for the provision of the services from November 2011.

These short-term arrangements were in place whilst SITA conducted the tender process for the award of a subsequent three-year contract for the break-fix services to SAPS. On 25 January 2012, Gijima received notification from SITA that a new service provider would take over the month-to-month provision of services from 1 February 2012.

Gijima has been working with SAPS for many years and has delivered in accordance with the contract in question. A new tender for Remote Infrastructure Managed Support is expected to be issued for SAPS in the near future that will replace the current month-to-month agreement. Gijima will respond to this tender.

“We have in the meantime completed the rationalisation of the team that serviced the SAPS account,” it states.

Gijima has rendered several outsource services to Absa over the past 10 years and has delivered in accordance with these contracts, the statement adds.

A portion of the desktop services contract with Absa has been insourced back to Absa from 1 April 2012 in accordance with the global policy of its major shareholder. Gijima will continue

to deliver on the remainder of this contract. Almost 180 employees, specifically dedicated to working on the insourced part of the contract, have been transitioned back to Absa as permanent employees of the bank.

Gijima continues to work with Absa in other areas and has already been invited to tender for new business.

The cost of rationalising the business in line with these contract terminations were borne in the year ending 30 June 2012.

Despite these significant contract terminations during the financial year, the group expects to deliver a similar level of revenue to that reported in the previous financial year ended 30 June 2011, as revenue losses have been made up by gains in other areas.

Gijima is also in the process of implementing an internal optimisation programme, annonced in February 2012 and aimed at improving efficiency and reducing the cost base.

People initiatives were prioritised to firstly address the contractor base of the company, and subsequently on reducing the number of its permanent employees. The company’s headcount, once the programme has been completed, is expected to reduce by 700 employees from the 3 902 employees at the start of the financial year. Of this reduction, approximately 200 employees reduced were through retrenchment, with the balance of the reduction coming from the Absa insource, contractor terminations and natural attrition. The cost of the people optimisation, that has largely been finalised, will be reflected in the results for the year ending 30 June 2012.

The optimisation programme also focused on non-people cost saving initiatives, addressing expenditures around internal information management and supply chain disciplines, as well as other operating expenses.

Looking to the future, Gijima states that is has invested to position the group for stability, consolidation and growth. New generation services in the areas of mobility and cloud are starting to bear fruit.

Gijima’s mobility framework, which includes Mobile Device Management, application development along with the ability to integrate into existing legacy platforms is complete, and the market has begun to show good interest in the solutions.

Gijima’s end-to-end security offerings are being positioned to target the significant pain-points being felt by large organisations today, particularly in the financial services industry.

These new generation services will also provide useful impetus to Gijima’s traditional strength in the infrastructure space.

Despite the challenges in the 2012 financial year, management is confident that the remedial actions taken have positioned the company for a solid and profitable performance in the 2013 financial year.