The difficult economic environment has made Spescom's recovery efforts increasingly difficult – however, the group has shown signs that it is on the right track.
The communication's technology provider released its interim results today, showing a 4,1% increase in revenue, but a 33,8% decrease in operating profit from the comparable period. However, there has been a continued strengthening of the group's balance sheet.
"The inventory-to-turnover ratio has increased, which means that they are selling inventory more quickly than in the previous period," notes Frost & Sullivan ICT analyst Spiwe Chireka. "At the same time, the debt-to-equity ratio has decreased. This shows they have borrowed less to fund their operations."
Chireka also notes that, in line with trends seen last week in the results reported by Dimension Data and Datatec, Spescom has also seen growth in demand for services. However, the group still relies heavily on product sales.
"The enterprise application and integration solutions division is significantly the biggest contributor to Spescom's turnover," she says. "This is a very product-centric area. Taking into account what we saw last week from DiData and Datatec, it's impressive that they have managed to record only a 9% drop in turnover in this division."
Chireka also points out that, while Spescom still relies heavily on selling third party technologies, the group is selling a lot more of its own products.
"Last year, third party technologies such as Avaya and Sony made up 81% of revenue," she notes. "This year it has gone down to 66%. This ties in with trends that we're seeing from other technology providers. They're moving away from depending heavily on a few third party vendors and trying to drive more of their own products."
Chireka says that, overall, Spescom's recovery efforts are showing results. By limiting overall cost increases to 4,7%, the group is showing continued determination to turn its fortunes around.
Spescom's revenues increased 4,1% to R168,7-million for six-months ended 31 March 2009.
Media IT and Spescom Telecommunications, which both delivered strong revenue growth, mitigated the impact of slower demand in Spescom DataVoice and Spescom DataFusion, says the company.
Gross profit for the group increased by 2,3% to R79,5-million.
Although operating profit declined by 33,8% to R3,3-million, judicious cost controls across the group limited overall cost increases to 4,7%. In addition, Spescom is currently implementing several measures to minimise its cost base without compromising the intellectual capital of the business.
Spescom DataVoice reported a 14% decline in revenue as demand was affected by a poor economy, which also impacted profitability. However, the division preserved its offshore revenue streams and continues to make inroads in the global voice recording market with its proprietary products which include risk mitigation and workforce optimisation functionality.
Despite the tighter environment, several good opportunities are being actively pursued. DataVoice has maintained its investments in innovative product development while it is also making good progress in developing relationships with global communication players to establish new routes to market for its products.
Although Spescom DataFusion continues to experience strong levels of interest in its solution sets, revenue showed a 14% decrease as a result of slower corporate decision making in the client environment. Its managed services capability is also benefiting from increased awareness. The division`s diversified product range and intellectual capital ensures its ability to participate actively in the market, despite the current slowdown, especially as the new undersea cable is set to reduce bandwidth costs in South Africa and stimulate a number of new opportunities such as large outsourced contact centre projects.
Spescom Media IT delivered a 43% increase in revenue, as it successfully extended its reach into the broadcast market in the SADC region and gained recognition of its unique integration capability further afield as a result of its ongoing contracts in Namibia and Mauritius. Media IT is also well positioned to take advantage of increased infrastructure spend ahead of the 2010 Soccer World Cup.
Spescom Telecommunications reflected an 86% increase in revenue, supported by the ongoing network infrastructure roll out for a large network operator. The division subsequently signed a maintenance agreement with this major client following from the pivotal role it has played in the network`s roll out.
Spescom Telecommunications continues to investigate a number of options to extend its skills and relationships in the telecommunications sector in order to capitalise on medium-term opportunities.