The tough market conditions of last year forced ICT services group GijimaAst to cut costs and focus on higher margin operations. The success of this strategy is revealed through the group's ability to improve its profit despite experiencing lower revenues, says analysts.
GijimaAST released results for the six months to 31 December 2009 today, revealing a 3,6% decline in revenues, but a 33% (normalised) increase in headline earnings per share. EBITDA margins increased to 10,9% from 9,4% over the previous financial year.
"The increase in earnings per share attests to GijimaAst's ability to weather the recessionary environment over the last year," says Frost & Sullivan ICT analyst Protea Hirschel. "In part, this is due to the large contribution that the public sector has made to overall revenues, which reduced the impact of spending cut-backs or delays by corporates. The public sector now makes up 47% of total revenues."
Hirschel notes that GijimaAst has also identified additional sectors that it previously did not service extensively as growth opportunities. This includes the insurance industry, where it has signed multi-year support contracts with companies such as Sanlam for desktop support, and the oil sector, where it is offering integrated forecourt solutions.
"The group has also focused on developing its professional services portfolio over the last year, with positive impact on overall profit margins," Hirschel adds. "This has allowed the company to retain its revenue growth path despite declining CAPEX expenditure by many of its customers. Hardware sales now make up less than 20% of overall revenue and Frost & Sullivan expects this trend to continue."
GijimaAst has also been active in extending its partnerships with other service providers. Most notably it has become a channel partner for Spescom's DataVoice product.
However, Hirschel cautions that while the emphasis on the public sector has been one of the group's strengths, government is likely to start placing greater emphasis on value for money for any government expenditure.
Frost & Sullivan believes that this will not only make the negotiating environment for IT tenders more difficult, but that a decrease in IT expenditure by government is likely as it prioritises social spending. Certainly, few large scale projects, such as HANIS, have come up in the last year.
She also anticipates increased competition in the managed services segment.
"Established players, such as GijimaAst, have an advantage because of their experience and deep customer relationships. However, telecommunications companies, such as MTN and Vodacom, are increasingly encroaching on this area."
Looking forward, Hirschel expects that as the trading environment for South African corporates continues to ease, expansion plans into Africa will be revisited. This is particularly the case in the mining sector, where GijimaAst has extensive experience.
"Following these companies into other parts of Africa is therefore a potential growth area for GijimaAst," Hirschel says. "Its positive cash position will assist it in any expansion plans."
The group's balance sheet revealed cash on hand of R625,2 million at the end of last year. This is up from R337,5 million at 31 December 2008 and R485,6 million at 30 June 2009.
GijimaAst declared a maiden interim cash dividend of 2,5 cents per share.
In its results statement, GijimaAst CEO Jonas Bogoshi comments: “This is a good start to the 2010 financial year and a very pleasing performance at a time of local and international turmoil. We have weathered the downturn very well so far, assisted by the fact that the bulk of our income is contractually guaranteed multi-year or annuity income.
“The fact that we have been able to improve profits significantly on slightly lower revenue in the current uncertain market conditions attests to the resilience of our business model and the measures we have taken to reduce costs while offering value to clients,” Bogoshi says.
“We have already achieved 77% of the headline earnings recorded in the full 2009 financial year. As GijimaAst traditionally performs better in the second half of the year, we are optimistic about our prospects for 2010.”
Bogoshi notes that GijimaAst lost no clients during the reporting period and, on the contrary, had signed appreciable new business which necessitated the recruitment of additional high-level skills.
He adds that the company's e-government strategy aimed to make government work better. The company focused on designing and implementing solutions that enable efficient and effective service delivery to the citizen.
"Understanding that government is pressed to improve service delivery on all fronts, we have picked on a few critical solutions that will have a high impact and gain momentum towards a full e-government solution. Our solutions in security and control within the border management domain are expected to contribute to the successful securing of our borders.
“In conjunction with partners, we have developed open road tolling systems to bolster the management of the heavily congested highways infrastructure. We are also leading the implementation of a solution to modernise the deeds and land management processes.”
He is also happy with the success of GijimaAst’s mine resource planning strategy, mineRP.
“We describe this programme as revolutionary because, in a highly competitive industry, it is a generation ahead of its time. It has made its mark with mining companies around the world since we launched it in 2009, followed by an aggressive international marketing campaign.
“This has differentiated our mining business unit GMSI and enabled it to become a top performer in GijimaAst, after being badly affected by the global mining industry downturn in the previous period.”
GijimaAst believes it is well positioned to take advantage of changes in the ICT industry and to offer innovative solutions to clients, in South Africa and internationally.
“As a services organisation, we have developed strong customer relationships and we work hard at meeting our clients’ evolving needs. All businesses are trying to reduce costs, and programmes that can help them achieve this while improving their efficiency and effectiveness, are in high demand,” Bogoshi says.
He also believes GijimaAst is on track to achieve its goal of becoming the leading ICT services company in South Africa.
“We have an extensive skills base, we have strong client relationships in both the public and private sectors, we have forged alliances with leading international technology companies, and we are able to offer innovative solutions to customers both locally and around the world."