The dispute between Gijima and the Department of Home Affairs over the latter’s unexpected cancellation of the Who Am I project in April 2010 has finally been settled, with the contract reinstated, and Gijima allowed to complete outstanding obligations. However, Gijima’s earnings have been negatively impacted by the dispute and a once-off settlement cost.
Results released today by Gijima for the six months to 31 December 2010 reveal a 15,8% decline in revenues to R1.243 billion, and a loss of R270.,8-million. Excluding the settlement costs, EBITDA declined to R42.,6-million down from R156,7-million in the equivalent prior period, and EBITDA margins declined to 3,4% from 10,9%. The basic loss per share is 28.25 cents for the interim period. Losses from the Professional Services Division could not be offset by positive results from Managed Services.
Frost & Sullivan ICT analyst Protea Hirschel comments: “Although Gijima’s interim results have been negatively affected resulting in a loss in earnings, the resolution of the dispute is a positive development. The company can now move forward and refocus.”
Despite the dispute with the Department of Home Affairs, government remained the company’s largest customer segment in this reporting period, contributing 47% of revenues.
The Professional Services Division was most impacted by the dispute. Traditionally the division contributes half of Gijima’s revenues. This has dropped to 35% in the current reporting period with the division reporting a loss.
“One reason for the poor result of this division is that the much expected turnaround in IT spend by South African companies in 2010 has been quite muted” says Hirschel.
She believes that Gijima nonetheless remains well placed to capitalise on renewed IT spending with its diversified offering. “Building on Gijima’s existing relationships with customers will help the company’s continued growth.”
The improved global outlook for resources has meant that the market for its unique mining solutions has expanded. Hirschel is of the opinion that “this market has significant potential globally. Gijima’s expansion into Latin America and its existing presence in Australia allows the company to take advantage of the tremendous opportunities in those regions.”
In contrast to Professional Services, the Managed Services Division grew revenues by 15.6% to R818.5 million and maintained EBITDA margins. Gijima continues to invest in its managed services capabilities. Strategic partnerships with Broadband Infraco and Dark Fibre Africa will strengthen Gijima’s competitive positioning in this market.
Hirschel says: “Managed services offer customers significant savings over doing it themselves. This will drive growth in the market.”
Recent research by Frost & Sullivan suggests that the South African managed services market will grow to R31.3 billion by 2015 in South Africa at a compound annual growth rate of 12,7%.
Cloud computing is also expected to become more important within managed services and a clear strategy to tackle this area is required. “There are clear indications that this is the case at Gijima,” says Hirschel.