Gijima’s turnaround strategy shows solid traction

JSE-listed South African information and communication technology company Gijima’s turnaround strategy has shown significant progress, CEO Eileen Wilton said at the announcement of Gijima’s 2013 interim financial results.

Gijima has restored profitability, with earnings before interest, tax and depreciation (EBITDA) showing a positive result of R2,7 million, from a reported loss of R100 million in the comparative period up to 31 December 2012. Wilton said this was despite continued pressure on top-line performance, resulting in a 19% drop in revenue, because of a tough market, the full impact of the expiry of two contracts from FY 2012, and certain customer delays in awarding contracts. No dividend has been declared for the period under review.

Wilton said that in the last 12 months Gijima has concluded contract renewals, in some cases with increased scope, to the value of R1,6 billion, thereby renewing more than a third of our annual annuity base. “This is an important indication that our continued efforts to attract and retain significant clients, even in a strong competitive environment, are demonstrating Gijima’s ability to provide service-delivery excellence.

“The quality of clients that Gijima has – including 14 of the top 25 JSE-listed companies – is evidence that Gijima remains a relevant and key player in the ICT industry in Southern Africa,” she said.

The company’s efficiency drive resulted in targeted savings of approximately R200 million per annum, without exceeding the industry norms in terms of staff turnover. Overhead support-structure cost savings, together with a focus on delivery efficiency, delivered significant and sustainable savings.

Lower finance charges were incurred for the period due to debenture redemptions of R 45 million in December 2012 together with higher interest rates on cash balances. Further debenture redemptions of R 24 million were made in August and November 2013.

Currency translation differences from the unwinding of foreign operations resulted in the reduction of the effective tax credit to 10%.

The reduction of the cash balances at 31 December 2013 to R124 million, from R199 million at 30 June 2013, were partly as a result of senior debenture repayments of R24 million.

The Systems Engineering division houses the company’s various project environments, including custom and packaged application solutions, as well as infrastructure projects.

The division experienced a disappointing six months, ending the period 38% down on revenue compared to December 2012. The division’s earnings before interest and tax improved by R100 million compared to the previous period, but still incurred a R30 million loss, mainly as a result of reduced revenues.

The Services division is responsible for the outsourcing and applications support businesses which include field operations for end-user computing, an integrated services centre and support and maintenance of business’ applications. Revenue for the division was 13% lower than the comparative period, predominantly as a result of the full effect of the expiry of two major contracts during the second half of 2012. Profit however doubled, to R17 million, as a result of efficiency programmes taking hold.

The Specialised Solutions division, including the training and placement business, voice business (with Gijima partner NEC) and the Namibian operation, disclosed performance levels below expectations. Revenue was down 24% compared to December 2012. The training and placement business as well as the voice business reported an improved revenue performance, although margins came under pressure in both areas. Our Namibian operation disappointed, falling short of budget and the previous year’s performance for both revenue and profitability due to potential legislative changes.

The targeted 70:30 split of business between Private and Public Sector remains a key objective. The Public Sector business remained at 35% for the period ended 31 December 2013.

The management and board have, since June 2012, been involved in constantly improving the company. The board committed then to ensuring timeous filling of critical positions, and on 10th October 2013 announced the permanent appointment of the acting CEO, Eileen Wilton, as well as the appointment of Ernst Röth as the permanent CFO, with effect from 1st April 2014.

Announcements will be made in the near future regarding the Chief Sales Officer, who joins Gijima on 1st May 2014. Further critical appointments at the Operating Committee (Opco) level are in place. This is confirmation of Gijima’s commitment to inject new leadership into the business and to structure it for growth and profitability, said Wilton.

“Strategic decisions taken in 2013 now show the company is forging its way back on track as it continues to build on its service delivery excellence. New markets are being explored, specifically in Africa and among state-owned entities, and these efforts are beginning to show traction.

“The turnaround strategy is therefore showing significant progress in terms of cost reduction and a return to profitability,” Wilton said.