ICT services company, Gijima Group says it expects to deliver a similar level of revenue for the year ending June 2012, than R2.566 billion reported in the prior year.
Gijima said in a trading update on Thursday (28 June) that a number of events have taken place since the announcement of its interim results in February 2012, namely the loss of the SITA SAPS contract, the insource of a significant portion of the Absa contract, as well as an optimisation programme.
“Shareholders are advised to take cognisance of those events that are expected to have a material impact on the company’s results for the twelve months ending 30 June 2012,” it said.
Gijima said it had 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.
“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,” the group said.
The ICT firm noted that a significant contract was lost and a material portion of another contract was insourced during the twelve months ending 30 June 2012, significantly impacting on its revenue and profit.
Gijima said it 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.
It added that these short-term arrangements were in place while SITA conducted the tender process for the award of a subsequent three-year contract for the break-fix services to SAPS.
Gijima noted that on 25 January 2012, it 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,” the group said.
Gijima has rendered several outsource services to Absa over the past ten years and has delivered in accordance with these contracts. 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 said it 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,” it said.
The group added that the costs 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. The revenue lost has been made up by gains in other areas,” it said.
Gijima launched an internal optimisation programme in February 2012, aimed at improving its efficiency and reducing its cost base. It said that people initiatives were prioritised to firstly address the contractor base of the company, and subsequently on reducing the number of its permanent employees.
Gijima’s headcount, once the programme has been completed, is expected to reduce by some 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. Gijima said that the cost of the people optimisation, that has largely been finalised, will be reflected in the results for the year ending 30 June 2012.
Despite these financial impacts, Gijima said it 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.”
“Despite the challenges in the 2012 financial year, management are confident that the remedial actions taken have positioned the Company for a solid and profitable performance in the 2013 financial year,” Gijima said.
For the year ending June 2012, revenue for Gijima declined by 12.8% to R2.56 billion, with earnings before interest, tax, depreciation and amortisation (Ebitda) reflecting a loss of R211.8 million.
In mid-morning trade on the JSE, shares in Gijima declined a cent to 44 cents on the JSE.