Gijima’s top line has slid 2,4% in the past year, reflecting tougher trading condition in the SA’s technology industry, says analyst firm Frost & Sullivan.
Growth in managed service revenue did not quite compensate for a decline in professional service revenue.
Changes in the reporting of exchange rate gains and losses in this period contributed to improved profitability with operating profit in the year to 30 June 2010 at R241m, up 22,7% from the previous year.
“Gijima has spent the past 18 months focused on improving working capital management and operational efficiencies,” says Frost & Sullivan analyst Protea Hirschel. “This has resulted in improved margins for the company. However, it is unlikely that many additional improvements can be extracted.”
The group has continued to build its sales pipeline, focusing on higher margin projects while maintaining a healthy mix between professional and managed services and ensuring increasing annuity income. The declining contribution of hardware sales to overall revenue is a continuing trend.
“A large proportion of Gijima’s revenues still come from the public sector and its ability to understand this environment is one of the company’s strengths,” comments Hirschel.
“However, government is likely to continue placing greater emphasis on value for money as it is increasingly overcommitted on salaries, and this has resulted in fewer large-scale projects being put out to tender,” says Hirschel.
“Also, an appreciable percentage of Gijima’s total revenue was derived from one source — the home affairs ‘Who Am I Online’ identity verification project,” Hirschel says. “However, this contract was declared invalid by the Minister in April 2010, reportedly because of failure to perform.”
The cancellation of such a large contract casts a cloud of uncertainty regarding the company’s ability to deliver on complex projects, and may impact future business, she says.
“The group has however participated in the Gauteng open road tolling system,” Hirschel says. “The value of the project has not been declared, but it is speculated that it will only compensate in part for the loss of income from the ‘Who Am I’ contract.
However, Frost & Sullivan expects Gijima to continue benefiting from the recovery in IT expenditure by SA business as the economy is slowly returning to growth. Several vertical sectors, such as mining, where Gijima is well represented, enjoy a considerably improved outlook. — Staff reporter, TechCentral
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