A strong uptick in spending by government on IT solutions is helping keep the local technology industry aloft as the private sector cuts back on investment amid the recession.
That’s the word from Business Connexion (BCX) CEO Benjamin Mophatlane who was talking to TechCentral on Wednesday following the publication of the group’s financial results last week.
Mophatlane says he is confident spending by government will continue, despite an anticipated slide in tax receipts due to job losses and lower company profits.
“I don’t think it will affect government spending on IT,” he says. “What it will do is result in pressure to ensure [IT companies] continue to deliver, [and government] will be more stringent about which companies get contracts and whether they can deliver.”
The revenue BCX generates from government has risen three percentage points in the past year, from 17% to 20%.
Group annuity revenue is also on the up. Mophatlane says BCX has weathered the economic storm better than most because of its large exposure to annuity, or recurring, revenue sources. Annuity revenue accounted for more than 60% of the group total in the 15 months to August 2009, he says.
“Even in a recession, you don’t switch off the lights.”
Though companies are taking longer to make decisions, and many have delayed plans to refresh their IT, Mophatlane says there is renewed interest in outsourcing.
BCX’s biggest clients include Sasol, Edcon, BHP Billiton, De Beers, Massmart and Nampak.
Group turnover in the 15 months came in at R5,5bn. BCX has not provided a breakdown for the same 15-month period a year ago, so direct comparisons can’t easily be made. However, the group reported sales of R4,1bn in the 12 months to May 2008 — roughly extrapolated out, that’s R5,1bn over 15 months, indicated that sales grew robustly in 2009 despite the tough trading conditions.
Mophatlane says BCX has finalised its restructuring and retrenchment programme — known internally as its revitalisation project. The costs associated with this programme — R97m in 2009 — are also now a thing of the past, he says. The cost cutting should save the group about R100m/year.
BCX is targeting an operating profit margin of 8% in its 2011 financial year, from 2,4% now. It’s an ambitious target — even with restructuring costs removed from the equation, BCX’s 2009 margin was only 4%.
Mophatlane believes it is achievable, especially if the group is able to solidify its gains elsewhere on the continent. Non-SA African operations, which are loss making, account for less than 10% of group sales. — Duncan McLeod, TechCentral