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Sep 28, 2010

Gijima negotiating with DHA over cancelled contract, profit up

Gijima CEO Jonas Bogoshi speaks about the company's dispute with the Department of Home Affairs
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JSE-listed Gijima on Tuesday reported a modest rise in full-year profit to R154-million, despite its revenue declining by 2,4% to R2,9-billion, which it attributed to muted market conditions and the impact of a contract dispute with the Department of Home Affairs (DHA).

The company's headline earnings a share increased to 16,44c a share in the year ended June 30, 2010, from 11,39c a share in the previous financial year.

Gijima CEO Jonas Bogoshi told Engineering News Online that the company's results were a testimony of its business model to improve working capital management and operational efficiencies.

The information and communication company also shifted its focus to higher margin services, accompanied by multi-year contracts, while increasing its market share in the public sector to 48% from 44% the previous year.

However, one such R2,45-billion multi-year contract, Who Am I Online (WAIO), that Gijima inked with the DHA at the end of 2007, had gone sour in April this year, when the department declared the contract invalid reportedly owing to failure to perform.

Gijima disputed the DHA's findings, and is currently negotiating with government. "As a company, we need to work hard to find a resolution that will be in the best interest of government and Gijima and both parties are now at a level where that may realise."

Bogoshi said that current negotiations were more focused on the budget allowed by the National Treasury for projects such as the WAIO, rather than issues originally stated by the DHA.

Over the past three years, the department had spent almost a R1-billion on the WAIO project.

Gijima believed that even if the contract were not resumed, it would probably not have a cash flow impact or the effect would be minimal.

However, Frost & Sullivan ICT industry analyst Protea Hirschel said that although the company was pursuing all options to resolve the issue, the cancellation of such a large contract could cast a "cloud of uncertainty" around the company's ability to deliver on complex projects.

Nevertheless, Gijima had secured a number of new public sector clients in recent months, including the Department of Rural Development and Land Reform, as well as a multi-year project for the South African National Roads Agency Limited to bring tolling to Gauteng's freeways. Bogoshi also pointed out that none of the company's private sector contracts have been cancelled to date.

Meanwhile, Gijima CFO Carlos Ferreira said that the company anticipated that public sector spending would remain constrained in 2011, while private sector spending might show slow improvement.

He predicted an overall growth of between 0% and 4% in the ICT industry for the next financial year.

However, Bogoshi noted that Gijima had plans to increase its market share in Africa, and other parts of the world during its 2011 financial year.

"Our newly developed mining software had proved popular on the African continent and we intend to use this as a base to further expand our services and offerings into the continent.

"Some of our software solutions developed for the South African public services sector can also be applied in the rest of the continent, and we intend to explore these possibilities and to step into that gap."

Hirschel agreed that potential growth plans into Africa could prove profitable for the company. "Providing services to government in Africa that are looking to update identity systems would allow the group to leverage its extensive internal expertise in identity management solutions and complex e-government deployments.

"However, Gijima may have to work harder in this sector to overcome questions potential customers may have because of the WAIO debacle," she concluded.


Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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