Datacentrix performance hit by new Government in South Africa

Mergers, Acquisitions and Financial Results

Datacentrix last week released its interim results for the six months ended 31 August 2009, saying its performance was knocked by unrealised government deals. Chairman, Gary Morolo says the company experienced growth in all areas of its business, except for the public sector division.

He says the change in administration is to blame for the division's poor performance. The new administration has brought in a level of complexity that has been a challenge for the business during the period, he adds, with the change in leadership resulting in many of the tendered projects being placed under review, or being put on the shelf.

Investors at the company's presentation last week were not impressed with its performance and questioned why similar businesses, like GijimaAST, managed to maintain government contracts, while Datacentrix is battling to keep its tenders alive. For GijimaAST, the public sector business contributed 44% of its R3 billion revenue for the half year.

Datacentrix CEO Ahmed Mohamed says the public sector troubles are driven by external factors and, while the company has managed to diminish its reliance on government contracts for growth, it still represents a significant 20% to 25% of the business.

Mohamed says most of the contracts still have a hope of being revived and some deals with government are just under review. He says the new administration is putting new processes in place and there are new, possibly higher earning tenders on the horizon. Despite the hammering the company has received at the hands of government, it plans to continue dealing with the public sector and indeed grow its footprint in the area.

Morolo says it sees government spend picking up again over the next six months, with the coming of the World Cup. The company pointed to a study conducted by the IDC, which shows a possible growth in government procurement.

According to Morolo, there is an expected upswing in government infrastructure investment, which the company hopes to exploit over the half year leading to its final results. While the company will not expand on the opportunities available to it, it says it is well positioned to take on business related to the World Cup and other government infrastructure prospects. In anticipation of the increased investment, and to take the division onto a more focussed route, the company has appointed Kenny Nkosi to head up its public sector unit.