Gijima Drops as Contract Woes Drag On in South Africa
IT firm Gijima Group is negotiating a settlement with the Department of Home Affairs to resolve the dispute over a R2,5bn contract that has knocked the company's share price and full-year revenues.
The department announced in April that it had cancelled the R2,5bn information technology contract awarded to Gijima in 2008, saying that it was invalid.
It was alleged that Gijima did not deliver on what it had promised. Yet it was paid about R1,2bn for the services that it had provided until the termination of the contract.
Jonas Bogoshi, Gijima's CEO, said yesterday there had been no formal written response from the department to support its view as to why the agreement was deemed to be invalid and unenforceable . However, he said the discussions, which could be finalised in the next few weeks depending on whether the government agrees to Gijima's proposed offer, focused on the outstanding amount of R1,3bn and the work that still needs to be done.
Mr Bogoshi would not comment on whether Gijima will settle for less than the outstanding amount. But in the event of failure to settle, Gijima will litigate.
"We have two legal opinions that said our contract is valid. Based on that we believe we have a leg to stand on," he said.
The contract is aimed at integrating the department's operating systems and eliminating the manual and paper-based systems for visas, passports and identity document applications.
Yesterday, Gijima reported a 2,4% decline in revenue for the year to June to R2,9bn, hit by the slow spending by clients and the cancellation of the contract.
The professional services division, which provides technology systems integration, saw a R93m drop in revenue to R1,45bn because of the home affairs debacle. The managed services business grew revenue to R1,5bn from R1,48bn. Headline earnings per share rose 43% to 16,44c.
Mr Bogoshi said there had been little growth in the information and communications technology industry last year, with the public sector still depressed after the downturn, and private sector growth recovery slower than expected. However, he said Gijima was once again shielded from adverse market conditions by its focus on higher-margin services and by the bulk of its revenue being annuity income from multiyear contracts.
Research firm Frost & Sullivan's analyst, Protea Hirschel, said Gijima will continue to benefit from the recovery of IT expenditure by companies with customers looking to managed services to reduce their IT expenditure. In its upcoming report, Frost & Sullivan says it expects SA's market in managed services to grow at a compound annual growth rate of 12,7% to 2016, to reach R25bn in revenues.