Mergers, Acquisitions and Financial Results

Technology company GijimaAst has defied analysts' expectations, returning to profitability for the first time in four years after a string of losses and crippling liabilities of R765m.

Once SA's fourth largest information technology (IT) company, the group looked beyond salvation when its empire collapsed. Last week, CEO John Miller -- brought in to save the business four years ago -- reported a profit of R38m, reversing last year's loss of R49,3m.

"The return to profitability was enabled by our disciplined approach to running our business. We successfully halted the revenue and margin declines, recording 24,4% revenue growth to R1,95bn," he said.

Revenue for the year to June 30 was up from R1,5bn a year ago, although headline earnings a share of 2,93c were down from 15,66c last year.

Amortisation and impair-ments of R9,3m hit its headline earnings, along with reduced foreign currency translation profits and a loss of R12,5m from its Namibian subsidiary.

Steps had been taken to address those problems, Miller said.

A tax rate of 43,7% was also far higher than expected, as a result of deferred tax asset balances.

Its operating cash flow of R94,1m was massively up from R2,5m and net cash rose by R117,2m to R174m. Other signs of success were the recruitment of some experienced industry players and the winning of a five-year R960m deal to run Absa's IT infrastructure.

On the downside, revenue growth was dampened by pricing pressure from its clients and by delays in the awarding of some public sector contracts that GijimaAst hoped to win. Current liabilities still remain a burdensome R463m.

Since the ill-fated AST merged with the black group Gijima as part of its recovery plan, it had become the most empowered player in the hi-tech services industry, said Miller, with an AA rating from Empowerdex. It has also become SA's second-largest supplier of outsourced technol-ogy services.

"We have made enormous progress in changing the demographics of our workforce from 15% black in 2005 to 30%," Miller said. "Two of the top three operational management jobs are now held by black professionals."

It is also 45% black owned, making the directors confident of winning more government work. The South African Revenue Service cancelled some tenders that it had expected to win, but those tenders had now been re-issued, Miller said.

The merger of Gijima and AST was almost compete, with a few areas remaining where more efficiencies could be achieved. "Our balance sheet is healthy and we have good cash balances to fund profitable revenue growth and deliver positive returns to shareholders," he said.

Since the financial year-end, the securitisation of its debtors book allowed R256m to be raised by issuing five-year debentures, to repay interest-bearing debts and gain R133m in cash. Miller said the market for IT equipment and services was looking perkier after several years of low growth.

Business Day