Mergers, Acquisitions and Financial Results

Eskom Enterprises and Transnet are reviewing their shareholdings in state-owned information technology company Arivia.kom, says the group's latest annual report.

Arivia.kom was formed through the merger of Transnet's IT division, Eskom's IT department and another state-owned IT company, Ariel Technologies.

Last year it repurchased for R130m the 22,98% shareholding that state-owned arms manufacturer Denel held in the company.

This resulted in Eskom Enterprises' and Transnet's shareholding in Arivia.kom rising to 58,5% and 41,5%, respectively, and left the company with a cash balance of R128m, Arivia.kom's chairwoman, Nonkululeko Nyembezi-Heita, said in the report.

The group's annual report, tabled in Parliament yesterday, showed a 7,1% decline in revenue to R1,5bn (R1,6bn) for the year to March. This was attributed to the downward pressure on prices of IT products and services.

After-tax profit fell from R67,6m to R20m, due mainly to significant losses at foreign subsidiaries.

"Competitive market conditions and downward pressure from key clients on costs resulted in lower revenue for the year," said Nyembezi-Heita.

"Gross margins remained in line with those of 2005 as the cost-reduction initiatives of previous years have borne fruit on a sustainable basis."

"The significant losses from foreign subsidiaries resulted in a marked reduction in net profit for the year," she said. But Nyembezi-Heita believed the domestic and foreign prospects for the company looked brighter this year. She said Arivia.kom would benefit over the next five years from the $100m contract awarded by the Ugandan government for the roll-out of a new population database register.

Government was likely to be the highest potential information and communications technology spender over the next five years as it updated its systems while the foreign division was looking to develop market opportunities in central Europe and southeast Asia, the report said.

"After a number of false starts, demand from large technology users is finally recovering to healthier levels, suggesting that the sector is coming out of the doldrums," the report said.

Nyembezi-Heita said that while private companies strove for differentiation and effectiveness to remain globally competitive, the public sector was being challenged with improving service delivery to its citizens with technology as the enabler.

"Pricing pressure on technology suppliers has become the norm with fierce competitive pressure in an overtraded market.

"These pressures are forcing service providers across the industry to review their delivery models with increasing focus on partnerships and industry relationships," said Nyembezi-Heita.

Arivia.kom CEO Zeth Malele said that high-end users of technology had entered a new investment cycle that would benefit the company.

"We are involved in a number of significant opportunities which should bear fruit going forward," he said. However, he cautioned that public-sector projects still had to be finalised.

Government and the public sector were under pressure to improve service delivery through e-government initiatives while the revision by African countries of their population databases could also generate contracts.

"Government continues to be criticised for its drawn-out tender processes on a number of significant information communication technology tenders, which have been delayed following considerable investment by contenders in collating proposals," Malele said.

"Pressure is mounting to achieve readiness for the 2010 Soccer World Cup, which includes systems to regulate the movement of tourists during the tournament."

Government's economic growth strategy would also bring a host of opportunities associated with infrastructure investments, Malele said.

Business Day