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Datacentrix seeks to fill gap

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 06 Oct 2010

Listed outsourcing company Datacentrix grew revenue and operating profit during the first six months of the year, despite a slowdown in public sector spending.

The company released its interim results for the six months to August yesterday, and said revenue increased to R836 million, from R688 million, despite what the company referred to as an “extremely inhibited public sector performance”. Headline earnings per share moved up 4%, to 27.9c, while earnings per share also improved 4%, to 2.8c.

Chairman Gary Morolo says the company benefited from Fifa spending during the recent Soccer World Cup. However, this was a once-off item and the company is now seeking new projects to replace this revenue.

He adds that the company would like to offer its services to the soccer body for the next games in Brazil, in 2014, but will not be able to benefit from a home-ground advantage.

Government slows

CEO Ahmed Mahomed explains that the soccer spending benefited its commercial unit. "The commercial sector performed well as a result of new client wins and spin-offs from the 2010 Soccer World Cup.” This helped limit the impact of slower spending from existing clients.

Datacentrix says all divisions performed well, with the exception of the public sector unit, due to a slowdown in government spending on IT and related infrastructure.

Mahomed says spending by the public sector is under “severe constraints”. The State IT Agency (SITA) confirmed in a media briefing, in September, during its annual GovTech conference, that government spending has been reduced in the last two years.

Morolo says SITA spending has dropped from levels of between 40% and 50% of the country's total ICT spend two years ago, to about 15%, currently. As a result, Datacentrix's earnings from government IT spending has declined to about the same level.

Mahomed says, although there is good tender activity in this market segment, few tenders are being awarded. “This situation has an effect of decreased revenues, without the ability to reduce or redeploy resources focused on the public sector," he says.

The company expects this trend to continue due to the cost of the soccer tournament, public sector wage demands and lower tax collections. Morolo says government spending “is not there, we have to find other sources”.

However, Datacentrix is ready for when SITA turns the spending tap back on and will bide its time, says Morolo. He adds that the IT firm is not holding its breath waiting for public sector investments, in the meantime.

The company is also keeping an eye out for acquisitions that it can add to its business solutions area. Morolo says Datacentrix is not acquisitive by nature, but has been looking at a number of companies, although it was unable to agree on valuations.

Should the right company come along at the right price, Datacentrix will make an acquisition, he adds.

It generated operating cash flows of R64 million during the year, which resulted in a cash balance of R294 million and no interest-bearing debt at the end of the half-year.

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