Embattled ConvergeNet is selling off several of its business units, including Sizwe, shutting down its head office, and plans to retrench staff as a result of its "deteriorating financial performance" due to "excessive costs and a lack of strategic focus".
In addition, CEO Sandile Swana will leave the company this Friday, and Sizwe CEO, Tim Modise, is stepping down from the board.
ConvergeNet, which was the subject of a hostile takeover last year, reported a R23.2 million loss in the six months to February, the latest available figures. It made an operating loss of R28.6 million, compared to an operating loss of R8.3 million for the first half of the previous year.
In April, the company said 80% of its subsidiaries were showing "very promising" results going into the second half of 2013, while the balance were subject to "robust" management initiatives.
In a statement released to shareholders this morning, ConvergeNet said the restructuring would entail closing its head office, selling non-core subsidiaries, rationalising its structure and consolidating its issued share capital.
Starting over
After the process has been completed, ConvergeNet will initially only comprise Andrews Kit, trading as Contract Kitting, and Structured Connectivity Solutions, which the board believes form a solid base "from which to build a scalable group that is focused on the provision of ICT solutions to the private sector across Africa".
ConvergeNet says the board believes that with a more focused and profitable portfolio of operating assets and a strong balance sheet, ConvergeNet will be able to attract new investment where needed to expand its remaining companies.
It is in talks with potential new investors as well as acquisition targets, and details will be announced "in due course," says ConvergeNet.
Last February, a consortium, led by Trinity Asset Management, bought a controlling stake in ConvergeNet. At the time, Trinity CEO Quinton George said ConvergeNet's cost base was too high and that some of ConvergeNet's acquisitions had been losing money, a trend that was starting to happen at ConvergeNet's largest entity, Sizwe.
Trimming
ConvergeNet says its head office costs are "unsustainable" and closing the office will "immediately alleviate cash flow pressures" and the cash that is freed up can be used to expand existing operations and fund high quality acquisitions. It has started retrenchment discussions with staff, it notes.
The group is also considering appointing CFO Danie Bisschoff as CEO of the restructured entity on an interim basis, it says.
ConvergeNet has also agreed to sell Sizwe for R120 million to Hanno van Dyk, while X-DSL is being sold for R1 and Telesto is being sold for R7.3 million. The company will also sell its stake in Simat SA for R1, and EQ Tickets for R5 million.
ConvergeNet explains that it has decided to exit sub-scale and loss-making business units in non-core areas. Proceeds from the sales will be used to pay outstanding debt obligations and for general corporate purposes, it says.
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