ISA Holdings, which has a large exposure to the banks, saw revenue decline in the year to February as banks held back on security spending.
The group notes that turnover dropped 19%, to R51 million, as large deals were not inked during the year, although its run rate revenue held up. CEO Clifford Katz explains that typically the group gets in two deals that amount to 10% of turnover, and one that is worth 15% of revenue.
However, in the year to February, large deals, which it calls new solution sales, came in at 22% of total sales for the period, as opposed to the historic measure being closer to the 40% level.
"Although dramatic at face value, it is important to note that new solution sales tend to be bulky in value and if the recognition of only one or two are missed in a specific reporting cycle, the impact on the overall result would be severe on both turnover and gross profit levels, as is the current case," says ISA.
Positive pipeline
ISA continues to be optimistic about its long-term prospects as the key drivers of the IT security market remains robust. "With the continued evolution of threats and attacks against organisations, together with the increased regulatory and legislative compliance requirements, stakeholders continue to elevate the importance of IT security within their organisations," it says.
Yet, it cautions that it expects further erratic performance due to the heavy weighting of its large deals in its overall results. "While our pipeline is stronger than it was a year ago, one cannot anticipate the timing of these larger deals and, as such, we are unfortunately unable to offer better guidance for shorter term reporting cycles."
Katz explains that ISA has a large exposure to the banking sector, which pulled back on spending. The industry, while still cautious, is re-looking its security requirements, and ISA has a pipeline for the year ahead, he says, adding he is optimistic, but nervous.
ISA's run rate business, which is where it focuses its energies and is based on services and subscription sales, is where the sustainability of the company lies, says Katz. He notes that these offerings gained 16% in real terms during the year, which is good considering the economic climate.
Katz adds that, stripping out depreciation of a recent building purchase, ISA's cost base was lower than the previous year, which is "good going" when benchmarked against inflation.
During the first half, ISA moved into new premises in Woodmead, Johannesburg, which enhances its investment structure and gives it space to grow its service offerings for the market. The purchase trims operating expenses and is a better return on its cash than leaving it in the bank, says Katz.
Katz adds that investing its cash into a building also trims operational expense as the group no longer has to pay rent.
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