Embattled ConvergeNet, which is looking at retrenching staff and is selling off subsidiaries, will focus on managed services and engineering solutions, as well as ponder "attractive" opportunities in the hi-tech manufacturing sector.
The company yesterday announced it was disposing of several of its business units, including Sizwe, closing its head office and looking at retrenching staff, because 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. The group is also considering appointing CFO Danie Bisschoff as CEO of the restructured entity on an interim basis, it says.
The announcement to shareholders saw its shares close 8.33%, or 1c, lower yesterday to end at 11c.
New focus
AfrAsia Corporate Finance, which is advising the company, will fund the cost of closing the head office through a loan and will also host ConvergeNet's head office on an interim basis. CE Charles Pettit says there are eight full-time employees at head office, but "every effort will be made to redeploy these staff into subsidiaries, where this is possible".
Getting rid of the costly head office will free up cash flow and the money can be used to expand existing operations and fund high-quality acquisitions, it has said.
ConvergeNet has also decided to exit sub-scale and loss-making business units in non-core areas. It will initially only comprise Andrews Kit, trading as Contract Kitting, and Structured Connectivity Solutions (SCS).
Pettit says ConvergeNet's focus is on engineering solutions through Contract Kitting, and managed services through SCS. He says the aim is to grow both areas through mergers and acquisitions and organic expansion. "In addition, we would consider attractive acquisition opportunities in the hi-tech manufacturing segment."
ConvergeNet will sell Sizwe, X-DSL, Telesto, its stake in Simat SA and EQ Tickets for a combined amount of R132.2 million. The funding will be used to pay outstanding debt obligations and for general corporate purposes.
Pettit adds the pro forma financial results of the transaction will be released soon. He notes the two remaining subsidiaries are profitable and have "excellent" growth prospects.
In the six months to February, ConvergeNet posted a R23.2 million loss and 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.
"The group will have a strong, liquid and ungeared balance sheet following the disposal of the other subsidiaries," says Pettit.
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