ConvergeNet's profit down

Spending on skills and resources should yield good returns in the future, despite dragging down net profit during the year, says ConvergeNet.

In the ICT service and solutions company's results for the year to August, it says both the government and private sector have slowed spending.

“Apart from the economic pressure and difficult trading conditions, there have been delays in the publication and awards of the new SITA term contracts. Business in the government segment was also slower than expected, due - in part - to the March general election and the widely expected changes in the administration,” it says.

In addition, private sector customers have either delayed or cancelled technology investments, and have put pressure on the company to trim margins.

ConvergeNet reported revenue up 11%, to R1 billion, but an increase in operating expenses meant net profit was 2% lower than last year, at R62.6 million.

The company says its increased investment in resources and skills did not flow through to revenue during the year. It says the spend was required to extend its offerings and enhance its competitive position. “We are confident that these investments will yield results,” ConvergeNet says.

ConvergeNet acquired 74% of Chrystalpine Investments to get hold of its only asset, Contract Kitting, which operates as a supplier of infrastructure technology products and services to local telecommunications companies.

The deal was wrapped up in January and ConvergeNet paid R147 million in shares, of which R142.3 million has already been settled, with the balance due before Thursday through additional stock.

Contract Kitting added revenue of R134 million and profit after tax of R15.4 million from January to August. If the deal had been completed at the start of the financial year, it would have bolstered revenue by R206.5 million, and profit after tax of R25.3 million.

ConvergeNet subsidiary Sizwe Africa IT Group bought 74% of Tswelopele Technological Solutions last December for a “nominal” amount. Tswelopele provides access control and ticketing systems and solutions, and has secured some contracts for the 2010 stadiums.

Tswelopele added revenue of R23.6 million and profit after tax of R2.8 million between January, when it started trading, and August.

Sizwe Africa also bought a 65% interest in Mmele Consulting, again for a “nominal” amount. The deal was wrapped up at the start of the company's financial year, and saw R49 million added to revenue, and profit after tax of R3.3 million.

Mmele has been renamed ConvergeNet Networks and provides primarily network solutions. In March, ConvergeNet Networks bought Tabana Networks for R5.2 million.

ConvergeNet also bought out the remaining 26% interest in Telesto Communications in March for 27.6 million shares and took its stake in Sizwe Africa to 60% after paying R15 million.

The company's shares were unchanged at 49c this morning.