JSE-listed outsourcing company Gijima has made an operating loss from continuing operations of R123 million in the six months to December, partially due to pressure on its top line.
The company, which recorded a gain of R33 million in the year-ago period, says it is positioned for strong growth after a challenging operational period. In the first half of the year, revenue from continuing operations was down 23%. Gijima's share fell to a new 52-week low yesterday, losing 3c or 16.67% to 15c.
Gijima says in a statement this "followed the expiry of a long term services contract, coupled with the decision by another long-term client to insource part of the services rendered by Gijima".
Gijima says the two contracts, which it did not name, "had comprised a significant portion of Gijima's revenue". In calendar 2012, Gijima lost the South African Police Service contract for desktop computers and also experienced a decline in income due to Barclays' decision to in-source more than half of its contract with Absa.
During the half-year, there was also top-line pressure, which was exacerbated by a lack of revenue on a major project.
Although Gijima again did not name the client, its deal with the Department of Home Affairs to replace legacy systems with automated services - codenamed 'Who am I Online' - was delayed last year.
The project, which started in 2008, aims to replace the department's outdated and obsolete legacy systems, as well as improve security at an estimated cost of R2.4 billion. Home affairs cancelled the deal with Gijima in April 2010, which resulted in implementation stalling.
The dispute was resolved in January 2011, costing Gijima R374 million, and home affairs paid out R852 million to own hardware instead of leasing the equipment. In last year's mini budget, home affairs rolled over R100 million because of a set-back in getting a contract signed between a Cuban team and home affairs.
Gijima made a total loss of R23.7 million in the half year after a R82.5 million gain from discontinued operations, compared with a R28.6 million gain in the first six months to December 2011.
Slow takeoff
Gijima says it has wrapped up the implementation of its new structure, and its business model has been altered "to reflect an organisation where client-centricity is the primary focus". The new model involved deep restructuring of the company's operations and led to some cost-cutting, including retrenching about 200 staff.
Former CEO Jonas Bogoshi said last year the company was "already seeing traction of the plan we have put in place". However, in the results, released shortly before the market closed yesterday, Gijima said the "new model has not yet yielded the desired levels of revenue generation".
Gijima adds the implementation of initiatives to fix its cost base started last November and should be wrapped up before the end of the current financial year. It incurred expenditure of some R47 million during the interim reporting period on a major project without recognising revenue, it says, without naming the project.
"Differences over pricing methodology and scoping on this project have now been resolved with our customer." Gijima has also finished the disposal of mining technology and consulting businesses MineRP to a consortium led by RMB Corvest forR175 million.
"Gijima is positive about the growth of the company and has secured a number of new contracts and has extended current contracts. Gijima has received a firm commitment from 80% of its top clients to continue their relationship. Gijima has a full complement of 1 037 clients," it says.
The company has decided to raise R150 million through a rights offer to qualifying Gijima shareholders, which should raise enough capital to make sure its funding covenants will be met and provide sufficient "headroom to cater for unforeseen risks". The rights offer is expected to be concluded within the current financial year.
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