Labour broking headache for Simeka

Simeka's otherwise encouraging interim results for the six months ended 30 November 2009 have been tarnished by looming labour broking legislation and the mobile phone registration Act.

The group's technology division has come out tops, contributing 49% of its total revenue, a strong offering considering the global economic situation last year.

However, Simeka CEO Mohammed Varachia is disappointed with the results of its business support services division, which he says has been knocked by both the pending labour broking legislation and the introduction of the Regulation of Interception of Communicationsand Provision of Communication-related InformationAct(RICA).

One of the companies in the division, Premium Ideas, provides SIM cards and SIM packaging to MTN and Cell C in SA and abroad, and Celtel outside of the country. However, Varachia says RICA dropped the demand for its offering by as much as 70%.

recovery seems to be on the cards for its volumes and revenue generation. “These have subsequently recovered somewhat and normalised at around a 50% reduction from previous levels,” he says.

More concerning is the situation around labour broking, which remains uncertain for the company's outsourcing services.

Varachia says the proposed legislation will have a continued impact on its Resourcing Solutions business and hold up pressure on its margins. In anticipation of a drop off in value, should labour broking legislation knock the company, it will impair R5 million.

The group is in the process of restructuring its business, which Varachia hopes to have completed by the end of the company's financial year. “The new integrated structure and our diversified product offering should ensure we sustain growth through continued tough conditions and capitalise on the upturn once markets recover.”

While he doesn't expect business activity to increase dramatically, he is confident it will essentially remain stable. The company plans to grow its already strong annuity income.