Morvest Business Group (Morvest) delivered a sustained improvement, with revenue again up 8.5% to R446 million and double-digit growth in earnings to R73.4 million for the six months ended November 2011.
Significantly, the group cut costs by more than 10% during the period. Morvest is a leading black-empowered provider of business support services (including professional services and outsourcing solutions) and ICT solutions. The group transferred from AltX to the JSE Main Board in June 2011.
The balance between technology and services helped to more than double margins to 8.2% from 3.7% during the period, supported by the conclusion of retrenchment costs in the prior period. A strict focus on working capital saw the group end the period with R100 million cash in hand despite having increased inventory for the new contracts over the build-up to the festive season.
Focus remains primarily on the domestic market with 92% of total revenue generated in South Africa. CEO Mohammed Varachia says challenging conditions locally and increasing pricing pressure from clients impacted performance during the period.
“Nonetheless, both the Business Support Services and Technology (including outsourcing) divisions grew revenue. The Technology division also doubled its profitability over the same time last year.”
The group did not ignore Africa, and during the period, launched additional specialist services and its full offering in Nigeria to keen interest.
Varachia says Morvest continues to eye Africa for expansion, with the continent presenting higher margin opportunities. Although he is cognisant of Nigeria's political turmoil, he remains confident of growth prospects in the region.
“We intend to grow our footprint in Nigeria and the region, particularly in infrastructure and manpower development, through partnering with local companies and possible acquisitions,” he says.
Looking forward, he is cautious about the next 12 to 18 months. “We do not anticipate any real improvement in local conditions or lightening of pricing pressure in the medium term.” He says Morvest has in place a multi-dimensional strategy to nonetheless achieve growth. “We will be exploring new markets to generate new revenue streams, maintaining a tight grip on costs and developing our leadership.”
Plans are also in place for the group to expand into the online retail market as part of its diversification strategy. Further organic growth is expected to come from work for government and parastatals, the power and energy sector, and the wider mobile consumer markets.
Looking ahead to the next six months, the group expects the trend of prior years to continue, with the first six months of the year exceeding the second half. Varachia is adamant that management will not ease up on cost control and is targeting to cut overheads by a further 10% in the six months ahead. “We will also continue to invest in our people and maintaining a culture of excellence.” He concludes that the combination of these factors should sustain the group's positive growth trajectory.
Morvest's share closed Friday at 22c.
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