Spescom's focus on attracting higher margin business is paying off, says the JSE-listed ICT company.
The firm this morning released its results for the half-year to March. Total revenue declined slightly to R160.3 million, from the R168.7 million reported last year.
The revenue decline was a result of a 15% revenue decline in both the enterprise and broadcast application solutions and the telecommunications segments. However, services and annuity revenue jumped 27%, to R55.4 million.
During the first half of the year, service-related turnover grew to 35% of turnover, from 26% in the six months to March last year. Spescom had focused on growing its services and integration capability during the last six months.
Its new operating division, NewTelcoSA, was established during the half-year to provide carrier-neutral telecommunications co-location services. The unit, which offers a carrier grade point-of-presence in SA, has the potential to enhance Spescom's annuity service revenue base.
CEO Jen'e Palmer says the building to host the services should be completed by the middle of July, and Spescom has been marketing the concept in SA and Africa. She does not expect take-up to happen overnight, but over a period of time.
Paying off
Palmer says the company's results are a “clear validation of our strategy to drive service-related revenue, which was set in motion several years ago”. She says this strategy has paid off as it “delivered significant benefits in the six months under review”.
Despite the slowdown in revenue in the telecommunications and enterprise segments, both units maintained margins.
Telecommunications achieved an operating margin before interest of 0.7%, compared to a negative margin of 4.8%, while the enterprise and broadcast application solutions segment defended the 2.7% operating margin in a tight business environment.
“We believe that our margins are sustainable at current levels. We will continue to evaluate opportunities to accelerate growth and increase our critical mass in order to unlock value for our shareholders,” says Palmer.
Still looking
She adds that the company will continue to keep its eyes open for a deal that will enable it to grow its critical mass. The company had been trading under cautionary since the end of March, as it was in talks, but these fell through.
Palmer says Spescom narrowed the opportunities in the market down to one, and issued a cautionary. However, the parties were unable to agree on the commercial terms, and Spescom's board and management team terminated the discussions.
“We will continue to evaluate all opportunities to leverage our business in a measured and considered manner to ensure that any initiative enhances our financial and strategic positioning and taps the long-term growth potential of the business.”
Palmer says the company is looking to speed up the process of meeting its revenue targets through acquisitions. Spescom wants to add operations, products or solutions, as well as expand geographically, she comments.
On the up
“The improvement in results for the half-year bear out that the trading environment for the company has eased,” says Frost & Sullivan ICT industry analyst Protea Hirschel. “As SA's economy is recovering from recessionary conditions, companies are slowly resuming expenditure on ICT products and services.”
Hirschel believes Spescom's emphasis on growing the services component of its business has yielded positive results. Services not only offer higher margins, but are more likely to result in annuity income for the company.
“Diversified revenue sources have proven to be of value to Spescom throughout the recession,” Hirschel notes. “Poor results from traditional performers DataVoice and DataFusion were compensated by increased revenues from MediaIT and the telecommunications division.”
Spescom's overall improved profitability is in line with the economic recovery, which is taking root in SA. This presents the company with organic growth opportunities in the contact centre, managed services and telecommunications markets. South African companies are also moving towards increased use of managed services, says Hirschel.
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