Simeka beats downturn

By Nicola Mawson, Contributing journalist

Johannesburg, 29 Jul 2009

JSE-listed IT company Simeka Business Group has reported record revenue of R752.1 million for the last financial year - its fourth consecutive year of more than 20% top line growth.

The empowered group is involved in outsourcing, business support services and technology. It has been listed on the JSE's Alternative Exchange since 2004 and has a presence in SA, Africa, the Middle East and the UK.

Simeka says there are still opportunities for growth in the “healthy” outsourcing sector. It sees the challenging environment as a benefit as companies aim to cut costs. “A weak economy may work to Simeka's advantage in this respect, as corporates and government increasingly favour scalable and cost-effective outsourcing solutions.”

In the year ahead, Simeka will move its focus to Africa, as the Middle East is feeling the effects of the slowdown, the group says. Its voucher plant, in Nigeria, has now been commissioned and the group expects this to add to profitability next year.

For the year to May, the company reported turnover up 29%, from R584.8 million last year. Of this growth, 76% was organic, with the balance due to its recent acquisitions.

However, headline earnings were dampened as a result of accounting rules around the company receiving back some shares from its purchase of SAB&T Ubuntu. Diluted headline earnings per share were 10.6c down from last year's 15.5c.

Looking ahead

The outsourcing group has a pipeline of contracts worth R2 billion over the next four to five years. It has also secured new contracts. One deal, secured through its recent purchase of SAB&T Ubuntu, is a R400 million project for the Department of Education.

It will be rolled out over the next three years, but there is potential to extend the deal beyond that time frame, Simeka says.

The company invested R13.8 million in infrastructure. Some R3.8 million was to upgrade systems and processes, and R10 million to expand its geographic footprint and new equipment on the back of having secured further contracts.

However, Simeka says the difficulty of borrowing cash, due to the economic climate, meant it had to fund a “large” portion of the capital expenditure from cash.

In the year ahead, the group will focus on organic growth and rationalising its operations. Simeka says it will concentrate on maintaining cash flows, keeping its balance sheet strong and securing lines of credit.