Triple-digit growth at Simeka

By Nicola Mawson, Contributing journalist

Johannesburg, 25 Jan 2007

Black controlled ICT solutions provider Simeka BSG has more than doubled its interim income on the back of acquisitions and key contractual wins.

Simeka's six-month results to end-November show revenue up by 120%, to R215.2 million, compared with R97.7 million at the same time the previous year. The increase in revenue follows the integration of earlier acquisitions and "key annuity-income contracts".

CEO Mohammed Varachia said the revenue increase was a result of organic growth. "By developing a comprehensive, seamless range of services and reinforcing our market leadership, the group renewed a number of existing contracts on an expanded mandate."

Simeka has secured R650 million worth of long-term annuity contracts with clients including Telkom, Eskom, Vodacom, Sasol, the South African Revenue Service, the Pebble Bed Modular Reactor and MedScheme. Most of these contracts are to be realised over the next 18 to 24 months and mark Simeka's entry into the financial services, public and energy sectors.

Penetration of these sectors is integral to Simeka BSG's growth strategy as they are particularly high-growth areas, says Varachia.

Damage mitigated

In July, Varachia said the company was embarking on an aggressive growth strategy. He said the next financial year would show the company's figures significantly higher.

He forecast an increase in revenue of 59.2%, up to R519.4 million, from R326 million in the most recent financial year. Varachia also forecast pre-tax profit up by 90%, to R67.6 million. Attributable profit for the next financial period is expected to be 81.5% higher, at R45 million.

Its six-month reported results, which were in line with its December trading update, showed headline earnings up 254% to R21.9 million. Headline earnings per share came in at 6.1c.

However, Xantium IT Services and Xantium Professional Services incurred a pre-tax loss of R8.3 million for the previous year, resulting in a decision to curtail business operations in the value-added reseller division.

"Although this had a negative impact on revenue for the period, the stabilising of this division positions Simeka BSG well for the relaunch of its corporate and online procurement initiatives, the benefit of which will be realised in the next financial year," it said.

Targeted growth

Varachia is confident of a good full-year, saying its local and international operations should continue growing. Simeka will exploit opportunities within government, parastatals and local authorities.

"We are confident our stable financial footing, wide services offering and black economic empowerment platform will help drive organic growth to achieve the forecast headline earnings per share for the 2007 financial year."

Simeka has almost doubled its Oracle capacity after a "substantial cash investment" and has formed a strategic alliance with document solutions company Gestetner SA.

Simeka BSG is also rolling out an employee share incentive scheme. "This will be a key factor in improving broad-based empowerment, as well as incentivising and retaining key staff," it said in a note to shareholders yesterday.

"The directors are confident the strong BEE profile will enable the group to further exploit the considerable opportunities within government, parastals and local authorities going forward."

Simeka's shares closed yesterday at R1.07 after almost seven million shares changed hands. On Tuesday, it closed at 94c. Its 12-month high is R1.10 and its 12-month low is 35c.