JSE-listed ConvergeNet is making progress with its five-year strategy and has grown revenue.
In the six months to February, revenue gained 16%, to R483.3 million, but its loss grew 109%, to R23.2 million. Its headline loss per share narrowed 28%, to 1.7c, but its loss per share leapt 185% to 1.97c.
ConvergeNet notes it made an operating loss of R28.6 million, compared to an operating loss of R8.3 million for the first half of last year. In the full year, revenue dropped slightly, to R1.017 billion from R1.029 billion, but it made a headline loss of R46.3 million, compared with a profit of R30.9 million a year ago.
The bulk of the operating loss in the first half was due to its IT infrastructure unit, which recorded an operating loss of R16 million, mostly due to a once-off cost of R13.9 million, due to a guarantee provided in favour of a subcontractor that subsequently went into business rescue.
CEO Sandile Swana says revenue is growing overall, and its margins are improving. However, efficiencies will have to be a major thrust forward.
The group, which was the subject of a hostile takeover last year, is streamlining its operations into key technologies and vertical markets. It is also planning a "more aggressive" approach to grow its annuity revenue base, and is reviewing its subcontracting and supply chain procedures to reduce risks and increase efficiencies.
In February, a consortium led by Trinity Asset Management bought a controlling stake in ConvergeNet, which led to several board changes. The move was prompted by concerns that it had too many directors, which was costing it, and that ConvergeNet's acquisitions had been losing money.
The group says 80% of its subsidiaries are showing "very promising" results going into the second half of 2013, while the balance is subject to "robust" management initiatives. "ConvergeNet will also continue to prudently invest in identified strategic growth areas in the next six months and beyond."
More caution
ConvergeNet's African operations incurred an operating loss of R8.7 million, due to higher than anticipated start-up costs. During the last year, the company established Simat, a site maintenance entity, to service the mobile operators in Africa in partnership with Matla Group. ConvergeNet has a 51% stake in the company.
Simat has started wholly-owned entities in Nigeria, Gabon and Congo Brazzaville, and started operating last March after being awarded a contract by an unnamed mobile operator. Swana says the group has ceased operations in Nigeria and Congo Brazzaville, and is focusing on Gabon.
The issue is not a lack of opportunities, but the demanding operational environment, says Swana.
ConvergeNet says: "We have adopted a more cautious approach in expanding our African operations in order to reduce our risks, and ensuring acceptable and sustainable returns on our investments."
ConvergeNet's telecoms infrastructure segment recovered in line with expectations and generated an operating profit of R4.6 million, reversing the R5 million operating loss it made in the first half of last year. ConvergeNet is also strengthening its position in the fibre-optic rollout space to grow sustainable infrastructure business over the next two to three years.
Streamlining
Last September, Sizwe Africa IT Group sold its 51% interest in Interface Networking Technology to the non-controlling shareholder. In addition, ConvergeNet sold its remaining 15% interest in Future Cell for R40 million in cash last November.
ConvergeNet Management Service, a wholly-owned subsidiary, last November bought 71.5 million ConvergeNet shares from Titan Share Dealers, around 7.8% of ConvergeNet's issued share capital. It paid 29.7c a share and ConvergeNet stock last closed at 18c.
The group has also sold its 70% shareholding in NetXcom ICT Solutions for a minimal amount to the non-controlling shareholder. However, a bid to buy the remaining 25% non-controlling interest in Sizwe Africa IT Group for R45 million has hit a snag.
Although shareholders voted in favour of the deal, two shareholders have appealed a Takeover Regulation Panel ruling that a mandatory offer to minorities is not required. A hearing has been scheduled for tomorrow.