JSE-listed outsourcing company Gijima's dispute with the Department of Home Affairs over the stalled 'Who am I' contract slowed revenue growth in the year to June, as the company took a cautious approach to recognising revenue.
The department cancelled the multibillion-rand contract in April in a surprising letter that stated that the deal was “invalid”. It subsequently locked Gijima staff out of its Pretoria headquarters, and the State Attorney had to intervene before staff members were let back in.
Gijima is still trying to resolve the dispute with the department, which owes it R237 million, but it has denied that Gijima is due any payment. Auditor KPMG has also noted that the future of the contract is not certain. As a result, states KPMG, “no provision for any liability for any result has been made in these financial statements”.
Gijima says the dispute around the contract and a slowdown in spending in both the public and private sector led to slower revenue growth. Turnover was 2.4% lower at R2.9 billion from R3 billion.
However, despite the slowdown in revenue growth, the company grew operating profit from R196.4 million to R240.98 million. Net profit also improved, moving from R110.8 million to R154 million.
Gijima reported earnings per share of 16.37c, an improvement from 2009's 11.39c. Headline earnings per share grew to 16.44c from 11.42c. The company declared a 2.5c dividend, which is in line with last year's payout to shareholders.
Substantial deal
The listed company started work on the Home Affairs contract in July 2008, and has recognised revenue of R1.183 billion since then. This is about 14% of Gijima's total revenue of R8.5 billion since July 2008.
FD Carlos Ferreira explains that Gijima has taken a cautious approach in recognising revenue, because of the uncertain nature of the contract, and chose to defer some income. This was one of the reasons that turnover growth was lower.
As a result, the company's trade and receivables jumped from R691 million to R927.9 million. The outstanding payment is about 25% of the total R927.9 million due to be paid to the company by its clients.
The “Who am I” contract is a “large” multi-year deal that will eliminate manual and paper-based transactions, as well as the implementation of border control management systems at ports of entry in SA.
Gijima entered into the contract in July 2008, and had been implementing the project for two years before the department told it that the contract was invalid, and could not be enforced. It says the claim that the contract was unenforceable was “completely unexpected”.
Since the department's letter, Gijima has had several meetings with Home Affairs representatives to resolve the “impasse”.
However, so far, the department has not provided Gijima with a formal written response supporting its view as to why the agreement is invalid and unenforceable. The listed company says it aims to resolve the matter without having to resort to litigation.
Gijima has not made a provision to write down this outstanding amount, because the outcome of the dispute is not certain.
Under pressure
The listed company says 2010 was a challenging year, and the second half of the year saw “muted” growth in both the public and private sectors. “There has been little growth in the ICT industry over the previous 12 months, with public sector spending still depressed after the global financial crisis and private sector growth recovery slower than expected,” says Gijima.
The company says, in light of the challenging trading conditions, its performance is “satisfactory” as it grew headline earnings off lower revenues. Gijima started delivery on several new projects late in the financial year, which will bolster future revenue and earnings, it says.
The firm offers end-to-end-infrastructure management and professional services. It has over 80 points of presence in Southern Africa, as well as offices in Australia, Canada, Chile and Turkey. The bulk of its revenue, at 52%, is earned from the private sector, with the balance coming from government work.
Gijima's shares closed flat at 84c yesterday. Its results announcement was released before the market opened.
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