Troubled IT company Gijima's share price tumbled to as low as 7c on April 2 following an unexpected R123-million loss as well as a proposed rights offer for a R150-million cash injection.
The loss is the most recent in a string of challenges faced by the company, which appeared to begin in 2010 with the cancellation of a R2.1-billion contract with the home affairs department.
The "Who am I online" tender for systems integration was awarded by the department in 2007, but was subsequently declared invalid. Just a year earlier, Gijima's 2009 financial results reflected a huge jump in profit and R500-million in the bank. But it has all been downhill from there.
Its market capitalisation dropped from R577-million in December 2011 to R260-million in December 2012 and just R106-million on April 3. The company, which once made news by buying each of its 3 800 staff members a new iPad, returned to the headlines with 200 job cuts, although consultation with trade union Solidarity prevented further forced retrenchments. The job cuts followed the loss of a R19-million-a-month contract with the South African Police Services, as well as the partial loss of a contract with Absa.
Chief executive Jonas Bogoshi resigned from his post towards the end of last year after implementing what the company considers to be a long-term turnaround strategy .
Gijima's founder and chairperson, Robert Gumede, is a senior member of the ANC and known to be one of the ruling party's benefactors. He is also a major shareholder in Gijima, with a 36.6% share through his Guma Group of companies.
Gumede is also a close friend of Mathews Phosa, who supported deputy president Kgalema Motlanthe in last year's leadership elections.
Senior equities analyst at Thebe Stockbroking, Keith McLachlan, said Gijima's downfall had snowballed after the cancellation of the home-affairs contract. "The service business is very reputational. You don't just lose one."
Many eggs in one basket?
Being a major player in the government sector, could Gijima have put too many eggs in one basket?
Eileen Wilton, Gijima's interim chief executive, does not think so. "Gijima intends to be different from many other IT providers. We are wholly South African owned and proud to be so. We need to be relevant to South Africa."
For this reason, she said, the government was indeed an important part of Gijima's business but, bringing in 30% of revenue, it was not the only sector it serviced.
Wilton said some reputational damage had been caused by the cancellation of the home affairs contract.
"We do so many things well, but the press wants to talk only about the [department of home affairs] contract. It does not define Gijima." "It has to realign its costs to a low revenue base and it is trying to implement a turnaround, although it has not been successful, despite what it says," McLachlan said.
"Disappointing" results
Wilton said the results were "obviously disappointing to us" and a shifted focus to client-centrism had a lag in revenue generation. "Very corrective actions we have taken have not come to fruition … but it is temporary."
She said the services part of Gijima's business, which is 80% annuity based, was operating very satisfactorily, with an order book in excess of R3-billion. But the systems engineering part of the business still had to be brought in line with profitability targets.
There were huge costs associated with "Who am I online", as the cancelled contract also led to Gijima footing a settlement expense of R373.9-million to the department.
"That was a huge settlement. It sank their equity and that is what caused their covenants to be breached," McLachlan said. "[In the middle of] last year they managed to roll a large portion of this debt forward … but they have not managed to turn this business around."
Gijima still owes R255-million to both Futuregrowth Asset Management and Investec Asset Management. And now it is hoped a capital injection, through a rights issue, will revitalise the ailing company with R150-million. At 5c a share, it is hugely diluted, but "they needed to ensure it would be taken up", McLachlan said. Already, three major shareholders — Investec, Allan Gray and Guma — have committed themselves to following the rights.
"We are dealing with a market that is smaller. More people are after the same pie," said Wilton. But Gijima was well positioned to drive new offerings into such a market, she added.
