More jobs on the line as Gijima posts a loss

2011-03-12 09:20

More employees of IT company Gijima are set to lose their jobs after the multibillion-rand government tender controversy ruined the company’s reputation.

The company announced this week that the controversy had led to its profit dropping by 13.6% to R1.2 billion compared with the previous comparable period, causing the firm to declare a loss of R270 million for the six months to December.

This had made Gijima’s investors, who had been spoiled by solid growth and good company results, very anxious.

Gijima’s share price plummeted by more than 20% to a year low of 61c after Wednesday’s announcement. The stock has risen slightly since then.

“This is hitting us hard, no doubt about it,” said Jonas Bogoshi, Gijima’s CEO.

Gijima’s results also reflect a one-time settlement of R373 million.

The company later announced that it had already let go a vast majority of the workers who had worked on the Who Am I Online project for government. The firm tried to soften the news by saying those employees were mostly sub-contractors.

Approximately 160 people had worked on the project, said Gijima, which has about 3 700 employees.

But the controversy with the government was not the only bitter pill the company had to swallow. Profit at its Professional Services Department dropped by 40% and its operating profit by 143.5%.

Bogoshi said a “considerable” number of employees from this department would lose their jobs, although the company was reluctant to wield the axe.

According to Carlos Ferreira, the chief financial officer of Gijima, the department “just has too many costs for its level of turnover. We just won’t be able to bring costs down in time.”

Gijima’s conflict with the government began last year, when the Department of Home Affairs expressed its doubts to Gijima and its partners about the costs and delays of the Who Am I Online project, which was started in 2008.

The project entails the creation of an IT system that has to form the foundation for the administration of home affairs.

The estimated cost of the project more than doubled from R2.2 billion to R4.5 billion.

The department then said the contract was invalid and cancelled it.

Gijima did not agree and threatened to take the department to court.

After 10 months of negotiations, the two parties decided to revive the project – at the original estimated cost, which would save taxpayers R2 billion, the department said.

Gijima said it would still profit from the project, but not at the margins it would have preferred. “We just want this behind us,” said Ferreira.

According to Bogoshi, the cost of the project rose because the department did not invest in certain infrastructure – such as servers. This was not asked for in the tender.

When the department wanted to cancel the contract, Gijima considered going to court.

“We had a very good case,” said Bogoshi, “but in the long run this settlement is the more pragmatic decision. Think about it: it would have taken five years of court time – time we could have used for other things. We also would have sued one of our biggest clients,” he said.

The company’s two biggest financing partners on the project, HP and IBM, could also possibly have sued Gijima.

“Remember that we are asked in every tender whether we are involved in a court case,” said Bogoshi.

“It would always have disadvantaged us with clients,” said Ferreira. “We got to a stage where we had to make a decision. It was not a unanimous decision, or even the board’s first choice, but we had to do it,” he said.

Bogoshi said the controversy with the department could cost the company business, although there were no indications of this happening yet. “We haven’t lost a tender yet, but it might sit in officials’ thoughts when they do business with us.”

The weak results had an effect on the functioning of the company. Gijima will reorganise and let some employees go.

“We are also changing how we work with government. From now on the Treasury has to approve all contracts. This might create a bit of friction with the other departments.”

According to analysts, investors should not worry too much about Gijima’s results. These were one-time losses and the company had decided to reflect everything at once in its results. Bogoshi reminded experts that the company had an annuity income of at least R1.5 billion in any given year.

“This is a setback, but we need to get it out of our system,” said Bogoshi.

“Our reputation has suffered, but we are positive that we will come back from this and once again deliver the type of results our shareholders expect from us,” he said.

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