More jobs on the line as Gijima posts a loss
Gijima fights for survival
Moyagabo Maake @City_Press
30 November 2014 20:00
Gijima executive chair Robert Gumede left behind a thriving company when he exited the executive committee in 2008, but revenue is now lower than it was 10 years ago. Picture: Herman Verwey
A court case against the State Information Technology Agency (Sita) and an upcoming rights issue may be all that stands between IT company Gijima and business failure.
The IT company, led by executive chairperson and ANC benefactor Robert Gumede, is fighting to hold on to a multimillion-rand department of defence contract, which Sita says was awarded in contravention of the Constitution and the agency’s procurement rules.
Gijima’s attorney, Nicqui Galaktiou, said the matter was argued before a judge last week. But it will be some time before the company knows its fate because judgment was reserved.
The case
The matter stems from an urgent application brought by Gijima in February 2012 after Sita terminated a separate contract to provide IT services to the police – worth R19.6 million – with only five days’ notice. Gijima said the contract was being unfairly terminated in favour of a company called Khauleza IT Solutions.
But the matter between Sita and Gijima was removed from the court roll by mutual agreement, while Sita’s website said the tender had been awarded to Khauleza.
The current court case has revealed that Sita and Gijima had reached a settlement agreement – Gijima would be appointed to provide hardware maintenance and support services to the defence department at an estimated cost of R11.3 million.
But Sita’s Tendani Mphaphuli said in court papers the company had earned about R26.5 million from the tender by May 2013.
This agreement was so secretive, only the boards of Gijima and Sita, and employees directly involved, could know about it, according to Sita’s heads of argument.
Mphaphuli said because the defence contract did not go out to tender, it violated section 217 of the Constitution. After Gijima raised concerns that it might breach public finance rules, it said it was advised by a Sita employee that there was nothing wrong with concluding the agreement.
“It was irresponsible of the respondent Gijima to rely on advice given to it by a person who is not a lawyer on what is simply a legal matter,” argued Mphaphuli.
“ Gijima cannot be heard to contend that it concluded the agreement simply because it was advised by [the employee] that there was nothing wrong in concluding the agreement.”
Mphaphuli said the employee was suspended for flouting the agency’s procurement policy numerous times – including failing to act on legal opinion regarding Khauleza and avoiding litigation costs – but opted to resign before her disciplinary hearing.
The company declined to comment on the details of the case.
“Gijima awaits the outcome of the court proceedings before making any statements on this matter,” said CEO Eileen Wilton.
The rights issue
Gijima needs to stem the financial bleeding. Its results for the year to June, released in September, showed the company’s ability to continue as a going concern depends on achieving its future budgets and forecasts, and raising capital through a R100 million rights issue, which opens on December 8.
This is on top of a R150 million rights issue last year.
Gumede left behind a thriving company when he left the executive committee in 2008, and during former Sita strategic services chief Jonas Bogoshi’s first full year as CEO. Revenues of R2.5 billion were boosted by the department of home affairs’ Who Am I Online contract. It paid a dividend of 3.5c a share.
The next year, revenues grew to just more than R3 billion. But in 2010, home affairs cancelled the Who Am I Online tender on grounds that it was invalid. Revenue fell to R2.9 billion, and has been in freefall ever since.
By June 2014, a year after Bogoshi’s departure and Gumede’s return as executive chairperson, the company’s revenue (R1.5 billion) was lower than it was 10 years ago.
Although the company has narrowed losses to R153 million from R294 million in the year to June, tough trading conditions have forced it to restructure payment terms on borrowings of R213 million.
The interest rate on the debt increased, and the group was compelled to enter into the next phase of its turnaround strategy to ensure it will be able to generate sufficient cash to pay its debts when they are due, and comply with the borrowing requirements.
Gijima needs fresh working capital without borrowing more money, hence the rights issue and renegotiation of debt.
Gijima will offer a billion shares fully underwritten by Gumede’s Guma Group, which owns 46.7% of Gijima.
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More jobs on the line as Gijima posts a loss
Background report:
Gijima ‘confident’ before Madonsela’s probe
23 January 2012
Listed IT company Gijima today said it was “confident” that Public Protector Thuli Madonsela would discover “nothing untoward” during her probe into a multibillion-rand home affairs tender.
Gijima reacted on the Johannesburg Stock Exchange’s news service Sens after City Press yesterday revealed that Madonsela was scrutinising the R2.4 billion Who Am I Online tender.
The tender was awarded by the home affairs department to Gijima in 2007 at a price tag of R1.9 billion. The cost of the project increased to R4.5 billion before it was cancelled by Home Affairs Minister Nkosazana Dlamini-Zuma in 2010.The parties settled last year and the tender’s value was adjusted to R2.4 billion.
Madonsela confirmed that her probe would include possible conflicts of interest. Gijima chief executive Jonas Bogoshi was a senior executive at the State Information Technology Agency (Sita) when it recommended Gijima for the tender.
The board of Gijima, chaired by businessman Robert Gumede, said today it learnt via City Press of Madonsela’s probe.
“The R2.3 billion contract awarded to Gijima by the department of home affairs in 2007 was for the modernisation of the IT infrastructure and systems of the department. This included the re-engineering and digitisation of most of the national population register, including birth and death certificates, processing of ID and passport applications, visa and other permit applications as well as enhanced movement control for South Africans and foreigners at the country’s borders,” according to the company’s statement.
“This matter has already been settled between Gijima and (home affairs) in 2011, and all issues relating to the contract have already been aired. The board is confident that nothing untoward will be discovered.
“Gijima and its board will cooperate with the investigation in a transparent and truthful manner. Gijima is confident that the public protector’s investigation will exonerate both the company and its CEO,” the statement read.
Bloomberg reported that Gijima’s share price fell the most in a month today. “The stock declined as much as 6.3% to 60 cents, the biggest drop on a closing-price basis since December 22.”
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Gijima’s run-in with Home Affairs lowers profits
24 August 2011 13:37
Information and communications technology firm Gijima was forced to write off R373 million and retrench 200 employees after the government had terminated a multibillion-rand contract with the company.
Gijima chief executive Jonas Bogoshi said the R373 million included R500 000 in legal fees.
However, Gijima and the department of home affairs reached an out-of-court settlement agreement whereby the company was paid R374 million, said Bogoshi.
“The settlement has enabled us to move forward as a group, to service our clients more effectively, and to concentrate on growth prospects ahead. We are confident that we are recovering from this impact and continue to deliver value for our stakeholders,” he said.
The home affairs department awarded Gijima the Who-Am-I-Online contract – which was initially worth R2.37 billion and eventually climbed to R4.5 billion – in 2007.
The contract aimed to revamp the home affairs administrative system and to prevent fraud.
In a letter the department disputed the contract last year accusing Gijima of non-delivery and denying the authority of the accounting officer to sign the contract on behalf of Home Affairs.
Bogoshi said the Institute of Directors did an assessment on whether the Gijima board had performed well in dealing with the dispute over the home affairs contract.
The institute found that the board had conducted itself as leaders who acted in the best interest of all stakeholders, said Bogoshi.
The financial results showed that Gijima’s revenue was down by 12.8% to R2.6 billion.
Bogoshi said the company was stabilising and in the second half of the financial period managed to generate R80 million in revenue.
He said Gijima’s professional services division’s revenue dropped by 36% and the profit was reduced by 104%.
He described the retrenching of staff as a painful period of the company’s history but added that Gijima had retained its highly-skilled employees and more money would be spent on further up-skilling the personnel.
Bogoshi revealed the company’s Vision 2025 and said Gijima would strive to focus more on growing its professional services business by offering products like Apple’s iPads.
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More jobs on the line as Gijima posts a loss
12 March 2011 9:20
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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Gijima to retrench workers
16 May 2012 14:13
Technology group Gijima is to retrench an undisclosed number of workers to improve efficiency and reduce costs.
News of the planned retrenchment broke today and according to a Business Day report Gijima would not say how many employees would be affected “due to the consultative HR (human resources) processes” the company said it needed to follow.
Gijima has more than 3 000 employees.
The company returned to profitability in the six months to December last year. This was after reporting losses over the same period in 2010 due to a settlement with the department of home affairs over the cancellation of the R2.4 billion “Who Am I Online” project.
In statement on Sens yesterday, Gijima said it was launching an “internal people optimisation strategy aimed at improving efficiency and reducing its cost base”.
It said the information and communications technology landscape had “changed dramatically”.
“For Gijima to adequately respond to these changes, the company will also be streamlining its operations focusing on efficiency, nimbleness, and human resources optimisation.”
CEO Jonas Bogoshi said: “Our aim is to enhance our business competitiveness, and that of our valued clients, and this optimisation strategy will enable us to do just that, without compromising our track record of quality service delivery.”
Gijima intended reducing staff costs by between eight and 12%. This would be completed by mid-August and the business restructuring would come into full effect in July.
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Gijima CEO resigns
26 September 2012 9:13
JSE-listed technology firm Gijima has announced that its chief executive, Jonas Bogoshi, would leave the company at the end of the year.
Bogoshi has been at the helm of the company for five years. Gijima did not say who would take over the reins from Bogoshi.
Earlier this year, City Press reported that Bogoshi was facing a probe by Public Protector Thuli Madonsela over a “flawed” R2.4 billion tender to revolutionalise the home affairs department.
The investigation would focus on whether Bogoshi was conflicted when, as chief of strategic services at the State Information Technology Agency (Sita), he participated in awarding the tender to Gijima and joined the company less than 12 months later.
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Zuma reportedly orders Gijima probe
Mar 02 2014 11:08
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Johannesburg - President Jacob Zuma has reportedly authorised a probe by the Special Investigating Unit (SIU) into the awarding of a R360m tender to ANC benefactor Robert Gumede’s JSE-listed Gijima group.
According to the Sunday Independent, Zuma signed the proclamation for the SIU to investigate the contract awarded to technology group Gijima by the department of rural development and land Reform.
Billionaire Gumede is apparently a long-standing member of the ANC and has donated money to the party over many years.
This is not however the first time the company has fallen under the spotlight.
Two years ago, Gijima faced a probe by the public protector, Thuli Madonsela, over a R2.4bn Who Am I Online tender through the department of home affairs.
This tender was awarded by the department to Gijima in 2007 at a price tag of R1.9bn.
The cost of the project increased to R4.5bn before it was cancelled by former home affairs minister Nkosazana Dlamini-Zuma in 2010.
The parties settled in 2011 and the tender’s value was adjusted to R2.4bn.
Clamp down
In his State of the Nation address Zuma made his intentions about tackling tender fraud clear.
Zuma mentioned the establishment of a tender board that would adjudicate tenders in all spheres of government.
"We are changing the tender system, which has been such a big problem in our country.
"Public servants and public representatives will be prohibited from doing business with the state," said Zuma.
He said ANC members and public representatives who were found guilty would be expected to step down from their positions.
Last week Zuma signed a proclamation authorising the SIU to investigate R756m tender which the department of communications awarded to Media Corner.
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