Johannesburg, 13 Jan 2014 — Global Credit Ratings has today affirmed the long term national scale and the short term national scale issuer ratings assigned to Gijima Limited of BB(ZA) and B(ZA) respectively; with the outlook accorded as Negative.
Global Credit Ratings has accorded the above credit rating(s) to Gijima Limited based on the following key criteria:
Gijima Limited (“Gijima”) is a well entrenched player in the domestic ICT market, with its position underpinned by a strong public sector presence, partnerships with international brands and an extensive technical skills base. However, the group’s financial performance has been markedly impacted by the loss of several key managed services contracts (being the group’s key source of annuity-like income) and a number of large loss making projects.
Adjusting for exceptional items, operating income came under severe pressure, reporting a R125m loss. This was driven by review period low turnover volumes and an inappropriately, high operating cost base. Abnormal items amounted to a R78m net loss, after the group reported a R160m loss from the Department of Rural Development and Land Reform project, partly offset by the profit on the sale of the mining division. Overall, the group posted an after tax loss of R211m in F13. Cash flow from operations tracked profitability, reporting a significant R112m outflow. However, this was offset by R152m received from the disposal of the mining consulting business and R150m received from the successful rights issue. Accordingly, cash balances increased by 67% to R203m at FYE13. Gross gearing remained elevated at 261%, owing to the erosion of equity from the significant losses posted in recent periods, despite the rights issue and the early redemption of R49m in debentures. However, stronger cash balances resulted in improved net gearing, which declined to 55%, from 162% in F12.
GCR conducted a review of Gijima’s rating following their interim results in April 2013. At the time the rating was downgraded in anticipation of the poor financial performance for F13. A new management team has since been put in place, which has implemented a new turnaround strategy, although further time is required before any progress can be assessed.
The viability of the group will be dependent on the successful execution of its turnaround strategy, which would result in topline growth and a rightsizing of the group (in terms of both operating expenses and debt levels) relative to its turnover. A positive movement in the rating could develop should a material increase in client volumes drive a return to consistent profitability. Furthermore, successful completion of current contracts, acquisition of new projects and the rebuilding of the brand may warrant a review of the rating. A negative movement in the rating could occur if the group posts further operating losses off the elevated cost base, resulting in the erosion of shareholders interest. Furthermore, additional unforeseen loss making projects that compromise the viability of the company, would bode negatively.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Aug/2008)|
|Long term: BBB(ZA); Short term: A3(ZA)|
|Last rating (Apr/2013)|
|Long term: BB(ZA); Short term: B(ZA)|
|Primary Analyst||Secondary Analyst|
|Richard Hoffman||Thato Modungoa|
|+27 11 784 1771||+27 11 784 1771|
|Sector Head: Corporates and Local Authorities|
|+27 11 784 1771|
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SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Gijima Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Gijima Limited with no contestation of the rating.
The information received from Gijima Limited and other reliable third parties to accord the credit rating included the 2013 audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, full year budgeted financial statements, corporate governance and enterprise risk framework, industry comparative data and a breakdown of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.