GCR has maintained Gijima Group Limited’s (Gijima”) national scale ZAR currency ratings at BBB- (triple B minus) in the long term and A3 (single A three) in the short term, with both ratings remaining on Rating Watch. Cognisance was taken of the group’s recovery in 2H F11, in view of elevated uncertainty in the domestic economic environment and delays in information and communications technology (“ICT”) capex, given the loss of Who Am I Online (“WAIO”) revenues in the first half. In this context, Gijima settled the dispute with the Department of Home Affairs in December 2010, details of which were finalised in March 2011. While resultant expenses of R374m drove a R209m net loss, the settlement removed a key operating constraint. Furthermore, various cost-containment and efficiency initiatives are being pursued, including the adoption of a client centric approach towards operations. This is expected to be significantly margin accretive, and coupled with the growing proportion of annuity revenue streams, is supportive of sustainable earnings growth in the medium term.
Gijima’s cash flows have closely tracked its fortunes. As profitability increased substantially, robust cash generation underpinned strong inflows in F09 and 1H F10. However, deteriorating business conditions drove substantial cash outflows from 2H F10, perpetuated by the WAIO settlement in F11. Accordingly, cash & equivalents decreased by R254m in F11 (F10: R143m decline). A such, net debt amounted to R216m at FYE11, contrasting the net ungeared position registered at FYE09-FYE10. This resulted in review period net gearing and net debt to EBITDA highs of 153% and 136% respectively at FYE11. Net interest coverage fell to 5.4x (F10: 15.7x), while cash covered the current portion of debt 0.6x. A R150m tranche of the R300m securitisation became current, and is expected to be refinanced during F12.
With strong revenue growth expected to continue in Managed Services, and a return to positive growth from Professional Services, F12 turnover is expected to recover notably. The operating margin should improve moderately, underpinning stable earnings. In view of the earnings distribution moratorium, shareholders interest is budgeted to approximate FYE08 levels. Cash generation is similarly expected to revert to the F08 mark, while stricter credit control should contain working capital pressures, resulting in a nominal absorption. Debt serviceability is also budgeted to recover, albeit remaining well behind F10 levels.
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.