Arivia`s restructuring yet to bear fruit

By Nicola Mawson for arivia.kom
Johannesburg, 13 Oct 2006

State IT company arivia.kom, which recently spent almost a year restructuring its operations, has posted a revenue decrease of 7% in its latest annual report.

The company says this was a result of cost pressures and expected new business that failed to materialise. However, it expects its investments in organisational restructuring will prove fruitful in the coming year.

Chairman Nonkululeko Nyembezi-Heita said in the 2006 report that the company was reorganised "to support an approach more focused on the needs of its customers and to improve its positioning and credibility as a strategic business partner".

However, these efforts did not result in the rewards the company had expected to see during the year. "It is expected that these investments will pay off in the ensuing period," wrote Nyembezi-Heita.

The IT service provider, which has 1 600 staff, has restructured its divisions into Managed Services, Business Solutions, Face Technologies and arivia.kom Consulting.

The company`s revenue dropped 7.1%, to R1.5 billion, and its earnings before interest, tax, depreciation and amortisation (EBITDA) margin dropped down to 9.7%, it said. However, it stated that normalised EBITDA margins were over 12% for the year and cash from operations moved up to R155 million.

While the company`s core activities generated profits and the "operating performance across the group showed solid improvements on the previous year", cost pressures and lower than anticipated new business flows hampered revenue. A loss from a foreign subsidiary - as a result of a project that did not materialise - hampered the EBITDA margin.

Government`s slow spend

CEO Zeth Malele said the company was under pressure to deliver more for less. He cited Transnet as an example, saying its turnaround strategy with a strict cost focus had placed pressure on all service providers.

"This ongoing quest for optimisation across its activities, put pressure on arivia, with some services being scaled down and new projects being put on hold during the year."

While the company positioned itself to benefit from Eskom`s planned increases in electricity production capacity, and its Department of Water Affairs and Forestry contract had been renewed, other public sector contracts failed to materialise, he said.

"The anticipated new business flows did not meet expectations as arivia`s core target market, the broader public sector, remained slow in concluding contracts to improve its ICT infrastructure."

In addition, he said that despite a new investment cycle been seen from high-end technology users, government continues to come under the hammer for drawn out tenders.

"However, government, and the public sector, which are tasked with improving service delivery to all South Africans through e-government initiatives, are under increasing pressure to show real progress on this strategy. Government continues to be criticised for its drawn-out tender processes on a number of significant ICT tenders which have been delayed following considerable investment by contenders in collating proposals.

"Pressure is mounting to achieve readiness for the 2010 Soccer World Cup, which includes systems to regulate the movement of tourists during the tournament."

Arivia said it is seeing increased requests for proposals across the market and is involved in "a number of significant opportunities, which should bear fruit going forward".

"However, we have yet to see concrete evidence with the finalisation of such projects in the public sector. Despite the recent withdrawal of tenders, including the South African Revenue Service voice and data networks, SITA is gaining momentum on concluding ICT tenders in the public sector space."