Jorge Ferreira, the chief executive of outsourced business services group Mvelaserve, has testing times ahead to extract synergies from the company’s two unrelated divisions and refocus its battling catering and cleaning services arm.
Mvelaserve, which listed on the JSE in November last year after unbundling out of the Mvelaphanda Group, now has to prove itself in the tightly contested market for security management, facilities management, catering and cleaning services.
The market failed to reward Mvelaserve’s promising security division results and 18 percent increase in revenue to R2.2 billion for the six months to December last year.
After the release of the maiden interim results, the stock fell as much as 6 percent to R11.75, the lowest since it started trading on November 30, before closing 1.2 percent down at R12.35. It had opened on R14.50 at listing.
Mvelaserve said revenue for the security division increased 25 percent to R961 million and operating profit rose 48 percent to R62m due to strong contract extensions and new contract wins. The company owns the Protea Coin security group and provides personal and corporate security.
While revenue grew 34 percent to R578m in its cleaning and catering services division, operating margin decreased to 0.8 percent from 1.3 percent as a result of restructuring of the business taking longer than anticipated. Loss-making contracts were being addressed.
Ferreira said on the sidelines of the company’s results presentation yesterday that he expected as improvement in this division by year-end.
“My biggest concern is catering. It keeps me awake at night. I might have to trim it a bit,” he said.
He said trimming would exclude retrenchments but could include cutting down the number of contracts and streamlining procurement.
The group employs in excess of 30 000 people.
Its facilities management division also saw operating margins decline from 15 percent to 13 percent following the renewal of a Telkom contract.
The division benefited from non-Telkom related business growth as it won new contracts, resulting in a marginal revenue increase of 2 percent to R553m from R538m. Expansion and diversification of the division’s customer base and contract risk profile was under way, the company said.
Revenue from its diversified services division, which includes freight services and King Pie maker Khuseti, increased 27 percent to R193m and operating profit rose 31 percent to R20m.
Ferreira said the group was most looking forward to growth in Ghana, which had market characteristics similar to those of South Africa.
A Johannesburg equities analyst, who spoke on condition of anonymity, said Mvelaserve’s growth strategy was “a bit more of a paper strategy”. He said the company needed to focus on extracting back office synergies, for example having two sets of accounting staff instead of one and building a shared sales force to better leverage all Mvelaserve’s services.
Going to the rest of Africa was credit-risky and it would make more sense to follow South African customers into Africa than go independently.
He said Mvelaserve’s results were expected to be better in years to come.
“For the first six months, unbundlings historically underperform because it is weighed down by the overhang of investors exiting. A better reflection would be to look back in a year or two’s time.” - Business Report