CSG’s young security unit posts big loss

Services group CSG Holdings was unable to capitalise on heightened safety awareness in crime-ridden SA, with its fledgling security division trading deep in the red in the interim period ending September.

Financial results for the six months to September released on Friday showed CSG — which has PSG Alpha and African Rainbow Capital as significant minority shareholders — reporting a 3% gain in revenue to R242m. The revenue growth, however, came at a heavy cost to margins, with the security segment showing an operating loss of nearly R40m — more than double the loss showed at the end of the financial year in March.

Security services have widely been viewed as a sweet spot in the SA economy, as crime levels remain high. Strong performers on the JSE have included vehicle tracking companies such as Mix Telematics and Cartrack.

CSG — which also offers staffing solutions and facilities management — started building a security arm about two years ago, acquiring mainly small operators with a view to consolidating what is still a fragmented industry.

CSG CEO Pieter Dry remained optimistic about CSG’s efforts to lock up market share in the security segment.

“Security remains a prevalent topic in all SA communities and there has been a move towards the use of a combination of human resources and technology to curb new crime tendencies.”

Dry conceded that the integration and consolidation of the security acquisitions made during 2018 took longer than anticipated. He said slacker consumer spending and fuel price increases also dragged on performance.

Dry noted that an in-depth review of the security businesses showed that the underperformance of subsidiaries 7 Arrows and Revert Risk Management was worse than anticipated. “Immediate action was taken to rationalise and consolidate these businesses,” he said.

There has also been new leadership installed at the security segment, and Dry believed the change would see management deliver on an aggressive turnaround plan.

He said further savings would be achieved by consolidating operating areas – which would result in a reduction of the number of vehicles and ensure stricter control of overtime.

“Unfortunately, as the real impact of the mismanagement of these two businesses was only discovered in mid-2019, the positive impact of the rationalisation will only be evident in the second half of the 2020 financial year.”

CSG disclosed that the security segment’s new centralised control room in Pretoria made an operating loss of R2.7m. But Dry maintained there was a promising pipeline of business, which should flow through in the 2020/2021 financial years.

hasenfusm@businesslive.co.za