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FRT
FRT
FRT - Faritec Holdings - Reviewed Results For The Year Ended 30 June 2007
Faritec Holdings Limited
(Registration number 1998/004872/06)
Share code: FRT
ISIN: ZAE000016838
("Faritec" or "the company")
FARITEC HOLDINGS LIMITED - REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2007
2007 Change 2006
R million % R million
Revenue 858,3 62 530,1
EBITDA 26,5 2 26,1
Net profit attributable to 16,5 18 14,0
ordinary shareholders
Cash on hand 32,2 (18) 39,4
EPS (cents) 8,5 (18) 10,4
ABRIDGED GROUP INCOME STATEMENT
12 months to 12 months to
30 June 2007 30 June 2006
R`000 R`000
Revenue 858 349 530 058
Operating expenses before
depreciation
and amortisation (831 842) (503 961)
Depreciation and amortisation (6 977) (8 330)
Profit from operations 19 530 17 767
Finance costs (3 297) (606)
Investment income 5 392 3 167
Impairment of assets (1 263) (80)
Fair value adjustment of 0 3 770
investment
Profit before taxation 20 362 24 018
Taxation (6 120) (6 006)
Net profit for the period 14 242 18 012
Attributable to:
Minorities (2 218) 4 030
Ordinary shareholders 16 460 13 982
14 242 18 012
Reconciliation of headline
earnings
Attributable earnings for the 16 460 13 982
period
Impairment of assets 628 80
Headline earnings for the 17 088 14 062
period
Number of ordinary shares in 254 993 181 385
issue (`000)
Weighted average number of
ordinary
shares in issue (`000) 192 962 135 075
Fully diluted shares in issue 205 039 143 805
(`000)
Basic earnings per share 8,5 10,4
(cents)
Headline earnings per share 8,9 10,4
(cents)
Fully diluted basic earnings 8,0 9,7
per share (cents)
Fully diluted headline earnings 8,3 9,8
per share (cents)
ABRIDGED GROUP BALANCE SHEET
At At
30 June 2007 30 June 2006
R`000 R`000
ASSETS
Non-current assets 170 950 126 368
Equipment 11 863 9 142
Software 9 160 1 451
Development costs capitalised 8 546 11 388
Goodwill 92 994 56 054
Trademarks 38 204 38 204
Loans receivable 6 331 4 772
Deferred taxation 3 852 5 357
Current assets 205 515 237 334
Inventories 9 511 5 313
Investments 0 13 229
Trade receivables 157 081 152 173
Other receivables 5 481 26 230
Taxation 1 276 1 036
Cash and cash equivalents 32 166 39 353
Total assets 376 465 363 702
EQUITY AND LIABILITIES
Total equity 152 149 141 147
Share capital 254 181
Share premium 157 608 64 826
Acquisition equity adjustment (85 455) 0
Share-based payments reserve 4 146 2 705
Accumulated profits 77 770 61 310
Total shareholders` interest 154 323 129 022
Minority interests (2 174) 12 125
Non-current borrowings 35 190 34 471
Interest-bearing borrowings 26 103 24 664
Operating lease liabilities 6 253 6 973
Non-interest-bearing borrowings 2 834 2 834
Current liabilities 189 126 188 084
Trade payables 147 309 133 663
Other payables 26 567 40 396
Taxation 5 004 6 021
Interest-bearing borrowings 9 548 7 352
Operating lease liabilities 698 652
Total equity and liabilities 376 465 363 702
Total number of ordinary shares in 254 993 181 385
issue (`000)
Net asset value per share (cents) 60,5 71,1
Tangible net asset value per share 2,6 12,1
(cents)
ABRIDGED GROUP STATEMENT OF CHANGES IN EQUITY
12 months to 12 months to
30 June 2007 30 June 2006
R`000 R`000
Share capital 254 181
Balance at beginning of period 181 133
Issued during the period 73 48
Share premium 157 608 64 826
Balance at beginning of period 64 826 27 323
Issued during the period 92 855 37 524
Write-off of share issue costs (73) (121)
Acquisition equity adjustment (85 455) 0
Balance at beginning of period 0 0
Purchase of J&J minority interest (85 455) 0
Share-based payments reserve 4 146 2 705
Balance at beginning of period 2 705 1 807
Increase for the period 1 441 898
Accumulated profits 77 770 61 310
Balance at beginning of period 61 310 47 328
Net income for the period 16 460 13 982
Total capital and reserves 154 323 129 022
ABRIDGED GROUP CASH FLOW STATEMENT
12 months to 12 months to
30 June 2007 30 June 2006
R`000 R`000
Cash flow from operating activities 9 884 17 028
Cash flow from investing activities (22 901) (2 805)
Cash flow from financing activities 5 830 6 468
Net movement in cash and cash (7 187) 20 691
equivalents
Cash and cash equivalents at 39 353 18 662
beginning of period
Cash and cash equivalents at end of 32 166 39 353
period
COMMENTS
INTRODUCTION
Following a solid performance of the business leading up to the interims, the
Board of Faritec has been disappointed in the performance of the business in the
latter six months of the year, as evidenced by the full-year results.
The integration challenges arising from the acquisitions undertaken during the
year proved more difficult, consumed more management energy and took longer to
complete than anticipated. This was compounded by the required introduction of
new processes and systems, which were necessary to enable better management of a
growing business with the size and scope of the new Faritec. All of these
factors, together with certain revenue-generating opportunities being delayed
into the new financial year, have led to poorer than expected results.
RESULTS
Faritec achieved revenue of R858 million compared to revenue of R530 million in
2006, an increase of 62%. This reflects acquisitive revenue growth as well as a
change in geographical revenue mix, with the Western Cape region`s contribution
increasing to 18%. The group`s gross profit margins have declined to 22,6%
(2006: 23,4%), while software and services revenue contribution decreased from
43% to 41%, mainly as a result of the slow uptake of the services business.
Attributable earnings increased by 18% to R16,5 million compared with the prior
period of R14,0 million. Included in attributable earnings is the impairment of
a capitalised asset amounting to R1,3 million and the proportionate share of the
losses allocated to minorities of R2,2 million.
Headline earnings per share decreased from 10,4 cents in 2006 to 8,9 cents in
2007. Basic earnings per share decreased from 10,4 cents in 2006 to 8,5 cents in
2007. The weighted average number of shares in issue for the year was 193
million, which increased from last year`s 135 million, as a result of the
additional shares issued on the exercise of the J&J option, shares issued in
terms of the Faritec Share Incentive Scheme, and 5,6 million shares issued for
the acquisition of the business of Lechabile Storage Solutions.
Included in ordinary shareholders` funds is the issue of shares to the J&J Group
amounting to R84,3 million for the exercise of the option, as well as the issue
of 5,6 million shares, raised at market value of R6,4 million on acquisition
date, for the acquisition of the Lechabile Storage Solutions sale assets and
liabilities. This increase has been offset by the resultant acquisition equity
adjustment amounting to a net R86 million arising from the purchase of the J&J
minority interest. Tangible net asset value per share decreased to 2,6 cents
(2006: 12,1 cents) which has been negatively impacted by the recognition of
goodwill on the acquisition of the Lechabile Storage Solutions sale assets and
liabilities, amounting to R35 million. The acquisition date for Lechabile was 1
November 2006 and the total cost of the acquisition was R17,2 million. This
business was fully integrated into the Faritec operations post-acquisition date.
The group experienced better cash generation in the second half of the year,
which reversed the cash consumed in the first half, with operating cash
generated of R10 million for the year.
The group incurred capital expenditure of R15,6 million during the year, the
majority of which related to the procurement of the new financial and call
centre systems.
BASIS OF PREPARATION
This report has been prepared in terms of International Financial Reporting
Standards (IFRS), including IAS 34 (Interim Financial Reporting).
The accounting policies and methods of computation used in the preparation of
this report are consistent with those applied in the annual financial statements
of the group for the year ended 30 June 2006.
UNQUALIFIED AUDIT REVIEW OPINION
The financial results have been reviewed by Charles Orbach and Company; their
unqualified review opinion is available for inspection at the company`s
registered address.
OPERATIONS
The operations of the business did not manage to follow on from the positive
performance of the first six months. This led to our trading results, that is
revenue and gross profit, being well below our expectations. These poor trading
conditions were caused by integration challenges and the introduction of new
processes and systems, which resulted in us taking our "eyes off the ball" and
focusing on fixing the internal issues.
Compared to the 2006 financial year, revenues grew by 62%, mainly due to our
acquisitions. The operations did not deliver the larger organic growth that was
expected. Hardware revenue grew by 72% from R304 million to R509 million,
software revenue grew by 113% from R75 million to R156 million and services
revenue grew by 30% from R151 million to R193 million. We continue to grow our
software and services businesses in line with our stated strategy of improving
our revenue mix.
We have been successful in growing and improving our relationships with our
customers and partners. This has resulted in continued business from our
historic base and significant wins in a number of new customers and sectors. Our
well-established relationships with our regular partners and the growing
relationships with some new partners continue to allow us to provide tailored
technology solutions to our customer base. We have also managed to enhance our
offerings across all our solutions and now have a far better value proposition
for our customers.
Our people have been through significant transformation over the last year but
have adapted well to the new size and scope of Faritec. Faritec remains an
employer of choice and we have had an increase in the number of applications for
positions in our company.
POST-BALANCE SHEET EVENTS
On 30 July 2007 Faritec signed a contract to acquire the business of Fidentia
Software Futures. The suspensive conditions have not been met yet, and the
transaction is expected to be concluded in the next few months.
PROSPECTS
We have spent a lot of time and effort on the issues that temporarily stalled
our growth and impacted our trading in the past year, and we have implemented a
number of action plans to ensure this is not repeated in the new financial year.
Faritec remains well positioned to succeed in our target markets. Compared to
last year, the business has a greater scale, a larger customer base and more
talent to pursue its growth targets. We are confident that the most difficult
integration challenges are finally behind us and we anticipate a return to our
recent growth trajectory in the short term.
TRANSFORMATION AND BEE
Faritec has successfully implemented and integrated all the pillars of the
Department of Trade and Industry`s BBBEE scorecard. Each element has now
developed a mature, self-sustaining effort within the operations of Faritec.
No business remains static and as we grow as a company, each element of the
scorecard requires its own continuous evaluation. Faritec has invested a great
deal of management time and resources in Employment Equity and Skills
Development to ensure that we continue to remain one of the leading black
empowered companies on the JSE.
Faritec successfully completed its rating in February 2007, receiving an A
Rating from Empowerdex as a Level Four Contributor. With our growth in people
and skills, we aspire to achieve a better rating through our investments in our
people and partners.
We are satisfied that Faritec is succeeding in its efforts to become a truly
South African company.
DIVIDEND
No dividend has been declared as funds are being retained to assist with the
group`s future growth.
For and behalf of the Board
Dr CR Jardine SM Tomlinson
Chairman Chief Executive Officer
Johannesburg
17 September 2007
Faritec Holdings Limited
Registered address
Faritec House, 150 Kelvin Drive, Woodmead, Sandton, 2148, PO Box 76784,
Wendywood, 2144
Transfer secretaries
Computershare Investor Services 2004 (Pty) Ltd
70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown, 2107
www.faritec.com
Date: 17/09/2007 17:04:37 Produced by the JSE SENS Department.
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