| Wed 10 Sep 2008, 15:59 | | FRT - Faritec - Faritec reviewed results for the year ended 30 June 2008 |
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FRT - Faritec - Faritec reviewed results for the year ended 30 June 2008
Faritec Holdings Limited
Incorporated in the Republic of South Africa
Registration number 1998/004872/06
Share code FRT ISIN ZAE000016838
("Faritec" or "the company" or "the Group")
FARITEC REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2008
- Revenue up by 21% to R1,041 million
- EBITDA up by 109% to R55,5 million
- Profit attributable to shareholders up by 75% to R28,9 million
- Earnings per share up by 33% to 11,3 cents
- Increase in return on equity to 22%
INTRODUCTION
The Board is pleased to announce the results for the year ended 30 June 2008.
We are also happy with the continued growth in our business, which has seen
us top the billion rand revenue mark for the first time. In achieving this
milestone, we have shown an ongoing improvement in our revenue mix, the
resultant margin improvement, as well as significant growth in earnings. The
results are especially pleasing in the context of the current economic
slowdown.
During the period under review, we have also continued to move closer to our
purpose of "Providing the most Customer Centric Technology Solutions", by
focusing on our five Strategic Pillars, namely, Empowering our People, Our
strength in Partnering, Providing Tailored Technology Solutions, Addressing
the Business requirements of our Customers and Generating Financial Returns.
REVIEW OF OPERATIONS
The operations of the business performed well in the second half of the
financial year following on from a solid performance in the first half.
Revenue in the second half was R539 million compared with R385 million for
the comparable period last year, showing a 40% growth. Revenue grew by 21% to
R1,041 million from R858 million and our gross margin increased by 10% from
22,6% to 24,9%. The margin improvement is mainly due to two of our major
strategic initiatives starting to deliver the desired results. Firstly, we
have seen an improvement in our revenue mix in favour of higher margin
software and services. Software and services now represent 46% of our revenue
compared to 41% last year. Secondly the move from being product-centric to
solution-centric is starting to pay dividends and we are providing far more
complete technology solutions to our customers. A more detailed analysis of
our revenue mix shows that our Hardware revenue grew by 12% to R563 million
from R503 million, software grew by 49,7% from R157 million to R235 million
and services grew by 22,7% from R198 million to R243 million.
Hardware
Our hardware business which is now more evenly spread between our two main
strategic vendors, namely HP and IBM, grew above the market norms. We are
broadening the spread of products that we sell in this portfolio to offer a
wider selection to our customers. Together with our traditional focus on IBM
servers and storage, we are also now selling the equivalent product range
from HP. We are also providing managed print solutions and selling low-end
products as part of our approach to supply complete solutions. Our hardware
business continues to be the largest revenue contributor and with our
strategy to provide a wider selection to our customers, we expect it to
continue to grow faster than the market. Our Google partnership will also
start to contribute to our hardware revenue in the new year, with the sale of
the Google search appliances for which we have an ever growing pipeline.
Software
Our software business grew at 49,7% last year, significantly outstripping the
market. Although this was an excellent performance from the team, it was off
a small base. We now sell a wide range of Software products from a number of
strategic partners, the products can be broken into the following groupings;
security, identity management, storage availability, business applications,
system integration and management, development tools, databases, search
engines, business intelligence and knowledge management, content management,
virtualisation and general software licensing. Our strategic partners across
this product set are Microsoft, IBM, Symantec, Oracle, Hansen, SAP, VMware
and Novell. We have focused very heavily on this area of the business and
this is starting to bear fruit for us. The team is performing well, our
partnerships with our strategic partners are growing and we are adding more
value to our customers. We expect this area to continue to grow faster than
the market but not at the same rate as last year.
Services
Our services business grew 22,7%, once again this is above the market and we
are extremely happy with the progress we are making in this area. Our
services business is now aligned with our strategic solution areas and is
assisting our sales and marketing teams in selling more solutions. Our
services focus is in the following areas, Managed Services, Projects,
Consulting, Support and Maintenance, and we are experiencing growth in all of
the aforementioned areas. We have also grown our skills base in all of our
solution areas based on the market demand and this is expected to continue
into the new year. Due to the growth we have seen in the last few years in
this business we have now implemented various systems and methodologies to
better manage and control the operations. This will result in better customer
service and improved returns. We expect this business to continue to grow
above the market and add more value to our sales and marketing efforts.
Head Office Services
We have invested significantly in systems, infrastructure and skills to
improve the management and control of our operations, and add value to our
customer facing teams. This is also starting to pay dividends and we expect
to be able to improve productivity and control even more in the coming year.
Acquisitions and New Ventures
The Software Futures acquisition has been fully integrated into our current
operations and has delivered better than expected returns. The large skills
base that we acquired from this acquisition is adding significant value
especially in the Western Cape and we expect this business to continue to
deliver an exceptional Return On Investment. Google, Managed Print Solutions
and Public Sector are all new areas that we started in the last 18 months.
They are all on track and we expect them to deliver even more value in the
New Year.
CONCLUSION
Our results also include the effects of our decision to write-off various
historic items relating to the prior acquisitions. Although our cash on hand
has been reduced by the significant sales closed in the last quarter this has
been replaced with a substantial growth in accounts receivable. Due to the
significant growth we have experienced over the last few years and the
tightening of the credit environment, we have had to use expensive trade
finance to facilitate our growth, which has resulted in a large interest
bill. In summary we are very happy with the performance of the operations and
we feel they are well positioned going into the New Year.
PROSPECTS
Our efforts of the last year have positioned us well for growth into the
future. We have increased the number of solutions we can offer our customers,
we have grown our skills base and improved our customer service. Together
with our improved systems and controls and access to a larger set of
customers, we believe that Faritec will be able to grow in line with market
expectations.
BBBEE COMMENTARY
In this 2007/2008 financial year Faritec achieved significant milestones in
our quest to successfully integrate each of the elements of the BBBEE Codes
of Good Practice into our operations. With the maturity of the systems that
we invested in the past two years, both in the financial and HR areas,
opportunities for middle management to drive and attain our BBBEE objectives
have been created by leveraging the feedback provided from the said systems.
Empowering our management with systems and placing the drivers for
transformation in that team ensures a sustainable and integrated effort in
meeting the goals of BBBEE.
As stated in the previous year`s commentary, the operations are also
benefiting from the more focussed investment in education and training that
not only meets compliance, but has become a source of creating stability and
value within and amongst our people. Our learnership program continues to
make great strides and the operations now ensure that each learner has the
opportunity to become a full time Faritec employee. Our HR team have evolved
sophisticated process and systems to ensure we remain focussed on empowering
and developing the skills of our people and that we achieve our EE and Skills
Development objectives.
The SAP financial system also now monitors and directs our procurement spend
and the investment we make in developing enterprises that have become great
business partners. Our investment and relationship with the SOS organization
continues to inspire our people in what can be achieved in corporate social
investment that also narrows the digital divide.
We have now developed a partnership with our rating agency, Empowerdex, that
not only performs a rating but provide significant guidance and advise. Our
current A rating indicates that Faritec continues to remain one of the most
empowered listed IT companies.
EVENTS SUBSEQUENT TO 30 JUNE 2008
- Ubusha acquisition: As per the SENS announcement released on the 9th of
September 2008, Faritec, through its subsidiary Faritec Enterprise
Solutions (Proprietary) Limited, has concluded an agreement to acquire
the business of Ubusha, including their 30% stake in Linux System
Dynamics as a going concern with effect from 1 March 2008. The
acquisition consideration is made up of R23 million in cash and R3
million in issued shares in Faritec Holdings Limited. The financial
effects of this transaction are highlighted in the notes below.
- Securitisation: In terms of the SENS announcement released on the 9th of
September 2008, Faritec has entered into a long-term debtors
securitisation funding programme on the 8th of September 2008. In terms
of this Programme, Faritec has raised R100 million from investors in the
Capital Markets at fixed rates for an initial period of five years. This
funding programme will allow Faritec to replace the current funding
arrangements with cheaper debt and provides working and acquisition
capital to enable future growth.
- Directorate: Resignation of Executive Director: Mncedisi Mayekiso
resigned as an Executive of Faritec to pursue other business interests.
He will serve his notice period until the end of October 2008. He will,
however, remain on the Board as a non-Executive Director. The Faritec
Board and Management would like to thank Mncedisi for his valuable
contribution as an Executive over the past 2 years and we look forward
to continuing our relationship in his role as non-executive Director.
For and on behalf of the Board
Dr CR Jardine
Chairman
SM Tomlinson
Chief Executive Officer
Johannesburg
10 September 2008
GROUP INCOME STATEMENT
12 months 12 months
2008 2007
Rand Rand
(`000) (`000)
Revenue 1 041 072 858 349
Operating expenses before depreciation
and amortisation (985 546) (831 842)
Depreciation and amortisation (9 366) (6 977)
Profit from operations 46 160 19 530
Finance costs (20 510) (3 297)
Investment income 11 790 5 392
Impairment of assets - (1 263)
Profit before taxation 37 440 20 362
Taxation (8 332) (6 120)
Net profit for the period 29 108 14 242
Attributable to:
Minorities 244 (2 218)
Ordinary shareholders 28 864 16 460
29 108 14 242
Reconciliation of headline earnings:
Attributable earnings for the period 28 864 16 460
Impairment of assets - 628
Headline earnings for the period 28 864 17 088
Total number of ordinary shares in issue (`000) 258 211 254 993
Weighted average number of ordinary
shares in issue:
Faritec shares at beginning of period (`000) 254 993 192 962
Options exercised 1 406 -
Weighted average number of ordinary shares
in issue (`000) 256 399 192 962
Options (diluted number, which affects
diluted shares in issue) 531 12 077
Fully diluted shares in issue (`000) 256 930 205 039
Earnings per share (cents) 11,3 8,5
Headline earnings per share (cents) 11,3 8,9
Fully diluted earnings per share (cents) 11,2 8,0
Fully diluted headline earnings per share
(cents) 11,2 8,3
GROUP BALANCE SHEET
2008 2007
Rand Rand
(`000) (`000)
ASSETS
Non-current assets 194 415 170 950
Equipment 24 270 11 863
Software 10 189 9 160
Development costs capitalised 8 057 8 546
Goodwill 104 728 92 994
Trademarks 38 204 38 204
Loans receivable 2 688 6 331
Deferred taxation 6 279 3 852
Current assets 329 362 205 515
Inventories 7 106 9 511
Trade receivables 302 257 157 081
Other receivables 899 5 481
Taxation - 1 276
Cash and cash equivalents 19 100 32 166
Total assets 523 777 376 465
EQUITY AND LIABILITIES
Total equity 182 428 152 149
Shareholders` interest 184 359 154 323
Minority interest (1 931) (2 174)
Non-current borrowings 34 336 35 190
Interest-bearing borrowings 26 939 26 103
Operating lease liabilities 5 391 6 253
Non-interest-bearing borrowings 2 006 2 834
Current liabilities 307 013 189 126
Trade payables 247 408 147 309
Other payables 41 682 26 567
Taxation 3 494 5 004
Bank overdrafts 348 -
Interest-bearing borrowings 12 302 9 548
Operating lease liabilities 1 779 698
- -
Total equity and liabilities 523 777 376 465
Total number of ordinary shares in issue (`000) 258 211 254 993
Net asset value (R`000) 184 359 154 323
Net asset value per share (cents) 71,4 60,5
Tangible net asset value (R`000) 23 181 5 420
Tangible net asset value per share (cents) 9,0 2,6
SEGMENTAL ANALYSIS
All the Group`s activities are conducted within South Africa. For reporting
purposes, the Group is organised into three operating divisions. These
divisions are the basis on which the Group reports its primary segmental
information. Principal activities are as follows:
R`000 Hardware Software Services Total Head Group
operations office
2008
Segment revenue 562 999 235 187 242 886 1 041 072 - 1 041
072
% Contribution 54% 23% 23% 100% - -
Depreciation (3 230) (1 592) (2 868) (7 690) - (7 690)
Amortisation (704) (347) (625) (1 676) - (1 676)
Segment results 26 656 13 140 23 671 63 467 (17 46 160
307)
Capital 8 985 4 429 7 979 21 393 - 21 393
expenditure -
property and
equipment and
intangible
assets
Segment assets 251 988 108 383 154 440 514 811 2 688 517 499
Segment (185 (75 481) (67 583) (328 679) (9 176) (337
liabilities 615) 855)
2007
Segment revenue 502 911 157 263 198 175 858 349 - 858 349
% Contribution 59% 18% 23% 100% - -
Depreciation (1 786) (507) (1 218) (3 511) - (3 511)
Amortisation (1 763) (502) (1 202) (3 467) - (3 467)
Segment results 15 424 4 382 10 518 30 324 (10 19 530
794)
Capital 7 700 2 188 5 251 15 139 - 15 139
expenditure -
property and
equipment and
intangible
assets
Segment assets 202 838 57 647 104 521 365 008 6 331 371 337
Segment (125 (39 469) (47 349) (212 361) (6 951) (219
liabilities 543) 312)
Group Statement of Changes in equity
2008 2007
Rand Rand
(`000) (`000)
Share capital 258 255
Balance at beginning of period 255 181
Issued during the period 3 74
Share premium 158 776 157 607
Balance at beginning of period 157 607 64 826
Issued during the period 1 169 92 854
Write off of share issue costs - (73)
Acquisition equity adjustment (85 455) (85 455)
Balance at beginning of period (85 455) -
Purchase of J&J minority interest - (85 455)
Share-based payments reserve 4 146 4 146
Balance at beginning of period 4 146 2 705
Increase for the period - 1 441
Accumulated profits 106 634 77 770
Restated balance at beginning of period 77 770 61 310
Net income for the period 28 864 16 460
Total capital and reserves 184 359 154 323
Abridged Group Cash Flow Statement
12 months 12 months
2008 2007
Rand Rand
(`000) (`000)
Cash from operations before working
capital changes 56 199 27 274
Working capital changes (23 067) (14 613)
Taxation and finance charges (19 714) (3 777)
Cash flow from operating activities 13 418 8 884
Cash flow from investing activities (30 066) (21 901)
Cash flow from financing activities 3 234 5 830
Net movement in cash and cash equivalents (13 414) (7 187)
Cash and cash equivalents at beginning
of period 32 166 39 353
Cash and cash equivalents at end of period 18 752 32 166
Business Combinations
Faritec Holdings Limited has acquired the assets and liabilities of:
- Software Futures which acquisition was effective from 1 December 2007
for a consideration of R12,2 million which was settled in cash.
- UBUSHA Technologies (Pty) Ltd ("UBUSHA") which acquisition effective 1
March 2008 for a consideration of R26 million which will be settled, a
portion in cash (R23 million) and the balance through the issue of R3
million shares.
If the acquisitions were effective on the 1st of July 2007:
- Software Futures would have contributed revenues of R43 million and
profit after tax of R5 million to the Group for the year ended 30 June
2008.
- UBUSHA would have contributed revenues of R18 million and profit after
tax of R3,6 million to the Group for the year ended 30 June 2008.
Included in the 30 June 2008 results is Software Futures contribution to
revenues and profit before tax of R29 million and R5 million respectively for
the seven months.
Post
year-end
Software acquisition
Fair value of net assets acquired (Rand `000): futures UBUSHA
Property, plant and equipment 560 305
Investment in associates - 1 015
Trade receivables - 4 546
Inventories 3 726 -
Cash and cash equivalents - 3 074
Deferred taxation - (76)
Trade and other payables (3 808) (358)
Taxation - (1 265)
Net assets acquired 478 7 241
Funding of net assets acquired: - (112)
Total purchase consideration (12 200) (26 000)
Goodwill included in intangible assets (11 722) (18 871)
These amounts have been calculated using the Group`s accounting policies.
The goodwill is attributable to the workforce and intellectual capital of the
acquired business as well as the significant synergies expected to arise
after the acquisition.
OVERVIEW OF THE RESULTS
Faritec achieved revenue of R1,041 million compared to revenue of R858
million in 2007, an increase of 21%. This reflects year-on-year organic
revenue growth, seven months acquisition revenues from Software Futures as
well as a change in geographical revenue mix with Western Cape region`s
contribution increasing to 20%. The Group`s gross profit margins have
increased to 24,9% (2007: 22,6%) with the software and services revenue
contribution increasing from 41% to 46%, in line with the Group`s stated
intent to improve the revenue mix.
EBITDA increased to R55,5 million compared with the prior period of R26,5
million. This increase is largely as a result of strong performances in HP
systems and technology business, security and service delivery.
The company incurred significant amount of costs in the current year relating
to prior year acquisitions, including write-offs of irrecoverable amounts and
settling unresolved liabilities, which negatively impacted EBITDA.
Net interest paid increased to R8,7 million (2007: (R2,1 million)) and
includes the interest incurred in the loan raised to fund the Enterprise
Connection acquisition, as well as an interest charge incurred from the trade
facilities put in place in the last half of the financial year in order to
support the significant growth experienced by the Group.
The tax charge for the period increased to R8,3 million, up from R6,1 million
in 2007. The effective rate of tax on profit before taxation is 22%. This is
lower than the statutory rates generally applicable mainly due to the
recognition of deferred tax assets which are now recoverable.
Basic earnings per share increased from 8,5 cents in 2007 to 11,3 cents in
2008.Headline earnings per share increased from 8,9 cents in 2007 to 11,3
cents in 2008. The weighted average number of shares in issue for the year is
256 million, which increased from last year`s 193 million due to the
additional shares issued on the exercise of the J&J option and shares issued
in terms of the Faritec Share Incentive Scheme.
Ordinary shareholders` funds at the year-end amounted to R184,3 million,
representing a R30 million increase from the R154,3 million in 2007, mainly
as a result of the net profit generated in the current year. The increase in
tangible net asset value per share to 9,0 cents (2007: 2,6) has been
negatively impacted by the recognition of goodwill on acquisition of Software
Futures` sale assets and liabilities amounting to R11,7 million.
The balance sheet continues to strengthen with a 18% increase in net asset
value per share to 71,4 cents (2007: 60,5 cents). Cash generation capability
has been affected by the trade facilities put in place in order to support
the growth experienced in the last two years which gave rise to significant
finance costs, a shift in the profile of some customers and normal trading
seasonality. The funding of the Software Futures acquisition out of working
capital and increased tax payments also utilised funds. The working capital
turns have improved significantly over the period and are expected to improve
further. However, the Group`s balance sheet remains strong with an interest
cover of more than 5,3 times.
The Group incurred capital expenditure of R21 million during the period under
review, the majority of which relates to the upgrade of the network
infrastructure and telephony systems.
BASIS OF PREPARATION
This preliminary report has been prepared on the historical cost basis,
except for certain financial instruments at fair value, using the Group`s
accounting policies, which comply with International Financial Reporting
Standards, and methods of computation, as used in the annual financial
statements of the Group for the year ended 30 June 2008, and has been
prepared in accordance with IAS 34, Interim Financial Reporting.
UNQUALIFIED 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.
DIVIDEND
No dividend has been declared as funds are being retained to assist with the
Group`s future growth.
Registered address
Faritec House | 150 Kelvin Drive | Woodmead | Sandton 2148
PO Box 76784 | Wendywood 2144
Transfer secretaries
Computershare Investor Services 2004 (Proprietary) Limited
70 Marshall Street | Johannesburg 2001 | PO Box 61051
Marshalltown 2107
Sponsor
Java Capital (Proprietary) Limited
Faritec - no limits
Date: 10/09/2008 15:59:01 Produced by the JSE SENS Department.
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