| Wed 23 Sep 2009, 8:54 | | FRT - Faritec - Reviewed results for the year ended 30 June 2009 |
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FRT
FRT
FRT - Faritec - Reviewed results for the year ended 30 June 2009
Faritec Holdings Limited
(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 2009
Fanie van Rensburg, newly-appointed CEO, commented: "Following a very
difficult year, Faritec can now look forward to operating off a more
efficient platform into the market. We believe that our focus on executing
the basics in our core areas, together with our hard drive to further improve
efficiencies and grow our market share, will allow us to rebuild to our full
potential."
INTRODUCTION: Faritec has experienced a difficult and disappointing chapter
in its history, posting a loss reflective of the many hardships endured
throughout the year. Notwithstanding the current domestic and global economic
situation, the Board is immensely disappointed with the results for the year
ended 30 June 2009.
The biggest factors contributing to the losses were the rapid decline in
sales as the economy and the Faritec market contracted, together with the
high cost structures of the business which needed to be trimmed as the market
shrunk. The turnaround programme has seen the company introduce stringent
working capital management disciplines, cut costs and concentrate focus on
the core capabilities to service high-end enterprise customers.
FINANCIAL RESULTS: EPS decreased from 11,3 cents in 2008 to a loss of 48,1
cents which arose from the operational losses arising in the current year.
If we exclude the unrealised loss arising from an impairment of goodwill it
gives rise to the headline loss per share of 35,8 cents in the current year
compared to the positive headline earnings per share (HEPS) of 11,3 cents in
2008.
The impact of the losses for the year, the impairment of goodwill and the
provisioning and write off of bad debts, have negatively impacted the net
asset value (NAV). The NAV per share declined from 71,4 cents to 34,1 cents.
However, this was necessitated by our prudent approach to stating our assets
and liabilities in line with the underlying financial position of the company
and the economy in general.
Revenue has declined as compared to last year, with revenue for the year down
by approximately 30% to R727 million (2008: R1,041 million. This is largely
due to the trading difficulties, which were exacerbated as the company
undertook its turn-around programme and customers cut back on capital
expenditure. In our Gauteng Region, revenue declined from R797 million in
2008 to R521 million in the current year. In the Western Cape Region, revenue
declined from R212 million to R158 million. Revenue from subsidiaries and
joint ventures increased from R46 million to R56 million.
There are several non-recurring costs which contributed to the loss,
including:
- once-off downsizing costs of approximately R10 million;
- write-off of bad debts of approximately R8 million and provisions of R18
million for doubtful accounts receivable, both relating to debtors raised in
the prior financial year and arising as a consequence of the ongoing
economic climate;
- additional interest charges of R11 million which were more than budgeted
for, and which were incurred during the difficult trading conditions; and
- an impairment charge of R31 million in respect of goodwill.
During the year, the company securitised its debtors book to raise capital of
R100 million for the purpose of consolidating its debt and obtaining an
acquisition and working capital facility. Due to the covenant requirements
of the securitisation and the declining revenues during the year, working
capital remained under pressure as cash was "locked up" in the securitisation
structure.
Working capital pressures led the company to undertake a rights offer to
raise additional capital as well as the introduction of a new equity partner
in Shoden Data Systems (Proprietary) Limited ("Shoden"), through an issue of
shares for cash. For the rights offer, the underwriters advanced the company
a R20 million loan pending the conclusion of the rights offer process. This
loan is reflected as a current liability at year-end, but was extinguished in
July 2009 when the rights offer process was concluded.
Regarding the issue of shares for cash transaction, Shoden advanced the
company a convertible loan of R29 million, pending transaction approval from
the Faritec shareholders and the Competition authorities. This funding is
reflected as an equity loan as part of shareholders` equity as at the year-
end.
The impact of these transactions are depicted below:
2009 2008
Pre- Post-
IMPACT OF RECAPITALISATION transactions transactions
Number of issued ordinary shares (`000)
258 211 1 891 544 258 211
(Loss)/earnings per share (cents) (48,1) (6,6) 11,3
Headline (loss)/earnings per share
(cents) (35,8) (4,9) 11,3
Gearing Ratio (%) 136 92 23
Net asset value (R`000) 87 921 107 921 184 360
Net asset value per share (cents) 34,1 5,7 71,4
Tangible net asset value (R`000) (43 266) (23 266) 23 194
Tangible net asset value per share
(cents) (16,8) (1,2) 9,0
These transactions, together with the release of certain guarantees, has
resulted in an inflow of approximately R60 million into the business before
year-end.
Despite the general trade difficulties experienced during the year and
external pressures on our customer base, gross margins have reduced only
slightly from 24,8% to 23,6% over the year. To ensure that we are able to
preserve and restore our margins going forward, we continue to focus on
bundling services with our products.
The finance costs includes interest paid of R24,2 million (2008: R12,9
million) and an IFRS fair value adjustment of R16,3 million (2008: R7,6
million). The interest relating to debtors being securitised was R10,6
million. The balance of interest paid relates to finance leases and cost of
extended credit with our suppliers. The negative impact on EPS resulting from
the increase in debt was 4,1 cents per share.
The company invested R4 million in a Customer Relationship Management System
during the year. There was no other major capital expenditure for the year.
There has been a significant improvement in the working capital management.
This is reflected in debtors` days being reduced from 106 days to 57 days.
Furthermore, the creditors` days has also been reduced from 135 days to 90
days, thereby improving the relationships with our critical suppliers.
Our net working capital shows that our current liabilities exceeds current
assets by R11 million. However the current liabilities include the rights
issue underwriter loan of R20 million. Excluding the loan would result in a
net working capital of R8,3 million. This is also reflected in the current
ratio of 1,1:1 if the effects of the recapitalisation is shown.
The group remained cash positive, reporting a closing cash balance of R39,9
million. Of this amount, R25,2 million was required for the covenant
requirements with the remainder available to meet the business` operational
requirements.
The financial gearing increased to 136% compared to 23% last year. This is
mainly due to the securitisation structure put in place as discussed above.
To reduce our gearing and financial risk, R25 million was repaid to the
securitisation structure during the year. Subsequent to year-end, a further
R7 million was repaid.
The group raised a deferred tax asset of R37 million at year end, arising
from the extent of the tax loss for the year, which is available for offset
against future profits. This asset is expected to be recovered based on the
future expectations for the group.
OPERATING MODEL: Faritec`s revenue is derived from the provision of hardware,
software licencing and services. Our business is organised regionally in
order to serve our national customer base. We strive to bundle our core
product offerings with consulting, implementation services and ongoing
managed and support service solutions.
These solutions are delivered through tier-1 certifications with a number of
technology partners, including IBM, Microsoft, HP, Symantec, Mcafee, VMWare,
Novell and Qualys.
We have dedicated architecture teams aligned with each of our offerings to
understand each client`s unique business requirements and to ensure that the
solutions are designed to meet those requirements. Our certified team of
professionals work with our clients to implement and support customer
solutions. Our infrastructure and services capabilities are complemented by
an operations centre, which allows for the provision of managed services
around our product set, including our security offerings.
BASIS OF PREPARATION: These financial results have been prepared in
accordance with International Financial Reporting Standards (IFRS) and have
been compiled in accordance with International Accounting Standard 34
(Interim Reporting), the Listings Requirements of the JSE Limited and the
South African Companies Act (1973), as amended. This report has been prepared
on the historical cost basis, except for certain financial instruments which
are recorded at fair value.
During 2009, Faritec early-adopted IFRS 8, operating segments, and changed
its segment reporting. Operating segments have retrospectively been applied
to the 2008 results for comparative purposes. Other than in respect of IFRS
8, the accounting policies and methods of computation applied by the company
are consistent with the prior year.
The financial results have been reviewed by Charles Orbach and Company. Their
unmodified review opinion is available for inspection at the company`s
registered address.
SUBSEQUENT EVENTS: In March 2009, the company undertook a rights offer of R20
million. The rights offer was concluded successfully on 10 July 2009 with the
issue of 666 666 667 shares to shareholders and the conversion of the
underwriting loans.
During April 2009, Shoden, advanced R29 million to the company which would
convert to Faritec shares, subject to shareholder and regulatory approvals.
Shareholders approved the transaction on 10 July 2009, and the Competition
Commission granted unconditional approval for the specific issue of shares to
Shoden on 22 July. Shoden were issued 966 666 667 shares and became the
controlling shareholder of Faritec with a 51% shareholding.
DIVIDEND: No dividend has been declared as funds are being retained to assist
the company to reduce its gearing and to fund future growth.
BROAD-BASED BEE AND TRANSFORMATION: Faritec has an AA (Level 3) BEE rating
and remains proud to be counted amongst the most empowered listed IT
companies. The company seeks at all times to apply both the spirit and the
letter of the BBBEE codes of good practice as an expression of our commitment
as a good corporate citizen of South Africa.
CORPORATE GOVERNANCE: The Board conducts the affairs of the group with
integrity and openness and within the parameters of the King report on
corporate governance. The Board is committed to continued improvement and the
implementation of best practices in corporate governance.
PROSPECTS: Faritec is now in a much improved position as compared to the
period just prior to the corporate transactions. There is a new management
team in place, the cost structure has been significantly reduced, the company
has narrowed its focus to its core enterprise offerings and the high-end
corporate customer base remains promising. Faritec is now well poised to
build on its stabilisation and return to its full potential over the course
of the coming year.
Going forward, our year-on-year monthly costs are down by approximately R7
million. In addition, there has been a significant improvement in the working
capital management.
DIRECTORATE: During the year, the following directors resigned.
- Tshidi Nyembe, Chief Financial Officer, resigned on 30 April 2009.
- Simon Tomlinson, Chief Executive Officer, resigned with effect from 11
May 2009.
- Subsequent to year-end, the following changes were made to the
directorate:
- Arvind Gupta was appointed Financial Director with effect from 1 August
2009.
- Fanie van Rensburg was appointed as Chief Executive Officer with effect
from 1 August 2009.
- Jayendra Naidoo resigned as non-Executive Director on 11 September 2009.
- Dan McMahon was appointed as Sales and Business Development Director,
with effect from 22 September.
For and on behalf of the Board
Dr CR Jardine
Chairman
SD Janse van Rensburg
Chief Executive Officer
Johannesburg
23 September 2009
GROUP INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE
2009 2008
Reviewed Audited
R`000 R`000
Revenue 727 012 1 041 072
Cost of sales (555 557) (782 622)
Gross profit 171 455 258 450
Operating expenses before depreciation
and amortisation (257 929) (203 267)
Other income 2 504 343
Depreciation and amortisation (12 332) (9 366)
(Loss)/profit from operations (96 302) 46 160
Impairment of goodwill (31 800) -
Finance costs (40 515) (20 510)
Investment income 15 567 11 790
(Loss)/profit before taxation (153 050) 37 440
Taxation 29 252 (8 332)
Net (loss)/profit for the year (123 798) 29 108
Attributable to:
Minorities 317 244
Ordinary shareholders (124 115) 28 864
(123 798) 29 108
Reconciliation of headline (loss)/earnings:
Attributable (loss)/earnings for the year (124 115) 29 108
Impairment of assets 31 800 -
Headline (loss)/earnings for the year (92 315) 29 108
Total number of ordinary shares in issue (`000) 258 211 258 211
Weighted average number of ordinary
shares in issue (`000) 258 211 256,399
Dilution arising from options issued to employees - 531
(`000)
Fully diluted shares in issue (`000) 258 211 256,930
(Loss)/earnings per share (cents) (48,1) 11,3
Headline (loss)/earnings per share (cents) (35,8) 11,3
Fully diluted (loss)/earnings
per share (cents) (48,1) 11,2
Fully diluted headline (loss)/earnings per share
(cents) (35,8) 11,2
GROUP BALANCE SHEET
30 June 30 June
2009 2008
Reviewed Audited
R`000 R`000
ASSETS
Non-current assets 189 704 194 403
Equipment 19 787 24 270
Software 13 971 10 189
Development costs capitalised 6 260 8 057
Goodwill 72 752 104 716
Trademarks 38 204 38 204
Loans receivable 1 522 2 688
Deferred taxation 37 208 6 279
Current assets 163 229 329 361
Inventories 6 449 7 106
Trade receivables 111 875 303 156
Taxation 5 048 -
Cash and cash equivalents 39 857 19 099
Total assets 352 933 523 764
EQUITY AND LIABILITIES
Total equity 87 629 182 430
Shareholders` equity 87 921 184 360
Minority interest (292) (1 930)
Non-current liabilities 90 357 34 336
Interest-bearing borrowings 81 870 26 939
Operating lease liabilities 6 633 5 391
Non-interest-bearing borrowings 1 854 2 006
Current liabilities 174 947 306 998
Trade payables 136 569 289 076
Taxation 602 3 494
Bank overdraft - 348
Current portion of interest-bearing borrowings 35 523 12 301
Operating lease liabilities 2 253 1 779
Total equity and liabilities 352 933 523 764
Total number of ordinary shares in issue (`000) 258 211 258 211
Net asset value (R `000) 87 921 184 360
Net asset value per share (cents) 34,1 71,4
Tangible net asset value (R `000) (43 266) 23 194
Tangible net asset value per share (cents) (16,8) 9,0
GROUP STATEMENT OF CHANGES IN EQUITY
30 June 30 June
2009 2008
Reviewed Audited
R`000 R`000
Share capital 258 258
Balance at beginning of year 258 255
Issued during the year - 3
Share premium 158 777 158 777
Balance at beginning of year 158 777 157 607
Issued during the year - 1 170
Acquisition equity adjustment (85 455) (85 455)
Balance at beginning of year (85 455) (85 455)
Equity loan - Funds received for specific share 29 000 -
issue
Share-based payments reserve 4 146 4 146
Balance at beginning of year 4 146 4 146
Accumulated (losses)/profits (18 805) 106 634
Balance at beginning of year 106 634 77 770
Decrease in minority interest (1 325) -
Net (loss)/profits for the year (124 115) 28 864
Shareholders` equity 87 921 184 360
ABRIDGED GROUP CASH FLOW STATEMENT FOR THE YEAR
ENDED 30 JUNE
2009 2008
Reviewed Audited
R`000 R`000
Cash from operations before working
capital changes (107 204) 55 745
Working capital changes 39 711 (21 238)
Taxation and finance charges (9 617) (21 543)
Cash flow from operating activities (77 110) 12 964
Cash flow from investing activities (8 786) (14 528)
Cash flow from financing activities 107 002 (11 851)
Net movement in cash and cash equivalents 21 106 (13 415)
Cash and cash equivalents at
beginning of year 18 751 32 166
Cash and cash equivalents at end of year 39 857 18 751
SEGMENTAL ANALYSIS
2009 (R`000) JHB CPT ICP Farimed E- Total
Business
Revenues from 521,382 158,551 9,315 10 47,663 736,920
external customers
Inter-segment 1,695 0 400 433 0 2,529
revenue
Reportable segment (104,930) 4,651 2,634 (2,047) 585 (99,107)
(loss)/profit
Reportable segment 270,440 53,991 7,684 1,077 17,732 350,924
assets
Reconciliation
Revenue Loss Assets
Total for 736,920 (99,107) 350,924
reportable
segments
Elimination inter- 185
segment profit
Fair value (9,908) 2,620 2,009
adjustments
Total per group 727,012 (96,302) 352,933
2008 (R`000) JHB CPT ICP Farimed E- Total
Business
Revenues from 797,029 212,419 5,561 0 40,927 1,055,936
external customers
Inter-segment 1,458 0 120 0 216 1,794
revenue
Reportable segment 25,634 13,443 1,976 (42) 2,029 43,039
(loss)/profit
Reportable segment 449,014 47,225 9,126 3,236 19,436 528,037
assets
Reconciliation
Revenue Profit Assets
Total for 1,055,936 43,039 528,037
reportable
segments
Fair value (14,864) 3,121 (4,273)
adjustments
Total per group 1,041,072 46,160 523,764
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
Sponsor
Java Capital (Proprietary) Limited
Date: 23/09/2009 08:54:01 Produced by the JSE SENS Department.
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