| Thu 28 Jan 2010, 17:43 | | FRT - Faritec Holdings Limited - Faritec revised abridged audited results for |
|
FRT
FRT
FRT - Faritec Holdings Limited - Faritec revised abridged audited results for
the year ended 30 June 2009
Faritec Holdings Limited
(Registration number 1998/004872/06)
Share code: FRT ISIN: ZAE 000016838
("Faritec" or "the company" or "the group")
FARITEC REVISED ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2009
INTRODUCTION Faritec has experienced a difficult 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 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 61,9
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 49,6 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 20,2 cents.
Revenue has declined as compared to last year, with revenue for the year
down by approximately 30% to R731 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 R159 million. Revenue from subsidiaries,
other than Faritec Enterprise Solutions (Pty) Limited, and joint ventures
increased from R46 million to R61 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, and 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 is depicted below:
2009 2008
Pre- Post-
IMPACT OF RECAPITALISATION transaction transaction
Number of issued ordinary shares
(R`000) 258 211 1 891 544 258 211
(Loss)/earnings per share (cents) (61,9) (8,5) 11,3
Headline (loss)/earnings per share
(cents) (49,6) (6,8) 11,3
Gearing Ratio (%) 241 147 23
Net asset value (R`000) 52 216 72 216 184 360
Net asset value per share (cents) 20,2 3,8 71,4
Tangible net asset value (R`000) (78 971) (58 971) 23 194
Tangible net asset value per share
(cents) (30,6) (3,1) 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 23,4% 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 R23,6 million (2008: R7,6 million)
and an IFRS fair value adjustment of R16,9 million (2008: R12,9 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, R20,4 million was required for the covenant
requirements with the remainder available to meet the business` operational
requirements. The financial gearing increased to 241% compared to 25% 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, in its provisional results announcement, raised a deferred tax
asset of R37 million at year-end, arising from the tax loss for the year,
which was available for offset against future taxable profits. This asset is
expected to be recovered based on the future profit expectations for the
Group, and at the time of the publication of the provisional results, met
the recognition requirements of IAS 12, Income Taxes. However, given the
emphasis in respect of the going concern status as disclosed in the report
of the directors and note 10 in the financial statements, this amount no
longer meets the accounting policy recognition requirements and has
accordingly been reversed in these financial statements.
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 This 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 in terms of the disclosure requirements set out
in IAS 34, Interim Financial Reporting.
During 2009, Faritec pre-adopted IFRS8 and changed its segmental 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 statements, on which this abridged report has been based,
have been audited by Charles Orbach and Company, who whilst not qualifying
their audit opinion, have included an emphasis of matter modification on
Faritec`s going concern status. This emphasis of matter arises out of the
opinion of the Directors that, given the operating performance of the
business subsequent to year-end, the company requires funding of at least
R60m in order to execute its business plan. The company has previously
indicated that it is engaged in discussions to raise this funding. This
emphasis of matter has resulted in the reversal of a deferred tax asset
previously recognised. However, once the funding requirements have been
met, this deferred tax asset will be recognised. Their modified audit
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.
The Directors have no other post balance sheet events to report.
GOING CONCERN The Group incurred a net loss for the year ended 30 June
2009 of R159 503 000 (2008: profit R29 108 000). The Group continues to incur
losses, and this has resulted in a cash flow restrictive trading environment,
which has restricted the Group`s ability to trade at normal operating levels.
In order to sustain the operations and expedite the turnaround and growth
strategies of the Group additional funding is therefore required. As
detailed in the sens announcement on 28 December 2009, the directors are
negotiating with various parties to provide additional funding to the
Group and to provide additional working capital on an ongoing basis, and
expect to have these transactions concluded soon. These conditions give
rise to uncertainty which may cast doubt about the Group`s ability to
continue as a going concern and, therefore it may be unable to realise
its assets and discharge its liabilities in the normal course of business.
The financial statements are prepared on the basis of accounting policies
applicable to a going concern. This basis presumes that the Group will be
able to continue servicing its debts within the current cash flow
restrictive environment, will return to profitability in the short term,
and that the realisation of assets and settlement of liabilities will
occur in the ordinary course of business.
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 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 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.
Faritec is now in an 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 better positioned to build on its
stabilisation and return to its full potential over the course of the
coming year.
However, given the operating performance of the business in the period
subsequent to year-end, it is the opinion of the Directors that the company
should raise further funding of at least R60 million, in order to normalise
trading conditions with creditors and execute its business plan. At the time
of going to print, the detail of this proposed funding transaction was still
being finalised, resulting in the Directors highlighting this aspect of the
going concern status of the company.
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 Macmahon was appointed as Sales and Business Development Director, with
effect from 22 September 2009.
For and on behalf of the Board
Dr CR Jardine
Chairman
SD Janse van Rensburg
Chief Executive Officer
Johannesburg
28 January 2010
GROUP INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE
2009 2008
Audited Audited
R`000 R`000
Revenue 731 442 1 041 072
Cost of sales (559 987) (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 (6 453) (8 332)
Net (loss)/profit for the year (159 503) 29 108
Attributable to:
Minorities 317 244
Ordinary shareholders (159 820) 28 864
(159 503) 29 108
Reconciliation of headline earnings:
Attributable (loss)/earnings for the year (159 820) 29 108
Impairment of assets 31 800 -
Headline (loss)/earnings for the year (128 020) 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
Shares
in issue (`000) - 531
Fully diluted shares in issue (`000) 258 211 256,930
Earnings per share (cents) (61,9) 11,3
Headline (loss)/earnings per share (cents) (49,6) 11,3
Fully diluted (loss)/earnings
per share (cents) (61.9) 11,2
Fully diluted headline (loss)earnings per share
(cents) (49,6) 11,2
GROUP BALANCE SHEET
30 June 30 June
2009 2008
Audited Audited
R`000 R`000
ASSETS
Non-current assets 153 999 194 403
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 1 503 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 317 228 523 764
EQUITY AND LIABILITIES
Total equity 51 924 182 430
Shareholders` equity 52 216 184 360
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 overdrafts - 348
Interest-bearing borrowings 35 523 12 301
Operating lease liabilities 2 253 1 779
Total equity and liabilities 317 228 523 764
Total number of ordinary shares in issue (`000) 258 211 258 211
Net asset value (R `000) 52 216 184 360
Net asset value per share (cents) 20,2 71,4
Tangible net asset value (R `000) (78 971) 23 194
Tangible net asset value per share (cents) (30,6) 9,0
GROUP STATEMENT OF CHANGES IN EQUITY
30 June 30 June
2009 2008
Audited 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 (loss)/profits (54 510) 106 634
Balance at beginning of year 106 634 77 770
Decrease in minority interest (1 324) -
Net (loss) income for the year (159 820) 28 864
Shareholders` equity (52 216) 184 360
ABRIDGED GROUP CASH FLOW STATEMENT FOR THE YEAR
ENDED 30 JUNE
2009 2008
Audited Audited
R`000 R`000
Cash from operations before working
capital changes (82 254) 55 745
Working capital changes 39 593 (21 238)
Taxation and finance charges (34 565) (21 543)
Cash flow from operating activities (77 226) 12 964
Cash flow from investing activities (8 668) (14 528)
Cash flow from financing activities 107 000 (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 52 092 741 350
external
customers
Intersegment 1 695 - 400 434 - 2 529
revenue
Reportable (136 730) 4 651 2 634 (2 047) 585 (130 907)
segment (loss)
profit
Reportable 274 458 53 991 7 684 1 077 17 732 354 942
segment assets
Reconciliation
Revenue Loss Assets
Total for 741 350 (130 907) 354 942
reportable
segments
Elimination - 185 -
intersegment
profit
Finance costs - (24 948) -
and investment
income
Fair value (9 908) 2 620 (2 009)
adjustments
Total per group (731 442) 153 050 352 933
2008 (R`000) JHB CPT ICP Farimed E- Total
Business
Revenues from 797 029 212 419 5 561 - 40 927 1 055 936
external
customers
Intersegment 1 458 - 120 - 216 1 794
revenue
Reportable 25 634 13 443 1 976 (42) 2 028 43 039
segment (loss)
profit
Reportable 449 014 47 225 9 126 3 236 19 436 528 037
segment assets
Reconciliation
Revenue Profit Assets
Total for 1 055 936 43 039 528 037
reportable
segments
Finance costs - (8 720) -
and investment
income
Fair value (14 864) 3 121 (4 273)
adjustments
Total per group 1 041 072 37 440 523 764
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: 28/01/2010 17:43:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
