| Wed 31 Mar 2010, 16:46 | | FRT - Faritec Holdings Limited - Unaudited interim results for the six months |
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FRT
FRT
FRT - Faritec Holdings Limited - Unaudited interim results for the six months
ended 31 December 2009
Faritec Holdings Limited
(Registration number 1998/004872/06)
Share code: FRT ISIN: ZAE 000016838
("Faritec" or "the company" or "the group")
FARITEC UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2009
INTRODUCTION
The Board hereby announces the results for the six months ended 31 December
2009. Whilst the trading conditions experienced over the reporting period have
negatively impacted Faritec`s revenue, the turnaround programme that commenced
last year has started paying dividends. This is reflected in the results for
this period compared to those posted for the previous 2 reporting periods.
OPERATING MODEL
Faritec`s revenue is derived from the provision of hardware, software licensing
and services. The group`s business is organised regionally in order to serve its
national customer base. The group strives to bundle its 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, Symantec, Mcafee, VMWare, Novell
and Qualys.
Faritec has dedicated architecture teams aligned with each of its offerings to
understand each client`s unique business requirements and to ensure that the
solutions are designed to meet those requirements. The group`s certified team of
professionals work with its clients to implement and support customer solutions.
Faritec`s infrastructure and services capabilities are complemented by an
operations centre, which allows for the provision of managed services around its
product set, including its security offerings.
FINANCIAL RESULTS
The turnaround strategy is focused on the Data Centre environment where Faritec
has been historically competitive and has the required skills base. This
resulted in the closure and disposal of the following business divisions:
- HP Division (Business discontinued in September 2009)
- FileNet business (sold in August 2009)
- Management Print Solutions (Business discontinued in November 2009)
Revenue decreased from R414,1m (for continuing and discontinued operations)to
R272,8m (a decrease of 34%). The decline in revenue can be attributed to the
market conditions and closure of the business division as indicated above. GP
margins improved from 22.6% to 26.6%. This is mainly due to our focused approach
in providing solutions in the Data Centre and change in product mix in favour of
the services business.
EPS and HEPS both showed improvement from a loss of 5,3 cents per share to a
loss of 0,8 cents and 0,7 cents per share respectively. Improvement in the
trading results, as indicated above, with ongoing cost cutting, decrease in
finance costs (resulting from R7m of the securitisation debt having been repaid)
and cost management, contributed to a positive impact on the EPS and HEPS.
Working capital management remains the key focus. Debtors` days are 63 days
which is within our acceptable levels. Cash and cash equivalents reflect a
balance of R55,386,000. The covenants of our securitization structure have
necessitated the use of our cash reserves to compensate for the reduced value of
our qualifying book debt, which has impacted our access to working capital. In
order to reduce the securitisation debt, reduce pressure on cashflows and save
on interest costs the company decided to repay a portion of debt as indicated
above. As the free cashflow was applied for repayment of debt, limited funds
were available to pay suppliers, which resulted in creditors` days increasing to
144 days. This is reflected in the current ratio declining from 1,4:1 to
0,9:1.As set out in the cautionary announcements released on SENS, the last of
which was dated 10 March 2010, Faritec is presently in discussion with its
creditors to convert their debt to equity in Faritec or compromise their debt
pursuant to a scheme of arrangement in terms of section 311 of the Companies Act
together with the implementation of a rights offer partially underwritten by
certain members of management. Further details on, both the implementation of
the compromise with creditors and the rights offer will be made in separate
announcements over the next few days.
There was no major capital expenditure during the period.
The Group has not raised any deferred tax asset despite the tax loss. Whilst
the company is unable to recognise the deferred tax asset at this juncture, it
is expected that the company will be able to recover strongly following a
successful implementation of the compromise with creditors and the rights offer,
and will in the near future be able to benefit from this tax asset.
BASIS OF PREPARATION
The preliminary report has been prepared as a going concern 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 and has been prepared in accordance with
IAS 34, Interim Financial Reporting.
The accounting policies, presentation and methods of computation applied in
preparation of these unaudited interim financial statements are consistent with
those applied in the group`s audited financial statements for the year ended 30
June 2009, save for the new application of IAS 1: Presentation of Financial
Statements - Revised. The implementation of the revised IAS 1 has not resulted
in any change in the group`s results as previously reported.
The interim results have not been audited or reviewed by the company`s auditors,
Charles Orbach and Company.
GOING CONCERN
The group incurred a net loss for the period ended 30 December 2009 of R14 397
000 (30 June 2009: R159 503 000). 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. The group`s
current trading conditions give rise to uncertainty which may cast doubt about
the Group`s ability to continue as a going concern and, therefore be unable to
realise its assets and discharge it`s liabilities in the normal course of
business.
In order to sustain the operations and implement the turnaround and growth
strategies of the Group additional funding is required. As set out above Faritec
is in the process of finalising a partially underwritten rights offer to raise
additional funding needed for the Group to fast-track its turnaround strategy.
It is the view of the directors and management that the successful conclusion of
the compromise arrangement with its creditors and the rights offer will ensure
the Group`s ability to continue as a going concern.
These financial statements are therefore 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.
SUBSEQUENT EVENTS
In February 2010, the company repaid R28 million of its interest bearing
borrowings which arose from the securitisation of the Debtors` book. This will
have a positive impact on the financial gearing of the company and also will
result in significant saving in interest costs.
As set out above, during March 2010, the company entered into negotiations with
its creditors to compromise and agree to a scheme of arrangement under section
311 of the Companies Act, and is in the process of announcing a rights issue of
R60m which will be partially underwritten. The objective of the scheme and
rights issue is to strengthen the Company`s balance sheet by converting debt
into equity and injecting fresh equity to support the completion of the Group`s
restructuring. If the scheme and the rights issue offer are implemented, the
Board is of the opinion that Faritec will be well positioned to recover
strongly.
One of the Group`s non-core businesses (Hansen) was disposed off on 10 March
2010.
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. The
Board is committed to upholding the highest standards of corporate governance
and endorses the implementation of corporate governance best practices as
prescribed in the King Codes. The recent changes to the shareholding in the
Company and changes to the Directorate (as disclosed further down), has resulted
in the Board comprising a majority of executive directors since 23 February
2010. The Board acknowledges this as an interim governance weakness, which is
well managed, whilst it goes through the process of appointing more non-
executive directors to the Board.
PROSPECTS
Faritec continues to rebuild its capacity in the defined core areas of its
business and is well set to recapture business in this space. As part of our
turnaround strategy, Faritec disposed of all unprofitable business units leaving
management to focus their efforts on our core areas of capability. The outlook
for the next six months is good, but trading continues to be impacted by the
effects of the large trade debt the company carries. The proposed S311
compromise with our creditors will strengthen the company`s balance sheet so as
to place the company in a more favourable trading position, whilst ensuring that
its creditors can trade with the company on a secured basis.
The company`s pipeline is well developed, promising significant business for the
next six months, especially once the trading constraints have been normalised.
With the additional cost cutting measures envisaged, the company should return
to profitability on a month-to-month basis, by year-end.
The envisaged rights offer will enable the company to initiate and execute its
growth plans, which will return the company to continued profitability and
prosperity. The management team`s effort in terms of restructuring and
rebuilding the company is showing promise in various areas, which continues to
enhance its prospects of growth.
DIRECTORATE
The following changes were made to the directorate:
- Arvind Gupta was appointed as 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 2009.
The following changes took effect subsequent to the period:
- Dr Chris Jardine did not make himself available for re-election at the AGM
on 23 February 2010.
- Mncedisi Mayekiso resigned as non-executive director on 23 February 2010.
For and on behalf of the Board
SD Janse van Rensburg AK Gupta
Chief Executive Officer Chief Financial Officer
GROUP STATEMENTS OF COMPREHENSIVE
INCOME FOR THE SIX MONTHS ENDED 31
DECEMBER 2009
6 months to Audited
6 months to December 12 months
December 2008 to June
2009 2009
R`000 R`000 R`000
Continuing operations
Revenue 259 318 364 468 620 083
Cost of sales (190 069) (279 860) (459 211)
Gross profit 69 249 84 608 160 872
Other income 2 960 - 2 504
Administrative and other expenses (74 084) (97 778) (243 640)
Depreciation and amortisation (5 462) (5 860) (12 304)
(Loss)/profit from operations (7 337) (19 030) (92 568)
Impairment of goodwill and fixed assets (284) - (31 800)
Finance costs (13 354) (26 442) (40 515)
Investment income 5 487 13 018 15 567
(Loss)/profit before taxation (15 488) (32 454) (149 316)
Taxation (1 195) 9 439 (6 453)
Loss for the period from continuing (16 683) (23 015) (155 769)
operations
Discontinued operations
Profit for the period from discontinued
operations 2 286 1 551 (3 734)
Net (loss)/profit for the period (14 397) (21 464) (159 503)
Total comprehensive income attributable
to:
Non-controlling interest 103 39 317
Owners of the parent (14 500) (21 503) (159 820)
(14 397) (21 464) (159 503)
Reconciliation of headline earnings:
Loss attributable to owners of the
parent (14 500) (21 503) (159 820)
Impairment of assets 284 - 31 800
Headline loss for the period (14 216) (21 503) (128 020)
Total number of ordinary shares in 1 891 545 258 211 258 211
issue (`000)
Weighted average number of ordinary
shares in issue (`000) 1 809 796 403 712 403 712
Fully diluted shares in issue (`000) 1 810 996 403 712 403 712
Earnings per share from continuing and
discontinued operations
Earnings per share (cents) (0,8) (5,3) (39,6)
Headline (loss) per share (cents) (0,7) (5,3) (31,7)
Fully diluted (loss) per share (cents) (0,8) (5,3) (39,6)
Fully diluted headline(loss) per share
(cents) (0,7) (5,3) (31,7)
Earnings per share from continuing
operations
Earnings per share (cents) (0,9) (8,0) (37,0)
Headline (loss) per share (cents) (0,9) (8,0) (29,1)
Fully diluted (loss) per share (cents) (0,9) (8,0) (37,0)
Fully diluted headline (loss) per share
(cents) (0,9) (8,0) (29,1)
GROUP STATEMENT OF FINANCIAL POSITION
Audited
6 months to 6 months to 12 months
December December to June
2009 2008 2009
R`000 R`000 R`000
ASSETS
Non-current assets 148 451 207 026 153 999
Equipment 16 892 22 571 19 787
Software 13 570 12 858 13 971
Development costs capitalised 5 224 7 310 6 260
Goodwill 72 752 106 866 72 752
Trademarks 38 204 38 204 38 204
Loans receivable 1 522 2 712 1 522
Deferred taxation 287 16 505 1 503
Current assets 155 958 279 073 163 229
Inventories 5 742 13 482 6 449
Trade receivables 94 612 223 726 111 875
Taxation 218 - 5 048
Cash and cash equivalents 55 386 41 865 39 857
Total assets 304 409 486 099 317 228
EQUITY AND LIABILITIES
Total equity 57 527 161 130 51 924
Equity attributable to owners of the 57 716 163 022 52 216
parent
Non-controlling interest (189) (1 892) (292)
Non-current liabilities 80 025 119 680 90 357
Interest-bearing borrowings 73 073 110 142 81 870
Operating lease liabilities 5 098 7 683 6 633
Non-interest-bearing borrowings 1 854 1 855 1 854
Current liabilities 166 857 205 289 174 947
Trade payables 157 790 192 868 136 569
Taxation 738 1 188 602
Interest and non interest-bearing 5 122 10 394 35 523
borrowings
Operating lease liabilities 3 207 839 2 253
Total equity and liabilities 304 409 486 099 317 228
Total number of ordinary shares in 1 891 545 258 211 258 211
issue (`000)
Net asset value (R `000) 57 527 163 022 52 216
Net asset value per share (cents) 3,0 63,1 20,2
Tangible net asset value (R `000) (72 223) (2,216) (78 971)
Tangible net asset value per share (3,8) (0,9) (30,6)
(cents)
GROUP STATEMENT OF CHANGES IN EQUITY
Audited
6 months to 6 months to 12 months
December December to June
2009 2008 2009
R`000 R`000 R`000
Share capital 1 892 258 258
Balance at beginning of period 258 258 258
Issued during the period 1 634 - -
Share premium 206 143 158 941 158 777
Balance at beginning of period 158 777 157 607 158 777
Issued during the period 47 366 1 335 -
Acquisition equity adjustment (85 455) (85 455) (85 455)
Balance at beginning of period (85 455) (85 455) (85 455)
Equity loan - Funds received for - - 29 000
specific share issue
Share-based payments reserve 4 146 4 146 4 146
Balance at beginning of period 4 146 4 146 4 146
Accumulated (loss)/profits (69 010) (85 131) (54 510)
Balance at beginning of period (54 510) 106 634 106 634
Decrease in non-controlling interests - - (1 324)
Total comprehensive (loss)for the (14 500) (21 503) (159 820)
period
Equity attributable to owners of the
parent 57 716 163 022 52 216
GROUP CASH FLOW STATEMENT FOR THE SIX
MONTHS ENDED 31 DECEMBER 2009
Audited
6 months to 6 months to 12 months
December December to June
2009 2008 2009
R`000 R`000 R`000
Cash from operations before working
capital changes 5 487 (4 791) (107 202)
Working capital changes 39 191 (23 362) 39 593
Taxation and finance charges (8 524) (24 012) (9 617)
Cash flow from operating activities 36 154 (52 165) (77 226)
Cash flow from investing activities (1 428) (6 030) (8 668)
Cash flow from financing activities (19 197) 81 309 107 000
Net movement in cash and cash
equivalents 15 529 23 114 21 106
Cash and cash equivalents at
beginning of period 39 857 18 753 18 751
Cash and cash equivalents at end of the
period 55 386 41 865 39 857
SEGMENTAL ANALYSIS
FOR CONTINUING
OPERATIONS
2009 (R`000) JHB CPT ICP Farimed E- Total
Business
Revenues from 166 690 54 653 5 997 1 450 34 214 263 004
external customers
Reportable segment (16 502) 3 690 1 101 (46) 1 680 (10 077)
(loss) profit
Reportable segment 187 148 83 480 9 267 2 258 23 354 305 507
assets
Reconciliation
Revenue Loss Assets
Total for 263 004 (10 077) 305 507
reportable segments
Finance costs and investment - (7 867) -
income
Fair value (3 686) 2 456 (1 098)
adjustments
Total per group 259 318 (15 488) 304 409
2008 (R`000) JHB CPT ICP Farimed E- Total
Business
Revenues from 250 843 91 423 2 109 5 015 27 050 376 440
external customers
Intersegment 2 163 - - - - 2 163
revenue
Reportable segment (27 072) 4 040 418 1 438 1 425 (18 751)
(loss) profit
Reportable segment 387 581 45 292 6 439 5 133 25 149 469 594
assets
Reconciliation
Revenue Loss Assets
Total for reportable segments 376 440 (18 751) 469 594
Elimination intersegment - (279) -
profit
Fair value adjustments (11 972) - -
Finance costs and investment - (13 424) -
income
Total per group 364 468 (32 454) 469 594
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: 31/03/2010 16:46:54 Produced by the JSE SENS Department.
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