| Wed 15 Sep 2004, 14:41 | | Audited Results For The Year Ended 30 June 2004 |
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Faritec - Audited Results For The Year Ended 30 June 2004
FARITEC HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1998/004872/06
(`Faritec` or `the Group`)
Share code: FRT
ISIN: ZAE000016838
www.faritec.com
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2004
ABRIDGED GROUP INCOME STATEMENT
for the year ended 30 June 2004
Audited Audited
2004 2003
R`000 R`000
Revenue 329 980 282 478
Operating expenses before
depreciation 340 303 275 961
Depreciation 2 712 1 907
(Loss)/profit from operations (13 035) 4 610
Income from associate - 54
Finance costs (656) (75)
Investment income 804 2 129
Revaluation of capital liability - 6 312
Fair value adjustment of investment (3 467) -
Impairment of asset (314) -
Licence fee amortised (1 383) -
Trademarks amortised (2 011) -
Impairment of trademark value - (12 286)
(Loss)/profit before taxation (20 062) 744
Taxation 3 565 (223)
Net (loss)/profit for the year (16 497) 521
Attributable from/(to) minorities 4 941 (7)
Attributable (loss)/earnings
for the year (11 556) 514
Reconciliation of headline earnings:
Attributable (loss)/earnings
for the year (11 556) 514
Goodwill amortised 69 88
Revaluation of capital liability - (6 312)
Impairment of asset 314 -
Impairment of trademark value - 12 286
Profit on redemption of asset - (266)
Headline earnings for the year (11 173) 6 310
Weighted average number of
ordinary shares in issue (`000) 129 629 125 938
Number of ordinary shares
in issue (`000) 129 629 125 989
Fully diluted shares in issue (`000) 141 390 140 667
Basic earnings per share (cents) (8,9) 0,4
Headline earnings per share (cents) (8,6) 5,0
Fully diluted earnings per share (cents) (8,2) 0,4
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2004
Audited Audited
2004 2003
R`000 R`000
Share capital 133 133
Balance at beginning of year 133 133
Share premium 27 483 27 153
Balance at beginning of year 27 153 27 153
Issued during the year 1 088 -
Accumulated profits 48 338 59 894
Balance at beginning of year 59 894 59 380
Net (loss)/income for the year (11 556) 514
Total capital and reserves 75 954 87 180
ABRIDGED GROUP BALANCE SHEET
as at 30 June 2004
Audited Audited
2004 2003
R`000 R`000
Assets
Non-current assets 82 917 58 045
Property and equipment 9 973 4 088
Development costs capitalised 15 109 11 324
Goodwill 484 553
Trademarks 38 204 40 215
Licence fees 2 617 -
Investments 9 946 119
Loans receivable 2 055 1 023
Deferred taxation 4 529 723
Current assets 59 939 105 703
Inventories 2 528 5 313
Trade and other receivables 52 681 81 564
Taxation 145 -
Cash and cash equivalents 4 585 18 826
Total assets 142 856 163 748
Equity and liabilities
Capital and reserves 75 954 87 180
Minority interests 7 970 7
Non-current borrowings 3 683 1 307
Interest-bearing borrowings 1 562 -
Non-interest-bearing borrowings 2 121 1 307
Current liabilities 55 249 75 254
Trade and other payables 46 205 74 668
Current portion of non-current
borrowings 779 -
Taxation 198 130
Bank overdrafts 8 067 456
Total equity and liabilities 142 856 163 748
Total number of ordinary shares
in issue (`000) 129 629 125 989
Net asset value per share (cents) 58,6 69,2
ABRIDGED GROUP CASH FLOW STATEMENT
for the year ended 30 June 2004
Audited Audited
2004 2003
R`000 R`000
Cash flow from operating activities (7 334) (11 209)
Cash flow from investing activities (16 646) (53 359)
Cash flow from financing activities 2 128 -
Net movement in cash and
cash equivalents (21 852) (64 568)
Cash and cash equivalents
at beginning of year 18 370 82 938
Cash and cash equivalents
at end of year (3 482) 18 370
Cash and cash equivalents comprise:
Bank balances (3 482) 18 370
COMMENTS
INTRODUCTION
The performance of the Faritec Group was well below expectations for the year to
30 June 2004. This can be attributed to two main factors, firstly, an increased
cost base to deliver on our new Managed Services strategy and secondly, slower
than expected revenue growth in the second half of the year. This, coupled with
the significant business transformation process, has resulted in the loss for
the period.
RESULTS
The Group posted a net loss of R11,6 million for the year, which was a
deterioration on the loss of R1,2 million reported for the first half of the
year. Group turnover increased by 17% to R330 million on the previous year.
Services-based revenue grew by 41%, while product-based revenue grew by 6%, on
the previous year.
The Group posted a loss from operations of R13,0 million for the year. Operating
margins were under pressure due to the difficult trading conditions. Net
operating expenses before depreciation increased by 23% year-on-year. This was
due to some of our newer businesses, which were still in set-up phase,
experiencing slower than anticipated sales cycles, while certain operating
expenses, necessary for growth of the new businesses, were already being
incurred.
Headline earnings were (R11,2 million) for the year. This included a revaluation
of an investment of (R0,3 million) at year-end.
Cash on hand decreased by R21,9 million, to a net overdraft position of R3,5
million at year-end. The Group`s cash flow shows an investment of R16,6 million
into the business activities of the Group. This investment includes R6,4 million
in the construction of a new security operations centre and the refurbishment of
the Johannesburg offices to allow for more efficient use of office space and
improved customer meeting facilities. Further to this, R2,2 million was spent to
acquire fixed assets for on-going operations, R4,0 million in development
capitalised costs for ICP`s new business opportunities, and R4,0 million to
acquire the Gizmoz licence for Africa.
Financing activities included the financing of some of the investment into the
security operations centre and office refurbishment, which led to the increase
of R2,4 million in interest-bearing borrowings.
The Group`s net overdraft position is considered to be temporary, as current
trading activities have picked up, and there are plans to dispose of non-core
businesses which will lead to substantial cash inflows. The disposal of the
contracting business subsequent to year-end, will lead to an immediate cash
injection of R6,3 million, and the freeing up of about R3,5 million in working
capital, due to the nature of that business.
The increase in investments relates to the increase in minority interests, which
is as a result of the empowerment transaction with the J&J Consortium, effective
from 1 July 2003.
ACCOUNTING POLICIES
The financial statements have been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice and the policies are
consistent with those used in the preparation of the audited financial
statements for the year ended 30 June 2003.
AUDIT OPINION
The financial statements have been audited by Charles Orbach & Co, Chartered
Accountants (SA), and their unqualified audit report is available for inspection
at the Company`s registered address.
OPERATIONS
Although the Group did not meet its financial objectives, significant progress
has been made in the roll-out of our new strategy to focus on the marketing and
delivery of Managed Services. As communicated earlier in the year, we have
entered the consolidation phase of our strategy and the operations are now well
positioned to execute on our new business model.
As part of the restructuring process that was completed during the year,
Faritec`s Enterprise Accounts division is now focused on the financial,
government and telecommunications industries. This customer-focused strategy has
improved our relationships in these industries and is starting to deliver
results.
The Group`s operations grew revenue by 17% over last year with services revenues
growing by 41% and product revenues growing by 6%. This revenue growth is a good
indication that our strategy is working and that we are starting to see a return
on our investments.
During the year under review a significant amount of time and effort went into
driving and growing the Faritec solutions and offerings:
- Managed Security Services - Our investment in a state-of-the-art Security
Operations Centre and highly skilled staff has positioned us well to compete in
this highly visible market. This has resulted in a number of large contracts
being won and the development of a pipeline that will ensure significant growth
over the next year. The acquisition of Nanoteq`s commercial operations; which
took place after year-end; cements Faritec`s position as the leader in this
market.
- Architectured Solutions - The middleware integration division, with a
specific focus on the WebSphere suite of products from IBM, has won a number of
large contracts in our corporate customer base. This area of our business is
growing fast and we expect to become one of the leaders in this market over the
next year.
- Outsourced Managed Services - Our outsourcing business continues to do well
and was recently awarded a five-year contract worth R160 million which has
provided the base for growth in the new year.
- Infrastructure Solutions - As the market leader in the supply of IBM server
and storage products, this division grew in a highly competitive market. This
area continues to be a significant financial contributor to the Group`s numbers
and we expect to show growth again in the coming year.
- Farimed, ICP and Gizmoz - These transaction-based businesses have all
increased the number of customers and transactions over the last year and with
the annuity revenue business model that has been adopted, we expect to show
further growth in customers and transactions in the coming year.
- TATA InfoTech Partnership - As part of the acquisition of Consilience
Technologies from J&J, Faritec became the exclusive partner to TATA InfoTech in
South Africa. This relationship has taken a while to bed down, but we are now
starting to see significant value and opportunity in deploying TATA InfoTech`s
solutions into the market.
- e-bis - Our African value-added distributor had a challenging year, this was
mainly due to the strength of the Rand and difficult conditions in the region.
As part of our focused strategy and the consolidation phase we are in, we have
decided to dispose of certain non-core assets or businesses. This resulted in
the disposal of our contracting business subsequent to year-end. This disposal
improves our cash position and reduces our working capital requirements on a
monthly basis. The proceeds from this disposal will be invested back into the
high growth, core areas of our business. We will continue to evaluate all our
assets and businesses and will dispose of any non-core, slow-growing or marginal
components.
TRANSFORMATION AND BEE
The Faritec Board of Directors has approved policies on employment equity,
skills development and procurement.
Senior black executives have been appointed at all levels of management. These
executives not only represent the changing face of Faritec, but also engage our
clients as strategic partners. Considerable traction has been gained in the
market, which now perceives Faritec as an entrenched black empowered company
that has delivered on the transformative agenda it set itself for the financial
year.
Faritec is comfortable that it will meet and exceed the requirements and
timelines of the soon to be finalised ICT charter.
PROSPECTS
Faritec is entering the new year with an improved level of confidence. Having
completed a difficult and disappointing year, the business is starting to reap
some of the rewards from our hard work. We will be focusing on achieving the
following during the 2005 financial year:
- Revenue growth;
