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FRT
FRT
Faritec Holdings Limited - Reviewed Results For The Year Ended 30 June 2006
Faritec Holdings Limited
(Registration number 1998/004872/06)
Share code: FRT
ISIN: ZAE000016838
("Faritec" or "the company")
REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2006
HIGHLIGHTS
2006 GROWTH 2005
Revenue R530 m 23,7% R428 m
GP margin 23,4% 2,8% 22,8%
EBIT margin 4,0% 252% 1,1%
Net profit R18 m 555% R2,8 m
Net profit margin 3,4% 429% 0,6%
Cash on hand R39,3 m 111% R18,7 m
ROA 6,4% 704% 0,8%
ROE 16,7% 390% 3,4%
EPS 10,4c 261% 2,9c
Fully diluted HEPS 9,7c 878% 1,0c
ABRIDGED GROUP INCOME STATEMENT
12 months to 12 months to
30 June 2006 30 June 2005
Restated for
IFRS IFRS
R"000 R"000
Revenue 530 058 428 425
Operating expenses before depreciation (503 961) (419 237)
Depreciation and amortisation (8 330) (7 808)
Profit from operations 17 767 1 380
Net finance costs (606) (380)
Investment income 3 167 1 607
Impairment of assets (80) (5 303)
Write-off of liability 0 2 689
Profit on sale of business 0 5 042
Fair value adjustment of investment 3 770 1 116
Profit before taxation 24 018 6 151
Taxation (6 006) (3 400)
Net profit for the period 18 012 2 751
Attributable to:
Minorities 4 030 (968)
Ordinary shareholders 13 982 3 719
18 012 2 751
Reconciliation of headline earnings
Attributable earnings for the period 13 982 3 719
Write-off of liability 0 (2 689)
Impairment of assets 80 5 303
Profit on sale of business 0 (5 042)
Headline earnings for the period 14 062 1 291
Number of ordinary shares in issue ("000) 181 385 129 629
Weighted average number of ordinary 135 075 129 629
shares in issue ("000)
Fully diluted shares in issue ("000) 143 805 129 880
Basic earnings per share (cents) 10,4 2,9
Headline earnings per share (cents) 10,4 1,0
Fully diluted basic earnings per share 9,7 2,9
(cents)
Fully diluted headline earnings per share 9,8 1,0
(cents)
ABRIDGED GROUP BALANCE SHEET
At At
30 June 2006 30 June 2005
Restated for
IFRS IFRS
R"000 R"000
ASSETS
Non-current assets 117 096 79 988
Equipment 10 009 8 164
Software 1 451 1 034
Development costs capitalised 11 388 13 688
Goodwill 45 915 127
Trademarks 38 204 38 204
Investments 0 9 459
Loans receivable 4 772 4 216
Deferred taxation 5 357 5 096
Current assets 229 552 133 748
Inventories 5 313 3 055
Investments 13 229 0
Trade receivables 152 171 106 707
Other receivables 18 450 5 145
Taxation 1 036 0
Cash and cash equivalents 39 353 18 841
Total assets 346 648 213 736
EQUITY AND LIABILITIES
Total equity 131 550 84 633
Shareholders" interest 119 425 76 591
Minority interest 12 125 8 042
Non-current borrowings 34 471 11 450
Interest-bearing borrowings 24 664 1 174
Operating lease liabilities 6 973 7 611
Non-interest-bearing borrowings 2 834 2 665
Current liabilities 180 627 117 653
Trade payables 126 810 100 018
Other payables 39 795 15 261
Taxation 6 021 1 197
Bank overdrafts 0 179
Interest-bearing borrowings 7 349 998
Operating lease liabilities 652 0
Total equity and liabilities 346 648 213 736
Total number of ordinary shares in issue 181 385 129 629
("000)
Net asset value per share (cents) 65,8 59,1
Tangible net asset value per share 12,4 18,2
(cents)
ABRIDGED GROUP STATEMENT OF CHANGES IN EQUITY
At At
30 June 2006 30 June 2005
Restated for
IFRS IFRS
R"000 R"000
Share capital 181 133
Balance at beginning of period 133 133
Issued during the period, net of issue 48 0
costs
Share premium 55 228 27 323
Balance at beginning of period 27 323 27 483
Issued during the period, net of issue 27 905 (160)
costs
Share-based payments reserve 2 705 1 807
Balance at beginning of period (restated) 1 807 0
Increase for the period 898 1 807
Accumulated profits 61 310 47 328
Balance at beginning of period as 48 338
previously reported
Adjustments for IAS 17 and adoption of (4 729)
IFRS
Restated balance at beginning of period 47 328 43 609
Net income for the period 13 982 3 719
Total capital and reserves 119 424 76 591
ABRIDGED GROUP CASH FLOW STATEMENT
12 months to 12 months to
30 June 2006 30 June 2005
Restated for
IFRS IFRS
R"000 R"000
Cash flow from operating activities 17 108 22 808
Cash flow from investing activities (2 885) (878)
Cash flow from financing activities 6 468 214
Net movement in cash and cash equivalents 20 691 22 144
Cash and cash equivalents at beginning of 18 662 (3 482)
period
Cash and cash equivalents at end of 39 353 18 662
period
EQUITY RECONCILIATION OF PREVIOUS SA GAAP TO IFRS
At
transition
12 months to date
30 June 2005 1 July 2004
R"000 R"000
Equity previously reported under SA GAAP 81 604 75 954
Equity adjustments for IAS 17 and (5 013) (4 581)
adoption of IFRS
Equity reported under IFRS 76 591 71 373
Equity adjustments
Retained earnings (5 160) (6 388)
Operating leases (7 060) (6 544)
Expensing of share-based payments (147) (1 807)
Deferred tax 2 047 1 963
Share-based payments reserve 147 1 807
Total equity adjustments (5 013) (4 581)
PROFIT RECONCILIATION OF PREVIOUS SA GAAP TO IFRS
12 months to
30 June 2005
R"000
Attributable profit
As previously reported 5 810
Operating leases (IAS 17 adjustment) (516)
Share-based payments 1 659
Deferred taxation 84
As reported under IFRS 3 719
COMMENTS
INTRODUCTION
The Faritec Board of Directors is pleased to announce the results for the
year ended 30 June 2006. This has been an extremely important and
significant year for the Faritec Group. We are in the process of concluding
two strategic acquisitions and have also continued to grow all areas of the
group organically. As can be seen from our results, our aim to provide the
most customer-centric technology solutions is starting to deliver market-
related returns.
RESULTS
Faritec achieved revenue of R530,0 million compared to revenue of R428,4
million in 2005, an increase of 23,7%. This reflects an increase across all
divisions and geographic regions due to increased demand. The group"s gross
profit margins have been improved to 23,4% (2005: 22,8%) largely as a
result of the change in revenue mix, with services and software revenue
contribution increasing from 40% to 43%.
EBITDA increased to R26,1 million compared with the prior period of R9,2
million. This increase is largely as a result of strong performances in the
Infrastructure, Security and Managed Services business units, and on-going
cost management.
The tax charge for the period has increased to R6 million, in line with the
improved operating performance of the group, from R3,4 million in 2005.
Headline earnings per share increased from 1,0 cent in 2005 to 10,4 cents
in 2006. Basic earnings per share increased from 2,9 cents in 2005 to
earnings of 10,4 cents in 2006. The weighted average number of shares in
issue for the year was 135,0 million which increased from last year"s 129,6
million, due to the additional shares issued on the exercise of share
options by employees in terms of the Faritec Share Incentive Scheme.
Ordinary shareholders" funds at the year-end amounted to R119,4 million,
representing a R42,9 million increase from the R76,6 million in 2005. The
increase is mainly as a result of the issue of 43,6 million shares for the
acquisition of the Enterprise Connection sale assets and liabilities.
Tangible net asset value per share decreased to 19,1 cents (2005: 24,4),
which was as a result of the goodwill on acquisition of the Enterprise
Connection business, of R46 million.
The group remained cash positive, with cash generated from operations of
R17 million. The balance sheet continues to strengthen, with an
11% increase in net asset value per share, to 65,8 cents (2005: 59,1
cents). The Group ended the financial year with cash on hand of R39 million
(2005: R19 million).
ACCOUNTING POLICIES
The group has adopted International Financial Reporting Standards (IFRS)
for the year ended 30 June 2006. IFRS 1 - First time adoption of
International Financial Reporting Standards has been applied in preparing
the group"s reviewed results.
In applying IFRS, the group has elected not to retrospectively apply the
requirements of IFRS 3 for business combinations that occurred prior to 1
July 2004, and not to apply IFRS 2 - Share-based payments to equity
instruments that were granted on or before 7 November 2002.
This report has been prepared based on current IFRS statements issued up to
30 June 2006 and comprises the group"s first IFRS-compliant annual
financial statements for the year ended 30 June 2006, based on standards
and interpretations prevailing at that date.
Significant changes to the group"s accounting policies as a result of the
adoption of IFRS and adjustments to interpretations and new statements of
Generally Accepted Accounting Practice (GAAP)
1 Restatement in respect of IAS 17: Leases
Circular 7/2005 issued by SAICA requires that operating lease expenses be
recognised on a straight-line basis over the lease term.
Previously, lease expenses were recognised in accordance with the payment
terms of the lease agreements. This change in accounting policy has had a
retrospective application.
2 Share-based payment transactions - IFRS 2
The fair value at grant date of share options granted to employees are now
recognised as an expense over the vesting periods.
3 Interest-free receivables, payables and the recognition of revenue and
purchases
Notional interest
IAS 39: Financial instruments: Recognition and Measurement requires that
imputed interest be recognised on interest-free receivables. IAS 18:
Revenue further requires that revenue be recognised at the fair value of
the consideration received or receivable. Accordingly, when the fair value
of the Group"s consideration is significantly impacted by the time value of
money, a portion of the revenue has been deemed to be interest income
recognised on a time apportionment basis. This has resulted in a decrease
in recognised revenue and certain financial receivables and liabilities.
Comparative figures have been adjusted accordingly.
Rebates and awards
In accordance with Circular 9/2006 issued by the South African Institute of
Chartered Accountants, regarding the treatment of settlement discounts and
cash discounts, the valuation of inventories, accounts receivable and
payable, as well as the measurement of cost of sales and revenue, have been
adjusted retrospectively by the rebates and awards received from suppliers
in respect of purchases.
The above changes have had a negative impact on the group"s previously
reported earnings and net asset values, as shown in the profit and equity
reconciliations contained in this report. There was no material effect on
cash flows.
UNQUALIFIED AUDIT 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.
OPERATIONS
The group"s operations followed on from an exceptional performance in the
first six months of the year with continued growth in the second half of
the year over the same period last year. This can once again be attributed
to the efforts of management and staff at Faritec and the support of
Faritec"s customers and partners.
All areas of the Faritec group performed well over the last year. Our
hardware revenues grew by 18% from R258 million to R304 million, this is
mainly as a result of strong growth in storage and server product revenues.
The software revenues grew by an impressive 103% from R37 million to R75
million mainly on the back of security middleware and integration software
sales. Services revenue grew by 14% from R133 million to R151 million, as a
result of growth in all areas of our services business. The annuity revenue
base in the services area of the group continues to grow, and provides the
platform for higher growth in the new financial year.
The hardware business, which has for a long time been the stalwart in the
Faritec operations, was very well supported this year by three strategic
and emerging areas of our portfolio of offerings - these are the security
business, the integration services business, and our service delivery
business. Faritec now has a far more balanced and sustainable suite of
solutions that are allowing us to grow our share of our customers"
technology solutions spend.
During the year we concluded the acquisitions of the businesses of both
Enterprise Connection (effective date 1 July 2005) and Lechabile Storage
Solutions (effective date 1 February 2006). International Financial
Reporting Standards (IFRS) do not allow Faritec to recognise the trading
results for the acquisitions until control is obtained, after the closing
dates of the transactions. If we had been able to recognise the revenues
from the respective effective dates, Faritec"s Group revenue for the year
ended 30 June 2006 would have been R876 million, with added revenue
contributions of R315 million from Enterprise Connection and R31 million
from Lechabile.
TRANSFORMATION AND BEE
Faritec"s broad-based empowerment credentials were given an additional
boost with the acquisition of the Enterprise Connection business during the
financial year. Canal Square, the black-owned controlling shareholder of
Enterprise Connection, has joined our existing empowerment partner, the J&J
Group, as a significant black shareholder of Faritec, giving the Faritec
Group an effective BEE ownership of 42%, which is in line with our
objective of becoming black owned.
Faritec has also continued to improve on all the other major pillars of the
broad-based BEE scorecard during the year. Diversity in our boardroom,
management teams and employees is progressing well, with 58% of our board
and 44% of our employees now coming from previously disadvantaged
backgrounds.
EMPOWERMENT SCORECARD IN SUMMARY
* 42% black owned
* 58% of board members are historically disadvantaged individuals
* 44% of staff complement are historically disadvantaged individuals
* 57% of all female staff complement are historically disadvantaged
individuals
* 65% discretionary spend is with empowered suppliers
* 3% net profit before tax was spent on CSI initiatives during the past
years
* Skills development and learnership programmes established, with 20
learners graduating during the last 3 years
* One of the largest BEE companies on the JSE on the IT sector (IT Index)
ACQUISITIONS
On 28 June 2006 the group acquired the business of Enterprise Connection
for a consideration of R50,6 million, which was settled 50% in cash and 50%
in Faritec shares. The purchase price allocation for the acquisition of
this business has not been finalised yet. It is therefore impractical to
disclose separately the net assets acquired and goodwill allocated at this
stage.
PROSPECTS
The outlook for the new financial year is positive, and we are confident
that Faritec is well positioned to show further growth. The integration of
the two acquired businesses is on track and we expect the combined business
to achieve revenues in excess of R1 billion and achieve better returns than
last year. The new Faritec Group is a significantly larger business, with a
more comprehensive set of solutions. Together with our strategic partners
HP, IBM, Microsoft and Symantec, and our many other supplier relationships,
we are well positioned to improve our position in the market and provide
our customers with technology solutions that add value to their businesses.
DIVIDEND
No dividends have been declared as funds are being retained to assist with
the group"s future growth.
For and on behalf of the Board
Dr CR Jardine SM Tomlinson
Chairman Chief Executive Officer
Johannesburg
12 September 2006
REGISTERED ADDRESS
Faritec House 150 Kelvin Drive Woodmead Sandton 2148
PO Box 76784 Wendywood 2144
Incorporated in the Republic of South Africa
Registration number 1998/004872/06
Share code FRT
ISIN ZAE000016838
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Ltd
70 Marshall Street Johannesburg 2001
PO Box 61051 Marshalltown 2107
Date: 12/09/2006 12:25:56 PM Produced by the JSE SENS Department
