| Tue 27 Mar 2007, 11:59 | | FRT - Faritec - Unaudited interim results: six mon |
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FRT
FRT
FRT - Faritec - Unaudited interim results: six months ended 31 December 2006
FARITEC HOLDINGS LIMITED
Incorporated in the Republic of South Africa
Registration number 1998/004872/06
Share code FRT???ISIN ZAE000016838
("Faritec" or "the company")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
HIGHLIGHTS
Six months to Six months 12 months to
to
31 Dec 2006 Change 31 Dec 2005 30 June 2006
Revenue R473 m 82% R260 m R530 m
GP margin 22,8% (0,3%) 22,9% 23,4%
EBITDA margin 6,2% (0,2%) 6,3% 4,9%
Net profit R17 m 58% R11 m R18 m
Net profit margin 3,7% (13%) 4,2% 3,4%
Headline earnings R14 m 53% R9 m R14 m
Cash on hand (R9,8 m) (178%) R12,6 m R39,3 m
ROA 7,8% (20%) 9,7% 6,4%
ROE 22,2% (6%) 23,7% 16,7%
EPS 6,7 c 1,9% 6,6c 10,4c
HEPS 7,4 c 11,4% 6,7c 10,4c
Fully diluted HEPS 6,9 c 9,8% 6,3c 9,7c
ABRIDGED GROUP INCOME STATEMENT
Audited
6 months to 6 months to 12 months to
31 Dec 2006 31 Dec 2005 30 June 2006
IFRS IFRS IFRS
R`000 R`000 R`000
Revenue 472 568 260 344 530 058
Operating expenses before (443 060) (244 062) (503 961)
depreciation
Depreciation and amortisation (5 436) (4 111) (8 330)
Profit from operations 24 072 12 171 17 767
Net finance costs (1 987) (145) (606)
Investment income 2 196 408 3 167
Impairment of assets (1 263) (80) (80)
Fair value adjustment of 0 2 629 3 770
investment
Profit before taxation 23 018 14 983 24 018
Taxation (5 629) (3 948) (6 006)
Net profit for the period 17 389 11 035 18 012
Attributable to:
Minorities 5 096 2 271 4 030
Ordinary shareholders 12 293 8 764 13 982
17 389 11 035 18 012
Reconciliation of headline
earnings
Attributable earnings for the 12 293 8 764 13 982
period
Impairment of assets 1 263 80 80
Headline earnings for the 13 556 8 844 14 062
period
Number of ordinary shares in 188 416 136 161 181 385
issue (`000)
Weighted average number of 182 878 132 895 135 075
ordinary shares in issue (`000)
Fully diluted shares in issue 196 893 141 030 143 805
(`000)
Basic earnings per share 6,7 6,6 10,4
(cents)
Headline earnings per share 7,4 6,7 10,4
(cents)
Fully diluted basic earnings 6,2 6,2 9,7
per share (cents)
Fully diluted headline earnings 6,9 6,3 9,8
per share (cents)
ABRIDGED GROUP BALANCE SHEET
Audited
At At At
31 Dec 2006 31 Dec 2005 30 June
2006
IFRS IFRS IFRS
R`000 R`000 R`000
ASSETS
Non-current assets 156 655 81 331 126 368
Equipment 10 114 7 620 9 142
Software 2 435 929 1 451
Development costs capitalised 10 108 12 550 11 388
Goodwill 86 962 127 56 054
Trademarks 38 204 38 204 38 204
Investments 0 12 125 0
Loans receivable 2 503 4 235 4 772
Deferred taxation 6 329 5 541 5 357
Current assets 290 419 145 293 237 334
Inventories 8 514 3 757 5 313
Investments 13 229 0 13 229
Trade receivables 240 397 118 923 152 173
Other receivables 17 278 9 743 27 266
Cash and cash equivalents 11 001 12 870 39 353
Total assets 447 074 226 624 363 702
EQUITY AND LIABILITIES
Total equity 163 836 99 834 141 147
Shareholders` interest 146 615 89 603 129 022
Minority interest 17 221 10 231 12 125
Non-current borrowings 30 633 10 244 34 471
Interest-bearing borrowings 21 403 486 24 664
Operating lease liabilities 6 396 6 917 6 973
Non-interest-bearing 2 834 2 841 2 834
borrowings
Current liabilities 252 605 116 546 188 084
Trade payables 171 188 94 135 133 663
Other payables 46 642 15 278 40 396
Taxation 6 277 5 483 6 021
Bank overdrafts 20 777 319 0
Interest-bearing borrowings 6 784 1 153 7 352
Operating lease liabilities 937 178 652
Total equity and liabilities 447 074 226 624 363 702
Total number of ordinary
shares
In issue (`000) 188 416 136 161 181 385
Net asset value per share 77,8 65,8 71,1
(cents)
Tangible net asset value per 4,7 27,8 12,1
share (cents)
ABRIDGED GROUP STATEMENT OF CHANGES IN EQUITY
Audited
6 months to 6 months to 12 months to
31 Dec 2006 31 Dec 2005 30 June 2006
IFRS IFRS IFRS
R`000 R`000 R`000
Share capital 188 133 181
Balance at beginning of 181 133 133
period
Issued during the period, net 7 0 48
of issue costs
Share premium 70 119 30 680 64 826
Balance at beginning of 64 826 27 323 27 323
period
Issued during the period, net 5 293 3 357 37 503
of issue costs
Share-based payments reserve 2 705 2 698 2 705
Balance at beginning of 2 705 1 807 1 807
period
Increase for the period 0 891 898
Accumulated profits 73 603 56 092 61 310
Balance at beginning of 61 310 47 328 47 328
period
Net income for the period 12 293 8 764 13 982
Total capital and reserves 146 615 89 603 129 022
ABRIDGED GROUP CASH FLOW STATEMENT
Audited
6 months to 6 months to 12 months to
31 Dec 2006 31 Dec 2005 30 June 2006
IFRS IFRS IFRS
R`000 R`000 R`000
Cash flow from operating (39 986) (6 650) 17 028
activities
Cash flow from investing (7 427) (2 460) (2 805)
activities
Cash flow from financing (1 716) 2 999 6 468
activities
Net movement in cash and cash (49 129) (6 111) 20 691
equivalents
Cash and cash equivalents at 39 353 18 662 18 662
beginning of period
Cash and cash equivalents at (9 776) 12 551 39 353
end of period
COMMENTS
The Faritec Board of Directors is pleased to announce the results for the six
months ended 31 December 2006. This is the first set of results that includes
the trading effects of the acquisitions of the businesses of Enterprise
Connection (six months) and Lechabile Storage Solutions (two months). The
inclusion of these transactions, and the continued organic growth of Faritec`s
existing businesses, has resulted in significant revenue and profit growth. For
the period the focus has been on integrating the two acquisitions, implementing
a new structure and growing our operations.
ACQUISITION INTEGRATION
As may be seen from our results, the operational integration of Enterprise
Connection and Lechabile Storage Solutions has gone well. The integration of our
customer and supplier relationships is also on track and we are already starting
to see the benefits of our new solution areas and extended customer base. As
integrating the people often takes longer, we have focused our attention on
this, and the new Faritec team is starting to work well together.
We have had some challenges with the integration of the finance teams, systems
and processes, and this, together with the increased tax payments and the
acquisition costs, has resulted in a temporary working capital shortfall. The
situation is being addressed and will return to normal by year end.
The businesses of Enterprise Connection and Lechabile Storage Solutions were
acquired to extend our customer base, introduce new solutions, improve our
skills base and implement our growth strategy. However, as is common with these
types of transactions, the purchase prices were higher than the tangible assets
and liabilities acquired. This has resulted in an increase in our goodwill and a
decrease in our tangible NAV. We expect this situation to correct itself in the
medium term as increased profits are achieved as a result of the acquisitions.
NEW STRUCTURE
In line with our strategy of `Providing the most customer centric technology
solutions`, Faritec has implemented a new structure that increases our focus on
the areas of our business that ensure our success, namely:
- our customers,
- our solutions,
- our people, and
- our partners.
This structure has now been implemented and we are starting to see the benefits
of this in all areas of our business.
OPERATIONS
Our operations once again showed strong growth in all areas. Hardware revenues
grew by 78% from R158 million to R281 million, software revenues grew by 62%
from R37 million to R61 million, and services revenues grew by 101% from R65
million to R131 million. The growth in these areas was both organic (17%) and
acquisitive, and the Faritec operations performed in line with our expectations.
The business has been through a significant transformation over the last 12
months, and thanks to the efforts of our management and staff, and the support
of our customers and partners, the operations are well positioned for continued
growth into the future.
ACCOUNTING POLICIES
Basis of preparation
These unaudited interim results for the six months ended 31 December 2006 have
been prepared in terms of International Financial Reporting Standards (IFRS),
IAS 34 - Interim Financial Reporting, and the listings requirements of the JSE
Limited (JSE).
The group adopted IFRS with effect from the year ended 30 June 2006, and applied
IFRS when preparing its interim results for the six months ended 31 December
2005.
The comparative results for the six months ended 31 December 2005 have been
restated in terms of the following interpretation, which the group had not yet
implemented at that date:
* Circular 9/2006 - Transactions giving rise to fair value adjustments to
revenue, purchases and interest free receivables and payables.
In order to recognise the time value of money, a portion of revenue and cost of
sales have been deemed to be interest earned and paid respectively.
This report has been prepared based on current IFRS statements up to 31 December
2006, using accounting policies that are consistent with those of the previous
period.
OVERVIEW OF THE RESULTS
The Group is pleased to report good progress in the first half of the financial
year, with strong revenue growth of 82% to R473 million (2005: R260 million).
This reflects year on year organic growth of 17% and an increase in revenue
across all divisions and geographic regions.
The Group`s gross profit margins were slightly lower than the previous year at
22,8% (2005: 22,9%) largely as a result of the change in revenue mix, with
services and software revenue contribution increasing from 40% to 41%.
The trading results reflect a substantial increase in EBITDA of 81% to R29,5
million, and the Group`s EBITDA margin was maintained at 6,24% (2005: 6,25%),
with strong operational performances recorded by most of the Group`s business
units. The reported operating profit has been achieved despite the impact of the
costs of the integration of the businesses of Enterprise Connection and
Lechabile Storage Solutions.
Interest paid increased to R2 million (2005: R144 898) and includes the interest
incurred on the financing of the Enterprise Connection acquisition.
The tax charge for the period has increased to R5,6 million, in line with the
improved operating performance of the Group, from R3,9 million in 2005. The
effective rate of tax on profit before taxation is 24%. This is lower than the
statutory rates applicable mainly due to recognition of deferred tax assets in
respect of carried forward tax losses in certain subsidiaries, which have now
become profitable, and are therefore expected to utilise the tax benefit of
these assessed losses in future periods.
Headline earnings per share increased from 6,7 cents in 2005 to 7,4 cents in
2006. Basic earnings per share increased from 6,6 cents in 2005 to 6,7 cents in
2006. The weighted average number of shares in issue for the period was 188,4
million which increased from last year`s 132,9 million due to the additional
shares issued on the exercise of share options under the Faritec Share Option
Scheme, and the issue of 43,6 million shares and 5,6 million shares for the
acquisition of the Enterprise Connection and Lechabile Storage Solution sale
assets and liabilities respectively.
Cash generation capability was impacted by a shift in the profile of some
customers, and normal seasonality. The refinancing of the Lechabile Storage
Solutions transaction, which was financed out of working capital, and increased
tax payments, also utilised funds. The utilisation of working capital is
expected to remedy itself in the next period. However, the Group`s balance sheet
remains strong with an interest cover of more than 11 times (2005: 89 times).
The Group incurred capital expenditure of R6 million during the period under
review, the majority of which relates to the procurement of new financial and
call centre systems.
Ordinary shareholders` funds at the half year amounted to R163,8 million,
representing a R64,0 million increase from the R99,8 million in 2005. The
increase is mainly as a result of the issue of 43,6 million shares and 5,6
million shares for the acquisition of the Enterprise Connection and Lechabile
Storage Solution sale assets and liabilities respectively. Tangible net asset
value per share decreased to 4,7 cents (2005: 27,8 cents) which was caused by
the goodwill on acquisition of Enterprise Connection and Lechabile Storage
Solutions sale assets and liabilities, of R56 million and R31 million
respectively.
BEE AND TRANSFORMATION
Faritec has recently completed a broad based BEE rating process conducted by
Empowerdex. This rating scores Faritec as a level four contributor with an
overall "A" score. Faritec is thus a supplier with a 100% BEE Recognition Level,
and our customers can recognise 100% of their procurement spend with Faritec as
BEE spend.
Empowerdex further establishes Faritec`s BEE ownership at 43%, and allocates a
score of 9.5 out of 10 for Board and Top Management participation by previously
disadvantaged individuals; thus endorsing our position as one of the most
transformed listed IT companies.
Faritec has excelled in the ownership, control and affirmative procurement
indicators of the Broad Based BEE Scorecard. Faritec has additionally
established solid foundations for the additional indicators of Employment
Equity, Skills Development, Enterprise Development and CSI - all of these have
contributed to Faritec`s overall score of A with Empowerdex.
Faritec remains close to the development and announcement of the Codes of Good
Practice as managed by the Department of Trade and Industry. This government
department gazetted the final Codes on 9 February 2007. Faritec will continue
with its objectives of exceeding stakeholder expectations on BEE and
transformation, and now that there is absolute certainty around the Codes of
Good Practice, Faritec embraces additional objectives of transformation with
vigour. Further maturity, sustainability and focus drives our transformation as
a truly South African company, and we manage this by institutionalising and
integrating BEE practices within the operations of Faritec.
PROSPECTS
The outlook for the remainder of the year remains positive and we are confident
that Faritec is well positioned to show further growth year on year. As stated
previously, certain unusual trading patterns in the prior period ended December
2005 temporarily changed the seasonality of our earnings, and this resulted in
the first half being stronger than the second half in that period. Faritec`s
trading has historically been the other way round, and we expect that
seasonality to return in this financial year.
The new integrated Faritec is a significantly larger business with great
empowerment credentials and a more comprehensive set of solutions, and together
with our excellent people and our strong partner relationships, we will continue
to improve our market position and add more value to our customers.
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
27 March 2007
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
www.faritec.com
Date: 27/03/2007 11:59:53 Produced by the JSE SENS Department.
