Following a solid performance of Faritec’s business at the half year, the second half has not met market expectations.
Compared to the 2006 financial year, for the year ended 30th June 2007, revenue grew by 62% to R858-million, Earnings Before Interest Taxation, Depreciation and Amortisation (EBITDA) increased by 2% to R26,5-million; profit attributable to shareholders grew to R16,5-million; Headline Earnings Per Share (HEPS) decreased by 15% from 10.4 cents in 2006 to 8.9 cents; and basic Earnings per Share (EPS) decreased by 18% to 8.5 cents.
The weighted average number of shares in issue for the year was 193 million, which increased from last year's 135 million due to the additional shares issued on the exercise of the J&J option, shares issued in terms of the Faritec Share Incentive Scheme, and 5.6 million shares issued for the acquisition of the business of Lechabile Storage Solutions.
Simon Tomlinson, CEO of Faritec, says the integration challenges of the business proved more difficult, consumed more management energy and took longer than anticipated, and were compounded by the required introduction of new processes and systems.
“All of these factors, together with phasing various revenue generating opportunities into the new financial year, have led to poorer than expected results, a situation that was compounded by our customer-facing teams and operations taking their ‘eyes off the ball’ and focusing on internal issues,” says Tomlinson.
“We have spent a lot of time and effort on the issues that temporarily stalled our growth and impacted our trading, and have implemented a number of action plans to ensure this is not repeated in the new financial year.”
As a result of the operations of the business not managing to follow on from the positive performance of the first 6 months, compared to the 2006 financial year, revenues grew by 62%, which was mainly acquisitive, as the operations did not deliver the organic growth that was expected. Hardware revenue grew by 72% from R304-million to R509-million, software revenue grew by 113% from R75-million to R156-million and services revenue grew by 30% from R151-million to R193-million.
“Our stated strategy of improving our revenue mix in favour of software and services is proving more difficult than expected and we have not seen the growth in the services area that we had hoped for,” he says.
Largely as a result of stronger controls and improved debtor management, with debtors reduced on average from 95 days during the first half of the year to 42 days currently, the group experienced better cash generation in the second half of the year, which reversed the cash consumed in the first half and generated operating cash of R10-million for the year.
The group incurred capital expenditure of R18-million during the period under review, the majority relating to the procurement of the new financial and call centre systems.
Faritec has successfully implemented and integrated all the pillars of the Department of Trade and Industry’s BBBEE scorecard, and receiving an A Rating from Empowerdex as a Level Four Contributor in February 2007.
As we grow, each element of the scorecard requires its own continuous evaluation,” says Tomlinson. “We have increased our focus on Employment Equity, Skills Development and Enterprise Development to ensure that we remain one of the leading black empowered companies on the JSE.”
Upbeat about the company’s prospects and still focussed on organic growth, Tomlinson aims to continue with the acquisition of Software Futures, a strategic move that will enhance Faritec’s earnings in the 2008 financial year, but more significantly, will increase the company’s skills level, boost the company’s presence in the Western Cape and take its staff complement in the region to 140 employees.
“Our strategy is intact, our team is intact, our customers are stable, our order book going forward is promising with several multimillion deals worth more than R120-million nearing conclusion, and we’ve made significant account gains during the year, including MTN, ABSA, Vodacom and a number of clients in the public sector,” says Tomlinson. ”We’re firmly on track to meet our targets in the first six months and the coming financial year.”