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Faritec on track with solid half-year results

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A quick turnaround and solid team effort by management and staff has resulted in Faritec Holdings Limited reporting a positive set of results for the six months ended 31 December 2007.

Revenue grew by a stable 6% to R502-million, compared to R473-million for the comparative six month period in 2006; Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) increased by 10% from R29.5-million in 2006 to R32.4-million; Profit attributable to shareholders grew by 44% from R 12.3-million in 2006 to R17.7million; Headline Earnings Per Share (HEPS) decreased from 7.4 cents in 2006 to 7 cents in 2007; Earnings Per Share (EPS) is up by 4% from 6.7 cents in 2006 to 7 cents; and the Group has Cash on hand of R 42.6-million. The weighted average number of shares in issue for the year is 255 million, which increased from last year’s 182 million due to the additional shares issued on the exercise of the J&J option in May 2007 and shares issued in terms of the Faritec Share Incentive Scheme.
Simon Tomlinson, CEO of Faritec, says the internal issues facing the company in the last financial year including a lack of focus, the introduction of new processes and systems, and the integration challenges of several new acquisitions have been satisfactorily resolved, placing the company firmly back on track.
“As stated last year, the issues were definitely short term and we have turned them around quickly. We have focussed on bedding down our acquisitions, improving trading conditions, implementing new processes and systems, improving our facilities and infrastructure, and implementing stronger financial controls,” says Tomlinson. “As a result of this, we are back to expected trading levels and have created a strong foundation for growth into the future.”
Tomlinson says Faritec’s revenue reflects year on year organic growth, one month’s revenue from the acquisition of the Software Futures business, as well as a change in geographical revenue mix, with the Western Cape region’s contribution increasing to 20%.
The trading results reflect a substantial increase in earnings attributable to ordinary shareholders increasing by 44% to R17.7-million, and the resultant increase in net profit before tax margin to 5% (2006: 3.7%), with strong operational performances recorded by most of the Group’s business units.
In line with the company’s long term strategy of continuing to grow the software and services businesses to improve the revenue mix, Tomlinson says the results show this policy is beginning to pay off. He says that while the IBM and HP based hardware business continues to be the biggest revenue contributor, the software and services businesses now account for a larger amount of the gross margin earned.
“As a result of our focus on improving revenue mix and solution selling, our margins improved from 22.8% to 24.3% when compared to the same period last year,” he says. “The security, availability, system integration, and service delivery business units are all performing ahead of budget.”
He says that the company’s relationship with strategic partners continues to improve, and new partnerships are being evaluated in line with the company’s strategic focus.
“Our market share in our chosen solution areas is growing and we are investigating new technology solutions that compliment our strategy,” he adds.
According to Tomlinson, Faritec continues to hold the view that the company’s people are core to the achievement of targets and strategy, and with this in mind the company will continue to focus on, and invest in, training and development. Continuing its sustainable transformation plans, Tomlinson says all the pillars of the BEE Codes of Good Practice have been systematically entrenched throughout the operations, with each pillar managed and owned by a Faritec Exco member.
“Our existing Empowerdex rating as a Level Four Contributor is an indicator of the ability of the operations to meet the expectations of our stakeholders, and future rating exercises are closely monitored to maintain a culture of continuous improvement,” he says “We continue to invest in our people, and our skills development efforts ensure that we maintain and grow our pool of technical and diverse workforce that is the intellectual property driving our business moving forward.”
Tomlinson says Faritec’s footprints in the corporate and SMB sectors is expanding, the number of solutions offered to these customers is improving, and good progress is being made in the Public Sector, which is expected to show significant growth in this sector compared with last year. Faritec continues to add blue-chip customers to its client base, and the greater scale and product mix have allowed them to compete more favourably across all sectors.
“We have a strong sales pipeline and the outlook for the remainder of this financial year remains positive. We will continue to grow the business both organically and through acquisition into areas that support our stated strategy,” he says. “As our customer base continues to grow, and as the foundation has now been laid for further growth into the future, I am confident that the business is well positioned to meet expectations.”
However, Tomlinson says Faritec is not immune to the energy crisis that is gripping the country and the current economic outlook is not as stable as it has been.
“With this in mind we expect extra cost from providing alternative sources of power, a potential slowdown in customer spend and more difficult trading conditions,” he adds.
Frost & Sullivan believes Faritec has continued to show growth in a competitive market due mainly due to targeted acquisitions and the company’s commitment to skills development.
“The acquisitions have included companies that are considered best of breed in the services in which they specialise,” notes Frost & Sullivan ICT industry analyst Lindsey Mc Donald. “This means that an extended service offering has not meant a dilution of expertise or quality. The particular attention that has been paid to the effective assimilation of the acquisitions into the business has also proved beneficial.”
Mc Donald adds that Faritec’s skills development initiatives should be a lesson to other companies in the ICT sector.
“Given the challenges that the ICT industry faces in this regard, it is a very important exercise that more companies need to undertake,” she says.
Looking ahead, Frost & Sullivan believes that Faritec will face its greatest challenge in dealing with the country’s electricity supply problems. This will, however, also present the company with some specific opportunities.
“This is not only a threat to the infrastructure belonging to the company and its clients, but also in terms of how it might contribute to an exodus of skilled personnel from South Africa,” Mc Donald notes. “However, storage and disaster recovery arenas are really expected to show very healthy growth given the concerns over power supplies coupled with current credit regulations.”
Recent research from Frost & Sullivan also pointed to opportunities in the open source software market.
“Our analysis shows that increased investment in OSS is likely to see higher incomes and new opportunities for services companies such as Faritec,” Mc Donald says. “The ability of companies such as these to provide integrated support for both proprietary and OSS systems will stand them in good stead going forward.”