Under pressure from a range of factors, IT services company Faritec is fighting to reverse its fortunes. The company's board has indicated that it is "immensely disappointed" with the results over the past year, but has expressed hope that its turnaround programme will improve the company's performance.
Faritec released annual results today, showing a decline in revenue of 30% from 2008 and a headline loss per share of 35,8 cents. Its net loss for the year was R123,8-million. Cash flow from operating activities reversed from R13 million in 2008 to a negative R77,1-million, although cash on hand increased due to the financing activities undertaken during the year.
"I think the board's response to these numbers says it all," comments Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald. "It's obviously not completely unexpected to see these sorts of results, but I think they've taken the right approach by being pragmatic about it. They've said they're disappointed, but they are looking to the future now, and that's probably the best they can do."
Mc Donald adds that there is a determination from the Faritec board to turn things around and not lose a company that, until this year, was a very good competitor in South Africa's ICT industry.
"It's quite interesting that they have indicated that they are going to focus on high end enterprise customers," she says. "This makes sense, as that's where the highest revenues are now to be found. Faritec has traditionally been trying to look at the SMME and mid cap market, but that's where they biggest budget cuts have happened."
Mc Donald feels that focusing on core businesses is now the best way forward for the company.
"Faritec may have made a mistake in stretching themselves too thinly over the last few years in terms of the services they were offering," she says. "The company made a number of acquisitions in a number of areas, perhaps trying to be all things to all men. There were unfortunately a lot of structures that were absorbed into the company but weren't necessarily streamlined."
By going back to its core areas, the company should be able to improve efficiencies and start rebuilding.
No dividend was declared, as Faritec elected to focus on reducing its gearing and funding future growth.
Faritec chairman Chris Jardine, says the company has experienced a challenging chapter in its history.
"The principal factor contributing to the loss was a large decline in sales as the economy and Faritec’s target market contracted, resulting in customers cutting back on capital expenditure. The loss was then exacerbated by the high cost structures of the business which did not decrease appropriately to match the decline in revenue,” he says.
The company has implemented a turnaround programme, which includes a new management team, stringent working capital management disciplines, significant reduction in its cost structures and a focus on its core capabilities of servicing high-end corporate enterprise customers.
New management changes included the appointment of Fanie van Rensburg as CEO and Arvind Gupta as financial director in August 2009 as well as the appointment of Dan McMahon as sales & business development director in September 2009.
“I am confident that our focus on executing the basics in our core areas capably, together with our continued drive to improve efficiencies and grow our market share, will allow the company to return to its full potential over the course of the coming year,” says Jardine.