While the trading conditions experienced over the six months ended 31 December have negatively impacted Faritec`s revenue, the turnaround programme that started last year has started paying dividends.
According to a statement from the company, this is reflected in the results for this period compared to those posted for the previous two reporting periods.
Faritec's revenue is derived from the provision of hardware, software licensing and services, organised regionally, and bundled with consulting, implementation services and ongoing managed and support service solutions.
These solutions are delivered through tier-1 certifications with partners that include IBM, Microsoft, Symantec, Mcafee, VMWare, Novell and Qualys.
The turnaround strategy is focused on the data centre environment where Faritec has been historically competitive and has the required skills base. This resulted in the closure and disposal of the HP division (discontinued in September 2009), the FileNet business (sold in August 2009) and the Management Print Solutions (discontinued in November 2009).
Revenue decreased from R414,1-million (for continuing and discontinued operations) to R272,8-million, a decrease of 34%. Gross profit margins improved from 22,6% to 26,6%. This is mainly due to our focused approach in providing solutions in the data centre and change in product mix in favour of the services business.
EPS and HEPS both showed improvement from a loss of 5,3 cents per share to a loss of 0,8 cents and 0,7 cents per share respectively. Improvement in the trading results, with ongoing cost cutting, decrease in
finance costs (resulting from R7-million of the securitisation debt having been repaid) and cost management, contributed to a positive impact on the EPS and HEPS.
Working capital management remains the key focus, according to the statement. Debtors' days are 63 days while cash and cash equivalents reflect a balance of R55,38-million.
"The covenants of our securitisation structure have necessitated the use of our cash reserves to compensate for the reduced value of our qualifying book debt, which has impacted our access to working capital," according to the statement. "In order to reduce the securitisation debt, reduce pressure on cashflows and save on interest costs the company decided to repay a portion of debt. As the free cashflow was applied for repayment of debt, limited funds were available to pay suppliers, which resulted in creditors' days increasing to 144 days."
Faritec is currently in discussion with its creditors to convert their debt to equity in Faritec or compromise their debt pursuant to a scheme of arrangement in terms of section 311 of the Companies Act, together with the implementation of a rights offer partially underwritten by certain members of management.
Details of the implementation of the compromise and the rights offer will be made public over the next few days.
The group incurred a net loss for the period ended 30 December 2009 of R14,39-million,compared to R159,503-million in June 2009.
"The group continues to incur losses, and this has resulted in a cash flow restrictive trading environment, which has restricted its ability to trade at normal operating levels," the statement reads. "The group's current trading conditions give rise to uncertainty which may cast doubt about its ability to continue as a going concern and, therefore, be unable to realise its assets and discharge it`s liabilities in the normal course of business.
"In order to sustain the operations and implement the turnaround and growth strategies of the group, additional funding is required. Faritec is in the process of finalising a partially underwritten rights offer to raise additional funding needed for the group to fast-track its turnaround strategy.
"It is the view of the directors and management that the successful conclusion of the compromise arrangement with its creditors and the rights offer will ensure the group`s ability to continue as a going concern."