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FRT - Faritec Holdings Limited - Unaudited interim results for the six months

Release Date: 31/03/2010 16:46
Code(s): FRT
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FRT - Faritec Holdings Limited - Unaudited interim results for the six months ended 31 December 2009 Faritec Holdings Limited (Registration number 1998/004872/06) Share code: FRT ISIN: ZAE 000016838 ("Faritec" or "the company" or "the group") FARITEC UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2009 INTRODUCTION The Board hereby announces the results for the six months ended 31 December 2009. Whilst the trading conditions experienced over the reporting period have negatively impacted Faritec`s revenue, the turnaround programme that commenced last year has started paying dividends. This is reflected in the results for this period compared to those posted for the previous 2 reporting periods. OPERATING MODEL Faritec`s revenue is derived from the provision of hardware, software licensing and services. The group`s business is organised regionally in order to serve its national customer base. The group strives to bundle its core product offerings with consulting, implementation services and ongoing managed and support service solutions. These solutions are delivered through tier-1 certifications with a number of technology partners, including IBM, Microsoft, Symantec, Mcafee, VMWare, Novell and Qualys. Faritec has dedicated architecture teams aligned with each of its offerings to understand each client`s unique business requirements and to ensure that the solutions are designed to meet those requirements. The group`s certified team of professionals work with its clients to implement and support customer solutions. Faritec`s infrastructure and services capabilities are complemented by an operations centre, which allows for the provision of managed services around its product set, including its security offerings. FINANCIAL RESULTS 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 following business divisions: - HP Division (Business discontinued in September 2009) - FileNet business (sold in August 2009) - Management Print Solutions (Business discontinued in November 2009) Revenue decreased from R414,1m (for continuing and discontinued operations)to R272,8m (a decrease of 34%). The decline in revenue can be attributed to the market conditions and closure of the business division as indicated above. GP 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, as indicated above, with ongoing cost cutting, decrease in finance costs (resulting from R7m 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. Debtors` days are 63 days which is within our acceptable levels. Cash and cash equivalents reflect a balance of R55,386,000. The covenants of our securitization 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. 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 indicated above. 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. This is reflected in the current ratio declining from 1,4:1 to 0,9:1.As set out in the cautionary announcements released on SENS, the last of which was dated 10 March 2010, Faritec is presently 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. Further details on, both the implementation of the compromise with creditors and the rights offer will be made in separate announcements over the next few days. There was no major capital expenditure during the period. The Group has not raised any deferred tax asset despite the tax loss. Whilst the company is unable to recognise the deferred tax asset at this juncture, it is expected that the company will be able to recover strongly following a successful implementation of the compromise with creditors and the rights offer, and will in the near future be able to benefit from this tax asset. BASIS OF PREPARATION The preliminary report has been prepared as a going concern on the historical cost basis, except for certain financial instruments at fair value, using the group`s accounting policies, which comply with International Financial Reporting Standards, and methods of computation and has been prepared in accordance with IAS 34, Interim Financial Reporting. The accounting policies, presentation and methods of computation applied in preparation of these unaudited interim financial statements are consistent with those applied in the group`s audited financial statements for the year ended 30 June 2009, save for the new application of IAS 1: Presentation of Financial Statements - Revised. The implementation of the revised IAS 1 has not resulted in any change in the group`s results as previously reported. The interim results have not been audited or reviewed by the company`s auditors, Charles Orbach and Company. GOING CONCERN The group incurred a net loss for the period ended 30 December 2009 of R14 397 000 (30 June 2009: R159 503 000). The group continues to incur losses, and this has resulted in a cash flow restrictive trading environment, which has restricted the group`s ability to trade at normal operating levels. The group`s current trading conditions give rise to uncertainty which may cast doubt about the Group`s 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. As set out above 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. These financial statements are therefore prepared on the basis of accounting policies applicable to a going concern. This basis presumes that the Group will be able to continue servicing its debts within the current cash flow restrictive environment, will return to profitability in the short term, and that the realisation of assets and settlement of liabilities will occur in the ordinary course of business. SUBSEQUENT EVENTS In February 2010, the company repaid R28 million of its interest bearing borrowings which arose from the securitisation of the Debtors` book. This will have a positive impact on the financial gearing of the company and also will result in significant saving in interest costs. As set out above, during March 2010, the company entered into negotiations with its creditors to compromise and agree to a scheme of arrangement under section 311 of the Companies Act, and is in the process of announcing a rights issue of R60m which will be partially underwritten. The objective of the scheme and rights issue is to strengthen the Company`s balance sheet by converting debt into equity and injecting fresh equity to support the completion of the Group`s restructuring. If the scheme and the rights issue offer are implemented, the Board is of the opinion that Faritec will be well positioned to recover strongly. One of the Group`s non-core businesses (Hansen) was disposed off on 10 March 2010. DIVIDEND No dividend has been declared as funds are being retained to assist the company to reduce its gearing and to fund future growth. BROAD-BASED BEE AND TRANSFORMATION Faritec has an AA level 3 BEE rating and remains proud to be counted amongst the most empowered listed IT companies. The company seeks at all times to apply both the spirit and the letter of the BBBEE codes of good practice as an expression of our commitment as a good corporate citizen of South Africa. CORPORATE GOVERNANCE The Board conducts the affairs of the group with integrity and openness. The Board is committed to upholding the highest standards of corporate governance and endorses the implementation of corporate governance best practices as prescribed in the King Codes. The recent changes to the shareholding in the Company and changes to the Directorate (as disclosed further down), has resulted in the Board comprising a majority of executive directors since 23 February 2010. The Board acknowledges this as an interim governance weakness, which is well managed, whilst it goes through the process of appointing more non- executive directors to the Board. PROSPECTS Faritec continues to rebuild its capacity in the defined core areas of its business and is well set to recapture business in this space. As part of our turnaround strategy, Faritec disposed of all unprofitable business units leaving management to focus their efforts on our core areas of capability. The outlook for the next six months is good, but trading continues to be impacted by the effects of the large trade debt the company carries. The proposed S311 compromise with our creditors will strengthen the company`s balance sheet so as to place the company in a more favourable trading position, whilst ensuring that its creditors can trade with the company on a secured basis. The company`s pipeline is well developed, promising significant business for the next six months, especially once the trading constraints have been normalised. With the additional cost cutting measures envisaged, the company should return to profitability on a month-to-month basis, by year-end. The envisaged rights offer will enable the company to initiate and execute its growth plans, which will return the company to continued profitability and prosperity. The management team`s effort in terms of restructuring and rebuilding the company is showing promise in various areas, which continues to enhance its prospects of growth. DIRECTORATE The following changes were made to the directorate: - Arvind Gupta was appointed as Financial Director with effect from 1 August 2009. - Fanie van Rensburg was appointed as Chief Executive Officer with effect from 1 August 2009. - Jayendra Naidoo resigned as non-Executive Director on 11 September 2009. - Dan McMahon was appointed as Sales and Business Development Director, with effect from 22 September 2009. The following changes took effect subsequent to the period: - Dr Chris Jardine did not make himself available for re-election at the AGM on 23 February 2010. - Mncedisi Mayekiso resigned as non-executive director on 23 February 2010. For and on behalf of the Board SD Janse van Rensburg AK Gupta Chief Executive Officer Chief Financial Officer GROUP STATEMENTS OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 31 DECEMBER 2009 6 months to Audited
6 months to December 12 months December 2008 to June 2009 2009 R`000 R`000 R`000
Continuing operations Revenue 259 318 364 468 620 083 Cost of sales (190 069) (279 860) (459 211) Gross profit 69 249 84 608 160 872 Other income 2 960 - 2 504 Administrative and other expenses (74 084) (97 778) (243 640) Depreciation and amortisation (5 462) (5 860) (12 304) (Loss)/profit from operations (7 337) (19 030) (92 568) Impairment of goodwill and fixed assets (284) - (31 800) Finance costs (13 354) (26 442) (40 515) Investment income 5 487 13 018 15 567 (Loss)/profit before taxation (15 488) (32 454) (149 316) Taxation (1 195) 9 439 (6 453) Loss for the period from continuing (16 683) (23 015) (155 769) operations
Discontinued operations Profit for the period from discontinued operations 2 286 1 551 (3 734)
Net (loss)/profit for the period (14 397) (21 464) (159 503)
Total comprehensive income attributable to: Non-controlling interest 103 39 317 Owners of the parent (14 500) (21 503) (159 820) (14 397) (21 464) (159 503) Reconciliation of headline earnings: Loss attributable to owners of the parent (14 500) (21 503) (159 820) Impairment of assets 284 - 31 800 Headline loss for the period (14 216) (21 503) (128 020) Total number of ordinary shares in 1 891 545 258 211 258 211 issue (`000) Weighted average number of ordinary shares in issue (`000) 1 809 796 403 712 403 712 Fully diluted shares in issue (`000) 1 810 996 403 712 403 712 Earnings per share from continuing and discontinued operations Earnings per share (cents) (0,8) (5,3) (39,6) Headline (loss) per share (cents) (0,7) (5,3) (31,7) Fully diluted (loss) per share (cents) (0,8) (5,3) (39,6) Fully diluted headline(loss) per share (cents) (0,7) (5,3) (31,7) Earnings per share from continuing operations Earnings per share (cents) (0,9) (8,0) (37,0) Headline (loss) per share (cents) (0,9) (8,0) (29,1) Fully diluted (loss) per share (cents) (0,9) (8,0) (37,0) Fully diluted headline (loss) per share (cents) (0,9) (8,0) (29,1)
GROUP STATEMENT OF FINANCIAL POSITION Audited 6 months to 6 months to 12 months
December December to June 2009 2008 2009 R`000 R`000 R`000 ASSETS Non-current assets 148 451 207 026 153 999 Equipment 16 892 22 571 19 787 Software 13 570 12 858 13 971 Development costs capitalised 5 224 7 310 6 260 Goodwill 72 752 106 866 72 752 Trademarks 38 204 38 204 38 204 Loans receivable 1 522 2 712 1 522 Deferred taxation 287 16 505 1 503 Current assets 155 958 279 073 163 229 Inventories 5 742 13 482 6 449 Trade receivables 94 612 223 726 111 875 Taxation 218 - 5 048 Cash and cash equivalents 55 386 41 865 39 857 Total assets 304 409 486 099 317 228 EQUITY AND LIABILITIES Total equity 57 527 161 130 51 924 Equity attributable to owners of the 57 716 163 022 52 216 parent Non-controlling interest (189) (1 892) (292) Non-current liabilities 80 025 119 680 90 357 Interest-bearing borrowings 73 073 110 142 81 870 Operating lease liabilities 5 098 7 683 6 633 Non-interest-bearing borrowings 1 854 1 855 1 854 Current liabilities 166 857 205 289 174 947 Trade payables 157 790 192 868 136 569 Taxation 738 1 188 602 Interest and non interest-bearing 5 122 10 394 35 523 borrowings Operating lease liabilities 3 207 839 2 253 Total equity and liabilities 304 409 486 099 317 228
Total number of ordinary shares in 1 891 545 258 211 258 211 issue (`000) Net asset value (R `000) 57 527 163 022 52 216 Net asset value per share (cents) 3,0 63,1 20,2 Tangible net asset value (R `000) (72 223) (2,216) (78 971) Tangible net asset value per share (3,8) (0,9) (30,6) (cents)
GROUP STATEMENT OF CHANGES IN EQUITY Audited 6 months to 6 months to 12 months December December to June
2009 2008 2009 R`000 R`000 R`000 Share capital 1 892 258 258 Balance at beginning of period 258 258 258 Issued during the period 1 634 - - Share premium 206 143 158 941 158 777 Balance at beginning of period 158 777 157 607 158 777 Issued during the period 47 366 1 335 - Acquisition equity adjustment (85 455) (85 455) (85 455) Balance at beginning of period (85 455) (85 455) (85 455) Equity loan - Funds received for - - 29 000 specific share issue
Share-based payments reserve 4 146 4 146 4 146 Balance at beginning of period 4 146 4 146 4 146 Accumulated (loss)/profits (69 010) (85 131) (54 510) Balance at beginning of period (54 510) 106 634 106 634 Decrease in non-controlling interests - - (1 324) Total comprehensive (loss)for the (14 500) (21 503) (159 820) period Equity attributable to owners of the parent 57 716 163 022 52 216
GROUP CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 2009 Audited
6 months to 6 months to 12 months December December to June 2009 2008 2009 R`000 R`000 R`000
Cash from operations before working capital changes 5 487 (4 791) (107 202) Working capital changes 39 191 (23 362) 39 593 Taxation and finance charges (8 524) (24 012) (9 617) Cash flow from operating activities 36 154 (52 165) (77 226) Cash flow from investing activities (1 428) (6 030) (8 668) Cash flow from financing activities (19 197) 81 309 107 000 Net movement in cash and cash equivalents 15 529 23 114 21 106 Cash and cash equivalents at beginning of period 39 857 18 753 18 751 Cash and cash equivalents at end of the period 55 386 41 865 39 857 SEGMENTAL ANALYSIS FOR CONTINUING OPERATIONS 2009 (R`000) JHB CPT ICP Farimed E- Total Business
Revenues from 166 690 54 653 5 997 1 450 34 214 263 004 external customers Reportable segment (16 502) 3 690 1 101 (46) 1 680 (10 077) (loss) profit Reportable segment 187 148 83 480 9 267 2 258 23 354 305 507 assets
Reconciliation Revenue Loss Assets Total for 263 004 (10 077) 305 507 reportable segments Finance costs and investment - (7 867) - income Fair value (3 686) 2 456 (1 098) adjustments Total per group 259 318 (15 488) 304 409
2008 (R`000) JHB CPT ICP Farimed E- Total Business
Revenues from 250 843 91 423 2 109 5 015 27 050 376 440 external customers Intersegment 2 163 - - - - 2 163 revenue Reportable segment (27 072) 4 040 418 1 438 1 425 (18 751) (loss) profit Reportable segment 387 581 45 292 6 439 5 133 25 149 469 594 assets Reconciliation Revenue Loss Assets Total for reportable segments 376 440 (18 751) 469 594 Elimination intersegment - (279) - profit Fair value adjustments (11 972) - - Finance costs and investment - (13 424) - income Total per group 364 468 (32 454) 469 594 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 Sponsor Java Capital (Proprietary) Limited Date: 31/03/2010 16:46:54 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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