Faritec sees bottom line growth

Johannesburg, 13 Sep 2006

JSE-listed IT services and solutions company Faritec yesterday reported organic group revenue growth of 23.7%.

This places the company`s revenue for the year ended June at R530 million, up from R428 million and a figure that would have been R870 million had its two acquisitions - Enterprise Connection and Lechabile Storage Systems - been accounted for. CEO Simon Tomlinson says both companies will be included in next year`s results.

The company grew hardware revenue by 18%, as a result of strong growth in storage and server product revenue, it said. It reported software revenue up by 103%, from R37 million to R75 million, on the back of security middleware and integration software sales.

"Our decision to diversify the company`s offering from hardware and product supply to cater for managed services environments meant a considerable investment in people and technology, and this is now generating a significant return," Tomlinson says. "Three years of investment in this strategy is paying dividends for Faritec."

Its net profit margins moved up to 3.4% from 0.6% last year, while gross profit margins improved to 23.4% from 22.8%, due to its change in revenue mix, with the services and software revenue contribution increasing from 40% to 43%.

Acquisition activity

Faritec generated cash from operations of R17 million and ended the financial year with net cash balances of R39 million. However, it does have borrowings of R34.5 million, mostly due to its acquisition activity.

Earnings before interest, taxes, depreciation and amortisation increased to R26.1 million compared with last year`s figure of R9.2 million, which the company attributed to performance in the infrastructure, security and managed services business units, and ongoing cost management.

Faritec`s tax charge for the period increased to R6 million, which it said was "in line with the improved operating performance of the group", from R3.4 million in 2005.

Headline earnings per share increased from 1c in 2005 to 10.4c in 2006, while basic earnings per share increased from 2.9c in 2005 to earnings of 10.4c in 2006.

The company now has 135 million average shares in issue, which increased from last year`s 129.6 million, due to the additional shares issued on the exercise of share options by employees in terms of the Faritec Share Incentive Scheme.

Ordinary shareholders` funds at the year-end amounted to R119.4 million, representing a R42.9 million increase from R76.6 million in 2005. "The increase is mainly as a result of the issue of 43.6 million shares for the acquisition of the Enterprise Connection sale assets and liabilities."

Tangible net asset value per share decreased to 19.1c from 24.4c the previous year, which was as a result of the goodwill on acquisition of the Enterprise Connection business, of R46 million.