Economic storm whips Faritec

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 17 Feb 2009

JSE-listed technology business Faritec has confirmed it will cut jobs as part of its strategy to reduce escalating company costs.

According to Faritec CEO Simon Tomlinson, the company is in the process of stopping all capital expenditure, except for that required to maintain existing projects. The cost-cutting will include a number of job losses.

The company says job cuts may only affect a small group of employees, in the region of about 20. The company currently employs over 400 employees and deals with some high-profile contracts, including government solutions and a project for local banking giant Nedbank.

The company is not the only local ICT business undertaking job cuts as a buffer for the global economic slowdown. Computing distributor Mustek and Datatec subsidiary Westcon are both mulling job cuts.

"The cost-cutting exercise has already realised savings of approximately R2 million per month and, once completed by the end of the first quarter of this year, will result in approximately R4 million worth of monthly cost savings," explains Tomlinson.

Down 18%

Financial highlights

* Revenue declined 18% from R502 million to R414 million
* EBITDA decreased to a loss of R 11.6 million
* Gross profit margins decreased from 24% to 23%
* Headline earnings per share (HEPS) to -8.3c
* Earnings per share (EPS) to -8.3c
* Cash balance R42 million.

The group also raised a deferred tax asset for the period of R10 million. The recognition of the deferred tax asset has resulted in the difference in the actual loss per share and headline loss per share of -9.3c from -11.6c, as included in the trading statement released on 29 January 2009.

The company released its interim results for the period ended 31 December 2008, showing a disappointing 18% decline in revenue for the period, which may well also be a large factor in the company's decision to abandon its acquisition of Ubusha Technologies.

Revenue dropped from R502 million to R414 million, compared to the same period last year. The opening line by the Faritec board in the company's interim results report says: “We are disappointed by the performance and the results for the period.”

The note indicates the company is concerned by the high cost base in its financial statements. However, it also attributes losses to the global economic crisis. “This is being addressed by management and the board, but will take some time to reflect in the results,” the note goes on to say.

Tomlinson admits that, while the decrease in the current financials seems immediate and fairly large, the company has already started to cut costs and hopes the next six months will provide a better result.

Ubusha denied

The company's results are a far cry from the strong set of annual results it produced last year, when it breached the R1 billion revenue mark. The company also won a contract to sell Google enterprise products in SA last year and another with Microsoft.

Faritec seemed confident in its new risk profile in early 2008, sporting healthy cash on hand of R43 million, of which it still holds R42 million. Some R23 million of that cash was to be set aside for the acquisition of security business Ubusha Technologies, which would have been absorbed into Faritec next month.

However, the company announced today that it would not go through with the deal, because of “unfulfilled conditions”. Tomlinson did not confirm whether the loss of Ubusha would have any material effect on the business.

“The company would halt all capital expenditure except for that required to maintain existing projects, as well as a significant reduction in operating expenses and human resource costs,” explained the company's announcement.

It is unclear whether the abandoned acquisition is a precautionary measure to hold whatever cash it has, or whether the cash will be needed to bolster the company's weakening balance sheet.