Faritec CFO jumps ship

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 21 Apr 2009

Amid rumours of a financial meltdown at Faritec, the company's CFO has quit, but management remains mum on the company's future.

The ailing business informed investors last night that Tshidi Nyembe had resigned to “pursue other career interests”. Faritec added in the shareholder statement that Nyembe will leave at the end of this month, in less than two weeks, and it would make an announcement on her replacement shortly.

The company has declined to provide any further information on either its financial situation, or the loss of its financial head, saying: “We will be providing further information at a later stage. As information is available we will make it available.”

However, Faritec has indicated it may respond to questions submitted in writing, although management is in meetings for most of the day.

Nyembe joined Faritec in 2005, having come from state transport utility Transnet, where she was the assistant GM of finance. At the time, her role as CFO at Faritec was heavily criticised as an ornamental empowerment appointment, which was brushed off by industry specialists and the company.

At the time of her appointment, she represented one of two black female financial directors on the board of a listed company, the other being Harmony Gold's Nomfundo Qangule, who left the mining house in 2007.

A year later, she was quoted in the Financial Mail as saying: “At Transnet, I had a small piece of the pie, but at Faritec the decisions I finally take are bigger."

Nyembe's resignation is no surprise to analysts. IDC analyst Richard Hurst says, in times of trouble, the likes of which Faritec is facing, there is likely to be more than one executive resignation. “One can expect a changing of the guard, and perhaps down the line we will see other executives move on.”

Cash and capital

Faritec has been through the financial grinder and its real cost issues started to become apparent when it released a financial update in February. At this time, it explained that costs and the dramatic drop in IT spend had knocked the company's revenue down by 19%, to R414 million, for the six months ended 31 December 2008. The same period the year before saw its revenue at R502 million.

The global economic downturn was another blow to the company's already bleak outlook. In March, the company asked shareholders to help it raise some R20 million-plus in short-term capital to help it sustain its business, at the cost of share dilution.

Hurst says he is unsure how the business will manage to survive the coming months, despite a recent cash injection by storage business Shoden Data Systems. “Some radical change management is now needed to see this company through.”

Irnest Kaplan, MD of Kaplan Equity Analysts, says one of the main reasons Faritec is in such financial dire straits is because it literally “grew too big, too fast”. He says the trouble is that while the company maintained some sort of growth, management did not keep a tight enough rein on costs and cash flows.

The company has been on an acquisition spree for some time, and all indications were that it could afford to be. Its final results published last year saw the company hit revenue of a billion rand for the first time in its history.

However, shareholders whisper that the trouble started with its acquisition of Enterprise Connection, which proved to be one of the hardest businesses to integrate into Faritec. Key Enterprise Connection staff quit directly after the merger, combining different systems proved troublesome and, because the business did not operate as usual, debt increased from roughly R152 million to R240 million.

Other shareholders say that, despite her experience and competence in financial affairs, Nyembe did not have a solid grip on the IT space, which may well have affected her decisions at the company.

What will Shoden do?

Last week's R29 million cash injection into Faritec by Shoden seems to have come at the perfect time. However, it is still unclear what Shoden plans to do with the equity it will receive in return for the cash.

Shoden's primary expertise is in storage solutions. However, like many other tech and telecoms businesses in SA, it has turned to a specialisation in the data centre. Holding onto portions of Faritec's profitable IBM business and turning around the HP business could prove to be a boon to grow its data centre strategy.

But analysts are still unsure Faritec is sustainable, even with the injection.

Meanwhile, there are other companies that could make a bad situation into a good one through picking off one or another of Faritec's businesses. Business Connexion plays in the same space, as does Dimension Data. “And those would be the likely players,” says Hurst.

He notes that many of the telecoms operators could find some of the business appealing also. “Vox Telecom would be a great fit for a buyout if the company is liquidated. It is not too big to take it on and the two would make a great fit.”

Shoden could not be reached for comment over the last few days.