Recapitalised Faritec looks ahead

Johannesburg, 08 Jun 2009

JSE-listed IT solutions and services company group Faritec is looking forward to ending the year on a high, with a strong pipeline of projects.

Chairman Chris Jardine says the pain is now behind the company and - as a result of the rights offer being underwritten - the company has cash with which to operate. He says this is the last month of its financial year and the company hopes to end it on a high.

The rights offer will go ahead as all conditions for the shares to be listed have been met. Faritec expects the new shares to be listed on the bourse on 13 July. The company is issuing the shares as part of its plan to raise working capital and increase cash resources. The rights offer is also expected to improve headline and earnings per share.

Shareholders will be offered 258.2 shares for every 100 shares they own, at 3c a share. On Friday, Faritec's shares closed at 7c a share. The rights offer is set to raise about R20 million after costs of about R1.26 million, which will either pay back a bridging loan by the underwriters, or shares will be issued to the underwriters.

The company has also received an investment from Shoden Data Solutions of R29 million in return for a controlling stake in the business. Shoden's primary expertise is in storage solutions.

Faritec expects the rights offer and the transaction with Shoden to be finalised in the next few months. Jardine says the company is now “raring to go”.

Challenging period

In May, the company said it had a challenging few months, but was now in the process of rebuilding its operation. During the transitional period, Faritec would focus on the final phases of its turnaround programme, concluding funding transactions and appointing a new CEO after Simon Tomlinson quit in May.

Faritec said he would work out three months' notice to provide for a handover and, after that, Jardine will act in his place. Jardine will be acting CEO until the Shoden Data Solutions transaction is approved, or a new appointment has been made, whichever occurs soonest.

In April, Faritec informed investors that Tshidi Nyembe had resigned to “pursue other career interests”. Her official tenure ended at the end of April.

Jardine said towards the end of May that he was “working hand-in-hand with the management team to get the business back on track, by adopting a back-to-basics approach and focusing on customer service and delivery”.

The company's first sign of serious trouble came in the form of a shareholder statement published in February, where it said 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.

It took another blow by the hammer of the global economic downturn and, in March, the company asked shareholders to help it raise more than R20 million in short-term capital to help it sustain its business, at the cost of share dilution.

Imara SP Reid analyst Warwick Lucas says the company's share offer will dilute current holdings. Faritec experienced problems because it lost contracts, bad debt rose and the cost structure was not correct, he says.