Faritec CEO quits

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 12 May 2009

JSE-listed IT specialist group Faritec has taken another blow with the resignation of CEO Simon Tomlinson.

Tomlinson's resignation marks the second executive flight from the company since its dramatic financial meltdown began. According to Faritec, he will work out three months' notice to provide for a handover and, after that, non-executive chairman Chris 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. Tomlinson will also be available for three months after his official employment ends, to continue the implementation of the company's cost reduction strategy.

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

Neither resignation has come as a surprise to analysts, who have been expecting an executive bleed since the resignation of Nyembe. “Tomlinson's resignation is not something the company hasn't considered since it started taking strain last year. Perhaps the new investor has a different vision for the company,” says Irnest Kaplan, MD of Kaplan Equity Analysts.

Despite the executive losses, Jardine says the company is on the path to recovery. “Faritec has experienced several good wins in the market during the past six weeks and the cost reduction plan is bearing fruit. We are confident that our management team will continue to build on these gains,” he says.

In what looks like an attempt to boost shareholder confidence, Tomlinson has indicated that he will remain a shareholder in the business. While he has not indicated what his future will hold, he says it is time for a new leadership team to take the business forward.

Jardine says: “I would like to thank all the stakeholders of Faritec for the support and loyalty they have shown over the past 14 years.”

Faritec's share price has been travelling at between 5c and 7c since the initial appeal for a cash injection was made. This morning's announcement seems to have made no more impact on the confidence of shareholders, with the price at 7c at the time of publication. Faritec closed at 6c yesterday.

Downward spiral

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 R20 million-plus in short-term capital to help it sustain its business, at the cost of share dilution.

Most analysts have noted the company simply grew too large too quickly, a strategy which became unsustainable when it was hit by the global financial meltdown.

Despite cutting costs and expected retrenchment of 100 staff members, the company continued to spiral. Its share price reached an all-time low of 5c, placing the value of the company under R15 million.

However, the equity deal with Shoden seemed to be something of a saving grace for Faritec. Shoden loaned the company R29 million for a controlling interest in the business, which would convert to equity once it had been approved by shareholders.

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.