Faritec has pulled itself back from the brink of financial ruin and should break even or even post a small profit in its 2010 financial year. But more cost cutting may be necessary to get there.
That’s the word — and warning — from newly appointed Faritec CEO Fanie van Rensburg after the JSE-listed technology company turned in results for the year to June 2009 that were stained in red ink.
In what management has described as a “difficult and disappointing chapter” in Faritec’s history, the company lost R124m in the past year, from a profit of R29m in 2008. Revenue fell off a cliff: down 30% in the period to R727m as demand for hardware and software plummeted.
Unlike many other listed IT companies, Faritec has been particularly exposed to the recession-induced slump in demand for hardware and software; services-based sales, which have held up well, make up less than a quarter of its revenue mix.
Non-recurring costs added to the financial bloodbath. Downsizing cost the company R10m, bad debts and provisions for doubtful accounts receivable another R26m, interest charges of R11m, and an impairment charge on goodwill set it back another R31m.
Van Rensburg warns that conditions are likely to remain tough, but says that management is focusing all its efforts on the bottom line so as to turn a small profit in 2010. Key to this will be a continued focus on cost cutting and efficiencies and on improving the company’s sales proposition.
Faritec chairman Chris Jardine says the company got into trouble because it did not act quickly enough to deal with the sudden downturn in the economy. It had high fixed costs, which took time to remove from the system.
The company says the worst of the pain is now behind it. Headcount has been reduced from 560 to 400. And, year on year, costs are down about R7m/month.
Further cost cutting is planned, but no further retrenchments are on the cards for now, Van Rensburg says.
Debtors’ days have been reduced to 57 days from 106 days. But debt is high, with gearing at a ratio of 92%. However, the company says its debt situation is manageable.
Faritec, which is now controlled by unlisted IT group Shoden Data Systems following a rights offer, has appointed highly respected IT industry executive Dan McMahon to head its sales operations.
Van Rensburg, who was previously Shoden Data Systems’ CEO before taking the reins at Faritec from former CEO Simon Tomlinson, says part of the recovery plan for Faritec involves offering more holistic solutions to its clients, a process McMahon will help drive.
Other big shareholders in Faritec include black-owned investment company J&J and black-owned IT company Cornastone, which together hold just under 30% of the company’s equity. — Duncan McLeod, TechCentral