Building on a positive set of results for the first six months of the financial year, Faritec Holdings Limited has reported a powerful growth in earnings, margin and profit for the year ended June 2008, with total revenue breaking the R1-billion mark for the first time in the company’s history.
Revenue grew by a healthy 21% to R1,041-million compared to R858-million for the year ended June 2007; Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) increased by 109% from R26.5-million in 2007 to R55.5-million; Net profit before taxation increased by 84% to R37,4-million; Profit attributable to ordinary shareholders grew by 75% from R 16.5-million in 2006 to R28.9-million; Headline Earnings Per Share (HEPS) increased by 27% from 8.9 cents in 2007 to 11.3 cents in 2008; Earnings Per Share (EPS) is up by 33% from 8.5 cents in 2007 to 11.3 cents. The Group has Cash on hand of R 18,7-million.
Simon Tomlinson, CEO of Faritec, says that the results are pleasing, with all indications confirming that the company’s strategic focus on growing the software and services businesses to improve the revenue mix is paying off handsomely.
“While the IBM and HP based hardware business continues to perform strongly, the improvement in our overall margin from 22.6% to 24.9% is evidence that our strategy is beginning to pay off,” he says, adding that the software and services portion of the business has grown from 41% to 46% of revenue, a development that is largely responsible for the increase in margin.
In addition to growing the software and services side of the business, Tomlinson says the second driver for the company’s success this year lies in its focus on selling solutions to customers rather than just products.
“We are seeing a definite growth in solutions sales and turnkey offerings that include hardware and software as well as service contracts that provide the opportunity to increase our overall margin,” he says.
The growth in revenue has not been without its challenges. Tomlinson says that while the company has grown revenue organically and through acquisition from R530-million in 2006 to over a billion Rand this year, this has led to a monthly revenue run rate increase from R44 million to approximately R100 million per month, while the company’s financing facilities have essentially remained the same.
“Besides placing strain on the company’s working capital and trade credit facilities, we have also been using expensive trade finance from our suppliers in the last year to assist with the management of our working capital and credit facilities,” he says. “As we expect to continue to grow organically and through acquisition, we require stable funding at competitive rates. Faritec has therefore secured access to stable funding for the next 5 years at competitive rates by issuing zaAA rated debentures to investors in the Capital Markets on the strength of our debtors’ book of prominent blue chip clients, which will provide immediate access to R100-million in finance at preferential interest rates.”
The securitisation funding programme has assisted Faritec in its latest acquisition, the R26-million purchase of Ubusha, the No. 1 provider of Novell identity and access management solutions to the financial, telecommunications and public sector markets. R23-million will be paid in cash and the balance in Faritec shares. Ubusha has annual revenues of R22-million in the services and solutions space, has grown its business by 55% over the past year and has an operating profit margin in excess of 25%. As a part of the, transaction Faritec also acquired Ubusha’s 30% stake in Linux System Dynamics (Pty) Ltd, a leading player in the Linux and Open source software (OSS) services space.
Looking ahead, Tomlinson says Faritec’s risk profile has improved significantly as the business has diversified, and the company’s efforts in raising its profile and marketing its offerings to the public sector are showing good results.
“We have made a significant investment in the Public Sector over the last year, this has resulted in us being awarded a number of tenders and being included on most of the transversal tender lists,” he says.
Having shown significant growth on the top line and demonstrated its resilience in the current tough economic conditions, Tomlinson cites macro conditions over which the company has no control as the reason for his cautious optimism for the year ahead.
“In light of global economic conditions and their impact on the local market combined with political changes at home, we nevertheless remain positive in our ability to deliver value for our shareholders and maintain a sound return on investment,” he concludes.