Integration woes haunt Faritec

Johannesburg, 18 Sept 2007

Integrating the acquisitions of Enterprise Connection and Lechabile Storage Solutions has continued to negatively impact on Faritec's bottom line.

The company, which late yesterday released its financial results for the year ended 30 June, failed to reach the R1 billion revenue mark its management team promised last year. Instead, Faritec delivered R858 million.

Faritec CEO Simon Tomlinson admits the ongoing difficulties took the management team by surprise.

"I am very disappointed. We thought we had bedded down the acquisitions in the first half of the year, but the implementation of new financial and call centre systems, as well as structural changes, revealed some cracks," he says.

Temporary glitch

Despite the slowdown in the second half of the year, Tomlinson says he has "every reason to believe" this will not be replicated in the coming year.

"We took our eye off the ball and had to focus on our internal requirements. We didn't neglect our customers, but we did slow off on selling to new customers. This is where our focus is now, on sales, and the first quarter of the year is showing those sales coming through," he notes.

The slowdown in sales has also had an impact on Faritec's operating profit. While the company's revenue represented a 62% growth on last year's R530 million, earnings before income tax, depreciation and amortisation only grew 18%, to R26.5 million.

The reason for this difference is its workforce, says Tomlinson.

"We have the right number of people for the work we believe is coming through. Obviously, as we grow the services side of our business, the people cost increases. This is having a slight impact on our profit margin, but this will be reasonable once we are back on track," he explains.

Revenue from hardware grew 72%, from R304 million to R509 million; software grew 113%, from R75 million to R156 million; and services grew 30%, from R151 million to R193 million.

Stronger controls and improved debtor management saw debtors reduced on average from 95 days during the first half of the year to 42 days. Faritec also saw improvements in its cash flow during the second half of the year, reversing the cash consumed in the first half and generating operating cash of R10 million for the year.

"Our strategy is intact, our team is intact and our customers are stable. Our order book going forward is promising, with several deals worth more than R120 million nearing conclusion. We are firmly on track to meet our targets in the first six months and the coming financial year," concludes Tomlinson.