Faritec, a JSE listed managed services company, today reported an operating loss of R13 million for the year ending 30th June 2004, an increase in the loss of R3.1 million posted for the first half of the year. This decline was expected as stated in a May 2004 trading update.
Revenue for the group increased by 17% from the previous year to R330 million. This is primarily as a result of an increase in managed services revenue during the second half of the year. However, operating expenses increased by 23%, resulting in an operating loss of R13 million. This is in comparison to an operating profit of R4.6 million in the previous financial year.
Management attributes the loss to the group`s new managed service businesses experiencing slower than anticipated sales cycles, combined with a significant increase in once-off operating expenses that were needed to deliver on the future growth of the new managed services strategy.
"Faritec`s performance for the past financial year can be summarised in terms of an increase in revenue, a substantial investment in new managed service businesses, and finally, a significant increase in once-off operating expenses incurred in the set-up of these businesses," says Simon Tomlinson, CEO of Faritec.
Faritec`s services based revenue grew by 41%, and product based revenue grew by 6% on the previous year. Although the group did not meet its financial objectives, management points towards the success of the service business as an indication of the progress that has been made in the implementation of the groups new strategy to focus on managed services.
The group invested R16.6 million in the business, which included R6.4 million in the construction of its new security operations centre; R2.2 million to acquire fixed assets for on-going operations; R4 million in development costs for its Inter Company Processes (ICP) division; and R4 million to acquire the African licence fees for a mobile application and content offering. This resulted in cash on hand decreasing by R21.9 million, to a net overdraft position of R3.5 million at year-end.
The group`s net overdraft position is considered to be temporary, as current trading activities have picked up, and plans to dispose of non-core businesses are expected to lead to substantial cash inflows.
Tomlinson also says that as part of its focused strategy, Faritec has taken the decision to dispose of certain non-core assets or businesses. This has resulted in the recent disposal of Faritec`s contracting business subsequent to year-end. Tomlinson went on to say that the proceeds from this disposal would be invested into the further growth of the company`s managed services.
During the period under review a significant amount of time and effort was spent driving and growing Faritec`s solutions and offerings: - Managed security services secured a number of large contracts and have developed a pipeline of business that will ensure significant growth over the next year. The recent acquisition of Nanoteq`s commercial operations, subsequent to year-end, cements Faritec`s position as the leader in this market Architectured Solutions - The middleware integration division, with a specific focus on the WebSphere suite of products from IBM, has won a number of large contracts in its corporate customer base. This area of Faritec`s business is growing fast and is expected to become one of the leaders in this market over the next year Outsourced Managed Services - The outsourcing business continues to do well, recently winning a R160 million 5-year contract that will provide a base for growth in the new year Infrastructure Solutions - As the market leader in the supply of IBM server and storage products this division has grown in a highly competitive market and is expected to continue to be a significant financial contributor in the coming year Farimed, ICP and Gizmoz - These transaction-based businesses have all increased the number of customers and transactions. They are expected to show further growth in the coming year with the annuity revenue business model that has been adopted
"Faritec has entered the new financial year with an improved level of confidence. Having completed a difficult and disappointing year financially, the business is now starting to reap the financial rewards from our investment in our managed service focus and strategy," concludes Tomlinson."
Share
Editorial contacts