Holdings announces interim results for six months ended 31 December 2003 In brief:
* Group revenue increased by 45.9% on same period last year
* Operating expenses increased by 47.7%
* Continued investment into new managed service businesses
* Loss from operations of R3.1 million posted
* Management expects significant improvement in finances for year ending 30 June 2004
Faritec Holdings, a JSE listed managed services company, today reported an increase in group revenues of 45.9% for the six-month period ended 31 December 2003.
Revenue for the group increased from R125 million, for the same period last year, to R183 million, primarily as a result of a 59% increase in product revenues. Managed services related revenue increased by 19%. Operating expenses increased by 47.7%, resulting in a loss from operations of R3.1 million. This is an increase on the loss of R1.9 million posted for the same period last year.
Management attributes the operating loss to the group`s new managed service businesses experiencing slower than anticipated sales cycles and upfront salary and operational costs incurred in the set-up of these new businesses. A decline in product revenue margins also influenced the period`s figures, although management expects operating margins to improve during the second half of the year.
"Faritec`s six-month performance can be summarised in terms of a significant increase in revenue, a substantial investment in new managed service businesses, and finally, an increase in operating expenses," said Simon Tomlinson, CEO of Faritec. "These are as a direct result of our strategy to become the leader in the managed services market in Africa," he continued.
The group invested R11.3 million in new managed service businesses, which included R5.3 million in the construction of its new security operations centre; R2 million in development costs for its Inter Company Processes (ICP) division; and R4 million in acquiring the African license for a multimedia message service (MMS) mobile application and content offering.
"All of the new managed service offerings are now gaining market acceptance, have a number of customers, are generating revenue and showing growth," said Tomlinson.
The group`s continued investments resulted in a decrease in cash on hand, although cash was generated from operating activities, by focusing on working capital management. The balance sheet remains strong and the group expects to generate cash in the second half of the year, as the company`s investment phase draws to a close.
Tomlinson said he anticipated the second half of the year to be an improvement over the first half, and expects to realise a significant improvement in finances for the year ending 30 June 2004. This he attributes primarily to a slowdown in investment activity and a flattening of operating expenses as the company enters the consolidation phase of its strategy.
Faritec`s managed service businesses continued to generate revenue and show growth, reflecting the significant time and finance invested into this area of the company.
* ICP signed Telkom as its first customer with a five-year contract. This is a significant milestone in the success of a business that is expected to become an important component of Faritec`s future strategy and growth
* Faritec`s managed security services division has made inroads towards becoming a dominant force in this market space with the completion of a security operations center aiding in rapid market acceptance of this service
* FariMed, Faritec`s medical aid administration system that is operated on an Application Service Provision (ASP) basis targeting Medical Aid Administrators, has also increased in terms of members using the service, and this business is expected to see further growth
* The company`s contracting business grew financially, winning a number of new corporate contracts to provide resource management services
Faritec`s infrastructure business exceeded expectations as a result of an upturn in customer spend in the infrastructure space and continues to lead in the IBM server and storage space in South Africa. Infrastructure provision and management will continue to be an important part of Faritec`s business, but the overall contribution from this business will change as the company`s managed services business develops.
Faritec concluded an empowerment transaction with a consortium led by the J&J Group and Lesaka Holdings in April 2003. Management said they have invested a significant amount of time and money into the transformation process and are starting to see the first signs of success in their revenue growth.
"We have established a true working relationship with our empowerment partners that is yielding real financial and transformational dividends," said Hasmukh Gajjar, executive director at Faritec. "Although we are satisfied that the strategy is progressing well, we still believe that the financial benefits of the transformation will only be truly felt over the next two to three years," he continued.
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