Faritec takes financial beating

Johannesburg, 02 Feb 2009

Faritec has blamed a massive decline in sales and growing company costs for its plummeting revenue.

The company announced to the JSE that its revenue had declined by 19% during the six months to 31 December 2008, to R414 million. The same period last year saw its revenue at R502 million.

Faritec explained that the global economic crisis had kept customers from spending money with the company. “The decline in hardware and software product revenues is as a result of a decrease in spend from almost all of our customers in the affected regions and we put this down to the current economic downturn.”

The news has panicked shareholders, with volumes more than triple the average. The share closed on Friday at an all time low of 14c. Over the last month, the company's share price has dropped 46.15%.

Coupled with the decrease in customer spend, Faritec indicated in its statement that its costs had skyrocketed. “Our costs have grown by approximately R16 million, or 17%, compared to the same period last year.”

The company explained that its deal with Google, rising salary costs and operating expenses had been the dominant culprits. According to the statement, Faritec spent R3.1 million more on inflation-related salary increases and R10.9 million on new salaries and operating expenses.

It did not explain the costs associated with its Google deal. The JSE-listed IT services company partnered with Google in mid-2008 to offer its enterprise solutions in SA.

“We have continued to experience pressure on our working capital and this has resulted in our financing costs increasing by approximately R8.7 million for the six-month period.” The company says all the factors mentioned led to a decrease in headline earnings and earnings per share.

The group's gross profit margins moved from 24% in the previous year, to 23%. The revenue mix for the period shows hardware contributing R237 million, or 57%, software R40 million, or 10%, and services R137 million, or 33%.