4Sight lays the foundation for future growth and sustainability
4Sight Holdings (4Sight or the group) has released its annual financial statements for the year ended 31 December 2019. In line with a previous SENS announcement and press release relating to its Special General Meeting of 6 November 2019, the group has made sweeping changes to its organisational structure, operating models and board in order to capitalise on its potential, and to focus on growth.
“The new board has worked very hard to deliver on the promises made when it was constituted,” says Tertius Zitzke, CEO of 4Sight. “Part of the board’s mandate was to conduct a strategic review of the business operations. As a consequence of that review, we have undertaken a massive right-sizing exercise, which has incurred some heavy costs for the group. However, once these impairments are factored out of the financials, it is clear that we have a solid, cash-positive business with excellent growth potential.”
For the 2019 financial year, 4Sight posted a 3.4% decline in revenue, from USD44.5 million to USD43.0 million. The main reason for this decline can be attributed to the group’s Telco Cluster experiencing an almost 45% drop in revenue: 2019 revenues were USD10 million, down from USD18.5 million in 2018, with a massive after-tax loss of USD10.8 million, compared with USD1.95 million profit after tax in 2018.
The group’s other business clusters, Platform Systems and MMEC (Mining, Manufacturing, Energy, and Chemicals), which represent more than 75% of revenue, are profitable. The MMEC Cluster posted revenue of USD8.8 million (USD10 million in 2018), with after-tax profit of USD496 480, more than double 2018’s USD224 432. The Platform Systems Cluster posted revenue of USD24.1 million, a 50% increase on 2018’s USD16 million, with an after-tax profit of USD5.2 million, also more than double 2018’s USD1.8 million. All the platform acquisitions are now included for a full year in terms of the consolidated figures.
Group operating expenses increased by 74% to USD55 million, as compared to USD31.7 million in 2018. The increase in operating expenses can be attributed to the once-off goodwill impairments of USD18.1 million and an increase in the credit loss allowances of USD4.0 million.
However, Zitzke points out that once the goodwill impairment, once-off impairments for intangible assets and credit loss allowances are stripped out, the operating expenses increased by only 2% as compared to the 2018 figures. The group has incurred retrenchment costs in the Telco Cluster during the year and the unfortunate business rescue of Foursight at a considerable cost to rectify, which could have been avoided.
In addition, the cash flow from operations increased from USD1.3 million to USD1.9 million, an increase of 52.1%.
The massive impairments were necessitated due to the fact that premiums were paid for some assets, start-ups with no proper track records, or technically insolvent entities, which ultimately did not deliver the promised results. All these cases had to be considered and corrected in these results to present a genuine picture of the group’s status.
“Our strong cash flow linked to nearly flat operating expenses already shows that the tough decisions we have made are justified, and have put the group in a strong position for future growth,” he says.
Zitzke says much of the credit for the turnaround strategy must be given to the new board and management team. The board has put a strong governance framework in place and set up audit and risk, social and ethics, and remuneration committees. Foursight Holdings (a 4Sight subsidiary company), which was placed into business rescue by the previous board, has been removed from business rescue and the delayed six-month financial results for the period ended 30 June 2019 have been published. As a result of these actions, 4Sight’s suspension from the JSE was lifted on 27 December 2019.
In another move to support the group’s new direction, Java Capital Trustees and Sponsorship was appointed as 4Sight’s advisors from 1 January 2020.
To restructure 4Sight as an integrated technology company providing end-to-end fourth industrial revolution (4IR) products and services, certain non-performing or non-aligned assets were disposed of (these were listed in the detailed Results SENS released 31 March 2020). This process is by no means complete but, as previously communicated, the new foundation for 4Sight will be completed by May 2020. Please also note the cautionary SENS published on 30 March 2020.
This process is part of the comprehensive strategy previously laid out to position 4Sight as an integrated 4IR technology company, rather than a holding company with more-or-less disparate subsidiaries.
It is now structured to develop and implement turnkey solutions that bring together the convergence of operational and information technologies within the context of real-world business environments. 4Sight has a unique skills base of engineers, data scientists and technicians that can both design and implement these solutions, something that is rare in the South African market. It also has a large number of key technology partners, including Aspentech, Microsoft, Sage, Simio, Siemens, ABB, Schneider Electric and Rockwell Automation.
A key milestone to also note, achieved in Q1 2020 as part of the new board’s mandate, was the signing of a memorandum of understanding with a black-owned technology company. This new partner has a strong leadership team with many years’ experience in the technology sector. The new entity will have level two BEE status. The 4Sight trust will make a more detailed announcement relating to this strategic partnership shortly.
Turning to the COVID-19 outbreak and the resulting economic fallout, Zitzke says while some orders have been put on hold, notably in the mining sector, 4Sight remains bullish on its prospects. If anything, the current crisis will drive home the need for businesses that are more agile and automated, to embrace cloud computing and collaboration, and are better able to use data to make better informed decisions – all hallmarks of 4IR.
4Sight’s strong capabilities in Microsoft Azure and Teams, among others, position it well to profit from the move to 4IR.
“By implementing a strong governance framework and taking the tough decisions needed to restructure the group as a single entity with a common business strategy, 4Sight is in an excellent position to use its strong cash flows to kick start growth,” Zitzke concludes. “We have the best people, the best technology and the best partners to deliver true 4IR solutions to a market that is hungry for them.”