Tony Farah: Executive chairman, Spescom
By: Byron Kennedy
MONEYWEB: Joining us on the line now is Tony Farah, the chairman of Spescom. Tony, unquestionably a year of two vastly different halves – a headline loss of R69m in the first six months, a R3.6m headline profit in the second six months. Why the dramatic difference?
TONY FARAH: I guess the main reason is that the first half losses were incurred by our US operation. There were some unpredictable events in the United States. This dramatically affected our company, as well as others in the sector. At the same time, during this period, we also embarked on a globalisation strategy that goes back probably about two years. But, during that particular period, we incurred some very heavy expenses and losses. But we can account for these actions now through very sound business propositions moving forward.
MONEYWEB: Sounds like you think the worst is behind you now?
TONY FARAH: Absolutely. It’s been a really bad time and I’m very pleased to say that, as evidenced by the last six months, from March to end-September, we certainly have turned the corner.
MONEYWEB: And, from a geographic perspective, which of your businesses do you think are best poised to benefit from this uptick that you are expecting?
TONY FARAH: If we get the correct funding in our US operation, there is absolutely no doubt that the propensity for growth there is amazing. The software that we have, which is our own, it’s our own technology, it’s really good. And in fact, even if you visit our web sites, Spescomsoftware.com, you will see that one of the leading market analysts, Doculabs, has evaluated the software, and it’s shown to be the most advanced of its type. This is where, I believe, is our pot of gold. We need to get the right funding in place and, again, what we’re seeing now is because of the last two quarters that that company has actually produced, which shows a big turnaround, we are finding a lot better prospects for actually raising money from US investors.
MONEYWEB: And recently you did announce that your US operation had broken even on an EBIT basis for the fourth quarter. That certainly sounds sustainable and you are hoping to grow quite substantially on that.
TONY FARAH: Yes, absolutely.
MONEYWEB: And this year Spescom produced a loss of R85m. How long might it be before you get back to the R25m in profit that you reported in 2001?
TONY FARAH: Not too long. I think in fact I don’t want to make any funny predictions now, but certainly the year ahead of us looks very promising.
MONEYWEB: One element that Spescom has talked about for quite a while now is that initiative with British Telecom. It seems as if that is starting to bear fruit as well?
TONY FARAH: Bear in mind we announced that deal about two years ago, and there was quite a lot of criticism about it, because I don’t think people really understood what it was about. That deal required a development phase. We worked very closely with BT, and it was won against very, very stiff competition. What happened was there were certain delays. BT had some internal changes, there were delays and, really, the rollout took about 12 months longer to take place. So right now that is in place. We are producing the product and it is rolling out. And we now can open it up to other telcos in the whole of Europe and other parts of the world.
MONEYWEB: That sounds fantastic, but just how significant is that deal with British Telecom in the whole make up of Spescom?
TONY FARAH: It could become very significant for us. Let’s try and be a little bit modest about it. I think that, if you look at BT alone, they have something like over 20m subscribers where this termination unit could actually be used. Our contract at the moment has a guaranteed minimum of 2m. So you can work it out from there. That’s the first, by the way, in the world. It’s the first type of product employed like this anywhere. So once that gets going, hopefully other telecommunications companies will start seeing the benefit of this and it could become a very significant part of our business.
MONEYWEB: The first phase of that deal with British Telecom is valued at £20m. How much of that are you hoping to pull through to the bottom line?
TONY FARAH: Obviously a good part of it. When I say a good part of it – taking into account the type of margins that one would expect out of this type of business, and also bearing in mind that we outsource all the production. So the production is out sourced, we really need to manage that project from a cash-flow point of view, and I believe that could be a very good cash generator for us. So I would imagine that you should be looking at least at a fair operating profit out of that. I don’t want to give you a number. I think that would be a bit out of line for me to do that.
MONEYWEB: It sounds and looks as if Spescom has turned the corner, Tony Farah, the executive chairman of Spescom – looks like a decent year ahead. |
